1.Tiltle: G.R. No. 130421. June 28, 1999.

AMERICAN HOME ASSURANCE COMPANY, petitioner, vs. ANTONIO CHUA, respondent.

[PETITION for review on certiorari of a decision of the Court of Appeals]

2. Facts:

Sometime in 1990, respondent obtained from petitioner a FIRE INSURANCE covering the stock-
in-trade of his business, Moonlight Enterprises. The insurance was due to expire on 25 March 1990. On 5
April 1990 respondent issued a check in the amount of P2,983.50 to petitioner’s agent, James Uy, as
payment for the renewal of the policy. The corresponding official receipt was issued on 10 April.
Subsequently, a new insurance policy was issued for the period 25 March 1990 to 25 March 1991.

On 6 April 1990 Moonlight Enterprises was completely razed by fire. Respondent filed an
insurance claim with petitioner and four other co-insurers. Petitioner refused to honor the claim
notwithstanding several demands by respondent, thus, the latter filed an action against petitioner
before the trial court.

Petitioner’s defense: there was no existing insurance contract when the fire occurred since respondent
did not pay the premium.

The Trial Court Ruled in favor of respondent.

- grounds for decision:

1. It found that respondent paid by way of check a day before the fire occurred.

2. It declared that the alleged fraudulent documents were limited to the disparity between the
official receipts issued by the Bureau of Internal Revenue (BIR) and the income tax returns for
the years 1987 to 1989. All the other documents were found to be genuine.

3. As to respondent’s failure to notify petitioner of the other insurance contracts covering the
same goods, the trial court held that petitioner failed to show that such omission was
intentional and fraudulent.

On CA, the assailed decision was affirmed in toto.

- grounds for decision: The Court of Appeals found that respondent’s claim was substantially proved and
petitioner’s unjustified refusal to pay the claim entitled respondent to the award of damages.

* contention of petitioner with SC:

1. Petitioner reiterates its stand that there was no existing insurance contract between the
parties. It invokes Section 77 of the Insurance Code and cites the case of Arce v. Capital
Insurance & Surety Co., Inc.,2 where we ruled that unless and until the premium is paid there is
no insurance. Petitioner emphasizes that pursuant to Article 12493 of the Civil Code, which
recognizes that a check can only effect payment once it has been cashed.
 2. petitioner also contends that respondent’s non-disclosure of the other insurance contracts
rendered the policy void.

3. Finally, petitioner argues that the award of damages was excessive and unreasonable
considering that it did not act in bad faith in denying respondent’s claim

* contention of private respondent with SC:

1. Respondent counters that the issue of non-payment of premium is a question of fact which
can no longer be assailed. The trial court’s finding on the matter, which was affirmed by the
Court of Appeals, is conclusive.

2. Respondent refutes the reason for petitioner’s denial of his claim. The loss adjuster
recommended the denial of the claim, not because of the said contracts, but because he was
suspicious of the authenticity of certain documents which respondent submitted in filing his
claim.

Respondent also claims that it is standard operating procedure in the provinces to pay insurance
premiums by check when collected by insurance agents.

3. Respondent also claims that it is standard operating procedure in the provinces to pay
insurance premiums by check when collected by insurance agents

4. Issue:

first, whether there was a valid payment of premium,

second, whether respondent violated the policy by his submission of fraudulent documents and
non-disclosure of the other existing insurance contracts

lastly, whether respondent is entitled to the award of damages.

5. Ruling of SC:

1. YES there was.

It is not disputed that the check drawn by respondent in favor of petitioner and delivered to its
agent was honored when presented and petitioner forthwith issued its official receipt to
respondent on 10 April 1990. Section 306 of the Insurance Code provides that any insurance
company which delivers a policy or contract of insurance to an insurance agent or insurance
broker shall be deemed to have authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy or contract of insurance at the time of its
issuance or delivery or which becomes due thereon.8 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 agent’s acknowledgment of receipt of payment. Section
78 of the Insurance Code establishes a legal fiction of payment and should be interpreted as an
exception to Section 77.

2. NO respondent did not violate the policy.

Indeed, respondent acquired several co-insurers and he failed to disclose this information to
petitioner. Nonetheless, petitioner is estopped from invoking this argument. The trial court cited
the testimony of petitioner’s loss adjuster who admitted previous knowledge of the coinsurers.
Indubitably, it cannot be said that petitioner was deceived by respondent by the latter’s 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. We, therefore, hold
that there was no violation of the “other insurance” clause by respondent.

3. YES. Petitioner is liable to pay its share of the loss. The trial court and the Court of Appeals
were correct in awarding P200,000 for this.

There is, however, merit in petitioner’s grievance against the damages and attorney’s fees
awarded.

There is no legal and factual basis for the award of P200,000 for loss of profit. His loss of
profit cannot be shouldered by petitioner whose obligation is limited to the object of insurance,
which was the stock-in-trade, and not the expected loss in income or profit.

Under Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts
where the defendant acted fraudulently or in bad faith. We find no such fraud or bad faith.

The law16 is likewise clear that in contracts and quasi-contracts the court may award exemplary
damages if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner. Nothing thereof can be attributed to petitioner which merely tried to resist what it
claimed to be an unfounded claim for enforcement of the fire insurance policy.

As to attorney’s fees, the general rule is that attorney’s fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate.17 In
short, the grant of attorney’s fees as part of damages is the exception rather than the rule; It can
be awarded only in the cases enumerated in Article 2208 of the Civil Code, and in all cases it
must be reasonable. In this case, the award of P50,000 is unreasonable and excessive. It
should be reduced to P10,000.

WHEREFORE, the instant petition is PARTLY GRANTED. The challenged decision of the Court of Appeals
in CA-G.R. No. 40751 is hereby MODIFIED by a) deleting the awards of P200,000 for loss of profit,
P200,000 as moral damages and P100,000 as exemplary damages, and b) reducing the award of
attorney’s fees from P50,000 to P10,000. No pronouncement as to costs. SO ORDERED.