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G.R. No.

L-7667 Nov 28, 1955

CHERIE PALILEO, plaintiff-appellee,
v. BEATRIZ COSIO, defendant-appellant.

FACTS: Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee)
praying that their transaction be one of a loan with an equitable mortgage to secure the payment of the
loan. The original counsel of Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs so
she forgot the date of the trial and she was substituted.

it is a loan of P12,000 secured by a "Conditional Sale of Residential

Building" with right to repurchase.

After the execution of the contract, Cosio insured in her name the
building with Associated Insurance & Surety Co. against fire.

The building was partly destroyed by fire so she claimed an indemnity

of P13,107

Palileo demanded that the amount of insurance proceeds

be credited to her loan

RTC: it is a loan with equitable mortgage so the insurance proceeds

should be credited to the loan and refund the overpayment.

ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her own benefit

RULING: YES. Modify. collection of insurance proceeds shall not be deemed to have compensated the
obligation of the Palileo to Cosio, but bars Cosio from claiming payment from Palileo; and Cosio shall pay
to Palileo P810 representing the overpayment made by Palileo by way of interest on the loan.

When the the mortgagee may insure his interest in the property
independently of the mortgagor , 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

It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate
interest at his own expense and for his own benefit, without any agreement with the mortgagor with respect
thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds
applied in reduction of the mortgage debt" But these authorities merely represent the minority view