Valenzuela v.

CA
GR No. 83122, 19 October 1990

FACTS

 Petitioner Arturo Valenzuela is a General Agent of private respondent Philippine

American General Insurance Co. Inc. (Philamgen) since 1965. As such, he was
authorized to solicit and sell in behald of Philamgen all kinds of non-life insurance
and was entitled to receive full agent’s commission of 32.5 %.
 Thereafter, Valenzuela solicited marine insurance from one of his clients, the Delta
Motors, Inc. in the amount of Php 4.4 million from which he was entitled to a
commission.
 However, Valenzuela did not receive his full commission which should have
amounted to Php 1.6 million. Furthermore, during the period of 1976 to 1978,
premium payments amounting to Php 1,946,886.00 were paid directly to
Philamgen, not to Valenzuela.
 In 1977, Philamgen pressed its intent to share in the commission due Valenzuela
on a 50-50 basis, to which Valenzuela refused.
 Philamgen continued in insisting on the sharing of the commission, but Valenzuela
still refused.
 Because of the constant refusal, the officers of Philamgen took drastic action and
performed the following:
o Reversed the commission due to Valenzuela from Delta Motors by not
crediting it to his account.
o Placed agency transactions on a cash-and-carry basis
o Threatened the cancellation of policies issued by his agency
o Leak out news that Valenzuela has a substantial account with Philamgen
 All of these acts resulted in the decline of his business as an insurance agent.
 Eventually, Philamgen terminated the General Agency Agreement of Valenzuela.
 Valenzuela sought relief by filing a complaint against Philamgen.
o Because of the acts of harassment performed by Philamgen, the trial court
ruled in favor of Valenzuela and ordered Philamgen to reinstate him and to
pay for his commission + damages.
 On appeal, the CA reversed the decision of the trial court and ordered Valenzuela
to pay the amount of Php 1,932,532.17 representing the unpaid and uncollected
premiums from the policy. Hence, this petition. (Because of the conflicting
conclusions of the Trial Court and the CA, the SC deemed it necessary to scrutinize
the evidence and records of the case)

ISSUE + RATIO

Whether Valenzuela is liable for the unpaid and uncollected premiums. NO

  Under Section 77 of the Insurance Code, the remedy for the non-payment of
premiums is to put an end to and render the insurance policy not binding.1
 In Philippine Phoenix Surety and Insurance, Inc. v. Woodworks, Inc., the SC held
that the 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.
 In the case at bar, since admittedly the premiums have not been paid, the policies
issued have lapsed. The insurance coverage did not go into effect or did not
continue and the obligation of Philamgen as insurer ceased. Hence, for Philamgen
which had no more liability under the lapsed and inexistent policies to demand,
much less sue Valenzuela for the unpaid premiums would be the height of injustice
and unfair dealing.
 Hence, with the lapsing of the policies through the non- payment of premiums by
the insured there were no more insurance contracts to speak of.

1
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