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4.

On the day that the lease contract was to expire, fire CONTRACT OF ADHESION AND THEREFORE
broke out inside the leased premises. THE QUESTIONABLE PROVISION THEREIN
TRANSFERRING THE PROCEEDS OF THE
[G.R. No. 124520. August 18, 1997] 5. When CKS learned of the insurance earlier procured INSURANCE TO RESPONDENT MUST BE
by the Cha spouses (without its consent), it wrote the RULED OUT IN FAVOR OF PETITIONER
insurer (United) a demand letter asking that the
proceeds of the insurance contract (between the Cha III
Spouses NILO CHA and STELLA UY CHA, and spouses and United) be paid directly to CKS, based on
UNITED INSURANCE CO., INC., petitioners, its lease contract with Cha spouses. THE HONORABLE COURT OF APPEALS
vs. COURT OF APPEALS and CKS ERRED IN AWARDING PROCEEDS OF AN
DEVELOPMENT 6. United refused to pay CKS. Hence, the latter filed a INSURANCE POLICY TO APPELLEE WHICH IS
CORPORATION, respondents. complaint against the Cha spouses and United. NOT PRIVY TO THE SAID POLICY IN
CONTRAVENTION OF THE INSURANCE LAW
DECISION 7. On 2 June 1992, the Regional Trial Court, Branch 6,
Manila, rendered a decision* ordering therein IV
PADILLA, J.: defendant United to pay CKS the amount
of P335,063.11 and defendant Cha spouses to THE HONORABLE COURT OF APPEALS
This petition for review on certiorari under Rule 45 pay P50,000.00 as exemplary damages, P20,000.00 ERRED IN AWARDING PROCEEDS OF AN
of the Rules of Court seeks to set aside a decision of as attorneys fees and costs of suit. INSURANCE POLICY ON THE BASIS OF A
respondent Court of Appeals. STIPULATION WHICH IS VOID FOR BEING
The undisputed facts of the case are as follows: 8. On appeal, respondent Court of Appeals in CA GR WITHOUT CONSIDERATION AND FOR BEING
CV No. 39328 rendered a decision** dated 11 January TOTALLY DEPENDENT ON THE WILL OF THE
1996, affirming the trial court decision, deleting RESPONDENT CORPORATION.[2]
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as however the awards for exemplary damages and
lessees, entered into a lease contract with private attorneys fees. A motion for reconsideration by United
respondent CKS Development Corporation (hereinafter The core issue to be resolved in this case is
was denied on 29 March 1996. whether or not the aforequoted paragraph 18 of the
CKS), as lessor, on 5 October 1988.
lease contract entered into between CKS and the Cha
In the present petition, the following errors are spouses is valid insofar as it provides that any fire
2. One of the stipulations of the one (1) year lease assigned by petitioners to the Court of Appeals: insurance policy obtained by the lessee (Cha spouses)
contract states: over their merchandise inside the leased premises is
I deemed assigned or transferred to the lessor (CKS) if
18. x x x. The LESSEE shall not insure against fire the said policy is obtained without the prior written of the
chattels, merchandise, textiles, goods and effects THE HONORABLE COURT OF APPEALS latter.
placed at any stall or store or space in the leased ERRED IN FAILING TO DECLARE THAT THE
premises without first obtaining the written consent and STIPULATION IN THE CONTRACT OF LEASE It is, of course, basic in the law on contracts that
approval of the LESSOR. If the LESSEE obtain(s) the TRANSFERRING THE PROCEEDS OF THE the stipulations contained in a contract cannot be
insurance thereof without the consent of the LESSOR INSURANCE TO RESPONDENT IS NULL AND contrary to law, morals, good customs, public order or
then the policy is deemed assigned and transferred to VOID FOR BEING CONTRARY TO LAW, public policy.[3]
the LESSOR for its own benefit; x x x[1] MORALS AND PUBLIC POLICY Sec. 18 of the Insurance Code provides:

3. Notwithstanding the above stipulation in the lease II Sec. 18. No contract or policy of insurance
contract, the Cha spouses insured against loss by fire on property shall be enforceable except for
their merchandise inside the leased premises for Five the benefit of some person having an
THE HONORABLE COURT OF APPEALS
Hundred Thousand (P500,000.00) with the United insurable interest in the property insured.
ERRED IN FAILING TO DECLARE THE
Insurance Co., Inc. (hereinafter United) without the CONTRACT OF LEASE ENTERED INTO AS A
written consent of private respondents CKS.
A non-life insurance policy such as the fire The liability of the Cha spouses to CKS for violating HELD: NO. CA set aside. Awarding the proceeds to
insurance policy taken by petitioner-spouses over their their lease contract in that Cha spouses obtained a fire spouses Cha.
merchandise is primarily a contract of insurance policy over their own merchandise, without
indemnity. Insurable interest in the property insured the consent of CKS, is a separate and distinct issue Sec. 18. No contract or policy of insurance on property
must exist at the time the insurance takes effect and at which we do not resolve in this case. shall be enforceable except for the benefit of some person
the time the loss occurs.[4] The basis of such having an insurable interest in the property insured
requirement of insurable interest in property insured is WHEREFORE, the decision of the Court of
based on sound public policy: to prevent a person from Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a
new decision is hereby entered, awarding the proceeds A non-life insurance policy such as the fire insurance policy
taking out an insurance policy on property upon which taken by petitioner-spouses over their merchandise is
he has no insurable interest and collecting the proceeds of the fire insurance policy to petitioners Nilo Cha and
primarily a contract of indemnity. Insurable interest in the
of said policy in case of loss of the property. In such a Stella Uy-Cha.
property insured must exist a t the time the insurance takes
case, the contract of insurance is a mere wager which is SO ORDERED. effect and at the time the loss occurs. The basis of such
void under Section 25 of the Insurance Code, which requirement of insurable interest in property insured is
provides: based on sound public policy: to prevent a person from
G.R. No. 124520 August 18, 1997 taking out an insurance policy on property upon which he
SECTION 25. Every stipulation in a policy of has no insurable interest and collecting the proceeds of
Insurance for the payment of loss, whether said policy in case of loss of the property. In such a case,
the person insured has or has not any Lessons Applicable: Effect of Lack of Insurable Interest the contract of insurance is a mere wager which is void
interest in the property insured, or that the (Insurance);Laws Applicable: Sec. 17, Sec. 18, Sec. 25 of under Section 25 of the Insurance Code.
policy shall be received as proof of such the Insurance Code
interest, and every policy executed by way of SECTION 25. Every stipulation in a policy of Insurance for
gaming or wagering, is void. FACTS: Spouses Nilo Cha and Stella Uy-Cha and CKS the payment of loss, whether the person insured has or has
Development Corporation entered a 1 year lease contract not any interest in the property insured, or that the policy
In the present case, it cannot be denied that CKS with a stipulation not to insure against fire the chattels, shall be received as proof of such interest, and every policy
has no insurable interest in the goods and merchandise merchandise, textiles, goods and effects placed at any stall executed by way of gaming or wagering, is void
inside the leased premises under the provisions of or store or space in the leased premises without first
Section 17 of the Insurance Code which provide. obtaining the written consent and approval of the
lessor. But it insured against loss by fire their merchandise Section 17. The measure of an insurable interest in
Section 17. The measure of an insurable inside the leased premises for P500,000 with the United property is the extent to which the insured might be
interest in property is the extent to which the Insurance Co., Inc. without the written consent of CKS damnified by loss of injury thereof
insured might be damnified by loss of injury
thereof." On the day the lease contract was to expire, fire broke out The automatic assignment of the policy to CKS under the
inside the leased premises and CKS learning that the provision of the lease contract previously quoted is void for
Therefore, respondent CKS cannot, under the being contrary to law and/or public policy. The proceeds of
spouses procured an insurance wrote to United to have the
Insurance Code a special law be validly a beneficiary of the fire insurance policy thus rightfully belong to the
proceeds be paid directly to them. But United refused so
the fire insurance policy taken by the petitioner-spouses spouses. The liability of the Cha spouses to CKS for
CKS filed against Spouses Cha and United.
over their merchandise. This insurable interest over said violating their lease contract in that Cha spouses obtained
merchandise remains with the insured, the Cha a fire insurance policy over their own merchandise, without
spouses. The automatic assignment of the policy to RTC: United to pay CKS the amount of P335,063.11 and the consent of CKS, is a separate and distinct issue which
CKS under the provision of the lease contract previously Spouses Cha to pay P50,000 as exemplary damages, we do not resolve in this case.
quoted is void for being contrary to law and/or public P20,000 as attorney’s fees and costs of suit
policy. The proceeds of the fire insurance policy thus
rightfully belong to the spouses Nilo Cha and Stella Uy- CA: deleted exemplary damages and attorney’s fees
Cha (herein co-petitioners). The insurer (United) cannot
be compelled to pay the proceeds of the fire insurance ISSUE: W/N the CKS has insurable interest because the
policy to a person (CKS) who has no insurable interest spouses Cha violated the stipulation
in the property insured.