Geagonia v CA G.R. No.

114427 February 6, 1995

Facts:
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods. The policy
noted the requirement that "3. The insured shall give notice to the Company of any
insurance or insurances already effected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade, goods in process
and/or inventories only hereby insured, and unless notice be given and the particulars of
such insurance or insurances be stated therein or endorsed in this policy pursuant to
Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence
of any loss or damage, all benefits under this policy shall be deemed forfeited, provided
however, that this condition shall not apply when the total insurance or insurances in
force at the time of the loss or damage is not more than P200,000.00." The petitioners
stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioners stocks were covered by two other fire insurance policies for Php
200,000 issued by PFIC. The basis of the private respondent's denial was the petitioner's
alleged violation of Condition 3 of the policy. Geagonia then filed a complaint against the
private respondent in the Insurance Commission for the recovery of P100,000.00 under
fire insurance policy and damages. He claimed that he knew the existence of the other
two policies. But, he said that he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies and this requirement
was not mentioned to him by the private respondent's agent. The Insurance Commission
found that the petitioner did not violate Condition 3 as he had no knowledge of the
existence of the two fire insurance policies obtained from the PFIC; that it was Cebu
Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent;
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. The
Insurance Commission then ordered the respondent company to pay complainant the
sum of P100,000.00 with interest and attorneys fees. CA reversed the decision of the
Insurance Commission because it found that the petitioner knew of the existence of the
two other policies issued by the PFIC.
Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained the
fire insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:
1. The court agreed with the CA that the petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which
the latter relied upon cannot prevail over a written admission made ante litem motam. It
was, indeed, incredible that he did not know about the prior policies since these policies
were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are
intended to operate. With these principles in mind, Condition 3 of the subject policy is
not totally free from ambiguity and must be meticulously analyzed. Such analysis leads
us to conclude that (a) the prohibition applies only to double insurance, and (b) the
nullity of the policy shall only be to the extent exceeding P200, 000.00 of the total
policies obtained. Furthermore, by stating within Condition 3 itself that such condition
shall not apply if the total insurance in force at the time of loss does not exceed
P200,000.00, the private respondent was amenable to assume a co-insurer's liability up
to a loss not exceeding P200,000.00. What it had in mind was to discourage over-
insurance. Indeed, the rationale behind the incorporation of "other insurance" clause in
fire policies is to prevent over-insurance and thus avert the perpetration of fraud. When a
property owner obtains insurance policies from two or more insurers in a total amount
that exceeds the property's value, the insured may have an inducement to destroy the

1
property for the purpose of collecting the insurance. The public as well as the insurer is
interested in preventing a situation in which a fire would be profitable to the insured.

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

FACTS:
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;

2
(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

Great Pacific v CA G.R. No. L-31845 April 30, 1979

J. De Castro
Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy
in the amount of P50,000.00 on the life of his one-year old daughter Helen. He supplied
the essential data which petitioner Mondragon, the Branch Manager, wrote on the form.
The latter paid the annual premium the sum of P1,077.75 going over to the Company,
but he retained the amount of P1,317.00 as his commission for being a duly authorized
agent of Pacific Life.
Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo
Hing. Likewise, petitioner Mondragon handwrote at the bottom of the back page of
the application form his strong recommendation for the approval of the
insurance application. Then Mondragon received a letter from Pacific Life
disapproving the insurance application. The letter stated that the said
life insurance application for 20-year endowment plan is not available for minors below
seven years old, but Pacific Life can consider the same under the Juvenile Triple Action
Plan, and advised that if the offer is acceptable, the Juvenile Non-Medical Declaration be
sent to the company.
The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on May
6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of

3
the 20-year endowment insurance plan to children, pointing out that since the customers
were asking for such coverage.
Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery before the
Court of First Instance of Cebu, which ruled against him.
Issues:
1. Whether the binding deposit receipt constituted a temporary contract of the
life insurance in question
2. Whether Ngo Hing concealed the state of health and physical condition of Helen Go,
which rendered void the policy
Held: No. Yes. Petition dismissed.
Ratio:
The receipt was intended to be merely a provisional insurance contract. Its perfection
was subject to compliance of the following conditions: (1) that the company shall be
satisfied that the applicant was insurable on standard rates; (2) that if the company does
not accept the application and offers to issue a policy for a different plan, the
insurance contract shall not be binding until the applicant accepts the policy offered;
otherwise, the deposit shall be refunded; and (3) that if the company disapproves
the application, the insurance applied for shall not be in force at any time, and the
premium paid shall be returned to the applicant.
The receipt is merely an acknowledgment that the latter's branch office had received
from the applicant the insurancepremium and had accepted the application subject for
processing by the insurance company. There was still approval or rejection the same on
the basis of whether or not the applicant is "insurable on standard rates." Since Pacific
Life disapproved the insurance application of respondent Ngo Hing, the binding deposit
receipt in question had never become in force at any time. The binding deposit receipt is
conditional and does not insure outright. This was held in Lim v Sun.
The deposit paid by private respondent shall have to be refunded by Pacific Life.
2. Ngo Hing had deliberately concealed the state of health of his daughter Helen Go.
When he supplied data, he was fully aware that his one-year old daughter is typically a
mongoloid child. He withheld the fact material to the risk insured.
The contract of insurance is one of perfect good faith uberrima fides meaning good
faith, absolute and perfect candor or openness and honesty; the absence of any
concealment or demotion, however slight.
The concealment entitles the insurer to rescind the contract of insurance.

Enriquez V. Sun Life Assurance Co. Of Canada (1920)

G.R. No. L-15895 November 29, 1920
Lessons Applicable: Perfection (Insurance)
FACTS:
September 24, 1917: Joaquin Herrer made application to the Sun Life Assurance
Company of Canada through its office in Manila for a life annuity
2 days later: he paid P6,000 to the manager of the company's Manila office and
was given a receipt
according to the provisional receipt, 3 things had to be accomplished by the
insurance company before there was a contract:
(1) There had to be a medical examination of the applicant; -check
(2) there had to be approval of the application by the head office of the
company; and - check
(3) this approval had in some way to be communicated by the company to
the applicant - ?
November 26, 1917: The head office at Montreal, Canada gave notice of
acceptance by cable to Manila but this was not mailed
December 4, 1917: policy was issued at Montreal
December 18, 1917: attorney Aurelio A. Torres wrote to the Manila office of the
company stating that Herrer desired to withdraw his application
December 19, 1917: local office replied to Mr. Torres, stating that the policy had
been issued, and called attention to the notification of November 26, 1917

4
 December 21, 1917 morning: received by Mr. Torres
December 20, 1917: Mr. Herrer died
Rafael Enriquez, as administrator of the estate of the late Joaquin Ma. Herrer filed
to recover from Sun Life Assurance Company of Canada through its office in Manila
for a life annuity
RTC: favored Sun Life Insurance
ISSUE: W/N Mr. Herrera received notice of acceptance of his application thereby
perfecting his life annuity

HELD: NO. Judgment is reversed, and the Enriquez shall have and recover from the Sun
Life the sum of P6,000 with legal interest from November 20, 1918, until paid, without
special finding as to costs in either instance. So ordered.

Civil Code
Art. 1319 (formerly Art.1262)
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it
came to his knowledge. The contract, in such a case, is presumed to have been entered into
in the place where the offer was made.
not perfected because it has not been proved satisfactorily that the acceptance of
the application ever came to the knowledge of the applicant

Perez v CA G.R. No. 112329. January 28, 2000

J. Ynares-Santiago
Facts:
Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation for
P20,000.00. Sometime in October 1987, an agent of the insurance corporation, visited
Perez in Quezon and convinced him to apply for additional insurance coverage of
P50,000.00. Virginia A. Perez, Primitivos wife, paid P2,075.00 to the agent. The receipt
issued indicated the amount received was a "deposit." Unfortunately, the agent lost
the application form accomplished by Perez and he asked the latter to fill up
another application form. The agent sent the application for additional insurance of Perez
to the Quezon office. Such was supposed to forwarded to the Manila office.
Perez drowned. His application papers for the additional insurance of P50,000.00 were
still with the Quezon. It was only after some time that the papers were brought to Manila.
Without knowing that Perez died, BF Lifeman Insurance Corporation approved
the application and issued the corresponding policy for the P50,000.00.
Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies
of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00
but the insurance company refused to pay the claim under the additional policy coverage
of P50,000.00, the proceeds of which amount to P150,000.00.
The insurance company maintained that the insurance for P50,000.00 had not been
perfected at the time of the death of Primitivo Perez. Consequently, the
insurance company refunded the amount paid.
BF Lifeman Insurance Corporation filed a complaint against Virginia Perez seeking the
rescission and declaration of nullity of the insurance contract in question.
Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all
his prestations under the contract and all the elements of a valid contract are present.
On October 25, 1991, the trial court rendered a decision in favor of petitioner ordering
respondent to pay 150,000 pesos. The Court of Appeals, however, reversed the decision
of the trial court saying that the insurance contract for P50,000.00 could not have been
perfected since at the time that the policy was issued, Primitivo was already dead.
Petitioners motion for reconsideration having been denied by respondent court, the
instant petition for certiorari was filed on the ground that there was a consummated
contract of insurance between the deceased and BF Lifeman Insurance Corporation.

Issue: WON the widow can receive the proceeds of the 2 nd insurance policy
5
Held: No. Petition dismissed.

Ratio:
Perezs application was subject to the acceptance of private respondent BF Lifeman
Insurance Corporation. The perfection of the contract of insurance between the deceased
and respondent corporation was further conditioned with the following requisites stated
in the application form:
"there shall be no contract of insurance unless and until a policy is issued on
this application and that the said policy shall not take effect until the premium has been
paid and the policy delivered to and accepted by me/us in person while I/We, am/are in
good health."
BF Lifeman didnt give its assent when it merely received the application form and all the
requisite supporting papers of the applicant. This happens only when it gives a policy.
It is not disputed, however, that when Primitivo died on November 25, 1987,
his application papers for additional insurance coverage were still with the branch office
of respondent corporation in Quezon. Consequently, there was absolutely no way the
acceptance of the application could have been communicated to the applicant for the
latter to accept inasmuch as the applicant at the time was already dead.
Petitioner insists that the condition imposed by BF that a policy must have been
delivered to and accepted by the proposed insured in good health is potestative, being
dependent upon the will of the corporation and is therefore void. The court didnt agree.
A potestative condition depends upon the exclusive will of one of the parties and is
considered void. The Civil Code states: When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation shall be void.
The following conditions were imposed by the respondent company for the perfection of
the contract of insurance: a policy must have been issued, the premiums paid, and the
policy must have been delivered to and accepted by the applicant while he is in good
health.
The third condition isnt potestative, because the health of the applicant at the time of
the delivery of the policy is beyond the control or will of the insurance company. Rather,
the condition is a suspensive one whereby the acquisition of rights depends upon the
happening of an event which constitutes the condition. In this case, the suspensive
condition was the policy must have been delivered and accepted by the applicant while
he is in good health. There was non-fulfillment of the condition, because the applicant
was already dead at the time the policy was issued.
As stated above, a contract of insurance, like other contracts, must be assented to by
both parties either in person or by their agents. So long as an application for insurance
has not been either accepted or rejected, it is merely an offer orproposal to make a
contract. The contract, to be binding from the date of application, must have been a
completed contract.
The insurance company wasnt negligent because delay in acting on the application does
not constitute acceptance even after payment. The corporation may not be penalized for
the delay in the processing of the application papers due to the fact that process in a
week wasnt the usual timeframe in fixing the application. Delay could not be deemed
unreasonable so as to constitute gross negligence.

UCPB v Masagana G.R. No. 137172. April 4, 2001

C.J. Davide

Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the assailed
decision[1] of the Court of Appeals, which affirmed with modification the judgment of the
trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of
the premiums for the renewal of the five insurance policies on Respondents properties;
(b) declaring the replacement-renewal policies effective and binding from 22 May 1992
until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as
indemnity for the burned properties covered by the renewal-replacement policies. The
modification consisted in the (1) deletion of the trial courts declaration that three of the

6
policies were in force from August 1991 to August 1992; and (2) reduction of the award
of the attorneys fees from 25% to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June 13, 1992,
Masaganas properties were razed by fire. On July 13, 1992, plaintiff tendered five
checks for P225,753.45 as renewal premium payments. A receipt was issued. On July 14,
1992, Masagana made its formal demand for indemnification for the burned insured
properties. UCPB then rejected Masaganas claims under the argument that the fire took
place before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPBs argument that Masaganas tender of
payment of the premiums on 13 July 1992 did not result in the renewal of the policies,
having been made beyond the effective date of renewal as provided under Policy
Condition No. 26, which states:
26. Renewal Clause. -- Unless the company at least forty five days in advance of the end
of the policy period mails or delivers to the assured at the address shown in the policy
notice of its intention not to renew the policy or to condition itsrenewal upon reduction of
limits or elimination of coverages, the assured shall be entitled to renew the policy upon
payment of the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof exists that
Masagana, which had procured insurance coverage from UCPB for a number of years,
had been granted a 60 to 90-day credit term for the renewal of the policies. Such a
practice had existed up to the time the claims were filed. Most of the premiums have
been paid for more than 60 days after the issuance. Also, no timely notice of non-
renewal was made by UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of whether the fire
insurance policies issued by petitioner to the respondent covering the period from May
22, 1991 to May 22, 1992 had been extended or renewed by an implied credit
arrangement though actual payment of premium was tendered on a later date and after
the occurrence of the risk insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that there was no valid notice of
non-renewal of the policies in question, as there is no proof at all that the notice sent by
ordinary mail was received by Masagana. Also, the premiumswere paid within the grace
period.

Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly applied to
Petitioners advantage despite its practice of granting a 60- to 90-day credit term for the
payment of premiums.

Held: No. Petition denied.

Ratio:
Section 77 of the Insurance Code provides: No policy or contract of insurance issued by
an insurance company is valid and binding unless and until the premium thereof has
been paid
An exception to this section is Section 78 which provides: Any acknowledgment in a
policy or contract of insurance of the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until premium is actually paid.
Makati Tuscany v Court of Appeals- Section 77 may not apply if the parties have agreed
to the payment in installments of the premium and partial payment has been made at
the time of loss.
Section 78 allows waiver by the insurer of the condition of prepayment and makes the
policy binding despite the fact that premium is actually unpaid. Section 77 does not
expressly prohibit an agreement granting credit extension. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily
accepted.

7
The Tuscany case has provided another exception to Section 77 that the insurer may
grant credit extension for the payment of the premium. If the insurer has granted the
insured a credit term for the payment of the premium and loss occurs before the
expiration of the term, recovery on the policy should be allowed even though the
premium is paid after the loss but within the credit term.
Moreover, there is nothing in Section 77 which prohibits the parties in an insurance
contract to provide a credit term within which to pay the premiums. That agreement is
not against the law, morals, good customs, public order or public policy. The
agreement binds the parties.
It would be unjust if recovery on the policy would not be permitted against Petitioner,
which had consistently granted a 60- to 90-day credit term for the payment
of premiums. Estoppel bars it from taking refuge since Masagana relied in good faith on
such practice. Estoppel then is the fifth exception.

ETERNAL VS. PHILAMLIFE

G.R. No. 166245

April 09, 2008

FACTS: Respondent Philamlife entered into an agreement denominated as Creditor

Group Life Policy with petitioner Eternal Gardens Memorial Park Corporation (Eternal).
Under the policy, the clients of Eternal who purchased burial lots from it on installment
basis would be insured by Philamlife. The amount of insurance coverage depended upon
the existing balance of the purchased burial lots.

The relevant provisions of the policy are:

ELIGIBILITY.

xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.

xx

Eternal was required under the policy to submit to Philamlife a list of all new lot
purchasers, together with a copy of the application of each purchaser, and the amounts
of the respective unpaid balances of all insured lot purchasers. Eternal complied by
submitting a letter dated December 29, 1982, containing a list of insurable balances of
its lot buyers for October 1982. One of those included in the list as new business was a

8
certain John Chuang. His balance of payments was 100K. on August 2, 1984, Chuang
died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim for Chuangs
death. Attached to the claim were certain documents. In reply, Philamlife wrote Eternal a
letter requiring Eternal to submit the additional documents relative to its insurance claim
for Chuangs death. Eternal transmitted the required documents through a letter which
was received by Philamlife.

After more than a year, Philamlife had not furnished Eternal with any reply to the latters
insurance claim. This prompted Eternal to demand from Philamlife the payment of the
claim for PhP 100,000.
In response to Eternals demand, Philamlife denied Eternals insurance claim in a letter a
portion of which reads:

The deceased was 59 years old when he entered into Contract #9558 and 9529 with
Eternal Gardens Memorial Park in October 1982 for the total maximum insurable amount
of P100,000.00 each. No application for Group Insurance was submitted in our
office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which decided in
favor of Eternal, ordering Philamlife to pay the former 100K representing the proceeds of
the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit, would
show ambiguity between its two sentences. The first sentence appears to state that the
insurance coverage of the clients of Eternal already became effective upon contracting a
loan with Eternal while the second sentence appears to require Philamlife to approve the
insurance contract before the same can become effective.

It must be remembered that an insurance contract is a contract of adhesion which must

be construed liberally in favor of the insured and strictly against the insurer in order to
safeguard the latters interest

9
On the other hand, the seemingly conflicting provisions must be harmonized to mean
that upon a partys purchase of a memorial lot on installment from Eternal, an insurance
contract covering the lot purchaser is created and the same is effective, valid, and
binding until terminated by Philamlife by disapproving the insurance application. The
second sentence of the Creditor Group Life Policy on the Effective Date of Benefit is in
the nature of a resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance application must
not work to prejudice the insured; it cannot be interpreted as a termination of the
insurance contract. The termination of the insurance contract by the insurer must be
explicit and unambiguous.

MAKATI TUSCANY CONDOMINIUM CORPORATION

vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO.G.R. No. 95546 November
6, 1992FACTS:
Private respondent American Home Assurance Co. (AHAC), represented by American
InternationalUnderwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium
Corporation (TUSCANY)Insurance Policy on the latter's building and premises. The premium was paid on
installments, all of which wereaccepted by private respondent.Private respondent issued to petitioner
another Insurance Policy, which replaced and renewed the previouspolicy. The premium was again paid
on installments. All payments were likewise accepted by private respondent.On 20 January 1984, the
policy was again renewed and private respondent issued to petitioner Insurance Policy. Onthis renewed
policy, petitioner made two installment payments, both accepted by private respondent.
Thereafter,petitioner refused to pay the balance of the premium. It explained that it
discontinued the payment of premiumsbecause the policy did not contain a credit clause
in its favor. Petitioner further claimed that the policy was neverbinding and valid, and no risk
attached to the policy.Consequently, private respondent filed an action to recover the unpaid balance of
P314,103.05 for InsurancePolicy. After some incidents, petitioner and private respondent moved for
summary judgment. The trial courtdismissed the complaint thereafter, the Court of Appeals rendered a
decision modifying that of the trial court byordering herein petitioner to pay the balance of the
premiums due on Policy plus legal interest until fully paid.Petitioner now asserts that its payment
by installment of the premiums for the insurance policiesinvalidated said policies because of
the provisions of Sec. 77 of the Insurance Code, as amended, and by theconditions stipulated by the
insurer in its receipts, disclaiming liability for loss for occurring before payment ofpremiums. Petitioner
thus concludes that there cannot be a perfected contract of insurance upon mere partialpayment of the
premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and
bindingunless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a
consequence,petitioner seeks a refund of all premium payments made on the alleged invalid insurance
policies.
ISSUE:
Whether payment by installment of the premiums due on an insurance policy invalidates the contract
ofinsurance.
HELD:
We hold that the subject policies are valid even if the premiums were paid on installments. The
recordsclearly show that petitioner and private respondent intended subject insurance policies to be
binding and effectivenotwithstanding the staggered payment of the premiums. The initial insurance
contract entered into in 1982 wasrenewed in 1983, then in 1984. In those three (3) years, the insurer
accepted all the installment payments. Suchacceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner.Certainly, basic principles of equity and fairness
would not allow the insurer to continue collecting and accepting thepremiums, although paid on
installments, and later deny liability on the lame excuse that the premiums were notprepared in full.We
therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings
andconclusion of the appellate court contained in its Resolution denying the motion to reconsider its
Decision

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 While the import of Section 77 is that prepayment of premiums is strictly required as a condition tothe
validity of the contract, We are not prepared to rule that the request to make installmentpayments duly
approved by the insurer, would prevent the entire contract of insurance from goinginto effect despite
payment and acceptance of the initial premium or first installment. Section 78 ofthe Insurance Code in
effect allows waiver by the insurer of the condition of prepayment by makingan acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment

so far as to make the policy binding despite the fact that premium is actually unpaid.
Section 77merely precludes the parties from stipulating that the policy is valid even if premiums are
not paid,but does not expressly prohibit an agreement granting credit extension, and such an
agreement isnot contrary to morals, good customs, public order or public policy (De Leon, the Insurance
Code, atp. 175). So is an understanding to allow insured to pay premiums in installments not so
proscribed. At the very least, both parties should be deemed in estoppel to question
the arrangement they havevoluntarily accepted.The reliance by petitioner on Arce vs
Capital Surety and Insurance Co . is unavailing because the factstherein are substantially
different from those in the case at bar. In Arce , no payment was made by the insured at
alldespite the grace period given. In the case before Us, petitioner paid the initial
installment and thereafter madestaggered payments resulting in full payment of the 1982 and
1983 insurance policies. For the 1984 policy,petitioner paid two (2) installments although it refused to
pay the balance.It appearing from the peculiar circumstances that the parties actually intended to make
three (3) insurancecontracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance ofthe premium after the expiration of the whole term of the third policy.
Moreover, as correctly observed by theappellate court, where the risk is entire and the
contract is indivisible, the insured is not entitled to a refund of thepremiums paid if the
insurer was exposed to the risk insured for any period, however brief or momentary.

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