SANTOS B. AREOLA and LYDIA D.

AREOLA vs CA and PRUDENTIAL GUARANTEE

AND ASSURANCE, INC (Romero, 1994)
The receipt of premium payments by an agent/officer duly authorized by the insurer to receive
such payments is receipt by the insurer himself. When the agent fails to remit the premiums,
the insured will not be held liable for failure to pay and the insurer may not unilaterally cancel
the contract. Unilateral cancellation will make the insurer liable for breach of contract.
FACTS: Santos Areola, a lawyer from Dagupan City, availed of a Personal Accident Insurance
Policy from Prudential, but seven months after the issuance of the policy, On June 29, 1985,
Prudential unilaterally cancelled the policy because company records revealed that Areola
failed to pay his premiums.
A few days later, however, Prudential found out that Areola actually paid the premiums and
that the branch manager, Teofilo Malapit, failed to remit them. Thus, Prudential offered to
reinstate the policy and even proposed to extend its lifetime to December 17, 1985.
Areola filed a suit for breach of contract and damages against Prudential.
(Some details about the policy)
Obtained from Baguio branch of Prudential, for one year (Nov 1984-Nov 1985), premium of
1470 but total monthly was 1609.5 (doc stamp 110.25, 2% premium tax of 29.4). The policy
states that the Statement of Account is not a receipt and an official receipt will be given after
payment but if payment is done through a representative, payor will be given a provisional
receipt. Areola was given provisional receipt but Malapit just failed to remit and therefore
Areola received no official receipt. Areola sent demand letters for immediate reinstatement,
bank apologized but did not immediately reinstate, so he filed the case. The insurance agent
was Carlito Ang.
ISSUES:
WON Prudential is liable for damages for unilaterally cancelling the policy.
WON Prudential's reinstatement of the policy absolved it from damages.
HELD: YES/NO
1. Branch Manager was agent of corporation and the receipt of payment was well within
his authority.
2. Therefore, his receipt of the premiums was, in effect, receipt by the corporation itself.
3. Thus, Areola fulfilled his obligations under the contract i.e. the payment of premiums.
4. The cancellation, therefore, was unwarranted and injurious to Areola; that it was
perpetrated by the Branch Manager is not material, a corporation can only act through
its individual employees. It must therefore bear the negligence of the Branch manager
in misappropriating the premiums.
DISPOSITIVE: Arreola's suit granted, Court warded nominal damages (30K)
CASE DIGEST by Ronald