Valenzuela vs. CA [G.R. No. 83122.

October 19, 1990] faith and is subjected only to the principals liability for
Petitioner: Arturo P. Valenzuela and Hospitalita N. Valenzuela damages. It ordered Valenzuela to pay Philamgen
Respondent: Bienvenido M. Aragon, Robert E. Parnell, Carlos K. P1,932,532.17 representing the unpaid and
Catolico and the Philippine American General Insurance Company , uncollected premiums.
Inc.

Doctrine: 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.

Facts:
1. Arturo Valenzuela is a General Agent of private respondent
Phil. American General Insurance Company Inc. (Philamgen)
since 1965
2. He would solicit & sell in behalf of Philamgen all kinds of
non-life insurance and he would receive full agents
commission of 32.5%
3. Valenzuela then solicited marine insurance to Delta Motors
Inc. amounting to P4.4m wherein he would be entitled to
32% commission.
4. The premium payments amounting to P1.946,886 were paid
directly to Philamgen and Valuenzas commission to which
he is entitled amounting to P632,737
5. Philamgen started to become interested & wanted a share in
the commission that would be due to Valenzuela but the
latter refused.
6. There were certain proposals made by Philamgen and its
President but Valenzuela firmly reiterated his objection.
7. Because of that, Philamgen and its officers reversed his
commission due him, placed agency transactions on a cash
& carry basis thus removing the 60-day credit for premiums
due, threatened to cancel policies issued by Valenzuelaas
agency and even leaked news that he has substantial
accounts w/ Philamgen. All of which resulted in the decline
of his business as insurance agent.
8. Subsequently, Philamgen terminated the General Agency
Agreement of Valenzuela. Hence, Valenzuela sought relief
before the court.
9. RTC: In favor of Valenzuela. The termination was improper
since the principal cause of the termination as General
Agent was due to Valenzuelas refusal to share his Delta
commission.
10.CA: In favor of Philamgen. It held that the power of the
principal to revoke the agency is so pervasive that the
termination may be effected even if the principal acts in bad
ISSUE: W/N Valenzuela is liable to Philamgen for the unpaid and
uncollected premiums? NO
HELD:
SC held there was no factual and legal basis for the CA issue such
order regarding the unpaid and uncollected premimus. Under Sec
77 of the Insurance Code, the remedy for the non-payment
premiums is to put an end to and render the insurance policy not
binding
Sec. 77 x x x [N]otwithstanding any agreement to the contrary, no
policy or contract of insurance is valid and binding unless and until
the premiums thereof have been paid except in the case of a life or
industrial life policy whenever the grace period provision applies
(P.D.612, as amended otherwise known as the Insurance Code of
1974)
In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc.
the court held that, non-payment of premium 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. An insurer
cannot treat a contract as valid for the purpose of collecting
premiums and invalid for the purpose of indemnity.
In Arce v. The Capital Insurance and Surety Co., Inc. the SC held
that, unless premium is paid, an insurance contract does not take
effect.
In the case of Capital Insurance & Surety Co., Inc. v. Delgado was
decided in the light of the Insurance Act before Sec. 72 was
amended by the underscored portion. Prior to the Amendment, an
insurance contract was effective even if the premium had not been
paid so that an insurer was obligated to pay indemnity in case of
loss and correlatively he had also the right to sue for payment of
the premium. But the amendment to Sec. 72 has radically changed
the legal regime in that unless the premium is paid there is no
insurance.
In this case, since the premiums have not been paid, the
policies issued have lapsed. And the insurance coverage
didnt go into effect or didnt continue and the obligation of
Philamgen as insurer ceased.
Hence, Philamgen had no more liability under the lapsed
and inexistent policies. Philamgen could neither demand nor
sue Valenzuela for the unpaid premiums since there were no
more insurance contracts to speak of due to the lapsing of
the policies thru the non-payment of premiums by the
insured.
Note: This case was more on Agency. Yan lang tlga ung Insurance part.