LOSS

G.R. No. L-20853

May 29, 1967

BONIFACIO BROS., INC., ET AL., plaintiffs-appellants,

vs.
ENRIQUE MORA, ET AL., defendants-appellees.
G. Magsaysay for plaintiffs-appellants.
Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc.
J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee.
CASTRO, J.:
This is an appeal from the decision of the Court of First Instance of Manila, Branch XV, in civil case
48823, affirming the decision of the Municipal Court of Manila, declaring the H.S. Reyes, Inc. as
having a better right than the Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants
herein, to the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, issued by the
State Bonding & Insurance Co. Inc., and directing payment of the said amount to the H. Reyes, Inc.
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. QC- mortgaged the same
to the H.S. Reyes, Inc., with the condition that the former would insure the automobile with the latter
as beneficiary. The automobile was thereafter insured on June 23, 1959 with the State Bonding &
Insurance Co., Inc., and motor car insurance policy A-0615 was issued to Enrique Mora, the
pertinent provisions of which read:
1. The Company (referring to the State Bonding & Insurance Co., Inc.) will, subject to the
Limits of Liability, indemnify the Insured against loss of or damages to the Motor Vehicle and
its accessories and spare parts whilst thereon; (a) by accidental collision or overturning or
collision or overturning consequent upon mechanical breakdown or consequent upon wear
and tear,
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2. At its own option the Company may pay in cash the amount of the loss or damage or may
repair, reinstate, or replace the Motor Vehicle or any part thereof or its accessories or spare
parts. The liability of the Company shall not exceed the value of the parts whichever is the
less. The Insured's estimate of value stated in the schedule will be the maximum amount
payable by the Company in respect of any claim for loss or damage.
1wph1.t

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4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage for
which the Company may be liable under this Policy provided that: (a) The estimated cost
of such repair does not exceed the Authorized Repair Limit, (b) A detailed estimate of the
cost is forwarded to the Company without delay, subject to the condition that "Loss, if any is
payable to H.S. Reyes, Inc.," by virtue of the fact that said Oldsmobile sedan was mortgaged
in favor of the said H.S. Reyes, Inc. and that under a clause in said insurance policy, any
loss was made payable to the H.S. Reyes, Inc. as Mortgagee;

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During the effectivity of the insurance contract, the car met with an accident. The insurance company
then assigned the accident to the Bayne Adjustment Co. for investigation and appraisal of the
damage. Enrique Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the
Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala
Auto Parts Co. For the cost of labor and materials, Enrique Mora was billed at P2,102.73 through the
H.H. Bayne Adjustment Co. The insurance company after claiming a franchise in the amount of
P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the
order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H. Bayne Adjustment
Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to
Enrique Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio
Bros. Inc. and the Ayala Auto Parts Co. of the cost of repairs and materials.
Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc.
and the Ayala Auto Parts Co. filed on May 8, 1961 a complaint with the Municipal Court of Manila
against Enrique Mora and the State Bonding & Insurance Co., Inc. for the collection of the sum of
P2,002.73 The insurance company filed its answer with a counterclaim for interpleader, requiring the
Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has better right
to the insurance proceeds in question. Enrique Mora was declared in default for failure to appear at
the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio
Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of
facts, on the basis of which are Municipal Court rendered a decision declaring the H.S. Reyes, Inc.
as having a better right to the disputed amount and ordering State Bonding & Insurance Co. Inc. to
pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this decision, the appellants elevated
the case to the Court of First Instance of Manila which the stipulation of facts was reproduced. On
October 19, 1962 the latter court rendered a decision, affirming the decision of the Municipal Court.
The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but
the trial court denied the motion. Hence, this appeal.
The main issue raised is whether there is privity of contract between the Bonifacio Bros. Inc. and the
Ayala Auto Parts Co. on the one hand and the insurance company on the other. The appellants
argue that the insurance company and Enrique Mora are parties to the repair of the car as well as
the towage thereof performed. The authority for this assertion is to be found, it is alleged, in
paragraph 4 of the insurance contract which provides that "the insured may authorize the repair of
the Motor Vehicle necessitated by damage for which the company may be liable under the policy
provided that (a) the estimated cost of such repair does not exceed the Authorized Repair Limit, and
(b) a detailed estimate of the cost is forwarded to the company without delay." It is stressed that the
H.H. Bayne Adjustment Company's recommendation of payment of the appellants' bill for materials
and repairs for which the latter drew a check for P2,002.73 indicates that Mora and the H.H. Bayne
Adjustment Co. acted for and in representation of the insurance company.
This argument is, in our view, beside the point, because from the undisputed facts and from the
pleadings it will be seen that the appellants' alleged cause of action rests exclusively upon the terms
of the insurance contract. The appellants seek to recover the insurance proceeds, and for this
purpose, they rely upon paragraph 4 of the insurance contract document executed by and between
the State Bonding & Insurance Company, Inc. and Enrique Mora. The appellants are not mentioned
in the contract as parties thereto nor is there any clause or provision thereof from which we can infer
that there is an obligation on the part of the insurance company to pay the cost of repairs directly to

them. It is fundamental that contracts take effect only between the parties thereto, except in some
specific instances provided by law where the contract contains some stipulation in favor of a third
person.1 Such stipulation is known as stipulation pour autrui or a provision in favor of a third person
not a pay to the contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties have clearly and
deliberately conferred a favor upon such person.2Consequently, a third person not a party to the
contract has no action against the parties thereto, and cannot generally demand the enforcement of
the same.3 The question of whether a third person has an enforcible interest in a contract, must be
settled by determining whether the contracting parties intended to tender him such an interest by
deliberately inserting terms in their agreement with the avowed purpose of conferring a favor upon
such third person. In this connection, this Court has laid down the rule that the fairest test to
determine whether the interest of a third person in a contract is a stipulation pour autrui or merely an
incidental interest, is to rely upon the intention of the parties as disclosed by their contract. 4 In the
instant case the insurance contract does not contain any words or clauses to disclose an intent to
give any benefit to any repairmen or materialmen in case of repair of the car in question. The parties
to the insurance contract omitted such stipulation, which is a circumstance that supports the said
conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that
"Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which
they intended to benefit.
We likewise observe from the brief of the State Bonding & Insurance Company that it has
vehemently opposed the assertion or pretension of the appellants that they are privy to the contract.
If it were the intention of the insurance company to make itself liable to the repair shop or
materialmen, it could have easily inserted in the contract a stipulation to that effect. To hold now that
the original parties to the insurance contract intended to confer upon the appellants the benefit
claimed by them would require us to ignore the indespensable requisite that a stipulation pour
autrui must be clearly expressed by the parties, which we cannot do.
As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of
establishing privity between the appellants and the insurance company, such stipulation merely
establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair.
This paragraph therefore should not be construed as bringing into existence in favor of the
appellants a right of action against the insurance company as such intention can never be inferred
therefrom.
Another cogent reason for not recognizing a right of action by the appellants against the insurance
company is that "a policy of insurance is a distinct and independent contract between the insured
and insurer, and third persons have no right either in a court of equity, or in a court of law, to the
proceeds of it, unless there be some contract of trust, expressed or implied between the insured and
third person."5 In this case, no contract of trust, expressed or implied exists. We, therefore, agree
with the trial court that no cause of action exists in favor of the appellants in so far as the proceeds of
insurance are concerned. The appellants' claim, if at all, is merely equitable in nature and must be
made effective through Enrique Mora who entered into a contract with the Bonifacio Bros. Inc. This
conclusion is deducible not only from the principle governing the operation and effect of insurance
contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance
Act which read:
The insurance shall be applied exclusively to the proper interests of the person in whose
name it is made unless otherwise specified in the policy.

The policy in question has been so framed that "Loss, if any, is payable to H.S. Reyes, Inc.," which
unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H.S. Reyes, Inc. to the insurance
proceeds arises only if there was loss and not where there is mere damage as in the instant case.
Suffice it to say that any attempt to draw a distinction between "loss" and "damage" is uncalled for,
because the word "loss" in insurance law embraces injury or damage.
Loss in insurance, defined. The injury or damage sustained by the insured in
consequence of the happening of one or more of the accidents or misfortune against which
the insurer, in consideration of the premium, has undertaken to indemnify the insured. (1
Bouv. Ins. No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in Martin's
Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be either total or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants' cost.

LOSS (EFFECT OF GROSS NEGLIGENCE)

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,
ThirdParty 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.
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 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:
. . . 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 coinsurers 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.
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 appeal, especially when they are borne out by the records or are based on
substantial evidence.9 As held in the case of Donato v. Court of Appeals,10 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 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 madness."15
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 Malandong, 5 kilometers from wharf where the barge remained. 16 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 petitioners could not be held liable for.17

The Civil Code provides:

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 excused.22
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.
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:
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 defendantsappellants 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.

PROOF OF LOSS
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 138737

July 12, 2001

FINMAN GENERAL ASSURANCE CORPORATION, petitioner,

vs.
COURT OF APPEALS and USIPHIL INCORPORATED, respondents.
KAPUNAN, J.:
Through this petition for review on certiorari Finman General Assurance Corporation (petitioner)
seeks to reverse and set aside the Decision, dated January 14, 1999, of the Court of Appeals (CA) in
CA-G.R. CV No. 46721 directing petitioner to pay the insurance claim of Usiphil Incorporated
(private respondent). The appellate courts Resolution, dated May 13, 1999, which denied
petitioners motion for reconsideration, is likewise sought to be reversed and set aside.
The antecedent facts, as culled from the decision of the trial court and the CA, are as follows:
On September 15, 1981, private respondent obtained a fire insurance policy from petitioner (then
doing business under the name Summa Insurance Corporation) covering certain properties, e.g.,
office, furniture, fixtures, shop machinery and other trade equipment. Under Policy No. F3100 issued
to private respondent, petitioner undertook to indemnify private respondent for any damage to or
loss of said properties arising from fire.
Sometime in 1982, private respondent filed with petitioner an insurance claim amounting to
P987,126.11 for the loss of the insured properties due to fire. Acting thereon, petitioner appointed
Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then
required private respondent to file a formal claim and submit proof of loss. In compliance therewith,
private respondent submitted its Sworn Statement of Loss and Formal Claim, dated July 22, 1982,
signed by Reynaldo Cayetano, private respondents Manager. Respondent likewise submitted Proof
of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Baynes
Adjuster F.C. Medina.
Palallos personally followed-up private respondents claim with petitioners President Joaquin
Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to
reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated
February 28, 1985, which indicated that the amount due respondent was P842,683.40.
Despite repeated demands by private respondent, petitioner refused to pay the insurance claim.
Thus, private respondent was constrained to file a complaint against petitioner for the unpaid
insurance claim. In its Answer, petitioner maintained that the claim of private respondent could not
be allowed because it failed to comply with Policy Condition No. 13 regarding the submission of
certain documents to prove the loss.
Trial ensued. On July 6, 1994, the trial court rendered judgment in favor of private respondent. The
dispositive portion of the decision reads:
WHEREFORE, in view of the above observations and findings, judgment is hereby rendered
in favor of the plaintiff and against the defendant, ordering the latter:
1. To pay the plaintiff the sum of P842,683.40 and to pay 24% interest per annum
from February 28, 1985 until fully paid (par. 29 of Exh. K);

2. To pay the plaintiff the sum equivalent to 10% of the principal obligation as and for
attorneys fees, plus P1,500.00 per court appearance of counsel;
3. To pay the plaintiff the amount of P30,000.00 as exemplary damages in addition to
the actual and compensatory damages awarded;
4. Dismissing the claim of P30,000.00 for actual damages under par. 4 of the prayer,
since the actual damages has been awarded under par. 1 of the decisions
dispositive portion;
5. Dismissing the claim of interest under par. 2 of the prayer, there being no
agreement to such effect;
6. Dismissing the counter-claim for lack of merit;
7. Ordering the defendant to pay the cost of suit.
SO ORDERED.1
On appeal, the CA substantially affirmed the decision of the trial court. The dispositive portion of the
CA decision reads:
WHEREFORE, the appealed decision is hereby AFFIRMED with the modification that
defendant-appellant is ordered to pay plaintiff-appellee the sum of P842,683.40 and to pay
24% interest per annum from 03 May 1985 until fully paid. In all other respects, the appealed
decision is AFFIRMED IN TOTO.
SO ORDERED.2
Petitioner now comes to this Court assailing the decision of the appellate court. Petitioner alleges
that:
Respondent Court of Appeals erred in finding that there is evidence sufficient to justify the
Decision of the lower court;
Respondent Court of Appeals erred in failing to consider the fact that Private Respondent
committed a violation of the Insurance Policy which justifies the denial of the claim by
Petitioner;
Respondent Court of Appeals further erred in finding that Petitioner is liable to pay the
respondent, Usiphil, Inc., an interest of 24% per annum in addition to the principal amount of
P842,683.40.3
Essentially, petitioner argues that the disallowance of private respondents claim is justified by its
failure to submit the required documents in accordance with Policy Condition No. 13. Said
requirements were allegedly communicated to private respondent in the two letters of H.H. Bayne to
private respondent. The first letter stated:

To be able to expedite adjustment of this case, please submit to us without delay the
following documents and/or particulars:
For FFF, Machineries/Equipment Claims
1. Your formal claim (which may be accomplished in the enclosed form) accompanied by a
detailed inventory of the documents submitted.
2. Certification from the appropriate government office indicating the date of the occurrence
of the fire, the property involved, its location and possible point of origin.
3. Proof of premium payment.
4. Three color photographs of the debris properly captioned/identified/dated and initiated by
the claimant at the back.
4.1 Close-up (not more than 2 meters away) of the most severely damaged.
4.2 Close-up (not more than 2 meters away) of the least damaged.
4.3. Original view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.
Though our adjusters will also take photographs in the manner prescribed above, please do
not rely on his photographs in the preservations of your evidence of loss thru pictures.
5. Copies of purchase invoices.
6. In the absence of No. 5, suppliers certificates of sales and delivery.
7. Appraisal report, if any.
8. Where initial estimated loss is exceeding P20,000.00, submit estimate by at least 2
contractors/suppliers.
9. Others (to be specified)
1. Repairs cost of the affected items including quotation or invoices in support thereof;
2. Complete lists of furniture, fixtures & fittings including date and cost of acquisition, and;
3. Statement of salvage on burned items.
Your preferential attention to this request will be fully appreciated.4
While the other letter stated:
Please submit to us without delay the following documents and/or particulars.

For Stock Claim

1. Your formal claim (which may be accomplished in the enclosed), accompanied by a
detailed inventory of the documents submitted.
2. Certification from the appropriate government office showing that the Insureds property
was involved in the fire as a consequence of which the claim is being filed.
3. Proof of premium payment.
4. Three colored photographs of the debris, property captioned/identified/dated and initiated
by the claimant at the back; in a floor plan, indicate the point from where the picture was
taken and by an arrow where the camera was facing.
4.1. Close-up (not more than 2 meters away) of the most severely damaged.
4.2. Close-up (not more than 2 meters away) of the least damaged.
4.3. Overall view of the debris (may be from farther than 2 meters away); splice two or more
frames if necessary.
Our adjuster will also take photographs.
5. Books of accounts bill, invoices and other vouchers, or certified copies thereof if originals
be lost. This requirement includes, but is not limited to, purchase and sales invoices, delivery
6. Certified copies of income tax returns for the last three years and the accompanying
financial statements.
7. Latest inventory of merchandise filed with a financial institution, the Bureau of Internal
Revenue or any government entity prior to the loss.
8. A detailed inventory of the articles damaged or destroyed, showing the cost price of each,
extent of loss, if any, if the risk sustained partial or water damaged.
9. Certificates of registration.
10. Bank Statements.
11. For losses where the estimated value of stocks claimed which are burned out of sight
and/or which may no longer be subject to actual physical count exceeds P50,000.00, a
CPAs detailed computations in support of such estimated value.
12. In the absence of purchase invoices/delivery receipts (state reason for absence), submit
suppliers certificate of sales and delivery.
13. Others (to be specified).

Statement of salvage of the affected stocks in trade.

Your compliance with this request will enable us to expedite adjustment of the loss in
caption.5
According to petitioner, in complete disregard of the foregoing requirements, private respondent
never submitted any of the documents mentioned therein. Further, petitioner assails the award in
favor of private respondent of an interest rate of 24% per annum. Since there was allegedly no
express finding that petitioner unreasonably denied or withheld the payment of the subject insurance
claim, then the award of 24% per annum is not proper. Petitioner opines that the judgment should
only bear the legal interest rate of 12% per annum for the delay in the payment of the claim.
The petition is bereft of merit.
Well-settled is the rule that factual findings and conclusions of the trial court and the CA are entitled
to great weight and respect, and will not be disturbed on appeal in the absence of any clear showing
that the trial court overlooked certain facts or circumstances which would substantially affect the
disposition of the case.6 There is no cogent reason to deviate from this salutary rule in the present
case.
Both the trial court and the CA concur in holding that private respondent had substantially complied
with Policy Condition No. 13 which reads:
13. The insured shall give immediate written notice to the Company of any loss, protect the
property from further damage, forthwith separate the damaged and undamaged personal
property, put it in the best possible order, furnish a complete inventory of the destroyed,
damaged, and undamaged property, showing in detail quantities, costs, actual cash value
and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS
SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL
RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured,
stating the knowledge and belief of the insured as to the following: the time and origin of the
loss, the interest of the insured and of all others in the property, the actual cash value of each
item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of
insurance, whether valid or not, covering any of said property, any changes in the title, use,
occupation, location, possession or exposures of said property since the issuing of this policy
by whom and for what purpose any buildings herein described and the several parts thereof
were occupied at the time of loss and whether or not it then stood on leased ground, and
shall furnish a copy of all the descriptions and schedules in all policies, and if required
verified plans and specifications of any building, fixtures, or machinery destroyed or
damaged. The insured, as often as may be reasonably required, shall exhibit to any person
designated by the company all that remains of any property herein described, and submit to
examination under oath by any person named by the Company, and subscribe the same;
and, as often as may be reasonably required, shall produce for examination all books of
account, bills, invoices, and other vouchers or certified copies thereof if originals be lost, at
such reasonable time and place as may be designated by the Company or its representative
and shall permit extracts and copies thereof to be made.
No claim under this policy shall be payable unless the terms of this condition have been
complied with.7

A perusal of the records shows that private respondent, after the occurrence of the fire, immediately
notified petitioner thereof. Thereafter, private respondent submitted the following documents: (1)
Sworn Statement of Loss and Formal Claim (Exhibit C) and; (2) Proof of Loss (Exhibit D). The
submission of these documents, to the Courts mind, constitutes substantial compliance with the
above provision. Indeed, as regards the submission of documents to prove loss, substantial, not
strict as urged by petitioner, compliance with the requirements will always be deemed sufficient. 8
In any case, petitioner itself acknowledged its liability when through its Finance Manager, Rosauro
Maghirang, it signed the document indicating that the amount due private respondent is P842,683.40
(Exhibit E). As correctly held by the appellate court:
Under the aforequoted provision of the insurance policy, the insured was required to submit
to the insurer written notice of the loss; and a complete inventory of the properties damaged
within 60 days after the fire, as well as a signed and sworn statement of Proof of Loss. It is
admitted by all parties that plaintiff-appellee notified the insurer Summa Corporation of the
fire which occurred on 27 May 1982. It is likewise admitted by all parties that plaintiffappellee submitted the following documents in support of its claim: (1) Sworn Statement of
Loss (Exhibit C); (2) formal claim dated 22 July 1982; (3) unnotarized sworn statement of
proof of loss (Exhibit D). There was, therefore, sufficient compliance with the requirements in
Section 13 of the policy. But, even assuming that plaintiff-appellee indeed failed to submit
certain required documents as proof of loss per Section 13, such violation was waived by the
insurer Summa when it signed the document marked Exhibit E, a breakdown of the amount
due to plaintiff-appellee as of February 1985 on the insurance claim. By such act, defendantappellant acknowledged its liability under the insurance policy.
Antecedent to the execution of Exhibit E, there was a conference between Pallalos,
representing plaintiff-appellee and Ortega representing Summa Insurance. There is no
evidence that in that meeting, Summa Insurance questioned plaintiff-appellees submission
of the required documents. What happened was that Ortega summoned Maghirang so that
he could settle with Pallalos regarding the amount due to plaintiff-appellee from insurance
claim. The result is a reconciliation of claim in Exhibit E which shows that as of February
1985, the net due sum is P842,683.49.
Defendant-appellant alleges that Maghirang was without authority to sign Exhibit E, and
therefore without authority to bind defendant-appellant corporation. We do not agree. The
evidence indicate that at a meeting between plaintiff-appellees corporate president Pedro
Pallalos and his counterpart in defendant-appellant corporation, Joaquin Ortega, the latter
summoned Rosauro Maghirang to reconcile the claims of plaintiff-appellee. One who clothes
another with apparent authority as his agent and holds him to the public as such, cannot
later be allowed to deny the authority of such person to act as his agent when such third
person entered into the contract in good faith and in an honest belief that he is such agent.
Witness for defendant-appellant Luis Manapats testimony that Maghirang was without
authority to bind the defendant-appellant cannot be given credence because, as he himself
testified, he was not yet part of the Summa Corporation at the time the negotiations in
question were going on.9
Anent the payment of 24% interest per annum computed from May 3, 1985 until fully paid, suffice it
to say that the same is authorized by Sections 243 and 244 of the Insurance Code:

Sec. 243. The amount of any loss or damage for which an insurer may be liable, under any
policy other than life insurance policy, shall be paid within thirty days after proof of loss is
received by the insurer and ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by arbitration; but if such ascertainment is
not had or made within sixty days after such receipt by the insurer of the proof of loss, then
the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to
pay the loss or damage within the time prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration of the delay at the rate of twice the
ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the ground that the claim is fraudulent.
Sec. 244. In case of any litigation for the enforcement of any policy or contract of insurance,
it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding
as to whether the payment of the claim of the insured has been unreasonably denied or
withheld; and in the affirmative case, the insurance company shall be adjudged to pay
damages which shall consist of attorneys fees and other expenses incurred by the insured
person by reason of such unreasonable denial or withholding of payment plus interest of
twice the ceiling prescribed by the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in section two hundred forty-two or in
section two hundred forty-three, as the case may be, until the claim is fully
satisfied: Provided, That the failure to pay any such claim within the time prescribed in said
sections shall be considered prima facie evidence of reasonable delay in payment.
Notably, 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 both Sections 243 and
244.10 Further, Section 29 of the policy itself provides for the payment of such interest:
29. Settlement of claim clause. The amount of any loss or damage for which the company
may be liable, under this policy shall be paid within thirty days after proof of loss is received
by the company and ascertainment of the loss or damage is made either in an agreement
between the insured and the company or by arbitration; but if such ascertainment is not had
or made within sixty days after such receipt by the company of the proof of loss, then the
loss or damage shall be paid within ninety days after such receipt.Refusal or failure to pay
the loss or damage within the time prescribed herein will entitle the assured to collect interest
on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless such failure or refusal to pay is based on the
grounds (sic) that the claim is fraudulent.11
The policy itself obliges petitioner to pay the insurance claim within thirty days after proof of loss and
ascertainment of the loss made in an agreement between private respondent and petitioner. In this
case, as found by the CA, petitioner and private respondent signed the agreement (Exhibit E)
indicating that the amount due private respondent was P842,683.40 on April 2, 1985. Petitioner thus
had until May 2, 1985 to pay private respondents insurance. 12 For its failure to do so, the CA and the
trial court rightfully directed petitioner to pay, inter alia, 24% interest per annum in accordance with
the above quoted provisions.
1wphi1.nt

WHEREFORE, the instant petition is hereby DENIED for lack of merit. The Decision, dated January
14, 1999, of the Court of Appeals in CA-G.R. CV No. 46721 and its Resolution, dated May 13, 1999,
are AFFIRMED IN TOTO.

SO ORDERED.
Davide, Jr., C.J., Puno, Pardo, Ynares-Santiago, JJ., c

EFFECT OF DELAY OF INSURER

G.R. No. 76101-02 September 30, 1991
TIO KHE CHIO, petitioner,
vs.
THE HONORABLE COURT OF APPEALS and EASTERN ASSURANCE AND SURETY
CORPORATION,respondents.
Rodolfo M. Morelos for petitioner.
Ferrer, Mariano, Sangalang & Gatdula for private respondent.

FERNAN, C.J.:p
The issue in this petition for certiorari and prohibition is the legal rate of interest to be imposed in
actions for damages arising from unpaid insurance claims. Petitioner Tio Khe Chio claims that it
should be twelve (12%) per cent pursuant to Articles 243 and 244 of the Insurance Code while
private respondent Eastern Assurance and Surety Corporation (EASCO) claims that it should be six
(6%) per cent under Article 2209 of the Civil Code.
The facts are as follows: On December 18, 1978, petitioner Tio Khe Chio imported one thousand
(1,000) bags of fishmeal valued at $36,000.30 from Agro Impex, U.S.A. Dallas, Texas, U.S.A. The
goods were insured with respondent EASCO and shipped on board the M/V Peskov, a vessel owned
by Far Eastern Shipping Company. When the goods reached Manila on January 28, 1979, they were
found to have been damaged by sea water which rendered the fishmeal useless. Petitioner filed a
claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, petitioner sued them
before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed
a counterclaim against the petitioner for the recovery of P18,387.86 representing the unpaid
insurance premiums.
On June 30, 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to
pay petitioner solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums
with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's
fees and the costs. 1
The judgment became final as to EASCO but the shipping company appealed to the Court of
Appeals and was absolved from liability by the said court in AC-G.R. No. 00161, entitled "Tio Khe
Chio vs. Eastern Assurance and Surety Corporation."

The trial court, upon motion by petitioner, issued a writ of execution against EASCO. The sheriff
enforcing the writ reportedly fixed the legal rate of interest at twelve (12%). Respondent EASCO
moved to quash the writ alleging that the legal interest to be computed should be six (6%) per cent
per annum in accordance with Article 2209 of the Civil Code and not twelve (12%) per cent as
insisted upon by petitioner's counsel. In its order of July 30, 1986, the trial court denied EASCO's
motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals.
On July 30, 1986, the Appellate Court rendered the assailed judgment, the dispositive part of which
states:
WHEREFORE, the order dated July 30, 1986 is hereby SET ASIDE in so far as it fixes the interest at
12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full
payment of the amount, and the interest that the private respondent is entitled to collect from the
petitioner is hereby reduced to 6% per annum.
No pronouncement as to costs. 2

MARINE INSURANCE
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.

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 complaint. 1
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. 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:
I

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.
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. 6FMIC). 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 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%
78 P/bags each of 35%
79 P/bags each of 45%
87 P/bags each of 65%
94 P/bags each of 75%
(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.
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:
65 P/bags each of 20%
78 P/bags each of 35%
79 P/bags each of 45%
87 P/bags each of 65%
94 P/bags each of 75%
(emphasis supplied) 6
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. 9The 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
cargo when released by the broker as it was not physically examined by the broker. 10
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:
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 the sea. 11
The Court disagrees.
In Gloren Inc. vs. Filipinas Cia. de Seguros, 12 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 caused by delay or inherent vice or nature of the subject matter insured.
Claims recoverable hereunder shall be payable irrespective of percentage. 13
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.

PERILS OF THE SEA vs. PERILS OF THE SHIP

G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber
Enterprises and ONG CHIONG, petitioners,
vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION,respondent.

GUTIERREZ, JR., J.:

This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court
which absolved the respondent insurance company from liability on the grounds that the vessel
carrying the insured cargo was unseaworthy and the loss of said cargo was caused not by the perils
of the sea but by the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier,
entered into a contract with the petitioners whereby the former would load and carry on board its
barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North
Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent
Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound,
Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached
its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in
Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both
the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of the hatches was left open causing
water to enter the barge and because the barge was not provided with the necessary cover or
tarpaulin, the ordinary splash of sea waves brought more water inside the barge.
On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00
for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the

demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00
under the insurance policy but respondent refused to pay on the ground that its hability depended
upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced Civil Case No.
86599 against Manila Bay and respondent Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision
reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer
Insurance and Surety Corporation to pay plaintiffs, jointly and severally, the sum of
P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, in
addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the
former as down payment for transporting the logs in question;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for
lack of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may
pay the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed
for lack of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary
damages are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees
in the sum of P10,000.00 is hereby granted, against both defendants, who are,
moreover ordered to pay the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%)
from March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is without
funds.
During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged part
of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in
a bank in the name of Civil Case No. 86599.
On January 30, 1984, the appellate court modified the trial court's decision and absolved Pioneer
from liability after finding that there was a breach of implied warranty of seaworthiness on the part of
the petitioners and that the loss of the insured cargo was caused by the "perils of the ship" and not
by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.
After the appellate court denied their motion for reconsideration, the petitioners filed this petition with
the following assignments of errors:

I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES
OF MARINE CARGO INSURANCE, THERE IS A WARRANTY OF
SEAWORTHINESS BY THE CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS
OF THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND
NOT BY "PERILS OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE
RETURN TO PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS
DEPOSITED IN THE TRIAL COURT AS SALVAGE VALUE OF THE LOGS THAT
WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness
provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to
it that his ship is reasonably fit to make in safety the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do
with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship,
its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other
shippers, and the hiring of a sufficient number of competent officers and seamen. The petitioners'
arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to
appeal the questioned decision. However, the petitioners state that Manila Bay has ceased operating
as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses
from the insurer.
The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing
which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.
Section 99 of the same Code also provides in part.
Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the above-quoted provisions, there can be no mistaking the fact that the term "cargo" can be
the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.
As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40
Phil. 40):
The same conclusion must be reached if the question be discussed with reference to
the seaworthiness of the ship. It is universally accepted that in every contract of
insurance upon anything which is the subject of marine insurance, a warranty is
implied that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). ...
Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in
ordinary marine insurance and may not be used by him as a defense in order to recover on the
marine insurance policy.
As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):
There was no look-out, and both that and the rate of speed were contrary to the
Canadian Statute. The exception of losses occasioned by unseaworthiness was in
effect a warranty that a loss should not be so occasioned, and whether the fact of
unseaworthiness were known or unknown would be immaterial.
Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine
insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which
keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the cargo
owner may enter into a contract of insurance which specifically provides that the insurer answers not
only for the perils of the sea but also provides for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by
the private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North
River Ins. Co., Minn214 NW 472, 55 ALR 933). The purpose of such insurance is
protection against contingencies and against possible damages and such a policy
does not cover a loss or injury which must inevitably take place in the ordinary
course of things. There is no doubt that the term 'perils of the sea' extends only to
losses caused by sea damage, or by the violence of the elements, and does not
embrace all losses happening at sea. They insure against losses from extraordinary
occurrences only, such as stress of weather, winds and waves, lightning, tempests,
rocks and the like. These are understood to be the "perils of the sea" referred in the
policy, and not those ordinary perils which every vessel must encounter. "Perils of the
sea" has been said to include only such losses as are of extraordinary nature,
or arise from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Damage done to a vessel by perils of
the sea includes every species of damages done to a vessel at sea, as distinguished
from the ordinary wear and tear of the voyage, anddistinct from injuries suffered by

the vessel in consequence of her not being seaworthy at the outset of her voyage (as
in this case). It is also the general rule that everything which happens thru the
inherent vice of the thing, or by the act of the owners, master or shipper, shall not be
reputed a peril, if not otherwise borne in the policy. (14 RCL on Insurance, Sec. 384,
pp. 1203- 1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed.
787, 48 S. Ct. 459).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was
caused by the perils of the sea, not by the perils of the ship because as found by the trial court, the
barge was turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and
waves." Moreover, petitioners also maintain that barratry, against which the cargo was also insured,
existed when the personnel of the tugboat and the barge committed a mistake by turning loose the
barge from the tugboat east of Cabuli Point. The trial court also found that the stranding and
foundering of Mable 10 was due to improper loading of the logs as well as to a leak in the barge
which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned by the
perils of the sea characterized by the "storm and waves" which buffeted the vessel, the records show
that the court ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of
the logs was occasioned by force majeure... "was not supported by the evidence. At
the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a
condition which is natural and normal in the open sea. The evidence shows that the
sinking of Mable 10 was due to improper loading of the logs on one side so that the
barge was tilting on one side and for that it did not navigate on even keel; that it was
no longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge from the
tugboat east of Cabuli point where it was buffeted by storm and waves, while the
tugboat proceeded to west of Cabuli point where it was protected by the mountain
side from the storm and waves coming from the east direction. ..."
In fact, in the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier
developed a leak which allowed water to come in and that one of the hatches of said barge was
negligently left open by the person in charge thereof causing more water to come in and that "the
loss of said plaintiffs' cargo was due to the fault, negligence, and/or lack of skill of defendant carrier
and/or defendant carrier's representatives on barge Mable 10."
It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the
perils of the sea. The facts clearly negate the petitioners' claim under the insurance policy. In the
case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate
on the term "perils of the ship." We ruled:
It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary

conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
called the "peril of the ship." The insurer undertakes to insure against perils of the
sea and similar perils, not against perils of the ship. As was well said by Lord
Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([1887], 12 A. C.,
503, 509), 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.
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 which result from the
perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the
liability of the shipowner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the shipowner excepts the
perils of the sea from his engagement under the bill of lading, while this is the very
perils against which the insurer intends to give protection. As applied to the present
case it results that the owners of the damaged rice must look to the shipowner for
redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of
the vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or
crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to
the prejudice of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on
Law of Insurance, 1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of
judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of
Insurance, p. 929 and cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of
the vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment
of error must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this
should be deducted from the amounts which have been adjudicated against Manila Bay Lighterage
Corporation by the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of
P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the

Manila Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered
paid to the petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the
decision of the trial court is accordingly reduced by the same amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Relova, J., is on leave.