If the whole foundation of the contract fails, the risk does not attach and the policy never becomes a contract between the parties. Representations of facts are the foundation of the contract and if the foundation does not exist, the superstructure does not arise.
Paramount Shirt Mfg. Co., a shirt factory, had a fire insurance policy (open policy) with Oriental Assurance Corporation for an amount not exceeding P61k. Pacific Banking was Paramount’s creditor for P800k. The goods covered by the insurance were held in trust by Paramount for the benefit of Pacific under a trust receipt. Paramount endorsed the policy to Pacific as mortgagor/trustor with Oriental’s consent. The endorsement stated: “loss if any under this policy is payable to the Pacific Banking Corporation.” The goods insured were then totally destroyed by fire. Pacific demanded indemnity from Oriental. The latter refused on ground that, according to its adjuster, Pacific was yet to file a formal claim with it and submit proof of loss. Pacific then informed the adjuster to verify the loss with the Bureau of Customs, and again demanded payment from Oriental which remained unheeded.