1. Applicability of the Civil Code – Art.

2011, Civil Code (“CC”)

a) Requisites for validity of contract in general
- Offer and acceptance; consent; subject matter; cause or consideration; capacity of contracting party
See: De Lim v. Sun Life of Canada, GR 15774, 29 November 1929
Enriquez v. Sun Life of Canada, 41 Phil. 269, 29 November 1920
Perez v. Court of Appeals, 323 SCRA 613 (2000)
Zenith Insurance v. Fernandez, GR 85296 (1990

G.R. No. L-15774             November 29, 1920

PILAR C. DE LIM, plaintiff-appellant,
vs.
SUN LIFE ASSURANCE COMPANY OF CANADA, defendant-appellee.

Sanz and Luzuriaga for appellant.

Cohn and Fisher for appellee.

MALCOLM, J.:

This is an appeal by plaintiff from an order of the Court of First Instance of Zamboanga sustaining a demurrer to
plaintiff's complaint upon the ground that it fails to state a cause of action.

As the demurrer had the effect of admitting the material facts set forth in the complaint, the facts are those alleged
by the plaintiff. On July 6, 1917, Luis Lim y Garcia of Zamboanga made application to the Sun Life Assurance
Company of Canada for a policy of insurance on his life in the sum of P5,000. In his application Lim designated his
wife, Pilar C. de Lim, the plaintiff herein, as the beneficiary. The first premium of P433 was paid by Lim, and upon
such payment the company issued what was called a "provisional policy." Luis Lim y Garcia died on August 23,
1917, after the issuance of the provisional policy but before approval of the application by the home office of the
insurance company. The instant action is brought by the beneficiary, Pilar C. de Lim, to recover from the Sun Life
Assurance Company of Canada the sum of P5,000, the amount named in the provisional policy.

The "provisional policy" upon which this action rests reads as follows:

Received (subject to the following stipulations and agreements) the sum of four hundred and thirty-
three pesos, being the amount of the first year's premium for a Life Assurance Policy on the life of
Mr. Luis D. Lim y Garcia of Zamboanga for P5,000, for which an application dated the 6th day of
July, 1917, has been made to the Sun Life Assurance Company of Canada.

The above-mentioned life is to be assured in accordance with the terms and conditions contained or
inserted by the Company in the policy which may be granted by it in this particular case for four
months only from the date of the application, provided that the Company shall confirm this
agreement by issuing a policy on said application when the same shall be submitted to the Head
Office in Montreal. Should the Company not issue such a policy, then this agreement shall be null
and void ab initio, and the Company shall be held not to have been on the risk at all, but in such
case the amount herein acknowledged shall be returned.

[SEAL.]           (Sgd.) T. B. MACAULAY, President.

(Sgd.) A. F. Peters, Agent.                

Our duty in this case is to ascertain the correct meaning of the document above quoted. A perusal of the same
many times by the writer and by other members of the court leaves a decided impression of vagueness in the mind.
Apparently it is to be a provisional policy "for four months only from the date of this application." We use the term
"apparently" advisedly, because immediately following the words fixing the four months period comes the word
"provided" which has the meaning of "if." Otherwise stated, the policy for four months is expressly made subjected
to the affirmative condition that "the company shall confirm this agreement by issuing a policy on said application
when the same shall be submitted to the head office in Montreal." To reenforce the same there follows the negative
condition —

Should the company not issue such a policy, then this agreement shall be null and void ab initio, and the company
shall be held not to have been on the risk." Certainly, language could hardly be used which would more clearly
stipulate that the agreement should not go into effect until the home office of the company should confirm it by
issuing a policy. As we read and understand the so-called provisional policy it amounts to nothing but an
acknowledgment on behalf of the company, that it has received from the person named therein the sum of money
agreed upon as the first year's premium upon a policy to be issued upon the application, if the application is
accepted by the company.

It is of course a primary rule that a contract of insurance, like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application for insurance has not been either accepted or rejected,
it is merely an offer or proposal to make a contract. The contract, to be binding from the date of the application, must
have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed
upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the
parties have met in agreement. Our view is, that a contract of insurance was not here consummated by the parties. lawph!l.net

Appellant relies on Joyce on Insurance. Beginning at page 253, of Volume I, Joyce states the general rule
concerning the agent's receipt pending approval or issuance of policy. The first rule which Joyce lays down is this: If
the act of acceptance of the risk by the agent and the giving by him of a receipt, is within the scope of the agent's
authority, and nothing remains but to issue a policy, then the receipt will bind the company. This rule does not apply,
for while here nothing remained but to issue the policy, this was made an express condition to the contract. The
second rule laid down by Joyce is this: Where an agreement is made between the applicant and the agent whether
by signing an application containing such condition, or otherwise, that no liability shall attach until the principal
approves the risk and a receipt is given buy the agent, such acceptance is merely conditional, and it subordinated to
the act of the company in approving or rejecting; so in life insurance a "binding slip" or "binding receipt" does not
insure of itself. This is the rule which we believe applies to the instant case. The third rule announced by Joyce is
this: Where the acceptance by the agent is within the scope of his authority a receipt containing a contract for
insurance for a specific time which is not absolute but conditional, upon acceptance or rejection by the principal,
covers the specified period unless the risk is declined within that period. The case cited by Joyce to substantiate the
last principle is that a Goodfellow vs. Times & Beacon Assurance Com. (17 U. C. Q. B., 411), not available.

The two cases most nearly in point come from the federal courts and the Supreme Court of Arkansas.

In the case of Steinle vs. New York Life Insurance Co. ([1897], 81 Fed., 489} the facts were that the amount of the
first premium had been paid to an insurance agent and a receipt given therefor. The receipt, however, expressly
declared that if the application was accepted by the company, the insurance shall take effect from the date of the
application but that if the application was not accepted, the money shall be returned. The trite decision of the circuit
court of appeal was, "On the conceded facts of this case, there was no contract to life insurance perfected and the
judgment of the circuit court must be affirmed."

In the case of Cooksey vs. Mutual Life Insurance Co. ([1904], 73 Ark., 117) the person applying for the life insurance
paid and amount equal to the first premium, but the application and the receipt for the money paid, stipulated that
the insurance was to become effective only when the application was approved and the policy issued. The court
held that the transaction did not amount to an agreement for preliminary or temporary insurance. It was said:

It is not an unfamiliar custom among life insurance companies in the operation of the business, upon receipt of an
application for insurance, to enter into a contract with the applicant in the shape of a so-called "binding receipt" for
temporary insurance pending the consideration of the application, to last until the policy be issued or the application
rejected, and such contracts are upheld and enforced when the applicant dies before the issuance of a policy or
final rejection of the application. It is held, too, that such contracts may rest in parol. Counsel for appellant insists
that such a preliminary contract for temporary insurance was entered into in this instance, but we do not think so. On
the contrary, the clause in the application and the receipt given by the solicitor, which are to be read together,
stipulate expressly that the insurance shall become effective only when the "application shall be approved and the
policy duly signed by the secretary at the head office of the company and issued." It constituted no agreement at all
for preliminary or temporary insurance; Mohrstadt vs. Mutual Life Ins. Co., 115 Fed., 81, 52 C. C. A., 675; Steinle vs.
New York Life Ins. Co., 81 Fed., 489, 26 C. C. A., 491." (See further Weinfeld vs. Mutual Reserve Fund Life Ass'n.
[1892], 53 Fed, 208' Mohrstadt vs. Mutual Life Insurance Co. [1902], 115 Fed., 81; Insurance co. vs. Young's
Administrator [1875], 90 U. S., 85; Chamberlain vs. Prudential Insurance Company of America [1901], 109 Wis., 4;
Shawnee Mut. Fire Ins. Co. vs. McClure [1913], 39 Okla., 509; Dorman vs. Connecticut Fire Ins. Co. [1914],
51 contra, Starr vs. Mutual Life Ins. Co. [1905], 41 Wash., 228.)

We are of the opinion that the trial court committed no error in sustaining the demurrer and dismissing the case. It is
to be noted, however, that counsel for appellee admits the liability of the company for the return of the first premium
to the estate of the deceased. It is not to be doubted but that the Sun Life Assurance Company of Canada will
immediately, on the promulgation of this decision, pay to the estate of the late Luis Lim y Garcia the of P433.

The order appealed from, in the nature of a final judgment is affirmed, without special finding as to costs in this
instance. So ordered.

EN BANC

[G.R. No. 15895. November 29, 1920. ]

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin ’Ma. Herrer, Plaintiff-
Appellant, v. SUN LIFE ASSURANCE COMPANY OF CANADA, Defendant-Appellee.

Jose A. Espiritu for Appellant.

Cohn, Fisher & DeWitt for Appellee.

SYLLABUS

1. INSURANCE; PHILIPPINE LAW. — The law of insurance is now found in the Insurance Act and the
Civil Code.

2. ID.; OFFER AND ACCEPTANCE. — The Civil Code rule, that an acceptance made by letter shall bind
the person making the offer only from the date it came to his knowledge, is controlling.

3. ID.; ID. — On September 24, 1917, H made application to an insurance company through its
office in Manila for a life annuity. Two days later he paid the sum of P6,000 to the manager of the
company’s Manila office and was given a receipt therefor. On November 26, 1917, the head office
gave notice of acceptance by cable to Manila. On the same date the Manila office prepared a letter
notifying H that his application had been accepted and this was placed in the ordinary channels for
transmission, but as far as known, was never actually mailed and was never received by the
applicant. H died on December 20, 1917. Held: That the contract for a life annuity was not perfected
because it had not been proved satisfactorily that the acceptance of the application ever came to the
knowledge of the applicant.

4. ID.; ID. — An acceptance of an offer of insurance not actually or constructively communicated to

the proposer does not make a contract. Only the mailing of acceptance completes the contract of
insurance, as the locus poenitentiae is ended when the acceptance has passed beyond the control of
the party.

5. ID.; ID.; MAILING AND DELIVERY OF MAIL MATTER, PRESUMPTION. — When a letter or other mail
matter is addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it
was received by the addressee as soon as it could have been transmitted to him in the ordinary
course of the mails But if any one of these elemental facts fails to appear, it is fatal to the
presumption.

DECISION

MALCOLM, J. :

This is an action brought by the plaintiff as administrator of the estate of the late Joaquin Ma. Herrer
to recover from the defendant life insurance company the sum of P6,000 paid by the deceased for a
life annuity. The trial court gave judgment for the defendant. Plaintiff appeals.

The undisputed facts are these: On September 24, 1917, Joaquin Herrer made application to the Sun
Life Assurance Company of Canada through its office in Manila for a life annuity. Two days later he
paid the sum of P6,000 to the manager of the company’s Manila office and was given a receipt
reading as follows:jgc:chanrobles.com.ph

"MANILA, I. F., 26 de septiembre, 1917.

"PROVISIONAL RECEIPT

"P6,000

"Recibi la suma de seis mil pesos de Don Joaquin-Herrer de Manila como prima de la Renta Vitalicia
solicitada por dicho Don Joaquin Herrer hoy, sujeta al examen medico y aprobacion de la Oficina
Central de la Compañia." cralaw virtua1aw library

The application was immediately forwarded to the head office of the company at Montreal, Canada.
On November 26, 1917, the head office gave notice of acceptance by cable to Manila. (Whether on
the same day the cable was received notice was sent by the Manila office to Herrer that the
application had been accepted, is a disputed point, which will be discussed later.) On December 4,
1917, the policy was issued at Montreal. On December 18, 1917, attorney Aurelio A. Torres wrote to
the Manila office of the company stating that Herrer desired to withdraw his application. The following
day the local office replied to Mr. Torres, stating that the policy had been issued, and called attention
to the notification of November 26, 1917. This letter was received by Mr. Torres on the morning of
December 21, 1917. Mr. Herrer died on December 20, 1917.

As above suggested, the issue of fact raised by the evidence is whether Herrer received notice of
acceptance of his application. To resolve this question, we propose to go directly to the evidence of
record.

The chief clerk of the Manila office of the Sun Life Assurance Company of Canada at the time of the
trial testified that he prepared the letter introduced in evidence as Exhibit 3, of date November 26,
1917, and handed it to the local manager, Mr. E. E. White, for signature. The witness admitted on
cross-examination that after preparing the letter and giving it to the manager, he knew nothing of
what became of it. The local manager, Mr. White, testified to having received the cablegram
accepting the application of Mr. Herrer from the home office on November 26, 1917. He said that on
the same day he signed a letter notifying Mr. Herrer of this acceptance. The witness further said that
letters, after being signed, were sent to the chief clerk and placed on the mailing desk for
transmission. The witness could not tell if the letter had ever actually been placed in the mails. Mr.
Tuason, who was the chief clerk, on November 26, 1917, was not called as a witness. For the
defense, attorney Manuel Torres testified to having prepared the will of Joaquin Ma. Herrer, that on
this occasion, Mr. Herrer mentioned his application for a life annuity, and that he said that the only
document relating to the transaction in his possession was the provisional receipt. Rafael Enriquez,
the administrator of the estate testified that he had gone through the effects of the deceased and
had found no letter of notification from the insurance company to Mr. Herrer.

Our deduction from the evidence on this issue must be that the letter of November 26, 1917,
notifying Mr. Ferrer that his application had been accepted, was prepared and signed in the local
office of the insurance company, was placed in the ordinary channels for transmission, but as far as
we know, was never actually mailed and thus was never received by the applicant.

Not forgetting our conclusion of fact, it next becomes necessary to determine the law which should
be applied to the facts. In order to reach our legal goal, the obvious signposts along the way must be
noticed.

Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of Commerce, there formerly existed Title VIII of
Book II and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil Code
there formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and
life annuities, respectively, of Title XII of Book IV. On and after July 1, 1915, there was, however, in
force the Insurance Act, No. 2427. Chapter IV of this Act concerns life and health insurance. The Act
expressly repealed Title VIII of Book II and Section III of Title III of Book III of the Code of
Commerce. The law of insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in
article 1802, not only describes a contract of life annuity markedly similar to the one we are
considering, but in two other articles, gives strong clues as to the proper disposition of the case. For
instance, article 16 of the Civil Code provides that "In matters which are governed by special laws,
any deficiency of the latter shall be supplied by the provisions of this Code." On the supposition,
therefore, which is incontestable, that the special law on the subject of insurance is deficient in
enunciating the principles governing acceptance, the subject-matter of the Civil Code, if there be
any, would be controlling. In the Civil Code is found article 1262 providing that "Consent is shown by
the concurrence of offer and acceptance with respect to the thing and the consideration which are to
constitute the contract. An acceptance made by letter shall not bind the person making the offer
except from the time it came to his knowledge. The contract, in such case, is presumed to have been
entered into at the place where the offer was made." This latter article is in opposition to the
provisions of article 54 of the Code of Commerce.

If no mistake has been made in announcing the successive steps by which we reach a conclusion,
then the only duty remaining is for the court to apply the law as it is found. The legislature in its
wisdom having enacted a new law on insurance, and expressly repealed the provisions in the Code of
Commerce on the same subject, and having thus left a void in the commercial law, it would seem
logical to make use of the only pertinent provision of law found in the Civil Code, closely related to
the chapter concerning life annuities.

The Civil Code rule, that an acceptance made by letter shall bind the person making the offer only
from the date it came to his knowledge, may not be the best expression of modern commercial
usage. Still it must be admitted that its enforcement avoids uncertainty and tends to security. Not
only this, but in order that the principle may not be taken too lightly, let it be noticed that it is
identical with the principles announced by a considerable number of respectable, courts in the United
States. The courts who take this view have expressly held that an acceptance of an offer of insurance
not actually or constructively communicated to the proposer does not make a contract. Only the
mailing of acceptance, it has been said, completes the contract of insurance, as the locus
poienitentise is ended when the acceptance has passed beyond the control of the party. (I Joyce, The
Law of Insurance, pp. 235, 244.)
In resume, therefore, the law applicable to the case is found to be the second paragraph of! article
1262 of the Civil Code providing that an acceptance made by letter shall not bind the person making
the offer except from the time it came to his knowledge. The pertinent fact is, that according to the
provisional receipt, three things had to be accomplished by the insurance company before there was
a contract: (1) There had to be a medical examination of the applicant; (2) there had to be approval
of the application by the head office of the company; and (3) this approval had in some way to be
communicated by the company to the applicant. The further admitted facts are that the head office in
Montreal did accept the application, did cable the Manila office to that effect, did actually issue the
policy and did, through its agent in Manila, actually write the letter of notification and place it in the
usual channels for transmission to the addressee. The fact as to the letter of notification thus fails to
concur with the essential elements of the general rule pertaining to the mailing and delivery of mail
matter as announced by the American courts, namely, when a letter or other mail matter is
addressed and mailed with postage prepaid there is a rebuttable presumption of fact that it was
received by the addressee as soon as it could have been transmitted to him in the ordinary course of
the mails. But if any one of these elemental facts fails to appear, it is fatal to the presumption. For
instance, a letter will not be presumed to have been received by the addressee unless it is shown
that it was deposited in the post-office, properly addressed and stamped. (See 22 C. J., 96, and 49 L.
R. A. [N. S. ], pp. 458, et seq., notes.)

We hold that the contract for a life annuity in the case at bar was not perfected because it has not
been proved satisfactorily that the acceptance of the application ever came to the knowledge of the
applicant.

Judgment is reversed, and the plaintiff shall have and recover from the defendant the sum of P6,000
with legal interest from November 20, 1918, until paid, without special finding as to costs in either
instance. So ordered.

G.R. No. 112329           January 28, 2000

VIRGINIA A. PEREZ, petitioner,
vs.
COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION, respondents.

YNARES-SANTIAGO, J.:

A contract of insurance, like all other contracts, must be assented to by both parties, either in person or through their
agents and so long as an application for insurance has not been either accepted or rejected, it is merely a proposal
or an offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in CA-G.R. CV
35529 entitled, "BF Lifeman Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez. Defendant-
Appellee," which declared Insurance Policy 056300 for P50,000.00 issued by private respondent corporation in
favor of the deceased Primitivo B. Perez, null and void and rescinded, thereby reversing the decision rendered by
the Regional Trial Court of Manila, Branch XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00.
Sometime in October 1987, an agent of the insurance corporation, Rodolfo Lalog, visited Perez in Guinayangan,
Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing
promotional discount of P400.00 if the premium were paid annually. 1âwphi1.nêt
On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional insurance coverage of
P50,000.00. On the same day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. The receipt
issued by Lalog indicated the amount received was a "deposit." Unfortunately, Lalog lost the application form
1 

accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form. On2 

November 1, 1987, Perez was made to undergo the required medical examination, which he passed. 3

Pursuant to the established procedure of the company, Lalog forwarded the application for additional insurance of
Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporation at Gumaca, Quezon
which office was supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a storm. At the
time of his death, his application papers for the additional insurance of P50,000.00 were still with the Gumaca office.
Lalog testified that when he went to follow up the papers, he found them still in the Gumaca office and so he
personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November
27, 1987 that said papers were received in Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the
application and issued the corresponding policy for the P50,000.00 on December 2, 1987. 4

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the deceased. She was
paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the
insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of
which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. In its letter' of January 29,
1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not been
perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of
P2,075.00 which Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint against Virginia A.
Perez seeking the rescission and declaration of nullity of the insurance contract in question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the
contract and all the elements of a valid contract are present. She then filed a counterclaim against private
respondent for the collection of P150,000.00 as actual damages, P100,000.00 as exemplary damages, P30,000.00
as attorney's fees and P10,000.00 as expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads
as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant Virginia A.

Perez, ordering the plaintiff BF Lifeman Insurance Corporation to pay to her the face value of BF Lifeman
Insurance Policy No. 056300, plus double indemnity under the SARDI or in the total amount of P150,000.00
(any refund made and/or premium deficiency to be deducted therefrom).

SO ORDERED. 5

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00 had been
fully paid and even if the sum of P2,075.00 were to be considered merely as partial payment, the same does not
affect the validity of the policy. The trial court further stated that the deceased had fully complied with the
requirements of the insurance company. He paid, signed the application form and passed the medical examination.
He should not be made to suffer the subsequent delay in the transmittal of his application form to private
respondent's head office since these were no longer within his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance contract for
P50,000.00 could not have been perfected since at the time that the policy was issued, Primitivo was already
dead. Citing the provision in the application form signed by Primitivo which states that:
6 
 . . . there shall be no contract of insurance unless and until a policy is issued on this application and that the
policy shall not take effect until the first premium has been paid and the policy has been delivered to and
accepted by me/us in person while I/we, am/are in good health

the Court of Appeals held that the contract of insurance had to be assented to by both parties and so long as the
application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a
contract.

Petitioner's motion for reconsideration having been denied by respondent court, the instant petition for certiorari was
filed on the ground that there was a consummated contract of insurance between the deceased and BF Lifeman
Insurance Corporation and that the condition that the policy issued by the corporation be delivered and received by
the applicant in good health, is potestative, being dependent upon the will of the insurance company, and is
therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for
loss on a specified subject by specified perils. A contract, on the other hand, is a meeting of the minds between two
7 

persons whereby one binds himself, with respect to the other to give something or to render some service. Under 8 

Article 1318 of the Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the acceptance absolute.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical
examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance
Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was
further conditioned upon compliance with the following requisites stated in the application form:

there shall be no contract of insurance unless and until a policy is issued on this application and that the said
policy shall not take effect until the premium has been paid and the policy delivered to and accepted by
me/us in person while I/We, am/are in good health. 9

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely
received the application form and all the requisite supporting papers of the applicant. Its assent was given when it
issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant
pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is
deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional
insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days
later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila.
Consequently, there was absolutely no way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already dead. In the case of Enriquez
vs. Sun Life Assurance Co. of Canada, recovery on the life insurance of the deceased was disallowed on the
10 

ground that the contract for annuity was not perfected since it had not been proved satisfactorily that the acceptance
of the application ever reached the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been delivered to
and accepted by the proposed insured in good health is potestative being dependent upon the will of the corporation
and is therefore null and void.
We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is considered void.
Article 1182 of the New Civil Code states: When the fulfillment of the condition depends upon the sole will the
debtor, the conditional obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the perfection of the
contract of insurance:

(a) a policy must have been issued;

(b) the premiums paid; and

(c) the policy must have been delivered to and accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant
while he is in good health can hardly be considered as a potestative or facultative condition. On the contrary, the
health of the applicant at the time of the delivery of the policy is beyond the control or will of the insurance company.
Rather, the condition is a suspensive one whereby the acquisition of rights depends upon the happening of an event
which constitutes the condition. In this case, the suspensive condition was the policy must have been delivered and
accepted by the applicant while he is in good health. There was non-fulfillment of the condition, however, inasmuch
as the applicant was already dead at the time the policy was issued. Hence, the non-fulfillment of the condition
resulted in the non-perfection of the contract.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either in person
or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an
offer or proposal to make a contract. The contract, to be binding from the date of application, must have been a
completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or
determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have
met in agreement. 11

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It should be
noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract.
Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first
premium with his application. The corporation may not be penalized for the delay in the processing of the application
papers. Moreover, while it may have taken some time for the application papers to reach the main office, in the case
at bar, the same was acted upon less than a week after it was received. The processing of applications by
respondent corporation normally takes two to three weeks, the longest being a month. In this case, however, the
12 

requisite medical examination was undergone by the deceased on November 1, 1987; the application papers were
forwarded to the head office on November 27, 1987; and the policy was issued on December 2, 1987. Under these
circumstances, we hold that the delay could not be deemed unreasonable so as to constitute gross negligence.

A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy 056300 for
P50,000.00 null and void and rescinded. The Court of Appeals corrected this in its Resolution of the motion for
reconsideration filed by petitioner, thus:

Anent the appearance of the word "rescinded" in the dispositive portion of the decision, to which defendant-
appellee attaches undue significance and makes capital of, it is clear that the use of the words "and
rescinded" is, as it is hereby declared, a superfluity. It is apparent from the context of the decision that the
insurance policy in question was found null and void, and did not have to be "rescinded". 13

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no contract at all
and hence could not be the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED insofar as it
declared Insurance Policy No. 056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of no force and
effect and hence null and void. No costs. 1âwphi1.nêt
SO ORDERED.

G.R. No. 85296 May 14, 1990

ZENITH INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and LAWRENCE FERNANDEZ, respondents.

Vicente R. Layawen for petitioner.

Lawrence L. Fernandez & Associates for private respondent.

MEDIALDEA, J.:

Assailed in this petition is the decision of the Court of Appeals in CA-G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-appellee v. Zenith Insurance
Corp., defendant-appellant" which affirmed in toto the decision of the Regional Trial Court of Cebu, Branch XX in Civil Case No. CEB-1215 and the denial of
petitioner's Motion for Reconsideration.

The antecedent facts are as follows:

On January 25, 1983, private respondent Lawrence Fernandez insured his car for "own damage" under private car
Policy No. 50459 with petitioner Zenith Insurance Corporation. On July 6, 1983, the car figured in an accident and
suffered actual damages in the amount of P3,640.00. After allegedly being given a run around by Zenith for two (2)
months, Fernandez filed a complaint with the Regional Trial Court of Cebu for sum of money and damages resulting
from the refusal of Zenith to pay the amount claimed. The complaint was docketed as Civil Case No. CEB-1215.
Aside from actual damages and interests, Fernandez also prayed for moral damages in the amount of P10,000.00,
exemplary damages of P5,000.00, attorney's fees of P3,000.00 and litigation expenses of P3,000.00.

On September 28, 1983, Zenith filed an answer alleging that it offered to pay the claim of Fernandez pursuant to the
terms and conditions of the contract which, the private respondent rejected. After the issues had been joined, the
pre-trial was scheduled on October 17, 1983 but the same was moved to November 4, 1983 upon petitioner's
motion, allegedly to explore ways to settle the case although at an amount lower than private respondent's claim.
On November 14, 1983, the trial court terminated the pre-trial. Subsequently, Fernandez presented his evidence.
Petitioner Zenith, however, failed to present its evidence in view of its failure to appear in court, without justifiable
reason, on the day scheduled for the purpose. The trial court issued an order on August 23, 1984 submitting the
case for decision without Zenith's evidence (pp. 10-11, Rollo). Petitioner filed a petition for certiorari with the Court of
Appeals assailing the order of the trial court submitting the case for decision without petitioner's evidence. The
petition was docketed as C.A.-G.R. No. 04644. However, the petition was denied due course on April 29, 1986 (p.
56, Rollo).

On June 4, 1986, a decision was rendered by the trial court in favor of private respondent Fernandez. The
dispositive portion of the trial court's decision provides:

WHEREFORE, defendant is hereby ordered to pay to the plaintiff:

1. The amount of P3,640.00 representing the damage incurred plus interest at the rate of twice the
prevailing interest rates;

2. The amount of P20,000.00 by way of moral damages;

3. The amount of P20,000.00 by way of exemplary damages;

 4. The amount of P5,000.00 as attorney's fees;

5. The amount of P3,000.00 as litigation expenses; and

6. Costs. (p. 9, Rollo)

Upon motion of Fernandez and before the expiration of the period to appeal, the trial court, on June 20, 1986,
ordered the execution of the decision pending appeal. The order was assailed by petitioner in a petition
for certiorari with the Court of Appeals on October 23, 1986 in C.A. G.R. No. 10420 but which petition was also
dismissed on December 24, 1986 (p. 69, Rollo).

On June 10, 1986, petitioner filed a notice of appeal before the trial court. The notice of appeal was granted in the
same order granting private respondent's motion for execution pending appeal. The appeal to respondent court
assigned the following errors:

I. The lower court erred in denying defendant appellant to adduce evidence in its behalf.

II. The lower court erred in ordering Zenith Insurance Corporation to pay the amount of P3,640.00 in
its decision.

III. The lower court erred in awarding moral damages, attorneys fees and exemplary damages, the
worst is that, the court awarded damages more than what are prayed for in the complaint. (p.
12, Rollo)

On August 17, 1988, the Court of Appeals rendered its decision affirming in toto the decision of the trial court. It also
ruled that the matter of the trial court's denial of Fernandez's right to adduce evidence is a closed matter in view of
its (CA) ruling in AC-G.R. 04644 wherein Zenith's petition questioning the trial court's order submitting the case for
decision without Zenith's evidence, was dismissed.

The Motion for Reconsideration of the decision of the Court of Appeals dated August 17, 1988 was denied on
September 29, 1988, for lack of merit. Hence, the instant petition was filed by Zenith on October 18, 1988 on the
allegation that respondent Court of Appeals' decision and resolution ran counter to applicable decisions of this Court
and that they were rendered without or in excess of jurisdiction. The issues raised by petitioners in this petition are:

a) The legal basis of respondent Court of Appeals in awarding moral damages, exemplary damages
and attomey's fees in an amount more than that prayed for in the complaint.

b) The award of actual damages of P3,460.00 instead of only P1,927.50 which was arrived at after
deducting P250.00 and P274.00 as deductible franchise and 20% depreciation on parts as agreed
upon in the contract of insurance.

Petitioner contends that while the complaint of private respondent prayed for P10,000.00 moral damages, the lower
court awarded twice the amount, or P20,000.00 without factual or legal basis; while private respondent prayed for
P5,000.00 exemplary damages, the trial court awarded P20,000.00; and while private respondent prayed for
P3,000.00 attorney's fees, the trial court awarded P5,000.00.

The propriety of the award of moral damages, exemplary damages and attorney's fees is the main issue raised
herein by petitioner.

The award of damages in case of unreasonable delay in the payment of insurance claims is governed by the
Philippine Insurance Code, which provides:

Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall
be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether
the payment of the claim of the insured has been unreasonably denied or withheld; and in the
affirmative case, the insurance company shall be adjudged to pay damages which shall consist of
attomey's fees and other expenses incurred by the insured person by reason of such unreasonable
 denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board
of the amount of the claim due the insured, from the date following the time prescribed in section two
hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully
satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections
shall be considered prima facie evidence of unreasonable delay in payment.

It is clear that under the Insurance Code, in case of unreasonable delay in the payment of the proceeds of an
insurance policy, the damages that may be awarded are: 1) attorney's fees; 2) other expenses incurred by the
insured person by reason of such unreasonable denial or withholding of payment; 3) interest at twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the injured; and 4) the amount of the claim.

As regards the award of moral and exemplary damages, the rules under the Civil Code of the Philippines shall
govern.

"The purpose of moral damages is essentially indemnity or reparation, not punishment or correction. Moral damages
are emphatically not intended to enrich a complainant at the expense of a defendant, they are awarded only to
enable the injured party to obtain means, diversions or amusements that will serve to alleviate the moral suffering he
has undergone by reason of the defendant's culpable action." (J. Cezar S. Sangco, Philippine Law on Torts and
Damages, Revised Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v. IAC, G.R. No. 64515, June
22, 1984; 129 SCRA 745). While it is true that no proof of pecuniary loss is necessary in order that moral damages
may be adjudicated, the assessment of which is left to the discretion of the court according to the circumstances of
each case (Art. 2216, New Civil Code), it is equally true that in awarding moral damages in case of breach of
contract, there must be a showing that the breach was wanton and deliberately injurious or the one responsible
acted fraudently or in bad faith (Perez v. Court of Appeals, G.R. No. L-20238, January 30,1965; 13 SCRA 137; Solis
v. Salvador, G.R. No. L-17022, August 14, 1965; 14 SCRA 887). In the instant case, there was a finding that private
respondent was given a "run-around" for two months, which is the basis for the award of the damages granted
under the Insurance Code for unreasonable delay in the payment of the claim. However, the act of petitioner of
delaying payment for two months cannot be considered as so wanton or malevolent to justify an award of
P20,000.00 as moral damages, taking into consideration also the fact that the actual damage on the car was only
P3,460. In the pre-trial of the case, it was shown that there was no total disclaimer by respondent. The reason for
petitioner's failure to indemnify private respondent within the two-month period was that the parties could not come
to an agreement as regards the amount of the actual damage on the car. The amount of P10,000.00 prayed for by
private respondent as moral damages is equitable.

On the other hand, exemplary or corrective damages are imposed by way of example or correction for the public
good (Art. 2229, New Civil Code of the Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No. 57322, June
22,1987; 151 SCRA 227, exemplary damages were not awarded as the insurance company had not acted in
wanton, oppressive or malevolent manner. The same is true in the case at bar.

The amount of P5,000.00 awarded as attomey's fees is justified under the circumstances of this case considering
that there were other petitions filed and defended by private respondent in connection with this case.

As regards the actual damages incurred by private respondent, the amount of P3,640.00 had been established
before the trial court and affirmed by the appellate court. Respondent appellate court correctly ruled that the
deductions of P250.00 and P274.00 as deductible franchise and 20% depreciation on parts, respectively claimed by
petitioners as agreed upon in the contract, had no basis. Respondent court ruled:

Under its second assigned error, defendant-appellant puts forward two arguments, both of which are
entirely without merit. It is contented that the amount recoverable under the insurance policy
defendant-appellant issued over the car of plaintiff-appellee is subject to deductible franchise, and . .
..

The policy (Exhibit G, pp. 4-9, Record), does not mntion any deductible franchise, . . . (p. 13, Rollo)

Therefore, the award of moral damages is reduced to P10,000.00 and the award of exemplary damages is hereby
deleted. The awards due to private respondent Fernandez are as follows:
 1) P3,640.00 as actual claim plus interest of twice the ceiling prescribed by the Monetary Board
computed from the time of submission of proof of loss;

2) P10,000.00 as moral damages;

3) P5,000.00 as attorney's fees;

4) P3,000.00 as litigation expenses; and

5) Costs.

ACCORDINGLY, the appealed decision is MODIFIED as above stated.

SO ORDERED.