SECOND DIVISION

G.R. No. 201116, March 04, 2019

On October 7, 2003, petitioner Philam Insurance Co., Inc. (Philam) [now Chartis Philippines Insurance, Inc.]
submitted a proposal to respondent Parc Chateau Condominium Unit Owners Association, Inc. (Parc
Association) to cover fire and comprehensive general liability insurance of its condominium building, Parc
Chateau Condominium.1

Respondent Eduardo B. Colet (Colet), as Parc Association's president, informed Philam, through a letter dated
November 24, 2003, that Parc Association's board of directors selected it, among various insurance companies,
to provide the insurance requirements of the condominium. 2

After Philam appraised the condominium, it issued Fire and Lightning Insurance Policy No. 0601502995 for
P900 million and Comprehensive General Liability Insurance Policy No. 0301003155 for P1 Million, both
covering the period from November 30, 2003 to November 30, 2004. The parties negotiated for a 90-day
payment term of the insurance premium, worth P791,427.50 including taxes. This payment term was
embodied in a Jumbo Risk Provision, which further provided that the premium installment payments were due
on November 30, 2003, December 30, 2003, and January 30, 2004. The Jumbo Risk Provision also stated that
if any of the scheduled payments are not received in full on or before said dates, the insurance shall be
deemed to have ceased at 4 p.m. of such date, and the policy shall automatically become void and ineffective. 3

Parc Association's board of directors found the terms unacceptable and did not pursue the transaction. Parc
Association verbally informed Philam, through its insurance agent, of the board's decision. Since no premiums
were paid, Philam made oral and written demands upon Parc Association, who refused to do so alleging that
the insurance agent had been informed of its decision not to take up the insurance coverage. Philam sent
demand letters with statement of account claiming P363,215.21 unpaid premium based on Short Scale Rate
Period. Philam also cancelled the policies. 4

On June 3, 2005, Philam filed a complaint against Parc Association and Colet for recovery of P363,215.21
unpaid premium, plus attorney's fees and costs of suit in the Metropolitan Trial Court (MeTC) of Makati, Branch
65.5

The Metropolitan Trial Court's Decision

On October 30, 2007, the MeTC dismissed the case. The MeTC determined that since Philam admitted that
Parc Association did not pay its premium, one of the elements of an insurance contract was lacking, that is, the
insured must pay a premium. The MeTC explained that payment of premium is a condition precedent for the
effectivity of an insurance contract. Non-payment of premium prevents an insurance contract from becoming
binding even if there was an acceptance of the application or issuance of a policy, unless payment of premium
was waived. With one of the elements missing, there is no insurance contract to speak of and Philam has no
right to recover from defendant Parc Association. 6

The Regional Trial Court's Decision

Philam appealed to the Regional Trial Court (RTC) of Makati, Branch 137, which partly affirmed the MeTC
decision, except as to attorney's fees, in its June 3, 2008 Decision. The RTC pronounced that there was no
valid insurance contract between the parties because of non-payment of premium, and there was no express
waiver of full payment of premiums.7

The RTC did not accept Philam's argument that the Jumbo Risk Provision is an implied waiver of premium
payment. The RTC elucidated that the Jumbo Risk Provision specifically requires full payment of premium
within the given period, and in case of default, the policy automatically becomes void and ineffective. 8

Philam averred that Parc Association's newsletter and treasurer's report confirmed that there was a perfected
insurance contract. The RTC held that Parc Association's newsletter and treasurer's report, informing the
condominium unit owners that the building was insured, is not proof of a perfected insurance contract. The
newsletter stated that negotiations were ongoing to try to lower the insurance premium per square meter,
while the treasurer's report did not categorically mention that there was a perfected and effective insurance
contract. Hence, the RTC affirmed in part the MeTC decision. 9

Philam moved for reconsideration, which the RTC denied in a Resolution dated September 17, 2009. 10

The Court of Appeals' Decision

Unconvinced, Philam elevated the case before the Court of Appeals (CA) through a petition for review under
Rule 42 of the Rules of Court, as amended.11

On July 29, 2011, the CA rendered a Decision12 denying Philam's petition and affirming the June 3, 2008 RTC
Decision and September 17, 2009 Resolution. The CA discussed that based on Section 77 of Presidential
Decree 612 or the Insurance Code of the Philippines, the general rule is that no insurance contract issued by
an insurance company is valid and binding unless and until the premium has been paid. Although there are
exceptions laid down in UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc. ,13 the CA determined
that none of these exceptions were applicable to the case at hand. 14

The first exception is in Section 77 of the Insurance Code, that is, "in the case of a life or an industrial life
policy whenever the grace period provision applies." This exception does not apply to this case because the
policies involved here are fire and comprehensive general liability insurance. 15

The second exception is in Section 78 of the Insurance Code, which states that "an acknowledgment in a policy
or contract of insurance or 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."16

The exception in Section 78 is inapplicable in this case, because there was no acknowledgment of receipt of
premium in the policy or insurance contract, and in fact, no premium was ever paid. 17

The third exception is taken from the case of Makati Tuscany Condominium Corporation v. Court of
Appeals,18 wherein the Court ruled that the general rule in Section 77 may not apply if the parties agreed to
the payment of premium in installment and partial payment has been made at the time of loss. Here, the
parties agreed to a payment by installment, but no actual payment was made. Thus, the third exception has no
application in this case.19

The Makati Tuscany case also provided the fourth exception, that is, if the insurer has granted the insured a
credit term for the payment of the premium, then the general rule may not apply. 20 Philam argues that the 90-
day payment term is a credit extension. However, the CA emphasized that the Jumbo Risk Provision is clear
that failure to pay each installment on the due date automatically voids the insurance policy. Here, Parc
Association did not pay any premium, which resulted in a void insurance policy. Hence, the fourth exception
finds no application.21

The fifth and last exception, taken from the UCPB case, is estoppel in instances when the insurer had
consistently granted a credit term for the payment of premium despite full awareness of Section 77. The
insurer cannot deny recovery by the insured by citing the general rule in Section 77, because the insured had
relied in good faith on the credit term granted. 22

The CA held that the factual circumstances of the UCPB case differ from this case. In the UCPB case, the
insurer granted a credit extension for several years and the insured relied in good faith on such practice. Here,
the fire and lightning insurance policy and comprehensive general insurance policy were the only policies
issued by Philam, and there were no other policy/ies issued to Parc Association in the past granting credit
extension. Thus, the last exception is inapplicable. 23

After establishing that none of the exceptions are applicable, the CA concluded that the general rule applies,
that is, no insurance contract or policy is valid and binding unless and until the premium has been paid. Since
Parc Association did not pay any premium, then there was no insurance contract to speak of. 24

Moreover, the CA pointed out that the Jumbo Risk Provision clearly stated that failure to pay in full any of the
scheduled installments on or before the due date, shall render the insurance policy void and ineffective as of 4
p.m. of such date. Parc Association's failure to pay on the first due date, November 30, 2003, resulted in a void
and ineffective policy as of 4 p.m. of November 30, 2003. As a consequence, Philam cannot collect P3
63,215.21 unpaid premiums of void insurance policies. 25

Philam moved for reconsideration, which the CA denied in its March 14, 2012 Resolution. 26 Undeterred, Philam
filed a Petition for Review on Certiorari27 under Rule 45 of the Rules of Court, as amended, before the Court.

The Issues Presented

In its petition, Philam assigned the following errors:

THE COURT OF APPEALS GROSSLY ERRED IN NOT FINDING THAT RESPONDENTS' REQUEST FOR TERMS OF
PAYMENT OF PREMIUM AFTER THE POLICIES WERE ISSUED AND PETITIONER'S GRANT OF SAID REQUEST
CONSTITUTE THE INTENTION OF THE PARTIES TO BE BOUND BY THE INSURANCE CONTRACT.

II.

THE APPELLATE COURT GROSSLY ERRED IN RULING THAT THE FOURTH EXCEPTION PROVIDED FOR UNDER
SECTION 77 OF THE INSURANCE CODE OF THE PHILIPPINES DOES NOT APPLY IN THE INSTANT CASE.

III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT FINDING THAT THE NEGOTIATIONS WHICH THE
PARTIES HAD WERE WITH RESPECT TO THE TERMS OF PAYMENT OF PREMIUM ALREADY AGREED UPON
AND NOT ON THE REDUCTION OF THE AMOUNT THEREOF AS TO NEGATE THE EXISTENCE OF A PERFECTED
CONTRACT OF INSURANCE BETWEEN THEM.28
In its Comment,29 Parc Association alleged that Philam did not raise new issues before the Court, and the
issues presented had been resolved by the MeTC and RTC. 30 Parc Association averred that Philam's proposal
was accepted for consideration of the board of directors, who later disapproved the terms and conditions. As
such, there was no meeting of the minds of the parties, and there was no insurance contract initiated. 31

Parc Association further argued that non-payment of premium means no juridical tie was created between the
insured and the insurer, and the insured was not exposed to the insurable risk for lack of consideration. Parc
Association asserted that it would be unjust to allow Philam to recover premiums on an insurance contract that
was never effective and despite not having been exposed to any risk at all. 32

In its Reply,33 Philam insisted that there was a perfected insurance contract, and Parc Association's request for
terms of payment indicate its intention to be bound by the insurance contract. 34

In sum, the sole issue to be resolved is whether or not the CA committed a reversible error in affirming the
RTC decision and ruling that Philam has no right to recover the unpaid premium based on void and ineffective
insurance policies.

The Court's Ruling

Rule 45 of the Rules of Court, as amended, states that only questions of law shall be raised in a petition for
review on certiorari. While the rule has exceptions, they are irrelevant in this case, as Philam did not properly
plead and substantiate the applicability of the exceptions. Thus, the Court applies the general rule. 35

In resolving whether the CA was correct in affirming the RTC decision, the Court considered the following
simplified alleged errors as presented by Philam:
1. Whether or not respondents' request for terms of payment of premium after the policies were issued and
the grant of said request by petitioner constitute the parties' intention to be bound by the insurance contract;

2. Whether or not the fourth exception provided for under Section 77 of the Insurance Code of the Philippines
applies in the instant case; and

3. Whether or not the negotiations which the parties had were with respect to the terms of payment of
premium already agreed upon by the parties and not on the lowering of the amount of premium as to negate
the existence of a perfected contract of insurance. 36
The first and third alleged errors refer to the request for the terms of payment. Does Parc Association's request
and Philam's subsequent grant of the request constitute their intention to be bound by the insurance contract?
Does the negotiation refer to the terms of payment or to the lowering of the premium?

In arriving at the answers to the questions, the Court has to determine the intention of the parties. In doing
so, the Court has to read the transcript of stenographic notes of the witnesses, and review the language or
tenor of some of the documentary evidence, such as: Philam's proposal on October 7, 2003, Colet's acceptance
letter dated November 24, 2003, the Jumbo Risk Provision, and the written communications between Philam
and Parc Association.

In short, the Court has to re-evaluate the evidence on record. Evaluation of evidence is an indication that the
question or issue posed before the Court is a question of fact or a factual issue.

In Century Iron Works, Inc. v. Biñas37 the Court differentiated between question of law and question of fact.
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a
question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of
law, the question must not involve an examination of the probative value of the evidence presented by the
litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set
of circumstances. Once it is clear that the issue invites a review of the evidence presented, the question posed
is one of fact. (Citation omitted)

Thus, the test of whether a question is one of law or of fact is not the appellation given to such question by
the party raising the same; rather, it is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of
fact.38 (Citation omitted)
Applying the test to this case, it is without a doubt that the questions/issues presented before the Court are
factual in nature, which are not proper subjects of a petition for review on certiorari under Rule 45 of the Rules
of Court, as amended. It has been repeatedly pronounced that the Court is not a trier of facts. Evaluation of
evidence is the function of the trial court.

As for the second alleged error, Philam avers that this case falls under the fourth exception as explained in the
Makati Tuscany case. The Makati Tuscany case provides that if the insurer has granted the insured a credit
term for the payment of the premium, it is an exception to the general rule that premium must first be paid
before the effectivity of an insurance contract. Philam argues that the 90-day payment term is a credit
extension and should be considered as an exception to the general rule.

However, the CA correctly determined that the Jumbo Risk Provision clearly indicates that failure to pay in full
any of the scheduled installments on or before the due date shall render the insurance policy void and
ineffective as of 4 p.m. of such date. Parc Association's failure to pay on the first due date (November 30,
2003), resulted in a void and ineffective policy as of 4 p.m. of November 30, 2003. Hence, there is no credit
extension to consider as the Jumbo Risk Provision itself expressly cuts off the inception of the insurance policy
in case of default.

The Court resolves to deny the petition after finding that the CA did not commit any reversible error in the
assailed decision and resolution. The CA had exhaustively explained the law and jurisprudence, which are the
bases of its decision and resolution. Both trial courts and the appellate court are consistent in its findings of
fact that there is no perfected insurance contract, because of the absence of one of the elements, that is,
payment of premium. As a consequence, Philam cannot collect P363,215.21 unpaid premiums of void
insurance policies.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated July 29,
2011 and Resolution dated March 14, 2012 in CA-G.R. SP No. 110980 are AFFIRMED.

SO ORDERED.