Palilieo v.

Cosio - Insurance Proceeds

97 PHIL 919

Facts:
> On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T.
> To secure payment, Cosio required Palileo to sign a document known as
“conditional sale of residential building”, purporting to convey to Cosio, with a
right to repurchase (on the part of Palileo), a two-story building of strong
materials belonging to Palileo.
> After execution of the document, Cosio insured the building against fire with
Associated Insurance & Surety Co. (Associated) for 15T.
> The insurance policy was issued in the name of Cosio.
> The building was partly destroyed by fire and after proper demand, Cosio was
able to collect from the insurance company an indemnity of P13,107.
> 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.
> Trial Court found that the debt had an unpaid balance of P12T. It declared
the obligation of Palileo to Cosio fully compensated by virtue of the proceeds
collected by Cosio and further held that the excess of P1,107 (13,107 – 12,000)
be refunded to Palileo

Issue:
Whether or not the trial court was justified in considering the obligation of Palileo
fully compensated by the insurance amount that Cosio was able to collect from
Associated, and whether or not the trial court was correct in requiring Cosio to
refund the excess of P1,107 to Palileo.

Held:
NO and NO.
The rule is that “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.”
The lower court erred in declaring that the proceeds of the insurance taken out
by Cosio on the property insured to the benefit of Palileo and in ordering the
former to deliver to the latter, the difference between the indebtedness and the
amount of insurance received by Cosio. In the light of this ruling, the correct
solution would be that the proceeds of the Insurance be delivered to Cosio, but
her claim against 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.
Cherie Palileo vs Beatriz Cosio Case Digest
Cherie Palileo vs Beatriz Cosio
97 Phil 919
28 Nov 1955

Facts:

Palileo filed a complaint against Cosio in the CFI of Manila raising the ground
that, the transaction entered by them be declared as one of loan and that the
said transaction be one of equitable mortgage to secure the payment of the loan.
Cosio filed her answer setting up a defense that the transaction between them is
one of sale with option to repurchase. However, the period for repurchase had
expired which resulted to the ownership of Cosio. The latter set up counterclaims
but failed to appear in court in which judgment was granted in favor of the
evidence presented by Palileo.

2 Feb 1954, the original counsel of Cosio was substituted and the new counsel
immediately moved that the judgment be set aside. The motion has been denied
making Cosio to take an appeal.

Coming to the merits of the case, the Court find out that pursuant to the
agreement of both, Palileo paid to Cosio an interest on the total loan exceeding
the maximum interest authorized by law. To secure the payment, the parties
executed a document purporting to convey to Cosio a two-storey building
insured the same against fire which is issued in the name of Cosio the insurance
policy.

The building was partly destroyed by fire. Cosio on a proper demand, collected
indemnity from the insurance company and on the other hand, Palileo demanded
from Cosio that she be credited with the necessary amount to pay her obligation
out of the insurance proceeds. Cosio refused to pay.

Issue:

Effect where mortgaged property was insured by the mortgagee in his own name
Ratio decidendi:

Where a mortgage, independently of the mortgagor, insures the mortgaged

property in his own name and for his own interest, he is entitled to the issuance
proceeds in case of loan, 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.

Insurance Case Digest: Palileo V. Cosio (1955)

G.R. No. L-7667 November 28, 1955

FACTS:

 Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio

(creditor-mortgagee) praying that their transaction be one of a loan with an
equitable mortgage to secure the payment of the loan. The original counsel
of Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs so
she forgot the date of the trial and she was substituted.
 it is a loan of P12,000 secured by a "Conditional Sale of Residential Building"
with right to repurchase. After the execution of the contract, Cosio insured in
her name the building with Associated Insurance & Surety Co. against fire.
 The building was partly destroyed by fire so she claimed an indemnity of
P13,107
 Palileo demanded that the amount of insurance proceeds be credited to her
loan
 RTC: it is a loan with equitable mortgage so the insurance proceeds should
be credited to the loan and refund the overpayment.
ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her
own benefit

HELD: YES. Modify. collection of insurance proceeds shall not be deemed to

have compensated the obligation of the Palileo to Cosio, but bars the Cosio from
claiming its payment from the Palileo; and Cosio shall pay to Palileo P810
representing the overpayment made by Palileo by way of interest on the loan.
 When the the mortgagee may insure his interest in the property
independently of the mortgagor , 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
 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" But these
authorities merely represent the minority view

Palileo v. Cosio

Palileo v. Cosio

G.R. No. L-7667, November 28, 1955

FACTS: Plaintiff obtained from defendant a loan in the sum of P12,000.

To secure the payment of the aforesaid loan, defendant required plaintiff to sign
a document known as “Conditional Sale of Residential Building”, purporting to
convey to defendant, with right to repurchase, a two-story building of strong
materials belonging to plaintiff. 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, defendant insured the building
against fire for the sum of P15,000, the insurance policy having been issued in
the name of defendant. The building was partly destroyed by fire and, after
proper demand, defendant collected from the insurance company an indemnity
of P13,107.00. Plaintiff demanded from defendant that she be credited with the
necessary amount to pay her obligation out of the insurance proceeds but
defendant refused to do so.

ISSUE: WON a mortgagor is entitled to the insurance proceeds of the

mortgaged property independently insured by the mortgagee? What is the effect
of the insurance?
HELD: NO. The rule is that “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.”