G.R. No. L-66935 November 11, 1985 (e) Plaintiffs' claim of not less than P100,000.00 and P75,000.
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages are ordered
ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises and ONG
CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY CORPORATION, respondent.
GUTIERREZ, JR., J.:
This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which absolved the
respondent insurance company from liability on the grounds that the vessel carrying the insured cargo was unseaworthy and
the loss of said cargo was caused not by the perils of the sea but by the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into a contract with the
petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from
Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with
respondent Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and
delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811
pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint and
as found by both the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it developed
a leak. The appellate court further found that one of the hatches was left open causing water to enter the barge and because
the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside
the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment
plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to respondent Pioneer
claiming the full amount of P100,000.00 under the insurance policy but respondent refused to pay on the ground that its
hability depended upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No. 86599
against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and Surety
Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in addition, the sum of
P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting
the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack of merit, but
as to its cross-claim against its co-defendant Manila Bay Lighterage Corporation, the latter is ordered to
reimburse the former for whatever amount it may pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack of merit;
dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of P10,000.00 is hereby
granted, against both defendants, who are, moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from March 25,
1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to the petitioners, the
transportation company is no longer doing business and is without funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part of the logs. The court
ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that
there was a breach of implied warranty of seaworthiness on the part of the petitioners and that the loss of the insured cargo
was caused by the "perils of the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine
insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with the following assignments
of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF MARINE
CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF THE CARGO
IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY "PERILS OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO
PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL COURT AS
SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in the
Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in
safety the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness.
They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the
manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number of competent officers and
seamen. The petitioners' arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal the questioned
decision. However, the petitioners state that Manila Bay has ceased operating as a firm and nothing may be recovered from it.
They are, therefore, trying to recover their losses from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of
marine insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...
From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be the subject of marine
insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the
cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to the seaworthiness
of the ship. It is universally accepted that in every contract of insurance upon anything which is the
subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the
inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance
and may not be used by him as a defense in order to recover on the marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):
There was no look-out, and both that and the rate of speed were contrary to the Canadian Statute. The
exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so
occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the
obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of
cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his
goods. Or the cargo owner may enter into a contract of insurance which specifically provides that the insurer answers not only
for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins. Co., Minn
214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and
against possible damages and such a policy does not cover a loss or injury which must inevitably take
place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not embrace all losses
happening at sea. They insure against losses from extraordinary occurrences only, such as stress of
weather, winds and waves, lightning, tempests, rocks and the like. These are understood to be the
"perils of the sea" referred in the policy, and not those ordinary perils which every vessel must
encounter. "Perils of the sea" has been said to include only such losses as are of extraordinary nature,
or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of
human skill and prudence. Damage done to a vessel by perils of the sea includes every species of
damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the voyage,
and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset
of her voyage (as in this case). It is also the general rule that everything which happens thru the inherent
vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not
otherwise borne in the policy. (14 RCL on Insurance, Sec. 384, pp. 1203- 1204; Cia. de Navegacion v.
Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused by the perils of the
sea, not by the perils of the ship because as found by the trial court, the barge was turned loose from the tugboat east of
Cabuli Point "where it was buffeted by storm and waves." Moreover, petitioners also maintain that barratry, against which the
cargo was also insured, existed when the personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and foundering of Mable 10 was due
to improper loading of the logs as well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized
by the "storm and waves" which buffeted the vessel, the records show that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the logs was
occasioned by force majeure... "was not supported by the evidence. At the time Mable 10 sank, there
was no typhoon but ordinary strong wind and waves, a condition which is natural and normal in the open
sea. The evidence shows that the sinking of Mable 10 was due to improper loading of the logs on one
side so that the barge was tilting on one side and for that it did not navigate on even keel; that it was no
longer seaworthy that was why it developed leak; that the personnel of the tugboat and the barge
committed a mistake when it turned loose the barge from the tugboat east of Cabuli point where it was
buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it was protected
by the mountain side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier developed a leak which allowed
water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing
more water to come in and that "the loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of
defendant carrier and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts
clearly negate the petitioners' claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of
Canton, supra, we had occasion to elaborate on the term "perils of the ship." We ruled:
 It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events,
results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or
from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the
cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been
aptly called the "peril of the ship." The insurer undertakes to insure against perils of the sea and similar
perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners
of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be
some casualty, something which could not be foreseen as one of the necessary incidents of the
adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not
against events which must happen.
In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore
more analogous to that which directly results from simple unseaworthiness than to that which result from
the perils of the sea.
Suffice it to say that upon the authority of those cases there is no room to doubt the liability of the
shipowner for such a loss as occurred in this case. By parity of reasoning the insurer is not liable; for
generally speaking, the shipowner excepts the perils of the sea from his engagement under the bill of
lading, while this is the very perils against which the insurer intends to give protection. As applied to the
present case it results that the owners of the damaged rice must look to the shipowner for redress and
not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in pursuance of some
unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner's interest." (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere negligence,
unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel's crew. There
was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00 representing the amount of the
salvaged logs should have been awarded to them. However, this should be deducted from the amounts which have been
adjudicated against Manila Bay Lighterage Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of P8,000.00 representing the
value of the salvaged logs which was ordered to be deposited in the Manila Banking Corporation in the name of Civil Case No.
86599 is hereby awarded and ordered paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation
in the decision of the trial court is accordingly reduced by the same amount.
SO ORDERED.
Roque v. Intermediate Appellate Court
G.R. No. L-66935 Nov. 11, 1985Justice Gutierrez, Jr.
Facts:
Isabela Roque (Roque of Isabela Roque Timber Enterprises) hired the Manila Bay Lighterage Corp. (ManilaBay) to load and
carry its logs from Palawan to North Harbor, Manila. The logs were insured with Pioneer Insurance and Surety Corp. (Pioneer).
The logs never reached Manila due to certain circumstances (as alleged by Roque and found by the appellate court), such as
the fact that the barge was not seaworthy that it developed a leak, that one of the hatches were left open causing water to
enter, and the absence of the necessary cover of tarpaulin causing more water to enter the barge. When Roque demanded
payment from Pioneer, but the latter refused on the ground that its liability depended upon the Total Loss by Total Loss of
Vessel Only. The trial court ruled in favor of Roque in the civil complaint filed by the latter against Pioneer, but the decision
was reversed by the appellate court.
Issue:
WON in cases of marine insurance, there is a warranty of seaworthiness by the cargo owner; WON the loss of the cargo was
due to perils of the sea, not perils of the ship.
Held:
Yes, there is. The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides that In
every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a
warranty is implied that the ship is seaworthy. Hence, there can be no mistaking the fact that the term "cargo" can be the
subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to
whoever is insuring the cargo whether he be the shipowner or not. Moreover, the fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine insurance and may not be used by him as a defense in order to
recover on the marine insurance policy. As to the second issue, by applying Sec. 113 of the Insurance Code, there is no doubt
that the term 'perils of the sea' extends only to losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea; it is said to include only such losses as are of extraordinary nature, or arise from some
overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. t is also the
general rule that everything which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper,
shall not be reputed a peril, if not otherwise borne in the policy. It must be considered to be settled, furthermore, that a loss
which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and
tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the
cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the "peril of
the ship." The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. Neither
barratry can be used as aground by Roque. Barratry as defined in American Insurance Law is "any willful misconduct on the
part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the
prejudice of the owner's interest." Barratry necessarily requires a willful and intentional act in its commission. No honest error
of judgment or mere negligence, unless criminally gross, can be barratry. In the case at bar, there is no finding that the loss
was occasioned by the willful or fraudulent acts of the vessel's crew. There was only simple negligence or lack of skill.
[G.R. No. 127897. November 15, 2001] DELSAN TRANSPORT LINES, INC., petitioner, vs. THE HON. COURT OF II
APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents.
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE
VESSEL MT MAYSUN WAS SEAWORTHY.

DECISION III
DE LEON, JR., J.:
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF
HOME INSURANCE CORPORATION V. COURT OF APPEALS.
Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 39836
promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering
petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty- Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines,
Seven Centavos (P5,096,635.57) and costs and the Resolution[2] dated January 21, 1997 which denied the subsequent motion which states that in every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of
for reconsideration. marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be
liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner, of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private
Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltexs industrial respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not
fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its legally liable to Caltex due to the latters breach of implied warranty under the marine insurance policy that the vessel was
vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga seaworthy.
City. The shipment was insured with the private respondent, American Home Assurance Corporation.
The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground
On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly not qualified. Under Section
morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the private
respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five
the vessels complement. Besides, petitioner avers that although Berina had merely a 2nd officers license, he was qualified to
Pesos and Fifty-Seven Centavos (P5,096,635.57) representing the insured value of the lost cargo. Exercising its right of
act as the vessels chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and
subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it
Regulations. In fact, all the crew and officers of MT Maysun were exonerated in the administrative investigation conducted by
paid to Caltex.
the Board of Marine Inquiry after the subject accident.[6]
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the
In any event, petitioner further avers that private respondent failed, for unknown reason, to present in evidence during
Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the
the trial of the instant case the subject marine cargo insurance policy it entered into with Caltex. By virtue of the doctrine laid
evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein petitioner
down in the case of Home Insurance Corporation vs. CA,[7] the failure of the private respondent to present the insurance policy
without pronouncement as to cost. The trial court found that the vessel, MT Maysun, was seaworthy to undertake the voyage
in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto.
as determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection during its annual
dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the Hence, the legal issues posed before the Court are:
common carrier (herein petitioner) from liability for the loss of its cargo.[3]
I
The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate court gave
credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration
Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an
(PAGASA for brevity) which showed that from 2:00 oclock to 8:00 oclock in the morning on August 16, 1986, the wind speed
admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner.
remained at 10 to 20 knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of the
Panay Gulf where the subject vessel sank, in contrast to herein petitioners allegation that the waves were twenty (20) feet
high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the II
same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common carrier[4] to
herein private respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of herein Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of
petitioner was denied by the appellate court. cause of action.
Petitioner raised the following assignments of error in support of the instant petition,[5] to wit:
We rule in the negative on both issues.
I
The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private
respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT.
same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private respondent as to
foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of
payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be
available to Caltex as owner of the lost cargo against the petitioner common carrier.[8] Article 2207 of the New Civil Code
provides that:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury.
The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay. [9] It is
not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon
payment by the insurance company of the insurance claim.[10] Consequently, the payment made by the private respondent
(insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have
against the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary
diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the
circumstances of each case.[11] In the event of loss, destruction or deterioration of the insured goods, common carriers shall be
responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or
calamity.[12] In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at
fault or to have acted negligently, unless they prove that they observed extraordinary diligence.[13]
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the sinking
of MT Maysun to fortuitous event or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and
chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred
in the early morning of August 16, 1986; that at around 3:15 oclock in the morning a squall (unos) carrying strong winds with
an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly
buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. [14] This tale of strong winds and big
waves by the said officers of the petitioner however, was effectively rebutted and belied by the weather report[15] from the
Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent government
agency charged with monitoring weather and sea conditions, showing that from 2:00 oclock to 8:00 oclock in the morning on
August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from
.7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate
court correctly ruled, petitioners vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There
was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank.
The appellate court also correctly opined that the petitioners witnesses, Jaime Jarabe and Francisco Berina, ship
captain and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer,
the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence certificates [16] that tend to show that at the time of dry-
docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do
not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As
correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the
presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are
likewise clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the issuance of certificates
establishes seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62)
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owners obligation. Also
securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not
establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to
seaworthiness. (Ibid.)[17]
Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their
respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability
arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the
negligent acts or omissions of its employees, the determination of which properly belongs to the courts. [18] In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the
presumption of fault or negligence as common carrier[19] occasioned by the unexplained sinking of its vessel, MT Maysun,
while in transit.
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not
indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein
private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.[20]
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA[21] (a case
cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties
involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental
Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the
port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay
Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that
in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time
it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the
cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have
indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling
process the damage to the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not
applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil belonging to Caltex, in the case at
bar, was lost while on board petitioners vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo
East Pass in the early morning of August 16, 1986.
WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in CA-G.R.
CV No. 39836 is AFFIRMED. Costs against the petitioner.
SO ORDERED.
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.
Waiver of implied warranty cannot be validly interpreted as an automatic admission of the vessels seaworthiness as to
foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier.
FACTS:
Before us is a petition for review on certiorari of the Decision of the Court of Appeals reversing the decision of the Regional
Trial Court of Makati City, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution dated January 21, 1997
which denied the subsequent motion for reconsideration. Caltex Phil. entered into a contract of affreightment with the
petitioner, Delsan Transport Lines,Inc. for a period of one year whereby the petitioner agreed to transport Caltex industrial fuel
oil from Batangas refinery to different parts of the country. On August 14, 1986, MT Maysun set sail for Zamboanga City but
unfortunately the vessel sank in the early morning of August 16,1986 near Panay Gulf taking with it the entire cargo of fuel oil.
The shipment was insured with the private respondent, American Home Assurance Corporation. Subsequently,
private respondent paid Caltex the sum of Php.5,096,635.57. Exercising its right of subrogation under Art. 2207, NCC, the
private respondent demanded from the petitioner the same amount paid to Caltex. Due to its failure to collect from the
petitioner, private respondent filed a complaint with the RTC of Makati City but the trial court dismissed the complaint, finding
the vessel to be seaworthy and that the incident was due to a force majeure, thus exempting the petitioner from liability.
However, the decision of the trial court was reversed by the CA, giving credence to the report of PAGASA that the weather
was normal and that it was impossible for the vessel to sink.
ISSUE: WON the payment made by private respondent for the insured value of the lost cargo amounted to an admission that
the vessel was seaworthy, thus precluding any action for recovery against the petitioner.
HELD: Petition DENIED. The payment by the private respondent for the insured value of the lost cargo operates as
waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the
same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the private respondent
as to foreclose recourse against the petitioner for any liability under its contractual obligation as common carrier. The
fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that otherwise be
available to Caltex as owner of the lost cargo against the petitioner common carrier.
Delsan vs CA
Facts:
Caltex entered into a contract of affreightment with Delsan Transport Lines, Inc., for a period of one year whereby the said
common carrier agreed to transport Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the
country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex
to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent,
American Home Assurance Corporation.
On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early
morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
The Respondent (insurance) paid the Caltex the amount of P5,096,635.57 representing the amount of the value of the lost
cargo.
Issue:
1. Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an
admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner.
2. Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack
of cause of action
Held:
No, under the law, extra ordinary diligence is required by the common carrier in taking good care of the goods. The common
carrier is presumed negligent unless the contrary provides otherwise. The right of subrogation has its roots in equity. It is
designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt
by one who in justice and good conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance
claim.
The presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover
from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by
itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured
shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation
accrues simply upon payment by the insurance company of the insurance claim.
 [G.R. No. 116940. June 11, 1997]
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner, vs. COURT OF APPEALS and
FELMAN SHIPPING LINES, respondents.
DECISION
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the extraordinary
diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be subrogated to the rights of the insured
upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and operated by
respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.[1] The shipment was
insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy
No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At around eight
forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing down her entire
cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN
for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV Asilda. Respondent denied
the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which disclaimed any
liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the vessels
unseaworthiness as she was put to sea in an unstable condition. It further alleged
that the vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate measures to
proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in
favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its rights, interests
and ownership over MV Asilda together with her freight and appurtenances for the purpose of limiting and extinguishing its
liability under Art. 587 of the Code of Commerce.[2]
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside
the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition for certiorari with this
Court but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN.[3] It ruled that MV Asilda was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the shipowners
surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only be attributed to either a
fortuitous event, in which case, no liability should attach unless there was a stipulation to the contrary, or to the negligence of
the captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action
in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding MV Asildaunseaworthy for being top- heavy as 2,500 cases of Coca-Cola softdrink
bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary Coast Guard certification
indicating its seaworthiness with respect to the structure of the ship itself, it was not seaworthy with respect to the
cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the assureds implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests of
the shipper. Furthermore, respondent court held that the filing of notice of abandonment had absolved the shipowner/agent
from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether MV Asilda was seaworthy when it left the port of Zamboanga;
(b) whether the limited liability under Art. 587 of theCode of Commerce should apply; and, (c) whether PHILAMGEN was
properly subrogated to the rights and legal actions which the shipper had against FELMAN, the shipowner.
MV Asilda was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well as the chief
mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga. According to them, the vessel
was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks of seaweeds, 200 empty CO2 cylinders and an
undetermined quantity of empty boxes for fresh eggs. They loaded the empty boxes for eggs and about 500 cases of Coca-
Cola bottles on deck.[4] The ship captain stated that around four oclock in the morning of 7 July 1983 he was awakened by the
officer on duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had deteriorated with
strong southeast winds inducing big waves. After thirty minutes he observed that the vessel was listing slightly to starboard
and would not correct itself despite the heavy rolling and pitching. He then ordered his crew to shift the cargo from starboard to
portside until the vessel was balanced. At about seven oclock in the morning, the master of the vessel stopped the engine
because the vessel was listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting
of cargo took about an hour afterwhich he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on his next move,
some of the cargo on deck were thrown overboardand seawater entered the engine room and cargo holds of the vessel. At
that instance, the master of the vessel ordered his crew to abandon ship. Shortly thereafter, MV Asildacapsized and sank. He
ascribed the sinking to the entry of seawater through a hole in the hull caused by the vessels collision with a partially
submerged log.[5]
The Elite Adjusters, Inc., submitted a report regarding the sinking of MV Asilda. The report, which was adopted by the
Court of Appeals, reads -
We found in the course of our investigation that a reasonable explanation for the series of lists experienced by the vessel that
eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while the vessel may not
have been overloaded, yet the distribution or stowage of the cargo on board was done in such a manner that the vessel was in
top-heavy condition at the time of her departure and which condition rendered her unstable and unseaworthy for that particular
voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a fishing vessel x x x x and it was not
designed to carry a substantial amount or quantity of cargo on deck.Therefore, we believe strongly that had her cargo been
confined to those that could have been accommodated under deck, her stability would not have been affected and the vessel
would not have been in any danger of capsizing, even given the prevailing weather conditions at that time of sinking.
But from the moment that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for the
purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessels metacentric height as to
cause it to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be pointed out that ships are precisely
designed to be able to navigate safely even during heavy weather and frequently we hear of ships safely and successfully
weathering encounters with typhoons and although they may sustain some amount of damage, the sinking of ship during
heavy weather is not a frequent occurrence and is not likely to occur unless they are inherently unstable and
unseaworthy x x x x
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V Asilda was her condition of
unseaworthiness arising from her having been top-heavy when she departed fromthe Port of Zamboanga. Her having capsized
and eventually sunk was bound to happen and was therefore in the category of an inevitable occurrence (underscoring
supplied).[6]
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate cause of the sinking
of MV Asilda was its being top-heavy. Contrary to the ship captains allegations, evidence shows that approximately 2,500
cases of softdrink bottles were stowed on deck. Several days after MV Asilda sank, an estimated 2,500 empty Coca-Cola
plastic cases were recovered near the vicinity of the sinking. Considering that the ships hatches were properly secured, the
empty Coca-Cola cases recovered could have come only from the vessels deck cargo. It is settled that carrying a deck cargo
raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper
management of the ship. However, in this case it was established that MV Asilda was not designed to carry substantial amount
of cargo on deck.The inordinate loading of cargo deck resulted in the decrease of the vessels metacentric height[7] thus making
it unstable. The strong winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as
such merely contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.[8] Simply put, the ship agent
is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This liability however can be limited
through abandonment of the vessel, its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional
circumstances wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was
due to the fault of the shipowner and the captain.[9] The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a shipowners liability, does not apply to cases where the injury or average was occasioned by
the shipowners own fault.[10] It must be stressed at this point that Art. 587 speaks only of situations where the fault or
negligence is committed solely by the captain. Where the shipowner is likewise to be blamed, Art. 587 will not apply, and such
situation will be covered by the provisions of the Civil Code on common carrier.[11]
It was already established at the outset that the sinking of MV Asilda was due to its unseaworthiness even at the time of
its departure from the port of Zamboanga. It was top-heavy as an excessive amount of cargo was loaded on deck. Closer
supervision on the part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN was equally
negligent. It cannot therefore escape liability through the expedient of filing a notice of abandonment of the vessel by virtue of
Art. 587 of the Code of Commerce.
Under Art 1733 of the Civil Code, (c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case x x x x" In the event of loss of goods,
common carriers are presumed to have acted negligently. FELMAN, the shipowner, was not able to rebut this presumption.
In relation to the question of subrogation, respondent appellate court found MV Asilda unseaworthy with reference to the
cargo and therefore ruled that there was breach of warranty of seaworthiness that rendered the assured not entitled to the
payment of is claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a
voluntary payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its own
risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. [12] Thus Sec.
113 of the Insurance Code provides that (i)n every marine insurance upon a ship or freight, or freightage, or upon anything
which is the subject of marine insurance, a warranty is implied that the ship is seaworthy. Under Sec. 114, a ship is seaworthy
when reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy. Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which keeps its vessels in
seaworthy condition. He may have no control over the vessel but he has full control in the selection of the common carrier that
will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out by
FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a warranty of
seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language.[13] And where the policy
stipulates that the seaworthiness of the vessel as between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing concealment or misrepresentation by the assured.[14]
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed with
the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads (t)he liberties as per
Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of Lading and/or
Charter Party and/or Contract of Affreightment as between the Assured and the Company shall not prejudice the
insurance. The seaworthiness of the vessel as between the Assured and the Assurers is hereby admitted.[15]
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x"[16]
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the insurance
company.[17] The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that cargo owners
cannot control the state of the vessel. Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk
of unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against FELMAN is
squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury
or loss arising out of the wrong or breach of contract complained of, the insurance company 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.
In Pan Malayan Insurance Corporation v. Court of Appeals,[18] we said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured may have against the third party
whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does itgrow out of any
privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the
insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good conscience ought to
pay.[19] Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring
an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of
the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five Thousand
Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29 November 1983, the date of judicial
demand, pursuant to Arts. 2212 and 2213 of the Civil Code.[20]
SO ORDERED.
G.R. No. 116940 Case Digest (c) Generally, in marine insurance policy, the assured impliedly warrants to the assurer that the vessel is seaworthy and such
warranty is as much a term of the contract as if expressly written on the face of the policy. However, the implied warranty of
G.R. No. 116940 June 11, 1997 seaworthiness can be excluded by terms in writing in the policy of the clearest language. The marine policy issued by
Philamgen to cocacola has dispensed that the "seaworthiness of the vessel as between the assured and the underwriters in
The Phil. American Gen. Insurance Co., Inc. hereby admitted."

vs Court of Appeals and Felman Shipping Lines The result of the admission of seaworthiness by Philamgen may mean two things: (1) the warranty of seaworthiness is fulfilled
and (2) the risk of unseaworthiness is assumed by the insurance company. This waiver clause would mean that Philamgen
Ponente: Bellosillo has accepted the risk of unseaworthiness, therefore Philamgen is liable.

Facts: On the matter of subrogation, it is provided that;

July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases of 1-liter Coca-Cola soft
drink bottles to be transported to Zamboanga City to Cebu. The shipment was insured with Philamgen.
July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola filed a claim with respondent Felman for recovery of
damages. Felman denied thus prompted cocacola to file an insurance claim with Philamgen. Philamgen later on claimed its
right of subrogation against Felman which disclaimed any liability for the loss.
Philamgen alleged that the sinking and loss were due to the vessel's unseaworthiness, that the vessel was improperly manned
and its officers were grossly negligent. Felman filed a motion to dismiss saying that there is no right of subrogation in favor of
Philamgen was transmitted by the shipper.
RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to the lower court for trial on
the merits. Felman filed a petition for certiorari but was denied.
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Pan Malayan Insurance Corp. vs CA: The right of subrogation is not dependent upon, nor does it grow out of any privity of
contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.
Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an
action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.

RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left the port of Zamboanga as WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE
evidenced by the certificate issued by the Phil. Coast Guard and the ship owners surveyor. Thus, the loss is due to a fortuitous AMERICAN GENERAL INSURANCE CO., INC.
event, in which, no liability should attach unless there is stipulation or negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-heavy and the cocacola bottles
were also improperly stored on deck. Nonetheless, the CA denied the claim of Philamgen, saying that Philamgen was not
properly subrogated to the rights and interests of the shipper plus the filing of notice of abandonment had absolved the ship
owner from liability under the limited liability rule.

Issues: (a) Whether the vessel was seaworthy, (b) whether limited liability rule should apply and (c) whether Philamgen was
properly subrogated to the rights against Felman.

Ruling:

(a) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc., is the vessel's being top-
heavy. Evidence shows that days after the sinking coca-cola bottles were found near the vicinity of the sinking which would
mean that the bottles were in fact stowed on deck which the vessel was not designed to carry substantial amount of cargo on
deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height thus making it unstable.

(b) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts of the captain in the care of the
goods. This liability however can be limited through abandonment of the vessel, its equipment and freightage. Nonetheless,
there are exceptions wherein the ship agent could still be held answerable despite the abandonment, as where the loss or
injury was due to the fault of the ship owner and the captain. The international rule is that the right of abandonment of vessels,
as legal limitation of liability, does not apply to cases where the injury was occasioned by the fault of the ship owner. Felman
was negligent, it cannot therefore escape liability.
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.:
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.4The 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.18FAO 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
orperil 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:
Condition No. of Bags
Good order(dry) 9,629
Partly wet but damage limited
only to approximately 10% to
15% of the contents. Wet
portion terminated/sprouted.
Remaining 85% to 90% of the
contents apparently dry 23,510
Shortlanded/missing 983
Total 34,122 Bags
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.
 G.R. No. L-16473 November 22, 1921
PHILIPPINE MANUFACTURING CO., Plaintiff-Appellant, vs. UNION INSURANCE SOCIETY OF CANTON, LTD., Defendant-
Appellee.
Crossfield & O'Brien for appellant.
Fisher & DeWitt for appellee.
JOHNS, J.:
The plaintiff is a corporation duly organized under the laws of the Philippine Islands with its principal office and place of
business at Manila, and at the times alleged was the owner of the steel tank lighter named Philmaco. The defendant is an
insurance company organized under the laws of Hongkong and duly authorized to transact business here. law library
July, 1917, the defendant insured the plaintiff's lighter for the sum of P16,000, and issued its policy for such insurance, which
recites that the steel tank lighter Philmaco is insured "for and during the space of twelve calendar-months from July 6, 1917 to
July 5, 1918, both dates inclusive, upon the hull, machinery, tackle, apparel, boats or other furniture of the good ship or
vessel", and that "the assured is and shall be rated and valued on hull, engine and pumping machinery, whereof this policy
insures pesos sixteen thousand, P. I. C. Warranted against the absolute total loss of the lighter only. Warranted trading
between Bitas, Tondo, or Pasig River and steamers in the Bay of Manila or harbor." In consideration thereof, the plaintiff paid
the defendant P960 as a premium for such insurance. About July 1, 1918, and during the life of the policy and as a result of a
typhoon, the lighter was sunk in the Manila Bay, of which the plaintiff notified the defendant and demanded payment of the full
amount of its policy, which the defendant refused, and denied its liability. On February 25, 1919, the plaintiff commenced this
action and, among other things, alleged in the complaint:
That during the period of said insurance the said steel tank lighter Philmaco became a total loss by sinking in the waters of the
Bay of Manila while operating within the places noted in the said insurance policy. law library
That the loss of the said steel tank lighter was total and the full amount for which it was insured upon such loss immediately
became due and payable, and prayed for judgment for the sum of P16,000, with legal interest and costs. For answer the
defendant admits the issuance and delivery of the policy, and, as a further and separate defense, alleges that, under its terms,
the defendant was only liable for an absolute total loss, and that there was not a total destruction of the lighter.
After the testimony was taken, the lower court sustained this contention and rendered judgment for the defendant, from which
the plaintiff appeals, claiming that the trial court erred in holding that there was not an absolute total loss, and in refusing to
hold that policy covered a "constructive total loss, as well as an actual total loss", and that under the facts, it was entitled to
recover the full amount of the policy. virtual law library
As a result of a typhoon the vessel was sunk in the Manila Bay in front of the Manila Hotel. The plaintiff at once notified the
defendant that the lighter was of no value, and offered to abandon the wreck as an absolute total loss to the plaintiff. The
defendant refused the offer, and instructed plaintiff to salve the wreck, if it was possible to do so. Under such instructions, the
plaintiff employed a third party to proceed with the salvage, which was commenced some time in July, 1918. After several
attempts and on September 20, 1918, the storm-beaten hull was finally raised and between two barges was taken to the
Pandacan Slipway. virtual law library
Upon the evidence for the plaintiff, the trial court found, and upon that point the testimony is conclusive, that the cost of
salvage and the necessary repairs were substantially equal to the original cost of the lighter and its value as stipulated in the
policy. The findings did not take into consideration any damages to the plaintiff for being deprived of the use of the lighter of
the interest on the investment. Although the evidence is clear that the lighter was raised and floated to the slipway on
September 20, 1918, it does not appear how long it remained there or when it was finally reconstructed and again placed in
commission. The plaintiff having finally raised the lighter, reconstructed and placed it in commission, and having used a large
portion of its hull in such reconstruction, the defendant claims that the loss was not an absolute total loss under the terms and
provisions of the policy. That plaintiff having reconstructed a new lighter out the remains of the old one, it cannot claim or
assert that the old one was a total loss. The defendant did not offer any evidence. The question is thus squarely presented
whether, under the facts shown, the loss is an absolute total loss within the terms and provisions of the policy. The testimony is
conclusive that the hull itself was very seriously damaged, and that in the reconstruction of the lighter the damaged hull was
repaired, and that the lighter with such repaired hull was eventually placed in commission. Through the violence of the storm
and the action of the waves, a large portion of its machinery and other equipment were lost or destroyed.
The policy was executed at Manila and the lighter was sunk in the Manila Bay, and under the rule of construction, the physical
conditions then and there existing should be read into and become a part of the policy.
An act revising the insurance laws and regulating insurance business in the Philippine Islands, No. 2427, was enacted by the
Philippine Legislature December 12, 1914, and, under the heading of "Loss", contains the following provisions:
SEC. 120. A loss may be either total or partial.
SEC. 121. Every loss which is not total is partial.
SEC. 122. A total loss may be either actual or constructive.
SEC. 123. An actual total loss is caused by:
( a) A total destruction of the thing insured; law library
( b) The loss of the thing by sinking, or by being broken up; law library
c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it. . . .
Whatever may be the rule in other jurisdictions, the policy having been issued at Manila, it must be construed under the terms
and provisions of those sections, and section 122 specifically says that "a total loss may be either actual or constructive," and
that "the loss of the thing by sinking, or being broken up," is an actual loss or that "any damage to the thing which renders it
valueless to the owner for the purposes for which he held it" is an actual loss. library
As we construe the record, at the time the lighter was sunk and in the bottom of the bay under the conditions then there
existing, it was of no value to the owner, and, if it was of no value to the owner, it would be a actual total loss. To render it
valueless to the owner, it is not necessary that there should be an actual or total loss or destruction of all the different parts of
the entire vessel. The question here is whether, under the conditions then and there existing, and as the lighter laid in the
bottom of the bay, was it of any value to the owner. If it was not of any value to the owner, then there was an actual loss or a
"total destruction of the thing insured" within the meaning of the above sections of Act No. 2427 of the insurance code. library
The lighter was sunk about July 1, 1918. After several futile attempts, it was finally raised September 20, 1918. It is fair to
assume that in its then condition much further time would be required to make the necessary repairs and install the new
machinery before it could again be placed in commission. During all that time the owner would be deprived of the use of its
vessel or the interest on its investment. When those questions are considered the testimony is conclusive that the cost of
salvage, repair, and reconstruction was more than the original cost of the vessel of its value at the time the policy was issued.
As found by the trial court "it is difficult to see how there could have been a more complete loss of the vessel than that which
actually occurred." Upon the facts that shown here, any other construction would nullify the statute, and, as applied to the
conditions existing in the Manila Bay, this kind of a policy would be worthless, and there would not be any consideration for the
premium.
 In their able brief, the distinguished counsel for the defendant point out that the policy itself provides that it "shall be of as
much force and effect as the surest writing or policy of insurance made in London," and contend that the policy should be
construed under the Marine Law of Great Britain, but as to what may be the law there is not alleged or proven.

In Liverpool and Great Western Steam Co. vs. Phoenix Ins. Co. (129 U.S., 397; 32 L. ed., 788, 793), the court says:

The law of Great Britain since the Declaration of Independence is the law of a foreign country, and, like any other foreign law,
is matter of fact, which the courts of this country cannot be presumed to be acquainted with, or to have judicial knowledge of,
unless it is pleaded and proved. aw library

The rule that the courts of one country cannot take cognizance of the law of another without plea and proof has been
constantly maintained at law and in equity, in England and America.

That rule was followed by this court in Sy Joc Lieng vs. Encarnacion (16 Phil., 137, 139), where it says:

When in a litigation the application of a foreign law, for example the law of China, is sought, it is necessary to prove before the
courts of the Islands, in a satisfactory manner, the existence of such law as a question of fact; and when proof of such a law is
lacking, it is improper to apply unknown laws to suits pending before the courts of the Islands.

The notes to the Great Western Insurance Company vs. Fogarty (86 U. S., 216), say:

In the English practice, a ship is a total loss when she has sustain such extensive damage that it would not be reasonably
practical to repair her. The ordinary measure of prudence which the courts have adopted is this: If the ship, when repaired, will
not be worth the sum which it would be necessary to expend upon her, the repairs are, practically speaking, impossible, and it
is a case of total loss. (Citing a number of English authorities.)

After a careful consideration of the important case, we hold that the decision of the trial court should be reversed, and that a
judgment should be entered here in favor of the plaintiff against the defendant for P16,000, with interest thereon, from
February 25, 1919, at the rate of 6 per cent per annum, and the costs and disbursements of this action in this and the lower
court. So ordered.
G.R. No. L-6393 January 31, 1955
A. MAGSAYSAY INC., plaintiff-appellee,
vs.
ANASTACIO AGAN, defendant-appellant.
Custodio A. Villava for appellant.
Quijano, Alidio and Azores for appellee.
REYES, A. J.:
The S S "San Antonio", vessel owned and operated by plaintiff, left Manila on October 6, 1949, bound for Basco, Batanes, vis
Aparri, Cagayan, with general cargo belonging to different shippers, among them the defendant. The vessel reached Aparri on
the 10th of that month, and after a day's stopover in that port, weighed anchor to proceed to Basco. But while still in port, it ran
aground at the mouth of the Cagayan river, and, attempts to refloat it under its own power having failed, plaintiff have it
refloated by the Luzon Stevedoring Co. at an agreed compensation. Once afloat the vessel returned to Manila to refuel and
then proceeded to Basco, the port of destination. There the cargoes were delivered to their respective owners or consignees,
who, with the exception of defendant, made a deposit or signed a bond to answer for their contribution to the average.
On the theory that the expenses incurred in floating the vessel constitute general average to which both ship and cargo should
contribute, plaintiff brought the present action in the Court of First Instance of Manila to make defendant pay his contribution,
which, as determined by the average adjuster, amounts to P841.40. Defendant, in his answer, denies liability to his amount,
alleging, among other things, that the stranding of the vessel was due to the fault, negligence and lack of skill of its master, that
the expenses incurred in putting it afloat did not constitute general average, and that the liquidation of the average was not
made in accordance with law. After trial, the lower court found for plaintiff and rendered judgment against the defendant for the
amount of the claim, with legal interests. From this judgment defendant had appealed directly to this Court.
Although appellant assigns various errors, under our view of the case only the following need be considered:
The trial court erred in allowing the general average for floating a vessel unintentionally stranded inside a port and
at the mouth of a river during a fine weather.
For the purposes of this assignment of error we may well accept the finding below that the stranding of plaintiff's vessel was
due to the sudden shifting of the sandbars at the mouth of the river which the port pilot did not anticipate. The standing may,
therefore, be regarded as accidental, and the question is whether the expenses incurred in floating a vessel so stranded
should be considered general average and shared by the cargo owners.
The law on averages is contained in the Code of Commerce. Under that law, averages are classified into simple or particular
and general or gross. Generally speaking, simple or particular averages include all expenses and damages caused to the
vessel or cargo which have not inured to the common benefit (Art. 809), and are, therefore, to be borne only by the owner of
the property gave rise to same (Art. 810); while general or gross averages include "all the damages and expenses which are
deliberately caused in order to save the vessel, its cargo, or both at the same time, from a real and known risk" (Art. 811).
Being for the common benefit, gross averages are to be borne by the owners of the articles saved (Art. 812).
In classifying averages into simple o particular and general or gross and defining each class, the Code (Art. 809 and 811) at
the same time enumerates certain specific cases as coming specially under one or the other denomination. Going over the
specific cases enumerated we find that, while the expenses incurred in putting plaintiff's vessel afloat may well come under
number 2 of article 809-which refers to expenses suffered by the vessel "by reason of an accident of the sea of the force
majuere" and should therefore be classified as particular average, the said expenses do not fit into any of the specific cases
of general average enumerated in article 811. No. 6 of this article does mention "expenses caused in order to float a vessel,"
but it specifically refers to "a vessel intentionally stranded for the purpose of saving it" and would have no application where, as
in the present case, the stranding was not intentional.
Let us now see whether the expenses here in question could come within the legal concept of the general average. Tolentino,
in his commentaries on the Code of Commerce, gives the following requisites for general average:
First, there must be a common danger. This means, that both the ship and the cargo, after has been loaded, are
subject to the same danger, whether during the voyage, or in the port of loading or unloading; that the danger arises
from the accidents of the sea, dispositions of the authority, or faults of men, provided that the circumstances
producing the peril should be ascertained and imminent or may rationally be said to be certain and imminent. This
last requirement exclude measures undertaken against a distant peril.
Second, that for the common safety part of the vessel or of the cargo or both is sacrificed deliberately.
Third, that from the expenses or damages caused follows the successful saving of the vessel and cargo.
Fourth, that the expenses or damages should have been incurred or inflicted after taking proper legal steps and
authority. (Vol. 1, 7th ed., p. 155.)
With respect to the first requisite, the evidence does not disclose that the expenses sought to be recovered from defendant
were incurred to save vessel and cargo from a common danger. The vessel ran aground in fine weather inside the port at the
mouth of a river, a place described as "very shallow". It would thus appear that vessel and cargo were at the time in no
imminent danger or a danger which might "rationally be sought to be certain and imminent." It is, of course, conceivable that, if
left indefinitely at the mercy of the elements, they would run the risk of being destroyed. But as stated at the above quotation,
"this last requirement excludes measures undertaken against a distant peril." It is the deliverance from an immediate,
impending peril, by a common sacrifice, that constitutes the essence of general average. (The Columbian Insurance Company
of Alexandria vs. Ashby & Stribling et al., 13 Peters 331; 10 L. Ed., 186). In the present case there is no proof that the vessel
had to be put afloat to save it from imminent danger. What does appear from the testimony of plaintiff's manager is that the
vessel had to be salvaged in order to enable it "to proceed to its port of destination." But as was said in the case just cited it is
the safety of the property, and not of the voyage, which constitutes the true foundation of the general average.
As to the second requisite, we need only repeat that the expenses in question were not incurred for the common safety of
vessel and cargo, since they, or at least the cargo, were not in imminent peril. The cargo could, without need of expensive
salvage operation, have been unloaded by the owners if they had been required to do so.
With respect to the third requisite, the salvage operation, it is true, was a success. But as the sacrifice was for the benefit of the
vessel to enable it to proceed to destination and not for the purpose of saving the cargo, the cargo owners are not in law
bound to contribute to the expenses.
The final requisite has not been proved, for it does not appear that the expenses here in question were incurred after following
the procedure laid down in article 813 et seq.
In conclusion we found that plaintiff not made out a case for general average, with the result that its claim for contribution
against the defendant cannot be granted.
Wherefore, the decision appealed from is reversed and plaintiff's complaint ordered dismissed with costs.
Magsaysay Inc. vs Anastacio Agan

Transportation General Averages Stranding of a Vessel

In 1949, SS San Antonio, owned by AMInc, embarked on its voyage to Batanes via Aparri. It was carrying various cargoes,
one of which was owned by Agan. One fine weather day, it accidentally ran aground the mouth of the Cagayan River due to
the sudden shifting of the sands below. SS San Antonio then needed the services of Luzon Stevedoring Co. to tow the ship
and make it afloat so that it can continue its journey. Later, AMInc required the cargo owners to pay the expenses incurred in
making the ship afloat (P841.40 each). The expenses, AMInc claims, fall under the General Averages Rule under the Code of
Commerce, which is to be shared by ship owner and cargo owners as well.
ISSUE: Whether or not general averages exist in the case at bar.
HELD: No. General averages contemplate that the stranding of the vessel is intentionally done in order to save the vessel itself
from a certain and imminent danger. Here, the stranding was accidental and it was made afloat for the purpose of saving the
voyage and not the vessel. Note that this happened on a fine weather day. Also, it cannot be said that the towing was made to
save the cargos, for the cargos were not in danger imminent danger.

A. Magsaysay Inc. v. Anastacio Agan, G.R. No. L-6393 (January 31, 1955)
Facts: The S S San Antonio vessel (plaintiff) with general cargo for different ship owners left Manila and was bound for
Basco, Batanes, vis Aparri, Cagayan. It reached Aparri, had a stopover, and as it would proceed to Basco but still in port, it
accidentally ran aground at the mouth of the Cagayan River. Plaintiff have it refloated by the Luzon Stevedoring Co.. The
vessel returned to Manila to refuel and then proceeded to Basco, where the cargoes were delivered to their respective owners
or consignees, who, with the exception of defendant, made a deposit or signed a bond to answer for their contribution to the
average. Thus, the plaintiff brought an action to make defendant pay his contribution. Defendant denies liability. The lower
court decided against the defendant, thus the appeal.
Issue: Whether the expenses incurred in floating a vessel so stranded should be considered general average and shared by
the cargo owners.
Held: The expenses should not be considered as general average.

The said expenses do not fit into any of the specific cases of general average enumerated in article 811. No. 6 of this article
does mention expenses caused in order to float a vessel, but it specifically refers to a vessel intentionally stranded for the
purpose of saving it. In the present case, the stranding was not intentional.

The expenses also lack the requisites of general average. First, the expenses sought to be recovered from defendant were not
incurred to save vessel and cargo from a common danger. The vessel ran aground in fine weather inside the port at the mouth
of a river, a place described as very shallow. There was no imminent danger. It is, of course, conceivable that, if left
indefinitely at the mercy of the elements, they would run the risk of being destroyed. But as stated at the above quotation, this
last requirement excludes measures undertaken against a distant peril. What does appear from the testimony of plaintiffs
manager is that the vessel had to be salvaged in order to enable it to proceed to its port of destination. But as was said in the
case just cited it is the safety of the property, and not of the voyage, which constitutes the true foundation of the general
average. Second, the cargo could, without need of expensive salvage operation, have been unloaded by the owners if they
had been required to do so. Third, the sacrifice was for the benefit of the vessel and not for the purpose of saving the cargo,
the cargo owners are not in law bound to contribute to the expenses. And fourth, the procedure was not followed.
G.R. No. 94052 August 9, 1991 Premium P2,500.00 rate 0.250%

ORIENTAL ASSURANCE CORPORATION, petitioner, Doc. stamps 187.60 Invoice No. 157862
vs.
COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents. l % P/tax 25.00

Alejandro P. Ruiz, Jr. for petitioner. TOTAL P2,712.50

Federico R. Reyes for private respondent.
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES
MELENCIO-HERRERA, J:
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
An action to recover on a marine insurance policy, issued by petitioner in favor of private respondent, arising from the loss of a
shipment of apitong logs from Palawan to Manila.
Civil Code Article 1250 Waiver clause
The facts relevant to the present review disclose that sometime in January 1986, private respondent Panama Sawmill Co., Inc.
(Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Typhoon warranty clause
Towage, Inc., to transport the logs by sea to Manila and insured it against loss for P1-M with petitioner Oriental Assurance
Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for Omnibus clause.
P3-M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the
payment of the premium for a P3-M policy.
The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume of 1,000 cubicmeters; and
(2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among others:
On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate would have it, during the
Name of Insured: voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of
Panama Sawmill, Inc. the 598 pieces loaded thereon.
Karuhatan, Valenzuela
Metro Manila Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for
"TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company.
Vessel:
Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch
Barge Transpac 1,000-1,000 cubic meter apitong Logs 123, docketed as Civil Case No. C-12601.
Voyage or Period of Insurance:
After trial on the merit, the RTC1 rendered its Decision, with the following dispositive portion:
From Palawan-ETD January 16, 1986
To: Manila WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:

Subject matter Insured: 1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw Mill Inc. the amount of
P415,000.00 as insurance indemnity with interest at the rate of 12% per annum computed from the date of the filing
2,000 cubic meters apitong Logs of the complaint;
Agreed Value
2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof,
Amount Insured Hereunder: (Ever being a single proprietorship) for the amount of P20,000.00 as attorney's fee and another amount of
P20,000.00 as moral damages.
Pesos: One Million Only (P1,000,000.00)
Philippine Currency 3. Dismissing the complaint against defendant Benito Sy Lee Yong.
 SO ORDERED.
On appeal by both parties, respondent Appellate Court2 affirmed the lower Court judgment in all respects except for the rate of
interest, which was reduce from twelve (12%) to six (6%) per annum.
Both Courts shared the view that the insurance contract should be liberally construed in order to avoid a denial of substantial
justice; and that the logs loaded in the two barges should be treated separately such that the loss sustained by the shipment in
one of them may be considered as "constructive total loss" and correspondingly compensable.
In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid dispositions. In its Comment, Panama, in
turn, maintains that the constructive total loss should be based on a policy value of P3-M and not P1-M, and prays that the
award to Ever Insurance Agency or Antonio Sy Lee Yong of damages and attorney's fees be set aside.
The question for determination is whether or not Oriental Assurance can be held liable under its marine insurance policy based
on the theory of a divisible contract of insurance and, consequently, a constructive total loss.
Our considered opinion is that no liability attaches.
The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition precedent to
the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28,
1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be determined by the language
employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic
meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and
divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one
premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore,
be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec. 129,
Insurance Code). 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. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code.
This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total
loss thereof, when the cause of the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the
peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
(Emphasis supplied)
Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of computing the more than
three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the logs in the other. Thus, it
concluded that the loss of 497 pieces of logs from barge TPAC-1000, mathematically speaking, is more than three-fourths ()
of the 598 pieces of logs loaded in that barge and may, therefore, be considered as constructive total loss.
The basis thus used is, in our opinion, reversible error.1wphi1 The requirements for the application of Section 139 of the
Insurance Code, quoted above, have not been met. The logs involved, although placed in two barges, were not separately
valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of
logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been
insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the
shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment.
Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said
to have sustained a constructive total loss under Section 139(a) of the Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama against the insurer,
Oriental Assurance.
By reason of the conclusions arrived at, Panama's asseverations in its Comment need no longer be passed upon, besides the
fact that no review, in proper form, has been sought by it.
WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental Assurance Corporation, is hereby
ABSOLVED from liability under its marine insurance policy No. OAC-M-86/002. No costs.
SO ORDERED.
Oriental v CA G.R. No. 94052 August 9, 1991
J. Melencio-Herrera

Facts:
Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the logs with Oriental for the value of Php 1 million.
Two barges were loaded with 610 and 598 logs. At sea, typhoons ravaged one of the barges, resulting in the loss of 497 of
598 of the logs.
The Insurance contract provided for indemnity under the following conditions:
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
Civil Code Article 1250 Waiver clause
Typhoon warranty clause
Omnibus clause.
Oriental didnt give an indemnity because there wasnt total loss of the shipment.
The sawmill filed a civil case against Oriental and the court ordered it to pay 410,000 as value for the missing logs. The CA
affirmed the lower court judgment but reduced the legal interest. Hence this appeal by Oriental.

Issue:
Whether or not Oriental Assurance can be held liable under its marine insurance policy based on the theory of a divisible
contract of insurance and, consequently, a constructive total loss.

Held: No. Petition granted.

Ratio:
Perla v CA- The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition
precedent to the insured's right to recovery from the insurer.
Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties.
The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs.
The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the
items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for
the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered
indivisible.
Also, the insurer's liability was for "total loss only" as stipulated. A total loss may be either actual or constructive. An actual total
loss under Sec 130 of the Insurance Code 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.
A constructive total loss, gives to a person insured a right to abandon and it means:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion
thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of
the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths
The appellate court considered the cargo in one barge as separate from the other and ruled that 497 of 598 was more than
of the amount lost, showing a constructive total loss.
The SC, however, said that although the logs were placed in two barges, they were not separately valued by the policy, nor
separately insured. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment.
Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said
to have sustained a constructive total loss under Section 139(a) of the Insurance Code.