[05] San Miguel Brewery v.
Law Union
G.R. No. L-14300 | Jan. 19, 1920 | Parties to Insurance contract mortgagee | Sha
Recit Ready Summary
D.P. Dunn mortgaged his property to San Miguel Brewery as collateral to his
loan amounting to P10,000. Dunn authorized SMB to apply for the insurance
of the property. San Miguel in its application stated that its interest in the
property was limited to that of a mortgagee. Later on, Dunn sold the property
to Henry Harding, without assigning the insurance policies to him.
The property was destroyed by a fire, so SMB instituted a claim to recover to
the extent of the mortgage credit, amounting to P4,505.30. Harding on the
other hand, was claiming the remainder of the insurance policies. Law Union
and Filipinas acknowledged its liability to San Miguel but denied the liability
with Harding.
The issue is WoN Harding has insurable interest as owner – NO
Henry Harding has NO insurable interest as owner. It is SMB who has insurable
interest.
Harding’s claim is merely of an equitable and subsidiary nature and must be made
effective, if at all, through SMB in whose name the contracts are written. SMB, as
mortgagee of the insured property, undoubtedly had an insurable interest therein;
but it could not, in any event, recover upon these policies an amount in excess of
its mortgage credit.
Doctrine
Sec. 16 of the Insurance Act states that "the measure of an insurable interest in
property is the extent to which the insured might be damnified by loss or injury
thereof"; while Sec. 50 states that "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"
As regards Harding, the ownership of the property had been changed without any
corresponding change effected in the policy of insurance. Sec. 19 of the Insurance
Act states that: “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."
There is nothing in the record to indicate that the insurance companies were
requested by SMB to write insurance upon the insurable interest of the owner or
intended to make themselves liable to that extent. 
FACTS:
1. D. P. Dunn, the owner of the property destroyed by fire to which the
insurance relates, mortgaged the property to San Miguel Brewery (SMB) to
secure a debt of P10,000.
2. 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 SMB
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.
a. Law Union and Rock Insurance Company to whom this application
was directed did not want to carry more than one-half the risk. It
therefore issued its own policy for P7,500 and procured a policy in a
like amount to be issued by the "Filipinas" Compania de Seguros. 
3. At the same time, Dunn authorized and requested SMB to effect said
insurance itself. Accordingly, Antonio Brias, general manager of SMB, made
a verbal application to the Law Union and Rock Insurance Company for
insurance to the extent of P15,000 upon said property.
4. In reply to a question as to whether SMB was the owner of the property, he
stated that the company was interested only as a mortgagee.
5. Both policies were issued in the name of the SMB as the assured, and
contained no reference to any other interest in the property.
6. The premiums were paid SMB and charged to Dunn. A year later the policies
were renewed, without change.
7. Dunn sold the insured property to the defendant Henry Harding, but no
assignment of the insurance policies was made to him. 
8. Accordingly, Harding is now claiming for himself the right to recover the
difference between the SMB’s mortgage credit and the face value of the
policies.
9. The two insurance companies answered, admitting in effect their liability to
the San Miguel Brewery to the extent of its mortgage credit amounting to
P4,505.30. However, it but denied liability to Harding on the ground that
under the contracts of insurance the liability of the insurance companies
was limited to the insurable interest of the SMB.
ISSUE: WON Harding has insurable interest as owner (NO, it is SMB who has
insurable interest)
RATIO:
Henry Harding has NO insurable interest as owner. It is SMB who has insurable
interest.
He has no cause of action against the insurance companies. He 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. SMB, as mortgagee of the insured property, undoubtedly had an
insurable interest therein; but it could not, in any event, recover upon these
policies an amount in excess of its mortgage credit
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. But 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.
But to justify the reformation of a contract, the proof must be of the most
satisfactory character, and it must clearly appear that the contract failed to
express the real agreement between the parties.
It is by means clear from the testimony of Brias — and none other was offered —
that the parties intended for the policy to cover the risk of the owner (I think this
refers to Dunn) in addition to that of the mortgagee. It results that the defendant
Harding is not entitled to relief in any aspect of the case. 

Sec. 16 of the Insurance act states that "the measure of an insurable interest in Disposition of the Court
property is the extent to which the insured might be damnified by loss or injury
thereof"; while Sec. 50 states that "the insurance shall be applied exclusively to The judgment is therefore affirmed, with costs against the appellant. So ordered.
the proper interest of the person in whose name it is made unless otherwise
specified in the policy"

As regards Harding, the ownership of the property had been changed, prior to the
loss, without any corresponding change having been effected in the policy of
insurance. Sec. 19 of the Insurance Act states that: “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."

Moreover, Sec. 55 declares that "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." 

There is nothing in the record to indicate that the insurance companies were
requested by SMB to write insurance upon the insurable interest of the owner or
intended to make themselves liable to that extent. 

If 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 only the interest of the mortgagee but also the residuary
interest of the owner, and the policies had been, by inadvertence, ignorance, or