VOL.

356, APRIL 4, 2001 307

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.
*
G.R. No. 137172. April 4, 2001.

UCPB GENERAL INSURANCE CO., INC., petitioner, vs.

MASAGANA TELAMART, INC., respondent.

Insurance; Premiums; Exceptions to the rule in Section 77 of the

Insurance Code of 1978 that there be prepayment of premiums as a
condition to the validity of the insurance contract.—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

______________

* EN BANC.

308

308 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

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: SEC. 78. 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, x x x Not only that. In Tuscany, we also quoted with approval the
following pronouncement of the Court of Appeals in its Resolution denying
the motion for reconsideration of its decision: x x x By the approval of the
aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a 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.
Same; Same; 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.—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. The agreement binds the parties.
Same; Same; Estoppel; Where an insurer had consistently granted a
60- to 90-day credit term for the payment of premiums despite its full
awareness of Section 77, and the assured had relied in good faith on such
practice, estoppel bars it from taking refuge under said Section.—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 panted 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.

309

VOL. 356, APRIL 4, 2001 309

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

VITUG, J., Separate Opinion:

Insurance; An essential characteristic of an insurance is its being

synallagmatic, a highly reciprocal contract where the rights and obligations
of the parties correlate and mutually correspond.—An essential
characteristic of an insurance is its being synallagmatic, a highly reciprocal
contract where the rights and obligations of the parties correlate and
mutually correspond. The insurer assumes the risk of loss which an insured
might suffer in consideration of premium payments under a riskdistributing
device. Such assumption of risk is a component of a general scheme to
distribute actual losses among a group of persons, bearing similar risks, who
make ratable contributions to a fund from which the losses incurred due to
exposures to the peril insured against are assured and compensated.
Same; Estoppel; By weight of authority, estoppel cannot create a
contract of insurance, neither can it be successfully invoked to create a
primary liability, nor can it give validity to what the law so proscribes as a
matter of public policy.—By weight of authority, estoppel cannot create a
contract of insurance, neither can it be successfully invoked to create a
primary liability, nor can it give validity to what the law so proscribes as a
matter of public policy. So essential is the premium payment to the creation
of the vinculum juris between the insured and the insurer that it would be
doubtful to have that payment validly excused even for a fortuitous event.

PARDO, J., Dissenting Opinion:

Insurance; An assured’s failure to give notice of the fire immediately

upon its occurrence blatantly showed the fraudulent character of its claim.
—Respondent Masagana surreptitiously tried to pay the overdue premiums
before giving written notice to petitioner of the occurrence of the fire that
razed the subject property. This failure to give notice of the fire immediately
upon its occurrence blatantly showed the fraudulent character of its claim.
The fire totally destroyed the property on June 13, 1992; the written notice
of loss was given only more than a month later, on July 14, 1992, the day
after respondent surreptitiously paid the overdue premiums. Respondent
very well knew that the policy was not renewed on time. Hence, the
surreptitious attempt to pay overdue premiums. Such act revealed a
reprehensible disregard of the principle that insurance is a contract uberrima
fides, the most abundant good faith. Respondent is required by law and by
express terms of the policy to give immediate written notice of loss. This
must be complied with in the utmost good faith.

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310 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

Same; In insurance practice, amendments or even corrections to a

policy are done by written endorsements or tickets appended to the policy.—
It must be stressed that a verbal understanding of respondent Masagana
cannot amend an insurance policy. In insurance practice, amendments or
even corrections to a policy are done by written endorsements or tickets
appended to the policy.
Same; What has been established was the grant of credit to insurance
brokers, not to the assured.—Hence, what has been established was the
grant of credit to the insurance brokers, not to the assured. The insurance
company recognized the payment to the insurance brokers as payment to
itself, though the actual remittance of the premium payments to the principal
might be made later. Once payment of premiums is made to the insurance
broker, the assured would be covered by a valid and binding insurance
policy, provided the loss occurred after payment to the broker has been
made.
 Same; Estoppel; Estoppel can not give validity to an act that is
prohibited by law or against public policy.—Assuming arguendo that the 60
to 90 day-credit-term has been agreed between the parties, respondent could
not still invoke estoppel to back up its claim. “Estoppel is unavailing in this
case,” thus spoke the Supreme Court through the pen of Justice Hilario G.
Davide, Jr., now Chief Justice. Mutatis mutandi, he may well be speaking of
this case. He added that “[E]stoppel can not give validity to an act that is
prohibited by law or against public policy.” The actual payment of
premiums is a condition precedent to the validity of an insurance contract
other than life insurance policy. Any agreement to the contrary is void as
against the law and public policy.
Same; Same; Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon.—An incisive
reading of the afore-cited provision would show that the emphasis was on
the conclusiveness of the acknowledgment in the policy of the receipt of
premium, notwithstanding the absence of actual payment of premium,
because of estoppel. Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot
be denied or disproved as against the person relying thereon. “A party may
not go back on his own acts and representations to the prejudice of the other
party who relied upon them.”

MOTION FOR RECONSIDERATION of a decision of the Supreme

Court.

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UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

The facts are stated in the resolution of the Court.

Abello, Concepcion, Regala & Cruz for petitioner.
Arturo S. Santos for private respondent.

RESOLUTION

DAVIDE, JR., C.J.:

In our decision of 15 June1 1999 in this case, we reversed and set

aside the assailed decision of the Court of Appeals, which affirmed
with modification the judgment of the trial court (a) allowing
Respondent to consign the sum of P225,753.95 as full payment of
the premiums for the renewal of the five insurance policies on
Respondent’s properties; (b) declaring the replacement-renewal
policies effective and binding from 22 May 1992 until 22 May 1993;
and (c) ordering Petitioner to pay Respondent P18,645,000.00 as
indemnity for the burned properties covered by the renewal-
replacement policies. The modification consisted in the (1) deletion
of the trial court’s declaration that three of the policies were in force
from August 1991 to August 1992; and, (2) reduction of the award
of the attorney’s fees from 25% to 10% of the total amount due the
Respondent.
The material operative facts upon which the appealed judgment
was based are summarized by the Court of Appeals in its assailed
decision as follows:

Plaintiff [herein Respondent] obtained from defendant (herein Petitioner]

five (5) insurance policies (Exhibits “A” to “E,” Record, pp. 158-175) on its
properties [in Pasay City and Manila]. . . .
All five (5) policies reflect on their face the effectivity term: “from 4:00
P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992.” On June 13, 1992,
plaintiffs properties located at 2410-2432 and 2442-2450 Taft Avenue,
Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and
defendant accepted, five (5) Equitable Bank Manager’s Checks in the total
amount of P225,753.45 as renewal premium payments for which Official
Receipt Direct Premium No. 62926 (Exhibit “Q,” Record, p. 191) was is-

_______________

1 Rollo, 38.

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312 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

sued by defendant. On July 14, 1992, Masagana made its formal demand for
indemnification for the burned insured properties. On the same day,
defendant returned the five (5) manager’s checks stating in its letter (Exhibit
“R”/“8,” Record, p. 192) that it was rejecting Masagana’s claim on the
following grounds:

“a) Said policies expired last May 22, 1992 and were not renewed for
another term;
b) Defendant had put plaintiff and its alleged broker on notice of non-
renewal earlier; and
c) The properties covered by the said policies were burned in a fire
that took place last June 13, 1992, or before tender of premium
payment.”

(Record, p. 5)

Hence Masagana filed this case.

 The Court of Appeals disagreed with Petitioner’s stand that
Respondent’s tender of payment of the premiums on 13 July 1992
did not result in the renewal of the policies, having been made
beyond the effective date of renewal as provided under Policy
Condition No. 26, which states:

26. Renewal Clause.—Unless the company at least forty five days in

advance of the end of the policy period mails or delivers to the assured at
the address shown in the policy notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of
coverages, the assured shall be entitled to renew the policy upon payment of
the premium due on the effective date of renewal.
Both the Court of Appeals and the trial court found that sufficient proof
exists that Respondent, which had procured insurance coverage from
Petitioner for a number of years, had been granted a 60 to 90-day credit term
for the renewal of the policies. Such a practice had existed up to the time the
claims were filed. Thus:
Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22,
1991 was issued on May 7, 1990 but premium was paid more than 90 days
later on August 31, 1990 under O.R. No. 4771 (Exhs. “T” and “T-1”). Fire
Insurance Policy No. 34660 for Insurance Risk Coverage from May 22,
1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium
was collected by UCPB only on July 13, 1990 or more than 60 days later

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UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

under O.R. No. 46487 (Exhs. “V” and “V-1”). And so were as other
policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990
to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid
only on July 19, 1990 under O.R. No. 46583 (Exhs. “W” and “W-1”). Fire
Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22,
1991 was issued on May 3, 1990 but premium was paid only on July 19,
1990 under O.R. No. 46582 (Exhs. “X” and “X-1”). Fire Insurance Policy
No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was
issued on May 7, 1990 but premium was paid only on July 19, 1990 under
O.R. No. 46585 (Exhs. “Y” and “Y-1”). Fire Insurance Policy No. 29126 to
cover insurance risks from May 22, 1989 to May 22, 1990 was issued on
May 22, 1989 but premium therefor was collected only on July 25,
1990[sic] under O.R. No. 40799 (Exhs. “AA” and “AA-1”). Fire Insurance
Policy No. HO/F-26408 covering risks from January 12, 1989 to January
12, 1990 was issued to Intratrade Phils. (Masagana’s sister company) dated
December 10, 1988 but premium therefor was paid only on February 15,
1989 under O.R. No. 38075 (Exhs. “BB” and “BB-1”). Fire Insurance
Policy No. 29128 was issued on May 22, 1989 but premium was paid only
on July 25, 1989 under O.R. No. 40800 for insurance coverage from May
22, 1989 to May 22, 1990 (Exhs. “CC and “CC-1”). Fire Insurance Policy
No. 29127 was issued on May 22, 1989 but premium was paid only on July
17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22,
1989 to May 22, 1990 (Exhs. “DD” and “DD-1”). Fire Insurance Policy No.
HO/F-29362 was issued on June 15, 1989 but premium was paid only on
February 13, 1990 under O.R. No. 39233 for insurance coverage from May
22, 1989 to May 22, 1990 (Exhs. “EE” and “EE-1”). Fire Insurance Policy
No. 26303 was issued on November 22, 1988 but premium therefor was
collected only on March 15, 1989 under O.R. No. 38573 for insurance risks
coverage from December 15, 1988 to December 15, 1989 (Exhs. “FF” and
“FF-1).

Moreover, according to the Court of Appeals the following

circumstances constitute preponderant proof that no timely notice of
non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit “11,” Record, p.

350) from Ultramar Reinsurance Brokers that plaintiffs reinsurance facility
had been confirmed up to 67.5% only on April 15, 1992 as indicated on
Exhibit “11.” Apparently, the notice of non-renewal (Exhibit “7,” Record, p.
320) was sent not earlier than said date, or within 45 days from the expiry
dates of the policies as provided under Policy Condition No. 26; (2)
Defendant insurer unconditionally accepted, and issued an

314

314 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

official receipt for, the premium payment on July 1[3], 1992 which indicates
defendant’s willingness to assume the risk despite only a 67.5% reinsurance
cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and
Valuers to investigate plaintiffs claim as shown by the letter dated July 17,
1992 (Exhibit 11,” Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be

“whether the fire insurance policies issued by petitioner to the
respondent covering the period from May 22, 1991 to May 22, 1992
. . . had been extended or renewed by an implied credit arrangement
though actual payment of premium was tendered on a later date and
after the occurrence of the (fire) risk insured against.” We resolved
this issue in the negative in view of Section 77 of the Insurance2
Code and our decisions in Valenzuela v. Court of Appeals; 3
South
Sea Surety and Insurance
4
Co., Inc. v. Court of Appeals; and Tibay v.
Court of Appeals. Accordingly, we reversed and set aside the
decision of the Court of Appeals.
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 com-

_______________

2 191 SCRA 1 [1990].

3 244 SCRA 744 [1995].
4 257 SCRA 126 [1996] (erroneously stated in the decision as 275 SCRA 126).

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UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

panies, 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.
Respondent also asserts that the principle of estoppel applies to
Petitioner. 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.
Petitioner filed an opposition to the Respondent’s motion for
reconsideration. It argues that both the trial court and the Court of
Appeals overlooked the fact that on 6 April 1992 Petitioner sent by
ordinary mail to Respondent a notice of non-renewal and sent by
personal delivery a copy thereof to Respondent’s broker, Zuellig.
Both courts likewise ignored the fact that Respondent was fully
aware of the notice of non-renewal. A reading of Section 66 of the
Insurance Code readily shows that in order for an insured to be
entitled to a renewal of a non-life policy, payment of the premium
due on the effective date of renewal should first be made.
Respondent’s argument that Section 77 is not a prohibitive provision
finds no authoritative support.
Upon a meticulous review of the records and reevaluation of the
issues raised in the motion for reconsideration and the pleadings
filed thereafter by the parties, we resolved to grant the motion for
reconsideration. The following facts, as found by trial court and the
Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the

Respondent, and these policies were annually renewed.
2. Petitioner had been granting Respondent a 60- to 90-day
credit term within which to pay the premiums on the
renewed policies.

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316 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

3. There was no valid notice of non-renewal of the policies in

question, as there is no proof at all that the notice sent by
ordinary mail was received by Respondent, and the copy
thereof allegedly sent to Zuellig was ever transmitted to
Respondent.
4. The premiums for the policies in question in the aggregate
amount of P225,753.95 were paid by Respondent within the
60- to 90-day credit term and were duly accepted and
received by Petitioner’s cashier.

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:

SEC. 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.

This Section is a reproduction of Section 77 of P.D. No. 612 (The

Insurance Code) promulgated on 18 December 1974. In turn, this
Section has its source in Section 72 of Act No. 2427 otherwise
known as the Insurance Act as amended by R.A. No. 3540,
approved on 21 June 1963, which read:

SEC. 72. An insurer is entitled to payment of premium as soon as the thing

insured is exposed to the peril insured against, unless there is clear
agreement to grant the insured credit extension of the premium due. No
policy issued by an insurance company is valid and binding unless and until
the premium thereof has been paid. (Italics supplied)

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.

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UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

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:

SEC. 78. 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 5in 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. We said therein, thus:

We hold that the subject policies are valid even if the premiums were paid
on installments. The records clearly show that the petitioners 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 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 prepaid in full.
Not only that. In Tuscany, we also quoted with approval the
following pronouncement of the Court of Appeals in its Resolution
denying the motion for reconsideration of its decision:

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 pre-

_______________

5 215 SCRA 463 [1992].

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318 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

mium 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, p. 175). So is an
understanding to allow insured to pay premiums in installments not so
prescribed. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.

By the approval of the aforequoted findings and conclusion of the

Court of Appeals, Tuscany has provided a 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.
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. The agreement binds
the parties. Article 1306 of the Civil Code provides:

ART. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy.
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.

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UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

WHEREFORE, the Decision in this case of 15 June 1999 is

RECONSIDERED and SET ASIDE, and a new one is hereby
entered DENYING the instant petition for failure of Petitioner to
sufficiently show that a reversible error was committed by the Court
of Appeals in its challenged decision, which is hereby AFFIRMED
in toto.
No pronouncement as to cost.
SO ORDERED.

Bellosillo, Kapunan, Mendoza, Panganiban, Buena,

Gonzaga-Reyes, Ynares-Santiago, De Leon, Jr. and Sandoval-
Gutierrez, JJ., concur.
Melo, J., I join the dissents of Justices Vitug and Pardo.
Puno and Quisumbing, JJ., Joins the Dissent of J. Pardo.
Vitug, J., Please see separate opinion.
Pardo, J., I dissent. See attached.

SEPARATE OPINION

VITUG, J.:

An essential characteristic of an insurance is its being synallagmatic,

a highly reciprocal contract where the rights and obligations of the
parties correlate and mutually correspond. The insurer assumes the
risk of loss which an insured might suffer in consideration of
premium payments under a risk-distributing device. Such
assumption of risk is a component of a general scheme to distribute
actual losses among a group of persons, bearing similar risks, who
make ratable contributions to a fund from which the losses incurred
due to exposures to the peril insured against are assured and
compensated.
It is generally recognized
1
that the business of insurance is one
imbued with public interest. For the general good and mutual
______________

1 Hartford Acci. & Indem. Co. vs. N.O. Leson Mfg. Co., 291 US 352, 78 L Ed,
840, 54 S Ct. 392.

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320 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

protection of all the parties, it is aptly subjected to regulation2 and

control by the State by virtue of an exercise of its police power. The
State may regulate in various respects the relations between the
insurer and the insured, including the internal affairs
3
of an insurance
company, without being violative of due process.
A requirement imposed by way of State regulation upon insurers
is the maintenance of an adequate4
legal reserve in favor of those
claiming under their policies. The law generally mandates that
insurance companies should retain an amount sufficient to guarantee
the security of its policyholders in the remote future, as well as the
present, and to cover any contingencies that may arise or may be
fairly anticipated. The integrity of this legal reserve is threatened
and undermined if a credit arrangement on the payment of premium
were to be sanctioned. Calculations and estimations of liabilities
under the risk insured against are predicated on the basis of the
payment of premiums, the vital element that establishes the juridical
relation between the insured and the insurer. By legislative fiat, any
agreement to the contrary notwithstanding, the payment of premium
is a condition precedent to, and essential for, the efficaciousness of
the insurance contract, except (a) in case of life or industrial life
insurance where a grace period applies, or (b) in case of a written
acknowledgment by the insurer of the receipt of premium, such as
by a deposit receipt, the written acknowledgment being conclusive
evidence5 of the premium payment so far as to make the policy
binding.

_______________

2 United States vs. South-Eastern Underwriters Asso., 322 US 533, 88 L Ed 1440,

64 S Ct 1162, reh den 323 US 811, 89 L Ed 646, 65 S Ct, 26; Hinckley vs. Bechtel
Corp. (1st Dist.), 41 Cal App 3d 206, 116 Cal Rptr 33.
3 43 Am Jur 2d; Merchants Mut. Auto Liability Ins. Co. vs. Smart, 267 US 126, 69
L Ed 538, 45 S Ct 320; California State Auto Asso. InterIns. Bureau vs. Maloney, 341
US 105, 95 L Ed 788, 71 S Ct 601; State Farm Mut. Auto Ins. Co. vs. Duel, 324 US
154, 89 L Ed 812 65 S Ct 573 reh den 324 US 887.
4 Tibay vs. Court of Appeals, 257 SCRA 126 (1996).
5 Secs. 77-78, Insurance Code; Acme vs. Court of Appeals, 134 SCRA 155
(1985); South Sea Surety and Insurance Company, Inc. vs. Court of Appeals, 244
SCRA 744 (1995).

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VOL. 356, APRIL 4, 2001 321

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

Section 77 of the Insurance Code 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.”

This provision amended Section 72 of the then Insurance Act by

deleting the phrase, “unless there is a clear agreement to grant the
insured credit extension of the premium due,” and adding at the
beginning of the second sentence the phrase, “[n]otwithstanding any
agreement to the contrary.” Commenting on the new provision, Dean
Hernando B. Perez states:

“Under the former rule, whenever the insured was granted credit extension
of the premium due or given a period of time to pay the premium on the
policy issued, such policy was binding although premiums had not been
paid (Section 72, Insurance Act; 6 Couch 2d. 67). This rule was changed
when the present provision eliminated the portion concerning credit
agreement, and added the phrase ‘notwithstanding any agreement to the
contrary’ which precludes the parties from stipulating that the policy is valid
even if premiums are not paid. Hence, under the present law, the policy is
not valid and binding unless and until the premium is paid (Arce vs. Capital
Insurance & Surety Co., Inc., 117 SCRA 63). If the insurer wants to favor
the insured by making the policy binding notwithstanding the non-payment
of premium, a mere credit agreement would not be sufficient. The remedy
would be for the insurer to acknowledge in the policy that premiums were
paid although they were not, in which case the policy becomes binding
because such acknowledgment is a conclusive evidence of payment of
premium (Section 78). Thus, the Supreme Court took note that under the
present law, Section 77 of the Insurance Code of 1978 has deleted the clause
‘unless there is a clear agreement to grant the insured credit
6
extension of the
premium due’ (Velasco vs. Apostol, 173 SCRA 228).”

________________

6 Insurance Code and Insolvency Law by Hernando B. Perez, 1999 Rev. Ed.

322
322 SUPREME COURT REPORTS ANNOTATED
UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

By weight7 of authority, estoppel cannot create a contract of

insurance,8
neither can it be successfully invoked to create a primary
liability, nor can it give9 validity to what the law so proscribes as a
matter of public policy. So essential is the premium payment to the
creation of the vinculum juris between the insured and the insurer
that it would be doubtful
10
to have that payment validly excused even
for a fortuitous event.
The law, however, neither requires for the establishment of the
juridical tie, nor measures the strength of such tie by, any specific
amount of premium payment. A part payment of the premium, if
accepted by the insurer, can thus 11perfect the contract and bring the
parties into an obligatory relation. Such a payment puts the contract
into full binding force, not merely pro tanto, thereby entitling and
obligating the parties by their agreement. Hence, in case of loss, full
recovery less the unpaid portion of the premium (by the operative
act of legal compensation), can be had by the insured and,
correlatively, if no loss occurs the insurer
12
can demand the payment
of the unpaid balance of the premium.
In the instant case, no juridical tie appears to have been
established under any of the situations hereinabove discussed.
WHEREFORE, I vote to deny the motion for reconsideration.

_______________

7 Ames. vs. Auto Owners’ Ins. Co.; 195 N.W. 686, 225 Mich. 44; 45 C.J.S. 674.
8 C.E. Carnes & Co. vs. Employers’ Liability Assur. Corp., Limited of London,
England, C.C.A. La, 101 F2d 739; 45 CJS 674.
9 Development Bank of the Philippines vs. Court of Appeals, 284 SCRA 14
(1998).
10 See Constantino vs. Asia Life Insurance Co., 87 Phil. 248.
11 See Philippine Phoenix Surety and Insurance, Inc. vs. Woodworks, Inc., 20
SCRA 1271 (1967).
12 See Makati Tuscany Condominium vs. Court of Appeals, 215 SCRA 463
(1992).

323

VOL. 356, APRIL 4, 2001 323

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

DISSENTING OPINION
PARDO, J.:

The majority resolved to grant respondent’s motion for

reconsideration of the Court’s decision promulgated on June 15,
1999. By this somersault, petitioner must now pay respondent’s
claim for insurance proceeds amounting to P18,645,000.00,
exclusive of interests, plus 25% of the amount due as attorney’s fees,
P25,000.00 as litigation expenses, and costs of suit, covering its
Pasay City property razed by fire. What an undeserved largess!
Indeed, an unjust enrichment at the expense of petitioner; even the
award of attorney’s fees is bloated to 25% of the amount due.
We cannot give our concurrence. We beg to dissent. We find
respondent’s claim to be fraudulent:
First: Respondent Masagana surreptitiously tried to pay the
overdue premiums before giving written notice to petitioner of the
occurrence of the fire that razed the subject property. This failure to
give notice of the fire immediately upon its occurrence blatantly
showed the fraudulent character of its claim. The fire totally
destroyed the property on June 13, 1992; the written notice of loss
was given only more than a month later, on July 14, 1992, the day
after respondent surreptitiously paid the overdue premiums.
Respondent very well knew that the policy was not renewed on time.
Hence, the surreptitious attempt to pay overdue premiums. Such act
revealed a reprehensible disregard of the principle that insurance
1
is a
contract uberrima fides, the most abundant good faith. Respondent
is required by law and by express terms of the policy to give
immediate written notice of loss. This must be complied with in the
utmost good faith.
Another badge of fraud is that respondent deviated from its
previous practice of coursing its premium payments through its
brokers. This time, respondent Masagana went directly to petitioner
and paid through its cashier with manager’s checks. Naturally, the
cashier routinely accepted the premium payment because he had

_______________

1 Velasco v. Apostol, 173 SCRA 228, 236 [1989].

324

324 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

no written notice of the occurrence of the fire. Such fact was

concealed by the insured and not revealed to petitioner at the time of
payment.
Indeed, if as contended by respondent, there was a clear
agreement regarding the grant of a credit extension, respondent
would have given immediate written notice of the fire that razed the
property. This clearly showed respondent’s attempt to deceive
petitioner into believing that the subject property still existed and the
risk insured against had not happened.
Second: The claim for insurance benefits must fall as well
because the failure to give timely written notice of the fire was a
material misrepresentation affecting the risk insured against.
Section 1 of the policy provides:

“All benefits under the policy shall be forfeited if the claim be in any
respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the insured
2
or any
one acting on his behalf to obtain any benefit under the policy.”

In the factual milieu, the purported practice of giving 60 to 90-day

credit extension for payment of premiums was a disputed fact. But it
is a given fact that the written notice of loss was not immediately
given. It was given only the day after the attempt to pay the delayed
premiums.
At any rate, the purported credit was a mere verbal understanding
of the respondent Masagana of an agreement between the insurance
company (petitioner) and the insurance brokers of respondent
Masagana. The president of respondent Masagana admitted that the
insurance policy did not contain any proviso pertaining to the grant
of credit within which to pay the premiums. Respondent Masagana
merely deduced that a credit agreement existed based on previous
years’ practice that they had of delayed payments accepted by the
insurer as reflected on the face of the receipts issued by UCPB
evidencing the payment of premiums.

________________

2 Section 15, Policy Conditions, RTC Record, p. 25.

325

VOL. 356, APRIL 4, 2001 325

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

“Q: You also claim that you have 60 to 90 days credit arrangement
with UCPB; is that correct?
A: Yes, ma’am.
Q: I’m showing to you the policy which had previously been
marked in evidence as Exhibit “A,” “B,” “C,” “D,” & “E” for
the plaintiff and likewise, marked as exhibits “1,” “2,” “3,”
“4,” & “5” for the defendant. Could you show us, Mr. witness
where in these policies does it show that you are actually given
60 to 90 days credit arrangement with UCPB?
A: Well, it’s verbal with your company, and Ansons Insurance
Brokerage. It is not written.
Q: It is not written in the policy?
A: Yes.
Q: You merely have verbal agreement with Ansons Insurance
Brokerage?
A: Yes; as shown in our mode of payment; in our
3
vouchers and the
receipts issued by the insurance company.”

It must be stressed that a verbal understanding of respondent

Masagana cannot amend an insurance policy. In insurance practice,
amendments or even corrections to a policy are done by written
endorsements or tickets appended to the policy.
However, the date on the face of the receipts does not refer to the
date of actual remittance by respondent Masagana to UCPB of the
premium payments, but merely to the date of remittance to UCPB of
the premium payments by the insurance brokers of respondent
Masagana.

“Q: You also identified several receipts; here; official receipts

issued by UCPB General Insurance Company, Inc., which has
been previously marked as Exhibits “F,” “G,” “H,” “I,” and “J”
for the plaintiff; is that correct?
A: Yes.
Q: And, you would agree with me that the dates indicated in these
particular Official Receipts (O. R.), merely indicated the dates
when UCPB General Insurance Company issued these
receipts? Do you admit that, Mr. Witness?

________________

3 TSN, December 8, 1992, pp. 24-25.

326

326 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

A: That was written in the receipts.

Q: But, you would also agree that this did not necessarily show the
dates when you actually forwarded the checks to your broker,
Anson Insurance Agency, for payment to UCPB General
Insurance Co. Inc., isn’t it?
A: The actual support of this would be the cash’ voucher of the
company, Masagana Telamart Inc., the date when they picked
up the check from the company.
Q: And are these cash voucher with you?
A: I don’t know if it is in the folder or in our folder, now.
Q: So, you are not certain, whether or not you actually delivered
the checks covered by these Official Receipts to UCPB General
Insurance, on the dates indicated?
A: I would suppose it is few
4
days earlier, when they picked up the
payment in our office.”

Hence, what has been established was the grant of credit to the
insurance brokers, not to the assured. The insurance company
recognized the payment to the insurance brokers as payment to itself,
though the actual remittance of the premium payments to the
principal might be made later. Once payment of premiums is made
to the insurance broker, the assured would be covered by a valid and
binding insurance policy, provided the loss occurred after payment
to the broker has been made.
Assuming arguendo that the 60 to 90 day-credit-term has been
agreed between the parties, respondent could not still invoke5
estoppel to back up its claim. “Estoppel is unavailing in this case,”
thus spoke the Supreme Court through the pen of Justice HiJario G.
Davide, Jr., now Chief Justice. Mutatis mutandi, he may well be
speaking of this case. He added that “ [E]stoppel can not give6
validity to an act that is prohibited by law or against public policy.”
The actual payment of premiums is a condition precedent to the7
validity of an insurance contract other than life insurance policy.
Any

_______________

4 TSN, December 8, 1992, pp. 14-17.

5 Development Bank of the Philippines v. Court of Appeals, 348 Phil. 15, 32; 284
SCRA 14 [1998].
6 Ibid.
7 American Home Assurance Co. v. Chua, 309 SCRA 250, 259 [1999].

327

VOL. 356, APRIL 4, 2001 327

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

agreement to the contrary is void as against the law and public

policy. Section 77 of the Insurance Code provides:

“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.” [Emphasis supplied]

An incisive reading of the afore-cited provision would show that the

emphasis was on the conclusiveness of the acknowledgment in the
policy of the receipt of premium, notwithstanding the absence of
actual payment of premium, because of estoppel. Under the doctrine
of estoppel, an admission or representation is rendered conclusive
upon the person making it, and cannot be denied or disproved as
against the person relying thereon. “A party may not go back on his
own acts and representations
8
to the prejudice of the other party who
relied upon them.”
This is the only case of estoppel which the law considers a valid
exception to the mandatory requirement of pre-payment of premium.
The law recognized that the contracting parties, in entering a
contract of insurance, are free to enter into stipulations and make
personal undertakings so long as they are not contrary to law or
public policy. However, the law is clear in providing that the
acknowledgment must be contained in the policy or contract of
insurance. Anything short of it would not fall under the exception so
provided in Section 78.
Hence, because of respondent’s failure to pay the premiums prior
to the occurrence of the fire insured against, no valid and binding
insurance policy was created to cover the loss and destruction of the
property. The fire took place on June 13, 1992, twenty-two (22) days
after the expiration of the policy of fire insurance. The tender of
payment of premiums was made only thirty (30) days after the
occurrence of the fire, or on July 13, 1992. Respondent Masagana
did not give immediate notice to petitioner of the fire as

________________

8 Ayala Corporation v. Ray Burton Development Corp., 355 Phil. 475, 496; 294
SCRA 48 [1998].

328

328 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

it occurred as required in the insurance policy. Respondent

Masagana tried to tender payment of the premiums overdue
surreptitiously before giving notice of the occurrence of the fire.
More importantly, the parties themselves expressly stipulated that
the insurance policy would not be binding on the insurer unless the
premiums thereon had been paid in full. Section 2 of the policy
provides:
“2. This policy including any renewal and/or endorsement thereon is not in
force until the premium has been fully paid and duly receipted by the
Company in the manner provided therein.
“Any supplementary agreement seeking to amend this condition
prepared by agent, broker or company official, shall be deemed invalid and
of no effect.
“No payment in respect of any premium shall be deemed to be payment
to the Company unless a printed form of receipt for the same signed by an
Official or duly appointed Agent of the Company shall have been given to
the Insured, except when such printed receipt is not available at the time of
payment and the company or its representative accepts the premium in
which case a temporary receipt other than the printed form may be issued in
lieu thereof. “Except only on those specific cases where corresponding rules
and regulations which now we are or may hereafter be in force provide for
the payment of the stipulated premiums in periodic installments at fixed
percentages, it is hereby declared, agreed and warranted that this policy
shall be deemed effective valid and binding upon the Company when the
premiums thereof have actually been paid in full and duly acknowledged in
a receipt signed by any authorized official or 9
representative/agent of the
Company in such manner as provided herein.” [emphasis supplied]

Thus, the insurance policy, including any renewal thereof or any

endorsements thereon shall not come in force until the premiums
have been fully paid and duly received by the insurance Company.
No payment in respect of any premiums shall be deemed to be
payment to the Insurance Company unless a printed form of receipt
for the same signed by an Official or duly appointed Agent of the
Company shall be given to the insured.

_______________

9 Section 2, Policy Conditions, RTC Record, p. 16.

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VOL. 356, APRIL 4, 2001 329

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.
10
The case of Tibay v. Court of Appeals is in point. The issue raised
therein was: “May a fire insurance policy be valid, binding and
enforceable upon mere partial payment of premium?” In the said
case, Fortune Life and General Insurance Co., Inc. issued Fire
Insurance Policy No. 136171 in favor of Violeta R. Tibay and/or
Nicolas Roraldo, on a two-storey residential building located at 5855
Zobel Street, Makati City, together with all the 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, Violeta Tibay only paid P600.00,
thus leaving a substantial balance unpaid. On March 8, 1987, the
insured building was completely destroyed by fire. Two days later,
or on 10 March 1987, Violeta Tibay paid the balance of the
premium. On the same day, she filed with Fortune a claim for the
proceeds of the fire insurance policy.
In denying the claim of insurance, the Court ruled that “by
express agreement of the parties, no vinculum juris or bond of law
was to be established until full payment11
was effected prior to the
occurrence of the risk insured against. As expressly stipulated in
the contract, full payment must be made before the risk occurs for
the policy to be considered effective and in force. “No vinculum
juris whereby the insurer bound itself to indemnify the assured
according 12to law ever resulted from the fractional payment of
premium.”
The majority cited the case13
of Makati Tuscany Condominium
Corp. vs. Court of Appeals to support the contention that the
insurance policies subject of the instant case were valid and
effective. However, the factual situation in that case was different
from the case at bar.
In Tuscany, the Court held that the insurance policies were valid
and binding because there was partial payment of the premiums and
a clear understanding between the parties that they had intended the
insurance policies to be binding and effective notwith-

_______________

10 326 Phil. 931; 257 SCRA 126 [1996].

11 Tibay v. Court of Appeals, supra, Note 10, p. 136.
12 Ibid., p. 138.
13 215 SCRA 462 [1992].

330

330 SUPREME COURT REPORTS ANNOTATED

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

standing the staggered payment of the premiums. On the basis of

equity and fairness, the Court ruled that there was a perfected
contract of insurance upon the partial payment of the premiums,
notwithstanding the provisions of Section 77 to the contrary. The
Court 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
prepaid in full.
There is no dispute that like in any other contract, the parties to a
contract of insurance enjoy the freedom to stipulate on the terms and
conditions that will govern their agreement so long as they are not
contrary to law, morals, good customs, public order or public policy.
However, the agreement containing such terms and conditions must
be clear and definite.
In the case at bar, there was no clear and definite agreement
between petitioner and respondent on the grant of a credit extension;
neither was there partial payment of premiums for petitioner to
invoke the exceptional doctrine in Tuscany.
Hence, the circumstances in the above cited case are totally
different from the case at bar, and consequently, not applicable
herein.
Insurance is an aleatory contract whereby one undertakes for a
consideration to indemnity another against loss, 14
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 manner
specified in the policy, and if 15not so paid, the policy will lapse and
be forfeited by its own terms.”
With regard to the contention that the absence of notice of non-
renewal of the policy resulted to the automatic renewal of the
insurance policy, we find the contention untenable. As above
discussed, the law provides that only upon payment of the insurance
premium will the insurance policy bind the insurer to the peril
insured against and hold it liable under the policy in case of loss.

_______________

14 Article 2010, Civil Code.

15 Tibay v. Court of Appeals, supra, Note 10, p. 133.

331

VOL. 356, APRIL 4, 2001 331

UCPB General Insurance Co., Inc. vs. Masagana Telamart, Inc.

Even in the absence of notice of non-renewal, the assured would be

bound by the law that a non life insurance policy takes effect only on
the date payment of the premium was made.
Verily, it is elemental law that the payment of premium is a
mandatory requisite to make the policy of insurance effective. If the
premium is not paid in the manner prescribed in the16 policy as
intended by the parties, the policy is void and ineffective.
Basically a contract of indemnity, an insurance contract is the law
between the parties. Its terms and conditions constitute the measure
of the insurer’s liability and compliance therewith is a condition
17
precedent to the insured’s right to recovery from the insurer.”
IN VIEW WHEREOF, I vote to DENY the respondent’s motion
for reconsideration, for lack of merit.
Judgment reconsidered and set aside, that of the Court of
Appeals affirmed in toto.
 Notes.—Under Sections 77 and 78 of the Insurance Code, until
the premium is paid, and the law has not expressly excepted partial
payments, there is no valid and binding contract. (Tibay vs. Court of
Appeals, 257 SCRA 126 [1996])
Section 78 of the Insurance Code establishes a legal fiction of
payment and should be interpreted as an exception to Section 77.
(American Home Assurance Company vs. Chua, 309 SCRA 250
[1999])

——o0o——

_______________

16 Tibay v. Court of Appeals, supra, Note 10, pp. 138-139.

17 Verendia v. Court of Appeals, 217 SCRA 417, 422-423 [1993].

332

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