G.R. No.
L-5921 March 29, 1954 When appellee filed a motion for summary judgment upon her claim she attached thereto in support of the motion
SALVACION B. LONDRES, plaintiff-appellee,
vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, defendant-appellant.
Vicente M. Custodio for appellee.
E. V. Filamor for appellant.
BAUTISTA ANGELO, J.:
This is an appeal from a decision of the Court of First Instance of Manila ordering defendant to pay to plaintiff the sum of
P3,000, Philippine currency, plus legal interest thereon from the time of the filing of the complaint until its full payment.
On April 14, 1943, the National Life Insurance Company of the Philippines issued a policy on the life of Jose C. Londres
whereby it undertook to pay its beneficiary upon his death the sum of P3,000. All the premiums due under the policy
were actually paid on their dates of maturity and the policy was in force when the insured died on February 7, 1945.
Salvacion V. Londres, as beneficiary, demanded from the company the payment of the proceeds of the policy, and her
demand having been refused, she instituted the present action against the company in the Court of First Instance of
Manila.
Defendant and its answer denied, for lack of sufficient proof, the allegation that the insured died on February 7, 1945, and
set up the following special defenses: (a) that plaintiff's claim is covered by the Moratorium Law; (b) that the policy
having been issued during the Japanese occupation, it is presumed that its face value should be paid in Japanese currency,
there being no provision in the policy from which can be inferred that the parties contemplated payment in any other
currency; (c) that the money paid by the insured as premiums, together with the money received from other policy-
holders, was all deposited by the defendant in the Philippine National Bank and said deposit was declared without value
by Executive Order No. 49 of the President of the Philippines; and (d) that the policy having been issued under abnormal
circumstances, it should be considered in the light of equity which does not permit anyone to enrich himself at the
expense of another. Defendant, however, as a proof of good faith, offered to pay the value of the policy in accordance with
the Ballantyne scale of values, or the sum of P2,400, Philippine currency.
On April 15, 1952, plaintiff filed a motion for summary judgment supported by an affidavit which contains a restatement
of the allegations of the complaint attaching thereto in support of the motion certain annexes and affidavits which are
intended to substantiate and prove said allegations. Defendant, answering this motion, stated that while it joins the
plaintiff in her petition for summary judgment, it does so only in so far as its defense of moratorium is concerned, but not
as regards the merits of the case because its answer raises questions of fact which should be established, not by mere
affidavits, but by evidence duly presented in court. And on May 15, 1952, the court rendered decision not only on the
question of moratorium but on the merits of the case, apparently disregarding the issue raised by defendant as regards
the necessity of presenting evidence on the facts controverted by it in its answer. From this decision, the defendant has
appealed.
One of the errors assigned by appellants refers to the fact that the lower court rendered judgment on the merits by virtue
merely of the motion for summary judgment filed by appellee without giving an opportunity to appellant to present
evidence on the facts which, it alleges, its answer and special defenses are predicated. Appellant contends that the facts
raised by its special defenses are "triable issues of facts" which cannot be the subject of summary judgment unless
established by sufficient evidence, and that those facts are material to sustain its point of view that it can only be made to
pay under the policy an indemnity in the amount of P2,400.
certain annexes and affidavits which were intended to substantiate and prove her allegations. Appellant failed not only to
interpose opposing affidavits but announced to the court that it was joining the appellee in her petition for summary
judgment although it evinced its desire to present evidence with regard to the questions of facts raised in its special
defenses. And acting on said motion, the lower court, after considering the pleadings and affidavits submitted in support
of the motion for summary judgment, found that there was no substantial triable issue of facts and concluded that the
appellee was entitled to a judgment as a matter of law. We find this to be in substantial compliance with the rules
(sections 1 and 2, Rule 36).
The material averments of the claim as regards the execution of the policy, the payment of the premiums, and the death
of the insured, are not disputed. The only issues of fact which served as basis for the opposition to the summary
judgment are those raised in the special defenses contained in the answer. But these facts are not material for a decision
on the merits, as correctly stated by the lower court, for even if they are taken for granted the result would not materially
change the findings as to the question affecting the main claim. We hold therefore that the lower court did not err in
rendering a summary judgment on the merits of the case.
The issue of moratorium, which was decided against the stand taken by appellant, and which is also raised as one of the
errors, has now moot in view of the ruling in the case of Rutter vs. Esteban, 93 Phil., 68, wherein the Moratorium Law as
declared invalid and unconstitutional.
The main question to be determined refers to the amount to be paid by appellant under the policy by way of indemnity to
the insured. Stated in another way, the question to be determined is whether the amount of P3,000 which appellant
bound itself to pay to the insured under the policy upon his death should be paid in accordance with the present currency
or should be adjusted under the Ballantyne scale of values. The answer to the question would depend upon the
interpretation to be placed on the facts surrounding the death of the insured.
It appears that the deceased took up the policy under consideration on April 15, 1943 for the sum of P3,000. All the
premiums due under the policy were actually paid on their dates of maturity and the policy was in force when the
insured died on February 7, 1945. On said date, the battle of the liberation of the City of Manila was still raging. While the
northern part may have been liberated, not so the southern part, as shown from the very affidavits submitted by appellee
wherein it was stated that on the aforesaid date, the insured, Jose Londres, and his two sons were taken by the Japanese
soldiers from their house at Singalong Street and were massacred by their captors. It may therefore be said that the
policy became due when the City of Manila was still under the yoke of the enemy and became payable only after
liberation which took place on March 10, 1945 when President Osmea issued Proclamation No. 6 following the
restoration of the civil government by General Douglas Mac Arthur. And we say that the policy became payable only after
liberation even if it matured sometime before, because before that eventuality the insurance company, appellant herein,
was not yet in a position to pay the value of the policy for the simple reason that it had not yet reopened. This much the
court can take judicial notice of, for during those days of liberation, while the people were rejoicing because of the happy
event, the banks, the insurance companies, and for that matter other commercial and business firms, were still feeling the
adverse effects of the sudden fall of values and were uncertain and apprehensive as to the manner the readjustment
would be made by the new Government. It is for this reason that the beneficiary, after realizing the truth about the death
of her husband, and after gathering evidence to substantiate his death, had difficulty in effecting the collection of her
claim from the insurance company because at that time it had not yet reopened for business purposes. Although the
record does not disclose the exact date on which the insurance company reopened for this purpose, this Court can take
judicial notice that it only did so after liberation. At that time the legal tender was already the present currency.
However, it is an undisputed fact that the beneficiary submitted to the company formally her claim and demanded
payment thereof on May 16, 1949, attaching thereto sufficient proof of the death of the insured, which claim however the
company did not entertain, not because the proof submitted was not sufficient in contemplation of law, but because the
policy was executed during the occupation and the determination of its value has not yet been passed upon by the
Government. And following the provisions of our Insurance Law to the effect that in case of maturity by death, the
conclusion is inescapable that from the point of view of the insurance company, the proceeds of the policy became
payable only upon the expiration of that period. (Insurance Law, Section 91-A). In this sense, this case may be likened to
those already decided by this Court wherein we said in substance that, where the parties have agreed that the payment of
the obligation will be made in the currency that would prevail by the end of the stipulated period, and this takes place
after liberation, the obligation shall be paid in accordance with the currency then prevailing, or Philippine currency.
(Roo vs. Gomez, 83 Phil., 890, 46 Off. Gaz., Sup. 111, 339; Gomez vs. Tabia, 84 Phi;., 269, 47, Off. Gaz., 641.) We are,
therefore, persuaded to conclude, on the strength of these authorities, that the present claim should be paid in
accordance with the present legal tender, or the Philippine currency.
With regard to the sufficiency of the proof presented by appellee as to the death of the insured, we find that the same has
been sufficiently established in view of the death certificate issued by the Civil Register of Manila on April 15, 1952,
which was attached to the motion for summary judgment. This certificate strengthens the proof submitted by appellee on
May 16, 1949 and as such it can serve as basis for the determination of the interest that the company should pay under
the policy as required by law. (Insurance Law, Section 91-A). However, the lower court, contrary to the claim of appellant,
only required said appellant to pay legal interest from the filing of the complaint until the payment of the judgment.
As final plea, appellant invokes equity in its favor in view of the nullification of the deposits made by it with the Philippine
National Bank of all fiat money received from its policyholders, which money was declared without value by Executive
Order No. 49 of the President of the Philippines. Appellant claims that, considering the unexpected circumstances that
developed, the indemnity to be paid by it should be suffered by it under Article 307 of the Code of Commerce which
provides: "When the deposits are of cash, with a specification of the coins constituting them, . . . the increase or reduction
which their value may suffer shall be for the account of the depositor." Moreover, appellant, by entering into an insurance
contract, cannot claim, if it suffers loss, that the beneficiary cannot enrich herself at its expense. This is a risk attendant to
any wagering contract.1 One who gambles and loses cannot be heard to complain of his loss. To appellant, we can only
repeat the following admonition:
"The parties herein gambled and speculated on the date of the termination of the war and the liberation of the
Philippines by the Americans. This can be gleaned from the stipulation about redemption, particularly that portion to the
effect that redemption could be effected not before the expiration of one year from June 24, 1944. This kind of agreement
is permitted by law. We find nothing immoral or unlawful in it." (Gomez vs. Tabia, supra.)
Wherefore, the decision appealed from is affirmed, with costs against appellant.
G.R. No. L-9146 January 27, 1959
TERESA VDA. DE FERNANDEZ, ET AL., plaintiffs-appellants,
vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, defendant-appellee.
Jose G. Macatangay for appellants.
E. V. Filamor for appellee.
ENDENCIA, J.:
Appeal from a decision of the Court of First Instance of Manila applying the Ballantyne scale of values upon the proceeds
of life insurance taken and maturing during the Japanese occupation but claimed after liberation.
It is undisputed that on July 15, 1944, the National Life Insurance Company of the Philippines insured the life of Juan D.
Fernandez for the sum of P10,000 under Policy No. 16346 upon payment by the latter of the amount of P444 for the
period from July 15, 1944, to July 14, 1945, the beneficiaries thereof being his mother Teresa Duat Vda. de Fernandez and
his sisters Maria Teresa Fernandez and Manuel Fernandez. The insured died on November 2, 1944, at Muntinglupa, Rizal,
while the policy was in force.
After a lapse of more than seven years, or on August 1st, 1952, Atty. Alberto L. de la Torre, in representation of the
beneficiaries, wrote the company advising it that and insured had died in 1944, and claimed the proceeds of the policy.
On August 21, 1952, the company answered Atty. De la Torre stating that inasmuch as the status of the policies issued
during the Japanese occupation was still pending consideration before the courts, it would like to know whether the
beneficiaries represented by him were willing to compute the value of their claim under the Ballantyne scale of values.
There was no reply to this inquiry, but on July 9, 1954, the beneficiaries presented instead proofs of death of the insured
and at the same time filed Statement Exhibit G claiming the amount of P10,000. On July 21, 1954, the company advised
the beneficiaries that inasmuch as the policy matured upon the death of the insured on November 2, 1944, the proceeds
should be computed in accordance with the Ballantyne scale, which amount only to P500. In view of this, the
beneficiaries commenced suit on August 6, 1954, but the lower court sustained the stand of the company and dismissed
the complaint, awarding however to plaintiffs the sum of P500 in Philippine currency, without interest; hence the appeal.
Appellants vigorously maintain that the obligation of the company to pay the proceeds of the insurance accrued not upon
the death of the insured on November 2, 1944, but only upon receipt and approval by the company, at its Home Office, of
proof of death of the insured, which was on July 9, 1954 in accordance with the provision of the policy which reads
National Life Insurance Company of the Philippine hereby agrees to pay at its Home Office, Manila, Ten Thousand Pesos
to Juan D. Fernandez (hereinafter called the insured) on the 15th day of July, 1964, if the Insured is living and this Policy
is in force, or upon receipt and approved at its Office of due proofs of the title of the claimant and of the prior death of the
Insured while this Policy is in force to Teresa Duat Vda. De Fernandez, Maria T. and Manuela Fernandez, mother and
sisters respectively of the Insured (Hereinafter called the Beneficiary) subject to the right of the Insured to change the
beneficiary as stated on the second page of this Policy.
The above stipulation is apparently based on Sec. 91-A of the Insurance Law which provides as follows:
The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy, unless such proceeds are
made payable in installments or a as an annuity, in which case the installments or annuities shall be paid as they become
due: Provided, however, That in case of a policy maturing by the death of the insured, the proceeds thereof shall be paid
within sixty days after presentation of the claim and filing of the proof of the death of the insured. Refused to pay the
claim within the time prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the
duration of the delay at the rate of six per centum per annum, unless such failure or refusal to pay is based on the ground
that the claim is fraudulent . . . .
Butterssed on the foregoing provision of law and the aforequoted stipulation as well as on the allegation that the filing of
proof of death by the beneficiaries is a condition precedent of the demandability of the obligation of the insurer to pay
the proceeds, appellants claim that they should be paid P10,000 in Philippine currency and not under the Ballantyne
scale of values.
At any rate, irrespective of whether there was delay or not in the filing of proof of death, the hard fact remains that the
policy matured and was payable during the Japanese occupation, and under the doctrine in the Valero vs.
Sycip case, supra, payment should be adjusted in accordance with the Ballantyne scale of values.
Finding no error in the decision appealed from, and there being no question raised as to the adjusted amount of P500
under the Ballantyne schedule, judgment affirmed, with costs.

We find appellants' contention untenable. In life insurance, the policy matures either upon the expiration of the term set
forth therein in which case its proceeds are immediately payable to the insured himself, or upon his death occuring at
any time prior to the expiration of such stipulated term, in which case, the proceeds are payable to his beneficiaries
within sixty days after their filing of proof of death (Sec. 91-A Insurance Law). In the case at bar, the policy matured upon
the death of the insured on November 2, 1944, and the obligation of the insurer to pay arose as of that date. The sixty-day
period fixed by law within which to pay the proceeds after presentation of proof of death is merely procedural in nature,
evidently to determine the exact amount to be paid and the interest thereon to which the beneficiaries may be entitled to
collect in case of unwarranted refusal of the company to pay, and also to enable the insurer to verify or check on the fact G.R. No. L-15056 May 30, 1964
of death which it may even validly waive. It is the happening of the suspensive condition of death that renders a life
policy matured and not the filing of proof of death which, as a above stated, is merely procedural, for even if such proof M. S. GALUTERA, plaintiff-appellant,
were presented but if turns out later that the insured is alive, such filing does not give maturity to the policy. The insured vs.
having died on November 2, 1944, during the Japanese occupation, the proceeds of his policy should be adjusted MAERSK LINE CIA GRAL. DE TABACOS DE FILlPINAS and/or DELGADO BROS., INC., defendants-appellees.
accordingly, for
Ozaeta, Gibbs and Ozaeta for plaintiff-appellant.
The rule is already settled that where a debtor could have paid his obligation at any time during the Japanese occupation, Ross, Selph and Carrascoso and Leocadio de Asis for defendants-appellees.
payment after liberation must be adjusted in accordance with the Ballantyne schedule (De Asis vs. Agdamag, 90 Phil.,
MAKALINTAL, J.:
249; Ang Lam vs. Peregrina, 92 Phil., 506; Wilson vs. Berkenkotter, 92 Phil., 918; 49 Off. Gaz. No. 4 1401; Samson vs.
Andal de Aguila, 94 Phil., 402). (Valero vs. Sycip, L-1119. May 23, 1958.)
This case has come directly to us on appeal from the Court of First Instance of Manila (Civil Case No. 30235).
Appellants vehemently invoke our ruling in the case of Salvacion B. Londres vs. The National Life Insurance Company of
In June 1955 a consignment of 12 bales of cotton prints was shipped in New York, for Manila, aboard the SS "Johannes
the Philippines, 94 Phil., 627 wherein, although the policy matured during the Japanese occupation, we allowed the
Maersk," operated by the Maersk Line, one of herein defendants-appellees. The shipment was consigned to the order of
proceeds to be paid in the present legal tender. That case, however, is not applicable to the present. In that case the
the Bank of the Philippine Islands, with arrival notice to plaintiff-appellant M. S. Galutera. The shipment arrived in Manila
insured, Jose Londes, and his two sons were massacred by Japanese soldiers on February 7, 1945, while the battle for the
in July 1955, was transferred in due course to the ownership of plaintiff-appellant, and then cleared by her customs
liberation of Manila was still raging and downtown offices, including that of the appelle, were closed for the duration.
broker through the Tabacalera (Cia. Gral de Tabacos de Filipinas), as local agent of the Maersk Line, and through
Thus we declared:
defendant-appellee Delgado Brothers Inc., as operator of the arrastre service. When the shipment was delivered to
plaintiff-appellant by the said arrastre operator, one bale of cotton prints was missing. 1wph1.t
It may therefore be said that the policy became due when the city of Manila was still under the yoke of the enemy and
became payable only after liberation which took place on March 10, 1945, when President Osmea issued Proclamation
In the action filed for the recovery of the sum of P1,459.56 representing the value of the missing merchandise, the Court a
No. 6 following the restoration of the civil government by General Douglas MacArthur. And we say that the policy became
quo found from the evidence and declared that the loss was attributable to defendant-appellee, Delgado Brothers Inc. The
payable only after liberation even if it matured sometime before, because before that eventuality the insurance company,
Court, however, denied recovery to plaintiff-appellant on the ground that she had already been paid the value of the
appellant herein, was not yet in a position to pay the value of the policy for the simple reason that it has not yet reopened.
missing bale by the American Insurance Company, with which the shipment had been insured through its Philippine
...
representative, E.E. Elser, Inc.
In the present case the Home Office of the appellee was open for business until the last days of January, 1945, and had
It is not denied that plaintiff-appellant received from the insurer the sum now in dispute, but she maintains that she
business transactions not only with the bank but also with its customers before its closure, and as a matter of fact had
received it not as payment but merely as a loan "repayable to the extent of any recovery she could make from the party or
been making payments of claims as they were presented. The policy in question having matured on November 2, 1944,
parties responsible for the loss of the missing bale of cotton prints." Plaintiff-appellant's position on this point is
same could have been processed and paid before the company closed its Home Office in January, 1945. Appellants argue
supported by Exhibit F, which provides as follows:
that they could not have presented their claim and proof of death during the Japanese occupation even if they wanted to
because they knew that the deceased was insured only after liberation when the policy was handed to them by Mr. Pablo
Received from the AMERICAN INSURANCE COMPANY One Thousand Four Hundred Fifty Nine and 56/100 (P1,459.56)
P. Gabriel, a business partner of the deceased. The delay in the presentation of proof of death does not make any
Pesos as a loan repayable only to the extent of any net recovery, the undersigned may make from any vessel, carrier,
difference, for it does not alter the date of maturity of the policy nor the ability of the company to pay the proceeds of the
bailee or others, upon or by reason of any claim or loss of or damage to the property described below, or from any
insurance during the Japanese occupation. Moreover, it is through no fault of the company that such delay was incurred.
insurance effected by us or by any carrier, bailee or others on said property and as security for such payment we hereby
pledge to the said AMERICAN INSURANCE COMPANY all such claims and any recovery thereon. We hereby appoint the
said AMERICAN INSURANCE COMPANY our agents and Attorneys in Fact, with irrevocable power to collect any such
claim and to begin, prosecute, compromise or draw, in our name but at the expense of the said AMERICAN INSURANCE
COMPANY, any legal proceeding which they may deem necessary to enforce such claim or claims, and to execute in our
name any documents which may be necessary to carry into effect the purposes of this agreement. In further
consideration of the said advance, we hereby guarantee that we are the person entitled to enforce the terms of the
contract of transportation set forth in the bills of lading covering the said property.
On the other hand, defendant-appellee Delgado Brothers, Inc., refers to plaintiff-appellant's admission in her testimony at
the trial to the effect that she had been "paid" by the insurer, and to said defendant's documentary evidence, particularly
Exhibit 3, which is a letter of E.E. Elser Inc. to Delgado Brothers, Inc., advising the latter that the former had paid the
corresponding amount to M.S. Galutera and was therefore subrogated in her place for which reason any payment to be
made by the Delgado Brother. Inc. should be to E.E. Elser, Inc.
The trial court, as already noted, upheld the position of defendant Delgado Brothers, Inc., and while finding that the loss
was attributable to it declined to give judgment in favor of plaintiff. After the decision was rendered the latter filed a
motion for reconsideration and, in the alternative, for the inclusion of the American Insurance Company as co-plaintiff
pursuant to Section 3 of Rule 3, or for an amendment of the pleadings so as to implead the said company in order to make
them conform to the evidence presented. The motion was denied.
The overriding fact in this case which is not at all controverted in this appeal is that Delgado Brothers, Inc., is liable
for the loss. Whether payment thereof should be made to plaintiff-appellant or to the American Insurance Company is a
technicality that should be, overlooked. In the written agreement between them, Exhibit F, the amount representing the
loss, if recovered by, plaintiff-appellant, should be repaid to the said company. That agreement is binding upon them,
such that a judgment rendered in favor of plaintiff-appellant, is the only claimant in this case, would relieve defendant-
appellee Delgado Brothers, Inc., of any further liability by reason of such loss. Indeed the terms of Exhibit F do not make
for subrogation of the insurer to the rights of the insured, and hence have not divested the latter of her right to file this
suit.
The following citations are pertinent:
For many years it has been customary for insurers, in order to save light of their assureds and to promptly place them in
funds, so that their business might be continued without embarrassment, to lend to their assureds the amount of the loss
repayable only out of money collected on account of the loss. There is a line of cases approving such arrangements and
holding that such loans are not a payment of insurance. (First National Bank of Ottawa v. Lloyd's of London 116 F. 2d,
221, 226.)
The right of the libelant to prosecute the libel under this state of facts is challenged. The transaction with the insurance
company did not divest the libelant of his title to and interest in the properly, and was not a satisfaction of his claim
either against the insurance company or the libelee. If it were, in terms, a satisfaction of the claim for insurance, it would
not avail the libelee. ... . (The Guiding Star, 53 F. 936, 940)
And in Lee v. Barrett (1913) 82 Misc. 475, 144 N.Y. Supp. 941, where, after a loss to a shipper and occurred because of a
carrier's default, an insurer which had issued a policy to the shipper advanced money to the latter, and took an
instrument acknowledging the receipt of the sum advanced "as a loan, and repayable only to the extent of any net
recovery we may make from any carrier, bailee, or others, on account of loss of our property," and pledging to the insurer
any recovery from the carrier, or from an insurer of the carrier, and agreeing to deliver the bills of lading and to
prosecute suit against the carrier on the claim, at the expense, and under the exclusive direction and control of the
insurer, it was held that the advancement did not constitute a payment of the loss, and that the insurer was not,
therefore, subrogated to insured's rights against the carrier, and an action was, therefore, held properly brought by an
assignor of the insured. (1 A.L.R. 1529)
The insistence of defendant-appellee on the question of who should properly have filed this suit is based on a technicality
that should be brushed aside. To permit plaintiff-appellant to recover, subject of course to her obligation to the American
Insurance Company under Exhibit F, would avoid unnecessary delay and multiplicity of suits in the attainment of the
same result, namely the enforcement of an undisputed liability on the part of one of the parties.
The judgment appealed from is reversed and defendant-appellee Delgado Brothers, Inc. is ordered to pay plaintiff-
appellant the sum of P1,459.56, as stated in the complaint, with legal interest thereon from the date of its filing, and costs.
G.R. No. L-18965 October 30, 1964
COMPAIA MARITIMA, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
Rafael Dinglasan for petitioner.
Ozaeta Gibbs & Ozaeta for respondent.
BAUTISTA ANGELO, J.:
Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the services of the
Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp from the former's Sasa private pier
at Davao City to Manila and for their subsequent transhipment to Boston, Massachusetts, U.S.A. on board the S.S. Steel
Navigator. This oral contract was later on confirmed by a formal and written booking issued by Macleod's branch office in
Sasa and handcarried to Compaia Maritima's branch office in Davao in compliance with which the latter sent to
Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was completed on October 29, 1952.
These two lighters were manned each by a patron and an assistant patron. The patrons of both barges issued the
corresponding carrier's receipts and that issued by the patron of Barge No. 1025 reads in part:
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES,
Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the government's marginal
wharf in the same place to await the arrival of the S.S. Bowline Knot belonging to Compaia Maritima on which the hemp
was to be loaded. During the night of October 29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting
in the damage or loss of 1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the
carrier's main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was brought to Odell
Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying. During the period from November 1-
15, 1952, the carrier's trucks and lighters hauled from Odell to Macleod at Sasa a total of 2,197.75 piculs of the
reconditioned hemp out of the original cargo of 1,162 bales weighing 2,324 piculs which had a total value of 116,835.00.
After reclassification, the value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72.
Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking, grading, rebating, and
other fees for washing, cleaning and redrying in the amount of P19.610.00, the total loss adds up to P60,421.02.
All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025, were insured with the
Insurance Company of North America against all losses and damages. In due time, Macleod filed a claim for the loss it
suffered as above stated with said insurance company, and after the same had been processed, the sum of P64,018.55
was paid, which was noted down in a document which aside from being a receipt of the amount paid, was a subrogation
agreement between Macleod and the insurance company wherein the former assigned to the latter its rights over the
insured and damaged cargo. Having failed to recover from the carrier the sum of P60,421.02, which is the only amount
supported by receipts, the insurance company instituted the present action on October 28, 1953. After trial, the court a
quo rendered judgment ordering the carrier to pay the insurance company the sum of P60,421.02, with legal interest
thereon from the date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the
Court of Appeals on December 14, 1960. Hence, this petition for review.
The issues posed before us are: (1) Was there a contract of carriage between the carrier and the shipper even if the loss
occurred when the hemp was loaded on a barge owned by the carrier which was loaded free of charge and was not
actually loaded on the S.S. Bowline Knot which would carry the hemp to Manila and no bill of lading was issued
therefore?; (2) Was the damage caused to the cargo or the sinking of the barge where it was loaded due to a fortuitous
event, storm or natural disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue
the carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the carrier as
insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in regarding Exhibit NNN-1 as an
implied admission by the carrier of the correctness and sufficiency of the shipper's statement of accounts contrary to the
burden of proof rule?; and (5) Can the insurance company maintain this suit without proof of its personality to do so?
1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and Company contracted
by telephone the services of petitioner to ship the hemp in question from the former's private pier at Sasa, Davao City, to
Manila, to be subsequently transhipped to Boston, Massachusetts, U.S.A., which oral contract was later confirmed by a
formal and written booking issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its
lighters to undertake the service. It also appears that the patrons of said lighters were employees of the carrier with due
authority to undertake the transportation and to sign the documents that may be necessary therefor so much so that the
patron of LCT No. 1025 signed the receipt covering the cargo of hemp loaded therein as follows: .
Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND COMPANY OF PHILIPPINES,
Sasa Davao, for transhipment at Manila onto S.S. Steel Navigator.
FINAL DESTINATION: Boston.
The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at Sasa preparatory to its
loading onto the ship Bowline Knot does not in any way impair the contract of carriage already entered into between the
carrier and the shipper, for that preparatory step is but part and parcel of said contract of carriage. The lighters were
merely employed as the first step of the voyage, but once that step was taken and the hemp delivered to the carrier's
employees, the rights and obligations of the parties attached thereby subjecting them to the principles and usages of the
maritime law. In other words, here we have a complete contract of carriage the consummation of which has already
begun: the shipper delivering the cargo to the carrier, and the latter taking possession thereof by placing it on a lighter
manned by its authorized employees, under which Macleod became entitled to the privilege secured to him by law for its
safe transportation and delivery, and the carrier to the full payment of its freight upon completion of the voyage.
The receipt of goods by the carrier has been said to lie at the foundation of the contract to carry and deliver, and if
actually no goods are received there can be no such contract. The liability and responsibility of the carrier under a
contract for the carriage of goods commence on their actual delivery to, or receipt by, the carrier or an authorized agent.
... and delivery to a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in that way, is
a good delivery and binds the vessel receiving the freight, the liability commencing at the time of delivery to the lighter. ...
and, similarly, where there is a contract to carry goods from one port to another, and they cannot be loaded directly on
the vessel and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its substitutes, so that
the bill of landing is applicable to the goods as soon as they are placed on the lighters. (80 C.J.S., p. 901, emphasis
supplied)
... The test as to whether the relation of shipper and carrier had been established is, Had the control and possession of the
cotton been completely surrendered by the shipper to the railroad company? Whenever the control and possession of
goods passes to the carrier and nothing remains to be done by the shipper, then it can be said with certainty that the
relation of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W. 419, 46 A. St. Rep. 202;
Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W. 834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark.
365, 185 S.W. 461, L.R.A. 1916E, 1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).
The claim that there can be no contract of affreightment because the hemp was not actually loaded on the ship that was
to take it from Davao City to Manila is of no moment, for, as already stated, the delivery of the hemp to the carrier's
lighter is in line with the contract. In fact, the receipt signed by the patron of the lighter that carried the hemp stated that
he was receiving the cargo "in behalf of S.S. Bowline Knot in good order and condition." On the other hand, the authorities
are to the effect that a bill of lading is not indispensable for the creation of a contract of carriage.
Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of lading, although article 350 of the
Code of Commerce provides that "the shipper as well as the carrier of merchandise or goods may mutua-lly demand that
a bill of lading is not indispensable. As regards the form of the contract of carriage it can be said that provided that there
is a meeting of the minds and from such meeting arise rights and obligations, there should be no limitations as to form."
The bill of lading is not essential to the contract, although it may become obligatory by reason of the regulations of
railroad companies, or as a condition imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed upon by both parties. (Del Viso, pp.
314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the Code does not demand, as necessary requisite in the
contract of transportation, the delivery of the bill of lading to the shipper, but gives right to both the carrier and the
shipper to mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895). (Martin, Philippine
Commercial Laws, Vol. II, Revised Edition, pp. 12-13)
The liability of the carrier as common carrier begins with the actual delivery of the goods for transportation, and not
merely with the formal execution of a receipt or bill of lading; the issuance of a bill of lading is not necessary to complete
delivery and acceptance. Even where it is provided by statute that liability commences with the issuance of the bill of
lading, actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)
2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind the claim of force
majeure or storm which occurred on the night of October 29, 1952. But the evidence fails to bear this out.
Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but to lack of adequate
precautions or measures taken by the carrier to prevent the loss as may be inferred from the following findings of the
Court of Appeals:
Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had cracks on its bottom (pp. 18-19,
t.s.n., Sept. 13, 1959) which admitted sea water in the same manner as rain entered "thru tank man-holes", according to
the patron of LCT No. 1023 (exh. JJJ-4) conclusively showing that the barge was not seaworthy it should be noted
that on the night of the nautical accident there was no storm, flood, or other natural disaster or calamity. Certainly, winds
of 11 miles per hour, although stronger than the average 4.6 miles per hour then prevailing in Davao on October 29, 1952
(exh. 5), cannot be classified as storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to
75 miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of from 55 to 74 miles per
hour in order to be classified as storm (Northern Assurance Co., Ltd. vs. Visayan Stevedore Transportation Co., CA-G.R.
No. 23167-R, March 12, 1959).
The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors, attributes the sinking of LCT
No. 1025 to the 'non-water-tight conditions of various buoyancy compartments' (exh. JJJ); and this report finds
confirmation on the above-mentioned admission of two witnesses for appellant concerning the cracks of the lighter's
bottom and the entrance of the rain water 'thru manholes'." We are not prepared to dispute this finding of the Court of
Appeals.
3. There can also be no doubt that the insurance company can recover from the carrier as assignee of the owner of the
cargo for the insurance amount it paid to the latter under the insurance contract. And this is so because since the cargo
that was damaged was insured with respondent company and the latter paid the amount represented by the loss, it is but
fair that it be given the right to recover from the party responsible for the loss. The instant case, therefore, is not one
between the insured and the insurer, but one between the shipper and the carrier, because the insurance company
merely stepped into the shoes of the shipper. And since the shipper has a direct cause of action against the carrier on
account of the damage of the cargo, no valid reason is seen why such action cannot be asserted or availed of by the
insurance company as a subrogee of the shipper. Nor can the carrier set up as a defense any defect in the insurance policy
not only because it is not a privy to it but also because it cannot avoid its liability to the shipper under the contract of
carriage which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting the
following comments of the Court of Appeals:
It was not imperative and necessary for the trial court to pass upon the question of whether or not the disputed abaca
cargo was covered by Marine Open Cargo Policy No. MK-134 isued by appellee. Appellant was neither a party nor privy to
this insurance contract, and therefore cannot avail itself of any defect in the policy which may constitute a valid reason
for appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever defect the policy contained,
if any, is deemed to have been waived by the subsequent payment of Macleod's claim by appellee. Besides, appellant is
herein sued in its capacity as a common carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit
MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the Philippines for the los or damage to
the 1,162 bales of hemp after these were received in good order and condition by the patron of appellant's LCT No. 1025,
it necessarily follows that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into the
shoes of and substi-tuted the latter in demanding from appellant the payment for the loss and damage aforecited.
4. It should be recalled in connection with this issue that during the trial of this case the carrier asked the lower court to
order the production of the books of accounts of the Odell Plantation containing the charges it made for the loss of the
damaged hemp for verification of its accountants, but later it desisted therefrom on the claim that it finds their
production no longer necessary. This desistance notwithstanding, the shipper however pre-sented other documents to
prove the damage it suffered in connection with the cargo and on the strength thereof the court a quo ordered the carrier
to pay the sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the desistance of
the carrier from producing the books of accounts of Odell Plantation implies an admission of the correctness of the
statements of accounts contained therein, petitioner now contends that the Court of Appeals erred in basing the
affirmance of the award on such erroneous interpretation.
There is reason to believe that the act of petitioner in waiving its right to have the books of accounts of Odell Plantation
presented in court is tantamount to an admission that the statements contained therein are correct and their verification
not necessary because its main defense here, as well as below, was that it is not liable for the loss because there was no
contract of carriage between it and the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the
carrier's theory, the correctness of the account representing the loss was not so material as would necessitate the
presentation of the books in question. At any rate, even if the books of accounts were not produced, the correctness of the
accounts cannot now be disputed for the same is supported by the original documents on which the entries in said books
were based which were presented by the shipper as part of its evidence. And according to the Court of Appeals, these
documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.
5. Finally, with regard to the question concerning the personality of the insurance company to maintain this action, we
find the same of no importance, for the attorney himself of the carrier admitted in open court that it is a foreign
corporation doing business in the Philippines with a personality to file the present action.
WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
G.R. No. L-27796 March 25, 1976
ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant,
vs.
MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN MANILA PORT SERVICE
and/or MANILA RAILROAD COMPANY, defendants-appellees.
Chuidian Law Office for appellant.
Salcedo, Del Rosario Bito & Mesa for appellee Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm
Wilhelmsen
Macaranas & Abrenica for appellee Manila Port Service and/or Manila Railroad Company.
ANTONIO, J.:
Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, 1 on the ground that the appeal involves
purely questions of law, thus: (a) whether or not, in case of loss or damage, the liability of the carrier to the consignee is
limited to the C.I.F. value of the goods which were lost or damaged, and (b) whether the insurer who has paid the claim in
dollars to the consignee should be reimbursed in its peso equivalent on the date of discharge of the cargo or on the date
of the decision.
According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York, U.S.A., shipped aboard the SS
"Tai Ping", owned and operated by Wilhelm Wilhelmsen 218 cartons and drums of drugs and medicine, with the freight
prepaid, which were consigned to Winthrop-Stearns Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of
Wilhelm Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper, with arrival notice in
Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment was insured by the shipper against loss
and/or damage with the St. Paul Fire & Marine Insurance Company under its insurance Special Policy No. OC-173766
dated June 23, 1960 (Exhibit "S").
On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid shipment into the custody
of Manila Port Service, the arrastre contractor for the Port of Manila. The said shipment was discharged complete and in
good order with the exception of one (1) drum and several cartons which were in bad order condition. Because
consignee failed to receive the whole shipment and as several cartons of medicine were received in bad order condition,
the consignee filed the corresponding claim in the amount of Fl,109.67 representing the C.I.F. value of the damaged drum
and cartons of medicine with the carrier, herein defendants- appellees (Exhibits "G" and "H") and the Manila Port Service
(Exhibits "I" & "J" However, both refused to pay such claim. consequently, the consignee filed its claim with the insurer,
St. Paul Fire & Marine insurance Co. (Exhibit "N"), and the insurance company, on the basis of such claim, paid to the
consignee the insured value of the lost and damaged goods, including other expenses in connection therewith, in the total
amount of $1,134.46 U.S. currency (Exhibit "U").
On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire & Marine
Insurance Co., instituted with the Court of First Instance of Manila the present action 2 against the defendants for the
recovery of said amount of $1,134.46, plus costs.
On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company resisted the action, contending,
among others, that the whole cargo was delivered to the consignee in the same condition in which it was received from
the carrying vessel; that their rights, duties and obligations as arrastre contractor at the Port of Manila are governed by
and subject to the terms, conditions and limitations contained in the Management Contract between the Bureau of
Customs and Manila Port Service, and their liability is limited to the invoice value of the goods, but in no case more than
P500.00 per package, pursuant to paragraph 15 of the said Management Contract; and that they are not the agents of the
carrying vessel in the receipt and delivery of cargoes in the Port of Manila.
On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen also
contested the claim alleging, among others, that the carrier's liability for the shipment ceased upon discharge thereof
from the ship's tackle; that they and their co-defendant Manila Port Service are not the agents of the vessel; that the said
218 packages were discharged from the vessel SS "Tai Ping" into the custody of defendant Manila Port Service as
operator of the arrastre service for the Port of Manila; that if any damage was sustained by the shipment while it was
under the control of the vessel, such damage was caused by insufficiency of packing, force majeure and/or perils of the
sea; and that they, in good faith and for the purpose only of avoiding litigation without admitting liability to the
consignee, offered to settle the latter's claim in full by paying the C.I.F. value of 27 lbs. caramel 4.13 kilos methyl salicylate
and 12 pieces pharmaceutical vials of the shipment, but their offer was declined by the consignee and/or the plaintiff.
After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants Macondray & Co., Inc., Barber
Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the plaintiff, jointly and severally, the sum of P300.00, with legal
interest thereon from the filing of the complaint until fully paid, and defendants Manila Railroad Company and Manila
Port Service to pay to plaintiff, jointly and severally, the sum of P809.67, with legal interest thereon from the filing of the
complaint until fully paid, the costs to be borne by all the said defendants. 3
On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its equivalent in pesos at the
rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for reconsideration, but this was denied by the lower
court on May 5, 1965. Hence, the present appeal.
Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover from the defendants-
appellees the amount of $1,134.46 which it actually paid to the consignee (Exhibits "N" & "U") and which represents the
value of the lost and damaged shipment as well as other legitimate expenses such as the duties and cost of survey of said
shipment, and that the exchange rate on the date of the judgment, which was P3.90 for every US$1.00, should have been
applied by the lower court.
Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods, pursuant to contract of sea
carriage embodied in the bill of lading that the consignee's (Winthrop-Stearns Inc.) claim against the carrier (Macondray
& Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port Service and Manila
Railroad Company) was only for the sum of Pl,109.67 (Exhibits "G", "H", "I" & "J"), representing the C.I.F. value of the loss
and damage sustained by the shipment which was the amount awarded by the lower court to the plaintiff-
appellant; 4 defendants appellees are not insurers of the goods and as such they should not be made to pay the insured
value therefor; the obligation of the defendants-appellees was established as of the date of discharge, hence the rate of
exchange should be based on the rate existing on that date, i.e., August 7, 1960, 5 and not the value of the currency at the
time the lower court rendered its decision on March 10, 1965.
The appeal is without merit.
The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to the contract to
carry. 6 The stipulation in the bill of lading limiting the common carrier's liability to the value of the goods appearing in
the bill, unless the shipper or owner declares a greater value, is valid and binding. 7 This limitation of the carrier's
liability is sanctioned by the freedom of the contracting parties to establish such stipulations, clauses, terms, or
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs and public
policy. 8 A stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or deterioration of the
goods is valid, provided it is (a) reasonable and just under the circumstances, 9 and (b) has been fairly and freely agreed
upon.10 In the case at bar, the liabilities of the defendants- appellees with respect to the lost or damaged shipments are
expressly limited to the C.I.F. value of the goods as per contract of sea carriage embodied in the bill of lading, which reads:
Whenever the value of the goods is less than $500 per package or other freight unit, their value in the calculation and
adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding uncertainties and difficulties in
fixing value be deemed to be the invoice value, plus frieght and insurance if paid, irrespective of whether any other value
is greater or less.
The limitation of liability and other provisions herein shall inure not only to the benefit of the carrier, its agents, servants
and employees, but also to the benefit of any independent contractor performing services including stevedoring in
connection with the goods covered hereunder. (Paragraph 17, emphasis supplied.)
It is not pretended that those conditions are unreasonable or were not freely and fairly agreed upon. The shipper and
consignee are, therefore, bound by such stipulations since it is expressly stated in the bill of lading that in "accepting this
Bill of Lading, the shipper, owner and consignee of the goods, and the holder of the Bill of Lading agree to be bound by all
its stipulations, exceptions and conditions, whether written, stamped or printed, as fully as if they were all signed by such
shipper, owner, consignee or holder. It is obviously for this reason that the consignee filed its claim against the
defendants-appellees on the basis of the C.I.F. value of the lost or damaged goods in the aggregate amount of Pl,109.67
(Exhibits "G", "H", "I", and "J"). 11
The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the insurance, is subrogated
merely to the rights of the assured. As subrogee, it can recover only the amount that is recoverable by the latter. Since the
right of the assured, in case of loss or damage to the goods, is limited or restricted by the provisions in the bill of lading, a
suit by the insurer as subrogee necessarily is subject to like limitations and restrictions.
The insurer after paying the claim of the insured for damages under the insurance is subrogated merely to the rights of
the insured and therefore can necessarily recover only that to what was recoverable by the insured.12
Upon payment for a total loss of goods insured, the insurance is only subrogated to such rights of action as the assured
has against 3rd persons who caused or are responsible for the loss. The right of action against another person, the
equitable interest in which passes to the insurer, being only that which the assured has, it follows that if the assured has
no such right of action, none passes to the insurer, and if the assured's right of action is limited or restricted by lawful
contract between him and the person sought to be made responsible for the loss, a suit by the insurer, in the Tight of the
assured, is subject to like limitations or restrictions. 13
Equally untenable is the contention of the plaintiff-appellant that because of extraordinary inflation, it should be
reimbursed for its dollar payments at the rate of exchange on the date of the judgment and not on the date of the loss
or damage. The obligation of the carrier to pay for the damage commenced on the date it failed to deliver the shipment in
good condition to the consignee.
The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the consignee dated September
26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33 (shortlanded, Exhibit "H") or P456.14 and P653.53,
respectively, in Philippine Currency. The peso equivalent was based by the consignee on the exchange rate of P2.015 to
$1.00 which was the rate existing at that time. We find, therefore, that the trial court committed no error in adopting the
aforesaid rate of exchange.
WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiff-appellant.
Barredo, Aquino, Concepcion, Jr. and and Martin, JJ., concur.
G.R. No. L-24826 March 20, 1968
ST. PAUL FIRE & MARINE INSURANCE COMPANY, plaintiff-appellee,
vs.
MACONDRAY & CO., INC., ET AL., defendants,
MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellants.
Chuidian Law Office for plaintiff-appellee.
Ross, Selph, Salcedo, Del Rosario, Bito, & Misa for defendant-appellant Macondray & Co. Inc.
D.F. Macaranas and Alipio M. Abrenica for defendant-appellant Manila Port Service.
ANGELES, J.:
Plaintiff-appellee, St. Paul Fire & Marine Insurance Company, was the insurer of a shipment consisting of 218
packages of medicinal and pharmaceutical products consigned to Winthrop Stearns, Inc., Manila, loaded on the vessel SS
Tei Ping, "which arrived in Manila on August 7, 1960, and discharged unto the custody of the arrastre operator, the
Manila Port Service, on August 11, 1960.
For loss and damage sustained by the abovementioned shipment, the consignee demanded and collected from the
insurer the reasonable value thereof, including other expenses, amounting to $1,071.58.
The insurance company, as subrogee of the consignee, filed complaint with the Court of First Instance of Manila,
alleging that the subject loss and damage were due to the fault and/or negligence of the defendants Wilhelm Wilhelmsen
and/or its agents Barber Steamship Lines, Inc. and/or Macondray & Co., proir to the delivery thereof to the Manila Port
Service, or in the alternative, that said loss and damage were due to the fault or negligence of the Manila Port Service and
the Manila Railroad Company, after delivery thereof of the goods to the latter.
Answering the complaint, the Manila Port Service and Manila Railroad Company denied responsibility of the alleged
loss and damage on the ground that the goods have been delivered to the consignee in the same condition as they were
received by them from the carrying vessel. At the same time, they pleaded, in defense, the provisions of paragraph 15 of
the Management Contract.
In their answer, the other defendants, although denying responsibility and liability for the loss, alleged that for the
purposes of avoiding litigation, they had offered to settle the plaintiff's claim in full by paying the c.i.f. value of the lost
and damaged shipment, but the consignee and its subrogee declined the offer.
After trial and the submission of the parties' memoranda, the court found that plaintiff's claim had to do with one
undelivered carton and damage on six cartons and one drum, with a total value of P1,109.67; that said shipment of 218
cartons was discharged from the vessel complete and in good order, with the exception of one drum and 3 cartons, hence,
any loss or damage thereof are the responsibility of the owner and operator of the vessel and its agents, while the
undelivered carton and any damage on the remaining three cartons are the responsibility of the arrastre contractor and
its principal company. The court thus rendered judgment in accordance with the findings; and to be more specific, it fixed
the liability of the first set of defendants, for the damage on the one drum and three cartons, at P300.00; while that of the
second set of defendants, for the undelivered carton and the damage on the remaining three cartons, for P809.67 both
amounts with legal interest from the filing of the complaint until fully paid.
The Manila Port Service and the Manila Railroad Company have appealled.
It is contended in the first place that the complaint should be dismissed because the provisional claim, for the
alleged lost and damaged goods, was not filed within the fifteen-day period fixed by the Management Contract for filing
such claims. The contention is meritorious, for the reason that while the carrying vessel discharged its last package on
August 11, 1960, the claim adverted to was filed the day before or on August 10, 1960. This Court has repeatedly held
that a stereo-type provisional clam for "any shortage or damage that may after examination be found to exist" filed
against the arrastre operator before the discharge of the last package from the carrying vessel is not a compliance with
the provision of the said Management Contract entered into between the consignee of the goods and the arrastre
operator, such claim being premature and speculative. 1 To allow it would swamp the arrastre service with advance
claims of brokers for a goods consigned to their customers.
Of course, this ruling is not without any exception. In Switzerland General Insurance Co., Inc. vs. Java Pacific and
Hoegh Lines, et al., G.R. No. L-21760, April 30, 1966, a claim filed in advance was held to have constituted substantial
compliance with the provision of Section 15 of the Management Contract. But this, under the conditions that, upon the
examination of the shipment before the discharge of the last package from the boat, certain shortages were found and
that examination took place in the presence of the representatives of both parties, which conditions do not appear to
obtain here. The bare allegation of the plaintiff-appellee that claimant had knowledge of the loss and damage before the
boat or vessel had finally unloaded all its cargo, which allegation is not supported by the evidence, and without any
showing under what circumstances the alleged knowledge had come about, would not cause Us to deviate from the
general ruling on the matter.
In view of these findings, We need not go into the other issue raised by appellant, which merely refers to the amount
for which the defendant-appellee would be held liable should recovery appear to be proper.
WHEREFORE, the decision appealed from is hereby reversed. No costs at this instance.
G.R. No. L-28237 August 31, 1982
BAY VIEW HOTEL., INC., plaintiff-appellant,
vs.
KER & CO., LTD., and PHOENIX ASSURANCE CO., LTD., defendants-appellees.
Mariano V. Ampil, Jr. for plaintiff-appellant.
Alfonso Felix, Jr. for defendants-appellants.
& their joint answer to the amended complaint. Again, Ker & Co., Ltd., argued that it was merely an agent and therefore not
TEEHANKEE, J.:
This appeal was originally brought before the Court of Appeals but was certified to this Court pursuant to the appellate
court's resolution of October 13, 1967 since it involved purely questions of law.
Sometime in January, 1958, plaintiff-appellant Bay View Hotel, Inc., then the lessee arid operator of the Manila Hotel,
secured a fidelity guarantee bond from defendant-appellee Ker & Co., Ltd., for its accountable employees against acts of
fraud and dishonesty. Said defendant-appellee Ker & Co., Ltd., is the Philippine general agent of Phoenix Assurance Co.,
Ltd. a foreign corporation duly licensed to do insurance business in the Philippines.
When one of the bonded employees, Tomas E. Ablaza, while acting in his capacity as cashier, was discovered by plaintiff-
appellant to have had a cash shortage and unremitted collections in the total amount of P42,490.95, it filed claims for
payments on the said fidelity guarantee bond but defendant-appellee Ker & Co. denied and refused indemnification and
payment. To enforce its claims, plaintiff-appellant instituted its complaint, dated August 30, 1965 docketed as Civil Case
No. 63181 of the Court of First Instance of Manila.
In its answer, defendant-appellee Ker & Co. justified its denial of the claims of plaintiff-appellant on various reasns, such
as non-compliance with the conditions stipulated in the insurance policy; non-presentation of evidence regarding the
various charges of dishonesty and misrepresentation against Tomas E. Ablaza and non-production of the documents to
prove the alleged loss. Ker & Co. likewise averred that it was merely an agent and- as such it was not liable under the
policy.
On June 22, 1966, counsel for Ker & Co. filed a request for admission, furnishing plaintiff-appellant's counsel with a copy
thereof requesting admission of the following facts: 1wph1.t
1. On February 14, 1967, the Bay View Hotel, Inc., applied to the Phoenix Assurance Co., Ltd., for a fidelity guarantee bond
through a proposal form, a true copy of which is annexed to our answer as Annex "A" thereof.
2. Such a policy was actually issued on January 22, 1958 by the Phoenix Assurance Co., Ltd., in favor of the Bay View
Hotel, Inc., and was renewed from time to time with amendments. A true copy of the policy as it finally stood at the time
of the alleged defalcation is annexed to our answer as Annex 'B ' thereof.
3. This claim filed by the Bay View Hotel, Inc., under this policy was denied on behalf of the Phoenix Assurance Co., Ltd.,
by a letter dated 18th June, 1965 sent by registered mail to the Bay View Hotel, Inc. on June 22, 1965. A true copy of this
letter of denial is annexed to the present request as Annex "C" hereof. "
When plaintiff-appellant failed to make any answer to the request for admission within the period prescribed by the
rules, defendant-appellee Ker & Co. filed a Motion to Dismiss on Affirmative Defense, dated July 6, 1966, insisting that
since under Sec. 2, Rule 26 of the Rules of Court, plaintiff-appellant was deemed to have impliedly admitted each of the
matters enumerated in the request for admission, it followed that the proper party in interest against whom plaintiff-
appellant might have a claim was the principal Phoenix Assurance Co. (Phoenix) and not the agent Ker & Co.
Plaintiff-appellant filed an opposition, dated July 19, 1966 arguing that the proper remedy, under the circumstances was
not to dismiss the complaint but to amend it in order to bring the necessary or indispensable parties to the suit.
Defendant-appellee Ker & Co. filed a reply to the opposition reiterating its stand that since it merely acted as an agent, the
case should be dismissed and plaintiff-appellant should file the necessary action against the principal Phoenix.
On August 1, 1966, plaintiff-appellant filed a Motion for Leave to Admit Amended Complaint, attaching copy of the
complaint, as amended, this time impleading Phoenix as party defendant. On August 16, 1966, defendants- appellees filed
liable under the policy. On the other hand, Phoenix, averred that under Condition 8 of the insurance policy, plaintiff-
appellant was deemed to have abandoned its claim in view of the fact that it did not ask for an arbitration of its claim
within twelve (12) months from June 22, 1965 the date of receipt of the denial of the claim.
On August 24, 1966, defendants-appellees filed a motion for summary judgment which the trial court granted in its
decision of November 4, 1966, ordering the dismissal of the case. After denial of its motion for reconsideration, plaintiff-
appellant filed the present appeal, raising the following assignment of errors: 1wph1.t
I
The lower court erred and acted with grave abuse of discretion in extending the legal effects, if any, of the request for
admission filed by Ker & Co., Ltd. to the Phoenix Assurance Co., Ltd., which was not a party-defendant at the time said
request was filed and for whom no similar request was ever filed.
II
The lower court erred and acted with grave abuse of discretion in giving legal effects to a request for admission by the
defendant-appellee under the original complaint after the said original complaint was, with leave of court, amended.
III
The lower court erred and acted with grave abuse of discretion in holding that "Condition No. 8 of the Policy No. FGC-
5018-P requires that should there be a controversy in the payment of the claims, it should be submitted to an arbitration"
despite the admissions by the parties and the established fact that Condition No. 8 of said Policy No. FGC-5018-P provides
for Arbitration if any dispute shall arise as to the amount of company's liability."
IV
The lower court erred and acted with grave abuse of discretion in granting the Motion for Summary Judgment and
dismissing the complaint.
The first two errors assigned may be taken jointly. Plaintiff-appellant argues that since the implied admission was made
before the amendment of its complaint so as to include Phoenix, it follows that Phoenix has no right to avail of these
admissions, and that the trial court committed a grave abuse of discretion in extending to Phoenix the legal effects of the
request for admission filed solely by Ker & Co.
The argument is untenable, Admission is in the nature of evidence and its legal effects were already part of the records of
the case and therefore could be availed of by any party even by one subsequently impleaded. The amendment of the
complaint per se cannot set aside the legal effects of the request for admission since its materiality has not been affected
by the amendment. If a fact is admitted to be true at any stage of the proceedings, it is not stricken out through the
amendment of the complaint. To allow a party to alter the legal effects of the request for admission by the mere
amendment of a pleading would constitute a dangerous and undesirable precedent. The legal effects of plaintiff-
appellant's failure to answer the request for admission could and should have been corrected below by its filing a motion
to be relieved of the consequences of the implied admission with respect to respondent Phoenix.
Moreover, since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency,
admissions secured by the agent within the scope of the agency ought to favor the principal. This has to be the rule, for
the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and
treated in turn as the declarations, acts and representations of his principal 1 and may be given in evidence against such
party.
Plaintiff-appellant insists that since the motion for summary judgment was filed on behalf of defendant-appellee Ker &
Co. alone, there was no motion for summary judgment as far as Phoenix was concerned and the trial court's decision
dismissing the case should not have included the principal Phoenix.
But the motion for summary judgment was filed after the complaint had been amended and answer thereto had been
filed. The issues, therefore, with respect to Phoenix had already been likewise joined. Moreover, a reading of the said
motion for summary judgment, more particularly the prayer thereof, shows that Phoenix did join Ker & Co. in moving for
the dismissal of the case and prayed "that the present action be dismissed as against Ker & Co., Ltd., because being purely
and simply the agent of the insurer, it is not liable under the policy and as against the Phoenix Assurance Co., Ltd. because
by failing to seek an arbitration within twelve months from the date of its receipt of the denial of its claim on June 22,
1965, plaintiff Bay View Hotel, Inc., is deemed under condition 8 of ,, tie policy, to have abandoned its claim against said
defendant phoenix Assurance Co., Ltd."
The main issue raised by plaintiff-appellant is with respect to Condition No. 8 of the insurance policy, photostatic copy of
which was submitted to the trial court and reproduced as follows: 1wph1.t
If any dispute shall arise as to the amount of company's liability under this Policy the matter shall if required by either
party be to the decision of two neutral persons as arbitrators one of, whom shall be named by each party or of an umpire
who shall be appointed by the said arbitrators before entering on the reference and in case either party or his
representative shall neglect or refuse for the space of two months after request in writing from the other party so to do to
name an arbitrator the arbitrator of the other party may proceed alone. And it is hereby expressly agreed and declared
that it shag be a condition precedent to any right of action or upon this Policy that the award by such arbitrators,
arbitrator or umpire of the amount of the loss shall first be obtained. The costs of and connected with the arbitration shag
be in the discretion of the arbitrators, arbitrator or umpire. 2
Plaintiff-appellant maintains that Condition No. 8 of the policy provides for arbitration only "if any dispute should arise
as to the amount of company's liability" consequently, the reference to arbitration is not a condition precedent to the
filing of the suit contrary to the insurer company's posture. Plaintiff-appellant points out that in the instant case, there is
a total and complete negation of liability. There is no dispute as to the amount of company's liability because this
presupposes an admission of responsibility although not to the extent of the cost thereof, while here the insurer denies
liability wholly and totally.
We find in favor of plaintiff-appellant. The provisions of Condition No. 8, more specifically the portion thereof which
reads, "if any dispute shall arise as to the amount of company's liability under this policy ...," do not appear to require any
extended interpretation. Condition No. 8 requires arbitration only as to disputes regarding the amount of the insurer's
liability but not as to any dispute as to the existence or non- existence of liability. Thus, Condition No. 8 comes into play
only if the insurer admits liability but cannot agree with the insured as to the amount thereof and cannot be invoked in
cases like that at bar where the insurer completely denies any liability. Defendants-appellees' contention that plaintiff-
appellant's failure to request arbitration proceedings is a bar to its filing of the suit at bar against the insurer company
cannot be sustained, specially considering the established principle that contracts of adhesion such as the insurance
policy in question are to be strictly construed in case of doubt against the insurer.
As to appellee Ker & Co., Ltd., however, there appears to be no serious contradiction as to the fact that it merely acted as
the agent of its principal, Phoenix. Considering that there was full disclosure of such agency since the insurance policy
was actually issued by Phoenix, We find no error in the dismissal of the case against said defendant Ker & Co., Ltd.
Accordingly, the dismissal of the case against Ker & Co., Ltd., is hereby affirmed and maintained, while the dismissal of
the case against Phoenix Assurance Co., Ltd. is hereby set aside and the case is remanded to the court of origin for further
proceedings and determination on the merits. No costs.
Makasiar, Melencio-Herrera, Plana, Relova and Gutierrez, JJ., concur.1wph1.t
&
&
Separate Opinions
&
VASQUEZ, J., concurring:
I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co., Ltd. and Phoenix Assurance Co.,
Ltd. However, I do not subscribe to the view expressed in the following paragraph of the main opinion: 1wph1.t
Moreover, since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency,
admissions secured by the agent within the scope of the agency ought to favor the principal. This has to be the rule, for
the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and
treated in turn as the declarations, acts and representations of his principal and may be given in evidence against such
party.
The authority cited for this view, to wit, Section 26, Rule 130 of the Rules of Court, reveals that the same is being justified
under one of the recognized exceptions to the rule of res inter alios acta. To my mind, this rule of evidence finds no
application herein.
Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the agent within the scope
of his authority during its existence. It has no reference to a principal using in his favor an admission secured by the
agent from a third party. In the case at bar, Phoenix is not being held bound or made liable by any act or declarations of
Ker Instead, Phoenix seeks to profit from something done by Ker. While this may be correct, its justification must be
based on some legal ground other than Section 26 of Rule 130. The act or declaration involved herein is that of petitioner
Bay View. The question is not whether such act or declaration is admissible in evidence against some other entity with
which Bay View is in privity, but rather, whether it may be utilized by Phoenix against Bay View itself. Clearly, res inter
alios acta does not come into play herein.
Case against Ker & Co., Ltd., affirmed and maintained, while case against Phoenix Assurance Co., Ltd set aside and case
remanded to court of origin for further proceedings and determination on the merits.
&
&
Separate Opinions
VASQUEZ, J., concurring:
I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co., Ltd. and Phoenix Assurance Co.,
Ltd. However, I do not subscribe to the view expressed in the following paragraph of the main opinion: 1wph1.t
Moreover, since an agent may do such acts as may be conducive to the accomplishment of the purpose of the agency,
admissions secured by the agent within the scope of the agency ought to favor the principal. This has to be the rule, for
the act or declarations of an agent of the party within the scope of the agency and during its existence are considered and
treated in turn as the declarations, acts and representations of his principal and may be given in evidence against such
party.
The authority cited for this view, to wit, Section 26, Rule 130 of the Rules of Court, reveals that the same is being justified
under one of the recognized exceptions to the rule of res inter alios acta. To my mind, this rule of evidence finds no
application herein.
Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the agent within the scope
of his authority during its existence. It has no reference to a principal using in his favor an admission secured by the
agent from a third party. In the case at bar, Phoenix is not being held bound or made liable by any act or declarations of
Ker Instead, Phoenix seeks to profit from something done by Ker. While this may be correct, its justification must be
based on some legal ground other than Section 26 of Rule 130. The act or declaration involved herein is that of petitioner
Bay View.t@lF The question is not whether such act or declaration is admissible in evidence against some other entity
with which Bay View is in privity, but rather, whether it may be utilized by Phoenix against Bay View itself. Clearly, res
inter alios acta does not come into play herein.
Case against Ker & Co., Ltd., affirmed and maintained, while case against Phoenix Assurance Co., Ltd set aside and case
remanded to court of origin for further proceedings and determination on the merits.
G.R. No. L-57322
NORMAN NODA, petitioner,
vs.
HONORABLE GREGORIA CRUZ-ARNALDO, in her capacity as Insurance Commissioner, and ZENITH INSURANCE
CORPORATION, respondents.
Redentor G. Guyala for petitioner.
Carpio, Layawan, Suarez & Associates Law Offices for private respondent ZIC.
German C. Alejandria for respondent Insurance Commissioner.
FERNAN, J.:
This is a petition to review the decision of the Insurance Commissioner in I.C. No. 1070, entitled "Norman Noda vs. Zenith
Insurance Corporation" regarding the enforcement of two fire insurance policies.
In 1977, petitioner Norman R. Noda obtained from respondent Zenith Insurance Corporation, through its general agent,
Alico General Insurance Agency, two fire insurance policies: [1] No. F-03724 with a face value of P30,000 covering the
goods and stocks in trade in his business establishment at the market site in Mangagoy, Bislig, Surigao del Sur for the
period from March 3, 1977 to March 3, 1978 and [2] No. F-03734 with a face value in the aggregate amount of P100,000
for the period from May 10, 1977 to May 10, 1978 and consisting of Item 1 for P40,000 on household furniture, fixtures,
fittings and other personal effects, and Item 2 for P60,000 on stocks in trade usual to petitioner's retail business situated
in a two-storey building at 039 Barreda St., also in Mangagoy, Bislig, Surigao del Sur, the ground floor of which the
petitioner used as store and the second floor as family quarters. 1
While both policies were in force, fire destroyed petitioner's insured properties at the market site on September 5, 1977
and at Barreda St. on November 9, 1977. When petitioner failed to obtain indemnity on his claims from respondent
Zenith, he filed a complaint with the Insurance Commission on October 6, 1978 praying that respondent company be
ordered to pay him "the sum of P130,000 representing the value of the two [2] policies insured by respondent with
interest at 12% per annum, plus damages, attorney's fees and other expenses of litigation. ... 2
In its answer Zenith interposed that petitioner had no cause of action; that Policy No. F-03724 was not in full force and
effect at the time of the fire because the premium on the policy was not paid; that Zenith's liability under Policy No. F-
03734, if any, was limited to P15,472.50 in view of the co-insurance; and that petitioner failed to substantiate his claim as
to the value of the goods reputedly destroyed by fire and consequently, Zenith could not be held answerable for the
same.3
While the case was pending with the Insurance Commission, Zenith, on March 4, 1980, settled petitioner I s fire loss claim
under Item 1 of Policy No. 03734 in the amount of P15,472.50. 4
On March 3, 1981, the Insurance Commissioner rendered the assailed decision. Brushing aside as unfounded Zenith's
allegation that Policy No. F-03734 was ineffectual because of non-payment of premium, respondent Commissioner
allowed petitioner to recover under said policy and ordered Zenith to pay him the amount of P20,000 with legal interest
from the date the complaint was filed, including P1,000 as attorney's fees but excluding the actual, moral and exemplary
damages prayed for.5 As for petitioner's claim under Policy No. F-03734, she held that in view of the payment of
P15,472.50 to petitioner, Zenith had fully discharged its liability under said policy which covered furniture, fixtures,
fittings and other personal belongings of petitioner.
It must be noted that in allowing recovery under Policy No. F-03734, respondent Commissioner placed much weight on
the final report prepared by Dela Merced Adjustment Corporation, an independent fire, marine and casualty adjuster
contracted by Zenith to investigate the claims of its various policyholders. Said report concluded that "the sound value of
P26,666.67 represent[ed] the whole loss and damage" incurred by petitioner, but with the application of the three-
fourths loss clause, Zenith's liability was reduced to P20,000.6
Maintaining that respondent Commissioner failed to take into account that there were two separate items under Policy
No. F-03734 and that his P60,000 claim under Item 2, covering stocks in trade at Barreda Street, still remained
unresolved despite payment to him of P15,472.50, petitioner asked for a reconsideration. Upon its denial, petitioner filed
the instant petition for certiorari contending that the Insurance Commissioner erred [1] in finding that with Zenith's
payment of P15,472.50 under Policy No. F-03734, that aspect of petitioner's claim had been fully settled, leaving only the
claim of P30,000 under Policy No. 03724 unsatisfied; [2] in denying petitioner's demand for P60,000 under Item 2 of
Policy No. F-03734 and [3] in not awarding in favor of petitioner exemplary damages for Zenith's unjustified and wanton
refusal to pay petitioner's claim under the said two insurance contracts. Petitioner did not dispute in his appeal the
award of P20,000 under Policy No. F-03724 and the denial of actual and moral damages.
Zenith has admitted in its comment on the petition that its payment of P15,472.50 was only in satisfaction of petitioner's
claim under Item 1 of Policy No. F-03734. What is now in contention before us is petitioner's claim under Item 2 of that
policy which respondent Commissioner rejected because petitioner allegedly relied merely on the report of Zenith's
adjuster without bothering to produce supporting documents indicating that he had made several purchases and
suffered immense losses by reason of the fire.
We find that respondent Commissioner acted with grave abuse of discretion when she denied petitioner's claim for
indemnity under Policy No. F-03734 because of what she perceived as insufficient proof.
To prove the existence of the stocks in trade covered by Policy No. F-03734, petitioner offered his testimony and that of
his wife as well as documentary exhibits. 7 The foregoing evidence for petitioner preponderantly showed the presence of
some P590,000 worth of goods in his retail store during the fire of November 9, 1977.
While the insurer, and the Insurance Commissioner for that matter, have the right to reject proofs of loss if they are
unsatisfactory, they may not set up for themselves an arbitrary standard of satisfaction. Substantial compliance with the
requirements will always be deemed sufficient. 8
More significantly, this Court has observed that respondent Zenith introduced in evidence the final report on Policy No.
F-03734 submitted by its own adjuster, Dela Merced Adjustment Corporation. 9 Respondent Commissioner however
ignored such report, reasoning that with regard to Item 2 of Policy No. F-03734 the claim for loss of the stocks in trade
was not successfully proven in view of petitioner's failure to present evidence; that the adjuster's report deserved scant
consideration since the allegations therein were not substantiated, and that said report did not even make a
recommendation for payment.
We disagree. A scrutiny of the abovementioned adjuster's report reveals that together with the formal demand for full
indemnity, petitioner submitted his income tax return for 1978, purchase invoices, certification from his suppliers as to
his purchases, and other supporting papers. The report even took into account the appraisals of the other adjusters and
concluded that the total loss sustained by petitioner in his household effects and stocks in trade reached P379,302.12.
But after apportioning said amount among petitioner's six different in surers [the co-insurance being known to Zenith],
the liability of Zenith was placed at P60,592.10. It therefore recommended that Zenith pay the petitioner the amount of
P60, 592.10.
Indeed, petitioner had every reason to expect that respondent Commissioner would give equal weight and credence to
the adjuster's report [on Policy No. F-03734] as she had done with the other. After all, said document was offered as
evidence by Zenith itself and could very well be considered as an admission of its liability up to the amount
recommended. It would have been pointless for Zenith to have introduced said report as its evidence if it did not agree
with its findings and ultimate proposals. Being in the nature of an admission against interest, it is the best evidence which
affords the greatest certainty of the facts in dispute. 10 Respondent Commissioner should not have perfunctorily
dismissed that particular evidence as a worthless piece of paper.
We are convinced that petitioner has satisfactorily established his claim for indemnity under Policy No. F-03734. In that
respect, judgment was improperly rendered against him and the same must accordingly be modified.
The denial of petitioner's demand for exemplary damages by respondent Commissioner must, however, be sustained.
There is no showing that Zenith, in contesting payment, had acted in a wanton, oppressive or malevolent manner to
warrant the imposition of corrective damages.11
WHEREFORE, judgment is hereby rendered ordering respondent Zenith Insurance Corporation to pay petitioner Norman
R. Noda the sum of P60,592.10 with legal interest from the filing of the complaint until full payment, but deducting
therefrom the amount of P15,472.50 which it had earlier paid to petitioner.
SO ORDERED.
G.R. No. L-52756 October 12, 1987
MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,
vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.
PADILLA, J:
Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979, ordering
petitioner Manila Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance Corporation the sum
of Five Thousand Pesos (P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in the sum of five
hundred pesos (P500.00), and costs of suit, and the resolution of the same Court, dated 8 February 1980, denying
petitioner's motion for reconsideration of it's decision.
From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondent insurance
company. On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by San Miguel Corporation.
For the damage caused, respondent company paid petitioner five thousand pesos (P5,000.00) in amicable settlement.
Petitioner's general manager executed a Release of Claim, subrogating respondent company to all its right to action
against San Miguel Corporation.
On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement from San Miguel
Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused reimbursement, alleging that San
Miguel Corporation had already paid petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by
a cash voucher and a Release of Claim executed by the General Manager of petitioner discharging San Miguel Corporation
from "all actions, claims, demands the rights of action that now exist or hereafter [sic] develop arising out of or as a
consequence of the accident."
Respondent insurance company thus demanded from petitioner reimbursement of the sum of P4,500.00 paid by San
Miguel Corporation. Petitioner refused; hence, respondent company filed suit in the City Court of Manila for the recovery
of P4,500.00. The City Court ordered petitioner to pay respondent P4,500.00. On appeal the Court of First Instance of
Manila affirmed the City Court's decision in toto, which CFI decision was affirmed by the Court of Appeals, with the
modification that petitioner was to pay respondent the total amount of P5,000.00 that it had earlier received from the
respondent insurance company.
Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent company as the
subrogation in the Release of Claim it executed in favor of respondent was conditioned on recovery of the total amount of
damages petitioner had sustained. Since total damages were valued by petitioner at P9,486.43 and only P5,000.00 was
received by petitioner from respondent, petitioner argues that it was entitled to go after San Miguel Corporation to claim
the additional P4,500.00 eventually paid to it by the latter, without having to turn over said amount to respondent.
Respondent of course disputes this allegation and states that there was no qualification to its right of subrogation under
the Release of Claim executed by petitioner, the contents of said deed having expressed all the intents and purposes of
the parties.
To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner cites Art. 2207 of the
Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury.
Petitioner also invokes Art. 1304 of the Civil Code, stating.
A creditor, to whom partial payment has been made, may exercise his right for the remainder, and he shall be preferred
to the person who has been subrogated in his place in virtue of the partial payment of the same credit.
We find petitioners arguments to be untenable and without merit. In the absence of any other evidence to support its
allegation that a gentlemen's agreement existed between it and respondent, not embodied in the Release of Claim, such
ease of Claim must be taken as the best evidence of the intent and purpose of the parties. Thus, the Court of Appeals
rightly stated:
Petitioner argues that the release claim it executed subrogating Private respondent to any right of action it had against
San Miguel Corporation did not preclude Manila Mahogany from filing a deficiency claim against the wrongdoer. Citing
Article 2207, New Civil Code, to the effect that if the amount paid by an insurance company does not fully cover the loss,
the aggrieved party shall be entitled to recover the deficiency from the person causing the loss, petitioner claims a
preferred right to retain the amount coming from San Miguel Corporation, despite the subrogation in favor of Private
respondent.
Although petitioners right to file a deficiency claim against San Miguel Corporation is with legal basis, without prejudice
to the insurer's right of subrogation, nevertheless when Manila Mahogany executed another release claim (Exhibit K)
discharging San Miguel Corporation from "all actions, claims, demands and rights of action that now exist or hereafter
arising out of or as a consequence of the accident" after the insurer had paid the proceeds of the policy- the compromise
agreement of P5,000.00 being based on the insurance policy-the insurer is entitled to recover from the insured the
amount of insurance money paid (Metropolitan Casualty Insurance Company of New York vs. Badler, 229 N.Y.S. 61, 132
Misc. 132 cited in Insurance Code and Insolvency Law with comments and annotations, H.B. Perez 1976, p. 151). Since
petitioner by its own acts released San Miguel Corporation, thereby defeating private respondents, the right of
subrogation, the right of action of petitioner against the insurer was also nullified. (Sy Keng & Co. vs. Queensland
Insurance Co., Ltd., 54 O.G. 391) Otherwise stated: private respondent may recover the sum of P5,000.00 it had earlier
paid to petitioner. 1
As held in Phil. Air Lines v. Heald Lumber Co., 2
If a property is insured and the owner receives the indemnity from the insurer, it is provided in [Article 2207 of the New
Civil Code] that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. ...
Under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and
not the insured 3 (Emphasis supplied)
The decision of the respondent court ordering petitioner to pay respondent company, not the P4,500.00 as originally
asked for, but P5,000.00, the amount respondent company paid petitioner as insurance, is also in accord with law and
jurisprudence. In disposing of this issue, the Court of Appeals held:
... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation under its clear right to file a
deficiency claim for damages incurred, against the wrongdoer, should the insurance company not fully pay for the injury
caused (Article 2207, New Civil Code). However, when petitioner released San Miguel Corporation from any liability,
petitioner's right to retain the sum of P5,000.00 no longer existed, thereby entitling private respondent to recover the
same. (Emphasis supplied)
As has been observed:
... The right of subrogation can only exist after the insurer has paid the otherwise the insured will be deprived of his right
to full indemnity. If the insurance proceeds are not sufficient to cover the damages suffered by the insured, then he may
sue the party responsible for the damage for the the [sic] remainder. To the extent of the amount he has already received
from the insurer enjoy's [sic] the right of subrogation.
Since the insurer can be subrogated to only such rights as the insured may have, should the insured, after receiving
payment from the insurer, release the wrongdoer who caused the loss, the insurer loses his rights against the latter. But
in such a case, the insurer will be entitled to recover from the insured whatever it has paid to the latter, unless the release
was made with the consent of the insurer. 4(Emphasis supplied.)
And even if the specific amount asked for in the complaint is P4,500.00 only and not P5,000.00, still, the respondent
Court acted well within its discretion in awarding P5,000.00, the total amount paid by the insurer. The Court of Appeals
rightly reasoned as follows:
It is to be noted that private respondent, in its companies, prays for the recovery, not of P5,000.00 it had paid under the
insurance policy but P4,500.00 San Miguel Corporation had paid to petitioner. On this score, We believe the City Court
and Court of First Instance erred in not awarding the proper relief. Although private respondent prays for the
reimbursement of P4,500.00 paid by San Miguel Corporation, instead of P5,000.00 paid under the insurance policy, the
trial court should have awarded the latter, although not prayed for, under the general prayer in the complaint "for such
further or other relief as may be deemed just or equitable, (Rule 6, Sec. 3, Revised Rules of Court; Rosales vs. Reyes
Ordoveza, 25 Phil. 495 ; Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).
WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby AFFIRMED with costs
against petitioner.
SO ORDERED.
G.R. No. L-52732 August 29, 1988
F.F. CRUZ and CO., INC., petitioner,
vs.
THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ ALMONTE MABLE and children
DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME, ANTONIO, and BERNARDO all surnamed
MABLE, respondents.
Luis S. Topacio for petitioner.
Mauricio M. Monta for respondents.
CORTES, J.:
This petition to review the decision of the Court of Appeals puts in issue the application of the common law doctrine
of res ipsa loquitur.
The essential facts of the case are not disputed.
The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the residence of private
respondents. Sometime in August 1971, private respondent Gregorio Mable first approached Eric Cruz, petitioner's plant
manager, to request that a firewall be constructed between the shop and private respondents' residence. The request
was repeated several times but they fell on deaf ears. In the early morning of September 6, 1974, fire broke out in
petitioner's shop. Petitioner's employees, who slept in the shop premises, tried to put out the fire, but their efforts proved
futile. The fire spread to private respondents' house. Both the shop and the house were razed to the ground. The cause of
the conflagration was never discovered. The National Bureau of Investigation found specimens from the burned
structures negative for the presence of inflammable substances.
Subsequently, private respondents collected P35,000.00 on the insurance on their house and the contents thereof.
On January 23, 1975, private respondents filed an action for damages against petitioner, praying for a judgment in their
favor awarding P150,000.00 as actual damages, P50,000.00 as moral damages, P25,000.00 as exemplary damages,
P20,000.00 as attorney's fees and costs. The Court of First Instance held for private respondents:
WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, and against the defendant:
1. Ordering the defendant to pay to the plaintiffs the amount of P80,000.00 for damages suffered by said plaintiffs for the
loss of their house, with interest of 6% from the date of the filing of the Complaint on January 23, 1975, until fully paid;
2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00 for the loss of plaintiffs' furnitures, religious
images, silverwares, chinawares, jewelries, books, kitchen utensils, clothing and other valuables, with interest of 6% from
date of the filing of the Complaint on January 23, 1975, until fully paid;
3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as moral damages, P2,000.00 as exemplary
damages, and P5,000.00 as and by way of attorney's fees;
4. With costs against the defendant;
5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp. 1-2; Rollo, pp. 29-30.]
On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed the decision of the trial court
but reduced the award of damages:
WHEREFORE, the decision declaring the defendants liable is affirmed. The damages to be awarded to plaintiff should be
reduced to P70,000.00 for the house and P50,000.00 for the furniture and other fixtures with legal interest from the date
of the filing of the complaint until full payment thereof. [CA Decision, p. 7; Rollo, p. 35.]
A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution dated February 18, 1980.
Hence, petitioner filed the instant petition for review on February 22, 1980. After the comment and reply were filed, the
Court resolved to deny the petition for lack of merit on June 11, 1980.
However, petitioner filed a motion for reconsideration, which was granted, and the petition was given due course on
September 12, 1980. After the parties filed their memoranda, the case was submitted for decision on January 21, 1981.
Petitioner contends that the Court of Appeals erred:
1. In not deducting the sum of P35,000.00, which private respondents recovered on the insurance on their house, from
the award of damages.
2. In awarding excessive and/or unproved damages.
3. In applying the doctrine of res ipsa loquitur to the facts of the instant case.
The pivotal issue in this case is the applicability of the common law doctrine of res ipsa loquitur, the issue of damages
being merely consequential. In view thereof, the errors assigned by petitioner shall be discussed in the reverse order.
1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects to, may be stated as follows:
Where the thing which caused the injury complained of is shown to be under the management of the defendant or his
servants and the accident is such as in the ordinary course of things does not happen if those who have its management
or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the
accident arose from want of care. [Africa v. Caltex (Phil.), Inc., G.R. No. L-12986, March 31, 1966, 16 SCRA 448.]
Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a tank truck was being
unloaded into an underground storage tank through a hose and the fire spread to and burned neighboring houses, this
Court, applying the doctrine of res ipsa loquitur, adjudged Caltex liable for the loss.
The facts of the case likewise call for the application of the doctrine, considering that in the normal course of operations
of a furniture manufacturing shop, combustible material such as wood chips, sawdust, paint, varnish and fuel and
lubricants for machinery may be found thereon.
It must also be noted that negligence or want of care on the part of petitioner or its employees was not merely presumed.
The Court of Appeals found that petitioner failed to construct a firewall between its shop and the residence of private
respondents as required by a city ordinance; that the fire could have been caused by a heated motor or a lit cigarette; that
gasoline and alcohol were used and stored in the shop; and that workers sometimes smoked inside the shop [CA
Decision, p. 5; Rollo, p. 33.]
Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a firewall in accordance with city
ordinances would suffice to support a finding of negligence.
Even then the fire possibly would not have spread to the neighboring houses were it not for another negligent omission
on the part of defendants, namely, their failure to provide a concrete wall high enough to prevent the flames from leaping
over it. As it was the concrete wall was only 2-1/2 meters high, and beyond that height it consisted merely of galvanized
iron sheets, which would predictably crumble and melt when subjected to intense heat. Defendant's negligence,
therefore, was not only with respect to the cause of the fire but also with respect to the spread thereof to the neighboring
houses.[Africa v. Caltex (Phil.), Inc., supra; Emphasis supplied.]
In the instant case, with more reason should petitioner be found guilty of negligence since it had failed to construct a
firewall between its property and private respondents' residence which sufficiently complies with the pertinent city
ordinances. The failure to comply with an ordinance providing for safety regulations had been ruled by the Court as an
act of negligence [Teague v. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.]
The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for the loss sustained by private
respondents.
2. Since the amount of the loss sustained by private respondents constitutes a finding of fact, such finding by the Court of
Appeals should not be disturbed by this Court [M.D. Transit & Taxi Co., Inc. v. Court of Appeals, G.R. No. L-23882,
February 17, 1968, 22 SCRA 559], more so when there is no showing of arbitrariness.
In the instant case, both the CFI and the Court of Appeals were in agreement as to the value of private respondents'
furniture and fixtures and personal effects lost in the fire (i.e. P50,000.00). With regard to the house, the Court of Appeals
reduced the award to P70,000.00 from P80,000.00. Such cannot be categorized as arbitrary considering that the evidence
shows that the house was built in 1951 for P40,000.00 and, according to private respondents, its reconstruction would
cost P246,000.00. Considering the appreciation in value of real estate and the diminution of the real value of the peso, the
valuation of the house at P70,000.00 at the time it was razed cannot be said to be excessive.
3. While this Court finds that petitioner is liable for damages to private respondents as found by the Court of Appeals, the
fact that private respondents have been indemnified by their insurer in the amount of P35,000.00 for the damage caused
to their house and its contents has not escaped the attention of the Court. Hence, the Court holds that in accordance with
Article 2207 of the Civil Code the amount of P35,000.00 should be deducted from the amount awarded as damages. Said
article provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company is subrogated to the
rights of the insured against the wrongdoer or the person who violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. (Emphasis supplied.]
The law is clear and needs no interpretation. Having been indemnified by their insurer, private respondents are only
entitled to recover the deficiency from petitioner.
On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it indemnified private
respondents from petitioner. This is the essence of its right to be subrogated to the rights of the insured, as expressly
provided in Article 2207. Upon payment of the loss incurred by the insured, the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused
the loss [Fireman's Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323.]
Under Article 2207, the real party in interest with regard to the indemnity received by the insured is the insurer [Phil. Air
Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).] Whether or not the insurer should exercise the rights of the
insured to which it had been subrogated lies solely within the former's sound discretion. Since the insurer is not a party
to the case, its identity is not of record and no claim is made on its behalf, the private respondent's insurer has to claim
his right to reimbursement of the P35,000.00 paid to the insured.
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED with the following
modifications as to the damages awarded for the loss of private respondents' house, considering their receipt of
P35,000.00 from their insurer: (1) the damages awarded for the loss of the house is reduced to P35,000.00; and (2) the
right of the insurer to subrogation and thus seek reimbursement from petitioner for the P35,000.00 it had paid private
respondents is recognized.
SO ORDERED.
G.R. No. 85624 June 5, 1989
CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE SOCIETY OF CANTON, LTD.,
PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE CO., & PHILIPPINE FIRST INSURANCE
CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.
Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for petitioners.
Garcia & Pepito Law Offices for private respondent.
GRIO-AQUINO, J.:
It has been the sad experience of many who sought protection from disaster or tragedy through insurance, to realize that
insurance is quite easy to buy but difficult to collect. Insurance companies are prone to invent excuses to avoid their just
obligations (American Home Ins. Co. vs. Court of Appeals, 109 SCRA 180). This case is one such instance.
Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad daylight, she is still waiting
to collect the proceeds of seven (7) fire policies which the petitioners sold to her.
The petitioners are the six (6) insurance companies that issued fire insurance policies for the total sum of P4,000,000 to
the Cebu Filipino Press of Cebu City, as follows:
1. Cathay Insurance Company for P1,000,000 under Fire Insurance Policy No. F-31056 dated June 10, 1981 renewing
Policy No. F27942 (Exh-B-5), covering the period from June 20, 1981 to June 20, 1982 (Exh-B);
2. Empire Insurance Company for P500,000 under Fire Insurance Policy No. YASCO/F-1101 dated March 7, 1981,
renewing Policy No. F-1095 (Exh. C-5), covering the period from March 19, 1981 to March 19, 1982 (Exh. C);
3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire Insurance Policy No. NU-0530 dated May 5, 1981,
renewing Policy No. MU-223903 (Exh. D-5), covering the period from May 21, 1981 to May 21, 1982 (Exh. D);
4. Paramount Insurance Corp. for P500,000 under Fire Insurance Policy No. 25311 dated July 1, 1981, covering the
period from July 15, 1981 to July 15, 1982 (Exh. E);
5. Philippine British Insurance Company for P500,000 under Fire Insurance Policy No. PB-107861 dated July 6, 1981,
renewing Policy No. PB-933 11 (Exh. F-5), covering the period from July 10, 1981 to July 10, 1982 (Exh. F).
6. Philippine British Insurance Company for P500,000 under another Fire Insurance Policy No. PB-107848 dated July 1,
1981, renewing Policy No. PB-102653 (Exh G-5), covering the period from July 5, 1981 to July 5, 1982 (Exh. G); and
7. Philippine First Insurance Company for P500,000 under Fire Insurance Policy No. CEB-G-0515 dated January 28, 1981,
covering the period from February 15, 1981 to February 15, 1982 (Exh. H). (p. 76, Rollo.)
The fire policies described the insured property as "stocks of printing materials, papers and general merchandise usual to
the Assured's trade" (p. 53, Rollo) stored in a one-storey building of strong materials housing the Cebu Filipina Press
located at UNNO Pres. Quirino cor. Don V. Sotto Sts., Mabolo, Cebu City. The co-insurers were indicated in each of the
policies. All, except one policy (Paramount's), were renewals of earlier policies issued for the same property.
On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press was razed by electrical fire together
with all the stocks and merchandise stored in the premises.
On January 15, 1982, Mrs. Lugay, owner and operator of the printing press, submitted sworn Statements of Loss Formal
Claims to the insurers, through their djusters. She claimed a total loss of P4,595,00.
She submitted proofs of loss required by the adjusters. After nearly ten (10) months of wating for the insurers to pay his
claim, she sued to collect on December 15, 1982. The insurance companies denied liability, alleging violation of certain
conditions of the policy, misdeclaration, and even arson which was not seriously pressed for, come the pre-trial, the
petitioners offered to pay 50% of her claim, but she insisted in full recovery.
After the trial on the merits, the court rendered judgment in her favor, as follows:
... directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000, by Empire the amount of
P5,000,000.00, by Insurance Society of Canton Limited the amount P5,000,000.00, by Paramount Insurance Company, the
amount P5,000,000.00, by Philippine British Insurance Company Inc., the amount of P5,000,000.00 by Philippine First
Insurance Company, Inc., the amount of P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00
representing expenses of the plaintiff, and a separate amount of 20% of the P4,000,000.00 representing fees of councel;
and interests at the rate of twice the ceiling being prescribe by the Monetary Board starting from the time when the case
was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)
On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67, Rollo). Hence, this petition for review
under Rule 45 of the Rules of Court wherein the petitioners allege that the Court of Appeals erred:
1. in holding that the private respondent's cause of action had already acrued when the complaint was filed on December
15, 1982 and in not holding that the action is premature;
2. in finding that sufficient proofs of loss had been presented by the private respondent;
3. in not holding that the private respondent's claim for loss was infrated;
4. in awarding damages to the private respondent in the form of interests equivalent to double the interest ceiling set by
the Monetary Board despite absence of a finding of unreasonable withholding or refusal to pay the claim; and
5. in awarding exorbitant attorney's fees.
It is plain to see that all these grounds of the petition for review present factual issues which, in view of the provision in
Section 2, Rule 45 of the Rules of Court that "only questions of law may be raised" this Court may not inquire into by
conducting a tedious reassessment of the "maze of testimonial and documentary evidence" (p. 57, Rollo) of the parties.
Referring to the evidence presented at the trial of this case, the Court of Appeals said:
We are impressed indeed with the patience, diligence and perseverance of the trial judge in wading through the
voluminous documents, making an exhaustive examination and detailed evaluation of the evidence, and thus emerging
from the maze of testimonial and documentary evidence with accuracy of perception in determining the merits of the
respective claims of the litigants. Accordingly, We are constrained to honor and stamp our imprimatur to the findings of
fact and conclusions of the trial court since, admittedly, it was in a better position than We are to examine the real
evidence, as well as to observe the demeanor of the witnesses while testifying in the case (Chase vs. Buencamino, Sr., 136
SCRA 365). (p. 57, Rollo.)
The finding of the trial court and the Court of Appeals that the insured's cause of action had already accrued before she
filed her complaint is supported by Section 243 of the Insurance Code which fixes a maximum period of 90 days after
receipt of the proofs of loss by the insurer for the latter to pay the insured s claim.
Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than the insurance
policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainiment is
not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. ... (Insurance Code.)
As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs of loss were
submitted from January 15, 1982 through June 21, 1982 in compliance with the adjusters' numerous requests for various
documents, payment should have been made within 90 days thereafter, or on or before September 21, 1982. Hence,
when the assured file her complaint on December 15, 1982, her cause of action had a ready accrued.
There is no merit in the petitioners' contention that the proof of loss were insufficient because respondent Emilia Chan
Luga failed to comply with the adjuster's request for the submission of her bank statements. Condition No. 13 of the
insurance policy on proofs of loss, provides:
13. The insured shall give immediate written notice to th company of any loss, protect the property from further damage,
forth with separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete
inventory of the destroyed damaged and undamaged property, showing in detail quantities, costs, actual cash value and
the amount of loss claimed; AN WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING
BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed and sworn to by the
insured, stating the knowledge and belief of th insured as to the following: the time and origin of the loss, the interest of
the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all
encumbrances thereon, all other contracts of insurance, whether valid or not covering any of said property, any changes
in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy, by whom
and for what purpose any buildings herein described and the several parts thereof were occupied at the time of the loss
and whether or not they stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all
policies and, if required, verified plans and specifications of any building, fixtures or machine destroyed or damaged. The
insured as often as may be reasonable required shall exhibit to any person designated by the Company all that remains of
any property therein described, and submit to examination under oath by any person named by the Company, and
subscribe the same; as often as may be reasonably required, shall produce for examination all books of account, bills,
invoices, and other vouchers, or certified copies thereof if originals be lost. At such reasonable time and place as may be
designated by the Company or its representative, and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been complied with. (pp. 55-56, Rollo.)
Condition No. 13, as the Court of Appeals observed, does not require the insured to produce her bank statements.
Therefore, the insured was not obligated to produce them and the insurers had no right to ask for them. Condition No. 13
was prepared by the insurers themselves, hence, it "should be taken most strongly" (p. 58, Rollo) against them.
The Court of Appeals found that the insured "fully complied with the requirements of Condition No. 13" (p. 58, Rollo).
The adjuster's demand for the assured's bank statements (which under the law on the secrecy of bank deposits, she need
not disclose) would add more requirements to Condition No. 13 of the insurance contract, and, as pointed out by the
Appellate Court, "would amount to giving the insurers limitless latitude in making unreasonable demands if only to evade
and avoid liability" (p. 58, Rollo).
Nor was the claim inflated. Both the trial court and the Court of Appeals noted that the proofs were ample and "more
than enough ... for defendants (insurers) to do a just assessment supporting the 1981 fire claim for an amount exceeding
four million pesos" (p. 60, Rollo).
The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private respondent's claim
is lawful and justified under Sections 243 and 244 of the Insurance Code which provide:
Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to
collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, ...
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist attorney's fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of claim due the insured, ... (Emphasis supplied; p. 66, Rollo.)
Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the policies issued by the petitioners to th
private respondents (p. 82, Rollo).
The petitioners' contention that the charging of double interest was improper because no unreasonable delay in the
processing of the fire claim was proven, is refuted by the trial court' explicit finding that "there was a delay that was not
reasonable in processing the claim and doing payments" (p. 81, Rollo). Under Section 244, a prima facieevidence of
unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed
in both Section 242 and 243 of the Insurance Code.
As provided in Section 244 also, by reason of the delay and consequent filing of this suit by the insured, the insurers
"shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured." In
view of the not insubstantial value of the private respondent's claims and the considerable time and effort expended by
them and their counsel in prosecuting these claims for the past eight (8) years, We hold that attorney's fees were
properly awarded to the private respondents. However, an award equivalent to (10%) percent of the proceeds of the
policies would be more reasonable than the 20% awarded by the trial court and th Appellate Court.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is affirmed, except the award of attorney's
fees to the private respondents which is hereby reduced to ten (10%) percent of the proceeds of the insurance policies
sued upon. Costs against the petitioners.
SO ORDERED.
G.R. No. 76101-02 September 30, 1991
TIO KHE CHIO, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY CORPORATION,respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.
FERNAN, C.J.:
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in actions for damages
arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it should be twelve (12%) per cent pursuant to
Articles 243 and 244 of the Insurance Code while private respondent Eastern Assurance and Surety Corporation (EASCO)
claims that it should be six (6%) per cent under Article 2209 of the Civil Code.
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand (1,000) bags of fishmeal
valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The goods were insured with respondent EASCO and
shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on
January 28, 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Petitioner
filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them before the
then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the
petitioner for the recovery of P18,387.86 representing the unpaid insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay petitioner solidarily
the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing
of the complaint, the sum of P15,000.00 as attorney's fees and the costs.1
The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved
from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety
Corporation."
The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff enforcing the writ
reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO moved to quash the writ alleging that the
legal interest to be computed should be six (6%) per cent per annum in accordance with Article 2209 of the Civil Code
and not twelve (12%) per cent as insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied
EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at 12% on the principal
amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that
the private respondent is entitled to collect from the petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs.2
In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it unjust and unfair but it
is also contrary to the correct interpretation of the fixing of interest rates under Sections 243 and 244 of the Insurance
Code. And since petitioner's claims is based on an insurance contract, then it is the Insurance Code which must govern
and not the Civil Code.
We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as correctly held by the
Appellate Court.
Section 243 of the Insurance Code provides:
The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy,
shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is
made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or
made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within
ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle
the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
Section 244 of the aforementioned Code also provides:
In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such
undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.
In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or withholding of payment
on petitioner's claim. In fact, respondent court had this to say on EASCO's refusal to settle the claim of petitioner:
... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which, while not sufficient to free it from
liability under its policy, nevertheless is sufficient to negate any assertion that in refusing to pay, it acted unjustifiably.
xxx xxx xxx
The case posed some genuine issues of interpretation of the terms of the policy as to which persons may honestly differ.
This is the reason the trial court did not say EASCO's refusal was unjustified.3
Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They apply only when the
court finds an unreasonable delay or refusal in the payment of the claims.
Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to Presidential Decree No.
116 (Usury Law) which raised the legal rate of interest from six (6%) to twelve (12%) per cent apply to the case at bar as
by the petitioner. The adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or
credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of
property which does not involve a loan.4
In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared
that the legal rate of interest is six (6%) per cent per annum, and not twelve (12%) per cent, where a judgment award is
based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein,
the Court held in GSIS vs. Court of Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the
Usury Law (amended by P.D. 116) are applicable only to interest by way of compensation for the use or forbearance of
money, interest by way of damages is governed by Article 2209 of the Civil Code.
Clearly, the applicable law is Article 2209 of the Civil Code which reads:
If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation,
the legal interest which is six per cent per annum.
And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance
contract, the legal interest was properly pegged by the Appellate Court at six (6%) per cent.
WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner,
vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993, affirming Branch
35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay herein private respondent the
amount of P700,000.00, plus legal interest thereon, another sum of P100,000.00 as attorney's fees and the cost of the
suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila with Coastwise
Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The barges were towed in tandem by the
tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an unknown sunken
object. The forward buoyancy compartment was damaged, and water gushed in through a hole "two inches wide and
twenty-two inches long"1 As a consequence, the molasses at the cargo tanks were contaminated and rendered unfit for
the use it was intended. This prompted the consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss.
Thereafter, Pag-asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine
General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales, Inc., the amount of
P700,000.00, representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of Manila, seeking to
recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's lost cargo. PhilGen now claims to be
subrogated to all the contractual rights and claims which the consignee may have against the carrier, which is presumed
to have violated the contract of carriage.
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of Appeals, the award
was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage was transformed
into a private carrier, by virtue of the contract of affreightment which it entered into with the consignee, Pag-asa Sales,
Inc. Corollarily, if it were in fact transformed into a private carrier, did it exercise the ordinary diligence to which a
private carrier is in turn bound? Second, whether or not the insurer was subrogated into the rights of the consignee
against the carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one of the
carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a common
carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of molasses from Negros
Oriental to Manila and refers to this contract as a "charter agreement". It then proceeds to cite the case of Home
Insurance Company vs. American Steamship Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking
to carry a special cargo or chartered to a special person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel, rather than a demise. As such, the
liability of the shipowner for acts or negligence of its captain and crew, would remain in the absence of stipulation.3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of affreightment) is more
clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein we ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be regarded as the owner for the voyage
or service stipulated. The charterer mans the vessel with his own people and becomes the owner pro hac vice, subject to
liability to others for damages caused by negligence. To create a demise, the owner of a vessel must completely and
exclusively relinquish possession, command and navigation thereof to the charterer, anything short of such a complete
transfer is a contract of affreightment (time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel leases part or all of its space to haul
goods for others. It is a contract for special service to be rendered by the owner of the vessel and under such contract the
general owner retains the possession, command and navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for his payment of the charter hire. . . . .
. . . . An owner who retains possession of the ship though the hold is the property of the charterer, remains liable as
carrier and must answer for any breach of duty as to the care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is not true in a contract
of affreightment on account of the aforementioned distinctions between the two.
Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We agree. Pag-asa Sales,
Inc. only leased three of petitioner's vessels, in order to carry cargo from one point to another, but the possession,
command and navigation of the vessels remained with petitioner Coastwise Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract of affreightment,
was not converted into a private carrier, but remained a common carrier and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good order to a
carrier and the subsequent arrival of the same goods at the place of destination in bad order makes for a prima facie case
against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the goods it transports are lost,
destroyed or deteriorated, applies to the petitioner. This presumption, which is overcome only by proof of the exercise of
extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its hitting an
unknown sunken object as it was heading for Pier 18. The object turned out to be a submerged derelict vessel. Petitioner
contends that this navigational hazard was the efficient cause of the accident. Further it asserts that the fact that the
Philippine Coastguard "has not exerted any effort to prepare a chart to indicate the location of sunken derelicts within
Manila North Harbor to avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus,
being unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the same.
Nothing could have prevented the event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from having rendered
service with the greatest skill and utmost foresight, and being free from fault, the carrier was culpably remiss in the
observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The Code of Commerce,
which subsidiarily governs common carriers (which are primarily governed by the provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal capacity to contract in accordance with
this code, and prove the skill capacity and qualifications necessary to command and direct the vessel, as established by
marine and navigation laws, ordinances or regulations, and must not be disqualified according to the same for the
discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this rule. It cannot
safely claim to have exercised extraordinary diligence, by placing a person whose navigational skills are questionable, at
the helm of the vessel which eventually met the fateful accident. It may also logically, follow that a person without license
to navigate, lacks not just the skill to do so, but also the utmost familiarity with the usual and safe routes taken by
seasoned and legally authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome the presumption
of negligence with the loss and destruction of goods it transported, by proof of its exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule against the
petitioner. We have already found petitioner liable for breach of the contract of carriage it entered into with Pag-asa
Sales, Inc. However, for the damage sustained by the loss of the cargo which petitioner-carrier was transporting, it was
not the carrier which paid the value thereof to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent
PhilGen.
Article 2207 of the Civil Code is explicit on this point:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long line of cases
including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund Insurance Company v. Jamilla &
Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court of Appeals,9 wherein this Court explained:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed
or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the
assured will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has
been obligated to pay. Payment by the insurer to the assured operated as an equitable assignment to the former of all
remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa Sales, Inc., the
consignee of the cargo of molasses totally damaged while being transported by petitioner Coastwise Lighterage, the
former was subrogated into all the rights which Pag-asa Sales, Inc. may have had against the carrier, herein petitioner
Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the order of Branch 35 of
the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay respondent Philippine General Insurance
Company the "principal amount of P700,000.00 plus interest thereon at the legal rate computed from March 29, 1989,
the date the complaint was filed until fully paid and another sum of P100,000.00 as attorney's fees and costs"10 is
likewise hereby AFFIRMED
SO ORDERED.
[G.R. No. 126223. November 15, 2000]
PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and ELIZA
PULIDO, respondents.
This petition for review on certiorari seeks to reverse the Decision of the Special Second Division of the Court of Appeals
dated August 27, 1996,[1] which affirmed in toto the Decision of the Regional Trial Court of Baguio City,[2] allowing
herein private respondent, the beneficiary under a life insurance policy issued by petitioner, to recover the face amount
of the said policy.
Briefly, the antecedent facts are:
On January 9, 1989, petitioner received from one Florence Pulido an application for life insurance, dated December 16,
1988, in the amount of P100,000.00 which designated her sister, herein private respondent, as its principal
beneficiary. Because the insurance applied for was non-medical, petitioner did not require a medical examination and
issued a policy on the sole basis of the application on February 11, 1989. On April 1992, petitioner received private
respondents claim, which declared that the insured, Florence Pulido, died of acute pneumonia on September 10, 1991.
Petitioner withheld payment on the ground that the policy claimed under was void from the start for having been
procured in fraud. It is petitioners contention that even before they received private respondents claim for death
benefits, their investigation concerning the subject policy yielded the information that the insured, Florence Pulido, died
in 1988, before the application for insurance on her life was made.[3] While this was communicated to private
respondent in a letter dated April 29, 1992,[4] private respondent had already filed her claim earlier that month.[5] In
another letter dated July 27, 1992, however, petitioner confirmed to private respondent receipt of the claim papers and
assured her that her case was being given preferential attention and prompt action.[6]
Following the filing by private respondent of her claim, petitioner caused another investigation respecting the subject
policy. Pursuant to the findings of this second investigation, petitioner stood by its initial decision to treat the policy as
void and not to honor the claim. On November 9, 1992, private respondent enlisted the services of counsel in reiterating
her claim for death benefits.[7] Petitioner still refused to make payment and thus, this action.
The complaint before the lower court sought payment of the face amount of the policy, equivalent to P100,000.00, with
interest at 24% per annum for undue delay in payment pursuant to Section 244 of the Insurance Code, and for P5,000.00
as consequential damages.
For its part, petitioner interposed that it was legally justified in denying plaintiffs claim, the results of its investigations
having indicated that the insured was already dead at the time the policy was applied for. It also counterclaimed for
attorneys fees.
To substantiate its defense, petitioner submitted copies of the reports of its investigators. The first report,[8] prepared by
one Dr. Benedicto Briones, was dated April 1, 1992, and had attached to it a questionnaire, responded to by one Ramon
Piganto,[9] who represented to be the brother-in-law of the insured and the barangay chairman of Cardiz, Bagulin, La
Union. To the question Where does [Florence Pulido] reside now?, Piganto had replied that Florence Pulido used to live in
Cardiz, but was dead since 1988. Pigantos statement was signed by him, and witnessed by his wife, Nenita Piganto. This
report was petitioners basis for treating the disputed policy as void since April 1992, even before receipt of private
respondents claim. The next two reports pertained to the investigation petitioner commenced after private respondent
filed her claim. One report, dated October 2, 1992, was submitted by Ferdinand Tanchoco, another of petitioners
investigators, and dealt with Tanchocos interview with a certain Remylyn Piganto, a 14-year old high school student who
was the niece of the insured and daughter of Ramon Piganto. Remylyn purportedly told Tanchoco that her auntie
Florence Pulido died young a long time ago, before Remylyn was even born.[10] Remylyn, however, did not execute any
written statement. The other report, dated December 28, 1992,[11] was prepared by Dr. Benedicto Briones, who also
prepared the first report dated April 1, 1992. This last report intimated the claim of some neighbors of the Pulido family
that Florence Pulido died in a car accident in 1985. These persons, however, refused to give their names or execute
statements on the matter, as they were reportedly afraid of Ramon Piganto, the insureds brother-in-law.[12]
During the trial, plaintiff-private respondent testified that the insured died of acute pneumonia on September 10, 1991 in
Barangay Cardiz, Bagulin, La Union and was buried two days after within their own yard. Plaintiff next presented as a
witness Dr. Irineo Gutierrez, who testified that he attended to the ailing Florence Pulido on September 8, and 9, 1991 at
their house in Cardiz. Dr. Gutierrez then authenticated a Certificate of Death,[13] issued on September 12, 1991 by the
Local Civil Registrar of Bagulin, La Union, which bore his signature in his capacity as then Municipal Health Officer of
Bagulin, La Union. The death certificate declared that Florence Pulido died on September 10, 1991 at around 4:00 in the
afternoon.
A neighbor of the Pulidos, Francisco Villano, also testified in support of plaintiff that the insured died of illness on
September 1991. Villano claimed that he was at the Pulidos house when Dr. Gutierrez attended to the insured. He also
said that he went to the wake of Florence Pulido and was able to view her remains.[14]
Meanwhile, defendant-petitioner presented Pablito Angalot, petitioners Life Claims Manager, who said that even before
the filing of private respondents claim, petitioners Claims Committee had already declared the disputed policy null and
void in light of the investigative report dated April 1, 1992. However, petitioner was unable to present Dr. Benedicto
Briones, the investigator who prepared the April 1, 1992 report. Also, when it presented Ramon Piganto, whose
statement attached to Dr. Brioness report dated April 1, 1992 was the basis for petitioners treating the subject policy as
void, Piganto denied giving the statement that Florence Pulido died in 1988, and said that he was made to sign a blank
coupon bond.[15]
Ferdinand Tanchoco, petitioners other investigator, identified his investigative report[16] and recounted the results of
his investigation focusing particularly on the interview with Remylyn Piganto. Tanchoco also reported that private
respondents information on the insureds death, as declared in her claim certificate, tallied with the entries of the death
certificate as found in the records of the Local Civil Register of Bagulin, La Union.
The dispositive portion of the decision of the Regional Trial Court, which was affirmed in toto by the Court of Appeals,
states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay
the former the amount of P100,000.00, representing the face value of the insurance policy sued upon, with interest
thereon at the legal rate from January 8, 1993, the date of the filing of the complaint, until fully paid, plus P20,000.00 for
and as attorneys fees and costs of suit.
In ruling in favor of plaintiff-private respondent, the trial court found no reason to doubt the correctness of the entries in
the Certificate of Death, which declared that Florence Pulido died on September 10, 1991. It is also found that defendant,
petitioner herein, failed to discharge the burden of proving its affirmative defense that fraud attended the issuance of the
policy sued upon. Contrarily, as the lower court observed, the evidence defendant presented sustained the validity of the
policy instead of establishing its alleged fraud.
The lower court also struck down as hearsay the two reports prepared by Dr. Benedicto Briones, the said investigator not
having been presented as a witness in court. It also held as hearsay the alleged declaration of Remylyn Piganto, as
recounted by Ferdinand Tanchoco in his report and on testimony, since Remylyn herself did not take the witness stand.
However, the lower court found plaintiff-private respondent entitled to legal interest only, and not to 24% per annum as
prayed for. Under Section 242 of the Insurance Code, the refusal of the insurer to pay a life insurance claim within the
period prescribed will entitle the beneficiary to collect interest on the proceeds at the rate of twice the ceiling prescribed
by the Monetary Board for the duration of the delay, unless the refusal to pay is based on the ground that the claim is
fraudulent. Fraud being the ground invoked by petitioner for refusing to honor the claim, the lower court found no
unreasonable delay in petitioners decision to withhold payment.
The petition is without merit.
As a rule, a petition for review on certiorari may raise only questions of law which must be distinctly set forth.[17] This
Court does not countenance the elevation of patently factual questions disguised by a loose and general wording of the
assignment of errors.
It is clear that the only issue the petition raises for review is respondent courts negative finding of fraud in the
obtainment of Florence Pulidos insurance policy. Fraud is a question of fact which must be alleged and proved at the level
of the lower court.[18] The records bear out that since the onset of this case, the main issue has always been whether
there was fraud in the obtainment of the disputed policy, or put differently, whether the insured, Florence Pulido, was in
fact dead before the application for insurance on her life was made. This the lower courts had effected ruled on, upon a
preponderance of the evidence duly received from both parties. We see no reversible error in the finding of both
respondent court and the trial court in favor of the correctness of the entries in Certificate of Death, duly registered with
the Local Civil Registrar of Bagulin, La Union, which declared that Florence Pulido died of acute pneumonia on September
10, 1991. Dr. Irineo Gutierrez, the Municipal Health Officer of Bagulin, La Union whose signature appeared in the death
certificate, testified in addition that he ministered to the ailing Florence Pulido for two days immediately prior to her
death. This fact is likewise noted in the death certificate.
Death certificates, and notes by a municipal health officer prepared in the regular performance of his duties, are prima
facie evidence of facts therein stated.[19] A duly-registered death certificate is considered a public document and the
entries found therein are presumed correct, unless the party who contests its accuracy can produce positive evidence
establishing otherwise.[20] Petitioners contention that the death certificate is suspect because Dr. Gutierrez was not
present when Florence Pulido died, and knew of Florences death only through Ramon Piganto, does not merit a
conclusion of fraud. No motive was imputed to Dr. Gutierrez for seeking to perpetuate a falsity in public
records. Petitioner was likewise unable to make out any clear motive as to why Ramon Piganto would purposely lie. Mere
allegations of fraud could not substitute for the full and convincing evidence that is required to prove it.[21] A failure to
do so would leave intact the presumption of good faith and regularity in the performance of public duties, which was the
basis of both respondent court and the trial court in finding the date of Florence Pulidos death to be as plaintiff-private
respondent maintained.
We cannot likewise give credence to petitioners submission that the inconsistencies in the testimonies of the witnesses
for plaintiff-private respondent are in themselves evidence of fraud. Such alleged inconsistencies are matters of
credibility which had been ably passed upon by the lower court.
The absence of fraud, as a factual finding of the lower court adopted by the Court of Appeals, entirely consistent with the
evidence on record, will not be reversed and, hence, is final and conclusive upon this Court.
WHEREFORE, the instant petition is DENIED. Costs against petitioners.
SO ORDERED.
G.R. No. 138737 July 12, 2001 4. Dismissing the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual damages has been
awarded under par. 1 of the decisions dispositive portion;
FINMAN GENERAL ASSURANCE CORPORATION, petitioner,
vs. 5. Dismissing the claim of interest under par. 2 of the prayer, there being no agreement to such effect;
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.
6. Dismissing the counter-claim for lack of merit;
KAPUNAN, J.:
7. Ordering the defendant to pay the cost of suit.
Through this petition for review on certiorari Finman General Assurance Corporation (petitioner) seeks to reverse and
set aside the Decision, dated January 14, 1999, of the Court of Appeals (CA) in CA-G.R. CV No. 46721 directing petitioner SO ORDERED.1
to pay the insurance claim of Usiphil Incorporated (private respondent). The appellate courts Resolution, dated May 13,
1999, which denied petitioners motion for reconsideration, is likewise sought to be reversed and set aside. On appeal, the CA substantially affirmed the decision of the trial court. The dispositive portion of the CA decision reads:

The antecedent facts, as culled from the decision of the trial court and the CA, are as follows: WHEREFORE, the appealed decision is hereby AFFIRMED with the modification that defendant-appellant is ordered to
pay plaintiff-appellee the sum of P842,683.40 and to pay 24% interest per annum from 03 May 1985 until fully paid. In
On September 15, 1981, private respondent obtained a fire insurance policy from petitioner (then doing business under all other respects, the appealed decision is AFFIRMED IN TOTO.
the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and
other trade equipment. Under Policy No. F3100 issued to private respondent, petitioner undertook to indemnify private SO ORDERED.2
respondent for any damage to or loss of said properties arising from fire.
Petitioner now comes to this Court assailing the decision of the appellate court. Petitioner alleges that:
Sometime in 1982, private respondent filed with petitioner an insurance claim amounting to P987,126.11 for the loss of
the insured properties due to fire. Acting thereon, petitioner appointed Adjuster H.H. Bayne to undertake the valuation Respondent Court of Appeals erred in finding that there is evidence sufficient to justify the Decision of the lower court;
and adjustment of the loss. H.H. Bayne then required private respondent to file a formal claim and submit proof of loss. In
compliance therewith, private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July 22, 1982, Respondent Court of Appeals erred in failing to consider the fact that Private Respondent committed a violation of the
signed by Reynaldo Cayetano, private respondents Manager. Respondent likewise submitted Proof of Loss signed by its Insurance Policy which justifies the denial of the claim by Petitioner;
Accounting Manager Pedro Palallos and countersigned by H.H. Baynes Adjuster F.C. Medina.
Respondent Court of Appeals further erred in finding that Petitioner is liable to pay the respondent, Usiphil, Inc., an
Palallos personally followed-up private respondents claim with petitioners President Joaquin Ortega. During their interest of 24% per annum in addition to the principal amount of P842,683.40.3
meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang
and Palallos signed a Statement/Agreement, dated February 28, 1985, which indicated that the amount due respondent Essentially, petitioner argues that the disallowance of private respondents claim is justified by its failure to submit the
required documents in accordance with Policy Condition No. 13. Said requirements were allegedly communicated to
was P842,683.40.
private respondent in the two letters of H.H. Bayne to private respondent. The first letter stated:
Despite repeated demands by private respondent, petitioner refused to pay the insurance claim. Thus, private
respondent was constrained to file a complaint against petitioner for the unpaid insurance claim. In its Answer, To be able to expedite adjustment of this case, please submit to us without delay the following documents and/or
petitioner maintained that the claim of private respondent could not be allowed because it failed to comply with Policy particulars:
Condition No. 13 regarding the submission of certain documents to prove the loss.
For FFF, Machineries/Equipment Claims
Trial ensued. On July 6, 1994, the trial court rendered judgment in favor of private respondent. The dispositive portion of
1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a detailed inventory of the
the decision reads:
documents submitted.
WHEREFORE, in view of the above observations and findings, judgment is hereby rendered in favor of the plaintiff and
2. Certification from the appropriate government office indicating the date of the occurrence of the fire, the property
against the defendant, ordering the latter:
involved, its location and possible point of origin.
1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum from February 28, 1985 until fully paid
3. Proof of premium payment.
(par. 29 of Exh. K);
4. Three color photographs of the debris properly captioned/identified/dated and initiated by the claimant at the back.
2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for attorneys fees, plus P1,500.00 per
court appearance of counsel;
4.1 Close-up (not more than 2 meters away) of the most severely damaged.
3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to the actual and compensatory
4.2 Close-up (not more than 2 meters away) of the least damaged.
damages awarded;
4.3. Original view of the debris (may be from farther than 2 meters away); splice two or more frames if necessary.
Though our adjusters will also take photographs in the manner prescribed above, please do not rely on his photographs
in the preservations of your evidence of loss thru pictures.
5. Copies of purchase invoices.
6. In the absence of No. 5, suppliers certificates of sales and delivery.
7. Appraisal report, if any.
8. Where initial estimated loss is exceeding P20,000.00, submit estimate by at least 2 contractors/suppliers.
9. Others (to be specified)
1. Repairs cost of the affected items including quotation or invoices in support thereof;
2. Complete lists of furniture, fixtures & fittings including date and cost of acquisition, and;
3. Statement of salvage on burned items.
Your preferential attention to this request will be fully appreciated.4
While the other letter stated:
Please submit to us without delay the following documents and/or particulars.
For Stock Claim
1. Your formal claim (which may be accomplished in the enclosed), accompanied by a detailed inventory of the
documents submitted.
2. Certification from the appropriate government office showing that the Insureds property was involved in the fire as a
consequence of which the claim is being filed.
3. Proof of premium payment.
4. Three colored photographs of the debris, property captioned/identified/dated and initiated by the claimant at the
back; in a floor plan, indicate the point from where the picture was taken and by an arrow where the camera was facing.
4.1. Close-up (not more than 2 meters away) of the most severely damaged.
4.2. Close-up (not more than 2 meters away) of the least damaged.
4.3. Overall view of the debris (may be from farther than 2 meters away); splice two or more frames if necessary.
Our adjuster will also take photographs.
5. Books of accounts bill, invoices and other vouchers, or certified copies thereof if originals be lost. This requirement
includes, but is not limited to, purchase and sales invoices, delivery
6. Certified copies of income tax returns for the last three years and the accompanying financial statements.
7. Latest inventory of merchandise filed with a financial institution, the Bureau of Internal Revenue or any government
entity prior to the loss.
8. A detailed inventory of the articles damaged or destroyed, showing the cost price of each, extent of loss, if any, if the
risk sustained partial or water damaged.
9. Certificates of registration.
10. Bank Statements.
11. For losses where the estimated value of stocks claimed which are burned out of sight and/or which may no longer be
subject to actual physical count exceeds P50,000.00, a CPAs detailed computations in support of such estimated value.
12. In the absence of purchase invoices/delivery receipts (state reason for absence), submit suppliers certificate of sales
and delivery.
13. Others (to be specified).
Statement of salvage of the affected stocks in trade.
Your compliance with this request will enable us to expedite adjustment of the loss in caption.5
According to petitioner, in complete disregard of the foregoing requirements, private respondent never submitted any of
the documents mentioned therein. Further, petitioner assails the award in favor of private respondent of an interest rate
of 24% per annum. Since there was allegedly no express finding that petitioner unreasonably denied or withheld the
payment of the subject insurance claim, then the award of 24% per annum is not proper. Petitioner opines that the
judgment should only bear the legal interest rate of 12% per annum for the delay in the payment of the claim.
The petition is bereft of merit.
Well-settled is the rule that factual findings and conclusions of the trial court and the CA are entitled to great weight and
respect, and will not be disturbed on appeal in the absence of any clear showing that the trial court overlooked certain
facts or circumstances which would substantially affect the disposition of the case.6 There is no cogent reason to deviate
from this salutary rule in the present case.
Both the trial court and the CA concur in holding that private respondent had substantially complied with Policy
Condition No. 13 which reads:
13. The insured shall give immediate written notice to the Company of any loss, protect the property from further
damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a
complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cash
value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN
WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to
by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the
interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss
thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property,
any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy
by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of
loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in
all policies, and if required verified plans and specifications of any building, fixtures, or machinery destroyed or damaged.
The insured, as often as may be reasonably required, shall exhibit to any person designated by the company all that
remains of any property herein described, and submit to examination under oath by any person named by the Company,
and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account,
bills, invoices, and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may
be designated by the Company or its representative and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been complied with.7
A perusal of the records shows that private respondent, after the occurrence of the fire, immediately notified petitioner
thereof. Thereafter, private respondent submitted the following documents: (1) Sworn Statement of Loss and Formal
Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The submission of these documents, to the Courts mind, constitutes
substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss,
substantial, not strict as urged by petitioner, compliance with the requirements will always be deemed sufficient.8
In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed
the document indicating that the amount due private respondent is P842,683.40 (Exhibit E). As correctly held by the
appellate court:
Under the aforequoted provision of the insurance policy, the insured was required to submit to the insurer written notice
of the loss; and a complete inventory of the properties damaged within 60 days after the fire, as well as a signed and
sworn statement of Proof of Loss. It is admitted by all parties that plaintiff-appellee notified the insurer Summa
Corporation of the fire which occurred on 27 May 1982. It is likewise admitted by all parties that plaintiff-appellee
submitted the following documents in support of its claim: (1) Sworn Statement of Loss (Exhibit C); (2) formal claim
dated 22 July 1982; (3) unnotarized sworn statement of proof of loss (Exhibit D). There was, therefore, sufficient
compliance with the requirements in Section 13 of the policy. But, even assuming that plaintiff-appellee indeed failed to
submit certain required documents as proof of loss per Section 13, such violation was waived by the insurer Summa
when it signed the document marked Exhibit E, a breakdown of the amount due to plaintiff-appellee as of February 1985
on the insurance claim. By such act, defendant-appellant acknowledged its liability under the insurance policy.
Antecedent to the execution of Exhibit E, there was a conference between Pallalos, representing plaintiff-appellee and
Ortega representing Summa Insurance. There is no evidence that in that meeting, Summa Insurance questioned plaintiff-
appellees submission of the required documents. What happened was that Ortega summoned Maghirang so that he
could settle with Pallalos regarding the amount due to plaintiff-appellee from insurance claim. The result is a
reconciliation of claim in Exhibit E which shows that as of February 1985, the net due sum is P842,683.49.
Defendant-appellant alleges that Maghirang was without authority to sign Exhibit E, and therefore without authority to
bind defendant-appellant corporation. We do not agree. The evidence indicate that at a meeting between plaintiff-
appellees corporate president Pedro Pallalos and his counterpart in defendant-appellant corporation, Joaquin Ortega,
the latter summoned Rosauro Maghirang to reconcile the claims of plaintiff-appellee. One who clothes another with
apparent authority as his agent and holds him to the public as such, cannot later be allowed to deny the authority of such
person to act as his agent when such third person entered into the contract in good faith and in an honest belief that he is
such agent. Witness for defendant-appellant Luis Manapats testimony that Maghirang was without authority to bind the
defendant-appellant cannot be given credence because, as he himself testified, he was not yet part of the Summa
Corporation at the time the negotiations in question were going on.9
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it to say that the same
is authorized by Sections 243 and 244 of the Insurance Code:
Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance
policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or
damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is
not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein
will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorneys fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully satisfied: Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima facie evidence of reasonable delay in
payment.
Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure
of the insurer to pay the claim within the time fixed in both Sections 243 and 244.10 Further, Section 29 of the policy
itself provides for the payment of such interest:
29. Settlement of claim clause. The amount of any loss or damage for which the company may be liable, under this
policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of the loss or
damage is made either in an agreement between the insured and the company or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the company of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
grounds (sic) that the claim is fraudulent.11
The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and ascertainment of
the loss made in an agreement between private respondent and petitioner. In this case, as found by the CA, petitioner and
private respondent signed the agreement (Exhibit E) indicating that the amount due private respondent was
P842,683.40 on April 2, 1985. Petitioner thus had until May 2, 1985 to pay private respondents insurance.12 For its
failure to do so, the CA and the trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in
accordance with the above quoted provisions.1wphi1.nt
WHEREFORE, the instant petition is hereby DENIED for lack of merit. The Decision, dated January 14, 1999, of the Court
of Appeals in CA-G.R. CV No. 46721 and its Resolution, dated May 13, 1999, are AFFIRMED IN TOTO.
SO ORDERED.
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 39836
promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering
petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and
Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution2 dated January 21, 1997 which denied the
subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner,
Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltexs
industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took
on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil
Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Assurance
Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early
morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos
and Fifty-Seven Centavos (P5,096,635.67) representing the insured value of the lost cargo. Exercising its right of
subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same
amount it paid to Caltex.1wphi1.nt
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the
Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the
evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein
petitioner without pronouncement as to cost. The trial court found that the vessel, MT Maysum, was seaworthy to
undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition
or force majeure, thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo.3
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate court gave
credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA for brevity) which showed that from 2:00 oclock to 8:oo oclock in the morning on August 16,
1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2) meters in height
only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the
waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel
coupled with the finding that the same was improperly manned, the appellate court ruled that the petitioner is liable on
its obligation as common carrier4 to herein private respondent insurance company as subrogee of Caltex. The
subsequent motion for reconsideration of herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition,5 to wit:
I
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE
VESSEL MT "MAYSUN" WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME
INSURANCE CORPORATION V. COURT OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines,
which states that in every marine insurance upon a ship or freight, or freightage, or upon any thin which is the subject of
marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will
not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at
the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private
respondent was not legally liable to Caltex due to the latters breach of implied warranty under the marine insurance
policy that the vessel was seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground
that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly not qualified. Under
Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the
private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo,
extends to the vessels complement. Besides, petitioner avers that although Berina had merely a 2nd officers license, he
was qualified to act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the Philippine
Merchant Marine Rules and Regulations. In fact, all the crew and officers of MT Maysun were exonerated in the
administrative investigation conducted by the Board of Marine Inquiry after the subject accident.6
In any event, petitioner further avers that private respondent failed, for unknown reason, to present in evidence during
the trial of the instant case the subject marine cargo insurance policy it entered into with Caltex. By virtue of the doctrine
laid down in the case of Home Insurance Corporation vs. CA,7 the failure of the private respondent to present the
insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the
parties thereto.
Hence, the legal issues posed before the Court are:
I
Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to
an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner.
II
Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for
lack of cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private
respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private
respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common
carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies
that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.8 Article
2207 of the New civil Code provides that:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which
equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay.9 It is not
dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply
upon payment by the insurance company of the insurance claim.10 Consequently, the payment made by the private
respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the
latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the
circumstance of each case.11 In the event of loss, destruction or deterioration of the insured goods, common carriers
shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other
natural disaster or calamity.12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence.13
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the
sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina,
captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather
condition occurred in the early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall ("unos")
carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to
twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its
cargo.14 This tale of strong winds and big waves by the said officers of the petitioner however, was effectively rebutted
and belied by the weather report15 from the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA), the independent government agency charged with monitoring weather and sea conditions,
showing that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to
twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East
Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioners vessel, MT
Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or
extremely poor sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco Berina, ship captain
and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer, the
herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates16 that tend to show that at the time of dry-
docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence
do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As
correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate
the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities
are likewise clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of certificates
established seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners
obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her
stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in
relation to seaworthiness. (Ibid.)17
Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their
respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil
liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its
failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or
omissions of its employees, the determination of which properly belongs to the courts.18 In the case at bar, petitioner is
liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the
presumption of fault or negligence as common carrier19 occasioned by the unexplained sinking of its vessel, MT Maysun,
while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not
indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in
the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship
of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also
the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.20
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA21 (a case cited
by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties
involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S
Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific
Conveyor to the port or arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to
the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We
emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any
damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot
be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not
presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was
adduced indicating at what stage in the handling process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not
applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil belonging to Caltex, in the
case at bar, was lost while on board petitioners vessel, MT Maysun, which sank while in transit in the vicinity of Panay
Gulf and Cuyo East Pass in the early morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in CA-G.R. CV No.
39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 151890 June 20, 2006
PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,
vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner,
vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.
DECISION
CHICO-NAZARIO, J:
This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and
Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991,
assailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the
Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29
January 2002 Resolution3 of the Court of Appeals, denying PRUDENTIALs Motion for Reconsideration and TRANS-ASIAs
Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside.
The Facts
The material antecedents as found by the court a quo and adopted by the appellate court are as follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant
[PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire
and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is
evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force,
a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff
[TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of
even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as to
the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.)
of the damage sustained by reason of fire. An adjusters report on the fire in question was submitted by Richard Hogg
International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").
On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of
which read (sic):
"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a
loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net
recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other
parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on
Board." (Exhibit "4")
In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit "5"). The letter reads:
"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained
that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED".
Accordingly, we regret to advise that your claim is not compensable and hereby DENIED."
This was followed by defendants letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within
a period of ten (10) days from receipt of the letter (Exhibit "6").4
Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL
with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of
P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance
policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section
2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.
In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-
ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED."
PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-
ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from
pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly
advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim,
including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees.
The Ruling of the Trial Court
On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a
determination of the parties liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on
WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is
required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court
a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL,
the insured party, to rescind the contract.9
Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-
ASIA that the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid
the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIALs
contention that there was nothing in the adjustment of the particular average submitted by the adjuster that would show
that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said
that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount
of P3,000,000.00 as advance payment, it should have so clearly stated as such.
The court a quo did not award PRUDENTIALs claim for P500,000.00, representing expert survey fees on the ground of
lack of sufficient basis in support thereof. Neither did it award attorneys fees on the rationalization that the instant case
does not fall under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted
PRUDENTIALs counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of
P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.
On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it
by the defendant, within a period of ten (10) days from and after this judgment shall have become final and executory.12
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000
Judgment of the RTC.
On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the
Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of
proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on
the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for
reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of a certification does
not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered
PRUDENTIALs admission that at the time the insurance contract was entered into between the parties, the vessel was
properly classed by Bureau Veritas, a classification society recognized by the industry. The Court of Appeals similarly
gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster
hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification
does not warrant denial of TRANS-ASIAs claim under the insurance policy.
In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider
which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it
partakes of a nature of a contract dadhesion which should be construed against PRUDENTIAL, the party which drafted
the contract. Likewise, according to the Court of Appeals, PRUDENTIALs renewal of the insurance policy from noon of 1
July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of
any breach of warranty committed by TRANS-ASIA.
Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL
and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no
obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was
PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-
ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the
delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment
appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to
appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of
the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is
hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered
by the latter as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double
interest starting from the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is fully
paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.14
Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for
Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29
January 2002.
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the
following grounds, viz:
I. THE AWARD IS GROSSLY UNCONSCIONABLE.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A
MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY.
III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF
PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY.
IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE
INSURANCE POLICY CONTRACT WAS A MERE RIDER.
V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY
CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY
TRANS-ASIA.
VI. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY
TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF.
VII. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE
FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY
VIOLATION BY TRANS-ASIA OF THE WARRANTY.
VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT
PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY
TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS
FULLY PAID.15
Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No.
151991, raising the following grounds for the allowance of the petition, to wit:
I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS FEES TO PETITIONER
TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN
ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT
PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM.
 II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE
CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT
THE RATE OF 24% PER ANNUM.16
In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolidation17 of G.R. Nos. 151890 and
151991;18 hence, the instant consolidated petitions.
In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject
insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the
parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of
interest to be imposed on the liability, if any, of either or both parties.
Ruling of the Court
Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be
raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings
and conclusions of the trial court, or are not supported by the evidence on record.20 In the case at bar, we find an
incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the
issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are
necessary.
I.
A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract.
In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in
the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof,
which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED.
According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in
violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause
No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled
PRUDENTIAL to rescind the contract under Sec. 7421 of the Insurance Code.
The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIALs Senior Manager of the
Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is
reproduced hereunder, viz:
ATTY. LIM
Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?
A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy
warranty condition and on that basis the claim was denied.
Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A"
series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which
constituted your basis for denying the claim as you testified.
A Warranted Vessel Classed and Class Maintained.
ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed
words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the
witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."
COURT
Q Will you explain that particular phrase?
A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be
entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain
their membership in the classification society. So, if they failed to meet that standard, they are considered not members
of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on
that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their
membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their
classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they
maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the
standards of the vessel (sic).
ATTY. LIM
Q Can you mention some classification societies that you know?
A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine
Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have
among others, there are over 20 worldwide. 22
At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving
it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the
burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support
of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach
of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It
follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach.
In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and
the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes
out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima
facie case, otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss
and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to
PRUDENTIAL to counter TRANS-ASIAs case, and to prove its special and affirmative defense that TRANS-ASIA was in
violation of the particular condition on CLASSED AND CLASS MAINTAINED.
We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of
evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a
categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIAs vessel,
"M/V Asia Korea" was properly classed by Bureau Veritas, thus:
Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at
the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).
WITNESS
A I recall that they were classed.
ATTY. LIM
Q With what classification society?
A I believe with Bureau Veritas.24
As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in
the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was
entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being
properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to
support the allegation.
We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIALs records to the
effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the
fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With
more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was
likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such
certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjusters survey report, or
adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a
material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to
rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference
incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the
insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25However,
it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party
alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that
TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be
allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED, PRUDENTIAL made a valid waiver of the same.
The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty
provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid
waiver of TRANS-ASIAs breach of warranty as alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of
01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any
breach of warranty.26
PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a
waiver of TRANS-ASIAs alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and
MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a
request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea"
was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the
subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising
the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the
renewal policies cannot be a waiver because they were issued without knowledge of the alleged breach of warranty
committed by TRANS-ASIA.27
We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing
TRANS-ASIAs insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was
considered to have waived TRANS-ASIAs breach of the subject warranty, if any. Breach of a warranty or of a condition
renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to
rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as
before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance
granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995,
respectively.
To our mind, the argument is made even more credulous by PRUDENTIALs lack of proof to support its allegation that the
renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate
attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no
certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIAs
alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the
insured, TRANS-ASIA, as well as to waive compliance of the warranty.
The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the
PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1)
PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof;
and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been waived by
PRUDENTIAL.
II.
A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties
evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on
the policy.
It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by
a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:
LOAN AND TRUST RECEIPT
Claim File No. MH-93-025 May 29, 1995
P3,000,000.00
Check No. PCIB066755
Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY
(P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent
that any net recovery is made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations,
or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire
on Board.
As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever
recovery we may make and deliver to it all documents necessary to prove our interest in said property. We also hereby
agree to promptly prosecute suit against such persons, corporation or corporations through whose negligence the
aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence, in our own name, but at
the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.
TRANS-ASIA SHIPPING CORPORATION29
PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of
P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the
loss. It further submits that it is a customary practice for insurance companies in this country to extend loans
gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue
business without embarrassment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL,
the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against
third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of
attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.
The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and
Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIAs claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the
Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California,
except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that
jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the
adopted statute should correspond in fundamental points with the application in its country of origin x x x.
xxxx
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was
intended as a loan does not detract from its real character as payment of claim, thus:
"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an
employee where no provision or repayment of the money was made except upon condition that it be recovered from
other parties and neither interest nor security for the asserted debts was provided for, the money constituted the
payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as
a mere loan."
What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to
hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to
prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under the
policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third
parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all
remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered by
the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the
first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. It has
been referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without
regard to form.31
We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the
transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA
is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims
due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the
former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons,
corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned
by the 25 October 1993: Fire on Board."32
Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against
such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may
otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third
persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive
direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even
as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the
principal, in the prosecution of the suit against parties who may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly
speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from
any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit
TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we
do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of
TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-
ASIAs claim on MH93/1353.
III.
A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss
suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine
Policy No. MH93/1363, or a total amount of P8,395,072.26.
B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorneys fees equivalent to 10% of
P8,395,072.26.
The Court of Appeals denied the grant of attorneys fees. It held that attorneys fees cannot be awarded absent a showing
of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs claim, notwithstanding that the rejection was
erroneous. According to the Court of Appeals, attorneys fees can be awarded only in the cases enumerated in Article
2208 of the Civil Code which finds no application in the instant case.
We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorneys fees and other expenses incurred by
the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or
withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by
the Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section
24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure
to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of
unreasonable delay in payment.
To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorneys fees be granted. As
earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by
failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As
established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers shall
be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the insured.37
Section 244 reads:
In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the
Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured
has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorneys fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the
amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in
payment.
Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment
of the insurance claims.
In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an
unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26
October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13
August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report recommending the
amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a
letter39 addressed to TRANS-ASIA denied the latters claim for the amount of P8,395,072.26 representing the balance of
the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount
of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against
PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance
claim.
As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA,
as in fact, it refuted the latters right to the insurance claims, from the time proof of loss was shown and the
ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying
TRANS-ASIAs unpaid claims compelled the latter to file a suit for collection.
Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorneys fees to TRANS-
ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of
Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the
Insurance Code was made by this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest in
accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary
Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be,
until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a
marine insurance, clearly, a policy other than life insurance.
Section 243 is hereunder reproduced:
SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life
insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the
loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such
ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at
the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
ground that the claim is fraudulent.
As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground
that the claim is fraudulent.
D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per
annum.
PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed
Decision of 6 November 2001. It is PRUDENTIALs stance that the award is extortionate and grossly unsconscionable. In
support thereto, PRUDENTIAL makes a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo
wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking
business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42
The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243
and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that
the payment of 24% interest per annum is authorized by the Insurance Code.45 There is no gainsaying that the term
"double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per
annum interest, thus:
The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum
(12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law;
so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest
"twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the
proceeds of the insurance.46
E. The payment of double interest should be counted from 13 September 1996.
The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due
TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised
by the parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous.
3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest at the rate
of 24% per annum to be computed from 13 September 1996 until fully paid; and
4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in
paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the No costs.
ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for
which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is SO ORDERED.
received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and
the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and
ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be
held to be in delay, thereby necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the
adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996
within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the
double interest can begin to run from 13 September 1996 only.
IV.
A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein,
computed from the time of finality of judgment until the full satisfaction thereof in conformity with this Courts ruling in
Eastern Shipping Lines, Inc. v. Court of Appeals.
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of
interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the
judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of
whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until
the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the
interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of
credit, hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we
award the grant of attorneys fees and make a clarification that the term "double interest" as used in the 6 November
2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per
annum, with a further clarification, that the same should be computed from 13 September 1996 until fully paid. The
Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002,
respectively, are, thus, MODIFIED in the following manner, to wit:
1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss
suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;
2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorneys fees equivalent to 10% of the
amount of P8,395,072.26;
G.R. No. 168402 August 6, 2008
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the
insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the
wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which reversed the
Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum
of P280,176.92 plus interest and attorney's fees in favor of respondent Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a
marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain
wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP),
Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does
insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: -
Loss, if any, payable to the Assured or order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on board M/S
Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993,
the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On
July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized
booking representative, Aboitiz Transport System. The bill of lading7 issued by Aboitiz contained the notation "grounded
outside warehouse."
The container van was stripped and transferred to another crate/container van without any notation on the condition of
the cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded on board petitioner's
vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International
Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report9 dated August 5, 1993, petitioner's checker noted that the crates were slightly broken or cracked
at the bottom.
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement
Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr.
Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig
informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded
warehouse and checked the condition of the container and other cargoes stuffed in the same container. He found that the
container van and other cargoes stuffed there were completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely
dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded.
He further explained that the "grounded outside warehouse" notation in the bill of lading referred only to the container
van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo.12 The letter
stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and
workbenches were found to have been completely soaked in water with most of the packing cartons already
disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal
bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering
through the broken parts of the crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen
Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the
goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of P276,540.00 for the damaged
condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official weather report from the
Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July
28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse
of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the
warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation "grounded outside
warehouse." It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to
Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation
receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its
favor. Despite follow-ups, however, no reply was received from Aboitiz.
RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and
attorney's fees.16 ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by
the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint
stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the
suit was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for
being baseless and without merit. The complaint is hereby DISMISSED. The defendant's counterclaims are, likewise,
DISMISSED for lack of basis.18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial
court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime
Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its
predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it
had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for
being hearsay evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited
(ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would
show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA
with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA
UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International
Limited &/or Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B. Francisco, claims that the signature
below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching
Improvement Project. Plaintiff's witness, however, failed to identify whose signature it was and plaintiff did not present
on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there was
an endorsement of the marine policy has no probative value as it is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as
shown by the Subrogation Form (Exhibit "K") allegedly signed by a representative of Science Teaching Improvement
Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-
serving and has no probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do
business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to
do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12
March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be
sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do
business in the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the
Board of Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign
corporation doing business in the Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman,
72 Phil. 524. (Emphasis supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the
right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as
made known in the dorsal portion of the Open Policy.20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed
within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the
representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial
Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered
ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North
America the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until
fully paid, and attorney's fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo
that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming
reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by
Philippine courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of
the claim of the insured under the subject marine policy, is therefore the real party in interest to bring this suit and
recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x22
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any
countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo.
Issues
The following issues are up for Our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF
ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE
CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD
PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A
WRONG CLAIMANT.
(2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF
THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").
(3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER
INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED
("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF
ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A
SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND
AUTHENTICATE THE SAME.
(4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND
KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF
ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest
that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of
the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the
claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in
local courts. Only when that foreign corporation is "transacting" or "doing business" in the country will a license be
necessary before it can institute suits.24 It may, however, bring suits on isolated business transactions, which is not
prohibited under Philippine law.25Thus, this Court has held that a foreign insurance company may sue in Philippine
courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a
Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the
prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.26
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy,
the present suit was filed by the said company's authorized agent in Manila. It was the domestic corporation that brought
the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA
office in the Philippines as one of the foreign company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS,
the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the
company who issued the insurance, or against any of its listed agents worldwide.27 MSAS accepted said provision when
it signed and accepted the policy. The acceptance operated as an acceptance of the authority of the agents. Hence, a
formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of
the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does
insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: - Loss,
if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the
assured. This is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become
the owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment.
The right of subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by the insurer to the
assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the
damage. Subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment
of claim. It accrues simply upon payment of the insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to subrogation
equipped it with a cause of action against petitioner in case of a contractual breach or negligence.30 This right of
subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual
stipulations under the bill of lading.31 Second, the insurer can be subrogated only to the rights as the insured may have
against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer
who caused the loss from liability, the insurer loses its claim against the latter.32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the
carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with.
As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement
protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and
easily investigated. It is meant to safeguard the carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if
the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package,
the claim must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages
or average which may be found therein upon opening the packages, may be made, provided that the indications of the
damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which
case the claim shall be admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted
against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the
contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim
under the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated
August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on September 21, 1993.
But petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the
company, was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse
and to the delivery site to inspect the goods in behalf of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35the notice was
allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a
notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was
timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the
PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier
must be given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and
their application is limited to cases falling fairly within their object and purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered
goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez.
Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already
corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and
practical, rather than a strict construction.37 We give due consideration to the fact that the final destination of the
damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions.
Understandably, when the goods were delivered, the necessary clearance had to be made before the package was opened.
Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper
channels before it could be finalized and endorsed by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have
corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was
able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed
time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the
claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the
Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by
law.38 Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and
circumspection use for securing and preserving their own property rights.39 This standard is intended to grant favor to
the shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment.40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that
petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo
Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage due to
"wettage" although by then they were already physically dry. Appellee carrier having failed to discharge the burden of
proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the
presumption of fault or negligence on its part from the time the goods were unconditionally placed in its possession (July
26, 1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands. The presumption
that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. x x
x41 (Emphasis added)
appellee provided no explanation as to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records
showed is that the subject cargo was stripped from the container van of the shipper and transferred to the container on
August 1, 1993 and finally loaded into the appellee's vessel bound for Cebu City on August 2, 1993. The
Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate any such defect or damage, but when the
container was stripped upon arrival in Cebu City port after being discharged from appellee's vessel, it was noted that
only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit "F").43 (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it
exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.

The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day,
it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van.
On August 1, 1993, it was loaded onto another vessel bound for Cebu. During the period between July 26 to 31, 1993, the
shipment was outside a container van and kept in storage by petitioner. G.R. No. 194320 February 1, 2012

The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside warehouse," suggesting MALAYAN INSURANCE CO., INC., Petitioner,
that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila vs.
during the same period, We can conclude that this was when the shipment sustained water damage. RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.

To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some DECISION
other party could be responsible for the damage. It must prove that it used "all reasonable means to ascertain the nature
and characteristic of the goods tendered for transport and that it exercised due care in handling them.42 Extraordinary VELASCO, JR., J.:
diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall.
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside the July 28, 2010
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment but only to Decision1 of the Court of Appeals (CA) and its October 29, 2010 Resolution2 denying the motion for reconsideration filed
the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed by petitioner Malayan Insurance Co., Inc. (Malayan Insurance). The July 28, 2010 CA Decision reversed and set aside the
to show that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. Decision3 dated February 2, 2009 of the Regional Trial Court, Branch 51 in Manila.
As amply explained by the CA:
The Facts
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped
At around 5 oclock in the morning of December 17, 1995, an accident occurred at the corner of EDSA and Ayala Avenue,
into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July
Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with plate number NYS 381;
26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the
(2) an Isuzu Tanker with plate number PLR 684; (3) a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi
time it was delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31,
Galant with plate number TLM 732.4
1993. No other inevitable conclusion can be deduced from the foregoing established facts that damage from "wettage"
suffered by the subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing
Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M. Dungga (SPO1
rainwater to seep into the cargoes.
Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus on their right side shortly before the
vehicular incident. All three (3) vehicles were at a halt along EDSA facing the south direction when the Fuzo Cargo Truck
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subject goods by claiming
simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the
that the notation "GROUNDED OUTSIDE WHSE." actually refers to the container and not the contents thereof or the
strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed into
cargoes. And yet it presented no evidence to explain where did they place or store the subject goods from the time it
the rear right portion of the Isuzu Tanker.5
accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the
container van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila
Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No. PV-025-00220 in
for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City,
favor of First Malayan Leasing and Finance Corporation (the assured), insuring the aforementioned Mitsubishi Galant
against third party liability, own damage and theft, among others. Having insured the vehicle against such risks, Malayan
Insurance claimed in its Complaint dated October 18, 1999 that it paid the damages sustained by the assured amounting
to PhP 700,000.6
Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its payment to
the latter, Malayan Insurance sent several demand letters to respondents Rodelio Alberto (Alberto) and Enrico Alberto
Reyes (Reyes), the registered owner and the driver, respectively, of the Fuzo Cargo Truck, requiring them to pay the
amount it had paid to the assured. When respondents refused to settle their liability, Malayan Insurance was constrained
to file a complaint for damages for gross negligence against respondents.7
In their Answer, respondents asserted that they cannot be held liable for the vehicular accident, since its proximate cause
was the reckless driving of the Nissan Bus driver. They alleged that the speeding bus, coming from the service road of
EDSA, maneuvered its way towards the middle lane without due regard to Reyes right of way. When the Nissan Bus
abruptly stopped, Reyes stepped hard on the brakes but the braking action could not cope with the inertia and failed to
gain sufficient traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn,
hit the rear end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the Fuzo Cargo Truck, causing
damage to the latter in the amount of PhP 20,000. Respondents also controverted the results of the Police Report,
asserting that it was based solely on the biased narration of the Nissan Bus driver.8
After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented the testimony of its lone
witness, a motor car claim adjuster, who attested that he processed the insurance claim of the assured and verified the
documents submitted to him. Respondents, on the other hand, failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor of Malayan Insurance and
declared respondents liable for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly and severally to pay
plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;
2. Attorneys fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED.9
Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its Decision dated July 28,
2010, the CA reversed and set aside the Decision of the trial court and ruled in favor of respondents, disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the assailed Decision dated 2
February 2009 REVERSED and SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED for lack of merit.
No costs.
SO ORDERED.10
The CA held that the evidence on record has failed to establish not only negligence on the part of respondents, but also
compliance with the other requisites and the consequent right of Malayan Insurance to subrogation.11 It noted that the
police report, which has been made part of the records of the trial court, was not properly identified by the police officer
who conducted the on-the-spot investigation of the subject collision. It, thus, held that an appellate court, as a reviewing
body, cannot rightly appreciate firsthand the genuineness of an unverified and unidentified document, much less accord
it evidentiary value.12
Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police report is a prima facie
evidence of the facts stated in it. And inasmuch as they never questioned the presentation of the report in evidence,
respondents are deemed to have waived their right to question its authenticity and due execution.13
In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence, Malayan Insurance filed
the instant petition.
The Issues
In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the following issues for Our consideration:
I. WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT SINCE THE POLICE
INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN COURT THEREON.
II. WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR DEFICIENT.
On the other hand, respondents submit the following issues in its Memorandum15 dated July 7, 2011:
I. WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF MALAYAN
INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE OF
RESPONDENTS.
II. WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE SUFFICIENT TO
CLAIM FOR THE AMOUNT OF DAMAGES.
III. WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE AND REQUISITES
AS PROVIDED UNDER PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2) the sufficiency of the
evidence to support a claim for gross negligence; and (3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police investigator who prepared the police
report, said report is still admissible in evidence, especially since respondents failed to make a timely objection to its
presentation in evidence.16 Respondents counter that since the police report was never confirmed by the investigating
police officer, it cannot be considered as part of the evidence on record.17
Indeed, under the rules of evidence, a witness can testify only to those facts which the witness knows of his or her
personal knowledge, that is, which are derived from the witness own perception.18 Concomitantly, a witness may not
testify on matters which he or she merely learned from others either because said witness was told or read or heard
those matters.19 Such testimony is considered hearsay and may not be received as proof of the truth of what the witness
has learned. This is known as the hearsay rule.20
As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or statements; the general rule that
excludes hearsay as evidence applies to written, as well as oral statements."
There are several exceptions to the hearsay rule under the Rules of Court, among which are entries in official
records.22 Section 44, Rule 130 provides:
Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in the
performance of a duty specially enjoined by law are prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the admissibility in evidence, as an exception to
the hearsay rule of entries in official records, thus: (a) that the entry was made by a public officer or by another person
specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his or her duties, or by
such other person in the performance of a duty specially enjoined by law; and (c) that the public officer or other person
had sufficient knowledge of the facts by him or her stated, which must have been acquired by the public officer or other
person personally or through official information.
Notably, the presentation of the police report itself is admissible as an exception to the hearsay rule even if the police
investigator who prepared it was not presented in court, as long as the above requisites could be adequately proved.24
Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report, and he did so in the
performance of his duty. However, what is not clear is whether SPO1 Dungga had sufficient personal knowledge of the
facts contained in his report. Thus, the third requisite is lacking.
Respondents failed to make a timely objection to the police reports presentation in evidence; thus, they are deemed to
have waived their right to do so.25 As a result, the police report is still admissible in evidence.
Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the rear of the Mitsubishi
Galant, he is presumed to be negligent unless proved otherwise. It further contends that respondents failed to present
any evidence to overturn the presumption of negligence.26 Contrarily, respondents claim that since Malayan Insurance
did not present any witness who shall affirm any negligent act of Reyes in driving the Fuzo Cargo truck before and after
the incident, there is no evidence which would show negligence on the part of respondents.27
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report in evidence, still,
respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is quite
elucidating:
Petitioners contention, however, loses relevance in the face of the application of res ipsa loquitur by the CA. The effect of
the doctrine is to warrant a presumption or inference that the mere fall of the elevator was a result of the person having
charge of the instrumentality was negligent. As a rule of evidence, the doctrine of res ipsa loquitur is peculiar to the law
of negligence which recognizes that prima facie negligence may be established without direct proof and furnishes a
substitute for specific proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will not
generally give rise to an inference or presumption that it was due to negligence on defendants part, under the doctrine of
res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in one jurisdiction, that the thing or
instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such as to raise a
presumption, or at least permit an inference of negligence on the part of the defendant, or some other person who is
charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control or
management of the defendant, and that the occurrence resulting in the injury was such as in the ordinary course of things
would not happen if those who had its control or management used proper care, there is sufficient evidence, or, as
sometimes stated, reasonable evidence, in the absence of explanation by the defendant, that the injury arose from or was
caused by the defendants want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality which
causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it and that the
plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to rely upon the
proof of the happening of the accident in order to establish negligence. The inference which the doctrine permits is
grounded upon the fact that the chief evidence of the true cause, whether culpable or innocent, is practically accessible to
the defendant but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without knowledge of the
cause, reaches over to defendant who knows or should know the cause, for any explanation of care exercised by the
defendant in respect of the matter of which the plaintiff complains. The res ipsa loquitur doctrine, another court has said,
is a rule of necessity, in that it proceeds on the theory that under the peculiar circumstances in which the doctrine is
applicable, it is within the power of the defendant to show that there was no negligence on his part, and direct proof of
defendants negligence is beyond plaintiffs power. Accordingly, some courts add to the three prerequisites for the
application of the res ipsa loquitur doctrine the further requirement that for the res ipsa loquitur doctrine to apply, it
must appear that the injured party had no knowledge or means of knowledge as to the cause of the accident, or that the
party to be charged with negligence has superior knowledge or opportunity for explanation of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the case at bar:
There is no dispute that appellees husband fell down from the 14th floor of a building to the basement while he was
working with appellants construction project, resulting to his death. The construction site is within the exclusive control
and management of appellant. It has a safety engineer, a project superintendent, a carpenter leadman and others who are
in complete control of the situation therein. The circumstances of any accident that would occur therein are peculiarly
within the knowledge of the appellant or its employees. On the other hand, the appellee is not in a position to know what
caused the accident. Res ipsa loquitur is a rule of necessity and it applies where evidence is absent or not readily
available, provided the following requisites are present: (1) the accident was of a kind which does not ordinarily occur
unless someone is negligent; (2) the instrumentality or agency which caused the injury was under the exclusive control
of the person charged with negligence; and (3) the injury suffered must not have been due to any voluntary action or
contribution on the part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement while performing work in a construction site
unless someone is negligent[;] thus, the first requisite for the application of the rule of res ipsa loquitur is present. As
explained earlier, the construction site with all its paraphernalia and human resources that likely caused the injury is
under the exclusive control and management of appellant[;] thus[,] the second requisite is also present. No contributory
negligence was attributed to the appellees deceased husband[;] thus[,] the last requisite is also present. All the requisites
for the application of the rule of res ipsa loquitur are present, thus a reasonable presumption or inference of appellants
negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application of res ipsa loquitur, but argues that the
presumption or inference that it was negligent did not arise since it "proved that it exercised due care to avoid the
accident which befell respondents husband."
Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, the defendants negligence is
presumed or inferred when the plaintiff establishes the requisites for the application of res ipsa loquitur. Once the
plaintiff makes out a prima facie case of all the elements, the burden then shifts to defendant to explain. The presumption
or inference may be rebutted or overcome by other evidence and, under appropriate circumstances a disputable
presumption, such as that of due care or innocence, may outweigh the inference. It is not for the defendant to explain or
prove its defense to prevent the presumption or inference from arising. Evidence by the defendant of say, due care,
comes into play only after the circumstances for the application of the doctrine has been established.28
In the case at bar, aside from the statement in the police report, none of the parties disputes the fact that the Fuzo Cargo
Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it. Respondents,
however, point to the reckless driving of the Nissan Bus driver as the proximate cause of the collision, which allegation is
totally unsupported by any evidence on record. And assuming that this allegation is, indeed, true, it is astonishing that
respondents never even bothered to file a cross-claim against the owner or driver of the Nissan Bus.
What is at once evident from the instant case, however, is the presence of all the requisites for the application of the rule
of res ipsa loquitur. To reiterate, res ipsa loquitur is a rule of necessity which applies where evidence is absent or not
readily available. As explained in D.M. Consunji, Inc., it is partly based upon the theory that the defendant in charge of the
instrumentality which causes the injury either knows the cause of the accident or has the best opportunity of
ascertaining it and that the plaintiff has no such knowledge, and, therefore, is compelled to allege negligence in general
terms and to rely upon the proof of the happening of the accident in order to establish negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur rule are the following: (1) the accident was
of a kind which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused
the injury was under the exclusive control of the person charged with negligence; and (3) the injury suffered must not
have been due to any voluntary action or contribution on the part of the person injured.29
In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi Galant unless someone is
negligent. Also, the Fuzo Cargo Truck was under the exclusive control of its driver, Reyes. Even if respondents avert
liability by putting the blame on the Nissan Bus driver, still, this allegation was self-serving and totally unfounded.
Finally, no contributory negligence was attributed to the driver of the Mitsubishi Galant. Consequently, all the requisites
for the application of the doctrine of res ipsa loquitur are present, thereby creating a reasonable presumption of
negligence on the part of respondents.
It is worth mentioning that just like any other disputable presumptions or inferences, the presumption of negligence may
be rebutted or overcome by other evidence to the contrary. It is unfortunate, however, that respondents failed to present
any evidence before the trial court. Thus, the presumption of negligence remains. Consequently, the CA erred in
dismissing the complaint for Malayan Insurances adverted failure to prove negligence on the part of respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim check
voucher30 and the Release of Claim and Subrogation Receipt31 presented by it before the trial court. Respondents,
however, claim that the documents presented by Malayan Insurance do not indicate certain important details that would
show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the presentation of its
evidence. Thus, and as We have mentioned earlier, respondents are deemed to have waived their right to make an
objection. As this Court held in Asian Construction and Development Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it admissible, and the court cannot, on its own, disregard
such evidence. We note that ASIAKONSTRUCTs counsel of record before the trial court, Atty. Bernard Dy, who actively
participated in the initial stages of the case stopped attending the hearings when COMFAC was about to end its
presentation. Thus, ASIAKONSTRUCT could not object to COMFACs offer of evidence nor present evidence in its defense;
ASIAKONSTRUCT was deemed by the trial court to have waived its chance to do so.
Note also that when a party desires the court to reject the evidence offered, it must so state in the form of a timely
objection and it cannot raise the objection to the evidence for the first time on appeal. Because of a partys failure to
timely object, the evidence becomes part of the evidence in the case. Thereafter, all the parties are considered bound by
any outcome arising from the offer of evidence properly presented.32(Emphasis supplied.)
Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by Malayan
Insurance are already part of the evidence on record, and since it is not disputed that the insurance company, indeed,
paid PhP 700,000 to the assured, then there is a valid subrogation in the case at bar. As explained in Keppel Cebu
Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full
substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the
creditor could employ to enforce payment.1wphi1
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the
remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by
the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to
promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one
who, in justice, equity, and good conscience, ought to pay.33
Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the assured.
WHEREFORE, the petition is hereby GRANTED. The CAs July 28, 2010 Decision and October 29, 2010 Resolution in CA-
G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009 issued by the trial court in
Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.
G.R. No. 198588 July 11, 2012 National Bureau of Investigation (NBI) to conduct a parallel investigation. On 6 July 1996, UMC, through CRM, submitted
to CBIC its Sworn Statement of Formal Claim, with proofs of its loss.
UNITED MERCHANTS CORPORATION, Petitioner,
vs. On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from CBIC. On 25 February
COUNTRY BANKERS INSURANCE CORPORATION, Respondent. 1997, UMC received CBICs letter, dated 10 January 1997, rejecting UMCs claim due to breach of Condition No. 15 of the
Insurance Policy. Condition No. 15 states:
DECISION
If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any
CARPIO, J.: fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this
Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits
The Case under this Policy shall be forfeited.6

This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals Decision2 dated 16 June 2011 and its
Resolution3 dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals reversed the Decision4 of the
Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim on the Insurance Policy is void.
The Facts
The facts, as culled from the records, are as follows:
Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and manufacturing
Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose Subdivision, Barrio Manresa, Quezon City, where
UMC assembled and stored its products.
On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of Christmas lights against fire
with defendant Country Bankers Insurance Corporation (CBIC) for 15,000,000.00. The Fire Insurance Policy No. F-
HO/95-576 (Insurance Policy) and Fire Invoice No. 12959A, valid until 6 September 1996, states:
AMOUNT OF INSURANCE: FIFTEEN
MILLION PESOS
PHILIPPINE
CURRENCY
xxx
PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the Assured or held by
them in trust, on commissions, or on joint account with others and/or for which they are responsible in the event of loss
and/or damage during the currency of this policy, whilst contained in the building of one lofty storey in height,
constructed of concrete and/or hollow blocks with portion of galvanized iron sheets, under galvanized iron rood,
occupied as Christmas lights storage.5
On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to form part of the
Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade were insured against additional perils, to
wit: "typhoon, flood, ext. cover, and full earthquake." The sum insured was also increased to 50,000,000.00 effective 7
May 1996 to 10 January 1997. On 9 May 1996, CBIC issued Endorsement F/96-157 where the name of the assured was
changed from Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment Corporation (CRM) to
investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer, Central Surety, likewise requested the
On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored its insurance claim on
the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted, and the Certification dated 24 July 1996
made by Deputy Fire Chief/Senior Superintendent Bonifacio J. Garcia of the Bureau of Fire Protection. The Certification
dated 24 July 1996 provides that:
This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3, 1996, a fire broke out at
United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an estimated damage
of Fifty-Five Million Pesos (55,000,000.00) to the building and contents, while the reported insurance coverage
amounted to Fifty Million Pesos (50,000,000.00) with Country Bankers Insurance Corporation.
The Bureau further certifies that no evidence was gathered to prove that the establishment was willfully, feloniously and
intentionally set on fire.
That the investigation of the fire incident is already closed being ACCIDENTAL in nature.8
In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted the issuance of the Insurance Policy to
UMC but raised the following defenses: (1) that the Complaint states no cause of action; (2) that UMCs claim has already
prescribed; and (3) that UMCs fire claim is tainted with fraud. CBIC alleged that UMCs claim was fraudulent because
UMCs Statement of Inventory showed that it had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to 25,000,000.00. UMCs GIS and Financial Reports further revealed
that it had insufficient capital, which meant UMC could not afford the alleged 50,000,000.00 worth of stocks in trade.
In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy. UMC claimed that
it did not make any false declaration because the invoices were genuine and the Statement of Inventory was for internal
revenue purposes only, not for its insurance claim.
During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMCs disbursing officer. Ebora
testified that UMCs stocks in trade, at the time of the fire, consisted of: (1) raw materials for its Christmas lights; (2)
Christmas lights already assembled; and (3) Christmas lights purchased from local suppliers. These stocks in trade were
delivered from August 1995 to May 1996. She stated that Straight Cargo Commercial Forwarders delivered the imported
materials to the warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had no importations and
only bought from its local suppliers. Ebora identified the suppliers as Fiber Technology Corporation from which UMC
bought stocks worth 1,800,000.00 on 20 May 1996; Fuze Industries Manufacturer Philippines from which UMC bought
stocks worth 19,500,000.00 from 20 January 1996 to 23 February 1996; and Tomco Commercial Press from which UMC
bought several Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora also presented UMCs
Balance Sheet, Income Statement and Statement of Cash Flow. Per her testimony, UMCs purchases amounted to
608,986.00 in 1994; 827,670.00 in 1995; and 20,000,000.00 in 1996. Ebora also claimed that UMC had sales only
from its fruits business but no sales from its Christmas lights for the year 1995.
The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers to assemble and
pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third witness, Metropolitan Bank and Trust
Company (MBTC) Officer Cesar Martinez, stated that UMC opened letters of credit with MBTC for the year 1995 only. The
fourth witness presented was Ernesto Luna (Luna), the delivery checker of Straight Commercial Cargo Forwarders. Luna
affirmed the delivery of UMCs goods to its warehouse on 13 August 1995, 6 September 1995, 8 September 1995, 24
October 1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRMs adjuster Dominador Victorio
testified that he inspected UMCs warehouse and prepared preliminary reports in this connection.
On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a Securities and Exchange
Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and NBI Investigator Arnold Lazaro (Lazaro).
Caguindagan testified that he inspected the burned warehouse on 5 July 1996, took pictures of it and referred the claim
to an independent adjuster. The SEC representatives testimony was dispensed with, since the parties stipulated on the
existence of certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs Financial Report as of 31 December 1996;
(3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years; and (4) UMCs Statement of Inventory
as of 31 December 1995 filed with the BIR.
Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. On 19 November 1996,
they concluded that arson was committed based from their interview with barangay officials and the pictures showing
that blackened surfaces were present at different parts of the warehouse. On cross-examination, Lazaro admitted that
they did not conduct a forensic investigation of the warehouse, nor did they file a case for arson.
For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB General Insurance, the
insurer of Perfect Investment Company, Inc., the warehouse owner. When asked to bring documents related to the
insurance of Perfect Investment Company, Inc., Batallones brought the papers of Perpetual Investment, Inc.
The Ruling of the Regional Trial Court
On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay plaintiff:
a) the sum of 43,930,230.00 as indemnity with interest thereon at 6% per annum from November 2003 until fully paid;
b) the sum of 100,000.00 for exemplary damages;
c) the sum of 100,000.00 for attorneys fees; and
d) the costs of suit.
Defendants counterclaim is denied for lack of merit.
SO ORDERED.11
The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for UMCs entitlement to the
insurance proceeds, as follows:
Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu Country Club, 417
SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence that the documents submitted to the
SEC and BIR were true. It is common business practice for corporations to have 2 sets of reports/statements for tax
purposes. The stipulated documents of plaintiff (Exhs. 2 8) may not have been accurate.
The conflicting findings of defendants adjuster, CRM Adjustment [with stress] and that made by Atty. Cabrera & Mr.
Lazaro for Central Surety shall be resolved in favor of the former. Definitely the formers finding is more credible as it
was made soon after the fire while that of the latter was done 4 months later. Certainly it would be a different situation as
the site was no longer the same after the clearing up operation which is normal after a fire incident. The Christmas lights
and parts could have been swept away. Hence the finding of the latter appears to be speculative to benefit the reinsurer
and which defendant wants to adopt to avoid liability.
The CRM Adjustment report found no arson and confirmed substantial stocks in the burned warehouse (Exhs. QQQ)
[underscoring supplied]. This is bolstered by the BFP certification that there was no proof of arson and the fire was
accidental (Exhs. PPP). The certification by a government agency like BFP is presumed to be a regular performance of
official duty. "Absent convincing evidence to the contrary, the presumption of regularity in the performance of official
functions has to be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances adjuster also found
no arson so that the burned warehouse owner PIC was indemnified.12
Hence, CBIC filed an appeal with the Court of Appeals (CA).
The Ruling of the Court of Appeals
On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the Decision reads:
WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision of the Regional Trial
Court, of the National Judicial Capital Region, Branch 3 of the City of Manila dated June 16, 2005 in Civil Case No. 98-
87370 is REVERSED and SET ASIDE. The plaintiff-appellees claim upon its insurance policy is deemed avoided.
SO ORDERED.13
The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was intentional in origin,
considering the array of evidence submitted by CBIC, particularly the pictures taken and the reports of Cabrera and
Lazaro, as opposed to UMCs failure to explain the details of the alleged fire accident. In addition, it found that UMCs
claim was overvalued through fraudulent transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by the parties and have come up with a
conclusion that the claim of the plaintiff-appellee was indeed overvalued by transactions which were fraudulently
concocted so that the full coverage of the insurance policy will have to be fully awarded to the plaintiff-appellee.
First, We turn to the backdrop of the plaintiff-appellees case, thus, [o]n September 6, 1995 its stocks-in-trade were
insured for Fifteen Million Pesos and on May 7, 1996 the same was increased to 50 Million Pesos. Two months thereafter,
a fire gutted the plaintiff-appellees warehouse.
Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report dated December 31,
1996 vis--vis the testimony of Ms. Ebora thus:
1994 - 608,986.00
1995 - 827,670.00
1996 - 20,000,000.00 (more or less) which were purchased for a period of one month.
Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-appellee as well as the
value of all stock-in-trade it had at the time that the fire occurred. Thus:
 Amount March 19, 1996
Exhibit Source Dates Covered
(pesos)

Exhs. "GGG-11" SCCFI statements of 384,794.38 June 15, 1995

Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20, 1996 - "GGG-24", account June 28, 1995
inclusive Manufacturer Phils. January 31, 1996 "HHH-12", "HHH-22", "III-11", "III- August 1, 1995
February 12, 1996 14", September 4, 1995
February 20, 1996 "JJJ-13", "KKK-11", "LLL-5" September 8, 1995
February 23, 1996 September 11,
1995
October 30, 199[5]
Exhs. "EE"-"HH", Tomco Commercial Press 1,712,000.00 December 19, 1995 November 10,
inclusive January 24, 1996 1995
February 21, 1996 December 21, 1995
November 24,
1995
TOTAL 44,315,024.31

Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13, 1996

inclusive Trading January 19, 1996 Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through the pieces of
January 26, 1996 evidence that it adduced during the trial. The latter alleged that fraud is present in the case at bar as shown by the
February 3, 1996 discrepancy of the alleged purchases from that of the reported purchases made by plaintiff-appellee. It had also averred
February 13, 1996 that fraud is present when upon verification of the address of Fuze Industries, its office is nowhere to be found. Also, the
February 20, 1996 defendant-appellant expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when such
February 27, 1996 purchases escalated to a high 19.5 Million Pesos without any contract to back it up.14

On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution dated 8 September
Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996 2011. Hence, this petition.
"EEE", inclusive Services April 12, 1996
April 19, 1996 The Issues
April 26, 1996
May 3, 1996 UMC seeks a reversal and raises the following issues for resolution:
May 10, 1996
I.
May 17, 1996
May 24, 1996
WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
June 7, 1996
EVIDENCE AS TO THE EXISTENCE OF ARSON AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."
June 14, 1996
June 21, 1996
II.
June 28, 1996
July 5, 1996
WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW, APPLICABLE JURISPRUDENCE AND
EVIDENCE WHEN IT FOUND THAT PETITIONER BREACHED ITS WARRANTY.16
Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995
The Ruling of the Court
"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to review are questions
materials September 4, 1995
of fact. However, UMC argues that where the findings of the CA are in conflict with those of the trial court, a review of the
October 2, 1995
facts may be made. On this procedural issue, we find UMCs claim meritorious.
October 27, 1995
January 8, 1996
A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of law may be raised.
The findings of fact of the CA are final and conclusive and this Court will not review them on appeal,17 subject to
exceptions as when the findings of the appellate court conflict with the findings of the trial court.18 Clearly, the present
case falls under the exception. Since UMC properly raised the conflicting findings of the lower courts, it is proper for this
Court to resolve such contradiction.
Having settled the procedural issue, we proceed to the primordial issue which boils down to whether UMC is entitled to
claim from CBIC the full coverage of its fire insurance policy.
UMC contends that because it had already established a prima facie case against CBIC which failed to prove its defense,
UMC is entitled to claim the full coverage under the Insurance Policy. On the other hand, CBIC contends that because
arson and fraud attended the claim, UMC is not entitled to recover under Condition No. 15 of the Insurance Policy.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence
required by law,19 which is preponderance of evidence in civil cases.20 The party, whether plaintiff or defendant, who
asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment.21Particularly, in insurance
cases, once an insured makes out a prima facie case in its favor, the burden of evidence shifts to the insurer to controvert
the insureds prima facie case.22 In the present case, UMC established a prima facie case against CBIC. CBIC does not
dispute that UMCs stocks in trade were insured against fire under the Insurance Policy and that the warehouse, where
UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the duration of the fire insurance. However,
since CBIC alleged an excepted risk, then the burden of evidence shifted to CBIC to prove such exception.1wphi1
An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing
that the loss comes within the purview of the exception or limitation.23 If loss is proved apparently within a contract of
insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for
which it is not liable, or from a cause which limits its liability.24 In the present case, CBIC failed to discharge its
primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy.
In prosecutions for arson, proof of the crime charged is complete where the evidence establishes: (1) the corpus delicti,
that is, a fire caused by a criminal act; and (2) the identity of the defendants as the one responsible for the
crime.25 Corpus delicti means the substance of the crime, the fact that a crime has actually been committed.26 This is
satisfied by proof of the bare occurrence of the fire and of its having been intentionally caused.27
In the present case, CBICs evidence did not prove that the fire was intentionally caused by the insured. First, the findings
of CBICs witnesses, Cabrera and Lazaro, were based on an investigation conducted more than four months after the fire.
The testimonies of Cabrera and Lazaro, as to the boxes doused with kerosene as told to them by barangay officials, are
hearsay because the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did not
conduct a forensic investigation of the warehouse nor did they file a case for arson.28Second, the Sworn Statement of
Formal Claim submitted by UMC, through CRM, states that the cause of the fire was "faulty electrical wiring/accidental in
nature." CBIC is bound by this evidence because in its Answer, it admitted that it designated CRM to evaluate UMCs
loss. Third, the Certification by the Bureau of Fire Protection states that the fire was accidental in origin. This
Certification enjoys the presumption of regularity, which CBIC failed to rebut.
Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove fraud. Qua Chee Gan
v. Law Union29 does not apply in the present case. In Qua Chee Gan,30 the Court dismissed the allegation of fraud based
on the dismissal of the arson case against the insured, because the evidence was identical in both cases, thus:
While the acquittal of the insured in the arson case is not res judicata on the present civil action, the insurers evidence, to
judge from the decision in the criminal case, is practically identical in both cases and must lead to the same result, since
the proof to establish the defense of connivance at the fire in order to defraud the insurer "cannot be materially less
convincing than that required in order to convict the insured of the crime of arson" (Bachrach vs. British American
Assurance Co., 17 Phil. 536). 31
In the present case, arson and fraud are two separate grounds based on two different sets of evidence, either of which
can void the insurance claim of UMC. The absence of one does not necessarily result in the absence of the
other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be forfeited, if the claim be in
any respect fraudulent, or if any false declaration be made or used in support thereof, to wit:
15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any
fraudulent means or devices are used by the Insured or anyone acting in his behalf to obtain any benefit under this
Policy; or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all the benefits
under this Policy shall be forfeited.
In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance policy provides that "if
the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the Insured or anyone acting on his behalf to obtain any benefit under this Policy," and the
evidence is conclusive that the proof of claim which the insured submitted was false and fraudulent both as to the kind,
quality and amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the insured
from recovering on the policy even for the amount of his actual loss.
In the present case, as proof of its loss of stocks in trade amounting to 50,000,000.00, UMC submitted its Sworn
Statement of Formal Claim together with the following documents: (1) letters of credit and invoices for raw materials,
Christmas lights and cartons purchased; (2) charges for assembling the Christmas lights; and (3) delivery receipts of the
raw materials. However, the charges for assembling the Christmas lights and delivery receipts could not support its
insurance claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC defined stock in
trade as tangible personal property kept for sale or traffic.33 Applying UMCs definition, only the letters of credit and
invoices for raw materials, Christmas lights and cartons may be considered.
The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade purchased for 1996
amounts to 20,000,000.00 which were purchased in one month. Thus, UMC needs to prove purchases amounting to
30,000,000.00 worth of stocks in trade for 1995 and prior years. However, in the Statement of Inventory it submitted to
the BIR, which is considered an entry in official records,34 UMC stated that it had no stocks in trade as of 31 December
1995. In its defense, UMC alleged that it did not include as stocks in trade the raw materials to be assembled as Christmas
lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted invoices for raw materials,
knowing that the insurance covers only stocks in trade.
Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were suspicious. The
purchases, based on the invoices and without any supporting contract, amounted to 19,550,400.00 worth of Christmas
lights from 20 January 1996 to 23 February 1996. The uncontroverted testimony of Cabrera revealed that there was no
Fuze Industries Manufacturer Phils. located at "55 Mahinhin St., Teachers Village, Quezon City," the business address
appearing in the invoices and the records of the Department of Trade & Industry. Cabrera testified that:
A: Then we went personally to the address as I stated a while ago appearing in the record furnished by the United
Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis in conducting investigation, so we
went to this place which according to the records, the address of this company but there was no office of this company.
Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address indicated by the United
Merchants as the place of business of Fuze Industries Manufacturer, Phils. was a residential place, what then did you do
after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of Trade & Industry record, and as
appearing a certain Chinese name Mr. Huang, and the address as appearing there is somewhere in Binondo. We went
personally there together with the NBI Agent and I am with them when the subpoena was served to them, but a male
person approached us and according to him, there was no Fuze Industries Manufacturer, Phils., company in that building
sir.35
In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36 the Court ruled that the submission of false invoices to the adjusters
establishes a clear case of fraud and misrepresentation which voids the insurers liability as per condition of the policy.
Their falsity is the best evidence of the fraudulent character of plaintiffs claim.37 In Verendia v. Court of
Appeals,38 where the insured presented a fraudulent lease contract to support his claim for insurance benefits, the Court
held that by its false declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15
of the Insurance Policy in this case.
Furthermore, UMCs Income Statement indicated that the purchases or costs of sales are 827,670.00 for 1995 and
1,109,190.00 for 1996 or a total of 1,936,860.00.39 To corroborate this fact, Ebora testified that:
Q: Based on your 1995 purchases, how much were the purchases made in 1995?
A: The purchases made by United Merchants Corporation for the last year 1995 is 827,670.[00] sir
Q: And how about in 1994?
A: In 1994, its 608,986.00 sir.
Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?
A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)
In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during the 4 December 2002
hearing, it had 1,050,862.71 as total assets and 167,058.47 as total liabilities.41
Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim UMC seeks to
enforce. The RTC itself recognized that UMC padded its claim when it only allowed 43,930,230.00 as insurance claim.
UMC supported its claim of 50,000,000.00 with the Certification from the Bureau of Fire Protection stating that "x x x a
fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an
estimated damage of Fifty- Five Million Pesos (55,000,000.00) to the building and contents x x x." However, this
Certification only proved that the estimated damage of 55,000,000.00 is shared by both the building and the stocks in
trade.
It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance
policy.42 In Yu Cua v. South British Insurance Co.,43 the claim was fourteen times bigger than the real loss; in Go Lu v.
Yorkshire Insurance Co,44 eight times; and in Tuason v. North China Insurance Co.,45 six times. In the present case, the
claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but
to a deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of
the fire.46 This constitutes the so-called "fraudulent claim" which, by express agreement between the insurers and the
insured, is a ground for the exemption of insurers from civil liability.47
In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements were not covered by the
warranty such that any discrepancy in the declaration in other instruments or documents as to matters that may have
some relation to the insurance coverage voids the policy."48
On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves,
amount to a breach of warranty. However, the Insurance Code provides that "a policy may declare that a violation of
specified provisions thereof shall avoid it."49 Thus, in fire insurance policies, which contain provisions such as Condition
No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss
voids the insurance policy. Mere filing of such a claim will exonerate the insurer.50
Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of
fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled
under the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the
insured and strictly against the insurer company,51 contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have used.52 If such terms are clear and
unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to
make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts
actually made.53
WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8 September 2011 Resolution of the
Court of Appeals in CA-G.R. CV No. 85777.
SO ORDERED.
G.R. No. 194328 July 1, 2015
STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner,
vs.
INTERPACIFIC CONTAINER SERVICES and GLORIA DEE CHONG, Respondents.
DECISION
PEREZ, J.:
This is a Petition for Review on Certiorari1 assailing the 30 July 2010 Decision2 of the Court of Appeals in CA-G.R. CV No.
80557, which affirmed the 7 October 2003 Decision of the Regional Trial Court (RTC) of Caloocan City directing the
petitioner Stronghold Insurance Company Incorporated to pay respondents Interpacific Container Services and Gloria
Dee Chong the sum of 550,000.00 representing their insurance claim. The dispositive portion of the assailed decision
reads:
WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The assailed decision dated October 7, 2003 of the
Regional Trial Court of Caloocan City, Branch 130 is AFFIRMED with the MODIFICATION that the PS0,000.00 exemplary
damages is hereby DELETED.
The Facts
Respondent Gloria Dee Chong is the owner of the Fuso truck with Plate No. PWH 512. The vehicle was insured by
petitioner Stronghold Insurance Company under Commercial Vehicle Policy No. 279675.3 The comprehensive motor car
insurance policy for Pl5,306.45 undertook to indemnify the insured against loss or damage to the car and death or injury
caused to third persons by reason of accident.
While the policy was in effect, the vehicle figured in an accident along National Highway in Brgy. Palihan, Hermosa,
Bataan resulting in the death of four (4) persons while seriously injuring three (3) others. Two (2) vehicles were also
heavily damaged as a result of the accident. Pursuant to the provisions of the insurance contract, respondent Chong filed
a claim for the recovery of the proceeds of her policy in the amount of 550,000.00, broken down as follows:
Comprehensive Third Party Liability (CTPL) ----- 50,000.00
Own Damage (OD) ------------------------------------- 300,000.00
Excess I Bodily Injury (BI)------------------------------ 100,000.00
Third Party Liability (TPL) ------------------------------ 100,000.00
Total --------------------------------------------------------- 550,000.004
The claim was, however, denied by the insurance company on the ground that at the time the accident took place the
driver of the insured vehicle was heavily drunk as shown in the Pagpapatunay issued by Bararigay Chairman Rafael
Torres and the Medico Legal Certificate which was signed by a certain Dr. Ferdinand Bautista.
The denial of the claim prompted respondents to initiate an action for the recovery of sum of money against petitioner
before the RTC of Caloocan City, Branch 130. In their Complaint docketed as Civil Case No. C-18278, respondents alleged
that their claim was unjustly denied by the insurance company. They argued that there was no sufficient proof to support
the claim of the petitioner that the driver was drunk at the time of the incident underscoring the lack of mention of such
crucial fact in the police blotter report documenting the incident. For lack of justifiable reasons to avoid the policy,
respondents insisted that petitioner is liable to deliver their claim pursuant to the terms of the insurance contract.5
In refuting the allegations in the complaint, petitioner averred that the intoxication of the driver of the insured vehicle
legally avoided the liability of the insurance company under the policy. Petitioner further claimed that the insured
violated Section 53 of Republic Act No. 4136 (Land Transportation and Traffic Code) which prohibits driving of motor
vehicles under the influence of alcohol. Since the driver of the insured vehicle was found drunk at the time of the
accident, the denial of the insurance claim of by the respondents is therefore justified under provisions of the insurance
contract and the existing statutes.6
After the pre-trial conference, trial on the merits ensued. During the hearing, both parties adduced testimonial and
documentary evidence to support their respective positions.
On 7 October 2003, the RTC rendered a Decision7 in favor of the respondents thereby ordering the petitioner to deliver
the amount of 550,000.00 representing the proceeds of the insurance contract. According to the court a quo, petitioner
failed to prove by prima facie evidence that the driver of the insured vehicle was indeed under the influence of alcohol at
the time of the accident thereby making the avoidance of the policy unjustified under the circumstances. The decretal
portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered in favor of the [respondents] Interpacific Container Services and Gloria Dee
Chong and against the [petitioner] Stronghold Insurance, Co. Inc. as follows:
(1) Ordering the [petitioner] to pay [respondents] the (insurance claim) under the Third Party Liability Insurance Policy
and the Commercial Vehicle Policy Number 279675, in the total amount of FIVE HUNDRED FIFTY THOUSAND PESOS
(550,000.00) broken down as follows:
Comprehensive Third Party Liability (CTPL) ----- 50,000.00
Own Damage (OD) ------------------------------------- 300,000.00
Excess I Bodily Injury (BI) ---------------------------- 100,000.00
TPL/ PD --------------------------------------------------- 100, 000.00
Total -------------------------------------------------------- 550,000.00
plus interest of 12% per annum on the said amount, from February 12, 1997 the date of the accident until fully paid.
(2) Ordering the [petitioner] to pay the amount of 50,000.00 as exemplary damages.
(3) Ordering the [petitioner] to pay the amount of 100,000.00 as and for attorney's fees.
(4) Ordering the [petitioner] to pay the costs of suit.
The counterclaim of the [petitioner] is dismissed for lack of merit.8
On appeal, the Court of Appeals affirmed the findings of the R TC that there was no violation of the contract of insurance
but deleted the award for exemplary damages. Resonating the ruling of the trial court, the appellate court dismissed the
pieces of evidence presented by the petitioner as mere hearsay without evidentiary value. It underscored the absence of
any statement in the police blotter report about the crucial fact of intoxication. On the finding that there was a failure to
prove that it is exempted from liability under the contract of insurance, petitioner was adjudged as under obligation to
pay respondents their insurance claim in accordance with the provisions of the policy.9
Arguing that the Court of Appeals erred in rendering the assailed Decision, petitioner filed this instant Petition for
Certiorari seeking the reversal of the appellate court's decision on the following grounds:
I. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN NOT APPRECIATING THE
CLEAR EVIDENCE OF RESPONDENT'S DRIVER'S INTO XI CATION AND DRUNKENNESS;
II. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN FINDING THE
PETITIONER LIABLE FOR THE CLAIMS OF THE RESPONDENTS IN THE ABSENCE OF PROOF;
III. THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN AFFIRMING THE
IMPOSITION OF INTEREST WHICH IS CONTRARY TO LAW AND JURISPRUDENCE.10
The Court's Ruling
The issue nestled in the contentions of parties is whether or not it was proven during the trial that the driver of the
insured vehicle was intoxicated at the time of the accident thereby precluding the respondents from claiming the
proceeds of the insurance policy.
In insisting that the factual findings reached by the lower courts were fallible, petitioner, in turn, is urging this Court to
calibrate the probative value of the evidence adduced during the trial, a task which we do not routinely do, without
running afoul to the basic tenet that this Court is not a trier of facts. As a rule, the factual conclusion of the court a quo is
for that reason recognized by this Court. However, upon a submission that the finding of fact is not supported by the
evidence on record, a review of the facts may be taken. Upon proof of the submission, the findings of fact are accordingly
corrected.
We reiterate, and follow, the established rule that factual findings of the trial court are entitled to respect and are not to
be disturbed on appeal, unless of some facts and circumstances of weight and substance, having been overlooked or
misinterpreted, might materially affect the disposition of the case.11 We apply the rule in the case. The exception has not
been shown.
Contrary to the claim of the petitioner; it miserably failed to prove the fact of intoxication during the trial. Aside from the
Medico Legal Certificate and the Pagpapatunay, which were stripped of evidentiary value because of the dubious
circumstances under which they were obtained, the petitioner did not adduce other proof to justify the avoidance of the
policy. It must be emphasized that the RTC doubted the authenticity of the Medico Legal Certificate because of the
attendant alteration and tampering on the face of the document. In adopting the findings of the trial court, the appellate
court reiterated the evidentiary rule that the party alleging violation of the provision of the contract bears the burden of
proof to prove the same.
The evident tampering of the medico legal certificate necessitated the presentation by the petitioner of additional
evidence to buttress his claim.1wphi1 For instance, petitioner could have adduced affidavits of witnesses who were
present at the scene of the accident to attest to the fact that the driver was intoxicated. It did not. Upon the other hand,
respondents duly established their right to claim the proceeds of a validly subsisting contract of insurance. Such contract
was never denied.
Simply put, he who alleges the affim1ative of the issue has the burden of proof, and upon the plaintiff in a civil case rested
the burden of proof. Notably, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor,
the duty or the burden of evidence shifts to defendant to controvert plaintiff's prima facie case, otherwise, a verdict must
be returned in favor of plaintiff. Moreover, in civil cases, the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendant's. The concept of "preponderance of evidence" refers to evidence which is of greater weight or
more convincing, than that which is offered in opposition to it; at bottom, it means probability of truth.12
What further dampens petitioner's position is the absence of the crucial fact of intoxication in the blotter report which
officially documented the incident. Entries in police records made by a police officer in the performance of the duty
especially enjoined by law are prima facie evidence of the fact therein stated, and their probative value may be
substantiated or nullified by other competent evidence.13 In this case, the lack of statement to the effect that the driver
was under the influence of alcohol in the said report is too significant to escape the attention of this Court.
This case involves a contract of insurance, the authenticity and validity of which was uncontested. In exempting insurers
from liability under the contract, proof thereof must be clear, credible and convincing. Fundamental is the rule that the
contract is the law between the parties and, that absent any showing that its provisions are wholly or in part contrary to
law, morals, good customs, public order, or public policy, it shall be enforced to the letter by the courts.14
WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 80557 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 205206, March 16, 2016
BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION (PRESENTLY KNOWN AS BPI/MS
INSURANCE CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent.
DECISION
CARPIO, J.:
This is a petition for review on certiorari1 assailing the Decision dated 29 June 20122 and Resolution dated 11 December
20123 of the Court of Appeals in CA-G.R. CV No. 01575.
On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a "Platinum 2-in-1
Savings and Insurance" account with petitioner Bank of the Philippine Islands (BPI) in its Claveria, Davao City branch.
The Platinum 2-in-1 Savings and Insurance account is a savings account where depositors are automatically covered by
an insurance policy against disability or death issued by petitioner FGU Insurance Corporation (FGU Insurance), now
known as BPI/MS Insurance Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to Savings Account
No. 2233-0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU Insurance in
the name of Rheozel with Laingo as his named beneficiary.
On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death issued by the
Office of the Civil Registrar General of Tagum City, Davao del Norte. Since Rheozel came from a reputable and affluent
family, the Daily Mirror headlined the story in its newspaper on 26 September 2000.
On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to BPI, Claveria,
Davao City branch and inquire about the savings account of Rheozel. Laingo wanted to use the money in the savings
account for Rheozel's burial and funeral expenses.
Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due to Laingo's
credit standing and relationship with BPI, BPI accommodated Laingo who was allowed to withdraw P995,000 from the
account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI, went to Rheozel's wake at the Cosmopolitan Funeral
Parlor to verify some information from Alice and brought with her a number of documents for Laingo to sign for the
withdrawal of the P995,000.
More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while arranging Rheozel's
personal things in his room at their residence in Ecoland, Davao City, found the Personal Accident Insurance Coverage
Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately conveyed the information to Laingo.
Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance requesting them to
process her claim as beneficiary of Rheozel's insurance policy. On 19 February 2004, FGU Insurance sent a reply-letter to
Laingo denying her claim. FGU Insurance stated that Laingo should have filed the claim within three calendar months
from the death of Rheozel as required under Paragraph 15 of the Personal Accident Certificate of Insurance which states:
chanRoblesvirtualLawlibrary
15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three calendar months of
death or disability.
On 20 February 2004, Laingo filed a Complaint4 for Specific Performance with Damages and Attorney's Fees with the
Regional Trial Court of Davao City, Branch 16 (trial court) against BPI and FGU Insurance.
In a Decision5 dated 21 April 2008, the trial court decided the case in favor of respondents. The trial court ruled that the
prescriptive period of 90 days shall commence from the time of death of the insured and not from the knowledge of the
beneficiary. Since the insurance claim was filed more than 90 days from the death of the insured, the case must be
dismissed. The dispositive portion of the Decision states:
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the counterclaims.
SO ORDERED.6ChanRoblesVirtualawlibrary
Laingo filed an appeal with the Court of Appeals.
The Ruling of the Court of Appeals
In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial court. The Court of Appeals ruled
that Laingo could not be expected to do an obligation which she did not know existed. The appellate court added that
Laingo was not a party to the insurance contract entered into between Rheozel and petitioners. Thus, she could not be
bound by the 90-day stipulation. The dispositive portion of the Decision states:
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008 of the Regional Trial Court, Branch 16,
Davao City, is hereby REVERSED and SET ASIDE.
Appellee Bank of the Philippine Islands and FGU Insurance Corporation are DIRECTED to PAY jointly and severally
appellant Yolanda Laingo Actual Damages in the amount of P44,438.75 and Attorney's Fees in the amount of
P200,000.00.
Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the insurance proceeds of the Personal Accident
Insurance Coverage of Rheozel Laingo with legal interest of six percent (6%) per annum reckoned from February 20,
2004 until this Decision becomes final. Thereafter, an interest of twelve percent (12%) per annum shall be imposed until
fully paid.
SO ORDERED.
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution dated 11
December 2012.
Hence, the instant petition.
The Issue
The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge of the existence
of the insurance contract, is bound by the three calendar month deadline for filing a written notice of claim upon the
death of the insured.
The Court's Ruling
The petition lacks merit.
Petitioners contend that the words or language used in the insurance contract, particularly under paragraph 15, is clear
and plain or readily understandable by any reader which leaves no room for construction. Petitioners also maintain that
ignorance about the insurance policy does not exempt respondent from abiding by the deadline and petitioners cannot
be faulted for respondent's failure to comply.
Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no provision indicating
how the beneficiary is to be informed of the three calendar month claim period. Since petitioners did not notify her of the
insurance coverage of her son where she was named as beneficiary in case of his death, then her lack of knowledge made
it impossible for her to fulfill the condition set forth in the insurance contract.
In the present case, the source of controversy stems from the alleged non-compliance with the written notice of
insurance claim to FGU Insurance within three calendar months from the death of the insured as specified in the
insurance contract. Laingo contends that as the named beneficiary entitled to the benefits of the insurance claim she had
no knowledge that Rheozel was covered by an insurance policy against disability or death issued by FGU Insurance that
was attached to Rheozel's savings account with BPI. Laingo argues that she dealt with BPI after her son's death, when she
was allowed to withdraw funds from his savings account in the amount of P995,000. However, BPI did not notify her of
the attached insurance policy. Thus, Laingo attributes responsibility to BPI and FGU Insurance for her failure to file the
notice of insurance claim within three months from her son's death.
We agree.
BPI offered a deposit savings account with life and disability insurance coverage to its customers called the Platinum 2-
in-1 Savings and Insurance account. This was a marketing strategy promoted by BPI in order to entice customers to
invest their money with the added benefit of an insurance policy. Rheozel was one of those who availed of this account,
which not only included banking convenience but also the promise of compensation for loss or injury, to secure his
family's future.
As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its partner. Any
customer interested to open a deposit account under this 2-in-1 product, after submitting all the required documents to
BPI and obtaining BPI's approval, will automatically be given insurance coverage. Thus, BPI acted as agent of FGU
Insurance with respect to the insurance feature of its own marketed product.
Under the law, an agent is one who binds himself to render some service or to do something in representation of
another.8 In Doles v. Angeles,9 we held that the basis of an agency is representation. The question of whether an agency
has been created is ordinarily a question which may be established in the same way as any other fact, either by direct or
circumstantial evidence. The question is ultimately one of intention. Agency may even be implied from the words and
conduct of the parties and the circumstances of the particular case. For an agency to arise, it is not necessary that the
principal personally encounter the third person with whom the agent interacts. The law in fact contemplates impersonal
dealings where the principal need not personally know or meet the third person with whom the agent transacts:
precisely, the purpose of agency is to extend the personality of the principal through the facility of the agent.
In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product, offering the
insurance coverage for free for every deposit account opened, Rheozel directly communicated with BPI, the agent of FGU
Insurance. BPI not only facilitated the processing of the deposit account and the collection of necessary documents but
also the necessary endorsement for the prompt approval of the insurance coverage without any other action on Rheozel's
part. Rheozel did not interact with FGU Insurance directly and every transaction was coursed through BPI.
In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an agency relationship is established, the agent
acts for the principal insofar as the world is concerned. Consequently, the acts of the agent on behalf of the principal
within the scope of the delegated authority have the same legal effect and consequence as though the principal had been
the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be reasonably carried out
with full disclosure to the parties concerned, particularly the beneficiaries. Thus, it was incumbent upon BPI to give
proper notice of the existence of the insurance coverage and the stipulation in the insurance contract for filing a claim to
Laingo, as Rheozel's beneficiary, upon the latter's death.
loss when BPI was remiss in its duty to properly notify her that she was a beneficiary.
Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the loss and must compensate Laingo
for the actual damages suffered by her family plus attorney's fees. Likewise, FGU Insurance has the obligation to pay the
insurance proceeds of Rheozel's personal accident insurance coverage to Laingo, as Rheozel's named

Articles 1884 and 1887 of the Civil Code state:

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and Resolution dated 11 December
2012 of the Court of Appeals in CA-G.R. CV No. 01575.
Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages which, through his
non-performance, the principal may suffer. SO ORDERED.

He must also finish the business already begun on the death of the principal, should delay entail any danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the principal.

In default, thereof, he shall do all that a good father of a family would do, as required by the nature of the business.

The provision is clear that an agent is bound to carry out the agency. The relationship existing between principal and
agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the agent to act in good faith for
the advancement of the interests of the principal. In this case, BPI had the obligation to carry out the agency by informing
the beneficiary, who appeared before BPI to withdraw funds of the insured who was BPI's depositor, not only of the
existence of the insurance contract but also the accompanying terms and conditions of the insurance policy in order for
the beneficiary to be able to properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn, should have fulfilled
its duty, as agent of FGU Insurance, of advising Laingo that there was an added benefit of insurance coverage in Rheozel's
savings account. An insurance company has the duty to communicate with the beneficiary upon receipt of notice of the
death of the insured. This notification is how a good father of a family should have acted within the scope of its business
dealings with its clients. BPI is expected not only to provide utmost customer satisfaction in terms of its own products
and services but also to give assurance that its business concerns with its partner entities are implemented accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that notice to the agent
is notice to the principal,11 Here, BPI had been informed of Rheozel's death by the latter's family. Since BPI is the agent of
FGU Insurance, then such notice of death to BPI is considered as notice to FGU Insurance as well. FGU Insurance cannot
now justify the denial of a beneficiary's insurance claim for being filed out of time when notice of death had been
communicated to its agent within a few days after the death of the depositor-insured. In short, there was timely notice of
Rheozel's death given to FGU Insurance within three months from Rheozel's death as required by the insurance company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing, regarding the
existence of the insurance policy attached to the deposit account. First, Rheozel's death was headlined in a daily major
newspaper a day after his death. Second, not only was Laingo, through her representative, able to inquire about Rheozel's
deposit account with BPI two days after his death but she was also allowed by BPI's Claveria, Davao City branch to
withdraw from the funds in order to help defray Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited
Rheozel's wake and submitted documents for Laingo to sign in order to process the withdrawal request. These
circumstances show that despite being given many opportunities to communicate with Laingo regarding the existence of
the insurance contract, BPI neglected to carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance policy, Laingo had no
means to ascertain that she was entitled to the insurance claim. It would be unfair for Laingo to shoulder the burden of