G.R. No. 161539 June 27, 2008

INTERNATIONAL CONTAINERTERMINAL SERVICES, INC., petitioner, vs.FGU INSURANCE CORPORATION, respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the Regional Trial Court (RTC) of Manila, Branch 30, ordered International Container Terminal Services, Inc. (petitioner) to pay FGU Insurance Corporation (respondent) the following sums: (1) P1,875,068.88 with 12% interest per annum from January 3, 1995 until fully paid; (2) P50,000.00 as attorney's fees; and (3) P10,000.00 as litigation expenses.1

Petitioner's liability arose from a lost shipment of "14 Cardboards 400 kgs. of Silver Nitrate 63.53 FCT Analytically Pure (purity 99.98 PCT)," shipped by Hapag-Lloyd AG through the vessel Hannover Express from Hamburg, Germany on July 10, 1994, with Manila, Philippines as the port of discharge, and Republic Asahi Glass Corporation (RAGC) as consignee. Said shipment was insured by FGU Insurance Corporation (FGU). When RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the shipment, petitioner, which was the arrastre contractor, could not find it in its storage area. At the behest of petitioner, the National Bureau of Investigation (NBI) conducted an investigation. The AAREMA Marine and Cargo Surveyors, Inc. also conducted an inquiry. Both found that the shipment was lost while in the custody and responsibility of petitioner.

As insurer, FGU paid RAGC the amount of P1,835,068.88 on January 3, 1995.2 In turn, FGU sought reimbursement from petitioner, but the latter refused. This constrained FGU to file with the RTC of Manila Civil Case No. 95-73532 for a sum of money.

After trial, the RTC rendered its Decision dated July 1, 1999 finding petitioner liable.

Petitioner appealed to the Court of Appeals (CA), which, in the assailed Decision3 dated October 22, 2003, affirmed the RTC Decision. Petitioner filed a motion for reconsideration which the CA denied in its Resolution dated January 8, 2004.4

Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court, with the following assignment of errors:

1. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO APPLY THE LIMITATION OF LIABILITY OF P3,5000 PER PACKAGE WHICH LIMITS PETITIONER'S LIABILITY, IF ANY, TO A TOTAL OF ONLY P49,000.00 PURSUANT TO PPA ADMINISTRATIVE ORDER NO. 10-81.

2. THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE MARINE OPEN POLICY DESPITE THE FACT THAT THE SAME WAS NO LONGER IN FORCE AT THE TIME THE SHIPMENT WAS LOADED ON BOARD THE CARRYING VESSEL.

3. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO DISMISS THE COMPLAINT ON THE GROUND OF RESPONDENT'S FAILURE TO OFFER THE INSURANCE POLICY IN EVIDENCE PURSUANT TO THIS HONORABLE COURT'S DECISION IN HOME INSURANCE CORPORATION VS. COURT OF APPEALS (225 SCRA 411) AND THE FAIRLY RECENT DECISION IN WALLEM PHILIPPINES SHIPPING, INC. AND SEACOAST MARITIME CORP. VS. PRUDENTIAL GUARANTEE AND ASSURANCE, INC. AND COURT OF APPEALS, G.R. NO. 152158, 07 FEBRUARY 2003.

4. ASSUMING ARGUENDO THAT PETITIONER IS LIABLE, THE COURT OF APPEALS SERIOUSLY ERRED IN AFFIRMING THE AWARD OF 12% INTEREST DESPITE THE FACT THAT THE OBLIGATION PURPORTEDLY BREACHED DOES NOT CONSTITUTE A LOAN OF FORBEARANCE OF MONEY AND DESPITE THE CLEAR GUIDELINES SET FORTH BY THIS HONORABLE COURT IN EASTERN SHIPPING LINES, INC. VS. COURT OF APPEALS. (234 SCRA 78).5

The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for review on certiorari. This rule, however, is not ironclad and admits certain exceptions, such as when (1) the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by the presence of evidence on record; (8) the findings of the CA are contrary to those of the trial court; (9) the CA manifestly overlooked

certain relevant and undisputed facts that, if properly considered, would justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such findings are contrary to the

admissions of both parties.6 In the present case, there is nothing on record which will show that it falls within the exceptions. Hence, the petition must be denied.

Petitioner posits that its liability for the lost shipment should be limited to P3,500.00 per package as provided in Philippine Ports Authority Administrative Order No. 10-81 (PPA AO 10-81), under Article VI, Section 6.01 of which provides:

Section 6.01. Responsibility and Liability for Losses and Damages; Exceptions - The CONTRACTOR shall at its own expense handle all merchandise in all work undertaken by it hereunder deligently [sic] and in a skillful, workman-like and efficient manner; that the CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and hereby agrees to accept liability and to promptly pay to the shipping company consignees, consignors or other interested party or parties for the loss, damage, or non-delivery of cargoes to the extent of the actual invoice value of each package which in no case shall be more than THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) (for import cargo) x x x for each package unless the value of the cargo importation is otherwise specified or manifested or communicated in writing together with the declared bill of lading value and supported by a certified packing list to the CONTRACTOR by the interested party or parties before the discharge x x x of the goods, as well as all damage that may be suffered on account of loss, damage, or destruction of any merchandise while in custody or under the control of the CONTRACTOR in any pier, shed, warehouse facility or other designated place under the supervision of the AUTHORITY x x x.7 (Emphasis supplied)

The CA summarily ruled that PPA AO 10-81 is not applicable to this case without laying out the reasons therefor.

PPA AO 10-81 is the management contract between by the Philippine Ports Authority and the cargo handling services providers. In Summa Insurance Corporation v. Court of Appeals,8 the Court ruled that:

In the performance of its job, an arrastre operator is bound by the management contract it had executed with the Bureau of Customs. However, a management contract, which is a sort of a stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is also binding on a consignee because it is incorporated in the gate pass and delivery receipt which must be presented by the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the consignee, is likewise bound by the management contract. Indeed, upon taking delivery of the cargo, a consignee (and necessarily its successor-in- interest) tacitly accepts the provisions of the management contract, including those which are intended to limit the liability of one of the contracting parties, the arrastre operator.

However, a consignee who does not avail of the services of the arrastre operator is not bound by the management contract. Such an exception to the rule does not obtain here as the consignee did in fact accept delivery of the cargo from the arrastre operator.9

While it appears in the present case that the RAGC availed itself of petitioner's services and therefore, PPA AO 10-81 should apply, the Court finds that the extent of petitioner's liability should cover the actual value of the lost shipment and not the P3,500.00 limit per package as provided in said Order.

It is borne by the records that when Desma Cargo Handlers was negotiating for the discharge of the shipment, it presented Hapag-Lloyd's Bill of Lading,10 Degussa's Commercial Invoice, which indicates that value of the shipment, including seafreight charges, was DM94.960,00 (CFR Manila);11 and Degussa's Packing List, which likewise notes that the value of the shipment was DM94.960,00.12 It is highly unlikely that petitioner was not made aware of the actual value of the shipment, since it had to examine the pertinent documents for stripping purposes and, later on, for the discharge of the shipment to the consignee or its representative. In fact, the NBI Report dated September 26, 1994 on the investigation conducted by it regarding the loss of the shipment shows that petitioner's Admeasurer Rosco Esquibal was shown the Bill of Lading by Desma Brokerage's representative, Rey Villanueva.13 Esquibal also stated that another representative of Desma Brokerage, Joey Laurente, went to their office and furnished him a copy of the "processed papers of the fourteen cartons of Asahi Glass cargoes."14

By its own act of not charging the corresponding arrastre fees based on the value of the shipment after it came to know of such declared value from the marine insurance policy, petitioner cannot escape liability for the actual value of the shipment. The value of the merchandise or shipment may be declared or stated not only in the bill of lading or shipping manifest, but also in other documents required by law before the shipment is cleared from the piers.15

Petitioner insists that Marine Open Policy No. MOP-12763 under which the shipment was insured was no longer in force at the time it was loaded on board the Hannover Express on June 10, 1994, as provided in the

Endorsement portion of the policy, which states: "IT IS HEREBY DECLARED AND AGREED that effective June 10, 1994, this policy is deemed CANCELLED."16 FGU, on the other hand, insists that it was under Marine Risk Note No. 9798, which was executed on May 26, 1994, that said shipment was covered.

It must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine open policy, the evaluation of the cargo and the chargeable premium.17 It is the marine open policy which is the main insurance contract. In other words, the marine open policy is the blanket insurance to be undertaken by FGU on all goods to be shipped by RAGC during the existence of the contract, while the marine risk note specifies the particular goods/shipment insured by FGU on that specific transaction, including the sum insured, the shipment particulars as well as the premium paid for such shipment. In any event, as it stands, it is evident that even prior to the cancellation by FGU of Marine Open Policy No. MOP-12763 on June 10, 1994, it had already undertaken to insure the shipment of the 400 kgs. of silver nitrate, specially since RAGC had already paid the premium on the insurance of said shipment.

Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis Brokerage Corp.,18 the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc.,19 the Court ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home Insurance Corporation v. Court of Appeals.20

However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals,21 the Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo occurred, such that the insurer should be liable for it.

As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court.22 And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.23

Finally, petitioner questions the imposition of a 12% interest rate, instead of 6%, on its adjudged liability. The ruling in Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc.,24 to wit:

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, inscribed the rule of thumb in the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, 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.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest.25 (Emphasis supplied)

is instructive. The CA did not commit any error in applying the same.

The Court notes, however, an apparent clerical error made in the dispositive portion of the RTC Decision. While it appears that FGU paid RAGC the amount of P1,835,068.88, as shown in the Subrogation Receipt,26 as prayed for in its Complaint,27 the RTC awarded the sum of P1,875,068.88. Thus, a necessary modification should be made on this score.

WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003 and Resolution dated January 8, 2004 of the Court of Appeals are AFFIRMED, with the modification that the award in the RTC Decision dated July 1, 1999 should be P1,835,068.88 instead of P1,875,068.88.

Costs against petitioner.

SO ORDERED.

G.R. No. 151890             June 20, 2006

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs.TRANS-ASIA SHIPPING LINES, INC., Respondent.

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

G.R. No. 151991             June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner, vs.PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent.

D E C I S I O N

CHICO-NAZARIO, J:

This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside.

The Facts

The material antecedents as found by the court a quo and adopted by the appellate court are as follows:

Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defendant [PRUDENTIAL] as to the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. An adjuster’s report on the fire in question was submitted by Richard Hogg International together with the U-Marine Surveyor Report (Exhibits "4" to "4-115").

On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic):

"Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibit "4")

In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiff’s claim (Exhibit "5"). The letter reads:

"After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND

CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED."

This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4

Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorney’s fees.

The Ruling of the Trial Court

On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract.9

Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there was nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANS-ASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as such.

The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorney’s fees on the rationalization that the instant case does not fall under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest.

The decretal portion of the Judgment of the RTC reads:

WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action.

On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the defendant, within a period of ten (10) days from and after this judgment shall have become final and executory.12

The Ruling of the Court of Appeals

On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment of the RTC.

On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s admission that at the time the insurance contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. The Court of Appeals similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy.

In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d’adhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA.

Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial payment to TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code.

Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise:

WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard Hogg’s Survey Report was completed, or on 13 August 1996, until the same is fully paid.

All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14

Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January 2002.

The Issues

Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz:

I.

THE AWARD IS GROSSLY UNCONSCIONABLE.

II.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY.

III.

THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY.

IV.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.

V.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA.

VI.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF.

VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.

VIII.

THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15

Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit:

I.

THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE CLAIM.

II.

THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions.

In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if any, of either or both parties.

Ruling of the Court

Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported by the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary.

I.

A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract.

In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 7421 of the Insurance Code.

The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM

Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken?

A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis the claim was denied.

Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified.

A Warranted Vessel Classed and Class Maintained.

ATTY. LIM

Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained."

COURT

Q Will you explain that particular phrase?

A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society.

COURT

Slowly.

WITNESS

(continued)

A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic).

ATTY. LIM

Q Can you mention some classification societies that you know?

A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22

At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach.

In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED.

We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus:

Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic).

WITNESS

A I recall that they were classed.

ATTY. LIM

Q With what classification society?

A I believe with Bureau Veritas.24

As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation.

We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.

We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25 However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy.

B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.

The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged, ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26

PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIA’s alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27

We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty.

The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL.

II.

A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy.

It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder:

LOAN AND TRUST RECEIPT

Claim File No. MH-93-025                         May 29, 1995P3,000,000.00Check No. PCIB066755

Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board.

As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC.

TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue business without embarrassment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter.

The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus:

The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should correspond in fundamental points with the application in its country of origin x x x.

x x x x

Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus:

"The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan."

What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form.31

We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to TRANS-ASIA.

First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board."32

Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss.

Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA’s claim on MH93/1353.

III.

A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363.

Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.

B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of P8,395,072.26.

The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals, attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the instant case.

We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment.

To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured.37

Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of

the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment.

Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the insurance claims.

In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance claim.

As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a suit for collection.

Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar.

C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest in accordance with Section 244 of the Insurance Code.

Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance.

Section 243 is hereunder reproduced:

SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.

As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the claim is fraudulent.

D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum.

PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIAL’s stance that the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42

The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus:

The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46

E. The payment of double interest should be counted from 13 September 1996.

The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double interest.

In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September 1996 only.

IV.

A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed from the time of finality of judgment until the full satisfaction thereof in conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest.

Fallo

WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award the grant of attorney’s fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit:

1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363;

2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees equivalent to 10% of the amount of P8,395,072.26;

3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 September 1996 until fully paid; and

4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof.

No costs.

SO ORDERED.

G.R. No. 147839             June 8, 2006

GAISANO CAGAYAN, INC. Petitioner, vs.INSURANCE COMPANY OF NORTH AMERICA, Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for reconsideration.

The factual background of the case is as follows:

Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."2The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also provide for the following conditions:

1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur.

2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. x x x4

x x x x

Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI.

On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.5

In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the claim of the insured.6

At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued.

On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the above-described merchandise remains the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss.

Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The dispositive portion of the decision reads:

WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay:

1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid;

2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid.

With costs against the defendant-appellee.

SO ORDERED.10

The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11

Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13

Hence, the present petition for review on certiorari anchored on the following Assignment of Errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.

THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.

THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14

Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due since no prior demands were

made by IMC and LSPI against petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15

As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire.

For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short circuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of suit.17

As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20

Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (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.21 Exceptions (4), (5), (7), and (11) apply to the present petition.

At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner.

The Court disagrees with petitioner's stand.

It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22 In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured.

Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered.

Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid."26

The Court is not persuaded.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code:

ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied)

x x x x

Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered.

IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.28

Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises.

Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.30 Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies.

The next question is: Is petitioner liable for the unpaid accounts?

Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code.

Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34

Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37

Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI.

With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with IMC in the amount ofP2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides:

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

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount ofP535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 168402 August 6, 2008

ABOITIZ SHIPPING CORPORATION,Petitioner, - versus - INSURANCE COMPANY OF NORTH AMERICA,Respondent. D E C I S I O N REYES, R.T., J.: THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured. As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the assured may have against the wrongdoer who caused the damage. Before Us is a petition for review on certiorari of the Decision[1] of the Court of Appeals (CA) which reversed the Decision[2] of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum of P280,176.92 plus interest and attorney’s fees in favor of respondent Insurance Company of North America (ICNA). The Facts Culled from the records, the facts are as follows: On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies (MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance was for a transshipment of certain wooden work tools and workbenches purchased for the consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines.[3] ICNA issued an “all-risk” open marine policy,[4] stating: This Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies on behalf of the title holder: – Loss, if any, payable to the Assured or order.[5] The cargo, packed inside one container van, was shipped “freight prepaid” from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading[6] was issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center, Sudlon Lahug, Cebu City. The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport System. The bill of lading[7] issued by Aboitiz contained the notation “grounded outside warehouse.”

The container van was stripped and transferred to another crate/container van without any notation on the condition of the cargo on the Stuffing/Stripping Report.[8] On August 1, 1993, the container van was loaded on board petitioner’s vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on August 2, 1993. On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance from the Customs authorities. In the Stripping Report[9] dated August 5, 1993, petitioner’s checker noted that the crates were slightly broken or cracked at the bottom. On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of petitioner, received a telephone call from Willig informing him that the cargo sustained water damage. Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of the container

and other cargoes stuffed in the same container. He found that the container van and other cargoes stuffed there were completely dry and showed no sign of wetness.[10] Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to be completely dry and had no water marks. But he confirmed that the tools which were stored inside the crate were already corroded. He further explained that the “grounded outside warehouse” notation in the bill of lading referred only to the container van bearing the cargo.[11] In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the cargo.[12] The letter stated that the crate was broken at its bottom part such that the contents were exposed. The work tools and workbenches were found to have been completely soaked in water with most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter concluded that apparently, the damage was caused by water entering through the broken parts of the crate. The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage. CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were discovered upon delivery to consignee.[13] On September 21, 1993, the consignee filed a formal claim[14] with Aboitiz in the amount of P276,540.00 for the damaged condition of the following goods: ten (10) wooden workbenchesthree (3) carbide-tipped saw bladesone (1) set of ball-bearing guidesone (1) set of overarm router bitstwenty (20) rolls of sandpaper for stroke sander In a Supplemental Report dated October 20, 1993,[15] CAC reported to ICNA that based on official weather report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the bill of lading issued by Aboitiz which contained the notation “grounded outside warehouse.” It was only on July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu. Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from Aboitiz. RTC Disposition ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92, plus interest and attorney’s fees.[16] ICNA alleged that the damage sustained by the shipment was exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left grounded outside its warehouse prior to delivery. Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the cause of action was barred, and the suit was premature there being no claim made upon Aboitiz. On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the decision[17] states: WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief claimed in the complaint for being baseless and without merit. The complaint is hereby DISMISSED. The defendant’s counterclaims are, likewise, DISMISSED for lack of basis.[18] The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the insurance policy to ICNA

Phils. Moreover, ICNA Phils.’ claim that it had been subrogated to the rights of the consignee must fail because the subrogation receipt had no probative value for being hearsay evidence. The RTC reasoned: While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M 7NA, no evidence has been adduced which would show that ICNA UK is the same as or the predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies. Plaintiff’s witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo International is an endorsement of the marine policy in favor of Science Teaching Improvement Project. Plaintiff’s witness, however, failed to identify whose signature it was and plaintiff did not present on the witness stand or took (sic) the deposition of the person who made that signature. Hence, the claim that there was an endorsement of the marine policy has no probative value as it is hearsay. Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching Improvement Project as shown by the Subrogation Form (Exhibit “K”) allegedly signed by a representative of Science Teaching Improvement Project. Such representative, however, was not presented on the witness stand. Hence, the Subrogation Form is self-serving and has no probative value.[19] (Emphasis supplied) The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to wit: Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance company duly authorized to do business in the Philippines. This allegation was, however, denied by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine law, the condition is that a foreign insurance company must obtain licenses/authority to do business in the Philippines. These licenses/authority are obtained from the Securities and Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis supplied) CA Disposition ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy.[20] On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim was not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no right of subrogation because the subrogation receipt should have been signed by MSAS, the assured in the open policy, and not Willig, who is merely the representative of the consignee. On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows: WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of this case until fully paid, and attorney’s fees in the sum of P50,000, plus the costs of suit.[21] The CA opined that the right of subrogation accrues simply upon payment by the insurance company of the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it is an unlicensed foreign corporation. The CA ruled: At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable. Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign corporation, such circumstance will not bar it from claiming reimbursement from the defendant carrier by virtue of subrogation under the contract of insurance and as recognized by Philippine courts. x x x x x x x Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the country, as subrogee of the claim of the insured under the subject marine policy, is therefore the real party in interest to

bring this suit and recover the full amount of loss of the subject cargo shipped by it from Manila to the consignee in Cebu City. x x x[22] The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for the loss or damage sustained by the subject cargo. Issues The following issues are up for Our consideration: (1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT. (2) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY OF NORTH AMERICA (U.K.) (“ICNA UK”). (3) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED (“MSAS”) IN FAVOR OF THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE SAME. (4) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.[23] (Underscoring supplied) Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of Commerce? (c) If so, can petitioner be held liable on the claim for damages? Our Ruling We answer the triple questions in the affirmative. A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is “transacting” or “doing business” in the country will a license be necessary before it can institute suits.[24] It may, however, bring suits on isolated business transactions, which is not prohibited under Philippine law.[25] Thus, this Court has held that a foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country. It is the act of engaging in business without the prescribed license, and not the lack of license per se, which bars a foreign corporation from access to our courts.[26] In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the subject marine policy, the present suit was filed by the said company’s authorized agent in Manila. It was the domestic corporation that brought the suit and not the foreign company. Its authority is expressly provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign company’s agents. As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee. The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide.[27] MSAS accepted said provision when it signed and accepted the policy. The acceptance operated as an

acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the Philippines was unnecessary for the latter to exercise the rights of the insurer. Likewise, the Open Policy expressly provides that: The Company, in consideration of a premium as agreed and subject to the terms and conditions printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary Companies in behalf of the title holder: – Loss, if any, payable to the Assured or Order. The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states: A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of the risk, may become the owner of the interest insured. (Emphasis added) Respondent’s cause of action is founded on it being subrogated to the rights of the consignee of the damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states: Article 2207. If the plaintiff’s property has been insured, and he has received indemnity from 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 added) As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,[28] payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. 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.[29] Upon payment to the consignee of indemnity for damage to the insured goods, ICNA’s entitlement to subrogation equipped it with a cause of action against petitioner in case of a contractual breach or negligence.[30] This right of subrogation, however, has its limitations. First, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.[31] Second, the insurer can be subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from liability, the insurer loses its claim against the latter.[32] The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. Circumstances peculiar to this case lead Us to conclude that the notice requirement was complied with. As held in the case of Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc.,[33] this notice requirement protects the carrier by affording it an opportunity to make an investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the carrier from false and fraudulent claims. Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are visible from the outside of the package, the claim must be made immediately. The law provides: Article 366. Within twenty four hours following the receipt of the merchandise, the claim against the carrier for damages or average which may be found therein upon opening the packages, may be made, provided that the indications of the damage or average which give rise to the claim cannot be ascertained from the outside part of such packages, in which case the claim shall be admitted only at the time of receipt. After the periods mentioned have elapsed, or the transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. (Emphasis supplied) The periods above, as well as the manner of giving notice may be modified in the terms of the bill of lading, which is the contract between the parties. Notably, neither of the parties in this case presented the terms for giving notices of claim under the bill of lading issued by petitioner for the goods. The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage was dated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only on

September 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf of petitioner.[34] In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,[35] the notice was allegedly made by the consignee through telephone. The claim for damages was denied. This Court ruled that such a notice did not comply with the notice requirement under the law. There was no evidence presented that the notice was timely given. Neither was there evidence presented that the notice was relayed to the responsible authority of the carrier. As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent for other cases. Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery from a carrier must be given a reasonable and practical construction, adapted to the circumstances of the case under adjudication, and their application is limited to cases falling fairly within their object and purpose.[36] Bernhard Willig, the representative of consignee who received the shipment, relayed the information that the delivered goods were discovered to have sustained water damage to no less than the Claims Head of petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and he confirmed that the goods were, indeed, already corroded. Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a reasonable and practical, rather than a strict construction.[37] We give due consideration to the fact that the final destination of the damaged cargo was a school institution where authorities are bound by rules and regulations governing their actions. Understandably, when the goods were delivered, the necessary clearance had to be made before the package was opened. Upon opening and discovery of the damaged condition of the goods, a report to this effect had to pass through the proper channels before it could be finalized and endorsed by the institution to the claims department of the shipping company. The call to petitioner was made two days from delivery, a reasonable period considering that the goods could not have corroded instantly overnight such that it could only have sustained the damage during transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh. In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial compliance with the notice requirement in this case. To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim was made by respondent. We now discuss petitioner’s liability for the damages sustained by the shipment. The rule as stated in Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence required by law.[38] Extraordinary diligence is that extreme measure of care and caution which persons of unusual prudence and circumspection use for securing and preserving their own property rights.[39] This standard is intended to grant favor to the shipper who is at the mercy of the common carrier once the goods have been entrusted to the latter for shipment.[40] Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the CA that petitioner failed to overturn this presumption: x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a representative from Trabajo Arrastre, and the crates opened, it was discovered that the workbenches and work tools suffered damage due to “wettage” although by then they were already physically dry. Appellee carrier having failed to discharge the burden of proving that it exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the presumption of fault or negligence on its part from the time the goods were unconditionally placed in its possession (July 26, 1993) up to the time the same were delivered to the consignee (August 11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted negligently was not overcome by any countervailing evidence. x x x[41] (Emphasis added) The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993. On the same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-stuffed inside another container van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During

the period between July 26 to 31, 1993, the shipment was outside a container van and kept in storage by petitioner. The bill of lading issued by petitioner on July 31, 1993 contains the notation “grounded outside warehouse,” suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since evidence showed that rain fell over Manila during the same period, We can conclude that this was when the shipment sustained water damage. To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility that some other party could be responsible for the damage. It must prove that it used “all reasonable means to ascertain the nature and characteristic of the goods tendered for transport and that it exercised due care in handling them.[42] Extraordinary diligence must include safeguarding the shipment from damage coming from natural elements such as rainfall. Aside from denying that the “grounded outside warehouse” notation referred not to the crate for shipment but only to the carrier van, petitioner failed to mention where exactly the goods were stored during the period in question. It failed to show that the crate was properly stored indoors during the time when it exercised custody before shipment to Cebu. As amply explained by the CA: On the other hand, the supplemental report submitted by the surveyor has confirmed that it was rainwater that seeped into the cargo based on official data from the PAGASA that there was, indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically noted that the subject cargo was under the custody of appellee carrier from the time it was delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-4 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established facts that damage from “wettage” suffered by the subject cargo was caused by the negligence of appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes. Appellee’s witness, Mr. Mayo tried to disavow any responsibility for causing “wettage” to the subject goods by claiming that the notation “GROUNDED OUTSIDE WHSE.” actually refers to the container and not the contents thereof or the cargoes. And yet it presented no evidence to explain where did they place or store the subject goods from the time it accepted the same for shipment on July 26, 1993 up to the time the goods were stripped or transferred from the container van to another container and loaded into the vessel M/V Supercon Carrier I on August 1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the subject cargo was stripped from the container van of the shipper and transferred to the container on August 1, 1993 and finally loaded into the appellee’s vessel bound for Cebu City on August 2, 1993. The Stuffing/Stripping Report (Exhibit “D”) at the Manila port did not indicate any such defect or damage, but when the container was stripped upon arrival in Cebu City port after being discharged from appellee’s vessel, it was noted that only one (1) slab was slightly broken at the bottom allegedly hit by a forklift blade (Exhibit “F”).[43] (Emphasis added) Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily prove that it exercised the extraordinary diligence required of common carriers. WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED. SO ORDERED.

G.R. NO. 147039             January 27, 2006

DBP POOL OF ACCREDITED INSURANCE COMPANIES, Petitioner, vs.RADIO MINDANAO NETWORK, INC., Respondent.

D E C I S I O N

AUSTRIA-MARTINEZ, J.:

This refers to the petition for certiorari under Rule 45 of the Rules of Court seeking the review of the Decision1 dated November 16, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 56351, the dispositive portion of which reads:

Wherefore, premises considered, the appealed Decision of the Regional Trial Court of Makati City, Branch 138 in Civil Case No. 90-602 is hereby AFFIRMED with MODIFICATION in that the interest rate is hereby reduced to 6% per annum.

Costs against the defendants-appellants.

SO ORDERED.2

The assailed decision originated from Civil Case No. 90-602 filed by Radio Mindanao Network, Inc. (respondent) against DBP Pool of Accredited Insurance Companies (petitioner) and Provident Insurance Corporation (Provident) for recovery of insurance benefits. Respondent owns several broadcasting stations all over the country. Provident covered respondent’s transmitter equipment and generating set for the amount of P13,550,000.00 under Fire Insurance Policy No. 30354, while petitioner covered respondent’s transmitter, furniture, fixture and other transmitter facilities for the amount of P5,883,650.00 under Fire Insurance Policy No. F-66860.

In the evening of July 27, 1988, respondent’s radio station located in SSS Building, Bacolod City, was razed by fire causing damage in the amount of P1,044,040.00. Respondent sought recovery under the two insurance policies but the claims were denied on the ground that the cause of loss was an excepted risk excluded under condition no. 6 (c) and (d), to wit:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following consequences, namely:

(c) War, invasion, act of foreign enemy, hostilities, or warlike operations (whether war be declared or not), civil war.

(d) Mutiny, riot, military or popular rising, insurrection, rebellion, revolution, military or usurped power.3

The insurance companies maintained that the evidence showed that the fire was caused by members of the Communist Party of the Philippines/New People’s Army (CPP/NPA); and consequently, denied the claims. Hence, respondent was constrained to file Civil Case No. 90-602 against petitioner and Provident.

After trial on the merits, the Regional Trial Court of Makati, Branch 138, rendered a decision in favor of respondent. The dispositive portion of the decision reads:

IN VIEW THEREOF, judgment is rendered in favor of plaintiff. Defendant Provident Insurance Corporation is directed to pay plaintiff the amount of P450,000.00 representing the value of the destroyed property insured under its Fire Insurance Policy plus 12% legal interest from March 2, 1990 the date of the filing of the Complaint. Defendant DBP Pool Accredited Insurance Companies is likewise ordered to pay plaintiff the sum

of P602,600.00 representing the value of the destroyed property under its Fire Insurance Policy plus 12% legal interest from March 2, 1990.

SO ORDERED.4

Both insurance companies appealed from the trial court’s decision but the CA affirmed the decision, with the modification that the applicable interest rate was reduced to 6% per annum. A motion for reconsideration was filed by petitioner DBP which was denied by the CA per its Resolution dated January 30, 2001.5

Hence, herein petition by DBP Pool of Accredited Insurance Companies,6 with the following assignment of errors:

Assignment of Errors

THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THERE WERE NO SUFFICIENT EVIDENCE SHOWING THAT THE APPROXIMATELY TENTY [sic] (20) ARMED MEN WHO CUSED [sic] THE FIRE AT RESPONDENT’S RMN PROPERTY AT BACOLOD CITY WERE MEMBERS OF THE CPP-NPA.

THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED THAT RESPONDENT RMN CANNOT BEHELD [sic] FOR DAMAGES AND ATTORNEY’S FEES FOR INSTITUTING THE PRESENT ACTION AGAINST THE PETITIONER UNDER ARTICLES 21, 2208, 2229 AND 2232 OF THE CIVIL CODE OF THE PHILIPPINES.7

Petitioner assails the factual finding of both the trial court and the CA that its evidence failed to support its allegation that the loss was caused by an excepted risk, i.e., members of the CPP/NPA caused the fire. In upholding respondent’s claim for indemnity, the trial court found that:

The only evidence which the Court can consider to determine if the fire was due to the intentional act committed by the members of the New People’s Army (NPA), are the testimony [sic] of witnesses Lt. Col. Nicolas Torres and SPO3 Leonardo Rochar who were admittedly not present when the fire occurred. Their testimony [sic] was [sic] limited to the fact that an investigation was conducted and in the course of the investigation they were informed by bystanders that "heavily armed men entered the transmitter house, poured gasoline in (sic) it and then lighted it. After that, they went out shouting "Mabuhay ang NPA" (TSN, p. 12., August 2, 1995). The persons whom they investigated and actually saw the burning of the station were not presented as witnesses. The documentary evidence particularly Exhibits "5" and "5-C" do not satisfactorily prove that the author of the burning were members of the NPA. Exhibit "5-B" which is a letter released by the NPA merely mentions some dissatisfaction with the activities of some people in the media in Bacolod. There was no mention there of any threat on media facilities.8

The CA went over the evidence on record and sustained the findings of the trial court, to wit:

To recapitulate, defendants-appellants presented the following to support its claim, to wit: police blotter of the burning of DYHB, certification of the Negros Occidental Integrated National Police, Bacolod City regarding the incident, letter of alleged NPA members Celso Magsilang claiming responsibility for the burning of DYHB, fire investigation report dated July 29, 1988, and the testimonies of Lt. Col. Nicolas Torres and SFO III Leonardo Rochas. We examined carefully the report on the police blotter of the burning of DYHB, the certification issued by the Integrated National Police of Bacolod City and the fire investigation report prepared by SFO III Rochas and there We found that none of them categorically stated that the twenty (20) armed men which burned DYHB were members of the CPP/NPA. The said documents simply stated that the said armed men were ‘believed’ to be or ‘suspected’ of being members of the said group. Even SFO III Rochas admitted that he was not sure that the said armed men were members of the CPP-NPA, thus:

…

In fact the only person who seems to be so sure that that the CPP-NPA had a hand in the burning of DYHB was Lt. Col. Nicolas Torres. However, though We found him to be persuasive in his testimony regarding how he came to arrive at his opinion, We cannot nevertheless admit his testimony as conclusive proof that the

CPP-NPA was really involved in the incident considering that he admitted that he did not personally see the armed men even as he tried to pursue them. Note that when Lt. Col. Torres was presented as witness, he was presented as an ordinary witness only and not an expert witness. Hence, his opinion on the identity or membership of the armed men with the CPP-NPA is not admissible in evidence.

Anent the letter of a certain Celso Magsilang, who claims to be a member of NPA-NIROC, being an admission of person which is not a party to the present action, is likewise inadmissible in evidence under Section 22, Rule 130 of the Rules of Court. The reason being that an admission is competent only when the declarant, or someone identified in legal interest with him, is a party to the action.9

The Court will not disturb these factual findings absent compelling or exceptional reasons. It should be stressed that a review by certiorari under Rule 45 is a matter of discretion. Under this mode of review, the jurisdiction of the Court is limited to reviewing only errors of law, not of fact.10

Moreover, when supported by substantial evidence, findings of fact of the trial court as affirmed by the CA are conclusive and binding on the parties,11 which this Court will not review unless there are exceptional circumstances. There are no exceptional circumstances in this case that would have impelled the Court to depart from the factual findings of both the trial court and the CA.

Both the trial court and the CA were correct in ruling that petitioner failed to prove that the loss was caused by an excepted risk.

Petitioner argues that private respondent is responsible for proving that the cause of the damage/loss is covered by the insurance policy, as stipulated in the insurance policy, to wit:

…

Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through in consequence directly or indirectly, of any of the said occurrences shall be deemed to be loss or damage which is not covered by the insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions.

In any action, suit or other proceeding where the Companies allege that by reason of the provisions of this condition any loss or damage is not covered by this insurance, the burden of proving that such loss or damage is covered shall be upon the Insured.12

An insurance contract, being a contract of adhesion, should be so interpreted as to carry out the purpose for which the parties entered into the contract which is to insure against risks of loss or damage to the goods. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.13

The "burden of proof" contemplated by the aforesaid provision actually refers to the "burden of evidence" (burden of going forward).14 As applied in this case, it refers to the duty of the insured to show that the loss or damage is covered by the policy. The foregoing clause notwithstanding, the burden of proof still rests upon petitioner to prove that the damage or loss was caused by an excepted risk in order to escape any liability under the contract.

Burden of proof is the duty of any party to present evidence to establish his claim or defense by the amount of evidence required by law, which is preponderance of evidence in civil cases. The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of proof to obtain a favorable judgment. For the plaintiff, the burden of proof never parts.15 For the defendant, an affirmative defense is one which is not a denial of an essential ingredient in the plaintiff’s cause of action, but one which, if established, will be a good defense – i.e. an "avoidance" of the claim.16

Particularly, in insurance cases, where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview

of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.17

Consequently, it is sufficient for private respondent to prove the fact of damage or loss. Once respondent makes out a prima facie case in its favor, the duty or the burden of evidence shifts to petitioner to controvert respondent’s prima facie case.18 In this case, since petitioner alleged an excepted risk, then the burden of evidence shifted to petitioner to prove such exception. It is only when petitioner has sufficiently proven that the damage or loss was caused by an excepted risk does the burden of evidence shift back to respondent who is then under a duty of producing evidence to show why such excepted risk does not release petitioner from any liability. Unfortunately for petitioner, it failed to discharge its primordial burden of proving that the damage or loss was caused by an excepted risk.

Petitioner however, insists that the evidence on record established the identity of the author of the damage. It argues that the trial court and the CA erred in not appreciating the reports of witnesses Lt. Col Torres and SFO II Rochar that the bystanders they interviewed claimed that the perpetrators were members of the CPP/NPA as an exception to the hearsay rule as part of res gestae.

A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception.19 A witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends.20

Res gestae, as an exception to the hearsay rule, refers to those exclamations and statements made by either the participants, victims, or spectators to a crime immediately before, during, or after the commission of the crime, when the circumstances are such that the statements were made as a spontaneous reaction or utterance inspired by the excitement of the occasion and there was no opportunity for the declarant to deliberate and to fabricate a false statement. The rule in res gestae applies when the declarant himself did not testify and provided that the testimony of the witness who heard the declarant complies with the following requisites: (1) that the principal act, the res gestae, be a startling occurrence; (2) the statements were made before the declarant had the time to contrive or devise a falsehood; and (3) that the statements must concern the occurrence in question and its immediate attending circumstances.21

The Court is not convinced to accept the declarations as part of res gestae. While it may concede that these statements were made by the bystanders during a startling occurrence, it cannot be said however, that these utterances were made spontaneously by the bystanders and before they had the time to contrive or devise a falsehood. Both SFO III Rochar and Lt. Col. Torres received the bystanders’ statements while they were making their investigations during and after the fire. It is reasonable to assume that when these statements were noted down, the bystanders already had enough time and opportunity to mill around, talk to one another and exchange information, not to mention theories and speculations, as is the usual experience in disquieting situations where hysteria is likely to take place. It cannot therefore be ascertained whether these utterances were the products of truth. That the utterances may be mere idle talk is not remote.

At best, the testimonies of SFO III Rochar and Lt. Col. Torres that these statements were made may be considered as independently relevant statements gathered in the course of their investigation, and are admissible not as to the veracity thereof but to the fact that they had been thus uttered.22

Furthermore, admissibility of evidence should not be equated with its weight and sufficiency.23 Admissibility of evidence depends on its relevance and competence, while the weight of evidence pertains to evidence already admitted and its tendency to convince and persuade.24 Even assuming that the declaration of the bystanders that it was the members of the CPP/NPA who caused the fire may be admitted as evidence, it does not follow that such declarations are sufficient proof. These declarations should be calibrated vis-à-vis the other evidence on record. And the trial court aptly noted that there is a need for additional convincing proof, viz.:

The Court finds the foregoing to be insufficient to establish that the cause of the fire was the intentional burning of the radio facilities by the rebels or an act of insurrection, rebellion or usurped power. Evidence that

persons who burned the radio facilities shouted "Mabuhay ang NPA" does not furnish logical conclusion that they are member [sic] of the NPA or that their act was an act of rebellion or insurrection. Additional convincing proof need be submitted. Defendants failed to discharge their responsibility to present adequate proof that the loss was due to a risk excluded.25

While the documentary evidence presented by petitioner, i.e., (1) the police blotter; (2) the certification from the Bacolod Police Station; and (3) the Fire Investigation Report may be considered exceptions to the hearsay rule, being entries in official records, nevertheless, as noted by the CA, none of these documents categorically stated that the perpetrators were members of the CPP/NPA.26 Rather, it was stated in the police blotter that: "a group of persons accompanied by one (1) woman all believed to be CPP/NPA … more or less 20 persons suspected to be CPP/NPA,"27 while the certification from the Bacolod Police station stated that "… some 20 or more armed men believed to be members of the New People’s Army NPA,"28 and the fire investigation report concluded that "(I)t is therefore believed by this Investigating Team that the cause of the fire is intentional, and the armed men suspected to be members of the CPP/NPA where (sic) the ones responsible …"29 All these documents show that indeed, the "suspected" executor of the fire were believed to be members of the CPP/NPA. But suspicion alone is not sufficient, preponderance of evidence being the quantum of proof.

All told, the Court finds no reason to grant the present petition.

WHEREFORE, the petition is DISMISSED. The Court of Appeals Decision dated November 16, 2000 and Resolution dated January 30, 2001 rendered in CA-G.R. CV No. 56351 are AFFIRMED in toto.

SO ORDERED.

G.R. No. 136888               June 29, 2005

PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner, vs.CHEMOIL LIGHTERAGE CORPORATION, respondent.

D E C I S I O N

CHICO-NAZARIO, J.:

Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals1 in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set aside the decision of the Regional Trial Court (RTC),2 Branch 16, City of Manila, which ordered herein respondent to pay the petitioner’s claim in the amount of P5,000,000.00 with legal interest from the date of the filing of the complaint.

THE FACTS

Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods.

On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was valued at US$90,201.57 under Bill of Lading No. ULS/MNL-13 and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No. ULS/MNL-24 to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila.

PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-307215 dated 06 February 1991 for P31,757,969.19 and No. MRN-307226 for P4,514,881.00. Marine Endorsement No. 27867 dated 11 May 1991 was attached and formed part of MRN-30721, amending the latter’s insured value to P24,667,422.03, and reduced the premium accordingly.

The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent Chemoil Lighterage Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker trucks, also owned by the respondent, and haul it by land to PGP’s storage tanks in Calamba, Laguna.

Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber, demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18 February 19918 where it formally made an insurance claim for the loss it sustained due to the contamination.

The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report,9 part of which states:

As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish to amber. Inspection of cargo tanks showed manhole covers of ballast tanks’ ceilings loosely secured. Furthermore, it was noted that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress to the rusty ballast tanks…10

On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final payment for the loss. PGP issued a Subrogation Receipt to the petitioner.

Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for the latter’s services, as evidenced by Official Receipt No. 1274.12

On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No. 91-57923.13 The petitioner prayed for actual damages in the amount of P5,000,000.00, attorney’s fees in the amount of no less than P1,000,000.00, and costs of suit.

An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September 1991. The respondent admitted it undertook to transport the consignee’s shipment from MT "TACHIBANA" to the Del Pan Bridge, Pasig River, where it was transferred to its tanker trucks for hauling to PGP’s storage tanks in Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading. The entire loading and unloading of the shipment were also done under the control and supervision of PGP’s surveyor/representative. It was also mentioned by the respondent that the contract between it and PGP expressly stipulated that it shall be free from any and all claims arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any protest or notice; and that the cargo shall be insured by its ownersans recourse against all risks. As subrogee, the petitioner was bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo.15

After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay plaintiff’s claim of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are DISMISSED.16

Aggrieved by the trial court’s decision, the respondent sought relief with the Court of Appeals where it alleged in the main that PGP failed to file any notice, claim or protest within the period required by Article 366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against the carrier.17 A telephone call which was supposedly made by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the notice required by Article 366 of the Code of Commerce.18

On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of which reads:

WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the complaint.19

A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of the trial court be affirmed.

After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a Resolution23 on 18 August 1999, giving due course to the petition.

ASSIGNMENT OF ERRORS

The petitioner assigns as errors the following:

I

THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE REQUIRED PERIOD.

II

THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL.

III

THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURT’S DECISION AND IN DISMISSING THE COMPLAINT.24

ISSUES

Synthesized, the issues that must be addressed by this Court are:

I

WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the affirmative,

II

WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT.

THE COURT’S RULINGS

Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts:

Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages.

After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered.

As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of PGP, to Ms. Encarnacion Abastillas, Vice President for Administration and Operations of the respondent, at the time of the delivery of the cargo, and therefore, within the required period.25 This was done by telephone.

The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. Between the testimonies of Alfredo Chan and Encarnacion Abastillas, the latter’s testimony is purportedly more credible because it would be quite unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of pesos.26

On this point, the Court of Appeals declared:

. . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice considering that the notice was given to a responsible official, the Vice-President, who promptly replied that she will look into the matter. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e.. immediately if

the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.27

The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of Appeals, the former allegedly holding that the period to file the notice had been complied with, while the latter held otherwise.

We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court. Both courts held that, indeed, a telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter of the contamination. However, nothing in the trial court’s decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twenty-four hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed.

The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as testified by Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no driver was presented to the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing:

Q: …

Mr. Witness, were you in your plant site at the time these various cargoes were delivered?

A: No, sir.

…

Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged contamination?

A: What do you mean by that?

Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?

A: No, sir.28

From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the drivers of the respondent were informed of the contamination.

The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso. In a case, we held:

The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.29

In another case, we ruled, thus:

More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier’s liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.30

The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.31

The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the transportation charges have been paid.

In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the corresponding official receipt32 duly issued. But the petitioner is of the view that the payment for services does not invalidate its claim. It contends that under the second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment of services, claim against the bad order condition of the cargo is allowed.

We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioner’s contention proceeds from a false presupposition that the notice of claim was timely filed.

Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue.

WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed and set aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.

G.R. No. 95546 November 6, 1992

MAKATI TUSCANY CONDOMINIUM CORPORATION, petitioner,

vs.

THE COURT OF APPEALS, AMERICAN HOME ASSURANCE CO., represented by American International Underwriters (Phils.), Inc., respondent.

BELLOSILLO, J.:

This case involves a purely legal question: whether payment by installment of the premiums due on an insurance policy invalidates the contract of insurance, in view of Sec. 77 of P.D. 612, otherwise known as the Insurance Code, as amended, which provides:

Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing 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.

Sometime in early 1982, private respondent American Home Assurance Co. (AHAC), represented by American International Underwriters (Phils.), Inc., issued in favor of petitioner Makati Tuscany Condominium Corporation (TUSCANY) Insurance Policy No. AH-CPP-9210452 on the latter's building and premises, for a period beginning 1 March 1982 and ending 1 March 1983, with a total premium of P466,103.05. The premium was paid on installments on 12 March 1982, 20 May 1982, 21 June 1982 and 16 November 1982, all of which were accepted by private respondent.

On 10 February 1983, private respondent issued to petitioner Insurance Policy No. AH-CPP-9210596, which replaced and renewed the previous policy, for a term covering 1 March 1983 to 1 March 1984. The premium in the amount of P466,103.05 was again paid on installments on 13 April 1983, 13 July 1983, 3 August 1983, 9 September 1983, and 21 November 1983. All payments were likewise accepted by private respondent.

On 20 January 1984, the policy was again renewed and private respondent issued to petitioner Insurance Policy No. AH-CPP-9210651 for the period 1 March 1984 to 1 March 1985. On this renewed policy, petitioner made two installment payments, both accepted by private respondent, the first on 6 February 1984 for P52,000.00 and the second, on 6 June 1984 for P100,000.00. Thereafter, petitioner refused to pay the balance of the premium.

Consequently, private respondent filed an action to recover the unpaid balance of P314,103.05 for Insurance Policy No. AH-CPP-9210651.

In its answer with counterclaim, petitioner admitted the issuance of Insurance Policy No. AH-CPP-9210651. It explained that it discontinued the payment of premiums because the policy did not contain a credit clause in its favor and the receipts for the installment payments covering the policy for 1984-85, as well as the two (2) previous policies, stated the following reservations:

2. Acceptance of this payment shall not waive any of the company rights to deny liability on any claim under the policy arising before such payments or after the expiration of the credit clause of the policy; and

3. Subject to no loss prior to premium payment. If there be any loss such is not covered.

Petitioner further claimed that the policy was never binding and valid, and no risk attached to the policy. It then pleaded a counterclaim for P152,000.00 for the premiums already paid for 1984-85, and in its answer with amended counterclaim, sought the refund of P924,206.10 representing the premium payments for 1982-85.

After some incidents, petitioner and private respondent moved for summary judgment.

On 8 October 1987, the trial court dismissed the complaint and the counterclaim upon the following findings:

While it is true that the receipts issued to the defendant contained the aforementioned reservations, it is equally true that payment of the premiums of the three aforementioned policies (being sought to be refunded) were made during the lifetime or term of said policies, hence, it could not be said, inspite of the reservations, that no risk attached under the policies. Consequently, defendant's counterclaim for refund is not justified.

As regards the unpaid premiums on Insurance Policy No. AH-CPP-9210651, in view of the reservation in the receipts ordinarily issued by the plaintiff on premium payments the only plausible conclusion is that plaintiff has no right to demand their payment after the lapse of the term of said policy on March 1, 1985. Therefore, the defendant was justified in refusing to pay the same. 1

Both parties appealed from the judgment of the trial court. Thereafter, the Court of Appeals rendered a decision 2 modifying that of the trial court by ordering herein petitioner to pay the balance of the premiums due on Policy No. AH-CPP-921-651, or P314,103.05 plus legal interest until fully paid, and affirming the denial of the counterclaim. The appellate court thus explained —

The obligation to pay premiums when due is ordinarily as indivisible obligation to pay the entire premium. Here, the parties herein agreed to make the premiums payable in installments, and there is no pretense that the parties never envisioned to make the insurance contract binding between them. It was renewed for two succeeding years, the second and third policies being a renewal/replacement for the previous one. And the insured never informed the insurer that it was terminating the policy because the terms were unacceptable.

While it may be true that under Section 77 of the Insurance Code, the parties may not agree to make the insurance contract valid and binding without payment of premiums, there is nothing in said section which suggests that the parties may not agree to allow payment of the premiums in installment, or to consider the contract as valid and binding upon payment of the first premium. Otherwise, we would allow the insurer to renege on its liability under the contract, had a loss incurred (sic) before completion of payment of the entire premium, despite its voluntary acceptance of partial payments, a result eschewed by a basic considerations of fairness and equity.

To our mind, the insurance contract became valid and binding upon payment of the first premium, and the plaintiff could not have denied liability on the ground that payment was not made in full, for the reason that it agreed to accept installment payment. . . . 3

Petitioner now asserts that its payment by installment of the premiums for the insurance policies for 1982, 1983 and 1984 invalidated said policies because of the provisions of Sec. 77 of the Insurance Code, as amended, and by the conditions stipulated by the insurer in its receipts, disclaiming liability for loss for occurring before payment of premiums.

It argues that where the premiums is not actually paid in full, the policy would only be effective if there is an acknowledgment in the policy of the receipt of premium pursuant to Sec. 78 of the Insurance Code. The absence of an express acknowledgment in the policies of such receipt of the corresponding premium payments, and petitioner's failure to pay said premiums on or before the effective dates of said policies rendered them invalid. Petitioner thus concludes that there cannot be a perfected contract of insurance upon mere partial payment of the premiums because under Sec. 77 of the Insurance Code, no contract of insurance is valid and binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As a consequence, petitioner seeks a refund of all premium payments made on the alleged invalid insurance policies.

We hold that the subject policies are valid even if the premiums were paid on installments. The records clearly show that petitioner 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 (3) 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 prepared in full.

We therefore sustain the Court of Appeals. We quote with approval the well-reasoned findings and conclusion of the appellate court contained in its Resolution denying the motion to reconsider its Decision —

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 does 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, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted. 4

The reliance by petitioner on Arce vs. Capital Surety and Insurance

Co. 5 is unavailing because the facts therein are substantially different from those in the case at bar. In Arce, no payment was made by the insured at all despite the grace period given. In the case before Us, petitioner paid the initial installment and thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies. For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.

It appearing from the peculiar circumstances that the parties actually intended to make three (3) insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its obligation to pay the balance of the premium after the expiration of the whole term of the third policy (No. AH-CPP-9210651) in March 1985. Moreover, as correctly observed by the appellate court, where the risk is entire and the contract is indivisible, the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the risk insured for any period, however brief or momentary.

WHEREFORE, finding no reversible error in the judgment appealed from, the same is AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. 102253 June 2, 1995

SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner,

vs.

HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC., respondents.

R E S O L U T I O N

VITUG, J.:

Two issues on the subject of insurance are raised in this petition, that assails the decision, that assails the decision of the Court of Appeals. (in CA-G.R. NO. CV-20156), the first dealing on the requirement of premium payment and the second relating to the agency relationship of parties under that contract.

The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood"), filed with the Regional, Trial Court of the National Capital Judicial Region, Branch l71 in Valenzuela, Metro Manila, a complaint for the recovery of the value of lost logs and freight charges from Seven Brothers Shipping Corporation or, to the extent of its alleged insurance cover, from South Sea Surety and insurance Company.

The factual backdrop is described briefly by the appellate court thusly:

It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into an agreement with the defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.

On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 end the latter issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.

On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance policy to Mr. Victorio Chua.

In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in the loss of the plaintiffs insured logs.

On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium and documentary stamps due on the policy was tendered to the insurer but was not accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of inception for non-payment of the premium due in accordance with Section 77 of the Insurance Code.

On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for the value of the lost logs but the latter denied the claim. 1

In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff Hardwood.

On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals affirmed the judgment of the court a quo only against the insurance corporation; in absolving the shipping entity from liability, the appellate court ratiocinated:

The primary issue to be resolved before us is whether defendants shipping corporation and the surety company are liable to the plaintiff for the latter's lost logs.

It appears that there is a stipulation in the charter party that the ship owner would be exempted from liability in case of loss.

The court a quo erred in applying the provisions of the Civil Code on common carriers to establish the liability of the shipping corporation. The provisions on common carriers should not be applied where the carrier is not acting as such but as a private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special or chartered to a special person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs. 2

In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner argues that it likewise should have been freed from any liability to Hardwood. It faults the appellate court (a) for having Supposedly disregarded Section 77 of the insurance Code and (b) for holding Victorio Chua to have been an authorized representative of the insurer.

Section 77 of the Insurance Code provides:

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.

Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the insurance coverage relates to life or industrial life (health) insurance when a grace period applies and (b) when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance Code). The appellate court, contrary to what the petition suggests, did not make any pronouncement to the contrary. Indeed, it has said:

Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee and defendant-appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code explicitly provides that notwithstanding any agreement to the contrary, no policy issued by an insurance company is valid and binding unless and until premium thereof has been paid. It is therefore important to determine whether at the time of the loss, the premium was already paid. 3

No attempt becloud the issues can disguise the fact that the sole question raised in the instant petition is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for the insurance premium prior to the occurrence of the risk insured against has so acted as an agent of petitioner. The appellate court, like the trial court, has found in the affirmative. Said the appellate court:

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant insurance company on 20 January 1984. At the time the vessel sank on 25 January 1984 resulting in the loss of the insured logs, the insured had already delivered to Victorio Chua the check in payment of premium. But, as Victorio Chua testified, it was only in the morning of 30 January 1984 or 5 days after the vessel sank when his

messenger tendered the check to defendant South Sea Surety and Insurance Co., Inc. (TSN, pp. 3-27, 16-17, 22 October 1985).

The pivotal issue to be resolved to determine the liability, of the surety corporation is whether Mr. Chua acted as an agent of the surety company or of the insured when he received the check for insurance premiums.

Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and an agent for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as a administrative assistant and a commission as agent based on the premiums he turns over to the broker. Appellant therefore argues that Mr. Chua, having received the insurance premiums as an agent of the Columbia Insurance Broker, acted as an agent of the insured under Section 301 of the Insurance Code which provides as follows:

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties requirements, liabilities and penalties to which an insurance broker is subject.

The appellees, upon the other hand, claim that the second paragraph of Section 306 of the Insurance Code provide as follows:

Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy of contract of insurance at the time of its issuance or delivery or which becomes due thereon.

On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the marine cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his office to be delivered to the plaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium to an agent of the South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the policy it issued to the insured. 4

We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly pointed out by private respondent, it is not the function of this Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties particularly where, such as here, the findings of both the trial court and the appellate court on the matter coincide.

WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is RECALLED, and the petition is DENIED. Costs against petitioner.

SO ORDERED.

[G.R. No. 150094. August 18, 2004]

FEDERAL EXPRESS CORPORATION, petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.

D E C I S I O N

PANGANIBAN, J.:

Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the airway bill.

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision[2] and the September 21, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed Decision disposed as follows:

“WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95-1219, entitled ‘American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.),’ is hereby AFFIRMED and REITERATED.

“Costs against the [petitioner and Cargohaus, Inc.].”[4]

The assailed Resolution denied petitioner’s Motion for Reconsideration.

The Facts

The antecedent facts are summarized by the appellate court as follows:

“On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.’s] warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus’ warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s cargoes.

“On February 10, 1994, DARIO C. DIONEDA (‘DIONEDA’), twelve (12) days after the cargoes arrived in Manila, a non-licensed custom’s broker who was assigned by GETC to facilitate the release of the subject cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the ‘cool room’ only, the latter told him that the cartons where the vaccines were contained specifically indicated therein that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of

the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the ‘ELISA reading of vaccinates sera are below the positive reference serum.’

“As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring ‘total loss’ for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (‘PHILAM’) which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner] imputing negligence on either or both of them in the handling of the cargo.

“Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable for the loss as follows:

‘WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following:

1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the time of the filing of the complaint to the time the same is fully paid.

2. Attorney’s fees in the amount of P50,000.00 and

3. Costs of suit.

‘SO ORDERED.’

“Aggrieved, [petitioner] appealed to [the CA].”[5]

Ruling of the Court of Appeals

The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. We quote from the ruling as follows:

“Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier, and this casts upon the carrier the burden of showing that the goods were not in good condition when delivered to the carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed to discharge. x x x.”[6]

Found devoid of merit was petitioner’s claim that respondents had no personality to sue. This argument was supposedly not raised in the Answer or during trial.

Hence, this Petition.[7]

The Issues

In its Memorandum, petitioner raises the following issues for our consideration:

“I.

Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?

“II.

Is the conclusion of the Honorable Court of Appeals – petitioner’s claim that respondents have no personality to sue because the payment was made by the respondents to Smithkline when the insured under the policy is Burlington Air Express is devoid of merit – correct or not?

“III.

Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, correct or not?

“IV.

Are Exhibits ‘F’ and ‘G’ hearsay evidence, and therefore, not admissible?

“V.

Is the Honorable Court of Appeals correct in ignoring and disregarding respondents’ own admission that petitioner is not liable? and

“VI.

Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?”[8]

Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal Express liable for damage to or loss of the insured goods?

This Court’s Ruling

The Petition has merit.

Preliminary Issue:

Propriety of Review

The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law cognizable by the Supreme Court.[9]

In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court.

Main Issue:

Liability for Damages

Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the payment made to Smithkline was erroneous.

Pertinent to this issue is the Certificate of Insurance[10] (“Certificate”) that both opposing parties cite in support of their respective positions. They differ only in their interpretation of what their rights are under its terms. The determination of those rights involves a question of law, not a question of fact. “As distinguished from a question of law which exists ‘when the doubt or difference arises as to what the law is on a certain state of

facts’ -- ‘there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts’; or when the ‘query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstance, their relation to each other and to the whole and the probabilities of the situation.’”[11]

Proper Payee

The Certificate specifies that loss of or damage to the insured cargo is “payable to order x x x upon surrender of this Certificate.” Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument.

Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds.

Subrogation

Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt[12] in favor of respondents. The latter were thus authorized “to file claims and begin suit against any such carrier, vessel, person, corporation or government.” Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor.

Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurer’s entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a contractual breach or negligence.[13] “Further, the insurer’s subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld.”[14]

In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.[15]

Prescription of Claim

From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents’ claim and right of action are already barred. The latter, and even the consignee, never filed with the carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly evident from the records.

Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:

“6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill].”[16]

Relevantly, petitioner’s airway bill states:

“12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case:

12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods;

12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods;

12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and

12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue of the air waybill.

12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or to the first carrier or to the last carrier or to the carrier who performed the transportation during which the loss, damage or delay took place.”[17]

Article 26 of the Warsaw Convention, on the other hand, provides:

“ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be prima facie evidence that the same have been delivered in good condition and in accordance with the document of transportation.

(2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within 14 days from the date on which the baggage or goods have been placed at his disposal.

(3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid.

(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part.”[18]

Condition Precedent

In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods.[19] The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.[20]

The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. “This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.”[21]

When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not given in accordance with the stipulation.[22] Failure to comply with such a stipulation bars recovery for the loss or damage suffered.[23]

Being a condition precedent, the notice must precede a suit for enforcement.[24] In the present case, there is neither an allegation nor a showing of respondents’ compliance with this requirement within the prescribed period. While respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with the aforesaid condition precedent.

In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner.

We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner’s co-defendant in respondents’ Complaint below -- has been adjudged by the trial court as liable for, inter alia, “actual damages in the amount of the peso equivalent of US $39,339.”[25] This judgment was affirmed by the Court of Appeals and is already final and executory.[26]

WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner Federal Express Corporation. No pronouncement as to costs.

SO ORDERED.

G.R. No. 125678      March 18, 2002

PHILAMCARE HEALTH SYSTEMS, INC., petitioner, vs.COURT OF APPEALS and JULITA TRINOS, respondents.

YNARES-SANTIAGO, J.:

Ernani Trinos, deceased husband of respondent Julita Trinos, applied for a health care coverage with petitioner Philamcare Health Systems, Inc. In the standard application form, he answered no to the following question:

Have you or any of your family members ever consulted or been treated for high blood pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes, give details).1

The application was approved for a period of one year from March 1, 1988 to March 1, 1989. Accordingly, he was issued Health Care Agreement No. P010194. Under the agreement, respondent’s husband was entitled to avail of hospitalization benefits, whether ordinary or emergency, listed therein. He was also entitled to avail of "out-patient benefits" such as annual physical examinations, preventive health care and other out-patient services.

Upon the termination of the agreement, the same was extended for another year from March 1, 1989 to March 1, 1990, then from March 1, 1990 to June 1, 1990. The amount of coverage was increased to a maximum sum of P75,000.00 per disability.2

During the period of his coverage, Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for one month beginning March 9, 1990. While her husband was in the hospital, respondent tried to claim the benefits under the health care agreement. However, petitioner denied her claim saying that the Health Care Agreement was void. According to petitioner, there was a concealment regarding Ernani’s medical history. Doctors at the MMC allegedly discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and asthmatic, contrary to his answer in the application form. Thus, respondent paid the hospitalization expenses herself, amounting to about P76,000.00.

After her husband was discharged from the MMC, he was attended by a physical therapist at home. Later, he was admitted at the Chinese General Hospital. Due to financial difficulties, however, respondent brought her husband home again. In the morning of April 13, 1990, Ernani had fever and was feeling very weak. Respondent was constrained to bring him back to the Chinese General Hospital where he died on the same day.

On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch 44, an action for damages against petitioner and its president, Dr. Benito Reverente, which was docketed as Civil Case No. 90-53795. She asked for reimbursement of her expenses plus moral damages and attorney’s fees. After trial, the lower court ruled against petitioners, viz:

WHEREFORE, in view of the forgoing, the Court renders judgment in favor of the plaintiff Julita Trinos, ordering:

1. Defendants to pay and reimburse the medical and hospital coverage of the late Ernani Trinos in the amount of P76,000.00 plus interest, until the amount is fully paid to plaintiff who paid the same;

2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;

3. Defendants to pay the reduced amount of P10,000.00 as exemplary damages to plaintiff;

4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.

SO ORDERED.3

On appeal, the Court of Appeals affirmed the decision of the trial court but deleted all awards for damages and absolved petitioner Reverente.4 Petitioner’s motion for reconsideration was denied.5 Hence, petitioner brought the instant petition for review, raising the primary argument that a health care agreement is not an insurance contract; hence the "incontestability clause" under the Insurance Code6 does not apply.1âwphi1.nêt

Petitioner argues that the agreement grants "living benefits," such as medical check-ups and hospitalization which a member may immediately enjoy so long as he is alive upon effectivity of the agreement until its expiration one-year thereafter. Petitioner also points out that only medical and hospitalization benefits are given under the agreement without any indemnification, unlike in an insurance contract where the insured is indemnified for his loss. Moreover, since Health Care Agreements are only for a period of one year, as compared to insurance contracts which last longer,7 petitioner argues that the incontestability clause does not apply, as the same requires an effectivity period of at least two years. Petitioner further argues that it is not an insurance company, which is governed by the Insurance Commission, but a Health Maintenance Organization under the authority of the Department of Health.

Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. An insurance contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large group of persons bearing a similar risk; and

5. In consideration of the insurer’s promise, the insured pays a premium.8

Section 3 of the Insurance Code states that any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest against him, may be insured against. Every person has an insurable interest in the life and health of himself. Section 10 provides:

Every person has an insurable interest in the life and health:

(1) of himself, of his spouse and of his children;

(2) of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;

(3) of any person under a legal obligation to him for the payment of money, respecting property or service, of which death or illness might delay or prevent the performance; and

(4) of any person upon whose life any estate or interest vested in him depends.

In the case at bar, the insurable interest of respondent’s husband in obtaining the health care agreement was his own health. The health care agreement was in the nature of non-life insurance, which is primarily a contract of indemnity.9 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.

Petitioner argues that respondent’s husband concealed a material fact in his application. It appears that in the application for health coverage, petitioners required respondent’s husband to sign an express authorization for any person, organization or entity that has any record or knowledge of his health to furnish any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination.10 Specifically, the Health Care Agreement signed by respondent’s husband states:

We hereby declare and agree that all statement and answers contained herein and in any addendum annexed to this application are full, complete and true and bind all parties in interest under the Agreement herein applied for, that there shall be no contract of health care coverage unless and until an Agreement is issued on this application and the full Membership Fee according to the mode of payment applied for is actually paid during the lifetime and good health of proposed Members; that no information acquired by any Representative of PhilamCare shall be binding upon PhilamCare unless set out in writing in the application; that any physician is, by these presents, expressly authorized to disclose or give testimony at anytime relative to any information acquired by him in his professional capacity upon any question affecting the eligibility for health care coverage of the Proposed Members and that the acceptance of any Agreement issued on this application shall be a ratification of any correction in or addition to this application as stated in the space for Home Office Endorsement.11 (Underscoring ours)

In addition to the above condition, petitioner additionally required the applicant for authorization to inquire about the applicant’s medical history, thus:

I hereby authorize any person, organization, or entity that has any record or knowledge of my health and/or that of __________ to give to the PhilamCare Health Systems, Inc. any and all information relative to any hospitalization, consultation, treatment or any other medical advice or examination. This authorization is in connection with the application for health care coverage only. A photographic copy of this authorization shall be as valid as the original.12 (Underscoring ours)

Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which reads:

Failure to disclose or misrepresentation of any material information by the member in the application or medical examination, whether intentional or unintentional, shall automatically invalidate the Agreement from the very beginning and liability of Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or misrepresented information is deemed material if its revelation would have resulted in the declination of the applicant by Philamcare or the assessment of a higher Membership Fee for the benefit or benefits applied for.13

The answer assailed by petitioner was in response to the question relating to the medical history of the applicant. This largely depends on opinion rather than fact, especially coming from respondent’s husband who was not a medical doctor. Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceive will not avoid a policy even though they are untrue.14 Thus,

(A)lthough false, a representation of the expectation, intention, belief, opinion, or judgment of the insured will not avoid the policy if there is no actual fraud in inducing the acceptance of the risk, or its acceptance at a lower rate of premium, and this is likewise the rule although the statement is material to the risk, if the statement is obviously of the foregoing character, since in such case the insurer is not justified in relying upon such statement, but is obligated to make further inquiry. There is a clear distinction between such a case and one in which the insured is fraudulently and intentionally states to be true, as a matter of expectation or belief, that which he then knows, to be actually untrue, or the impossibility of which is shown by the facts within his knowledge, since in such case the intent to deceive the insurer is obvious and amounts to actual fraud.15 (Underscoring ours)

The fraudulent intent on the part of the insured must be established to warrant rescission of the insurance contract.16 Concealment as a defense for the health care provider or insurer to avoid liability is an affirmative defense and the duty to establish such defense by satisfactory and convincing evidence rests upon the provider or insurer. In any case, with or without the authority to investigate, petitioner is liable for claims made under the contract. Having assumed a responsibility under the agreement, petitioner is bound to answer the same to the extent agreed upon. In the end, the liability of the health care provider attaches once the member

is hospitalized for the disease or injury covered by the agreement or whenever he avails of the covered benefits which he has prepaid.

Under Section 27 of the Insurance Code, "a concealment entitles the injured party to rescind a contract of insurance." The right to rescind should be exercised previous to the commencement of an action on the contract.17 In this case, no rescission was made. Besides, the cancellation of health care agreements as in insurance policies require the concurrence of the following conditions:

1. Prior notice of cancellation to insured;

2. Notice must be based on the occurrence after effective date of the policy of one or more of the grounds mentioned;

3. Must be in writing, mailed or delivered to the insured at the address shown in the policy;

4. Must state the grounds relied upon provided in Section 64 of the Insurance Code and upon request of insured, to furnish facts on which cancellation is based.18

None of the above pre-conditions was fulfilled in this case. 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.19 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.20 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.21 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.22

Anent the incontestability of the membership of respondent’s husband, we quote with approval the following findings of the trial court:

(U)nder the title Claim procedures of expenses, the defendant Philamcare Health Systems Inc. had twelve months from the date of issuance of the Agreement within which to contest the membership of the patient if he had previous ailment of asthma, and six months from the issuance of the agreement if the patient was sick of diabetes or hypertension. The periods having expired, the defense of concealment or misrepresentation no longer lie.23

Finally, petitioner alleges that respondent was not the legal wife of the deceased member considering that at the time of their marriage, the deceased was previously married to another woman who was still alive. The health care agreement is in the nature of a contract of indemnity. Hence, payment should be made to the party who incurred the expenses. It is not controverted that respondent paid all the hospital and medical expenses. She is therefore entitled to reimbursement. The records adequately prove the expenses incurred by respondent for the deceased’s hospitalization, medication and the professional fees of the attending physicians.24

WHEREFORE, in view of the foregoing, the petition is DENIED. The assailed decision of the Court of Appeals dated December 14, 1995 is AFFIRMED.

SO ORDERED.

G.R. No. 137172 April 4, 2001

UCPB GENERAL INSURANCE CO., INC., petitioner,

vs.

MASAGANA TELAMART, INC., respondent.

R E S O L U T I O N

DAVIDE, JR., C.J.:

In our decision of 15 June 1999 in this case, we reversed and set aside the assailed decision 1 of the Court of Appeals, which affirmed with modification the judgment of the trial court (a) allowing Respondent to consign the sum of P225,753.95 as full payment of the premiums for the renewal of the five insurance policies on Respondent's properties; (b) declaring the replacement-renewal policies effective and binding from 22 May 1992 until 22 May 1993; and (c) ordering Petitioner to pay Respondent P18,645,000.00 as indemnity for the burned properties covered by the renewal-replacement policies. The modification consisted in the (1) deletion of the trial court's declaration that three of the policies were in force from August 1991 to August 1992; and (2) reduction of the award of the attorney's fees from 25% to 10% of the total amount due the Respondent.

The material operative facts upon which the appealed judgment was based are summarized by the Court of Appeals in its assailed decision as follows:

Plaintiff [herein Respondent] obtained from defendant [herein Petitioner] five (5) insurance policies (Exhibits "A" to "E", Record, pp. 158-175) on its properties [in Pasay City and Manila] . . . .

All five (5) policies reflect on their face the effectivity term: "from 4:00 P.M. of 22 May 1991 to 4:00 P.M. of 22 May 1992." On June 13, 1992, plaintiffs properties located at 2410-2432 and 2442-2450 Taft Avenue, Pasay City were razed by fire. On July 13, 1992, plaintiff tendered, and defendant accepted, five (5) Equitable Bank Manager's Checks in the total amount of P225,753.45 as renewal premium payments for which Official Receipt Direct Premium No. 62926 (Exhibit "Q", Record, p. 191) was issued by defendant. On July 14, 1992, Masagana made its formal demand for indemnification for the burned insured properties. On the same day, defendant returned the five (5) manager's checks stating in its letter (Exhibit "R" / "8", Record, p. 192) that it was rejecting Masagana's claim on the following grounds:

"a) Said policies expired last May 22, 1992 and were not renewed for another term;

b) Defendant had put plaintiff and its alleged broker on notice of non-renewal earlier; and

c) The properties covered by the said policies were burned in a fire that took place last June 13, 1992, or before tender of premium payment."

(Record, p. 5)

Hence Masagana filed this case.

The Court of Appeals disagreed with Petitioner's stand that Respondent's tender of payment of the premiums on 13 July 1992 did not result in the renewal of the policies, having been made beyond the effective date of renewal as provided under Policy Condition No. 26, which states:

26. Renewal Clause. — Unless the company at least forty five days in advance of the end of the policy period mails or delivers to the assured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the assured shall be entitled to renew the policy upon payment of the premium due on the effective date of renewal.

Both the Court of Appeals and the trial court found that sufficient proof exists that Respondent, which had procured insurance coverage from Petitioner for a number of years, had been granted a 60 to 90-day credit term for the renewal of the policies. Such a practice had existed up to the time the claims were filed. Thus:

Fire Insurance Policy No. 34658 covering May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid more than 90 days later on August 31, 1990 under O.R. No. 4771 (Exhs. "T" and "T-1"). Fire Insurance Policy No. 34660 for Insurance Risk Coverage from May 22, 1990 to May 22, 1991 was issued by UCPB on May 4, 1990 but premium was collected by UCPB only on July 13, 1990 or more than 60 days later under O.R. No. 46487 (Exhs. "V" and "V-1"). And so were as other policies: Fire Insurance Policy No. 34657 covering risks from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium therefor was paid only on July 19, 1990 under O.R. No. 46583 (Exhs. "W" and "W-1"). Fire Insurance Policy No. 34661 covering risks from May 22, 1990 to May 22, 1991 was issued on May 3, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46582 (Exhs. "X" and "X-1"). Fire Insurance Policy No. 34688 for insurance coverage from May 22, 1990 to May 22, 1991 was issued on May 7, 1990 but premium was paid only on July 19, 1990 under O.R. No. 46585 (Exhs. "Y" and "Y-1"). Fire Insurance Policy No. 29126 to cover insurance risks from May 22, 1989 to May 22, 1990 was issued on May 22, 1989 but premium therefor was collected only on July 25, 1990[sic] under O.R. No. 40799 (Exhs. "AA" and "AA-1"). Fire Insurance Policy No. HO/F-26408 covering risks from January 12, 1989 to January 12, 1990 was issued to Intratrade Phils. (Masagana's sister company) dated December 10, 1988 but premium therefor was paid only on February 15, 1989 under O.R. No. 38075 (Exhs. "BB" and "BB-1"). Fire Insurance Policy No. 29128 was issued on May 22, 1989 but premium was paid only on July 25, 1989 under O.R. No. 40800 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "CC" and "CC-1"). Fire Insurance Policy No. 29127 was issued on May 22, 1989 but premium was paid only on July 17, 1989 under O.R. No. 40682 for insurance risk coverage from May 22, 1989 to May 22, 1990 (Exhs. "DD" and "DD-1"). Fire Insurance Policy No. HO/F-29362 was issued on June 15, 1989 but premium was paid only on February 13, 1990 under O.R. No. 39233 for insurance coverage from May 22, 1989 to May 22, 1990 (Exhs. "EE" and "EE-1"). Fire Insurance Policy No. 26303 was issued on November 22, 1988 but premium therefor was collected only on March 15, 1989 under O.R. NO. 38573 for insurance risks coverage from December 15, 1988 to December 15, 1989 (Exhs. "FF" and "FF-1").

Moreover, according to the Court of Appeals the following circumstances constitute preponderant proof that no timely notice of non-renewal was made by Petitioner:

(1) Defendant-appellant received the confirmation (Exhibit "11", Record, p. 350) from Ultramar Reinsurance Brokers that plaintiff's reinsurance facility had been confirmed up to 67.5% only on April 15, 1992 as indicated on Exhibit "11". Apparently, the notice of non-renewal (Exhibit "7," Record, p. 320) was sent not earlier than said date, or within 45 days from the expiry dates of the policies as provided under Policy Condition No. 26; (2) Defendant insurer unconditionally accepted, and issued an official receipt for, the premium payment on July 1[3], 1992 which indicates defendant's willingness to assume the risk despite only a 67.5% reinsurance cover[age]; and (3) Defendant insurer appointed Esteban Adjusters and Valuers to investigate plaintiff's claim as shown by the letter dated July 17, 1992 (Exhibit "11", Record, p. 254).

In our decision of 15 June 1999, we defined the main issue to be "whether the fire insurance policies issued by petitioner to the respondent covering the period from May 22, 1991 to May 22, 1992 . . . had been extended or renewed by an implied credit arrangement though actual payment of premium was tendered on a later date and after the occurrence of the (fire) risk insured against." We resolved this issue in the negative in view of Section 77 of the Insurance Code and our decisions in Valenzuela v. Court of Appeals; 2 South Sea Surety and Insurance Co., Inc. v. Court of Appeals; 3 and Tibay v. Court of Appeals. 4 Accordingly, we reversed and set aside the decision of the Court of Appeals.

Respondent seasonably filed a motion for the reconsideration of the adverse verdict. It alleges in the motion that we had made in the decision our own findings of facts, which are not in accord with those of the trial court and the Court of Appeals. The courts below correctly found that no notice of non-

renewal was made within 45 days before 22 May 1992, or before the expiration date of the fire insurance policies. Thus, the policies in question were renewed by operation of law and were effective and valid on 30 June 1992 when the fire occurred, since the premiums were paid within the 60- to 90-day credit term.

Respondent likewise disagrees with our ruling that parties may neither agree expressly or impliedly on the extension of credit or time to pay the premium nor consider a policy binding before actual payment. It urges the Court to take judicial notice of the fact that despite the express provision of Section 77 of the Insurance Code, extension of credit terms in premium payment has been the prevalent practice in the insurance industry. Most insurance companies, including Petitioner, extend credit terms because Section 77 of the Insurance Code is not a prohibitive injunction but is merely designed for the protection of the parties to an insurance contract. The Code itself, in Section 78, authorizes the validity of a policy notwithstanding non-payment of premiums.

Respondent also asserts that the principle of estoppel applies to Petitioner. Despite its awareness of Section 77 Petitioner persuaded and induced Respondent to believe that payment of premium on the 60- to 90-day credit term was perfectly alright; in fact it accepted payments within 60 to 90 days after the due dates. By extending credit and habitually accepting payments 60 to 90 days from the effective dates of the policies, it has implicitly agreed to modify the tenor of the insurance policy and in effect waived the provision therein that it would pay only for the loss or damage in case the same occurred after payment of the premium.

Petitioner filed an opposition to the Respondent's motion for reconsideration. It argues that both the trial court and the Court of Appeals overlooked the fact that on 6 April 1992 Petitioner sent by ordinary mail to Respondent a notice of non-renewal and sent by personal delivery a copy thereof to Respondent's broker, Zuellig. Both courts likewise ignored the fact that Respondent was fully aware of the notice of non-renewal. A reading of Section 66 of the Insurance Code readily shows that in order for an insured to be entitled to a renewal of a non-life policy, payment of the premium due on the effective date of renewal should first be made. Respondent's argument that Section 77 is not a prohibitive provision finds no authoritative support.

Upon a meticulous review of the records and reevaluation of the issues raised in the motion for reconsideration and the pleadings filed thereafter by the parties, we resolved to grant the motion for reconsideration. The following facts, as found by the trial court and the Court of Appeals, are indeed duly established:

1. For years, Petitioner had been issuing fire policies to the Respondent, and these policies were annually renewed.

2. Petitioner had been granting Respondent a 60- to 90-day credit term within which to pay the premiums on the renewed policies.

3. There was no valid notice of non-renewal of the policies in question, as there is no proof at all that the notice sent by ordinary mail was received by Respondent, and the copy thereof allegedly sent to Zuellig was ever transmitted to Respondent.

4. The premiums for the policies in question in the aggregate amount of P225,753.95 were paid by Respondent within the 60- to 90-day credit term and were duly accepted and received by Petitioner's cashier.

The instant case has to rise or fall on the core issue of whether Section 77 of the Insurance Code of 1978 (P.D. No. 1460) must be strictly applied to Petitioner's advantage despite its practice of granting a 60- to 90-day credit term for the payment of premiums.

Section 77 of the Insurance Code of 1978 provides:

SECTION 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.

This Section is a reproduction of Section 77 of P.D. No. 612 (The Insurance Code) promulgated on 18 December 1974. In turn, this Section has its source in Section 72 of Act No. 2427 otherwise known as the Insurance Act as amended by R.A. No. 3540, approved on 21 June 1963, which read:

SECTION 72. An insurer is entitled to payment of premium as soon as the thing insured is exposed to the peril insured against, unless there is clear agreement to grant the insured credit extension of the premium due. No policy issued by an insurance company is valid and binding unless and until the premium thereof has been paid. (Italic supplied)

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:

SECTION 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, 5 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:

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:

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 does 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.

Moreover, there is nothing in Section 77 which prohibits the parties in an insurance contract to provide a credit term within which to pay the premiums. That agreement is not against the law, morals, good customs, public order or public policy. The agreement binds the parties. Article 1306 of the Civil Code provides:

ARTICLE 1306. The contracting parties may establish such stipulations clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

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.

WHEREFORE, the Decision in this case of 15 June 1999 is RECONSIDERED and SET ASIDE, and a new one is hereby entered DENYING the instant petition for failure of Petitioner to sufficiently show that a reversible error was committed by the Court of Appeals in its challenged decision, which is hereby AFFIRMED in toto.

No pronouncement as to cost.

SO ORDERED.

G.R. No. 127897      November 15, 2001

DELSAN TRANSPORT LINES, INC., petitioner, vs.THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents.

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution2 dated January 21, 1997 which denied the subsequent motion for reconsideration.

The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Assurance Corporation.

On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.

Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex.1âwphi1.nêt

Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial and upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990 dismissing the complaint against herein petitioner without pronouncement as to cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection during its annual dry-docking and that the incident was caused by unexpected inclement weather condition or force majeure, thus exempting the common carrier (herein petitioner) from liability for the loss of its cargo.3

The decision of the trial court, however, was reversed, on appeal, by the Court of Appeals. The appellate court gave credence to the weather report issued by the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA for brevity) which showed that from 2:00 o’clock to 8:oo o’clock in the morning on August 16, 1986, the wind speed remained at 10 to 20 knots per hour while the waves measured from .7 to two (2) meters in height only in the vicinity of the Panay Gulf where the subject vessel sank, in contrast to herein petitioner’s allegation that the waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common carrier4 to herein private respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of herein petitioner was denied by the appellate court.

Petitioner raised the following assignments of error in support of the instant petition,5 to wit:

I

THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL COURT.

II

THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.

III

THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT OF APPEALS.

Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any thin which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latter’s breach of implied warranty under the marine insurance policy that the vessel was seaworthy.

The petitioner also alleges that the Court of Appeals erred in ruling that MT Maysun was not seaworthy on the ground that the marine officer who served as the chief mate of the vessel, Francisco Berina, was allegedly not qualified. Under Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to the vessel’s complement. Besides, petitioner avers that although Berina had merely a 2nd officer’s license, he was qualified to act as the vessel’s chief officer under Chapter IV(403), Category III(a)(3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations. In fact, all the crew and officers of MT Maysun were exonerated in the administrative investigation conducted by the Board of Marine Inquiry after the subject accident.6

In any event, petitioner further avers that private respondent failed, for unknown reason, to present in evidence during the trial of the instant case the subject marine cargo insurance policy it entered into with Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. CA,7 the failure of the private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto.

Hence, the legal issues posed before the Court are:

I

Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner.

II

Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action.

We rule in the negative on both issues.

The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its (private respondent) right to enforce the term of the implied warranty against Caltex under the marine insurance policy. However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory

right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.8 Article 2207 of the New civil Code provides that:

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

The right of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice and good conscience ought to pay.9 It is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment by the insurance company of the insurance claim.10 Consequently, the payment made by the private respondent (insurer) to Caltex (assured) operates as an equitable assignment to the former of all the remedies which the latter may have against the petitioner.

From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by them, according to all the circumstance of each case.11 In the event of loss, destruction or deterioration of the insured goods, common carriers shall be responsible unless the same is brought about, among others, by flood, storm, earthquake, lightning or other natural disaster or calamity.12 In all other cases, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.13

In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of Jaime Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a sudden and unexpected change of weather condition occurred in the early morning of August 16, 1986; that at around 3:15 o’clock in the morning a squall ("unos") carrying strong winds with an approximate velocity of 30 knots per hour and big waves averaging eighteen (18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo.14 This tale of strong winds and big waves by the said officers of the petitioner however, was effectively rebutted and belied by the weather report15 from the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA), the independent government agency charged with monitoring weather and sea conditions, showing that from 2:00 o’clock to 8:00 o’clock in the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20) knots per hour while the height of the waves ranged from .7 to two (2) meters in the vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus, as the appellate court correctly ruled, petitioner’s vessel, MT Maysun, sank with its entire cargo for the reason that it was not seaworthy. There was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank.

The appellate court also correctly opined that the petitioner’s witnesses, Jaime Jarabe and Francisco Berina, ship captain and chief mate, respectively, of the said vessel, could not be expected to testify against the interest of their employer, the herein petitioner common carrier.

Neither may petitioner escape liability by presenting in evidence certificates16 that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of appeals:

At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued, however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of certificates issued in this regard, authorities are likewise clear as to their probative value, (thus):

Seaworthiness relates to a vessel’s actual condition. Neither the granting of classification or the issuance of certificates established seaworthiness. (2-A Benedict on Admiralty, 7-3, Sec. 62).

And also:

Authorities are clear that diligence in securing certificates of seaworthiness does not satisfy the vessel owner’s obligation. Also securing the approval of the shipper of the cargo, or his surveyor, of the condition of the vessel or her stowage does not establish due diligence if the vessel was in fact unseaworthy, for the cargo owner has no obligation in relation to seaworthiness. (Ibid.)17

Additionally, the exoneration of MT Maysun’s officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts.18 In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier19 occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit.

Anent the second issue, it is our view and so hold that the presentation in evidence of the marine insurance policy is not indispensable in this case before the insurer may recover from the common carrier the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.20

The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurer’s liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.

Hence, our ruling on the presentation of the insurance policy in the said case of Home Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt that the cargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while on board petitioner’s vessel, MT Maysun, which sank while in transit in the vicinity of Panay Gulf and Cuyo East Pass in the early morning of August 16, 1986.

WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.

SO ORDERED.1âwphi1.nêt

Lawyer’s Oath

I, do solemnly swear that I will maintain allegiance to the Republic of the Philippines, I will support the Constitution and obey the laws as well as the legal orders of the duly constituted authorities therein; I will do no falsehood, nor consent to the doing of any in court; I will not wittingly or willingly promote or sue any groundless, false or unlawful suit, or give aid nor consent to the same; I will delay no man for money or malice, and will conduct myself as a lawyer according to the best of my knowledge and discretion, with all good fidelity as well to the courts as to my clients; and I impose upon myself these voluntary obligations without any mental reservation or purpose of evasion. So help me God.