Insurance; Insurable interest; Sec. 18, Insurance Code Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents. G.R. No. 124520, August 18, 1997 FIRST DIVISION DECISION PADILLA, J. The Case: Thisisapetitionforreviewon certiorari underRule45oftheRulesof Court seeking to set aside a decision of respondent Court of Appeals. Facts: SpousesCha,aslessees,enteredintoaleasecontractwithCKS DevelopmentCorporation(CKS),aslessor.Oneofthestipulationsof theone(1)yearleasecontractstates:18.xxx. TheLESSEEshallnot 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; x xx Notwithstandingtheabovestipulation,theChaspousesinsured againstlossbyfiretheirmerchandiseinsidetheleasedpremises P500,000.00withtheUnitedInsuranceCo.,Inc.(United)withoutthe written consent of private respondents CKS. On the day that the lease contract was to expire, fire broke out insidetheleasedpremises.WhenCKSlearnedoftheinsuranceearlier procured by the Cha spouses (without its consent), it wrote the insurer a demandletteraskingthattheproceedsoftheinsurancecontractbe paiddirectlytoCKS,basedonitsleasecontractwithChaspouses. United refusedto pay CKS. Hence,the latterfiled a complaintagainst the Cha spouses and United. TheRTCofManilarenderedadecision orderingtherein defendantUnitedtopayCKStheinsuranceproceedsandtheCha spouses to payexemplary damages,attorneys fees and costs of suit. Onappeal,respondentCourtofAppealsaffirmedthetrial courts decision, deleting however the awards for exemplary damages Northwestern University, College of Law Digested - Sps. Cha vs. CA 2 Uploaded by: Therese Zsa S. Raval-Torres andattorneysfees. AmotionforreconsiderationbyUnitedwas denied. Hence, this petition. Issue: Whetherornotthestipulationoftheleasecontractenteredinto betweenCKSandtheChaspousesisvalidinsofarasitprovidesthat any fire insurance policy obtained by the lessee over their merchandise insidetheleasedpremisesisdeemedassignedortransferredtothe lessor if said policy is obtained without the prior written of the latter. Held: Itis,ofcourse,basicinthelawoncontractsthatthestipulations containedinacontractcannotbecontrarytolaw,morals,good customs, public order or public policy.Sec. 18 of the Insurance Code provides that No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured. Anon-lifeinsurancepolicysuchasthefireinsurancepolicytaken bypetitioner-spousesovertheirmerchandiseisprimarilyacontractof indemnity. Insurableinterestinthepropertyinsuredmustexistatthe timetheinsurancetakeseffectandatthetimethelossoccurs.[4] The basisofsuchrequirementofinsurableinterestinpropertyinsuredis based on sound public policy: to prevent a person from taking out an insurancepolicyonpropertyuponwhichhehasnoinsurableinterest andcollectingtheproceedsofsaidpolicyincaseoflossofthe property. Insuchacase,thecontractofinsuranceisamerewager whichisvoidunder Section25oftheInsuranceCode,whichprovides thatEvery stipulation in a policy of Insurance forthe paymentof loss, whetherthepersoninsuredhasorhasnotanyinterestintheproperty insured,orthatthepolicyshallbereceivedasproofofsuchinterest, 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 interestinthegoodsandmerchandiseinsidetheleasedpremises undertheprovisionsofSection17oftheInsuranceCodewhich provide:The measure of an insurable interest in property isthe extent to which the insured might be damnified by loss of injury thereof." Northwestern University, College of Law Digested - Sps. Cha vs. CA 3 Uploaded by: Therese Zsa S. Raval-Torres Therefore,respondentCKScannot,undertheInsuranceCodea speciallawbevalidlyabeneficiaryofthefireinsurancepolicytaken by the petitioner-spouses over their merchandise. This insurable interest over said merchandiseremainswiththe insured,the Cha spouses.The automaticassignmentofthepolicytoCKSundertheprovisionofthe leasecontractpreviouslyquotedisvoidforbeingcontrarytolaw and/orpublicpolicy. Theproceedsofthefireinsurancepolicythus rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co-petitioners). Theinsurer(United)cannotbecompelledtopaythe proceedsofthefireinsurancepolicytoaperson(CKS)whohasno insurable interest in the property insured. Disposition: ThedecisionoftheCourtofAppealswasSETASIDE andanew decisionwasentered,awardingtheproceedsofthefireinsurance policy to petitioners Nilo Cha and Stella Uy-Cha.