8/13/2016 SpsChavsCA:124520:August18,1997:J.

Padilla:FirstDivision

FIRSTDIVISION

[G.R.No.124520.August18,1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC.,
petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT
CORPORATION,respondents.

DECISION
PADILLA,J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside a
decisionofrespondentCourtofAppeals.
Theundisputedfactsofthecaseareasfollows:

1.PetitionerspousesNiloChaandStellaUyCha,aslessees,enteredintoaleasecontractwithprivate
respondentCKSDevelopmentCorporation(hereinafterCKS),aslessor,on5October1988.

2.Oneofthestipulationsoftheone(1)yearleasecontractstates:

18.xxx.TheLESSEEshallnotinsureagainstfirethechattels,merchandise,textiles,goodsandeffectsplaced
atanystallorstoreorspaceintheleasedpremiseswithoutfirstobtainingthewrittenconsentandapprovalof
theLESSOR.IftheLESSEEobtain(s)theinsurancethereofwithouttheconsentoftheLESSORthenthepolicy
isdeemedassignedandtransferredtotheLESSORforitsownbenefitxxx[1]

3.Notwithstandingtheabovestipulationintheleasecontract,theChaspousesinsuredagainstlossbyfiretheir
merchandiseinsidetheleasedpremisesforFiveHundredThousand(P500,000.00)withtheUnitedInsurance
Co.,Inc.(hereinafterUnited)withoutthewrittenconsentofprivaterespondentsCKS.

4.Onthedaythattheleasecontractwastoexpire,firebrokeoutinsidetheleasedpremises.

5.WhenCKSlearnedoftheinsuranceearlierprocuredbytheChaspouses(withoutitsconsent),itwrotethe
insurer(United)ademandletteraskingthattheproceedsoftheinsurancecontract(betweentheChaspousesand
United)bepaiddirectlytoCKS,basedonitsleasecontractwithChaspouses.

6.UnitedrefusedtopayCKS.Hence,thelatterfiledacomplaintagainsttheChaspousesandUnited.

7.On2June1992,theRegionalTrialCourt,Branch6,Manila,renderedadecision*orderingthereindefendant
UnitedtopayCKStheamountofP335,063.11anddefendantChaspousestopayP50,000.00asexemplary
damages,P20,000.00asattorneysfeesandcostsofsuit.

8.Onappeal,respondentCourtofAppealsinCAGRCVNo.39328renderedadecision**dated11January
1996,affirmingthetrialcourtdecision,deletinghowevertheawardsforexemplarydamagesandattorneysfees.
AmotionforreconsiderationbyUnitedwasdeniedon29March1996.

Inthepresentpetition,thefollowingerrorsareassignedbypetitionerstotheCourtofAppeals:
I

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THEHONORABLECOURTOFAPPEALSERREDINFAILINGTODECLARETHATTHE
STIPULATIONINTHECONTRACTOFLEASETRANSFERRINGTHEPROCEEDSOFTHE
INSURANCETORESPONDENTISNULLANDVOIDFORBEINGCONTRARYTOLAW,MORALS
ANDPUBLICPOLICY

II

THEHONORABLECOURTOFAPPEALSERREDINFAILINGTODECLARETHECONTRACTOF
LEASEENTEREDINTOASACONTRACTOFADHESIONANDTHEREFORETHE
QUESTIONABLEPROVISIONTHEREINTRANSFERRINGTHEPROCEEDSOFTHEINSURANCE
TORESPONDENTMUSTBERULEDOUTINFAVOROFPETITIONER

III

THEHONORABLECOURTOFAPPEALSERREDINAWARDINGPROCEEDSOFANINSURANCE
POLICYTOAPPELLEEWHICHISNOTPRIVYTOTHESAIDPOLICYINCONTRAVENTIONOF
THEINSURANCELAW

IV

THEHONORABLECOURTOFAPPEALSERREDINAWARDINGPROCEEDSOFANINSURANCE
POLICYONTHEBASISOFASTIPULATIONWHICHISVOIDFORBEINGWITHOUT
CONSIDERATIONANDFORBEINGTOTALLYDEPENDENTONTHEWILLOFTHE
RESPONDENTCORPORATION.[2]

Thecoreissuetoberesolvedinthiscaseiswhetherornottheaforequotedparagraph18ofthe
leasecontractenteredintobetweenCKSandtheChaspousesisvalidinsofarasitprovidesthatany
fireinsurancepolicyobtainedbythelessee(Chaspouses)overtheirmerchandiseinsidetheleased
premisesisdeemedassignedortransferredtothelessor(CKS)ifsaidpolicyisobtainedwithoutthe
priorwrittenofthelatter.
Itis,ofcourse,basicinthelawoncontractsthatthestipulationscontainedinacontractcannotbe
contrarytolaw,morals,goodcustoms,publicorderorpublicpolicy.[3]
Sec.18oftheInsuranceCodeprovides:
Sec.18.Nocontractorpolicyofinsuranceonpropertyshallbeenforceableexceptforthebenefitof
somepersonhavinganinsurableinterestinthepropertyinsured.
Anonlifeinsurancepolicysuchasthefireinsurancepolicytakenbypetitionerspousesovertheir
merchandiseisprimarilyacontractofindemnity.Insurableinterestinthepropertyinsuredmustexist
atthetimetheinsurancetakeseffectandatthetimethelossoccurs.[4]Thebasisofsuchrequirement
of insurable interest in property insured is based on sound public policy: to prevent a person from
takingoutaninsurancepolicyonpropertyuponwhichhehasnoinsurableinterestandcollectingthe
proceedsofsaidpolicyincaseoflossoftheproperty.Insuchacase,thecontractofinsuranceisa
merewagerwhichisvoidunderSection25oftheInsuranceCode,whichprovides:
SECTION25.EverystipulationinapolicyofInsuranceforthepaymentofloss,whethertheperson
insuredhasorhasnotanyinterestinthepropertyinsured,orthatthepolicyshallbereceivedasproof
ofsuchinterest,andeverypolicyexecutedbywayofgamingorwagering,isvoid.
In the present case, it cannot be denied that CKS has no insurable interest in the goods and
merchandise inside the leased premises under the provisions of Section 17 of the Insurance Code
whichprovide.
Section17.Themeasureofaninsurableinterestinpropertyistheextenttowhichtheinsuredmightbe
damnifiedbylossofinjurythereof."

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Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a
beneficiary of the fire insurance policy taken by the petitionerspouses over their merchandise. This
insurableinterestoversaidmerchandiseremainswiththeinsured,theChaspouses.The automatic
assignmentofthepolicytoCKSundertheprovisionoftheleasecontractpreviouslyquotedisvoidfor
being contrary to law and/or public policy. The proceeds of the fire insurance policy thus rightfully
belongtothespousesNiloChaandStellaUyCha(hereincopetitioners).Theinsurer(United)cannot
becompelledtopaytheproceedsofthefireinsurancepolicytoaperson(CKS)whohasnoinsurable
interestinthepropertyinsured.
The liability of the Cha spouses to CKS for violating their lease contract in that Cha spouses
obtained a fire insurance policy over their own merchandise, without the consent of CKS, is a
separateanddistinctissuewhichwedonotresolveinthiscase.
WHEREFORE,thedecisionoftheCourtofAppealsinCAG.R.CVNo.39328isSETASIDEand
a new decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners
NiloChaandStellaUyCha.
SOORDERED.
Bellosillo,Vitug,Kapunan,andHermosisima,Jr.,JJ.,concur.

[1]Rollo,p.50.

*PennedbyJudgeRobertoM.Lagman.

**PennedbyJusticeConchitaCarpioMorales,withJusticesFidelP.PurisimaandFerminA.Matin,Jr.,concurring.

[2]Rollo,p.18.

[3]Article1409(i),CivilCode.

[4]Section19,InsuranceCode.

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