Title
Lumibao vs. Intermediate Appellate Court
Case
G.R. No. 64677
Decision Date
Sep 13, 1990
Insurance agent offered rebate to secure policy; rebate agreement void under Insurance Code, unenforceable, complaint dismissed.
life insurance underwriter
rebate
violation
A

Case Summary (G.R. No. 64677)

Factual Background

In January 1975, petitioner persuaded private respondent to take out a life insurance policy with Manila Bankers Life Insurance Corporation. A medical examination showed that private respondent was diabetic. Based on that finding, the insurance company fixed the annual premium at P93,180.00 for a policy with a face value of P1,000,000.00. To induce private respondent to accept the computed premium, petitioner promised to return an amount corresponding to her commission out of the first premium payment, equivalent to fifty percent (50%). Acting on the inducement, private respondent agreed to take the policy.

On April 30, 1975, private respondent issued two checks payable to the insurance company for P46,590.00 each, or a total of P93,180.00. Both checks were postdated to May 30, 1975 to allow petitioner to make arrangements for the return of one check corresponding to her commission. On June 4, 1975, petitioner received from Bescon Insurance Agencies, Inc. the sum of P51,249.00 as her commission from the first annual premium. Despite receipt of this commission, petitioner failed to pay private respondent the promised amount of P46,590.00. Private respondent’s attorney then sent a demand letter dated July 7, 1975. Petitioner, through counsel, denied that she had entered into any arrangement with private respondent.

Initiation of the Action and Trial Court Disposition

Private respondent instituted an action against petitioner for specific performance and damages, docketed as Civil Case No. 3653, on August 6, 1975. In her answer with counterclaim filed on September 29, 1975, petitioner denied that she made any verbal promise to return fifty percent of the premium.

The trial court, in its decision dated September 15, 1976, made a categorical finding that petitioner induced private respondent to take the insurance policy by promising a rebate equivalent to fifty percent of the first annual premium payment. Despite that finding, however, the trial court dismissed private respondent’s complaint on the ground that the agreement was void for being contrary to Pres. Decree No. 612 (Insurance Code) and public policy. The trial court also dismissed petitioner’s counterclaim.

Appellate Proceedings and the Split Decision

Petitioner appealed to the respondent appellate court, docketed as AC-G.R. CV No. 61200. In a decision dated June 30, 1983, the appellate court affirmed the factual findings of the trial court and sustained the dismissal of petitioner’s counterclaim. In a split, the appellate court reversed the trial court’s dismissal of the complaint. It ordered petitioner to pay private respondent P46,590.00, with interest from the filing of the complaint below until fully paid.

Petitioner then sought review before the Supreme Court.

Issues Raised in the Petition

The Supreme Court framed two issues: first, whether the respondent appellate court erred in holding that petitioner violated Section 361 of Pres. Decree No. 961; and second, whether it erred in ordering petitioner to pay private respondent P46,590.00 with interest.

The Supreme Court’s Ruling on Section 361 Violation

On the first issue, the Court held that the appellate court committed no reversible error in finding that petitioner violated Section 361 of the Insurance Code. The Court treated the factual findings of both lower courts as binding, explaining that a preponderance of evidence supported the conclusion that petitioner induced private respondent to take out a Manila Bankers Life Insurance Corporation policy by promising a rebate equivalent to fifty percent of the first annual premium payment.

Petitioner argued that the lower courts erred in crediting private respondent’s and his witnesses’ testimonies because Article 1358 of the New Civil Code requires that contracts involving an amount exceeding five hundred pesos must appear in writing. The Court rejected the argument. It held that Article 1358 does not establish an evidentiary rule precluding oral testimony to prove that parties entered into a contract or agreement exceeding that threshold. The Court further noted that petitioner, as an insurance agent, was legally barred from inducing prospective clients by offering rebates from the premiums specified in the insurance policies.

The Court quoted Section 361 of Pres. Decree No. 612, emphasizing the prohibition on insurance companies and their agents, brokers, employees, or representatives from making any contract or agreement other than what is plainly expressed in the policy, and from directly or indirectly paying, allowing, offering, or giving any rebate from the premium specified in the policy or any special favor or advantage in dividends or other benefits, either as inducement to making insurance or after the insurance has been effected. It also cited Section 363, which provides that violation of Section 361 constitutes a ground for immediate revocation of the license and the imposition of a fine not exceeding five hundred pesos.

The Court concluded that petitioner’s promise to pay private respondent an amount equivalent to fifty percent (50%) of the first premium—taken from petitioner’s commission connected with the policy—fell squarely within the conduct prohibited by Section 361.

Appellate Error on the Enforceability and Monetary Award

After resolving the first issue, the Court addressed the second issue: whether the appellate court erred in ordering petitioner to pay the promised rebate. The Supreme Court ruled that the appellate court committed reversible error of law in ordering petitioner to comply with the rebate arrangement.

First, the Court held that the appellate court violated a procedural rule in appellate practice. It reiterated the doctrine that when an appeal is taken in a civil case, an appellee who did not appeal may not obtain from the appellate court affirmative relief beyond what the trial court granted. The appellee may advance arguments to defeat the appellant’s claim or uphold the appealed judgment and may assign errors in a brief if needed to maintain the trial court’s result on other grounds. The appellate court, however, could not reverse or modify the judgment to grant other affirmative relief to an appellee who had not appealed.

Applying the rule, the Court observed that while petitioner appealed from the trial court’s decision dismissing her counterclaim, private respondent did not appeal from the same trial court decision that also dismissed his complaint. Thus, the appellate court erred when it reversed the trial court’s dismissal and instead granted private respondent affirmative relief by ordering payment of P46,590.00.

Second, the Court held that, apart from the procedural defect, the appellate court gravely erred in compelling compliance with the promised rebate even on substantive grounds. The Court reasoned that the rebate agreement was a prohibited transaction under Section 361, and therefore void ab initio under Article 1409(7) of the New Civil Code. Consequently, the agreement did not generate enforceable rights and obligations between petitioner and private respondent.

The appellate court had attempted to justify the payment by invoking Article 1412(2) of the New Civil Code, reasoning that Article 1412(2) allows recovery by a party not at fault when an unlawful or forbidden cause exists and only one contracting party is at fault. The Supreme Court found this position untenable. It acknowledged that the law recognizes certain instances in which an innocent party may recover what was paid or delivered under an agreement, citing Articles 1411–1417. It nevertheless held that the case at bar did not fall under the exception relied upon by the appellate court.

The Court explained that Article 1412(2) addresses situations where, in performance of the undertaking with the party who is at fault, the innocent party has paid or delivered property to the latter. The Court held that this was not the nature of the relationship between private respondent and petitioner. The agreement consisted of private respondent’s undertaking to take out a life insurance policy and petitioner’s undertaking to provide a rebate on the first premium. There was no showing that petitioner, at the time of making her promise, acted with knowledge and under the authority of the insurance company. The Court noted that the premium of P93,180.00 was actually paid to the insurance company as consideration of the policy, and the checks were issued to the insurance company and encashed by it as payee. For this reason, private respondent could not “demand the return of what he had given” from petitioner because he did not, strictly speaking, pay the amount to petitioner.

The Court further underscored that public policy demanded refusal to enforce a promise that the law expressly prohibited. It explained that the purpose of Section 361 is to prevent unfair discriminatory practices in the insurance industry and to ensure equal terms for policyholders of the same insurable class. It characterized prohibited rebates and preferential treatment as practices that undermine the policy. Thus, enforcing agreements forbidden by statute—so as to allow recovery thereunder—would subvert

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