AREOLA V CA Sept. 22, 1994; Romero, J.

Nature: petition for review on certiorari of the CA Facts: - Santos Areola, a lawyer from Dagupan CIty, bought through The Baguio City Branch of Prudential Guarantee and Assurance, Inc. a personal accident insurance policy covering Nov. 28, 1984 to Nov. 28, 1985 - Areola was given a provisional receipt for 1,609.65 (premium). At the lower portion of the provisional receipt it was indicated that the "provisional recipt will be confirmed by our official receipt. If our official receipt is not received by you within 7 days, please notify us." - June 29, 1985, 7 months after issuance of policy, respondent Prudential through its Baguio CIty Manager, Teofilo Malapit, sent petitioner-insured notice of cancellation since company records revealed that he failed to pay his premiums. - Areola confronted Carlito Ang, an agent of the respondent and demanded an O.R. Ang told the petitioner that the cancellation was a mistake and he would personaly see to its rectification. however, petitioner still did not receive an O.R. - July 15, 1985 - petitioner sent a demand letter to be insured under the same terms and conditions as those in his policy or that the current commercial rate of increase on the payment he had made be returned within 5 days. Areola also warned to sue for damages if his demands were not met - July 17 - he received a letter form Manager Malapit informing him that his "partial payment" of P1,000 had been exhausted pursuant to the provisions of Short Period Rate Scale - July 25 - respondent's AVP Mariano Ampil replied to petitioner's letter dated July 15 stating that the company was verifying whether payment was verified. Ampil emphasized that the O.R. should've been issued 7 days from the issuance of the provisional recipt, but since no O.R. there is reason to believe that no payment was made. Ampil also apologized for the inconvenience and agreed to cover the petitionerr until the matter is cleared - Aug. 3, 1985 - Ampil WROTE Areola that the payment was received by Prudential on Dec. 17, 1984 and that they are willing to extend the policy until De. 17, 1985, also apologizing again for the inconvenience - Aug. 13 - Ang personally DELIVERED letter of Ang to Areola, however Areola and his wife had already filed a case for breach of contract and damages against respondent in RTC - TC ruled in favor of Areola: finding bad faith on Prudential's part in cancelling the policy - CA reversed: respondent company was not motivated by negligence, malice or bad faith in cancelling policy; plus several acts of respondent negated finding of bad faith - investigation of matter, letter of Aug. 3 confirming payment of premium, reinstatement policy, and respondent's apologies for inconvenience Arguments: pet - misappropriation of his premium payments by Malapit is the proximate cause of the cancelltaionof the policy; being an employee of respondent company, must bear the consequences of the acts of its agents resp - reinstatement effectively restored all rights of petitoner under the policy therefore, no more cause of action ISSUES: 1. WON the erroneous act of cancelling subject insurance policy due to its own employee's fault entitle petitioner-insured to payment of damages? 2. WON the subsequent act of reinstating the policy obliterate whatever liability for damages it may have to bear? HELD/RATIO: 1. Yes. Respondnet insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occassion to the erronerous cancellation of the subject insurance policy. Art. 1910 of the CC provides that the principal is bound by the acts of its agent. Thus, the receipt of premium payments by Malapit is receipt by respondent company. Malapit's failure to remit

premiums is not a defense since no exoneration of liability could result therefrom. 2. No. The act of reinstating the policy cannot obliterate the injury inflicted on petitioner. A contract of insurance creates a reciprocal obligations for both insured and insurer. Art. 1191 CC provides that the injured is given a choice between fulfillment of the obligation or rescission. Said article entitles the injured party to payment of damages whether he demands fulfillment or rescission of the obligation. Nominal damages, however, are awarded since respondent to steps within a reasonable time to rectify the wrong committed. DISPOSITIVE: Petition granted. Decision reversed.