G.R. No.

124520 August 18, 1997 The core issue to be resolved in this case is whether or not the aforequoted paragraph 18 of the lease
Spouses NILO CHA and STELLA UY CHA, and UNITED INSURANCE CO., INC., ​petitioners, contract entered into between CKS and the Cha spouses is valid insofar as it provides that any fire insurance
vs. policy obtained by the lessee (Cha spouses) over their merchandise inside the leased premises is deemed
COURT OF APPEALS and CKS DEVELOPMENT CORPORATION, ​respondents. assigned or transferred to the lessor (CKS) if said policy is obtained without the prior written consent of the
latter.
PADILLA, ​J.: It is, of course, basic in the law on contracts that the stipulations contained in a contract cannot be contrary
This petition for review on ​certiorari under Rule 45 of the Rules of Court seeks to set aside a decision of to law, morals, good customs, public order or public policy.​3
respondent Court of Appeals. Sec. 18 of the Insurance Code provides:
The undisputed facts of the case are as follows: Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some
1. Petitioner-spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with private person having an insurable interest in the property insured.
respondent CKS Development Corporation (hereinafter CKS), as lessor, on 5 October 1988. A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
2. One of the stipulations of the one (1) year lease contract states: merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the
18. . . . The LESSEE shall not insure against fire the chattels, merchandise, textiles, goods and effects time the insurance takes effect and at the time the loss occurs.​4 The basis of such requirement of insurable
placed at any stall or store or space in the leased premises without first obtaining the written consent and interest in property insured is based on sound public policy: to prevent a person from taking out an insurance
approval of the LESSOR. If the LESSEE obtain(s) the insurance thereof without the consent of the LESSOR policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case
then the policy is deemed assigned and transferred to the LESSOR for its own benefit; . . .​1 of loss of the property. In such a case, the contract of insurance is a mere wager which is void under Section
3. Notwithstanding the above stipulation in the lease contract, the Cha spouses insured against loss by fire 25 of the Insurance Code, which provides:
the merchandise inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Sec. 25. Every stipulation in a policy of Insurance for the payment of loss whether the person insured has or
Insurance Co., Inc. (hereinafter United) without the written consent of private respondent CKS. has not any interest in the property insured, or that the policy shall be received as proof of such interest, and
4. On the day that the lease contract was to expire, fire broke out inside the leased premises. every policy executed by way of gaming or wagering, is void.
5. When CKS learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
insurer (United) a demand letter asking that the proceeds of the insurance contract (between the Cha inside the leased premises under the provisions of Section 17 of the Insurance Code which provides:
spouses and United) be paid directly to CKS, based on its lease contract with the Cha spouses. Sec. 17. The measure of an insurable interest in property is the extent to which the insured might be
6. United refused to pay CKS. Hence, the latter filed a complaint against the Cha spouses and United. damnified by loss of injury thereof.
7. On 2 June 1992, the Regional Trial Court, Branch 6, Manila, rendered a decision ​* ordering therein Therefore, respondent CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of
defendant United to pay CKS the amount of P335,063.11 and defendant Cha spouses to pay P50,000.00 as the fire insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over
exemplary damages, P20,000.00 as attorney's fees and costs of suit. said merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to
8. On appeal, respondent Court of Appeals in CA GR CV No. 39328 rendered a decision ​** dated 11 CKS under the provision of the lease contract previously quoted is void for being contrary to law and/or
January 1996, affirming the trial court decision, deleting however the awards for exemplary damages and public policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and
attorney's fees. A motion for reconsideration by United was denied on 29 March 1996. Stella Uy-Cha (herein co-petitioners). The insurer (United) cannot be compelled to pay the proceeds of the
In the present petition, the following errors are assigned by petitioners to the Court of Appeals: fire insurance policy to a person (CKS) who has no insurable interest in the property insured.
I The liability of the Cha spouses to CKS for violating their lease contract in that the Cha spouses obtained a
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THAT THE STIPULATION IN fire insurance policy over their own merchandise, without the consent of CKS, is a separate and distinct
THE CONTRACT OF LEASE TRANSFERRING THE PROCEEDS OF THE INSURANCE TO issue which we do not resolve in this case.
RESPONDENT IS NULL AND VOID FOR BEING CONTRARY TO LAW, MORALS AND PUBLIC POLICY WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 39328 is SET ASIDE and a new
II decision is hereby entered, awarding the proceeds of the fire insurance policy to petitioners Nilo Cha and
THE HONORABLE COURT OF APPEALS ERRED IN FAILING TO DECLARE THE CONTRACT OF LEASE Stella Uy-Cha.
ENTERED INTO AS A CONTRACT OF ADHESION AND THEREFORE THE QUESTIONABLE PROVISION SO ORDERED.
THEREIN TRANSFERRING THE PROCEEDS OF THE INSURANCE TO RESPONDENT MUST BE RULED
OUT IN FAVOR OF PETITIONER CASE DIGEST
III
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE Facts:
POLICY TO APPELLEE WHICH IS NOT PRIVY TO THE SAID POLICY IN CONTRAVENTION OF THE
> Spouses Nilo Cha and Stella Uy-Cha, as lessees, entered into a lease contract with CKS Development
INSURANCE LAW
Corporation (CKS), as lessor.
IV
THE HONORABLE COURT OF APPEALS ERRED IN AWARDING PROCEEDS OF AN INSURANCE
> One of the stipulations of the one (1) year lease contract states: ​"18. . . . The LESSEE shall not insure
POLICY ON THE BASIS OF A STIPULATION WHICH IS VOID FOR BEING WITHOUT CONSIDERATION
against fire the chattels, merchandise, textiles, goods and effects placed at any stall or store or space in the
AND FOR BEING TOTALLY DEPENDENT ON THE WILL OF THE RESPONDENT CORPORATION.​2
leased premises without first obtaining the written consent and approval of the LESSOR. If the LESSEE
obtain(s) the insurance thereof without the consent of the LESSOR then the policy is deemed assigned and lessor.” Violation of such stipulation will make the policy deemed assigned and transferred to the lessor for
transferred to the LESSOR for its own benefit; . . ." its own benefit.

> Notwithstanding the above stipulation, the Cha spouses insured against loss by fire their merchandise Spouses Cha insured against loss by fire the merchandise inside the leased premises for 500K Php with the
inside the leased premises for Five Hundred Thousand (P500,000.00) with the United Insurance without the United Insurance without the written consent of CKS. On the day the lease contract was to expire, fire broke
written consent CKS. out inside the leased premises. When CKS learned of the insurance earlier procured by the spouses Cha, it
wrote the insurer a demand letter asking that the proceeds of the insurance contract be paid directly to CKS,
> On the day that the lease contract was to expire, fire broke out inside the leased premises. When CKS based on its lease contract with the Cha spouses. United Insurance refused to pay respondent. Hence, CKS
learned of the insurance earlier procured by the Cha spouses (without its consent), it wrote the United a filed a complaint against the petitioner-spouses and United Insurance.
demand letter asking that the proceeds of the insurance contract (between the Cha spouses and United) be
RTC: ordered United Insurance to pay the CKS.
paid directly to CKS, based on its lease contract with the Cha spouses. CA: affirmed the RTC decision.
> United refused to pay CKS, alleging that the latter had no insurable interest. Hence, the latter filed a
ISSUE:
complaint against the Cha spouses and United. WoN CKS can validly be a beneficiary of the fire insurance policy taken by the Cha spouses.

Issue: HELD: NO

Whether or not CKS can claim the proceeds of the fire insurance. Sec. 18 of the Insurance Code provides: “​No contract or policy of insurance on property shall be enforceable
except for the benefit of some person having an insurable interest in the property insured.​ ”
Held: ​NO. CKS has no insurable interest.
A non-life insurance policy such as the fire insurance policy taken by the Cha spouses over their
Sec. 18 of the Insurance Code provides: merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable
"Sec. 18. No contract or policy of insurance on property shall be enforceable except for the benefit of some interest in property insured is based on sound public policy: to prevent a person from taking out an insurance
person having an insurable interest in the property insured." policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case
of loss of the property.
A non-life insurance policy such as the fire insurance policy taken by petitioner-spouses over their
merchandise is primarily a contract of indemnity. Insurable interest in the property insured must exist at the Sec. 25 of the Insurance Code provides: “​Every stipulation in a policy of Insurance for the payment of loss
time the insurance takes effect and at the time the loss occurs. The basis of such requirement of insurable whether the person insured has or has not any interest in the property insured, or that the policy shall be
interest in property insured is based on sound public policy: to prevent a person from taking out an insurance received as proof of such interest, and every policy executed by way of gaming or wagering, is void.”
policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case
of loss of the property. Sec. 17 of the Insurance Code provides: ​“The measure of an insurable interest in property is the extent to
which the insured might be damnified by loss or injury thereof.”
In the present case, it cannot be denied that CKS has no insurable interest in the goods and merchandise
inside the leased premises under the provisions of Section 17 of the Insurance Code which provides: In the present case, CKS has no insurable interest in the goods and merchandise inside the leased
premises. Therefore, he cannot be validly a beneficiary of the fire insurance policy taken by the Cha spouses
"Section 17. The measure of an insurable interest in property is the extent to which the insured might be over their merchandise.
damnified by loss of injury thereof."
This insurable interest over the said merchandise remains with the insured, the Cha spouses. The automatic
assignment of the policy to CKS under the provision of the lease contract is void for being contrary to law
and/or public policy.
Therefore, CKS cannot, under the Insurance Code — a special law — be validly a beneficiary of the fire
insurance policy taken by the petitioner-spouses over their merchandise. This insurable interest over said
merchandise remains with the insured, the Cha spouses. The automatic assignment of the policy to CKS
under the provision of the lease contract previously quoted is void for being contrary to law and/or public
policy. The proceeds of the fire insurance policy thus rightfully belong to the spouses Nilo Cha and Stella
Uy-Cha (herein co-petitioners). The insurer (United) 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.

FACTS:

Nilo Cha & Stella Uy-Cha (Petitioner-Spouses), as lessee, entered into a lease contract with CKS
Development Corporation (respondent), as lessor. One of the stipulations of the 1 year lease contract states:
“the lessee shall not insure against fire the chattels, merchandise, textiles, goods and effect places at any
stall or store or space in the leased premises without first obtaining the written consent and approval of the