FACTS
Spouses Pedro and Azucena Palomo acquired a parcel of land and a building in San Rafael Village, Davao City, and assumed an existing mortgage over the building in favor of the Social Security System. On April 19, 1975, Azucena Palomo obtained a ₱100,000.00 loan from Tai Tong Chuache & Co., a partnership, and executed a mortgage over the property to secure the loan.
To protect its mortgage interest, Tai Tong Chuache & Co., through its managing partner Arsenio Lopez Chua, obtained Fire Insurance Policy No. 599-DV from Travellers Multi-Indemnity Corporation for ₱100,000.00. The policy covered the building and its contents. Other fire insurance policies covering the same property were also obtained from other insurance companies.
On July 31, 1975, the building and its contents were totally destroyed by fire. The other insurers paid their respective portions of the insurance claims, but Travellers refused to pay under Policy No. 599-DV. Travellers claimed that Tai Tong no longer had an insurable interest because the Palomos had allegedly already paid their mortgage indebtedness before the fire.
Tai Tong filed a complaint in intervention before the Insurance Commission to recover the proceeds of its policy. The Insurance Commission dismissed the claim, reasoning that the evidence showed a civil case involving the Palomos had been filed by Arsenio Lopez Chua rather than Tai Tong Chuache & Co., and inferred from this that the mortgage obligation had already been paid. Tai Tong elevated the matter to the Supreme Court.
ISSUE
The first issue was whether Tai Tong Chuache & Co. had an insurable interest in the property at the time of the fire.
The second issue was whether Travellers Multi-Indemnity Corporation sufficiently proved its affirmative defense that the mortgage debt had already been paid before the occurrence of the fire.
The third issue was whether Arsenio Lopez Chua's filing of a civil action against the Palomos in his own name established that the mortgage obligation to Tai Tong had already been paid.
HELD
The Supreme Court GRANTED the petition and SET ASIDE the decision of the Insurance Commission. It ordered Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co. the face value of Fire Insurance Policy No. 599-DV amounting to ₱100,000.00.
The Court held that Tai Tong had an insurable interest in the property. As mortgagee, it had a financial interest in the preservation of the property because the property secured the ₱100,000.00 loan extended to the Palomos. The insurance policy obtained by Tai Tong was valid and was in force when the fire occurred.
The Court further held that Travellers failed to prove its affirmative defense that the mortgage debt had already been paid. The Insurance Commission merely inferred payment from the fact that a civil action against the Palomos had been filed by Arsenio Lopez Chua. The Court found this inference insufficient. The mortgage document presented by Tai Tong had not been cancelled or released, and when a creditor remains in possession of the document evidencing the credit, nonpayment is presumed. Azucena Palomo likewise testified that the debt remained unpaid.
The Court rejected the argument that the civil action filed by Arsenio Chua demonstrated that the debt was his personal credit rather than Tai Tong's. Arsenio Chua was the managing partner of Tai Tong Chuache & Co. and could perform acts of administration for the partnership, including suing debtors for unpaid obligations. At the very least, as a partner, he was an agent of the partnership and acted for and on behalf of the firm.
Accordingly, because Travellers failed to establish the alleged lack of insurable interest and had issued a valid policy covering Tai Tong's mortgage interest, the insurer was bound by the terms and conditions of the policy. The Supreme Court ordered Travellers Multi-Indemnity Corporation to pay Tai Tong Chuache & Co. ₱100,000.00, with costs against the private respondent.
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