Gaisano Cagayan Inc. v. Insurance Co. of North America, G.R. No. 147839, June 8, 2006


Intercapitol Marketing Corporation (IMC), maker of Wrangler Blue Jeans and Levi Strauss (Phils.) Inc. (LSPI), the local distributor of products  separately obtained from respondent fire insurance policies with book debt endorsements.  The insurance policies provide for coverage on book debts or those which are unpaid accounts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers.

Gaisano Complex, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

IMC and LSPI claimed their respective insurance policies with respondent. Then respondent filed a complaint for damages against petitioner alleging that it was subrogated to their rights against petitioner.

Petitioner contends that it could not be held liable because (1) the property covered by the insurance policies were destroyed due to fortuities event or force majeure; (2) IMC shall bear the loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that “the merchandise remains the property of the vendor until the purchase price thereof is fully paid.”

The RTC rendered its decision dismissing respondent’s complaint. It held that the fire was purely accidental; 

The CA rendered its decision setting aside the decision of the RTC. It held that the petitioner shall pay for even if the fire is considered a fortuitous event since what was insured was the vendor’s interest as a creditor not the lost goods.


WON CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.


NO. It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction. In this case, the questioned insurance policies provide coverage for “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;”

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract. What were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

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