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ARCE v THE CAPITAL INSURANCE & SURETY CO
G.R. No. L-28501 September 30, 1982
FACTS
Arce (INSURED) was the owner of a residential house in Tondo, Manila,
which had been insured with the Capital Insurance and Surety Co., Inc
(COMPANY) since 1961 under Fire Policy. On November 27, 1965, the
COMPANY sent to the INSURED Renewal Certificate to cover the period
December 5, 1965 to December 5, 1966. The COMPANY also requested
payment of the corresponding premium in the amount of P 38.10.
Anticipating that the premium could not be paid on time, the INSURED, thru
his wife, promised to pay it on January 4, 1966. The COMPANY accepted the
promise but the premium was not paid on January 4, 1966. On January 8,
1966, the house of the INSURED was totally destroyed by fire.
On January 10, 1966, INSURED's wife presented a claim for indemnity to the
COMPANY. She was told that no indemnity was due because the premium
on the policy was not paid. Nonetheless the COMPANY tendered a check for
P300.00 as financial aid which was received by the INSURED's daughter,
Evelina R. Arce. The INSURED cashed the check but then sued the COMPANY
on the policy.
CFI ordered the COMPANY to pay Arce the proceeds of a fire insurance
policy. Not satisfied with the decision, the company appealed
ISSUE
Whether or not petitioner is entitled to claim for their policy despite non-
payment of premiums
HELD
NO. It is obvious from both the Insurance Act, as amended, and the
stipulation of the parties that time is of the essence in respect of the
payment of the insurance premium so that if it is not paid the contract does
not take effect unless there is still another stipulation to the contrary. In the
instant case, the INSURED was given a grace period to pay the premium but
the period having expired with no payment made, he cannot insist that the
COMPANY is nonetheless obligated to him.
Prior to the amendment, an insurance contract was effective even if the
premium had not been paid so that an insurer was obligated to pay
indemnity in case of loss and correlatively he had also the right to sue for
payment of the premium. But the amendment to Sec. 72 has radically
changed the legal regime in that unless the premium is paid there is no
insurance.
PHILIPPINE PHOENIX SURETY & INSURANCE, INC
G.R. No. L-22684 August 31, 1967
FACTS
Philippine Phoenix Surety & Insurance Co., Inc. (INSURER) commenced this
action in the Municipal Court of Manila to recover from Woodworks, Inc.
(INSURED) the sum of P3,522.09, representing the unpaid balance of the
premiums on a fire insurance policy issued by it in favor of the latter for a
term of one year from April 1, 1960 to April 1, 1961. From an adverse
decision of said court, Woodworks, Inc. appealed to the CFI. CFI ordered
Woodworks, Inc. to pay to Philippine Phoenix the sum of P3,522.09 with
interest thereon.
Woodworks claimed that the lower court erred in deciding that in a
perfected contract of insurance non-payment of premium does not cancel
the policy.
ISSUE
Whether non-payment of premium cancels the policy.
HELD
NO. It is clear from the foregoing that on April 1, 1960 Fire Insurance Policy
No. 9652 was issued by Philippine Phoenix and delivered to Woodworks,
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.
We cannot agree with Woodwork’s theory that non-payment by it of the
premium due, produced the cancellation of the contract of insurance. Such
theory would place exclusively in the hands of one of the contracting parties
the right to decide whether the contract should stand or not. Rather the
correct view would seem to be this: as the contract had become perfected,
the parties could demand from each other the performance of whatever
obligations they had assumed. In the case of the insurer, it is obvious that it
had the right to demand from the insured the completion of the payment of
the premium due or sue for the rescission of the contract. As it chose to
demand specific performance of the insured's obligation to pay the balance
of the premium, the latter's duty to pay is indeed indubitable.
 so far as to make the policy binding despite the fact that premium is actually
unpaid. While the import of Section 77 is that prepayment of premiums is
MAKATI TUSCANY CONDOMINIUM vs.CA strictly required as a condition to the validity of the contract, We are not
G.R. No. 95546 November 6, 1992 prepared to rule that the request to make installment payments duly
approved by the insurer, would prevent the entire contract of insurance
FACTS : In 1982, private respondent American Home Assurance Co. from going into effect despite payment and acceptance of the initial
(AHAC), issued in favor of petitioner Makati Tuscany Condominium premium or first installment. Section 78 of the Insurance Code in effect
Corporation (TUSCANY) Insurance Policy on the latter's building and allows waiver by the insurer of the condition of prepayment by making an
premises. It was renewed in 1983, then in 1984. On the 1984 renewed acknowledgment in the insurance policy of receipt of premium as conclusive
policy, TUSCANY made two installment payments, both accepted by AHAC. evidence of payment so far as to make the policy binding despite the fact
Thereafter, TUSCANY refused to pay the balance of the premium because that premium is actually unpaid. Section 77 merely precludes the parties
the policy did not contain a credit clause in its favor. Consequently, AHAC from stipulating that the policy is valid even if premiums are not paid, but
filed an action to recover the unpaid balance of P314,103.05. TUSCANY does not expressly prohibit an agreement granting credit extension, and
asserts that its payment by installment of the premiums for the insurance such an agreement is not contrary to morals, good customs, public order or
policies for 1982, 1983 and 1984 invalidated said policies because of the public policy
provisions of Sec. 77 of the Insurance Code, and by the conditions stipulated NOTE **When this case was decided, RA10607 was not yet in effect. The old
by the insurer in its receipts, disclaiming liability for loss for occurring before Sec 77 provision had no mention of the credit extension period äs an
payment of premiums. It argues that where the premium is not actually paid exception
in full, the policy would only be effective if there is an acknowledgment in
the policy of the receipt of premium pursuant to Sec. 78. 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 of insurance, in view of Sec. 77
Insurance Code
HELD: NO. We hold that the subject policies are valid even if the premiums
were paid on installments. The records clearly show that petitioner and
private respondent intended subject insurance policies to be binding and
effective notwithstanding the staggered payment of the premiums. The
initial insurance contract entered into in 1982 was renewed in 1983, then in
1984. In those three (3) years, the insurer accepted all the installment
payments. Such acceptance of payments speaks loudly of the insurer's
intention to honor the policies it issued to petitioner. Certainly, basic
principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and
later deny liability on the lame excuse that the premiums were not prepared
in full.
Section 78 of the Insurance Code in effect allows waiver by the insurer of
the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment
SPS. TIBAY vs CA Conformably with the aforesaid stipulations explicitly worded and taken in
G.R. No. 119655 May 24, 1996 conjunction with Sec. 77 of the Insurance Code the payment of partial
premium by the assured in this particular instance should not be considered
FACTS the payment required by the law and the stipulation of the parties. Rather,
Fortune Life issued Fire Insurance Policy in favor of Sps. Tibay on their two- it must be taken in the concept of a deposit to be held in trust by the insurer
storey residential building together with all their personal effects therein. until such time that the full amount has been tendered and duly receipted
The insurance was for P600,000.00 covering the period from 23 January for. In other words, as expressly agreed upon in the contract, full payment
1987 to 23 January 1988. On 23 January 1987, of the total premium of must be made before the risk occurs for the policy to be considered
P2,983.50, petitioner Violeta Tibay only paid P600.00 thus leaving a effective and in force.
considerable balance unpaid. On 8 March 1987 the insured building was Thus, under Sec. 77, as well as Sec. 78, until the premium is paid, and the
completely destroyed by fire. Two days later Tibay paid the balance of the law has not expressly excepted partial payments, there is no valid and
premium. On the same day, she filed with FORTUNE a claim on the fire binding contract. Hence, in the absence of clear waiver of prepayment in full
insurance policy. by the insurer, the insured cannot collect on the proceeds of the policy.
FORTUNE denied the claim for violation of Policy Condition No. 2 and of Sec.
77 of the Insurance Code. Petitioners sued FORTUNE for damages
representing the total coverage of the fire insurance policy.
The trial court ruled for petitioners and adjudged FORTUNE liable for the
total value of the insured building and personal properties. CA reversed the
trial court’s decision by declaring FORTUNE not to be liable.
ISSUE
May a fire insurance policy be valid, binding and enforceable upon mere
partial payment of premium?

HELD
NO. 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.
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 . . . and
that this policy shall be deemed effective, valid and binding upon the
Company only when the premiums therefore have actually been paid in full
and duly acknowledged.
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.
MALAYAN INSURANCE CO., INC. (MICO) v ARNALDO
G.R. No. L-67835 October 12, 1987
FACTS
Malayan Insurance Co (MICO) issued to Pinca, Fire Insurance Policy on her
property effective July 22, 1981, until July 22, 1982.
In October 1981, MICO allegedly cancelled the policy for non-payment, of
the premium and sent the corresponding notice to Pinca.
In December 1981, payment of the premium for Pinca was received by
Adora, agent of MICO.
On January 15, 1982, Adora remitted this payment to MICO, together with
other payments.
On January 18, 1982, Pinca's property was completely burned.
On 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. 7
In due time, Pinca made the requisite demands for payment, which MICO
rejected.
ISSUE
Whether or not the policy had been cancelled before the occurence of the
loss
HELD
NO. The petitioner relies heavily on Section 77 of the Insurance Code
providing that: xxx…..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…..xxx
Said provision is not applicable because payment of the premium was in fact
eventually made in this case. Notably, the premium invoice issued to Pinca
at the time of the delivery of the policy was stamped "Payment Received"
by Adora. This is important because it suggests an understanding between
MICO and the insured that such payment could be made later, as agent
Adora had assured Pinca. In any event, it is not denied that this payment
was actually made by Pinca to Adora, who remitted the same to MICO.
We do not share MICO's view that there was no existing insurance at the
time of the loss sustained by Pinca because her policy never became
effective for non-payment of premium. Payment was in fact made,
rendering the policy operative as of June 22, 1981, and removing it from the
provisions of Article 77, Thereafter, the policy could be cancelled on any of
the supervening grounds enumerated in Article 64 (except "nonpayment of
premium") provided the cancellation was made in accordance therewith
and with Article 65.
A valid cancellation (Section 64 and Section 65), require concurrence of the
following conditions:
(1) There must be prior notice of cancellation to the insured; 17
(2) The notice must be based on the occurrence, after the effective date of
the policy, of one or more of the grounds mentioned;18
(3) The notice must be (a) in writing, (b) mailed, or delivered to the named
insured, (c) at the address shown in the policy; 19
(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.
It stands to reason that if Pinca had really received the cancellation 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. The Court finds that if she did pay on that date, it was because she
honestly believed that the policy issued on June 7, 1981, was still in effect
and she was willing to make her payment retroact to July 22, 1981, its
stipulated commencement date.
UCPB GENERAL INSURANCE CO., INC vs. MASAGANA
G.R. No. 137172 April 4, 2001
FACTS
Masagana obtained from UCPB 5 insurance policies on its properties in
Pasay City and Manila. All 5 policies reflect on their face the effectivity term:
"from 22 May 1991 to 22 May 1992." On June 13, 1992, plaintiffs
properties located in Pasay City were razed by fire. On July 13, 1992,
plaintiff tendered, and defendant accepted, 5 Equitable Bank Manager's
Checks as renewal premium payments for which OR was issued by
defendant.
On July 14, 1992, Masagana made its formal demand for indemnification for
the burned insured properties. On the same day, defendant returned the 5
manager's checks stating in its letter that it was rejecting Masagana's claim
on the grounds that said policies expired last May 22, 1992 and were not
renewed for another term and that the properties covered by the said
policies were burned in a fire that took place last June 13, 1992, or before
tender of premium payment. Hence Masagana filed this case.
The CA disagreed with Petitioner's stand that Respondent's 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 its renewal 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 Respondent, which had procured insurance coverage from
Petitioner 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.
ISSUE Whether Section 77 of the Insurance Code of 1978 (P.D. No.
1460) must be strictly applied to Petitioner's advantage despite its practice
of granting a 60- to 90-day credit term for the payment of premiums.
HELD
NO. Section 77 of the Insurance Code of 1978 provides:
SECTION 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.
It can be seen at once that Section 77 does expressly permit an agreement
to extend the period to pay the premium. However it admits certain
exceptions.
The first exception is provided by Section 77 itself, and that is, in case of a
life or industrial life policy whenever the grace period provision applies.
The second is that covered by Section 78 of the Insurance Code, which
provides:
SECTION 78. 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.
A third exception was laid down in Makati Tuscany Condominium
Corporation vs. Court of Appeals, 5 wherein we ruled that 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
Tuscany case has also provided a fourth exception to Section 77, namely,
that the insurer may grant credit extension for the payment of the
premium. This simply means that 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.
Finally in the instant case, it would be unjust and inequitable if recovery on
the policy would not be permitted against Petitioner, which had consistently
granted a 60- to 90-day credit term for the payment of premiums despite its
full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Respondent relied in good faith on such practice. Estoppel
then is the fifth exception to Section 77.
NOTE **
This case was decided before Sec. 77 was amended by RA10607. The old Sec
77 provision had no mention of the credit extension period äs an exception
AMERICAN HOME ASSURANCE vs. TANTUCO ENTERPRISES, payment of the renewal premium on time and respondent's non-
G.R. No. 138941 October 8, 2001 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
FACTS: amount, or that it did not pay the amount on time.
Respondent Tantuco Enterprises, Inc. is engaged in the coconut oil milling Likewise, when the issues to be resolved in the trial court were formulated
and refining industry. It owns two oil mills which were separately covered at the pre-trial proceedings, the question of the supposed inadequate
by fire insurance policies issued by petitioner American Home Assurance payment was never raised. Most significant to point, petitioner fatally
Co., Philippine Branch. neglected to present, during the whole course of the trial, any witness to
The first oil mill was insured for P3,000,000.00 under Policy No. 306- testify that respondent indeed failed to pay the full amount of the premium.
7432324-3 for the period March 1, 1991 to 1992. The new oil mill was The thrust of the cross-examination of Mr. Borja, on the other hand, was
insured forP6,000,000.00 under Policy No. 306-7432321-9 for the same not for the purpose of proving this fact. Though it briefly touched on the
term. Official receipts indicating payment for the full amount of the alleged deficiency, such was made in the course of discussing a discount or
premium were issued by the petitioner's agent .A fire that broke out in the rebate, which the agent apparently gave the respondent. Certainly, the
early morning of September 30,1991 gutted and consumed the new oil mill. whole tenor of Mr. Borja's testimony, both during direct and cross
Respondent immediately notified the petitioner of the incident but examinations, implicitly assumed a valid and subsisting insurance policy. It
petitioner rejected respondent's claim for the insurance proceeds on the must be remembered that he was called to the stand basically to
ground that no policy was issued by it covering the burned oil mill. It stated demonstrate that an existing policy issued by the petitioner covers the
that the description of the insured establishment referred to another burned building.
building. NOTE: Main issue of the case: Construction of insurance policy. What is
American Home also claims that Tantuco Enterprises forfeited the renewal discussed in this digest only relates to premium (which in this case is only a
policy for its failure to pay the full amount of the premium and breach of procedural matter since it was only raised for the first time on appeal)
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
respondent's 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.
ISSUE
Whether or not nonpayment of the remaining balance (of the premium)
invalidated the policy
HELD
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. 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.
Petitioner’s argument that the issue was raised in paragraph 24 of its
Answer, fails to impress. It is true that the asseverations petitioner made in
paragraph 24 of its Answer ostensibly spoke of the policy's condition for
 NOTES
GREAT PACIFIC LIFE INSURANCE vs. C A SECTION 79. A person insured is entitled to a return of premium, as follows:
G.R. No. L-57308 April 23, 1990 (a) To the whole premium, if no part of his interest in the thing insured be
FACTS Cortez’ (INSURED) application for a 20-year endowment policy with exposed to any of the perils insured against.
Great Pacific Insurance was accepted and approved by the company and in (b) Where the insure is made for a definite period of time and the insured
due course, an Endowment Policy was issued in his name. It was actually surrenders his policy, to such portion of the premium as corresponds with
delivered to him on January 25, 1973. The effective date indicated on the the unexpired time, at a pro rata rate, unless a short period rate has been
face of the policy in question was December 25, 1972. Siega (underwriter) agreed upon and appears on the face of the policy, after deducting from the
assured him that the first premium may be paid within the grace period of whole premium any claim for loss or damage under the policy which has
thirty (30) days from date of delivery of the policy. The first premium of previously accrued: Provided, That no holder of a life insurance policy may
P1,416.60 was paid by him in three (3) installments. avail himself of the privileges of this paragraph without sufficient causes as
Great Pacific advised Cortez that the Policy was not in force. To make it otherwise provided by law.
enforceable and operative, Cortez was asked to remit the balance of SECTION 81. A person insured is entitled to a return of the premium when
P1,015.60 to complete his initial annual premium due and to see a doctor the contract is voidable on account of the fraud or misrepresentation of the
for another full medical examination at his own expense. Cortez' insurer or of his agent or on account of facts the existence of which the
immediately inform it that he was cancelling the policy and demanded the insured was ignorant without his fault; or when, by any default of the
return of his premium plus damages. When the company ignored his insured other than actual fraud, the insurer never incurred any liability under
demand, Cortez filed a complaint for damages in the CFI. the policy.
CFI rendered a decision in favor of Cortez and ordered Great Pacific to pay SECTION 82. In case of an over-insurance by several insurers, the insured is
P1,416.60 representing the first annual premium paid by Cortez on entitled to a ratable return of the premium, proportioned to the amount by
policy.CA Affirmed CFI ‘s decisions with modification of the award for which the aggregate sum insured in all the policies exceeds the insurable
damages (reduced) value of the thing at risk.
ISSUE
Whether Cortez is entitled to a refund of his premium
HELD
YES. Record shows that the premium was paid fully on February 21, 1973 or
within the grace period. This being so, the policy was already enforceable.
The company had sufficient time to examine the result of their medical
examination on the person of Cortez . They would not have delivered the
policy on January 24, 1973 if the he was unacceptable.
When the petitioner advised private respondent on June 1, 1973, four
months after he had paid the first premium, that his policy had never been
in force, and that he must pay another premium and undergo another
medical examination to make the policy effective, the petitioner committed
a serious breach of the contract of insurance.
Sections 79, 81 and 82 of P.D. 612 of the Insurance Code of 1978 provide
when the insured is entitled to the return of premium paid.
Since his policy was in fact inoperative or ineffectual from the beginning, the
company was never at risk, hence, it is not entitled to keep the premium.
STOKES v. MALAYAN INSURANCE CO., INC
G.R. No. L-34768. February 24, 1984
FACTS
Adolfson had a subsisting MALAYAN car insurance policy with the above
coverage when his car collided with a car owned by 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.
Unable to convince MALAYAN to pay, Stokes and Adolfson brought suit
before the CFI and succeeded in getting a favorable judgment. CFI 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
ISSUE
Whether or not MALAYAN is estopped from denying liability because it
accepted premium payment made by the insured one day after the accident
HELD
NO. 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.
THE CAPITAL INSURANCE vs. PLASTIC ERA CO
G.R. No. L-22375 July 18, 1975
FACTS
On December 17, 1960, Capital Insurance delivered to Plastic Era its open
Fire Policy wherein the former undertook to insure the latter's building,
equipments, raw materials, products and accessories. 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. When the policy was delivered, Plastic Era failed to pay the
corresponding insurance premium. However it executed an
acknowledgment receipt promising to pay the premium within thirty (30)
days from the effectivity date of the policy and Capital Insurance accepted
it.
On January 8, 1961, in partial payment of the insurance premium, Plastic Era
delivered to Capital Insurance a postdated check . However, such was
dishonored by the bank for lack of funds. On January 18, 1961 or two days
after the insurance premium became due, the property insured by Plastic
Era was destroyed by fire. Plastic Era demanded from Capital Insurance the
payment of the sum of P100,000.00 as indemnity for the loss of the insured
property but the latter refused for the reason that, among others, Plastic
Era failed to pay the insurance premium.
ISSUE Whether or not the policy was operative despite nonpayment of
premium
HELD 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 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. 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.