INSURANCE BATCH 3
PACIFIC TIMBER EXPORT CORPORATION vs. THE HONORABLE COURT OF
APPEALS and WORKMEN'S INSURANCE COMPANY, INC.,
This petition seeks the review of the decision of the Court of Appeals reversing the
decision of the Court of First Instance of Manila in favor of petitioner and against private
respondent which ordered the latter to pay the sum of Pll,042.04 with interest at the rate of
12% interest from receipt of notice of loss on April 15, 1963 up to the complete payment,
the sum of P3,000.00 as attorney's fees and the costs 1 thereby dismissing petitioner s
complaint with costs. 2
The findings of the of fact of the Court of Appeals, which are generally binding upon this
Court, Except as shall be indicated in the discussion of the opinion of this Court the
substantial correctness of still particular finding having been disputed, thereby raising a
question of law reviewable by this Court 3 are as follows:
March 19, l963, the plaintiff secured temporary insurance from the defendant for
its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be
shipped from the Diapitan. Bay, Quezon Province to Okinawa and Tokyo, Japan.
The defendant issued on said date Cover Note No. 1010, insuring the said cargo
of the plaintiff "Subject to the Terms and Conditions of the WORKMEN'S
INSURANCE COMPANY, INC. printed Marine Policy form as filed with and
approved by the Office of the Insurance Commissioner (Exhibit A).
The regular marine cargo policies were issued by the defendant in favor of the
plaintiff on April 2, 1963. The two marine policies bore the numbers 53 HO 1032
and 53 HO 1033 (Exhibits B and C, respectively). Policy No. 53 H0 1033 (Exhibit
B) was for 542 pieces of logs equivalent to 499,950 board feet. Policy No. 53 H0
1033 was for 853 pieces of logs equivalent to 695,548 board feet (Exhibit C). The
total cargo insured under the two marine policies accordingly consisted of 1,395
logs, or the equivalent of 1,195.498 bd. ft.
After the issuance of Cover Note No. 1010 (Exhibit A), but before the issuance of
the two marine policies Nos. 53 HO 1032 and 53 HO 1033, some of the logs
intended to be exported were lost during loading operations in the Diapitan Bay.
The logs were to be loaded on the 'SS Woodlock' which docked about 500
meters from the shoreline of the Diapitan Bay. The logs were taken from the log
pond of the plaintiff and from which they were towed in rafts to the vessel. At
about 10:00 o'clock a. m. on March 29, 1963, while the logs were alongside the
vessel, bad weather developed resulting in 75 pieces of logs which were rafted
together co break loose from each other. 45 pieces of logs were salvaged, but 30
pieces were verified to have been lost or washed away as a result of the
accident.
In a letter dated April 4, 1963, the plaintiff informed the defendant about the loss of
'appropriately 32 pieces of log's during loading of the 'SS Woodlock'. The said letter
(Exhibit F) reads as follows:
April 4, 1963
Workmen's Insurance Company, Inc. Manila, Philippines
Gentlemen:
This has reference to Insurance Cover Note No. 1010 for shipment of 1,250,000
bd. ft. Philippine Lauan and Apitong Logs. We would like to inform you that we
have received advance preliminary report from our Office in Diapitan, Quezon that
we have lost approximately 32 pieces of logs during loading of the SS Woodlock.
We will send you an accurate report all the details including values as soon as
same will be reported to us.
Thank you for your attention, we wish to remain.
Very respectfully yours,
PACIFIC TIMBER EXPORT CORPORATION
(Sgd.) EMMANUEL S. ATILANO Asst. General Manager.
Although dated April 4, 1963, the letter was received in the office of the defendant
only on April 15, 1963, as shown by the stamp impression appearing on the left
bottom corner of said letter. The plaintiff subsequently submitted a 'Claim
Statement demanding payment of the loss under Policies Nos. 53 HO 1032 and 53
HO 1033, in the total amount of P19,286.79 (Exhibit G).
On July 17, 1963, the defendant requested the First Philippine Adjustment
Corporation to inspect the loss and assess the damage. The adjustment company
submitted its 'Report on August 23, 1963 (Exhibit H). In said report, the adjuster
found that 'the loss of 30 pieces of logs is not covered by Policies Nos. 53 HO
1032 and 1033 inasmuch as said policies covered the actual number of logs
loaded on board the 'SS Woodlock' However, the loss of 30 pieces of logs is within
the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00.
On September 14, 1963, the adjustment company submitted a computation of the
defendant's probable liability on the loss sustained by the shipment, in the total
amount of Pl1,042.04 (Exhibit 4).
On January 13, 1964, the defendant wrote the plaintiff denying the latter's claim,
on the ground they defendant's investigation revealed that the entire shipment of
logs covered by the two marines policies No. 53 110 1032 and 713 HO 1033 were
received in good order at their point of destination. It was further stated that the
said loss may be considered as covered under Cover Note No. 1010 because the
said Note had become 'null and void by virtue of the issuance of Marine Policy
Nos. 53 HO 1032 and 1033'(Exhibit J-1). The denial of the claim by the defendant
was brought by the plaintiff to the attention of the Insurance Commissioner by
means of a letter dated March 21, 1964 (Exhibit K). In a reply letter dated March
30, 1964, Insurance Commissioner Francisco Y. Mandanas observed that 'it is only
fair and equitable to indemnify the insured under Cover Note No. 1010', and
advised early settlement of the said marine loss and salvage claim (Exhibit L).
INSURANCE BATCH 3
On June 26, 1964, the defendant informed the Insurance Commissioner that, on
advice of their attorneys, the claim of the plaintiff is being denied on the ground
that the cover note is null and void for lack of valuable consideration (Exhibit M). 4
Petitioner assigned as errors of the Court of Appeals, the following:
I after the issuance of the marine insurance policies.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE COVER NOTE WAS
NULL AND VOID FOR LACK OF VALUABLE CONSIDERATION BECAUSE THE
COURT DISREGARDED THE PROVEN FACTS THAT PREMIUMS FOR THE
COMPREHENSIVE INSURANCE COVERAGE THAT INCLUDED THE COVER
NOTE WAS PAID BY PETITIONER AND THAT INCLUDED THE COVER NOTE
WAS PAID BY PETITIONER AND THAT NO SEPARATE PREMIUMS ARE
COLLECTED BY PRIVATE RESPONDENT ON ALL ITS COVER NOTES.
II
THE COURT OF APPEALS ERRED IN HOLDING THAT PRIVATE RESPONDENT
WAS RELEASED FROM LIABILITY UNDER THE COVER NOTE DUE TO
UNREASONABLE DELAY IN GIVING NOTICE OF LOSS BECAUSE THE COURT
DISREGARDED THE PROVEN FACT THAT PRIVATE RESPONDENT DID NOT
PROMPTLY AND SPECIFICALLY OBJECT TO THE CLAIM ON THE GROUND
OF DELAY IN GIVING NOTICE OF LOSS AND, CONSEQUENTLY, OBJECTIONS
ON THAT GROUND ARE WAIVED UNDER SECTION 84 OF THE INSURANCE
ACT. 5
1. Petitioner contends that the Cover Note was issued with a consideration when, by
express stipulation, the cover note is made subject to the terms and conditions of the
marine policies, and the payment of premiums is one of the terms of the policies. From
this undisputed fact, We uphold petitioner's submission that the Cover Note was not
without consideration for which the respondent court held the Cover Note as null and void,
and denied recovery therefrom. The fact that no separate premium was paid on the Cover
Note before the loss insured against occurred, does not militate against the validity of
petitioner's contention, for no such premium could have been paid, since by the nature of
the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the
shipment that would serve as basis for the computation of the premiums. As a logical
consequence, no separate premiums are intended or required to be paid on a Cover Note.
This is a fact admitted by an official of respondent company, Juan Jose Camacho, in
charge of issuing cover notes of the respondent company (p. 33, tsn, September 24,
1965).
At any rate, it is not disputed that petitioner paid in full all the premiums as called for by the
statement issued by private respondent after the issuance of the two regular marine
insurance policies, thereby leaving no account unpaid by petitioner due on the insurance
coverage, which must be deemed to include the Cover Note. If the Note is to be treated as
a separate policy instead of integrating it to the regular policies subsequently issued, the
purpose and function of the Cover Note would be set at naught or rendered meaningless,
for it is in a real sense a contract, not a mere application for insurance which is a mere
offer. 6
It may be true that the marine insurance policies issued were for logs no longer including
those which had been lost during loading operations. This had to be so because the risk
insured against is not for loss during operations anymore, but for loss during transit, the
logs having already been safely placed aboard. This would make no difference, however,
insofar as the liability on the cover note is concerned, for the number or volume of logs lost
can be determined independently as in fact it had been so ascertained at the instance of
private respondent itself when it sent its own adjuster to investigate and assess the loss,
The adjuster went as far as submitting his report to respondent, as well as its computation
of respondent's liability on the insurance coverage. This coverage could not have been no
other than what was stipulated in the Cover Note, for no loss or damage had to be
assessed on the coverage arising from the marine insurance policies. For obvious
reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for the
loss insured against having already occurred, the more practical procedure is simply to
deduct the premium from the amount due the petitioner on the Cover Note. The non-
payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose
what is due it as if there had been payment of premium, for non-payment by it was not
chargeable against its fault. Had all the logs been lost during the loading operations, but
after the issuance of the Cover Note, liability on the note would have already arisen even
before payment of premium. This is how the cover note as a "binder" should legally
operate otherwise, it would serve no practical purpose in the realm of commerce, and is
supported by the doctrine that where a policy is delivered without requiring payment of the
premium, the presumption is that a credit was intended and policy is valid. 7
2. The defense of delay as raised by private respondent in resisting the claim cannot be
sustained. The law requires this ground of delay to be promptly and specifically asserted
when a claim on the insurance agreement is made. The undisputed facts show that
instead of invoking the ground of delay in objecting to petitioner's claim of recovery on the
cover note, it took steps clearly indicative that this particular ground for objection to the
claim was never in its mind. The nature of this specific ground for resisting a claim places
the insurer on duty to inquire when the loss took place, so that it could determine whether
delay would be a valid ground upon which to object to a claim against it.
As already stated earlier, private respondent's reaction upon receipt of the notice of loss,
which was on April 15, 1963, was to set in motion from July 1963 what would be
necessary to determine the cause and extent of the loss, with a view to the payment
thereof on the insurance agreement. Thus it sent its adjuster to investigate and assess the
loss in July, 1963. The adjuster submitted his report on August 23, 1963 and its
computation of respondent's liability on September 14, 1963. From April 1963 to July,
1963, enough time was available for private respondent to determine if petitioner was
guilty of delay in communicating the loss to respondent company. In the proceedings that
took place later in the Office of the Insurance Commissioner, private respondent should
then have raised this ground of delay to avoid liability. It did not do so. It must be because
it did not find any delay, as this Court fails to find a real and substantial sign thereof. But
even on the assumption that there was delay, this Court is satisfied and convinced that as
expressly provided by law, waiver can successfully be raised against private respondent.
Thus Section 84 of the Insurance Act provides:
Section 84.Delay in the presentation to an insurer of notice or proof
of loss is waived if caused by any act of his or if he omits to take
objection promptly and specifically upon that ground.
INSURANCE BATCH 3

From what has been said, We find duly substantiated petitioner's assignments of error.
ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First
Instance is reinstated in toto with the affirmance of this Court. No special pronouncement
as to costs. SO ORDERED.
This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to
annul and set aside the Decision2 dated October 10, 2008 of the Court of Appeals (CA) in
CA-G.R. SP No. 99021 which adjudged petitioner Asian Terminals, Inc. (ATI) liable to pay
the money claims of respondent First Lepanto-Taisho Insurance Corporation (FIRST
LEPANTO).

The Undisputed Facts

112 SCRA 199 Mercantile Law Insurance Law The Policy Separate Premiums Not
Required for Cover Notes
On July 6, 1996,3 3,000 bags of sodium tripolyphosphate contained in 100 plain jumbo
bags complete and in good condition were loaded and received on board M/V "Da Feng"
In 1963, Pacific Timber Export Corporation (PTEC) applied for a temporary marine
owned by China Ocean Shipping Co. (COSCO) in favor of consignee, Grand Asian Sales,
insurance from Workmens Insurance Company (WIC) in order for the latter to insure
Inc. (GASI). Based on a Certificate of Insurance4 dated August 24, 1995, it appears that
1,250,000 board feet of logs to be exported to Japan. In March 1963, WIC issued a cover
the shipment was insured against all risks by GASI with FIRST LEPANTO
note to PTEC for the said logs. On April 2, 1963, WIC issued two policies for the logs.
for P7,959,550.50 under Marine Open Policy No. 0123.
However, the total board feet covered this time is only 1,195,498. On April 4, 1963, while
the logs were in transit to Japan, bad weather prevailed and this caused the loss of 32
pieces of logs. The shipment arrived in Manila on July 18, 1996 and was discharged into the possession
and custody of ATI, a domestic corporation engaged in arrastre business. The shipment
remained for quite some time at ATIs storage area until it was withdrawn by broker,
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs
Proven Customs Brokerage Corporation (PROVEN), on August 8 and 9, 1996 for delivery
lost were not covered by the two policies issued on April 2, 1963 but said logs were
to the consignee. Upon receipt of the shipment,5 GASI subjected the same to inspection
included in the cover note earlier issued.
and found that the delivered goods incurred shortages of 8,600 kilograms and spillage of
3,315 kg for a total of11,915 kg of loss/damage valued at P166,772.41.
WIC however denied the insurance claim of PTEC as it averred that the cover note
became null and void when the two policies were subsequently issued. The Court of
GASI sought recompense from COSCO, thru its Philippine agent Smith Bell Shipping
Appeals ruled that the cover note is void for lack of valuable consideration as it appeared
Lines, Inc. (SMITH BELL),6ATI7 and PROVEN8 but was denied. Hence, it pursued
that no premium payment therefor was made by PTEC.
indemnification from the shipments insurer.9

ISSUE: Whether or not a separate premium is needed for cover notes.

HELD: No. The Cover Note was not without consideration for which the Court of Appeals
held the Cover Note as null and void, and denied recovery therefrom. The fact that no
separate premium was paid on the Cover Note before the loss insured against occurred,
does not militate against the validity of PTECs contention, for no such premium could
have been paid, since by the nature of the Cover Note, it did not contain, as all Cover
Notes do not contain particulars of the shipment that would serve as basis for the
computation of the premiums. As a logical consequence, no separate premiums are
intended or required to be paid on a Cover Note.
At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the
statement issued by WIC after the issuance of the two regular marine insurance policies,
thereby leaving no account unpaid by PTEC due on the insurance coverage, which must
be deemed to include the Cover Note. If the Note is to be treated as a separate policy
instead of integrating it to the regular policies subsequently issued, the purpose and
function of the Cover Note would be set at naught or rendered meaningless, for it is in a
real sense a contract, not a mere application for insurance which is a mere offer.
ASIAN TERMINALS, INC., vs. FIRST LEPANTO-TAISHO INSURANCE CORP
After the requisite investigation and adjustment, FIRST LEPANTO paid GASI the amount
of P165,772.40 as insurance indemnity.10
Thereafter, GASI executed a Release of Claim11 discharging FIRST LEPANTO from any
and all liabilities pertaining to the lost/damaged shipment and subrogating it to all the
rights of recovery and claims the former may have against any person or corporation in
relation to the lost/damaged shipment.
As such subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency in the
Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid to
GASI. When FIRST LEPANTOs demands were not heeded, it filed on May 29, 1997 a
Complaint12 for sum of money before the Metropolitan Trial Court (MeTC) of Manila,
Branch 3. FIRST LEPANTO sought that it be reimbursed the amount of 166,772.41,
twenty-five percent (25%) thereof as attorneys fees, and costs of suit.
ATI denied liability for the lost/damaged shipment and claimed that it exercised due
diligence and care in handling the same.13 ATI averred that upon arrival of the shipment,
SMITH BELL requested for its inspection14 and it was discovered that one jumbo bag
thereof sustained loss/damage while in the custody of COSCO as evidenced by Turn Over
Survey of Bad Order Cargo No. 47890 dated August 6, 199615 jointly executed by the
respective representatives of ATI and COSCO. During the withdrawal of the shipment by
PROVEN from ATIs warehouse, the entire shipment was re-examined and it was found to
be exactly in the same condition as when it was turned over to ATI such that one jumbo
bag was damaged. To bolster this claim, ATI submitted Request for Bad Order Survey No.
INSURANCE BATCH 3

40622 dated August 9, 199616 jointly executed by the respective representatives of ATI and
PROVEN. ATI also submitted various Cargo Gate Passes17 showing that PROVEN was
able to completely withdraw all the shipment from ATIs warehouse in good order condition
except for that one damaged jumbo bag.
In the alternative, ATI asserted that even if it is found liable for the lost/damaged portion of
the shipment, its contract for cargo handling services limits its liability to not more
than P5,000.00 per package. ATI interposed a counterclaim of P20,000.00 against FIRST
LEPANTO as and for attorneys fees. It also filed a cross-claim against its co-defendants
COSCO and SMITH BELL in the event that it is made liable to FIRST LEPANTO.18
PROVEN denied any liability for the lost/damaged shipment and averred that the
complaint alleged no specific acts or omissions that makes it liable for damages. PROVEN
claimed that the damages in the shipment were sustained before they were withdrawn
from ATIs custody under which the shipment was left in an open area exposed to the
elements, thieves and vandals. PROVEN contended that it exercised due diligence and
prudence in handling the shipment. PROVEN also filed a counterclaim for attorneys fees
and damages.19
Despite receipt of summons on December 4, 1996,20 COSCO and SMITH BELL failed to
file an answer to the complaint. FIRST LEPANTO thus moved that they be declared in
default21 but the motion was denied by the MeTC on the ground that under Rule 9, Section
3 of the Rules of Civil Procedure, "when a pleading asserting a claim states a common
cause of action against several defending parties, some of whom answer and the other fail
to do so, the Court shall try the case against all upon the answers thus filed, and render
judgment upon the evidence presented."22
very own documentary evidence. The RTC remarked that, if, as alleged by ATI, one jumbo
bag was already in bad order condition upon its receipt of the shipment from COSCO on
July 18, 1996, then how come that the Request for Bad Order Survey and the Turn Over
Survey of Bad Order Cargo were prepared only weeks thereafter or on August 9, 1996
and August 6, 1996, respectively. ATI was adjudged unable to prove that it exercised due
diligence while in custody of the shipment and hence, negligent and should be held liable
for the damages caused to GASI which, in turn, is subrogated by FIRST LEPANTO.
The RTC rejected ATIs contention that its liability is limited only to P5,000.00 per package
because its Management Contract with the Philippine Ports Authority (PPA) purportedly
containing the same was not presented as evidence. More importantly, FIRST LEPANTO
or GASI cannot be deemed bound thereby because they were not parties thereto. Lastly,
the RTC did not give merit to ATIs defense that any claim against it has already
prescribed because GASI failed to file any claim within the 15-day period stated in the
gate pass issued by ATI to GASIs broker, PROVEN. Accordingly, the RTC disposed thus:
WHEREFORE, in light of the foregoing, the judgment on appeal is hereby REVERSED.
[ATI] is hereby ordered to reimburse [FIRST LEPANTO] the amount of [P]165,772.40 with
legal interest until fully paid, to pay [FIRST LEPANTO] 10% of the amount due the latter as
and for attorneys fees plus the costs of suit.
The complaint against [COSCO/SMITH BELL and PROVEN] are DISMISSED for lack of
evidence against them. The counterclaim and cross[-]claim of [ATI] are likewise
DISMISSED for lack of merit. SO ORDERED.26

Ruling of the CA
Ruling of the MeTC

ATI sought recourse with the CA challenging the RTCs finding that FIRST LEPANTO was
In a Judgment23 dated May 30, 2006, the MeTC absolved ATI and PROVEN from any
validly subrogated to the rights of GASI with respect to the lost/damaged shipment. ATI
liability and instead found COSCO to be the party at fault and hence liable for the
argued that there was no valid subrogation because FIRSTLEPANTO failed to present a
loss/damage sustained by the subject shipment. However, the MeTC ruled it has no
valid, existing and enforceable Marine Open Policy or insurance contract. ATI reasoned
jurisdiction over COSCO because it is a foreign corporation. Also, it cannot enforce
that the Certificate of Insurance or Marine Cover Note submitted by FIRST LEPANTO as
judgment upon SMITH BELL because no evidence was presented establishing that it is
evidence is not the same as an actual insurance contract.
indeed the Philippine agent of COSCO. There is also no evidence attributing any fault to
SMITH BELL. Consequently, the complaint was dismissed in this wise:
In its Decision27 dated October 10, 2008, the CA dismissed the appeal and held that the
Release of Claim and the Certificate of Insurance presented by FIRST LEPANTO
WHEREFORE, in light of the foregoing, judgment is hereby rendered DISMISSING the
sufficiently established its relationship with the consignee and that upon proof of payment
instant case for failure of [FIRST LEPANTO] to sufficiently establish its cause o faction
of the latters claim for damages, FIRST LEPANTO was subrogated to its rights against
against [ATI, COSCO, SMITH BELL, and PROVEN].
those liable for the lost/damaged shipment.

The counterclaims of [ATI and PROVEN] are likewise dismissed for lack of legal basis.
The CA also affirmed the ruling of the RTC that the subject shipment was damaged while
in the custody of ATI. Thus, the CA disposed as follows:
No pronouncement as to cost. SO ORDERED.24
WHEREFORE, premises considered, the assailed Decision is hereby AFFIRMED and the
Ruling of the Regional Trial Court instant petition is DENIED for lack of merit. SO ORDERED. 28

On appeal, the Regional Trial Court (RTC) reversed the MeTCs findings. In its ATI moved for reconsideration but the motion was denied in the CA Resolution29 dated
Decision25 dated January 26, 2007, the RTC of Manila, Branch 21, in Civil Case No. 06- January 12, 2009. Hence, this petition arguing that:
116237, rejected the contentions of ATI upon its observation that the same is belied by its
INSURANCE BATCH 3
(a) The presentation of the insurance policy is indispensable in proving the right of FIRST
LEPANTO to be subrogated to the right of the consignee pursuant to the ruling in Wallem
Philippines Shipping, Inc. v. Prudential Guarantee and Assurance Inc.; 30
(b) ATI cannot be barred from invoking the defense of prescription as provided for in the
gate passes in consonance with the ruling in International Container Terminal Services,
Inc. v. Prudential Guarantee and Assurance Co, Inc.31
Ruling of the Court
The Court denies the petition.
ATI failed to prove that it exercised
due care and diligence while the
shipment was under its custody,
control and possession as arrastre
operator.
It must be emphasized that factual questions pertaining to ATIs liability for the
loss/damage sustained by GASI has already been settled in the uniform factual findings of
the RTC and the CA that: ATI failed to prove by preponderance of evidence that it
exercised due diligence in handling the shipment.
Such findings are binding and conclusive upon this Court since a review thereof is
proscribed by the nature of the present petition. Only questions of law are allowed in
petitions for review on certiorari under Rule 45 of the Rules of Court. It is not the Courts
duty to review, examine, and evaluate or weigh all over again the probative value of the
evidence presented, especially where the findings of the RTC are affirmed by the CA, as
in this case.32
There are only specific instances when the Court deviates from the rule and conducts a
review of the courts a quos factual findings, such as when: (1) the inference made is
manifestly mistaken, absurd or impossible; (2) there is grave abuse of discretion;(3) the
findings are grounded entirely on speculations, surmises or conjectures; (4) the judgment
of the CA is based on misapprehension of facts; (5) the CA, in making its findings, went
beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (6) the findings of fact are conclusions without citation of specific
evidence on which they are based; (7) the CA manifestly overlooked certain relevant facts
not disputed by the parties and which, if properly considered, would justify a different
conclusion; and (8) the findings of fact of the CA are premised on the absence of evidence
and are contradicted by the evidence on record.33
None of these instances, however, are present in this case. Moreover, it is unmistakable
that ATI has already conceded to the factual findings of RTC and CA adjudging it liable for
the shipments loss/damage considering the absence of arguments pertaining to such
issue in the petition at bar.
These notwithstanding, the Court scrutinized the records of the case and found that
indeed, ATI is liable as the arrastre operator for the lost/damaged portion of the shipment.
The relationship between the consignee and the arrastre operator is akin to that existing
between the consignee and/or the owner of the shipped goods and the common carrier, or
that between a depositor and a warehouseman. Hence, in the performance of its
obligations, an arrastre operator should observe the same degree of diligence as that
required of a common carrier and a warehouseman. Being the custodian of the goods
discharged from a vessel, an arrastre operators duty is to take good care of the goods
and to turn them over to the party entitled to their possession.34
In a claim for loss filed by the consignee (or the insurer), the burden of proof to show
compliance with the obligation to deliver the goods to the appropriate party devolves upon
the arrastre operator. Since the safekeeping of the goods is its responsibility, it must prove
that the losses were not due to its negligence or to that of its employees. To avoid liability,
the arrastre operator must prove that it exercised diligence and due care in handling the
shipment.35
ATI failed to discharge its burden of proof. Instead, it insisted on shifting the blame to
COSCO on the basis of the Request for Bad Order Survey dated August 9, 1996
purportedly showing that when ATI received the shipment, one jumbo bag thereof was
already in damaged condition.
The RTC and CA were both correct in concluding that ATIs contention was improbable
and illogical. As judiciously discerned by the courts a quo, the date of the document was
too distant from the date when the shipment was actually received by ATI from COSCO on
July 18, 1996. In fact, what the document established is that when the loss/damage was
discovered, the shipment has been in ATIs custody for at least two weeks. This
circumstance, coupled with the undisputed declaration of PROVENs witnesses that while
the shipment was in ATIs custody, it was left in an open area exposed to the elements,
thieves and vandals,36 all generate the conclusion that ATI failed to exercise due care and
diligence while the subject shipment was under its custody, control and possession as
arrastre operator.
To prove the exercise of diligence in handling the subject cargoes, an arrastre operator
must do more than merely show the possibility that some other party could be responsible
for the loss or the damage.37 It must prove that it used all reasonable means to handle and
store the shipment with due care and diligence including safeguarding it from weather
elements, thieves or vandals.
Non-presentation of the insurance
contract is not fatal to FIRST
LEPANTOs cause of action for
reimbursement as subrogee.
It is conspicuous from the records that ATI put in issue the submission of the insurance
contract for the first time before the CA. Despite opportunity to study FIRST LEPANTOs
complaint before the MeTC, ATI failed to allege in its answer the necessity of the
insurance contract. Neither was the same considered during pre-trial as one of the
decisive matters in the case. Further, ATI never challenged the relevancy or materiality of
the Certificate of Insurance presented by FIRST LEPANTO as evidence during trial as
proof of its right to be subrogated in the consignees stead. Since it was not agreed during
the pre-trial proceedings that FIRST LEPANTO will have to prove its subrogation rights by
presenting a copy of the insurance contract, ATI is barred from pleading the absence of
INSURANCE BATCH 3
such contract in its appeal. It is imperative for the parties to disclose during pre-trial all
issues they intend to raise during the trial because, they are bound by the delimitation of
such issues. The determination of issues during the pre-trial conference bars the
consideration of other questions, whether during trial or on appeal.38
A faithful adherence to the rule by litigants is ensured by the equally settled principle that a
party cannot change his theory on appeal as such act violates the basic rudiments of fair
play and due process. As stressed in Jose v. Alfuerto:39
[A] party cannot change his theory ofthe case or his cause of action on appeal. Points of
law, theories, issues and arguments not brought to the attention of the lower court will not
be considered by the reviewing court. The defenses not pleaded in the answer cannot, on
appeal, change fundamentally the nature of the issue in the case. To do so would be unfair
to the adverse party, who had no opportunity to present evidence in connection with the
new theory; this would offend the basic rules of due process and fair play.40 (Citation
omitted)
While the Court may adopt a liberal stance and relax the rule, no reasonable explanation,
however, was introduced to justify ATIs failure to timely question the basis of FIRST
LEPANTOs rights as a subrogee.
The fact that the CA took cognizance of and resolved the said issue did not cure or ratify
ATIs faux pas. "[A] judgment that goes beyond the issues and purports to adjudicate
something on which the court did not hear the parties, is not only irregular but also
extrajudicial and invalid."41 Thus, for resolving an issue not framed during the pre-trial and
on which the parties were not heard during the trial, that portion of the CAs judgment
discussing the necessity of presenting an insurance contract was erroneous.
At any rate, the non-presentation of the insurance contract is not fatal to FIRST
LEPANTOs right to collect reimbursement as the subrogee of GASI.
"Subrogation is the substitution of one person in the place of another with reference to a
lawful claim or right, so that he who is substituted succeeds to the rights of the other in
relation to a debt or claim, including its remedies or securities."42 The right of subrogation
springs from Article 2207 of the Civil Code which states:
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 wrong-doer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.
As a general rule, the marine insurance policy needs to be presented in evidence before
the insurer may recover the insured value of the lost/damaged cargo in the exercise of its
subrogatory right. In Malayan Insurance Co., Inc. v.Regis Brokerage Corp.,43 the Court
stated that the presentation of the contract constitutive of the insurance relationship
between the consignee and insurer is critical because it is the legal basis of the latters
right to subrogation.44
In Home Insurance Corporation v. CA,45 the Court also held that the insurance contract
was necessary to prove that it covered the hauling portion of the shipment and was not
limited to the transport of the cargo while at sea. The shipment in that case passed
through six stages with different parties involved in each stage until it reached the
consignee. The insurance contract, which was not presented in evidence, was necessary
to determine the scope of the insurers liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.46
An analogous disposition was arrived at in the Wallem47 case cited by ATI wherein the
Court held that the insurance contract must be presented in evidence in order to
determine the extent of its coverage. It was further ruled therein that the liability of the
carrier from whom reimbursement was demanded was not established with certainty
because the alleged shortage incurred by the cargoes was not definitively determined.48
Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted
exceptions by declaring that a marine insurance policy is dispensable evidence in
reimbursement claims instituted by the insurer.
In Delsan Transport Lines, Inc. v. CA,49 the Court ruled that the right of subrogation
accrues simply upon payment by the insurance company of the insurance claim. Hence,
presentation in evidence of the marine insurance policy is not indispensable before the
insurer may recover from the common carrier the insured value of the lost cargo in the
exercise of its subrogatory right. The subrogation receipt, by itself, was held sufficient to
establish not only the relationship between the insurer and consignee, but also the amount
paid to settle the insurance claim. The presentation of the insurance contract was deemed
not fatal to the insurers cause of action because the loss of the cargo undoubtedly
occurred while on board the petitioners vessel.50
The same rationale was the basis of the judgment in International Container Terminal
Services, Inc. v. FGU Insurance Corporation,51 wherein the arrastre operator was found
liable for the lost shipment despite the failure of the insurance company to offer in
evidence the insurance contract or policy. As in Delsan, it was certain that the loss of the
cargo occurred while in the petitioners custody.52
Based on the attendant facts of the instant case, the application of the exception is
warranted.1wphi1 As discussed above, it is already settled that the loss/damage to the
GASIs shipment occurred while they were in ATIs custody, possession and control as
arrastre operator. Verily, the Certificate of Insurance53 and the Release of
Claim54presented as evidence sufficiently established FIRST LEPANTOs right to collect
reimbursement as the subrogee of the consignee, GASI.
With ATIs liability having been positively established, to strictly require the presentation of
the insurance contract will run counter to the principle of equity upon which the doctrine of
subrogation is premised. Subrogation is designed to promote and to accomplish justice
and is the mode which equity adopts to compel the ultimate payment of a debt by one who
in justice, equity and good conscience ought to pay.55
The payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies which the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent
upon, nor does it grow out of any privity of contract or upon payment by the insurance
INSURANCE BATCH 3
company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.56
ATI cannot invoke prescription
ATI argued that the consignee, thru its insurer, FIRST LEPANTO is barred from seeking
payment for the lost/damaged shipment because the claim letter of GASI to ATI was
served only on September 27, 1996 or more than one month from the date the shipment
was delivered to the consignees warehouse on August 9, 1996. The claim of GASI was
thus filed beyond the 15-day period stated in ATIs Management Contract with PPA which
in turn was reproduced in the gate passes issued to the consignees broker, PROVEN, as
follows:
Issuance of this Gate Pass Constitutes delivery to and receipt by consignee of the goods
as described above in good order and condition unless an accompanying x x x certificates
duly issued and noted on the face of this Gate Pass appeals. [sic]
This Gate pass is subject to all terms and conditions defined in the Management Contract
between the Philippine Port[s] Authority and Asian Terminals, Inc. and amendment thereto
and alterations thereof particularly but not limited to the [A]rticle VI thereof, limiting the
contractors liability to [P]5,000.00 per package unless the importation is otherwise
specified or manifested or communicated in writing together with the invoice value and
supported by a certified packing list to the contractor by the interested party or parties
before the discharge of the goods and corresponding arrastre charges have been paid
providing exception or restrictions from liability releasing the contractor from liability
among others unless a formal claim with the required annexes shall have been filed with
the contractor within fifteen (15) days from date of issuance by the contractors or
certificate of loss, damages, injury, or Certificate of non-delivery.57
The contention is bereft of merit. As clarified in Insurance Company of North America v.
Asian Terminals, Inc.,58substantial compliance with the 15-day time limitation is allowed
provided that the consignee has made a provisional claim thru a request for bad order
survey or examination report, viz:
Although the formal claim was filed beyond the 15-day period from the issuance of the
examination report on the request for bad order survey, the purpose of the time limitations
for the filing of claims had already been fully satisfied by the request of the consignees
broker for a bad order survey and by the examination report of the arrastre operator on the
result thereof, as the arrastre operator had become aware of and had verified the facts
giving rise to its liability. Hence, the arrastre operator suffered no prejudice by the lack of
strict compliance with the 15-day limitation to file the formal complaint. 59 (Citations omitted)
In the present case, ATI was notified of the loss/damage to the subject shipment as early
as August 9, 1996 thru a Request for Bad Order Survey60 jointly prepared by the
consignees broker, PROVEN, and the representatives of ATI. For having submitted a
provisional claim, GASI is thus deemed to have substantially complied with the notice
requirement to the arrastre operator notwithstanding that a formal claim was sent to the
latter only on September 27, 1996. ATI was not deprived the best opportunity to probe
immediately the veracity of such claims. Verily then, GASI, thru its subrogee FIRST
LEPANTO, is not barred by filing the herein action in court.
ATI cannot rely on the ruling in Prudentiat61 because the consignee therein made no
provisional claim thru request for bad order survey and instead filed a claim for the first
time after four months from receipt of the shipment.
Attorney's fees and interests
All told, ATI is liable to pay FIRST LEPANTO the amount of the Pl 65, 772.40 representing
the insurance indemnity paid by the latter to GASI. Pursuant to Nacar v. Gallery
Frames,62 the said amount shall earn a legal interest at the rate of six percent (6%) per
annum from the date of finality of this judgment until its full satisfaction.
As correctly imposed by the RTC and the CA, ten percent (10%) of the judgment award is
reasonable as and for attorney's fees considering the length of time that has passed in
prosecuting the claim.63
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision dated
October 10, 2008 of the Court of Appeals in CA-G.R. SP No. 99021 is hereby AFFIRMED
insofar as it adjudged liable and ordered Asian Terminals, Inc., to pay First Lepanto-Taisho
Insurance Corp., the amount of P165,772.40, ten percent (10%) thereof as and for
attorney's fees, plus costs of suit. The said amount shall earn legal interest at the rate of
six percent ( 6%) per annum from the date of finality of this judgment until its full
satisfaction. SO ORDERED.
FACTS: A shipment of 3,000 bags of sodium tripolyphosphate arrived in Manila through
COSCO and was discharged into the possession and custody of ATI, a domestic
corporation engaged in arrastre business. The shipment remained for quite some time at
ATIs storage area until it was withdrawn by broker, PROVEN, on for delivery to the
consignee. Upon receipt of the shipment, it was found out that the delivered goods
incurred shortages and spillage for a loss/damage valued at P166,772.41. GASI sought
recompense from COSCO, thru its Philippine agent SMITH BELL, ATI and PROVEN but
was denied. Hence, it pursued indemnification from the shipments insurer, FIRST
LEPANTO. As subrogee, FIRST LEPANTO demanded from COSCO, its shipping agency
in the Philippines, SMITH BELL, PROVEN and ATI, reimbursement of the amount it paid
to GASI. ATI and PROVEN denied liability for the lost/damaged shipment and claimed that
it exercised due diligence and care in handling the same.
MeTC dismissed the case. On appeal, the Regional Trial Court (RTC) reversed the
MeTCs findings. ATI sought recourse with the CA challenging the RTCs finding that
FIRST LEPANTO was validly subrogated to the rights of GASI with respect to the
lost/damaged shipment. ATI argued that there was no valid subrogation because
FIRSTLEPANTO failed to present a valid, existing and enforceable Marine Open Policy or
insurance contract. ATI reasoned that the Certificate of Insurance or Marine Cover Note
submitted by FIRST LEPANTO as evidence is not the same as an actual insurance
contract.
ISSUE: Whether or not the non-presentation of an insurance contract will bar a subrogee
from collecting reimbursement.
HELD: No, Non-presentation of the insurance contract is not fatal to FIRST LEPANTOs
cause of action for reimbursement as subrogee. Subrogation is the substitution of one
person in the place of another with reference to a lawful claim or right, so that he who is
INSURANCE BATCH 3
substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities.
In the case at bar, the Supreme Court observed that it is conspicuous from the records
that ATI put in issue the submission of the insurance contract for the first time before the
CA. Despite opportunity to study FIRST LEPANTOs complaint before the MeTC, ATI failed
to allege in its answer the necessity of the insurance contract. Neither was the same
considered during pre-trial as one of the decisive matters in the case. Further, ATI never
challenged the relevancy or materiality of the Certificate of Insurance presented by FIRST
LEPANTO as evidence during trial as proof of its right to be subrogated in the consignees
stead. Since it was not agreed during the pre-trial proceedings that FIRST LEPANTO will
have to prove its subrogation rights by presenting a copy of the insurance contract, ATI is
barred from pleading the absence of such contract in its appeal. It is imperative for the
parties to disclose during pre-trial all issues they intend to raise during the trial because,
they are bound by the delimitation of such issues. The determination of issues during the
pre-trial conference bars the consideration of other questions, whether during trial or on
appeal.