WEEK 13 #06 UCPB v Masagana (Read DISSENT) that the acceptance of the late premium payment suggested an
G.R. No. 137172 | April 4, 2001 understanding that payment could be made later.
By: ARQUILLO
Topic: Insurance
Petitioner: UCPB GENERAL INSURANCE CO
Respondent: MASAGANA TELAMART, INC
Ponente: DAVIDE, JR., C.J
FACTS:
 UCPB issued 5 fire insurance policies covering Masagana's property
for the period of May 22, 1991 - May 22, 1992.
 In March 1999, petitioner evaluated the policies and decided not to
renew them upon expiration of their terms on May 22, 1992, thus
gave written notice to respondent of the non-renewal of the policies.
 On June 13, 1992, fire razed respondent's property covered by three
of the insurance policies petitioner issued.
 Respondent then presented to petitioner's cashier 5 manager's
checks amounting to P225,753.95, representing premium for the
renewal of the policies from May 22, 1992 to May 22, 1993.  Respondent.
o No notice of loss was filed by respondent under the policies
prior to July 14, 1992.  On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured
properties.
 However, petitioner rejected and returned to respondent the 5
manager's checks alleging that
o the policies had expired last May 22, 1992 and were not
renewed, and that
o the fire occurred on 13 June 1992, before respondent's
tender of premium payment.
 Thereafter, respondent filed a civil complaint against petitioner for
recovery of P18,645,000, representing the face value of the policies
covering respondent's insured property razed by fire, and for
attorney's fees.
 RTC ruled in favor of respondent holding that respondent has fully
complied with its obligation to pay the premium thereby rendering
the replacement-renewal policy binding.
 CA affirmed RTC ruling stating that respondent was allowed a sixty
(60) to ninety (90) day credit term for the renewal of its policies, and
 SC Decision of 15 June 1999: set aside CA. No renewal.
ISSUE 1: WON the insurance policies have been renewed by an implied
credit arrangement though actual payment of premium was tendered on
a later date after the occurrence of the risk insured against fire. 
RULING: YES.
 SC grants Respondent’s MR.
 For years, Petitioner had been issuing fire policies to the
Respondent, and these policies were annually renewed.
o Petitioner had been granting Respondent a 60- to 90-day
credit term within which to pay the premiums on the
renewed policies.
o 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
allegedly sent to Zuellig was ever transmitted to
o The premiums totalling 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.
ISSUE 2: WON Section 77 must be strictly applied to Petitioner's
advantage despite its practice of granting a credit term for the payment
of premiums.
RULING: NO.
 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.
 Exceptions to Section 77:
 1st Exception: provided by Section 77 itself; in case of a life or
industrial life policy whenever the grace period provision applies.
 2ND Exception: SECTION 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.
 3rd Exception: (from Makati Tuscany Condo v. CA) Section 77 may
not apply if the parties agreed to the payment in installments of the
premium and partial payment has been made at the time of loss.
o While the import of Section 77 is that prepayment of
premiums is strictly required as a condition to the validity
of the contract, Section 78 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 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.
 4th Exception: (From Tuscany) the insurer may grant credit
extension for the payment of the premium. If a credit term is
granted and loss occurs before the expiration of the term,
recovery is allowed even though the premium is paid after the
loss but within the credit term.
 Nothing in Section 77 prohibits credit terms as they are not against
the law, morals, good customs, public order or public policy. (Article
1306 of the Civil Code)
 5th Exception: Estoppel. It would be unjust if there is no recovery
considering UCPB consistently granted a credit term despite its full
awareness of Section 77. Estoppel bars UCPB from taking refuge
under Section 77, since Masagana relied in good faith on such
practice.
DISSENT VITUG, J . (deny Respondent’s MR)
 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..
 Insurance is imbued with public interest.  For mutual protection of
all parties, it is subjected to regulation and control by the State by
virtue of its police power
 A requirement imposed by way of State regulation upon insurers
is the maintenance of an adequate legal reserve in favor of those
claiming under their policies. The integrity of this legal reserve is
threatened if a credit arrangement were allowed.
 Section 77 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."
 Estoppel cannot create a contract of insurance, neither can it be
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 insurer that it would be
doubtful to have payment 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 perfect 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 can demand the payment
of the unpaid balance of the premium. 
 In the instant case, no juridical tie appears to have been
established.
DISSENT: PARDO, J . (deny Respondent’s MR)
 First: The fire was on June 13, 1992; the written notice of loss was
given a month later, on July 14, 1992, the
day after respondent surreptitiously paid the overdue premiums This
shows the fraudulent character of its claim. Respondent knew that
the policy was not renewed on time. Such act disregarded the
principle that insurance is a contract uberrima fides, the most
 abundant good faith. Respondent is required by law and by express  Assuming arguendo credit-term has been agreed, respondent
terms of the policy to give immediate written notice of loss. could not still invoke estoppel. [E]stoppel can not give validity to an
o Another badge of fraud is that respondent deviated from its act that is prohibited by law (Sec 77) or against public policy.
previous practice of coursing its premium payments through  The majority cited Makati Tuscany However, the factual situation
its brokers. Masagana went directly to UCPB’s cashier with in that case was different from the case at bar. In Tuscany, the Court
manager's checks. Naturally, the cashier routinely accepted held that policies were valid because there was partial payment of
the premium payment because he had no written notice of the premiums and a clear understanding between the parties that
the occurrence of the fire. Such fact was concealed by the they had intended the insurance policies to be binding
insured and not revealed to petitioner at the time of notwithstanding the staggered payment. On the basis of equity and
payment. fairness, there was a perfected contract of insurance upon the partial
o Indeed, if as contended by respondent, there was a clear payment of the premiums, notwithstanding Section 77.
agreement regarding the grant of a credit extension,  In the case at bar, there was no clear agreement as to a credit
respondent would have given immediate written notice of extension; neither was there partial payment of premiums.
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:
o "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 false declaration
be made or used in support thereof, or if any fraudulent
means or devices are used by the insured or any one acting
on his behalf to obtain any benefit under the policy." 
 The credit was a mere verbal understanding. The president of
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.
 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 policy, provided the loss occurred after payment to
the broker has been made.