Areola vs CA

Facts: Petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as
Prudential), a personal accident insurance policy covering the one-year period between noon of
November 28, 1984 and noon of November 28, 1985.

At the lower left-hand corner of the statement of account, the following is legibly printed:

This Statement of Account must not be considered a receipt. Official Receipt will be issued to
you upon payment of this account.

If payment is made to our representative, demand for a Provisional Receipt and if our Official
Receipts is (sic) not received by you within 7 days please notify us.

If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional receipt to
petitioner-insured for the amount of P1,609.65.

 On the lower portion of the receipt the following is written in capital letters:

Note: This collector's provisional receipt will be confirmed by our official receipt. If our
official receipt is not received by you within 7 days, please notify us.

June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit,
sent petitioner-insured Endorsement which "cancelled flat" Policy No. PA BG-20015 "for non-
payment of premium effective as of inception dated."

Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of
respondent insurance company, and demanded the issuance of an official receipt.

Ang told petitioner-insured that the cancellation of the policy was a mistake but he would personally
see to its rectification.

However, petitioner-insured failed to receive any official receipt from Prudential.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding
that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-
20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on
the payment he had made under provisional receipt No. 9300 be returned within five days. 

In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its
Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that
the company was verifying whether the payment had in fact been issued therefor.

Ampil emphasized that the official receipt should have been issued seven days from the issuance of
the provisional receipt but because no official receipt had been issued in Areola's name, there was
reason to believe that no payment had been made.
Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you
cover (sic) under the terms of the referenced policy until such time that this matter is cleared." 

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65
covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984.

Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to
December 17, 1985 or one year from the date when payment was received."

The letter was personally delivered by Carlito Ang to Areola on August 13, 1985 but unfortunately,
Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract
with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's
policy was due to the failure of Malapit to turn over the premiums collected, for which reason no
official receipt was issued to him.

However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after
taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the
complaint, respondent insurance company had complied with its obligation under the contract.

Hence, it concluded that petitioner-insured no longer has a cause of action against it.

TRIAL COURT - in favor of petitioner-insured, ordering respondent insurance company to pay the
former

CA - reversal of the decision of the trial court, convinced that the latter had erred in finding
respondent insurance company in bad faith for the cancellation of petitioner-insured's policy.

- respondent insurance company was not motivated by negligence, malice or bad faith in
cancelling subject policy.

Issue: WON Respondent Court of Appeals committed a reversible error in not finding that even
without considering the fraudulent acts of its own officer in misappropriating the premium payment,
the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and
wanton attitude amounting to bad faith, because among others, it was
Mr. Malapit — the person who committed the fraud — who sent and signed the notice of
cancellation.

RULING: We uphold petitioner-insured's submission.

Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt
directly imputable to respondent insurance company. 

A corporation, such as respondent insurance company, acts solely thru its employees.

The latters' acts are considered as its own for which it can be held to account.

As admitted by private respondent insurance company in its answer, Malapit was the manager of its
Baguio branch. 
It is beyond doubt that he represented its interest and acted in its behalf.

His act of receiving the premiums collected is well within the province of his authority.

Thus, his receipt of said premiums is receipt by private respondent insurance company who, by
provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent.

Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. 

The fact that private respondent insurance company was itself defrauded due to the anomalies that
took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does
not free the same from its obligation to petitioner Areola.

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts
committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy.

Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-
insured.
Manila Tuscany vs CA

Facts: 1982, private respondent American Home Assurance Co. (AHAC), represented by American
International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium
Corporation (TUSCANY) Insurance Policy on the latter's building and premises, for a period
beginning 1 March 1982 and ending 1 March 1983 with a total premium of P466,103.05.

The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private respondent.

10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596,
which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984.

The premium in the amount of P466,103.05 was again paid on installments.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985.

On this renewed policy, petitioner made two installment payments, both accepted by private
respondent.

Thereafter, after several payment for the renewal, petitioner refused to pay the balance of the
premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05

Petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651.

It explained that it discontinued the payment of premiums because the policy did not contain a credit
clause in its favor and the receipts for the installment payments covering the policy for 1984-85.

as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any
claim under the policy arising before such payments or after the expiration of the credit clause of the
policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the
policy. 

In its answer with amended counterclaim, sought the refund of P924,206.10 representing the
premium payments for 1982-85.

Trial Court - dismissed the complaint and the counterclaim upon the following findings

- While it is true that the receipts issued to the defendant contained the aforementioned
reservations, it is equally true that payment of the premiums of the three aforementioned
policies (being sought to be refunded) were made during the lifetime or term of said policies,
 hence, it could not be said, inspite of the reservations, that no risk attached under the
policies.

- Consequently, defendant's counterclaim for refund is not justified.

- As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the
reservation in the receipts ordinarily issued by the plaintiff on premium payments the only
plausible conclusion is that plaintiff has no right to demand their payment after the lapse of
the term of said policy on March 1, 1985.

- Therefore, the defendant was justified in refusing to pay the same. 

CA - petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or
P314,103.05

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for
1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance
Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability
for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid 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 of the
Insurance Code.

The absence of an express acknowledgment in the policies of such receipt of the corresponding
premium payments, and petitioner's failure to pay said premiums on or before the effective dates of
said policies rendered them invalid. 

Petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial
payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is
valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the
contrary.

Issue: WON the subject policies are valid.

Ruling: 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.
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, We are not prepared to rule that the request to make installment
payments duly approved by the insurer, would prevent the entire contract of insurance from going
into effect despite payment and acceptance of the initial premium or first installment.

Section 78 of the Insurance Code in effect allows waiver by the insurer of the condition of
prepayment by making an acknowledgment in the insurance policy of receipt of premium as
conclusive evidence of payment so far as to make the policy binding despite the fact that premium is
actually unpaid. (ACKNOWLEDGEMENT RECEIPT)

Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibit an agreement granting credit extension, and such an
agreement is not contrary to morals, good customs, public order or public policy 

So is an understanding to allow insured to pay premiums in installments not so proscribed.

South Sea Surety vs CA

Facts: 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into an
agreement with the defendant Seven Brothers whereby the latter undertook to load on board its
vessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of
Maconacon, Isabela for shipment to Manila.

20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant South Sea
Surety and Insurance Co., Inc. for P2,000,000.00 end the latter issued its Marine Cargo Insurance
Policy No. 84/24229 for P2,000,000.00 on said date.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the
loss of the plaintiffs insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and
documentary stamps due on the policy was tendered to the insurer but was not accepted.

Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of
the date of inception for non-payment of the premium due in accordance with Section 77 of the
Insurance Code.

2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the
payment of the proceeds of the policy but the latter denied liability under the policy. 

TC -  judgment in favor of plaintiff Hardwood.

CA - affirmed the judgment of the court 

Issue: WON the CA erred for having Supposedly disregarded Section 77 of the insurance Code

Ruling: NO

Payment of premium, according to SEC 77, is a condition precedent to, and essential for, the
efficaciousness of the contract. 

The only two statutorily provided exceptions are:

(a) in case the insurance coverage relates to life or industrial life (health) insurance when a
grace period applies

(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 (SEC 77-78)

No attempt becloud the issues can disguise the fact that the sole question raised in the instant
petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for
the insurance premium prior to the occurrence of the risk insured against has so acted as an agent
of petitioner. 
The appellate court, like the trial court, has found in the affirmative.

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant
insurance company on 20 January 1984. 

At the time the vessel sank on 25 January 1984 resulting in the loss of the insured logs, the insured
had already delivered to Victorio Chua the check in payment of premium. 

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine
cargo insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South
Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium to an agent of
the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance
proceeds under the policy it issued to the insured.
Mercantile vs Ysmaael

Facts: Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an
overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank.

The latter was willing to grant credit accommodation of P2,000,000.00 applied for provided that the
applicant shall have filed a bond in the sum of P140,000.00 to guarantee the payment of the said
amount.

Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed
surety bond No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00

December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc.
executed another surety bond MERICO Bond No. G (16) 0030 in the sum of P40,000.00.

It is the condition in both bonds that if the principal Felipe Ysmael, Jr. & Co., Inc. shall perform and
fulfill its undertakings with the Philippine National Bank, then these surety bonds shall be null and
void.

As security and in consideration of the execution of the surety bonds Felipe Ysmael, Jr. & Co., Inc.
and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal
capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity agreement wherein
the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves jointly and
severally to indemnify the plaintiff, hold save it harmless from and against any and all payments,
damages, costs, losses, penalties, charges and expenses which said company as surety shall incur
or become liable to pay.

September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their official
capacities and the defendants executed another indemnity agreement with the plaintiff in
consideration of the surety bond.

By agreement dated September 5, 1967, the amount of the Bond was reduced by P40,000.00 so
that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction
is P100,000.00, P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030.

In view of the failure of the defendants to pay the overdraft and credit line with the Philippine
National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under
surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)-
0030 for P 40,000.00 which expired since September 4, 1968 otherwise drastic measures for
collection to protect the interest of the bank would be taken.

By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of demand
to the defendants inviting their attention to the letter of demand of the Philippine National Bank sent
to the plaintiff and demanding from the defendants the settlement of said account.

Since the defendants failed to settle their obligation with the Philippine National Bank, on February
10, 1971, plaintiff brought the present action.
Trial Court - defendants are ordered to pay jointly and severally the plaintiff the sum of P100,000.00
plus the further sum of 15% thereof in the concept of reasonable attorney's fees and the costs.

Issue: WON the surety can be allowed indemnification from the defendants-appellants, upon the
latter's default even before the former has paid to the creditor.

Ruling: YES

Appellants contention that the action of the appellee (surety company) is premature or that the
complaint fails to state a cause of action because the surety has not paid anything to the bank,
cannot be sustained.

In fact, such contention is belied not only by the allegations in the complaint but also by the
agreement entered into between the appellants and the appellee in favor of the bank.

The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion
of which states:

6. That defendants, by virtue of the two Surety Bonds (Annexes "A" and "B") were extended by the
Philippine National Bank, a credit accommodation in the sum of TWO MILLION (P2,000,000.00)
PESOS;

Correspondingly, it is readily apparent that said cause of action was derived from the terms of the
Indemnity Agreement, paragraph 3 thereof, as above quoted. 

By virtue of the provisions of the Indemnity Agreement, defendants-appellants have undertaken to

hold plaintiff-appellee free and harmless from any suit, damage or liability which may be incurred by
reason of non-performance by the defendants-appellants of their obligation with the Philippine
National Bank.

The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default
of defendants-appellants; and the liability of the parties under the surety bonds is joint and several,
so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. 

Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the
prerogative of filing an action even prior to the latter's making any payment to the Philippine National
Bank.

Contracts are respected as the law between the contracting parties.

It is settled that the parties may establish such stipulations, clauses, terms and conditions as they
may want to include, and as long as such agreements are not contrary to law, morals, good
customs, public policy or public order, they shall have the force of law between them

In the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement.
UCPB vs Telamart

Facts: April 15, 1991, petitioner issued five (5) insurance policies covering respondent's various
property described therein against fire, for the period from May 22, 1991 to May 22, 1992.

March 1992, petitioner evaluated the policies and decided not to renew them upon expiration of their
terms on May 22, 1992.

Petitioner advised respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to renew
the policies.

April 6, 1992, petitioner gave written notice to respondent of the non-renewal of the policies at the
address stated in the policies.

June 13, 1992, fire razed respondent's property covered by three of the insurance policies petitioner
issued.

July 13, 1992, respondent presented to petitioner's cashier at its head office five (5) manager's
checks in the total amount of P225,753.95, representing premium for the renewal of the policies from
May 22, 1992 to May 22, 1993.

No notice of loss was filed by respondent under the policies prior to July 14, 1992.

July 14, 1992, respondent filed with petitioner its formal claim for indemnification of the insured
property razed by fire.

Same day, petitioner returned to respondent the five (5) manager's checks that it tendered, and at
the same time rejected respondent's claim for the reasons (a) that the policies had expired and were
not renewed, and (b) that the fire occurred on June 13, 1992, before respondent's tender of premium
payment.

Trial Court - in favor of the plaintiff and against the defendant

- Authorizing and allowing the plaintiff to consign/deposit with this Court the sum of
P225,753.95 (refused by the defendant) as full payment of the corresponding premiums for
the replacement-renewal policies for Exhibits A, B, C, D and E

CA - affirming that of the Regional Trial Court 

- following previous practise, respondent was allowed a sixty (60) to ninety (90) day credit
term for the renewal of its policies, and that the acceptance of the late premium payment
suggested an understanding that payment could be made later.

Issue: WON CA erred in finding that there existed a sixty (60) to ninety (90) days credit agreement
between UCPB and Masagana
Ruling: YES

The basic issue raised is whether the fire insurance policies issued by petitioner to the respondent
covering the period May 22, 1991 to May 22, 1992, had expired on the latter date or had been
extended or renewed by an implied credit arrangement though actual payment of premium was
tendered on a later date after the occurrence of the risk (fire) insured against.

The answer is easily found in the Insurance Code. No, an insurance policy, other than life, issued
originally or on renewal, is not valid and binding until actual payment of the premium. 

Any agreement to the contrary is void.

The parties may not agree expressly or impliedly on the extension of creditor time to pay the
premium and consider the policy binding before actual payment.
UCPB vs Telamart (MR)
Respondent seasonably filed a motion for the reconsideration of the adverse verdict. 

It alleges in the motion that we had made in the decision our own findings of facts, which are not in
accord with those of the trial court and the Court of Appeals.

The courts below correctly found that no notice of non-renewal was made within 45 days before 22
May 1992, or before the expiration date of the fire insurance policies.

Thus, the policies in question were renewed by operation of law and were effective and valid on 30
June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit
term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly
on the extension of credit or time to pay the premium nor consider a policy binding before actual
payment.

It urges the Court to take judicial notice of the fact that despite the express provision of Section 77 of
the Insurance Code, extension of credit terms in premium payment has been the prevalent practice
in the insurance industry.

Most insurance companies, including Petitioner, extend credit terms because Section 77 of the
Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties
to an insurance contract.

The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of
premiums.

Despite its awareness of Section 77, Petitioner persuaded and induced Respondent to believe that
payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted
payments within 60 to 90 days after the due dates.

By extending credit and habitually accepting payments 60 to 90 days from the effective dates of the
policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the
provision therein that it would pay only for the loss or damage in case the same occurred after
payment of the premium.

Issue: Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to
Petitioner despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Ruling: Section 77 of the Insurance Code of 1978 provides that 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.

There are exception in Section 77:

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 that 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
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.

By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77:

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.

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.

RECONSIDERED
Gaisano vs Dev. Insurance

Facts: Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate
number GTJ-777 (vehicle), while respondent, Dev Insurance is a domestic
corporation engaged in the insurance business.

September 27, 1996, respondent issued a comprehensive commercial vehicle policy

to petitioner in the amount of P1,500,000.00 over the vehicle for a period of one
year commencing on September 27, 1996 up to September 27, 1997.

Respondent also issued two other commercial vehicle policies to petitioner covering
two other motor vehicles for the same period.

To collect the premiums and other charges on the policies, respondent's agent,
Trans-Pacific Underwriters Agency (Trans-Pacific), issued a statement of account to
petitioner's company, Noah's Ark Merchandising (Noah's Ark).

Noah's Ark immediately processed the payments and issued a Far East Bank check
dated September 27, 1996 payable to Trans-Pacific on the same day.

However, nobody from Trans-Pacific picked up the check that day because its
president and general manager, Rolando Herradura, was celebrating his birthday.

Trans-Pacific informed Noah's Ark that its messenger would get the check the next
day, September 28.

In the evening of September 27, 1996, while under the official custody of Noah's
Ark marketing manager Achilles Pacquing (Pacquing) as a service company vehicle,
the vehicle was stolen in the vicinity of SM Megamall at Ortigas, Mandaluyong City.

Not aware of the incident, Trans-Pacific picked up the check the next day,
September 28.

It issued an official receipt numbered 124713 dated September 28, 1996,

acknowledging the receipt of P55,620.60 for the premium and other charges over
the vehicle.

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss.

Thereafter, petitioner reported the loss and filed a claim with respondent for the
insurance proceeds of P1,500,000.00.

Respondent denied petitioner's claim on the ground that there was no insurance
contract.

October 9, 1997, petitioner filed a complaint for collection of sum of money and
damages with the RTC where it sought to collect the insurance proceeds from
respondent.

RTC - ruled in favor of petitioner.

 - It considered the premium paid as of September 27, even if the check was
received only on September 28 because (1) respondent's agent, Trans-
Pacific, acknowledged payment of the premium on that date, September 27,
and (2) the check that petitioner issued was honored by respondent in
acknowledgment of the authority of the agent to receive it.

CA - granted respondent's appeal.

- upheld respondent's position that an insurance contract becomes valid and

binding only after the premium is paid pursuant to Section 77 of the
Insurance Code

Issue: WON there is a binding insurance contract between petitioner and respondent.

Ruling: NO

The Supreme Court ruled that a contract of insurance, just like any other contract,
it requires a cause or consideration.

The consideration is the premium, which must be paid at the time and in the way
and manner specified in the policy.

If not so paid, the policy will lapse and be forfeited by its own terms.

The law, however, limits the parties' autonomy as to when payment of premium
may be made for the contract to take effect.

The general rule in insurance laws is that unless the premium is paid, the insurance
policy is not valid and binding.

Here, there is no dispute that the check was delivered to and was accepted by
respondent's agent, Trans-Pacific, only on September 28, 1996.

No payment of premium had thus been made at the time of the loss of the vehicle
on September 27, 1996. 

While petitioner claims that Trans-Pacific was informed that the check was ready for
pick-up on September 27, 1996, the notice of the availability of the check, by itself,
does not produce the effect of payment of the premium. 

Trans-Pacific could not be considered in delay in accepting the check because when
it informed petitioner that it will only be able to pick-up the check the next day,
petitioner did not protest to this, but instead allowed Trans-Pacific to do so.

Thus, at the time of loss, there was no payment of premium yet to make the
insurance policy effective.

The insurance policy in question does not fall under the first to third
exceptions laid out in UCPB General Insurance Co

(1) the policy is not a life or industrial life policy

 (2) the policy does not contain an acknowledgment of the receipt of premium
but merely a statement of account on its face
(3) no payment of an installment was made at the time of loss on September
27. And there was no agreement regarding such payment

Petitioner argues that his case falls under the fourth and fifth exceptions because
the parties intended the contract of insurance to be immediately effective upon
issuance, despite non-payment of the premium.

We do not agree with petitioner.

The fourth and fifth exceptions contemplate situations where the insurers have
consistently granted the insured a credit extension or term for the payment of the
premium.

Here, however, petitioner failed to establish the fact of a grant by respondent of a

credit term in his favor, or that the grant has been consistent.

While there was mention of a credit agreement between Trans-Pacific and

respondent, such arrangement was not proven and was internal between agent and
principal.

In re the fifth issue which provides that the insured is estopped in applying the Sec
77 if there is a constant grant of a 60-90 credit term, the policy states that the
insured's application for the insurance is subject to the payment of the premium.

There is no waiver of pre-payment, in full or in installment, of the premiums under

the policy. Consequently, respondent cannot be placed in estoppel.