Commercial Law, 2010 Bar — Question IX-B

ESSAY

To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance with the loan arrangements, Mario had the building insured with First Insurance Company for P10 million, designating Armando as the beneficiary. Armando also took an insurance on the building upon his own interest with Second Insurance Company for P5 million. The building was totally destroyed by fire, a peril insured against under both insurance policies. It was subsequently determined that the fire had been intentionally started by Mario and that in violation of the loan agreement, he had been storing inflammable materials in the building. What happens to the P10 million debt of Mario to Armando? Explain.

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