CHARLES ABOLAFIA, PLAINTIFF AND APPELLANT, VS. LIVERPOOL AND LONDON AND GLOBE INSURANCE COMPANY, LTD., AND NORTH CHINA INSURANCE COMPANY, DEFENDANTS AND APPELLEES.

VILLAMOR, J.:

On the 31st of March, 1922, the plaintiff was the holder of policy No.
13356106 O/No. 240 of fire insurance issued by the defendant Liverpool and
London and Globe Insurance Company, Ltd., upon a store of the plaintiff No. 335,
Calle Echague, City of Manila. The term of this policy was one year, to expire
March 31, 1923, and the amount insured P20,000.

On the 8th of July, 1922, the same plaintiff obtained from the defendant
Liverpool and London and Globe Insurance Company, Ltd., another policy of fire
insurance No. 13628459 O/No. 1715 upon the same store for the sum of P7,500 and
for the period of one year, to expire July 8, 1923.

On the 1st of June, 1922, he had the same store insured against fire by the
defendant North China Insurance Company, which issued policy No. 23214 O/No.
1664 in favor of the plaintiff for the sum of P10,000 and for the term of one
year, expiring June 1, 1923.

The plaintiff paid the premiums upon the aforesaid three policies of fire
insurance.

On the night of the 23d or morning of the 24th of September, 1922, a fire
occurred on Calle Echague, and the store of the plaintiff was damaged by the
fire in the sum of P29,245.59, which he seeks to recover from the defendants
through their agent Wise & Company in proportion to the value of the
policies issued by them.

The defendants refuse to pay the amounts claimed by the plaintiff, alleging
as a defense that the policies issued by them contain the following clause:

“9. The Insurance may be terminated at any time at the request of the
Insured, in which case the Company will retain the customary short period rate
for the time the Policy has been in force. The Insurance may also at any time be
terminated at the option of the Company, on notice to that effect being given to
the Insured, in which, case the Company shall be liable to repay on demand a
ratable proportion of the premium for the unexpired term from the date of the
cancelment.”

And that making use of the right granted them by said clause, the defendants
allege that on September 22, 1922, and prior to the fire, as stated in the
plaintiff’s complaint, the defendant companies have taken advantage of the right
of election contained in said insurance policies and terminated and cancelled
said insurance policies, giving notice to the plaintiff of the termination and
cancellation thereof; that afterwards and on said date, the defendants sent the
plaintiff by registered mail, postage prepaid, and duly addressed to him, their
check for all the premiums to be refunded and to which the plaintiff was
entitled under the terms of the policy or for any other account; that later,
that is, on the morning of September 23, 1922, and prior to the alleged fire,
said plaintiff accepted and confirmed the cancellation of said insurance
policies and the termination of the insurance, and said policies became then and
forever null, void, and of no effect and specially at the time the alleged fire
occurred, when the plaintiff was no longer insured by the defendants against any
loss and had no insurance contract valid and subsisting with the defendants.

After hearing the two cases jointly by agreement of the parties, the lower
court absolved the defendants from the complaint, holding that the three
policies No. 23214 O/No. 1664 of the North China Insurance Co., Ltd., No.
13628459 O/No. 1715 and No. 133556106 of the Liverpool and London and Globe
Insurance Co., Ltd., were no longer in force, the same having been previously
cancelled on the morning of September 23, 1922; and having reached this
conclusion, it absolved the defendant North China Insurance Co., Ltd., from the
complaint in case No. 23129, and the defendant Liverpool and London and Globe
Insurance Co., Ltd., from the complaint in case No. 23127. From this judgment
the plaintiff appealed by bill of exceptions.

In our opinion, the decisive point in each of these cases is whether or not
the insurance policies alleged by the plaintiff were in force on the night of
September 23, 1922, when the fire occurred that caused the damages sought to be
recovered.

The trial court held that on the morning of September 23, 1922, the aforesaid
policies were no longer in force, they having been cancelled by the defendants
on the preceding day, that is, on the 22d of that month.

The appellant does not question the right of the defendant companies to
terminate the insurance upon the terms of the policies, but contends that no
notice of the termination of the insurance was given to the plaintiff, as
required by the terms of the policies in question.

These policies contain, among others, the following conditions :

“* * * The insurance may also at any time be terminated at the option of the
Company, on notice to that effect being given to the Insured, in which case the
Company shall be liable to repay on demand a ratable proportion of the premium
for the unexpired term from the date of the cancelment.”

As may be seen, no special form is prescribed for giving the notice of the
termination of the insurance by the insurance companies, and we believe that
when the policy does not expressly provide the manner in which the cancellation
of a fire insurance policy should be effected, it must be understood that it may
be done in any way admissible in law. Thus in the case of Davidson vs.
German Insurance Company of Freeport (13 L. R. A. [N. S.], 884), it was held
that:

“Notice, to effect cancellation, need not be in writing. It may be verbal or
oral. No particular form of notice is prescribed. It is only necessary that the
company positively, distinctly, and unequivocally indicate to the insured that
it is its intention that the policy shall cease to be binding as such upon the
expiration of five days from the time when its intention is made known to the
insured.” The same doctrine was upheld in the following cases: Schwarzschild
& Sulzberger Co. vs. Phoenix Insurance Co. of Hartford (59 C. C.
A., 572; 124 Fed., 52); Phoenix Mutual Fire Insurance Co. of Cincinnati
vs. Brecheisen (50 Ohio St., 542; 35 N. E., 53); El Paso Reduction Co.
vs. Hartford Fire Insurance Co. (121 Fed., 937).

In our opinion the record contains conclusive evidence that the plaintiff was
actually and positively notified of the cancellation of his policies by the
defendants before the fire occurred on the night of September 23, 1922. So it
appears from the testimony of the witnesses Noman T. Raid, A. R. Porter, A. P.
Blackistone, R. Gaskell, C. Castaner, R. Bernardo, and Juan Reyes. But it is
argued that the notice given was not valid, because no payment was tendered of
the proportionate part of the premiums for the unexpired term at the same time
of giving the notice.

It appears that on the evening of September 22, the accountant of Wise &
Company, C. Castaner, took to the plaintiff’s store the notice of the
cancellation of the aforesaid policies and the check for the sum of P581 whereby
the defendants intended to refund a part of the premiums paid by the plaintiff,
but did not find him; that the plaintiff’s brother, who was then in charge of
the store, refused to receive the notice of cancellation with the check; that
thereupon the manager of Wise & Company, agent of the defendants, sent the
letter Exhibit 3 with the aforesaid check by registered mail, the notice of the
registered letter having been delivered at the store of the plaintiff on the
morning of September 23d by an employee of the Bureau of Posts, but the
plaintiff failed to take it, notwithstanding that his store was a short distance
from the Bureau of Posts. But aside from these facts and considering the terms
of the policies hereinbefore set out, we believe that the return of the ratable
proportion of premiums for the unexpired period is not a condition precedent to
the cancellation of the policies. In this case of cancellation of insurance, the
obligation of the insurance companies is to return the proportionate part of the
premiums upon demand of the insured.

The policies we have before us clearly provide that in case the companies
make the cancellation by giving notice thereof, “the Company shall be liable to
repay on demand a ratable proportion of the premium for the unexpired term from
the date of the cancelment.”

According to article 1281 of the Civil Code, if the terms of a contract are
plain and leave no room for doubt as to the intention of the contracting parties
the literal meaning must control. In Feliciano vs, Limjuco and Calacalzada (41
Phil., 147), this court said:

“Contracts, which are the private laws of the contracting parties, should be
fulfilled according to the literal sense of their stipulations, if their terms
are clear and leave no room for doubt as to the intention of the contracting
parties (art. 1281, Civ. Code), for contracts are obligatory, no matter what
their form may be, whenever the essential requisites for their validity are
present. (Art. 1278, Civ. Code.) * * *”

And in Young vs. Midland Textile Insurance Co. (30 Phil., 617), this
court held:

“Contracts of insurance are contracts of indemnity, upon the terms and
conditions specified therein. Parties have a right to impose such reasonable
conditions at the time of the making of the contract as they deem wise and
necessary. The rate of premium is measured by the character of the risk assumed.
The insurer, for a comparatively small consideration, undertakes to guarantee
the insured against loss or damage, upon the terms and conditions agreed upon,
and upon no other. When the insurer is called upon to pay, in case of loss, he
may justly insist upon a fulfillment of the terms of the contract. If the
insured cannot bring himself within the terms and conditions of the contract, he
is not entitled to recover for any loss suffered. The terms of the contract
constitute the measure of the insurer’s liability. If the contract has been
terminated, by a violation of its terms on the part of the insured, there can be
no recovery. Compliance with the terms of the contract is a condition precedent
to the right of recovery.

“Courts cannot make contracts for the parties. While contracts of insurance
are construed most favorably to the insured, yet they must be construed
according to the sense and meaning of the terms which the parties themselves
have used. Astute and subtle distinctions should not be permitted, when the
language of the contract is plain and unambiguous. Such distinctions tend to
bring the law itself into disrepute.”

In the case of Mangrum & Otter vs. Law Union & Rock
Insurance Co., (157 Pac, 239), decided April, 1916 (L. R. A. [N. S.], 1916 F.,
440), a question similar to the one before us was raised.

The clause of the policy there under consideration is as follows:

“* * * ‘This policy shall be canceled at any time at the request of the
insured, or by the company by giving five days’ notice of such cancellation. If
this policy shall be canceled as hereinbefore provided, or become void or cease,
the premium having been actually paid, the unearned portion shall be returned on
surrender of this policy or last renewal, this company retaining the customary
short rate, except that when this policy is canceled by this company by giving
notice, it shall retain only the pro rata premium.'”

The Supreme Court of California said:

“The policy used in the transaction between the plaintiff and the defendant
is of the kind known as the ‘New York standard form and the New York court of
appeals has interpreted it to mean that cancellation of a policy by the insurer
may only be accomplished by giving the prescribed notice and by restoring the
unearned premium. The opinions of that distinguished court always command great
respect, and when they deal with the law of the Empire state and the proper
interpretation of a contract drawn under the sanction of that law, such opinions
are clothed with peculiar authority; but we find that other courts of great
dignity, including the United States circuit court for the southern division of
New York, have held a different view of this contract, or of policies not
essentially differing from it, and that some of the learned judges of the New
York court of appeals have dissented from the interpretation of the agreement
given by the majority of their associates. Our own examination of the subject
has impelled us to accept the doctrine of the courts that hold the return of the
premium not an essential element of the annulment of the policy.”

Under the unequivocal terms of the policies in question we are of the
opinion, and so hold, that the return of the premiums is not an essential
requisite for the validity of the cancellation.

For all of the foregoing, the judgment appealed from must be, as is hereby,
affirmed with the costs against the appellant. So ordered.

Johnson, Street, Malcolm, Avancena, Ostrand, and Romualdez,
JJ., concur.