Lumibao v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: Petitioner, an insurance agent, convinced private respondent to take out a life insurance policy. Due to private respondent's diabetic condition, the annual premium was fixed at P93,180.00 for a P1,000,000.00 policy. Petitioner offered to return 50% of her commission, equivalent to P46,590.00, as an inducement. Private respondent issued two postdated checks totaling P93,180.00. Petitioner received her commission of P51,249.00 but failed to return the promised P46,590.00. A demand letter was sent, which petitioner's counsel denied. Procedural History: Private respondent filed an action for specific performance and damages. The trial court found that petitioner had promised a 50% rebate but dismissed the complaint, holding the agreement void for being contrary to the Insurance Code and public policy. The trial court also dismissed petitioner's counterclaim. On appeal, the respondent appellate court affirmed the factual findings and the dismissal of the counterclaim but reversed the dismissal of the complaint, ordering petitioner to pay private respondent P46,590.00 with interest. The Petition: The Supreme Court reviewed the appellate court's decision, questioning whether it erred in holding petitioner violated Section 361 of Presidential Decree No. 961 and in ordering the payment of the rebate.
Issue(s)
Whether or not respondent appellate court erred in holding that petitioner violated Section 361 of Presidential Decree No. 961. Whether or not respondent appellate court erred in ordering petitioner to pay private respondent the sum of P46,590.00, with interest thereon.
Ruling
The Supreme Court SET ASIDE the assailed decision of the respondent appellate court and REINSTATED the trial court's decision. The Insurance Commissioner was directed to be furnished a copy for appropriate administrative action against the petitioner.
Ratio Decidendi
On the issue of violation of Section 361 of Presidential Decree No. 961: The Court held that the respondent appellate court committed no reversible error in finding that petitioner violated Section 361 of the Insurance Code. A preponderance of evidence supported the findings of both the trial and appellate courts that petitioner induced private respondent to take out the policy by promising a 50% rebate of the first annual premium. This factual finding is binding upon the Supreme Court. Petitioner's argument that the agreement should have been in writing under Article 1358 of the New Civil Code was deemed misplaced, as the article does not preclude oral testimony for proving contracts. Furthermore, Section 361 of Presidential Decree No. 612 explicitly prohibits insurance companies, agents, or brokers from offering or giving rebates or special favors to the insured as an inducement to making insurance, or after it has been effected, if not specified in the policy. The promise of a 50% rebate from the commission clearly falls within this prohibition. On the issue of enforcing the rebate agreement: The Court found that the respondent appellate court committed reversible error in ordering petitioner to pay the promised rebate. Firstly, the appellate court contravened a basic rule in appellate procedure by granting affirmative relief to the private respondent, who had not appealed the trial court's dismissal of his complaint. Secondly, and more importantly, the rebate agreement was deemed a contract void ab initio by virtue of Article 1409(7) of the New Civil Code, as it involved a prohibited transaction under Section 361 of Presidential Decree No. 961. The Court rejected the appellate court's reliance on Article 1412(2) of the New Civil Code, stating that the case did not fall under the exceptions for recovery by the non-faulty party. The agreement was an undertaking by private respondent to take out a policy and by petitioner to give a rebate; private respondent did not pay the P93,180.00 directly to petitioner, but to the insurance company. Enforcing such a promise would be subversive of the public policy against unfair discriminatory practices in the insurance industry, which aims to ensure equal terms for policyholders of the same class.
Main Doctrine
A collateral agreement for a rebate on an insurance premium, which is prohibited by Section 361 of Presidential Decree No. 961 (Insurance Code), is void ab initio and cannot be enforced by the courts, as it contravenes public policy. The party not at fault cannot recover what was promised under such an agreement.