G.R. No. L-27932 October 30, 1972
UNION MANUFACTURING CO., INC. and REPUBLIC BANK, plaintiffs, REPUBLIC BANK, plaintiff-appellant, vs. PHILIPPINE GUARANTY CO., INC., defendant-appellee.

FACTS

Union Manufacturing Co., Inc. obtained loans from Republic Bank, secured by a chattel mortgage. As a loan condition, Union Manufacturing was required to insure the mortgaged properties. After Union Manufacturing failed to do so, Republic Bank itself procured a fire insurance policy from Philippine Guaranty Co., Inc. The cover note and the subsequently issued Fire Insurance Policy No. 43170 contained a warranty stating “Co-Insurance Declared: Nil,” meaning the insured warranted there were no other existing insurance policies on the same properties. The policy also contained a standard clause requiring the insurer’s written consent for any subsequent insurance. Republic Bank was named as the loss payee “as its interest may appear.”
It was later established that at the time the Philippine Guaranty policy was issued, the properties were already covered by other insurance policies. Furthermore, while the policy was in force, Union Manufacturing obtained additional insurance policies on the same properties without Philippine Guaranty’s consent. A fire subsequently occurred, and Union Manufacturing filed a claim. Philippine Guaranty denied the claim based on the violation of the warranty against other insurance and the breach of the policy condition requiring consent for additional insurance.

ISSUE

Whether the violation of the warranty against other insurance, and the breach of the policy condition requiring consent for subsequent insurance, bars recovery by the insured and, consequently, by the mortgagee-bank named as loss payee.

RULING

Yes, recovery is barred. The Supreme Court affirmed the lower court’s decision, holding that the insured’s violation of the clear warranty and policy condition was fatal to the claim. The legal logic is anchored on the fundamental principle that an insurance policy is a contract, and its terms, if clear and unambiguous, constitute the law between the parties. The warranty “Co-Insurance Declared: Nil” was a material representation that no other insurance existed. The insured’s failure to disclose existing policies and its act of procuring additional insurance without the insurer’s written consent constituted a direct violation of the policy’s express conditions.
The Court, citing established jurisprudence such as Santa Ana v. Commercial Union Assurance Co., ruled that a violation of a warranty or a policy condition, unless waived by the insurer, precludes recovery. This principle applies strictly, and courts cannot rewrite contracts to relieve a party from its own stipulations. The fact that the policy terms may be onerous does not justify their abrogation. Consequently, since the insured, Union Manufacturing, could not recover due to its own breach, the appellant Republic Bank’s derivative right as a mortgagee-loss payee was also extinguished. The bank’s interest under the “payable as interest may appear” clause was subject to all terms and conditions of the policy; it could not acquire a better right than the insured itself. The defect was incurable, making the appeal futile.