Thursday, July 12, 2012

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

J. Romero

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 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 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.

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.

1. 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 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.”

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