G.R. No.

L-1669

PAZ LOPEZ DE CONSTANTINO & AGUSTINA PERALTA

vs.
ASIA LIFE INSURANCE COMPANY

DOCTRINES & THEORIES:

CONNECTICUT RULE – states that there are two elements in the consideration for which the annual
premium is paid — First, the mere protection for the year, and second, the privilege of renewing the
contract for each succeeding year by paying the premium for that year at the time agreed upon.
According to this view of the contract, the payment of premiums is a condition precedent, the non-
performance would be illegal necessarily defeats the right to renew the contract

NEW YORK RULE - declares that the contract is not merely suspended, but is abrogated by reason
of non-payments is peculiarly of the essence of the contract. It additionally holds that it would be
unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the years when the policy had been in force.

UNITED STATES RULE - declares that the contract is not merely suspended, but is abrogated by
reason of non-payments is peculiarly of the essence of the contract. It additionally holds that it would
be unjust to allow the insurer to retain the reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the years when the policy had been in force.

FACTS: Two cases, appealed from the Court of First Instance of Manila, call for decision of the
question whether the beneficiary in a life insurance policy may recover the amount thereof although
the insured died after repeatedly failing to pay the stipulated premiums, such failure having been
caused by the last war in the Pacific.

First case. Asia Life Insurance Company, a foreign corporation incorporated under the laws of
Delaware, U.S.A., insured the life of Arcadio Constantino for a term of twenty years whereby Paz
Lopez de Constantino was regularly appointed beneficiary. After that first payment, no further
premiums were paid. Arcadio Constantino died. It is admitted that the defendant, being an American
corporation, had to close its branch office in Manila by reason of the Japanese occupation.

Second case. Asia Life Insurance Company issued its Policy of Joint Life 20-Year Endowment
Participating with Accident Indemnity, covering the lives of the spouses Tomas Ruiz and Agustina
Peralta. The annual premium stipulated in the policy was regularly paid from. However, the mode of
payment of premiums was changed from annual to quarterly. No further payments were handed to
the insurer. Upon the Japanese occupation, the insured and the insurer became separated by the
lines of war, and it was impossible and illegal for them to deal with each other. Tomas Ruiz died.
Agustina Peralta, his beneficiary, demanded payment however denied by Asia Life on the ground of
non-payment of the premiums.

COMMON: Plaintiffs alleged that non-payment of the premiums was caused by the closing of
defendant's offices in Manila during the Japanese occupation and the impossible circumstances
created by war.

ISSUE: Whether plaintiffs may not be able to recover from Asia Life despite their non-payment as a
consequence of war.
RULING: The Court adopted the United States Rule which states that the contract is not merely
suspended, but is abrogated by reason of non-payments is peculiarly of the essence of the contract.
It additionally holds that it would be unjust to allow the insurer to retain the reserve value of the policy,
which is the excess of the premiums paid over the actual risk carried during the years when the policy
had been in force.

Since contracts of insurance are contracts of indemnity in which terms and conditions specified in the
policy, the parties have a right to impose such reasonable conditions at the time of the making of the
contract as they may deem wise and necessary. The rate of premium is measured by the character of
the risk assumed. The insurance company, for a comparatively small consideration, undertakes to
guarantee the insured against loss or damage, upon the terms and conditions agreed upon, and upon
no other, and when called upon to pay, in case of loss, the insurer, therefore, may justly insists upon
a fulfillment of these terms. If the insured cannot bring himself within the conditions of the policy, he is
not entitled for the loss. The terms of the policy constitute the measure of the insurer's liability, and in
order to recover the insured must show himself within those terms; and if it appears that the contract
has been terminated by a violation, on the part of the insured, of its conditions, then there can be no
right of recovery. The compliance of the insured with the terms of the contract is a condition
precedent to the right of recovery. Hence, all premium payments are due in advance and any
unpunctuality in making any such payment shall cause this policy to lapse.