Insurable Interest Cases -Dean Sundiang

7/24/2019 Insurable Interest Cases -Dean Sundiang

1/12

FIRST DIVISION

G.R. No. 124520 August 18, 1997

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

PADILLA, J.:

This petition for review on certiorariunder Rule 45 of the Rules of Court seeks to set aside a decision of respondent Courtof Appeals.

The undisputed facts of the case are as follows:

1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private respondent CKSDevelopment Corporation (hereinafter CKS), as lessor, on 5 October 1988.

2. One of the stipulations of the one (1) year lease contract states:

18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects placed atany stall or store or space in the leased premises without first obtaining the written consent and approval of theLESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR then the policy isdeemed assigned and transferred to the LESSOR for its own benefit; . . .

1

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire themerchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance Co., Inc.(hereinafter United) without the written consent of private respondent CKS.

4. On the day that the lease contract was to expire, fire broke out inside the leased premises.

5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the insurer(United) a demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) bepaid directly to CKS, based on its lease contract with the Cha spouses.

6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United.

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision *ordering therein defendant United topay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00

as attorney's fees and costs of suit.8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision **dated 11 January 1996,affirming the trial court decision, deleting however the awards for exemplary damages and attorney's fees. A motion forreconsideration by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to the Court of Appeals:

I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN THECONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT IS NULLAND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASEENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISIONTHEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULEDOUT IN FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICYTO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCELAW

IV


2/12

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE POLICYON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION AND FORBEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION.

2

The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease contract enteredinto between CKS and the Cha spouses is valid insofar as it provides that any fire insurance policy obtained by the lessee(Cha spouses) over their merchandise inside the leased premises is deemed assigned or transferred to the lessor (CKS)if said policy is obtained without the prior written consent of the latter.

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.

3

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 personhaving 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 isprimarily a contract of indemnity. Insurable interest in the property insured must exist at the time the insurance takes effectand at the time the loss occurs.

4The 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 insurableinterest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insuranceis a mere wager which is void under Section 25 of the Insurance Code, which provides:

Sec. 25. Every stipulation in a policy of Insurance for the payment of loss, whether the person insured has or hasnot 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 theleased premises under the provisions of Section 17 of the Insurance Code which provide:

Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be damnified byloss of injury thereof.

Therefore, respondent CKS cannot, under the Insurance Code a special law be validly a beneficiary of the fireinsurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said merchandiseremains with the insured, the Cha spouses. The automatic assignment of the policy to CKS under the provision of thelease contract previously quoted is void for being contrary to law and/or public policy. The proceeds of the fire insurancepolicy 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 inthe property insured.

The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a fire insurancepolicy over their own merchandise, without the consent of CKS, is a separate and distinct issue which we do not resolve inthis case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new decision ishereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-Cha.

SO ORDERED.


3/12

SECOND DIVISION

G.R. No. 113899 October 13, 1999

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner,vs.COURT OF APPEALS AND MEDARDA V. LEUTERIO, respondents.

QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision1

dated May 17, 1993, of the Court ofAppeals and its Resolution

2dated January 4, 1994 in CA-G.R. CV No. 18341. The appellate court affirmed in toto the

judgment of the Misamis Oriental Regional Trial Court, Branch 18, in an insurance claim filed by private respondentagainst Great Pacific Life Assurance Co. The dispositive portion of the trial court's decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC LIFE ASSURANCECORPORATION as insurer under its Group policy No. G-1907, in relation to Certification B-18558 liableand ordered to pay to the DEVELOPMENT BANK OF THE PHILIPPINES as creditor of the insured Dr.Wilfredo Leuterio, the amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00);dismissing the claims for damages, attorney's fees and litigation expenses in the complaint andcounterclaim, with costs against the defendant and dismissing the complaint in respect to the plaintiffs,other than the widow-beneficiary, for lack of cause of action.

3

The facts, as found by the Court of Appeals, are as follows:

A contract of group life insurance was executed between petitioner Great Pacific Life Assurance Corporation (hereinafterGrepalife) and Development Bank of the Philippines (hereinafter DBP). Grepalife agreed to insure the lives of eligiblehousing loan mortgagors of DBP.

On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied for membership in thegroup life insurance plan. In an application form, Dr. Leuterio answered questions concerning his health condition asfollows:

7. Have you ever had, or consulted, a physician for a heart condition, high bloodpressure, cancer, diabetes, lung; kidney or stomach disorder or any other physicalimpairment?

Answer:No. If so give details _____________.

8. Are you now, to the best of your knowledge, in good health?

Answer: [x] Yes [ ] NO.4

On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of Dr. Leuterio, to the extent ofhis DBP mortgage indebtedness amounting to eighty-six thousand, two hundred (P86,200.00) pesos.1wphi1.nt

On August 6, 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP submitted a death claimto Grepalife. Grepalife denied the claim alleging that Dr. Leuterio was not physically healthy when he applied for aninsurance coverage on November 15, 1983. Grepalife insisted that Dr. Leuterio did not disclose he had been sufferingfrom hypertension, which caused his death. Allegedly, such non-disclosure constituted concealment that justified thedenial of the claim.

On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio, filed a complaint with theRegional Trial Court of Misamis Oriental, Branch 18, against Grepalife for "Specific Performance with Damages."

5During

the trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia's findings, based partly from

the information given by the respondent widow, stated that Dr. Leuterio complained of headaches presumably due to highblood pressure. The inference was not conclusive because Dr. Leuterio was not autopsied, hence, other causes were notruled out.

On February 22, 1988, the trial court rendered a decision in favor of respondent widow and against Grepalife. On May 17,1993, the Court of Appeals sustained the trial court's decision. Hence, the present petition. Petitioners interposed thefollowing assigned errors:

1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TOTHE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTYTO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGEREDEMPTION INSURANCE ON THE LIFE OF PLAINTIFF'S HUSBAND WILFREDOLEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE


4/12

AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OFACTION.

2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OFJURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER THEPERSON OF THE DEFENDANT.

3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAYTO DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TOSHOW HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP INACCORDANCE WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.

4. THE LOWER COURT ERRED IN HOLDING THAT THERE WAS NOCONCEALMENT OF MATERIAL INFORMATION ON THE PART OF WILFREDOLEUTERIO IN HIS APPLICATION FOR MEMBERSHIP IN THE GROUP LIFEINSURANCE PLAN BETWEEN DEFENDANT-APPELLANT OF THE INSURANCECLAIM ARISING FROM THE DEATH OF WILFREDO LEUTERIO.

6

Synthesized below are the assigned errors for our resolution:

1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary ina group life insurance contract from a complaint filed by the widow of thedecedent/mortgagor?

2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he

had hypertension, which would vitiate the insurance contract?

3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eightysix thousand, two hundred (P86,200.00) pesos without proof of the actual outstandingmortgage payable by the mortgagor to DBP.

Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real party in interest, hence thetrial court acquired no jurisdiction over the case. It argues that when the Court of Appeals affirmed the trial court'sjudgment, Grepalife was held liable to pay the proceeds of insurance contract in favor of DBP, the indispensable partywho was not joined in the suit.

To resolve the issue, we must consider the insurable interest in mortgaged properties and the parties to this type ofcontract. The rationale of a group insurance policy of mortgagors, otherwise known as the "mortgage redemptioninsurance," is a device for the protection of both the mortgagee and the mortgagor. On the part of the mortgagee, it has toenter into such form of contract so that in the event of the unexpected demise of the mortgagor during the subsistence ofthe mortgage contract, the proceeds from such insurance will be applied to the payment of the mortgage debt, therebyrelieving the heirs of the mortgagor from paying the obligation.

7In 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 theapplication of the insurance proceeds to the mortgage indebtedness.

8Consequently, where the mortgagor pays the

insurance premium under the group insurance policy, making the loss payable to the mortgagee, the insurance is on themortgagor's interest, and the mortgagor continues to be a party to the contract. In this type of policy insurance, themortgagee is simply an appointee of the insurance fund, such loss-payable clause does not make the mortgagee a partyto the contract.

9

Sec. 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his own name providingthat the loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, theinsurance 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 havethe same effect, although the property is in the hands of the mortgagee, but any act which, under thecontract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee thereinnamed, with the same effect as if it had been performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the insurance, the policy statingthat: "In the event of the debtor's death before his indebtedness with the Creditor [DBP] shall have been fully paid, anamount to pay the outstanding indebtedness shall first be paid to the creditor and the balance of sum assured, if there isany, shall then be paid to the beneficiary/ies designated by the debtor."

10When DBP submitted the insurance claim

against petitioner, 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 lotof private respondent.

11In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co.

12we held:


5/12

Insured, being the person with whom the contract was made, is primarily the proper person to bring suitthereon. * * *Subject to some exceptions, insured may thus sue, although the policy is taken wholly or inpart for the benefit of another person named or unnamed, and although it is expressly made payable toanother as his interest may appear or otherwise. * * *Although a policy issued to a mortgagor is taken outfor the benefit of the mortgagee and is made payable to him, yet the mortgagor may sue thereon in hisown name, especially where the mortgagee's interest is less than the full amount recoverable under thepolicy, * * *.

And in volume 33, page 82, of the same work, we read the following:

Insured may be regarded as the real party in interest, although he has assigned the policy for the purposeof collection, or has assigned as collateral security any judgment he may obtain. 13

And since a policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he hasan insurable interest or not, and such person may recover it whatever the insured might have recovered,

14the widow of

the decedent Dr. Leuterio may file the suit against the insurer, Grepalife.

The second assigned error refers to an alleged concealment that the petitioner interposed as its defense to annul theinsurance contract. Petitioner contends that Dr. Leuterio failed to disclose that he had hypertension, which might havecaused his death. Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, goodfaith, and fair dealing requires that he should communicate it to the assured, but he designedly and intentionally withholdsthe same.

15

Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as supported by the informationgiven by the widow of the decedent. Grepalife asserts that Dr. Mejia's technical diagnosis of the cause of death of Dr.

Leuterio was a duly documented hospital record, and that the widow's declaration that her husband had "possiblehypertension several years ago" should not be considered as hearsay, but as part of res gestae.

On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct an autopsy on the body of thedecedent. As the attending physician, Dr. Mejia stated that he had no knowledge of Dr. Leuterio's any previous hospitalconfinement.

16Dr. Leuterio's death certificate stated that hypertension was only "the possible cause of death." The

private respondent's statement, as to the medical history of her husband, was due to her unreliable recollection of events.Hence, the statement of the physician was properly considered by the trial court as hearsay.

The question of whether there was concealment was aptly answered by the appellate court, thus:

The insured, Dr. Leuterio, had answered in his insurance application that he was in good health and thathe had not consulted a doctor or any of the enumerated ailments, including hypertension; when he diedthe attending physician had certified in the death certificate that the former died of cerebral hemorrhage,probably secondary to hypertension. From this report, the appellant insurance company refused to pay

the insurance claim. Appellant alleged that the insured had concealed the fact that he had hypertension.

Contrary to appellant's allegations, there was no sufficient proof that the insured had suffered fromhypertension. Aside from the statement of the insured's widow who was not even sure if the medicinestaken by Dr. Leuterio were for hypertension, the appellant had not proven nor produced any witness whocould attest to Dr. Leuterio's medical history . . .

xxx xxx xxx

Appellant insurance company had failed to establish that there was concealment made by the insured,hence, it cannot refuse payment of the claim.

17

The fraudulent intent on the part of the insured must be established to entitle the insurer to rescind thecontract.

18Misrepresentation as a defense of the insurer to avoid liability is an affirmative defense and the duty to

establish such defense by satisfactory and convincing evidence rests upon the insurer.19

In the case at bar, the petitioner

failed to clearly and satisfactorily establish its defense, and is therefore liable to pay the proceeds of theinsurance.1wphi1.nt

And that brings us to the last point in the review of the case at bar. Petitioner claims that there was no evidence as to theamount of Dr. Leuterio's outstanding indebtedness to DBP at the time of the mortgagor's death. Hence, for privaterespondent's failure to establish the same, the action for specific performance should be dismissed. Petitioner's claim iswithout merit. A life insurance policy is a valued policy.

20Unless 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 thepolicy.

21The mortgagor 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, adeath benefit in the amount of P86,200.00 shall be paid.


6/12

In the event of the debtor's death before his indebtedness with the creditor shall have been fully paid, anamount to pay the outstanding indebtedness shall first be paid to the Creditor and the balance of the SumAssured, if there is any shall then be paid to the beneficiary/ies designated by the debtor."

22(Emphasis

omitted)

However, we noted that the Court of Appeals' decision was promulgated on May 17, 1993. In private respondent'smemorandum, she states that DBP foreclosed in 1995 their residential lot, in satisfaction of mortgagor's outstanding loan.Considering this supervening event, the insurance proceeds shall inure to the benefit of the heirs of the deceased personor his beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cumalterius 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, herein private respondent MedardaLeuterio.

WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV18341 is AFFIRMED with MODIFICATION that the petitioner is ORDERED to pay the insurance proceeds amounting toEighty-six thousand, two hundred (P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), uponpresentation of proof of prior settlement of mortgagor's indebtedness to Development Bank of the Philippines. Costsagainst petitioner.1wphi1.nt

SO ORDERED.


7/12

Harvardian Colleges v. Country Bankers Insurance Corp.

1 CARA 2

Facts:

> Harvardian is a family corporation, the stockholders of which are Ildefonso Yap, Virginia King Yap and their children.

> Prior to Aug. 9, 1979, an agent of Country Bankers proposed to Harvardian to insure its school building. Although at

first reluctant, Harvardian agreed.

> Country Banks sent an inspector to inspect the school building and agreed to insure the same for P500,000 for which

Harvardian paid an annual premium of P2,500.

> On Aug. 9, 1979, Country Bankers issued to Harvardian a fire insurance policy. On March 12, 1980, (39 days before I

was born!hehehehe )during the effectivity of said insurance policy, the insured property was totally burned rendering it a

total loss.

> A claim was made by plaintiff upon defendant but defendant denied it contending that plaintiff had no insurable interest

over the building constructed on the piece of land in the name of the late Ildefonso Yap as owner.

> It was contended that both the lot and the building were owned by Ildefonso Yap and NOT by the Harvardian Colleges.

Issue:

Whether or not Harvardian colleges has a right to the proceeds.

Held:

Harvardian has a right to the proceeds.

Regardless of the nature of the title of the insured or even if he did not have title to the property insured, the contract of

fire insurance should still be upheld if his interest in or his relation to the property is such that he will be benefited in itscontinued existence or suffer a direct pecuniary loss from its destruction or injury. The test in determining insurable

interest in property is whether one will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary

loss or damage from its destruction, termination or injury by the happening of the event insured against.

Here Harvardian was not only in possession of the building but was in fact using the same for several years with the

knowledge and consent of Ildefonso Yap. It is reasonably fair to assume that had the building not been burned,

Harvardian would have been allowed the continued use of the same as the site of its operation as an educational

institution. Harvardian therefore would have been directly benefited by the preservation of the property, and certainly

suffered a pecuniary loss by its being burned.


8/12

Ang Ka Yu v. Phoenix Assurance - Insurable Interest

1 CARA 704

Facts:

> Ang Ka Yu had a piece of property in his possession. He insured it with Phoenix.

> The property was lost, so Ang Ka Yu sought to claim the proceeds.

> Phoenix denied liability on the ground that Ang was not the owner but a mere possessor and as such, had no insurable

interest over the property.

Issue:

Whether or not a mere possessor has insurable interest over the property.

Held:

Yes.

A person having a mere right or possession of property may insure it to its full value and in his own name, even when he

is not responsible for its safekeeping. The reason is that even if a person is NOT interested in the safety and preservation

of material in his possession because they belong to 3rd

parties, said person still has insurable interest, because he

stands either to benefit from their continued existence or to be prejudiced by their destruction.


9/12

FIRST DIVISION

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,vs.INSURANCE COMPANY OF NORTH AMERICA, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1

dated October 11, 2000 of the Court of Appeals (CA)in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138,Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of NorthAmerica (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 whichdenied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the localdistributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained fromrespondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "bookdebts in connection with ready-made clothing materials which have been sold or delivered to various customers anddealers of the Insured anywhere in the Philippines."

2The policies 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."3The policies

also provide for the following conditions:1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold anddelivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from thedate of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of everycalendar month all amount shown in their books of accounts as unpaid and thus become receivable item fromtheir customers and dealers. x x x

4

x x x x

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano SuperstoreComplex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed inthe fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed withrespondent their claims under their respective fire insurance policies with book debt endorsements; that as of February25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMCwas P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtuethereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for paymentupon petitioner but these went unheeded.

5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because theproperty covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's rightof subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to firewhich it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that itnever consented to paying the claim of the insured.

6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8It held that the fire was purelyaccidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not beenestablished that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed thatmerely for purpose of securing the payment of purchase price, the above-described merchandise remains the property ofthe vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bearthe loss.

Dissatisfied, petitioner appealed to the CA.9On October 11, 2000, the CA rendered its decision setting aside the decision

of the RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is enteredordering defendant-appellee Gaisano Cagayan, Inc. to pay:


10/12

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter CapitolMarketing Corporation, plus legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi StraussPhil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of thething sold; that loss of the goods in the fire must be borne by petitioner since theprovisocontained in the sales invoices isan exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, therisk is borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner'sobligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such theobligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer hasthe right to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was thevendor's interest as a creditor.

11

Petitioner filed a motion for reconsideration12

but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVERCREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT

CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART.2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.

14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit sincean insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was notcredit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because ofthe non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was noloss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for paymentof the debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire insurancepolicies.

15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the

risk of loss when they secured fire insurance policies over the goods.Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurancecould be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; thatpetitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consentor approval ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation topay, limiting its interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upondelivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer directpecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since itfailed to overcome the presumption of liability under Article 1265

16of the Civil Code; that the fire was caused through

petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property becauseelectric wires do not usually short circuit unless there are defects in their installation or when there is lack of propermaintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay

respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses and cost ofsuit.

17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited toreviewing questions of law which involves no examination of the probative value of the evidence presented by the litigantsor any of them.

18The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over

again.19

Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court,such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inferencemade is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment isbased on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CAwent beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee;


11/12

(7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specificevidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and replybriefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence ofevidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant factsnot disputed by the parties, which, if properly considered, would justify a different conclusion.

21Exceptions (4), (5), (7),

and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing afire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies toloss of the ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22

Inthis case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothingmaterials which have been sold or delivered to various customers and dealers of the Insured anywhere in thePhilippines."

23; 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."24

Nowhere is it provided in the questioned insurance policiesthat the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it anyalleged intention of the parties, the terms are to be understood literally just as they appear on the face of thecontract.

25Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45

days after the loss through fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating inthe sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price theabove described merchandise remains the property of the vendor until the purchase price thereof is fully paid."

26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to thebuyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual deliveryhas 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 andthe ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligationsunder the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)

x x x x

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by thebuyer.

27Accordingly, petitioner 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 thevalue of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis forconsideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, butwhether insured has substantial economic interest in the property.

28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or anyrelation 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 existinginterest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in thatout of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possessionof, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such aninterest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should itbe injured or destroyed by the peril against which it is insured.

29Anyone has an insurable interest in property who derives

a benefit from its existence or would suffer loss from its destruction.30

Indeed, a vendor or seller retains an insurableinterest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by itsdestruction, as where he has a vendor's lien.

31In 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.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432

of the Civil Code ismisplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.


12/12

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accountswith IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment ofmoney. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor tomake the payment even by reason of a fortuitous event shall not relieve him of his liability.

33The 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 truewhen the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even incase of fortuitous event. It does not apply when the obligation is pecuniary in nature.

34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of thesame 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 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 willnot have the effect of extinguishing the obligation.

35This rule is based on the principle that the genus of a thing can never

perish. Genus nunquan perit.36

An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of anyspecific property of the debtor.

37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevanthere is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38

show that petitioner hasan outstanding account with IMC in the amount of P2,119,205.00. Exhibit "E"

39is the check voucher evidencing payment

to IMC. Exhibit "F"40

is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insuranceproceeds. All these documents have been properly identified, presented and marked as exhibits in court. The subrogationreceipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but

also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by theinsurance company of the insurance claim.41

Respondent's action against petitioner is squarely sanctioned by Article 2207of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for theinjury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated tothe rights of the insured against the wrongdoer or the person who has violated the contract. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can begiven to Exhibit "F Levi Strauss",

42a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano,

Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in theamount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered inevidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have againstpetitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amountof P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution datedApril 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMEDwith theMODIFICATIONthat the order topay the amount of P535,613.00 to respondent is DELETEDfor lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

Documents

Insurable Interest Cases -Dean Sundiang