G.R. No. 147724             June 8, 2004

LORENZO SHIPPING CORP., petitioner, vs.CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC., respondents.

D E C I S I O N

PUNO, J.:

On appeal is the Court of Appeals’ August 14, 2000 Decision1 in CA-G.R. CV No. 61334 and March 28, 2001 Resolution2 affirming the March 19, 1998 Decision3 of the Regional Trial Court of Manila which found petitioner liable to pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit.

Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic corporation engaged in coastwise shipping, was the carrier of 581 bundles of black steel pipes, the subject shipment, from Manila to Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign corporation licensed as a common carrier under the laws of Norway and doing business in the Philippines through its agent, respondent Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation, carried the goods on board its vessel M/V San Mateo Victory to the United States, for the account of Sumitomo Corporation. The latter, the consignee, is a foreign corporation organized under the laws of the United States of America. It insured the shipment with respondent Chubb and Sons, Inc., a foreign corporation organized and licensed to engage in insurance business under the laws of the United States of America.

The facts are as follows:

On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW black steel pipes worth US$137,912.844 on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading designated as Bill of Lading No. T-35 for the account of the consignee, Sumitomo Corporation of San Francisco, California, USA, which in turn, insured the goods with respondent Chubb and Sons, Inc.6

The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent Transmarine Carriers received the subject shipment which was discharged on December 4, 1987, evidenced by Delivery Cargo Receipt No. 115090.7 It discovered seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del Pan’s Survey Report8 dated December 4, 1987 showed that the subject shipment was no longer in good condition, as in fact, the pipes were found with rust formation on top and/or at the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was "rusty, thinning, and with several holes at different places." The rusty condition of the cargo was noted on the mate’s receipts and the checker of M/V Lorcon IV signed his conforme thereon.9

After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6,11 covering 217 bundles of steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked "ALL UNITS HEAVILY RUSTED."

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter12 of intent dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim based on the damaged cargo once such damage had been ascertained. The letter reads:

Please be advised that the merchandise herein below noted has been landed in bad order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at the port of Davao City on December 2, 1987.

The extent of the loss and/or damage has not yet been determined but apparently all bundles are corroded. We reserve the right to claim as soon as the amount of claim is determined and the necessary supporting documents are available.

Please find herewith a copy of the survey report which we had arranged for after unloading of our cargo from your vessel in Davao.

We trust that you shall make everything in order.

On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364 bundles of the subject steel pipes. It then sailed to Vancouver, Washington on January 23, 1988 where it unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel pipes, and also discovered the latter heavily rusted. When the steel pipes were tested with a silver nitrate solution, Toplis and Harding found that they had come in contact with salt water. The survey report,13 dated January 28, 1988 states:

x x x

We entered the hold for a close examination of the pipe, which revealed moderate to heavy amounts of patchy and streaked dark red/orange rust on all lifts which were visible. Samples of the shipment were tested with a solution of silver nitrate revealing both positive and occasional negative chloride reactions, indicating pipe had come in contact with salt water. In addition, all tension applied metal straps were very heavily rusted, and also exhibited chloride reactions on testing with silver nitrate.

x x x

It should be noted that subject bills of lading bore the following remarks as to conditions of goods: "ALL UNITS HEAVILY RUSTED." Attached herein is a copy of a survey report issued by Del Pan Surveyors of Davao City, Philippines dated, December 4, 1987 at Davao City, Philippines, which describes conditions of the cargo as sighted aboard the vessel "LORCON IV," prior to and subsequent to discharge at Davao City. Evidently, the aforementioned rust damages were apparently sustained while the shipment was in the custody of the vessel "LORCON IV," prior to being laden on board the vessel "SAN MATEO VICTORY" in Davao.

Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and declared them unfit for the purpose they were intended.14 It then filed a marine insurance claim with respondent Chubb and Sons, Inc. which the latter settled in the amount of US$104,151.00.15

On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint16 for collection of a sum of money, docketed as Civil Case No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing under an isolated transaction.

On February 21, 1989, respondents Gearbulk and Transmarine filed their answer17 with counterclaim and cross-claim against petitioner Lorenzo Shipping denying liability on the following grounds: (a) respondent Chubb and Sons, Inc. has no capacity to sue before Philippine courts; (b) the action should be dismissed on the ground of forum non conveniens; (c) damage to the steel pipes was due to the inherent nature of the goods or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to their fault or negligence; and, (e) the law of the country of destination, U.S.A., governs the contract of carriage.

Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989, and amended it on May 24, 1989. It denied liability, alleging, among others: (a) that rust easily forms on steel by mere exposure to air, moisture and other marine elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods were improperly packed; and, (d) prescription, laches, and extinguishment of obligations and actions had set in.

The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1) respondent Chubb and Sons, Inc. has the right to institute this action; and, (2) petitioner Lorenzo Shipping was negligent in the performance of its obligations as a carrier. The dispositive portion of its Decision states:

WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its equivalent in Philippine peso at the current rate of exchange with interest thereon at the legal rate from the date of the institution of this case until fully paid, the attorney’s fees in the sum of P50,000.00, plus the costs of the suit, and dismissing the plaintiff’s complaint against defendants Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for lack of merit, and the two defendants’ counterclaim, there being no showing that the plaintiff had filed this case against said

defendants in bad faith, as well as the two defendants’ cross-claim against Defendant Lorenzo Shipping Corporation, for lack of factual basis.18

Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a) respondent Chubb and Sons does not have capacity to sue before Philippine courts; and, (b) petitioner Lorenzo Shipping was not negligent in the performance of its obligations as carrier of the goods. The appellate court denied the petition and affirmed the decision of the trial court.

The Court of Appeals likewise denied petitioner Lorenzo Shipping’s Motion for Reconsideration19 dated September 3, 2000, in a Resolution20 promulgated on March 28, 2001.

Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for resolution:

(1) Whether or not the prohibition provided under Art. 133 of the Corporation Code applies to respondent Chubb, it being a mere subrogee or assignee of the rights of Sumitomo Corporation, likewise a foreign corporation admittedly doing business in the Philippines without a license;

(2) Whether or not Sumitomo, Chubb’s predecessor-in-interest, validly made a claim for damages against Lorenzo Shipping within the period prescribed by the Code of Commerce;

(3) Whether or not a delivery cargo receipt without a notation on it of damages or defects in the shipment, which created a prima facie presumption that the carrier received the shipment in good condition, has been overcome by convincing evidence;

(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel pipes, whether or not Gearbulk and Transmarine, as common carriers, are to share liability for their separate negligence in handling the cargo.21

In brief, we resolve the following issues:

(1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts; and,

(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo.

Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed to do business in the Philippines, and is not suing on an isolated transaction. It contends that because the respondent Chubb and Sons is an insurance company, it was merely subrogated to the rights of its insured, the consignee Sumitomo, after paying the latter’s policy claim. Sumitomo, however, is a foreign corporation doing business in the Philippines without a license and does not have capacity to sue before Philippine courts. Since Sumitomo does not have capacity to sue, petitioner then concludes that, neither the subrogee-respondent Chubb and Sons could sue before Philippine courts.

We disagree with petitioner.

In the first place, petitioner failed to raise the defense that Sumitomo is a foreign corporation doing business in the Philippines without a license. It is therefore estopped from litigating the issue on appeal especially because it involves a question of fact which this Court cannot resolve. Secondly, assuming arguendo that Sumitomo cannot sue in the Philippines, it does not follow that respondent, as subrogee, has also no capacity to sue in our jurisdiction.

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.22 The principle covers the situation under which an insurer that 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.23 It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to enforce payment.24

The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted – he cannot acquire any claim, security, or remedy the subrogor did not have.25 In other words, a subrogee cannot succeed to a right not possessed by the subrogor.26 A subrogee

in effect steps into the shoes of the insured and can recover only if insured likewise could have recovered.

However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The person substituted (the insurer) will succeed to all the rights of the creditor (the insured), having reference to the debt due the latter.27 In the instant case, the rights inherited by the insurer, respondent Chubb and Sons, pertain only to the payment it made to the insured Sumitomo as stipulated in the insurance contract between them, and which amount it now seeks to recover from petitioner Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The capacity to sue of respondent Chubb and Sons could not perchance belong to the group of rights, remedies or securities pertaining to the payment respondent insurer made for the loss which was sustained by the insured Sumitomo and covered by the contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims. It refers to a plaintiff’s general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality, or any other disqualifications of a party.28 Respondent Chubb and Sons who was plaintiff in the trial court does not possess any of these disabilities. On the contrary, respondent Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it is not doing business in the Philippines, but is suing only under an isolated transaction, i.e., under the one (1) marine insurance policy issued in favor of the consignee Sumitomo covering the damaged steel pipes.

The law on corporations is clear in depriving foreign corporations which are doing business in the Philippines without a license from bringing or maintaining actions before, or intervening in Philippine courts. Art. 133 of the Corporation Code states:

Doing business without a license. – No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or

administrative tribunals on any valid cause of action recognized under Philippine laws.

The law does not prohibit foreign corporations from performing single acts of business. A foreign corporation needs no license to sue before Philippine courts on an isolated transaction.29 As held by this Court in the case of Marshall-Wells Company vs. Elser & Company:30

The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts . . . the implication of the law (being) that it was never the purpose of the legislature to exclude a foreign corporation which happens to obtain an isolated order for business for the Philippines, from seeking redress in the Philippine courts.

Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate Appellate Court31 that:

. . . The private respondent may sue in the 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, for it is not the lack of the prescribed license (to do business in the Philippines) but doing business without such license, which bars a foreign corporation from access to our courts.

We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is not suing under an isolated transaction because the steel pipes, subject of this case, are covered by two (2) bills of lading; hence, two transactions. The stubborn fact remains that these two (2) bills of lading spawned from the single marine insurance policy that respondent Chubb and Sons issued in favor of the consignee Sumitomo, covering the damaged steel pipes. The execution of the policy is a single act, an isolated transaction. This Court has not construed the term "isolated transaction" to literally mean "one" or a mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held that:32

. . . What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. [Emphasis supplied.]

In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three transactions were challenged as void on the ground that the three American corporations which are parties to the contracts are not licensed to do business in the Philippines. This Court held that "one single or isolated business transaction does not constitute doing business within the meaning of the law. Transactions which are occasional, incidental, and casual — not of a character to indicate a purpose to engage in business — do not constitute the doing or engaging in business as contemplated by law. Where the three transactions indicate no intent by the foreign corporation to engage in a continuity of transactions, they do not constitute doing business in the Philippines."

Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the policy of insurance,34 is the real party in interest in the action for damages before the court a quo against the carrier Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest as one who is entitled to the avails of any judgment rendered in a suit, or who stands to be benefited or injured by it. Where an insurance company as subrogee pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in interest and must sue in its own name35 to enforce its right of subrogation against the third party which caused the loss. This is because the insurer in such case having fully compensated its insured, which payment covers the loss in full, is subrogated to the insured’s claims arising from such loss. The subrogated insurer becomes the owner of

the claim and, thus entitled to the entire fruits of the action.36 It then, thus possesses the right to enforce the claim and the significant interest in the litigation.37 In the case at bar, it is clear that respondent insurer was suing on its own behalf in order to enforce its right of subrogation.

On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo Shipping was negligent in its care and custody of the consignee’s goods.

The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin (Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping issued clean bills of lading covering the subject shipment. A bill of lading, aside from being a contract38 and a receipt,39 is also a symbol40 of the goods covered by it. A bill of lading which has no notation of any defect or damage in the goods is called a "clean bill of lading."41 A clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described.42

The case law teaches us that mere proof of delivery of goods in good order to a carrier and the subsequent arrival in damaged condition at the place of destination raises a prima facie case against the carrier.43 In the case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good order and condition, evidenced by the clean bills of lading it issued. When the cargo was unloaded from petitioner Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all over. M/V San Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the entire shipment, all of which were marked "ALL UNITS HEAVILY RUSTED." R.J. Del Pan Surveyors found that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was rusty, thinning and perforated, thereby exposing the cargo to sea water. There can be no other conclusion than that the cargo was damaged while on board the vessel of petitioner Lorenzo Shipping, and that the damage was due to the latter’s negligence. In the case at bar, not only did the legal presumption of negligence attach to petitioner Lorenzo Shipping upon the occurrence of damage to the cargo.44 More so, the negligence of petitioner was sufficiently established. Petitioner Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to be "rusty, thinning, and with several holes at different places." Witness

Captain Pablo Fernan, Operations Manager of respondent Transmarine Carriers, likewise observed the presence of holes at the deck of M/V Lorcon IV.45 The unpatched holes allowed seawater, reaching up to three (3) inches deep, to enter the flooring of the hatch of the vessel where the steel pipes were stowed, submerging the latter in sea water.46 The contact with sea water caused the steel pipes to rust. The silver nitrate test, which Toplis and Harding employed, further verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not even attempt to present any contrary evidence. Neither did it offer any proof to establish any of the causes that would exempt it from liability for such damage.48 It merely alleged that the: (1) packaging of the goods was defective; and (2) claim for damages has prescribed.

To be sure, there is evidence that the goods were packed in a superior condition. John M. Graff, marine surveyor of Toplis and Harding, examined the condition of the cargo on board the vessel San Mateo Victory. He testified that the shipment had superior packing "because the ends were covered with plastic, woven plastic. Whereas typically they would not go to that bother ... Typically, they come in with no plastic on the ends. They might just be banded, no plastic on the ends ..."49

On the issue of prescription of respondent Chubb and Sons’ claim for damages, we rule that it has not yet prescribed at the time it was made.

Art. 366 of the Code of Commerce states:

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

After the periods mentioned have elapsed, or 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.

A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads:50

NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after delivery.

(Ref. Art. 366 C Com.)

The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be presented does not begin to run until the consignee has received such possession of the merchandise that he may exercise over it the ordinary control pertinent to ownership.51 In other words, there must be delivery of the cargo by the carrier to the consignee at the place of destination.52 In the case at bar, consignee Sumitomo has not received possession of the cargo, and has not physically inspected the same at the time the shipment was discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to establish that an authorized agent of the consignee Sumitomo received the cargo at Sasa Wharf in Davao City. Respondent Transmarine Carriers as agent of respondent Gearbulk, Ltd., which carried the goods from Davao City to the United States, and the principal, respondent Gearbulk, Ltd. itself, are not the authorized agents as contemplated by law. What is clear from the evidence is that the consignee received and took possession of the entire shipment only when the latter reached the United States’ shore. Only then was delivery made and completed. And only then did the 24-hour prescriptive period start to run.

Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law governs the contract of carriage because the U.S.A. is the country of destination. Petitioner Lorenzo Shipping, through its M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as against petitioner Lorenzo Shipping, the place of destination is Davao City. Hence, Philippine law applies.

IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against petitioner.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

G.R. No. 152158. February 7, 2003]

WALLEM PHILIPPINES SHIPPING INC. and SEACOAST MARITIME CORPORATION, Petitioners, v. PRUDENTIAL GUARANTEE & ASSURANCE INC. and

COURT OF APPEALS, Respondents.

D E C I S I O N

MENDOZA, J.:

This is a petition for review on certiorari of the decision, dated January 31, 2001, and resolution, dated February 14, 2002, of the Court of Appeals,[1 which reversed the decision, dated September 21, 1995, of the Regional Trial Court, Branch 134, Makati City in Civil Case No. 91-1053, entitled Prudential Guarantee & Assurance Inc. v. Wallem Philippines Shipping Inc. and Seacoast Maritime Corporation.

The background of this case is as follows:

On April 17, 1991, private respondent Prudential Guarantee & Assurance Inc. (Prudential) brought an action for damages and attorneys fees against Wallem Philippines Shipping, Inc. (Wallem) and Seacoast Maritime Corporation (Seacoast). The complaint was filed with the Regional Trial Court of Makati City, where it was docketed as Civil Case No. 91-1053, and assigned to Branch 134 thereof. Private respondent Prudential sought the recovery of the sum of P995,677.00, representing the amount it had paid to its insured, General Milling Corporation (GMC), for alleged shortage incurred in the shipment of Indian Toasted Soyabean Extraction Meal, Yellow, with 6% legal interest thereon from the date of filing of the complaint up to and until the same is fully paid, and 25% of the claim as attorneys fees.2

In its answer, Wallem denied liability for damage or loss to the shipment. It was alleged that the complaint did not state a cause of action against it; that Prudential, Wallem, and Seacoast were not the real parties-in-interest; that the action had prescribed; that the damage or loss, if any, was due to the inherent vice or defect of the goods, or to perils, dangers, and accidents of the sea, for which Wallem was not liable; that the damage or loss to the shipment was due to an act or omission of Prudential

[2

or the owner of the goods or their representative, or to pre-shipment damage, for which Wallem was not liable; that the shipment was carried on a shippers description of packages and contents, said to weigh, in bulk, and free out basis; that based on the provisions of the bill of lading, Prudential had the burden of proving the actual quantity of cargo loaded at the loading port; that Prudential had no contract with Wallem, which acted as a mere agent of a disclosed principal; that Wallem had observed the diligence required under the law in the care of the shipment; that the shipment was discharged in the same quantity as when it was loaded at the port of loading; that any loss incurred during and after discharge from the vessel was no longer the responsibility of the carrier; that Wallem could not be made liable for the loss or damage, if any, of the goods which happened whilst the same were not in its possession and control; that Prudentials claim was excessive and exaggerated; that Wallems liability, if any, should not exceed the invoice value of the alleged loss or the applicable package limitation, whichever was lower, or the limit of liability set in the bill of lading.

Wallem filed a compulsory counterclaim against Prudential as the complaint was allegedly a clearly unfounded civil action. Wallem filed a crossclaim against its co-defendant Seacoast, in the event that it was made liable to Prudential.3 Upon motion of Prudentials counsel, defendant Seacoast was declared in default.[4 After termination of the pre-trial conference, this case was tried on the merits.

To prove its claim for indemnity, Prudential presented two witnesses: Josephine Suarez and Alfredo Cunanan.

Josephine Suarez, the claims processor of Prudential, testified that in March 1991 she received a claim from GMC in connection with its shipment which arrived on board M/V Gao Yang (Exh. A). Upon receipt of the claim and its supporting papers, she referred the same to Tan-Gatue Adjustment Company, Inc. (Tan-Gatue), which submitted a report (Exhs. G to G-8). Upon her recommendation, Prudential paid GMC the sum of P995,677.09, as evidenced by receipts and a voucher (Exhs. H, I, and K). GMC then issued a subrogation receipt to Prudential (Exh. J), which in turn sent a demand letter to Wallem (Exh. L).

3[

On cross-examination, Ms. Suarez admitted that she had no participation in the preparation of the documents (Exhs. A to G) submitted to her, and that she had based her recommendation to pay GMCs claim on said documents. She also admitted that she did not do anything to verify the genuineness of Bill of Lading BEDI/1(Exh. B) and Commercial Invoice No. 1401 (Exh. C). She said that GMC had been paid 20% more than its alleged loss.5

Alfredo Cunanan, senior cargo surveyor of Tan-Gatue declared that he conducted in March 1990 a survey of the shipment on board M/V Gao Yang at GMCs warehouse at Tabangao, Batangas. Cunanan was present during the unloading of the shipment. He saw the cargo discharged from the vessel by the use of a suction device, wherein the cargo passed into a conveyor and weighed unto GMCs automatic scale. The quantity recorded on GMCs scale was thereafter compared with that indicated in the bill of lading. At that point a shortage was discovered. The survey report prepared by Cunanan stated in pertinent part:

RECAPITULATION

1) Shipment Per Stowage Plan - 4,417.000 M/Tons

Outturn Per Consignees

Scale -4,121.318M/Tons

Shortage -295.682M/Tons

2) Shipment Per Bill of Lading - 4,415.350 M/Tons

Outturn Per Consignees

Scale -4,121.318M/Tons

Shortage -294.032M/Tons6

On cross-examination, Cunanan testified that no cargo was left on the M/V Gao Yang after the discharging process. He admitted that his basis for determining the weight of the shipment prior to unloading was the Certificate of Weight (Exh. F-3) furnished by GMC, as to which preparation he did not participate. He further explained that, as per the

56

Certificate of Weight, the cargo had been packed in bags at the port of origin. The bags were then conveyed to midstream in barges alongside the vessel and hauled up onto the steamer. The bags were later cut open at their mouths and the contents emptied onto the ships storage areas, specifically Hatch Nos. One Lower Hold, One Tween Deck, Five Lower Hold, Five Tween Deck, Two Tween Deck, and Four Tween Deck.[7 He also admitted that the lack of a draft survey due to the absence of a surveyor appointed by Wallem was based merely on information gathered from one of his surveyors.

In the course of the discharging and weighing operations, one of Tan-Gatues assigned surveyors registered a protest as there were blurred notations on GMCs weighing scale. They found that the scale had not been properly calibrated and that it showed a discrepancy of approximately 130 metric tons. Upon recommendation of Tan-Gatue, a reweighing was done on April 26, 1990 with the use of another scale. Wallems representative was not notified of this reweighing, which was made by loading the cargo on the truck for delivery to consignees receivers. Reloading on the trucks was also made through the use of a suction tube. An alleged shortage of 164.4 metric tons was found, which was significantly lower than the shortage stated in the recapitulation above.[8

Part of Cunanans report contained an opinion stating that the shortage may be attributed to the spillage incurred during the transit and loading of the shipment to the vessel at the port of origin for the following reasons: (1) the said shipment was originally packed in bags prior to loading to carrier vessel; (2) the weighing of the said shipment made prior to its loading to the carrier vessel became the basis of the quantity stated in the bill of lading; and (3) the bagged shipment, after weighing over the weighbridge scale, was conveyed to midstream in barges alongside the vessel and hauled up onto the steamer, after which the mouths of the bags were cut open and the contents emptied into ship hatches.[9

After weighing in Batangas, the bagged shipment was delivered to GMCs warehouse in Bo. Ugong, Pasig, Metro Manila, and to Filstream and Universal Robina Corp., as direct receivers of GMC.10 Because

[[[

of the shortage, GMC filed a claim against Prudential, being its insurer.

For its part, petitioner Wallem, as defendant below, presented three witnesses: Romualdo De Belen, manager of its documentations department, Rio Puriran, marine cargo surveyor of Oceanica Cargo Marine Surveyor (Oceanica), and Edilberto Mendoza, Wallems operations manager.

Romualdo De Belen testified that he was the claims supervisor for Wallem from January 1991 to August 1991. As such, he was tasked to gather all documents of a claim and to submit them to the Protective and Indemnity Club (P&I), which in turn handles all claims pertaining to a vessel which is a member thereof. In connection with the claim subject matter of this case, De Belen collected the pertinent documents, like the bill of lading (Exh. 1), the general statement of facts (Exhs. 2 and 2-A), the survey certificate (Exhs. 3 and 3-A), and the inward foreign manifest (Exh. 4).11

After his investigation, he found that the weight stated in the bill of lading was less than what was actually discharged. The bill of lading stated that the weight of the cargo was 4,415 metric tons, but the actual weight discharged was 4,418 metric tons. The overage was based on the bill of lading, which contained the weight as declared by the shipper, and the survey certificate, which contained the weight of the total cargo discharged representing the difference between the initial and final displacement of the vessel.12

De Belen noted that the bulk cargo declared in the bill of lading was said to weigh 4,415.35 metric tons. He explained that the phrase said to weigh means that nobody really knows the actual weight of the cargo; the weight of the cargo written on the bill of lading and on the manifest being based only on the declaration of the shipper.13

On cross-examination, De Belen admitted that he collected the documents respecting GMCs claim only upon receipt of the summons in this case. He also

1111

stated that he based his finding of overage on the survey certificate (Exh. 3).14

Rio Puriran, an employee of Oceanica, described the procedure in preparing the draft survey which would become the basis for the survey certificate. He testified that the draft mark is taken and the known cargo weight is sounded so that the displacement of the ship may be computed and the weight of the cargo unloaded known. He identified the signatures of Cornelio Damaso, Oceanicas operations manager, and Arnel Plaza, the surveyor assigned to the vessel on the survey certificate (Exh. 3-A). On cross-examination, he admitted that he had no participation in conducting the survey covered by the survey certificate marked as Exhibits 3 to 3-A.15

Edilberto Mendoza, Wallems operations manager, declared that a representative was sent to oversee the discharging of its cargo when the M/V Gao Yang arrived in Batangas. He tendered a Notice of Readiness (Exh. 6) to GMC and assigned Oceanica to conduct a draft survey and issue a survey certificate (Exhs. 3 to 3-B). The unloading of the cargo was undertaken by GMC per the free out notation on the bill of lading (Exh. 1-A). Mendoza stated that free out means that the vessel is free from any expenses and discharging operations for the cargo. It is the cargo receiver who has the responsibility to get their cargo. After discharge of the cargo, Wallems representative prepared a general statement of facts (Exhs. 5 and 5-A).[16

On cross-examination, Mendoza admitted that he was not present when the cargo was discharged from the vessel and that he had no participation in the preparation of the general statement of facts (Exhs. 5 to 5-A) and the notice of readiness (Exh. 6).[17

The trial court resolved whether there was indeed a shortage in the shipment and whether Wallem could be held liable for the shortage.18 The trial court ruled that private respondent Prudential failed to prove by clear, convincing, and competent evidence that there was a shortage in the shipment. The trial court said that private respondent Prudential failed to establish by competent evidence the genuineness and due

11[[1

execution of the bill of lading and, therefore, the true and exact weight of the shipment when it was loaded unto the vessel. Hence, there was no way by which a shortage could be determined. The trial court ruled that the shortage, if any, could only have been incurred either before the loading of the shipment, as stated in the final report (Exhs. G to G-8), or after the unloading of the shipment from the vessel, the latter instance being admitted by Prudentials own witness, Mr. Alfredo Cunanan. Accordingly, the trial court dismissed both the complaint and the counterclaim.

On appeal, the Court of Appeals reversed. The dispositive portion of its decision reads:

WHEREFORE, judgment is hereby rendered REVERSING the appealed decision. A new one is entered ordering defendants-appellees Wallem and Seacoast to pay, jointly and severally, plaintiff-appellant Prudential the amount of P796,541.672, plus 6% interest from April 17, 1991, date of filing of the complaint, until fully paid, plus costs of the suit.

SO ORDERED.[19

The Court of Appeals ruled that the bill of lading was prima facie evidence of the goods therein described, both notations said to contain and weight unknown on the bill of lading being inapplicable to shipments in bulk. Contrary to the opinion of the trial court, it was ruled by the appeals court that losses were incurred during the loading operations, and that these losses were the liability of the carrier. Finally, the Court of Appeals held that the principle of indemnity is violated if the insured is paid a benefit more than the loss incurred in the light of the admission of a 20% mark-up on the indemnity paid to GMC.

Petitioner Wallem moved for reconsideration, but its motion was denied.20 Hence, this appeal.

Petitioner contends that the Court of Appeals erred-

I WHEN IT HELD THAT THE QUANTITY OF THE CARGO REFLECTED IN THE BILL OF LADING IS CONCLUSIVE AS TO THE ACTUAL CARGO OF THE CONSIGNEE NOTWITHSTANDING THE FACT THAT SAID CARGO WAS SHIPPED ON A SAID TO WEIGH BASIS. SAID DECISION IS CONTRARY TO ESTABLISHED PRINCIPLES

[2

IN MARITIME LAW AND SEC. 11 OF THE CARRIAGE OF GOODS BY SEAS ACT WHERE IT IS STATED THAT:

When under the custom of any trade the weight of any bulk cargo inserted in the bill of lading is a weight ascertained or accepted by a third party other than the carrier or the shipper and the fact that the weight as ascertained or accepted is stated in the bill of lading, then notwithstanding anything in this Act, the bill of lading shall not be deemed prima facie evidence against the carrier of the receipt of goods of the weight so inserted in the bill of lading, and the accuracy thereof at the time of shipment shall not be deemed to have been guaranteed by the shipper.

I.A IN DISREGARDING THE WELL ESTABLISHED PRINCIPLE IN ADMIRALTY LAW THAT THE BURDEN OF PROOF RESTS ON THE PLAINTIFF THAT THE WEIGHT OR QUANTITY ALLEGED HAD IN FACT BEEN SHIPPED, OTHERWISE, THE DEFENDANT IS UNDER NO OBLIGATION TO PROVE HIS EXCEPTION OR DEFENSE AS HELD IN THE CASE OF BELEN VS. BELEN, 13 PHIL. 202.

I.B IN RULING THAT THE PRINCIPLE ON PRESUMED NEGLIGENCE IS APPLICABLE IN THIS CASE CONSIDERING THAT THE FACT OF SHORTAGE WAS NEVER DULY PROVEN. AS HELD IN PLANTERS PRODUCTS, INC. VS. CA, 226 SCRA 476, IT IS ONLY AFTER THE SHIPPER HAS ESTABLISHED LOSS OF CARGO WHILE IN THE CUSTODY OF THE VESSEL WILL THE BURDEN OF PROOF SHIFT TO THE COMMON CARRIER FOR IT TO PROVE THAT IT HAS EXERCISED EXTRAORDINARY DILIGENCE IN THE TRANSPORTATION OF GOODS OR THAT THE LOSS WAS UNDER THE EXCEPTIONS PROVIDED BY LAW.

II. IN RULING THAT THE SHORTAGE WAS ATTRIBUTABLE TO THE FAULT OF HEREIN PETITIONER CONTRARY TO THE EVIDENCE PRESENTED WHICH WAS MADE AS BASIS FOR THE TRIAL COURTS DECISION. MOREOVER, THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT STATED THAT THERE WAS NO LOSS THAT OCCURRED DURING THE DISCHARGING OPERATIONS. AS CORRECTLY POINTED OUT BY THE TRIAL COURT IN ITS DECISION, THE SHORTAGE, IF ANY, WAS OCCASIONED DURING THE DISCHARGING OPERATIONS CITING AS BASIS HEREIN RESPONDENTS OWN WITNESS.

III. IN GRANTING RELIEF TO RESPONDENT-INSURER WHEN THE LATTER FAILED TO ESTABLISH HIS RIGHT OF ACTION AGAINST HEREIN PETITIONER THROUGH CONVINCING AND COMPETENT EVIDENCE AS THE ORIGINAL OF THE INSURANCE POLICY WAS NEVER PRESENTED IN COURT. SAID RULING RUNS COUNTER TO THE CASE OF HOME INSURANCE CORPORATION VS. CA, 225 SCRA 411 WHERE THIS HONORABLE COURT HELD THAT:

The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be used to establish the relationship between the petitioner and the consignee and the amount paid to settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioners claim x x x

It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must prove fatal to this petition.

We find petitioners contentions to be meritorious.

First. Although this Courts jurisdiction in a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure is limited to the review of errors of law, we are constrained to review the evidence in view of the conflicting findings of fact made by the trial court and the appellate court.[21

The trial court held that private respondent Prudential failed to prove by clear, convincing, and competent evidence that there was a shortage in the shipment. Hence, petitioner Wallem could not be held liable for the indemnity paid by Prudential to GMC. Prudentials own witnesses admitted that they had no participation in the preparation of the documents upon which they base their claim. They even testified that the loss, if indeed there was any, might have been due to the loading process or by

[

the unloading operations conducted by GMC. However, the Court of Appeals ruled that on the basis of the weight stated on the bill of lading, there was indeed a shortage, and held that the loss was caused in the loading process alone.

We find that the Court of Appeals erred in finding that a shortage had taken place. Josephine Suarez, Prudentials claims processor, merely identified the papers submitted to her in connection with GMCs claim (Bill of Lading BEDI/1 (Exh. B), Commercial Invoice No. 1401 issued by Toepfer International Asia Pte, Ltd. (Exh. C), SGS Certificate of Quality (Exh. F-1), and SGS Certificate of Weight (Exh. F-3)). Ms. Suarez had no personal knowledge of the contents of the said documents and could only surmise as to the actual weight of the cargo loaded on M/V Gao Yang. She admitted that she had no participation in the preparation of the papers upon which Prudential based its cause of action against Wallem.

ATTY. DEL ROSARIO ON CROSS-EXAMINATION

Q Miss Witness, I would like to refer you to Exhibits A, B, C, will you please tell us Madam Witness, if you have any participation in the preparation of these documents?

A No sir.

Q How about Exhibits E, G, and F, did you have any participation in the preparation of these documents?

A No sir.

Q And in fact these documents were just given to you, is that correct?

A Yes sir.

Q And based on these documents, you made a recommendation for the payment of the claim of your assured, is that correct?

A Yes sir.22

Ms. Suarezs testimony regarding the contents of the documents is thus hearsay, based as it is on the

2

knowledge of another person not presented on the witness stand.[23

Nor has the genuineness and due execution of these documents been established. In the absence of clear, convincing, and competent evidence to prove that the shipment indeed weighed 4,415.35 metric tons at the port of origin when it was loaded on the M/V Gao Yang, it cannot be determined whether there was a shortage of the shipment upon its arrival in Batangas.

Second. The Court of Appeals erred in ruling that the contents of the bill of lading cannot be controverted by evidence to the contrary because it was prima facie evidence of the goods therein described. Wallems evidence casts doubt on the veracity of the documents upon which Prudential bases its claim. As the Private and Confidential Final Report, dated October 12, 1990 (Exhs. G to G-8), stated:

[W]e are of the opinion that [the] shortage may be attributed to the spillage incurred during the transit/loading of the shipment to the vessel at the Port of Origin for the following reasons:

1. The said shipment was originally packed in bags prior to loading to carrier vessel.

2. The weighing was made prior to loading to carrier vessel which is the basis of the Bill of Lading quantity.

3. The bag[ged] shipment, after weighing over [the] weighbridge scale, [was] conveyed to midstream alongside vessel in barges, hauled up on the [steamer], cut open the mouth[s] of the bags and [the] contents emptied into ship hatches.[24

There could have been no spillage while the shipment was on board the vessel because, according to Prudentials witness Cunanan, the hatches were closed.25 Moreover, it was shown that, after the shipment was unloaded from the vessel, it was weighed with the use of GMCs weighing scale, which was later found to be defective. Cunanan stated in his report:

[[2

During the course of discharging/weighing operation, we noted some minor discrepancy on the weighing scale, hence, we registered our protest.

We suggest to the assured to conduct another reweighing to determine the correct quantity of the soyabean meal unloaded from the vessel.26

Cunanan later testified:

Q And based on this blurred notations, you presumed that there was something wrong in the weighing scale, is that correct?

A It is a minor discrepancy sir, on the weighing scale.

Q And by minor discrepancy, you are actually referring to about 130.000 metric tons discrepancy?

A 130 metric tons discrepancy, more or less.

. . . .

Q And how was the reweighing made Mr. Cunanan?

A The reweighing was made by truck because the cargo was unloaded from the vessel, and it was stored in the big storage, storage of the consignee. Now, after hearing our protest, that there are some minor discrepancy on the weighing scale, we suggest for a reweighing.

The reweighing was made by loading this cargo on board the truck for delivery to their receivers or to the consignees in Manila.

. . . .

Q In the conveyors, did you see any spillages, on the sides, as far as these cargoes are concerned?

A There were sir, but they were also removed and weighed.

Q And these spillages were also accumulated and made part of the cargo?

A Thats correct sir.

2

. . . .

Q During the reweighing procedure, during loading to trucks, these trucks were open?

A Yes sir, they were open.

Q And the tarpaulin placed only after the trucks are full?

A Thats correct, sir.27

Indeed, it is likely that there was again spillage of the shipment when it was reweighed after its unloading in the same manner that there was spillage when the shipment was unloaded from the vessel. It should also be noted that the reweighing was conducted only on April 26, 1990, five days after the shipment was put in the storage of the consignee.

Indeed, as the bill of lading indicated that the contract of carriage was under a said to weigh clause, the shipper is solely responsible for the loading while the carrier is oblivious of the contents of the shipment.28

Third. Even if the shortage can be definitively determined, Wallem still cannot be held liable because of the failure of Prudential to present the contract of insurance or a copy thereof. Prudential claims that it is subrogated to the rights of GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation receipt (Exh. J) and a marine cargo risk note (Exh. D). However, as the trial court pointed out, this is not sufficient. As GMCs subrogee, Prudential can exercise only those rights granted to GMC under the insurance contract. The contract of insurance must be presented in evidence to indicate the extent of its coverage. As there was no determination of rights under the insurance contract, this Courts ruling in Home Insurance Corporation v. Court of Appeals29 is applicable:

The insurance contract has not been presented. It may be assumed for the sake of argument that the subrogation receipt may nevertheless be used to establish the relationship between the petitioner

222

[Home Insurance Corporation] and the consignee [Nestl Phil.] and the amount paid to settle the claim. But that is all the document can do. By itself alone, the subrogation receipt is not sufficient to prove the petitioners claim holding the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the engine.

. . . .

It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance contract was its original copy, which was presumably in the possession of Home itself. Failure to present this original (or even a copy of it), for reasons the Court cannot comprehend, must prove fatal to this petition.

WHEREFORE, the decision and resolution of the Court of Appeals is REVERSED and the decision of the Regional Trial Court, Branch 134, Makati City, dismissing the complaint and the counterclaim, is REINSTATED. No pronouncement as to costs.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Austria-Martinez and Callejo, Sr., JJ., concur.

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 & Associates for respondent Martin Vallejos.

Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc.

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

 

PADILLA, J.:

Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the decision, ** dated 27 April 1970, rendered in Civil Case No. U-2021 of the Court of First Instance of Pangasinan.

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 Sio Choy 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 amount of P20,000.00.

During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent 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. and the 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 of P15,000.00, 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 and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid 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. It prayed 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 he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his cross-claim against the herein petitioner, he alleged that the petitioner had issued in his favor a private car comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of such insurance contract, which policy was in full force and effect when the vehicular accident complained of occurred. He prayed that he be reimbursed by the insurance company 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 San Leon 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 deceased driver, Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and indemnify 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 of the plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as follows:

(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 attomey'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 and severally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to only P20,000.00.

As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no award should 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 San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between 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 San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of one-half (1/2) of the entire amount of damages, 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 the decision of the Court of Appeals shall be reviewed, hence, execution may already issue in favor of respondent Martin C. Vallejos against the respondents, without prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of whatever the 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 is important to determine first the nature or basis of the liability of petitioner to respondent Vallejos, as compared 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. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy.

As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that petitioner and respondents 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 Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos.

It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated Willys jeep, 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, who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is disputably presumed 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 plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the motor vehicle mishap, 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 or omissions, 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 acting within the scope of their assigned tasks, even though the former are not engaged ill any business or industry.

xxx xxx xxx

The responsibility treated in this article shall cease when the persons herein mentioned proved that they 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 are liable for a quasi-delict is solidarily. 4

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

In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the heirs of said passenger against 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 and the driver of the jeepney at fault jointly and severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees; while the insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against said

owner and driver of the jeepney. Thus, in said Guingon case, 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, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort.

In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents 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 liability-under which an insurer can be directly sued by a third party — this will result in a violation of the principles underlying solidary obligation and insurance contracts.

In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. 7 On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another 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 Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the qualification made 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 only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is an evident breach 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. to respondent Vallejos.

As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is not privy 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 tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037).

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

Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract (emphasis supplied) or upon written assignment of claim, and payment to the insured makes the insurer 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 riot exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds to each.

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary 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, no interest for the intervening period may be demanded.

xxx xxx xxx

In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming the subrogee 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 liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligation on 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 by the 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, is hereby AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.

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.

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

G.R. No. 95070 September 5, 1991

PAN MALAYAN INSURANCE CORPORATION, petitioner, vs.COURT OF APPEALS and THE FOOD AND AGRICULTURAL ORGANIZATION OF THE UNITED NATIONS, respondents.

Alejandro P. Ruiz, Jr. for petitioner.

Conrado R. Ayuyao for private respondent.

 

REGALADO, J.:p

This case had its origin in a shipment of 1,500 metric petitions of IR-36 certified rice seeds which private respondent, The Food and Agricultural Organization of the United Nations (hereinafter referred to as FAO), an autonomous intergovernmental organization created by treaty, intended and made arrangements to send to Kampuchea to be distributed to the people for seedling purposes. Respondent court affirms the factual findings therein of the court a quo as chronologized hereunder.

On May 22, 1980, FAO received a formal offer from the Luzon Stevedoring Corporation (LUZTEVECO, for brevity) whereby the latter offered to ship the former's aforesaid cargo, consisting of 3,000 metric petitions in two lots of rice seeds, to Vietnam Ocean Shipping Industry in Vaung Tau, Vietnam for freight fees of $55.50/MT, subject to the terms and conditions indicated in the corresponding communication. 1

On May 28, 1980, FAO wrote LUZTEVECO formally confirming its acceptance of the foregoing offer amounting to US$83,325.92 in respect of one lot of 1,500 metric petitions winch is the subject of the present action. 2 The cargo was loaded on board LUZTEVECO Barge No. LC-3000 and consisted of 34,122 bags of IR-36 certified rice seeds purchased by FAO from the Bureau of Plant Industry for P4,602,270.00. 3

On June 12, 1980, the loading was completed and LUZTEVECO issued its Bill of Lading No. 01 in favor of FAO. 4 The latter then secured insurance coverage in the amount of P5,250,000.00 from petitioner, Pan Malayan Insurance Corporation, as evidenced by the latter's Marine Cargo Policy No. B-11474A and Premium Invoice No. 78615, dated June 16, 1980. 5

On June 16, 1980, FAO gave instructions to LUZTEVECO to leave for Vaung Tau, Vietnam to deliver the cargo which, by its nature, could not withstand delay because of the inherent risks of termination and/or spoilage. On the same date, the insurance premiums on the shipment was paid by FAO petitioner.

On June 23, 1980, FAO was informed by LUZTEVECO that the tugboat and barge carrying FAO's shipment returned to Manila after leaving on June 16, 1980 and that the shipment again left Manila for Vaung Tau Vietnam on June 21, 1980 with the barge being towed by a different tugboat. Since this was an unauthorized deviation, FAO demanded an explanation on June 25, 1980. 6

On June 26, 1980, FAO was advised of the sinking of the barge in the China Sea, hence it informed petitioner thereof and, later, formally filed its claim under the marine insurance policy. 7 On July 29, 1980, FAO was informed by LUSTEVECO of the recovery of the lost shipment, for which reason FAO formally filed its claim with LUZTEVECO for compensation of damage to its cargo. 8

Thereafter, despite repeated demands to replace the same or to pay for the total insured value in the sum of P5,250,000.00, LUSTEVECO failed and refused to do so. Petitioner likewise failed to pay for the losses and damages sustained by FAO by reason of its inability to recover the value of the shipment from LUZTEVECO. 9

Petitioner claims that on July 31, 1980 it supposedly engaged the services of Pan Asiatic Adjustment and Marine Surveying Corporation to investigate and examine the shipment. On August 4, 1980, J.A. Barroso, Jr. of said corporation reportedly conducted a survey on the shipment and found that 9,629 bags of rice seeds were in good order, 23,510 bags sustained wattage of 10% to 15%, and 983 bags were shorthanded or missing. After the alleged survey, Barroso, Jr. made a report recommending to petitioner the denial of FAO's claim because the partial damage suffered by the shipment is not compensable under the policy. On the basis of said recommendation, petitioner denied FAO's claim. 10

Petitioner further avers that upon the request of counsel of FAO, a survey of the shipment was conducted on September 26, 27 and 29, 1980 by Conrado Catalan, Jr. of Manila Adjusters & Surveyors Company and he found 6,200 bags in good order condition. At the time of his survey, 23,510 bags of the shipment had allegedly already been sold by LUZTEVECO. Petitioner further asserts that on September 29, 1980, FAO wrote a letter to petitioner signifying its willingness to abandon the proceeds of the sale of the 23,510 bags and the remaining good order bags, but that on October 6, 1980 petitioner rejected FAO's proposed abandonment.

FAO then instituted Civil Case No. 41716 against LUZTEVECO and/or herein petitioner, as defendants, with the Regional Trial Court of Pasig, Metro Manila which, on December 14, 1987, rendered judgment in favor of FAO with the following decretal portion:

WHEREFORE, by virtue of preponderance of evidence and in consideration of justice and equity, this Court hereby renders judgment in favor of the plaintiff against the defendant Luzon Stevedoring Corporation and defendant Pan Malayan Insurance Corporation, ordering both the defendants, to pay jointly and severally, the plaintiff, to wit:

1. The sum of P5,250,000.00 with interest thereon, at legal rate from September 29, 1980 until fully paid;

2. The sum of P250,000.00 by way of attorney's fees and expenses of litigation; and

3. The cost of this suit. 11

Petitioner alone appealed the said decision to respondent Court of Appeals, docketed therein as CA-G.R. CV No. 22114, and on July 20, 1990 respondent court affirmed the decision of the trial court except for the award of attorney's fees which was reduced to P25,000.00. 12 Petitioner's motion for reconsideration was denied in respondent court's resolution of September 3, 1990. 13

The petition now before us raises the following issues: (1) Whether or not respondent court committed a reversible error in holding that the trial court is correct in holding that there is a total loss of the shipment; and (2) Whether or not respondent court committed a reversible error in affirming the decision of the trial court ordering petitioner to pay private respondent the amount of P5,250,000.00 representing the full insured value of the rice seeds. 14

The law classifies loss into either total or partial. Total loss may be actual or absolute, 15 or it may otherwise be constructive or technical. 16 Petitioner submits that respondent court erred in ruling that there was total loss of the shipment despite the fact that only 27,922 bags of rice seeds out of 34,122 bags were rendered valueless to FAO and the shipment sustained only a loss of 78%. FAO, however, claims that, for all intents and purposes, it has practically lost its total or entire shipment in this case, inclusive of expenses, premium fees, and so forth, despite the alleged recovery by defendant LUZTEVECO.

As found by the court below and reproduced with approval by respondent court, FAO "has never been compensated for this total loss or damage, a fact which is not denied nor controverted. If there were some cargoes saved, by LUZTEVECO, private respondent abandoned it and the same was sold or used for the benefit of LUZTEVECO or Pan Malayan Corporation. Under Sections 129 and 130 of the New Insurance Code, a total loss may either be actual or constructive. In case of total loss in Marine Insurance, the assured is entitled to recover from the underwriter the whole amount of his subscription (Vol. 2, Arnould Mar. Ins. 9th Ed. P. 1304; Alsop vs. Commercial Insurance Co. cc Mass IF Case No. 262, summ 451."(Emphasis in the original text.) 17

It is a fact that on July 9, 1980, FAO formally filed its claim under the marine insurance policy issued by petitioner. 18 FAO thus claims actual loss under paragraphs (c) and (d) of Section 130 of the Insurance Code which provides:

SEC. 130. An actual total loss is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

(d) Any other event which effectively deprives the owner of the possession, at the port of destination of the thing insured.

Respondent court affirmed the ruling of the trial court to the effect that there was indeed actual total loss, painstakingly explaining therein the following grounds for holding petitioner liable for the entire amount of the insurance coverage:

... The lower court was not incorrect in holding that there is a total or entire loss of shipment in the case at bar.

First, the fact of the sinking of Barge LC-3000 as the occurrence of the risk insured against under the marine insurance was proved and borne out by the following findings of the court a quo, thus;

Here, we should not lose sight of the fact of sinking of the barge according to the defendant LUZTEVECO, in a phone call by Mr. Emata, defendant's representative, on June 26, 1980 and (of) which fact, the

defendant Pan Malayan Insurance Corporation was notified. Subsequently, there was marine protest, based on said information released by the defendant LUZTEVECO. In fine, the barge LC-3000 carrying the load in question sank. If the barge was made to refloat, it cannot be denied that it sank, otherwise, what is the use of refloating the barge? What is mentioned in the law as the risk or peril insured against is sinking. This is the risk or peril covered by the Marine Insurance. (Decision, p. 4)

xxx xxx xxx

..., it is worth mentioning the following unrebutted documents, testimonies and pleadings cited by the plaintiff-appellant, viz:

(1) Testimony of Mr. Keiner that he was informed by Mr. Emata, a representative of LUZTEVECO, that the barge and its cargo sank in the South China Sea on June 25, 1980 (Deposition, Q43 p. 11)

(2) Letter of Capt. Ilano of Luzon Stevedoring Corporation dated June 26, 1980 confirming the sinking of Barge LC-3000 and its cargo on June 25, 1980 (Exhibit "D-9").

(3) Marine protest executed on July 2, 1980 by Capt. Rudy Vencer, master of tugboat towing Barge LC-3000, attesting to said barge's sinking on June 25, 1980, 385 miles off South Vietnam, due to very strong winds and rough seas. (Exhibit "E- 4").

(4) The answer of defendant LUZTEVECO itself which admits in no uncertain terms the sinking of Barge LC-3000 on June 25, 1980. ...

xxx xxx xxx

Basing on the evidence on record, the factual finding of the lower court re sinking of Barge LC-3000 is not without basis but rather sufficiently supported by evidence adduced by plaintiff-appellee.

Second, there is the direct testimony of Mr. Fritz Keiner (the UNFAO officer-in-charge in the Philippines at the time of the loss) which states as follows:

52. CONGEN:

What eventually happened to your Organization's entire shipment of rice seedlings intended for the refugees of Vietnam?

FK:

First, I would like to point out that the rice seeds were intended for the people of Kampuchea, but for logistical reasons, the shipment had to go through Vungtan, (sic) Vietnam.

In spite of the alleged salvaging of our shipment, there was absolutely no replacement or payment made by either defendant LUZTEVECO or defendant Pan Malayan Insurance Co. on our losses and eventually FAO did not recover anything from either of the said defendants.

53. CONGEN:

Up to the present, has any replacement or payment of the value of your lost cargo been made to your organization by either of the defendants?

FPKEINER:

Up to the present, no replacement or payment of the value of our lost cargo was ever made to our Organization by either of the defendants in this case. (Deposition of Fritz Keiner, pp. 13-14)

As emphasized by said witness, the insured cargo was intended for distribution by Vietnam Ocean Shipping Agency to the people of Kampuchea for the purpose of alleviating the acute rice shortage then prevailing in that country and to improve the rice production therein. (Deposition, Q17 p. 5). The bags containing said cargo were marked "TREATED, UNFIT FOR FOOD" (Exh. "E-3-b"; TSN, January 15, 1985, pp. 3-5) and the seeds themselves were of such a fragile nature that they have the tendency to germinate upon mere contact with water.

As shown, of the 34,122 bags of rice seeds shipped on board Barge LC-3000 (Exh. "E-l"), 23,510 were determined by defendant-appellant's surveyor, the Pan Asiatic Adjustment and Marine Surveying Corporation to be bad order bags (Exh. "3"). Add to these bad order bags the shortlanded/missing bags numbering 983 per report of the same

surveying corporation, the damaged/lost bags would total 24,493 thereby leaving a balance of 9,269 (sic) presumed to be good order/dry bags. Of these 9,629 good order/dry bags, an additional 2,682 bags were found damaged/wetted after sorting (Exh. "E"). All in all, therefore, 27,175 bags were determined to be lost/damaged. Although 6,947 bags in apparent external good order and condition were presumed to be inside the LUZTEVECO warehouse, only 6,200 were actually determined to be there by Conrado Catalan on September 26, 27 and 29, 1980 (Exh. "E", p. 2). This increases the number of lost/damaged bags to 27,922.

Thus considered, We agree with the plaintiff-appellee that the 27,922 damaged/lost bags were rendered valueless to plaintiff-appellee for planting or seeding purposes in Kampuchea since the wetting or contact with water had definitely activated their tendency to terminate. Moreover, all of said damaged/lost bags were no longer available for reshipment to Vietnam because the same were disposed of by defendant LUZTEVECO without authorization from plaintiff-appellee, to answer for alleged salvage charges, while the others were lost/shortlanded.

Third the testimony of Mr. Conrado Catalan, Jr. that the shipment sustained a loss of 78% is not speculative. Uncontroverted is his testimony which is based on data corroborated by the report of defendant-appellant's adjuster/surveyor and on actual inspection of the remaining bags stored in LUZTEVECO's warehouse. Exhibit '3' of defendant-appellant states in part, thus:

It is understandable that plaintiff-appellee's surveyor (Mr. Conrado Catalan, Jr.) no longer saw the 23,510 bad order/damaged bags as these were already sold at public auction by defendant LUZTEVECO, while 983 more were shortlanded/missing. When Mr. Catalan sought to verify on September 26, 27 and 29, 1980 the existence and condition of the 9,629 presumed to be good order bags, he discovered that "an additional 2,629 bags were found damaged/wetted, with the estimated 6,947 bags in apparently external good order condition" (Exh. "E"). However, out of these presumed 6,947 bags only approximately 6,200 bags were computed and counted by Mr. Catalan to the best of his ability. (Exh. "E", p. 2). It is even more than 78% per testimony of Mr. Catalan but at least 82% if we

divide 6,200 (the actual number of bags in the warehouse) by 34,122 (the actual number of bags loaded on Barge LC-3000). 19

Petitioner, on the other hand, claims that respondent court gravely erred in sustaining the ruling of the trial court that there was total loss of the shipment since from the evidence on record and the findings of respondent court itself, only 27,922 bags of rice seeds out of 34,122 bags were rendered valueless to FAO and the shipment sustained only a loss of 78%. 20 Thus, petitioner concludes that the findings of the court a quo, as affirmed by the Court of Appeals, are contrary to the evidence. Upon an examination, however, of the records presented before this Court, it is quite clear that there was indeed actual total loss.

While this Court is not a trier of facts, yet, when the findings of the Court of Appeals are alleged to be without citation of specific evidence on which they are based, there is sufficient reason for us to review the appellate court's decision. 21 Under the factual milieu of this case, we find that there is abundant evidence to support the conclusion of respondent court.

In his testimony on cross-examination at the trial, Conrado Catalan, Jr., declared:

Q You said that you did not make an actual count but you estimated, how many bags all in all did you estimate?

A It is 6,200 bags if I may recall.

Q Out of these 6,200 bags you only opened two (2) bags?

A Yes, sir.

Q And the others, the balance you did not examine anymore?

A It is shown in the picture that it is stained.

Q You must answer the question.

A Yes, sir.

Q What was the damage of the two (2) bags that you examined?

A They are stained. (Emphasis supplied.) 22

It will be recalled that said rice seeds were treated and would germinate upon mere contact with water. The rule is that where the cargo by the process of decomposition or other chemical agency no longer remains the same kind of thing as before, an actual total loss has been suffered.

... However, the complete physical destruction of the subject matter is not essential to constitute an actual total loss. Such a loss may exist where the form and specie of the thing is destroyed, although the materials of which it consisted still exist (Great Western Ins. Co. vs. Fogarty, N.Y., 19 Wall 640, 22 L. Ed. 216), as where the cargo by the process of decomposition or other chemical agency no longer remains the same kind of thing as before (Williams vs. Cole, 16 Me. 207). 23

Moreover, it is undisputed that no replacement whatsoever or any payment, for that matter, of the value of said lost cargo was made to FAO by petitioner or LUZTEVECO. It is thus clear that FAO suffered actual total loss under Section 130 of the Insurance Code, specifically under paragraphs (c) and (d) thereof, recompense for which it has been denied up to the present.

In view of our aforestated holding that there was actual total loss of the goods insured in this case, it is no longer necessary to pass upon the issue of the validity of the abandonment made by FAO. Section 135 of the Insurance Code explicitly provides that "(u)pon an actual total loss, a person insured is entitled to payment without notice of abandonment." This is a statutory adoption of a long standing doctrine in maritime insurance law that in case of actual total loss, the right of the insured to claim the whole insurance is absolute, without need of a notice of abandonment. 24

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals are hereby AFFIRMED in toto.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras and Padilla, JJ., concur.

Sarmiento, J., is on leave.

G.R. No. L-22146             September 5, 1967

SVERIGES ANGFARTYGS ASSURANS FORENING, plaintiff-appellant, vs.QUA CHEE GAN, defendant-appellee.

Ross, Selph & Carrascoso for plaintiff-appellant.Ponce Enrile, S. Reyna, Monticello & Belo for defendant-appellee.

 

BENGZON, J.P., J.

          On August 23 and 24, 1947, defendant Qua Chee Gan, a sole proprietorship, shipped on board the S.S. NAGARA, as per bills of lading Exhs. A and B, 2,032,000 kilos of bulk copra at Siain, Quezon, consigned to DAL International Trading Co., in Gdynia, Poland. The vessel first called at the port of Karlshamn, Sweden, where it unloaded 969,419 kilos of bulk copra. Then, it proceeded to Gdynia where it unloaded the remaining copra shipment. The actual outturn weights in the latter port showed that only 1,569,429 kilos were discharged.

          Because of the alleged confirmed cargo shortage, the Polish cargo insurers had to indemnify the consignee for the value thereof. Thereafter, the former sued the shipowner, the Swedish East Asia Company, in Gothenburg, Sweden. The latter, in turn sued, defendant and had it summoned to Gothenburg. Defendant, however, refused to submit to that court's jurisdiction and its objection was sustained.

          In March, 1951, a settlement was effected between the Polish cargo insurers and the shipowner. Plaintiff, as the indemnity insurer for the latter, paid approximately $60,733.53 to the Polish insurers. On August 16, 1954, claiming to have been subogated to the rights of the carrier, plaintiff sued defendant before the Court of First Instance of Manila to recover U.S. $60,733.53 plus 17% exchange tax, with legal interest, as the value of the alleged cargo short shipment, and P10,000 as attorney's fees. Defendant answered in due time and countered with a P15,000 counterclaim for attorney's fees.

          On August 1, 1955, defendant filed a motion to dismiss on the ground of prescription under the

Carriage of Goods by Sea Act. The lower court sustained the motion and plaintiff appealed here. We reversed the order of dismissal and remanded the case for further proceedings.1

          After trial, the lower court on September 28, 1963, rendered its decision dismissing the complaint and awarding P10,000 as attorney's fees to defendant. It ruled (a) that there was no short shipment on defendant's part; (b) that plaintiff's insurance policy did not cover the short shipment, and (c) defendant was merely acting as an agent of Louis Dreyfus & Co., who was the real shipper.

          Taking issue with all the foregoing, plaintiff has interposed the present appeal to Us on questions of fact and law, the amount involved exceeding P200,000.00.

          Was the non-presentation of the insurance policy fatal to plaintiff's case? The lower court ruled so, reasoning that unless the same — as the best evidence — were presented, it could not be conclusively determined if "liability for short shipment" was a covered risk. And the rule is that an insurer who pays the insured for loss or liability not covered by the policy is not subrogated to the latter.2

However, even assuming that there was unwarranted — or "volunteer" — payment, plaintiff could still recover what it paid — in effect — to the carrier from defendant shipper under Art. 1236 of the Civil Code which allows a third person who pays on behalf of another to recover from the latter, although there is no subrogation. But since the payment here was without the knowledge and consent of defendant, plaintiff's right of recovery is defeasible by the former's defenses since the Code is clear that the recovery is only up to the amount by which the defendant was benefited.

          This brings Us to the crux of the case: Was there a short-shipment? To support its case, plaintiff theorizes that defendant had two shipments at Siain, Quezon province (1) 812,800 kilos for Karlshamn and (2) 2,032,000 kilos for Gdynia. The Karlshamn shipment was asserted to have been covered by a separate bill of lading which, however, was allegedly lost subsequently. Thus, the 696,419 kilos of copra unloaded in Karlshamn was not part of the Gdynia shipment and cannot explain the confirmed shortage at the latter port.

          Plaintiff's cause of action suffers from several fatal defects and inconsistencies. The alleged shipment of 812,800 kilos for Karlshamn is

contradicted by plaintiff's admission in paragraphs 2 and 3 of its complaint that defendant shipped only 2,032,000 kilos of copra at Siain, purportedly for both Gdynia and Karlshamn.3 Needless to state, plaintiff is bound by such judicial admission.4 Moreover, the alleged existence of the Karlshamn bills of lading is negatived by the fact that Exhibits A and B — the bills of lading presented by plaintiff — show that the 2,032,000 kilos of copra loaded in Siain were for Gdynia only. Further destroying its case is the testimony of plaintiff's own witness, Mr. Claro Pasicolan, who on direct examination affirmed5 that these two exhibits connstituted the complete set of documents which the shipping agent in charge of the vessel S.S. NAGARA issued covering the copra cargo loaded at Siain. In view of this admission and for want of evidentiary support, plaintiff's belated claim that there is another complete set of documents can not be seriously taken.1awphîl.nèt

          Lastly, if there really was a separate bill of lading for the Karlshamn shipment, plaintiff could not have failed to present a copy thereof. Mr. Pasicolan testified6 that the shipping agent makes 20 copies of the documents of which three signed ones are given to the shipper and the rest, marked as non-negotiable bills of lading — like Exhibits A and B — are kept on its file. For the three signed copies to be lost, We may believe, but not for all the remaining 17 other copies. Under the circumstances it is more reasonable to hold that there was no separate shipment intended for Karlshamn, Sweden.

          As a corollary to the foregoing conclusion, it stands to reason that the copra unloaded in Karlshamn formed part of the same — and only — shipment of defendant intended for Gdynia. Now the fact that the sum total of the cargo unloaded at Karlshamn and Gdynia would exceed what appears to have been loaded at Siain by as much as 233,848 kilos can only show that defendant really overshipped, not shortshipped. And while this would not tally with defendant's claim of having weighed the copra cargo 100% at Siain, thus exposing a flaw in defendant's case, yet it is elementary that plaintiff must rely on the strength of its own case to recover, and not bank on the weakness of the defense. Plaintiff here failed to establish its case by preponderance on evidence.

          On the question whether defendant is the real shipper or merely an agent of Louis Dreyfus & Co., suffice it to say that altho on Exhibits A and B his name appears as the shipper, yet the very loading certificate, Exhibit 3 [5-Deposition of Horle], issued and signed by the Chief Mate and Master of the S.S.

NAGARA shows that defendant was acting merely for account of Louis Dreyfus & Co. The other documentary exhibits7 confirm this. Anyway, in whatever capacity defendant is considered, it cannot be liable since no shortshipment was shown.

          Plaintiff's action against defendant cannot, however, be considered as clearly unfounded as to warrant an award of attorney's fees as damages to defendant under par. 4, Art. 2208 of the Civil Code. The facts do not show that plaintiff's cause of action was so frivolous or untenable as to amount to gross and evident bad faith.8

          WHEREFORE, but for the award of attorney's fees to defendant which is eliminated, the decision appealed from is, in all other respects, hereby affirmed.

          Costs against plaintiff-appellant. So ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ. concur.