GR 124520; (August, 1997) (Digest)
G.R. No. 124520 August 18, 1997
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., petitioners, vs. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, respondents.
FACTS
Petitioner-spouses Nilo Cha and Stella Uy-Cha entered into a one-year lease contract with private respondent CKS Development Corporation on October 5, 1988. Paragraph 18 of the lease contract stipulated that the lessee shall not insure against fire the chattels and merchandise placed in the leased premises without first obtaining the written consent of the lessor. It further provided that if the lessee obtains insurance without such consent, the policy is deemed assigned and transferred to the lessor for its own benefit. Notwithstanding this stipulation, the Cha spouses insured their merchandise against fire with petitioner United Insurance Co., Inc. for P500,000 without the written consent of CKS. On the day the lease contract was to expire, a fire broke out in the leased premises. Upon learning of the insurance, CKS demanded that United Insurance pay the proceeds directly to it, based on the lease contract. United refused, prompting CKS to file a complaint. The Regional Trial Court ordered United to pay CKS P335,063.11 and the Cha spouses to pay exemplary damages and attorney’s fees. The Court of Appeals affirmed the decision but deleted the awards for exemplary damages and attorney’s fees.
ISSUE
Whether Paragraph 18 of the lease contract, which provides for the automatic assignment of any fire insurance policy obtained by the lessee without the lessor’s consent to the lessor, is valid.
RULING
No. The Supreme Court set aside the decision of the Court of Appeals. The automatic assignment clause is void for being contrary to law and public policy. Under the Insurance Code, a contract of insurance on property is enforceable only for the benefit of a person with an insurable interest in the property insured. A fire insurance policy is a contract of indemnity, and insurable interest must exist at the time the insurance takes effect and at the time of the loss. CKS, as lessor, had no insurable interest in the merchandise owned by the Cha spouses inside the leased premises. The measure of insurable interest is the extent to which the insured might be damaged by its loss, which in this case pertained only to the Cha spouses. Therefore, CKS could not be a valid beneficiary of the policy. The proceeds rightfully belong to the Cha spouses, and United Insurance cannot be compelled to pay them to CKS. The liability of the Cha spouses to CKS for violating the lease contract is a separate issue not resolved in this case.