TIBAY v.

CA (FORTUNE LIFE & GENERAL INSURANCE)

257 SCRA 126

BELLOSILLO; May 24, 1996

FACTS

- On 22 January 1987 Fortune Life and General Insurance Co., Inc. (FORTUNE) issued Fire Insurance Policy No.
136171 in favor of Violeta R. Tibay and/or Nicolas Roraldo on their two-storey residential building located at 5855
Zobel Street, Makati City, together with all their personal effects therein. The insurance was for P600,000 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 thus leaving a considerable balance unpaid.

- On 8 March 1987 the insured building was completely destroyed by fire. Two days later, Violeta Tibay paid the
balance of the premium. On the same day, she filed with FORTUNE a claim on the fire insurance policy. Her claim
was accordingly referred to its adjuster, Goodwill Adjustment Services, Inc. (GASI), which immediately wrote Violeta
requesting her to furnish it with the necessary documents for the investigation and processing of her claim.
Petitioner forthwith complied. On 28 March 1987 she signed a nonwaiver agreement with GASI to the effect that
any action taken by the companies shall not be, or be claimed to be, an admission of liability.

- FORTUNE denied the claim of Violeta for violation of Policy Condition No. 2 ♪ and of Sec. 77 of the Insurance Code.
Efforts to settle the case before the Insurance Commission proved futile. On 3 March 1988 Violeta and the other
petitioners sued FORTUNE for damages in the amount of P600,000 representing the total coverage of the fire
insurance policy plus 12% interest per annum, P100,000 moral damages, and attorney's fees equivalent to 20% of
the total claim. The trial court ruled for petitioners. CA reversed.

ISSUE
WON a fire insurance policy is valid, binding and enforceable upon mere partial payment of premium

HELD
NO

Ratio Where the insurer and the insured expressly stipulated that the policy is not in force until the premium has
been fully paid the payment of partial premium by the assured in this particular instance should not be considered
the payment required by the law and the stipulation of the parties. Rather, it must be taken in the concept of a
deposit to be held in trust by the insurer until such time that the full amount has been tendered and duly receipted
for.

Reasoning

- As expressly agreed upon in the contract, full payment must be made before the risk occurs for the policy to be
considered effective and in force. Thus, no vinculum juris whereby the insurer bound itself to indemnify the
assured according to law ever resulted from the fractional payment of premium. The insurance contract itself
expressly provided that the policy would be effective only when the premium was paid in full. It would have been
altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to
be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

- Indeed, and far more importantly, the cardinal polestar in the construction of an insurance contract is the
intention of the parties as expressed in the policy. Courts have no other function but to enforce the same. The rule
that contracts of insurance will be construed in favor of the insured and most strongly against the insurer should
not be permitted to have the effect of making a plain agreement ambiguous and then construe it in favor of the
insured. Verily, it is elemental law that the payment of premium is requisite to keep the policy of insurance in force.
If the premium is not paid in the manner prescribed in the policy as intended by the parties the policy is ineffective.
Partial payment even when accepted as a partial payment will not keep the policy alive even for such fractional part
of the year as the part payment bears to the whole payment.

Disposition Petition is DENIED. Decision of the CA is AFFIRMED.

PHILIPPINE PHOENIX SURETY & INSURANCE, INC. vs.WOODWORKS, INC.

G.R. No. L-22684, 31 August 1967

FACTS:

Plaintiff Philippine Phoenix Surety issued to defendant companya fire insurance policy for the amount of
P300,000.00. The defendant was obligated to pay P6,051.95 as premium of the said policy. However, the defendant
was only able to payP3,000.00. Despite several demands made by the plaintiff on the defendant to pay the amount
of P3,522.09, the latter failed to pay.

ISSUE: Whether or not the insurance company has the right to demand the balance of the premium

HELD: YES. There is, consequently, no doubt at all that, as between the insurer and the insured, there was not only
a perfected contract of insurance but a partially performed one as far as the payment of the agreed premium was
concerned. Thereafter the obligation of the insurer to pay the insured the amount for which the policy was issued
in case the conditions therefore had been complied with, arose and became binding upon it, while the obligation of
the insured to pay the remainder of the total amount of the premium due became demandable.

As the contract had become perfected, the parties could demand from each other the performance of whatever
obligations they had assumed. In the case of the insurer, it is obvious that it had the right to demand from the
insured the completion of the payment of the premium due or sue for the rescission of the contract. As it chose to
demand specific performance of the insured’s obligation to pay the balance of the premium, the latter’s duty to pay
is indeed indubitable.

Wherefore, the appealed decision being in accordance with law and the evidence, the same is hereby affirmed,
with cost

Philippine Phoenix Surety & Insurance Company vs. Woodworks Inc. [GR L-25317, 6 August 1979] First
Division, Melencio-Herrera (J): 4 concur, 1 abroad.

Facts: On 21 July 1960, upon Woodworks Inc.'s application, Philippine Phoenix Surety & Insurance Company
(Phoenix) issued in its favor Fire Insurance Policy 9749 for P500,000.00 whereby Phoenix insured Woodworks Inc.'s
building, machinery and equipment for a term of one year from 21 July 1960 to 21 July 1961 against loss by fire.
The premium and other charges including the margin fee surcharge of P590.76 and the documentary stamps in the
amount of P156.60 affixed on the Policy, amounted to P10,593.36. Woodworks Inc. did not pay the premium
stipulated in the Policy when it was issued nor at any time thereafter. On 19 April 1961, or before the expiration of
the one-year term, Phoenix notified Woodworks Inc., through its Indorsement F-6963/61, of the cancellation of the
Policy allegedly upon request of Woodworks Inc. The latter has denied having made such a request. In said
Indorsement, Phoenix credited Woodworks Inc. with the amount of P3,110.25 for the unexpired period of 94 days,
and claimed the balance of P7,483.11 representing "earned premium from 21 July 1960 to 18 April 1961 or, say 271
days. On 6 July 1961, Phoenix demanded in writing for the payment of said amount. Woodworks Inc., through
counsel, disclaimed any liability in its reply-letter of 15 August 1961, contending, in essence, that it need not pay
premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not
paid." On 30 January 1962, Phoenix commenced action in the Court of First Instance of Manila, Branch IV (Civil
Case 49468), to recover the amount of P7,483.11 as "earned premium." Woodworks Inc. controverted basically on
the theory that its failure "to pay the premium after the issuance of the policy put an end to the insurance contract
and rendered the policy unenforceable." On 13 September 1962, judgment was rendered in Phoenix's favor
"ordering Woodworks Inc. to pay Phoenix the sum of P7,483.11, with interest thereon at the rate of 6% per annum
from 30 January 1962, until the principal shall have been fully paid, plus the sum of P700.00 as attorney's fees of
the Phoenix, and the costs of the suit." From this adverse Decision, Woodworks Inc. appealed to the Court of
Appeals which certified the case to the Supreme Court on a question of law.

Issue: Whether the Fire Insurance Policy was a binding contract even if the premium stated in the policy has not
been paid.

Held: Insurance is "a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event." The consideration is the "premium". "The
premium must be paid at the time and in the way and manner specified in the policy and, if not so paid, the policy
will lapse and be forfeited by its own terms." The Policy provides for pre-payment of premium. Accordingly, "when
the policy is tendered the insured must pay the premium unless credit is given or there is a waiver, or some
agreement obviating the necessity for prepayment." To constitute an extension of credit there must be a clear and
express agreement therefor. From the Policy provisions, there was no clear agreement that a credit extension was
accorded Woodworks Inc. And even if it were to be presumed that Phoenix had extended credit from the
circumstances of the unconditional delivery of the Policy without prepayment of the premium, yet it is obvious that
Woodworks Inc. had not accepted the insurer's offer to extend credit, which is essential for the validity of such
agreement. An acceptance of an offer to allow credit, if one was made, is as essential to make a valid agreement for
credit, to change a conditional delivery of an insurance policy to an unconditional delivery, as it is to make any
other contract. Such an acceptance could not be merely a mental act or state of mind, but would require a promise
to pay made known in some manner to Woodworks Inc. In this respect, the present case differs from that involving
the same parties where recovery of the balance of the unpaid premium was allowed inasmuch as in that case
"there was not only a perfected contract of insurance but a partially performed one as far as the payment of the
agreed premium was concerned." This is not the situation obtaining here where no partial payment of premiums
has been made whatsoever. Since the premium had not been paid, the policy must be deemed to have lapsed. The
nonpayment of premiums does not merely suspend but puts an end to an insurance contract, since the time of the
payment is peculiarly of the essence of the contract. The rule is that under policy provisions that upon the failure to
make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or
the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because
such a stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health
and accident, fire and hail insurance policies. In fact, if the peril insured against had occurred, Phoenix, as insurer,
would have had a valid defense against recovery under the Policy it had issued. Explicit in the Policy itself is
Phoenix's agreement to indemnify Woodworks Inc. for loss by fire only "after payment of premium. Compliance by
the insured with the terms of the contract is a condition precedent to the right of recovery. The burden is on an
insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to
prevent the insured from allowing a policy to elapse through a failure to make premium payments. The
continuance of the insurer's obligation is conditional upon the payment of premiums, so that no recovery can be
had upon a lapsed policy, the contractual relation between the parties having ceased. Moreover, an insurer cannot
treat a contract as valid for the purpose of collecting premiums and invalid for the purpose of indemnity. The
foregoing findings are buttressed by section 77 of the Insurance Code (Presidential Decree No. 612, promulgated
on December 18, 1974), which now provides that no contract of insurance issued by an insurance company is valid
and binding unless and until the premium thereof has been paid, notwithstanding any agreement to the contrary.