Makati Tuscany Condominium Corporation v CA (Insurance)

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner, vs. THE
COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented
by American International Underwriters (Phils.), Inc., respondent.

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 P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter,
petitioner refused to pay the balance of the premium.

Private respondent filed an action to recover the unpaid balance of

P314,103.05 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
P152,000.00 for the premiums already paid for 1984-85, and in its answer
with amended counterclaim, sought the refund of P924,206.10 representing
the premium payments for 1982-85.
DECISION OF LOWER COURTS:
(1) Trial Court: dismissed the complaint and counterclaim
(2) CA: ordering herein petitioner to pay the balance of the premiums due

ISSUE:
Whether payment by installment of the premiums due on an insurance
policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612,
otherwise known as the Insurance Code, as amended, which provides:
Sec. 77. An insurer is entitled to the payment of the premium as soon
as the thing is exposed to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy
whenever the grace period provision applies.

RULING:

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
Insurance Case Digest: Areola V. CA (1994)
G.R. No. 95641 September 22, 1994

Lessons Applicable: Binding Effect of Payment (Insurance)

Laws Applicable: Art. 1910,Article 1191

FACTS:

December 17, 1984: Prudential Guarantee And Assurance, Inc. issued

collector's provisional receipt amounting to P1,609.65
June 29, 1985: 7 months after the issuance of petitioner Santos
Areola's Personal Accident Insurance Policy, Prudential Guarantee And
Assurance, Inc. unilaterally cancelled it for failing to pay his premiums
through its manager Teofilo M. Malapit
Shocked by the cancellation of the policy, Santos approached Carlito
Ang, agent of Prudential and demanded the issuance of an official receipt.
Ang told Santos that it was a mistake and assured its rectification.
July 15, 1985: Santos demanded the same terms and same rate
increase as when he paid the provincial receipt but Malapit insisted that
the partial payment he made was exhausted and that he should pay the
balance or his policy will cease to operate
July 25, 1985 : Assistant Vice-President Mariano M. Ampil III
apologized
August 6, 1985 had filed a complaint for breach of contract with
damages before the lower court
August 13, 1985: Santos received through Carlito Ang the leeter
of Assistant Vice-President Mariano M. Ampil III finding error on their part
since premiums were not remitted Malapit, proposed to extend its lifetime
to December 17, 1985
RTC: favored Santos - Prudential in Bad Faith
CA: Reversed - not motivated by negligence, malice or bad faith in
cancelling subject policy
ISSUE: W/N the Areolas can file against damages despite the effort to rectify the
cancellation

HELD: YES. RTC reinstated

 Malapit's fraudulent act of misappropriating the premiums paid is
beyond doubt directly imputable to Prudential
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.
Subsequent reinstatement could not possibly absolve Prudential there
being an obvious breach of contract
a contract of insurance creates reciprocal obligations for both insurer
and insured
Article 1191
choice between fulfillment or rescission of the obligation in case
one of the obligors fails to comply with what is incumbent upon him
entitles the injured party to payment of damages, regardless of
whether he demands fulfillment or rescission of the obligation
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.

Areola v CA G.R. No. 95641 September 22, 1994

J. Romero

Facts:

Prudential Guarantee cancelled Areolas 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 P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and
2% premium tax of P29.40. 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 werent 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 companys 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 wouldnt 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 didnt remit the profits was forced to resign. Areola then filed for a petition in the
Supreme Court.

Issue:

1. Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment
of damages?

2. Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent
insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may
have to bear, thus absolving it?

Held: Yes. No. Petition granted.

Ratio:

1. Petitioner alleged that the managers 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 can not 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. 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 relation ship
between the two parties. Under Article 1191, the injured party is given a choice between fulfillment 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 fulfillment 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.

American Home v Chua G.R. No. 130421. June 28, 1999

C.J. Davide

Facts:

Chua obtained from American Home a fire insurance covering the stock-in-trade of his business. The
insurance was due to expire on March 25, 1990.

On April 5, 1990, Chua issued a check for P2,983.50 to American Homes agent, James Uy, as
payment for the renewal of the policy. The official receipt was issued on April 10. In turn, the latter a
renewal certificate. A new insurance policy was issued where petitioner undertook to indemnify
respondent for any damage or loss arising from fire up to P200,000 March 20, 1990 to March 25,
1991.

On April 6, 1990, the business was completely razed by fire. Total loss was estimated between
P4,000,000 and P5,000,000. Respondent filed an insurance claim with petitioner and four other co-
insurers, namely, Pioneer Insurance, Prudential Guarantee, Filipino Merchants and Domestic
Insurance. Petitioner refused to honor the claim hence, the respondent filed an action in the trial
court.

American Home claimed there was no existing contract because respondent did not pay the
premium. Even with a contract, they contended that he was ineligible bacue of his fraudulent tax
returns, his failure to establish the actual loss and his failure to notify to petitioner of any insurance
already effected. The trial court ruled in favor of respondent because the respondent paid by way of
check a day before the fire occurred and that the other insurance companies promptly paid the
claims. American homes was made to pay 750,000 in damages.

The Court of Appeals found that respondents claim was substantially proved and petitioners
unjustified refusal to pay the claim entitled respondent to the award of damages.

American Home filed the petition reiterating its stand that there was no existing insurance contract
between the parties. It invoked Section 77 of the Insurance Code, which provides that no policy or
contract of insurance issued by an insurance company is valid and binding unless and until the
premium thereof has been paid and the case of Arce v. Capital Insurance that until the premium is
paid there is no insurance.

Issues:

1. Whether there was a valid payment of premium, considering that respondents check was cashed
after the occurrence of the fire

2. Whether respondent violated the policy by his submission of fraudulent documents and non-
disclosure of the other existing insurance contracts

3. Whether respondent is entitled to the award of damages.

Held: Yes. No. Yes, but not all damages valid. Petition granted. Damages modified.

Ratio:

1. The trial court found, as affirmed by the Court of Appeals, that there was a valid check payment
by respondent to petitioner. The court respected this.

The renewal certificate issued to respondent contained the acknowledgment that premium had been
paid.

In the instant case, the best evidence of such authority is the fact that petitioner accepted the check
and issued the official receipt for the payment. It is, as well, bound by its agents acknowledgment of
receipt of payment.

Section 78 of the Insurance Code explicitly provides:

An acknowledgment in a policy or contract of insurance of the receipt of premium is conclusive

evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein
that it shall not be binding until the premium is actually paid.

2. Submission of the alleged fraudulent documents pertained to respondents income tax returns for
1987 to 1989. Respondent, however, presented a BIR certification that he had paid the proper taxes
for the said years. Since this is a question of fact, the finding is conclusive.

Ordinarily, where the insurance policy specifies as a condition the disclosure of existing co-insurers,
non-disclosure is a violation that entitles the insurer to avoid the policy. The purpose for the
inclusion of this clause is to prevent an increase in the moral hazard. The relevant provision is
Section 75, which provides that:

A policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy.
Respondent acquired several co-insurers and he failed to disclose this information to petitioner.
Nonetheless, petitioner is estopped from invoking this argument due to the loss adjusters admission
of previous knowledge of the co-insurers.

It cannot be said that petitioner was deceived by respondent by the latters non-disclosure of the
other insurance contracts when petitioner actually had prior knowledge thereof. The loss adjuster,
being an employee of petitioner, is deemed a representative of the latter whose awareness of the
other insurance contracts binds petitioner.

3. Petitioner is liable to pay the loss. But there is merit in petitioners grievance against the damages
and attorneys fees awarded. There was no basis for an award for loss of profit. This cannot be
shouldered by petitioner whose obligation is limited to the object of insurance.

There was no fraud to justify moral damages. Exemplary damages cant be awarded because the
defendant never acted in a reckless manner to claim insurance. Attorneys fees cant be recovered
as part of damages because no premium should be placed on the right to litigate.
Servicewide Specialists, Inc. v. Intermediate Appellate Court G.R. No.
74553 June 8, 1989

The rule is settled that the chattel mortgagor continues to be the

owner of the property, and therefore, has the power to alienate the
same; however, he is obliged under pain of penal liability, to secure the
written consent of the mortgagee. Thus, the instruments of mortgage
are binding, while they subsist, not only upon the parties executing
them but also upon those who later, by purchase or otherwise, acquire
the properties referred to therein

Facts: Galicano Siton purchased from Car Traders Philippines, Inc. a vehicle and paid a
downpayment of the price. The remaining balance includes not only the remaining principal
obligation but also advance interests and premiums for motor vehicle insurance policies.
Siton executed a promissory note in favor of Car Traders Philippines, Inc. expressly
stipulating that the face value of the note shall be payable, without need of notice of
demand, in instalments. There are additional stipulations in the Promissory Note consisting
of, among others, that if default is made in the payment of any of the installments or interest
thereon, the total principal sum then remaining unpaid, together with accrued interest
thereon shall at once become due and demandable. As further security, Siton executed a
Chattel Mortgage over the subject motor vehicle in favor of Car Traders Philippines, Inc.
The credit covered by the promissory note and chattel mortgage executed by respondent
Galicano Siton was first assigned by Car Traders Philippines, Inc. in favor of Filinvest Credit
Corporation.

Subsequently, Filinvest Credit Corporation likewise reassigned said credit in favor of

petitioner Servicewide Specialists, Inc. Siton was advised of this second assignment. When
Siton failed to pay, Servicewide Specialists filed this action against Galicano Siton and
John Doe. After the service of summons, Justiniano de Dumo, identifying himself as the
John Doe in the Complaint, inasmuch as he is in possession of the subject vehicle, filed
his Answer with Counterclaim and with Opposition to the prayer for a Writ of Replevin.

Siton alleged the fact that he has bought the motor vehicle from Galicano Siton; that de
Dumo and Siton testified that, before the projected sale, they went to a certain. Atty. Villa of
Filinvest Credit Corporation advising the latter of the intended sale and transfer. Siton and
de Dumo were accordingly advised that the verbal information given to the corporation
would suffice, and that it would be tedious and impractical to effect a change of transfer of
ownership as that would require a new credit investigation as to the capacity and worthiness
of Atty. De Dumo, being the new debtor. The further suggestion given by Atty. Villa is that
the account should be maintained in the name of Galicano Siton.; that as such successor,
he stepped into the rights and obligations of the seller; that he has religiously paid the
installments as stipulated upon in the promissory note. He also manifested that the Answer
he has filed in his behalf should likewise serve as a responsive pleading for his co-
defendant Galicano Siton.

ISSUE:

whether or not petitioner should have applied the installment payments made by private respondents
for the payment of the car to the payment of the insurance premiums without prior notice to private
respondents.

Held: The absence of the written consent of the mortgagee to the sale of the mortgaged
property in favor of a third person, therefore, affects not the validity of the sale but only the
penal liability of the mortgagor under the Revised Penal Code and the binding effect of such
sale on the mortgagee under the Deed of Chattel Mortgage. The rule is settled that the
chattel mortgagor continues to be the owner of the property, and therefore, has the power to
alienate the same; however, he is obliged under pain of penal liability, to secure the written
consent of the mortgagee. Thus, the instruments of mortgage are binding, while they
subsist, not only upon the parties executing them but also upon those who later, by
purchase or otherwise, acquire the properties referred to therein

There is no dispute that the Deed of Chattel Mortgage executed between Siton and the
petitioner requires the written consent of the latter as mortgagee in the sale or transfer of
the mortgaged vehicle. We cannot ignore the findings, however, that before the sale, prompt
inquiries were made by private respondents with Filinvest Credit Corporation regarding any
possible future sale of the mortgaged property; and that it was upon the advice of the
companys credit lawyer that such a verbal notice is sufficient and that it would be
convenient if the account would remain in the name of the mortgagor Siton.

Even the personal checks of de Dumo were accepted by petitioner as payment of some of
the installments under the promissory note. If it is true that petitioner has not acquiesced in
the sale, then, it should have inquired as to why de Dumos checks were being used to pay
Sitons obligations.