PALILEO VS COSIO

PALILEO VS COSIO

G.R. No. L-7667  November 28, 1955

CHERIE PALILEO, plaintiff-appellee, 
BEATRIZ COSIO, defendant-appellant.

Nature:

Keywords: loan transaction equitable mortgage, sale with option to repurchase

Summary:

BAUTISTA ANGELO, J.

Facts: Palileo filed a complaint against Cosio in the CFI of Manila raising the ground that, the transaction entered by them be declared as one of loan and that the said transaction be one of equitable mortgage to secure the payment of the loan.

Cosio filed her answer setting up a defense that the transaction between them is one of sale with option to repurchase. However, the period for repurchase had expired which resulted to the ownership of Cosio. The latter set up counterclaims but failed to appear in court in which judgment was granted in favor of the evidence presented by Palileo.

2 Feb 1954, the original counsel of Cosio was substituted and the new counsel immediately moved that the judgment be set aside. The motion has been denied making Cosio to take an appeal.

Coming to the merits of the case, the Court find out that pursuant to the agreement of both, Palileo paid to Cosio an interest on the total loan exceeding the maximum interest authorized by law. To secure the payment, the parties executed a document purporting to convey to Cosio a two-storey building insured the same against fire which is issued in the name of Cosio the insurance policy.

The building was partly destroyed by fire. Cosio on a proper demand, collected indemnity from the insurance company and on the other hand, Palileo demanded from Cosio that she be credited with the necessary amount to pay her obligation out of the insurance proceeds. Cosio refused to pay.

Issue: WON a mortgagor is entitled to the insurance proceeds of the mortgaged property independently insured by the mortgagee? What is the effect of the insurance?

Held: NO. The rule is that “where a mortgagee, independently of the mortgagor, insures the mortgaged property in his own name and for his own interest, he is entitled to the insurance proceeds in case of loss, but in such case, he is not allowed to retain his claim against the mortgagor, but is passed by subrogation to the insurer to the extent of the money paid.” (Vance on Insurance, 2d ed., p. 654) Or, stated in another way, “the mortgagee may insure his interest in the property independently of the mortgagor. In that event, upon the destruction of the property the insurance money paid to the mortgagee will not inure to the benefit of the mortgagor, and the amount due under the mortgage debt remains unchanged. The mortgagee, however, is not allowed to retain his claim against the mortgagor, but it passes by subrogation to the insurer, to the extent of the insurance money paid.”

Ruling: Consistent with the foregoing pronouncement, we therefore modify the judgment of the lower court as follows:(1) the transaction had between the plaintiff and defendant as shown in Exhibit A is merely an equitable mortgage intended to secure the payment of the loan of P12,000;(2) that the proceeds of the insurance amounting to P13,107.00 was properly collected by defendant who is not required to account for it to the plaintiff; (3) that the collection of said insurance proceeds shall not be deemed to have compensated the obligation of the plaintiff to the defendant, but bars the latter from claiming its payment from the former; and (4) defendant shall pay to the plaintiff the sum of P810.00 representing the overpayment made by plaintiff by way of interest on the loan. No pronouncement as to costs.