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RepublicofthePhilippines
SUPREMECOURT
Manila
FIRSTDIVISION
G.R.No.L25317August6,1979
PHILIPPINEPHOENIXSURETY&INSURANCECOMPANY,plaintiffappellee,
vs.
WOODWORKS,INC.,defendantappellant.
ZosimoRivasforappellant.
ManuelO.Chanforappellee.

MELENCIOHERRERA,J.:
This case was certified to this Tribunal by the Court of Appeals in its Resolution of October 4, 1965 on a pure
question of law and "because the issues raised are practically the same as those in CAG.R. No. 32017R"
between the same parties, which case had been forwarded to us on April 1, 1964. The latter case, "Philippine
PhoenixSurety&InsuranceInc.vs.Woodworks,Inc.,"docketedinthisCourtasL22684,wasdecidedonAugust
31,1967andhasbeenreportedin20SCRA1270.
Specifically,thisactionisforrecoveryofunpaidpremiumonafireinsurancepolicyissuedbyplaintiff,Philippine
PhoenixSurety&InsuranceCompany,infavorofdefendantWoodworks,Inc.
Thefollowingaretheestablishedfacts:
On July 21, 1960, upon defendant's application, plaintiff issued in its favor Fire Insurance Policy No. 9749 for
P500,000.00wherebyplaintiffinsureddefendant'sbuilding,machineryandequipmentforatermofoneyearfrom
July 21, 1960 to July 21, 1961 against loss by fire. The premium and other charges including the margin fee
surchargeofP590.76andthedocumentarystampsintheamountofP156.60affixedonthePolicy,amountedto
P10,593.36.
ItisundisputedthatdefendantdidnotpaythepremiumstipulatedinthePolicywhenitwasissuednoratanytime
thereafter.
On April 19, 1961, or before the expiration of the oneyear term, plaintiff notified defendant, through its
IndorsementNo.F6963/61,ofthecancellationofthePolicyallegedlyuponrequestofdefendant. 1Thelatterhas
deniedhavingmadesucharequest.InsaidIndorsement,plaintiffcrediteddefendantwiththeamountofP3,110.25forthe
unexpired period of 94 days, and claimed the balance of P7,483.11 representing ,learned premium from July 21, 1960 to
18th April 1961 or, say 271 days." On July 6, 1961, plaintiff demanded in writing for the payment of said amount. 2
Defendant, through counsel, disclaimed any liability in its reply letter of August 15, 1961, contending, in essence, that it
neednotpaypremium"becausetheInsurerdidnotstandliableforanyindemnityduringtheperiodthepremiumswerenot
paid."3

OnJanuary30,1962,plaintiffcommencedactionintheCourtofFirstInstanceofManila,BranchIV(CivilCase
No.49468),torecovertheamountofP7,483.11as"earnedpremium."Defendantcontrovertedbasicallyonthe
theorythatitsfailure"topaythepremiumaftertheissuanceofthepolicyputanendtotheinsurancecontractand
renderedthepolicyunenforceable."4
OnSeptember13,1962,judgmentwasrenderedinplaintiff'sfavor"orderingdefendanttopayplaintiffthesumof
P7,483.11,withinterestthereonattherateof6%,perannumfromJanuary30,1962,untiltheprincipalshallhave
been fully paid, plus the sum of P700.00 as attorney's fees of the plaintiff, and the costs of the suit." From this
adverseDecision,defendantappealedtotheCourtofAppealswhich,asheretoforestated,certifiedthecaseto
usonaquestionoflaw.

Theerrorsassignedread:
1. The lower court erred in sustaining that Fire Insurance Policy, Exhibit A, was a binding contract
evenifthepremiumstatedinthepolicyhasnotbeenpaid.
2.ThatthelowercourterredinsustainingthatthepremiuminInsurancePolicy,ExhibitB,becamean
obligationwhichwasdemandableevenaftertheperiodinthePolicyhasexpired.
3.Thelowercourterredinnotdecidingthatapremiumnotpaidisnotadebtenforceablebyaction
oftheinsurer.
Wefindtheappealmeritorious.
Insuranceis"acontractwherebyoneundertakesforaconsiderationtoindemnifyanotheragainstloss,damage
orliabilityarisingfromanunknownorcontingentevent." 5Theconsiderationisthe"premium"."Thepremiummustbe
paidatthetimeandinthewayandmannerspecifiedinthepolicyand,ifnotsopaid,thepolicywilllapseandbeforfeited
byitsownterms."6

TheprovisionsonpremiuminthesubjectPolicyread:
THIS POLICY OF INSURANCE WITNESSETH, THAT in consideration of MESSRS.
WOODWORKS,INC.hereinaftercalledtheInsured,payingtothePHILIPPINEPHOENIXSURETY
AND INSURANCE, INC., hereinafter called the Company, the sum of PESOS NINE THOUSAND
EIGHTHUNDREDFORTYSIXONLYthePremiumforthefirstperiodhereinaftermentioned....
xxxxxxxxx
THECOMPANYHEREBYAGREESwiththeInsured...thatifthePropertyabovedescribed,orany
partthereof,shallbedestroyedordamagedbyFireorLightningafterpaymentofPremium, at any
timebetween4:00o'clockintheafternoonoftheTWENTYFIRSTdayofJULYOneThousandNine
Hundred and SIXTY and 4:00 o'clock in the afternoon of the TWENTY FIRST day of JULY One
ThousandNineHundredandSIXTYONE....(Emphasissupplied)
Paragraph"2"ofthePolicyfurthercontainedthefollowingcondition:
2.NopaymentinrespectofanypremiumshallbedeemedtobepaymenttotheCompanyunlessa
printed form of receipt for the same signed by an Official or dulyappointed Agent of the Company
shallhavebeengiventotheInsured.
Paragraph"10"ofthePolicyalsoprovided:
10. This insurance may be terminated at any time at the request of the Insured, in which case the
Company will retain the customary short period rate for the time the policy has been in force. This
insurancemayalsoatanytimebeterminatedattheoptionoftheCompany,onnoticetothateffect
beinggiventotheInsured,inwhichcasetheCompanyshallbeliabletorepayondemandaratable
proportionofthepremiumfortheunexpiredtermfromthedateofthecancelment.
Clearly, the Policy provides for prepayment of premium. Accordingly "when the policy is tendered the insured
mustpaythepremiumunlesscreditisgivenorthereisawaiver,orsomeagreementobviatingthenecessityfor
prepayment."7Toconstituteanextensionofcredittheremustbeaclearandexpressagreementtherefor."8
FromthePolicyprovisions,wefailtofindanyclearagreementthatacreditextensionwasaccordeddefendant.
Andevenifitweretobepresumedthatplaintiffhadextendedcreditfromthecircumstancesoftheunconditional
deliveryofthePolicywithoutprepaymentofthepremium,yetitisobviousthatdefendanthadnotacceptedthe
insurer'soffertoextendcredit,whichisessentialforthevalidityofsuchagreement.
Anacceptanceofanoffertoallowcredit,ifonewasmade,isasessentialtomakeavalidagreement
forcredit,tochangeaconditionaldeliveryofaninsurancepolicytoanunconditionaldelivery,asitis
tomakeanyothercontract.Suchanacceptancecouldnotbemerelyamentalactorstateofmind,
butwouldrequireapromisetopaymadeknowninsomemannertodefendant.9
Inthisrespect,theinstantcasediffersfromthatinvolvingthesamepartiesentitledPhilippine Phoenix Surety &
InsuranceInc.vs.Woodworks,Inc.,10whererecoveryofthebalanceoftheunpaidpremiumwasallowedinasmuchasin
thatcase"therewasnotonlyaperfectedcontractofinsurancebutapartiallyperformedoneasfarasthepaymentofthe
agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums has been
madewhatsoever.

Sincethepremiumhadnotbeenpaid,thepolicymustbedeemedtohavelapsed.
Thenonpaymentofpremiumsdoesnotmerelysuspendbutput,anendtoaninsurancecontract,
sincethetimeofthepaymentispeculiarlyoftheessenceofthecontract.11
...theruleisthatunderpolicyprovisionsthatuponthefailuretomakeapaymentofapremiumor
assessmentatthetimeprovidedfor,thepolicyshallbecomevoidorforfeited,ortheobligationofthe
insurershallcease,orwordstolikeeffect,becausethecontractsoprescribesandbecausesucha
stipulationisamaterialandessentialpartofthecontract.Thisistrue,forinstance,inthecaseoflife,
healthandaccident,fireandhailinsurancepolicies.12
In fact, if the peril insured against had occurred, plaintiff, as insurer, would have had a valid defense against
recoveryunderthePolicyithadissued.ExplicitinthePolicyitselfisplaintiff'sagreementtoindemnifydefendant
forlossbyfireonly"afterpaymentofpremium,"supra.Compliancebytheinsuredwiththetermsofthecontractis
aconditionprecedenttotherightofrecovery.
Theburdenisonaninsuredtokeepapolicyinforcebythepaymentofpremiums,ratherthanonthe
insurertoexerteveryefforttopreventtheinsuredfromallowingapolicytoelapsethroughafailure
to make premium payments. The continuance of the insurer's obligation is conditional upon the
paymentofpremiums,sothatnorecoverycanbehaduponalapsedpolicy,thecontractualrelation
betweenthepartieshavingceased.13
Moreover,"aninsurercannottreatacontractasvalidforthepurposeofcollectingpremiumsandinvalidforthe
purposeofindemnity."14
The foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612,
promulgatedonDecember18,1974),whichnowprovidesthatnocontractofinsuranceissuedbyaninsurance
companyisvalidandbindingunlessanduntilthepremiumthereofhasbeenpaid,notwithstandinganyagreement
tothecontrary.
WHEREFORE,thejudgmentappealedfromisreversed,andplaintiff'scomplaintherebydismissed.
Teehankee(Chairman),Fernandez,GuerreroandDeCastro,JJ.,concur.
Makasiar,J.,isonleave.

#Footnotes
1Exhibits"E"and"F",parag.6,Complaint.
2Exhibit"C".
3Exhibit"D".
4Parag.7,Answer.
5Sec.2,ActNo.2427(TheInsuranceLaw).
6Glaragavs.SunLifeAssuranceCo.,49Phil.737(1926).
7CouchonInsurance,2ndVol.I,p.376,par.(9:4).
8Rogersvs.GreatWestL.A.Co.CA8Minn158F2d474.
9Gillenv.Bayfield,329Mo.681,46S.W.2d571,citedinInsuranceLawandPracticebyJohnAlan
Appleman,Vol.14,p.270.
1020SCRA1270(1967).
11NationalLeatherCo.,Inc.,vs.U.S.LifeInsuranceCo.,87Phil.410(1950).
12MutualFireCo.vs.Maple,60Or359,119p.48443Am.Jur.2d.,pp.630631.
13InsuranceLaw&PracticebyJohnAlanAppleman,Vol.14,p.381.
14InsuranceLaw&PracticebyJohnAlanAppleman,Vol.15,p.331.

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