FIRSTDIVISION

[G.R.No.130421.June28,1999]

AMERICANHOMEASSURANCECOMPANY,petitioner,vs.ANTONIO
CHUA,respondent.
DECISION
DAVIDE,JR.C.J.:

In this petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, petitioner seeks the reversal of the decision[1]of the Court of Appeals in CA
G.R.CVNo.40751,whichaffirmedintotothedecisionoftheRegionalTrialCourt,Makati
City,Branch150(hereaftertrialcourt),inCivilCaseNo.911009.
Petitioner is a domestic corporation engaged in the insurance business. Sometime in
1990,respondentobtainedfrompetitionerafireinsurancecoveringthestockintradeofhis
business,MoonlightEnterprises,locatedatValencia,Bukidnon.Theinsurancewasdueto
expireon25March1990.
On 5 April 1990 respondent issued PCIBank Check No. 352123 in the amount
ofP2,983.50 to petitioners agent, James Uy, as payment for the renewal of the policy. In
turn,thelatterdeliveredRenewalCertificateNo.00099047torespondent.Thecheckwas
drawnagainstaManilabankanddepositedinpetitionersbankaccountinCagayandeOro
City. The corresponding official receipt was issued on 10 April. Subsequently, a new
insurance policy, Policy No. 20642344987, was issued, whereby petitioner undertook to
indemnifyrespondentforanydamageorlossarisingfromfireuptoP200,000fortheperiod
25March1990to25March1991.
On 6 April1990MoonlightEnterpriseswascompletelyrazed by fire.Total loss was
estimated between P4,000,000 and P5,000,000.Respondent filed an insurance claim with
petitioner and four other coinsurers, namely, Pioneer Insurance and Surety Corporation,
PrudentialGuaranteeandAssurance,Inc.,FilipinoMerchantsInsuranceCo.andDomestic
InsuranceCompanyofthePhilippines.Petitionerrefusedtohonortheclaimnotwithstanding
severaldemandsbyrespondent,thus,thelatterfiledanactionagainstpetitionerbeforethe
trialcourt.
Initsdefense,petitionerclaimedtherewasnoexistinginsurancecontractwhenthefire
occurredsincerespondentdidnotpaythepremium.Italsoallegedthatevenassumingthere
was a contract, respondent violated several conditions of the policy, particularly: (1) his
submission of fraudulent income tax return and financial statements (2) his failure to
establishtheactualloss,whichpetitionerassessedatP70,000and(3)hisfailuretonotifyto
petitioner of any insurance already effected to cover the insured goods. These violations,
petitionerinsisted,justifiedthedenialoftheclaim.

The trial court ruled in favor of respondent.It found that respondent paid by way of
check a day before the fire occurred.The check, which was deposited in petitioners bank
account, was even acknowledged in the renewal certificate issued by petitioners agent. It
declared that the alleged fraudulent documents were limited to the disparity between the
officialreceiptsissuedbytheBureauofInternalRevenue(BIR)andtheincometaxreturns
fortheyears1987to1989.Alltheotherdocumentswerefoundtobegenuine.Nonetheless,
itgavecredencetotheBIRcertificationthatrespondentpaidthecorrespondingtaxesdue
forthequestionedyears.
Astorespondentsfailuretonotifypetitioneroftheotherinsurancecontractscovering
the same goods, the trial court held that petitioner failed to show that such omission was
intentional and fraudulent. Finally, it noted that petitioners investigation of respondent's
claimwasdoneincollaborationwiththerepresentativesofotherinsurancecompanieswho
found no irregularity therein. In fact, Pioneer Insurance and Surety Corporation and
PrudentialGuaranteeandAssurance,Inc.promptlypaidtheclaimsfiledbyrespondent.
Thetrialcourtdecreedasfollows:
WHEREFORE,judgmentisherebyrenderedinfavorof[respondent]andagainstthe
[petitioner]orderingthelattertopaytheformerthefollowing:
1.P200,000.00,representingtheamountoftheinsurance,pluslegalinterestfromthedate
offilingofthiscase
2.P200,000.00asmoraldamages
3.P200,000.00aslossofprofit
4.P100,000.00asexemplarydamages
5.P50,000.00asattorneysfeesand
6.Costofsuit.

On appeal, the assailed decision was affirmed in toto by the Court of Appeals. The
Court of Appeals found that respondents claim was substantially proved and petitioners
unjustifiedrefusaltopaytheclaimentitledrespondenttotheawardofdamages.
Itsmotionforreconsiderationofthejudgmenthavingbeendenied,petitionerfiledthe
petition in this case. Petitioner reiterates its stand that there was no existing insurance
contractbetweentheparties.ItinvokesSection77oftheInsuranceCode,whichprovides:
Aninsurerisentitledtopaymentofthepremiumassoonasthethinginsuredisexposedto
theperilinsuredagainst.Notwithstandinganyagreementtothecontrary,nopolicyor
contractofinsuranceissuedbyaninsurancecompanyisvalidandbindingunlessanduntil
thepremiumthereofhasbeenpaid,exceptinthecaseoflifeoranindustriallifepolicy
wheneverthegraceperiodprovisionapplies.
and cites the case ofArce v. Capital Insurance & Surety Co., Inc.,[2]where we ruled that
unlessanduntilthepremiumispaidthereisnoinsurance.
Petitioner emphasizes that when the fire occurred on 6 April 1990 the insurance
contract was not yet subsisting pursuant to Article 1249[3] of the Civil Code, which

recognizes that a check can only effect payment once it has been cashed. Although
respondent testified that he gave the check on 5 April to a certain James Uy, the check,
drawnagainstaManilabankanddepositedinaCagayandeOroCitybank,couldnothave
been cleared by 6 April, the date of the fire. In fact, the official receipt issued for
respondentscheckpaymentwasdated10April1990,fourdaysafterthefireoccurred.
Citingjurisprudence,[4]petitioneralsocontendsthatrespondentsnondisclosureofthe
otherinsurancecontractsrenderedthepolicyvoid.Itunderscoresthetrialcourtsneglectin
considering the Commission on Audits certification that the BIR receipts submitted by
respondentwere,ineffect,fakesincetheywereissuedtootherpersons.Finally,petitioner
arguesthattheawardofdamageswasexcessiveandunreasonableconsideringthatitdidnot
actinbadfaithindenyingrespondentsclaim.
Respondent counters that the issue of nonpayment of premium is a question of fact
whichcannolongerbeassailed.Thetrialcourtsfindingonthematter,whichwasaffirmed
bytheCourtofAppeals,isconclusive.
Respondentrefutesthereasonforpetitionersdenialofhisclaim.Asfoundbythetrial
court,petitionerslossadjusteradmittedpriorknowledgeofrespondentsexistinginsurance
contractswiththeotherinsurancecompanies.Nonetheless,thelossadjusterrecommended
thedenialoftheclaim,notbecauseofthesaidcontracts,butbecausehewassuspiciousof
theauthenticityofcertaindocumentswhichrespondentsubmittedinfilinghisclaim.
To bolster his argument, respondent cites Section 66 of the Insurance Code,[5] which
requires the insurer to give a notice to the insured of its intention to terminate the policy
fortyfive days before the policy period ends. In the instant case, petitioner opted not to
terminatethepolicy.Instead,itrenewedthepolicybysendingitsagenttorespondent,who
was issued a renewal certificate upon delivery of his check payment for the renewal of
premium. At this precise moment the contract of insurance was executed and already in
effect.Respondentalsoclaimsthatitisstandardoperatingprocedureintheprovincestopay
insurancepremiumsbycheckwhencollectedbyinsuranceagents.
On the issue of damages, respondent maintains that the amounts awarded were
reasonable.HecitesnumeroustripshehadtomakefromCagayandeOroCitytoManilato
followuphisrightfulclaim.He imputes bad faith on petitioner who made enforcement of
hisclaimdifficultinthehopethathewouldeventuallyabandonit.Hefurtheremphasizes
thattheadjustersoftheotherinsurancecompaniesrecommendedpaymentofhisclaim,and
theycompliedtherewith.
Initsreply,petitionerallegesthatthepetitionquestionstheconclusionsoflawmadeby
thetrialcourtandtheCourtofAppeals.
Petitioner invokes respondents admission that his check for the renewal of the policy
was received only on 10 April 1990, taking into account that the policy period was 25
March 1990 to 25 March 1991.The official receipt was dated 10 April 1990. Anent
respondentstestimonythatthecheckwasgiventopetitionersagent,acertainJamesUy,the
latter points out that even respondent was not sure if Uy was indeed its agent. It faults
respondentfornotproducingUyashiswitnessandnottakinganyreceiptfromhimupon
presentment of the check. Even assuming that the check was received a day before the
occurrence of the fire, there still could not have been any payment until the check was
cleared.

Moreover, petitioner denies respondents allegation that it intended a renewal of the

contractfortherenewalcertificateclearlyspecifiedthefollowingconditions:
Subjecttothepaymentbytheassuredoftheamountduepriortorenewaldate,thepolicy
shallberenewedfortheperiodstated.
Anypaymenttenderedotherthanincashisreceivedsubjecttoactualcashcollection.
Subjecttonolosspriortopremiumpayment.Iftherebeanyloss,andisnotcovered[sic].
Petitionerassertsthataninsurancecontractcanonlybeenforceduponthepaymentofthe
premium,whichshouldhavebeenmadebeforetherenewalperiod.
Finally, in assailing the excessive damages awarded to respondent petitioner stresses
thatthepolicyinissuewaslimitedtoaliabilityofP200,000butthetrialcourtgrantedthe
following monetary awards:P200,000 as actual damages P200,000 as moral
damagesP100,000asexemplarydamagesandP50,000asattorneysfees.
The following issues must be resolved: first, whether there was a valid payment of
premium, considering that respondents check was cashed after the occurrence of the fire
second,whetherrespondentviolatedthepolicybyhissubmissionoffraudulentdocuments
andnondisclosureoftheotherexistinginsurancecontractsandfinally,whetherrespondent
isentitledtotheawardofdamages.
The general rule in insurance laws is that unless the premium is paid the insurance
policy is notvalidandbinding.The only exceptions are life and industrial life insurance.
[6]Whetherpaymentwasindeedmadeisaquestionoffactwhichisbestdeterminedbythe
trialcourt.Thetrialcourtfound,asaffirmedbytheCourtofAppeals,thattherewasavalid
checkpaymentbyrespondenttopetitioner.Wellsettledistherulethatthefactualfindings
andconclusionsofthetrialcourtandtheCourtofAppealsareentitledtogreatweightand
respect,andwillnotbedisturbedonappealintheabsenceofanyclearshowingthatthetrial
court overlooked certain facts or circumstances which would substantially affect the
dispositionofthecase.[7]Weseenoreasontodepartfromthisruling.
Accordingtothetrialcourttherenewalcertificateissuedtorespondentcontainedthe
acknowledgment that premium had been paid. It is not disputed that the check drawn by
respondentinfavorofpetitioneranddeliveredtoitsagentwashonoredwhenpresentedand
petitionerforthwithissueditsofficialreceipttorespondenton10April1990.Section306of
theInsuranceCodeprovidesthatanyinsurancecompanywhichdeliversapolicyorcontract
ofinsurancetoaninsuranceagentorinsurancebrokershallbedeemedtohaveauthorized
suchagentorbrokertoreceiveonitsbehalfpaymentofanypremiumwhichisdueonsuch
policyorcontractofinsuranceatthetimeofitsissuanceordeliveryorwhichbecomesdue
thereon.[8]Intheinstantcase,thebestevidenceofsuchauthorityisthefactthatpetitioner
acceptedthecheckandissuedtheofficialreceiptforthepayment.Itis,aswell,boundbyits
agentsacknowledgmentofreceiptofpayment.
Section78oftheInsuranceCodeexplicitlyprovides:
Anacknowledgmentinapolicyorcontractofinsuranceofthereceiptofpremiumis
conclusiveevidenceofitspayment,sofarastomakethepolicybinding,notwithstanding

anystipulationthereinthatitshallnotbebindinguntilthepremiumisactuallypaid.
ThisSectionestablishesalegalfictionofpaymentandshouldbeinterpretedasanexception
toSection77.[9]
Isrespondentguiltyofthepolicyviolationsimputedagainsthim?Wearenotconvinced
bypetitionersarguments.Thesubmissionoftheallegedfraudulentdocumentspertainedto
respondents income tax returns for 1987 to 1989. Respondent, however, presented a BIR
certification that he had paid the proper taxes for the said years. The trial court and the
CourtofAppealsgavecredencetothecertificationanditbeingaquestionoffact,wehold
thatsaidfindingisconclusive.
Ordinarily, where the insurance policy specifies as a condition the disclosure of
existing coinsurers, nondisclosure thereof is a violation that entitles the insurer to avoid
thepolicy.This condition is common in fire insurance policies and is known as the other
insuranceclause.Thepurposefortheinclusionofthisclauseistopreventanincreaseinthe
moral hazard. We have ruled on its validity and the case ofGeagonia v. Court of
Appeals[10] clearly illustrates such principle.However, we see an exception in the instant
case.
CitingSection29[11]of the Insurance Code, the trial court reasoned that respondents
failure to disclose was not intentional and fraudulent. The application of Section 29 is
misplaced.Section29concernsconcealmentwhichisintentional.Therelevantprovisionis
Section75,whichprovidesthat:
Apolicymaydeclarethataviolationofspecifiedprovisionsthereofshallavoidit,
otherwisethebreachofanimmaterialprovisiondoesnotavoidthepolicy.
Toconstituteaviolationtheotherexistinginsurancecontractsmustbeuponthesame
subjectmatterandwiththesameinterestandrisk.[12]Indeed,respondentacquiredseveral
coinsurersandhefailedtodisclosethisinformationtopetitioner.Nonetheless,petitioneris
estoppedfrominvokingthisargument.Thetrialcourtcitedthetestimonyofpetitionersloss
adjusterwhoadmittedpreviousknowledgeofthecoinsurers.Thus,
COURT:
QThematterofadditionalinsuranceofothercompanies,wasthateverdiscussedinyour
investigation?
AYes,sir.
QInotherwords,fromthestart,youwereawaretheinsuredwasinsuredwithother
companieslikePioneerandsoon?
AYes,YourHonor.
QButinyourreportyouneverrecommendedthedenialoftheclaimsimplybecauseofthe
nondisclosureofotherinsurance?[sic]

AYes,YourHonor.
QInotherwords,tobeemphaticaboutthis,theonlyreasonyourecommendedthedenialof
theclaim,youfoundthreedocumentstobespurious.Thatisyouronlybasis?
AYes,YourHonor.[13][Emphasissupplied]
Indubitably,itcannotbesaidthatpetitionerwasdeceivedbyrespondentbythelatters
nondisclosure of the other insurance contracts when petitioner actually had prior
knowledge thereof.Petitioners loss adjuster had known all along of the other existing
insurancecontracts,yet,hedidnotusethatasbasisforhisrecommendationofdenial.The
lossadjuster,beinganemployeeofpetitioner,isdeemedarepresentativeofthelatterwhose
awareness of the other insurance contracts binds petitioner.We, therefore, hold that there
wasnoviolationoftheotherinsuranceclausebyrespondent.
Petitionerisliabletopayitsshareoftheloss.ThetrialcourtandtheCourtofAppeals
werecorrectinawardingP200,000forthis.Thereis,however,meritinpetitionersgrievance
againstthedamagesandattorneysfeesawarded.
ThereisnolegalandfactualbasisfortheawardofP200,000forlossofprofit.Itcannot
bedeniedthatthefiretotallyguttedrespondentsbusinessthus,respondentnolongerhad
any business to operate. His loss of profit cannot be shouldered by petitioner whose
obligation is limited to the object of insurance, which was the stockintrade, and not the
expectedlossinincomeorprofit.
Neithercanweapprovetheawardofmoralandexemplarydamages.Atthecoreofthis
case is petitioners alleged breach of its obligation under a contract of insurance. Under
Article 2220 of the Civil Code, moral damages may be awarded in breaches of contracts
wherethedefendantactedfraudulentlyorinbadfaith.Wefindnosuchfraudorbadfaith.It
must again be stressed that moral damages are emphatically not intended to enrich a
plaintiff at the expense of the defendant. Such damages are awarded only to enable the
injuredpartytoobtainmeans,diversionoramusementsthatwillservetoobviatethemoral
sufferinghehasundergone,byreasonofthedefendantsculpableaction.Itsawardisaimed
at the restoration, within the limits of the possible, of the spiritualstatus quo ante, and it
mustbeproportionaltothesufferinginflicted.[14]Whenawarded,moraldamagesmustnot
be palpably and scandalously excessive as to indicate that it was the result of passion,
prejudiceorcorruptiononthepartofthetrialcourtjudge.[15]
Thelaw[16]islikewiseclearthatincontractsandquasicontractsthecourtmayaward
exemplarydamagesifthedefendantactedinawanton,fraudulent,reckless,oppressive,or
malevolent manner.Nothing thereof can be attributed to petitioner which merely tried to
resistwhatitclaimedtobeanunfoundedclaimforenforcementofthefireinsurancepolicy.
Astoattorneysfees,thegeneralruleisthatattorneysfeescannotberecoveredaspart
ofdamagesbecauseofthepolicythatnopremiumshouldbeplacedontherighttolitigate.
[17]Inshort,thegrantofattorneysfeesaspartofdamagesistheexceptionratherthanthe
rulecounselsfeesarenotawardedeverytimeapartyprevailsinasuit.Itcanbeawarded
onlyinthecasesenumeratedinArticle2208oftheCivilCode,andinallcasesitmustbe
reasonable.[18]Thereunder,thetrialcourtmayawardattorneysfeeswhereitdeemsjustand

equitablethatitbesogranted.Whilewerespectthetrialcourtsexerciseofitsdiscretionin
this case, the award of P50,000 is unreasonable and excessive. It should be reduced
toP10,000.
WHEREFORE,theinstantpetitionispartlyGRANTED.The challenged decision of
the Court of Appeals in CAG.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
exemplarydamages,andb)reducingtheawardofattorneysfeesfromP50,000toP10,000.
Nopronouncementastocosts.
SOORDERED.
Melo,Kapunan,Pardo,andYnaresSantiago,JJ.,concur.