Philippine Phoenix Surety & Insurance Co. v. Woodworks, Inc.

G.R. No. L-25317 | 6 August 1979

TOPIC: Premium

FACTS:
 Defendant Woodworks applied for fire insurance from Plaintiff Phoenix. The Policy was for P500,000 over
Woodworks’ building, equipment, etc. for one year (July 21, 1960-61). The premium, plus other charges, amounted to
P10,593.36.
 Woodworks did not pay the premium.
 On April 19, 1961, Phoenix notified Woodworks of the cancellation of the Policy, allegedly upon Woodworks’ request.
 Phoenix credited P3,110.25 to Woodworks for the unexpired period of 94 days; then claimed the balance of P7,483.11
as “earned premium from July 21, 1960 to April 18, 1961, or 271 days”. It demanded from Woodworks, who
countered that Phoenix was not liable for any indemnity during the period the premiums were not paid.
 Phoenix sued Woodworks for the balance as “earned premium”. Woodworks again argued that its own failure to pay
the premium after the policy was issued put an end to the contract and rendered it unenforceable.
 Woodworks appealed to the CA, who certified the case to the SC on a question of law.

ISSUE: WON Phoenix may claim from Woodworks.

HOLDING and RATIO:

No, it may not. Appeal granted.
 In a contract of insurance, the element of consideration is the premium paid. Without it, there is no contract.
 The Policy between Phoenix and Woodworks included such provisions:
o Coverage if the property, or any part thereof, indicated in the policy is damaged by fire or lightning after
payment of Premium, at any time between 4 pm of July 21, 1960 and 4 pm of July 21, 1961;
o No payment in respect of any premium shall be deemed payment to Phoenix unless a printed receipt for the
same, signed by an official or agent of the company, shall have been given to Woodworks;
o Woodworks may request to terminate the insurance, and Phoenix will retain the short period rate for the
time the policy has been in force;
o Phoenix may also terminate the insurance, upon notifying Woodworks, in which case Phoenix will be liable to
repay on demand a ratable proportion of the premium for the unexpired term.
 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 payment.”
 There was no agreement for a credit extension given to Woodworks.
 This case is different from the other case with the same parties because in that case recovery of the balance of the
unpaid premium was allowed. This is because in said case, there was a perfected, partially performed contract of
insurance as far as payment of the premium was concerned.
 Here, no partial payment of premiums has been made. Therefore, the policy is deemed to have lapsed.
 “The non-payment 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.”
 If a fire did destroy the goods, Phoenix would have had a valid defense against recovery under the Policy it issued.
 Compliance by Woodworks 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.