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.
The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. 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 pay the balance of
the premium after the expiration of the whole term of the third policy. Moreover, as correctly observed by the
appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the
premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.
SOUTH SEA SURETY AND INSURANCE COMPANY, INC. vs. HON. COURT OF APPEALS and
VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC.
G.R. No. 102253 June 2, 1995
FACTS:
Valenzuela Hardwood and Industrial Supply, Inc.(VHIS) entered into an agreement with the defendant
Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven Ambassador at the port of
Maconacon, Isabela for shipment to Manila. VHIS insured the logs, against loss and/or, damage with defendant
South Sea Surety and Insurance Co., Inc. and the latter issued its marine insurance policy.
VHIS gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua. In the
meantime, the said vessel M/V Seven Ambassador sank resulting in the loss of the plaintiffs insured logs. The check
for to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but was
not accepted. Instead, the plaintiff cancelled the insurance policy it issued as of the date of inception for nonpayment of the premium.
VHIS demanded from the plaintiff the payment of the proceeds of the policy but the latter denied liability
under the policy. Defendant likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for
the value of the lost logs but the latter denied the claim.
The trial court rendered judgment in favor of Hardwood. On appeal perfected by both the shipping firm and
the insurance company, the Court of Appeals affirmed the judgment of the court only against the insurance
corporation; in absolving the shipping entity from liability.
ISSUES:
1. whether or not Victorio Chua is an authorized representative of the insurer
2. whether or not there is a valid contract of insurance between the parties
HELD:
1. Yes. Victorio Chua is an agent of the insurer.
Section 306 of the Insurance Code provide as follows:
Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of I
nsurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy of contract of insurance at the time of its issuance or delivery
or which becomes due thereon.
On cross-examination in behalf of the plaintiff, Mr. Chua testified that the marine cargo insurance policy for
the logs was delivered to him at his office to be delivered to VHIS. When South Sea Surety and Insurance Co., Inc.
delivered to Mr. Chua the marine cargo insurance policy for the logs, he is deemed to have been authorized by the
insurer to receive the premium which is due on its behalf.
2. Yes, there is a valid contract of insurance.
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.
The instant case has to rise or fall on the core issue of 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. 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 not restate the portion of Section 72 expressly permitting an
agreement to extend the period to pay the premium. But are there exceptions to Section 77? The answer is in the
affirmative.
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 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 is 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.
The 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.