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SPS. NILO CHA v. CA

FACTS:

The petitioners, Nilo Cha and Stella Uy-Cha, entered into a lease contract with CKS Development Corporation to lease a property. The lease contract stated that the petitioners shall not insure against fire the merchandise inside the leased premises without the written consent of CKS. However, the petitioners obtained a fire insurance policy for their merchandise without CKS's consent. A fire broke out inside the leased premises on the day the lease contract was to expire. CKS, upon learning of the insurance, demanded that the insurance proceeds be paid directly to them. When the insurer, United Insurance Co., Inc., refused, CKS filed a complaint against the petitioners and the insurer. The trial court ordered the insurer to pay CKS and awarded damages to the petitioners. On appeal, the Court of Appeals affirmed the decision, but deleted the awards for damages. The petitioners filed a petition for review on certiorari with the Supreme Court.

ISSUES:

  1. Whether the stipulation in the lease contract transferring the proceeds of the insurance to the lessor (CKS) is null and void for being contrary to law, morals, and public policy.

  2. Whether the lease contract is a contract of adhesion and the provision transferring the insurance proceeds to the lessor should be ruled out in favor of the lessee.

  3. Whether awarding the proceeds of an insurance policy to a party not privy to the said policy contravenes the Insurance Law.

  4. Whether the stipulation awarding the proceeds of the insurance policy to the lessor is void for lacking consideration and being dependent on the will of the lessor.

RULING:

  1. The stipulation in the lease contract transferring the proceeds of the insurance to the lessor (CKS) is null and void for being contrary to law and public policy. The insurable interest over the merchandise remains with the insured (Cha spouses), not the lessor.

  2. Not addressed in the ruling.

  3. The insurer cannot be compelled to pay the proceeds of the fire insurance policy to a person (CKS) who has no insurable interest in the property insured.

  4. Not addressed in the ruling.

PRINCIPLES:

  1. Insurable Interest: Insurable interest in the property insured must exist at the time the insurance takes effect and at the time the loss occurs (Sec. 18 of the Insurance Code).

  2. Contract of Indemnity: A non-life insurance policy is primarily a contract of indemnity, meaning it is intended to compensate for loss, not provide a financial gain.

  3. Public Policy: Contracts that wager on properties in which the person has no insurable interest are void as they are contrary to public policy (Sec. 25 of the Insurance Code).

  4. Validity of Contract Stipulations: Stipulations in a contract must not be contrary to law, morals, good customs, public order, or public policy.