INSURANCE LAW
INSURABLE INTEREST
A. Concept
G.R. No. 125678 March 18, 2002
PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs.
COURT OF APPEALS and JULITA
TRINOS, respondents.YNARES-SANTIAGO, J.:
FACTS: Ernani Trinos, deceased husband of respondent
Julita Trinos, applied for a health care coverage with
petitioner Philamcare Health Systems, Inc. In the standard
application form, he answered no to the following question:
Have you or any of your family members ever
consulted or been treated for high blood pressure,
heart trouble, diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes, give details).
The application was approved for a period of one year.
Under the agreement, respondent’s husband was entitled
to avail of hospitalization benefits, whether ordinary or
emergency, listed therein. He was also entitled to avail of
"out-patient benefits" such as annual physical
examinations, preventive health care and other out-patient
services. Upon the termination of the agreement, the same
was extended for another year and The amount of
coverage was increased to a maximum sum of P75,000.00
per disability.
During the period of his coverage, Ernani suffered a heart
attack and was confined at the Manila Medical Center
(MMC) for one month. While her husband was in the
hospital, respondent tried to claim the benefits under the
health care agreement. However, petitioner denied her
claim saying that the Health Care Agreement was void.
According to petitioner, there was a concealment regarding
Ernani’s medical history. Doctors at the MMC allegedly
discovered at the time of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic, contrary to his
answer in the application form. Thus, respondent paid the
hospitalization expenses herself, amounting to about
P76,000.00. Her husband subsequently passed away.
Trinos instituted with the RTC, an action for damages
against petitioner and its president, Dr. Benito Reverente.
The Court renders judgment in favor of the plaintiff Julita
Trinos.On appeal, the Court of Appeals affirmed the
decision of the trial court but deleted all awards for
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
damages and absolved petitioner Reverente. Petitioner’s
motion for reconsideration was denied. Hence, this appeal.
ISSUE: WON a health care agreement is not an insurance
contract; hence the “incontestability clause” under the
Insurance Code does not apply.
HELD: Petitioner claimed that it granted benefits only
when the insured is alive during the one-year duration. It
contended that there was no indemnification unlike in
insurance contracts. It supported this claim by saying that it
is a health maintenance organization covered by the DOH
and not the Insurance Commission. Lastly, it claimed that
the Incontestability clause didn’t apply because two-year
and not one-year effectivity periods were required.
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. 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.8
Section 3 of the Insurance Code states that any
contingent or unknown event, whether past or future, which
may damnify a person having an insurable interest against
him, may be insured against. Every person has an
insurable interest in the life and health of himself. Section
10 provides:
Every person has an insurable interest in the life
and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part
for education or support, or in whom he has a
pecuniary interest;
(3) of any person under a legal obligation to him for the
payment of money, respecting property or service, of
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 which death or illness might delay or prevent the
performance; and
(4) of any person upon whose life any estate or interest
vested in him depends.
In this case, the husband’s health was the
insurable interest. The health care agreement was in
the nature of non-life insurance, which is primarily a
contract of indemnity. The provider must pay for the
medical expenses resulting from sickness or injury.
While petitioner contended that the husband concealed
material fact of his sickness, the contract stated that:
“that any physician is, by these presents, expressly
authorized to disclose or give testimony at any time relative
to any information acquired by him in his professional
capacity upon any question affecting the eligibility
for health care coverage of the Proposed Members.”
This meant that the petitioners required him to sign
authorization to furnish reports about his medical condition.
The contract also authorized Philam to inquire directly to
his medical history. Hence, the contention of concealment
isn’t valid.
They can’t also invoke the “Invalidation of
agreement” clause where failure of the insured to disclose
information was a grounds for revocation simply because
the answer assailed by the company was the heart
condition question based on the insured’s opinion. He
wasn’t a medical doctor, so he can’t accurately gauge his
condition.
Henrick v Fire - “in such case the insurer is not
justified in relying upon such statement, but is obligated to
make further inquiry.”
Fraudulent intent must be proven to rescind the
contract. This was incumbent upon the provider.“Having
assumed a responsibility under the agreement, petitioner is
bound to answer the same to the extent agreed upon. In
the end, the liability of the health
care provider attaches once the member is hospitalized for
the disease or injury covered by the agreement or
whenever he avails of the covered benefits which he has
prepaid.”
Section 27 of the Insurance Code- “a concealment
entitles the injured party to rescind a contract of insurance.”
As to cancellation procedure- Cancellation requires certain
conditions:
1. Prior notice of cancellation to insured;
2. Notice must be based on the occurrence after
effective date of the policy of one or more of
the grounds mentioned;
3. Must be in writing, mailed or delivered to the insured
at the address shown in the policy;
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
4. Must state the grounds relied upon provided in
Section 64 of the Insurance Code and upon request of
insured, to furnish facts on which cancellation is based
None were fulfilled by the provider. As to incontestability-
The trial court said that “under the title Claim procedures
of expenses, the defendant Philamcare Health Systems
Inc. had twelve months from the date of issuance of the
Agreement within which to contest the membership of the
patient if he had previous ailment of asthma, and six
months from the issuance of the agreement if the patient
was sick of diabetes or hypertension. The periods having
expired, the defense of concealment or misrepresentation
no longer lie.”
Finally, petitioner alleges that respondent was not the legal
wife of the deceased member considering that at the time
of their marriage, the deceased was previously married to
another woman who was still alive. The health care
agreement is in the nature of a contract of indemnity.
Hence, payment should be made to the party who
incurred the expenses. It is not controverted that
respondent paid all the hospital and medical
expenses. She is therefore entitled to reimbursement.
The records adequately prove the expenses incurred by
respondent for the deceased’s hospitalization, medication
and the professional fees of the attending physicians.
WHEREFORE, in view of the foregoing, the petition
is DENIED. The assailed decision of the Court of Appeals
dated December 14, 1995 is AFFIRMED.
SO ORDERED.
G.R. No. 23703 September 28, 1925
HILARIO GERCIO, plaintiff-appellee, vs. SUN LIFE
ASSURANCE OF CANADA, ET AL., defendants.
SUN LIFE ASSURANCE OF CANADA, appellant.
Facts:
 On January 29, 1910, an insurance policy was issued
on the life of Hilario Gercio by Sun Life Assurance Co.
 Being a twenty-year endowment policy, the insurance
company agreed to pay him P2,000 on February 1,
1930. If he dies before said date, the beneficiary
would be Andrea Zialcita, who was then his lawful wife,
if she should survive him. Otherwise, it would be the
executors, administrators, or assigns.
 The policy did not include any provision reserving to the
insured the right to change the beneficiary.
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 Near the end of 1919, Andrea was convicted of
adultery. On September 4, 1920, a decree of divorce
was issued which had the effect of completely
dissolving the bonds of matrimony contracted between
Hilario and Andrea.
 On March 4, 1922, Hilario formally notified Sun Life that
he had revoked his donation in favor of Andrea Zialcita,
and that he had designated in her stead his present
wife, Adela Garcia de Gercio, as the beneficiary of the
policy.
 He requested to eliminate Andrea as the beneficiary.
Sun Life refused.
Issue: WON the insured husband has the power to
change the former wife’s designation as beneficiary where
the insured and the beneficiary have been divorced and the
policy of insurance does not expressly reserve to the
insured the right to change the beneficiary?
Held/Ratio:NO.
 As a primary consideration, the Court dealt with which
law to be applied among the Code of Commerce and
the Civil Code which were both in force when the policy
was taken out in 1910 or the Insurance Act No. 2427,
which became effective in 1914, considering that the
effort to change the beneficiary was made in 1922.
 Both the Code of Commerce and the Insurance Act
were held to have no provision either permitting or
prohibition the insured to change the beneficiary.
Meanwhile, the application of Civil Code provisions
was deemed problematic in light of characterizing an
insurance policy as a donation, which by virtue of
Article 1344, is prohibited between spouses.
 Therefore, the deficiencies in the law will have to be
supplemented by the general principles prevailing on
the subject. In light of this, the Court cited a handful of
US cases.
 Generally, these cases ruled along the line that the
beneficiary acquires a vested interest in the policy from
the moment of its inception, and such property right
cannot be impaired by any action of the insured unless
such right has been expressly reserved him/her in the
stipulations of the insurance policy.
 In the instant case, the wife had an insurable interest in
the life of her husband upon the issuance of the policy
and has acquired an absolute vested interest therein.
Since the policy contained no provision authorizing a
change of beneficiary without the beneciary’s consent,
the insured cannot make such a change.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
 The Court accordingly held that the life insurance policy
of the husband made payable to his former wife as
beneficiary is the separate property of the beneficiary
and beyond the control of the husband.
 As the divorce merely dissolved the community
property, and in the absence of a statute to the contrary,
the subsequent divorce does not destroy the wife’s
rights under the policy.
Concurring in the Result. Johnson, J.
 The question presented is a purely academic one.
The rights of the persons involved in the insurance
policy are not yet due and payable. It may never
become due and payable.
 Many other things could occur before the policy
becomes due. The action is premature and should
have been dismissed.
CASE TITLE:G.R. No. 113899 October 13, 1999
GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,
vs. COURT OF APPEALS AND MEDARDA V.
LEUTERIO, respondents. QUISUMBING, J.:
PRINCIPLE/s: Sec. 10 (Insurable interest), Sec. 8 and Sec.
181, Insurance Code
FACTS: A contract of group life insurance was executed
between petitioner Great Pacific Life Assurance
Corporation (Grepalife) and Development Bank of the
Philippines (DBP). Grepalife agreed to insure the lives of
eligible housing loan mortgagors of DBP. On November 11,
1983, Dr. Wilfredo Leuterio, a physician and a housing
debtor of DBP applied for membership in the group life
insurance plan. In an application form, Dr. Leuterio
answered questions concerning his health condition as
follows:
7. Have you ever had, or consulted, a
physician for a heart condition, high
blood pressure, cancer, diabetes, lung;
kidney or stomach disorder or any other
physical impairment? Answer: No. If
so give details _____________.
8. Are you now, to the best of your
knowledge, in good health? Answer:
[x] Yes []
On November 15, 1983, Grepalife issued Certificate No.
B-18558, as insurance coverage of Dr. Leuterio, to the
extent of his DBP mortgage indebtedness amounting to
P86,200.00.
Page 3 of 33

On August 6, 1984, Dr. Leuterio died due to "massive
cerebral hemorrhage." Consequently, DBP submitted a
death claim to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically healthy when
he applied for an insurance coverage on November 15,
1983. Grepalife insisted that Dr. Leuterio did not disclose
he had been suffering from hypertension, which caused his
death. Allegedly, such non-disclosure constituted
concealment that justified the denial of the claim.
Thereafter, Dr. Leuterio’s widow, respondent Medarda,
filed a complaint with the RTC against Grepalife for
"Specific Performance with Damages." During the trial, Dr.
Mejia, who issued the death certificate, was called to testify.
Dr. Mejia's findings, based partly from the information given
by Medarda, stated that Dr. Leuterio complained of
headaches presumably due to high blood pressure. The
inference was not conclusive because Dr. Leuterio was not
autopsied, hence, other causes were not ruled out.
The RTC rendered a decision in favor of Medarda and
against Grepalife. CA sustained the RTC. Hence, the
present petition.
ISSUE/S: (1) Whether DBP as a creditor-mortgagee has
insurable interest over the group life insurance? And (2)
Whether Grepalife should be held liable in the amount of
P86,200.00 even without proof of the actual outstanding
mortgage payable by the mortgagor, Dr. Leuterio, to DBP.
RULING: (1) YES. To resolve the issue, the SC considered
the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group
insurance policy of mortgagors, otherwise known as the
"mortgage redemption insurance," is a device for the
protection of both the mortgagee and the mortgagor. On
the part of the mortgagee (DBP in this case), it has to enter
into such form of contract so that in the event of the
unexpected demise of the mortgagor (Dr. Leuterio in this
case) during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the
payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation. In a similar
vein, ample protection is given to the mortgagor under such
a concept so that in the event of death; the mortgage
obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness.
Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
payable to the mortgagee, the insurance is on the
mortgagor's interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance, the
mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee a
party to the contract.
Sec. 8 of the Insurance Code provides: Unless the policy
provides, where a mortgagor of property effects insurance
in his own name providing that the loss shall be payable to
the mortgagee, or assigns a policy of insurance to a
mortgagee, the insurance is deemed to be upon the
interest of the mortgagor, who does not cease to be a party
to the original contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will have the
same effect, although the property is in the hands of the
mortgagee, but any act which, under the contract of
insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same
effect as if it had been performed by the mortgagor.
The insured Dr. Leuterio did not cede to the mortgagee
(DBP) all his rights or interests in the insurance. When DBP
submitted the insurance claim against Grepalife, the latter
denied payment thereof, interposing the defense of
concealment committed by the insured. Thereafter, DBP
collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of Dr.
Leuterio.
The insured Dr. Leuterio may be regarded as the real party
in interest, although he has assigned the policy for the
purpose of collection, or has assigned as collateral security
any judgment he may obtain (to DBP). And since a policy of
insurance upon life or health may pass by transfer, will or
succession to any person, whether he has an insurable
interest or not, and such person may recover it whatever
the insured might have recovered (Section 181, Insurance
Code), the widow of the decedent Dr. Leuterio may file the
suit against the insurer, Grepalife.
(2) YES. A life insurance policy is a valued policy. Unless
the interest of a person insured is susceptible of exact
pecuniary measurement, the measure of indemnity under a
policy of insurance upon life or health is the sum fixed in the
policy. The mortgagor (Dr. Leuterio) paid the premium
according to the coverage of his insurance, which states
that: “The policy states that upon receipt of due proof of the
Debtor's death during the terms of this insurance, a death
benefit in the amount of P86,200.00 shall be paid. In the
Page 4 of 33
event of the debtor's death before his indebtedness with the
creditor shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the Creditor
and the balance of the Sum Assured, if there is any shall
then be paid to the beneficiary/ies designated by the
debtor."
However, the SC noted that the CA's decision was
promulgated on May 17, 1993. In Medarda's memorandum,
she states that DBP foreclosed in 1995 their residential lot,
in satisfaction of Dr. Leuterio's outstanding loan.
Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity dictates that
DBP should not unjustly enrich itself at the expense of
another (Nemo cum alterius detrimenio protest). Hence, it
cannot collect the insurance proceeds, after it already
foreclosed on the mortgage. The proceeds now rightly
belong to Dr. Leuterio's heirs represented by his widow,
Medarda.
DISPOSITIVE PORTION: WHEREFORE, the petition is
hereby DENIED. The Decision and Resolution of the Court
of Appeals in CA-G.R. CV 18341 is AFFIRMED with
MODIFICATION that the petitioner is ORDERED to pay the
insurance proceeds amounting to Eighty-six thousand, two
hundred (P86,200.00) pesos to the heirs of the insured, Dr.
Wilfredo Leuterio (deceased), upon presentation of proof of
prior settlement of mortgagor's indebtedness to
Development Bank of the Philippines. Costs against
petitioner..
EL ORIENTE FABRICA DE TABACOS, INC. v. JUAN
POSADAS, Collector of Internal Revenue
GR No. 34774, 21 September 1931, J. Malcolm
PRINCIPLE: INSURABLE INTEREST
El Oriente is a domestic corporation and Posadas is the
duly appointed, qualified and acting collector of Internal
Revenue. In March 1925, El Oriente in order to protect
itself against the loss that it might suffer of the death of its
manager, A. Velhagen, who had more than 35 years of
experience in the manufacture of cigars, and whose death
would be a serious loss to El Oriente, procured from the
Manufacturers Life Insurance, of Toronto, Canada, thru its
local agent, Elser, an insurance policy on the life of
Velhagen for the sum of $50,000. And that, El Oriente
designated itself as the sole beneficiary of said policy on
the life of Velhagen.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
El Oriente paid from its funds all insurance premiums, as
charged as expenses of its business all the said premiums,
and deducted the same from its gross incomes as reported
in its annual income tax returns. Velhagen had no interest
or participation in the proceeds of said life insurance.
Upon the latter’s death in 1929, El Oriente received all the
proceeds of the life insurance policy together with the
interests and the dividends accruing thereon (P104,957.88)
Posadas assessed and levied the sum of P3,148.74 as
income tax on the proceeds of the insurance policy.
Issue: Whether or not the proceeds of the insurance taken
by the corporation are taxable income under the Philippine
Income Tax Law
Held: the SC ruled that it is certain that the proceeds of life
insurance policies are exempt. However, the SC do not
believe that the fact El Oriente received P104,957.88 from
the insurance on the life of its manager, it thereby realized a
net profit in this amount. It is true that the income tax law
in exempting individual beneficiaries, speaks of the
proceeds of life insurance policies as income, but this is a
very slight indication of legislative intention. In
reality, what the plaintiff received was in the nature of
an indemnity for the loss which it actually suffered
because of the death of its manager.
According to Justice Taft, it is earnestly pressed upon
that the proceeds of life insurance paid on the death of
the insured are in fact capital, and cannot be taxed as
income. Is enough to sustain our construction of the
act to say that proceeds of a life insurance policy paid
on the death of the insured are not usually classed as
income – because it is a contract of indemnity. It is a
substitution of money value for something
permanently lost.
Considering, therefore, the purport of the stipulated facts,
considering the uncertainty of Philippine Law, an
considering the lack of express legislative intention to tax
the proceeds of the life insurance policies paid to corporate
beneficiaries, the clause id inserted “exempt” from the
provisions of law, it is deemed reasonable to hold the
proceeds of the life insurance policy in question as
representing an indemnity and not taxable income.
B. IN PROPERTY INSURANCE
Page 5 of 33
TRADERS INSURANCE AND SURETY CO., vs. JUAN
GOLANGCO Y OTRA,
G.R. No. L- 6442; September 21, 1954; PABLO, J.:
Facts: There is no doubt in our mind that both at the time of
the execution of the fire policy on April 7, 1949, and on June
5, 1949, when the destruction by fire of the property for
which the said policy was issued took place, plaintiff Juan
Golangco had an insurable interest on the property insured
which included the rents of premises No. 34 Plaza Sta.
Cruz, Manila, Philippines, District 4, Block No. 47; and it is
particularly so because the policy prepared and issued by
the very defendant specifically states that all insurance
covered under said policy, includes the "rent or other
subject matter of insurance in respect of or in connection
with any building or any property contained in any building".
Manner of testifying of these witnesses, the evasiveness of
the witness Limpe, the improbability of his testimony, and
the failure defendant to present Antonio Paredes, the clerk
who admittedly investigated the premises in question, the
Court finds that plaintiff's version is more credible; that,
before the policy was issued, plaintiff made full and clear
exposal of his interests in the premises; and that the said
fire policy, covers all of plaintiff's interests in the premises
No. 34 Plaza Sta. Cruz, Manila, especially his right to
collect rentals therefrom under the decision of this Court in
Civil Case No. 6306. This finding is further strengthened by
the fact that paragraph 4 of the said fire policy, above
quoted, includes insurance "on rent"; and accords with rule
that a policy is to be interpreted in favor of the assured. The
argument of the defendant that, under section 49 of the
Insurance Law, a policy of insurance must specify the
interest of the insured in the property insured, if he is not
the absolute owner thereof, is not meritorious because it
was the defendant, not plaintiff, who prepared that policy,
and it cannot take advantage of its own acts to plaintiff's
detriment; and, in any case, this provision was substantially
complied with by plaintiff when he made a full and clear
statement of his interests to defendant's manager.
ISSUE: Whether or not Golangco has insurable interest?
YES. By virtue of the contract between Tomas B. Lianco
and the Archbishop, Lianco erected the building of which
the premises in question form part and became owner
thereof. He transferred the ownership of the premises in
question to Kaw Eng Si, who in turn transferred it to plaintiff
Juan Golangco. Lianco and the actual occupant of the
premises acknowledged plaintiff's right to collect rentals
thereon in a compromise agreement which was
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
incorporated in a judicial judgment. Both at the time of the
issuance of the policy and at the time of the fire, plaintiff
Golangco was in legal possession of the premises,
collecting rentals from its occupant (tr., Nov. 7, 1950, pp. 8,
10). It seems plain that if the premises were destroyed —
as they were — by fire, Golangco would be, as he was,
directly damnified thereby; and hence he had an insurable
interest therein (section 12, Insurance Law).
Defendant's contrary contentions are without merit. The
contract between Lianco and the Archbishop only forbade
Lianco from transferring "his rights as LESSEE" (Exhibit.
4-D); but the contracts Lianco made in favor of Kaw Eng Si
(Exhibit D) and plaintiff Golangco (Exhibit C) did not
transfer such rights; and hence no written consent thereto
was necessary. At worst, the contract would be voidable,
but not a void contract, at the option of the Archbishop; but
this would not deprive Golangco of his insurable interest
until such option were exercised; and it does not appear
that it was ever exercised.
The ejectment case filed by the Archbishop against Lianco
did not remove nor destroy plaintiff's insurable
interests: first, because plaintiff was not a party thereto and
cannot be bound thereby; and second, because the
judgment of the Municipal Court, at least as late as
February 14, 1950, had not been executed so far as
possession of the premises were concerned (Exhibit G-10).
In fact, not even garnishments were issued against
Melitona Estrella, So Eng Si (her husband) or plaintiff
Golangco, the actual and legal possessors of the premises
(Exhibit F); so that, as far as plaintiff Golangco was
concerned, his right to the premises and to the rentals
thereon continued to exist on June 5, 1949 when the fire
took place.
The Court of Appeals adopted the finding of the trial court
that "not even garnishment was issued against Melitona
Estrella, So Eng Si (her husband), or plaintiff Golangco".
The decision of the Court of Appeals should therefore
contain the following finding of fact:
(a) That Exhibits "10-H" and "10-I" clearly prove that notice
of garnishment was served on No. 34 Plaza Sta. Cruz (the
property in question) and the occupants of No. 34 Plaza
Sta. Cruz made return to the said garnishment.1âwphïl.nêt
Every decision of the Court of Appeals shall contain
complete findings of fact on all issues properly raised
before it.
Page 6 of 33
Where an appeal is taken to this court from any court, the
appellant shall file with the clerk of the court below, with his ISSUE
petition for appeal, an assignment of errors, which shall set 1. WON the "all risks" clause of the marine insurance
out separately and particularly each error asserted. No policy held the petitioner liable to the private respondent for
appeal shall be allowed unless such an assignment of the partial loss of the cargo, notwithstanding the clear
errors shall accompany the petition. (Rule 9, Revised Rules absence of proof of some fortuitous event, casualty, or
of the Supreme Court of the United States, 11 U. S. accidental cause to which the loss is attributable; and
Supreme Court Reports Digest.) 2. WON the private respondent had insurable interest
in the subject cargo.
The Supreme Court of the United States will not consider a
question not raised below, not discussed by the lower HELD
court, and not included in the assignment of errors. (Pacific As to the first issue, the "all risks clause" of the Institute
States Box and Basket Co. vs. S. T. White, et al., 80 L ed., Cargo Clauses read as follows: “This insurance is against
138.) all risks of loss or damage to the subject-matter insured but
shall in no case be deemed to extend to cover loss,
FILIPINO MERCHANTS INSURANCE CO., INC. v.
damage, or expense proximately caused by delay or
COURT OF APPEALS and CHOA TIEK SENG
inherent vice or nature of the subject-matter insured.
G.R. No. 85141 November 28, 1989REGALADO, J.:
Claims recoverable hereunder shall be payable
irrespective of percentage.” An "all risks policy" should be
FACTS
read literally as meaning all risks whatsoever and covering
In 1976, Choa Tiek Seng contracted Frota Oceanica
all losses by an accidental cause of any kind. The terms
Brasiliera for the latter to deliver goods. Choa Tiek Seng,
"accident" and "accidental", as used in insurance contracts,
consignee of the shipment of fishmeal loaded, insured in
have not acquired any technical meaning. They are
"all risks policy" 600 metric tons of fishmeal in new gunny
construed by the courts in their ordinary and common
bags of 90 kilos each from Bangkok, Thailand to Manila
acceptance. Thus, the terms have been taken to mean that
against all risks under warehouse to warehouse terms but
which happens by chance or fortuitously, without intention
only 59.940 metric tons was imported. The goods left the
and design, and which is unexpected, unusual and
port of Manila on December 13, 1976 and reached its point
unforeseen. An accident is an event that takes place
of destination on December 17, 1976.
without one's foresight or expectation; an event that
When it was unloaded unto the arrastre contractor E.
proceeds from an unknown cause, or is an unusual effect of
Razon, Inc. and Filipino Merchants's surveyor ascertained
a known cause and, therefore, not expected.
and certified that in such discharge 105 bags were in bad
The very nature of the term "all risks" must be given a
order condition which was reflected in the survey report of
broad and comprehensive meaning as covering any loss
Bad Order cargoes, however, before delivery to Choa, E.
other than a willful and fraudulent act of the insured. This is
Razon's Bad Order Certificate showed a total of 227 bags
pursuant to the very purpose of an "all risks" insurance to
in bad order condition.
give protection to the insured in those cases where
Choa Tiek Seng then filed an insurance claim.
difficulties of logical explanation or some mystery surround
Filipino Merchants refused to pay so in August 1977, it was
the loss or damage to property, thus, it cannot be given a
sued by Choa Tiek Seng. In January 1978, Filipino
strained technical meaning, the language of the clause
Merchants filed a third party complaint against the carrier
under the Institute Cargo Clauses being unequivocal and
Frota Oceanica Brasiliera as it alleged that it is the carrier
clear, to the effect that it extends to all damages/losses
who is liable to pay damages to Choa Tiek Seng.
suffered by the insured cargo except (a) loss or damage or
The trial court rendered judgment in favor of private
expense proximately caused by delay, and (b) loss or
respondent, for the sum of P51,568.62 with interest at legal
damage or expense proximately caused by the inherent
rate. The common carrier, Compagnie, was ordered to pay
vice or nature of the subject matter insured.
as a joint debtor. On appeal, the respondent court affirmed
Generally, the burden of proof is upon the insured to
the decision of the lower court insofar as the award on the
show that a loss arose from a covered peril, but under an
complaint is concerned and modified the same with regard
"all risks" policy, the burden is not on the insured to prove
to the adjudication of the third-party complaint. A motion for
the precise cause of loss or damage for which it seeks
reconsideration of the aforesaid decision was denied.
compensation. The insured under an "all risks insurance

ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN Page 7 of 33
policy" has the initial burden of proving that the cargo was
in good condition when the policy attached and that the
cargo was damaged when unloaded from the vessel;
thereafter, the burden then shifts to the insurer to show the
exception to the coverage.
A marine insurance policy providing that the insurance
was to be "against all risks" must be construed as creating
a special insurance and extending to other risks than are
usually contemplated, and covers all losses except such as
arise from the fraud of the insured. In the present case,
there being no showing that the loss was caused by any of
the excepted perils, the insurer is liable under the policy.
The Court has heretofore ruled that the delivery of the
goods on board the carrying vessels partake of the nature
of actual delivery since, from that time, the foreign buyers
assumed the risks of loss of the goods and paid the
insurance premium covering them.
DISPOSITIVE PORTION
WHEREFORE, the instant petition is DENIED and the
assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.
G.R. No. 147839 June 8, 2006AUSTRIA-MARTINEZ, J.

There is no evidence presented to show that the condition

GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY
of the gunny bags in which the fishmeal was packed was
OF NORTH AMERICA
such that they could not hold their contents in the course of
the necessary transit, much less any evidence that the
Facts: Intercapitol Marketing Corporation (IMC) is the
bags of cargo had burst as the result of the weakness of the
maker of Wrangler Blue Jeans. Levi Strauss Phils. Inc.
bags themselves. Under an 'all-risks’ policy, it was
(LSPI) is the local distributor of products bearing
sufficient to show that there was damage occasioned by
trademarks owned by Levi Strauss & Co.. IMC and LSPI
some accidental cause of any kind, and there is no
separately obtained from Insurance Company of North
necessity to point to any particular cause.
America (Insurance Company) fire insurance policies with
As to the issue of insurable interest, we uphold the
book debt endorsements. The insurance policies provide
ruling of the respondent court that private respondent, as
for coverage on book debts in connection with ready-made
consignee of the goods in transit under an invoice
clothing materials which have been sold or delivered to
containing the terms under "C & F Manila," has insurable
various customers and dealers of the Insured anywhere in
interest in said goods. Section 13 of the Insurance Code
the Philippines. The policies defined book debts as the
defines insurable interest in property as every interest in
unpaid account still appearing in the Book of Account of the
property, whether real or personal, or any relation thereto,
Insured 45 days after the time of the loss covered under
or liability in respect thereof, of such nature that a
this Policy. The policies also provide for the following
contemplated peril might directly damnify the insured. In
conditions: 1. Warranted that the Company shall not be
principle, anyone has an insurable interest in property who
liable for any unpaid account in respect of the merchandise
derives a benefit from its existence or would suffer loss
sold and delivered by the Insured which are outstanding at
from its destruction whether he has or has not any title in, or
the date of loss for a period in excess of six (6) months from
lien upon or possession of the property. Insurable interest
the date of the covering invoice or actual delivery of the
in property may consist in (a) an existing interest; (b) an
merchandise whichever shall first occur. 2. Warranted that
inchoate interest founded on an existing interest; or (c) an
the Insured shall submit to the Company within twelve (12)
expectancy, coupled with an existing interest in that out of
days after the close of every calendar month all amount
which the expectancy arises.
shown in their books of accounts as unpaid and thus
Choa, as vendee/consignee of the goods in transit,
become receivable item from their customers and dealers.
has such existing interest as may be the subject of a valid
contract of insurance. His interest over the goods is based Gaisano Cagayan, Inc. (Gaisano) is a customer and dealer
on the perfected contract of sale. The perfected contract of of the products of IMC and LSPI. On February 25, 1991, the
sale between him and the shipper of the goods operates to Gaisano Superstore Complex in Cagayan de Oro City,
vest in him an equitable title even before delivery or before owned by Gaisano, was consumed by fire. Included in the
conditions have been performed. items lost or destroyed in the fire were stocks of
Further, Article 1523 of the Civil Code provides that where, ready-made clothing materials sold and delivered by IMC
in pursuance of a contract of sale, the seller is authorized or and LSPI.
required to send the goods to the buyer, delivery of the
goods to a carrier, for the purpose of transmission to the On February 4, 1992, Insurance Company filed a complaint
buyer is deemed to be a delivery of the goods to the buyer. for damages against Gaisano. It alleges that IMC and LSPI

ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN Page 8 of 33
filed with Insurance Company their claims under their
respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid
accounts of Gaisano 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
Insurance Company paid the claims of IMC and LSPI and,
by virtue thereof, Insurance Company was subrogated to
their rights against Gaisano; that Insurance Company
made several demands for payment upon Gaisano but
these went unheeded.
In its Answer with Counter Claim dated July 4, 1995,
Gaisano 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
Insurance Company's 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.
On August 31, 1998, the RTC rendered its decision
dismissing Insurance Company's complaint. It held that the
fire was purely accidental; that the cause of the fire was not
attributable to the negligence of Gaisano; that it has not
been established that Gaisano is the debtor of IMC and
LSPI; that since the sales invoices state that it is further
agreed that merely for purpose of securing the payment of
purchase price, the subject merchandise remains the
property of the vendor until the purchase price is fully paid,
IMC and LSPI retained ownership of the delivered goods
and must bear the loss.
Dissatisfied, Gaisano appealed to the CA. On October 11,
2000, the CA reversed and setaside the decision of the
RTC. The CA ordered Gaisano to pay P2,119,205.60 and
P535,613.00 representing the amount paid by the
Insurance Company to IMC and LSPI respectively. The CA
held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the
thing sold; that loss of the goods in the fire must be borne
by Gaisano since the proviso contained in the sales
invoices is an exception under Article 1504 (1) of the Civil
Code to the general rule that if the thing is lost by a
fortuitous event, the risk is borne by the owner of the thing
at the time the loss under the principle of res perit domino;
that Gaisano's obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
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 Gaisano; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest
as a creditor. Thus, Gaisano files a petition for review on
certiorari before the SC.
Issue: W/N Insurance Company can claim against
Gaisano for the subject goods that was insured.
Held: Yes. It is well-settled that when the words of a
contract are plain and readily understood, there is no room
for construction. In this case, the questioned insurance
policies provide coverage for book debts in connection with
ready-made clothing materials which have been sold or
delivered to various customers and dealers of the Insured
anywhere in the Philippines; and defined 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. Indeed, when the terms of the agreement are
clear and explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms are to
be understood literally just as they appear on the face of the
contract. Thus, what were insured against were the
accounts of IMC and LSPI with Gaisano which remained
unpaid 45 days after the loss through fire, and not the loss
or destruction of the goods delivered.
The present case clearly falls under paragraph (1), Article
1504 of the Civil Code: Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been retained
by the seller merely to secure performance by the buyer of
his obligations under the contract, the goods are at the
buyer's risk from the time of such delivery.
Thus, when the seller retains ownership only to insure that
the buyer will pay its debt, the risk of loss is borne by the
buyer. Accordingly, Gaisano bears the risk of loss of the
goods delivered. 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, one's interest is not determined by
Page 9 of 33
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
vendor's lien. In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their
Books of Account 45 days after the time of the loss covered
by the policies.
It must also be stressed that the insurance in this case is
not for loss of goods by fire but for Gaisano's accounts with
IMC and LSPI that remained unpaid 45 days after the fire.
Accordingly, Gaisano's obligation is for the payment of
money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor
to make the payment even by reason of a fortuitous event
shall not relieve him of his liability. The rationale for this is
that the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him
liable even in case of fortuitous event. It does not apply
when the obligation is pecuniary in nature.
Under Article 1263 of the Civil Code, in an obligation to
deliver a generic thing, the loss or destruction of anything of
the same kind does not extinguish the obligation. If the
obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
particular designation or physical segregation from all
others of the same class, the loss or destruction of anything
of the same kind even without the debtor's fault and before
he has incurred in delay will not have the effect of
extinguishing the obligation. This rule is based on the
principle that the genus of a thing can never perish. Genus
nunquan perit. An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific
property of the debtor.
Thus, whether fire is a fortuitous event or Gaisano was
negligent are matters immaterial to this case. What is
relevant here is whether it has been established that
Gaisano has outstanding accounts with IMC and LSPI.
Dispositive portion: WHEREFORE, the petition is
partly GRANTED. The assailed Decision dated October
11, 2000 and Resolution dated April 11, 2001 of the Court
of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of
factual basis.No pronouncement as to costs.SO
ORDERED.
VICENTE ONG LIM SING, JR., petitioner, vs. FEB
LEASING & FINANCE CORPORATION, respondent.
G.R. No. 168115 June 8, 2007NACHURA
FACTS
FEB Leasing and Finance Corporation (FEB) entered into a
leaseof equipment and motor vehicles with JVL Food
Products (JVL). On the same date, Vicente Ong Lim Sing,
Jr. (Lim) executed an Individual Guaranty Agreementwith
FEB to guarantee the prompt and faithful performance of
the terms and conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and
Acceptance Certificatesover the equipment and motor
vehicles formed part of the agreement. Under the contract,
JVL was obliged to pay FEB an aggregate gross monthly
rental of ₱170,494.00.
JVL defaulted in the payment of the monthly rentals. As of
July 31, 2000, the amount in arrears, including penalty
charges and insurance premiums, amounted to
₱3,414,468.75. On August 23, 2000, FEB sent a letter to
JVL demanding payment of the said amount. However, JVL
failed to pay.
Page 10 of 33
On December 6, 2000, FEB filed a Complaint with the
Regional Trial Court of Manila for sum of money, damages,
and replevin against JVL, Lim, and John Doe.
In the Amended Answer,JVL and Lim admitted the
existence of the lease agreement but asserted that it is in
reality a sale of equipment on installment basis, with FEB
acting as the financier. JVL and Lim claimed that this
intention was apparent from the fact that they were made to
believe that when full payment was effected, a Deed of
Sale will be executed by FEB as vendor in favor of JVL and
Lim as vendees. FEB purportedly assured them that
documenting the transaction as a lease agreement is just
an industry practice and that the proper documentation
would be effected as soon as full payment for every item
was made. They also contended that the lease agreement
is a contract of adhesion and should, therefore, be
construed against the party who prepared it, i.e., FEB.
ISSUE
Whether the petitioner is a lessee with insurable interest
over the subject personal properties.
SC RULING
YES
While we affirm that the subject lease agreement is a
contract of adhesion, such a contract is not void per se. It is
as binding as any ordinary contract. A party who enters into
an adhesion contract is free to reject the stipulations
entirely. If the terms thereof are accepted without objection,
then the contract serves as the law between the parties.
In Section 23 of the lease contract, it was expressly stated
that:
SECTION 23. ENTIRE AGREEMENT; SEVERABILITY
CLAUSE
23.1. The LESSOR and the LESSEE agree this instrument
constitute the entire agreement between them, and that no
representations have been made other than as set forth
herein. This Agreement shall not be amended or altered in
any manner, unless such amendment be made in writing
and signed by the parties hereto.
Petitioner’s claim that the real intention of the parties was a
contract of sale of personal property on installment basis is
more likely a mere afterthought in order to defeat the rights
of the respondent.
The Lease Contract with corresponding Lease Schedules
with Delivery and Acceptance Certificates is, in point of fact,
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
a financial lease within the purview of R.A. No. 8556.
Section 3(d) thereof defines "financial leasing" as:
[A] mode of extending credit through a non-cancelable
lease contract under which the lessor purchases or
acquires, at the instance of the lessee, machinery,
equipment, motor vehicles, appliances, business and office
machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a
fixed amount of money sufficient to amortize at least
seventy (70%) of the purchase price or acquisition cost,
including any incidental expenses and a margin of profit
over an obligatory period of not less than two (2) years
during which the lessee has the right to hold and use the
leased property with the right to expense the lease rentals
paid to the lessor and bears the cost of repairs,
maintenance, insurance and preservation thereof, but with
no obligation or option on his part to purchase the leased
property from the owner-lessor at the end of the lease
contract.
FEB leased the subject equipment and motor vehicles to
JVL in consideration of a monthly periodic payment of
₱170,494.00. The periodic payment by petitioner is
sufficient to amortize at least 70% of the purchase price or
acquisition cost of the said movables in accordance with
the Lease Schedules with Delivery and Acceptance
Certificates. "The basic purpose of a financial leasing
transaction is to enable the prospective buyer of equipment,
who is unable to pay for such equipment in cash in one
lump sum, to lease such equipment in the meantime for his
use, at a fixed rental sufficient to amortize at least 70% of
the acquisition cost (including the expenses and a margin
of profit for the financial lessor) with the expectation that at
the end of the lease period the buyer/financial lessee will be
able to pay any remaining balance of the purchase price."
The allegation of petitioner that the rent for the use of each
movable constitutes the value of the vehicle or equipment
leased is of no moment. The law on financial lease does not
prohibit such a circumstance and this alone does not make
the transaction between the parties a sale of personal
property on installment. In fact, the value of the lease,
usually constituting the value or amount of the property
involved, is a benefit allowed by law to the lessor for the use
of the property by the lessee for the duration of the lease. It
is recognized that the value of these movables depreciates
through wear and tear upon use by the lessee.
Fourth, the validity of Lease No. 27:95:20 between FEB
and JVL should be upheld. JVL entered into the lease
contract with full knowledge of its terms and conditions. The
Page 11 of 33
contract was in force for more than four years. Since its
inception on March 9, 1995, JVL and Lim never questioned
its provisions. They only attacked the validity of the contract
after they were judicially made to answer for their default in
the payment of the agreed rentals.
It is settled that the parties are free to agree to such
stipulations, clauses, terms, and conditions as they may
want to include in a contract. As long as such agreements
are not contrary to law, morals, good customs, public policy,
or public order, they shall have the force of law between the
parties. Contracting parties may stipulate on terms and
conditions as they may see fit and these have the force of
law between them.
The stipulation in Section 14 of the lease contract, that the
equipment shall be insured at the cost and expense of the
lessee against loss, damage, or destruction from fire, theft,
accident, or other insurable risk for the full term of the lease,
is a binding and valid stipulation. Petitioner, as a lessee,
has an insurable interest in the equipment and motor
vehicles leased. Section 17 of the Insurance Code provides
that the measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or
injury thereof. It cannot be denied that JVL will be directly
damnified in case of loss, damage, or destruction of any of
the properties leased.
Likewise, the stipulation in Section 9.1 of the lease contract
that the lessor does not warrant the merchantability of the
equipment is a valid stipulation. Section 9.1 of the lease
contract is stated as:
9.1 IT IS UNDERSTOOD BETWEEN THE PARTIES THAT
THE LESSOR IS NOT THE MANUFACTURER OR
SUPPLIER OF THE EQUIPMENT NOR THE AGENT OF
THE MANUFACTURER OR SUPPLIER THEREOF. THE
LESSEE HEREBY ACKNOWLEDGES THAT IT HAS
SELECTED THE EQUIPMENT AND THE SUPPLIER
THEREOF AND THAT THERE ARE NO WARRANTIES,
CONDITIONS, TERMS, REPRESENTATION OR
INDUCEMENTS, EXPRESS OR IMPLIED, STATUTORY
OR OTHERWISE, MADE BY OR ON BEHALF OF THE
LESSOR AS TO ANY FEATURE OR ASPECT OF THE
EQUIPMENT OR ANY PART THEREOF, OR AS TO ITS
FITNESS, SUITABILITY, CAPACITY, CONDITION OR
MERCHANTABILITY, NOR AS TO WHETHER THE
EQUIPMENT WILL MEET THE REQUIREMENTS OF ANY
LAW, RULE, SPECIFICATIONS OR CONTRACT WHICH
PROVIDE FOR SPECIFIC MACHINERY OR APPARATUS
OR SPECIAL METHODS.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
In the financial lease agreement, FEB did not assume
responsibility as to the quality, merchantability, or capacity
of the equipment. This stipulation provides that, in case of
defect of any kind that will be found by the lessee in any of
the equipment, recourse should be made to the
manufacturer. "The financial lessor, being a financing
company, i.e., an extender of credit rather than an ordinary
equipment rental company, does not extend a warranty of
the fitness of the equipment for any particular use. Thus,
the financial lessee was precisely in a position to enforce
such warranty directly against the supplier of the equipment
and not against the financial lessor. We find nothing contra
legem or contrary to public policy in such a contractual
arrangement."
Fifth, petitioner further proffers the view that the real
intention of the parties was to enter into a contract of sale
on installment in the same manner that a previous
transaction between the parties over a 1995 Mitsubishi
L-200 Strada DC-Pick-Up was initially covered by an
agreement denominated as a lease and eventually became
the subject of a Deed of Absolute Sale.
We join the CA in rejecting this view because to allow the
transaction involving the pick-up to be read into the terms of
the lease agreement would expand the coverage of the
agreement, in violation of Article 1372 of the New Civil
Code. The lease contract subject of the complaint speaks
only of a lease. Any agreement between the parties after
the lease contract has ended is a different transaction
altogether and should not be included as part of the lease.
Furthermore, it is a cardinal rule in the interpretation of
contracts that if the terms of a contract are clear and leave
no doubt as to the intention of the contracting parties, the
literal meaning of its stipulations shall control. No amount of
extrinsic aid is necessary in order to determine the parties'
intent.
DISPOSITIVE PORTION
WHEREFORE, in the light of all the foregoing, the petition
is DENIED. The Decision of the CA in CA-G.R. CV No.
77498 dated March 15, 2005 and Resolution dated May 23,
2005 are AFFIRMED. Costs against petitioner.
SO ORDERED.
ANTONINA LAMPANOv. PLACIDA A. JOSE, ET AL.
G.R. No. L-9401 March 30, 1915 TRENT,J.
Page 12 of 33
FACTS:
 Barreto constructed a house for Jose for P6,000,
wherein Barreto took out an insurance policy upon it in
his own name, with the consent of Jose for P4,000.
 Subsequently, Jose sold the house to Lampano for
P6,000.00, one day, the house was destroyed by fire.
At the time of the fire, Lampano still owed Jose
P2,000 evidenced by a PN and Jose still owed
Barreto on the cost of the construction P2,000.
 After the destruction of the house, Barreto collected
P3,600 from the insurance company, having paid
premiums of P301.50.
 Lampano alleged that there was a verbal agreement
between her and Jose, at the time of the purchase
and sale of the house, to the effect that the latter
agreed to deliver to her the insurance policy on the
building; that she did not learn that the policy was in
the name of Barretto until after the fire; and the neither
Jose nor Barretto has any right to the insurance or to
the money received.
 Jose on the otherhand, denied that she agreed to
transfer the insurance policy to Lampano alleging that
the insurance was taken out and paid for by Barretto
before the sale of the house to theLampano; (b) that
Barretto did this because he had constructed the
house and she was owing him therefor; and (c) that
the insurance was entirely for the personal account
and in the exclusive interest of Barretto.
 Judgment was entered against Barretto and in favor
of Jose for P1,298.50, being the difference between
the amount collected by Barretto on the insurance and
the amount yet due him for the construction of the
house, including the premiums paid.Judgment was
also entered in favor of Jose, against Lampano for the
sum of P2,000, being the balance of the purchase
price of the house. Lampano was authorized to
offset this judgment against her for P2,000 by the
P2,000 which the court declared had been paid the
Jose, by Barretto out of the insurance money. A final
judgment was entered in favor of the plaintiff against
the defendant, Placida A. Jose, for the sum of
P1,298.50, being the amount of the judgment against
Barretto. From this judgment Barretto alone appealed.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
ISSUE: Who has the insurable interest over the
property/house.
SC:
 There was no privity of contract between the
Lampano and Barretto. In consequence, no judgment
was entered in favor of Lampano against Barreto.
 If Barretto had an insurable interest in the house, he
could insure this interest for his sole protection. The
policy was in the name of Barretto alone. It was,
therefore, a personal contract between him and the
company and not a contract which ran with the
property.
 According to this personal contract the insurance
policy was payable to the insured without regard to
the nature and extent of his interest in the property,
provided that he had, as we have said, an insurable
interest at the time of the making of the contract, and
also at the time of the fire. Where different persons
have different interests in the same property, the
insurance taken by one in his own right and in his
own interest does not in any way insure to the
benefit of another. This is the general rule prevailing
in the United States and we find nothing different in
this jurisdiction.
 The court said in a jurisprudence: "The contract of
insurance was wholly between the defendant and the
insurance company, and was personal, in the sense
that the money agreed to be paid in case of loss was
not to stand in the place of the piano itself, but was a
mere indemnity against the loss of defendant's
interest therein. If her interest was small, on account
of incumbrances existing in favor of the complainant,
that fact was for the consideration only of the insurer
and defendant, for complaint has no concern with the
adjustment of the loss between them. We know of no
principle, either of law or equity, which would bind
defendant to carry out her donor's contract to insure,
in the absence of any agreement on her part to do so,
even though the property in her hands was subject to
complainant's rights therein as a conditional vendor."
 "A contract of insurance made for the insurer's
(insured) indemnity only, as where there is no
agreement, express or implied, that it shall be for the
benefit of a third person, does not attach to or run with
the title to the insured property on a transfer thereof
Page 13 of 33
 personal as between the insurer and the insured. In
such case strangers to the contract cannot require in
their own right any interest in the insurance money,
except through an assignment or some contract with
which they are connected."
 "It is well settled that a policy of insurance is a distinct
independent contract between the insured and
insurers, and third person have no right either in a
court of equity, or in a court of law, to the proceeds of
it, unless there be some contract or trust, expressed
or implied, between the insured and third persons."
 In this case, Barretto assumed the responsibility for
the insurance. The premiumswere paid by him without
any agreement or right to recoup the amount paid
therefor should no loss result to the property. It would
not, therefore, be in accordance with t he law and his
contractual obligations to compel him to account for
the insurance money, or any par thereof, to Lampano,
who assumed no risk whatever.
 Barretto had an insurable interest in the house, he
construed the building, furnishing all the materials and
supplies, and insured it after it had been completed .
 Judgment appealed from, in so far as it affects the
Barreto, is reversed and he is absolved.
G.R. No. L-14300 January 19, 1920
SAN MIGUEL BREWERY, ETC., plaintiff-appellee, vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET
AL., defendants-appellees.
HENRY HARDING, defendant-appellant.STREET, J.:
FACTS: On Jan. 12, 1918, Dunn mortgaged a parcel of
land to SMB to secure a debt of 10T. The Mortgage
contract stated that Dunn was to have the property insured
at his own expense, authorizing SMB to choose the
insurers and to receive the proceeds thereof and retain so
much of the proceeds as would cover the mortgage debt.
Dunn likewise authorized SMB to take out the insurance
policy for him. Brias, SMB’s general manager, approached
Law Union for insurance to the extent of 15T upon the
property. In the application, Brias stated that SMB’s
interest in the property was merely that of a mortgagee.
Law Union, not wanting to issue a policy for the
entire amount, issued one for P7,500 and procured another
policy of equal amount from Filipinas Cia de
Seguros. Both policies were issued in the name of SMB
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
only and contained no reference to any other interests in
the propty. Both policies required assignments to be
approved and noted on the policy. Premiums were paid by
SMB and charged to Dunn. A year later, the policies were
renewed.
In 1917, Dunn sold the property to Harding, but no
assignment of the policies was made to the latter. Property
was destroyed by fire. SMB filed an action in court to
recover on the policies. Harding was made a defendant
because by virtue of the sale, he became the owner of the
property, although the policies were issued in SMB’s name.
SMB sought to recover the proceeds to the extent of its
mortgage credit with the balance to go to Harding.
Insurance Companies contended that they were not liable
to Harding because their liability under the policies was
limited to the insurable interests of SMB only. SMB
eventually reached a settlement with the insurance
companies and was paid the balance of it’s mortgage
credit. Harding was left to fend for himself. Trial court
ruled against Harding. Hence the appeal.
ISSUE: WON the insurance companies are liable to
Harding for the balance of the proceeds of the 2 policies.
HELD:NO. Under the Insurance Act, the measure of
insurable interest in the property is the extent to which the
insured might be daminified by the loss or injury
thereof. Also it is provided in the IA that the insurance shall
be applied exclusively to the proper interest of the person in
whose name it is made. Undoubtedly, SMB as the
mortgagee of the property, had an insurable interest
therein; but it could NOT, an any event, recover upon the
two policies an amount in excess of its mortgage credit.
By virtue of the Insurance Act, neither Dunn nor Harding
could have recovered from the two policies. With respect
to Harding, when he acquired the property, no change or
assignment of the policies had been undertaken. The
policies might have been worded differently so as to protect
the owner, but this was not done.
If the wording had been: “Payable to SMB, mortgagee, as
its interests may appear, remainder to whomsoever, during
the continuance of the risk, may become owner of the
interest insured”, it would have proved an intention to
insure the entire interest in the property, NOT merely
SMB’s and would have shown to whom the money, in case
of loss, should be paid. Unfortunately, this was not what
was stated in the policies.
Page 14 of 33
If during the negotiation for the policies, the parties had  A building of strong materials which was also
agreed that even the owner’s interest would be covered by owned by Saura, was erected on the parcel of land
the policies, and the policies had inadvertently been written and the building had always been covered by
in the form in which they were eventually issued, the lower insurance even before the execution of the
court would have been able to order that the contract be mortgage contract.
reformed to give effect to them in the sense that the parties
 Pursuant to the mortgage agreement which
intended to be bound. However, there is no clear and
required Saura to insure the building and its
satisfactory proof that the policies failed to reflect the real
contents, it obtained a fire insurance for Php
agreement between the parties that would justify the
29,000 from PISC for a period of 1 year starting
reformation of these two contracts.
Oct. 2, 1954 to Oct. 2, 1955.
The judgment is therefore affirmed, with costs against the
 The mortgage also required Saura to endorse the
appellant. So ordered.
insurance policy to PNB. The memo stated: Loss
if any, payable to PNG as their interest may
appear, subject to the terms, conditions and
G.R. No. L-15184 May 31, 1963
warranties of this policy.

SAURA IMPORT & EXPORT CO.,  The policy was delivered to PNB by Saura.
INC., plaintiff-appellant, vs.
PHILIPPINE INTERNATIONAL SURETY CO., INC., and  However on Oct. 15, 1954, barely 13 days after the
issuance of the fire insurance, PISC canceled the
PHILIPPINE NATIONAL BANK, defendants-appellees.
same, effective as of the date of issue. Notice of
Mortgagor/Insured: Saura Import and Export Co., Inc. the cancellation was sent to PNB (but not to Saura)
(Saura) in writing and was received by the bank on Nov. 8,

Mortgagee: Philippine National Bank (PNB) 1954.

Insurer: Philippine International Surety Co. (PISC)  On April 6, 1955, the building and its contents
worth Php 4,685 were burned.

 On April 11, 1985, Saura filed a claim with PISC

Saura mortgaged its property to PNB. Saura insured its
and mortgagee bank.
mortgaged property to Philippine International Surety Co.
from October 2, 1954 to October 2, 1955. However, on
 Upon presentation of notice of loss with PNB,
October 15, 1954 Philippine International Surety Co.
Saura learned for the first time that the policy had
cancelled the insurance policy without informing the
been previously canceled by PISC, when Saura’s
insured Saura. SC: If a mortgage or lien exists against the
folder in the bank’s file was opened and the notice
property insured, and the policy contains a clause stating
of the cancellation by PISC was found.
that loss, if any, shall be payable to such mortgagee or the
holder of such lien as his interest may appear, notice of
cancellation to the mortgagee or lienholder alone is
ISSUE: W/N cancellation by PISC was proper.
ineffective as a cancellation of the policy as to the owner of
the property.

HELD: No. SC ordered PISC to pay Saura in the amount of

Php 29,000.
FACTS:
RATIO: The policy in question does NOT provide for the
 On Dec. 26, 1952, Saura mortgaged to PNB its
notice of cancellation, its form or period. The Insurance
registered parcel of land in Davao to secure the
Law does not likewise provide for such notice. This being
payment of a promissory note amounting to Php
the case, it devolves upon the Court to apply the generally
27,000.
accepted principles of insurance, regarding cancellation of
the insurance policy by the insurer.

ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN Page 15 of 33

Actual notice of cancellation in a clear and unequivocal
manner, preferably in writing should be given by the insurer
to the insured so that the latter might be given an
opportunity to obtain other insurance for his own protection.
The notice should be personal to the insurer and not to
and/or through any unauthorized person by the policy.
Both the PSIC and the PNB failed, wittingly or unwittingly to
notify Saura of the cancellation made.
The insurer contends that it gave notice to PNB as
mortgagee of the property and that was already substantial
compliance with its duty to notify the insured of the
cancellation of the policy. But notice to the bank, as far as
Saura herein is concerned, is not effective notice. PISC is
then ordered to pay Saura Php 29,000, the amount
involved in the policy subject matter of this case.
DISPOSITIVE:
WHEREFORE, the decision appealed from is hereby
reversed, and another is entered, condemning the
defendant-appellee Philippine International Surety Co., Inc.,
to pay Saura Import & Export Co., Inc., appellant herein,
the sum of P29,000.00, the amount involved in Policy No.
429, subject-matter of the instant case. Without costs.
CASE TITLE:G.R. No. L-7667, November 28, 1955,
BAUTISTA ANGELO, J.:
CHERIE PALILEO, plaintiff-appellee, vs. BEATRIZ
COSIO, defendant-appellant.
PRINCIPLE/s: In Property Insurance
FACTS: On December 18, 1951, Palileo obtained from
Cosio a loan in the sum of P12,000 subject to the following
conditions: (a) that Palileo shall pay an interest in the
amount of P250 a month; (b) that Cosio shall deduct from
the loan certain obligations of Palileo to third persons
amounting to P4,550, plus the sum of P250 as interest for
the first month; and (c) that after making the above
deductions, Cosio shall deliver to Palileo only the balance
of the loan of P12,000.
To secure the payment of the aforesaid loan, Cosio
required Palileo to sign a document known as "Conditional
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
Sale of Residential Building", purporting to convey to Cosio,
with right to repurchase, a two-story building of strong
materials belonging to Palileo. This document did not
express the true intention of the parties which was merely
to place said property as security for the payment of the
loan.
After the execution of the aforesaid document, Cosio
insured the building against fire with the Associated
Insurance & Surety Co., Inc. (Associated Insurance) for the
sum of P15,000, the insurance policy having been issued in
the name of Cosio. The building was partly destroyed by
fire and, after proper demand, Cosio collected from the
Associated Insurance an indemnity of P13,107.00. Palileo
demanded from Cosio that she be credited with the
necessary amount to pay her obligation out of the
insurance proceeds but Cosio refused to do so.
Thus, Palileo filed a complaint against Cosio in the CFI
Manila praying that (1) the transaction entered into
between them be declared as one of loan, and the
document executed covering the transaction as one of
equitable mortgage to secure the payment of said loan; (2)
Cosio be ordered to credit to Palileo with the necessary
amount from the sum received by Cosio from Associated
Insurance and to apply the same to the payment of Palileo's
obligation thus considering it as fully paid; and (3) Cosio be
ordered to pay to Palileo the the excess in the insurance
proceeds.
CFI rendered the transaction between Palileo and Cosio as
an equitable mortgage to secure the payment of the sum of
P12,000; ordered Cosio to credit the sum of P13,107
received from Assoc Insurance to the payment of Palileo's
P12k obligation thus considering the loan completely paid;
and ordered Cosio to return to Palileo the excess from the
insurance proceeds (P1,107).
ISSUE/S: Is the trial court justified in considering the
obligation of Palileo fully compensated by the insurance
amount and in ordering Cosio to refund P1,107
representing the difference of the loan of P12,000 and the
sum of P13,107 collected by Cosio from the Assoc
Insurance notwithstanding the fact that it was not proven
that the insurance was taken for the benefit of the
mortgagor (Palileo)?
RULING: The SC opines that CFI erred for its ruling runs
counter to the rule governing an insurance taken by a
mortgagee independently of the mortgagor. The rule is that
Page 16 of 33
"where a mortgagee, independently of the mortgagor,
insures the mortgaged property in his own name and for his
own interest, he is entitled to the insurance proceeds in
case of loss, but in such case, he is not allowed to retain his
claim against the mortgagor, but is passed by subrogation
to the insurer to the extent of the money paid." (Vance on
Insurance, 2d ed., p. 654)Or, stated in another way, "the
mortgagee may insure his interest in the property
independently of the mortgagor. In that event, upon the
destruction of the property the insurance money paid to the
mortgagee will not inure to the benefit of the mortgagor,
and the amount due under the mortgage debt remains
unchanged. The mortgagee, however, is not allowed to
retain his claim against the mortgagor, but it passes by
subrogation to the insurer, to the extent of the insurance
money paid." (Vance on Insurance, 3rd ed., pp. 772-773)
This is the same rule upheld by this Court in a case that
arose in this jurisdiction. In the case mentioned, an
insurance contract was taken out by the mortgagee upon
his own interest, it being stipulated that the proceeds would
be paid to him only and when the case came up for decision,
this Court held that the mortgagee, in case of loss, may
only recover upon the policy to the extent of his credit at the
time of the loss. It was declared that the mortgaged had no
right of action against the mortgagee on the policy. (San
Miguel Brewery vs. Law Union, 40 Phil., 674.)
It is true that there are authorities which hold that "If a
mortgagee procures insurance on his separate interest at
his own expense and for his own benefit, without any
agreement with the mortgagor with respect thereto, the
mortgagor has no interest in the policy, and is not entitled to
have the insurance proceeds applied in reduction of the
mortgage debt" (19 R.C.L., p. 405), and that, furthermore,
the mortgagee "has still a right to recover his whole debt of
the mortgagor." (King vs. State Mut. F. Ins. Co., 7 Cush. 1;
Suffolk F. Ins. Co. vs. Boyden 9 Allen, 123; See also
Loomis vs. Eagle Life & Health Ins. Co., 6 Gray, 396;
Washington Mills Emery Mfg. Co. vs. Weymouth & B. Mut.
F. Ins. Co., 135 Mass. 506; Foster vs. Equitable Mut. F. Ins.
Co., 2 Gray 216.) But these authorities merely represent
the minority view (See case note, 3 Lawyers' Report
Annotated, new series, p. 79). "The general rule and the
weight of authority is, that the insurer is thereupon
subrogated to the rights of the mortgagee under the
mortgage. This is put upon the analogy of the situation
of the insurer to that of a surety." (Jones on Mortgages,
Vol. I, pp. 671-672.)
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
Considering the foregoing rules, it would appear that CFI
erred in declaring that the proceeds of the insurance taken
out by Cosio on the property mortgaged inured to the
benefit of Palileo and in ordering Cosio to deliver to Palileo
the difference between her indebtedness and the amount
of insurance received by Cosio, for, in the light of the
majority rule the SC has above enunciated, the correct
solution should be that the proceeds of the insurance
should be delivered to Cosio but that her claim against
the Palileo should be considered assigned to the
insurance company who is deemed subrogated to the
rights of Cosio to the extent of the money paid as
indemnity.
DISPOSITIVE PORTION: Consistent with the foregoing
pronouncement, we therefore modify the judgment of the
lower court as follows:(1) the transaction had between the
plaintiff and defendant as shown in Exhibit A is merely an
equitable mortgage intended to secure the payment of the
loan of P12,000;(2) that the proceeds of the insurance
amounting to P13,107.00 was properly collected by
defendant who is not required to account for it to the plaintiff;
(3) that the collection of said insurance proceeds shall not
be deemed to have compensated the obligation of the
plaintiff to the defendant, but bars the latter from claiming
its payment from the former; and (4) defendant shall pay to
the plaintiff the sum of P810.00 representing the
overpayment made by plaintiff by way of interest on the
loan. No pronouncement as to costs.
GREAT PACIFIC LIFE ASSURANCE CORP. v. CA, and
MEDARDA LEUTERIO
GR No. 113899, 13 October 1999, J Quisumbing
PRINCIPLE: IN PROPERTY INSURANCE
A contract of group life insurance was executed between
Grepalife and DBP. Grepalife agreed to insure the lives of
eligible loan mortgagors of DBP. In 1983, Dr. Wilfredo
Leuterio, a physician and a housing debtor of DBP applied
for membership in the group life insurance plan. He
answered questions concerning his health condition in his
application (wrote None when asked if he has high blood,
cancer, diabetes, lung, kidney, stomach disorder or other
physical impairment, and answered yes when asked if he is
in good health).
On the same year, Grepalife issued a certificate as
insurance coverage of Dr. Leuterio, to the extent of his DBP
Page 17 of 33
mortgage indebtedness (P86,200). In August 1984, Dr.
Leuterio died due to massive cerebral hemorrhage.
Consequently, DBP submitted a death claim to Grepalife.
The latter denied the claim alleging that the insured was not
physically healthy when he applied for an insurance
coverage (did not disclose that he had been suffering from
hypertension), which caused his death. Such
non-disclosure constituted concealment that justified the
denial of the claim.
Wife of Leuterio (Medrada) filed an action for specific
performance with damages against Grepalife. RTC
decided in favor of Medrada.
Grepalife alleges that the complaint was instituted by the
widow of the insured, not the real party in interest, hence,
the trial court acquired no jurisdiction over the case. It
argues that when the AC affirmed the trial court’s judgment,
Grepalife was held liable to pay the proceeds of insurance
contract in favor of DBP, the indispensable party who was
not joined in the suit.
Issue: (1) Whether or not the mortgaged property has an
insurable interest; (2) Whether or not there is concealment
made by the insured
Held: (1) The rationale of a group insurance policy of
mortgagors, otherwise known as the “mortgage redemption
insurance” is a device for the protection of both the
mortgagee and the mortgagor. On the part of the
mortgagee, it has to enter into such form of contract so that
in the event of the unexpected demise of the mortgagor
during the subsistence of the mortgage contract, the
proceeds from such insurance will be applied to the
payment of the mortgage debt, thereby relieving the heirs
of the mortgagor from paying the obligation.
In a similar vein, ample protection is given to the mortgagor
under such a concept so that in the event of death, the
mortgage obligation will be extinguished by the application
of the insurance proceeds to the mortgage indebtedness.
Consequently, when the mortgagor pays the insurance
premium under the group policy insurance, making the loss
payable to the mortgagee, the insurance is on the
mortgagor’s interest, and the mortgagor continues to be a
party to the contract. In this type of policy insurance,
the mortgagee is simply an appointee of the insurance
fund, such loss payable clause does not make the
mortgage a party to the contract.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
The respondent did not cede to the mortgage all his rights
or interests in the insurance. When DBP submitted the
insurance claim against Grepalife, the latter denied
payment thereof, interposing the defense of concealment.
Thereafter, DBP collected the debt from the mortgagor and
took the necessary action of foreclosure on the residential
lot of the respondent. And since a policy of insurance
upon life or health may pass by transfer, will or
succession to any person, whether he has an
insurable interest or not, and such person may recover
it whatever the insured might have recovered, the
widow may file the suit against the insurer.
It was noted by the Court that respondent states that DBP
foreclosed in 1995 their residential lot, in satisfaction of the
mortgagor’s outstanding loan. Considering this
supervening event, the insurance proceeds shall inure to
the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not
unjustly enrich itself at the expense of another.
Hence, it cannot collect the insurance proceeds, after
it already foreclosed on the mortgage.
(2) Concealment is a common defense of insurance
companies. It exists where the assured had knowledge of
a fact material to the risk, and honesty, and good faith, and
fair dealing requires that he should communicate it to the
assured, but he designedly and intentionally withholds the
same. The fraudulent intent on the part of the insured
must be established to entitle the insurer to rescind
the contract. Misrepresentation as a defense of the
insured to avoid liability is an affirmative defense and
the duty to establish such defense by satisfactory and
convincing evidence rest upon the insurer.
In the case at bar, Grepalife failed to clearly and
satisfactorily establish its defense, and is therefore liable to
pay the proceeds of the insurance.
FROILAN LOPEZ, vs. SALVADOR V. DEL ROSARIO
and BENITA QUIOGUE DE V. DEL ROSARIO, G.R. No.
L-19189 November 27, 1922; MALCOLM, J.:
Page 18 of 33
FACTS:Benita Quiogue de V. del Rosario (Mrs. del
Rosario), owner of a bonded warehouse where Froilan
Lopez, holder or 14 waehouse receipts and Elias Zamora
had their copra deposited. The warehouse recipts states an
insurance of 1% their declared value which can be increase
or decrease by giving 1 month's notice in writing. Lopez
paid the insurance to May 18, 1920, but not thereafter.
June 6, 1920: the warehouse was destroyed by fire. Only
copra worth P49,985 was salvaged. At that time Lopez
was still liable for the storage and insurance of P315.90.
Mrs. Del Rosario submitted the insurance with the
arbitrators and seems to have satisfied all of the persons
who had copra stored in her warehouse, including the
stockholders in the Compañia Coprera de Tayabas (whose
stock she took over), with the exception of Froilan Lopez.
Ineffectual attempts by Mrs. Del Rosario to effect a
compromise with Lopez first for P71,994, later raised to
P72,724, and finally reduced to P17,000, were made. But
Lopez stubbornly contended, or, at least, his attorney
contended for him, that he should receive not a centavo
less than P88,595.43 (from originally P107,990.40)
W/N Mrs. Del Rosario should be held liable to Lopez even if
he has not paid the insurance at the time of the fire?
-Plaintiff, by means of his assignment of error, lays claim to
P88,595.43 in lieu of P88,495.21 allowed by the trial court.
The slight difference of P100.22 is asked for so that plaintiff
can participate in the interest money which accrued on the
amount received for the salvaged copra. (Exhibits EE and
FF.) Defendant makes no specific denial of this claim. We
think the additional sum should accrue to the plaintiff.
Plaintiff's second and third assignment of error present the
point that the defendant has fraudulently — and even
criminally — refrained from paying the plaintiff, and that the
plaintiff should recover interest at the rate of 12 per cent per
annum. We fail to grasp plaintiff's point of view. The
defendant has not sought to elude her moral and legal
obligations. The controversy is merely one which
unfortunately all too often arises between litigious persons.
Plaintiff has exactly the rights of any litigant, equally
situated, and no more.
It has been the constant practice of the court to make article
1108 of the Civil Code the basis for the calculation of
interest. Damages in the form of interest at the rate of 12
per cent, as claimed by the plaintiff, are too remote and
speculative to be allowed. The deprivation of an opportunity
for making money which might have proved beneficial or
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
might have been ruinous is of too uncertain character to be
weighed in the even balances of the law.
-Counsel for defendant have adroitly and ingeniously
attempted to avoid all liability. However, we remain
unimpressed by many of these arguments.
Much time has been spent by counsel for both parties in
discussing the question, of whether the defendant acted as
the agent of the plaintiff, in taking out insurance on the
contents of the bodega, or whether the defendant acted as
a reinsurer of the copra. Giving a natural expression to the
terms of the warehouse receipts, the first hypothesis is the
correct one. The agency can be deduced from the
warehouse receipts, the insurance policies, and the
circumstances surrounding the transaction.
After all, however, this is not so vitally important, for it might
well be — although we do not have to decide — that under
any aspect of the case, the defendant would be liable. The
law is that a policy effected by bailee and covering by
its terms his own property and property held in trust;
inures, in the event of a loss, equally and
proportionately to the benefit of all the owners of the
property insured. Even if one secured insurance
covering his own goods and goods stored with him,
and even if the owner of the stored goods did not
request or know of the insurance, and did not ratify it
before the payment of the loss, yet it has been held by
a reputable court that the warehouseman is liable to
the owner of such stored goods for his share.
(Snow vs. Carr [1878], 61 Ala., 363; 32 Am. Rep., 3;
Broussard vs.South Texas Rice Co., [1910], 103 Tex., 535;
Ann. Cas., 1913-A, 142, and note; Home Insurance Co. of
New York vs. Baltimore Warehouse Co. [1876], 93 U. S.,
527.)
Moreover, it has not escaped our notice that in two
documents, one the agreement for arbitration, and the
other the statement of claim of Mrs. Del Rosario, against
the insurance companies, she acknowledged her
responsibility to the owners of the stored merchandise,
against risk of loss by fire. (Exhibits B and C-3.) The award
of the arbitrators covered not alone Mrs. Del Rosario's
warehouse but the products stored in the warehouse by
Lopez and others.
Plaintiff's rights to the insurance money have not been
forfeited by failure to pay the insurance provided for in the
warehouse receipts. A preponderance of the proof does not
demonstrate that the plaintiff ever ordered the cancellation
Page 19 of 33
of his insurance with the defendant. Nor is it shown that the
plaintiff ever refused to pay the insurance when the bills
were presented to him, and that notice of an intention to
cancel the insurance was ever given the plaintiff.
The record of the proceedings before the board of
arbitrators, and its report and findings, were properly taken
into consideration by the trial court as a basis for the
determination of the amount due from the defendant to the
plaintiff. In a case of contributing policies, adjustments of
loss made by an expert or by a board of arbitrators may be
submitted to the court not as evidence of the facts stated
therein, or as obligatory, but for the purpose of assisting the
court in calculating the amount of liability. (Home Insurance
Co. vs. Baltimore Warehouse Co., supra.)
Counsel for the defendant have dwelt at length on the
phraseology of the policies of the National Insurance
Company, Inc. Special emphasis has been laid upon one
policy (Exhibit 9) in the name of the Compañia Coprera de
Tayabas. In this connection it may be said that three
members of the court, including the writer of this opinion,
have been favorable impressed by this argument, and
would have preferred at least to eliminate the policy for
which premiums were paid, not by Mrs. Del Rosario on
behalf of Lopez and others, but by Compañia Coprera de
Tayabas. A majority of the court, however, believe that all
the assets should be marshalled and that the plaintiff
should receive the benefit accruing from the gross amount
realized from all the policies. Consequently, no deduction
for this claim can be made.
The remaining contention of the defendant that the plaintiff
cannot claim the benefits of the agency without sharing in
the expenses, is well taken. Although the plaintiff did not
expressly authorize the agreement to submit the matter to
arbitration, yet on his own theory of the case, Mrs. Del
Rosario was acting as his agent in securing insurance,
while he benefits from the amicable adjustment of the
insurance claims.
Of the insurance money, totalling P414,258, P382,558 was
for copra and the remainder for buildings, corn, etc. The
expenses for collecting the P414,258 totalled P33,600.
382,558/414,258 of 33,600 equals P31,028.85, the
proportionate part of the expenses with reference to the
copra. Of the expenses amounting, as we have said, to
P31,028.85, plaintiff would be liable for his proportionate
share or 88,595.43/382,558.00 of P31,028.85 or
P7,185.875.The parties finally agree that the plaintiff at the
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
time of the fire was indebted to the defendant for storage
and insurance in the sum of P315.90.
SAN MIGUEL BREWERY v. LAW UNION AND ROCK
INSURANCE CO.
G.R. No. L-14300 January 19, 1920STREET, J.:
FACTS
On Jan. 12, 1918, Dunn mortgaged a parcel of land to
SMB to secure a debt of 10T. The mortgage contract stated
that Dunn was to have the property insured at his own
expense, authorizing SMB to choose the insurers and to
receive the proceeds thereof and retain so much of the
proceeds as would cover the mortgage debt. Dunn likewise
authorized SMB to take out the insurance policy for him.
Brias, SMB’s general manager, approached Law Union for
insurance to the extent of 15T upon the property. In the
application, Brias stated that SMB’s interest in the property
was merely that of a mortgagee.
Law Union, not wanting to issue a policy for the entire
amount, issued one for P7,500 and procured another policy
of equal amount from Filipinas Cia de Seguros. Both
policies were issued in the name of SMB only and
contained no reference to any other interests in the propty.
Both policies required assignments to be approved and
noted on the policy. Premiums were paid by SMB and
charged to Dunn. A year later, the policies were renewed.
In 1917, Dunn sold the property to Harding, but no
assignment of the policies was made to the latter. The
property was destroyed by fire. SMB filed an action in
court to recover on the policies. Harding was made a
defendant because by virtue of the sale, he became the
owner of the property, although the policies were issued in
SMB’s name. SMB sought to recover the proceeds to the
extent of its mortgage credit with the balance to go to
Harding. Insurance Companies contended that they were
not liable to Harding because their liability under the
policies was limited to the insurable interests of SMB only.
SMB eventually reached a settlement with the insurance
companies and was paid the balance of it’s mortgage credit.
Harding was left to fend for himself.
The trial court judge came to the conclusion that
Harding had no right of action whatever against the
companies and absolved them from liability without special
finding as to costs. From this decision the said Henry
Harding has appealed.
ISSUE
Page 20 of 33
 WON San Miguel has insurable interest as mortgagor
only to the extent of the mortgage credit and WON Harding
has insurable interest as owner.
HELD
We agree with the trial court that no cause of action in
Henry Harding against the insurance companies is showed.
He is not a party to the contracts of insurance and cannot
directly maintain an action thereon. His claim is merely of
an equitable and subsidiary nature and must be made
effective, if at all, through the San Miguel Brewery in whose
name the contracts are written. Now the Brewery, as
mortgagee of the insured property, undoubtedly had an
insurable interest therein; but it could not, in any event,
recover upon these policies an amount in excess of its
mortgage credit. In this connection it will be remembered
that Antonio Brias, upon making application for the
insurance, informed the company with which the insurance
was placed that the Brewery was interested only as a
mortgagee. It would, therefore, be impossible for the
Brewery mortgage on the insured property.
It is declared that "the measure of an insurable interest
in property is the extent to which the insured might be
damnified by loss or injury thereof" (sec. 16); while in the
other it is stated that "the insurance shall be applied
exclusively to the proper interest of the person in whose
name it is made unless otherwise specified in the policy"
(sec. 50).
These provisions would have been fatal to any attempt
at recovery even by D. P. Dunn, if the ownership of the
property had continued in him up to the time of the loss; and
as regards Harding, an additional insuperable obstacle is
found in the fact that the ownership of the property had
been charged, prior to the loss, without any corresponding
change having been effected in the policy of insurance. In
section 19 of the Insurance Act we find it stated that "a
change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the
insurance are vested in the same person." Again in section
55 it is declared that "the mere transfer of a thing insured
does not transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the thing
insured."
Undoubtedly, these policies of insurance might have
been so framed as to have been "payable to the San Miguel
Brewery, mortgagee, as its interest may appear, remainder
to whosoever, during the continuance of the risk, may
become the owner of the interest insured." (Sec 54, Act No.
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
2427.) Such a clause would have proved an intention to
insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would
have shown exactly to whom the money, in case of loss,
should be paid. But the policies are not so written.
The blame for the situation thus created rests,
however, with the Brewery rather than with the insurance
companies, and there is nothing in the record to indicate
that the insurance companies were requested to write
insurance upon the insurable interest of the owner or
intended to make themselves liable to that extent. If by
inadvertence, accident, or mistake the terms of the contract
were not fully set forth in the policy, the parties are entitled
to have it reformed. But to justify the reformation of a
contract, the proof must be of the most satisfactory
character, and it must clearly appear that the contract failed
to express the real agreement between the parties.
DISPOSITIVE PORTION
The judgment is therefore affirmed, with costs against
the appellant. So ordered.
G.R. No. 168115 June 8, 2007 NACHURA, J.
Title: VICENTE ONG LIM SING, JR. vs. FEB LEASING &
FINANCE CORPORATION
Facts: On March 9, 1995, FEB Leasing and Finance
Corporation (FEB) entered into a lease of equipment and
motor vehicles with JVL Food Products (JVL). On the same
date, Vicente Ong Lim Sing, Jr. (Lim) executed an
Individual Guaranty Agreement with FEB to guarantee the
prompt and faithful performance of the terms and
conditions of the aforesaid lease agreement.
Corresponding Lease Schedules with Delivery and
Acceptance Certificates over the equipment and motor
vehicles formed part of the agreement. Under the contract,
JVL was obliged to pay FEB an aggregate gross monthly
rental of ₱170,494.00.
JVL defaulted in the payment of the monthly rentals. As of
July 31, 2000, the amount in arrears, including penalty
charges and insurance premiums, amounted to
₱3,414,468.75. On August 23, 2000, FEB sent a letter to
JVL demanding payment of the said amount. However, JVL
failed to pay.
On December 6, 2000, FEB filed a Complaint with the RTC
Manila for sum of money, damages, and replevin against
JVL, Lim, and John Doe.
Page 21 of 33
In the Amended Answer, JVL and Lim admitted the
existence of the lease agreement but asserted that it is in
reality a sale of equipment on installment basis, with FEB
acting as the financier. JVL and Lim claimed that this
intention was apparent from the fact that they were made to
believe that when full payment was effected, a Deed of
Sale will be executed by FEB as vendor in favor of JVL and
Lim as vendees. FEB purportedly assured them that
documenting the transaction as a lease agreement is just
an industry practice and that the proper documentation
would be effected as soon as full payment for every item
test of insurable interest in property is whether the assured
has a right, title or interest therein that he will be benefited
by its preservation and continued existence or suffer a
direct pecuniary loss from its destruction or injury by the
peril insured against. If the defendants were to be regarded
as only a lessee, logically the lessor who asserts ownership
will be the one directly benefited or injured and therefore
the lessee is not supposed to be the assured as he has no
insurable interest.
On December 27, 2002, FEB filed its Notice of Appeal. On

was made. They also contended that the lease agreement March 15, 2005, the CA issued its Decision declaring the

is a contract of adhesion and should, therefore, be transaction between the parties as a financial lease

construed against the party who prepared it, i.e., FEB.
RTC ruled in favor of JVL and Lim and stressed the
contradictory terms it found in the lease agreement. The
pertinent portions of the Decision dated November 22,
agreement under Republic Act (R.A.) No. 8556. Lim filed an
instant Petition for Review on Certiorari under Rule 45
before the SC.
Issue: W/N Lim is a lessee with insurable interest over the

2002 read: A profound scrutiny of the provisions of the subject personal properties.

contract which is a contract of adhesion at once exposed

Held: Yes. The stipulation in Section 14 of the lease
the use of several contradictory terms. To name a few, in
contract, that the equipment shall be insured at the cost
Section 9 of the said contract – disclaiming warranty, it is
and expense of the lessee against loss, damage, or
stated that the lessor is not the manufacturer nor the latter’s
destruction from fire, theft, accident, or other insurable risk
agent and therefore does not guarantee any feature or
for the full term of the lease, is a binding and valid
aspect of the object of the contract as to its merchantability.
stipulation. Lim, as a lessee, has an insurable interest in the
Merchantability is a term applied in a contract of sale of
equipment and motor vehicles leased. Section 17 of the
goods where conditions and warranties are made to apply.
Insurance Code provides that the measure of an insurable
Article 1547 of the Civil Code provides that unless a
interest in property is the extent to which the insured might
contrary intention appears an implied warranty on the part
be damnified by loss or injury thereof. It cannot be denied
of the seller that he has the right to sell and to pass
that JVL will be directly damnified in case of loss, damage,
ownership of the object is furnished by law together with an
or destruction of any of the properties leased.
implied warranty that the thing shall be free from hidden
faults or defects or any charge or encumbrance not known
Likewise, the stipulation in Section 9.1 of the lease contract
to the buyer. In an adhesion contract which is drafted and
that the lessor does not warrant the merchantability of the
printed in advance and parties are not given a real arms’
equipment is a valid stipulation. In the financial lease
length opportunity to transact, the Courts treat this kind of
agreement, FEB did not assume responsibility as to the
contract strictly against their architects for the reason that
quality, merchantability, or capacity of the equipment. This
the party entering into this kind of contract has no choice
stipulation provides that, in case of defect of any kind that
but to accept the terms and conditions found therein even if
will be found by the lessee in any of the equipment,
he is not in accord therewith and for that matter may not
recourse should be made to the manufacturer. The
have understood all the terms and stipulations prescribed
financial lessor, being a financing company, i.e., an
thereat. Contracts of this character are prepared
extender of credit rather than an ordinary equipment rental
unilaterally by the stronger party with the best legal talents
company, does not extend a warranty of the fitness of the
at its disposal. It is upon that thought that the Courts are
equipment for any particular use. Thus, the financial lessee
called upon to analyze closely said contracts so that the
was precisely in a position to enforce such warranty directly
weaker party could be fully protected. Another instance is
against the supplier of the equipment and not against the
when the alleged lessee was required to insure the thing
financial lessor. We find nothing contra legem or contrary to
against loss, damage or destruction. In property insurance
public policy in such a contractual arrangement.
against loss or other accidental causes, the assured must
have an insurable interest. It has also been held that the

ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN Page 22 of 33
Dispositive portion: WHEREFORE, in the light of all the
foregoing, the petition is DENIED. The Decision of the CA
in CA-G.R. CV No. 77498 dated March 15, 2005 and
Resolution dated May 23, 2005 are AFFIRMED. Costs
against petitioner.SO ORDERED.
SHARRUF & CO., known also as SHARRUF &
ESKENAZI, SALOMON SHARRUF and ELIAS
ESKENAZI, plaintiffs-appellees, vs. BALOISE FIRE
INSURANCE CO., SUN INSURANCE OFFICE, LTD., and
SPRINGFIELD INSURANCE CO., represented by
KUENZLE & STREIFF, INC., defendants-appellants.
G.R. No. 44119 March 30, 1937VILLA-REAL
FACTS
The plaintiffs Salomon Sharruf and Elias Eskenazi were
doing business under the firm name of Sharruf & Co. As
they had applied to the defendant companies for insurance
of the merchandise they had in stock, the latter sent their
representative P. E. Schiess to examine and asses it. On
July 25, 1933, the defendant insurance companies issued
insurance policies in the total amount of P25,000 in the
name of Sharruf & Co. then issued an additional policy in
the sum of P15,000 in favor of said firm Sharruf & Co.,
raising the total amount of the insurance on said
merchandise to P40,000.
The plaintiffs executed a contract of partnership between
themselves wherein they substituted the name of Sharruf &
Co. with the Sharruf & Eskenazi, stating that Elias Eskenazi
contributed to the partnership, as his capital, goods valued
at P26,299.94 listed in an inventory. It was likewise stated
in said contract that Salomon Sharruf brought to said
partnership, as his capital, goods valued at P24,205.10.
The total value of the merchandise contributed by both
partners amounted to P50,505.04. Part of said
merchandise, most of which were textiles, was sold for
P8,000, leaving goods worth P43,000. In all there were
from 60 to 70 bolts of silk. All the goods, most of which were
aluminum kitchen utensils, various porcelain and glass
wares, and other articles of stucco, were contained in about
39 or 40 cases. The last time the plaintiffs were in the
building was on September 19, 1933, at 4 o'clock in the
afternoon. Up to the month of September 1933, about 30 or
40 cases of merchandise belonging to the plaintiffs were in
Robles' garage at No. 1012 Mabini Street.
At about 12.41 o'clock on the morning of September 22,
1933, the fire alarm bell rang in the different fire stations of
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
the city. The firemen of the San Nicolas Fire Station were
the first to arrive at the scene of the fire, followed by the
Santa Cruz Fire Station, who arrived at 12.44 o'clock.
Having found the door at No. 301, Muelle de la Industria
Street, where the building was in flames, locked, the
firemen pumped water on the upper part of the building and
later broke open the door through which they an entered
the premises. They then saw an inflamed liquid flowing
towards the sidewalk, the flames thereon blazing more
intensely every time water fell on them. The liquid
apparently came from under the staircase of said floor.
They likewise noted that the entire space occupied by the
staircase was in flames except the adjoining room. After the
fire had been extinguished, an earthen pot containing
ashes and the residue of a certain substance, all of which
smelled of petroleum, was found by detective Manalo near
the railing of the stairway of the second floor.
At about 8.30 o'clock that same morning, detective Irada
found another earthen pot, one-fourth full of water smelled
of petroleum, under the staircase of the first floor; straw and
excelsior, that also smelled of petroleum, around said pot, a
red rag in front of the toilet, and a towel which also smelled
of petroleum can.
On the following day, September 23, 1933, photographs
were taken of the condition of the different parts of the
building and of the goods found therein.
ISSUES
1. Whether or not Salomon Sharruf and Elias Eskenazi had
juridical personality to bring this action, either individually or
collectively, and whether or not they had insurable interest;
2. Whether or not the fire which broke out in the building at
Nos. 299-301 Muelle de la Industria, occupied by the
plaintiffs, is of incendiary origin;
3. Whether or not the claim of loss filed by the plaintiffs is
fraudulent.
SC RULING
1. As already seen, Salomon Sharruf and Elias Eskenazi
were doing business under the firm name of Sharruf & Co.
in whose name the insurance policies were issued, Elias
Eskenazi having paid the corresponding premiums.
In the present case, while it is true that at the beginning the
plaintiffs had been doing business in said name of "Sharruf
& Co.", insuring their business in said name, and upon
executing the contract of partnership on August 26, 1933,
they changed the title thereof to "Sharruf & Eskenazi," the
Page 23 of 33
membership of the partnership in question remained
unchanged, the same and only members of the former,
Salomon Sharruf and Elias Eskenazi, being the ones
composing the latter, and it does not appear that in
changing the title of the partnership they had the intention
of defrauding the herein defendant insurance companies.
Therefore, under the above-cited doctrine the responsibility
of said defendants to the plaintiffs by virtue of the
respective insurance policies has not been altered. If this is
true, the plaintiffs have juridical personality to bring this
action.
2. Upon consideration of all the evidence and
circumstances surrounding the fire, this court finds no
evidence sufficient to warrant a finding that the plaintiffs are
responsible for the fire.
According to the testimony of the fire station chiefs,
corroborated by the photographs of record, the flames
caused more damage in the upper part of the rooms than in
the lower part thereof; since, of the ten or eleven cases
found inside the building after the fire, only a few were
partially burned and others scorched judging from their
appearance, the goods were damaged more by water than
by fire. According to the inventory made by White & Page,
adjusters of the insurance companies, in the presence of
the plaintiffs themselves and according to data supplied by
the latter, the total value thereof, aside, from the articles not
included in the inventories, assessed at P744.50, amounts
to only P8,077.35. If the plaintiffs' claim that at time of the
fire there were about 40 cases inside the burnt building
were true, a ten or eleven of them were found after the fire,
traces of the thirty or twenty-nine cases allegedly burnt

3. It is alleged by them that the total value of the textiles would be found, since experience has shown that during
contained in cases deposited inside the building when the the burning of a building all the cases deposited therein are
partnership Sharruf & Eskenazi was formed was P12,000; not so reduced to ashes that the least vestige thereof

that of the fancy jewelry with imitation stones from P15,000 cannot be found.

to P17,000, and that of the kitchen utensils and tableware

The plaintiffs, upon whom devolve the legal obligation to
made of aluminum, bronze and glass P10,676. If, as said
prove the existence, at the time of the fire, of the articles
plaintiffs claim, they had already sold articles, mostly
and merchandise for the destruction of which they claim
textiles, valued at P8,000, a small quantity of cloth must
indemnity from the defendant companies, have not
have been left at the time the fire occurred. In their claim,
complied with their duty because they have failed to prove
however, the textiles allegedly consumed by fire and
by a preponderance of evidence that when the fire took
damaged by water are assessed by them at P12,000. The
place there where in the burnt building articles and
claim of P12,000 is certainly not attributable to a mere
merchandise in the total amount of the insurance policies or
mistake in estimate and counting because if they had
that the textiles and other damaged and undamaged goods
textiles worth only P12,000 before the fire and they sold
found in the building after the fire were worth P40,000. On
goods, mostly textiles, worth P8,000, surely textiles in the
the contrary, their own witness, Robles, testified that up to
same amount of P12,000 could not have been burned and
the month of September, 1933, there were about 39 or 40
damaged after the fire. Of the kitchen utensils and
cases belonging to the plaintiffs in his garage on Mabini
tableware made of aluminum, bronze and glass, of which,
Street, indicating thereby that the cases of merchandise
according to the evidence for the plaintiffs, they had a stock
examined by the agent of the insurance companies on July
valued at P10,676, there were found after the fire articles
25 and August 15, 1933, and for which the insurance
worth only P1,248.80. Therefore, utensils valued at
policies were issued, were taken from the burned building
P9,427.20 were lacking. A considerable amount of kitchen
where they were found. So great is the difference between
utensils made of noninflammable and fire-proof material
the amount of articles insured, which the plaintiffs claim to
could not, by the very nature of things have been totally
have been in the building before the fire, and the amount
consumed by the fire. At most, said articles would have
thereof shown by the vestige of the fire to have been
been damaged, as the rest, and would have left traces of
therein, that the most liberal human judgment cannot
their existence. The same may be said of the fancy jewels
attribute such difference to a mere innocent error in
with imitation stones, and others of which the fancy jewels
estimate or counting but to a deliberate intent to demand of
with imitation stones, and others of which the plaintiffs
the insurance companies payment of an indemnity for
claim to have had a stock worth from P15,000 to P17,000 at
goods not existing at the time of the fire, thereby
the time of the fire, of which only a few valued at P3,471.16,
constituting the so-called "fraudulent claim" which, by
were left after the fire. According to said plaintiffs, all the
express agreement between the insurers and the insured,
articles, for the alleged loss of which indemnity is sought,
is a ground for exemption of the insurers from civil liability.
were contained in about 40 showcases and wardrobes.

ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN Page 24 of 33
Therefore, as the herein plaintiffs-appellees have acted in
bad faith in presenting a fraudulent claim, they are not
entitled to the indemnity claimed by them by virtue of the
insurance policies issued by the defendant-appellant
companies in their favor.
For the foregoing considerations, this court is of the opinion
and so holds: (1) that when the partners of a general
partnership doing business under the firm name of "Sharruf
& Co." obtain insurance policies issued to said firm and the
latter is afterwards changed to "Sharruf & Eskenazi", which
are the names of the same and only partners of said firm
"Sharruf & Co.", continuing the same business, the new
firm acquires the rights of the former under the same
policies; (2) that when the evidence relative to the cause of
a fire and the author thereof is so vague and doubtful, the
insured cannot be attributed incendiary intervention therein
for the mere fact that he had the keys to the unoccupied
building in his possession; (3) that a person who presents a
claim for damages caused by fire to articles and goods not
existing at the time of the fire does so fraudulently and his
claim is fraudulent, and (4) that when immediately after a
fire that broke out inside a completely locked building,
lasting scarcely 27 minutes, only about ten or eleven partly
burned and scorched cases, some containing textiles and
wrapping paper and others, statutes of saints, have been
found without any trace of the destruction of other cases by
said fire, it can neither logically nor reasonably be inferred
that 40 of said cases were inside the building when the fire
broke out.
DISPOSITIVE PORTION
Wherefore, the appealed judgment is reversed, and the
defendant companies are absolved from the complaint
which is dismissed, with costs to the appellees. So ordered.
DOMINGO GARCIA and THE PHILIPPINE NATIONAL
BANKv.THE HONGKONG FIRE & MARINE INSURANCE
CO., LTD.
G.R. No. 20341 September 1, 1923
JOHNS, J.
FACTS:
 Domingo Garcia entered into a contract with
HongKong Fire whereby it insured his merchandise,
hence, HongKong Fire issued its fire insurance
policy No. 1951 in favor of Garcia, not on the
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
merchandise in the building, but on the building which
contained the merchandise.
 Thereafter, Garcia entered into a loan agreement with
the PNB for P6,000.00 and to secure the loan, Garcia
mortgaged his merchandise which were housed in a
building. Garcia also indorsed the insurance policy to
PNB.
 While the policy was in force and effect, a fire took
place which destroyed the merchandise in the building
of the value of P20,000, together with the building
itself; that demand was made upon HongKong Fire for
the payment of P15,000, as provided for in the policy,
and that payment was refused.
 Apparently, the insurance policy issued in 1918
covered the building which housed the merchandise
and not the merchandise; that PNB is negligent for in
the insurance policy indorsed by Garcia to them, it
clearly stated that it was the building which was
insured.
 Garcia and PNB pray judgment for that amount, with
legal interest from the date of filing of the complaint,
and costs.
 The defense is purely technical, and is founded upon
the contention that Garcia cannot recover, because
the policy covers loss on a building, and does not
cover loss of merchandise.
LOWER COURT:
 In favor of Garcia. HongKong Fire committed error in
making out the policy to cover the building rather than
the merchandise.
ISSUE: Whether HongKOng Fire should pay the
insurance claim?
SC:
 The policy was in the English language, of which the
Garcia is ignorant, Garcia never personally made
further investigation. A
 At the time of the fire, Garcia was the owner of the
merchandise stored in the building, he did not own or
claim any interest in the building.Desiring to have his
Page 25 of 33
 merchandise insured for P15,000, he wrote a letter to
"El Pilar," requesting that firm to have it insured, as a
result of which, the policy in questions was issued and
delivered to him, and it was issued on the building
with Garcia did not own, and did not cover the
merchandise which he did own.
 Desiring to obtain a loan from the Philippine National
Bank, Garcia later delivered and assigned the policy
to the PNB as collateral security for a loan. In the
letter sent by PNB to HOngKong Fire, after the
indorsement, they notified HongKong Fire of the fact
that what was mortgaged was the insured
merchandise. Also, the fact that Garcia is a merchant,
and PNB knew him as such, and that he does not own
the building housing his merchandise indicates that
there has been a mistake in the issuance of the policy.
 It is very apparent that a mistake was made in the
issuance of the policy.
 From the circumstances surrounding the case, the SC
looked upon the intent of Garcia and that it
was competently shown that Garcia wanted insurance
on his merchandise and the reason why he wanted it.
 All things considered, the judgment of the
lower court is affirmed, with costs. So
ordered.
[G.R. No. 124520. August 18, 1997]
Spouses NILO CHA and STELLA UY CHA, and UNITED
INSURANCE CO., INC., Petitioners, v. COURT OF
APPEALS and CKS DEVELOPMENT
CORPORATION, Respondents.PADILLA, J.
FACTS: Petitioner-spouses Nilo Cha and Stella Uy-Cha,
as lessees, entered into a lease contract with private
respondent CKS Development Corporation as lessor. One
of the stipulations of the one (1) year lease contract states:
18. x x x. 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;
Notwithstanding the above stipulation in the lease contract,
the Cha spouses insured against loss by fire their
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
merchandise inside the leased premises for Five Hundred
Thousand (P500,000.00) with the United Insurance Co.,
Inc. 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, it wrote the insurer a demand letter asking
that the proceeds of the insurance contract (between the
Cha spouses and United) be paid directly to CKS, based on
its lease contract with Cha spouses.
United refused to pay CKS. Hence, the latter filed a
complaint against the Cha spouses and United.
RTC ruled in favour of CKS and CA affirmed the decision of
RTC, hence this appeal
ISSUE: WON the aforequoted paragraph 18 of the lease
contract entered into between CKS and the Cha spouses is
valid insofar as it provides that any fire insurance policy
obtained by Cha spouses over their merchandise inside the
leased premises is deemed assigned or transferred to the
CKS if said policy is obtained without the prior written of the
latter.
HELD: It is, of course, 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:
Sec. 18. 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
Page 26 of 33
 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. 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 separate and distinct issue which
we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in
CA-G.R. CV No. 39328 is SET ASIDE and a new decision
is hereby entered, awarding the proceeds of the fire
insurance policy to petitioners Nilo Cha and Stella Uy-Cha.
G.R. No. L-55397 February 29, 1988
TAI TONG CHUACHE & CO., petitioner, vs. THE
INSURANCE COMMISSION and TRAVELLERS
MULTI-INDEMNITY CORPORATION, respondents.
TOPIC: Section 19 Insurance Code
FACTS:
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
FACTS - Complainants Palomo acquired a parcel of land
and a building located in Davao City. They assumed the
mortgage of the building in favor of SSS, which building
was insured with respondent SSS Accredited Group of
Insurers for P25K. - On April 19, 1975, Azucena Palomo
obtained a P100K loan from Tai Tong Chuache Inc. (TTCC)
and executed a mortgage over the land and the building in
favor of Tai Tong Chuache & Co. as security of payment.
On April 25, 1975, Arsenio Chua, representative of TTCC
insured the latter's interest with Travellers Multi-Indemnity
Corporation (Travellers) for P100K (P70K for bldg and
P30K for the contents thereof)
- On June 11, 1975, Pedro Palomo secured a Fire
Insurance Policy, covering the building for P50K with
respondent Zenith Insurance Corporation (ZIC). Another
Fire Insurance Policy was later procured from respondent
Philippine British Assurance Company (PBAC), covering
the same building for P50K and contents thereof for P70K.
On July 31, 1975, the building and the contents were totally
razed by fire.
- Based on the computation of the loss, including the
Travellers, respondents, ZIC, PBAC, and SSS paid their
corresponding shares of the loss. Complainants were paid
the following: P41,546.79 by PBAC, P11,877.14 by ZIC,
and P5,936.57 by SSS. Demand was made from
respondent Travellers for its share in the loss but was
refused. Hence, complainants demanded from the other 3
respondents the balance of each share in the loss based on
the computation excluding Travellers Multi-Indemnity in the
amount of P30,894.31 (P5,732.79-ZIC: P22,294.62, PBAC:
and P2,866.90, SSS) but was refused, hence, this action.
ISSUE: WON petitioner Tai Tong has insurable interest in
the said policy. YES.
RATO: - First, respondent insurance commission based its
findings on mere inference. Respondent Insurance
Commission absolved respondent insurance company
from liability on the basis of the certification issued by the
then CFI, that in a certain civil action against the Palomos,
Arsenio Lopez Chua stands as the complainant and not Tai
Tong Chuache. From said evidence respondent
commission inferred that the credit extended by herein
Page 27 of 33
petitioner to the Palomos secured by the insured property
must have been paid. Such is a glaring error which this
Court cannot sanction.
- Second, it has been held in a long line of cases that
when the creditor is in possession of the document of
credit, he need not prove non-payment for it is
presumed. The validity of the insurance policy taken
by petitioner was not assailed by private respondent.
Moreover, petitioner's claim that the loan extended to
the Palomos has not yet been paid was corroborated
by Azucena Palomo who testified that they are still
indebted to herein petitioner. So at the time of the fire,
petitioner as mortgagee still had insurable interest
therein. - And third, petitioner's declaration that
Arsenio Lopez Chua acts as the managing partner of
the partnership was corroborated by respondent
insurance company. Thus Chua as the managing
partner of the partnership may execute all acts of
administration including the right to sue debtors of the
partnership in case of their failure to pay their
obligations when it became due and demandable. Or at
the least, Chua being a partner of petitioner Tai Tong
Chuache & Company is an agent of the partnership.
Being an agent, it is understood that he acted for and
in behalf of the firm.
Disposition: Appealed decision SET ASIDE and ANOTHER
judgment is rendered order private respondent Travellers
to pay petitioner the face value of Fire Insurance Policy in
the amount of P100K. Costs against said private
respondent
G.R. No. L-14300, January 19, 1920 STREET, J.:
SAN MIGUEL BREWERY, ETC., plaintiff-appellee, vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.) ET
AL., defendants-appellees. HENRY HARDING,
defendant-appellant.
PRINCIPLE/s: Sec. 20, IC (before Sec. 16&19), Sec. 53,
IC (before Sec.50), Sec.58, IC (before Sec.55), Sec.57,
IC (before Sec.54)
FACTS: On January 12, 1916, D. P. Dunn mortgaged his
property to San Miguel Brewery to secure a debt of
P10,000. In the contract of mortgage Dunn agreed to keep
the property insured at his expense to the full amount of its
value in companies to be selected by San Miguel and
authorized the latter in case of loss to receive the proceeds
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
of the insurance and to retain such part as might be
necessary to cover the mortgage debt. Thereafter, San
Miguel made a verbal application to the Law Union and
Rock Insurance Company (Law Union) for insurance to the
extent of P15,000 upon said property. In reply to a question
of Law Union's agent as to whether San Miguel was the
owner of the property, San Miguel stated that the company
was interested only as a mortgagee.
Law Union however did not want to carry more than
one-half the risk. It therefore issued its own policy for
P7,500 and procured another policy in the same amount
from "Filipinas" Compania de Seguros (Filipinas). Both
policies were issued in the name of the San Miguel as the
assured, and contained no reference to any other interest
in the property. Both policies contain the usual clause
requiring assignments to be approved and noted on the
policy. The premiums were paid by San Miguel and
charged to Dunn. A year later the policies were renewed,
without change, the renewal premiums being paid by San
Miguel, supposedly for the account of the owner. In the
month of March of the year 1917 Dunn sold the insured
property to the defendant Henry Harding (Harding), but not
assignment of the insurance, or of the insurance policies,
was at any time made to him.
The insured property was destroyed by fire. Hence, San
Miguel filed an action in the CFI of Manila to recover upon
the 2 policies issued by Law Union and Filipinas for P7,500
each. San Miguel is named as the party assured in the 2
policies referred to, but it is alleged in the complaint that
San Miguel was in reality interested in the property which
was the subject of insurance in the character of a mortgage
creditor only, and that the owner of said property upon the
date the policies were issued was one D. P. Dunn who was
later succeeded as owner by one Harding. Accordingly said
Harding was made a defendant, as a person interested in
the subject of the litigation.
Soon after the action was begun the insurance companies
effected a settlement with the San Miguel by paying the full
amount of the credit claimed by it, with the result that the
litigation as between the original plaintiff and the 2
insurance companies came to an end, leaving the action to
be prosecuted to final judgement by the defendant Harding
with respect to the balance claimed to be due to him upon
the policies.
CFI concluded that Harding had no right/cause of action
whatever against the companies and absolved them from
Page 28 of 33
liability without special finding as to costs. Harding
appealed.
ISSUE/S: The only question left is that of the liability of the
insurance companies to Harding. (Whether or not the
insurance companies are liable to Harding for the balance
of the proceeds of the 2 policies.)
RULING: NO. Harding has no cause of action against the
insurance companies. He is not a party to the contracts of
insurance and cannot directly maintain an action thereon.
His claim is merely of an equitable and subsidiary nature
and must be made effective, if at all, through San Miguel in
whose name the contracts are written. Now San Miguel,
as mortgagee of the insured property, undoubtedly
had an insurable interest therein; but it could not, in
any event, recover upon these policies an amount in
excess of its mortgage credit. (Note that San Miguel
upon making application for the insurance informed the
insurance companies that San Miguel was interested only
as a mortgagee.)
This conclusion is not only deducible from the principles
governing the operation and effect of insurance contracts in
general but the point is clearly covered by the express
provisions of sections 16 and 50 of the Insurance Act (Act
No. 2427). In Section 16, it is declared that "the measure of
an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof"; while
in the other it is stated that "the insurance shall be applied
exclusively to the proper interest of the person in whose
name it is made unless otherwise specified in the policy"
(Sec. 50).
These provisions would have been fatal to any attempt at
recovery even by D. P. Dunn, if the ownership of the
property had continued in him up to the time of the loss; and
as regards Harding, an additional insuperable obstacle is
found in the fact that the ownership of the property had
been charged, prior to the loss, without any corresponding
change having been effected in the policy of insurance. In
Section 19 of the Insurance Act, it is stated that "a change
of interest in any part of a thing insured unaccompanied by
a corresponding change of interest in the insurance,
suspends the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance are
vested in the same person." Again in section 55 it is
declared that "the mere transfer of a thing insured does not
transfer the policy, but suspends it until the same person
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
becomes the owner of both the policy and the thing
insured."
Undoubtedly these policies of insurance might have been
so framed as to have been "payable to the San Miguel
Brewery, mortgagee, as its interest may appear, remainder
to whomsoever, during the continuance of the risk, may
become the owner of the interest insured." (Sec 54, Act No.
2427.) Such a clause would have proved an intention to
insure the entire interest in the property, not merely the
insurable interest of San Miguel, and would have shown
exactly to whom the money, in case of loss, should be paid.
But the policies are not so written.
Note that in the contract of mortgage Dunn had agreed at
his own expense to insure the mortgaged property for its
full value and to indorse the policies in such manner as to
authorize San Miguel to receive the proceeds in case of
loss and to retain such part thereof as might be necessary
to satisfy the remainder then due upon the mortgage debt.
Instead, however, of effecting the insurance himself Dunn
authorized and requested San Miguel to procure the
insurance on the property in the amount of P15,000 at
Dunn's expense. This San Miguel did and have the policies
so written as to protect not only the insurable interest of
San Miguel, but also the owner. San Miguel seems to have
supposed that the policies as written had this effect, but in
this it was mistaken. There is nothing in the record to
indicate that the insurance companies were requested to
write insurance upon the insurable interest of Dunn or
intended to make themselves liable to that extent. It was
certainly a hardship on Dunn to be required to pay the
premiums upon P15,000 of insurance when he was
receiving no benefit whatever except in protection to the
extent of his indebtedness to San Miguel.
If during the negotiations which resulted in the writing of this
insurance, it had been agreed between the contracting
parties that the insurance should be so written as to protect
not only the interest of the mortgagee but also the residuary
interest of Dunn, and the policies had been, by
inadvertence, ignorance, or mistake written in the form in
which they were issued, a court would have the power to
reform the contracts and give effect to them in the sense in
which the parties intended to be bound. But in order to
justify this, it must be made clearly to appear that the minds
of the contracting parties did actually meet in agreement
and that they labored under some mutual error or mistake
in respect to the expression of their purpose. In this
instance, a court of equity would have the power, at the suit
Page 29 of 33
of the mortgage, to reform the instrument and give
judgment in favor for the loss thereunder, although it had
been exactly as it was. In one case, the court said: "If the
applicant correctly states his interest and distinctly asks for
an insurance thereon, and the agent of the insurer agrees
to comply with his request, and assumes to decide upon
the form of the policy to be written for that purpose, and by
mistake of law adopts the wrong form, a court of equity will
reform the instrument so as to make it insurance upon the
interest named."
Similarly, in cases where the mortgage is by mistake
described as owner, the court may grant reformation and
permit a recovery by the mortgage in his character as such.
Again, if by inadvertence, accident, or mistake the terms of
the contract were not fully set forth in the policy, the plaintiff
is entitled to have it reformed. But to justify the reformation
of a contract, the proof must be of the most satisfactory
character, and it must clearly appear that the contract failed
to express the real agreement between the parties.
In this present case, however, the proof is entirely
insufficient to authorize the application of the doctrine state
in the foregoing, for it is by means clear from the testimony
of San Miguel — and none other was offered — that the
parties intended for the policy to cover the risk of the owner
in addition to that of the mortgagee. It results that the
defendant Harding is not entitled to relief in any aspect of
the case.
DISPOSITIVE PORTION: The judgment is therefore
affirmed, with costs against the appellant. So ordered.
E.M. BACHRACH v. BRITISH AMERICAN ASSURANCE
COMP.
GR No. L-5715, 20 December 1910, J. Johnson
PRINCIPLE: IN PROPERTY INSURANCE
Bachrach paid British the sum of 2,000 for insuring against
loss or damage by fire the property of the former.
Bachrach commenced said action against British to recover
the sum of P9,841.50, the amount due, deducting the
salvage.
British claimed that it was released from all obligations
whatever under said policy because (1) Bachrach
maintained a paint and varnish shop in the said building
where the goods which were insured were stored; (2)
Bachrach transferred his inerest in and to the property
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
covered by the policy to one Macke, to secure certain
obligations assumed by the latter for and on behalf of
the insured (3) Bachrach willfully placed a gasoline can
obtaining 10 gallons of gasoline in the upper story of said
building in close proximity to a portion of said goods; and (4)
Bachrach made no proof of the loss within the time required
by the condition of the policy nor file any statement before
the municipal or any judge of court, nor of the good save,
nor the loss suffered.
Issue: Whether or not British is liable to indemnify Bachrach
Held: It may be added that there was no provision in the
policy prohibiting the keeping of paints and varnishes upon
the premises where the insured property was stored.
There is also no provision in said policy prohibiting the
plaintiff from placing a mortgage upon the property insured,
but, admitting that such a provision was intended. It is
claimed that the execution of a chattel mortgage (Macke)
on the insured property violated what is known “alienation
clause” which is now found in most policies, and which is
expressed in the policies involved by a purchase imposing
forfeiture if the interest in the property pass from the
insured, in which are involved other action against other
insurance companies for the same loss. This clause has
been the subject of a vast number of judicial decisions
and it is held by the great weight of authority that the
interest in property insured does not pass by the mere
execution of a chattel mortgage and that while a
chattel mortgage is a conditional sale, there is no
alienation within the meaning of the insurance law
until the mortgage acquires a right to take possession
by default under the terms of the mortgage. NO SUCH
RIGHT IS CLAIMED TO HAVE ACCRUED IN THE CASE
AT BAR, AND THE ALIENATION CLAUSE IS
THEREFORE INAPPLICABLE.
***Other defenses claimed by the respondent were not
considered by the Court.
DP: The Court is of the opinion that the judgment of the
lower court should be affirmed and it is hereby ordered that
judgment be entered against British and in favor of
Bachrach for the sum of P9,841.50 with interest at 6%.
SAN MIGUEL BREWERY, ETC.,vs .LAW UNION AND
ROCK INSURANCE CO., (LTD.) ET AL.,
HENRY HARDING, G.R. No. L-14300; January 19, 1920;
STREET, J.:
Page 30 of 33
FACTS: The plaintiff, the San Miguel Brewery, is named as
the party assured in the two policies referred to, but it is
alleged in the complaint that said company was in reality
interested in the property which was the subject of
insurance in the character of a mortgage creditor only, and
that the owner of said property upon the date the policies
were issued was one D. P. Dunn who was later succeeded
as owner by one Henry Harding. Accordingly said Harding
was made a defendant, as a person interested in the
subject of the litigation. D. P. Dunn, then the owner of the
property to which the insurance relates, mortgaged the
same to the San Miguel Brewery to secure a debt of
P10,000. In the contract of mortgage Dunn agreed to keep
the property insured at his expense to the full amount of its
value in companies to be selected by the Brewery
Company and authorized the latter in case of loss to
receive the proceeds of the insurance and to retain such
part as might be necessary to cover the mortgage debt. At
the same time, in order more conveniently to accomplish
the end in view, Dunn authorized and requested the
Brewery Company to effect said insurance itself.
Accordingly on the same date Antonio Brias, general
manager of the Brewery, made a verbal application to the
Law Union and Rock Insurance Company for insurance to
the extent of P15,000 upon said property. In reply to a
question of the company's agent as to whether the Brewery
was the owner of the property, he stated that the company
was interested only as a mortgagee.
A year later the policies were renewed, without change, the
renewal premiums being paid by the Brewery, supposedly
for the account of the owner. In the month of March of the
year 1917 Dunn sold the insured property to the defendant
Henry Harding, but not assignment of the insurance, or of
the insurance policies, was at any time made to him.
The prayer of the complaint is that judgment be entered in
favor of the plaintiff against the two companies named for
the sum of P15,000, with interest and costs, and further that
upon satisfaction of the balance of P4,505.30 due to the
plaintiff upon the mortgage debt, and upon the cancellation
of the mortgage, the plaintiff be absolved from liability to the
defendants or any of them. The peculiar form of the latter
part of the prayer is evidently due to the design of the
plaintiff to lay a foundation for Harding to recover the
difference between the plaintiff's credit and the amount for
which the property was insured. Accordingly, as was to be
expected, Harding answered, admitting the material
allegations of the complaint and claiming for himself the
right to recover the difference between the plaintiff's
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
mortgage credit and the face value of the policies. The two
insurance companies also answered, admitting in effect
their liability to the San Miguel Brewery to the extent of its
mortgage credit, but denying liability to Harding on the
ground that under the contracts of insurance the liability of
the insurance companies was limited to the insurable
interest of the plaintiff therein. Soon after the action was
begun the insurance companies effected a settlement with
the San Miguel Brewery by paying the full amount of the
credit claimed by it, with the result that the litigation as
between the original plaintiff and the two insurance
companies came to an end, leaving the action to be
prosecuted to final judgement by the defendant Harding
with respect to the balance claimed to be due to him upon
the policies.
Whether or not the insurance companies are liable to
Harding.?
HELD: No cause of action in Henry Harding against the
insurance companies is show. He is not a party to the
contracts of insurance and cannot directly maintain an
action thereon. (Uy Tam and Uy Yet vs.Leonard, 30 Phil.
Rep., 471.) His claim is merely of an equitable and
subsidiary nature and must be made effective, if at all,
through the San Miguel Brewery in whose name the
contracts are written. Now the Brewery, as mortgagee of
the insured property, undoubtedly had an insurable interest
therein; but it could not, in any event, recover upon these
policies an amount in excess of its mortgage credit. In this
connection it will be remembered that Antonio Brias, upon
making application for the insurance, informed the
company with which the insurance was placed that the
Brewery was interested only as a mortgagee. It would,
therefore, be impossible for the Brewery mortgage on the
insured property.
This conclusion is not only deducible from the principles
governing the operation and effect of insurance contracts in
general but the point is clearly covered by the express
provisions of sections 16 and 50 of the Insurance Act (Act
No. 2427). In the first of the sections cited, it is declared that
"the measure of an insurable interest in property is the
extent to which the insured might be damnified by loss or
injury thereof" (sec. 16); while in the other it is stated that
"the insurance shall be applied exclusively to the proper
interest of the person in whose name it is made unless
otherwise specified in the policy" (sec. 50).
These provisions would have been fatal to any attempt at
recovery even by D. P. Dunn, if the ownership of the
Page 31 of 33
property had continued in him up to the time of the loss; and
as regards Harding, an additional insuperable obstacle is
found in the fact that the ownership of the property had
been charged, prior to the loss, without any corresponding
change having been effected in the policy of insurance. In
section 19 of the Insurance Act we find it stated that "a
change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in
the insurance, suspends the insurance to an equivalent
extent, until the interest in the thing and the interest in the
insurance are vested in the same person." Again in section
55 it is declared that "the mere transfer of a thing insured
does not transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the thing
insured."
Undoubtedly these policies of insurance might have been
so framed as to have been "payable to the Sane Miguel
Brewery, mortgagee, as its interest may appear, remainder
to whomsoever, during the continuance of the risk, may
become the owner of the interest insured." (Sec 54, Act No.
2427.) Such a clause would have proved an intention to
insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would
have shown exactly to whom the money, in case of loss,
should be paid. But the policies are not so written.
It is easy to collect from the facts stated in the decision of
the trial judge, no less than from the testimony of Brias, the
manager of the San Miguel Brewery, that, as the insurance
was written up, the obligation of the insurance companies
was different from that contemplated by Dunn, at whose
request the insurance was written, and Brias. In the
contract of mortgage Dunn had agreed, at his own
expense, to insure the mortgaged property for its full value
and to indorse the policies in such manner as to authorize
the Brewery Company to receive the proceeds in case of
loss and to retain such part thereof as might be necessary
to satisfy the remainder then due upon the mortgage debt.
Instead, however, of effecting the insurance himself Dunn
authorized and requested the Brewery Company to procure
insurance on the property in the amount of P15,000 at
Dunn's expense. The Brewery Company undertook to carry
this mandate into effect, and it of course became its duty to
procure insurance of the character contemplated, that is, to
have the policies so written as to protect not only the
insurable interest of the Brewery, but also the owner. Brias
seems to have supposed that the policies as written had
this effect, but in this he was mistaken. It was certainly a
hardship on the owner to be required to pay the premiums
ANG.ANSAN.BARTOLATA.BELLOSILLO.ESTANISALO.GARCIA.IMPROGO.POLERO.SIRIBAN
upon P15,000 of insurance when he was receiving no
benefit whatever except in protection to the extent of his
indebtedness to the Brewery. The blame for the situation
thus created rests, however, with the Brewery rather than
with the insurance companies, and there is nothing in the
record to indicate that the insurance companies were
requested to write insurance upon the insurable interest of
the owner or intended to make themselves liable to that
extent.
If during the negotiations which resulted in the writing of this
insurance, it had been agreed between the contracting
parties that the insurance should be so written as to protect
not only the interest of the mortgagee but also the residuary
interest of the owner, and the policies had been, by
inadvertence, ignorance, or mistake written in the form in
which they were issued, a court would have the power to
reform the contracts and give effect to them in the sense in
which the parties intended to be bound. But in order to
justify this, it must be made clearly to appear that the minds
of the contracting parties did actually meet in agreement
and that they labored under some mutual error or mistake
in respect to the expression of their purpose.
Similarly, in cases where the mortgage is by mistake
described as owner, the court may grant reformation and
permit a recovery by the mortgage in his character as such.
(Dalton vs. Milwaukee etc. Insurance Co., 126 Iowa, 377;
Spare vs. Home Mutual Insurance Co., 17 Fed., 568.)
In Thompson vs. Phoenix Insurance Co. (136 U.S., 287; 34
L. 3d., 408), it appeared that one Kearney made application
to an insurance company for insurance on certain property
in his hands as receiver and it was understood between
him and the company's agent that, in case of loss, the
proceeds of the policy should accrue to him and his
successors as receiver and to others whom it might
concern. However, the policy, as issued, was so worded as
to be payable only to him as receiver. In an action brought
on the policy by a successor of Kearney, it was alleged that
the making of the contract in this form was due to
inadvertence, accident, and mistake upon the part of both
Kearney and the company.
Page 32 of 33
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