San Miguel Brewery v.

Law Union and Rock Insurance (1920)

Topic: Reformation of Instruments – Basis

PARTIES:
 Petitioners: San Miguel Brewery, etc.
 Respondents: Law Union and Rock Insurance, Henry Harding

FACTS:
 Jan. 12, 1916 – D.P. Dunn (then owner of the property to which the insurance relates),
mortgaged it to San Miguel to secure a debt of P10K. In the Contract of Mortgage, Dun
agreed to keep the property insured at his expense to the full amount of its value in
companies to be selected by the Brewery Company ad authorized San Miguel in case of loss
to receive the proceeds of the insurance and to retain such part as might be necessary to
cover the mortgage debt.
 Dunn also authorized and requestd San Miguel to effect the insurance itself. The general
manager of San Miguel made a verbal application to the Law Union and Rock Insurance for
insurance to the extend of P15K, upon said property.
 October 8, 1917 – San Miguel Brewery filed a complaint in the COFI Manila for the purpose
of recovering upon two policies of insurance underwritten respectively by the Law Union
and Rock Insurance company and the Filipinas Compania de Seguros for the sum of P7,500
each, insuring certain property which has been destroyed by fire.
 San Miguel is named as the party assured in the two policies but it is alleged in the complaint
that said company was in reality interested in the property which was the subject of
insurance in the character of a mortgage creditor only. The owner of said property upon the
date the policies were issued was one D.P. Dunn who was later succeeded as owner by one
Henry Harding. Harding was made a defendant, as a person interested in the subject of the
litigation.
 San Miguel prayed that judgment be entered in favor of it against the two companies named
for the sum of P15K and further upon satisfaction of the balance of P4.5K due to San Miguel
upon the mortgage debt and upon the cancellation of the mortgage, that San Miguel be
absolved from the liability to the defendants or any of them.
 Harding claims to he has the right to recover the difference between San Miguel’s mortgage
credit and the face value of the policies. The insurance companies admitted their liability to
San Miguel but not to Harding.
 The trial court ruled that Harding had no right of action against the companies and absolved
them from liability.

ISSUES/HELD: W/N reformation of the contract is proper in this case.

 San Miguel (mortgagee) undoubtedly had an insurable interest but it could not, in any event,
recover upon these policies, an amount in excess of its mortgage credit.
 If during the time that the insurance policies were being negotiated and written, there was
any inadvertence, ignorance, or mistake committed so as to render the policy the way it is
now, a court would have the power to reform the contracts and give effect to them the way
the parties originally intended them to be bound. But to justify this, it must be made clearly
to appear that the minds of the contracting parties did actually meet in agreement that they
labored under some mutual error or mistake in expressing their intention or purpose. In
other words, to justify the reformation of a contract, proof must be sufficient and it must
clearly appear that the contract failed to express the real agreement between the parties.
 In this case that the proof is insufficient to authorize the reformation of the insurance
policies since it is not clear from the testimony of Brias that the parties had truly intended
for the policies to cover the risk of the owner in addition to that of the mortgagee.