Volume 3 Marine Insurance

IIAP Compilation of Supreme Court-
Decided Cases on Non-Life Insurance
Volume Three
MARINE INSURANCE
1
CONTENTS
I. All-Risk Clause
A. Filipino Merchants Insurance Co., Inc. vs. Court of Appeals and Choa Tiek Seng,
1989
B. Choa Tiek Seng vs. Court of Appeals, Filipino Merchants Insurance Company, Ben
Lines Container Ltd. and E. Razon Inc., 1990
II. Carriage of Goods by Sea Act

A. Filipino Merchants Insurance Co., Inc. vs. Alejandro, 1986
B. Mayer Steel Pipe Corporation vs. Court of Appeals, South Sea Surety and Insurance
Co., Inc. and Charter Insurance Corp., 1997
III. Contract of Affreightment

A. Coastwise Lighterage Corporation vs. Court of Appeals, 1995
IV. Fire
A. Philippine Home Assurance Corp. vs. Court of Appeals and Eastern Shipping Lines,
Inc., 1996
V. Interpretation of an Insurance Contract/Policy

A. White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety Corp., 2005
B. International Container Terminal Services, Inc. vs. FGU Insurance Corp., 2008
C. Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc., 2009
D. New World International Development (Phils.),Inc. vs. NYK-Fil-Japan Shipping Corp.,
2011
VI. Negligence
A. Philippine American General Insurance Co., Inc. vs. Court of Appeals and Felman
Shipping Lines, 1997
B. FGU Insurance Corporation vs. Court of Appeals, San Miguel Corp. and Estate of
Ang Gui, 2005
C. Sulpicio Lines Inc., vs. First Lepanto-Taisho Insurance Corp., 2005
D. Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc., 2005
E. Aboitiz Shipping Corp. vs. New India Assurance Company, Ltd., 2006
F. Aboitiz Shipping Corp. vs. Insurance Company of North America, 2008
G. Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corp., 2009
H. Asian Terminals, Inc. vs. Malayan Insurance Co., Inc., 2011
VII. Notice of Claim

A. Philippine Charter Insurance Corp. vs. Chemoil Lighterage Corp., 2005
VIII. Payment of Premium

A. South Sea Surety and Insurance Co., Inc. vs. Court of Appeals and Valenzuela
Hardwood and Industrial Supply, Inc., 1995
IX. Perils of the Sea

A. Cathay Insurance Co. vs. Court of Appeals and Remington Industrial Sales Corp.,
1987
2
B. Malayan Insurance Corporation vs. Court of Appeals and THC Marketing Corp.,
1997
X. Seaworthiness
A. Delsan Transport Lines, Inc. vs. Court of Appeals and American Home Assurance
Corp., 2001
XI. Subrogation
A. Lorenzo Shipping Corp. vs. Chubb and Sons, Inc., 2004
B. Federal Express Corp. vs. American Home Assurance Company, 2004
XII. Total Loss

A. Oriental Assurance Corporation vs. Court of Appeals, 1991
B. Pan Malayan Insurance Corp. vs. Court of Appeals and the Food and Agricultural
Organization of the United Nations, 1991
3
I. ALL-RISK CLAUSE
Filipino Merchants Insurance Co., Inc. vs. Court of Appeals and Choa Tiek Seng, G.R.
No. 85141 November 28, 1989
Choa Tiek Seng vs. Court of Appeals, Filipino Merchants Insurance Company, Ben
Lines Container Ltd. and E. Razon Inc., G.R. No. 84507 March 15, 1990
The all risks clause of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in
no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage.
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SECOND DIVISION
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.

Lapuz Law office for private respondent.
REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part
of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant

Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with
interest at legal rate from the date of filing of the complaint, and is modified with respect
to the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to
reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of
payment until the date of reimbursement, and (2) the third-party complaint against third
party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on board
the vessel SS Bougainville and unloaded at the Port of Manila on or about December 11,
1976 and seeks to recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which has been insured by the
defendant insurance company under Policy No. M-2678. The defendant brought a third
4
party complaint against third party defendants Compagnie Maritime Des Chargeurs
Reunis and/or E. Razon, Inc. seeking judgment against the third (sic) defendants in case
Judgment is rendered against the third party plaintiff. It appears from the evidence
presented that in December 1976, plaintiff insured said shipment with defendant
insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for
the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each
from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms.
Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF
Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on December
11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant's surveyor
ascertained and certified that in such discharge 105 bags were in bad order condition as
jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad
order was reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to
120322, as Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and 6-
Razon. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition of the cargo on such delivery was reflected in E.
Razon's Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags
in bad order condition. Defendant's surveyor has conducted a final and detailed survey of
the cargo in the warehouse for which he prepared a survey report Exhibit F with the
findings on the extent of shortage or loss on the bad order bags totalling 227 bags
amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a
formal claim against the defendant Filipino Merchants Insurance Company for
P51,568.62 (Exhibit C) the computation of which claim is contained therein. A formal
claim statement was also presented by the plaintiff against the vessel dated December
21, 1976, Exhibit B, but the defendant Filipino Merchants Insurance Company refused to
pay the claim. Consequently, the plaintiff brought an action against said defendant as
adverted to above and defendant presented a third party complaint against the vessel
and the arrastre contractor. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal
portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the

plaintiff and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the
defendants to pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the
complaint;
On the third party complaint, the third party defendant Compagnie Maritime Des
Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay to the third
party plaintiff jointly and severally reimbursement of the amounts paid by the third party
plaintiff with legal interest from the date of such payment until the date of such
reimbursement.
Without pronouncement as to costs. 3
On appeal, the respondent court affirmed the decision of the lower court insofar as the award on the
complaint is concerned and modified the same with regard to the adjudication of the third-party complaint.
A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following
assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks" clause
of the marine insurance policy when it held the petitioner liable to the private respondent
5
for the partial loss of the cargo, notwithstanding the clear absence of proof of some
fortuitous event, casualty, or accidental cause to which the loss is attributable, thereby
contradicting the very precedents cited by it in its decision as well as a prior decision of
the same Division of the said court (then composed of Justices Cacdac, Castro-
Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private respondent had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by private
respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of
fraud in not disclosing the fact, it being bound out of utmost good faith to do so, that it had
no insurable interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that an "all risks" marine policy has a technical
meaning in insurance in that before a claim can be compensable it is essential that there must be "some
fortuity, " "casualty" or "accidental cause" to which the alleged loss is attributable and the failure of herein
private respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the
cargo in question was due to a fortuitous event precludes his right to recover from the insurance policy.
We find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but
shall in no case be deemed to extend to cover loss, damage, or expense proximately
caused by delay or inherent vice or nature of the subject-matter insured. Claims
recoverable hereunder shall be payable irrespective of percentage. 5
An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an
accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have
not acquired any technical meaning. They are construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously,
without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event
that 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. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering
7
any loss other than a willful and fraudulent act of the insured. This is pursuant to the very purpose of an
"all risks" insurance to give protection to the insured in those cases where difficulties of logical
explanation or some mystery surround the loss or damage to property. 8 An "all asks" policy has been
evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss
can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is
9
written against all losses, that is, attributable to external causes.
The term "all risks" cannot be given a strained technical meaning, the language of the clause under the
Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses
suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b)
loss or damage or expense proximately caused by the inherent vice or nature of the subject matter
insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but
under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage
for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of
proving that the cargo was in good condition when the policy attached and that the cargo was damaged
6
when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to
the coverage. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic
rule is that the insurance company has the burden of proving that the loss is caused by the risk excepted
and for want of such proof, the company is liable.
Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance
which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid
coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. 12 A
marine insurance policy providing that the insurance was to be "against all risks" must be construed as
creating a special insurance and extending to other risks than are usually contemplated, and covers all
losses except such as arise from the fraud of the insured. 13 The burden of the insured, therefore, is to
prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the
burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the
insured the burden of proving the precise cause of the loss or damage would be inconsistent with the
broad protective purpose of "all risks" insurance.
In the present case, there being no showing that the loss was caused by any of the excepted perils, the
insurer is liable under the policy. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed
... it is believed that in the absence of any showing that the losses/damages were caused
by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter
insured, and there is no such showing, the lower court did not err in holding that the loss
was covered by the policy.
There is no evidence presented to show that the condition of the gunny bags in which the
fishmeal was packed was such that they could not hold their contents in the course of the
necessary transit, much less any evidence that the bags of cargo had burst as the result
of the weakness of the bags themselves. Had there been such a showing that spillage
would have been a certainty, there may have been good reason to plead that there was
no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims,
Ibid, p. 125). Under an 'all risks' policy, it was sufficient to show that there was damage
occasioned by some accidental cause of any kind, and there is no necessity to point to
any particular cause. 14
Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy.
The agreement has the force of law between the parties. The terms of the policy constitute the measure
of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in
15
their plain, ordinary and popular sense.
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent,
as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has
insurable interest in said goods.
Section 13 of the Insurance Code defines insurable interest in property as every interest in property,
whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in
property who derives a benefit from its existence or would suffer loss from its destruction whether he has
or has not any title in, or lien upon or possession of the property y. 16 Insurable interest in property may
consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an
17
expectancy, coupled with an existing interest in that out of which the expectancy arises.
7
Herein private respondent, as vendee/consignee of the goods in transit has such existing interest therein
as may be the subject of a valid contract of insurance. His interest over the goods is based on the
18
perfected contract of sale. The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before be performed the conditions of the
sale. 19 The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in
the determination of whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest
over the goods sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named
by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods
to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled
that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since,
from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium
20
covering them.
C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the
cost of the goods and freight to the named destination. 21 It simply means that the seller must pay the
costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to
the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of
shipment. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners
answer. It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised
during the trial in the court below. It is a settled rule that an issue which has not been raised in the court a
quo cannot be raised for the first time on appeal as it would be offensive to the basic rules of fair play,
justice and due process. 23 This is but a permuted restatement of the long settled rule that when a party
deliberately adopts a certain theory, and the case is tried and decided upon that theory in the court below,
he will not be permitted to change his theory on appeal because, to permit him to do so, would be unfair
to the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the
issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts
in this case and also to dispose of petitioner's third assignment of error which consequently needs no
further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of
Appeals is AFFIRMED in toto.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ., concur.

Melencio-Herrera (Chairperson), J., is on leave.
Footnotes
1 Rollo, 41; Justice Gonzaga-Reyes, ponente, with Justices Serafin E. Camilon and Pedro A. Ramirez
concurring.
2 Rollo, 26-28.
3 Ibid., 8-29.
4 Ibid., 10-11.
5 Original Record, Civil Case No. (112091) R-81-750, 26.
6 29A Am. Jur., 308-309.
7 Phoenix Ins. Co. vs. Branch (Fla. App) 234 So 2d 396.
8 Morrison Grain Co. vs. Utica Mut. Ins. Co. (.1 980, CA S Fla.) 632 F. 2d 424
8
9 Gilmore and Black, The Law of Admiralty, 68,169.
10 See Footnote 8, ante.
11 49 Phil. 753 (1926).
12 Walker vs. Traveller's Indemnity Co., (La. App.) 289 So. 2nd 864,869.
13 Goix vs. Knox, 1 Johns. Cas. 337, cited in Words and Phrases, Permanent Ed., Vol. 3, (1953 ed.) 310.
14 Rollo, 32.
15 Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28,1988.
16 43 Am. Jur. 2d, 507-508.
17 Sec. 14, Insurance Code.
18 Original Record, Folder of Exhibits, Exh. C-2, 6.
19 43 Am. Jur. 2d, 522; Vance on Insurance, 164-168.
20 Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, et al., 13 SCRA 626 (1965).
21 Business Law Principles and Cases by Harold Luck, Charles M. Hewitt, John D. Donnel, and A. James Barns,
Second Uniform Commercial Code Edition, 751-752.
22 Guide to INCO Terms, 1980 Ed., 48-50.
23 De Los Santos vs. Court of Appeals, et al., 140 SCRA 44 (1985); Dulos Realty & Development Corp. vs.
Court of Appeals, et al., 157 SCRA 425 (1988); Ramos, et al. vs. Intermediate Appellate Court, et. al. G.R. No.
78282, July 5,1989.
24 Molina vs. Somes, 24 Phil. 49 (1913); Agoncillo, et al. vs. Javier, 38 Phil, 424 (1918).
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FIRST DIVISION
G.R. No. 84507 March 15, 1990
CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES, petitioner,
vs.
HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE COMPANY, INC., BEN LINES
CONTAINER, LTD. AND E. RAZON, INC., respondents.
Lapuz Law Office for petitioner.

De Santos, Balgoz & Perez for respondent Filipino Merchants' Insurance Company, Inc.
Marilyn Cacho-Noe for respondent Ben Lines Container, Ltd.
DECISION
GANCAYCO, J.:
This is an appeal from a decision of the Court of Appeals dated February 18, 1988 in CA-G.R. CV No.
09627 which affirmed the decision of the Regional Trial Court (RTC) of Manila which in turn dismissed the
1
complaint.
On November 4, 1976 petitioner imported some lactose crystals from Holland. The importation involved
fifteen (15) metric tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at 25 kilos
net. The goods were loaded at the port at Rotterdam in sea vans on board the vessel "MS Benalder' as
the mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25" of respondent Ben
Lines Container, Ltd. (Ben Lines for short). The goods were insured by the respondent Filipino Merchants'
Insurance Co., Inc. (insurance company for short) for the sum of P98,882.35, the equivalent of
US$8,765.00 plus 50% mark-up or US$13,147.50, against all risks under the terms of the insurance
cargo policy. Upon arrival at the port of Manila, the cargo was discharged into the custody of the arrastre
operator respondent E. Razon, Inc. (broker for short), prior to the delivery to petitioner through his broker.
9
Of the 600 bags delivered to petitioner, 403 were in bad order. The surveys showed that the bad order
bags suffered spillage and loss later valued at P33,117.63.
Petitioner filed a claim for said loss dated February 16, 1977 against respondent insurance company in
the amount of P33,117.63 as the insured value of the loss.
Respondent insurance company rejected the claim alleging that assuming that spillage took place while
the goods were in transit, petitioner and his agent failed to avert or minimize the loss by failing to recover
spillage from the sea van, thus violating the terms of the insurance policy sued upon; and that assuming
that the spillage did not occur while the cargo was in transit, the said 400 bags were loaded in bad order,
and that in any case, the van did not carry any evidence of spillage.
Hence, petitioner filed the complaint dated August 2, 1977 in the Regional Trial Court of Manila against
respondent insurance company seeking payment of the sum of P33,117.63 as damages plus attorney's
fees and expenses of litigation. In its answer, respondent insurance company denied all the material
allegations of the complaint and raised several special defenses as well as a compulsory counterclaim.
On February 24, 1978, respondent insurance company filed a third-party complaint against respondents
Ben Lines and broker. Respondent broker filed its answer to the third-party complaint denying liability and
arguing, among others, that the petitioner has no valid cause of action against it. Similarly, Ben Lines filed
its answer denying any liability and a special defense arguing that respondent insurance company was
not the proper party in interest and has no connection whatsoever with Ben Lines Containers, Ltd. and
that the third-party complaint has prescribed under the applicable provisions of the Carriage of Goods by
Sea Act.
On November 6, 1979, respondent Ben Lines filed a motion for preliminary hearing on the affirmative
defense of prescription. In an order dated February 28, 1980, the trial court deferred resolution of the
aforesaid motion after trial on the ground that the defense of prescription did not appear to be indubitable.
After the pre-trial conference and trial on the merits, on March 31, 1986, the court a quo rendered a
judgment dismissing the complaint, the counterclaim and the third-party complaint with costs against the
petitioner.
Hence, the appeal to the Court of Appeals by petitioner which, in due course, as aforestated, affirmed the
judgment of the trial court.
A motion for reconsideration of said judgment was denied by the appellate court in a resolution dated
August 1, 1988.
Petitioner now filed this petition for review on certiorari in this Court predicated on the following grounds:
RESPONDENT COURT ERRED IN HOLDING THAT THE INSURED SHIPMENT DID

NOT SUSTAIN ANY DAMAGE/LOSS DESPITE ADMISSION THEREOF ON THE PART
OF RESPONDENT INSURANCE COMPANY AND THE FINDING OF THE LATTER'S
SURVEYORS.
II
RESPONDENT COURT ERRED IN HOLDING THAT AN "ALL RISKS" COVERAGE

COVERS ONLY LOSSES OCCASIONED BY OR RESULTING FROM "EXTRA AND
FORTUITOUS EVENTS" DESPITE THE CLEAR AND UNEQUIVOCAL DEFINITION OF
THE TERM MADE AND CONTAINED IN THE POLICY SUED UPON.
10
III
THE HOLDING OF RESPONDENT COURT THAT AN "ALL RISKS" COVERAGE

COVERS LOSSES OCCASIONED BY AND RESULTING FROM "EXTRA AND
FORTUITOUS EVENTS" CONTRADICTS THE RULING OF THE SAME COURT IN
ANOTHER CASE WHERE THE DEFINITION OF THE TERM "ALL RISKS"/ STATED IN
THE POLICY WAS MADE TO CONTROL HENCE THE NEED FOR REVIEW. 2
The petition is impressed with merit.
The appellate court, in arriving at the conclusion that there was no damage suffered by the cargo at the
time of the devanning thereof, held as follows:
Appellant argued that the cargo in question sustained damages while still in the
possession of the carrying vessel, because as his appointed surveyor reported,
Worldwide Marine Survey Corporation, at the time of devanning at the pier, 403 bags
were already in bad order and condition. Appellant found support to this contention on the
basis of the survey report of Worldwide Marine Survey Corporation of the Philippines and
of the Adjustment Corporation of the Philippines which were identified by his sole
witness, Jose See. It must be pointed out, however, that witness Jose See was
incompetent to identify the two survey reports because he was not actually present
during the actual devanning of the cargo, which fact was admitted by him, hence, he
failed to prove the authenticity of the aforesaid survey reports.
On the other hand, the evidence submitted by the appellee would conclusively establish
the fact that there was no damage suffered by the subject cargo at the time of the
devanning thereof. The cargo, upon discharge from the vessel, was delivered to the
custody of the arrastre operator (E. Razon) under clean tally sheet (Exh. 6-FMIC).
Moreover, the container van containing the cargo was found with both its seal and lock
intact. Article IV, paragraph 4 of the Management Contract (Exh. 5) signed between the
Bureau of Customs and the Arrastre Operator provides:
4. Tally Sheets for Cargo Vans or Containers The contractor shall give
a clean tally sheet for cargo vans received by it in good order and
condition with locks, and seals intact.
The same cargo was in turn delivered into the possession of the appellant by the arrastre
operator at the pier in good order and condition as shown by the clean gate passes
(Exhs. 2 and 3) and the delivery permit (Exh. 4). The clean gate passes were issued by
appellee arrastre operator covering the shipment in question, with the conformity of the
appellant's representative. The clean gate passes provide in part:
. . . 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 B.O. (Bad Order) Certificate duly issued and
noted on the face of this Gate Pass appears.
These clean gate passes are undoubtedly important and vital pieces of evidence. They
are noted in the dorsal side of another important piece of document which is the permit to
deliver (Exh. 4) issued by the Bureau of Customs to effect delivery of the cargo to the
consignee. The significance and value of these documents is that they bind the shipping
company and the arrastre operator whenever a cargo sustains damage while in their
respective custody. It is worthy of note that there was no turn over survey executed
between the vessel and the arrastre operator, indicating any damage to the cargo upon
11
discharge from the custody of the vessel. There was no bad order certificate issued by
the appellee arrastre operator, indicating likewise that there was no damage to the cargo
while in its custody.
It is surprising to the point that one could not believe that if indeed there was really
damage affecting the 403 bags out of the 600, with an alleged estimated spillage of
240%, this purportedly big quantity of spillage was never recovered which could have
been easily done considering that the shipment was in a container van which was found
to be sealed and intact. 3
However, in the same decision of the appellate court, the following evidence of the petitioner on this
aspect was summarized as follows:
The 600 bags which the original carrier received in apparent good order condition and
certified to by the vessel's agent to be weighing 15,300 kg. gross, were unloaded from
the transhipment vessel "Wesser Broker" stuffed in one container and turned over to the
arrastre operator, third party defendant-appellee E. Razon, Inc. A shipboard surveyor, the
Worldwide Marine Cargo Surveyor, as well as a representative of the vessel "Wesser
Broker" and a representative of the arrastre operator attended the devanning of the
shipment and the said shipboard surveyor certified that 403 bags were in bad order
condition with estimated spillage as follows:
65 P/bags each of 20%

(Exh. F-1)
Defendant and third-party plaintiff-appellee's protective surveyor determined the exact

spillage from the bad order bags as found by the shipboard surveyor at the consignee's
warehouse by weighing the bad order bags. Said protective surveyor found after
weighing the 403 bags in bad order condition that an aggregate of 5,173 kilos were
missing therefrom (Exh. F). 4
The assertion of the appellate court that the authenticity of the survey reports of the Worldwide Marine
Cargo Survey Corporation and the Adjustment Corporation of the Philippines were not established as
Jose See who identified the same was incompetent as he was not actually present during the actual
devanning of the cargo is not well taken.
In the first place it was respondent insurance company which undertook the protective survey aforestated
relating to the goods from the time of discharge up to the time of delivery thereof to the consignee's
warehouse, so that it is bound by the report of its surveyor which is the Adjustment Corporation of the
Philippines. 5 The Worldwide Marine Cargo Survey Corporation of the Philippines was the vessel's
surveyor. The survey report of the said Adjustment Corporation of the Philippines reads as follows:
During the turn-over of the contents delivery from the cargo sea van by the representative
of the shipping agent to consignee's representative/ Broker (Saint Rose Forwarders), 403
bags were bursted and/or torn, opened on one end contents partly spilled. The same
were inspected by the vessel's surveyor (Worldwide Marine & Cargo Survey
Corporation), findings as follows:
One (1) Container No. 2987789

Property locked and secured with Seal No. 18880.
12
FOUND:
197-Paper Bags (6-Ply each with One inner Plastic Lining Machine
Stitched with cotton Twine on Both ends. Containing Lactose Crystal 25
mesh Sep 061-09-03 in good order.
403-Bags, 6-ply torn and/or opened on one end, contents partly spilled,
estimated spillages as follows:

6
(emphasis supplied)
The authenticity of the said survey report need not be established in evidence as it is binding on
respondent insurance company who caused said protective survey.
Secondly, contrary to the findings of the appellate court that petitioner's witness Jose See was not
present at the time of the actual devanning of the cargo, what the record shows is that he was present
when the cargo was unloaded and received in the warehouse of the consignee. He saw 403 bags to be in
bad order. Present then was the surveyor, Adjustment Corporation of the Philippines, who surveyed the
cargo by segregating the bad order cargo from the good order and determined the amount of loss. 7 Thus,
said witness was indeed competent to identify the survey report aforestated.
Thirdly, in its letter dated May 26, 1977 to petitioner, respondent insurance company admitted in no
uncertain terms, the damages as indicated in the survey report in this manner:
We do not question the fact that out of the 600 bags shipment 403 bags appeared to be
in bad order or in damaged condition as indicated in the survey report of the vessel
surveyor. . . . 8
This admission even standing alone is sufficient proof of loss or damage to the cargo.
The appellate court observed that the cargo was discharged from the vessel and delivered to the custody
of the broker under the clean tally sheet, that the container van containing the cargo was found with both
its seal and lock intact; and that the cargo was delivered to the possession of the petitioner by the broker
in good order and condition as shown by the clean gate passes and delivery permit.
The clean tally sheet referred to by the appellate court covers the van container and not the cargo stuffed
therein. 9 The appellate court clearly stated that the clean tally sheet issued by the broker covers the
cargo vans received by it in good order and condition with lock and seal intact. Said tally sheet is no
evidence of the condition of the cargo therein contained. Even the witness of the respondent insurance
company, Sergio Icasiano, stated that the clean gate passes do not reflect the actual condition of the
10
cargo when released by the broker as it was not physically examined by the broker.
There is no question, therefore, that there were 403 bags in damaged condition delivered and received by
petitioner.
Nevertheless, on the assumption that the cargo suffered damages, the appellate court ruled:
13
Even assuming that the cargo indeed sustained damage, still the appellant cannot hold
the appellee insurance company liable on the insurance policy. In the case at bar,
appellant failed to prove that the alleged damage was due to risks connected with
navigation. A distinction should be made between "perils of the sea" which render the
insurer liable on account of the loss and/or damage brought about thereof and "perils of
the ship" which do not render the insurer liable for any loss or damage. Perils of the sea
or perils of navigation embrace all kinds of marine casualties, such as shipwreck,
foundering, stranding, collision and every specie of damage done to the ship or goods at
sea by the violent action of the winds or waves. They do not embrace all loses happening
on the sea. A peril whose only connection with the sea is that it arises aboard ship is not
necessarily a peril of the sea; the peril must be of the sea and not merely one accruing on
the sea (The Phil. Insurance Law, by Guevarra, 4th ed., 1961, p. 143). In Wilson, Sons
and Co. vs. Owners of Cargo per the Xantho (1887) A.C. 503, 508, it was held:
There must, in order to make the insurer liable be "some casualty,"

something which could not be foreseen as one of the necessary
incidents of the adventure. The purpose of the policy is to secure an
indemnity against accidents which may happen, not against events
which must happen.
Moreover, the cargo in question was insured in an "against all risk policy." Insurance
"against all risk" has a technical meaning in marine insurance. Under an "all risk" marine
policy, there must be a general rule be a fortuitous event in order to impose liability on the
insurer; losses occasioned by ordinary circumstances or wear and tear are not covered,
thus, while an "all risk" marine policy purports to cover losses from casualties at sea, it
does not cover losses occasioned by the ordinary circumstances of a voyage, but only
those resulting from extra and fortuitous events.
It has been held that damage to a cargo by high seas and other weather is not covered
by an "all risk" marine policy, since it is not fortuitous, particularly where the bad weather
occurs at a place where it could be expected at the time in question. (44 Am. Jur. 2d.
216) In Go Tiaoco y Hermanas vs. Union Insurance Society of Canto, 40 Phil. 40, it was
held:
In the present case, the entrance of the sea water into the ship's hold
through the defective pipe already described was not due to any accident
which happened during the voyage, but to the failure of the ship's owner
properly to repair a defect of the existence of which he was apprised.
The loss was therefore more analogous to that which directly results
from simple unseaworthiness than to that whose results, from perils of
11
the sea.
The Court disagrees.

12
In Gloren Inc. vs. Filipinas Cia. de Seguros, it was held that an all risk insurance policy insures against
all causes of conceivable loss or damage, except as otherwise excluded in the policy or due to fraud or
intentional misconduct on the part of the insured. It covers all losses during the voyage whether arising
from a marine peril or not, including pilferage losses during the war.
In the present case, the "all risks" clause of the policy sued upon reads as follows:
5. This insurance is against all risks of loss or damage to the subject matter insured but
shall in no case be deemed to extend to cover loss, damage, or expense proximately
14
caused by delay or inherent vice or nature of the subject matter insured. Claims
13
recoverable hereunder shall be payable irrespective of percentage.
The terms of the policy are so clear and require no interpretation. The insurance policy covers all loss or
damage to the cargo except those caused by delay or inherent vice or nature of the cargo insured. It is
the duty of the respondent insurance company to establish that said loss or damage falls within the
exceptions provided for by law, otherwise it is liable therefor.
An "all risks" provision of a marine policy creates a special type of insurance which extends coverage to
risks not usually contemplated and avoids putting upon the insured the burden of establishing that the
loss was due to peril falling within the policy's coverage. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the loss from coverage. 14
In this case, the damage caused to the cargo has not been attributed to any of the exceptions provided
for nor is there any pretension to this effect. Thus, the liability of respondent insurance company is clear.
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and another
judgment is hereby rendered ordering the respondent Filipinas Merchants Insurance Company, Inc. to
pay the sum of P33,117.63 as damages to petitioner with legal interest from the filing of the complaint,
plus attorney's fees and expenses of litigation in the amount of P10,000.00 as well as the costs of the
suit.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
Footnotes
1 Justice Bonifacio Cacdac, Jr. was the ponente, concurred in by Justices Floreliana Castro Bartolome and
Ricardo L. Pronove, Jr.
2 Page 9, Rollo.
3 Pages 38 to 39, Rollo.
5 See paragraph 7 of the complaint of the petitioner and paragraph 5 of the answer of respondent insurance
company; pages 13 to 14, Rollo.
6 Exhibits F to F-2; pages 14 to 15, Rollo.
7 TSN, October 8, 1981, pages 10 to 13; pares 15 to 17, Rollo.
8 Page 18, Rollo.
9 See paragraph 4, Article IV of the management contract signed by the Bureau of Customs and Arrastre
Operator (Exh. 5); pages 38-39, Rollo.
10 Page 19, Rollo.
12 65 O.G. 3392; see also 45 C.J.S. 941.
13 Exh. B; page 23, rollo.
14 Walker vs. Traveller's Indemnity Co., La. App. 289, So. Ind. 864, 869.
15
II. CARRIAGE OF GOODS SEA ACT
Filipino Merchants Insurance Co., Inc. vs. Alejandro, G.R. No. L-54140 October 14, 1986
Mayer Steel Pipe Corporation vs. Court of Appeals, South Sea Surety and Insurance
Co., Inc. and Charter Insurance Corp., G.R. No. 124050 June 19, 1997
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in
writing to the carrier or his agent at the port of discharge before or at the time of the removal of
the goods into the custody of the person entitled to delivery thereof under the contract of carriage,
such removal shall be prima facie evidence of the delivery by the carrier of the goods as
described in the bill of lading. If the loss or damage is not apparent, the notice must be given
within three days of the delivery.
----------
SECOND DIVISION
G.R. No. L-54140 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,

vs.
HONORABLE JOSE ALEJANDRO, Presiding Judge of Branch XXVI of the Court of First Instance of
Manila and FROTA OCEANICA BRASILIERA, respondents.
G.R. No. L-62001 October 14, 1986
FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,

vs.
HONORABLE ALFREDO BENIPAYO, Presiding Judge of Branch XVI of the Court of First Instance of
Manila and AUSTRALIA-WEST PACIFIC LINE, respondents.
DECISION
GUTIERREZ, JR., J.:
These consolidated petitions raise the issue of whether or not the one-year period within which to file a
suit against the carrier and theship, in case of damage or loss as provided for in the Carriage of Goods by
Sea Act applies to the insurer of the goods.
On August 3, 1977, plaintiff Choa Tiek Seng filed a complaint, docketed as Civil Case No. 109911,
against the petitioner before the then Court of First Instance of Manila for recovery of a sum of money
under the marine insurance policy on cargo. Mr. Choa alleged that the goods he insured with the
16
petitioner sustained loss and damage in the amount of P35,987.26. The vessel SS Frotario which was
owned and operated by private respondent Frota Oceanica Brasiliera, (Frota) discharged the goods at the
port of Manila on December 13, 1976. The said goods were delivered to the arrastre operator E. Razon,
Inc., on December 17, 1976 and on the same date were received by the consignee-plaintiff.
On December 19, 1977, the petitioner filed its amended answer disclaiming liability, imputing against the
plaintiff the commission of fraud and counterclaiming for damages.
On January 9, 1978, the petitioner filed a third-party complaint against the carrier, private respondent
Frota and the arrastre contractor, E. Razon, Inc. for indemnity, subrogation, or reimbursement in the
event that it is held liable to the plaintiff.
Meanwhile, on August 10, 1977, Joseph Benzon Chua filed a similar complaint against the petitioner
which was docketed as Civil Case No. 110061, for recovery under the marine insurance policy for cargo
alleging that the goods insured with the petitioner sustained loss and damage in the sum of P55,996.49.
The goods were delivered to the plaintiff-consignee on or about January 25-28, 1977.
On May 31, 1978, the petitioner filed its answer. On September 28, 1978, it filed an amended third-party
complaint against respondent carrier, the Australia-West Pacific Line (Australia-West).
In both cases, the private respondents filed their respective answers and subsequently filed a motion for
preliminary hearing on their affirmative defense of prescription. The private respondents alleged in their
separate answers that the petitioner is already barred from filing a claim because under the Carriage of
Goods by Sea Act, the suit against the carrier must be filed within one year after delivery of the goods or
the date when the goods should have been delivered...
The petitioner contended that the provision relied upon by the respondents applies only to the shipper
and not to the insurer of the goods.
On April 30, 1980, the respondent judge in Civil Case No. 109911, upheld respondent Frota and
dismissed the petitioner's third-party complaint. Likewise, on August 31, 1982, the respondent judge in
Civil Case No. 110061 dismissed the petitioner's third-party complaint against respondent Australia-West
on the ground that the same was filed beyond the prescriptive period provide in Section 3 (6) of the
Carriage of Goods by Sea Act of 1936. These both cases, the petitioner appealed to us on a pure
question of law, raising the issue of whether or not the prescriptive period of one year under the said Act
also applies to an insurer such as herein petitioner.
The petitioner maintains that the one-year prescriptive period cannot cover an insurer which has not
settled the claim of its insured because it cannot be considered as the person referred to in the applicable
provision of the said Act that has the duty or right to give notice of loss or damage to the carrier or to sue
such carrier within the period of one year and that where an insurer does not settle the claim of its insured
it cannot be considered as subrogated to the rights of said insured that would then authorize it to sue the
carrier within the time-bar of one year. The petitioner further contends that the period for the filing of a
third-party complaint must be reckoned from the date when the principal action was filed, that is, from the
time the insured filed a suit against the petitioner, because the third-party complaint is merely an incident
of the main action.
On the other hand, the respondents argue that the one-year prescriptive period within which to file a case
against the carrier also applies to a claim filed by an insurer who stands as a subrogee to the insured and
that the third-party complaint filed by the petitioner cannot be reckoned from the firing of the main action
because such complaint is independent of, and separate and distinct from the insured's action against the
petitioner.
17
The lower courts did not err.
Section 3(b) of the Carriage of Goods by Sea Act provides:
(6) Unless notice of loss or damage and the general nature of such loss or damage be
given in writing to the carrier or his agent at the port of discharge before or at the time of
the removal of the goods into the custody of the person entitled to delivery thereof under
the contract of carriage, such removal shall be prima facie evidence of the delivery by the
carrier of the goods as described in the bill of lading. If the loss or damage is not
apparent, the notice must be given within three days of the delivery.
Said notice of loss or damage may be endorsed upon the receipt for the goods given by
the person taking delivery thereof.
The notice in writing need not be given if the state of the goods has at the time of their
receipt been the subject of joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date
when the goods should have been delivered: Provided, that if a notice of loss or damage,
either apparent or concealed, is not given as provided for in this section, that fact shall
not affect or prejudice the right of the shipper to bring the suit within one year after the
delivery of the goods or the date when the goods should have been delivered.
In the case of any actual or apprehended loss or damage, the carrier and the receiver
shall give all reasonable facilities to each other for inspecting and tallying the goods.
(Emphasis supplied) Philippine Permanent and General Statutes (Revised Edition, Vol. 1,
pp. 663-666).
Chua Kuy v. Everett Steamship Corporation (93 Phil 207, 213-214), expounds on the extent of the
applicability of the aforequoted provision. We ruled:
Neither do we find tenable the claim that the prescriptive period contained in said act can
only be invoked by the shipper, excluding all other parties to the transaction. While
apparently the proviso contained in the portion of section 3(6) of the act we have quoted
gives the impression that the right to file suit within one year after delivery of the goods
applies to the shipper alone, however, reading the proviso in conjunction with the rest of
section 3(6), it at once becomes apparent that the conclusion drawn by petitioner is
unwarranted. In the first place, said section provides that the notice of loss or damage for
which a claim for indemnity may be made should be given in writing to the carrier at the
port of discharge before or at the time of the removal of the goods, and if the loss or
damage is not apparent said notice should be given 'within three days on delivery.' From
the language of this section, it seems clear that the notice of loss or damage is required
to be filed not necessarily by the shipper but also by the consignee or any legal holder of
the bill of lading. In fact, said section requires that the notice be given at the port of
discharge and the most logical party to file the notice is either the consignee or the
endorsee of the bill of lading. In the second place, a study of the historical background of
this particular provision will show that although the word shipper is used in the proviso
referred to by the petitioner, the intention of the law was not to exclude the consignee or
endorsee of the bill of lading from bringing the action but merely to limit the filing of the
same within one year after the delivery of the goods at the port of discharge. [The
Southern Cross, 1940, A. M. C. 59 (SDNY); Lindgren v. Farley, 1938 A. M. C. 805
(SDNY)].
18
Arnold W. Knauth, an eminent authority on admiralty, commenting on this proviso, says:
xxx xxx xxx
It seems evident that this language does not alter the sense of the text of the Hague
Rules; it merely reiterates in another form the rule already laid down. Curiously, the
proviso seems limited to the rights of shippers, and might strictly be construed not to give
any rights to consignees, representatives, or subrogated parties; whereas the Hague
Rules phraseology is broader. As the Act contains both phrases, it would seem to be as
broad as the broader of the two forms of words. (Ocean Bills of Lading, by Knauth, p.
229).
Clearly, the coverage of the Act includes the insurer of the goods. Otherwise, what the Act intends to
prohibit after the lapse of the one-year prescriptive period can be done indirectly by the shipper or owner
of the goods by simply filing a claim against the insurer even after the lapse of one year. This would be
the result if we follow the petitioner's argument that the insurer can, at any time, proceed against the
carrier and the ship since it is not bound by the time-bar provision. In this situation, the one-year limitation
will be practically useless. This could not have been the intention of the law which has also for its purpose
the protection of the carrier and the ship from fraudulent claims by having "matters affecting transportation
of goods by sea be decided in as short a time as possible" and by avoiding incidents which would
"unnecessarily extend the period and permit delays in the settlement of questions affecting the
transportation." (See The Yek Tong Fire and Marine Insurance Co., Ltd., v. American President Lines,
Inc., 103 Phil. 1125-1126).
In the case of Aetna Insurance Co. v. Luzon Stevedoring Corporation (62 SCRA 11, 15), we denied the
appeal of an insurance company which filed a suit against the carrier after the lapse of one year. We
ruled:
There is no merit in the appeal. The trial court correctly held that the one-year statutory
and contractual prescriptive period had already expired when appellant company filed on
April 7, 1965 its action against Barber Line Far East Service. The one-year period
commenced on February 25, 1964 when the damaged cargo was delivered to the
consignee. (See Chua Kuy v. Everrett Steamship Corporation, 93 Phil. 207; Yek Tong
Fire & Marine Insurance Co., Ltd. v. American President Lines, Inc., 103 Phil. 1125).
We likewise agree with the respondents that the third-party complaint of the petitioner cannot be
considered to have been filed upon the filing of the main action because although it can be said that a
third-party complaint is but ancilliary to the main action (Eastern Assurance and Surety Corporation v. Cui
105 SCRA 622), it cannot abridge, enlarge, nor modify the substantive rights of any litigant. It creates no
substantive rights. Thus, unless there is some substantive basis for the third-party Plaintiff's claim, he
cannot utilized the filing of such action to acquire any right of action against the third-party defendant.
(See also Francisco, The Revised Rules of Court in the Philippines, Vol. 1, 1973 Ed., p. 507). The
petitioner can only rightfully file a third-party complaint against the respondents if, in the first place, it can
still validly maintain an action against the latter.
In the case at bar, the petitioner's action has prescribed under the provisions of the Carriage of Goods by
Sea Act. Hence, whether it files a third-party complaint or chooses to maintain an independent action
against herein respondents is of no moment. Had the plaintiffs in the civil cases below filed an action
against the petitioner after the one-year prescriptive period, then the latter could have successfully denied
liability on the ground that by their own doing, the plaintiffs had prevented the petitioner from being
subrogated to their respective rights against the herein respondents by filing a suit after the one-year
prescriptive period. The situation, however, does not obtain in the present case. The plaintiffs in the civil
cases below gave extra-judicial notice to their respective carriers and filed suit against the petitioner well
within one year from their receipt of the goods. The petitioner had plenty of time within which to act. In
19
Civil Case No. 109911, the petitioner had more than four months to file a third-party complaint while in
Civil Case No. 110061, it had more than five months to do so. In both instances, however, the petitioner
failed to file the appropriate action.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions in G. R. No. 54140 and G. R. No. 62001
are hereby DISMISSED for lack of merit. Costs against the petitioner.
SO ORDERED.
Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.
----------
SECOND DIVISION
G.R. No. 124050 June 19, 1997
MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT,

petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the CHARTER
INSURANCE CORPORATION, respondents.
DECISION
PUNO, J.:
This is a petition for review on certiorari to annul and set aside the Decision of respondent Court of
Appeals dated December 14, 1995 1 and its Resolution dated February 22, 1996 2 in CA-G.R. CV No.
45805 entitled Mayer Steel Pipe Corporation and Hongkong Government Supplies Department v. South
Sea Surety Insurance Co., Inc. and The Charter Insurance Corporation. 3
In 1983, petitioner Hongkong Government Supplies Department (Hongkong) contracted petitioner Mayer
Steel Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings. From August
to October, 1983, Mayer shipped the pipes and fittings to Hongkong as evidenced by Invoice Nos. MSPC-
1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and MSPC-1022. 4
Prior to the shipping, petitioner Mayer insured the pipes and fittings against all risks with private
respondents South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp.
(Charter). The pipes and fittings covered by Invoice Nos. MSPC-1014, 1015 and 1025 with a total amount
of US$212,772.09 were insured with respondent South Sea, while those covered by Invoice Nos. 1020,
1017 and 1022 with a total amount of US$149,470.00 were insured with respondent Charter.
Petitioners Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance with the
specifications in the contract. Industrial Inspection certified all the pipes and fittings to be in good order
condition before they were loaded in the vessel. Nonetheless, when the goods reached Hongkong, it was
discovered that a substantial portion thereof was damaged.
20
Petitioners filed a claim against private respondents for indemnity under the insurance contract.
Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75. Petitioners demanded
payment of the balance of HK$299,345.30 representing the cost of repair of the damaged pipes. Private
respondents refused to pay because the insurance surveyor's report allegedly showed that the damage is
a factory defect.
On April 17, 1986, petitioners filed an action against private respondents to recover the sum of
HK$299,345.30. For their defense, private respondents averred that they have no obligation to pay the
amount claimed by petitioners because the damage to the goods is due to factory defects which are not
covered by the insurance policies.
The trial court ruled in favor of petitioners. It found that the damage to the goods is not due to
manufacturing defects. It also noted that the insurance contracts executed by petitioner Mayer and private
respondents are "all risks" policies which insure against all causes of conceivable loss or damage. The
only exceptions are those excluded in the policy, or those sustained due to fraud or intentional
misconduct on the part of the insured. The dispositive portion of the decision states:
WHEREFORE, judgment is hereby rendered ordering the defendants jointly and

severally, to pay the plaintiffs the following:
1. the sum equivalent in Philippine currency of HK$299,345.30, with legal rate of interest
as of the filing of the complaint;
2. P100,000.00 as and for attorney's fees; and
3. costs of suit.
SO ORDERED. 5
Private respondents elevated the case to respondent Court of Appeals.
Respondent court affirmed the finding of the trial court that the damage is not due to factory defect and
that it was covered by the "all risks" insurance policies issued by private respondents to petitioner Mayer.
However, it set aside the decision of the trial court and dismissed the complaint on the ground of
prescription. It held that the action is barred under Section 3(6) of the Carriage of Goods by Sea Act since
it was filed only on April 17, 1986, more than two years from the time the goods were unloaded from the
vessel. Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is brought within one year after
delivery of the goods or the date when the goods should have been delivered." Respondent court ruled
that this provision applies not only to the carrier but also to the insurer, citing Filipino Merchants Insurance
6
Co., Inc. v. Alejandro.
Hence this petition with the following assignments of error:
1. The respondent Court of Appeals erred in holding that petitioners' cause of action had
already prescribed on the mistaken application of the Carriage of Goods by Sea Act and
the doctrine of Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42); and
7
2. The respondent Court of Appeals committed an error in dismissing the complaint.
The petition is impressed with merit. Respondent court erred in applying Section 3(6) of the Carriage of
Goods by Sea Act.
21
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be discharged
from all liability for loss or damage to the goods if no suit is filed within one year after delivery of the
goods or the date when they should have been delivered. Under this provision, only the carrier's liability is
extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on the contract of insurance. A
close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between
the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It
defines the obligations of the carrier under the contract of carriage. It does not, however, affect the
relationship between the shipper and the insurer. The latter case is governed by the Insurance Code.
8 9
Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro and the other cases cited therein does
not support respondent court's view that the insurer's liability prescribes after one year if no action for
indemnity is filed against the carrier or the insurer. In that case, the shipper filed a complaint against the
insurer for recovery of a sum of money as indemnity for the loss and damage sustained by the insured
goods. The insurer, in turn, filed a third-party complaint against the carrier for reimbursement of the
amount it paid to the shipper. The insurer filed the third-party complaint on January 9, 1978, more than
one year after delivery of the goods on December 17, 1977. The court held that the insurer was already
barred from filing a claim against the carrier because under the Carriage of Goods by Sea Act, the suit
against the carrier must be filed within one year after delivery of the goods or the date when the goods
should have been delivered. The court said that "the coverage of the Act includes the insurer of the
goods." 10
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was the insurer
which filed a claim against the carrier for reimbursement of the amount it paid to the shipper. In the case
at bar, it was the shipper which filed a claim against the insurer. The basis of the shipper's claim is the "all
risks" insurance policies issued by private respondents to petitioner Mayer.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either by the shipper,
the consignee or the insurer. When the court said in Filipino Merchants that Section 3(6) of the Carriage
of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a
claim against the carrier beyond the one-year period provided in the law. But it does not mean that the
shipper may no longer file a claim against the insurer because the basis of the insurer's liability is the
insurance contract. An insurance contract is a contract whereby one party, for a consideration known as
the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.
11
An "all risks" insurance policy covers all kinds of loss other than those due to willful and fraudulent act
of the insured. 12 Thus, when private respondents issued the "all risks" policies to petitioner Mayer, they
bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation
prescribes in ten years, in accordance with Article 1144 of the New Civil Code. 13
IN VIEW WHEREOF, the petition is GRANTED. The Decision of respondent Court of Appeals dated
December 14, 1995 and its Resolution dated February 22, 1996 are hereby SET ASIDE and the Decision
of the Regional Trial Court is hereby REINSTATED. No costs.
SO ORDERED.
Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.
Footnotes
1 Annex "A" of the Petition, Rollo, pp. 15-30.
2 Annex "B" of the Petition, Rollo, pp. 31-32.
3 Penned by Justice Minerva P. Gonzaga-Reyes with the concurrence of Justices Buenaventura J. Guererro and
Romeo A. Brawner.
4 The pipes and fittings covered by Invoice Nos. MSPC-1014 and MSPC-1017 were loaded on August 24, 1983;
those covered by Invoice No. MSPC-1015 were loaded on August 31, 1983; those covered by Invoice Nos.
22
MSPC-1020 and MSPC-1022 were loaded on October 10, 1983; and those covered by Invoice No MSPC-1025
were loaded on October 21, 1983.
5 Rollo, pp. 20-21.
6 145 SCRA 42 (1986).
7 Petition, Rollo, p. 10.
8 145 SCRA 42 (1986).
9 See Chua Kuy v. Everett Steamship Corporation (93 Phil 207) and Aetna Insurance Co. v. Luzon Stevedoring
Corporation ( 62 SCRA 11).
10 At p. 47.
11 43 American Jurisprudence 2d 74-75.
12 Filipino Merchants Insurance Co., Inc. v. Court of Appeals, 179 SCRA 638 (1989).
13 Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
23
III. CONTRACT OF AFFREIGHTMENT
Coastwise Lighterage Corporation vs. Court of Appeals, G.R. No. 114167 July 12, 1995
A contract of affreightment is one in which the owner of the vessel leases part or all of its space
to haul goods for others. It is a contract for special service to be rendered by the owner of the
vessel and under such contract the general owner retains the possession, command and
navigation of the ship, the charterer or freighter merely having use of the space in the vessel in
return for his payment of the charter hire.
----------
THIRD DIVISION
G.R. No. 114167 July 12, 1995
COASTWISE LIGHTERAGE CORPORATION, petitioner,

vs.
COURT OF APPEALS and the PHILIPPINE GENERAL INSURANCE COMPANY, respondents.
RESOLUTION
FRANCISCO, R., J.:
This is a petition for review of a Decision rendered by the Court of Appeals, dated December 17, 1993,
affirming Branch 35 of the Regional Trial Court, Manila in holding that herein petitioner is liable to pay
herein private respondent the amount of P700,000.00, plus legal interest thereon, another sum of
P100,000.00 as attorney's fees and the cost of the suit.
The factual background of this case is as follows:
Pag-asa Sales, Inc. entered into a contract to transport molasses from the province of Negros to Manila
with Coastwise Lighterage Corporation (Coastwise for brevity), using the latter's dumb barges. The
barges were towed in tandem by the tugboat MT Marica, which is likewise owned by Coastwise.
Upon reaching Manila Bay, while approaching Pier 18, one of the barges, "Coastwise 9", struck an
unknown sunken object. The forward buoyancy compartment was damaged, and water gushed in through
1
a hole "two inches wide and twenty-two inches long" As a consequence, the molasses at the cargo
tanks were contaminated and rendered unfit for the use it was intended. This prompted the consignee,
Pag-asa Sales, Inc. to reject the shipment of molasses as a total loss. Thereafter, Pag-asa Sales, Inc.
filed a formal claim with the insurer of its lost cargo, herein private respondent, Philippine General
Insurance Company (PhilGen, for short) and against the carrier, herein petitioner, Coastwise Lighterage.
Coastwise Lighterage denied the claim and it was PhilGen which paid the consignee, Pag-asa Sales,
Inc., the amount of P700,000.00, representing the value of the damaged cargo of molasses.
In turn, PhilGen then filed an action against Coastwise Lighterage before the Regional Trial Court of
Manila, seeking to recover the amount of P700,000.00 which it paid to Pag-asa Sales, Inc. for the latter's
lost cargo. PhilGen now claims to be subrogated to all the contractual rights and claims which the
consignee may have against the carrier, which is presumed to have violated the contract of carriage.
24
The RTC awarded the amount prayed for by PhilGen. On Coastwise Lighterage's appeal to the Court of
Appeals, the award was affirmed.
Hence, this petition.
There are two main issues to be resolved herein. First, whether or not petitioner Coastwise Lighterage
was transformed into a private carrier, by virtue of the contract of affreightment which it entered into with
the consignee, Pag-asa Sales, Inc. Corollarily, if it were in fact transformed into a private carrier, did it
exercise the ordinary diligence to which a private carrier is in turn bound? Second, whether or not the
insurer was subrogated into the rights of the consignee against the carrier, upon payment by the insurer
of the value of the consignee's goods lost while on board one of the carrier's vessels.
On the first issue, petitioner contends that the RTC and the Court of Appeals erred in finding that it was a
common carrier. It stresses the fact that it contracted with Pag-asa Sales, Inc. to transport the shipment of
molasses from Negros Oriental to Manila and refers to this contract as a "charter agreement". It then
2
proceeds to cite the case of Home Insurance Company vs. American Steamship Agencies, Inc. wherein
this Court held: ". . . a common carrier undertaking to carry a special cargo or chartered to a special
person only becomes a private carrier."
Petitioner's reliance on the aforementioned case is misplaced. In its entirety, the conclusions of the court
are as follows:
Accordingly, the charter party contract is one of affreightment over the whole vessel,
rather than a demise. As such, the liability of the shipowner for acts or negligence of its
captain and crew, would remain in the absence of stipulation. 3
The distinction between the two kinds of charter parties (i.e. bareboat or demise and contract of
affreightment) is more clearly set out in the case of Puromines, Inc. vs. Court of Appeals, 4 wherein we
ruled:
Under the demise or bareboat charter of the vessel, the charterer will generally be
regarded as the owner for the voyage or service stipulated. The charterer mans the
vessel with his own people and becomes the owner pro hac vice, subject to liability to
others for damages caused by negligence. To create a demise, the owner of a vessel
must completely and exclusively relinquish possession, command and navigation thereof
to the charterer, anything short of such a complete transfer is a contract of affreightment
(time or voyage charter party) or not a charter party at all.
On the other hand a contract of affreightment is one in which the owner of the vessel
leases part or all of its space to haul goods for others. It is a contract for special service
to be rendered by the owner of the vessel and under such contract the general owner
retains the possession, command and navigation of the ship, the charterer or freighter
merely having use of the space in the vessel in return for his payment of the charter hire.
....
. . . . An owner who retains possession of the ship though the hold is the property of the
charterer, remains liable as carrier and must answer for any breach of duty as to the
care, loading and unloading of the cargo. . . .
Although a charter party may transform a common carrier into a private one, the same however is not true
in a contract of affreightment on account of the aforementioned distinctions between the two.
25
Petitioner admits that the contract it entered into with the consignee was one of affreightment. 5 We agree.
Pag-asa Sales, Inc. only leased three of petitioner's vessels, in order to carry cargo from one point to
another, but the possession, command and navigation of the vessels remained with petitioner Coastwise
Lighterage.
Pursuant therefore to the ruling in the aforecited Puromines case, Coastwise Lighterage, by the contract
of affreightment, was not converted into a private carrier, but remained a common carrier and was still
liable as such.
The law and jurisprudence on common carriers both hold that the mere proof of delivery of goods in good
order to a carrier and the subsequent arrival of the same goods at the place of destination in bad order
makes for a prima facie case against the carrier.
It follows then that the presumption of negligence that attaches to common carriers, once the goods it
transports are lost, destroyed or deteriorated, applies to the petitioner. This presumption, which is
overcome only by proof of the exercise of extraordinary diligence, remained unrebutted in this case.
The records show that the damage to the barge which carried the cargo of molasses was caused by its
hitting an unknown sunken object as it was heading for Pier 18. The object turned out to be a submerged
derelict vessel. Petitioner contends that this navigational hazard was the efficient cause of the accident.
Further it asserts that the fact that the Philippine Coastguard "has not exerted any effort to prepare a
chart to indicate the location of sunken derelicts within Manila North Harbor to avoid navigational
6
accidents" effectively contributed to the happening of this mishap. Thus, being unaware of the hidden
danger that lies in its path, it became impossible for the petitioner to avoid the same. Nothing could have
prevented the event, making it beyond the pale of even the exercise of extraordinary diligence.
However, petitioner's assertion is belied by the evidence on record where it appeared that far from having
rendered service with the greatest skill and utmost foresight, and being free from fault, the carrier was
culpably remiss in the observance of its duties.
Jesus R. Constantino, the patron of the vessel "Coastwise 9" admitted that he was not licensed. The
Code of Commerce, which subsidiarily governs common carriers (which are primarily governed by the
provisions of the Civil Code) provides:
Art. 609. Captains, masters, or patrons of vessels must be Filipinos, have legal
capacity to contract in accordance with this code, and prove the skill capacity and
qualifications necessary to command and direct the vessel, as established by marine and
navigation laws, ordinances or regulations, and must not be disqualified according to the
same for the discharge of the duties of the position. . . .
Clearly, petitioner Coastwise Lighterage's embarking on a voyage with an unlicensed patron violates this
rule. It cannot safely claim to have exercised extraordinary diligence, by placing a person whose
navigational skills are questionable, at the helm of the vessel which eventually met the fateful accident. It
may also logically, follow that a person without license to navigate, lacks not just the skill to do so, but
also the utmost familiarity with the usual and safe routes taken by seasoned and legally authorized ones.
Had the patron been licensed, he could be presumed to have both the skill and the knowledge that would
have prevented the vessel's hitting the sunken derelict ship that lay on their way to Pier 18.
As a common carrier, petitioner is liable for breach of the contract of carriage, having failed to overcome
the presumption of negligence with the loss and destruction of goods it transported, by proof of its
exercise of extraordinary diligence.
On the issue of subrogation, which petitioner contends as inapplicable in this case, we once more rule
against the petitioner. We have already found petitioner liable for breach of the contract of carriage it
26
entered into with Pag-asa Sales, Inc. However, for the damage sustained by the loss of the cargo which
petitioner-carrier was transporting, it was not the carrier which paid the value thereof to Pag-asa Sales,
Inc. but the latter's insurer, herein private respondent PhilGen.
Article 2207 of the Civil Code is explicit on this point:
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 violated the contract. . . .
This legal provision containing the equitable principle of subrogation has been applied in a long line of
cases including Compania Maritima v. Insurance Company of North America; 7 Fireman's Fund Insurance
Company v. Jamilla & Company, Inc., 8 and Pan Malayan Insurance Corporation v. Court of Appeals, 9
wherein this Court explained:
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 operated 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.
Undoubtedly, upon payment by respondent insurer PhilGen of the amount of P700,000.00 to Pag-asa
Sales, Inc., the consignee of the cargo of molasses totally damaged while being transported by petitioner
Coastwise Lighterage, the former was subrogated into all the rights which Pag-asa Sales, Inc. may have
had against the carrier, herein petitioner Coastwise Lighterage.
WHEREFORE, premises considered, this petition is DENIED and the appealed decision affirming the
order of Branch 35 of the Regional Trial Court of Manila for petitioner Coastwise Lighterage to pay
respondent Philippine General Insurance Company the "principal amount of P700,000.00 plus interest
thereon at the legal rate computed from March 29, 1989, the date the complaint was filed until fully paid
and another sum of P100,000.00 as attorney's fees and costs" 10 is likewise hereby AFFIRMED
SO ORDERED.
Feliciano, Romero, Melo and Vitug, JJ., concur.
Footnotes
1 Rollo, p. 25, Decision, Court of Appeals.
2 23 SCRA 24.
3 Ibid, p. 27.
4 220 SCRA 281.
5 Rollo, p. 11, Petition, p. 5.
6 Rollo, p. 85.
7 12 SCRA 213.
8 70 SCRA 323.
9 184 SCRA 54.
10 Rollo, p. 24.
27
IV. FIRE
Philippine Home Assurance Corp. vs. Court of Appeals and Eastern Shipping Lines, Inc.,
G.R. No. 106999 June 20, 1996
In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost
always arises from some act of man or by human means.
It cannot be an act of God unless caused by lightning or a natural disaster or casualty not
attributable to human agency.
----------
FIRST DIVISION
G.R. No. 106999 June 20, 1996
PHILIPPINE HOME ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and EASTERN SHIPPING LINES, INC., respondents.
DECISION
KAPUNAN, J.:p
Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer in Kobe, Japan, the following
shipment for carriage to Manila and Cebu, freight pre-paid and in good order and condition, viz: (a) two
(2) boxes internal combustion engine parts, consigned to William Lines, Inc. under Bill of Lading No.
042283; (b) ten (l0) metric ton. (334 bags) ammonium chloride, consigned to Orca's Company under Bill
of Lading No. KCE-I2; (c) two hundred (200) bags Glue 300, consigned to Pan Oriental Match Company
under Bill of Lading No. KCE-8; and (d) garments, consigned to Ding Velayo under Bills of Lading Nos.
KMA-73 and KMA-74.
While the vessel was off Okinawa, Japan, a small flame was detected on the acetylene cylinder located in
the accommodation area near the engine room on the main deck level. As the crew was trying to
extinguish the fire, the acetylene cylinder suddenly exploded sending a flash of flame throughout the
accommodation area, thus causing death and severe injuries to the crew and instantly setting fire to the
whole superstructure of the vessel. The incident forced the master and the crew to abandon the ship.
Thereafter, SS Eastern Explorer was found to be a constructive total loss and its voyage was declared
abandoned.
Several hours later, a tugboat under the control of Fukuda Salvage Co. arrived near the vessel and
commenced to tow the vessel for the port of Naha, Japan.
Fire fighting operations were again conducted at the said port. After the fire was extinguished, the
cargoes which were saved were loaded to another vessel for delivery to their original ports of destination.
28
ESLI charged the consignees several amounts corresponding to additional freight and salvage charges,
as follows: (a) for the goods covered by Bill of Lading No. 042283, ESLI charged the consignee the sum
of P1,927.65, representing salvage charges assessed against the goods; (b) for the goods covered by Bill
of Lading No. KCE-12, ESLI charged the consignee the sum of P2,980.64 for additional freight and
P826.14 for salvage charges against the goods; (c) for the goods covered by Bill of Lading No. KCE-8,
ESLI charged the consignee the sum of P3,292.26 for additional freight and P4,130.68 for salvage
charges against the goods; and
(d) for the goods under Bills of Lading Nos. KMA-73 and KMA-74, ESLI charged the consignee the sum
of P8,337.06 for salvage charges against the goods.
The charges were all paid by Philippine Home Assurance Corporation (PHAC) under protest for and in
behalf of the consignees.
PHAC, as subrogee of the consignees, thereafter filed a complaint before the Regional Trial Court of
Manila, Branch 39, against ESLI to recover the sum paid under protest on the ground that the same were
actually damages directly brought about by the fault, negligence, illegal act and/or breach of contract of
ESLI.
In its answer, ESLI contended that it exercised the diligence required by law in the handling, custody and
carriage of the shipment; that the fire was caused by an unforeseen event; that the additional freight
charges are due and demandable pursuant to the Bill of Lading; 1 and that salvage charges are properly
collectible under Act No. 2616, known as the Salvage Law.
The trial court dismissed PHAC's complaint and ruled in favor of ESLI ratiocinating thus:
The question to be resolved is whether or not the fire on the vessel which was caused by
the explosion of an acetylene cylinder loaded on the same was the fault or negligence of
the defendant.
Evidence has been presented that the SS "Eastern Explorer" was a seaworthy vessel
(Deposition of Jumpei Maeda, October 23, 1980, p. 3) and before the ship loaded the
Acetylene Cylinder No. NCW 875, the same has been tested, checked and examined
and was certified to have complied with the required safety measures and standards
(Deposition of Senjei Hayashi, October 23, 1980, pp. 2-3). When the fire was detected by
the crew, fire fighting operations was immediately conducted but due to the explosion of
the acetylene cylinder, the crew were unable to contain the fire and had to abandon the
ship to save their lives and were saved from drowning by passing vessels in the vicinity.
The burning of the vessel rendering it a constructive total loss and incapable of pursuing
its voyage to the Philippines was, therefore, not the fault or negligence of defendant but a
natural disaster or calamity which nobody would like to happen. The salvage operations
conducted by Fukuda Salvage Company (Exhibits "4-A" and "6-A") was perfectly a legal
operation and charges made on the goods recovered were legitimate charges.
Act No. 2616, otherwise known as the Salvage Law, is thus applicable to
the case at bar. Section 1 of Act No. 2616 states:
Sec 1. When in case of shipwreck, the vessel or its

cargo shall be beyond the control of the crew, or shall
have been abandoned by them, and picked up and
conveyed to a safe place by other persons, the latter
shall be entitled to a reward for the salvage.
29
Those who, not being included in the above paragraph,
assist in saving a vessel or its cargo from shipwreck,
shall be entitled to like reward.
In relation to the above provision, the Supreme Court has ruled in

Erlanger & Galinger v. Swedish East Asiatic Co., Ltd., 34 Phil. 178, that
three elements are necessary to a valid salvage claim, namely (a)a
marine peril (b) service voluntarily rendered when not required as an
existing duty or from a special contract and (c) success in whole or in
part, or that the service rendered contributed to such success.
The above elements are all present in the instant case. Salvage charges
may thus be assessed on the cargoes saved from the vessel. As
provided for in Section 13 of the Salvage Law, "The expenses of
salvage, as well as the reward for salvage or assistance, shall be a
charge on the things salvaged or their value." In Manila Railroad Co. v.
Macondray Co., 37 Phil. 583, it was also held that "when a ship and its
cargo are saved together, the salvage allowance should be charged
against the ship and cargo in the proportion of their respective values,
the same as in a case of general average . . ." Thus, the "compensation
to be paid by the owner of the cargo is in proportion to the value of the
vessel and the value of the cargo saved." (Atlantic Gulf and Pacific Co. v.
Uchida Kisen Kaisha, 42 Phil. 321). (Memorandum for Defendant,
Records, pp. 212-213).
With respect to the additional freight charged by defendant from the consignees of the
goods, the same are also validly demandable.
As provided by the Civil Code:
Art. 1174. Except in cases expressly specified by law, or when it is

otherwise declared by stipulation, or when the nature of the obligation
require the assumption of risk, no person shall be responsible for those
events which could not be foreseen, or which though foreseen, were
inevitable.
Art 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of
the obligor."
The burning of "EASTERN EXPLORER" while off Okinawa rendered it physically

impossible for defendant to comply with its obligation of delivering the goods to their port
of destination pursuant to the contract of carriage. Under Article 1266 of the Civil Code,
the physical impossibility of the prestation extinguished defendant's obligation..
It is but legal and equitable for the defendant therefore, to demand additional freight from
the consignees for forwarding the goods from Naha, Japan to Manila and Cebu City on
board another vessel, the "EASTERN MARS." This finds support under Article 844 of the
Code of Commerce which provides as follows:
Art. 844. A captain who may have taken on board the goods saved from
the wreck shall continue his course to the port of destination; and on
arrival should deposit the same, with judicial intervention at the disposal
of their legitimate owners. . . .
30
The owners of the cargo shall defray all the expenses of this arrival as
well as the payment of the freight which, after taking into consideration
the circumstances of the case, may be fixed by agreement or by a
judicial decision.
Furthermore, the terms and conditions of the Bill of Lading authorize the imposition of
additional freight charges in case of forced interruption or abandonment of the voyage. At
the dorsal portion of the Bills of Lading issued to the consignees is this stipulation:
12. All storage, transshipment, forwarding or other disposition of cargo at

or from a port of distress or other place where there has been a forced
interruption or abandonment of the voyage shall be at the expense of the
owner, shipper, consignee of the goods or the holder of this bill of lading
who shall be jointly and severally liable for all freight charges and
expenses of every kind whatsoever, whether payable in advance or not
that may be incurred by the cargo in addition to the ordinary freight,
whether the service be performed by the named carrying vessel or by
carrier's other vessels or by strangers. All such expenses and charges
shall be due and payable day by day immediately when they are
incurred.
The bill of lading is a contract and the parties are bound by its terms (Gov't of the
Philippine Islands vs. Ynchausti and Co., 40 Phil. 219). The provision quoted is binding
upon the consignee.
Defendant therefore, can validly require payment of additional freight from the consignee.
Plaintiff can not thus recover the additional freight paid by the consignee to defendant.
(Memorandum for Defendant, Record, pp. 215-216). 2
On appeal to the Court of Appeals, respondent court affirmed the trial court's findings and conclusions, 3
hence, the present petition for review before this Court on the following errors:
I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE

TRIAL COURT'S FINDINGS THAT THE BURNING OF THE SS "EASTERN
EXPLORER", RENDERING IT A CONSTRUCTIVE TOTAL LOSS, IS A NATURAL
DISASTER OR CALAMITY WHICH NOBODY WOULD LIKE TO HAPPEN, DESPITE
EXISTING JURISPRUDENCE TO THE CONTRARY.
II. THE RESPONDENT COURT ARBITRARILY RULED THAT THE BURNING OF THE
SS "EASTERN EXPLORER" WAS NOT THE FAULT AND NEGLIGENCE OF
RESPONDENT EASTERN SHIPPING LINES.
III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN

RULING THAT DEFENDANT HAD EXERCISED THE EXTRAORDINARY DILIGENCE
IN THE VIGILANCE OVER THE GOODS AS REQUIRED BY LAW.
IV. THE RESPONDENT COURT ARBITRARILY RULED THAT THE MARINE NOTE OF
PROTEST AND STATEMENT OF FACTS ISSUED BY THE VESSEL'S MASTER ARE
NOT HEARSAY DESPITE THE FACT THAT THE VESSEL'S MASTER, CAPT.
LICAYLICAY WAS NOT PRESENTED COURT, WITHOUT EXPLANATION
WHATSOEVER FOR HIS NON-PRESENTATION, THUS, PETITIONER WAS
DEPRIVED OF ITS RIGHT TO CROSS- EXAMINE THE AUTHOR THEREOF.
31
V. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE
TRIAL COURT'S CONCLUSION THAT THE EXPENSES OR AVERAGES INCURRED
IN SAVING THE CARGO CONSTITUTE GENERAL AVERAGE.
VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'S

RULING THAT PETITIONER WAS LIABLE TO RESPONDENT CARRIER FOR
ADDITIONAL FREIGHT AND SALVAGE CHARGES. 4
It is quite evident that the foregoing assignment of errors challenges the findings of fact and the
appreciation of evidence made by the trial court and later affirmed by respondent court. While it is a well-
settled rule that only questions of law may be raised in a petition for review under Rule 45 of the Rules of
Court, it is equally well-settled that the same admits of the following exceptions, namely: (a) when the
conclusion is a finding grounded entirely on speculation, surmises or conjectures; (b) when the inference
made is manifestly mistaken, absurd or impossible; (c) where there is a grave abuse of discretion; (d)
when the judgment is based on a misapprehension of facts; (e) when the findings of fact are conflicting;
(f) when the Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (g) when the findings of the Court of Appeals
are contrary to those of the trial court; (h) when the findings of fact are conclusions without citation of
specific evidence on which they are based; (i) when the facts set forth in the petition as well as in the
petitioners' main and reply briefs are not disputed by the respondents; and (j) when the finding of fact of
the Court of Appeals is premised on the supposed absence of evidence and is contradicted by the
evidence on record. 5 Thus, if there is a showing, as in the instant case, that the findings complained of
are totally devoid of support in the records, or that they are so glaringly erroneous as to constitute grave
abuse of discretion, the same may be properly reviewed and evaluated by this Court.
It is worthy to note at the outset that the goods subject of the present controversy were neither lost nor
damaged in transit by the fire that razed the carrier. In fact, the said goods were all delivered to the
consignees, even if the transshipment took longer than necessary. What is at issue therefore is not
whether or not the carrier is liable for the loss, damage, or deterioration of the goods transported by them
but who, among the carrier, consignee or insurer of the goods, is liable for the additional charges or
expenses incurred by the owner of the ship in the salvage operations and in the transshipment of the
goods via a different carrier.
In absolving respondent carrier of any liability, respondent Court of Appeals sustained the trial court's
finding that the fire that gutted the ship was a natural disaster or calamity. Petitioner takes exception to
this conclusion and we agree.
In our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always
arises from some act of man or by human means.
It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to
human agency. 6
In the case at bar, it is not disputed that a small flame was detected on the acetylene cylinder and that by
reason thereof, the same exploded despite efforts to extinguish the fire. Neither is there any doubt that
the acetylene cylinder, obviously fully loaded, was stored in the accommodation area near the engine
room and not in a storage area considerably far, and in a safe distance, from the engine room. Moreover,
there was no showing, and none was alleged by the parties, that the fire was caused by a natural disaster
or calamity not attributable to human agency. On the contrary, there is strong evidence indicating that the
acetylene cylinder caught fire because of the fault and negligence of respondent ESLI, its captain and its
crew.
First, the acetylene cylinder which was fully loaded should not have been stored in the accommodation
area near the engine room where the heat generated therefrom could cause the acetylene cylinder to
32
explode by reason of spontaneous combustion. Respondent ESLI should have easily foreseen that the
acetylene cylinder, containing highly inflammable material was in real danger of exploding because it was
stored in close proximity to the engine room.
Second, respondent ESLI should have known that by storing the acetylene cylinder in the
accommodation area supposed to be reserved for passengers, it unnecessarily exposed its passengers
to grave danger and injury. Curious passengers, ignorant of the danger the tank might have on humans
and property, could have handled the same or could have lighted and smoked cigarettes while repairing
in the accommodation area.
Third, the fact that the acetylene cylinder was checked, tested and examined and subsequently certified
7
as having complied with the safety measures and standards by qualified experts before it was loaded in
the vessel only shows to a great extent that negligence was present in the handling of the acetylene
cylinder after it was loaded and while it was on board the ship. Indeed, had the respondent and its agents
not been negligent in storing the acetylene cylinder near the engine room, then the same would not have
leaked and exploded during the voyage.
Verily, there is no merit in the finding of the trial court to which respondent court erroneously agreed that
the fire was not the fault or negligence of respondent but a natural disaster or calamity. The records are
simply wanting in this regard.
Anent petitioner's objection to the admissibility of Exhibits "4'' and ''5", the Statement of Facts and the
Marine Note of Protest issued by Captain Tiburcio A. Licaylicay, we find the same impressed with merit
because said documents are hearsay evidence. Capt. Licaylicay, Master of S.S. Eastern Explorer who
issued the said documents, was not presented in court to testify to the truth of the facts he stated therein;
instead, respondent ESLI presented Junpei Maeda, its Branch Manager in Tokyo and Yokohama, Japan,
who evidently had no personal knowledge of the facts stated in the documents at issue. It is clear from
Section 36, Rule 130 of the Rules of Court that any evidence, whether oral or documentary, is hearsay if
its probative value is not based on the personal knowledge of the witness but on the knowledge of some
other person not on the witness stand. Consequently, hearsay evidence, whether objected to or not, has
no probative value unless the proponent can show that the evidence falls within the exceptions to the
hearsay evidence rule. 8 It is excluded because the party against whom it is presented is deprived of his
right and opportunity to cross-examine the persons to whom the statements or writings are attributed.
On the issue of whether or not respondent court committed an error in concluding that the expenses
incurred in saving the cargo are considered general average, we rule in the affirmative. As a rule, general
or gross averages include all damages and expenses which are deliberately caused in order to save the
vessel, its cargo, or both at the same time, from a real and known risk 9 While the instant case may
10
technically fall within the purview of the said provision, the formalities prescribed under Articles 813 and
11
814 of the Code of Commerce in order to incur the expenses and cause the damage corresponding to
gross average were not complied with. Consequently, respondent ESLI's claim for contribution from the
consignees of the cargo at the time of the occurrence of the average turns to naught.
Prescinding from the foregoing premises, it indubitably follows that the cargo consignees cannot be made
liable to respondent carrier for additional freight and salvage charges. Consequently, respondent carrier
must refund to herein petitioner the amount it paid under protest for additional freight and salvage
charges in behalf of the consignees.
WHEREFORE, the judgment appealed from is hereby REVERSED and SET ASIDE. Respondent Eastern
Shipping Lines, Inc. is ORDERED to return to petitioner Philippine Home Assurance Corporation the
amount it paid under protest in behalf of the consignees herein.
SO ORDERED.
33
Padilla, Bellosillo, Vitug and Hermosisima, Jr., JJ., concur.
Footnotes
1 Sec 12. All storage, transshipment forwarding or other disposition of cargo at or from port of distress or other
place where there has been a forced interruption or abandonment of the voyage shall be at the expense of the
owner, shipper, consignee of the goods or the holder of this bill of lading who shall be jointly and severally liable
for all freight charges and expenses of every kind whatsoever, whether payable in advance or not that may be
incurred by the cargo in addition to the ordinary freight, whether payable in advance or not that may be incurred
by the cargo in addition to the ordinary freight, whether the service be performed by the named carrying vessel or
by carrier's other vessels or by strangers such expenses and charges shall be due and payable day by day
immediately when they are incurred.
2 Original Records, pp. 240-243.
3 Rollo, pp. 29-39.
4 Id., at 12-13.
5 Geronimo v. Court of Appeals, 224 SCRA 494, 498-499 (1993]; BPI Credit Corporation v. Court of Appeals,
204 SCRA 601, 608-609 [1991]; Medina v. Asistio, Jr., 191 SCRA 218, 223-224 [1990].
6 Eastern Shipping Lines, Inc. v. Intermediate Appellate Court 150 SCRA 463 [1987]; Africa v. Caltex, 16 SCRA
448 [1966]; See also 4 Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines,
1993 Edition, p. 44.
7 Original Records, p. 171.
8 Baguio v. Court of Appeals, 226 SCRA 366, 370 [1993].
9 Art 811, Code of Commerce.
10 Art 813. In order to incur the expenses and cause the damages corresponding to gross average, there must
be a resolution of the captain, adopted after deliberation with the sailing mate and other officers of the vessel,
and after hearing the persons interested in the cargo who may be present.
If the latter shall object, and the captain and officers or a majority of them, or the captain, if opposed to the
majority, should consider certain measures necessary they may be executed under his responsibility, without
prejudice to the right of the shippers to proceed against the captain before the competent judge or court, if they
can prove that he acted with malice, lack of skill, or negligence.
If the persons interested in the cargo, being on board the vessel, have not been heard, they shall not contribute
to the gross average, their share being chargeable against the captain, unless the urgency of the case should be
such that the time necessary for previous deliberations was wanting.
11 Art 814. The resolution adopted to cause the damages which constitute general average must necessarily be
entered in the log book, stating the motives and reasons for the dissent, should there be any, and the irresistible
and urgent causes which impelled the captain if he acted of his own accord.
In the first case the minutes shall be signed by all the persons present who could do so before taking action, if
possible; and if not, at the first opportunity. In the second case, it shall be signed by the captain and by the
officers of the vessel.
In the minutes, and after the resolution, shall be stated in detail all the goods jettisoned, and mention shall be
made of the injuries caused to those kept on board. The captain shall be obliged to deliver one copy of these
minutes to the maritime judicial authority of the first port he may make, within twenty-four hours after his arrival,
and to ratify it immediately under oath.
34
V. INTERPRETATION OF AN INSURANCE CONTRACT/POLICY
White Gold Marine Services, Inc. vs. Pioneer Insurance and Surety Corp., G.R. No.
154514. July 28, 2005
International Container Terminal Services, Inc. vs. FGU Insurance Corp., G.R. No.
161539 June 27, 2008
Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc., G.R.
No. 174116 September 11, 2009
New World International Development (Phils.),Inc. vs. NYK-Fil-Japan Shipping
Corp., G.R. No. 171468 August 24, 2011
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus,
no insurer or insurance company is allowed to engage in the insurance business without a license
or a certificate of authority from the Insurance Commission.
It must be emphasized that a marine risk note is not an insurance policy. It is only an
acknowledgment or declaration of the insurer confirming the specific shipment covered by its
marine open policy, the evaluation of the cargo and the chargeable premium.17 It is the marine
open policy which is the main insurance contract.
----------
FIRST DIVISION
G.R. No. 154514. July 28, 2005
WHITE GOLD MARINE SERVICES, INC., Petitioners,

vs.
PIONEER INSURANCE AND SURETY CORPORATION AND THE STEAMSHIP MUTUAL
UNDERWRITING ASSOCIATION (BERMUDA) LTD., Respondents.
DECISION
QUISUMBING, J.:
1
This petition for review assails the Decision dated July 30, 2002 of the Court of Appeals in CA-G.R. SP
2
No. 60144, affirming the Decision dated May 3, 2000 of the Insurance Commission in I.C. Adm. Case
No. RD-277. Both decisions held that there was no violation of the Insurance Code and the respondents
do not need license as insurer and insurance agent/broker.
The facts are undisputed.
White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for its
vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a
Certificate of Entry and Acceptance.3 Pioneer also issued receipts evidencing payments for the coverage.
When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.
35
Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
latters unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 186 4 and 1875 of the Insurance Code, while Pioneer
6 7 8
violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the complaint. It said that there was no need for Steamship Mutual
to secure a license because it was not engaged in the insurance business. It explained that Steamship
Mutual was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another
license as insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not
engaged in the insurance business. Moreover, Pioneer was already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual was already superfluous.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the appellate
court distinguished between P & I Clubs vis--vis conventional insurance. The appellate court also held
that Pioneer merely acted as a collection agent of Steamship Mutual.
In this petition, petitioner assigns the following errors allegedly committed by the appellate court,
FIRST ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT RESPONDENT STEAMSHIP IS NOT DOING
BUSINESS IN THE PHILIPPINES ON THE GROUND THAT IT COURSED . . . ITS TRANSACTIONS
THROUGH ITS AGENT AND/OR BROKER HENCE AS AN INSURER IT NEED NOT SECURE A
LICENSE TO ENGAGE IN INSURANCE BUSINESS IN THE PHILIPPINES.
SECOND ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED THAT THE RECORD IS BEREFT OF ANY EVIDENCE
THAT RESPONDENT STEAMSHIP IS ENGAGED IN INSURANCE BUSINESS.
THIRD ASSIGNMENT OF ERROR
THE COURT A QUO ERRED WHEN IT RULED, THAT RESPONDENT PIONEER NEED NOT SECURE
A LICENSE WHEN CONDUCTING ITS AFFAIR AS AN AGENT/BROKER OF RESPONDENT
STEAMSHIP.
FOURTH ASSIGNMENT OF ERROR
THE COURT A QUO ERRED IN NOT REVOKING THE LICENSE OF RESPONDENT PIONEER AND [IN
9
NOT REMOVING] THE OFFICERS AND DIRECTORS OF RESPONDENT PIONEER.
Simply, the basic issues before us are (1) Is Steamship Mutual, a P & I Club, engaged in the insurance
business in the Philippines? (2) Does Pioneer need a license as an insurance agent/broker for Steamship
Mutual?
The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a
license to do business in the Philippines although Pioneer is its resident agent. This relationship is
reflected in the certifications issued by the Insurance Commission.
Petitioner insists that Steamship Mutual as a P & I Club is engaged in the insurance business. To buttress
10
its assertion, it cites the definition of a P & I Club in Hyopsung Maritime Co., Ltd. v. Court of Appeals as
"an association composed of shipowners in general who band together for the specific purpose of
providing insurance cover on a mutual basis against liabilities incidental to shipowning that the members
36
incur in favor of third parties." It stresses that as a P & I Club, Steamship Mutuals primary purpose is to
solicit and provide protection and indemnity coverage and for this purpose, it has engaged the services of
Pioneer to act as its agent.
Respondents contend that although Steamship Mutual is a P & I Club, it is not engaged in the insurance
business in the Philippines. It is merely an association of vessel owners who have come together to
11
provide mutual protection against liabilities incidental to shipowning. Respondents aver Hyopsung is
inapplicable in this case because the issue in Hyopsung was the jurisdiction of the court over Hyopsung.
Is Steamship Mutual engaged in the insurance business?
Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:
(a) making or proposing to make, as insurer, any insurance contract;
(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and
not as merely incidental to any other legitimate business or activity of the surety;
(c) doing any kind of business, including a reinsurance business, specifically recognized
as constituting the doing of an insurance business within the meaning of this Code;
(d) doing or proposing to do any business in substance equivalent to any of the foregoing
in a manner designed to evade the provisions of this Code.
...
The same provision also provides, the fact that no profit is derived from the making of insurance
contracts, agreements or transactions, or that no separate or direct consideration is received therefor,
shall not preclude the existence of an insurance business.12
The test to determine if a contract is an insurance contract or not, depends on the nature of the promise,
the act required to be performed, and the exact nature of the agreement in the light of the occurrence,
contingency, or circumstances under which the performance becomes requisite. It is not by what it is
13
called.
Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
14
indemnify another against loss, damage or liability arising from an unknown or contingent event.
In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure.15 Section 9916 of the Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the
insurer and insured. In it, the members all contribute, by a system of premiums or assessments, to the
creation of a fund from which all losses and liabilities are paid, and where the profits are divided among
themselves, in proportion to their interest.17 Additionally, mutual insurance associations, or clubs, provide
18
three types of coverage, namely, protection and indemnity, war risks, and defense costs.
A P & I Club is "a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members."19 By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.
37
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
20
certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent in
the Philippines to solicit insurance and to collect payments in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to
continue doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from
the Insurance Commission.
Since a contract of insurance involves public interest, regulation by the State is necessary. Thus, no
insurer or insurance company is allowed to engage in the insurance business without a license or a
certificate of authority from the Insurance Commission.21
Does Pioneer, as agent/broker of Steamship Mutual, need a special license?

22
Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued
by the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual. 24
Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states:
SEC. 299 . . .
No person shall act as an insurance agent or as an insurance broker in the solicitation or

procurement of applications for insurance, or receive for services in obtaining insurance,
any commission or other compensation from any insurance company doing business in
the Philippines or any agent thereof, without first procuring a license so to act from the
Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .
Finally, White Gold seeks revocation of Pioneers certificate of authority and removal of its directors and
officers. Regrettably, we are not the forum for these issues.
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated July 30, 2002 of the Court of
Appeals affirming the Decision dated May 3, 2000 of the Insurance Commission is hereby REVERSED
AND SET ASIDE. The Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer
Insurance and Surety Corporation are ORDERED to obtain licenses and to secure proper authorizations
to do business as insurer and insurance agent, respectively. The petitioners prayer for the revocation of
Pioneers Certificate of Authority and removal of its directors and officers, is DENIED. Costs against
respondents.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
Footnotes
1
Rollo, pp. 28-41. Penned by Associate Justice Delilah Vidallon-Magtolis, with Associate Justices Candido V.
Rivera, and Sergio L. Pestao concurring.
2
CA Rollo, pp. 43-51.
3
Id. at 103.
4
SEC. 186. No person, partnership, or association of persons shall transact any insurance business in the
Philippines except as agent of a person or corporation authorized to do the business of insurance in the
Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind
38
of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted
to him or them a certificate to the effect that he or they have complied with all the provisions of law which an
insurance corporation doing business in the Philippines is required to observe.
Every person, partnership, or association receiving any such certificate of authority shall be subject to the
insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same
manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of
insurance specified in the certificate.
5
SEC. 187. No Insurance Company shall transact any insurance business in the Philippines until after it shall
have obtained a certificate of authority for that purpose from the Commissioner upon application therefor and
payment by the company concerned of the fees hereinafter prescribed.. . .
6
SEC. 299. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any
commission or other compensation to any person for services in obtaining insurance, unless such person shall
have first procured from the Commissioner a license to act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of
applications for insurance, or receive for services in obtaining insurance, any commission or other compensation
from any insurance company doing business in the Philippines or any agent thereof, without first procuring a
license so to act from the Commissioner, . . .
7
SEC. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company
or transmits for a person other than himself an application for a policy or contract of insurance to or from such
company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the
intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to
which an insurance agent is subject.
8
SEC. 301. Any person who for any compensation, commission or other thing of value acts or aids in any
manner in soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code,
and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance
broker is subject.
9
Rollo, pp. 144-145.
10
No. L-77369, 31 August 1988, 165 SCRA 258, 260.
11
Rollo, p. 176.
12
THE INSURANCE CODE OF THE PHILIPPINES, Section 2(2).
13
43 AM JUR. 2d Insurance Sec. 4 (1982).
14
Rufus B. Rodriguez, The Insurance Code of the Philippines Annotated 4 (4th ed., 1999), citing BUIST M.
ANDERSON, Vance on Insurance 83 (3rd ed., 1951).
15
Eduardo F. Hernandez and Antero A. Peasales, Philippine Admiralty and Maritime Law 612 (1st ed., 1987).
16
SEC. 99. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, disbursements, profits,
moneys, securities, choses in action, evidences of debt, valuable papers, bottomry, and respondentia interests
and all other kinds of property and interests therein, in respect to, appertaining to or in connection with any and
all risks or perils of navigation, transit or transportation, or while being assembled, packed, crated, baled,
compressed or similarly prepared for shipment or while awaiting shipment, or during any delays, storage,
trasshipment, or reshipment incident thereto, including war risks, marine builders risks, and all personal property
floater risks.
(b) Person or property in connection with or appertaining to a marine, inland marine, transit or transportation
insurance, including liability for loss of or damage arising out of or in connection with the construction, repair,
operation, maintenance or use of the subject matter of such insurance (but not including life insurance or surety
bonds nor insurance against loss by reason of bodily injury to any person arising out of the ownership,
maintenance, or use of automobiles).
(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or otherwise.
(d) Bridges, tunnels and other instrumentalities of transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in storage); piers, wharves, docks and slips, and other
aids to navigation and transportation, including dry docks and marine railways, dams and appurtenant facilities
for the control of waterways.
(2) "Marine protection and indemnity insurance," meaning insurance against, or against legal liability of the
insured for loss, damage, or expense incident to ownership, operation, chartering, maintenance, use, repair, or
construction of any vessel, craft or instrumentality in use in ocean or inland waterways, including liability of the
insured for personal injury, illness or death or for loss of or damage to the property of another person.
17
Supra, note 13 at Sec. 65.
18
Howard Bennett, The Law of Marine Insurance 236 (1996).
19
Supra, note 15 at 733.
39
20
Supra, note 5.
21
Supra, note 12 at Sec. 187.
22
CA Rollo, p. 154.
23
Id. at 153.
24
Id. at 112. Certification issued by the Insurance Commission which certified that Pioneer is not a registered
broker for any foreign corporation.
----------
THIRD DIVISION
G.R. No. 161539 June 27, 2008
INTERNATIONAL CONTAINERTERMINAL SERVICES, INC., petitioner,

vs.
FGU INSURANCE CORPORATION, respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
In a Decision dated July 1, 1999 in Civil Case No. 95-73532, the Regional Trial Court (RTC) of Manila,
Branch 30, ordered International Container Terminal Services, Inc. (petitioner) to pay FGU Insurance
Corporation (respondent) the following sums: (1) P1,875,068.88 with 12% interest per annum from
January 3, 1995 until fully paid; (2) P50,000.00 as attorney's fees; and (3) P10,000.00 as litigation
expenses.1
Petitioner's liability arose from a lost shipment of "14 Cardboards 400 kgs. of Silver Nitrate 63.53 FCT
Analytically Pure (purity 99.98 PCT)," shipped by Hapag-Lloyd AG through the vessel Hannover Express
from Hamburg, Germany on July 10, 1994, with Manila, Philippines as the port of discharge, and Republic
Asahi Glass Corporation (RAGC) as consignee. Said shipment was insured by FGU Insurance
Corporation (FGU). When RAGC's customs broker, Desma Cargo Handlers, Inc., was claiming the
shipment, petitioner, which was the arrastre contractor, could not find it in its storage area. At the behest
of petitioner, the National Bureau of Investigation (NBI) conducted an investigation. The AAREMA Marine
and Cargo Surveyors, Inc. also conducted an inquiry. Both found that the shipment was lost while in the
custody and responsibility of petitioner.
As insurer, FGU paid RAGC the amount of P1,835,068.88 on January 3, 1995.2 In turn, FGU sought
reimbursement from petitioner, but the latter refused. This constrained FGU to file with the RTC of Manila
Civil Case No. 95-73532 for a sum of money.
After trial, the RTC rendered its Decision dated July 1, 1999 finding petitioner liable.
Petitioner appealed to the Court of Appeals (CA), which, in the assailed Decision3 dated October 22,
2003, affirmed the RTC Decision. Petitioner filed a motion for reconsideration which the CA denied in its
4
Resolution dated January 8, 2004.
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court, with the following
assignment of errors:
1. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO APPLY THE

LIMITATION OF LIABILITY OF P3,5000 PER PACKAGE WHICH LIMITS PETITIONER'S
40
LIABILITY, IF ANY, TO A TOTAL OF ONLY P49,000.00 PURSUANT TO PPA
ADMINISTRATIVE ORDER NO. 10-81.
2. THE COURT OF APPEALS SERIOUSLY ERRED IN UPHOLDING THE MARINE

OPEN POLICY DESPITE THE FACT THAT THE SAME WAS NO LONGER IN FORCE
AT THE TIME THE SHIPMENT WAS LOADED ON BOARD THE CARRYING VESSEL.
3. THE COURT OF APPEALS SERIOUSLY ERRED IN FAILING TO DISMISS THE

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

SERIOUSLY ERRED IN AFFIRMING THE AWARD OF 12% INTEREST DESPITE THE
FACT THAT THE OBLIGATION PURPORTEDLY BREACHED DOES NOT
CONSTITUTE A LOAN OF FORBEARANCE OF MONEY AND DESPITE THE CLEAR
GUIDELINES SET FORTH BY THIS HONORABLE COURT IN EASTERN SHIPPING
LINES, INC. VS. COURT OF APPEALS. (234 SCRA 78).5
The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for
review on certiorari. This rule, however, is not ironclad and admits certain exceptions, such as when (1)
the conclusion is grounded on speculations, surmises or conjectures; (2) the inference is manifestly
mistaken, absurd or impossible; (3) there is grave abuse of discretion; (4) the judgment is based on a
misapprehension of facts; (5) the findings of fact are conflicting; (6) there is no citation of specific
evidence on which the factual findings are based; (7) the findings of absence of facts are contradicted by
the presence of evidence on record; (8) the findings of the CA are contrary to those of the trial court; (9)
the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered, would
justify a different conclusion; (10) the findings of the CA are beyond the issues of the case; and (11) such
findings are contrary to the
admissions of both parties.6 In the present case, there is nothing on record which will show that it falls
within the exceptions. Hence, the petition must be denied.
Petitioner posits that its liability for the lost shipment should be limited to P3,500.00 per package as
provided in Philippine Ports Authority Administrative Order No. 10-81 (PPA AO 10-81), under Article VI,
Section 6.01 of which provides:
Section 6.01. Responsibility and Liability for Losses and Damages; Exceptions - The
CONTRACTOR shall at its own expense handle all merchandise in all work undertaken
by it hereunder deligently [sic] and in a skillful, workman-like and efficient manner; that
the CONTRACTOR shall be solely responsible as an independent CONTRACTOR, and
hereby agrees to accept liability and to promptly pay to the shipping company
consignees, consignors or other interested party or parties for the loss, damage, or non-
delivery of cargoes to the extent of the actual invoice value of each package which in no
case shall be more than THREE THOUSAND FIVE HUNDRED PESOS (P3,500.00) (for
import cargo) x x x for each package unless the value of the cargo importation is
otherwise specified or manifested or communicated in writing together with the
declared bill of lading value and supported by a certified packing list to the
CONTRACTOR by the interested party or parties before the discharge x x x of the
goods, as well as all damage that may be suffered on account of loss, damage, or
41
destruction of any merchandise while in custody or under the control of the
CONTRACTOR in any pier, shed, warehouse facility or other designated place under the
supervision of the AUTHORITY x x x.7 (Emphasis supplied)
The CA summarily ruled that PPA AO 10-81 is not applicable to this case without laying out the reasons
therefor.
PPA AO 10-81 is the management contract between by the Philippine Ports Authority and the cargo
handling services providers. In Summa Insurance Corporation v. Court of Appeals,8 the Court ruled that:
In the performance of its job, an arrastre operator is bound by the management contract it
had executed with the Bureau of Customs. However, a management contract, which is a
sort of a stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is
also binding on a consignee because it is incorporated in the gate pass and delivery
receipt which must be presented by the consignee before delivery can be effected to it.
The insurer, as successor-in-interest of the consignee, is likewise bound by the
management contract. Indeed, upon taking delivery of the cargo, a consignee (and
necessarily its successor-in- interest) tacitly accepts the provisions of the management
contract, including those which are intended to limit the liability of one of the contracting
parties, the arrastre operator.
However, a consignee who does not avail of the services of the arrastre operator is not
bound by the management contract. Such an exception to the rule does not obtain here
as the consignee did in fact accept delivery of the cargo from the arrastre operator.9
While it appears in the present case that the RAGC availed itself of petitioner's services and therefore,
PPA AO 10-81 should apply, the Court finds that the extent of petitioner's liability should cover the actual
value of the lost shipment and not the P3,500.00 limit per package as provided in said Order.
It is borne by the records that when Desma Cargo Handlers was negotiating for the discharge of the
shipment, it presented Hapag-Lloyd's Bill of Lading,10 Degussa's Commercial Invoice, which indicates that
value of the shipment, including seafreight charges, was DM94.960,00 (CFR Manila);11 and Degussa's
Packing List, which likewise notes that the value of the shipment was DM94.960,00. 12 It is highly unlikely
that petitioner was not made aware of the actual value of the shipment, since it had to examine the
pertinent documents for stripping purposes and, later on, for the discharge of the shipment to the
consignee or its representative. In fact, the NBI Report dated September 26, 1994 on the investigation
conducted by it regarding the loss of the shipment shows that petitioner's Admeasurer Rosco Esquibal
13
was shown the Bill of Lading by Desma Brokerage's representative, Rey Villanueva. Esquibal also
stated that another representative of Desma Brokerage, Joey Laurente, went to their office and furnished
him a copy of the "processed papers of the fourteen cartons of Asahi Glass cargoes."14
By its own act of not charging the corresponding arrastre fees based on the value of the shipment after it
came to know of such declared value from the marine insurance policy, petitioner cannot escape liability
for the actual value of the shipment. The value of the merchandise or shipment may be declared or stated
not only in the bill of lading or shipping manifest, but also in other documents required by law before the
shipment is cleared from the piers.15
Petitioner insists that Marine Open Policy No. MOP-12763 under which the shipment was insured was no
longer in force at the time it was loaded on board the Hannover Express on June 10, 1994, as provided in
the Endorsement portion of the policy, which states: "IT IS HEREBY DECLARED AND AGREED that
effective June 10, 1994, this policy is deemed CANCELLED."16 FGU, on the other hand, insists that it was
under Marine Risk Note No. 9798, which was executed on May 26, 1994, that said shipment was
covered.
42
It must be emphasized that a marine risk note is not an insurance policy. It is only an acknowledgment or
declaration of the insurer confirming the specific shipment covered by its marine open policy, the
evaluation of the cargo and the chargeable premium.17 It is the marine open policy which is the main
insurance contract. In other words, the marine open policy is the blanket insurance to be undertaken by
FGU on all goods to be shipped by RAGC during the existence of the contract, while the marine risk note
specifies the particular goods/shipment insured by FGU on that specific transaction, including the sum
insured, the shipment particulars as well as the premium paid for such shipment. In any event, as it
stands, it is evident that even prior to the cancellation by FGU of Marine Open Policy No. MOP-12763 on
June 10, 1994, it had already undertaken to insure the shipment of the 400 kgs. of silver nitrate, specially
since RAGC had already paid the premium on the insurance of said shipment.
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before
the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis
18
Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary,
as the issues raised therein arose from the very existence of an insurance contract between Malayan
Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines
19
Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract
must be presented in evidence in order to determine the extent of the coverage. This was also the ruling
of the Court in Home Insurance Corporation v. Court of Appeals.20
However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court
of Appeals,21 the Court stated that the presentation of the insurance policy was not fatal because the loss
of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike in Home Insurance in
which the cargo passed through several stages with different parties and it could not be determined when
the damage to the cargo occurred, such that the insurer should be liable for it.
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's
custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763,
such that the presentation of the contract itself is necessary for perusal, not to mention that its existence
22
was already admitted by petitioner in open court. And even though it was not offered in evidence, it still
can be considered by the court as long as they have been properly identified by testimony duly recorded
and they have themselves been incorporated in the records of the case.23
Finally, petitioner questions the imposition of a 12% interest rate, instead of 6%, on its adjudged liability.
The ruling in Prudential Guarantee and Assurance Inc. v. Trans-Asia Shipping Lines, Inc.,24 to wit:
This Court in Eastern Shipping Lines, Inc. v. Court of Appeals, inscribed the rule of thumb
in the application of interest to be imposed on obligations, regardless of their source.
Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, regardless of whether the
obligation involves a loan or forbearance of money, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then an equivalent
to a forbearance of credit.
We find application of the rule in the case at bar proper, thus, a rate of 12% per annum
from the finality of judgment until the full satisfaction thereof must be imposed on the total
amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the
finality of judgment until the satisfaction of the same is deemed equivalent to a
25
forbearance of credit, hence, the imposition of the aforesaid interest. (Emphasis
supplied)
is instructive. The CA did not commit any error in applying the same.
43
The Court notes, however, an apparent clerical error made in the dispositive portion of the RTC Decision.
While it appears that FGU paid RAGC the amount of P1,835,068.88, as shown in the Subrogation
26 27
Receipt, as prayed for in its Complaint, the RTC awarded the sum of P1,875,068.88. Thus, a
necessary modification should be made on this score.
WHEREFORE, the petition is DENIED. The Decision dated October 22, 2003 and Resolution dated
January 8, 2004 of the Court of Appeals are AFFIRMED, with the modification that the award in the RTC
Decision dated July 1, 1999 should be P1,835,068.88 instead of P1,875,068.88.
Costs against petitioner.
SO ORDERED.
MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice
RUBEN T. REYES
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Courts Division.
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairpersons Attestation, I certify
that the conclusions in the above Decision had been reached in consultation before the case was
REYNATO S. PUNO
Chief Justice
44
Footnotes
1
Records, p. 480.
2
Records, p. 18.
3
Penned by Associate Justice Roberto A. Barrios, with the concurrence of associate Justices Juan Q. Enriquez,
Jr. and Arsenio J. Magpale, CA rollo, pp. 186-195.
4
Id. at 232-233.
5
Rollo, p. 35.
6
Philippine Charter Insurance Corporation v. Unknown Owner of the Vessel M/V "National Honor,", G.R. No.
161833, July 8, 2005, 463 SCRA 202, 215.
7
Records, pp. 440-442.
8
323 Phil. 214 (1996).
9
Id. at 223-224.
10
Records, p. 361.
11
Id. at 362-364.
12
Id. at 365-367.
13
Id. at 343-344.
14
Id. at 344.
15
Villaruel v. Manila Port Service, 131 Phil. 438, 444-445 (1968).
16
Records, p. 395.
17
Aboitiz Shipping Corporation v. Philippine American General Insurance Co., G.R. No. 77530, October 5, 1989,
178 SCRA 357, 360-361.
18
G.R. No. 172156, November 23, 2007, 538 SCRA 681, 688.
19
445 Phil. 136, 153 (2003).
20
G.R. No. 109293, August 18, 1993, 225 SCRA 411, 416.
21
420 Phil. 824, 835 (2001).
22
See CA Decision, supra note 3, at 192.
23
People of the Philippines v. Libnao, 443 Phil. 506, 519 (2003); Mato v. Court of Appeals, 320 Phil. 344, 349
(1995).
24
G.R. No. 151890, June 20, 2006, 491 SCRA 411.
25
Id. at 448-450.
26
Records, p. 18.
27
Id. at 5.
----------
THIRD DIVISION
G.R. No. 174116 September 11, 2009
EASTERN SHIPPING LINES, INC., Petitioner,

vs.
PRUDENTIAL GUARANTEE AND ASSURANCE, INC., Respondent.
DECISION
DEL CASTILLO, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, seeking to
set aside the April 26, 2006 Decision2 and August 15, 2006 Resolution3 of the Court of Appeals (CA) in
CA-G.R. CV No. 68165.
The facts of the case:
On November 8, 1995, fifty-six cases of completely knock-down auto parts of Nissan motor vehicle
(cargoes) were loaded on board M/V Apollo Tujuh (carrier) at Nagoya, Japan, to be shipped to Manila.
45
The shipment was consigned to Nissan Motor Philippines, Inc. (Nissan) and was covered by Bill of Lading
No. NMA-1.4 The carrier was owned and operated by petitioner Eastern Shipping Lines, Inc.
On November 16, 1995, the carrier arrived at the port of Manila. On November 22, 1995, the shipment
was then discharged from the vessel onto the custody of the arrastre operator, Asian Terminals, Inc.
(ATI), complete and in good condition, except for four cases.5
On November 24 to 28, 1995, the shipment was withdrawn by Seafront Customs and Brokerage from the
6
pier and delivered to the warehouse of Nissan in Quezon City.
A survey of the shipment was then conducted by Tan-Gaute Adjustment Company, Inc. (surveyor) at
Nissans warehouse. On January 16, 1996, the surveyor submitted its report 7 with a finding that there
were "short (missing)" items in Cases Nos. 10/A26/T3K and 10/A26/7K and "broken/scratched" and
"broken" items in Case No. 10/A26/70K"; and that "(i)n (its) opinion, the "shortage and damage sustained
by the shipment were due to pilferage and improper handling, respectively while in the custody of the
vessel and/or Arrastre Contractors."8
As a result, Nissan demanded the sum of P1,047,298.349 representing the cost of the damages sustained
by the shipment from petitioner, the owner of the vessel, and ATI, the arrastre operator. However, the
demands were not heeded.10
On August 21, 1996, as insurer of the shipment against all risks per Marine Open Policy No. 86-168 and
Marine Cargo Risk Note No. 3921/95, respondent Prudential Guarantee and Assurance Inc. paid Nissan
the sum of P1,047,298.34.
On October 1, 1996, respondent sued petitioner and ATI for reimbursement of the amount it paid to
Nissan before the Regional Trial Court (RTC) of Makati City, Branch 148, docketed as Civil Case No. 96-
1665, entitled Prudential Guarantee and Assurance, Inc. v. Eastern Shipping Lines, Inc. Respondent
claimed that it was subrogated to the rights of Nissan by virtue of said payment. 11
On June 21, 1999, the RTC rendered a Decision,12 the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the
defendants Eastern Shipping Lines, Inc. and ATI, and said defendants are hereby ordered to pay jointly
and solidarily plaintiff the following:
1) The claim of P1,047,298.34 with legal interest thereon of 6% per annum from the date
of the filing of this complaint until the same is fully paid;
2) [Twenty-five (25%)] percent of the principal claim, as and for attorneys fees;
3) Plus costs of suit.
Both the counterclaims and crossclaims are without legal basis. The counterclaims and crossclaims are
based on the assumption that the other defendant is the one solely liable. However, inasmuch as the
solidary liability of the defendants have been established, the counterclaims and crossclaims must be
denied.
Equal costs against Eastern Shipping Lines, Inc. and Asian Terminals, Inc.
SO ORDERED.13
Both petitioner and ATI appealed to the CA.
46
On April 26, 2006, the CA rendered a Decision the dispositive portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED with MODIFICATIONS, in that (i)

defendant-appellant Eastern Shipping Lines, Inc. is ordered to pay appellee (a) the
amount of P904,293.75 plus interest thereon at the rate of 6% per annum from the filing
of the complaint up to the finality of this judgment, when the interest shall become 12%
per annum until fully paid, and (b) the costs of suit; (ii) the award of attorneys fees is
DELETED; and (iii) the complaint against defendant-appellant Asian Terminals, Inc. is
DISMISSED.
SO ORDERED.14
The CA exonerated ATI and ruled that petitioner was solely responsible for the damages caused to the
cargoes. Moreover, the CA relying on Delsan Transport Lines, Inc. vs. Court of Appeals,15 ruled that the
right of subrogation accrues upon payment by the insurance company of the insurance claim and that the
presentation of the insurance policy is not indispensable before the appellee may recover in the exercise
of its subrogatory right.16
Petitioner then filed a motion for reconsideration, which was, however, denied by the CA in a Resolution
dated August 15, 2006.
Hence, herein petition, with petitioner raising the following assignment of errors to wit:
I.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE DECISION OF THE
LOWER COURT FINDING HEREIN PETITIONER LIABLE DESPITE THE FACT THAT RESPONDENT
FAILED TO SUBMIT ANY INSURANCE POLICY.
II.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT APPLYING THE

US$500.00/PACKAGE/CASE PACKAGE LIMITATION OF LIABILITY IN ACCORDANCE WITH THE
CARRIAGE OF GOODS BY SEA ACT.17
The petition is meritorious.
The rule in our jurisdiction is that only questions of law may be entertained by this Court in a petition for
review on certiorari. This rule, however, is not iron-clad and admits of certain exceptions, one of which is
when the CA manifestly overlooked certain relevant and undisputed facts that, if properly considered,
would justify a different conclusion.18 In the case at bar, the records of the case contain evidence which
justify the application of the exception.
Anent the first error, petitioner argues that respondent was not properly subrogated because of the non-
presentation of the marine insurance policy. In the case at bar, in order to prove its claim, respondent
presented a marine cargo risk note and a subrogation receipt. Thus, the question to be resolved is
whether the two documents, without the Marine Insurance Policy, are sufficient to prove respondents
right of subrogation.
Before anything else, it must be emphasized that a marine risk note is not an insurance policy. It is only
an acknowledgment or declaration of the insurer confirming the specific shipment covered by its marine
19
open policy, the evaluation of the cargo and the chargeable premium. In International Container
47
20
Terminal Services, Inc. v. FGU Insurance Corporation (International), the nature of a marine cargo risk
note was explained, thus:
x x x It is the marine open policy which is the main insurance contract. In other words, the
marine open policy is the blanket insurance to be undertaken by FGU on all goods to be
shipped by RAGC during the existence of the contract, while the marine risk note
specifies the particular goods/shipment insured by FGU on that specific transaction,
including the sum insured, the shipment particulars as well as the premium paid for such
21
shipment. x x x.
22
For clarity, the pertinent portions of the Marine Cargo Risk Note, relied upon by respondent, are
hereunder reproduced, to wit:
RN NO 39821/95
Date: Nov. 16, 1995
NISSAN MOTOR PHILS., INC.
xxx
Gentlemen:
We have this day noted a Risk in your favor subject to all clauses and condition of the
Companys printed form of Marine Open Policy No. 86-168
For PHILIPINE PESOS FOURTEEN MILLION ONE HUNDRED SEVENTY-THREE

THOUSAND FORTY-TWO & 91/100 ONLY (P14, 173,042.91) xxx
CARGO: 56 CASES NISSAN MOTOR VEHICLE CKD (GC22)

CONDITIONS: INSTITUTE CARGO CLAUSES "A"
OTHER TERMS AND CONDITIONS PER
MOP-86-168
From: NAGOYA
To: MANILA, PHILS.
ETD: NOV. 8, 1995 ETA: NOV. 17, 1995
CARRIER: "APOLLO TUJUH"
B/L NO: NMA-1
BANK: BANK OF THE PHILLIPINE ISLANDS
L/C NO: 026010051971
Shipper/ Consignee: MARUBENI CORPORATION
It is undisputed that the cargoes were already on board the carrier as early as November 8, 1995 and that
the same arrived at the port of Manila on November 16, 1995. It is, however, very apparent that the
Marine Cargo Risk Note was issued only on November 16, 1995. The same, therefore, should have
raised a red flag, as it would be impossible to know whether said goods were actually insured while the
48
same were in transit from Japan to Manila. On this score, this Court is guided by Malayan Insurance Co.,
23
Inc. v. Regis Brokerage Corp., where this Court ruled:
Thus, we can only consider the Marine Risk Note in determining whether there existed a
contract of insurance between ABB Koppel and Malayan at the time of the loss of the
motors. However, the very terms of the Marine Risk Note itself are quite damning. It
is dated 21 March 1995, or after the occurrence of the loss, and specifically states
that Malayan "ha[d] this day noted the above-mentioned risk in your favor and hereby
guarantee[s] that this document has all the force and effect of the terms and conditions in
the Corporations printed form of the standard Marine Cargo Policy and the Companys
Marine Open Policy."24
Likewise, the date of the issuance of the Marine Risk Note also caught the attention of petitioner. In
25
petitioners Comment/Opposition to the formal offer of evidence before the RTC, petitioner made the
following manifestations, to wit:
Exhibit "B," Marine Cargo Risk Note No. 39821 dated November 16, 1995 is being
objected to for being irrelevant and immaterial as it was executed on November 16,
1995. The cargoes arrived in Manila on November 16, 1995. This means that the
cargoes are not specifically covered by any particular insurance at the time of
transit. The alleged Marine Open Policy was not presented. Marine Open Policy may be
subject to Institute Cargo Clauses which may require arbitration prior to the filing of an
action in court.26
In addition, petitioner also contended that the Marine Cargo Risk Note referred to "Institute Cargo
Clauses A and other terms and conditions per Marine Open Policy-86-168."
Based on the forgoing, it is already evident why herein petition is meritorious. The Marine Risk Note relied
upon by respondent as the basis for its claim for subrogation is insufficient to prove said claim.
As previously stated, the Marine Risk Note was issued only on November 16, 1995; hence, without a
copy of the marine insurance policy, it would be impossible and simply guesswork to know whether the
cargo was insured during the voyage which started on November 8, 1995. Again, without the marine
insurance policy, it would be impossible for this Court to know the following: first, the specifics of the
"Institute Cargo Clauses A and other terms and conditions per Marine Open Policy-86-168" as alluded to
in the Marine Risk Note; second, if the said terms and conditions were actually complied with before
respondent paid Nissans claim.
Furthermore, a reading of the transcript of the records clearly show that, at the RTC, petitioner had
already objected to the non-presentation of the marine insurance policy, to wit:
Q. Are you also the one preparing the Marine Insurance Contract?
A. No, sir.
Q. Who is the one?
A. Our Marine Cargo Underwriting Department.
Q. And do you know anybody in that department?
A. Yes, sir.
49
Q. And you were aware that this particular cargo of the shipment was insured?
A. Yes, sir, per policy issued.
Q. And that you are referring to Exhibit?
A. The Marine Cargo Risk.
Q. Is this the only contract of Insurance between Prudential Guarantee and

Nissan?
A. Sir, there is a Marine Open Policy.
Q. Do you have any copy of that?
A. It is in the office.
Atty. Alojado Can you produce that copy?
Atty. Zapa May we know the request of counsel for producing this Marine Open Policy?
Atty. Alojado The basis of the question is the answer of the witness which says that there
is another contract of insurance.
COURT Yes, that is a Marine Open Policy.
Are you familiar with Marine Open Policy?
Atty. Alojado Yes, Your Honor.
But we would also like to be familiarize with that contract.
COURT But you know already a Marine Open Policy
Atty. Alojado Yes, Your Honor.
COURT I do not know if you work as a lawyer for several Insurance Company?
Atty. Alojado No, Your Honor. Honestly, Your Honor I worked as
a Maritime lawyer.
COURT Then you should know what is Marine Open Policy.
Atty. Alojado I would like to know the specification of the
Marine Open Policy in this regard.
Atty. Zapa I think your Honor, between the plaintiff and the defendant there is no issue
against the insurance.
50
COURT Yes because this witness it not testifying on the Marine Open Policy.
Atty. Alojado We submit.
COURT Proceed.
Atty. Alojado
Q. But there is a Marine Open Policy
27
A. Yes, sir.
xxxx
COURT
Q. Is the policy a standing policy, a continuing policy or is it going only for only a year or
for a particular shipment or what?
A. For this particular consignee, they have Marine Open Policy.
Atty. Alojado That was not presented.
COURT Thats why Im asking. So the policy is not only for a particular shipment, but all
other shipments that may come?
A. Yes, Your Honor.
Q. Are covered?
A. Yes, Your Honor.
Q. Without any specifications?
A. Yes, Your Honor.28
Clearly, petitioner was not remiss when it openly objected to the non-presentation of the Marine
Insurance Policy. As testified to by respondents witness, they had a copy of the marine insurance policy
in their office. Thus, respondent was already apprised of the possible importance of the said document to
their cause.
In addition, this Court takes notice that notwithstanding that the RTC may have denied the repeated
manifestation of petitioner of the non-presentation of the marine insurance policy, the same by itself does
not exonerate respondent. As plaintiff, it was respondents burden to present the evidence necessary to
substantiate its claim.
In its Complaint,29 respondent alleged: "That the above-described shipment was insured for
P14,173,042.91 against all risks under plaintiffs Marine Cargo Risk Note No. 39821/Marine Open Policy
No. 86-168."30 Therefore, other than the marine cargo risk note, respondent should have also presented
the marine insurance policy, as the same also served as the basis for its complaint. Section 7, Rule 9 of
the 1997 Rules of Civil Procedure, provide:
51
SECTION 7. Action or defense based on document.Whenever an action or defense is
based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall be
attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may, with like effect, be set forth in the pleading.
On this score, Malayan is instructive:
Malayans right of recovery as a subrogee of ABB Koppel cannot be predicated alone on

the liability of the respondent to ABB Koppel, even though such liability will necessarily
have to be established at the trial for Malayan to recover. Because Malayans right to
recovery derives from contractual subrogation as an incident to an insurance relationship,
and not from any proximate injury to it inflicted by the respondents, it is critical that
Malayan establish the legal basis of such right to subrogation by presenting the contract
constitutive of the insurance relationship between it and ABB Koppel. Without such legal
basis, its cause of action cannot survive.
Our procedural rules make plain how easily Malayan could have adduced the Marine
Insurance Policy. Ideally, this should have been accomplished from the moment it filed
the complaint. Since the Marine Insurance Policy was constitutive of the insurer-insured
relationship from which Malayan draws its right to subrogation, such document should
have been attached to the complaint itself, as provided for in Section 7, Rule 9 of the
1997 Rules of Civil Procedure: x x x 31
Therefore, since respondent alluded to an actionable document in its complaint, the contract of insurance
between it and Nissan, as integral to its cause of action against petitioner, the Marine Insurance Policy
should have been attached to the Complaint. Even in its formal offer of evidence, respondent alluded to
the marine insurance policy which can stand independent of the Marine Cargo Risk Note, to wit:
EXH "B" = Marine Cargo Risk Note No. 39821/95 Dated November 16, 1995.
Purpose: As proof that the subject shipment was covered by insurance for P14,173, 042.91 under
Marine Open Policy No. 86-168.32
It is significant that the date when the alleged insurance contract was constituted cannot be established
with certainty without the contract itself. Said point is crucial because there can be no insurance on a risk
that had already occurred by the time the contract was executed.33 Surely, the Marine Risk Note on its
face does not specify when the insurance was constituted.
The importance of the presentation of the Marine Insurance Policy was also emphasized in Wallem
Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc.,34 where this Court ruled:
x x x Wallem still cannot be held liable because of the failure of Prudential to present the
contract of insurance or a copy thereof. Prudential claims that it is subrogated to the rights
of GMC pursuant to their insurance contract. For this purpose, it submitted a subrogation
receipt (Exh. J) and a marine cargo risk note (Exh. D). However, as the trial court pointed
out, this is not sufficient. As GMCs subrogee, Prudential can exercise only those rights
granted to GMC under the insurance contract. The contract of insurance must be
presented in evidence to indicate the extent of its coverage. As there was no
determination of rights under the insurance contract, this Courts ruling in Home Insurance
Corporation v. Court of Appeals is applicable:
The insurance contract has not been presented. It may be assumed for the sake of
argument that the subrogation receipt may nevertheless be used to establish the
52
relationship between the petitioner [Home Insurance Corporation] and the consignee
[Nestl Phil.] and the amount paid to settle the claim. But that is all the document can do.
By itself alone, the subrogation receipt is not sufficient to prove the petitioners claim
holding the respondent [Mabuhay Brokerage Co., Inc.] liable for the damage to the
engine.
....
It is curious that the petitioner disregarded this rule, knowing that the best evidence of the insurance
contract was its original copy, which was presumably in the possession of Home itself. Failure to present
this original (or even a copy of it), for reasons the Court cannot comprehend, must prove fatal to this
35
petition.
Finally, there have been cases where this Court ruled that the non-presentation of the marine insurance
policy is not fatal, as can be gleaned in International, where this Court held:
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in
evidence before the trial court or even belatedly before the appellate court. In Malayan
Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of
the marine insurance policy was necessary, as the issues raised therein arose from the
very existence of an insurance contract between Malayan Insurance and its consignee,
ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc.
v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract
must be presented in evidence in order to determine the extent of the coverage. This was
also the ruling of the Court in Home Insurance Corporation v. Court of Appeals.
of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss
of the cargo undoubtedly occurred while on board the petitioner's vessel, unlike in Home Insurance in
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner's
36
and they have themselves been incorporated in the records of the case.
Although the CA may have ruled that the damage to the cargo occurred while the same was in
petitioners custody, this Court cannot apply the ruling in International to the case at bar. In contrast,
unlike in International where there was no issue as regards the provisions of the marine insurance policy,
such that the presentation of the contract itself is necessary for perusal, herein petitioner had repeatedly
objected to the non-presentation of the marine insurance policy and had manifested its desire to know the
specific provisions thereof. Moreover, and the same is critical, the marine risk note in the case at bar is
questionable because: first, it is dated on the same day the cargoes arrived at the port of Manila and not
during the duration of the voyage; second, without the Marine Insurance Policy to elucidate on the
specifics of the terms and conditions alluded to in the marine risk note, it would be simply guesswork to
know if the same were complied with.
Lastly, to cast all doubt on the merits of herein petition, this Court is guided by the ruling in Malayan, to
wit:
53
It cannot be denied from the only established facts that Malayan and ABB Koppel comported as if there
was an insurance relationship between them and documents exist that evince the presence of such legal
relationship. But, under these premises, the very insurance contract emerges as the white elephant in the
room an obdurate presence which everybody reacts to, yet, legally invisible as a matter of evidence
since no attempt had been made to prove its corporeal existence in the court of law. It may seem
commonsensical to conclude anyway that there was a contract of insurance between Malayan and ABB
Koppel since they obviously behaved in a manner that indicates such relationship, yet the same
conclusion could be had even if, for example, those parties staged an elaborate charade to impress on
the world the existence of an insurance contract when there actually was none. While there is absolutely
no indication of any bad faith of such import by Malayan or ABB Koppel, the fact that the
"commonsensical" conclusion can be drawn even if there was bad faith that convinces us to reject such
line of thinking.
The Court further recognizes the danger as precedent should we sustain Malayans position, and not only
because such a ruling would formally violate the rule on actionable documents. Malayan would have us
effectuate an insurance contract without having to consider its particular terms and conditions, and on a
blind leap of faith that such contract is indeed valid and subsisting. The conclusion further works to the
utter prejudice of defendants such as Regis or Paircargo since they would be deprived the opportunity to
examine the document that gives rise to the plaintiffs right to recover against them, or to raise arguments
or objections against the validity or admissibility of such document. If a legal claim is irrefragably sourced
from an actionable document, the defendants cannot be deprived of the right to examine or utilize such
document in order to intelligently raise a defense. The inability or refusal of the plaintiff to submit such
document into evidence constitutes an effective denial of that right of the defendant which is ultimately
rooted in due process of law, to say nothing on how such failure fatally diminishes the plaintiffs
substantiation of its own cause of action.37
In conclusion, this Court rules that based on the applicable jurisprudence, because of the inadequacy of
the Marine Cargo Risk Note for the reasons already stated, it was incumbent on respondent to present in
evidence the Marine Insurance Policy, and having failed in doing so, its claim of subrogation must
necessarily fail.
Because of the foregoing, it would be unnecessary to discuss the second error raised by petitioner.
WHEREFORE, premises considered, the petition is GRANTED. The April 26, 2006 Decision and August
15, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 68165 are hereby REVERSED and SET
ASIDE. The Complaint in Civil Case No. 96-1665 is DISMISSED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

ANTONIO EDUARDO B. NACHURA

Associate Justice
54
ATTESTATION
Associate Justice
Third Division, Chairperson
CERTIFICATION
that the conclusions in the above Decision were reached in consultation before the case was assigned to
the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1
Rollo, pp. 3-20.
2
Penned by Associate Justice Edgardo P. Cruz, with Associate Justices Rosalinda Asuncion-Vicente and
Sesinando E. Villon, concurring; id. at 24-34.
3
Id. at 36.
4
Rollo, p. 24.
5
Id.
6
Id.
7
Exhibit J; records pp. 181-183.
8
Rollo, p. 25.
9
Exhibit A; records, pp. 76-78.
10
Rollo, p. 25.
11
Id.
12
Rollo, pp. 109-115.
13
Id. at 114-115.
14
Id. at 33-34.
15
420 Phil. 824, 835 (2001).
16
Rollo, p. 32.
17
Id. at 11.
18
Philippine Charter Insurance Corporation v. Unknown Owner of the Vessel M/V "National Honor," G.R. No.
161833 , July 8, 2005, 463 SCRA 202, 215.
19
Aboitiz Shipping Corporation v. Philippine American General Insurance Co., G.R. No. 77530, October 5, 1989,
178 SCRA 357, 360-361.
20
G.R. No. 161539, June 27, 2008, 556 SCRA 194.
21
Id. at 202-203. (Emphasis supplied.)
22
Records, p. 79.
23
G.R. No. 172156, November 23, 2007, 538 SCRA 681.
24
Id. at 689.
25
26
Id. at 186.
27
TSN, May 20, 1997, pp. 14-18.
28
TSN, July 3, 1997, pp. 9-10.
29
Records, pp. 1-5.
30
Id. at. 2.
31
Malayan Insurance Co., Inc. v. Regis Brokerage Corp., supra note 23, at 690.
32
Records, p. 72.
33
Malayan Insurance Co., Inc. v. Regis Brokerage Corp., supra note 23, at 694.
34
G.R. No. 152158, February 7, 2003, 397 SCRA 158.
35
Id. at 170-171.
55
36
International Container Terminal Services, Inc. v. FGU Insurance Corporation, supra note 20, at 203-204.
37
Malayan Insurance Co., Inc. v. Regis Brokerage Corp., supra note 23, at 692-693. (Emphasis supplied.)
----------
THIRD DIVISION
G.R. No. 171468 August 24, 2011
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
NYK-FILJAPAN SHIPPING CORP., LEP PROFIT INTERNATIONAL, INC. (ORD), LEP INTERNATIONAL
PHILIPPINES, INC., DMT CORP., ADVATECH INDUSTRIES, INC., MARINA PORT SERVICES, INC.,
SERBROS CARRIER CORPORATION, and SEABOARD-EASTERN INSURANCE CO., INC.,
Respondents.
G.R. No. 174241
NEW WORLD INTERNATIONAL DEVELOPMENT (PHILS.), INC., Petitioner,

vs.
SEABOARD-EASTERN INSURANCE CO., INC., Respondent.
DECISION
ABAD, J.:
These consolidated petitions involve a cargo owners right to recover damages from the loss of insured
goods under the Carriage of Goods by Sea Act and the Insurance Code.
The Facts and the Case
Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation
(DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth
US$721,500.00.
DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc.
(LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it
was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation
(NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received
the goods in good condition.
NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned
and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose
captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss
and damage that the goods on board his vessel suffered.
Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator,
received the shipment on October 7, 1993. Upon inspection of the three container vans separately
56
carrying the generator sets, two vans bore signs of external damage while the third van appeared
unscathed. The shipment remained at Pier 3s Container Yard under Marinas care pending clearance
from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioners
customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same to
petitioner New Worlds job site in Makati City.
An examination of the three generator sets in the presence of petitioner New Worlds representatives,
Federal Builders (the project contractor) and surveyors of petitioner New Worlds insurer, Seaboard
Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and
could no longer be repaired. For these reasons, New World demanded recompense for its loss from
respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and
Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss.
Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal
claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New
World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding
values, for the processing of the claim. But petitioner New World did not submit what was required of it,
insisting that the insurance policy did not include the submission of such a list in connection with an
insurance claim. Reacting to this, Seaboard refused to process the claim.
On October 11, 1994 petitioner New World filed an action for specific performance and damages against
all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-
2770.
On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the
exception of NYK. The RTC found that the generator sets were damaged during transit while in the care
of NYKs vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of diligence
required of it in the face of a foretold raging typhoon in its path.
The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond
the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint
on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already
lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered
to the arrastre operator and not from the date they were delivered to petitioners job site. 1
As regards petitioner New Worlds claim against Seaboard, its insurer, the RTC held that the latter cannot
be faulted for denying the claim against it since New World refused to submit the itemized list that
Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint
prejudiced Seaboards right to pursue a claim against NYK in the event of subrogation.
On appeal, the Court of Appeals (CA) rendered judgment on January 31, 2006, 2 affirming the RTCs
rulings except with respect to Seaboards liability. The CA held that petitioner New World can still recoup
its loss from Seaboards marine insurance policy, considering a) that the submission of the itemized listing
is an unreasonable imposition and b) that the one-year prescriptive period under the COGSA did not
affect New Worlds right under the insurance policy since it was the Insurance Code that governed the
relation between the insurer and the insured.
Although petitioner New World promptly filed a petition for review of the CA decision before the Court in
G.R. 171468, Seaboard chose to file a motion for reconsideration of that decision. On August 17, 2006
the CA rendered an amended decision, reversing itself as regards the claim against Seaboard. The CA
held that the submission of the itemized listing was a reasonable requirement that Seaboard asked of
New World. Further, the CA held that the one-year prescriptive period for maritime claims applied to
Seaboard, as insurer and subrogee of New Worlds right against the vessel owner. New Worlds failure to
comply promptly with what was required of it prejudiced such right.
57
Instead of filing a motion for reconsideration, petitioner instituted a second petition for review before the
Court in G.R. 174241, assailing the CAs amended decision.
The Issues Presented
The issues presented in this case are as follows:
a) In G.R. 171468, whether or not the CA erred in affirming the RTCs release from
liability of respondents DMT, Advatech, LEP, LEP Profit, Marina, and Serbros who were
at one time or another involved in handling the shipment; and
b) In G.R. 174241, 1) whether or not the CA erred in ruling that Seaboards request from
petitioner New World for an itemized list is a reasonable imposition and did not violate the
insurance contract between them; and 2) whether or not the CA erred in failing to rule
that the one-year COGSA prescriptive period for marine claims does not apply to
petitioner New Worlds prosecution of its claim against Seaboard, its insurer.
The Courts Rulings
In G.R. 171468 --
Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and
Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the
damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner.
But the issue regarding which of the parties to a dispute incurred negligence is factual and is not a proper
subject of a petition for review on certiorari. And petitioner New World has been unable to make out an
exception to this rule.3 Consequently, the Court will not disturb the finding of the RTC, affirmed by the CA,
that the generator sets were totally damaged during the typhoon which beset the vessels voyage from
Hong Kong to Manila and that it was her negligence in continuing with that journey despite the adverse
condition which caused petitioner New Worlds loss.
That the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code,
does not automatically relieve the common carrier of liability. The latter had the burden of proving that the
typhoon was the proximate and only cause of loss and that it exercised due diligence to prevent or
minimize such loss before, during, and after the disastrous typhoon. 4 As found by the RTC and the CA,
NYK failed to discharge this burden.
In G.R. 174241 --
One. The Court does not regard as substantial the question of reasonableness of Seaboards additional
requirement of an itemized listing of the damage that the generator sets suffered. The record shows that
petitioner New World complied with the documentary requirements evidencing damage to its generator
sets.
The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured
against all causes of conceivable loss or damage except when otherwise excluded or when the loss or
damage was due to fraud or intentional misconduct committed by the insured. The policy covered all
losses during the voyage whether or not arising from a marine peril.5
Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage,
6
or vessels unseaworthiness, among others. But Seaboard had been unable to show that petitioner New
Worlds loss or damage fell within some or one of the enumerated exceptions.
58
What is more, Seaboard had been unable to explain how it could not verify the damage that New Worlds
goods suffered going by the documents that it already submitted, namely, (1) copy of the Suppliers
Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the
Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-
000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report
from the Customs Examiner; and (8) Copies of Received Formal Claim from the following: a) LEP
7
International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation. Notably,
Seaboards own marine surveyor attended the inspection of the generator sets.
Seaboard cannot pretend that the above documents are inadequate since they were precisely the
documents listed in its insurance policy.8 Being a contract of adhesion, an insurance policy is construed
strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was
not there.
Further, it appears from the exchanges of communications between Seaboard and Advatech that
submission of the requested itemized listing was incumbent on the latter as the seller DMTs local agent.
Petitioner New World should not be made to suffer for Advatechs shortcomings.
Two. Regarding prescription of claims, Section 3(6) of the COGSA provides that the carrier and the ship
shall be discharged from all liability in case of loss or damage unless the suit is brought within one year
after delivery of the goods or the date when the goods should have been delivered.
But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time?
The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World
filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as
November 16, 1993 or about 11 months before the suit against NYK would have fallen due.
In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have
been subrogated to petitioner New Worlds right to recover from NYK. And it could have then filed the suit
as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14,
1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it
appeared settled that New Worlds loss was total and when the insurance policy did not require the
production of such a list in the event of a claim.
Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against
whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It
should have examined the same, found it unsubstantiated by documents if that were the case, and
formally rejected it. That would have at least given petitioner New World a clear signal that it needed to
promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit
could be brought to Seaboards doorstep.
Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines
shall refuse without just cause to pay or settle claims arising under coverages provided by its policies.
And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the
loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt
of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or
fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds of the
policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner New Worlds claim as Section
243 required. Under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is
created by the failure of the insurer to pay the claim within the time fixed in Section 243.
59
Consequently, Seaboard should pay interest on the proceeds of the policy for the duration of the delay
until the claim is fully satisfied at the rate of twice the ceiling prescribed by the Monetary Board. The term
"ceiling prescribed by the Monetary Board" means the legal rate of interest of 12% per annum provided in
9
Central Bank Circular 416, pursuant to Presidential Decree 116. Section 244 of the Insurance Code also
provides for an award of attorneys fees and other expenses incurred by the assured due to the
unreasonable withholding of payment of his claim.
In Prudential Guarantee and Assurance, Inc. v. Trans-Asia Shipping Lines, Inc.,10 the Court regarded as
proper an award of 10% of the insurance proceeds as attorneys fees. Such amount is fair considering the
11
length of time that has passed in prosecuting the claim. Pursuant to the Courts ruling in Eastern
12
Shipping Lines, Inc. v. Court of Appeals, a 12% interest per annum from the finality of judgment until full
satisfaction of the claim should likewise be imposed, the interim period equivalent to a forbearance of
credit.
Petitioner New World is entitled to the value stated in the policy which is commensurate to the value of
the three emergency generator sets or US$721,500.00 with double interest plus attorneys fees as
discussed above.
WHEREFORE, the Court DENIES the petition in G.R. 171468 and AFFIRMS the Court of Appeals
decision of January 31, 2006 insofar as petitioner New World International Development (Phils.), Inc. is
not allowed to recover against respondents DMT Corporation, Advatech Industries, Inc., LEP International
Philippines, Inc., LEP Profit International, Inc., Marina Port Services, Inc. and Serbros Carrier
Corporation.
With respect to G.R. 174241, the Court GRANTS the petition and REVERSES and SETS ASIDE the
Court of Appeals Amended Decision of August 17, 2006. The Court DIRECTS Seaboard-Eastern
Insurance Company, Inc. to pay petitioner New World International Development (Phils.), Inc.
US$721,500.00 under Policy MA-HO-000266, with 24% interest per annum for the duration of delay in
accordance with Sections 243 and 244 of the Insurance Code and attorneys fees equivalent to 10% of
the insurance proceeds. Seaboard shall also pay, from finality of judgment, a 12% interest per annum on
the total amount due to petitioner until its full satisfaction.
SO ORDERED.
ROBERTO A. ABAD
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson
*
TERESITA J. LEONARDO-DE CASTRO DIOSDADO M. PERALTA
JOSE CATRAL MENDOZA

Associate Justice
ATTESTATION
60
Associate Justice
Chairperson, Third Division
CERTIFICATION
RENATO C. CORONA
Chief Justice
Footnotes
*
Designated as additional member in lieu of Associate Justice Maria Lourdes P. A. Sereno, per Special Order
1069 dated August 23, 2011.
1
Union Carbide Philippines, Inc. v. Manila Railroad Co., 168 Phil. 22, 31 (1977).
2
Penned by Associate Justice Vicente S.E. Veloso with the concurrence of Associate Justices Edgardo F.
Sundiam and Aurora S. Lagman, rollo (G.R. 171468), pp. 9-41.
3
See Cang v. Cullen, G.R. No. 163078, November 25, 2009, 605 SCRA 391.
4
Civil Code, Article 1739.
5
Choa Tiek Seng v. Court of Appeals, 262 Phil. 245, 255 (1990).
6
Rollo (G.R. 174241), p. 163.
7
Exhibit "BB" for petitioner, id. at 216.
8
For documentation of claims, the policy requires submission of: (1) Original policy or certificate of insurance; (2)
Original copy of shipping invoices together with shipping specifications and/or weight notes; (3) Original Bill of
Lading and/or other contract of carriage; (4) Survey report or other documentary evidence to show the extent of
the loss or damage; (5) Landing account and weight notes at final destination, and; (6) Correspondence
exchanged with the Carrier and other parties regarding the liability for the loss or damage, id. at 165.
9
Otherwise known as "Amending Further Certain Sections of Act Numbered Two Thousand Six Hundred Fifty-
Five, as amended, otherwise known as "The Usury Law."
10
G.R. Nos. 151890 and 151991, June 20, 2006, 491 SCRA 411.
11
Cathay Insurance Company, Inc. v. Court of Appeals, 255 Phil. 714, 723 (1989).
12
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
61
VI. NEGLIGENCE
Philippine American General Insurance Co., Inc. vs. Court of Appeals and Felman
Shipping Lines, G.R. No. 116940 June 11, 1997
FGU Insurance Corporation vs. Court of Appeals, San Miguel Corp. and Estate of Ang
Gui, G.R. No. 137775. March 31, 2005
Sulpicio Lines Inc., vs. First Lepanto-Taisho Insurance Corp., G.R. No. 140349 June 29,
2005
Lea Mer Industries, Inc. vs. Malayan Insurance Co., Inc., G.R. No. 161745 September
30, 2005
Aboitiz Shipping Corp. vs. New India Assurance Company, Ltd., G..R. No. 156978 May
2, 2006
Aboitiz Shipping Corp. vs. Insurance Company of North America, G.R. No. 168402
August 6, 2008
Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corp., G.R. No. 180880-
81 September 25, 2009
Asian Terminals, Inc. vs. Malayan Insurance Co., Inc., G.R. No. 171406 April 4, 2011
the United States Supreme Court has made a distinction between ordinary negligence and
gross negligence or negligence amounting to misconduct and its effect on the insureds right to
recover under the insurance contract. According to the Court, while mistake and negligence of the
master or crew are incident to navigation and constitute a part of the perils that the insurer is
obliged to incur, such negligence or recklessness must not be of such gross character as to
amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from
liability under the insurance contract.
The standard of extraordinary diligence imposed upon common carriers is considerably more
demanding than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias
established in respect of the ordinary relations between members of society. A common carrier is
bound to transport its cargo and its passengers safely as far as human care and foresight can
provide, using the utmost diligence of a very cautious person, with due regard to all
circumstances. The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding the
damage to, or destruction of, the goods entrusted to it for safe carriage and delivery.
----------
FIRST DIVISION
G.R. No. 116940 June 11, 1997
THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., petitioner,

vs.
COURT OF APPEALS and FELMAN SHIPPING LINES, respondents.
62
DECISION
BELLOSILLO, J.:
This case deals with the liability, if any, of a shipowner for loss of cargo due to its failure to observe the
extraordinary diligence required by Art. 1733 of the Civil Code as well as the right of the insurer to be
subrogated to the rights of the insured upon payment of the insurance claim.
On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola
softdrink bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers
1
Philippines, Inc., Cebu. The shipment was insured with petitioner Philippine American General Insurance
Co., Inc. (PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG.
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the same day. At
around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga
del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola
softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles
that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.
Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN which
disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN sued the
shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo were due
to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further alleged that the
vessel was improperly manned and that its officers were grossly negligent in failing to take appropriate
measures to proceed to a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the Code of
Commerce. 2
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of
Appeals set aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN
filed a petition for certiorari with this Court but it was subsequently denied on 13 February 1989.
3
On 28 February 1992 the trial court rendered judgment in favor of FELMAN. It ruled that "MV Asilda"
was seaworthy when it left the port of Zamboanga as confirmed by certificates issued by the Philippine
Coast Guard and the shipowner's surveyor attesting to its seaworthiness. Thus the loss of the vessel and
its entire shipment could only be attributed to either a fortuitous event, in which case, no liability should
attach unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in
which case, Art. 587 of the Code of Commerce should apply.
The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN could not
recover from FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied
warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured
63
was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give PHILAMGEN
the right of subrogation so as to permit it to bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994
respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-heavy as
2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. In other words, while the
vessel possessed the necessary Coast Guard certification indicating its seaworthiness with respect to the
structure of the ship itself, it was not seaworthy with respect to the cargo. Nonetheless, the appellate
court denied the claim of PHILAMGEN on the ground that the assured's implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the
rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited liability rule.
The issues for resolution in this petition are: (a) whether "MV Asilda" was seaworthy when it left the port
of Zamboanga; (b) whether the limited liability under Art. 587 of the Code of Commerce should apply;
and, (c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper
had against FELMAN, the shipowner.
"MV Asilda" was unseaworthy when it left the port of Zamboanga. In a joint statement, the captain as well
as the chief mate of the vessel confirmed that the weather was fine when they left the port of Zamboanga.
According to them, the vessel was carrying 7,500 cases of 1-liter Coca-Cola softdrink bottles, 300 sacks
of seaweeds, 200 empty CO2 cylinders and an undetermined quantity of empty boxes for fresh eggs.
They loaded the empty boxes for eggs and about 500 cases of Coca-Cola bottles on deck. 4 The ship
captain stated that around four o'clock in the morning of 7 July 1983 he was awakened by the officer on
duty to inform him that the vessel had hit a floating log. At that time he noticed that the weather had
deteriorated with strong southeast winds inducing big waves. After thirty minutes he observed that the
vessel was listing slightly to starboard and would not correct itself despite the heavy rolling and pitching.
He then ordered his crew to shift the cargo from starboard to portside until the vessel was balanced. At
about seven o'clock in the morning, the master of the vessel stopped the engine because the vessel was
listing dangerously to portside. He ordered his crew to shift the cargo back to starboard. The shifting of
cargo took about an hour afterwhich he rang the engine room to resume full speed.
At around eight forty-five, the vessel suddenly listed to portside and before the captain could decide on
his next move, some of the cargo on deck were thrown overboard and seawater entered the engine room
and cargo holds of the vessel. At that instance, the master of the vessel ordered his crew to abandon
ship. Shortly thereafter, "MV Asilda" capsized and sank. He ascribed the sinking to the entry of seawater
through a hole in the hull caused by the vessel's collision with a partially submerged log. 5
The Elite Adjusters, Inc., submitted a report regarding the sinking of "MV Asilda." The report, which was
adopted by the Court of Appeals, reads
We found in the course of our investigation that a reasonable explanation for the series of
lists experienced by the vessel that eventually led to her capsizing and sinking, was that
the vessel was top-heavy which is to say that while the vessel may not have been
overloaded, yet the distribution or stowage of the cargo on board was done in such a
manner that the vessel was in top-heavy condition at the time of her departure and which
condition rendered her unstable and unseaworthy for that particular voyage.
In this connection, we wish to call attention to the fact that this vessel was designed as a
fishing vessel . . . and it was not designed to carry a substantial amount or quantity of
cargo on deck. Therefore, we believe strongly that had her cargo been confined to those
that could have been accommodated under deck, her stability would not have been
affected and the vessel would not have been in any danger of capsizing, even given the
prevailing weather conditions at that time of sinking.
64
But from the moment that the vessel was utilized to load heavy cargo on its deck, the
vessel was rendered unseaworthy for the purpose of carrying the type of cargo because
the weight of the deck cargo so decreased the vessel's metacentric height as to cause it
to become unstable.
Finally, with regard to the allegation that the vessel encountered big waves, it must be
pointed out that ships are precisely designed to be able to navigate safely even during
heavy weather and frequently we hear of ships safely and successfully weathering
encounters with typhoons and although they may sustain some amount of damage, the
sinking of ship during heavy weather is not a frequent occurrence and is not likely to
occur unless they are inherently unstable and unseaworthy . . . .
We believe, therefore, and so hold that the proximate cause of the sinking of the M/V
"Asilda" was her condition of unseaworthiness arising from her having been top-heavy
when she departed from the Port of Zamboanga. Her having capsized and eventually
sunk was bound to happen and was therefore in the category of an inevitable occurrence
6
(emphasis supplied).
We subscribe to the findings of the Elite Adjusters, Inc., and the Court of Appeals that the proximate
cause of the sinking of "MV Asilda" was its being top-heavy. Contrary to the ship captain's allegations,
evidence shows that approximately 2,500 cases of softdrink bottles were stowed on deck. Several days
after "MV Asilda" sank, an estimated 2,500 empty Coca-Cola plastic cases were recovered near the
vicinity of the sinking. Considering that the ship's hatches were properly secured, the empty Coca-Cola
cases recovered could have come only from the vessel's deck cargo. It is settled that carrying a deck
cargo raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not
interfere with the proper management of the ship. However, in this case it was established that "MV
Asilda" was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo
deck resulted in the decrease of the vessel's metacentric height 7 thus making it unstable. The strong
winds and waves encountered by the vessel are but the ordinary vicissitudes of a sea voyage and as
such merely contributed to its already unstable and unseaworthy condition.
On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar. 8 Simply put,
the ship agent is liable for the negligent acts of the captain in the care of goods loaded on the vessel. This
liability however can be limited through abandonment of the vessel, its equipment and freightage as
provided in Art. 587. Nonetheless, there are exceptional circumstances wherein the ship agent could still
be held answerable despite the abandonment, as where the loss or injury was due to the fault of the
shipowner and the captain. 9 The international rule is to the effect that the right of abandonment of
vessels, as a legal limitation of a shipowner's liability, does not apply to cases where the injury or average
10
was occasioned by the shipowner's own fault. It must be stressed at this point that Art. 587 speaks only
of situations where the fault or negligence is committed solely by the captain. Where the shipowner is
likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the provisions of the
Civil Code on common carrier. 11
It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness
even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount of
cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through
the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.
Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case . . ." In the
event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the
shipowner, was not able to rebut this presumption.
65
In relation to the question of subrogation, respondent appellate court found "MV Asilda" unseaworthy with
reference to the cargo and therefore ruled that there was breach of warranty of seaworthiness that
rendered the assured not entitled to the payment of is claim under the policy. Hence, when PHILAMGEN
paid the claim of the bottling firm there was in effect a "voluntary payment" and no right of subrogation
accrued in its favor. In other words, when PHILAMGEN paid it did so at its own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that
the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the
face of the policy. 12 Thus Sec. 113 of the Insurance Code provides that "(i)n every marine insurance
upon a ship or freight, or freightage, or upon anything which is the subject of marine insurance, a
warranty is implied that the ship is seaworthy." Under Sec. 114, a ship is "seaworthy when reasonably fit
to perform the service, and to encounter the ordinary perils of the voyage, contemplated by the parties to
the policy." Thus it becomes the obligation of the cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. He may have no control over the vessel but he has full control in
the selection of the common carrier that will transport his goods. He also has full discretion in the choice
of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly
pointed out by FELMAN to stress that subrogation will not work in this case. In policies where the law will
generally imply a warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the
clearest language. 13 And where the policy stipulates that the seaworthiness of the vessel as between the
assured and the assurer is admitted, the question of seaworthiness cannot be raised by the assurer
without showing concealment or misrepresentation by the assured. 14
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-
PAG reads "(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or
Latent Defect Clause in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as
between the Assured and the Company shall not prejudice the insurance. The seaworthiness of the
15
vessel as between the Assured and the Assurers is hereby admitted."
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
"(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ." 16
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things:
(a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. 17 The insertion of such waiver clauses in cargo
policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel. Thus
it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of unseaworthiness
so that if the ship should sink by unseaworthiness, as what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGEN's action
against FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from
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.
18
In Pan Malayan Insurance Corporation v. Court of Appeals, we said that payment by the assurer to the
assured operates as an equitable assignment to the assurer of all the remedies which the assured may
have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is
66
not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance
company of the insurance claim. It accrues simply upon payment by the insurance company of the
insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and
is the mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity
19
and good conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN.
Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-
liter Coca-Cola softdrink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Seven Hundred Fifty-five
Thousand Two Hundred and Fifty Pesos (P755,250.00) plus legal interest thereon counted from 29
20
November 1983, the date of judicial demand, pursuant to Arts. 2212 and 2213 of the Civil Code.
SO ORDERED.
Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., is on leave.
Footnotes
1 Bill of Lading No. CCBPI-1 dated 7 July 1983, Exh. "B," Plaintiff's Formal Offer of Exhibits.
2 Art. 587 states: he ship agent shall also be civilly liable for the indemnities in favor of third parties which may
arise from the conduct of the captain in the care of the goods which he loaded on the vessel; but he may exempt
himself therefrom by abandoning the vessel with all her equipments and the freight it may have earned during
the voyage.
3 Civil Case No. 5812; Decision penned by Judge Salvador S. Abad Santos, RTC-Br. 65, Makati; Records, pp.
239-241.
4 Exhs. "A-6" to "A-17," Plaintiff's Formal Offer of Exhibits.
5 Ibid.
6 Exh. "M," Plaintiff's Formal Offer of Exhibits.
7 Metacentric height refers to the distance of the metacenter above the center of gravity of a floating body. See
Webster's Third New International Dictionary, 1986 Ed., p. 1419.
8 See Note 2.
9 Chua Yek Hong v. Intermediate Appellate Court, G.R. No. 74811, 30 September 1988, 166 SCRA 189.
10 Manila Steamship Co., Inc. v. Insa Abdulhanan and Lim Hong To, 100 Phil. 38, 39 (1956).
11 Heirs of Amparo de los Santos v. Court of Appeals, G.R. No. 51165, 21 June 1990, 186 SCRA 658.
12 Vance, Handbook on the Law of Insurance, 3rd Ed., 1930, pp. 920-921.
13 New Orleans Ry. Co. v. Union Marine Ins. Co., 286 F. 32, cited in Vance, op. cit., p. 920.
14 Clinchfield Fuel Co. v. Aetna Ins. Co., 114 S. E. 543, 548.
15 Exh. "C-1," Plaintiff's Formal Offer of Exhibits.
16 Ibid.
17 See Note 15.
18 G.R. No. 81026, 3 April 1990, 184 SCRA 54, citing Compania Maritima v. Insurance Company of North
America, No. L-18965, 30 October 1964, 12 SCRA 213; Fireman's Fund Insurance Company v. Jamila and
Company, Inc., No. L-27427, 7 April 1976, 70 SCRA 323.
19 Boney, Insurance Commissioner v. Central Mutual Ins. Co. of Chicago, 197 S.E. 122.
20 Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation
may be silent upon this point.
Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonable certainty. (See Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 94712, 12
July 1994, 234 SCRA 78, 95).
67
----------
SECOND DIVISION
G.R. No. 137775. March 31, 2005
FGU INSURANCE CORPORATION, Petitioners,

vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI, represented by
LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO, Respondents.
G.R. No. 140704. March 31, 2005
ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO TO,
Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE CORP.,
Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us are two separate Petitions for review assailing the Decision1 of the Court of Appeals in CA-
G.R. CV No. 49624 entitled, "San Miguel Corporation, Plaintiff-Appellee versus Estate of Ang Gui,
represented by Lucio, Julian and Jaime, all surnamed Ang, and Co To, Defendants-Appellants, Third
Party Plaintiffs versus FGU Insurance Corporation, Third-Party Defendant-Appellant," which affirmed in
toto the decision2 of the Regional Trial Court of Cebu City, Branch 22. The dispositive portion of the Court
of Appeals decision reads:
WHEREFORE, for all the foregoing, judgment is hereby rendered as follows:
1) Ordering defendants to pay plaintiff the sum of P1,346,197.00 and an interest of 6%

per annum to be reckoned from the filing of this case on October 2, 1990;
2) Ordering defendants to pay plaintiff the sum of P25,000.00 for attorneys fees and an
additional sum of P10,000.00 as litigation expenses;
3) With cost against defendants.
For the Third-Party Complaint:
1) Ordering third-party defendant FGU Insurance Company to pay and reimburse

defendants the amount of P632,700.00.3
The Facts
Evidence shows that Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To,
was engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge which
were operated as common carriers. Since the D/B Lucio had no engine of its own, it could not maneuver
by itself and had to be towed by a tugboat for it to move from one place to another.
68
On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the
D/B Lucio, for towage by M/T ANCO, the following cargoes:
Bill of Lading No. Shipment Destination
1 25,000 cases Pale Pilsen Estancia, Iloilo
350 cases Cerveza Negra Estancia, Iloilo
2 15,000 cases Pale Pilsen San Jose, Antique
200 cases Cerveza Negra San Jose, Antique
The consignee for the cargoes covered by Bill of Lading No. 1 was SMCs Beer Marketing Division
(BMD)-Estancia Beer Sales Office, Estancia, Iloilo, while the consignee for the cargoes covered by Bill of
Lading No. 2 was SMCs BMD-San Jose Beer Sales Office, San Jose, Antique.
The D/B Lucio was towed by the M/T ANCO all the way from Mandaue City to San Jose, Antique. The
vessels arrived at San Jose, Antique, at about one oclock in the afternoon of 30 September 1979. The
tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique.
When the barge and tugboat arrived at San Jose, Antique, in the afternoon of 30 September 1979, the
clouds over the area were dark and the waves were already big. The arrastre workers unloading the
cargoes of SMC on board the D/B Lucio began to complain about their difficulty in unloading the cargoes.
SMCs District Sales Supervisor, Fernando Macabuag, requested ANCOs representative to transfer the
barge to a safer place because the vessel might not be able to withstand the big waves.
ANCOs representative did not heed the request because he was confident that the barge could withstand
the waves. This, notwithstanding the fact that at that time, only the M/T ANCO was left at the wharf of San
Jose, Antique, as all other vessels already left the wharf to seek shelter. With the waves growing bigger
and bigger, only Ten Thousand Seven Hundred Ninety (10,790) cases of beer were discharged into the
custody of the arrastre operator.
At about ten to eleven oclock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the
vessel because the barges rope attached to the wharf was cut off by the big waves. At around midnight,
the barge run aground and was broken and the cargoes of beer in the barge were swept away.
As a result, ANCO failed to deliver to SMCs consignee Twenty-Nine Thousand Two Hundred Ten
(29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra. The value per case
of Pale Pilsen was Forty-Five Pesos and Twenty Centavos (P45.20). The value of a case of Cerveza
Negra was Forty-Seven Pesos and Ten Centavos (P47.10), hence, SMCs claim against ANCO
amounted to One Million Three Hundred Forty-Six Thousand One Hundred Ninety-Seven Pesos
(P1,346,197.00).
As a consequence of the incident, SMC filed a complaint for Breach of Contract of Carriage and
Damages against ANCO for the amount of One Million Three Hundred Forty-Six Thousand One Hundred
Ninety-Seven Pesos (P1,346,197.00) plus interest, litigation expenses and Twenty-Five Percent (25%) of
the total claim as attorneys fees.
Upon Ang Guis death, ANCO, as a partnership, was dissolved hence, on 26 January 1993, SMC filed a
second amended complaint which was admitted by the Court impleading the surviving partner, Co To and
the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed Ang. The substituted
69
defendants adopted the original answer with counterclaim of ANCO "since the substantial allegations of
the original complaint and the amended complaint are practically the same."
ANCO admitted that the cases of beer Pale Pilsen and Cerveza Negra mentioned in the complaint were
indeed loaded on the vessel belonging to ANCO. It claimed however that it had an agreement with SMC
that ANCO would not be liable for any losses or damages resulting to the cargoes by reason of fortuitous
event. Since the cases of beer Pale Pilsen and Cerveza Negra were lost by reason of a storm, a
fortuitous event which battered and sunk the vessel in which they were loaded, they should not be held
liable. ANCO further asserted that there was an agreement between them and SMC to insure the cargoes
in order to recover indemnity in case of loss. Pursuant to that agreement, the cargoes to the extent of
Twenty Thousand (20,000) cases was insured with FGU Insurance Corporation (FGU) for the total
amount of Eight Hundred Fifty-Eight Thousand Five Hundred Pesos (P858,500.00) per Marine Insurance
Policy No. 29591.
Subsequently, ANCO, with leave of court, filed a Third-Party Complaint against FGU, alleging that before
the vessel of ANCO left for San Jose, Antique with the cargoes owned by SMC, the cargoes, to the extent
of Twenty Thousand (20,000) cases, were insured with FGU for a total amount of Eight Hundred Fifty-
Eight Thousand Five Hundred Pesos (P858,500.00) under Marine Insurance Policy No. 29591. ANCO
further alleged that on or about 02 October 1979, by reason of very strong winds and heavy waves
brought about by a passing typhoon, the vessel run aground near the vicinity of San Jose, Antique, as a
result of which, the vessel was totally wrecked and its cargoes owned by SMC were lost and/or
destroyed. According to ANCO, the loss of said cargoes occurred as a result of risks insured against in
the insurance policy and during the existence and lifetime of said insurance policy. ANCO went on to
assert that in the remote possibility that the court will order ANCO to pay SMCs claim, the third-party
defendant corporation should be held liable to indemnify or reimburse ANCO whatever amounts, or
damages, it may be required to pay to SMC.
In its answer to the Third-Party complaint, third-party defendant FGU admitted the existence of the
Insurance Policy under Marine Cover Note No. 29591 but maintained that the alleged loss of the cargoes
covered by the said insurance policy cannot be attributed directly or indirectly to any of the risks insured
against in the said insurance policy. According to FGU, it is only liable under the policy to Third-party
Plaintiff ANCO and/or Plaintiff SMC in case of any of the following:
a) total loss of the entire shipment;
b) loss of any case as a result of the sinking of the vessel; or
c) loss as a result of the vessel being on fire.
Furthermore, FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise
ordinary diligence or the diligence of a good father of the family in the care and supervision of the cargoes
insured to prevent its loss and/or destruction.
Third-Party defendant FGU prayed for the dismissal of the Third-Party Complaint and asked for actual,
moral, and exemplary damages and attorneys fees.
The trial court found that while the cargoes were indeed lost due to fortuitous event, there was failure on
ANCOs part, through their representatives, to observe the degree of diligence required that would
exonerate them from liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for
the amount of the lost shipment. With respect to the Third-Party complaint, the court a quo found FGU
liable to bear Fifty-Three Percent (53%) of the amount of the lost cargoes. According to the trial court:
70
. . . Evidence is to the effect that the D/B Lucio, on which the cargo insured, run-aground
and was broken and the beer cargoes on the said barge were swept away. It is the sense
of this Court that the risk insured against was the cause of the loss.
...
Since the total cargo was 40,550 cases which had a total amount of P1,833,905.00 and
the amount of the policy was only for P858,500.00, defendants as assured, therefore,
were considered co-insurers of third-party defendant FGU Insurance Corporation to the
extent of 975,405.00 value of the cargo. Consequently, inasmuch as there was partial
loss of only P1,346,197.00, the assured shall bear 53% of the loss4 [Emphasis ours]
The appellate court affirmed in toto the decision of the lower court and denied the motion for
reconsideration and the supplemental motion for reconsideration.
Hence, the petitions.
The Issues
In G.R. No. 137775, the grounds for review raised by petitioner FGU can be summarized into two: 1)
Whether or not respondent Court of Appeals committed grave abuse of discretion in holding FGU liable
under the insurance contract considering the circumstances surrounding the loss of the cargoes; and 2)
Whether or not the Court of Appeals committed an error of law in holding that the doctrine of res judicata
applies in the instant case.
In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court
based on the following assignments of error: 1) The Court of Appeals committed grave abuse of
discretion in affirming the findings of the lower court that the negligence of the crewmembers of the D/B
Lucio was the proximate cause of the loss of the cargoes; and 2) The respondent court acted with grave
abuse of discretion when it ruled that the appeal was without merit despite the fact that said court had
accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals and the Supreme
Court, as res judicata.
Ruling of the Court
First, we shall endeavor to dispose of the common issue raised by both petitioners in their respective
petitions for review, that is, whether or not the doctrine of res judicata applies in the instant case.
It is ANCOs contention that the decision in Civil Case No. R-19341,5 which was decided in its favor,
constitutes res judicata with respect to the issues raised in the case at bar.
The contention is without merit. There can be no res judicata as between Civil Case No. R-19341 and the
case at bar. In order for res judicata to be made applicable in a case, the following essential requisites
must be present: 1) the former judgment must be final; 2) the former judgment must have been rendered
by a court having jurisdiction over the subject matter and the parties; 3) the former judgment must be a
judgment or order on the merits; and 4) there must be between the first and second action identity of
parties, identity of subject matter, and identity of causes of action.6
There is no question that the first three elements of res judicata as enumerated above are indeed
satisfied by the decision in Civil Case No. R-19341. However, the doctrine is still inapplicable due to the
absence of the last essential requisite of identity of parties, subject matter and causes of action.
71
The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant while in the instant
case, SMC is the plaintiff and the Estate of Ang Gui represented by Lucio, Julian and Jaime, all surnamed
Ang and Co To as defendants, with the latter merely impleading FGU as third-party defendant.
The subject matter of Civil Case No. R-19341 was the insurance contract entered into by ANCO, the
owner of the vessel, with FGU covering the vessel D/B Lucio, while in the instant case, the subject matter
of litigation is the loss of the cargoes of SMC, as shipper, loaded in the D/B Lucio and the resulting failure
of ANCO to deliver to SMCs consignees the lost cargo. Otherwise stated, the controversy in the first case
involved the rights and liabilities of the shipowner vis--vis that of the insurer, while the present case
involves the rights and liabilities of the shipper vis--vis that of the shipowner. Specifically, Civil Case No.
R-19341 was an action for Specific Performance and Damages based on FGU Marine Hull Insurance
Policy No. VMF-MH-13519 covering the vessel D/B Lucio, while the instant case is an action for Breach of
Contract of Carriage and Damages filed by SMC against ANCO based on Bill of Lading No. 1 and No. 2,
with defendant ANCO seeking reimbursement from FGU under Insurance Policy No. MA-58486, should
the former be held liable to pay SMC.
Moreover, the subject matter of the third-party complaint against FGU in this case is different from that in
Civil Case No. R-19341. In the latter, ANCO was suing FGU for the insurance contract over the vessel
while in the former, the third-party complaint arose from the insurance contract covering the cargoes on
board the D/B Lucio.
The doctrine of res judicata precludes the re-litigation of a particular fact or issue already passed upon by
a court of competent jurisdiction in a former judgment, in another action between the same parties based
on a different claim or cause of action. The judgment in the prior action operates as estoppel only as to
those matters in issue or points controverted, upon the determination of which the finding or judgment
was rendered.7 If a particular point or question is in issue in the second action, and the judgment will
depend on the determination of that particular point or question, a former judgment between the same
parties or their privies will be final and conclusive in the second if that same point or question was in issue
and adjudicated in the first suit.8
Since the case at bar arose from the same incident as that involved in Civil Case No. R-19341, only
findings with respect to matters passed upon by the court in the former judgment are conclusive in the
disposition of the instant case. A careful perusal of the decision in Civil Case No. R-19341 will reveal that
the pivotal issues resolved by the lower court, as affirmed by both the Court of Appeals and the Supreme
Court, can be summarized into three legal conclusions: 1) that the D/B Lucio before and during the
voyage was seaworthy; 2) that there was proper notice of loss made by ANCO within the reglementary
period; and 3) that the vessel D/B Lucio was a constructive total loss.
Said decision, however, did not pass upon the issues raised in the instant case. Absent therein was any
discussion regarding the liability of ANCO for the loss of the cargoes. Neither did the lower court pass
upon the issue of the alleged negligence of the crewmembers of the D/B Lucio being the cause of the
loss of the cargoes owned by SMC.
Therefore, based on the foregoing discussion, we are reversing the findings of the Court of Appeals that
there is res judicata.
Anent ANCOs first assignment of error, i.e., the appellate court committed error in concluding that the
negligence of ANCOs representatives was the proximate cause of the loss, said issue is a question of
fact assailing the lower courts appreciation of evidence on the negligence or lack thereof of the
crewmembers of the D/B Lucio. As a rule, findings of fact of lower courts, particularly when affirmed by
the appellate court, are deemed final and conclusive. The Supreme Court cannot review such findings on
9
appeal, especially when they are borne out by the records or are based on substantial evidence. As held
10
in the case of Donato v. Court of Appeals, in this jurisdiction, it is a fundamental and settled rule that
findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless
72
for strong and cogent reasons because the trial court is in a better position to examine real evidence, as
well as to observe the demeanor of the witnesses while testifying in the case. 11
It is not the function of this Court to analyze or weigh evidence all over again, unless there is a showing
that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute
palpable error or grave abuse of discretion.12
A careful study of the records shows no cogent reason to fault the findings of the lower court, as
sustained by the appellate court, that ANCOs representatives failed to exercise the extraordinary degree
of diligence required by the law to exculpate them from liability for the loss of the cargoes.
First, ANCO admitted that they failed to deliver to the designated consignee the Twenty Nine Thousand
Two Hundred Ten (29,210) cases of Pale Pilsen and Five Hundred Fifty (550) cases of Cerveza Negra.
Second, it is borne out in the testimony of the witnesses on record that the barge D/B Lucio had no
engine of its own and could not maneuver by itself. Yet, the patron of ANCOs tugboat M/T ANCO left it to
fend for itself notwithstanding the fact that as the two vessels arrived at the port of San Jose, Antique,
signs of the impending storm were already manifest. As stated by the lower court, witness Mr. Anastacio
Manilag testified that the captain or patron of the tugboat M/T ANCO left the barge D/B Lucio immediately
after it reached San Jose, Antique, despite the fact that there were already big waves and the area was
already dark. This is corroborated by defendants own witness, Mr. Fernando Macabueg. 13
The trial court continued:
At that precise moment, since it is the duty of the defendant to exercise and observe extraordinary
diligence in the vigilance over the cargo of the plaintiff, the patron or captain of M/T ANCO, representing
the defendant could have placed D/B Lucio in a very safe location before they left knowing or sensing at
that time the coming of a typhoon. The presence of big waves and dark clouds could have warned the
patron or captain of M/T ANCO to insure the safety of D/B Lucio including its cargo. D/B Lucio being a
barge, without its engine, as the patron or captain of M/T ANCO knew, could not possibly maneuver by
itself. Had the patron or captain of M/T ANCO, the representative of the defendants observed
extraordinary diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could
not have occurred. In short, therefore, defendants through their representatives, failed to observe the
degree of diligence required of them under the provision of Art. 1733 of the Civil Code of the Philippines. 14
Petitioners Estate of Ang Gui and Co To, in their Memorandum, asserted that the contention of
respondents SMC and FGU that "the crewmembers of D/B Lucio should have left port at the onset of the
typhoon is like advising the fish to jump from the frying pan into the fire and an advice that borders on
15
madness."
The argument does not persuade. The records show that the D/B Lucio was the only vessel left at San
Jose, Antique, during the time in question. The other vessels were transferred and temporarily moved to
16
Malandong, 5 kilometers from wharf where the barge remained. Clearly, the transferred vessels were
definitely safer in Malandong than at the port of San Jose, Antique, at that particular time, a fact which
petitioners failed to dispute
ANCOs arguments boil down to the claim that the loss of the cargoes was caused by the typhoon
Sisang, a fortuitous event (caso fortuito), and there was no fault or negligence on their part. In fact, ANCO
claims that their crewmembers exercised due diligence to prevent or minimize the loss of the cargoes but
their efforts proved no match to the forces unleashed by the typhoon which, in petitioners own words
was, by any yardstick, a natural calamity, a fortuitous event, an act of God, the consequences of which
17
petitioners could not be held liable for.
The Civil Code provides:
73
Art. 1733. Common carriers, from the nature of their business and for reasons of public
policy are bound to observe extraordinary diligence in the vigilance over the goods and
for the safety of the passengers transported by them, according to all the circumstances
of each case.
Such extraordinary diligence in vigilance over the goods is further expressed in Articles
1734, 1735, and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
...
Art. 1739. In order that the common carrier may be exempted from responsibility,
the natural disaster must have been the proximate and only cause of the loss.
However, the common carrier must exercise due diligence to prevent or minimize loss
before, during and after the occurrence of flood, storm, or other natural disaster in order
that the common carrier may be exempted from liability for the loss, destruction, or
deterioration of the goods . . . (Emphasis supplied)
Caso fortuito or force majeure (which in law are identical insofar as they exempt an obligor from liability) 18
by definition, are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or
which though foreseen, were inevitable. It is therefore not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. 19
In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was it
unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to transfer to another
place, a circumstance which prompted SMCs District Sales Supervisor to request that the D/B Lucio be
likewise transferred, but to no avail. The D/B Lucio had no engine and could not maneuver by itself. Even
if ANCOs representatives wanted to transfer it, they no longer had any means to do so as the tugboat
M/T ANCO had already departed, leaving the barge to its own devices. The captain of the tugboat should
have had the foresight not to leave the barge alone considering the pending storm.
While the loss of the cargoes was admittedly caused by the typhoon Sisang, a natural disaster, ANCO
could not escape liability to respondent SMC. The records clearly show the failure of petitioners
representatives to exercise the extraordinary degree of diligence mandated by law. To be exempted from
responsibility, the natural disaster should have been the proximate and only cause of the loss.20 There
must have been no contributory negligence on the part of the common carrier. As held in the case of
Limpangco Sons v. Yangco Steamship Co.:21
. . . To be exempt from liability because of an act of God, the tug must be free from any
previous negligence or misconduct by which that loss or damage may have been
occasioned. For, although the immediate or proximate cause of the loss in any given
instance may have been what is termed an act of God, yet, if the tug unnecessarily
exposed the two to such accident by any culpable act or omission of its own, it is not
22
excused.
Therefore, as correctly pointed out by the appellate court, there was blatant negligence on the part of M/T
ANCOs crewmembers, first in leaving the engine-less barge D/B Lucio at the mercy of the storm without
the assistance of the tugboat, and again in failing to heed the request of SMCs representatives to have
the barge transferred to a safer place, as was done by the other vessels in the port; thus, making said
blatant negligence the proximate cause of the loss of the cargoes.
74
We now come to the issue of whether or not FGU can be held liable under the insurance policy to
reimburse ANCO for the loss of the cargoes despite the findings of the respondent court that such loss
was occasioned by the blatant negligence of the latters employees.
One of the purposes for taking out insurance is to protect the insured against the consequences of his
own negligence and that of his agents. Thus, it is a basic rule in insurance that the carelessness and
negligence of the insured or his agents constitute no defense on the part of the insurer. 23 This rule
however presupposes that the loss has occurred due to causes which could not have been prevented by
the insured, despite the exercise of due diligence.
The question now is whether there is a certain degree of negligence on the part of the insured or his
agents that will deprive him the right to recover under the insurance contract. We say there is. However,
to what extent such negligence must go in order to exonerate the insurer from liability must be evaluated
in light of the circumstances surrounding each case. When evidence show that the insureds negligence
or recklessness is so gross as to be sufficient to constitute a willful act, the insurer must be exonerated.
In the case of Standard Marine Ins. Co. v. Nome Beach L. & T. Co.,24 the United States Supreme Court
held that:
The ordinary negligence of the insured and his agents has long been held as a part of the
risk which the insurer takes upon himself, and the existence of which, where it is the
proximate cause of the loss, does not absolve the insurer from liability. But willful
exposure, gross negligence, negligence amounting to misconduct, etc., have often been
held to release the insurer from such liability.25 [Emphasis ours]
...
In the case of Williams v. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731, the owners of
an insured vessel attempted to put her across the bar at Hatteras Inlet. She struck on the bar and was
wrecked. The master knew that the depth of water on the bar was such as to make the attempted
passage dangerous. Judge Clifford held that, under the circumstances, the loss was not within the
protection of the policy, saying:
Authorities to prove that persons insured cannot recover for a loss occasioned by their
own wrongful acts are hardly necessary, as the proposition involves an elementary
principle of universal application. Losses may be recovered by the insured, though
remotely occasioned by the negligence or misconduct of the master or crew, if
proximately caused by the perils insured against, because such mistakes and negligence
are incident to navigation and constitute a part of the perils which those who engage in
such adventures are obliged to incur; but it was never supposed that the insured could
recover indemnity for a loss occasioned by his own wrongful act or by that of any agent
for whose conduct he was responsible.26 [Emphasis ours]
From the above-mentioned decision, the United States Supreme Court has made a distinction between
ordinary negligence and gross negligence or negligence amounting to misconduct and its effect on the
insureds right to recover under the insurance contract. According to the Court, while mistake and
negligence of the master or crew are incident to navigation and constitute a part of the perils that the
insurer is obliged to incur, such negligence or recklessness must not be of such gross character as to
amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer from liability
under the insurance contract.
In the case at bar, both the trial court and the appellate court had concluded from the evidence that the
crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. To wit:
75
There was blatant negligence on the part of the employees of defendants-appellants
when the patron (operator) of the tug boat immediately left the barge at the San Jose,
Antique wharf despite the looming bad weather. Negligence was likewise exhibited by the
defendants-appellants representative who did not heed Macabuags request that the
barge be moved to a more secure place. The prudent thing to do, as was done by the
other sea vessels at San Jose, Antique during the time in question, was to transfer the
vessel to a safer wharf. The negligence of the defendants-appellants is proved by the fact
that on 01 October 1979, the only simple vessel left at the wharf in San Jose was the D/B
Lucio.27 [Emphasis ours]
As stated earlier, this Court does not find any reason to deviate from the conclusion drawn by the lower
court, as sustained by the Court of Appeals, that ANCOs representatives had failed to exercise
extraordinary diligence required of common carriers in the shipment of SMCs cargoes. Such blatant
negligence being the proximate cause of the loss of the cargoes amounting to One Million Three Hundred
Forty-Six Thousand One Hundred Ninety-Seven Pesos (P1,346,197.00)
This Court, taking into account the circumstances present in the instant case, concludes that the blatant
negligence of ANCOs employees is of such gross character that it amounts to a wrongful act which must
exonerate FGU from liability under the insurance contract.
WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999 is
hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Footnotes
1
Penned by Associate Justice Buenaventura J. Guerrero, with Associate Justices Portia Alio-Hormachuelos
and Teodoro P. Regino, concurring.
2
Civil Case No. R-19710, Judge Pampio A. Abarintos, ponente.
3
Rollo, G.R. No. 140704, p. 72.
4
RTC Decision, pp. 1-4; Rollo, G.R. No. 137775, pp. 40-43.
4
RTC Decision, pp. 7-8; Ibid., pp. 46-47.
5
Complaint for Specific Performance with Damages filed by ANCO against FGU based on an insurance contract
procured by ANCO from FGU over the vessel D/B Lucio, wherein defendant FGU was adjudged to pay the
insurance indemnity for the constructive total loss of the vessel.
6
Padillo v. Court of Appeals, 422 Phil 334, 350 (2001); Vda. De Salanga v. Alagar, G.R. No. 134089, 14 July
2000, 335 SCRA 728, 736; Gardose v. Tarroza, G.R. No. 130570, 19 May 1998, 290 SCRA 186, 193; Carlet v.
Court of Appeals, G.R. No. 114275, 07 July 1997, 175 SCRA 97, 106; Allied Banking Corporation v. Court of
Appeals, G.R. No. 108089, 10 January 1994, 229 SCRA 252, 258.
7
Rizal Surety & Insurance Company v. Court of Appeals, G.R. No. 112360, 18 July 2000, 336 SCRA 12, 22,
citing Smith Bell and Company (Phils.) Inc. v. Court of Appeals, G.R. No. 56294, 20 May 1991, 197 SCRA 201,
209; Tiongson v. Court of Appeals, G.R. No. L-35059, 22 February 1973, 49 SCRA 429.
8
Calalang v. Register of Deeds of Quezon City, G.R. No. 76265, 11 March 1994, 231 SCRA 88.
9
Potenciano v. Reynoso, G.R. No. 140707, 22 April 2003, 401 SCRA 391, citing Milestone Realty Co., Inc v.
Court of Appeals, G.R. No. 135999, 19 April 2002, 381 SCRA 406; Donato C. Cruz Trading Corp. v. Court of
Appeals, G.R. No. 129189, 05 December 2000, 347 SCRA 13; Baylon v. Court of Appeals, G.R. No. 109941, 17
August 1999, 312 SCRA 502.
10
G.R. No. 102603, 18 January 1993, 217 SCRA 196.
11
Ibid. at 203.
12
Supra, note 10, citing Fortune Guarantee and Insurance Corp. v. Court of Appeals, G.R. No. 110701, 12
March 2002, 379 SCRA 7.
13
RTC Decision, p. 5, Rollo, G.R. No. 137775, p. 44.
14
Ibid.
15
Rollo, p.17
76
16
TSN, dated 14 December 1988, pp. 9-18.
17
Rollo, p. 16.
18
Lasam v. Smith, 45 Phil. 661.
19
Republic of the Philippines v. Luzon Stevedoring Corp., 128 Phil. 313, citing Art. 1179 of the Philippine Civil
Code.
20
Art. 1739, Philippine Civil Code.
21
34 Phil. 597 (1916).
22
Id. at p. 604, citing Manresa, Vol. 8, p. 91, et seq.
23
Chandler v. Worcester Mutual Fire Ins. Co., 3 Cush. 328.
24
133 Fed R. 636 (1904).
25
Id. at p. 647, citing McKenzie v. Scottish U. & N. Ins. Co., 112 Cal. 548, 557, 44 Pac. 922.
26
Id. at p. 649, citing Thompson v. Hopper, 6 El. & Bl. 944; American Ins. Co. v. Ogden, 20 Wend. 305; Bell v.
Carstairs, 14 East. 374; Cleveland v. Union Ins. Co., 8 Mass. 308.
27
CA Decision, p.11; Rollo, G.R. No. 137775, p. 37.
----------
SECOND DIVISION
G.R. No. 140349 June 29, 2005
SULPICIO LINES, INC., petitioner,

vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari assailing the Decision1 of the Court of Appeals reversing
the Decision2 of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the complaint for
damages for failure of the plaintiff to prove its case with a preponderance of evidence. Assailed as well is
the Resolution3 of the Court of Appeals denying petitioners Motion for Reconsideration.
THE FACTS
On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper)
entered into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of
the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden
crates containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V
Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the
vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The
vessel arrived at the North Harbor, Manila, on 24 February 1992.
During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo
hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged
finding that the contents of the crate were no longer usable for their intended purpose, they were rejected
as a total loss and returned to Cebu City.
The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment from
respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy issued
77
to the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage value or P194,
220.31.
The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the
latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and
petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement from
Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied.
On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-63337
with the trial court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993, petitioner-
carrier filed its Answer with Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer with
Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were truly in
bad order, fault is with herein petitioner-carrier which was responsible for the unloading of the crates.
Petitioner-carrier filed its Answer to Delbros, Inc.s cross-claim asserting that it observed extraordinary
diligence in the handling, storage and general care of the shipment and that subsequent inspection of the
shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate
that had fallen were found to be in apparent sound condition, except that "2 cello bags each of 50 pieces
ferri inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list."
After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by
therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the RTC:
The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified
about the payment of the claim based on the documents accompanying the claim which
were the Packing List, Commercial Invoices, Bill of Lading, Claims Statement, Marine
Policies, Survey Report, Marine Risk Note, and the letter to Third Party carriers and
shipping lines (Exhibit A-J).
The check was paid and delivered to the assured as evidenced by the check voucher and
the subrogation receipt.
On cross-examination by counsel for the Sulpicio Lines, he said that their company paid
the claim less 35% salvage value based on the adjuster report. This testimony is
hearsay.
The second witness for the plaintiff, Arturo Valdez, testified, among others, that he,
together with a co-surveyor and a representative of Sulpicio Lines had conducted a
survey of the shipment at the compound of Sulpicio Lines. He prepared a survey report
(Exhibits G and G-1) and took a picture of shipment (Exhibit G-2).
On cross-examination, he said that two cartons were torn at the sides with top portion
flaps opened and the 41 cartons were properly sealed and in good order conditions. Two
cartons were already opened and slightly damaged. He merely looked at them but did not
conduct an inspection of the contents. What he was referring to as slightly damaged were
the cartons only and not the contents.
From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case
with a preponderance of evidence.
78
WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered
dismissing the Complaint, defendant Sulpicio Lines counterclaim and defendant Delbros
Inc.s cross-claim.4
A Motion for Reconsideration was then filed by herein respondent-insurer and

subsequently denied by the trial court in an Order dated 07 February 1995 on the ground
that it did not raise any new issue. Thus, respondent-insurer instituted an appeal with the
Court of Appeals, which reversed the dismissal of the complaint by the lower court, the
decretal portion of which reads:
WHEREFORE, the appeal is granted. The decision appealed from is REVERSED.

Defendants-appellees Delbros and Sulpicio Lines are hereby ordered to pay, jointly and
severally, plaintiff-appellant the sum of P194,220.31 representing actual damages, plus
legal interest counted from the filing of the complaint until fully paid. 5
The appellate court disposed of the issues in the case in this wise:
Furthermore, the evidence shows that one of the three crates fell during the unloading at
the pier in Manila. The wooden crate which fell was damaged such that this particular
crate was not anymore sent to Singapore and was instead shipped back to Cebu from
Manila. Upon examination, it was found that two (2) cartons of the forty-two (42) cartons
contained in this crate were externally damaged. They were torn at the sides and their
top portions or flaps were open. These facts were admitted by all the parties. Defendant-
appellees, however, insist that it was only the external packaging that was damaged, and
that there was no actual damage to the goods such that would make them liable to the
shipper. This theory is erroneous. When the goods are placed at a common carriers
possession for delivery to a specified consignee, they are in good order and condition
and are supposed to be transported and delivered to the consignee in the same state. In
the case herein, the goods were received by defendant-appellee Delbros in Cebu
properly packed in cardboard cartons and then placed in wooden crates, for delivery to
the consignee in Singapore. However, before the shipment reached Singapore (while it
was in Manila) one crate and 2 cartons contained therein were not anymore in their
original state. They were no longer fit to be sent to Singapore.
As We have already found, there is damage suffered by the goods of the shipper. This consists in the
destruction of one wooden crate and the tearing of two of the cardboard boxes therein rendering then
unfit to be sent to Singapore. Defendant-appellee Sulpicio Lines admits that this crate fell while it was
being unloaded at the Manila pier. Falling of the crate was negligence on the part of defendant-appellee
Sulpicio Lines under the doctrine of res ipsa loquitur. Defendant-appellee Sulpicio Lines cannot exculpate
itself from liability because it failed to prove that it exercised due diligence in the selection and supervision
of its employees to prevent the damage.6
On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the Court
of Appeals which was subsequently denied in a Resolution dated 13 October 1999. Hence, the instant
petition.
During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that its
appeal7 filed before this Court had been dismissed for being filed out of time and thus the case as against
it was declared closed and terminated. As a consequence, it paid in full the amount of the damages
awarded by the appellate court to the respondent-insurer. Before this Court, Delbros, Inc. prays for
reimbursement, contribution, or indemnity from its co-defendant, herein petitioner-carrier Sulpicio Lines,
79
Inc. for whatever it had paid to respondent-insurer in consonance with the decision of the appellate court
declaring both Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. jointly and severally liable.
ISSUES
Petitioner-carrier raises the following issues in its petition:
1. The Court of Appeals erred in not holding that the trial court justly and correctly
dismissed the complaint against Sulpicio Lines, which dismissal is already final.
2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to
comply with the technical requirement of the Rules of Court.
RULING OF THE COURT
We shall first address the procedural issue raised by petitioner-carrier, Sulpicio Lines, Inc. that the Court
of Appeals should have dismissed the appeal for failure of respondent-insurer to attach a copy of the
decision of the trial court to its appellants brief in violation of Rule 44, Section 13(h) of the Rules of Civil
Procedure.8
A perusal of the records will show, however, that in a Resolution9 dated 13 August 1996, the Court of
Appeals required herein respondent-insurer to submit seven (7) copies of the questioned decision within
five (5) days from notice. Said Resolution was properly complied with.
As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply with
the manner required by the pertinent rules for the perfection of an appeal. Nevertheless, this Court has
allowed the filing of an appeal upon subsequent compliance with the requirements imposed by law, where
a strict application of the technical rules will impair the proper administration of justice. As enunciated by
10
the Court in the case of Jaro v. Court of Appeals:
There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant
may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336 SCRA 113] and
Piglas-Kamao vs. National Labor Relations Commission [357SCRA 640], we ruled that the subsequent
submission of the missing documents with the motion for reconsideration amounts to substantial
compliance. The reasons behind the failure of the petitioners in these two cases to comply with the
required attachments were no longer scrutinized.11
We see no error, therefore, on the part of the Court of Appeals when it gave due course to the appeal
after respondent-insurer had submitted copies of the RTC decision, albeit belatedly.
We now come to the substantial issues alleged by petitioner-carrier. The pivotal question to be
considered in the resolution of this issue is whether or not, based on the evidence presented during the
trial, the owner of the goods, respondent-insurers predecessor-in-interest, did incur damages, and if so,
whether or not petitioner-carrier is liable for the same.
It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not
disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while petitioner-
carrier was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was found
that two (2) cartons were torn on the side and the top flaps were open and that two (2) cello bags, each of
50 pieces ferri inductors, were missing from the cargo.
Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss and
should not include the lack of fitness of the shipment for transport to Singapore due to the damaged
80
packing. This is erroneous. Petitioner-carrier seems to belabor under the misapprehension that a
distinction must be made between the cargo packaging and the contents of the cargo. According to it,
damage to the packaging is not tantamount to damage to the cargo. It must be stressed that in the case
at bar, the damage sustained by the packaging of the cargo while in petitioner-carriers custody resulted
in its unfitness to be transported to its consignee in Singapore. Such failure to ship the cargo to its final
destination because of the ruined packaging, indeed, resulted in damages on the part of the owner of the
goods.
The falling of the crate during the unloading is evidence of petitioner-carriers negligence in handling the
cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of goods
placed in its possession for transport.12 The standard of extraordinary diligence imposed upon common
carriers is considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a
13
good paterfamilias established in respect of the ordinary relations between members of society. A
common carrier is bound to transport its cargo and its passengers safely "as far as human care and
foresight can provide, using the utmost diligence of a very cautious person, with due regard to all
14
circumstances." The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding the damage to, or
destruction of, the goods entrusted to it for safe carriage and delivery.15 It requires common carriers to
render service with the greatest skill and foresight and "to use all reasonable means to ascertain the
nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and
stowage, including such methods as their nature requires."16
Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to
have been negligent in the handling of the damaged cargo. Under Articles 173517 and 175218 of the Civil
Code, common carriers are presumed to have been at fault or to have acted negligently in case the
goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption of
liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must prove
that they observed extraordinary diligence as required in Article 173319 of the Civil Code.20
Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence
to overcome the presumption that it was negligent in transporting the cargo.
Coming now to the issue of the extent of petitioner-carriers liability, it is undisputed that respondent-
insurer paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged
damages the latter has incurred. Neither is there dispute as to the fact that Delbros, Inc. paid
P194,220.31 to respondent-insurer in satisfaction of the whole amount of the judgment rendered by the
Court of Appeals. The question then is: To what extent is Sulpicio Lines, Inc., as common carrier, liable
for the damages suffered by the owner of the goods?
Upon respondent-insurers payment of the alleged amount of loss suffered by the insured (the owner of
the goods), the insurer is entitled to be subrogated pro tanto to any right of action which the insured may
have against the common carrier whose negligence or wrongful act caused the loss.21 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
22
securities. The rights to which the subrogee succeeds are the same as, but not greater than, those of
the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the
subrogor did not have.23 In other words, a subrogee cannot succeed to a right not possessed by the
subrogor.24 A subrogee in effect steps into the shoes of the insured and can recover only if the insured
likewise could have recovered.25
As found by the Court of Appeals, there was damage suffered by the goods which consisted in the
destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them
unfit to be sent to Singapore.26 The falling of the crate was negligence on the part of Sulpicio Lines, Inc.
for which it cannot exculpate itself from liability because it failed to prove that it exercised extraordinary
27
diligence.
81
Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount
paid by respondent-insurer for the damages sustained by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid
the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for
respondent-insurer to again recover damages from herein petitioner-carrier.
With respect to Delbros, Inc.s prayer contained in its manifestation that, in case the decision in the
instant case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement,
indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass
upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to the instant
case. Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier
Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay.
WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999
and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs.
SO ORDERED.
Footnotes
1
CA-G.R. CV No. 49977, dated 26 May 1999, penned by Associate Justice Buenaventura J. Guerrero with
Associate Justices Portia Alino-Hormachuelos and Eloy R. Bello, Jr., concurring.
2
Civil Case No. 92-63337, dated 20 December 1994.
3
Dated 13 October 1999.
4
Rollo, pp. 66-67.
5
Rollo, p. 35.
6
Rollo. pp. 33-34.
7
G.R. No. 140467, First Division.
8
Rule 44, Section 13(h). In cases not brought up by record on appeal, the appellants brief shall contain, as an
appendix, a copy of the judgment or final order appealed from.
9
CA records, p. 37.
10
G.R. No. 127536, 19 February 2002, 377 SCRA 282.
11
Id., p. 297.
12
Philippine Civil Code, Article 1733.
13
Gatchalian v. Delim, G.R. No. 56487, 21 October 1991, 203 SCRA 126, 134.
14
Ibid.
15
Compania Maritima v. Court of Appeals, G.R. No. L-31379, 29 August 1988, 164 SCRA 685, 692.
16
Ibid., citing The Ensley City DC, Ma; 71 F. Suppl. 444, citing Schnell v. The Vallascura, 293 U.S. 296, 55 Sct.
194, 79 L. Ed. 373; The Nichiyo Maru, 4 Cri, 89 F. 2d 593; Bank Line v. Porter, 4 Cir., 25 F. 2d. 843.
17
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, 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 as required in Article 1733.
18
Art. 1752. Even when there is an agreement limiting the liability of the common carrier in the vigilance over the
goods, the common carrier is disputably presumed to have been negligent in case of loss, destruction or
deterioration.
19
Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are bound to
observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported
by them, according to all circumstance of each case.
20
Compania Maritima v. Court of Appeals, supra, note 5.
21
See Malayan Insurance Co., Inc. v. Court of Appeals, G.R. No. L-36413, 26 September 1988, 165 SCRA 536,
545.
22
Lorenzo Shipping Corp. v. Chubb and Sons, Inc., G.R. No. 147724, 08 June 2004, 431 SCRA 266, 275.
23
Ibid., citing Heritage Mut. Ins. Co. v. Truck Ins. Exchange, 184 Wis. 2d 247, 516 N.W. 2d 8 (Ct. App. 1994).
24
Id., pp. 275-276, citing Columbia Pictures, Inc. v. Court of Appeals, G.R. No. 110318, 28 August 1996, 261
SCRA 144.
82
25
Ibid.
26
CA Decision, p. 9.
27
Ibid.
----------
THIRD DIVISION
G.R. No. 161745 September 30, 2005
LEA MER INDUSTRIES, INC., Petitioners,

vs.
MALAYAN INSURANCE CO., INC.,* Respondent.
DECISION
PANGANIBAN, J.:
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods entrusted
to them, as required by the nature of their business and for reasons of public policy. Consequently, the
law presumes that common carriers are at fault or negligent for any loss or damage to the goods that they
transport. In the present case, the evidence submitted by petitioner to overcome this presumption was
sorely insufficient.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the October 9, 2002
Decision2 and the December 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 66028.
The challenged Decision disposed as follows:
"WHEREFORE, the appeal is GRANTED. The December 7, 1999 decision of the

Regional Trial Court of Manila, Branch 42 in Civil Case No. 92-63159 is hereby
REVERSED and SET ASIDE. [Petitioner] is ordered to pay the [herein respondent] the
value of the lost cargo in the amount of P565,000.00. Costs against the [herein
petitioner]."4
The assailed Resolution denied reconsideration.
The Facts
Ilian Silica Mining entered into a contract of carriage with Lea Mer Industries, Inc., for the shipment of 900
metric tons of silica sand valued at P565,000.5 Consigned to Vulcan Industrial and Mining Corporation,
the cargo was to be transported from Palawan to Manila. On October 25, 1991, the silica sand was
6
placed on board Judy VII, a barge leased by Lea Mer. During the voyage, the vessel sank, resulting in
7
the loss of the cargo.
Malayan Insurance Co., Inc., as insurer, paid Vulcan the value of the lost cargo.8 To recover the amount
paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Lea Mer,
which refused to comply. Consequently, Malayan instituted a Complaint with the Regional Trial Court
(RTC) of Manila on September 4, 1992, for the collection of P565,000 representing the amount that
respondent had paid Vulcan.9
83
On October 7, 1999, the trial court dismissed the Complaint, upon finding that the cause of the loss was a
10
fortuitous event. The RTC noted that the vessel had sunk because of the bad weather condition brought
about by Typhoon Trining. The court ruled that petitioner had no advance knowledge of the incoming
typhoon, and that the vessel had been cleared by the Philippine Coast Guard to travel from Palawan to
Manila.11
Ruling of the Court of Appeals
Reversing the trial court, the CA held that the vessel was not seaworthy when it sailed for Manila. Thus,
the loss of the cargo was occasioned by petitioners fault, not by a fortuitous event. 12
13
Hence, this recourse.
The Issues
Petitioner states the issues in this wise:
"A. Whether or not the survey report of the cargo surveyor, Jesus Cortez, who had not been presented as
a witness of the said report during the trial of this case before the lower court can be admitted in evidence
to prove the alleged facts cited in the said report.
"B. Whether or not the respondent, Court of Appeals, had validly or legally reversed the finding of fact of
the Regional Trial Court which clearly and unequivocally held that the loss of the cargo subject of this
case was caused by fortuitous event for which herein petitioner could not be held liable.
"C. Whether or not the respondent, Court of Appeals, had committed serious error and grave abuse of
discretion in disregarding the testimony of the witness from the MARINA, Engr. Jacinto Lazo y Villegal, to
the effect that the vessel Judy VII was seaworthy at the time of incident and further in disregarding the
testimony of the PAG-ASA weather specialist, Ms. Rosa Barba y Saliente, to the effect that typhoon
Trining did not hit Metro Manila or Palawan."14
In the main, the issues are as follows: (1) whether petitioner is liable for the loss of the cargo, and (2)
whether the survey report of Jesus Cortez is admissible in evidence.
The Courts Ruling
The Petition has no merit.
First Issue:
Liability for Loss of Cargo
Question of Fact
The resolution of the present case hinges on whether the loss of the cargo was due to a fortuitous event.
This issue involves primarily a question of fact, notwithstanding petitioners claim that it pertains only to a
15
question of law. As a general rule, questions of fact may not be raised in a petition for review. The
present case serves as an exception to this rule, because the factual findings of the appellate and the trial
courts vary.16 This Court meticulously reviewed the records, but found no reason to reverse the CA.
Rule on Common Carriers
84
Common carriers are persons, corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods, or both -- by land, water, or air -- when this service is offered to the
public for compensation.17 Petitioner is clearly a common carrier, because it offers to the public its
18
business of transporting goods through its vessels.
Thus, the Court corrects the trial courts finding that petitioner became a private carrier when Vulcan
chartered it.19 Charter parties are classified as contracts of demise (or bareboat) and affreightment, which
are distinguished as follows:
"Under the demise or bareboat charter of the vessel, the charterer will generally be considered as owner
for the voyage or service stipulated. The charterer mans the vessel with his own people and becomes, in
effect, the owner pro hac vice, subject to liability to others for damages caused by negligence. To create a
demise, the owner of a vessel must completely and exclusively relinquish possession, command and
navigation thereof to the charterer; anything short of such a complete transfer is a contract of
affreightment (time or voyage charter party) or not a charter party at all."20
The distinction is significant, because a demise or bareboat charter indicates a business undertaking that
is private in character. 21 Consequently, the rights and obligations of the parties to a contract of private
carriage are governed principally by their stipulations, not by the law on common carriers. 22
The Contract in the present case was one of affreightment, as shown by the fact that it was petitioners
crew that manned the tugboat M/V Ayalit and controlled the barge Judy VII.23 Necessarily, petitioner was
a common carrier, and the pertinent law governs the present factual circumstances.
Extraordinary Diligence Required
Common carriers are bound to observe extraordinary diligence in their vigilance over the goods and the
safety of the passengers they transport, as required by the nature of their business and for reasons of
public policy.24 Extraordinary diligence requires rendering service with the greatest skill and foresight to
avoid damage and destruction to the goods entrusted for carriage and delivery.25
Common carriers are presumed to have been at fault or to have acted negligently for loss or damage to
the goods that they have transported.26 This presumption can be rebutted only by proof that they
observed extraordinary diligence, or that the loss or damage was occasioned by any of the following
causes:27
"(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
"(2) Act of the public enemy in war, whether international or civil;
"(3) Act or omission of the shipper or owner of the goods;
"(4) The character of the goods or defects in the packing or in the containers;
"(5) Order or act of competent public authority."28
Rule on Fortuitous Events
Article 1174 of the Civil Code provides that "no person shall be responsible for a fortuitous event which
could not be foreseen, or which, though foreseen, was inevitable." Thus, if the loss or damage was due to
such an event, a common carrier is exempted from liability.
85
Jurisprudence defines the elements of a "fortuitous event" as follows: (a) the cause of the unforeseen and
unexpected occurrence, or the failure of the debtors to comply with their obligations, must have been
independent of human will; (b) the event that constituted the caso fortuito must have been impossible to
foresee or, if foreseeable, impossible to avoid; (c) the occurrence must have been such as to render it
impossible for the debtors to fulfill their obligation in a normal manner; and (d) the obligor must have been
free from any participation in the aggravation of the resulting injury to the creditor. 29
To excuse the common carrier fully of any liability, the fortuitous event must have been the proximate and
only cause of the loss.30 Moreover, it should have exercised due diligence to prevent or minimize the loss
before, during and after the occurrence of the fortuitous event.31
Loss in the Instant Case
There is no controversy regarding the loss of the cargo in the present case. As the common carrier,
petitioner bore the burden of proving that it had exercised extraordinary diligence to avoid the loss, or that
the loss had been occasioned by a fortuitous event -- an exempting circumstance.
It was precisely this circumstance that petitioner cited to escape liability. Lea Mer claimed that the loss of
the cargo was due to the bad weather condition brought about by Typhoon Trining. 32 Evidence was
presented to show that petitioner had not been informed of the incoming typhoon, and that the Philippine
Coast Guard had given it clearance to begin the voyage.33 On October 25, 1991, the date on which the
voyage commenced and the barge sank, Typhoon Trining was allegedly far from Palawan, where the
34
storm warning was only "Signal No. 1."
The evidence presented by petitioner in support of its defense of fortuitous event was sorely insufficient.
As required by the pertinent law, it was not enough for the common carrier to show that there was an
unforeseen or unexpected occurrence. It had to show that it was free from any fault -- a fact it miserably
failed to prove.
First, petitioner presented no evidence that it had attempted to minimize or prevent the loss before, during
or after the alleged fortuitous event.35 Its witness, Joey A. Draper, testified that he could no longer
remember whether anything had been done to minimize loss when water started entering the barge. 36
This fact was confirmed during his cross-examination, as shown by the following brief exchange:
"Atty. Baldovino, Jr.:
Other than be[a]ching the barge Judy VII, were there other precautionary measure[s]
exercised by you and the crew of Judy VII so as to prevent the los[s] or sinking of barge
Judy VII?
xxxxxxxxx
Atty. Baldovino, Jr.:
Your Honor, what I am asking [relates to the] action taken by the officers and crew of
tugboat Ayalit and barge Judy VII x x x to prevent the sinking of barge Judy VII?
xxxxxxxxx
Court:
Mr. witness, did the captain of that tugboat give any instruction on how to save the barge
Judy VII?
86
Joey Draper:
I can no longer remember sir, because that happened [a] long time ago."37
Second, the alleged fortuitous event was not the sole and proximate cause of the loss. There is a
38
preponderance of evidence that the barge was not seaworthy when it sailed for Manila. Respondent
was able to prove that, in the hull of the barge, there were holes that might have caused or aggravated
the sinking.39 Because the presumption of negligence or fault applied to petitioner, it was incumbent upon
it to show that there were no holes; or, if there were, that they did not aggravate the sinking.
Petitioner offered no evidence to rebut the existence of the holes. Its witness, Domingo A. Luna, testified
that the barge was in "tip-top" or excellent condition,40 but that he had not personally inspected it when it
41
left Palawan.
The submission of the Philippine Coast Guards Certificate of Inspection of Judy VII, dated July 31, 1991,
did not conclusively prove that the barge was seaworthy.42 The regularity of the issuance of the Certificate
43
is disputably presumed. It could be contradicted by competent evidence, which respondent offered.
Moreover, this evidence did not necessarily take into account the actual condition of
the vessel at the time of the commencement of the voyage.44
Second Issue:
Admissibility of the Survey Report
Petitioner claims that the Survey Report45 prepared by Jesus Cortez, the cargo surveyor, should not have
been admitted in evidence. The Court partly agrees. Because he did not testify during the trial,46 then the
Report that he had prepared was hearsay and therefore inadmissible for the purpose of proving the truth
of its contents.
The Survey Report Not the Sole Evidence
The facts reveal that Cortezs Survey Report was used in the testimonies of respondents witnesses --
Charlie M. Soriano; and Federico S. Manlapig, a cargo marine surveyor and the vice-president of Toplis
and Harding Company.47 Soriano testified that the Survey Report had been used in preparing the final
Adjustment Report conducted by their company.48 The final Report showed that the barge was not
seaworthy because of the existence of the holes. Manlapig testified that he had prepared that Report after
taking into account the findings of the surveyor, as well as the pictures and the sketches of the place
49
where the sinking occurred. Evidently, the existence of the holes was proved by the testimonies of the
witnesses, not merely by Cortez Survey Report.
Rule on Independently
Relevant Statement
That witnesses must be examined and presented during the trial, 50 and that their testimonies must be
confined to personal knowledge is required by the rules on evidence, from which we quote:
"Section 36. Testimony generally confined to personal knowledge; hearsay excluded. A

witness can testify only to those facts which he knows of his personal knowledge; that is,
which are derived from his own perception, except as otherwise provided in these
rules."51
87
On this basis, the trial court correctly refused to admit Jesus Cortezs Affidavit, which respondent had
52
offered as evidence. Well-settled is the rule that, unless the affiant is presented as a witness, an
affidavit is considered hearsay.53
An exception to the foregoing rule is that on "independently relevant statements." A report made by a
54
person is admissible if it is intended to prove the tenor, not the truth, of the statements. Independent of
the truth or the falsity of the statement given in the report, the fact that it has been made is relevant. Here,
55
the hearsay rule does not apply.
In the instant case, the challenged Survey Report prepared by Cortez was admitted only as part of the
testimonies of respondents witnesses. The referral to Cortezs Report was in relation to Manlapigs final
Adjustment Report. Evidently, it was the existence of the Survey Report that was testified to. The
admissibility of that Report as part of the testimonies of the witnesses was correctly ruled upon by the trial
court.
At any rate, even without the Survey Report, petitioner has already failed to overcome the presumption of
fault that applies to common carriers.
WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution are AFFIRMED. Costs
against petitioner.
SO ORDERED.
ARTEMIO V. PANGANIBAN
Associate Justice
Chairman, Third Division
WECONCUR:
ANGELINA SANDOVAL-GUTIERREZ RENATO C. CORONA

CONCHITA CARPIO MORALES CANCIO C. GARCIA
ATTESTATION
Associate Justice
Chairman, Third Division
CERTIFICATION
88
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans Attestation, it is
hereby certified that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice
Footnotes
*
The Petition included the Court of Appeals as a respondent. However, the CA was omitted by the Court from
the title of the case because, under Section 4 of Rule 45 of the Rules of Court, the appellate court need not be
impleaded in petitions for review.
1
Rollo, pp. 12-27.
2
Id., pp. 36-41. Tenth Division. Penned by Justice Elvi John S. Asuncion, with the concurrence of Justices Portia
Alio-Hormachuelos (Division chairperson) and Juan Q. Enriquez Jr. (member).
3
Id., p. 48.
4
Assailed Decision, pp. 5-6; rollo, pp. 40-41.
5
Id., pp. 1 & 36.
6
The barge was allegedly owned by J. T. Lighterage Services. (TSN dated September 27, 1995, p. 3) It was
non-propelled therefore, it could only operate through its towing by petitioners tugboat M/T Ayalit. (TSN dated
April 26, 1995, p. 12; TSN dated April 25, 1996, p. 19)
7
Assailed Decision, p. 1; rollo, p. 36.
8
Id., pp. 2 & 37.
9
Ibid. The case was docketed as Civil Case No. 92-63159 and raffled to Branch 42.
10
Ibid.
11
RTC Decision dated December 7, 1999, p. 9; rollo, p. 58.
12
Assailed Decision, p. 4; rollo, p. 39.
13
The case was deemed submitted for decision on October 25, 2004, upon this Courts receipt of petitioners
sparse, 6-page (with only two pages of argument) Memorandum, signed by Atty. Romualdo M. Jubay.
Respondents Memorandum, signed by Atty. Frederick C. Angel, was received by this Court on October 7, 2004.
14
Petition, p. 8; rollo, p. 19. Original in uppercase.
15
1 of Rule 45 of the Rules of Court.
16
Menchavez v. Teves Jr., 449 SCRA 380, 395, January 26, 2005; Philippine American General Insurance
Company v. PKS Shipping Company, 401 SCRA 222, 230, April 9, 2003; Commissioner of Internal Revenue v.
Embroidery and Garments Industries (Phil.), Inc., 364 Phil. 541, 546, March 22, 1999.
17
Art. 1732 of the Civil Code.
18
Petition, pp. 4-5; rollo, pp. 14-15.
19
20
Puromines, Inc. v. Court of Appeals, 220 SCRA 281, 288, per Nocon J. See also National Food Authority v.
Court of Appeals, 370 Phil. 735, 743, August 4, 1999.
21
Philippine American General Insurance Company v. PKS Shipping Company, supra, p. 228; Coastwise
Lighterage Corporation v. Court of Appeals, 316 Phil. 13, 19, July 12, 1995.
22
National Steel Corporation v. Court of Appeals, 347 Phil. 345, 362, December 12, 1997; Valenzuela Hardwood
and Industrial Supply, Inc. v. Court of Appeals, 274 SCRA 642, 654, June 30, 1997.
23
RTC Decision dated December 7, 1999, pp. 4-6; rollo, pp. 53-55.
24
25
Calvo v. UCPB General Insurance Co., Inc., 429 Phil. 244, 252, March 19, 2002; Compania Maritima v. Court
of Appeals, 164 SCRA 685, 692, August 29, 1988.
26
27
Ibid. See also National Trucking and Forwarding Corp. v. Lorenzo Shipping Corporation, GR No. 153563,
February 7, 2005; Asia Lighterage and Shipping, Inc. v. Court of Appeals, 409 SCRA 340, 346, August 19, 2003;
Philippine American General Insurance Company v. PKS Shipping Company, supra, p. 229; Coastwise
Lighterage Corporation v. Court of Appeals, supra, p. 20; Basco v. Court of Appeals, 221 SCRA 318, 323, April
7, 1993.
28
29
Mindex Resources Development v. Morillo, 428 Phil. 934, 944, March 12, 2002; Philippine American General
Insurance Co. Inc. v. MGG Marine Services, Inc., 428 Phil. 705, 714, March 8, 2002; Metal Forming Corp. v.
Office of the President, 317 Phil. 853, 859, August 28, 1995; Vasquez v. Court of Appeals, 138 SCRA 553, 557,
September 13, 1985; Republic v. Luzon Stevedoring Corp., 128 Phil. 313, 318, September 29, 1967.
89
30
31
Ibid.
32
RTC Decision dated December 7, 1999, p. 9; rollo p. 58 (citing the testimony of Rosa S. Barba). See also
Petitioners Memorandum, p. 2; rollo, p. 157.
33
Ibid. (citing the testimony of Domingo A. Luna).
34
The testimony of Rosa S. Barba, weather specialist of Philippine Atmosphere (PAGASA), was summarized by
the RTC as follows:
"In May 1993, upon the request of [petitioners] counsel, she issued a weather bureau report or certification, an
official record of Pagasa, which weather report is based on their weather station at Puerto Princesa, Palawan. x x
x The report on the weather condition on October 21, 1991 at around 11:00 am to 2:00 pm was weathercast sky.
The bad weather condition on October 25, 26, and 27, 1991 was caused by typhoon Trining but said typhoon
then was far from Palawan, which was only signal No. 1. Tropical storm Trining entered the Philippine area of
responsibility on October 24. Pagasa did issue a warning that said storm was approaching the Philippines. Storm
Trining was classified, as super typhoon with a maximum of 185 kilometer[s] per hour and the coverage was
big. On October 24, 1991, typhoon Trining hit Batangas, the Ilocos Provinces, Isabela, but not Metro Manila or
Palawan. Maybe Palawan was affected but if ever it was affected it was only minimal." RTC Decision dated
December 7, 1999, p. 6; rollo, p. 55.
35
See Art. 1739 of the Civil Code.
36
The testimony of Joey A. Draper, the quarter master in charge of steering the tugboat, was summarized by the
RTC as follows:
"On October 25, 1991, he was assigned in the tugboat M/T Ayalit. x x x [The tugboat] was towing the barge
Judy VII which was carrying silica sand. x x x He was an ordinary seaman in 1991 and it was his first year as a
seaman, although he made several trips to Palawan and Manila. x x x He does not know the qualification[s] of a
seaman but he was then a second year high school [student] and though he did not take any examination, he
knew about navigation. When the incident happened in 1991[,] he had no seaman book as it was not yet strict at
the time and the seaman book can be dispensed with. He was only 18 years and has an actual training of the
work when he boarded the tugboat. Even if he has no formal schooling, the master allowed him to handle the
wheel of the tugboat. When they left San Vicente, Palawan for Manila on said date at around 4:00 pm, the
weather was fair. When they passed by Linapakan Island, the waves were quite big and the wind was a little bit
strong. At that point in time, the barge patrol of Judy VII wave[d] his hand [at] them. Their captain decided to
approach the barge. They noticed that [there was] water already inside the barge. About two (2) days later, their
captain decided to beach the barge. The said barge then sank and only the barges house at the back portion of
the barge (the puppa) was above water. He could only remember that they save[d] the bargemen and
proceeded to El Nido, Palawan where they secured themselves to save the tugboat. But he could no longer
remember how long a time they stayed thereat nor if they went back to the barge Judy VII." RTC Decision, p. 6;
rollo, p. 55.
37
TSN dated November 22, 1995, pp. 27-29.
38
In civil cases, parties who carry the burden of proof must establish their case by a preponderance of evidence.
39
Respondent proved this allegation through the testimony of its witnesses and submission of documentary
evidence. Unseaworthiness was also the finding of the appellate court. Assailed Decision, p. 4; rollo, p. 39.
40
TSN dated April 26, 1995, p. 44.
41
TSN dated September 27, 1995, pp. 17-21.
42
Petitioners Exhibit "4."
43
3(m) of Rule 131 of the Rules of Court.
44
Delsan Transport Lines, Inc. v. Court of Appeals, 420 Phil. 824, 834, November 15, 2001.
45
Exhibit "H." See "Respondents Offer of Evidence," p. 2; records, p. 159.
46
Petitioners Memorandum, p. 3; rollo, p. 160.
Respondents witness, Federico S. Manlapig, testified that Jesus Cortez -- who had already migrated to Australia
-- could no longer testify. TSN dated December 15, 1994, p. 9.
47
48
Ibid.
49
TSN dated December 15, 1994, pp. 9-13.
50
51
Rule 130 of the Rules of Court.
52
RTC Order dated March 17, 1995; records, p. 165.
53
Melchor v. Gironella, GR No. 151138, February 16, 2005; People v. Crispin, 383 Phil. 919, 931, March 2,
2000; People v. Villeza, 127 SCRA 349, 359, January 31, 1984; Paa v. Chan, 128 Phil. 815, 821, October 31,
1967.
54
Country Bankers Insurance v. Lianga Bay and Community Multi-purpose Cooperative, 425 Phil. 511, 521,
January 25, 2002. See also Presidential Commission on Good Government v. Desierto, 445 Phil. 154, 191,
90
February 10, 2003; People v. Mallari, 369 Phil. 872, 884, July 20, 1999; People v. Cloud, 333 Phil. 306, 322,
December 10, 1996.
55
People v. Velasquez, 352 SCRA 455, 476, February 21, 2001; Gotesco Investment Corporation v. Chatto, 210
SCRA 18, 32, June 16, 1992.
----------
THIRD DIVISION
G..R. No. 156978 May 2, 2006
ABOITIZ SHIPPING CORPORATION, Petitioner,

vs.
NEW INDIA ASSURANCE COMPANY, LTD., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 dated August 29, 2002 of the Court of Appeals in CA-G.R. CV
No. 28770 and its Resolution2 dated January 23, 2003 denying reconsideration. The Court of Appeals
affirmed the Decision3 dated November 20, 1989 of the Regional Trial Court of Manila in Civil Case No.
82-1475, in favor of respondent New India Assurance Company, Ltd.
This petition stemmed from the action for damages against petitioner, Aboitiz Shipping Corporation,
arising from the sinking of its vessel, M/V P. Aboitiz, on October 31, 1980.
The pertinent facts are as follows:
Societe Francaise Des Colloides loaded a cargo of textiles and auxiliary chemicals from France on board
a vessel owned by Franco-Belgian Services, Inc. The cargo was consigned to General Textile, Inc., in
Manila and insured by respondent New India Assurance Company, Ltd. While in Hongkong, the cargo
was transferred to M/V P. Aboitiz for transshipment to Manila.4
Before departing, the vessel was advised by the Japanese Meteorological Center that it was safe to travel
5
to its destination. But while at sea, the vessel received a report of a typhoon moving within its general
path. To avoid the typhoon, the vessel changed its course. However, it was still at the fringe of the
typhoon when its hull leaked. On October 31, 1980, the vessel sank, but the captain and his crew were
saved.
On November 3, 1980, the captain of M/V P. Aboitiz filed his "Marine Protest", stating that the wind force
was at 10 to 15 knots at the time the ship foundered and described the weather as "moderate breeze,
6
small waves, becoming longer, fairly frequent white horses."
Thereafter, petitioner notified7 the consignee, General Textile, of the total loss of the vessel and all of its
cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent paid
8
General Textile and was subrogated to the rights of the latter.
Respondent hired a surveyor, Perfect, Lambert and Company, to investigate the cause of the sinking. In
its report,9 the surveyor concluded that the cause was the flooding of the holds brought about by the
vessels questionable seaworthiness. Consequently, respondent filed a complaint for damages against
petitioner Aboitiz, Franco-Belgian Services and the latters local agent, F.E. Zuellig, Inc. (Zuellig).
91
Respondent alleged that the proximate cause of the loss of the shipment was the fault or negligence of
the master and crew of the vessel, its unseaworthiness, and the failure of defendants therein to exercise
extraordinary diligence in the transport of the goods. Hence, respondent added, defendants therein
10
breached their contract of carriage.
Franco-Belgian Services and Zuellig responded, claiming that they exercised extraordinary diligence in
handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate
cause of the loss of cargo was a fortuitous event. They also filed a cross-claim against petitioner alleging
that the loss occurred during the transshipment with petitioner and so liability should rest with petitioner.
For its part, petitioner also raised the same defense that the ship was seaworthy. It alleged that the
sinking of M/V P. Aboitiz was due to an unforeseen event and without fault or negligence on its part. It
also alleged that in accordance with the real and hypothecary nature of maritime law, the sinking of M/V
11
P. Aboitiz extinguished its liability on the loss of the cargoes.
Meanwhile, the Board of Marine Inquiry (BMI) conducted its own investigation to determine whether the
captain and crew were administratively liable. However, petitioner neither informed respondent nor the
trial court of the investigation. The BMI exonerated the captain and crew of any administrative liability;
and declared the vessel seaworthy and concluded that the sinking was due to the vessels exposure to
the approaching typhoon.
On November 20, 1989, the trial court, citing the Court of Appeals decision in General Accident Fire and
12
Life Assurance Corporation v. Aboitiz Shipping Corporation involving the same incident, ruled in favor of
respondent. It held petitioner liable for the total value of the lost cargo plus legal interest, thus:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of New

India and against Aboitiz ordering the latter to pay unto the former the amount of
P142,401.60, plus legal interest thereon until the same is fully paid, attorneys fees
equivalent to fifteen [percent] (15%) of the total amount due and the costs of suit.
The complaint with respect to Franco and Zuellig is dismissed and their counterclaim
against New India is likewise dismissed
SO ORDERED.13
Petitioner elevated the case to the Court of Appeals and presented the findings of the BMI. However, on
August 29, 2002, the appellate court affirmed in toto the trial courts decision. It held that the proceedings
before the BMI was only for the administrative liability of the captain and crew, and was unilateral in
nature, hence not binding on the courts. Petitioner moved for reconsideration but the same was denied on
January 23, 2003.
Hence, this petition for review, alleging that the Court of Appeals gravely erred in:
I.
x x x DISREGARDING THE RULINGS OF THE HONORABLE SUPREME COURT ON THE

APPLICATION OF THE RULE ON LIMITED LIABILITY UNDER ARTICLE 587, 590 AND 837 OF THE
CODE OF COMMERCE TO CASES INVOLVING THE SINKING OF THE M/V "P. ABOITIZ;
A.
92
x x x NOT APPLYING THE RULINGS IN THE CASES OF MONARCH INSURANCE CO., INC. ET AL. V.
COURT OF APPEALS ET AL. AND ABOITIZ SHIPPING CORPORATION V. GENERAL ACCIDENT
FIRE AND LIFE ASSURANCE CORPORATION, LTD.;
B.
x x x RULING THAT THE ISSUE ON THE APPLICATION OF THE RULE ON LIMITED LIABILITY
UNDER ARTICLES 587, 590 AND 837 OF THE CODE OF COMMERCE HAD BEEN CONSIDERED
AND PASSED UPON IN ITS DECISION;
II.
x x x NOT LIMITING THE AWARD OF DAMAGES TO RESPONDENT TO ITS PRO-RATA SHARES IN

THE INSURANCE PROCEEDS FROM THE SINKING OF THE M/V "P. ABOITIZ". 14
Stated simply, we are asked to resolve whether the limited liability doctrine, which limits respondents
award of damages to its pro-rata share in the insurance proceeds, applies in this case.
Petitioner, citing Monarch Insurance Co. Inc. v. Court of Appeals, 15 contends that respondents claim for
damages should only be against the insurance proceeds and limited to its pro-rata share in view of the
doctrine of limited liability.
Respondent counters that the doctrine of real and hypothecary nature of maritime law is not applicable in
the present case because petitioner was found to have been negligent. Hence, according to respondent,
petitioner should be held liable for the total value of the lost cargo.
It bears stressing that this Court has variedly applied the doctrine of limited liability to the same incident
the sinking of M/V P. Aboitiz on October 31, 1980. Monarch, the latest ruling, tried to settle the conflicting
pronouncements of this Court relative to the sinking of M/V P. Aboitiz. In Monarch, we said that the
sinking of the vessel was not due to force majeure, but to its unseaworthy condition.16 Therein, we found
petitioner concurrently negligent with the captain and crew.17 But the Court stressed that the
circumstances therein still made the doctrine of limited liability applicable. 18
Our ruling in Monarch may appear inconsistent with the exception of the limited liability doctrine, as
explicitly stated in the earlier part of the Monarch decision. An exception to the limited liability doctrine is
when the damage is due to the fault of the shipowner or to the concurrent negligence of the shipowner
and the captain. In which case, the shipowner shall be liable to the full-extent of the damage.19 We thus
find it necessary to clarify now the applicability here of the decision in Monarch.
From the nature of their business and for reasons of public policy, common carriers are bound to observe
20
extraordinary diligence over the goods they transport according to all the circumstances of each case. In
the event of loss, destruction or deterioration of the insured goods, common carriers are responsible,
unless they can prove that the loss, destruction or deterioration was brought about by the causes
specified in Article 1734 of the Civil Code.21 In all other cases, common carriers are presumed to have
22
been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.
Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent since
it is tasked with the maintenance of its vessel. Though this duty can be delegated, still, the shipowner
must exercise close supervision over its men.23
In the present case, petitioner has the burden of showing that it exercised extraordinary diligence in the
transport of the goods it had on board in order to invoke the limited liability doctrine. Differently put, to limit
its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the
unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented
93
and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden. It
initially attributed the sinking to the typhoon and relied on the BMI findings that it was not at fault.
However, both the trial and the appellate courts, in this case, found that the sinking was not due to the
typhoon but to its unseaworthiness. Evidence on record showed that the weather was moderate when the
vessel sank. These factual findings of the Court of Appeals, affirming those of the trial court are not to be
disturbed on appeal, but must be accorded great weight. These findings are conclusive not only on the
parties but on this Court as well.24
In contrast, the findings of the BMI are not deemed always binding on the courts. 25 Besides, exoneration
26
of the vessels officers and crew by the BMI merely concerns their respective administrative liabilities. It
does not in any way operate to absolve the common carrier from its civil liabilities arising from its failure to
exercise extraordinary diligence, the determination of which properly belongs to the courts.27
Where the shipowner fails to overcome the presumption of negligence, the doctrine of limited liability
28
cannot be applied. Therefore, we agree with the appellate court in sustaining the trial courts ruling that
petitioner is liable for the total value of the lost cargo.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated August 29, 2002 and
Resolution dated January 23, 2003 of the Court of Appeals in CA-G.R. CV No. 28770 are AFFIRMED.
Costs against petitioner.
SO ORDERED.
LEONARDO A. QUISUMBING
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
CONCHITA CARPIO MORALES DANTE O. TINGA

Associate Justice Asscociate Justice

Associate Justice
ATTESTATION
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CERTIFICATION
that the conclusions in the above decision had been reached in consultation before the case was
94
Chief Justice
Footnotes
1
Rollo, pp. 84-97. Penned by Associate Justice Romeo J. Callejo, Sr. (now a member of this Court), with
Associate Justices Remedios Salazar-Fernando, and Danilo B. Pine concurring.
2
Id. at 99. Penned by Associate Justice Danilo B. Pine, with Associate Justices Godardo A. Jacinto, and
Remedios Salazar-Fernando concurring.
3
Id. at 149-166.
4
Id. at 84-85, 150.
5
Id. at 65.
6
Id. at 163-164.
7
Exhibit "F-1," folder of exhibits, p. 8.
8
Exhibits "G, G-1, G-2," Id. at 11.
9
10
Id. at 5-6.
11
Id. at 18-19, 23-24.
12
CA-G.R. C.V. No. 10609, March 9, 1989 (Now SC G.R No. 89757, August 6, 1990, 188 SCRA 387).
13
Records, p. 859.
14
Rollo, pp. 68-69.
15
G.R. No. 92735, June 8, 2000, 333 SCRA 71.
16
Id. at 98-99.
17
Id. at 101.
18
Id. at 103.
19
Id. at 97.
20
Civil Code, Art. 1733. Common carriers, from the nature of their business and for reasons of public policy, are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
Such extraordinary diligence in the vigilance over the goods is further expressed in articles 1734, 1735, and
1745, Nos. 5, 6, and 7, while the extraordinary diligence for the safety of the passengers is further set forth in
articles 1755 and 1756.
21
Id. at Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
22
Id. at Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding article, 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 as required in article 1733.
23
Philippine American General Insurance Co., Inc. v. Court of Appeals, G.R. No. 116940, June 11, 1997, 273
SCRA 262, 272.
24
Prudential Bank v. Chonney Lim, G.R. No. 136371, November 11, 2005, p. 5.
25
See Aboitiz Shipping Corporation v. Court of Appeals, G.R. No. 89757, August 6, 1990, 188 SCRA 387, 390-
391.
26
Delsan Transport Lines, Inc. v. Court of Appeals, G.R. No. 127897, November 15, 2001, 369 SCRA 24, 33.
27
Id. at 33-34.
28
Central Shipping Company, Inc. v. Insurance Company of North America, G.R. No. 150751, September 20,
2004, 438 SCRA 511, 523-524.
----------
THIRD DIVISION
G.R. No. 168402 August 6, 2008
95
ABOITIZ SHIPPING CORPORATION, petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, respondent.
DECISION
REYES, R.T., J.:
THE RIGHT of subrogation attaches upon payment by the insurer of the insurance claims by the assured.
As subrogee, the insurer steps into the shoes of the assured and may exercise only those rights that the
assured may have against the wrongdoer who caused the damage.
Before Us is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) which
reversed the Decision2 of the Regional Trial Court (RTC). The CA ordered petitioner Aboitiz Shipping
Corporation to pay the sum of P280,176.92 plus interest and attorney's fees in favor of respondent
Insurance Company of North America (ICNA).
The Facts
Culled from the records, the facts are as follows:
On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or Subsidiary Companies
(MSAS) procured a marine insurance policy from respondent ICNA UK Limited of London. The insurance
was for a transshipment of certain wooden work tools and workbenches purchased for the consignee
Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City, Philippines. 3
ICNA issued an "all-risk" open marine policy,4 stating:
This Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure for MSAS Cargo International Limited &/or Associated &/or
Subsidiary Companies on behalf of the title holder: - Loss, if any, payable to the Assured or
order.5
The cargo, packed inside one container van, was shipped "freight prepaid" from Hamburg, Germany on
board M/S Katsuragi. A clean bill of lading6 was issued by Hapag-Lloyd which stated the consignee to be
STIP, Ecotech Center, Sudlon Lahug, Cebu City.
The container van was then off-loaded at Singapore and transshipped on board M/S Vigour Singapore.
On July 18, 1993, the ship arrived and docked at the Manila International Container Port where the
container van was again off-loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz
Shipping Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz Transport
System. The bill of lading7 issued by Aboitiz contained the notation "grounded outside warehouse."
The container van was stripped and transferred to another crate/container van without any notation on the
condition of the cargo on the Stuffing/Stripping Report.8 On August 1, 1993, the container van was loaded
on board petitioner's vessel, MV Super Concarrier I. The vessel left Manila en route to Cebu City on
August 2, 1993.
On August 3, 1993, the shipment arrived in Cebu City and discharged onto a receiving apron of the Cebu
International Port. It was then brought to the Cebu Bonded Warehousing Corporation pending clearance
from the Customs authorities. In the Stripping Report 9 dated August 5, 1993, petitioner's checker noted
that the crates were slightly broken or cracked at the bottom.
96
On August 11, 1993, the cargo was withdrawn by the representative of the consignee, Science Teaching
Improvement Project (STIP) and delivered to Don Bosco Technical High School, Punta Princesa, Cebu
City. It was received by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of
petitioner, received a telephone call from Willig informing him that the cargo sustained water damage.
Perez, upon receiving the call, immediately went to the bonded warehouse and checked the condition of
the container and other cargoes stuffed in the same container. He found that the container van and other
cargoes stuffed there were completely dry and showed no sign of wetness.10
Perez found that except for the bottom of the crate which was slightly broken, the crate itself appeared to
be completely dry and had no water marks. But he confirmed that the tools which were stored inside the
crate were already corroded. He further explained that the "grounded outside warehouse" notation in the
bill of lading referred only to the container van bearing the cargo.11
In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed upon opening of the
12
cargo. The letter stated that the crate was broken at its bottom part such that the contents were
exposed. The work tools and workbenches were found to have been completely soaked in water with
most of the packing cartons already disintegrating. The crate was properly sealed off from the inside with
tarpaper sheets. On the outside, galvanized metal bands were nailed onto all the edges. The letter
concluded that apparently, the damage was caused by water entering through the broken parts of the
crate.
The consignee contacted the Philippine office of ICNA for insurance claims. On August 21, 1993, the
Claimsmen Adjustment Corporation (CAC) conducted an ocular inspection and survey of the damage.
CAC reported to ICNA that the goods sustained water damage, molds, and corrosion which were
discovered upon delivery to consignee.13
On September 21, 1993, the consignee filed a formal claim14 with Aboitiz in the amount of P276,540.00
for the damaged condition of the following goods:
ten (10) wooden workbenches
three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander
In a Supplemental Report dated October 20, 1993,15 CAC reported to ICNA that based on official weather
report from the Philippine Atmospheric, Geophysical and Astronomical Services Administration, it would
appear that heavy rains on July 28 and 29, 1993 caused water damage to the shipment. CAC noted that
the shipment was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was
delivered on July 26, 1993. The shipment was placed outside the warehouse as can be gleaned from the
bill of lading issued by Aboitiz which contained the notation "grounded outside warehouse." It was only on
July 31, 1993 when the shipment was stuffed inside another container van for shipment to Cebu.
Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount of P280,176.92 to
consignee. A subrogation receipt was duly signed by Willig. ICNA formally advised Aboitiz of the claim
and subrogation receipt executed in its favor. Despite follow-ups, however, no reply was received from
Aboitiz.
RTC Disposition
97
ICNA filed a civil complaint against Aboitiz for collection of actual damages in the sum of P280,176.92,
16
plus interest and attorney's fees. ICNA alleged that the damage sustained by the shipment was
exclusively and solely brought about by the fault and negligence of Aboitiz when the shipment was left
grounded outside its warehouse prior to delivery.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases. It countered
that the complaint stated no cause of action, plaintiff ICNA had no personality to institute the suit, the
cause of action was barred, and the suit was premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The dispositive portion of the
decision17 states:
WHEREFORE, premises considered, the court holds that plaintiff is not entitled to the relief
claimed in the complaint for being baseless and without merit. The complaint is hereby
DISMISSED. The defendant's counterclaims are, likewise, DISMISSED for lack of basis. 18
The RTC ruled that ICNA failed to prove that it is the real party-in-interest to pursue the claim against
Aboitiz. The trial court noted that Marine Policy No. 87GB 4475 was issued by ICNA UK Limited with
address at Cigna House, 8 Lime Street, London EC3M 7NA. However, complainant ICNA Phils. did not
present any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA UK assigned the
insurance policy to ICNA Phils. Moreover, ICNA Phils.' claim that it had been subrogated to the rights of
the consignee must fail because the subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:
While it is clear that Marine Policy No. 87GB 4475 was issued by Insurance Company of North
America (U.K.) Limited (ICNA UK) with address at Cigna House, 8 Lime Street, London EC3M
7NA, no evidence has been adduced which would show that ICNA UK is the same as or the
predecessor-in-interest of plaintiff Insurance Company of North America ICNA with office address
at Cigna-Monarch Bldg., dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila or
that ICNA UK assigned the Marine Policy to ICNA. Second, the assured in the Marine Policy
appears to be MSAS Cargo International Limited &/or Associated &/or Subsidiary Companies.
Plaintiff's witness, Francisco B. Francisco, claims that the signature below the name MSAS Cargo
International is an endorsement of the marine policy in favor of Science Teaching Improvement
Project. Plaintiff's witness, however, failed to identify whose signature it was and plaintiff did not
present on the witness stand or took (sic) the deposition of the person who made that signature.
Hence, the claim that there was an endorsement of the marine policy has no probative value as it
is hearsay.
Plaintiff, further, claims that it has been subrogated to the rights and interest of Science Teaching
Improvement Project as shown by the Subrogation Form (Exhibit "K") allegedly signed by a
representative of Science Teaching Improvement Project. Such representative, however, was not
presented on the witness stand. Hence, the Subrogation Form is self-serving and has no
probative value.19 (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a foreign corporation duly
licensed to do business in the Philippines. Thus, it lacked the capacity to sue before Philippine Courts, to
wit:
Prescinding from the foregoing, plaintiff alleged in its complaint that it is a foreign insurance
company duly authorized to do business in the Philippines. This allegation was, however, denied
by the defendant. In fact, in the Pre-Trial Order of 12 March 1996, one of the issues defined by
the court is whether or not the plaintiff has legal capacity to sue and be sued. Under Philippine
law, the condition is that a foreign insurance company must obtain licenses/authority to do
business in the Philippines. These licenses/authority are obtained from the Securities and
98
Exchange Commission, the Board of Investments and the Insurance Commission. If it fails to
obtain these licenses/authority, such foreign corporation doing business in the Philippines cannot
sue before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72 Phil. 524. (Emphasis
supplied)
CA Disposition
ICNA appealed to the CA. It contended that the trial court failed to consider that its cause of action is
anchored on the right of subrogation under Article 2207 of the Civil Code. ICNA said it is one and the
same as the ICNA UK Limited as made known in the dorsal portion of the Open Policy. 20
On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued that the formal claim
was not filed within the period required under Article 366 of the Code of Commerce; that ICNA had no
right of subrogation because the subrogation receipt should have been signed by MSAS, the assured in
the open policy, and not Willig, who is merely the representative of the consignee.
On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as follows:
WHEREFORE, premises considered, the present appeal is hereby GRANTED. The appealed
decision of the Regional Trial Court of Makati City in Civil Case No. 94-1590 is hereby
REVERSED and SET ASIDE. A new judgment is hereby rendered ordering defendant-appellee
Aboitiz Shipping Corporation to pay the plaintiff-appellant Insurance Company of North America
the sum of P280,176.92 with interest thereon at the legal rate from the date of the institution of
this case until fully paid, and attorney's fees in the sum of P50,000, plus the costs of suit.21
The CA opined that the right of subrogation accrues simply upon payment by the insurance company of
the insurance claim. As subrogee, ICNA is entitled to reimbursement from Aboitiz, even assuming that it
is an unlicensed foreign corporation. The CA ruled:
At any rate, We find the ground invoked for the dismissal of the complaint as legally untenable.
Even assuming arguendo that the plaintiff-insurer in this case is an unlicensed foreign
corporation, such circumstance will not bar it from claiming reimbursement from the defendant
carrier by virtue of subrogation under the contract of insurance and as recognized by Philippine
courts. x x x
xxxx
Plaintiff insurer, whether the foreign company or its duly authorized Agent/Representative in the
country, as subrogee of the claim of the insured under the subject marine policy, is therefore the
real party in interest to bring this suit and recover the full amount of loss of the subject cargo
22
shipped by it from Manila to the consignee in Cebu City. x x x
The CA ruled that the presumption that the carrier was at fault or that it acted negligently was not
overcome by any countervailing evidence. Hence, the trial court erred in dismissing the complaint and in
not finding that based on the evidence on record and relevant provisions of law, Aboitiz is liable for the
loss or damage sustained by the subject cargo.
Issues
The following issues are up for our consideration:
(1) THE HONORABLE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN

RULING THAT ICNA HAS A CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF THE
99
RIGHT OF SUBROGATION BUT WITHOUT CONSIDERING THE ISSUE CONSISTENTLY
RAISED BY ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT MADE WITHIN THE
PERIOD PRESCRIBED BY ARTICLE 366 OF THE CODE OF COMMERCE; AND, MORE SO,
THAT THE CLAIM WAS MADE BY A WRONG CLAIMANT.

RULING THAT THE SUIT FOR REIMBURSEMENT AGAINST ABOITIZ WAS PROPERLY FILED
BY ICNA AS THE LATTER WAS AN AUTHORIZED AGENT OF THE INSURANCE COMPANY
OF NORTH AMERICA (U.K.) ("ICNA UK").

RULING THAT THERE WAS PROPER INDORSEMENT OF THE INSURANCE POLICY FROM
THE ORIGINAL ASSURED MSAS CARGO INTERNATIONAL LIMITED ("MSAS") IN FAVOR OF
THE CONSIGNEE STIP, AND THAT THE SUBROGATION RECEIPT ISSUED BY STIP IN
FAVOR OF ICNA IS VALID NOTWITHSTANDING THE FACT THAT IT HAS NO PROBATIVE
VALUE AND IS MERELY HEARSAY AND A SELF-SERVING DOCUMENT FOR FAILURE OF
ICNA TO PRESENT A REPRESENTATIVE OF STIP TO IDENTIFY AND AUTHENTICATE THE
SAME.

RULING THAT THE EXTENT AND KIND OF DAMAGE SUSTAINED BY THE SUBJECT CARGO
WAS CAUSED BY THE FAULT OR NEGLIGENCE OF ABOITIZ.23 (Underscoring supplied)
Elsewise stated, the controversy rotates on three (3) central questions: (a) Is respondent ICNA the real
party-in-interest that possesses the right of subrogation to claim reimbursement from petitioner Aboitiz?
(b) Was there a timely filing of the notice of claim as required under Article 366 of the Code of
Commerce? (c) If so, can petitioner be held liable on the claim for damages?
Our Ruling
We answer the triple questions in the affirmative.
A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from
filing a suit in local courts. Only when that foreign corporation is "transacting" or "doing business" in the
country will a license be necessary before it can institute suits. 24 It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law. 25 Thus, this Court has held that a
foreign insurance company may sue in Philippine courts upon the marine insurance policies issued by it
abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do
business in this country. It is the act of engaging in business without the prescribed license, and not the
26
lack of license per se, which bars a foreign corporation from access to our courts.
In any case, We uphold the CA observation that while it was the ICNA UK Limited which issued the
subject marine policy, the present suit was filed by the said company's authorized agent in Manila. It was
the domestic corporation that brought the suit and not the foreign company. Its authority is expressly
provided for in the open policy which includes the ICNA office in the Philippines as one of the foreign
company's agents.
As found by the CA, the RTC erred when it ruled that there was no proper indorsement of the insurance
policy by MSAS, the shipper, in favor of STIP of Don Bosco Technical High School, the consignee.
The terms of the Open Policy authorize the filing of any claim on the insured goods, to be brought against
ICNA UK, the company who issued the insurance, or against any of its listed agents worldwide. 27 MSAS
accepted said provision when it signed and accepted the policy. The acceptance operated as an
100
acceptance of the authority of the agents. Hence, a formal indorsement of the policy to the agent in the
Philippines was unnecessary for the latter to exercise the rights of the insurer.
Likewise, the Open Policy expressly provides that:
The Company, in consideration of a premium as agreed and subject to the terms and conditions
printed hereon, does insure MSAS Cargo International Limited &/or Associates &/or Subsidiary
Companies in behalf of the title holder: - Loss, if any, payable to the Assured or Order.
The policy benefits any subsequent assignee, or holder, including the consignee, who may file claims on
behalf of the assured. This is in keeping with Section 57 of the Insurance Code which states:
A policy may be so framed that it will inure to the benefit of whosoever, during the continuance of
the risk, may become the owner of the interest insured. (Emphasis added)
Respondent's cause of action is founded on it being subrogated to the rights of the consignee of the
damaged shipment. The right of subrogation springs from Article 2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer
or the person who has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency
from the person causing the loss or injury. (Emphasis added)
As this Court held in the case of Pan Malayan Insurance Corporation v. Court of Appeals,28 payment by
the insurer to the assured operates as an equitable assignment of all remedies the assured may have
against the third party who caused the damage. Subrogation is not dependent upon, nor does it grow out
of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the
insurance claim by the insurer.29
Upon payment to the consignee of indemnity for damage to the insured goods, ICNA's entitlement to
subrogation equipped it with a cause of action against petitioner in case of a contractual breach or
negligence.30 This right of subrogation, however, has its limitations. First, both the insurer and the
consignee are bound by the contractual stipulations under the bill of lading. 31 Second, the insurer can be
subrogated only to the rights as the insured may have against the wrongdoer. If by its own acts after
receiving payment from the insurer, the insured releases the wrongdoer who caused the loss from
liability, the insurer loses its claim against the latter. 32
The giving of notice of loss or injury is a condition precedent to the action for loss or injury or the right to
enforce the carrier's liability. Circumstances peculiar to this case lead Us to conclude that the notice
requirement was complied with. As held in the case of Philippine American General Insurance Co., Inc. v.
Sweet Lines, Inc.,33 this notice requirement protects the carrier by affording it an opportunity to make an
investigation of the claim while the matter is still fresh and easily investigated. It is meant to safeguard the
carrier from false and fraudulent claims.
Under the Code of Commerce, the notice of claim must be made within twenty four (24) hours from
receipt of the cargo if the damage is not apparent from the outside of the package. For damages that are
visible from the outside of the package, the claim must be made immediately. The law provides:
Article 366. Within twenty four hours following the receipt of the merchandise, the claim against
the carrier for damages or average which may be found therein upon opening the packages, may
be made, provided that the indications of the damage or average which give rise to the claim
101
cannot be ascertained from the outside part of such packages, in which case the claim shall be
admitted only at the time of receipt.
After the periods mentioned have elapsed, or the transportation charges have been paid, no
claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered. (Emphasis supplied)
The periods above, as well as the manner of giving notice may be modified in the terms of the bill of
lading, which is the contract between the parties. Notably, neither of the parties in this case presented the
terms for giving notices of claim under the bill of lading issued by petitioner for the goods.
The shipment was delivered on August 11, 1993. Although the letter informing the carrier of the damage
was dated August 15, 1993, that letter, together with the notice of claim, was received by petitioner only
on September 21, 1993. But petitioner admits that even before it received the written notice of claim, Mr.
Mayo B. Perez, Claims Head of the company, was informed by telephone sometime in August 13, 1993.
Mr. Perez then immediately went to the warehouse and to the delivery site to inspect the goods in behalf
of petitioner.34
In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil Lighterage Corporation,35 the
notice was allegedly made by the consignee through telephone. The claim for damages was denied. This
Court ruled that such a notice did not comply with the notice requirement under the law. There was no
evidence presented that the notice was timely given. Neither was there evidence presented that the
notice was relayed to the responsible authority of the carrier.
As adverted to earlier, there are peculiar circumstances in the instant case that constrain Us to rule
differently from the PCIC case, albeit this ruling is being made pro hac vice, not to be made a precedent
for other cases.
Stipulations requiring notice of loss or claim for damage as a condition precedent to the right of recovery
from a carrier must be given a reasonable and practical construction, adapted to the circumstances of the
case under adjudication, and their application is limited to cases falling fairly within their object and
purpose.36
Bernhard Willig, the representative of consignee who received the shipment, relayed the information that
the delivered goods were discovered to have sustained water damage to no less than the Claims Head of
petitioner, Mayo B. Perez. Immediately, Perez was able to investigate the claims himself and he
confirmed that the goods were, indeed, already corroded.
Provisions specifying a time to give notice of damage to common carriers are ordinarily to be given a
reasonable and practical, rather than a strict construction.37 We give due consideration to the fact that the
final destination of the damaged cargo was a school institution where authorities are bound by rules and
regulations governing their actions. Understandably, when the goods were delivered, the necessary
clearance had to be made before the package was opened. Upon opening and discovery of the damaged
condition of the goods, a report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping company.
The call to petitioner was made two days from delivery, a reasonable period considering that the goods
could not have corroded instantly overnight such that it could only have sustained the damage during
transit. Moreover, petitioner was able to immediately inspect the damage while the matter was still fresh.
In so doing, the main objective of the prescribed time period was fulfilled. Thus, there was substantial
compliance with the notice requirement in this case.
102
To recapitulate, We have found that respondent, as subrogee of the consignee, is the real party in
interest to institute the claim for damages against petitioner; and pro hac vice, that a valid notice of claim
was made by respondent.
We now discuss petitioner's liability for the damages sustained by the shipment. The rule as stated in
Article 1735 of the Civil Code is that in cases where the goods are lost, destroyed or deteriorated,
common carriers are presumed to have been at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence required by law.38 Extraordinary diligence is that extreme measure
of care and caution which persons of unusual prudence and circumspection use for securing and
39
preserving their own property rights. This standard is intended to grant favor to the shipper who is at the
mercy of the common carrier once the goods have been entrusted to the latter for shipment. 40
Here, the shipment delivered to the consignee sustained water damage. We agree with the findings of the
CA that petitioner failed to overturn this presumption:
x x x upon delivery of the cargo to the consignee Don Bosco Technical High School by a
representative from Trabajo Arrastre, and the crates opened, it was discovered that the
workbenches and work tools suffered damage due to "wettage" although by then they were
already physically dry. Appellee carrier having failed to discharge the burden of proving that it
exercised extraordinary diligence in the vigilance over such goods it contracted for carriage, the
presumption of fault or negligence on its part from the time the goods were unconditionally placed
in its possession (July 26, 1993) up to the time the same were delivered to the consignee (August
11, 1993), therefore stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x x 41 (Emphasis added)
The shipment arrived in the port of Manila and was received by petitioner for carriage on July 26, 1993.
On the same day, it was stripped from the container van. Five days later, on July 31, 1993, it was re-
stuffed inside another container van. On August 1, 1993, it was loaded onto another vessel bound for
Cebu. During the period between July 26 to 31, 1993, the shipment was outside a container van and kept
in storage by petitioner.
The bill of lading issued by petitioner on July 31, 1993 contains the notation "grounded outside
warehouse," suggesting that from July 26 to 31, the goods were kept outside the warehouse. And since
evidence showed that rain fell over Manila during the same period, We can conclude that this was when
the shipment sustained water damage.
To prove the exercise of extraordinary diligence, petitioner must do more than merely show the possibility
that some other party could be responsible for the damage. It must prove that it used "all reasonable
means to ascertain the nature and characteristic of the goods tendered for transport and that it exercised
due care in handling them.42 Extraordinary diligence must include safeguarding the shipment from
damage coming from natural elements such as rainfall.
Aside from denying that the "grounded outside warehouse" notation referred not to the crate for shipment
but only to the carrier van, petitioner failed to mention where exactly the goods were stored during the
period in question. It failed to show that the crate was properly stored indoors during the time when it
exercised custody before shipment to Cebu. As amply explained by the CA:
On the other hand, the supplemental report submitted by the surveyor has confirmed that it was
rainwater that seeped into the cargo based on official data from the PAGASA that there was,
indeed, rainfall in the Port Area of Manila from July 26 to 31, 1993. The Surveyor specifically
noted that the subject cargo was under the custody of appellee carrier from the time it was
delivered by the shipper on July 26, 1993 until it was stuffed inside Container No. ACCU-213798-
4 on July 31, 1993. No other inevitable conclusion can be deduced from the foregoing established
103
facts that damage from "wettage" suffered by the subject cargo was caused by the negligence of
appellee carrier in grounding the shipment outside causing rainwater to seep into the cargoes.
Appellee's witness, Mr. Mayo tried to disavow any responsibility for causing "wettage" to the
subject goods by claiming that the notation "GROUNDED OUTSIDE WHSE." actually refers to
the container and not the contents thereof or the cargoes. And yet it presented no evidence to
explain where did they place or store the subject goods from the time it accepted the same for
shipment on July 26, 1993 up to the time the goods were stripped or transferred from the
container van to another container and loaded into the vessel M/V Supercon Carrier I on August
1, 1993 and left Manila for Cebu City on August 2, 1993. x x x If the subject cargo was not
grounded outside prior to shipment to Cebu City, appellee provided no explanation as to where
said cargo was stored from July 26, 1993 to July 31, 1993. What the records showed is that the
subject cargo was stripped from the container van of the shipper and transferred to the container
on August 1, 1993 and finally loaded into the appellee's vessel bound for Cebu City on August 2,
1993. The Stuffing/Stripping Report (Exhibit "D") at the Manila port did not indicate any such
defect or damage, but when the container was stripped upon arrival in Cebu City port after being
discharged from appellee's vessel, it was noted that only one (1) slab was slightly broken at the
43
bottom allegedly hit by a forklift blade (Exhibit "F"). (Emphasis added)
Petitioner is thus liable for the water damage sustained by the goods due to its failure to satisfactorily
prove that it exercised the extraordinary diligence required of common carriers.
WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO


Associate Justice
ATTESTATION
assigned to the writer of the opinion of the Court's Division.
Associate Justice
Chairperson
104
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify
assigned to the writer of the opinion of the Court's Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1
Rollo, pp. 43-60. Penned by Associate Justice Martin S. Villarama, Jr., with Associate Justices Regalado E.
Maambong and Lucenito N. Tagle, concurring. CA-G.R. CV No. 81684, decision dated March 29, 2005.
2
Id. at 212-218. Penned by Judge Romeo F. Barza. Civil Case No. 94-1590, decision dated November 14, 2003.
3
Covered by a commercial invoice from Rainer Fux German Asia Trade.
4
Records, pp. 348-349. Open Marine Policy No. 87GB 4475.
5
Id. at 348.
6
Id. at 381-382. Bill of Lading No. 33-006402.
7
Id. at 346-347. Bill of Lading Nos. 02-4519072 and INA-02.
8
Id. at 350. Dated July 31, 1993.
9
Rollo, p. 127.
10
Records, pp. 536-539; TSN, October 16, 2001, pp. 6-9.
11
Id.
12
Id. at 375-376.
13
Id. at 356-359. Report dated September 18, 1993.
14
Id. at 377.
15
Id. at 373-374.
16
Docketed as Civil Case No. 94-1590, RTC-Makati, Branch 61.
17
Rollo, pp. 212-218.
18
Id. at 218.
19
Id. at 216-217.
20
The dorsal portion contained the provision stating that all claims shall be submitted to the office of the
Company or to one (1) of the "Agents" or "Representatives," as per list which included "Manila, Philippines,
Insurance Co. of North America, Legaspi Village, Makati CCPO Box 482."
21
Rollo, p. 59.
22
Id. at 52-53.
23
Id. at 20-21.
24
Corporation Code, Sec. 133. Doing business without a license. - No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any
action, suit or proceeding in any court or administrative agency of the Philippines, but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action
recognized under Philippine laws. See also European Resources and Technologies, Inc. v. Ingenieuburo
Birkhahn + Nolte, G.R. No. 159586, July 26, 2004, 435 SCRA 246, 255.
25
Bulakhidas v. Navarro, G.R. No. L-49695, April 7, 1986, 142 SCRA 1, 2-3.
26
Universal Shipping Lines v. Intermediate Appellate Court, G.R. No. 74125, July 31, 1990, 188 SCRA 170, 173.
27
See note 20.
28
G.R. No. 81026, April 3, 1990, 184 SCRA 54; see also Philippine American General Insurance Co., Inc. v.
Court of Appeals, G.R. No. 116940, June 11, 1997, 273 SCRA 262, 274.
29
Pan Malayan Insurance Corporation v. Court of Appeals, id. at 58.
30
Federal Express Corporation v. American Home Assurance Company, G.R. No. 150094, August 18, 2004, 437
SCRA 50, 56.
31
Id. at 56-57.
32
Manila Mahogany Manufacturing Corporation v. Court of Appeals, G.R. No. L-52756, October 12, 1987, 154
SCRA 650, 656.
33
G.R. No. 87434, August 5, 1992, 212 SCRA 194.
34
Records, pp. 536-539; TSN, October 16, 2001, pp. 6-9.
105
35
G.R. No. 136888, June 29, 2005, 462 SCRA 77.
36
14 Am. Jur. 2d 581.
37
14 Am. Jur. 2d 585.
38
Civil Code, Art. 1735.
39
Republic v. Lorenzo Shipping Corporation, G.R. No. 153563, February 7, 2005, 450 SCRA 550, 556, citing
Black's Law Dictionary, 5th ed. 1979, 411.
40
Id.
41
Rollo, p. 58.
42
Calvo v. UCPB General Insurance, Inc., 429 Phil. 244 (2002).
43
Rollo, pp. 57-58.
----------
THIRD DIVISION
G.R. Nos. 180880-81 September 25, 2009
KEPPEL CEBU SHIPYARD, INC., Petitioner,

vs.
PIONEER INSURANCE AND SURETY CORPORATION, Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. Nos. 180896-97
PIONEER INSURANCE AND SURETY CORPORATION, Petitioner,

vs.
KEPPEL CEBU SHIPYARD, INC., Respondent.
DECISION
NACHURA, J.:
Before us are the consolidated petitions filed by the partiesPioneer Insurance and Surety Corporation1
(Pioneer) and Keppel Cebu Shipyard, Inc.2 (KCSI)to review on certiorari the Decision3 dated December
17, 2004 and the Amended Decision4 dated December 20, 2007 of the Court of Appeals (CA) in CA-G.R.
SP Nos. 74018 and 73934.
On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair
5
Agreement wherein KCSI would renovate and reconstruct WG&As M/V "Superferry 3" using its dry
docking facilities pursuant to its restrictive safety and security rules and regulations. Prior to the execution
of the Shiprepair Agreement, "Superferry 3" was already insured by WG&A with Pioneer for
US$8,472,581.78. The Shiprepair Agreement reads
SHIPREPAIR AGREEMENT6
Company: WG & A JEBSENS SHIPMANAGEMENT INC.

Address: Harbour Center II, Railroad & Chicago Sts.
Port Area, City of Manila
106
We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V "SUPERFERRY 3" and KEPPEL CEBU
SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of the above-named
vessel ordered by the Owners Authorized Representative shall be carried out under the Keppel Cebu
Shipyard Standard Conditions of Contract for Shiprepair, guidelines and regulations on safety and
security issued by Keppel Cebu Shipyard. In addition, the following are mutually agreed upon by the
parties:
1. The Owner shall inform its insurer of Clause 207 and 22 (a)8 (refer at the back hereof)
and shall include Keppel Cebu Shipyard as a co-assured in its insurance policy.
2. The Owner shall waive its right to claim for any loss of profit or loss of use or damages
consequential on such loss of use resulting from the delay in the redelivery of the above
vessel.
3. Owners sub-contractors or workers are not permitted to work in the yard without the
written approval of the Vice President Operations.
4. In consideration of Keppel Cebu Shipyard allowing Owner to carry out own repairs
onboard the vessel, the Owner shall indemnify and hold Keppel Cebu Shipyard harmless
from any or all claims, damages, or liabilities arising from death or bodily injuries to
Owners workers, or damages to the vessel or other property however caused.
5. On arrival, the Owner Representative, Captain, Chief Officer and Chief Engineer will
be invited to attend a conference with our Production, Safety and Security personnel
whereby they will be briefed on, and given copies of Shipyard safety regulations.
6. An adequate number of officers and crew must remain on board at all times to ensure
the safety of the vessel and compliance of safety regulations by crew and owner
employed workmen.
7. The ships officers/crew or owner appointed security personnel shall maintain watch
against pilferage and acts of sabotage.
8. The yard must be informed and instructed to provide the necessary security
arrangement coverage should there be inadequate or no crew on board to provide the
expressed safety and security enforcement.
9. The Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodily injuries
for the [K]eppel Cebu Shipyards employees and/or contract workers; theft and/or
damages to Keppel Cebu Shipyards properties and other liabilities which are caused by
the workers of the Owner.
10. The invoice shall be based on quotation reference 99-KCSI-211 dated December 20,
1999 tariff dated March 15, 1998.
11. Payment term shall be as follows:
12. The Owner and Keppel Cebu Shipyard shall endeavor to settle amicably any dispute
that may arise under this Agreement. Should all efforts for an amicable settlement fail,
the disputes shall be submitted for arbitration in Metro Manila in accordance with
provisions of Executive Order No. 1008 under the auspices of the Philippine Arbitration
Commission.
107
(Signed)
(Signed)
BARRY CHIA SOO HOCK
(Printed Name/Signature Above Name)
(Printed Name/Signature Above Name)
Authorized Representative
Vice President Operations
for and in behalf of:
Keppel Cebu Shipyard, Inc.
WG & A Jebsens Shipmgmt.
JAN. 26, 2000.

Date
Date
On February 8, 2000, in the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the
extent of the damage was pervasive, WG&A declared the vessels damage as a "total constructive loss"
and, hence, filed an insurance claim with Pioneer.
On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of US$8,472,581.78.
WG&A, in turn, executed a Loss and Subrogation Receipt9 in favor of Pioneer, to wit:
LOSS AND SUBROGATION RECEIPT
16 June 2000
Our Claim Ref: MH-NIL-H0-99-00018

US$8,472,581.78
------------------------------------------------
RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of U.S. DOLLARS EIGHT
MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE HUNDRED EIGHTY-ONE & 78/100
(US$ 8,472,581.78) equivalent to PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php
360,000,000.00), in full satisfaction, compromise and discharge of all claims for loss and expenses
sustained to the vessel "SUPERFERRY 3" insured under Policy Nos. MH-H0-99-0000168-00-D (H&M)
and MH-H0-99-0000169 (I.V.) by reason as follows:
Fire on board at Keppel Cebu Shipyard

on 08 February 2000
and in consideration of which the undersigned hereby assigns and transfers to the said company each
and all claims and demands against any person, persons, corporation or property arising from or
connected with such loss or damage and the said company is subrogated in the place of and to the
claims and demands of the undersigned against said person, persons, corporation or property in the
premises to the extent of the amount above-mentioned.
WILLIAM, GOTHONG & ABOITIZ, INC.

&/OR ABOITIZ SHIPPING CORP.
By:
(Signed)
______________________________________
108
Witnesses:
(Signed)
______________________________________
(Signed)
______________________________________
Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated
demands, Pioneer, on August 7, 2000, filed a Request for Arbitration before the Construction Industry
Arbitration Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the following reliefs:
1. To pay to the claimant Pioneer Insurance and Surety Corporation the sum of
U.S.$8,472,581.78 or its equivalent amount in Philippine Currency, plus interest thereon
computed from the date of the "Loss and Subrogation Receipt" on 16 June 2000 or from
the date of filing of [the] "Request for Arbitration," as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping Corporation and WG&A
Jebsens Shipmanagement, Inc. the sum of P500,000,000.00 plus interest thereon from
the date of filing [of the] "Request for Arbitration" or date of the arbitral award, as may be
found proper;
3. To pay to the claimants herein the sum of P3,000,000.00 for and as attorneys fees;
plus other damages as may be established during the proceedings, including arbitration
fees and other litigation expenses, and the costs of suit.
It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the "Shiprepair Agreement"
(Annex "A") as well as the hardly legible Clauses 20 and 22 (a) and other similar clauses printed in very
fine print on the unsigned dorsal page thereof, be all declared illegal and void ab initio and without any
legal effect whatsoever.10
KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of Withdrawal of
Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal on October 22, 2001, thereby
dismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as the
remaining claimant.
In the course of the proceedings, Pioneer and KCSI stipulated, among others, that: (1) on January 26,
2000, M/V "Superferry 3" arrived at KCSI in Lapu-Lapu City, Cebu, for dry docking and repairs; (2) on the
same date, WG&A signed a ship repair agreement with KCSI; and (3) a fire broke out on board M/V
"Superferry 3" on February 8, 2000, while still dry docked in KCSIs shipyard.11
As regards the disputed facts, below are the respective positions of the parties, viz.:
Pioneers Theory of the Case:
First, Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been subrogated
to the claim of its assured. The Claimant claims that it has the preponderance of evidence over that of the
Respondent. Claimant cited documentary references on the Statutory Source of the Principle of
Subrogation. Claimant then proceeded to explain that the Right of Subrogation:
Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.
109
Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer and that the
Right of Subrogation Entitles Insurer to Recover from the Liable Party.
Second, Respondent Keppel had custody of and control over the M/V "Superferry 3" while said vessel
was in Respondent Keppels premises. In its Draft Decision, Claimant stated:
A. The evidence presented during the hearings indubitably proves that respondent not
only took custody but assumed responsibility and control over M/V Superferry 3 in
carrying out the dry-docking and repair of the vessel.
B. The presence on board the M/V Superferry 3 of its officers and crew does not relieve
the respondent of its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over M/V Superferry 3 when it brought the
vessel inside its graving dock and applied its own safety rules to the dry-docking and
repairs of the vessel.
D. The practice of allowing a shipowner and its sub-contractors to perform maintenance

works while the vessel was within respondents premises does not detract from the fact
that control and custody over M/V Superferry 3 was transferred to the yard.
From the preceding statements, Claimant claims that Keppel is clearly liable for the loss of M/V
Superferry 3.
Third, the Vessels Safety Manual cannot be relied upon as proof of the Masters continuing control over
the vessel.
Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. According to Claimant, the
Yard is liable under the ruling laid down by the Supreme Court in the "Manila City" case. Claimant asserts
that said ruling is applicable hereto as The Law of the Case.
Fifth, the liability of Respondent does not arise merely from the application of the Doctrine of Res Ipsa
Loquitur, but from its negligence in this case.
Sixth, the Respondent Yard was the employer responsible for the negligent acts of the welder. According
to Claimant;
In contemplation of law, Sevillejo was not a loaned servant/employee. The yard, being his employer, is
solely and exclusively liable for his negligent acts. Claimant proceeded to enumerate its reasons:
A. The "Control Test" The yard exercised control over Sevillejo. The power of control is
not diminished by the failure to exercise control.
B. There was no independent work contract between Joniga and Sevillejo Joniga was
not the employer of Sevillejo, as Sevillejo remained an employee of the yard at the time
the loss occurred.
C. The mere fact that Dr. Joniga requested Sevillejo to perform some of the Owners hot
works under the 26 January 2000 work order did not make Dr. Joniga the employer of
Sevillejo.
Claimant proffers that Dr. Joniga was not a Contractor of the Hot Work Done on Deck A. Claimant argued
that:
110
A. The yard, not Dr. Joniga, gave the welders their marching orders, and
B. Dr. Jonigas authority to request the execution of owners hot works in the passenger
areas was expressly recognized by the Yard Project Superintendent Orcullo.
Seventh, the shipowner had no legal duty to apply for a hotworks permit since it was not required by the
yard, and the owners hotworks were conducted by welders who remained employees of the yard.
Claimant contends that the need, if any, for an owners application for a hot work permit was canceled out
by the yards actual knowledge of Sevillejos whereabouts and the fact that he was in deck A doing
owners hotworks.
Eight[h], in supplying welders and equipment as per The Work Order Dated 26 January 2000, the Yard
did so at its own risk, and acted as a Less Than Prudent Ship Repairer.1avvphi1
The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila was a
disgruntled employee. Nevertheless, Claimant claims that Amagsila affirmed that the five yard welders
never became employees of the owner so as to obligate the latter to be responsible for their conduct and
performance.
Claimant enumerated further badges of yard negligence.
According to Claimant:
A. Yards water supply was inadequate.
B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.
Finally, Claimant disputed the theories propounded by the Respondent (The Yard). Claimant presented
its case against:
(i) Non-removal of the life jackets theory.
(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
(iv) The unauthorized hot works theory.
(v) The Marina report theory.
The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the welder involved in
the cause of the fire, Mr. Severino Sevillejo. Claimant claims that this is suppression of evidence by
Respondent.
KCSIs Theory of the Case
1. The Claimant has no standing to file the Request for Arbitration and the Tribunal has
no jurisdiction over the case:
111
(a) There is no valid arbitration agreement between the Yard and the Vessel
Owner. On January 26, 2000, when the ship repair agreement (which includes
the arbitration agreement) was signed by WG&A Jebsens on behalf of the
Vessel, the same was still owned by Aboitiz Shipping. Consequently, when
another firm, WG&A, authorized WG&A Jebsens to manage the MV Superferry
3, it had no authority to do so. There is, as a result, no binding arbitration
agreement between the Vessel Owner and the Yard to which the Claimant can
claim to be subrogated and which can support CIAC jurisdiction.
(b) The Claimant is not a real party in interest and has no standing because it
has not been subrogated to the Vessel Owner. For the reason stated above, the
insurance policies on which the Claimant bases its right of subrogation were not
validly obtained. In any event, the Claimant has not been subrogated to any
rights which the Vessel may have against the Yard because:
i. The Claimant has not proved payment of the proceeds of the policies
to any specific party. As a consequence, it has also not proved payment
to the Vessel Owner.
ii. The Claimant had no legally demandable obligation to pay under the
policies and did so only voluntarily. Under the policies, the Claimant and
the Vessel agreed that there is no Constructive Total Loss "unless the
expense of recovering and repairing the vessel would exceed the Agreed
Value" of P360 million assigned by the parties to the Vessel, a threshold
which the actual repair cost for the Vessel did not reach. Since the
Claimant opted to pay contrary to the provisions of the policies, its
payment was voluntary, and there was no resulting subrogation to the
Vessel.
iii. There was also no subrogation under Article 1236 of the Civil Code.
First, if the Claimant asserts a right of payment only by virtue of Article
1236, then there is no legal subrogation under Article 2207 and it does
not succeed to the Vessels rights under the Ship [R]epair Agreement
and the arbitration agreement. It does not have a right to demand
arbitration and will have only a purely civil law claim for reimbursement to
the extent that its payment benefited the Yard which should be filed in
court. Second, since the Yard is not liable for the fire and the resulting
damage to the Vessel, then it derived no benefit from the Claimants
payment to the Vessel Owner. Third, in any event, the Claimant has not
proved payment of the proceeds to the Vessel Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel knowingly
and voluntarily accepted that agreement. Moreover, there are no signing or other formal
defects that can invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any negligence
committed by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by
the Yard. On the contrary, the proximate cause of the fire was Dr. Jonigas and the
Vessels deliberate decision to have Angelino Sevillejo undertake cutting work in
inherently dangerous conditions created by them.
(a) The Claimants material witnesses lied on the record and the Claimant
presented no credible proof of any negligence by Angelino Sevillejo.
112
(b) Uncontroverted evidence proved that Dr. Joniga neglected or decided not to
obtain a hot work permit for the bulkhead cutting and also neglected or refused to
have the ceiling and the flammable lifejackets removed from underneath the area
where he instructed Angelino Sevillejo to cut the bulkhead door. These decisions
or oversights guaranteed that the cutting would be done in extremely hazardous
conditions and were the proximate cause of the fire and the resulting damage to
the Vessel.
(c) The Yards expert witness, Dr. Eric Mullen gave the only credible account of
the cause and the mechanics of ignition of the fire. He established that: i) the fire
started when the cutting of the bulkhead door resulted in sparks or hot molten
slag which fell through pre-existing holes on the deck floor and came into contact
with and ignited the flammable lifejackets stored in the ceiling void directly below;
and ii) the bottom level of the bulkhead door was immaterial, because the sparks
and slag could have come from the cutting of any of the sides of the door.
Consequently, the cutting itself of the bulkhead door under the hazardous
conditions created by Dr. Joniga, rather than the positioning of the doors bottom
edge, was the proximate cause of the fire.
(d) The Manila City case is irrelevant to this dispute and in any case, does not
establish governing precedent to the effect that when a ship is damaged in dry
dock, the shipyard is presumed at fault. Apart from the differences in the factual
setting of the two cases, the Manila City pronouncements regarding the res ipsa
loquitur doctrine are obiter dicta without value as binding precedent.
Furthermore, even if the principle were applied to create a presumption of
negligence by the Yard, however, that presumption is conclusively rebutted by
the evidence on record.
(e) The Vessels deliberate acts and its negligence created the inherently
hazardous conditions in which the cutting work that could otherwise be done
safely ended up causing a fire and the damage to the Vessel. The fire was a
direct and logical consequence of the Vessels decisions to: (1) take Angelino
Sevillejo away from his welding work at the Promenade Deck restaurant and
instead to require him to do unauthorized cutting work in Deck A; and (2) to have
him do that without satisfying the requirements for and obtaining a hot work
permit in violation of the Yards Safety Rules and without removing the flammable
ceiling and life jackets below, contrary to the requirements not only of the Yards
Safety Rules but also of the demands of standard safe practice and the Vessels
own explicit safety and hot work policies.
(f) The vessel has not presented any proof to show that the Yard was remiss in
its fire fighting preparations or in the actual conduct of fighting the 8 February
2000 fire. The Yard had the necessary equipment and trained personnel and
employed all those resources immediately and fully to putting out the 8 February
2000 fire.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor,
and that this circumstance rather than the extremely hazardous conditions created by Dr.
Joniga and the Vessel for that activity caused the fire, the Yard may still not be held liable
for the resulting damage.
(a) The Yards only contractual obligation to the Vessel in respect of the 26
January 2000 Work Order was to supply welders for the Promenade Deck
restaurant who would then perform welding work "per owner[s] instruction."
Consequently, once it had provided those welders, including Angelino Sevillejo,
113
its obligation to the Vessel was fully discharged and no claim for contractual
breach, or for damages on account thereof, may be raised against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the basis of quasi-delict.
i. The Vessel exercised supervision and control over Angelino Sevillejo

when he was doing work at the Promenade Deck restaurant and
especially when he was instructed by Dr. Joniga to cut the bulkhead
door. Consequently, the Vessel was the party with actual control over his
tasks and is deemed his true and effective employer for purposes of
establishing Article 2180 employer liability.
ii. Even assuming that the Yard was Angelino Sevillejos employer, the
Yard may nevertheless not be held liable under Article 2180 because
Angelino Sevillejo was acting beyond the scope of his tasks assigned by
the Yard (which was only to do welding for the Promenade Deck
restaurant) when he cut the bulkhead door pursuant to instructions given
by the Vessel.
iii. The Yard is nonetheless not liable under Article 2180 because it
exercised due diligence in the selection and supervision of Angelino
Sevillejo.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full amount of P360
million paid by the Claimant.
(a) Under the law, the Yard may not be held liable to the Claimant, as subrogee,
for an amount greater than that which the Vessel could have recovered, even if
the Claimant may have paid a higher amount under its policies. In turn, the right
of the Vessel to recover is limited to actual damage to the MV Superferry 3, at
the time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of the Yard is limited to P50
million a stipulation which, under the law and decisions of the Supreme Court,
is valid, binding and enforceable.
(c) The Vessel breached its obligation under Clause 22 (a) of the Yards
Standard Terms to name the Yard as co-assured under the policies a breach
which makes the Vessel liable for damages. This liability should in turn be set-off
against the Claimants claim for damages.
The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal. Respondent
enumerated and disputed these as follows:
1. Claimants counsel contends that the cutting of the bulkhead door was covered by the
26 January 2000 Work Order.
2. Claimants counsel contends that Dr. Joniga told Gerry Orcullo about his intention to
have Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8
February 2000.
3. Claimants counsel contends that under Article 1727 of the Civil Code, "The contractor
is responsible for the work done by persons employed by him."
114
4. Claimants counsel contends that "[t]he second reason why there was no job spec or
job order for this cutting work, [is] the cutting work was known to the yard and
coordinated with Mr. Gerry Orcullo, the yard project superintendent."
5. Claimants counsel also contends, to make the Vessels unauthorized hot works
activities seem less likely, that they could easily be detected because Mr. Avelino Aves,
the Yard Safety Superintendent, admitted that "No hot works could really be hidden from
the Yard, your Honors, because the welding cables and the gas hoses emanating from
the dock will give these hotworks away apart from the assertion and the fact that there
were also safety assistants supposedly going around the vessel."
12
Respondent disputed the above by presenting its own argument in its Final Memorandum.
13
On October 28, 2002, the CIAC rendered its Decision declaring both WG&A and KCSI guilty of
negligence, with the following findings and conclusions
The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and equipment to
the promenade deck. [The] Tribunal agrees that the cutting of the bulkhead door was not a contractual
obligation of the Yard. However, by requiring, according to its own regulations, that only Yard welders are
to undertake hotworks, it follows that there are certain qualifications of Yard welders that would be
requisite of yard welders against those of the vessel welders. To the Tribunal, this means that yard
welders are aware of the Yard safety rules and regulations on hotworks such as applying for a hotwork
permit, discussing the work in a production meeting, and complying with the conditions of the hotwork
permit prior to implementation. By the requirement that all hotworks are to be done by the Yard, the
Tribunal finds that Sevillejo remains a yard employee. The act of Sevillejo is however mitigated in that he
was not even a foreman, and that the instructions to him was (sic) by an authorized person. The Tribunal
notes that the hotworks permit require[s] a request by at least a foreman. The fact that no foreman was
included in the five welders issued to the Vessel was never raised in this dispute. As discussed earlier by
the Tribunal, with the fact that what was ask (sic) of Sevillejo was outside the work order, the Vessel is
considered equally negligent. This Tribunal finds the concurrent negligence of the Yard through Sevillejo
and the Vessel through Dr. Joniga as both contributory to the cause of the fire that damaged the vessel. 14
Holding that the liability for damages was limited to P50,000,000.00, the CIAC ordered KCSI to pay
Pioneer the amount of P25,000,000.00, with interest at 6% per annum from the time of the filing of the
case up to the time the decision is promulgated, and 12% interest per annum added to the award, or any
balance thereof, after it becomes final and executory. The CIAC further ordered that the arbitration costs
be imposed on both parties on a pro rata basis.15
Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No. 74018. KCSI likewise filed
its own appeal and the same was docketed as CA-G.R. SP No. 73934. The cases were consolidated.
On December 17, 2004, the Former Fifteenth Division of the CA rendered its Decision, disposing as
follows:
WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R. SP No. 74018) is

DISMISSED while the Petition of the Yard (CA-G.R. SP No. 73934) is GRANTED,
dismissing petitioners claims in its entirety. No costs.
The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata.
16
SO ORDERED.
115
Aggrieved, Pioneer sought reconsideration of the December 17, 2004 Decision, insisting that it suffered
from serious errors in the appreciation of the evidence and from gross misapplication of the law and
jurisprudence on negligence. KCSI, for its part, filed a motion for partial reconsideration of the same
Decision.
On December 20, 2007, an Amended Decision was promulgated by the Special Division of Five Former
Fifteenth Division of the CA in light of the dissent of Associate Justice Lucas P. Bersamin, 17 joined by
Associate Justice Japar B. Dimaampao. The fallo of the Amended Decision reads
WHEREFORE, premises considered, the Court hereby decrees that:
1. Pioneers Motion for Reconsideration is PARTIALLY GRANTED, ordering The Yard to

pay Pioneer P25 Million, without legal interest, within 15 days from the finality of this
Amended Decision, subject to the following modifications:
1.1 Pioneers Petition (CA-G.R. SP No. 74018) is PARTIALLY GRANTED as the Yard
is hereby ordered to pay Pioneer P25 Million without legal interest;
2. The Yard is hereby declared as equally negligent, thus, the total GRANTING of its
Petition (CA-G.R. SP No. 73934) is now reduced to PARTIALLY GRANTED, in so far as
it is ordered to pay Pioneer P25 Million, without legal interest, within 15 days from the
finality of this Amended Decision; and
3. The rest of the disposition in the original Decision remains the same.
SO ORDERED.18
Hence, these petitions. Pioneer bases its petition on the following grounds:
THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTS LEADING
IT TO MAKE FALSE LEGAL CONCLUSIONS; NON-FACTS REMAIN TO INVALIDATE THE AMENDED
DECISION. THIS ALSO VIOLATES SECTION 14, ARTICLE VIII OF THE CONSTITUTION.
II
THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THE SUM
OF P50,000,000.00, IN THAT:
A. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF

LIMITED LIABILITY BY THE YARD.
B. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.
C. THE VESSEL OWNER DID NOT AGREE THAT THE YARDS LIABILITY
FOR LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARDS
NEGLIGENCE IS LIMITED TO THE SUM OF P50,000,000.00 ONLY.
D. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY, IN THAT:
116
(i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL
(M/V "SUPERFERRY 3") ON 08 FEBRUARY 2000 WHEN IT WAS
GUTTED BY FIRE;
(ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF

THE REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.
III
THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLY
NEGLIGENT, CONSIDERING THAT:
A. DR. JONIGA, THE VESSELS PASSAGE TEAM LEADER, DID NOT

SUPERVISE OR CONTROL THE REPAIRS.
B. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT

GERMINIANO ORCULLO THAT SUPERVISED AND CONTROLLED THE
REPAIR WORKS.
C. SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT

FOLLOWS THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN
DOING THE SAME.
D. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO

SEVILLEJO.
E. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE

CAUSE OF THE LOSS.
F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT DIRECT OR

CONTRIBUTORY TO THE LOSS.
IV
THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVE

TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE FOR
THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST.
VI
THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR
19
ARBITRATION COSTS.
On the other hand, KCSI cites the following grounds for the allowance of its petition, to wit:
1. ABSENCE OF YARD RESPONSIBILITY
117
IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT, WITHOUT EXPLANATION,
THE CIACS RULING THAT THE YARD WAS EQUALLY NEGLIGENT BECAUSE OF ITS FAILURE TO
REQUIRE A HOT WORKS PERMIT FOR THE CUTTING WORK DONE BY ANGELINO SEVILLEJO,
AFTER THE COURT OF APPEALS ITSELF HAD SHOWN THAT RULING TO BE COMPLETELY
WRONG AND BASELESS.
2. NO CONSTRUCTIVE TOTAL LOSS
IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE, WITHOUT
EXPLANATION, THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVING ITSELF
EXPLAINED WHY THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS.
3. FAILURE OR REFUSAL TO ADDRESS
KEPPELS MOTION FOR RECONSIDERATION
FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO HAVE
EFFECTIVELY DENIED, WITHOUT ADDRESSING IT AND ALSO WITHOUT EXPLANATION,
KEPPELS PARTIAL MOTION FOR RECONSIDERATION OF THE ORIGINAL DECISION WHICH
SHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE VESSEL OWNER
AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY KEPPEL MAY NOT BE REQUIRED TO
REIMBURSE PIONEERS PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE CO-INSURANCE
CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3) WHY PIONEER ALONE SHOULD BEAR THE
COSTS OF ARBITRATION.
4. FAILURE TO CREDIT FOR SALVAGE RECOVERY
EVEN IF THE COURT OF APPEALS RULINGS ON ALL OF THE FOREGOING ISSUES WERE
CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGE TO
THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25 MILLION), THE
COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE VESSEL
RECOVERED AND RECEIVED BY THE INSURER, PIONEER, TO REDUCE ANY LIABILITY ON THE
PART OF THE YARD TO P9.874 MILLION.20
To our minds, these errors assigned by both Pioneer and KCSI may be summed up in the following core
issues:
A. To whom may negligence over the fire that broke out on board M/V "Superferry 3" be
imputed?
B. Is subrogation proper? If proper, to what extent can subrogation be made?
C. Should interest be imposed on the award of damages? If so, how much?
D. Who should bear the cost of the arbitration?
To resolve these issues, it is imperative that we digress from the general rule that in petitions for review
under Rule 45 of the Rules of Court, only questions of law shall be entertained. Considering the disparate
findings of fact of the CIAC and the CA which led them to different conclusions, we are constrained to
revisit the factual circumstances surrounding this controversy.21
The Courts Ruling
118
A. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo) on the
accommodation area of the vessel, specifically on Deck A. As established before the CIAC
22
The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling, p. 20). Angelino
Sevillejo tried to put out the fire by pouring the contents of a five-liter drinking water container on it and as
he did so, smoke came up from under Deck A. He got another container of water which he also poured
whence the smoke was coming. In the meantime, other workers in the immediate vicinity tried to fight the
fire by using fire extinguishers and buckets of water. But because the fire was inside the ceiling void, it
was extremely difficult to contain or extinguish; and it spread rapidly because it was not possible to direct
water jets or the fire extinguishers into the space at the source. Fighting the fire was extremely difficult
because the life jackets and the construction materials of the Deck B ceiling were combustible and
permitted the fire to spread within the ceiling void. From there, the fire dropped into the Deck B
accommodation areas at various locations, where there were combustible materials. Respondent points
to cans of paint and thinner, in addition to the plywood partitions and foam mattresses on deck B (Exh. 1-
23 24
Mullen, pp. 7-8, 18; Exh. 2-Mullen, pp. 11-12).
Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at the time the
fire broke out, was doing his assigned task, and that KCSI was solely responsible for all the hot works
done on board the vessel. KCSI claims otherwise, stating that the hot work done was beyond the scope
of Sevillejos assigned tasks, the same not having been authorized under the Work Order 25 dated January
26, 2000 or under the Shiprepair Agreement. KCSI further posits that WG&A was itself negligent, through
its crew, particularly Dr. Raymundo Joniga (Dr. Joniga), for failing to remove the life jackets from the
ceiling void, causing the immediate spread of the fire to the other areas of the ship.
We rule in favor of Pioneer.
First. The Shiprepair Agreement is clear that WG&A, as owner of M/V "Superferry 3," entered into a
contract for the dry docking and repair of the vessel under KCSIs Standard Conditions of Contract for
Shiprepair, and its guidelines and regulations on safety and security. Thus, the CA erred when it said that
WG&A would renovate and reconstruct its own vessel merely using the dry docking facilities of KCSI.
Second. Pursuant to KCSIs rules and regulations on safety and security, only employees of KCSI may
undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu City, Cebu. This is
supported by Clause 3 of the Shiprepair Agreement requiring the prior written approval of KCSIs Vice
President for Operations before WG&A could effect any work performed by its own workers or sub-
contractors. In the exercise of this authority, KCSIs Vice-President for Operations, in the letter dated
January 2, 1997, banned any hot works from being done except by KCSIs workers, viz.:
The Yard will restrict all hot works in the engine room, accommodation cabin, and fuel oil tanks to be
carried out only by shipyard workers x x x.26
WG&A recognized and complied with this restrictive directive such that, during the arrival conference on
January 26, 2000, Dr. Joniga, the vessels passage team leader in charge of its hotel department,
specifically requested KCSI to finish the hot works started by the vessels contractors on the passenger
27
accommodation decks. This was corroborated by the statements of the vessels hotel manager Marcelo
28 29
Rabe and the vessels quality control officer Joselito Esteban. KCSI knew of the unfinished hot works
in the passenger accommodation areas. Its safety supervisor Esteban Cabalhug confirmed that KCSI was
aware "that the owners of this vessel (M/V Superferry 3) had undertaken their own (hot) works prior to
arrival alongside (sic) on 26th January," and that no hot work permits could thereafter be issued to
30
WG&As own workers because "this was not allowed for the Superferry 3." This shows that Dr. Joniga
had authority only to request the performance of hot works by KCSIs welders as needed in the repair of
the vessel while on dry dock.
119
Third. KCSI welders covered by the Work Order performed hot works on various areas of the M/V
"Superferry 3," aside from its promenade deck. This was a recognition of Dr. Jonigas authority to request
the conduct of hot works even on the passenger accommodation decks, subject to the provision of the
January 26, 2000 Work Order that KCSI would supply welders for the promenade deck of the ship.
At the CIAC proceedings, it was adequately shown that between February 4 and 6, 2000, the welders of
KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A; (b) did the welding and
cutting works on the deck beam to access aircon ducts; and (c) did the cutting and welding works on the
protection bars at the tourist dining salon of Deck B,31 at a rate of P150.00/welder/hour.32 In fact, Orcullo,
Project Superintendent of KCSI, admitted that "as early as February 3, 2000 (five days before the fire)
[the Yard] had acknowledged Dr. Jonigas authority to order such works or additional jobs."33
It is evident, therefore, that although the January 26, 2000 Work Order was a special order for the supply
of KCSI welders to the promenade deck, it was not restricted to the promenade deck only. The Work
Order was only a special arrangement between KCSI and WG&A that meant additional cost to the latter.
Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latters direct
control and supervision.
Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the power and the right to
discharge or substitute him with another welder; providing him and the other welders with its equipment;
giving him and the other welders marching orders to work on the vessel; and monitoring and keeping
34
track of his and the other welders activities on board, in view of the delicate nature of their work. Thus,
as such employee, aware of KCSIs Safety Regulations on Vessels Afloat/Dry, which specifically provides
that "(n)o hotwork (welding/cutting works) shall be done on board [the] vessel without [a] Safety Permit
from KCSI Safety Section,"35 it was incumbent upon Sevillejo to obtain the required hot work safety permit
before starting the work he did, including that done on Deck A where the fire started.
Fifth. There was a lapse in KCSIs supervision of Sevillejos work at the time the fire broke out.
It was established that no hot works could be hidden from or remain undetected by KCSI because the
welding cables and the gas hoses emanating from the dock would give the hot works away. Moreover,
KCSI had roving fire watchmen and safety assistants who were moving around the vessel.36 This was
confirmed by Restituto Rebaca (Rebaca), KCSIs Safety Supervisor, who actually spotted Sevillejo on
Deck A, two hours before the fire, doing his cutting work without a hot work permit, a fire watchman, or a
fire extinguisher. KCSI contends that it did its duty when it prohibited Sevillejo from continuing the hot
work. However, it is noteworthy that, after purportedly scolding Sevillejo for working without a permit and
telling him to stop until the permit was acquired and the other safety measures were observed, Rebaca
left without pulling Sevillejo out of the work area or making sure that the latter did as he was told.
Unfortunately for KCSI, Sevillejo reluctantly proceeded with his cutting of the bulkhead door at Deck A
after Rebaca left, even disregarding the 4-inch marking set, thus cutting the door level with the deck, until
the fire broke out.
This conclusion on the failure of supervision by KCSI was absolutely supported by Dr. Eric Mullen of the
Dr. J.H. Burgoyne & Partners (International) Ltd., Singapore, KCSIs own fire expert, who observed that
4.3. The foregoing would be compounded by Angelino Sevillejo being an electric arc
welder, not a cutter. The dangers of ignition occurring as a result of the two processes
are similar in that both electric arc welding and hot cutting produce heat at the work area
and sparks and incendive material that can travel some distance from the work area.
Hence, the safety precautions that are expected to be applied by the supervisor are the
same for both types of work. However, the quantity and incendivity of the spray from the
hot cutting are much greater than those of sparks from electric arc welding, and it may
well be that Angelino Sevillejo would not have a full appreciation of the dangers involved.
120
This made it all the more important that the supervisor, who should have had such an
appreciation, ensured that the appropriate safety precautions were carried out.37
In this light, therefore, Sevillejo, being one of the specially trained welders specifically authorized by KCSI
to do the hot works on M/V "Superferry 3" to the exclusion of other workers, failed to comply with the strict
safety standards of KCSI, not only because he worked without the required permit, fire watch, fire
buckets, and extinguishers, but also because he failed to undertake other precautionary measures for
preventing the fire. For instance, he could have, at the very least, ensured that whatever combustible
material may have been in the vicinity would be protected from the sparks caused by the welding torch.
He could have easily removed the life jackets from the ceiling void, as well as the foam mattresses, and
covered any holes where the sparks may enter.
Conjunctively, since Rebaca was already aware of the hazard, he should have taken all possible
precautionary measures, including those above mentioned, before allowing Sevillejo to continue with his
hot work on Deck A. In addition to scolding Sevillejo, Rebaca merely checked that no fire had started yet.
Nothing more. Also, inasmuch as KCSI had the power to substitute Sevillejo with another electric arc
welder, Rebaca should have replaced him.
There is negligence when an act is done without exercising the competence that a reasonable person in
the position of the actor would recognize as necessary to prevent an unreasonable risk of harm to
another. Those who undertake any work calling for special skills are required to exercise reasonable care
in what they do.38 Verily, there is an obligation all persons have to take due care which, under ordinary
circumstances of the case, a reasonable and prudent man would take. The omission of that care
constitutes negligence. Generally, the degree of care required is graduated according to the danger a
person or property may be subjected to, arising from the activity that the actor pursues or the
instrumentality that he uses. The greater the danger, the greater the degree of care required.
Extraordinary risk demands extraordinary care. Similarly, the more imminent the danger, the higher
degree of care warranted.39 In this aspect,
KCSI failed to exercise the necessary degree of caution and foresight called for by the circumstances.
We cannot subscribe to KCSIs position that WG&A, through Dr. Joniga, was negligent.
On the one hand, as discussed above, Dr. Joniga had authority to request the performance of hot works
in the other areas of the vessel. These hot works were deemed included in the January 26, 2000 Work
Order and the Shiprepair Agreement. In the exercise of this authority, Dr. Joniga asked Sevillejo to do the
cutting of the bulkhead door near the staircase of Deck A. KCSI was aware of what Sevillejo was doing,
but failed to supervise him with the degree of care warranted by the attendant circumstances.
Neither can Dr. Joniga be faulted for not removing the life jackets from the ceiling void for two reasons
(1) the life jackets were not even contributory to the occurrence of the fire; and (2) it was not incumbent
upon him to remove the same. It was shown during the hearings before the CIAC that the removal of the
life jackets would not have made much of a difference. The fire would still have occurred due to the
presence of other combustible materials in the area. This was the uniform conclusion of both WG&As40
and KCSIs41 fire experts. It was also proven during the CIAC proceedings that KCSI did not see the life
jackets as being in the way of the hot works, thus, making their removal from storage unnecessary.42
These circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligent in the
performance of his assigned task. His negligence was the proximate cause of the fire on board M/V
"Superferry 3." As he was then definitely engaged in the performance of his assigned tasks as an
employee of KCSI, his negligence gave rise to the vicarious liability of his employer43 under Article 2180
of the Civil Code, which provides
121
Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own
act or omission, but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not
engaged in any business or industry.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.
KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal
presumption of its negligence in supervising Sevillejo. 44 Consequently, it is responsible for the damages
caused by the negligent act of its employee, and its liability is primary and solidary. All that is needed is
proof that the employee has, by his negligence, caused damage to another in order to make the employer
responsible for the tortuous act of the former.45 From the foregoing disquisition, there is ample proof of
the employees negligence.
B. The right of subrogation
Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full
amount of the insurance coverage and, by operation of law, it was entitled to be subrogated to the rights
of WG&A to claim the amount of the loss. It further argues that the limitation of liability clause found in the
Shiprepair Agreement is null and void for being iniquitous and against public policy.
KCSI counters that a total constructive loss was not adequately proven by Pioneer, and that there is no
proof of payment of the insurance proceeds. KCSI insists on the validity of the limited-liability clause up to
P50,000,000.00, because WG&A acceded to the provision when it executed the Shiprepair Agreement.
KCSI also claims that the salvage value of the vessel should be deducted from whatever amount it will be
made to pay to Pioneer.
We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of M/V "Superferry 3."
In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139
of the Insurance Code, which provides
Sec. 139. A person insured by a contract of marine insurance may abandon the thing
insured, or any particular portion hereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a
peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.
It appears, however, that in the execution of the insurance policies over M/V "Superferry 3," WG&A and
Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77, the Total Loss Provision of
which reads
122
Total Loss
In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall
be taken as the repaired value and nothing in respect of the damaged or break-up value
of the Vessel or wreck shall be taken into account.
There shall be no recovery for a constructive Total Loss hereunder unless the expense
of recovering and repairing the Vessel would exceed the Agreed Value in policies on
Hull and Machinery. In making this determination, only expenses incurred or to be
incurred by reason of a single accident or a sequence of damages arising from the same
accident shall be taken into account, but expenses incurred prior to tender of
abandonment shall not be considered if such are to be claimed separately under the
Sue and Labor clause. x x x.
In the course of the arbitration proceedings, Pioneer adduced in evidence the estimates made by three
(3) disinterested and qualified shipyards for the cost of the repair of the vessel, specifically: (a)
P296,256,717.00, based on the Philippine currency equivalent of the quotation dated April 17, 2000
turned in by Tsuneishi Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the Philippine
currency equivalent of the quotation of Sembawang Shipyard Pte. Ltd., Singapore; and (c)
P301,839,974.00, based on the Philippine currency equivalent of the quotation of Singapore
Technologies Marine Ltd. All the estimates showed that the repair expense would exceed
P270,000,000.00, the amount equivalent to of the vessels insured value of P360,000,000.00. Thus,
WG&A opted to abandon M/V "Superferry 3" and claimed from Pioneer the full amount of the policies.
Pioneer paid WG&As claim, and now demands from KCSI the full amount of P360,000,000.00, by virtue
of subrogation.1avvphi1
KCSI denies the liability because, aside from its claim that it cannot be held culpable for negligence
resulting in the destructive fire, there was no constructive total loss, as the amount of damage was only
US$3,800,000.00 or P170,611,260.00, the amount of repair expense quoted by Simpson, Spence &
Young.
In the face of this apparent conflict, we hold that Section 139 of the Insurance Code should govern,
because (1) Philippine law is deemed incorporated in every locally executed contract; and (2) the marine
insurance policies in question expressly provided the following:
IMPORTANT
This insurance is subject to English jurisdiction, except in the event that loss or losses are payable in the
Philippines, in which case if the said laws and customs of England shall be in conflict with the laws of the
Republic of the Philippines, then the laws of the Republic of the Philippines shall govern. (Underscoring
supplied.)
The CA held that Section 139 of the Insurance Code is merely permissive on account of the word "may"
in the provision. This is incorrect. Properly considered, the word "may" in the provision is intended to grant
the insured (WG&A) the option or discretion to choose the abandonment of the thing insured (M/V
"Superferry 3"), or any particular portion thereof separately valued by the policy, or otherwise separately
insured, and recover for a total loss when the cause of the loss is a peril insured against. This option or
discretion is expressed as a right in Section 131 of the same Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to
abandon under Section one hundred thirty-nine.
It cannot be denied that M/V "Superferry 3" suffered widespread damage from the fire that occurred on
February 8, 2000, a covered peril under the marine insurance policies obtained by WG&A from Pioneer.
123
The estimates given by the three disinterested and qualified shipyards show that the damage to the ship
would exceed P270,000,000.00, or of the total value of the policies P360,000,000.00. These
estimates constituted credible and acceptable proof of the extent of the damage sustained by the vessel.
It is significant that these estimates were confirmed by the Adjustment Report dated June 5, 2000
submitted by Richards Hogg Lindley (Phils.), Inc., the average adjuster that Pioneer had enlisted to verify
and confirm the extent of the damage. The Adjustment Report verified and confirmed that the damage to
the vessel amounted to a constructive total loss and that the claim for P360,000,000.00 under the policies
46
was compensable. It is also noteworthy that KCSI did not cross-examine Henson Lim, Director of
Richards Hogg, whose affidavit-direct testimony submitted to the CIAC confirmed that the vessel was a
constructive total loss.
Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its
policies. Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and
Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer. On this
note, we find as unacceptable the claim of KCSI that there was no ample proof of payment simply
because the person who signed the Receipt appeared to be an employee of Aboitiz Shipping
47
Corporation. The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of
payment of the insurance proceeds to the former, and no controverting evidence was presented by KCSI
to rebut the presumed authority of the signatory to receive such payment.
On the matter of subrogation, Article 2207 of the Civil Code 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 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.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that
he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its
remedies or securities. The principle covers a situation wherein an insurer has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured against a third party
with respect to any loss covered by the policy. It contemplates full substitution such that it places the party
subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to
enforce payment.48
We have held that payment by the insurer to the insured operates as an equitable assignment to the
insurer of all the remedies that the insured may have against the third party whose negligence or wrongful
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine
of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode
that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good
conscience, ought to pay.49
We cannot accept KCSIs insistence on upholding the validity Clause 20, which provides that the limit of
its liability is only up to P50,000,000.00; nor of Clause 22(a), that KCSI stands as a co-assured in the
insurance policies, as found in the Shiprepair Agreement.
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. They are
unfair and inequitable under the premises. It was established during arbitration that WG&A did not
voluntarily and expressly agree to these provisions. Engr. Elvin F. Bello, WG&As fleet manager, testified
that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and 22(a) were
found, because he did not want WG&A to be bound by them. However, considering that it was only KCSI
that had shipyard facilities large enough to accommodate the dry docking and repair of big vessels owned
124
by WG&A, such as M/V "Superferry 3," in Cebu, he had to sign the front portion of the Shiprepair
Agreement; otherwise, the vessel would not be accepted for dry docking.50
Indeed, the assailed clauses amount to a contract of adhesion imposed on WG&A on a "take-it-or-leave-
it" basis. A contract of adhesion is so-called because its terms are prepared by only one party, while the
other party merely affixes his signature signifying his adhesion thereto. Although not invalid, per se, a
contract of adhesion is void when the weaker party is imposed upon in dealing with the dominant
bargaining party, and its option is reduced to the alternative of "taking it or leaving it," completely
51
depriving such party of the opportunity to bargain on equal footing.
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the full
insured value of the vessel or, at the very least, for its actual market value. There was clearly no intention
on the part of WG&A to relinquish such right. It is an elementary rule that a waiver must be positively
proved, since a waiver by implication is not normally countenanced. The norm is that a waiver must not
only be voluntary, but must have been made knowingly, intelligently, and with sufficient awareness of the
relevant circumstances and likely consequences. There must be persuasive evidence to show an actual
52
intention to relinquish the right. This has not been demonstrated in this case.
Likewise, Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI to
limit its liability to only P50,000,000.00, notwithstanding the fact that there was a constructive total loss in
the amount of P360,000,000.00, would sanction the exercise of a degree of diligence short of what is
ordinarily required. It would not be difficult for a negligent party to escape liability by the simple expedient
of paying an amount very much lower than the actual damage or loss sustained by the other.53
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make each other a
co-assured under an insurance policy is to be gleaned principally from the insurance contract or policy
itself and not from any other contract or agreement, because the insurance policy denominates the
assured and the beneficiaries of the insurance contract. Undeniably, the hull and machinery insurance
procured by WG&A from Pioneer named only the former as the assured. There was no manifest intention
on the part of WG&A to constitute KCSI as a co-assured under the policies. To have deemed KCSI as a
co-assured under the policies would have had the effect of nullifying any claim of WG&A from Pioneer for
any loss or damage caused by the negligence of KCSI. No ship owner would agree to make a ship
repairer a co-assured under such insurance policy. Otherwise, any claim for loss or damage under the
policy would be rendered nugatory. WG&A could not have intended such a result. 54
Nevertheless, we concur with the position of KCSI that the salvage value of the damaged M/V "Superferry
3" should be taken into account in the grant of any award. It was proven before the CIAC that the
machinery and the hull of the vessel were separately sold for P25,290,000.00 (or US$468,333.33) and
US$363,289.50, respectively. WG&As claim for the upkeep of the wreck until the same were sold
amounts to P8,521,737.75 (or US$157,809.96), to be deducted from the proceeds of the sale of the
machinery and the hull, for a net recovery of US$673,812.87, or equivalent to P30,252,648.09, at
P44.8977/$1, the prevailing exchange rate when the Request for Arbitration was filed. Not considering
this salvage value in the award would amount to unjust enrichment on the part of Pioneer.
C. On the imposition of interest
Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,55 the award in favor of Pioneer
in the amount of P350,146,786.89 should earn interest at 6% per annum from the filing of the case until
the award becomes final and executory. Thereafter, the rate of interest shall be 12% per annum from the
date the award becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration
125
It is only fitting that both parties should share in the burden of the cost of arbitration, on a pro rata basis.
We find that Pioneer had a valid reason to institute a suit against KCSI, as it believed that it was entitled
to claim reimbursement of the amount it paid to WG&A. However, we disagree with Pioneer that only
KCSI should shoulder the arbitration costs. KCSI cannot be faulted for defending itself for perceived
wrongful acts and conditions. Otherwise, we would be putting a price on the right to litigate on the part of
Pioneer.
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 and the
Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY GRANTED and the
Amended Decision dated December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI is
ordered to pay Pioneer the amount of P360,000,000.00 less P30,252,648.09, equivalent to the salvage
value recovered by Pioneer from M/V "Superferry 3," or the net total amount of P329,747,351.91, with six
percent (6%) interest per annum reckoned from the time the Request for Arbitration was filed until this
Decision becomes final and executory, plus twelve percent (12%) interest per annum on the said amount
or any balance thereof from the finality of the Decision until the same will have been fully paid. The
arbitration costs shall be borne by both parties on a pro rata basis. Costs against KCSI.
SO ORDERED.

Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO*
Acting Chief Justice
Chairperson
MINITA V. CHICO-NAZARIO PRESBITERO J. VELASCO, JR.

DIOSDADO M. PERALTA
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision
had been reached in consultation before the case was assigned to the writer of the opinion of the Courts
Division.
Acting Chief Justice
Footnotes
*
Acting Chief Justice.
1
Rollo (G.R. Nos. 180896-97), pp. 33-109.
2
Rollo (G.R. Nos. 180880-81), pp. 338-378.
3
Rollo (G.R. Nos. 180896-97), pp. 116-144.
4
Id. at 146-165.
5
Id. at 483-484.
6
The Shiprepair Agreement was duly acknowledged by the parties before a notary public.
7
20. The Contractor shall not be under any liability to the Customer either in contract or otherwise except for
negligence and such liability shall itself be subject to the following overriding limitations and exceptions, namely
126
(a) The total liability of the Contractor to the Customer (including the liability to replace under Clause 17) or of
any Sub-contractor shall be limited in respect of any and/or defect(s) or event(s) to the sum of Pesos Philippine
Currency Fifty Million only x x x.
8
22(a) The Customer shall keep the vessel adequately insured for the vessels hull and machinery, her crew and
the equipment on board and on other goods owned or held by the Customer against any and all risks and
liabilities and ensure that such insurance policies shall include the Contractor as a co-assured.
9
Rollo (G.R. Nos. 180896-97), p. 526.
10
Id. at 167.
11
Id. at 236.
12
Id. at 236-242.
13
Id. at 229-320.
14
Id. at 286.
15
Id. at 319.
16
Id. at 143-144.
17
Now a member of this Court.
18
Id. at 163-164.
19
Rollo (G.R. No. 180896-97), pp. 46-48.
20
Rollo (G.R. Nos. 180880-81), pp. 356-357.
21
Prudential Shipping and Management Corporation v. Sta. Rita, G.R. No. 166580, February 8, 2007, 515 SCRA
157.
22
The fire expert presented by Pioneer.
23
Dr. Eric Mullen, the fire expert presented by KCSI.
24
Rollo (G.R. Nos. 180896-97), p. 262.
25
The Work Order dated January 26, 2000 provided to
1. Supply of 5 welders & equipment as per Owners instructions to promenade deck.
2. JO# 89/99 Pull-out & clean w/ chemical of Aux. engine blower & change both ball bearing 15 kw, 27 amp,
440 Wtts as required.
3. Renew sleeve on endcover of motor as required.
4. Renew deteriorated side frames & fwd pls as required.
5. Renew deteriorated air vent and sides pls as required.
26
CIAC Decision, p. 28.
27
Dr. Joniga gave this narration under oath:
5. That at the arrival conference on January 26, 2000, x x x we discussed the projected dry docking works and
the shipyard safety regulations particularly the restriction that only shipyard workers and welders can perform hot
works on board the vessel.
During the said conference, I brought up the need of the hotel department specifically for the yard to provide
welders to the passenger accommodations on Deck A, Deck B and Deck C, according to owners instructions,
meaning, the ship owner through me as the one in charge of the hotel department could request maintenance
works in the passenger decks which may be determined and the need for which may arise only in the course of
the dry docking and which will require hot works by the yards welders subject to shipyard safety and billing
regulations.
My aforementioned input was duly taken note of, and on that same date, a Work Order dated January 26, 2000
signed by the Ship Superintendent Manuel Amagsila and KCSI Project Superintendent Gerry Orcullo x x x.
(Exhibit "C-Joniga," p. 2)
28
4. That upon request of Dr. Joniga during said arrival conference, a Work Order dated January 26, 2000 was
signed whereby the ship owner could request for some hot work in the passenger decks "as per Owners
instructions" with the ships hotel department indicating certain maintenance or renovation in the course of the
dry docking but it will be the yard which will execute the hot works needed. (Exhibit "C-Rabe," p. 2.)
29
4. x x x I confirm that said Work Order [of 26 January 2000] required the Yard, and the Yard agreed, to supply
"5 welders and equipment as per owners instructions to promenade deck," because Dr. Joniga wanted that the
unfinished hot works in the promenade deck and passenger areas that were started in Manila should be finished,
otherwise the dry docking would be useless.
The place mentioned was "to promenade deck" because the bulk of the work was in the promenade deck, but
included the unfinished hot works in the tourist and other passenger areas, which the Yard knew because they
inspected and went around the vessel when we arrived on January 26, 2000.
The unfinished hot works in the passenger areas were also known to shipyard project superintendent Gerry
Orcullo. Without the Yards express knowledge or permission, no yard welder will just go to some part of the
vessel and do some kind of hot work. As I said only Yard workers performed hot works on board the vessel.
(Exhibit "A-Esteban," p. 2.)
30
Cabalhugs affidavit-direct testimony dated May 24, 2001.
31
Exhibit "C-Joniga," par. 6; Exhibit "C-Rabe," par. 4; Exhibit "A-Esteban," par. 7.
127
32
Per the affidavit of The Yards Commercial Manager Khew Kah Khin who said, "Later I saw a copy of the work
order for the supply of welders to the owners to carry out the same work and was asked for a quotation for this. I
quoted verbally PhP150 per man per hour. This was an unusual arrangement and I cannot recall any other
occasion on which the Yard welders were supplied in similar circumstances."
33
TSN, Gerry Orcullo, May 22, 2002, pp. 167-170.
34
35
Id. at 52.
36
TSN, Avelino Aves (on cross-examination).
37
Exhibit 2-Mullen (Supplementary Report on the fire on board Superferry 3).
38
Far Eastern Shipping Company v. CA, 357 Phil. 703 (1998).
40
Ms. Aini Ling, WG&As fire expert, specifically testified:
"Sir, if there is no life jacket, of course, there is no ignition of life jackets. x x x
That doesnt mean that they (sic) might not be a fire, your Honor, because there are other combustible materials
in the ceiling void." (TSN, May 21, 2002, pp. 319-320, as quoted in the CIAC Decision, p. 38).
41
The pertinent testimony of Dr. Eric Mullen, The Yards fire expert, is as follows:
ATTY. LOMBOS:
Now, you also heard Ms. Ling say that even if she concedes that the removal of the life jackets from under the
ceiling void would have made the most likely source of the fire, ah, would have eliminated the most likely source
of the fire, her opinion was still that there was a possibility of fire from say, wires or the ceiling material which was
plywood she says on top of the Formica. Do you have any views regarding that?
DR. MULLEN:
In so far as my mechanism, which I firmly believe to be the case that the material fell through the holes, it would
have made that much difference. Because you have the life jackets would ignite easily, the ceiling itself would
ignite easily because the material that is falling down is very incendive (sic) and in some cases has flames on
them. So, it wouldnt have made that much difference had the life jackets been removed, there was still
possibility for fire. (TSN, May 23, 2002, pp. 132-133, as quoted in the CIAC Decision, p. 38-39).
42
This fact was admitted during cross-examination by Geoff Phoon, The Yards president, who testified in this
wise:
ATTY. LIM:
Q Did you require the vessel to take out the life jackets and put them somewhere else or some place else on
board or on shore?
MR. PHOON:
A We dont touch the ship property.
Q You, in fact, did not require that?
A It belongs to the ship, You asked me do I require, I said it belongs to the ship.
Q Up to now you do not require despite
A We dont touch any item unless it is in the way of the work. (TSN, May 22, 2002, pp. 54-55).
43
Garcia, Jr. v. Salvador, G.R. No. 168512, March 20, 2007, 518 SCRA 568.
44
Lapanday Agricultural and Development Corporation (LADECO) v. Angala, G.R. No. 153076, June 21, 2007,
525 SCRA 229.
45
Mercury Drug Corporation v. Huang, G.R. No. 172122, June 22, 2007, 525 SCRA 427.
46
47
KCSIs Petition, pp. 31-32, Rollo (G.R. Nos. 180880-81), pp. 368-369.
48
Lorenzo Shipping Corp. v. Chubb and Sons, Inc., G.R. No. 147724, June 8, 2004, 431 SCRA 266.
49
PHILAMGEN v. Court of Appeals, 339 Phil. 455 (1997).
50
Exhibit "E-Bello," pp. 3-4.
51
ACI Philippines, Inc. v. Coquia, G.R. No. 174466, July 14, 2008, 558 SCRA 300; Development Bank of the
Philippines v. Perez, G.R. No. 148541, November 11, 2004, 442 SCRA 238.
52
Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No. 176246, February 13,
2009.
53
Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc., G.R. No. 132607, May 5, 1999, 306 SCRA
762, 781.
54
Id. at 780.
55
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
----------
FIRST DIVISION
128
G.R. No. 171406 April 4, 2011
ASIAN TERMINALS, INC., Petitioner,

vs.
MALAYAN INSURANCE, CO., INC., Respondent.
DECISION
DEL CASTILLO, J.:
Once the insurer pays the insured, equity demands reimbursement as no one should benefit at the
expense of another.
1
This Petition for Review on Certiorari under Rule 45 of the Rules of Court assails the July 14, 2005
2 3
Decision and the February 14, 2006 Resolution of the Court of Appeals (CA) in CA G.R. CV No. 61798.
Factual Antecedents
On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV "Jinlian I"
60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) from China to Manila. 4 The
shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan Insurance
Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by
Tianjin Navigation Company with Philippine Banking Corporation as the consignee and Chemphil Albright
and Wilson Corporation as the notify party.5
On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila, 6 the stevedores of
petitioner Asian Terminals, Inc., a duly registered domestic corporation engaged in providing arrastre and
stevedoring services,7 unloaded the 60,000 bags of soda ash dense from the vessel and brought them to
the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the
Bureau of Customs and delivery to the consignee.8 When the unloading of the bags was completed on
November 28, 1995, 2,702 bags were found to be in bad order condition.9
On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC
Customs Brokerage for transport and delivery to the consignee.10 On December 28, 1995, after all the
bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order
condition due to spillage, caking, and hardening of the contents.11
On April 19, 1996, respondent, as insurer, paid the value of the lost/ damaged cargoes to the consignee
in the amount of P643,600.25.12
Ruling of the Regional Trial Court
On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court
13
(RTC) of Manila, Branch 35, a Complaint for damages against petitioner, the shipper Inchcape Shipping
Services, and the cargo broker MEC Customs Brokerage.14
After the filing of the Answers,15 trial ensued.
On June 26, 1998, the RTC rendered a Decision16 finding petitioner liable for the damage/loss sustained
by the shipment but absolving the other defendants. The RTC found that the proximate cause of the
damage/loss was the negligence of petitioners stevedores who handled the unloading of the cargoes
17
from the vessel. The RTC emphasized that despite the admonitions of Marine Cargo Surveyors Edgar
Liceralde and Redentor Antonio not to use steel hooks in retrieving and picking-up the bags, petitioners
129
18
stevedores continued to use such tools, which pierced the bags and caused the spillage. The RTC,
thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles
217619 and 2180 paragraph (4)20 of the Civil Code.21 Hence, the dispositive portion of the Decision reads:
WHEREFORE, judgment is rendered ordering defendant Asian Terminal, Inc. to pay

plaintiff Malayan Insurance Company, Inc. the sum of P643,600.25 plus interest thereon
at legal rate computed from November 20, 1996, the date the Complaint was filed, until
the principal obligation is fully paid, and the costs.
The complaint of the plaintiff against defendants Inchcape Shipping Services and MEC
Customs Brokerage, and the counterclaims of said defendants against the plaintiff are
dismissed.
SO ORDERED.22
Aggrieved, petitioner appealed23 to the CA but the appeal was denied. In its July 14, 2005 Decision, the
CA agreed with the RTC that the damage/loss was caused by the negligence of petitioners stevedores in
handling and storing the subject shipment.24 The CA likewise rejected petitioners assertion that it
received the subject shipment in bad order condition as this was belied by Marine Cargo Surveyors
Redentor Antonio and Edgar Liceralde, who both testified that the actual counting of bad order bags was
done only after all the bags were unloaded from the vessel and that the Turn Over Survey of Bad Order
Cargoes (TOSBOC) upon which petitioner anchors its defense was prepared only on November 28, 1995
or after the unloading of the bags was completed.25 Thus, the CA disposed of the appeal as follows:
WHEREFORE, premises considered, the appeal is DENIED. The assailed Decision

dated June 26, 1998 of the Regional Trial Court of Manila, Branch 35, in Civil Case No.
96-80945 is hereby AFFIRMED in all respects.
SO ORDERED.26
Petitioner moved for reconsideration27 but the CA denied the same in a Resolution28
dated February 14, 2006 for lack of merit.
Issues
Hence, the present recourse, petitioner contending that:
1. RESPONDENT-INSURER IS NOT ENTITLED TO THE RELIEF GRANTED AS IT

FAILED TO ESTABLISH ITS CAUSE OF ACTION AGAINST HEREIN PETITIONER
SINCE, AS THE ALLEGED SUBROGEE, IT NEVER PRESENTED ANY VALID,
EXISTING, ENFORCEABLE INSURANCE POLICY OR ANY COPY THEREOF IN
COURT.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IT OVERLOOKED THE

FACT THAT THE TOSBOC & RESBOC WERE ADOPTED AS COMMON EXHIBITS BY
BOTH PETITIONER AND RESPONDENT.
3. CONTRARY TO TESTIMONIAL EVIDENCE ON RECORD, VARIOUS

DOCUMENTATIONS WOULD POINT TO THE VESSELS LIABILITY AS THERE IS, IN
THIS INSTANT CASE, AN OVERWHELMING DOCUMENTARY EVIDENCE TO PROVE
130
THAT THE DAMAGE IN QUESTION WERE SUSTAINED WHEN THE SHIPMENT WAS
IN THE CUSTODY OF THE VESSEL.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT ADJUDGED HEREIN

DEFENDANT LIABLE DUE TO [THE] FACT THAT THE TURN OVER SURVEY OF BAD
ORDER CARGOES (TOSBOC) WAS PREPARED ONLY AFTER THE COMPLETION
OF THE DISCHARGING OPERATIONS OR ON NOVEMBER 28, 1995. THUS,
CONCLUDING THAT DAMAGE TO THE CARGOES WAS DUE TO THE IMPROPER
HANDLING THEREOF BY ATI STEVEDORES.
5. THE HONORABLE COURT OF APPEALS ERRED IN NOT TAKING JUDICIAL

NOTICE OF THE CONTRACT FOR CARGO HANDLING SERVICES BETWEEN PPA
AND ATI AND APPLYING THE PERTINENT PROVISIONS THEREOF AS REGARDS
ATIS LIABILITY.29
In sum, the issues are: (1) whether the non-presentation of the insurance contract or
policy is fatal to respondents cause of action; (2) whether the proximate cause of the
damage/loss to the shipment was the negligence of petitioners stevedores; and (3)
whether the court can take judicial notice of the Management Contract between petitioner
and the Philippine Ports Authority (PPA) in determining petitioners liability.
Petitioners Arguments
Petitioner contends that respondent has no cause of action because it failed to present the insurance
contract or policy covering the subject shipment.30 Petitioner argues that the Subrogation Receipt
presented by respondent is not sufficient to prove that the subject shipment was insured and that
respondent was validly subrogated to the rights of the consignee.31 Thus, petitioner submits that without
proof of a valid subrogation, respondent is not entitled to any reimbursement.32
Petitioner likewise puts in issue the finding of the RTC, which was affirmed by the CA, that the proximate
cause of the damage/loss to the shipment was the negligence of petitioners stevedores.33 Petitioner
avers that such finding is contrary to the documentary evidence, i.e., the TOSBOC, the Request for Bad
Order Survey (RESBOC) and the Report of Survey.34 According to petitioner, these documents prove that
it received the subject shipment in bad order condition and that no additional damage was sustained by
the subject shipment under its custody.35 Petitioner asserts that although the TOSBOC was prepared only
after all the bags were unloaded by petitioners stevedores, this does not mean that the damage/loss was
caused by its stevedores.36
Petitioner also claims that the amount of damages should not be more than P5,000.00, pursuant to its
Management Contract for cargo handling services with the PPA.37 Petitioner contends that the CA should
have taken judicial notice of the said contract since it is an official act of an executive department subject
to judicial cognizance.38
Respondents Arguments
Respondent, on the other hand, argues that the non-presentation of the insurance contract or policy was
39
not raised in the trial court. Thus, it cannot be raised for the first time on appeal. Respondent likewise
40
contends that under prevailing jurisprudence, presentation of the insurance policy is not indispensable.
Moreover, with or without the insurance contract or policy, respondent claims that it should be allowed to
recover under Article 123641 of the Civil Code.42 Respondent further avers that "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, equity and good conscience ought
to pay."43
131
Respondent likewise maintains that the RTC and the CA correctly found that the damage/loss sustained
44
by the subject shipment was caused by the negligent acts of petitioners stevedores. Such factual
findings of the RTC, affirmed by the CA, are conclusive and should no longer be disturbed. 45 In fact,
46
under Section 1 of Rule 45 of the Rules of Court, only questions of law may be raised in a petition for
review on certiorari.47
As to the Management Contract for cargo handling services, respondent contends that this is outside the
operation of judicial notice.48 And even if it is not, petitioners liability cannot be limited by it since it is a
49
contract of adhesion.
Our Ruling
The petition is bereft of merit.
Non-presentation of the insurance contract or policy is not fatal in the instant case
Petitioner claims that respondents non-presentation of the insurance contract or policy between the
respondent and the consignee is fatal to its cause of action.
We do not agree.
First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed
upon by the parties to be resolved during the pre-trial.50 As we have said, "the determination of issues
during the pre-trial conference bars the consideration of other questions, whether during trial or on
appeal."51 Thus, "[t]he parties must disclose during pre-trial all issues they intend to raise during the trial,
except those involving privileged or impeaching matters. x x x The basis of the rule is simple. Petitioners
are bound by the delimitation of the issues during the pre-trial because they themselves agreed to the
same."52
Neither was this issue raised on appeal.53 Basic is the rule that "issues or grounds not raised below
cannot be resolved on review by the Supreme Court, for to allow the parties to raise new issues is
antithetical to the sporting idea of fair play, justice and due process."54
Besides, non-presentation of the insurance contract or policy is not necessarily fatal. 55 In Delsan
Transport Lines, Inc. v. Court of Appeals,56 we ruled that:
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.
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v. CA
(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
132
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.57 (Emphasis supplied.)
In International Container Terminal Services, Inc. v. FGU Insurance Corporation, 58 we used the same line
of reasoning in upholding the Decision of the CA finding the arrastre contractor liable for the lost shipment
despite the failure of the insurance company to offer in evidence the insurance contract or policy. We
explained:
Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before
the trial court or even belatedly before the appellate court. In Malayan Insurance Co., Inc. v. Regis
Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary, as
the issues raised therein arose from the very existence of an insurance contract between Malayan
Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines
Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract
must be presented in evidence in order to determine the extent of the coverage. This was also the ruling
of the Court in Home Insurance Corporation v. Court of Appeals.
of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss
of the cargo undoubtedly occurred while on board the petitioners vessel, unlike in Home Insurance in
As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioners
and they have themselves been incorporated in the records of the case.59
Similarly, in this case, the presentation of the insurance contract or policy was not necessary. Although
petitioner objected to the admission of the Subrogation Receipt in its Comment to respondents formal
60
offer of evidence on the ground that respondent failed to present the insurance contract or policy, a
61 62
perusal of petitioners Answer and Pre-Trial Brief shows that petitioner never questioned respondents
right to subrogation, nor did it dispute the coverage of the insurance contract or policy. Since there was
no issue regarding the validity of the insurance contract or policy, or any provision thereof, respondent
had no reason to present the insurance contract or policy as evidence during the trial.
Factual findings of the CA, affirming the RTC, are conclusive and binding
Petitioners attempt to absolve itself from liability must likewise fail.
Only questions of law are allowed in petitions for review on certiorari under Rule 45 of the Rules of Court.
Thus, it is not our duty "to review, examine, and evaluate or weigh all over again the probative value of
63
the evidence presented," especially where the findings of both the trial court and the appellate court
64
coincide on the matter. As we have often said, factual findings of the CA affirming those of the RTC are
conclusive and binding, except in the following cases: "(1) when the inference made is manifestly
mistaken, absurd or impossible; (2) when there is grave abuse of discretion; (3) when the findings are
grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the [CA] is based
on misapprehension of facts; (5) when 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) when the findings of
133
fact are conclusions without citation of specific evidence on which they are based; (7) when the [CA]
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered,
would justify a different conclusion; and (8) when the findings of fact of the [CA] are premised on the
65
absence of evidence and are contradicted by the evidence on record." None of these are availing in the
present case.
Both the RTC and the CA found the negligence of petitioners stevedores to be the proximate cause of
the damage/loss to the shipment. In disregarding the contention of petitioner that such finding is contrary
to the documentary evidence, the CA had this to say:
ATI, however, contends that the finding of the trial court was contrary to the documentary evidence of
record, particularly, the Turn Over Survey of Bad Order Cargoes dated November 28, 1995, which was
executed prior to the turn-over of the cargo by the carrier to the arrastre operator ATI, and which showed
that the shipment already contained 2,702 damaged bags.
We are not persuaded.
Contrary to ATIs assertion, witness Redentor Antonio, marine cargo surveyor of Inchcape for the
vessel Jinlian I which arrived on November 21, 1995 and up to completion of discharging on November
28, 1995, testified that it was only after all the bags were unloaded from the vessel that the actual
counting of bad order bags was made, thus:
xxxx
The above testimony of Redentor Antonio was corroborated by Edgar Liceralde,

marine cargo surveyor connected with SMS Average Surveyors and Adjusters, Inc., the
company requested by consignee Chemphil Albright and Wilson Corporation to provide
superintendence, report the condition and determine the final outturn of quantity/weight of
the subject shipment. x x x
xxxx
Defendant-appellant ATI, for its part, presented its claim officer as witness who testified that a survey was
conducted by the shipping company and ATI before the shipment was turned over to the possession of
ATI and that the Turn Over Survey of Bad Order Cargoes was prepared by ATIs Bad Order (BO)
Inspector.
Considering that the shipment arrived on November 21, 1998 and the unloading operation
commenced on said date and was completed on November 26, 1998, while the Turn Over Survey
of Bad Order Cargoes, reflecting a figure of 2,702 damaged bags, was prepared and signed on
November 28, 1998 by ATIs BO Inspector and co-signed by a representative of the shipping company,
the trial courts finding that the damage to the cargoes was due to the improper handling thereof
by ATIs stevedores cannot be said to be without substantial support from the records.
We thus see no cogent reason to depart from the ruling of the trial court that ATI should be made liable
for the 2,702 bags of damaged shipment. Needless to state, it is hornbook doctrine that the assessment
of witnesses and their testimonies is a matter best undertaken by the trial court, which had the opportunity
to observe the demeanor, conduct or attitude of the witnesses. The findings of the trial court on this point
are accorded great respect and will not be reversed on appeal, unless it overlooked substantial facts and
circumstances which, if considered, would materially affect the result of the case.
We also find ATI liable for the additional 179 damaged bags discovered upon delivery of the shipment at
the consignees warehouse in Pasig. The final Report of Survey executed by SMS Average Surveyors &
134
Adjusters, Inc., and independent surveyor hired by the consignee, shows that the subject shipment
incurred a total of 2881 damaged bags.
The Report states that the withdrawal and delivery of the shipment took about ninety-five (95) trips from
November 29, 1995 to December 28, 1995 and it was upon completion of the delivery to consignees
warehouse where the final count of 2881 damaged bags was made. The damage consisted of torn/bad
order condition of the bags due to spillages and caked/hardened portions.
We agree with the trial court that the damage to the shipment was caused by the negligence of ATIs
stevedores and for which ATI is liable under Articles 2180 and 2176 of the Civil Code. The proximate
cause of the damage (i.e., torn bags, spillage of contents and caked/hardened portions of the contents)
was the improper handling of the cargoes by ATIs stevedores, x x x
xxxx
ATI has not satisfactorily rebutted plaintiff-appellees evidence on the negligence of ATIs stevedores in
the handling and safekeeping of the cargoes. x x x
xxxx
We find no reason to disagree with the trial courts conclusion. Indeed, from the nature of the [damage]
caused to the shipment, i.e., torn bags, spillage of contents and hardened or caked portions of the
contents, it is not difficult to see that the damage caused was due to the negligence of ATIs stevedores
who used steel hooks to retrieve the bags from the higher portions of the piles thereby piercing the bags
and spilling their contents, and who piled the bags in the open storage area of ATI with insufficient cover
thereby exposing them to the elements and [causing] the contents to cake or harden.66
Clearly, the finding of negligence on the part of petitioners stevedores is supported by both testimonial
and documentary evidence. Hence, we see no reason to disturb the same.
Judicial notice does not apply
Finally, petitioner implores us to take judicial notice of Section 7.01, 67 Article VII of the Management
Contract for cargo handling services it entered with the PPA, which limits petitioners liability to P5,000.00
per package.
Unfortunately for the petitioner, it cannot avail of judicial notice.
Sections 1 and 2 of Rule 129 of the Rules of Court provide that:
SECTION 1. Judicial notice, when mandatory. A court shall take judicial notice, without
the introduction of evidence, of the existence and territorial extent of states, their political
history, forms of government and symbols of nationality, the law of nations, the admiralty
and maritime courts of the world and their seals, the political constitution and history of
the Philippines, the official acts of the legislative, executive and judicial departments of
the Philippines, the laws of nature, the measure of time, and the geographical
divisions.1avvphi1
SEC. 2. Judicial notice, when discretionary. A court may take judicial notice of matters
which are of public knowledge, or are capable of unquestionable demonstration or ought
to be known to judges because of their judicial functions.
135
The Management Contract entered into by petitioner and the PPA is clearly not among the matters which
the courts can take judicial notice of. It cannot be considered an official act of the executive department.
The PPA, which was created by virtue of Presidential Decree No. 857, as amended,68 is a government-
69
owned and controlled corporation in charge of administering the ports in the country. Obviously, the
PPA was only performing a proprietary function when it entered into a Management Contract with
petitioner. As such, judicial notice cannot be applied.
WHEREFORE, the petition is hereby DENIED. The assailed July 14, 2005 Decision and the February 14,
2006 Resolution of the Court of Appeals in CA-G.R. CV No. 61798 are hereby AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
PRESBITERO J. VELASCO, JR. TERESITA J. LEONARDO-DE CASTRO

JOSE PORTUGAL PEREZ

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
Footnotes
1
Rollo, pp. 8-149, with Annexes "A" to "M" inclusive.
2
Id. at 26-37; penned by Associate Justice Rosalinda Asuncion-Vicente and concurred in by Associate Justices
Godardo A. Jacinto and Bienvenido L. Reyes.
3
Id. at 46-47.
4
Id. at 27.
5
Id.
6
Records, p. 134.
7
Rollo, p. 9.
8
9
Rollo, p. 28.
10
11
Id.
12
Rollo, p. 28.
13
Id. at 49-55.
14
Id. at 28.
15
Records, pp. 19-23, 24-30, and 31-35.
16
Rollo, pp. 38-44; penned by Judge Ramon P. Makasiar.
136
17
Id. at 39.
18
Id. at 39-43.
19
Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the
parties, is called a quasi-delict and is governed by the provisions of this Chapter.
20
Art. 2180. The obligation imposed by article 2176 is demandable not only for ones own acts or omissions, but
also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.
xxxx
21
Rollo, p. 43.
22
Id. at 44.
23
Id. at 115-136.
24
Id. at 36.
25
Id. at 30-34.
26
Id. at 36.
27
Id. at 137-148.
28
Id. at 47.
29
Id. at 261.
30
Id. at 262-268.
31
Id. at 262.
32
Id. at 268.
33
Id. at 270.
34
Id. at 268-286.
35
Id.
36
Id. at 283-286.
37
Id. at 290.
38
Id.
39
Id. at 247.
40
Id. at 250.
41
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to
the debtor.
42
Rollo, p. 251-252.
43
Id. at 253.
44
Id. at 242-244.
45
Id. at 241.
46
Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment,
final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial
Court or other courts, whenever authorized by law, may file with the Supreme Court a verified petition for review
on certiorari. The petition may include an application for a writ of preliminary injunction or other provisional
remedies and shall raise only questions of law, which must be distinctly set forth. The petitioner may seek the
same provisional remedies by verified motion filed in the same action or proceeding at any time during its
pendency.
47
Rollo, pp. 245-246.
48
Id. at 238-240.
49
Id. at 240-241.
50
III. ISSUES
1. Whether x x x the defendants are liable to pay the plaintiff the amount of US$456,000.00 representing the
amount which plaintiff paid to the consignee;
2. What is the extent of the damages sustained by the subject shipment?
3. Which of the defendants is liable to plaintiff for the alleged damages and the extent of liability?
4. Is the package limitation contract applicable in the instant case?
5. Under the Carriage of Goods by Sea [Act] (COGSA), is defendant Inchcape exempted from damages by virtue
of the defense like insufficient packing, the very nature of the shipment.
6. Is the defendant Inchcape liable for any damage which may have arisen after the cargo was discharged from
the vessels hold or ships docket in the case of Ludo v. Binamira, 101 Phil. 120;
7. Whether x x x defendant MEC broker had something to do with the unloading of the cargo from the carrier up
to the terminal;
137
8. Whether x x x defendant MEC had any participation in the unloading of the cargo to the warehouse or the
place of the consignee;
9. Whether x x x the alleged loss or damages to the cargo occurred while the shipper was in transit or after it was
unloaded from the carrier;
10. Whether x x x defendants ATI, Inchcape and MEC are entitled to any form of damages, specifically the
attorneys fees. (Id. at 66-67).
51
Villanueva v. Court of Appeals, 471 Phil. 394, 406 (2004).
52
Id. at 407.
53
Rollo, p. 121.
54
Cuenco v. Talisay Tourist Sports Complex, Incorporated, G.R. No. 174154, July 30, 2009, 594 SCRA 396,
399-400.
55
Eastern Shipping Lines, Inc. v. Prudential Guarantee and Assurance, Inc., G.R. No. 174116, September 11,
2009, 599 SCRA 565, 581.
56
420 Phil. 824. (2001).
57
Id. at 835-836.
58
G.R. No. 161539, June 27, 2008, 556 SCRA 194.
59
Id. at 203-204.
60
Rollo, p. 208.
61
SPECIAL AND AFFIRMATIVE DEFENSES
1. Defendant ATI, by way of Special and Affirmative Defenses, reiterates and repleads all the foregoing.
2. Plaintiff has no cause of action against defendant ATI because the latter was not negligent in the performance
of its duty as an arrastre operator.
3. As evidenced by the Turn Over Survey of Bad Order Cargoes, the subject shipment arrived and was
discharged unto the custody of defendant ATI in bad order condition.
4. The subject shipment was released/withdrawn from the custody of defendant ATI in exactly the same quantity
and condition as when discharged from the carrying vessel. Hence, any alleged loss or damage is no longer the
liability of defendant ATI.
5. Under Section 7.01 of Article VII of the Management Contract between the Philippine Port[s] Authority and
defendant ATI (formerly Manila Ports Services, Inc.), the liability of the latter in case of loss, damage or non-
delivery of cargoes in its custody and control shall be limited to PESOS FIVE THOUSAND ONLY (P5,000.00).
(Id. at 57).
62
IV. ISSUES
ATI submits that the issues to be resolved by this Honorable Court are the following:
1. What is the extent of the damages sustained by the subject shipment?
2. Which of the defendants is liable for the damages?
3. Assuming that ATI is liable for the damages up to how much may it be held liable? (Records, p. 42)
63
Puno v. Puno Enterprises, Inc., G.R. No. 177066, September 11, 2009, 599 SCRA 585, 590.
64
Dueas v. Guce-Africa, G.R. No. 165679, October 5, 2009, 603 SCRA 11, 20.
65
Id. at 20-21.
66
Rollo, pp. 30-36.
67
Section 7.01 Responsibility and Liability for Losses and Damages; Exceptions The Contractor shall, at its
own expense, handle all merchandise in all work undertaken by it hereunder, diligently and in a skillful, workman-
like and efficient manner. The Contractor shall be solely responsible as an independent contractor, and hereby
agrees to accept liability and to pay to the shipping company, consignees, consignors or other interested party or
parties for the loss, damage or non-delivery of cargoes in its custody and control to the extent of the actual
invoice value of each package which in no case shall be more than FIVE THOUSAND PESOS (P5,000.00) each,
unless the value of the cargo shipment is otherwise specified or manifested or communicated in writing together
with the declared Bill of Lading value and supported by a certified packing list to the Contractor by the interested
party or parties before the discharge or loading unto vessel of the goods.
xxx
68
Revised Charter of the Philippine Ports Authority. Promulgated on December 23, 1975.
69
SECTION 6. Corporate Powers and Duties.
a) The corporate duties of the Authority shall be:
xxxx
(ii) To supervise, control, regulate, construct, maintain, operate, and provide such facilities or services as are
necessary in the ports vested in, or belonging to the Authority.
xxxx
b) The corporate powers of the Authority shall be as follows:
xxxx
(vi) To make or enter [into] contracts of any kind or nature to enable it to discharge its functions under this
Decree.
xxxx
138
VII. NOTICE OF CLAIM
South Sea Surety and Insurance Co., Inc. vs. Court of Appeals and Valenzuela Hardwood
and Industrial Supply, Inc., G.R. No. 136888 June 29, 2005
The object sought to be attained by the requirement of the submission of claims in pursuance of
this article (Article 366 of the Code of Commerce) is to compel the consignee of goods entrusted
to a carrier to make prompt demand for settlement of alleged damages suffered by the goods
while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery
or within twenty-four hours thereafter, and if necessary fix responsibility and secure evidence as
to the nature and extent of the alleged damages to the goods while the matter is still fresh in the
minds of the parties.
----------
SECOND DIVISION
G.R. No. 136888 June 29, 2005
PHILIPPINE CHARTER INSURANCE CORPORATION, petitioner,

vs.
CHEMOIL LIGHTERAGE CORPORATION, respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals1 in CA-
G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set aside the decision of the
Regional Trial Court (RTC),2 Branch 16, City of Manila, which ordered herein respondent to pay the
petitioners claim in the amount of P5,000,000.00 with legal interest from the date of the filing of the
complaint.
THE FACTS
Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of
non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged
in the transport of goods.
On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06
metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT "TACHIBANA" which was
valued at US$90,201.57 under Bill of Lading No. ULS/MNL-13 and another 436.70 metric tons of DOP
valued at US$634,724.89 under Bill of Lading No. ULS/MNL-24 to the Philippines. The consignee was
Plastic Group Phils., Inc. (PGP) in Manila.
PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks.
The insurance was under Marine Policies No. MRN-307215 dated 06 February 1991 for P31,757,969.19
139
6 7
and No. MRN-30722 for P4,514,881.00. Marine Endorsement No. 2786 dated 11 May 1991 was
attached and formed part of MRN-30721, amending the latters insured value to P24,667,422.03, and
reduced the premium accordingly.
The ocean tanker MT "TACHIBANA" unloaded the cargo to Tanker Barge LB-1011 of respondent
Chemoil Lighterage Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker
Barge LB-1011 would unload the cargo to tanker trucks, also owned by the respondent, and haul it by
land to PGPs storage tanks in Calamba, Laguna.
Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to
amber, demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter
to the petitioner dated 18 February 19918 where it formally made an insurance claim for the loss it
sustained due to the contamination.
The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to
conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report, 9
part of which states:
As unloading progressed, it was observed on February 14, 1991 that DOP samples taken
were discolored from yellowish to amber. Inspection of cargo tanks showed manhole
covers of ballast tanks ceilings loosely secured. Furthermore, it was noted that the
rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical
causing shrinkage thus, loosening the covers and cargo ingress to the rusty ballast
tanks10
On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.0011 as full and final payment for the
loss. PGP issued a Subrogation Receipt to the petitioner.
Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for
the latters services, as evidenced by Official Receipt No. 1274. 12
On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-
carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No. 91-57923.13 The petitioner
prayed for actual damages in the amount of P5,000,000.00, attorneys fees in the amount of no less than
P1,000,000.00, and costs of suit.
An Answer with Compulsory Counterclaim14 was filed by the respondent on 05 September 1991. The
respondent admitted it undertook to transport the consignees shipment from MT "TACHIBANA" to the Del
Pan Bridge, Pasig River, where it was transferred to its tanker trucks for hauling to PGPs storage tanks in
Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-1011), the
surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same
clean, dry, and fit for loading. The entire loading and unloading of the shipment were also done under the
control and supervision of PGPs surveyor/representative. It was also mentioned by the respondent that
the contract between it and PGP expressly stipulated that it shall be free from any and all claims arising
from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any
protest or notice; and that the cargo shall be insured by its owner sans recourse against all risks. As
subrogee, the petitioner was bound by this stipulation. As carrier, no fault and negligence can be
15
attributed against respondent as it exercised extraordinary diligence in handling the cargo.
After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which
reads:
140
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of
plaintiff ordering defendant to pay plaintiffs claim of P5,000,000.00 with legal interest
from the date of the filing of the complaint. The counterclaims are DISMISSED. 16
Aggrieved by the trial courts decision, the respondent sought relief with the Court of Appeals where it
alleged in the main that PGP failed to file any notice, claim or protest within the period required by Article
366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against
the carrier.17 A telephone call which was supposedly made by a certain Alfred Chan, an employee of
PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the
notice required by Article 366 of the Code of Commerce.18
On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the
dispositive portion of which reads:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and
a new one is entered dismissing the complaint.19
A petition for review on certiorari20 was filed by the petitioner with this Court, praying that the decision of
the trial court be affirmed.
After the respondent filed its Comment21 and the petitioner filed its Reply22 thereto, this Court issued a
Resolution23 on 18 August 1999, giving due course to the petition.
ASSIGNMENT OF ERRORS
The petitioner assigns as errors the following:
THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT
FILED WITHIN THE REQUIRED PERIOD.
II
THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO
WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL.
III
THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURTS DECISION
24
AND IN DISMISSING THE COMPLAINT.
ISSUES
Synthesized, the issues that must be addressed by this Court are:
WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the
answer is in the affirmative,
II
141
WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF
THE RESPONDENT.
THE COURTS RULINGS
Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law
imparts:
Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may
be made against the carrier on account of damage or average found upon opening the
packages, provided that the indications of the damage or average giving rise to the claim
cannot be ascertained from the exterior of said packages, in which case said claim shall
only be admitted at the time of the receipt of the packages.
After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim
whatsoever shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.
As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan,
an employee of PGP, to Ms. Encarnacion Abastillas, Vice President for Administration and Operations of
the respondent, at the time of the delivery of the cargo, and therefore, within the required period. 25 This
was done by telephone.
The respondent, however, claims that the supposed notice given by PGP over the telephone was denied
by Ms. Abastillas. Between the testimonies of Alfredo Chan and Encarnacion Abastillas, the latters
testimony is purportedly more credible because it would be quite unbelievable and contrary to business
practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of pesos. 26
On this point, the Court of Appeals declared:
. . . We are inclined to sustain the view that a telephone call made to defendant-company
could constitute substantial compliance with the requirement of notice considering that
the notice was given to a responsible official, the Vice-President, who promptly replied
that she will look into the matter. However, it must be pointed out that compliance with
the period for filing notice is an essential part of the requirement, i.e.. immediately if the
damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the
clear import being that prompt examination of the goods must be made to ascertain
damage if this is not immediately apparent. We have examined the evidence, and We are
unable to find any proof of compliance with the required period, which is fatal to the
accrual of the right of action against the carrier.27
The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the
Court of Appeals, the former allegedly holding that the period to file the notice had been complied with,
while the latter held otherwise.
We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of
the Code of Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding
of fact of the trial court. Both courts held that, indeed, a telephone call was made by Alfredo Chan to
Encarnacion Abastillas, informing the latter of the contamination. However, nothing in the trial courts
decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or
within a period of twenty-four hours from the time the goods were received. The Court of Appeals made
the same finding. Having examined the entire records of the case, we cannot find a shred of evidence
that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed.
142
The allegation of the petitioner that not only the Vice President of the respondent was informed, but also
its drivers, as testified by Alfredo Chan, during the time that the delivery was actually being made, cannot
be given great weight as no driver was presented to the witness stand to prove this. Part of the testimony
of Alfredo Chan is revealing:
Q:
Mr. Witness, were you in your plant site at the time these various cargoes were
delivered?
A: No, sir.
Q: So, do you have a first hand knowledge that your plant representative informed the
driver of the alleged contamination?
A: What do you mean by that?
Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver?
A: No, sir.28
From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal
knowledge that the drivers of the respondent were informed of the contamination.
The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code
of Commerce is not an empty or worthless proviso. In a case, we held:
The object sought to be attained by the requirement of the submission of claims in

pursuance of this article is to compel the consignee of goods entrusted to a carrier to
make prompt demand for settlement of alleged damages suffered by the goods while in
transport, so that the carrier will be enabled to verify all such claims at the time of delivery
or within twenty-four hours thereafter, and if necessary fix responsibility and secure
evidence as to the nature and extent of the alleged damages to the goods while the
matter is still fresh in the minds of the parties.29
In another case, we ruled, thus:
More particularly, where the contract of shipment contains a reasonable requirement of

giving notice of loss of or injury to the goods, the giving of such notice is a condition
precedent to the action for loss or injury or the right to enforce the carriers liability. Such
requirement is not an empty formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the
shipment has been damaged and that it is charged with liability therefore, and to give it
an opportunity to examine the nature and extent of the injury. This protects the carrier by
affording it an opportunity to make an investigation of a claim while the matter is fresh
30
and easily investigated so as to safeguard itself from false and fraudulent claims.
The filing of a claim with the carrier within the time limitation therefore actually constitutes a condition
precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The
shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of
143
action against the carrier can accrue in favor of the former. The aforementioned requirement is a
reasonable condition precedent; it does not constitute a limitation of action. 31
The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the
period to make a claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly
be admitted after the transportation charges have been paid.
In this case, there is no question that the transportation charges have been paid, as admitted by the
petitioner, and the corresponding official receipt32 duly issued. But the petitioner is of the view that the
payment for services does not invalidate its claim. It contends that under the second paragraph of Article
366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment of
services, claim against the bad order condition of the cargo is allowed.
We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of
claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioners
contention proceeds from a false presupposition that the notice of claim was timely filed.
Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a
resolution on the second issue.
WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December
1998, which reversed and set aside the decision of the trial court, is hereby AFFIRMED in toto. No
pronouncement as to costs.
SO ORDERED.
Footnotes
1
Rollo, pp. 20-29; Penned by Associate Justice Minerva P. Gonzaga-Reyes with Associate Justices Godardo A.
Jacinto and Roberto A. Barrios concurring.
2
Rollo, pp. 31-38; Penned by Judge Ramon O. Santiago.
3
Plaintiffs Folder of Exhibits, p. 18.
4
Id., p. 12.
5
Id., p. 1.
6
Id., p. 5.
7
Id., p. 8.
8
Id., p. 11.
9
Id., pp. 20-23.
10
Id., p. 21.
11
Id., p. 26.
12
Defendants Folder of Exhibits, p. 62.
13
Records, pp. 1-4.
14
Records, pp. 21-30.
15
Records, p. 21.
16
Rollo, p. 38.
17
CA Rollo, p. 55.
18
19
Rollo, p. 29.
20
Rollo, pp. 3-18.
21
Rollo, pp. 45-79.
22
Rollo, pp. 83-91.
23
Rollo, p. 92.
24
Rollo, pp. 7-8.
25
Rollo, p. 9.
26
Rollo, p. 54.
144
27
Rollo, p. 25.
28
TSN, 11 April 1996, pp. 27-29.
29
Roldan v. Lim Ponzo and Co., 37 Phil. 285 (1917).
30
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., G.R. No. 87434, 05 August 1992, 212
SCRA 194, 208, citing 13 C.J.S., Carriers 537, 463, 508; 14 Am. Jur. 2d, Carriers 97; Cf. Roldan v. Lim Ponzo
and Co., Ibid.; Consunji v. Manila Port Service, et al., 110 Phil. 231 (1960).
31
Federal Express Corporation v. American Home Assurance Company, G.R. No. 150094, 18 August 2004, 437
SCRA 50, citing Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., Ibid.; Government of the
Philippine Islands v. Inchausti & Co., 24 Phil. 315 (1913); Triton Insurance Co. v. Jose, 33 Phil. 194 (1916).
32
Exhibit "5"; Supra, note 12.
145
VIII. PAYMENT OF PREMIUM
South Sea Surety and Insurance Co., Inc. vs. Court of Appeals and Valenzuela, G.R. No.
102253 June 2, 1995
The Insurance Code provides as follows:

Sec. 306. . . . Any insurance company which delivers to an insurance agent or insurance broker a
policy or contract of insurance shall be deemed to have authorized such agent or broker to
receive on its behalf payment of any premium which is due on such policy of contract of
insurance at the time of its issuance or delivery or which becomes due thereon.
----------
THIRD DIVISION
G.R. No. 102253 June 2, 1995
SOUTH SEA SURETY AND INSURANCE COMPANY, INC., petitioner,

vs.
HON. COURT OF APPEALS and VALENZUELA HARDWOOD AND INDUSTRIAL SUPPLY, INC.,
respondents.
RESOLUTION
VITUG, J.:
Two issues on the subject of insurance are raised in this petition, that assails the decision, that assails the
decision of the Court of Appeals. (in CA-G.R. NO. CV-20156), the first dealing on the requirement of
premium payment and the second relating to the agency relationship of parties under that contract.
The court litigation started when Valenzuela Hardwood and Industrial Supply, Inc. ("Hardwood"), filed with
the Regional, Trial Court of the National Capital Judicial Region, Branch l71 in Valenzuela, Metro Manila,
a complaint for the recovery of the value of lost logs and freight charges from Seven Brothers Shipping
Corporation or, to the extent of its alleged insurance cover, from South Sea Surety and insurance
Company.
The factual backdrop is described briefly by the appellate court thusly:
It appears that on 16 January 1984, plaintiff [Valenzuela Hardwood and Industrial Supply,
Inc.] entered into an agreement with the defendant Seven Brothers whereby the latter
undertook to load on board its vessel M/V Seven Ambassador the former's lauan round
logs numbering 940 at the port of Maconacon, Isabela for shipment to Manila.
146
On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with
defendant South Sea Surety and Insurance Co., Inc. for P2,000,000.00 end the latter
issued its Marine Cargo Insurance Policy No. 84/24229 for P2,000,000.00 on said date.
On 24 January 1984, the plaintiff gave the check in payment of the premium on the
insurance policy to Mr. Victorio Chua.
In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984
resulting in the loss of the plaintiffs insured logs.
On 30 January 1984, a check for P5,625.00 (Exh. "E") to cover payment of the premium
and documentary stamps due on the policy was tendered to the insurer but was not
accepted. Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance
policy it issued as of the date of inception for non-payment of the premium due in
accordance with Section 77 of the Insurance Code.
On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance
Co., Inc. the payment of the proceeds of the policy but the latter denied liability under the
policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim. 1
In its decision, dated 11 May 1988, the trial court rendered judgment in favor of plaintiff Hardwood.
On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals affirmed
the judgment of the court a quo only against the insurance corporation; in absolving the shipping entity
from liability, the appellate court ratiocinated:
The primary issue to be resolved before us is whether defendants shipping corporation

and the surety company are liable to the plaintiff for the latter's lost logs.
It appears that there is a stipulation in the charter party that the ship owner would be
exempted from liability in case of loss.
The court a quo erred in applying the provisions of the Civil Code on common carriers to
establish the liability of the shipping corporation. The provisions on common carriers
should not be applied where the carrier is not acting as such but as a private carrier.
Under American jurisprudence, a common carrier undertaking to carry a special or

chartered to a special person only, becomes a private carrier.
As a private carrier, a stipulation exempting the owner from liability even for the
negligence of its agent is valid (Home Insurance Company, Inc. vs. American Steamship
Agencies, Inc., 23 SCRA 24).
The shipping corporation should not therefore be held liable for the loss of the logs. 2
In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner
argues that it likewise should have been freed from any liability to Hardwood. It faults the appellate court
(a) for having Supposedly disregarded Section 77 of the insurance Code and (b) for holding Victorio Chua
to have been an authorized representative of the insurer.
Section 77 of the Insurance Code provides:
147
Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is
exposed to the peril insured against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance company is valid and binding
unless and until the premium thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision applies.
Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the insurance
coverage relates to life or industrial life (health) insurance when a grace period applies and (b) when the
insurer makes a written acknowledgment of the receipt of premium, this acknowledgment being declared
by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance Code). The
appellate court, contrary to what the petition suggests, did not make any pronouncement to the contrary.
Indeed, it has said:
Concerning the issue as to whether there is a valid contract of insurance between

plaintiff-appellee and defendant-appellant South Sea Surety and Insurance Co., Inc.,
Section 77 of the Insurance Code explicitly provides that notwithstanding any agreement
to the contrary, no policy issued by an insurance company is valid and binding unless
and until premium thereof has been paid. It is therefore important to determine whether at
the time of the loss, the premium was already paid. 3
No attempt becloud the issues can disguise the fact that the sole question raised in the instant petition is
really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for the insurance
premium prior to the occurrence of the risk insured against has so acted as an agent of petitioner. The
appellate court, like the trial court, has found in the affirmative. Said the appellate court:
In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by
defendant insurance company on 20 January 1984. At the time the vessel sank on 25
January 1984 resulting in the loss of the insured logs, the insured had already delivered
to Victorio Chua the check in payment of premium. But, as Victorio Chua testified, it was
only in the morning of 30 January 1984 or 5 days after the vessel sank when his
messenger tendered the check to defendant South Sea Surety and Insurance Co., Inc.
(TSN, pp. 3-27, 16-17, 22 October 1985).
The pivotal issue to be resolved to determine the liability, of the surety corporation is
whether Mr. Chua acted as an agent of the surety company or of the insured when he
received the check for insurance premiums.
Appellant surety company insists that Mr. Chua is an administrative assistant for the past
ten years and an agent for less than ten years of the Columbia Insurance Brokers, Ltd.
He is paid a salary as a administrative assistant and a commission as agent based on the
premiums he turns over to the broker. Appellant therefore argues that Mr. Chua, having
received the insurance premiums as an agent of the Columbia Insurance Broker, acted
as an agent of the insured under Section 301 of the Insurance Code which provides as
follows:
Sec. 301. Any person who for any compensation, commission or other
thing of value, acts, or aids in soliciting, negotiating or procuring the
making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself, shall be an
insurance broker within the intent of this Code, and shall thereby become
liable to all the duties requirements, liabilities and penalties to which an
insurance broker is subject.
148
The appellees, upon the other hand, claim that the second paragraph of Section 306 of
the Insurance Code provide as follows:
Sec. 306. . . . Any insurance company which delivers to an insurance

agent or insurance broker a policy or contract of insurance shall be
deemed to have authorized such agent or broker to receive on its behalf
payment of any premium which is due on such policy of contract of
insurance at the time of its issuance or delivery or which becomes due
thereon.
On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua
testified that the marine cargo insurance policy for the plaintiff's logs was delivered to him
on 21 January 1984 at his office to be delivered to the plaintiff.
When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the
marine cargo insurance policy for the plaintiffs logs, he is deemed to have been
authorized by the South Sea Surety and Insurance Co., Inc. to receive the premium
which is due on its behalf.
When therefore the insured logs were lost, the insured had already paid the premium to
an agent of the South Sea Surety and Insurance Co., Inc., which is consequently liable to
pay the insurance proceeds under the policy it issued to the insured. 4
We see no valid reason to discard the factual conclusions of the appellate court. Just as so correctly
pointed out by private respondent, it is not the function of this Court to assess and evaluate all over again
the evidence, testimonial and documentary, adduced by the parties particularly where, such as here, the
findings of both the trial court and the appellate court on the matter coincide.
WHEREFORE, the resolution, dated 01 February 1993, granting due course to the petition is
RECALLED, and the petition is DENIED. Costs against petitioner.
SO ORDERED.
Feliciano, Romero, Melo and Francisco, JJ., concur.
Footnotes
1 Rollo, pp. 39-40.
2 Rollo, p. 42.
3 Rollo. p. 42.
4 Rollo, pp. 43-44.
149
IX. PERILS OF THE SEA
Cathay Insurance Co. vs. Court of Appeals and Remington Industrial Sales Corp., G.R. No.
76145 June 30, 1987
Malayan Insurance Corporation vs. Court of Appeals and THC Marketing Corp., G.R. No.
119599 March 20, 1997
By way of a historical background, marine insurance developed as an all-risk coverage, using

the phrase "perils of the sea" to encompass the wide and varied range of risks that were
covered.
if the insurer cannot be held accountable therefor, we would fail to observe a cardinal rule in
the interpretation of contracts, namely, that any ambiguity therein should be construed against the
maker/issuer/drafter thereof, namely, the insurer.
----------
SECOND DIVISION
G.R. No. 76145 June 30, 1987
CATHAY INSURANCE CO., petitioner,

vs.
HON. COURT OF APPEALS, and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
DECISION
PARAS, J.:
This petition seeks the review of the decision of the Court of Appeals 1 in CA-G.R. CV No. 06559
affirming the decision of the Regional Trial Court (RTC), 2 National Capital Region (NCR) Manila, Branch
38 and the Resolution of the said appellate court denying petitioner's motion for reconsideration.
Originally, this was a complaint filed by private respondent corporation against petitioner (then defendant)
company seeking collection of the sum of P868,339.15 representing private respondent's losses and
damages incurred in a shipment of seamless steel pipes under an insurance contract in favor of the said
private respondent as the insured, consignee or importer of aforesaid merchandise while in transit from
Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment was
P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was
made.
The trial court decided in favor of private respondent corporation by ordering petitioner to pay it the sum
of P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel
pipes; ordering petitioner to pay private respondent interest on the aforecited amount at the rate of 34%
or double the ceiling prescribed by the Monetary Board per annum from February 3, 1982 or 90 days from
private respondent's submission of proof of loss to petitioner until paid as provided in the settlement of
150
claim provision of the policy; and ordering petitioner to pay private respondent certain amounts for marine
surveyor's fee, attorney's fees and costs of the suit.
Respondent in its comment on the petition, contends that:
1. Coverage of private respondent's loss under the insurance policy issued by petitioner is unmistakable.
2. Alleged contractual limitations contained in insurance policies are regarded with extreme caution by
courts and are to be strictly construed against the insurer; obscure phrases and exceptions should not be
allowed to defeat the very purpose for which the policy was procured.
3. Rust is not an inherent vice of the seamless steel pipes without interference of external factors.
4. No matter how petitioner might want it otherwise, the 15-day clause of the policy had been foreclosed
in the pre-trial order and it was not even raised in petitioner's answer to private respondent's complaint.
5. The decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur
during the voyage of 7 days from July 1 to July 7, 1981.
6. The alleged lack of supposed bad order survey from the arrastre capitalized on by petitioner was more
than clarified by no less than 2 witnesses.
7. The placing of notation "rusty" in the way bills is not only private respondent's right but a natural and
spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at private
respondent's bodega.
8. The Court of Appeals did not engage in any guesswork or speculation in concluding a loss allowance
of 30% in the amount of P868,339.15.
9. The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest
fixed by the Insurance Policy itself and the Insurance Code.
The petitioner however maintains that:
(1) Private respondent does not dispute the fact that, contrary to the finding of the respondent Court (the
petitioner has failed "to present any evidence of any viable exeption to the application of the policy") there
is in fact an express exeption to the application of the policy.
(2) As adverted to in the Petition for Review, private respondent has admitted that the question shipment
in not covered by a "square provision of the contract," but private respondent claims implied coverage
from the phrase "perils of the sea" mentioned in the opening sentenced of the policy.
(3) The insistence of private respondent that rusting is a peril of the sea is erroneous.
(4) Private respondent inaccurately invokes the rule of strict construction against insurer under the guise
of construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve it
against the insurer.
(5) Private respondent while impliedly admitting that a loss occasioned by an inherent defect or vice in the
insured article is not within the terms of the policy, erroneously insists that rusting is not an inherent vice
or in the nature of steel pipes.
151
(6) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some
casualty, something which could not be foreseen as one of the necessary incidents of adventure.
(7) A fact capable of unquestionable demonstration or of public knowledge needs no evidence. This fact
of unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes cannot
occur within a period of a seven (7) day voyage. Besides, petitioner had introduced the clear cargo
receipts or tally sheets indicating that there was no damage on the steel pipes during the voyage.
(8) The evidence of private respondent betrays the fact that the account of P868,339.15 awarded by the
respondent Court is founded on speculation, surmises or conjectures and the amount of less has not
been proven by competent, satisfactory and clear evidence.
We find no merit in this petition.
There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view
of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held
accountable therefor, we would fail to observe a cardinal rule in the interpretation of contracts, namely,
that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the
insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. Be it
noted that any attack of the 15-day clause in the policy was foreclosed right in the pre-trial conference.
Finally, it is a cardinal rule that save for certain exceptions, findings of facts of the appellate tribunal are
binding on us. Not one of said exceptions can apply to this case.
WHEREFORE, this petition is hereby DENIED, and the assailed decision of the Court of Appeals is
hereby AFFIRMED.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concur.
Padilla and Bidin, JJ., took no part.
Footnotes
1 Penned by CA Justices, Marcelino R. Veloso, Ponente, Porfirio V. Sison, Abdulwahid A. Bidin, Ramon B.
Britanico and Josue N. Bellosillo, concurring.
2 Penned by RTC Judge Natividad G. Adduru-Santillan.
----------
SECOND DIVISION
G.R. No. 119599 March 20, 1997
MALAYAN INSURANCE CORPORATION, petitioner,

vs.
THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.
DECISION
ROMERO, J.:
152
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. R. No.
43023 1 which affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch
15.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of
soya bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for
carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the
risk of loss by petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo policy
Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45,
both dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil
authorities arrested and detained it because of a lawsuit on a question of ownership and possession. As a
result, private respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a
formal claim for the amount of US$916,886.66, representing the dollar equivalent on the policies, for non-
delivery of the cargo. Private respondent likewise sought the assistance of petitioner on what to do with
the cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies.
Private respondent, accordingly, advised petitioner that it might tranship the cargo and requested an
extension of the insurance coverage until actual transhipment, which extension was approved upon
payment of additional premium. The insurance coverage was extended under the same terms and
conditions embodied in the original policies while in the process of making arrangements for the
transhipment of the cargo from Durban to Manila, covering the period October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric
ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of
twenty days to Manila and another twenty days for the discharge thereof. On January 5, 1990, private
respondent forthwith reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the
exchange rate of P22.0138 per $1.00) representing private respondent's loss after the proceeds of the
sale were deducted from the original claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of
ownership was an excepted risk under the marine insurance policies. This prompted private respondent
to file a complaint for damages praying that aside from its claim, it be reimbursed the amount of
P128,770.88 as legal expenses and the interest it paid for the loan it obtained to finance the shipment
totalling P942,269.30. In addition, private respondent asked for moral damages amounting to
P200,000.00, exemplary damages amounting to P200,000.00 and attorney's fees equivalent to 30% of
what will be awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the
insurance claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary
damages amounting to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is
recovered as attorney's fees as well as the costs of the suit. On private respondent's motion for
reconsideration, petitioner was also required to further pay interest at the rate of 12% per annum on all
amounts due and owing to the private respondent by virtue of the lower court decision counted from the
inception of this case until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of
Clause 12 of the policies issued to private respondent, the same became automatically covered under
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or detainments
contemplated in the former clause were those effected by political or executive acts. Losses occasioned
by riot or ordinary judicial processes were not covered therein. In other words, arrest, restraint or
detainment within the meaning of Clause 12 (or F.C. & S. Clause) rules out detention by ordinary legal
153
processes. Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted
risk under Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of
Clause 12 of the Institute Cargo Clause and the consequent adoption or institution of the Institute War
Clauses (Cargo), the arrest and seizure by judicial processes which were excluded under the former
policy became one of the covered risks.
The appellate court added that the failure to deliver the consigned goods in the port of destination is a
loss compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-
delivery Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance
2
Code and as held in Williams v. Cole.
Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port
from completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of
petitioner continued until the goods could have been transhipped. But due to the perishable nature of the
goods, it had to be promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable
and justified, it should not operate to discharge petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not
compensable since the term "arrest" refers to "political or executive acts" and does not include a loss
caused by riot or by ordinary judicial process as in this case; (b) the deletion of the Free from capture or
Seizure Clause would leave the assured covered solely for the perils specified by the wording of the
policy itself; (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate
collusion between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may have
incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary
sacrifice sale and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief
that the arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner
supported private respondent by accommodating the latter's request for an extension of the insurance
coverage, notwithstanding that it was then under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals,
petitioner did not raise as an issue the award of exemplary damages. It cannot now, for the first time,
raise the same before this Court. Likewise, petitioner cannot submit for the first time on appeal its
argument that it was wrong for the Court of Appeals to have ruled the way it did based on facts that would
need inquiry into the evidence. Even if inquiry into the facts were possible, such was not necessary
because the coverage as ruled upon by the Court of Appeals is evident from the very terms of the
policies.
It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted
against it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be
154
construed reasonably and in a manner as to make effective the intentions and expectations of the parties.
It added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package
and that it was petitioner itself that invited and granted the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies
in relation to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase
"perils of the sea" to encompass the wide and varied range of risks that were covered. 3 The subject
policies contain the "Perils" clause which is a standard form in any marine insurance policy. Said clause
reads:
Touching the adventures which the said MALAYAN INSURANCE CO., are content to
bear, and to take upon them in this voyage; they are of the Seas; Men-of-War, Fire,
Enemies, Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart,
Suprisals, Takings of the Sea, Arrests, Restraints and Detainments of all Kings, Princess
and Peoples, of what Nation, Condition, or quality soever, Barratry of the Master and
Mariners, and of all other Perils, Losses, and Misfortunes, that have come to hurt,
detriment, or damage of the said goods and merchandise or any part thereof . AND in
case of any loss or misfortune it shall be lawful to the ASSURED, their factors, servants
and assigns, to sue, labour, and travel for, in and about the defence, safeguards, and
recovery of the said goods and merchandises, and ship, & c., or any part thereof, without
prejudice to this INSURANCE; to the charges whereof the said COMPANY, will
contribute according to the rate and quantity of the sum herein INSURED. AND it is
expressly declared and agreed that no acts of the Insurer or Insured in recovering,
saving, or preserving the Property insured shall be considered as a Waiver, or
Acceptance of Abandonment. And it is agreed by the said COMPANY, that this writing or
Policy of INSURANCE shall be of as much Force and Effect as the surest Writing or
policy of INSURANCE made in LONDON. And so the said MALAYAN INSURANCE
COMPANY., INC., are contented, and do hereby promise and bind themselves, their
Heirs, Executors, Goods and Chattel, to the ASSURED, his or their Executors,
Administrators, or Assigns, for the true Performance of the Premises; confessing
themselves paid the Consideration due unto them for this INSURANCE at and after the
rate arranged. (Emphasis supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is
specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S.
Clause which reads, thus:
Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat; also from the consequences of hostilities and warlike
operations, whether there be a declaration of war or not; but this warranty shall not
exclude collision, contact with any fixed or floating object (other than a mine or torpedo),
stranding, heavy weather or fire unless caused directly (and independently of the nature
of the voyage or service which the vessel concerned or, in the case of a collision, any
other vessel involved therein is performing) by a hostile act by or against a belligerent
power and for the purpose of this warranty "power" includes any authorities maintaining
naval, military or air forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil
strike arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed
to form part of this insurance. (Emphasis supplied)
155
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses
(Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides:
1. This insurance covers:
1.1 The risks excluded from the standard form of English Marine Policy by the clause
warranted free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof of hostilities or warlike operations, whether there be a declaration of war or not;
but this warranty shall not exclude collision, contact with any fixed or floating object (other
than a mine or torpedo), stranding, heavy weather or fire unless caused directly (and
independently of the nature on voyage or service which the vessel concerned or, in the
case of a collision any other vessel involved therein is performing) by a hostile act by or
against a belligerent power; and for the purpose of this warranty "power" includes any
authority maintaining naval, military or air forces in association with a power. Further
warranted free from the consequences of civil war, revolution, rebellion, insurrection, or
civil strike arising therefrom, or piracy.
According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War
Clauses (Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to
warlike operations if this Court strictly construes the heading of the said clauses. However, it also claims
that the parties intended to include arrests, etc. even if it were not the result of hostilities or warlike
operations. It further claims that on the strength of jurisprudence on the matter, the term "arrests" would
only cover those arising from political or executive acts, concluding that whether private respondent's
claim is anchored on subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) or the F.C. & S.
Clause, the arrest of the vessel by judicial authorities is an excluded risk. 4
This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils"
Clause, it assumed the risk of arrest caused solely by executive or political acts of the government of the
seizing state and thereby excludes "arrests" caused by ordinary legal processes, such as in the instant
case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court
agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial
process is deemed included among the covered risks. This interpretation becomes inevitable when
subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks
excluded from the Standard Form of English Marine Policy by the clause "Warranted free of capture,
seizure, arrest, etc. . . ." or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial
process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included
in the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be
operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses."
This Court agrees with the Court of Appeals when it held that ". . . . Although the F.C. & S. Clause may
have originally been inserted in marine policies to protect against risks of war, (see generally G. Gilmore
& C. Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to
include seizure or detention by civil authorities seems consistent with the general purposes of the
clause," 5 In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War Clauses
6
included "arrest" even if it were not a result of hostilities or warlike operations. In this regard, since what
was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process,
logically, such "arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute
War Clauses, regardless of whether or not said "arrest" by civil authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was
156
"originally incorporated in insurance policies to eliminate the risks of warlike operations". It also averred
that the F.C. & S. Clause applies even if there be no war or warlike operations . . . ." 7 In the same vein, it
contended that subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to
warlike operations" and yet it also stated that "the deletion of the F.C. & S. Clause and the consequent
incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest,
8
etc. even if were not a result of hostilities or warlike operations.
This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions
of the policy in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest"
occasioned by executive or political acts of government which is interpreted as not referring to those
caused by ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause
which excludes risks of arrest occasioned by executive or political acts of the government and naturally,
also those caused by ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of
the Institute War Clauses which now includes in the coverage risks of arrest due to executive or political
acts of a government but then still excludes "arrests" occasioned by ordinary legal processes when
subsection 1.1 of Section 1 of said Clauses should also have included "arrests" previously excluded from
the coverage of the F.C. & S. Clause.
It has been held that a strained interpretation which is unnatural and forced, as to lead to an absurd
conclusion or to render the policy nonsensical, should, by all means, be avoided. 9 Likewise, it must be
borne in mind that such contracts are invariably prepared by the companies and must be accepted by the
insured in the form in which they are written. 10 Any construction of a marine policy rendering it void
should be avoided. 11 Such policies will, therefore, be construed strictly against the company in order to
avoid a forfeiture, unless no other result is possible from the language used. 12
If a marine insurance company desires to limit or restrict the operation of the general provisions of its
contract by special proviso, exception, or exemption, it should express such limitation in clear and
unmistakable language. 13 Obviously, the deletion of the F.C. & S. Clause and the consequent
incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) gave rise to ambiguity. If
the risk of arrest occasioned by ordinary judicial process was expressly indicated as an exception in the
subject policies, there would have been no controversy with respect to the interpretation of the subject
clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the company.
14
Even an express exception in a policy is to be construed against the underwriters by whom the policy is
framed, and for whose benefit the exception is introduced. 15
An insurance contract should be so interpreted as to carry out the purpose for which the parties entered
into the contract which is, to insure against risks of loss or damage to the goods. Such interpretation
should result from the natural and reasonable meaning of language in the policy. 16 Where restrictive
provisions are open to two interpretations, that which is most favorable to the insured is adopted. 17
Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. 18 A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations. 19
In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.
157
SO ORDERED.
Regalado, Puno, Mendoza, and Torres, Jr., JJ., concur.
Footnotes
1 Penned by Justice Godardo A. Jacinto and concurred in by Justices Ricardo J. Francisco and Hector L.
Hofilena.
2 16 Me. 207.
3 R. Keeton & A. Widiss, Insurance Law, 467 (1988).
4 Petition, pp. 13-14, Rollo.
5 Blaine Richards & Co. v. Marine Indem., Ins., Co., 653 F. 2nd 1051 (1980).
6 Petition, p. 13, Rollo.
7 p. 13, supra.
8 Supra.
9 Importers' & Exporters' Ins. Co. v. Jones, 1924, 266 S.W. 286, 166 Ark. 370.
10 General Accident, Fire & Life Ass. Corp. v. Louisville Home Telephone Co., 1917, 193 S.W. 1031.
11 The J.L. Luckenbach, C.C. A.N.Y. (1933), 65 F. 2d 570.
12 Wheeler v. Aetna Ins. Co., D.C.N.Y. (1933), F. Supp. 820.
13 Rosen Reichardt Brokerage Co. v. London Assur. Corp. (1924), 264 S.W. 433.
14 Quinlinan v. Northwestern Fire & Marine Ins. Co., D.C.N.Y. (1929), 31 F. 2d 149.
15 Dole v. New England Mut. Marine Ins. Co. (1863) 88 Mass. 373.
16 Cherokee Brick Co. v. Ocean Accident & Guaranty Corp., Limited, (1918), 94 S.E. 1032, Ga. App. 702.
17 Rosen-Reichardt Brokerage Co. v. London Assur. Corporation, (1924), 264 S.W. 433.
18 Vol. II, G. Couch, Cyclopedia of Insurance Law, pp. 524-525, (1963).
19 Fortune Insurance and Surety Co., Inc. v. Court of Appeals, 244 SCRA 308 (1995).
158
X. SEAWORTHINESS
Delsan Transport Lines, Inc. vs. Court of Appeals and American Home Assurance Corp.,
G.R. No. 127897 November 15, 2001
Seaworthiness relates to a vessels actual condition. Neither the granting of classification or the
issuance of certificates established seaworthiness.
----------
SECOND DIVISION
G.R. No. 127897 November 15, 2001
DELSAN TRANSPORT LINES, INC., petitioner,

vs.
THE HON. COURT OF APPEALS and AMERICAN HOME ASSURANCE CORPORATION, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. CV No.
39836 promulgated on June 17, 1996, reversing the decision of the Regional Trial Court of Makati City,
Branch 137, ordering petitioner to pay private respondent the sum of Five Million Ninety-Six Thousand Six
Hundred Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.57) and costs and the Resolution2
dated January 21, 1997 which denied the subsequent motion for reconsideration.
The facts show that Caltex Philippines (Caltex for brevity) entered into a contract of affreightment with the
petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed
to transport 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 Maysum set sail from Batangas for Zamboanga City. Unfortunately, the vessel
sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it the entire
cargo of fuel oil.
Subsequently, private respondent paid Caltex the sum of Five Million Ninety-Six Thousand Six Hundred
Thirty-Five Pesos and Fifty-Seven Centavos (P5,096,635.67) representing the insured value of the lost
cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent
demanded of the petitioner the same amount it paid to Caltex.1wphi1.nt
Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint
with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money. After the trial
and upon analyzing the evidence adduced, the trial court rendered a decision on November 29, 1990
dismissing the complaint against herein petitioner without pronouncement as to cost. The trial court found
that the vessel, MT Maysum, was seaworthy to undertake the voyage as determined by the Philippine
159
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:oo
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 carrier4 to herein private respondent insurance company as subrogee of Caltex.
The subsequent motion for reconsideration of herein petitioner was denied by the appellate court.
Petitioner raised the following assignments of error in support of the instant petition, 5 to wit:
THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE

REGIONAL TRIAL COURT.
II
THE COURT OF APPEALS ERRED AND WAS NOT JUSTIFIED IN REBUTTING THE
LEGAL PRESUMPTION THAT THE VESSEL MT "MAYSUN" WAS SEAWORTHY.
III
THE COURT OF APPEALS ERRED IN NOT APPLYING THE DOCTRINE OF THE

SUPREME COURT IN THE CASE OF HOME INSURANCE CORPORATION V. COURT
OF APPEALS.
Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the
Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any
thin which is the subject of marine insurance there is an implied warranty by the shipper that the ship is
seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case
the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that
when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is
equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was
not legally liable to Caltex due to the 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
160
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
7
Caltex. By virtue of the doctrine laid down in the case of Home Insurance Corporation vs. CA, 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:
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
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
10
claim. Consequently, the payment made by the private respondent (insurer) to Caltex (assured)
operates as an equitable assignment to the former of all the remedies which the latter may have against
the petitioner.
From the nature of their business and for reasons of public policy, common carriers are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of passengers transported by
them, according to all the circumstance of each case.11 In the event of loss, destruction or deterioration of
the insured goods, common carriers shall be responsible unless the same is brought about, among
12
others, by flood, storm, earthquake, lightning or other natural disaster or calamity. 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
161
In order to escape liability for the loss of its cargo of industrial fuel oil belonging to Caltex, petitioner
attributes the sinking of MT Maysun to fortuitous even or force majeure. From the testimonies of Jaime
Jarabe and Francisco Berina, captain and chief mate, respectively of the ill-fated vessel, it appears that a
sudden and unexpected change of weather condition occurred in the early morning of August 16, 1986;
that at around 3:15 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
14
buffeted MT Maysun causing it to tilt, take in water and eventually sink with its cargo. This tale of strong
winds and big waves by the said officers of the petitioner however, was effectively rebutted and belied by
the weather report15 from the Philippine Atmospheric, Geophysical and Astronomical Services
Administration (PAGASA), the independent government agency charged with monitoring weather and sea
conditions, showing that from 2:00 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 certificates16 that tend to show that at the
time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for
voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel
at the time of the commencement of the voyage. As correctly observed by the Court of appeals:
At the time of dry-docking and inspection, the ship may have appeared fit. The
certificates issued, however, do not negate the presumption of unseaworthiness triggered
by an unexplained sinking. Of certificates issued in this regard, authorities are likewise
clear as to their probative value, (thus):
Seaworthiness relates to a vessels actual condition. Neither the granting of

classification or the issuance of certificates established seaworthiness. (2-A
Benedict on Admiralty, 7-3, Sec. 62).
And also:
Authorities are clear that diligence in securing certificates of seaworthiness does

not satisfy the vessel 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 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
18
of which properly belongs to the courts. In the case at bar, petitioner is liable for the insured value of the
lost cargo of industrial fuel oil belonging to Caltex for its failure to rebut the presumption of fault or
negligence as common carrier19 occasioned by the unexplained sinking of its vessel, MT Maysun, while in
transit.
162
Anent the second issue, it is our view and so hold that the presentation in evidence of the marine
insurance policy is not indispensable in this case before the insurer may recover from the common carrier
the insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt, by
itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex,
as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the
insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.20
The presentation of the insurance policy was necessary in the case of Home Insurance Corporation v.
CA21 (a case cited by petitioner) because the shipment therein (hydraulic engines) passed through
several stages with different parties involved in each stage. First, from the shipper to the port of
departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental
Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port or arrival; fifth,
from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay
Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We
emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be
liable only for any damage that occurred from the time it received the cargo until it finally delivered it to
the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually
received it. The insurance contract, which was not presented in evidence in that case would have
indicated the scope of the 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.1wphi1.nt
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.
Footnotes:
1
Penned by Associate Justice Hilario L. Aquino and concurred in by Associate Justices Jainal D. Rasul and
Hector L. Hofilea. Annex "A". Rollo, pp. 43-49.
2
Rollo, pp. 55-59.
3
Annex "F". Rollo, pp. 64-79.
4
See Note No. 1.
5
Rollo, pp. 18-41.
6
Exhibits "11" "11-J" inclusive
7
225 SCRA 411 (1993).
8
Cebu Shipyard and Engineering Works, Inc. v. William Lines, Inc., 306 SCRA 762, 778 (1999).
9
Philippine American General Insurance Co., Inc. v. Court of Appeals, 273 SCRA 262, 275 (1997) citing Boney,
Insurance Commissioner v. Central Mutual Ins. Co. of Chicago, 197 S. E. 122.
10
Pan Malayan Insurance Corporation v. Court of Appeals, 184 SCRA 54, 58 (1990) citing Compania Maritima v.
Insurance Company of North America, G.R. No. L-18965, October 30, 1964; Firemans Fund Insurance
Company v. Jamilia and Co., Inc., G.R. No. L-27427, April 7, 1976.
11
Article 1733, New Civil Code.
12
Article 1734, New Civil Code.
13
Article 1735, New Civil Code; Benedicto v. Intermediate Appellate Court, 187 SCRA 547, 554 (1990).
14
T.S.N. dated April 25, 1988, p. 19; T.S.N. dated May 9, 1988, p. 21-24; T.S.N. dated August 1, 1988, p. 32;
T.S.N. dated August 15, 1988, pp. 16-17.
15
Exhibit "Y".
163
16
Exhibits "1"; "2"; "3"; "5" with submarkings.
17
Annex "A". Rollo, pp. 46-47.
18
Arada v. Court of Appeals, 210 SCRA 624, 633 (1992).
19
See Note No. 13.
20
See Note No. 10.
21
Supra, p. 415.
164
XI. SUBROGATION
Lorenzo Shipping Corp. vs. Chubb and Sons, Inc., G.R. No. 147724 June 8, 2004
Federal Express Corp. vs. American Home Assurance Company, G.R. No. 150094
August 18, 2004
Subrogation is the substitution of one person in the place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt
or claim, including its remedies or securities. The principle covers the situation under which an
insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies
belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means which the creditor could employ to enforce payment.
----------
SECOND DIVISION
G.R. No. 147724 June 8, 2004
LORENZO SHIPPING CORP., petitioner,

vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC.,
respondents.
DECISION
PUNO, J.:
On appeal is the Court of Appeals August 14, 2000 Decision1 in CA-G.R. CV No. 61334 and March 28,
2001 Resolution2 affirming the March 19, 1998 Decision3 of the Regional Trial Court of Manila which
found petitioner liable to pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit.
Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic corporation engaged in
coastwise shipping, was the carrier of 581 bundles of black steel pipes, the subject shipment, from Manila
to Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign corporation licensed as a common
carrier under the laws of Norway and doing business in the Philippines through its agent, respondent
Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation, carried the
goods on board its vessel M/V San Mateo Victory to the United States, for the account of Sumitomo
Corporation. The latter, the consignee, is a foreign corporation organized under the laws of the United
States of America. It insured the shipment with respondent Chubb and Sons, Inc., a foreign corporation
organized and licensed to engage in insurance business under the laws of the United States of America.
The facts are as follows:
On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581
4
bundles of ERW black steel pipes worth US$137,912.84 on board the vessel M/V
Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner
165
5
Lorenzo Shipping issued a clean bill of lading designated as Bill of Lading No. T-3 for
the account of the consignee, Sumitomo Corporation of San Francisco, California, USA,
which in turn, insured the goods with respondent Chubb and Sons, Inc.6
The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent
Transmarine Carriers received the subject shipment which was discharged on December 4, 1987,
evidenced by Delivery Cargo Receipt No. 115090.7 It discovered seawater in the hatch of M/V Lorcon IV,
and found the steel pipes submerged in it. The consignee Sumitomo then hired the services of R.J. Del
Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del Pans Survey Report 8
dated December 4, 1987 showed that the subject shipment was no longer in good condition, as in fact,
the pipes were found with rust formation on top and/or at the sides. Moreover, the surveyor noted that the
cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was "rusty, thinning, and
with several holes at different places." The rusty condition of the cargo was noted on the mates receipts
and the checker of M/V Lorcon IV signed his conforme thereon.9
After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory,
10
for carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to 7, covering 364 bundles of
steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6,11 covering 217
bundles of steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked
"ALL UNITS HEAVILY RUSTED."
While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter 12 of intent
dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received on December 9, 1987.
Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim based on the damaged cargo
once such damage had been ascertained. The letter reads:
Please be advised that the merchandise herein below noted has been landed in bad
order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at the port of Davao
City on December 2, 1987.
The extent of the loss and/or damage has not yet been determined but apparently all bundles are
corroded. We reserve the right to claim as soon as the amount of claim is determined and the necessary
supporting documents are available.
Please find herewith a copy of the survey report which we had arranged for after unloading of our cargo
from your vessel in Davao.
We trust that you shall make everything in order.
On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded
364 bundles of the subject steel pipes. It then sailed to Vancouver, Washington on January 23, 1988
where it unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California,
surveyed the steel pipes, and also discovered the latter heavily rusted. When the steel pipes were tested
with a silver nitrate solution, Toplis and Harding found that they had come in contact with salt water. The
survey report,13 dated January 28, 1988 states:
xxx
We entered the hold for a close examination of the pipe, which revealed moderate to
heavy amounts of patchy and streaked dark red/orange rust on all lifts which were visible.
Samples of the shipment were tested with a solution of silver nitrate revealing both
positive and occasional negative chloride reactions, indicating pipe had come in contact
with salt water. In addition, all tension applied metal straps were very heavily rusted, and
also exhibited chloride reactions on testing with silver nitrate.
166
xxx
It should be noted that subject bills of lading bore the following remarks as to conditions
of goods: "ALL UNITS HEAVILY RUSTED." Attached herein is a copy of a survey report
issued by Del Pan Surveyors of Davao City, Philippines dated, December 4, 1987 at
Davao City, Philippines, which describes conditions of the cargo as sighted aboard the
vessel "LORCON IV," prior to and subsequent to discharge at Davao City. Evidently, the
aforementioned rust damages were apparently sustained while the shipment was in the
custody of the vessel "LORCON IV," prior to being laden on board the vessel "SAN
MATEO VICTORY" in Davao.
Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel
pipes and declared them unfit for the purpose they were intended.14 It then filed a marine
insurance claim with respondent Chubb and Sons, Inc. which the latter settled in the
amount of US$104,151.00.15
On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint 16 for collection of a sum of
money, docketed as Civil Case No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and
Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not doing business in the Philippines,
and that it is suing under an isolated transaction.
On February 21, 1989, respondents Gearbulk and Transmarine filed their answer17 with counterclaim and
cross-claim against petitioner Lorenzo Shipping denying liability on the following grounds: (a) respondent
Chubb and Sons, Inc. has no capacity to sue before Philippine courts; (b) the action should be dismissed
on the ground of forum non conveniens; (c) damage to the steel pipes was due to the inherent nature of
the goods or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to their
fault or negligence; and, (e) the law of the country of destination, U.S.A., governs the contract of carriage.
Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989, and amended it on
May 24, 1989. It denied liability, alleging, among others: (a) that rust easily forms on steel by mere
exposure to air, moisture and other marine elements; (b) that it made a disclaimer in the bill of lading; (c)
that the goods were improperly packed; and, (d) prescription, laches, and extinguishment of obligations
and actions had set in.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1)
respondent Chubb and Sons, Inc. has the right to institute this action; and, (2) petitioner Lorenzo Shipping
was negligent in the performance of its obligations as a carrier. The dispositive portion of its Decision
states:
WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo Shipping

Corporation to pay the plaintiff the sum of US$104,151.00 or its equivalent in Philippine
peso at the current rate of exchange with interest thereon at the legal rate from the date
of the institution of this case until fully paid, the attorneys fees in the sum of P50,000.00,
plus the costs of the suit, and dismissing the plaintiffs complaint against defendants
Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for lack of merit, and the two
defendants counterclaim, there being no showing that the plaintiff had filed this case
against said defendants in bad faith, as well as the two defendants cross-claim against
Defendant Lorenzo Shipping Corporation, for lack of factual basis.18
Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a) respondent Chubb and
Sons does not have capacity to sue before Philippine courts; and, (b) petitioner Lorenzo Shipping was not
negligent in the performance of its obligations as carrier of the goods. The appellate court denied the
petition and affirmed the decision of the trial court.
167
19
The Court of Appeals likewise denied petitioner Lorenzo Shippings Motion for Reconsideration dated
September 3, 2000, in a Resolution20 promulgated on March 28, 2001.
Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for resolution:
(1) Whether or not the prohibition provided under Art. 133 of the Corporation Code
applies to respondent Chubb, it being a mere subrogee or assignee of the rights of
Sumitomo Corporation, likewise a foreign corporation admittedly doing business in the
Philippines without a license;
(2) Whether or not Sumitomo, Chubbs predecessor-in-interest, validly made a claim for
damages against Lorenzo Shipping within the period prescribed by the Code of
Commerce;
(3) Whether or not a delivery cargo receipt without a notation on it of damages or defects
in the shipment, which created a prima facie presumption that the carrier received the
shipment in good condition, has been overcome by convincing evidence;
(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel
pipes, whether or not Gearbulk and Transmarine, as common carriers, are to share
liability for their separate negligence in handling the cargo.21
In brief, we resolve the following issues:
(1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts;
and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo.
Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed to do business in
the Philippines, and is not suing on an isolated transaction. It contends that because the respondent
Chubb and Sons is an insurance company, it was merely subrogated to the rights of its insured, the
consignee Sumitomo, after paying the latters policy claim. Sumitomo, however, is a foreign corporation
doing business in the Philippines without a license and does not have capacity to sue before Philippine
courts. Since Sumitomo does not have capacity to sue, petitioner then concludes that, neither the
subrogee-respondent Chubb and Sons could sue before Philippine courts.
We disagree with petitioner.
In the first place, petitioner failed to raise the defense that Sumitomo is a foreign corporation doing
business in the Philippines without a license. It is therefore estopped from litigating the issue on appeal
especially because it involves a question of fact which this Court cannot resolve. Secondly, assuming
arguendo that Sumitomo cannot sue in the Philippines, it does not follow that respondent, as subrogee,
has also no capacity to sue in our jurisdiction.
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim,
22
including its remedies or securities. The principle covers the situation under which an insurer that has
paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured
against a third party with respect to any loss covered by the policy. 23 It contemplates full substitution such
that it places the party subrogated in the shoes of the creditor, and he may use all means which the
creditor could employ to enforce payment.24
168
The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for
25
whom he is substituted he cannot acquire any claim, security, or remedy the subrogor did not have. In
26
other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect
steps into the shoes of the insured and can recover only if insured likewise could have recovered.
However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt.
The person substituted (the insurer) will succeed to all the rights of the creditor (the insured), having
reference to the debt due the latter.27 In the instant case, the rights inherited by the insurer, respondent
Chubb and Sons, pertain only to the payment it made to the insured Sumitomo as stipulated in the
insurance contract between them, and which amount it now seeks to recover from petitioner Lorenzo
Shipping which caused the loss sustained by the insured Sumitomo. The capacity to sue of respondent
Chubb and Sons could not perchance belong to the group of rights, remedies or securities pertaining to
the payment respondent insurer made for the loss which was sustained by the insured Sumitomo and
covered by the contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by
law and not by the parties. Lack of legal capacity to sue means that the plaintiff is not in the exercise of
his civil rights, or does not have the necessary qualification to appear in the case, or does not have the
character or representation he claims. It refers to a plaintiffs general disability to sue, such as on account
of minority, insanity, incompetence, lack of juridical personality, or any other disqualifications of a party. 28
Respondent Chubb and Sons who was plaintiff in the trial court does not possess any of these
disabilities. On the contrary, respondent Chubb and Sons has satisfactorily proven its capacity to sue,
after having shown that it is not doing business in the Philippines, but is suing only under an isolated
transaction, i.e., under the one (1) marine insurance policy issued in favor of the consignee Sumitomo
covering the damaged steel pipes.
The law on corporations is clear in depriving foreign corporations which are doing business in the
Philippines without a license from bringing or maintaining actions before, or intervening in Philippine
courts. Art. 133 of the Corporation Code states:
Doing business without a license. No foreign corporation transacting business in the

Philippines without a license, or its successors or assigns, shall be permitted to maintain
or intervene in any action, suit or proceeding in any court or administrative agency of the
Philippines; but such corporation may be sued or proceeded against before Philippine
courts or administrative tribunals on any valid cause of action recognized under
Philippine laws.
The law does not prohibit foreign corporations from performing single acts of business. A foreign
corporation needs no license to sue before Philippine courts on an isolated transaction. 29 As held by this
Court in the case of Marshall-Wells Company vs. Elser & Company:30
The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the
foreign corporation from performing single acts, but to prevent it from acquiring a domicile
for the purpose of business without taking the steps necessary to render it amenable to
suit in the local courts . . . the implication of the law (being) that it was never the purpose
of the legislature to exclude a foreign corporation which happens to obtain an isolated
order for business for the Philippines, from seeking redress in the Philippine courts.
Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate Appellate Court31 that:
. . . The private respondent may sue in the Philippine courts upon the marine insurance
policies issued by it abroad to cover international-bound cargoes shipped by a Philippine
carrier, even if it has no license to do business in this country, for it is not the lack of the
prescribed license (to do business in the Philippines) but doing business without such
license, which bars a foreign corporation from access to our courts.
169
We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is not suing under an
isolated transaction because the steel pipes, subject of this case, are covered by two (2) bills of lading;
hence, two transactions. The stubborn fact remains that these two (2) bills of lading spawned from the
single marine insurance policy that respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the policy is a single act, an isolated
transaction. This Court has not construed the term "isolated transaction" to literally mean "one" or a mere
32
single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held that:
. . . What is determinative of "doing business" is not really the number or the quantity of
the transactions, but more importantly, the intention of an entity to continue the body of its
business in the country. The number and quantity are merely evidence of such intention.
The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or
series of transactions set apart from the common business of a foreign enterprise in the
sense that there is no intention to engage in a progressive pursuit of the purpose and
object of the business organization. Whether a foreign corporation is "doing business"
does not necessarily depend upon the frequency of its transactions, but more upon the
nature and character of the transactions. [Emphasis supplied.]
In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three transactions were challenged
as void on the ground that the three American corporations which are parties to the contracts are not
licensed to do business in the Philippines. This Court held that "one single or isolated business
transaction does not constitute doing business within the meaning of the law. Transactions which are
occasional, incidental, and casual not of a character to indicate a purpose to engage in business do
not constitute the doing or engaging in business as contemplated by law. Where the three transactions
indicate no intent by the foreign corporation to engage in a continuity of transactions, they do not
constitute doing business in the Philippines."
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the
policy of insurance,34 is the real party in interest in the action for damages before the court a quo against
the carrier Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997
Rules of Civil Procedure defines a real party in interest as one who is entitled to the avails of any
judgment rendered in a suit, or who stands to be benefited or injured by it. Where an insurance company
as subrogee pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in
interest and must sue in its own name35 to enforce its right of subrogation against the third party which
caused the loss. This is because the insurer in such case having fully compensated its insured, which
payment covers the loss in full, is subrogated to the insureds claims arising from such loss. The
subrogated insurer becomes the owner of the claim and, thus entitled to the entire fruits of the action. 36 It
then, thus possesses the right to enforce the claim and the significant interest in the litigation. 37 In the
case at bar, it is clear that respondent insurer was suing on its own behalf in order to enforce its right of
subrogation.
On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo Shipping was
negligent in its care and custody of the consignees goods.
The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin
(Manila) on board petitioner Lorenzo Shippings M/V Lorcon IV en route to Davao City. Petitioner Lorenzo
Shipping issued clean bills of lading covering the subject shipment. A bill of lading, aside from being a
contract38 and a receipt,39 is also a symbol40 of the goods covered by it. A bill of lading which has no
notation of any defect or damage in the goods is called a "clean bill of lading." 41 A clean bill of lading
constitutes prima facie evidence of the receipt by the carrier of the goods as therein described. 42
The case law teaches us that mere proof of delivery of goods in good order to a carrier and the
subsequent arrival in damaged condition at the place of destination raises a prima facie case against the
43
carrier. In the case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good
order and condition, evidenced by the clean bills of lading it issued. When the cargo was unloaded from
170
petitioner Lorenzo Shippings vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all
over. M/V San Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of
Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the entire shipment, all of which were
marked "ALL UNITS HEAVILY RUSTED." R.J. Del Pan Surveyors found that the cargo hold of the M/V
Lorcon IV was flooded with seawater, and the tank top was rusty, thinning and perforated, thereby
exposing the cargo to sea water. There can be no other conclusion than that the cargo was damaged
while on board the vessel of petitioner Lorenzo Shipping, and that the damage was due to the latters
negligence. In the case at bar, not only did the legal presumption of negligence attach to petitioner
Lorenzo Shipping upon the occurrence of damage to the cargo.44 More so, the negligence of petitioner
was sufficiently established. Petitioner Lorenzo Shipping failed to keep its vessel in seaworthy condition.
R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to be "rusty, thinning, and with several holes
at different places." Witness Captain Pablo Fernan, Operations Manager of respondent Transmarine
Carriers, likewise observed the presence of holes at the deck of M/V Lorcon IV. 45 The unpatched holes
allowed seawater, reaching up to three (3) inches deep, to enter the flooring of the hatch of the vessel
where the steel pipes were stowed, submerging the latter in sea water. 46 The contact with sea water
caused the steel pipes to rust. The silver nitrate test, which Toplis and Harding employed, further verified
47
this conclusion. Significantly, petitioner Lorenzo Shipping did not even attempt to present any contrary
evidence. Neither did it offer any proof to establish any of the causes that would exempt it from liability for
such damage.48 It merely alleged that the: (1) packaging of the goods was defective; and (2) claim for
damages has prescribed.
To be sure, there is evidence that the goods were packed in a superior condition. John M. Graff, marine
surveyor of Toplis and Harding, examined the condition of the cargo on board the vessel San Mateo
Victory. He testified that the shipment had superior packing "because the ends were covered with plastic,
woven plastic. Whereas typically they would not go to that bother ... Typically, they come in with no plastic
on the ends. They might just be banded, no plastic on the ends ..."49
On the issue of prescription of respondent Chubb and Sons claim for damages, we rule that it has not yet
prescribed at the time it was made.
Art. 366 of the Code of Commerce states:
Within the twenty-four hours following the receipt of the merchandise, the claim against
the carrier for damage or average, which may be found therein upon the opening of the
packages, may be made, provided that the indications of the damage or average which
gives rise to the claim cannot be ascertained from the outside part of such package, in
which case the claim shall be admitted only at the time of the receipt.
After the periods mentioned have elapsed, or transportation charges have been paid, no
claim shall be admitted against the carrier with regard to the condition in which the goods
transported were delivered.
A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads:50
NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after
delivery.
(Ref. Art. 366 C Com.)
The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be
presented does not begin to run until the consignee has received such possession of the merchandise
that he may exercise over it the ordinary control pertinent to ownership.51 In other words, there must be
delivery of the cargo by the carrier to the consignee at the place of destination. 52 In the case at bar,
consignee Sumitomo has not received possession of the cargo, and has not physically inspected the
171
same at the time the shipment was discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo
Shipping failed to establish that an authorized agent of the consignee Sumitomo received the cargo at
Sasa Wharf in Davao City. Respondent Transmarine Carriers as agent of respondent Gearbulk, Ltd.,
which carried the goods from Davao City to the United States, and the principal, respondent Gearbulk,
Ltd. itself, are not the authorized agents as contemplated by law. What is clear from the evidence is that
the consignee received and took possession of the entire shipment only when the latter reached the
United States shore. Only then was delivery made and completed. And only then did the 24-hour
prescriptive period start to run.
Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law
governs the contract of carriage because the U.S.A. is the country of destination. Petitioner Lorenzo
Shipping, through its M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as against
petitioner Lorenzo Shipping, the place of destination is Davao City. Hence, Philippine law applies.
IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No.
61334 dated August 14, 2000 and its Resolution dated March 28, 2001 are hereby AFFIRMED. Costs
against petitioner.
SO ORDERED.
Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
Footnotes
1
2
Id., p. 190.
3
Records, vol. 2, pp. 591-593.
4
Exhibit "D," Records, vol. 2, p. 108.
5
Exhibit "F," Records, vol. 2, p. 109.
6
Exhibits "J" to "J-1-A," Chubb Marine Policy No. JO 37000, Records, vol. 2, pp. 32-37.
7
Exhibit "5," Records, vol. 2, p. 347.
8
Exhibit "Y," Records, vol. 3, p. 50.
9
Records, vol. 2, pp. 551- 552.
10
Exhibits "G-1" to "G-7," Records, vol. 2, pp. 9-15.
11
Exhibits "N" to "N-5," Records, vol. 3, pp. 323-328.
12
13
Exhibit "I," Records, vol. 2, pp. 28-32.
14
Records, vol. 1, p. 4.
15
Exhibits "A" and "B," Records, vol. 2, pp. 6-7.
16
17
18
Records, vol. 2, p. 596.
19
20
Id., p. 190.
21
Rollo, pp. 16-17.
22
Black's Law Dictionary (6th ed., 1990).
23
Id.,(7th ed., 1999).
24
Riemer vs. Columbia Medical Plan, Inc., 358 Md. 222, 747 A.2d 677 (2000).
25
Heritage Mut. Ins. Co. vs. Truck Ins. Exchange, 184 Wis. 2d 247, 516 N.W.2d 8 (Ct. App. 1994).
26
Ohio Mut. Ins. Assn., United Ohio Ins. Co. v. Warlaumont, 124 Ohio App. 3d 473, 706 N.E.2d 793 (12th Dist.
Brown County 1997).
27
Home Owners' Loan Corp. vs. Henson, 217 Ind. 554, 29 N.E.2d 873 (1940).
28
Columbia Pictures, Inc. vs. Court of Appeals, 261 SCRA 144 (1996).
29
Eastboard Navigation Ltd. vs. Juan Ismael & Co., Inc., 102 Phil 1 (1957); Aetna Casualty & Surety Co. vs.
Pacific Star Lines, 80 SCRA 635 (1977); Facilities Management Corp. vs. De la Osa, 89 SCRA 131 (1979);
Hatibhai Bulakhidas vs. Navarro, 142 SCRA 1 (1986).
30
46 Phil. 70, 74 (1924).
31
188 SCRA 170 (1990).
172
32
267 SCRA 567 (1997); 13 Words and Phrases, Permanent Edition 195 citing Brandtjen & Kluge vs. Nanson,
115 P2d 731, 733, 9 Wash. 2d 362.
33
180 SCRA 254 (1989), citing Antam Consolidated, Inc. v. Court of Appeals, 143 SCRA 288 (1986).
34
Exhibit "J," Records, vol. 2, p. 55.
35
United States v. Aetna Casualty & Surety Co., 338 U.S. 366, 380-81, 70 S.Ct. 207, 215, 94 L.Ed. 171 (1949);
Frank Briscoe Co. v Georgia Sprinkler Co. (1983, CA11 Ga) 713 F2d 1500; Royal Ins. Co. of America v. U.S.,
998 F. Supp. 351 (S.D.N.Y. 1998).
36
Land v. Tall House Bldg. Co., 563 S.E.2d 8 (N.C.App. 2002), citing Burgess v. Trevathan, 236 N.C. 157, 160,
72 S.E.2d 231, 233 (1952); Metropolitan Property & Cas. v. Harper, 7 P.3d 541, 168 Or.App. 358 (Or.App. 2000);
Shambley v. Jobe-Blackley Plumbing and Heating Co., 142 S.E.2d 18, 264 N.C. 456, 13 A.L.R.3d 224 (N.C.
1965).
37
Virginia Elec. & Power Co. v. Westinghouse Elec. Corp., 485 F.2d 78, 83 (4th Cir.1973).
38
Aguedo F. Agbayani, Commentaries and Jurisprudence on the Commercial Laws of the Philippines, vol. IV,
1987 ed., p. 119, citing Government vs. Ynchausti & Co., 40 Phil. 219 (1919).
39
28 Am Jur 2d 264.
40
1987 ed., p. 119, citing Williston on Contracts, Sec. 405 b.
41
Id., p. 121, citing 2 Williston on Sales, Sec. 405 c.
42
Westway Coffee Corp. vs. M/V Netuno, 675 F.2d 30, 32 (1982).
43
Coastwise Lighterage Corp. vs. Court of Appeals, 245 SCRA 796 (1995).
44
Article 1735, Civil Code. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, 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 as required in article 1733.
45
Deposition, Pablo M. Fernan, 16 April 1996, pp. 94-95.
46
Deposition, Edgar C. Aduna, 20 February 1990, pp. 7-8, 32; Deposition, Segundo Grande, 15 April 1996, pp.
8-10.
47
Deposition, Bernard Wormgoor, 05 December 1989, pp. 16-17, 33-34.
48
Art. 1734. Common carriers are responsible for the loss, destruction, or 5deterioration of the goods, unless the
same is due to any of the following causes only:
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
49
Deposition, John M. Graff, 05 December 1989, pp. 12-13, 36.
50
51
1987 ed., p. 138, citing Cordoba vs. Warner, Barnes and Co., 1 Phil 7, 10 (1901).
52
Ibid., citing New Zealand Ins. Co., Ltd. vs. Choa Joy, 97 Phil. 646 (1955).
----------
THIRD DIVISION
G.R. No. 150094 August 18, 2004
FEDERAL EXPRESS CORPORATION, petitioner,

vs.
AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., respondents.
DECISION
PANGANIBAN, J.:
173
Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff
must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw
Convention and/or the airway bill.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001
Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208.
The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack
of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City
in Civil Case No. 95-1219, entitled 'American Home Assurance Co. and PHILAM
Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC.
(formerly U-WAREHOUSE, INC.),' is hereby AFFIRMED and REITERATED.
"Costs against the [petitioner and Cargohaus, Inc.]."4
The assailed Resolution denied petitioner's Motion for Reconsideration.
The Facts
The antecedent facts are summarized by the appellate court as follows:
"On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska,
USA delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal
Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to
consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila.
The shipment was covered by Burlington Airway Bill No. 11263825 with the words,
'REFRIGERATE WHEN NOT IN TRANSIT' and 'PERISHABLE' stamp marked on its
face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with
American Home Assurance Company (AHAC). The following day, Burlington turned over
the custody of said cargoes to Federal Express which transported the same to Manila.
The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 in
Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.'s] warehouse.
While the second, consisting of 17 cartons, came in two (2) days later, or on January 31,
1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus'
warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the
release of its cargoes from the Bureau of Customs, of the impending arrival of its client's
cargoes.
"On February 10, 1994, DARIO C. DIONEDA ('DIONEDA'), twelve (12) days after the
cargoes arrived in Manila, a non-licensed custom's broker who was assigned by GETC to
facilitate the release of the subject cargoes, found out, while he was about to cause the
release of the said cargoes, that the same [were] stored only in a room with two (2) air
conditioners running, to cool the place instead of a refrigerator. When he asked an
employee of Cargohaus why the cargoes were stored in the 'cool room' only, the latter
told him that the cartons where the vaccines were contained specifically indicated therein
that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon
instructions from GETC, did not proceed with the withdrawal of the vaccines and instead,
samples of the same were taken and brought to the Bureau of Animal Industry of the
Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it
174
was discovered that the 'ELISA reading of vaccinates sera are below the positive
reference serum.'
"As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring 'total loss' for the unusable shipment, filed a
claim with AHAC through its representative in the Philippines, the Philam Insurance Co.,
Inc. ('PHILAM') which recompensed SMITHKLINE for the whole insured amount of
THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00).
Thereafter, [respondents] filed an action for damages against the [petitioner] imputing
negligence on either or both of them in the handling of the cargo.
"Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held
solidarily liable for the loss as follows:
'WHEREFORE, judgment is hereby rendered in favor of [respondents] and

[petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents],
jointly and severally, the following:
1. Actual damages in the amount of the peso equivalent of

US$39,339.00 with interest from the time of the filing of the complaint to
the time the same is fully paid.
2. Attorney's fees in the amount of P50,000.00 and
3. Costs of suit.
'SO ORDERED.'
5
"Aggrieved, [petitioner] appealed to [the CA]."
The Test Report issued by the United States Department of Agriculture (Animal and Plant Health
Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate
court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered
to the carrier in good condition. We quote from the ruling as follows:
"Where the plaintiff introduces evidence which shows prima facie that the goods were
delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier
delivered the goods in a damaged condition, a presumption is raised that the damage
occurred through the fault or negligence of the carrier, and this casts upon the carrier the
burden of showing that the goods were not in good condition when delivered to the
carrier, or that the damage was occasioned by some cause excepting the carrier from
absolute liability. This the [petitioner] failed to discharge. x x x."6
Found devoid of merit was petitioner's claim that respondents had no personality to sue. This argument
was supposedly not raised in the Answer or during trial.
Hence, this Petition.7
The Issues
In its Memorandum, petitioner raises the following issues for our consideration:
175
"I.
Are the decision and resolution of the Honorable Court of Appeals proper subject for
review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure?
"II.
Is the conclusion of the Honorable Court of Appeals petitioner's claim that respondents
have no personality to sue because the payment was made by the respondents to
Smithkline when the insured under the policy is Burlington Air Express is devoid of merit
correct or not?
"III.
Is the conclusion of the Honorable Court of Appeals that the goods were received in good
condition, correct or not?
"IV.
Are Exhibits 'F' and 'G' hearsay evidence, and therefore, not admissible?
"V.
Is the Honorable Court of Appeals correct in ignoring and disregarding respondents' own
admission that petitioner is not liable? and
"VI.
Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?"8
Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is
Federal Express liable for damage to or loss of the insured goods?
This Court's Ruling
The Petition has merit.
Preliminary Issue:
Propriety of Review
The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of
law cognizable by the Supreme Court.9
In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the
conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court.
Main Issue:
Liability for Damages
Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it --
because the payment made to Smithkline was erroneous.
176
10
Pertinent to this issue is the Certificate of Insurance ("Certificate") that both opposing parties cite in
support of their respective positions. They differ only in their interpretation of what their rights are under
its terms. The determination of those rights involves a question of law, not a question of fact. "As
distinguished from a question of law which exists 'when the doubt or difference arises as to what the law
is on a certain state of facts' -- 'there is a question of fact when the doubt or difference arises as to the
truth or the falsehood of alleged facts'; or when the 'query necessarily invites calibration of the whole
evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding
circumstance, their relation to each other and to the whole and the probabilities of the situation.'"11
Proper Payee
The Certificate specifies that loss of or damage to the insured cargo is "payable to order x x x upon
surrender of this Certificate." Such wording conveys the right of collecting on any such damage or loss, as
fully as if the property were covered by a special policy in the name of the holder itself. At the back of the
Certificate appears the signature of the representative of Burlington. This document has thus been duly
indorsed in blank and is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being
indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a
special policy in the name of the holder. Hence, being the holder of the Certificate and having an
insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt 12 in
favor of respondents. The latter were thus authorized "to file claims and begin suit against any such
carrier, vessel, person, corporation or government." Undeniably, the consignee had a legal right to
receive the goods in the same condition it was delivered for transport to petitioner. If that right was
violated, the consignee would have a cause of action against the person responsible therefor.
Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the
insurer's entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of
action in case of a contractual breach or negligence.13 "Further, the insurer's subrogatory right to sue for
recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld." 14
In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and
purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the
15
consignee are bound by the contractual stipulations under the bill of lading.
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
177
disposal of the person entitled to delivery, or in the case of total loss (including non-
delivery) unless presented within (120) days from the date of issue of the [Airway Bill]." 16
Relevantly, petitioner's airway bill states:
"12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in
the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at
the latest within fourteen (14) days from receipt of the goods;
12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of
the goods;
12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his
disposal; and
12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the
date of the issue of the air waybill.
12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air
waybill was used, or to the first carrier or to the last carrier or to the carrier who
performed the transportation during which the loss, damage or delay took place."17
Article 26 of the Warsaw Convention, on the other hand, provides:
"ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without
complaint shall be prima facie evidence that the same have been delivered in good
condition and in accordance with the document of transportation.
(2) In case of damage, the person entitled to delivery must complain to the carrier
forthwith after the discovery of the damage, and, at the latest, within 3 days from the date
of receipt in the case of baggage and 7 days from the date of receipt in the case of
goods. In case of delay the complaint must be made at the latest within 14 days from the
date on which the baggage or goods have been placed at his disposal.
(3) Every complaint must be made in writing upon the document of transportation or by
separate notice in writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier,
18
save in the case of fraud on his part."
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
20
a reasonable condition precedent; it does not constitute a limitation of action.
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
178
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
23
comply with such a stipulation bars recovery for the loss or damage suffered.
Being a condition precedent, the notice must precede a suit for enforcement. 24 In the present case, there
is neither an allegation nor a showing of respondents' compliance with this requirement within the
prescribed period. While respondents may have had a cause of action then, they cannot now enforce it
for their failure to comply with the aforesaid condition precedent.
In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner.
We note that respondents are not without recourse. Cargohaus, Inc. -- petitioner's co-defendant in
respondents' Complaint below -- has been adjudged by the trial court as liable for, inter alia, "actual
damages in the amount of the peso equivalent of US $39,339."25 This judgment was affirmed by the Court
of Appeals and is already final and executory.26
WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to
Petitioner Federal Express Corporation. No pronouncement as to costs.
SO ORDERED.
Corona, and Carpio-Morales, JJ., concur.

Sandoval-Gutierrez, J., on leave.
Footnotes
1
Rollo, pp. 14-33.
2
Id., pp. 35-43. Twelfth Division. Penned by Justice Martin S. Villarama Jr., with the concurrence of Justices
Conrado M. Vasquez Jr. (Division chair) and Alicia L. Santos (member).
3
Id., pp. 45-47.
4
Assailed CA Decision, p. 9; rollo, p. 43.
5
Id., pp. 1-3 & 35-37.
6
Id., pp. 8 & 42.
7
The case was deemed submitted for decision on September 20, 2002, upon this Court's receipt of respondents'
Memorandum, signed by Atty. Mary Joyce M. Sasan. Petitioner's Memorandum, signed by Atty. Emiliano S.
Samson, was received by this Court on August 28, 2002.
8
Petitioner's Memorandum, p. 10; rollo, p. 116. Citations omitted.
9
Pilar Development Corp. v. IAC, 146 SCRA 215, December 12, 1986.
10
Exhibit "D"; records, p. 142.
11
Bernardo v. CA, 216 SCRA 224, December 7, 1992, per Campos Jr., J.
12
Exhibit "N"; records, p 159.
13
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., 212 SCRA 194, August 5, 1992 (citing
Fireman's Fund Insurance Company, Inc. v. Jamila & Company, Inc., 70 SCRA 323, April 7, 1976).
14
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra, p. 201, per Regalado, J. (citing
National Development Company v. Court of Appeals, 164 SCRA 593, August 19, 1988).
15
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra.
16
Exhibit "B" of respondent; records, p. 139-A. This airway bill was issued on January 26, 1994.
17
Exhibit "5-a" of Federal Express; records, p. 189-A.
18
51 OG 5091-5092, October 1955.
19
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra.
179
20
Government of the Philippine Islands v. Inchausti & Co., 24 Phil. 315, February 14, 1913; Triton Insurance Co.
v. Jose, 33 Phil. 194, January 14, 1916.
21
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra, p. 208, per Regalado, J.
22
Id. (citing 14 Am. Jur. 2d, Carriers 97; Roldan v. Lim Ponzo & Co., 37 Phil. 285, December 7, 1917; Consunji
v. Manila Port Service, 110 Phil. 231, November 29, 1960).
23
Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., supra, pp. 208-209.
24
Philippine American General Insurance Co. Inc v. Sweet Lines, Inc., supra.
25
The insured value of the goods lost.
26
Entry of judgment in the Supreme Court was made on March 11, 2003.
180
XII. TOTAL LOSS
Oriental Assurance Corporation vs. Court of Appeals, G.R. No. 94052 August 9, 1991
Pan Malayan Insurance Corp. vs. Court of Appeals and the Food and Agricultural
Organization of the United Nations, G.R. No. 95070 September 5, 1991
Insurance Code, Section 139. A person insured by a contract of marine insurance may abandon
the thing insured, or any particular portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss thereof, when the cause of the loss is a peril
injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to
recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
SEC. 130. An actual total loss is caused by:

(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he
held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination of the thing insured.
----------
SECOND DIVISION
G.R. No. 94052 August 9, 1991
ORIENTAL ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS AND PANAMA SAW MILL CO., INC., respondents.
Alejandro P. Ruiz, Jr. for petitioner.

Federico R. Reyes for private respondent.
DECISION
MELENCIO-HERRERA, J:p
An action to recover on a marine insurance policy, issued by petitioner in favor of private respondent,
arising from the loss of a shipment of apitong logs from Palawan to Manila.
181
The facts relevant to the present review disclose that sometime in January 1986, private respondent
Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume
of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and
insured it against loss for P1-M with petitioner Oriental Assurance Corporation (Oriental Assurance).
There is a claim by Panama, however, that the insurance coverage should have been for P3-M were it
not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00
for the payment of the premium for a P3-M policy.
Oriental Assurance issued Marine Insurance Policy No. OACM 86/002, which stipulated, among others:
Name of Insured:
Panama Sawmill, Inc.
Karuhatan, Valenzuela
Metro Manila
Vessel:
MT. 'Seminole' Barge PCT 7,000-1,000 cubic meter apitong Logs

Barge Transpac 1,000-1,000 cubic meter apitong Logs
Voyage or Period of Insurance:
From Palawan-ETD January 16, 1986

To: Manila
Subject matter Insured:
2,000 cubic meters apitong Logs

Agreed Value
Amount Insured Hereunder:
Pesos: One Million Only (P1,000,000.00)

Philippine Currency
Premium P2,500.00 rate 0.250%
Doc. stamps 187.60 Invoice No. 157862
l % P/tax 25.00
TOTAL P2,712.50
CLAUSES, ENDORSEMENTS, SPECIAL CONDITIONS and WARRANTIES
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following
clauses:
Civil Code Article 1250 Waiver clause
Typhoon warranty clause
Omnibus clause.
182
The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume of
1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic
meters.
On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate would
have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting
in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.
Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted
liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue
Adjustment Company.
Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against
Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the
Regional Trial Court, Kalookan, Branch 123, docketed as Civil Case No. C-12601.
1
After trial on the merit, the RTC rendered its Decision, with the following dispositive portion:
WHEREFORE, upon all the foregoing premises, judgment is hereby rendered:
1. Ordering the defendant Oriental Assurance Corporation to pay plaintiff Panama Saw
Mill Inc. the amount of P415,000.00 as insurance indemnity with interest at the rate of
12% per annum computed from the date of the filing of the complaint;
2. Ordering Panama Saw Mill to pay defendant Ever Insurance Agency or Antonio Sy Lee
Yong, owner thereof, (Ever being a single proprietorship) for the amount of P20,000.00
as attorney's fee and another amount of P20,000.00 as moral damages.
3. Dismissing the complaint against defendant Benito Sy Lee Yong.
SO ORDERED.
On appeal by both parties, respondent Appellate Court 2 affirmed the lower Court judgment in all respects
except for the rate of interest, which was reduce from twelve (12%) to six (6%) per annum.
Both Courts shared the view that the insurance contract should be liberally construed in order to avoid a
denial of substantial justice; and that the logs loaded in the two barges should be treated separately such
that the loss sustained by the shipment in one of them may be considered as "constructive total loss" and
correspondingly compensable.
In this Petition for Review on Certiorari, Oriental Assurance challenges the aforesaid dispositions. In its
Comment, Panama, in turn, maintains that the constructive total loss should be based on a policy value of
P3-M and not P1-M, and prays that the award to Ever Insurance Agency or Antonio Sy Lee Yong of
damages and attorney's fees be set aside.
The question for determination is whether or not Oriental Assurance can be held liable under its marine
insurance policy based on the theory of a divisible contract of insurance and, consequently, a constructive
total loss.
Our considered opinion is that no liability attaches.
The terms of the contract constitute the measure of the insurer liability and compliance therewith is a
condition precedent to the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc.
183
v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or
severable is a question of intention to be determined by the language employed by the parties. The policy
in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of
apitong logs. The fact that the logs were loaded on two different barges did not make the contract several
and divisible as to the items insured. The logs on the two barges were not separately valued or separately
insured. Only one premium was paid for the entire shipment, making for only one cause or consideration.
The insurance contract must, therefore, be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual or
constructive (Sec. 129, Insurance Code). An actual total loss is caused by:
(c) Any damage to the thing which renders it valueless to the owner for the purpose for
which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured. (Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of
the Insurance Code. This provision reads:
SECTION 139. A person insured by a contract of marine insurance may abandon the
thing insured, or any particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss thereof, when the cause of the
loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths;
xxx xxx xxx
(Emphasis supplied)
Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of
computing the more than three-fourths value of the logs actually lost, considered the cargo in one barge
as separate from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge
TPAC-1000, mathematically speaking, is more than three-fourths () of the 598 pieces of logs loaded in
that barge and may, therefore, be considered as constructive total loss.
The basis thus used is, in our opinion, reversible error. The requirements for the application of Section
139 of the Insurance Code, quoted above, have not been met. The logs involved, although placed in two
barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in
barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the
basis for determining constructive total loss. The logs having been insured as one inseparable unit, the
correct basis for determining the existence of constructive total loss is the totality of the shipment of logs.
Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire
shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of
184
logs, the shipment can not be said to have sustained a constructive total loss under Section 139(a) of the
Insurance Code.
In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama
against the insurer, Oriental Assurance.
By reason of the conclusions arrived at, Panama's asseverations in its Comment need no longer be
passed upon, besides the fact that no review, in proper form, has been sought by it.
WHEREFORE, the judgment under review is hereby SET ASIDE and petitioner, Oriental Assurance
Corporation, is hereby ABSOLVED from liability under its marine insurance policy No. OAC-M-86/002. No
costs.
SO ORDERED.
Paras, Padilla, Sarmiento and Regalado, JJ., concur.
Footnotes
1 Presided over by Judge Mauro T. Allarde
2 Special Eighth Division, composed of Justice Felipe B. Kalalo Acting Chairman and ponente; and Justices Luis
D. Victor and Abelardo M. Dayrit, Members.
----------
SECOND DIVISION
G.R. No. 95070 September 5, 1991
PAN MALAYAN INSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and THE FOOD AND AGRICULTURAL ORGANIZATION OF THE UNITED
NATIONS, respondents.
Alejandro P. Ruiz, Jr. for petitioner.

Conrado R. Ayuyao for private respondent.
DECISION
REGALADO, J.:p
This case had its origin in a shipment of 1,500 metric petitions of IR-36 certified rice seeds which private
respondent, The Food and Agricultural Organization of the United Nations (hereinafter referred to as
FAO), an autonomous intergovernmental organization created by treaty, intended and made
arrangements to send to Kampuchea to be distributed to the people for seedling purposes. Respondent
court affirms the factual findings therein of the court a quo as chronologized hereunder.
On May 22, 1980, FAO received a formal offer from the Luzon Stevedoring Corporation (LUZTEVECO,
for brevity) whereby the latter offered to ship the former's aforesaid cargo, consisting of 3,000 metric
petitions in two lots of rice seeds, to Vietnam Ocean Shipping Industry in Vaung Tau, Vietnam for freight
fees of $55.50/MT, subject to the terms and conditions indicated in the corresponding communication. 1
185
On May 28, 1980, FAO wrote LUZTEVECO formally confirming its acceptance of the foregoing offer
amounting to US$83,325.92 in respect of one lot of 1,500 metric petitions winch is the subject of the
2
present action. The cargo was loaded on board LUZTEVECO Barge No. LC-3000 and consisted of
34,122 bags of IR-36 certified rice seeds purchased by FAO from the Bureau of Plant Industry for
3
P4,602,270.00.
On June 12, 1980, the loading was completed and LUZTEVECO issued its Bill of Lading No. 01 in favor
4
of FAO. The latter then secured insurance coverage in the amount of P5,250,000.00 from petitioner,
Pan Malayan Insurance Corporation, as evidenced by the latter's Marine Cargo Policy No. B-11474A and
5
Premium Invoice No. 78615, dated June 16, 1980.
On June 16, 1980, FAO gave instructions to LUZTEVECO to leave for Vaung Tau, Vietnam to deliver the
cargo which, by its nature, could not withstand delay because of the inherent risks of termination and/or
spoilage. On the same date, the insurance premiums on the shipment was paid by FAO petitioner.
On June 23, 1980, FAO was informed by LUZTEVECO that the tugboat and barge carrying FAO's
shipment returned to Manila after leaving on June 16, 1980 and that the shipment again left Manila for
Vaung Tau Vietnam on June 21, 1980 with the barge being towed by a different tugboat. Since this was
an unauthorized deviation, FAO demanded an explanation on June 25, 1980. 6
On June 26, 1980, FAO was advised of the sinking of the barge in the China Sea, hence it informed
petitioner thereof and, later, formally filed its claim under the marine insurance policy. 7 On July 29, 1980,
FAO was informed by LUSTEVECO of the recovery of the lost shipment, for which reason FAO formally
filed its claim with LUZTEVECO for compensation of damage to its cargo. 8
Thereafter, despite repeated demands to replace the same or to pay for the total insured value in the sum
of P5,250,000.00, LUSTEVECO failed and refused to do so. Petitioner likewise failed to pay for the losses
and damages sustained by FAO by reason of its inability to recover the value of the shipment from
LUZTEVECO. 9
Petitioner claims that on July 31, 1980 it supposedly engaged the services of Pan Asiatic Adjustment and
Marine Surveying Corporation to investigate and examine the shipment. On August 4, 1980, J.A. Barroso,
Jr. of said corporation reportedly conducted a survey on the shipment and found that 9,629 bags of rice
seeds were in good order, 23,510 bags sustained wattage of 10% to 15%, and 983 bags were
shorthanded or missing. After the alleged survey, Barroso, Jr. made a report recommending to petitioner
the denial of FAO's claim because the partial damage suffered by the shipment is not compensable under
the policy. On the basis of said recommendation, petitioner denied FAO's claim. 10
Petitioner further avers that upon the request of counsel of FAO, a survey of the shipment was conducted
on September 26, 27 and 29, 1980 by Conrado Catalan, Jr. of Manila Adjusters & Surveyors Company
and he found 6,200 bags in good order condition. At the time of his survey, 23,510 bags of the shipment
had allegedly already been sold by LUZTEVECO. Petitioner further asserts that on September 29, 1980,
FAO wrote a letter to petitioner signifying its willingness to abandon the proceeds of the sale of the
23,510 bags and the remaining good order bags, but that on October 6, 1980 petitioner rejected FAO's
proposed abandonment.
FAO then instituted Civil Case No. 41716 against LUZTEVECO and/or herein petitioner, as defendants,
with the Regional Trial Court of Pasig, Metro Manila which, on December 14, 1987, rendered judgment in
favor of FAO with the following decretal portion:
WHEREFORE, by virtue of preponderance of evidence and in consideration of

justice and equity, this Court hereby renders judgment in favor of the plaintiff
against the defendant Luzon Stevedoring Corporation and defendant Pan
186
Malayan Insurance Corporation, ordering both the defendants, to pay jointly and
severally, the plaintiff, to wit:
1. The sum of P5,250,000.00 with interest thereon, at legal rate from September
29, 1980 until fully paid;
2. The sum of P250,000.00 by way of attorney's fees and expenses of litigation;

and
11
3. The cost of this suit.
Petitioner alone appealed the said decision to respondent Court of Appeals, docketed therein as CA-G.R.
CV No. 22114, and on July 20, 1990 respondent court affirmed the decision of the trial court except for
12
the award of attorney's fees which was reduced to P25,000.00. Petitioner's motion for reconsideration
13
was denied in respondent court's resolution of September 3, 1990.
The petition now before us raises the following issues: (1) Whether or not respondent court committed a
reversible error in holding that the trial court is correct in holding that there is a total loss of the shipment;
and (2) Whether or not respondent court committed a reversible error in affirming the decision of the trial
court ordering petitioner to pay private respondent the amount of P5,250,000.00 representing the full
insured value of the rice seeds. 14
The law classifies loss into either total or partial. Total loss may be actual or absolute, 15 or it may
otherwise be constructive or technical. 16 Petitioner submits that respondent court erred in ruling that
there was total loss of the shipment despite the fact that only 27,922 bags of rice seeds out of 34,122
bags were rendered valueless to FAO and the shipment sustained only a loss of 78%. FAO, however,
claims that, for all intents and purposes, it has practically lost its total or entire shipment in this case,
inclusive of expenses, premium fees, and so forth, despite the alleged recovery by defendant
LUZTEVECO.
As found by the court below and reproduced with approval by respondent court, FAO "has never been
compensated for this total loss or damage, a fact which is not denied nor controverted. If there were some
cargoes saved, by LUZTEVECO, private respondent abandoned it and the same was sold or used for the
benefit of LUZTEVECO or Pan Malayan Corporation. Under Sections 129 and 130 of the New Insurance
Code, a total loss may either be actual or constructive. In case of total loss in Marine Insurance, the
assured is entitled to recover from the underwriter the whole amount of his subscription (Vol. 2, Arnould
Mar. Ins. 9th Ed. P. 1304; Alsop vs. Commercial Insurance Co. cc Mass IF Case No. 262, summ
451."(Emphasis in the original text.) 17
It is a fact that on July 9, 1980, FAO formally filed its claim under the marine insurance policy issued by
petitioner. 18 FAO thus claims actual loss under paragraphs (c) and (d) of Section 130 of the Insurance
Code which provides:
SEC. 130. An actual total loss is caused by:
(c) Any damage to the thing which renders it valueless to the owner for the
purpose for which he held it; or
187
(d) Any other event which effectively deprives the owner of the possession, at the
port of destination of the thing insured.
Respondent court affirmed the ruling of the trial court to the effect that there was indeed actual total loss,
painstakingly explaining therein the following grounds for holding petitioner liable for the entire amount of
the insurance coverage:
... The lower court was not incorrect in holding that there is a total or entire loss
of shipment in the case at bar.
First, the fact of the sinking of Barge LC-3000 as the occurrence of the risk
insured against under the marine insurance was proved and borne out by the
following findings of the court a quo, thus;
Here, we should not lose sight of the fact of sinking of the barge
according to the defendant LUZTEVECO, in a phone call by Mr.
Emata, defendant's representative, on June 26, 1980 and (of)
which fact, the defendant Pan Malayan Insurance Corporation
was notified. Subsequently, there was marine protest, based on
said information released by the defendant LUZTEVECO. In fine,
the barge LC-3000 carrying the load in question sank. If the
barge was made to refloat, it cannot be denied that it sank,
otherwise, what is the use of refloating the barge? What is
mentioned in the law as the risk or peril insured against is
sinking. This is the risk or peril covered by the Marine Insurance.
(Decision, p. 4)
xxx xxx xxx
..., it is worth mentioning the following unrebutted documents, testimonies and

pleadings cited by the plaintiff-appellant, viz:
(1) Testimony of Mr. Keiner that he was informed by Mr. Emata,

a representative of LUZTEVECO, that the barge and its cargo
sank in the South China Sea on June 25, 1980 (Deposition, Q43
p. 11)
(2) Letter of Capt. Ilano of Luzon Stevedoring Corporation dated

June 26, 1980 confirming the sinking of Barge LC-3000 and its
cargo on June 25, 1980 (Exhibit "D-9").
(3) Marine protest executed on July 2, 1980 by Capt. Rudy

Vencer, master of tugboat towing Barge LC-3000, attesting to
said barge's sinking on June 25, 1980, 385 miles off South
Vietnam, due to very strong winds and rough seas. (Exhibit "E-
4").
(4) The answer of defendant LUZTEVECO itself which admits in

no uncertain terms the sinking of Barge LC-3000 on June 25,
1980. ...
xxx xxx xxx
188
Basing on the evidence on record, the factual finding of the lower court re sinking
of Barge LC-3000 is not without basis but rather sufficiently supported by
evidence adduced by plaintiff-appellee.
Second, there is the direct testimony of Mr. Fritz Keiner (the UNFAO officer-in-
charge in the Philippines at the time of the loss) which states as follows:
52. CONGEN:
What eventually happened to your Organization's entire

shipment of rice seedlings intended for the refugees of Vietnam?
FK:
First, I would like to point out that the rice seeds were intended
for the people of Kampuchea, but for logistical reasons, the
shipment had to go through Vungtan, (sic) Vietnam.
In spite of the alleged salvaging of our shipment, there was

absolutely no replacement or payment made by either defendant
LUZTEVECO or defendant Pan Malayan Insurance Co. on our
losses and eventually FAO did not recover anything from either
of the said defendants.
53. CONGEN:
Up to the present, has any replacement or payment of the value

of your lost cargo been made to your organization by either of
the defendants?
FPKEINER:
Up to the present, no replacement or payment of the value of our

lost cargo was ever made to our Organization by either of the
defendants in this case. (Deposition of Fritz Keiner, pp. 13-14)
As emphasized by said witness, the insured cargo was intended for distribution
by Vietnam Ocean Shipping Agency to the people of Kampuchea for the purpose
of alleviating the acute rice shortage then prevailing in that country and to
improve the rice production therein. (Deposition, Q17 p. 5). The bags containing
said cargo were marked "TREATED, UNFIT FOR FOOD" (Exh. "E-3-b"; TSN,
January 15, 1985, pp. 3-5) and the seeds themselves were of such a fragile
nature that they have the tendency to germinate upon mere contact with water.
As shown, of the 34,122 bags of rice seeds shipped on board Barge LC-3000
(Exh. "E-l"), 23,510 were determined by defendant-appellant's surveyor, the Pan
Asiatic Adjustment and Marine Surveying Corporation to be bad order bags (Exh.
"3"). Add to these bad order bags the shortlanded/missing bags numbering 983
per report of the same surveying corporation, the damaged/lost bags would total
24,493 thereby leaving a balance of 9,269 (sic) presumed to be good order/dry
bags. Of these 9,629 good order/dry bags, an additional 2,682 bags were found
damaged/wetted after sorting (Exh. "E"). All in all, therefore, 27,175 bags were
determined to be lost/damaged. Although 6,947 bags in apparent external good
189
order and condition were presumed to be inside the LUZTEVECO warehouse,
only 6,200 were actually determined to be there by Conrado Catalan on
September 26, 27 and 29, 1980 (Exh. "E", p. 2). This increases the number of
lost/damaged bags to 27,922.
Thus considered, We agree with the plaintiff-appellee that the 27,922

damaged/lost bags were rendered valueless to plaintiff-appellee for planting or
seeding purposes in Kampuchea since the wetting or contact with water had
definitely activated their tendency to terminate. Moreover, all of said
damaged/lost bags were no longer available for reshipment to Vietnam because
the same were disposed of by defendant LUZTEVECO without authorization
from plaintiff-appellee, to answer for alleged salvage charges, while the others
were lost/shortlanded.
Third the testimony of Mr. Conrado Catalan, Jr. that the shipment sustained a
loss of 78% is not speculative. Uncontroverted is his testimony which is based on
data corroborated by the report of defendant-appellant's adjuster/surveyor and on
actual inspection of the remaining bags stored in LUZTEVECO's warehouse.
Exhibit '3' of defendant-appellant states in part, thus:
Condition No. of
Bags
Good order(dry)
9,629
Partly wet but

damage limited
only to
approximately 10%
to
15% of the contents.

Wet
portion
terminated/sprouted.
Remaining 85% to
90% of the
contents apparently
dry 23,510
Shortlanded/missing 983
Total 34,122
Bags
It is understandable that plaintiff-appellee's surveyor (Mr. Conrado Catalan, Jr.)

no longer saw the 23,510 bad order/damaged bags as these were already sold at
public auction by defendant LUZTEVECO, while 983 more were
shortlanded/missing. When Mr. Catalan sought to verify on September 26, 27
and 29, 1980 the existence and condition of the 9,629 presumed to be good
190
order bags, he discovered that "an additional 2,629 bags were found
damaged/wetted, with the estimated 6,947 bags in apparently external good
order condition" (Exh. "E"). However, out of these presumed 6,947 bags only
approximately 6,200 bags were computed and counted by Mr. Catalan to the
best of his ability. (Exh. "E", p. 2). It is even more than 78% per testimony of Mr.
Catalan but at least 82% if we divide 6,200 (the actual number of bags in the
19
warehouse) by 34,122 (the actual number of bags loaded on Barge LC-3000).
Petitioner, on the other hand, claims that respondent court gravely erred in sustaining the ruling of the trial
court that there was total loss of the shipment since from the evidence on record and the findings of
respondent court itself, only 27,922 bags of rice seeds out of 34,122 bags were rendered valueless to
FAO and the shipment sustained only a loss of 78%. 20 Thus, petitioner concludes that the findings of the
court a quo, as affirmed by the Court of Appeals, are contrary to the evidence. Upon an examination,
however, of the records presented before this Court, it is quite clear that there was indeed actual total
loss.
While this Court is not a trier of facts, yet, when the findings of the Court of Appeals are alleged to be
without citation of specific evidence on which they are based, there is sufficient reason for us to review
the appellate court's decision. 21 Under the factual milieu of this case, we find that there is abundant
evidence to support the conclusion of respondent court.
In his testimony on cross-examination at the trial, Conrado Catalan, Jr., declared:
Q You said that you did not make an actual count but you estimated,
how many bags all in all did you estimate?
A It is 6,200 bags if I may recall.
Q Out of these 6,200 bags you only opened two (2) bags?
A Yes, sir.
Q And the others, the balance you did not examine anymore?
A It is shown in the picture that it is stained.
Q You must answer the question.
A Yes, sir.
Q What was the damage of the two (2) bags that you examined?
22
A They are stained. (Emphasis supplied.)
It will be recalled that said rice seeds were treated and would germinate upon mere contact with water.
The rule is that where the cargo by the process of decomposition or other chemical agency no longer
remains the same kind of thing as before, an actual total loss has been suffered.
... However, the complete physical destruction of the subject matter is not
essential to constitute an actual total loss. Such a loss may exist where the form
and specie of the thing is destroyed, although the materials of which it consisted
still exist (Great Western Ins. Co. vs. Fogarty, N.Y., 19 Wall 640, 22 L. Ed. 216),
as where the cargo by the process of decomposition or other chemical agency no
191
longer remains the same kind of thing as before (Williams vs. Cole, 16 Me. 207).
23
Moreover, it is undisputed that no replacement whatsoever or any payment, for that matter, of the value of
said lost cargo was made to FAO by petitioner or LUZTEVECO. It is thus clear that FAO suffered actual
total loss under Section 130 of the Insurance Code, specifically under paragraphs (c) and (d) thereof,
recompense for which it has been denied up to the present.
In view of our aforestated holding that there was actual total loss of the goods insured in this case, it is no
longer necessary to pass upon the issue of the validity of the abandonment made by FAO. Section 135 of
the Insurance Code explicitly provides that "(u)pon an actual total loss, a person insured is entitled to
payment without notice of abandonment." This is a statutory adoption of a long standing doctrine in
maritime insurance law that in case of actual total loss, the right of the insured to claim the whole
24
insurance is absolute, without need of a notice of abandonment.
WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals are hereby
AFFIRMED in toto.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras and Padilla, JJ., concur.
Sarmiento, J., is on leave.
Footnotes
1 Original Record, 11.
2 Ibid., 13.
3 Ibid., 14.
4 Ibid., 15.
5 Ibid., 16-18.
6 Ibid., 19.
7 Ibid., 21.
8 Ibid., 23.
9 Rollo, 22-23.
10 Ibid., 5.
11 Original Record, 508; per Judge Jainal D. Rasul.
12 Justice Luis L. Victor, ponente, with Justices ma S. Lombos de la Fuente and Nicolas P. Lapea, Jr.,
concurring.
13 Rollo, 45.
14 Ibid., 7.
15 Section 130, Insurance Code.
16 Section 131, Id.
17 Rollo, 25.
18 Exhibit "1"; Original Record, 808.
19 Rollo, 25-29.
20 Ibid., 16.
21 Air France vs. Court of Appeals, et al., 171 SCRA 399 (1989).
22 TSN, January 15, 1985, 8.
23 2 T.C. Martin, Commentaries and Jurisprudence on Philippine Commercial Laws, 173, (1981 Ed.).
24 Op cit., 1 76, citing Gordon vs. Insurance Co., 2 Pick (Mass.) 249 (1824).
192

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IIAP Compilation of Supreme Court-

Decided Cases on Non-Life Insurance

II. Carriage of Goods by Sea Act

III. Contract of Affreightment

V. Interpretation of an Insurance Contract/Policy

VII. Notice of Claim

VIII. Payment of Premium

IX. Perils of the Sea

XII. Total Loss

G.R. No. 85141 November 28, 1989

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,

Balgos & Perez Law Offices for petitioner.

WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant

WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the

Without pronouncement as to costs. 3

Paras, Padilla and Sarmiento, JJ., concur.

G.R. No. 84507 March 15, 1990

Lapuz Law Office for petitioner.

RESPONDENT COURT ERRED IN HOLDING THAT THE INSURED SHIPMENT DID

RESPONDENT COURT ERRED IN HOLDING THAT AN "ALL RISKS" COVERAGE

THE HOLDING OF RESPONDENT COURT THAT AN "ALL RISKS" COVERAGE

The petition is impressed with merit.

. . . issuance of this Gate Pass constitutes delivery to and receipt by

65 P/bags each of 20%

Defendant and third-party plaintiff-appellee's protective surveyor determined the exact

One (1) Container No. 2987789

65 P/bags each of 20%

There must, in order to make the insurer liable be "some casualty,"

The Court disagrees.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

Section 3(b) of the Carriage of Goods by Sea Act provides:

G.R. No. L-54140 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,

G.R. No. L-62001 October 14, 1986

FILIPINO MERCHANTS INSURANCE COMPANY, INC., petitioner,

GUTIERREZ, JR., J.:

Section 3(b) of the Carriage of Goods by Sea Act provides:

xxx xxx xxx

Feria (Chairman), Fernan, Alampay and Paras, JJ., concur.

G.R. No. 124050 June 19, 1997

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES DEPARTMENT,

WHEREFORE, judgment is hereby rendered ordering the defendants jointly and

2. P100,000.00 as and for attorney's fees; and

Private respondents elevated the case to respondent Court of Appeals.

Hence this petition with the following assignments of error:

Regalado, Romero, Mendoza and Torres, Jr., JJ., concur.

G.R. No. 114167 July 12, 1995

COASTWISE LIGHTERAGE CORPORATION, petitioner,

FRANCISCO, R., J.:

The factual background of this case is as follows:

Hence, this petition.

Article 2207 of the Civil Code is explicit on this point:

Feliciano, Romero, Melo and Vitug, JJ., concur.

G.R. No. 106999 June 20, 1996

PHILIPPINE HOME ASSURANCE CORPORATION, petitioner,

Sec 1. When in case of shipwreck, the vessel or its

In relation to the above provision, the Supreme Court has ruled in

As provided by the Civil Code:

Art. 1174. Except in cases expressly specified by law, or when it is

The burning of "EASTERN EXPLORER" while off Okinawa rendered it physically

12. All storage, transshipment, forwarding or other disposition of cargo at

I. THE RESPONDENT COURT ERRONEOUSLY ADOPTED WITH APPROVAL THE

III. THE RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION IN

VI. THE RESPONDENT COURT ERRONEOUSLY ADOPTED THE TRIAL COURT'S