Areola vs CA

Facts:

Prudential Guarantee cancelled Areola’s personal accident insurance on the grounds that
the latter failed to pay his premiums 7 months after issuing the policy. Areola was supposed to
pay the total amount of Php 1,609.65 which included the premium of Php 1,470.00,
documentary stamp of Php 110.25 and 2% premium tax of Php 29.40. The statement of
account had a stipulation not considering it a receipt. It also reminded the customer to ask for a
receipt after payment. There was also a stipulation calling for a demand for a provisional receipt
after payment to an agent. A provisional receipt was sent to petitioner telling him that the
provisional receipt would be confirmed by an official one. The company then cancelled the
policy for non-payment of premiums. After being surprised, Areola confronted a company agent
and demanded an official receipt. The latter told him that it was a mistake, but never gave him
an official receipt. Areola sent a letter demanding that he be reinstated or he would file for
damages if his demand was not met. The company then told him that his payments weren’t in
full yet. The company replied to Areola by telling him that there was reason to believe that no
payment has been made since no official receipt was issued. The company then told him that
they would still hold him under the policy. The company then confirmed that he paid the
premium and that they would extend the policy by one year.

Thereby, the company offered to reinstate same policy it had previously cancelled and
even proposed to extend its lifetime on finding that the cancellation was erroneous and that the
premiums were paid in full by petitioner-insured but were not remitted by the company's
branch manager, Mr. Malapit. However, they were too late for Areola already filed an action for
breach of contract in the trial court. The company’s defense lay in rectifying its omission;
hence, there was no breach of contract. The court ruled in favor of Areola and asked Prudential
to pay 250,000 pesos in moral and exemplary damages. The court held that the company was
in bad faith in cancelling the policy. Had the insured met an accident at that time, he wouldn’t
be covered by the policy. This ruling was challenged on appeal by respondent insurance
company, denying bad faith in unilaterally cancelling the policy. The AC absolved Prudential on
the grounds that it was not motivated by negligence, malice or bad faith in cancelling subject
policy. Rather, the cancellation of the insurance policy was based on what the existing records
showed. The court even added that the errant manager who didn’t remit the profits was forced
to resign. Areola then filed for a petition in the Supreme Court.

Issues:

1. Whether or not erroneous cancellation of insurance policy entitle petitioner-insured to

2. Whether or not reinstatement of insurance policy in order to rectify the error, obliterate the
liability for damages?
Held:

1. Yes. Petitioner alleged that the manager’s misappropriation of his premium payments is the
proximate cause of the cancellation of the insurance policy. Subsequent reinstatement could not
possibly absolve respondent insurance company from liability, due to the breach of contract. He
contended that damage had already been done.

Prudential averred that the equitable relief sought by petitioner-insured was granted to the
filing of the complaint, petitioner-insured is left without a cause of action. Reinstatement
effectively restored petitioner-insured to all his rights under the policy.

The court held that Malapit's fraudulent act of misappropriating the premiums paid by
petitioner-insured is directly imputable to respondent insurance company. A corporation, such
as respondent insurance company, acts solely thru its employees. The latters' acts are
considered as its own. Malapit represented its interest and acted in its behalf. His act of
receiving the premiums collected is well within the province of his authority. Thus, his receipt of
said premiums is receipt by private respondent insurance company who, by provision of law is
bound by the acts of its agent.

Article 1910 thus reads:

Art. 1910. The principal must comply with all the obligations which the agent may have
contracted within the scope of his authority.

As for any obligation wherein the agent has exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.

Malapit's failure to remit the premiums he received cannot constitute a defense for private
respondent insurance company; no exoneration from liability could result therefrom. The fact
that private respondent insurance company was itself defrauded due to the anomalies that took
place does not free the same from its obligation to petitioner Areola. As held in Prudential Bank
v. Court of Appeals

“A bank is liable for wrongful acts of its officers done in the interests of the bank or in the
course of dealings of the officers in their representative capacity but not for acts outside the
scope of their authority. Accordingly, a banking corporation is liable to innocent third persons
where the representation is made in the course of its business by an agent acting within the
general scope of his authority even though the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person.”

Prudential is liable for damages for the fraudulent acts committed by Malapit. Reinstating the
insurance policy cannot obliterate the injury inflicted. A contract of insurance creates reciprocal
obligations for both insurer and insured. Reciprocal obligations are those which arise from the
same cause and in which each party is both a debtor and a creditor of the other, such that the
obligation of one is dependent upon the obligation of the other.

2. No. Due to the agreement to enter into a contract of insurance where Prudential promised to
extend protection to petitioner-insured against the risk insured, there was a debtor creditor
relationship between the two parties. Under Article 1191, the injured party is given a choice
between fulfilment or rescission of the obligation in case one of the obligors fails to comply with
what is incumbent upon him. However, said article entitles the injured party to payment of
damages, regardless of whether he demands fulfilment or rescission of the obligation.

The damages would be nominal because the insurance company took steps to rectify the
contract. There was also no actual or substantial damage inflicted. Nominal damages are
"recoverable where a legal right is technically violated and must be vindicated against an
invasion that has produced no actual present loss of any kind, or where there has been a
breach of contract and no substantial injury or actual damages whatsoever have been or can be
shown.”
 Makati Tuscany Condominium Corp. vs. CA

Facts:

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC),
represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner
Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452
on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March
1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March
1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by
private respondent.

Successive renewals of the policies were made in the same manner. On 1984, the policy
was again renewed and petitioner made two installment payments, both accepted by private
respondent, the first on 6 February 1984 for Php 52,000.00 and the second, on 6 June 1984 for
Php 100,000.00. Thereafter, petitioner refused to pay the balance of the premium. Private
respondent filed an action to recover the unpaid balance of Php 314,103.05 for Insurance
Policy. Petitioner explained that it discontinued the payment of premiums because the policy did
not contain a credit clause in its favor. Petitioner further claimed that the policy was never
binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for Php
152,000.00 for the premiums already paid for 1984-85, and in its answer with amended
counterclaim, sought the refund of Php 924,206.10 representing the premium payments for
1982-85. The trial court dismissed the complaint and counterclaim which elevated into the CA.
The CA ordering herein petitioner to pay the balance of the premiums due.

Issue:

Whether or not payment by installment of the premiums due on an insurance policy

Held:

No. The contract remains valid even if the premiums were paid on installments.
Certainly, basic principles of equity and fairness would not allow the insurer to continue
collecting and accepting the premiums, although paid on installments, and later deny liability on
the lame excuse that the premiums were not prepared in full. At the very least, both parties
should be deemed in estoppel to question the arrangement they have voluntarily accepted.

Moreover, as correctly observed by the appellate court, where the risk is entire and the
contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer
was exposed to the risk insured for any period, however brief or momentary. The obligation to
pay premiums when due is ordinarily as indivisible obligation to pay the entire premium.