Facts:

On March 19, 1918, Domingo Garcia, a merchant and owner of a bazaar named "Las Novedades" in Legaspi, Albay, entered into a fire insurance contract with the Hongkong Fire & Marine Insurance Co., Ltd. (the defendant). The agreement involved insuring his merchandise for ₱15,000 at an annual premium of ₱300, for which the insurance company issued fire insurance policy No. 1951. However, the policy incorrectly insured the building housing the merchandise, rather than the merchandise itself. Garcia did not own or have any interest in the building, which he claimed was an error caused by the carelessness and negligence of the defendant.

On August 30, 1919, Garcia mortgaged the insured merchandise to the Philippine National Bank (the plaintiff) and endorsed the policy to them with the defendant's consent. On February 6, 1920, a fire destroyed both the merchandise, valued at ₱20,000, and the building. When Garcia demanded payment of ₱15,000 from the defendant under the

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Facts:

Background and Contract Formation

• On March 19, 1918, in Manila, Domingo Garcia, a merchant and owner of the bazaar “Las Novedades” in the Legaspi district, municipality, and Province of Albay, entered into a fire insurance contract with the Hongkong Fire & Marine Insurance Co., Ltd.
• Garcia sought to insure his merchandise for P15,000 at a premium of P300 per annum.
• In consideration of the premium paid, the defendant issued fire insurance policy No. 1951 in Garcia’s favor.
• Critical Error: Instead of covering the insured merchandise, the policy was mistakenly issued on the building that housed the merchandise—a building which Garcia neither owned nor had any interest in.

Subsequent Transactions and Communications

• On August 30, 1919, Garcia executed a mortgage to the Philippine National Bank (PNB) using the insured merchandise as collateral.
• With the consent of the defendant, Garcia endorsed the insurance policy to the Bank as part of the collateral arrangement.
• A series of letters were exchanged between the Bank and the defendant’s agents:
• The Bank’s letter dated August 6, 1919, stated that the merchandise insured had been mortgaged, clearly indicating its belief that the policy covered the merchandise.
• The defendant’s agents acknowledged this letter on August 14, 1919, and requested an endorsement on the original policy to officially record the transaction.
• Further correspondence from the Bank on August 18, 1919, and subsequently on September 1, 1919, confirmed the endorsement and maintained the reference to the insured property as merchandise.
• Notably, where the term “merchandise” appears in these communications, it is evident that an earlier term was erased and replaced, implying an awareness of an intended coverage different from what was actually documented in the policy.

Occurrence of the Loss and Claim

• On February 6, 1920, while the policy was still in force, a fire occurred.
• The fire resulted in the complete destruction of both the merchandise (valued at approximately P20,000) and the building (which was not owned by Garcia).
• Following the fire, Garcia, and by extension the Philippine National Bank, made a demand upon the defendant for the payment of P15,000 in accordance with the policy.
• The defendant refused the payment, arguing that the policy covered the building, not the merchandise.

Trial Proceedings and Appeals

• The lower court rendered judgment in favor of Garcia and the Philippine National Bank, awarding the insured amount along with legal interest and costs.
• On appeal, the defendant contended that:
• The lower court erred in not allowing a motion to make the complaint more definite and certain.
• The trial court improperly admitted certain documents and allowed Garcia to testify regarding their contents.
• It failed to recognize that the defendant’s agents knew that the insured subject matter was the merchandise, not the building.
• The evidence did not establish negligence on the part of Garcia.
• The incorrect issuance of the policy (covering the building rather than the merchandise) constituted an error invalidating the claim.
• The judgment should be reversed and a new trial granted.
• The trial court’s comprehensive analysis of the evidence led to its findings, which upheld the insured’s claim despite the evident error in the policy issuance.

Issue:

Whether the erroneous issuance of the insurance policy—covering a building not owned by Garcia instead of his merchandise—affects the enforceability of the insured obligation.

• Did the mistake in insuring the building rather than the merchandise nullify the plaintiff’s claim?
• Should the error be construed against the insurer given the true intention of the contracting parties?

Whether the correspondence between the Philippine National Bank and the defendant’s agents, specifically referring to “merchandise” and the endorsement of the policy, constitutes sufficient evidence to establish that the intended coverage was for the merchandise.

• Is the evidence of the Bank’s letters and acknowledgments admissible to clarify the true subject matter of the insurance?
• Did the defendant, through its agents, have actual or constructive notice of the error regarding the insured property?

Whether the insurer’s alleged technical defense—that the policy covers a building rather than the intended merchandise—can be sustained in light of the overall circumstances and preponderance of evidence.

• Does the doctrine of mistake in contract and the objective evidence of the parties’ intentions override the literal wording of the policy?
• Can the insurer justifiably deny liability on technical grounds when all evidence indicates the true insurance was meant for the merchandise?

• Whether the failure of the Philippine National Bank to notify the insurer of the error in the policy (despite possessing the policy and having correspondence evidencing the intended coverage) has any bearing on the liability of the defendant.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)