CONTRACT OF INSURANCE

1. FILIPINAS CIA DE SEGUROS v. CHRISTERN HUENEFELD

G.R. No. L-2294; May 25, 1951.
Paras, C.J.

FACTS:
On October 1, 1941, the respondent corporation, Christern Huenefeld, & Co., obtain a
fire insurance policy from the petitioner in the sum of P100,000, after its payment of
corresponding premium, covering the merchandise contained in the building at No. 711 Roman
Street, Binondo, Manila. During the Japanese Military occupation on 1942, the building and
insured merchandise were burned. In due time, the respondent submitted to the petitioner its
claim under the policy. The petitioner refused to pay the claim on the ground that the policy in
favor of the respondent had ceased to be in force on the date the United States declared war
against Germany, the respondent Corporation (though organized under and by virtue of the
laws of the Philippines) being controlled by the German subjects and the petitioner being a
company under American jurisdiction when said policy was issued on October 1, 1941. The
petitioner, however, paid the said claim in pursuance of the order of the Director of Bureau of
Financing, PEC. However, on August 6, 1946, an action was filed by the petitioner before the
CFI of Manila for the purpose of recovering from the respondent the said amount paid to the
respondent on the theory that the insured merchandise were burned up after the policy issued in
1941 in favor of the respondent corporation has ceased to be effective because of the outbreak
of the war between the United States and Germany on December 10, 1941, and that the
payment made by the petitioner to the respondent corporation during the Japanese military
occupation was under pressure. The CFI of Manila, dismissed the action which was
subsequently affirmed by the Court of Appeals, Hence, this petition.

ISSUE: WON the respondent corporation is a public enemy. Hence, the Fire Insurance
Policy had ceased to be valid and enforceable.

RULING: Yes. The Supreme Court ruled that there is no question that majority of the
stockholders of the respondent corporation were German subjects and which would make the
respondent an enemy corporation upon the outbreak of the war between the US and Germany.
In effect, the English and American cases relied upon by the Court of Appeals lost in force upon
the latest decision of the Supreme Court of US in which the control test has adopted.
Furthermore, the Philippine Insurance Law (Act No 2427, as amended), in Section 8, provides
that “anyone except a public enemy may be insured”. It stands to reason that an insurance
policy ceases to be allowable as soon as an insured becomes a public enemy. Thus, the
respondent having become an enemy corporation on December 10, 1941, the insurance policy
issued in favour of the respondent on October 1, 1941, by the petitioner had ceased to be valid
and enforceable. Hence, the respondent has cannot claim for the insured goods.

2. PAZ LOPEZ CONSTANTINO v. ASIA LIFE INSURANCE

G.R. No. L-1669; AUGUST 31, 1950.
BENGZON, J.

FACTS:
In consideration of the sum of P176.04 as annual premium duly paid to it, the
respondent, issued on September 27, 1941 its Policy No. 93912 for P3,000, whereby it insured
the life of Arcadio Constantino for a term of 20 years and also naming the petitioner as
beneficiary. The first premium covered up to September 26, 1942. After the first premium, no
further premiums were paid until the insured died on September 22, 1944. It was admitted in the
case that the respondent, being an American Corporation, it had to close its branch office in
Manila by reason of the Japanese occupation from January 2, until the year 1945. The plaintiffs,
in this case, maintain that, as beneficiaries, they are entitled to receive the proceeds of the
policies minus all sums due for premiums in arreas. They allege that non-payment of the
premiums was caused by the closing of defendant’s offices in Manila during the Japanese
occupation and the impossible circumstances created by war. The defendant, on the other
hand, asserts that the policies had lapsed for non-payment of premiums, in accordance with the
contract of the parties and the law applicable to the situation. The trial court ruled in favour of
the defendant. Hence, this appeal

ISSUE: WON the beneficiary in a life insurance policy may recover the amount thereof
although the insured died after repeatedly failing to pay the stipulated premiums, such
failure having been caused by the last war in the Pacific.

RULING: No. The Supreme Court ruled that Nevertheless, inasmuch as the non-payment of
premium was the consequence of war, it should be excused and should not cause the forfeiture
of the policy. In Glaraga vs. Sun Life Ass. Co., this court held that a life policy was avoided
because the premium had not been paid within the time fixed, since by its express terms, non-
payment of any premium when due or within the thirty-day period of grace, ipso facto caused
the policy to lapse. This goes to show that although we take the view that insurance policies
should be conserved and should not lightly be thrown out, still we do not hesitate to enforce the
agreement of the parties. When the life insurance policy provides that non-payment of premiums
will cause its forfeiture, war does NOT excuse non-payment and does not avoid forfeiture.
Essentially, the reason why punctual payments are important is that the insurer calculates on
the basis of the prompt payments. It should be noted that the parties contracted not only for
peacetime conditions but also for times of war, because the policies contained provisions
applicable expressly to wartime days. The logical inference, therefore, is that the parties
contemplated uninterrupted operation of the contract even if armed conflict should ensue.
TOPIC: Who may be insured, Section 7 (Insurance Code)

CASE NO. 3

Fidela Sales vs Crown Life Insurance Company

GR No. L-4197; March 20, 1952

Doctrine: There is no duty when the law forbids; and there is no obligation without corresponding
right enjoyed by another. The insured had no right to demand that the defendant maintain an
office during the war, and the defendant was not obligated to do so.

Facts

September 26, 1939: Crown Life Insurance Company issued to Ramon Gonzaga a 20-year endowment
policy for P15,000.

Gonzaga paid the agreed yearly premium which was P591 for three consecutive years, the last payment
was September 6, 1941. War broke and no premiums were paid. However, the policy continued to be in
force up to June 12, 1943 under its automatic premium loan clause.

Gonzaga died on June 27, 1945 from an accident. His widow (plaintiff) and beneficiary were
unsuccessful in collecting the amount of the policy, hence, this suit.

Crown Life Insurance Co.: The policy had lapsed by the non-payment of the premiums of the stipulated
dates during the war. Since it was an enemy alien insurance company, it was not permitted to do business
in the Philippines. It, however, operated under its General Agent Hanson, Orth and Stevenson through the
house of its Filipino employees in Ermita for the purpose of receiving premiums from their policy
holders.

Plaintiff: Defendant closed its business in the Philippines and had no agency or representative to represent
it with authority to collect premiums from the insured. The company should have notified her husband.

Trial Court: Ruled against plaintiff.

Issue

Whether or not it was the duty of insurer Crown Life to notify Gonzaga of their business operations?

Held

NO. The Supreme Court said, “in the face of the Japanese Military decrees, which found sanctions in
international law, the failure of the defendant or its Filipino employees to advise the insured of the
defendant's new address did not work as a forfeiture of the right to have the premiums satisfied
promptly. While clandestine transactions between the parties during the war might be binding, it was not
obligatory on the insurer, and it was well-nigh risky for its employees, to send out notices to its widely
scattered policy holders, what with the postal service under the control and administration of the ruthless
occupants.”

There is no duty when the law forbids; and there is no obligation without corresponding right
enjoyed by another. The insured had no right to demand that the defendant maintain an office
during the war, and the defendant was not obligated to do so.

For another thing, the policy carried a clause providing for its reinstatement under certain conditions
within three years from the date of lapse on application of the insured. If Gonzaga intended to preserve
the policy, he knew the right people to contact and could have communicated with them, but he did not.

Ruling: The action was properly dismissed and the appealed decision is affirmed.

Case Notes:

 The defendant being an enemy corporation, its offices, which were housed at the Chaco
building when the hostilities broke out, were ordered closed by the Japanese Military
authorities in January 1942, and the officers of Hanson, Orth and Stevenson, Inc.,
defendants’ general agents, being American citizens, were entered. In addition, on August 25
the Japanese administration issued "Instruction No. 71" by which enemy alien insurance
companies were expressly prohibited from doing business.
 Had the defendant not opened any office at all during the occupation and stopped receiving
premiums absolutely, the plaintiff's position would not have been any better or worse for the
closing and suspension of the defendant's business. Had the plaintiff's husband actually
tendered his premiums and the defendant's employees rejected them, he could not have
insisted on the payment as a matter of right. Stated otherwise, the defendant's opening
of an interim office partook of the nature of the privilege to the policy holders to keep
their policies operative rather than a duty to them under the contract.
 Of this privilege, incidentally, Gonzaga could have taken advantage if he was really intent on
preserving his policy. Uncontroverted or admitted is the fact that the defendant's agent,
through whom he had been insured, lived in Malabon, Rizal, and was his close
acquaintance; and so were some of the defendant's Filipino employees who handled the
insurance business of Hanson, Orth and Stevenson during the occupation. And
Gonzaga admittedly come to Manila on a visit every now and then, and could have,
without difficulty, contacted any of those people.
TOPIC: Mortgagor/Mortgagee; Section 8, 9, 13, 53 of the Insurance Code

CASE NO. 4

Cherie Palileo vs Beatriz Cosio

GR No. L-7667; November 28, 1995

Doctrine: 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.

Facts

On December 18, 1951, plaintiff obtained from defendant a loan in the sum of P12,000 subject to the
following conditions: (a) that plaintiff shall pay to defendant an interest in the amount of P250 a month;
(b) that defendant shall deduct from the loan certain obligations of plaintiff 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, defendant shall deliver to plaintiff only the balance of the loan of P12,000

Thereafter, plaintiff paid to defendant as interest on the loan a total of P2,250.00 corresponding to nine
months from December 18, 1951, on the basis of P250.00 a month, which is more than the maximum
interest authorized by law. To secure the payment, defendant required plaintiff to sign a “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 document, 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. 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.

Trial Court: Transaction is a loan secured by an equitable mortgage

Issue

Whether or not the trial court is correct?

Held

No. The Supreme Court held that [t]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 the defendant on the
property mortgaged inured to the benefit of the plaintiff and in ordering said defendant to deliver to the
plaintiff the difference between her indebtedness and the amount of insurance received by the defendant,
for, in the light of the majority rule we have above enunciated, the correct solution should be that the
proceeds of the insurance should be delivered to the defendant but that her claim against the plaintiff
should be considered assigned to the insurance company who is deemed subrogated to the rights of the
defendant to the extent of the money paid as indemnity.

Ruling:

Modification of judgement 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.

Case Notes

 (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)
 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.)

5. SAN MIGUEL BREWERY V. LAW UNION AND ROCK INSURANCE CO.

FACTS

 By virtue of a contract of mortgage, P.D. Dunn, owner, 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 San Miguel
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, of effecting personally 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.

 It must be noted that San Miguel insured the property only as

mortgagee. Subsequently the property was sold by Dunn to Henry
Harding. The insurance was not assigned by Dunn to Harding. Such
property was destroyed by a fire. Law Union and Rock Insurance
Company (Ltd.), and the "Filipinas" Compania de Seguros, the two
insurance companies settled with San Miguel to the extent of the
mortgage credit.

 The RTC absolved the 2 companies from the difference. It was also
declared that Henry Harding is not entitled to the difference between the
mortgage credit and the face value of the policies.

ISSUE

 Whether or not in the instant case the RTC is correct that Henry Harding
is not entitled to the difference between the mortgage credit and the face
value of the policies.

RULING

 Yes. Harding 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. 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.

 Furthermore the Insurance Contract provided that the insurance shall be

applied exclusively to the proper interest of the person in whose name it
is made- the Brewery.

 If the wording in the insurance contract 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.

6. EMILIO GONZALES LA O, plaintiff-appellee, vs. THE YEK TONG

LIN FIRE AND MARINE INSURANCE CO., LTD., defendant-appellant.

FACTS

 Damaged by the fire that destroyed the warehouse, Lao

demands P290 000 from the defendant assurance company.
From Yek Tong Lin Fire & Marine Insurance Co., P100,000, and
against the other defendant assurance companies in the other
cases for P190,000. The other defendant companies offered to
compromise with him by paying eighty-five per cent of his claim
against them.

 Lao refused to accept the compromise which, in the same terms as

those made by the defendants in the three cases. Yek Tong Lin
Fire & Marine Insurance Company also offered a compromise. Lao
contended that Yek Tong Lin could not raise the question of
warranties heretofore mentioned for the simple reason that it was
the defendant itself, as owner, who had leased the building which
later was destroyed by fire, to another person after having already
ceded a portion of it to said plaintiff 

 Lao has conclusively shown by the Official Register and the

Official Guide, furnished by the Bureau of Internal Revenue; the
Stock Book for recording the quantity of tobacco kept by him and
 presented as part of the testimony of witnesses Claveria, Bonete,
and Leoncio Jose; the testimony of Estanislao Lopez, Inspector of
Internal. The Lower Court sentenced the defendant Yek Tong Lin
Fire and Marine Insurance Company, Ltd., to pay the plaintiff
Emilio Gonzales La O.

 Yek Tong Lin contended that La O can not recover under the policy as he
has failed to prove that the Bank of the Philippine Islands, to whom the
policy was made payable, no longer has any rights and interests in it.

ISSUE

 WON the contention of Yek Tong Lin is tenable.

RULING

 No. It should be noted that Yek Tong Lin did not in its answer allege
defect and it does not appear that La O ceded to the bank all his rights or
interests in the insurance, the note attached to the policies merely
stating: "There shall be paid to the Bank of the Philippine Islands an
indemnity for any loss caused by fire, according to the interest appearing
in its favor." And the fact that the plaintiff himself presented in evidence
the policies mortgaged to the Bank of the Philippine Islands gives rise to
the presumption that the debt thus secured has been paid, in
accordance with article 1191 of the Civil Code.

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

 The insured may be regarded as the real party in interest, although he

has assigned as collateral security any judgment he may obtain.
7. GEAGONIA V. CA (G.R. No. 114427 – FEB. 6, 1995)

FACTS:

Armando Geagonia (Petitioner) is the owner of Norman's Mart located in the public market of
San Francisco, Agusan del Sur. He obtained from Country Bankers Insurance Corporation a fire
insurance policy No. F-14622 2 for P100,000.00. The period of the policy was for a year and
covered the "Stock-in-trade consisting principally of dry goods such as RTW's for men and
women wear and other usual to assured's business." Petitioner declared in the policy under the
subheading entitled CO-INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00 for a year. The policy contained a condition that, "the insured shall give notice to the
Company of any insurance or insurances already effected, or which may subsequently be
effected, covering any of the property or properties consisting of stocks in trade, goods in
process and/or inventories only hereby insured, and unless notice be given and the particulars
of such insurance or insurances be stated therein or endorsed in this policy pursuant to Section
50 of the Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that this
condition shall not apply when the total insurance or insurances in force at the time of the loss
or damage is not more than P200,000.00."(Condition 3

Geagonia had in his inventory stocks amounting to P392,130.50 but the stocks of Cebu Testing
tiles was on credit amounting to 250,000. Unfortunately a fire broke out at the public market of
San Francisco, Agusan del Sur. Stocks-in-trade were completely destroyed prompting him to file
a claim with Country Bankers but denied the claim because it found out that at the time of the
loss the stocks-in-trade were also covered by fire insurance policies GA-28146 and GA-28144,
for P100,000.00 each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
(PFIC) and there is a violation under condition 3 of the policy. These policies indicate that the
insured was "Messrs. Discount Mart (Mr. Armando Geagonia, Prop.)" with a mortgage clause
reading ""MORTGAGEE: Loss, if any, shall be payable to Messrs. Cebu Tesing Textiles, Cebu
City as their interest may appear subject to the terms of this policy.

Geagonia then filed a complaint against Country Bankers with the Insurance Commission for
the recovery of P100,000.00 under fire insurance policy F-14622 and attached his letter
admitting that at the time he obtained Country Bankers's fire insurance policy he knew that the
two policies issued by the PFIC were already in existence, however, he had no knowledge of
the provision in Country Bankers' policy requiring him to inform it of the prior policies because it
wasn’t mentioned by the agent. He also claimed that the total of the amount under the three
policies was below the actual value of his stocks at the time of loss, which was P1,000,000.00.

The decision of the Insurance Commission is that Petitioner did not violate Condition 3 as he
had no knowledge of the existence of the two fire insurance policies obtained from the PFIC,
that it was Cebu Tesing Textiles which procured the PFIC policies without securing his consent
and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks. So,
Insurance Commission ordered Country Bankers to pay Geagonia.
Country Bankers appealed to the Court of Appeals by way of a petition for review. The Court of
Appeals reversed the decision of the Insurance Commission because it found that Geagonia
knew of the existence of the two other policies issued by the PFIC as stated in his letter.

ISSUE:

Whether or not there is double insurance committed by Geagonia?

HELD:

NO. First, Condition 3 is allowed by Section 75 of the Insurance Code 15 which provides that
"[a] policy may declare that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a condition is a provision
which invariably appears in fire insurance policies and is intended to prevent an increase in the
moral hazard. It is commonly known as the additional or "other insurance" clause and has been
upheld as valid and as a warranty that no other insurance exists. Its violation would thus avoid
the policy. However, in order to constitute a violation, the other insurance must be upon same
subject matter, the same interest therein, and the same risk.

A double insurance exists where the same person is insured by several insurers separately in
respect of the same subject and interest. As earlier stated, the insurable interests of a
mortgagor and a mortgagee on the mortgaged property are distinct and separate. Since the two
policies of the PFIC do not cover the same interest as that covered by the policy of the private
respondent, no double insurance exists. The non-disclosure then of the former policies was not
fatal to the petitioner's right to recover on the private respondent's policy. The prohibition applies
only to double insurance, and the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent
insurable interest therein and both interests may be one policy, or each may take out a separate
policy covering his interest, either at the same or at separate times. The mortgagor's insurable
interest covers the full value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. The mortgagee's insurable interest is to the extent of
the debt, since the property is relied upon as security thereof, and in insuring he is not insuring
the property but his interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the value of the
mortgaged property. Thus, separate insurances covering different insurable interests may be
obtained by the mortgagor and the mortgagee.

8. Saura Import and Export v Philippine International Surety Co

(G.R. No. L-15184 – May 31, 1963)

FACTS:
Saura the plaintiff in this case, mortgaged its registered parcel of land in Davao to PNB in order
to secure a payment of a promissory note amounting to Php 27,000. She owns a parcel of land
and a bldg. which was covered by an insurance even before the execution of the mortgage
contract. Pursuant to the mortgage agreement, plaintiff was required to insure the building and
its contents a fire insurance for Php 29,000 from Philippine International Surety Co. for a period
of 1 year starting October 1954-1955 and to endorse the insurance policy to PNB with a memo
that, “Loss if any, payable to PNB as their interest may appear, subject to the terms, conditions
and warranties of this policy”. So, policy was delivered to PNB by Saura, however on Oct. 15,
1954, 13 days after the issuance of the fire insurance, PISC cancelled the said policy. The
Notice of the cancellation sent to PNB not to the plaintiff and was received by the bank on Nov.
8, 1954.Unfortunately after several months the bldg. and its contents was burned.

The plaintiff filed a claim with PISC and to PNB but PISC refuse to pay the plaintiff and upon the
presentation of the loss, they were informed for the first time that the policy had been previously
cancelled by PISC. So, Saura’s folder in the bank’s file was opened and the notice of the
cancellation by PISC was found. Case was filed with the Manila CFI against the Insurer, and the
PNB, according to the Court neither the Insurer nor the mortgagee Bank informed the plaintiff
Saura of the cancellation of the policy but was dismissed. The case was appealed and was
ordered to pay Saura.

ISSUE:

Whether or not the cancellation of the Insurance Company PISC is valid?

HELD:

No. Supreme Court ordered PISC to pay Saura in the amount of Php 29,000 which is the
coverage of the insurance policy.

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
through unauthorized person by the policy. Both the PSIC and the PNB failed to notify Saura of
the cancellation made. Th contention 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 not effective notice because it was the bank (mortgagee) not the insured itself.

If a mortgage or lien exists against the property insured, and the policy contains a clause stating
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 ineffective as a
cancellation of the policy as to the owner of the property.

Parties to Insurance Contract

3. Mortagor/Mortgagee
9. Philippine National Bank vs Court of Appeals

GR No. L- 57757 August 31, 1987

FACTS: Donata Montemayor is the administrator of 30 parcels of land of her late husband
Clodualdo vitug who dies intestate. Several portions of such land were mortgaged to PNB as security for
certain loans availed by Salvador Vitug, Salvador Jaramilla and Pedro Bacadi. Due to nonpayment of
debt, the bank exercised its right to foreclose all the mortgaged properties. PNB, being the highest
bidder, purchased the lots and subsequently sold the same to the Vitugs and the Fajardos.

Subsequently, Donata executed a contract of lease for a lot covered by TCT – 2887 – R
to her sons Pragmacio and Maximo Vitug. After a few years, the same brothers filed an action for
partition and reconveyance with damages in the CFI Pampanga against the PNB, the Vitugs, the fajardos,
and Marcelo Mendiola, the special administrator of Donata’s intestate estate. They claimed that the 30
parcels of land form part of the conjugal property of the spouses Donata and Clodualdo and they claim a
share interst of 2/11 of ½ thereof. They assailed the mortgage of said properties to the PNB and the
subsequent public auction. they invoked the vitug vs Montemayor case where the Supreme Court ruled
on the conjugal nature of the 30 parcels of land.

ISSUE: Whether the PNB could rely merely on the Torrens Certificate of Title covering Donata’s
properties for the processing of the respective mortgage loan applications.

RULING: Yes. The PNB had sufficient reason to rely on the Torrens Certificate of Title of the
mortgaged properties. The SC ruled that in processing the loan applications, the PNB had the right to
rely upon the face of the certificate of title. Clearly, it appears that donate owns the properties and the
PNB had no reason to doubt her status and ownership. The PNB also found no liens or encumbrances
covering the properties. The clean facts reasonably cancel the need to make further inquiry.

The court applied the well – known rule in jurisdiction that a person has a right to rely
upon the face of the Torrens Certificate of tile when dealing with a registered land. It is not necessary to
inquire beyond its face, except when such person has an actual knowledge of facts and circumstances
that would prompt him to inquire further. The court ruled that a Torrens title “concludes all controversy
over ownership of the land covered by a final degree of registration” and upon such registration, the
person is assured of ownership without going to court or sitting “at the veranda of his house” to avoid
the fear of losing his land.
Insurable Interest in life insurance

10. Lalican vs Insular Life

GR no. 183526 August 25, 2009

FACTS:  Violeta is the widow of the deceased Eulogio C. Lalican (Eulogio). During his lifetime,
Eulogio applied for an insurance policy with Insular Life. On 24 April 1997, Insular Life, through Josephine
Malaluan (Malaluan), its agent in Gapan City, issued in favor of Eulogio Policy No. 9011992, which
contained a 20-Year Endowment Variable Income Package Flexi Plan worth P500,000.00, with two riders
valued at P 500,000.00 each. Thus, the value of the policy amounted to P1,500,000.00. Violeta was
named as the primary beneficiary.

Under the terms of Policy No. 9011992, Eulogio was to pay the premiums on a quarterly basis in
the amount of 8,062.00, payable every 24 April, 24 July, 24 October and 24 January of each year, until
the end of the 20-year period of the policy. According to the Policy Contract, there was a grace period of
31 days for the payment of each premium subsequent to the first. If any premium was not paid on or
before the due date, the policy would be in default, and if the premium remained unpaid until the end
of the grace period, the policy would automatically lapse and become void.

Eulogio paid the premiums due on 24 July 1997 and 24 October 1997. However, he failed to pay
the premium due on 24 January 1998, even after the lapse of the grace period of 31 days. Policy No.
9011992, therefore, lapsed and became void. Eulogio submitted to the Cabanatuan District Office of
Insular Life, through Malaluan, on 26 May 1998, an Application for Reinstatement of Policy No. 9011992,
together with the amount of P 8,062.00 to pay for the premium due on 24 January 1998. In a letter
dated 17 July 1998, Insular Life notified Eulogio that his Application for Reinstatement could not be fully
processed because, although he already deposited P8,062.00 as payment for the 24 January 1998
premium, he left unpaid the overdue interest thereon amounting to P322.48. Thus, Insular Life
instructed Eulogio to pay the amount of interest and to file another application for reinstatement.
 Eulogio was likewise advised by Malaluan to pay the premiums that subsequently became due
on 24 April 1998 and 24 July 1998, plus interest. On 17 September 1998, Eulogio went to Malaluan’s
house and submitted a second Application for Reinstatement of Policy No. 9011992, including the
amount of P17,500.00, representing payments for the overdue interest on the premium for 24 January
1998, and the premiums which became due on 24 April 1998 and 24 July 1998. As Malaluan was away
on a business errand, her husband received Eulogios second Application for Reinstatement and issued a
receipt for the amount Eulogio deposited.  subsequently,on the same day, Eulogio died of cardio-
respiratory arrest secondary to electrocution.

ISSUE: Whether or not Eulogio had an existing insurable interest in his own life until the day of
his death in order to have the insurance policy validly reinstated.

RULING: No. An insurable interest is one of the most basic and essential requirements in an
insurance contract. In general, an insurable interest is that interest which a person is deemed to have in
the subject matter insured, where he has a relation or connection with or concern in it, such that the
person will derive pecuniary benefit or advantage from the preservation of the subject matter insured
and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of
the event insured against. The existence of an insurable interest gives a person the legal right to insure
the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that
every person has an insurable interest in his own life. Section 19 of the same code also states that an
interest in the life or health of a person insured must exist when the insurance takes effect, but need not
exist thereafter or when the loss occurs.

In the instant case, Eulogios death rendered impossible full compliance with the conditions for
reinstatement of Policy No. 9011992. True, Eulogio, before his death, managed to file his Application for
Reinstatement and deposit the amount for payment of his overdue premiums and interests thereon
with Malaluan; but Policy No. 9011992 could only be considered reinstated after the Application for
Reinstatement had been processed and approved by Insular Life during Eulogio’s lifetime and good
health.

The stipulation in a life insurance policy giving the insured the privilege to reinstate it upon
written application does not give the insured absolute right to such reinstatement by the mere filing of
an application. The insurer has the right to deny the reinstatement if it is not satisfied as to the
insurability of the insured and if the latter does not pay all overdue premium and all other indebtedness
to the insurer. After the death of the insured the insurance Company cannot be compelled to entertain
an application for reinstatement of the policy because the conditions precedent to reinstatement can no
longer be determined and satisfied. Malaluan did not have the authority to approve Eulogios Application
for Reinstatement. Malaluan still had to turn over to Insular Life Eulogios Application for Reinstatement
and accompanying deposits, for processing and approval by the latter.

Violeta did not adduce any evidence that Eulogio might have failed to fully understand the
import and meaning of the provisions of his Policy Contract and/or Application for Reinstatement, both
of which he voluntarily signed. While it is a cardinal principle of insurance law that a policy or contract of
insurance is to be construed liberally in favor of the insured and strictly as against the insurer company,
yet, contracts of insurance, like other contracts, are to be construed according to the sense and meaning
of the terms, which the parties themselves have used. If such terms are clear and unambiguous, they
must be taken and understood in their plain, ordinary and popular sense.

11. EL ORIENTE FABRICA DE TABACOS v POSADAS (1931 case)

FACTS:

The plaintiff is a domestic corporation situated in No. 732 Calle Evangelista, Manila. The defendant is a
duly appointed and acting Collector of Internal Revenue. In order to protect itself against the loss it
may suffer by reason of the death of its manager (A. Velhagen) who had more than 35 years of
experience in the industry of cigarette manufacturing, procured an insurance policy for the said
manager for the sum of P50,000 from Manufacturers Life Insurance Co. of Canada. The plaintiff set itself
as sole beneficiary and paid for the premiums using company funds, charged as business expenses.
Velhagen had no interest or participation in the proceeds of the life insurance. Velhagen died, and the
plaintiff received the proceeds with interests and dividends accrued in the total of P104,957.88. The
defendant collector assessed the proceeds as income tax valued at P3,148.74, but the plaintiff claimed
exemption under Sec. 4 of the Income Tax Law. Ultimately the plaintiff paid under protest.

The parties submitted the case to the CFI of Manila, and the court rendered a decision to absolve the
defendant collector from the complaint. Plaintiff appealed to the SC claiming that Section 4 of the
Income Tax Law must apply, that the proceeds of the insurance policy is not taxable income (it was not
net profit but an indemnity for loss).

ISSUE:

WON the proceeds of insurance taken by a corporation on the life of an important official to indemnify it
against loss in case of his death, are taxable as income under the Philippine Income Tax Law.
HELD:

NO.

Section 4 (a) of the Income Tax Law provides that the proceeds of life insurance policies paid to
beneficiaries upon the death of the insured are exempt from taxation. Section 10, as amended, in
Chapter II On Corporations, provides that, There shall be levied, assessed, collected, and paid annually
upon the total net income received in the preceding calendar year from all sources by every
corporation ... a tax of three per centum upon such income ... ." Section 11 in the same chapter,
provides the exemptions under the law, but neither here nor in any other section is reference made to
the provisions of section 4 in Chapter I.

It will be recalled that El Oriente, Fabrica de Tabacos, Inc., took out the insurance on the life of its
manager, who had had more than thirty-five years' experience in the manufacture of cigars in the
Philippines, to protect itself against the loss it might suffer by reason of the death of its manager. The
Court does not believe that this fact signifies that when the plaintiff 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.

To quote the exact words in the cited case of Chief Justice Taft delivering the opinion of the court:

It is earnestly pressed upon us that proceeds of life insurance paid on the death of the insured
are in fact capital, and cannot be taxed as income under the Sixteenth Amendment. Eisner vs.
Macomber, 252 U.S., 189, 207; Merchants' Loan & Trust Co. vs. Smietanka, 255 U.S., 509, 518.
We are not required to meet this question. It 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.

. . . Life insurance in such a case is like that of fire and marine insurance, — a contract of
indemnity. Central Nat. Bank vs. Hume, 128 U.S., 195. The benefit to be gained by death has no
periodicity. It is a substitution of money value for something permanently lost, either in a house,
a ship, or a life. Assuming, without deciding, that Congress could call the proceeds of such
 indemnity income, and validly tax it as such, we think that, in view of the popular conception of
the life insurance as resulting in a single addition of a total sum to the resources of the
beneficiary, and not in a periodical return, such a purpose on its part should be express, as it
certainly is not here.

12. THE INSULAR LIFE ASSURANCE COMPANY v EBRADO (wife) (1977)

FACTS:

Buenaventura Cristor Ebrado was issued a whole life policy for P5,882 with a rider for Accidental Death
for the same amount, by The Life Assurance Co., Ltd. He designated his wife Carpiona T. Ebrado
(common-law wife) as the revocable beneficiary. He died from a tree branch falling on his head. The
policy was in force and the insurer was liable to pay the total of P11,745.73 as face value of the policy.
Carpiona T. Ebrado filed a claim for the proceeds from the insurer as the designated beneficiary,
although she admits they were merely living together in common-law marriage without the benefit of
marriage. The widow/legal wife of Buenaventura also filed a claim, stating that they have not been
legally separated, and that he had been living-in with his common law wife. The trial court rendered a
decision disqualifying Carpiona T. Ebrado from being the beneficiary of the insured. The trial court
explained that the Civil Code (Art, 739) provides that a criminal conviction for adultery or concubinage is
not essential for the disqualification. The guilt may be proven by preponderance of evidence alone. The
case was elevated to the CA, which certified the case to the SC as involving only questions of law.

ISSUE:

WON a common-law wife named as beneficiary in the life insurance policy of a legally married man
claim the proceeds thereof in case of death of the latter

HELD:

NO.
The SC affirms the trial court’s ruling. Section 50 of the Insurance Act which provides that "(t)he
insurance shall be applied exclusively to the proper interest of the person in whose name it is made"
cannot be validly seized upon to hold that the same includes the... beneficiary.

The word "interest" highly suggests that the provision refers only to the "insured" and not to the
beneficiary, since a contract of insurance is personal in character.

Under Article 2012 of the same Code, "any person who is forbidden from receiving any donation under
Article 739 cannot be named beneficiary of a fife insurance policy by the person who cannot make a
donation to him. Common-law spouses are, definitely, barred from receiving donations from each
other. Article 739 of the new Civil Code provides:

The following donations shall be void:

1. Those made between persons who were guilty of adultery or concubinage at the time of donation;

Those made between persons found guilty of the same criminal offense, in consideration thereof;

3. Those made to a public officer or his wife, descendants or ascendants by reason of his office.

In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donee may be proved by preponderance of evidence in the same
action.

In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee,
because from the premiums of the policy which the insured pays out of liberality, the beneficiary will
receive the proceeds or profits of said insurance. As a consequence, the proscription in Article 739 of
the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012
cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the
life insurance policy of the person who cannot make the donation.
The law plainly states that the guilt of the party may be proved "in the same acting for declaration of
nullity of donation. And, it would be sufficient if evidence preponderates upon the guilt of the consort
for the offense indicated. The quantum of proof in criminal cases is not demanded. (PREPONDERANCE
OF EVIDENCE LANG SINCE CIVIL CASE FOR CLAIM OF MONEY)

G.R. No. L-28093 January 30, 1971

13. BASILIA BERDIN VDA. DE CONSUEGRA; JULIANA, PACITA, MARIA LOURDES, JOSE, JR., RODRIGO, LINEDA and LUIS, all
surnamed CONSUEGRA, petitioners-appellants,
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, COMMISSIONER OF PUBLIC HIGHWAYS, HIGHWAY DISTRICT ENGINEER OF
SURIGAO DEL NORTE, COMMISSIONER OF CIVIL SERVICE, and ROSARIO DIAZ, respondents-appellees.

 Jose Consuegra was a government worker. In his lifetime, Consuegra contracted 2 marriages
1. first with herein respondent Rosario Diaz out of which marriage were born two children but both predeceased their
father; and
2. the second, which was contracted in good faith while the first marriage was subsisting, with herein petitioner Basilia
Berdin, , out of which marriage were born seven children,
 Consuegra died. Under Commonwealth Act 186 as amended by RA 660 he was entitled to a life insurance and a retirement
insurance under the GSIS.
 The proceeds of his life insurance went to petitioner Basilia Berdin and her children who were the beneficiaries named in the
policy
.

However for the retirement insurance benefits Consuegra did not designate any beneficiary
 Respondent Rosario Diaz, the 1st widow filed a claim with the GSIS asking benefits be paid to her as the only legal heir of
Consuegra,
.On the other hand petitioner Basilia Berdin and her children, likewise, filed a similar claim with the GSIS ,

GSIS RULING
1. The GSIS ruled that the both petitioners and respondents were legal heirs were Rosario Diaz, entitled to one-half, of, of
the retirement insurance benefits, each
 Dissatisfied, Petitioner Basilia Berdin and her children1 filed petition for mandamus with CFI
The court below rendered judgment,
CFI RULING
1. CFI Affirmed the GSIS decision.
2. "When two women innocently and in good faith are legally united in holy matrimony to the same man, they and their
children, born of said wedlock, will be regarded as legitimate children and each family be entitled to one half of the estate .
 Still dissatisfied, petitioners filed the present appeal

ISSUE

 Is appeallant correct in saying that Private Respondent Rosario and her children are not entitled to the Retirement insurance
benefits despite being designated as beneficiaries on account of Rosario being the 2 nd widow?

COURT’s RULING

 No. The contention of appellants is untenable.

Retirement insurance is primarily intended for the benefit of the employee — to provide for his old age, or incapacity, after
rendering service in the government for a required number of years. If the employee failed or overlooked to state the
beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in
accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy

In the recent case of Gomez vs. Lipana, L-23214, June 30, 1970,6 this Court, in construing the rights of two women who were
married to the same man — a situation more or less similar to the case of appellant Basilia Berdin and appellee Rosario Diaz
— held "that since the defendant's first marriage has not been dissolved or declared void the conjugal partnership established
by that marriage has not ceased. Nor has the first wife lost or relinquished her status as putative heir of her husband under the
 new Civil Code, entitled to share in his estate upon his death should she survive him.Consequently, whether as conjugal
partner in a still subsisting marriage or as such putative heir she has an interest in the husband's share in the property here in
dispute.... " And with respect to the right of the second wife, this Court observed that although the second marriage can be
presumed to be void ab initio as it was celebrated while the first marriage was still subsisting, still there is need for judicial
declaration of such nullity. And inasmuch as the conjugal partnership formed by the second marriage was dissolved before
judicial declaration of its nullity, "[t]he only lust and equitable solution in this case would be to recognize the right of the
second wife to her share of one-half in the property acquired by her and her husband and consider the other half as pertaining
to the conjugal partnership of the first marriage."

It is Our view, therefore, that the respondent GSIS had correctly acted when it ruled that the proceeds of the retirement
insurance of the late Jose Consuegra should be divided equally between his first living wife Rosario Diaz, on the one hand, and
his second wife Basilia Berdin and his children by her

G.R. No. L-6114      October 30, 1954

14. SOUTHERN LUZON EMPLOYEES' ASSOCIATION, plaintiff,

vs.
JUANITA GOLPEO, ET AL., defendants-appellants;
AQUILINO MALOLES , ET AL., defendants-appellees;
ELSIE HICBAN, ET AL., defendants;
MARCELINO CONCEPCION, ET AL., intervenors-appellants.

 Roman A. Concepcion was a member of the Southern Luzon Employees' Association(Plaintiff)

One of purposes of this association is the mutual aid of its members and their defendants in case of death .

In a resolution dtd Sep 17, 1949 The association adopted the following

1. a member may, if he chooses, put down his common-law wife as his beneficiary and/or children had with her as the
case may be; that in case of a widower, he may put down his legitimate children with the first marriage who are
below 21 years of age, single, and may at the same time, also name his common-law wife, if he has any, as
dependents and/or beneficiaries; and

2. Such person so named by the member will be sole persons to be recognized by the Association regarding claims for
condolence contributions.

 Roman A. Concepcion listed as his beneficiaries Aquilina Maloles,(mistress) and her Children. Their relationship was ignored
by Juanita Golpeo, the legal wife.

 Roman died in 1951. After his death the association was able to collect voluntary contributions from its members amounting
to P2,505.00.

 Thereafter 2 sets of claimants presented themselves to petitioner association, claiming the benefits, namely:

1. Juanita Golpeo, legal wife of Roman A. Concepcion, and her children,

2. The named beneficiaries by the deceased; and

3. Elsie Hicban, another common law wife of Roman A. Concepcion, and her child.

 As a result the plaintiff association was accordingly constrained to file with the CFI a case for interpleading against the three
conflicting claimants

After hearing, the court rendered a decision, declaring the defendants Aquilina Maloles and her children the sole
beneficiaries

 From this decision defendants Juanita Golpeo and her minor appealed to this court.

Issues
  Appellant contends that under Art 2012 of the new civil code, the stipulation regarding the specification of the beneficiaries,
and the Petitioner’s resolution dtd Sep 17, 1949, are void. They are contrary to law, moral or public policy

RULING

 We cannot agree with these contention.

Under Art 2012 of the new Civil Code it provides:

"Any person who is forbidden from receiving any donation under article 739 cannot be named beneficiary of a life insurance
policy and by the person who cannot make any donation to him, according to said article."

Under Art 287 of the new Civil Code certain successional rights of illegitimate children were recognized.

In this case, appellant Juanita Golpeo was not the only beneficiary named but also her children or the illegitimate child of
Roman. Appellant’s argument would not apply to the children. As regards Juanita Golpe, by appellant’s silence and actions,
she had acquiesced in the illicit relations between her husband and appellee Aquilina Maloles.

15.) Heirs of Maramag vs. Maramag (GR 181132, June 5, 2009)

Facts:
• Loreto Maramag designated as beneficiary his concubine Eva de Guzman Maramag and his
illegitimate children as beneficiaries in his life insurance policies.
• Loreto was killed and Eva was the prime suspect of his death.
• The legitimate wife and children of Loreto asked for the insurance proceeds contending that
illegitimate family is disqualified from being beneficiaries and that the insurance benefits must
redound to the benefit of the estate of Loreto.

Issue: Whether the claim of the legitimate family will prosper?

Ruling:
• No. The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy.
• While the share of Eva must be forfeited, the designation of the illegitimate children as
beneficiaries remains valid.
• SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.
• GR: only persons entitled to claim the insurance proceeds are either the insured, if still alive; or the
beneficiary, if the insured is already deceased, upon the maturation of the policy.
• EX: situation where the insurance contract was intended to benefit third persons who are not parties
to the same in the form of favorable stipulations or indemnity. In such a case, third parties may
directly sue and claim from the insurer.
• It is only in cases where the insured has not designated any beneficiary, or when the designated
beneficiary is disqualified by law to receive the proceeds, that the insurance policy proceeds shall
redound to the benefit of the estate of the insured.
16.) Philamcare vs. Court of Appeals (GR 125678, March 18, 2002)
Facts:
• Respondent Julita Trinos’ deceased husband, Ernani 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? The application was approved and extended for 13
months, until June 1, 1990.
• During the period of the coverage, Ernani suffered a heart attack resulting in confinement for a
month at the Manila Medical Center (MMC). 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 on the ground that there was a concealment regarding
Ernani’s medical history.
• After his discharge, Ernani was brought again at the Chinese General Hospital where he died. Julita
then filed an action for damages against Philamcare including its President Dr. Benito Reverente.
RTC ruled in favour of Julita, and this was affirmed by the CA except that it deleted awards for
damages and absolved Dr. Reverente.

Issue: Whether Julita being "not" legal wife can be reimbursed?

Ruling:
• Yes. 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.
• The insurable interest of respondent’s husband in obtaining the health care agreement was his own
health. The health care agreement was in the nature of non-life insurance, which is primarily a
contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.

17.) Delfin Nario and Alejandra Santos-Nario

vs
The Philippine American Life Insurance Company (Beneficiary)

Facts:

• Mrs. Alejandra Santos-Nario upon application, was issued, a life insurance by the Philippine
American Life Insurance Co., a life insurance policy under a 20-year endowment plan, with a face
value of P5,000.00. She designated thereon her husband, Delfin Nario, and their unemancipated
minor son, Ernesto Nario, as her irrevocable beneficiaries.
• Mrs. Nario applied for a loan on the above stated policy with the Insurance Company, which as
policy-holder, she has been entitled to, for the purpose of using the proceeds thereof for the school
expenses of her minor son, Ernesto Nario. 
• Said application bore the written signature and consent of Delfin Nario in two capacities: first, as one
of the irrevocable beneficiaries of the policy; and the other, as the father-guardian of said minor son
and irrevocable beneficiary, Ernesto Nario, and as the legal administrator of the minor's properties,
pursuant to Article 320 of the Civil Code of the Philippines.
• Philam Life denied the application, because the written consent for the minor son must not only be
given by his father as legal guardian but it must also be authorized by the court in a competent
guardianship proceeding.
• After the denial of said policy loan application, Mrs. Nario signified her decision to surrender her
policy to the Insurance Company and demanded its cash value which then amounted to P520.00.
• Philam life also denied the surrender of the policy, on the same ground as that given in disapproving
the policy loan application
• Hence Mrs. and Mr. Nario brought suit against Philam Life seeking to compel the latter
(defendant) to grant their policy loan application and/or to accept the surrender of said policy in
exchange for its cash value.
• Defendant Insurance Company answered the complaint, and set up the defense that inasmuch as
the policy loan application and the surrender of the policy involved acts of disposition and alienation
of the property rights of the minor, said acts are not within the powers of the legal administrator,
under article 320 in relation to article 326 of the Civil Code; hence, mere written consent given by the
father-guardian, for and in behalf of the minor son, without any court authority therefor, was not
sufficient.

• Lower Court ruled in favor of Philam Life

• Unable to secure reconsideration of the trial Court's ruling, petitioner appealed directly to this Court

Issue:

1.) Whether or not a father-guardian can dispose or alienate property rights of a minor
beneficiary

2.) Wether or not policy should be measured on its full face value and not on its cash surrender value

Ruling:

1.) No. Civil Code proves there is absence of authority in the parents to carry out acts of disposition
or alienation of the child's goods without court approval.

Article 320 of the Civil Code of the Philippines provides —

The father, or in his absence the mother, is the legal administrator of the property pertaining to the child
under parental authority. If the property is worth more than two thousand pesos, the father or mother
shall give a bond subject to the approval of the Court of First Instance.

and article 326 of the same Code reads —

When the property of the child is worth more than two thousand pesos, the father or mother shall be
considered a guardian of the child's property, subject to the duties and obligations of guardians under
the Rules of Court.

SEC. 7. Parents as guardians. — When the property of the child under parental authority is worth two
thousand pesos or less, the father or the mother, without the necessity of court appointment, shall be his
legal guardian. When the property of the child is worth more than two thousand pesos, the father or the
mother shall be considered guardian of the child's property, with the duties and obligations of guardians
under these rules, and shall file the petition required by Section 2 hereof. For good reasons the court
may, however, appoint another suitable person. 

It appearing that the minor beneficiary's vested interest or right on the policy exceeds two thousand
pesos (P2,000.00); that plaintiffs did not file any guardianship bond to be approved by the courtand
as later implemented in the abovequoted Section 7, Rule 93 of the Revised Rules of Court, plaintiffs
should have, but, had not, filed a formal application or petition for guardianship, plaintiffs-parents cannot
possibly exercise the powers vested on them, as legal administrators of their child's property, under
articles 320 and 326 of the Civil Code. As there was no such petition and bond, the consent given by
the father-guardian, for and in behalf of the minor son, without prior court authorization, to the
policy loan application and the surrender of said policy, was insufficient and ineffective, and
defendant-appellee was justified in disapproving the proposed transactions in question.

2.) SC ruled that with the lower court that the vested interest or right of the beneficiaries in the policy
should be measured on its full face value and not on its cash surrender value, for in case of death of the
insured, said beneficiaries are paid on the basis of its face value and in case the insured should
discontinue paying premiums, the beneficiaries may continue paying it and are entitled to automatic
extended term or paid-up insurance options, etc. and that said vested right under the policy cannot be
divisible at any given time.

18.) THE PHILIPPINE AMERICAN INSURANCE COMPANY

vs.
HONORABLE GREGORIO G. PINEDA in his capacity as Judge of the CFI of Rizal and
RODOLFO C. DIMAYUGA (Beneficiary)

Facts:

• Dimayuga procured an ordinary life insurance policy from the petitioner company (Philam Life)
and designated his wife and children as irrevocable beneficiaries of said policy.
• Dimayuga filed a petition to amend the designation of the beneficiaries in his life policy from
irrevocable to revocable.
• When the petition was called for hearing respondent Judge Pineda, denied petitioner's Urgent Motion,
thus allowing the private respondent to adduce evidence, the consequence of which was the issuance of
the questioned Order granting the petition.

• Petitioner promptly filed a Motion for Reconsideration but the same was denied

Issue:

1.) Whether or not the designation of the irrevocable beneficiaries could be changed or amended
without the consent of all the irrevocable beneficiaries

2.) Whether or not the irrevocable beneficiaries herein, one of whom is already deceased while the
others are all minors, could validly give consent to the change or amendment in the designation of
the irrevocable beneficiaries.
Ruling:

The lower court acted in excess of its authority when it issued the order amending the designation of the
beneficiaries from "irrevocable" to "revocable" over the disapprobation of the petitioner insurance
company.

1.) No. The applicable law in the instant case is the Insurance Act, otherwise known as Act No. 2427
as amended. Under the said law, the beneficiary designated in a life insurance contract cannot be
changed without the consent of the beneficiary because he has a vested interest in the policy. It is
only with the consent of all the beneficiaries that any change or amendment in the policy
concerning the irrevocable beneficiaries may be legally and validly effected. Both the law and the
policy do not provide for any other exception, thus, abrogating the contention of the private respondent
that said designation can be amended if the Court finds a just, reasonable ground to do so.

2.) No. The alleged acquiescence of the six (6) children beneficiaries of the policy (the beneficiary-wife
predeceased the insured) cannot be considered an effective ratification to the change of the beneficiaries
from irrevocable to revocable. Indubitable is the fact that all the six (6) children named as beneficiaries
were minors at the time, for which reason, they could not validly give their consent. Neither could they
act through their father insured since their interests are quite divergent from one another.

19. Villanueva v. Oro, 81 PHIL 464

Facts:

 West Coast Life Insurance Company issued two policies of insurance on the life
of Esperanza Villanueva, one for P2,000, maturing April 1, 1943; and other for
P3,000 maturing March 31, 1943.
 In both policies, West agreed to pay 2T either to Esperanza if still living on Apr 1,
1943; or to beneficiary Bartolome Villanueva, or the father of the insured
immediately upon receipt of the proof of death of Esperanza.The policy also gave
her the right to change the beneficiary.
 In 1940, Bartolome died, and he was substituted as beneficiary under the policies
by Mariano, Esparanza’s brother.
 Esperanza died in 1944 without having collected the insurance proceeds. 
Adverse claims for the proceeds were presented by the estate of Esperanza on
one hand and by Mariano on the other.
  CFI held that the estate of Esperanza was entitled to the proceeds to the
exclusion of the beneficiary.

Issue: 

 Whether or not the beneficiary is entitled to the proceeds.

Held: 

 NO. Under the policies, the insurer obligated itself to pay the insurance proceeds
to: (1) the insured if the latter lived on the dates of maturity; or (2) the beneficiary
if the insured died during the continuance of the policies.  The first contingency
excludes the second, and vice versa.  In other words, as the insured Esperanza
was living on April 1 and March 31, 1943, the proceeds are payable exclusively
to her or to her estate unless she had before her death otherwise assigned the
matured policies. The beneficiary could be entitled to said proceeds only in
default of the first contingency.  To sustain the beneficiary’s claim would be to
altogether eliminate from the policies the condition that the insurer “agrees to pay
to the insured if living.”

20. Harvardian Colleges v. Country Bankers ,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 its continued 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.

Insurance Case Digest: 21. Gaisano Cagayan, Inc. V. Insurance Company of North America (2006)

G.R. No. 147839             June 8, 2006

Lessons Applicable: Existing Interest (Insurance)

Laws Applicable: Article 1504,Article 1263, Article 2207 of the Civil Code, Section 13 of Insurance Code
 
FACTS:

 Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. while Levi Strauss
(Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co
 IMC and LSPI separately obtained from Insurance Company of North America fire insurance
policies for their book debt endorsements related to their ready-made clothing materials which
have been sold or delivered to various customers and dealers of the Insured anywhere in the
Philippines which are unpaid 45 days after the time of the loss
 February 25, 1991: Gaisano Superstore Complex in Cagayan de Oro City, owned by Gaisano
Cagayan, Inc., containing the ready-made clothing materials sold and delivered by IMC and LSPI was
consumed by fire. 
 February 4, 1992: Insurance Company of North America filed a complaint for damages
against Gaisano Cagayan, Inc. alleges that IMC and LSPI filed their claims under their respective fire
insurance policies which it paid thus it was subrogated to their rights
 Gaisano Cagayan, Inc: not be held liable because it was destroyed due to fortuities event
or force majeure
 RTC: IMC and LSPI retained ownership of the delivered goods until fully paid, it must bear the
loss (res perit domino)
 CA: Reversed - sales invoices is an exception under Article 1504 (1) of the Civil Code to res perit
domino

ISSUE: W/N Insurance Company of North America can claim against Gaisano Cagayan for the debt that
was insured

HELD: YES. petition is partly GRANTED. order to pay P535,613 is DELETED

 insurance policy is clear that the subject of the insurance is the book debts and NOT goods sold
and delivered to the customers and dealers of the insured
 ART. 1504. 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;
 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 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. 
 Anyone has an insurable interest in property who derives a benefit from its existence or would
suffer loss from its destruction. 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
 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
 insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and
LSPI that remained unpaid 45 days after the fire - obligation is pecuniary in nature
 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
 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 (Genus nunquan perit)
 The subrogation receipt, 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
 Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. 
 As to LSPI, no subrogation receipt was offered in evidence. 
 Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery
of the amount of P535,613

 
22. COMMERCIAL UNION ASSURANCE COMPANY LIMITED and NORTH BRITISH &MERCANTILE
INSURANCE CO., vs. LEPANTO CONSOLIDATED MININGCOMPANY

DOCTRINE:

An all risks marine insurance policy insures against all causes of conceivable loss or damage, except as
otherwise excluded in the policy or due to fraud or intentional misconduct on the part of the insured.

This provision of a marine policy creates a special type of insurance which extends coverage to risk not
usually contemplated and avoids putting upon the insured the burden of stablishing that the loss was
due to peril falling within the policy’s coverage. The insurer can avoid coverage upon demonstrating that
a specific provision expressly excludes the loss from the coverage

FACTS:

This is a marine insurance case. Lepanto Consolidated Mining Company alleged in its complaint that in
1971 it shipped (for smelting) copper ore concentrates on board the vessels from the port of San
Fernando, La Union to Tacoma, Washington, U.S.A.

The two shipments were stored on board the carrying vessels under the supervision and approval of a
marine surveying firm designated by the insurer and these shipments were covered by two "all risks"
marine insurance policies issued by petitioners containing express stipulations that respondent company
has an interest therein.

The shipments were undertaken in accordance with the instructions of the insurer's surveyor. Both
policies contain this stipulation: "It is hereby noted and agreed that Lepanto Consolidated Mining Co.
have(has) an interest on this Policy".

Because the two shipments were damaged in transit, Lepanto filed claims under the policies.
Commercial Union Assurance and North British denied the claims.

On February 8, 1974, Lepanto filed a complaint in the Court of First Instance against Commercial Union
Assurance and North British wherein it prayed that they be ordered to pay Lepanto the sums
representing 80% of the damages suffered by Lepanto.

On motion to dismiss filed by the defendants, the lower court dismissed the complaint for lack of cause
of action. Lepanto appealed to the Court of Appeals which in its decision reversed the order of dismissal.

In its resolution, it denied the motion for reconsideration filed by Commercial Union Assurance and
North British. Twelve days later, they filed a special civil action of certiorari in this Court wherein they
alleged that the Court of Appeals acted without jurisdiction in entertaining Lepanto's appeal. The
certiorari petition was treated as an appeal
ISSUE:

Whether or not the trial court’s conclusion is correct that Lepanto has no right to sue the insurers since
it has no cause of action against or, as stated by the Appellate Court, whether Lepanto can legally sue on
the marine insurance policies.

Held:

No, the trial court erred in dismissing the complaint. There is a prima facie showing in
Lepanto’s complaint and pleadings that it is a real party in interest under the policies
and that it has a cause of action against the petitioners as insurers.

This holding is based (1) on the stipulation (already quoted) in the two policies that it
has an interest therein and (2) on the facts that it was the shipper (and presumably the
owner) of the insured cargoes, that the shipments were undertaken in accordance with
the instructions of the insurer’s marine surveyor and that it was Lepanto that filed the
corresponding claim with the adjuster when the cargoes were damaged (pp. 34-37,
Record on Appeal).

It is noteworthy that when Commercial Union Assurance Company Limited rejected

Lepanto’s claims it did not question Lepanto’s right and personality to file the claims nor
did it state that Lepanto had no interest in the marine policies and that it was not an
insured party. Commercial Union rejected the claims, not on those grounds, but
because "both cargoes were inherently vicious" (pp. 37-45, Record on Appeal).

To say that Lepanto has no interest under the policies would render meaningless the
said stipulation in its favor. To say that Lepanto as shipper of the insured property had
no proprietary interest therein before its delivery at Asarco’s wharf in Tacoma is to
imply that the insured property was res nullius. These conclusions are preposterous. chanrobles.com:cralaw:red

23.

24.

25. Vincente Ong Lim Sing, Jr. v. FEB Leasing & Finance Corp.
GR No. 168115
June 8, 2007

Facts:
• March 1995, FEB Leasing entered into a lease of equipment and motor vehicles with
JVL Food Products, which Ong Lim Sing executed an Individual Guaranty Agreement
 to guarantee the prompt and faithful performance of the terms and conditions of the
lease agreement. JVL was obliged to pay FEB an aggregate gross monthly rental of
P170,494.00.
• JVL defaulted in the payment of the monthly rentals and, by July 2000, it amounted
to P3,414,478.75. August 2000, FEB sent a letter to JVL demanding payment of the
said amount, but JVL failed to pay. December 2000, FEB filed a complaint.
• JVL and Lim admitted to existence of lease agreement, but argued that it was a sale
of equipment on installment basis with FEB as the financier.
• TC: sale on installment, and FEB elected to exact fulfillment of the obligation.
• When the alleged lessee was required to insure the thing against loss, damage or
destruction … 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 he assured as he has no
insurable interest.
• CA: transaction between the parties as a financial lease agreement under RA No.
8556

Issue: WON JVL/Lim is a lessee with insurable interest over the subject personal
properties

Held:

• YES; Lease contract with corresponding Lease Schedules with Delivery and
Acceptance Certificates is a financial lease within the purview of RA No. 8556.
• FEB leased the subject equipment and motor vehicles to JVL in consideration of a
monthly periodic payment, which is sufficient to amortize at least 70% of the
purchase price or acquisition cost of the said movables in accordance with the Lease
Schedules and Delivery and Acceptance Certificates.
• “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 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 value of the lease is a benefit allowed by law to the lessor for the use of the
property by the lessee for the duration of the lease, as it is recognized that the
value of these movables depreciates through wear and tear upon use by the lessee.

• 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.

• In this case, JVL will be directly damnified in case of loss, damage, or destruction
of any of the properties leased.

26. Traders Insurance & Surety vs. Golangco

GR No. L-6442
September 21, 1954

Facts:
• By virtue of the contract between Lianco and Archbishop, Lianco erected the building
of which the premises in question form part and became owner thereof. Lianco
transferred ownership of the premises to Law Eng Si, who transferred it to Golangco.
• Transfers were without the consent of the Archbisho, and he filed an ejectment
case against Lianco, who was still an occupant of the building was paying rent,
along with other individuals, to Golangco.
• Lianco and actual occupants of the premises acknowledged Golangco’s right to
collect rentals in a compromise agreement, which was incorporated in a judicial
judgment.
• At this time, the Archbishop did not exercise the option to question Golangco’s rights,
as the transfer did not have the Archbishop’s consent.
• On April 1949, Golangco applied for fire insurance, and the policy prepared and issued
by Traders Insurance & Surety 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.
• June 1949, fire broke out in the building, and Golangco requested Traders Insurance
to pay for the insurance amount and the rents, but Traders Insurance refused to pay,
while stating that Golangco did not have any insurable interest.
• Defendants argues that, under Section 49 of 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.

Issue: WON Golangco has insurable interest on the rent of the building premises

Held:

• Yes; At the time of the issuance of the policy on April 1949, and at the time of the fire
on June 1949, Golangco was in legal possession of the premises, collecting rentals
from its occupants of the promises No. 34 Plaza Sta. Cruz, Manila.
• 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). Further, Trader’s argument
that the 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
Traders Insurance, not Golangco, who prepared that policy, and this provision was
substantially complied when he made a full and clear statement of his interests to
Trader’s manager.

• Contract between Lianco and the Archbishop only forbade Lianco from transferring
“his rights as LESSEE,” but the contracts Lianco made in favor of Kaw Eng Si and
plaintiff Golangco did not transfer such rights … no written consent thereto was
necessary. At worst, contract would be voidable, but not a void contract, at the
option of the Archbishop. This would not deprive Golangco of his insurable interest
until such option were exercised; and it does not appear that it was ever
exercised.
• Ejectment case filed by the Archbishop against Lianco did not remove nor destroy
plaintiff’s insurable interest because: (1) Golangco was not a party thereto and
cannot be bound thereby; and, (2) the judgement of the Municipal Court, as late
as February 1950, had not been executed so far as possession of the premises
were concerned … as far as Golangco was concerned, his right to the premises
 and to the rentals thereon continued to exist on June 1949 when the fire took
place.

27.

28.

29. Sps Cha vs. CA (GR 124520, August 18, 1997)

Doctrine: 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.

Facts:
Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with
private respondent CKS Development Corporation. One of the stipulations of the one (1) year
lease contract states:

“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;”

Cha spouses insured against loss by fire the merchandise 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. 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 (without its consent), it wrote the insurer (United) a demand letter
asking that the proceeds of the insurance contract be paid directly to CKS, based on its lease
contract with the Cha spouses. United refused to pay CKS. Hence, the latter filed a complaint
against the Cha spouses and United. Regional Trial Court, Branch 6, Manila, rendered a
decision** ordering therein defendant United to pay CKS. CA affirmed.

Issue: W/NOT paragraph 18 of the lease contract is valid insofar as it provides that any
fire insurance policy obtained by the lessee

Ruling: No. 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 Cha. 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. 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 or injury thereof.” 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 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.

30. Tai Tong Chua Che vs. Insurance Com (GR L-55397, January 19, 1920)

Doctrine: Petitioner who is claiming a right over the insurance must prove its case.
Likewise. respondent insurance company to avoid liability under the policy by setting up an
affirmative defense of lack of insurable interest on the part of the petitioner must prove its own
affirmative allegations.

Facts: Complainants acquired from a certain Rolando Gonzales a parcel of land and a
building located at San Rafael Village, Davao City. Complainants assumed the mortgage of the
building in favor of S.S.S., which building was insured with respondent S.S.S. Accredited Group
of Insurers. Azucena Palomo obtained a loan from Tai Tong Chuache, Inc. in the amount
of P100,000.00. To secure the payment of the loan, a mortgage was executed over the
land and the building in favor of Tai Tong Chuache & Co. Thai Tong Chuache & Co.
insured the latter's interest with Travellers Multi-Indemnity Corporation. Palomo secured
a Fire Insurance Policy covering the building with respondent Zenith Insurance
Corporation.

The building and the contents were totally razed by fire. Demand was made from
respondent Travellers Multi-Indemnity for its share in the loss but the same was
refused. Hence, complainants demanded from, the other three, Zenith, Phil British, and
SSS Accredited Grp, the balance of each share in the loss.

Travellers Insurance alleged that Fire Policy was secured by a certain Arsenio Chua,
mortgage creditor, for the purpose of protecting his mortgage credit against the
complainants; that the said policy was issued in the name of Azucena Palomo, only to
indicate that she owns the insured premises; that the policy contains an endorsement in
favor of Arsenio Chua as his mortgage interest may appear to indicate that insured was
Arsenio Chua and the complainants; that the premiums due on said fire policy was paid
by Arsenio Chua; that respondent Travellers is not liable to pay complainants.
Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of the
fire Insurance Policy No. F559 DV, issued by respondent Travellers Multi-Indemnity.
Travellers Insurance, in answer to the complaint in intervention, alleged that the
Intervenor is not entitled to indemnity under its Fire Insurance Policy for lack of
insurable interest before the loss of the insured premises and that the complainants,
spouses Pedro and Azucena Palomo, had already paid in full their mortgage indebtedness
to the intervenor,”
I
nsurance Commission dismissed spouses Palomos' complaint on the ground that the
insurance policy subject of the complaint was taken out by Tai Tong Chuache for its
own interest only as mortgagee of the insured property and thus complainant as
mortgagors of the insured property have no right of action against herein respondent.

Issue: W/Not respondent insurance company is liable to petitioner

Ruling: Yes. The respondent insurance company having issued a policy in favor of herein
petitioner which policy was of legal force and effect at the time of the fire. it is bound by its
terms and conditions. Upon its failure to prove the allegation of lack of insurable interest on the
part of the petitioner, respondent insurance company is and must be held liable.

Respondent having admitted the material allegations in the complaint, has the burden of
proof to show that petitioner has no insurable interest over the insured property at the time the
contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted,
exerted no effort to present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the decision must be adverse to it. The record of the
case shows that the petitioner to support its claim for the insurance proceeds offered as evidence
the contract of mortgage which has not been cancelled nor released. 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
nonpayment for it is presumed.
The validity of the insurance policy taken by petitioner was not assailed by private respondent.

It is a well-known postulate that the case of a party is constituted by his own affirmative
allegations. Under Section 1, Rule 131 each party must prove his own affirmative
allegations by the amount of evidence required by law which in civil cases as in the
present case is preponderance of evidence. The party, whether plaintiff or defendant,
who asserts the affirmative of the issue has the burden of presenting at the trial such
amount of evidence as required by law to obtain a favorable judgment. Thus, petitioner
who is claiming a right over the insurance must prove its case. Likewise. respondent
insurance company to avoid liability under the policy by setting up an affirmative
defense of lack of insurable interest on the part of the petitioner must prove its own
affirmative allegations.