G.R. No. 95546 November 6, 1992 September 1983, and 21 November 1983.

All payments were likewise

accepted by private respondent.
MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs. On 20 January 1984, the policy was again renewed and private
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE respondent issued to petitioner Insurance Policy No. AH-CPP-
CO., represented by American International Underwriters 9210651 for the period 1 March 1984 to 1 March 1985. On this
(Phils.), Inc., respondent. renewed policy, petitioner made two installment payments, both
accepted by private respondent, the first on 6 February 1984 for
P52,000.00 and the second, on 6 June 1984 for P100,000.00.
BELLOSILLO, J.: Thereafter, petitioner refused to pay the balance of the premium.

This case involves a purely legal question: whether payment by Consequently, private respondent filed an action to recover the unpaid
installment of the premiums due on an insurance policy invalidates the balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known
as the Insurance Code, as amended, which provides: In its answer with counterclaim, petitioner admitted the issuance of
Insurance Policy No. AH-CPP-9210651. It explained that it
Sec. 77. An insurer is entitled to the payment of the premium discontinued the payment of premiums because the policy did not
as soon as the thing is exposed to the peril insured against. contain a credit clause in its favor and the receipts for the installment
Notwithstanding any agreement to the contrary, no policy or contract payments covering the policy for 1984-85, as well as the two (2)
of insurance issued by an insurance company is valid and binding previous policies, stated the following reservations:
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 2. Acceptance of this payment shall not waive any of the
applies. 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
Sometime in early 1982, private respondent American Home policy; and
Assurance Co. (AHAC), represented by American International
Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany 3. Subject to no loss prior to premium payment. If there be any
Condominium Corporation (TUSCANY) Insurance Policy No. AH- loss such is not covered.
CPP-9210452 on the latter's building and premises, for a period
beginning 1 March 1982 and ending 1 March 1983, with a total Petitioner further claimed that the policy was never binding and valid,
premium of P466,103.05. The premium was paid on installments on and no risk attached to the policy. It then pleaded a counterclaim for
12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, P152,000.00 for the premiums already paid for 1984-85, and in its
all of which were accepted by private respondent. answer with amended counterclaim, sought the refund of P924,206.10
representing the premium payments for 1982-85.
On 10 February 1983, private respondent issued to petitioner
Insurance Policy No. AH-CPP-9210596, which replaced and renewed After some incidents, petitioner and private respondent moved for
the previous policy, for a term covering 1 March 1983 to 1 March 1984. summary judgment.
The premium in the amount of P466,103.05 was again paid on
installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 On 8 October 1987, the trial court dismissed the complaint and the
counterclaim upon the following findings:
 despite its voluntary acceptance of partial payments, a result
While it is true that the receipts issued to the defendant contained the eschewed by a basic considerations of fairness and equity.
aforementioned reservations, it is equally true that payment of the
premiums of the three aforementioned policies (being sought to be To our mind, the insurance contract became valid and binding upon
refunded) were made during the lifetime or term of said policies, payment of the first premium, and the plaintiff could not have denied
hence, it could not be said, inspite of the reservations, that no risk liability on the ground that payment was not made in full, for the reason
attached under the policies. Consequently, defendant's counterclaim that it agreed to accept installment payment. . . . 3
for refund is not justified.
Petitioner now asserts that its payment by installment of the premiums
As regards the unpaid premiums on Insurance Policy No. AH-CPP- for the insurance policies for 1982, 1983 and 1984 invalidated said
9210651, in view of the reservation in the receipts ordinarily issued by policies because of the provisions of Sec. 77 of the Insurance Code,
the plaintiff on premium payments the only plausible conclusion is that as amended, and by the conditions stipulated by the insurer in its
plaintiff has no right to demand their payment after the lapse of the receipts, disclaiming liability for loss for occurring before payment of
term of said policy on March 1, 1985. Therefore, the defendant was premiums.
justified in refusing to pay the same. 1
It argues that where the premiums is not actually paid in full, the policy
Both parties appealed from the judgment of the trial court. Thereafter, would only be effective if there is an acknowledgment in the policy of
the Court of Appeals rendered a decision 2 modifying that of the trial the receipt of premium pursuant to Sec. 78 of the Insurance Code. The
court by ordering herein petitioner to pay the balance of the premiums absence of an express acknowledgment in the policies of such receipt
due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal of the corresponding premium payments, and petitioner's failure to pay
interest until fully paid, and affirming the denial of the counterclaim. said premiums on or before the effective dates of said policies
The appellate court thus explained rendered them invalid. Petitioner thus concludes that there cannot be
a perfected contract of insurance upon mere partial payment of the
The obligation to pay premiums when due is ordinarily as indivisible premiums because under Sec. 77 of the Insurance Code, no contract
obligation to pay the entire premium. Here, the parties herein agreed of insurance is valid and binding unless the premium thereof has been
to make the premiums payable in installments, and there is no paid, notwithstanding any agreement to the contrary. As a
pretense that the parties never envisioned to make the insurance consequence, petitioner seeks a refund of all premium payments
contract binding between them. It was renewed for two succeeding made on the alleged invalid insurance policies.
years, the second and third policies being a renewal/replacement for
the previous one. And the insured never informed the insurer that it We hold that the subject policies are valid even if the premiums were
was terminating the policy because the terms were unacceptable. paid on installments. The records clearly show that petitioner and
private respondent intended subject insurance policies to be binding
While it may be true that under Section 77 of the Insurance Code, the and effective notwithstanding the staggered payment of the premiums.
parties may not agree to make the insurance contract valid and The initial insurance contract entered into in 1982 was renewed in
binding without payment of premiums, there is nothing in said section 1983, then in 1984. In those three (3) years, the insurer accepted all
which suggests that the parties may not agree to allow payment of the the installment payments. Such acceptance of payments speaks
premiums in installment, or to consider the contract as valid and loudly of the insurer's intention to honor the policies it issued to
binding upon payment of the first premium. Otherwise, we would allow petitioner. Certainly, basic principles of equity and fairness would not
the insurer to renege on its liability under the contract, had a loss allow the insurer to continue collecting and accepting the premiums,
incurred (sic) before completion of payment of the entire premium,
although paid on installments, and later deny liability on the lame pay the balance of the premium after the expiration of the whole term
excuse that the premiums were not prepared in full. of the third policy (No. AH-CPP-9210651) in March 1985. Moreover,
as correctly observed by the appellate court, where the risk is entire
We therefore sustain the Court of Appeals. We quote with approval and the contract is indivisible, the insured is not entitled to a refund of
the well-reasoned findings and conclusion of the appellate court the premiums paid if the insurer was exposed to the risk insured for
contained in its Resolution denying the motion to reconsider its any period, however brief or momentary.
Decision
WHEREFORE, finding no reversible error in the judgment appealed
While the import of Section 77 is that prepayment of premiums is from, the same is AFFIRMED. Costs against petitioner.
strictly required as a condition to the validity of the contract, We are
not prepared to rule that the request to make installment payments SO ORDERED.
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. 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 (De Leon, the Insurance Code, at p. 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 have voluntarily accepted.
4

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different
from those in the case at bar. In Arce, no payment was made by the
insured at all despite the grace period given. In the case before Us,
petitioner paid the initial installment and thereafter made staggered
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) insurance contracts valid, effective and
binding, petitioner may not be allowed to renege on its obligation to