GULF RESORTS, INC. vs.

PHILIPPINE CHARTER INSURANCE CORPORATION

G.R. No. 156167. May 16, 2005

Scope of the insurance companys liability for earthquake damage to petitioners properties.

[P]laintiff is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in said resort insured
originally with the American Home Assurance Company (AHAC-AIU). In the first four insurance policies issued by
AHAC-AIU from 1984 to 1988, the risk of loss from earthquake shock was extended only to plaintiffs two swimming
pools. Subsequently AHAC(AIU) issued in plaintiffs favor a Policy for the period March 14, 1988 to March 14, 1989
(Exhs. G also G-1) and in said policy the earthquake endorsement clause as indicated in the previous polices was
deleted and the entry under Endorsements/Warranties at the time of issue read that plaintiff renewed its policy with
AHAC (AIU) for the period of March 14, 1989 to March 14, 1990 under Policy which carried the entry under
Endorsement/Warranties at Time of Issue, which read Endorsement to Include Earthquake Shock in the amount of
P10,700.00 and paid P42,658.14 as premium thereof.
A policy covering the period of March 14, 1990 to March 14, 1991 for P10,700,600.00 for a total premium of
P45,159.92, which is the policy in question, contained 393.00 for ES as premium.
On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiffs properties covered by Policy
No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were damaged. After the
earthquake, petitioner advised respondent that it would be making a claim under its Insurance Policy No. 31944 for
damages on its properties. Bayne Adjusters and Surveyors, Inc., an independent claims adjuster rendered a
preliminary report finding extensive damage caused by the earthquake to the clubhouse and to the two swimming
pools. Mr. de Leon stated that except for the swimming pools, all affected items have no coverage for earthquake
shocks. On August 11, 1990, petitioner filed its formal demand for settlement of the damage to all its properties in the
Agoo Playa Resort. On August 23, 1990, respondent denied petitioners claim on the ground that its insurance policy
only afforded earthquake shock coverage to the two swimming pools of the resort. Petitioner and respondent failed to
arrive at a settlement. Thus, on January 24, 1991, petitioner filed a complaint with the regional trial court of Pasig
praying for the payment of losses sustained by the insured properties, with interest, exemplary damages and
attorneys fees and expenses of litigation.
On February 21, 1994, the lower court after trial ruled in favor of the respondent saying that the Court must
consequently agree with the position of defendant that the endorsement rider means that only the two swimming pools
were insured against earthquake shock.
Plaintiff correctly points out that a policy of insurance is a contract of adhesion hence, where the language used in
an insurance contract or application is such as to create ambiguity the same should be resolved against the party
responsible therefor, i.e., the insurance company which prepared the contract. To the mind of [the] Court, the language
used in the policy in litigation is clear and unambiguous hence there is no need for interpretation or construction but
only application of the provisions therein. Respondent was only made to pay for the damage to the swimming pools as
appraised by the defendants adjuster.
Petitioner averred that the last two (2) insurance contracts, which the plaintiff-appellant had with AHAC (AIU) and upon
which the subject insurance contract with Philippine Charter Insurance Corporation is said to have been based and
copied, covered an extended earthquake shock insurance on all the insured properties.

ISSUES: WON the insurance contracts only includes the 2 swimming pools of the petitioner as covered by the
earthquake shock.

HELD: YES
First, none of the previous policies issued by AHAC-AIU from 1983 to 1990 explicitly extended coverage against
earthquake shock to petitioners insured properties other than on the two swimming pools.
Second, petitioners payment of additional premium in the amount of P393.00 shows that the policy only covered
earthquake shock damage on the two swimming pools. The amount was the same amount paid by petitioner for
earthquake shock coverage on the two swimming pools from 1990-1991. No additional premium was paid to warrant
coverage of the other properties in the resort.
Third, the deletion of the phrase pertaining to the limitation of the earthquake shock endorsement to the two swimming
pools in the policy schedule did not expand the earthquake shock coverage to all of petitioners properties. As per its
agreement with petitioner, respondent copied its policy from the AHAC-AIU policy provided by petitioner. Although the
first five policies contained the said qualification in their riders title, in the last two policies, this qualification in the title
was deleted. AHAC-AIU, through Mr. J. Baranda III, stated that such deletion was a mere inadvertence (unintentional).
This inadvertence did not make the policy incomplete, nor did it broaden the scope of the endorsement whose
descriptive title was merely enumerated. Any ambiguity in the policy can be easily resolved by looking at the other
provisions, specially the enumeration of the items insured, where only the two swimming pools were noted as covered
for earthquake shock damage.
4 key items

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the earthquake shock
coverage. Thus, the policy extended earthquake shock coverage to all of the insured properties.
It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance with each
other. All its parts are reflective of the true intent of the parties. The policy cannot be construed piecemeal. Certain
stipulations cannot be segregated and then made to control; neither do particular words or phrases necessarily
determine its character. Petitioner cannot focus on the earthquake shock endorsement to the exclusion of the other
provisions. All the provisions and riders, taken and interpreted together, indubitably show the intention of the parties to
extend earthquake shock coverage to the two swimming pools only.

A careful examination of the premium recapitulation will show that it is the clear intent of the parties to extend
earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code defines a contract of
insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. Thus, an insurance contract exists where the following elements
concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons
bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium. (Emphasis ours)
An insurance premium is the consideration paid to an insurer for undertaking to indemnify the insured against a
specified peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as the risk
attaches. In the subject policy, no premium payments were made with regard to earthquake shock coverage, except
on the two swimming pools. There is no mention of any premium payable for the other resort properties with regard to
earthquake shock. This is consistent with the history of petitioners previous insurance policies from AHAC-AIU.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general rule that
insurance contracts are contracts of adhesion which should be liberally construed in favor of the insured and strictly
against the insurer company which usually prepares it. A contract of adhesion is one wherein a party, usually a
corporation, prepares the stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto. Through the years, the courts have held that in these type of contracts, the parties do not bargain
on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these
contracts are viewed as traps for the weaker party whom the courts of justice must protect. Consequently, any
ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured.
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner cannot claim it did not know
the provisions of the policy. From the inception of the policy, petitioner had required the respondent to copy verbatim
the provisions and terms of its latest insurance policy from AHAC-AIU.

MANILA MAHOGANY MANUFACTURING CORPORATION vs COURT OF APPEALS AND ZENITH INSURANCE

CORPORATION
G.R. No. L-52756 October 12, 1987
Doctrine: The insured by his own act releases the wrongdoer or third party liable for the loss or damage.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondent insurance
company. On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by San Miguel
Corporation. For the damage caused, respondent company paid petitioner five thousand pesos (P5,000.00) in
amicable settlement.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from San
Miguel Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that
San Miguel Corporation had already paid petitioner P4,500.00 for the damages to petitioner's motor vehicle, as
evidenced by a cash voucher and a Release of Claim executed by the General Manager of petitioner. Respondent
insurance company thus demanded from petitioner reimbursement of the sum of P4,500.00 paid by San Miguel
Corporation. Petitioner refused; hence, respondent company filed suit in the City Court of Manila for the recovery of
P4,500.00. The City Court ordered petitioner to pay respondent P4,500.00. On appeal, the City Courts decision was
affirmed in toto with the modification that petitioner was to pay respondent the total amount of P5,000.00 that it had
earlier received from the respondent insurance company.

Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent company as the
subrogation in the Release of Claim it executed in favor of respondent was conditioned on recovery of the total
amount of damages petitioner had sustained. Since total damages were valued by petitioner at P9,486.43 and only
P5,000.00 was received by petitioner from respondent, petitioner argues that it was entitled to go after San Miguel
Corporation to claim the additional P4,500.00 eventually paid to it by the latter, without having to turn over said
amount to respondent. Respondent of course disputes this allegation and states that there was no qualification to its
right of subrogation under the Release of Claim executed by petitioner, the contents of said deed having expressed all
the intents and purposes of the parties.

To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner cites Art. 2207 of the
Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.

Petitioner also invokes Art. 1304 of the Civil Code, stating.

A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be
preferred to the person who has been subrogated in his place in virtue of the partial payment of the same credit.

ISSUE: WON petitioner is entitled to both payments of indemnity

HELD: NO

Although petitioners right to file a deficiency claim against San Miguel Corporation is with legal basis, without prejudice
to the insurer's right of subrogation, nevertheless when Manila Mahogany executed another release claim discharging
San Miguel Corporation from "all actions, claims, demands and rights of action that now exist or hereafter arising out
of or as a consequence of the accident" after the insurer had paid the proceeds of the policy- the compromise
agreement of P5,000.00 being based on the insurance policy-the insurer is entitled to recover from the insured the
amount of insurance money paid. Since petitioner by its own acts released San Miguel Corporation, thereby defeating
private respondents, the right of subrogation, the right of action of petitioner against the insurer was also nullified.
Otherwise stated: private respondent may recover the sum of P5,000.00 it had earlier paid to petitioner.

If a property is insured and the owner receives the indemnity from the insurer, it is provided in [Article 2207 of the New
Civil Code] that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the
deficiency. ... Under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured.
Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after receiving
payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights against the latter.
But in such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the
release was made with the consent of the insurer.

FEDERAL EXPRESS CORPORATION vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE
COMPANY, INC.
G.R. No. 150094. August 18, 2004
On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to Burlington Air
Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of
veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro
Manila.
That same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance Company
(AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express which transported
the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 and was
immediately stored at [Cargohaus Inc.s] warehouse. While the second, consisting of 17 cartons, came in two (2) days
later, or on January 31, 1994 which was likewise immediately stored at Cargohaus warehouse. Before the release of
the cargoes, it was found out that they were not refrigerated.
As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and,
declaring total loss for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the
Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured amount of THIRTY
NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an
action for damages against the [petitioner] imputing negligence on either or both of them in the handling of the cargo.
Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable for the loss.

ISSUE: Is Federal Express liable for damage to or loss of the insured goods?

HELD:
Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the
payment made to Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance (Certificate) that both opposing parties cite in support of their
respective positions. They differ only in their interpretation of what their rights are under its terms. The determination of
those rights involves a question of law, not a question of fact.
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x upon surrender of this
Certificate. Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were
covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified
for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name
of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was
the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt in favor of
respondents. The latter were thus authorized to file claims and begin suit against any such carrier, vessel, person,
corporation or government. Undeniably, the consignee had a legal right to receive the goods in the same condition it
was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against
the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurers
entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a
contractual breach or negligence.[13] Further, the insurers subrogatory right to sue for recovery under the bill of lading
in case of loss of or damage to the cargo is jurisprudentially upheld.
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier . To all intents and purposes, it
stands in the place and in substitution of the consignee.

II. CONTRACT OF INSURANCE

RAFAEL ENRIQUEZ, as administrator of the estate of the late Joaquin Ma. Herrer vs. SUN LIFE ASSURANCE
COMPANY OF CANADA
G.R. No. L-15895 November 29, 1920
Doctrine: Cognition Theory An acceptance made by letter shall not bind the person making the offer except from the
time it came to his knowledge.
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 provisional receipt.
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.
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.

ISSUE: whether Herrer received notice of acceptance of his application

HELD: NO.
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
contact 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. 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."
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.
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.

GREAT PACIFIC LIFE ASSURANCE COMPANY vs. HONORABLE COURT OF APPEALS

On March 14, 1957, private respondent Ngo Hing filed an application with the Great Pacific Life Assurance Company
(hereinafter referred to as Pacific Life) for a twenty-year endownment policy in the amount of P50,000.00 on the life of
his one-year old daughter Helen Go.
Then on April 30, 1957, Mondragon received a letter from Pacific Life disapproving the insurance applicatio. The letter
stated that the said life insurance application for 20-year endowment plan is not available for minors below seven
years old, but Pacific Life can consider the same under the Juvenile Triple Action Plan, and advised that if the offer is
acceptable, the Juvenile Non-Medical Declaration be sent to the company. The non-acceptance of the insurance plan
by Pacific Life was allegedly not communicated by petitioner Mondragon to private respondent Ngo Hing. Instead, on
May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending the approval of the 20-year
endowment insurance plan to children, pointing out that since 1954 the customers, especially the Chinese, were
asking for such coverage.
On May 28, 1957 Helen Go died of influenza with complication of bronchopneumonia. Thereupon, private respondent
sought the payment of the proceeds of the insurance, but having failed in his effort, he filed the action for the recovery
of the same before the Court of First Instance of Cebu, which rendered the adverse decision.

ISSUE: Whether the binding deposit receipt (Exhibit E) constituted a temporary contract of the life insurance in
question.

HELD: NO
The binding deposit receipt is intended to be merely a provisional or temporary insurance contract and only upon
compliance of the following conditions: (1) that the company shall be satisfied that the applicant was insurable on
standard rates; (2) that if the company does not accept the application and offers to issue a policy for a different plan,
the insurance contract shall not be binding until the applicant accepts the policy offered; otherwise, the deposit shall
be refunded; and (3) that if the applicant is not able according to the standard rates, and the company disapproves the
application, the insurance applied for shall not be in force at any time, and the premium paid shall be returned to the
applicant.
Since petitioner Pacific Life disapproved the insurance application of respondent Ngo Hing, the binding deposit receipt
in question had never become in force at any time.
As held by this Court, where an agreement is made between the applicant and the agent, no liability shall attach until
the principal approves the risk and a receipt is given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the application. Thus, in life insurance, a "binding slip"
or "binding receipt" does not insure by itself.
In the absence of a meeting of the minds between petitioner Pacific Life and private respondent Ngo Hing over the 20-
year endowment life insurance in the amount of P50,000.00 in favor of the latter's one-year old daughter, and with the
non-compliance of the abovequoted conditions stated in the disputed binding deposit receipt, there could have been
no insurance contract duly perfected between them Accordingly, the deposit paid by private respondent shall have to
be refunded by Pacific Life.

DEVELOPMENT BANK OF THE PHILIPPINES vs. COURT OF APPEALS and the ESTATE OF THE LATE JUAN B.
DANS
Mortgage Redemption Insurance taken pursuant to a group mortgage redemption scheme by the lender of money
on the life of the mortgagor, who mortgages the house constructed to the extent of the mortgage indebtedness, such
that if the mortgagor dies, the proceeds of his life insurance will be used to pay for the indebtedness and the
deceaseds heirs will thereby be relieved from paying the unpaid balance of the loan.
In May 1987, Juan B. Dans, together with his wife Candida, his son and daughter-in-law, applied for a loan of
P500,000.00 (later reduced to P300,000) with the Development Bank of the Philippines (DBP). As the principal
mortgagor, Dans, then 76 years of age, was advised by DBP to obtain a mortgage redemption insurance (MRI) with
the DBP Mortgage Redemption Insurance Pool (DBP MRI Pool).
The loan was approved by DBP on August 4, 1987 and released on August 11, 1987. From the proceeds of the loan,
DBP deducted the amount of P1,476.00 as payment for the MRI premium. On August 15, 1987, Dans accomplished
and submitted the "MRI Application for Insurance" and the "Health Statement for DBP MRI Pool."
On August 20, 1987, the MRI premium of Dans, less the DBP service fee of 10 percent, was credited by DBP to the
savings account of the DBP MRI Pool. Accordingly, the DBP MRI Pool was advised of the credit.
On September 3, 1987, Dans died of cardiac arrest. The DBP, upon notice, relayed this information to the DBP MRI
Pool. On September 23, 1987, the DBP MRI Pool notified DBP that Dans was not eligible for MRI coverage, being
over the acceptance age limit of 60 years at the time of application.
On October 21, 1987, DBP apprised Candida Dans of the disapproval of her late husband's MRI application. The DBP
offered to refund the premium of P1,476.00 which the deceased had paid, but Candida Dans refused to accept the
same, demanding payment of the face value of the MRI or an amount equivalent to the loan.
Respondent Estate alleged that Dans became insured by the DBP MRI Pool when DBP, with full knowledge of Dans'
age at the time of application, required him to apply for MRI, and later collected the insurance premium. The trial court
rendered a decision in favor of respondent Estate and against DBP.
The appellate court affirmed in toto the decision of the trial court.

ISSUE: WON there was a perfected contract of insurance (1) MRI Pool and (2) with DBP

HELD: (1) NO/ NONE

Under the aforementioned provisions, the MRI coverage shall take effect: (1) when the application shall be approved
by the insurance pool; and (2) when the full premium is paid during the continued good health of the applicant. These
two conditions, being joined conjunctively, must concur.
Undisputably, the power to approve MRI applications is lodged with the DBP MRI Pool. The pool, however, did not
approve the application of Dans. There is also no showing that it accepted the sum of P1,476.00, which DBP credited
to its account with full knowledge that it was payment for Dan's premium. There was, as a result, no perfected contract
of insurance; hence, the DBP MRI Pool cannot be held liable on a contract that does not exist.
(2) YES.
As an insurance agent, DBP made Dans go through the motion of applying for said insurance, thereby leading him
and his family to believe that they had already fulfilled all the requirements for the MRI and that the issuance of their
policy was forthcoming. Apparently, DBP had full knowledge that Dan's application was never going to be approved.
The maximum age for MRI acceptance is 60 years as clearly and specifically provided in Article 1 of the Group
Mortgage Redemption Insurance Policy signed in 1984 by all the insurance companies concerned.
Under Article 1987 of the Civil Code of the Philippines, "the agent who acts as such is not personally liable to the party
with whom he contracts, unless he expressly binds himself or exceeds the limits of his authority without giving such
party sufficient notice of his powers."
The DBP is not authorized to accept applications for MRI when its clients are more than 60 years of age. Knowing all
the while that Dans was ineligible for MRI coverage because of his advanced age, DBP exceeded the scope of its
authority when it accepted Dan's application for MRI by collecting the insurance premium, and deducting its agent's
commission and service fee.
The liability of an agent who exceeds the scope of his authority depends upon whether the third person is aware of the
limits of the agent's powers. There is no showing that Dans knew of the limitation on DBP's authority to solicit
applications for MRI.
If the third person dealing with an agent is unaware of the limits of the authority conferred by the principal on the agent
and he (third person) has been deceived by the non-disclosure thereof by the agent, then the latter is liable for
damages to him.

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC. vs. COURT OF APPEALS and
CKS DEVELOPMENT CORPORATION
Doctrine: The lessor cannot validly be a beneficiary of a fire insurance policy taken by a lessee over his merchandise,
and the provision in the lease contract providing for such automatic assignment is VOID for being contrary to law and
public policy.
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKS
Development Corporation (hereinafter CKS), as lessor, on 5 October 1988.
One of the stipulations of the lease contract is that the LESSEE shall not insure against fire the chattels, merchandise,
textiles, goods and effects placed at any stall or store or space in the leased premises without first obtaining the
written consent and approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of
the LESSOR then the policy is deemed assigned and transferred to the LESSOR for its own benefit.
The Cha spouses insured against loss by fire their merchandise inside the leased premises for Five Hundred
Thousand (P500,000.00) with the United Insurance Co., Inc. (hereinafter United) without the written consent of private
respondents CKS.
On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS learned of the
insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer (United) a demand letter
asking that the proceeds of the insurance contract but United refused to pay. Hence, the latter filed a complaint
against the Cha spouses and United. The Regional Trial Court, rendered a decision* ordering therein defendant
United to pay CKS. The CA affirmed the trial courts decision.

ISSUE: Whether or not the aforequoted paragraph 18 of the lease contract entered into between CKS and the Cha
spouses is valid

HELD: NO.
It is basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law, morals, good
customs, public order or public policy. Sec. 18 of the Insurance Code provides that No contract or policy of insurance
on property shall be enforceable except for the benefit of some person having an insurable interest in the property
insured.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their merchandise is
primarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes
effect and at the time the loss occurs. The basis of such requirement of insurable interest in property insured is based
on sound public policy: to prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract
of insurance is a mere wager which is void under Section 25 of the Insurance Code, which provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or has
not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
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 which provide.
Section 17. The measure of an insurable interest in property is the extent to which the insured might be damnified by
loss of injury thereof."
Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the
provision of the lease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of
the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). The
insurer (United) cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.

RIZAL COMMERCIAL BANKING CORPORATION (RCBC), UY CHUN BING AND ELI D. LAO vs. COURT OF
APPEALS and GOYU & SONS, INC.
On April 27, 1992, one of GOYUs factory buildings in Valenzuela was gutted by fire. Consequently, GOYU submitted
its claim for indemnity on account of the loss insured against. Malayan Insurance Company, Inc. (MICO) denied the
claim on the ground that the insurance policies were either attached pursuant to writs of attachments/garnishments
issued by various courts or that the insurance proceeds were also claimed by other creditors of GOYU alleging better
rights to the proceeds than the insured. GOYU filed a complaint for specific performance and damages with the RTC.
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but
said claims were also denied. RTC rendered judgment in favour of respondent and ordered RCBC and MICO to pay.
The Court of Appeals partly granted GOYUs appeal, but sustained the findings of the trial court with respect to MICO
and RCBCs liabilities.
GOYU executed several mortgage contracts in favor of RCBC. It was expressly stipulated in these mortgage contracts
that GOYU shall insure the mortgaged property with any of the insurance companies acceptable to RCBC. GOYU
indeed insured the mortgaged property with MICO, an insurance company acceptable to RCBC.

ISSUE: Whether or not RCBC, as mortgagee, has any right over the insurance policies taken by GOYU, the
mortgagor, in case of the occurrence of loss

HELD:
It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the same mortgaged
property, such that each one of them may insure the same property for his own sole benefit. There is no question that
GOYU could insure the mortgaged property for its own exclusive benefit. In the present case, although it appears that
GOYU obtained the subject insurance policies naming itself as the sole payee, the intentions of the parties as shown
by their contemporaneous acts, must be given due consideration in order to better serve the interest of justice and
equity.
It is to be noted that nine endorsement documents were prepared by Alchester in favor of RCBC.
It is also significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister company of
RCBC, and not just from any other insurance company.
GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the proceeds of insurance shall
exclusively apply to the interest of the person in whose name or for whose benefit it is made. It was the intention of the
parties to designate RCBC as the party for whose benefit the insurance policies were taken out.
Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed policies shall be applied
exclusively to the proper interest of the person for whose benefit it was made. In this case, to the extent of GOYUs
obligation with RCBC, the interest of GOYU in the subject policies had been transferred to RCBC effective as of the
time of the endorsement. These policies may no longer be attached by the other creditors of GOYU, like Alfredo
Sebastian in the present G.R. No. 128834, which may nonetheless forthwith be dismissed for being moot and
academic in view of the results reached herein. Only the two other policies amounting to P19,646,224.92 may be
validly attached, garnished, and levied upon by GOYUs other creditors. To the extent of GOYUs outstanding obligation
with RCBC, all the rest of the other insurance policies above-listed which were endorsed to RCBC, are, therefore, to
be released from attachment, garnishment, and levy by the other creditors of GOYU.

GAISANO CAGAYAN, INC. vs INSURANCE COMPANY OF NORTH AMERICA

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the
local distributor of products bearing trademarks owned by Levi Strauss &Co. IMC and LSPI separately obtained from
respondent fire insurance policies with book debt endorsements. Book debts as the unpaid account still appearing in
the Book of Account of the Insured 45 days after the time of the loss covered under this Policy.
The policies also provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the
date of the covering invoice or actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers
and dealers. x x x
Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore
Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed
in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent (ICONA) filed a complaint for damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements. The
unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00
while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against petitioner; that respondent made several demands for payment
upon petitioner but these went unheeded.
Petitioner contends that it could not be held liable because the property covered by the insurance policies were
destroyed due to fortuities event or force majeure; that respondents right of subrogation has no basis inasmuch as
there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee;
that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the
claim of the insured. The RTC rendered its decision dismissing respondents complaint. However, the CA rendered its
decision setting aside the decision of the RTC. The CA held that petitioners obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished,
even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner;
that, being a fire insurance with book debt endorsements, what was insured was the vendors interest as a creditor.
Petitioner submits that there is no subrogation in favor of respondent as no valid insurance could be maintained
thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was not
privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval
ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay,
limiting its interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article 1265[16] of the Civil Code

ISSUE: WON IMC and LSPI have insurable interest over the goods

HELD: YES
IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the
value of the delivered goods.Unlike the civil law concept of res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property insurance, ones interest is not determined by concept of title,
but whether insured has substantial economic interest in the property.
Section 13 of our Insurance Code defines insurable interest as every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the
insured.
Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in:
(a) an existing interest;
(b) an inchoate interest founded on existing interest; or
(c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would
be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an insurable
interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor
or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so
long as he would suffer by its destruction, as where he has a vendors lien.