G.R. No. 147839 ; June 8, 2006
GAISANO CAGAYAN, INC. vs. INSURANCE COMPANY OF NORTH AMERICA

FACTS

Intercapitol Marketing Corporation (IMC) and Levi Strauss (Phils.) Inc. (LSPI) separately obtained fire insurance policies with book debt endorsements from respondent Insurance Company of North America. The policies covered “book debts” in connection with ready-made clothing materials sold and delivered to customers. Petitioner Gaisano Cagayan, Inc. was a customer and dealer of IMC and LSPI. On February 25, 1991, a fire consumed petitioner’s Gaisano Superstore Complex in Cagayan de Oro City, destroying stocks of clothing materials sold and delivered by IMC and LSPI. Respondent, having paid the insurance claims of IMC and LSPI for petitioner’s unpaid accounts, was subrogated to their rights and filed a complaint for damages against petitioner to recover the amounts paid.
Petitioner contended it could not be liable as the loss was due to a fortuitous event (fire) and that there was no breach of contract on its part. The Regional Trial Court dismissed the complaint, ruling the fire was accidental, not attributable to petitioner’s negligence, and that ownership of the goods remained with the vendors (IMC and LSPI) per the sales invoices, thus they should bear the loss. The Court of Appeals reversed, holding petitioner liable.

ISSUE

Whether petitioner is liable to respondent insurer, as subrogee, for the unpaid purchase price of the goods lost in the fire.

RULING

Yes, petitioner is liable. The Supreme Court affirmed the Court of Appeals. The legal logic proceeds from the nature of the obligation and the insurance coverage. First, the insurance policies were fire insurance with “book debt endorsements.” What was insured was not the physical goods themselves per se, but the vendors’ (IMC’s and LSPI’s) interest as creditors—specifically, the accounts receivable or credit risk arising from the sale of the goods. The policies defined the covered “book debts” as unpaid accounts appearing in the books 45 days after the loss.
Second, upon delivery of the goods to petitioner, the obligation of the vendors was fulfilled. Petitioner’s correlative obligation was not to return the specific goods but to pay their purchase price. This obligation to pay a sum of money is not extinguished by a fortuitous loss of the goods, unless otherwise stipulated. The retention of title clause in the sales invoices, stating ownership remains with the vendor until full payment, is merely a security stipulation to ensure payment and does not alter the fact that the risk of loss had passed to the buyer-petitioner upon delivery. Consequently, the fire did not excuse petitioner from paying its debt.
Finally, upon indemnifying the insured creditors (IMC and LSPI), respondent insurer was legally subrogated to their right to collect the unpaid accounts from petitioner under Article 2207 of the Civil Code. Petitioner’s debt to the vendors became a debt to the subrogated insurer. The cause of action is not based on negligence for the fire, but on petitioner’s contractual duty to pay for the goods delivered, which obligation persists despite the fortuitous loss.