JAMES MCGUIRE, PLAINTIFF AND APPELLEE, VS. THE MANUFACTURERS LIFE INSURANCE CO., DEFENDANT AND APPELLANT.

This case was submitted to and decided by the Court of First
Instance of Samar upon a stipulation of facts, from which it appears
that:

On August 13, 1932, the defendant issued an insurance policy on the
life of Jaime McGuire for the sum of $5,000, and an additional sum of
$5,000 as double indemnity accident benefit, payable to the plaintiff
as beneficiary. The insured paid the premiums on said policy up to and
including that due on July 19, 1940. On June 22, 1940, the insured
secured from the defendant a loan of $760 on said insurance policy. The
insured failed to pay the loan with the interest thereon on January 1,
1941, when it became due, or on any other date thereafter. He likewise
failed to pay the premiums which fell due on July 19, 1941, as well as
those payable thereafter. Paragraphs 6, 7, and 3 of the stipulation of
facts read as follows:

“(6) That upon the default of the insured to pay the
premiums due on July 19, 1941, and subsequent ones, the defendant
insurance company applied the stipulation contained in clause 8
(Automatic Premium Loan) of the Provisions of the policy Exhibit A and
said policy was carried on under said non forfeiture clause of the
policy up to and including March 1, 1942, the date said policy lapsed,
as shown in the letter of the defendant company of January 17, 1946, to
plaintiff, a copy of which is hereto attached, marked Exhibit B and is
made a part hereof;

“(7) That the insured Jaime McGuire died on August 4, 1943, in a motorcycle accident at Borongan, Samar, Philippines;

“(8) That during the interim period between March 1, 1942, the date the
policy lapsed, to August 4, 1943, the date of the death of the insured,
the insured attempted to reinstate the policy under the stipulation
contained in clause 3 of the ‘Provisions’ of the same but his attempts
failed because of his inability to communicate with defendant’s branch
office at Manila due to the then existence of war and the occupation of
the Philippines by enemy forces from January 1, 1942, to February,
1945.”

Upon those facts the trial court rendered judgment in favor of the
plaintiff, adjudging the defendant to pay to him the sum of P20,000,
minus the premiums due and unpaid up to the date of the death of the
insured, with legal interest thereon from the date of the filing of the
complaint, and the costs.

The trial court considered erroneous paragraph 6 of the stipulation
of facts above quoted to the effect that the policy in question lapsed
on March 1, 1942, for failure to pay the premiums due thereafter on
account of the war, the trial court being of the opinion that the war
legally suspended the obligation of the insured to pay the premiums up
to the time of the death of the. insured, which occurred during said
war, citing the decision of the Court of Appeals to that effect in
Gubagaras vs. West Coast Life Insurance Company, CA-G. R. No. 1628, January 6, 1949.

According to the complaint, plaintiff’s theory is that, although
the policy lapsed on March 1, 1942, the insured had the privilege of
reinstating it so as to keep it in force up to the time of his death
upon a written application within three years from the date of lapse
and upon production of evidence of insurability satisfactory to the
company and the payment of all overdue premiums and any other
indebtedness to the company, but that the insured was unable to
exercise that privilege because of the war. Adopting another theory,
the trial court held that it was unnecessary for the plaintiff to
invoke the reinstatement clause of the policy because it had not lapsed
inasmuch as the failure to pay the premiums was due to the war.

Plaintiff’s theory is untenable. Even if the insured had applied
for reinstatement within three years after the policy had lapsed, his
right thereto was not absolute under the terms of the policy but
discretionary on the part of the insurance company, which had the right
to deny the reinstatement if it was not satisfied as to the
insurability of the insured and if the latter did not pay all overdue
premiums and all other indebtedness to the company. After the death of
the insured the insurance company could not be compelled to entertain
an application for reinstatement of the policy because the conditions
to reinstatement could no longer be determined and satisfied.

Aside from the error of the trial court in motu proprio
setting aside the stipulation of fact that the policy had lapsed on
March 1, 1942, its theory that the payment of premiums was legally
suspended during the war is contrary to the decision of this court of
August 31, 1950, in Paz Lopez de Constantino vs. Asia.Life Insurance Company, and Agustina Peralta vs. Asia Life Insurance Company, G.R. Nos. L-1669 and 1670, supra,
p. 248.In those cases we rejected the New York rule which holds that
war between :states in which the parties reside suspends the contract
of life insurance and that, upon tender of all premiums due by the
insured or his representative after the war has terminated, the
contract revives and becomes fully operative; and adopted the United
States rule which declares that the contract is not merely suspended,
but is abrogated by reason of nonpayment of premiums, since the time of
the payments is peculiarly of the essence of the contract. Speaking
thru Mr. Justice Bengzon, this court, after a review of various
pertinent cases, further said:

“After perusing the Insurance Act, we are firmly persuaded that the
nonpayment of premiums is such a vital defense of insurance companies
that since the very beginning, said Act 2427 expressly preserved it, by
providing that after the policy shall have been in.force for two years,
it shall become incontestable (i.e., the insurer shall have no defense)
except for fraud, nonpayment of premiums, and military or
naval service in time of war (sec. 184 [b], Insurance Act). And when
Congress recently amended this section (Rep. Act 171), the defense of
fraud was eliminated, while the defense of nonpayment of premiums was
preserved. Thus the fundamental character of the undertaking to pay
premiums and the high importance of the defense of non- payment
thereof, was specifically recognized.”

We reiterate the doctrine laid down in the Asia Life Insurance Company cases above cited.

It appears that the insured in the present case has used up all the
reserve value of the policy in question thru loans in cash and the
application of the non forfeiture clause by keeping the policy
subsisting until March 1, 1942.

Reversing the judgment appealed from, we absolve the defendant-appellant from the complaint, with costs.

Moran, C.J., Paras, Pablo, Bengzon, Tuason, Montemayor, and Reyes, JJ., concur.