16 Cherie Palileo vs Beatriz Cosio

G.R. L-7667, November 28,1955

Topic: Sec. 9
Ponente: Bautista Angelo
Author: Gabriel Paulo R. Uy
Source:Lawphil
FACTS:
1. On December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to conditions
among which are that plaintiff shall pay to defendant an interest in the amount of P250 a month
2. Pursuant to their agreement, plaintiff paid to defendant as interest on the loan a total of P2,250.00
3. 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 (mortgage).
4. , defendant insured the building against fire with the Associated Insurance & Surety Co., Inc. for the sum of
P15,000, the insurance policy having been issued in the name of defendant.
5. The building was partly destroyed by fire and, after proper demand, defendant collected from the insurance
company an indemnity of P13,107.00.
6. 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. And on the strength of these facts
7. .Plaintiff filed a complaint against defendant in the CFI praying that: (1) the transaction entered into between
them be declared as one of loan with equitable mortgage to secure the payment of said loan; (2) the defendant be
ordered to credit to the plaintiff from the sum received by the defendant from the Associated Insurance & Surety
Co., Inc. and to apply the same to the payment of plaintiff's debt thus considering it as fully paid; and (3) the
defendant be ordered to pay to plaintiff the difference between the alleged indebtedness of plaintiff and the sum
received by defendant from the aforementioned insurance company, plus the sum allegedly paid to defendant as
interest on the alleged indebtedness.
8. The trial court rendered a decision stating:
Wherefore, judgment is hereby rendered declaring the transaction had between plaintiff
and defendant an equitable mortgage xxx ordering the defendant to credit the sum of
P13,107 received by the defendant from the Associated Insurance & surety Co., Inc. to the
payment of plaintiff's obligation in the sum of P12,000.00 as stated in the complaint xxx
this Court hereby likewise orders the said defendant to refund to herein plaintiff, plus the
balance of P1,107 representing the difference of the sum loan of P12,000 and the collected
insurance of P13,107 from the insurance company abovementioned to which the herein
plaintiff is entitled to receive, and to pay the costs.
9. Defendant-appelant appealed
ISSUE:

did the trial court err in considering the obligation(debt) of plaintiff fully compensated by the insurance amount and in
ordering defendant to refund to plaintiff the sum of P1,107 representing the difference of the loan of P12,000 and the
sum of P13,107 collected by said defendant from the insurance company notwithstanding the fact that it was not proven
that the insurance was taken for the benefit of the mortgagor?

HELD:

1. Yes the court committed an error in compensating plaintiffs (palileo) debt with the insurance proceed from the
insurance made by the mortgagee/defendant-appellant Cosio

RATIO:

1. The TCs ruling runs counter to the rule governing an insurance taken by a mortgagee independently of the
mortgagor. 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 from the mortgage contract against the mortgagor, but is passed by
subrogation to the insurer to the extent of the money paid.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."

DOCTRINE

Briefly stated, when a mortgagee applies for insurance on his interest over the subject of the mortgage, the mortgagee has
the right to the insurance money,but the right to collect the debt from the mortgage agreement is transferred to the insurer
through subrogation. The insurer cannot claim from the mortgagor more than what he paid to the insured-mortgagee