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L-14300 January 19,


Lessons Applicable: • Mortgagor (Insurance) • Measure of Insurable Interest (Insurance) • Effect of

Change of Interest in Thing Insured (Insurance) • Effect of transfer of thing insured (Insurance) Laws
Applicable: sec. 16,sec. 19 (now sec. 20),sec. 50,sec.55 (now sec. 58) of the Insurance Code (all old law)

FACTS: • In the contract of mortgage, the owner P.D. Dunn had 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, however, 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. • San Miguel insured the property only as
mortgagee. • Dunn sold the property to Henry Harding. The insurance was not assigned by Dunn to
Harding. • When it was destroyed by fire, the two companies settled with San Miguel to the extent of the
mortgage credit. • RTC: Absolved the 2 companies from the difference. Henry Harding is not entitled to
the difference between the mortgage credit and the face value of the policies. • Henry Harding appealed.

1. W/N San Miguel has insurable interest as mortgagor only to the extent of the mortgage credit - YES
2. W/N Harding has insurable interest as owner - NO

HELD: affirmed • section 19 of the Insurance Act: o 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 • section 55: o 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 • Undoubtedly these
policies of insurance might have been so framed as to have been "payable to the San 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. • The blame for the situation thus created rests, however, with the Brewery
rather than with 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 • If by inadvertence, accident, or mistake the terms of the contract
were not fully set forth in the policy, the parties are entitled to have it reformed. 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 • In the case now before us
the proof is entirely insufficient to authorize reformation.