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G.R. No.

L-5921 March 29, 1954

SALVACION B. LONDRES, plaintiff-appellee,


vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, defendant-appellant.

Vicente M. Custodio for appellee.


E. V. Filamor for appellant.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Manila ordering defendant to pay
to plaintiff the sum of P3,000, Philippine currency, plus legal interest thereon from the time of the
filing of the complaint until its full payment.

On April 14, 1943, the National Life Insurance Company of the Philippines issued a policy on the life
of Jose C. Londres whereby it undertook to pay its beneficiary upon his death the sum of P3,000. All
the premiums due under the policy were actually paid on their dates of maturity and the policy was in
force when the insured died on February 7, 1945. Salvacion V. Londres, as beneficiary, demanded
from the company the payment of the proceeds of the policy, and her demand having been refused,
she instituted the present action against the company in the Court of First Instance of Manila.

Defendant and its answer denied, for lack of sufficient proof, the allegation that the insured died on
February 7, 1945, and set up the following special defenses: (a) that plaintiff's claim is covered by
the Moratorium Law; (b) that the policy having been issued during the Japanese occupation, it is
presumed that its face value should be paid in Japanese currency, there being no provision in the
policy from which can be inferred that the parties contemplated payment in any other currency; (c)
that the money paid by the insured as premiums, together with the money received from other
policy-holders, was all deposited by the defendant in the Philippine National Bank and said deposit
was declared without value by Executive Order No. 49 of the President of the Philippines; and (d)
that the policy having been issued under abnormal circumstances, it should be considered in the
light of equity which does not permit anyone to enrich himself at the expense of another. Defendant,
however, as a proof of good faith, offered to pay the value of the policy in accordance with the
Ballantyne scale of values, or the sum of P2,400, Philippine currency.

On April 15, 1952, plaintiff filed a motion for summary judgment supported by an affidavit which
contains a restatement of the allegations of the complaint attaching thereto in support of the motion
certain annexes and affidavits which are intended to substantiate and prove said allegations.
Defendant, answering this motion, stated that while it joins the plaintiff in her petition for summary
judgment, it does so only in so far as its defense of moratorium is concerned, but not as regards the
merits of the case because its answer raises questions of fact which should be established, not by
mere affidavits, but by evidence duly presented in court. And on May 15, 1952, the court rendered
decision not only on the question of moratorium but on the merits of the case, apparently
disregarding the issue raised by defendant as regards the necessity of presenting evidence on the
facts controverted by it in its answer. From this decision, the defendant has appealed.

One of the errors assigned by appellants refers to the fact that the lower court rendered judgment on
the merits by virtue merely of the motion for summary judgment filed by appellee without giving an
opportunity to appellant to present evidence on the facts which, it alleges, its answer and special
defenses are predicated. Appellant contends that the facts raised by its special defenses are "triable
issues of facts" which cannot be the subject of summary judgment unless established by sufficient
evidence, and that those facts are material to sustain its point of view that it can only be made to pay
under the policy an indemnity in the amount of P2,400.

When appellee filed a motion for summary judgment upon her claim she attached thereto in support
of the motion certain annexes and affidavits which were intended to substantiate and prove her
allegations. Appellant failed not only to interpose opposing affidavits but announced to the court that
it was joining the appellee in her petition for summary judgment although it evinced its desire to
present evidence with regard to the questions of facts raised in its special defenses. And acting on
said motion, the lower court, after considering the pleadings and affidavits submitted in support of
the motion for summary judgment, found that there was no substantial triable issue of facts and
concluded that the appellee was entitled to a judgment as a matter of law. We find this to be in
substantial compliance with the rules (sections 1 and 2, Rule 36).

The material averments of the claim as regards the execution of the policy, the payment of the
premiums, and the death of the insured, are not disputed. The only issues of fact which served as
basis for the opposition to the summary judgment are those raised in the special defenses contained
in the answer. But these facts are not material for a decision on the merits, as correctly stated by the
lower court, for even if they are taken for granted the result would not materially change the findings
as to the question affecting the main claim. We hold therefore that the lower court did not err in
rendering a summary judgment on the merits of the case.

The issue of moratorium, which was decided against the stand taken by appellant, and which is also
raised as one of the errors, has now moot in view of the ruling in the case of Rutter vs. Esteban, 93
Phil., 68, wherein the Moratorium Law as declared invalid and unconstitutional.

The main question to be determined refers to the amount to be paid by appellant under the policy by
way of indemnity to the insured. Stated in another way, the question to be determined is whether the
amount of P3,000 which appellant bound itself to pay to the insured under the policy upon his death
should be paid in accordance with the present currency or should be adjusted under the Ballantyne
scale of values. The answer to the question would depend upon the interpretation to be placed on
the facts surrounding the death of the insured.

It appears that the deceased took up the policy under consideration on April 15, 1943 for the sum of
P3,000. All the premiums due under the policy were actually paid on their dates of maturity and the
policy was in force when the insured died on February 7, 1945. On said date, the battle of the
liberation of the City of Manila was still raging. While the northern part may have been liberated, not
so the southern part, as shown from the very affidavits submitted by appellee wherein it was stated
that on the aforesaid date, the insured, Jose Londres, and his two sons were taken by the Japanese
soldiers from their house at Singalong Street and were massacred by their captors. It may therefore
be said that the policy became due when the City of Manila was still under the yoke of the enemy
and became payable only after liberation which took place on March 10, 1945 when President
Osmea issued Proclamation No. 6 following the restoration of the civil government by General
Douglas Mac Arthur. And we say that the policy became payable only after liberation even if it
matured sometime before, because before that eventuality the insurance company, appellant herein,
was not yet in a position to pay the value of the policy for the simple reason that it had not yet
reopened. This much the court can take judicial notice of, for during those days of liberation, while
the people were rejoicing because of the happy event, the banks, the insurance companies, and for
that matter other commercial and business firms, were still feeling the adverse effects of the sudden
fall of values and were uncertain and apprehensive as to the manner the readjustment would be
made by the new Government. It is for this reason that the beneficiary, after realizing the truth about
the death of her husband, and after gathering evidence to substantiate his death, had difficulty in
effecting the collection of her claim from the insurance company because at that time it had not yet
reopened for business purposes. Although the record does not disclose the exact date on which the
insurance company reopened for this purpose, this Court can take judicial notice that it only did so
after liberation. At that time the legal tender was already the present currency.

However, it is an undisputed fact that the beneficiary submitted to the company formally her claim
and demanded payment thereof on May 16, 1949, attaching thereto sufficient proof of the death of
the insured, which claim however the company did not entertain, not because the proof submitted
was not sufficient in contemplation of law, but because the policy was executed during the
occupation and the determination of its value has not yet been passed upon by the Government.
And following the provisions of our Insurance Law to the effect that in case of maturity by death, the
conclusion is inescapable that from the point of view of the insurance company, the proceeds of the
policy became payable only upon the expiration of that period. (Insurance Law, Section 91-A). In this
sense, this case may be likened to those already decided by this Court wherein we said in
substance that, where the parties have agreed that the payment of the obligation will be made in the
currency that would prevail by the end of the stipulated period, and this takes place after liberation,
the obligation shall be paid in accordance with the currency then prevailing, or Philippine currency.
(Roo vs. Gomez, 83 Phil., 890, 46 Off. Gaz., Sup. 111, 339; Gomez vs. Tabia, 84 Phi;., 269, 47,
Off. Gaz., 641.) We are, therefore, persuaded to conclude, on the strength of these authorities, that
the present claim should be paid in accordance with the present legal tender, or the Philippine
currency.

With regard to the sufficiency of the proof presented by appellee as to the death of the insured, we
find that the same has been sufficiently established in view of the death certificate issued by the Civil
Register of Manila on April 15, 1952, which was attached to the motion for summary judgment. This
certificate strengthens the proof submitted by appellee on May 16, 1949 and as such it can serve as
basis for the determination of the interest that the company should pay under the policy as required
by law. (Insurance Law, Section 91-A). However, the lower court, contrary to the claim of appellant,
only required said appellant to pay legal interest from the filing of the complaint until the payment of
the judgment.

As final plea, appellant invokes equity in its favor in view of the nullification of the deposits made by it
with the Philippine National Bank of all fiat money received from its policyholders, which money was
declared without value by Executive Order No. 49 of the President of the Philippines. Appellant
claims that, considering the unexpected circumstances that developed, the indemnity to be paid by it
should be suffered by it under Article 307 of the Code of Commerce which provides: "When the
deposits are of cash, with a specification of the coins constituting them, . . . the increase or reduction
which their value may suffer shall be for the account of the depositor." Moreover, appellant, by
entering into an insurance contract, cannot claim, if it suffers loss, that the beneficiary cannot enrich
herself at its expense. This is a risk attendant to any wagering contract.1 One who gambles and
loses cannot be heard to complain of his loss. To appellant, we can only repeat the following
admonition:

"The parties herein gambled and speculated on the date of the termination of the war and the
liberation of the Philippines by the Americans. This can be gleaned from the stipulation about
redemption, particularly that portion to the effect that redemption could be effected not before the
expiration of one year from June 24, 1944. This kind of agreement is permitted by law. We find
nothing immoral or unlawful in it." (Gomez vs. Tabia, supra.)

Wherefore, the decision appealed from is affirmed, with costs against appellant.
G.R. No. L-9146 January 27, 1959

TERESA VDA. DE FERNANDEZ, ET AL., plaintiffs-appellants,


vs.
THE NATIONAL LIFE INSURANCE COMPANY OF THE PHILIPPINES, defendant-appellee.

Jose G. Macatangay for appellants.


E. V. Filamor for appellee.

ENDENCIA, J.:

Appeal from a decision of the Court of First Instance of Manila applying the Ballantyne scale of
values upon the proceeds of life insurance taken and maturing during the Japanese occupation but
claimed after liberation.

It is undisputed that on July 15, 1944, the National Life Insurance Company of the Philippines
insured the life of Juan D. Fernandez for the sum of P10,000 under Policy No. 16346 upon payment
by the latter of the amount of P444 for the period from July 15, 1944, to July 14, 1945, the
beneficiaries thereof being his mother Teresa Duat Vda. de Fernandez and his sisters Maria Teresa
Fernandez and Manuel Fernandez. The insured died on November 2, 1944, at Muntinglupa, Rizal,
while the policy was in force.

After a lapse of more than seven years, or on August 1st, 1952, Atty. Alberto L. de la Torre, in
representation of the beneficiaries, wrote the company advising it that and insured had died in 1944,
and claimed the proceeds of the policy. On August 21, 1952, the company answered Atty. De la
Torre stating that inasmuch as the status of the policies issued during the Japanese occupation was
still pending consideration before the courts, it would like to know whether the beneficiaries
represented by him were willing to compute the value of their claim under the Ballantyne scale of
values. There was no reply to this inquiry, but on July 9, 1954, the beneficiaries presented instead
proofs of death of the insured and at the same time filed Statement Exhibit G claiming the amount of
P10,000. On July 21, 1954, the company advised the beneficiaries that inasmuch as the policy
matured upon the death of the insured on November 2, 1944, the proceeds should be computed in
accordance with the Ballantyne scale, which amount only to P500. In view of this, the beneficiaries
commenced suit on August 6, 1954, but the lower court sustained the stand of the company and
dismissed the complaint, awarding however to plaintiffs the sum of P500 in Philippine currency,
without interest; hence the appeal.

Appellants vigorously maintain that the obligation of the company to pay the proceeds of the
insurance accrued not upon the death of the insured on November 2, 1944, but only upon receipt
and approval by the company, at its Home Office, of proof of death of the insured, which was on July
9, 1954 in accordance with the provision of the policy which reads

National Life Insurance Company of the Philippine hereby agrees to pay at its Home Office,
Manila, Ten Thousand Pesos to Juan D. Fernandez (hereinafter called the insured) on
the 15th day of July, 1964, if the Insured is living and this Policy is in force, or upon receipt
and approved at its Office of due proofs of the title of the claimant and of the prior death of
the Insured while this Policy is in force to Teresa Duat Vda. De Fernandez, Maria T. and
Manuela Fernandez, mother and sisters respectively of the Insured (Hereinafter called the
Beneficiary) subject to the right of the Insured to change the beneficiary as stated on the
second page of this Policy.

The above stipulation is apparently based on Sec. 91-A of the Insurance Law which provides as
follows:

The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy,
unless such proceeds are made payable in installments or a as an annuity, in which case the
installments or annuities shall be paid as they become due: Provided, however, That in case
of a policy maturing by the death of the insured, the proceeds thereof shall be paid within
sixty days after presentation of the claim and filing of the proof of the death of the insured.
Refused to pay the claim within the time prescribed herein will entitle the beneficiary to
collect interest on the proceeds of the policy for the duration of the delay at the rate of six per
centum per annum, unless such failure or refusal to pay is based on the ground that the
claim is fraudulent . . . .

Butterssed on the foregoing provision of law and the aforequoted stipulation as well as on the
allegation that the filing of proof of death by the beneficiaries is a condition precedent of the
demandability of the obligation of the insurer to pay the proceeds, appellants claim that they should
be paid P10,000 in Philippine currency and not under the Ballantyne scale of values.

We find appellants' contention untenable. In life insurance, the policy matures either upon the
expiration of the term set forth therein in which case its proceeds are immediately payable to the
insured himself, or upon his death occuring at any time prior to the expiration of such stipulated term,
in which case, the proceeds are payable to his beneficiaries within sixty days after their filing of proof
of death (Sec. 91-A Insurance Law). In the case at bar, the policy matured upon the death of the
insured on November 2, 1944, and the obligation of the insurer to pay arose as of that date. The
sixty-day period fixed by law within which to pay the proceeds after presentation of proof of death is
merely procedural in nature, evidently to determine the exact amount to be paid and the interest
thereon to which the beneficiaries may be entitled to collect in case of unwarranted refusal of the
company to pay, and also to enable the insurer to verify or check on the fact of death which it may
even validly waive. It is the happening of the suspensive condition of death that renders a life policy
matured and not the filing of proof of death which, as a above stated, is merely procedural, for even
if such proof were presented but if turns out later that the insured is alive, such filing does not give
maturity to the policy. The insured having died on November 2, 1944, during the Japanese
occupation, the proceeds of his policy should be adjusted accordingly, for

The rule is already settled that where a debtor could have paid his obligation at any time
during the Japanese occupation, payment after liberation must be adjusted in accordance
with the Ballantyne schedule (De Asis vs. Agdamag, 90 Phil., 249; Ang Lam vs. Peregrina,
92 Phil., 506; Wilson vs. Berkenkotter, 92 Phil., 918; 49 Off. Gaz. No. 4 1401; Samson vs.
Andal de Aguila, 94 Phil., 402). (Valero vs. Sycip, L-1119. May 23, 1958.)

Appellants vehemently invoke our ruling in the case of Salvacion B. Londres vs. The National Life
Insurance Company of the Philippines, 94 Phil., 627 wherein, although the policy matured during the
Japanese occupation, we allowed the proceeds to be paid in the present legal tender. That case,
however, is not applicable to the present. In that case the insured, Jose Londes, and his two sons
were massacred by Japanese soldiers on February 7, 1945, while the battle for the liberation of
Manila was still raging and downtown offices, including that of the appelle, were closed for the
duration. Thus we declared:
It may therefore be said that the policy became due when the city of Manila was still under
the yoke of the enemy and became payable only after liberation which took place on March
10, 1945, when President Osmea issued Proclamation No. 6 following the restoration of the
civil government by General Douglas MacArthur. And we say that the policy became payable
only after liberation even if it matured sometime before, because before that eventuality the
insurance company, appellant herein, was not yet in a position to pay the value of the policy
for the simple reason that it has not yet reopened. . . .

In the present case the Home Office of the appellee was open for business until the last days of
January, 1945, and had business transactions not only with the bank but also with its customers
before its closure, and as a matter of fact had been making payments of claims as they were
presented. The policy in question having matured on November 2, 1944, same could have been
processed and paid before the company closed its Home Office in January, 1945. Appellants argue
that they could not have presented their claim and proof of death during the Japanese occupation
even if they wanted to because they knew that the deceased was insured only after liberation when
the policy was handed to them by Mr. Pablo P. Gabriel, a business partner of the deceased. The
delay in the presentation of proof of death does not make any difference, for it does not alter the
date of maturity of the policy nor the ability of the company to pay the proceeds of the insurance
during the Japanese occupation. Moreover, it is through no fault of the company that such delay was
incurred. At any rate, irrespective of whether there was delay or not in the filing of proof of death, the
hard fact remains that the policy matured and was payable during the Japanese occupation, and
under the doctrine in the Valero vs. Sycip case, supra, payment should be adjusted in accordance
with the Ballantyne scale of values.

Finding no error in the decision appealed from, and there being no question raised as to the adjusted
amount of P500 under the Ballantyne schedule, judgment affirmed, with costs.
G.R. No. L-15056 May 30, 1964

M. S. GALUTERA, plaintiff-appellant,
vs.
MAERSK LINE CIA GRAL. DE TABACOS DE FILlPINAS and/or DELGADO BROS.,
INC., defendants-appellees.

Ozaeta, Gibbs and Ozaeta for plaintiff-appellant.


Ross, Selph and Carrascoso and Leocadio de Asis for defendants-appellees.

MAKALINTAL, J.:

This case has come directly to us on appeal from the Court of First Instance of Manila (Civil Case
No. 30235).

In June 1955 a consignment of 12 bales of cotton prints was shipped in New York, for Manila,
aboard the SS "Johannes Maersk," operated by the Maersk Line, one of herein defendants-
appellees. The shipment was consigned to the order of the Bank of the Philippine Islands, with
arrival notice to plaintiff-appellant M. S. Galutera. The shipment arrived in Manila in July 1955, was
transferred in due course to the ownership of plaintiff-appellant, and then cleared by her customs
broker through the Tabacalera (Cia. Gral de Tabacos de Filipinas), as local agent of the Maersk
Line, and through defendant-appellee Delgado Brothers Inc., as operator of the arrastre service.
When the shipment was delivered to plaintiff-appellant by the said arrastre operator, one bale of
cotton prints was missing. 1wph1.t

In the action filed for the recovery of the sum of P1,459.56 representing the value of the missing
merchandise, the Court a quo found from the evidence and declared that the loss was attributable to
defendant-appellee, Delgado Brothers Inc. The Court, however, denied recovery to plaintiff-appellant
on the ground that she had already been paid the value of the missing bale by the American
Insurance Company, with which the shipment had been insured through its Philippine
representative, E.E. Elser, Inc.

It is not denied that plaintiff-appellant received from the insurer the sum now in dispute, but she
maintains that she received it not as payment but merely as a loan "repayable to the extent of any
recovery she could make from the party or parties responsible for the loss of the missing bale of
cotton prints." Plaintiff-appellant's position on this point is supported by Exhibit F, which provides as
follows:

Received from the AMERICAN INSURANCE COMPANY One Thousand Four Hundred Fifty
Nine and 56/100 (P1,459.56) Pesos as a loan repayable only to the extent of any net
recovery, the undersigned may make from any vessel, carrier, bailee or others, upon or by
reason of any claim or loss of or damage to the property described below, or from any
insurance effected by us or by any carrier, bailee or others on said property and as security
for such payment we hereby pledge to the said AMERICAN INSURANCE COMPANY all
such claims and any recovery thereon. We hereby appoint the said AMERICAN
INSURANCE COMPANY our agents and Attorneys in Fact, with irrevocable power to collect
any such claim and to begin, prosecute, compromise or draw, in our name but at the
expense of the said AMERICAN INSURANCE COMPANY, any legal proceeding which they
may deem necessary to enforce such claim or claims, and to execute in our name any
documents which may be necessary to carry into effect the purposes of this agreement. In
further consideration of the said advance, we hereby guarantee that we are the person
entitled to enforce the terms of the contract of transportation set forth in the bills of lading
covering the said property.

On the other hand, defendant-appellee Delgado Brothers, Inc., refers to plaintiff-appellant's


admission in her testimony at the trial to the effect that she had been "paid" by the insurer, and to
said defendant's documentary evidence, particularly Exhibit 3, which is a letter of E.E. Elser Inc. to
Delgado Brothers, Inc., advising the latter that the former had paid the corresponding amount to
M.S. Galutera and was therefore subrogated in her place for which reason any payment to be made
by the Delgado Brother. Inc. should be to E.E. Elser, Inc.

The trial court, as already noted, upheld the position of defendant Delgado Brothers, Inc., and while
finding that the loss was attributable to it declined to give judgment in favor of plaintiff. After the
decision was rendered the latter filed a motion for reconsideration and, in the alternative, for the
inclusion of the American Insurance Company as co-plaintiff pursuant to Section 3 of Rule 3, or for
an amendment of the pleadings so as to implead the said company in order to make them conform
to the evidence presented. The motion was denied.

The overriding fact in this case which is not at all controverted in this appeal is that Delgado
Brothers, Inc., is liable for the loss. Whether payment thereof should be made to plaintiff-appellant or
to the American Insurance Company is a technicality that should be, overlooked. In the written
agreement between them, Exhibit F, the amount representing the loss, if recovered by, plaintiff-
appellant, should be repaid to the said company. That agreement is binding upon them, such that a
judgment rendered in favor of plaintiff-appellant, is the only claimant in this case, would relieve
defendant-appellee Delgado Brothers, Inc., of any further liability by reason of such loss. Indeed the
terms of Exhibit F do not make for subrogation of the insurer to the rights of the insured, and hence
have not divested the latter of her right to file this suit.

The following citations are pertinent:

For many years it has been customary for insurers, in order to save light of their assureds
and to promptly place them in funds, so that their business might be continued without
embarrassment, to lend to their assureds the amount of the loss repayable only out of money
collected on account of the loss. There is a line of cases approving such arrangements and
holding that such loans are not a payment of insurance. (First National Bank of Ottawa v.
Lloyd's of London 116 F. 2d, 221, 226.)

The right of the libelant to prosecute the libel under this state of facts is challenged. The
transaction with the insurance company did not divest the libelant of his title to and interest in
the properly, and was not a satisfaction of his claim either against the insurance company or
the libelee. If it were, in terms, a satisfaction of the claim for insurance, it would not avail the
libelee. ... . (The Guiding Star, 53 F. 936, 940)

And in Lee v. Barrett (1913) 82 Misc. 475, 144 N.Y. Supp. 941, where, after a loss to a
shipper and occurred because of a carrier's default, an insurer which had issued a policy to
the shipper advanced money to the latter, and took an instrument acknowledging the receipt
of the sum advanced "as a loan, and repayable only to the extent of any net recovery we
may make from any carrier, bailee, or others, on account of loss of our property," and
pledging to the insurer any recovery from the carrier, or from an insurer of the carrier, and
agreeing to deliver the bills of lading and to prosecute suit against the carrier on the claim, at
the expense, and under the exclusive direction and control of the insurer, it was held that the
advancement did not constitute a payment of the loss, and that the insurer was not,
therefore, subrogated to insured's rights against the carrier, and an action was, therefore,
held properly brought by an assignor of the insured. (1 A.L.R. 1529)

The insistence of defendant-appellee on the question of who should properly have filed this suit is
based on a technicality that should be brushed aside. To permit plaintiff-appellant to recover, subject
of course to her obligation to the American Insurance Company under Exhibit F, would avoid
unnecessary delay and multiplicity of suits in the attainment of the same result, namely the
enforcement of an undisputed liability on the part of one of the parties.

The judgment appealed from is reversed and defendant-appellee Delgado Brothers, Inc. is ordered
to pay plaintiff-appellant the sum of P1,459.56, as stated in the complaint, with legal interest thereon
from the date of its filing, and costs.
G.R. No. L-18965 October 30, 1964

COMPAIA MARITIMA, petitioner,


vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

Rafael Dinglasan for petitioner.


Ozaeta Gibbs & Ozaeta for respondent.

BAUTISTA ANGELO, J.:

Sometime in October, 1952, Macleod and Company of the Philippines contracted by telephone the
services of the Compaia Maritima, a shipping corporation, for the shipment of 2,645 bales of hemp
from the former's Sasa private pier at Davao City to Manila and for their subsequent transhipment to
Boston, Massachusetts, U.S.A. on board the S.S. Steel Navigator. This oral contract was later on
confirmed by a formal and written booking issued by Macleod's branch office in Sasa and
handcarried to Compaia Maritima's branch office in Davao in compliance with which the latter sent
to Macleod's private wharf LCT Nos. 1023 and 1025 on which the loading of the hemp was
completed on October 29, 1952. These two lighters were manned each by a patron and an assistant
patron. The patrons of both barges issued the corresponding carrier's receipts and that issued by the
patron of Barge No. 1025 reads in part:

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.

FINAL DESTINATION: Boston.

Thereafter, the two loaded barges left Macleod's wharf and proceeded to and moored at the
government's marginal wharf in the same place to await the arrival of the S.S. Bowline Knot
belonging to Compaia Maritima on which the hemp was to be loaded. During the night of October
29, 1952, or at the early hours of October 30, LCT No. 1025 sank, resulting in the damage or loss of
1,162 bales of hemp loaded therein. On October 30, 1952, Macleod promptly notified the carrier's
main office in Manila and its branch in Davao advising it of its liability. The damaged hemp was
brought to Odell Plantation in Madaum, Davao, for cleaning, washing, reconditioning, and redrying.
During the period from November 1-15, 1952, the carrier's trucks and lighters hauled from Odell to
Macleod at Sasa a total of 2,197.75 piculs of the reconditioned hemp out of the original cargo of
1,162 bales weighing 2,324 piculs which had a total value of 116,835.00. After reclassification, the
value of the reconditioned hemp was reduced to P84,887.28, or a loss in value of P31,947.72.
Adding to this last amount the sum of P8,863.30 representing Macleod's expenses in checking,
grading, rebating, and other fees for washing, cleaning and redrying in the amount of P19.610.00,
the total loss adds up to P60,421.02.

All abaca shipments of Macleod, including the 1,162 bales loaded on the carrier's LCT No. 1025,
were insured with the Insurance Company of North America against all losses and damages. In due
time, Macleod filed a claim for the loss it suffered as above stated with said insurance company, and
after the same had been processed, the sum of P64,018.55 was paid, which was noted down in a
document which aside from being a receipt of the amount paid, was a subrogation agreement
between Macleod and the insurance company wherein the former assigned to the latter its rights
over the insured and damaged cargo. Having failed to recover from the carrier the sum of
P60,421.02, which is the only amount supported by receipts, the insurance company instituted the
present action on October 28, 1953. After trial, the court a quo rendered judgment ordering the
carrier to pay the insurance company the sum of P60,421.02, with legal interest thereon from the
date of the filing of the complaint until fully paid, and the costs. This judgment was affirmed by the
Court of Appeals on December 14, 1960. Hence, this petition for review.

The issues posed before us are: (1) Was there a contract of carriage between the carrier and the
shipper even if the loss occurred when the hemp was loaded on a barge owned by the carrier which
was loaded free of charge and was not actually loaded on the S.S. Bowline Knot which would carry
the hemp to Manila and no bill of lading was issued therefore?; (2) Was the damage caused to the
cargo or the sinking of the barge where it was loaded due to a fortuitous event, storm or natural
disaster that would exempt the carrier from liability?; (3) Can respondent insurance company sue the
carrier under its insurance contract as assignee of Macleod in spite of the fact that the liability of the
carrier as insurer is not recognized in this jurisdiction?; (4) Has the Court of Appeals erred in
regarding Exhibit NNN-1 as an implied admission by the carrier of the correctness and sufficiency of
the shipper's statement of accounts contrary to the burden of proof rule?; and (5) Can the insurance
company maintain this suit without proof of its personality to do so?

1. This issue should be answered in the affirmative. As found by the Court of Appeals, Macleod and
Company contracted by telephone the services of petitioner to ship the hemp in question from the
former's private pier at Sasa, Davao City, to Manila, to be subsequently transhipped to Boston,
Massachusetts, U.S.A., which oral contract was later confirmed by a formal and written booking
issued by the shipper's branch office, Davao City, in virtue of which the carrier sent two of its lighters
to undertake the service. It also appears that the patrons of said lighters were employees of the
carrier with due authority to undertake the transportation and to sign the documents that may be
necessary therefor so much so that the patron of LCT No. 1025 signed the receipt covering the
cargo of hemp loaded therein as follows: .

Received in behalf of S.S. Bowline Knot in good order and condition from MACLEOD AND
COMPANY OF PHILIPPINES, Sasa Davao, for transhipment at Manila onto S.S. Steel
Navigator.

FINAL DESTINATION: Boston.

The fact that the carrier sent its lighters free of charge to take the hemp from Macleod's wharf at
Sasa preparatory to its loading onto the ship Bowline Knot does not in any way impair the contract of
carriage already entered into between the carrier and the shipper, for that preparatory step is but
part and parcel of said contract of carriage. The lighters were merely employed as the first step of
the voyage, but once that step was taken and the hemp delivered to the carrier's employees, the
rights and obligations of the parties attached thereby subjecting them to the principles and usages of
the maritime law. In other words, here we have a complete contract of carriage the consummation of
which has already begun: the shipper delivering the cargo to the carrier, and the latter taking
possession thereof by placing it on a lighter manned by its authorized employees, under which
Macleod became entitled to the privilege secured to him by law for its safe transportation and
delivery, and the carrier to the full payment of its freight upon completion of the voyage.

The receipt of goods by the carrier has been said to lie at the foundation of the contract to
carry and deliver, and if actually no goods are received there can be no such contract. The
liability and responsibility of the carrier under a contract for the carriage of goods commence
on their actual delivery to, or receipt by, the carrier or an authorized agent. ... and delivery to
a lighter in charge of a vessel for shipment on the vessel, where it is the custom to deliver in
that way, is a good delivery and binds the vessel receiving the freight, the liability
commencing at the time of delivery to the lighter. ... and, similarly, where there is a contract
to carry goods from one port to another, and they cannot be loaded directly on the vessel
and lighters are sent by the vessel to bring the goods to it, the lighters are for the time its
substitutes, so that the bill of landing is applicable to the goods as soon as they are placed
on the lighters. (80 C.J.S., p. 901, emphasis supplied)

... The test as to whether the relation of shipper and carrier had been established is, Had the
control and possession of the cotton been completely surrendered by the shipper to the
railroad company? Whenever the control and possession of goods passes to the carrier and
nothing remains to be done by the shipper, then it can be said with certainty that the relation
of shipper and carrier has been established. Railroad Co. v. Murphy, 60 Ark. 333, 30 S.W.
419, 46 A. St. Rep. 202; Pine Bluff & Arkansas River Ry. v. MaKenzie, 74 Ark. 100, 86 S.W.
834; Matthews & Hood v. St. L., I.M. & S.R. Co., 123 Ark. 365, 185 S.W. 461, L.R.A. 1916E,
1194. (W.F. Bogart & Co., et al. v. Wade, et al., 200 S.W. 148).

The claim that there can be no contract of affreightment because the hemp was not actually loaded
on the ship that was to take it from Davao City to Manila is of no moment, for, as already stated, the
delivery of the hemp to the carrier's lighter is in line with the contract. In fact, the receipt signed by
the patron of the lighter that carried the hemp stated that he was receiving the cargo "in behalf of
S.S. Bowline Knot in good order and condition." On the other hand, the authorities are to the effect
that a bill of lading is not indispensable for the creation of a contract of carriage.

Bill of lading not indispensable to contract of carriage. As to the issuance of a bill of


lading, although article 350 of the Code of Commerce provides that "the shipper as well as
the carrier of merchandise or goods may mutua-lly demand that a bill of lading is not
indispensable. As regards the form of the contract of carriage it can be said that provided
that there is a meeting of the minds and from such meeting arise rights and obligations, there
should be no limitations as to form." The bill of lading is not essential to the contract,
although it may become obligatory by reason of the regulations of railroad companies, or as
a condition imposed in the contract by the agreement of the parties themselves. The bill of
lading is juridically a documentary proof of the stipulations and conditions agreed upon by
both parties. (Del Viso, pp. 314-315; Robles vs. Santos, 44 O.G. 2268). In other words, the
Code does not demand, as necessary requisite in the contract of transportation, the delivery
of the bill of lading to the shipper, but gives right to both the carrier and the shipper to
mutually demand of each other the delivery of said bill. (Sp. Sup. Ct. Decision, May 6, 1895).
(Martin, Philippine Commercial Laws, Vol. II, Revised Edition, pp. 12-13)

The liability of the carrier as common carrier begins with the actual delivery of the goods for
transportation, and not merely with the formal execution of a receipt or bill of lading; the
issuance of a bill of lading is not necessary to complete delivery and acceptance. Even
where it is provided by statute that liability commences with the issuance of the bill of lading,
actual delivery and acceptance are sufficient to bind the carrier. (13 C.J.S., p. 288)

2. Petitioner disclaims responsibility for the damage of the cargo in question shielding itself behind
the claim of force majeure or storm which occurred on the night of October 29, 1952. But the
evidence fails to bear this out.

Rather, it shows that the mishap that caused the damage or loss was due, not to force majeure, but
to lack of adequate precautions or measures taken by the carrier to prevent the loss as may be
inferred from the following findings of the Court of Appeals:

Aside from the fact that, as admitted by appellant's own witness, the ill-fated barge had
cracks on its bottom (pp. 18-19, t.s.n., Sept. 13, 1959) which admitted sea water in the same
manner as rain entered "thru tank man-holes", according to the patron of LCT No. 1023 (exh.
JJJ-4) conclusively showing that the barge was not seaworthy it should be noted that
on the night of the nautical accident there was no storm, flood, or other natural disaster or
calamity. Certainly, winds of 11 miles per hour, although stronger than the average 4.6 miles
per hour then prevailing in Davao on October 29, 1952 (exh. 5), cannot be classified as
storm. For according to Beaufort's wind scale, a storm has wind velocities of from 64 to 75
miles per hour; and by Philippine Weather Bureau standards winds should have a velocity of
from 55 to 74 miles per hour in order to be classified as storm (Northern Assurance Co., Ltd.
vs. Visayan Stevedore Transportation Co., CA-G.R. No. 23167-R, March 12, 1959).

The Court of Appeals further added: "the report of R. J. del Pan & Co., Inc., marine surveyors,
attributes the sinking of LCT No. 1025 to the 'non-water-tight conditions of various buoyancy
compartments' (exh. JJJ); and this report finds confirmation on the above-mentioned admission of
two witnesses for appellant concerning the cracks of the lighter's bottom and the entrance of the rain
water 'thru manholes'." We are not prepared to dispute this finding of the Court of Appeals.

3. There can also be no doubt that the insurance company can recover from the carrier as assignee
of the owner of the cargo for the insurance amount it paid to the latter under the insurance contract.
And this is so because since the cargo that was damaged was insured with respondent company
and the latter paid the amount represented by the loss, it is but fair that it be given the right to
recover from the party responsible for the loss. The instant case, therefore, is not one between the
insured and the insurer, but one between the shipper and the carrier, because the insurance
company merely stepped into the shoes of the shipper. And since the shipper has a direct cause of
action against the carrier on account of the damage of the cargo, no valid reason is seen why such
action cannot be asserted or availed of by the insurance company as a subrogee of the shipper. Nor
can the carrier set up as a defense any defect in the insurance policy not only because it is not a
privy to it but also because it cannot avoid its liability to the shipper under the contract of carriage
which binds it to pay any loss that may be caused to the cargo involved therein. Thus, we find fitting
the following comments of the Court of Appeals:

It was not imperative and necessary for the trial court to pass upon the question of whether
or not the disputed abaca cargo was covered by Marine Open Cargo Policy No. MK-134
isued by appellee. Appellant was neither a party nor privy to this insurance contract, and
therefore cannot avail itself of any defect in the policy which may constitute a valid reason for
appellee, as the insurer, to reject the claim of Macleod, as the insured. Anyway, whatever
defect the policy contained, if any, is deemed to have been waived by the subsequent
payment of Macleod's claim by appellee. Besides, appellant is herein sued in its capacity as
a common carrier, and appellee is suing as the assignee of the shipper pursuant to exhibit
MM. Since, as above demonstrated, appellant is liable to Macleod and Company of the
Philippines for the los or damage to the 1,162 bales of hemp after these were received in
good order and condition by the patron of appellant's LCT No. 1025, it necessarily follows
that appellant is likewise liable to appellee who, as assignee of Macleod, merely stepped into
the shoes of and substi-tuted the latter in demanding from appellant the payment for the loss
and damage aforecited.

4. It should be recalled in connection with this issue that during the trial of this case the carrier asked
the lower court to order the production of the books of accounts of the Odell Plantation containing
the charges it made for the loss of the damaged hemp for verification of its accountants, but later it
desisted therefrom on the claim that it finds their production no longer necessary. This desistance
notwithstanding, the shipper however pre-sented other documents to prove the damage it suffered in
connection with the cargo and on the strength thereof the court a quo ordered the carrier to pay the
sum of P60,421.02. And after the Court of Appeals affirmed this award upon the theory that the
desistance of the carrier from producing the books of accounts of Odell Plantation implies an
admission of the correctness of the statements of accounts contained therein, petitioner now
contends that the Court of Appeals erred in basing the affirmance of the award on such erroneous
interpretation.

There is reason to believe that the act of petitioner in waiving its right to have the books of accounts
of Odell Plantation presented in court is tantamount to an admission that the statements contained
therein are correct and their verification not necessary because its main defense here, as well as
below, was that it is not liable for the loss because there was no contract of carriage between it and
the shipper and the loss caused, if any, was due to a fortuitous event. Hence, under the carrier's
theory, the correctness of the account representing the loss was not so material as would
necessitate the presentation of the books in question. At any rate, even if the books of accounts
were not produced, the correctness of the accounts cannot now be disputed for the same is
supported by the original documents on which the entries in said books were based which were
presented by the shipper as part of its evidence. And according to the Court of Appeals, these
documents alone sufficiently establish the award of P60,412.02 made in favor of respondent.

5. Finally, with regard to the question concerning the personality of the insurance company to
maintain this action, we find the same of no importance, for the attorney himself of the carrier
admitted in open court that it is a foreign corporation doing business in the Philippines with a
personality to file the present action.

WHEREFORE, the decision appealed from is affirmed, with costs against petitioner.
G.R. No. L-27796 March 25, 1976

ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant,


vs.
MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN
MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellees.

Chuidian Law Office for appellant.

Salcedo, Del Rosario Bito & Mesa for appellee Macondray & Co., Inc., Barber Steamship Lines, Inc.
and Wilhelm Wilhelmsen

Macaranas & Abrenica for appellee Manila Port Service and/or Manila Railroad Company.

ANTONIO, J.:

Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, 1 on the ground that
the appeal involves purely questions of law, thus: (a) whether or not, in case of loss or damage, the
liability of the carrier to the consignee is limited to the C.I.F. value of the goods which were lost or
damaged, and (b) whether the insurer who has paid the claim in dollars to the consignee should be
reimbursed in its peso equivalent on the date of discharge of the cargo or on the date of the
decision.

According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York,
U.S.A., shipped aboard the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen 218 cartons
and drums of drugs and medicine, with the freight prepaid, which were consigned to Winthrop-
Stearns Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued
Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila
to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment was insured by the shipper
against loss and/or damage with the St. Paul Fire & Marine Insurance Company under its insurance
Special Policy No. OC-173766 dated June 23, 1960 (Exhibit "S").

On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid
shipment into the custody of Manila Port Service, the arrastre contractor for the Port of Manila. The
said shipment was discharged complete and in good order with the exception of one (1) drum and
several cartons which were in bad order condition. Because consignee failed to receive the whole
shipment and as several cartons of medicine were received in bad order condition, the consignee
filed the corresponding claim in the amount of Fl,109.67 representing the C.I.F. value of the
damaged drum and cartons of medicine with the carrier, herein defendants- appellees (Exhibits "G"
and "H") and the Manila Port Service (Exhibits "I" & "J" However, both refused to pay such claim.
consequently, the consignee filed its claim with the insurer, St. Paul Fire & Marine insurance Co.
(Exhibit "N"), and the insurance company, on the basis of such claim, paid to the consignee the
insured value of the lost and damaged goods, including other expenses in connection therewith, in
the total amount of $1,134.46 U.S. currency (Exhibit "U").

On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul
Fire & Marine Insurance Co., instituted with the Court of First Instance of Manila the present
action 2 against the defendants for the recovery of said amount of $1,134.46, plus costs.
On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company resisted the
action, contending, among others, that the whole cargo was delivered to the consignee in the same
condition in which it was received from the carrying vessel; that their rights, duties and obligations as
arrastre contractor at the Port of Manila are governed by and subject to the terms, conditions and
limitations contained in the Management Contract between the Bureau of Customs and Manila Port
Service, and their liability is limited to the invoice value of the goods, but in no case more than
P500.00 per package, pursuant to paragraph 15 of the said Management Contract; and that they are
not the agents of the carrying vessel in the receipt and delivery of cargoes in the Port of Manila.

On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and
Wilhelm Wilhelmsen also contested the claim alleging, among others, that the carrier's liability for the
shipment ceased upon discharge thereof from the ship's tackle; that they and their co-defendant
Manila Port Service are not the agents of the vessel; that the said 218 packages were discharged
from the vessel SS "Tai Ping" into the custody of defendant Manila Port Service as operator of the
arrastre service for the Port of Manila; that if any damage was sustained by the shipment while it
was under the control of the vessel, such damage was caused by insufficiency of packing, force
majeure and/or perils of the sea; and that they, in good faith and for the purpose only of avoiding
litigation without admitting liability to the consignee, offered to settle the latter's claim in full by paying
the C.I.F. value of 27 lbs. caramel 4.13 kilos methyl salicylate and 12 pieces pharmaceutical vials of
the shipment, but their offer was declined by the consignee and/or the plaintiff.

After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants
Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the plaintiff,
jointly and severally, the sum of P300.00, with legal interest thereon from the filing of the complaint
until fully paid, and defendants Manila Railroad Company and Manila Port Service to pay to plaintiff,
jointly and severally, the sum of P809.67, with legal interest thereon from the filing of the complaint
until fully paid, the costs to be borne by all the said defendants. 3

On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its
equivalent in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for
reconsideration, but this was denied by the lower court on May 5, 1965. Hence, the present appeal.

Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover from the
defendants-appellees the amount of $1,134.46 which it actually paid to the consignee (Exhibits "N" &
"U") and which represents the value of the lost and damaged shipment as well as other legitimate
expenses such as the duties and cost of survey of said shipment, and that the exchange rate on the
date of the judgment, which was P3.90 for every US$1.00, should have been applied by the lower
court.

Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods, pursuant
to contract of sea carriage embodied in the bill of lading that the consignee's (Winthrop-Stearns Inc.)
claim against the carrier (Macondray & Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen
and the arrastre operators (Manila Port Service and Manila Railroad Company) was only for the sum
of Pl,109.67 (Exhibits "G", "H", "I" & "J"), representing the C.I.F. value of the loss and damage
sustained by the shipment which was the amount awarded by the lower court to the plaintiff-
appellant; 4 defendants appellees are not insurers of the goods and as such they should not be made
to pay the insured value therefor; the obligation of the defendants-appellees was established as of
the date of discharge, hence the rate of exchange should be based on the rate existing on that date,
i.e., August 7, 1960, 5 and not the value of the currency at the time the lower court rendered its
decision on March 10, 1965.

The appeal is without merit.


The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to
the contract to carry. 6 The stipulation in the bill of lading limiting the common carrier's liability to the
value of the goods appearing in the bill, unless the shipper or owner declares a greater value, is
valid and binding. 7 This limitation of the carrier's liability is sanctioned by the freedom of the
contracting parties to establish such stipulations, clauses, terms, or conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs and public policy. 8 A
stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or
deterioration of the goods is valid, provided it is (a) reasonable and just under the
circumstances, 9 and (b) has been fairly and freely agreed upon.10 In the case at bar, the liabilities of
the defendants- appellees with respect to the lost or damaged shipments are expressly limited to the
C.I.F. value of the goods as per contract of sea carriage embodied in the bill of lading, which reads:

Whenever the value of the goods is less than $500 per package or other freight unit,
their value in the calculation and adjustment of claims for which the Carrier may be
liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be
deemed to be the invoice value, plus frieght and insurance if paid, irrespective of
whether any other value is greater or less.

The limitation of liability and other provisions herein shall inure not only to the benefit
of the carrier, its agents, servants and employees, but also to the benefit of any
independent contractor performing services including stevedoring in connection with
the goods covered hereunder. (Paragraph 17, emphasis supplied.)

It is not pretended that those conditions are unreasonable or were not freely and fairly agreed upon.
The shipper and consignee are, therefore, bound by such stipulations since it is expressly stated in
the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee of the goods,
and the holder of the Bill of Lading agree to be bound by all its stipulations, exceptions and
conditions, whether written, stamped or printed, as fully as if they were all signed by such shipper,
owner, consignee or holder. It is obviously for this reason that the consignee filed its claim against
the defendants-appellees on the basis of the C.I.F. value of the lost or damaged goods in the
aggregate amount of Pl,109.67 (Exhibits "G", "H", "I", and "J"). 11

The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only the
amount that is recoverable by the latter. Since the right of the assured, in case of loss or damage to
the goods, is limited or restricted by the provisions in the bill of lading, a suit by the insurer as
subrogee necessarily is subject to like limitations and restrictions.

The insurer after paying the claim of the insured for damages under the insurance is
subrogated merely to the rights of the insured and therefore can necessarily recover
only that to what was recoverable by the insured.12

Upon payment for a total loss of goods insured, the insurance is only subrogated to
such rights of action as the assured has against 3rd persons who caused or are
responsible for the loss. The right of action against another person, the equitable
interest in which passes to the insurer, being only that which the assured has, it
follows that if the assured has no such right of action, none passes to the insurer,
and if the assured's right of action is limited or restricted by lawful contract between
him and the person sought to be made responsible for the loss, a suit by the insurer,
in the Tight of the assured, is subject to like limitations or restrictions. 13
Equally untenable is the contention of the plaintiff-appellant that because of extraordinary inflation, it
should be reimbursed for its dollar payments at the rate of exchange on the date of the judgment
and not on the date of the loss or damage. The obligation of the carrier to pay for the damage
commenced on the date it failed to deliver the shipment in good condition to the consignee.

The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the
consignee dated September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33
(shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine Currency. The peso
equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which was the rate
existing at that time. We find, therefore, that the trial court committed no error in adopting the
aforesaid rate of exchange.

WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiff-appellant.

Barredo, Aquino, Concepcion, Jr. and and Martin, JJ., concur.


G.R. No. L-24826 March 20, 1968

ST. PAUL FIRE & MARINE INSURANCE COMPANY, plaintiff-appellee,


vs.
MACONDRAY & CO., INC., ET AL., defendants,
MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellants.

Chuidian Law Office for plaintiff-appellee.


Ross, Selph, Salcedo, Del Rosario, Bito, & Misa for defendant-appellant Macondray & Co. Inc.
D.F. Macaranas and Alipio M. Abrenica for defendant-appellant Manila Port Service.

ANGELES, J.:

Plaintiff-appellee, St. Paul Fire & Marine Insurance Company, was the insurer of a shipment
consisting of 218 packages of medicinal and pharmaceutical products consigned to Winthrop
Stearns, Inc., Manila, loaded on the vessel SS Tei Ping, "which arrived in Manila on August 7, 1960,
and discharged unto the custody of the arrastre operator, the Manila Port Service, on August 11,
1960.

For loss and damage sustained by the abovementioned shipment, the consignee demanded
and collected from the insurer the reasonable value thereof, including other expenses, amounting to
$1,071.58.

The insurance company, as subrogee of the consignee, filed complaint with the Court of First
Instance of Manila, alleging that the subject loss and damage were due to the fault and/or
negligence of the defendants Wilhelm Wilhelmsen and/or its agents Barber Steamship Lines, Inc.
and/or Macondray & Co., proir to the delivery thereof to the Manila Port Service, or in the alternative,
that said loss and damage were due to the fault or negligence of the Manila Port Service and the
Manila Railroad Company, after delivery thereof of the goods to the latter.

Answering the complaint, the Manila Port Service and Manila Railroad Company denied
responsibility of the alleged loss and damage on the ground that the goods have been delivered to
the consignee in the same condition as they were received by them from the carrying vessel. At the
same time, they pleaded, in defense, the provisions of paragraph 15 of the Management Contract.

In their answer, the other defendants, although denying responsibility and liability for the loss,
alleged that for the purposes of avoiding litigation, they had offered to settle the plaintiff's claim in full
by paying the c.i.f. value of the lost and damaged shipment, but the consignee and its subrogee
declined the offer.

After trial and the submission of the parties' memoranda, the court found that plaintiff's claim
had to do with one undelivered carton and damage on six cartons and one drum, with a total value of
P1,109.67; that said shipment of 218 cartons was discharged from the vessel complete and in good
order, with the exception of one drum and 3 cartons, hence, any loss or damage thereof are the
responsibility of the owner and operator of the vessel and its agents, while the undelivered carton
and any damage on the remaining three cartons are the responsibility of the arrastre contractor and
its principal company. The court thus rendered judgment in accordance with the findings; and to be
more specific, it fixed the liability of the first set of defendants, for the damage on the one drum and
three cartons, at P300.00; while that of the second set of defendants, for the undelivered carton and
the damage on the remaining three cartons, for P809.67 both amounts with legal interest from the
filing of the complaint until fully paid.
The Manila Port Service and the Manila Railroad Company have appealled.

It is contended in the first place that the complaint should be dismissed because the
provisional claim, for the alleged lost and damaged goods, was not filed within the fifteen-day period
fixed by the Management Contract for filing such claims. The contention is meritorious, for the
reason that while the carrying vessel discharged its last package on August 11, 1960, the claim
adverted to was filed the day before or on August 10, 1960. This Court has repeatedly held that a
stereo-type provisional clam for "any shortage or damage that may after examination be found to
exist" filed against the arrastre operator before the discharge of the last package from the carrying
vessel is not a compliance with the provision of the said Management Contract entered into between
the consignee of the goods and the arrastre operator, such claim being premature and
speculative. 1 To allow it would swamp the arrastre service with advance claims of brokers for a
goods consigned to their customers.

Of course, this ruling is not without any exception. In Switzerland General Insurance Co., Inc.
vs. Java Pacific and Hoegh Lines, et al., G.R. No. L-21760, April 30, 1966, a claim filed in advance
was held to have constituted substantial compliance with the provision of Section 15 of the
Management Contract. But this, under the conditions that, upon the examination of the shipment
before the discharge of the last package from the boat, certain shortages were found and that
examination took place in the presence of the representatives of both parties, which conditions do
not appear to obtain here. The bare allegation of the plaintiff-appellee that claimant had knowledge
of the loss and damage before the boat or vessel had finally unloaded all its cargo, which allegation
is not supported by the evidence, and without any showing under what circumstances the alleged
knowledge had come about, would not cause Us to deviate from the general ruling on the matter.

In view of these findings, We need not go into the other issue raised by appellant, which
merely refers to the amount for which the defendant-appellee would be held liable should recovery
appear to be proper.

WHEREFORE, the decision appealed from is hereby reversed. No costs at this instance. 1wph1.t
G.R. No. L-28237 August 31, 1982

BAY VIEW HOTEL., INC., plaintiff-appellant,


vs.
KER & CO., LTD., and PHOENIX ASSURANCE CO., LTD., defendants-appellees.

Mariano V. Ampil, Jr. for plaintiff-appellant.

Alfonso Felix, Jr. for defendants-appellants.

&

TEEHANKEE, J.: 1wph 1.t

This appeal was originally brought before the Court of Appeals but was certified to this Court
pursuant to the appellate court's resolution of October 13, 1967 since it involved purely questions of
law.

Sometime in January, 1958, plaintiff-appellant Bay View Hotel, Inc., then the lessee arid operator of
the Manila Hotel, secured a fidelity guarantee bond from defendant-appellee Ker & Co., Ltd., for its
accountable employees against acts of fraud and dishonesty. Said defendant-appellee Ker & Co.,
Ltd., is the Philippine general agent of Phoenix Assurance Co., Ltd. a foreign corporation duly
licensed to do insurance business in the Philippines.

When one of the bonded employees, Tomas E. Ablaza, while acting in his capacity as cashier, was
discovered by plaintiff-appellant to have had a cash shortage and unremitted collections in the total
amount of P42,490.95, it filed claims for payments on the said fidelity guarantee bond but defendant-
appellee Ker & Co. denied and refused indemnification and payment. To enforce its claims, plaintiff-
appellant instituted its complaint, dated August 30, 1965 docketed as Civil Case No. 63181 of the
Court of First Instance of Manila.

In its answer, defendant-appellee Ker & Co. justified its denial of the claims of plaintiff-appellant on
various reasns, such as non-compliance with the conditions stipulated in the insurance policy; non-
presentation of evidence regarding the various charges of dishonesty and misrepresentation against
Tomas E. Ablaza and non-production of the documents to prove the alleged loss. Ker & Co. likewise
averred that it was merely an agent and- as such it was not liable under the policy.

On June 22, 1966, counsel for Ker & Co. filed a request for admission, furnishing plaintiff-appellant's
counsel with a copy thereof requesting admission of the following facts: 1wph1.t

1. On February 14, 1967, the Bay View Hotel, Inc., applied to the Phoenix Assurance
Co., Ltd., for a fidelity guarantee bond through a proposal form, a true copy of which
is annexed to our answer as Annex "A" thereof.

2. Such a policy was actually issued on January 22, 1958 by the Phoenix Assurance
Co., Ltd., in favor of the Bay View Hotel, Inc., and was renewed from time to time
with amendments. A true copy of the policy as it finally stood at the time of the
alleged defalcation is annexed to our answer as Annex 'B ' thereof.

3. This claim filed by the Bay View Hotel, Inc., under this policy was denied on behalf
of the Phoenix Assurance Co., Ltd., by a letter dated 18th June, 1965 sent by
registered mail to the Bay View Hotel, Inc. on June 22, 1965. A true copy of this letter
of denial is annexed to the present request as Annex "C" hereof. "

When plaintiff-appellant failed to make any answer to the request for admission within the period
prescribed by the rules, defendant-appellee Ker & Co. filed a Motion to Dismiss on Affirmative
Defense, dated July 6, 1966, insisting that since under Sec. 2, Rule 26 of the Rules of Court,
plaintiff-appellant was deemed to have impliedly admitted each of the matters enumerated in the
request for admission, it followed that the proper party in interest against whom plaintiff-appellant
might have a claim was the principal Phoenix Assurance Co. (Phoenix) and not the agent Ker & Co.

Plaintiff-appellant filed an opposition, dated July 19, 1966 arguing that the proper remedy, under the
circumstances was not to dismiss the complaint but to amend it in order to bring the necessary or
indispensable parties to the suit. Defendant-appellee Ker & Co. filed a reply to the opposition
reiterating its stand that since it merely acted as an agent, the case should be dismissed and
plaintiff-appellant should file the necessary action against the principal Phoenix.

On August 1, 1966, plaintiff-appellant filed a Motion for Leave to Admit Amended Complaint,
attaching copy of the complaint, as amended, this time impleading Phoenix as party defendant. On
August 16, 1966, defendants- appellees filed their joint answer to the amended complaint. Again,
Ker & Co., Ltd., argued that it was merely an agent and therefore not liable under the policy. On the
other hand, Phoenix, averred that under Condition 8 of the insurance policy, plaintiff-appellant was
deemed to have abandoned its claim in view of the fact that it did not ask for an arbitration of its
claim within twelve (12) months from June 22, 1965 the date of receipt of the denial of the claim.

On August 24, 1966, defendants-appellees filed a motion for summary judgment which the trial court
granted in its decision of November 4, 1966, ordering the dismissal of the case. After denial of its
motion for reconsideration, plaintiff-appellant filed the present appeal, raising the following
assignment of errors: 1wph1.t

The lower court erred and acted with grave abuse of discretion in extending the legal
effects, if any, of the request for admission filed by Ker & Co., Ltd. to the Phoenix
Assurance Co., Ltd., which was not a party-defendant at the time said request was
filed and for whom no similar request was ever filed.

II

The lower court erred and acted with grave abuse of discretion in giving legal effects
to a request for admission by the defendant-appellee under the original complaint
after the said original complaint was, with leave of court, amended.

III

The lower court erred and acted with grave abuse of discretion in holding that
"Condition No. 8 of the Policy No. FGC-5018-P requires that should there be a
controversy in the payment of the claims, it should be submitted to an arbitration"
despite the admissions by the parties and the established fact that Condition No. 8 of
said Policy No. FGC-5018-P provides for Arbitration if any dispute shall arise as to
the amount of company's liability."
IV

The lower court erred and acted with grave abuse of discretion in granting the Motion
for Summary Judgment and dismissing the complaint.

The first two errors assigned may be taken jointly. Plaintiff-appellant argues that since the implied
admission was made before the amendment of its complaint so as to include Phoenix, it follows that
Phoenix has no right to avail of these admissions, and that the trial court committed a grave abuse of
discretion in extending to Phoenix the legal effects of the request for admission filed solely by Ker &
Co.

The argument is untenable, Admission is in the nature of evidence and its legal effects were already
part of the records of the case and therefore could be availed of by any party even by one
subsequently impleaded. The amendment of the complaint per se cannot set aside the legal effects
of the request for admission since its materiality has not been affected by the amendment. If a fact is
admitted to be true at any stage of the proceedings, it is not stricken out through the amendment of
the complaint. To allow a party to alter the legal effects of the request for admission by the mere
amendment of a pleading would constitute a dangerous and undesirable precedent. The legal
effects of plaintiff- appellant's failure to answer the request for admission could and should have
been corrected below by its filing a motion to be relieved of the consequences of the implied
admission with respect to respondent Phoenix.

Moreover, since an agent may do such acts as may be conducive to the accomplishment of the
purpose of the agency, admissions secured by the agent within the scope of the agency ought to
favor the principal. This has to be the rule, for the act or declarations of an agent of the party within
the scope of the agency and during its existence are considered and treated in turn as the
declarations, acts and representations of his principal 1 and may be given in evidence against such
party.

Plaintiff-appellant insists that since the motion for summary judgment was filed on behalf of
defendant-appellee Ker & Co. alone, there was no motion for summary judgment as far as Phoenix
was concerned and the trial court's decision dismissing the case should not have included the
principal Phoenix.

But the motion for summary judgment was filed after the complaint had been amended and answer
thereto had been filed. The issues, therefore, with respect to Phoenix had already been likewise
joined. Moreover, a reading of the said motion for summary judgment, more particularly the prayer
thereof, shows that Phoenix did join Ker & Co. in moving for the dismissal of the case and prayed
"that the present action be dismissed as against Ker & Co., Ltd., because being purely and simply
the agent of the insurer, it is not liable under the policy and as against the Phoenix Assurance Co.,
Ltd. because by failing to seek an arbitration within twelve months from the date of its receipt of the
denial of its claim on June 22, 1965, plaintiff Bay View Hotel, Inc., is deemed under condition 8 of ,,
tie policy, to have abandoned its claim against said defendant phoenix Assurance Co., Ltd."

The main issue raised by plaintiff-appellant is with respect to Condition No. 8 of the insurance policy,
photostatic copy of which was submitted to the trial court and reproduced as follows: 1w ph1.t

If any dispute shall arise as to the amount of company's liability under this Policy the
matter shall if required by either party be to the decision of two neutral persons as
arbitrators one of, whom shall be named by each party or of an umpire who shall be
appointed by the said arbitrators before entering on the reference and in case either
party or his representative shall neglect or refuse for the space of two months after
request in writing from the other party so to do to name an arbitrator the arbitrator of
the other party may proceed alone. And it is hereby expressly agreed and declared
that it shag be a condition precedent to any right of action or upon this Policy that the
award by such arbitrators, arbitrator or umpire of the amount of the loss shall first be
obtained. The costs of and connected with the arbitration shag be in the discretion of
the arbitrators, arbitrator or umpire. 2

Plaintiff-appellant maintains that Condition No. 8 of the policy provides for arbitration only "if any
dispute should arise as to the amount of company's liability" consequently, the reference to
arbitration is not a condition precedent to the filing of the suit contrary to the insurer company's
posture. Plaintiff-appellant points out that in the instant case, there is a total and complete negation
of liability. There is no dispute as to the amount of company's liability because this presupposes an
admission of responsibility although not to the extent of the cost thereof, while here the insurer
denies liability wholly and totally.

We find in favor of plaintiff-appellant. The provisions of Condition No. 8, more specifically the portion
thereof which reads, "if any dispute shall arise as to the amount of company's liability under this
policy ...," do not appear to require any extended interpretation. Condition No. 8 requires arbitration
only as to disputes regarding the amount of the insurer's liability but not as to any dispute as to
the existence or non- existence of liability. Thus, Condition No. 8 comes into play only if the insurer
admits liability but cannot agree with the insured as to the amount thereof and cannot be invoked in
cases like that at bar where the insurer completely denies any liability. Defendants-appellees'
contention that plaintiff-appellant's failure to request arbitration proceedings is a bar to its filing of the
suit at bar against the insurer company cannot be sustained, specially considering the established
principle that contracts of adhesion such as the insurance policy in question are to be strictly
construed in case of doubt against the insurer.

As to appellee Ker & Co., Ltd., however, there appears to be no serious contradiction as to the fact
that it merely acted as the agent of its principal, Phoenix. Considering that there was full disclosure
of such agency since the insurance policy was actually issued by Phoenix, We find no error in the
dismissal of the case against said defendant Ker & Co., Ltd.

Accordingly, the dismissal of the case against Ker & Co., Ltd., is hereby affirmed and maintained,
while the dismissal of the case against Phoenix Assurance Co., Ltd. is hereby set aside and the
case is remanded to the court of origin for further proceedings and determination on the merits. No
costs.

Makasiar, Melencio-Herrera, Plana, Relova and Gutierrez, JJ., concur. 1w ph1.t

&

&

Separate Opinions

&

VASQUEZ, J., concurring:


I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co., Ltd. and
Phoenix Assurance Co., Ltd. However, I do not subscribe to the view expressed in the following
paragraph of the main opinion: 1w ph1.t

Moreover, since an agent may do such acts as may be conducive to the


accomplishment of the purpose of the agency, admissions secured by the agent
within the scope of the agency ought to favor the principal. This has to be the rule, for
the act or declarations of an agent of the party within the scope of the agency and
during its existence are considered and treated in turn as the declarations, acts and
representations of his principal and may be given in evidence against such party.

The authority cited for this view, to wit, Section 26, Rule 130 of the Rules of Court, reveals that the
same is being justified under one of the recognized exceptions to the rule of res inter alios acta. To
my mind, this rule of evidence finds no application herein.

Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the
agent within the scope of his authority during its existence. It has no reference to a principal using in
his favor an admission secured by the agent from a third party. In the case at bar, Phoenix is not
being held bound or made liable by any act or declarations of Ker Instead, Phoenix seeks to profit
from something done by Ker. While this may be correct, its justification must be based on some legal
ground other than Section 26 of Rule 130. The act or declaration involved herein is that of petitioner
Bay View. The question is not whether such act or declaration is admissible in evidence against
some other entity with which Bay View is in privity, but rather, whether it may be utilized by Phoenix
against Bay View itself. Clearly, res inter alios acta does not come into play herein.

Case against Ker & Co., Ltd., affirmed and maintained, while case against Phoenix Assurance Co.,
Ltd set aside and case remanded to court of origin for further proceedings and determination on the
merits.

&

&

Separate Opinions

VASQUEZ, J., concurring:

I concur in the resolution of the issues in regard to the respective liabilities of Ker & Co., Ltd. and
Phoenix Assurance Co., Ltd. However, I do not subscribe to the view expressed in the following
paragraph of the main opinion: 1w ph1.t

Moreover, since an agent may do such acts as may be conducive to the


accomplishment of the purpose of the agency, admissions secured by the agent
within the scope of the agency ought to favor the principal. This has to be the rule, for
the act or declarations of an agent of the party within the scope of the agency and
during its existence are considered and treated in turn as the declarations, acts and
representations of his principal and may be given in evidence against such party.

The authority cited for this view, to wit, Section 26, Rule 130 of the Rules of Court, reveals that the
same is being justified under one of the recognized exceptions to the rule of res inter alios acta. To
my mind, this rule of evidence finds no application herein.
Section 26 of Rule 130 allows the admission against the principal of any act or declaration of the
agent within the scope of his authority during its existence. It has no reference to a principal using in
his favor an admission secured by the agent from a third party. In the case at bar, Phoenix is not
being held bound or made liable by any act or declarations of Ker Instead, Phoenix seeks to profit
from something done by Ker. While this may be correct, its justification must be based on some legal
ground other than Section 26 of Rule 130. The act or declaration involved herein is that of petitioner
Bay View. The question is not whether such act or declaration is admissible in evidence against
t@lF

some other entity with which Bay View is in privity, but rather, whether it may be utilized by Phoenix
against Bay View itself. Clearly, res inter alios acta does not come into play herein.

Case against Ker & Co., Ltd., affirmed and maintained, while case against Phoenix Assurance Co.,
Ltd set aside and case remanded to court of origin for further proceedings and determination on the
merits.
G.R. No. L-57322

NORMAN NODA, petitioner,


vs.
HONORABLE GREGORIA CRUZ-ARNALDO, in her capacity as Insurance Commissioner, and
ZENITH INSURANCE CORPORATION, respondents.

Redentor G. Guyala for petitioner.


Carpio, Layawan, Suarez & Associates Law Offices for private respondent ZIC.
German C. Alejandria for respondent Insurance Commissioner.

FERNAN, J.:

This is a petition to review the decision of the Insurance Commissioner in I.C. No. 1070, entitled
"Norman Noda vs. Zenith Insurance Corporation" regarding the enforcement of two fire insurance
policies.

In 1977, petitioner Norman R. Noda obtained from respondent Zenith Insurance Corporation,
through its general agent, Alico General Insurance Agency, two fire insurance policies: [1] No. F-
03724 with a face value of P30,000 covering the goods and stocks in trade in his business
establishment at the market site in Mangagoy, Bislig, Surigao del Sur for the period from March 3,
1977 to March 3, 1978 and [2] No. F-03734 with a face value in the aggregate amount of P100,000
for the period from May 10, 1977 to May 10, 1978 and consisting of Item 1 for P40,000 on household
furniture, fixtures, fittings and other personal effects, and Item 2 for P60,000 on stocks in trade usual
to petitioner's retail business situated in a two-storey building at 039 Barreda St., also in Mangagoy,
Bislig, Surigao del Sur, the ground floor of which the petitioner used as store and the second floor as
family quarters. 1

While both policies were in force, fire destroyed petitioner's insured properties at the market site on
September 5, 1977 and at Barreda St. on November 9, 1977. When petitioner failed to obtain
indemnity on his claims from respondent Zenith, he filed a complaint with the Insurance Commission
on October 6, 1978 praying that respondent company be ordered to pay him "the sum of P130,000
representing the value of the two [2] policies insured by respondent with interest at 12% per annum,
plus damages, attorney's fees and other expenses of litigation. ... 2

In its answer Zenith interposed that petitioner had no cause of action; that Policy No. F-03724 was
not in full force and effect at the time of the fire because the premium on the policy was not paid; that
Zenith's liability under Policy No. F-03734, if any, was limited to P15,472.50 in view of the co-
insurance; and that petitioner failed to substantiate his claim as to the value of the goods reputedly
destroyed by fire and consequently, Zenith could not be held answerable for the same.3

While the case was pending with the Insurance Commission, Zenith, on March 4, 1980, settled
petitioner I s fire loss claim under Item 1 of Policy No. 03734 in the amount of P15,472.50. 4

On March 3, 1981, the Insurance Commissioner rendered the assailed decision. Brushing aside as
unfounded Zenith's allegation that Policy No. F-03734 was ineffectual because of non-payment of
premium, respondent Commissioner allowed petitioner to recover under said policy and ordered
Zenith to pay him the amount of P20,000 with legal interest from the date the complaint was filed,
including P1,000 as attorney's fees but excluding the actual, moral and exemplary damages prayed
for.5 As for petitioner's claim under Policy No. F-03734, she held that in view of the payment of
P15,472.50 to petitioner, Zenith had fully discharged its liability under said policy which covered
furniture, fixtures, fittings and other personal belongings of petitioner.

It must be noted that in allowing recovery under Policy No. F-03734, respondent Commissioner
placed much weight on the final report prepared by Dela Merced Adjustment Corporation, an
independent fire, marine and casualty adjuster contracted by Zenith to investigate the claims of its
various policyholders. Said report concluded that "the sound value of P26,666.67 represent[ed] the
whole loss and damage" incurred by petitioner, but with the application of the three-fourths loss
clause, Zenith's liability was reduced to P20,000.6

Maintaining that respondent Commissioner failed to take into account that there were two separate
items under Policy No. F-03734 and that his P60,000 claim under Item 2, covering stocks in trade at
Barreda Street, still remained unresolved despite payment to him of P15,472.50, petitioner asked for
a reconsideration. Upon its denial, petitioner filed the instant petition for certiorari contending that the
Insurance Commissioner erred [1] in finding that with Zenith's payment of P15,472.50 under Policy
No. F-03734, that aspect of petitioner's claim had been fully settled, leaving only the claim of
P30,000 under Policy No. 03724 unsatisfied; [2] in denying petitioner's demand for P60,000 under
Item 2 of Policy No. F-03734 and [3] in not awarding in favor of petitioner exemplary damages for
Zenith's unjustified and wanton refusal to pay petitioner's claim under the said two insurance
contracts. Petitioner did not dispute in his appeal the award of P20,000 under Policy No. F-03724
and the denial of actual and moral damages.

Zenith has admitted in its comment on the petition that its payment of P15,472.50 was only in
satisfaction of petitioner's claim under Item 1 of Policy No. F-03734. What is now in contention
before us is petitioner's claim under Item 2 of that policy which respondent Commissioner rejected
because petitioner allegedly relied merely on the report of Zenith's adjuster without bothering to
produce supporting documents indicating that he had made several purchases and suffered
immense losses by reason of the fire.

We find that respondent Commissioner acted with grave abuse of discretion when she denied
petitioner's claim for indemnity under Policy No. F-03734 because of what she perceived as
insufficient proof.

To prove the existence of the stocks in trade covered by Policy No. F-03734, petitioner offered his
testimony and that of his wife as well as documentary exhibits. 7 The foregoing evidence for
petitioner preponderantly showed the presence of some P590,000 worth of goods in his retail store
during the fire of November 9, 1977.

While the insurer, and the Insurance Commissioner for that matter, have the right to reject proofs of
loss if they are unsatisfactory, they may not set up for themselves an arbitrary standard of
satisfaction. Substantial compliance with the requirements will always be deemed sufficient. 8

More significantly, this Court has observed that respondent Zenith introduced in evidence the final
report on Policy No. F-03734 submitted by its own adjuster, Dela Merced Adjustment
Corporation. 9 Respondent Commissioner however ignored such report, reasoning that with regard to
Item 2 of Policy No. F-03734 the claim for loss of the stocks in trade was not successfully proven in
view of petitioner's failure to present evidence; that the adjuster's report deserved scant
consideration since the allegations therein were not substantiated, and that said report did not even
make a recommendation for payment.
We disagree. A scrutiny of the abovementioned adjuster's report reveals that together with the
formal demand for full indemnity, petitioner submitted his income tax return for 1978, purchase
invoices, certification from his suppliers as to his purchases, and other supporting papers. The report
even took into account the appraisals of the other adjusters and concluded that the total loss
sustained by petitioner in his household effects and stocks in trade reached P379,302.12. But after
apportioning said amount among petitioner's six different in surers [the co-insurance being known to
Zenith], the liability of Zenith was placed at P60,592.10. It therefore recommended that Zenith pay
the petitioner the amount of P60, 592.10.

Indeed, petitioner had every reason to expect that respondent Commissioner would give equal
weight and credence to the adjuster's report [on Policy No. F-03734] as she had done with the other.
After all, said document was offered as evidence by Zenith itself and could very well be considered
as an admission of its liability up to the amount recommended. It would have been pointless for
Zenith to have introduced said report as its evidence if it did not agree with its findings and ultimate
proposals. Being in the nature of an admission against interest, it is the best evidence which affords
the greatest certainty of the facts in dispute. 10 Respondent Commissioner should not have
perfunctorily dismissed that particular evidence as a worthless piece of paper.

We are convinced that petitioner has satisfactorily established his claim for indemnity under Policy
No. F-03734. In that respect, judgment was improperly rendered against him and the same must
accordingly be modified.

The denial of petitioner's demand for exemplary damages by respondent Commissioner must,
however, be sustained. There is no showing that Zenith, in contesting payment, had acted in a
wanton, oppressive or malevolent manner to warrant the imposition of corrective damages.11

WHEREFORE, judgment is hereby rendered ordering respondent Zenith Insurance Corporation to


pay petitioner Norman R. Noda the sum of P60,592.10 with legal interest from the filing of the
complaint until full payment, but deducting therefrom the amount of P15,472.50 which it had earlier
paid to petitioner.

SO ORDERED.
G.R. No. L-52756 October 12, 1987

MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner,


vs.
COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents.

PADILLA, J:

Petition to review the decision * of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979, ordering petitioner
Manila Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance Corporation the sum of Five Thousand Pesos
(P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos (P500.00), and costs of suit, and
the resolution of the same Court, dated 8 February 1980, denying petitioner's motion for reconsideration of it's decision.

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with
respondent insurance company. On 4 May 1970 the insured vehicle was bumped and damaged by a
truck owned by San Miguel Corporation. For the damage caused, respondent company paid
petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's general manager
executed a Release of Claim, subrogating respondent company to all its right to action against San
Miguel Corporation.

On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand


reimbursement from San Miguel Corporation of the amount it had paid petitioner. Insurance
Adjusters, Inc. refused reimbursement, alleging that San Miguel Corporation had already paid
petitioner P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash voucher
and a Release of Claim executed by the General Manager of petitioner discharging San Miguel
Corporation from "all actions, claims, demands the rights of action that now exist or hereafter [sic]
develop arising out of or as a consequence of the accident."

Respondent insurance company thus demanded from petitioner reimbursement of the sum of
P4,500.00 paid by San Miguel Corporation. Petitioner refused; hence, respondent company filed suit
in the City Court of Manila for the recovery of P4,500.00. The City Court ordered petitioner to pay
respondent P4,500.00. On appeal the Court of First Instance of Manila affirmed the City Court's
decision in toto, which CFI decision was affirmed by the Court of Appeals, with the modification that
petitioner was to pay respondent the total amount of P5,000.00 that it had earlier received from the
respondent insurance company.

Petitioner now contends it is not bound to pay P4,500.00, and much more, P5,000.00 to respondent
company as the subrogation in the Release of Claim it executed in favor of respondent was
conditioned on recovery of the total amount of damages petitioner had sustained. Since total
damages were valued by petitioner at P9,486.43 and only P5,000.00 was received by petitioner from
respondent, petitioner argues that it was entitled to go after San Miguel Corporation to claim the
additional P4,500.00 eventually paid to it by the latter, without having to turn over said amount to
respondent. Respondent of course disputes this allegation and states that there was no qualification
to its right of subrogation under the Release of Claim executed by petitioner, the contents of said
deed having expressed all the intents and purposes of the parties.

To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner
cites Art. 2207 of the Civil Code, which states:
If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of
contract complained of the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.

Petitioner also invokes Art. 1304 of the Civil Code, stating.

A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit.

We find petitioners arguments to be untenable and without merit. In the absence of any other
evidence to support its allegation that a gentlemen's agreement existed between it and respondent,
not embodied in the Release of Claim, such ease of Claim must be taken as the best evidence of the
intent and purpose of the parties. Thus, the Court of Appeals rightly stated:

Petitioner argues that the release claim it executed subrogating Private respondent
to any right of action it had against San Miguel Corporation did not preclude Manila
Mahogany from filing a deficiency claim against the wrongdoer. Citing Article 2207,
New Civil Code, to the effect that if the amount paid by an insurance company does
not fully cover the loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss, petitioner claims a preferred right to retain the
amount coming from San Miguel Corporation, despite the subrogation in favor of
Private respondent.

Although petitioners right to file a deficiency claim against San Miguel Corporation is
with legal basis, without prejudice to the insurer's right of subrogation, nevertheless
when Manila Mahogany executed another release claim (Exhibit K) discharging San
Miguel Corporation from "all actions, claims, demands and rights of action that now
exist or hereafter arising out of or as a consequence of the accident" after the insurer
had paid the proceeds of the policy- the compromise agreement of P5,000.00 being
based on the insurance policy-the insurer is entitled to recover from the insured the
amount of insurance money paid (Metropolitan Casualty Insurance Company of New
York vs. Badler, 229 N.Y.S. 61, 132 Misc. 132 cited in Insurance Code and
Insolvency Law with comments and annotations, H.B. Perez 1976, p. 151). Since
petitioner by its own acts released San Miguel Corporation, thereby defeating private
respondents, the right of subrogation, the right of action of petitioner against the
insurer was also nullified. (Sy Keng & Co. vs. Queensland Insurance Co., Ltd., 54
O.G. 391) Otherwise stated: private respondent may recover the sum of P5,000.00 it
had earlier paid to petitioner. 1

As held in Phil. Air Lines v. Heald Lumber Co., 2

If a property is insured and the owner receives the indemnity from the insurer, it is
provided in [Article 2207 of the New Civil Code] that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount paid
by the insurer does not fully cover the loss, then the aggrieved party is the one
entitled to recover the deficiency. ... Under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer and not the
insured 3 (Emphasis supplied)

The decision of the respondent court ordering petitioner to pay respondent company, not the
P4,500.00 as originally asked for, but P5,000.00, the amount respondent company paid petitioner as
insurance, is also in accord with law and jurisprudence. In disposing of this issue, the Court of
Appeals held:

... petitioner is entitled to keep the sum of P4,500.00 paid by San Miguel Corporation
under its clear right to file a deficiency claim for damages incurred, against the
wrongdoer, should the insurance company not fully pay for the injury caused (Article
2207, New Civil Code). However, when petitioner released San Miguel Corporation
from any liability, petitioner's right to retain the sum of P5,000.00 no longer existed,
thereby entitling private respondent to recover the same. (Emphasis supplied)

As has been observed:

... The right of subrogation can only exist after the insurer has paid the otherwise the
insured will be deprived of his right to full indemnity. If the insurance proceeds are
not sufficient to cover the damages suffered by the insured, then he may sue the
party responsible for the damage for the the [sic] remainder. To the extent of the
amount he has already received from the insurer enjoy's [sic] the right of subrogation.

Since the insurer can be subrogated to only such rights as the insured may
have, should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter. But in
such a case, the insurer will be entitled to recover from the insured whatever it has
paid to the latter, unless the release was made with the consent of the
insurer. 4(Emphasis supplied.)

And even if the specific amount asked for in the complaint is P4,500.00 only and not P5,000.00, still,
the respondent Court acted well within its discretion in awarding P5,000.00, the total amount paid by
the insurer. The Court of Appeals rightly reasoned as follows:

It is to be noted that private respondent, in its companies, prays for the recovery, not
of P5,000.00 it had paid under the insurance policy but P4,500.00 San Miguel
Corporation had paid to petitioner. On this score, We believe the City Court and
Court of First Instance erred in not awarding the proper relief. Although private
respondent prays for the reimbursement of P4,500.00 paid by San Miguel
Corporation, instead of P5,000.00 paid under the insurance policy, the trial court
should have awarded the latter, although not prayed for, under the general prayer in
the complaint "for such further or other relief as may be deemed just or equitable,
(Rule 6, Sec. 3, Revised Rules of Court; Rosales vs. Reyes Ordoveza, 25 Phil. 495 ;
Cabigao vs. Lim, 50 Phil. 844; Baguiro vs. Barrios Tupas, 77 Phil 120).

WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby
AFFIRMED with costs against petitioner.

SO ORDERED.
G.R. No. L-52732 August 29, 1988

F.F. CRUZ and CO., INC., petitioner,


vs.
THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ ALMONTE
MABLE and children DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME,
ANTONIO, and BERNARDO all surnamed MABLE, respondents.

Luis S. Topacio for petitioner.

Mauricio M. Monta for respondents.

CORTES, J.:

This petition to review the decision of the Court of Appeals puts in issue the application of the common law doctrine of res ipsa loquitur.

The essential facts of the case are not disputed.

The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the
residence of private respondents. Sometime in August 1971, private respondent Gregorio Mable first
approached Eric Cruz, petitioner's plant manager, to request that a firewall be constructed between
the shop and private respondents' residence. The request was repeated several times but they fell
on deaf ears. In the early morning of September 6, 1974, fire broke out in petitioner's shop.
Petitioner's employees, who slept in the shop premises, tried to put out the fire, but their efforts
proved futile. The fire spread to private respondents' house. Both the shop and the house were
razed to the ground. The cause of the conflagration was never discovered. The National Bureau of
Investigation found specimens from the burned structures negative for the presence of inflammable
substances.

Subsequently, private respondents collected P35,000.00 on the insurance on their house and the
contents thereof.

On January 23, 1975, private respondents filed an action for damages against petitioner, praying for
a judgment in their favor awarding P150,000.00 as actual damages, P50,000.00 as moral damages,
P25,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs. The Court of First
Instance held for private respondents:

WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, and against
the defendant:

1. Ordering the defendant to pay to the plaintiffs the amount of P80,000.00 for
damages suffered by said plaintiffs for the loss of their house, with interest of 6%
from the date of the filing of the Complaint on January 23, 1975, until fully paid;

2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00 for the loss
of plaintiffs' furnitures, religious images, silverwares, chinawares, jewelries, books,
kitchen utensils, clothing and other valuables, with interest of 6% from date of the
filing of the Complaint on January 23, 1975, until fully paid;
3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as moral
damages, P2,000.00 as exemplary damages, and P5,000.00 as and by way of
attorney's fees;

4. With costs against the defendant;

5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp. 1-2; Rollo,
pp. 29-30.]

On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed the
decision of the trial court but reduced the award of damages:

WHEREFORE, the decision declaring the defendants liable is affirmed. The


damages to be awarded to plaintiff should be reduced to P70,000.00 for the house
and P50,000.00 for the furniture and other fixtures with legal interest from the date of
the filing of the complaint until full payment thereof. [CA Decision, p. 7; Rollo, p. 35.]

A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution dated
February 18, 1980. Hence, petitioner filed the instant petition for review on February 22, 1980. After
the comment and reply were filed, the Court resolved to deny the petition for lack of merit on June
11, 1980.

However, petitioner filed a motion for reconsideration, which was granted, and the petition was given
due course on September 12, 1980. After the parties filed their memoranda, the case was submitted
for decision on January 21, 1981.

Petitioner contends that the Court of Appeals erred:

1. In not deducting the sum of P35,000.00, which private respondents recovered on the insurance on
their house, from the award of damages.

2. In awarding excessive and/or unproved damages.

3. In applying the doctrine of res ipsa loquitur to the facts of the instant case.

The pivotal issue in this case is the applicability of the common law doctrine of res ipsa loquitur, the
issue of damages being merely consequential. In view thereof, the errors assigned by petitioner shall
be discussed in the reverse order.

1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects to, may
be stated as follows:

Where the thing which caused the injury complained of is shown to be under the
management of the defendant or his servants and the accident is such as in the
ordinary course of things does not happen if those who have its management or
control use proper care, it affords reasonable evidence, in the absence of
explanation by the defendant, that the accident arose from want of care. [Africa v.
Caltex (Phil.), Inc., G.R. No. L-12986, March 31, 1966, 16 SCRA 448.]

Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a tank
truck was being unloaded into an underground storage tank through a hose and the fire spread to
and burned neighboring houses, this Court, applying the doctrine of res ipsa loquitur, adjudged
Caltex liable for the loss.

The facts of the case likewise call for the application of the doctrine, considering that in the normal
course of operations of a furniture manufacturing shop, combustible material such as wood chips,
sawdust, paint, varnish and fuel and lubricants for machinery may be found thereon.

It must also be noted that negligence or want of care on the part of petitioner or its employees was
not merely presumed. The Court of Appeals found that petitioner failed to construct a firewall
between its shop and the residence of private respondents as required by a city ordinance; that the
fire could have been caused by a heated motor or a lit cigarette; that gasoline and alcohol were used
and stored in the shop; and that workers sometimes smoked inside the shop [CA Decision, p. 5;
Rollo, p. 33.]

Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a firewall in
accordance with city ordinances would suffice to support a finding of negligence.

Even then the fire possibly would not have spread to the neighboring houses were it
not for another negligent omission on the part of defendants, namely, their failure to
provide a concrete wall high enough to prevent the flames from leaping over it. As it
was the concrete wall was only 2-1/2 meters high, and beyond that height it
consisted merely of galvanized iron sheets, which would predictably crumble and
melt when subjected to intense heat. Defendant's negligence, therefore, was not only
with respect to the cause of the fire but also with respect to the spread thereof to the
neighboring houses.[Africa v. Caltex (Phil.), Inc., supra; Emphasis supplied.]

In the instant case, with more reason should petitioner be found guilty of negligence since it had
failed to construct a firewall between its property and private respondents' residence which
sufficiently complies with the pertinent city ordinances. The failure to comply with an ordinance
providing for safety regulations had been ruled by the Court as an act of negligence [Teague v.
Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.]

The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for the loss
sustained by private respondents.

2. Since the amount of the loss sustained by private respondents constitutes a finding of fact, such
finding by the Court of Appeals should not be disturbed by this Court [M.D. Transit & Taxi Co., Inc. v.
Court of Appeals, G.R. No. L-23882, February 17, 1968, 22 SCRA 559], more so when there is no
showing of arbitrariness.

In the instant case, both the CFI and the Court of Appeals were in agreement as to the value of
private respondents' furniture and fixtures and personal effects lost in the fire (i.e. P50,000.00). With
regard to the house, the Court of Appeals reduced the award to P70,000.00 from P80,000.00. Such
cannot be categorized as arbitrary considering that the evidence shows that the house was built in
1951 for P40,000.00 and, according to private respondents, its reconstruction would cost
P246,000.00. Considering the appreciation in value of real estate and the diminution of the real
value of the peso, the valuation of the house at P70,000.00 at the time it was razed cannot be said
to be excessive.

3. While this Court finds that petitioner is liable for damages to private respondents as found by the
Court of Appeals, the fact that private respondents have been indemnified by their insurer in the
amount of P35,000.00 for the damage caused to their house and its contents has not escaped the
attention of the Court. Hence, the Court holds that in accordance with Article 2207 of the Civil Code
the amount of P35,000.00 should be deducted from the amount awarded as damages. Said article
provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company is subrogated to the rights of the
insured against the wrongdoer or the person who violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or
injury. (Emphasis supplied.]

The law is clear and needs no interpretation. Having been indemnified by their insurer, private
respondents are only entitled to recover the deficiency from petitioner.

On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it
indemnified private respondents from petitioner. This is the essence of its right to be subrogated to
the rights of the insured, as expressly provided in Article 2207. Upon payment of the loss incurred by
the insured, the insurer is entitled to be subrogated pro tanto to any right of action which the insured
may have against the third person whose negligence or wrongful act caused the loss [Fireman's
Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323.]

Under Article 2207, the real party in interest with regard to the indemnity received by the insured is
the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).] Whether or not the
insurer should exercise the rights of the insured to which it had been subrogated lies solely within
the former's sound discretion. Since the insurer is not a party to the case, its identity is not of record
and no claim is made on its behalf, the private respondent's insurer has to claim his right to
reimbursement of the P35,000.00 paid to the insured.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED
with the following modifications as to the damages awarded for the loss of private respondents'
house, considering their receipt of P35,000.00 from their insurer: (1) the damages awarded for the
loss of the house is reduced to P35,000.00; and (2) the right of the insurer to subrogation and thus
seek reimbursement from petitioner for the P35,000.00 it had paid private respondents is
recognized.

SO ORDERED.
G.R. No. 85624 June 5, 1989

CATHAY INSURANCE CO., INC., EMPIRE INSURANCE CO., UNION INSURANCE SOCIETY OF
CANTON, LTD., PARAMOUNT INSURANCE CORP., PHILIPPINE BRITISH INSURANCE CO., &
PHILIPPINE FIRST INSURANCE CO., petitioners,
vs.
HON. COURT OF APPEALS & EMILIA CHAN LUGAY, respondents.

Guzman, Lasam & Associates and F. S. Sumulong & Associates Law offices for petitioners.

Garcia & Pepito Law Offices for private respondent.

GRIO-AQUINO, J.:

It has been the sad experience of many who sought protection from disaster or tragedy through
insurance, to realize that insurance is quite easy to buy but difficult to collect. Insurance companies
are prone to invent excuses to avoid their just obligations (American Home Ins. Co. vs. Court of
Appeals, 109 SCRA 180). This case is one such instance.

Eight (8) years after Emilia Chan Lugay's Cebu Filipina Press was destroyed by fire in broad
daylight, she is still waiting to collect the proceeds of seven (7) fire policies which the petitioners sold
to her.

The petitioners are the six (6) insurance companies that issued fire insurance policies for the total
sum of P4,000,000 to the Cebu Filipino Press of Cebu City, as follows:

1. Cathay Insurance Company for P1,000,000 under Fire Insurance


Policy No. F-31056 dated June 10, 1981 renewing Policy No. F27942
(Exh-B-5), covering the period from June 20, 1981 to June 20, 1982
(Exh-B);

2. Empire Insurance Company for P500,000 under Fire Insurance


Policy No. YASCO/F-1101 dated March 7, 1981, renewing Policy No.
F-1095 (Exh. C-5), covering the period from March 19, 1981 to March
19, 1982 (Exh. C);

3. Union Insurance Society of Canton, Ltd, for P500,000 under Fire


Insurance Policy No. NU-0530 dated May 5, 1981, renewing Policy
No. MU-223903 (Exh. D-5), covering the period from May 21, 1981 to
May 21, 1982 (Exh. D);

4. Paramount Insurance Corp. for P500,000 under Fire Insurance


Policy No. 25311 dated July 1, 1981, covering the period from July
15, 1981 to July 15, 1982 (Exh. E);

5. Philippine British Insurance Company for P500,000 under Fire


Insurance Policy No. PB-107861 dated July 6, 1981, renewing Policy
No. PB-933 11 (Exh. F-5), covering the period from July 10, 1981 to
July 10, 1982 (Exh. F).
6. Philippine British Insurance Company for P500,000 under another
Fire Insurance Policy No. PB-107848 dated July 1, 1981, renewing
Policy No. PB-102653 (Exh G-5), covering the period from July 5,
1981 to July 5, 1982 (Exh. G); and

7. Philippine First Insurance Company for P500,000 under Fire


Insurance Policy No. CEB-G-0515 dated January 28, 1981, covering
the period from February 15, 1981 to February 15, 1982 (Exh. H). (p.
76, Rollo.)

The fire policies described the insured property as "stocks of printing materials, papers and general
merchandise usual to the Assured's trade" (p. 53, Rollo) stored in a one-storey building of strong
materials housing the Cebu Filipina Press located at UNNO Pres. Quirino cor. Don V. Sotto Sts.,
Mabolo, Cebu City. The co-insurers were indicated in each of the policies. All, except one policy
(Paramount's), were renewals of earlier policies issued for the same property.

On December 18, 1981, at around ten o'clock in the morning, the Cebu Filipina Press was razed by
electrical fire together with all the stocks and merchandise stored in the premises.

On January 15, 1982, Mrs. Lugay, owner and operator of the printing press, submitted sworn
Statements of Loss Formal Claims to the insurers, through their djusters. She claimed a total loss of
P4,595,00.

She submitted proofs of loss required by the adjusters. After nearly ten (10) months of wating for the
insurers to pay his claim, she sued to collect on December 15, 1982. The insurance companies
denied liability, alleging violation of certain conditions of the policy, misdeclaration, and even arson
which was not seriously pressed for, come the pre-trial, the petitioners offered to pay 50% of her
claim, but she insisted in full recovery.

After the trial on the merits, the court rendered judgment in her favor, as follows:

... directing payment by Cathay Insurance Company, Inc., the amount of P1,000,000,
by Empire the amount of P5,000,000.00, by Insurance Society of Canton Limited the
amount P5,000,000.00, by Paramount Insurance Company, the amount
P5,000,000.00, by Philippine British Insurance Company Inc., the amount of
P5,000,000.00 by Philippine First Insurance Company, Inc., the amount of
P5,000,000.00; for all the defendants jointly and severaly to pay P48,000.00
representing expenses of the plaintiff, and a separate amount of 20% of the
P4,000,000.00 representing fees of councel; and interests at the rate of twice the
ceiling being prescribe by the Monetary Board starting from the time when the case
was filed; and finally, with costs. (Decision Court of Appeal, pp. 1-3.) (p. 77, Rollo.)

On appeal to the Court of Appeals, the decision was affirmed in toto (pp. 52-67, Rollo). Hence, this
petition for review under Rule 45 of the Rules of Court wherein the petitioners allege that the Court
of Appeals erred:

1. in holding that the private respondent's cause of action had already


acrued when the complaint was filed on December 15, 1982 and in
not holding that the action is premature;

2. in finding that sufficient proofs of loss had been presented by the


private respondent;
3. in not holding that the private respondent's claim for loss was
infrated;

4. in awarding damages to the private respondent in the form of


interests equivalent to double the interest ceiling set by the Monetary
Board despite absence of a finding of unreasonable withholding or
refusal to pay the claim; and

5. in awarding exorbitant attorney's fees.

It is plain to see that all these grounds of the petition for review present factual issues which, in view
of the provision in Section 2, Rule 45 of the Rules of Court that "only questions of law may be raised"
this Court may not inquire into by conducting a tedious reassessment of the "maze of testimonial and
documentary evidence" (p. 57, Rollo) of the parties. Referring to the evidence presented at the trial
of this case, the Court of Appeals said:

We are impressed indeed with the patience, diligence and perseverance of the trial
judge in wading through the voluminous documents, making an exhaustive
examination and detailed evaluation of the evidence, and thus emerging from the
maze of testimonial and documentary evidence with accuracy of perception in
determining the merits of the respective claims of the litigants. Accordingly, We are
constrained to honor and stamp our imprimatur to the findings of fact and
conclusions of the trial court since, admittedly, it was in a better position than We are
to examine the real evidence, as well as to observe the demeanor of the witnesses
while testifying in the case (Chase vs. Buencamino, Sr., 136 SCRA 365). (p. 57,
Rollo.)

The finding of the trial court and the Court of Appeals that the insured's cause of action had already
accrued before she filed her complaint is supported by Section 243 of the Insurance Code which
fixes a maximum period of 90 days after receipt of the proofs of loss by the insurer for the latter to
pay the insured s claim.

Sec. 243. The amount of any loss or damage for which an insurer may be liable,
under any policy other than the insurance policy, shall be paid within thirty days after
proof of loss is received by the insurer and ascertainment of the loss or damage is
made either by agreement between the insured and the insurer or by arbitration; but
if such ascertainiment is not had or made within sixty days after such receipt by the
insurer of the proof of loss, then the loss or damage shall be paid within ninety days
after such receipt. ... (Insurance Code.)

As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and the proofs
of loss were submitted from January 15, 1982 through June 21, 1982 in compliance with the
adjusters' numerous requests for various documents, payment should have been made within 90
days thereafter, or on or before September 21, 1982. Hence, when the assured file her complaint on
December 15, 1982, her cause of action had a ready accrued.

There is no merit in the petitioners' contention that the proof of loss were insufficient because
respondent Emilia Chan Luga failed to comply with the adjuster's request for the submission of her
bank statements. Condition No. 13 of the insurance policy on proofs of loss, provides:

13. The insured shall give immediate written notice to th company of any loss, protect
the property from further damage, forth with separate the damaged and undamaged
personal property, put it in the best possible order, furnish a complete inventory of
the destroyed damaged and undamaged property, showing in detail quantities, costs,
actual cash value and the amount of loss claimed; AN WITHIN SIXTY DAYS AFTER
THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY,
THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS signed
and sworn to by the insured, stating the knowledge and belief of th insured as to the
following: the time and origin of the loss, the interest of the insured and of all others
in the property, the actual cash value of each item thereof and the amount of loss
thereto, all encumbrances thereon, all other contracts of insurance, whether valid or
not covering any of said property, any changes in the title, use, occupation, location,
possession or exposures of said property since the issuing of this policy, by whom
and for what purpose any buildings herein described and the several parts thereof
were occupied at the time of the loss and whether or not they stood on leased
ground, and shall furnish a copy of all the descriptions and schedules in all policies
and, if required, verified plans and specifications of any building, fixtures or machine
destroyed or damaged. The insured as often as may be reasonable required shall
exhibit to any person designated by the Company all that remains of any property
therein described, and submit to examination under oath by any person named by
the Company, and subscribe the same; as often as may be reasonably required,
shall produce for examination all books of account, bills, invoices, and other
vouchers, or certified copies thereof if originals be lost. At such reasonable time and
place as may be designated by the Company or its representative, and shall permit
extracts and copies thereof to be made.

No claim under this policy shall be payable unless the terms of this condition have
been complied with. (pp. 55-56, Rollo.)

Condition No. 13, as the Court of Appeals observed, does not require the insured to produce her
bank statements. Therefore, the insured was not obligated to produce them and the insurers had no
right to ask for them. Condition No. 13 was prepared by the insurers themselves, hence, it "should
be taken most strongly" (p. 58, Rollo) against them.

The Court of Appeals found that the insured "fully complied with the requirements of Condition No.
13" (p. 58, Rollo). The adjuster's demand for the assured's bank statements (which under the law on
the secrecy of bank deposits, she need not disclose) would add more requirements to Condition No.
13 of the insurance contract, and, as pointed out by the Appellate Court, "would amount to giving the
insurers limitless latitude in making unreasonable demands if only to evade and avoid liability" (p. 58,
Rollo).

Nor was the claim inflated. Both the trial court and the Court of Appeals noted that the proofs were
ample and "more than enough ... for defendants (insurers) to do a just assessment supporting the
1981 fire claim for an amount exceeding four million pesos" (p. 60, Rollo).

The trial court's award (which was affirmed by the Court of Appeals) of double interest on the private
respondent's claim is lawful and justified under Sections 243 and 244 of the Insurance Code which
provide:

Sec. 243. ... Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the
duration of the delay at the rate of twice the ceiling prescribed by the Monetary
Board, ...
Sec. 244. In case of any litigation for the enforcement of any policy or contract of
insurance, it shall be the duty of the Commissioner or the Court, as the case may be,
to make a finding as to whether the payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative case, the insurance company
shall be adjudged to pay damages which shall consist attorney's fees and other
expenses incurred by the insured person by reason of such unreasonable denial or
withholding of payment plus interest of twice the ceiling prescribed by the Monetary
Board of the amount of claim due the insured, ... (Emphasis supplied; p. 66, Rollo.)

Section 243 of the Insurance Code is in fact embodied in provision No. 29 of the policies issued by
the petitioners to th private respondents (p. 82, Rollo).

The petitioners' contention that the charging of double interest was improper because no
unreasonable delay in the processing of the fire claim was proven, is refuted by the trial court'
explicit finding that "there was a delay that was not reasonable in processing the claim and doing
payments" (p. 81, Rollo). Under Section 244, a prima facieevidence of unreasonable delay in
payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in
both Section 242 and 243 of the Insurance Code.

As provided in Section 244 also, by reason of the delay and consequent filing of this suit by the
insured, the insurers "shall be adjudged to pay damages which shall consist of attorney's fees and
other expenses incurred by the insured." In view of the not insubstantial value of the private
respondent's claims and the considerable time and effort expended by them and their counsel in
prosecuting these claims for the past eight (8) years, We hold that attorney's fees were properly
awarded to the private respondents. However, an award equivalent to (10%) percent of the proceeds
of the policies would be more reasonable than the 20% awarded by the trial court and th Appellate
Court.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. No. CV-12100 is affirmed, except
the award of attorney's fees to the private respondents which is hereby reduced to ten (10%) percent
of the proceeds of the insurance policies sued upon. Costs against the petitioners.

SO ORDERED.
G.R. No. 76101-02 September 30, 1991

TIO KHE CHIO, petitioner,


vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION,respondents.

Rodolfo M. Morelos for petitioner.

Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:

The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in
actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it
should be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while
private respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six
(6%) per cent under Article 2209 of the Civil Code.

The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand
(1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The
goods were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned
by Far Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were
found to have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a
claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them
before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed
a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid
insurance premiums.

On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to
pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums
with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's
fees and the costs.1

The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe
Chio vs. Eastern Assurance and Surety Corporation."

The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO
moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent
per annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as
insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's
motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.

On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which
states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.

No pronouncement as to costs.2

In disputing the aforesaid decision of the Court of Appeals, petitioner maintains that not only is it
unjust and unfair but it is also contrary to the correct interpretation of the fixing of interest rates under
Sections 243 and 244 of the Insurance Code. And since petitioner's claims is based on an insurance
contract, then it is the Insurance Code which must govern and not the Civil Code.

We rule for respondent EASCO. The legal rate of interest in the case at bar is six (6%) per annum as
correctly held by the Appellate Court.

Section 243 of the Insurance Code provides:

The amount of any loss or damage for which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the
insured and the insurer or by arbitration; but if such ascertainment is not had or made within
sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall
be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage
within the time prescribed herein will entitle the assured to collect interest on the proceeds of
the policy for the duration of the delay at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
fraudulent.

Section 244 of the aforementioned Code also provides:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld;
and in the affirmative case, the insurance company shall be adjudged to pay damages which
shall consist of attorney's fees and other expenses incurred by the insured person by reason
of such undeniable denial or withholding of payment plus interest of twice the ceiling
prescribed by the Monetary Board of the amount of the claim due the insured, from the date
following the time prescribed in section two hundred forty-two or in section two hundred forty-
three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay
any such claim within the time prescribed in said sections shall be considered prima facie
evidence of unreasonable delay in payment.

In the case at bar, the Court of Appeals made no finding that there was an unjustified refusal or
withholding of payment on petitioner's claim. In fact, respondent court had this to say on EASCO's
refusal to settle the claim of petitioner:

... EASCO's refusal to settle the claim to Tio Khe Chio was based on some ground which,
while not sufficient to free it from liability under its policy, nevertheless is sufficient to negate
any assertion that in refusing to pay, it acted unjustifiably.

xxx xxx xxx


The case posed some genuine issues of interpretation of the terms of the policy as to which
persons may honestly differ. This is the reason the trial court did not say EASCO's refusal
was unjustified.3

Simply put, the aforecited sections of the Insurance Code are not pertinent to the instant case. They
apply only when the court finds an unreasonable delay or refusal in the payment of the claims.

Neither does Circular No. 416 of the Central Bank which took effect on July 29, 1974 pursuant to
Presidential Decree No. 116 (Usury Law) which raised the legal rate of interest from six (6%) to
twelve (12%) per cent apply to the case at bar as by the petitioner. The adjusted rate mentioned in
the circular refers only to loans or forbearances of money, goods or credits and court judgments
thereon but not to court judgments for damages arising from injury to persons and loss of property
which does not involve a loan.4

In the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA
158, the Court declared that the legal rate of interest is six (6%) per cent per annum, and not twelve
(12%) per cent, where a judgment award is based on an action for damages for personal injury, not
use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of
Appeals, G.R. No. 52478, October 30, 1986, 145 SCRA 311, that the rates under the Usury Law
(amended by P.D. 116) are applicable only to interest by way of compensation for the use or
forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code.

Clearly, the applicable law is Article 2209 of the Civil Code which reads:

If the obligation consists in the payment of a sum of money and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of stipulation, the legal interest which is six per
cent per annum.

And in the light of the fact that the contending parties did not allege the rate of interest stipulated in
the insurance contract, the legal interest was properly pegged by the Appellate Court at six (6%) per
cent.

WHEREFORE, in view of the foregoing, the petition is DENIED for lack of merit.

SO ORDERED.
G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,


vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.

RESOLUTION

FRANCISCO, R., J.:

This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17,
1993, affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable
to pay herein private respondent the amount of P700,000.00, plus legal interest thereon, another
sum of P100,000.00 as attorney's fees and the cost of the suit.

The factual background of this case is as follows:

Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to
Manila with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb
barges. The barges were towed in tandem by the tugboat MT Marica, which is likewise owned by
Coastwise.

Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in
through a hole "two inches wide and twenty-two inches long"1 As a consequence, the molasses at
the cargo tanks were contaminated and rendered unfit for the use it was intended. This prompted the
consignee, Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-
asa Sales, Inc. filed a formal claim with the insurer of its lost cargo, herein private respondent,
Philippine General Insurance Company (PhilGen, for short) and against the carrier, herein petitioner,
Coastwise Lighterage. Coastwise Lighterage denied the claim and it was PhilGen which paid the
consignee, Pag-asa Sales, Inc., the amount of P700,000.00, representing the value of the damaged
cargo of molasses.

In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the
latter's lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which
the consignee may have against the carrier, which is presumed to have violated the contract of
carriage.

The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the
Court of Appeals, the award was affirmed.

Hence, this petition.

There are two main issues to be resolved herein. First, whether or not petitioner Coastwise
Lighterage was transformed into a private carrier, by virtue of the contract of affreightment which it
entered into with the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a
private carrier, did it exercise the ordinary diligence to which a private carrier is in turn bound?
Second, whether or not the insurer was subrogated into the rights of the consignee against the
carrier, upon payment by the insurer of the value of the consignee's goods lost while on board one of
the carrier's vessels.

On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it
was a common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the
shipment of molasses from Negros Oriental to Manila and refers to this contract as a "charter
agreement". It then proceeds to cite the case of Home Insurance Company vs. American Steamship
Agencies, Inc.2 wherein this Court held: ". . . a common carrier undertaking to carry a special cargo
or chartered to a special person only becomes a private carrier."

Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the
court are as follows:

Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of
its captain and crew, would remain in the absence of stipulation.3

The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals,4 wherein
we ruled:

Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel
must completely and exclusively relinquish possession, command and navigation
thereof to the charterer, anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all.

On the other hand a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for special
service to be rendered by the owner of the vessel and under such contract the
general owner retains the possession, command and navigation of the ship, the
charterer or freighter merely having use of the space in the vessel in return for his
payment of the charter hire. . . . .

. . . . An owner who retains possession of the ship though the hold is the property of
the charterer, remains liable as carrier and must answer for any breach of duty as to
the care, loading and unloading of the cargo. . . .

Although a charter party may transform a common carrier into a private one, the same however is
not true in a contract of affreightment on account of the aforementioned distinctions between the
two.

Petitioner admits that the contract it entered into with the consignee was one of affreightment.5 We
agree. Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one
point to another, but the possession, command and navigation of the vessels remained with
petitioner Coastwise Lighterage.

Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the
contract of affreightment, was not converted into a private carrier, but remained a common carrier
and was still liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in
good order to a carrier and the subsequent arrival of the same goods at the place of destination in
bad order makes for a prima facie case against the carrier.

It follows then that the presumption of negligence that attaches to common carriers, once the goods
it transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.

The records show that the damage to the barge which carried the cargo of molasses was caused by
its hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a
submerged derelict vessel. Petitioner contends that this navigational hazard was the efficient cause
of the accident. Further it asserts that the fact that the Philippine Coastguard "has not exerted any
effort to prepare a chart to indicate the location of sunken derelicts within Manila North Harbor to
avoid navigational accidents"6 effectively contributed to the happening of this mishap. Thus, being
unaware of the hidden danger that lies in its path, it became impossible for the petitioner to avoid the
same. Nothing could have prevented the event, making it beyond the pale of even the exercise of
extraordinary diligence.

However, petitioner's assertion is belied by the evidence on record where it appeared that far from
having rendered service with the greatest skill and utmost foresight, and being free from fault, the
carrier was culpably remiss in the observance of its duties.

Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by
the provisions of the Civil Code) provides:

Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by marine
and navigation laws, ordinances or regulations, and must not be disqualified
according to the same for the discharge of the duties of the position. . . .

Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates
this rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful
accident. It may also logically, follow that a person without license to navigate, lacks not just the skill
to do so, but also the utmost familiarity with the usual and safe routes taken by seasoned and legally
authorized ones. Had the patron been licensed, he could be presumed to have both the skill and the
knowledge that would have prevented the vessel's hitting the sunken derelict ship that lay on their
way to Pier 18.

As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to
overcome the presumption of negligence with the loss and destruction of goods it transported, by
proof of its exercise of extraordinary diligence.

On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more
rule against the petitioner. We have already found petitioner liable for breach of the contract of
carriage it entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of
the cargo which petitioner-carrier was transporting, it was not the carrier which paid the value thereof
to Pag-asa Sales, Inc. but the latter's insurer, herein private respondent PhilGen.

Article 2207 of the Civil Code is explicit on this point:


Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who violated the contract. . . .

This legal provision containing the equitable principle of subrogation has been applied in a long line
of cases including Compania Maritima v. Insurance Company of North America;7 Fireman's Fund
Insurance Company v. Jamilla & Company, Inc.,8 and Pan Malayan Insurance Corporation v. Court
of Appeals,9 wherein this Court explained:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation.
If the insured property is destroyed or damaged through the fault or negligence of a
party other than the assured, then the insurer, upon payment to the assured will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured
operated as an equitable assignment to the former of all remedies which the latter
may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.

Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-
asa Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by
petitioner Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales,
Inc. may have had against the carrier, herein petitioner Coastwise Lighterage.

WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming
the order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to
pay respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus
interest thereon at the legal rate computed from March 29, 1989, the date the complaint was filed
until fully paid and another sum of P100,000.00 as attorney's fees and costs"10 is likewise hereby
AFFIRMED

SO ORDERED.
[G.R. No. 126223. November 15, 2000]

PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner,


vs. COURT OF APPEALS and ELIZA PULIDO, respondents.

DECISION
GONZAGA-REYES, J.:

This petition for review on certiorari seeks to reverse the Decision of the Special
Second Division of the Court of Appeals dated August 27, 1996, [1] which affirmed in
toto the Decision of the Regional Trial Court of Baguio City,[2] allowing herein private
respondent, the beneficiary under a life insurance policy issued by petitioner, to recover
the face amount of the said policy.
Briefly, the antecedent facts are:
On January 9, 1989, petitioner received from one Florence Pulido an application for
life insurance, dated December 16, 1988, in the amount of P100,000.00 which
designated her sister, herein private respondent, as its principal beneficiary. Because
the insurance applied for was non-medical, petitioner did not require a medical
examination and issued a policy on the sole basis of the application on February 11,
1989. On April 1992, petitioner received private respondents claim, which declared that
the insured, Florence Pulido, died of acute pneumonia on September 10, 1991.
Petitioner withheld payment on the ground that the policy claimed under was void
from the start for having been procured in fraud. It is petitioners contention that even
before they received private respondents claim for death benefits, their investigation
concerning the subject policy yielded the information that the insured, Florence Pulido,
died in 1988, before the application for insurance on her life was made.[3] While this was
communicated to private respondent in a letter dated April 29, 1992, [4] private
respondent had already filed her claim earlier that month. [5] In another letter dated July
27, 1992, however, petitioner confirmed to private respondent receipt of the claim
papers and assured her that her case was being given preferential attention and prompt
action.[6]
Following the filing by private respondent of her claim, petitioner caused another
investigation respecting the subject policy. Pursuant to the findings of this second
investigation, petitioner stood by its initial decision to treat the policy as void and not to
honor the claim. On November 9, 1992, private respondent enlisted the services of
counsel in reiterating her claim for death benefits.[7] Petitioner still refused to make
payment and thus, this action.
The complaint before the lower court sought payment of the face amount of the
policy, equivalent to P100,000.00, with interest at 24% per annum for undue delay in
payment pursuant to Section 244 of the Insurance Code, and for P5,000.00 as
consequential damages.
For its part, petitioner interposed that it was legally justified in denying plaintiffs
claim, the results of its investigations having indicated that the insured was already
dead at the time the policy was applied for. It also counterclaimed for attorneys fees.
To substantiate its defense, petitioner submitted copies of the reports of its
investigators. The first report,[8] prepared by one Dr. Benedicto Briones, was dated April
1, 1992, and had attached to it a questionnaire, responded to by one Ramon
Piganto,[9] who represented to be the brother-in-law of the insured and the barangay
chairman of Cardiz, Bagulin, La Union. To the question Where does [Florence Pulido]
reside now?, Piganto had replied that Florence Pulido used to live in Cardiz, but was
dead since 1988. Pigantos statement was signed by him, and witnessed by his wife,
Nenita Piganto. This report was petitioners basis for treating the disputed policy as void
since April 1992, even before receipt of private respondents claim. The next two reports
pertained to the investigation petitioner commenced after private respondent filed her
claim. One report, dated October 2, 1992, was submitted by Ferdinand Tanchoco,
another of petitioners investigators, and dealt with Tanchocos interview with a certain
Remylyn Piganto, a 14-year old high school student who was the niece of the insured
and daughter of Ramon Piganto. Remylyn purportedly told Tanchoco that her auntie
Florence Pulido died young a long time ago, before Remylyn was even born. [10] Remylyn,
however, did not execute any written statement. The other report, dated December 28,
1992,[11] was prepared by Dr. Benedicto Briones, who also prepared the first report dated
April 1, 1992. This last report intimated the claim of some neighbors of the Pulido family
that Florence Pulido died in a car accident in 1985. These persons, however, refused to
give their names or execute statements on the matter, as they were reportedly afraid of
Ramon Piganto, the insureds brother-in-law.[12]
During the trial, plaintiff-private respondent testified that the insured died of acute
pneumonia on September 10, 1991 in Barangay Cardiz, Bagulin, La Union and was
buried two days after within their own yard. Plaintiff next presented as a witness Dr.
Irineo Gutierrez, who testified that he attended to the ailing Florence Pulido on
September 8, and 9, 1991 at their house in Cardiz. Dr. Gutierrez then authenticated a
Certificate of Death,[13] issued on September 12, 1991 by the Local Civil Registrar of
Bagulin, La Union, which bore his signature in his capacity as then Municipal Health
Officer of Bagulin, La Union. The death certificate declared that Florence Pulido died on
September 10, 1991 at around 4:00 in the afternoon.
A neighbor of the Pulidos, Francisco Villano, also testified in support of plaintiff that
the insured died of illness on September 1991. Villano claimed that he was at the
Pulidos house when Dr. Gutierrez attended to the insured. He also said that he went to
the wake of Florence Pulido and was able to view her remains.[14]
Meanwhile, defendant-petitioner presented Pablito Angalot, petitioners Life Claims
Manager, who said that even before the filing of private respondents claim, petitioners
Claims Committee had already declared the disputed policy null and void in light of the
investigative report dated April 1, 1992. However, petitioner was unable to present Dr.
Benedicto Briones, the investigator who prepared the April 1, 1992 report. Also, when it
presented Ramon Piganto, whose statement attached to Dr. Brioness report dated April
1, 1992 was the basis for petitioners treating the subject policy as void, Piganto denied
giving the statement that Florence Pulido died in 1988, and said that he was made to
sign a blank coupon bond.[15]
Ferdinand Tanchoco, petitioners other investigator, identified his investigative
report[16] and recounted the results of his investigation focusing particularly on the
interview with Remylyn Piganto. Tanchoco also reported that private respondents
information on the insureds death, as declared in her claim certificate, tallied with the
entries of the death certificate as found in the records of the Local Civil Register of
Bagulin, La Union.
The dispositive portion of the decision of the Regional Trial Court, which was
affirmed in toto by the Court of Appeals, states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and


against the defendant, ordering the latter to pay the former the amount of
P100,000.00, representing the face value of the insurance policy sued upon,
with interest thereon at the legal rate from January 8, 1993, the date of the
filing of the complaint, until fully paid, plus P20,000.00 for and as attorneys
fees and costs of suit.

In ruling in favor of plaintiff-private respondent, the trial court found no reason to


doubt the correctness of the entries in the Certificate of Death, which declared that
Florence Pulido died on September 10, 1991. It is also found that defendant, petitioner
herein, failed to discharge the burden of proving its affirmative defense that fraud
attended the issuance of the policy sued upon. Contrarily, as the lower court observed,
the evidence defendant presented sustained the validity of the policy instead of
establishing its alleged fraud.
The lower court also struck down as hearsay the two reports prepared by Dr.
Benedicto Briones, the said investigator not having been presented as a witness in
court. It also held as hearsay the alleged declaration of Remylyn Piganto, as recounted
by Ferdinand Tanchoco in his report and on testimony, since Remylyn herself did not
take the witness stand.
However, the lower court found plaintiff-private respondent entitled to legal interest
only, and not to 24% per annum as prayed for. Under Section 242 of the Insurance
Code, the refusal of the insurer to pay a life insurance claim within the period prescribed
will entitle the beneficiary to collect interest on the proceeds at the rate of twice the
ceiling prescribed by the Monetary Board for the duration of the delay, unless the
refusal to pay is based on the ground that the claim is fraudulent. Fraud being the
ground invoked by petitioner for refusing to honor the claim, the lower court found no
unreasonable delay in petitioners decision to withhold payment.
The petition is without merit.
As a rule, a petition for review on certiorari may raise only questions of law which
must be distinctly set forth.[17] This Court does not countenance the elevation of patently
factual questions disguised by a loose and general wording of the assignment of errors.
It is clear that the only issue the petition raises for review is respondent courts
negative finding of fraud in the obtainment of Florence Pulidos insurance policy. Fraud
is a question of fact which must be alleged and proved at the level of the lower
court.[18] The records bear out that since the onset of this case, the main issue has
always been whether there was fraud in the obtainment of the disputed policy, or put
differently, whether the insured, Florence Pulido, was in fact dead before the application
for insurance on her life was made. This the lower courts had effected ruled on, upon a
preponderance of the evidence duly received from both parties. We see no reversible
error in the finding of both respondent court and the trial court in favor of the correctness
of the entries in Certificate of Death, duly registered with the Local Civil Registrar of
Bagulin, La Union, which declared that Florence Pulido died of acute pneumonia on
September 10, 1991. Dr. Irineo Gutierrez, the Municipal Health Officer of Bagulin, La
Union whose signature appeared in the death certificate, testified in addition that he
ministered to the ailing Florence Pulido for two days immediately prior to her death. This
fact is likewise noted in the death certificate.
Death certificates, and notes by a municipal health officer prepared in the regular
performance of his duties, are prima facie evidence of facts therein stated.[19] A duly-
registered death certificate is considered a public document and the entries found
therein are presumed correct, unless the party who contests its accuracy can produce
positive evidence establishing otherwise.[20] Petitioners contention that the death
certificate is suspect because Dr. Gutierrez was not present when Florence Pulido died,
and knew of Florences death only through Ramon Piganto, does not merit a conclusion
of fraud. No motive was imputed to Dr. Gutierrez for seeking to perpetuate a falsity in
public records. Petitioner was likewise unable to make out any clear motive as to why
Ramon Piganto would purposely lie. Mere allegations of fraud could not substitute for
the full and convincing evidence that is required to prove it.[21] A failure to do so would
leave intact the presumption of good faith and regularity in the performance of public
duties, which was the basis of both respondent court and the trial court in finding the
date of Florence Pulidos death to be as plaintiff-private respondent maintained.
We cannot likewise give credence to petitioners submission that the inconsistencies
in the testimonies of the witnesses for plaintiff-private respondent are in themselves
evidence of fraud. Such alleged inconsistencies are matters of credibility which had
been ably passed upon by the lower court.
The absence of fraud, as a factual finding of the lower court adopted by the Court of
Appeals, entirely consistent with the evidence on record, will not be reversed and,
hence, is final and conclusive upon this Court.
WHEREFORE, the instant petition is DENIED. Costs against petitioners.
SO ORDERED.
G.R. No. 138737 July 12, 2001

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,


vs.
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.

KAPUNAN, J.:

Through this petition for review on certiorari Finman General Assurance Corporation (petitioner)
seeks to reverse and set aside the Decision, dated January 14, 1999, of the Court of Appeals (CA)
in CA-G.R. CV No. 46721 directing petitioner to pay the insurance claim of Usiphil Incorporated
(private respondent). The appellate courts Resolution, dated May 13, 1999, which denied
petitioners motion for reconsideration, is likewise sought to be reversed and set aside.

The antecedent facts, as culled from the decision of the trial court and the CA, are as follows:

On September 15, 1981, private respondent obtained a fire insurance policy from petitioner (then
doing business under the name Summa Insurance Corporation) covering certain properties, e.g.,
office, furniture, fixtures, shop machinery and other trade equipment. Under Policy No. F3100 issued
to private respondent, petitioner undertook to indemnify private respondent for any damage to or
loss of said properties arising from fire.

Sometime in 1982, private respondent filed with petitioner an insurance claim amounting to
P987,126.11 for the loss of the insured properties due to fire. Acting thereon, petitioner appointed
Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then
required private respondent to file a formal claim and submit proof of loss. In compliance therewith,
private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July 22, 1982,
signed by Reynaldo Cayetano, private respondents Manager. Respondent likewise submitted Proof
of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Baynes
Adjuster F.C. Medina.

Palallos personally followed-up private respondents claim with petitioners President Joaquin
Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to
reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated
February 28, 1985, which indicated that the amount due respondent was P842,683.40.

Despite repeated demands by private respondent, petitioner refused to pay the insurance claim.
Thus, private respondent was constrained to file a complaint against petitioner for the unpaid
insurance claim. In its Answer, petitioner maintained that the claim of private respondent could not
be allowed because it failed to comply with Policy Condition No. 13 regarding the submission of
certain documents to prove the loss.

Trial ensued. On July 6, 1994, the trial court rendered judgment in favor of private respondent. The
dispositive portion of the decision reads:

WHEREFORE, in view of the above observations and findings, judgment is hereby rendered
in favor of the plaintiff and against the defendant, ordering the latter:

1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum
from February 28, 1985 until fully paid (par. 29 of Exh. K);
2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for
attorneys fees, plus P1,500.00 per court appearance of counsel;

3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to


the actual and compensatory damages awarded;

4. Dismissing the claim of P30,000.00 for actual damages under par. 4 of the prayer,
since the actual damages has been awarded under par. 1 of the decisions
dispositive portion;

5. Dismissing the claim of interest under par. 2 of the prayer, there being no
agreement to such effect;

6. Dismissing the counter-claim for lack of merit;

7. Ordering the defendant to pay the cost of suit.

SO ORDERED.1

On appeal, the CA substantially affirmed the decision of the trial court. The dispositive portion of the
CA decision reads:

WHEREFORE, the appealed decision is hereby AFFIRMED with the modification that
defendant-appellant is ordered to pay plaintiff-appellee the sum of P842,683.40 and to pay
24% interest per annum from 03 May 1985 until fully paid. In all other respects, the appealed
decision is AFFIRMED IN TOTO.

SO ORDERED.2

Petitioner now comes to this Court assailing the decision of the appellate court. Petitioner alleges
that:

Respondent Court of Appeals erred in finding that there is evidence sufficient to justify the
Decision of the lower court;

Respondent Court of Appeals erred in failing to consider the fact that Private Respondent
committed a violation of the Insurance Policy which justifies the denial of the claim by
Petitioner;

Respondent Court of Appeals further erred in finding that Petitioner is liable to pay the
respondent, Usiphil, Inc., an interest of 24% per annum in addition to the principal amount of
P842,683.40.3

Essentially, petitioner argues that the disallowance of private respondents claim is justified by its
failure to submit the required documents in accordance with Policy Condition No. 13. Said
requirements were allegedly communicated to private respondent in the two letters of H.H. Bayne to
private respondent. The first letter stated:

To be able to expedite adjustment of this case, please submit to us without delay the
following documents and/or particulars:
For FFF, Machineries/Equipment Claims

1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a
detailed inventory of the documents submitted.

2. Certification from the appropriate government office indicating the date of the occurrence
of the fire, the property involved, its location and possible point of origin.

3. Proof of premium payment.

4. Three color photographs of the debris properly captioned/identified/dated and initiated by


the claimant at the back.

4.1 Close-up (not more than 2 meters away) of the most severely damaged.

4.2 Close-up (not more than 2 meters away) of the least damaged.

4.3. Original view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.

Though our adjusters will also take photographs in the manner prescribed above, please do
not rely on his photographs in the preservations of your evidence of loss thru pictures.

5. Copies of purchase invoices.

6. In the absence of No. 5, suppliers certificates of sales and delivery.

7. Appraisal report, if any.

8. Where initial estimated loss is exceeding P20,000.00, submit estimate by at least 2


contractors/suppliers.

9. Others (to be specified)

1. Repairs cost of the affected items including quotation or invoices in support thereof;

2. Complete lists of furniture, fixtures & fittings including date and cost of acquisition, and;

3. Statement of salvage on burned items.

Your preferential attention to this request will be fully appreciated.4

While the other letter stated:

Please submit to us without delay the following documents and/or particulars.

For Stock Claim

1. Your formal claim (which may be accomplished in the enclosed), accompanied by a


detailed inventory of the documents submitted.
2. Certification from the appropriate government office showing that the Insureds property
was involved in the fire as a consequence of which the claim is being filed.

3. Proof of premium payment.

4. Three colored photographs of the debris, property captioned/identified/dated and initiated


by the claimant at the back; in a floor plan, indicate the point from where the picture was
taken and by an arrow where the camera was facing.

4.1. Close-up (not more than 2 meters away) of the most severely damaged.

4.2. Close-up (not more than 2 meters away) of the least damaged.

4.3. Overall view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.

Our adjuster will also take photographs.

5. Books of accounts bill, invoices and other vouchers, or certified copies thereof if originals
be lost. This requirement includes, but is not limited to, purchase and sales invoices, delivery

6. Certified copies of income tax returns for the last three years and the accompanying
financial statements.

7. Latest inventory of merchandise filed with a financial institution, the Bureau of Internal
Revenue or any government entity prior to the loss.

8. A detailed inventory of the articles damaged or destroyed, showing the cost price of each,
extent of loss, if any, if the risk sustained partial or water damaged.

9. Certificates of registration.

10. Bank Statements.

11. For losses where the estimated value of stocks claimed which are burned out of sight
and/or which may no longer be subject to actual physical count exceeds P50,000.00, a
CPAs detailed computations in support of such estimated value.

12. In the absence of purchase invoices/delivery receipts (state reason for absence), submit
suppliers certificate of sales and delivery.

13. Others (to be specified).

Statement of salvage of the affected stocks in trade.

Your compliance with this request will enable us to expedite adjustment of the loss in
caption.5

According to petitioner, in complete disregard of the foregoing requirements, private respondent


never submitted any of the documents mentioned therein. Further, petitioner assails the award in
favor of private respondent of an interest rate of 24% per annum. Since there was allegedly no
express finding that petitioner unreasonably denied or withheld the payment of the subject insurance
claim, then the award of 24% per annum is not proper. Petitioner opines that the judgment should
only bear the legal interest rate of 12% per annum for the delay in the payment of the claim.

The petition is bereft of merit.

Well-settled is the rule that factual findings and conclusions of the trial court and the CA are entitled
to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing
that the trial court overlooked certain facts or circumstances which would substantially affect the
disposition of the case.6 There is no cogent reason to deviate from this salutary rule in the present
case.

Both the trial court and the CA concur in holding that private respondent had substantially complied
with Policy Condition No. 13 which reads:

13. The insured shall give immediate written notice to the Company of any loss, protect the
property from further damage, forthwith separate the damaged and undamaged personal
property, put it in the best possible order, furnish a complete inventory of the destroyed,
damaged, and undamaged property, showing in detail quantities, costs, actual cash value
and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS
SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL
RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured,
stating the knowledge and belief of the insured as to the following: the time and origin of the
loss, the interest of the insured and of all others in the property, the actual cash value of
each item thereof and the amount of loss thereto, all encumbrances thereon, all other
contracts of insurance, whether valid or not, covering any of said property, any changes in
the title, use, occupation, location, possession or exposures of said property since the
issuing of this policy by whom and for what purpose any buildings herein described and the
several parts thereof were occupied at the time of loss and whether or not it then stood on
leased ground, and shall furnish a copy of all the descriptions and schedules in all policies,
and if required verified plans and specifications of any building, fixtures, or machinery
destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to
any person designated by the company all that remains of any property herein described,
and submit to examination under oath by any person named by the Company, and subscribe
the same; and, as often as may be reasonably required, shall produce for examination all
books of account, bills, invoices, and other vouchers or certified copies thereof if originals be
lost, at such reasonable time and place as may be designated by the Company or its
representative and shall permit extracts and copies thereof to be made.

No claim under this policy shall be payable unless the terms of this condition have been
complied with.7

A perusal of the records shows that private respondent, after the occurrence of the fire, immediately
notified petitioner thereof. Thereafter, private respondent submitted the following documents: (1)
Sworn Statement of Loss and Formal Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The
submission of these documents, to the Courts mind, constitutes substantial compliance with the
above provision. Indeed, as regards the submission of documents to prove loss, substantial, not
strict as urged by petitioner, compliance with the requirements will always be deemed sufficient.8
In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro
Maghirang, it signed the document indicating that the amount due private respondent is P842,683.40
(Exhibit E). As correctly held by the appellate court:

Under the aforequoted provision of the insurance policy, the insured was required to submit
to the insurer written notice of the loss; and a complete inventory of the properties damaged
within 60 days after the fire, as well as a signed and sworn statement of Proof of Loss. It is
admitted by all parties that plaintiff-appellee notified the insurer Summa Corporation of the
fire which occurred on 27 May 1982. It is likewise admitted by all parties that plaintiff-
appellee submitted the following documents in support of its claim: (1) Sworn Statement of
Loss (Exhibit C); (2) formal claim dated 22 July 1982; (3) unnotarized sworn statement of
proof of loss (Exhibit D). There was, therefore, sufficient compliance with the requirements in
Section 13 of the policy. But, even assuming that plaintiff-appellee indeed failed to submit
certain required documents as proof of loss per Section 13, such violation was waived by the
insurer Summa when it signed the document marked Exhibit E, a breakdown of the amount
due to plaintiff-appellee as of February 1985 on the insurance claim. By such act, defendant-
appellant acknowledged its liability under the insurance policy.

Antecedent to the execution of Exhibit E, there was a conference between Pallalos,


representing plaintiff-appellee and Ortega representing Summa Insurance. There is no
evidence that in that meeting, Summa Insurance questioned plaintiff-appellees submission
of the required documents. What happened was that Ortega summoned Maghirang so that
he could settle with Pallalos regarding the amount due to plaintiff-appellee from insurance
claim. The result is a reconciliation of claim in Exhibit E which shows that as of February
1985, the net due sum is P842,683.49.

Defendant-appellant alleges that Maghirang was without authority to sign Exhibit E, and
therefore without authority to bind defendant-appellant corporation. We do not agree. The
evidence indicate that at a meeting between plaintiff-appellees corporate president Pedro
Pallalos and his counterpart in defendant-appellant corporation, Joaquin Ortega, the latter
summoned Rosauro Maghirang to reconcile the claims of plaintiff-appellee. One who clothes
another with apparent authority as his agent and holds him to the public as such, cannot later
be allowed to deny the authority of such person to act as his agent when such third person
entered into the contract in good faith and in an honest belief that he is such agent. Witness
for defendant-appellant Luis Manapats testimony that Maghirang was without authority to
bind the defendant-appellant cannot be given credence because, as he himself testified, he
was not yet part of the Summa Corporation at the time the negotiations in question were
going on.9

Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it
to say that the same is authorized by Sections 243 and 244 of the Insurance Code:

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration; but if such ascertainment is
not had or made within sixty days after such receipt by the insurer of the proof of loss, then
the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to
pay the loss or damage within the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent.
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance,
it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding
as to whether the payment of the claim of the insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorneys fees and other expenses incurred by the insured
person by reason of such unreasonable denial or withholding of payment plus interest of
twice the ceiling prescribed by the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully
satisfied: Provided, That the failure to pay any such claim within the time prescribed in said
sections shall be considered prima facie evidence of reasonable delay in payment.

Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and
244.10 Further, Section 29 of the policy itself provides for the payment of such interest:

29. Settlement of claim clause. The amount of any loss or damage for which the company
may be liable, under this policy shall be paid within thirty days after proof of loss is received
by the company and ascertainment of the loss or damage is made either in an agreement
between the insured and the company or by arbitration; but if such ascertainment is not had
or made within sixty days after such receipt by the company of the proof of loss, then the
loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay
the loss or damage within the time prescribed herein will entitle the assured to collect interest
on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
grounds (sic) that the claim is fraudulent.11

The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and
ascertainment of the loss made in an agreement between private respondent and petitioner. In this
case, as found by the CA, petitioner and private respondent signed the agreement (Exhibit E)
indicating that the amount due private respondent was P842,683.40 on April 2, 1985. Petitioner thus
had until May 2, 1985 to pay private respondents insurance.12 For its failure to do so, the CA and the
trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in accordance with
the above quoted provisions. 1w phi 1.nt

WHEREFORE, the instant petition is hereby DENIED for lack of merit. The Decision, dated January
14, 1999, of the Court of Appeals in CA-G.R. CV No. 46721 and its Resolution, dated May 13, 1999,
are AFFIRMED IN TOTO.

SO ORDERED.
G.R. No. 127897 November 15, 2001

DELSAN TRANSPORT LINES, INC., petitioner,


vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV
No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of
Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-
Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs
and the Resolution2 dated January 21, 1997 which denied the subsequent motion for
reconsideration.

The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment
with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common
carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different
parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314
kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City.
The shipment was insured with the private respondent, American Home Assurance Corporation.

On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the
vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the
entire cargo of fuel oil.

Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured
value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code,
the private respondent demanded of the petitioner the same amount it paid to Caltex. 1w phi 1.nt

Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money.
After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on
November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to
cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as
determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein petitioner) from
liability for the loss of its cargo.3

The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The
appellate court gave credence to the weather report issued by the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that
from 2:00 oclock to 8:oo oclock in the morning on August 16, 1986, the wind speed remained at 10
to 20 knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity
of the Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the
waves were twenty (20) feet high. In the absence of any explanation as to what may have caused
the sinking of the vessel coupled with the finding that the same was improperly manned, the
appellate court ruled that the petitioner is liable on its obligation as common carrier4 to herein private
respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration
of herein petitioner was denied by the appellate court.

Petitioner raised the following assignments of error in support of the instant petition,5 to wit:

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL


TRIAL COURT.

II

THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE
LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.

III

THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE


SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF
APPEALS.

Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of
the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or
upon any thin which is the subject of marine insurance there is an implied warranty by the shipper
that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss
under the policy in case the vessel would later on be found as not seaworthy at the inception of the
insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of
the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy;
otherwise, private respondent was not legally liable to Caltex due to the latters breach of implied
warranty under the marine insurance policy that the vessel was seaworthy.

The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not
seaworthy on the ground that the marine officer who served as the chief mate of the vessel,
Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the
Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent
admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo,
extends to the vessels complement. Besides, petitioner avers that although Berina had merely a
2nd officers license, he was qualified to act as the vessels chief officer under Chapter IV(403),
Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the
crew and officers of MT Maysun were exonerated in the administrative investigation conducted by
the Board of Marine Inquiry after the subject accident.6

In any event, petitioner further avers that private respondent failed, for unknown reason, to present
in evidence during the trial of the instant case the subject marine cargo insurance policy it entered
into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs.
CA,7 the failure of the private respondent to present the insurance policy in evidence is allegedly fatal
to its claim inasmuch as there is no way to determine the rights of the parties thereto.

Hence, the legal issues posed before the Court are:

I
Whether or not the payment made by the private respondent to Caltex for the insured value
of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding
any action for recovery against the petitioner.

II

Whether or not the non-presentation of the marine insurance policy bars the complaint for
recovery of sum of money for lack of cause of action.

We rule in the negative on both issues.

The payment made by the private respondent for the insured value of the lost cargo operates as
waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex
under the marine insurance policy. However, the same cannot be validly interpreted as an automatic
admission of the vessels seaworthiness by the private respondent as to foreclose recourse against
the petitioner for any liability under its contractual obligation as a common carrier. The fact of
payment grants the private respondent subrogatory right which enables it to exercise legal remedies
that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common
carrier.8 Article 2207 of the New civil Code provides that:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.

The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice
and good conscience ought to pay.9 It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment by the insurance
company of the insurance claim.10 Consequently, the payment made by the private respondent
(insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies
which the latter may have against the petitioner.

From the nature of their business and for reasons of public policy, common carriers are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of passengers
transported by them, according to all the circumstance of each case.11 In the event of loss,
destruction or deterioration of the insured goods, common carriers shall be responsible unless the
same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster
or calamity.12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence.13

In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner
attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of
Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it
appears that a sudden and unexpected change of weather condition occurred in the early morning of
August 16, 1986; that at around 3:15 oclock in the morning a squall ("unos") carrying strong winds
with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty
(20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with
its cargo.14 This tale of strong winds and big waves by the said officers of the petitioner however,
was effectively rebutted and belied by the weather report15 from the Philippine Atmospheric,
Geophysical and Astronomical Services Administration (PAGASA), the independent government
agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00
oclock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots
per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East
Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled,
petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy.
There was no squall or bad weather or extremely poor sea condition in the vicinity when the said
vessel sank.

The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco
Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify
against the interest of their employer, the herein petitioner common carrier.

Neither may petitioner escape liability by presenting in evidence certificates16 that tend to show that
at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was
fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage. As correctly observed by the Court of
appeals:

At the time of dry-docking and inspection, the ship may have appeared fit. The certificates
issued, however, do not negate the presumption of unseaworthiness triggered by an
unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to
their probative value, (thus):

Seaworthiness relates to a vessels actual condition. Neither the granting of


classification or the issuance of certificates established seaworthiness. (2-A Benedict
on Admiralty, 7-3, Sec. 62).

And also:

Authorities are clear that diligence in securing certificates of seaworthiness does not
satisfy the vessel owners obligation. Also securing the approval of the shipper of the
cargo, or his surveyor, of the condition of the vessel or her stowage does not
establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has
no obligation in relation to seaworthiness. (Ibid.)17

Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry
merely concerns their respective administrative liabilities. It does not in any way operate to absolve
the petitioner common carrier from its civil liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liability arising from its failure to observe extraordinary
diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions
of its employees, the determination of which properly belongs to the courts.18 In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for
its failure to rebut the presumption of fault or negligence as common carrier19 occasioned by the
unexplained sinking of its vessel, MT Maysun, while in transit.

Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common
carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as
insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.20

The presentation of the insurance policy was necessary in the case of Home Insurance Corporation
v. CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S
Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or
arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the
hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the
consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary,
the hauler can be liable only for any damage that occurred from the time it received the cargo until it
finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it. The insurance contract, which was not presented in evidence in
that case would have indicated the scope of the insurers liability, if any, since no evidence was
adduced indicating at what stage in the handling process the damage to the cargo was sustained.

Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance
Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of
industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioners vessel,
MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early
morning of August 16, 1986.

WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of
Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.

SO ORDERED. 1w phi 1.nt


G.R. No. 151890 June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner,


vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - x

G.R. No. 151991 June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner,


vs.
PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.

DECISION

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential
Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines,
Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court
of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the
Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January
2002 Resolution3 of the Court of Appeals, denying PRUDENTIALs Motion for Reconsideration and
TRANS-ASIAs Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise
sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as
follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of
premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning
[from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No.
MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke
out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff
[TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a
letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to
subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey
and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained
by reason of fire. An adjusters report on the fire in question was submitted by Richard Hogg
International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust
receipt", a portion of which read (sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION
ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only
in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation,
from any person or persons, corporation or corporations, or other parties, on account of loss by any
casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit
"4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (Exhibit "5"). The
letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has
been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not
compensable and hereby DENIED."

This was followed by defendants letter dated 21 July 1997 requesting the return or payment of the
P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money
against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein
TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same
represents the balance of the indemnity due upon the insurance policy in the total amount of
P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of
Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the
defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts
and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action;
and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the
same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly
advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final
evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00,
representing attorneys fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL.
It ruled that a determination of the parties liabilities hinged on whether TRANS-ASIA violated and
breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It
interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain
class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA
failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL,
the insured party, to rescind the contract.9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the
concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its
class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to
rescind the contract. The court a quo found merit in PRUDENTIALs contention that there was
nothing in the adjustment of the particular average submitted by the adjuster that would show that
TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the
court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-
ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so
clearly stated as such.
The court a quo did not award PRUDENTIALs claim for P500,000.00, representing expert survey
fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorneys fees
on the rationalization that the instant case does not fall under the exceptions stated in Article
220811 of the Civil Code. However, the court a quo granted PRUDENTIALs counterclaim stating that
there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of
loan without interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a
cause of action.

On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the
loan extended to it by the defendant, within a period of ten (10) days from and after this judgment
shall have become final and executory.12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001,
reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CLASSED AND
CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-
compensability of the loss had the burden of proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to
the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for
reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack
of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA.
Instead, the Court of Appeals considered PRUDENTIALs admission that at the time the insurance
contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a
classification society recognized by the industry. The Court of Appeals similarly gave weight to the
fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster
hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere
absence of a certification does not warrant denial of TRANS-ASIAs claim under the insurance
policy.

In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-
ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the
intervention of TRANS-ASIA. As such, it partakes of a nature of a contract dadhesion which should
be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the
Court of Appeals, PRUDENTIALs renewal of the insurance policy from noon of 1 July 1994 to noon
of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL
of any breach of warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction
between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of
Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to
PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIALs partial payment to
TRANS-ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-ASIAs prayer
for attorneys fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of
the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code.
Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED
and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee
Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and
Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by
appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is
hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the
balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg
International (Philippines) in its Report, with double interest starting from the time Richard Hoggs
Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration
and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the
Court of Appeals in the Resolution dated 29 January 2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No.
151890, relying on the following grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-
ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE
INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE
BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL
WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN
THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE
POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE
WARRANTY BY TRANS-ASIA.
VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT"
EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING
PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF


THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF
PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT
PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING
PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13
AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review
docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS FEES TO


PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE
CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD
FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER
TRANS-ASIAS INSURANCE CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001


SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST
OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolidation17 of G.R.
Nos. 151890 and 151991;18 hence, the instant consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising
from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising
from the transaction between the parties as evidenced by a document denominated as "Loan and
Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if
any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not
questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the
Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported
by the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact
of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are
constrained to assess the evidence adduced by the parties to make appropriate findings of facts as
are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy
condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in
the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express
and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No.
MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel,
"M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to
PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA"
was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL
submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA
under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec.
7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIALs
Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his
testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was
taken?

A It was eventually determined that there was a breach of the policy condition, and basically there is
a breach of policy warranty condition and on that basis the claim was denied.

Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as
Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or
violated by the plaintiff which constituted your basis for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy
below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this
are several typewritten clauses and the witness pointed out in particular the clause reading:
"Warranted Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class
warranty, it must be entered in the classification society.
COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain in
order to maintain their membership in the classification society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the warranty, that
requires them to maintain membership or to maintain their class on that classification society. And it
is not sufficient that the member of this classification society at the time of a loss, their membership
must be continuous for the whole length of the policy such that during the effectivity of the policy,
their classification is suspended, and then thereafter, they get reinstated, that again still a breach of
the warranty that they maintained their class (sic). Our maintaining team membership in the
classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM

Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society,
The Philippine Registration of Ships Society, China Classification, NKK and Company Classification
Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has
the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA
breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on
the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing
to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of
TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in
claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the
fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to
show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course
of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden
of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verdict must be
returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of
the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to
PRUDENTIAL to counter TRANS-ASIAs case, and to prove its special and affirmative defense that
TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging
the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND
CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio
Fernandez, made a categorical admission that at the time of the procurement of the insurance
contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Korea" was properly classed by Bureau
Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia
Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that
Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification
society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly
classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon
PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by
Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support
the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in
PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more
reason must we sustain the findings of the Court of Appeals on the ground that as admitted by
PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International
(Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot
be gleaned from the average adjusters survey report, or adjustment of particular average per "M/V
Asia Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that,
"the violation of a material warranty, or other material provision of a policy on the part of either party
thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or
promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of
which in any respect, and without reference to whether the insurer was in fact prejudiced by such
untruth or non-fulfillment, renders the policy voidable by the insurer."25However, it is similarly
indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the
party alleging the same. We cannot sustain an allegation that is unfounded. Consequently,
PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED
AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful
claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached
the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL
can be deemed to have made a valid waiver of TRANS-ASIAs breach of warranty as alleged,
ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive
years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996.
This renewal is deemed a waiver of any breach of warranty.26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies
are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the subsequent policies,
designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3
July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a
copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of
the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a
letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would
have this Court believe that the issuance of the renewal policies cannot be a waiver because they
were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that
PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consecutive years after the loss
covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIAs breach of the
subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the
option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere
expression of an intention so to do. In that event his liability under the policy continues as
before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of
the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788,
issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIALs lack of proof to support
its allegation that the renewals of the policies were taken only after a request was made to TRANS-
ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND
CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no certification was issued to that
effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIAs alleged
breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was
to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as
raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter
the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence
to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission
of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL.

II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction


between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29
May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The
same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29
May 1995, reproduced hereunder:
LOAN AND TRUST RECEIPT

Claim File No. MH-93-025 May 29, 1995


P3,000,000.00
Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE
MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable
only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING
CORP., from any person or persons, corporation or corporations, or other parties, on account of loss
by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND


ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to
prove our interest in said property. We also hereby agree to promptly prosecute suit against such
persons, corporation or corporations through whose negligence the aforesaid loss was caused or
who may otherwise be responsible therefore, with all due diligence, in our own name, but at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced
a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the
policy or a partial payment for the loss. It further submits that it is a customary practice for insurance
companies in this country to extend loans gratuitously as part of good business dealing with their
assured, in order to afford their assured the chance to continue business without embarrassment
while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust
and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have
against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was
granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely
with the latter.

The Court of Appeals held that the real character of the transaction between the parties as
evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of
TRANS-ASIAs claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act
No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted
verbatim from the law of California, except Chapter V thereof, which was taken largely from the
insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in
interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute
should correspond in fundamental points with the application in its country of origin x x x.

xxxx

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that
the money was intended as a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of
forgery of drafts by an employee where no provision or repayment of the money was made except
upon condition that it be recovered from other parties and neither interest nor security for the
asserted debts was provided for, the money constituted the payment of a liability and not a mere
loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that
appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and
deliver to (Prudential) all documents necessary to prove its interest in the said property." For all
intents and purposes therefore, the money receipted is payment under the policy, with Prudential
having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties
resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer
of all remedies which the insured may have against third person whose negligence or wrongful act
caused the loss covered by the insurance policy, which is created as the legal effect of payment by
the insurer as an assignee in equity. The loss in the first instance is that of the insured but after
reimbursement or compensation, it becomes the loss of the insurer. It has been referred to as the
doctrine of substitution and rests on the principle that substantial justice should be attained
regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between
all the parties without regard to form.31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that
the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not
intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same
was a partial payment or an advance on the policy of the claims due to TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by


PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA
SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on
account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993:
Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly
prosecute suit against such persons, corporation or corporations through whose negligence the
aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in
its name, the prosecution of the claims against such third persons are to be carried on "at the
expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive
direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the
power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against
parties who may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay
PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any
net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of
25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no
recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not
think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in
favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an
advance payment on TRANS-ASIAs claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the


balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.
Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims
covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorneys fees
equivalent to 10% of P8,395,072.26.

The Court of Appeals denied the grant of attorneys fees. It held that attorneys fees cannot be
awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs
claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals,
attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which
finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorneys fees and
other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court,
as the case may be, of an unreasonable denial or withholding of the payment of the claims due.
Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the
amount of the claim due the insured from the date following the time prescribed in Section 24235 or in
Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the
failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima
facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorneys
fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay
in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in
both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the
delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay
damages which shall consist of attorneys fees and other expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty
of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment
of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case,
the insurance company shall be adjudged to pay damages which shall consist of attorneys fees and
other expenses incurred by the insured person by reason of such unreasonable denial or withholding
of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the
claim due the insured, from the date following the time prescribed in section two hundred forty-two or
in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided,
That the failure to pay any such claim within the time prescribed in said sections shall be considered
prima facie evidence of unreasonable delay in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or
refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show
that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of
P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V
Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg
International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26
as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a
letter39 addressed to TRANS-ASIA denied the latters claim for the amount of P8,395,072.26
representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second
letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997,
TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying,
inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance
claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of
PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to the insurance claims,
from the time proof of loss was shown and the ascertainment of the loss was made by the insurance
adjuster. Evidently, PRUDENTIALs unreasonable delay in satisfying TRANS-ASIAs unpaid claims
compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as
attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten
percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of
Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was
made by this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed
by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or
in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find
Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other
than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy
other than life insurance policy, shall be paid within thirty days after proof of loss is received by the
insurer and ascertainment of the loss or damage is made either by agreement between the insured
and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after
such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety
days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed
herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal
to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the
insurer to pay was founded on the ground that the claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to
mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-
ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs stance that the award is
extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to
TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the latter sought, "interest
double the prevailing rate of interest of 21% per annum now obtaining in the banking business or
plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42
The contention fails to persuade. It is settled that an award of double interest is lawful and justified
under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v.
Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the
Insurance Code.45 There is no gainsaying that the term "double interest" as used in Sections 243
and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per
centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to
P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance
Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the
Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the
insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the
unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when
the amount is fully paid. Although not raised by the parties, we find the computation of the duration
of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay
at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243
mandates the payment of any loss or damage for which an insurer may be liable, under any policy
other than life insurance policy, within thirty days after proof of loss is received by the insurer and
ascertainment of the loss or damage is made either by agreement between the insured and the
insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after
proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and
only after such time can the insurer be held to be in delay, thereby necessitating the imposition of
double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996.
PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA
under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to
run from 13 September 1996 only.

IV.

A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in
section III herein, computed from the time of finality of judgment until the full satisfaction thereof in
conformity with this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the
application of interest to be imposed on obligations, regardless of their source. Eastern emphasized
beyond cavil that when the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, regardless of whether the obligation involves a loan or
forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability
adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the
satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the
aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No.
151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that the
term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR
CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further
clarification, that the same should be computed from 13 September 1996 until fully paid. The
Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001
and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26,


representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy
No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of


attorneys fees equivalent to 10% of the amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be
imposed double interest at the rate of 24% per annum to be computed from 13 September
1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability
adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of
finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.
G.R. No. 168402 August 6, 2008

ABOITIZ SHIPPING CORPORATION, petitioner,


vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.

DECISION

REYES, R.T., J.:

THE RIGHT of subrogation attaches upon payment by the insurer of the


insurance claims by the assured. As subrogee, the insurer steps into the
shoes of the assured and may exercise only those rights that the assured may
have against the wrongdoer who caused the damage.

Before Us is a petition for review on certiorari of the Decision1 of the Court of


Appeals (CA) which reversed the Decision2 of the Regional Trial Court (RTC).
The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum
of P280,176.92 plus interest and attorney's fees in favor of respondent
Insurance Company of North America (ICNA).

The Facts

Culled from the records, the facts are as follows:

On June 20, 1993, MSAS Cargo International Limited and/or Associated


and/or Subsidiary Companies (MSAS) procured a marine insurance policy
from respondent ICNA UK Limited of London. The insurance was for a
transshipment of certain wooden work tools and workbenches purchased for
the consignee Science Teaching Improvement Project (STIP), Ecotech
Center, Sudlon Lahug, Cebu City, Philippines.3 ICNA issued an "all-risk" open
marine policy,4 stating:

This Company, in consideration of a premium as agreed and subject to


the terms and conditions printed hereon, does insure for MSAS Cargo
International Limited &/or Associated &/or Subsidiary Companies on
behalf of the title holder: - Loss, if any, payable to the Assured or order.5

The cargo, packed inside one container van, was shipped "freight prepaid"
from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading6 was
issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech
Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on
board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked
at the Manila International Container Port where the container van was again
off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz
Shipping Corporation (Aboitiz) through its duly authorized booking
representative, Aboitiz Transport System. The bill of lading7 issued by Aboitiz
contained the notation "grounded outside warehouse."

The container van was stripped and transferred to another crate/container van
without any notation on the condition of the cargo on the Stuffing/Stripping
Report.8 On August 1, 1993, the container van was loaded on board
petitioner's vessel, MV Super Concarrier I. The vessel left Manila en route to
Cebu City on August 2, 1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a
receiving apron of the Cebu International Port. It was then brought to the
Cebu Bonded Warehousing Corporation pending clearance from the Customs
authorities. In the Stripping Report9 dated August 5, 1993, petitioner's checker
noted that the crates were slightly broken or cracked at the bottom.

On August 11, 1993, the cargo was withdrawn by the representative of the
consignee, Science Teaching Improvement Project (STIP) and delivered to
Don Bosco Technical High School, Punta Princesa, Cebu City. It was received
by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims
Head of petitioner, received a telephone call from Willig informing him that the
cargo sustained water damage. Perez, upon receiving the call, immediately
went to the bonded warehouse and checked the condition of the container
and other cargoes stuffed in the same container. He found that the container
van and other cargoes stuffed there were completely dry and showed no sign
of wetness.10

Perez found that except for the bottom of the crate which was slightly broken,
the crate itself appeared to be completely dry and had no water marks. But he
confirmed that the tools which were stored inside the crate were already
corroded. He further explained that the "grounded outside warehouse"
notation in the bill of lading referred only to the container van bearing the
cargo.11

In a letter dated August 15, 1993, Willig informed Aboitiz of the damage
noticed upon opening of the cargo.12 The letter stated that the crate was
broken at its bottom part such that the contents were exposed. The work tools
and workbenches were found to have been completely soaked in water with
most of the packing cartons already disintegrating. The crate was properly
sealed off from the inside with tarpaper sheets. On the outside, galvanized
metal bands were nailed onto all the edges. The letter concluded that
apparently, the damage was caused by water entering through the broken
parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance claims.
On August 21, 1993, the Claimsmen Adjustment Corporation (CAC)
conducted an ocular inspection and survey of the damage. CAC reported to
ICNA that the goods sustained water damage, molds, and corrosion which
were discovered upon delivery to consignee.13

On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in
the amount of P276,540.00 for the damaged condition of the following goods:

ten (10) wooden workbenches

three (3) carbide-tipped saw blades

one (1) set of ball-bearing guides

one (1) set of overarm router bits

twenty (20) rolls of sandpaper for stroke sander

In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA


that based on official weather report from the Philippine Atmospheric,
Geophysical and Astronomical Services Administration, it would appear that
heavy rains on July 28 and 29, 1993 caused water damage to the shipment.
CAC noted that the shipment was placed outside the warehouse of Pier No. 4,
North Harbor, Manila when it was delivered on July 26, 1993. The shipment
was placed outside the warehouse as can be gleaned from the bill of lading
issued by Aboitiz which contained the notation "grounded outside warehouse."
It was only on July 31, 1993 when the shipment was stuffed inside another
container van for shipment to Cebu.

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig.
ICNA formally advised Aboitiz of the claim and subrogation receipt executed
in its favor. Despite follow-ups, however, no reply was received from Aboitiz.

RTC Disposition
ICNA filed a civil complaint against Aboitiz for collection of actual damages in
the sum of P280,176.92, plus interest and attorney's fees.16 ICNA alleged that
the damage sustained by the shipment was exclusively and solely brought
about by the fault and negligence of Aboitiz when the shipment was left
grounded outside its warehouse prior to delivery.

Aboitiz disavowed any liability and asserted that the claim had no factual and
legal bases. It countered that the complaint stated no cause of action, plaintiff
ICNA had no personality to institute the suit, the cause of action was barred,
and the suit was premature there being no claim made upon Aboitiz.

On November 14, 2003, the RTC rendered judgment against ICNA. The
dispositive portion of the decision17 states:

WHEREFORE, premises considered, the court holds that plaintiff is not


entitled to the relief claimed in the complaint for being baseless and
without merit. The complaint is hereby DISMISSED. The defendant's
counterclaims are, likewise, DISMISSED for lack of basis.18

The RTC ruled that ICNA failed to prove that it is the real party-in-interest to
pursue the claim against Aboitiz. The trial court noted that Marine Policy No.
87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8
Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not
present any evidence to show that ICNA UK is its predecessor-in-interest, or
that ICNA UK assigned the insurance policy to ICNA Phils. Moreover, ICNA
Phils.' claim that it had been subrogated to the rights of the consignee must
fail because the subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:

While it is clear that Marine Policy No. 87GB 4475 was issued by
Insurance Company of North America (U.K.) Limited (ICNA UK) with
address at Cigna House, 8 Lime Street, London EC3M 7NA, no
evidence has been adduced which would show that ICNA UK is the
same as or the predecessor-in-interest of plaintiff Insurance Company
of North America ICNA with office address at Cigna-Monarch Bldg., dela
Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that
ICNA UK assigned the Marine Policy to ICNA. Second, the assured in
the Marine Policy appears to be MSAS Cargo International Limited &/or
Associated &/or Subsidiary Companies. Plaintiff's witness, Francisco B.
Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science
Teaching Improvement Project. Plaintiff's witness, however, failed to
identify whose signature it was and plaintiff did not present on the
witness stand or took (sic) the deposition of the person who made that
signature. Hence, the claim that there was an endorsement of the
marine policy has no probative value as it is hearsay.

Plaintiff, further, claims that it has been subrogated to the rights and
interest of Science Teaching Improvement Project as shown by the
Subrogation Form (Exhibit "K") allegedly signed by a representative of
Science Teaching Improvement Project. Such representative, however,
was not presented on the witness stand. Hence, the Subrogation Form
is self-serving and has no probative value.19 (Emphasis supplied)

The trial court also found that ICNA failed to produce evidence that it was a
foreign corporation duly licensed to do business in the Philippines. Thus, it
lacked the capacity to sue before Philippine Courts, to wit:

Prescinding from the foregoing, plaintiff alleged in its complaint that


it is a foreign insurance company duly authorized to do business
in the Philippines. This allegation was, however, denied by the
defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the
issues defined by the court is whether or not the plaintiff has legal
capacity to sue and be sued. Under Philippine law, the condition is that
a foreign insurance company must obtain licenses/authority to do
business in the Philippines. These licenses/authority are obtained from
the Securities and Exchange Commission, the Board of Investments
and the Insurance Commission. If it fails to obtain these
licenses/authority, such foreign corporation doing business in the
Philippines cannot sue before Philippine courts. Mentholatum Co., Inc.
v. Mangaliman, 72 Phil. 524. (Emphasis supplied)

CA Disposition

ICNA appealed to the CA. It contended that the trial court failed to consider
that its cause of action is anchored on the right of subrogation under Article
2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK
Limited as made known in the dorsal portion of the Open Policy.20

On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It
argued that the formal claim was not filed within the period required under
Article 366 of the Code of Commerce; that ICNA had no right of subrogation
because the subrogation receipt should have been signed by MSAS, the
assured in the open policy, and not Willig, who is merely the representative of
the consignee.

On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing
as follows:

WHEREFORE, premises considered, the present appeal is hereby


GRANTED. The appealed decision of the Regional Trial Court of Makati
City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE.
A new judgment is hereby rendered ordering defendant-appellee Aboitiz
Shipping Corporation to pay the plaintiff-appellant Insurance Company
of North America the sum of P280,176.92 with interest thereon at the
legal rate from the date of the institution of this case until fully paid, and
attorney's fees in the sum of P50,000, plus the costs of suit.21

The CA opined that the right of subrogation accrues simply upon payment by
the insurance company of the insurance claim. As subrogee, ICNA is entitled
to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:

At any rate, We find the ground invoked for the dismissal of the
complaint as legally untenable. Even assuming arguendo that the
plaintiff-insurer in this case is an unlicensed foreign corporation, such
circumstance will not bar it from claiming reimbursement from the
defendant carrier by virtue of subrogation under the contract of
insurance and as recognized by Philippine courts. x x x

xxxx

Plaintiff insurer, whether the foreign company or its duly authorized


Agent/Representative in the country, as subrogee of the claim of the
insured under the subject marine policy, is therefore the real party in
interest to bring this suit and recover the full amount of loss of the
subject cargo shipped by it from Manila to the consignee in Cebu City. x
x x22

The CA ruled that the presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. Hence, the trial
court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss
or damage sustained by the subject cargo.
Issues

The following issues are up for Our consideration:

(1) THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF
ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF
SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE
CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM
OF STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY
ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO,
THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.

(2) THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR IN RULING THAT THE SUIT FOR
REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY
ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE
INSURANCE COMPANY OF NORTH AMERICA (U.K.) ("ICNA UK").

(3) THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER
INDORSEMENT OF THE INSURANCE POLICY FROM THE
ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED
("MSAS") IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE
SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS
VALID NOTWITHSTANDING THE FACT THAT IT HAS NO
PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-
SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A
REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE
THE SAME.

(4) THE HONORABLE COURT OF APPEALS COMMITTED A


REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF
DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY
THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is
respondent ICNA the real party-in-interest that possesses the right of
subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a
timely filing of the notice of claim as required under Article 366 of the Code of
Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is


not absolutely incapacitated from filing a suit in local courts. Only when
that foreign corporation is "transacting" or "doing business" in the country will
a license be necessary before it can institute suits.24 It may, however, bring
suits on isolated business transactions, which is not prohibited under
Philippine law.25Thus, this Court has held that a foreign insurance company
may sue in Philippine courts upon the marine insurance policies issued by it
abroad to cover international-bound cargoes shipped by a Philippine carrier,
even if it has no license to do business in this country. It is the act of engaging
in business without the prescribed license, and not the lack of license per se,
which bars a foreign corporation from access to our courts.26

In any case, We uphold the CA observation that while it was the ICNA UK
Limited which issued the subject marine policy, the present suit was filed by
the said company's authorized agent in Manila. It was the domestic
corporation that brought the suit and not the foreign company. Its authority is
expressly provided for in the open policy which includes the ICNA office in the
Philippines as one of the foreign company's agents.

As found by the CA, the RTC erred when it ruled that there was no proper
indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of
Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured
goods, to be brought against ICNA UK, the company who issued the
insurance, or against any of its listed agents worldwide.27 MSAS accepted
said provision when it signed and accepted the policy. The acceptance
operated as an acceptance of the authority of the agents. Hence, a formal
indorsement of the policy to the agent in the Philippines was unnecessary for
the latter to exercise the rights of the insurer.

Likewise, the Open Policy expressly provides that:

The Company, in consideration of a premium as agreed and subject to


the terms and conditions printed hereon, does insure MSAS Cargo
International Limited &/or Associates &/or Subsidiary Companies in
behalf of the title holder: - Loss, if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the
consignee, who may file claims on behalf of the assured. This is in keeping
with Section 57 of the Insurance Code which states:

A policy may be so framed that it will inure to the benefit of whosoever,


during the continuance of the risk, may become the owner of the
interest insured. (Emphasis added)

Respondent's cause of action is founded on it being subrogated to the


rights of the consignee of the damaged shipment. The right of subrogation
springs from Article 2207 of the Civil Code, which states:

Article 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury. (Emphasis
added)

As this Court held in the case of Pan Malayan Insurance Corporation v. Court
of Appeals,28 payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured may have against the third party who
caused the damage. Subrogation is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the insurer.29

Upon payment to the consignee of indemnity for damage to the insured


goods, ICNA's entitlement to subrogation equipped it with a cause of action
against petitioner in case of a contractual breach or negligence.30 This right of
subrogation, however, has its limitations. First, both the insurer and the
consignee are bound by the contractual stipulations under the bill of
lading.31 Second, the insurer can be subrogated only to the rights as the
insured may have against the wrongdoer. If by its own acts after receiving
payment from the insurer, the insured releases the wrongdoer who caused the
loss from liability, the insurer loses its claim against the latter.32

The giving of notice of loss or injury is a condition precedent to the


action for loss or injury or the right to enforce the carrier's liability.
Circumstances peculiar to this case lead Us to conclude that the notice
requirement was complied with. As held in the case of Philippine American
General Insurance Co., Inc. v. Sweet Lines, Inc.,33 this notice requirement
protects the carrier by affording it an opportunity to make an investigation of
the claim while the matter is still fresh and easily investigated. It is meant to
safeguard the carrier from false and fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within twenty
four (24) hours from receipt of the cargo if the damage is not apparent from
the outside of the package. For damages that are visible from the outside of
the package, the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of the
merchandise, the claim against the carrier for damages or average
which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which
give rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the
time of receipt.

After the periods mentioned have elapsed, or the transportation charges


have been paid, no claim shall be admitted against the carrier with
regard to the condition in which the goods transported were delivered.
(Emphasis supplied)

The periods above, as well as the manner of giving notice may be modified in
the terms of the bill of lading, which is the contract between the parties.
Notably, neither of the parties in this case presented the terms for giving
notices of claim under the bill of lading issued by petitioner for the goods.

The shipment was delivered on August 11, 1993. Although the letter informing
the carrier of the damage was dated August 15, 1993, that letter, together with
the notice of claim, was received by petitioner only on September 21, 1993.
But petitioner admits that even before it received the written notice of claim,
Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone
sometime in August 13, 1993. Mr. Perez then immediately went to the
warehouse and to the delivery site to inspect the goods in behalf of
petitioner.34

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil


Lighterage Corporation,35the notice was allegedly made by the consignee
through telephone. The claim for damages was denied. This Court ruled that
such a notice did not comply with the notice requirement under the law. There
was no evidence presented that the notice was timely given. Neither was
there evidence presented that the notice was relayed to the responsible
authority of the carrier.

As adverted to earlier, there are peculiar circumstances in the instant case


that constrain Us to rule differently from the PCIC case, albeit this ruling is
being made pro hac vice, not to be made a precedent for other cases.

Stipulations requiring notice of loss or claim for damage as a condition


precedent to the right of recovery from a carrier must be given a reasonable
and practical construction, adapted to the circumstances of the case under
adjudication, and their application is limited to cases falling fairly within their
object and purpose.36

Bernhard Willig, the representative of consignee who received the shipment,


relayed the information that the delivered goods were discovered to have
sustained water damage to no less than the Claims Head of petitioner, Mayo
B. Perez. Immediately, Perez was able to investigate the claims himself and
he confirmed that the goods were, indeed, already corroded.

Provisions specifying a time to give notice of damage to common carriers are


ordinarily to be given a reasonable and practical, rather than a strict
construction.37 We give due consideration to the fact that the final destination
of the damaged cargo was a school institution where authorities are bound by
rules and regulations governing their actions. Understandably, when the
goods were delivered, the necessary clearance had to be made before the
package was opened. Upon opening and discovery of the damaged condition
of the goods, a report to this effect had to pass through the proper channels
before it could be finalized and endorsed by the institution to the claims
department of the shipping company.

The call to petitioner was made two days from delivery, a reasonable period
considering that the goods could not have corroded instantly overnight such
that it could only have sustained the damage during transit. Moreover,
petitioner was able to immediately inspect the damage while the matter was
still fresh. In so doing, the main objective of the prescribed time period was
fulfilled. Thus, there was substantial compliance with the notice requirement in
this case.

To recapitulate, We have found that respondent, as subrogee of the


consignee, is the real party in interest to institute the claim for damages
against petitioner; and pro hac vice, that a valid notice of claim was made by
respondent.

We now discuss petitioner's liability for the damages sustained by the


shipment. The rule as stated in Article 1735 of the Civil Code is that in
cases where the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence required
by law.38 Extraordinary diligence is that extreme measure of care and caution
which persons of unusual prudence and circumspection use for securing and
preserving their own property rights.39 This standard is intended to grant favor
to the shipper who is at the mercy of the common carrier once the goods have
been entrusted to the latter for shipment.40

Here, the shipment delivered to the consignee sustained water damage. We


agree with the findings of the CA that petitioner failed to overturn this
presumption:

x x x upon delivery of the cargo to the consignee Don Bosco Technical


High School by a representative from Trabajo Arrastre, and the crates
opened, it was discovered that the workbenches and work tools suffered
damage due to "wettage" although by then they were already physically
dry. Appellee carrier having failed to discharge the burden of proving
that it exercised extraordinary diligence in the vigilance over such goods
it contracted for carriage, the presumption of fault or negligence on its
part from the time the goods were unconditionally placed in its
possession (July 26, 1993) up to the time the same were delivered to
the consignee (August 11, 1993), therefore stands. The presumption
that the carrier was at fault or that it acted negligently was not overcome
by any countervailing evidence. x x x41 (Emphasis added)

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.

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. x x
x 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)

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.
G.R. No. 194320 February 1, 2012

MALAYAN INSURANCE CO., INC., Petitioner,


vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.

DECISION

VELASCO, JR., J.:

The Case

Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside the
July 28, 2010 Decision1 of the Court of Appeals (CA) and its October 29, 2010 Resolution2 denying
the motion for reconsideration filed by petitioner Malayan Insurance Co., Inc. (Malayan Insurance).
The July 28, 2010 CA Decision reversed and set aside the Decision3 dated February 2, 2009 of the
Regional Trial Court, Branch 51 in Manila.

The Facts

At around 5 oclock in the morning of December 17, 1995, an accident occurred at the corner of
EDSA and Ayala Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated
by Aladdin Transit with plate number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3)
a Fuzo Cargo Truck with plate number PDL 297; and (4) a Mitsubishi Galant with plate number TLM
732.4

Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M.
Dungga (SPO1 Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus
on their right side shortly before the vehicular incident. All three (3) vehicles were at a halt along
EDSA facing the south direction when the Fuzo Cargo Truck simultaneously bumped the rear
portion of the Mitsubishi Galant and the rear left portion of the Nissan Bus. Due to the strong impact,
these two vehicles were shoved forward and the front left portion of the Mitsubishi Galant rammed
into the rear right portion of the Isuzu Tanker.5

Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No.
PV-025-00220 in favor of First Malayan Leasing and Finance Corporation (the assured), insuring the
aforementioned Mitsubishi Galant against third party liability, own damage and theft, among others.
Having insured the vehicle against such risks, Malayan Insurance claimed in its Complaint dated
October 18, 1999 that it paid the damages sustained by the assured amounting to PhP 700,000.6

Maintaining that it has been subrogated to the rights and interests of the assured by operation of law
upon its payment to the latter, Malayan Insurance sent several demand letters to respondents
Rodelio Alberto (Alberto) and Enrico Alberto Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it had paid to the assured.
When respondents refused to settle their liability, Malayan Insurance was constrained to file a
complaint for damages for gross negligence against respondents.7

In their Answer, respondents asserted that they cannot be held liable for the vehicular accident,
since its proximate cause was the reckless driving of the Nissan Bus driver. They alleged that the
speeding bus, coming from the service road of EDSA, maneuvered its way towards the middle lane
without due regard to Reyes right of way. When the Nissan Bus abruptly stopped, Reyes stepped
hard on the brakes but the braking action could not cope with the inertia and failed to gain sufficient
traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in
turn, hit the rear end of the vehicle in front of it. The Nissan Bus, on the other hand, sideswiped the
Fuzo Cargo Truck, causing damage to the latter in the amount of PhP 20,000. Respondents also
controverted the results of the Police Report, asserting that it was based solely on the biased
narration of the Nissan Bus driver.8

After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented the
testimony of its lone witness, a motor car claim adjuster, who attested that he processed the
insurance claim of the assured and verified the documents submitted to him. Respondents, on the
other hand, failed to present any evidence.

In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor of
Malayan Insurance and declared respondents liable for damages. The dispositive portion reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly and
severally to pay plaintiff the following:

1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;

2. Attorneys fees of P10,000.00 and;

3. Cost of suit.

SO ORDERED.9

Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its
Decision dated July 28, 2010, the CA reversed and set aside the Decision of the trial court and ruled
in favor of respondents, disposing:

WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the assailed
Decision dated 2 February 2009 REVERSED and SET ASIDE. The Complaint dated 18 October
1999 is hereby DISMISSED for lack of merit. No costs.

SO ORDERED.10

The CA held that the evidence on record has failed to establish not only negligence on the part of
respondents, but also compliance with the other requisites and the consequent right of Malayan
Insurance to subrogation.11 It noted that the police report, which has been made part of the records of
the trial court, was not properly identified by the police officer who conducted the on-the-spot
investigation of the subject collision. It, thus, held that an appellate court, as a reviewing body,
cannot rightly appreciate firsthand the genuineness of an unverified and unidentified document,
much less accord it evidentiary value.12

Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police report is
a prima facie evidence of the facts stated in it. And inasmuch as they never questioned the
presentation of the report in evidence, respondents are deemed to have waived their right to
question its authenticity and due execution.13

In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence,
Malayan Insurance filed the instant petition.
The Issues

In its Memorandum14 dated June 27, 2011, Malayan Insurance raises the following issues for Our
consideration:

WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT


SINCE THE POLICE INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY
TESTIFY IN COURT THEREON.

II

WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR


DEFICIENT.

On the other hand, respondents submit the following issues in its Memorandum15 dated July 7, 2011:

WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF


MALAYAN INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO
ESTABLISH THE NEGLIGENCE OF RESPONDENTS.

II

WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE


SUFFICIENT TO CLAIM FOR THE AMOUNT OF DAMAGES.

III

WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED


COMPLIANCE AND REQUISITES AS PROVIDED UNDER PERTINENT LAWS.

Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2) the
sufficiency of the evidence to support a claim for gross negligence; and (3) the validity of subrogation
in the instant case.

Our Ruling

The petition has merit.

Admissibility of the Police Report

Malayan Insurance contends that, even without the presentation of the police investigator who
prepared the police report, said report is still admissible in evidence, especially since respondents
failed to make a timely objection to its presentation in evidence.16 Respondents counter that since the
police report was never confirmed by the investigating police officer, it cannot be considered as part
of the evidence on record.17
Indeed, under the rules of evidence, a witness can testify only to those facts which the witness
knows of his or her personal knowledge, that is, which are derived from the witness own
perception.18 Concomitantly, a witness may not testify on matters which he or she merely learned
from others either because said witness was told or read or heard those matters.19 Such testimony is
considered hearsay and may not be received as proof of the truth of what the witness has learned.
This is known as the hearsay rule.20

As discussed in D.M. Consunji, Inc. v. CA,21 "Hearsay is not limited to oral testimony or statements;
the general rule that excludes hearsay as evidence applies to written, as well as oral statements."

There are several exceptions to the hearsay rule under the Rules of Court, among which are entries
in official records.22 Section 44, Rule 130 provides:

Entries in official records made in the performance of his duty by a public officer of the Philippines, or
by a person in the performance of a duty specially enjoined by law are prima facie evidence of the
facts therein stated.

In Alvarez v. PICOP Resources,23 this Court reiterated the requisites for the admissibility in evidence,
as an exception to the hearsay rule of entries in official records, thus: (a) that the entry was made by
a public officer or by another person specially enjoined by law to do so; (b) that it was made by the
public officer in the performance of his or her duties, or by such other person in the performance of a
duty specially enjoined by law; and (c) that the public officer or other person had sufficient
knowledge of the facts by him or her stated, which must have been acquired by the public officer or
other person personally or through official information.

Notably, the presentation of the police report itself is admissible as an exception to the hearsay rule
even if the police investigator who prepared it was not presented in court, as long as the above
requisites could be adequately proved.24

Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report, and
he did so in the performance of his duty. However, what is not clear is whether SPO1 Dungga had
sufficient personal knowledge of the facts contained in his report. Thus, the third requisite is lacking.

Respondents failed to make a timely objection to the police reports presentation in evidence; thus,
they are deemed to have waived their right to do so.25 As a result, the police report is still admissible
in evidence.

Sufficiency of Evidence

Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the rear
of the Mitsubishi Galant, he is presumed to be negligent unless proved otherwise. It further contends
that respondents failed to present any evidence to overturn the presumption of
negligence.26 Contrarily, respondents claim that since Malayan Insurance did not present any witness
who shall affirm any negligent act of Reyes in driving the Fuzo Cargo truck before and after the
incident, there is no evidence which would show negligence on the part of respondents.27

We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report in
evidence, still, respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. The D.M.
Consunji, Inc. case is quite elucidating:
Petitioners contention, however, loses relevance in the face of the application of res ipsa loquitur by
the CA. The effect of the doctrine is to warrant a presumption or inference that the mere fall of the
elevator was a result of the person having charge of the instrumentality was negligent. As a rule of
evidence, the doctrine of res ipsa loquitur is peculiar to the law of negligence which recognizes that
prima facie negligence may be established without direct proof and furnishes a substitute for specific
proof of negligence.

The concept of res ipsa loquitur has been explained in this wise:

While negligence is not ordinarily inferred or presumed, and while the mere happening of an
accident or injury will not generally give rise to an inference or presumption that it was due to
negligence on defendants part, under the doctrine of res ipsa loquitur, which means, literally, the
thing or transaction speaks for itself, or in one jurisdiction, that the thing or instrumentality speaks for
itself, the facts or circumstances accompanying an injury may be such as to raise a presumption, or
at least permit an inference of negligence on the part of the defendant, or some other person who is
charged with negligence.

x x x where it is shown that the thing or instrumentality which caused the injury complained of was
under the control or management of the defendant, and that the occurrence resulting in the injury
was such as in the ordinary course of things would not happen if those who had its control or
management used proper care, there is sufficient evidence, or, as sometimes stated, reasonable
evidence, in the absence of explanation by the defendant, that the injury arose from or was caused
by the defendants want of care.

One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent
or not available.

The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the
instrumentality which causes the injury either knows the cause of the accident or has the best
opportunity of ascertaining it and that the plaintiff has no such knowledge, and therefore is
compelled to allege negligence in general terms and to rely upon the proof of the happening of the
accident in order to establish negligence. The inference which the doctrine permits is grounded upon
the fact that the chief evidence of the true cause, whether culpable or innocent, is practically
accessible to the defendant but inaccessible to the injured person.

It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without
knowledge of the cause, reaches over to defendant who knows or should know the cause, for any
explanation of care exercised by the defendant in respect of the matter of which the plaintiff
complains. The res ipsa loquitur doctrine, another court has said, is a rule of necessity, in that it
proceeds on the theory that under the peculiar circumstances in which the doctrine is applicable, it is
within the power of the defendant to show that there was no negligence on his part, and direct proof
of defendants negligence is beyond plaintiffs power. Accordingly, some courts add to the three
prerequisites for the application of the res ipsa loquitur doctrine the further requirement that for the
res ipsa loquitur doctrine to apply, it must appear that the injured party had no knowledge or means
of knowledge as to the cause of the accident, or that the party to be charged with negligence has
superior knowledge or opportunity for explanation of the accident.

The CA held that all the requisites of res ipsa loquitur are present in the case at bar:

There is no dispute that appellees husband fell down from the 14th floor of a building to the
basement while he was working with appellants construction project, resulting to his death. The
construction site is within the exclusive control and management of appellant. It has a safety
engineer, a project superintendent, a carpenter leadman and others who are in complete control of
the situation therein. The circumstances of any accident that would occur therein are peculiarly
within the knowledge of the appellant or its employees. On the other hand, the appellee is not in a
position to know what caused the accident. Res ipsa loquitur is a rule of necessity and it applies
where evidence is absent or not readily available, provided the following requisites are present: (1)
the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the
instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence; and (3) the injury suffered must not have been due to any voluntary action
or contribution on the part of the person injured. x x x.

No worker is going to fall from the 14th floor of a building to the basement while performing work in a
construction site unless someone is negligent[;] thus, the first requisite for the application of the rule
of res ipsa loquitur is present. As explained earlier, the construction site with all its paraphernalia and
human resources that likely caused the injury is under the exclusive control and management of
appellant[;] thus[,] the second requisite is also present. No contributory negligence was attributed to
the appellees deceased husband[;] thus[,] the last requisite is also present. All the requisites for the
application of the rule of res ipsa loquitur are present, thus a reasonable presumption or inference of
appellants negligence arises. x x x.

Petitioner does not dispute the existence of the requisites for the application of res ipsa loquitur, but
argues that the presumption or inference that it was negligent did not arise since it "proved that it
exercised due care to avoid the accident which befell respondents husband."

Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, the
defendants negligence is presumed or inferred when the plaintiff establishes the requisites for the
application of res ipsa loquitur. Once the plaintiff makes out a prima facie case of all the elements,
the burden then shifts to defendant to explain. The presumption or inference may be rebutted or
overcome by other evidence and, under appropriate circumstances a disputable presumption, such
as that of due care or innocence, may outweigh the inference. It is not for the defendant to explain or
prove its defense to prevent the presumption or inference from arising. Evidence by the defendant of
say, due care, comes into play only after the circumstances for the application of the doctrine has
been established.28

In the case at bar, aside from the statement in the police report, none of the parties disputes the fact
that the Fuzo Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear end of
the vehicle in front of it. Respondents, however, point to the reckless driving of the Nissan Bus driver
as the proximate cause of the collision, which allegation is totally unsupported by any evidence on
record. And assuming that this allegation is, indeed, true, it is astonishing that respondents never
even bothered to file a cross-claim against the owner or driver of the Nissan Bus.

What is at once evident from the instant case, however, is the presence of all the requisites for the
application of the rule of res ipsa loquitur. To reiterate, res ipsa loquitur is a rule of necessity which
applies where evidence is absent or not readily available. As explained in D.M. Consunji, Inc., it is
partly based upon the theory that the defendant in charge of the instrumentality which causes the
injury either knows the cause of the accident or has the best opportunity of ascertaining it and that
the plaintiff has no such knowledge, and, therefore, is compelled to allege negligence in general
terms and to rely upon the proof of the happening of the accident in order to establish negligence.

As mentioned above, the requisites for the application of the res ipsa loquitur rule are the following:
(1) the accident was of a kind which does not ordinarily occur unless someone is negligent; (2) the
instrumentality or agency which caused the injury was under the exclusive control of the person
charged with negligence; and (3) the injury suffered must not have been due to any voluntary action
or contribution on the part of the person injured.29

In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi
Galant unless someone is negligent. Also, the Fuzo Cargo Truck was under the exclusive control of
its driver, Reyes. Even if respondents avert liability by putting the blame on the Nissan Bus driver,
still, this allegation was self-serving and totally unfounded. Finally, no contributory negligence was
attributed to the driver of the Mitsubishi Galant. Consequently, all the requisites for the application of
the doctrine of res ipsa loquitur are present, thereby creating a reasonable presumption of
negligence on the part of respondents.

It is worth mentioning that just like any other disputable presumptions or inferences, the presumption
of negligence may be rebutted or overcome by other evidence to the contrary. It is unfortunate,
however, that respondents failed to present any evidence before the trial court. Thus, the
presumption of negligence remains. Consequently, the CA erred in dismissing the complaint for
Malayan Insurances adverted failure to prove negligence on the part of respondents.

Validity of Subrogation

Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by
the claim check voucher30 and the Release of Claim and Subrogation Receipt31 presented by it before
the trial court. Respondents, however, claim that the documents presented by Malayan Insurance do
not indicate certain important details that would show proper subrogation.

As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the
presentation of its evidence. Thus, and as We have mentioned earlier, respondents are deemed to
have waived their right to make an objection. As this Court held in Asian Construction and
Development Corporation v. COMFAC Corporation:

The rule is that failure to object to the offered evidence renders it admissible, and the court
cannot, on its own, disregard such evidence. We note that ASIAKONSTRUCTs counsel of
record before the trial court, Atty. Bernard Dy, who actively participated in the initial stages of the
case stopped attending the hearings when COMFAC was about to end its presentation. Thus,
ASIAKONSTRUCT could not object to COMFACs offer of evidence nor present evidence in its
defense; ASIAKONSTRUCT was deemed by the trial court to have waived its chance to do so.

Note also that when a party desires the court to reject the evidence offered, it must so state in
the form of a timely objection and it cannot raise the objection to the evidence for the first
time on appeal. Because of a partys failure to timely object, the evidence becomes part of the
evidence in the case. Thereafter, all the parties are considered bound by any outcome arising
from the offer of evidence properly presented.32(Emphasis supplied.)

Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt
presented by Malayan Insurance are already part of the evidence on record, and since it is not
disputed that the insurance company, indeed, paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and
Surety Corporation:

Subrogation is the substitution of one person by another with reference to a lawful claim or right, so
that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including
its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under
an insurance policy is entitled to all the rights and remedies belonging to the insured against a third
party with respect to any loss covered by the policy. It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all means that the creditor
could employ to enforce payment. 1wphi1

We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out
of, any privity of contract. It accrues simply upon payment by the insurance company of the
insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to
accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by
one who, in justice, equity, and good conscience, ought to pay.33

Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the
rights of the assured.

WHEREFORE, the petition is hereby GRANTED. The CAs July 28, 2010 Decision and October 29,
2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The Decision
dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby REINSTATED.

No pronouncement as to cost.

SO ORDERED.
G.R. No. 198588 July 11, 2012

UNITED MERCHANTS CORPORATION, Petitioner,


vs.
COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

DECISION

CARPIO, J.:

The Case

This Petition for Review on Certiorari1 seeks to reverse the Court of Appeals Decision2 dated 16 June
2011 and its Resolution3 dated 8 September 2011 in CA-G.R. CV No. 85777. The Court of Appeals
reversed the Decision4 of the Regional Trial Court (RTC) of Manila, Branch 3, and ruled that the claim
on the Insurance Policy is void.

The Facts

The facts, as culled from the records, are as follows:

Petitioner United Merchants Corporation (UMC) is engaged in the business of buying, selling, and
manufacturing Christmas lights. UMC leased a warehouse at 19-B Dagot Street, San Jose
Subdivision, Barrio Manresa, Quezon City, where UMC assembled and stored its products.

On 6 September 1995, UMCs General Manager Alfredo Tan insured UMCs stocks in trade of
Christmas lights against fire with defendant Country Bankers Insurance Corporation (CBIC) for
15,000,000.00. The Fire Insurance Policy No. F-HO/95-576 (Insurance Policy) and Fire Invoice No.
12959A, valid until 6 September 1996, states:

AMOUNT OF INSURANCE: FIFTEEN


MILLION PESOS
PHILIPPINE
CURRENCY

xxx

PROPERTY INSURED: On stocks in trade only, consisting of Christmas Lights, the properties of the
Assured or held by them in trust, on commissions, or on joint account with others and/or for which
they are responsible in the event of loss and/or damage during the currency of this policy, whilst
contained in the building of one lofty storey in height, constructed of concrete and/or hollow blocks
with portion of galvanized iron sheets, under galvanized iron rood, occupied as Christmas lights
storage.5

On 7 May 1996, UMC and CBIC executed Endorsement F/96-154 and Fire Invoice No. 16583A to
form part of the Insurance Policy. Endorsement F/96-154 provides that UMCs stocks in trade were
insured against additional perils, to wit: "typhoon, flood, ext. cover, and full earthquake." The sum
insured was also increased to 50,000,000.00 effective 7 May 1996 to 10 January 1997. On 9 May
1996, CBIC issued Endorsement F/96-157 where the name of the assured was changed from
Alfredo Tan to UMC.
On 3 July 1996, a fire gutted the warehouse rented by UMC. CBIC designated CRM Adjustment
Corporation (CRM) to investigate and evaluate UMCs loss by reason of the fire. CBICs reinsurer,
Central Surety, likewise requested the National Bureau of Investigation (NBI) to conduct a parallel
investigation. On 6 July 1996, UMC, through CRM, submitted to CBIC its Sworn Statement of
Formal Claim, with proofs of its loss.

On 20 November 1996, UMC demanded for at least fifty percent (50%) payment of its claim from
CBIC. On 25 February 1997, UMC received CBICs letter, dated 10 January 1997, rejecting UMCs
claim due to breach of Condition No. 15 of the Insurance Policy. Condition No. 15 states:

If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf
to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited.6

On 19 February 1998, UMC filed a Complaint7 against CBIC with the RTC of Manila. UMC anchored
its insurance claim on the Insurance Policy, the Sworn Statement of Formal Claim earlier submitted,
and the Certification dated 24 July 1996 made by Deputy Fire Chief/Senior Superintendent Bonifacio
J. Garcia of the Bureau of Fire Protection. The Certification dated 24 July 1996 provides that:

This is to certify that according to available records of this office, on or about 6:10 P.M. of July 3,
1996, a fire broke out at United Merchants Corporation located at 19-B Dag[o]t Street, Brgy.
Manresa, Quezon City incurring an estimated damage of Fifty-Five Million Pesos (55,000,000.00)
to the building and contents, while the reported insurance coverage amounted to Fifty Million Pesos
(50,000,000.00) with Country Bankers Insurance Corporation.

The Bureau further certifies that no evidence was gathered to prove that the establishment was
willfully, feloniously and intentionally set on fire.

That the investigation of the fire incident is already closed being ACCIDENTAL in nature.8

In its Answer with Compulsory Counterclaim9 dated 4 March 1998, CBIC admitted the issuance of the
Insurance Policy to UMC but raised the following defenses: (1) that the Complaint states no cause of
action; (2) that UMCs claim has already prescribed; and (3) that UMCs fire claim is tainted with
fraud. CBIC alleged that UMCs claim was fraudulent because UMCs Statement of Inventory
showed that it had no stocks in trade as of 31 December 1995, and that UMCs suspicious
purchases for the year 1996 did not even amount to 25,000,000.00. UMCs GIS and Financial
Reports further revealed that it had insufficient capital, which meant UMC could not afford the
alleged 50,000,000.00 worth of stocks in trade.

In its Reply10 dated 20 March 1998, UMC denied violation of Condition No. 15 of the Insurance Policy.
UMC claimed that it did not make any false declaration because the invoices were genuine and the
Statement of Inventory was for internal revenue purposes only, not for its insurance claim.

During trial, UMC presented five witnesses. The first witness was Josie Ebora (Ebora), UMCs
disbursing officer. Ebora testified that UMCs stocks in trade, at the time of the fire, consisted of: (1)
raw materials for its Christmas lights; (2) Christmas lights already assembled; and (3) Christmas
lights purchased from local suppliers. These stocks in trade were delivered from August 1995 to May
1996. She stated that Straight Cargo Commercial Forwarders delivered the imported materials to the
warehouse, evidenced by delivery receipts. However, for the year 1996, UMC had no importations
and only bought from its local suppliers. Ebora identified the suppliers as Fiber Technology
Corporation from which UMC bought stocks worth 1,800,000.00 on 20 May 1996; Fuze Industries
Manufacturer Philippines from which UMC bought stocks worth 19,500,000.00 from 20 January
1996 to 23 February 1996; and Tomco Commercial Press from which UMC bought several
Christmas boxes. Ebora testified that all these deliveries were not yet paid. Ebora also presented
UMCs Balance Sheet, Income Statement and Statement of Cash Flow. Per her testimony, UMCs
purchases amounted to 608,986.00 in 1994; 827,670.00 in 1995; and 20,000,000.00 in 1996.
Ebora also claimed that UMC had sales only from its fruits business but no sales from its Christmas
lights for the year 1995.

The next witness, Annie Pabustan (Pabustan), testified that her company provided about 25 workers
to assemble and pack Christmas lights for UMC from 28 March 1996 to 3 July 1996. The third
witness, Metropolitan Bank and Trust Company (MBTC) Officer Cesar Martinez, stated that UMC
opened letters of credit with MBTC for the year 1995 only. The fourth witness presented was Ernesto
Luna (Luna), the delivery checker of Straight Commercial Cargo Forwarders. Luna affirmed the
delivery of UMCs goods to its warehouse on 13 August 1995, 6 September 1995, 8 September
1995, 24 October 1995, 27 October 1995, 9 November 1995, and 19 December 1995. Lastly, CRMs
adjuster Dominador Victorio testified that he inspected UMCs warehouse and prepared preliminary
reports in this connection.

On the other hand, CBIC presented the claims manager Edgar Caguindagan (Caguindagan), a
Securities and Exchange Commission (SEC) representative, Atty. Ernesto Cabrera (Cabrera), and
NBI Investigator Arnold Lazaro (Lazaro). Caguindagan testified that he inspected the burned
warehouse on 5 July 1996, took pictures of it and referred the claim to an independent adjuster. The
SEC representatives testimony was dispensed with, since the parties stipulated on the existence of
certain documents, to wit: (1) UMCs GIS for 1994-1997; (2) UMCs Financial Report as of 31
December 1996; (3) SEC Certificate that UMC did not file GIS or Financial Reports for certain years;
and (4) UMCs Statement of Inventory as of 31 December 1995 filed with the BIR.

Cabrera and Lazaro testified that they were hired by Central Surety to investigate UMCs claim. On
19 November 1996, they concluded that arson was committed based from their interview
with barangay officials and the pictures showing that blackened surfaces were present at different
parts of the warehouse. On cross-examination, Lazaro admitted that they did not conduct a forensic
investigation of the warehouse, nor did they file a case for arson.

For rebuttal, UMC presented Rosalinda Batallones (Batallones), keeper of the documents of UCPB
General Insurance, the insurer of Perfect Investment Company, Inc., the warehouse owner. When
asked to bring documents related to the insurance of Perfect Investment Company, Inc., Batallones
brought the papers of Perpetual Investment, Inc.

The Ruling of the Regional Trial Court

On 16 June 2005, the RTC of Manila, Branch 3, rendered a Decision in favor of UMC, the dispositive
portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and ordering defendant to pay
plaintiff:

a) the sum of 43,930,230.00 as indemnity with interest thereon at 6% per annum from
November 2003 until fully paid;

b) the sum of 100,000.00 for exemplary damages;

c) the sum of 100,000.00 for attorneys fees; and


d) the costs of suit.

Defendants counterclaim is denied for lack of merit.

SO ORDERED.11

The RTC found no dispute as to UMCs fire insurance contract with CBIC. Thus, the RTC ruled for
UMCs entitlement to the insurance proceeds, as follows:

Fraud is never presumed but must be proved by clear and convincing evidence. (see Alonso v. Cebu
Country Club, 417 SCRA 115 [2003]) Defendant failed to establish by clear and convincing evidence
that the documents submitted to the SEC and BIR were true. It is common business practice for
corporations to have 2 sets of reports/statements for tax purposes. The stipulated documents of
plaintiff (Exhs. 2 8) may not have been accurate.

The conflicting findings of defendants adjuster, CRM Adjustment [with stress] and that made by Atty.
Cabrera & Mr. Lazaro for Central Surety shall be resolved in favor of the former. Definitely the
formers finding is more credible as it was made soon after the fire while that of the latter was done 4
months later. Certainly it would be a different situation as the site was no longer the same after the
clearing up operation which is normal after a fire incident. The Christmas lights and parts could have
been swept away. Hence the finding of the latter appears to be speculative to benefit the reinsurer
and which defendant wants to adopt to avoid liability.

The CRM Adjustment report found no arson and confirmed substantial stocks in the burned
warehouse (Exhs. QQQ) [underscoring supplied]. This is bolstered by the BFP certification that there
was no proof of arson and the fire was accidental (Exhs. PPP). The certification by a government
agency like BFP is presumed to be a regular performance of official duty. "Absent convincing
evidence to the contrary, the presumption of regularity in the performance of official functions has to
be upheld." (People vs. Lapira, 255 SCRA 85) The report of UCPB General Insurances adjuster
also found no arson so that the burned warehouse owner PIC was indemnified.12

Hence, CBIC filed an appeal with the Court of Appeals (CA).

The Ruling of the Court of Appeals

On 16 June 2011, the CA promulgated its Decision in favor of CBIC. The dispositive portion of the
Decision reads:

WHEREFORE, in view of the foregoing premises, the instant appeal is GRANTED and the Decision
of the Regional Trial Court, of the National Judicial Capital Region, Branch 3 of the City of Manila
dated June 16, 2005 in Civil Case No. 98-87370 is REVERSED and SET ASIDE. The plaintiff-
appellees claim upon its insurance policy is deemed avoided.

SO ORDERED.13

The CA ruled that UMCs claim under the Insurance Policy is void. The CA found that the fire was
intentional in origin, considering the array of evidence submitted by CBIC, particularly the pictures
taken and the reports of Cabrera and Lazaro, as opposed to UMCs failure to explain the details of
the alleged fire accident. In addition, it found that UMCs claim was overvalued through fraudulent
transactions. The CA ruled:
We have meticulously gone over the entirety of the evidence submitted by the parties and have
come up with a conclusion that the claim of the plaintiff-appellee was indeed overvalued by
transactions which were fraudulently concocted so that the full coverage of the insurance policy will
have to be fully awarded to the plaintiff-appellee.

First, We turn to the backdrop of the plaintiff-appellees case, thus, [o]n September 6, 1995 its
stocks-in-trade were insured for Fifteen Million Pesos and on May 7, 1996 the same was increased
to 50 Million Pesos. Two months thereafter, a fire gutted the plaintiff-appellees warehouse.

Second, We consider the reported purchases of the plaintiff-appellee as shown in its financial report
dated December 31, 1996 vis--vis the testimony of Ms. Ebora thus:

1994 - 608,986.00

1995 - 827,670.00

1996 - 20,000,000.00 (more or less) which were purchased for a period of one month.

Third, We shall also direct our attention to the alleged true and complete purchases of the plaintiff-
appellee as well as the value of all stock-in-trade it had at the time that the fire occurred. Thus:

Amount Dates
Exhibit Source
(pesos) Covered
Exhs. "P"-"DD", Fuze Industries 19,550,400.00 January 20,
inclusive Manufacturer Phils. 1996
January 31,
1996
February 12,
1996
February 20,
1996
February 23,
1996
Exhs. "EE"-"HH", Tomco Commercial 1,712,000.00 December 19,
inclusive Press 1995
January 24,
1996
February 21,
1996
November 24,
1995
Exhs. "II"-"QQ", Precious Belen 2,720,400.00 January 13,
inclusive Trading 1996
January 19,
1996
January 26,
1996
February 3,
1996
February 13,
1996
February 20,
1996
February 27,
1996
Exhs. "RR"- Wisdom Manpower 361,966.00 April 3, 1996
"EEE", inclusive Services April 12, 1996
April 19, 1996
April 26, 1996
May 3, 1996
May 10, 1996
May 17, 1996
May 24, 1996
June 7, 1996
June 14, 1996
June 21, 1996
June 28, 1996
July 5, 1996
Exhs. "GGG"- Costs of Letters of 15,159,144.71 May 29, 1995
"NNN", inclusive Credit for June 15, 1995
imported raw July 5, 1995
materials September 4,
1995
October 2,
1995
October 27,
1995
January 8,
1996
March 19,
1996
Exhs. "GGG-11" SCCFI statements 384,794.38 June 15, 1995
- "GGG-24", of account June 28, 1995
"HHH-12", "HHH-22", August 1, 1995
"III-11", "III-14", September 4,
"JJJ-13", "KKK-11", 1995
"LLL-5" September 8,
1995
September 11,
1995
October 30,
199[5]
November 10,
1995
December 21,
1995

TOTAL 44,315,024.31
Fourth, We turn to the allegation of fraud by the defendant-appellant by thoroughly looking through
the pieces of evidence that it adduced during the trial. The latter alleged that fraud is present in the
case at bar as shown by the discrepancy of the alleged purchases from that of the reported
purchases made by plaintiff-appellee. It had also averred that fraud is present when upon verification
of the address of Fuze Industries, its office is nowhere to be found. Also, the defendant-appellant
expressed grave doubts as to the purchases of the plaintiff-appellee sometime in 1996 when such
purchases escalated to a high 19.5 Million Pesos without any contract to back it up.14

On 7 July 2011, UMC filed a Motion for Reconsideration,15 which the CA denied in its Resolution
dated 8 September 2011. Hence, this petition.

The Issues

UMC seeks a reversal and raises the following issues for resolution:

I.

WHETHER THE COURT OF APPEALS MADE A RULING INCO[N]SISTENT WITH LAW,


APPLICABLE JURISPRUDENCE AND EVIDENCE AS TO THE EXISTENCE OF ARSON
AND FRAUD IN THE ABSENCE OF "MATERIALLY CONVINCING EVIDENCE."

II.

WHETHER THE COURT OF APPEALS MADE A RULING INCONSISTENT WITH LAW,


APPLICABLE JURISPRUDENCE AND EVIDENCE WHEN IT FOUND THAT PETITIONER
BREACHED ITS WARRANTY.16

The Ruling of the Court

At the outset, CBIC assails this petition as defective since what UMC ultimately wants this Court to
review are questions of fact. However, UMC argues that where the findings of the CA are in conflict
with those of the trial court, a review of the facts may be made. On this procedural issue, we find
UMCs claim meritorious.

A petition for review under Rule 45 of the Rules of Court specifically provides that only questions of
law may be raised. The findings of fact of the CA are final and conclusive and this Court will not
review them on appeal,17 subject to exceptions as when the findings of the appellate court conflict
with the findings of the trial court.18 Clearly, the present case falls under the exception. Since UMC
properly raised the conflicting findings of the lower courts, it is proper for this Court to resolve such
contradiction.

Having settled the procedural issue, we proceed to the primordial issue which boils down to whether
UMC is entitled to claim from CBIC the full coverage of its fire insurance policy.

UMC contends that because it had already established a prima facie case against CBIC which failed
to prove its defense, UMC is entitled to claim the full coverage under the Insurance Policy. On the
other hand, CBIC contends that because arson and fraud attended the claim, UMC is not entitled to
recover under Condition No. 15 of the Insurance Policy.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the
amount of evidence required by law,19 which is preponderance of evidence in civil cases.20 The party,
whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to
obtain a favorable judgment.21Particularly, in insurance cases, once an insured makes out a prima
facie case in its favor, the burden of evidence shifts to the insurer to controvert the insureds prima
facie case.22 In the present case, UMC established a prima facie case against CBIC. CBIC does not
dispute that UMCs stocks in trade were insured against fire under the Insurance Policy and that the
warehouse, where UMCs stocks in trade were stored, was gutted by fire on 3 July 1996, within the
duration of the fire insurance. However, since CBIC alleged an excepted risk, then the burden of
evidence shifted to CBIC to prove such exception. 1wphi1

An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the
burden of establishing that the loss comes within the purview of the exception or limitation.23 If loss is
proved apparently within a contract of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which
limits its liability.24 In the present case, CBIC failed to discharge its primordial burden of establishing
that the damage or loss was caused by arson, a limitation in the policy.

In prosecutions for arson, proof of the crime charged is complete where the evidence establishes:
(1) the corpus delicti, that is, a fire caused by a criminal act; and (2) the identity of the defendants as
the one responsible for the crime.25 Corpus delicti means the substance of the crime, the fact that a
crime has actually been committed.26 This is satisfied by proof of the bare occurrence of the fire and
of its having been intentionally caused.27

In the present case, CBICs evidence did not prove that the fire was intentionally caused by the
insured. First, the findings of CBICs witnesses, Cabrera and Lazaro, were based on an investigation
conducted more than four months after the fire. The testimonies of Cabrera and Lazaro, as to the
boxes doused with kerosene as told to them by barangay officials, are hearsay because
the barangay officials were not presented in court. Cabrera and Lazaro even admitted that they did
not conduct a forensic investigation of the warehouse nor did they file a case for arson.28Second, the
Sworn Statement of Formal Claim submitted by UMC, through CRM, states that the cause of the fire
was "faulty electrical wiring/accidental in nature." CBIC is bound by this evidence because in its
Answer, it admitted that it designated CRM to evaluate UMCs loss. Third, the Certification by the
Bureau of Fire Protection states that the fire was accidental in origin. This Certification enjoys the
presumption of regularity, which CBIC failed to rebut.

Contrary to UMCs allegation, CBICs failure to prove arson does not mean that it also failed to prove
fraud. Qua Chee Gan v. Law Union29 does not apply in the present case. In Qua Chee Gan,30 the
Court dismissed the allegation of fraud based on the dismissal of the arson case against the insured,
because the evidence was identical in both cases, thus:

While the acquittal of the insured in the arson case is not res judicata on the present civil action, the
insurers evidence, to judge from the decision in the criminal case, is practically identical in both
cases and must lead to the same result, since the proof to establish the defense of connivance at
the fire in order to defraud the insurer "cannot be materially less convincing than that required in
order to convict the insured of the crime of arson" (Bachrach vs. British American Assurance Co., 17
Phil. 536). 31

In the present case, arson and fraud are two separate grounds based on two different sets of
evidence, either of which can void the insurance claim of UMC. The absence of one does not
necessarily result in the absence of the

other. Thus, on the allegation of fraud, we affirm the findings of the Court of Appeals.
Condition No. 15 of the Insurance Policy provides that all the benefits under the policy shall be
forfeited, if the claim be in any respect fraudulent, or if any false declaration be made or used in
support thereof, to wit:

15. If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the Insured or anyone acting in his behalf
to obtain any benefit under this Policy; or if the loss or damage be occasioned by the willful act, or
with the connivance of the Insured, all the benefits under this Policy shall be forfeited.

In Uy Hu & Co. v. The Prudential Assurance Co., Ltd.,32 the Court held that where a fire insurance
policy provides that "if the claim be in any respect fraudulent, or if any false declaration be made or
used in support thereof, or if any fraudulent means or devices are used by the Insured or anyone
acting on his behalf to obtain any benefit under this Policy," and the evidence is conclusive that the
proof of claim which the insured submitted was false and fraudulent both as to the kind, quality and
amount of the goods and their value destroyed by the fire, such a proof of claim is a bar against the
insured from recovering on the policy even for the amount of his actual loss.

In the present case, as proof of its loss of stocks in trade amounting to 50,000,000.00, UMC
submitted its Sworn Statement of Formal Claim together with the following documents: (1) letters of
credit and invoices for raw materials, Christmas lights and cartons purchased; (2) charges for
assembling the Christmas lights; and (3) delivery receipts of the raw materials. However, the
charges for assembling the Christmas lights and delivery receipts could not support its insurance
claim. The Insurance Policy provides that CBIC agreed to insure UMCs stocks in trade. UMC
defined stock in trade as tangible personal property kept for sale or traffic.33 Applying UMCs
definition, only the letters of credit and invoices for raw materials, Christmas lights and cartons may
be considered.

The invoices, however, cannot be taken as genuine. The invoices reveal that the stocks in trade
purchased for 1996 amounts to 20,000,000.00 which were purchased in one month. Thus, UMC
needs to prove purchases amounting to 30,000,000.00 worth of stocks in trade for 1995 and prior
years. However, in the Statement of Inventory it submitted to the BIR, which is considered an entry
in official records,34 UMC stated that it had no stocks in trade as of 31 December 1995. In its defense,
UMC alleged that it did not include as stocks in trade the raw materials to be assembled as
Christmas lights, which it had on 31 December 1995. However, as proof of its loss, UMC submitted
invoices for raw materials, knowing that the insurance covers only stocks in trade.

Equally important, the invoices (Exhibits "P"-"DD") from Fuze Industries Manufacturer Phils. were
suspicious. The purchases, based on the invoices and without any supporting contract, amounted to
19,550,400.00 worth of Christmas lights from 20 January 1996 to 23 February 1996. The
uncontroverted testimony of Cabrera revealed that there was no Fuze Industries Manufacturer Phils.
located at "55 Mahinhin St., Teachers Village, Quezon City," the business address appearing in the
invoices and the records of the Department of Trade & Industry. Cabrera testified that:

A: Then we went personally to the address as I stated a while ago appearing in the record furnished
by the United Merchants Corporation to the adjuster, and the adjuster in turn now, gave us our basis
in conducting investigation, so we went to this place which according to the records, the address of
this company but there was no office of this company.

Q: You mentioned Atty. Cabrera that you went to Diliman, Quezon City and discover the address
indicated by the United Merchants as the place of business of Fuze Industries Manufacturer, Phils.
was a residential place, what then did you do after determining that it was a residential place?
A: We went to the owner of the alleged company as appearing in the Department of Trade &
Industry record, and as appearing a certain Chinese name Mr. Huang, and the address as appearing
there is somewhere in Binondo. We went personally there together with the NBI Agent and I am with
them when the subpoena was served to them, but a male person approached us and according to
him, there was no Fuze Industries Manufacturer, Phils., company in that building sir.35

In Yu Ban Chuan v. Fieldmens Insurance, Co., Inc.,36 the Court ruled that the submission of false
invoices to the adjusters establishes a clear case of fraud and misrepresentation which voids the
insurers liability as per condition of the policy. Their falsity is the best evidence of the fraudulent
character of plaintiffs claim.37 In Verendia v. Court of Appeals,38 where the insured presented a
fraudulent lease contract to support his claim for insurance benefits, the Court held that by its false
declaration, the insured forfeited all benefits under the policy provision similar to Condition No. 15 of
the Insurance Policy in this case.

Furthermore, UMCs Income Statement indicated that the purchases or costs of sales are
827,670.00 for 1995 and 1,109,190.00 for 1996 or a total of 1,936,860.00.39 To corroborate this
fact, Ebora testified that:

Q: Based on your 1995 purchases, how much were the purchases made in 1995?

A: The purchases made by United Merchants Corporation for the last year 1995 is 827,670.[00] sir

Q: And how about in 1994?

A: In 1994, its 608,986.00 sir.

Q: These purchases were made for the entire year of 1995 and 1994 respectively, am I correct?

A: Yes sir, for the year 1994 and 1995.40 (Emphasis supplied)

In its 1996 Financial Report, which UMC admitted as existing, authentic and duly executed during
the 4 December 2002 hearing, it had 1,050,862.71 as total assets and 167,058.47 as total
liabilities.41

Thus, either amount in UMCs Income Statement or Financial Reports is twenty-five times the claim
UMC seeks to enforce. The RTC itself recognized that UMC padded its claim when it only allowed
43,930,230.00 as insurance claim. UMC supported its claim of 50,000,000.00 with the
Certification from the Bureau of Fire Protection stating that "x x x a fire broke out at United
Merchants Corporation located at 19-B Dag[o]t Street, Brgy. Manresa, Quezon City incurring an
estimated damage of Fifty- Five Million Pesos (55,000,000.00) to the building and contents x x x."
However, this Certification only proved that the estimated damage of 55,000,000.00 is shared by
both the building and the stocks in trade.

It has long been settled that a false and material statement made with an intent to deceive or
defraud voids an insurance policy.42 In Yu Cua v. South British Insurance Co.,43 the claim was fourteen
times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co,44 eight times; and in Tuason v.
North China Insurance Co.,45 six times. In the present case, the claim is twenty five times the actual
claim proved.

The most liberal human judgment cannot attribute such difference to mere innocent error in
estimating or counting but to a deliberate intent to demand from insurance companies payment for
indemnity of goods not existing at the time of the fire.46 This constitutes the so-called "fraudulent
claim" which, by express agreement between the insurers and the insured, is a ground for the
exemption of insurers from civil liability.47

In its Reply, UMC admitted the discrepancies when it stated that "discrepancies in its statements
were not covered by the warranty such that any discrepancy in the declaration in other instruments
or documents as to matters that may have some relation to the insurance coverage voids the
policy."48

On UMCs allegation that it did not breach any warranty, it may be argued that the discrepancies do
not, by themselves, amount to a breach of warranty. However, the Insurance Code provides that "a
policy may declare that a violation of specified provisions thereof shall avoid it."49 Thus, in fire
insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a
fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will exonerate the insurer.50

Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim
and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited
whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.

While it is a cardinal principle of insurance law that a contract of insurance is to be construed


liberally in favor of the insured and strictly against the insurer company,51 contracts of insurance, like
other contracts, are to be construed according to the sense and meaning of the terms which the
parties themselves have used.52 If such terms are clear and unambiguous, they must be taken and
understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for
the parties; the function and duty of the courts is simply to enforce and carry out the contracts
actually made.53

WHEREFORE, we DENY the petition. We AFFIRM the 16 June 2011 Decision and the 8
September 2011 Resolution of the Court of Appeals in CA-G.R. CV No. 85777.

SO ORDERED.
G.R. No. 194328 July 1, 2015

STRONGHOLD INSURANCE COMPANY, INCORPORATED, Petitioner,


vs.
INTERPACIFIC CONTAINER SERVICES and GLORIA DEE CHONG, Respondents.

DECISION

PEREZ, J.:

This is a Petition for Review on Certiorari1 assailing the 30 July 2010 Decision2 of the Court of
Appeals in CA-G.R. CV No. 80557, which affirmed the 7 October 2003 Decision of the Regional Trial
Court (RTC) of Caloocan City directing the petitioner Stronghold Insurance Company Incorporated to
pay respondents Interpacific Container Services and Gloria Dee Chong the sum of 550,000.00
representing their insurance claim. The dispositive portion of the assailed decision reads:

WHEREFORE, premises considered, the appeal is PARTLY GRANTED. The assailed decision
dated October 7, 2003 of the Regional Trial Court of Caloocan City, Branch 130 is AFFIRMED with
the MODIFICATION that the PS0,000.00 exemplary damages is hereby DELETED.

The Facts

Respondent Gloria Dee Chong is the owner of the Fuso truck with Plate No. PWH 512. The vehicle
was insured by petitioner Stronghold Insurance Company under Commercial Vehicle Policy No.
279675.3 The comprehensive motor car insurance policy for Pl5,306.45 undertook to indemnify the
insured against loss or damage to the car and death or injury caused to third persons by reason of
accident.

While the policy was in effect, the vehicle figured in an accident along National Highway in Brgy.
Palihan, Hermosa, Bataan resulting in the death of four (4) persons while seriously injuring three (3)
others. Two (2) vehicles were also heavily damaged as a result of the accident. Pursuant to the
provisions of the insurance contract, respondent Chong filed a claim for the recovery of the proceeds
of her policy in the amount of 550,000.00, broken down as follows:

Comprehensive Third Party Liability (CTPL) ----- 50,000.00

Own Damage (OD) ------------------------------------- 300,000.00

Excess I Bodily Injury (BI)------------------------------ 100,000.00

Third Party Liability (TPL) ------------------------------ 100,000.00

Total --------------------------------------------------------- 550,000.004

The claim was, however, denied by the insurance company on the ground that at the time the
accident took place the driver of the insured vehicle was heavily drunk as shown in the
Pagpapatunay issued by Bararigay Chairman Rafael Torres and the Medico Legal Certificate which
was signed by a certain Dr. Ferdinand Bautista.

The denial of the claim prompted respondents to initiate an action for the recovery of sum of money
against petitioner before the RTC of Caloocan City, Branch 130. In their Complaint docketed as Civil
Case No. C-18278, respondents alleged that their claim was unjustly denied by the insurance
company. They argued that there was no sufficient proof to support the claim of the petitioner that
the driver was drunk at the time of the incident underscoring the lack of mention of such crucial fact
in the police blotter report documenting the incident. For lack of justifiable reasons to avoid the
policy, respondents insisted that petitioner is liable to deliver their claim pursuant to the terms of the
insurance contract.5

In refuting the allegations in the complaint, petitioner averred that the intoxication of the driver of the
insured vehicle legally avoided the liability of the insurance company under the policy. Petitioner
further claimed that the insured violated Section 53 of Republic Act No. 4136 (Land Transportation
and Traffic Code) which prohibits driving of motor vehicles under the influence of alcohol. Since the
driver of the insured vehicle was found drunk at the time of the accident, the denial of the insurance
claim of by the respondents is therefore justified under provisions of the insurance contract and the
existing statutes.6

After the pre-trial conference, trial on the merits ensued. During the hearing, both parties adduced
testimonial and documentary evidence to support their respective positions.

On 7 October 2003, the RTC rendered a Decision7 in favor of the respondents thereby ordering the
petitioner to deliver the amount of 550,000.00 representing the proceeds of the insurance contract.
According to the court a quo, petitioner failed to prove by prima facie evidence that the driver of the
insured vehicle was indeed under the influence of alcohol at the time of the accident thereby making
the avoidance of the policy unjustified under the circumstances. The decretal portion of the RTC
decision reads:

WHEREFORE, judgment is hereby rendered in favor of the [respondents] Interpacific Container


Services and Gloria Dee Chong and against the [petitioner] Stronghold Insurance, Co. Inc. as
follows:

(1) Ordering the [petitioner] to pay [respondents] the (insurance claim) under the Third Party Liability
Insurance Policy and the Commercial Vehicle Policy Number 279675, in the total amount of FIVE
HUNDRED FIFTY THOUSAND PESOS (550,000.00) broken down as follows:

Comprehensive Third Party Liability (CTPL) ----- 50,000.00

Own Damage (OD) ------------------------------------- 300,000.00

Excess I Bodily Injury (BI) ---------------------------- 100,000.00

TPL/ PD --------------------------------------------------- 100, 000.00

Total -------------------------------------------------------- 550,000.00

plus interest of 12% per annum on the said amount, from February 12, 1997 the date of the accident
until fully paid.

(2) Ordering the [petitioner] to pay the amount of 50,000.00 as exemplary damages.

(3) Ordering the [petitioner] to pay the amount of 100,000.00 as and for attorney's fees.

(4) Ordering the [petitioner] to pay the costs of suit.


The counterclaim of the [petitioner] is dismissed for lack of merit.8

On appeal, the Court of Appeals affirmed the findings of the R TC that there was no violation of the
contract of insurance but deleted the award for exemplary damages. Resonating the ruling of the
trial court, the appellate court dismissed the pieces of evidence presented by the petitioner as mere
hearsay without evidentiary value. It underscored the absence of any statement in the police blotter
report about the crucial fact of intoxication. On the finding that there was a failure to prove that it is
exempted from liability under the contract of insurance, petitioner was adjudged as under obligation
to pay respondents their insurance claim in accordance with the provisions of the policy.9

Arguing that the Court of Appeals erred in rendering the assailed Decision, petitioner filed this instant
Petition for Certiorari seeking the reversal of the appellate court's decision on the following grounds:

I.

THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN NOT


APPRECIATING THE CLEAR EVIDENCE OF RESPONDENT'S DRIVER'S INTO XI CATION AND
DRUNKENNESS;

II.

THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN FINDING THE


PETITIONER LIABLE FOR THE CLAIMS OF THE RESPONDENTS IN THE ABSENCE OF PROOF;

III.

THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN AFFIRMING


THE IMPOSITION OF INTEREST WHICH IS CONTRARY TO LAW AND JURISPRUDENCE.10

The Court's Ruling

The issue nestled in the contentions of parties is whether or not it was proven during the trial that the
driver of the insured vehicle was intoxicated at the time of the accident thereby precluding the
respondents from claiming the proceeds of the insurance policy.

In insisting that the factual findings reached by the lower courts were fallible, petitioner, in turn, is
urging this Court to calibrate the probative value of the evidence adduced during the trial, a task
which we do not routinely do, without running afoul to the basic tenet that this Court is not a trier of
facts. As a rule, the factual conclusion of the court a quo is for that reason recognized by this Court.
However, upon a submission that the finding of fact is not supported by the evidence on record, a
review of the facts may be taken. Upon proof of the submission, the findings of fact are accordingly
corrected.

We reiterate, and follow, the established rule that factual findings of the trial court are entitled to
respect and are not to be disturbed on appeal, unless of some facts and circumstances of weight
and substance, having been overlooked or misinterpreted, might materially affect the disposition of
the case.11 We apply the rule in the case. The exception has not been shown.

Contrary to the claim of the petitioner; it miserably failed to prove the fact of intoxication during the
trial. Aside from the Medico Legal Certificate and the Pagpapatunay, which were stripped of
evidentiary value because of the dubious circumstances under which they were obtained, the
petitioner did not adduce other proof to justify the avoidance of the policy. It must be emphasized
that the RTC doubted the authenticity of the Medico Legal Certificate because of the attendant
alteration and tampering on the face of the document. In adopting the findings of the trial court, the
appellate court reiterated the evidentiary rule that the party alleging violation of the provision of the
contract bears the burden of proof to prove the same.

The evident tampering of the medico legal certificate necessitated the presentation by the petitioner
of additional evidence to buttress his claim. For instance, petitioner could have adduced affidavits of
1w phi 1

witnesses who were present at the scene of the accident to attest to the fact that the driver was
intoxicated. It did not. Upon the other hand, respondents duly established their right to claim the
proceeds of a validly subsisting contract of insurance. Such contract was never denied.

Simply put, he who alleges the affim1ative of the issue has the burden of proof, and upon the plaintiff
in a civil case rested the burden of proof. Notably, in the course of trial in a civil case, once plaintiff
makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to
controvert plaintiff's prima facie case, otherwise, a verdict must be returned in favor of plaintiff.
Moreover, in civil cases, the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own evidence and not upon the
weakness of the defendant's. The concept of "preponderance of evidence" refers to evidence which
is of greater weight or more convincing, than that which is offered in opposition to it; at bottom, it
means probability of truth.12

What further dampens petitioner's position is the absence of the crucial fact of intoxication in the
blotter report which officially documented the incident. Entries in police records made by a police
officer in the performance of the duty especially enjoined by law are prima facie evidence of the fact
therein stated, and their probative value may be substantiated or nullified by other competent
evidence.13 In this case, the lack of statement to the effect that the driver was under the influence of
alcohol in the said report is too significant to escape the attention of this Court.

This case involves a contract of insurance, the authenticity and validity of which was uncontested. In
exempting insurers from liability under the contract, proof thereof must be clear, credible and
convincing. Fundamental is the rule that the contract is the law between the parties and, that absent
any showing that its provisions are wholly or in part contrary to law, morals, good customs, public
order, or public policy, it shall be enforced to the letter by the courts.14

WHEREFORE, premises considered, the instant petition is hereby DENIED. The assailed Decision
of the Court of Appeals in CA-G.R. CV No. 80557 is hereby AFFIRMED.

SO ORDERED.
G.R. No. 205206, March 16, 2016

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION (PRESENTLY KNOWN
AS BPI/MS INSURANCE CORPORATION), Petitioners, v. YOLANDA LAINGO, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 assailing the Decision dated 29 June 20122 and Resolution dated
11 December 20123 of the Court of Appeals in CA-G.R. CV No. 01575.

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a
"Platinum 2-in-1 Savings and Insurance" account with petitioner Bank of the Philippine Islands (BPI) in its
Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account is a savings account where
depositors are automatically covered by an insurance policy against disability or death issued by petitioner
FGU Insurance Corporation (FGU Insurance), now known as BPI/MS Insurance Corporation. BPI issued
Passbook No. 50298 to Rheozel corresponding to Savings Account No. 2233-0251-11. A Personal Accident
Insurance Coverage Certificate No. 043549 was also issued by FGU Insurance in the name of Rheozel with
Laingo as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death
issued by the Office of the Civil Registrar General of Tagum City, Davao del Norte. Since Rheozel came from
a reputable and affluent family, the Daily Mirror headlined the story in its newspaper on 26 September
2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go to
BPI, Claveria, Davao City branch and inquire about the savings account of Rheozel. Laingo wanted to use
the money in the savings account for Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request. Due
to Laingo's credit standing and relationship with BPI, BPI accommodated Laingo who was allowed to
withdraw P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI, went to
Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some information from Alice and brought with
her a number of documents for Laingo to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while
arranging Rheozel's personal things in his room at their residence in Ecoland, Davao City, found the Personal
Accident Insurance Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn immediately
conveyed the information to Laingo.

Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance
requesting them to process her claim as beneficiary of Rheozel's insurance policy. On 19 February 2004,
FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated that Laingo should
have filed the claim within three calendar months from the death of Rheozel as required under Paragraph 15
of the Personal Accident Certificate of Insurance which states:
chanRoble svirtual Lawlib ra ry

15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three calendar
months of death or disability.
On 20 February 2004, Laingo filed a Complaint4 for Specific Performance with Damages and Attorney's Fees
with the Regional Trial Court of Davao City, Branch 16 (trial court) against BPI and FGU Insurance.

In a Decision5 dated 21 April 2008, the trial court decided the case in favor of respondents. The trial court
ruled that the prescriptive period of 90 days shall commence from the time of death of the insured and not
from the knowledge of the beneficiary. Since the insurance claim was filed more than 90 days from the
death of the insured, the case must be dismissed. The dispositive portion of the Decision states:
chanRoble svirtual Lawlib ra ry

PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the counterclaims.

SO ORDERED.6 ChanRoblesVi rtualaw lib rary

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:
chanRoble svirtual Lawlib ra ry

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 ChanRoblesVi rtualaw lib rary

Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution dated
11 December 2012.

Hence, the instant petition.

The Issue

The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge of
the existence of the insurance contract, is bound by the three calendar month deadline for filing a written
notice of claim upon the death of the insured.

The Court's Ruling

The petition lacks merit.

Petitioners contend that the words or language used in the insurance contract, particularly under paragraph
15, is clear and plain or readily understandable by any reader which leaves no room for construction.
Petitioners also maintain that ignorance about the insurance policy does not exempt respondent from
abiding by the deadline and petitioners cannot be faulted for respondent's failure to comply.

Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no provision
indicating how the beneficiary is to be informed of the three calendar month claim period. Since petitioners
did not notify her of the insurance coverage of her son where she was named as beneficiary in case of his
death, then her lack of knowledge made it impossible for her to fulfill the condition set forth in the insurance
contract.

In the present case, the source of controversy stems from the alleged non-compliance with the written
notice of insurance claim to FGU Insurance within three calendar months from the death of the insured as
specified in the insurance contract. Laingo contends that as the named beneficiary entitled to the benefits of
the insurance claim she had no knowledge that Rheozel was covered by an insurance policy against
disability or death issued by FGU Insurance that was attached to Rheozel's savings account with BPI. Laingo
argues that she dealt with BPI after her son's death, when she was allowed to withdraw funds from his
savings account in the amount of P995,000. However, BPI did not notify her of the attached insurance
policy. Thus, Laingo attributes responsibility to BPI and FGU Insurance for her failure to file the notice of
insurance claim within three months from her son's death.

We agree.

BPI offered a deposit savings account with life and disability insurance coverage to its customers called the
Platinum 2-in-1 Savings and Insurance account. This was a marketing strategy promoted by BPI in order to
entice customers to invest their money with the added benefit of an insurance policy. Rheozel was one of
those who availed of this account, which not only included banking convenience but also the promise of
compensation for loss or injury, to secure his family's future.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its
partner. Any customer interested to open a deposit account under this 2-in-1 product, after submitting all
the required documents to BPI and obtaining BPI's approval, will automatically be given insurance coverage.
Thus, BPI acted as agent of FGU Insurance with respect to the insurance feature of its own marketed
product.

Under the law, an agent is one who binds himself to render some service or to do something in
representation of another.8 In Doles v. Angeles,9 we held that the basis of an agency is representation. The
question of whether an agency has been created is ordinarily a question which may be established in the
same way as any other fact, either by direct or circumstantial evidence. The question is ultimately one of
intention. Agency may even be implied from the words and conduct of the parties and the circumstances of
the particular case. For an agency to arise, it is not necessary that the principal personally encounter the
third person with whom the agent interacts. The law in fact contemplates impersonal dealings where the
principal need not personally know or meet the third person with whom the agent transacts: precisely, the
purpose of agency is to extend the personality of the principal through the facility of the agent.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product,
offering the insurance coverage for free for every deposit account opened, Rheozel directly communicated
with BPI, the agent of FGU Insurance. BPI not only facilitated the processing of the deposit account and the
collection of necessary documents but also the necessary endorsement for the prompt approval of the
insurance coverage without any other action on Rheozel's part. Rheozel did not interact with FGU Insurance
directly and every transaction was coursed through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an agency relationship is
established, the agent acts for the principal insofar as the world is concerned. Consequently, the acts of the
agent on behalf of the principal within the scope of the delegated authority have the same legal effect and
consequence as though the principal had been the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be
reasonably carried out with full disclosure to the parties concerned, particularly the beneficiaries. Thus, it
was incumbent upon BPI to give proper notice of the existence of the insurance coverage and the stipulation
in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary, upon the latter's death.

Articles 1884 and 1887 of the Civil Code state:


chanRoble svirtual Lawlib ra ry

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. cha nrob leslaw

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. cralawlawlibra ry

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