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SUBROGATION

[G.R. No. L-36413. September 26, 1988.]

MALAYAN INSURANCE CO., INC.,petitioner,vs.THE HON. COURT OF APPEALS(THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC.and PANGASINAN TRANSPORTATION CO., INC.,respondents.

Freqillana, Jr. for petitioner.

B.F. Estrella & Associatesfor respondent Martin Vallejos.

Vicente Erfe Law Officefor respondent Pangasinan Transportation Co., Inc.

Nemesio Callantafor respondent Sio Choy and San Leon Rice Mill, Inc.

SYLLABUS

1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; LIABILITY OF OWNER OF A VEHICLE INVOLVED IN A MOTORVEHICLE MISHAP AND EMPLOYER OF THE DRIVER DRIVING THE VEHICLE, JOINT AND SEVERAL.Theowner of a vehicle involved in a motor vehicle mishap is solidarily liable with the employer of the driver drivingthe vehicle, the former under Article 2184 of the New Civil Code and the latter pursuant to Article 2180 of theNew Civil Code, both being responsible for aquasi delict under Article 2194 of the Civil Code.

2.ID.; ID.; SUABILITY OF INSURER BY THIRD PERSONS UNDER INDEMNITY CONTRACT EXCLUDESSOLIDARY LIABILITY WITH THE INSURED AND/OR OTHER PARTIES AT FAULT.Although the insurer maybe held directly liable under indemnity contracts against third party liability, it may not be held solidarily liablewith the insured and/or other parties at fault being in violation of the principles embodying solidary obligations

and insurance contracts.

3.ID.; ID.; INSURANCE CONTRACTS; PRINCIPLE OF SUBROGATION; RIGHT OF SUBROGATION NOTDEPENDENT UPON ANY PRIVITY OF CONTRACT.Subrogation being a normal incident of indemnityinsurance, the insurer is entitled to be subrogatedpro tanto to any right of action opted by the insured. Thatright is not dependent nor does it grow out of, any privity of contract.

4.ID.; ID.; ID.; ID.; RIGHT TO REIMBURSEMENT AS SUBROGEE TO SOLIDARY DEBTOR.Under Article 1217of the Civil Code a solidary debtor who has paid the entire obligation is entitled to be reimbursed by his co-debtors for the share which corresponds to each. The rule holds true as to an insurer subrogated to the rightof a solidary debtor.

D E C I S I O N

PADILLA, J p:

Review on certiorari of the judgment*of the respondent appellate court in CA-G.R. No. 47319-R, dated 22February 1973, which affirmed, with some modifications, the decision,**dated 27 April 1970, rendered in CivilCase No. U-2021 of the Court of First Instance of Pangasinan.
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The antecedent facts of the case are as follows:

On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private respondent SioChoy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968,covering a Willys jeep with Motor No. ET-03023, Serial No. 351672, and Plate No. J-21536, Quezon City, 1967.The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amountof P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo, an employee of therespondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the respondent PangasinanTransportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San Pedro, RosalesPangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and therespondent Martin C. Vallejos, who was riding in the ill-fated jeep.

As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. andthe PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him, jointly and severally, the amount ofP15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as

actual, moral and compensatory damages; and P5,000.00, for attorney's fees.

Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive speed andbumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order toavoid the jeep; and that it had observed the diligence of a good father of a family to prevent damage,especially in the selection and supervision of its employees and in the maintenance of its motor vehicles. Itprayed that it be absolved from any and all liability.

Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to the plaintiff,claiming that the fault in the accident was solely imputable to the PANTRANCO.

Sio Choy, however, later filed a separate answer with a cross-claim against the herein petitioner wherein healleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalizationand other expenses, and, in his cross-claim against the herein petitioner, he alleged that the petitioner hadissued in his favor a private car comprehensive policy wherein the insurance company obligated itself toindemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for any liability to third personsarising out of any accident during the effectivity of such insurance contract, which policy was in full force andeffect when the vehicular accident complained of occurred. He prayed that he be reimbursed by the insurancecompany for the amount that he may be ordered to pay.

Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against the SanLeon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of the accident,was an employee of the San Leon Rice Mill, Inc. performing his duties within the scope of his assigned task,

and not an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the deceaseddriver, Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the CivilCode. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill, Inc., making itliable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse andindemnify the petitioner-for any sum that it may be ordered to pay the plaintiff.

After trial, judgment was rendered as follows:

"WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in favor ofthe plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San LeonRice Mill, Inc., as follows:


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"(a)P4,103 as actual damages;

"(b)P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the period of three(3) years;

"(c)P5,000.00 as moral damages;

"(d)P2,000.00 as attorney's fees or the total of P29,103.00, plus costs.

"The above-named parties against whom this judgment is rendered are hereby held jointly andseverally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to onlyP20,000.00.

"As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no awardshould be made in its favor. Its counter-claim for attorney's fees is also dismissed for not being

proved." 1

On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy, the SanLeon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damagesawarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has noobligation to indemnify or reimburse the petitioner insurance company for whatever amount it has beenordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurancebetween Sio Choy and the insurance company. 2

Hence, the present recourse by petitioner insurance company.

The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order the SanLeon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half (1/2) of the entire amount ofdamages, petitioner may be ordered to pay jointly and severally with Sio Choy.

The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns the alleged

liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no other aspect of thedecision of the Court of Appeals shall be reviewed, hence, execution may already issue in favor of respondentMartin C. Vallejos against the respondents, without prejudice to the determination of whether or not petitionershall be entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of whateverthe former may pay on the P20,000.00 it has been adjudged to pay respondent Vallejos." 3

However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it isimportant to determine first the nature or basis of the liability of petitioner to respondent Vallejos, ascompared to that of respondents Sio Choy and San Leon Rice Mill, Inc.

Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by the Court of

Appeals, was correct in holding petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarilyliable" to respondent Vallejos; and (2) whether petitioner is entitled to be reimbursed by respondent San LeonRice Mill, Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurancepolicy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that petitioner andrespondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable to respondent Vallejos.

We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy and San LeonRice Mill, Inc., (to the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for thedamages awarded to Vallejos.


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It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated Willysjeep, pursuant to Article 2184 of the Civil Code which provides:

"Art. 2184.In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, whowas in the vehicle, could have, by the use of due diligence, prevented the misfortune it is disputablypresumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic

regulations at least twice within the next preceding two months.

"If the owner was not in the motor vehicle, the provisions of article 2180 are applicable."

On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to plaintiffVallejos, the former being the employer of the driver of the Willys jeep at the time of the motor vehiclemishap, is Article 2180 of the Civil Code which reads:

"Art. 2180.The obligation imposed by article 2176 is demandable not only for one's own acts oromissions, but also for those of persons for whom one is responsible.

xxx xxx xxx

"Employers shall be liable for the damages caused by their employees and household helpers actingwithin the scope of their assigned tasks, even though the former are not engaged in any business orindustry.

xxx xxx xxx

"The responsibility treated in this article shall cease when the persons herein mentioned proved thatthey observed all the diligence of a good father of a family to prevent damage."

It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are

primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who areliable for a quasi-delictis solidary. 4

On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio Choy. Ifpetitioner is adjudged to pay respondent Vallejos in the amount of not more than P20,000.00, this is onaccount of its being the insurer of respondent Sio Choy under the third party liability clause included in theprivate car comprehensive policy existing between petitioner and respondent Sio Choy at the time of thecomplained vehicular accident.

In Guingon vs. Del Monte,5a passenger of a jeepney had just alighted therefrom, when he was bumped byanother passenger jeepney. He died as a result thereof. In the damage suit filed by the heirs of said passengeagainst the driver and owner of the jeepney at fault as well as against the insurance company which insured

the latter jeepney against third party liability, the trial court, affirmed by this Court, adjudged the owner andthe driver of the jeepney at fault jointly and severally liable to the heirs of the victim in the total amount ofP9,572.95 as damages and attorney's fees; while the insurance company was sentenced to pay the heirs theamount of P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against saidowner and driver of the jeepney. Thus, in said Guingoncase, it was only the owner and the driver of the

jeepney at fault, not including the insurance company, who were held solidarily liable to the heirs of the victim

While it is true that where the insurance contract provides for indemnity against liability to third persons, suchthird persons can directly sue the insurer,6however, the direct liability of the insurer under indemnitycontracts against third party liability does not mean that the insurer can be held solidarily liable with the
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insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of theinsured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, asincorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors, namelyrespondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said two(2) respondents by reason of the indemnity contract against third party liabilityunder which an insurer canbe directly sued by a third partythis will result in a violation of the principles underlying solidary obligationand insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors.7Onthe other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnifyanother against loss, damage, or liability arising from an unknown or contingent event." 8

In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice MillsInc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification thatpetitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may becompelled by respondent Vallejos to pay the entireobligation of P29,013.00, notwithstanding the qualificationmade by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount

stated in its insurance policy with respondent Sio Choy for indemnity against third party liability is onlyP20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner issentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is an evidentbreach of the concept of a solidary obligation. Thus, We hold that the trial court, as upheld by the Court of

Appeals, erred in holding petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. torespondent Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner isnot entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is notprivy to the contract of insurance existing between petitioner and respondent Sio Choy. We disagree.

The appellate court overlooked the principle of subrogation in insurance contracts. Thus

". . . Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S.530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogated pro tantoto anyright of action which the insured may have against the third person whose negligence or wrongful actcaused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish MetropolitanAssurance Co., 283 U.S. 284, 75 L. ed. 1037).

"The right of subrogation is of the highest equity. The loss in the first instance is that of the insured butafter reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d, 746, note 16,citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382).

"Although many policies including policies in the standard form, now provide for subrogation, and thusdetermine the rights of the insurer in this respect, the equitable right of subrogation as the legal effectof payment inures to the insurer without any formal assignment or any express stipulation to thateffect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for theloss, such payment operates as an equitable assignment to the insurer of the property and all remedieswhich the insured may have for the recovery thereof. That right is not dependent upon, nor does itgrow out of, any privity of contract, (italics supplied) or upon written assignment of claim, and paymentto the insured makes the insurer an assignee in equity (Shambley v. Jobe-Blackley Plumbing and

Heating Co, 264 N.C. 456, 142 SE 2d 18)." 9

It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of not exceedingP20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to
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whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code givesto a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for theshare which corresponds to each.

"Art. 1217.Payment made by one of the solidary debtors extinguishes the obligation. If two or moresolidary debtors offer to pay, the creditor may choose which offer to accept.

"He who made the payment may claim from his co-debtors only the share which corresponds to each,

with the interest for the payment already made. If the payment is made before the debt is due, nointerest for the intervening period may be demanded.

xxx xxx xxx"

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming thesubrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill, Inc.

To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liableto the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligationon only one of said solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation

(P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation,petitioner would be entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed bythe latter in the amount of P14,551.50 (which is 1/2 of P29,103.00).

WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of Appeals, ishereby AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs.

SO ORDERED.

Melencio-Herrera, Paras, Sarmiento andRegalado, JJ., concur.

[G.R. No. 52756. October 12, 1987.]

MANILA MAHOGANY MANUFACTURING CORPORATION,petitioner,vs.COURT OFAPPEALS AND ZENITH INSURANCE CORPORATION,respondents.

D E C I S I O N

PADILLA, J p:

Petition to review the decision*of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979,ordering petitioner Manila Mahogany Manufacturing Corporation to pay private respondent Zenith InsuranceCorporation 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 sameCourt, dated 8 February 1980, denying petitioner's motion for reconsideration of its decision.LLjur

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondentinsurance company. On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by SanMiguel Corporation. For the damage caused, respondent company paid petitioner five thousand pesos


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(P5,000.00) in amicable settlement. Petitioner's general manager executed a Release of Claim, subrogatingrespondent company to all its right to action against San Miguel Corporation.

On 11 December 1972, respondent company wrote Insurance Adjusters, Inc. to demand reimbursement fromSan 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'smotor vehicle, as evidenced by a cash voucher and a Release of Claim executed by the General Manager ofpetitioner discharging San Miguel Corporation from "all actions, claims, demands the rights of action that nowexist 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 paidby San Miguel Corporation. Petitioner refused; hence, respondent company filed suit in the City Court of Manilafor the recovery of P4,600.00. The City Court ordered petitioner to pay respondent P4,500.00. On appeal, theCourt of First Instance of Manila affirmed the City Court's decision in toto,which CFI decision was affirmed bythe Court of Appeals, with the modification that petitioner was to pay respondent the total amount ofP5,000.00 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 companyas 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 atP9,486.43 and only P5,000.00 was received by petitioner from respondent, petitioner argues that it wasentitled 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 andstates that there was no qualification to its right of subrogation under the Release of Claim executed bypetitioner, the contents of said deed having expressed all the intents and purposes of the parties. cdll

To support its alleged right not to return the P4,500.00 paid by San Miguel Corporation, petitioner cites Art.2207 of the Civil Code, which states:

"If the plaintiff's property has been insured, and he has received indemnity from the insurancecompany for the injury or loss arising out of the wrong or breach of contract complained of theinsurance company shall be subrogated to the rights of the insured against the wrongdoer or theperson who has violated the contract. If the amount paid by the insurance company does not fullycover the injury or loss the aggrieved party shall be entitled to recover the deficiency from the personcausing 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 heshall be preferred to the person who has been subrogated in his place in virtue of the partial paymentof the same credit."

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

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


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"Although petitioner's right to file a deficiency claim against San Miguel Corporation is with legal basis,without prejudice to the insurer's right of subrogation, nevertheless when Manila Mahogany executedanother release claim (Exhibit K) discharging San Miguel Corporation from all actions, claims, demandsand rights of action that now exist or hereafter arising out of or as a consequence of the accident" afterthe insurer had paid the proceeds of the policythe compromise agreement of P5,000.00 being basedon the insurance policythe insurer is entitled to recover from the insured the amount of insurancemoney paid (Metropolitan Casualty Insurance Company of New York v. Badler, 229 N.Y.S. 61, 132 Misc.132, cited in Insurance Code and Insolvency Law with comments and annotations, H.B. Perez 1976, p.

151). Since petitioner by its own acts released San Miguel Corporation, thereby defeating privaterespondent's right of subrogation, the right of action of petitioner against the insurer was also nullified.(Sy Keng & Co. v. Queensland Insurance Co. Ltd., 54 O.G. 391.) Otherwise stated: private respondentmay recover the sum of P5,000.00 it had earlier paid to petitioner."1

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

If a property insured and the owner receives the indemnity from the insurer, it is provided in [Article2207 of the New Civil Code] that the insurer is deemed subrogatedto the rights of the insured againstthe wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrievedparty is the one entitled to recover the deficiency. . . . Under this legal provision, the real party ininterest with regard to the portion of the indemnity paid is the insurer and not the insured.3(Emphasissupplied)

The decision of the respondent court ordering petitioner to pay respondent company, not the P4,500 asoriginally asked for, but P5,000, the amount respondent company paid petitioner as insurance, is also inaccord with law and jurisprudence. In disposing of the issue, the Court of Appeals held:

". . . petitioner is entitled to keep the sum of P4,500 paid by San Miguel Corporation under its clearright to file a deficiency claim for damages incurred, against the wrongdoer, should the insurancecompany not fully pay for the injury caused (Article 2207, New Civil Code). However, when petitioner'sright to retain the sum of P5,000.00 no longer existed, thereby entitling private respondent to recoverthe same.(Emphasis supplied)

As has been observed:

"xxx xxx xxx

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

"Since the insurer can be subrogated to only such rights as the insured may have, should the insured,after receiving payment from the insurer, release the wrongdoer who caused the loss, the insurer loseshis rights against the latter. But in such a case, the insurer will be entitled to recover from the insuredwhatever 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, therespondent Court acted well within its discretion in awarding P5,000.00, the total amount paid by the insurer.The Court of Appeals rightly reasoned as follows:

"It is to be noted that private respondent, in its complaint, prays for the recovery, not of P5,000.00 ithad paid under the insurance policy but P4,500.00 San Miguel Corporation had paid to petitioner. Onthis 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,
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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 asmay be deemed just or equitable" (Rule 6, Sec. 3, Revised Rules of Court; Rosales v. Reyes Ordoveza,25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios and Tupas, 77 Phil. 120)."

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

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras andSarmiento, JJ.,concur.

[G.R. No. 168402. August 6, 2008.]

ABOITIZ SHIPPING CORPORATION,petitioner, vs. INSURANCE COMPANY OFNORTH AMERICA,respondent.

D E C I S I O N

REYES, R.T.,J p:

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. Assubrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assuredmay have against the wrongdoer who caused the damage.

Before Us is a petition for review oncertiorari

of the Decision1

of the Court of Appeals (CA) which reversedthe Decision2of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to paythe sum of P280,176.92 plus interest and attorney's fees in favor of respondent Insurance Company of North

America (ICNA). cSATEH

The Facts

Culled from the records, the facts are as follows:

On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS)procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for atransshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching

Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.3ICNA issued an "all-risk"open marine policy,4stating:

This Company, in consideration of a premium as agreed and subject to the terms and conditionsprinted hereon, does insure for MSAS Cargo International Limited &/or Associated &/or SubsidiaryCompanies 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 boardM/S Katsuragi. A clean bill of lading6was issued by Hapag-Lloyd which stated the consignee to be STIP,Ecotech Center, Sudlon Lahug, Cebu City.
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The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July18, 1993, the ship arrived and docked at the Manila International Container Port where the container van wasagain 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 lading7issued by

Aboitiz contained the notation "grounded outside warehouse".

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

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the CebuInternational Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance fromthe Customs authorities. In the Stripping Report9dated August 5, 1993, petitioner's checker noted that thecrates were slightly broken or cracked at the bottom.

On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science TeachingImprovement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. Itwas 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, uponreceiving the call, immediately went to the bonded warehouse and checked the condition of the container andother cargoes stuffed in the same container. He found that the container van and other cargoes stuffed therewere 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 becompletely dry and had no water marks. But he confirmed that the tools which were stored inside the cratewere already corroded. He further explained that the "grounded outside warehouse" notation in the bill oflading 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.12The 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 thepacking cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets.On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently,the damage was caused by water entering through the broken parts of the crate. IaDSEA

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

On September 21, 1993, the consignee filed a formal claim14with 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
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In a Supplemental Report dated October 20, 1993,15CAC reported to ICNA that based on official weatherreport from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appearthat heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipmentwas 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 Aboitizwhich contained the notation "grounded outside warehouse". It was only on July 31, 1993 when the shipmentwas stuffed inside another container van for shipment to Cebu. IDCScA

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. Asubrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogationreceipt 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, plusinterest and attorney's fees.16ICNA alleged that the damage sustained by the shipment was exclusively andsolely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside itswarehouse prior to delivery.

Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that thecomplaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of actionwas 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 thedecision17states:

WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed inthe complaint for being baseless and without merit. The complaint is hereby DISMISSED. Thedefendant'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 CignaHouse, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence toshow 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 thesubrogation receipt had no probative value for being hearsay evidence. The RTC reasoned: CcADHI

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

Plaintiff, further, claims that it has been subrogated to the rights and interest of Science TeachingImprovement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by arepresentative of Science Teaching Improvement Project. Such representative, however, was notpresented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative

value.19(Emphasis supplied)
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The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensedto 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 insurancecompany 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 dobusiness in the Philippines. These licenses/authority are obtained from the Securities andExchange Commission, the Board of Investments and the Insurance Commission. If it failsto obtain these licenses/authority, such foreign corporation doing business in thePhilippines cannot sue before Philippine courts.Mentholatum Co., Inc. v. Mangaliman, 72 Phil.524.(Emphasis supplied) SaAcHE

CA Disposition

ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action isanchored 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 wasnot filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right ofsubrogation because the subrogation receipt should have been signed by MSAS, the assured in the openpolicy, 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 ofthe 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 theplaintiff-appellant Insurance Company of North America the sum of P280,176.92 with interest thereonat the legal rate from the date of the institution of this case until fully paid, and attorney's fees in thesum 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 theinsurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is anunlicensed foreign corporation. The CA ruled:

At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Evenassumingarguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, suchcircumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of

subrogation under the contract of insurance and as recognized by Philippine courts. . . .CHIScD

xxx xxx xxx

Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in thecountry, as subrogee of the claim of the insured under the subject marine policy, is therefore the realparty in interest to bring this suit and recover the full amount of loss of the subject cargo shipped by itfrom Manila to the consignee in Cebu City. . . .22

The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcomeby any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that
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corporation that brought the suit and not the foreign company. Its authority is expressly provided for in theopen 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 policyby 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 againstICNA UK, the company who issued the insurance, or against any of its listed agents worldwide. 27MSASaccepted said provision when it signed and accepted the policy. The acceptance operated as an acceptance ofthe authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines wasunnecessary for the latter to exercise the rights of the insurer.AHCaES

Likewise, the Open Policy expressly provides that:

The Company, in consideration of a premium as agreed and subject to the terms and conditions printedhereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies inbehalf 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 itwill inure to the benefit of whosoever,during the continuance of therisk,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 ofthe 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 theinsurance company for the injury or loss arising out of the wrong or breach of contract complainedof,the insurance company shall be subrogated to the rights of the insured against the wrongdoer orthe 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 personcausing the loss or injury. (Emphasis added)

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

Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement tosubrogation equipped it with a cause of action against petitioner in case of a contractual breach ornegligence.30This right of subrogation, however, has its limitations. First, both the insurer and the consigneeare bound by the contractual stipulations under the bill of lading.31Second, the insurer can be subrogatedonly to the rights as the insured may have against the wrongdoer. If by its own acts after receiving paymentfrom the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses itsclaim against the latter.32SAHITC

The giving of notice of loss or injury is a condition precedent to the action for loss or injury or theright to enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude thatthe notice requirement was complied with.As held in the case of Philippine American General InsuranceCo., Inc. v. Sweet Lines, Inc.,33this notice requirement protects the carrier by affording it an opportunity to
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make an investigation of the claim while the matter is still fresh and easily investigated. It is meant tosafeguard 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 ofthe cargo if the damage is not apparent from the outside of the package. For damages that are visible fromthe 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 thecarrier for damages or average which may be found therein upon opening the packages, may bemade,provided that the indications of the damage or average which give rise to the claim cannot beascertained from the outside part of such packages, in which case the claim shall be admitted only atthe time of receipt.

After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shallbe admitted against the carrier with regard to the condition in which the goods transported weredelivered. (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 forgiving 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 wasdated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only onSeptember 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr. Mayo BPerez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez thenimmediately went to the warehouse and to the delivery site to inspect the goods in behalf of petitioner.34HCDaAS

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35the noticewas allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruledthat such a notice did not comply with the notice requirement under the law. There was no evidencepresented 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 differentlyfrom thePCIC case, albeit this ruling is being madepro 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 froma carrier must be given a reasonable and practical construction, adapted to the circumstances of the caseunder 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 thedelivered 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 thatthe goods were, indeed, already corroded.

Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given areasonable and practical, rather than a strict construction.37We give due consideration to the fact that thefinal destination of the damaged cargo was a school institution where authorities are bound by rules andregulations governing their actions. Understandably, when the goods were delivered, the necessary clearancehad to be made before the package was opened. Upon opening and discovery of the damaged condition of thegoods, a report to this effect had to pass through the proper channels before it could be finalized andendorsed by the institution to the claims department of the shipping company. cHSTEA
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The call to petitioner was made two days from delivery, a reasonable period considering that the goods couldnot 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 thenotice requirement in this case.

To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest toinstitute the claim for damages against petitioner; andpro hac vice,that a valid notice of claim was made byrespondent.

We now discuss petitioner's liability for the damages sustained by the shipment.The rule as stated inArticle 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 theyprove that they observed extraordinary diligence required by law.38Extraordinary diligence is thatextreme measure of care and caution which persons of unusual prudence and circumspection use for securingand preserving their own property rights.39This standard is intended to grant favor to the shipper who is atthe mercy of the common carrier once the goods have been entrusted to the latter for shipment.40

Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA

that petitioner failed to overturn this presumption:

. . . upon delivery of the cargo to the consignee Don Bosco Technical High School by a representativefrom Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work toolssuffered damage due to "wettage" although by then they were already physically dry.Appellee carrierhaving failed to discharge the burden of proving that it exercised extraordinary diligence in thevigilance over such goods it contracted for carriage, the presumption of fault or negligence on its partfrom the time the goods were unconditionally placed in its possession (July 26, 1993) up to the timethe same were delivered to the consignee (August 11, 1993), therefore stands. The presumption thatthe carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. . .

.41(Emphasis added)

The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. Onthe same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed insideanother container van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During theperiod between July 26 to 31, 1993, the shipment was outside a container van and kept in storage bypetitioner.

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 showedthat rain fell over Manila during the same period, We can conclude that this was when the shipment sustainedwater damage.

To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility thatsome other party could be responsible for the damage. It must prove that it used "all reasonable means toascertain the nature and characteristic of the goods tendered for transport and that it exercised due care inhandling them.42Extraordinary diligence must include safeguarding the shipment from damage coming fromnatural elements such as rainfall. aDSHCc

Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment butonly to the carrier van, petitioner failed to mention where exactly the goods were stored during the period inquestion. It failed to show that the crate was properly stored indoors during the time when it exercisedcustody before shipment to Cebu. As amply explained by the CA:
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On the other hand, the supplemental report submitted by the surveyor has confirmed that it wasrainwater 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 thesubject cargo was under the custody of appellee carrier from the time it was delivered by the shipperon July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993.No otherinevitable 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 theshipment outside causing rainwater to seep into the cargoes.

Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the subjectgoods by claiming that the notation "GROUNDED OUTSIDE WHSE". actually refers to the containerandnot the contents thereof or the cargoes. And yet it presented no evidence to explain where did theyplace or store the subject goods from the time it accepted the same for shipment on July 26, 1993 upto the time the goods were stripped or transferred from the container van to another container andloaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on

August 2, 1993. . . . If the subject cargo was not grounded outside prior to shipment to Cebu City,appellee provided no explanation as to where said cargo was stored from July 26, 1993 to July 31,1993. What the records showed is that the subject cargo was stripped from the container van of theshipper and transferred to the container on August 1, 1993 and finally loaded into the appellee's vesselbound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila portdid 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 slightlybroken at the bottom allegedly hit by a forklift blade (Exhibit "F").43(Emphasis added) ATEHDc

Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily provethat it exercised the extraordinary diligence required of common carriers.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

SO ORDERED.

Ynares-Santiago, Austria-Martinez, Chico-Nazarioand Nachura, JJ., concur.
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18/5618

MARINE INSURANCE

[G.R. No. 84507. March 15, 1990.]

CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIALENTERPRISES,petitioner,vs.HON. COURT OF APPEALS, FILIPINO MERCHANTS'INSURANCE COMPANY, INC., BEN LINES CONTAINER, LTD. AND E. RAZON,

INC.,respondents.

Lapuz Law Officefor petitioner.

De Santos, Balgoz & Perezfor respondent Filipino Merchants' Insurance Company, Inc.

Marilyn Cacho-Noefor respondent Ben Lines Container, Ltd.

SYLLABUS

COMMERCIAL LAW; MARINE INSURANCE; LIABILITY OF INSURER; "ALL RISK" INSURANCE POLICY;COVERAGE; CASE AT BAR.In Gloren Inc. vs. Filipinas Cia. de Seguros, it was held that an all riskinsurancepolicy insures against all causes of conceivable loss or damage, except as otherwise excluded in the policy ordue to fraud or intentional misconduct on the part of the insured. It covers all losses during the voyagewhether arising from a marine peril or not, including pilferage losses during the war.In the present case, the"all risks" clause of the policy sued upon reads as follows: "5. This insurance is against all risks of loss ordamage to the subject matter insured but shall in no case be deemed to extend to cover loss, damage, orexpense proximately caused by delay or inherent vice or nature of the subject matter insured. Claimsrecoverable hereunder shall be payable irrespective of percentage." The terms of the policy are so clear andrequire no interpretation. The insurance policy covers all loss or damage to the cargo except those caused bydelay or inherent vice or nature of the cargo insured. It is the duty of the respondent insurance company to

establish that said loss or damage falls within the exceptions provided for by law, otherwise it is liable thereforAn "all risks" provision of a marine policy creates a special type of insurance which extends coverage to risksnot usually contemplated and avoids putting upon the insured the burden of establishing that the loss was dueto peril falling within the policy's coverage. The insurer can avoid coverage upon demonstrating that a specificprovision expressly excludes the loss from coverage. In this case, the damage caused to the cargo has notbeen attributed to any of the exceptions provided for nor is there any pretension to this effect. Thus, theliability of respondent insurance company is clear.

D E C I S I O N

GANCAYCO, J p:

This is an appeal from a decision of the Court of Appeals dated February 18, 1988 in CA-G.R. CV No. 09627which affirmed the decision of the Regional Trial Court (RTC) of Manila which in turn dismissed thecomplaint.1

On November 4, 1976 petitioner imported some lactose crystals from Holland. The importation involved fifteen(15) metric tons packed in 600 6-ply paper bags with polyethylene inner bags, each bag at 25 kilos net. Thegoods were loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder' as the mothervessel, and thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben Lines Container, Ltd.


19/5619

(Ben Lines for short). The goods were insured by the respondent Filipino Merchants' Insurance Co., Inc.(insurance company for short) for the sum of P98,882.35, the equivalent of US$8,765.00 plus 50% mark-up orUS $13,147.50, against all risks under the terms of the insurance cargo policy. Upon arrival at the port ofManila, the cargo was discharged into the custody of the arrastre operator respondent E. Razon, Inc. (brokerfor short), prior to the delivery to petitioner through his broker. Of the 600 bags delivered to petitioner, 403were in bad order. The surveys showed that the bad order bags suffered spillage and loss later valued atP33,117.63. prLL

Petitioner filed a claim for said loss dated February 16, 1977 against respondent insurance company in theamount of P33,117.63 as the insured value of the loss.

Respondent insurance company rejected the claim alleging that assuming that spillage took place while thegoods were in transit, petitioner and his agent failed to avert or minimize the loss by failing to recover spillagefrom the sea van, thus violating the terms of the insurance policy sued upon; and that assuming that thespillage did not occur while the cargo was in transit, the said 400 bags were loaded in bad order, and that inany case, the van did not carry any evidence of spillage.

Hence, petitioner filed the complaint dated August 2, 1977 in the Regional Trial Court of Manila againstrespondent insurance company seeking payment of the sum of P33,117.63 as damages plus attorney's fees

and expenses of litigation. In its answer, respondent insurance company denied all the material allegations ofthe complaint and raised several special defenses as well as a compulsory counterclaim. On February 24,1978, respondent insurance company filed a third-party complaint against respondents Ben Lines and broker.Respondent broker filed its answer to the third-party complaint denying liability and arguing, among others,that the petitioner has no valid cause of action against it. Similarly, Ben Lines filed its answer denying anyliability and a special defense arguing that respondent insurance company was not the proper party in interestand has no connection whatsoever with Ben Lines Containers, Ltd. and that the third-party complaint hasprescribed under the applicable provisions of the Carriage of Goods by Sea Act.

On November 6, 1979, respondent Ben Lines filed a motion for preliminary hearing on the affirmative defenseof prescription. In an order dated February 28, 1980, the trial court deferred resolution of the aforesaid motion

after trial on the ground that the defense of prescription did not appear to be indubitable.

After the pre-trial conference and trial on the merits, on March 31, 1986, the court a quorendered a judgmentdismissing the complaint, the counterclaim and the third-party complaint with costs against the petitioner.

Hence, the appeal to the Court of Appeals by petitioner which, in due course, as aforestated, affirmed thejudgment of the trial court.

A motion for reconsideration of said judgment was denied by the appellate court in a resolution dated August1, 1988.

Petitioner now filed this petition for review on certiorari in this Court predicated on the following grounds:

"I

RESPONDENT COURT ERRED IN HOLDING THAT THE INSURED SHIPMENT DID NOT SUSTAINANY DAMAGE/LOSS DESPITE ADMISSION THEREOF ON THE PART OF RESPONDENTINSURANCE COMPANY AND THE FINDING OF THE LATTER'S SURVEYORS.

II

RESPONDENT COURT ERRED IN HOLDING THAT AN "ALL RISKS" COVERAGE COVERS ONLYLOSSES OCCASIONED BY OR RESULTING FROM "EXTRA AND FORTUITOUS EVENTS" DESPITETHE CLEAR AND UNEQUIVOCAL DEFINITION OF THE TERM MADE AND CONTAINED IN THEPOLICY SUED UPON.


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III

THE HOLDING OF RESPONDENT COURT THAT AN "ALL RISKS" COVERAGE COVERS LOSSESOCCASIONED BY AND RESULTING FROM "EXTRA AND FORTUITOUS EVENTS" CONTRADICTSTHE RULING OF THE SAME COURT IN ANOTHER CASE WHERE THE DEFINITION OF THE TERM"ALL RISKS"/ STATED IN THE POLICY WAS MADE TO CONTROL HENCE THE NEED FOR

REVIEW."2

The petition is impressed with merit.

The appellate court, in arriving at the conclusion that there was no damage suffered by the cargo at the timeof the devanning thereof, held as follows:Cdpr

"Appellant argued that the cargo in question sustained damages while still in the possession of thecarrying vessel, because as his appointed surveyor reported, Worldwide Marine Survey Corporation, atthe time of devanning at the pier, 403 bags were already in bad order and condition. Appellant foundsupport to this contention on the basis of the survey report of Worldwide Marine Survey Corporation ofthe Philippines and of the Adjustment Corporation of the Philippines which were identified by his solewitness, Jose See. It must be pointed out, however, that witness Jose See was incompetent to identifythe two survey reports because he was not actually present during the actual devanning of the cargo,which fact was admitted by him, hence, he failed to prove the authenticity of the aforesaid survey

reports.

On the other hand, the evidence submitted by the appellee would conclusively establish the fact thatthere was no damage suffered by the subject cargo at the time of the devanning thereof. The cargo,upon discharge from the vessel, was delivered to the custody of the arrastre operator (E. Razon) underclean tally sheet (Exh. 6-FMIC). Moreover, the container van containing the cargo was found with bothits seal and lock intact. Article IV, paragraph 4 of the Management Contract (Exh. 5) signed betweenthe Bureau of Customs and the Arrastre operator provides:

"4.Tally Sheets for Cargo Vans or ContainersThe contractor shall give a cleantally sheet for cargo vans received by it in good order and condition with locks, and sealsintact."

The same cargo was in turn delivered into the possession of the appellant by the arrastreoperator at the pier in good order and condition as shown by the clean gate passes (Exhs. 2 and3) and the delivery permit (Exh. 4). The clean gate passes were issued by appellee arrastreoperator covering the shipment in question, with the conformity of the appellant's representative.The clean gate passes provide in part:

". . . issuance of this Gate Pass constitutes delivery to and receipt by consignee of thegoods as described above, in good order and condition, unless an accompanying B.O. (BadOrder) Certificate duly issued and noted on the face of this Gate Pass appears."

These clean gate passes are undoubtedly important and vital pieces of evidence. They are notedin the dorsal side of another important piece of document which is the permit to deliver (Exh. 4)

issued by the Bureau of Customs to effect delivery of the cargo to the consignee. Thesignificance and value of these documents is that they bind the shipping company and thearrastre operator whenever a cargo sustains damage while in their respective custody. It isworthy of note that there was no turnover survey executed between the vessel and the arrastreoperator, indicating any damage to the cargo upon discharge from the custody of the vessel.There was no bad order certificate issued by the appellee arrastre operator, indicating likewisethat there

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