SAN MIGUEL BREWERY, ETC., insurance policies, was at any time made to him.
[sale made but no
vs.
LAW UNION AND ROCK INSURANCE CO., (LTD.)
G.R. No. L-14300 | January 19, 1920
Ponente: STREET, J.:
Doctrine: (from De Leon)
A purchaser of insured property who does not take the precaution to
obtain a transfer of the policy of insurance, cannot in case of loss,
recover upon such contract, as the transfer has the effect of
suspending the insurance until the purchaser becomes the owner of
the policy as well as the property insured.
In such case, nobody can recover on the policy. The purchaser cannot
recover because he has no contract with the insurer. The seller
(insured) cannot also recover because having sold the property, he has
no more insurable interest in the same
Facts:
Here there was a property insured by Law Union and Rock Insurance
company and "Filipinas" Compania de Seguros for the sum of P7,500
each.
On January 12, 1916, D. P. Dunn, then the owner of the property to
which the insurance relates, mortgaged the same to the San Miguel
Brewery to secure a debt of P10,000.
In the contract of mortgage Dunn 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 and authorized
the latter 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.
To speed things up, Dunn authorized and requested the Brewery
Company to effect said insurance itself.
Thus Antonio Brias, general manager of the Brewery, made a verbal
application to the Law Union and Rock Insurance Company for
insurance to the extent of P15,000 upon said property.
When the insurance company asked if the brewery owned the
property, he stated that the company was interested only as a
mortgagee.
No information was asked as to who was the owner of the property,
and no information upon this point was given.
The insurance company to whom this application was directed did not
want to carry more than one-half the risk.
Thus, it issued its own policy for P7,500 and procured a policy in a like
amount to be issued by the "Filipinas" Compania de Seguros. 
Both policies were issued in the name of the San Miguel Brewery as
the assured, and contained no reference to any other interest in the
property.
Both policies contain the usual clause requiring assignments to be
approved and noted on the policy.
The premiums were paid by the Brewery and charged to Dunn.
When the policies were renewed, it was also the brewery which paid
the renewal premiums supposedly for the account of the owner.
March 1917 – Dunn sold the insured property to the defendant
Henry Harding, but not assignment of the insurance, or of the
assignment of insurance]
The property was later on razed by fire. The 2 companies settled with
San Miguel to the extent of the mortgage credit.
Henry harding sought to recover the difference between the mortgage
credit and the face value of the properties.
RTC:
Absolved the 2 companies from the difference and held that Harding is
not entitled to recover such difference.
ISSUE: Did harding have insurable interest? NO
Can harding recover the difference from the insurance companies? NO
RULING:
Harding is not a party to the contracts of insurance and cannot directly
maintain an action thereon.
His claim is merely of an equitable and subsidiary nature and must
be made effective, if at all, through the San Miguel Brewery in
whose name the contracts are written.
Brewery had insurable interest only to the extent of the mortgage
credit
The Brewery, as mortgagee of the insured property, had an insurable
interest but it could not, in any event, recover upon these policies an
amount in excess of its mortgage credit.
Antonio Brias, upon making application for the insurance, informed
the company with which the insurance was placed that the
Brewery was interested only as a mortgagee. It would, therefore, be
impossible for the Brewery mortgage on the insured property. [this is
what the full text said]
Sec 16 of the Insurance Act (Act 2427)
"the measure of an insurable interest in property is the extent to which
the insured might be damnified by loss or injury thereof" (sec. 16);
Sec 50 of the Insurance Act (Act 2427)
"the insurance shall be applied exclusively to the proper interest of the
person in whose name it is made unless otherwise specified in the
policy" (sec. 50).
There is an obstacle to Harding’s recovery from the insurance
companies -
The ownership of the property had been charged, prior to the
loss, without any corresponding change having been effected in
the policy of insurance.
Sec 19 of the Insurance Act
"a change of interest in any part of a thing insured unaccompanied by
a corresponding change of interest in the insurance, suspends the
insurance to an equivalent extent, until the interest in the thing and
the interest in the insurance are vested in the same person."
Sec 55, Insurance Act
"the mere transfer of a thing insured does not transfer the policy, but
suspends it until the same person becomes the owner of both the
policy and the thing insured."
These policies of insurance might have been so framed as to have
been "payable to the Sane Miguel Brewery, mortgagee, as its
interest may appear, remainder to whomsoever, during the
continuance of the risk, may become the owner of the interest
insured." (Sec 54, Act No. 2427.) Such a clause would have proved
an intention to insure the entire interest in the property, not merely the
insurable interest of the San Miguel Brewery, and would have shown
exactly to whom the money, in case of loss, should be paid. But the
policies are not so written.

Here, as the insurance was written up, the obligation of the

insurance companies was different from that contemplated by
Dunn, at whose request the insurance was written, and Brias.

In the contract of mortgage Dunn agreed, at his own expense, to insure

the mortgaged property for its full value and to indorse the policies in
such manner as to authorize the Brewery Company to receive the
proceeds in case of loss and to retain such part thereof as might be
necessary to satisfy the remainder then due upon the mortgage debt.

Instead of effecting the insurance himself Dunn authorized and

requested the Brewery Company to procure insurance on the property
in the amount of P15,000 at Dunn's expense.

The Brewery Company undertook to carry this mandate into effect, and
it became its duty to procure insurance of the character contemplated -
to have the policies so written as to protect not only the insurable
interest of the Brewery, but also the owner. Brias seems to have
supposed that the policies as written had this effect, but in this he was
mistaken.

It was difficult for the owner to be required to pay the premiums upon
P15,000 of insurance when he was receiving no benefit whatever
except in protection to the extent of his indebtedness to the
Brewery.

Brewery was to blame for the situation, not the insurance companies
and there is nothing in the record to indicate that the insurance
companies were requested to write insurance upon the insurable
interest of the owner or intended to make themselves liable to that
extent.

Reformation; not applicable remedy

If during the negotiations which resulted in the writing of this insurance,
it was agreed between the contracting parties that the insurance
should be so written as to protect not only the interest of the
mortgagee but also the residuary interest of the owner, and the
policies had been, by inadvertence, ignorance, or mistake written
in the form in which they were issued, a court would have the
power to reform the contracts and give effect to them in the sense
in which the parties intended to be bound.

In order to justify this, it must be made clearly to appear that the minds
of the contracting parties did actually meet in agreement and that they
labored under some mutual error or mistake in respect to the
expression of their purpose.

In cases where the mortgage is by mistake described as owner,

the court may grant reformation and permit a recovery by the
mortgage in his character as such.

In this case, there is insufficient proof to apply such doctrine. It was

clear from the testimony of Brias —that the parties intended for the
policy to cover the risk of the owner in addition to that of the
mortgagee. Thus, Harding is not entitled to relief in any aspect of the
case.