G.R. No.

81026 April 3, 1990

PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS,
ERLINDA FABIE AND
HER UNKNOWN DRIVER, respondents.

FACTS:
On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of
Makati against private respondents Erlinda Fabie and her driver. PANMALAY averred
the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431
and registered in the name of Canlubang Automotive Resources Corporation
[CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and
imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured
car was hit and suffered damages in the amount of P42,052.00; that PANMALAY
defrayed the cost of repair of the insured car and, therefore, was subrogated to the
rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda
Fabie; and that, despite repeated demands, defendants, failed and refused to pay
the claim of PANMALAY. private respondents filed a Motion to Dismiss alleging that
PANMALAY had no cause of action against them. They argued that payment under
the "own damage" clause of the insurance policy precluded subrogation under
Article 2207 of the Civil Code, since indemnification thereunder was made on the
assumption that there was no wrongdoer or no third party at fault.

DECISION OF LOWER COURTS:

(1) Trial Court: dismissed for no cause of action PANMALAY's complaint for damages
against private respondents Erlinda Fabie and her driver
(2) CA: affirmed trial court.

ISSUE:
Whether or not the insurer PANMALAY may institute an action to recover the amount
it had paid its assured in settlement of an insurance claim against private
respondents as the parties allegedly responsible for the damage caused to the
insured vehicle.

RULING:
PANMALAY is correct.
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 that the insurer has been obligated to pay. Payment by the
insurer to the assured operates as an equitable or negligence of a third party.
CANLUBANG is apparently of the same understanding. Based on a police report
assignment to the former of all remedies that 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.
The exceptions are:
(1) if the assured by his own act releases the wrongdoer or third party liable for the
loss or damage, from liability, the insurer's right of subrogation is defeated
(2) where the insurer pays the assured the value of the lost goods without notifying
the carrier who has in good faith settled the assured's claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation
(3) where the insurer pays the assured for a loss which is not a risk covered by the
policy, thereby effecting "voluntary payment", the former has no right of
subrogation against the third party liable for the loss
None of the exceptions are availing in the present case.
Also, even if under the above circumstances PANMALAY could not be deemed
subrogated to the rights of its assured under Article 2207 of the Civil Code,
PANMALAY would still have a cause of action against private respondents. In the
pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra.,
the Court ruled that the insurer who may have no rights of subrogation due to
"voluntary" payment may nevertheless recover from the third party responsible for
the damage to the insured property under Article 1236 of the Civil Code.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner's
complaint for damages against private respondents is hereby REINSTATED. Let the
case be remanded to the lower court for trial on the merits.
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MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE
OCT 12, 1997; PADILLA, J

FACTS:
From March 6, 1970 1971, petitioner insured its Mercedes Benz 4-door
sedan w/ respondent insurance company. On May 4, 1970, vehicle was bumped and
damaged by a truck owned by San Miguel Corp (SMC).
Zenith paid P5K to petitioner in amicable settlement. Petitioners general
manager executed a Release Claim, subrogating respondent company to all its right
to action against SMC
Dec. 11, 1972 respondent co. wrote Insurance Adjusters Inc. To demand
reimbursement from SMC. Insurance Adjusters refused saying that SMC had already
paid petitioner P4,500 for the damages to petitioners vehicle, as evidenced by a
cash voucher and Release of Claim executed by the GM of petitioner discharging
SMC from all actions, claims, demands the rights of action that now exist or
hereafter develop arising out of or as a consequence of the accident
Respondent demanded the P4.5K amount from petitioner. Petitioner refused.
Suit filed for recovery.
City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed
with modification that petitioner was to pay respondent the total amount of 5K it
had received from respondent co.
Petitioners argument: Since the total damages were valued at P9,486.43 and only
5K was received by petitioner from respondent, petitioner argues that it was entitled
to go after SMC to claim the additional which was eventually paid to it
Respondents argument: No qualification to its right of subrogation

ISUE: WON petitioner should pay respondent despite the subrogation in the Release
of Claim was conditioned on recovery of the total amount of damages petitioner has
sustained?

HELD/RATIO: NO.
SC: no other evidence to support its allegation that a gentlemans agreement
existed between the parties, 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
CA correct in holding petitioner should reimburse respondent 5K
o When Manila Mahogany executed another release claim discharging SMC
from all rights of action after the insurer had paid the proceeds of the policy the
compromise agreement of 5K- the insurer is entitled to recover from the insured the
amount of insurance money paid
o Petitioner by its own acts released SMC, thereby defeating respondents right
of subrogation, the right of action against the insurer was also nullified
 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 losses 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 w/ the consent of the insurer

DISPOSITIVE: PETITION DENIED

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN
INTERNATIONAL UNDERWRITER (PHIL.) INC., petitioners, vs. STOLT-NIELSEN
PHILIPPINES, INC. and COURT OF APPEALS, respondents.

United Coconut Chemicals, Inc. (SHIPPER) shipped 404.774 metric tons of distilled
C6-C18 fatty acid on board MT "Stolt Sceptre," a tanker owned by Stolt-Nielsen
Philippines Inc. (CARRIER), from Bauan, Batangas, Philippines, consigned to "Nieuwe
Matex" at Rotterdam, Netherlands, covered by a Tanker Bill of Lading. The shipment
was insured under a marine cargo policy with Petitioner National Union Fire
Insurance Company of Pittsburg (INSURER), through its settling agent in the
Philippines, the American International Underwriters (Philippines), Inc.

It appears that the Bill of Lading issued by the CARRIER contained a general
statement of incorporation of the terms of a Charter Party between the SHIPPER and
Parcel Tankers, Inc., entered into in Greenwich, Connecticut, USA.

Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it was found to be
discolored and totally contaminated. The claim filed by the SHIPPER-ASSURED
having been denied, the INSURER indemnified the SHIPPER and thereafter
proceeded with its claim against the CARRIER.

Before the trial court, the CARRIER moved to dismiss or suspend the proceedings on
the ground that the RTC had no jurisdiction over the claim the same being an
arbitrable one. It further claimed that as subrogee of the SHIPPER-ASSURED, the
INSURER is subject to the provisions of the BIll of Lading, which includes a provision
that the shipment is carried pursuant to the terms of the Charter Party between the
SHIPPER-ASSURED and Parcel Tankers, Inc. providing for arbitrator.

The INSURER opposed the dismissal/suspension on the ground that it was not
legally bound to submit the claim for arbitration inasmuch as the arbitration clause
provided in the Charter Party was not incorporated into the Bill of Lading, and that
the it is only

RTC initially denied the Motion but subsequently reconsidered and suspended the
proceedings.

On appeal before the CA, the said court set aside the ruling of RTC and ordered the
INSURER to refer its claim for arbitration.
Hence, this petition.

ISSUE:
Whether the the terms Charter Party, particularly the provision on arbitration, are
binding on the INSURER

HELD:

Petition DENIED.

Since the right of action of the SHIPPER-ASSURED is governed by the provisions of

the Bill of Lading, which includes by reference the terms of the Charter Party,
necessarily a suit by the INSURER is subject to the same agreements

It is settled law that the charter may be made part of the contract under which the
goods are carried by an appropriate reference in the Bill of Lading. This should
include the provision on arbitration even without a specific stipulation to that effect.
The entire contract must be read together and its clauses interpreted in relation to
one another and not by parts.

As the respondent Appellate Court found, the INSURER "cannot feign ignorance of
the arbitration clause since it was already charged with notice of the existence of
the charter party due to an appropriate reference thereof in the bill of lading and, by
the exercise of ordinary diligence, it could have easily obtained a copy thereof
either from the shipper or the charterer."

We hold, therefore, that the INSURER cannot avoid the binding effect of the
arbitration clause. By subrogation, it became privy to the Charter Party as fully as
the SHIPPER before the latter was indemnified, because as subrogee, it stepped into
the shoes of the SHIPPER-ASSURED and is surrogated merely to the latter's rights. It
can recover only the amount that is recoverable by the assured. And since the right
of action of the SHIPPER-ASSURED is governed by the provisions of the Bill of
Lading, which includes by reference the terms of the Charter Party, necessarily a
suit by the INSURER is subject to the same agreements.

Arbitration, as an alternative mode of settling disputes, has long been recognized

and accepted in our jurisdiction. Republic Act No. 876 (The Arbitration Law) also
expressly authorizes arbitration of domestic disputes. Foreign arbitration is a system
of settling commercial disputes of an international character was likewise
recognized when the Philippines adhered to the United Nations "Convention on the
Recognition and the Enforcement of Foreign Arbitral Awards of 1958" under the
Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and
allowing enforcement of international arbitration agreements between parties of
different nationalities within a contracting state.
It has not been shown that the arbitral clause in question is null and void,
inoperative, or incapable of being performed. Nor has any conflict been pointed out
between the Charter Party and the Bill of Lading.

In fine, referral to arbitration in New York pursuant to the arbitration clause, and the
suspension of the proceedings, pending the return of the arbitral award, is indeed
called for.

D. Subrogation
Article 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the injury or loss.
Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor. He can
recover only insofar as the payment has been beneficial to the debtor.
Fireman v Jamila
April 7, 1976
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER
COMPANY OF THE PHILIPPINES
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC
AQUINO, J.:
SUMMARY: Jamila supplies security guards to Firestone and assumes their
responsibility. When some properties of Firestone were lost due to connivance of
some security guards, Firemans Fund as insurer paid Firestone the value of such
and is now subrogated to Firestones right to reimbursement. They filed complaint
to recover money when Jamila failed to pay. CFI dismissed complaint as to Jamila
citing that there is no cause of action as the latter did not consent to subrogation
and there are no allegations in the complaint that Firestone investigated the loss.
Subsequent MRs, F&F argue that their cause of action is on the basis of legal
subrogation. SC: There was cause of action on the part of Firemans Fund pursuant
to Art. 2207. Payment by the assurer to the assured operates as an equitable
assignment to the assurer of all the remedies which the assured may have against
the third party whose negligence or wrongful act caused the loss.
DOCTRINE: Loss or injury for risk must be covered by the policy Under Article
2207, the cause of the loss or injury must be a risk covered by the policy to entitle
the insurer to the subrogation. Thus, where the insurer pays the insured for a loss
which is not a risk covered by the policy, thereby effecting voluntary payment, the
insurer has no right of subrogation against the third party liable for the loss.
Nevertheless, the insurer may recover from the third party responsible for the
damage to the insured property under Article 1236 of the Civil Code.
FACTS:
Jamila or the Veterans Philippine Scouts Security Agency contracted to supply
security guards to Firestone. Jamila assumed responsibility for the acts of its
security guards
First Quezon City Insurance Co., Inc. executed a bond in the sum of P20k to
guarantee Jamila's obligations under that contract
May 18, 1963: Properties of Firestone valued at P11,925 were lost allegedly
due to the acts of its employees who connived with Jamila's security guard
 Fireman's Fund, as insurer, paid to Firestone the amount of the loss and is
now subrogated to Firestone's right to get reimbursement from Jamila
Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the
amount of the loss in spite of repeated demands.
Fireman's Fund and Firestone Tire and Rubber Co instituted this complaint
against Jamila for the recovery of the sum of P11,925.00 plus interest, damages and
attorney's fees
Jamila moved to dismiss the complaint on the ground of lack of cause of
action
o (1) complaint did not allege that Firestone, pursuant to the contractual
stipulation quoted in the complaint, had investigated the loss and that Jamila was
represented in the investigation and
o (2) Jamila did not consent to the subrogation of Fireman's Fund to Firestone's
right to get reimbursement from Jamila and its surety.
CFI: Dismissed the complaint as to Jamila on the second ground that there
was no allegation that it had consented to the subrogation and, therefore, Fireman's
Fund had no cause of action against it.
o Also dismissed the complaint as to First Quezon City Insurance Co., Inc. on
the ground of res judicata as the same action was previously filed in a civil case
which was dismissed because of the failure of the same plaintiffs and their counsel
to appear at the pre trial.
Firestone and Fireman's Fund filed MR
CFI on F&Fs MR: Set aside its order of dismissal. No res judicata as to First
Quezon City Insurance Co., Inc. because civil case was dismissed without prejudice
o However, due to inadvertence, the lower court did not state in its order of
September 3, 1966 why it set aside its prior order dismissing the complaint with
respect to Jamila.
First Quezon City Insurance Co., Inc. filed its answer to the complaint.
Jamila, upon noticing that the order had obliterated its victory without any
reason therefor, filed MR reconsideration
o Invoked the first ground in its original motion to dismiss which had never
been passed upon by the lower court that complaint did not allege that Firestone,
pursuant to the contractual stipulation quoted in the complaint, had investigated
the loss and that Jamila was represented in the investigation
CFI on Jamilas MR: Granted Jamila's MR. However, it completely ignored the
1st ground but reverted to the second ground (no consent to subrogation thus no
cause of action).
o It did not mention Firestone, the co-plaintiff of Fireman's Fund.
Firestone and Fireman's Fund filed MR on the ground that Fireman's Fund
Insurance Company was suing on the basis of legal subrogation whereas CFI
erroneously predicated its dismissal order on the theory that there was no
conventional subrogation because the debtor's consent was lacking.
o Cited NCC 2207 which provides that "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".
 CFI on F&F MR: Denied motion.
F&F filed 2nd MR and called CFI's attention to the fact that the issue of
subrogation was of no moment because Firestone, the subrogor (??), is a party-
plaintiff and could sue directly Jamila in its own right.
CFI on F&FS 2nd MR: Denied 2nd MR without resolving contention
Appeal to SC
F&F: CFIs dismissal of their complaint is contrary to Article 2207 which
provides for legal subrogation.
JAMILA: Legal subrogation under Art. 2207 requires the debtor's consent
o Legal subrogation takes place in the cases mentioned in NCC 1302 and the
instant case is not among the 3 cases enumerated in that article
o There could be no subrogation in this case because according to F&F, the
contract between Jamila and Firestone was entered into on June 1, 1965 but the loss
complained of occurred on May 18, 1963.
ISSUES:
1) Whether the complaint of Firestone as subrogor (???) states a cause of action
against Jamila? (Not really)
2) Whether the complaint of Fireman's Fund as subrogee states a cause of action
against Jamila? (YES)
3) Whether Jamila should reimburse Firemans Fund? (Not decided here)
HELD: CFI Decision's order of dismissal is legally untenable so SET ASIDE with costs
against Jamila & Co., Inc.

RATIO:
[F&Fs counsel gratuitously alleged in their brief that Firestone and Jamila entered
into a "contract of guard services" on June 1, 65. That allegationwas uncalled for
because it is not found in the complaint and so created confusion which did not
exist. No copy of the contract was annexed to the complaint. That confusing
statement was an obvious error since it was expressly alleged in the complaint that
the loss occurred on May 18, 63. The fact that such an error was committed is
another instance substantiating the observation that F&F's counsel had not
exercised due care in the presentation of his case.]

1) Firestone is really a nominal party in this case as it had already been indemnified
for the loss which it had sustained. It joined as a party-plaintiff in order to help
Fireman's Fund to recover the amount of the loss from Jamila and First Quezon City
Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its cause of
action against Jamila for breach of contract. Sufficient ultimate facts are alleged in
the complaint to sustain that cause of action.

2) Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As

the insurer, Fireman's Fund is entitled to go after the person or entity that violated
its contractual commitment to answer for the loss insured against (PAL vs. Heald
Lumber Co).
CFI erred in applying to this case the rules on novation. F&F in alleging in
their complaint that Fireman's Fund "became a party in interest in this case by
virtue of a subrogation right given in its favor by" Firestone, were not relying on the
novation by change of creditors as contemplated in NCC 1291 and 1300 to 1303 but
rather on NCC 2207.
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).
"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). 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).
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).
"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 v. Jobe-Blackley Plumbing and Heating Co).

3) Whether the plaintiffs would be able to prove their cause of action against Jamila
is another question.