Glaraga vs. Sun Life Assurance Co. of Canada, et al.

Where a life insurance policy specifies the time, manner, and person to whom premiums must be paid and limits the powers of special agents, premiums must be paid as specified; absent proof of an established custom or ratification, a special agent's promise to pay the premium does not bind the insurer, and nonpayment within the grace period causes the policy to lapse. An agent who personally promises the insured to pay the premium and fails to do so, causing the insured to lose the policy, is personally liable.

Sun Life Assurance Company of Canada was a licensed corporation duly authorized to do business in the Philippine Islands. O. O. Hanson was its agent or solicitor who procured the insurance on the life of Jose Concepcion Juares. The dispute concerns the legal effect of the premium-payment and agent-authority provisions of the life insurance policy after its issuance.

Sun Life Assurance Company of Canada, a licensed corporation authorized to do business in the Philippine Islands, issued policy No. 585625 on the life of Jose Concepcion Juares. The statement of the case dates the issuance to July 23, 1924, while the opinion elsewhere states that the policy was issued and delivered in June 1924. The policy promised to pay P5,000 to the insured's legal representatives if it was in legal force and effect at his death. The first premium was paid—plaintiff alleged on June 3, 1924, while the company alleged on June 1, 1924. By the policy's terms, premiums of P169.30 were payable each semester on June 1 and December 1, with a grace period of not more than thirty days; after two full years in force, an automatic non-forfeiture provision applied; no person except the President, Managing-Director or Secretary could alter the contract or extend the time for paying a premium; no payment made to any person except in exchange for the company's official receipt would be recognized; and the policy did not take effect until the first premium had been actually paid during the life and good health of the insured.

The second premium became due on December 1, 1924. According to the plaintiff, the deceased was prepared to send the amount to the company in Manila and would have sent it in due time, but before remitting the money he received from O. O. Hanson, the company's agent or solicitor, written instructions not to send the amount to Manila and a statement that Hanson would pay it to the insurance company; Hanson would later collect the premium from him in Negros in January 1925 to reimburse himself. The writing, identified as Exhibit D, stated: "I am going to pay your policy. Have money ready when I come in January. — Your brother — Hanson." Hanson denied ever writing it. The trial court found for the plaintiff on that factual issue, and the Supreme Court noted that, although there was a sharp conflict, there was ample evidence to sustain the finding; the opinion proceeded on the assumption that Hanson wrote the letter.

The deceased had the money and was able, ready, and willing to pay the premium when he received Exhibit D. After receiving it, he relied on Hanson to pay the premium and for that reason alone failed to pay it. No official receipt for the premium was ever delivered to him. The testimony was conclusive that the second premium was never paid to the company by anyone. Jose Concepcion Juares died in January 1925.

After his death, Susana Glaraga was appointed administratrix of his estate. A demand was made upon Sun Life for the amount of the policy, and payment was refused. Sun Life denied liability, alleging that the second premium was never paid within the grace period and that the policy had lapsed; it further alleged that it had no knowledge of Hanson's alleged promise, never received any payment from him on behalf of the insured, and never authorized Hanson or any other person to modify the policy. Hanson admitted the issuance of the policy and payment of the first premium but denied the remaining allegations, including that Juares ever paid him any premium in January 1925 or at any other time.

The factual findings material to the Supreme Court's analysis were that Hanson wrote Exhibit D and that the second premium was never paid to the company; the Court also found that the deceased had relied on Hanson's promise and that Hanson failed to pay the premium.

• Sun Life — Lapse of Policy: Sun Life contended that the trial court erred in holding that the insured's failure to pay the premium within the time prescribed by the contract did not cause the policy to lapse.
• Sun Life — Agent's Agreement Not Binding: Sun Life argued that the trial court erred in holding that an agreement on the part of the solicitor to assume the insured's obligation to pay his premium is binding upon the insurance company.
• Sun Life — Judgment and New Trial: Sun Life contended that the trial court erred in rendering judgment against it and in denying its motion for a new trial.
• Hanson — Authenticity of Exhibit D: Hanson contended that the trial court erred in holding Exhibit D authentic.
• Hanson — Liability: Hanson contended that the trial court erred in holding him liable.

• Agency and Authority to Collect: Plaintiff alleged that Hanson was the agent of the insurance company who insured the life of Jose Concepcion Juares, was the person to whom the first premium was paid on June 3, 1924, and was one of the agents authorized by the company to collect premiums.
• Hanson's Instructions and Promise: Plaintiff alleged that the second premium should have been paid in December 1924; the deceased was prepared to send it to Manila but, before remitting, received from Hanson written instructions not to send the amount to Manila and a statement that Hanson would pay it to the company, later collecting it in Negros in January 1925 to reimburse himself.
• Payment by Hanson: Plaintiff averred that Hanson did pay the second premium to the company at its maturity.
• Reliance and Demand: Plaintiff alleged that after the insured's death and before suit, demand was made on the company for payment of the policy and was refused.

• Lapse of Policy: Whether the failure of the insured to pay the second premium within the time and manner prescribed by the policy caused the policy to lapse, notwithstanding Hanson's letter Exhibit D.
• Binding Effect of Special Agent's Promise: Whether an agreement by Hanson, the solicitor or special agent, to assume the insured's obligation to pay the premium is binding upon Sun Life.
• Authenticity of Exhibit D: Whether the trial court's finding that Hanson wrote Exhibit D is supported by the evidence.
• Liability of Hanson: Whether Hanson is liable for the amount of the policy because he promised to pay the premium, the insured relied on that promise, and Hanson failed to pay.

• Lapse of Policy: Yes. The policy lapsed because the second premium was never paid to the company when due or within the thirty-day grace period, and the policy expressly provided that nonpayment caused it to become void.
• Binding Effect of Special Agent's Promise: No. Hanson's promise did not bind Sun Life because the policy limited the powers of special agents and required payment in exchange for the company's official receipt; no ratification or established custom was shown.
• Authenticity of Exhibit D: Yes. The trial court's finding that Hanson wrote Exhibit D was sustained, there being ample evidence despite the conflicting testimony.
• Liability of Hanson: Yes. Hanson was liable because he promised to pay the premium, the deceased relied on that promise and failed to pay, and Hanson failed to pay, causing the loss of the policy amount.

• Lapse of Policy: The policy was in writing and, by its express terms, allowed thirty days of grace for renewal premiums; if any premium was not paid within the grace period, the policy became void, subject to the automatic non-forfeiture provision. The automatic non-forfeiture provision applied only after the policy had been two full years in force; the policy had been issued in 1924 and, exclusive of the first premium, no other premium was ever paid. The testimony was conclusive that the second premium was never paid to the company by anyone. Because the premium was not paid when due or within the grace period, the policy lapsed and was without legal force or effect at the insured's death.
• Binding Effect of Special Agent's Promise: The policy expressly provided that no person except the President, Managing-Director or Secretary had power to alter the contract, extend the time for paying a premium, or bind the company by making any promise; no payment made to any person except in exchange for the company's official receipt would be recognized; and the policy did not take effect until the first premium had been actually paid. Hanson's Exhibit D did not state that he had paid the premium; it stated that he was going to pay it and told the deceased to have money ready when he came in January. Hanson did not claim in the letter that he was acting for or representing the company. The promise was Hanson's alone. No official receipt was ever delivered to the deceased. There was no evidence that the company ratified or approved Exhibit D, knew it was written, extended the time for payment, or received any payment from Hanson. The writing was not the act of the company or within the agent's authority, and even if it purported to be the act of the agent, it would be doubtful whether it bound the company absent ratification or approval. The policy also required premiums to be paid in pesos and could not be paid in another manner without the company's consent. The Court distinguished Harding vs. Commercial Union Assurance Co., which involved an agent's acts before the policy was issued and where there was no written contract between the insured and the company; here, the written policy had been issued and delivered and specifically defined and limited the agent's powers and duties. Hanson was at most a special agent with limited powers as to receipt of premiums, and there was no allegation or proof of an established usage or custom binding the company. The Court also cited Corpus Juris, vol. 32, p. 1201, for the rule that, absent policy provisions permitting another manner of payment, premiums are payable in cash and an agent has no implied authority to accept payments except in cash, although payment other than cash may become effective by consent, estoppel, or ratification.
• Authenticity of Exhibit D: The question whether Hanson wrote Exhibit D was purely factual, and the trial court found for the plaintiff. Although there was a sharp conflict in the evidence, there was ample evidence to sustain the trial court's finding. The Supreme Court therefore proceeded on the assumption that Hanson wrote the letter.
• Liability of Hanson: The proof was conclusive that the deceased had the money and was able, ready, and willing to pay the premium when he received Exhibit D. After receiving it, he relied on Hanson to pay the premium and for that reason alone failed to pay it. Hanson failed to keep his promise, the premium was never paid, and the deceased lost the full amount of the policy. Because Hanson promised and agreed to pay the premium, the deceased relied on that promise, and Hanson failed to pay, the judgment against Hanson was affirmed, with costs.

• Premium Payment According to Policy Terms — Where a life insurance policy specifies the time, manner, and person to whom premiums must be paid and limits the powers of special agents, premiums must be paid as specified. Absent proof of an established custom or a rule of conduct ratified and approved by the company, nonpayment within the grace period causes the policy to lapse by its own terms. The Court applied this because the second premium was never paid to Sun Life and the policy expressly made nonpayment within thirty days cause lapse.
• Special Agent's Authority After Policy Issuance — A life insurance agent's powers and duties in soliciting insurance before the policy is issued differ from the legal force of what the agent says or does after issuance. Once the policy is issued and delivered, the written contract defines and limits the agent's powers; the insurer is not bound by the agent's promise to pay the premium or extend time absent ratification or approval. The Court applied this to hold that Hanson's Exhibit D did not bind Sun Life.
• Official Receipt Requirement and Payment to Agent — A policy provision that no payment made to any person except in exchange for the company's official receipt will be recognized limits the agent's authority to receive premiums. An agent has no implied authority to accept payment other than in cash unless the company waives the requirement or ratifies the payment. The Court applied this because no official receipt was delivered and no payment reached the company.
• Personal Liability of Agent for Unfulfilled Promise to Pay Premium — An agent who personally promises the insured to pay the premium, induces the insured to rely on that promise and refrain from paying, and then fails to pay, is liable for the resulting loss. The Court affirmed the judgment against Hanson on this basis.
• Estoppel and Pre-Issuance Agent Acts — Where a proposal form is made out by the person authorized to solicit insurance, incorrect facts in the proposal are not regarded as warranted by the insured, and the insurer may be estopped to deny the agent's authority as to acts before issuance. The Court acknowledged this doctrine in Harding vs. Commercial Union Assurance Co. as good law but distinguished it because the present case involved a written policy already issued and delivered, with express limitations on the agent's post-issuance authority.

• "By its express terms, the non-payment of any premium when due or within the thirty-day period of grace, ipso facto causes the policy to lapse, and relieves the insurance company from all liability." — This states the ratio for the lapse of the policy and the effect of nonpayment within the grace period.
• "There is a marked distinction between the legal force and effect of the powers and duties of a life insurance agent in soliciting insurance and what he says or does before the policy is issued, and his powers and duties, and the legal force of what he says and does after the policy is issued." — This defines the doctrinal distinction between pre-issuance and post-issuance acts of an insurance agent and supports the ruling that Hanson's promise did not bind Sun Life.
• "No persons, except the President, Managing-Director or Secretary has power to alter this contract, to extend the time for paying a premium, to bind the Company by making any promise or by receiving any representation or information not contained in the application for this policy. No payment made to any person, except in exchange for the Company’s official receipt, will be recognized by the Company. This policy does not take effect until the first premium has been actually paid, during the life and good health of the insured." — This policy clause is the controlling contractual limitation on agent authority and the official-receipt requirement.
• "Hanson having promised and agreed to pay the premium, and the deceased having relied upon that promise, and Hanson having failed to pay the premium, the judgment as to him must be affirmed, with costs." — This is the basis for Hanson's personal liability for his unfulfilled promise to pay the premium.

• Harding vs. Commercial Union Assurance Co., 38 Phil., 464 — Cited by the lower court and discussed by the Supreme Court. The Supreme Court accepted its doctrine as good law and in accord with modern authority but distinguished it: Harding concerned an agent's acts before the policy was issued, where there was no written contract between insured and insurer; the present case involved a written policy already issued and delivered, with provisions specifically defining and limiting the agent's powers. Thus Harding did not control.

• Insurance Policy No. 585625, Section II (Days of Grace) — Thirty days of grace were allowed for payment of renewal premiums, during which the insurance continued in force; if any premium was not paid within the grace period, the policy became void subject to the non-forfeiture provision.
• Insurance Policy No. 585625, Section VIII (Automatic Non-Forfeiture) — After the policy had been two full years in force, the policy would not lapse if the reserve exceeded the premium; otherwise it would lapse and become void unless the premium was paid within the thirty days of grace.
• Insurance Policy No. 585625, Alteration and Official Receipt Clause — No person except the President, Managing-Director or Secretary had power to alter the contract, extend the time for paying a premium, or bind the company by making any promise; no payment made to any person except in exchange for the company's official receipt would be recognized; and the policy did not take effect until the first premium had been actually paid during the life and good health of the insured.
• Insurance Policy No. 585625, Premium Payment Clause — Premiums were payable in pesos and, without the company's consent, could not be paid in any other manner.

Avanceña, C.J.; Johnson, Street, Malcolm, Ostrand, and Villa Real, JJ., concurred.