G.R. No.
116940 June 11, 1997 The lower court further ruled that assuming "MV Asilda" was unseaworthy,
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY,
INC., Petitioner, v. COURT OF APPEALS and FELMAN SHIPPING
LINES, Respondents.
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 o'clock 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 vessel's 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 shipowner's 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.
still PHILAMGEN could not recover from FELMAN since the assured (Coca-
Cola Bottlers Philippines, Inc.) had breached its implied warranty on the
vessel's 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 Asilda" unseaworthy 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 assured's 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 the Code 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 o'clock 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 o'clock 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 overboard and 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 Asilda" capsized and sank. He ascribed
the sinking to the entry of seawater through a hole in the hull caused by the
vessel's 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 . . . 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 to have acted negligently. FELMAN, the shipowner, was not able to rebut this
not have been in any danger of capsizing, even given the prevailing weather presumption.
conditions at that time of sinking.
In relation to the question of subrogation, respondent appellate court found
But from the moment that the vessel was utilized to load heavy cargo on its "MV Asilda" unseaworthy with reference to the cargo and therefore ruled
deck, the vessel was rendered unseaworthy for the purpose of carrying the that there was breach of warranty of seaworthiness that rendered the
type of cargo because the weight of the deck cargo so decreased the vessel's assured not entitled to the payment of is claim under the policy. Hence,
metacentric height as to cause it to become unstable. 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.
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 It is generally held that in every marine insurance policy the assured
safely and successfully weathering encounters with typhoons and although impliedly warrants to the assurer that the vessel is seaworthy and such
they may sustain some amount of damage, the sinking of ship during heavy warranty is as much a term of the contract as if expressly written on the face
weather is not a frequent occurrence and is not likely to occur unless they of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every
are inherently unstable and unseaworthy . . . . 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
We believe, therefore, and so hold that the proximate cause of the sinking of
perform the service, and to encounter the ordinary perils of the voyage,
the M/V "Asilda" was her condition of unseaworthiness arising from her
contemplated by the parties to the policy." Thus it becomes the obligation of
having been top-heavy when she departed from the Port of Zamboanga. Her
the cargo owner to look for a reliable common carrier which keeps its vessels
having capsized and eventually sunk was bound to happen and was therefore
in seaworthy condition. He may have no control over the vessel but he has
in the category of an inevitable occurrence (emphasis supplied). 6
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
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of a particular venture.
Appeals that the proximate cause of the sinking of "MV Asilda" was its being
top-heavy. Contrary to the ship captain's allegations, evidence shows that
We need not belabor the alleged breach of warranty of seaworthiness by the
approximately 2,500 cases of softdrink bottles were stowed on deck. Several
assured as painstakingly pointed out by FELMAN to stress that subrogation
days after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic
will not work in this case. In policies where the law will generally imply a
cases were recovered near the vicinity of the sinking. Considering that the
warranty of seaworthiness, it can only be excluded by terms in writing in the
ship's hatches were properly secured, the empty Coca-Cola cases recovered
policy in the clearest language. 13 And where the policy stipulates that the
could have come only from the vessel's deck cargo. It is settled that carrying
seaworthiness of the vessel as between the assured and the assurer is
a deck cargo raises the presumption of unseaworthiness unless it can be
admitted, the question of seaworthiness cannot be raised by the assurer
shown that the deck cargo will not interfere with the proper management of
without showing concealment or misrepresentation by the assured. 14
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 vessel's metacentric The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at
height 7 thus making it unstable. The strong winds and waves encountered by least two (2) instances has dispensed with the usual warranty of worthiness.
the vessel are but the ordinary vicissitudes of a sea voyage and as such Paragraph 15 of the Marine Open Policy No. 100367-PAG reads "(t)he
merely contributed to its already unstable and unseaworthy condition. 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
On the second issue, Art. 587 of the Code of Commerce is not applicable to
shall not prejudice the insurance. The seaworthiness of the vessel as
the case at bar. 8 Simply put, the ship agent is liable for the negligent acts of
between the Assured and the Assurers is hereby admitted." 15
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 The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of
circumstances wherein the ship agent could still be held answerable despite the policy which states "(t)he seaworthiness of the vessel as between the
the abandonment, as where the loss or injury was due to the fault of the Assured and Underwriters in hereby admitted . . . ." 16
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 shipowner's
The result of the admission of seaworthiness by the assurer PHILAMGEN may
liability, does not apply to cases where the injury or average was occasioned
mean one or two things: (a) that the warranty of the seaworthiness is to be
by the shipowner's own fault. 10 It must be stressed at this point that Art. 587
taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
speaks only of situations where the fault or negligence is committed solely by
insurance company. 17 The insertion of such waiver clauses in cargo policies is
the captain. Where the shipowner is likewise to be blamed, Art. 587 will not
in recognition of the realistic fact that cargo owners cannot control the state
apply, and such situation will be covered by the provisions of the Civil Code
of the vessel. Thus it can be said that with such categorical waiver,
on common carrier. 11
PHILAMGEN has accepted the risk of unseaworthiness so that if the ship
should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is
It was already established at the outset that the sinking of "MV Asilda" was liable.
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
Having disposed of this matter, we move on to the legal basis for
deck. Closer supervision on the part of the shipowner could have prevented
subrogation. PHILAMGEN's action against FELMAN is squarely sanctioned by
this fatal miscalculation. As such, FELMAN was equally negligent. It cannot
Art. 2207 of the Civil Code which provides:
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.
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
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of
the wrong or breach of contract complained of, the insurance company shall
their business and for reasons of public policy, are bound to observe
be subrogated to the rights of the insured against the wrongdoer or the
extraordinary diligence in the vigilance over the goods and for the safety of
person who has violated the contract. If the amount paid by the insurance
the passengers transported by them, according to all the circumstances of
company does not fully cover the injury or loss, the aggrieved party shall be
each case . . ." In the event of loss of goods, common carriers are presumed
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 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.

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.
THIRD DIVISION one occurrence, shall be [P10 million], including
liability for costs and expense which are either:
 
(a) incurred with the written consent of the
underwriters hereon, or
G.R. No. 132607 May 5, 1999

(b) awarded against the Assured.3

CEBU SHIPYARD AND ENGINEERING WORKS, INC., petitioner,
vs.
WILLIAM LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City,
COMPANY, INC., respondents. to the Cebu Shipyard in Lapulapu City for annual dry-docking and repair.

  On February 6, 1991, an arrival conference was held between

representatives of William Lines, Inc. and CSEW to discuss the work to be
undertaken on the M/V Manila City.
PURISIMA, J.:

The contracts, denominated as Work Orders, were signed thereafter, with

At bar is a Petition for Review on Certiorari under Rule 45 of the Revised
the following stipulations:
Rules of Court seeking a reversal of the decision of the Court of
Appeal1 which affirmed the decision of the trial court of origin finding the
petitioner herein, Cebu Shipyard and Engineering Works, Inc. (CSEW) 10. The Contractor shall replace at its own work and at
negligent and liable for damages to the private respondent, William Lines, its own cost any work or material which can be shown
Inc., and to the insurer, Prudential Guarantee Assurance Company, Inc. to be defective and which is communicated in writing
within one (1) month of redelivery of the vessel or if
the vessel was not in the Contractor's Possession, the
The antecedent facts that matter are as follows:
withdrawal of the Contractor's workmen, or at its
option to pay a sum equal to the cost of such
Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation replacement at its own works. These conditions shall
engaged in the business of dry-docking and repairing of marine vessels while apply to any such replacements.
the private respondent, Prudential Guarantee and Assurance, Inc.
(Prudential), also a domestic corporation is in the non-life insurance business.
11. Save as provided in Clause 10, the Contractor shall
not be under any liability to the Customer either in
William Lines, Inc. (plaintiff below) is in the shipping business. It the owner of contract or for delict or quasi-delict or otherwise
M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank except for negligence and such liability shall itself be
on February 16, 1991. At the time of the unfortunate occurrence sued upon, subject to the following overriding limitations and
subject vessel was insured with Prudential for P45,000,000.00 pesos for hull exceptions, namely:
and machinery. The Hull Policy included an "Additional Perils (INCHMAREE)"
Clause covering loss of or damage to the vessel through the negligence of,
(a) The total liability of the
among others, ship repairmen. The Policy provided as follows:
Contractor to the Customer
(over and above the liability to
Subject to the conditions of this Policy, this insurance replace under Clause 10) or of
also covers loss of or damage to Vessel directly caused any sub-contractor shall be
by the following: limited in respect of any defect
or event (and a series of
xxx xxx xxx accidents arising out of the same
defect or event shall constitute
one defect or event) to the sum
Negligence of Charterers and/or Repairers, provided of Pesos Philippine Currency One
such Charterers and/or Repairers are not an Assured Million only.
hereunder.

(b) In no circumstance
xxx xxx xxx whatsoever shall the liability of
the Contractor or any Sub-
provided such loss or damage has not resulted from Contractor include any sum in
want of due diligence by the Assured, the Owners or respect of loss of profit or loss of
Managers of the Vessel, of any of them Masters, use of the vessel or damages
Officers, Crew or Pilots are not to be considered consequential on such loss of
Owners within the meaning of this Clause should they use
hold shares in the Vessel. 2
xxx xxx xxx
Petitioner CSEW was also insured by Prudential for third party liability under
a Shiprepairer's Legal Liability Insurance Policy. The policy was for P10 million 20. The insurance on the vessel should be maintained
only, under the limited liability clause, to wit: by the customer and/or owner of the vessel during the
period the contract is in effect.4
7. Limit of Liability
While the M/V Manila City was undergoing dry-docking and repairs within
The limit of liability under this insurance, in respect of the premises of CSEW, the master, officers and crew of M/V Manila City
any one accident or series of accidents, arising out of stayed in the vessel using their cabins as living quarters. Other employees
hired by William Lines to do repairs and maintenance work on the vessel
were also present during the dry-docking.
On February 16, 1991, after subject vessel was transferred to the docking
quay, it caught fire and sank, resulting to its eventual total loss.
On February 21, 1991, William Lines, Inc. filed a complaint for damages
against CSEW, alleging that the fire which broke out in M/V Manila City was
caused by CSEW's negligence and lack of care.
On July 15, 1991 was filed an Amended Complaint impleading Prudential as
co-plaintiff, after the latter had paid William Lines, Inc. the value of the hull
and machinery insurance on the M/V Manila City. As a result of such
payment Prudential was subrogated to the claim of P45 million, representing
the value of the said insurance it paid.
On June 10, 1994, the trial court a quo came out with a judgment against
CSEW, disposing as follows:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendant, ordering the
latter.
1. To pay unto plaintiff Prudential Guarantee and
Assurance Inc., the subrogee, the amount of Forty-five
Million (P45 million) Pesos, with interest at the legal
rate until full payment is made.
2. To pay unto plaintiff, William Lines, Inc., the amount
of Fifty-six Million Seven Hundred Fifteen Thousand
(P56,715,000.00) Pesos representing loss of income of
M/V MANILA CITY, with interest at the legal rate until
full payment is made.
3. To pay unto plaintiff, William Lines, Inc. the amount
of Eleven Million (P11 million) as payment, in addition
to what it received from the insurance company to
fully cover the injury or loss, in order to replace the
M/V MANILA CITY, with interest at the legal rate until
full payment is made;
4. To pay unto plaintiff, William Lines, Inc. the sum of
Nine Hundred Twenty-Seven Thousand Thirty-nine
(P927,039.00) Pesos for the loss of fuel and lub (sic) oil
on board the vessel when she was completely gutted
by fire at defendant, Cebu Shipyard's quay, with
interest at the legal rate until full payment is made;
5. To pay unto plaintiff, William Lines, Inc. the sum of
Three Million Fifty-four Thousand Six Hundred
Seventy-seven Pesos and Ninety-five centavos
(P3,054.677.95) as payment for the spare parts and
materials used in the M/V MANILA CITY during dry-
docking with interest at the legal rate until full
payment is made;
6. To pay unto plaintiff William Lines, Inc., the sum of
Five Hundred Thousand (P500,000 00) Pesos in moral
damages;
7. To pay unto plaintiff, William Lines, Inc. the amount
of Ten Million (P10,000.000.00) Pesos in attorney's
fees; and to pay the costs of this suit.
CSEW (defendant below) appealed the aforesaid decision to the Court of
Appeals. During the pendency of the appeal, CSEW and William Lines
presented a "Joint Motion for Partial Dismissal" with prejudice, on the basis
of the amicable settlement inked between Cebu Shipyard and William Lines
only.
On July 31, 1996, the Court of Appeals ordered the partial dismissal of the
case insofar as CSEW and William Lines were concerned.
On September 3, 1997, the Court of Appeals affirmed the appealed decision
of the trial court, ruling thus:
WHEREFORE, the judgment of the lower court ordering
the defendant, Cebu Shipyard and Engineering Works,
Inc. to pay the plaintiff Prudential Guarantee and
Assurance, Inc., the subrogee, the sum of P45 Million,
with interest at the legal rate until full payment is
made, as contained in the decision of Civil Case No.
CEB-9935 is hereby AFFIRMED.
With the denial of its motion for reconsideration by the Court of Appeal's
Resolution dated February 13, 1998, CSEW found its way to this court via the
present petition, contending that:
I. THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT CSEW HAD "MANAGEMENT
AND SUPERVISORY CONTROL" OF THE M/V MANILA
CITY AT THE TIME THE FIRE BROKE OUT.
II THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN APPLYING THE DOCTRINE OF RES
IPSA LOQUITUR AGAINST CSEW.
III THE COURT OF APPEALS RULING HOLDING CSEW
NEGLIGENT AND THEREBY LIABLE FOR THE LOSS OF
THE M/V MANILA CITY IS BASED FINDINGS OF FACT
NOT SUPPORTED BY EVIDENCE.
IV THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN RULING CSEW'S EXPERT EVIDENCE AS
INADMISSIBLE OR OF NO PROBATIVE VALUE.
V THE COURT OF APPEALS COMMITTED A REVERSIBLE
ERROR IN RULING THAT PRUDENTIAL HAS THE RIGHT
OF SUBROGATION AGAINST ITS OWN INSURED.
VI ASSUMING ARGUENDO THAT PRUDENTIAL HAS THE
RIGHT OF SUBROGATION AND THAT CSEW WAS
NEGLIGENT IN THE PERFORMANCE OF ITS
OBLIGATIONS UNDER THE SHIPREPAIR CONTRACTS.
THE CONTRACTUAL PROVISIONS LIMITING CSEW'S
LIABILITY FOR NEGLIGENCE TO A MAXIMUM OF P 1
MILLION IS NOT VALID, CONTRARY TO THE APPLICABLE
RULINGS OF THIS HONORABLE COURT.
Petitioner's version of the events that led to the fire runs as follows:
On February 13, 1991, the CSEW completed the
drydocking of M/V Manila City at its grave dock. It was
then transferred to the docking quay of CSEW where
the remaining repair to be done was the replating of
the top of Water Ballast Tank No. 12 (Tank Top No. 12)
which was subcontracted by CSEW to JNB General
Services. Tank Top No. 12 was at the rear section of
the vessel, on level with the flooring of the crew cabins
located on the vessel's second deck.
At around seven o'clock in the morning of February 16,
1991, the JNB workers trimmed and cleaned the tank
framing which involved minor hotworks
(welding/cutting works). The said work was completed
 at about 10:00 a.m. The JNB workers then proceeded the total value of M/V Manila City's hull and machinery
to rig the steel plates, after which they had their lunch insurance.6
break. The rigging was resumed at 1:00 p.m.
The petition is unmeritorious.
While in the process of rigging the second steel plate,
the JNB workers noticed smoke coming from the
Petitioner CSEW faults the Court of Appeals for adjudging it negligent and
passageway along the crew cabins. When one of the
liable for damages for the respondents, William Lines, Inc., and Prudential for
workers, Mr. Casas, proceeded to the passageway to
the loss of M/V Manila City. It is petitioner's submission that the finding of
ascertain the origin of the smoke, he noticed that
negligence by the Court of Appeals is not supported by the evidence on
smoke was gathering on the ceiling of the passageway
record, and contrary to what the Court of Appeals found, petitioner did not
but did not see any fire as the crew cabins on either
have management and control over M/V Manila City. Although it was
side of the passageway were locked. He immediately
brought to the premises of CSEW for annual repair, William Lines, Inc.
sought out the proprietor of JNB, Mr. Buenavista, and
retained control over the vessel as the ship captain remained in command
the Safety officer CSEW, Mr. Aves, who sounded the
and the ship's crew were still present. While it imposed certain rules and
fire alarm. CSEW's fire brigade immediately responded
regulations on William Lines, it was in the exercise of due diligence and not
as well as the other fire fighting units in Metro Cebu.
an indication of CSEW's exclusive control over subject vessel. Thus, CSEW
However, there were no WLI representative, officer or
maintains that it did not have exclusive control over the M/V Manila City and
crew to guide the firemen inside the vessel.
the trial court and the Court of Appeals erred in applying the doctrine of res
ipsa loquitur.
Despite the combined efforts of the firemen of the
Lapulapu City Fire Department, Mandaue Fire Cordova
Time and again, this Court had occasion to reiterate the well-established rule
Fire Department, Emergency Rescue Unit Foundation,
that factual findings by the Court of Appeals are conclusive on the parties
and fire brigade of CSEW, the fire was not controlled
and are not reviewable by this Court. They are entitled to great weight and
until 2:00 a.m., of the following day, February 17,
respect, even finality, especially when, as in this case, the Court of Appeals
1991.
affirmed the factual findings arrived at by the trial court. 7 When supported
by sufficient evidence, findings of fact by the Court of Appeals affirming those
On the early morning of February 17, 1991, gusty of the trial court, are not to be disturbed on appeal. The rationale behind this
winds rekindled the flames on the vessel and fire again doctrine is that review of the findings of fact of the Court of Appeals is not a
broke out. Then the huge amounts of water pumped function that the Supreme Court normally undertakes.8
into the vessel, coupled with the strong current,
caused the vessel to tilt until it capsized and sank.
Here, the Court of Appeals and the Cebu Regional Trial Court of origin are
agreed that the fire which caused the total loss of subject M/V Manila City
When M/V Manila City capsized, steel and angle bars was due to the negligence of the employees and workers of CSEW. Both
were noticed to have been newly welded along the courts found that the M/V Manila City was under the custody and control of
port side of the hull of the vessel, at the level of the petitioner CSEW, when the ill-fated vessel caught fire. The decisions of both
crew cabins. William Lines did not previously apply for the lower court and the Court of Appeals set forth clearly the evidence
a permit to do hotworks on the said portion of the ship sustaining their finding of actionable negligence on the part of CSEW. This
as it should have done pursuant to its work order with factual finding is conclusive on the parties. The court discerns no basis for
CSEW.5 disturbing such finding firmly anchored on enough evidence. As held in the
case of Roblett Industrial Construction Corporation vs. Court of Appeals, "in
the absence of any showing that the trial court failed to appreciate facts and
Respondent Prudential, on the other hand, theorized that the fire broke out
circumstances of weight and substance that would have altered its
in the following manner:
conclusion, no compelling reason exists for the Court to impinge upon
matters more appropriately within its province.9
At around eleven o'clock in the morning of February
16, 1991, the Chief Mate of M/V Manila City was
Furthermore, in petitions for review on certiorari, only questions of law may
inspecting the various works being done by CSEW on
be put into issue. Questions of fact cannot be entertained. The finding of
the vessel, when he saw that some workers of CSEW
negligence by the Court of Appeals is a question which this Court cannot look
were cropping out steel plates Tank Top No. 12 using
into as it would entail going into factual matters on which the finding of
acetylene, oxygen and welding torch. He also observed
negligence was based. Such an approach cannot be allowed by this Court in
that the rubber insulation wire coming out of the air-
the absence of clear showing that the case falls under any of the
conditioning unit was already burning, prompting him
exceptions 10 to the well-established principle.
to scold the workers.

The finding by the trial court and the Court of Appeals that M/V Manila City
At 2:45 in the afternoon of the same day, witnesses
caught fire and sank by reason of the negligence of the workers of CSEW,
saw smoke coming from Tank No. 12. The vessel's
when the said vessel was under the exclusive custody and control of CSEW is
reeferman reported such occurence to the Chief Mate
accordingly upheld. Under the circumstances of the case, the doctrine of res
who immediately assembled the crew members to put
ipsa loquitur applies. For the doctrine of res ipsa loquitur to apply to a given
out the fire. When it was too hot for them to stay on
situation, the following conditions must concur (1) the accident was of a kind
board and seeing that the fire cannot be controlled,
which does not ordinarily occur unless someone is negligent; and (2) that the
the vessel's crew were forced to withdraw from
instrumentality or agency which caused the injury was under the exclusive
CSEW's docking quay.
control of the person charged with negligence.

In the morning of February 17, 1991, M/V Manila City

The facts and evidence on record reveal the concurrence of said conditions in
sank. As the vessel was insured with Prudential
the case under scrutiny. First, the fire that occurred and consumed M/V
Guarantee, William Lines filed a claim for constructive
Manila City would not have happened in the ordinary course of things if
loss, and after a thorough investigation of the
reasonable care and diligence had been exercised. In other words, some
surrounding circumstances of the tragedy, Prudential
negligence must have occurred. Second, the agency charged with negligence,
Guaranteed found the said insurance claim to be
as found by the trial court and the Court of Appeals and as shown by the
meritorious and issued a check in favor of William
records, is the herein petitioner, Cebu Shipyard and Engineering Works, Inc.,
Lines in the amount of P 45 million pesos representing
which had control over subject vessel when it was docketed for annual
repairs. So also, as found by the regional trial court, "other responsible
causes, including the conduct of the plaintiff, and third persons, are
sufficiently eliminated by the evidence. 11
What is more, in the present case the trial court found direct evidence to
prove that the workers and/or employees of CSEW were remiss in their duty
of exercising due diligence in the care of subject vessel. The direct evidence
substantiates the conclusion that CSEW was really negligent. Thus, even
without applying the doctrine of res ipsa loquitur, in light of the direct
evidence on record, the ineluctable conclusion is that the petitioner, Cebu
Shipyard and Engineering Works, Inc., was negligent and consequently liable
for damages to the respondent, William Lines, Inc.
Neither is there tenability in the contention of petitioner that the Court of
Appeals erroneously ruled on the inadmissibility of the expert testimonies it
(petitioner) introduced on the probable cause and origin of the fire.
Petitioner maintains that the Court of Appeals erred in disregarding the
testimonies of the fire experts, Messrs. David Grey and Gregory Michael
Southeard, who testified on the probable origin of the fire in M/V Manila
City. Petitioner avers that since the said fire experts were one in their opinion
that the fire did not originate in the area of Tank Top No. 12 where the JNB
workers were doing hotworks but on the crew accommodation cabins on the
portside No. 2 deck, the trial court and the Court of Appeals should have
given weight to such finding based on the testimonies of fire experts;
petitioner argues.
But courts are not bound by the testimonies of expert witnesses. Although
they may have probative value, reception in evidence of expert testimonies is
within the discretion of the court. Section 49, Rule 130 of the Revised Rules
of Court, provides:
Sec. 49. Opinion of expert witness. — The opinion of a
witness on a matter requiring special knowledge, skill,
experience or training which he is shown to possess,
may be received in evidence.
The word "may" signifies that the use of opinion of an expert
witness as evidence is a prerogative of the courts. It is never
mandatory for judges to give substantial weight to expert
testimonies. If from the facts and evidence on record, a
conclusion is readily ascertainable, there is no need for the judge
to resort to expert opinion evidence. In the case under
consideration, the testimonies of the fire experts were not the
only available evidence on the probable cause and origin of the
fire. There were witnesses who were actually on board the vessel
when the fire occurred. Between the testimonies of the fire
experts who merely based their findings and opinions on
interviews and the testimonies of those present during the fire,
the latter are of more probative value. Verily, the trial court and
the Court of Appeals did not err in giving more weight to said
testimonies.
On the issue of subrogation, petitioner contends that Prudential is not
entitled to be subrogated to the rights of William Lines, Inc., theorizing that
(1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a
co-assured under the Marine Hull Insurance Policy.
It is petitioner's submission that the loss of M/V Manila City or damage
thereto is expressly excluded from the coverage of the insurance because the
same resulted from "want of due diligence by the Assured, Owners or
Managers" which is not included in the risks insured against. Again, this
theory of petitioner is bereft of any factual or legal basis. It proceeds from a
wrong premise that the fire which gutted subject vessel was caused by the
negligence of the employees of William Lines, Inc. To repeat, the issue of
who between the parties was negligent has already been resolved against
Cebu Shipyard and Engineering Works, Inc. Upon proof of payment by
Prudential to William Lines, Inc. the former was subrogated to the right of
the latter to indemnification from CSEW. As aptly ruled by the Court of
Appeals, the law on the manner is succinct and clear, to wit:
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. 12
Thus, when Prudential, after due verification of the merit and validity of the
insurance claim of William Lines, Inc., paid the latter the total amount
covered by its insurance policy, it was subrogated to the right of the latter to
recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is
deemed a co-assured under the subject insurance policy. To buttress its
stance that it is a co-assured, petitioner placed reliance on Clause 20 of the
Work Order which states:
20 The insurance on the vessel should be maintained
by the customer and/or owner of the vessel during the
period the contract is in effect. 13
According to petitioner, under the aforecited clause, William
Lines, Inc., agreed to assume the risk of loss of the vessel while
under dry-dock or repair and to such extent, it is benefited and
effectively constituted as a co-assured under the policy.
This theory of petitioner is devoid of sustainable merit. Clause 20 of the Work
Order in question is clear in the sense that it requires William Lines to
maintain insurance on the vessel during the period of dry-docking or repair.
Concededly, such a stipulation works to the benefit of CSEW as the ship
repairer. However, the fact that CSEW benefits from the said stipulation does
not automatically make it as a co-assured of William Lines. The intention of
the parties to make each other a co-assured under an insurance policy is to
be gleaned principally from the insurance contract or policy itself and not
from any other contract or agreement because the insurance policy
denominates the assured and the beneficiaries of the insurance. The hull and
machinery insurance procured by William Lines, Inc. from Prudential named
only "William Lines, Inc." as the assured. There was no manifestation of any
intention of William Lines, Inc. to constitute CSEW as a co-assured under
subject policy. It is axiomatic that when the terms of a contract are clear its
stipulations control. 14 Thus, when the insurance policy involved named only
William Lines, Inc. as the assured thereunder, the claim of CSEW that it is a
co-assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy,
it is provided that:
Subject to the conditions of this Policy, this insurance
also covers loss of or damage to vessel directly caused
by the following:
xxx xxx xxx
Negligence of Charterers and/or Repairers, provided
such Charterers and/or Repairers are not an Assured
hereunder 15 (emphasis supplied).
As correctly pointed out by respondent Prudential, if CSEW were deemed a
co-assured under the policy, it would nullify any claim of William Lines, Inc.
from Prudential for any loss or damage caused by the negligence of CSEW.
Certainly, no shipowner would agree to make a shiprepairer a co-assured
under such insurance policy; otherwise, any claim for loss or damage under
the policy would be invalidated. Such result could not have been intended by
William Lines, Inc.
Finally, CSEW argues that even assuming that it was negligent and therefore
liable to William Lines Inc., by stipulation in the Contract or Work Order its
liability is limited to One Million (P1,000,000.00) Pesos only, and Prudential a
mere subrogee of William Lines, Inc., should only be entitled to collect the
sum stipulated in the said contract.

Although in this jurisdiction, contracts of adhesion have been consistently

upheld as valid per se; as binding as an ordinary contract, the Court
recognizes instances when reliance on such contracts cannot be favored
especially where the facts and circumstances warrant that subject
stipulations be disregarded. 16 Thus, in ruling on the validity and applicability
of the stipulation limiting the liability of CSEW for negligence to One Million
(P1,000,000.00) Pesos only, the facts and circumstances vis-a-vis the nature
of the provision sought to be enforced should be considered, bearing in mind
the principles of equity and fair play.

It is worthy to note that M/V Manila City was insured with Prudential for
Forty Five Million (P45,000,000.00) Pesos. To determine the validity and
sustainability of the claim of William Lines, Inc., for a total loss, Prudential
conducted its own inquiry. Upon thorough investigation by its hull surveyor,
M/V Manila City was found to be beyond economical salvage and
repair. 17 The evaluation of the average adjuster also reported a constructive
total loss. 18 The said claim of William Lines, Inc., was then found to be valid
and compensable such that Prudential paid the latter the total value of its
insurance claim. Furthermore, it was ascertained that the replacement cost
of the vessel (the price of a vessel similar to M/V Manila City), amounts to
Fifty Million (P 50,000,000.00) Pesos.19

Considering the aforestated circumstances, let alone the fact that negligence
on the part of petitioner has been sufficiently proven, it would indeed be
unfair and inequitable to limit the liability of petitioner to One Million Pesos
only. As aptly held by the trial court, "it is rather unconscionable if not
overstrained." To allow CSEW to limit its liability to One Million Pesos
notwithstanding the fact that the total loss suffered by the assured and paid
for by Prudential amounted to Forty Five Million (P45,000,000.00) Pesos
would sanction the exercise of a degree of diligence short of what is
ordinarily required because, then, it would not be difficult for petitioner to
escape liability by the simple expedient of paying an amount very much
lower than the actual damage or loss suffered by William Lines, Inc.

WHEREFORE, for want of merit, the petition is hereby DENIED and the
decision, dated September 3, 1997, and Resolution, dated February 13, 1998,
of the Court of Appeals AFFIRMED. No pronouncement as to
costs.1âwphi1.nêt

SO ORDERED
.SECOND DIVISION
G.R. No. 127897      November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,
vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE
CORPORATION, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the 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-Seven Centavos
(P5,096,635.57) and costs and the Resolution2 dated January 21, 1997 which
denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a
contract of affreightment with the petitioner, Delsan Transport Lines, Inc., for
a period of one year whereby the said common carrier agreed to transport
Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to different
parts of the country. Under the contract, petitioner took on board its vessel,
MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered
to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with
the private respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City.
Unfortunately, the vessel sank in the early morning of August 16, 1986 near
Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-
Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos
(P5,096,635.67) representing the insured value of the lost cargo. Exercising
its right of subrogation under Article 2207 of the New Civil Code, the private
respondent demanded of the petitioner the same amount it paid to
Caltex.1âwphi1.nêt
Due to its failure to collect from the petitioner despite prior demand, private
respondent filed a complaint with the Regional Trial Court of Makati City,
Branch 137, for collection of a sum of money. After the trial and upon
analyzing the evidence adduced, the trial court rendered a decision on
November 29, 1990 dismissing the complaint against herein petitioner
without pronouncement as to cost. The trial court found that the vessel, MT
Maysum, was seaworthy to undertake the voyage as determined by the
Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon
inspection during its annual dry-docking and that the incident was caused by
unexpected inclement weather condition or force majeure, thus exempting
the common carrier (herein petitioner) from liability for the loss of its cargo.3
The decision of the trial court, however, was reversed, on appeal, by the
Court of Appeals. The appellate court gave credence to the weather report
issued by the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA for brevity) which showed that from 2:00 o’clock to
8:oo o’clock in the morning on August 16, 1986, the wind speed remained at
10 to 20 knots per hour while the waves measured from .7 to two (2) meters
in height only in the vicinity of the Panay Gulf where the subject vessel sank,
in contrast to herein petitioner’s allegation that the waves were twenty (20)
feet high. In the absence of any explanation as to what may have caused the
sinking of the vessel coupled with the finding that the same was improperly
manned, the appellate court ruled that the petitioner is liable on its
obligation as common carrier4 to herein private respondent insurance
company as subrogee of Caltex. The subsequent motion for reconsideration
of herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant
petition,5 to wit:
I
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF
THE REGIONAL TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN
REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT
"MAYSUN" WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE
OF THE SUPREME COURT IN THE CASE OF HOME INSURANCE
CORPORATION V. COURT OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of
the Insurance Code of the Philippines, which states that in every marine
insurance upon a ship or freight, or freightage, or upon any thin which is the
subject of marine insurance there is an implied warranty by the shipper that
the ship is seaworthy. Consequently, the insurer will not be liable to the
assured for any loss under the policy in case the vessel would later on be
found as not seaworthy at the inception of the insurance. It theorized that
when private respondent paid Caltex the value of its lost cargo, the act of the
private respondent is equivalent to a tacit recognition that the ill-fated vessel
was seaworthy; otherwise, private respondent was not legally liable to Caltex
due to the latter’s breach of implied warranty under the marine insurance
policy that the vessel was seaworthy.
The petitioner also alleges that the Court of Appeals erred in ruling that MT
Maysun was not seaworthy on the ground that the marine officer who
served as the chief mate of the vessel, Francisco Berina, was allegedly not
qualified. Under Section 116 of the Insurance Code of the Philippines, the
implied warranty of seaworthiness of the vessel, which the private
respondent admitted as having been fulfilled by its payment of the insurance
proceeds to Caltex of its lost cargo, extends to the vessel’s complement.
Besides, petitioner avers that although Berina had merely a 2nd officer’s
license, he was qualified to act as the vessel’s chief officer under Chapter
IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and
Regulations. In fact, all the crew and officers of MT Maysun were exonerated
in the administrative investigation conducted by the Board of Marine Inquiry
after the subject accident.6
In any event, petitioner further avers that private respondent failed, for
unknown reason, to present in evidence during the trial of the instant case
the subject marine cargo insurance policy it entered into with Caltex. By
virtue of the doctrine laid down in the case of Home Insurance Corporation
vs. CA,7 the failure of the private respondent to present the insurance policy
in evidence is allegedly fatal to its claim inasmuch as there is no way to
determine the rights of the parties thereto.
Hence, the legal issues posed before the Court are:
I
Whether or not the payment made by the private respondent to
Caltex for the insured value of the lost cargo amounted to an
admission that the vessel was seaworthy, thus precluding any
action for recovery against the petitioner.
II
Whether or not the non-presentation of the marine insurance
policy bars the complaint for recovery of sum of money for lack of
cause of action.
We rule in the negative on both issues.
The payment made by the private respondent for the insured value of the
lost cargo operates as waiver of its (private respondent) right to enforce the
term of the implied warranty against Caltex under the marine insurance
policy. However, the same cannot be validly interpreted as an automatic
admission of the vessel’s 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 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.
The right of subrogation has its roots in equity. It is designed to promote and
to accomplish justice and is the mode which equity adopts to compel the
ultimate payment of a debt by one who in justice and good conscience ought
to pay.9 It is not dependent upon, nor does it grow out of, any privity of
contract or upon written assignment of claim. It accrues simply upon
payment by the insurance company of the insurance claim.10 Consequently,
the payment made by the private respondent (insurer) to Caltex (assured)
operates as an equitable assignment to the former of all the remedies which
the latter may have against the petitioner.
From the nature of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence in the vigilance over
the goods and for the safety of passengers transported by them, according to
all the circumstance of each case.11 In the event of loss, destruction or
deterioration of the insured goods, common carriers shall be responsible
unless the same is brought about, among others, by flood, storm,
earthquake, lightning or other natural disaster or calamity.12 In all other
cases, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they
prove that they observed extraordinary diligence.13
In order to escape liability for the loss of its cargo of industrial fuel oil
belonging to Caltex, petitioner attributes the sinking of MT Maysun to
fortuitous even or force majeure. From the testimonies of Jaime Jarabe and
Francisco Berina, captain and chief mate, respectively of the ill-fated vessel,
it appears that a sudden and unexpected change of weather condition
occurred in the early morning of August 16, 1986; that at around 3:15 o’clock
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 o’clock to 8:00 o’clock 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, petitioner’s 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 petitioner’s witnesses,
Jaime Jarabe and Francisco Berina, ship captain and chief mate, respectively,
of the said vessel, could not be expected to testify against the interest of
their employer, the herein petitioner common carrier.
Neither may petitioner escape liability by presenting in evidence
certificates16 that tend to show that at the time of dry-docking and inspection
by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage.
These pieces of evidence do not necessarily take into account the actual
condition of the vessel at the time of the commencement of the voyage. As
correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have
appeared fit. The certificates issued, however, do not negate the
presumption of unseaworthiness triggered by an unexplained
sinking. Of certificates issued in this regard, authorities are
likewise clear as to their probative value, (thus):
Seaworthiness relates to a vessel’s actual condition.
Neither the granting of classification or the issuance of
certificates established seaworthiness. (2-A Benedict
on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing
certificates of seaworthiness does not satisfy the vessel
owner’s 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 Maysun’s officers and crew by the Board
of Marine Inquiry merely concerns their respective administrative liabilities.
It does not in any way operate to absolve the petitioner common carrier
from its civil liabilities. It does not in any way operate to absolve the
petitioner common carrier from its civil liability arising from its failure to
observe extraordinary diligence in the vigilance over the goods it was
transporting and for the negligent acts or omissions of its employees, the
determination of which properly belongs to the courts.18 In the case at bar,
petitioner is liable for the insured value of the lost cargo of industrial fuel oil
belonging to Caltex for its failure to rebut the presumption of fault or
negligence as common carrier19 occasioned by the unexplained sinking of its
vessel, MT Maysun, while in transit.
Anent the second issue, it is our view and so hold that the presentation in
evidence of the marine insurance policy is not indispensable in this case
before the insurer may recover from the common carrier the insured value of
the lost cargo in the exercise of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not only the relationship of herein
private respondent as insurer and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.20
The presentation of the insurance policy was necessary in the case of Home
Insurance Corporation v. CA21 (a case cited by petitioner) because the
shipment therein (hydraulic engines) passed through several stages with
different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental
Statesman; third, from the M/S Oriental Statesman to the M/S Pacific
Conveyor; fourth, from the M/S Pacific Conveyor to the port or arrival; fifth,
from the port of arrival to the arrastre operator; sixth, from the arrastre
operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent
therein); and lastly, from the hauler to the consignee. We emphasized in that
case that in the absence of proof of stipulations to the contrary, the hauler
can be liable only for any damage that occurred from the time it received the
cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held
responsible for the handling of the cargo before it actually received it. The
insurance contract, which was not presented in evidence in that case would
have indicated the scope of the insurer’s 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 petitioner’s 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.
SECOND DIVISION
G.R. No. 152158. February 7, 2003
WALLEM PHILIPPINES SHIPPING INC. and SEACOAST MARITIME
CORPORATION, Petitioners, v. PRUDENTIAL GUARANTEE & ASSURANCE INC.
and COURT OF APPEALS, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision, dated January 31,
2001, and resolution, dated February 14, 2002, of the Court of
Appeals,1 which reversed the decision, dated September 21, 1995, of the
Regional Trial Court, Branch 134, Makati City in Civil Case No. 91-1053,
entitled Prudential Guarantee & Assurance Inc. v. Wallem Philippines
Shipping Inc. and Seacoast Maritime Corporation.
The background of this case is as follows:
On April 17, 1991, private respondent Prudential Guarantee & Assurance Inc.
(Prudential) brought an action for damages and attorneys fees against
Wallem Philippines Shipping, Inc. (Wallem) and Seacoast Maritime
Corporation (Seacoast). The complaint was filed with the Regional Trial Court
of Makati City, where it was docketed as Civil Case No. 91-1053, and assigned
to Branch 134 thereof. Private respondent Prudential sought the recovery of
the sum of P995,677.00, representing the amount it had paid to its insured,
General Milling Corporation (GMC), for alleged shortage incurred in the
shipment of Indian Toasted Soyabean Extraction Meal, Yellow, with 6% legal
interest thereon from the date of filing of the complaint up to and until the
same is fully paid, and 25% of the claim as attorneys fees.2cräläwvirtualibräry
In its answer, Wallem denied liability for damage or loss to the shipment. It
was alleged that the complaint did not state a cause of action against it; that
Prudential, Wallem, and Seacoast were not the real parties-in-interest; that
the action had prescribed; that the damage or loss, if any, was due to the
inherent vice or defect of the goods, or to perils, dangers, and accidents of
the sea, for which Wallem was not liable; that the damage or loss to the
shipment was due to an act or omission of Prudential or the owner of the
goods or their representative, or to pre-shipment damage, for which Wallem
was not liable; that the shipment was carried on a shippers description of
packages and contents, said to weigh, in bulk, and free out basis; that based
on the provisions of the bill of lading, Prudential had the burden of proving
the actual quantity of cargo loaded at the loading port; that Prudential had
no contract with Wallem, which acted as a mere agent of a disclosed
principal; that Wallem had observed the diligence required under the law in
the care of the shipment; that the shipment was discharged in the same
quantity as when it was loaded at the port of loading; that any loss incurred
during and after discharge from the vessel was no longer the responsibility of
the carrier; that Wallem could not be made liable for the loss or damage, if
any, of the goods which happened whilst the same were not in its possession
and control; that Prudentials claim was excessive and exaggerated; that
Wallems liability, if any, should not exceed the invoice value of the alleged
loss or the applicable package limitation, whichever was lower, or the limit of
liability set in the bill of lading.
Wallem filed a compulsory counterclaim against Prudential as the complaint
was allegedly a clearly unfounded civil action. Wallem filed a crossclaim
against its co-defendant Seacoast, in the event that it was made liable to
Prudential.3 Upon motion of Prudentials counsel, defendant Seacoast was
declared in default.4 After termination of the pre-trial conference, this case
was tried on the merits.
To prove its claim for indemnity, Prudential presented two witnesses:
Josephine Suarez and Alfredo Cunanan.
Josephine Suarez, the claims processor of Prudential, testified that in March
1991 she received a claim from GMC in connection with its shipment which
arrived on board M/V Gao Yang (Exh. A). Upon receipt of the claim and its
supporting papers, she referred the same to Tan-Gatue Adjustment
Company, Inc. (Tan-Gatue), which submitted a report (Exhs. G to G-8). Upon
her recommendation, Prudential paid GMC the sum of P995,677.09, as
evidenced by receipts and a voucher (Exhs. H, I, and K). GMC then issued a
subrogation receipt to Prudential (Exh. J), which in turn sent a demand letter
to Wallem (Exh. L).
On cross-examination, Ms. Suarez admitted that she had no participation in
the preparation of the documents (Exhs. A to G) submitted to her, and that
she had based her recommendation to pay GMCs claim on said documents.
She also admitted that she did not do anything to verify the genuineness of
Bill of Lading BEDI/1(Exh. B) and Commercial Invoice No. 1401 (Exh. C). She
said that GMC had been paid 20% more than its alleged
loss.5cräläwvirtualibräry
Alfredo Cunanan, senior cargo surveyor of Tan-Gatue declared that he
conducted in March 1990 a survey of the shipment on board M/V Gao
Yang at GMCs warehouse at Tabangao, Batangas. Cunanan was present
during the unloading of the shipment. He saw the cargo discharged from the
vessel by the use of a suction device, wherein the cargo passed into a
conveyor and weighed unto GMCs automatic scale. The quantity recorded on
GMCs scale was thereafter compared with that indicated in the bill of lading.
At that point a shortage was discovered. The survey report prepared by
Cunanan stated in pertinent part:
RECAPITULATION
1) Shipment Per Stowage Plan - 4,417.000 M/Tons
Outturn Per Consignees
Scale - 4,121.318 M/Tons
Shortage - 295.682 M/Tons
2) Shipment Per Bill of Lading - 4,415.350 M/Tons
Outturn Per Consignees
Scale - 4,121.318 M/Tons
Shortage - 294.032 M/Tons6cräläwvirtualibräry
On cross-examination, Cunanan testified that no cargo was left on the
M/V Gao Yang after the discharging process. He admitted that his basis for
determining the weight of the shipment prior to unloading was the
Certificate of Weight (Exh. F-3) furnished by GMC, as to which preparation he
did not participate. He further explained that, as per the Certificate of
Weight, the cargo had been packed in bags at the port of origin. The bags
were then conveyed to midstream in barges alongside the vessel and hauled
up onto the steamer. The bags were later cut open at their mouths and the
contents emptied onto the ships storage areas, specifically Hatch Nos. One
Lower Hold, One Tween Deck, Five Lower Hold, Five Tween Deck, Two Tween
Deck, and Four Tween Deck.7 He also admitted that the lack of a draft survey
due to the absence of a surveyor appointed by Wallem was based merely on
information gathered from one of his surveyors.
In the course of the discharging and weighing operations, one of Tan-Gatues
assigned surveyors registered a protest as there were blurred notations on
GMCs weighing scale. They found that the scale had not been properly
calibrated and that it showed a discrepancy of approximately 130 metric
tons. Upon recommendation of Tan-Gatue, a reweighing was done on April
26, 1990 with the use of another scale. Wallems representative was not
notified of this reweighing, which was made by loading the cargo on the
truck for delivery to consignees receivers. Reloading on the trucks was also
made through the use of a suction tube. An alleged shortage of 164.4 metric
tons was found, which was significantly lower than the shortage stated in the
recapitulation above.8cräläwvirtualibräry
Part of Cunanans report contained an opinion stating that the shortage may
be attributed to the spillage incurred during the transit and loading of the
shipment to the vessel at the port of origin for the following reasons: (1) the
said shipment was originally packed in bags prior to loading to carrier vessel;
(2) the weighing of the said shipment made prior to its loading to the carrier
vessel became the basis of the quantity stated in the bill of lading; and (3) the
bagged shipment, after weighing over the weighbridge scale, was conveyed
to midstream in barges alongside the vessel and hauled up onto the steamer,
after which the mouths of the bags were cut open and the contents emptied
into ship hatches.9cräläwvirtualibräry
After weighing in Batangas, the bagged shipment was delivered to GMCs
warehouse in Bo. Ugong, Pasig, Metro Manila, and to Filstream and Universal
Robina Corp., as direct receivers of GMC.10 Because of the shortage, GMC
filed a claim against Prudential, being its insurer.
For its part, petitioner Wallem, as defendant below, presented three
witnesses: Romualdo De Belen, manager of its documentations department,
Rio Puriran, marine cargo surveyor of Oceanica Cargo Marine Surveyor
(Oceanica), and Edilberto Mendoza, Wallems operations manager.
Romualdo De Belen testified that he was the claims supervisor for Wallem
from January 1991 to August 1991. As such, he was tasked to gather all
documents of a claim and to submit them to the Protective and Indemnity
Club (P&I), which in turn handles all claims pertaining to a vessel which is a
member thereof. In connection with the claim subject matter of this case, De
Belen collected the pertinent documents, like the bill of lading (Exh. 1), the
general statement of facts (Exhs. 2 and 2-A), the survey certificate (Exhs. 3
and 3-A), and the inward foreign manifest (Exh. 4).11cräläwvirtualibräry
After his investigation, he found that the weight stated in the bill of lading
was less than what was actually discharged. The bill of lading stated that the
weight of the cargo was 4,415 metric tons, but the actual weight discharged
was 4,418 metric tons. The overage was based on the bill of lading, which
contained the weight as declared by the shipper, and the survey certificate,
which contained the weight of the total cargo discharged representing the
difference between the initial and final displacement of the
vessel.12cräläwvirtualibräry
De Belen noted that the bulk cargo declared in the bill of lading was said to
weigh 4,415.35 metric tons. He explained that the phrase said to weigh
means that nobody really knows the actual weight of the cargo; the weight
of the cargo written on the bill of lading and on the manifest being based
only on the declaration of the shipper.13cräläwvirtualibräry
On cross-examination, De Belen admitted that he collected the documents
respecting GMCs claim only upon receipt of the summons in this case. He
also stated that he based his finding of overage on the survey certificate (Exh.
3).14cräläwvirtualibräry
Rio Puriran, an employee of Oceanica, described the procedure in preparing
the draft survey which would become the basis for the survey certificate. He
testified that the draft mark is taken and the known cargo weight is sounded
so that the displacement of the ship may be computed and the weight of the
cargo unloaded known. He identified the signatures of Cornelio Damaso,
Oceanicas operations manager, and Arnel Plaza, the surveyor assigned to the
vessel on the survey certificate (Exh. 3-A). On cross-examination, he admitted
that he had no participation in conducting the survey covered by the survey
certificate marked as Exhibits 3 to 3-A.15cräläwvirtualibräry
Edilberto Mendoza, Wallems operations manager, declared that a
representative was sent to oversee the discharging of its cargo when the
M/V Gao Yang arrived in Batangas. He tendered a Notice of Readiness (Exh.
6) to GMC and assigned Oceanica to conduct a draft survey and issue a
survey certificate (Exhs. 3 to 3-B). The unloading of the cargo was undertaken
by GMC per the free out notation on the bill of lading (Exh. 1-A). Mendoza
stated that free out means that the vessel is free from any expenses and
discharging operations for the cargo. It is the cargo receiver who has the
responsibility to get their cargo. After discharge of the cargo, Wallems
representative prepared a general statement of facts (Exhs. 5 and 5-
A).16cräläwvirtualibräry
On cross-examination, Mendoza admitted that he was not present when the
cargo was discharged from the vessel and that he had no participation in the
preparation of the general statement of facts (Exhs. 5 to 5-A) and the notice
of readiness (Exh. 6).17cräläwvirtualibräry
The trial court resolved whether there was indeed a shortage in the
shipment and whether Wallem could be held liable for the shortage. 18 The
trial court ruled that private respondent Prudential failed to prove by clear,
convincing, and competent evidence that there was a shortage in the
shipment. The trial court said that private respondent Prudential failed to
establish by competent evidence the genuineness and due execution of the
bill of lading and, therefore, the true and exact weight of the shipment when
it was loaded unto the vessel. Hence, there was no way by which a shortage
could be determined. The trial court ruled that the shortage, if any, could
only have been incurred either before the loading of the shipment, as stated
in the final report (Exhs. G to G-8), or after the unloading of the shipment
from the vessel, the latter instance being admitted by Prudentials own
witness, Mr. Alfredo Cunanan. Accordingly, the trial court dismissed both the
complaint and the counterclaim.
On appeal, the Court of Appeals reversed. The dispositive portion of its
decision reads:
WHEREFORE, judgment is hereby rendered REVERSING the appealed
decision. A new one is entered ordering defendants-
appellees Wallem and Seacoast to pay, jointly and severally, plaintiff-
appellant Prudential the amount of P796,541.672, plus 6% interest from April
17, 1991, date of filing of the complaint, until fully paid, plus costs of the suit.
SO ORDERED.19cräläwvirtualibräry
The Court of Appeals ruled that the bill of lading was prima facie evidence of
the goods therein described, both notations said to contain and weight
unknown on the bill of lading being inapplicable to shipments in bulk.
Contrary to the opinion of the trial court, it was ruled by the appeals court
that losses were incurred during the loading operations, and that these
losses were the liability of the carrier. Finally, the Court of Appeals held that
the principle of indemnity is violated if the insured is paid a benefit more
than the loss incurred in the light of the admission of a 20% mark-up on the
indemnity paid to GMC.
Petitioner Wallem moved for reconsideration, but its motion was
denied.20 Hence, this appeal.
Petitioner contends that the Court of Appeals erred-
I WHEN IT HELD THAT THE QUANTITY OF THE CARGO REFLECTED IN THE BILL
OF LADING IS CONCLUSIVE AS TO THE ACTUAL CARGO OF THE CONSIGNEE
NOTWITHSTANDING THE FACT THAT SAID CARGO WAS SHIPPED ON A SAID
TO WEIGH BASIS. SAID DECISION IS CONTRARY TO ESTABLISHED PRINCIPLES
IN MARITIME LAW AND SEC. 11 OF THE CARRIAGE OF GOODS BY SEAS ACT
WHERE IT IS STATED THAT:
When under the custom of any trade the weight of
any bulk cargo inserted in the bill of lading is a weight
ascertained or accepted by a third party other than the
carrier or the shipper and the fact that the weight as
ascertained or accepted is stated in the bill of lading,
then notwithstanding anything in this Act, the bill of
lading shall not be deemed prima facie evidence
against the carrier of the receipt of goods of the weight
so inserted in the bill of lading, and the accuracy
 thereof at the time of shipment shall not be deemed to
have been guaranteed by the shipper.
I.A IN DISREGARDING THE WELL ESTABLISHED PRINCIPLE IN ADMIRALTY LAW
THAT THE BURDEN OF PROOF RESTS ON THE PLAINTIFF THAT THE WEIGHT
OR QUANTITY ALLEGED HAD IN FACT BEEN SHIPPED, OTHERWISE, THE
DEFENDANT IS UNDER NO OBLIGATION TO PROVE HIS EXCEPTION OR
DEFENSE AS HELD IN THE CASE OF BELEN VS. BELEN, 13 PHIL. 202.
I.B IN RULING THAT THE PRINCIPLE ON PRESUMED NEGLIGENCE IS
APPLICABLE IN THIS CASE CONSIDERING THAT THE FACT OF SHORTAGE WAS
NEVER DULY PROVEN. AS HELD IN PLANTERS PRODUCTS, INC. VS. CA, 226
SCRA 476, IT IS ONLY AFTER THE SHIPPER HAS ESTABLISHED LOSS OF CARGO
WHILE IN THE CUSTODY OF THE VESSEL WILL THE BURDEN OF PROOF SHIFT
TO THE COMMON CARRIER FOR IT TO PROVE THAT IT HAS EXERCISED
EXTRAORDINARY DILIGENCE IN THE TRANSPORTATION OF GOODS OR THAT
THE LOSS WAS UNDER THE EXCEPTIONS PROVIDED BY LAW.
II. IN RULING THAT THE SHORTAGE WAS ATTRIBUTABLE TO THE FAULT OF
HEREIN PETITIONER CONTRARY TO THE EVIDENCE PRESENTED WHICH WAS
MADE AS BASIS FOR THE TRIAL COURTS DECISION. MOREOVER, THE
HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT STATED THAT
THERE WAS NO LOSS THAT OCCURRED DURING THE DISCHARGING
OPERATIONS. AS CORRECTLY POINTED OUT BY THE TRIAL COURT IN ITS
DECISION, THE SHORTAGE, IF ANY, WAS OCCASIONED DURING THE
DISCHARGING OPERATIONS CITING AS BASIS HEREIN RESPONDENTS OWN
WITNESS.
III. IN GRANTING RELIEF TO RESPONDENT-INSURER WHEN THE LATTER
FAILED TO ESTABLISH HIS RIGHT OF ACTION AGAINST HEREIN PETITIONER
THROUGH CONVINCING AND COMPETENT EVIDENCE AS THE ORIGINAL OF
THE INSURANCE POLICY WAS NEVER PRESENTED IN COURT. SAID RULING
RUNS COUNTER TO THE CASE OF HOME INSURANCE CORPORATION VS. CA,
225 SCRA 411 WHERE THIS HONORABLE COURT HELD THAT:
The insurance contract has not been presented. It may
be assumed for the sake of argument that the
subrogation receipt may nevertheless be used to
establish the relationship between the petitioner and
the consignee and the amount paid to settle the claim.
But that is all the document can do. By itself alone, the
subrogation receipt is not sufficient to prove the
petitioners claim x x x
It is curious that the petitioner disregarded this rule,
knowing that the best evidence of the insurance
contract was its original copy, which was presumably in
the possession of Home itself. Failure to present this
original (or even a copy of it), for reasons the Court
cannot comprehend, must prove fatal to this petition.
We find petitioners contentions to be meritorious.
First. Although this Courts jurisdiction in a petition for review on certiorari
under Rule 45 of the 1997 Rules of Civil Procedure is limited to the review of
errors of law, we are constrained to review the evidence in view of the
conflicting findings of fact made by the trial court and the appellate
court.21cräläwvirtualibräry
The trial court held that private respondent Prudential failed to prove by
clear, convincing, and competent evidence that there was a shortage in the
shipment. Hence, petitioner Wallem could not be held liable for the
indemnity paid by Prudential to GMC. Prudentials own witnesses admitted
that they had no participation in the preparation of the documents upon
which they base their claim. They even testified that the loss, if indeed there
was any, might have been due to the loading process or by the unloading
operations conducted by GMC. However, the Court of Appeals ruled that on
the basis of the weight stated on the bill of lading, there was indeed a
shortage, and held that the loss was caused in the loading process alone.
We find that the Court of Appeals erred in finding that a shortage had taken
place. Josephine Suarez, Prudentials claims processor, merely identified the
papers submitted to her in connection with GMCs claim (Bill of Lading BEDI/1
(Exh. B), Commercial Invoice No. 1401 issued by Toepfer International Asia
Pte, Ltd. (Exh. C), SGS Certificate of Quality (Exh. F-1), and SGS Certificate of
Weight (Exh. F-3)). Ms. Suarez had no personal knowledge of the contents of
the said documents and could only surmise as to the actual weight of the
cargo loaded on M/V Gao Yang. She admitted that she had no participation
in the preparation of the papers upon which Prudential based its cause of
action against Wallem.
ATTY. DEL ROSARIO ON CROSS-EXAMINATION
Q Miss Witness, I would like to refer you to Exhibits A, B, C, will you please
tell us Madam Witness, if you have any participation in the preparation of
these documents?
A No sir.
Q How about Exhibits E, G, and F, did you have any participation in the
preparation of these documents?
A No sir.
Q And in fact these documents were just given to you, is that correct?
A Yes sir.
Q And based on these documents, you made a recommendation for the
payment of the claim of your assured, is that correct?
A Yes sir.22cräläwvirtualibräry
Ms. Suarezs testimony regarding the contents of the documents is thus
hearsay, based as it is on the knowledge of another person not presented on
the witness stand.23
Nor has the genuineness and due execution of these documents been
established. In the absence of clear, convincing, and competent evidence to
prove that the shipment indeed weighed 4,415.35 metric tons at the port of
origin when it was loaded on the M/V Gao Yang, it cannot be determined
whether there was a shortage of the shipment upon its arrival in Batangas.
Second. The Court of Appeals erred in ruling that the contents of the bill of
lading cannot be controverted by evidence to the contrary because it was
prima facie evidence of the goods therein described. Wallems evidence casts
doubt on the veracity of the documents upon which Prudential bases its
claim. As the Private and Confidential Final Report, dated October 12, 1990
(Exhs. G to G-8), stated:
[W]e are of the opinion that [the] shortage may be attributed to the spillage
incurred during the transit/loading of the shipment to the vessel at the Port
of Origin for the following reasons:
1. The said shipment was originally packed in bags prior
to loading to carrier vessel.
2. The weighing was made prior to loading to carrier
vessel which is the basis of the Bill of Lading
quantity.
3. The bag[ged] shipment, after weighing over [the]
weighbridge scale, [was] conveyed to
midstream alongside vessel in barges,
hauled up on the [steamer], cut open the
mouth[s] of the bags and [the] contents
 emptied into ship
hatches.24cräläwvirtualibräry
There could have been no spillage while the shipment was on board the
vessel because, according to Prudentials witness Cunanan, the hatches were
closed.25 Moreover, it was shown that, after the shipment was unloaded from
the vessel, it was weighed with the use of GMCs weighing scale, which was
later found to be defective. Cunanan stated in his report:
During the course of discharging/weighing operation, we noted some minor
discrepancy on the weighing scale, hence, we registered our protest.
We suggest to the assured to conduct another reweighing to determine the
correct quantity of the soyabean meal unloaded from the
vessel.26cräläwvirtualibräry
Cunanan later testified:
Q And based on this blurred notations, you presumed that there was
something wrong in the weighing scale, is that correct?
A It is a minor discrepancy sir, on the weighing scale.
Q And by minor discrepancy, you are actually referring to about 130.000
metric tons discrepancy?
A 130 metric tons discrepancy, more or less.
....
Q And how was the reweighing made Mr. Cunanan?
A The reweighing was made by truck because the cargo was unloaded from
the vessel, and it was stored in the big storage, storage of the consignee.
Now, after hearing our protest, that there are some minor discrepancy on
the weighing scale, we suggest for a reweighing.
The reweighing was made by loading this cargo on board the truck for
delivery to their receivers or to the consignees in Manila.
....
Q In the conveyors, did you see any spillages, on the sides, as far as these
cargoes are concerned?
A There were sir, but they were also removed and weighed.
Q And these spillages were also accumulated and made part of the cargo?
A Thats correct sir.
....
Q During the reweighing procedure, during loading to trucks, these trucks
were open?
A Yes sir, they were open.
Q And the tarpaulin placed only after the trucks are full?
A Thats correct, sir.27cräläwvirtualibräry
Indeed, it is likely that there was again spillage of the shipment when it was
reweighed after its unloading in the same manner that there was spillage
when the shipment was unloaded from the vessel. It should also be noted
that the reweighing was conducted only on April 26, 1990, five days after the
shipment was put in the storage of the consignee.
Indeed, as the bill of lading indicated that the contract of carriage was under
a said to weigh clause, the shipper is solely responsible for the loading while
the carrier is oblivious of the contents of the shipment.28cräläwvirtualibräry
Third. Even if the shortage can be definitively determined, Wallem still
cannot be held liable because of the failure of Prudential to present the
contract of insurance or a copy thereof. Prudential claims that it is
subrogated to the rights of GMC pursuant to their insurance contract. For
this purpose, it submitted a subrogation receipt (Exh. J) and a marine cargo
risk note (Exh. D). However, as the trial court pointed out, this is not
sufficient. As GMCs subrogee, Prudential can exercise only those rights
granted to GMC under the insurance contract. The contract of insurance
must be presented in evidence to indicate the extent of its coverage. As
there was no determination of rights under the insurance contract, this
Courts ruling in Home Insurance Corporation v. Court of Appeals 29 is
applicable:
The insurance contract has not been presented. It may be assumed for the
sake of argument that the subrogation receipt may nevertheless be used to
establish the relationship between the petitioner [Home Insurance
Corporation] and the consignee [Nestl Phil.] and the amount paid to settle
the claim. But that is all the document can do. By itself alone, the
subrogation receipt is not sufficient to prove the petitioners claim holding
the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the
engine.
....
It is curious that the petitioner disregarded this rule, knowing that the best
evidence of the insurance contract was its original copy, which was
presumably in the possession of Home itself. Failure to present this original
(or even a copy of it), for reasons the Court cannot comprehend, must prove
fatal to this petition.
WHEREFORE, the decision and resolution of the Court of Appeals is
REVERSED and the decision of the Regional Trial Court, Branch 134, Makati
City, dismissing the complaint and the counterclaim, is REINSTATED. No
pronouncement as to costs.
SO ORDERED.
SECOND DIVISION the damaged cargo once such damage had been ascertained.The letter
reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
[G.R. NO. 147724 : June 8, 2004]
Please be advised that the merchandise herein below noted has been landed
in bad order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at
LORENZO SHIPPING CORP., Petitioner, v. CHUBB and SONS, Inc., GEARBULK,
the port of Davao City on December 2, 1987.
Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC., Respondents.

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

On appeal is the Court of Appeals August 14, 2000 Decision 1 in CA-G.R. CV
No. 61334 and March 28, 2001 Resolution 2 affirming the March 19, 1998
Decision3 of the Regional Trial Court of Manila which found petitioner liable
to pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit.
Please find herewith a copy of the survey report which we had arranged for
after unloading of our cargo from your vessel in Davao.
We trust that you shall make everything in order.

Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a

On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California,
domestic corporation engaged in coastwise shipping, was the carrier of 581
U.S.A., where it unloaded 364 bundles of the subject steel pipes.It then sailed
bundles of black steel pipes, the subject shipment, from Manila to Davao
to Vancouver, Washington on January 23, 1988 where it unloaded the
City.From Davao City, respondent Gearbulk, Ltd., a foreign corporation
remaining 217 bundles.Toplis and Harding, Inc. of San Franciso, California,
licensed as a common carrier under the laws of Norway and doing business
surveyed the steel pipes, and also discovered the latter heavily rusted.When
in the Philippines through its agent, respondent Philippine Transmarine
the steel pipes were tested with a silver nitrate solution, Toplis and Harding
Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation,
found that they had come in contact with salt water.The survey
carried the goods on board its vessel M/V San Mateo Victory to the United
report,13 dated January 28, 1988 states:
States, for the account of Sumitomo Corporation.The latter, the consignee, is
a foreign corporation organized under the laws of the United States of
America.It insured the shipment with respondent Chubb and Sons, Inc., a xxx
foreign corporation organized and licensed to engage in insurance business
under the laws of the United States of America.
We entered the hold for a close examination of the pipe, which revealed
moderate to heavy amounts of patchy and streaked dark red/orange rust on
The facts are as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ all lifts which were visible.Samples of the shipment were tested with a
solution of silver nitrate revealing both positive and occasional negative
chloride reactions, indicating pipe had come in contact with salt water.In
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila,
addition, all tension applied metal straps were very heavily rusted, and also
loaded 581 bundles of ERW black steel pipes worth US$137,912.844 on board
exhibited chloride reactions on testing with silver nitrate.
the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for
shipment to Davao City.Petitioner Lorenzo Shipping issued a clean bill of
lading designated as Bill of Lading No. T-3 5 for the account of the consignee, xxx
Sumitomo Corporation of San Francisco, California, USA, which in turn,
insured the goods with respondent Chubb and Sons, Inc.6 ςrνll
It should be noted that subject bills of lading bore the following remarks as to
conditions of goods:ALL UNITS HEAVILY RUSTED. Attached herein is a copy of
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, a survey report issued by Del Pan Surveyors of Davao City, Philippines dated,
1987.Respondent Transmarine Carriers received the subject shipment which December 4, 1987 at Davao City, Philippines, which describes conditions of
was discharged on December 4, 1987, evidenced by Delivery Cargo Receipt the cargo as sighted aboard the vessel LORCON IV, prior to and subsequent
No. 115090.7 It discovered seawater in the hatch of M/V Lorcon IV, and to discharge at Davao City.Evidently, the aforementioned rust damages were
found the steel pipes submerged in it.The consignee Sumitomo then hired apparently sustained while the shipment was in the custody of the vessel
the services of R.J. Del Pan Surveyors to inspect the shipment prior to and LORCON IV, prior to being laden on board the vessel SAN MATEO VICTORY in
subsequent to discharge.Del Pans Survey Report8 dated December 4, 1987 Davao.
showed that the subject shipment was no longer in good condition, as in fact,
the pipes were found with rust formation on top and/or at the
Due to its heavily rusted condition, the consignee Sumitomo rejected the
sides.Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV
damaged steel pipes and declared them unfit for the purpose they were
was flooded with seawater, and the tank top was rusty, thinning, and with
intended.14 It then filed a marine insurance claim with respondent Chubb and
several holes at different places.The rusty condition of the cargo was noted
Sons, Inc. which the latter settled in the amount of US$104,151.00.15 ςrνll
on the mates receipts and the checker of M/V Lorcon IV signed
his conforme thereon.9 ςrνll
On December 2, 1988, respondent Chubb and Sons, Inc. filed a
complaint16 for collection of a sum of money, docketed as Civil Case No. 88-
After the survey, respondent Gearbulk loaded the shipment on board its
47096, against respondents Lorenzo Shipping, Gearbulk, and
vessel M/V San Mateo Victory, for carriage to the United States.It issued Bills
Transmarine.Respondent Chubb and Sons, Inc. alleged that it is not doing
of Lading Nos. DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be
business in the Philippines, and that it is suing under an isolated transaction.
discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to
6,11 covering 217 bundles of steel pipes to be discharged at Vancouver,
Washington, U.S.A.All bills of lading were marked ALL UNITS HEAVILY
RUSTED.

While the cargo was in transit from Davao City to the U.S.A., consignee
Sumitomo sent a letter12 of intent dated December 7, 1987, to petitioner
Lorenzo Shipping, which the latter received on December 9, 1987.Sumitomo
informed petitioner Lorenzo Shipping that it will be filing a claim based on
On February 21, 1989, respondents Gearbulk and Transmarine filed their
answer17 with counterclaim and cross-claim against petitioner Lorenzo
Shipping denying liability on the following grounds:(a) respondent Chubb and
Sons, Inc. has no capacity to sue before Philippine courts; (b) the action
should be dismissed on the ground of forum non conveniens; (c) damage to
the steel pipes was due to the inherent nature of the goods or to the
insufficiency of packing thereof; (d) damage to the steel pipes was not due to
their fault or negligence; and, (e) the law of the country of destination,
U.S.A., governs the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February
28, 1989, and amended it on May 24, 1989.It denied liability, alleging, among
others: (a) that rust easily forms on steel by mere exposure to air, moisture
and other marine elements; (b) that it made a disclaimer in the bill of lading;
(c) that the goods were improperly packed; and, (d) prescription, laches, and
extinguishment of obligations and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons,
Inc., finding that: (1) respondent Chubb and Sons, Inc. has the right to
institute this action; and, (2) petitioner Lorenzo Shipping was negligent in the
performance of its obligations as a carrier.The dispositive portion of its
Decision states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo
Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its
equivalent in Philippine peso at the current rate of exchange with interest
thereon at the legal rate from the date of the institution of this case until
fully paid, the attorneys fees in the sum of P50,000.00, plus the costs of the
suit, and dismissing the plaintiffs complaint against defendants Gearbulk, Ltd.
and Philippine Transmarine Carriers, Inc., for lack of merit, and the two
defendants counterclaim, there being no showing that the plaintiff had filed
this case against said defendants in bad faith, as well as the two defendants
cross-claim against Defendant Lorenzo Shipping Corporation, for lack of
factual basis.18 ςrνll
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that:
(a) respondent Chubb and Sons does not have capacity to sue before
Philippine courts; and, (b) petitioner Lorenzo Shipping was not negligent in
the performance of its obligations as carrier of the goods.The appellate court
denied the petition and affirmed the decision of the trial court.
The Court of Appeals likewise denied petitioner Lorenzo Shippings Motion for
Reconsideration19 dated September 3, 2000, in a Resolution20 promulgated
on March 28, 2001.
Hence, this petition.Petitioner Lorenzo Shipping submits the following issues
for resolution:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(1) Whether or not the prohibition provided under Art. 133 of the
Corporation Code applies to respondent Chubb, it being a mere subrogee or
assignee of the rights of Sumitomo Corporation, likewise a foreign
corporation admittedly doing business in the Philippines without a
license;chanroblesvirtuallawlibrary
(2) Whether or not Sumitomo, Chubbs predecessor-in-interest, validly made
a claim for damages against Lorenzo Shipping within the period prescribed by
the Code of Commerce;chanroblesvirtuallawlibrary
(3) Whether or not a delivery cargo receipt without a notation on it of
damages or defects in the shipment, which created a prima
facie presumption that the carrier received the shipment in good condition,
has been overcome by convincing evidence;chanroblesvirtuallawlibrary
(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting
the steel pipes, whether or not Gearbulk and Transmarine, as common
carriers, are to share liability for their separate negligence in handling the
cargo.21 ςrνll
In brief, we resolve the following issues:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
(1) whether respondent Chubb and Sons has capacity to sue before the
Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject
cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation
not licensed to do business in the Philippines, and is not suing on an isolated
transaction.It contends that because the respondent Chubb and Sons is an
insurance company, it was merely subrogated to the rights of its insured, the
consignee Sumitomo, after paying the latters policy claim.Sumitomo,
however, is a foreign corporation doing business in the Philippines without a
license and does not have capacity to sue before Philippine courts.Since
Sumitomo does not have capacity to sue, petitioner then concludes that,
neither the subrogee-respondent Chubb and Sons could sue before
Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a
foreign corporation doing business in the Philippines without a license.It is
therefore estopped from litigating the issue on appeal especially because it
involves a question of fact which this Court cannot resolve.Secondly,
assuming arguendo that Sumitomo cannot sue in the Philippines, it does not
follow that respondent, as subrogee, has also no capacity to sue in our
jurisdiction.
Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or
securities.22 The principle covers the situation under which an insurer that
has paid a loss under an insurance policy is entitled to all the rights and
remedies belonging to the insured against a third party with respect to any
loss covered by the policy.23 It contemplates full substitution such that it
places the party subrogated in the shoes of the creditor, and he may use all
means which the creditor could employ to enforce payment.24
The rights to which the subrogee succeeds are the same as, but not greater
than, those of the person for whom he is substituted he cannot acquire any
claim, security, or remedy the subrogor did not have.25 In other words, a
subrogee cannot succeed to a right not possessed by the subrogor.26 A
subrogee in effect steps into the shoes of the insured and can recover only if
insured likewise could have recovered. ςrνll
However, when the insurer succeeds to the rights of the insured, he does so
only in relation to the debt.The person substituted (the insurer) will succeed
to all the rights of the creditor (the insured), having reference to the debt
due the latter.27 In the instant case, the rights inherited by the
insurer,respondent Chubb and Sons, pertain only to the payment it made to
the insured Sumitomo as stipulated in the insurance contract between them,
and which amount it now seeks to recover from petitioner Lorenzo Shipping
which caused the loss sustained by the insured Sumitomo.The capacity to
sue of respondent Chubb and Sons could not perchance belong to the group
of rights, remedies or securities pertaining to the payment respondent
insurer made for the loss which was sustained by the insured Sumitomo and
covered by the contract of insurance.Capacity to sue is a right personal to its
holder.It is conferred by law and not by the parties. Lack of legal capacity to
sue means that the plaintiff is not in the exercise of his civil rights, or does
not have the necessary qualification to appear in the case, or does not have
the character or representation he claims.It refers to a plaintiffs general
disability to sue, such as on account of minority, insanity, incompetence, lack
of juridical personality, or any other disqualifications of a party.28 Respondent
Chubb and Sons who was plaintiff in the trial court does not possess any of
these disabilities.On the contrary, respondent Chubb and Sons has
satisfactorily proven its capacity to sue, after having shown that it is not
doing business in the Philippines, but is suing only under an isolated
transaction, i.e., under the one (1) marine insurance policy issued in favor of
the consignee Sumitomo covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which are
doing business in the Philippines without a license from bringing or
maintaining actions before, or intervening in Philippine courts.Art. 133 of the
Corporation Code states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Doing business without a license. No foreign corporation transacting business
in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may
be sued or proceeded against before Philippine courts or administrative
tribunals on any valid cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single acts of
business.A foreign corporation needs no license to sue before Philippine
courts on an isolated transaction.29 As held by this Court in the case
of Marshall-Wells Company v. Elser & Company:30 ςrνll
The object of the statute (Secs. 68 and 69, Corporation Law) was not to
prevent the foreign corporation from performing single acts, but to prevent it
from acquiring a domicile for the purpose of business without taking the
steps necessary to render it amenable to suit in the local courts. .. the
implication of the law (being) that it was never the purpose of the legislature
to exclude a foreign corporation which happens to obtain an isolated order
for business for the Philippines, from seeking redress in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. v. Intermediate
Appellate Court31 that:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
.. . The private respondent may sue in the Philippine courts upon the marine
insurance policies issued by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this
country, for it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without such license, which bars a foreign
corporation from access to our courts.
We reject the claim of petitioner Lorenzo Shipping that respondent Chubb
and Sons is not suing under an isolated transaction because the steel pipes,
subject of this case, are covered by two (2) bills of lading; hence, two
transactions.The stubborn fact remains that these two (2) bills of lading
spawned from the single marine insurance policy that respondent Chubb and
Sons issued in favor of the consignee Sumitomo, covering the damaged steel
pipes.The execution of the policy is a single act, an isolated transaction.This
Court has not construed the term isolated transaction to literally mean one
or a mere single act.In Eriks Pte. Ltd. v. Court of Appeals, this Court held
that:32 ςrνll
.. . What is determinative of "doing business" is not really the number or the
quantity of the transactions, but more importantly, the intention of an entity
to continue the body of its business in the country. The number and quantity
are merely evidence of such intention. The phrase "isolated transaction" has
a definite and fixed meaning, i.e. a transaction or series of transactions set
apart from the common business of a foreign enterprise in the sense that
there is no intention to engage in a progressive pursuit of the purpose and
object of the business organization. Whether a foreign corporation is "doing
business" does not necessarily depend upon the frequency of its
transactions, but more upon the nature and character of the transactions.
[Emphasis supplied.]
In the case of Gonzales v. Raquiza, et al., 33 three contracts, hence three
transactions were challenged as void on the ground that the three American
corporations which are parties to the contracts are not licensed to do
business in the Philippines.This Court held that one single or isolated
business transaction does not constitute doing business within the meaning
of the law.Transactions which are occasional, incidental, and casual not of a
character to indicate a purpose to engage in business do not constitute the
doing or engaging in business as contemplated by law. Where the three
transactions indicate no intent by the foreign corporation to engage in a
continuity of transactions, they do not constitute doing business in the
Philippines.
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of
subrogation provided for in the policy of insurance,34 is the real party in
interest in the action for damages before the court a quo against the carrier
Lorenzo Shipping to recover for the loss sustained by its insured.Rule 3,
Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest
as one who is entitled to the avails of any judgment rendered in a suit, or
who stands to be benefited or injured by it.Where an insurance company as
subrogee pays the insured of the entire loss it suffered, the insurer-subrogee
is the only real party in interest and must sue in its own name 35 to enforce its
right of subrogation against the third party which caused the loss.This is
because the insurer in such case having fully compensated its insured, which
payment covers the loss in full, is subrogated to the insureds claims arising
from such loss.The subrogated insurer becomes the owner of the claim and,
thus entitled to the entire fruits of the action.36 It then, thus possesses the
right to enforce the claim and the significant interest in the litigation.37 In the
case at bar, it is clear that respondent insurer was suing on its own behalf in
order to enforce its right of subrogation.
On the second issue, we affirm the findings of the lower courts that
petitioner Lorenzo Shipping was negligent in its care and custody of the
consignees goods.
The steel pipes, subject of this case, were in good condition when they were
loaded at the port of origin (Manila) on board petitioner Lorenzo Shippings
M/V Lorcon IV en route to Davao City.Petitioner Lorenzo Shipping issued
clean bills of lading covering the subject shipment.A bill of lading, aside from
being a contract38 and a receipt,39 is also a symbol40 of the goods covered by
it.A bill of lading which has no notation of any defect or damage in the goods
is called a clean bill of lading. 41 A clean bill of lading constitutes prima
facie evidence of the receipt by the carrier of the goods as therein
described.42 ςrνll
The case law teaches us that mere proof of delivery of goods in good order to
a carrier and the subsequent arrival in damaged condition at the place of
destination raises a prima facie case against the carrier.43 In the case at bar,
M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good
order and condition, evidenced by the clean bills of lading it issued.When the
cargo was unloaded from petitioner Lorenzo Shippings vessel at the Sasa
Wharf in Davao City, the steel pipes were rusted all over.M/V San Mateo
Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of
Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the entire
shipment, all of which were marked ALL UNITS HEAVILY RUSTED.R.J. Del Pan
Surveyors found that the cargo hold of the M/V Lorcon IV was flooded with
seawater, and the tank top was rusty, thinning and perforated, thereby
exposing the cargo to sea water.There can be no other conclusion than that
the cargo was damaged while on board the vessel of petitioner Lorenzo
Shipping, and that the damage was due to the latters negligence.In the case
at bar, not only did the legal presumption of negligence attach to petitioner
Lorenzo Shipping upon the occurrence of damage to the cargo.44 More so,
the negligence of petitioner was sufficiently established.Petitioner Lorenzo
Shipping failed to keep its vessel in seaworthy condition.R.J. Del Pan
Surveyors found the tank top of M/V Lorcon IV to be rusty, thinning, and with
several holes at different places.Witness Captain Pablo Fernan, Operations
Manager of respondent Transmarine Carriers, likewise observed the
presence of holes at the deck of M/V Lorcon IV.45 The unpatched holes
allowed seawater, reaching up to three (3) inches deep, to enter the flooring
of the hatch of the vessel where the steel pipes were stowed, submerging
the latter in sea water.46 The contact with sea water caused the steel pipes to
rust.The silver nitrate test, which Toplis and Harding employed, further
verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not
even attempt to present any contrary evidence.Neither did it offer any proof
to establish any of the causes that would exempt it from liability for such
damage.48 It merely alleged that the:(1) packaging of the goods was
defective; and (2) claim for damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior
condition.John M. Graff, marine surveyor of Toplis and Harding, examined
the condition of the cargo on board the vessel San Mateo Victory.He testified
that the shipment had superior packing because the ends were covered with
plastic, woven plastic.Whereas typically they would not go to that bother.
..Typically, they come in with no plastic on the ends.They might just be
banded, no plastic on the ends. ..49 ςrνll
On the issue of prescription of respondent Chubb and Sons claim for
damages, we rule that it has not yet prescribed at the time it was made.

Art. 366 of the Code of Commerce states:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

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

After the periods mentioned have elapsed, or transportation charges have

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

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

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

(Ref. Art. 366 C Com.)

The twenty-four-hour period prescribed by Art. 366 of the Code of

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

Finally, we find no merit to the contention of respondents Gearbulk and

Transmarine that American law governs the contract of carriage because the
U.S.A. is the country of destination.Petitioner Lorenzo Shipping, through its
M/V Lorcon IV, carried the goods from Manila to Davao City.Thus, as against
petitioner Lorenzo Shipping, the place of destination is Davao City.Hence,
Philippine law applies.

IN VIEW THEREOF, the petition is DENIED.The Decision of the Court of

Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution
dated March 28, 2001 are hereby AFFIRMED.Costs against petitioner.

SO ORDERED.
G.R. No. 185565               November 26, 2014
LOADSTAR SHIPPING COMPANY, INCORPORATED and LOADSTAR
INTERNATIONAL SHIPPING COMPANY, INCORPORATED, Petitioners,
vs.
MALAYAN INSURANCE COMPANY, INCORPORATED, Respondent.
DECISION
REYES, J.:
This is a Petition for Review on Certiorari1 filed by Loadstai Shipping
Company, Incorporated and Loadstar International Shipping Company,
Incorporated (petitioners) against Malayan Insurance Company, Incorporated
(Malayan) seeking to set aside the Decision2 dated April 14, 2008 and
Resolution3 dated December 11, 2008 of the Court of Appeals (CA) in CA-G.R.
CV No. 82758, which reversed and set aside the Decision 4 dated March 31,
2004 of the Regional Trial Court of Manila, Branch 34, in Civil Case No. 01-
101885.
The facts as found by the CA, are as follows:
Loadstar International Shipping, Inc.(Loadstar Shipping) and Philippine
Associated Smelting and Refining Corporation (PASAR) entered into a
Contract of Affreightment for domestic bulk transport of the latter’s copper
concentrates for a period of one year from November 1, 1998 to October 31,
1999. The contract was extended up to the end of October 2000.
On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper
concentrates were loaded in Cargo Hold Nos. 1 and 2 of MV "Bobcat", a
marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar
International) and operated by Loadstar Shipping under a charter party
agreement. The shipper and consignee under the Bill of Lading are Philex
Mining Corporation (Philex) and PASAR, respectively. The cargo was insured
with Malayan Insurance Company, Inc. (Malayan) under Open Policy No.
M/OP/2000/001-582. P & I Association is the third party liability insurer of
Loadstar Shipping.
On said date (September 10, 2000), MV "Bobcat" sailed from Poro Point, San
Fernando, La Union bound for Isabel, Leyte. On September 12, 2000, while in
the vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection
found a crack on starboard sideof the main deck which caused seawater to
enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The cracks at
the top deck starboard side of Cargo Hold No. 2, measuring 1.21 meters long
x 0.39 meters wide, and at top deck aft section starboard side on other point,
measuring 0.82 meters long x 0.32 meters wide, were welded.
Immediately after the vessel arrived at Isabel, Leyte anchorage area, on
September 13, 2000, PASAR and Philex’s representatives boarded and
inspected the vessel and undertook sampling of the copper concentrates. In
its preliminary report dated September 15, 2000, the Elite Adjusters and
Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates
from Cargo Hold No. 2 were contaminated by seawater. Consequently,
PASAR rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold
No. 2.
On November 6, 2000, PASAR sent a formal notice of claim in the amount of
[P]37,477,361.31 to Loadstar Shipping. In its final report dated November 16,
2000, Elite Surveyor recommended payment to the assured the amount of
[P]32,351,102.32 as adjusted. On the basis of such recommendation,
Malayan paid PASAR the amount of [P]32,351,102.32.
Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping
informing the latter of a prospective buyer for the damaged copper
concentrates and the opportunity to nominate/refer other salvage buyers to
PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping informing
the latter of the acceptance of PASAR’s proposal to take the damaged copper
concentrates at a residual value of US$90,000.00. On December 9, 2000,
Loadstar Shipping wrote Malayan requesting for the reversal of its decision
to accept PASAR’s proposal and the conduct of a public bidding to allow
Loadstar Shipping to match or top PASAR’s bid by 10%.
On January 23, 2001, PASAR signed a subrogation receipt in favor of
Malayan. To recover the amount paid and in the exercise of its right of
subrogation, Malayan demanded reimbursement from Loadstar Shipping,
which refused to comply. Consequently, on September 19, 2001, Malayan
instituted with the RTC a complaint for damages. The complaint was later
amended to include Loadstar International as party defendant.
In its amended complaint, Malayan mainly alleged that as a direct and
natural consequence of the unseaworthiness of the vessel, PASAR suffered
loss of the cargo. It prayed for the amount of [P]33,934,948.75, representing
actual damages plus legal interest fromdate of filing of the complaint until
fully paid, and attorney’s fees in the amount of not less than [P]500,000.00. It
also sought to declare the bill of lading as void since it violates the provisions
of Articles 1734 and 1745 of the Civil Code.
On October 30, 2002, Loadstar Shipping and Loadstar International filed their
answer with counterclaim, denying plaintiff appellant’s allegations and
averring as follows: that they are not engaged in the business as common
carriers but as private carriers; that the vessel was seaworthy and
defendants-appellees exercised the required diligence under the law; that
the entry of water into Cargo Hold No. 2 must have been caused by force
majeureor heavy weather; that due to the inherent nature of the cargo and
the use of water in its production process, the same cannot be considered
damaged or contaminated; that defendants-appellees were denied
reasonable opportunity to participate in the salvage sale; that the claim had
prescribed in accordance with the bill of lading provisions and the Code of
Commerce; that plaintiff-appellant’s claim is excessive, grossly overstated,
unreasonable and unsubstantiated; that their liability, if any, should not
exceed the CIFvalue of the lost/damaged cargo as set forth in the bill of
lading, charter party or customary rules of trade; and that the arbitration
clause in the contract of affreightment should be followed.
After trial, and considering that the billof lading, which was marked as Exhibit
"B", is unreadable, the RTC issued on February 17, 2004 an order directing
the counsel for Malayan to furnish it with a clearer copy of the same within
three (3) days from receipt of the order. On February 23, 2004, Malayan filed
a compliance attaching thereto copy of the bill of lading.
On March 31, 2004, the RTC rendered a judgment dismissing the complaint
as well as the counterclaim. The RTC was convinced that the vessel was
seaworthy at the time of loading and that the damage was attributable to the
perils of the sea (natural disaster) and not due to the fault or negligence of
Loadstar Shipping.
The RTC found that although contaminated by seawater, the copper
concentrates can still be used. Itgave credence to the testimony of Francisco
Esguerra, defendants-appellees’ expert witness, that despite high chlorine
content, the copper concentrates remain intact and will not lose their value.
The gold and silver remain with the grains/concentrates even if soaked with
seawater and does not melt. The RTC observed that the purchase agreement
between PASAR and Philex contains a penalty clause and has no rejection
clause. Despite this agreement, the parties failed to sit down and assess the
penalty.
The RTC also found that defendants-appellees were not afforded the
opportunity to object or participate or nominate a participant in the sale of
the contaminated copper concentrates to lessen the damages to be paid. No
record was presented to show that a public bidding was conducted. Malayan
sold the contaminated copper concentrates to PASAR at a low price then
paid PASAR the total value of the damaged concentrate without deducting
anything from the claim.
Finally, the RTC denied the prayer to declare the Bill of Lading null and void
for lack of basis because what was attached to Malayan’s compliance was
still an unreadable machine copy thereof.5 (Citations omitted)
Ruling of the CA
On April 14, 2008, the CA rendered its Decision,6 the dispositive portion of
which reads: WHEREFORE, the appeal is GRANTED. The Decision dated
March 31, 2004 of the RTC, Branch 34, Manila in Civil Case No. 01-101885, is
REVERSED and SET ASIDE. In lieu thereof, a new judgment is entered,
ORDERING defendants-appellees to pay plaintiff-appellant ₱33,934,948.75 as
actual damages, plus legal interest at 6% annually from the date of the trial
court’s decision. Upon the finality of the decision, the total amount of the
judgment shall earn annual interest at 12% until full payment.
SO ORDERED.7
On December 11, 2008, the CA modified the above decision through a
Resolution,8 the fallo thereof states:
WHEREFORE, the Motion for Reconsiderationis PARTLY GRANTED. The
decision of this Court dated April 14, 2008 is PARTIALLY RECONSIDERED and
MODIFIED. Defendants-appellees are ORDERED to pay to plaintiff-appellant
₱33,934,948.74 as actual damages, less US$90,000.00, computed at the
exchange rate prevailing on November 29, 2000, plus legal interest at 6%
annually from the date of the trial court’s decision. Upon the finality of the
decision, the total amount of the judgment shall earn annual interest at 12%
until full payment.
SO ORDERED.9
The CA discussed that the amount of US$90,000.00 should have been
deducted from Malayan’s claim against the petitioners in order to prevent
undue enrichment on the part of Malayan. Otherwise, Malayan would
recover from the petitioners not merely the entire amount of 33,934,948.74
as actual damages, but would also end up unjustly enriching itself in the
amount of US$90,000.00 – the residual value of the subject copper
concentrates it sold to Philippine Associated Smelting and Refining
Corporation (PASAR) on November 29, 2000.10 Issues
In sum, the grounds presented by the petitioners for the Court’s
consideration are the following:
I.
THE [CA] HAS NO BASIS IN REVERSING THE DECISION OF THE TRIAL COURT.
THERE IS NOTHING IN THE DECISION OF THE HONORABLE COURT THAT
REVERSED THE FACTUAL FINDINGS AND CONCLUSIONS OF THE TRIAL COURT,
THAT THERE WAS NO ACTUAL LOSS OR DAMAGE TO THE CARGO OF COPPER
CONCENTRATES WHICH WOULD MAKE LOADSTAR AS THE SHIPOWNER
LIABLE FOR A CARGO CLAIM. CONSEQUENTLY, THERE IS NO BASIS FOR THE
COURT TO ORDER LOADSTAR TO PAY ACTUAL DAMAGES IN THE AMOUNT OF
PH₱33 MILLION.11
II.
M/V BOBCAT IS A PRIVATE CARRIER, THE HONORABLE COURT HAD NO BASIS
IN RULING THAT IT IS A COMMON CARRIER. THE DECISION OF THE TRIAL
COURT IS BEREFT OF ANY CATEGORICAL FINDING THAT M/V BOBCAT IS A
COMMON CARRIER.12
III.
THE HONORABLE COURT OFAPPEALS COMMITTED A REVERSIBLE ERROR IN
RULING THAT RESPONDENT’S PAYMENT TO PASAR, ON THE BASIS OF THE
LATTER’S FRAUDULENT CLAIM, ENTITLED RESPONDENT AUTOMATIC RIGHT
OF RECOVERY BY VIRTUE OF SUBROGATION.13
Ruling of the Court
I. Proof of actual damages
It is not disputed that the copper concentrates carried by M/V Bobcat from
Poro Point, La Union to Isabel, Leyte were indeed contaminated with
seawater. The issue lies on whether such contamination resulted to damage,
and the costs thereof, if any,incurred by the insured PASAR.
The petitioners argued that the copper concentrates, despite being
dampened with seawater, is neither subject to penalty nor rejection. Under
the Philex Mining Corporation (Philex)-PASAR Purchase Contract Agreement,
there is no rejection clause. Instead, there is a pre-agreed formula for the
imposition of penalty in case other elements exceeding the provided
minimum level would be found on the concentrates. 14 Since the chlorine
content on the copper concentrates is still below the minimum level
provided under the Philex-PASAR purchase contract, no penalty may be
imposed against the petitioners.15
Malayan opposed the petitioners’ invocation of the Philex-PASAR purchase
agreement, stating that the contract involved in this case is a contract of
affreightment between the petitioners and PASAR, not the agreement
between Philex and PASAR, which was a contract for the sale of copper
concentrates.16
On this score, the Court agrees withMalayan that contrary to the trial court’s
disquisition, the petitioners cannot validly invoke the penalty clause under
the Philex-PASAR purchase agreement, where penalties are to be imposed by
the buyer PASAR against the seller Philex if some elements exceeding the
agreed limitations are found on the copper concentrates upon delivery. The
petitioners are not privy tothe contract of sale of the copper concentrates.
The contract between PASAR and the petitioners is a contract of carriage of
goods and not a contract of sale. Therefore, the petitioners and PASAR are
bound by the laws on transportation of goods and their contract of
affreightment. Since the Contract of Affreightment 17 between the petitioners
and PASAR is silent as regards the computation of damages, whereas the bill
of lading presented before the trial court is undecipherable, the New Civil
Code and the Code ofCommerce shall govern the contract between the
parties.
Malayan paid PASAR the amount of 32,351,102.32 covering the latter’s claim
of damage to the cargo.18 This is based on the recommendation of Elite
Adjustors and Surveyors, Inc. (Elite) which both Malayan and PASAR agreed
to. The computation of Elite is presented as follows:
Computation of Loss Payable.We computed for the insured value of the loss
and loss payable, based on the following pertinent data:
1) Total quantity shipped - 5,065.47 wet metric tons and at risk or
(Risk Note and B/L) 4,568.907 dry metric tons
2) Total sum insured - [P]212,032,203.77 (Risk Note and
Endorsement)
3) Quantity damaged: 777.290 wet metric tons or (Pasar
Laboratory Cert. & 696.336 dry metric tons discharge & sampling
Cert.dated September 21, 2000)
Computation:
Total sum insured x Qty. damaged= Insured value of
damage
Total Qty. in DMT (DMT) (DMT)
[P] 212,032,203.77 x 696.336 DMT = [P]32,315,312.32
 4,568.907 DMT
Insured value of damage = [P] 32,315,312.3219
Based on the preceding computation, the sum of ₱32,315,312.32 represents
damages for the total loss ofthat portion of the cargo which were
contaminated with seawater and not merely the depreciation in its value.
Strangely though, after claiming damages for the total loss of that portion,
PASAR bought back the contaminated copper concentrates from Malayan at
the price of US$90,000.00. The fact of repurchase is enough to conclude that
the contamination of the copper concentrates cannot be considered as total
loss on the part of PASAR.
The following provisions of the Code of Commerce state how damages on
goods delivered by the carrier should be appraised:
Article 361. The merchandise shall be transported at the risk and venture of
the shipper, if the contrary has not been expressly stipulated. As a
consequence, all the losses and deteriorations which the goods may suffer
during the transportation by reason of fortuitous event, force majeure, or
the inherent nature and defect of the goods, shall be for the account and risk
of the shipper. Proof of these accidents is incumbent upon the carrier.
Article 362. Nevertheless, the carrier shall be liable for the losses and
damages resulting from the causes mentioned in the preceding article if it is
proved, as against him, that they arose through his negligence or by reason
of his having failed to take the precautions which usage has established
among careful persons, unless the shipper has committed fraud in the bill of
lading, representing the goods to be of a kind or quality different from what
they really were.
If, notwithstanding the precautions referred to in this article, the goods
transported run the risk of being lost, on account of their nature or by reason
of unavoidable accident, there being no time for their owners to dispose of
them, the carrier may proceed to sell them, placing them for this purpose at
the disposal of the judicial authority or of the officials designated by special
provisions.
xxxx
Article 364. If the effect of the damage referred to in Article 361 is merely a
diminution in the value of the goods, the obligation of the carrier shall be
reduced to the payment of the amount which, in the judgment of experts,
constitutes such difference in value.
Article 365. If, in consequence of the damage, the goods are rendered
useless for sale and consumption for the purposes for which they are
properly destined, the consignee shall not be bound to receive them, and he
may have them in the hands of the carrier, demanding of the latter their
value at the current price on that day.
If among the damaged goods there should be some pieces in good condition
and without any defect, the foregoing provision shall be applicable with
respect to those damaged and the consignee shall receive those which are
sound, this segregation to be made by distinct and separate pieces and
without dividing a single object, unless the consignee proves the impossibility
of conveniently making use of them in this form.
The same rule shall be applied to merchandise in bales or packages,
separating those parcels which appear sound.
From the above-cited provisions, if the goods are delivered but arrived at the
destination in damaged condition, the remedies to be pursued by the
consignee depend on the extent of damage on the goods.
If the goods are rendered useless for sale, consumption or for the intended
purpose, the consignee may reject the goods and demand the payment of
such goods at their marketprice on that day pursuant to Article 365. In case
the damaged portion of the goods can be segregated from those delivered in
good condition, the consignee may reject those in damaged condition and
accept merely those which are in good condition. But if the consignee is able
to prove that it is impossible to use those goods which were delivered in
good condition without the others, then the entire shipment may be
rejected. To reiterate, under Article 365, the nature of damage must be such
that the goods are rendered useless for sale, consumption or intended
purpose for the consignee to be able to validly reject them.
If the effect of damage on the goods consisted merely of diminution in value,
the carrier is bound to pay only the difference between its price on that day
and its depreciated value as provided under Article 364.
Malayan, as the insurer of PASAR, neither stated nor proved that the goods
are rendered useless or unfit for the purpose intended by PASAR due to
contamination with seawater. Hence, there is no basis for the goods’
rejection under Article 365 of the Code of Commerce. Clearly, it is erroneous
for Malayan to reimburse PASAR as though the latter suffered from total loss
of goods in the absence of proof that PASAR sustained such kind of loss.
Otherwise, there will be no difference inthe indemnification of goods which
were not delivered at all; or delivered but rendered useless, compared
against those which were delivered albeit, there is diminution in value.
Malayan also failed to establish the legal basis of its decision to sell back the
rejected copper concentrates to PASAR. It cannot be ascertained how and
when Malayan deemed itself asthe owner of the rejected copper
concentrates to have these validly disposed of. If the goods were rejected, it
only means there was no acceptance on the part of PASAR from the carrier.
Furthermore, PASAR and Malayan simply agreed on the purchase price of
US$90,000.00 without any allegation or proof that the said price was the
depreciated value based on the appraisal of experts as provided under Article
364 of the Code of Commerce.
II. Subrogation of Malayan to the rights of PASAR
Malayan’s claim against the petitioners is based on subrogation to the rights
possessed by PASAR as consignee of the allegedly damaged goods. The right
of subrogation stems from Article 2207 of the New Civil Code which states:
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 wrong doer 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 is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply
upon payment of the insurance claim by the insurer."20 The right of
subrogation is however, not absolute. "There are a few recognized
exceptions to this rule. For instance, if the assured by his own act releases
the wrongdoer or third party liable for the loss or damage, from liability, the
insurer’s right of subrogation is defeated. x x x Similarly, where the insurer
pays the assured the value of the lostgoods without notifying the carrier who
has in good faith settled the assured’s claim for loss, the settlement is binding
on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation. x x x And where the insurer
pays the assured for a loss which is not a risk covered by the policy, thereby
effecting ‘voluntary payment,’ the former has no right of subrogation against
the third party liable for the loss x x x."21
The rights of a subrogee cannot be superior to the rights possessed by a
subrogor. "Subrogation is the substitution of one person in the place of
another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The rights to which the subrogee
succeeds are the same as, but not greaterthan, those of the person for whom
he is substituted, that is, he cannot acquire any claim, security or remedy the
subrogor did not have. In other words, a subrogee cannot succeed to a right
not possessed by the subrogor. A subrogee in effect steps into the shoes of
the insured and can recover only ifthe insured likewise could have
recovered."22 Consequently, an insurer indemnifies the insured based on the
loss or injury the latter actually suffered from. If there is no loss or injury,
then there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that
indemnification is not due, or if due, the amount paid is excessive, the
insurer takes the risk of not being able to seek recompense from the alleged
wrongdoer. This is because the supposed subrogor did not possessthe right
to be indemnified and therefore, no right to collect is passed on to the
subrogee. As regards the determination of actual damages, "[i]t is axiomatic
that actual damages must be proved with reasonable degree of certainty and
a party is entitled only to such compensation for the pecuniary loss that was
duly proven."23 Article 2199 of the New Civil Code speaks of how actual
damages are awarded:

Art. 2199. Except as provided by law or by stipulation, one is entitled to an

adequate compensation only for such pecuniary loss suffered by him as he
has duly proved. Such compensation is referred to as actual or compensatory
damages.

Whereas the CA modified its Decision dated April 14, 2008 by deducting the
amount of US$90,000.00 fromthe award, the same is still iniquitous for the
petitioners because PASAR and Malayan never proved the actual damages
sustained by PASAR. It is a flawed notion to merely accept that the salvage
value of the goods is US$90,000.00, since the price was arbitrarily fixed
between PASAR and Malayan. Actual damages to PASAR, for example, could
include the diminution in value as appraised by experts or the expenses
which PASAR incurred for the restoration of the copper concentrates to its
former condition, ifthere is damage and rectification is still possible.

It is also note worthy that when the expert witness for the petitioners,
Engineer Francisco Esguerra (Esguerra), testified as regards the lack of any
adverse effect of seawater on copper concentrates, Malayan never
presented evidence of its own in refutation to Esguerra’s testimony. And,
even if the Court will disregard the entirety of his testimony, the effect on
Malayan’s cause of action is nil. As Malayan is claiming for actual damages, it
bears the burden of proof to substantiate its claim.

"The burden of proof is on the party who would be defeated if no evidence

would be presented on either side. The burden is to establish one’s case by a
preponderance of evidence which means that the evidence, as a whole,
adduced by one side, is superior tothat of the other. Actual damages are not
presumed. The claimant must prove the actual amount of loss with a
reasonable degree of certainty premised upon competent proof and on the
best evidence obtainable. Specific facts that could afford a basis for
measuring whatever compensatory or actual damages are borne must be
pointed out. Actual damages cannot be anchored on mere surmises,
speculations or conjectures."24

Having ruled that Malayan did not adduce proof of pecuniary loss to PASAR
for which the latter was questionably indemnified, there is no necessity to
expound further on the other issues raised by the petitioners and Malayan in
this case.

WHEREFORE, the petition is GRANTED. The Decision dated April 14, 2008 and
Resolution dated December 11, 2008 of the Court of Appeals in CA-G.R. CV
No. 82758 are hereby REVERSED and SET ASIDE. The Decision dated March
31, 2004 of the Regional Trial Comi of Manila, Branch 34 in Civil Case No·. 01-
101885 is REINSTATED.

SO ORDERED.
G.R. No. 60506 August 6, 1992
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR,
LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and
ELVIRA, all surnamed MAGLANA, herein represented by their mother,
FIGURACION VDA. DE MAGLANA, petitioners,
vs.
HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City,
Branch II, and AFISCO INSURANCE CORPORATION, respondents.
Jose B. Guyo for petitioners.
Angel E. Fernandez for private respondent.
ROMERO, J.:
The nature of the liability of an insurer sued together with the
insured/operator-owner of a common carrier which figured in an accident
causing the death of a third person is sought to be defined in this petition
for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of
Customs whose work station was at Lasa, here in
Davao City. On December 20, 1978, early morning,
Lope Maglana was on his way to his work station,
driving a motorcycle owned by the Bureau of Customs.
At Km. 7, Lanang, he met an accident that resulted in
his death. He died on the spot. The PUJ jeep that
bumped the deceased was driven by Pepito Into,
operated and owned by defendant Destrajo. From the
investigation conducted by the traffic investigator, the
PUJ jeep was overtaking another passenger jeep that
was going towards the city poblacion. While
overtaking, the PUJ jeep of defendant Destrajo running
abreast with the overtaken jeep, bumped the
motorcycle driven by the deceased who was going
towards the direction of Lasa, Davao City. The point of
impact was on the lane of the motorcycle and the
deceased was thrown from the road and met his
untimely death. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action
for damages and attorney's fees against operator Patricio Destrajo and the
Afisco Insurance Corporation (AFISCO for brevity) before the then Court of
First Instance of Davao, Branch II. An information for homicide thru reckless
imprudence was also filed against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an
indeterminate penalty of one (1) year, eight (8) months and one (1) day
of prision correccional, as minimum, to four (4) years, nine (9) months and
eleven (11) days of prision correccional, as maximum, with all the accessory
penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in
the amount of twelve thousand pesos (P12,000.00) with subsidiary
imprisonment in case of insolvency, plus five thousand pesos (P5,000.00) in
the concept of moral and exemplary damages with costs. No appeal was
interposed by accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that
Destrajo had not exercised sufficient diligence as the operator of the
jeepney. The dispositive portion of the decision reads:
WHEREFORE, the Court finds judgment in favor of the
plaintiffs against defendant Destrajo, ordering him to
pay plaintiffs the sum of P28,000.00 for loss of income;
to pay plaintiffs the sum of P12,000.00 which amount
shall be deducted in the event judgment in Criminal
Case No. 3527-D against the driver, accused Into, shall
have been enforced; to pay plaintiffs the sum of
P5,901.70 representing funeral and burial expenses of
the deceased; to pay plaintiffs the sum of P5,000.00 as
moral damages which shall be deducted in the event
judgment (sic) in Criminal Case No. 3527-D against the
driver, accused Into; to pay plaintiffs the sum of
P3,000.00 as attorney's fees and to pay the costs of
suit.
The defendant insurance company is ordered to
reimburse defendant Destrajo whatever amounts the
latter shall have paid only up to the extent of its
insurance coverage.
SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of
the dispositive portion of the decision contending that AFISCO should not
merely be held secondarily liable because the Insurance Code provides that
the insurer's liability is "direct and primary and/or jointly and severally with
the operator of the vehicle, although only up to the extent of the insurance
coverage." 4 Hence, they argued that the P20,000.00 coverage of the
insurance policy issued by AFISCO, should have been awarded in their favor.
In its comment on the motion for reconsideration, AFISCO argued that since
the Insurance Code does not expressly provide for a solidary obligation, the
presumption is that the obligation is joint.
In its Order of February 9, 1982, the lower court denied the motion for
reconsideration ruling that since the insurance contract "is in the nature of
suretyship, then the liability of the insurer is secondary only up to the extent
of the insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the
liability of the insurer is direct, primary and solidary with the jeepney
operator because the petitioners became direct beneficiaries under the
provision of the policy which, in effect, is a stipulation pour autrui.  6 This
motion was likewise denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it
does not seek the reversal of the lower court's decision in its entirety, prays
for the setting aside or modification of the second paragraph of the
dispositive portion of said decision. Petitioners reassert their position that
the insurance company is directly and solidarily liable with the negligent
operator up to the extent of its insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base
their claim is as follows:
 
Sec. 1 — LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability,
pay all sums necessary to discharge liability of the
insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
 2. . . . . In fine, we conclude that the liability of AFISCO based on the insurance
contract is direct, but not solidary with that of Destrajo which is based on
Article 2180 of the Civil Code. 12 As such, petitioners have the option either to
3. In the event of the death of any person entitled to
claim the P15,000 from AFISCO and the balance from Destrajo or enforce the
indemnity under this Policy, the Company will, in
entire judgment from Destrajo subject to reimbursement from AFISCO to the
respect of the liability incurred to such person
extent of the insurance coverage.
indemnify his personal representatives in terms of, and
subject to the terms and conditions hereof. 7
While the petition seeks a definitive ruling only on the nature of AFISCO's
liability, we noticed that the lower court erred in the computation of the
The above-quoted provision leads to no other conclusion but that AFISCO
probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it
can be held directly liable by petitioners. As this Court ruled in Shafer vs.
awarded P28,800.00. 13 Upon recomputation, the correct amount is
Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures
P192,000.00. Being a "plain error," we opt to correct the
directly against liability, the insurer's liability accrues immediately upon the
same. 14 Furthermore, in accordance with prevailing jurisprudence, the death
occurrence of the injury or even upon which the liability depends, and does
indemnity is hereby increased to P50,000.00. 15
not depend on the recovery of judgment by the injured party against the
insured." 8 The underlying reason behind the third party liability (TPL) of the
Compulsory Motor Vehicle Liability Insurance is "to protect injured persons WHEREFORE, premises considered, the present petition is hereby GRANTED.
against the insolvency of the insured who causes such injury, and to give The award of P28,800.00 representing loss of income is INCREASED to
such injured person a certain beneficial interest in the proceeds of the P192,000.00 and the death indemnity of P12,000.00 to P50,000.00.
policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00
under the no-fault clause, AFISCO's liability is now limited to P15,000.00.
SO ORDERED.

However, we cannot agree that AFISCO is likewise solidarily liable with

Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had
the opportunity to resolve the issue as to the nature of the liability of the
insurer and the insured vis-a-vis the third party injured in an accident. We
categorically ruled thus:

While it is true that where the insurance contract

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

In the case at bar, petitioner as insurer of Sio Choy, is

liable to respondent Vallejos (the injured third party),
but it cannot, as incorrectly held by the trial court, be
made "solidarily" liable with the two principal
tortfeasors, namely respondents Sio Choy and San
Leon Rice Mill, Inc. For if petitioner-insurer were
solidarily liable with said, two (2) respondents by
reason of the indemnity contract against third party
liability — under which an insurer can be directly sued
by a third party — this will result in a violation of the
principles underlying solidary obligation and insurance
contracts. (emphasis supplied)

The Court then proceeded to distinguish the extent of the liability and
manner of enforcing the same in ordinary contracts from that of insurance
contracts. While in solidary obligations, the creditor may enforce the entire
obligation against one of the solidary debtors, in an insurance contract, the
insurer undertakes for a consideration to indemnify the insured against loss,
damage or liability arising from an unknown or contingent event. 11 Thus,
petitioner therein, which, under the insurance contract is liable only up to
P20,000.00, can not be made solidarily liable with the insured for the entire
obligation of P29,013.00 otherwise there would result "an evident breach of
the concept of solidary obligation."

Similarly, petitioners herein cannot validly claim that AFISCO, whose liability
under the insurance policy is also P20,000.00, can be held solidarily liable
with Destrajo for the total amount of P53,901.70 in accordance with the
decision of the lower court. Since under both the law and the insurance
policy, AFISCO's liability is only up to P20,000.00, the second paragraph of
the dispositive portion of the decision in question may have unwittingly sown
confusion among the petitioners and their counsel. What should have been
clearly stressed as to leave no room for doubt was the liability of AFISCO
under the explicit terms of the insurance contract.
G.R. No. L-49699 August 8, 1988
PERLA COMPANIA de SEGUROS, INC., petitioner,
vs.
HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First
instance of Camarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA
ZENAROSA-RAMOS, for themselves and as Guardian Ad Litem for Minors
JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERNANDO M.
ABCEDE, SR., for himself and Guardian Ad Litem for minor FERNANDO G.
ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for minors ARLEEN
R. MAGO, and ANACLETA J. ZENAROSA., respondents.
Jose B. Sanez for petitioner.
James B. Pajares for private respondents.
CORTES, J.:
The instant petition for certiorari and prohibition with preliminary injunction
concerns the ability of insurers under the "no fault indemnity" provision of
the Insurance Code. *
On December 27, 1977, in a collision between the IH Scout in which private
respondents were riding and a Superlines bus along the national highway in
Sta. Elena, Camarines Norte, private respondents sustained physics injuries in
varying degrees of gravity. Thus, they filed with the Court of First Instance of
Camarines Norte on February 23,1978 a complaint for damages against
Superlines, the bus driver and petitioner, the insurer of the bus [Rollo, pp.
27-39.] The bus was insured with petitioner for the amount of P50,000.00 as
and for passenger liability and P50,000.00 as and for third party liability. The
vehicle in which private respondents were riding was insured with Malayan
Insurance Co.
Even before summons could be served, respondent judge issued an order
dated March 1, 1978 [Rollo, pp. 40-41], the pertinent portion of which
stated:
The second incident is the prayer for an order of this
court for the Insurance Company, Perla Compania de
Seguros, Inc., to pay immediately the P5,000.00 under
the "no fault clause" as provided for under Section 378
of the Insurance Code, and finding that the requisite
documents to be attached in the record, the said
Insurance Company is therefore directed to pay the
plaintiffs (private respondents herein) within five (5)
days from receipt of this order.
Petitioner denied in its Answer its alleged liability under the "no fault
indemnity" provision [Rollo, p. 44] and likewise moved for the
reconsideration of the order. Petitioner held the position that under Sec. 378
of the Insurance Code, the insurer liable to pay the P5,000.00 is the insurer of
the vehicle in which private respondents were riding, not petitioner, as the
provision states that "[i]n the case of an occupant of a vehicle, claim shall lie
against the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from." Respondent judge, however, denied reconsideration. A
second motion for reconsideration was filed by petitioner. However, in an
order dated January 3, 1979, respondent judge denied the second motion for
reconsideration and ordered the issuance of a writ of execution [Rollo, p. 69.]
Hence, the instant petition praying principally for the annulment and setting
aside of respondent judge's orders dated March 1, 1978 and January 3, 1979.
The Court issued a temporary restraining order on January 24,1979 [Rollo pp.
73-74.]
The sole issue raised in this petition is whether or not petitioner is the insurer
liable to indemnify private respondents under Sec. 378 of the Insurance
Code.
The key to the resolution of the issue is of courts e Sec. 378, which provides:
Sec. 378. Any claim for death or injury to any
passenger or third party pursuant to the provision of
this chapter shall be paid without the necessity of
proving fault or negligence of any kind. Provided, That
for purposes of this section —
(i) The indemnity in respect of any one person shall not
exceed five thousand pesos;
(ii) The following proofs of loss, when submitted under
oath, shall be sufficient evidence to substantiate the
claim:
(a) Police report of accident, and
(b) Death certificate and
evidence sufficient to establish
the proper payee, or
(c) Medical report and evidence
of medical or hospital
disbursement in respect of
which refund is claimed;
(iii) Claim may be made against one motor vehicle
only. In the case of an occupant of a vehicle, claim shall
lie against the insurer of the vehicle in which the
occupant is riding, mounting or dismounting from. In
any other case, claim shall lie against the insurer of the
directly offending vehicle. In all cases, the right of the
party paying the claim to recover against the owner of
the vehicle responsible for the accident shall be
maintained. [Emphasis supplied.]
From a reading of the provision, which is couched in straight-forward and
unambiguous language, the following rules on claims under the "no fault
indemnity" provision, where proof of fault or negligence is not necessary for
payment of any claim for death Or injury to a passenger or a third party, are
established:
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against the
insurer of the vehicle. in which he is riding, mounting or dismounting from.
3. In any other case (i.e. if the victim is not an occupant of a vehicle), the
claim shall lie against the insurer of the directly offending vehicle.
4. In all cases, the right of the party paying the claim to recover against the
owner of the vehicle responsible for the accident shall be maintained.
The law is very clear — the claim shall lie against the insurer of the vehicle in
which the "occupant" ** is riding, and no other. The claimant is not free to
choose from which insurer he will claim the "no fault indemnity," as the law,
by using the word "shall, makes it mandatory that the claim be made against
the insurer of the vehicle in which the occupant is riding, mounting or
dismounting from.
That said vehicle might not be the one that caused the accident is of no
moment since the law itself provides that the party paying the claim under
Sec. 378 may recover against the owner of the vehicle responsible for the
accident. This is precisely the essence of "no fault indemnity" insurance
which was introduced to and made part of our laws in order to provide
victims of vehicular accidents or their heirs immediate compensation,
although in a limited amount, pending final determination of who is
responsible for the accident and liable for the victims'injuries or death. In
turn, the "no fault indemnity" provision is part and parcel of the Insurance
Code provisions on compulsory motor vehicle ability insurance [Sec. 373-389]
and should be read together with the requirement for compulsory passenger
and/or third party liability insurance [Sec. 377] which was mandated in order
to ensure ready compensation for victims of vehicular accidents.

Irrespective of whether or not fault or negligence lies with the driver of the
Superlines bus, as private respondents were not occupants of the bus, they
cannot claim the "no fault indemnity" provided in Sec. 378 from petitioner.
The claim should be made against the insurer of the vehicle they were riding.
This is very clear from the law. Undoubtedly, in ordering petitioner to pay
private respondents the 'no fault indemnity,' respondent judge gravely
abused his discretion in a manner that amounts to lack of jurisdiction. The
issuance of the corrective writ of certiorari is therefore warranted.

WHEREFORE, the petition is GRANTED and respondent judge's order dated

March 1, 1978, requiring petitioner to pay private respondents the amount
of P5,000.00 as "no fault indemnity' under Sec. 378 of the Insurance Code,
and that of January 3, 1979, denying the second motion for reconsideration
and issuing a writ of execution, are ANNULLED and SET ASIDE. The temporary
restraining order issued by the Court on January 24, 1979 is made
permanent.

SO ORDERED.
THIRD DIVISION

[G.R. NO. 161539 : April 24, 2009]

INTERNATIONAL CONTAINER TERMINAL SERVICES, INC., Petitioner, v. FGU

INSURANCE CORPORATION, HAPAG-LLOYD, HAPAG-LLOYD PHILS., INC., and
DESMA CARGO HANDLERS, INC., Respondents.

RESOLUTION

AUSTRIA-MARTINEZ, J.:

In a Decision dated June 27, 2008, the Court denied the petition filed in this
case and affirmed the CA Decision dated October 22, 2003 and Resolution
dated January 8, 2004, finding petitioner liable for the full amount of the
shipment which was lost while in its charge. Petitioner filed a motion for
reconsideration, which was denied by the Court with finality per Resolution
dated August 27, 2008.

Undaunted, petitioner filed the present second motion for partial

reconsideration where it solely assails the award and reckoning date of the
12% interest imposed by the RTC on it adjudged liability. Petitioner contends
that the complaint filed before the RTC is not one for loan or forbearance of
money, but one for breach of contract or damages; hence, petitioner insists
that the interest rate should be the legal rate of 6%, and not 12%. Petitioner
also argues that the RTC reckoned the date when interest should accrue on
the date when respondent FGU Insurance Corporation paid the amount
insured, or on January 3, 1995. Petitioner contends that this is erroneous and
the date should be reckoned from the time when respondent filed the
complaint with the RTC, which is on April 10, 1995.

A second look at petitioner's arguments shows that indeed, the interest rate
of 6% should have been imposed, and not 12%, as affirmed by the Court.
Also, it should have been reckoned from April 10, 1995, when respondent
filed by the complaint for sum of money, and not January 3, 1995, which was
the date respondent paid the amount insured to the Republic Asahi Glass
Corporation (RAGC).

The claim in this case is one for reimbursement of the sum of money paid by
FGU Insurance Corporation to RAGC. This is not one for forbearance of
money, goods or credit. Forbearance in the context of the usury law is a
contractual obligation of lender or creditor to refrain, during a given period
of time, from requiring the borrower or debtor to repay a loan or debt then
due and payable.1 Thus the interest rate should be as it is hereby fixed at 6%.
Moreover, the interest rate of 6% shall be computed from the date of filing
of the complaint, i.e., April 10, 1995. This is in accordance with the ruling
that where the demand cannot be established with reasonable certainty, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.2 chanrobles
virtual law library

WHEREFORE, the second motion for partial reconsideration is GRANTED. The

Decision dated June 27, 2008 is MODIFIED. The rate of interest on the
principal amount of P1,875,068.88, as adjudged in the Regional Trial Court
Decision dated July 1, 1999 in Civil Case No. 95-73532, and affirmed in the
Court's Decision dated June 27, 2008, shall be six percent (6%) per annum
computed from the date of filing of the complaint or April 10, 1995 until
finality of this judgment. From the time this Decision becomes final and
executory and the judgment amount remains unsatisfied, the same shall earn
interest at the rate of 12% per annum until its satisfaction.

SO ORDERED.