Notice and Proof of Loss assessment supporting the 1981 fire claim for an amount exceeding
four million pesos".
FIRST DIVISION
[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.
SYLLABUS
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE
TRIAL COURT AND THE COURT OF APPEALS, NOT DISTURBED ON
APPEAL. — All 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" of the parties.
2. MERCANTILE LAW; INSURANCE; FAILURE OF INSURER TO PAY
CLAIM WITHIN 90 DAYS FROM RECEIPT OF PROOF OF LOSS,
COMMENCES ACCRUAL OF CAUSE OF ACTION FOR COLLECTION. —
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. 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 filed her complaint on December 15, 1982, her cause of action
had already accrued.
3. REMEDIAL LAW; EVIDENCE; SUFFICIENCY OF PROOF OF LOSS IN
INSURANCE CASES; SUBMISSION OF BANK STATEMENTS, NOT A
CONDITION; CASE AT BAR. — There is no merit in the petitioners'
contention that the proofs of loss were insufficient because
respondent Emilia Chan Lugay failed to comply with the adjuster's
request for the submission of her bank statements. 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" against them.
The Court of Appeals found that the insured "fully complied with the
requirements of Condition No. 13". 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". 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
4. MERCANTILE LAW; INSURANCE; PAYMENT OF INTEREST ON THE
PROCEEDS OF POLICY JUSTIFIED FOR FAILURE OR REFUSAL TO PAY
LOSS OR DAMAGE. — 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. Section 243 of the Insurance Code is in fact embodied
in provision No. 29 of the policies issued by the petitioners to the
private respondents.
5. ID.; ID.; CHARGING OF DOUBLE INTEREST PROPER WHERE THERE
WAS UNREASONABLE DELAY IN PROCESSING OF CLAIM. — 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's 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
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 242 and 243 of the Insurance Code.
6. ID.; ID.; DAMAGES BY WAY OF ATTORNEY'S FEES RECOVERABLE
AGAINST THE INSURER WHERE INSURED WAS COMPELLED TO FILE
SUIT FOR COLLECTION. — As provided in Section 244 also, by
reason of the delay and the 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 ten (10%) percent of the
proceeds of the policies would be more reasonable than the 20%
awarded by the trial court and the Appellate Court.
DECISION
GRIÑO-AQUINO, J  p:
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. Cdpr
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 Filipina
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. F-27942
(Exh. B-5), covering the period from June 20, 1981 to June 20, 1982
(Exh. B);
2. Empire Insurance Company for P600,000 under Fire Insurance Policy
No. YASCO/F-1101 dated March 7, 1981, renewing Policy No. F-1096
(Exh. C-5), covering the period from March 19, 1981 to March 19, 1982
(Exh. C);
3. Union Insurance Society of Canton, Ltd, for P600,000 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 P600,000 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 P600,000 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 6, 1982 (Exh. G); and
7. Philippine First Insurance Company for P600,000 under Fire
Insurance Policy No. CEB-G-0515 dated January 28, 1981, covering the
period from February 16, 1981 to February 16, 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 and Formal Claims to the
insurers, through their adjusters. She claimed a total
1099 of P4,595,000. LLjur
She submitted proofs of loss required by the adjusters. After nearly ten
(10) months of waiting for the insurers to pay her 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 on 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 P500,000.00, by Union
Insurance Society of Canton Limited the amount of P500,000.00, by
Paramount Insurance Company, the amount of P500,000.00, by
Philippine British Insurance Company, Inc., the amount of P500,000.00,
by Philippine First Insurance Company, Inc.,
amount of P500,000.00 and by the Philippine British Insurance the
amount of P500,000.00; for all the defendants jointly and severally 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 counsel; and
interests at the rate of twice the ceiling being prescribed by the
Monetary Board starting from the time when the case was filed; and
finally, with costs. (Decision, Court of Appeals, 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
accrued when the complaint was filed on December 16, 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
inflated;
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 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 . . ." (Insurance Code.)
the
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 filed her complaint on December
15, 1982, her cause of action had already accrued.
There is no merit in the petitioners' contention that the proofs of loss
were insufficient because respondent Emilia Chan Lugay 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: llcd
"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 therein, 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 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 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  of  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 the 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's 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
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 242 and 243 of the Insurance Code. prLL
As provided in Section 244 also, by reason of the delay and the
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 ten (10%) percent of the
proceeds of the policies would be more reasonable than the 20%
awarded by the trial court and the 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.
Narvasa, Cruz  and  Gancayco, JJ.,  concur.
Medialdea, J.,  is on leave.
|||  (Cathay Insurance Co., Inc. v. Court of Appeals, G.R. No. 85624, [June
5, 1989], 255 PHIL 714-723)
SECOND DIVISION
[G.R. No. 205206. March 16, 2016.]
BANK OF THE PHILIPPINE ISLANDS and FGU INSURANCE
CORPORATION (presently known as BPI/MS INSURANCE
CORPORATION),  petitioners,  vs. YOLANDA LAINGO,  respondent.
DECISION
CARPIO,  J  p:
The Case
This is a petition for review on certiorari 1 assailing the Decision dated
29 June 2012 2 and Resolution dated 11 December 2012 3 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:
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 Complaint 4 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. EcTCAD
In a Decision 5 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. 6
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. 7
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. HSAcaE
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.
Articles 1884 and 1887 of the Civil Code state:
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.
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 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 beneficiary.
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.
SO ORDERED.
|||  (Bank of the Philippine Islands v. Laingo, G.R. No. 205206, [March 16,
2016])
Payment of Proceeds
SECOND DIVISION
[G.R. No. 52756. October 12, 1987.]
MANILA MAHOGANY MANUFACTURING
CORPORATION,  petitioner, vs. COURT OF APPEALS AND ZENITH
INSURANCE CORPORATION,  respondents.
DECISION
PADILLA, J  p:
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 its decision. LLjur
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 P4,600.00. 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. cdll
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 petitioner's 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 Release 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 collected from San Miguel
Corporation, despite the subrogation in favor of private respondent.
"Although petitioner's 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 v.
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 respondent's right of subrogation, the right of
action of petitioner against the insurer was also nullified. (Sy Keng &
Co. v. 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 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 as originally asked for, but
P5,000, the amount respondent company paid petitioner as insurance,
is also in accord with law and jurisprudence. In disposing of the issue,
the Court of Appeals held:
". . . petitioner is entitled to keep the sum of P4,500 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'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:
"xxx xxx xxx
"The right of subrogation can only exist after the insurer has paid the
insured, 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 [sic] remainder. To the extent of the
amount he has already received from the insurer, 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 complaint, 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 v. Reyes Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844;
Baguioro v. Barrios and Tupas, 77 Phil. 120)."
WHEREFORE, premises considered, the petition is DENIED. The
judgment appealed from is hereby AFFIRMED with costs against
petitioner.
SO ORDERED.
|||  (Manila Mahogany Manufacturing Corp. v. Court of Appeals, G.R. No.
52756, [October 12, 1987])
EN BANC
[G.R. No. L-19851. June 29, 1965.]
YU BAN CHUAN,  plaintiff-appellant, vs. FIELDMEN'S INSURANCE CO.,
INC., ET AL., defendants-appellants.
Campos, Mendoza & Hernandez  for plaintiff-appellant.
Caballo, Bendijo & Fajardo  and  De Santos, Herrera & Delfino,  for
defendants-appellants.
SYLLABUS
1. INSURANCE; FIRE LOSS; FALSE INVOICES AVOID INSURER'S
LIABILITY. — The falsity of invoices submitted by the insured to prove
actual existence at the burned premises of the stocks mentioned in its
inventory is evidence of a fraudulent claim and will avoid the insurer's
liability.
2. ID.; ID.; INVENTORY NOT BINDING ON INSURER. — The insured's
inventory of stocks is not binding on the insurers where it was
prepared without their intervention.
3. ID.; ID.; INSURANCE LAW DOES NOT JUSTIFY FALSE PROOFS. —
While an insured in submitting his proof of loss, was "not bound to give
such proof as would be necessary in a court of justice," under Section
82 of the Insurance Act, that section does not give him any justification
for submitting false proofs.
DECISION
REYES, J.B.L., J  p:
Direct appeal by both the plaintiff and the defendants from a decision
of the Court of First Instance of Manila, in its Civil Case No. 46166,
sentencing the defendants Fieldmen's Insurance Co., Inc. and
Paramount Surety and Insurance Co., Inc., to pay the plaintiff, Yu Ban
Chuan, the sum of P200,000 and P140,000, respectively, with interest
at the legal rate and costs.
The following facts are uncontroverted: Sometime in the later part of
March, 1959, plaintiff Yu Ban Chuan began his business enterprise
under the name of "CMC Trading", which was engaged in the wholesale
dealing in general merchandise and school supplies, and was first
situated at 612 Nueva Street, Manila; that, while at this place, the
plaintiff insured against fire the stock of merchandise contained
therein with defendant Fieldmen's Insurance Co., for which the latter
issued, on 14 December 1959, an "open" policy limiting the insurer's
liability to the amount of P200,000 for a period of one (1) year; that
plaintiff again insured against fire the same stock of merchandise
covered by Fieldmen's policy with defendant Paramount Surety &
Insurance Co., being also issued, on 7 January 1960, an "open" policy
limiting liability thereunder to P140,000 for a one-year period; that, on
14 January 1960, Fieldmen's agreed to transfer the coverage of its
insurance policy to plaintiff's store at 680 Muelle de Binondo, Manila,
to which plaintiff transferred his business establishment on the 15th or
16th of January 1960; that on 21 January 1960, Paramount also agreed
to have the coverage of its insurance policy transferred to the same
new premises and acknowledged the existence of its co-insurance with
Fieldmen's; that on 23 January 1960, Fieldmen's also acknowledged its
co-insurance with Paramount; and that on 31 January 1960, while both
insurance policies were in full force and effect, plaintiff's business
establishment at 680 Muelle de Binondo, Manila, was totally destroyed
by fire.
The next day after the occurrence of the fire, plaintiff verbally notified
the respective agents of the defendants-insurers of such incident; and
on the same day, 1 February 1960, plaintiff and H. H. Bayne Adjustment
Co. and Manila Adjustment Co., adjusters of defendants Fieldmen's
and Paramount, respectively, executed "nonwaiver" agreements for the
purpose of determining the circumstances of the fire and the value or
amount of loss and damage to the merchandise insured under said
policies. Pursuant to such agreements, H. H. Bayne Adjustment Co.
sent a letter dated 2 February 1960 to plaintiff, and Manila Adjustment
Co. sent its letter, dated 6 February 1960, requiring the plaintiff to
submit certain papers and documents. On 8 February 1960, plaintiff
gave written notice of the occurrence of the fire to the defendants, and,
in answer to the letters of the adjusters, plaintiff submitted, on 24
February 1960, his separate formal fire claims, together with some of
the supporting papers required therein. Because of plaintiff's non-
compliance or failure to submit the required documents and the
adjusters' demand in subsequent letters that the insured submit
additional papers, the adjusters and plaintiff engaged in an exchange
of communications, until finally the defendants rejected plaintiff's
claims, and denied liability under their respective policies, evidently
upon their respective adjusters' recommendations.
The plaintiff commenced suit in the Court of First Instance of Manila
(Civ. Case No. 46166), and the defendants answered the complaint
with identical special defenses, to wit: (1) insured's failure to prove the
loss claimed; (2) false and fraudulent claim; and (3) arson or causes
not independent of the will of the insured; and counterclaims for the
annulment of the policies. After trial, the court below upheld the claim
of the plaintiff, but refused to award damages or interest at more than
the legal rate. Both parties appealed.
In proving the value of his loss, the plaintiff relied upon a merchandise
inventory as of 31 December 1959, which he had allegedly submitted
on 15 January 1960 to the Bureau of Internal Revenue. The inventory
reflected the total value of stocks of the CMC Trading at 680 Muelle de
Binondo, Manila, at P328,202.67. The plaintiff claims purchases for the
month of January 1960 in the amount of P34,505.08 and sales in the
amount of P12,000, thus the resulting balance of the stocks allegedly
burned was estimated by the plaintiff to be P350,707.75.
The fact of the filing of the inventory as of 15 January 1960 should be
considered as true, since there is no evidence to the contrary. The lack
of an initial of the receiving clerk in the rubber stamp indicating the
receipt of the document by the BIR office on 15 January 1960, or that
the receiving stamps were within the access of just anybody who visits
the said office because the stamps just lie around on the employees'
desks, while showing the lack of better administrative system, do not
necessarily show the falsity of the receipt of the inventory as of the
date stamped therein, and as certified by the chief of the administrative
division.
The court a quo, however, committed error in accepting as true
the actual existence at the burned premises of the stocks mentioned in
the inventory. Six (6) of the many copies of the invoices submitted by
the plaintiff to the adjusters uncover a clear case of fraud and
misrepresentation which avoid the insurer's liability as per condition
No. 13 of Fieldmen's policy No. 15 HO 7756 and Paramount's policy
No. 3164. These five invoices alone inflate the supposed stocks by
P248,370.00. The purchase invoice from Western Pacific Industrial
Development Co. (Exh. "J-15") for powder puffs, ballpen filler, rubber
band and ballpen plastic body totalling P76,525.00 was denounced as
fake by the former manager, Pablo S. Sison, and he denied that the
signature appearing thereon is his. His testimony that this company
does not deal in the abovenamed merchandise is corroborated by the
letter-head of the company's stationary, and the invoice itself, that it is
an "operator of forest concessions". On sight, the exhibit excites
incredulity — what should a logging company be doing with rubber
bands or powder puffs?
The invoice from Victoria Commercial Corporation (Exh. "J-18") for
P33,800.00 is, likewise, dubious. On its face, it shows that the address
of the company is "303 Trade & Commerce Building, J. Luna, Manila,
Philippines", but a check by adjuster Mario Santos was negative,
showing that no company by that name was registered by the
Securities and Exchange Commission (Exh. "18-Paramount"). The
superintendent of the building testified that there had never been a
tenant by that name.
Again, the MJC Trading Enterprise's invoice for P37,176.00 (Exh. "J-20",
Exhibit folder, fol. 97) indicates the company's address to be "308 T &
C Building, J. Luna, Manila", but there is no such room in the building
mentioned nor any such company registered with the Securities and
Exchange Commission (Exh. "18-Paramount").
Another fictitious invoice is that supposedly issued by Cosmopolitan
Commercial Enterprises for P37,800.00 (Exh. "J-19") for sales of
"mechanical pencil plastic body" fountain pens, and tape measures.
This establishment is a single proprietorship belonging to Trinidad M.
Lim; it is not engaged in the kind of merchandise purportedly sold, as
per the invoice, nor issue this kind of invoice, nor the signature as that
of Mrs. Lim appearing thereon genuine, according to the husband of
the owner, Benjamin Chua Meer, who manages the enterprise. The fact
that Mrs. Lim did not testify does not make the invoice any less false;
at least Meer should know and recognize his wife's signature.
There are two (2) invoices supposedly issued by Nelina Trading (Exhs.
"N-2" & "N-3"), on 2 October 1959 and 17 October 1959, respectively, for
purchases aggregating P63,069.00. A check at the company's
supposed address failed to show the existence of the company, and
the records of the Bureau of Commerce (Exh. 20-a Paramount) show
that it went out of business on 13 April 1959.
The plaintiff, Yu Ban Chuan, adopted a uniform, too uniform, in fact, to
be believed, explanation for all the invoices: that he did not buy the
merchandises at the companies' addresses but bought them from
agents who brought the goods to him; that the originals of the invoices
were burned and that he requested for true copies from the agents
whom he met casually in the streets after the fire and these agents
delivered the exhibits to him; but he did not remember or know the
names of these agents, nor did he know their whereabouts. In other
words, he wants the court to believe also that these agents performed
a vanishing act after each one of them had turned in the copy of each
invoice to the plaintiff.
For the foregoing reasons, the appealed judgment is hereby reversed,
and the appellee's action dismissed, with costs against the plaintiff-
appellant Yu Ban Chuan.
IN VIEW OF THE CONCLUSIONS REACHED, the plaintiff's appeal
against the non-award of damages to him must be necessarily
dismissed.
Bengzon, C.J., Bautista Angelo, Concepcion, Paredes, Dizon, Regala,
Makalintal, Bengzon, J.P., and Zaldivar, JJ., concur.
Barrera, J., is on leave.

It will be noted that the plaintiff transferred to his new business |||  (Yu Ban Chuan v. Fieldmen's Insurance Co., Inc., G.R. No. L-19851,
address at 680 Muelle de Binondo, Manila, on 15 or 16 January 1960, [June 29, 1965], 121 PHIL 1275-1282)
but he offered no satisfactory explanation on the purported dates of
the following exhibits: EN BANC

An invoice (Exh. "L-29") from standard Manufacturing Company for
P6,750.00 is dated 10 September 1959, but the address of the
purchaser CMC Trading, is shown as already at 680 Muelle de Binondo;
Another invoice from the same company (Exh. "I-40") is dated 14
December 1959, but the CMC Trading appears as at its new location;
[G.R. No. L-10305. February 28, 1961.]
LEE BOG & COMPANY,  plaintiff-appellee, vs. THE HANOVER FIRE
INSURANCE COMPANY OF THE CITY OF NEW YORK, ET
AL.,  defendants-appellants. REPUBLIC OF THE PHILIPPINES, ET
AL., intervenors-appellees.

The same is true with still five (5) more invoices (Exhs. D, I-31, I-41, I-28
& I-27) from the company, all bearing dates before the transfer of the
CMC Trading to 680 Muelle de Binondo.
The plaintiff adheres to the inventory as the immaculate basis for the
actual worth of stocks that were burned, on the ground that it was
made from actual count, and in compliance with law. But this inventory
is not binding on the defendants, since it was prepared without their
intervention. It is well to note that plaintiff had every reason to show
that the value of his stock of goods exceeded the amount of insurance
that he carried. And the inventory, having been made prior to the fire,
was no proof of the existence of these goods at the store when the fire
occurred. True, there were merchandises that were actually destroyed
by fire (Exhibits 2, 2-a, 2-b, 3, 3-a, 4, 4-a, 4-b-Paramount). But when
fraud is conceived, what is true is subtly hidden by the schemer
beneath proper and legal appearances, including the preparation of the
inventory.
Shielding himself under Section 82 of the Insurance Act, the plaintiff
asserts that in submitting his proof of loss he was "not bound to give
such proof as would be necessary in a court of justice". The assertion
is correct, but that does not give him any justification for submitting
false proofs. Their falsity is the best evidence of the fraudulent
character and the unmeritoriousness of plaintiff's claim.
The filing of collection suits for unpaid purchases against Yu Ban
Chuan, however, valid these claims may be, do not legitimize his
fraudulent claim against the insurers in the present case, nor show that
the goods allegedly delivered were at the store when the fire occurred.
It is markworthy that in some instances (Exhs. L-6, L-8, L-10) the debts
are only attested by certifications from the creditors.
Angel S. Gamboa  for plaintiff-appellee.
Lichauco, Picazo & Agcaoili  for defendants-appellants.
Solicitor General  and  The Provincial Fiscal of Pangasinan  for
intervenors-appellees.
SYLLABUS
1. INSURANCE; FIRE INSURANCE ON RICE RECEIVED AS DEPOSIT;
REQUIREMENTS UNDER THE BONDED WAREHOUSE ACT. — The palay
insured by the appellee payable to the Bureau of Commerce in case of
loss covered only the palay that was received as deposits. This is the
object of the requirement of law that "every person licensed, under this
Act, to engage in the business of receiving rice for storage shall insure
the rice as received and stored against fire." This is the reason why
appellee insured said palay. The insurance companies, appellants,
cannot pretend that they and appellee were not aware of the fact that
the subject matter of the insurance policies upon the government is
issuing was solely the palay covered by the Bonded Warehouse Act.
DECISION
BAUTISTA ANGELO, J  p:
This is an appeal from a decision of the Court of First Instance of
Pangasinan holding defendants-appellants liable for the face value of
the fire insurance policies issued respectively by them, with numbers
and for amounts as follows:
Policy        
  Number   Issuing Company Amount

The plaintiff, Yu Ban Chuan, is a Chinese who came to this country in          

1948. His combined income from 1956 through 1958 amounted to only
Hanover Fire Insurance
P10,000. Yet in 1959 he appeared as running a business of his own   1016372   P55,000.00
Company
worth almost half a million pesos. The source of the investment,
according to him, were unsecured loans in the fantastic sum of   2282   Alliance Ins. & Surety Co. 22,000.00
P224,000.00. From these circumstances, and the facts hereinbefore
stated, it is plain that no credence can be given to plaintiff's claims.   3361   Empire Insurance Co.  15,000.00

  6741   Phil. American Gen. Ins. Co. 220,000.0

 Commercial Union Ass. Co.,
  17540945   5,000.00
Ltd.
  215634   British Traders Ins. Co., Ltd. 5,000.00
  47/21670   South British Ins. Co., Ltd. 5,000.00
Insurance Co. of North
  10PH-1180   5,000.00
America
  F-13140   Century Ins. Co., Inc. 15,000.00
  5864   People's Surety & Ins. Co. 18,000.00
  1016373   Hanover Fire Ins. Company 65,000.00
        —————
      TOTAL P230,000.00
 
The assured in these policies is plaintiff-appellee Lee Bog & Company.
The insurance covered "stock of rice and palay (loose and/or sacks),
the property of the assured or held by him in trust, on commission or
on joint account with others and/or for which he is responsible in case
of loss", while contained during the currency of the policies in the
building of the assured in Binalonan, Pangasinan, otherwise known as
the Binalonan, Pangasinan Rice Mill. There was a common "simple loss
payable clause" in favor of the Bureau of Commerce in all the policies
issued by defendants-appellants, except Policy No. 1016373, issued by
the Hanover Fire Insurance Company, which also contained a "simple
loss payable clause" but in favor of the People's Surety & Insurance
Co., Inc. Said clause provides that "loss, if any, under this policy, is
payable to the Bureau of Commerce, Manila, as its interest may appear,
subject to the terms, conditions, clauses, and warranties of this policy."
The Republic of the Philippines intervened in behalf of the Bureau of
Commerce as trustee to receive payment in case of loss under the first
ten above-mentioned policies. Crispin A. Fernandez and Quirino C.
Martinez also intervened as alleged depositors of the appellee for the
purpose of recovering from the latter and the appellants, jointly and
severally, the value of their alleged deposits in the aggregate sum of
P8,390.00.
In this instant appeal, it is argued that the lower court erred in
considering the claims on the bonded palay belonging to depositors
separately and independently from the claim on the unbonded palay
belonging to the appellee because the policies sued upon were
concurrent and each and all of them covered, in their entirely,
inseparably and indivisibly, the stock of rice and palay kept in the
insured's warehouse, whether belonging to the insured or to its
depositors. As there is, however, a difference between bonded and
unbonded palay and one is distinct from the other, each subject must
really be treated separately. The palay insured by the appellee under
the aforesaid ten policies included no more than such of the palay as
the warehouse received as deposits. The palay insured by the appellee
payable to the Bureau of Commerce in case of loss covered only the
palay that was received as deposits. This is the object of the
requirement of law that "every person licensed, under this Act, to
engage in the business of receiving rice for storage shall insure the rice
as received and stored against fire." This is the very reason why
plaintiff-appellee insured said palay. The appellants cannot pretend
that they and appellee were not aware of the fact that the subject
matter of the insurance policies upon which the intervenor-appellee is
suing was solely the palay covered by the Bonded Warehouse Act.
Upon the other hand, policy No. 1016373 issued by the Hanover Fire
Insurance Company, which does not contain a clause common to the
aforementioned ten policies, referred only to the unbonded deposits of
the appellee.
Under the second assignment of error, appellants contend that
appellee has failed to establish its loss; that the claims were for about
three times the actual loss and therefore fraudulent: that appellee
employed fraudulent means and devices to obtain undue benefits
under the policies by combining and commingling with sacks of rice
and palay approximately the same quantity of rice bran and/or rice
husk; and that appellee had presented false supporting declarations.
Appellee's evidence of loss (Lee Bog's testimony, Exhibits M, M-1 to M-
110, Exhibit R Column C-19, the testimony found on pp. 147-150, 204-
207, 350, 549-550, t. s. n., Exhibits N, N-1) has satisfactorily established
the amounts claimed. The quantity of bonded palay lost and destroyed
has been proved by the corresponding quedans (negotiable warehouse
receipts), Exhibits M, M-1 to M-110 and AQ. As shown by these
receipts, the outstanding deposits as of May 3, 1953, after deducting
the withdrawals, amounted to 659,513.5 kilos, which at 44 kilos a
cavan, would be equivalent to 14,989 cavanes of palay. These figure
tally with the quantity of palay stated in the proof of loss covering the
bonded palay.
As regards the unbonded palay or that belonging to the appellee, the
amount of loss may verily be determined from the purchase of palay
and sales of milled rice that had been regularly recorded in the
columnar cash book (Exhibit R) at the place of transaction by a
certified public accountant. After simple arithmetical processes, the
remaining palay at the time of the fire would be 14,514.7 cavanes.
Appellant's argument that fraud is manifested by the fact that the
quantity of palay is still short by 68.3 cavanes on the basis of 14,583
cavanes stated in the proof of loss involves an insignificant error if due
consideration is taken of the circumstance that it does not exactly and
necessarily take two cavanes of palay to mill a cavan of rice. The type
of palay and the dryness of husks affect the process.
Moreover, the testimony of the managing partner of the appellee
company and of Agustin de Vera and Segismundo Millan, both
commercial agents of the Bureau of Commerce at the time assigned in
Pangasinan, confirms the physical existence of the claimed quantity of
palay, as their estimates more or less approximate the actual loss.
Naturally, numerical precision may not be expected, because those
estimates were based merely on a physical observation of the big pile
existing before the fire. It is sufficient that they show little discrepancy
with the figures recorded in the books of the appellee.
The mathematical computations of witnesses Filomeno and Magpili
are "rough estimates" and therefore some allowance for such technical
factors as "staggering," "shrinkage" and "angle of repose" should be
duly taken into account; and where said estimates do not show too
wide a difference, there would be no justification in discrediting
appellee's claims.
We also overrule the contention that the appellee used fraudulent
means or devices to obtain benefits under the policies. The conclusion
that, because the samples of the debris taken from the warehouse
after the fire consisted of darak and rice husks, these must have been
contained in the sacks stored in the warehouse, is untenable. In the
first place, it is not unusual to find such debris because their unburned
material formed the protective lining of the sacks of palay. Secondly,
the samples were taken only from the sides of the pile and not from its
core. Thirdly, considering (as appellee argues) the side of the pile,
1,411.84 cubic meters, and the time it took the fire to consume the
mass of palay, the samples taken are too insignificant to be
representative. Lastly, the motive for such alleged fraud is missing.
Appellee company was having a thriving business at the time of the
fire.
In the light of the foregoing considerations, the decision appealed from
is hereby affirmed with costs against appellants. So ordered.
Bengzon, Actg. C.J., Padilla, Concepcion, Reyes, J.B.L., Barrera,
Paredes and Dizon, JJ., concur.
|||  (Lee Bog & Co. v. Hanover Fire Insurance Co. of the City of New York,
G.R. No. L-10305, [February 28, 1961], 111 PHIL 188-193)
EN BANC
[G.R. No. L-6672. Junio 29, 1954.]
BEN L. CHUY,  demandante-apelado, contra THE PHILIPPINE
AMERICAN LIFE INSURANCE COMPANY,  demandada-apelante.
Sres. J. A. Wolfson y Manuel Y. Macias  en representacion de la
apelante.
Sres. Primicias, Abad, Mencias y Castillo en representacion del apelado.
SYLLABUS
1. LEY DE SEGURO; SEGUROS DE VIDA; LA CERTIFICACION DE
MEDICO DE LA COMPANIA ASEGURADORA PREVELECE CONTRA LA
DECLARACION NO CORROBORADA DE OTRO MEDICO QUE NO ES DE
LA COMPAÑIA. — Despues del examen fisico por medicos de la
compañia aseguradora, se expidieron a Dee Se polizas de seguro de
vida. Las primas correspondientes fueron pagadas debidamente.
Despues de un año, Dee Se fallacio de cancer. Su beneficiario reclamo
el de tramite, la casa asegurrandora le envio una carta dandole cuenta
de que rescindia los contratos de seguro, y se negaba a pagar el
importe de las polizas y le envio dos xheques que venian a constituir la
restitucion de las primas pagadas con sus intereses. La negativa de la
casa asguradora a pagar el importe de las polizas se fundaba en una
certificacionde otro medico que no era de la compañia aseguradora, de
quie Dee Se, bajo el nombre de Jose Dy, habia sido tratado por aquel
por estar enfermo de cancer por tres años antes de sumuerte.
Se declara: Que las opiniones de los doctores de la casa aseguradora
son de mas peso que la declaracion no corroborada de otro medico
que no es de dicha compañia. Los medicos de las casas aseguradoras
son los que debian tener interes en saber el verdadero estado de
saluddel solicitante, y si expidieron certificados de buena salud sera
porque estaban convenicidos de la verdad de lo que certificaban. No
hay el menor indicio de que ellos hayan obrado de mala fe. No existe
en autos ninguana prueba de que el asegurado haya engañado a la
casa aseguradora haciendo creer que el gozaba de buena salus
cuando en realidad estaba enfermo de cancer.
2. ABOGADOS; HONORARIOS; SENTENCIA POR HONORARIOS
CONTRA LA PARTER QUE PERDIO EL ASUNTO; LA MANIFESTA Y
EVIDENTE MALA FE, PROBARSE. — Se reclama tambien contra la casa
aseguradora honararios de abogado que ascienden a P10,000. Se
declara: "In the absence of stipulation, attorney's fees and expenses of
litigation other than judicial costs, cannot be recoverred, except . . .(5)
Where the defendant acted in gross and evident bad faith in refusing to
satisfyt the plaintiff's plainly valid, just and demandable claim" (Art.
2208, Cod. Civ de Filipinas). La casa aseguradora no obro con
manifesta y evidente mala fe al no pagar el importe de la poliza. El
tramite de siete meses demuestra la precaucion que ha tenido en
cerciorarse de si Dee Se era el mismo Jose Dy que habia sido tratado
por el medico arriba mencionado. Teniendo a la vista la informacion de
dicho medico, cualquiera que estuviese en lugar de la casa asguradora
hubiera hecho lo mismo. Si despues de una vista larga en que
conclusion de que Dee Se no era el mismo Jose Dy, no se debe deducir
necesariamente que la demandada ha obrado con abierta y evidente
mala fe.
DECISION
PABLO,  M  p:
Ben L. Chuy presento una demanda contra la Philippine American Life
Insurance Company (que se denominara PHILAMLIFE en el curso de
esta decision) en el Juzgado de Primera Instancia de Pangasinan,
causa No. 12033, pidiendo que se condenase a la demandada a
pagarle la suma de P46,008.75 con su interes legal desde el 22 de
junio de 1951 hasta su completo pago, mas la cantidad de P10,000 en
concepto de daños. Tambien se presento otra demanda por Ben L.
Chuy y Lee Sin contra la Lincoln National Life Insurance Company,
causa No. 12034, en el mismo juzgado, reclamando el pago de igual
cantidad con igual causa de accion.
A peticion de ambas partes, las dos causas se vieron conjuntamente,
sometiendo un convenio de hechos ademas de presentar otras
pruebas. Despues de considerar las pruebas presentadas, el Juzgado
dicto sentencia concediendo la reclamacion de los demandantes. Las
dos compañias aseguradoras apelaron; pero antes de la aprobacion
del expediente de apelacion, la Lincoln National Life Insurance
Company, considerando tal vez inutil todo esfuerzo, pago a los
demandantes la cantidad de P50,000, abandonando la apelacion. Por
eso solamente se decidira por este Tribunal la apelacion de la
Philamlife.
Eutiquiano P. Nava, un agente asegurador de la Lincoln National Life
Insurance Company, consiguio convencer a Dee Se para asegurarse en
P25,000; los doctores G. Oreta-Dizon y Godofredo A. Antonio le
examinaron y expidieron el certificado medico correspondiente, que
fue aprobado por el director medico de la Lincoln National Life
Insurance Company. La solicitud de Dee Se fue aprobada y la poliza
No. 812254 por la suma de P25,000 se expidio en 8 de mayo de 1950;
otra poliza No. 812411 por igual cantidad se expidio a Dee Se en 10 de
junio de 1950 despues de cumplidas todas las formalidades
indispensables.
Paula Dolores Sendaydiego, agente de la Philamlife, consiguio tambien
convencer a Dee Se de que se asegurase en su compañia en la suma
de P25,000. El Dr. Braulio M. venecia examino a Dee Se y su certificado
medico fue aprobado por recomendacion del doctor de la oficina
central. En 2 de mayo de 1950 se expidio a Dee Se la poliza No. 97310
por la suma de P25,000. Por medio de la agente Paula Dolores
Sendaydiego, Dee Se otra vez solicito otra poliza por la suma de
P25,000. El Dr. Ricardo B. Villamil le examino y expidio el certificado
correspondiente que fue aprobado por el Dr. Valenzuela, director
medico de la Philamlife. Se aprobo la solicitud y se expidio a Dee Se
otra poliza No. 101840 por la suma de P25,000 en 18 de julio de 1950.
Las primas de las cuatro polizas fueron pagadas debidamente.
En 22 de junio de 1951 Dee Se fallecio de cancer en la region
nasofaringea en el Hospital Provincial de Pangasinan, situado en la
ciudad de Dagupan; su beneficiario, que es el demandante en esta
causa, reclamo el pago del importe de las dos polizas. Despues de
siete meses de tramite, la demandada, con fecha 24 de enero de 1952,
le envio una carta dandole cuenta de que rescindia los dos contratos
de seguro; se negaba a pagar el importe de las dos polizas y le envio
dos cheques, uno por P1,723.58 y otro de P2,570.90 contra el Bank of
America, cantidades que venian a constituir la restitucion de las
primas pagadas, con sus intereses.
La demandada, en apelacion, alega que el juzgado erro: (1) al declarar
que Jose Dy, el paciente del Dr. Chikiamco, no era el asegurado Dee Se;
(2) al declarar que Dee Se gozaba de buena salud al tiempo de solicitar
su seguro y que no habia hecho ninguna manifestacion falsa en su
solicitud de seguro; (3) al no declarar que dichas dos polizas de seguro
eran nulas y de ningun valor; y (4) al conceder al demandante
honorarios de abogado.
La demandada contiende que Dee Se, bajo el nombre de Jose Dy,
habia sido tratado por el Dr. Paterno S. Chikiamco por estar enfermo
de cancer desde el 19 de abril de 1948 hasta el 20 de enero de 1951,
fundandose en la declaracion del mismo doctor, el. cual declaro asi:
"I think I have a clear memory of his feature because — except when I
was away for six months in the States in 1949 — most of the treatment
was done by me although some of the records are jotted down by my
assistant." (Exhibit "17", page 23.)
"I remember very well that he looks the same as the patient by the
name of Jose Dy." (Exbibit "17", page 24.)
¿Es suficiente la declaracion no corroborada del Dr. Chikiamco para
concluir que el asegurado Dee Se fue su paciente Jose Dy?
Este testimonio del Dr. Chikiamco es incompatible con el de varios
doctores. El Dr. Braulio M. de Venecia, medico de la Philamlife, asegura
que al tiempo en que le examino, Dee Se gozaba de buena salud; que le
habia conocido por unos dos años porgue era su vecino y que
trabajaba en una tableria; que al tiempo en que le llamo para
examinarle, Dee Se acababa de venir de su trabajo en la tableria, un
trabajo arduo, y estaba aun sudando cuando el le examino; si Dee Se —
asegura el Dr. de Venecia — hubiera estado sufriendo de cancer y
habia estado bajo un tratamiento medico por mas de tres años, no
habria podido afrontar los rigores del trabajo en una tableria. Dee Se
habia sido examinado, ademas del Dr. de Venecia, por el Dr. Villamil de
la Philamlife y los doctores Oreta-Dizon y Godofredo A. Antonio de la
Lincoln National Life Insurance Company y los certificados medicos
que ellos expidieron fueron aprobados por los directores medicos de
las dos Compañias demandadas.
El Dr. Amado Tan Lee declaro que habia tratado a Dee Se en 28 de
diciembre de 1950 y enviadole al Dr. Sevilla en 13 de febrero de 1951.
(Exhibit E.)
El Dr. Manuel D. Peñas declaro que en 18 de febrero de 1951 habia
hecho un examen histopatologico de dos especimenes sacados de la
nasofaringe de Dee Se por recomendacion del Dr. Sevilla.
El Dr. Carlos L. Sevilla declaro que habia tratado por primera vez a Dee
Se en 13 de febrero de 1951 por recomendacion del Dr. Amado Tan
Lee. Creyendo que padecia de cancer, le envio al Dr. Valencia en la
misma fecha (13 de febrero de 1951) para que se le sometiera a
Rayos-X; dos dias despues el saco especimenes de la nasofaringe
para ser examinados por el Dr. Peñas, quien hizo constar en su informe
que hallo "Granulation tissue with Subacute and Chronic Inflammation
(non-specific)."
Si el Dr. Sevilla fue el que envio a Dee Se al Dr. Chikiamco en 1951,
entonces debia ser otro y diferente el paciente a quien el Dr. Chikiamco
habia estado tratanto con el nombre de Jose Dy desde el 19 de abril de
1948 hasta el 20 de enero de 1951. Si Dee Se y el Dr. Chikiamco eran
ya antiguos conocidos, ¿que necesidad tenia Dee Se de una
recomendacion del Dr. Sevilla? Esta recomendacion llevada por Dee Se
al Dr. Chikiamco nos convence que Dee Se era el nuevo paciente y no
el antiguo: que Dee Se y Jose Dy eran dos distintas personas.
Cuando acudio a los Drs. Lee y Sevilla y enviado al Dr. Chikiamco, Dee
Se ya estaba asegurado. Si el solicito el seguro para medrar o
favorecer a sus beneficiarios haciendo creer que gozaba de buena
salud cuando en realidad ya padecia de cancer por tres años, ¿por que
entrego al Dr. Chikiamco la recomendacion (Exhibit 2) del Dr. Sevilla?
¿Para que se descubriese mas tarde su impostura ? Eso es contrario al
sentido comun. Debia de haber destruido la recomendacion y
proponerse no ver ya al Dr. Chikiamco.
El tratamiento de Jose Dy de cerca de tres años no se habia hecho
exclusivamente por el Dr. Chikiamco, por que habia estado fuera de
Filipinas por seis meses y la Dra. Carmen Chikiamo, de la misma
clinica, trato al paciente en lugar de aquel. Es extraño que el testimonio
de ella - que hubiera sido una excelente corroboracion — no se haya
presentado ante el juzgado sin explicar la razon.
El Dr. Chikiamco, segun el, fue honrado con un lauriat por Jose Dy, su
paciente, en 26 de diciembre de 1950; pero existe prueba en autos de
que Dee Se estaba en Dagupan en dicho dia y salio para Manila el 27
despues de la fiesta de Dagupan.
La declaracion del Dr. Benigno Parayno, medico residente del Hospital
Provincial de Pangasinan, de que la enfermedad de Dee Se, (cancer en
la region nasofaringea) debia haber existid entre cuatro y seis meses
antes de su muerte en 22 de junio de 1951 apoya las opiniones de los
cuatro doctores de las casas aseguradoras.
Las opiniones de estos cuatro doctores, las de dos directores medicos
de las mismas casas de seguros, las de los Drs. Lee, Sevilla, Peñas y
Parayno, son de mas peso, a ruestro juicio, que la declaracion no
corroborada del Dr. Chikiamco.
Los cuatro medicos de las casas aseguradoras son los que debian
tener interes en saber el verdadero estado de salud del solicitante, y si
expidieron certificados de buena salud sera porque estaban
convencidos de la verdad de lo que certificaban. No hay el menor
indicio de que ellos hayan obrado de mala fe. No existe en autos
ninguna prueba de que Dee Se haya engañado a las casas
aseguradoras haciendo creer que el gozaba de buena salud cuando en
realidad estaba' enfermo de cancer. La mala fe debe probarse.
Creemos que el juzgado inferior no erro al concluir que Dee Se y Jose
Dy no eran una misma persona y que Dee Se gozaba de buena salud al
solicitar su seguro. Como no existe prueba de que Dee Se habia
empleado fraude y engaño para obtener las dos polizas de seguro,
fuerza es concluir que el juez a quo no cometio el tercer error atribuido
a el.
En cuanto al cuarto error, el nuevo Codigo Civil dispone que "In the
absence of stipulation, attorney's fees and expenses of litigation, other
than judicial costs, cannot be recovered, except: . . . (5) Where the
defendant acted in gross and evident bad faith in refusing to satisfy
the plaintiff's plainly valid, just and demandable claim;" (Article 2208,
Codigo Civil de Filipinas.).
En el caso presente, creemos que la demandada no obro con
manifiesta y evidente mala fe al no pagar el importe de las dos polizas.
El tramite de siete meses demuestra la precaucion que ha tenido en
cerciorarse de si Dee Se era el mismo Jose Dy que habia sido tratado
por el Dr. Chikiamco por cerca de tres años. Teniendo a la vista la
informacion del Dr. Chikiamco, caulquiera que estuviese en lugar de la
Philamlife hubiera hecho lo mismo. Si, despues de una vista larga en
que declararon varios doctores, el Juzgado ha Ilagado a la conclusion
de que Dee Se no era el mismo Jose Dy, paciente por tres años del Dr.
Chikiamco, no se debe deducir necesariamente que la demandada ha
obrado con abierta y evidente mala fe. Creemos que la decision del
tribunal inferior, condenando a la demandada a pagar P10,000 para
honorarios de abogado, no esta justificada; el demandante es quien
debe pagarlos a su abogado.
Se revoca la sentencia apelada en cuanto condena a la demandada a
pagar P10,000 como honorarios de abogado, y de confirma en todo lo
demas.
Paras, Pres., Bengzon, Montemayor, Reyes, A., Jugo, Bautista Angelo,
Labrador y Concepcion, MM., estan conformes.
|||  (Chuy v. Philippine American Life Insurance Co., G.R. No. L-6672,
[June 29, 1954], 95 PHIL 282-289)
SECOND DIVISION
[G.R. No. 128833. April 20, 1998.]
RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND
ELI D. LAO,  petitioner, vs. COURT OF APPEALS AND GOYU & SONS,
INC.,  respondent.
[G.R. No. 128834. April 20, 1998.]
RIZAL COMMERCIAL BANKING CORPORATION petitioner, vs. COURT
OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO
SONG HIAP, SPOUSES GO TENG KOK and BETTY CHIU SUK YING
alias BETTY GO, respondents.
[G.R. No. 128866. April 20, 1998.]
MALAYAN INSURANCE INC., petitioner vs. GOYU & SONS,
INC. respondent.
Siguion-Reyna Montecillo & Ongsiako for petitioner RCBC.
Rodolfo P. Del Prado for private respondent Goyu & Sons, Inc.
Manuel Melotendoc for private respondent Jong Song Hiap, Sps. Go
Teng Kok and Betty Chiu.
SYNOPSIS
When GOYU & Sons, Inc. (GOYU) obtained a credit facility from Rizal
Commercial Banking Corporation (RCBC) it executed a mortgage
contract in favor of the bank wherein it was expressly stipulated that
GOYU will insure all the subject properties with an insurance company
approved by the bank and to endorse and deliver the policies to the
bank. GOYU, through Alchester Insurance, Agency, Inc., took insurance
policies from Malayan Insurance Company, Inc. (MICO), sister
company of RCBC, and endorsed them in favor of RCBC. Copies of the
endorsements were sent and received by GOYU, RCBC and MICO.
GOYU continued to enjoy the benefits of the credit facilities extended
to it by the bank. When GOYU's factory buildings were gutted by fire,
GOYU and RCBC filed separate claims with MICO but were both denied
because the policies were either attached or claimed by other
creditors. GOYU then filed a complaint for specific performance and
damages disowning the endorsements or lack of authority of Alchester
to prepare and issue said endorsements in favor of RCBC. The trial
court rendered judgment ordering, among others, MICO to pay fire loss
claim of GOYU while ordering MICO and RCBC to pay damages. GOYU
was ordered to pay its loan obligations with RCBC with interests. On
appeal, the Court of Appeals sustained the findings of the trial court
with respect to MICO and RCBC's liabilities. Hence, this
recourse. HcSaAD
The Supreme Court held that a mortgagor and a mortgagee have
separate and distinct insurable interests in the mortgaged property and
may insure the same for his own sole benefit; that GOYU is estopped
from assailing the validity of the endorsements in favor of RCBC after it
had voluntarily and purposely took the insurance policies from a sister
company of RCBC and failed to seasonably repudiate the authority of
the persons who prepared the endorsements; that to permit GOYU to
capitalize on its non-confirmation of the endorsements is to
countenance grave contravention of public policy, fair dealing, good
faith and justice; that generally, the proceeds of an insurance shall
exclusively apply to the interest of the person in whose name or for
whose benefit it is made except when otherwise intended by the
parties; and that insurance policies transferred by way of endorsement
to a mortgagee can no longer be attached by other creditors.
SYLLABUS
1. COMMERCIAL LAW; INSURANCE; MORTGAGOR AND MORTGAGEE,
WITH SEPARATE AND DISTINCT INSURABLE INTEREST. — It is settled
that a mortgagor and a mortgagee have separate and distinct insurable
interests in the same mortgaged property, such that each one of them
may insure the same property for his own sole benefit. There is no
question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU
obtained the subject insurance policies naming itself as the sole payee,
the intentions of the parties as shown by their contemporaneous acts,
must be given due consideration in order to better serve the interest of
justice and equity. CDcaSA
2. REMEDIAL LAW; ACTIONS; ESTOPPEL; MORTGAGOR ESTOPPED
FROM ASSAILING ENDORSEMENT OF INSURANCE POLICIES WHERE
THE SAME WAS PROCURED PURSUANT TO A MORTGAGE CONTRACT
AND OBTAINED FROM A SISTER COMPANY OF MORTGAGEE; CASE
AT BAR. — It is to be noted that nine endorsement documents were
prepared by Alchester in favor of RCBC. The Court is in a quandary how
Alchester could arrive at the idea of endorsing any specific insurance
policy in favor of any particular beneficiary or payee other than the
insured had not such named payee or beneficiary been specifically
disclosed by the insured itself. It is also significant that GOYU
voluntarily and purposely took the insurance policies from MICO, a
sister company of RCBC, and not just from any other insurance
company. Alchester would not have found out that the subject pieces
of property were mortgaged to RCBC had not such information been
voluntarily disclosed by GOYU itself. Had it not been for GOYU,
Alchester would not have known of GOYU's intention of obtaining
insurance coverage in compliance with its undertaking in the mortgage
contracts with RCBC, and verily, Alchester would not have endorsed the
policies to RCBC had it not been so directed by GOYU. On equitable
principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC. RCBC, in good faith,
relied upon the endorsement documents sent to it as this was only
pursuant to the stipulation in the mortgage contracts. We find such
reliance to be justified under the circumstances of the case. GOYU
failed to seasonably repudiate the authority of the person or persons
who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence of the loss insured
against, it was too late for GOYU to disown the endorsements for any
imagined or contrived lack of authority of Alchester to prepare and
issue said endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYU's inaction in this
case, GOYU is at the very least estopped from assailing their operative
effects. To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit
facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the
peculiar circumstances obtaining in this case, the Court is bound to
recognize RCBC's right to the proceeds of the insurance policies if not
for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
3. ID.; ID.; ID.; BASIS AND PURPOSE. — The basis and purpose of the
doctrine was explained in Philippine National Bank vs. Court of
Appeals (94 SCRA 357 [1979]), to wit: The doctrine of estoppel is based
upon the grounds of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against his own act,
representations, or commitments to the injury of one to whom they
were directed and who reasonably relied thereon. The doctrine of
estoppel springs from equitable principles and the equities in the case.
It is designed to aid the law in the administration of justice where
without its aid injustice might result. It has been applied by this Court
whereever and whenever special circumstances of a case so
demand. cADTSH
4. COMMERCIAL LAW; OBLIGATIONS AND CONTRACTS; INTENTION
OF PARTIES WILL PREVAIL OVER INSURANCE PROVISION THAT
PROCEEDS SHALL EXCLUSIVELY APPLY TO INTEREST OF PERSON IN
WHOSE NAME OR BENEFIT IT IS MADE; CASE AT BAR. — GOYU cannot
seek relief under Section 53 of the Insurance Code which provides that
the proceeds of insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made. The peculiarity
of the circumstances obtaining in the instant case presents a
justification to take exception to the strict application of said provision,
it having been sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit the insurance
policies were taken out. This Court can not over stress the fact that
upon receiving its copies of the endorsement documents prepared by
Alchester, GOYU, despite the absence of its written conformity thereto,
obviously considered said endorsement to be sufficient compliance
with its obligation under the mortgage contracts since RCBC
accordingly continued to extend the benefits of its credit facilities and
GOYU continued to benefit therefrom. Just as plain too is the intention
of the parties to constitute RCBC as the beneficiary of the various
insurance policies obtained by GOYU. The intention of the parties will
have to be given full force and effect in this particular case. The
insurance proceeds may, therefore, be exclusively applied to RCBC,
which under the factual circumstances of the case, is truly the person
or entity for whose benefit the policies were clearly intended. Moreover,
the law's evident intention to protect the interests of the mortgagee
upon the mortgaged property is expressed in Article 2127 of the Civil
Code.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONCURRENCE OF
CREDIT; INSURANCE POLICIES ENDORSED TO MORTGAGEE CAN NO
LONGER BE ATTACHED BY MORTGAGOR'S OTHER CREDITORS. — The
proceeds of the 8 insurance policies endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to RCBC by reason of the
endorsement by Alchester to RCBC, which we already ruled to have the
force and effect of an endorsement by GOYU itself, these 8 policies
can not be attached by GOYU's other creditors up to the extent of the
GOYU's outstanding obligation in RCBC's favor. Section 53 of the
Insurance Code ordains that the insurance proceeds of the endorsed
policies shall be applied exclusively to the proper interest of the person
for whose benefit it was made. In this case, to the extent of GOYU's
obligation with RCBC, the interest of GOYU in the subject policies had
been transferred to RCBC effective as of the time of the endorsement.
These policies may no longer be attached by the other creditors of
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
may nonetheless forthwith be dismissed for being moot and academic
in view of the results reached herein. Only the two other policies
amounting to P19,646,224.92 may be validly attached, garnished, and
levied upon by GOYU's other creditors. To the extent of GOYU's
outstanding obligation with RCBC, all the rest of the other insurance
policies above-listed which were endorsed to RCBC, are, therefore, to
be released from attachment, garnishment, and levy by the other
creditors of GOYU. Respondent Sebastian must, however, yield to the
preferential right of RCBC over the MICO insurance policies. It is basic
and fundamental that the first mortgagee has superior rights over
junior mortgagees or attaching creditors.
6. REMEDIAL LAW; EVIDENCE; PRESUMPTIONS; FACT THAT
PROMISSORY NOTES BEAR DATES POSTERIOR TO FIRE DOES NOT
NECESSARILY MEAN THAT THE DOCUMENTS ARE SPURIOUS. — The
fact that the promissory notes bear dates posterior to the fire does not
necessarily mean that the documents are spurious, for it is presumed
that the ordinary course of business had been followed (Metropolitan
Bank and Trust Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]).
The obligor and not the holder of the negotiable instrument has the
burden of proof of showing that he no longer owes the obligee any
amount (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of regularity of private
transactions, receipt of the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by GOYU.
7. CIVIL LAW; OBLIGATIONS AND CONTRACTS; LOAN; PAYMENT OF
INTEREST OR COST OF MONEY, VERY ESSENTIAL AND
FUNDAMENTAL ELEMENT OF BANKING SYSTEM. — The essence or
rationale for the payment of interest or cost of money is separate and
distinct from that of surcharges and penalties. What may justify a court
in not allowing the creditor to charge surcharges and penalties despite
express stipulation therefor in a valid agreement, may not equally
justify non-payment of interest. The charging of interest for loans
forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its
existence or being. It is inconceivable for a bank to grant loans for
which it will not charge any interest at all. We fail to find justification
for the Court of Appeals' outright deletion of the payment of interest as
agreed upon in the respective promissory notes. This constitutes gross
error. cEDaTS
8. ID.; DAMAGES; SURCHARGES AND PENALTIES STIPULATED IN
CASE OF DEFAULT PARTAKE THE NATURE OF LIQUIDATED
DAMAGES. — Surcharges and penalties agreed to be paid by the debtor
in case of default partake of the nature of liquidated damages, covered
by Section 4, Chapter 3, Title XVIII of the Civil Code.
9. ID.; ID.; ID.; MAY BE REDUCED IF INIQUITOUS AND
UNCONSCIONABLE; CASE AT BAR. — In exercising this vested power
to determine what is iniquitous and unconscionable, the Court must
consider the circumstances of each case. It should be stressed that
the Court will not make any sweeping ruling that surcharges and
penalties imposed by banks for non-payment of the loans extended by
them are generally iniquitous and unconscionable. What may be
iniquitous and unconscionable in one case, may be totally just and
equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under
which GOYU found itself after the occurrence of the fire, the Court rules
the surcharges rates ranging anywhere from 9% to 27%, plus the
penalty charges of 36%, to be definitely iniquitous and unconscionable.
The Court tempers these rates to 2% and 3%, respectively.
Furthermore, in the light of GOYU's offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which
RCBC refused, we find it more in keeping with justice and equity for
RCBC not to charge additional interest, surcharges, and penalties from
that time onward. DIEACH
10. COMMERCIAL LAW; INSURANCE; ASSIGNEE ENTITLED TO CLAIM
INSURANCE PROCEEDS. — By virtue of the mortgage contracts as well
as the endorsements of the insurance policies, RCBC has the right to
claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the
beneficiary of the said insurance policies.
11. ID.; ID.; INSURER NOT LIABLE FOR DAMAGES FOR DELAYING AND
WITHHOLDING PAYMENT OF INSURANCE PROCEEDS WHERE SAME
WAS BEING CLAIMED BY VARIOUS CREDITORS. — For an insurance
company to be held liable for unreasonably delaying and withholding
payment of insurance proceeds, the delay must be wanton, oppressive,
or malevolent (Zenith Insurance Corporation vs. CA, 185 SCRA 403
[1990]). It is generally agreed, however, that an insurer may in good
faith and honesty entertain a difference of opinion as to its liability.
Accordingly, the statutory penalty for vexatious refusal of an insurer to
pay a claim should not be inflicted unless the evidence and
circumstances show that such refusal was willful and without
reasonable cause as the facts appear to a reasonable and prudent
man (Buffalo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53, 70 ALR
1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep
307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR
189). The case at bar does not show that MICO wantonly and in bad
faith delayed the release of the proceeds. The problem in the
determination of who is the actual beneficiary of the insurance policies,
aggravated by the claim of various creditors who wanted to partake of
the insurance proceeds, not to mention the importance of the
endorsement to RCBC, to our mind, and as now borne out by the
outcome herein, justified MICO in withholding payment to GOYU.
DECISION
MELO,  J  p:
The issues relevant to the herein three consolidated petitions revolve
around the fire loss claims of respondent Goyu & Sons, Inc. (GOYU)
with petitioner Malayan Insurance Company, Inc. (MICO) in connection
with the mortgage contracts entered into by and between Rizal
Commercial Banking Corporation (RCBC) and GOYU. cdtai
The Court of Appeals ordered MICO to pay GOYU its claims in the total
amount of P74,040,518.58, plus 37% interest per annum commencing
July 27, 1992. RCBC was ordered to pay actual and compensatory
damages in the amount of P5,000,000.00. MICO and RCBC were held
solidarity liable to pay GOYU P1,500,000.00 as exemplary damages and
P1,500,000.00 for attorney's fees. GOYU's obligation to RCBC was fixed
at P68,785,069.04 as of April 1992, without any interest, surcharges,
and penalties. RCBC and MICO appealed separately but, in view of the
common facts and issues involved, their individual petitions were
consolidated.
The undisputed facts may be summarized as follows:
GOYU applied for credit facilities and accommodations with RCBC at
its Binondo Branch. After due evaluation, RCBC Binondo Branch,
through its key officers, petitioners Uy Chun Bing and Eli D. Lao,
recommended GOYU's application for approval by RCBC's executive
committee. A credit facility in the amount of P30 million was initially
granted. Upon GOYU's application and Uy's and Lao's recommendation,
RCBC's executive committee increased GOYU's credit facility to P50
million, then to P90 million, and finally to P117 million.
As security for its credit facilities with RCBC, GOYU executed two real
estate mortgages and two chattel mortgages in favor of RCBC, which
were registered with the Registry of Deeds at Valenzuela, Metro
Manila. Under each of these four mortgage contracts, GOYU
committed itself to insure the mortgaged property with an insurance
company approved by RCBC, and subsequently, to endorse and deliver
the insurance policies to RCBC.
GOYU obtained in its name a total of ten insurance policies from MICO.
In February 1992, Alchester Insurance Agency, Inc., the insurance
agent where GOYU obtained the Malayan insurance policies, issued
nine endorsements in favor of RCBC seemingly upon instructions of
GOYU (Exhibits "1-Malayan" to "9-Malayan").
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was
gutted by fire. Consequently, GOYU submitted its claim for indemnity
on account of the loss insured against. MICO denied the claim on the
ground that the insurance policies were either attached pursuant to
writs of attachments/garnishments issued by various courts or that
the insurance proceeds were also claimed by other creditors of GOYU
alleging better rights to the proceeds than the insured. GOYU filed a
complaint for specific performance and damages which was docketed
at the Regional Trial Court of the National Capital Judicial Region
(Manila, Branch 3) as Civil Case No. 93-65442, now subject of the
present G.R. No. 128833 and 128866.
RCBC, one of GOYU's creditors, also filed with MICO its formal claim
over the proceeds of the insurance policies, but said claims were also
denied for the same reasons that AGCO denied GOYU's claims.
In an interlocutory order dated October 12, 1993 (Record, pp. 311-312),
the Regional Trial Court of Manila (Branch 3), confirmed that GOYU's
other creditors, namely, Urban Bank, Alfredo Sebastian, and Philippine
Trust Company obtained their respective writs of attachments from
various courts, covering an aggregate amount of P14,938,080.23, and
ordered that the proceeds of the ten insurance policies be deposited
with the said court minus the aforementioned P14,938,080.23.
Accordingly, on January 7, 1994, MICO deposited the amount of
P50,505,594.60 with Branch 3 of the Manila RTC.
In the meantime, another notice of garnishment was handed down by
another Manila RTC sala (Branch 28) for the amount of P8,696,838.75
(Exhibit "22-Malayan").
After trial, Branch 3 of the Manila RTC rendered judgment in a favor of
GOYU, disposing:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, Malayan Insurance Company, Inc. and Rizal
Commercial Banking Corporation, ordering the latter as follows:
1. For defendant Malayan Insurance Co., Inc.:
a. To pay the plaintiff its fire loss claims in the total amount of
P74,040,518.58 less the amount of P50,000,000.00 which is deposited
with this Court;
b. To pay the plaintiff damages by way of interest for the duration of
the delay since July 27, 1992 (ninety days after defendant insurer's
receipt of the required proof of loss and notice of loss) at the rate of
twice the ceiling prescribed by the Monetary Board, on the following
amounts:
1) P50,000,000.00 — from July 27, 1992 up to the time said amount
was deposited with this Court on January 7, 1994;
2) P24,040,518.58 — from July 17, 1992 up to the time when the writs
of attachments were received by defendant Malayan;
2. For defendant Rizal Commercial Banking Corporation:
a. To pay the plaintiff actual and compensatory damages in the
amount of P2,000,000.00;
3. For both defendants Malayan and RCBC:
a. To pay the plaintiff, jointly and severally, the following amounts:
1) P1,000,000.00 as exemplary damages;
2) P1,000,000.00 as, and for, attorneys fees;
3) Costs of suit
and on the Counterclaim of defendant RCBC, ordering the plaintiff to
pay its loan obligations with defendant RCBC in the amount of
P68,785,069.04, as of April 27, 1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B & 14-C.
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is
hereby ordered to release immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by defendant Malayan,
together with all the interests earned thereon.
(Record, pp. 478-479.)
From this judgment, all parties interposed their respective appeals.
GOYU was unsatisfied with the amounts awarded in its favor. MICO
and RCBC disputed the trial court's findings of liability on their part. The
Court of Appeals partly granted GOYU's appeal, but sustained the
findings of the trial court with respect to MICO and RCBC's liabilities,
thusly:
WHEREFORE, the decision of the lower court dated June 29, 1994 is
hereby modified as follows:
1. FOR DEFENDANT MALAYAN INSURANCE CO., INC:
a) To pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less than the amount of P50,505,549.60 (per O.R. No.
3649285) plus deposited in court and damages by way of interest
commencing July 27, 1992 until the time Goyu receives the said
amount at the rate of thirty-seven (37%) percent per annum which is
twice the ceiling prescribed by the Monetary Board.
2. FOR DEFENDANT RIZAL COMMERCIAL BANKING CORPORATION:
a) To pay the plaintiff actual and compensatory damages in the
amount of P5,000,000.00.
3. FOR DEFENDANTS MALAYAN INSURANCE CO., INC., RIZAL
COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO:
a) To pay the plaintiff jointly and severally the following amounts:
1. P1,500,000.00 as exemplary damages;
2. P1,500,000.00 as and for attorney's fees.
4. And on RCBC's Counterclaim, ordering the plaintiff Goyu & Sons, Inc.
to pay its loan obligation with RCBC in the amount of P68,785,069.04
as of April 27, 1992 without any interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby
ordered to immediately release to Goyu & Sons, Inc. the amount of
P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866,
respectively, seeking review and consequent reversal of the above
dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A.
G.R. No. CV-48376, which case, by virtue of the Court of Appeals'
resolution dated August 7, 1996, was consolidated with C.A. G.R. No.
CV-46162 (subject of herein G.R. No. 128833). At issue in said petition
is RCBC's right to intervene in the action between Alfredo C. Sebastian
(the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian.
After a careful review of the material facts as found by the two courts
below in relation to the pertinent and applicable laws, we find merit in
the submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to
several related issues which are now submitted in the petitions before
us. This Court, however, discerns one primary and central issue, and
this is, whether or not RCBC, as mortgagee, has any right over the
insurance policies taken by GOYU, the mortgagor, in case of the
occurrence of loss. cdtai
As earlier mentioned, accordant with the credit facilities extended by
RCBC to GOYU, the latter executed several mortgage contracts in favor
of RCBC. It was expressly stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property with any of the insurance
companies acceptable to RCBC. GOYU indeed insured the mortgaged
property with MICO, an insurance company acceptable to RCBC. Based
on their stipulations in the mortgage contracts, GOYU was supposed to
endorse these insurance policies in favor of and deliver them, to RCBC.
Alchester Insurance Agency, Inc., MICO's underwriter from whom
GOYU obtained the subject insurance policies, preferred the nine
endorsements (see Exh. "1-Malayan"; to "9-Malayan"; also Exh." 51-
RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC,
and MICO. However, because these endorsements do not bear the
signature of any officer of GOYU, the trial court, as well as the Court of
Appeals, concluded that the endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and
distinct insurable interests in the same mortgaged property, such that
each one of them may insure the same property for his own sole
benefit. There is no question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the present case, although it
appears that GOYU obtained the subject insurance policies naming
itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to
better serve the interest of justice and equity.
It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester
could arrive at the idea of endorsing any specific insurance policy in
favor of any particular beneficiary or payee other than the insured had
not such named payee or beneficiary been specifically disclosed by the
insured itself. It is also significant that GOYU voluntarily and purposely
took the insurance policies from MICO, a sister company of RCBC, and
not just from any other insurance company. Alchester would not have
found out that the subject pieces of property were mortgaged to RCBC
had not such information been voluntarily disclosed by GOYU itself.
Had it not been for GOYU, Alchester would not have known of GOYU's
intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verify, Alchester
would not have endorsed the policies to RCBC had it not been so
directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the
Court is constrained to rule in favor of mortgagor RCBC. The basis and
purpose of the doctrine was explained in Philippine National Bank
vs.  Court of Appeals (94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy,
fair dealing, good faith and justice, and its purpose is to forbid one to
speak against his own act, representations, or commitments to the
injury of one to whom they were directed and who reasonably relied
thereon. The doctrine of estoppel springs from equitable principles and
the equities in the case. It is designed aid the law in the administration
of justice where without its aid injustice might result. It has been
applied by this Court wherever and whenever special circumstances of
a case so demand.
(P. 368.)
Evelyn Lozada of Alchester testified that upon instructions of Mr. Go,
through a certain Mr. Yam, she prepared in quadruplicate on February
11, 1992 the nine endorsement documents for GOYU's nine insurance
policies in favor of RCBC. The original copies of each of these nine
endorsement documents were sent to GOYU and the others were sent
to RCBC and MICO, while fourth copies were retained for Alchester's
file (tsn, February 23, pp. 7-8). GOYU has not denied having received
from Alchester the originals of these endorsements.
RCBC, in good faith, relied upon the endorsement documents sent to it
as this was only pursuant to the stipulation in the mortgage contracts.
We find such reliance to be justified under the circumstances of the
case. GOYU failed to seasonably repudiate the authority of the person
or persons who prepared such endorsements. Over and above this,
GOYU continued, in the meantime, to enjoy the benefits of the credit
facilities extended to it by RCBC. After the occurrence of the loss
insured against, it was too late for GOYU to disown the endorsements
for any imagined or contrived lack of authority of Alchester to prepare
and issue said endorsements. If there had not been actually an implied
ratification of said endorsements by virtue of GOYU's inaction in this
case, GOYU is at the very least estopped from assailing their operative
effects. To permit GOYU to capitalize on its non-confirmation of these
endorsements while it continued to enjoy the benefits of the credit
facilities of RCBC which believed in good faith that there was due
endorsement pursuant to their mortgage contracts, is to countenance
grave contravention of public policy, fair dealing, good faith, and
justice. Such an unjust situation, the Court cannot sanction. Under the
peculiar circumstances obtaining in this case, the Court is bound to
recognize RCBC's right to the proceeds of the insurance policies if not
for the actual endorsement of the policies, at least on the basis of the
equitable principle of estoppel.
GOYU cannot seek relief under Section 53 of the Insurance Code which
provides that the proceeds of insurance shall exclusively apply to the
interest of the person in whose name or for whose benefit it is made.
The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of
said provision, it having been sufficiently established that it was the
intention of the parties to designate RCBC as the party for whose
benefit the insurance policies were taken out. Consider thus the
following:
1. It is undisputed that the insured pieces of property were the subject
of mortgage contracts entered into between RCBC and GOYU in
consideration of and for securing GOYU's credit facilities from RCBC.
The mortgage contracts contained common provisions whereby GOYU,
as mortgagor, undertook to have the mortgaged property properly
covered against any loss by an insurance company acceptable to
RCBC.
 
2. GOYU voluntarily procured insurance policies to cover the
mortgaged property from MICO, no less than a sister company of
RCBC and definitely an acceptable insurance company to RCBC.
3. Endorsement documents were prepared by MICO's underwriter,
Alchester Insurance Agency, Inc., and copies thereof were sent to
GOYU, MICO and RCBC. GOYU did not assail, until of late, the validity of
said endorsements.
4. GOYU continued until the occurrence of the fire, to enjoy the benefits
of the credit facilities extended by RCBC which was conditioned upon
the endorsement of the insurance policies to be taken by GOYU to
cover the mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of
the endorsement documents prepared by Alchester, GOYU, despite the
absence written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit
therefrom. Just as plain too is the intention of the parties to constitute
RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and
effect in this particular case. The insurance proceeds may, therefore,
be exclusively applied to RCBC, which under the factual circumstances
of the case, is truly the person or entity for whose benefit the policies
were clearly intended.
Moreover, the law's evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article 2127
of the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it passes
into the hands of a third person.
Significantly, the Court notes that out of the 10 insurance policies
subject of this case, only 8 of them appear to have been subject of the
endorsements prepared and delivered by Alchester for and upon
instructions of GOYU as shown below:
  INSURANCE POLICYENDORSEMENTS
PARTICULARS
a. Policy F-114-07795 None Date
Number
  Amount P6,000,000.00  
  Issue March 18, 1992  
Date h. Policy CI/F-128-03341 None
Number
  Expiry April 5, 1993  
Date   Issue May 3, 1991  
Date
  Amount P9,646,224.92  
  Expiry May 3, 1992  
b. Policy ACIA/F-174- Exhibit "1-Malayan" Date
Number 07660
  Amount P10,000,000.00  
  Issue January 18, 
Date 1992 i. Policy F-114-07402 Exhibit "8-Malayan"
Number
  Expiry February 9, 1993 
Date   Issue September 16, 
Date 1991
  Amount P4,307,217.54  
  Expirty October 19, 
c. Policy ACIA/F-114- Exhibit "2-Malayan" Date 1992
Number 07661
  Amount P32,252,125.20  
  Issue January 18, 
Date 1992 j. Policy F-114-07525 Exhibit "9-Malayan"
Number
  Expiry February 15, 
Date 1993   Issue November 20, 
Date 1991
  Amount P6,603,586.43  
  Expiry December 5, 
d. Policy ACIA/F-114- Exhibit "3-Malayan" Date 1992
Number 07662
  Amount P6,603,586.43  
  Issue January 18, 
Date 1992 (pp. 456-457, Record; Folder of Exhibits for MICO.)

  Expiry (not legible)   Policy Number F-114-07795 [(a) above] has not been endorsed. This
Date fact was admitted by MICO's witness, Atty. Farolan (tsn, February 16,
1994, p. 25). Likewise, the record shows no endorsement for Policy
  Amount P6,603,586.43   Number CI/F-128-03341 [(h) above]. Also, one of the endorsement
e. Policy ACIA/F-114- Exhibit "4-Malayan" documents, Exhibit "5-Malayan", refers to a certain insurance policy
Number 07663 number ACIA-F-07066, which is not among the insurance policies
involved in the complaint. cdtai
  Issue January 18, 
Date 1992 The proceeds of the 8 insurance policies endorsed to RCBC aggregate
to P89,974,488.36. Being exclusively payable to RCBC by reason of the
  Expiry February 9, 1993  endorsement by Alchester to RCBC, which we already ruled to have the
Date force and effect of an endorsement by GOYU itself, these 8 policies
can not be attached by GOYU's other creditors up to the extent of the
  Amount P9,457,972.76  
GOYU's outstanding obligation in RCBC's favor. Section 53 of the
f. Policy ACIA/F-114- Exhibit "7-Malayan" Insurance Code ordains that the insurance proceeds of the endorsed
Number 07623 policies shall be applied exclusively to the proper interest of the person
for whose benefit it was made. In this case, to the extent of GOYU's
  Issue January 13,  obligation with RCBC, the interest of GOYU in the subject policies had
Date 1992 been transferred to RCBC effective as of the time of the endorsement.
These policies may no longer be attached by the other creditors of
  Expiry January 13, 
GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which
Date 1993
may nonetheless forthwith be dismissed for being moot and academic
  Amount P24,750,000.00   in view of the results reached herein. Only the two other policies
amounting to P19,646,224.92 may be validly attached, garnished, and
g. Policy ACIA/F-174- Expiry "6-Malayan" levied upon by GOYU's other creditors. To the extent of GOYU's
Number 07223 outstanding obligation with RCBC, all the rest of the other insurance
  Issue May 29, 1991   policies above-listed which were endorsed to RCBC, are, therefore, to
Date be released from attachment, garnishment, and levy by the other
creditors of GOYU.
  Expiry June 27, 1992  
This brings us to the next relevant issue to he resolved, which is, the
extent of GOYU's outstanding obligation with RCBC which the proceeds
of the 8 insurance policies will discharge and liquidate, or put
differently, the actual amount of GOYU's liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court
finding that GOYU's total obligation to RCBC was only P68,785,060.04
as of April 27, 1992, thus sanctioning the trial court's exclusion of
Promissory Note No. 421-92 (renewal of Promissory Note No. 908-91)
and Promissory Note No. 420-92 (renewal of Promissory Note No. 952-
91) on the ground that their execution is highly questionable for not
only are these dated after the fire, but also because the signatures of
either GOYU or any its representative are conspicuously absent.
Accordingly, the Court of Appeals speculated thusly:
. . . Hence, this Court is inclined to conclude that said promissory notes
were pre-signed by plaintiff in blank terms, as averred by plaintiff, in
contemplation of the speedy grant of future loans, for the same
practice of procedure has always been adopted in its previous dealings
with the bank.
(Rollo, pp. 181-182.)
The fact that the promissory notes bear dates posterior to the fire does
not necessarily mean that the documents are spurious, for it is
presumed that the ordinary course of business had been followed
(Metropolitan Bank and Trust Company vs. Quilts and All,  Inc., 222
SCRA 486 [1993]). The obligor and not the holder of the negotiable
instrument has the burden of proof of showing that the no longer owes
the obligee any amount (Travel-On,  Inc.  vs.  Court of Appeals, 210 SCRA
351 [1992]).
Even casting aside the presumption of regularity of private
transactions, receipt of the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by GOYU as indicated in the
testimony of Go Song Hiap when he answered the queries of the trial
court:
ATTY. NATIVIDAD
Q But insofar as the amount stated in Exhibits 1 to 29-RCBC, you
received all the amounts stated therein?
A Yes, sir, I received the amount.
COURT
He is asking if he received all the amounts stated in Exhibits 1 to 29-
RCBC?
WITNESS:
Total Obligation as admitted by GOYU
Yes, Your Honor, I received all the amounts.
as of January 21, 1993:
COURT
Indicated in the Promissory Notes?
WITNESS
A. The promissory Notes they did not give to me but the amount I
asked which is correct, Your Honor.
COURT
Regular
Q: You mean to say the amounts indicted in Exhibits 1 to 29-RCBC is
correct?  
A: Yes, Your Honor.
(tsn, Jan. 14, 1994, p. 26.)
Furthermore, aside from its judicial admission of having received all
the proceeds of the 29 promissory notes as hereinabove quoted GOYU
also offered and admitted to RCBC that its obligation be fixed at
P116,301,992.60 as shown in its letter dated March 9, 1993, which
pertinently reads:
We wish to inform you, therefore that we are ready and willing to pay
the current past due account of this company in the amount of
P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10,
and 18, p. 13 of your affidavits of Third Party Claims in the Urban case
at Makati, Metro Manila and in the Zamboanga case at Zamboanga
city, respectively, less the total of P8,851,519.71 paid from the
Seaboard and Equitable insurance companies and other legitimate
deductions. We accept and confirm this amount of P116,301,992.60 as
stated as true and correct.
(Exhibit BB.)
The Court of Appeals erred in placing much significance on the fact
that the excluded promissory notes are dated after the fire. It failed to
consider that said notes had for their origin transactions
consummated prior to the fire. Thus, careful attention must be paid to
the fact that Promissory Notes No. 420-92 and 421-92 are
mere renewals of Promissory Notes No. 908-91 and 952-91, loans
already availed of by GOYU.
The two courts below erred in failing to see that the promissory notes
which they ruled should be excluded for bearing dates which are after
that of the fire, are mere renewals of previous ones. The proceeds of
the loan represented by these promissory notes were admittedly
received by GOYU. There is ample factual and legal basis for giving
GOYU's judicial admission of liability in the amount of P116,301,992.60
full force and effect.
It should, however, be quickly added that whatever amount RCBC may
have recovered from the other insurers of the mortgaged property will,
nonetheless, have to be applied as payment against GOYU's obligation.
But, contrary to the lower courts' findings, payments effected by GOYU
prior to January 21, 1993 should no longer be deducted. Such
payments had obviously been duly considered by GOYU, in its
aforequoted letter dated March 9, 1993, wherein it admitted that its
past due account totaled P116,301,992.60 as of January 21, 1993.
The net obligation of GOYU, after deductions, is thus reduced to
P107,246,887.90 as of January 21, 1993, to wit:
 
  P116,301,992.60
Broken down as follows:    
       
  Principal 1 Interest  
80,535,946.32    
27,548,025.17    
  –––––––––––– ––––––––––––  

al: 108,083,971.49 8,218,021.11 2    interest for loans forms a very essential and fundamental element of
       
     
Proceeds from    
Seaboard Eastern    
Insurance Company: 6,095,145.81  
Proceeds from    
Equitable Insurance    
Company: 2,756,373.00  
Payment from    
foreign department    
negotiation: 203,584.89  
    –––––––––  
      9,055,104.70 sum of money, i.e., a loan or forbearance of money the interest due
      ===========
T AMOUNT as of January 21, 1993:
P107,246,887.90
The need for the payment of interest due upon the principal amount of
the obligation, which is the cost of money to RCBC, the primary end
and the ultimate reason for RCBC's existence and being, was duly
recognized by the trial court when it ruled favorably on RCBC's
counterclaim, ordering GOYU "to pay its loan obligation with RCBC in
the amount of P68,785,069.04, as of April 27, 1992, with interest
thereon at the rate stipulated in the respective promissory
notes (without surcharges and penalties) per computation, pp. 14-A,
14-B, 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, without
even laying down the factual or legal justification for its ruling, modified
the trial court's ruling and ordered GOYU "to pay the principal amount
of P68,785,069.04 without any interest, surcharges and penalties"
(Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and
with much uncertainty deleted the payment of additional
interest penalties, and charges, in this manner:
Regarding defendant RCBC's commitment not to charge additional
interest, penalties and surcharges, the same does not require that it be
embodied in a document or some form of writing to be binding and
enforceable. The principle is well known that generally a verbal
agreement or contract is no less binding and elective than a written
one. And the existence of such a verbal agreement has been amply
established by the evidence in this case. In any event, regardless of the
existence of such verbal agreement, it would still be unjust and
inequitable for defendant RCBC to charge the plaintiff with surcharges
and penalties considering the latter's pitiful situation. (Emphasis
supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money
is separate and distinct from that of surcharges and penalties. What
may justify a court in not allowing the creditor to charge surcharges
and penalties despite express stipulation therefor in a valid agreement,
may not equally justify non-payment of interest. The charging of
the banking business, which may truly be considered to be at the very
core of its existence or being. It is inconceivable for a bank to grant
loans for which it will not charge any interest at all. We fail to find
justification for the Court of Appeals' outright deletion of the payment
of interest as agreed in upon the respective promissory notes. This
constitutes gross error.
For the computation of the interest due to be paid to RCBC, the
following rules of thumb laid down by this Court in Eastern Shipping
Lines, Inc.  vs, Court of Appeals (234 SCRA 78 [1994]), shall apply, to
wit:
I. When an obligation, regardless of its source, i.e., law., contracts,
quasi-contracts, delicts or quasi-delicts is breached the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a
should be that which may have been stipulated in writing. Furthermore,
the interest due shall itself earn legal interest from the time it is
judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial
or extrajudicial extrajudicial demand under the subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date
of the judgment of the court is made (at time which the quantification
of damages may be deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case,
be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls
under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on
each specific promissory note as summarized and tabulated by the
trial Court in its decision (pp. 470 and 471, Record) such agreed
interest rates must be followed. This is very clear from paragraph II,
sub-paragraph 1 quoted above. cdtai
On the issue of payment of surcharges and penalties, we partly agree
that GOYU's pitiful situation must be taken into account. We do not
agree, however, that payment of any amount as surcharges and
penalties should altogether be, deleted. Even assuming that RCBC,
through its responsible officers, herein petitioners Eli Lao and Uy Chun
Bing, may have relayed its assurance for assistance to GOYU
immediately after the occurrence of the fire, we cannot accept the
lower courts' finding that RCBC had thereby ipso facto effectively
waived collection of any additional interests, surcharges, and penalties
from GOYU. Assurances of assistance am one thing, but waiver of
additional interests, surcharges, and penalties is another.
Surcharges and Penalties agreed to be paid by the debtor in case of
default partake of the nature of liquidated damages, covered by
Section 4, Chapter 3, Title XVIII of the Civil Code. Article 2227 thereof
provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or
penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each
case. It should be stressed that the Court will not make any sweeping
ruling that surcharges and penalties imposed by banks for non-
payment of the loans extended by them are generally iniquitous and
unconscionable. What may be iniquitous and unconscionable in one
case, may be totally just and equitable in another. This provision of law
will have to be applied to the established facts of any given case. Given
the circumstances under which GOYU found itself after the occurrence
of the fire, the Court rules the surcharges rates ranging anywhere from
9% to 27%, plus the penalty charges of 36%, to be definitely iniquitous
and unconscionable. The Court tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of GOYUs offer to pay the
amount of P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"),
which RCBC refused, we find it more in keeping with justice and equity
for RCBC not to charge additional interest, surcharges, and penalties
from that time onward.
Given the factual milieu spread hereover, rule that it was error to hold
MICO liable in damages for denying or withholding the proceeds of the
insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts as well as the
endorsements of the insurance policies, RCBC has the right to claim
the insurance proceeds, in substitution of the property lost in the fire.
Having assigned its rights, GOYU lost its standing as the beneficiary of
the said insurance policies.
Secondly, for an insurance company to be held liable for unreasonably
delaying and withholding payment of insurance proceeds, the delay
must be wanton, oppressive, or malevolent (Zenith Insurance
Corporation vs.  CA,  185 SCRA 403 [1990]). It is generally agreed,
however, that an insurer may in good faith and honesty entertain a
difference of opinion as to its liability. Accordingly, the statutory
penalty for vexatious refusal of an insurer to pay a claim should not he
inflicted unless the evidence and circumstances show that such
refusal was willful and without reasonable cause as the facts appear to
a reasonable and prudent man (Buffalo Ins. Co. vs. Bommarito [CCA
8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Inc. Co. vs. Clay, 101 Ga. 331,
28 SE 853, 65 Am St Rep 307, Kusnetsky vs. Security Ins. Co., 313 Mo.
143, 281 SW 47, 45 ALR 189). The case at bar does not show that
MICO wantonly and in bad faith delayed the release of the proceeds.
The problem in the determination of who is the actual beneficiary of
the insurance policies, aggravated by the claim of various creditors
who wanted to partake of the insurance proceeds, not to mention the
importance of the endorsement to RCBC, to our mind, and as now
home out by the outcome herein, justified MICO in withholding
payment to GOYU.
In adjudging RCBC liable in damages to GOYU, the Court of Appeals
said that RCBC cannot avail itself of two simultaneous remedies in
enforcing the claim of an unpaid creditor, one for specific performance
and the other for foreclosure. In doing so, said the appellate court, the
second action is deemed barred, RCBC having split a single cause of
action (Rollo, pp. 195-199). The Court of Appeals was too
accommodating in giving due consideration to this argument of GOYU,
for the foreclosure suit is still pending appeal before the same Court of
Appeals in CA G.R CV No. 46247, the case having been elevated by
RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth
Division of the Court of Appeals pre-empted the resolution of said
foreclosure case which is not before it. This is plain reversible error if
not grave abuse of discretion.
As held in Peña vs.  Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to
merely set aside the questioned orders of the trial court for having
been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner "from entering in mid
interfering with the use or occupation and enjoyment of petitioner's
(now private respondent) residential house and compound," the
appellate court in effect, precipitately resolved with finality the case for
injunction that was yet to be heard on the merits by the lower court.
Elevated to the appellate court, it might be stressed, were mere
incidents of the principal case still pending with the trial court.
In Municipality of Biñan, Laguna vs. Court of Appeals, 219 SCRA 69, we
ruled that the Court of Appeals would have "no jurisdiction in a
certiorari proceeding involving an incident in a case to rule on the
merits of the main case itself which was not on appeal before it."
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the
Zamboanga Regional Trial Court since it has been determined that
RCBC has the right to the insurance proceeds, the subject matter of
intervention is rendered moot and academic. Respondent Sebastian
must, however, yield to the preferential right of RCBC over the MICO
insurance policies. It is basic and fundamental that the first mortgagee
has superior rights over junior mortgagees or attaching creditors
(Alpha Insurance & Surety Co.  vs. Reyes, 106 SCRA, 274 [1981]; Sun Life
Assurance Co.  of Canada vs. Gonzales Diaz, 52 Phil 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and
resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No
46164 are hereby REVERSED and SET ASIDE, and a new one entered.
1. Dismissing the Complaint of private respondent GOYU in Civil Case
No. 93-65442 before Branch 3 of the Manila Regional Trial Court for
lack of merit
2. Ordering Malayan Insurance Company, Inc. to deliver to Rizal
Commercial Banking Corporation the proceeds of the insurance
policies in the amount of P51,862,390.94 (per report of adjuster Toplis
& Harding (Far East), Inc., Exhibits "2" and "2-1"), less the amount of
P50,505,594.60 (per O.R. No. 3649285);
3. Ordering the Clerk of Court to release the amount of P50,505,594.60
including the interests earned to Rizal Commercial Banking
Corporation;
4. Ordering Goyu & Sons, Inc. to pay its loan obligation with Rizal
Commercial Banking Corporation in the principal amount of
P107,246,887.90, with interest at the respective rates stipulated in
each promissory note from January 21, 1993 until finality of this
judgment, and surcharges at 2% and penalties at 3% from January 21,
1993 to March 9, 1993, minus payments made by Malayan Insurance
Company, Inc. and the proceeds of the amount deposited with the trial
court and its earned interest. The total amount due RCBC at the time of
the finality of this judgment shall earn interest at the legal rate of 12%
in lieu of all other stipulated interests and charges until fully paid.
The petition of Rizal Commercial Banking Corporation against the
respondent Court in CA-CYR CV 48376 is DISMISSED for being moot
and academic in view of the results herein arrived at. Respondent
Sebastian's right as attaching creditor must yield to the preferential
rights of Rizal Commercial Banking Corporation over the Malayan
insurance policies at first mortgage.
SO ORDERED.
|||  (RCBC v. Court of Appeals, G.R. Nos. 128833, 128834 & 128866, [April
20, 1998], 352 PHIL 101-129)
FIRST DIVISION
[G.R. No. 85296. May 14, 1990.]
ZENITH INSURANCE CORPORATION,  petitioner, vs. COURT OF
APPEALS and LAWRENCE FERNANDEZ,  respondents.
Vicente R. Layawen for petitioner.
Lawrence L. Fernandez & Associates for private respondent.
DECISION
MEDIALDEA, J  p:
Assailed in this petition is the decision of the Court of Appeals in CA-
G.R. C.V. No. 13498 entitled, "Lawrence L. Fernandez, plaintiff-
appellee v. Zenith Insurance Corp., defendant-appellant" which
affirmed in toto the decision of the Regional Trial Court of Cebu,
Branch XX in Civil Case No. CEB-1215 and the denial of petitioner's
Motion for Reconsideration.
The antecedent facts are as follows: LibLex
On January 25, 1983, private respondent Lawrence Fernandez insured
his car for "own damage" under private car Policy No. 50459 with
petitioner Zenith Insurance Corporation. On July 6, 1983, the car
figured in an accident and suffered actual damages in the amount of
P3,640.00. After allegedly being given a run around by Zenith for two
(2) months, Fernandez filed a complaint with the Regional Trial Court
of Cebu for sum of money and damages resulting from the refusal of
Zenith to pay the amount claimed. The complaint was docketed as
Civil Case No. CEB-1215. Aside from actual damages and interests,
Fernandez also prayed for more damages in the amount of P10,000.00,
exemplary damages of P5,000.00, attorney's fees of P3,000.00 and
litigation expenses of P3,000.00.
On September 28, 1983, Zenith filed an answer alleging that it offered
to pay the claim of Fernandez pursuant to the terms and conditions of
the contract which, the private respondent rejected. After the issues
had been joined, the pre-trial was scheduled on October 17, 1983 but
the same was moved to November 4, 1983 upon petitioner's motion,
allegedly to explore ways to settle the case although at an amount
lower than private respondent's claim. On November 14, 1983, the trial
court terminated the pre-trial. Subsequently, Fernandez presented his
evidence. Petitioner Zenith, however, failed to present its evidence in
new of its failure to appear in court, without justifiable reason, on the
day scheduled for the purpose. The trial court issued an order on
August 23, 1984 submitting the case for decision without Zenith's
evidence (pp. 10-11, Rollo). Petitioner filed a petition for certiorari with
the Court of Appeals assailing the order of the trial court submitting
the case for decision without petitioner's evidence. The petition was
docketed as C.A.-G.R. No. 04644. However, the petition was denied due
course on April 29, 1986 (p. 56, Rollo).
On June 4, 1986, a decision was rendered by the trial court in favor of
private respondent Fernandez. The dispositive portion of the trial
court's decision provides:
"WHEREFORE, defendant is hereby ordered to pay to the plaintiff:.
1. The amount of P3,640.00 representing the damage incurred plus
interest at the rate of twice the prevailing interest rates;
2. The amount of P20,000.00 by way of moral damages;
3. The amount of P20,000.00 by way of exemplary damages;
4. The amount of P5,000.00 as attorney's fees;
5. The amount of P3,000.00 as litigation expenses; and
6. Costs." (p. 9, Rollo)
Upon motion of Fernandez and before the expiration of the period to
appeal, the trial court, on June 20, 1986, ordered the execution of the
decision pending appeal. The order was assailed by petitioner in a
petition for certiorari with the Court of Appeals on October 23, 1986 in
C.A. G.R No. 10420 but which petition was also dismissed on
December 24, 1986 (p. 69, Rollo). LLjur
On June 10, 1986, petitioner filed a notice of appeal before the trial
court. The notice of appeal was granted in the same order granting
private respondent's motion for execution pending appeal. The appeal
to respondent court assigned the following errors:
"I. The lower court erred in denying defendant appellant to adduce
evidence in its behalf.
II. The lower court erred in ordering Zenith Insurance Corporation to
pay the amount of P3,640.00 in its decision.
III. The lower court erred in awarding moral damages, attorney's fees
and exemplary damages, the worst is that, the court awarded damages
more than what are prayed for in the complaint." (p. 12, Rollo)
On August 17, 1988, the Court of Appeals rendered its decision
affirming in toto the decision of the trial court. It also ruled that the
matter of the trial court's denial of Fernandez's right to adduce
evidence is a closed matter in view of its (CA) ruling in AC-G.R. 04644
wherein Zenith's petition questioning the trial court's order submitting
the case for decision without Zenith's evidence, was dismissed.
The Motion for Reconsideration of the decision of the Court of Appeals
dated August 17, 1988 was denied on September 29, 1988, for lack of
merit. Hence, the instant petition was filed by Zenith on October 18,
1988 on the allegation that respondent Court of Appeals' decision and
resolution ran counter to applicable decisions of this Court and that
they were rendered without or in excess of jurisdiction. The issues
raised by petitioners in this petition are:
a) The legal basis of respondent Court of Appeals in awarding moral
damages, exemplary damages and attorney's fees in an amount more
than that prayed for in the complaint.
b) The award of actual damages of P3,460.00 instead of only
P1,927.50 which was arrived at after deducting P250.00 and P274.00
as deductible franchise and 20% depreciation on parts as agreed upon
in the contract of insurance.
Petitioner contends that while the complaint of private respondent
prayed for P10,000.00 moral damages, the lower court awarded twice
the amount, or P20,000.00 without factual or legal basis; while private
respondent prayed for P5,000.00 exemplary damages, the trial court
awarded P20,000.00; and while private respondent prayed for
P3,000.00 attorney's fees, the trial court awarded P5,000.00.
The propriety of the award of moral damages, exemplary damages and
attorney's fees is the main issue raised herein by petitioner.
The award of damages in case of unreasonable delay in the payment
of insurance claims is governed by the Philippine Insurance Code,
which provides:
"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 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 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."
It is clear that under the Insurance Code, in case of unreasonable delay
in the payment of the proceeds of an insurance policy, the damages
that may be awarded are: 1) attorney's fees; 2) other expenses incurred
by the insured person by reason of such unreasonable denial or
withholding of payment; 3) interest at twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the injured; and 4)
the amount of the claim.
As regards the award of moral and exemplary damages, the rules
under the Civil Code of the Philippines shall govern. prLL
"The purpose of moral damages is essentially indemnity or reparation,
not punishment or correction. Moral damages are emphatically not
intended to enrich a complainant at the expense of a defendant, they
are awarded only to enable the injured party to obtain means,
diversions or amusements that will serve to alleviate the moral
suffering he has undergone by reason of the defendant's culpable
action." (J. Cezar S. Sangco, Philippine Law on Torts and Damages,
Revised Edition, p. 539) (See also R and B Surety & Insurance Co., Inc. v.
IAC, G.R. No. 64515, June 22, 1984; 129 SCRA 745). While it is true that
no proof of pecuniary loss is necessary in order that moral damages
may be adjudicated, the assessment of which is left to the discretion
of the court according to the circumstances of each case (Art. 2216,
New Civil Code), it is equally true that in awarding moral damages in
case of breach of contract, there must be a showing that the breach
was wanton and deliberately injurious or the one responsible acted
fraudently or in bad faith (Perez v. Court of Appeals, G.R. No. L-20238,
January 30, 1965; 13 SCRA 137; Solis v. Salvador, G.R. No. L-17022,
August 14, 1965; 14 SCRA 887). In the instant case, there was a finding
that private respondent was given a "run-around" for two months,
which is the basis for the award of the damages granted under the
Insurance Code for unreasonable delay in the payment of the claim.
However, the act of petitioner of delaying payment for two months
cannot be considered as so wanton or malevolent to justify an award
of P20,000.00 as moral damages, taking into consideration also the
fact that the actual damage on the car was only P3,460. In the pre-trial
of the case, it was shown that there was no total disclaimer by
respondent. The reason for petitioner's failure to indemnify private
respondent within the two-month period was that the parties could not
come to an agreement as regards the amount of the actual damage on
the car. The amount of P10,000.00 prayed for by private respondent as
moral damages is equitable.
On the other hand, exemplary or corrective damages are imposed by
way of example or correction for the public good (Art. 2229, New Civil
Code of the Philippines). In the case of Noda v. Cruz-Arnaldo, G.R. No.
57322, June 22, 1987; 151 SCRA 227, exemplary damages were not
awarded as the insurance company had not acted in wanton,
oppressive or malevolent manner. The same is true in the case at bar.
 
The amount of P5,000.00 awarded as attorney's fees is justified under
the circumstances of this case considering that there were other
petitions filed and defended by private respondent in connection with
this case.
As regards the actual damages incurred by private respondent, the
amount of P3,640.00 had been established before the trial court and
affirmed by the appellate court. Respondent appellate court correctly
ruled that the deductions of P250.00 and P274.00 as deductible
franchise and 20% depreciation on parts, respectively claimed by
petitioners as agreed upon in the contract, had no basis. Respondent
court ruled:
"Under its second assigned error, defendant-appellant puts forward
two arguments, both of which are entirely without merit. It is contented
that the amount recoverable under the insurance policy defendant-
appellant issued over the car of plaintiff-appellee is subject to
deductible franchise, and . . .
"The policy (Exhibit G, pp. 4-9, Record), does not mention any deductible
franchise, . . ." (p. 13, Rollo)
Therefore, the award of moral damages is reduced to P10,000.00 and
the award of exemplary damages is hereby deleted. The awards due to
private respondent Fernandez are as follows: LLphil
1) P3,640.00 as actual claim plus interest of twice the ceiling
prescribed by the Monetary Board computed from the time of
submission of proof of loss;
2) P10,000.00 as moral damages;
3) P5,000.00 as attorney's fees;
4) P3,000.00 as litigation expenses and
5) Costs
ACCORDINGLY, the appealed decision is MODIFIED as above stated.
SO ORDERED.
|||  (Zenith Insurance Corp. v. Court of Appeals, G.R. No. 85296, [May 14,
1990], 263 PHIL 1120-1128)
Right of Subrogation
THIRD DIVISION
[G.R. No. 150094. August 18, 2004.]
FEDERAL EXPRESS CORPORATION,  petitioner, vs.  AMERICAN  HOME
ASSURANCE COMPANY and PHILAM INSURANCE COMPANY,
INC.,  respondents.
DECISION
PANGANIBAN,  J  p:
Basic is the requirement that before suing to recover loss of or damage
to transported goods, the plaintiff must give the carrier notice of the
loss or damage, within the period prescribed by the Warsaw
Convention and/or the airway bill.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court,
challenging the June 4, 2001 Decision 2 and the September 21, 2001
Resolution 3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The
assailed Decision disposed as follows:
“WHEREFORE, premises considered, the present appeal is hereby
DISMISSED for lack of merit. The appealed Decision of Branch 149 of
the Regional Trial Court of Makati City in Civil Case No. 95-1219,
entitled ‘American  Home Assurance Co. and PHILAM Insurance Co.,
Inc.  v.  FEDERAL  EXPRESS CORPORATION and/or CARGOHAUS, INC.
(formerly U-WAREHOUSE, INC.),’ is hereby AFFIRMED and REITERATED.
“Costs against the [petitioner and Cargohaus, Inc.].” 4
The assailed Resolution denied petitioner’s Motion for
Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as
follows:
“On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity)
of Nebraska, USA delivered to Burlington Air Express (BURLINGTON),
an agent of [Petitioner] Federal Express Corporation, a shipment of 109
cartons of veterinary biologicals for delivery to consignee SMITHKLINE
and French Overseas Company in Makati City, Metro Manila. The
shipment was covered by Burlington Airway Bill No. 11263825 with the
words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’
stamp marked on its face. That same day, Burlington insured the
cargoes in the amount of $39,339.00 with American Home Assurance
Company (AHAC). The following day, Burlington turned over the
custody of said cargoes to Federal Express which transported the
same to Manila. The first shipment, consisting of 92 cartons arrived in
Manila on January 29, 1994 in Flight No. 0071-28NRT and was
immediately stored at [Cargohaus Inc.’s] warehouse. While the second,
consisting of 17 cartons, came in two (2) days later, or on January 31,
1994, in Flight No. 0071-30NRT which was likewise immediately stored
at Cargohaus’ warehouse. Prior to the arrival of the
cargoes, Federal Express informed GETC Cargo International
Corporation, the customs broker hired by the consignee to facilitate the
release of its cargoes from the Bureau of Customs, of the impending
arrival of its client’s cargoes. CDaSAE
“On February 10, 1994, DARIO C. DIONEDA (‘DIONEDA’), twelve (12)
days after the cargoes arrived in Manila, a non-licensed custom’s
broker who was assigned by GETC to facilitate the release of the
subject cargoes, found out, while he was about to cause the release of
the said cargoes, that the same [were] stored only in a room with two
(2) air conditioners running, to cool the place instead of a refrigerator.
When he asked an employee of Cargohaus why the cargoes were
stored in the ‘cool room’ only, the latter told him that the cartons where
the vaccines were contained specifically indicated therein that it
should not be subjected to hot or cold temperature. Thereafter,
DIONEDA, upon instructions from GETC, did not proceed with the
withdrawal of the vaccines and instead, samples of the same were
taken and brought to the Bureau of Animal Industry of the Department
of Agriculture in the Philippines by SMITHKLINE for examination
wherein it was discovered that the ‘ELISA reading of vaccinates sera
are below the positive reference serum.’
“As a consequence of the foregoing result of the veterinary biologics
test, SMITHKLINE abandoned the shipment and, declaring ‘total loss’
for the unusable shipment, filed a claim with AHAC through its
representative in the Philippines, the Philam Insurance Co., Inc.
(‘PHILAM’) which recompensed SMITHKLINE for the whole insured
amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE
DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for
damages against the [petitioner] imputing negligence on either or both
of them in the handling of the cargo.
“Trial ensued and ultimately concluded on March 18, 1997 with the
[petitioner] being held solidarily liable for the loss as follows:
‘WHEREFORE, judgment is hereby rendered in favor of [respondents]
and [petitioner and its Co-Defendant Cargohaus] are directed to pay
[respondents], jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of
US$39,339.00 with interest from the time of the filing of the complaint
to the time the same is fully paid.
2. Attorney’s fees in the amount of P50,000.00 and
3. Costs of suit.
‘SO ORDERED.’
“Aggrieved, [petitioner] appealed to [the CA].” 5
Ruling of the Court of Appeals
The Test Report issued by the United States Department of Agriculture
(Animal and Plant Health Inspection Service) was found by the CA to
be inadmissible in evidence. Despite this ruling, the appellate court
held that the shipping Receipts were a prima facie proof that the goods
had indeed been delivered to the carrier in good condition. We quote
from the ruling as follows:
“Where the plaintiff introduces evidence which shows  prima facie that
the goods were delivered to the carrier in good condition [i.e., the
shipping receipts], and that the carrier delivered the goods in a
damaged condition, a presumption is raised that the damage occurred
through the fault or negligence of the carrier, and this casts upon the
carrier the burden of showing that the goods were not in good
condition when delivered to the carrier, or that the damage was
occasioned by some cause excepting the carrier from absolute liability.
This the [petitioner] failed to discharge. . . .” 6
Found devoid of merit was petitioner’s claim that respondents had no
personality to sue. This argument was supposedly not raised in the
Answer or during trial.
Hence, this Petition. 7
The Issues
In its Memorandum, petitioner raises the following issues for our
consideration:
“I.
Are the decision and resolution of the Honorable Court of Appeals
proper subject for review by the Honorable Court under Rule 45 of
the 1997 Rules of Civil Procedure?
“II.
Is the conclusion of the Honorable Court of Appeals — petitioner’s
claim that respondents have no personality to sue because the
payment was made by the respondents to Smithkline when the insured
under the policy is Burlington Air Express is devoid of merit — correct
or not?
“III.
Is the conclusion of the Honorable Court of Appeals that the goods
were received in good condition, correct or not?
“IV.
Are Exhibits ‘F’ and ‘G’ hearsay evidence, and therefore, not admissible?
“V.
Is the Honorable Court of Appeals correct in ignoring and disregarding
respondents’ own admission that petitioner is not liable? and
“VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw
Convention?” 8
Simply stated, the issues are as follows: (1) Is the Petition proper for
review by the Supreme Court? (2) Is Federal Express liable for damage
to or loss of the insured goods?
This Court’s Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals
from undisputed facts is a question of law cognizable by the Supreme
Court. 9
In the present case, the facts are undisputed. As will be shown shortly,
petitioner is questioning the conclusions drawn from such facts.
Hence, this case is a proper subject for review by this Court. CScTDE
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue —
thus, no cause of action against it — because the payment made to
Smithkline was erroneous.
Pertinent to this issue is the Certificate of Insurance 10 (“Certificate”)
that both opposing parties cite in support of their respective positions.
They differ only in their interpretation of what their rights are under its
terms. The determination of those rights involves a question of law, not
a question of fact. “As distinguished from a question of law which
exists ‘when the doubt or difference arises as to what the law is on a
certain state of facts’ — ‘there is a question of fact when the doubt or
difference arises as to the truth or the falsehood of alleged facts’; or
when the ‘query necessarily invites calibration of the whole evidence
considering mainly the credibility of witnesses, existence and relevancy
of specific surrounding circumstance, their relation to each other and
to the whole and the probabilities of the situation.’” 11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is
“payable to order . . . upon surrender of this Certificate.” Such wording
conveys the right of collecting on any such damage or loss, as fully as
if the property were covered by a special policy in the name of the
holder itself. At the back of the Certificate appears the signature of the
representative of Burlington. This document has thus been duly
indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had
the right of collecting or of being indemnified for loss of or damage to
the insured shipment, as fully as if the property were covered by a
special policy in the name of the holder. Hence, being the holder of the
Certificate and having an insurable interest in the goods, Smithkline
was the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline)
executed a subrogation Receipt 12 in favor of respondents. The latter
were thus authorized “to file claims and begin suit against any such
carrier, vessel, person, corporation or government.” Undeniably, the
consignee had a legal right to receive the goods in the same condition
it was delivered for transport to petitioner. If that right was violated, the
consignee would have a cause of action against the person
responsible therefor.
 
Upon payment to the consignee of an indemnity for the loss of or
damage to the insured goods, the insurer’s entitlement to
subrogation  pro tanto  — being of the highest equity — equips it with a
cause of action in case of a contractual breach or
negligence. 13 “Further, the insurer’s subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the
cargo is jurisprudentially upheld.” 14
In the exercise of its subrogatory right, an insurer may proceed against
an erring carrier. To all intents and purposes, it stands in the place and
in substitution of the consignee. A  fortiori, both the insurer and the
consignee are bound by the contractual stipulations under the bill of
lading. 15
Prescription of Claim
From the initial proceedings in the trial court up to the present,
petitioner has tirelessly pointed out that respondents’ claim and right
of action are already barred. The latter, and even the consignee, never
filed with the carrier any written notice or complaint regarding its claim
for damage of or loss to the subject cargo within the period required by
the Warsaw Convention and/or in the airway bill. Indeed, this fact has
never been denied by respondents and is plainly evident from the
records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner,
states:
“6. No action shall be maintained in the case of damage to or partial
loss of the shipment unless a written notice, sufficiently describing the
goods concerned, the approximate date of the damage or loss, and the
details of the claim, is presented by shipper or consignee to an office
of Burlington within (14) days from the date the goods are placed at
the disposal of the person entitled to delivery, or in the case of total
loss (including non-delivery) unless presented within (120) days from
the date of issue of the [Airway Bill].” 16
Relevantly, petitioner’s airway bill states:
“12./12.1 The person entitled to delivery must make a complaint to the
carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of
the damage and at the latest within fourteen (14) days from receipt of
the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from
the date of receipt of the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are
placed at his disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty
(120) days from the date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the
carrier whose air waybill was used, or to the first carrier or to the last
carrier or to the carrier who performed the transportation during which
the loss, damage or delay took place.” 17
Article 26 of the Warsaw Convention, on the other hand, provides:
“ART. 26.(1) Receipt by the person entitled to the delivery of baggage
or goods without complaint shall be prima facie evidence that the
same have been delivered in good condition and in accordance with
the document of transportation. aECSHI
(2) In case of damage, the person entitled to delivery must complain to
the carrier forthwith after the discovery of the damage, and, at the
latest, within 3 days from the date of receipt in the case of baggage
and 7 days from the date of receipt in the case of goods. In case of
delay the complaint must be made at the latest within 14 days from the
date on which the baggage or goods have been placed at his disposal.
(3) Every complaint must be made in writing upon the document of
transportation or by separate notice in writing dispatched within the
times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie
against the carrier, save in the case of fraud on his part.” 18
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time
limitation therefor actually constitutes a condition precedent to the
accrual of a right of action against a carrier for loss of or damage to
the goods. 19 The shipper or consignee must allege and prove the
fulfillment of the condition. If it fails to do so, no right of action against
the carrier can accrue in favor of the former. The aforementioned
requirement is a reasonable condition precedent; it does not constitute
a limitation of action. 20
The requirement of giving notice of loss of or injury to the goods is not
an empty formalism. The fundamental reasons for such a stipulation
are (1) to inform the carrier that the cargo has been damaged, and that
it is being charged with liability therefor; and (2) to give it an
opportunity to examine the nature and extent of the injury. “This
protects the carrier by affording it an opportunity to make an
investigation of a claim while the matter is fresh and easily
investigated so as to safeguard itself from false and fraudulent
claims.” 21
When an airway bill — or any contract of carriage for that matter — has
a stipulation that requires a notice of claim for loss of or damage to
goods shipped and the stipulation is not complied with, its
enforcement can be prevented and the liability cannot be imposed on
the carrier. To stress, notice is a condition precedent, and the carrier is
not liable if notice is not given in accordance with the
stipulation. 22 Failure to comply with such a stipulation bars recovery
for the loss or damage suffered. 23
Being a condition precedent, the notice must precede a suit for
enforcement. 24 In the present case, there is neither an allegation nor a
showing of respondents’ compliance with this requirement within the
prescribed period. While respondents may have had a cause of action
then, they cannot now enforce it for their failure to comply with the
aforesaid condition precedent.
In view of the foregoing, we find no more necessity to pass upon the
other issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. —
petitioner’s co-defendant in respondents’ Complaint below — has been
adjudged by the trial court as liable for, inter alia, “actual damages in
the amount of the peso equivalent of US $39,339.” 25 This judgment
was affirmed by the Court of Appeals and is already final and
executory. 26
WHEREFORE, the Petition is GRANTED, and the assailed Decision
REVERSED insofar as it pertains to Petitioner Federal Express
Corporation. No pronouncement as to costs.
SO ORDERED.
|||  (Federal Express Corp. v. American Home Assurance Company, G.R.
No. 150094, [August 18, 2004], 480 PHIL 456-469)
THIRD DIVISION
[G.R. No. 168402. August 6, 2008.]
ABOITIZ SHIPPING
CORPORATION,  petitioner, vs.  INSURANCE  COMPANY  OF NORTH
AMERICA,  respondent.
DECISION
REYES, R.T.,  J  p:
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 Decision 1 of the
Court of Appeals (CA) which reversed the Decision 2 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). cSATEH
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 lading 6 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 lading 7 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. CaASIc
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
Report 9 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. IaDSEA
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
claim 14 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. IDCScA
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 decision 17 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: CcADHI
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) SaAcHE
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. . . . CHIScD
xxx xxx xxx
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. .
. . 22
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)  ETHCDS
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. 25 Thus, 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. AHCaES
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 SAHITC
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 HCDaAS
In the case of Philippine Charter  Insurance  Corporation (PCIC)  v.
Chemoil Lighterage Corporation, 35 the 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. cHSTEA
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:
. . . 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. . . . 41 (Emphasis
added)
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.
The bill of lading issued by petitioner on July 31, 1993 contains the
notation "grounded outside warehouse", suggesting that from July 26
to 31, the goods were kept outside the warehouse. And since evidence
showed that rain fell over Manila during the same period, We can
conclude that this was when the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do
more than merely show the possibility that some 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 diligence must include safeguarding the
shipment from damage coming from natural elements such as
rainfall. aDSHCc
Aside from denying that the "grounded outside warehouse" notation
referred not to the crate for shipment but only to the carrier van,
petitioner failed to mention where exactly the goods were stored
during the period in question. It failed to show that the crate was
properly stored indoors during the time when it exercised custody
before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor
has confirmed that it was rainwater that seeped into the cargo based
on official data from the PAGASA that there was, indeed, rainfall in the
Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically
noted that the subject cargo was under the custody of appellee carrier
from the time it was delivered by the shipper on July 26, 1993 until it
was stuffed inside Container No. ACCU-213798-4 on July 31, 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 rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for
causing "wettage" to the subject goods by claiming that the notation
"GROUNDED OUTSIDE WHSE". actually refers to the container  and not
the contents thereof or the cargoes. And yet it presented no evidence to
explain where did they place or store the subject goods from the time it
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 for Cebu City on August 2, 1993. . . . If the
subject cargo was not grounded outside prior to shipment to Cebu City,
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) ATEHDc
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.
|||  (Aboitiz Shipping Corporation v. Insurance Company of North
America, G.R. No. 168402, [August 6, 2008], 583 PHIL 257-279)
EN BANC
[G.R. No. 223134. August 14, 2019.]
VICENTE G. HENSON, JR., petitioner, vs. UCPB GENERAL INSURANCE
CO., INC., respondent.
DECISION
PERLAS-BERNABE,  J  p:
Assailed in this petition for review on certiorari 1 are the
Decision 2 dated November 13, 2015 and the Resolution 3 dated
February 26, 2016 of the Court of Appeals (CA) in CA-G.R. SP. No.
138147, which affirmed the Orders dated June 10, 2014 4 and
September 22, 2014 5 of the Regional Trial Court of Makati City, Branch
138 (RTC) in Civil Case No. 10-885, ruling that the suit filed by
respondent UCPB General Insurance Co., Inc. (respondent) has yet to
prescribe, and resultantly, allowing the inclusion of petitioner Vicente
G. Henson, Jr. (petitioner) as party-defendant to the same.
The Facts
From 1989 to 1999, National Arts Studio and Color Lab 6 (NASCL)
leased the front portion of the ground floor of a two (2)-storey building
located in Sto. Rosario Street, Angeles City, Pampanga, then owned by
petitioner. 7 In 1999, NASCL gave up its initial lease and instead,
leased the right front portion of the ground floor and the entire second
floor of the said building, and made renovations with the building's
piping assembly. 8 Meanwhile, Copylandia Office Systems Corp.
(Copylandia) moved in to the ground floor. 9 On May 9, 2006, a water
leak occurred in the building and damaged Copylandia's various
equipment, causing injury to it in the amount of P2,062,640.00. 10 As
the said equipment were insured with respondent, 11 Copylandia filed
a claim with the former. Eventually, the two parties settled
on November 2, 2006 for the amount of P1,326,342.76. 12 This
resulted in respondent's subrogation to the rights of Copylandia over
all claims and demands arising from the said incident. 13 On May 20,
2010, respondent, as subrogee to Copylandia's rights, demanded
from, inter alia, NASCL for the payment of the aforesaid claim, but to no
avail. 14 Thus, it filed a complaint for damages 15 against NASCL,
among others, before the RTC, docketed as Civil Case No. 10-885. 16
Meanwhile, sometime in 2010, petitioner transferred the ownership of
the building to Citrinne Holdings, Inc. (CHI), where he is a stockholder
and the President. 17
On October 6, 2011, respondent filed an Amended Complaint (Second
Amendment), 18 impleading CHI as a party-defendant to the case, as
the new owner of the building. However, on April 21, 2014, respondent
filed a Motion to Admit Attached Amended Complaint and Pre-Trial
Brief (Third [A]mendment), 19 praying that petitioner, instead of CHI, be
impleaded as a party-defendant to the case, considering that petitioner
was then the owner of the building when the water leak damage
incident happened. 20
In the said complaints, respondent faults: (a) NASCL for its negligence
in not properly maintaining in good order the comfort room facilities
where the renovated building's piping assembly was utilized; and (b)
CHI/petitioner, as the owner of the building, for neglecting to maintain
the building's drainage system in good order and in tenantable
condition. According to respondent, such negligence on their part
directly resulted in substantial damage to Copylandia's various
equipment amounting to P2,062,640.00. 21
CHI opposed 22 the motion principally on the ground of prescription,
arguing that since respondent's cause of action is based on quasi-
delict, it must be brought within four (4) years from its accrual on May
9, 2006. As such, respondent is already barred from proceeding
against CHI/petitioner, especially since the latter never received any
prior demand from the former. 23
The RTC Ruling
In an Order 24 dated June 10, 2014, the RTC ruled in respondent's
favor and accordingly, ordered the: (a) dropping of CHI as party-
defendant; and (b) joining of petitioner as one of the party-defendants
in the case. 25
The RTC pointed out that respondent's cause of action against the
party-defendants, including petitioner, arose when it paid Copylandia's
insurance claim and became subrogated to the rights and claims of
the latter in connection with the water leak damage incident. Since
respondent was merely enforcing its right of subrogation, the
prescriptive period is ten (10) years based on an obligation created by
law reckoned from the date of Copylandia's indemnification, or on
November 2, 2006. As such, respondent's claim against petitioner has
yet to prescribe when it sought to include the latter as party-defendant
on April 21, 2014. 26
CHI moved for reconsideration, 27 which was, however, denied in an
Order 28 dated September 22, 2014. Aggrieved with his inclusion as
party-defendant to the case, petitioner filed a petition
for certiorari 29 under Rule 65 of the Rules of Court before the CA,
docketed as CA-G.R. SP. No. 138147.
The CA Ruling
In a Decision 30 dated November 13, 2015, the CA affirmed the RTC
ruling. It held that respondent's cause of action has not yet prescribed
since it was not based on quasi-delict, which must be brought within
four (4) years from the date of the occurrence of the negligent act.
Rather, it is based on an obligation created by law, which has a longer
prescriptive period of ten (10) years reckoned from its accrual. 31
Undaunted, petitioner moved for reconsideration, 32 but the same was
denied in a Resolution 33 dated February 26, 2016; hence, this petition.
The Issue before the Court
The issue for the Court's Resolution is whether or not respondent's
claim has yet to prescribe.
The Court's Ruling
In ruling that respondent's claim against petitioner has yet to prescribe,
the courts a quo cited Vector Shipping Corporation  v. American Home
Assurance Company (Vector). 34 In that case, therein petitioner Vector
Shipping Corporation (Vector) entered into a contract of affreightment
with Caltex Philippines, Inc. (Caltex) for the transport of the latter's
goods. In connection therewith, Caltex insured its goods with therein
respondent American Home Assurance Company (American Home).
During transport on December 20, 1987, Vector's ship collided with
another vessel and sank, resulting in the total loss of Caltex's goods.
On July 12, 1988, American Home fully indemnified Caltex for its loss
in the amount of P7,455,421.08, and thereafter, filed a suit
against, inter alia, Vector for the recovery of such amount on March 5,
1992. Initially, the RTC ruled that American Home's claim against
Vector has prescribed as it was based on a quasi-delict which should
have been filed within four (4) years from the time Caltex suffered a
total loss of its goods. However, the CA reversed the ruling, holding
that the claim has yet to prescribe as it is based on a breach of
Vector's contract of affreightment with Caltex, which has a longer
prescriptive period of ten (10) years, again reckoned from the time of
the loss. 35 The Court, in Vector, agreed with the CA that the claim has
yet to prescribe, but qualified that "the present action was not upon a
written contract, but upon an obligation created by law," 36 viz.:
We concur with the CA's ruling that respondent's action did not yet
prescribe. The legal provision governing this case was not Article 1146
of the Civil Code, but Article 1144 of the Civil Code, which states:
Article 1144. The following actions must be brought within ten years
from the time the cause of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
We need to clarify, however, that we cannot adopt the CA's
characterization of the cause of action as based on the contract of
affreightment between Caltex and Vector, with the breach of contract
being the failure of Vector to make the M/T Vector seaworthy, so as to
make this action come under Article 1144 (1), supra. Instead, we find
and hold that the present action was not upon a written contract, but
upon an obligation created by law. Hence, it came under Article 1144
(2) of the Civil Code. This is because the subrogation of respondent to
the rights of x x x the insured was by virtue of the express provision of
law embodied in Article 2207 of the Civil Code, to wit:
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.
The juridical situation arising under Article 2207 of the Civil Code  is
well explained in Pan Malayan Insurance Corporation  v. [CA], 37 as
follows:
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 operates 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 [Compañia Maritima  v. Insurance
Company of North America, 120 Phil. 998 (1964); Fireman's Fund
Insurance Company  v. Jamila & Company, Inc., 162 Phil. 421 (1976)].
Verily, the contract of affreightment that Caltex and Vector entered into
did not give rise to the legal obligation of Vector and Soriano to pay the
demand for reimbursement by respondent because it concerned only
the agreement for the transport of Caltex's petroleum cargo. As the
Court has aptly put it in Pan Malayan Insurance Corporation  v.
[CA], supra, respondent's right of subrogation pursuant to Article
2207, supra, was "not dependent upon, nor d[id] it grow out of, any
privity of contract or upon written assignment of claim [but] accrue[d]
simply upon payment of the insurance claim by the insurer."
Considering that the cause of action accrued as of the time respondent
actually indemnified Caltex in the amount of P7,455,421.08 on July 12,
1988, the action was not yet barred by the time of the filing of its
complaint on March 5, 1992, which was well within the 10-year period
prescribed by Article 1144 of the Civil Code. 38 (Emphases and
underscoring supplied)
In Vector, the Court held that the insured's (i.e., American Home's)
claim against the debtor (i.e., Vector) was premised on the right of
subrogation pursuant to Article 2207 of the Civil Code and hence, an
obligation created by law. While indeed American Home was entitled to
claim against Vector by virtue of its subrogation to the rights of the
insured (i.e., Caltex), the Court failed to discern that no new obligation
was created between American Home and Vector for the reason that a
subrogee only steps into the shoes of the subrogor; hence, the
subrogee-insurer only assumes the rights of the subrogor-insured
based on the latter's original obligation with the debtor.
To expound, subrogation's legal effects under Article 2207 of the Civil
Code are primarily between the subrogee-insurer and the subrogor-
insured: by virtue of the former's payment of indemnity to the latter, it
is able to acquire, by operation of law, all rights of the subrogor-insured
against the debtor. The debtor is a stranger to this juridical tie because
it only remains bound by its original obligation to its creditor whose
rights, however, have already been assumed by the subrogee.
In Vector's case, American Home was able to acquire ipso jure all the
rights Caltex had against Vector under their contract of affreightment
by virtue of its payment of indemnity. If at all, subrogation had the
effect of obliging Caltex to respect this assumption of rights in that it
must now recognize that its rights against the debtor, i.e., Vector, had
already been transferred to American Home as the subrogee-insurer. In
other words, by operation of Article 2207 of the Civil Code, Caltex
cannot deny American Home of its right to claim against Vector.
However, the subrogation of American Home to Caltex's rights did not
alter the original obligation between Caltex and Vector.
Accordingly, the Court, in Vector, erroneously concluded that "the
cause of action [against Vector] accrued as of the time [American
Home] actually indemnified Caltex in the amount of P7,455,421.08 on
July 12, 1988." 39 Instead, it is the subrogation of rights between
Caltex and American Home which arose from the time the latter paid
the indemnity therefor. Meanwhile, the accrual of the cause of action
that Caltex had against Vector did not change because, as mentioned,
no new obligation was created as between them by reason of the
subrogation of American Home. The cause of action against Vector
therefore accrued at the time it breached its original obligation with
Caltex whose right of action just so happened to have been assumed
in the interim by American Home by virtue of subrogation. "[A] right of
action is the right to presently enforce a cause of action, while a cause
of action consists of the operative facts which give rise to such right of
action." 40
The foregoing application hews more with the fundamental principles
of civil law, especially on the well-established doctrines on
subrogation. Article 1303 of the Civil Code states that "[s]ubrogation
transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third persons x x x."
In Loadstar Shipping Company, Inc.  v. Malayan Insurance Company,
Inc., 41 the Court had clearly explained that because of the nature of
subrogation as a mode of "creditor-substitution," the rights of a
subrogee cannot be superior to the rights possessed by a
subrogor, viz.:
The rights of a subrogee cannot be superior to the rights possessed
by a subrogor. "Subrogation is the substitution of one person in the
place of 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 rights to which
the subrogee succeeds are the same as, but not greater than, those of
the person for whom he is substituted, that is, he cannot acquire any
claim, security or remedy the subrogor did not have. In other words, a
subrogee cannot succeed to a right not possessed by the subrogor. A
subrogee in effect steps into the shoes of the insured and can recover
only if the insured likewise could have recovered."
Consequently, an insurer indemnifies the insured based on the loss or
injury the latter actually suffered from. If there is no loss or injury, then
there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that
indemnification is not due, or if due, the amount paid is excessive, the
insurer takes the risk of not being able to seek recompense from the
alleged wrongdoer. This is because the supposed subrogor did not
possess the right to be indemnified and therefore, no right to collect
is passed on to the subrogee. 42 (Emphases and underscoring
supplied)
Despite its error, Vector had aptly cited the case of Pan Malayan
Insurance Corporation  v. CA (Pan Malayan), 43 wherein it was
explained that subrogation, under Article 2207 of the Civil Code,
operates as a form of "equitable assignment" 44 whereby "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." 45 It is characterized as an "equitable
assignment" since it is an assignment of credit without the need of
consent — as it was, in fact, mentioned in Pan Malayan, "[t]he 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." 46 It is only to
this extent that the equity aspect of subrogation must be understood.
Indeed, subrogation under Article 2207 of the Civil Code allows the
insurer, as the new creditor who assumes ipso jure the old creditor's
rights without the need of any contract, to go after the debtor, but it
does not mean that a new obligation is created between the debtor and
the insurer. Properly speaking, the insurer, as the new creditor, remains
bound by the limitations of the old creditor's claims against the debtor,
which includes, among others, the aspect of prescription. Hence, the
debtor's right to invoke the defense of prescription cannot be
circumvented by the mere expedient of successive payments of certain
insurers that purport to create new obligations when, in fact, what
remains subsisting is only the original obligation. Verily, equity should
not be stretched to the prejudice of another.
To better understand the concept of legal subrogation under Article
2207 of the Civil Code as a form of "equitable assignment," it deserves
mentioning that there exist intricate differences between assignment
and subrogation, both in their legal and conventional senses.
In Ledonio  v. Capitol Development Corporation: 47
An assignment of credit has been defined as an agreement by virtue of
which the owner of a credit (known as the assignor), by a legal cause —
such as sale, dation in payment or exchange or donation — and without
need of the debtor's consent, transfers that credit and its accessory
rights to another (known as the assignee), who acquires the power to
enforce it, to the same extent as the assignor could have enforced it
against the debtor.
On the other hand, subrogation, by definition, is the transfer of all the
rights of the creditor to a third person, who substitutes him in all his
rights. It may either be legal or conventional. Legal subrogation is that
which takes place without agreement but by operation of law because
of certain acts. Conventional subrogation is that which takes place by
agreement of parties.
Although it may be said that the effect of the assignment of credit is to
subrogate the assignee in the rights of the original creditor, this Court
still cannot definitively rule that assignment of credit and conventional
subrogation are one and the same.
A noted authority on civil law provided a discourse on the difference
between these two transactions, to wit —
Conventional Subrogation and Assignment of Credits. — In the
Argentine Civil Code, there is essentially no difference between
conventional subrogation and assignment of credit. The subrogation is
merely the effect of the assignment. In fact[,] it is expressly provided
(Article 769) that conventional redemption shall be governed by the
provisions on assignment of credit.
Under our Code, however, conventional subrogation is not identical to
assignment of credit. In the former, the debtor's consent is necessary;
in the latter, it is not required. Subrogation extinguishes an obligation
and gives rise to a new one; assignment refers to the same right which
passes from one person to another. The nullity of an old obligation
may be cured by subrogation, such that the new obligation will be
perfectly valid; but the nullity of an obligation is not remedied by the
assignment of the creditor's right to another. x x x
This Court has consistently adhered to the foregoing distinction
between an assignment of credit and a conventional subrogation. Such
distinction is crucial because it would determine the necessity of the
debtor's consent. In an assignment of credit, the consent of the debtor
is not necessary in order that the assignment may fully produce the
legal effects. What the law requires in an assignment of credit is not
the consent of the debtor, but merely notice to him as the assignment
takes effect only from the time he has knowledge thereof. A creditor
may, therefore, validly assign his credit and its accessories without the
debtor's consent. On the other hand, conventional subrogation
requires an agreement among the parties concerned — the original
creditor, the debtor, and the new creditor. It is a new contractual
relation based on the mutual agreement among all the necessary
parties. 48 (Emphases and underscoring supplied)
As discussed above, in an assignment of credit, the consent of the
debtor is not necessary in order that the assignment may fully produce
legal effects (as notice to the debtor suffices); also, in assignment, no
new contractual relation between the assignee/new creditor and
debtor is created. On the other hand, in conventional subrogation, an
agreement between all the parties concerning the substitution of the
new creditor is necessary. Meanwhile, legal subrogation produces the
same effects as assignment and also, no new obligation is created
between the subrogee/new creditor and debtor. As observed in
commentaries on the subject:
The effect of legal subrogation is to transfer to the new creditor the
credit and all the rights and actions that could have been exercised by
the former creditor either against the debtor or against third persons,
be they guarantors or mortgagors. Simply stated, except only for the
change in the person of the creditor, the obligation subsists in all
respects as before the novation. 49 (Emphasis supplied)
Unlike assignment, however, legal subrogation, to produce effects,
does not need to be agreed upon by the subrogee and subrogor, unlike
the need of an agreement between the assignee and assignor. As
mentioned, "[l]egal subrogation is that which takes place without
agreement but by operation of law because of certain acts," 50 as in
the case of payment of the insurer under Article 2207 of the Civil Code.
In sum, as legal subrogation is not equivalent to conventional
subrogation, no new obligation is created by virtue of the insurer's
payment under Article 2207 of the Civil Code; also, as legal subrogation
is not the same as an assignment of credit (as the former is in fact,
called an "equitable assignment"), no privity of contract is needed to
produce its legal effects. Accordingly, "the insurer can take nothing by
subrogation but the rights of the insured, and is subrogated only to
such rights as the insured possesses. This principle has been
frequently expressed in the form that the rights of the insurer against
the wrongdoer cannot rise higher than the rights of the insured against
such wrongdoer, since the insurer as subrogee, in contemplation of
law, stands in the place of the insured and succeeds to whatever rights
he may have in the matter. Therefore, any defense which a wrongdoer
has against the insured is good against the insurer subrogated to the
rights of the insured," 51 and this would clearly include the defense of
prescription.
Based on the above-discussed considerations, the Court must
heretofore abandon the ruling in Vector that an insurer may file an
action against the tortfeasor within ten (10) years from the time the
insurer indemnifies the insured. Following the principles of
subrogation, the insurer only steps into the shoes of the insured and
therefore, for purposes of prescription, inherits only the remaining
period within which the insured may file an action against the
wrongdoer. To be sure, the prescriptive period of the action that the
insured may file against the wrongdoer begins at the time that the tort
was committed and the loss/injury occurred against the insured. The
indemnification of the insured by the insurer only allows it to be
subrogated to the former's rights, and does not create a new reckoning
point for the cause of action that the insured originally has against the
wrongdoer.
Be that as it may, it should, however, be clarified that this Court's
abandonment of the Vector doctrine should be prospective in
application for the reason that judicial decisions applying or
interpreting the laws or the Constitution, until reversed, shall form part
of the legal system of the Philippines. 52 Unto this Court devolves the
sole authority to interpret what the law means, and all persons are
bound to follow its interpretation. As explained in De Castro  v. Judicial
and Bar Council: 53
Judicial decisions assume the same authority as a statute itself and,
until authoritatively abandoned, necessarily become, to the extent that
they are applicable, the criteria that must control the actuations, not
only of those called upon to abide by them, but also of those duty-
bound to enforce obedience to them. 54
Hence, while the future may ultimately uncover a doctrine's error, it
should be, as a general rule, recognized as a "good law" prior to its
abandonment. 55 In Philippine International Trading Corporation  v.
Commission on Audit, 56 it was elucidated that:
It is consequently clear that a judicial interpretation becomes a part of
the law as of the date that law was originally passed, subject only to
the qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal
thereof, the new doctrine should be applied prospectively and should
not apply to parties who relied on the old doctrine and acted in good
faith. To hold otherwise would be to deprive the law of its quality of
fairness and justice then, if there is no recognition of what had
transpired prior to such adjudication. 57 (Emphasis and underscoring
supplied)
In Pesca  v. Pesca, 58 the Court further elaborated:
The "doctrine of stare decisis," ordained in Article 8 of the Civil Code,
expresses that judicial decisions applying or interpreting the law shall
form part of the legal system of the Philippines. The rule follows the
settled legal maxim — "legis interpretado legis vim obtinet" — that the
interpretation placed upon the written law by a competent court has
the force of law. The interpretation or construction placed by the
courts establishes the contemporaneous legislative intent of the law.
The [said interpretation or construction] would thus constitute a part of
that law as of the date the statute is enacted. It is only when a prior
ruling of this Court finds itself later overruled, and a different view is
adopted, that the new doctrine may have to be applied prospectively
in favor of parties who have relied on the old doctrine and have acted
in good faith in accordance therewith under the familiar rule of "lex
prospicit, non respicit." 59 (Emphasis and underscoring supplied)
With these in mind, the Court therefore sets the
following guidelines relative to the application of Vector and this
Decision vis-à-vis the prescriptive period in cases where the insurer is
subrogated to the rights of the insured against the wrongdoer  based
on a quasi-delict:
1. For actions of such nature that have already been filed and are
currently pending before the courts at the time of the finality of this
Decision, the rules on prescription prevailing at the time the action is
filed would apply. Particularly:
(a) For cases that were filed by the subrogee-insurer during the
applicability of the Vector ruling (i.e., from Vector's finality on August
15, 2013 60 up until the finality of this Decision), the prescriptive period
is ten (10) years from the time of payment by the insurer to the insured,
which gave rise to an obligation created by law.
Rationale: Since the Vector doctrine was the prevailing rule at this time,
issues of prescription must be resolved under Vector's parameters.
(b) For cases that were filed by the subrogee-insurer prior to the
applicability of the Vector ruling (i.e., before August 15, 2013), the
prescriptive period is four (4) years from the time the tort is committed
against the insured by the wrongdoer.
Rationale: The Vector doctrine, which espoused unique rules on legal
subrogation and prescription as aforedescribed, was not yet a binding
precedent at this time; hence, issues of prescription must be resolved
under the rules prevailing before Vector, which, incidentally, are the
basic principles of legal subrogation vis-à-vis prescription of actions
based on quasi-delicts.
2. For actions of such nature that have not yet been filed at the time of
the finality of this Decision:
(a) For cases where the tort was committed and the consequent
loss/injury against the insured occurred  prior to the finality of this
Decision, the subrogee-insurer is given a period not exceeding four (4)
years from the time of the finality of this Decision to file the action
against the wrongdoer; provided, that in all instances, the total period
to file such case shall not exceed ten (10) years from the time the
insurer is subrogated to the rights of the insured.
Rationale: The erroneous reckoning and running of the period of
prescription pursuant to the Vector doctrine should not be taken
against any and all persons relying thereon because the same were
based on the then-prevailing interpretation and construction of the
Court. Hence, subrogees-insurers, who are, effectively, only now
notified of the abandonment of Vector, must be given the benefit of the
present doctrine on subrogation as ruled in this Decision.
However, the benefit of the additional period (i.e., not exceeding four [4]
years) under this Decision must not result in the insured being given a
total of more than ten (10) years from the time the insurer is
subrogated to the rights of the insured (i.e., the old prescriptive period
in Vector); otherwise, the insurer would be able to unduly propagate its
right to file the case beyond the ten (10)-year period accorded
by Vector to the prejudice of the wrongdoer.
(b) For cases where the tort was committed and the consequent
loss/injury against the insured occurred only  upon or after the finality
of this Decision, the Vector doctrine would hold no application. The
prescriptive period is four (4) years from the time the tort is committed
against the insured by the wrongdoer.
Rationale: Since the cause of action for quasi-delict and the
consequent subrogation of the insurer would arise after due notice
of Vector's abandonment, all persons would now be bound by the
present doctrine on subrogation as ruled in this Decision.
Application to the Case at Bar
In this case, it is undisputed that the water leak damage incident, which
gave rise to Copylandia's cause of action against any possible
defendants, including NASCL and petitioner, happened on May 9, 2006.
As this incident gave rise to an obligation classified as a quasi-delict,
Copylandia would have only had four (4) years, or until May 9, 2010,
within which to file a suit to recover damages. 61 When Copylandia's
rights were transferred to respondent by virtue of the latter's payment
of the former's insurance claim on November 2, 2006, as evidenced by
the Loss and Subrogation Receipt, 62 respondent was likewise bound
by the same prescriptive period. Since it was only on: (a) May 20,
2010 when respondent made an extrajudicial demand to NASCL, and
thereafter, filed its complaint; (b) October 6, 2011 when respondent
amended its complaint to implead CHI as party-defendant; and
(c) April 21, 2014 when respondent moved to further amend the
complaint in order to implead petitioner as party-defendant in lieu of
CHI, prescription — if adjudged under the present parameters of legal
subrogation under this Decision — should have already set in.
However, it must be recognized that the prevailing rule applicable to
the pertinent events of this case is Vector. Pursuant to the guidelines
stated above, specifically under guideline 1 (a), the Vector doctrine —
which was even relied upon by the courts a quo — would then apply.
Hence, as the amended complaint 63 impleading petitioner was filed
on April 21, 2014, which is within ten (10) years from the time
respondent indemnified Copylandia for its injury/loss, i.e., on
November 2, 2006, the case cannot be said to have prescribed
under Vector. As such, the Court is constrained to deny the instant
petition.
WHEREFORE, the petition is DENIED. The Decision dated November 13,
2015 and the Resolution dated February 26, 2016 of the Court of
Appeals in CA-G.R. SP No. 138147 are
hereby AFFIRMED with MODIFICATION based on the guidelines stated
in this Decision.
SO ORDERED.
Carpio, Leonen, Gesmundo, J.C. Resyes, Jr., Carandang,
Inting and Zalameda, JJ., concur.
Bersamin, C.J., I dissent.
Peralta, J., I join the dissenting opinion of the C.J.
Jardeleza * and Hernando, ** JJ., took no part.
Caguioa, J., see concurring opinion.
A.B. Reyes, Jr., J., see dissenting opinion.
Lazaro-Javier, J., please see concurring opinion.
Separate Opinions
BERSAMIN, C.J., dissenting:
The majority opinion overturns the ruling in Vector Shipping
Corporation  v. American Home Assurance Company 1 wherein the
Court has held that subrogation under Article 2207 of the Civil
Code gives rise to a cause of action created by law; hence, the
applicable prescriptive period is 10 years.
I submit that the present case has not given the Court any grounds to
warrant the overturn. The dictum in Vector Shipping Corporation  v.
American Home Assurance Company remains good law in the context
of Article 2207 of the Civil Code.
Before anything more, however, a review of the antecedents is
enlightening.
National Arts Studio and Color Lab (National Arts Studio) leased for the
period from 1989 to 1999 the front portion of the ground floor of a two-
storey building then owned by Vicente G. Henson (Henson) located on
Sto. Rosario Street in Angeles City, Pampanga. 2 In 1999, National Arts
Studio leased the right front portion of the ground floor and the entire
second floor of the building, and renovated its piping assembly.
Meanwhile, Copylandia Office Systems Corporation (Copylandia)
moved to the ground floor. 3
A water leak occurred in the building on May 9, 2006 and damaged
Copylandia's various equipment to the tune of
P2,062,640.00. 4 Copylandia filed its claim for indemnity with
respondent UCPB General Insurance Co., Inc. (UCPBGen), the insurer of
its equipment. 5 On November 2, 2006, Copylandia and UCPBGen
agreed to settle for P1,326,342.76, 6 thereby subrogating UCPBGen to
the rights of Copylandia arising from the water leak incident. On May
20, 2010, UCPBGen demanded payment from National Arts Studio, but
without success. 7 Hence, UCPBGen sued National Arts Studio, among
others, for damages in the Regional Trial Court (RTC) in Makati City.
The suit, docketed as Civil Case No. 10-885, was raffled to Branch 138
of the RTC. 8
In 2010, Henson transferred the ownership of the building to Citrinne
Holdings, Inc. (CTI), wherein he was a stockholder and the President at
the same time. 9
UCPBGen amended its complaint on October 6, 2011 to implead CTI as
a party-defendant by virtue of its being the new owner of the building.
UCPBGen later changed its mind, and filed on April 21, 2014 a Motion
to Admit Attached Amended Complaint and Pre-Trial Brief praying
that Henson, instead of CTI, be impleaded as the party-defendant
considering that he was the owner of the building at the time of the
water leak incident. 10
CTI opposed the motion principally on the ground of prescription, and
contended that UCPBGen's cause of action, having arisen from quasi-
delict, must be brought within four years from its accrual on May 9,
2006. 11
On June 10, 2014, the RTC directed the dropping of CTI as a party-
defendant and the joining of Henson as one of the party-
defendants. 12 It observed that UCPBGen's cause of action against the
defendants, including Henson, arose when it paid Copylandia's
insurance claim and thereby became subrogated to the latter's rights
and claims arising from the water leak incident; that UCPBGen was
merely enforcing its right of subrogation which prescribed in 10 years
reckoned from the date of Copylandia's indemnification on November
2, 2006; and that UCPBGen's claim against Henson had yet to prescribe
on April 21, 2014 when it sought to include him as party-defendant.
On September 22, 2014, the RTC denied CTI's motion for
reconsideration. 13
On his part, Henson brought a petition for certiorari in the Court of
Appeals (CA).
On November 13, 2015, the CA rendered its decision upholding the
ruling of the RTC. 14 The CA agreed that UCPBGen's cause of action
was not based on quasi-delict, but on an obligation created by law, and,
as such, the prescriptive period was 10 years reckoned from its
accrual.
After the CA denied Henson's motion for reconsideration on February
26, 2016, 15 he appealed to the Court.
The issue for consideration is whether or not the CA correctly ruled
that UCPBGen's cause of action was based on an obligation created by
law that prescribed in 10 years. 16
The majority opinion states that —
In sum, as legal subrogation is not equivalent to conventional
subrogation, no new obligation is created by virtue of the insurer's
payment under Article 2207 of the Civil Code; also, as legal subrogation
is not the same as an assignment of credit (as the former is in fact,
called an "equitable assignment"), no privity of contract is needed to
produce its legal effects. Accordingly, "the insurer can take nothing by
subrogation but the rights of the insured, and is subrogated only to
such rights as the insured possesses. This principle has been
frequently expressed in the form that the rights of the insurer against
the wrongdoer cannot rise higher than the rights of the insured against
such wrongdoer, since the insurer as subrogee, in contemplation of
law, stands in the place of the insured and succeeds to whatever rights
he may have in the matter. Therefore, any defense which a wrongdoer
has against the insured is good against the insurer subrogated to the
rights of the insured," and this would clearly include the defense of
prescription.
Based on the above-discussed considerations, the Court must
heretofore abandon the ruling in Vector that an insurer may file an
action against the tortfeasor within ten (10) years from the time he
indemnifies the insured. Following the principles of subrogation, the
insurer only steps into the shoes of the insured and therefore, for
purposes of prescription, inherits only the remaining period within
which the insured may file an action against the wrongdoer. To be
sure, the prescriptive period of the action that the insured may file
against the wrongdoer begins at the time that the tort was committed
and the loss/injury occurred against the insured. The indemnification
of the insured by the insurer only allows it to be subrogated to the
former's rights, and does not create a new reckoning point for the
cause of action that the insured originally has against the wrongdoer.
Be that as it may, it should, however, be clarified that this Court's
abandonment of the Vector doctrine should be prospective in
application for the reason that judicial decisions applying or
interpreting the laws or the Constitution, until reversed, shall form part
of the legal system of the Philippines. 17
The majority opinion concludes that because the insurer merely
stepped into the shoes of the insured, its cause of action against the
debtor was already barred by prescription considering that the cause
of action was in the nature of a quasi-delict that was subject to the
prescriptive period of four years. 18
I DISSENT.
I submit, that the ruling on prescription in Vector Shipping
Corporation  v. American Home Assurance Company is the applicable
rule for this case.
Article 2207 of the Civil Code expressly provides:
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.
To me, the letter and intent of the law are too clear and forthright to
be ignored. Subrogation of the insurer under Article 2207 of the Civil
Code gives rise to an obligation created by law. With the clarity and
forthrightness of the legal provision on the nature of subrogation as
an obligation arising from law, the cause of action based on
subrogation prescribes in 10 years pursuant to Article 1144 (2) of
the Civil Code.
The Court pointed this out in Vector Shipping Corporation  v. American
Home Assurance Company, thusly:
The juridical situation arising under Article 2207 of the Civil Code is
well explained in Pan Malayan Insurance Corporation  v. Court of
Appeals, as follows:
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 obliged to pay. Payment by the insurer to the assured
operates 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. [Compania Maritama  v. Insurance
Company of North America, G.R. No. L-18965, October 30, 1964, 12
SCRA 213; Fireman's Fund Insurance Company  v. Jamila & Company,
Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].
Verily, the contract of affreightment that Caltex and Vector entered into
did not give rise to the legal obligation of Vector and Soriano to pay the
demand for reimbursement by respondent because it concerned only
the agreement for the transport of Caltex's petroleum cargo. As the
Court has aptly put it in Pan Malayan Insurance Corporation  v. Court of
Appeals, supra, respondent's right of subrogation pursuant to Article
2207, supra, was "not dependent upon, nor d[id] it grow out of, any
privity of contract or upon written assignment of claim [but] accrue[d]
simply upon payment of the insurance claim by the insurer." 19
In Fireman's Fund Insurance Company  v. Jamila & Company, Inc., 20 the
Court has expounded on the rule enunciated under Article 2207 of
the Civil Code, viz.:
Article 2207 is a restatement of a settled principle of American
jurisprudence. Subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even force one to
pay a debt for which an obligation was incurred but which was in whole
or in part paid by another" (83 C.J.S. 576, 578, note 16, citing Fireman's
Fund Indemnity Co.  vs. State Compensation Insurance Fund, 209 Pac.
2d 55).
"Subrogation is founded on principles of justice and equity, and its
operation is governed by principles of equity. It 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" (83 C.J.S. 579-80).
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins.
Co.  vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss,
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 (44 Am. Jur. 2nd 745, citing Standard
Marine Ins. Co.  vs. Scottish Metropolitan Assurance Co., 283 U.S. 284,
75 L. ed. 1037).
The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer (44 Am. Jur. 2d 746,
note 16, citing Newcomb  vs. Cincinnati Ins. Co., 22 Ohio St. 382).
"Although many policies including policies in the standard form, now
provide for subrogation, and thus determine the rights of the insurer in
this respect, the equitable right of subrogation as the legal effect of
payment inures to the insurer without any formal assignment or any
express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such
payment operates as an equitable assignment to the insurer of the
property and all remedies which the insured may have for the recovery
thereof. That right is not dependent upon, nor does it grow out of, any
privity of contract, or upon written assignment of claim, and payment
to the insured makes the insurer an assignee in equity (Shambley  vs.
Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456, 142 SE 2d
18). 21
There is no question that the right of subrogation is a creature of
equity, owing its origin at common law, 22 and later evolved as a
doctrine through the decision of Lord Hardwicke in Randal  v.
Cockran. 23 Lord Hardwicke pronounced in Randal  v. Cockran that:
x x x The person originally sustaining the loss was the owner; but
after satisfaction made to him, the insurer.
No doubt, but from that time, as to the goods themselves, if
restored in specie, or compensation made for them, the assured
stands as a trustee for the insurer, in proportion for what he paid. 24
As can be seen, the doctrine of subrogation essentially holds that an
insurer who has fully indemnified an insured against a loss covered by
a contract of insurance between them may ordinarily enforce, in the
insurer's own name, any right of recourse available to the insured. The
role of equity comes into play once the insurer has indemnified the
insured. Payment is the crucial event that allows the insurer to
succeed to the rights of the insured. Unless the insurer pays pursuant
to the policy, there is no loss that he has sustained and, therefore,
there arises no right of recovery. 25
Since the time of the pronouncement in Randal  v. Cockran, therefore, it
has been judicially recognized that the insurer's payment to the insured
produces the following effects, namely:
(1) The person making the payment to the third party was recognized
as having acquired at the moment of paying a right to claim a
contribution or an indemnity (as the case might be) from the principal
obligor;
(2) The acquisition of that right did not result from an express
agreement to transfer such right, which the third party had against the
principal obligor; and
(3) Both the common law courts and the courts of equity accepted that
this acquisition of rights against the principal obligor was an operation
of equity, not of the common law. 26
The automatic transfer of rights from the payor to the payee occurs at
the moment of payment, and it takes place by act of law. 27 Yet,
the ipso jure transfer of rights from the insured to the insurer does not
result to a simple case of assignment.
Under insurance law principles, assignment varies from subrogation in
both the method of creation and the results produced. 28
Subrogation arises by operation of law when the insurer pays either a
portion or the entire amount of property damages an insured individual
claims under a policy, and may exist even without a statute or
agreement that provides for it. 29 Subrogation accompanies payment,
and carries with it only the limited claim to reimbursement, arising as it
does upon payment to discharge a third person's indebtedness. 30 If
the insurer has a right to subrogation, Philippine laws — particularly
Article 2207 of the Civil Code — confer upon the insurer the status of a
real party-in-interest with regard to the indemnity paid. That the insurer
becomes the real party-in-interest after subrogation was aptly
explained in Philippine Airlines, Inc.  v. Heald Lumber
Company, 31 whereby the Court clarified that:
x x x In this jurisdiction, we have our own legal provision which in
substance differs from the American law. We refer to Article 2207 of
the New Civil Code which provides:
ART. 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.
Note that if a property is insured and the owner receives the indemnity
from the insurer, it is provided in said article 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. Evidently,
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. The
reason is obvious. The payment of the indemnity by the insurer to the
insured does not make the latter a trustee of the former as in the
American law. This matter being statutory, the same must be governed
by our own law in this jurisdiction.
This interpretation finds support in the explanatory note given by the
Code Commission in proposing the adoption of the article under
consideration. Thus, said Commission, in its report on the proposed
Civil Code of the Philippines, referring to the article in question, says:
The rule in article 2227 (Art. 2207 of the Code as enacted) about
insurance indemnity is different from the American law. Said article
provides:
ART. 2227. 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 was 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 of injury.
According to American jurisprudence, the fact that the plaintiff has been
indemnified by an insurance company cannot lessen the damages to be
paid by the defendant. Such rules give more damages than those
actually suffered by the plaintiff, and the defendant, if also sued by the
insurance company for imbursement, would have to pay in many cases
twice the damages he has caused. The proposed article would seem to
be a better adjustment of the rights of the three parties concerned.
(Report of Code Commission on the Proposed Civil Code of the
Philippines, p. 73) (Emphasis supplied)
It is insisted that despite the subrogation of the insurer to the rights of
the insured, the latter can still bring the action in its name because the
subrogation vests in the latter the character of a trustee charged with
the duty to pay to the insurer so much of the recovery as corresponds
to the amount it had received as a partial indemnity. This cannot be
true in this for before a person can sue for the benefit of another under
a trusteeship, he must be "a trustee of an express trust" (Section 3,
Rule 3, Rules of Court). Thus, under this provision, "in order that a
trustee may sue or be sued alone, it is essential that his trust should be
express, that is, a trust created by the direct and positive acts of the
parties, by some writing, deed, or will or by proceedings in court. The
provision does not apply in cases of implied trust, that is, a trust which
may be inferred merely from the acts of the parties or from other
circumstances" (Moran, Comments on the Rules of Court, Vol. 1, 1952
Ed., p. 35).
It also contended that to adopt a contrary rule to what is authorized by
the American statutes would be splitting a cause of action or
promoting multiplicity of suits which should be avoided. This
contention cannot also hold water considering that under our rules
both the insurer and the insured may join as plaintiffs to press their
claims against the wrongdoer when the same arise out of the same
transaction or event. This is authorized by Section 6, Rule 3, of the
Rules of Court. 32 x x x
In contrast, assignment is preceded by an agreement by virtue of which
the owner of a credit (known as the assignor), by a legal cause — such
as sale, dation in payment, exchange or donation — and without need
of the debtor's consent, transfers that credit and its accessory rights to
another (known as the assignee), who thereby acquires the power to
enforce it, to the same extent as the assignor could have enforced it
against the debtor. 33 Unlike the right to subrogation that arises only
upon the insurer's payment of the insured's claim, assignment of the
insured's property damage claim may take place even before the
damage occurs. 34 After the assignment of the claims of the insured,
the insurer becomes the real party-in-interest and may bring a claim in
its own name against the tortfeasor or the latter's insurer. 35
The only similarity that the doctrine of subrogation and the concept of
assignment share is that the transferee has no right independent of the
transferor. In insurance, the insurer can only enforce the rights that the
insured has; consequently, the insurer, as the person paying for the
loss, cannot assume a better right than the insured, or person being
indemnified. Yet, it must be recalled that subrogation, as an equitable
principle, is supposed to ensure that the person who actually caused
damages will eventually pay for those damages. 36 To underscore, this
allowance of subrogation has its roots in the equitable doctrine of
preventing unjust enrichment. 37
If we adhere to the majority opinion's holding that subrogation is akin
to assignment, which means that the insurer merely steps into the
shoes of the insured, then an insurance claim filed after or even near
the end of the prescriptive period to bring an action arising from
quasi-delict may possibly defeat the fundamental purpose of
subrogation as an arm of equity and justice. Moreover, the majority
opinion's submission overrides the fact that the insurer's cause of
action, or his right to recover the indemnity, only arises by reason of
the payment made by the insurer independent of any agreement with
the insured. Thus, once the insured received the payment, he is no
longer the loser because his loss has been remedied by the
insurer. 38 At that point, the insurer became the loser and his right to
recover the payment he made to the insured then arises by operation
of law.
Based on the foregoing, the dictum in Vector Shipping Corporation  v.
American Home Assurance Company, that subrogation gives rise to an
action created by operation of law, and that, consequently, the action
prescribes in 10 years reckoned from the moment of payment, is
unassailable. With UCPBGen's cause of action against Henson, which
accrued on November 2, 2006, not yet prescribed by April 21, 2014
when UCPBGen impleaded him as a party-defendant, Civil Case No. 10-
885 should be allowed to prosper against him.
ACCORDINGLY, I vote to DENY the petition for review on certiorari; and
to AFFIRM the November 13, 2015 decision and February 26, 2016
resolution of the Court of Appeals promulgated in C.A.-G.R. SP No.
138147.
CAGUIOA, J., concurring:
I concur.
Because of the occurrence of a water leak in the building that
Copylandia Office Systems Corp. (Copylandia) was leasing, its various
equipment which were insured with respondent UCPB General
Insurance Company, Inc. (UCPB Gen) were damaged on May 9, 2006.
Copylandia filed a claim in the amount of P2,062,400.00
with UCPB Gen and on November 2, 2006, the parties settled for the
amount of P1,326,342.76. More than 4 years after the damage to the
equipment had been sustained, or on May 20, 2010, UCPB Gen, as
subrogee to Copylandia's rights, made a demand on National Arts
Studio and Color Lab (NASCL) — the entity that apparently caused the
water leak — for the payment of Copylandia's claim.
Eventually, UCPB Gen filed a complaint for damages against NASCL
when UCPB Gen's demand failed.
Both the RTC and the CA held that UCPB Gen's cause of action has not
yet prescribed since the applicable prescriptive period is 10 years
based on legal subrogation which they considered to be an obligation
created by law under Article 1144 1 of the Civil Code, and not 4 years
based on quasi-delict (Article 1146). 2
I concur with the ponencia that the applicable prescriptive period is 4
years because the cause of action is based on quasi-delict. Stated
differently, the right that UCPB Gen is subrogated to is the right of
Copylandia to damages arising from the quasi-delict committed by
NASCL which resulted in the damage to its various equipment. The
obligation of NASCL arises from quasi-delict under Article 2176 of the
Civil Code and not from law. 3 Under Article 2176,
Whoever by act or omission causes damage to another, there being
fault or negligence, is obliged to pay for the damage done. Such fault
or negligence, if there is no preexisting contractual relation between
the parties, is called a quasi-delict and is governed by the provisions of
this Chapter [on Quasi-Delicts].
The corresponding obligation vis-a-vis the right created by legal
subrogation under Article 2207 must be subsumed within or under the
right that the subrogee may exercise against "the wrongdoer or the
person who has violated the contract" because the subrogee merely
steps into the shoes of the insured. Thus, the corresponding obligation
of NASCL arises from quasi-delict and not from the law creating the
right of subrogation in favor of respondent.
It is noted that the RTC and the CA relied on the ruling in Vector
Shipping Corp.  v. American Home Assurance Co. 4 (Vector) where the
Court made the following pronouncement, viz.:
We need to clarify, however, that we cannot adopt the CA's
characterization of the cause of action as based on the contract of
affreightment between Caltex and Vector, with the breach of contract
being the failure of Vector to make the M/T Vector seaworthy, as to
make this action come under Article 1144 (1), supra. Instead, we find
and hold that the present action was not upon a written contract, but
upon an obligation created by law. Hence, it came under Article 1144
(2) of the Civil Code. This is because the subrogation of respondent to
the rights of Caltex as the insured was by virtue of the express
provision of law embodied in Article 2207 of the Civil Code, to wit:
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
supplied) 5
I join the ponente that it is now opportune to revisit the Court's
interpretation of Article 2207 in Vector insofar as the obligation of "the
wrongdoer or the person who has violated the contract" to the
subrogee is concerned.
The phrase "the insurance company shall be subrogated to the rights
of the insured against the wrongdoer or the person who has violated
the contract" in the above-quoted Article 2207 means only what it
plainly states: that the insurance company merely acquires the rights
of the insured in order to have a cause of action against the wrongdoer
or the person who has violated the contract — the obligation of the
latter being by virtue of quasi-delict or breach of contract. This is the
only inference which is both legal and logical that can be derived from
the quoted portion of Article 2207. If the obligation of the wrongdoer or
the person who has violated the contract to the subrogee "arises from
law," then what defense/s can the former interpose to exculpate him or
limit his liability? I submit that the defenses which he can interpose are
the very same ones he can interpose against the original plaintiff, i.e.,
those defenses available in a quasi-delict or breach of contract case.
If his defense is based on quasi-delict, then he should be able to
interpose the defense of prescription of actions arising from quasi-
delict. Going back to Vector, the liability of Vector Shipping Corp. did
not arise because its vessel was not "seaworthy." Rather, it arose
because of its failure to safely transport the petroleum cargo of Caltex.
Seaworthiness is a defense in quasi-delict but not in a breach of
contract of carriage or affreightment. In this case, clearly there is no
privity of contract between NASCL and Copylandia.
I thus take the position that legal subrogation under Article 2207 does
not create a "second" obligation (i.e., arising from law) on the part of
the tortfeasor to the subrogee that is independent and distinct from the
former's obligation arising from quasi-delict to the subrogor (aggrieved
insured party). There is only one obligation and that is the one arising
from quasi-delict. The rights of the subrogor and the subrogee are
identical. In fact, if the subrogor files the complaint for damages
against the tortfeasor and is later substituted by the subrogee after
payment of the subrogor's insurance claim, the cause of action
remains the same because the subrogee simply steps into the shoes
of the subrogor.
The insurer's right of subrogation against third persons causing the
loss paid by the insurer to the insured arises out of the contract of
insurance and is derived from the insured alone. 6 Consequently, the
insurer can take nothing by subrogation but only the rights of the
insured. 7
This is so because the rights of the insurer against the wrongdoer
cannot rise higher than the rights of the insured against such
wrongdoer; as subrogee, the insurer, in contemplation of law, stands in
the place of the insured and succeeds to whatever rights he may have
in the matter. 8 The cause of action of the insurer against the
wrongdoer is the very cause of action of the insured against the
wrongdoer such that when the property upon which there is insurance
is damaged or destroyed by the negligence of another, the right of
action accruing to the injured party is for an indivisible wrong giving
rise to a single indivisible cause of action which abides in the insured,
through whom the insurer, upon payment of the insurance, must work
out its rights. 9 And, any defense which a wrongdoer has against the
insured is good against the insurer subrogated to the rights of the
insured, including statute of limitations. 10
The dissent relies on Fireman's Fund Insurance Company  v. Jamila &
Company, Inc. 11 (Fireman's Fund). In Fireman's Fund, properties of
Firestone Tire and Rubber Company of the Philippines (Firestone)
valued at P11,925.00 were lost allegedly due to the acts of its
employees who connived with Jamila & Co., Inc.'s (Jamila) security
guard. Fireman's Fund Insurance Company (Fireman's Fund), as
insurer, paid to Firestone the amount of the loss, and, claiming
subrogation, sued Jamila for reimbursement of what it paid to
Firestone. 12 The complaint was dismissed by the lower court because
there was no allegation that Jamila consented to the subrogation, and
as such, Fireman's Fund had no cause of action against Jamila. 13 It
is, thus, understandable, that Fireman's Fund only discussed the
general principles on the insurer's right of subrogation and did not
touch on the issue of prescription.
It is noted that Fireman's Fund relied on both Corpus Juris Secundum
(C.J.S.) and American Jurisprudence 2d (Am. Jur. 2d). The citations
from C.J.S. 14 deal with the Definition and Origin, Nature, and Purpose
of Subrogation while those from Am. Jur. 2d 15 deal with Subrogation
In General (§ 1820. Insurer's right of subrogation, generally). Also, it is
noted that Fireman's Fund cited the 1969 edition of Am. Jur. 2d. Under
the 1982 edition of Am. Jur. 2d., it is § 1794. 16
I believe that the subsequent section of C.J.S. on Operation and
Effect 17 of subrogation is what is in point in the present case.
Based on C.J.S., subrogation passes all the creditor's rights, privileges,
remedies, liens, judgments and mortgages to the subrogee, subject to
such limitations and conditions as were binding on the creditor; but the
subrogee is not entitled to any greater rights than the creditor. 18
Stated differently, a person entitled to subrogation, the subrogee, must
work through the creditor whose rights he claims. 19 The subrogee
stands in the shoes of the creditor; and he is entitled to the benefit of
all remedies of the creditor and may use all the means which the
creditor could employ to enforce payment. 20 The subrogee,
however, can enforce only such rights as the creditor could enforce
and must exercise such rights under the same conditions and
limitations as were binding on the creditor; and, hence, can be
subrogated to no greater rights than the one in whose place he is
substituted. 21 Thus, if the latter had no rights, the subrogee can have
none. 22
The right asserted by the subrogee is subject to the same infirmities
and set-offs as though its original owner were asserting it, and the
extent to which the subrogee's recovery will be diminished thereby
must be determined just as though the original owner were asserting
it. 23
As a subrogee, the insurer, cannot improve his position or augment his
right beyond that of the subrogor, the insured, merely because he sues
in his own name without bringing in the subrogor as a party. 24
Similarly, it is my position that it is § 1795 (Extent of right; dependence
upon rights of insured) 25 of Am. Jur. 2d (1982 ed.) or § 1821 (Extent
of right; dependence upon rights of insured) 26 of Am. Jur. 2d (1969
ed.) that is relevant in this case.
Based on Am. Jur. 2d (1982 ed.), the insurer's right of subrogation
against third persons causing the loss paid by the insurer to the
insured does not rest upon any relation of contract or privity between
the insurer and such third persons; but arises out of the contract of
insurance and is derived from the insured alone. 27 As a consequence,
the insurer can take nothing by subrogation but the rights of the
insured, and is subrogated to only such rights as the insured
possesses. 28
The principle that proceeds from the foregoing is that the rights of the
insurer against the wrongdoer cannot rise higher than the rights of the
insured against such wrongdoer because the insurer as subrogee, in
contemplation of law, stands in the place of the insured and succeeds
to whatever rights he may have in the matter. 29 Thus, any defense
which a wrongdoer has against the insured is good against the insurer
subrogated to the rights of the insured; and the wrongdoer may assert
a claim he has against the insured as a counterclaim against the
insurer. 30
It must be noted that the subrogation claim, being derived from the
claim of the insured, is subject to same defenses,  including statute of
limitations, as if the action had been sued upon by the insured. 31
In this respect, St. Paul Fire Marine Ins.  v. Glassing 32 (St. Paul II) is in
point. In this case, Ellen Lynn (Lynn) and Gary Glassing (Glassing) were
involved in a motor vehicle collision in Bozeman on June 12, 1985.
Lynn filed in Gallatin County District Court a personal injury action
against Glassing on November 17, 1989 and judgment was entered in
Lynn's favor in the net amount of $95,377.92. At the time of the motor
vehicle collision, St. Paul Fire Marine Insurance Company (St. Paul)
insured Lynn with a policy that provided coverage in the event that
Lynn was injured by an underinsured motorist. Allstate Insurance
Company (Allstate) insured Glassing against liability resulting from the
operation of his motor vehicle up to $50,000 only — the limit of
Glassing's liability coverage. On December 15, 1989, Lynn made a
demand for underinsured motorist benefits to her insurer, St. Paul, and
the latter paid Lynn on or about May 31, 1990 in the amount of
$51,461.16, which represented the difference between Glassing's
$50,000 policy limits and the judgment with interest to the date of St.
Paul's payment. A release was subsequently executed by Lynn in favor
of Glassing and Allstate, wherein Lynn acknowledged the receipt of
$50,000. On July 24, 1990, St. Paul initiated an action against Glassing
to recover the $51,461.16 payment, together with interest and costs it
paid to Lynn pursuant to her underinsured motorist coverage. Glassing
moved for summary judgment citing the ground that St. Paul's claim
was barred by the statute of limitations. The Eighth Judicial District
Court of Cascade County (District Court) denied Glassing's motion and
granted summary judgment in favor of St. Paul. In reversing the District
Court's order, the Supreme Court of Montana ruled:
[1] One issue raised by Glassing is dispositive of this appeal. Glassing
contends that St. Paul's suit is barred by the statute of limitations. We
agree.
In support of his argument, Glassing maintains that the same statute
of limitations applies to an action for subrogation as applies to the
injured party's claim. Because the accident occurred on June 12, 1985,
and St. Paul did not file its action for subrogation until July 24, 1990,
Glassing argues that the applicable three-year statute of limitations on
Lynn's negligence claim had expired, thus barring St. Paul's claim. See.
§ 27-2-204, MCA.
The District Court however, ruled that St. Paul's right of subrogation did
not accrue until its duty to pay was triggered by the rendering of the
excess judgment in favor of St. Paul's insured, Lynn. The court
concluded that "[p]rior to that time neither Lynn's right to underinsured
motorist benefits nor St. Paul's right to subrogation existed." In
reaching its conclusion that the statute of limitations had not expired
on St. Paul's claim, the District Court determined a distinction existed
between uninsured motorist benefits and underinsured motorist
benefits. The court concluded that "[u]nderinsured motorist benefits
are not triggered until a settlement or judgment has been rendered by
which the insured persons damages are not fully compensated."
Therefore, the court found that St. Paul's subrogation claim did not
accrue or come into existence until November 17, 1989, the date
judgment was rendered in Gallatin County. Accordingly, the court
concluded that St. Paul's suit was timely filed. However, the court did
not state what the applicable statute of limitations would be on St.
Paul's suit against Glassing. We conclude that the District Court erred
in ruling that St. Paul's claim was not time-barred for two reasons.
First, the court's conclusion that St. Paul's claim accrued on the date of
judgment ignores the basic premise of subrogation; that as a
subrogee, St. Paul has no independent claim for its damages. It is a
well established principle of subrogation law, that subrogation is "the
substitution of another person in place of the creditor, so that the
person substituted will succeed to the rights of the creditor in relation
to the debt or claim." Skauge  v. Mountain States Tel. Tel. (1977), 172
Mont. 521, 526, 565 P.2d 628, 630.
Additional subrogation principles provide:
Subrogation confers no greater rights than the subrogor had at the
time the surety became subrogated. The subrogated insurer stands in
the same position as the subrogor, for one cannot acquire by
subrogation what another, whose rights he claims, did not have.
16 Couch on Insurance 2d, § 61:36 (1983).
The right of subrogation is purely derivative as the insurer succeeds
only to the rights of the insured, and no new cause of action is created.
In other words, the concept of subrogation merely gives the insurer the
right to prosecute the cause of action which the insured possessed
against anyone legally responsible for the latter's harm. . . .
16 Couch on Insurance 2d, § 61:37 (1983).
[2] Because an insurer's claim is derived from that of the insured, its
claim is subject to the same defenses, including the statute of
limitations as though the action were sued upon by the
insured. Beedie  v. Shelly (1980), 187 Mont. 556, 561, 610 P.2d 713,
716. Accordingly, St. Paul's claim is derivative of Lynn's claim, and her
claim accrued on June 12, 1985, the date of the accident.
Second, we are cited to no authority for the proposition that the
principles of subrogation vary with the type of risk insured against. We
recognize that there are jurisdictions which have statutes extending
the limitation period for subrogation claims of insurers that have paid
damages to their insureds under uninsured or underinsured motorist
policy provisions from the date of payment made under the policy.
See, Liberty Mut. Ins. Co.  v. Fales (Cal. 1973) 505 P.2d 213. However,
Montana has no such statutory authority extending the limitation date.
Whether there should be such a statute is a matter to be determined by
the legislature.
Rather, this Court follows the general principles of subrogation which
provide:
Since the insurer's claim by subrogation is derivative from that of the
insured, it is subject to the same statute of limitations as though the
cause of action were sue[d] upon by the insured. Consequently, the
insurer's action is barred if it sued after expiration of the period
allowed for the suing out of tort claims.
16 Couch on Insurance 2d, § 61:234 (1983).
On appeal, St. Paul argues that the following statement from [St. Paul
Fire Marine Ins. Co.  v. Allstate Ins. Co. (1993 Mont. 47, 847 P.2d
705)] (St. Paul I), supports its contention that its right to subrogation
arose upon the rendering of the judgment:
St. Paul's right to subrogation arises from the judgment entered in
favor of its insured against the defendant, and that judgment is the
result of the defendant's tortious conduct within the State of
Montana. St. Paul I, 847 P.2d at 707.
We note however, that we made this statement in relation to the
jurisdiction question which was before us. We concluded that the
District Court had personal jurisdiction over Glassing because of the
tortious conduct which occurred in the State of Montana, and that the
judgment was entered as a result of this tortious conduct. Therefore,
the statement does not support St. Paul's argument that its
subrogation rights arose upon judgment.
[3, 4] It is apparent from St. Paul's argument, that St. Paul confuses the
accrual of a claim for subrogation, and the attachment of the right of
subrogation. An insurer's right to subrogation attaches, by operation of
law, upon paying an insured's loss. Skauge, 565 P.2d at 630.
Accordingly, we held in St. Paul I, that "[i]n this case, St. Paul became
substituted for its insured as a matter of law when it paid Ellen Lynn
pursuant to its insurance policy with her and is entitled to pursue her
right to collect the amount of her judgment against the defendant." St.
Paul I, 847 P.2d at 707. While St. Paul's right to subrogation arose
upon its payment to Lynn, the right to subrogation does not operate to
extend the statute of limitations.
While a subrogated insurer frequently contends that its action against
the third-party tortfeasor who allegedly, caused the damage or injury
for which the insurer had to recompense its insured did not accrue, and
the statute of limitations did not begin to run thereon, until the insurer
had made the payments required under its insurance contract, courts
have held, generally, that such a contention was without merit. . . [T]he
statute of limitations begins to run on such actions at the same time
that the statute of limitations would have begun to run on the insured's
action . . . against the third-party tortfeasor.
Annotation, "When Does Statute of Limitations Begin to Run upon
Action by Subrogated Insurer against Third-Party Tortfeasor," 91 ALR
3d 844, 850 § 3; See also, Beedie, 610 P.2d 716; Preferred Risk Mut.
Ins. Co.  v. Vargas (Ariz.App. 1988), 754 P.2d 346; Nationwide Mut. Ins.
Co.  v. State Farm (N.C.App. 1993), 426 S.E.2d 298. 33
Borrowing the words of St. Paul II, since the right of subrogation is
purely derivative, UCPB Gen's claim is derivative of Copylandia's claim;
and the latter's claim accrued on May 9, 2006, the occurrence of the
damage to its various equipment. The 4-year prescriptive period for
tort or quasi-delict began to run on UCPB Gen's action at the same time
that the same statute of limitations would have begun to run on
Copylandia's action against NASCL. Also, since the Philippines has no
statutory authority extending the limitation period for subrogation
claims of insurers that have paid damages to their insureds similar to
the State of Montana, U.S.A., and the insurer's claim is derivative from
that of the insured, the insurer's claim is subject to the same 4-year
prescriptive period applicable to quasi-delicts as though the cause of
action were sued upon by Copylandia. Consequently, the claim
of UCPB Gen, as subrogee, had prescribed on May 9, 2010. 34
To reiterate, the cause of action of the insurer against the wrongdoer is
the very cause of action of the insured against the wrongdoer such that
when the property upon which there is insurance is damaged or
destroyed by the negligence of another, the right of action accruing to
the injured party is for an indivisible wrong giving rise to a single
indivisible cause of action which abides in the insured, through whom
the insurer, upon payment of the insurance, must work out its rights. 35
Thus, American jurisprudence clearly supports the majority view. In
subrogation, the insurer literally steps into the shoes of the insured,
regardless of their size.
In Filipino Merchants Insurance Company, Inc.  v. Alejandro 36 (Filipino
Merchants) where the issue is "whether or not the one-year period
within which to file a suit against the carrier and the ship, in case of
damage or loss as provided for in the Carriage of Goods by Sea Act
[(COGSA)] applies to the insurer of the goods," 37 the Court ruled that
the coverage of the Act includes the insurer of the goods. The Court
reasoned out:
x x x Otherwise, what the Act intends to prohibit after the lapse of the
one[-]year prescriptive period can be done indirectly by the shipper or
owner of the goods by simply filing a claim against the insurer even
after the lapse of one year. This would be the result if we follow the
petitioner's argument that the insurer can, at any time, proceed against
the carrier and the ship since it is not bound by the time-bar provision.
In this situation, the one[-]year limitation will be practically useless. x x
x 38
Applying the Vector ruling, the insurer in Filipino Merchants would have
a 10-year period to be indemnified based on subrogation and not be
bound by the one-year prescriptive period under COGSA. If that is
allowed, the rights of the insurer against the wrongdoer will rise higher
than the rights of the insured against such wrongdoer and the insurer
will have greater rights than the one in whose place he is substituted.
Further, the application of the second sentence of Article 2207 would
lead to absurdity if the source of the obligation of the wrongdoer or the
person who has violated the contract to the aggrieved party is different
from the source of his obligation to the subrogee. With respect to
prescription, if the aggrieved party files the deficiency suit beyond the 4
years from the occurrence of the quasi-delict, his cause of action
would have prescribed. But with respect to the subrogee, it would not
be barred provided that the case is filed within 10 years from the
payment of the insurance claim. The subrogee's right will then become
superior to the right of the aggrieved insured party. The wrongdoer will
not be able to raise prescription as defense against the insurer which
would otherwise be available to the wrongdoer against the insured
party had there been no subrogation. This is in violation of the principle
in subrogation that any defense which a wrongdoer has against the
insured is good against the insurer subrogated to the rights of the
insured.
To recapitulate, to hold that subrogation under Article 2207 of the Civil
Code gives rise to a cause of action created by law is erroneous. There
are basic principles of subrogation that are violated.
Firstly, such ruling sanctions an unauthorized bifurcation of the
singular indivisible obligation of the wrongdoer or tortfeasor, NASCL in
this case, to both the injured party-insured, Copylandia, and the
insurer, UCPB Gen as it violates a basic principle of subrogation that
the right of action accruing to the injured party is for an indivisible
wrong giving rise to a single indivisible cause of action which abides in
the insured, through whom the insurer, upon payment of the insurance,
must work out its rights. If Copylandia's cause of action against NASCL
arises from quasi-delict and UCPB Gen's cause of action against
NASCL arises from law, then there will, in effect, be two distinct
obligations and causes of action.
Secondly, such ruling violates another basic principle of subrogation
that the rights of the insurer against the wrongdoer cannot rise higher
than the rights of the insured against such wrongdoer because the
insurer, as subrogee, in contemplation of law, stands in the place of the
insured and succeeds to whatever rights he may have in the matter.
If UCPB Gen's cause of action prescribes in 10 years while that of
Copylandia prescribes in 4 years, then the right of the insurer against
the wrongdoer will necessarily rise higher than the right of the insured
against such wrongdoer.
Thirdly, if UCPB Gen's cause of action is deemed not to have
prescribed despite the fact that Copylandia's cause of action against
NASCL had already prescribed, then still another basic principle of
subrogation is violated, i.e., the subrogation claim, being derived from
the claim of the insured is subject to same defenses, including statute
of limitations, as if the action had been sued upon by the injured.
As to the time insurance companies respond to the insurance claim as
opposed to the period wherein they run after the wrongdoer, it appears
that they respond quickly to the claim of the insured and yet they take
considerable time in going after the wrongdoer despite the relatively
early settlement of the insurance claim.
In Vector, the collision between the M/T Vector and the M/V Doña Paz
occurred in the evening of December 20, 1987 and on July 12, 1988,
the respondent insurer therein indemnified Caltex, the insured, for the
loss of the petroleum cargo in the full amount of
P7,455,421.08. 39 But, it was only on March 5, 1992 when the
respondent insurer therein filed the complaint against Vector Shipping
Corporation, et al., to recover the full amount that it paid to
Caltex. 40 The respondent insurer therein could have filed the
complaint immediately after its payment to Caltex, but it did not.
In the instant case, the water leak that caused the damage to
Copylandia's various equipment occurred on May 9, 2006 and the
settlement between the insured and the respondent insurer happened
on November 2, 2006. The demand for indemnity against the tortfeasor
was made by the respondent insurer, as the subrogee to Copylandia's
rights, on May 20, 2010. Clearly, the respondent had ample time to file
its complaint for damages against the tortfeasor within the 4-year
prescriptive period.
It is a well-known practice among insurance companies to require the
insured to file the insurance claim within a short period of time from
the occurrence of the event for which the insurance policy was
obtained subject to Section 63 of the Insurance Code, which provides
that a condition, stipulation or agreement in any policy of insurance
limiting the time for commencing an action thereunder to a period less
than one year from the time when the cause of action accrues is void.
Given the fact that it mainly depends on the insurer when it will settle
the claim of the insured, the belated settlement with the insured and
filing of the complaint against the wrongdoer should be the insurer's
look out. And, equity and justice should not be exploited to excuse the
insurer's own fault or negligence in not seasonably enforcing its rights
as the subrogee.
Based on the foregoing, the non-dismissal of the complaint based on
the 10-year prescriptive period of an action upon an obligation created
by law is fundamentally wrong because — to borrow the language of
the cited American authorities — the right of action accruing to the
injured party that is passed on to the insurer is for an indivisible wrong
giving rise to a single indivisible cause of action which abides in the
insured, through whom the insurer, upon payment of the insurance,
must work out its rights. The complaint for damages should have been
dismissed on the ground that it was not seasonably filed within the 4-
year prescriptive period under Article 1146 (2), an action upon a quasi-
delict. It must be recalled that on May 20, 2010 UCPB Gen made an
extrajudicial demand upon NASCL. Under Article 1155 of the Civil
Code, "[t]he prescription of actions is interrupted when they are filed
before the court, when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of the debt
by the debtor." However, the extrajudicial demand here could not have
interrupted the 4-year prescriptive period because the same had
already lapsed on May 9, 2010, which is 4 years from the occurrence
of the damage to the various equipment on May 9, 2006.
In view of the guidelines adopted by the Court to transition the
abandonment of the Vector ruling, I concur in denying the petition.
A.B. REYES, JR., J., dissenting:
I agree with the denial of the petition but I respectfully enter my dissent
with respect to the abandonment of the Vector 1 doctrine.
The Antecedents
The case under consideration pertains to Copylandia Office Systems
Corporation's (Copylandia) damaged equipment caused by a water
leak that occurred on May 9, 2006 in a two-storey building owned by
petitioner Vicente G. Henson, Jr. (Henson) but leased by National Arts
Studio and Color Lab (NASCL). The damaged equipment of Copylandia
was insured with respondent UCPB General Insurance Co., Inc.
(UCPB General Insurance). Consequently, Copylandia filed a claim
with UCPB General Insurance for P2,062,640.00, but the parties settled
the case for P1,326,342.76 on November 2, 2006.
After demand to pay has failed, UCPB General Insurance filed a
complaint to recover the amount it paid Copylandia initially against
NASCL, but later on impleaded Henson as the owner of the building.
The complaint was opposed mainly on the ground of prescription
arguing that UCPB General Insurance's cause of action was based
on quasi-delict; hence, must be brought within four (4) years from the
time it accrued.
Relying on Vector Shipping Corporation, et al.  v. American Home
Assurance Co., et al., 2 the Regional Trial Court and the Court of
Appeals (CA) rejected the defense of prescription and ruled
that UCPB General Insurance's cause of action was based on an
obligation created by law pursuant to Article 2207 of the Civil Code
which prescribes in ten (10) years.
Hence, the instant case for petition for review on certiorari where the
petitioner insists that the insurer's claim has already prescribed.
The ponencia submits that the CA did not err when it relied on Vector in
resolving the issue of prescription since it is the prevailing rule
applicable to the events of this case. However, the ponencia suggests
that the Vector doctrine should no longer be applied in the future based
mainly on the following justification:
In Vector, the Court held that the insure[r]'s (i.e., American Home's)
claim against the debtor (i.e., Vector) was premised on the right of
subrogation pursuant to Article 2207 of the Civil Code and hence, an
obligation created by law. While indeed American Home was entitled to
claim against Vector by virtue of its subrogation to the rights of the
insured (i.e., Caltex), the Court failed to discern that no new obligation
was created between American Home and Vector for the reason that a
subrogee only steps into the shoes of the subrogor; hence, the
subrogee-insurer only assumes the rights of the subrogor-insured
based on the latter's original obligation with the debtor.
To expound, subrogation's legal effects under Article 2207 of the Civil
Code are primarily between the subrogee-insurer and the subrogor-
insured: by virtue of the former's payment of indemnity to the latter, it
is able to acquire, by operation of law, all the rights of the subrogor-
insured against the debtor. The debtor is a stranger to this juridical tie
because it only remains bound by its original obligation to its creditor
whose rights, however, have already been assumed by the
subrogee. In Vector's case, American Home was able to acquire ipso
jure all the rights Caltex had against Vector under their contract of
affreightment by virtue of its payment of indemnity. If at all,
subrogation had the effect of obliging Caltex to respect this
assumption of rights in that it must now recognize that its rights
against the debtor, i.e., Vector, had already been transferred to
American Home as subrogee-insurer. In other words, by operation of
Article 2207 of the Civil Code, Caltex cannot deny American Home of
its right to claim against Vector. However, subrogation of American
Home to Caltex's rights did not alter the original obligation between
Caltex and Vector.
Accordingly, the Court, in Vector, erroneously concluded that "the
cause of action [against Vector] accrued as of the time [American
Home] actually indemnified Caltex in the amount of P7,455,421.08 on
July 12, 1988." Instead, it is the subrogation of rights between Caltex
and American Home which arose from the time the latter paid the
indemnity therefor. Meanwhile, the accrual of the cause of action that
Caltex had against Vector did not change because, as mentioned, no
new obligation was created as between them by reason of the
subrogation of American Home. The cause of action against Vector
therefore accrued at the time it breached its original obligation with
Caltex whose right of action just so happened to have been assumed
in the interim by American Home by virtue of subrogation. "[A] right of
action is the right to presently enforce a cause of action, while a cause
of action consists of the operative facts which gives rise to such right
of action." 3 (Emphases Ours)
As gleaned from the foregoing, the ponencia proceeds under these
premises:
(a) The insured and the insurer's cause of action is the
same, i.e., quasi-delict; the action prescribes within four (4) years from
its accrual;
(b) No new obligation is created by the subrogation; the cause of
action of the insurer accrued at the time of the original breach of the
obligation by the debtor; and
(c) The subrogation's legal effects under Article 2207 of the Civil Code
are primarily between the subrogee-insurer and the subrogor-insured.
I beg to differ.
The insured and the insurer's causes
of action arose from different sources 4
of obligation.
Article 2207 of the Civil Code reads:
Art. 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.
A reading of the said provision reveals two (2) possible situations: (1)
total legal subrogation; and (2) partial legal subrogation.
Total legal subrogation
The first sentence of Article 2207 provides that upon receipt of
indemnity by the insured, the insurer is automatically subrogated to the
rights of the insured against the wrongdoer subject to the concurrence
of the following:
(1) A property has been insured;
(2) There is a loss, injury or damage to the insured;
(3) The loss or injury was caused by or through the fault of the
wrongdoer; and
(4) The insured received indemnity from the insurance company for the
injury, loss, or damage arising out of the wrong or breach complained
of.
This contemplates legal subrogation which grows not out of privity of
contract but arises by the fact of payment. In Malayan Insurance Co.,
Inc.  v. Alberto, et al., 5 the Court explained the nature of legal
subrogation in this wise:
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.
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. 6 (Emphases Ours)
The provision is clear, legal subrogation is a right that springs from
Article 2207 of the Civil Code. The resulting obligation arising
therefrom is, therefore, created by law.
In my humble point of view, no sufficient basis was presented to
warrant the abandonment of the Vector doctrine. Article 2207 is clear
and needs no further interpretation.
Partial legal subrogation
The second sentence of Article 2207, on the other hand, provides for a
situation wherein the amount insured or indemnified is less than the
actual damage. In this case, the insured retains the right to recover the
difference from the wrongdoer based on the original obligation which
in this case is quasi-delict. Otherwise stated, the insurer will only be
subrogated to the rights of the insured only to the extent of what the
former has paid the latter. This is under the principle that "the insured
shall be fully indemnified but should never be more than fully
indemnified." 7 Legal subrogation "will not permit a windfall." 8
Proceeding from the foregoing, two (2) scenarios can be deduced.
First, before the payment of indemnity by the insurer, the insured has a
cause of action for his injury or loss based on quasi-delict.
Second, upon receipt of full indemnity by the insured from the insurer,
an equitable or legal subrogation is created ipso jure. If the amount
recovered does not fully indemnify the insured for the loss, the insurer
is partly subrogated to the rights of the insured to the extent of what
the former has paid the latter. The insured retains the right to recover
the difference from the wrongdoer under the original obligation.
In this instance, there is a concurrence of rights between insured and
insurer that arose out of the same event but constitute different
causes of action.
The insured has the right to be indemnified for the damage or loss it In both instances of legal
suffered due to the fault or negligence of the wrongdoer based subrogation, the effects of Article
on quasi-delict while the insurer has the right to be reimbursed of the 2201 of the Civil Code are primarily
amount it paid the insured based on legal subrogation. between the insurer and the debtor-
wrongdoer
To elaborate on the disparity, a cause of action is the act or omission
by which a party violates a right of another. 9 The elements of a cause The ponencia is of the opinion that the subrogation's legal effect is
of action based on Mercene  v. Government Service Insurance mainly between the insurer and the insured; the wrongdoer is a mere
System, 10 are the following: stranger to this juridical tie who remains bound to the insured by its
original obligation, one that arose from quasi-delict.
In order for cause of action to arise, the following elements must be
present: (1) a right in favor of the plaintiff by whatever means and To my mind, the more logical view is that as a legal consequence of
under whatever law it arises or is created; (2) an obligation on the part subrogation under Article 2207, a relationship primarily
of the named defendant to respect or not to violate such right; and (3) between insurer and the debtor-wrongdoer is created. Payment of
an act or omission on the part of such defendant violative of the right indemnity by the insurer to the insured produces a vinculum
of the plaintiff or constituting a breach of obligation of the defendant juris between the insurer and the debtor-wrongdoer, in that the insurer
to the plaintiff. 11 now becomes the real party-in-interest 18 in a collection case against
the debtor-wrongdoer with regard to the indemnity paid. In contrast,
In Indophil Textile Mills, Inc.  v. Engr. Adviento, 12 the Court enunciated the effect of legal subrogation between the insured and insurer, who
that a claim liability under quasi-delict requires the concurrence of the are governed by the insurance contract they entered into, is merely
following elements: (a) damages suffered by the plaintiff; (b) fault or consequential.
negligence of the defendant, or some other person for whose acts he
must respond; and (c) the connection of cause and effect between the The end of subrogation is to prevent
fault or negligence of the defendant and the damages incurred by the inequity.
plaintiff. 13
Of all the principles related to subrogation, it cannot be denied that the
Under Article 1146 14 of the Civil Code, actions upon quasi-delict must ultimate purpose for its creation is equity and "results from the natural
be instituted within four (4) years. justice of placing the burden where it ought to rest." Subrogation flows
not from any fixed rule of law, but rather born from "principles of
The case of Fireman's Fund Insurance Company  v. Maryland Casualty justice, equity and benevolence." 19 It makes sure that the
Company, et al., 15 on the other hand, provides for the essential responsibility must be on the person who should ultimately discharge
elements of an insurer's cause of action for equitable or legal the liability and not on the party who merely assumed the loss or injury.
subrogation, viz.: Subrogation operates as a device that places the burden for the loss
on the party ultimately liable or responsible for it and "to relieve entirely
(a) the insured suffered a loss for which the defendant is liable, either
the insurer who indemnified the loss and who in equity was not
as the wrongdoer whose act or omission caused the loss or because
primarily liable therefor." 20
the defendant is legally responsible to the insured for the loss caused
by the wrongdoer; Thus, Article 2207 of the Civil Code, in relation to Article 1144, should
be construed under the aforementioned context.
(b) the claimed loss was one for which the insurer was not primarily
liable; In my perspective, to conform with the ponencia is to put the insurer at
a disadvantage. This is against the very essence of legal subrogation
(c) the insurer has compensated the insured in whole or in part for the
that is to prevent unjust enrichment. 21
same loss for which the defendant is primarily liable;
The abandonment of the Vector doctrine will limit the options of the
(d) the insurer has paid the claim of its insured to protect its own
insurer, who upon payment to the insured, assumes the loss or injury
interest and not as a volunteer;
caused by or through the fault of the wrongdoer. It will restrict the right
(e) the insured has an existing, assignable cause of action against the of the insurer to recover from its assumed loss or injury by limiting the
defendant which the insured could have asserted for its own benefit period within which it could recover. This will defeat the purpose of the
had it not been compensated for its loss by the insurer; principle of legal subrogation as a creature of the "highest
equity" 22 which is "designed to promote and to accomplish justice
(f) the insurer has suffered damages caused by the act or omission and is the mode which equity adopts to compel the ultimate payment
upon which the liability of the defendant depends; of a debt by one who in justice, equity and good conscience ought to
pay." 23
(g) justice requires that the loss be entirely shifted from the insurer to
the defendant, whose equitable position is inferior to that of the Accordingly, I submit that the CA is correct in ruling that UCPB General
insurer; and Insurance's cause of action based on legal subrogation has not yet
prescribed pursuant to this Court's ruling in Vector.
(h) the insurer's damages are in a liquidated sum, generally the amount
paid to the insured. 16 THUS, I vote to DENY the petition for review on certiorari. But for the
reasons stated, I respectfully VOTE AGAINST THE ABANDONMENT of
Under this jurisdiction, as an obligation that arose by operation of law,
the Vector doctrine.
an action for legal subrogation prescribes in ten (10) years as
statutorily provided in Article 1144. 17 LAZARO-JAVIER, J., concurring:
I concur with the concise but exhaustive ponencia of my senior
colleague, Madam Justice Estela M. Perlas-Bernabe. May I just add a
few thoughts to explain why I support Justice Perlas-
Bernabe's ponencia.
As their respective names suggest, legal subrogation differs
from conventional 1 subrogation in that the former arises by operation
of law while the latter comes from the agreement between the
subrogor and the subrogee. Legal subrogation is oftentimes referred to
as an equitable assignment of credit not only to indicate its historical
origin but also its reference to circumstances (or the equities of a
case) upon which the law builds and provides for a remedy. 2
But more than what its name suggests, it is the purpose of legal
subrogation that defines the scope of its legal effects. It has been said
that legal subrogation is "an equitable principle to prevent unjust
enrichment." 3 Accordingly:
Limitations on the Right
The right of subrogation, with its origin in the Civil Law, is merely an
equitable right. It is not enforced at the expense of a legal right. In this
State the Court of Appeals in a number of cases has enunciated the
principles just stated and has refused substitution ". . . when by so
doing it will work an injury upon other persons by destroying their
legal or equitable rights. From the above, it is clear that the right of
subrogation is not granted against a superior equity or a legal right,
but that a judgment creditor has no such superior equity as entitles
him to the benefit of this principle.
It would hardly seem necessary to cite authorities for the statement
that if the creditor in connection with whose rights subrogation is
claimed has no rights thus to be equitably conveyed to the person
claiming subrogation, no right of subrogation can arise.
Subrogation being a right to which a person claiming it is substituted
by virtue of equitable principles, this right exists as to securities, which
the creditor did not have or did not know about at the time his
obligation was incurred.
Extent of the Right
This phase of the matter could probably be summarily disposed of by
saying that the equitable doctrine of subrogation when applied
accords to the subrogated person all of the rights of the creditor to
which the subrogee becomes thus entitled. . . .
In Packham  v. German Fire Insurance Company, an insurance company
had become subrogated to the rights of an insurer by paying his fire
insurance loss claims on furniture and fixtures. The rights to which the
insurance company was subrogated (of course, those of the insured)
comprised a claim against a third person tort feasor, who by a
negligent fire had destroyed or damaged the insured's furniture and
fixtures and merchandise and caused him a loss of profits. The
insurance covered the furniture and fixtures only and had nothing to,
do with the merchandise and loss of profits. The insured endeavored
to handle his claim against the tort feasor in such a way that he could
therein by settlement recover against the latter for the loss of
merchandise and loss of profits, but not for the furniture and fixtures.
In connection with this, he sued the insurance company, but the
appellate court, applying the equitable doctrine of subrogation to the
circumstances, felt that there could be no recovery, as by reason of
having disentitled himself to sue against the tort feasor for loss of
furniture and fixtures, he had thus voluntarily destroyed a right to
which his insurer was entitled under the equitable doctrine of
subrogation, and the insurer's right of recovery for his damages, being
an indivisible right, he could not recover against the fire insurance
company. 4 (emphasis added)
Legal subrogation, therefore, gives rise to an indivisible right of
recovery, that is, indivisible from the original right pertaining to the
equitable subrogor. The equitable subrogee's right cannot rise
higher than that of the equitable subrogor.
Further, equity plays a very important role in the resolution of the scope
of legal subrogation. I think it is highly iniquitous to continue adhering to
the old and now abandoned legal doctrine that the equitable subrogee's
right of recovery accrues from the time of payment to the subrogor of
the tortfeasor's liability and continues for 10 years after. This
is iniquitous when juxtaposed against the circumstances of a tortfeasor
and his or her victim where an insurer does not play a role. In the latter
case, the cause of action accrues from the time of the discovery of the
tort and only for four years after.
The intervention of an insurer who pays for the damage does not rest
upon a legitimate distinction between the former and the latter cases.
In fact, the old legal doctrine appears to be giving an unwarranted
preference to the insurer which in most if not all instances, is a big-
budgeted artificial person that has both the resources and capacity to
immediately investigate the cause of the insured's injuries, pay for the
injuries, and launch the lawsuit to recover what it has paid.
There is no reason for the insurer to have the luxury of time that others
similarly situated, i.e., those who have been injured by a tortfeasor but
without an insurer to help them by, do not have. If we are to pursue the
inequality further, an insurer can opt to pay an insured only after, for
example, seven years, and from then on, will have ten more years to
sue the tortfeasor for recovery. The insurer is thus benefitted by a
timeline that is not reasonable under the insurer's own
circumstances. This is in contrast to an uninsured victim of a tortfeasor
who would only have four years from the date of discovery of the tort
to pursue his or her claim. As well, the tortfeasor in the latter case
would have to wait only four years until the claim against him would
become stale, while in the former, he or she has to lie in wait not only
for the time that the insurer decides to pay the insured victim but for 10
years more from the time of payment by the insurer to the insured,
before the tortfeasor can claim prescription. Whether for the uninsured
victim of the tortfeasor or the tortfeasor himself or herself, there is an
inequality that is being justified only by the presence of a deep-
pocketed and legally savvy and experienced insurer.
|||  (Henson, Jr. v. UCPB General Insurance Co., Inc., G.R. No. 223134,
[August 14, 2019])
FIRST DIVISION
[G.R. No. 147839. June 8, 2006.]
GAISANO CAGAYAN,
INC.,  petitioner, vs.  INSURANCE  COMPANY  OF  NORTH
AMERICA,  respondent.
DECISION
AUSTRIA-MARTINEZ,  J  p:
Before the Court is a petition for review on certiorari of the
Decision 1 dated October 11, 2000 of the Court of Appeals (CA) in CA-
G.R. CV No. 61848 which set aside the Decision dated August 31,
1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case
No. 92-322 and upheld the causes of action for
damages of Insurance Company of North America (respondent)
against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution
dated April 11, 2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue
Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks owned by Levi Strauss &
Co.. IMC and LSPI separately obtained from respondent
fire insurance policies with book debt endorsements.
The insurance policies provide for coverage on "book debts in
connection with ready-made clothing materials which have been sold
or delivered to various customers and dealers of the Insured anywhere
in the Philippines." 2 The policies defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured 45 days
after the time of the loss covered under this Policy." 3 The policies also
provide for the following conditions:
1. Warranted that the Company shall not be liable for any unpaid
account in respect of the merchandise sold and delivered by the
Insured which are outstanding at the date of loss for a period in
excess of six (6) months from the date of the covering invoice or
actual delivery of the merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the Company within
twelve (12) days after the close of every calendar month all amount
shown in their books of accounts as unpaid and thus become
receivable item from their customers and dealers. . . . 4
xxx xxx xxx
Petitioner is a customer and dealer of the products of IMC and LSPI.
On February 25, 1991, the Gaisano Superstore Complex in Cagayan de
Oro City, owned by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-made clothing
materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages against
petitioner. It alleges that IMC and LSPI filed with respondent their
claims under their respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the unpaid
accounts of petitioner on the sale and delivery of ready-made clothing
materials with IMC was P2,119,205.00 while with LSPI it was
P535,613.00; that respondent paid the claims of IMC and LSPI and, by
virtue thereof, respondent was subrogated to their rights against
petitioner; that respondent made several demands for payment upon
petitioner but these went unheeded. 5
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property covered
by the insurance policies were destroyed due to fortuities event
or  force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since the
loss was due to fire which it could not prevent or foresee; that IMC and
LSPI never communicated to it that they insured their properties; that it
never consented to paying the claim of the insured. 6
At the pre-trial conference the parties failed to arrive at an amicable
settlement. 7 Thus, trial on the merits ensued. TADaCH
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint. 8 It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the
debtor of IMC and LSPI; that since the sales invoices state that "it is
further agreed that merely for purpose of securing the
payment of purchase price, the above-described merchandise remains
the property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear the
loss.
Dissatisfied, petitioner appealed to the CA. 9 On October 11, 2000, the
CA rendered its decision setting aside the decision of the RTC. The
dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol Marketing Corporation,
plus legal interest from the time of demand until fully paid;
2. the amount of P535,613.00 representing the amount paid by the
plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully paid.
With costs against the defendant-appellee.
SO ORDERED. 10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that
loss of the goods in the fire must be borne by petitioner since
the  proviso contained in the sales invoices is an exception under
Article 1504 (1) of the Civil Code, to the general rule that if the thing is
lost by a fortuitous event, the risk is borne by the owner of the thing at
the time the loss under the principle of res perit domino; that
petitioner's obligation to IMC and LSPI is not the delivery of the lost
goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is considered a
fortuitous event; that by subrogation, the insurer has the right to go
against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a
creditor. 11
Petitioner filed a motion for reconsideration 12 but it was denied by the
CA in its Resolution dated April 11, 2001. 13
Hence, the present petition for review on certiorari anchored on the
following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT
THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER
THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN
FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since
an insurance "on credit" belies not only the nature of fire insurance but
the express terms of the policies; that it was not credit that was
insured since respondent paid on the occasion of the loss of the
insured goods to fire and not because of the non-payment by
petitioner of any obligation; that, even if the insurance is deemed as
one over credit, there was no loss as the accounts were not yet due
since no prior demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from respondent
only after it had already paid IMC and LSPI under the
fire insurance policies. 15
As to the second error, petitioner avers that despite delivery of the
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when
they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred to
petitioner upon delivery of the goods; that petitioner was not privy to
the insurance contract or the payment between respondent and its
insured nor was its consent or approval ever secured; that this
lack of privity forecloses any real interest on the part of respondent in
the obligation to pay, limiting its interest to keeping the insured goods
safe from fire.
For its part, respondent counters that while ownership over the ready-
made clothing materials was transferred upon delivery to petitioner,
IMC and LSPI have insurable interest over said goods as creditors who
stand to suffer direct pecuniary loss from its destruction by fire; that
petitioner is liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article
1265 16 of the Civil Code; that the fire was caused through petitioner's
negligence in failing to provide stringent measures of caution, care and
maintenance on its property because electric wires do not usually
short circuit unless there are defects in their installation or when there
is lack of proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to respondent for
contracted lawyer's fees, litigation expenses and cost of suit. 17
As a general rule, in petitions for review, the jurisdiction of this Court in
cases brought before it from the CA is limited to reviewing
questions of law which involves no examination of the probative
value of the evidence presented by the litigants or any of them. 18 The
Supreme Court is not a trier of facts; it is not its function to analyze or
weigh evidence all over again. 19 Accordingly, findings of fact of the
appellate court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court, such as: (1) when
the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings the
CA went beyond the issues of the case, or its findings are contrary to
the admissions of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent;
(10) when the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a
different conclusion. 21 Exceptions (4), (5), (7), and (11) apply to the
present petition. cATDIH
At issue is the proper interpretation of the questioned insurance policy.
Petitioner claims that the CA erred in construing a fire insurance policy
on book debts as one covering the unpaid accounts of IMC and LSPI
since such insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and readily
understood, there is no room for construction. 22 In this case, the
questioned insurance policies provide coverage for "book debts in
connection with ready-made clothing materials which have been sold
or delivered to various customers and dealers of the Insured anywhere
in the Philippines." 23 ; and defined book debts as the "unpaid account
still appearing in the Book of Account of the Insured 45 days after the
time of the loss covered under this Policy." 24 Nowhere is it provided in
the questioned insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and dealers of the
insured.
Indeed, when the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any alleged intention of the
parties, the terms are to be understood literally just as they appear on
the face of the contract. 25 Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained unpaid 45
days after the loss through fire, and not the loss or destruction of the
goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices
that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is
fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article
1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
risk until the ownership therein is transferred to the buyer, but when the
ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership in
the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery;
(Emphasis supplied)
xxx xxx xxx
Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer. 27 Accordingly,
petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They have
an insurable interest until full payment of the value of the delivered
goods. Unlike the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears the risk of loss,
in property insurance, one's interest is not determined by
concept of title, but whether insured has substantial economic interest
in the property. 28
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically, under Section
14 of the same Code, an insurable interest in property may consist in:
(a) an existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily imply
a property interest in, or a lien upon, or possession of, the subject
matter of the insurance, and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is sufficient that the
insured is so situated with reference to the property that he would be
liable to loss should it be injured or destroyed by the peril against
which it is insured. 29 Anyone has an insurable interest in property who
derives a benefit from its existence or would suffer loss from its
destruction. 30 Indeed, a vendor or seller retains an insurable interest
in the property sold so long as he has any interest therein, in other
words, so long as he would suffer by its destruction, as where he has a
vendor's lien. 31 In this case, the insurable interest of IMC and LSPI
pertain to the unpaid accounts appearing in their Books of Account 45
days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a fortuitous
event under Article 1174 32 of the Civil Code is misplaced. As held
earlier, petitioner bears the loss under Article 1504 (1) of the Civil
Code.
Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI
that remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the CA,
where the obligation consists in the payment of money, the
failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability. 33 The rationale for
this is that the rule that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds true when the
obligation consists in the delivery of a determinate thing and there is
no stipulation holding him liable even in case of fortuitous event. It
does not apply when the obligation is pecuniary in nature. 34
properly identified, presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish not only the
relationship of respondent as insurer and IMC as the insured, 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. 41 Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil
Code which provides:
Art. 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. . . .
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence to prove its
cause of action. No evidentiary weight can be given to Exhibit "F Levi
Strauss", 42 a letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms the
loss of Levi's products in the amount of P535,613.00 in the fire that
razed petitioner's building on February 25, 1991.
Moreover, there is no proof of full
settlement of the insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that respondent has
been subrogated to any right which LSPI may have against petitioner.
Failure to substantiate the claim of subrogation is fatal to petitioner's
case for recovery of the amount of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed Decision
dated October 11, 2000 and Resolution dated April 11, 2001 of the
Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the
MODIFICATION that the order to pay the amount of P535,613.00 to
respondent is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a |||  (Gaisano Cagayan, Inc. v. Insurance Company of North America, G.R.
generic thing, the loss or destruction of anything of the same kind does No. 147839, [June 8, 2006], 523 PHIL 677-694)
not extinguish the obligation." If the obligation is generic in the sense
that the object thereof is designated merely by its class or genus SECOND DIVISION
without any particular designation or physical segregation from all
[G.R. No. 223592. August 7, 2017.]
others of the same class, the loss or destruction of anything of the
same kind even without the debtor's fault and before he has incurred in EQUITABLE INSURANCE
delay will not have the effect of extinguishing the obligation. 35 This CORPORATION, petitioner, vs.  TRANSMODAL  INTERNATIONAL,
rule is based on the principle that the genus of a thing can never INC., respondent.
perish. Genus nunquan perit. 36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any specific DECISION
property of the debtor. 37
PERALTA,  J  p:
Thus, whether fire is a fortuitous event or petitioner was negligent are
This is to resolve the Petition for Review on Certiorari under Rule 45 of
matters immaterial to this case. What is relevant here is whether it has
the Rules of Court, dated May 11, 2016, of
been established that petitioner has outstanding accounts with IMC
petitioner Equitable Insurance Corporation that seeks to reverse and
and LSPI. HcSETI
set aside the Decision 1 dated September 15, 2015 and
With respect to IMC, the respondent has adequately established its Resolution 2 dated March 17, 2016 of the Court of
claim. Exhibits "C" to "C-22" 38 show that petitioner has an outstanding Appeals (CA) reversing the Decision 3 dated June 18, 2013 of the
account with IMC in the amount of P2,119,205.00. Exhibit "E" 39 is the Regional Trial Court (RTC), Branch 26, Manila in a civil case for actual
check voucher evidencing payment to IMC. Exhibit "F" 40 is the damages.
subrogation receipt executed by IMC in favor of respondent upon
The facts follow.
receipt of the insurance proceeds. All these documents have been
Sytengco Enterprises Corporation (Sytengco) hired
respondent Transmodal International, Inc. (Transmodal) to clear from
the customs authorities and withdraw, transport, and deliver to its
warehouse, cargoes consisting of 200 cartons of gum Arabic with a
total weight of 5,000 kilograms valued at US21,750.00.
The said cargoes arrived in Manila on August 14, 2004 and were
brought to Ocean Links Container Terminal Center, Inc. pending their
release by the Bureau of Customs (BOC) and on September 2, 2004,
respondent Transmodal withdrew the same cargoes and delivered
them to Sytengco's warehouse. It was noted in the delivery receipt that
all the containers were wet.
In a preliminary survey conducted by Elite Adjusters and Surveyors,
Inc. (Elite Surveyors), it was found that 187 cartons had water marks
and the contents of the 13 wet cartons were partly hardened. On
October 13, 2004, a re-inspection was conducted and it was found that
the contents of the randomly opened 20 cartons were about 40% to
60% hardened, while 8 cartons had marks of previous wetting. In its
final report dated October 27, 2004, Elite Surveyor fixed the computed
loss payable at P728,712.00 after adjustment of 50% loss
allowance. TDAcCa
Thus, on November 2, 2004, Sytengco demanded from
respondent Transmodal the payment of P1,457,424.00 as
compensation for total loss of shipment. On that same date,
petitioner Equitable Insurance, as insurer of the cargoes per Marine
Open Policy No. MN-MRN-HO-000549 paid Sytengco's claim for
P728,712.00. On October 4, 2004, Sytengco then signed a subrogation
receipt and loss receipt in favor of petitioner Equitable Insurance. As
such, petitioner Equitable Insurance demanded from
respondent Transmodal reimbursement of the payment given to
Sytengco.
Thereafter, petitioner Equitable Insurance filed a complaint for
damages invoking its right as subrogee after paying Sytengco's
insurance claim and averred that respondent Transmodal's fault and
gross negligence were the causes of the damages sustained by
Sytengco's shipment. Petitioner Equitable Insurance prayed for the
payment of P728,712.00 actual damages with 6% interest from the
date of the filing of the complaint until full payment, plus attorney's
fees and cost of suit.
Respondent Transmodal denied knowledge of an insurance policy and
claimed that petitioner Equitable Insurance has no cause of action
against it because the damages to the cargoes were not due to its fault
or gross negligence. According to the same respondent, the cargoes
arrived at Sytengco's warehouse around 11:30 in the morning of
September 1, 2004, however, Sytengco did not immediately receive the
said cargoes and as a result, the cargoes got wet due to the rain that
occurred on the night of September 1, 2004.
Respondent Transmodal also questioned the timeliness of Sytengco's
formal claim for payment which was allegedly made more than 14
days from the time the cargoes were placed at its disposal in
contravention of the stipulations in the delivery receipts.
The RTC, in its Decision dated June 18, 2013, found in favor of
petitioner Equitable Insurance, thus, the following dispositive portion of
said decision:
WHEREFORE, based on the foregoing, judgment is hereby rendered in
favor of the plaintiff and against the defendant, ordering the latter to
pay the following:
(1) Actual damages in the amount of Php728,712.00 plus 6% interest
from judicial demand until full payment;
(2) Attorney's fees in the amount equivalent to 10% of the amount
claimed;
(3) Costs of suit.
SO ORDERED. 4
According to the RTC, petitioner Equitable Insurance was able to prove
by substantial evidence its right to institute an action as subrogee of
Sytengco. It also ruled that petitioner Equitable Insurance's non-
presentation of the insurance policy and non-compliance with Section
7, Rule 8 of the Rules of Court on actionable document were raised for
the first time in respondent Transmodal's memorandum and also
noted that petitioner Equitable Insurance had, in fact, submitted a copy
of the insurance contract. EDATSI
Respondent Transmodal appealed the RTC's decision to the CA. The
CA, on September 15, 2015, promulgated its decision reversing the
RTC's decision. It disposed of the appeal as follows:
WHEREFORE, the appeal is hereby GRANTED. The June 18, 2013
Decision of the Regional Trial Court, Branch 26, Manila in Civil Case No.
06-114861 is REVERSED and SET ASIDE.
Accordingly, Equitable Insurance Corp.'s complaint is DISMISSED for
failure to prove cause of action.
SO ORDERED. 5
The CA ruled that there was no proof of insurance of the cargoes at the
time of the loss and that the subrogation was improper. According to
the CA, the insurance contract was neither attached in the complaint
nor offered in evidence for the perusal and appreciation of the RTC,
and what was presented was just the marine risk note.
Hence, the present petition after the CA denied
petitioner Equitable Insurance's motion for reconsideration.
Petitioner Equitable Insurance enumerates the following assignment of
errors:
1. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING
THAT THE CASE OF MALAYAN INSURANCE CO., INC.  V. REGIS
BROKERAGE CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS NOT
APPLICABLE IN THE INSTANT CASE;
2. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING
THAT THE FACTS SURROUNDING THE CASE OF MALAYAN
INSURANCE CO., INC.  V. REGIS BROKERAGE CORP.  (G.R. NO. 172156,
NOVEMBER 23, 2007) IS DIFFERENT FROM THE FACTS ATTENDING
THE INSTANT CASE;
3. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
THE CASE OF TISON  V. COURT OF APPEALS, 276 SCRA 582;
4. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
THE CASE OF COMPAÑIA MARITIMA  V. INSURANCE COMPANY OF
NORTH AMERICA, 12 SCRA 213;
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
THE CASE OF DELSAN TRANSPORT LINES, INC.  V. COURT OF
APPEALS, 273 SCRA 262; TaDSCA
6. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING
THE STATUTORY PRESUMPTION OF FAULT AND NEGLIGENCE. 6
It is the contention of petitioner Equitable Insurance that the CA erred
in not applying certain jurisprudence on this case which it deemed
applicable. It also argues that the present case is not a suit between
the insured Sytengco and the insurer but one between the consignee
Sytengco and the respondent common carrier since
petitioner Equitable Insurance merely stepped into the shoes of the
said insured who has a direct cause of action against
respondent Transmodal on account of the damage sustained by the
subject cargo, thus, the carrier cannot set up as defense any defect in
the insurance policy because it cannot avoid its liability to the
consignee under the contract of carriage which binds it to pay any loss
or damage that may be caused to the cargo involved therein.
In its Comment 7 dated July 25, 2016, respondent Transmodal avers
that the CA did not err in not applying certain jurisprudence in the
latter's decision. Respondent Transmodal further refutes all the
assigned errors that petitioner Equitable Insurance enumerated in its
petition.
A closer look at the arguments raised in the petition would show that
petitioner is indeed asking this Court to review the factual findings of
the CA which is not within the scope of a petition for review under Rule
45 of the Rules of Court. However, this Court has recognized
exceptions to the rule that the findings of fact of the CA are conclusive
and binding in the following instances: (1) when the findings are
grounded entirely on speculation, surmises or conjectures; (2) when
the inference made is manifestly mistaken, absurd or impossible; (3)
when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the CA went beyond the
issues of the case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the findings are contrary
to the trial court; (8) when the findings are conclusions without citation
of specific evidence on which they are based; (9) when the facts set
forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by
the evidence on record; and (11) when the CA manifestly overlooked
certain relevant facts not disputed by the parties, which, if properly
considered, would justify a different conclusion. 8 Considering that the
findings of facts of the RTC and the CA are glaringly in contrast, this
Court deems it proper to review the present case. EADSIa
In ruling that petitioner's subrogation right is improper, the CA stated
that it found no proof of insurance of the cargoes at the time of their
loss. It also found that what was presented in court was the marine
risk note and not the insurance contract or policy, thus:
A perusal of the complaint and the other documentary evidence
submitted by Equitable Insurance such as the preliminary and final
report clearly shows that the claims for damages and subrogation
were based on Policy No. MN-MRN-HO-0005479. However, said
insurance contract was neither attached in the complaint nor offered in
evidence for the perusal and appreciation of the court a
quo. Instead, Equitable Insurance presented the marine risk note. For
clarity, We quote the pertinent portions of the marine risk note, viz.:
Line & Subline
MARINE CARGO
RISK NOTE
Policy No.:
MN-MRN-HO-0005479
Issue date Sep. 08, 2004
Invoice No. 59298 V
Assured: SYTENGCO ENTERPRISES CORPORATION
Address: 10 RESTHAVEN ST.
SAN FRANCISCO DEL MONTE SUBDIVISION,
QUEZON CITY, METRO MANILA
We have this day noted the undermentioned risk in your favor and
hereby guarantee that this document has all the force and effect of the
terms and conditions of EQUITABLE INSURANCE CORPORATION
Marine Policy No. MN-MOP-HO-0000099.
L/C AMOUNT: USD 21,750.00 — MARK-UP: 20%
SUM INSURED: PHP 1,457,424.00 — EXCHANGE RATE: 55.8400
CARGO: 200 CTNS. GUM ARABIC POWDER KB-120 SEDICa
Supplier: JUMBO TRADING CO., LTD.
Vessel: ASIAN ZEPHYR — VOYAGE No.: 062N
BL#: MNL04086310
ETD: 09-AUG-04 — ETA: 13-AUG-04
From: THAILAND — To: Manila, Philippines 9
As such, according to the CA, the case of Eastern Shipping Lines, Inc.  v.
Prudential Guarantee and Assurance, Inc. 10 is applicable, wherein this
Court held that a marine risk note is not an insurance policy. The CA
also found applicable this Court's ruling in Malayan Insurance Co.,
Inc.  v. Regis Brokerage Corp., 11 stating that a marine policy is
constitutive of the insurer-insured relationship, thus, such document
should have been attached to the complaint as mandated by Section
7, 12 Rule 8 of the Rules of Court.
Petitioner, however, insists that the CA erred in applying the case
of Malayan because the plaintiff therein did not present the marine
insurance policy whereas in the present case, petitioner has presented
not only the marine risk note but also Marine Open Policy No. MN-
MOP-HO-0000099 13 which were all admitted in evidence.
Indeed, a perusal of the records would show that petitioner is correct in
its claim that the marine insurance policy was offered as evidence. In
fact, in the questioned decision of the CA, the latter, mentioned such
policy, thus:
Contrary to the ruling of the RTC, the marine policy was not at all
presented. As borne by the records, only the marine risk note
and EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-
MOP-HO-0000099 were offered in evidence. These pieces of evidence
are immaterial to Equitable Insurance's cause of action. We have
earlier pointed out that a marine risk note is insufficient to prove the
insurer's claim. Although the marine risk note provided that it "has all
the force and effect of the terms and conditions
of EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-
MOP-HO-0000099," there is nothing in the records showing that the
said policy is related to Policy No. MN-MRN-HO-005479 which was the
basis of Equitable Insurance's complaint. It did not escape Our
attention that the second page of the marine risk note explicitly stated
that it was "attached to and forming part of the Policy No. MN-MRN-
005479." Thus, without the presentation of Policy No. MN-MRN-
005479, We cannot simply assume that the terms and conditions,
including the period of coverage, of such policy are similar to Marine
Policy No. MN-MOP-HO-0000099. 14 TIEHSA
As such, respondent had the opportunity to examine the said
documents or to object to its presentation as pieces of evidence. The
records also show that respondent was able to cross-examine
petitioner's witness regarding the said documents. Thus, it was well
established that petitioner has the right to step into the shoes of the
insured who has a direct cause of action against herein respondent on
account of the damages sustained by the cargoes. "Subrogation is the
substitution of one person in the place of 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." 15 The right of subrogation springs from Article 2207 of
the Civil Code which states:
Art. 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 wrong-doer 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 records further show that petitioner was able to accomplish its
obligation under the insurance policy as it has paid the assured of its
insurance claim in the amount of P728,712.00 as evidenced by, among
others, the Subrogation Receipt, 16 Loss Receipt, 17 Check
Voucher, 18 and Equitable PCI Bank Check No. 0000013925. 19 The
payment by the insurer to the insured operates as
an equitable assignment to the insurer of all the remedies which 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 or upon payment by the
insurance company of the insurance claim. It accrues simply upon
payment by the insurance company of the insurance claim. 20
This Court's ruling in Asian Terminals, Inc.  v. First Lepanto-Taisho
Insurance Corporation 21 is highly instructive, thus:
As a general rule, the marine insurance policy needs to be presented in
evidence before the insurer may recover the insured value of the
lost/damaged cargo in the exercise of its subrogatory right. In Malayan
Insurance Co., Inc.  v. Regis Brokerage Corp., the Court stated that the
presentation of the contract constitutive of the insurance relationship
between the consignee and insurer is critical because it is the legal
basis of the latter's right to subrogation. ADTEaI
In Home Insurance Corporation  v. CA, the Court also held that the
insurance contract was necessary to prove that it covered the hauling
portion of the shipment and was not limited to the transport of the
cargo while at sea. The shipment in that case passed through six
stages with different parties involved in each stage until it reached the
consignee. The insurance contract, which was not presented in
evidence, was necessary to determine the scope of the insurer's
liability, if any, since no evidence was adduced indicating at what stage
in the handling process the damage to the cargo was sustained.
An analogous disposition was arrived at in the Wallem case cited by
ATI wherein the Court held that the insurance contract must be
presented in evidence in order to determine the extent of its coverage.
It was further ruled therein that the liability of the carrier from whom
reimbursement was demanded was not established with certainty
because the alleged shortage incurred by the cargoes was not
definitively determined.
Nevertheless, the rule is not inflexible. In certain instances, the Court
has admitted exceptions by declaring that a marine insurance policy is
dispensable evidence in reimbursement claims instituted by the
insurer.
In Delsan Transport Lines, Inc.  v. CA, the Court ruled that the right of
subrogation accrues simply upon payment by the insurance company
of the insurance claim. Hence, presentation in evidence of the marine
insurance policy is not indispensable 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, was
held sufficient to establish not only the relationship between the
insurer and consignee, but also the amount paid to settle the insurance
claim. The presentation of the insurance contract was deemed not
fatal to the insurer's cause of action because the loss of the cargo
undoubtedly occurred while on board the petitioner's vessel.
The same rationale was the basis of the judgment in International
Container Terminal Services, Inc.  v. FGU Insurance Corporation, wherein
the arrastre operator was found liable for the lost shipment despite the
failure of the insurance company to offer in evidence the insurance
contract or policy. As in Delsan, it was certain that the loss of the cargo
occurred while in the petitioner's custody. 22
In view thereof, the RTC did not err in its ruling, thus:
Defendant in its memorandum, raised the issue that plaintiff failed to
attach in its complaint a copy of the Marine Open Insurance Policy,
thus, it failed to establish its cause of action as subrogee of the
consignee quoting the case of Malayan Insurance Co., Inc.  v. Regis
Brokerage Corp.
The above-mentioned case is not applicable in the instant case.
In Malayan Insurance Co.  v. Regis Brokerage, Malayan did not submit
the copy of the insurance contract or policy. In the instant case,
plaintiff submitted the copy of the insurance contract. In fact, the non-
presentation of the insurance contract is not fatal to its cause of
action.
In the more recent case of Asian Terminals, Inc.  v. Malayan Insurance
Co, Inc., it was held: acADIT
Similarly, in this case, the presentation of the insurance contract or
policy was not necessary. Although petitioner objected to the
admission of the Subrogation Receipt in its Comment to respondent's
formal offer of evidence on the ground that respondent failed to
present the insurance contract or policy, a perusal of petitioner's
Answer and Pre-trial Brief shows that petitioner never questioned
respondent's right to subrogation, nor did it dispute the coverage of the
insurance contract or policy. Since there was no issue regarding the
validity of the insurance contract or policy, or any provision thereof,
respondent had no reason to present the insurance contract or policy
as evidence during the trial.
Perusal of the records likewise show that the defendant failed to raise
the issue of non-compliance with Section 7, Rule 8 of the 1997 Rules of
Procedure and the non-presentation of insurance policy during the pre-
trial. In the same case, it was held:
Petitioner claims that respondent's non-presentation of the insurance
contract or policy between the respondent and the consignee is fatal to
its cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it
is not among the issues agreed upon by the parties to be resolved
during the pre-trial. As we have said, the determination of issues during
the pre-trial conference bars the consideration of other questions,
whether during trial or on appeal. Thus, [t]he parties must disclose
during pre-trial all issues they intend to raise during the trial, except
those involving privileged or impeaching matters, x x x The basis of the
rule is simple. Petitioners are bound by the delimitation of the issues
during the pre-trial because they themselves agreed to the same.

Plaintiff was able to prove by substantial evidence their right to

institute this action as subrogee of the insured. The defendant did not
present any evidence or witness to bolster their defense and to
contradict plaintiff's allegation. 23

To reiterate, in this case, petitioner was able to present as evidence the

marine open policy that vested upon it, its rights as a subrogee.
Subrogation 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, equity and good conscience ought to
pay. 24 DaCTcA

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of

the Rules of Court, dated May 11, 2016, of
petitioner Equitable Insurance Corporation is GRANTED. Consequently,
the Decision dated September 15, 2015 and Resolution dated March
17, 2016 of the Court of Appeals in CA-G.R. CV No. 101296
are REVERSED and SET ASIDE, and the Decision dated June 18, 2013
of the Regional Trial Court, Branch 26, Manila
is AFFIRMED and REINSTATED.

SO ORDERED.

|||  (Equitable Insurance Corp v. Transmodal International, Inc., G.R. No.

223592, [August 7, 2017], 815 PHIL 681-695)