Case Summary (G.R. No. L-21812)
Key Dates
– Fire loss: February 28, 1923
– Trial court judgment: April 19, 1924
– Supreme Court decision: December 2, 1924
Applicable Law
– Constitutional framework: Philippine Organic Act of 1902 (Insular Government)
– Substantive law: Civil Code of the Philippines (Act No. 180, 1917), particularly Article 1133 on alternative obligations
Factual Background
Petitioners insured a building for ₱30,000 and its contents for ₱15,000 against fire under two policies issued by respondent. On February 28, 1923, the insured house and its merchandise were destroyed by fire while both policies remained in force.
Policy Provision on Reinstatement (Clause 14)
Clause 14 of each policy provided that the insurer “may at its option reinstate or replace the property damaged or destroyed … instead of paying the amount of the loss or damage,” subject to reasonable sufficiency and a cap equal to the insured sum.
Legal Character of Clause 14 as an Alternative Obligation
Because Clause 14 gives the insurer a choice between two prestations—monetary payment or reconstruction—it creates an alternative obligation under Article 1133 of the Civil Code. Once the insurer elects one prestation, that election must be formally notified to the insured.
Requirement for Election and Notice
Article 1133 mandates that, in an alternative obligation, the debtor must notify the creditor of the chosen prestation, thereby allowing the creditor to consent or challenge the election in court. Absent proper notification and creditor assent (or judicial confirmation if disputed), the election has no binding effect.
Plaintiff’s Refusal of Rebuilding Offer
Although witnesses testified to discussions of reconstruction, the insurer never issued a formal notice of election to rebuild. Petitioners withheld consent because the proposed replacement would have been smaller and built with inferior materials. No additional indemnity was offered to account for these deficiencies or for the insured merchandise (₱15,000).
Trial Court Findings
The Court of First Instance of Iloilo ruled in favor of petitioners, ordering respondent to pay ₱45,000 with interest from February 28, 1923, plus costs. The trial judge held that compelling acceptance of
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Facts
- A building owned by Ong Guan Can was insured against fire by The Century Insurance Co., Ltd. for ₱30,000, with goods and merchandise inside insured for an additional ₱15,000.
- On the morning of February 28, 1923, the insured building and its contents were completely destroyed by fire while the insurance policies remained in force.
- The policies were governed by standard fire‐insurance conditions, including clause 14 concerning the insurer’s right to reinstate or replace damaged property.
Procedural History
- On April 19, 1924, the Court of First Instance of Iloilo rendered judgment in favor of the plaintiffs, awarding ₱45,000 (the aggregate insured value) with legal interest from February 28, 1923, until payment, plus costs.
- The Century Insurance Co., Ltd. appealed that judgment to the Supreme Court (G.R. No. 22738), arguing for modification and alternative relief under the policy.
Insurance Policy Terms
- Clause 14 provided that the insurer “may at its option reinstate or replace the property damaged or destroyed … instead of paying the amount of the loss or damage.”
- The clause limited the insurer’s expenditure in reinstatement to the cost of restoring the property as it existed at the time of loss, not to exceed the sum insured.
- It further stipulated that reinstatement need not be exact or complete but only “as circumstances permit and in a reasonably sufficient manner.”
Contentions of the Parties
- A