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G.R. No.

L-14300 January 19, 1920

SAN MIGUEL BREWERY, ET., plaintiff-appellee,
LAW UNI!N AN" R!# INSURANE !., $LT".% ET AL., defendants-appellees.
&ENRY &AR"ING, defendant-appellant.
Crossfield and O'Brien for appellant Harding.
Lawrence and Ross for appellee Law Union etc. Ins. Co.
Sanz and Luzuriaga for appellee "Filipinas Co!pa"ia de Seguros."
#o appearance for t$e ot$er appellee.
This action was begun on October 8, 1917, in the Court of First nstance of the cit! of "anila b! the plaintiff, the #an
"iguel $rewer!, for the purpose of recovering upon two policies of insurance underwritten respectivel! b! %aw
&nion and 'oc( nsurance Co)pan! *%td.+, and the ,Filipinas, Co!pania de Seguros, for the su) of -7,.// each,
insuring certain propert! which has been destro!ed b! fire. The plaintiff, the #an "iguel $rewer!, is na)ed as the
part! assured in the two policies referred to, but it is alleged in the co)plaint that said co)pan! was in realit!
interested in the propert! which was the sub0ect of insurance in the character of a )ortgage creditor onl!, and that
the owner of said propert! upon the date the policies were issued was one 1. -. 1unn who was later succeeded as
owner b! one 2enr! 2arding. 3ccordingl! said 2arding was )ade a defendant, as a person interested in the sub0ect
of the litigation.
The pra!er of the co)plaint is that 0udg)ent be entered in favor of the plaintiff against the two co)panies na)ed for
the su) of -1.,///, with interest and costs, and further that upon satisfaction of the balance of -4,./..5/ due to
the plaintiff upon the )ortgage debt, and upon the cancellation of the )ortgage, the plaintiff be absolved fro)
liabilit! to the defendants or an! of the). The peculiar for) of the latter part of the pra!er is evidentl! due to the
design of the plaintiff to la! a foundation for 2arding to recover the difference between the plaintiff6s credit and the
a)ount for which the propert! was insured. 3ccordingl!, as was to be e7pected, 2arding answered, ad)itting the
)aterial allegations of the co)plaint and clai)ing for hi)self the right to recover the difference between the
plaintiff6s )ortgage credit and the face value of the policies. The two insurance co)panies also answered, ad)itting
in effect their liabilit! to the #an "iguel $rewer! to the e7tent of its )ortgage credit, but den!ing liabilit! to 2arding
on the ground that under the contracts of insurance the liabilit! of the insurance co)panies was li)ited to the
insurable interest of the plaintiff therein. #oon after the action was begun the insurance co)panies effected a
settle)ent with the #an "iguel $rewer! b! pa!ing the full a)ount of the credit clai)ed b! it, with the result that the
litigation as between the original plaintiff and the two insurance co)panies ca)e to an end, leaving the action to be
prosecuted to final 0udge)ent b! the defendant 2arding with respect to the balance clai)ed to be due to hi) upon
the policies.
&pon hearing the evidence the trial 0udge ca)e to the conclusion that 2arding had no right of action whatever
against the co)panies and absolved the) fro) liabilit! without special finding as to costs. Fro) this decision the
said 2enr! 2arding has appealed.
The two insurance co)panies who are na)ed as defendants do not dispute their liabilit! to the #an "iguel $rewer!,
to the e7tent alread! stated, and the onl! 8uestion here under discussion is that of the liabilit! of the insurance
co)panies to 2arding. t is therefore necessar! to ta(e account of such facts onl! as bear upon this aspect of the
n this connection it appears that on 9anuar! 1:, 191;, 1. -. 1unn, then the owner of the propert! to which the
insurance relates, )ortgaged the sa)e to the #an "iguel $rewer! to secure a debt of -1/,///. n the contract of
)ortgage 1unn agreed to (eep the propert! insured at his e7pense to the full a)ount of its value in co)panies to
be selected b! the $rewer! Co)pan! and authori<ed the latter in case of loss to receive the proceeds of the
insurance and to retain such part as )ight be necessar! to cover the )ortgage debt. 3t the sa)e ti)e, in order
)ore convenientl! to acco)plish the end in view, 1unn authori<ed and re8uested the $rewer! Co)pan! to effect
said insurance itself. 3ccordingl! on the sa)e date 3ntonio $rias, general )anager of the $rewer!, )ade a verbal
application to the %aw &nion and 'oc( nsurance Co)pan! for insurance to the e7tent of -1.,/// upon said
propert!. n repl! to a 8uestion of the co)pan!6s agent as to whether the $rewer! was the owner of the propert!, he
stated that the co)pan! was interested onl! as a )ortgagee. =o infor)ation was as(ed as to who was the owner of
the propert!, and no infor)ation upon this point was given.
t see)s that the insurance co)pan! to who) this application was directed did not want to carr! )ore than one-half
the ris(. t therefore issued its own polic! for -7,.// and procured a polic! in a li(e a)ount to be issued b! the
,Filipinas, Co!pania de Seguros. $oth policies were issued in the na)e of the #an "iguel $rewer! as the assured,
and contained no reference to an! other interest in the propert!. $oth policies contain the usual clause re8uiring
assign)ents to be approved and noted on the polic!. The pre)iu)s were paid b! the $rewer! and charged to
1unn. 3 !ear later the policies were renewed, without change, the renewal pre)iu)s being paid b! the $rewer!,
supposedl! for the account of the owner. n the )onth of "arch of the !ear 1917 1unn sold the insured propert! to
the defendant 2enr! 2arding, but not assign)ent of the insurance, or of the insurance policies, was at an! ti)e
)ade to hi).
>e agree with the trial court that no cause of action in 2enr! 2arding against the insurance co)panies is show. 2e
is not a part! to the contracts of insurance and cannot directl! )aintain an action thereon. *&! Ta) and &!
?et%s. %eonard, 5/ -hil. 'ep., 471.+ 2is clai) is )erel! of an e8uitable and subsidiar! nature and )ust be )ade
effective, if at all, through the #an "iguel $rewer! in whose na)e the contracts are written. =ow the $rewer!, as
)ortgagee of the insured propert!, undoubtedl! had an insurable interest therein@ but it could not, in an! event,
recover upon these policies an a)ount in e7cess of its )ortgage credit. n this connection it will be re)e)bered that
3ntonio $rias, upon )a(ing application for the insurance, infor)ed the co)pan! with which the insurance was
placed that the $rewer! was interested onl! as a )ortgagee. t would, therefore, be i)possible for the $rewer!
)ortgage on the insured propert!.
This conclusion is not onl! deducible fro) the principles governing the operation and effect of insurance contracts in
general but the point is clearl! covered b! the e7press provisions of sections 1; and ./ of the nsurance 3ct *3ct
=o. :4:7+. n the first of the sections cited, it is declared that ,the )easure of an insurable interest in propert! is the
e7tent to which the insured )ight be da)nified b! loss or in0ur! thereof, *sec. 1;+@ while in the other it is stated that
,the insurance shall be applied e7clusivel! to the proper interest of the person in whose na)e it is )ade unless
otherwise specified in the polic!, *sec. ./+.
These provisions would have been fatal to an! atte)pt at recover! even b! 1. -. 1unn, if the ownership of the
propert! had continued in hi) up to the ti)e of the loss@ and as regards 2arding, an additional insuperable obstacle
is found in the fact that the ownership of the propert! had been charged, prior to the loss, without an! corresponding
change having been effected in the polic! of insurance. n section 19 of the nsurance 3ct we find it stated that ,a
change of interest in an! part of a thing insured unacco)panied b! a corresponding change of interest in the
insurance, suspends the insurance to an e8uivalent e7tent, until the interest in the thing and the interest in the
insurance are vested in the sa)e person., 3gain in section .. it is declared that ,the )ere transfer of a thing
insured does not transfer the polic!, but suspends it until the sa)e person beco)es the owner of both the polic!
and the thing insured.,
&ndoubtedl! these policies of insurance )ight have been so fra)ed as to have been ,pa!able to the #ane "iguel
$rewer!, )ortgagee, as its interest )a! appear, re)ainder to who)soever, during the continuance of the ris(, )a!
beco)e the owner of the interest insured., *#ec .4, 3ct =o. :4:7.+ #uch a clause would have proved an intention to
insure the entire interest in the propert!, not )erel! the insurable interest of the #an "iguel $rewer!, and would
have shown e7actl! to who) the )one!, in case of loss, should be paid. $ut the policies are not so written.
t is eas! to collect fro) the facts stated in the decision of the trial 0udge, no less than fro) the testi)on! of $rias,
the )anager of the #an "iguel $rewer!, that, as the insurance was written up, the obligation of the insurance
co)panies was different fro) that conte)plated b! 1unn, at whose re8uest the insurance was written, and $rias. n
the contract of )ortgage 1unn had agreed, at his own e7pense, to insure the )ortgaged propert! for its full value
and to indorse the policies in such )anner as to authori<e the $rewer! Co)pan! to receive the proceeds in case of
loss and to retain such part thereof as )ight be necessar! to satisf! the re)ainder then due upon the )ortgage
debt. nstead, however, of effecting the insurance hi)self 1unn authori<ed and re8uested the $rewer! Co)pan! to
procure insurance on the propert! in the a)ount of -1.,/// at 1unn6s e7pense. The $rewer! Co)pan! undertoo(
to carr! this )andate into effect, and it of course beca)e its dut! to procure insurance of the character
conte)plated, that is, to have the policies so written as to protect not onl! the insurable interest of the $rewer!, but
also the owner. $rias see)s to have supposed that the policies as written had this effect, but in this he was
)ista(en. t was certainl! a hardship on the owner to be re8uired to pa! the pre)iu)s upon -1.,/// of insurance
when he was receiving no benefit whatever e7cept in protection to the e7tent of his indebtedness to the $rewer!.
The bla)e for the situation thus created rests, however, with the $rewer! rather than with the insurance co)panies,
and there is nothing in the record to indicate that the insurance co)panies were re8uested to write insurance upon
the insurable interest of the owner or intended to )a(e the)selves liable to that e7tent.
f during the negotiations which resulted in the writing of this insurance, it had been agreed between the contracting
parties that the insurance should be so written as to protect not onl! the interest of the )ortgagee but also the
residuar! interest of the owner, and the policies had been, b! inadvertence, ignorance, or )ista(e written in the for)
in which the! were issued, a court would have the power to refor) the contracts and give effect to the) in the sense
in which the parties intended to be bound. $ut in order to 0ustif! this, it )ust be )ade clearl! to appear that the
)inds of the contracting parties did actuall! )eet in agree)ent and that the! labored under so)e )utual error or
)ista(e in respect to the e7pression of their purpose. Thus, in Baile& %s. '!erican Central Insurance Co. *15 Fed.,
:./+, it appeared that a )ortgage desiring to insure his own insurable interest onl!, correctl! stated his interest, and
as(ed that the sa)e be insured. The insurance co)pan! agreed to accept the ris(, but the polic! was issued in the
na)e of the owner, because of the )ista(en belief of the co)pan!6s agent that the law re8uired it to be so drawn. t
was held that a court of e8uit! had the power, at the suit of the )ortgage, to refor) the instru)ent and give
0udg)ent in his favor for the loss thereunder, although it had been e7actl! as it was. #aid the courtA ,f the applicant
correctl! states his interest and distinctl! as(s for an insurance thereon, and the agent of the insurer agrees to
co)pl! with his re8uest, and assu)es to decide upon the for) of the polic! to be written for that purpose, and b!
)ista(e of law adopts the wrong for), a court of e8uit! will refor) the instru)ent so as to )a(e it insurance upon
the interest na)ed., *See also Fin( %s. Bueens nsurance Co., :4 Fed., 518@ Csch %s. 2o)e nsurance Co., 78
owa, 554@ 1; 3). #t. 'ep., 445@ >oodbur! #avings etc., Co., %s.Charter Oa( nsurance Co., 51 Conn., .17@
$alen %s. 2anover Fire nsurance Co., ;7 "ich., 179.+
#i)ilarl!, in cases where the )ortgage is b! )ista(e described as owner, the court )a! grant refor)ation and
per)it a recover! b! the )ortgage in his character as such. *1alton %s. "ilwau(ee etc. nsurance Co., 1:; owa,
577@ #pare %s. 2o)e "utual nsurance Co., 17 Fed., .;8.+ n ($o!pson %s. )$oeni* Insurance Co. *15; &.#., :87@
54 %. 5d., 4/8+, it appeared that one Dearne! )ade application to an insurance co)pan! for insurance on certain
propert! in his hands as receiver and it was understood between hi) and the co)pan!6s agent that, in case of loss,
the proceeds of the polic! should accrue to hi) and his successors as receiver and to others who) it )ight
concern. 2owever, the polic!, as issued, was so worded as to be pa!able onl! to hi) as receiver. n an action
brought on the polic! b! a successor of Dearne!, it was alleged that the )a(ing of the contract in this for) was due
to inadvertence, accident, and )ista(e upon the part of both Dearne! and the co)pan!.
#aid the courtA
f b! inadvertence, accident, or )ista(e the ter)s of the contract were not full! set forth in the polic!, the
plaintiff is entitled to have it refor)ed.
n another case the sa)e court saidA
>e have before us a contract fro) which b! )ista(e, )aterial stipulations have been o)itted, whereb! the true
intent and )eaning of the parties are not full! or accuratel! e7pressed. There was a definite concluded agree)ent
as to insurance, which, in point of ti)e, preceded the preparation and deliver! of the polic!, and this is
de)onstrated b! legal and e7act evidence, which re)oves all doubt as to the sense and underta(ing of the parties.
n the agree)ent there has been a )utual )ista(e, caused chiefl! b! that contracting part! who now see(s to li)it
the insurance to an interest in the propert! less than that agreed to be insured. The written agree)ent did not effect
that which the parties intended. That a court of e8uit! can afford relief in such a case, is, we thin(, well settled b! the
authorities. *#)ell %s. 3tlantic, etc., ns. Co., 98 &.#., 8., 89@ :. %. ed., .:.+
$ut to 0ustif! the refor)ation of a contract, the proof )ust be of the )ost satisfactor! character, and it )ust clearl!
appear that the contract failed to e7press the real agree)ent between the parties. *-hilippine #ugar Cstates
1evelop)ent Co)pan! %s. Eovern)ent of the -hilippine slands, ;: %. ed., 1177, re%ersing Eovern)ent of
-hilippine sland %s. -hilippine #ugar Cstates 1evelop)ent Co., 5/ -hil. 'ep., :7.+
n the case now before us the proof is entirel! insufficient to authori<e the application of the doctrine state in the
foregoing cases, for it is b! )eans clear fro) the testi)on! of $rias F and none other was offered F that the
parties intended for the polic! to cover the ris( of the owner in addition to that of the )ortgagee. t results that the
defendant 2arding is not entitled to relief in an! aspect of the case.
The 0udg)ent is therefore affir)ed, with costs against the appellant. #o ordered.