G.R. No. 124617 - Phil. Aeolus Auto-Motive United Corp. vs. National Labor Relations Commission

Case Summary (G.R. No. 124617)

Policy Coverage and Endorsements

The fire-insurance policies covered “book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines.” Book debts were defined as unpaid accounts still appearing in the insurer’s books 45 days after a covered loss.

Insurance Policies’ Conditions

The policies warranted that (a) the insurer would not be liable for unpaid accounts outstanding more than six months from invoice or delivery, and (b) the insured must submit monthly statements of unpaid receivables within twelve days after each calendar month’s close.

Fire Incident and Claim for Subrogation

On February 25, 1991, a fire destroyed the Gaisano Superstore, including stocks of materials sold and delivered by IMC (P2,119,205.00) and LSPI (P535,613.00). Respondent paid IMC’s and LSPI’s claims under their fire policies and was subrogated to their rights against petitioner. Repeated demands for payment went unanswered.

Petitioner’s Defense and Counterclaim

Petitioner argued that (a) the fire was a fortuitous event excusing liability, (b) there was no breach of contract, (c) IMC and LSPI never informed or obtained consent from petitioner regarding insurance, and (d) respondent had no privity with petitioner to enforce subrogated rights.

Regional Trial Court Decision

The Makati RTC dismissed respondent’s complaint, finding the fire accidental, no evidence of petitioner’s negligence, no proof that petitioner was debtor to IMC or LSPI, and that vendor-retained ownership clauses in sales invoices vested loss on the vendors.

Court of Appeals Decision

The CA reversed, holding that (a) the invoices constituted valid sales, (b) under Civil Code Article 1504(1), delivery with retained ownership to secure payment shifted risk to petitioner, (c) petitioner’s obligation was to pay unpaid accounts and was not extinguished by fortuitous loss, and (d) by subrogation under Civil Code Article 2207, respondent could pursue petitioner. It ordered payment of both claimed amounts with interest.

Assignments of Error

Petitioner challenged the CA on three grounds: (1) the insurance was not over credit; (2) risk had automatically transferred upon delivery; and (3) there was no automatic subrogation under Article 2207.

Petitioner’s Arguments

Petitioner asserted that (a) the insurer paid for loss of goods, not default on credit; (b) accounts were not yet due absent prior demands by IMC or LSPI; and (c) lack of privity barred respondent’s claim.

Respondent’s Counterarguments

Respondent maintained that (a) IMC and LSPI had insurable interests as creditors, (b) petitioner bore the presumption of negligence under Civil Code Article 1265, and (c) respondent made proper demands and petitioner’s refusal demonstrated bad faith warranting fees and costs.

Scope of Supreme Court Review

Under Rule 45, this Court confines its review to questions of law. Factual findings of the CA are generally binding except when based on misapprehension, conflict, or oversight of undisputed material facts.

Contractual Interpretation of Insurance Policy

The policies’ language plainly insured book debts, i.e., unpaid accounts, not physical goods. Where contract terms are clear, literal interpretation applies and no alternative construction is permitted.

Risk Allocation under Civil Code Article 1504(1)

When a seller retains ownership merely to secure payment after delivery, the buyer bears the risk of loss. Here, IMC and LSPI’s retention clauses triggered Article 1504(1), placing fire-loss risk on petitioner from delivery.

Insurable Interest under Insurance Code

Section 13 of the Insurance Code defines insurable interest as any pecuniary interest that would suffer direct loss from damage. Creditors retain insurable interest in unpaid accounts, regardless of title; IMC and LSPI could insure their receivables