Great Pacific v CA G.R. No.
L-31845 April 30, 1979 binding deposit receipt is conditional and does not insure outright. This was held in
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 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 insurance premium 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
Page 1 of 6
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.
2.1 Grepalife v. CA
89 SCRA 543
Facts:
> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a
20-yr endowment policy for 50T on the life of his one year old daughter Helen Go.
> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu
Mondragon, the branch manager of Grepalife-Cebu. Mondragon then typed the data
on the application form which was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued to
him. The binding receipt contained the following provision: “If the applicant shall not
have been insurable xxx and the Company declines to approve the application, the
insurance applied for shall not have been in force at any time and the sum paid shall
be returned to the applicant upon the surrender of this receipt.”
> Mondragon wrote on the bottom of the application form his strong recommendation
for the approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office
disapproving the insurance application of Ngo for the simple reason that the 20yr
endowment plan is not available for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the approval
of the endowment plan on the life of Helen, adding that Grepalife was the only
insurance company NOT selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia.
Ngo filed a claim with Gepalife, but the latter denied liability on the ground that there
was no contract between the insurer and the insured and a binding receipt is NOT
evidence of such contract.
Issue:
Whether or not the binding deposit receipt, constituted a temporary contract of life
insurance.
Held:
NO.
The binding receipt in question was merely an acknowledgement on behalf of the
company, that the latter’s branch office had received from the applicant, the insurance
premium and had accepted the application subject for processing by the insurance
company, and that the latter will either approve or reject the same on the basis of
whether or not the applicant is insurable on standard rates.
Since Grepalife disapproved the insurance application of Ngo, the binding deposit
receipt had never became on force at any time, pursuant to par. E of the said receipt.
A binding receipt is manifestly merely conditional and does NOT insure outright.
Where an agreement is made between the applicant and the agent, NO liability shall
attach until the principal approves the risk and a receipt is given by the agent.
The acceptance is merely conditional, and is subordinated to the act of the company
in approving or rejecting the application. Thus in life insurance, a binding slip or
binding receipt does NOT insure by itself.
2.2 Pacific Timber v. CA
112 SCRA 199
Facts:
> On March 13, 1963, Pacific secured temporary insurance from the Workemen’s
Insurance Co. for its exportation of logs to Japan. Workmen issued on said date
Cover Note 1010 insuring said cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr
2, 1963. The 2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies,
some of the logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said
loss may not be considered as covered under the cover note because such became
null and void by virtue of the issuance of the marine policies.
Issue:
Whether or not the cover not was without consideration, thus null and void.
Page 2 of 6
Held:
It was with consideration.
SC upheld Pacific’s contention that said cover not was with consideration. The fact
that no separate premium was paid on the cover note before the loss was insured
against occurred does not militate against the validity of Pacific’s contention, for no
such premium could have been paid, since by the nature of the cover note, it did not
contain, as all cover notes do not contain, particulars of the shipment that would serve
as basis for the computation of the premiums. As a logical consequence, no separate
premiums are required to be paid on a cover note.
If the note is to be treated as a separate policy instead of integrating it to the regular
policies subsequently issued, its purpose would be meaningless for it is in a real
sense a contract, not a mere application.
2.3 G.R. No. 95641 September 22, 1994
2.3 Areola V. CA (1994)
Lessons Applicable: Binding Effect of Payment (Insurance)
Laws Applicable: Art. 1910,Article 1191
FACTS:
 December 17, 1984: Prudential Guarantee And Assurance, Inc. issued
collector's provisional receipt amounting to P1,609.65
 June 29, 1985: 7 months after the issuance of petitioner Santos Areola's Personal
Accident Insurance Policy, Prudential Guarantee And Assurance,
Inc. unilaterally cancelled it for failing to pay his premiums through its
manager Teofilo M. Malapit
 Shocked by the cancellation of the policy, Santos approached Carlito Ang, agent of
Prudential and demanded the issuance of an official receipt. Ang told Santos that it was a
mistake and assured its rectification.
 July 15, 1985: Santos demanded the same terms and same rate increase as when he paid
the provincial receipt but Malapit insisted that the partial payment he made was
exhausted and that he should pay the balance or his policy will cease to operate
 July 25, 1985 : Assistant Vice-President Mariano M. Ampil III apologized
 August 6, 1985 had filed a complaint for breach of contract with
damages before the lower court
 August 13, 1985: Santos received through Carlito Ang the leeter of Assistant Vice-
President Mariano M. Ampil III finding error on their part since premiums were not
remitted Malapit, proposed to extend its lifetime to December 17, 1985
 RTC: favored Santos - Prudential in Bad Faith
 CA: Reversed - not motivated by negligence, malice or bad faith in
 Valenzuela, General Agent of Philippine American General Insurance Company, Inc
cancelling subject policy
ISSUE: W/N the Areolas can file against damages despite the effort to authorized to sell in behalf of Philamgen solicited marine insurance from Delta Motors,
rectify the cancellation
Inc. amounting to P4.4M entitling him to a 32% commission or P1.6M
 1976-1978: premium payments of P1,946,886 were paid directly to Philamgen.
HELD: YES. RTC reinstated
Philamgen wanted a 50% share of Valenzuela's commission but Valenzuela refused.
 Malapit's fraudulent act of misappropriating the premiums paid is beyond doubt directly  Because of his refusal, the officers of Philamgen reversed his commission due him,
imputable to Prudential
placed agency transactions on a cash and carry basis thus removing the 60-day credit for
 Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority. premiums due, threatened to cancel policies issued by his agency and leaked out the news
As for any obligation wherein the agent has exceeded his power, the
that he has substantial accounts with Philamgen.
principal is not bound except when he ratifies it expressly or tacitly.
 Subsequent reinstatement could not possibly absolve Prudential there being an obvious  December 27, 1978: His agency with Philamgen was terminated
breach of contract
 a contract of insurance creates reciprocal obligations for both insurer and insured  Valenzuela sought relief from the RTC
 Article 1191  RTC: favored Valenzuela with reinstatement, commission with interest, monthly
 choice between fulfillment or rescission of the obligation in case one of the obligors fails
to comply with what is incumbent upon him compensatory damages, moral damages, attorney's fees and cost of suit
 entitles the injured party to payment of damages, regardless of whether he demands  CA modified by holding Philamgen and Valenzuela jointly and severally liable for the
fulfillment or rescission of the obligation
 Nominal damages are "recoverable where a legal right is technically violated and must be premium
vindicated against an invasion that has produced no actual present loss of any kind, or ISSUE: W/N Valuenuela should be NOT be held liable since non-payment
where there has been a breach of contract and no substantial injury or actual damages
whatsoever have been or can be shown. of the premium renders the policy invalid

2.4 Insurance Case Digest: Valenzuela V. CA (1990) HELD: YES. petition is GRANTED. RTC reinstated with modification that
upon satisfaction of the judgment, contractual relationship is terminated

G.R. No. 83122 October 19, 1990  The principal may not defeat the agent's right to indemnification by a termination of the
contract of agency. Where the principal terminates or repudiates the agent's employment

Lessons Applicable: Effect of Non-Payment (Insurance) in violation of the contract of employment and without cause ... the agent is entitled to

Laws Applicable: Art. 19,Art. 20,Art. 21, Art. 2200 of the new Civil receive either the amount of net losses caused and gains prevented by the breach, or the

Code;Section 77 of the Insurance Code reasonable value of the services rendered. Thus, the agent is entitled to prospective
profits which he would have made except for such wrongful termination provided that
such profits are not conjectural, or speculative but are capable of determination upon

FACTS: some fairly reliable basis.

 If a principal violates a contractual or quasi-contractual duty which he owes his agent, the
agent may as a rule bring an appropriate action for the breach of that duty. The agent may
in a proper case maintain an action at law for compensation or damages

Page 3 of 6

 question of whether or not the agency agreement is coupled with interest is helpful to the
petitioners' cause but is not the primary and compelling reason
 Section 77 of the Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the insurance policy not
binding
 unless premium is paid, an insurance contract does not take effect
 since admittedly the premiums have not been paid, the policies issued have lapsed
 to sue Valenzuela for the unpaid premiums would be the height of
injustice and unfair dealing
 Under Article 2200 of the new Civil Code, "indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which the
obligee failed to obtain."
2.5 Tibay v CA G.R. No. 119655. May 24, 1996
 J. Bellosillo:
 different factual scenario.
 Facts:
 Fortune Life issued a fire insurance Policy to Tibay on her two-storey
residential building at Zobel Street, Makati City. The insurance was for
P600,000.00 covering the period from January 23, 1987 to January 23,
1988. On January 23 1987, Tibay only paid P600.00 of 3,000 peso premium
and left a balance.
 The insured building was completely destroyed by fire. Tibay then paid the
balance. On the same day, she filed a claim on the policy. Her claim
was accordingly referred to the adjuster, Goodwill, which immediately wrote
Violeta requesting her to furnish it with the necessary documents for the
investigation and processing of her claim. Petitioner complied, and she
signed a non-waiver agreement.
 Fortune denied the claim for violation of the Insurance Code. Tibay sued for
damages in the amount of P600,000.00 representing the total coverage of
the policy.
 The trial court ruled for petitioners and made fortune liable for the total value
of the insured building and personal properties. The Court
of Appeals reversed the court by removing liability from Fortune after
returning the premium.
 Hence this petition for review.
 The petitioner contended that Fortune remained liable under the subject fire
insurance policy in spite of the failure of petitioners to pay their premium in
full.
 payment.
 Issue: May a fire insurance policy be valid, binding and enforceable upon
mere partial payment of premium?
 
 Held: No. Petition dismissed.
 companies have the same rights as individuals to limit their liability and to
Page 4 of 6
 Ratio:
 The pertinent provisions read:
 2. This policy including any renewal thereof and/or any endorsement thereon
is not in force until the premium has been fully paid to and duly receipted by
the Company in the manner provided herein.
 This policy shall be deemed effective, valid and binding upon the Company
only when the premiums therefor have actually been paid in full and duly
acknowledged in a receipt signed by any authorized official of the company
 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. The Insurance
Code which says that no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium has
been paid.
 What does “unless and until the premium thereof has been paid” mean?
 Escosura v. San Miguel- the legislative practice was to interpret “with pay” in
accordance to the intention of distinguishbetween full and partial payment,
where the modifying term is used.
 Petitioners used Philippine Phoenix v. Woodworks, where partial payment of
the premium made the policy effective during the whole period of the policy.
 The SC didn’t consider the 1967 Phoenix case as persuasive due to the
 In Makati Tuscany v CA, the parties mutually agreed that the premiums
could be paid in installments, hence, this Court refused to invalidate the
insurance policy.
 Nothing in Article 77 of the Code suggested that the parties may not agree to
allow payment of the premiums in installment, or to consider the contract as
valid and binding upon payment of the first premium.
 Phoenix and Tuscany demonstrated the waiver of prepayment in full by the
insurer. In this case however, there was no waiver. There was a stipulation
that the policy wasn’t in force until the premium has been fully paid and
receipted.
 There was no juridical tie of indemnification from the fractional payment of
premium. The insurance contract itself expressly provided that the policy
would be effective only when the premium was paid in full.
 Verily, it is elemental law that the payment of premium is requisite to keep
the policy of insurance in force. If the premium is not paid in the manner
prescribed in the policy as intended by the parties the policy is ineffective.
Partial payment even when accepted as a partial payment will not keep the
policy alive.
 South Sea v CA stipulated 2 exceptions to the requirement of payment of the
entire premium as a prerequisite to the validity of the insurance contract.
These are when in case the insurance coverage relates to life or insurance
when a grace period applies, and when the insurer makes a written
acknowledgment of the receipt of premium to be conclusive evidence of
 Hence, in the absence of clear waiver of prepayment in full by the insurer,
the insured cannot collect on the proceeds of the policy.
“The terms of the insurance policy constitute the measure of the insurer’s
liability. In the absence of statutory prohibition to the contrary, insurance
 impose whatever conditions they deem best upon their obligations not
inconsistent with public policy.”
 Dissent:
 J. Vitug
 “All the calculations of the company are based on the hypothesis of prompt
payments. They not only calculate on the receipt of the premiums when due,
but on the compounding interest upon them. It is on this basis that they are
enabled to offer assurance at the favorable rates they do.”
 The failure of appellants to fully pay their premium prevented the contract of
insurance from becoming binding an Fortune. This series of acts is tainted
with misrepresentation and violates the uberrimae fidae principle of
insurance contracts.
 Tibay had entered into a "Non-Waiver Agreement" with the adjuster which
permitted Fortune to claim non-payment of premium as a defense.
 The law neither requires, nor measures the strength of the vinculum juris by
any specific amount of premium payment. Payment on the premium, partly
or in full, is made by the insured which the insurer accepts. In fine, it is either
that a juridical tie exists (by such payment) or that it is not extant at all (by an
absence thereof). Once the juridical relation comes into being, the
full efficacy follows. This is a partially performed contract.
 The non-payment of the balance shouldn’t result in an
automatic cancellation of the contract; otherwise, the right to decide the
effectivity of the contract would become potestative.
 Instead, the parties should be able to demand from each other the
performance of whatever obligations they had assumed or, if desired, sue
timely for the rescission of the contract.
 In the meanwhile, the contract endures, and an occurrence of the risk
insured riggers the insurer's liability. Also, legal compensation arises where
insurer's liability to the insured would simply be reduced by the balance of
the premium.
 It must here be noted that the insured had made, and the insurer had
accepted partial premium payment on the policy weeks before the risk
insured against took place. An insurance is an aleatory contract effective
upon its perfection although the occurrence of a condition or event may later
dictate the demandability of certain obligations. Fortune’s stipulation that
insurance shall not "be . . . in force until the premium has been fully paid,"
and that it "shall be deemed effective, valid and binding upon the company
only when the premiums therefor have actually been paid in full and duly
acknowledged," override the efficaciousness of the insurance contract
despite the payment and acceptance.
 Article 78 of the Insurance Code “An 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 the premium is actually paid“
 Even if a portion was paid in the premium, the insurance coverage becomes
effective and binding, any stipulation in the policy to the contrary
notwithstanding.
 Case Title: Tiba y vs. Court of Appeals
 ruling of the trial court that partial payment of the premium made the policy
 Case Number: [GR 119655, 24 Ma y 1996]
Page 5 of 6


 Facts:
 On 22 January 1987, Fortune Life and General Insurance Co.,
Inc. (Fortune) issued Fire Insurance Policy 136171 in favor of Violeta
R. Tibay and/or Nicolas Roraldo on their two-storey residential building
located at 5855 Zobel Street, Makati City, together with all their personal
effects therein. The insurance was for P600, 000.00 covering the period from
23 January 1987 to 23 January 1988. On 23 January 1987, of the total
premium of P2,983.50, petitioner Violeta Tibay only paid P600.00 thus
leaving a considerable balance unpaid. On 8 March 1987 the insured
building was completely destroyed by fire. Two days later Violeta
Tibay paid the balance of the premium. On the same day, she filed with
Fortune a claim on the fire insurance policy. Her claim was accordingly
referred to its adjuster, Goodwill Adjustment Services,Inc. (GASI), which
immediately wrote Violeta requesting her to furnish it with the necessary
documents for the investigation and processing of her claim. Petitioner
forthwith complied. On 28 March 1987 she signed a non-waiver agreement
with GASI to the effect that any action taken by the companies or
their representatives in investigating the claim made by the claimant for his
loss which occurred at 5855 Zobel Roxas, Makati on 8March 1987, or in the
investigating or ascertainment of the amount of actual cash value and loss,
shall not waive or invalidate any condition of the policies of such companies
held by said claimant, nor the rights of either or any of the parties to this
agreement, and such action shall not be, or be claimed to be, an admission
of liability on the part of said companies or any of them. In a letter Fortune
denied the claim of Violeta for violation of Policy Condition 2 and of Section
77 of the Insurance Code. Efforts to settle the case before the Insurance
Commission proved futile. Violeta and the other petitioners(Antonio Tibay,
Ofelia M. Roraldo, Victorina M. Roraldo, Virgilio M. Rorald o,
Myrna M. Roraldo, and Rosabella M. Roraldo) sued Fortune for
damages in the amount of the total
coverage of the fire insurance policy plus 12% interest
per annum, P100,000.00 moral damages, and attorney's
fees equivalent to 20% of the total claim

 Argument: Petitioners maintain otherwise. Insisting that FORTUNE is
liable on the policy despite partial payment of the premium due and the
express stipulation thereof to the contrary, petitioners rely heavily on the
1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks,
Inc. 8 where the Court through Mr. Justice Arsenio P. Dizon sustained the
effective during the whole period of the policy. In that case, the insurance
 company commenced action against the insured for the unpaid balance on a imperative need for its prompt payment and
fire insurance policy. In its defense the insured claimed that nonpayment of full satisfaction. It must be emphasized here that all act
premium produced the cancellation of the insurance contract. uarial calculations and various tabulations of probabilities
 of losses under the risks insured against are based on the sound hypothesis
 Issue: of prompt payment of premiums. Upon this bedrock insurance firms are
 W hether a fire insurance policy be va lid, binding and enabled to offer the assurance of security to the public at favorable rates.
enforceable upon mere partial payment of But once payment of premium i s left to the whim and caprice of
 premium.. the insured, as when the courts tolerate the payment of a mere P600.00
 as partial undertaking out of the stipulated total premium ofP2,983.50 and
 Held: The SC answered in the negative the balance to be paid even after the risk insured against has occurred, as
 Tibay et al. have done in this case, on the principle that the strength of the
vinculum juris is not measured by any specific amount of premium payment,
 .
we will surely wreak havoc on the business and set to naught what has
 Discussion on how the SC ruled the case:
taken actuarians centuries to devise to arrive at a fair and equitable

distribution of risks and benefits between the insurer and the insured.
 Insurance is a contract whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. The consideration is the premium,
which must be paid at the time and in the way and manner
specified in the policy, and if not so paid, the policy will lapse
and be forfeited by its own terms. The Policy provides for
payment of premium in full. Accordingly, where the premium has only
been partially paid and the balance paid only after the peril insured against
has occurred, the insurance contract did not take effect and the
insured cannot collect at all on the policy. This is fully supported by
Section 77 of the Insurance Code which provides that "An insurer is entitled
to payment of the premium as soon as the thing i
nsured is exposed to the peril insured against.
Notwithstanding any agre ement 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 pr
ovision applies." Apparently the crux of the controversy
lies in the phrase "unless and until the premium thereof has
been paid." This leads us to the manner of payment envisioned by the
law to make the insurance policy operative and binding. For
whatever judicial construction may be accorded the disputed phrase must
ultimately yield to the clear mandate of the law. The principle that where the
law does not distinguish the court should neither distinguish assumes that
the legislature made no qualification on the use of a general word or
expression and it cannot be disputed that premium is the elixir vitae of the
insurance business because by law the insurer must maintain a legal
reserve fund to meet its contingent obligations to the public, hence, the

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