Delsan Transport lines, Inc vs. CA, 369 SCRA 24

D E C I S I O N

DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision[1] of the Court of Appeals in CA-G.R. CV No. 39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City, Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution[2] 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 Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Assurance Corporation.

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

Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) 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.

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 Maysun, 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 oclock to 8:00 oclock 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 petitioners allegation that the waves were twenty (20) feet high. In the absence of any explanation as to what may have caused the sinking of the vessel coupled with the finding that the same was improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common carrier[4] to herein private respondent insurance company as subrogee of Caltex. The subsequent motion for reconsideration of herein 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 thing 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 latters 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 vessels complement. Besides, petitioner avers that although Berina had merely a 2nd officers license, he was qualified to act as the vessels 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 vessels seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.[8] Article 2207 of the New Civil Code provides that:

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

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

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

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

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

Neither may petitioner escape liability by presenting in evidence certificates[16] that tend to show that at the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel at the time of the commencement of the voyage. As correctly observed by the Court of appeals:

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

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

And also:

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

Additionally, the exoneration of MT Maysuns officers and crew by the Board of Marine Inquiry merely concerns their respective administrative liabilities. It does not in any way operate to absolve the petitioner common carrier from its civil liability arising from its failure to observe extraordinary diligence in the vigilance over the goods it was transporting and for the negligent acts or omissions of its employees, the determination of which properly belongs to the courts.[18] In the case at bar, petitioner is liable for the insured value of the lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common carrier[19] occasioned by the unexplained sinking of its vessel, MT Maysun, while in transit.

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

The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA[21] (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through several stages with different parties involved in each stage. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. The insurance contract, which was not presented in evidence in that case would have indicated the scope of the insurers liability, if any, since no evidence was adduced indicating at what stage in the handling process the damage to the cargo was sustained.

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

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

SO ORDERED.

(PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER, respondents., G.R. No. 81026, 1990 April 03, 3rd Division)

D E C I S I O N

CORTES, J.:

Petitioner Pan Malayan Insurance Company (PANMALAY) seeks the reversal of a decision of the Court of Appeals which upheld an order of the trial court dismissing for no cause of action PANMALAY's complaint for damages against private respondents Erlinda Fabie and her driver.

The principal issue presented for resolution before this Court is whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its assured in settlement of an insurance claim against private respondents as the parties allegedly responsible for the damage caused to the insured vehicle.

On December 10, 1985, PANMALAY filed a complaint for damages with the RTC of Makati against private respondents Erlinda Fabie and her driver.

PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. DDZ-431 and registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26, 1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and refused to pay the claim of PANMALAY.

Private respondents, thereafter, filed a Motion for Bill of Particulars and a supplemental motion thereto. In compliance therewith, PANMALAY clarified, among others, that the damage caused to the insured car was settled under the "own damage" coverage of the insurance policy, and that the driver of the insured car was, at the time of the accident, an authorized driver duly licensed to drive the vehicle. PANMALAY also submitted a copy of the insurance policy and the Release of Claim and Subrogation Receipt executed by CANLUBANG in favor of PANMALAY.

On February 12, 1986, private respondents filed a Motion to Dismiss alleging that PANMALAY had no cause of action against them. They argued that payment under the "own damage" clause of the insurance policy precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder was made on the assumption that there was no wrongdoer or no third party at fault.

After hearings conducted on the motion, opposition thereto, reply and rejoinder, the RTC issued an order dated June 16, 1986 dismissing PANMALAY's complaint for no cause of action. On August 19, 1986, the RTC denied PANMALAY's motion for reconsideration.

On appeal taken by PANMALAY, these orders were upheld by the Court of Appeals on November 27, 1987. Consequently, PANMALAY filed the present petition for review.

After private respondents filed its comment to the petition, and petitioner filed its reply, the Court considered the issues joined and the case submitted for decision.

Deliberating on the various arguments adduced in the pleadings, the Court finds merit in the petition.

PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. PANMALAY contended, therefore, that its cause of action against private respondents was anchored upon Article 2207 of the Civil Code, which reads:

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 . . .

PANMALAY is correct.

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

There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of subrogation is defeated [Phoenix Ins. Co. of Brooklyn v. Erie & Western Transport, Co., 117 US 312, 29 L. Ed. 873 (1886); Insurance Company of North America v. Elgin, Joliet & Eastern Railway Co., 229 F 2d 705 (1956)]. Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured's claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation [McCarthy v. Barber Steamship Lines, Inc., 45 Phil. 488 (1923)]. And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former has no right of subrogation against the third party liable for the loss [Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, G.R. No. L-22146, September 5, 1967, 21 SCRA 12].

None of the exceptions are availing in the present case.

The lower court and Court of Appeals, however, were of the opinion that PANMALAY was not legally subrogated under Article 2207 of the Civil Code to the rights of CANLUBANG, and therefore did not have any cause of action against private respondents. On the one hand, the trial court held that payment by PANMALAY of CANLUBANG's claim under the "own damage" clause of the insurance policy was an admission by the insurer that the damage was caused by the assured and/or its representatives. On the other hand, the Court of Appeals in applying the ejusdem generis rule held that Section III-1 of the policy, which was the basis for settlement of CANLUBANG's claim, did not cover damage arising from collision or overturning due to the negligence of third parties as one of the insurable risks. Both tribunals concluded that PANMALAY could not now invoke Article 2207 and claim reimbursement from private respondents as alleged wrongdoers or parties responsible for the damage.

The above conclusion is without merit.

It must be emphasized that the lower court's ruling that the "own damage" coverage under the policy implies damage to the insured car caused by the assured itself, instead of third parties, proceeds from an incorrect comprehension of the phrase "own damage" as used by the insurer. When PANMALAY utilized the phrase "own damage" a phrase which, incidentally, is not found in the insurance policy to define the basis for its settlement of CANLUBANG's claim under the policy, it simply meant that it had assumed to reimburse the costs for repairing the damage to the insured vehicle [See PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, p. 1; Record, p. 31]. It is in this sense that the so-called "own damage" coverage under Section III of the insurance policy is differentiated from Sections I and IV-1 which refer to "Third Party Liability" coverage (liabilities arising from the death of, or bodily injuries suffered by, third parties) and from Section IV-2 which refer to "Property Damage" coverage (liabilities arising from damage caused by the insured vehicle to the properties of third parties).

Neither is there merit in the Court of Appeals' ruling that the coverage of insured risks under Section III-1 of the policy does not include damage to the insured vehicle arising from collision or overturning due to the negligent acts of a third party. Not only does it stem from an erroneous interpretation of the provisions of the section, but it also violates a fundamental rule on the interpretation of property insurance contracts.

It is a basic rule in the interpretation of contracts that the terms of a contract are to be construed according to the sense and meaning of the terms which the parties thereto have used. In the case of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the assured, determine the import of the various terms and provisions embodied in the policy. It is only when the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will be construed by the courts liberally in favor of the assured and strictly against the insurer [Union Manufacturing Co., Inc. v. Philippine Guaranty Co., Inc., G.R. No. L-27932, October 30, 1972, 47 SCRA 271; National Power Corporation v. Court of Appeals, G.R. No. L-43706, November 14, 1986, 145 SCRA 533; Pacific Banking Corporation v. Court of Appeals, G.R. No. L-41014, November 28, 1988, 168 SCRA 1. Also Articles 1370-1378 of the Civil Code].

Section III-1 of the insurance policy which refers to the conditions under which the insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage to or loss of the insured vehicle, reads as follows:

SECTION III LOSS OR DAMAGE.

1. The Company will, subject to the Limits of Liability, indemnify the Insured against loss of or damage to the Scheduled Vehicle and its accessories and spare parts whilst thereon:

(a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear;

(b) by fire, external explosion, self ignition or lightning or burglary, housebreaking or theft;

(c) by malicious act;

(d) whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail, inland, water-way, lift or elevator.

xxx xxx xxx

[Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars; Record, p. 34].

PANMALAY contends that the coverage of insured risks under the above section, specifically Section III-1(a), is comprehensive enough to include damage to the insured vehicle arising from collision or overturning due to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. Based on a police report wherein the driver of the insured car reported that after the vehicle was sideswiped by a pick-up, the driver thereof fled the scene [Record, p. 20], CANLUBANG filed its claim with PANMALAY for indemnification of the damage caused to its car. It then accepted payment from PANMALAY, and executed a Release of Claim and Subrogation Receipt in favor of latter.

Considering that the very parties to the policy were not shown to be in disagreement regarding the meaning and coverage of Section III-1, specifically sub-paragraph (a) thereof, it was improper for the appellate court to indulge in contract construction, to apply the ejusdem generis rule, and to ascribe meaning contrary to the clear intention and understanding of these parties.

It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or overturning" found in the first part of sub-paragraph (a) is untenable. Although the terms "accident" or "accidental" as used in insurance contracts have not acquired a technical meaning, the Court has on several occasions defined these terms to mean that which takes place "without one's foresight or expectation, an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected" [De la Cruz v. The Capital Insurance & Surety Co., Inc., G.R. No. L-21574, June 30, 1966, 17 SCRA 559; Filipino Merchants Insurance Co., Inc. v. Court of Appeals, G.R. No. 85141, November 28, 1989]. Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties. The concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man.

Moreover, a perusal of the provisions of the insurance policy reveals that damage to, or loss of, the insured vehicle due to negligent or careless acts of third parties is not listed under the general and specific exceptions to the coverage of insured risks which are enumerated in detail in the insurance policy itself [See Annex "A-1" of PANMALAY's Compliance with Supplementary Motion for Bill of Particulars, supra.]

The Court, furthermore, finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section III-1(a) of the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein. By arguing that this section covers losses or damages due not only to malicious, but also to negligent acts of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity or payment [See Calanoc v. Court of Appeals, 98 Phil. 79 (1955); Del Rosario v. The Equitable Insurance and Casualty Co., Inc., G.R. No. L-16215, June 29, 1963, 8 SCRA 343; Serrano v. Court of Appeals, G.R. No. L-35529, July 16, 1984, 130 SCRA 327].

Parenthetically, even assuming for the sake of argument that Section III-1(a)of the insurance policy does not cover damage to the insured vehicle caused by negligent acts of third parties, and that PANMALAY's settlement of CANLUBANG's claim for damages allegedly arising from a collision due to private respondents' negligence would amount to unwarranted or "voluntary payment", dismissal of PANMALAY's complaint against private respondents for no cause of action would still be a grave error of law.

For even if under the above circumstances PANMALAY could not be deemed subrogated to the rights of its assured under Article 2207 of the Civil Code, PANMALAY would still have a cause of action against private respondents. In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra., the Court ruled that the insurer who may have no rights of subrogation due to "voluntary" payment may nevertheless recover from the third party responsible for the damage to the insured property under Article 1236 of the Civil Code.

In conclusion, it must be reiterated that in this present case, the insurer PANMALAY as subrogee merely prays that it be allowed to institute an action to recover from third parties who allegedly caused damage to the insured vehicle, the amount which it had paid its assured under the insurance policy. Having thus shown from the above discussion that PANMALAY has a cause of action against third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that there is no legal obstacle to the filing by PANMALAY of a complaint for damages against private respondents as the third parties allegedly responsible for the damage. Respondent Court of Appeals therefore committed reversible error in sustaining the lower court's order which dismissed PANMALAY's complaint against private respondents for no cause of action. Hence, it is now for the trial court to determine if in fact the damage caused to the insured vehicle was due to the "carelessness, recklessness and imprudence" of the driver of private respondent Erlinda Fabie.

WHEREFORE, in view of the foregoing, the present petition is GRANTED.

Petitioner's complaint for damages against private respondents is hereby REINSTATED. Let the case be remanded to the lower court for trial on the merits.

SO ORDERED.

([2004V926] FEDERAL EXPRESS CORPORATION, Petitioner, vs. AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., Respondents., G.R. No. 150094, 2004 Aug 18, 3rd Division)

DECISION

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.

___________________________

* On leave.

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 petitioners 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 clients cargoes.

"On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes arrived in Manila, a non-licensed customs 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. Attorneys 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 petitioners 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 - petitioners 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 Courts 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 insurers 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 insurers 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, petitioners 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. -- petitioners 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.

([1967V374E] SVERIGES ANGFARTYGS ASSURANS FORENING, plaintiff-appellant, vs. QUA CHEE GAN, defendant-appellee., G.R. No. L-22146, 1967 Sep 5, En Banc)

D E C I S I O N

BENGZON, J.P., J.:

On August 23 and 24, 1947, defendant Qua Chee Gan, a sole proprietorship, shipped on board the S.S. NAGARA, as per bills of lading Exhs. A and B 2,032,000 kilos of bulk copra at Siain, Quezon, consigned to DAL International Trading Co., in Gdynia, Poland. The vessel first called at the port of Karlshamn, Sweden, where it unloaded 696,419 kilos of bulk copra. Then, it proceeded to Gdynia where it unloaded the remaining copra shipment. The actual outturn weights in the latter port showed that only 1,569,429 kilos were discharged.Because of the alleged confirmed cargo shortage, the Polish cargo insurers had to indemnify the consignee for the value thereof. Thereafter, the former sued the shipowner, the Swedish East Asia Company, in Gothenburg, Sweden. The latter, in turn, sued defendant and had it summoned to Gothenburg. Defendant However refused to submit to that court's jurisdiction and its objection was sustained.In March, 1951, a settlement was effected between the Polish cargo insurers and the shipowner. Plaintiff, as the indemnity insurer for the latter, paid approximately $60,733.53 to the Polish insurers. On August 16, 1954, claiming to have been subrogated to the rights of the carrier, plaintiff sued defendant before the Court of First Instance of Manila to recover U.S. $60,733.53 plus 17% exchange tax, with legal interest, as the value of the alleged cargo shortshipment, and P10,000 as attorney's fees. Defendant answered in due time and countered with a P15,000 counterclaim for attorney's fees.On August 1, 1955, defendant filed a motion to dismiss on the ground of prescription under the Carriage of Goods by Sea Act. The lower court sustained the motion and plaintiff appealed here. We reversed the order of dismissal and remanded the case for further proceedings. 1 After trial, the lower court on September 28, 1963, rendered its decision dismissing the complaint and awarding P10,000 as attorney's fees to defendant. It ruled (a) that there was no short shipment on defendant's part; (b) that plaintiff's insurance policy did not cover the short shipment, and (c) defendant was merely acting as an agent of Louis Dreyfus & Co., who was the real shipper.Taking issue with all the foregoing, plaintiff has interposed the present appeal to Us on questions of fact and law, the amount involved exceeding P200,000.00.Was the non-presentation of the insurance policy fatal to plaintiff's case? The lower court ruled so, reasoning that unless the same as the best evidence were presented, it could not be conclusively determined if "liability for shortshipment" was a covered risk. And the rule is that an insurer who pays the insured for loss or liability not covered by the policy is not subrogated to the latter. 2 However, even assuming that there was unwarranted or "volunteer" payment, plaintiff could still recover what it paid in effect to the carrier from defendant shipper under Art. 1236 of the Civil Code which allows a third person who pays on behalf of another to recover from the latter, although there is no subrogation. But since the payment here was without the knowledge and consent of defendant, plaintiff's right of recovery is defeasible by the former's defenses since the Code is clear that the recovery is only up to the amount by which the defendant was benefited.This brings Us to the crux of the case: Was there a shortshipment? To support its case, plaintiff theorizes that defendant had two shipments at Siain, Quezon province: (1) 812,800 kilos for Karlshamn and (2) 2,032,000 kilos for Gdynia. The Karlshamn shipment was asserted to have been covered by a separate bill of lading which however was allegedly lost subsequently. Thus, the 696, 419 kilos of copra unloaded in Karlshamn was not part of the Gdynia shipment and cannot explain the confirmed shortage at the latter port.Plaintiff's cause of action suffers from several fatal defects and inconsistencies. The alleged shipment of 812,800 kilos for Karlshamn is contradicted by plaintiff's admission in paragraphs 2 and 3 of its complaint that defendant shipped only 2,032,00 kilos of copra at Siain, purportedly for both Gydnia and Karlshamn. 3 Needless to state, plaintiff is bound by such judicial admission. 4 Moreover, the alleged existence of the Karlshamn bills of lading is negative by the fact that Exhibits A and B the bills of lading presented by plaintiff show that the 2,032,000 kilos of copra loaded in Siain were for Gydnia only. Further destroying its case is the testimony of plaintiff's own witness, Mr. Claro Pasicolan, who on direct examination affirmed 5 that these two exhibits constituted the complete set of documents which the shipping agent in charge of the vessel S.S. NAGARA issued covering the copra cargo loaded at Siain. In view of this admission and for want of evident support, plaintiffs belated claim that there is another complete set of documents can not be seriously taken.Lastly, if there really was a separate bill of lading for the Karlshamn shipment, plaintiff could not have failed to present a copy thereof. Mr. Pasicolan testified 6 that the shipping agent makes 20 copies of the documents of which three signed ones are given to the shipper and the rest, marked as non-negotiable bills of lading like Exhibits A and B are kept on its file. For the three signed copies to be lost, We may believe, but not for all the remaining 17 others copies. Under the circumstances, it is more reasonable to hold that there was no separate shipment intended for Karlshamn, Sweden.As a corollary to the foregoing conclusion, it stands to reason that the copra unloaded in Karlshamn formed part of the same and only shipment of defendant intended for Gdynia. Now the fact that the sum total of the cargo unloaded at Karlshamn and Gdynia would exceed what appears to have been loaded at Siain by as much as 233,848 kilos can only show that defendant really overshipped, not shortshipped. And while this would not tally with defendant's claim of having weighed the copra cargo 1000 at Siain, thus exposing a flaw in defendant's case, yet it is elementary that plaintiff must rely on the strength of its own case to recover, and not bank on the weakness of the defense. Plaintiff here failed to establish its case by preponderance on evidence.On the question whether defendant is the real shipper or merely an agent of Louis Dreyfus & Co., suffice it to say that altho on Exhibits A and B his name appears as the shipper, yet the very loading certificate, Exhibit 3 [5-Deposition of Horle], issued and signed by the Chief Mate and Master of the S.S. NAGARA shows that defendant was acting merely for account of Louis Dreyfus & Co. The other documentary exhibits 7 confirm this. Anyway, in whatever capacity defendant is considered, it cannot be liable since no shortshipment was shown.Plaintiff's action against defendant cannot, however, be considered as clearly unfounded as to warrant an award of attorney's fees as damages to defendant under par. 4, Art. 2208 of the Civil Code. The facts do not show that plaintiff's cause of action was so frivolous or untenable as to amount to gross and evident bad faith. 8 WHEREFORE, but for the award of attorney's fees to defendant which is eliminated, the decision appealed from is, in all other respects, hereby affirmed. Costs against plaintiff-appellant. So ordered.Concepcion, C.J., Reyes, J.B.L,, Dizon, Makalintal, Zaldivar, Sanchez, Ruiz Castro, Angeles and Fernando, JJ., concur.

(ST. PAUL FIRE & MARINE INSURANCE CO., plaintiff-appellant, vs. MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN, MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY, defendants-appellees., G.R. No. L-27796, 1976 March 25, 2nd Division)

D E C I S I O N

ANTONIO, J:

Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, 1 on the ground that the appeal involves purely questions of law, thus: (a) whether or not, in case of loss or damage, the liability of the carrier to the consignee is limited to the C.I.F. value of the goods which were lost or damaged, and (b) whether the insurer who has paid the claim in dollars to the consignee should be reimbursed in its peso equivalent on the date of discharge of the cargo or on the date of the decision.

According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York, U.S.A., shipped aboard the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen, 218 cartons and drums of drugs and medicine, with the freight prepaid, which were consigned to Winthrop-Steams, Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment was insured by the shipper against loss and/or damage with the St. Paul Fire & Marine Insurance Company under its insurance Special Policy No. OC-173766 dated June 23, 1960 (Exhibit "S").

On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid shipment into the custody of Manila Port Service, the arrastre contractor for the Port of Manila. The said shipment was discharged complete and in good order with the exception of one (1) drum and several cartons which were in bad order condition. Because consignee failed to receive the whole shipment and as several cartons of medicine were received in bad order condition, the consignee filed the corresponding claim in the amount of P1,109.67 representing the C.I.F. value of the damaged drum and cartons of medicine with the carrier, herein defendants-appellees (Exhibits "G" and "H") and the Manila Port Service (Exhibits "I" & "J"). However, both refused to pay such claim. Consequently, the consignee filed its claim with the insurer, St. Paul Fire & Marine Insurance Co. (Exhibit "N"), and the insurance company, on the basis of such claim, paid to the consignee the insured value of the lost and damaged goods, including other expenses in connection therewith, in the total amount of $1,134.46 U.S. currency (Exhibit "U").

On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire & Marine Insurance Co., instituted with the Court of First Instance of Manila the present action 2 against the defendants for the recovery of said amount of $1,134.46, plus costs.

On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company resisted the action, contending, among others, that the whole cargo was delivered to the consignee in the same condition in which it was received from the carrying vessel; that their rights, duties and obligations as arrastre contractor at the Port of Manila are governed by and subject to the terms, conditions and limitations contained in the Management Contract between the Bureau of Customs and Manila Port Service, and their liability is limited to the invoice value of the goods, but in no case more than P500.00 per package, pursuant to paragraph 15 of the said Management Contract; and that they are not the agents of the carrying vessel in the receipt and delivery of cargoes in the Port of Manila.

On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen also contested the claim alleging, among others, that the carrier's liability for the shipment ceased upon discharge thereof from the ship's tackle; that they and their co-defendant Manila Port Service are not the agents of the vessel; that the said 218 packages were discharged from the vessel SS "Tai Ping" into the custody of defendant Manila Port Service as operator of the arrastre service for the Port of Manila; that if any damage was sustained by the shipment while it was under the control of the vessel, such damage was caused by insufficiency of packing, force majeure and/or perils of the sea; and that they, in good faith and for the purpose only of avoiding litigation without admitting liability to the consignee, offered to settle the latter's claim in full by paying the C.I.F. value of 27 lbs. caramel, 4.13 kilos methyl salicylate and 12 pieces pharmaceutical vials of the shipment, but their offer was declined by the consignee and/or the plaintiff.

After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the plaintiff, jointly and severally, the sum of P300.00, with legal interest thereon from the filing of the complaint until fully paid, and defendants Manila Railroad Company and Manila Port Service to pay to plaintiff, jointly and severally, the sum of P809.67, with legal interest thereon from the filing of the complaint until fully paid, the costs to be borne by all the said defendants. 3 On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its equivalent in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for reconsideration, but this was denied by the lower court on May 5, 1965. Hence, the present appeal.

Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover from the defendants-appellees the amount of $1,134.46 which it actually paid to the consignee (Exhibits "N" & "U") and which represents the value of the lost and damaged shipment as well as other legitimate expenses such as the duties and cost of survey of said shipment, and that the exchange rate on the date of the judgment, which was P3.90 for every US$1.00, should have been applied by the lower court.

Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods, pursuant to contract of sea carriage embodied in the bill of lading; that the consignee's (Winthrop-Steams, Inc.) claim against the carrier (Macondray & Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen) and the arrastre operators (Manila Port Service and Manila Railroad Company) was only for the sum of P1,109.67 (Exhibits "G", "H", "I" & "J"), representing the C.I.F. value of the loss and damage sustained by the shipment which was the amount awarded by the lower court to the plaintiff-appellant; 4 defendants appellees are not insurers of the goods and as such they should not be made to pay the insured value therefor; the obligation of the defendants-appellees was established as of the date of discharge, hence the rate of exchange should be based on the rate existing on that date, i.e., August 7, 1960, 5 and not the value of the currency at the time the lower court rendered its decision on March 10, 1965.

The appeal is without merit.

The purpose of the bill of lading is to provide for the rights and liabilities of the parties in reference to the contract to carry. 6 The stipulation in the bill of lading limiting the common carrier's liability to the value of the goods appearing in the bill, unless the shipper or owner declares a greater value, is valid and binding. 7 This limitation of the carrier's liability is sanctioned by the freedom of the contracting parties to establish such stipulations, clauses, terms, or conditions as they may deem convenient, provided they are not contrary to law, morals, good customs and public policy. 8 A stipulation fixing or limiting the sum that may be recovered from the carrier on the loss or deterioration of the goods is valid, provided it is (a) reasonable and just under the circumstances, 9 and (b) has been fairly and freely agreed upon. 10 In the case at bar, the liabilities of the defendants-appellees with respect to the lost or damaged shipments are expressly limited to the C.I.F. value of the goods as per contract of sea carriage embodied in the bill of lading, which reads:

"Whenever the value of the goods is less than $500 per package or other freight unit, their value in the calculation and adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be deemed to be the invoice value, plus freight and insurance if paid, irrespective of whether any other value is greater or less.

"The limitation of liability and other provisions herein shall inure not only to the benefit of the carrier, its agents, servants and employees, but also to the benefit of any independent contractor performing services including stevedoring in connection with the goods covered hereunder." (Paragraph 17, mphasis supplied.).

It is not pretended that those conditions are unreasonable or were not freely and fairly agreed upon. The shipper and consignee are, therefore, bound by such stipulations since it is expressly stated in the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee of the goods, and the holder of the Bill of Lading agree to be bound by all its stipulations, exceptions and conditions, whether written, stamped or printed, as fully as if they were all signed by such shipper, owner, consignee or holder." It is obviously for this reason that the consignee filed its claim against the defendants-appellees on the basis of the C.I.F. value of the lost or damaged goods in the aggregate amount of P1,109.67 (Exhibits "G", "H", "I" and "J"). 11

The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only the amount that is recoverable by the latter. Since the right of the assured, in case of loss or damage to the goods, is limited or restricted by the provisions in the bill of lading, a suit by the insurer as subrogee necessarily is subject to like limitations and restrictions.

"The insurer after paying the claim of the insured for damages under the insurance is subrogated merely to the rights of the insured and therefore can necessarily recover only that to what was recoverable by the insured." 12

"Upon payment for a total loss of goods insured, the insurance is only subrogated to such rights of action as the assured has against 3rd persons who caused or are responsible for the loss. The right of action against another person, the equitable interest in which passes to the insurer, being only that which the assured has, it follows that if the assured has no such right of action, none passes to the insurer, and if the assured's right of action is limited or restricted by lawful contract between him and the person sought to be made responsible for the loss, a suit by the insurer, in the right of the assured, is subject to like limitations or restrictions." 13

Equally untenable is the contention of the plaintiff-appellant that because of extraordinary inflation, it should be reimbursed for its dollar payments at the rate of exchange on the date of the judgment and not on the date of the loss or damage. The obligation of the carrier to pay for the damage commenced on the date it failed to deliver the shipment in good condition to the consignee.

The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the consignee dated September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33 (shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine Currency. The peso equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which was the rate existing at that time. We find, therefore, that the trial court committed no error in adopting the aforesaid rate of exchange.

WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiff-appellant.

([1988V726] F.F. CRUZ and CO., INC., petitioner, vs. THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ ALMONTE MABLE and children DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR., SALOME, ANTONIO, and BERNARDO all surnamed MABLE, respondents., G.R. No. L-52732, 1988 August 29, 3rd Division)

D E C I S I O N

CORTES, J.:

This petition to review the decision of the Court of Appeals puts in issue the application of the common law doctrine of res ipsa loquitur.

The essential facts of the case are not disputed.

The furniture manufacturing shop of petitioner in Caloocan City was situated adjacent to the residence of private respondents. Sometime in August 1971, private respondent Gregorio Mable first approached Eric Cruz, petitioner's plant manager, to request that a firewall be constructed between the shop and private respondents' residence. The request was repeated several times but they fell on deaf ears. In the early morning of September 6, 1974, fire broke out in petitioner's shop. Petitioner's employees, who slept in the shop premises, tried to put out the fire, but their efforts proved futile. The fire spread to private respondents' house. Both the shop and the house were razed to the ground. The cause of the conflagration was never discovered. The National Bureau of Investigation found specimens from the burned structures negative for the presence of inflammable substances.

Subsequently, private respondents collected P35,000.00 on the insurance on their house and the contents thereof.

On January 23, 1975, private respondents filed an action for damages against petitioner, praying for a judgment in their favor awarding P150,000.00 as actual damages, P50,000.00 as moral damages, P25,000.00 as exemplary damages, P20,000.00 as attorney's fees and costs. The Court of First Instance held for private respondents:

WHEREFORE, the Court hereby renders judgment, in favor of plaintiffs, and against the defendant:

1. Ordering the defendant to pay to the plaintiffs the amount of P80,000.00 for damages suffered by said plaintiffs for the loss of their house, with interest of 6% from the date of the filing of the Complaint on January 23, 1975, until fully paid;

2. Ordering the defendant to pay to the plaintiffs the sum of P50,000.00 for the loss of plaintiffs' furnitures, religious images, silverwares, chinawares, jewelries, books, kitchen utensils, clothing and other valuables, with interest of 6% from date of the filing of the Complaint on January 23, 1975, until fully paid;

3. Ordering the defendant to pay to the plaintiffs the sum of P5,000.00 as moral damages, P2,000.00 as exemplary damages, and P5,000.00 as and by way of attorney's fees;

4. With costs against the defendant;

5. Counterclaim is ordered dismissed, for lack of merit. [CA Decision, pp. 1-2; Rollo, pp. 29-30.]

On appeal, the Court of Appeals, in a decision promulgated on November 19, 1979, affirmed the decision of the trial court but reduced the award of damages:

WHEREFORE, the decision declaring the defendants liable is affirmed. The damages to be awarded to plaintiff should be reduced to P70,000.00 for the house and P50,000.00 for the furniture and other fixtures with legal interest from the date of the filing of the complaint until full payment thereof [CA Decision, p. 7; Rollo, p. 35.]

A motion for reconsideration was filed on December 3, 1979 but was denied in a resolution dated February 18, 1980. Hence, petitioner filed the instant petition for review on February 22, 1980.

After the comment and reply were filed, the Court resolved to deny the petition for lack of merit on June 11, 1980. However, petitioner filed a motion for reconsideration, which was granted, and the petition was given due course on September 12, 1980. After the parties filed their memoranda, the case was submitted for decision on January 21, 1981.

Petitioner contends that the Court of Appeals erred:

1. In not deducting the sum of P35,000.00, which private respondents recovered on the insurance on their house, from the award of damages.

2. In awarding excessive and/or unproved damages.

3. In applying the doctrine of res ipsa loquitur to the facts of the instant case.

The pivotal issue in this case is the applicability of the common law doctrine of res ipsa loquitur, the issue of damages being merely consequential. In view thereof, the errors assigned by petitioner shall be discussed in the reverse order.

1. The doctrine of res ipsa loquitur, whose application to the instant case petitioner objects to, may be stated as follows:

Where the thing which caused the injury complained of is shown to be under the management of the defendant or his servants and the accident is such as in the ordinary course of things does not happen if those who have its management or control use proper care, it affords reasonable evidence, in the absence of explanation by the defendant, that the accident arose from want of care. [Africa v. Caltex (Phil.), Inc., G.R. No. L-12986, March 31, 1966, 16 SCRA 448.]

Thus, in Africa, supra, where fire broke out in a Caltex service station while gasoline from a tank truck was being unloaded into an underground storage tank through a hose and the fire spread to and burned neighboring houses, this Court, applying the doctrine of res ipsa loquitur, adjudged Caltex liable for the loss.

The facts of the case likewise call for the application of the doctrine, considering that in the normal course of operations of a furniture manufacturing shop, combustible material such as wood chips, sawdust, paint, varnish and fuel and lubricants for machinery may be found thereon.

It must also be noted that negligence or want of care on the part of petitioner or its employees was not merely presumed. The Court of Appeals found that petitioner failed to construct a firewall between its shop and the residence of private respondents as required by a city ordinance; that the fire could have been caused by a heated motor or a lit cigarette; that gasoline and alcohol were used and stored in the shop; and that workers sometimes smoked inside the shop [CA Decision, p. 5; Rollo, p. 33.]

Even without applying the doctrine of res ipsa loquitur, petitioner's failure to construct a firewall in accordance with city ordinances would suffice to support a finding of negligence.

Even then the fire possibly would not have spread to the neighboring houses were it not for another negligent omission on the part of defendants, namely, their failure to provide a concrete wall high enough to prevent the flames from leaping over it. As it was the concrete wall was only 2-1/2 meters high, and beyond that height it consisted merely of galvanized iron sheets, which would predictably cramble and melt when subjected to intense heat. Defendant's negligence, therefore, was not only with respect to the cause of the fire but also with respect to the spread thereof to the neighboring houses. [Africa Y. Caltex (Phil.) Inc., supra]

In the instant case, with more reason should petitioner be found guilty of negligence since it had failed to construct a firewall between its property and private respondents' residence which sufficiently complies with the pertinent city ordinances. The failure to comply with an ordinance providing for safety regulations had been ruled by the Court as an act of negligence [Teague v. Fernandez, G.R. No. L-29745, June 4, 1973, 51 SCRA 181.]

The Court of Appeals, therefore, had more than adequate basis to find petitioner liable for the loss sustained by private respondents.

2. Since the amount of the loss sustained by private respondents constitutes a finding of fact, such finding by the Court of Appeals should not be disturbed by this Court [M.D. Transit & Taxi Co., Inc. v. Court of Appeals, G.R. No. L-23882, February 17, 1968, 22 SCRA 559], more so when there is no showing of arbitrariness.

In the instant case, both the CFI and the Court of Appeals, were in agreement as to the value of private respondents' furniture and fixtures and personal effects lost in the fire (i.e. P50,000.00). With regard to the house, the Court of Appeals reduced the award to P70,000.00 from P80,000.00. Such cannot be categorized as arbitrary considering that the evidence shows that the house was built in 1951 for P40,000.00 and, according to private respondents, its reconstruction would cost P246,000.00. Considering the appreciation in value of real estate and the diminution of the real value of the peso, the valuation of the house at P70,000.00 at time it was razed cannot be said to be excessive.

3. While this Court finds that petitioner is liable for damages to private respondents as found by the Court of Appeals, the fact that private respondents have been indemnified by their insurer in the amount of P35,000.00 for the damage caused to their house and its contents has not escaped the attention of the Court. Hence, the Court holds that in accordance with Article 2207 of the Civil Code the amount of P35,000.00 should be deducted from the amount awarded as damages. Said article provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company is subrogated to the rights of the insured against the wrongdoer or the person who 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 law is clear and needs no interpretation. Having been indemnified by their insurer, private respondents are only entitled to recover the deficiency from petitioner.

On the other hand, the insurer, if it is so minded, may seek reimbursement of the amount it indemnified private respondents from petitioner. This is the essence of its right to be subrogated to the rights of the insured, as expressly provided in Article 2207. Upon payment of the loss incurred by the insured, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss [Fireman's Fund Insurance Co. v. Jamila & Co., Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323.]

Under Article 2207, the real party in interest with regard to the indemnity received by the insured is the insurer [Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, (1957).] Whether or not the insurer should exercise the rights of the insured to which it had been subrogated lies solely within the former's sound discretion. Since the insurer is not a party to the case, its identity is not of record and no claim is made on its behalf, the private respondent's insurer has to claim his right to reimbursement of the P35,000.00 paid to the insured.

WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby AFFIRMED with the following modifications as to the damages awarded for the loss of private respondents' house, considering their receipt of P35,000.00 from their insurer: (1) the damages awarded for the loss of the house is reduced to P35,000.00; and (2) the right of the insurer to subrogation and thus seek reimbursement from petitioner for the P35,000.00 it had paid private respondents is recognized.

SO ORDERED.

([1968V250E] RIZAL SURETY & INSURANCE COMPANY, plaintiff-appellant, vs. MANILA RAILROAD COMPANY and MANILA PORT SERVICE, defendants-appellees., G.R. No. L-24043, 1968 Apr 25, En Banc)

D E C I S I O N

FERNANDO, J.:

In this suit for the recovery of the amount paid by the plaintiff, Rizal Surety and Insurance Company, to the consignee based on the applicable Civil Code provision, 1 which speaks to the effect that the Insurance Company "shall be subrogated to the rights of the insured," it is its contention that it is entitled to the amount paid by it in full, by virtue of the insurance contract. The lower court, however, relying on the limited liability clause on a management contract with the defendants, could not go along with such a theory. Hence this appeal.The facts were stipulated. The more pertinent follow: That on or about November 29, 1960, the vessel, SS Flying Trader, loaded on Board at Genoa, Italy for shipment to Manila, Philippines, among other cargoes, 6 cases OMH, Special Single Colour Offset Press Machine, for which Bill of Lading No. 1 was issued, consigned to Suter, Inc.; that such vessel arrived at the Port of Manila, Philippines on or about January 16, 1961 and subsequently discharged complete and in good order the aforementioned shipment into the custody of defendant Manila Port Service as arrastre operator; that in the course of the handling, one of the six cases identified as Case No. 2143 containing the OMH, Special Single Colour Offset Press, while the same was being lifted and loaded by the crane of the Manila Port Service into the consignee's truck, it was dropped by the crane and as a consequence, the machine was heavily damaged for which plaintiff as insurer paid to the consignee, Suter, Inc. the amount of P16,500.00, representing damages by way of costs of replacement parts and repairs to put the machine in working condition, plus the sum of P180.70 which plaintiff paid to the International Adjustment Bureau as adjuster's fee for the survey conducted on the damaged cargo or a total of P16,680.70 representing plaintiff's liability under the insurance contract; and that the arrastre charges in this particular shipment was paid on the weight or measurement basis whichever is higher, and not on the value thereof. 2 Clause 15 of the management contract which as admitted by the plaintiff, appeared "at the dorsal part of the Delivery Permit" and was "used in taking delivery of the subject shipment from the defendants' (Manila Port Service and Manila Railroad Co.) custody and control, issued in the name of consignee's broker," contained what was referred to as "an important notice." Such permit "is presented subject to all the terms and conditions of the Management Contract between the Bureau of Customs and Manila Port Service and amendments thereto or alterations thereof, particularly but not limited to paragraph 15 thereof limiting the Company liability to P500.00 per package, unless the value of the goods is otherwise, specified, declared or manifested and the corresponding arrastre charges have been paid, . . ." 3 On the above facts and relying on Bernabe & Co. v. Delgado Brothers, Inc., 4 the lower court rendered the judgment "ordering defendants, jointly and severally, to pay plaintiff the amount of Five Hundred Pesos (P500.00), with legal interest thereon from January 13, 962, the date of the filing oft he complaint, with costs against said defendants." 5 As noted at the outset, in this appeal, the point is pressed that under the applicable Civil Code provision, plaintiff-appellant Insurance Company could recover in full. The literal language of Article 2207, however, does not warrant such an interpretation. It is there made clear that in the event that the property has been insured and the Insurance Company has paid the indemnity for the injury or loss sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or the person who has violated the contract. "Plaintiff-appellant Insurance Company, therefore, cannot recover from defendants an amount greater than that to which the consignee could lawfully lay claim. The management contract is clear. The amount is limited to Five Hundred Pesos (P500.00). Such a stipulation has invariably received the approval of this Court from the leading case of Bernabe & Co. v. Delgado Bros., Inc. 6 Such a decision was quoted with approval in the following subsequent cases: Atlantic Mutual Insurance Co. v. Manila Port Service, 7 Insurance Service Co. of North America v. Manila Port Service, 8 Insurance Company of North America v. U.S. Lines, Co., 9 and Insurance Company of North America v. Manila Port Service. 10 In one of them, Atlantic Mutual Insurance Company v. Manila Port Service, this Court, through the then Justice, now Chief Justice, Concepcion, restated the doctrine thus: "Plaintiff maintains that, not being a party to the management contract, the consignee into whose shoes plaintiff had stepped in consequence of said payment is not subject to the provisions of said stipulation, and that the same is furthermore invalid. The lower court correctly rejected this pretense because, having taken delivery of the shipment aforementioned by virtue of a delivery permit, incorporating thereto, by reference, the provisions of said management contract, particularly paragraph 15 thereof, the gist of which was set forth in the permit, the consignee became bound by said provisions, and because it could have avoided the application of said maximum limit of P500.00 per package by stating the true value thereof in its claim for delivery of the goods in question, which admittedly, the consignee failed to do. 11 Plaintiff-appellant Rizal Surety and Insurance Company having been subrogated merely to the rights of the consignee its recovery necessarily should be limited to what was recoverable by the insured. The lower court therefore did not err when in the decision appealed from, it limited the amount which defendants were jointly and severally to pay plaintiff-appellant to "Five Hundred Pesos (P500.00) with legal interest thereon from January 31, 1962, the date of the filing of the complaint, . . . "WHEREFORE, the decision appealed from is affirmed. With costs against Rizal Surety and Insurance Company.Reyes, J.B.L. (Acting C.J.), Dizon, Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro and Angeles, JJ., concur.

([1987V576] MANILA MAHOGANY MANUFACTURING CORPORATION, petitioner, vs. COURT OF APPEALS AND ZENITH INSURANCE CORPORATION, respondents., G.R. No. L-52756, 1987 October 12, 2nd Division)

D E C I S I O N

PADILLA, J.:

Petition to review the decision ** of the Court of Appeals, in CA-G.R. No. SP-08642, dated 21 March 1979, ordering petitioner Manila Mahogany Manufacturing Corporation to pay private respondent Zenith Insurance Corporation the sum of Five Thousand Pesos (P5,000.00) with 6% annual interest from 18 January 1973, attorney's fees in the sum of five hundred pesos (P500.00), and costs of suit, and the resolution of the same Court, dated 8 February 1980, denying petitioner's motion for reconsideration of its decision.

From 6 March 1970 to 6 March 1971, petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company. On 4 May 1970 the insured vehicle was bumped and damaged by a truck owned by San Miguel Corporation. For the damage caus