Laws Applicable:
FACTS:
- Cherie Palileo (debtor-mortgagor) filed a complaint against Beatriz Cosio (creditor-mortgagee) praying that their transaction be one of a loan with an equitable mortgage to secure the payment of the loan. The original counsel of Cosio Atty. Guerrero being appointed Undersecretary of Foreign Affairs so she forgot the date of the trial and she was substituted.
- it is a loan of P12,000 secured by a "Conditional Sale of Residential Building" with right to repurchase. After the execution of the contract, Cosio insured in her name the building with Associated Insurance & Surety Co. against fire.
- The building was partly destroyed by fire so she claimed an indemnity of P13,107
- Palileo demanded that the amount of insurance proceeds be credited to her loan
- RTC: it is a loan with equitable mortgage so the insurance proceeds should be credited to the loan and refund the overpayment.
ISSUE: W/N Cosio as mortgagee is entitled to the insurance proceeds for her own benefit
HELD: YES. Modify. collection of insurance proceeds shall not be deemed to have compensated the obligation of the Palileo to Cosio, but bars the Cosio from claiming its payment from the Palileo; and Cosio shall pay to Palileo P810 representing the overpayment made by Palileo by way of interest on the loan.
- When the the mortgagee may insure his interest in the property independently of the mortgagor , 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
- It is true that there are authorities which hold that "If a mortgagee procures insurance on his separate interest at his own expense and for his own benefit, without any agreement with the mortgagor with respect thereto, the mortgagor has no interest in the policy, and is not entitled to have the insurance proceeds applied in reduction of the mortgage debt" But these authorities merely represent the minority view