catholic bishop of balanga vs. ca

G.R. No. 112519. November 14, 1996

CATHOLIC BISHOP OF BALANGA, represented by CRISPULO TORRICO, petitioner, vs. THE HON. COURT OF APPEALS and AMANDO DE LEON, respondents.

The parties do not dispute that the Roman Catholic Archbishop [sic] of Manila was the owner of a parcel of land (Lot No. 1272, Balanga Cadastre) situated in the Barrio of Puerto Rivas, Municipality of Balanga, Bataan, having an area of 3,368 sq. m., more or less covered by OCT No. 14379 of the Registry of Deeds for the province of Bataan. With respect to its rights over its properties in Bataan (inclusive of Lot No. 1272), the said church was succeeded by the Roman Catholic Bishop of San Fernando, Pampanga which was, likewise, succeeded by Catholic Bishop of Balanga registered as a corporation on 15 December 1975.

Prior thereto, or on 23 August 1936, by virtue of the authority given him by the Roman Catholic Archbishop of Manila to donate a portion of Lot No. 1272, the then parish priest and administrator of all the properties of the said church in the Municipality of Balanga, Bataan, Rev. Fr. Mariano Sarili, executed an Escritura De Donacion donating an area of 12.40 meters by 21.40 meters or 265.36 sq. m. (the subject property) of Lot No. 1272 to Ana de los Reyes and her heirs, as a reward for her long and satisfactory service to the church. Her acceptance of the donation, as well as her possession of the subject property, is indicated in the deed of donation, which deed, for unknown reasons, was refused registration by the Register of Deeds. Six (6) years later, or in 1939, Ana de los Reyes died without issue.

Nevertheless, before her death, she had given the subject property to her nephew who had been living with her, the herein defendant-appellant [private respondent]. The latter immediately took possession of the property in the concept of owner, built his house thereon and, through the years, declared the land for taxation purposes as well as paid the taxes due thereon.

His possession of the subject property was never disturbed by anybody until plaintiff-appellee [petitioner] filed the instant complaint against him on 5 November 1985, or more than 49 years after the deed of donation was executed, alleging, among others, that: (1) during the Japanese occupation of the country, defendant-appellant [private respondent], without the knowledge and prior consent of the plaintiff-appellee [petitioner], and its predecessors-in-interest, entered and occupied the subject property, and (2) despite requests by plaintiff-appellee [petitioner], defendant-appellant [private respondent] refused to vacate the property in question. In support of the above contention, Crispulo Torrico, the sole witness and authorized representative of plaintiff-appellee [petitioner] testified, among others, that: the subject property is situated at the corner of Lot No. 1272, and defendant-appellant [private respondent] has, on the strength of the deed of donation, publicly claimed ownership and occupied the same as early as before the 2nd World War and has built his store thereon.

As his defense, defendant-appellant [private respondent] maintains that by virtue of the deed of donation of 23 August 1936 executed in favor of his predecessor-in-interest, he is the lawful owner of the subject property and the complaint states no cause of action as it was filed only to harass him.

Issue: WON the doctrine of laches apply in the case?

Held:

Laches means the failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to assert it. It has also been defined as such neglect or omission to assert a right taken in conjunction with the lapse of time and other circumstances causing prejudice to an adverse party, as will operate as a bar in equity.

The principle of laches is a creation of equity which, as such, is applied not really to penalize neglect or sleeping upon ones right, but rather to avoid recognizing a right when to do so would result in a clearly inequitable situation. As an equitable defense, laches does not concern itself with the character of the defendant’s title, but only with whether or not by reason of the plaintiff’s long inaction or inexcusable neglect, he should be barred from asserting this claim at all, because to allow him to do so would be inequitable and unjust to the defendant.

The doctrine of laches or of stale demands is based upon grounds of public policy which requires, for the peace of society, the discouragement of stale claims and  is principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted.

The time-honored rule anchored on public policy is that relief will be denied to a litigant whose claim or demand has become stale, or who has acquiesced for an unreasonable length of time, or who has not been vigilant or who has slept on his rights either by negligence, folly or inattention. In other words, public policy requires, for the peace of society, the discouragement of claims grown stale for non-assertion; thus laches is an impediment to the assertion or enforcement of a right which has become, under the circumstances, inequitable or unfair to permit.

The following are the essential elements of laches:

(1) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of;

(2) Delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue;

(3) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and

(4) Injury or prejudice to the defendant in the event relief is accorded to the complainant.

Under the present circumstances, all of the aforegoing elements are attendant in this case.

On or some time before August 23, 1936, Rev. Fr. Mariano Sarili, the parish priest and administrator of the church property in the Municipality of Balanga, Bataan, executed a deed of donation over a 265-square meter church lot in favor of Ana de los Reyes and her heirs in recognition of her long and satisfactory service to the church of Balanga, Bataan. For some reason or another, the said deed was refused registration by the Register of Deeds. However, she accepted the donation, indicated such acceptance in the said deed, occupied the donated property, and exercised acts of ownership thereupon.

In 1945, the donee, Ana de los Reyes, died without issue. She had, however, given the subject property to her nephew who is the private respondent in the instant case. Upon acceptance of the gift, private respondent immediately took possession of the subject property in the concept of owner, built his house thereon, and thenceforth paid land taxes therefor after declaring the subject property for that purpose.

The act of petitioner-defendant that culminated in the filing of the present action is thus clearly his occupation since 1945 of the subject property in the concept of owner in continuation of the occupation of the same nature regarding the same property by the donee Ana de los Reyes starting in 1936. Undoubtedly, the first element of laches exists.

The second element also exists in this case. The second element is three-tiered: (a) knowledge of defendant’s action; (b) opportunity to sue defendant after obtaining such knowledge; and (c) delay in the filing of such suit. Petitioner, in his complaint filed in the trial court, alleged that without its consent, private respondent entered and occupied the subject property during the Second World War. By its own admission, therefore, petitioner was clearly aware of private respondent’s possession of the subject property in the concept of owner. Petitioner did not also rebut the testimony of its own authorized representative and sole witness, one Crispulo Torrico, that the subject property was so proximately located to the rest of petitioner’s church property as to foreclose assertion of ignorance of private respondent’s possession of the subject property, on the part of petitioner.

From that time during the Second World War to 1985 when petitioner actually commenced suit against private respondent, there was doubtlessly all the opportunity to file the appropriate action to have the donation of the subject property to Ana de los Reyes and her heirs, declared null and void and to demand reconveyance of said property from its present occupants.

Notwithstanding such opportunity available to petitioner, however, forty (40) years had to first pass by for petitioner to finally institute the appropriate court proceedings. As such, the second element of knowledge, opportunity to file suit, and delay in filing such suit, is undoubtedly present in the instant controversy.

The third element of laches is likewise present. There is nothing on the record that impresses us as clear evidence of at least an inkling on the part of private respondent as to petitioners’ serious intention to revoke the donated property. There was neither a demand letter nor positive testimony of any person who actually informed private respondent of petitioners’ intentions. In other words, private respondent manifestly had every reason to believe that, with the passing of almost half a century since his predecessor-in-interest accepted the donated property and without unambiguous intimation of petitioners’ non-recognition of such donation, he was secure in his possession of the subject property in the concept of owner.

In the light of all the above, it goes without saying that private respondent will suffer irreparable injury under the most unfair circumstances, were we to disregard petitioner’s inaction for more than 40 years in asserting its rights.

In applying the doctrine of laches, we had ruled that where a party allows the following number of years to lapse from the emergence of his cause of action, before instituting court action to enforce his claim, such action would be barred by the equitable defense of laches: 36 years; 12 years; 50 years; 34 years; 37 years; 32 years; 20 years; 47 years; 11 years; 25 years; 40 years; 19 years; 27 years; 7 years; 44 years; 4 years and 67 years.

In this case, petitioner filed its complaint in court only after 49 years had lapsed since the donation in its behalf of the subject property to private respondent’s predecessor-in-interest. There is nary an explanation for the long delay in the filing by petitioner of the complaint in the case at bench, and that inaction for an unreasonable and unexplained length of time constitutes laches. As such, petitioner cannot claim nullity of the donation as an excuse to avoid the consequences of its own unjustified inaction and as a basis for the assertion of a right on which they had slept for so long. Courts cannot look with favor at parties who, by their silence, delay and inaction, knowingly induce another to spend time, effort, and expense in cultivating the land, paying taxes and making improvements thereon for an unreasonable period only to spring an ambush and claim title when the possessors efforts and the rise of land values offer an opportunity to make easy profit at their own expense. Considerable delay in asserting ones right before a court of justice is strongly persuasive of the lack of merit of his claim, since it is human nature for a person to enforce his right when same is threatened or invaded; thus, it can also be said that petitioner is estopped by laches from questioning private respondent’s ownership of the subject property. At any rate, petitioners right to recover the possession of the subject property from private respondent has, by the latters long period of possession and by petitioner’s inaction and neglect, been converted into a stale demand. Such passivity in the face of what might have given rise to an action in court is visited with the loss of such right, and ignorance resulting from inexcusable negligence does not suffice to explain such failure to file seasonably the necessary suit.

Finally, we agree with the respondent Court of Appeals that, while petitioner is admittedly still the registered owner of the donated property, and jurisprudence is settled as to the imprescriptibility and indefeasibility of a Torrens Title, there is equally an abundance of cases in the annals of our jurisprudence where we categorically ruled that a registered landowner may lose his right to recover the possession of his registered property by reason of laches.

WHEREFORE, the instant petition is DISMISSED with costs against petitioner.

arroyo vs. bocago

GR. No. 167880  14 November 2012

JACK ARROYO, Petitioner, vs. BOCAGO INLAND DEV'T. CORP. (BIDECO), represented by CARLITO BOCAGO and/or the HEIRS OF THE DECEASED RAMON BOCAGO, namely, BASILISA VDA. DE BOCAGO, CARLITO BOCAGO, SANNIE BOCAGO ARRENGO, and INDAY BUENO, Respondents.

The case commenced on February 28, 1997 when herein plaintiff-appellee Jack Arroyo filed with the Regional Trial Court (Branch 56) of Libmanan, Camarines Sur, a complaint for recovery of possession and damages against herein defendants-appellants, Bocago Inland Development Corporation (BIDECO), represented by its President and General Manager Carlito Bocago, Basilisa Vda. de Bocago, Sammy Bocago Arringo and Inday Bueno.

In his complaint, plaintiff-appellee averred that he is the owner of the three (3) parcels of land located at Del Gallego, Camarines Sur, which are now covered by TCT No. RT-854 (14007), TCT No. RT-853 (10065) and RT-855 (19085), all under his name. Plaintiff-appellee claimed that since his acquisition thereof in 1972, he has been paying the taxes for the said lands. He likewise claimed that when he bought the properties from the Development Bank of the Philippines, the same were already 60% developed, which was the reason for the purchase and, in addition, the said properties are natural breeding grounds for crabs and prawns.

Later on, plaintiff-appellee discovered that defendants-appellants had been occupying the above-mentioned parcels of land since 1974. Plaintiff-appellee, through counsel, sent demand letters to defendants-appellants to return the peaceful possession of the parcels of land. But despite such demands, defendants-appellants never bothered to make a reply. Thus, because of the unlawful occupation by the defendants-appellants of the properties of plaintiff-appellee, the latter was forced to litigate.

On the other hand, defendants-appellants in their Answer maintained that plaintiff-appellee has no cause of action for he does not possess the said parcels of land nor manage the cultivation of the alleged fishpond. That the truth of the matter remains that the late Ramon Bocago was in possession of the said fishpond as early as 1967 when it was merely a swampy area and was not yet converted into a fishpond. In fact, it was Ramon Bocago, with the assistance of some of his sons, who personally introduced improvements in the area after the original applicant of the land, Mr. Anselmo Delantar, transferred his rights to the deceased Ramon Bocago. And after the death of Ramon Bocago in 1984, it was his heirs who continued the occupation, possession and development of the fishpond.

Issue: whether petitioner's complaint should be deemed barred by laches.

Held:

The Court cannot agree with the appellate court that the principle of laches is applicable in this case.

The established rule, as reiterated in Heirs of Tomas Dolleton vs. Fil-Estate Management, Inc., is that “the elements of laches must be proven positively. Laches is evidentiary in nature, a fact that cannot be established by mere allegations in the pleadings x x x.”7 Evidence is of utmost importance in establishing the existence of laches because, as stated in Department of Education, Division of Albay vs. Oñate, 'there is “no absolute rule as to what constitutes laches or staleness of demand; each case is to be determined according to its particular circumstances.” x x x Verily, the application of laches is addressed to the sound discretion of the court as its application is controlled by equitable considerations.

In this case, respondents (defendants-appellants below) did not present any evidence in support of their defense, as they failed to take advantage of all the opportunities they had to do so. The Court stressed in Heirs of Anacleto B. Nieto vs. Municipality of Meycauayan, Bulacan, that:

laches is not concerned only with the mere lapse of time. The following elements must be present in order to constitute laches:

(1) conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made for which the complaint seeks a remedy;

(2) delay in asserting the complainant’s rights, the complainant having had knowledge or notice, of the defendant’s conduct and having been afforded an opportunity to institute a suit;

(3) lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and

(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is not held to be barred.

In this case, there is no evidence on record to prove the concurrence of all the aforementioned elements of laches. The first element may indeed be established by the admissions of both parties in the Complaint and Answer – i.e., that petitioner is the registered owner of the subject property, but respondents had been occupying it for some time and refuse to vacate the same – but the crucial circumstances of delay in asserting petitioner's right, lack of knowledge on the part of defendant that complainant would assert his right, and the injury or prejudice that defendant would suffer if the suit is not held to be barred, have not been proven. Therefore, in the absence of positive proof, it is impossible to determine if petitioner is guilty of laches.

At this juncture, it is best to emphasize the Court's ruling in Labrador vs. Per/as, to wit:

as a registered owner, petitioner has a right to eject any person illegally occupying his property. This right is imprescriptible and can never be banned by laches. In Bishop v. Court of Appeals, we held, thus: As registered owners of the lots in question, the private respondents have a right to eject any person illegally occupying their property. This right is imprescriptible. Even if it be supposed that they were aware of the petitioners' occupation of the property, and regardless of the length of that possession, the lawful owners have a right to demand the return of their property at any time as long as the possession was unauthorized or merely tolerated, if at all. This right is never barred by laches.

Social justice and equity cannot be used to justify the court's grant of property to one at the expense of another who may have a better right thereto under the law. These principles are not intended to favor the underprivileged while purposely denying another of his right under the law.

To rule that herein petitioner is guilty of laches even in the absence of evidence to that effect would truly run afoul of the principle of justice and equity.

IN VIEW OF THE FOREGOING, the Petition is GRANTED.

abalos vs. darapa

G.R. No. 164693 ,March 23, 2011

JOSEFA S. ABALOS AND THE DEVELOPMENT BANK OF THE PHILIPPINES, Petitioners vs.SPS. LOMANTONG DARAPA AND SINAB DIMAKUTA, Respondents

On 25 June 1962, petitioner DBP, Ozamis Branch, granted a P31,000.00 loan to respondent spouses Lomantong Darapa and Sinab Dimakuta (spouses) who executed therefore a real and chattel mortgage contract.

The assignment of the spouses’ equity rights over the land covered by Tax Declaration No. A-148 in DBPs favor was embedded in the Deed of Assignment of Rights and Interests which the spouses executed simultaneous with the real and chattel mortgage contract.

In 1970, the spouses applied for the renewal and increase of their loan using Sinab Dimakutas (Dimakuta) Transfer Certificate of Title (TCT) No. T-1,997 as additional collateral. The DBP disapproved the loan application without returning Dimakutas TCT.

When the spouses failed to pay their loan, DBP extrajudicially foreclosed the mortgages on 16 September 1971, which, unknown to the spouses, included the TCT No. T-1,997. The spouses failed to redeem the land under TCT No. T-1,997 which led to its cancellation, and, the eventual issuance of TCT No. T-7746 in DBPs name.

In 1984, the spouses discovered all these and they immediately consulted a lawyer who forthwith sent a demand letter to the bank for the reconveyance of the land. The bank assured them of the return of the land. In 1994, however, a bank officer told them that such is no longer possible as the land has already been bought by Abalos, daughter of the then provincial governor.

The DBP sold the land to its co-petitioner Josefa Abalos (Abalos). The TCT No. T-7746 (originally TCT No. T-1,997) was cancelled and on 6 July 1994, T-16,280 was issued in Abalos name.The spouses filed with the RTC of Iligan City, a Complaint for Annulment of Title, Recovery of Possession and Damages, against DBP and Abalos. The spouses averred that TCT No. T-1,997 was not one of the mortgaged properties, and, thus, its foreclosure by DBP and its eventual sale to Abalos was null and void.

On the other hand, DBP countered that TCT No. T-1,997 had its roots in Tax Declaration No. A-148, which the spouses mortgaged with the DBP in 1962 as evidenced by the Real Estate Mortgage and the Deed of Assignment. Abalos, on her part, contended that she was an innocent purchaser for value who relied in good faith on the cleanliness of the DBPs Title.

DBP made the spouses believe that there was no need to institute any action for the land would be returned to the spouses soon, only to be told, after ten (10) years of naivet, that reconveyance would no longer be possible for the same land was already sold to Abalos, an alleged purchaser in good faith and for value.

Issue:

WON the spouses claim is barred by prescription of 10 years?

Held:

The DBP contends that the prescriptive period for the reconveyance of fraudulently registered real property is ten (10) years reckoned from the date of the issuance of the certificate of title.

While the above disquisition of the DBP is true, the 10-year prescriptive period applies only when the reconveyance is based on fraud which makes a contract voidable (and that the aggrieved party is not in possession of the land whose title is to be actually reconveyed). It does not apply to an action to nullify a contract which is void ab initio, as in the present petition. Article 1410 of the Civil Code categorically states that an action for the declaration of the inexistence of a contract does not prescribe.

The spouses action is an action for Annulment of Title, Recovery of Possession and Damages, grounded on the theory that the DBP foreclosed their land covered by TCT No. T-1,997 without any legal right to do so, rendering the sale and the subsequent issuance of TCT in DBPs name void ab initio and subject to attack at any time conformably to the rule in Article 1410 of the Civil Code.

In finis, the Court notes that Abalos, DBPs co-defendant, was ordered by the RTC to return to the spouses the land she bought from DBP; the RTC also ordered the cancellation of Abalos title. Abalos, however, abandoned her appeal then pending before the Court of Appeals, resulting in its dismissal. In this Courts Resolution dated 13 February 2006, she was subsequently dropped as party-petitioner. By abandoning her appeal, the RTC decision with respect to her, thus, became final.

calicdan vs. cendaa

G.R. No. 155080. February 5, 2004

SOLEDAD CALICDAN, represented by her guardian GUADALUPE CASTILLO, petitioner, vs. SILVERIO CENDAA, substituted by his legal heir CELSA CENDAA-ALARAS, respondent.

The instant controversy involves a 760 square meter parcel of unregistered land located in Poblacion, Mangaldan, Pangasinan. The land was formerly owned by Sixto Calicdan, who died intestate on November 4, 1941. He was survived by his wife, Fermina, and three children, namely, petitioner Soledad, Jose and Benigno, all surnamed Calicdan.

On August 25, 1947, Fermina executed a deed of donation inter vivos whereby she conveyed the land to respondent Silverio Cendaa, who immediately entered into possession of the land, built a fence around the land and constructed a two-storey residential house thereon sometime in 1949, where he resided until his death in 1998.

On June 29, 1992, petitioner, through her legal guardian Guadalupe Castillo, filed a complaint for Recovery of Ownership, Possession and Damages against the respondent, alleging that the donation was void; that respondent took advantage of her incompetence in acquiring the land; and that she merely tolerated respondents possession of the land as well as the construction of his house thereon.

In his Answer with Motion to Dismiss, respondent alleged, by way of affirmative defenses, that the land was donated to him by Fermina in 1947; and that he had been publicly, peacefully, continuously, and adversely in possession of the land for a period of 45 years. Moreover, he argued that the complaint was barred by prior judgment in the special proceedings for the Inventory of Properties of Incompetent Soledad Calicdan, where the court decreed the exclusion of the land from the inventory of properties of the petitioner.

Issues:

(1) whether or not the donation inter vivos is valid; and

(2) whether or not petitioner lost ownership of the land by prescription.

Held:

1.     the deed of donation inter vivos, albeit void for having been executed by one who was not the owner of the property donated, may still be used to show the exclusive and adverse character of respondents possession. Thus, in Heirs of Segunda Maningding v. Court of Appeals, we held:

Even assuming that the donation propter nuptias is void for failure to comply with formal requisites, it could still constitute a legal basis for adverse possession. With clear and convincing evidence of possession, a private document of donation may serve as basis for a claim of ownership. In Pensader v. Pensader we ruled that while the verbal donation under which the defendant and his predecessors-in-interest have been in possession of the lands in question is not effective as a transfer of title, still it is a circumstance which may explain the adverse and exclusive character of the possession.

2.     Notwithstanding the invalidity of the donation, we find that respondent has become the rightful owner of the land by extraordinary acquisitive prescription.

Prescription is another mode of acquiring ownership and other real rights over immovable property. It is concerned with lapse of time in the manner and under conditions laid down by law, namely, that the possession should be in the concept of an owner, public, peaceful, uninterrupted and adverse. Acquisitive prescription is either ordinary or extraordinary. Ordinary acquisitive prescription requires possession in good faith and with just title for ten years. In extraordinary prescription ownership and other real rights over immovable property are acquired through uninterrupted adverse possession thereof for thirty years without need of title or of good faith.

The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership. For purposes of prescription, there is just title when the adverse claimant came into possession of the property through one of the modes recognized by law for the acquisition of ownership or other real rights, but the grantor was not the owner or could not transmit any right.

Assuming arguendo that ordinary acquisitive prescription is unavailing in the case at bar as it demands that the possession be in good faith and with just title, and there is no evidence on record to prove respondent’s good faith, nevertheless, his adverse possession of the land for more than 45 years aptly shows that he has met the requirements for extraordinary acquisitive prescription to set in.

The records show that the subject land is an unregistered land. When the petitioner filed the instant case on June 29, 1992, respondent was in possession of the land for 45 years counted from the time of the donation in 1947. This is more than the required 30 years of uninterrupted adverse possession without just title and good faith. Such possession was public, adverse and in the concept of an owner. Respondent fenced the land and built his house in 1949, with the help of Guadalupes father as his contractor. His act of cultivating and reaping the fruits of the land was manifest and visible to all. He declared the land for taxation purposes and religiously paid the realty taxes thereon. Together with his actual possession of the land, these tax declarations constitute strong evidence of ownership of the land occupied by him. As we said in the case of Heirs of Simplicio Santiago v. Heirs of Mariano Santiago:

Although tax declarations or realty tax payment of property are not conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no one in his right mind would be paying taxes for a property that is not in his actual or constructive possession. They constitute at least proof that the holder has a claim of title over the property. The voluntary declaration of a piece of property for taxation purposes manifests not only ones sincere and honest desire to obtain title to the property and announces his adverse claim against the State and all other interested parties, but also the intention to contribute needed revenues to the Government. Such an act strengthens ones bonafide claim of acquisition of ownership.

Cagayan vs. Insurance Company of North America

GAISANO CAGAYAN, INC., Petitioner, VS. INSURANCE COMPANY OF NORTH AMERICA, Respondent.

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was PhP 2,119,205.00 while with LSPI it was PhP 535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.

In its Answer, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondents right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the claim of the insured.

ISSUE:

1.      Whether or not all the risk over the subject goods were transferred to petitioner upon delivery thereof?

2.      Is petitioner liable for the unpaid accounts?

HELD:

1.    1.   IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one’s interest is not determined by concept of title, but whether insured has substantial economic interest in the property.

Section 13 of our Insurance Code defines insurable interest as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured. Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction. Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor’s lien. In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

2.    2.   Petitioner bears the loss under Article 1504 (1) of the Civil Code. Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner’s accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner’s obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability. The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.