Palilieo v. Cosio - Insurance Proceeds

97 PHIL 919

Facts:

>  On Dec. 18, 1951, Palileo obtained from Cosio a loan of P12T.

>  To secure payment, Cosio required Palileo to sign a document known as “conditional sale of residential building”, purporting to convey to Cosio, with a right to repurchase (on the part of Palileo), a two-story building of strong materials belonging to Palileo.

>  After execution of the document, Cosio insured the building against fire with Associated Insurance & Surety Co. (Associated) for 15T.

>  The insurance policy was issued in the name of Cosio.

>  The building was partly destroyed by fire and after proper demand, Cosio was able to collect from the insurance company an indemnity of P13,107.

>  Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insurance proceeds, but Cosio refused to do so.

>  Trial Court found that the debt had an unpaid balance of P12T.  It declared the obligation of Palileo to Cosio fully compensated by virtue of the proceeds collected by Cosio and further held that the excess of P1,107 (13,107 – 12,000) be refunded to Palileo

Issue:

Whether or not the trial court was justified in considering the obligation of Palileo fully compensated by the insurance amount that Cosio was able to collect from Associated, and whether or not the trial court was correct in requiring Cosio to refund the excess of P1,107 to Palileo.

Held:

NO and NO.

The rule is that “where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid.”

The lower court erred in declaring that the proceeds of the insurance taken out by Cosio on the property insured to the benefit of Palileo and in ordering the former to deliver to the latter, the difference between the indebtedness and the amount of insurance received by Cosio.  In the light of this ruling, the correct solution would be that the proceeds of the Insurance be delivered to Cosio, but her claim against Palileo should be considered assigned to the insurance company who is deemed subrogated to the rights of Cosio to the extent of the money paid as indemnity.