Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

(2) Declaring plaintiff to have fully complied with its obligation to pay the
premium thereby rendering the replacement-renewal policy of Exhibits
A, B, C, D and E effective and binding for the duration May 22, 1992
until May 22, 1993; and, ordering defendant to deliver forthwith to
plaintiff the said replacement-renewal policies;
(3) Declaring Exhibits A & B, in force from August 22, 1991 up to August
23, 1992 and August 9, 1991 to August 9, 1992, respectively; and

G.R. No. 137172 June 15, 1999

UCPB GENERAL INSURANCE CO., INC., petitioner,
vs.
MASAGANA TELAMART, INC., respondent.

(4) Ordering the defendant to pay plaintiff the sums of: (a)
P18,645,000.00 representing the latter's claim for indemnity under
Exhibits A, B & C and/or its replacement-renewal policies; (b) 25% of the
total amount due as and for attorney's fees; (c) P25,000.00 as
necessary litigation expenses; and, (d) the costs of suit.
All other claims and counterclaims asserted by the parties are denied
and/or dismissed, including plaintiff's claim for interests.

PARDO, J.:
SO ORDERED.
The case is an appeal via certiorari seeking to set aside the decision of the
Court of Appeals, 1 affirming with modification that of the Regional Trial
Court, Branch 58, Makati, ordering petitioner to pay respondent the sum of
P18,645,000.00, as the proceeds of the insurance coverage of respondent's
property razed by fire; 25% of the total amount due as attorney's fees and
P25,000.00 as litigation expenses, and costs.

Makati, Metro-Manila, March 10, 1993.

ZOSIMO Z. ANGELES.
Judge. 4

The facts are undisputed and may be related as follows:

In due time, petitioner appealed to the Court of Appeals. 5
On April 15, 1991, petitioner issued five (5) insurance policies covering
respondent's various property described therein against fire, for the period
from May 22, 1991 to May 22, 1992.
In March 1992, petitioner evaluated the policies and decided not to renew
them upon expiration of their terms on May 22, 1992. Petitioner advised
respondent's broker, Zuellig Insurance Brokers, Inc. of its intention not to
renew the policies.
On April 6, 1992, petitioner gave written notice to respondent of the nonrenewal of the policies at the address stated in the policies.

On September 7, 1998, the Court of Appeals promulgated its

decision 6 affirming that of the Regional Trial Court with the modification that
item No. 3 of the dispositive portion was deleted, and the award of
attorney's fees was reduced to 10% of the total amount due. 7
The Court of Appeals held that following previous practise, respondent was
allowed a sixty (60) to ninety (90) day credit term for the renewal of its
policies, and that the acceptance of the late premium payment suggested
an understanding that payment could be made later.
Hence, this appeal.

On June 13, 1992, fire razed respondent's property covered by three of the
insurance policies petitioner issued.
On July 13, 1992, respondent presented to petitioner's cashier at its head
office five (5) manager's checks in the total amount of P225,753.95,
representing premium for the renewal of the policies from May 22, 1992 to
May 22, 1993. No notice of loss was filed by respondent under the policies
prior to July 14, 1992.
On July 14, 1992, respondent filed with petitioner its formal claim for
indemnification of the insured property razed by fire.
On the same day, July 14, 1992, petitioner returned to respondent the five
(5) manager's checks that it tendered, and at the same time rejected
respondent's claim for the reasons (a) that the policies had expired and
were not renewed, and (b) that the fire occurred on June 13, 1992, before
respondent's tender of premium payment.
On July 21, 1992, respondent filed with the Regional Trial Court, Branch 58,
Makati City, a civil complaint against petitioner for recovery of
P18,645,000.00, representing the face value of the policies covering
respondent's insured property razed by fire, and for attorney's fees. 2
On October 23, 1992, after its motion to dismiss had been denied, petitioner
filed an answer to the complaint. It alleged that the complaint "fails to state a
cause of action"; that petitioner was not liable to respondent for insurance
proceeds under the policies because at the time of the loss of respondent's
property due to fire, the policies had long expired and were not renewed. 3
After due trial, on March 10, 1993, the Regional Trial Court, Branch 58,
Makati, rendered decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in
favor of the plaintiff and against the defendant, as follows:
(1) Authorizing and allowing the plaintiff to consign/deposit with this
Court the sum of P225,753.95 (refused by the defendant) as full
payment of the corresponding premiums for the replacement-renewal
policies for Exhibits A, B, C, D and E;

By resolution adopted on March 24, 1999, we required respondent to

comment on the petition, not to file a motion to dismiss within ten (10) days
from notice. 8 On April 22, 1999, respondent filed its comment. 9
Respondent submits that the Court of Appeals correctly ruled that no timely
notice of non-renewal was sent. The notice of non-renewal sent to broker
Zuellig which claimed that it verbally notified the insurance agency but not
respondent itself did not suffice. Respondent submits further that the Court
of Appeals did not err in finding that there existed a sixty (60) to ninety (90)
days credit agreement between UCPB and Masagana, and that, finally, the
Supreme Court could not review factual findings of the lower court affirmed
by the Court of Appeals. 10
We give due course to the appeal.
The basic issue raised is whether the fire insurance policies issued by
petitioner to the respondent covering the period May 22, 1991 to May 22,
1992, had expired on the latter date or had been extended or renewed by
an implied credit arrangement though actual payment of premium was
tendered on a later date after the occurrence of the risk (fire) insured
against.
The answer is easily found in the Insurance Code. No, an insurance policy,
other than life, issued originally or on renewal, is not valid and binding until
actual payment of the premium. Any agreement to the contrary is void. 11The
parties may not agree expressly or impliedly on the extension of creditor
time to pay the premium and consider the policy binding before actual
payment.
The case of Malayan Insurance Co., Inc. vs. Cruz-Arnaldo, 12 cited by the
Court of Appeals, is not applicable. In that case, payment of the premium
was in fact actually made on December 24, 1981, and the fire occurred on
January 18, 1982. Here, the payment of the premium for renewal of the
policies was tendered on July 13, 1992, a month after the fire occurred on
June 13, 1992. The assured did not even give the insurer a notice of loss
within a reasonable time after occurrence of the fire.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the
decision of the Court of Appeals in CA-G.R. CV No. 42321. In lieu thereof

the Court renders judgment dismissing respondent's complaint and

petitioner's counterclaims thereto filed with the Regional Trial Court, Branch
58, Makati City, in Civil Case No. 92-2023. Without costs.1wphi1.nt
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 137172

April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.
MASAGANA TELAMART, INC., respondent.
RESOLUTION
DAVIDE, JR., C.J.:
In our decision of 15 June 1999 in this case, we reversed and set aside the
assailed decision 1 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 issued 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 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/F26408 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 "BB1"). 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 plaintiff's
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 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 plaintiff's 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 Insurance Code and our decisions in Valenzuela v. Court
of Appeals; 2 South Sea Surety and Insurance Co., Inc. v. Court of
Appeals; 3 and Tibay v. Court of Appeals. 4 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 companies, 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 the 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.
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 60to 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:
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 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:
SECTION 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. (Italic 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.
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:
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.
A third exception was laid down in Makati Tuscany Condominium
Corporation vs. Court of Appeals, 5 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 premium 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:
ARTICLE 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.
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.

its favor and the receipts for the installment payments covering the policy for
1984-85, as well as the two (2) previous policies, stated the following
reservations:
2. Acceptance of this payment shall not waive any of the company
rights to deny liability on any claim under the policy arising before such
payments or after the expiration of the credit clause of the policy; and
3. Subject to no loss prior to premium payment. If there be any loss
such is not covered.
Petitioner further claimed that the policy was never binding and valid, and
no risk attached to the policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of P924,206.10 representing
the premium payments for 1982-85.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO.,
represented by American International Underwriters (Phils.),
Inc., respondent.

BELLOSILLO, J.:
This case involves a purely legal question: whether payment by installment
of the premiums due on an insurance policy invalidates the contract of
insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance
Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as
the thing 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.
Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building
and premises, for a period beginning 1 March 1982 and ending 1 March
1983, with a total premium of P466,103.05. The premium was paid on
installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private respondent.
On 10 February 1983, private respondent issued to petitioner Insurance
Policy No. AH-CPP-9210596, which replaced and renewed the previous
policy, for a term covering 1 March 1983 to 1 March 1984. The premium in
the amount of P466,103.05 was again paid on installments on 13 April
1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November
1983. All payments were likewise accepted by private respondent.
On 20 January 1984, the policy was again renewed and private respondent
issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1
March 1984 to 1 March 1985. On this renewed policy, petitioner made two
installment payments, both accepted by private respondent, the first on 6
February 1984 for P52,000.00 and the second, on 6 June 1984 for
P100,000.00. Thereafter, petitioner refused to pay the balance of the
premium.
Consequently, private respondent filed an action to recover the unpaid
balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.
In its answer with counterclaim, petitioner admitted the issuance of
Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the
payment of premiums because the policy did not contain a credit clause in

After some incidents, petitioner and private respondent moved for summary
judgment.
On 8 October 1987, the trial court dismissed the complaint and the
counterclaim upon the following findings:
While it is true that the receipts issued to the defendant contained the
aforementioned reservations, it is equally true that payment of the
premiums of the three aforementioned policies (being sought to be
refunded) were made during the lifetime or term of said policies,
hence, it could not be said, inspite of the reservations, that no risk
attached under the policies. Consequently, defendant's counterclaim
for refund is not justified.
As regards the unpaid premiums on Insurance Policy No. AH-CPP9210651, in view of the reservation in the receipts ordinarily issued by
the plaintiff on premium payments the only plausible conclusion is that
plaintiff has no right to demand their payment after the lapse of the
term of said policy on March 1, 1985. Therefore, the defendant was
justified in refusing to pay the same. 1
Both parties appealed from the judgment of the trial court. Thereafter, the
Court of Appeals rendered a decision 2modifying that of the trial court by
ordering herein petitioner to pay the balance of the premiums due on Policy
No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and
affirming the denial of the counterclaim. The appellate court thus explained

The obligation to pay premiums when due is ordinarily as indivisible

obligation to pay the entire premium. Here, the parties herein agreed
to make the premiums payable in installments, and there is no
pretense that the parties never envisioned to make the insurance
contract binding between them. It was renewed for two succeeding
years, the second and third policies being a renewal/replacement for
the previous one. And the insured never informed the insurer that it
was terminating the policy because the terms were unacceptable.
While it may be true that under Section 77 of the Insurance Code,
the parties may not agree to make the insurance contract valid and
binding without payment of premiums, there is nothing in said
section which suggests 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. Otherwise,
we would allow the insurer to renege on its liability under the
contract, had a loss incurred (sic) before completion of payment of
the entire premium, despite its voluntary acceptance of partial
payments, a result eschewed by a basic considerations of fairness
and equity.
To our mind, the insurance contract became valid and binding upon
payment of the first premium, and the plaintiff could not have denied
liability on the ground that payment was not made in full, for the
reason that it agreed to accept installment payment. . . . 3
Petitioner now asserts that its payment by installment of the premiums for
the insurance policies for 1982, 1983 and 1984 invalidated said policies
because of the provisions of Sec. 77 of the Insurance Code, as amended,
and by the conditions stipulated by the insurer in its receipts, disclaiming
liability for loss for occurring before payment of premiums.
It argues that where the premiums is not actually paid in full, the policy
would only be effective if there is an acknowledgment in the policy of the
receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence
of an express acknowledgment in the policies of such receipt of the

corresponding premium payments, and petitioner's failure to pay said

premiums on or before the effective dates of said policies rendered them
invalid. Petitioner thus concludes that there cannot be a perfected contract
of insurance upon mere partial payment of the premiums because under
Sec. 77 of the Insurance Code, no contract of insurance is valid and binding
unless the premium thereof has been paid, notwithstanding any agreement
to the contrary. As a consequence, petitioner seeks a refund of all premium
payments made on the alleged invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid
on installments. The records clearly show that petitioner 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 (3) 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 prepared in full.
We therefore sustain the Court of Appeals. We quote with approval the wellreasoned findings and conclusion of the appellate court contained in its
Resolution denying the motion to reconsider 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 premium 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, 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. 4
The reliance by petitioner on Arce vs. Capital Surety and Insurance
Co. 5 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 (No.
AH-CPP-9210651) in March 1985. 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.
WHEREFORE, finding no reversible error in the judgment appealed from,
the same is AFFIRMED. Costs against petitioner.
SO ORDERED.
UCPB v Masagana G.R. No. 137172. April 4, 2001

August 1991 to August 1992; and (2) reduction of the award of the
attorneys fees from 25% to 10% of the total amount due the Respondent.
Masagana obtained from UCPB five (5) insurance policies on its Manila
properties.
The policies were effective from May 22, 1991 to May 22, 1992. On June
13, 1992, Masaganas properties were razed by fire. On July 13, 1992,
plaintiff tendered five checks for P225,753.45 as renewal premium
payments. A receipt was issued. On July 14, 1992, Masagana made its
formal demand for indemnification for the burned insured properties. UCPB
then rejected Masaganas claims under the argument that the fire took place
before the tender of payment.
Hence Masagana filed this case.
The Court of Appeals disagreed with UCPBs argument that Masaganas
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 Masagana, which had procured insurance coverage from UCPB 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. Most of the premiums have been paid for more than 60
days after the issuance. Also, no timely notice of non-renewal was made by
UCPB.
The Supreme Court ruled against UCPB in the first case on the issue of
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 risk
insured against.
UCPB filed a motion for reconsideration.
The Supreme Court, upon observing the facts, affirmed that 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 Masagana. Also,
the premiums were paid within the grace period.
Issue: Whether Section 77 of the Insurance Code of 1978 must be strictly
applied to Petitioners advantage despite its practice of granting a 60- to 90day credit term for the payment of premiums.
Held: No. Petition denied.
Ratio:
Section 77 of the Insurance Code provides: No policy or contract of
insurance issued by an insurance company is valid and binding unless and
until the premium thereof has been paid
An exception to this section is Section 78 which provides: 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.
Makati Tuscany v Court of Appeals- 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.
Section 78 allows waiver by the insurer of the condition of prepayment and
makes the policy binding despite the fact that premium is actually unpaid.
Section 77 does not expressly prohibit an agreement granting credit
extension. At the very least, both parties should be deemed in estoppel to
question the arrangement they have voluntarily accepted.
The Tuscany case has provided another exception to Section 77 that the
insurer may grant credit extension for the payment of the premium. 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.
It would be unjust 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. Estoppel bars it from taking refuge since Masagana
relied in good faith on such practice. Estoppel then is the fifth exception.

C.J. Davide
Facts:
In our decision of 15 June 1999 in this case, we reversed and set aside the
assailed decision[1] 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 Respondents 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 courts declaration that three of the policies were in force from

Facts: Plaintiff obtained from defendant fire insurance policies on its

property effective from May 1991 - 1992. On June 1992, plaintiff's properties
were raged by fire. On the same date plaintiff tendered, and defendant
accepted five checks as renewal premium payments for which a receipt was
issued. Masagana made a claim which was denied. the checks were then
returned to plaintiff. According to defendant, the claim cannot be entertained
for properties were burned before the tender of premium.

Issue: Whether or not section 77 of the insurance code must be strictly

applied to petitioners advantage despite its practice of granting 60 to 70
day credit term for the payment of its premium
Held: 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:
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.
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.
Tuscany case 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:
ARTICLE 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.

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs. THE

COURT OF APPEALS, AMERICAN HOME ASSURANCE CO.,
represented by American International Underwriters (Phils.),
Inc., respondent.
FACTS:
Sometime in early 1982, private respondent American Home Assurance Co.
(AHAC), represented by American International Underwriters (Phils.), Inc.,
issued in favor of petitioner Makati Tuscany Condominium Corporation
(TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building
and premises, for a period beginning 1 March 1982 and ending 1 March
1983, with a total premium of P466,103.05. The premium was paid on
installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16
November 1982, all of which were accepted by private respondent.
Successive renewals of the policies were made in the same manner. On
1984, the policy was again renewed and petitioner made two installment
payments, both accepted by private respondent, the first on 6 February
1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, petitioner refused to pay the balance of the premium.

Private respondent filed an action to recover the unpaid balance of

P314,103.05 for Insurance Policy. Petitioner explained that it discontinued
the payment of premiums because the policy did not contain a credit clause
in its favor. Petitioner further claimed that the policy was never binding and
valid, and no risk attached to the policy. It then pleaded a counterclaim for
P152,000.00 for the premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of P924,206.10 representing
the premium payments for 1982-85.
DECISION OF LOWER COURTS:
(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due
ISSUE:
Whether payment by installment of the premiums due on an insurance
policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612,
otherwise known as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the
thing 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.

RULING:
No, the contract remains valid even if the premiums were paid on
installments. 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 prepared in full.
At the very least, both parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted.
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. The obligation to pay premiums when
due is ordinarily as indivisible obligation to pay the entire premium.

Facts: Sometime in early 1982, American Home Assurance Co. (AHAC),

represented by American International Underwriters (Phils.), Inc., (AIUI)
issued in favor of Makati Tuscany Condominium Corporation (Tuscany)
Insurance Policy AH-CPP-9210452 on the latter's building and premises, for
a period beginning 1 March 1982 and ending 1 March 1983, with a total
premium of P466,103.05. The premium was paid on installments on 12
March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of
which were accepted by AHAC. On 10 February 1983, AHAC issued to
Tuscany Insurance Policy No. AH-CPP9210596,which replaced and
renewed the previous policy, for a term covering 1 March 1903 to 1 March
1984. The premium in the amount of P466,103.05 was again paid on
installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September
1983, and 21 November 1983. All payments were likewise accepted by
AHAC. On 20 January 1984, the policy was again renewed and AHAC
issued to Tuscany Insurance Policy AH-CPP-9210651 for the period 1
March 1984 to 1 March 1985. On this renewed policy, Tuscany made two
installment payments, both accepted by AHAC, the first on 6 February 1984
for P52,000.00 and the second, on 6 June 1984 for P100,000.00.
Thereafter, Tuscany refused to pay the balance of the premium.
Consequently, AHAC filed an action to recover the unpaid balance of
P314,103.05 for Insurance Policy AH-CPP-9210651. In its answer with
counterclaim, Tuscany admitted the issuance of Insurance Policy AH-CPP9210651. It explained that it discontinued the payment of premiums
because the policy did not contain a credit clause in its favor and the
receipts for the installment payments covering the policy for 1984-85, as
well as the two (2) previous policies, stated the following reservations: (2)
Acceptance of this payment shall not waive any of the company rights to
deny liability on any claim under the policy arising before such payments or
after the expiration of the credit clause of the policy; and (3) Subject to no
loss prior to premium payment. If there be any loss such is not covered.
Tuscany further claimed that the policy was never binding and valid, and no
risk attached to the policy. It then pleaded a counterclaim for P152,000.00
for the premiums already paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of P924,206.10 representing the premium
payments for 1982-85. After some incidents, Tuscany and AHAC moved for
summary judgment. On 8 October 1987, the trial court dismissed the
complaint and the counterclaim. Both parties appealed from the judgment of
the trial court. Thereafter, the Court of Appeals rendered a decision
modifying that of the trial court by ordering Tuscany to pay the balance of
the premiums due on Policy AH-CPP-921-651, or P314,103.05 plus legal
interest until fully paid, and affirming the denial of the counterclaim. Tuscany
filed the petition.
Issue: Whether payment by installment of the premiums due on an
insurance policy invalidates the contract of insurance.
Held: NO. The subject policies are valid even if the premiums were paid on
installments. The records clearly show that Tuscany and AHAC 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 3 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 Tuscany. 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. Thus, while the import of Section
77 is that prepayment of premiums is strictly required as a condition to the
validity of the contract, the Court was 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 premium 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. 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. It appearing from the peculiar circumstances
that the parties actually intended to make the three (3) insurance contracts

valid, effective and binding, Tuscany 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 (AH-CPP-9210651) in March 1985. Moreover,
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.