FIRST DIVISION

[G.R. No. 124520. August 18, 1997]

Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE

CO., INC., petitioners, vs. COURT OF APPEALS and CKS
DEVELOPMENT CORPORATION, respondents.

DECISION
PADILLA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to set aside a decision of respondent Court of Appeals.
The undisputed facts of the case are as follows:

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

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

18. x x x. 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; x x x [1]

3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured
against loss by fire their 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 respondents CKS.

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

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

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

7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a

decision ordering therein defendant United to pay CKS the amount of P335,063.11
*

and defendant Cha spouses to pay P50,000.00 as exemplary damages, P20,000.00 as

attorneys fees and costs of suit.
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a
decision dated 11 January 1996, affirming the trial court decision, deleting however
**

the awards for exemplary damages and attorneys fees. A motion for reconsideration
by United was denied on 29 March 1996.

In the present petition, the following errors are assigned by petitioners to

the Court of Appeals:
I

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO

DECLARE THAT THE STIPULATION IN THE CONTRACT OF LEASE
TRANSFERRING THE PROCEEDS OF THE INSURANCE TO
RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW,
MORALS AND PUBLIC POLICY

II

THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO

DECLARE THE CONTRACT OF LEASE ENTERED INTO AS A CONTRACT
OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION
THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO
RESPONDENT MUST BE RULED OUT IN FAVOR OF PETITIONER

III

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

PROCEEDS OF AN INSURANCE POLICY TO APPELLEE WHICH IS NOT
PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE INSURANCE
LAW

IV

THE HONORABLE COURT OF APPEALS ERRED IN AWARDING

PROCEEDS OF AN INSURANCE POLICY ON THE BASIS OF A
STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION
AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE
RESPONDENT CORPORATION. [2]

The core issue to be resolved in this case is whether or not the

aforequoted paragraph 18 of the lease contract entered into between CKS
and the Cha spouses is valid insofar as it provides that any fire insurance
policy obtained by the lessee (Cha spouses) over their merchandise inside the
leased premises is deemed assigned or transferred to the lessor (CKS) if said
policy is obtained without the prior written of the latter.
It is, of course, basic in the law on contracts that the stipulations contained
in a contract cannot be contrary to law, morals, good customs, public order or
public policy.[3]

Sec. 18 of the Insurance Code provides:

 Sec. 18. No contract or policy of insurance on property shall be enforceable
except for the benefit of some 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. The basis of such
[4]

requirement of insurable interest in property insured is based on sound public

policy: to prevent a person from taking out an insurance policy on property
upon which he has no insurable interest and collecting the proceeds of said
policy in case of loss of the property.In such a case, the contract of insurance
is a mere wager which is void under Section 25 of the Insurance Code, which
provides:
SECTION 25. Every stipulation in a policy of Insurance for the payment of
loss, whether the person insured has or has not any interest in the property
insured, or that the policy shall be received as proof of such interest, and every
policy executed by way of gaming or wagering, is void.
In the present case, it cannot be denied that CKS has no insurable interest
in the goods and merchandise inside 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 of injury thereof."
Therefore, respondent 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 Nilo Cha and Stella Uy-
Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay
the proceeds of the fire insurance policy to a person (CKS) who has no
insurable interest in the property insured.
The liability of the Cha spouses to CKS for violating their lease contract in
that Cha spouses obtained a fire insurance policy over their own
merchandise, without the consent of CKS, is a separate and distinct issue
which we do not resolve in this case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
39328 is SET ASIDE and a new decision is hereby entered, awarding the
proceeds of the fire insurance policy to petitioners Nilo Cha and Stella Uy-
Cha.
SO ORDERED.
Bellosillo, Vitug, Kapunan, and Hermosisima, Jr., JJ., concur.
 SECOND DIVISION

[G.R. No. 113899. October 13, 1999]

GREAT PACIFIC LIFE ASSURANCE CORP., petitioner vs. COURT OF

APPEALS AND MEDARDA V. LEUTERIO, respondents.

DECISION
QUISUMBING, J.:

This petition for review, under Rule 45 of the Rules of Court, assails the Decision [1] dated
May 17, 1993, of the Court of Appeals and its Resolution [2] dated January 4, 1994 in CA-G.R.
CV No. 18341.The appellate court affirmed in toto the judgment of the Misamis Oriental
Regional Trial Court, Branch 18, in an insurance claim filed by private respondent against Great
Pacific Life Assurance Co. The dispositive portion of the trial courts decision reads:

WHEREFORE, judgment is rendered adjudging the defendant GREAT PACIFIC

LIFE ASSURANCE CORPORATION as insurer under its Group policy No. G-1907,
in relation to Certification B-18558 liable and ordered to pay to the DEVELOPMENT
BANK OF THE PHILIPPINES as creditor of the insured Dr. Wilfredo Leuterio, the
amount of EIGHTY SIX THOUSAND TWO HUNDRED PESOS (P86,200.00);
dismissing the claims for damages, attorneys fees and litigation expenses in the
complaint and counterclaim, with costs against the defendant and dismissing the
complaint in respect to the plaintiffs, other than the widow-beneficiary, for lack of
cause of action.[3]

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

A contract of group life insurance was executed between petitioner Great Pacific Life
Assurance Corporation (hereinafter Grepalife) and Development Bank of the Philippines
(hereinafter DBP).Grepalife agreed to insure the lives of eligible housing loan mortgagors of
DBP.
On November 11, 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP
applied for membership in the group life insurance plan. In an application form, Dr. Leuterio
answered questions concerning his health condition as follows:
7. Have you ever had, or consulted, a physician for a heart condition, high blood pressure, cancer,
diabetes, lung, kidney or stomach disorder or any other physical impairment?
Answer: No. If so give details ___________.
8. Are you now, to the best of your knowledge, in good health?
Answer: [ x ] Yes [ ] No.[4]
On November 15, 1983, Grepalife issued Certificate No. B-18558, as insurance coverage of
Dr. Leuterio, to the extent of his DBP mortgage indebtedness amounting to eighty-six thousand,
two hundred (P86,200.00) pesos.
On August 6, 1984, Dr. Leuterio died due to massive cerebral hemorrhage. Consequently,
DBP submitted a death claim to Grepalife. Grepalife denied the claim alleging that Dr. Leuterio
was not physically healthy when he applied for an insurance coverage on November 15,
1983. Grepalife insisted that Dr. Leuterio did not disclose he had been suffering from
hypertension, which caused his death.Allegedly, such non-disclosure constituted concealment
that justified the denial of the claim.
On October 20, 1986, the widow of the late Dr. Leuterio, respondent Medarda V. Leuterio,
filed a complaint with the Regional Trial Court of Misamis Oriental, Branch 18, against
Grepalife for Specific Performance with Damages. [5] During the trial, Dr. Hernando Mejia, who
issued the death certificate, was called to testify. Dr. Mejias findings, based partly from the
information given by the respondent widow, stated that Dr. Leuterio complained of headaches
presumably due to high blood pressure. The inference was not conclusive because Dr. Leuterio
was not autopsied, hence, other causes were not ruled out.
On February 22, 1988, the trial court rendered a decision in favor of respondent widow and
against Grepalife. On May 17, 1993, the Court of Appeals sustained the trial courts
decision. Hence, the present petition. Petitioners interposed the following assigned errors:
"1. THE LOWER COURT ERRED IN HOLDING DEFENDANT-APPELLANT LIABLE TO
THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) WHICH IS NOT A PARTY
TO THE CASE FOR PAYMENT OF THE PROCEEDS OF A MORTGAGE
REDEMPTION INSURANCE ON THE LIFE OF PLAINTIFFS HUSBAND WILFREDO
LEUTERIO ONE OF ITS LOAN BORROWERS, INSTEAD OF DISMISSING THE CASE
AGAINST DEFENDANT-APPELLANT [Petitioner Grepalife] FOR LACK OF CAUSE OF
ACTION.
2. THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR WANT OF
JURISDICTION OVER THE SUBJECT OR NATURE OF THE ACTION AND OVER
THE PERSON OF THE DEFENDANT.
3. THE LOWER COURT ERRED IN ORDERING DEFENDANT-APPELLANT TO PAY TO
DBP THE AMOUNT OF P86,200.00 IN THE ABSENCE OF ANY EVIDENCE TO SHOW
HOW MUCH WAS THE ACTUAL AMOUNT PAYABLE TO DBP IN ACCORDANCE
WITH ITS GROUP INSURANCE CONTRACT WITH DEFENDANT-APPELLANT.
4. THE LOWER COURT ERRED IN - HOLDING THAT THERE WAS NO CONCEALMENT
OF MATERIAL INFORMATION ON THE PART OF WILFREDO LEUTERIO IN HIS
APPLICATION FOR MEMBERSHIP IN THE GROUP LIFE INSURANCE PLAN
BETWEEN DEFENDANT-APPELLANT OF THE INSURANCE CLAIM ARISING
FROM THE DEATH OF WILFREDO LEUTERIO.[6]
Synthesized below are the assigned errors for our resolution:
1. Whether the Court of Appeals erred in holding petitioner liable to DBP as beneficiary in a
group life insurance contract from a complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not finding that Dr. Leuterio concealed that he had
hypertension, which would vitiate the insurance contract?
3. Whether the Court of Appeals erred in holding Grepalife liable in the amount of eighty six
thousand, two hundred (P86,200.00) pesos without proof of the actual outstanding mortgage
payable by the mortgagor to DBP.
Petitioner alleges that the complaint was instituted by the widow of Dr. Leuterio, not the real
party in interest, hence the trial court acquired no jurisdiction over the case. It argues that when
the Court of Appeals affirmed the trial courts judgment, Grepalife was held liable to pay the
proceeds of insurance contract in favor of DBP, the indispensable party who was not joined in
the suit.
To resolve the issue, we must consider the insurable interest in mortgaged properties and the
parties to this type of contract. The rationale of a group insurance policy of mortgagors,
otherwise known as the mortgage redemption insurance, is a device for the protection of both the
mortgagee and the mortgagor. On the part of the mortgagee, it has to enter into such form of
contract so that in the event of the unexpected demise of the mortgagor during the subsistence of
the mortgage contract, the proceeds from such insurance will be applied to the payment of the
mortgage debt, thereby relieving the heirs of the mortgagor from paying the obligation. [7] In a
similar vein, ample protection is given to the mortgagor under such a concept so that in the event
of death; the mortgage obligation will be extinguished by the application of the insurance
proceeds to the mortgage indebtedness.[8] Consequently, where the mortgagor pays the insurance
premium under the group insurance policy, making the loss payable to the mortgagee, the
insurance is on the mortgagors interest, and the mortgagor continues to be a party to the
contract. In this type of policy insurance, the mortgagee is simply an appointee of the insurance
fund, such loss-payable clause does not make the mortgagee a party to the contract.[9]
Section 8 of the Insurance Code provides:

Unless the policy provides, where a mortgagor of property effects insurance in his
own name providing that the loss shall be payable to the mortgagee, or assigns a
policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of
the mortgagor, who does not cease to be a party to the original contract, and any act of
his, prior to the loss, which would otherwise avoid the insurance, will have the same
effect, although the property is in the hands of the mortgagee, but any act which,
under the contract of insurance, is to be performed by the mortgagor, may be
performed by the mortgagee therein named, with the same effect as if it had been
performed by the mortgagor.

The insured private respondent did not cede to the mortgagee all his rights or interests in the
insurance, the policy stating that: In the event of the debtors death before his indebtedness with
the Creditor [DBP] shall have been fully paid, an amount to pay the outstanding indebtedness
shall first be paid to the creditor and the balance of sum assured, if there is any, shall then be paid
to the beneficiary/ies designated by the debtor.[10] When DBP submitted the insurance claim
against petitioner, the latter denied payment thereof, interposing the defense of concealment
committed by the insured. Thereafter, DBP collected the debt from the mortgagor and took the
necessary action of foreclosure on the residential lot of private respondent. [11] In Gonzales La O
vs. Yek Tong Lin Fire & Marine Ins. Co.[12] we held:

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 mortgagees interest is less than the full
amount recoverable under the policy, * * *.

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

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

And since a policy of insurance upon life or health may pass by transfer, will or succession
to any person, whether he has an insurable interest or not, and such person may recover it
whatever the insured might have recovered,[14] the widow of the decedent Dr. Leuterio may file
the suit against the insurer, Grepalife.
The second assigned error refers to an alleged concealment that the petitioner interposed as
its defense to annul the insurance contract. Petitioner contends that Dr. Leuterio failed to disclose
that he had hypertension, which might have caused his death. Concealment exists where the
assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing
requires that he should communicate it to the assured, but he designedly and intentionally
withholds the same.[15]
 Petitioner merely relied on the testimony of the attending physician, Dr. Hernando Mejia, as
supported by the information given by the widow of the decedent. Grepalife asserts that Dr.
Mejias technical diagnosis of the cause of death of Dr. Leuterio was a duly documented hospital
record, and that the widows declaration that her husband had possible hypertension several years
ago should not be considered as hearsay, but as part of res gestae.
On the contrary the medical findings were not conclusive because Dr. Mejia did not conduct
an autopsy on the body of the decedent. As the attending physician, Dr. Mejia stated that he had
no knowledge of Dr. Leuterios any previous hospital confinement.[16] Dr. Leuterios death
certificate stated that hypertension was only the possible cause of death. The private respondents
statement, as to the medical history of her husband, was due to her unreliable recollection of
events. Hence, the statement of the physician was properly considered by the trial court as
hearsay.
The question of whether there was concealment was aptly answered by the appellate court,
thus:

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

Contrary to appellants allegations, there was no sufficient proof that the insured had
suffered from hypertension. Aside from the statement of the insureds widow who was
not even sure if the medicines taken by Dr. Leuterio were for hypertension, the
appellant had not proven nor produced any witness who could attest to Dr. Leuterios
medical history...

xxx

Appellant insurance company had failed to establish that there was concealment made
by the insured, hence, it cannot refuse payment of the claim. [17]

The fraudulent intent on the part of the insured must be established to entitle the insurer to
rescind the contract.[18] Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer.[19] In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the insurance.
And that brings us to the last point in the review of the case at bar. Petitioner claims that
there was no evidence as to the amount of Dr. Leuterios outstanding indebtedness to DBP at the
time of the mortgagors death. Hence, for private respondents failure to establish the same, the
action for specific performance should be dismissed. Petitioners claim is without merit. A life
insurance policy is a valued policy.[20] Unless the interest of a person insured is susceptible of
exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy. [21] The mortgagor paid the premium according to the
coverage of his insurance, which states that:

The policy states that upon receipt of due proof of the Debtors death during the terms
of this insurance, a death benefit in the amount of P86,200.00 shall be paid.

In the event of the debtors death before his indebtedness with the creditor shall have
been fully paid, an amount to pay the outstanding indebtedness shall first be paid to
the Creditor and the balance of the Sum Assured, if there is any shall then be paid to
the beneficiary/ies designated by the debtor. [22] (Emphasis omitted)

However, we noted that the Court of Appeals decision was promulgated on May 17, 1993. In
private respondents memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagors outstanding loan. Considering this supervening event, the insurance
proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius
detrimenio protest). Hence, it cannot collect the insurance proceeds, after it already foreclosed on
the mortgage. The proceeds now rightly belong to Dr. Leuterios heirs represented by his widow,
herein private respondent Medarda Leuterio.
WHEREFORE, the petition is hereby DENIED. The Decision and Resolution of the Court
of Appeals in CA-G.R. CV 18341 is AFFIRMED with MODIFICATION that the petitioner is
ORDERED to pay the insurance proceeds amounting to Eighty-six thousand, two hundred
(P86,200.00) pesos to the heirs of the insured, Dr. Wilfredo Leuterio (deceased), upon
presentation of proof of prior settlement of mortgagors indebtedness to Development Bank of the
Philippines. Costs against petitioner.
SO ORDERED.
Mendoza, Buena, and De Leon Jr., JJ., concur.

G.R. No. 147839 June 8, 2006

GAISANO CAGAYAN, INC. Petitioner,

vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision 1 dated October 11, 2000 of the
Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31,
1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the
causes of action for damages of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied
petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.)
Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC
and LSPI separately obtained from respondent fire insurance policies with book debt endorsements.
The insurance policies provide for coverage on "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."2 The policies defined book debts as the "unpaid account still appearing
in the Book of Account of the Insured 45 days after the time of the loss covered under this
Policy."3 The policies also provide for the following conditions:

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

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
close of every calendar month all amount shown in their books of accounts as unpaid and
thus become receivable item from their customers and dealers. x x x 4

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

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that
IMC and LSPI filed with respondent their claims under their respective fire insurance policies with
book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale
and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof,
respondent was subrogated to their rights against petitioner; that respondent made several demands
for payment upon petitioner but these went unheeded. 5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held
liable because the property covered by the insurance policies were destroyed due to fortuities event
or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no
breach of contract committed by it since the loss was due to fire which it could not prevent or
foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never
consented to paying the claim of the insured.6

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

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

Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the CA rendered its decision
setting aside the decision of the RTC. The dispositive portion of the decision reads:

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

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

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

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature,
quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the
thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC
and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by
subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book
debt endorsements, what was insured was the vendor's interest as a creditor. 11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April
11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS
IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC

SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT. 14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to
be over credit since an insurance "on credit" belies not only the nature of fire insurance but the
express terms of the policies; that it was not credit that was insured since respondent paid on the
occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of
any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the
accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from respondent only after it had already paid IMC
and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and
LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

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

For its part, respondent counters that while ownership over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as
creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable
for loss of the ready-made clothing materials since it failed to overcome the presumption of liability
under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in
failing to provide stringent measures of caution, care and maintenance on its property because
electric wires do not usually short circuit unless there are defects in their installation or when there is
lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and
evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for
contracted lawyer's fees, litigation expenses and cost of suit. 17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from
the CA is limited to reviewing questions of law which involves no examination of the probative value
of the evidence presented by the litigants or any of them. 18 The Supreme Court is not a trier of facts;
it is not its function to analyze or weigh evidence all over again. 19 Accordingly, findings of fact of the
appellate court are generally conclusive on the Supreme Court. 20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be
resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises
or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are based; (9) when the facts set forth in the
petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA
erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of
IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and
delivered to petitioner.
The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room
for construction.22 In this case, the questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold or delivered to various
customers and dealers of the Insured anywhere in the Philippines." 23 ; and defined book debts as the
"unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the
loss covered under this Policy." 24 Nowhere is it provided in the questioned insurance policies that the
subject of the insurance is the goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to
read into it any alleged intention of the parties, the terms are to be understood literally just as they
appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and
LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the
goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of
securing the payment of the purchase price the above described merchandise remains the property
of the vendor until the purchase price thereof is fully paid." 26

The Court is not persuaded.

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

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein
is transferred to 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; (Emphasis supplied)

xxxx

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss
is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full
payment of 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.28

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.

Therefore, 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, 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. 29 Anyone has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction. 30Indeed, a vendor or seller retains an
insurable interest in the property sold so long as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a vendor's lien. 31 In this case, the insurable
interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days
after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 1174 32 of
the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the
Civil Code.

Moreover, it must be stressed that the 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. Accordingly,
petitioner's obligation is for the payment of money. As correctly stated by the CA, where the
obligation consists in the payment of money, the failure of the debtor to make the payment even by
reason of a fortuitous event shall not relieve him of his liability. 33 The rationale for this is that the rule
that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only
holds 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. It does not apply when the obligation is
pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation." If the obligation is
generic in the sense that the object thereof is designated merely by its class or genus without any
particular designation or physical segregation from all others of the same class, the loss or
destruction of anything of the same kind even without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the obligation. 35 This rule is based on the principle that
the genus of a thing can never perish. Genus nunquan perit. 36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific property of the debtor. 37

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

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-
22"38 show that petitioner has an outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F" 40 is the subrogation receipt
executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents
have been properly identified, presented and marked as exhibits in court. 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. The right of subrogation accrues
simply upon payment by the insurance company of the insurance claim. 41 Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for 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. x x x

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No
evidentiary weight can be given to Exhibit "F Levi Strauss", 42 a letter dated April 23, 1991 from
petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's
unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00
in the fire that razed petitioner's building on February 25, 1991.

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

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.

No pronouncement as to costs.
SO ORDERED.