AREOLA v. CA and PRUDENTIAL GUARANTEE & ASSURANCE, INC.G. R. No. 95641. September 22, 1994.

Romero, J.

Facts:

Santos Areola, a lawyer from Dagupan City, bought on November 1984 a Personal Accident Insurance Policy which covered a period of one year from Prudential Guarantee & Assurance, Inc. through its Baguio City branch. He was to pay a total amount of 1, 609.65 Php for the said insurance policy's premiums as indicated in the statement of account issued to him by Prudential. The same statement contained a legibly printed note that said it shall not be considered as a receipt for an official receipt shall be issued upon payment of the account. Also, that if such payment is made to a representative of Prudential the payee must demand for a provisional receipt.

On December 17, 1984, Areola was issued a provisional receipt for the amount of 1, 609.65 Php. It contained a note which states that an official receipt shall be issued within 7 days and that upon failure to receive such, Prudential should be notified. Areola received no official receipt from Prudential.

On June 29, 1985, Areola received an endorsement from Prudential through Teofilo Malapit, manager of the Baguio City branch, canceling his insurance policy for non-payment of premium. Areola then confronted Carlito Ang, an agent of Prudential, and demanded that he be issued an official receipt. He was still not issued one so on July 15, 1985 he wrote a letter to Prudential demanding that he be insured under the terms and conditions of the insurance he bought or that the current commercial rate of increase on the payment he made be returned to him within 5 days. He also warned that if his demands are not met he would sue for damages.

On July 25, 1985, Assistant Vice-President Mariano M. Ampil III of Prudential wrote to Areola stating that the company was verifying Areola's payment because the absence of an official receipt is a cause to believe that no payment had been made. Subsesquently, on August 3, 1985 another letter was sent to Areola by Ampil confirming the former's payment and informing him that Prudential would be amenable to extending the coverage of his policy to December instead of November. Unfortunately at the time the letter was received, Areola and his wife had already filed a complaint in the RTC of Dagupan City for breach of contract with damages. Prudential later admitted that the cancellation of Areola's policy was because of Malapit's failure to remit the premiums collected.

Issue:

Whether or not the erroneous cancellation of Areola's insurance policy due to Malapit's fraudulent act entitled the former to payment of damages and whether or not the reinstatement of said policy absolves Prudential from its liability for damages.

Held:

The Supreme Court held that yes, the erroneous cancellation of Areola's insurance policy entitled him to payment of damages. Malapit's fraudulent act of misappropriating the premiums collected from Areola is directly imputable to Prudential. As a corporation it acts solely thru its employees and the latter's acts are considered its own for which it can be held to account. Under the first paragraph of Article 1910 of the Civil Code, The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. The fact that Prudential was itself defrauded does not free it of its obligation to Areola. In the ruling of the Supreme Court in Prudential Bank v. Court of Appeals it held that; 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. 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, for his own ultimate benefit.

Consequently, no, Prudential's subsequent actions did not absolve it from its liability for damages. Prudential should be reminded that 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. Under the second paragraph of Article 1191 of the Civil Code governing reciprocal obligations, The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. Xxx In the case at hand, Areola is given a choice between fulfillment and rescission due to Prudential's failure to comply with what is incumbent upon it. However, he is still entitled to payment of damages regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is Prudential's claim that its reinstatement of Areola's policy absolves it from liability for damages.