GR. No.

196072, September 20, 2017

STEAMSHIP MUTUAL UNDERWRITING ASSOCIATION (BERMUDA)

LIMITED, Petitioner, v. SULPICIO LINES, INC., Respondent.

G.R. NO. 208603

SULPICIO LINES, INC., Petitioner, v. STEAMSHIP MUTUAL UNDERWRITING

ASSOCIATION (BERMUDA) LIMITED, Respondent.

DECISION

LEONEN, J.:

An insured member may be compelled to arbitration pursuant to the Rules of the Protection and
Indemnity Club, which were incorporated in the insurance policy by reference. Where there are multiple
parties, the court must refer to arbitration the parties covered by the agreement while proceeding with
the civil action against those who were not bound by the arbitration agreement.

G.R. No. 196072 is a Petition for Review1 seeking to set aside the November 26, 2010 Decision2 and
March 10, 2011 Resolution3 of the Court of Appeals in CA-GR. SP No. 106103.

GR. No. 208603 is a Petition for Indirect Contempt4 filed by Sulpicio Lines, Inc. (Sulpicio) against
Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship). It prays, among others,
that Steamship be (a) declared guilty of indirect contempt; (b) imposed a fine of P30,000.00; and (c)
ordered to restitute to Sulpicio the amount of US$69,570.99 or its equivalent in Philippine currency plus
interest, computed from December 3, 2012 until fully restituted.5

Steamship was a Bermuda-based Protection and Indemnity Club, managed outside London, England.6 It
insures its members-shipowners against "third party risks and liabilities" for claims arising from (a)
death or injury to passengers; (b) loss or damage to cargoes; and (c) loss or damage from collisions.7

Sulpicio insured its fleet of inter-island vessels with Steamship for Protection & Indemnity risks through
local insurance agents, Pioneer Insurance and Surety Corporation (Pioneer Insurance) or Seaboard-
Eastern Insurance Co., Inc. (Seaboard-Eastern).8 One (1) of these vessels was the M/V Princess of the
World, evidenced by a Certificate of Entry and Acceptance issued by Steamship, which provided:

CERTIFICATE OF ENTRY AND ACCEPTANCE

by the Club of your proposal for entering the ship(s) specified below, and of
the tonnage set out against each, in:

Class 1 PROTECTION AND INDEMNITY

of the Club from
Noon 20 February 2005 to Noon 20th February 2006
th
 or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent
specified and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the
special terms specified overleaf.

Your name has been entered in the Register of Members of the Club as a Member.

On July 7, 2005, M/V Princess of the World was gutted by fire while on voyage from Iloilo to
Zamboanga City, resulting in total loss of its cargoes. The fire incident was found by the Department of
Interior and Local Government to be "accidental" in nature.10

Sulpicio claimed indemnity from Steamship under the Protection & Indemnity insurance policy.
Steamship denied the claim and subsequently rescinded the insurance coverage of Sulpicio's other
vessels on the ground that "Sulpicio was grossly negligent in conducting its business regarding safety,
maintaining the seaworthiness of its vessels as well as proper training of its crew."11

On June 28, 2007, Sulpicio filed a Complaint12 with the Regional Trial Court of Makati City against
Steamship; one (1) of its directors, Gary Rynsard; and its local insurance agents Pioneer Insurance and
Seaboard-Eastern for specific performance and damages. This Complaint was docketed as Civil Case
No. 07-577, was amended on August 10, 2007,13 and further amended on September 11, 2007.14

Steamship filed its Motion to Dismiss and/or to Refer Case to Arbitration15pursuant to Republic Act No.
9285, or the Alternative Dispute Resolution Act of 2004 (ADR Law), and to Rule 4716 of the 2005/2006
Club Rules, which supposedly provided for arbitration in London of disputes between Steamship and its
members.17 The other defendants filed separate motions to dismiss.18

Branch 149, Regional Trial Court, Makati City denied the motions to dismiss. In its July 11, 2008
Order,19 denying Steamship's motion and supplemental motion to dismiss and citing20European
Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft Gmbh21 the
Regional Trial Court held that "arbitration [did] not appear to be the most prudent action, . . .
considering that the other defendants . . . ha[d] already filed their [respective] [a]nswers."22Steamship
filed its Motion for Reconsideration,23 but it was likewise denied in the Order24 dated September 24,
2008.

Steamship assailed trial court orders before the Court of Appeals through a Rule 65 Petition, docketed as
CA-G.R. SP No. 106103.25 The Court of Appeals dismissed the petition in its November 26, 2010
Decision.26 It found no grave abuse of discretion on the part of the trial court in denying Steamship's
Motion to Dismiss and/or to Refer Case to Arbitration27 or any convincing evidence to show that a valid
arbitration agreement existed between the parties.28 Steamship's Motion for Reconsideration of this
Decision was likewise denied in the Resolution29dated March 10, 2011.

On April 29, 2011, Steamship filed before this Court this Petition for Review, docketed as G.R. No.
196072. In compliance with this Court's June 13, 2011 Resolution,30 Sulpicio filed its Comment31 on
August 31, 2011 and Steamship filed its Reply32 on October 20, 2011.
On September 6, 2013, Sulpicio filed with this Court a Petition for Indirect Contempt33 under Rule 71 of
the Rules of Court against Steamship. This Petition was docketed as GR. No. 208603.

Sulpicio alleges that sometime in September 2012, it settled its judgment liability of P4,121,600.00 in
Civil Case No. CEB-24783, entitled Verna Unabia v. Sulpicio Lines, Inc.34 However, the actual amount
reimbursed by Steamship was not P4,121,600.00, equivalent to US$96,958.47, but only
US$27,387.48.35Steamship deducted US$69,570.99, which allegedly represented Sulpicio's share in the
arbitration costs for the arbitration in London of the dispute in Civil Case No. 07-577.36

Sulpicio accuses Steamship of indirect contempt for its "improper conduct tending directly, or indirectly,
to impede, obstruct, or degrade the administration of justice"37 consisting of the following acts:

(a) Without Sulpicio's knowledge or consent, Steamship initiated and "concluded" during the pendency
of this case an alleged "arbitration proceeding" in London for the "Arbitrator" there to "resolve" the very
dispute involved in this case;

(b) Without Sulpicio's knowledge or consent, Steamship proclaimed itself the "victor" entitled to
arbitration costs from Sulpicio;

(c) Without Sulpicio's knowledge or consent, Steamship unceremoniously deducted from the refund due
to Sulpicio in the separate "Unabia Case" the huge amount of U.S.$69,570.99 despite the fact that: (a)
Said "Unabia Case" is unrelated to the instant case; (b) The propriety of a London arbitration is still to
be resolved in this case by this Honorable Court; (c) Steamship "enforced" by itself said "arbitration
costs" against Sulpicio without the courtesy of even informing this Honorable Court about it[; and]

(d) Without Sulpicio's knowledge or consent, and more importantly, without the prior approval of this
Honorable Court, Steamship initiated and "concluded" said London "arbitration" during the pendency of
this G.R. No. 196072 and before this Honorable Court could render its ruling or decision.38 (Emphasis
in the original)

Steamship filed its Comment/Opposition39on January 30, 2014, to which Sulpicio filed its Reply40 on
July 2, 2014.

In its Resolution41 dated January 15, 2014, this Court resolved to consolidate G.R. Nos. 208603 and
196072.

The issues for this Court's resolution are:

First, whether or not the petition in G.R. No. 196072 is proper under the Rules of Court;

Second, whether or not there is a valid and binding arbitration agreement between Steamship Mutual
Underwriting (Bermuda) Limited and Sulpicio Lines, Inc.;

Third, whether or not the Court of Appeals gravely erred in affirming the Regional Trial Court Order
denying referral of Sulpicio Lines, Inc.'s complaint to arbitration in London in accordance with the
2005/2006 Club Rules; and
Finally, whether or not Steamship Mutual Underwriting (Bermuda) Limited is guilty of indirect
contempt.

This Court addresses first the procedural issue raised by Sulpicio.

I.A

Sulpicio contends that Steamship's Petition for Review should be dismissed outright on procedural
grounds.42

First, this Petition, couched as a Rule 45 Petition, is actually a Rule 65 Petition because it contained
arguments dealing with "grave abuse of discretion" allegedly committed by the Court of Appeals.43

Second, the Petition's Verification and Certification Against Forum Shopping is defective because it was
signed and executed by Steamship's lawyer. Additionally, the Power of Attorney appended to the
Petition did not indicate its signatory's name and authority.44

Third, the issue of whether or not Sulpicio has been furnished with the Club's Rulebook, which
contained the arbitration clause, is factual and beyond the realm of a Rule 45 petition.45

In its Reply, Steamship avers that its counsel's law firm was duly authorized to sign its Verification and
Certification against Forum Shopping. Moreover, Sulpicio never assailed this law firm's authority to
represent Steamship before the Regional Trial Court, and therefore, is estopped to deny its authority
before this Court.46 Together with its Reply, Steamship submitted a copy of the Secretary's
Certificate47 to the July 24, 2007 Board of Directors' resolution authorizing Scott Davis (Davis) or his
Assistant Secretaries to sign a Power of Attorney on behalf of Steamship. It also appended a Secretary's
Certificate48 to the Jvly 26, 2011 Board of Directors' resolution re appointing Davis and John Charles
Ross Collis49 to their current positions as Secretary and Assistant Secretary, respectively.

Steamship further contends that the basic issues raised in the petition are questions of law that are
cognizable by this Court.50 It adds that a reversal of some factual findings is warranted because the Court
of Appeals committed a grave abuse of discretion in concluding that Sulpicio was ignorant of the
2005/2006 Club Rules and its arbitration clause, when Steamship had presented ample evidence to
establish otherwise.51 Steamship submits that this Court may exercise its power of review to reverse
errors committed by the lower courts including grave abuse of discretion of the Court of Appeals.52

This Court finds for Steamship.

The appeal from a final disposition of the Court of Appeals is a petition for review under Rule 45 and
not a special civil action under Rule 65.53 Rule 45, Section 1 is clear that:

Section 1. Filing of petition with Supreme Court. A patty desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set forth.
A Rule 45 petition is the proper remedy to reverse a decision or resolution of the Court of Appeals even
if the error assigned is grave abuse of discretion in the findings of fact or of law. "The existence and
availability of the right of appeal prohibits the resort to certiorari because one of the requirements for
the latter remedy is that there should be no appeal."54

Allegations in the petition of grave abuse of discretion on the part of the Court of Appeals do not ipso
facto render the intended remedy that of certiorari under Rule 65 of the Rules of Court. In Microsoft
Corporation v. Best Deal Computer Center Corporation,55 this Court discussed the distinction between a
Petition for Certiorari under Rule 65 and a Petition for Review on Certiorari under Rule 45:

Significantly, even assuming that the orders were erroneous, such error would merely be deemed as an
error of judgment that cannot be remedied by certiorari. As long as the respondent acted with
jurisdiction, any error committed by him or it in the exercise thereof will amount to nothing more than
an error of judgment which may be reviewed or corrected only by appeal. The distinction is clear: A
petition for certiorari seeks to correct errors of jurisdiction while a petition for review seeks to correct
errors of judgment committed by the court. Errors of judgment include errors of procedure or mistakes
in the court's findings. Where a court has jurisdiction over the person and subject matter, the decision on
all other questions arising in the case an exercise of that jurisdiction. Consequently, all errors committed
in the exercise of such jurisdiction are merely errors of judgment. Certiorari under Rule 65 is a remedy
designed for the correction of errors of jurisdiction and not errors of judgment.56(Citations omitted)

In this case, what Steamship seeks to rectify may be construed as errors of judgment of the Court of
Appeals. These errors pertain to Steamship's allegations of the Court of Appeals' failure to rule that a
valid arbitration agreement existed between the parties and to refer the case to arbitration. It does not
impute any error with respect to the Court of Appeals' exercise of jurisdiction, As such, the Petition is
simply a continuation of the appellate process where a case is elevated from the trial court of origin, to
the Court of Appeals, and to this Court via Rule 45.

The basic issues raised in the Petition for Review are: (1) whether or not an arbitration agreement may
be validly incorporated by reference to a contract; and (2) how the trial court should proceed to trial
upon its finding "that only some and not all of the defendants are bound by an arbitration
agreement[.]"57 These are questions of law properly cognizable in a Rule 45 petition.

In BCDA v. DMCI Project Developers, Inc..58 citing Villamor v. Balmores59:

[T]here is a question of law "when there is doubt or controversy as to what the law is on a certain [set]
of facts." The test is "whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence." Meanwhile, there is a question of fact when there is "doubt . . . as to the truth
or falsehood of facts." The question must involve the examination of probative value of the evidence
presented.60

Sulpicio denies being bound by the arbitration clause in the Club Rules since neither the Certificate of
Entry and Acceptance, which covers M/V Princess of the World, mentioned this arbitration agreement,
nor was it given a copy of the Club Rulebook.

In sustaining the denial of Steamship's Motion to Dismiss and/or to Refer Case to Arbitration, the Court
of Appeals ruled:

Unfortunately, the Court is not convinced that a valid and binding arbitration agreement exists between
the Steamship and Sulpicio. And even assuming that there is such an agreement, it does not comply with
Section 4 of the Arbitration Law which provides that "a contract to arbitrate a controversy thereafter
arising between the parties, as well as a submission to arbitrate an existing controversy shall be in
writing and subscribed by the party sought to be charged, or by his lawful agent."

As correctly pointed out by Sulpicio, there is no proof that it was served a copy of the Club Rules in
question and that it signed therein.61 (Emphasis supplied)

A factual question on whether or not Sulpicio was given a copy of the Club Rulebook must be resolved
because it has a bearing on the legal issue of whether or not a binding arbitration agreement existed
between the parties. Factual review, nonetheless, may be justified: (1) when there is a grave abuse of
discretion in the appreciation of facts;62 (2) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;63 and (3) when the Court of Appeals' findings of fact are premised on the
absence of evidence but such findings are contradicted by the evidence on record.64

Here, this Court finds grave abuse of discretion by the Court of Appeals in its appreciation of facts. As
will be discussed later, the evidence on record shows that Sulpicio was furnished a copy of the Club
Rulebook and was aware of its provisions. Other pieces of evidence were Sulpicio's letters65 to
Steamship and the affidavits of Director and Head of Underwriting of the Club and In-Charge of Far
East membership including the Philippines, Jonathan Andrews;66 Vice-President of Pioneer Insurance
who was in charge of Sulpicio's account, Roderick Gil Narvacan;67 and Manager of Seaboard-Eastern's
Marine Department who was in charge of Sulpicio's account, Elmer Felipe.68

I.B

The Verification and Certification against Forum Shopping signed by Steamship's counsel substantially
complied with the requirements of the Rules of Court.

Under Rule 45 of the Rules of Court, a petition for review must be verified69 and must contain a sworn
certification against forum shopping.70

"A pleading is verified by an affidavit that the affiant has read the pleading and that the allegations
therein are true and correct of his [or her] personal knowledge or based on authentic records."71

On the other hand, a certification against forum shopping is a petitioner's, statement "under oath that he
[or she] has not . . . commenced any other action involving the same issues in the Supreme Court, the
Court of Appeals or different divisions, or any other tribunal or agency[.]72 In this certification, the
petitioner must state the status of any other action or proceeding, if there is any, and undertakes to report
to the courts and other tribunal within five (5) days from learning of any similar action or proceeding.73
Failure to comply with the foregoing mandates constitutes a sufficient ground for the denial of the
petition.74

In case the petitioner is a private corporation, the verification and certification may be signed, for and on
behalf of this corporation, by a specifically authorized person, including its retained counsel, who has
personal knowledge of the facts required to be established by the documents.75 The reason is that:

A corporation, such as the petitioner, has no powers except those expressly conferred on it by the
Corporation Code and those that are implied by or are incidental to its existence. In turn, a corporation
exercises said powers through its board of directors and/or its duly authorized officers and agents.
Physical acts, like the signing of documents, can be performed only by natural persons duly authorized
for the purpose by corporate bylaws or by a specific act of the board of directors. "All acts within the
powers of a corporation may be performed by agents of its selection; and, except so far as limitations or
restrictions which may be imposed by special charter, by-law, or statutory provisions, the same general
principles of law which govern the relation of agency for a natural person govern the officer or agent of
a corporation, of whatever status or rank, in respect to his power to act for the corporation; and agents
once appointed, or members acting in their stead, are subject to the same rules, liabilities and
incapacities as are agents of individuals and private persons."
....
For who else knows of the circumstances required in the Certificate but its own retained counsel. Its
regular officers, like its board chairman and president may not even know the details required therein.76

In this case, Steamship's Petition's Verification and Certification against forum shopping was signed by
its counsel. A Power of Attorney77 dated August 1, 2007 was appended to the Petition, which
purportedly authorized "Atty. Charles Jay D. Dela Cruz or any of the partners of Del Rosario & Del
Rosario . . . to sign the verification or certification"78 against forum shopping of petitions and appeals in
appellate courts necessary in representing and defending Steamship. It was notarized, apostilled in
accordance with the law of Bermuda and authenticated by the Philippine consulate in London, United
Kingdom. However, a closer look into the Power of Attorney reveals that the signatory of the document
was not identified. This was pointed out by Sulpicio in its Comment.79

Nonetheless, Steamship subsequent filed its Reply,80 to which it attached two (2) Secretary's
Certificates81 signed by Davis containing excerpts of the July 24, 2007 and July 26, 2011 board
resolutions showing Davis' authority to execute the Power of Attorney on its behalf, and Davis'
reappointment as Corporate Secretary, respectively. The signature in the Power of Attorney was similar
in form and appearance to Davis' signature in the Secretary's Certificates, which lends credence to
Steamship's submission that the Power of Attorney was executed and signed by Davis.82

The rule on verification of a pleading is a formal, not jurisdictional, requirement.83This Court has held
that:

Non compliance with the verification requirement does not necessarily render the pleading fatally
defective, and is substantially complied with when signed by one who has ample knowledge of the truth
of the allegations in the complaint or petition, and when matters alleged in the petition have been made
in good faith or are true and correct.84(Citation omitted)
On the other hand, a certification not signed by a duly authorized person renders the petition subject to
dismissal.85 Moreover, the lack of or defect in the certification is not generally curable by its subsequent
submission or correction.86However, there are cases where this Court exercised leniency due to the
presence of special circumstances or compelling reasons, such as the prima facie merits of the
petition.87 In some cases, the subsequent submission of proof of authority of the party signing the
certification on behalf of the corporation was considered as substantial compliance with the rules and the
petition was given due course.88

In Shipside Incorporated v. Court of Appeals,89 this Court held:

Moreover, in Loyola, Roadway, and Uy, the Court excused non-compliance with the requirement as to
the certificate of non-forum shopping. With more, reason should we allow the instant petition since
petitioner herein did submit a certification on non-forum shopping, failing only to show proof that the
signatory was authorized to do so. That petitioner subsequently submitted a secretary's certificate
attesting that Balbin was authorized to file an action on behalf of petitioner likewise mitigates this
oversight.90

Likewise, this Court ho1ds that there is substantial compliance with the rules on verification and
certification against forum shopping. Steamship's subsequent submission of the Secretary's Certificates
showing Davis' authority to execute the Power of Attorney in favor of Del Rosario & Del Rosario cured
the defect in the verification and certification appended to the petition. Under the circumstances of this
case, Steamship's counsel would be in the best position to determine the truthfulness of the allegations in
the petition and certify on non-forum shopping considering that "it has handled the case for . . .
Steamship since its inception."91This Court also considers Steamship's allegations that the same Power
of Attorney was used in its Answer Ad Cautelam filed on August 12, 2008 before the Regional Trial
Court and in its Petition for Certiorari before the Court of Appeals on November 12, 2008. Significantly,
Sulpicio never questioned the authority of Del Rosario & Del Rosario to represent Steamship in the
proceedings before the lower courts.92

The rules on forum-shopping are "designed . . . to promote and facilitate the orderly administration of
justice." They are not to be interpreted with "absolute literalness" as to subvert the procedural rules'
ultimate objective of achieving substantial justice as expeditiously as possible.93 These goals would not
be circumvented by this Court's recognition of the authorized counsel's signature in the verification and
certification of non-forum shopping.

This Court now proceeds to the substantive issues of whether or not there was a valid arbitration
agreement between the parties and whether or not referral to arbitration was imperative.

II

Steamship contends that the arbitration agreement set forth in its Club Rules, which in turn is
incorporated by reference in the Certificate of Entry and Acceptance of M/V Princess of the World,94 is
valid and binding upon Sulpicio,95pursuant to this Court's ruling in BF Corporation v. Court of
Appeals.96

Steamship further avers that the Court of Appeals' finding that there was no proof that Sulpicio was
given a copy of the Club Rules was incorrect and contradicted by the evidence on record.97 Steamship
adds that by Sulpicio's own declarations in its letter-application98 for membership of its vessels, Sulpicio
acknowledged that it had received a copy of the Club Rules and that its membership in Steamship is
subject to them. 99 It contends that Sulpicio was "provided with copies of the Club's Rule books on an
annual basis by Pioneer Insurance and Seaboard-Eastern who acted as brokers [for Sulpicio's]
entry."100 Moreover, throughout Sulpicio's almost 20 years of membership,101 it has been aware of, and
relied upon, the terms of the Club Rules, as revealed in its various correspondences through its brokers
with Steamship.102 Thus, Sulpicio is estopped to deny that it was aware of, and agreed to be bound by,
the Club Rules and their provisions.103

Steamship argues that a referral of the case to arbitration is imperative pursuant to the mandates of
Republic Act No. 9285 or the ADR Law.104 It adds that the trial court's reliance on the ruling
in European Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte, Ingeniurgesellschaft
Gmbh105 was misplaced. That case was decided on the basis of Republic Act 876 or the Old Arbitration
Law, which did not provide for instances where some of the multiple impleaded parties were not
covered by an arbitration agreement.106 It adds that now, Section 25 of the ADR Law specifically
provides that "the court shall refer to arbitration those parties who are bound by the arbitration
agreement although the civil action may continue as to those who are not bound by such arbitration
agreement."107 Even from a procedural standpoint, Steamship contends that the claim against it may be
separated from Pioneer Insurance and Seaboard-Eastern as these local insurance companies were
impleaded as solidary obligors/debtors.108

Steamship further submits that "a Philippine court is an inconvenient forum to thresh out the issues
involved in Sulpicio's claim."109 First, Sulpicio's claim is governed by the English Law, as expressly
stated in the 2005/2006 Club Rules.110Second, a Philippine court would be "an ineffective venue" to
enforce any judgment that may be obtained against Steamship, a foreign corporation.111Thus, on the
basis of the doctrine of forum non conveniens alone, Steamship contends that the claim against it should
be referred to arbitration in London.112

Finally, Steamship holds that "Sulpicio should participate in the London Arbitration as [it] is already
progressing . . . [i]nstead of wasting its time on prosecuting its claim before a Philippine court that is
devoid of jurisdiction[.]113

Sulpicio counters that the Court of Appeals was correct in ruling that there was no arbitration agreement
between the parties.114 The arbitration clause in the 2005/2006 Club Rules is not valid and binding for
failure to comply with Section 4 of the ADR Law, which requires that an arbitration agreement be in
writing and subscribed by the parties or their lawful agent.115 Sulpicio adds that "[i]n White Gold Marine
Services, Inc. vs. Pioneer Insurance and Surety Corporation, . . . Steamship did not invoke arbitration
but filed suit before a Philippine court, which . . . proves that [the 2005/2006 Club Rules' arbitration
clause] is neither mandatory nor binding" upon the parties.116

Sulpicio further contends that the Certificate of Entry and Acceptance did not provide for arbitration as a
mode of dispute resolution, that the rules referred to was not particularly identified or described, and that
it never received a copy of the Club Rules.117

Assuming there was valid arbitration agreement between them, Sulpicio submits that the trial court
correctly relied on the ruling in European Resources in denying the referral of the case to
arbitration.118 Arbitration in London would not be the "most prudent action" because the arbitral decision
will not be binding on Pioneer Insurance and Seaboard-Eastern and it would result in a "split
jurisdiction."119Sulpicio further contends that the exception laid down in European Resources still
applies because the ADR Law was already in effect when the case was decided by this Court.120

In its Reply, Steamship maintains that there is a valid arbitration clause between them and that Sulpicio
was well aware of its Club Rules. It adds that Sulpicio is merely feigning ignorance of the Club Rules to
escape the obligatory nature of the arbitration agreement. Steamship further reiterates that Section 25 of
the ADR Law is plain and clear that when there are multiple parties in an action, the court must "refer to
arbitration those parties bound by the arbitration agreement and let the action remain as to those who are
not bound."121 "Moreover, as the relationship between . . . Steamship and . . . Sulpicio are governed by
English Law[,] it may be more prudent to refer the disgute to arbitration in London under the doctrine
of forum non conveniens."122

Finally, Steamship avers that under Rule 47 of the 2005/2006 Club Rules, it has "the right to pursue
legal action against a [m]ember before any jurisdiction at its sole discretion."123 Even if there is no such
provision, Steamship contends that it may waive its rights to compel arbitration in individual cases.124 It
adds that the waiver of such right in White Gold has no effect to this case because Sulpicio is not a party
in that case.125

II.A

It is the State's policy to promote party autonomy in the mode of resolving disputes.126 Under the
freedom of contract principle, parties to a contract may stipulate on a particular method of settling any
conflict between them.127 Arbitration and other alternative dispute resolution methods like mediation,
negotiation, and conciliation are favored over court action. Republic Act No. 9285128 expresses this
policy:

Section 2. Declaration of Policy. — It is hereby declared the policy of the State to actively promote
party autonomy in the resolution of disputes or the freedom of the parties to make their own
arrangements to resolve their disputes. Towards this end, the State shall encourage and actively promote
the use of Alternative Dispute Resolution (ADR) as an important means to achieve speedy and impartial
justice and declog court dockets. As such, the State shall provide means for the use of ADR as an
efficient tool and an alternative procedure for the resolution of appropriate cases. Likewise, the State
shall enlist active private sector participation in the settlement of disputes through ADR. This Act shall
be without prejudice to the adoption by the Supreme Court of any ADR system, such as mediation,
conciliation, arbitration, or any combination thereof as a means of achieving speedy and efficient means
of resolving cases pending before all courts in the Philippines which shall be governed by such rules as
the Supreme Court may approve from time to time. (Emphasis supplied)

Arbitration, as a mode of settling disputes, was already recognized in the Civil Code.129 In 1953,
Republic Act No. 876 was passed, which reinforced domestic arbitration as a process of dispute
resolution. Foreign arbitration was likewise recognized through the Philippines' adherence to the United
Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, otherwise
known as the New York Convention.130 Republic Act No. 9285 sets the basic principles in the
enforcement of foreign arbitral awards in the Philippines.131

Consistent with State policy, "arbitration agreements are liberally construed in favor of proceeding to
arbitration."132 Every reasonable interpretation is indulged to give effect to arbitration agreements. Thus,
courts must give effect to the arbitration clause as much as the terms of the agreement would
allow.133 "Any doubt should be resolved in favor of arbitration."134

II.B

Sulpicio contends that there was no valid arbitration agreement between them, and if there were, it was
not aware of it.

This Court rules against Sulpicio's submission.

The contract between Sulpicio and Steamship is more than a contract of insurance between a marine
insurer and a shipowner. By entering its vessels in Steamship, Sulpicio not only obtains insurance
coverage for its vessels but also becomes a member of Steamship.

A protection and indemnity club, like Steamship, is an association composed of shipowners generally
formed for the specific purpose of providing insurance cover against third-party liabilities of its
members.135 A protection and indemnity club is a mutual insurance association, described in White Gold
Marine Services, Inc. v. Pioneer Insurance and Surety Corp.136 as follows:

[A] mutual insurance company is a cooperative enterprise where the members are both the insurer and
insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid, and where the profits are divided among themselves,
in proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types
of coverage, namely, protection and indemnity, war risks, and defense costs.137

A shipowner wishing to enter its fleet of vessels to Steamship must fill in an application for entry form,
which states:

PLEASE ENTER IN THE ASSOCIATION, SUBJECT TO THE RULES, RECEIPT OF WHICH WE

ACKNOWLEDGE, THE UNDERMENTIONED VESSEL(S).138

The application form is signed by the shipowner or its authorized representative.

Steamship then issues a Certificate of Entry and Acceptance of the vessels, showing its acceptance of
the entry. The Certificate of Entry and Acceptance for M/V Princess of the World states:
 CERTIFICATE OF ENTRY AND ACCEPTANCE

by the Club of your proposal for entering the ship(s) specified below, and of the tonnage set out against
each, in:

Class 1 PROTECTION AND INDEMNITY

of the Club from
Noon 20th February 2005 to Noon 20th February 2006

or until sold, lost, withdrawn or the entry is terminated in accordance with the rules, to the extent
specified and in accordance with the Act, By(e)-Laws and the Rules from time to time in force and the
special terms specified overleaf.

Your name has been entered in the Register of Members of the Club as a Member.

Xxx

Thus, a contract of insurance is perfected between the parties upon Steamship's issuance of the
Certificate of Entry and Acceptance.

[A] contract of insurance, like other contracts, must be assented to by both parties either in person or by
their agents. So long as an application for insurance has not been either accepted or rejected, it is merely
an offer or proposal to make a contract. The contract, to be binding from the date of application, must
have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to
be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless
the minds of the parties have met in agreement.140

Title VI, Section 49 of Presidential Decree No. 612141 or the Insurance Code defines an insurance policy
as "the written instrument in which a contract of insurance is set forth." Section 50 of this Code provides
that the policy, which is required to be in printed form, "may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of
insurance shall be written on the blank spaces." Any rider, clause, warranty, or endorsement attached
and referred to in the policy by its descriptive title or name is considered part of this policy or contract of
insurance and binds the insured.

Section 51 of the Insurance Code prescribes the information that must be stated in the policy, namely:
the parties in the insurance contract, amount insured, premium, property or life insured, risks insured
against, and period of insurance. However, there is nothing in the law that prohibits the parties from
agreeing to other terms and conditions that would govern their relationship, in which case the general
rules of the Civil Code regulating contracts will apply.142

The Certificate of Entry and Acceptance plainly provides that the Class 1 protection and indemnity
coverage would be to the extent specified and in accordance with the Act, the By-Laws, and the Rules of
the Club in force at the time of the coverage. The "Notes" in the bottom portion of the Certificate states
that these Rules "are printed annually in book form" and disseminated to all members. M/V Princess of
the World was insured from February 20, 2005 to February 20, 2006. Hence, the 2005/2006 Club Rules
apply.

Moreover, attached to the Certificate of Entry and Acceptance is a War Risk Extension clause and Bio-
Chem clause which refer to Rule 21 of the 2005/2006 Club Rules relating to war risk insurance.

WAR RISK EXTENSION

Cover excluded under Rule 21 is hereby reinstated subject to the terms set out in this Certificate of Entry
and any Endorsement thereto, and to the following conditions.
....

At any time or times before, or at the commencement of, or during the currency of any Policy Year of
the Club, the Directors may in their discretion determine that any ports, places, countries, zones or areas
(whether of land or sea) be excluded from the insurance provided by this [Protection and Indemnity] war
risks cover. Save as otherwise provided by the Directors, this [Protection and Indemnity] war risks cover
shall cease in respect of such ports, places, countries, zones or areas at midnight on the seventh day
following the issue to the Members of notice of such detem1ination in accordance with the terms of the
cover provided pursuant to Rule 21 of the Club's Rules
....

Notwithstanding any other term or condition of this insurance, the Directors may in their discretion
cancel this special cover giving 7 days' notice to the Members (such cancellation becoming effective on
the expiry of 7 days from midnight of the day on which notice of cancellation is issued by the Club and
the Directors may at any time after the issue of notice of such cancellation resolve to reinstate special
cover pursuant to the proviso to the terms of the cover issued pursuant to Rule 21 on such terms and
conditions and subject to such limit as the Directors in their discretion may determine.

When either a Demise, Time, Voyage, Space or Slot Charterer and/or the Owner of the Entered Ship are
separately insured for losses, liabilities, or the costs and expenses incidental thereto covered under Rule
21 of the Club and/or the equivalent Rule of any other Association which participates in the Pooling
Agreement and General Excess Loss Reinsurance Contract, the aggregate of claims in respect of such
losses, liabilities, or the costs and expenses incidental thereto covered under Rule 21 of the Club and/or
the equivalent Rule of such other Association(s), shall be limited to the amount set out in the Certificate
of Entry in respect of any one ship, any one incident or occurrence.143

Sulpicio's acceptance of the Certificate of Entry and Acceptance manifests its acquiescence to all its
provisions. There is no showing in the records or in Sulpicio's contentions that it objected to any of the
terms in this Certificate. Its acceptance, likewise, operated as an acceptance of the entire provisions of
the Club Rules.

When a contract is embodied in two (2) or more writings, the writings of the parties should be read and
interpreted together in such a way as to render their intention effective.144

With the exception of the War Risk Extension clause, the Bio-chem clause, and a succinct statement of
the limits of liability, warranties, exclusion, and deductibles, the Certificate of Entry and Acceptance
does not contain the details of the insurance coverage. A person would have to refer to the Club Rules to
have a complete understanding of the contract between the parties.

The Club Rules contain the terms and conditions of the relationship between the Steamship and its
members including the scope, nature, and extent of insurance coverage of its members' vessels. The
2005/2006 Club Rules145 of Class 1, which cover protection and indemnity risks provide, insofar as
relevant:

3 Scope of Cover

i. The terms upon which a Member is entered in the Club are set out in the Rules and any
Certificate of Entry for that Member.

ii. The risks against which a Member is insured by entry in the Club are set out in Rule 25 and are
always subject to the conditions, exceptions, limitations and other terms set out in the remainder
of these Rules and any Certificate of Entry for that Member.

....

6 Entry
....

iv. The provisions of this Rule apply throughout the period of entry of the Ship in the Club . . .

....

8 Members

i. Every Owner who enters any ship in the Club shall (if not already a Member) be and become a
Member of the Club as from the date of the commencement of such entry. Each Member is
bound by the Act and By(e)-Laws of the Club and by these Rules.

....

iv. All contracts of insurance with the Club shall be deemed to be subject to and incorporate all the
provisions of these Rules except to the extent otherwise expressly agreed in writing with the
Managers.

v. Each Member or other person whose application for insurance or reinsurance is accepted shall be
deemed to have agreed both for itself and its successors and each of them that both it and they
and each and all of them will be subject to and bound by and will perform their obligations under
the Rules, Act and By(e)-Laws of the Club and any contract of insurance with the Club.
....

45 Amendments to Rules

The Rules of this Class may be altered or added to by Ordinary Resolution passed at a separate meeting
of the Members of this Class provided that no such alterations shall be effective unless and until the
same shall be sanctioned by the Directors.146

The 2005/2006 Club Rules also provide the nature of Steamship's Protection and Indemnity cover and
the terms on which it is provided. In particular, Rule 25(i) to (xxi) identify a member's liabilities, costs,
and expenses covered by the insurance, Rules 18 to 24 set out the general exclusions and limitations,
Rule 26 provides the requirements for classification and condition surveys, and Rule 28 addresses
general terms and conditions for recovery of claims. The 2005/2006 Club Rules also contain provisions
on double insurance (Rule 23), claims handling (Rules 30 and 31), cessation of membership (Rule 35),
cessation of insurance of individual vessels (Rule 36) deduction and set-off (Rule 40), and assignment
and subrogation (Rules 41 and 42).

The arbitration clause is found in Rule 47 of the 2005/2006 Club Rules:

47 dispute resolution, Adjudication

i. in the event of any difference or dispute whatsoever, between or affecting a Member and the
Club and concerning the insurance afforded by the Club under these rules or any amounts due
from the Club to the Member or the Member to the Club, such difference or dispute shall in the
first instance be referred to adjudication by the Directors. That adjudication shall be on the basis
of documents and written submissions alone. Notwithstanding the terms of this Rule 47i, the
Managers shall be entitled to refer any difference or dispute to arbitration in accordance with
sub-paragraph ii below without prior adjudication by the Directors.

ii. If the Member does not accept the decision of the Directors, or if the Managers, in their absolute
discretion, so decide, the difference or dispute shall be referred to the arbitration of three
arbitrators, one to be appointed by each of the parties and the third by the two arbitrators so
chosen, in London. The submission to arbitration and all the proceedings therein shall be subject
to the provisions of the English Arbitration Act, 1996 and the schedules thereto or any statutory
modifications or re-enactment thereof.

iii. No Member shall be entitled to maintain any action, suit or other legal proceedings against the
Club upon any such difference or dispute unless and until the same has been submitted to the
Directors and they shall have given their decision thereon, or shall have made default for three
months in so doing; and, if such decision be not accepted by the Member or such default be
made, unless and until the difference or dispute shall have been referred to arbitration in the
manner provided in this Rule, and the Award shall have been published; and then only for such
sum as the Award may direct to be paid by the Club. And the sole obligation of the Club to the
Member under these Rules or otherwise howsoever in respect of any disputed claim made by the
Member shall be to pay such sum as may be directed by such an Award.
 iv. In any event no request for adjudication by the Member shall be made to the Directors in respect
of any difference or dispute between, or matter affecting, the Member and the Club more than
two years from the date when that dispute, difference or matter arose unless, prior to the expiry
of this limitation period, the Managers have agreed in writing to extend the same.

v. Nothing in this Rule 47 including paragraph i, or in any other Rule or otherwise shall preclude
the Club from taking any legal action of whatsoever nature in any jurisdiction at its absolute
discretion in order to pursue or enforce any of its rights whatsoever and howsoever arising
including but not limited to: -

a. Recovering sums it considers to be due from the Member to the Club;

b. Obtaining security for such sums; and/or
c. Enforcement of its right of lien whether arising by law or under these rules.

vi. These rules and any contract of insurance between the Club and the Member shall be governed
by and construed in accordance with English law.147 (Emphasis in the original)

Under Rule 47, any dispute concerning the insurance afforded by Steamship must first be brought by a
claiming member to the Directors for adjudication. If this member disagrees with the decision of the
Director, the dispute must be referred to arbitration in London. Despite the member's disagreement, the
Managers of Steamship may refer the dispute to arbitration without adjudication of the Directors. This
procedure must be complied with before the member can pursue legal proceedings against Steamship.

There is no ambiguity in the terms and clauses of the Certificate of Entry Acceptance. Contrary to the
ruling of the Court of Appeals, the Certificate clearly incorporates the entire Club Rules—not only those
provisions relating to cancellation and alteration of the policy.148

"[W]hen the text of a contract is explicit and leaves no doubt as to its intention, the court may not read
into it any other intention that would contradict its plain import."149

The incorporation of the Club Rules in the insurance policy is without any qualification. This includes
the arbitration clause even if not particularly stipulated. A basic rule in construction is that the entire
contract, and each and all of its parts, must be read together and given effect, with all its clauses and
provisions harmomonized with one another.150

II.C

The Court of Appeals ruled that the arbitration agreement in the 2005/2006 Club Rules is not valid
because it was not signed by the parties.

In domestic arbitration, the formal requirements of an arbitration agreement are that it must "be in
writing and subscribed by the party sought to be charged, or by his lawful agent."151 In international
commercial arbitration,152 it is likewise required that the arbitration agreement must be in writing.

An arbitration agreement is in writing if it is contained (1) in a document signed by the parties, (2) in an
exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the
agreement, or (3) in an exchange of statements of claim and defense in which the existence of an
agreement is alleged by a party and not denied by another. The reference in a contract to a document
containing an arbitration clause constitutes an arbitration agreement provided that the contract is in
writing and the reference is such as to make that clause part of the contract.153

In BF Corp. v. Court of Appeals,154 one (1) of the parties denied the existence of the arbitration cause on
the ground that it did not sign the Conditions of Contract that contained the clause. This Court held that
the arbitration clause was nonetheless binding because the Conditions of Contract were expressly made
an integral part of the principal contract between the parties. The formal requirements of the law were
deemed complied with because "the subscription of the principal agreement effectively covered the
other documents incorporated by reference [to them]."155 In, arriving at this ruling, this Court explained:

A contract need not be contained in a single writing. It may be collected from several different writings
which do not conflict with each other and which, when connected, show the parties, subject matter,
terms and consideration, as in contracts entered into by correspondence. A contract may be
encompassed in several instruments even though every instrument is not signed by the parties,
since it is sufficient if the unsigned instruments are clearly identified or referred to and made part
of the signed instrument or instruments. Similarly, a written agreement of which there are two copies,
one signed by each of the parties, is binding on both to the same extent as though there had been only
one copy of the agreement and both had signed it.156 (Emphasis supplied)

Thus, an arbitration agreement that was not embodied in the main agreement but set forth in another
document is binding upon the parties, where the document was incorporated by reference to the main
agreement. The arbitration agreement contained in the Club Rules, which in turn was referred to in the
Certificate of Entry and Acceptance, is binding upon Sulpicio even though there was no specific
stipulation on dispute resolution in this Certificate.

Furthermore, as stated earlier, Sulpicio became a member of Steamship by the very act of making a
contract of insurance with it. The Certificate of Entry and Acceptance issued by Steamship states that
"[its] name has been entered in the Register of Members of the Club as a Member."157 Sulpicio admits its
membership and the entry of its vessels to Steamship.

Rule 8(v) of the 2005/2006 Club Rules provides that:

Each Member or other person whose application for insurance or reinsurance is accepted shall be
deemed to have agreed both for itself and its successors and each of them that both it and they and each
and all of them will be subject to and bound by and will perform their obligations under the Rules, Act
and By(e)-Laws of the Club and any contract of insurance with the Club.

Sulpicio's agreement to abide by Steamship's Club Rules, including its arbitration clause, can be
reasonably inferred from its submission of an application for entry of its vessels to Steamship "subject to
the Rules, receipt of which we acknowledge."158
The ruling of this Court in Associated Bank v. Court of Appeals159 is applicable by analogy to this case.

In that case, plaintiffs sought to recover the amount of 16 checks that were honored by Associated Bank
despite the apparent alterations in the name of the payee. Associated Bank filed a Third-Party Complaint
against Philippine Commercial International Bank, Far East Bank & Trust Company, Security Bank and
Trust Company, and Citytrust Banking Corporation for reimbursement, contribution, and indemnity.
This Complaint was based on their being the collecting banks and by virtue of their bank guarantee for
all checks sent for clearing to the Philippine Clearing House Corporation (PCHC). The trial court
dismissed the Third-Party Complaint for lack of jurisdiction, citing Section 36 of the Clearing House
Rules and Regulations of the PCHC, which provides for arbitration. This Court, in affirming the
dismissal, held:

Under the rules and regulations of the Philippine Clearing House Corporation (PCHC), the mere act of
participation of the parties concerned in its operations in effect amounts to a manifestation of agreement
by the parties to abide by its rules and regulations. As a consequence of such participation, a party
cannot invoke the jurisdiction of the courts over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration processes laid out by the body. Since
claims relating to the regularity of checks cleared by banking institutions are among those claims which
should first be submitted for resolution by the PCHC's Arbitration Committee, petitioner Associated
Bank, having voluntarily bound itself to abide by such rules and regulations, is estopped from seeking
relief from the Regional Trial Court on the coattails of a private claim and in the guise of a third party
complaint without first having obtained a decision adverse to its claim from the said body. lt cannot
bypass the arbitration process on the basis of its averment that its third party complaint is inextricably
linked to the original complaint in the Regional Trial Court.

....

Section 36.6 is even more emphatic:

36.6 The fact that a bank participates in the clearing operations of PCHC shall be deemed its written and
subscribed consent to the binding effect of this arbitration agreement as if it had done so in accordance
with Section 4 of the Republic Act No. 876 otherwise known as the Arbitration Law.

Thus, not only do the parties manifest by mere participation their consent to these rules, but such
participation is deemed (their) written and subscribed consent to the binding effect of arbitration
agreements under the PCHC rules. Moreover, a participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the Regional Trial Courts in the National Capital
Region where the head office of any of the parties is located only after a decision or award has been
rendered by the arbitration committee or arbitrator on questions of law.160 (Emphasis supplied, citation
omitted)

This Court held that mere participation by the banks in the clearing operations of the PCHC manifest
their consent to the PCHC Rules, including the binding effect of the arbitration agreements under these
Rules.
In this case, by its act of entering its fleet of vessels to Steamship and accepting without objection the
Certificate of Entry and Acceptance covering its vessels, Sulpicio manifests its consent to be bound by
the Club Rules. The contract between Sulpicio and Steamship gives rise to reciprocal rights and
obligations. Steamship undertakes to provide protection and indemnity cover to Sulpicio's fleet. On the
other hand, Sulpicio, as a member, agrees to observe Steamship's rules and regulations, including its
provisions on arbitration.

III.A

The Court of Appeals' finding that there was no proof that Sulpicio was given a copy of the 2005/2006
Club Rules is contradicted by the evidence on record.

In its Comment, Sulpicio contends that it "was never given or sent a copy" of the Rulebook as stated in
the affidavits of its Executive Vice President, Atty. Eusebio S. Go and its Safety and Quality Assurance
Manager, Engr. Ernelson P. Morales.161It also quoted a portion of the Affidavit of its Executive Vice
President and Chief Executive Officer, Carlos S. Go, who declared that "[Sulpicio] and Steamship have
not signed any arbitration agreement" and "[n]o such agreement exists."162

Sulpicio cannot feign ignorance of the arbitration clause since it was already charged with notice of the
Club Rules due to an appropriate reference to it in the Certificate of Entry and Acceptance. Assuming its
contentions were true that it was not furnished a copy of the 2005/2006 Club Rules, by the exercise of
ordinary diligence, it could have easily obtained a copy of them from Pioneer Insurance or Seaboard-
Eastern.

In any case, Sulpicio's bare denials cannot succeed in light of the preponderance of evidence submitted
by Steamship.

The Affidavit163 dated August 29, 2007 of Jonathan Andrews, Director and Head of Underwriting of the
Eastern Syndicate of the Managers of Steamship and in charge of Steamship's Far East membership,
including the Philippines, stated:

4. The contract of insurance between the Club and a Member is contained in, and evidenced by:

a) The Rules of the Club for whichever Class or Classes the vessel is entered, for the time being
in force; and

b) A Certificate of Entry.

5.

....

5. The Club's policy year runs from noon on 20th February of each year until noon on 20th February
of the year following . . . The Rule book is published on an annual basis prior to the
 commencement of the Policy year to which it applies. Although the Rules can be amended
pursuant to Rule 45, the dispute resolution provisions of the Rules have provided for arbitration
in London since well before the Plaintiff's entry in the Club.

....

10. In addition, it is quite clear that throughout their lengthy membership of the Club, the Plaintiffs
were aware of, and relied upon, the terms of the Club's Rules. Produced and shown to me,
marked "JHDA 4", is a copy of a letter164 from the Plaintiffs, dated 4th June, 1993, seeking a
refund of premium for the "SURIGAO PRINCESS" on the grounds that the vessel was laid up.
That letter's enclosures consist of:

(a) The Club's printed form for returns of premium when a vessel is laid-up . . . signed by Mr.
Carlos S. Go on behalf of the Plaintiffs;

(b) A photocopy of the relevant provision in the Club's Rules dealing with laid-up returns, Rule
29; and

(c) A Certificate from the Philippines Port Authority . . .

11.

The fact that Sulpicio's application for a laid up return attached a photocopy of the Club's Rule
book demonstrates both that this was physically in their possession and that they were familiar
with its contents.

11. Throughout the lengthy period of this entry, as might be anticipated, there was a considerable
volume of correspondence between the Plaintiffs and the Club via the former's brokers.
Examples of that correspondence are produced and shown to me, marked "JHDA 5". As the
Court will note from that correspondence, it contains numerous and frequent references to
various of the Club's Rules, e.g.:

• Rule 22, dealing with double insurance

• Rule 25 xix, dealing with towage
• Rule 23 i, dealing with classification
• Rule 23 v b and c, dealing with defect warranties
• Rule 23 iv, dealing with safety audits.

12. The fact that Plaintiffs possessed and were fully conversant with the Club's Rules is most clearly
demonstrated by the correspondence provided and shown to me, marked "JHDA 6". After the
grounding of the "PRINCESS OF THE PACIFIC", due to the concerns arising out of this
casualty, the Club initially reserved cover pending further investigation and required an
independent audit of the Plaintiffs Safety Management System. When this decision was
conveyed to the Plaintiffs via their brokers, Seaboard-Eastern, they replied:
As expected, Carlos Go was so upset and expressed disappointment when the undersigned spoke to him
about the report of Noble Denton and the club's decision to suspend any action on the claim especially
so since owners believe the findings of the surveyors to the club are inaccurate and after relating such
findings to the club rules owners find no basis for club's decision to suspend action on the claim.165

Roderick Gil Narvacan, Vice-President of the Hull Unit of Pioneer Insurance which handled Sulpicio's
account, also narrated in his Affidavit[166 dated September 4, 2007:

7. I know for a fact that Sulpicio received a copy of the Club's Rule Book and had full knowledge of the
Club's Rules during the length of time that it was a member of the Club.

8. [I]n all Entry Forms signed and submitted by Sulpicio to the Club throughout its years of membership
in the Club, Sulpicio always acknowledged that it received a copy of Club's Rule Book. A sample of
Sulpicio's duly signed Entry Form submitted to the Club on 6 February 1997 is hereto attached as Annex
"1."

9. The Company, through my department, also makes it a point to remind all the Club's Members
including Sulpicio to familiarize themselves with the Club's Rulebook as the rules therein provided are
applied to all Club related matters including claims procedures. A copy of Ms. May Valles' email167 to
Sulpicio dated 27 August 2002 is hereto attached as Annex "2" and her letter168 to Sulpicio dated 17
October 2002 is hereto attached as Annex "3." Ms. Valles was a former member of the Company's Hull
Department and in both written communications, she reminded Sulpicio through its Executive Vice-
President and CFO Mr. Carlos S. Go of certain Club Rules such as the prescriptive period to claim for
lay-up premium refund.

10. In reply to the 27 August 2002 email, Mr. Carlos S. Go, by a 28 August 2002 email169 to Ms. Valles,
explained his understanding of the provision on the prescriptive period to claim for lay-up premium
refund under the Club's Rules, thereby clearly showing that Sulpicio was aware of the Club's Rules. A
copy of the 28 August 2002 email of Mr. Go is hereto attached as Annex "4."

11. To further prove Sulpicio's knowledge of Club's Rules, I hereto attach the following copies of letters
from Sulpicio addressed to the Company with attached letter by Sulpicio to the Club:

• Letter-request170 for refund of lay-up premiums for the vessel M/V Surigao Princess dated 4 June
1993 as Annex "5";
• Letter-request171 for refund of lay-up premiums for the vessel M/V Manila Princess dated 10
June 1998 as Annex '"6";
• Letter request172 for refund of lay-up premiums for the vessel M/V Filipina Princess dated 21
June 1999 as Annex "7";
• Letter-request173 for refund of lay-up premiums for the vessel M/V Manila Princess dated 17
May 2001 as Annex "8"; and
• Letter-request174 for refund of lay-up premiums for the vessel M/V Nasipit Princess dated 16
August 2002 as Annex "9";
In each of the above letters, Sulpicio declared to both the Company and the Club that "(w)e shall
therefore be glad to receive a credit note for the return of premium under the Rules of the
Association."175(Emphasis in the original)

Finally, Elmer Felipe, Manager of Marine Department of Seaboard-Eastern in charge of Sulpicio's

account, also narrated:

11. As insurers for the Hull & Machinery of Sulpicio's Fleet, the Company, through my department,
assisted Sulpicio in regard to its [Protection and Indemnity] cover by sending copy of the Club's
Rulebook while it was an active Member of the Club.

12. By way of example, in the year 2002, the Company sent five (5) copies of the Club's Rulebook to
Mr. Carlos S. Go, Executive Vice-President and CEO of Sulpicio as evidenced by a transmittal letter
dated 11 April 2002 duly signed by the Company's First Vice-President Joli Co-Wu. A copy of said
transmittal letter176 dated 11 April 2002 is hereto attached as Annex "1."

13. The other transmittal letters proving distribution of the Club's Rulebook to Sulpicio in its other years
of membership with the Club were among those discarded by the Company when it moved . . . to a
smaller office . . .

14. [Sulpicio is presumed to] know the Club's Rules as it was provided with copies of the Rulebook on
an annual basis.

15. In fact, in a 8 May 2004 letter addressed to the Company, Sulpicio claimed for refund of lay-up
premiums from the Club in connection with the vessel M/V Princess of the World and in Sulpicio's letter
to the Club attached to the said 8 May 2004 letter, Sulpicio declared that "(w)e shall therefore be glad to
receive a credit note for the return of premium under the Rules of the Association." This was followed
by December 2004 letter for refund of lay-up returns for the vessel M/V Princess of the World where
Sulpicio also invoked the Club Rules. A copy of the 8 May 2004 letter177 with attachment is hereto
attached as Annex "2" and a copy of the 8 December 2004 letter178 is hereto attached as Annex "3."
....

18. More importantly, after the Club denied cover for the vessel M/V Princess of the World and prior to
the date when the termination of Sulpicio's entry in the Club took effect, our EVP, Mr. Jose G. Banzon,
Jr. sent an emai1179 dated 30 November 2005 to Mr. Carlos Go reminding Sulpicio of the remedy of
voluntary arbitration under Rule 47 of the Club's Rulebook and attaching a copy of Rule 47. Copies of
these documents are attached as Annex "4."180

These foregoing affidavits and the attached supporting documents consistently declared that Sulpicio
was given copies of the Rulebook on an annual basis and had even invoked its provisions in making a
claim from Steamship. Sulpicio's previous letters to Steamship referring to provisions of the Club Rules
show its knowledge. Sulpicio was also reminded of the arbitration clause during the negotiations
preceding the institution of the present case.
"[A] party is not relieved of the duty to exercise the ordinary care and prudence that would be exacted in
relation to other contracts. The conformity of the insured to the terms of the policy is implied from [its]
failure to express any disagreement with what is provided for."181 The agreement to submit all disputes
to arbitration is a long standing provision in the Club Rules. It was incumbent upon Sulpicio to
familiarize itself with the Club Rules, under the presumption that a person takes due care of its concerns.
Being a member of Steamship for 20 years,182 it has been bound by its Rules and has been expected to
abide by them in good faith.

In Development Bank of the Philippines v. National Merchandising Corp.,183 the parties, who were acute
businessmen of experience, were presumed to have assented to the assailed documents with full
knowledge:

The principal stockholders and officers of NAMERCO, particularly the Sycips who co-signed the
promissory notes in question, were, as the lower court found, businessmen of experience and
intelligence . . . We might say — paraphrasing Tin Tua Sia vs. Yu Biao Sontua, 56 Phil. 707 — that they
being of age and businessmen of experience, it must be presumed that they had acted with due care and
to have signed the documents in question with full knowledge of their import and the obligations they
were assuming thereby; that this presumption of law may not be overcome by the mere testimony of the
obligor or obligors; that, to permit a party, when, sued upon a contract, to admit that he signed it but to
deny that it expresses the agreement he had made, or to allow him to admit that he signed it solely on the
verbal assurance given by one party, however high his station may be, that he would not be held liable
thereon, would destroy the value of all contracts. Indeed, it would be disastrous to give more weight and
reliability to the self-serving testimony of a party bound by the contract than to the contents
thereof. Verba volant, scripta manent.184

Sulpicio is estopped from denying knowledge of the Rulebook by its own acts and representations, as
evidenced by its various letters to Steamship, showing its familiarity with the Rulebook and its
provisions.

"In estoppel, a person, who by his [or her] deed or conduct has induced another to act in a particular
manner, is barred from adopting an inconsistent position, attitude or course of conduct that thereby
causes loss or injury to another."185 It further bars a party from denying or disproving a fact, which has
become settled by its acts.186

Hence, this Court finds a preponderance of evidence showing that Sulpicio was given a copy and had
knowledge of the 2005/2006 Club Rules. Moreover, the 2005/2006 Club Rules' provision on arbitration
is valid and binding upon Sulpicio.

III.B

The Regional Trial Court should suspend proceedings to give way to arbitration. Even if there are other
defendants who are not parties to the arbitration agreement, arbitration is still proper.

Republic Act No. 9285 was approved on April 2, 2004 and was the controlling law at the time the
original and amended complaints were filed.
Section 25 of Republic Act No. 9285 is explicit that:

[W]here action is commenced by or against multiple parties, one or more of whom are parties to an
arbitration agreement, the court shall refer to arbitration those parties who are bound by the arbitration
agreement although the civil action may continue as to those who are not bound by such arbitration
agreement.

Rule 4.7 of the Special Rules on Alternative Dispute Resolution187 (2009 Special ADR Rules) further
expresses:

The court shall not decline to refer some or all of the parties to arbitration for any of the following
reasons:

a. Not all of the disputes subject of the civil action may be referred to arbitration;

b. Not all of the parties to the civil action are bound by the arbitration agreement and referral to
arbitration would result in multiplicity of suits;

c. The issues raised in the civil action could be speedily and efficiently resolved in its entirety by
the court rather than in arbitration;

d. Referral to arbitration does not appear to be the most prudent action; or

e. The stay of the action would prejudice the rights of the parties to the civil action who are not
bound by the arbitration agreement.

The present rule on multiple parties manifests due regard to the policy of the law in favor of arbitration.
In light of the express mandate of Republic Act No. 9285 and the subsequent 2009 Special ADR Rules,
this Court's ruling in European Resources and Technologies, Inc. v. Ingenieuburo Birkhann + Nolte,
Ingeniurgesellschaft Gmbh188 is deemed abrogated.

Notably, the Regional Trial Court did not rule on whether or not a valid and existing arbitration
.agreement existed between the parties. It merely stated in its Order. citing European Resources, that:

["]Even if there is an arbitration clause, there are instances when referral to arbitration does not appear
to be the most prudent action. The object of arbitration is to allow the expeditious determination of a
dispute. Clearly, the issue before us could not be speedily and efficiently resolved in its entirety if we
allow simultaneous arbitration proceedings and trial, or suspension of trial pending arbitration."

Moreover, it is noted that defendants Seaboard-Eastern Insurance Co. Inc. and Pioneer Insurance and
Surety Corporation already filed their respective Answers to the second amended complaint.189
On this basis, the Regional Trial Court denied Steamship's Motion to Dismiss and/or to Refer Case to
Arbitration and directed it to file an answer.

This Court finds that the Regional Trial Court acted in excess of its jurisdiction.

Where a motion is filed in court for the referral of a dispute to arbitration, Section 24 of Republic Act
No. 9285 ordains that the dispute shall be referred "to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of being performed."

Thus, the Regional Trial Court went beyond its authority of determining only the issue of whether or not
there was a valid arbitration agreement between the parties when it denied Steamship's Motion to
Dismiss and/or to Refer Case to Arbitration solely on the ground that it would not be the most prudent
action under the circumstances of the case. The Regional Trial Court went against the express mandate
of Republic Act No. 9285. Consequently, the Court of Appeals erred in finding no grave abuse of
discretion on the part of the trial court in denying referral to arbitration.

IV

In G.R. No. 208603, Sulpicio contends that Steamship's acts were contumacious because they were
intended to defeat Civil Case No. 07-577 and oust the Regional Trial Court of its jurisdiction, without
the approval of this Court.

Sulpicio further contends that there was no valid off-setting of the amount of US$69,570.99 from the
refund payable to it in the Unabia case because the issue on the propriety of the referral to arbitration
had yet to be resolved by this Court.190 It adds that the "arbitration – anti-suit injuction" cost was not a
debt of Sulpicio but a unilateral charge arising from an arbitration that it had not participated in, or was
enforceable in the Philippines.191

In its Comment/Opposition192 to the Petition for Indirect Contempt, Steamship contends that it
"exercised its right to set-off in good faith"193 and that the amount set-off represents costs of obtaining
the Anti-Suit Injunction awarded to it by the English Commercial Court and are not arbitration costs as
contended by Sulpicio.194 It also holds that Sulpicio's prayer for restitution of the offset amount was
improper in a petition for indirect contempt.195

Steamship emphasizes that even before the denial of its Motion to Dismiss in Civil Case No. 07-577 on
July 11, 2008, it already commenced arbitration in London196on July 31, 2007.197 It had also "obtained a
permanent Anti-Suit Injunction [with interim award for costs]198 from the English Commercial Court on
4th April 2008[.]"199 The April 4, 2008 Order enjoined Sulpicio from proceeding with Civil Case No. 07-
577 and to refer the dispute to arbitration in London.200

Steamship further avers that "Sulpicio was served a copy of an Order to file Claims Submissions in the
London arbitration and a copy of the Anti-Suit Injunction but it refused to participate in the London
Arbitration."201 It also did not pay the costs of the Anti-Suit Injunction. Sulpicio refused "service of all
orders, notices, pleadings and documents related to the London arbitration and the Commercial Court
proceedings."202
Steamship adds that in 2012, Sulpicio filed a claim for reimbursement of US$96,958.47 representing
passenger liabilities arising from the capsizing of one (1) of Sulpicio's fleet in 1998.203 Pursuant to Rule
32 of the Club Rules for the 1998 policy, which gave Steamship "the right to make deduction 'from any
claims . . . due to a Member' of 'any liabilities of such Member to the Club,'"204Steamship set-off the
costs awarded by the English Commercial Court from the amount reimbursed to Sulpicio. Sulpicio's
brokers and lawyers were informed of the set-off through an email dated December 3, 2012.205

Steamship contends that there was no legal impediment when it initiated arbitration proceedings in
London.206 The action was taken in good faith to preserve its rights while defending its position that
Sulpicio's filing of Civil Case No. 07-577 constituted a breach of the Club Rules.207 On the other hand,
Sulpicio's acts were far from desirable for it did not only fail to participate in the London arbitration
proceedings but also evaded service of all notices so that it could feign ignorance of the existence of
arbitration proceedings."208

This Court finds Sulpicio's arguments to be untenable.

Steamship's commencement of arbitration even before the Regional Trial Court had ruled on its motion
to dismiss and suspend proceedings does not constitute an "improper conduct" that "impede[s],
obstruct[s] or degrade[s] the administration of justice."209

In Heirs of Trinidad de Leon vda. de Roxas v. Court of Appeals,210 this Court explained the concept of
contempt of court:

Contempt of court is a defiance of the authority, justice or dignity of the court; such conduct as tends to
bring the authority and administration of the law into disrespect or to interfere with or prejudice parties
litigant or their witnesses during litigation . . .

Contempt of court is defined as a disobedience to the Court by acting in opposition to its authority,
justice and dignity. It signifies not only a willful disregard or disobedience of the court's orders, but such
conduct as tends to bring the authority of the court and the administration of law into disrepute or in
some manner to impede the due administration of justice . . .

This Court has thus repeatedly declared that the power to punish for contempt is inherent in all courts
and is essential to the preservation of order in judicial proceedings and to the enforcement of judgments,
orders, and mandates of the court, and consequently, to the due administration of justice . . .211

The court's contempt power should be exercised with restraint and for a preservative, and not a
vindictive, purpose. "Only in cases of clear and contumacious refusal to obey should the power be
exercised."212

In Lorenzo Shipping Corporation v. Distribution Management Association of the Philippines,213 this

Court held that:

There is no question that in contempt the intent goes to the gravamen of the offense. Thus, the good
faith, or lack of it, of the alleged contemnor should be considered. Where the act complained of is
ambiguous or does not clearly show on its face that it is contempt, and is one which, if the party is acting
in good faith, is within his rights, the presence or absence of a contumacious intent is, in some instances,
held to be determinative of its character. A person should not be condemned for contempt where he
contends for what he believes to be right and in good faith institutes proceedings for the purpose,
however erroneous may be his conclusion as to his rights. To constitute contempt, the act must be done
willfully and for an illegitimate or improper purpose.214 (Citations omitted)

In Lim Lua v. Lua,215 the father's deferral in giving monthly support pendente litegranted by the trial
court was held not contumacious, considering that "he had not been remiss in actually providing for the
needs of his children." It was also taken into account that he "believed in good faith that the trial and
appellate courts, upon equitable grounds, would allow him to offset the substantial amounts he had spent
or paid directly to his children." This Court explained:

Contempt of court is defined as a disobedience to the court by acting in opposition to its authority,
justice, and dignity. It signifies not only a willful disregard or disobedience of the court's order, but such
conduct which tends to bring the authority of the court and the administration of law into disrepute or, in
some manner, to impede the due administration of justice. To constitute contempt, the act must be done
willfully and for an illegitimate or improper purpose. The good faith, or lack of it, of the alleged
contemnor should be considered.216

This Court finds no dear and contumacious conduct on the part of Steamship. It does not appear that
Steamship was motivated by bad faith in initiating the arbitration proceedings. Rather, its act of
commencing arbitration in London is but a bona fide attempt to preserve and enforce its rights under the
Club Rules.

There was no legal impediment at the time Steamship initiated London arbitration proceedings.
Steamship commenced arbitration on July 31, 2007 even before the Regional Trial Court denied its
Motion to Dismiss and/or Refer Case to Arbitration on July 11, 2008. There was no order from the
Regional Trial Court enjoining Steamship from initiating arbitration proceedings in London. Besides,
the 2009 Special ADR Rules specifically provided that arbitration proceedings may be commenced or
continued and an award may be made, while the motion for the stay of civil action and for referral to
arbitration is pending resolution by the court.217

This Court notes that while the arbitration proceeding was commenced as early as July 31, 2007, it is
only six (6) years later that Sulpicio filed its Petition218 to cite Steamship for indirect contempt. Sulpicio
cannot invoke lack of knowledge of the London arbitration proceedings due to several reasons. First, it
received and replied219 to the notice of commencement of arbitration proceedings220 dated July 31, 2007.
Second, Steamship presented evidence showing Sulpicio's refusal to receive any notices, orders, or
communications related to the arbitration proceedings. Lastly, the pendency of the London arbitration
was made known to the Court of Appeals and this Court through Steamship's petitions. Sulpicio's
belated filing of its Petition, only after Steamship has deducted from the refund due it the alleged
"arbitration costs," indicates its lack of sincerity and good faith.

Finally, this Court finds Sulpicio's claim for damages to be improperly raised. It should be addressed in
an ordinary civil action. Its petition for indirect contempt is not the proper action to determine the
validity of the set-off and to make a factual determination relating to the propriety of ordering
restitution.

WHEREFORE, the Petition for Review in G.R. No. 196072 is GRANTED. The Decision dated
November 26, 2010 of the Court of Appeals in CA-G.R. SP No. 106103 and the Order dated July 11,
2008 of the Regional Trial Court, Branch 149, Makati City in Civil Case No. 07-577 are SET
ASIDE. The dispute between Sulpicio Lines, Inc. and Steamship Mutual Underwriting (Bermuda)
Limited is referred to arbitration in London in accordance with Rule 47 of the 2005/2006 Club Rules.

The Petition for Indirect Contempt in G.R. No. 208603 is DISMISSED for lack of merit.

SO ORDERED
 G.R. No. 223592, August 07, 2017 PERALTA, J.:

EQUITABLE INSURANCE CORPORATION, v. TRANSMODAL INTERNATIONAL, INC.,

This is to resolve the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May
11, 2016, of petitioner Equitable Insurance Corporation that seeks to reverse and set aside the
Decision1 dated September 15, 2015 and Resolution2 dated March 17, 2016 of the Court of Appeals
(CA) reversing the Decision3 dated June 18, 2013 of the Regional Trial Court (RTC), Branch 26, Manila
in a civil case for actual damages.

The facts follow.

Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International, Inc.

(Transmodal) to clear from the customs authorities and withdraw, transport, and deliver to its
warehouse, cargoes consisting of 200 cartons of gum Arabic with a total weight of 5,000 kilograms
valued at US21,750.00.

The said cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container
Terminal Center, Inc. pending their release by the Bureau of Customs (BOC) and on September 2, 2004,
respondent Transmodal withdrew the same cargoes and delivered them to Sytengco's warehouse. It was
noted in the delivery receipt that all the containers were wet.

In a preliminary survey conducted by Elite Adjusters and Surveyors, Inc. (Elite Surveyors), it was found
that 187 cartons had water marks and the contents of the 13 wet cartons were partly hardened. On
October 13, 2004, a re-inspection was conducted and it was found that the contents of the randomly
opened 20 cartons were about 40% to 60% hardened, while 8 cartons had marks of previous wetting. In
its final report dated October 27, 2004, Elite Surveyor fixed the computed loss payable at P728,712.00
after adjustment of 50% loss allowance.

Thus, on November 2, 2004, Sytengco demanded from respondent Transmodal the payment of
P1,457,424.00 as compensation for total loss of shipment. On that same date, petitioner Equitable
Insurance, as insurer of the cargoes per Marine Open Policy No. MN-MRN-HO-000549 paid Sytengco's
claim for P728,712.00. On October 4, 2004, Sytengco then signed a subrogation receipt and loss receipt
in favor of petitioner Equitable Insurance. As such, petitioner Equitable Insurance demanded from
respondent Transmodal reimbursement of the payment given to Sytengco.

Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee
after paying Sytengco's insurance claim and averred that respondent Transmodal's fault and gross
negligence were the causes of the damages sustained by Sytengco's shipment. Petitioner Equitable
Insurance prayed for the payment of P728,712.00 actual damages with 6% interest from the date of the
filing of the complaint until full payment, plus attorney's fees and cost of suit.

Respondent Transmodal denied knowledge of an insurance policy and claimed that petitioner Equitable
Insurance has no cause of action against it because the damages to the cargoes were not due to its fault
or gross negligence. According to the same respondent, the cargoes arrived at Sytengco's warehouse
around 11:30 in the morning of September 1, 2004, however, Sytengco did not immediately receive the
said cargoes and as a result, the cargoes got wet due to the rain that occurred on the night of September
1, 2004. Respondent Transmodal also questioned the timeliness of Sytengco's formal claim for payment
which was allegedly made more than 14 days from the time the cargoes were placed at its disposal in
contravention of the stipulations in the delivery receipts.

The RTC, in its Decision dated June 18, 2013, found in favor of petitioner Equitable Insurance, thus, the
following dispositive portion of said decision:

WHEREFORE, based on the foregoing, judgment is hereby rendered in favor of the plaintiff and against
the defendant, ordering the latter to pay the following:chanRoblesvirtualLawlibrary
(1) Actual damages in the amount of Php728,712.00 plus 6% interest from judicial demand until full
payment;

(2) Attorney's fees in the amount equivalent to 10% of the amount claimed;

(3) Costs of suit. SO ORDERED.4

According to the RTC, petitioner Equitable Insurance was able to prove by substantial evidence its right
to institute an action as subrogee of Sytengco. It also ruled that petitioner Equitable Insurance's non-
presentation of the insurance policy and non-compliance with Section 7, Rule 8 of the Rules of Court on
actionable document were raised for the first time in respondent Transmodal's memorandum and also
noted that petitioner Equitable Insurance had, in fact, submitted a copy of the insurance contract.

Respondent Transmodal appealed the RTC's decision to the CA. The CA, on September 15, 2015,
promulgated its decision reversing the RTC's decision. It disposed of the appeal as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, the appeal is hereby GRANTED. The June 18,2013 Decision of the Regional Trial
Court, Branch 26, Manila in Civil Case No. 06-114861 is REVERSED and SET ASIDE. Accordingly,
Equitable Insurance Corp.'s complaint is DISMISSED for failure to prove cause of action.

SO ORDERED.5
The CA ruled that there was no proof of insurance of the cargoes at the time of the loss and that the
subrogation was improper. According to the CA, the insurance contract was neither attached in the
complaint nor offered in evidence for the perusal and appreciation of the RTC, and what was presented
was just the marine risk note.

Hence, the present petition after the CA denied petitioner Equitable Insurance's motion for
reconsideration.

Petitioner Equitable Insurance enumerates the following assignment of

errors:chanRoblesvirtualLawlibrary
1. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE CASE OF
MALAYAN INSURANCE CO., INC. V. REGIS BROKERAGE CORP. (G.R. NO. 172156,
NOVEMBER 23, 2007) IS NOT APPLICABLE IN THE INSTANT CASE;

2. THE HONORABLE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE FACTS
SURROUNDING THE CASE OF MALAYAN INSURANCE CO., INC. V. REGIS BROKERAGE
CORP. (G.R. NO. 172156, NOVEMBER 23, 2007) IS DIFFERENT FROM THE FACTS
ATTENDING THE INSTANT CASE;

3. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF TISON
V. COURT OF APPEALS, 276 SCRA 582;

4. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF

COMPAÑA MARITIMA V. INSURANCE COMPANY OF NORTH AMERICA, 12 SCRA 213;

5. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE CASE OF

DELSAN TRANSPORT LINES, INC. V. COURT OF APPEALS, 273 SCRA 262;

6. THE HONORABLE COURT OF APPEALS ERRED IN NOT APPLYING THE STATUTORY

PRESUMPTION OF FAULT AND NEGLIGENCE.6

It is the contention of petitioner Equitable Insurance that the CA erred in not applying certain
jurisprudence on this case which it deemed applicable. It also argues that the present case is not a suit
between the insured Sytengco and the insurer but one between the consignee Sytengco and the
respondent common carrier since petitioner Equitable Insurance merely stepped into the shoes of the
said insured who has a direct cause of action against respondent Transmodal on account of the damage
sustained by the subject cargo, thus, the carrier cannot set up as defense any defect in the insurance
policy because it cannot avoid its liability to the consignee under the contract of carriage which binds it
to pay any loss or damage that may be caused to the cargo involved therein.

In its Comment7 dated July 25, 2016, respondent Transmodal avers that the CA did not err in not
applying certain jurisprudence in the latter's decision. Respondent Transmodal further refutes all the
assigned errors that petitioner Equitable Insurance enumerated in its petition.

A closer look at the arguments raised in the petition would show that petitioner is indeed asking this
Court to review the factual findings of the CA which is not within the scope of a petition for review
under Rule 45 of the Rules of Court. However, this Court has recognized exceptions to the rule that the
findings of fact of the CA are conclusive and binding in the following instances: (1) when the findings
are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making
its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which they are based; (9) when the
facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a different
conclusion.8Considering that the findings of facts of the RTC and the CA are glaringly in contrast, this
Court deems it proper to review the present case.

In ruling that petitioner's subrogation right is improper, the CA stated that it found no proof of insurance
of the cargoes at the time of their loss. It also found that what was presented in court was the marine risk
note and not the insurance contract or policy, thus:chanRoblesvirtualLawlibrary
A perusal of the complaint and the other documentary evidence submitted by Equitable Insurance such
as the preliminary and final report clearly shows that the claims for damages and subrogation were based
on Policy No. MN-MRN-HO-0005479. However, said insurance contract was neither attached in the
complaint nor offered in evidence for the perusal and
appreciation of the court a quo. Instead, Equitable Insurance presented the marine risk note. For clarity,
We quote the pertinent portions of the marine risk note, viz.:chanRoblesvirtualLawlibrary
Line & Subline
MARINE CARGO
RISK NOTE
Policy No.:
MN-MRN-HO-0005479
Issue date Sep. 08, 2004
Invoice No. 59298 V

Assured: SYTENGCO ENTERPRISES CORPORATION

Address: 10RESTHAVEN ST.
SAN FRANCISCO DEL MONTE SUBDIVISION,
QUEZON CITY, METRO MANILA

We have this day noted the undermentioned risk in your favor and hereby guarantee that this document
has all the force and effect of the terms and conditions of EQUITABLE INSURANCE CORPORATION
Marine Policy No. MN-MOP-HO-0000099.

L/C AMOUNT: USD 21,750.00 MARK-UP: 20%

SUM INSURED: PHP 1,457,424.00 EXCHANGE RATE: 55.8400

CARGO: 200 CTNS. GUM ARABIC POWDER KB-120

Supplier: JUMBO TRADING CO., LTD.

Vessel: ASIAN ZEPHYR VOYAGE No.: 062N
BL#:MNL04086310
ETD: 09-AUG-04 ETA: 13-AUG-04
From: THAILAND To: Manila, Philippines9
As such, according to the CA, the case of Eastern Shipping Lines, Inc. v. Prudential Guarantee and
Assurance, Inc.10 is applicable, wherein this Court held that a marine risk note is not an insurance policy.
The CA also found applicable this Court's ruling in Malayan Insurance Co., Inc. v. Regis Brokerage
Corp.,11stating that a marine policy is constitutive of the insurer-insured relationship, thus, such
document should have been attached to the complaint as mandated by Section 7,12 Rule 8 of the Rules of
Court.

Petitioner, however, insists that the CA erred in applying the case of Malayanbecause the plaintiff
therein did not present the marine insurance policy whereas in the present case, petitioner has presented
not only the marine risk note but also Marine Open Policy No. MN-MOP-HO-000009913 which were all
admitted in evidence.
Indeed, a perusal of the records would show that petitioner is correct in its claim that the marine
insurance policy was offered as evidence. In fact, in the questioned decision of the CA, the latter,
mentioned such policy, thus:chanRoblesvirtualLawlibrary

Contrary to the ruling of the RTC, the marine policy was not at all presented. As borne by the records,
only the marine risk note and EQUITABLE INSURANCE CORPORATION Marine Policy No.
MN-MOP-HO-0000099 were offered in evidence. These pieces of evidence are immaterial to
Equitable Insurance's cause of action. We have earlier pointed out that a marine risk note is insufficient
to prove the insurer's claim. Although the marine risk note provided that it "has all the force and effect
of the terms and conditions of EQUITABLE INSURANCE CORPORATION Marine Policy No. MN-
MOP-HO-0000099," there is nothing in the records showing that the said policy is related to Policy No.
MN-MRN-HO-005479 which was the basis of Equitable Insurance's complaint. It did not escape our
attention that the second page of the marine risk note explicitly stated that it was "attached to and
forming part of the Policy No. MN-MRN-005479." Thus, without the presentation of Policy No. MN-
MRN-005479, We cannot simply assume that the terms and conditions, including the period of
coverage, of such policy are similar to Marine Policy No. MN-MOP-HO-0000099.14

As such, respondent had the opportunity to examine the said documents or to object to its presentation as
pieces of evidence. The records also show that respondent was able to cross-examine petitioner's witness
regarding the said documents. Thus, it was well established that petitioner has the right to step into the
shoes of the insured who has a direct cause of action against herein respondent on account of the
damages sustained by the cargoes. "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."15 The right of subrogation springs
from Article 2207 of the Civil Code which states:chanRoblesvirtualLawlibrary

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

The records further show that petitioner was able to accomplish its obligation under the insurance policy
as it has paid the assured of its insurance claim in the amount of P728,712,00 as evidenced by, among
others, the Subrogation Receipt,16 Loss Receipt,17 Check Voucher,18 and Equitable PCI Bank Check No.
0000013925.19 The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of any
privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply
upon payment by the insurance company of the insurance claim.20

This Court's ruling in Asian Terminals, Inc. v. First Lepanto-Taisho Insurance Corporation21 is highly
instructive, thus:chanRoblesvirt
As a general rule, the marine insurance policy needs to be presented in evidence before the insurer may
recover the insured value of the lost/damaged cargo in the exercise of its subrogatory right. In Malayan
Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the contract
constitutive of the insurance relationship between the consignee and insurer is critical because it is the
legal basis of the latter's right to subrogation.

In Home Insurance Corporation v. CA, the Court also held that the insurance contract was necessary to
prove that it covered the hauling portion of the shipment and was not limited to the transport of the
cargo while at sea. The shipment in that case passed through six stages with different parties involved in
each stage until it reached the consignee. The insurance contract, which was not presented in evidence,
was necessary to determine 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.

An analogous disposition was arrived at in the Wallem case cited by ATI wherein the Court held that the
insurance contract must be presented in evidence in order to determine the extent of its coverage. It was
further ruled therein that the liability of the carrier from whom reimbursement was demanded was not
established with certainty because the alleged shortage incurred by the cargoes was not definitively
determined.

Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by
declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by
the insurer.

In Delsan Transport Lines, Inc. v. CA, the Court ruled that the right of subrogation accrues simply upon
payment by the insurance company of the insurance claim. Hence, presentation in evidence of the
marine insurance policy is not indispensable 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, was held sufficient to establish not only the relationship between the insurer and consignee, but
also the amount paid to settle the insurance claim. The presentation of the insurance contract was
deemed not fatal to the insurer's cause of action because the loss of the cargo undoubtedly occurred
while on board the petitioner's vessel.

The same rationale was the basis of the judgment in International Container Terminal Services, Inc. v.
FGU Insurance Corporation, wherein the arrastre operator was found liable for the lost shipment
despite the failure of the insurance company to offer in evidence the insurance contract or policy. As
in Delsan, it was certain that the loss of the cargo occurred while in the petitioner's custody.22

In view thereof, the RTC did not err in its ruling, thus:chanRoblesvirtualLawlibrary

Defendant in its memorandum, raised the issue that plaintiff failed to attach in its complaint a copy of
the Marine Open Insurance Policy, thus, it failed to establish its cause of action as subrogee of the
consignee quoting the case of Malayan Insurance Co., Inc. v. Regis Brokerage Corp.

The above-mentioned case is not applicable in the instant case. In Malayan Insurance Co. v. Regis
Brokerage, Malayan did not submit the copy of the insurance contract or policy. In the instant case,
plaintiff submitted the copy of the insurance contract. In fact, the non-presentation of the insurance
contract is not fatal to its cause of action.

In the more recent case of Asian Terminals, Inc. v. Malayan Insurance Co., Inc., it was
held:chanRoblesvirtualLawlibrary

Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although
petitioner objected to the admission of the Subrogation Receipt in its Comment to respondent's formal
offer of evidence on the ground that respondent failed to present the insurance contract or policy, a
perusal of petitioner's Answer and Pre-trial Brief shows that petitioner never questioned respondent's
right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was
no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent
had no reason to present the insurance contract or policy as evidence during the trial.

Perusal of the records likewise show that the defendant failed to raise the issue of non-compliance with
Section 7, Rule 8 of the 1997 Rules of Procedure and the non-presentation of insurance policy during the
pre-trial. In the same case, it was held:chanRoblesvirtualLawlibrary

Petitioner claims that respondent's non-presentation of the insurance contract or policy between the
respondent and the consignee is fatal to its cause of action.

We do not agree.

First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed
upon by the parties to be resolved during the pre-trial. As we have said, the determination of issues
during the pre-trial conference bars the consideration of other questions, whether during trial or on
appeal. Thus, [t]he parties must disclose during pre-trial all issues they intend to raise during the trial,
except those involving privileged or impeaching matters. x x x The basis of the rule is simple.
Petitioners are bound by the delimitation of the issues during the pre-trial because they themselves
agreed to the same.

Plaintiff was able to prove by substantial evidence their right to institute this action as subrogee of the
insured. The defendant did not present any evidence or witness to bolster their defense and to contradict
plaintiffs allegation.23

To reiterate, in this case, petitioner was able to present as evidence the marine open policy that vested
upon it, its rights as a subrogee. Subrogation 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 injustice, equity and
good conscience ought to pay.24

WHEREFORE, the Petition for Review on Certiorari under Rule 45 of the Rules of Court, dated May
11, 2016, of petitioner Equitable Insurance Corporation is GRANTED. Consequently, the Decision
dated September 15, 2015 and Resolution dated March 17, 2016 of the Court of Appeals in CA-G.R. CV
No. 101296 are REVERSED and SET ASIDE, and the Decision dated June 18, 2013 of the Regional
Trial Court, Branch 26, Manila is AFFIRMED and REINSTATED.

SO ORDERED.
 THIRD DIVISION

April 5, 2017

G.R. No. 222743

MEDICARD PHILIPPINES, INC., Petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

REYES,, J.:

This appeal by Petition for Review1 seeks to reverse and set aside the Decision2 dated September 2, 2015
and Resolution3 dated January 29, 2016 of the Court of Tax Appeals (CTA) en bane in CTA EB No.
1224, affirming with modification the Decision4 dated June 5, 2014 and the Resolution5 dated September
15, 2014.in CTA Case No. 7948 of the CTA Third Division, ordering petitioner Medicard Philippines,
Inc. (MEDICARD), to pay respondent Commissioner of Internal Revenue (CIR) the deficiency

Value-Added Tax. (VAT) assessment in the aggregate amount of ₱220,234,609.48, plus 20%
interest per annum starting January 25, 2007, until fully paid, pursuant to Section 249(c)6 of the National
Internal Revenue Code (NIRC) of 1997.

The Facts

MEDICARD is a Health Maintenance Organization (HMO) that provides prepaid health and medical
insurance coverage to its clients. Individuals enrolled in its health care programs pay an annual
membership fee and are entitled to various preventive, diagnostic and curative medical services provided
by duly licensed physicians, specialists and other professional technical staff participating in the group
practice health delivery system at a hospital or clinic owned, operated or accredited by it.7

MEDICARD filed its First, Second, and Third Quarterly VAT Returns through Electronic Filing and
Payment System (EFPS) on April 20, 2006, July 25, 2006 and October 20, 2006, respectively, and its
Fourth Quarterly VAT Return on January 25, 2007.8

Upon finding some discrepancies between MEDICARD's Income Tax Returns (ITR) and VAT Returns,
the CIR informed MEDICARD and issued a Letter Notice (LN) No. 122-VT-06-00-00020 dated

September 20, 2007. Subsequently, the CIR also issued a Preliminary Assessment Notice (PAN) against
MEDICARD for deficiency VAT. A Memorandum dated December 10, 2007 was likewise issued
recommending the issuance of a Formal Assessment Notice (FAN) against MEDICARD.9 On. January
4, 2008, MEDICARD received CIR's FAN dated December' 10, 2007 for alleged deficiency VAT for
taxable year 2006 in the total amount of Pl 96,614,476.69,10 inclusive of penalties. 11
According to the CIR, the taxable base of HMOs for VAT purposes is its gross receipts without any
deduction under Section 4.108.3(k) of Revenue Regulation (RR) No. 16-2005. Citing Commissioner of
Internal Revenue v. Philippine Health Care Providers, Inc., 12 the CIR argued that since MEDICARD.
does not actually provide medical and/or hospital services, but merely arranges for the same, its services
are not VAT exempt.13

MEDICARD argued that: (1) the services it render is not limited merely to arranging for the provision of
medical and/or hospital services by hospitals and/or clinics but include actual and direct rendition of
medical and laboratory services; in fact, its 2006 audited balance sheet shows that it owns x-ray and
laboratory facilities which it used in providing medical and laboratory services to its members; (2) out of
the ₱l .9 Billion membership fees, ₱319 Million was received from clients that are registered with the
Philippine Export Zone Authority (PEZA) and/or Bureau of Investments; (3) the processing fees
amounting to ₱l 1.5 Million should be excluded from gross receipts because P5.6 Million of which
represent advances for professional fees due from clients which were paid by MEDICARD while the
remainder was already previously subjected to VAT; (4) the professional fees in the amount of Pl 1
Million should also be excluded because it represents the amount of medical services actually and
directly rendered by MEDICARD and/or its subsidiary company; and (5) even assuming that it is liable
to pay for the VAT, the 12% VAT rate should not be applied on the entire amount but only for the
period when the 12% VAT rate was already in effect, i.e., on February 1, 2006. It should not also be
held liable for surcharge and deficiency interest because it did not pass on the VAT to its members.14

On February 14, 2008, the CIR issued a Tax Verification Notice authorizing Revenue Officer Romualdo
Plocios to verify the supporting documents of MEDICARD's Protest. MEDICARD also submitted
additional supporting documentary evidence in aid of its Protest thru a letter dated March 18, 2008.15

On June 19, 2009, MEDICARD received CIR's Final Decision on Disputed Assessment dated May 15,
2009, denying MEDICARD's protest, to wit:

IN VIEW HEREOF, we deny your letter protest and hereby reiterate in toto assessment of deficiency
[VAT] in total sum of ₱196,614,476.99. It is requested that you pay said deficiency taxes immediately.
Should payment be made later, adjustment has to be made to impose interest until date of payment. This
is olir final decision. If you disagree, you may take an appeal to the [CTA] within the period provided by
law, otherwise, said assessment shall become final, executory and demandable. 16

On July 20, 2009, MEDICARD proceeded to file a petition for review before the CT A, reiterating its
position before the tax authorities. 17

On June 5, 2014, the CTA Division rendered a Decision18 affirming with modifications the CIR's
deficiency VAT assessment covering taxable year 2006, viz.:

WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against
[MEDICARD] covering taxable year 2006 ·is hereby AFFIRMED WITH
MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of P223,l
73,208.35, inclusive of the twenty-five percent (25%) surcharge imposed under -Section 248(A)(3) of
the NIRC of 1997, as amended, computed as follows:
 Basic Deficiency VAT ₱l78,538,566.68

Add: 25% Surcharge 44,634,641.67

Total ₱223.173.208.35

In addition, [MEDICARD] is ordered to pay:

a. Deficiency interest at the rate of twenty percent (20%) per annum on the basis deficiency VAT
of Pl 78,538,566.68 computed from January 25, 2007 until full payment thereof pursuant to
Section 249(B) of the NIRC of 1997, as amended; and

b. Delinquency interest at the rate of twenty percent (20%) per annum on the total amount of
₱223,173,208.35 representing basic deficiency VAT of ₱l78,538,566.68 and· 25% surcharge of
₱44,634,64 l .67 and on the 20% deficiency interest which have accrued as afore-stated in (a),
computed from June 19, 2009 until full payment thereof pursuant to Section 249(C) of the NIRC
of 1997.

SO ORDERED.19

The CTA Division held that: (1) the determination of deficiency VAT is not limited to the issuance of
Letter of Authority (LOA) alone as the CIR is granted vast powers to perform examination and
assessment functions; (2) in lieu of an LOA, an LN was issued to MEDICARD informing it· of the
discrepancies between its ITRs and VAT Returns and this procedure is authorized under Revenue
Memorandum Order (RMO) No. 30-2003 and 42-2003; (3) MEDICARD is estopped from questioning
the validity of the assessment on the ground of lack of LOA since the assessment issued against
MEDICARD contained the requisite legal and factual bases that put MEDICARD on notice of the
deficiencies and it in fact availed of the remedies provided by law without questioning the nullity of the
assessment; (4) the amounts that MEDICARD earmarked , and eventually paid to doctors, hospitals and
clinics cannot be excluded from · the computation of its gross receipts under the provisions of RR No. 4-
2007 because the act of earmarking or allocation is by itself an act of ownership and management over
the funds by MEDICARD which is beyond the contemplation of RR No. 4-2007; (5) MEDICARD's
earnings from its clinics and laboratory facilities cannot be excluded from its gross receipts because the
operation of these clinics and laboratory is merely an incident to MEDICARD's main line of business as
HMO and there is no evidence that MEDICARD segregated the amounts pertaining to this at the time it
received the premium from its members; and (6) MEDICARD was not able to substantiate the amount
pertaining to its January 2006 income and therefore has no basis to impose a 10% VAT rate.20

Undaunted, MEDICARD filed a Motion for Reconsideration but it was denied. Hence, MEDICARD
elevated the matter to the CTA en banc.

In a Decision21 dated September 2, 2015, the CTA en banc partially granted the petition only insofar as
the 10% VAT rate for January 2006 is concerned but sustained the findings of the CTA Division in all
other matters, thus:
WHEREFORE, in view thereof, the instant Petition for Review is hereby PARTIALLY
GRANTED. Accordingly, the Decision date June 5, 2014 is hereby MODIFIED, as follows:

"WHEREFORE, premises considered, the deficiency VAT assessment issued by [CIR] against

[MEDICARD] covering taxable year 2006 is hereby AFFIRMED WITH

MODIFICATIONS. Accordingly, [MEDICARD] is ordered to pay [CIR] the amount of
₱220,234,609.48, inclusive of the 25% surcharge imposed under Section 248(A)(3) of the NIRC of
1997, as amended, computed as follows:

Basic Deficiency VAT ₱76,187,687.58

Add: 25% Surcharge 44,046,921.90

Total ₱220,234.609.48

In addition, [MEDICARD] is ordered to pay:

(a) Deficiency interest at the rate of 20% per annum on the basic deficiency VAT of ₱l
76,187,687.58 computed from January 25, 2007 until full payment thereof pursuant to Section
249(B) of the NIRC of 1997, as amended; and

(b) Delinquency interest at the rate of 20% per annum on the total amount of ₱220,234,609.48
(representing basic deficiency VAT of ₱l76,187,687.58 and 25% surcharge of ₱44,046,921.90)
and on the deficiency interest which have accrued as afore-stated in (a), computed from June 19,
2009 until full payment thereof pursuant to Section 249(C) of the NIRC of 1997, as amended."

SO ORDERED.22

Disagreeing with the CTA en bane's decision, MEDICARD filed a motion for reconsideration but it was
denied.23Hence, MEDICARD now seeks recourse to this Court via a petition for review on certiorari.

The Issues

l. WHETHER THE ABSENCE OF THE LOA IS FATAL; and

2. WHETHER THE AMOUNTS THAT MEDICARD EARMARKED AND EVENTUALLY

PAID TO THE MEDICAL SERVICE PROVIDERS SHOULD STILL FORM PART OF ITS
GROSS RECEIPTS FOR VAT PURPOSES.24

Ruling of the Court

The petition is meritorious.

The absence of an LOA violated
MEDICARD's right to due process

An LOA is the authority given to the appropriate revenue officer assigned to perform assessment
functions. It empowers or enables said revenue officer to examine the books of account and other
accounting records of a taxpayer for the purpose of collecting the correct amount of tax. 25 An LOA is
premised on the fact that the examination of a taxpayer who has already filed his tax returns is a power
that statutorily belongs only to the CIR himself or his duly authorized representatives. Section 6 of the
NIRC clearly provides as follows:

SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for
Tax Administration and Enforcement. –

(A) Examination of Return and Determination of Tax Due.- After a return has been filed as required
under the provisions of this Code, the Commissioner or his duly authorized representative may
authorize the examinationof any taxpayer and the assessment of the correct amount of tax: Provided,
however, That failure to file a return shall not prevent the Commissioner from authorizing the
examination of any taxpayer.

x x x x (Emphasis and underlining ours)

Based on the afore-quoted provision, it is clear that unless authorized by the CIR himself or by his duly
authorized representative, through an LOA, an examination of the taxpayer cannot ordinarily be
undertaken. The circumstances contemplated under Section 6 where the taxpayer may be assessed
through best-evidence obtainable, inventory-taking, or surveillance among others has nothing to do with
the LOA. These are simply methods of examining the taxpayer in order to arrive at .the correct amount
of taxes. Hence, unless undertaken by the CIR himself or his duly authorized representatives, other tax
agents may not validly conduct any of these kinds of examinations without prior authority.

With the advances in information and communication technology, the Bureau of Internal Revenue (BIR)
promulgated RMO No. 30-2003 to lay down the policies and guidelines once its then incipient
centralized Data Warehouse (DW) becomes fully operational in conjunction with its Reconciliation of
Listing for Enforcement System (RELIEF System).26 This system can detect tax leaks by matching the
data available under the BIR's Integrated Tax System (ITS) with data gathered from third-party sources.
Through the consolidation and cross-referencing of third-party information, discrepancy reports on sales
and purchases can be generated to uncover under declared income and over claimed purchases of Goods
and services.

Under this RMO, several offices of the BIR are tasked with specific functions relative to the RELIEF
System, particularly with regard to LNs. Thus, the Systems Operations Division (SOD) under the
Information Systems Group (ISG) is responsible for: (1) coming up with the List of Taxpayers with
discrepancies within the threshold amount set by management for the issuance of LN and for the system-
generated LNs; and (2) sending the same to the taxpayer and to the Audit Information, Tax Exemption
and Incentives Division (AITEID). After receiving the LNs, the AITEID under the Assessment
Service (AS), in coordination with the concerned offices under the ISG, shall be responsible for
transmitting the LNs to the investigating offices [Revenue District Office (RDO)/Large Taxpayers
District Office (LTDO)/Large Taxpayers Audit and Investigation Division (LTAID)]. At the level of
these investigating offices, the appropriate action on the LN s issued to taxpayers with RELIEF data
discrepancy would be determined.

RMO No. 30-2003 was supplemented by RMO No. 42-2003, which laid down the "no-contact-audit
approach" in the CIR's exercise of its ·power to authorize any examination of taxpayer arid the
assessment of the correct amount of tax. The no-contact-audit approach includes the process of
computerized matching of sales and purchases data contained in the Schedules of Sales and Domestic
Purchases and Schedule of Importation submitted by VAT taxpayers under the RELIEF System
pursuant to RR No. 7-95, as amended by RR Nos. 13-97, 7-99 and 8-2002. This may also include the
matching of data from other information or returns filed by the taxpayers with the BIR such as Alphalist
of Payees subject to Final or Creditable Withholding Taxes.

Under this policy, even without conducting a detailed examination of taxpayer's books and records, if
the computerized/manual matching of sales and purchases/expenses appears to reveal discrepancies, the
same shall be communicated to the concerned taxpayer through the issuance of LN. The LN shall serve
as a discrepancy notice to taxpayer similar to a Notice for Informal Conference to the concerned
taxpayer. Thus, under the RELIEF System, a revenue officer may begin an examination of the taxpayer
even prior to the issuance of an LN or even in the absence of an LOA with the aid of a
computerized/manual matching of taxpayers': documents/records. Accordingly, under the RELIEF
System, the presumption that the tax returns are in accordance with law and are presumed correct since
these are filed under the penalty of perjury27 are easily rebutted and the taxpayer becomes instantly
burdened to explain a purported discrepancy.

Noticeably, both RMO No. 30-2003 and RMO No. 42-2003 are silent on the statutory requirement of an
LOA before any investigation or examination of the taxpayer may be conducted. As provided in the
RMO No. 42-2003, the LN is merely similar to a Notice for Informal Conference. However, for a Notice
of Informal Conference, which generally precedes the issuance of an assessment notice to be valid, the
same presupposes that the revenue officer who issued the same is properly authorized in the first place.

With this apparent lacuna in the RMOs, in November 2005, RMO No. 30-2003, as supplemented by
RMO No. 42-2003, was amended by RMO No. 32-2005 to fine tune existing procedures in handing
assessments against taxpayers'· issued LNs by reconciling various revenue issuances which conflict with
the NIRC. Among the objectives in the issuance of RMO No. 32-2005 is to prescribe procedure in the
resolution of LN discrepancies, conversion of LNs to LOAs and assessment and collection of deficiency
taxes.

IV. POLICIES AND GUIDELINES

xxxx

8. In the event a taxpayer who has been issued an LN refutes the discrepancy shown in the LN, the
concerned taxpayer will be given an opportunity to reconcile its records with those of the BIR within
One Hundred and Twenty (120) days from the date of the issuance of the LN. However, the subject
taxpayer shall no longer be entitled to the abatement of interest and penalties after the lapse of the sixty
(60)-day period from the LN issuance.

9. In case the above discrepancies remained unresolved at the end of the One Hundred and
Twenty (120)-day period, the revenue officer (RO) assigned to handle the LN shall recommend the
issuance of [LOA) to replace the LN. The head of the concerned investigating office shall submit a
summary list of LNs for conversion to LAs (using the herein prescribed format in Annex "E" hereof) to
the OACIR-LTS I ORD for the preparation of the corresponding LAs with the notation "This LA
cancels LN_________ No. "

xxxx

V. PROCEDURES

xxxx

B. At the Regional Office/Large Taxpayers Service

xxxx

7. Evaluate the Summary List of LNs for Conversion to LAs submitted by the RDO x x x prior to
approval.

8. Upon approval of the above list, prepare/accomplish and sign the corresponding LAs.

xxxx

Decision 11 G.R. No. 222743

xxxx

10. Transmit the approved/signed LAs, together with the duly accomplished/approved Summary List of
LNs for conversion to LAs, to the concerned investigating offices for the encoding of the required
information x x x and for service to the concerned taxpayers.

xxxx

C. At the RDO x x x

xxxx

11. If the LN discrepancies remained unresolved within One Hundred and Twenty (120) days from
issuance thereof, prepare a summary list of said LN s for conversion to LAs x x x.

xxxx
16. Effect the service of the above LAs to the concerned taxpayers.28

In this case, there is no dispute that no LOA was issued prior to the issuance of a PAN and FAN against
MED ICARD. Therefore no LOA was also served on MEDICARD. The LN that was issued earlier was
also not converted into an LOA contrary to the above quoted provision. Surprisingly, the CIR did not
even dispute the applicability of the above provision of RMO 32-2005 in the present case which is clear
and unequivocal on the necessity of an LOA for the· assessment proceeding to be valid. Hence, the
CTA's disregard of MEDICARD's right to due process warrant the reversal of the assailed decision and
resolution.

In the case of Commissioner of Internal Revenue v. Sony Philippines, Inc. ,29 the Court said that:

Clearly, there must be a grant of authority before any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer so authorized must not go beyond the authority
given. In the absence of such an authority, the assessment or examination is a nullity.30 (Emphasis
and underlining ours)

The Court cannot convert the LN into the LOA required under the law even if the same was issued by
the CIR himself. Under RR No. 12-2002, LN is issued to a person found to have underreported
sales/receipts per data generated under the RELIEF system. Upon receipt of the LN, a taxpayer may
avail of the BIR's Voluntary Assessment and Abatement Program. If a taxpayer fails or refuses to avail
of the said program, the BIR may avail of administrative and criminal .remedies, particularly closure,
criminal action, or audit and investigation. Since the law specifically requires an LOA and RMO No. 32-
2005 requires the conversion of the previously issued LN to an LOA, the absence thereof cannot be
simply swept under the rug, as the CIR would have it. In fact Revenue Memorandum Circular No. 40-
2003 considers an LN as a notice of audit or investigation only for the purpose of disqualifying the
taxpayer from amending his returns.

The following differences between an LOA and LN are crucial. First, an LOA addressed to a revenue
officer is specifically required under the NIRC before an examination of a taxpayer may be had while an
LN is not found in the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy is
found based on the BIR's RELIEF System. Second, an LOA is valid only for 30 days from date of issue
while an LN has no such limitation. Third, an LOA gives the revenue officer only a period of 10days
from receipt of LOA to conduct his examination of the taxpayer whereas an LN does not contain such a
limitation.31 Simply put, LN is entirely different and serves a different purpose than an LOA. Due
process demands, as recognized under RMO No. 32-2005, that after an LN has serve its purpose, the
revenue officer should have properly secured an LOA before proceeding with the further examination
and assessment of the petitioner. Unfortunarely, this was not done in this case.

Contrary to the ruling of the CTA en banc, an LOA cannot be dispensed with just because none of the
financial books or records being physically kept by MEDICARD was examined. To begin with, Section
6 of the NIRC requires an authority from the CIR or from his duly authorized representatives before an
examination "of a taxpayer" may be made. The requirement of authorization is therefore not dependent
on whether the taxpayer may be required to physically open his books and financial records but only on
whether a taxpayer is being subject to examination.
The BIR's RELIEF System has admittedly made the BIR's assessment and collection efforts much easier
and faster. The ease by which the BIR's revenue generating objectives is achieved is no excuse however
for its non-compliance with the statutory requirement under Section 6 and with its own administrative
issuance. In fact, apart from being a statutory requirement, an LOA is equally needed even under the
BIR's RELIEF System because the rationale of requirement is the same whether or not the CIR conducts
a physical examination of the taxpayer's records: to prevent undue harassment of a taxpayer and level
the playing field between the government' s vast resources for tax assessment, collection and
enforcement, on one hand, and the solitary taxpayer's dual need to prosecute its business while at the
same time responding to the BIR exercise of its statutory powers. The balance between these is achieved
by ensuring that any examination of the taxpayer by the BIR' s revenue officers is properly authorized in
the first place by those to whom the discretion to exercise the power of examination is given by the
statute.

That the BIR officials herein were not shown to have acted unreasonably is beside the point because the
issue of their lack of authority was only brought up during the trial of the case. What is crucial is
whether the proceedings that led to the issuance of VAT deficiency assessment against MEDICARD had
the prior approval and authorization from the CIR or her duly authorized representatives. Not having
authority to examine MEDICARD in the first place, the assessment issued by the CIR is inescapably
void.

At any rate, even if it is assumed that the absence of an LOA is not fatal, the Court still partially finds
merit in MEDICARD's substantive arguments.

The amounts earmarked and

eventually paid by MEDICARD to
the medical service providers do not
form part of gross receipts.for VAT
purposes

MEDICARD argues that the CTA en banc seriously erred in affirming the ruling of the CT A Division
that the gross receipts of an HMO for VAT purposes shall be the total amount of money or its equivalent
actually received from members undiminished by any amount paid or payable to the owners/operators of
hospitals, clinics and medical and dental practitioners. MEDICARD explains that its business as an
HMO involves two different although interrelated contracts. One is between a corporate client and
MEDICARD, with the corporate client's employees being considered as MEDICARD members; and the
other is between the health care institutions/healthcare professionals and MED ICARD.

Under the first, MEDICARD undertakes to make arrangements with healthcare institutions/healthcare
professionals for the coverage of MEDICARD members under specific health related services for a
specified period of time in exchange for payment of a more or less fixed membership fee. Under its
contract with its corporate clients, MEDICARD expressly provides that 20% of the membership fees per
individual, regardless of the amount involved, already includes the VAT of 10%/20% excluding the
remaining 80o/o because MED ICARD would earmark this latter portion for medical utilization of its
members. Lastly, MEDICARD also assails CIR's inclusion in its gross receipts of its earnings from
medical services which it actually and directly rendered to its members.
Since an HMO like MEDICARD is primarily engaged m arranging for coverage or designated managed
care services that are needed by plan holders/members for fixed prepaid membership fees and for a
specified period of time, then MEDICARD is principally engaged in the sale of services. Its VAT base
and corresponding liability is, thus, determined under Section 108(A)32 of the Tax Code, as amended by
Republic Act No. 9337.

Prior to RR No. 16-2005, an HMO, like a pre-need company, is treated for VAT purposes as a dealer in
securities whose gross receipts is the amount actually received as contract price without allowing any
deduction from the gross receipts.33 This restrictive tenor changed under RR No. 16-2005. Under this
RR, an HMO's gross receipts and gross receipts in general were defined, thus:

Section 4.108-3. xxx

xxxx

HMO's gross receipts shall be the total amount of money or its equivalent representing the service fee
actually or constructively received during the taxable period for the services performed or to be
performed for another person, excluding the value-added tax. The compensation for their services
representing their service fee, is presumed to be the total amount received as enrollment fee from
their members plus other charges received.

Section 4.108-4. x x x. "Gross receipts" refers to the total amount of money or its equivalent
representing the contract price, compensation, service fee, rental or royalty, including the amount
charged for materials supplied with the services and deposits applied as payments for services
rendered, and advance payments actually or constructively received during the taxable period for the
services performed or to be performed for another person, excluding the VAT. 34

In 2007, the BIR issued RR No. 4-2007 amending portions of RR No. 16-2005, including the definition
of gross receipts in general.35

According to the CTA en banc, the entire amount of membership fees should form part of
MEDICARD's gross receipts because the exclusions to the gross receipts under RR No. 4-2007 does not
apply to MEDICARD. What applies to MEDICARD is the definition of gross receipts of an HMO under
RR No. 16-2005 and not the modified definition of gross receipts in general under the RR No. 4-2007.

The CTA en banc overlooked that the definition of gross receipts under. RR No. 16-2005 merely
presumed that the amount received by an HMO as membership fee is the HMO's compensation for their
services. As a mere presumption, an HMO is, thus, allowed to establish that a portion of the amount it
received as membership fee does NOT actually compensate it but some other person, which in this case
are the medical service providers themselves. It is a well-settled principle of legal hermeneutics that
words of a statute will be interpreted in their natural, plain and ordinary acceptation and signification,
unless it is evident that the legislature intended a technical or special legal meaning to those words. The
Court cannot read the word "presumed" in any other way.

It is notable in this regard that the term gross receipts as elsewhere mentioned as the tax base under the
NIRC does not contain any specific definition.36 Therefore, absent a statutory definition, this Court has
construed the term gross receipts in its plain and ordinary meaning, that is, gross receipts is understood
as comprising the entire receipts without any deduction.37 Congress, under Section 108, could have
simply left the term gross receipts similarly undefined and its interpretation subjected to ordinary
acceptation,. Instead of doing so, Congress limited the scope of the term gross receipts for VAT
purposes only to the amount that the taxpayer received for the services it performed or to the amount it
received as advance payment for the services it will render in the future for another person.

In the proceedings ·below, the nature of MEDICARD's business and the extent of the services it
rendered are not seriously disputed. As an HMO, MEDICARD primarily acts as an intermediary
between the purchaser of healthcare services (its members) and the healthcare providers (the doctors,
hospitals and clinics) for a fee. By enrolling membership with MED ICARD, its members will be able to
avail of the pre-arranged medical services from its accredited healthcare providers without the necessary
protocol of posting cash bonds or deposits prior to being attended to or admitted to hospitals or clinics,
especially during emergencies, at any given time. Apart from this, MEDICARD may also directly
provide medical, hospital and laboratory services, which depends upon its member's choice.

Thus, in the course of its business as such, MED ICARD members can either avail of medical services
from MEDICARD's accredited healthcare providers or directly from MEDICARD. In the former,
MEDICARD members obviously knew that beyond the agreement to pre-arrange the healthcare needs
of its ·members, MEDICARD would not actually be providing the actual healthcare service. Thus, based
on industry practice, MEDICARD informs its would-be member beforehand that 80% of the amount
would be earmarked for medical utilization and only the remaining 20% comprises its service fee. In the
latter case, MEDICARD's sale of its services is exempt from VAT under Section 109(G).

The CTA's ruling and CIR's Comment have not pointed to any portion of Section 108 of the NIRC that
would extend the definition of gross receipts even to amounts that do not only pertain to the services to
be performed: by another person, other than the taxpayer, but even to amounts that were indisputably
utilized not by MED ICARD itself but by the medical service providers.

It is a cardinal rule in statutory construction that no word, clause, sentence, provision or part of a statute
shall be considered surplusage or superfluous, meaningless, void and insignificant. To this end, a
construction which renders every word operative is preferred over that which makes some words idle
and nugatory. This principle is expressed in the maxim Ut magisvaleat quam pereat, that is, we choose
the interpretation which gives effect to the whole of the statute – it’s every word.

In Philippine Health Care Providers, Inc. v. Commissioner of Internal Revenue,38the Court adopted the
principal object and purpose object in determining whether the MEDICARD therein is engaged in the
business of insurance and therefore liable for documentary stamp tax. The Court held therein that an
HMO engaged in preventive, diagnostic and curative medical services is not engaged in the business of
an insurance, thus:

To summarize, the distinctive features of the cooperative are the rendering of service, its extension, the
bringing of physician and patient together, the preventive features, the regularization of service as
well as payment, the substantial reduction in cost by quantity purchasing in short, getting the
medical job done and paid for; not, except incidentally to these features, the indemnification for
cost after .the services is rendered. Except the last, these are not distinctive or generally
characteristic of the insurance arrangement. There is, therefore, a substantial difference between
contracting in this way for the rendering of service, even on the contingency that it be needed, and
contracting merely to stand its cost when or after it is rendered.39 (Emphasis ours)

In sum, the Court said that the main difference between an HMO arid an insurance company is that
HMOs undertake to provide or arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify the insured for medical expenses
incurred up to a pre-agreed limit. In the present case, the VAT is a tax on the value added by the
performance of the service by the taxpayer. It is, thus, this service and the value charged thereof by the
taxpayer that is taxable under the NIRC.

To be sure, there are pros and cons in subjecting the entire amount of membership fees to VAT.40 But
the Court's task however is not to weigh these policy considerations but to determine if these
considerations in favor of taxation can even be implied from the statute where the CIR purports to derive
her authority. This Court rules that they cannot because the language of the NIRC is pretty
straightforward and clear. As this Court previously ruled:

What is controlling in this case is the well-settled doctrine of strict interpretation in the imposition of
taxes, not the similar doctrine as applied to tax exemptions. The rule in the interpretation of tax laws is
that a statute will not be construed as imposing a tax unless it does so clearly, expressly, and
unambiguously. A tax cannot be imposed without clear and express words for that purpose.
Accordingly, the general rule of requiring adherence to the letter in construing statutes applies
with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by
implication. In answering the question of who is subject to tax statutes, it is basic that in case of doubt,
such statutes are to be construed most strongly against the government and in favor of the subjects or
citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes
expressly and clearly import. As burdens, taxes should not be unduly exacted nor assumed beyond the
plain meaning of the tax laws. 41 (Citation omitted and emphasis and underlining ours)

For this Court to subject the entire amount of MEDICARD's gross receipts without exclusion, the
authority should have been reasonably founded from the language of the statute. That language is
wanting in this case. In the scheme of judicial tax administration, the need for certainty and
predictability in the implementation of tax laws is crucial. Our tax authorities fill in the details that
Congress may not have the opportunity or competence to provide. The regulations these authorities issue
are relied upon by taxpayers, who are certain that these will be followed by the courts. Courts, however,
will not uphold these authorities' interpretations when dearly absurd, erroneous or improper.42 The CIR's
interpretation of gross receipts in the present case is patently erroneous for lack of both textual and non-
textual support.

As to the CIR's argument that the act of earmarking or allocation is by itself an act of ownership and
management over the funds, the Court does not agree.1âwphi1 On the contrary, it is MEDICARD's act
of earmarking or allocating 80% of the amount it received as membership fee at the time of payment that
weakens the ownership imputed to it. By earmarking or allocating 80% of the amount, MEDICARD
unequivocally recognizes that its possession of the funds is not in the concept of owner but as a mere
administrator of the same. For this reason, at most, MEDICARD's right in relation to these amounts is a
mere inchoate owner which would ripen into actual ownership if, and only if, there is underutilization of
the membership fees at the end of the fiscal year. Prior to that, MEDI CARD is bound to pay from the
amounts it had allocated as an administrator once its members avail of the medical services of
MEDICARD's healthcare providers.

Before the Court, the parties were one in submitting the legal issue of whether the amounts MEDICARD
earmarked, corresponding to 80% of its enrollment fees, and paid to the medical service providers
should form part of its gross receipt for VAT purposes, after having paid the VAT on the amount
comprising the 20%. It is significant to note in this regard that MEDICARD established that upon
receipt of payment of membership fee it actually issued two official receipts, one pertaining to the VAT
able portion, representing compensation for its services, and the other represents the non-vatable portion
pertaining to the amount earmarked for medical utilization.: Therefore, the absence of an actual and
physical segregation of the amounts pertaining to two different kinds · of fees cannot arbitrarily
disqualify MEDICARD from rebutting the presumption under the law and from proving that indeed
services were rendered by its healthcare providers for which it paid the amount it sought to be excluded
from its gross receipts.

With the foregoing discussions on the nullity of the assessment on due process grounds and violation of
the NIRC, on one hand, and the utter lack of legal basis of the CIR's position on the computation of
MEDICARD's gross receipts, the Court finds it unnecessary, nay useless, to discuss the rest of the
parties' arguments and counter-arguments.

In fine, the foregoing discussion suffices for the reversal of the assailed decision and resolution of the
CTA en banc grounded as it is on due process violation. The Court likewise rules that for purposes of
determining the VAT liability of an HMO, the amounts earmarked and actually spent for medical
utilization of its members should not be included in the computation of its gross receipts.

WHEREFORE, in consideration of the foregoing disquisitions, the petition is hereby GRANTED. The
Decision dated September 2, 2015 and Resolution dated January 29, 2016 issued by the Court of Tax
Appeals en bane in CTA EB No. 1224 are REVERSED and SET ASIDE. The definition of gross
receipts under Revenue Regulations Nos. 16-2005 and 4-2007, in relation to Section 108(A) of the
National Internal Revenue Code, as amended by Republic Act No. 9337, for purposes of determining its
Value-Added Tax liability, is hereby declared to EXCLUDE the eighty percent (80%) of the amount of
the contract price earmarked as fiduciary funds for the medical utilization of its members. Further, the
Value-Added Tax deficiency assessment issued against Medicard Philippines, Inc. is hereby declared
unauthorized for having been issued without a Letter of Authority by the Commissioner of Internal
Revenue or his duly authorized representatives.

SO ORDERED.
 THIRD DIVISION

G.R. No. 190702, February 27, 2017

JAIME T. GAISANO, Petitioner, v. DEVELOPMENT INSURANCE AND SURETY

CORPORATION, Respondent.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1 seeking to nullify the Court of Appeals' (CA) September 11,
2009 Decision2 and November 24, 2009 Resolution3 in CA-G.R. CV No. 81225. The CA reversed the
September 24, 2003 Decision4 of the Regional Trial Court (RTC) in Civil Case No. 97-85464. The RTC
granted Jaime T. Gaisano's (petitioner) claim on the proceeds of the comprehensive commercial vehicle
policy issued by Development Insurance and Surety Corporation
(respondent), viz.:ChanRoblesVirtualawlibrary

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the defendant-appellant
ordered to pay the plaintiff-appellee the sum of P55,620.60 with interest at 6 percent per annum from the
date of the denial of the claim on October 9, 1996 until payment.

SO ORDERED.5chanroblesvirtuallawlibrary
I

The facts are undisputed. Petitioner was the registered owner of a 1992 Mitsubishi Montero with plate
number GTJ-777 (vehicle), while respondent is a domestic corporation engaged in the insurance
business.6 On September 27, 1996, respondent issued a comprehensive commercial vehicle policy7 to
petitioner in the amount of P1,500,000.00 over the vehicle for a period of one year commencing on
September 27, 1996 up to September 27, 1997.8 Respondent also issued two other commercial vehicle
policies to petitioner covering two other motor vehicles for the same period.9

To collect the premiums and other charges on the policies, respondent's agent, Trans-Pacific
Underwriters Agency (Trans-Pacific), issued a statement of account to petitioner's company, Noah's Ark
Merchandising (Noah's Ark).10 Noah's Ark immediately processed the payments and issued a Far East
Bank check dated September 27, 1996 payable to Trans-Pacific on the same day.11 The check bearing
the amount of P140,893.50 represents payment for the three insurance policies, with P55,620.60 for the
premium and other charges over the vehicle.12However, nobody from Trans-Pacific picked up the check
that day (September 27) because its president and general manager, Rolando Herradura, was celebrating
his birthday. Trans-Pacific informed Noah's Ark that its messenger would get the check the next day,
September 28.13

In the evening of September 27, 1996, while under the official custody of Noah's Ark marketing
manager Achilles Pacquing (Pacquing) as a service company vehicle, the vehicle was stolen in the
vicinity of SM Megamall at Ortigas, Mandaluyong City. Pacquing reported the loss to the Philippine
National Police Traffic Management Command at Camp Crame in Quezon City.14 Despite search and
retrieval efforts, the vehicle was not recovered.15

Oblivious of the incident, Trans-Pacific picked up the check the next day, September 28. It issued an
official receipt numbered 124713 dated September 28, 1996, acknowledging the receipt of P55,620.60
for the premium and other charges over the vehicle.16 The check issued to Trans-Pacific for P140,893.50
was deposited with Metrobank for encashment on October 1, 1996.17

On October 1, 1996, Pacquing informed petitioner of the vehicle's loss. Thereafter, petitioner reported
the loss and filed a claim with respondent for the insurance proceeds of P1,500,000.00.18 After
investigation, respondent denied petitioner's claim on the ground that there was no insurance
contract.19 Petitioner, through counsel, sent a final demand on July 7, 1997.20 Respondent, however,
refused to pay the insurance proceeds or return the premium paid on the vehicle.

On October 9, 1997, petitioner filed a complaint for collection of sum of money and damages21 with the
RTC where it sought to collect the insurance proceeds from respondent. In its Answer,22 respondent
asserted that the non-payment of the premium rendered the policy ineffective. The premium was
received by the respondent only on October 2, 1996, and there was no known loss covered by the policy
to which the payment could be applied.23

In its Decision24 dated September 24, 2003, the RTC ruled in favor of petitioner. It considered the
premium paid as of September 27, even if the check was received only on September 28 because (1)
respondent's agent, Trans-Pacific, acknowledged payment of the premium on that date, September 27,
and (2) the check that petitioner issued was honored by respondent in acknowledgment of the authority
of the agent to receive it.25 Instead of returning the premium, respondent sent a checklist of requirements
to petitioner and assigned an underwriter to investigate the claim.26 The RTC ruled that it would be
unjust and inequitable not to allow a recovery on the policy while allowing respondent to retain the
premium paid.27 Thus, petitioner was awarded an indemnity of P1,500,000.00 and attorney's fees of
P50,000.00.28

After respondent's motion for reconsideration was denied,29 it filed a Notice of Appeal.30 Records were
forwarded to the CA.31

The CA granted respondent's appeal.32 The CA upheld respondent's position that an insurance contract
becomes valid and binding only after the premium is paid pursuant to Section 77 of the Insurance Code
(Presidential Decree No. 612, as amended by Republic Act No. 10607).33 It found that the premium was
not yet paid at the time of the loss on September 27, but only a day after or on September 28, 1996,
when the check was picked up by Trans-Pacific.34 It also found that none of the exceptions to Section 77
obtains in this case.35Nevertheless, the CA ordered respondent to return the premium it received in the
amount of P55,620.60, with interest at the rate of 6% per annum from the date of the denial of the claim
on October 9, 1996 until payment.36

Hence petitioner filed this petition. He argues that there was a valid and binding insurance contract
between him and respondent.37 He submits that it comes within the exceptions to the rule in Section 77
of the Insurance Code that no contract of insurance becomes binding unless and until the premium
thereof has been paid. The prohibitive tenor of Section 77 does not apply because the parties stipulated
for the payment of premiums.38 The parties intended the contract of insurance to be immediately
effective upon issuance, despite non-payment of the premium, because respondent trusted
petitioner.39 He adds that respondent waived its right to a pre-payment in full of the terms of the policy,
and is in estoppel.40

Petitioner also argues that assuming he is not entitled to recover insurance proceeds, but only to the
return of the premiums paid, then he should be able to recover the full amount of P140,893.50, and not
merely P55,620.60.41 The insurance policy covered three vehicles yet respondent's intention was merely
to disregard the contract for only the lost vehicle.42 According to petitioner, the principle of mutuality of
contracts is violated, at his expense, if respondent is allowed to be excused from performance on the
insurance contract only for one vehicle, but not as to the two others, just because no loss is suffered as to
the two. To allow this "would be to place exclusively in the hands of one of the contracting parties the
right to decide whether the contract should stand or not x x x."43

For failure of respondent to tile its comment to the petition, we declared respondent to have waived its
right to file a comment in our June 15, 2011 Resolution.44

The lone issue here is whether there is a binding insurance contract between petitioner and respondent.

II

We deny the petition.

Insurance is a contract whereby one undertakes for a consideration to indemnify another against loss,
damage or liability arising from an unknown or contingent event.45 Just like any other contract, it
requires a cause or consideration. The consideration is the premium, which must be paid at the time and
in the way and manner specified in the policy.46 If not so paid, the policy will lapse and be forfeited by
its own terms.47

The law, however, limits the parties' autonomy as to when payment of premium may be made for the
contract to take effect. The general rule in insurance laws is that unless the premium is paid, the
insurance policy is not valid and binding.48Section 77 of the Insurance Code, applicable at the time of
the issuance of the policy, provides:ChanRoblesVirtualawlibrary
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy whenever the grace period provision applies.
In Tibay v. Court of Appeals,49 we emphasized the importance of this rule. We explained that in an
insurance contract, both the insured and insurer undertake risks. On one hand, there is the insured, a
member of a group exposed to a particular peril, who contributes premiums under the risk of receiving
nothing in return in case the contingency does not happen; on the other, there is the insurer, who
undertakes to pay the entire sum agreed upon in case the contingency happens. This risk-distributing
mechanism operates under a system where, by prompt payment of the premiums, the insurer is able to
meet its legal obligation to maintain a legal reserve fund needed to meet its contingent obligations to the
public. The premium, therefore, is the elixir vitae or source of life of the insurance
business:ChanRoblesVirtualawlibrary
In the desire to safeguard the interest of the assured, it must not be ignored that the contract of insurance
is primarily a risk-distributing device, a mechanism by which all members of a group exposed to a
particular risk contribute premiums to an insurer. From these contributory funds are paid whatever
losses occur due to exposure to the peril insured against. Each party therefore takes a risk: the insurer,
that of being compelled upon the happening of the contingency to pay the entire sum agreed upon, and
the insured, that of parting with the amount required as premium. without receiving anything therefor in
case the contingency does not happen. To ensure payment tor these losses, the law mandates all
insurance companies to maintain a legal reserve fund in favor of those claiming under their policies. It
should be understood that the integrity of this fund cannot be secured and maintained if by judicial fiat
partial offerings of premiums were to be construed as a legal nexus between the applicant and the insurer
despite an express agreement to the contrary. For what could prevent the insurance applicant from
deliberately or willfully holding back full premium payment and wait for the risk insured against to
transpire and then conveniently pass on the balance of the premium to be deducted from the proceeds of
the insurance? x x x

xxx

And so it must be. For it cannot be disputed that premium is the elixir vitae of the insurance business
because by law the insurer must maintain a legal reserve fund to meet its contingent obligations to the
public, hence, the imperative need for its prompt payment and full satisfaction. It must be emphasized
here that all actuarial calculations and various tabulations of probabilities of losses under the risks
insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock
insurance firms are enabled to other the assurance of security to the public at favorable rates. x x
x50(Citations omitted.)
Here, there is no dispute that the check was delivered to and was accepted by respondent's agent, Trans-
Pacific, only on September 28, 1996. No payment of premium had thus been made at the time of the loss
of the vehicle on September 27, 1996. While petitioner claims that Trans-Pacific was informed that the
check was ready for pick-up on September 27, 1996, the notice of the availability of the check, by itself,
does not produce the effect of payment of the premium. Trans-Pacific could not be considered in delay
in accepting the check because when it informed petitioner that it will only be able to pick-up the check
the next day, petitioner did not protest to this, but instead allowed Trans-Pacific to do so. Thus, at the
time of loss, there was no payment of premium yet to make the insurance policy effective.

There are, of course, exceptions to the rule that no insurance contract takes effect unless premium is
paid. In UCPB General Insurance Co., Inc. v. Masagana Telamart, Inc.,51 we
said:ChanRoblesVirtualawlibrary
It can be seen at once that Section 77 does not restate the portion of Section 72 expressly permitting an
agreement to extend the period to pay the premium. But are there exceptions to Section 77?

The answer is in the affirmative.

The first exception is provided by Section 77 itself, and that is, in case of a life or industrial life policy
whenever the grace period provision applies.

The second is that covered by Section 78 of the Insurance Code, which

provides:ChanRoblesVirtualawlibrary
SEC. 78. Any acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation
therein that it shall not be binding until premium is actually paid.
A third exception was laid down in Makati Tuscany Condominium Corporation vs. Court of Appeals,
wherein we ruled that Section 77 may not apply if the parties have agreed to the payment in installments
of the premium and partial payment has been made at the time of loss. We said therein,
thus:ChanRoblesVirtualawlibrary
We hold that the subject policies are valid even if the premiums were paid on installments. The records
clearly show that the petitioners and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those three years, the insurer accepted all the
installment payments. Such acceptance of payments speaks loudly of the insurer's intention to honor the
policies it issued to petitioner. Certainly, basic principles of equity and fairness would not allow the
insurer to continue collecting and accepting the premiums, although paid on installments, and later deny
liability on the lame excuse that the premiums were not prepaid in full.
Not only that. In Tuscany, we also quoted with approval the following pronouncement of the Court of
Appeals in its Resolution denying the motion for reconsideration of its
decision:ChanRoblesVirtualawlibrary
While the import of Section 77 is that prepayment of premiums is strictly required as a condition to the
validity of the contract, We are not prepared to rule that the request to make installment payments duly
approved by the insurer would prevent the entire contract of insurance from going into effect despite
payment and acceptance of the initial premium or first installment. Section 78 of the Insurance Code in
effect allows waiver by the insurer of the condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of payment so far as to make the policy
binding despite the fact that premium is actually unpaid. Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are not paid, but docs not expressly prohibit an
agreement granting credit extension, and such an agreement is not contrary to morals, good customs,
public order or public policy (De Leon,' The Insurance Code, p. 175). So is an understanding to allow
insured to pay premiums in installments not so prescribed. At the very least, both parties should be
deemed in estoppel to question the arrangement they have voluntarily accepted.
By the approval of the aforequoted findings and conclusion of the Court of Appeals, Tuscany has
provided a fourth exception to Section 77, namely, that the insurer may grant credit extension for the
payment of the premium. This simply means that if the insurer has granted the insured a credit term for
the payment of the premium and loss occurs before the expiration of the term, recovery on the policy
should be allowed even though the premium is paid after the loss but within the credit term.

xxx

Finally in the instant case, it would be unjust and inequitable if recovery on the policy would not be
permitted against Petitioner, which had consistently granted a 60- to 90-day credit term for the payment
of premiums despite its full awareness of Section 77. Estoppel bars it from taking refuge under said
Section, since Respondent relied in good faith on such practice. Estoppel then is the fifth exception to
Section 77.52 (Citations omitted.)
In UCPB General Insurance Co., Inc., we summarized the exceptions as follows: (1) in case of life or
industrial life policy, whenever the grace period provision applies, as expressly provided by Section 77
itself; (2) where the insurer acknowledged in the policy or contract of insurance itself the receipt of
premium, even if premium has not been actually paid, as expressly provided by Section 78 itself; (3)
where the parties agreed that premium payment shall be in installments and partial payment has been
made at the time of loss, as held in Makati Tuscany Condominium Corp. v. Court of Appeals;53 (4) where
the insurer granted the insured a credit term for the payment of the premium, and loss occurs before the
expiration of the term, as held in Makati Tuscany Condominium Corp.; and (5) where the insurer is
in estoppel as when it has consistently granted a 60 to 90-day credit term for the payment of premiums.

The insurance policy in question does not fall under the first to third exceptions laid out in UCPB
General Insurance Co., Inc.: (1) the policy is not a life or industrial life policy; (2) the policy does not
contain an acknowledgment of the receipt of premium but merely a statement of account on its
face;54 and (3) no payment of an installment was made at the time of loss on September 27.

Petitioner argues that his case falls under the fourth and fifth exceptions because the parties intended the
contract of insurance to be immediately effective upon issuance, despite non-payment of the premium.
This waiver to a pre-payment in full of the premium places respondent in estoppel.

We do not agree with petitioner.

The fourth and fifth exceptions to Section 77 operate under the facts obtaining in Makati Tuscany
Condominium Corp. and UCPB General Insurance Co., Inc. Both contemplate situations where the
insurers have consistently granted the insured a credit extension or term for the payment of the premium.
Here, however, petitioner failed to establish the fact of a grant by respondent of a credit term in his
favor, or that the grant has been consistent. While there was mention of a credit agreement between
Trans-Pacific and respondent, such arrangement was not proven and was internal between agent and
principal.55 Under the principle of relativity of contracts, contracts bind the parties who entered into it. It
cannot favor or prejudice a third person, even if he is aware of the contract and has acted with
knowledge.56

We cannot sustain petitioner's claim that the parties agreed that the insurance contract is immediately
effective upon issuance despite non payment of the premiums. Even if there is a waiver of pre-payment
of premiums, that in itself does not become an exception to Section 77, unless the insured clearly gave a
credit term or extension. This is the clear import of the fourth exception in the UCPB General Insurance
Co., Inc. To rule otherwise would render nugatory the requirement in Section 77 that "[n]otwithstanding
any agreement to the contrary, no policy or contract of insurance issued by an insurance company is
valid and binding unless and until the premium thereof has been paid, x x x." Moreover, the policy itself
states:ChanRoblesVirtualawlibrary
WHEREAS THE INSURED, by his corresponding proposal and declaration, and which shall be the
basis of this Contract and deemed incorporated herein, has applied to the company for the insurance
hereinafter contained, subject to the payment of the Premium as consideration for such
insurance.57 (Emphasis supplied.)
The policy states that the insured's application for the insurance is subject to the payment of the
premium. There is no waiver of pre-payment, in full or in installment, of the premiums under the policy.
Consequently, respondent cannot be placed in estoppel.

Thus, we find that petitioner is not entitled to the insurance proceeds because no insurance policy
became effective for lack of premium payment.
The consequence of this declaration is that petitioner is entitled to a return of the premium paid for the
vehicle in the amount of P55,620.60 under the principle of unjust enrichment. There is unjust
enrichment when a person unjustly retains a benefit to the loss of another, or when a person retains
money or property of another against the fundamental principles of justice, equity and good
conscience.58 Petitioner cannot claim the full amount of P140,893.50, which includes the payment of
premiums for the two other vehicles. These two policies are not affected by our ruling on the policy
subject of this case because they were issued as separate and independent contracts of insurance.59 We,
however, find that the award shall earn legal interest of 6% from the time of extrajudicial demand on
July 7, 1997.60

WHEREFORE, the petition is DENIED. The assailed Decision of the CA dated September 11, 2009
and the Resolution dated November 24, 2009 are AFFIRMED with the MODIFICATION that
respondent should return the amount of P55,620.60 with the legal interest computed at the rate of
6% per annumreckoned from July 7, 1997 until finality of this judgment. Thereafter, the total amount
shall earn interest at the rate of 6% per annum from the finality of this judgment until its full
satisfaction.

SO ORDERED.chanroblesvirtuallawlibrary
 THIRD DIVISION

G.R. No. 192159, January 25, 2017

COMMUNICATION AND INFORMATION SYSTEMS CORPORATION, Petitioner, v. MARK

SENSING AUSTRALIA PTY. LTD., MARK SENSING PHILIPPINES, INC. AND OFELIA B.
CAJIGAL, Respondent.

DECISION

JARDELEZA, J.:

This is a petition for review on certiorari1 seeking to set aside the Decision2 dated November 25, 2009
and Resolution3 dated April 23, 2010 of the Court of Appeals (CA) in CA-G.R. SP No. 110511. The
question is whether courts may approve an attachment bond which has been reinsured as to the excess of
the issuer's statutory retention limit.

Petitioner Communication and Information Systems Corporation (CISC) and respondent Mark Sensing
Australia Pty. Ltd. (MSAPL) entered into a Memorandum of Agreement4 (MOA) dated March 1, 2002
whereby MSAPL appointed CISC as "the exclusive AGENT of [MSAPL] to PCSO during the [lifetime]
of the recently concluded Memorandum of Agreement entered into between [MSAPL], PCSO and other
parties." The recent agreement referred to in the MOA is the thermal paper and bet slip supply contract
(the Supply Contract) between the Philippine Charity Sweepstakes Office (PCSO), MSAPL, and three
other suppliers, namely Lamco Paper Products Company, Inc. (Lamco Paper), Consolidated Paper
Products, Inc. (Consolidated Paper) and Trojan Computer Forms Manufacturing Corporation (Trojan
Computer Forms).5 As consideration for CISC's services, MSAPL agreed to pay CISC a commission of
24.5% of future gross sales to PCSO, exclusive of duties and taxes, for six years.6

After initially complying with its obligation under the MOA, MSAPL stopped remitting commissions to
CISC during the second quarter of 2004. MSAPL justified its action by claiming that Carolina de Jesus,
President of CISC, violated her authority when she negotiated the Supply Contract with PCSO and three
of MSAPL's competitors. According to MSAPL, it lost almost one-half of its business with PCSO
because the Supply Contract provided that MSAPL's business with PCSO shall be limited to the latter's
Luzon operations, with MSAPL supplying 70% of thermal rolls and 50% of bet slips. MSAPL pointed
out that it used to have a Build Operate Transfer (BOT) Agreement with PCSO where it undertook to
build a thermal paper and bet slip manufacturing facility to supply all requirements of PCSO. However,
PCSO unilaterally cancelled the BOT Agreement and granted supply contracts to Lamco Paper,
Consolidated Paper and Trojan Computer Forms, which ultimately resulted in litigation between the
parties.7 The suit was eventually settled when PCSO, MSAPL, and the three other suppliers entered into
the Supply Contract, which was submitted and approved by the Regional Trial Court (RTC), Branch 224
of Quezon City, as a compromise agreement.8 MSAPL felt shortchanged by CISC's efforts and thus
decided to withhold payment of commissions.

As a result of MSAPL's refusal to pay, CISC filed a complaint before the RTC in Quezon City for
specific performance against MSAPL, Mark Sensing Philippines, Inc. (MSPI), Atty. Ofelia Cajigal, and
PCSO.9 CISC prayed that private respondents be ordered to comply with its obligations under the MOA.
It also asked the RTC to issue a writ of preliminary mandatory injunction and/or writ of
attachment.10 The RTC denied CISC's prayer for mandatory injunctive relief but ordered the PCSO to
hold the amount being contested until the final determination of the case.11 It later reversed itself,
holding that its jurisdiction is limited to the amount stated in the complaint and therefore had no
jurisdiction to order PCSO to withhold payments in excess of such amount.12 This order of reversal
became the subject of a separate petition for certiorari filed by CISC before the CA, docketed as CA-
G.R. SP No. 96620.13 The CA later reversed the RTC and ordered that the additional docket fees shall
constitute a lien on the judgment.14

On September 10, 2007, the RTC granted CISC's application for issuance of a writ of preliminary
attachment, stating that "the non-payment of the agreed commission constitutes fraud on the part of the
defendant MSAPL in their performance of their obligation to the plaintiff."15 The RTC found that
MSAPL is a foreign corporation based in Australia, and its Philippine subsidiary, MSPI, has no other
asset except for its collectibles from PCSO. Thus, the RTC concluded that CISC may be left without any
security if ever MSAPL is found liable.16 But the RTC limited the attachment to P4,861,312.00, which is
the amount stated in the complaint, instead of the amount sought to be attached by CISC, i.e.,
P113,197,309.10.17 The RTC explained that it "will have to await the Supreme Court judgment over the
issue of whether [it] has jurisdiction on the amounts in the excess of the amount prayed for by the
plaintiff in their complaint" since MSAPL appealed the adverse judgment in CA-G.R. SP No. 96620 to
us.18 We later denied MSAPL's petition for review assailing the CA Decision in CA-G.R. SP No. 96620
(subsequently docketed as G.R. No. 179073) in a Resolution dated November 12, 2007.19 It became final
and executory on March 25, 2008.20

In view of this development, CISC moved to amend the order of attachment to include unpaid
commissions in excess of the amount stated in the complaint. On December 22, 2008, the RTC granted
CISC's motion and issued a new writ of preliminary attachment.21 On April 13, 2009, the RTC, acting
on the partial motions for reconsideration by both CISC and MSAPL, modified the amount covered by
the writ to reflect the correct amount prayed for by CISC in its previous motion to amend the attachment
order conditioned upon the latter's payment of additional docket fees. It also denied MSAPL's opposition
to the attachment order for lack of merit.22 On July 2, 2009, the RTC modified its order insofar as it
allowed CISC to pay docket fees within a reasonable time.23

On July 8, 2009, CISC posted a bond in the amount of P113,197,309.10 through Plaridel Surety and
Insurance Company (Plaridel) in favor ofMSAPL, which the RTC approved on the same date.24 Two
days later, MSAPL filed a motion to determine the sufficiency of the bond because of questions
regarding the financial capacity of Plaridel.25 But before the RTC could act on this motion, MSAPL,
apparently getting hold of Plaridel's latest financial statements, moved to recall and set aside the
approval of the attachment bond on the ground that Plaridel had no capacity to underwrite the bond
pursuant to Section 215 of the old Insurance Code26 because its net worth was only P214,820,566.00 and
could therefore only underwrite up to P42,964,113.20.27 On September 4, 2009, the RTC denied
MSAPL's motion, finding that although Plaridel cannot underwrite the bond by itself, the amount
covered by the attachment bond "was likewise reinsured to sixteen other insurance
companies."28 However, "for the best interest of both parties," the RTC ordered Plaridel to submit proof
that the amount of P95,819,770.91 was reinsured. Plaridel submitted its compliance on September 11,
2009, attaching therein the reinsurance contracts.29

On September 18, 2009, MSAPL, MSPI and Atty. Ofelia Cajigal30 filed a petition for certiorari before
the CA, docketed as CA-G.R. SP No. 110511, assailing the Orders of the RTC dated April 13, 2009,
July 2, 2009, July 8, 2009, and September 4, 2009. In its now-assailed Decision elated November 25,
2009, the CA granted the petition.31 It concluded that the petition for certiorari was filed on time
because MSAPL did not abandon their right to impugn the evidence submitted in the application for the
writ of preliminary attachment, because they filed a motion to determine the sufficiency of the bond. On
the merits, it held that the RTC exceeded its authority when it "ordered the issuance of the writ [of
preliminary attachment] despite a dearth of evidence to clearly establish [CISC's] entitlement thereto, let
alone the latter's failure to comply with all requirements therefor."32 Noting that the posting of the
attachment bond is a jurisdictional requirement, the CA concluded that since Plaridel's capacity for
single risk coverage is limited to 20% of its net worth, or P57,866,599.80, the RTC "should have set
aside the second writ outright for non-compliance with Sections 3 and 4 of Rule 57."33

After the CA perfunctorily denied CISC's motion for reconsideration on April 23, 2010,34 it filed this
petition for review on certiorari.

II

CISC argues that the CA erred in giving due course to the petition insofar as it challenged the Orders
dated April 13, 2009, July 2, 2009, and July 8, 2009 because the reglementary period to challenge these
Orders already lapsed by the time private respondents filed their petition for certiorari below.35 In
response, MSAPL contends that since they continued to assail the additional attachment from the time it
was first issued, the 60-day period should be counted from the final denial of their challenge to the
additional attachment, which was on September 4, 2009.36

MSAPL's theory is similar to that proffered by one of the parties in the case of San Juan, Jr. v.
Cruz.37 The petitioner therein filed second and third motions for reconsideration from an interlocutory
order by the trial court. When he filed the petition for certiorari with the CA, he counted the 60-day
reglementary period from the notice of denial of his third motion for reconsideration. He argued that
since there is no rule prohibiting the filing of a second or third motion for reconsideration of an
interlocutory order, the 60-day period should be counted from the notice of denial of the last motion for
reconsideration. In resolving the question of when the reglementary period for filing a petition
for certiorari shall be counted, we held that the "60-day period shall be reckoned from the trial court's
denial of his first motion for reconsideration, otherwise indefinite delays will ensue."38

Applying the rule in San Juan, MSAPL's challenge to the order dated April 13, 2009 was clearly time-
barred. The 60-day reglementary period for challenging the RTC's issuance of the amended writ of
attachment should be counted from April 27, 2009,39 the date when MSAPL received a copy of the April
13, 2009 Order denying MSAPL's motion for reconsideration of the December 22, 2008 Order which
granted CISC's motion to amend the writ of preliminary attachment. The CA, however, considered
MSAPL's act of filing a motion to determine the sufficiency of the bond as a definitive indication that
private respondents have not "abandoned their right to impugn the evidence submitted in the application
for the second writ."40 This is erroneous for two reasons: first, MSAPL's motion never impugned the
propriety and factual bases of the RTC's issuance of the amended writ of attachment; and second, even if
it did, the motion would be considered as a second motion for reconsideration, which could not have
stayed the reglementary period within which to file a petition for certiorari assailing an interlocutory
order. We emphasize that the provisions on reglementary periods are strictly applied, indispensable as
they are to the prevention of needless delays, and are necessary to the orderly and speedy discharge of
judicial business. The timeliness of filing a petition for certiorari is mandatory and jurisdictional, and
should not be trifled with.41

Meanwhile, the Orders dated July 2, 2009 and July 8, 2009 resolved incidental issues with respect to the
issuance of the amended writ of attachment, namely: (1) when the additional docket fees should be paid;
and (2) the approval of the attachment bond. As regards the first incidental issue, the RTC allowed CISC
to pay the additional docket fees "within a reasonable time but in no case beyond its applicable
prescriptive or reglementary period."42 MSAPL, instead of filing a motion for reconsideration of the July
2, 2009 Order, elected to file a motion to compel CISC to pay the required docket fees on August 14,
2009.43 Evidently, MSAPL already recognized the validity of the July 2, 2009 Order and sought CISC's
compliance with the Order. Notably, the motion remained pending before the RTC when MSAPL filed
its petition for certiorari with the CA. We find that the petition for certiorari, insofar as it questions the
alleged non-payment of docket fees, was prematurely filed because the RTC has yet to rule on this issue.
A petition for certiorari may be resorted to only when there is no plain, speedy, and adequate remedy in
the ordinary course of law.44 It is not up to parties to preempt the trial court's action on their motions.
Absent any showing of unreasonable delay on the part of the RTC-and there is none here, considering
the short period between the filing of the motion and the petition for certiorari, as well as the various
incidents pending a quo-MSAPL's recourse to theCA was premature. The more appropriate remedy for
MSAPL would have been to move for the RTC to resolve its pending motion instead of precipitately
raising this matter in its petition for certiorari.45

This leaves the July 8, 2009 Order which approved the attachment bond Plaridel submitted. It was
directly challenged by MSAPL when the latter tiled a motion to determine the sufficiency of the bond
because of questions regarding Plaridel's financial capacity. Before the RTC could act on the motion,
however, MSAPL filed an urgent motion to recall and set aside the approval of the attachment bond,
dated July 21, 2009,46 on the ground that the attachment bond underwritten by Plaridel exceeded its
retention limit under the Insurance Code. The RTC resolved these two motions jointly in its September
4, 2009 Order, holding that Section 215 allows insurance companies to insure a single risk in excess of
retention limits provided that the excess amount is ceded to reinsurers, and consequently affirming its
approval of the attachment bond. In turn, the September 4, 2009 Order became the anchor of MSAPL's
petition for certiorari. Although not captioned as "motions tor reconsideration," the twin motions filed
by MSAPL directly challenged the approval of the attachment bond, and the September 4, 2009 Order
was the second time the RTC passed upon the issue concerning the sufficiency of the bond. Therefore,
the petition for certiorari filed by MSAPL on September 18, 2009, insofar as it assailed both the July 8,
2009 and September 4, 2009 Orders, was timely filed.

III

We now resolve the sole substantive issue before us: whether the RTC committed grave abuse of
discretion when it approved the attachment bond whose face amount exceeded the retention limit of the
surety.
Section 215 of the old Insurance Code,47 the law in force at the time Plaridel issued the attachment bond,
limits the amount of risk that insurance companies can retain to a maximum of 20% of its net worth.
However, in computing the retention limit, risks that have been ceded to authorized reinsurers are ipso
jurededucted.48 In mathematical terms, the amount of retained risk is computed by deducting
ceded/reinsured risk from insurable risk.49 If the resulting amount is below 20% of the insurer's net
worth, then the retention limit is not breached. In this case, both the RTC and CA determined that, based
on Plaridel's financial statement that was attached to its certificate of authority issued by the Insurance
Commission, its net worth is P289,332,999.00.50 Plaridel's retention limit is therefore P57,866,599.80,
which is below the Pl13,197,309.10 face value of the attachment bond. However, it only retained an
insurable risk of P17,377,938.19 because the remaining amount of P98,819,770.91 was ceded to 16
other insurance companies.51 Thus, the risk retained by Plaridel is actually P40 Million below its
maximum retention limit. Therefore, the approval of the attachment bond by the RTC was in order.
Contrary to MSAPL's contention that the RTC acted with grave abuse of discretion, we find that the
RTC not only correctly applied the law but also acted judiciously when it required Plaridel to submit
proof of its reinsurance contracts after MSAPL questioned Plaridel's capacity to underwrite the
attachment bond. Apparently, MSAPL failed to appreciate that by dividing the risk through reinsurance,
Plaridel's attachment bond actually became more reliable-as it is no longer dependent on the financial
stability of one company-and, therefore, more beneficial to MSAPL.

In cancelling Plaridel's insurance bond, the CA also found that because the reinsurance contracts were
issued in favor of Plaridel, and not MSAPL, these failed to comply with the requirement of Section 4,
Rule 57 of the Rules of Court requiring the bond to be executed to the adverse party.52 This led the CA
to conclude that "the bond has been improperly and insufficiently posted."53 We reverse the CA and so
hold that the reinsurance contracts were correctly issued in favor of Plaridel. A contract of reinsurance is
one by which an insurer (the "direct insurer" or "cedant") procures a third person (the "reinsurer") to
insure him against loss or liability by reason of such original insurance.54 It is a separate and distinct
arrangement from the original contract of insurance, whose contracted risk is insured in the reinsurance
agreement.55 The reinsurer's contractual relationship is with the direct insurer, not the original insured,
and the latter has no interest in and is generally not privy to the contract of reinsurance.56 Put simply,
reinsurance is the "insurance of an insurance."57

By its nature, reinsurance contracts are issued in favor of the direct insurer because the subject of such
contracts is the direct insurer's risk-in this case, Plaridel's contingent liability to MSAPL and not the risk
assumed under the original policy.58 The requirement under Section 4, Rule 57 of the Rules of Court that
the applicant's bond be executed to the adverse party necessarily pertains only to the attachment bond
itself and not to any underlying reinsurance contract. With or without reinsurance, the obligation of the
surety to the party against whom the writ of attachment is issued remains the same.

WHEREFORE, the petition is GRANTED. The Decision dated November 25, 2009 and Resolution
dated April 23, 2010 of the Court of Appeals in CA-G.R. SP No. 110511 are SET ASIDE.

SO ORDERED.chanroblesvirtuallawlibrary
 FIRST DIVISION

January 16, 2017

G.R. No. 207277

MALAYAN INSURANCE CO., INC., YVONNE S. YUCHENGCO, ATTY. EMMANUEL G.

VILLANUEVA, SONNY RUBIN,1 ENGR. FRANCISCO MONDELO, and MICHAEL
REQUIJO,2 Petitioners.
vs.
EMMA CONCEPCION L. LIN,3 Respondent.

DECISION

DEL CASTILLO, J.:

Assailed in this Petition for Review on Certiorari4 are the December 21, 2012 Decision5 of the Court of
Appeals (CA) and its May 22, 2013 Resolution6 in CA-GR. SP No. 118894, both of which found no
grave abuse of discretion in the twin Orders issued by the Regional Trial Court (RTC) of Manila, Branch
52, on September 29, 20107 and on January 25, 20118 in Civil Case No. 10-122738.

Factual Antecedents

On January 4, 2010, Emma Concepcion L. Lin (Lin) filed a Complaint9 for Collection of Sum of Money
with Damages against Malayan Insurance Co., Inc. (Malayan), Yvonne Yuchengco (Yvonne), Atty.
Emmanuel Villanueva, Sonny Rubin, Engr. Francisco Mondelo, Michael Angelo Requijo (collectively,
the petitioners), and the Rizal Commercial and Banking Corporation (RCBC). This was docketed as
Civil Case No. 10-122738 of Branch 52 of the Manila RTC.

Lin alleged that she obtained various loans from RCBC secured by six clustered warehouses located at
Plaridel, Bulacan; that the five warehouses were insured with Malayan against fire for ₱56 million while
the remaining warehouse was insured for ₱2 million; that on February 24, 2008, the five warehouses
were gutted by fire; that on April 8, 2008 the Bureau of Fire Protection (BFP) issued a Fire Clearance
Certification to her (April 8, 2008 FCC) after having determined that the cause of fire was accidental;
that despite the foregoing, her demand for payment of her insurance claim was denied since the forensic
investigators hired by Malayan claimed that the cause of the fire was arson and not accidental; that she
sought assistance from the Insurance Commission (IC) which, after a meeting among the parties and a
conduct of reinvestigation into the cause/s of the fire, recommended that Malayan pay Lin's insurance
claim and/or accord great weight to the BFP's findings; that in defiance thereof, Malayan still denied or
refused to pay her insurance claim; and that for these reasons, Malayan's corporate officers should also
be held liable for acquiescing to Malayan's unjustified refusal to pay her insurance claim.

As against RCBC, Lin averred that notwithstanding the loss of the mortgaged properties, the bank
refused to go after Malayan and instead insisted that she herself must pay the loans to RCBC, otherwise,
foreclosure proceedings would ensue; and that to add insult to injury, RCBC has been compounding the
interest on her loans, despite RCBC's failure or refusal to go after Malayan.
Lin thus prayed in Civil Case No. 10-122738 that judgment be rendered ordering petitioners to pay her
insurance claim plus interest on the amounts due or owing her; that her loans and mortgage to RCBC be
deemed extinguished as of February 2008; that RCBC be enjoined from foreclosing the mortgage on the
properties put up as collaterals; and that petitioners he ordered to pay her ₱l,217,928.88 in the concept of
filing foes, costs of suit,₱l million as exemplary damages, and ₱500,000.00 as attorney’s fees.

Some five months later, or on June 17, 2010, Lin filed before the IC an administrative case 10 against
Malayan, represented this time by Yvonne. This was docketed as Administrative Case No. 431.

In this administrative case, Lin claimed that since it had been conclusively found that the cause of the
fire was "accidental," the only issue left to be resolved is whether Malayan should be held liable for
unfair claim settlement practice under Section 241 in relation to Section 247 of the Insurance Code due
to its unjustified refusal to settle her claim; and that in consequence of the foregoing failings, Malayan's
license to operate as a non-life insurance company should be revoked or suspended, until such time that
it fully complies with the IC Resolution ordering it to accord more weight to the BFP's findings.

On August 17, 2010, Malayan filed a motion to dismiss Civil Case No. 10-122738 based on forum
shopping. It argued that the administrative case was instituted to prompt or incite IC into ordering
Malayan to pay her insurance claim; that the elements of forum shopping are present in these two cases
because there exists identity of parties since Malayan's individual officers who were impleaded in the
civil case are also involved in the administrative case; that the same interests are shared and represented
in both the civil and administrative cases; that there is identity of causes of action and reliefs sought in
the two cases since the administrative case is merely disguised as an unfair claim settlement charge,
although its real purpose is to allow Lin to recover her insurance claim from Malayan; that Lin sought to
obtain the same reliefs in the administrative case as in the civil case; that Lin did not comply with her
sworn undertaking in the Certification on Non-Forum Shopping which she attached to the civil case,
because she deliberately failed to notify the RTC about the pending administrative case within five days
from the filing thereof.

This motion to dismiss drew a Comment/Opposition, 11 which Lin filed on August 31, 2010.

Ruling of the Regional Trial Court

In its Order of September 29, 2010,12 the RTC denied the Motion to Dismiss, thus:

WHEREFORE, the MOTION TO DISMISS filed by [petitioners] is hereby DENIED for lack of merit.

Furnish the parties through their respective [counsels] with a copy each [of] the Order.

SO ORDERED.13

The RTC held that in the administrative case, Lin was seeking a relief clearly distinct from that sought
in the civil case; that while in the administrative case Lin prayed for the suspension or revocation of
Malayan's license to operate as a non-life insurance company, in the civil case Lin prayed for the
collection of a sum of money with damages; that it is abundantly clear that any judgment that would be
obtained in either case would not be res judicata to the other, hence, there is no forum shopping to speak
of.

In its Order of January 25, 2011, 14 the RTC likewise denied, for lack of merit, petitioners' Motion for
Reconsideration.

Ruling of the Court of Appeals

Petitioners thereafter sued out a Petition for Certiorari and Prohibition15 before the CA. However, in a
Decision 16dated December 21, 2012, the CA upheld the RTC, and disposed as follows:

WHEREFORE absent grave abuse of discretion on the part of respondent Judge, the Petition
for Certiorari and Prohibition (with Temporary Restraining Order and Preliminary Injunction) is
DISMISSED.

SO ORDERED.17

The CA, as did the RTC, found that Lin did not commit forum shopping chiefly for the reason that the
issues raised and the reliefs prayed for in the civil case were essentially different from those in the
administrative case, hence Lin had no duty at all to inform the RTC about the institution or pendency of
the administrative case.

The CA ruled that forum shopping exists where the elements of litis pendentia concurred, and where a
final judgment in one case will amount to res judicata in the other. The CA held that of the three
elements of forum shopping viz., (l) identity of parties, or at least such parties as would represent the
same interest in both actions, (2) identity of rights asserted and reliefs prayed for, the relief being
founded on the same facts, and (3) identity of the two proceedings such that any judgment rendered in
one action will, regardless of which party is successful, amount to res judicata in the other action under
consideration, only the first element may be deemed present in the instant case. The CA held that there
is here identity of parties in the civil and administrative cases because Lin is the complainant in both the
civil and administrative cases, and these actions were filed against the same petitioners, the same RCBC
and the same Malayan, represented by Yvonne, respectively. It held that there is however no identity of
rights asserted and reliefs prayed for because in the civil case, it was Lin's assertion that petitioners had
violated her rights to recover the full amount of her insurance claim, which is why she prayed/demanded
that petitioners pay her insurance claim plus damages; whereas in the administrative case, Lin's assertion
was that petitioners were guilty of unfair claim settlement practice, for which reason she prayed that
Malayan's license to operate as an insurance company be revoked or suspended; that the judgment in the
civil case, regardless of which party is successful, would not amount to res judicata in the administrative
case in view of the different issues involved, the dissimilarity in the quantum of evidence required, and
the distinct mode or procedure to be observed in each case.

Petitioners moved for reconsideration 18 of the CA's Decision, but this motion was denied by the CA in
its Resolution of May 22, 2013.19

Issues
Before this Court, petitioners instituted the present Petition,20 which raises the following issues:

The [CA] not only decided questions of substance contrary to law and the applicable decisions of this
Honorable Court, it also sanctioned a flagrant departure from the accepted and usual course of judicial
proceedings.

A.

The [CA] erred in not dismissing the Civil Case on the ground of willful and deliberate [forum
shopping] despite the fact that the civil case and the administrative case both seek the payment of
the same fire insurance claim.

B.

The [CA] erred in not dismissing the civil case for failure on the part of [Lin] to comply with her
undertaking in her verification and certification of non-forum shopping appended to the civil
complaint.21

Petitioners' Arguments

In praying for the reversal of the CA Decision, petitioners argue that regardless of nomenclature, it is
Lin and no one else who filed the administrative case, and that she is not a mere complaining witness
therein; that it is settled that only substantial identity of parties is required for res judicata to apply; that
the sharing of the same interest is sufficient to constitute identity of parties; that Lin has not denied that
the subject of both the administrative case and the civil case involved the same fire insurance claim; that
there is here identity of causes of action, too, because the ultimate objective of both the civil case and
the administrative case is to compel Malayan to pay Lin's fire insurance claim; that although the reliefs
sought in the civil case and those in the administrative case are worded differently, Lin was actually
asking for the payment of her insurance claim in both cases; that it is well-entrenched that a party cannot
escape the operation of the principle in res judicata that a cause of action cannot be litigated twice just
by varying the form of action or the method of presenting the case; that Go v. Office of the
Ombudsman22is inapplicable because the issue in that case was whether there was unreasonable delay in
withholding the insured's claims, which would warrant the revocation or suspension of the insurers'
licenses, and not whether the insurers should pay the insured's insurance claim; that Almendras Mining
Corporation v. Office of the Insurance Commission23does not apply to this case either, because the
parties in said case agreed to submit the case for resolution on the sole issue of whether the revocation or
suspension of the insurer's license was justified; and that petitioners will suffer irreparable injury as a
consequence of having to defend themselves in a case which should have been dismissed on the ground
of forum shopping.

Respondents Arguments

Lin counters that as stressed in Go v. Office of the Ombudsman, 24 an administrative case for unfair claim
settlement practice may proceed simultaneously with, or independently of, the civil case for collection of
the insurance proceeds filed by the same claimant since a judgment in one will not amount to res
judicata to the other, and vice versa, due to the variance or differences in the issues, in the quantum of
evidence, and in the procedure to be followed in prosecuting the cases; that in this case the CA cited the
teaching in Go v. Office of the Ombudsman that there was no grave abuse of discretion in the RTC's
dismissal of petitioners' motion to dismiss; that the CA correctly held that the RTC did not commit grave
abuse of discretion in denying petitioners' motion to dismiss because the elements of forum shopping
were absent; that there is here no identity of parties because while she (respondent) is the plaintiff in the
civil case, she is only a complaining witness in the administrative case since it is the IC that is the real
party in interest in the administrative case; that the cause of action in the civil case consists of Malayan's
failure or refusal to pay her insurance claim, whereas in the administrative case, it consists of Malayan's
unfair claim settlement practice; that the issue in the civil case is whether Malayan is liable to pay Lin's
insurance claim, while the issue in the administrative case is whether Malayan's license to operate
should be revoked or suspended for engaging in unfair claim settlement practice; and that the relief
sought in the civil case consists in the payment of a sum of money plus damages, while the relief in the
administrative case consists of the revocation or suspension of Malayan's license to operate as an
insurance company. According to Lin, although in the administrative case she prayed that the IC
Resolution ordering Malayan to accord weight to the BFP's findings be declared final, this did not mean
that she was therein seeking payment of her insurance claim, but rather that the IC can now impose the
appropriate administrative sanctions upon Malayan; that if Malayan felt compelled to pay Lin's
insurance claim for fear that its license to operate as an insurance firm might be suspended or revoked,
then this is just a logical result of its failure or refusal to pay the insurance claim; that the judgment in
the civil case will not amount to res judicata in the administrative case, and vice versa, pursuant to the
case law ruling in Go v. Office of the Ombudsman25and in Almendras v. Office of the Insurance
Commission, 26 both of which categorically allowed the insurance clain1ants therein to file both a civil
and an administrative case against insurers; that the rule against forum shopping was designed to serve a
noble purpose, viz., to be an instrument of justice, hence, it can in no way be interpreted to subvert such
a noble purpose.

Our Ruling

We deny this Petition. We hold that the case law rulings in the Go and Almendras cases27 control and
govern the case at bench.

First off, it is elementary that "an order denying a motion to dismiss is merely interlocutory and,
therefore, not appealable, x x x to x x x avoid undue inconvenience to the appealing party by having to
assail orders as they are promulgated by the court, when all such orders may be contested in a single
appeal."28

Secondly, petitioners herein utterly failed to prove that the RTC, in issuing the assailed Orders, acted
with grave abuse of discretion amounting to lack or excess of jurisdiction. "It is well-settled that an act
of a court or tribunal may only be considered to have been done in grave abuse of discretion when the
same was performed in a capricious or whimsical exercise of judgment which is equivalent to lack or
excess of jurisdiction."29 "[F]or grave abuse of discretion to exist, the abuse of discretion must be patent
and gross so as to amount to an evasion of a positive duty or a virtual refusal to perform a duty enjoined
by law, or to act at all in contemplation of law."30

In the present case, petitioners basically insist that Lin committed willful and deliberate forum shopping
which warrants the dismissal of her civil case because it is not much different from the administrative
case in terms of the parties involved, the causes of action pleaded, and the reliefs prayed for. Petitioners
also posit that another ground warranting the dismissal of the civil case was Lin's failure to notify the
RTC about the pendency of the administrative case within five days from the filing thereof.

These arguments will not avail. The proscription against forum shopping is found in Section 5, Rule 7 of
the Rules of Court, which provides:

SEC. 5. Certification against forum shopping. --The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith; (a) that he has not theretofore commenced any
action or filed any claim involving the same issues in any court, tribunal or quasi-judicial agency and, to
the best of his knowledge, no such other action or claim is pending therein; (b) if there is such other
pending action or claim, a complete statement of the present status thereof; and (c) if he should
thereafter learn that the same or similar action or claim has been filed or is pending, he shall report that
fact within five (5) days therefrom to the court wherein his aforesaid complaint or initiatory pleading has
been filed.

Failure to comply with the foregoing requirements shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and after hearing. The submission of a false certification or
non-compliance with any of the undertakings therein shall constitute indirect contempt of court, without
prejudice to the corresponding administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be ground for summary
dismissal with prejudice and shall constitute direct contempt, as well as a cause for administrative
sanctions. (n)

The above-stated rule covers the very essence of forum shopping itself, and the constitutive elements
thereof viz., the cognate concepts of litis pendentia and res judicata -

x x x [T]he essence of forum shopping is the filing of multiple suits involving the same parties for the
same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable
judgment. It exists where the elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in another. On the other hand, for litis pendentia to be a ground for the
dismissal of an action, the following requisites must concur: (a) identity of parties, or at least such
parties who represent the same interests in both actions; (b) identity of rights asserted and relief prayed
for, the relief being founded on the same facts; and (c) the identity with respect to the two preceding
particulars in the two cases is such that any judgment that may be rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other case.31

Res judicata, in turn, has the following requisites: "(1) the former judgment must be final; (2) it must
have been rendered by a court having jurisdiction over the subject matter and over the parties; (3) it must
be a judgment on the merits; and (4) there must be, between the first and second actions, (a) identity of
parties, (b) identity of subject matter, and (c) identity of cause of action."32

"The settled rule is that criminal and civil cases are altogether different from administrative matters,
such that the disposition in the first two will not inevitably govern the third and vice versa."33In the
context of the case at bar, matters handled by the IC are delineated as either regulatory or adjudicatory,
both of which have distinct characteristics, as postulated in Almendras Mining Corporation v. Office of
the Insurance Commission:34

The provisions of the Insurance Code (Presidential Decree [P.D.] No. 1460), as amended, clearly
indicate that the Office of the [IC] is an administrative agency vested with regulatory power as well as
with adjudicatory authority. Among the several regulatory or non-quasi-judicial duties of the Insurance
Commissioner under the Insurance Code is the authority to issue, or refuse issuance of, a Certificate of
Authority to a person or entity desirous of engaging in insurance business in the Philippines, and to
revoke or suspend such Certificate of Authority upon a finding of the existence of statutory grounds for
such revocation or suspension. The grounds for revocation or suspension of an insurer's Certificate of
Authority are set out in Section 241 and in Section 247 of the Insurance Code as amended. The general
regulatory authority of the Insurance Commissioner is described in Section 414 of the Insurance Code,
as amended, in the following terms:

'Section 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance,
insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable
uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall,
notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the
issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for
the licensing of persons selling such contracts, and to issue such reasonable rules and regulations
governing the same.

The Commissioner may issue such rulings, instructions, circulars, orders[,] and decisions as he may
deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the
Secretary of Finance [DOF Secretary]. Except as otherwise specified, decisions made by the
Commissioner shall be appealable to the [DOF Secretary].' (Italics supplied)

which Section also specifies the authority to which a decision of the Insurance Commissioner rendered
in the exercise of its regulatory function may be appealed.

The adjudicatory authority of the Insurance Commissioner is generally described in Section 416 of the
Insurance Code, as amended, which reads as follows:

'Sec. 416. The Commissioner shall have the power to adjudicate claims and complaints involving any
loss, damage or liability for which an insurer may be answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable under a contract of suretyship, or for which a
reinsurer may be sued under any contract or reinsurance it may have entered into, or for which a mutual
benefit association may be held liable under the membership certificates it has issued to its
members, where the amount of any such loss, damage or liability, excluding interests, cost
and attorney’s fees, being claimed or sued upon any kind of insurance, bond, reinsurance contract, or
membership certificate does not exceed in any single claim one hundred thousand pesos.

xxxx
The authority to adjudicate granted to the Commissioner under this section shall be concurrent with that
of the civil courts, but the filing of a complaint with the Commissioner shall preclude the civil courts
from taking cognizance of a suit involving the same subject matter.' (Italics supplied)

Continuing, Section 416 (as amended by Batas Pambansa (B.P.) Blg. 874) also specifies the authority to
which appeal may be taken from a final order or decision of the Commissioner given in the exercise of
his adjudicatory or quasi-judicial power:

'Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final order, ruling or decision of the Commissioner
by filing with the Commissioner within thirty days from receipt of copy of such order, ruling or decision
a notice of appeal to the Intermediate Appellate Court (now the Court of Appeals) in the manner
provided for in the Rules of Court for appeals from the Regional Trial Court to the Intermediate
Appellate Court (now the Court of Appeals)

x x x x'

It may be noted that under Section 9 (3) of B.P. Big. 129, appeals from a final decision of the Insurance
Commissioner rendered in the exercise of his adjudicatory authority now fall within the exclusive
appellate jurisdiction of the Court of Appeals.35

Go v. Office of the Ombudsman36reiterated the above-stated distinctions vis-a-vis the principles

enunciating that a civil case before the trial court involving recovery of payment of the insured's
insurance claim plus damages, can proceed simultaneously with an administrative case before the
IC.37 Expounding on the foregoing points, this Court said -

**The findings of the trial court will not necessarily foreclose the administrative case before the [IC],
or [vice versa]. True, the parties are the same, and both actions are predicated on the same set of facts,
and will require identical evidence. But the issues to be resolved, the quantum of evidence, the
procedure to be followed[,] and the reliefs to be adjudged by these two bodies are different.

Petitioner's causes of action in Civil Case No. Q-95-23135 are predicated on the insurers' refusal to pay
her fire insurance claims despite notice, proofs of losses and other supporting documents. Thus,
petitioner prays in her complaint that the insurers be ordered to pay the full-insured value of the losses,
as embodied in their respective policies. Petitioner also sought payment of interests and damages in her
favor caused by the alleged delay and refusal of the insurers to pay her claims. The principal issue then
that must be resolved by the trial court is whether or not petitioner is entitled to the payment of her
insurance claims and damages. The matter of whether or not there is unreasonable delay or denial of the
claims is merely an incident to be resolved by the trial court, necessary to ascertain petitioner's right to
claim damages, as prescribed by Section 244 of the Insurance Code.

On the other hand, the core, if not the sole bone of contention in Adm. Case No. RD-156, is the issue of
whether or not there was unreasonable delay or denial of the claims of petitioner, and if in the
affirmative, whether or not that would justify the suspension or revocation of the insurers' licenses.
Moreover, in Civil Case No. Q-95-23135, petitioner must establish her case by a preponderance of
evidence, or simply put, such evidence that is of greater weight, or more convincing than that which is
offered in opposition to it. In Adm. Case No. RD-156, the degree of proof required of petitioner to
establish her claim is substantial evidence, which has been defined as that amount of relevant evidence
that a reasonable mind might accept as adequate to justify the conclusion.

In addition, the procedure to be followed by the trial court is governed by the Rules of Court, while the
[IC] has its own set of rules and it is not bound by the rigidities of technical rules of procedure. These
two bodies conduct independent means of ascertaining the ultimate facts of their respective cases that
will serve as basis for their respective decisions.1âwphi1

If, for example, the trial court finds that there was no unreasonable delay or denial of her claims, it does
not automatically mean that there was in fact no such unreasonable delay or denial that would justify the
revocation or suspension of the licenses of the concerned insurance companies. It only means that
petitioner failed to prove by preponderance of evidence that she is entitled to damages. Such finding
would not restrain the [IC], in the exercise of its regulatory power, from making its own finding of
unreasonable delay or denial as long as it is supported by substantial evidence.

While the possibility that these two bodies will come up with conflicting resolutions on the same issue is
not far-fetched, the finding or conclusion of one would not necessarily be binding on the other given the
difference in the issues involved, the quantum of evidence required and the procedure to be followed.

Moreover, public interest and public policy demand the speedy and inexpensive disposition of
administrative cases.

Hence, Adm. Case No. RD-156 may proceed alongside Civil Case No. Q-95-23135.38

As the aforecited cases are analogous in many aspects to the present case, both in respect to their factual
backdrop and in their jurisprudential teachings, the case law ruling in the Almendras and in the Go cases
must apply with implacable force to the present case. Consistency alone demands - because justice
cannot be inconsistent - that the final authoritative mandate in the cited cases must produce an end result
not much different from the present case.

All told, we find that the CA did not err in holding that the petitioners utterly failed to prove that the
RTC exhibited grave abuse of discretion, amounting to lack or excess of jurisdiction, which would
justify the issuance of the extraordinary writ of certiorari.39

WHEREFORE, the Petition is DENIED. The December 21, 2012 Decision and the May 22, 2013
Resolution of the Court of Appeals in CA-GR. SP No. 118894 are hereby AFFIRMED.

Costs against petitioners.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 195872 March 12, 2014

FORTUNE MEDICARE, INC., Petitioner,

vs.
DAVID ROBERT U. AMORIN, Respondent.

DECISION

REYES, J.:

This is a petition for review on certiorari1 under Rule 45 of the Rules of Court, which challenges the
Decision2 dated September 27, 2010 and Resolution3 dated February 24, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 87255.

The Facts

David Robert U. Amorin (Amorin) was a cardholder/member of Fortune Medicare, Inc. (Fortune Care),
a corporation engaged in providing health maintenance services to its members. The terms of Amorin's
medical coverage were provided in a Corporate Health Program Contract4 (Health Care Contract) which
was executed on January 6, 2000 by Fortune Care and the House of Representatives, where Amorin was
a permanent employee.

While on vacation in Honolulu, Hawaii, United States of America (U.S.A.) in May 1999, Amorin
underwent an emergency surgery, specifically appendectomy, at the St. Francis Medical Center, causing
him to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.
He attempted to recover from Fortune Care the full amount thereof upon his return to Manila, but the
company merely approved a reimbursement of ₱12,151.36, an amount that was based on the average
cost of appendectomy, net of medicare deduction, if the procedure were performed in an accredited
hospital in Metro Manila.5 Amorin received under protest the approved amount, but asked for its
adjustment to cover the total amount of professional fees which he had paid, and eighty percent (80%) of
the approved standard charges based on "American standard", considering that the emergency procedure
occurred in the U.S.A. To support his claim, Amorin cited Section 3, Article V on Benefits and
Coverages of the Health Care Contract, to wit:

A. EMERGENCY CARE IN ACCREDITED HOSPITAL. Whether as an in-patient or out-

patient, the member shall be entitled to full coverage under the benefits provisions of the
Contract at any FortuneCare accredited hospitals subject only to the pertinent provision of
Article VII (Exclusions/Limitations) hereof. For emergency care attended by non affiliated
physician (MSU), the member shall be reimbursed 80% of the professional fee which should
have been paid, had the member been treated by an affiliated physician. The availment of
 emergency care from an unaffiliated physician shall not invalidate or diminish any claim if it
shall be shown to have been reasonably impossible to obtain such emergency care from an
affiliated physician.

B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in a foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x6

Still, Fortune Care denied Amorin’s request, prompting the latter to file a complaint7 for breach of
contract with damages with the Regional Trial Court (RTC) of Makati City.

For its part, Fortune Care argued that the Health Care Contract did not cover hospitalization costs and
professional fees incurred in foreign countries, as the contract’s operation was confined to Philippine
territory.8 Further, it argued that its liability to Amorin was extinguished upon the latter’s acceptance
from the company of the amount of ₱12,151.36.

The RTC Ruling

On May 8, 2006, the RTC of Makati, Branch 66 rendered its Decision9 dismissing Amorin’s complaint.
Citing Section 3, Article V of the Health Care Contract, the RTC explained:

Taking the contract as a whole, the Court is convinced that the parties intended to use the Philippine
standard as basis. Section 3 of the Corporate Health Care Program Contract provides that:

xxxx

On the basis of the clause providing for reimbursement equivalent to 80% of the professional fee which
should have been paid, had the member been treated by an affiliated physician, the Court concludes that
the basis for reimbursement shall be Philippine rates. That provision, taken with Article V of the health
program contract, which identifies affiliated hospitals as only those accredited clinics, hospitals and
medical centers located "nationwide" only point to the Philippine standard as basis for reimbursement.

The clause providing for reimbursement in case of emergency operation in a foreign territory equivalent
to 80% of the approved standard charges which shall cover hospitalization costs and professional fees,
can only be reasonably construed in connection with the preceding clause on professional fees to give
meaning to a somewhat vague clause. A particular clause should not be studied as a detached and
isolated expression, but the whole and every part of the contract must be considered in fixing the
meaning of its parts.10
In the absence of evidence to the contrary, the trial court considered the amount of ₱12,151.36 already
paid by Fortune Care to Amorin as equivalent to 80% of the hospitalization and professional fees
payable to the latter had he been treated in an affiliated hospital.11

Dissatisfied, Amorin appealed the RTC decision to the CA.

The CA Ruling

On September 27, 2010, the CA rendered its Decision12 granting the appeal. Thus, the dispositive
portion of its decision reads:

WHEREFORE, all the foregoing premises considered, the instant appeal is hereby GRANTED. The
May 8, 2006 assailed Decision of the Regional Trial Court (RTC) of Makati City, Branch 66 is hereby
REVERSED and SET ASIDE, and a new one entered ordering Fortune Medicare, Inc. to reimburse
[Amorin] 80% of the total amount of the actual hospitalization expenses of $7,242.35 and professional
fee of $1,777.79 paid by him to St. Francis Medical Center pursuant to Section 3, Article V of the
Corporate Health Care Program Contract, or their peso equivalent at the time the amounts became due,
less the [P]12,151.36 already paid by Fortunecare.

SO ORDERED.13

In so ruling, the appellate court pointed out that, first, health care agreements such as the subject Health
Care Contract, being like insurance contracts, must be liberally construed in favor of the subscriber. In
case its provisions are doubtful or reasonably susceptible of two interpretations, the construction
conferring coverage is to be adopted and exclusionary clauses of doubtful import should be strictly
construed against the provider.14 Second, the CA explained that there was nothing under Article V of the
Health Care Contract which provided that the Philippine standard should be used even in the event of an
emergency confinement in a foreign territory.15

Fortune Care’s motion for reconsideration was denied in a Resolution16 dated February 24, 2011. Hence,
the filing of the present petition for review on certiorari.

The Present Petition

Fortune Care cites the following grounds to support its petition:

I. The CA gravely erred in concluding that the phrase "approved standard charges" is subject to
interpretation, and that it did not automatically mean "Philippine Standard"; and

II. The CA gravely erred in denying Fortune Care’s motion for reconsideration, which in effect
affirmed its decision that the American Standard Cost shall be applied in the payment of medical
and hospitalization expenses and professional fees incurred by the respondent.17

The Court’s Ruling

The petition is bereft of merit.

The Court finds no cogent reason to disturb the CA’s finding that Fortune Care’s liability to Amorin
under the subject Health Care Contract should be based on the expenses for hospital and professional
fees which he actually incurred, and should not be limited by the amount that he would have incurred
had his emergency treatment been performed in an accredited hospital in the Philippines.

We emphasize that for purposes of determining the liability of a health care provider to its members,
jurisprudence holds that a health care agreement is in the nature of non-life insurance, which is primarily
a contract of indemnity. Once the member incurs hospital, medical or any other expense arising from
sickness, injury or other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.18

To aid in the interpretation of health care agreements, the Court laid down the following guidelines in
Philamcare Health Systems v. CA19:

When the terms of insurance contract contain limitations on liability, courts should construe them in
such a way as to preclude the insurer from non-compliance with his obligation. Being a contract of
adhesion, the terms of an insurance contract are to be construed strictly against the party which prepared
the contract – the insurer. By reason of the exclusive control of the insurance company over the terms
and phraseology of the insurance contract, ambiguity must be strictly interpreted against the insurer and
liberally in favor of the insured, especially to avoid forfeiture. This is equally applicable to Health Care
Agreements. The phraseology used in medical or hospital service contracts, such as the one at bar, must
be liberally construed in favor of the subscriber, and if doubtful or reasonably susceptible of two
interpretations the construction conferring coverage is to be adopted, and exclusionary clauses of
doubtful import should be strictly construed against the provider.20 (Citations omitted and emphasis
ours)

Consistent with the foregoing, we reiterated in Blue Cross Health Care, Inc. v. Spouses Olivares21:

In Philamcare Health Systems, Inc. v. CA, we ruled that a health care agreement is in the nature of a
non-life insurance. It is an established rule in insurance contracts that when their terms contain
limitations on liability, they should be construed strictly against the insurer. These are contracts of
adhesion the terms of which must be interpreted and enforced stringently against the insurer which
prepared the contract. This doctrine is equally applicable to health care agreements.

xxxx

x x x [L]imitations of liability on the part of the insurer or health care provider must be construed in
such a way as to preclude it from evading its obligations. Accordingly, they should be scrutinized by the
courts with "extreme jealousy" and "care" and with a "jaundiced eye." x x x.22 (Citations omitted and
emphasis supplied)

In the instant case, the extent of Fortune Care’s liability to Amorin under the attendant circumstances
was governed by Section 3(B), Article V of the subject Health Care Contract, considering that the
appendectomy which the member had to undergo qualified as an emergency care, but the treatment was
performed at St. Francis Medical Center in Honolulu, Hawaii, U.S.A., a non-accredited hospital. We
restate the pertinent portions of Section 3(B):
B. EMERGENCY CARE IN NON-ACCREDITED HOSPITAL

1. Whether as an in-patient or out-patient, FortuneCare shall reimburse the total hospitalization cost
including the professional fee (based on the total approved charges) to a member who receives
emergency care in a non-accredited hospital. The above coverage applies only to Emergency
confinement within Philippine Territory. However, if the emergency confinement occurs in foreign
territory, Fortune Care will be obligated to reimburse or pay eighty (80%) percent of the approved
standard charges which shall cover the hospitalization costs and professional fees. x x x23 (Emphasis
supplied)

The point of dispute now concerns the proper interpretation of the phrase "approved standard charges",
which shall be the base for the allowable 80% benefit. The trial court ruled that the phrase should be
interpreted in light of the provisions of Section 3(A), i.e., to the extent that may be allowed for
treatments performed by accredited physicians in accredited hospitals. As the appellate court however
held, this must be interpreted in its literal sense, guided by the rule that any ambiguity shall be strictly
construed against Fortune Care, and liberally in favor of Amorin.

The Court agrees with the CA. As may be gleaned from the Health Care Contract, the parties thereto
contemplated the possibility of emergency care in a foreign country. As the contract recognized Fortune
Care’s liability for emergency treatments even in foreign territories, it expressly limited its liability only
insofar as the percentage of hospitalization and professional fees that must be paid or reimbursed was
concerned, pegged at a mere 80% of the approved standard charges.

The word "standard" as used in the cited stipulation was vague and ambiguous, as it could be susceptible
of different meanings. Plainly, the term "standard charges" could be read as referring to the
"hospitalization costs and professional fees" which were specifically cited as compensable even when
incurred in a foreign country. Contrary to Fortune Care’s argument, from nowhere in the Health Care
Contract could it be reasonably deduced that these "standard charges" referred to the "Philippine
standard", or that cost which would have been incurred if the medical services were performed in an
accredited hospital situated in the Philippines. The RTC ruling that the use of the "Philippine standard"
could be inferred from the provisions of Section 3(A), which covered emergency care in an accredited
hospital, was misplaced. Evidently, the parties to the Health Care Contract made a clear distinction
between emergency care in an accredited hospital, and that obtained from a non-accredited
hospital.1âwphi1 The limitation on payment based on "Philippine standard" for services of accredited
physicians was expressly made applicable only in the case of an emergency care in an accredited
hospital.

The proper interpretation of the phrase "standard charges" could instead be correlated with and
reasonably inferred from the other provisions of Section 3(B), considering that Amorin’s case fell under
the second case, i.e., emergency care in a non-accredited hospital. Rather than a determination of
Philippine or American standards, the first part of the provision speaks of the full reimbursement of "the
total hospitalization cost including the professional fee (based on the total approved charges) to a
member who receives emergency care in a non-accredited hospital" within the Philippines. Thus, for
emergency care in non-accredited hospitals, this cited clause declared the standard in the determination
of the amount to be paid, without any reference to and regardless of the amounts that would have been
payable if the treatment was done by an affiliated physician or in an affiliated hospital. For treatments in
foreign territories, the only qualification was only as to the percentage, or 80% of that payable for
treatments performed in non-accredited hospital.

All told, in the absence of any qualifying word that clearly limited Fortune Care's liability to costs that
are applicable in the Philippines, the amount payable by Fortune Care should not be limited to the cost
of treatment in the Philippines, as to do so would result in the clear disadvantage of its member. If, as
Fortune Care argued, the premium and other charges in the Health Care Contract were merely computed
on assumption and risk under Philippine cost and, that the American cost standard or any foreign
country's cost was never considered, such limitations should have been distinctly specified and clearly
reflected in the extent of coverage which the company voluntarily assumed. This was what Fortune Care
found appropriate when in its new health care agreement with the House of Representatives, particularly
in their 2006 agreement, the provision on emergency care in non-accredited hospitals was modified to
read as follows:

However, if the emergency confinement occurs in a foreign territory, Fortunecare will be obligated to
reimburse or pay one hundred (100%) percent under approved Philippine Standard covered charges for
hospitalization costs and professional fees but not to exceed maximum allowable coverage, payable in
pesos at prevailing currency exchange rate at the time of availment in said territory where he/she is
confined. x x x24

Settled is the rule that ambiguities in a contract are interpreted against the party that caused the
ambiguity. "Any ambiguity in a contract whose terms are susceptible of different interpretations must be
read against the party who drafted it."25

WHEREFORE, the petition is DENIED. The Decision dated September 27, 2010 and Resolution dated
February 24, 2011 of the Court of Appeals in CA-G.R. CV No. 87255 are AFFIRMED.

SO ORDERED.
 SECOND DIVISION

G.R. NO. 175773, June 17, 2013

MITSUBISHI MOTORS PHILIPPINES SALARIED EMPLOYEES UNION

(MMPSEU), Petitioner, v. MITSUBISHI MOTORS PHILIPPINES CORPORATION, Respondent.

DECISION

DEL CASTILLO, J.:

The Collective Bargaining Agreement (CBA) of the parties in this case provides that the company
shoulder the hospitalization expenses of the dependents of covered employees subject to certain
limitations and restrictions. Accordingly, covered employees pay part of the hospitalization insurance
premium through monthly salary deduction while the company, upon hospitalization of the covered
employees’ dependents, shall pay the hospitalization expenses incurred for the same. The conflict arose
when a portion of the hospitalization expenses of the covered employees’ dependents were
paid/shouldered by the dependent’s own health insurance. While the company refused to pay the
portion of the hospital expenses already shouldered by the dependents’ own health insurance, the union
insists that the covered employees are entitled to the whole and undiminished amount of said hospital
expenses.

By this Petition for Review on Certiorari,1 petitioner Mitsubishi Motors Philippines Salaried Employees
Union (MMPSEU) assails the March 31, 2006 Decision2 and December 5, 2006 Resolution3 of the Court
of Appeals (CA) in CA-G.R. SP No. 75630, which reversed and set aside the Voluntary Arbitrator’s
December 3, 2002 Decision4 and declared respondent Mitsubishi Motors Philippines Corporation
(MMPC) to be under no legal obligation to pay its covered employees’ dependents’ hospitalization
expenses which were already shouldered by other health insurance companies.

Factual Antecedents

The parties’ CBA5 covering the period August 1, 1996 to July 31, 1999 provides for the hospitalization
insurance benefits for the covered dependents, thus:chanroblesvirtualawlibrary

SECTION 4. DEPENDENTS’ GROUP HOSPITALIZATION INSURANCE – The COMPANY

shall obtain group hospitalization insurance coverage or assume under a self-insurance basis
hospitalization for the dependents of regular employees up to a maximum amount of forty thousand
pesos (P40,000.00) per confinement subject to the following:chanroblesvirtualawlibrary

a. The room and board must not exceed three hundred pesos (P300.00) per day up to
a maximum of thirty-one (31) days. Similarly, Doctor’s Call fees must not
exceed three hundred pesos (P300.00) per day for a maximum of thirty-one (31)
days. Any excess of this amount shall be borne by the employee.

b. Confinement must be in a hospital designated by the COMPANY. For this

purpose, the COMPANY shall designate hospitals in different convenient places
 to be availed of by the dependents of employees. In cases of emergency where
the dependent is confined without the recommendation of the company doctor or
in a hospital not designated by the COMPANY, the COMPANY shall look into
the circumstances of such confinement and arrange for the payment of the amount
to the extent of the hospitalization benefit.

c. The limitations and restrictions listed in Annex "B" must be observed.

d. Payment shall be direct to the hospital and doctor and must be covered by actual
billings.

Each employee shall pay one hundred pesos (P100.00) per month through salary deduction as his share
in the payment of the insurance premium for the above coverage with the balance of the premium to be
paid by the COMPANY. If the COMPANY is self-insured the one hundred pesos (P100.00) per
employee monthly contribution shall be given to the COMPANY which shall shoulder the expenses
subject to the above level of benefits and subject to the same limitations and restrictions provided for in
Annex "B" hereof.

The hospitalization expenses must be covered by actual hospital and doctor’s bills and any amount in
excess of the above mentioned level of benefits will be for the account of the employee.

For purposes of this provision, eligible dependents are the covered employees’ natural parents, legal
spouse and legitimate or legally adopted or step children who are unmarried, unemployed who have not
attained twenty-one (21) years of age and wholly dependent upon the employee for support.

This provision applies only in cases of actual confinement in the hospital for at least six (6) hours.

Maternity cases are not covered by this section but will be under the next succeeding section on
maternity benefits.6

When the CBA expired on July 31, 1999, the parties executed another CBA7effective August 1, 1999 to
July 31, 2002 incorporating the same provisions on dependents’ hospitalization insurance benefits but in
the increased amount of P50,000.00. The room and board expenses, as well as the doctor’s call fees,
were also increased to P375.00.

On separate occasions, three members of MMPSEU, namely, Ernesto Calida (Calida), Hermie Juan
Oabel (Oabel) and Jocelyn Martin (Martin), filed claims for reimbursement of hospitalization expenses
of their dependents.

MMPC paid only a portion of their hospitalization insurance claims, not the full amount. In the case of
Calida, his wife, Lanie, was confined at Sto. Tomas University Hospital from September 4 to 9, 1998
due to Thyroidectomy. The medical expenses incurred totalled P29,967.10. Of this amount, P9,000.00
representing professional fees was paid by MEDICard Philippines, Inc. (MEDICard) which provides
health maintenance to Lanie.8 MMPC only paid P12,148.63.9 It did not pay the P9,000.00 already paid
by MEDICard and the P6,278.47 not covered by official receipts. It refused to give to Calida the
difference between the amount of medical expenses of P27,427.1010 which he claimed to be entitled to
under the CBA and the P12,148.63 which MMPC directly paid to the hospital.
As regards Oabel’s claim, his wife Jovita Nemia (Jovita) was confined at The Medical City from March
8 to 11, 1999 due to Tonsillopharyngitis, incurring medical expenses totalling P8,489.35.11 Of this
amount, P7,811.00 was paid by Jovita’s personal health insurance, Prosper Insurance Company
(Prosper).12 MMPC paid the hospital the amount of P630.87,13 after deducting from the total medical
expenses the amount paid by Prosper and the P47.48 discount given by the hospital.

In the case of Martin, his father, Jose, was admitted at The Medical City from March 26 to 27, 2000 due
to Acid Peptic Disease and incurred medical expenses amounting to P9,101.30.14 MEDICard paid
P8,496.00.15 Consequently, MMPC only paid P288.40,16 after deducting from the total medical
expenses the amount paid by MEDICard and the P316.90 discount given by the hospital.

Claiming that under the CBA, they are entitled to hospital benefits amounting to P27,427.10, P6,769.35
and P8,123.80, respectively, which should not be reduced by the amounts paid by MEDICard and by
Prosper, Calida, Oabel and Martin asked for reimbursement from MMPC. However, MMPC denied the
claims contending that double insurance would result if the said employees would receive from the
company the full amount of hospitalization expenses despite having already received payment of
portions thereof from other health insurance providers.

This prompted the MMPSEU President to write the MMPC President17 demanding full payment of the
hospitalization benefits. Alleging discrimination against MMPSEU union members, she pointed out that
full reimbursement was given in a similar claim filed by Luisito Cruz (Cruz), a member of the Hourly
Union. In a letter-reply,18 MMPC, through its Vice-President for Industrial Relations Division, clarified
that the claims of the said MMPSEU members have already been paid on the basis of official receipts
submitted. It also denied the charge of discrimination and explained that the case of Cruz involved an
entirely different matter since it concerned the admissibility of certified true copies of documents for
reimbursement purposes, which case had been settled through voluntary arbitration.

On August 28, 2000, MMPSEU referred the dispute to the National Conciliation and Mediation Board
and requested for preventive mediation.19chanroblesvirtuallawlibrary

Proceedings before the Voluntary Arbitrator

On October 3, 2000, the case was referred to Voluntary Arbitrator Rolando Capocyan for resolution of
the issue involving the interpretation of the subject CBA provision.20chanroblesvirtuallawlibrary

MMPSEU alleged that there is nothing in the CBA which prohibits an employee from obtaining other
insurance or declares that medical expenses can be reimbursed only upon presentation of original
official receipts. It stressed that the hospitalization benefits should be computed based on the formula
indicated in the CBA without deducting the benefits derived from other insurance providers. Besides, if
reduction is permitted, MMPC would be unjustly benefitted from the monthly premium contributed by
the employees through salary deduction. MMPSEU added that its members had legitimate claims under
the CBA and that any doubt as to any of its provisions should be resolved in favor of its
members. Moreover, any ambiguity should be resolved in favor of labor.21chanroblesvirtuallawlibrary

On the other hand, MMPC argued that the reimbursement of the entire amounts being claimed by the
covered employees, including those already paid by other insurance companies, would constitute double
indemnity or double insurance, which is circumscribed under the Insurance Code. Moreover, a contract
of insurance is a contract of indemnity and the employees cannot be allowed to profit from their
dependents’ loss.22chanroblesvirtuallawlibrary

Meanwhile, the parties separately sought for a legal opinion from the Insurance Commission relative to
the issue at hand. In its letter23 to the Insurance Commission, MMPC requested for confirmation of its
position that the covered employees cannot claim insurance benefits for a loss that had already been
covered or paid by another insurance company. However, the Office of the Insurance Commission
opted not to render an opinion on the matter as the same may become the subject of a formal complaint
before it.24 On the other hand, when queried by MMPSEU,25 the Insurance Commission, through Atty.
Richard David C. Funk II (Atty. Funk) of the Claims Adjudication Division, rendered an opinion
contained in a letter,26viz:

January 8, 2002

Ms. Cecilia L. Paras

President Mitsubishi Motors Phils.
[Salaried] Employees Union
Ortigas Avenue Extension,
Cainta, Rizal

Madam:chanroblesvirtualawlibrary

We acknowledge receipt of your letter which, to our impression, basically poses the question of whether
or not recovery of medical expenses from a Health Maintenance Organization bars recovery of the same
reimbursable amount of medical expenses under a contract of health or medical insurance.

We wish to opine that in cases of claims for reimbursement of medical expenses where there are two
contracts providing benefits to that effect, recovery may be had on both simultaneously. In the absence
of an Other Insurance provision in these coverages, the courts have uniformly held that an insured is
entitled to receive the insurance benefits without regard to the amount of total benefits provided by other
insurance. (INSURANCE LAW, A Guide to Fundamental Principles, Legal Doctrines, and Commercial
Practices; Robert E. Keeton, Alau I. Widiss, p. 261). The result is consistent with the public policy
underlying the collateral source rule – that is, x x x the courts have usually concluded that the liability of
a health or accident insurer is not reduced by other possible sources of indemnification or
compensation. (ibid).

Very truly yours,

(SGD.)
RICHARD DAVID C. FUNK II
Attorney IV
Officer-in-Charge
Claims Adjudication Division
On December 3, 2002, the Voluntary Arbitrator rendered a Decision27 finding MMPC liable to pay or
reimburse the amount of hospitalization expenses already paid by other health insurance
companies. The Voluntary Arbitrator held that the employees may demand simultaneous payment from
both the CBA and their dependents’ separate health insurance without resulting to double insurance,
since separate premiums were paid for each contract. He also noted that the CBA does not prohibit
reimbursement in case there are other health insurers.

Proceedings before the Court of Appeals

MMPC filed a Petition for Review with Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction28 before the CA. It claimed that the Voluntary Arbitrator
committed grave abuse of discretion in not finding that recovery under both insurance policies
constitutes double insurance as both had the same subject matter, interest insured and risk or peril
insured against; in relying solely on the unauthorized legal opinion of Atty. Funk; and in not finding that
the employees will be benefitted twice for the same loss. In its Comment,29 MMPSEU countered that
MMPC will unjustly enrich itself and profit from the monthly premiums paid if full reimbursement is
not made.

On March 31, 2006, the CA found merit in MMPC’s Petition. It ruled that despite the lack of a
provision which bars recovery in case of payment by other insurers, the wordings of the subject
provision of the CBA showed that the parties intended to make MMPC liable only for expenses actually
incurred by an employee’s qualified dependent. In particular, the provision stipulates that payment
should be made directly to the hospital and that the claim should be supported by actual hospital and
doctor’s bills. These mean that the employees shall only be paid amounts not covered by other health
insurance and is more in keeping with the principle of indemnity in insurance contracts. Besides, a
contrary interpretation would "allow unscrupulous employees to unduly profit from the x x x benefits"
and shall "open the floodgates to questionable claims x x x."30chanroblesvirtuallawlibrary

The dispositive portion of the CA Decision31 reads:chanroblesvirtualawlibrary

WHEREFORE, the instant petition is GRANTED. The decision of the voluntary arbitrator dated
December 3, 2002 is REVERSED and SET ASIDE and judgment is rendered declaring that under Art.
XI, Sec. 4 of the Collective Bargaining Agreement between petitioner and respondent effective August
1, 1999 to July 31, 2002, the former’s obligation to reimburse the Union members for the hospitalization
expenses incurred by their dependents is exclusive of those paid by the Union members to the hospital.

SO ORDERED.32

In its Motion for Reconsideration,33 MMPSEU pointed out that the alleged oppression that may be
committed by abusive employees is a mere possibility whereas the resulting losses to the employees are
real. MMPSEU cited Samsel v. Allstate Insurance Co.,34 wherein the Arizona Supreme Court explicitly
ruled that an insured may recover from separate health insurance providers, regardless of whether one of
them has already paid the medical expenses incurred. On the other hand, MMPC argued in its
Comment35 that the cited foreign case involves a different set of facts. The CA, in its Resolution36 dated
December 5, 2006, denied MMPSEU’s motion.
Hence, this Petition.cralaw lawlibrary

Issues

MMPSEU presented the following grounds in support of its Petition:chanroblesvirtualawlibrary

A.

THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT REVERSED THE DECISION

DATED 03 [DECEMBER] 2002 OF THE VOLUNTARY ARBITRATOR BELOW WHEN THE
SAME WAS SUPPORTED BY SUBSTANTIAL EVIDENCE, INCLUDING THE OPINION OF
THE INSURANCE COMMISSION THAT RECOVERY FROM BOTH THE CBA AND
SEPARATE HEALTH CARDS IS NOT PROHIBITED IN THE ABSENCE OF ANY SPECIFIC
PROVISION IN THE CBA.cralaw lawlibrary

B.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN OVERTURNING THE

DECISION OF THE VOLUNTARY ARBITRATOR WITHOUT EVEN GIVING ANY LEGAL
OR JUSTIFIABLE BASIS FOR SUCH REVERSAL.cralaw lawlibrary

C.

THE COURT OF APPEALS COMMITTED GRAVE ERROR IN REFUSING TO CONSIDER

OR EVEN MENTION ANYTHING ABOUT THE AMERICAN AUTHORITIES CITED IN THE
RECORDS THAT DO NOT PROHIBIT, BUT IN FACT ALLOW, RECOVERY FROM TWO
SEPARATE HEALTH PLANS.cralaw lawlibrary

D.

THE COURT OF APPEALS GRAVELY ERRED IN GIVING MORE IMPORTANCE TO A

POSSIBLE, HENCE MERELY SPECULATIVE, ABUSE BY EMPLOYEES OF THE
BENEFITS IF DOUBLE RECOVERY WERE ALLOWED INSTEAD OF THE REAL INJURY
TO THE EMPLOYEES WHO ARE PAYING FOR THE CBA HOSPITALIZATION BENEFITS
THROUGH MONTHLY SALARY DEDUCTIONS BUT WHO MAY NOT BE ABLE TO AVAIL
OF THE SAME IF THEY OR THEIR DEPENDENTS HAVE OTHER HEALTH INSURANCE.37

MMPSEU avers that the Decision of the Voluntary Arbitrator deserves utmost respect and finality
because it is supported by substantial evidence and is in accordance with the opinion rendered by the
Insurance Commission, an agency equipped with vast knowledge concerning insurance contracts. It
maintains that under the CBA, member-employees are entitled to full reimbursement of medical
expenses incurred by their dependents regardless of any amounts paid by the latter’s health insurance
provider. Otherwise, non-recovery will constitute unjust enrichment on the part of MMPC. It avers that
recovery from both the CBA and other insurance companies is allowed under their CBA and not
prohibited by law nor by jurisprudence.cralaw lawlibrary
 Our Ruling

The Petition has no merit.

Atty. Funk erred in applying the

collateral source rule.

The Voluntary Arbitrator based his ruling on the opinion of Atty. Funk that the employees may recover
benefits from different insurance providers without regard to the amount of benefits paid by
each. According to him, this view is consistent with the theory of the collateral source rule.

As part of American personal injury law, the collateral source rule was originally applied to tort cases
wherein the defendant is prevented from benefitting from the plaintiff’s receipt of money from other
sources.38 Under this rule, if an injured person receives compensation for his injuries from a source
wholly independent of the tortfeasor, the payment should not be deducted from the damages which he
would otherwise collect from the tortfeasor.39 In a recent Decision40 by the Illinois Supreme Court, the
rule has been described as "an established exception to the general rule that damages in negligence
actions must be compensatory." The Court went on to explain that although the rule appears to allow a
double recovery, the collateral source will have a lien or subrogation right to prevent such a double
recovery.41 In Mitchell v. Haldar,42 the collateral source rule was rationalized by the Supreme Court of
Delaware:chanroblesvirtualawlibrary

The collateral source rule is ‘predicated on the theory that a tortfeasor has no interest in, and therefore
no right to benefit from monies received by the injured person from sources unconnected with the
defendant’. According to the collateral source rule, ‘a tortfeasor has no right to any mitigation of
damages because of payments or compensation received by the injured person from an independent
source.’ The rationale for the collateral source rule is based upon the quasi-punitive nature of tort law
liability. It has been explained as follows:chanroblesvirtualawlibrary

The collateral source rule is designed to strike a balance between two competing principles of tort law:
(1) a plaintiff is entitled to compensation sufficient to make him whole, but no more; and (2) a defendant
is liable for all damages that proximately result from his wrong. A plaintiff who receives a double
recovery for a single tort enjoys a windfall; a defendant who escapes, in whole or in part, liability for his
wrong enjoys a windfall. Because the law must sanction one windfall and deny the other, it favors the
victim of the wrong rather than the wrongdoer.
Thus, the tortfeasor is required to bear the cost for the full value of his or her negligent conduct even if it
results in a windfall for the innocent plaintiff. (Citations omitted)

As seen, the collateral source rule applies in order to place the responsibility for losses on the party
causing them.43 Its application is justified so that "'the wrongdoer should not benefit from the
expenditures made by the injured party or take advantage of contracts or other relations that may exist
between the injured party and third persons."44 Thus, it finds no application to cases involving no-fault
insurances under which the insured is indemnified for losses by insurance companies, regardless of who
was at fault in the incident generating the losses.45 Here, it is clear that MMPC is a no-fault
insurer. Hence, it cannot be obliged to pay the hospitalization expenses of the dependents of its
employees which had already been paid by separate health insurance providers of said dependents.
The Voluntary Arbitrator therefore erred in adopting Atty. Funk’s view that the covered employees are
entitled to full payment of the hospital expenses incurred by their dependents, including the amounts
already paid by other health insurance companies based on the theory of collateral source rule.

The conditions set forth in the CBA provision

indicate an intention to limit MMPC’s liability
only to actual expenses incurred by the employees’
dependents, that is, excluding the amounts paid
by dependents’ other health insurance providers.

The Voluntary Arbitrator ruled that the CBA has no express provision barring claims for hospitalization
expenses already paid by other insurers. Hence, the covered employees can recover from both. The CA
did not agree, saying that the conditions set forth in the CBA implied an intention of the parties to limit
MMPC’s liability only to the extent of the expenses actually incurred by their dependents which
excludes the amounts shouldered by other health insurance companies.

We agree with the CA. The condition that payment should be direct to the hospital and doctor implies
that MMPC is only liable to pay medical expenses actually shouldered by the employees’ dependents. It
follows that MMPC’s liability is limited, that is, it does not include the amounts paid by other health
insurance providers. This condition is obviously intended to thwart not only fraudulent claims but also
double claims for the same loss of the dependents of covered employees.

It is well to note at this point that the CBA constitutes a contract between the parties and as such, it
should be strictly construed for the purpose of limiting the amount of the employer’s liability.46 The
terms of the subject provision are clear and provide no room for any other interpretation. As there is no
ambiguity, the terms must be taken in their plain, ordinary and popular sense.47 Consequently,
MMPSEU cannot rely on the rule that a contract of insurance is to be liberally construed in favor of the
insured. Neither can it rely on the theory that any doubt must be resolved in favor of labor.

Samsel v. Allstate Insurance Co. is not

on all fours with the case at bar.

MMPSEU cannot rely on Samsel v. Allstate Insurance Co. where the Supreme Court of Arizona allowed
the insured to enjoy medical benefits under an automobile policy insurance despite being able to also
recover from a separate health insurer. In that case, the Allstate automobile policy does not contain any
clause restricting medical payment coverage to expenses actually paid by the insured nor does it
specifically provide for reduction of medical payments benefits by a coordination of
benefits.48 However, in the case before us, the dependents’ group hospitalization insurance provision in
the CBA specifically contains a condition which limits MMPC’s liability only up to the extent of the
expenses that should be paid by the covered employee’s dependent to the hospital and doctor. This is
evident from the portion which states that "payment [by MMPC] shall be direct to the hospital and
doctor."49 In contrast, the Allstate automobile policy expressly gives Allstate the authority to pay
directly to the insured person or on the latter’s behalf all reasonable expenses actually
incurred. Therefore, reliance on [Samsel] is unavailing because the facts therein are different and not
decisive of the issues in the present case.
To allow reimbursement of amounts paid
under other insurance policies shall constitute
double recovery which is not sanctioned by law.

MMPSEU insists that MMPC is also liable for the amounts covered under other insurance policies;
otherwise, MMPC will unjustly profit from the premiums the employees contribute through monthly
salary deductions.

This contention is unmeritorious.

To constitute unjust enrichment, it must be shown that a party was unjustly enriched in the sense that the
term unjustly could mean illegally or unlawfully.50 A claim for unjust enrichment fails when the person
who will benefit has a valid claim to such benefit.51chanroblesvirtuallawlibrary

The CBA has provided for MMPC’s limited liability which extends only up to the amount to be paid to
the hospital and doctor by the employees’ dependents, excluding those paid by other
insurers. Consequently, the covered employees will not receive more than what is due them; neither is
MMPC under any obligation to give more than what is due under the CBA.

Moreover, since the subject CBA provision is an insurance contract, the rights and obligations of the
parties must be determined in accordance with the general principles of insurance law.52 Being in the
nature of a non-life insurance contract and essentially a contract of indemnity, the CBA provision
obligates MMPC to indemnify the covered employees’ medical expenses incurred by their dependents
but only up to the extent of the expenses actually incurred.53 This is consistent with the principle of
indemnity which proscribes the insured from recovering greater than the loss.54 Indeed, to profit from a
loss will lead to unjust enrichment and therefore should not be countenanced. As aptly ruled by the CA,
to grant the claims of MMPSEU will permit possible abuse by employees.

WHEREFORE, the Petition is DENIED. The Decision dated March 31, 2006 and Resolution dated
December 5, 2006 of the Court of Appeals in CA-G.R. SP No. 75630, are AFFIRMED..
 FIRST DIVISION

G.R. No. 159213, July 03, 2013

VECTOR SHIPPING CORPORATION AND FRANCISCO

SORIANO, Petitioners, v. AMERICAN HOME ASSURANCE COMPANY AND SULPICIO
LINES, INC.,Respondents.

DECISION

BERSAMIN, J.:

Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law. For
purposes of the law on the prescription of actions, the period of limitation is ten years.

The Case

Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision promulgated on July
22, 2003,1 whereby the Court of Appeals (CA) held them jointly and severally liable to pay
P7,455,421.08 to American Home Assurance Company (respondent) as and by way of actual damages
on the basis of respondent being the subrogee of its insured Caltex Philippines, Inc. (Caltex).

Antecedents

Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the
M/T Vector. Respondent is a domestic insurance corporation.2

On September 30, 1987, Caltex entered into a contract of affreightment3 with Vector for the transport of
Caltex’s petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent
for P7,455,421.08 under Marine Open Policy No. 34-5093-6.4 In the evening of December 20, 1987, the
M/T Vector and the M/V Doña Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc.,
collided in the open sea near Dumali Point in Tablas Strait, located between the Provinces of
Marinduque and Oriental Mindoro. The collision led to the sinking of both vessels. The entire petroleum
cargo of Caltex on board the M/T Vector perished.5 On July 12, 1988, respondent indemnified Caltex for
the loss of the petroleum cargo in the full amount of P7,455,421.08.6

On March 5, 1992, respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to
recover the full amount of P7,455,421.08 it paid to Caltex (Civil Case No. 92-620).7 The case was
raffled to Branch 145 of the Regional Trial Court (RTC) in Makati City.

On December 10, 1997, the RTC issued a resolution dismissing Civil Case No. 92-620 on the following
grounds:cralavvonlinelawlibrary

This action is upon a quasi-delict and as such must be commenced within four 4 years from the day they
may be brought. [Art. 1145 in relation to Art. 1150, Civil Code] “From the day [the action] may be
brought” means from the day the quasi-delict occurred. [Capuno v. Pepsi Cola, 13 SCRA 663]

The tort complained of in this case occurred on 20 December 1987. The action arising therefrom would
under the law prescribe, unless interrupted, on 20 December 1991.

When the case was filed against defendants Vector Shipping and Francisco Soriano on 5 March 1992,
the action not having been interrupted, had already prescribed.

Under the same situation, the cross-claim of Sulpicio Lines against Vector Shipping and Francisco
Soriano filed on 25 June 1992 had likewise prescribed.

The letter of demand upon defendant Sulpicio Lines allegedly on 6 November 1991 did not interrupt the
[tolling] of the prescriptive period since there is no evidence that it was actually received by the
addressee. Under such circumstances, the action against Sulpicio Lines had likewise prescribed.

Even assuming that such written extra-judicial demand was received and the prescriptive period
interrupted in accordance with Art. 1155, Civil Code, it was only for the 10-day period within which
Sulpicio Lines was required to settle its obligation. After that period lapsed, the prescriptive period
started again. A new 4-year period to file action was not created by the extra-judicial demand; it merely
suspended and extended the period for 10 days, which in this case meant that the action should be
commenced by 30 December 1991, rather than 20 December 1991.

Thus, when the complaint against Sulpicio Lines was filed on 5 March 1992, the action had prescribed.

PREMISES CONSIDERED, the complaint of American Home Assurance Company and the cross-
claim of Sulpicio Lines against Vector Shipping Corporation and Francisco Soriano are DISMISSED.

Without costs.

SO ORDERED.8

Respondent appealed to the CA, which promulgated its assailed decision on July 22, 2003 reversing the
RTC.9 Although thereby absolving Sulpicio Lines, Inc. of any liability to respondent, the CA held
Vector and Soriano jointly and severally liable to respondent for the reimbursement of the amount of
P7,455,421.08 paid to Caltex, explaining:cralavvonlinelawlibrary

xxxx

The resolution of this case is primarily anchored on the determination of what kind of relationship
existed between Caltex and M/V Dona Paz and between Caltex and M/T Vector for purposes of
applying the laws on prescription. The Civil Code expressly provides for the number of years before the
extinctive prescription s[e]ts in depending on the relationship that governs the parties.

xxxx

After a careful perusal of the factual milieu and the evidence adduced by the parties, We are constrained
to rule that the relationship that

existed between Caltex and M/V Dona Paz is that of a quasi-delictwhile that between Caltex and M/T
Vector is culpa contractual based on a Contract of Affreightment or a charter party.

xxxx

On the other hand, the claim of appellant against M/T Vector is anchored on a breach of contract of
affreightment. The appellant averred that M/T Vector committed such act for having misrepresented to
the appellant that said vessel is seaworthy when in fact it is not. The contract was executed between
Caltex and M/T Vector on September 30, 1987 for the latter to transport thousands of barrels of different
petroleum products. Under Article 1144 of the New Civil Code, actions based on written contract must
be brought within 10 years from the time the right of action accrued. A passenger of a ship, or his heirs,
can bring an action based on culpa contractual within a period of 10 years because the ticket issued for
the transportation is by itself a complete written contract (Peralta de Guerrero vs. Madrigal Shipping
Co., L 12951, November 17, 1959). Viewed with reference to the statute of limitations, an action against
a carrier, whether of goods or of passengers, for injury resulting from a breach of contract for safe
carriage is one on contract, and not in tort, and is therefore, in the absence of a specific statute relating to
such actions governed by the statute fixing the period within which actions for breach of contract must
be brought (53 C.J.S. 1002 citing Southern Pac. R. Co. of Mexico vs. Gonzales 61 P. 2d 377, 48 Ariz.
260, 106 A.L.R. 1012).

Considering that We have already concluded that the prescriptive periods for filing action against M/V
Doña Paz based on quasi delict and M/T Vector based on breach of contract have not yet expired, are
We in a position to decide the appeal on its merit.

We say yes.

xxxx

Article 2207 of the Civil Code on subrogation is explicit that 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 should be subrogated to the rights of
the insured against the wrongdoer or the person who has violated the contract. Undoubtedly, the herein
appellant has the rights of a subrogee to recover from M/T Vector what it has paid by way of indemnity
to Caltex.

WHEREFORE, foregoing premises considered, the decision dated December 10, 1997 of the RTC of
Makati City, Branch 145 is hereby REVERSED. Accordingly, the defendant-appellees Vector Shipping
Corporation and Francisco Soriano are held jointly and severally liable to the plaintiff-appellant
American Home Assurance Company for the payment of P7,455,421.08 as and by way of actual
damages.

SO ORDERED.10

Respondent sought the partial reconsideration of the decision of the CA, contending that Sulpicio Lines,
Inc. should also be held jointly liable with Vector and Soriano for the actual damages awarded.11 On
their part, however, Vector and Soriano immediately appealed to the Court on September 12,
2003.12 Thus, on October 1, 2003, the CA held in abeyance its action on respondent’s partial motion for
reconsideration pursuant to its internal rules until the Court has resolved this appeal.13

Issues

The main issue is whether this action of respondent was already barred by prescription for bringing it
only on March 5, 1992. A related issue concerns the proper determination of the nature of the cause of
action as arising either from a quasi-delict or a breach of contract.

The Court will not pass upon whether or not Sulpicio Lines, Inc. should also be held jointly liable with
Vector and Soriano for the actual damages claimed.

Ruling

The petition lacks merit.

Vector and Soriano posit that the RTC correctly dismissed respondent’s complaint on the ground of
prescription. They insist that this action was premised on a quasi-delict or upon an injury to the rights of
the plaintiff, which, pursuant to Article 1146 of the Civil Code, must be instituted within four years from
the time the cause of action accrued; that because respondent’s cause of action accrued on December 20,
1987, the date of the collision, respondent had only four years, or until December 20, 1991, within
which to bring its action, but its complaint was filed only on March 5, 1992, thereby rendering its action
already barred for being commenced beyond the four-year prescriptive period;14 and that there was no
showing that respondent had made extrajudicial written demands upon them for the reimbursement of
the insurance proceeds as to interrupt the running of the prescriptive period.15

We concur with the CA’s ruling that respondent’s action did not yet prescribe. The legal provision
governing this case was not Article 1146 of the Civil Code,16 but Article 1144 of the Civil Code, which
states:cralavvonlinelawlibrary

Article 1144. The following actions must be brought within ten years from the time the cause of action
accrues:cralavvonlinelawlibrary
(1) Upon a written contract;chanroblesvirtualawlibrary
(2) Upon an obligation created by law;chanroblesvirtualawlibrary
(3) Upon a judgment.

We need to clarify, however, that we cannot adopt the CA’s characterization of the cause of action as
based on the contract of affreightment between Caltex and Vector, with the breach of contract being the
failure of Vector to make the M/T Vector seaworthy, as to make this action come under Article 1144
(1), supra. Instead, we find and hold that that the present action was not upon a written contract, but
upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is
because the subrogation of respondent to the rights of Caltex as the insured was by virtue of the express
provision of law embodied in Article 2207 of the Civil Code, to wit:cralavvonlinelawlibrary
Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract. If the amount paid by the insurance company does not
fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the
person causing the loss or injury. (Emphasis supplied)

The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan
Insurance Corporation v. Court of Appeals,17 as follows:cralavvonlinelawlibrary

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operates as an equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer [Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30,
1964, 12 SCRA 213; Fireman’s Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-
27427, April 7, 1976, 70 SCRA 323].18

Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal
obligation of Vector and Soriano to pay the demand for reimbursement by respondent because it
concerned only the agreement for the transport of Caltex’s petroleum cargo. As the Court has aptly put it
in Pan Malayan Insurance Corporation v. Court of Appeals, supra, respondent’s right of subrogation
pursuant to Article 2207, supra, was “not dependent upon, nor d[id] it grow out of, any privity of
contract or upon written assignment of claim [but] accrue[d] simply upon payment of the insurance
claim by the insurer.”

Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the
amount of P7,455,421.08 on July 12, 1988,19 the action was not yet barred by the time of the filing of its
complaint on March 5, 1992,20 which was well within the 10-year period prescribed by Article 1144 of
the Civil Code.

The insistence by Vector and Soriano that the running of the prescriptive period was not interrupted
because of the failure of respondent to serve any extrajudicial demand was rendered inconsequential by
our foregoing finding that respondent’s cause of action was not based on a quasi-delict that prescribed in
four years from the date of the collision on December 20, 1987, as the RTC misappreciated, but on an
obligation created by law, for which the law fixed a longer prescriptive period of ten years from the
accrual of the action.

Still, Vector and Soriano assert that respondent had no right of subrogation to begin with, because the
complaint did not allege that respondent had actually paid Caltex for the loss of the cargo. They further
assert that the subrogation receipt submitted by respondent was inadmissible for not being properly
identified by Ricardo C. Ongpauco, respondent’s witness, who, although supposed to identify the
subrogation receipt based on his affidavit, was not called to testify in court; and that respondent
presented only one witness in the person of Teresita Espiritu, who identified Marine Open Policy No.
34-5093-6 issued by respondent to Caltex.21

We disagree with petitioners’ assertions. It is undeniable that respondent preponderantly established its
right of subrogation. Its Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to
insure the petroleum cargo against marine peril.22 Its Exhibit D was the formal written claim of Caltex
for the payment of the insurance coverage of P7,455,421.08 coursed through respondent’s adjuster.23 Its
Exhibits E to H were marine documents relating to the perished cargo on board the M/V Vector that
were processed for the purpose of verifying the insurance claim of Caltex.24 Its Exhibit I was the
subrogation receipt dated July 12, 1988 showing that respondent paid Caltex P7,455,421.00 as the full
settlement of Caltex’s claim under Marine Open Policy No. 34-5093-6.25 All these exhibits were
unquestionably duly presented, marked, and admitted during the trial.26 Specifically, Exhibit C was
admitted as an authentic copy of Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I,
inclusive, were admitted as parts of the testimony of respondent’s witness Efren Villanueva, the
manager for the adjustment service of the Manila Adjusters and Surveyors Company.27

Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to
prove the payment of P7,455,421.00 as the full settlement of Caltex’s claim.28 The payment made to
Caltex as the insured being thereby duly documented, respondent became subrogated as a matter of
course pursuant to Article 2207 of the Civil Code. In legal contemplation, subrogation is the
“substitution of another person in the place of the creditor, to whose rights he succeeds in relation to the
debt;” and is “independent of any mere contractual relations between the parties to be affected by it, and
is broad enough to cover every instance in which one party is required to pay a debt for which another is
primarily answerable, and which in equity and conscience ought to be discharged by the latter.”29

Lastly, Vector and Soriano argue that Caltex waived and abandoned its claim by not setting up a cross-
claim against them in Civil Case No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim
damages for the loss of the M/V Doña Paz from them, Oriental Assurance Company (as insurer of the
M/T Vector), and Caltex; that such failure to set up its cross-claim on the part of Caltex, the real party in
interest who had suffered the loss, left respondent without any better right than Caltex, its insured, to
recover anything from them, and forever barred Caltex from asserting any claim against them for the
loss of the cargo; and that respondent was similarly barred from asserting its present claim due to its
being merely the successor-in-interest of Caltex.

The argument of Vector and Soriano would have substance and merit had Civil Case No. 18735 and this
case involved the same parties and litigated the same rights and obligations. But the two actions were
separate from and independent of each other. Civil Case No. 18735 was instituted by Sulpicio Lines,
Inc. to recover damages for the loss of its M/V Doña Paz. In contrast, this action was brought by
respondent to recover from Vector and Soriano whatever it had paid to Caltex under its marine insurance
policy on the basis of its right of subrogation. With the clear variance between the two actions, the
failure to set up the cross-claim against them in Civil Case No. 18735 is no reason to bar this action.

WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMSthe decision
promulgated on July 22, 2003; and ORDERS petitioners to pay the costs of suit.
 G.R. No. 181163 July 24, 2013

ASIAN TERMINALS, INC., Petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Respondent.

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

G.R. No. 181262

PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN TERMINALS, INC., Respondents.

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

G.R. No. 181319

WESTWIND SHIPPING CORPORATION, Petitioner,

vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.) and ASIAN
TERMINALS, INC.,Respondents.

VILLARAMA, JR., J.:

Before us are three consolidated petitions for review on certiorari assailing the Decision1 dated October
15, 2007 and the Resolution2 dated January 11, 2008 of the Court of Appeals (CA) which affirmed with
modification the Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case
No. 96-062. The RTC had ordered Westwind Shipping Corporation (Westwind) and Asian Terminals,
Inc. (ATI) to pay, jointly and severally, Philam Insurance Co., Inc. (Philam) the sum of ₱633,957.15,
with interest at 12% per annum from the date of judicial demand and ₱158,989.28 as attorney’s fees.

The facts of the case follow:

On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors)
219 packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without
engine, tires and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila. The shipment,
which had a declared value of US$81,368 or ₱29,400,000, was insured with Philam against all risks
under Marine Policy No. 708-8006717-4.4

The carrying vessel arrived at the port of Manila on April 20, 1995, and when the shipment was
unloaded by the staff of ATI, it was found that the package marked as 03-245-42K/1 was in bad
order.5 The Turn Over Survey of Bad Order Cargoes6 dated April 21, 1995 identified two packages,
labeled 03-245-42K/1 and 03/237/7CK/2, as being dented and broken. Thereafter, the cargoes were
stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized
broker of Universal Motors, and delivered to the latter’s warehouse in Mandaluyong City. Upon the
request7 of Universal Motors, a bad order survey was conducted on the cargoes and it was found that one
Frame Axle Sub without LWR was deeply dented on the buffle plate while six Frame Assembly with
Bush were deformed and misaligned.8 Owing to the extent of the damage to said cargoes, Universal
Motors declared them a total loss.

On August 4, 1995, Universal Motors filed a formal claim for damages in the amount of ₱643,963.84
against Westwind,9 ATI10 and R.F. Revilla Customs Brokerage, Inc.11 When Universal Motors’ demands
remained unheeded, it sought reparation from and was compensated in the sum of ₱633,957.15 by
Philam. Accordingly, Universal Motors issued a Subrogation Receipt12 dated November 15, 1995 in
favor of Philam.

On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint13 for damages against
Westwind, ATI and R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City, Branch 148.

On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered Westwind and ATI
to pay Philam, jointly and severally, the sum of ₱633,957.15 with interest at the rate of 12% per annum,
₱158,989.28 by way of attorney’s fees and expenses of litigation.

The court a quo ruled that there was sufficient evidence to establish the respective participation of
Westwind and ATI in the discharge of and consequent damage to the shipment. It found that the subject
cargoes were compressed while being hoisted using a cable that was too short and taut.

The trial court observed that while the staff of ATI undertook the physical unloading of the cargoes from
the carrying vessel, Westwind’s duty officer exercised full supervision and control throughout the
process. It held Westwind vicariously liable for failing to prove that it exercised extraordinary diligence
in the supervision of the ATI stevedores who unloaded the cargoes from the vessel. However, the court
absolved R.F. Revilla Customs Brokerage, Inc. from liability in light of its finding that the cargoes had
been damaged before delivery to the consignee.

The trial court acknowledged the subrogation between Philam and Universal Motors on the strength of
the Subrogation Receipt dated November 15, 1995. It likewise upheld Philam’s claim for the value of
the alleged damaged vehicle parts contained in Case Nos. 03-245-42K/1 and 03-245-51K or specifically
for "7 pieces of Frame Axle Sub Without Lower and Frame Assembly with Bush."14

Westwind filed a Motion for Reconsideration15 which was, however, denied in an Order16 dated October
26, 2000.

On appeal, the CA affirmed with modification the ruling of the RTC. In a Decision dated October 15,
2007, the appellate court directed Westwind and ATI to pay Philam, jointly and severally, the amount of
₱190,684.48 with interest at the rate of 12% per annum until fully paid, attorney’s fees of ₱47,671 and
litigation expenses.

The CA stressed that Philam may not modify its allegations by claiming in its Appellee’s Brief17 that the
six pieces of Frame Assembly with Bush, which were purportedly damaged, were also inside Case No.
03-245-42K/1. The CA noted that in its Complaint, Philam alleged that "one (1) pc. FRAME AXLE
SUB W/O LWR from Case No. 03-245-42K/1 was completely deformed and misaligned, and six (6)
other pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-245-51K were likewise completely
deformed and misaligned."18

The appellate court accordingly affirmed Westwind and ATI’s joint and solidary liability for the damage
to only one (1) unit of Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It also noted that
when said cargo sustained damage, it was not yet in the custody of the consignee or the person who had
the right to receive it. The CA pointed out that Westwind’s duty to observe extraordinary diligence in
the care of the cargoes subsisted during unloading thereof by ATI’s personnel since the former exercised
full control and supervision over the discharging operation.

Similarly, the appellate court held ATI liable for the negligence of its employees who carried out the
offloading of cargoes from the ship to the pier. As regards the extent of ATI’s liability, the CA ruled that
ATI cannot limit its liability to ₱5,000 per damaged package. It explained that Section 7.0119 of the
Contract for Cargo Handling Services20does not apply in this case since ATI was not yet in custody and
control of the cargoes when the Frame Axle Sub without Lower suffered damage.

Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc.,21 the
appellate court also held that Philam’s action for damages had not prescribed notwithstanding the
absence of a notice of claim.

All the parties moved for reconsideration, but their motions were denied in a Resolution dated January
11, 2008. Thus, they each filed a petition for review on certiorari which were consolidated together by
this Court considering that all three petitions assail the same CA decision and resolution and involve the
same parties.

Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner Philam in G.R. No.
181262 and petitioner Westwind in G.R. No. 181319 can be summed up into and resolved by addressing
three questions: (1) Has Philam’s action for damages prescribed? (2) Who between Westwind and ATI
should be held liable for the damaged cargoes? and (3) What is the extent of their liability?

Petitioners’ Arguments

G.R. No. 181163

Petitioner ATI disowns liability for the damage to the Frame Axle Sub without Lower inside Case No.
03-245-42K/1. It shifts the blame to Westwind, whom it charges with negligence in the supervision of
the stevedores who unloaded the cargoes. ATI admits that the damage could have been averted had
Westwind observed extraordinary diligence in handling the goods. Even so, ATI suspects that Case No.
03-245-42K/1 is "weak and defective"22 considering that it alone sustained damage out of the 219
packages.

Notwithstanding, petitioner ATI submits that, at most, it can be held liable to pay only ₱5,000 per
package pursuant to its Contract for Cargo Handling Services. ATI maintains that it was not properly
notified of the actual value of the cargoes prior to their discharge from the vessel.
G.R. No. 181262

Petitioner Philam supports the CA in holding both Westwind and ATI liable for the deformed and
misaligned Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It, however, faults the
appellate court for disallowing its claim for the value of six Chassis Frame Assembly which were
likewise supposedly inside Case Nos. 03-245-51K and 03-245-42K/1. As to the latter container, Philam
anchors its claim on the results of the Inspection/Survey Report23 of Chartered Adjusters, Inc., which the
court received without objection from Westwind and ATI. Petitioner believes that with the offer and
consequent admission of evidence to the effect that Case No. 03-245-42K/1 contains six pieces of
dented Chassis Frame Assembly, Philam’s claim thereon should be treated, in all respects, as if it has
been raised in the pleadings. Thus, Philam insists on the reinstatement of the trial court’s award in its
favor for the payment of ₱633,957.15 plus legal interest, ₱158,989.28 as attorney’s fees and costs.

G.R. No. 181319

Petitioner Westwind denies joint liability with ATI for the value of the deformed Frame Axle Sub
without Lower in Case No. 03-245-42K/1. Westwind argues that the evidence shows that ATI was
already in actual custody of said case when the Frame Axle Sub without Lower inside it was misaligned
from being compressed by the tight cable used to unload it. Accordingly, Westwind ceased to have
responsibility over the cargoes as provided in paragraph 4 of the Bill of Lading which provides that the
responsibility of the carrier shall cease when the goods are taken into the custody of the arrastre.

Westwind contends that sole liability for the damage rests on ATI since it was the latter’s stevedores
who operated the ship’s gear to unload the cargoes. Westwind reasons that ATI is an independent
company, over whose employees and operations it does not exercise control. Moreover, it was ATI’s
employees who selected and used the wrong cable to lift the box containing the cargo which was
damaged.

Westwind likewise believes that ATI is bound by its acceptance of the goods in good order despite a
finding that Case No. 03-245-42K/1 was partly torn and crumpled on one side. Westwind also notes that
the discovery that a piece of Frame Axle Sub without Lower was completely deformed and misaligned
came only on May 12, 1995 or 22 days after the cargoes were turned over to ATI and after the same had
been hauled by R.F. Revilla Customs Brokerage, Inc.

Westwind further argues that the CA erred in holding it liable considering that Philam’s cause of action
has prescribed since the latter filed a formal claim with it only on August 17, 1995 or four months after
the cargoes arrived on April 20, 1995. Westwind stresses that according to the provisions of clause 20,
paragraph 224 of the Bill of Lading as well as Article 36625 of the Code of Commerce, the consignee had
until April 20, 1995 within which to make a claim considering the readily apparent nature of the
damage, or until April 27, 1995 at the latest, if it is assumed that the damage is not readily apparent.

Lastly, petitioner Westwind contests the imposition of 12% interest on the award of damages to Philam
reckoned from the time of extrajudicial demand. Westwind asserts that, at most, it can only be charged
with 6% interest since the damages claimed by Philam does not constitute a loan or forbearance of
money.
 The Court’s Ruling

The three consolidated petitions before us call for a determination of who between ATI and Westwind is
liable for the damage suffered by the subject cargo and to what extent. However, the resolution of the
issues raised by the present petitions is predicated on the appreciation of factual issues which is beyond
the scope of a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended. It is settled that in petitions for review on certiorari, only questions of law may be put in issue.
Questions of fact cannot be entertained.26

There is a question of law if the issue raised is capable of being resolved without need of reviewing the
probative value of the evidence. The resolution of the issue must rest solely on what the law provides on
the given set of circumstances. Once it is clear that the issue invites a review of the evidence presented,
the question posed is one of fact. If the query requires a re-evaluation of the credibility of witnesses, or
the existence or relevance of surrounding circumstances and their relation to each other, the issue in that
query is factual.27

In the present petitions, the resolution of the question as to who between Westwind and ATI should be
liable for the damages to the cargo and to what extent would have this Court pass upon the evidence on
record. But while it is not our duty to review, examine and evaluate or weigh all over again the probative
value of the evidence presented,28the Court may nonetheless resolve questions of fact when the case falls
under any of the following exceptions:

(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact
are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the
findings are contrary to those of the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the respondent; and (10) when the findings of fact
are premised on the supposed absence of evidence and contradicted by the evidence on record.29

In the cases at bar, the fifth and seventh exceptions apply. While the CA affirmed the joint liability of
ATI and Westwind, it held them liable only for the value of one unit of Frame Axle Sub without Lower
inside Case No. 03-245-42K/1. The appellate court disallowed the award of damages for the six pieces
of Frame Assembly with Bush, which petitioner Philam alleged, for the first time in its Appellee’s Brief,
to be likewise inside Case No. 03-245-42K/1. Lastly, the CA reduced the award of attorney’s fees to
₱47,671.

Foremost, the Court holds that petitioner Philam has adequately established the basis of its claim against
petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee,
Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the
former. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.30 Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which
provides as follows:
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. x x x.

In their respective comments31 to Philam’s Formal Offer of Evidence,32 petitioners ATI and Westwind
objected to the admission of Marine Certificate No. 708-8006717-4 and the Subrogation Receipt as
documentary exhibits "B" and "P," respectively. Petitioner Westwind objects to the admission of both
documents for being hearsay as they were not authenticated by the persons who executed them. For the
same reason, petitioner ATI assails the admissibility of the Subrogation Receipt. As regards Marine
Certificate No. 708-8006717-4, ATI makes issue of the fact that the same was issued only on April 27,
1995 or 12 days after the shipment was loaded on and transported via S/S "Calayan Iris."

The nature of documents as either public or private determines how the documents may be presented as
evidence in court. Public documents, as enumerated under Section 19,33 Rule 132 of the Rules of Court,
are self-authenticating and require no further authentication in order to be presented as evidence in
court.34

In contrast, a private document is any other writing, deed or instrument executed by a private person
without the intervention of a notary or other person legally authorized by which some disposition or
agreement is proved or set forth. Lacking the official or sovereign character of a public document, or the
solemnities prescribed by law, a private document requires authentication35 in the manner prescribed
under Section 20, Rule 132 of the Rules:

SEC. 20. Proof of private document. – Before any private document offered as authentic is received in
evidence, its due execution and authenticity must be proved either:

(a) By anyone who saw the document executed or written; or

(b) By evidence of the genuineness of the signature or handwriting of the maker.

Any other private document need only be identified as that which it is claimed to be.

The requirement of authentication of a private document is excused only in four instances, specifically:
(a) when the document is an ancient one within the context of Section 21,36 Rule 132 of the Rules; (b)
when the genuineness and authenticity of the actionable document have not been specifically denied
under oath by the adverse party; (c) when the genuineness and authenticity of the document have been
admitted; or (d) when the document is not being offered as genuine.37

Indubitably, Marine Certificate No. 708-8006717-4 and the Subrogation Receipt are private documents
which Philam and the consignee, respectively, issue in the pursuit of their business. Since none of the
exceptions to the requirement of authentication of a private document obtains in these cases, said
documents may not be admitted in evidence for Philam without being properly authenticated.

Contrary to the contention of petitioners ATI and Westwind, however, Philam presented its claims
officer, Ricardo Ongchangco, Jr. to testify on the execution of the Subrogation Receipt, as follows:
ATTY. PALACIOS

Q How were you able to get hold of this subrogation receipt?

A Because I personally delivered the claim check to consignee and have them receive the said check.

Q I see. Therefore, what you are saying is that you personally delivered the claim check of Universal
Motors Corporation to that company and you have the subrogation receipt signed by them personally?

A Yes, sir.

Q And it was signed in your presence?

A Yes, sir.38

Indeed, all that the Rules require to establish the authenticity of a document is the testimony of a person
who saw the document executed or written. Thus, the trial court did not err in admitting the Subrogation
Receipt in evidence despite petitioners ATI and Westwind’s objections that it was not authenticated by
the person who signed it.

However, the same cannot be said about Marine Certificate No. 708-8006717-4 which Ongchangcho, Jr.
merely identified in court. There is nothing in Ongchangco, Jr.’s testimony which indicates that he saw
Philam’s authorized representative sign said document, thus:

ATTY. PALACIOS

Q Now, I am presenting to you a copy of this marine certificate 708-8006717-4 issued by Philam
Insurance Company, Inc. to Universal Motors Corporation on April 15, 1995. Will you tell us what
relation does it have to that policy risk claim mentioned in that letter?

A This is a photocopy of the said policy issued by the consignee Universal Motors Corporation.

ATTY. PALACIOS

I see. May I request, if Your Honor please, that this marine risk policy of the plaintiff as submitted by
claimant Universal Motors Corporation be marked as Exhibit B.

COURT

Mark it.39

As regards the issuance of Marine Certificate No. 708-8006717-4 after the fact of loss occurred, suffice
it to say that said document simply certifies the existence of an open insurance policy in favor of the
consignee. Hence, the reference to an "Open Policy Number 9595093" in said certificate. The Court
finds it completely absurd to suppose that any insurance company, of sound business practice, would
assume a loss that has already been realized, when the profitability of its business rests precisely on the
non-happening of the risk insured against.

Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the Subrogation Receipt, on its
own, is adequate proof that petitioner Philam paid the consignee’s claim on the damaged goods.
Petitioners ATI and Westwind failed to offer any evidence to controvert the same. In Malayan Insurance
Co., Inc. v. Alberto,40 the Court explained the effect of payment by the insurer of the insurance claim in
this wise:

We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract. It accrues simply upon payment by the insurance company of the insurance
claim. The doctrine of subrogation has its roots in equity. It is designed to promote and accomplish
justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in
justice, equity, and good conscience, ought to pay.41

Neither do we find support in petitioner Westwind’s contention that Philam’s right of action has
prescribed.

The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress, was
accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine
ports in foreign trade by virtue of Commonwealth Act (C.A.) No. 65.42 Section 1 of C.A. No. 65 states:

Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-
fourth Congress of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be
accepted, as it is hereby accepted to be made applicable to all contracts for the carriage of goods by sea
to and from Philippine ports in foreign trade: Provided, That nothing in the Act shall be construed as
repealing any existing provision of the Code of Commerce which is now in force, or as limiting its
application.

The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is
found in paragraph (6), Section 3, thus:

(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to
the carrier or his agent at the port of discharge before or at the time of the removal of the goods into the
custody of the person entitled to delivery thereof under the contract of carriage, such removal shall be
prima facie evidence of the delivery by the carrier of the goods as described in the bill of lading. If the
loss or damage is not apparent, the notice must be given within three days of the delivery.

Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking
delivery thereof.

The notice in writing need not be given if the state of the goods has at the time of their receipt been the
subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage
unless suit is brought within one year after delivery of the goods or the date when the goods should have
been delivered: Provided, That if a notice of loss or damage, either apparent or concealed, is not given as
provided for in this section, that fact shall not affect or prejudice the right of the shipper to bring suit
within one year after the delivery of the goods or the date when the goods should have been delivered.

In the Bill of Lading43 dated April 15, 1995, Rizal Commercial Banking Corporation (RCBC) is
indicated as the consignee while Universal Motors is listed as the notify party. These designations are in
line with the subject shipment being covered by Letter of Credit No. I501054, which RCBC issued upon
the request of Universal Motors.

A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode
of dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants to have control of his goods before
paying.44 However, letters of credit are employed by the parties desiring to enter into commercial
transactions, not for the benefit of the issuing bank but mainly for the benefit of the parties to the
original transaction,45 in these cases, Nichimen Corporation as the seller and Universal Motors as the
buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as the person entitled
to delivery of the goods. Accordingly, for purposes of reckoning when notice of loss or damage should
be given to the carrier or its agent, the date of delivery to Universal Motors is controlling.

S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the subject cargoes were
discharged to the custody of ATI the next day. The goods were then withdrawn from the CFS
Warehouse on May 11, 1995 and the last of the packages delivered to Universal Motors on May 17,
1995. Prior to this, the latter filed a Request for Bad Order Survey46 on May 12,1995 following a joint
inspection where it was discovered that six pieces of Chassis Frame Assembly from two bundles were
deformed and one Front Axle Sub without Lower from a steel case was dented. Yet, it was not until
August 4, 1995 that Universal Motors filed a formal claim for damages against petitioner Westwind.

Even so, we have held in Insurance Company of North America v. Asian Terminals, Inc. that a request
for, and the result of a bad order examination, done within the reglementary period for furnishing notice
of loss or damage to the carrier or its agent, serves the purpose of a claim. A claim is required to be filed
within the reglementary period to afford the carrier or depositary reasonable opportunity and facilities to
check the validity of the claims while facts are still fresh in the minds of the persons who took part in the
transaction and documents are still available.47 Here, Universal Motors filed a request for bad order
survey on May 12, 1995, even before all the packages could be unloaded to its warehouse.

Moreover, paragraph (6), Section 3 of the COGSA clearly states that failure to comply with the notice
requirement shall not affect or prejudice the right of the shipper to bring suit within one year after
delivery of the goods. Petitioner Philam, as subrogee of Universal Motors, filed the Complaint for
damages on January 18, 1996, just eight months after all the packages were delivered to its possession
on May 17, 1995. Evidently, petitioner Philam’s action against petitioners Westwind and ATI was
seasonably filed.

This brings us to the question that must be resolved in these consolidated petitions. Who between
Westwind and ATI should be liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and crumpled on one side while it was
being unloaded from the carrying vessel. The damage to said container was noted in the Bad Order
Cargo Receipt48dated April 20, 1995 and Turn Over Survey of Bad Order Cargoes dated April 21, 1995.
The Turn Over Survey of Bad Order Cargoes indicates that said steel case was not opened at the time of
survey and was accepted by the arrastre in good order. Meanwhile, the Bad Order Cargo Receipt bore a
notation "B.O. not yet t/over to ATI." On the basis of these documents, petitioner ATI claims that the
contents of Steel Case No. 03-245-42K/1 were damaged while in the custody of petitioner Westwind.

We agree.

Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain
exceptions enumerated under Article 173449 of the Civil Code, common carriers are responsible for the
loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier
lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier
for transportation until the same are delivered, actually or constructively, by the carrier to the consignee,
or to the person who has a right to receive them.50

The court a quo, however, found both petitioners Westwind and ATI, jointly and severally, liable for the
damage to the cargo. It observed that while the staff of ATI undertook the physical unloading of the
cargoes from the carrying vessel, Westwind’s duty officer exercised full supervision and control over
the entire process. The appellate court affirmed the solidary liability of Westwind and ATI, but only for
the damage to one Frame Axle Sub without Lower.

Upon a careful review of the records, the Court finds no reason to deviate from the finding that
petitioners Westwind and ATI are concurrently accountable for the damage to the content of Steel Case
No. 03-245-42K/1.

Section 251 of the COGSA provides that under every contract of carriage of goods by the sea, the carrier
in relation to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall
be subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the
Act. Section 3 (2)52 thereof then states that among the carrier’s responsibilities are to properly load,
handle, stow, carry, keep, care for and discharge the goods carried.53

At the trial, Westwind’s Operation Assistant, Menandro G. Ramirez, testified on the presence of a ship
officer to supervise the unloading of the subject cargoes.

ATTY. LLAMAS

Q Having been present during the entire discharging operation, do you remember who else were present
at that time?

A Our surveyor and our checker the foreman of ATI.

Q Were there officials of the ship present also?

A Yes, sir there was an officer of the vessel on duty at that time.54

xxxx

Q Who selected the cable slink to be used?

A ATI Operation.

Q Are you aware of how they made that selection?

A Before the vessel arrived we issued a manifesto of the storage plan informing the ATI of what type of
cargo and equipment will be utilitized in discharging the cargo.55

xxxx

Q You testified that it was the ATI foremen who select the cable slink to be used in discharging, is that
correct?

A Yes sir, because they are the one who select the slink and they know the kind of cargoes because they
inspected it before the discharge of said cargo.

Q Are you aware that the ship captain is consulted in the selection of the cable sling?

A Because the ship captain knows for a fact the equipment being utilized in the discharge of the cargoes
because before the ship leave the port of Japan the crew already utilized the proper equipment fitted to
the cargo.56(Emphasis supplied.)

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the
custody of the carrier.57 The Damage Survey Report58 of the survey conducted by Phil. Navtech
Services, Inc. from April 20-21, 1995 reveals that Case No. 03-245-42K/1 was damaged by ATI
stevedores due to overtightening of a cable sling hold during discharge from the vessel’s hatch to the
pier. Since the damage to the cargo was incurred during the discharge of the shipment and while under
the supervision of the carrier, the latter is liable for the damage caused to the cargo.

This is not to say, however, that petitioner ATI is without liability for the damaged cargo.

The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between
the establishment of the consignee or shipper and the ship’s tackle. Being the custodian of the goods
discharged from a vessel, an arrastre operator’s duty is to take good care of the goods and to turn them
over to the party entitled to their possession.59

Handling cargo is mainly the arrastre operator’s principal work so its drivers/operators or employees
should observe the standards and measures necessary to prevent losses and damage to shipments under
its custody.60
While it is true that an arrastre operator and a carrier may not be held solidarily liable at all times,61 the
facts of these cases show that apart from ATI’s stevedores being directly in charge of the physical
unloading of the cargo, its foreman picked the cable sling that was used to hoist the packages for transfer
to the dock. Moreover, the fact that 218 of the 219 packages were unloaded with the same sling
unharmed is telling of the inadequate care with which ATI’s stevedore handled and discharged Case No.
03-245-42K/1.

With respect to petitioners ATI and Westwind’s liability, we agree with the CA that the same should be
confined to the value of the one piece Frame Axle Sub without Lower.

In the Bad Order Inspection Report62 prepared by Universal Motors, the latter referred to Case No. 03-
245-42K/1 as the source of said Frame Axle Sub without Lower which suffered a deep dent on its buffle
plate. Yet, it identified Case No. 03-245-51K as the container which bore the six pieces Frame
Assembly with Bush. Thus, in Philam’s Complaint, it alleged that "the entire shipment showed one (1)
pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-42K/1 was completely deformed and
misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from Case No. 03-245-51K
were likewise completely deformed and misaligned."63 Philam later claimed in its Appellee’s Brief that
the six pieces of Frame Assembly with Bush were also inside the damaged Case No. 03-245-42K/1.

However, there is nothing in the records to show conclusively that the six Frame Assembly with Bush
were likewise contained in and damaged inside Case No. 03-245-42K/1. In the Inspection Survey Report
of Chartered Adjusters, Inc., it mentioned six pieces of chassis frame assembly with deformed body
mounting bracket. However, it merely noted the same as coming from two bundles with no identifying
marks.

Lastly, we agree with petitioner Westwind that the CA erred in imposing an interest rate of 12% on the
award of damages. Under Article 2209 of the Civil Code, when an obligation not constituting a loan or
forbearance of money is breached, an interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum.64 In the similar case of Belgian Overseas Chartering
and Shipping NV v. Philippine First Insurance Co., lnc.,65 the Court reduced the rate of interest on the
damages awarded to the carrier therein to 6% from the time of the filing of the complaint until the
finality of the decision.

WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated October 15,2007 and
the Resolution dated January 11, 2008 of the Court of Appeals in CA-G.R. CV No. 69284 in that the
interest rate on the award of ₱190,684.48 is reduced to 6% per annum from the date of extrajudicial
demand, until fully paid.

With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319, respectively.

SO ORDERED.
 G.R. No. 200784 August 7, 2013

MALAYAN INSURANCE COMPANY, INC., PETITIONER, vs.

PAP CO., LTD. (PHIL. BRANCH), RESPONDENT.

DECISION

MENDOZA, J.:

Challenged in this petition for review on certiorari under Rule 45 of the Rules of Court is the October
27, 2011 Decision1 of the Court of Appeals (CA), which affirmed with modification the September 17,
2009 Decision2 of the Regional Trial Court, Branch 15, Manila (RTC), and its February 24, 2012
Resolution3 denying the motion for reconsideration filed by petitioner Malayan Insurance Company.,
Inc. (Malayan).

The Facts

The undisputed factual antecedents were succinctly summarized by the CA as follows:

On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-
000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo
Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The
insurance, which was for Fifteen Million Pesos (?15,000,000.00) and effective for a period of one (1)
year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of
the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co.
renewed the policy on an "as is" basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-
00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998.

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and
equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the
amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the
loss, the insured machineries and equipment were transferred by PAP Co. to a location different from
that indicated in the policy. Specifically, that the insured machineries were transferred in September
1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario,
Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it
was informed of the transfer by RCBC, the party duty-bound to relay such information. However,
Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against
Malayan.4

Ruling of the RTC

On September 17, 2009, the RTC handed down its decision, ordering Malayan to pay PAP Company
Ltd (PAP) an indemnity for the loss under the fire insurance policy as well as for attorney’s fees. The
dispositive portion of the RTC decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff. Defendant is
hereby ordered:

a)

To pay plaintiff the sum of FIFTEEN MILLION PESOS (₱15,000,000.00) as and for indemnity for the
loss under the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of
loss on October 12, 1997 until fully paid;

b)

To pay plaintiff the sum of FIVE HUNDRED THOUSAND PESOS (Ph₱500,000.00) as and by way of
attorney’s fees; [and,]

c)

To pay the costs of suit.

SO ORDERED.5

The RTC explained that Malayan is liable to indemnify PAP for the loss under the subject fire insurance
policy because, although there was a change in the condition of the thing insured as a result of the
transfer of the subject machineries to another location, said insurance company failed to show proof that
such transfer resulted in the increase of the risk insured against. In the absence of proof that the
alteration of the thing insured increased the risk, the contract of fire insurance is not affected per Article
169 of the Insurance Code.

The RTC further stated that PAP’s notice to Rizal Commercial Banking Corporation (RCBC)
sufficiently complied with the notice requirement under the policy considering that it was RCBC which
procured the insurance. PAP acted in good faith in notifying RCBC about the transfer and the latter even
conducted an inspection of the machinery in its new location.

Not contented, Malayan appealed the RTC decision to the CA basically arguing that the trial court erred
in ordering it to indemnify PAP for the loss of the subject machineries since the latter, without notice
and/or consent, transferred the same to a location different from that indicated in the fire insurance
policy.

Ruling of the CA

On October 27, 2011, the CA rendered the assailed decision which affirmed the RTC decision but
deleted the attorney’s fees. The decretal portion of the CA decision reads:
WHEREFORE, the assailed dispositions are MODIFIED. As modified, Malayan Insurance Company
must indemnify PAP Co. Ltd the amount of Fifteen Million Pesos (Ph₱15,000,000.00) for the loss under
the fire insurance policy, plus interest thereon at the rate of 12% per annum from the time of loss on
October 12, 1997 until fully paid. However, the Five Hundred Thousand Pesos (Ph₱500,000.00)
awarded to PAP Co., Ltd. as attorney’s fees is DELETED. With costs.

SO ORDERED.6

The CA wrote that Malayan failed to show proof that there was a prohibition on the transfer of the
insured properties during the efficacy of the insurance policy. Malayan also failed to show that its
contractual consent was needed before carrying out a transfer of the insured properties. Despite its bare
claim that the original and the renewed insurance policies contained provisions on transfer limitations of
the insured properties, Malayan never cited the specific provisions.

The CA further stated that even if there was such a provision on transfer restrictions of the insured
properties, still Malayan could not escape liability because the transfer was made during the subsistence
of the original policy, not the renewal policy. PAP transferred the insured properties from the Sanyo
Factory to the Pace Pacific Building (Pace Factory) sometime in September 1996. Therefore, Malayan
was aware or should have been aware of such transfer when it issued the renewal policy on May 14,
1997. The CA opined that since an insurance policy was a contract of adhesion, any ambiguity must be
resolved against the party that prepared the contract, which, in this case, was Malayan.

Finally, the CA added that Malayan failed to show that the transfer of the insured properties increased
the risk of the loss. It, thus, could not use such transfer as an excuse for not paying the indemnity to
PAP. Although the insurance proceeds were payable to RCBC, PAP could still sue Malayan to enforce
its rights on the policy because it remained a party to the insurance contract.

Not in conformity with the CA decision, Malayan filed this petition for review anchored on the
following

GROUNDS

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT AND THUS RULING IN THE
QUESTIONED DECISION AND RESOLUTION THAT PETITIONER MALAYAN IS LIABLE
UNDER THE INSURANCE CONTRACT BECAUSE:

CONTRARY TO THE CONCLUSION OF THE COURT OF APPEALS, PETITIONER MALAYAN

WAS ABLE TO PROVE AND IT IS NOT DENIED, THAT ON THE FACE OF THE RENEWAL
POLICY ISSUED TO RESPONDENT PAP CO., THERE IS AN AFFIRMATIVE WARRANTY OR A
REPRESENTATION MADE BY THE INSURED THAT THE "LOCATION OF THE RISK" WAS AT
THE SANYO BUILDING. IT IS LIKEWISE UNDISPUTED THAT WHEN THE RENEWAL
POLICY WAS ISSUED TO RESPONDENT PAP CO., THE INSURED PROPERTIES WERE NOT
AT THE SANYO BUILDING BUT WERE AT A DIFFERENT LOCATION, THAT IS, AT THE
PACE FACTORY AND IT WAS IN THIS DIFFERENT LOCATION WHEN THE LOSS INSURED
AGAINST OCCURRED. THESE SET OF UNDISPUTED FACTS, BY ITSELF ALREADY
ENTITLES PETITIONER MALAYAN TO CONSIDER THE RENEWAL POLICY AS AVOIDED
OR RESCINDED BY LAW, BECAUSE OF CONCEALMENT, MISREPRESENTATION AND
BREACH OF AN AFFIRMATIVE WARRANTY UNDER SECTIONS 27, 45 AND 74 IN RELATION
TO SECTION 31 OF THE INSURANCE CODE, RESPECTIVELY.

RESPONDENT PAP CO. WAS NEVER ABLE TO SHOW THAT IT DID NOT COMMIT
CONCEALMENT, MISREPRESENTATION OR BREACH OF AN AFFIRMATIVE WARRANTY
WHEN IT FAILED TO PROVE THAT IT INFORMED PETITIONER MALAYAN THAT THE
INSURED PROPERTIES HAD BEEN TRANSFERRED TO A LOCATION DIFFERENT FROM
WHAT WAS INDICATED IN THE INSURANCE POLICY.

IN ANY EVENT, RESPONDENT PAP CO. NEVER DISPUTED THAT THERE ARE CONDITIONS
AND LIMITATIONS TO THE RENEWAL POLICY WHICH ARE THE REASONS WHY ITS
CLAIM WAS DENIED IN THE FIRST PLACE. IN FACT, THE BEST PROOF THAT
RESPONDENT PAP CO. RECOGNIZES THESE CONDITIONS AND LIMITATIONS IS THE FACT
THAT ITS ENTIRE EVIDENCE FOCUSED ON ITS FACTUAL ASSERTION THAT IT
SUPPOSEDLY NOTIFIED PETITIONER MALAYAN OF THE TRANSFER AS REQUIRED BY
THE INSURANCE POLICY.

MOREOVER, PETITIONER MALAYAN PRESENTED EVIDENCE THAT THERE WAS AN

INCREASE IN RISK BECAUSE OF THE UNILATERAL TRANSFER OF THE INSURED
PROPERTIES. IN FACT, THIS PIECE OF EVIDENCE WAS UNREBUTTED BY RESPONDENT
PAP CO.

II

THE COURT OF APPEALS DEPARTED FROM, AND DID NOT APPLY, THE LAW AND
ESTABLISHED DECISIONS OF THE HONORABLE COURT WHEN IT IMPOSED INTEREST AT
THE RATE OF TWELVE PERCENT (12%) INTEREST FROM THE TIME OF THE LOSS UNTIL
FULLY PAID.

JURISPRUDENCE DICTATES THAT LIABILITY UNDER AN INSURANCE POLICY IS NOT A

LOAN OR FORBEARANCE OF MONEY FROM WHICH A BREACH ENTITLES A PLAINTIFF
TO AN AWARD OF INTEREST AT THE RATE OF TWELVE PERCENT (12%) PER ANNUM.

MORE IMPORTANTLY, SECTIONS 234 AND 244 OF THE INSURANCE CODE SHOULD NOT
HAVE BEEN APPLIED BY THE COURT OF APPEALS BECAUSE THERE WAS NEVER ANY
FINDING THAT PETITIONER MALAYAN UNJUSTIFIABLY REFUSED OR WITHHELD THE
PROCEEDS OF THE INSURANCE POLICY BECAUSE IN THE FIRST PLACE, THERE WAS A
LEGITIMATE DISPUTE OR DIFFERENCE IN OPINION ON WHETHER RESPONDENT PAP CO.
COMMITTED CONCEALMENT, MISREPRESENTATION AND BREACH OF AN AFFIRMATIVE
WARRANTY WHICH ENTITLES PETITIONER MALAYAN TO RESCIND THE INSURANCE
POLICY AND/OR TO CONSIDER THE CLAIM AS VOIDED.
 III

THE COURT OF APPEALS HAS DECIDED THE CASE IN A MANNER NOT IN ACCORDANCE
WITH THE LAW AND APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT
AGREED WITH THE TRIAL COURT AND HELD IN THE QUESTIONED DECISION THAT THE
PROCEEDS OF THE INSURANCE CONTRACT IS PAYABLE TO RESPONDENT PAP CO.
DESPITE THE EXISTENCE OF A MORTGAGEE CLAUSE IN THE INSURANCE POLICY.

IV

THE COURT OF APPEALS ERRED AND DEPARTED FROM ESTABLISHED LAW AND
JURISPRUDENCE WHEN IT HELD IN THE QUESTIONED DECISION AND RESOLUTION
THAT THE INTERPRETATION MOST FAVORABLE TO THE INSURED SHALL BE ADOPTED.7

Malayan basically argues that it cannot be held liable under the insurance contract because PAP
committed concealment, misrepresentation and breach of an affirmative warranty under the renewal
policy when it transferred the location of the insured properties without informing it. Such transfer
affected the correct estimation of the risk which should have enabled Malayan to decide whether it was
willing to assume such risk and, if so, at what rate of premium. The transfer also affected Malayan’s
ability to control the risk by guarding against the increase of the risk brought about by the change in
conditions, specifically the change in the location of the risk.

Malayan claims that PAP concealed a material fact in violation of Section 27 of the Insurance
Code8 when it did not inform Malayan of the actual and new location of the insured properties. In fact,
before the issuance of the renewal policy on May 14, 1997, PAP even informed it that there would be no
changes in the renewal policy. Malayan also argues that PAP is guilty of breach of warranty under the
renewal policy in violation of Section 74 of the Insurance Code9 when, contrary to its affirmation in the
renewal policy that the insured properties were located at the Sanyo Factory, these were already
transferred to the Pace Factory. Malayan adds that PAP is guilty of misrepresentation upon a material
fact in violation of Section 45 of the Insurance Code10 when it informed Malayan that there would be no
changes in the original policy, and that the original policy would be renewed on an "as is" basis.

Malayan further argues that PAP failed to discharge the burden of proving that the transfer of the
insured properties under the insurance policy was with its knowledge and consent. Granting that PAP
informed RCBC of the transfer or change of location of the insured properties, the same is irrelevant and
does not bind Malayan considering that RCBC is a corporation vested with separate and distinct
juridical personality. Malayan did not consent to be the principal of RCBC. RCBC did not also act as
Malayan’s representative.

With regard to the alleged increase of risk, Malayan insists that there is evidence of an increase in risk as
a result of the unilateral transfer of the insured properties. According to Malayan, the Sanyo Factory was
occupied as a factory of automotive/computer parts by the assured and factory of zinc & aluminum die
cast and plastic gear for copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2
A, while Pace Factory was occupied as factory that repacked silicone sealant to plastic cylinders with a
rate of 0.657% under 6.1.2 A.
PAP’s position

On the other hand, PAP counters that there is no evidence of any misrepresentation, concealment or
deception on its part and that its claim is not fraudulent. It insists that it can still sue to protect its rights
and interest on the policy notwithstanding the fact that the proceeds of the same was payable to RCBC,
and that it can collect interest at the rate of 12% per annum on the proceeds of the policy because its
claim for indemnity was unduly delayed without legal justification.

The Court’s Ruling

The Court agrees with the position of Malayan that it cannot be held liable for the loss of the insured
properties under the fire insurance policy.

As can be gleaned from the pleadings, it is not disputed that on May 13, 1996, PAP obtained a
?15,000,000.00 fire insurance policy from Malayan covering its machineries and equipment effective for
one (1) year or until May 13, 1997; that the policy expressly stated that the insured properties were
located at "Sanyo Precision Phils. Building, Phase III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite";
that before its expiration, the policy was renewed11 on an "as is" basis for another year or until May 13,
1998; that the subject properties were later transferred to the Pace Factory also in PEZA; and that on
October 12, 1997, during the effectivity of the renewal policy, a fire broke out at the Pace Factory which
totally burned the insured properties.

The policy forbade the removal of the insured properties unless sanctioned by Malayan

Condition No. 9(c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the property
affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the
company signified by endorsement upon the policy, by or on behalf of the Company:

xxx xxx xxx

(c) If property insured be removed to any building or place other than in that which is herein stated to be
insured.12

Evidently, by the clear and express condition in the renewal policy, the removal of the insured property
to any building or place required the consent of Malayan. Any transfer effected by the insured, without
the insurer’s consent, would free the latter from any liability.

The respondent failed to notify, and to obtain the consent of, Malayan regarding the removal

The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer
of the insured properties from the Sanyo factory to the Pace factory. The Court has combed the records
and found nothing that would show that Malayan was duly notified of the transfer of the insured
properties.
What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to
RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan and RCBC
might have been sister companies, but such fact did not make one an agent of the other. The fact that
RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said insurance
company. After the referral, PAP dealt directly with Malayan.

The respondent overlooked the fact that during the November 9, 2006 hearing,13 its counsel stipulated in
open court that it was Malayan’s authorized insurance agent, Rodolfo Talusan, who procured the
original policy from Malayan, not RCBC. This was the reason why Talusan’s testimony was dispensed
with.

Moreover, in the previous hearing held on November 17, 2005,14 PAP’s hostile witness, Alexander
Barrera, Administrative Assistant of Malayan, testified that he was the one who procured Malayan’s
renewal policy, not RCBC, and that RCBC merely referred fire insurance clients to Malayan. He
stressed, however, that no written referral agreement exists between RCBC and Malayan. He also denied
that PAP notified Malayan about the transfer before the renewal policy was issued. He added that PAP,
through Maricar Jardiniano (Jardiniano), informed him that the fire insurance would be renewed on an
"as is basis."15

Granting that any notice to RCBC was binding on Malayan, PAP’s claim that it notified RCBC and
Malayan was not indubitably established. At best, PAP could only come up with the hearsay testimony
of its principal witness, Branch Manager Katsumi Yoneda (Mr. Yoneda), who testified as follows:

What did you do as Branch Manager of Pap Co. Ltd.?

What I did I instructed my Secretary, because these equipment was bank loan and because of the
insurance I told my secretary to notify.

To notify whom?

I told my Secretary to inform the bank.

You are referring to RCBC?

A
Yes, sir.

xxxx

After the RCBC was informed in the manner you stated, what did you do regarding the new location of
these properties at Pace Pacific Bldg. insofar as Malayan Insurance Company is concerned?

After that transfer, we informed the RCBC about the transfer of the equipment and also Malayan
Insurance but we were not able to contact Malayan Insurance so I instructed again my secretary to
inform Malayan about the transfer.

Who was the secretary you instructed to contact Malayan Insurance, the defendant in this case?

Dory Ramos.

How many secretaries do you have at that time in your office?

Only one, sir.

Do you know a certain Maricar Jardiniano?

Yes, sir.

Why do you know her?

Because she is my secretary.

Q

So how many secretaries did you have at that time?

Two, sir.

What happened with the instruction that you gave to your secretary Dory Ramos about the matter of
informing the defendant Malayan Insurance Co of the new location of the insured properties?

She informed me that the notification was already given to Malayan Insurance.

Aside from what she told you how did you know that the information was properly relayed by the said
secretary, Dory Ramos, to Malayan Insurance?

I asked her, Dory Ramos, did you inform Malayan Insurance and she said yes, sir.

Now after you were told by your secretary, Dory Ramos, that she was able to inform Malayan Insurance
Company about the transfer of the properties insured to the new location, do you know what happened
insofar this information was given to the defendant Malayan Insurance?

I heard that someone from Malayan Insurance came over to our company.

Did you come to know who was that person who came to your place at Pace Pacific?

I do not know, sir.

Q
How did you know that this person from Malayan Insurance came to your place?

It is according to the report given to me.

Who gave that report to you?

Dory Ramos.

Was that report in writing or verbally done?

Verbal.16 [Emphases supplied]

The testimony of Mr. Yoneda consisted of hearsay matters. He obviously had no personal knowledge of
the notice to either Malayan or RCBC. PAP should have presented his secretaries, Dory Ramos and
Maricar Jardiniano, at the witness stand. His testimony alone was unreliable.

Moreover, the Court takes note of the fact that Mr. Yoneda admitted that the insured properties were
transferred to a different location only after the renewal of the fire insurance policy.

COURT
Q
When did you transfer the machineries and equipments before the renewal or after the renewal of the
insurance?
A
After the renewal.
COURT
Q
You understand my question?
A
Yes, Your Honor.17 [Emphasis supplied]

This enfeebles PAP’s position that the subject properties were already transferred to the Pace factory
before the policy was renewed.

The transfer from the Sanyo Factory to the PACE Factory increased the risk.
The courts below held that even if Malayan was not notified thereof, the transfer of the insured
properties to the Pace Factory was insignificant as it did not increase the risk.

Malayan argues that the change of location of the subject properties from the Sanyo Factory to the Pace
Factory increased the hazard to which the insured properties were exposed. Malayan wrote:

With regards to the exposure of the risk under the old location, this was occupied as factory of
automotive/computer parts by the assured, and factory of zinc & aluminum die cast, plastic gear for
copy machine by Sanyo Precision Phils., Inc. with a rate of 0.449% under 6.1.2 A. But under Pace
Pacific Mfg. Corporation this was occupied as factory that repacks silicone sealant to plastic cylinders
with a rate of 0.657% under 6.1.2 A. Hence, there was an increase in the hazard as indicated by the
increase in rate.18

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a
hazardous environment and negatively affected the fire rating stated in the renewal policy. The increase
in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in
risk would necessarily entail an increase in the premium payment on the fire policy.

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance
of the issue, PAP failed to refute Malayan’s argument on the increased risk.

Malayan is entitled to rescind the insurance contract

Considering that the original policy was renewed on an "as is basis," it follows that the renewal policy
carried with it the same stipulations and limitations. The terms and conditions in the renewal policy
provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA.
The subject insured properties, however, were totally burned at the Pace Factory. Although it was also
located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being an
unconsented removal, the transfer was at PAP’s own risk. Consequently, it must suffer the consequences
of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an
international loss adjuster which investigated the fire incident at the Pace Factory, which opined that
"[g]iven that the location of risk covered under the policy is not the location affected, the policy will,
therefore, not respond to this loss/claim."19

It can also be said that with the transfer of the location of the subject properties, without notice and
without Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment,
misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a
concealment.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract
of insurance."
Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance
contract in case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance
Code provides, as follows:

Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the
policy made without the consent of the insurer, by means within the control of the insured, and
increasing the risks, entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following
conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;
3) the alteration is without the consent of the insurer;
4) the alteration is made by means within the insured’s control; and
5) the alteration increases the risk of loss.20

In the case at bench, all these circumstances are present. It was clearly established that the renewal
policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the
properties without the consent of Malayan; and that the alteration of the location increased the risk of
loss.

WHEREFORE, the October 27, 2011 Decision of the Court of Appeals is hereby REVERSED and SET
ASIDE. Petitioner Malayan Insurance Company, Inc. is hereby declared NOT liable for the loss of the
insured machineries and equipment suffered by PAP Co., Ltd.

SO ORDERED.
 SECOND DIVISION

G.R. No. 201116, March 04, 2019

PHILAM INSURANCE CO., INC., NOW CHARTIS PHILIPPINES INSURANCE, INC.,

PETITIONER, v.

PARC CHATEAU CONDOMINIUM UNIT OWNERS ASSOCIATION, INC., AND/OR

EDUARDO B. COLET, RESPONDENTS.

DECISION

REYES, J. JR., J.:

The Facts

On October 7, 2003, petitioner Philam Insurance Co., Inc. (Philam) [now Chartis Philippines Insurance,
Inc.] submitted a proposal to respondent Parc Chateau Condominium Unit Owners Association, Inc.
(Parc Association) to cover fire and comprehensive general liability insurance of its condominium
building, Parc Chateau Condominium.1

Respondent Eduardo B. Colet (Colet), as Parc Association's president, informed Philam, through a letter
dated November 24, 2003, that Parc Association's board of directors selected it, among various
insurance companies, to provide the insurance requirements of the condominium.2

After Philam appraised the condominium, it issued Fire and Lightning Insurance Policy No.
0601502995 for P900 million and Comprehensive General Liability Insurance Policy No. 0301003155
for P1 Million, both covering the period from November 30, 2003 to November 30, 2004. The parties
negotiated for a 90-day payment term of the insurance premium, worth P791,427.50 including taxes.
This payment term was embodied in a Jumbo Risk Provision, which further provided that the premium
installment payments were due on November 30, 2003, December 30, 2003, and January 30, 2004. The
Jumbo Risk Provision also stated that if any of the scheduled payments are not received in full on or
before said dates, the insurance shall be deemed to have ceased at 4 p.m. of such date, and the policy
shall automatically become void and ineffective.3

Parc Association's board of directors found the terms unacceptable and did not pursue the transaction.
Parc Association verbally informed Philam, through its insurance agent, of the board's decision. Since
no premiums were paid, Philam made oral and written demands upon Parc Association, who refused to
do so alleging that the insurance agent had been informed of its decision not to take up the insurance
coverage. Philam sent demand letters with statement of account claiming P363,215.21 unpaid premium
based on Short Scale Rate Period. Philam also cancelled the policies.4

On June 3, 2005, Philam filed a complaint against Parc Association and Colet for recovery of
P363,215.21 unpaid premium, plus attorney's fees and costs of suit in the Metropolitan Trial Court
(MeTC) of Makati, Branch 65.5
 The Metropolitan Trial Court's Decision

On October 30, 2007, the MeTC dismissed the case. The MeTC determined that since Philam admitted
that Parc Association did not pay its premium, one of the elements of an insurance contract was lacking,
that is, the insured must pay a premium. The MeTC explained that payment of premium is a condition
precedent for the effectivity of an insurance contract. Non-payment of premium prevents an insurance
contract from becoming binding even if there was an acceptance of the application or issuance of a
policy, unless payment of premium was waived. With one of the elements missing, there is no insurance
contract to speak of and Philam has no right to recover from defendant Parc Association.6

The Regional Trial Court's Decision

Philam appealed to the Regional Trial Court (RTC) of Makati, Branch 137, which partly affirmed the
MeTC decision, except as to attorney's fees, in its June 3, 2008 Decision. The RTC pronounced that
there was no valid insurance contract between the parties because of non-payment of premium, and there
was no express waiver of full payment of premiums.7

The RTC did not accept Philam's argument that the Jumbo Risk Provision is an implied waiver of
premium payment. The RTC elucidated that the Jumbo Risk Provision specifically requires full payment
of premium within the given period, and in case of default, the policy automatically becomes void and
ineffective.8

Philam averred that Parc Association's newsletter and treasurer's report confirmed that there was a
perfected insurance contract. The RTC held that Parc Association's newsletter and treasurer's report,
informing the condominium unit owners that the building was insured, is not proof of a perfected
insurance contract. The newsletter stated that negotiations were ongoing to try to lower the insurance
premium per square meter, while the treasurer's report did not categorically mention that there was a
perfected and effective insurance contract. Hence, the RTC affirmed in part the MeTC decision.9

Philam moved for reconsideration, which the RTC denied in a Resolution dated September 17, 2009.10

The Court of Appeals' Decision

Unconvinced, Philam elevated the case before the Court of Appeals (CA) through a petition for review
under Rule 42 of the Rules of Court, as amended.11

On July 29, 2011, the CA rendered a Decision12 denying Philam's petition and affirming the June 3,
2008 RTC Decision and September 17, 2009 Resolution. The CA discussed that based on Section 77 of
Presidential Decree 612 or the Insurance Code of the Philippines, the general rule is that no insurance
contract issued by an insurance company is valid and binding unless and until the premium has been
paid. Although there are exceptions laid down in UCPB General Insurance Co., Inc. v. Masagana
Telamart, Inc.,13 the CA determined that none of these exceptions were applicable to the case at hand.14

The first exception is in Section 77 of the Insurance Code, that is, "in the case of a life or an industrial
life policy whenever the grace period provision applies." This exception does not apply to this case
because the policies involved here are fire and comprehensive general liability insurance.15
The second exception is in Section 78 of the Insurance Code, which states that "an acknowledgment in a
policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid."16

The exception in Section 78 is inapplicable in this case, because there was no acknowledgment of
receipt of premium in the policy or insurance contract, and in fact, no premium was ever paid.17

The third exception is taken from the case of Makati Tuscany Condominium Corporation v. Court of
Appeals,18 wherein the Court ruled that the general rule in Section 77 may not apply if the parties agreed
to the payment of premium in installment and partial payment has been made at the time of loss. Here,
the parties agreed to a payment by installment, but no actual payment was made. Thus, the third
exception has no application in this case.19

The Makati Tuscany case also provided the fourth exception, that is, if the insurer has granted the
insured a credit term for the payment of the premium, then the general rule may not apply.20 Philam
argues that the 90-day payment term is a credit extension. However, the CA emphasized that the Jumbo
Risk Provision is clear that failure to pay each installment on the due date automatically voids the
insurance policy. Here, Parc Association did not pay any premium, which resulted in a void insurance
policy. Hence, the fourth exception finds no application.21

The fifth and last exception, taken from the UCPB case, is estoppel in instances when the insurer had
consistently granted a credit term for the payment of premium despite full awareness of Section 77. The
insurer cannot deny recovery by the insured by citing the general rule in Section 77, because the insured
had relied in good faith on the credit term granted.22

The CA held that the factual circumstances of the UCPB case differ from this case. In the UCPB case,
the insurer granted a credit extension for several years and the insured relied in good faith on such
practice. Here, the fire and lightning insurance policy and comprehensive general insurance policy were
the only policies issued by Philam, and there were no other policy/ies issued to Parc Association in the
past granting credit extension. Thus, the last exception is inapplicable.23

After establishing that none of the exceptions are applicable, the CA concluded that the general rule
applies, that is, no insurance contract or policy is valid and binding unless and until the premium has
been paid. Since Parc Association did not pay any premium, then there was no insurance contract to
speak of.24

Moreover, the CA pointed out that the Jumbo Risk Provision clearly stated that failure to pay in full any
of the scheduled installments on or before the due date, shall render the insurance policy void and
ineffective as of 4 p.m. of such date. Parc Association's failure to pay on the first due date, November
30, 2003, resulted in a void and ineffective policy as of 4 p.m. of November 30, 2003. As a
consequence, Philam cannot collect P3 63,215.21 unpaid premiums of void insurance policies.25

Philam moved for reconsideration, which the CA denied in its March 14, 2012 Resolution.26 Undeterred,
Philam filed a Petition for Review on Certiorari27 under Rule 45 of the Rules of Court, as amended,
before the Court.
 The Issues Presented

In its petition, Philam assigned the following errors:

I

THE COURT OF APPEALS GROSSLY ERRED IN NOT FINDING THAT RESPONDENTS'

REQUEST FOR TERMS OF PAYMENT OF PREMIUM AFTER THE POLICIES WERE ISSUED
AND PETITIONER'S GRANT OF SAID REQUEST CONSTITUTE THE INTENTION OF THE
PARTIES TO BE BOUND BY THE INSURANCE CONTRACT.

II.

THE APPELLATE COURT GROSSLY ERRED IN RULING THAT THE FOURTH EXCEPTION
PROVIDED FOR UNDER SECTION 77 OF THE INSURANCE CODE OF THE PHILIPPINES
DOES NOT APPLY IN THE INSTANT CASE.

III.

THE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT FINDING THAT THE

NEGOTIATIONS WHICH THE PARTIES HAD WERE WITH RESPECT TO THE TERMS OF
PAYMENT OF PREMIUM ALREADY AGREED UPON AND NOT ON THE REDUCTION OF THE
AMOUNT THEREOF AS TO NEGATE THE EXISTENCE OF A PERFECTED CONTRACT OF
INSURANCE BETWEEN THEM.28
In its Comment,29 Parc Association alleged that Philam did not raise new issues before the Court, and the
issues presented had been resolved by the MeTC and RTC.30 Parc Association averred that Philam's
proposal was accepted for consideration of the board of directors, who later disapproved the terms and
conditions. As such, there was no meeting of the minds of the parties, and there was no insurance
contract initiated.31

Parc Association further argued that non-payment of premium means no juridical tie was created
between the insured and the insurer, and the insured was not exposed to the insurable risk for lack of
consideration. Parc Association asserted that it would be unjust to allow Philam to recover premiums on
an insurance contract that was never effective and despite not having been exposed to any risk at all.32

In its Reply,33 Philam insisted that there was a perfected insurance contract, and Parc Association's
request for terms of payment indicate its intention to be bound by the insurance contract.34

In sum, the sole issue to be resolved is whether or not the CA committed a reversible error in affirming
the RTC decision and ruling that Philam has no right to recover the unpaid premium based on void and
ineffective insurance policies.

The Court's Ruling

The petition is denied.

Rule 45 of the Rules of Court, as amended, states that only questions of law shall be raised in a petition
for review on certiorari. While the rule has exceptions, they are irrelevant in this case, as Philam did not
properly plead and substantiate the applicability of the exceptions. Thus, the Court applies the general
rule.35

In resolving whether the CA was correct in affirming the RTC decision, the Court considered the
following simplified alleged errors as presented by Philam:
1. Whether or not respondents' request for terms of payment of premium after the policies were issued
and the grant of said request by petitioner constitute the parties' intention to be bound by the insurance
contract;

2. Whether or not the fourth exception provided for under Section 77 of the Insurance Code of the
Philippines applies in the instant case; and

3. Whether or not the negotiations which the parties had were with respect to the terms of payment of
premium already agreed upon by the parties and not on the lowering of the amount of premium as to
negate the existence of a perfected contract of insurance.36
The first and third alleged errors refer to the request for the terms of payment. Does Parc Association's
request and Philam's subsequent grant of the request constitute their intention to be bound by the
insurance contract? Does the negotiation refer to the terms of payment or to the lowering of the
premium?

In arriving at the answers to the questions, the Court has to determine the intention of the parties. In
doing so, the Court has to read the transcript of stenographic notes of the witnesses, and review the
language or tenor of some of the documentary evidence, such as: Philam's proposal on October 7, 2003,
Colet's acceptance letter dated November 24, 2003, the Jumbo Risk Provision, and the written
communications between Philam and Parc Association.

In short, the Court has to re-evaluate the evidence on record. Evaluation of evidence is an indication that
the question or issue posed before the Court is a question of fact or a factual issue.

In Century Iron Works, Inc. v. Biñas37 the Court differentiated between question of law and question of
fact.
A question of law arises when there is doubt as to what the law is on a certain state of facts, while there
is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to
be one of law, the question must not involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. (Citation omitted)

Thus, the test of whether a question is one of law or of fact is not the appellation given to such question
by the party raising the same; rather, it is whether the appellate court can determine the issue raised
without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a
question of fact.38 (Citation omitted)
Applying the test to this case, it is without a doubt that the questions/issues presented before the Court
are factual in nature, which are not proper subjects of a petition for review on certiorari under Rule 45
of the Rules of Court, as amended. It has been repeatedly pronounced that the Court is not a trier of
facts. Evaluation of evidence is the function of the trial court.
As for the second alleged error, Philam avers that this case falls under the fourth exception as explained
in the Makati Tuscany case. The Makati Tuscany case provides that if the insurer has granted the insured
a credit term for the payment of the premium, it is an exception to the general rule that premium must
first be paid before the effectivity of an insurance contract. Philam argues that the 90-day payment term
is a credit extension and should be considered as an exception to the general rule.

However, the CA correctly determined that the Jumbo Risk Provision clearly indicates that failure to pay
in full any of the scheduled installments on or before the due date shall render the insurance policy void
and ineffective as of 4 p.m. of such date. Parc Association's failure to pay on the first due date
(November 30, 2003), resulted in a void and ineffective policy as of 4 p.m. of November 30, 2003.
Hence, there is no credit extension to consider as the Jumbo Risk Provision itself expressly cuts off the
inception of the insurance policy in case of default.

The Court resolves to deny the petition after finding that the CA did not commit any reversible error in
the assailed decision and resolution. The CA had exhaustively explained the law and jurisprudence,
which are the bases of its decision and resolution. Both trial courts and the appellate court are consistent
in its findings of fact that there is no perfected insurance contract, because of the absence of one of the
elements, that is, payment of premium. As a consequence, Philam cannot collect P363,215.21 unpaid
premiums of void insurance policies.

WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated
July 29, 2011 and Resolution dated March 14, 2012 in CA-G.R. SP No. 110980 are AFFIRMED.

SO ORDERED.
 FIRST DIVISION

[ G.R. No. 226731, June 17, 2020 ]

CELLPAGE INTERNATIONAL CORPORATION, PETITIONER, VS. THE SOLID

GUARANTY, INC., RESPONDENT.

DECISION

REYES, J. JR., J.:

This resolves the Petition1 for Review on Certiorari under Rule 45 of the Revised Rules of Court,
seeking the reversal of the Decision2 dated June 9, 2016 and the Resolution3 dated August 25, 2016
issued by the Court of Appeals (CA) in CA-G.R. CV No. 100565.

The Facts

Cellpage International Corp. (Cellpage) approved Jomar Powerhouse Marketing Corporation's (JPMC)
application for credit line for the purchase of cellcards, with a condition that JPMC will provide a good
and sufficient bond to guaranty the payment of the purchases. In compliance with this condition, JPMC
secured from The Solid Guaranty, Inc. (Solid Guaranty) the following surety bonds:

Surety Bond No. 007422 March 20, 2002 P2,500,000.00

Surety Bond No. 00474 April 24, 2002 P2,500,000.00

Surety Bond No. 00748 May 6, 2002 P2,000,000.00

In August 2002, JPMC purchased cellcards amounting to Seven Million Two Thousand Six Hundred
Pesos (P7,002,600.00) from Cellpage, as follows:

DATE QUANTITY INVOICE NO. AMOUNT

37476 1,000 pcs. O35701 P 273,000.00

37476 4,000 pcs. O35713 P 1,092,000.00

37477 4,000 pcs. O35732 P 1,092,000.00

37480 1,000 pcs. O35790 P 273,000.00

37481 1,000 pcs. O35839 P 273,000.00

37482 3,000 pcs. O35864 P 819,000.00

 37482 3,000 pcs. O35871 P 837,000.00

37484 3,000 pcs. O35904 P 837,000.00

37488 900 pcs. O35972 P 251,100.00

37490 3,000 pcs. O36028 P 837,000.00

37491 500 pcs. O36045 P 139,500.00

37492 1,000 pcs. O36061 P 279,000.00

TOTAL P 7,002,600.00

In partial payment for its purchases, JPMC issued to Cellpage the following postdated checks:

BANK/BRANCH CHECK NO. DATE AMOUNT

Security-Caloocan 992310 08/23/02 P 546,000.00

Security-Caloocan 992311 08/23/02 P 546,000.00

Security-Caloocan 992312 08/23/02 P 273,000.00

Security-Caloocan 992320 08/24/02 P 546,000.00

Security-Caloocan 992321 08/24/02 P 546,000.00

TOTAL P2,457,000.00

When Cellpage presented these checks to the bank for payment, the same were all dishonored for being
drawn against insufficient funds. Thus, Cellpage demanded from JPMC the full payment of its
outstanding obligation, in the amount of P7,002,600.00, but the latter failed to pay. Cellpage also
demanded from Solid Guaranty the payment of JPMC's obligation pursuant to the surety bonds issued
by Solid Guaranty. Solid Guaranty, however, refused to accede to Cellpage's demand.

Thus, Cellpage filed a complaint for sum of money against JPMC and Solid Guaranty before the
Regional Trial Court (RTC).

In the Decision dated January 3, 2012, the RTC ruled in favor of Cellpage and declared JPMC and Solid
Guaranty jointly and solidarily liable to the former. The dispositive portion of this decision reads:

WHEREFORE, it appearing that the material allegations of the complaint had been established by
clear, convincing and competent evidence, judgment is hereby rendered in favor of the plaintiff and
against the defendants, ordering the latter to pay the former jointly and solidarily, the following
amounts:

1) Seven Million Two Thousand Six Hundred Pesos (P7,002,66.00) (sic) plus twelve percent
(12%) interest per annum computed from the date of last demand until fully paid;

2) Twenty Thousand Pesos (P20,000.00) as exemplary damages;

3) Twenty Thousand Pesos (P20,000.00) as reasonable attorney's fees; and

4) Costs of Suit.

SO ORDERED.4

Solid Guaranty filed a motion for reconsideration, but the RTC denied the said motion in an Order dated
December 19, 2012.

Aggrieved, Solid Guaranty filed its appeal before the CA, arguing that since a surety bond is a mere
collateral or accessory agreement, the extent of the liability of Solid Guaranty is determined by the terms
of the principal contract between JPMC and Cellpage. Since neither JPMC nor Cellpage submitted
copies of said written agreement before or after the issuance of the surety bonds, Solid Guaranty argued
that there can be no valid surety claim against it.

The CA found Solid Guaranty's appeal to be impressed with merit, and granted the same. The CA ruled
that Cellpage cannot demand from Solid Guaranty the performance of the latter's obligation under the
surety contract. In so ruling, this Court invoked the pronouncement in First Lepanto-Taisho Insurance
Corporation v. Chevron Philippines, Inc.,5 where we applied strictly the terms and conditions of the
surety contract which expressly states that a copy of the principal agreement must be attached and made
an integral part of the surety contract.

The CA found that the surety bonds issued by Solid Guaranty insured the payment/remittance of the cost
of products on credit by JPMC in accordance with the terms and conditions of the agreement it entered
into with Cellpage. According to the CA, the word agreement pertains to the credit line agreement
between JPMC and Cellpage. Applying the ruling in First Lepanto, the CA ruled that JPMC's failure to
submit the written credit line agreement to Solid Guaranty, affected not the validity and effectivity of the
surety bonds, but rather the right of the creditor, Cellpage, to demand from Solid Guaranty the
performance of its obligation under the surety contract. The dispositive portion of the CA's Decision
states:

WHEREFORE, the instant appeal is GRANTED. The Decision dated January 3, 2012 and Order dated
December 19, 2012 of the Regional Trial Court, branch 102, Quezon City, in Civil Case No. Q-03-
48797 are REVERSED and SET ASIDE and the plaintiff-appellee's Complaint AGAINST the Solid
Guaranty, Inc. is DISMISSED.

SO ORDERED.
Not convinced by the CA's Decision, Cellpage appealed the case before us, raising the following errors:

A.

THE COURT OF APPEALS GRAVELY ERRED IN EXONERATING RESPONDENT SOLID

GUARANTY INC. ON THE LAME EXCUSE THAT JPMC FAILED TO SUBMIT A WRITTEN
CREDIT LINE AGREEMENT WITH ITS CREDITOR. THE SURETY BONDS DID NOT REQUIRE
THAT THE CREDIT LINE AGREEMENT MUST BE IN WRITING AND MUST BE ATTACHED
TO THE BONDS AS A CONDITION FOR THE LIABILITY OF RESPONDENT THEREON,
HENCE, THE DECISION OF THE COURT OF APPEALS IS WITHOUT BASIS.

B.

THE COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURT'S

FINDING THAT RESPONDENT SOLID GUARANTY INC. IS ALREADY BARRED BY
ESTOPPEL AND COULD NO LONGER QUESTION THE VALIDITY AND BINDING EFFECT OF
THE GUARANTY BONDS IT ISSUED TO JPMC. BY DEMANDING PAYMENT FROM JPMC,
RESPONDENT SOLID GUARANTY UNDENIABLY RECOGNIZED ITS LIABILITY ON THE
BONDS.

Cellpage maintains that the mere issuance by a surety company of a bond makes it liable under the same
even if the applicant failed to comply with the requirement set by a surety company. Cellpage argues
that an accessory surety agreement is valid even if the principal contract is not in writing. According to
Cellpage, there is no requirement that only principal obligations that are reduced into writing are
guaranteed by surety bonds. It reasons that under Article 1356 of the Civil Code, contracts are obligatory
in whatever form they may have been entered into, provided all the essential requisites for their validity
are present. Since the surety contract is valid, Solid Guaranty shall be liable and it is barred by estoppel
from questioning its liability under the surety bond it issued.

Cellpage further avers that Solid Guaranty knew from the very start the obligation it bound itself to be
liable for, and did not require that the purchases on credit or the credit line agreement be in writing and
attached to the surety agreements in order for the latter to be valid or have binding effect. It likewise
claims that to excuse Solid Guaranty from its liability is a clear case of unjust enrichment since Solid
Guaranty was paid premiums and the bonds were secured by indemnity agreements and mortgages. It
also contends that it would not have consented to the sale of cell cards to JPMC on credit were it not for
its trust and confidence on the surety bond issued by Solid Guaranty.

Cellpage further argues that the reliance in the case of First Lepanto v. Chevron was misplaced because,
unlike the surety in said case, Solid Guaranty did not require the submission of a written principal
contract. Cellpage also stresses that the principal obligation secured by the surety bond is not the credit
line agreement but the subsequent purchases made on credit under the said facility.

The Issues
The issues in this case are: 1) whether or not Solid Guaranty is liable to Cellpage in the absence of a
written principal contract; 2) whether or not Solid Guaranty is barred by estoppel from questioning the
binding effect of the surety bond it issued to JPMC.

The Ruling of the Court

We find the Petition meritorious.

Section 175 of Presidential Decree No. 612 or the Insurance Code defined suretyship as an agreement
where a party called the surety guarantees the performance by another party called the principal or
obligor of an obligation or undertaking in favor of a third person called the obligee.

Under Section 176 of the Insurance Code, the nature and extent of a surety's liability are as follows:

SEC. 176. The liability of the surety or sureties shall be joint and several with the obligor and shall be
limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in
relation to the principal contract between the obligor and the obligee. (Emphasis supplied)

Thus, the surety's liability is joint and several with the obligor, limited to the amount of the bond, and
determined strictly by the terms of the contract of suretyship in relation to the principal contract between
the obligor and the obligee.

Does the phrase "in relation to the principal contract between the obligor and obligee" means that a
written principal agreement is required in order for the surety to be liable? The Court answers in the
negative. Article 1356 of the Civil Code provides that contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential requisites for their validity are present. Thus,
an oral agreement which has all the essential requisites for validity may be guaranteed by a surety
contract. To rule otherwise contravenes the clear import of Article 1356 of the Civil Code.

The CA, however, held that there being no written credit line agreement, Cellpage cannot demand from
Solid Guaranty the performance of its obligation under the surety contract pursuant to the ruling in the
case of First Lepanto,6 where the Court applied strictly the terms and conditions of the surety contract
which expressly state that a copy of the principal agreement must be attached and made an integral part
thereof. According to First Lepanto, having accepted the bond, the creditor must be held bound by the
recital in the surety bond that the terms and conditions of its distributorship contract be reduced in
writing or at the very least communicated in writing to the surety.7 Thus, the CA ruled that the failure of
the creditor to comply strictly with the terms of the surety bond which specifically required the
submission and attachment of the principal agreement to the surety contract, affected its right to demand
performance from the surety.

It bears pointing out that the ruling in First Lepanto was anchored on Section 176 of the Insurance Code
which emphasizes the strict application of the terms of the surety contract in relation to the principal
contract between the obligor and obligee. First Lepanto's pronouncement that a written principal
agreement is required in order for the creditor to demand performance was arrived at by applying strictly
the terms of the surety bond which required the submission and attachment of the principal agreement to
the surety contract.
Thus, following the provision of Section 176 of the Insurance Code, the ruling in First Lepanto cannot
be applied to this case. Since the liability of a surety is determined strictly by the terms of the surety
contract, each case then must be assessed independently in light of the agreement of the parties as
embodied in the terms of the contract of suretyship.

Basic is the rule that a contract is the law between the contracting parties and obligations arising
therefrom have the force of law between them and should be complied with in good faith.8 The parties
are not precluded from imposing conditions and stipulating such terms as they may deem necessary as
long as the same are not contrary to law, morals, good customs, public order or public policy.9 Among
these conditions is the requirement to submit a written principal agreement before the surety can be
made liable under the suretyship contract. Thus, whether or not a written principal agreement is required
in order to demand performance from the surety would depend on the terms of the surety contract itself.

Hence, it is necessary to examine the surety bonds issued by Solid Guaranty in order to answer the issue
of whether or not a written agreement is required in order for Cellpage to demand from Solid Guaranty
the performance of its obligations under the bonds. The said surety bonds, which contain the same terms
and conditions, except for the amount they guarantee, pertinently read:

That we, JOMAR POWERHOUSE MARKETING CORP., with address at No. 92 C. Palanan Street,
Quiapo Manila, as PRINCIPAL, and THE SOLID GUARANTY, INC., a non-life insurance corporation
duly organized and existing under and by virtue of the laws of the Philippines, with principal office at
the Eighth Floor, Solidbank Building, Dasmariñas, Manila, Philippines, as SURETY, are held and
firmly bound unto CELLPAGE INTERNATIONAL CORPORATION in the sum of x x (x x x)
Philippine Currency, for the payment of which well and truly to be made, we bind ourselves jointly and
severally by these presents.

The conditions of this obligation are as follows:

WHEREAS, the principal has applied for a credit line with the Obligee for the purchase of cell cards and
accessories.

WHEREAS, the Obligee requires the principal to post a good and sufficient bond in the above stated
sum to guarantee payment/remittance of cost of products within the stipulated time in accordance with
the terms and conditions of the agreement.

IN NO CASE, HOWEVER, shall the liability of the surety hereunder exceed the sum of x xx (x x x)
Philippine Currency, inclusive.

xxxx

WHEREAS, the contract requires the above-bounden Principal to give a good and sufficient bond in the
above stated sum to secure the full and faithful performance on their part of said contract.

NOW THEREFORE, if the above-bounden Principal shall in all respects duly and fully observe and
perform all and singular the aforesaid covenants, conditions and agreements to the true intent and
meaning thereof, then this obligation shall be null and void, otherwise to remain in full force and effect.
Liability of the Surety on this bond will expire [on] March 20, 2003 and said bond will be cancelled Five
(5) days after its expiration, unless Surety is notified of any existing obligation thereunder. (Emphasis
supplied)

The surety bonds do not expressly require the submission of a written principal agreement. Nowhere in
the said surety bonds did Solid Guaranty and Cellpage stipulate that Solid Guaranty's performance of its
obligations under the surety bonds is preconditioned upon Cellpage's submission of a written principal
agreement. It is clear that Solid Guaranty bound itself solidarity with JPMC for the payment of the
amount stated in the surety bonds in case of the latter's failure to perform its obligations to Cellpage,
with knowledge of the following: 1) the principal, JPMC, has applied for a credit line with Cellpage for
the purchase of cell cards and accessories; 2) Cellpage required JPMC to post a good and sufficient bond
in the amount specified in the surety bonds in order to guarantee payment/remittance of cost of products
within the stipulated time in accordance with the terms and conditions of the agreement; and 3) the
contract between JPMC and Cellpage requires the former to give a sufficient bond to secure its full and
faithful performance of its obligation in the principal contract.

The CA misconstrued the phrase "in accordance with the terms and conditions of the agreement" in the
second whereas clause as a condition imposed upon Cellpage to attach the principal agreement to the
surety bonds. At the risk of being repetitive, the second condition merely states that JPMC is required to
post a bond that will guarantee its payment of the cost of the products within the stipulated time in
accordance with the terms and conditions of the agreement. If Solid Guaranty's intention was to impose
a condition upon its solidary liability, then it should have clearly and unequivocally specified in the
surety bonds that it requires the written principal agreement to be attached thereto. Its failure to do so
must be construed against it.10 A suretyship agreement is a contract of adhesion ordinarily prepared by
the surety or insurance company.11 Therefore, its provisions are interpreted liberally in favor of the
insured and strictly against the insurer who, as the drafter of the bond, had the opportunity to state
plainly the terms of its obligation.12

The oft-repeated rule in suretyship is that a surety's liability is joint and solidary with that of the
principal debtor.13 This makes a surety agreement an ancillary contract as it presupposes the existence
of a principal agreement.14 Although the surety's obligation is merely secondary or collateral to the
obligation contracted by the principal, this Court has nevertheless characterized the surety's liability to
the creditor of the principal as "direct, primary, and absolute; in other words, the surety is directly and
equally bound with the principal."15

Here, the existence of a valid principal agreement is not in question. The principal contract between
JPMC and Cellpage was duly substantiated by issue slips, delivery receipts and purchase orders, and
was acknowledged by Solid Guaranty. The CA even acknowledged the validity of this contract when it
ruled that the absence of a written agreement affected not the validity and effectivity of the surety bonds
but the right of the creditor to demand from the surety the performance of its obligations under the
surety bonds. By upholding the validity and effectivity of the surety bonds, the CA, in effect, upheld the
existence and validity of the principal contract which the ancillary contract of suretyship presupposes to
exist.

Solid Guaranty cannot escape its liability arising from the surety bonds. By the terms of the surety
bonds, Solid Guaranty obligated itself solidarily with JPMC for the fulfillment of the latter's obligation
to Cellpage. Upon JPMC's failure to perform its obligations to the latter, Solid Guaranty's liabilities
under the bonds accrued. Hence, Solid Guaranty is solidarity liable with JPMC for the payment of its
obligations to Cellpage up to the face amount of the surety bonds.

Having ruled so, we find no need to discuss the second assignment of error.

Thus, the Decision dated June 9, 2016 and Resolution dated August 25, 2016 of the CA are hereby
reversed and set aside, and the Decision dated January 3, 2012 and Order dated December 19, 2012 of
the RTC of Quezon City are reinstated with modification in that Solid Guaranty is solidarily liable with
JPMC for the payment of the latter's obligation to Cellpage in the amount of P7,000,000, the face
amount of the surety bonds.

The Court also modifies the interest rate imposed upon the monetary liability of JPMC and Solid
Guaranty. In Eastern Shipping Lines v. Court of Appeals,16 the Court established the guidelines for
imposition of compensatory interests as follows:

With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

xxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be
by then an equivalent to a forbearance of credit.

Subsequently, the Bangko Sentral ng Pilipinas-Monetary Board (BSP-MB) issued Circular No. 799,
series of 2013 reducing the rate of interest applicable on loan or forbearance of money from 12% to 6%
per annum, effective on July 1, 2013.17 This reduced interest rate is applied prospectively.18 Thus, the
interest rate of 12% per annum can only be applied until June 30, 2013, while the reduced interest rate of
6% can be applied from July 1, 2013.19

Applying the above guidelines and in the absence of an agreement as regards the interest, the Court is
compelled to award the legal interest at the rate of 12% per annum from the date of the last extra-judicial
demand until June 30, 2013, and at the reduced rate of 6% per annum from July 1, 2013 until its full
satisfaction.20

WHEREFORE, the Petition is GRANTED. The Decision dated June 9, 2016 and the Resolution dated
August 25, 2016 issued by the Court of Appeals are hereby REVERSED and SET ASIDE. The
Decision dated January 3, 2012 and Order dated December 19, 2012 of the Regional Trial Court of
Quezon City are hereby REINSTATED with MODIFICATION as follows:

1. The amount of Seven Million Two Thousand Six Hundred (P7,002,600) is subject to a legal
interest at the rate of 12% per annum from the date of the last extra-judicial demand until June
30, 2013, and at the reduced rate of 6% per annum from July 1, 2013 until its full satisfaction.

2. Solid Guaranty, Inc. is solidarity liable with Jomar Powerhouse Marketing Corporation for the
payment of the latter's obligation to Cellpage International Corp. only up to the face amount of
the surety bonds, equivalent to Seven Million Pesos P7,000,000, subject to a legal interest at the
rate of 12% per annum from the date of the last extra-judicial demand until June 30, 2013, and at
the reduced rate of 6% per annum from July 1, 2013, until its full satisfaction.
 G.R. No. 223134, August 14, 2019

VICENTE G. HENSON, JR., PETITIONER, v. UCPB GENERAL INSURANCE CO., INC.,

RESPONDENT.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated November 13, 2015 and the
Resolution3 dated February 26, 2016 of the Court of Appeals (CA) in CA-G.R. SP. No. 138147, which
affirmed the Orders dated June 10, 20144 and September 22, 20145 of the Regional Trial Court of Makati
City, Branch 138 (RTC) in Civil Case No. 10-885, ruling that the suit filed by respondent UCPB
General Insurance Co., Inc. (respondent) has yet to prescribe, and resultantly, allowing the inclusion of
petitioner Vicente G. Henson, Jr. (petitioner) as party-defendant to the same.

The Facts

From 1989 to 1999, National Arts Studio and Color Lab6 (NASCL) leased the front portion of the
ground floor of a two (2)-storey building located in Sto. Rosario Street, Angeles City, Pampanga, then
owned by petitioner.7 In 1999, NASCL gave up its initial lease and instead, leased the right front portion
of the ground floor and the entire second floor of the said building, and made renovations with the
building's piping assembly.8 Meanwhile, Copylandia Office Systems Corp. (Copylandia) moved in to the
ground floor.9 On May 9, 2006, a water leak occurred in the building and damaged Copylandia's various
equipment, causing injury to it in the amount of P2,062,640.00.10 As the said equipment were insured
with respondent,11 Copylandia filed a claim with the former. Eventually, the two parties settled
on November 2, 2006 for the amount of P1,326,342.76.12 This resulted in respondent's subrogation to
the rights of Copylandia over all claims and demands arising from the said incident.13 On May 20, 2010,
respondent, as subrogee to Copylandia's rights, demanded from, inter alia, NASCL for the payment of
the aforesaid claim, but to no avail.14 Thus, it filed a complaint for damages15 against NASCL, among
others, before the RTC, docketed as Civil Case No. 10-885.16

Meanwhile, sometime in 2010, petitioner transferred the ownership of the building to Citrinne Holdings,
Inc. (CHI), where he is a stockholder and the President.17

On October 6, 2011, respondent filed an Amended Complaint (Second Amendment),18 impleading CHI
as a party-defendant to the case, as the new owner of the building. However, on April 21, 2014,
respondent filed a Motion to Admit Attached Amended Complaint and Pre-Trial Brief (Third
[A]mendment),19praying that petitioner, instead of CHI, be impleaded as a party-defendant to the case,
considering that petitioner was then the owner of the building when the water leak damage incident
happened.20

In the said complaints, respondent faults: (a) NASCL for its negligence in not properly maintaining in
good order the comfort room facilities where the renovated building's piping assembly was utilized; and
(b) CHI/petitioner, as the owner of the building, for neglecting to maintain the building's drainage
system in good order and in tenantable condition. According to respondent, such negligence on their part
directly resulted in substantial damage to Copylandia's various equipment amounting to P2,062,640.00.21

CHI opposed22 the motion principally on the ground of prescription, arguing that since respondent's
cause of action is based on quasi-delict, it must be brought within four (4) years from its accrual on May
9, 2006. As such, respondent is already barred from proceeding against CHI/petitioner, especially since
the latter never received any prior demand from the former.23

The RTC Ruling

In an Order24 dated June 10, 2014, the RTC ruled in respondent's favor and accordingly, ordered the: (a)
dropping of CHI as party-defendant; and (b) joining of petitioner as one of the party-defendants in the
case.25

The RTC pointed out that respondent's cause of action against the party-defendants, including petitioner,
arose when it paid Copylandia's insurance claim and became subrogated to the rights and claims of the
latter in connection with the water leak damage incident. Since respondent was merely enforcing its
right of subrogation, the prescriptive period is ten (10) years based on an obligation created by law
reckoned from the date of Copylandia's indemnification, or on November 2, 2006. As such, respondent's
claim against petitioner has yet to prescribe when it sought to include the latter as party-defendant on
April 21, 2014.26

CHI moved for reconsideration,27 which was, however, denied in an Order28 dated September 22, 2014.
Aggrieved with his inclusion as party-defendant to the case, petitioner filed a petition
for certiorari29 under Rule 65 of the Rules of Court before the CA, docketed as CA-G.R. SP. No.
138147.

The CA Ruling

In a Decision30 dated November 13, 2015, the CA affirmed the RTC ruling. It held that respondent's
cause of action has not yet prescribed since it was not based on quasi-delict, which must be brought
within four (4) years from the date of the occurrence of the negligent act. Rather, it is based on an
obligation created by law, which has a longer prescriptive period often (10) years reckoned from its
accrual.31

Undaunted, petitioner moved for reconsideration,32 but the same was denied in a Resolution33 dated
February 26, 2016; hence, this petition.

The Issue Before the Court

The issue for the Court's Resolution is whether or not respondent's claim has yet to prescribe.

The Court's Ruling

In ruling that respondent's claim against petitioner has yet to prescribe, the courts a quo cited Vector
Shipping Corporation v. American Home Assurance Company(Vector).34 In that case, therein petitioner
Vector Shipping Corporation (Vector) entered into a contract of affreightment with Caltex Philippines,
Inc. (Caltex) for the transport of the latter's goods. In connection therewith, Caltex insured its goods with
therein respondent American Home Assurance Company (American Home). During transport
on December 20, 1987, Vector's ship collided with another vessel and sank, resulting in the total loss of
Caltex's goods. On July 12, 1988, American Home fully indemnified Caltex for its loss in the amount of
P7,455,421.08, and thereafter, filed a suit against, inter alia, Vector for the recovery of such amount
on March 5, 1992. Initially, the RTC ruled that American Home's claim against Vector has prescribed
as it was based on a quasi-delict which should have been filed within four (4) years from the time Caltex
suffered a total loss of its goods. However, the CA reversed the ruling, holding that the claim has yet to
prescribe as it is based on a breach of Vector's contract of affreightment with Caltex, which has a longer
prescriptive period often (10) years, again reckoned from the time of the loss.35 The Court, in Vector,
agreed with the CA that the claim has yet to prescribe, but qualified that "the present action was not
upon a written contract, but upon an obligation created by law,"36viz.:
We concur with the CA's ruling that respondent's action did not yet prescribe. The legal provision
governing this case was not Article 1146 of the Civil Code, but Article 1144 of the Civil Code, which
states:
Article 1144. The following actions must be brought within ten years from the time the cause of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;
(3) Upon a judgment.
We need to clarify, however, that we cannot adopt the CA's characterization of the cause of action as
based on the contract of affreightment between Caltex and Vector, with the breach of contract being the
failure of Vector to make the M/T Vector seaworthy, so as to make this action come under Article 1144
(1), supra. Instead, we find and hold that the present action was not upon a written contract, but
upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is
because the subrogation of respondent to the rights of x x x the insured was by virtue of the express
provision of law embodied in Article 2207 of the Civil Code, to wit:

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

The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan
Insurance Corporation v. [CA,37] as follows:

Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured
property is destroyed or damaged through the fault or negligence of a party other than the assured, then
the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from
the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the
assured operates as an equitable assignment to the former of all remedies which the latter may
have against the third party whose negligence or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrues simply upon payment of the insurance claim by the
insurer [Compañia Maritima v. Insurance Company of North America, 120 Phil. 998 (1964); Fireman's
Fund Insurance Company v. Jamila & Company, Inc., 162 Phil. 421 (1976)].

Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal
obligation of Vector and Soriano to pay the demand for reimbursement by respondent because it
concerned only the agreement for the transport of Caltex's petroleum cargo. As the Court has aptly put it
in Pan Malayan Insurance Corporation v. [CA], supra, respondent's right of subrogation pursuant to
Article 2207, supra, was "not dependent upon, nor d[id] it grow out of, any privity of contract or upon
written assignment of claim [but] accrue[d] simply upon payment of the insurance claim by the insurer."

Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the
amount of P7,455,421.08 on July 12, 1988, the action was not yet barred by the time of the filing of its
complaint on March 5, 1992, which was well within the 10-year period prescribed by Article 1144 of the
Civil Code.38 (Emphases and underscoring supplied)

In Vector, the Court held that the insured's (i.e., American Home's) claim against the debtor (i.e., Vector)
was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and hence, an
obligation created by law. While indeed American Home was entitled to claim against Vector by virtue
of its subrogation to the rights of the insured (i.e., Caltex), the Court failed to discern that no new
obligation was created between American Home and Vectorfor the reason that a subrogee only steps
into the shoes of the subrogor; hence, the subrogee-insurer only assumes the rights of the subrogor-
insured based on the latter's original obligation with the debtor.

To expound, subrogation's legal effects under Article 2207 of the Civil Code are primarily between the
subrogee-insurer and the subrogor-insured: by virtue of the former's payment of indemnity to the latter,
it is able to acquire, by operation of law, all rights of the subrogor-insured against the debtor. The debtor
is a stranger to this juridical tie because it only remains bound by its original obligation to its creditor
whose rights, however, have already been assumed by the subrogee. In Vector's case, American Home
was able to acquire ipso jure all the rights Caltex had against Vector under their contract of
affreightment by virtue of its payment of indemnity. If at all, subrogation had the effect of obliging
Caltex to respect this assumption of rights in that it must now recognize that its rights against the
debtor, i.e., Vector, had already been transferred to American Home as the subrogee-insurer. In other
words, by operation of Article 2207 of the Civil Code, Caltex cannot deny American Home of its right
to claim against Vector. However, the subrogation of American Home to Caltex's rights did not alter the
original obligation between Caltex and Vector.

Accordingly, the Court, in Vector, erroneously concluded that "the cause of action [against Vector]
accrued as of the time [American Home] actually indemnified Caltex in the amount of P7,455,421.08 on
July 12, 1988."39 Instead, it is the subrogation of rights between Caltex and American Home which arose
from the time the latter paid the indemnity therefor. Meanwhile, the accrual of the cause of action that
Caltex had against Vector did not change because, as mentioned, no new obligation was created as
between them by reason of the subrogation of American Home. The cause of action against Vector
therefore accrued at the time it breached its original obligation with Caltex whose right of action just so
happened to have been assumed in the interim by American Home by virtue of subrogation. "[A] right
of action is the right to presently enforce a cause of action, while a cause of action consists of the
operative facts which give rise to such right of action."40
The foregoing application hews more with the fundamental principles of civil law, especially on the
well-established doctrines on subrogation. Article 1303 of the Civil Code states that "[s]ubrogation
transfers to the person subrogated the credit with all the rights thereto appertaining, either against the
debtor or against third persons x x x." In Loadstar Shipping Company, Inc. v. Malayan Insurance
Company, Inc.,41 the Court had clearly explained that because of the nature of subrogation as a mode of
"creditor-substitution," the rights of a subrogee cannot be superior to the rights possessed by a
subrogor, viz.:

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 greater than,
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 if the
insured likewise could have recovered."

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 possess the right to be
indemnified and therefore, no right to collect is passed on to the subrogee.42 (Emphases and
underscoring supplied)

Despite its error, Vector had aptly cited the case of Pan Malayan Insurance Corporation v. CA (Pan
Malayan),43 wherein it was explained that subrogation, under Article 2207 of the Civil Code, operates as
a form of "equitable assignment"44 whereby "the insurer, upon payment to the assured, will be
subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has
been obligated to pay."45It is characterized as an "equitable assignment" since it is an assignment of
credit without the need of consent - as it was, in fact, mentioned in Pan Malayan, "[t]he 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."46It is only
to this extent that the equity aspect of subrogation must be understood. Indeed, subrogation under
Article 2207 of the Civil Code allows the insurer, as the new creditor who assumes ipso jure the old
creditor's rights without the need of any contract, to go after the debtor, but it does not mean that a new
obligation is created between the debtor and the insurer. Properly speaking, the insurer, as the new
creditor, remains bound by the limitations of the old creditor's claims against the debtor, which includes,
among others, the aspect of prescription. Hence, the debtor's right to invoke the defense of prescription
cannot be circumvented by the mere expedient of successive payments of certain insurers that purport to
create new obligations when, in fact, what remains subsisting is only the original obligation. Verily,
equity should not be stretched to the prejudice of another.

To better understand the concept of legal subrogation under Article 2207 of the Civil Code as a form of
"equitable assignment," it deserves mentioning that there exist intricate differences between assignment
and subrogation, both in their legal and conventional senses. In Ledonio v. Capitol Development
Corporation:47

An assignment of credit has been defined as an agreement by virtue of which the owner of a credit
(known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and
without need of the debtor's consent, transfers that credit and its accessory rights to another (known as
the assignee), who acquires the power to enforce it, to the same extent as the assignor could have
enforced it against the debtor.

On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third
person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation
is that which takes place without agreement but by operation of law because of certain
acts. Conventional subrogation is that which takes place by agreement of parties.

Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the
rights of the original creditor, this Court still cannot definitively rule that assignment of credit and
conventional subrogation are one and the same.

A noted authority on civil law provided a discourse on the difference between these two transactions, to
wit -
Conventional Subrogation and Assignment of Credits. - In the Argentine Civil Code, there is essentially
no difference between conventional subrogation and assignment of credit. The subrogation is merely the
effect of the assignment. In fact[,] it is expressly provided (Article 769) that conventional redemption
shall be governed by the provisions on assignment of credit.

Under our Code, however, conventional subrogation is not identical to assignment of credit. In the
former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an
obligation and gives rise to a new one; assignment refers to the same right which passes from one person
to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation
will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's
right to another. x x x

This Court has consistently adhered to the foregoing distinction between an assignment of credit and a
conventional subrogation. Such distinction is crucial because it would determine the necessity of the
debtor's consent. In an assignment of credit, the consent of the debtor is not necessary in order that
the assignment may fully produce the legal effects. What the law requires in an assignment of
credit is not the consent of the debtor, but merely notice to him as the assignment takes effect only
from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its
accessories without the debtor's consent. On the other hand, conventional subrogation requires an
agreement among the parties concerned - the original creditor, the debtor, and the new creditor. It
is a new contractual relation based on the mutual agreement among all the necessary
parties.48 (Emphases and underscoring supplied)

As discussed above, in an assignment of credit, the consent of the debtor is not necessary in order that
the assignment may fully produce legal effects (as notice to the debtor suffices); also, in assignment, no
new contractual relation between the assignee/new creditor and debtor is created. On the other hand, in
conventional subrogation, an agreement between all the parties concerning the substitution of the new
creditor is necessary. Meanwhile, legal subrogation produces the same effects as assignment and also,
no new obligation is created between the subrogee/new creditor and debtor. As observed in
commentaries on the subject:

The effect of legal subrogation is to transfer to the new creditor the credit and all the rights and actions
that could have been exercised by the former creditor either against the debtor or against third persons,
be they guarantors or mortgagors. Simply stated, except only for the change in the person of the
creditor, the obligation subsists in all respects as before the novation.49 (Emphasis supplied)

Unlike assignment, however, legal subrogation, to produce effects, does not need to be agreed upon by
the subrogee and subrogor, unlike the need of an agreement between the assignee and assignor. As
mentioned, "[l]egal subrogation is that which takes place without agreement but by operation of law
because of certain acts,"50 as in the case of payment of the insurer under Article 2207 of the Civil Code.

In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is created
by virtue of the insurer's payment under Article 2207 of the Civil Code; also, as legal subrogation is not
the same as an assignment of credit (as the former is in fact, called an "equitable assignment"), no
privity of contract is needed to produce its legal effects. Accordingly, "the insurer can take nothing by
subrogation but the rights of the insured, and is subrogated only to such rights as the insured possesses.
This principle has been frequently expressed in the form that the rights of the insurer against the
wrongdoer cannot rise higher than the rights of the insured against such wrongdoer, since the insurer as
subrogee, in contemplation of law, stands in the place of the insured and succeeds to whatever rights he
may have in the matter. Therefore, any defense which a wrongdoer has against the insured is good
against the insurer subrogated to the rights of the insured,"51 and this would clearly include the
defense of prescription.

Based on the above-discussed considerations, the Court must heretofore abandon the ruling
in Vector that an insurer may file an action against the tortfeasor within ten (10) years from the time the
insurer indemnifies the insured. Following the principles of subrogation, the insurer only steps into
the shoes of the insured and therefore, for purposes of prescription, inherits only the remaining
period within which the insured may file an action against the wrongdoer. To be sure, the
prescriptive period of the action that the insured may file against the wrongdoer begins at the time that
the tort was committed and the loss/injury occurred against the insured. The indemnification of the
insured by the insurer only allows it to be subrogated to the former's rights, and does not create a new
reckoning point for the cause of action that the insured originally has against the wrongdoer.

Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector doctrine
should be prospective in application for the reason that judicial decisions applying or interpreting the
laws or the Constitution, until reversed, shall form part of the legal system of the Philippines.52 Unto this
Court devolves the sole authority to interpret what the law means, and all persons are bound to follow its
interpretation. As explained in De Castro v. Judicial and Bar Council:53

Judicial decisions assume the same authority as a statute itself and, until authoritatively abandoned,
necessarily become, to the extent that they are applicable, the criteria that must control the actuations,
not only of those called upon to abide by them, but also of those duty-bound to enforce obedience to
them.54

Hence, while the future may ultimately uncover a doctrine's error, it should be, as a general rule,
recognized as a "good law" prior to its abandonment.55 In Philippine International Trading Corporation
Commission on Audit,56 it was elucidated that:

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was
originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal thereof, the new doctrine should be
applied prospectivelv and should not apply to parties who relied on the old doctrine and acted in
good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if
there is no recognition of what had transpired prior to such adjudication.57 (Emphasis and underscoring
supplied)

In Pesca v. Pesca58 the Court further elaborated:

The "doctrine of stare decisis," ordained in Article 8 of the Civil Code, expresses that judicial decisions
applying or interpreting the law shall form part of the legal system of the Philippines. The rule follows
the settled legal maxim - "legis interpretado legis vim obtinet" - that the interpretation placed upon the
written law by a competent court has the force of law. The interpretation or construction placed by the
courts establishes the contemporaneous legislative intent of the law. The [said interpretation or
construction] would thus constitute a part of that law as of the date the statute is enacted. It is only when
a prior ruling of this Court finds itself later overruled, and a different view is adopted, that the
new doctrine may have to be applied prospectively in favor of parties who have relied on the old
doctrine and have acted in good faith in accordance therewith under the familiar rule of "lex prospicit,
non respicit."59 (Emphasis and underscoring supplied)

With these in mind, the Court therefore sets the following guidelines relative to the application
of Vector and this Decision vis-a-vis the prescriptive period in cases where the insurer is subrogated to
the rights of the insured against the wrongdoer based on a quasi-delict:

1. For actions of such nature that have already been filed and are currently pending before the courts
at the time of the finality of this Decision, the rules on prescription prevailing at the time the action is
filed would apply. Particularly:
(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling (i.e.,
from Vector's finality on August 15, 201360 up until the finality of this Decision), the prescriptive period
is ten (10) years from the time of payment by the insurer to the insured, which gave rise to an obligation
created by law.

Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription must be
resolved under Vector's parameters.

(b) For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling (i.e.,
before August 15, 2013), the prescriptive period is four (4) years from the time the tort is committed
against the insured by the wrongdoer.
Rationale: The Vector doctrine, which espoused unique rules on legal subrogation and prescription as
aforedescribed, was not yet a binding precedent at this time; hence, issues of prescription must be
resolved under the rules prevailing before Vector, which, incidentally, are the basic principles of legal
subrogation vis-a-vis prescription of actions based on quasi-delicts.

2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:
(a) For cases where the tort was committed and the consequent loss/injury against the insured
occurred prior to the finality of this Decision, the subrogee-insurer is given a period not exceeding four
(4) years from the time of the finality of this Decision to file the action against the wrongdoer; provided,
that in all instances, the total period to file such case shall not exceed ten (10) years from the time the
insurer is subrogated to the rights of the insured.

Rationale: The erroneous reckoning and running of the period of prescription pursuant to
the Vector doctrine should not be taken against any and all persons relying thereon because the same
were based on the then-prevailing interpretation and construction of the Court. Hence, subrogees-
insurers, who are, effectively, only now notified of the abandonment of Vector, must be given the
benefit of the present doctrine on subrogation as ruled in this Decision.

However, the benefit of the additional period (i.e., not exceeding four [4] years) under this Decision
must not result in the insured being given a total of more than ten (10) years from the time the insurer is
subrogated to the rights of the insured (i.e., the old prescriptive period in Vector); otherwise, the insurer
would be able to unduly propagate its right to file the case beyond the ten (10)-year period accorded
by Vector to the prejudice of the wrongdoer.

(b) For cases where the tort was committed and the consequent loss/injury against the insured occurred
only upon or after the finality of this Decision, the Vector doctrine would hold no application. The
prescriptive period is four (4) years from the time the tort is committed against the insured by the
wrongdoer.

Rationale: Since the cause of action for quasi-delict and the consequent subrogation of the insurer
would arise after due notice of Vector's abandonment, all persons would now be bound by the present
doctrine on subrogation as ruled in this Decision.

Application to the Case at Bar

In this case, it is undisputed that the water leak damage incident, which gave rise to Copylandia's cause
of action against any possible defendants, including NASCL and petitioner, happened on May 9, 2006.
As this incident gave rise to an obligation classified as a quasi-delict, Copylandia would have only had
four (4) years, or until May 9, 2010, within which to file a suit to recover damages.61When Copylandia's
rights were transferred to respondent by virtue of the latter's payment of the former's insurance claim
on November 2, 2006, as evidenced by the Loss and Subrogation Receipt,62 respondent was likewise
bound by the same prescriptive period. Since it was only on: (a) May 20, 2010 when respondent made
an extrajudicial demand to NASCL, and thereafter, filed its complaint; (b) October 6, 2011 when
respondent amended its complaint to implead CHI as party-defendant; and (c) April 21, 2014 when
respondent moved to further amend the complaint in order to implead petitioner as party-defendant in
lieu of CHI, prescription - if adjudged under the present parameters of legal subrogation under this
Decision - should have already set in.

However, it must be recognized that the prevailing rule applicable to the pertinent events of this case
is Vector. Pursuant to the guidelines stated above, specifically under guideline 1 (a), the Vector doctrine
- which was even relied upon by the courts a quo - would then apply. Hence, as the amended
complaint63 impleading petitioner was filed on April 21, 2014, which is within ten (10) years from the
time respondent indemnified Copylandia for its injury/loss, i.e., on November 2, 2006, the case cannot
be said to have prescribed under Vector. As such, the Court is constrained to deny the instant petition.

WHEREFORE, the petition is DENIED. The Decision dated November 13, 2015 and the Resolution
dated February 26, 2016 of the Court of Appeals in CA-G.R. SP No. 138147 are
hereby AFFIRMED with MODIFICATION based on the guidelines stated in this Decision.

SO ORDERED.
 SECOND DIVISION

G.R. No. 205206, March 16, 2016

BANK OF THE PHILIPPINE ISLANDS AND FGU INSURANCE CORPORATION

(PRESENTLY KNOWN AS BPI/MS INSURANCE CORPORATION), Petitioners, v. YOLANDA
LAINGO, Respondent.

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari1 assailing the Decision dated 29 June 20122 and Resolution
dated 11 December 20123 of the Court of Appeals in CA-G.R. CV No. 01575.

On 20 July 1999, Rheozel Laingo (Rheozel), the son of respondent Yolanda Laingo (Laingo), opened a
"Platinum 2-in-1 Savings and Insurance" account with petitioner Bank of the Philippine Islands (BPI) in
its Claveria, Davao City branch. The Platinum 2-in-1 Savings and Insurance account is a savings
account where depositors are automatically covered by an insurance policy against disability or death
issued by petitioner FGU Insurance Corporation (FGU Insurance), now known as BPI/MS Insurance
Corporation. BPI issued Passbook No. 50298 to Rheozel corresponding to Savings Account No. 2233-
0251-11. A Personal Accident Insurance Coverage Certificate No. 043549 was also issued by FGU
Insurance in the name of Rheozel with Laingo as his named beneficiary.

On 25 September 2000, Rheozel died due to a vehicular accident as evidenced by a Certificate of Death
issued by the Office of the Civil Registrar General of Tagum City, Davao del Norte. Since Rheozel
came from a reputable and affluent family, the Daily Mirror headlined the story in its newspaper on 26
September 2000.

On 27 September 2000, Laingo instructed the family's personal secretary, Alice Torbanos (Alice) to go
to BPI, Claveria, Davao City branch and inquire about the savings account of Rheozel. Laingo wanted to
use the money in the savings account for Rheozel's burial and funeral expenses.

Alice went to BPI and talked to Jaime Ibe Rodriguez, BPI's Branch Manager regarding Laingo's request.
Due to Laingo's credit standing and relationship with BPI, BPI accommodated Laingo who was allowed
to withdraw P995,000 from the account of Rheozel. A certain Ms. Laura Cabico, an employee of BPI,
went to Rheozel's wake at the Cosmopolitan Funeral Parlor to verify some information from Alice and
brought with her a number of documents for Laingo to sign for the withdrawal of the P995,000.

More than two years later or on 21 January 2003, Rheozel's sister, Rhealyn Laingo-Concepcion, while
arranging Rheozel's personal things in his room at their residence in Ecoland, Davao City, found the
Personal Accident Insurance Coverage Certificate No. 043549 issued by FGU Insurance. Rhealyn
immediately conveyed the information to Laingo.
Laingo sent two letters dated 11 September 2003 and 7 November 2003 to BPI and FGU Insurance
requesting them to process her claim as beneficiary of Rheozel's insurance policy. On 19 February 2004,
FGU Insurance sent a reply-letter to Laingo denying her claim. FGU Insurance stated that Laingo should
have filed the claim within three calendar months from the death of Rheozel as required under Paragraph
15 of the Personal Accident Certificate of Insurance which states:
chanRoblesvirtualLawlibrary
15. Written notice of claim shall be given to and filed at FGU Insurance Corporation within three
calendar months of death or disability.
On 20 February 2004, Laingo filed a Complaint4 for Specific Performance with Damages and Attorney's
Fees with the Regional Trial Court of Davao City, Branch 16 (trial court) against BPI and FGU
Insurance.

In a Decision5 dated 21 April 2008, the trial court decided the case in favor of respondents. The trial
court ruled that the prescriptive period of 90 days shall commence from the time of death of the insured
and not from the knowledge of the beneficiary. Since the insurance claim was filed more than 90 days
from the death of the insured, the case must be dismissed. The dispositive portion of the Decision states:
chanRoblesvirtualLawlibrary
PREMISES CONSIDERED, judgment is hereby rendered dismissing both the complaint and the
counterclaims.

SO ORDERED.6ChanRoblesVirtualawlibrary
Laingo filed an appeal with the Court of Appeals.

The Ruling of the Court of Appeals

In a Decision dated 29 June 2012, the Court of Appeals reversed the ruling of the trial court. The Court
of Appeals ruled that Laingo could not be expected to do an obligation which she did not know existed.
The appellate court added that Laingo was not a party to the insurance contract entered into between
Rheozel and petitioners. Thus, she could not be bound by the 90-day stipulation. The dispositive portion
of the Decision states:
chanRoblesvirtualLawlibrary
WHEREFORE, the Appeal is hereby GRANTED. The Decision dated April 21, 2008 of the Regional
Trial Court, Branch 16, Davao City, is hereby REVERSED and SET ASIDE.

Appellee Bank of the Philippine Islands and FGU Insurance Corporation are DIRECTED to PAY jointly
and severally appellant Yolanda Laingo Actual Damages in the amount of P44,438.75 and Attorney's
Fees in the amount of P200,000.00.

Appellee FGU Insurance Corporation is also DIRECTED to PAY appellant the insurance proceeds of
the Personal Accident Insurance Coverage of Rheozel Laingo with legal interest of six percent (6%) per
annumreckoned from February 20, 2004 until this Decision becomes final. Thereafter, an interest of
twelve percent (12%) per annum shall be imposed until fully paid.

SO ORDERED.7ChanRoblesVirtualawlibrary
Petitioners filed a Motion for Reconsideration which was denied by the appellate court in a Resolution
dated 11 December 2012.
Hence, the instant petition.

The Issue

The main issue for our resolution is whether or not Laingo, as named beneficiary who had no knowledge
of the existence of the insurance contract, is bound by the three calendar month deadline for filing a
written notice of claim upon the death of the insured.

The Court's Ruling

The petition lacks merit.

Petitioners contend that the words or language used in the insurance contract, particularly under
paragraph 15, is clear and plain or readily understandable by any reader which leaves no room for
construction. Petitioners also maintain that ignorance about the insurance policy does not exempt
respondent from abiding by the deadline and petitioners cannot be faulted for respondent's failure to
comply.

Respondent, on the other hand, insists that the insurance contract is ambiguous since there is no
provision indicating how the beneficiary is to be informed of the three calendar month claim period.
Since petitioners did not notify her of the insurance coverage of her son where she was named as
beneficiary in case of his death, then her lack of knowledge made it impossible for her to fulfill the
condition set forth in the insurance contract.

In the present case, the source of controversy stems from the alleged non-compliance with the written
notice of insurance claim to FGU Insurance within three calendar months from the death of the insured
as specified in the insurance contract. Laingo contends that as the named beneficiary entitled to the
benefits of the insurance claim she had no knowledge that Rheozel was covered by an insurance policy
against disability or death issued by FGU Insurance that was attached to Rheozel's savings account with
BPI. Laingo argues that she dealt with BPI after her son's death, when she was allowed to withdraw
funds from his savings account in the amount of P995,000. However, BPI did not notify her of the
attached insurance policy. Thus, Laingo attributes responsibility to BPI and FGU Insurance for her
failure to file the notice of insurance claim within three months from her son's death.

We agree.

BPI offered a deposit savings account with life and disability insurance coverage to its customers called
the Platinum 2-in-1 Savings and Insurance account. This was a marketing strategy promoted by BPI in
order to entice customers to invest their money with the added benefit of an insurance policy. Rheozel
was one of those who availed of this account, which not only included banking convenience but also the
promise of compensation for loss or injury, to secure his family's future.

As the main proponent of the 2-in-1 deposit account, BPI tied up with its affiliate, FGU Insurance, as its
partner. Any customer interested to open a deposit account under this 2-in-1 product, after submitting all
the required documents to BPI and obtaining BPI's approval, will automatically be given insurance
coverage. Thus, BPI acted as agent of FGU Insurance with respect to the insurance feature of its own
marketed product.

Under the law, an agent is one who binds himself to render some service or to do something in
representation of another.8 In Doles v. Angeles,9 we held that the basis of an agency is representation.
The question of whether an agency has been created is ordinarily a question which may be established in
the same way as any other fact, either by direct or circumstantial evidence. The question is ultimately
one of intention. Agency may even be implied from the words and conduct of the parties and the
circumstances of the particular case. For an agency to arise, it is not necessary that the principal
personally encounter the third person with whom the agent interacts. The law in fact contemplates
impersonal dealings where the principal need not personally know or meet the third person with whom
the agent transacts: precisely, the purpose of agency is to extend the personality of the principal through
the facility of the agent.

In this case, since the Platinum 2-in-1 Savings and Insurance account was BPI's commercial product,
offering the insurance coverage for free for every deposit account opened, Rheozel directly
communicated with BPI, the agent of FGU Insurance. BPI not only facilitated the processing of the
deposit account and the collection of necessary documents but also the necessary endorsement for the
prompt approval of the insurance coverage without any other action on Rheozel's part. Rheozel did not
interact with FGU Insurance directly and every transaction was coursed through BPI.

In Eurotech Industrial Technologies, Inc. v. Cuizon,10 we held that when an agency relationship is
established, the agent acts for the principal insofar as the world is concerned. Consequently, the acts of
the agent on behalf of the principal within the scope of the delegated authority have the same legal effect
and consequence as though the principal had been the one so acting in the given situation.

BPI, as agent of FGU Insurance, had the primary responsibility to ensure that the 2-in-1 account be
reasonably carried out with full disclosure to the parties concerned, particularly the beneficiaries. Thus,
it was incumbent upon BPI to give proper notice of the existence of the insurance coverage and the
stipulation in the insurance contract for filing a claim to Laingo, as Rheozel's beneficiary, upon the
latter's death.

Articles 1884 and 1887 of the Civil Code state:

chanRoblesvirtualLawlibrary
Art. 1884. The agent is bound by his acceptance to carry out the agency and is liable for the damages
which, through his non-performance, the principal may suffer.

He must also finish the business already begun on the death of the principal, should delay entail any
danger.

Art. 1887. In the execution of the agency, the agent shall act in accordance with the instructions of the
principal.

In default, thereof, he shall do all that a good father of a family would do, as required by the nature of
the business.
The provision is clear that an agent is bound to carry out the agency. The relationship existing between
principal and agent is a fiduciary one, demanding conditions of trust and confidence. It is the duty of the
agent to act in good faith for the advancement of the interests of the principal. In this case, BPI had the
obligation to carry out the agency by informing the beneficiary, who appeared before BPI to withdraw
funds of the insured who was BPI's depositor, not only of the existence of the insurance contract but also
the accompanying terms and conditions of the insurance policy in order for the beneficiary to be able to
properly and timely claim the benefit.

Upon Rheozel's death, which was properly communicated to BPI by his mother Laingo, BPI, in turn,
should have fulfilled its duty, as agent of FGU Insurance, of advising Laingo that there was an added
benefit of insurance coverage in Rheozel's savings account. An insurance company has the duty to
communicate with the beneficiary upon receipt of notice of the death of the insured. This notification is
how a good father of a family should have acted within the scope of its business dealings with its clients.
BPI is expected not only to provide utmost customer satisfaction in terms of its own products and
services but also to give assurance that its business concerns with its partner entities are implemented
accordingly.

There is a rationale in the contract of agency, which flows from the "doctrine of representation," that
notice to the agent is notice to the principal,11 Here, BPI had been informed of Rheozel's death by the
latter's family. Since BPI is the agent of FGU Insurance, then such notice of death to BPI is considered
as notice to FGU Insurance as well. FGU Insurance cannot now justify the denial of a beneficiary's
insurance claim for being filed out of time when notice of death had been communicated to its agent
within a few days after the death of the depositor-insured. In short, there was timely notice of Rheozel's
death given to FGU Insurance within three months from Rheozel's death as required by the insurance
company.

The records show that BPI had ample opportunity to inform Laingo, whether verbally or in writing,
regarding the existence of the insurance policy attached to the deposit account. First, Rheozel's death
was headlined in a daily major newspaper a day after his death. Second, not only was Laingo, through
her representative, able to inquire about Rheozel's deposit account with BPI two days after his death but
she was also allowed by BPI's Claveria, Davao City branch to withdraw from the funds in order to help
defray Rheozel's funeral and burial expenses. Lastly, an employee of BPI visited Rheozel's wake and
submitted documents for Laingo to sign in order to process the withdrawal request. These circumstances
show that despite being given many opportunities to communicate with Laingo regarding the existence
of the insurance contract, BPI neglected to carry out its duty.

Since BPI, as agent of FGU Insurance, fell short in notifying Laingo of the existence of the insurance
policy, Laingo had no means to ascertain that she was entitled to the insurance claim. It would be unfair
for Laingo to shoulder the burden of loss when BPI was remiss in its duty to properly notify her that she
was a beneficiary.

Thus, as correctly decided by the appellate court, BPI and FGU Insurance shall bear the loss and must
compensate Laingo for the actual damages suffered by her family plus attorney's fees. Likewise, FGU
Insurance has the obligation to pay the insurance proceeds of Rheozel's personal accident insurance
coverage to Laingo, as Rheozel's named beneficiary.chanrobleslaw

WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 29 June 2012 and Resolution
dated 11 December 2012 of the Court of Appeals in CA-G.R. CV No. 01575.
 THIRD DIVISION

G.R. No. 171468 August 24, 2011

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP
INTERNATIONAL PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC.,
MARINA PORT SERVICES, INC., SERBROS CARRIER CORPORATION, and SEABOARD-
EASTERN INSURANCE CO., INC., Respondents.

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

G.R. No. 174241

NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.

DECISION

ABAD, J.:

These consolidated petitions involve a cargo owner’s right to recover damages from the loss of insured
goods under the Carriage of Goods by Sea Act and the Insurance Code.

The Facts and the Case

Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT
Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator
sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International,
Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California,
where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping
Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading,
declaring that it received the goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also
owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang
whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting
the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance
from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioner’s
customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same
to petitioner New World’s job site in Makati City.

An examination of the three generator sets in the presence of petitioner New World’s representatives,
Federal Builders (the project contractor) and surveyors of petitioner New World’s insurer, Seaboard–
Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could
no longer be repaired. For these reasons, New World demanded recompense for its loss from
respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and
Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal
claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New
World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding
values, for the processing of the claim. But petitioner New World did not submit what was required of it,
insisting that the insurance policy did not include the submission of such a list in connection with an
insurance claim. Reacting to this, Seaboard refused to process the claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damages
against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil
Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with
the exception of NYK. The RTC found that the generator sets were damaged during transit while in the
care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of
diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK
beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its
complaint on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994)
had already lapsed. The RTC held that the one-year period should be counted from the date the goods
were delivered to the arrastre operator and not from the date they were delivered to petitioner’s job site.1

As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter
cannot be faulted for denying the claim against it since New World refused to submit the itemized list
that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the
complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.

On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006,2 affirming the RTC’s
rulings except with respect to Seaboard’s liability. The CA held that petitioner New World can still
recoup its loss from Seaboard’s marine insurance policy, considering a) that the submission of the
itemized listing is an unreasonable imposition and b) that the one-year prescriptive period under the
COGSA did not affect New World’s right under the insurance policy since it was the Insurance Code
that governed the relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the Court
in G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17,
2006 the CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The
CA held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of
New World. Further, the CA held that the one-year prescriptive period for maritime claims applied to
Seaboard, as insurer and subrogee of New World’s right against the vessel owner. New World’s failure
to comply promptly with what was required of it prejudiced such right.

Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the
Court in G.R. 174241, assailing the CA’s amended decision.

The Issues Presented

The issues presented in this case are as follows:

a) In G.R. 171468, whether or not the CA erred in affirming the RTC’s release from liability of
respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were at one time or
another involved in handling the shipment; and

b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboard’s request from
petitioner New World for an itemized list is a reasonable imposition and did not violate the
insurance contract between them; and 2) whether or not the CA erred in failing to rule that the
one-year COGSA prescriptive period for marine claims does not apply to petitioner New
World’s prosecution of its claim against Seaboard, its insurer.

The Court’s Rulings

In G.R. 171468 --

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina
and Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in
the damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.

But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a
proper subject of a petition for review on certiorari. And petitioner New World has been unable to make
out an exception to this rule.3Consequently, the Court will not disturb the finding of the RTC, affirmed
by the CA, that the generator sets were totally damaged during the typhoon which beset the vessel’s
voyage from Hong Kong to Manila and that it was her negligence in continuing with that journey
despite the adverse condition which caused petitioner New World’s loss.

That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code,
does not automatically relieve the common carrier of liability. The latter had the burden of proving that
the typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or
minimize such loss before, during, and after the disastrous typhoon.4 As found by the RTC and the CA,
NYK failed to discharge this burden.
In G.R. 174241 --

One. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional
requirement of an itemized listing of the damage that the generator sets suffered. The record shows that
petitioner New World complied with the documentary requirements evidencing damage to its generator
sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or
damage was due to fraud or intentional misconduct committed by the insured. The policy covered all
losses during the voyage whether or not arising from a marine peril.5

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in
voyage, or vessels unseaworthiness, among others.6 But Seaboard had been unable to show that
petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that New
World’s goods suffered going by the documents that it already submitted, namely, (1) copy of the
Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading
01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of
Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance
Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal
Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c)
Serbros Carrier Corporation.7 Notably, Seaboard’s own marine surveyor attended the inspection of the
generator sets.

Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is construed
strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was
not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local agent.
Petitioner New World should not be made to suffer for Advatech’s shortcomings.

Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship
shall be discharged from all liability in case of loss or damage unless the suit is brought within one year
after delivery of the goods or the date when the goods should have been delivered.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time?
The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World
filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as
November 16, 1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have
been subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the
suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14,
1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it
appeared settled that New World’s loss was total and when the insurance policy did not require the
production of such a list in the event of a claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against
whom a formal claim was pending should not have remained obstinate in refusing to process that claim.
It should have examined the same, found it unsubstantiated by documents if that were the case, and
formally rejected it. That would have at least given petitioner New World a clear signal that it needed to
promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit
could be brought to Seaboard’s doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines
shall refuse without just cause to pay or settle claims arising under coverages provided by its policies.
And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the
loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from
receipt of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer
refuses or fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds
of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as
Section 243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment of
the claim is created by the failure of the insurer to pay the claim within the time fixed in Section 243.

Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay
until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The
term "ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum
provided in Central Bank Circular 416, pursuant to Presidential Decree 116.9 Section 244 of the
Insurance Code also provides for an award of attorney’s fees and other expenses incurred by the assured
due to the unreasonable withholding of payment of his claim.

In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as
proper an award of 10% of the insurance proceeds as attorney’s fees. Such amount is fair considering the
length of time that has passed in prosecuting the claim.11 Pursuant to the Court’s ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals,12 a 12% interest per annum from the finality of judgment until
full satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance
of credit.1avvphi1

Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of
the three emergency generator sets or US$721,500.00 with double interest plus attorney’s fees as
discussed above.

WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals
decision of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is
not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP
International Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros
Carrier Corporation.

With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the
Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern
Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in
accordance with Sections 243 and 244 of the Insurance Code and attorney’s fees equivalent to 10% of
the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per annum on
the total amount due to petitioner until its full satisfaction.

SO ORDERED.