G.R. No.

115278 May 23, 1995

FORTUNE INSURANCE AND SURETY CO., INC., petitioner,

vs.
COURT OF APPEALS and PRODUCERS BANK OF THE
PHILIPPINES, respondents.

DAVIDE, JR., J.:

The fundamental legal issue raised in this petition for review on certiorari is
whether the petitioner is liable under the Money, Security, and Payroll
Robbery policy it issued to the private respondent or whether recovery
thereunder is precluded under the general exceptions clause thereof. Both
the trial court and the Court of Appeals held that there should be recovery.
The petitioner contends otherwise.

This case began with the filing with the Regional Trial Court (RTC) of
Makati, Metro Manila, by private respondent Producers Bank of the
Philippines (hereinafter Producers) against petitioner Fortune Insurance
and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the
sum of P725,000.00 under the policy issued by Fortune. The sum was
allegedly lost during a robbery of Producer's armored vehicle while it was in
transit to transfer the money from its Pasay City Branch to its head office in
Makati. The case was docketed as Civil Case No. 1817 and assigned to
Branch 146 thereof.

After joinder of issues, the parties asked the trial court to render judgment
based on the following stipulation of facts:

1. The plaintiff was insured by the defendants and

an insurance policy was issued, the duplicate
original of which is hereto attached as Exhibit "A";

2. An armored car of the plaintiff, while in the

process of transferring cash in the sum of
P725,000.00 under the custody of its teller,
Maribeth Alampay, from its Pasay Branch to its
Head Office at 8737 Paseo de Roxas, Makati, Metro
Manila on June 29, 1987, was robbed of the said
cash. The robbery took place while the armored car
was traveling along Taft Avenue in Pasay City;

3. The said armored car was driven by Benjamin

Magalong Y de Vera, escorted by Security Guard
Saturnino Atiga Y Rosete. Driver Magalong was
assigned by PRC Management Systems with the
plaintiff by virtue of an Agreement executed on
August 7, 1983, a duplicate original copy of which is
hereto attached as Exhibit "B";

4. The Security Guard Atiga was assigned by

Unicorn Security Services, Inc. with the plaintiff by
virtue of a contract of Security Service executed on
October 25, 1982, a duplicate original copy of which
is hereto attached as Exhibit "C";

5. After an investigation conducted by the Pasay

police authorities, the driver Magalong and guard
Atiga were charged, together with Edelmer Bantigue
Y Eulalio, Reynaldo Aquino and John Doe, with
violation of P.D. 532 (Anti-Highway Robbery Law)
before the Fiscal of Pasay City. A copy of the
complaint is hereto attached as Exhibit "D";

6. The Fiscal of Pasay City then filed an information

charging the aforesaid persons with the said crime
before Branch 112 of the Regional Trial Court of
Pasay City. A copy of the said information is hereto
attached as Exhibit "E." The case is still being tried
as of this date;

7. Demands were made by the plaintiff upon the

defendant to pay the amount of the loss of
P725,000.00, but the latter refused to pay as the
loss is excluded from the coverage of the insurance
policy, attached hereto as Exhibit "A," specifically
under page 1 thereof, "General Exceptions" Section
(b), which is marked as Exhibit "A-1," and which
reads as follows:
 GENERAL EXCEPTIONS

The company shall not be liable under this policy in

report of

xxx xxx xxx

(b) any loss caused by any dishonest,

fraudulent or criminal act of the insured
or any officer, employee, partner,
director, trustee or authorized
representative of the Insured whether
acting alone or in conjunction with
others. . . .

8. The plaintiff opposes the contention of the

defendant and contends that Atiga and Magalong
are not its "officer, employee, . . . trustee or
authorized representative . . . at the time of the
robbery.1

On 26 April 1990, the trial court rendered its decision in favor of Producers.
The dispositive portion thereof reads as follows:

WHEREFORE, premises considered, the Court finds for plaintiff

and against defendant, and

(a) orders defendant to pay plaintiff the

net amount of P540,000.00 as liability
under Policy No. 0207 (as mitigated by
the P40,000.00 special clause deduction
and by the recovered sum of
P145,000.00), with interest thereon at
the legal rate, until fully paid;

(b) orders defendant to pay plaintiff the

sum of P30,000.00 as and for attorney's
fees; and

(c) orders defendant to pay costs of suit.

 All other claims and counterclaims are accordingly dismissed
forthwith.

SO ORDERED. 2

The trial court ruled that Magalong and Atiga were not employees or
representatives of Producers. It Said:

The Court is satisfied that plaintiff may not be said to have

selected and engaged Magalong and Atiga, their services as
armored car driver and as security guard having been merely
offered by PRC Management and by Unicorn Security and
which latter firms assigned them to plaintiff. The wages and
salaries of both Magalong and Atiga are presumably paid by
their respective firms, which alone wields the power to dismiss
them. Magalong and Atiga are assigned to plaintiff in fulfillment
of agreements to provide driving services and property
protection as such in a context which does not impress the
Court as translating into plaintiff's power to control the conduct
of any assigned driver or security guard, beyond perhaps
entitling plaintiff to request are replacement for such driver
guard. The finding is accordingly compelled that neither
Magalong nor Atiga were plaintiff's "employees" in avoidance of
defendant's liability under the policy, particularly the general
exceptions therein embodied.

Neither is the Court prepared to accept the proposition that

driver Magalong and guard Atiga were the "authorized
representatives" of plaintiff. They were merely an assigned
armored car driver and security guard, respectively, for the
June 29, 1987 money transfer from plaintiff's Pasay Branch to
its Makati Head Office. Quite plainly it was teller Maribeth
Alampay who had "custody" of the P725,000.00 cash being
transferred along a specified money route, and hence plaintiff's
then designated "messenger" adverted to in the policy. 3

Fortune appealed this decision to the Court of Appeals which docketed the
case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May
1994, it affirmed in toto the appealed decision.
The Court of Appeals agreed with the conclusion of the trial court that
Magalong and Atiga were neither employees nor authorized
representatives of Producers and ratiocinated as follows:

A policy or contract of insurance is to be construed liberally in

favor of the insured and strictly against the insurance company
(New Life Enterprises vs. Court of Appeals, 207 SCRA 669;
Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA
554). Contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear
and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense (New Life Enterprises
Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of
Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted

stipulation is plain, ordinary and simple. No other interpretation
is necessary. The word "employee" must be taken to mean in
the ordinary sense.

The Labor Code is a special law specifically dealing with/and

specifically designed to protect labor and therefore its definition
as to employer-employee relationships insofar as the
application/enforcement of said Code is concerned must
necessarily be inapplicable to an insurance contract which
defendant-appellant itself had formulated. Had it intended to
apply the Labor Code in defining what the word "employee"
refers to, it must/should have so stated expressly in the
insurance policy.

Said driver and security guard cannot be considered as

employees of plaintiff-appellee bank because it has no power to
hire or to dismiss said driver and security guard under the
contracts (Exhs. 8 and C) except only to ask for their
replacements from the contractors.5

On 20 June 1994, Fortune filed this petition for review on certiorari. It

alleges that the trial court and the Court of Appeals erred in holding it liable
under the insurance policy because the loss falls within the general
exceptions clause considering that driver Magalong and security guard
Atiga were Producers' authorized representatives or employees in the
transfer of the money and payroll from its branch office in Pasay City to its
head office in Makati.

According to Fortune, when Producers commissioned a guard and a driver

to transfer its funds from one branch to another, they effectively and
necessarily became its authorized representatives in the care and custody
of the money. Assuming that they could not be considered authorized
representatives, they were, nevertheless, employees of Producers. It
asserts that the existence of an employer-employee relationship "is
determined by law and being such, it cannot be the subject of agreement."
Thus, if there was in reality an employer-employee relationship between
Producers, on the one hand, and Magalong and Atiga, on the other, the
provisions in the contracts of Producers with PRC Management System for
Magalong and with Unicorn Security Services for Atiga which state that
Producers is not their employer and that it is absolved from any liability as
an employer, would not obliterate the relationship.

Fortune points out that an employer-employee relationship depends upon

four standards: (1) the manner of selection and engagement of the putative
employee; (2) the mode of payment of wages; (3) the presence or absence
of a power to dismiss; and (4) the presence and absence of a power to
control the putative employee's conduct. Of the four, the right-of-control test
has been held to be the decisive factor. 6 It asserts that the power of control
over Magalong and Atiga was vested in and exercised by Producers.
Fortune further insists that PRC Management System and Unicorn Security
Services are but "labor-only" contractors under Article 106 of the Labor
Code which provides:

Art. 106. Contractor or subcontractor. There is "labor-only"

contracting where the person supplying workers to an employer
does not have substantial capital or investment in the form of
tools, equipment, machineries, work premises, among others,
and the workers recruited and placed by such persons are
performing activities which are directly related to the principal
business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the
employer who shall be responsible to the workers in the same
 manner and extent as if the latter were directly employed by
him.

Fortune thus contends that Magalong and Atiga were employees of

Producers, following the ruling in International Timber
Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor
is equivalent to a finding that there is an employer-employee relationship
between the owner of the project and the employees of the "labor-only"
contractor.

On the other hand, Producers contends that Magalong and Atiga were not
its employees since it had nothing to do with their selection and
engagement, the payment of their wages, their dismissal, and the control of
their conduct. Producers argued that the rule in International Timber Corp.
is not applicable to all cases but only when it becomes necessary to
prevent any violation or circumvention of the Labor Code, a social
legislation whose provisions may set aside contracts entered into by parties
in order to give protection to the working man.

Producers further asseverates that what should be applied is the rule

in American President Lines vs. Clave, 8 to wit:

In determining the existence of employer-employee

relationship, the following elements are generally considered,
namely: (1) the selection and engagement of the employee; (2)
the payment of wages; (3) the power of dismissal; and (4) the
power to control the employee's conduct.

Since under Producers' contract with PRC Management Systems it is the

latter which assigned Magalong as the driver of Producers' armored car
and was responsible for his faithful discharge of his duties and
responsibilities, and since Producers paid the monthly compensation of
P1,400.00 per driver to PRC Management Systems and not to Magalong, it
is clear that Magalong was not Producers' employee. As to Atiga,
Producers relies on the provision of its contract with Unicorn Security
Services which provides that the guards of the latter "are in no sense
employees of the CLIENT."

There is merit in this petition.

It should be noted that the insurance policy entered into by the parties is a
theft or robbery insurance policy which is a form of casualty insurance.
Section 174 of the Insurance Code provides:

Sec. 174. Casualty insurance is insurance covering loss or

liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as falling
exclusively within the scope of insurance such as fire or marine.
It includes, but is not limited to, employer's liability insurance,
public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal
accident and health insurance as written by non-life insurance
companies, and other substantially similar kinds of insurance.
(emphases supplied)

Except with respect to compulsory motor vehicle liability insurance, the

Insurance Code contains no other provisions applicable to casualty
insurance or to robbery insurance in particular. These contracts are,
therefore, governed by the general provisions applicable to all types of
insurance. Outside of these, the rights and obligations of the parties must
be determined by the terms of their contract, taking into consideration its
purpose and always in accordance with the general principles of insurance
law. 9

It has been aptly observed that in burglary, robbery, and theft insurance,
"the opportunity to defraud the insurer the moral hazard is so great
that insurers have found it necessary to fill up their policies with countless
restrictions, many designed to reduce this hazard. Seldom does the insurer
assume the risk of all losses due to the hazards insured
against." 10 Persons frequently excluded under such provisions are those in
the insured's service and employment. 11 The purpose of the exception is to
guard against liability should the theft be committed by one having
unrestricted access to the property. 12 In such cases, the terms specifying
the excluded classes are to be given their meaning as understood in
common speech. 13 The terms "service" and "employment" are generally
associated with the idea of selection, control, and compensation. 14

A contract of insurance is a contract of adhesion, thus any ambiguity

therein should be resolved against the insurer, 15 or it should be construed
liberally in favor of the insured and strictly against the insurer. 16 Limitations
of liability should be regarded with extreme jealousy and must be
construed
in such a way, as to preclude the insurer from non-compliance with its
obligation. 17 It goes without saying then that if the terms of the contract are
clear and unambiguous, there is no room for construction and such terms
cannot be enlarged or diminished by judicial construction. 18

An insurance contract is a contract of indemnity upon the terms and

conditions specified therein. 19 It is settled that the terms of the policy
constitute the measure of the insurer's liability. 20 In the absence of
statutory prohibition to the contrary, insurance companies have the same
rights as individuals to limit their liability and to impose whatever conditions
they deem best upon their obligations not inconsistent with public policy.

With the foregoing principles in mind, it may now be asked whether

Magalong and Atiga qualify as employees or authorized representatives of
Producers under paragraph (b) of the general exceptions clause of the
policy which, for easy reference, is again quoted:

GENERAL EXCEPTIONS

The company shall not be liable under this policy in respect of

xxx xxx xxx

(b) any loss caused by any dishonest, fraudulent or

criminal act of the insured or any officer, employee,
partner, director, trustee or authorized
representative of the Insured whether acting alone
or in conjunction with others. . . . (emphases
supplied)

There is marked disagreement between the parties on the correct meaning

of the terms "employee" and "authorized representatives."

It is clear to us that insofar as Fortune is concerned, it was its intention to

exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the
employer. 22

Fortune claims that Producers' contracts with PRC Management Systems

and Unicorn Security Services are "labor-only" contracts.

Producers, however, insists that by the express terms thereof, it is not

the employer of Magalong. Notwithstanding such express assumption
of PRC Management Systems and Unicorn Security Services that the
drivers and the security guards each shall supply to Producers are
not the latter's employees, it may, in fact, be that it is because the
contracts are, indeed, "labor-only" contracts. Whether they are is, in
the light of the criteria provided for in Article 106 of the Labor Code, a
question of fact. Since the parties opted to submit the case for
judgment on the basis of their stipulation of facts which are strictly
limited to the insurance policy, the contracts with PRC Management
Systems and Unicorn Security Services, the complaint for violation of
P.D. No. 532, and the information therefor filed by the City Fiscal of
Pasay City, there is a paucity of evidence as to whether the contracts
between Producers and PRC Management Systems and Unicorn
Security Services are "labor-only" contracts.

But even granting for the sake of argument that these contracts were not
"labor-only" contracts, and PRC Management Systems and Unicorn
Security Services were truly independent contractors, we are satisfied that
Magalong and Atiga were, in respect of the transfer of Producer's money
from its Pasay City branch to its head office in Makati, its "authorized
representatives" who served as such with its teller Maribeth Alampay.
Howsoever viewed, Producers entrusted the three with the specific duty to
safely transfer the money to its head office, with Alampay to be responsible
for its custody in transit; Magalong to drive the armored vehicle which
would carry the money; and Atiga to provide the needed security for the
money, the vehicle, and his two other companions. In short, for these
particular tasks, the three acted as agents of Producers. A "representative"
is defined as one who represents or stands in the place of another; one
who represents others or another in a special capacity, as an agent, and is
interchangeable with "agent." 23

In view of the foregoing, Fortune is exempt from liability under the general
exceptions clause of the insurance policy.

WHEREFORE , the instant petition is hereby GRANTED. The decision of

the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well
as that of Branch 146 of the Regional Trial Court of Makati in Civil Case
No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case
No. 1817 is DISMISSED.

No pronouncement as to costs. SO ORDERED.

G.R. No. L-31845 April 30, 1979

GREAT PACIFIC LIFE ASSURANCE COMPANY, petitioner,

vs.
HONORABLE COURT OF APPEALS, respondents.

G.R. No. L-31878 April 30, 1979

LAPULAPU D. MONDRAGON, petitioner,

vs.
HON. COURT OF APPEALS and NGO HING, respondents.

Siguion Reyna, Montecillo & Ongsiako and Sycip, Salazar, Luna & Manalo
for petitioner Company.

Voltaire Garcia for petitioner Mondragon.

Pelaez, Pelaez & Pelaez for respondent Ngo Hing.

DE CASTRO, J.:

The two above-entitled cases were ordered consolidated by the Resolution

of this Court dated April 29, 1970, (Rollo, No. L-31878, p. 58), because the
petitioners in both cases seek similar relief, through these petitions for
certiorari by way of appeal, from the amended decision of respondent Court
of Appeals which affirmed in toto the decision of the Court of First Instance
of Cebu, ordering "the defendants (herein petitioners Great Pacific Ligfe
Assurance Company and Mondragon) jointly and severally to pay plaintiff
(herein private respondent Ngo Hing) the amount of P50,000.00 with
interest at 6% from the date of the filing of the complaint, and the sum of
P1,077.75, without interest.

It appears that on March 14, 1957, private respondent Ngo Hing filed an
application with the Great Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year endownment policy in the
amount of P50,000.00 on the life of his one-year old daughter Helen Go.
Said respondent supplied the essential data which petitioner Lapulapu D.
Mondragon, Branch Manager of the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting (Exhibit I-M). Mondragon finally
type-wrote the data on the application form which was signed by private
respondent Ngo Hing. The latter paid the annual premuim the sum of
P1,077.75 going over to the Company, but he reatined the amount of
P1,317.00 as his commission for being a duly authorized agebt of Pacific
Life. Upon the payment of the insurance premuim, the binding deposit
receipt (Exhibit E) was issued to private respondent Ngo Hing. Likewise,
petitioner Mondragon handwrote at the bottom of the back page of the
application form his strong recommendation for the approval of the
insurance application. Then on April 30, 1957, Mondragon received a letter
from Pacific Life disapproving the insurance application (Exhibit 3-M). The
letter stated that the said life insurance application for 20-year endowment
plan is not available for minors below seven years old, but Pacific Life can
consider the same under the Juvenile Triple Action Plan, and advised that if
the offer is acceptable, the Juvenile Non-Medical Declaration be sent to the
company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing.
Instead, on May 6, 1957, Mondragon wrote back Pacific Life again strongly
recommending the approval of the 20-year endowment insurance plan to
children, pointing out that since 1954 the customers, especially the
Chinese, were asking for such coverage (Exhibit 4-M).

It was when things were in such state that on May 28, 1957 Helen Go died
of influenza with complication of bronchopneumonia. Thereupon, private
respondent sought the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the recovery of the same
before the Court of First Instance of Cebu, which rendered the adverse
decision as earlier refered to against both petitioners.

The decisive issues in these cases are: (1) whether the binding deposit
receipt (Exhibit E) constituted a temporary contract of the life insurance in
question; and (2) whether private respondent Ngo Hing concealed the state
of health and physical condition of Helen Go, which rendered void the
aforesaid Exhibit E.

1. At the back of Exhibit E are condition precedents required before a

deposit is considered a BINDING RECEIPT. These conditions state that:
 A. If the Company or its agent, shan have received the
premium deposit ... and the insurance application, ON or
PRIOR to the date of medical examination ... said insurance
shan be in force and in effect from the date of such medical
examination, for such period as is covered by the deposit
..., PROVIDED the company shall be satisfied that on said date
the applicant was insurable on standard rates under its rule for
the amount of insurance and the kind of policy requested in the
application.

D. If the Company does not accept the application on standard

rate for the amount of insurance and/or the kind of policy
requested in the application but issue, or offers to issue a policy
for a different plan and/or amount ..., the insurance shall not be
in force and in effect until the applicant shall have accepted the
policy as issued or offered by the Company and shall have paid
the full premium thereof. If the applicant does not accept the
policy, the deposit shall be refunded.

E. If the applicant shall not have been insurable under

Condition A above, and the Company declines to approve the
application the insurance applied for shall not have been in
force at any time and the sum paid be returned to the applicant
upon the surrender of this receipt. (Emphasis Ours).

The aforequoted provisions printed on Exhibit E show that the binding

deposit receipt is intended to be merely a provisional or temporary
insurance contract and only upon compliance of the following conditions:
(1) that the company shall be satisfied that the applicant was insurable on
standard rates; (2) that if the company does not accept the application and
offers to issue a policy for a different plan, the insurance contract shall not
be binding until the applicant accepts the policy offered; otherwise, the
deposit shall be reftmded; and (3) that if the applicant is not ble according
to the standard rates, and the company disapproves the application, the
insurance applied for shall not be in force at any time, and the premium
paid shall be returned to the applicant.

Clearly implied from the aforesaid conditions is that the binding deposit
receipt in question is merely an acknowledgment, on behalf of the
company, that the latter's branch office had received from the applicant the
insurance premium and had accepted the application subject for
processing by the insurance company; and that the latter will either
approve or reject the same on the basis of whether or not the applicant is
"insurable on standard rates." Since petitioner Pacific Life disapproved the
insurance application of respondent Ngo Hing, the binding deposit receipt
in question had never become in force at any time.

Upon this premise, the binding deposit receipt (Exhibit E) is, manifestly,
merely conditional and does not insure outright. As held by this Court,
where an agreement is made between the applicant and the agent, no
liability shall attach until the principal approves the risk and a receipt is
given by the agent. The acceptance is merely conditional and is
subordinated to the act of the company in approving or rejecting the
application. Thus, in life insurance, a "binding slip" or "binding receipt" does
not insure by itself (De Lim vs. Sun Life Assurance Company of Canada,
41 Phil. 264).

It bears repeating that through the intra-company communication of April

30, 1957 (Exhibit 3-M), Pacific Life disapproved the insurance application in
question on the ground that it is not offering the twenty-year endowment
insurance policy to children less than seven years of age. What it offered
instead is another plan known as the Juvenile Triple Action, which private
respondent failed to accept. In the absence of a meeting of the minds
between petitioner Pacific Life and private respondent Ngo Hing over the
20-year endowment life insurance in the amount of P50,000.00 in favor of
the latter's one-year old daughter, and with the non-compliance of the
abovequoted conditions stated in the disputed binding deposit receipt,
there could have been no insurance contract duly perfected between thenl
Accordingly, the deposit paid by private respondent shall have to be
refunded by Pacific Life.

As held in De Lim vs. Sun Life Assurance Company of Canada, supra, "a
contract of insurance, like other contracts, must be assented to by both
parties either in person or by their agents ... The contract, to be binding
from the date of the application, must have been a completed contract, one
that leaves nothing to be dione, nothing to be completed, nothing to be
passed upon, or determined, before it shall take effect. There can be no
contract of insurance unless the minds of the parties have met in
agreement."
We are not impressed with private respondent's contention that failure of
petitioner Mondragon to communicate to him the rejection of the insurance
application would not have any adverse effect on the allegedly perfected
temporary contract (Respondent's Brief, pp. 13-14). In this first place, there
was no contract perfected between the parties who had no meeting of their
minds. Private respondet, being an authorized insurance agent of Pacific
Life at Cebu branch office, is indubitably aware that said company does not
offer the life insurance applied for. When he filed the insurance application
in dispute, private respondent was, therefore, only taking the chance that
Pacific Life will approve the recommendation of Mondragon for the
acceptance and approval of the application in question along with his
proposal that the insurance company starts to offer the 20-year endowment
insurance plan for children less than seven years. Nonetheless, the record
discloses that Pacific Life had rejected the proposal and recommendation.
Secondly, having an insurable interest on the life of his one-year old
daughter, aside from being an insurance agent and an offense associate of
petitioner Mondragon, private respondent Ngo Hing must have known and
followed the progress on the processing of such application and could not
pretend ignorance of the Company's rejection of the 20-year endowment
life insurance application.

At this juncture, We find it fit to quote with approval, the very apt
observation of then Appellate Associate Justice Ruperto G. Martin who
later came up to this Court, from his dissenting opinion to the amended
decision of the respondent court which completely reversed the original
decision, the following:

Of course, there is the insinuation that neither the

memorandum of rejection (Exhibit 3-M) nor the reply thereto of
appellant Mondragon reiterating the desire for applicant's father
to have the application considered as one for a 20-year
endowment plan was ever duly communicated to Ngo; Hing,
father of the minor applicant. I am not quite conninced that this
was so. Ngo Hing, as father of the applicant herself, was
precisely the "underwriter who wrote this case" (Exhibit H-1).
The unchallenged statement of appellant Mondragon in his
letter of May 6, 1957) (Exhibit 4-M), specifically admits that said
Ngo Hing was "our associate" and that it was the latter who
"insisted that the plan be placed on the 20-year endowment
plan." Under these circumstances, it is inconceivable that the
 progress in the processing of the application was not brought
home to his knowledge. He must have been duly apprised of
the rejection of the application for a 20-year endowment plan
otherwise Mondragon would not have asserted that it was Ngo
Hing himself who insisted on the application as originally filed,
thereby implictly declining the offer to consider the application
under the Juvenile Triple Action Plan. Besides, the associate of
Mondragon that he was, Ngo Hing should only be presumed to
know what kind of policies are available in the company for
minors below 7 years old. What he and Mondragon were
apparently trying to do in the premises was merely to prod the
company into going into the business of issuing endowment
policies for minors just as other insurance companies allegedly
do. Until such a definite policy is however, adopted by the
company, it can hardly be said that it could have been bound at
all under the binding slip for a plan of insurance that it could not
have, by then issued at all. (Amended Decision, Rollo, pp- 52-
53).

2. Relative to the second issue of alleged concealment. this Court is of the

firm belief that private respondent had deliberately concealed the state of
health and piysical condition of his daughter Helen Go. Wher private
regpondeit supplied the required essential data for the insurance
application form, he was fully aware that his one-year old daughter is
typically a mongoloid child. Such a congenital physical defect could never
be ensconced nor disguished. Nonetheless, private respondent, in
apparent bad faith, withheld the fact materal to the risk to be assumed by
the insurance compary. As an insurance agent of Pacific Life, he ought to
know, as he surely must have known. his duty and responsibility to such a
material fact. Had he diamond said significant fact in the insurance
application fom Pacific Life would have verified the same and would have
had no choice but to disapprove the application outright.

The contract of insurance is one of perfect good faith uberrima fides

meaning good faith, absolute and perfect candor or openness and honesty;
the absence of any concealment or demotion, however slight [Black's Law
Dictionary, 2nd Edition], not for the alone but equally so for the insurer
(Field man's Insurance Co., Inc. vs. Vda de Songco, 25 SCRA 70).
Concealment is a neglect to communicate that which a partY knows aDd
Ought to communicate (Section 25, Act No. 2427). Whether intentional or
unintentional the concealment entitles the insurer to rescind the contract of
insurance (Section 26, Id.: Yu Pang Cheng vs. Court of Appeals, et al, 105
Phil 930; Satumino vs. Philippine American Life Insurance Company, 7
SCRA 316). Private respondent appears guilty thereof.

We are thus constrained to hold that no insurance contract was perfected

between the parties with the noncompliance of the conditions provided in
the binding receipt, and concealment, as legally defined, having been
comraitted by herein private respondent.

WHEREFORE, the decision appealed from is hereby set aside, and in lieu
thereof, one is hereby entered absolving petitioners Lapulapu D.
Mondragon and Great Pacific Life Assurance Company from their civil
liabilities as found by respondent Court and ordering the aforesaid
insurance company to reimburse the amount of P1,077.75, without interest,
to private respondent, Ngo Hing. Costs against private respondent.

SO ORDERED.
ABOITIZ SHIPPING G.R. No. 168402
CORPORATION,
Petitioner, Present:
YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

INSURANCE COMPANY OF Promulgated:

NORTH AMERICA,
Respondent. August 6, 2008

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

DECISION

REYES, R.T., J.:

THE RIGHT of subrogation attaches upon payment by the insurer of the insurance
claims by the assured. As subrogee, the insurer steps into the shoes of the assured
and may exercise only those rights that the assured may have against the
wrongdoer who caused the damage.

Before Us is a petition for review on certiorari of the Decision[1] of the Court of

Appeals (CA) which reversed the Decision[2] of the Regional Trial Court
(RTC). The CA ordered petitioner Aboitiz Shipping Corporation to pay the sum
of P280,176.92 plus interest and attorneys fees in favor of respondent Insurance
Company of North America (ICNA).

The Facts
 Culled from the records, the facts are as follows:

On June 20, 1993, MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured a marine insurance policy from
respondent ICNA UK Limited of London. The insurance was for a transshipment
of certain wooden work tools and workbenches purchased for the consignee
Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon
Lahug, Cebu City, Philippines.[3] ICNA issued an all-risk open marine
policy,[4] stating:

This Company, in consideration of a premium as agreed and

subject to the terms and conditions printed hereon, does insure for
MSAS Cargo International Limited &/or Associated &/or Subsidiary
Companies on behalf of the title holder: Loss, if any, payable to the
Assured or order.[5]

The cargo, packed inside one container van, was shipped freight prepaid
from Hamburg, Germany on board M/S Katsuragi. A clean bill of lading[6] was
issued by Hapag-Lloyd which stated the consignee to be STIP, Ecotech Center,
Sudlon Lahug, Cebu City.

The container van was then off-loaded at Singapore and transshipped on board
M/S Vigour Singapore. On July 18, 1993, the ship arrived and docked at the
Manila International Container Port where the container van was again off-
loaded. On July 26, 1993, the cargo was received by petitioner Aboitiz Shipping
Corporation (Aboitiz) through its duly authorized booking representative, Aboitiz
Transport System. The bill of lading[7] issued by Aboitiz contained the notation
grounded outside warehouse.

The container van was stripped and transferred to another crate/container van
without any notation on the condition of the cargo on the Stuffing/Stripping
Report.[8] On August 1, 1993, the container van was loaded on board petitioners
vessel, MV Super Concarrier I. The vessel left Manila en
route to Cebu City on August 2, 1993.

On August 3, 1993, the shipment arrived in Cebu City and discharged onto a
receiving apron of the Cebu International Port. It was then brought to the Cebu
Bonded Warehousing Corporation pending clearance from the Customs authorities.
In the Stripping Report[9] dated August 5, 1993, petitioners checker noted that the
crates were slightly broken or cracked at the bottom.

On August 11, 1993, the cargo was withdrawn by the representative of the
consignee, Science Teaching Improvement Project (STIP) and delivered
to Don Bosco TechnicalHigh School, Punta Princesa, Cebu City. It was received
by Mr. Bernhard Willig. On August 13, 1993, Mayo B. Perez, then Claims Head of
petitioner, received a telephone call from Willig informing him that the cargo
sustained water damage. Perez, upon receiving the call, immediately went to the
bonded warehouse and checked the condition of the container and other cargoes
stuffed in the same container. He found that the container van and other cargoes
stuffed there were completely dry and showed no sign of wetness.[10]

Perez found that except for the bottom of the crate which was slightly broken, the
crate itself appeared to be completely dry and had no water
marks. But he confirmed that the tools which were stored inside the crate were
already corroded. He further explained that the grounded outside warehouse
notation in the bill of lading referred only to the container van bearing the cargo. [11]

In a letter dated August 15, 1993, Willig informed Aboitiz of the damage noticed
upon opening of the cargo.[12] The letter stated that the crate was broken at its
bottom part such that the contents were exposed. The work tools and workbenches
were found to have been completely soaked in water with most of the packing
cartons already disintegrating. The crate was properly sealed off from the inside
with tarpaper sheets. On the outside, galvanized metal bands were nailed onto all
the edges. The letter concluded that apparently, the damage was caused by water
entering through the broken parts of the crate.

The consignee contacted the Philippine office of ICNA for insurance

claims. On August 21, 1993, the Claimsmen Adjustment Corporation (CAC)
conducted an ocular inspection and survey of the damage. CAC reported to ICNA
that the goods sustained water damage, molds, and corrosion which were
discovered upon delivery to consignee.[13]

On September 21, 1993, the consignee filed a formal claim[14] with Aboitiz in the
amount of P276,540.00 for the damaged condition of the following goods:

ten (10) wooden workbenches

three (3) carbide-tipped saw blades
one (1) set of ball-bearing guides
 one (1) set of overarm router bits
twenty (20) rolls of sandpaper for stroke sander

In a Supplemental Report dated October 20, 1993,[15] CAC reported to ICNA that
based on official weather report from the Philippine Atmospheric, Geophysical and
Astronomical Services Administration, it would appear that heavy rains on July 28
and 29, 1993 caused water damage to the shipment. CAC noted that the shipment
was placed outside the warehouse of Pier No. 4, North Harbor, Manila when it was
delivered on July 26, 1993. The shipment was placed outside the warehouse as can
be gleaned from the bill of lading issued by Aboitiz which contained the notation
grounded outside warehouse. It was only on July 31, 1993 when the shipment was
stuffed inside another container van for shipment to Cebu.

Aboitiz refused to settle the claim. On October 4, 1993, ICNA paid the amount
of P280,176.92 to consignee. A subrogation receipt was duly signed by Willig.
ICNA formally advised Aboitiz of the claim and subrogation receipt executed in its
favor. Despite follow-ups, however, no reply was received from Aboitiz.

RTC Disposition

ICNA filed a civil complaint against Aboitiz for collection of actual damages in the
sum of P280,176.92, plus interest and attorneys fees.[16] ICNA alleged that the
damage sustained by the shipment was exclusively and solely brought about by the
fault and negligence of Aboitiz when the shipment was left grounded outside its
warehouse prior to delivery.

Aboitiz disavowed any liability and asserted that the claim had no factual and legal
bases. It countered that the complaint stated no cause of action, plaintiff ICNA had
no personality to institute the suit, the cause of action was barred, and the suit was
premature there being no claim made upon Aboitiz.
On November 14, 2003, the RTC rendered judgment against ICNA. The
dispositive portion of the decision[17] states:

WHEREFORE, premises considered, the court holds that plaintiff is

not entitled to the relief claimed in the complaint for being baseless
and without merit. The complaint is hereby DISMISSED. The
defendants counterclaims are, likewise, DISMISSED for lack of
basis.[18]
 The RTC ruled that ICNA failed to prove that it is the real party-in-interest
to pursue the claim against Aboitiz. The trial court noted that Marine Policy No.
87GB 4475 was issued by ICNA UK Limited with address at Cigna House, 8 Lime
Street, London EC3M 7NA. However, complainant ICNA Phils. did not present
any evidence to show that ICNA UK is its predecessor-in-interest, or that ICNA
UK assigned the insurance policy to ICNA Phils. Moreover, ICNA Phils. claim
that it had been subrogated to the rights of the consignee must fail because the
subrogation receipt had no probative value for being hearsay
evidence. The RTC reasoned:

While it is clear that Marine Policy No. 87GB 4475 was issued
by Insurance Company of North America (U.K.) Limited (ICNA UK)
with address at Cigna House, 8 Lime Street, London EC3M 7NA, no
evidence has been adduced which would show that ICNA UK is the
same as or the predecessor-in-interest of plaintiff Insurance Company
of North America ICNA with office address at Cigna-Monarch Bldg.,
dela Rosa cor. Herrera Sts., Legaspi Village, Makati, Metro Manila
or that ICNA UK assigned the Marine Policy to ICNA. Second, the
assured in the Marine Policy appears to be MSAS Cargo International
Limited &/or Associated &/or Subsidiary Companies. Plaintiffs
witness, Francisco B. Francisco, claims that the signature below the
name MSAS Cargo International is an endorsement of the marine
policy in favor of Science Teaching Improvement Project. Plaintiffs
witness, however, failed to identify whose signature it was and
plaintiff did not present on the witness stand or took (sic) the
deposition of the person who made that signature. Hence, the claim
that there was an endorsement of the marine policy has no probative
value as it is hearsay.

Plaintiff, further, claims that it has been subrogated to the rights

and interest of Science Teaching Improvement Project as shown by
the Subrogation Form (Exhibit K) allegedly signed by a representative
of Science Teaching Improvement Project. Such representative,
however, was not presented on the witness stand. Hence, the
Subrogation Form is self-serving and has no probative
value.[19] (Emphasis supplied)
The trial court also found that ICNA failed to produce evidence that it was a
foreign corporation duly licensed to do business in the Philippines. Thus, it lacked
the capacity to sue before Philippine Courts, to wit:

Prescinding from the foregoing, plaintiff alleged in its

complaint that it is a foreign insurance company duly authorized to
do business in the Philippines. This allegation was, however, denied
by the defendant. In fact, in the Pre-Trial Order of 12 March 1996,
one of the issues defined by the court is whether or not the plaintiff
has legal capacity to sue and be sued. Under Philippine law, the
condition is that a foreign insurance company must obtain
licenses/authority to do business in the Philippines. These
licenses/authority are obtained from the Securities and Exchange
Commission, the Board of Investments and the Insurance
Commission. If it fails to obtain these licenses/authority, such
foreign corporation doing business in the Philippines cannot sue
before Philippine courts. Mentholatum Co., Inc. v. Mangaliman, 72
Phil. 524. (Emphasis supplied)

CA Disposition

ICNA appealed to the CA. It contended that the trial court failed to consider that its
cause of action is anchored on the right of subrogation under Article 2207 of the
Civil Code. ICNA said it is one and the same as the ICNA UK Limited as made
known in the dorsal portion of the Open Policy.[20]

On the other hand, Aboitiz reiterated that ICNA lacked a cause of action. It argued
that the formal claim was not filed within the period required under Article 366 of
the Code of Commerce; that ICNA had no right of subrogation because the
subrogation receipt should have been signed by MSAS, the assured in the open
policy, and not Willig, who is merely the representative of the consignee.

On March 29, 2005, the CA reversed and set aside the RTC ruling, disposing as
follows:

WHEREFORE, premises considered, the present appeal is hereby

GRANTED. The appealed decision of the Regional Trial Court of
Makati City in Civil Case No. 94-1590 is hereby REVERSED and
SET ASIDE. A new judgment is hereby rendered ordering defendant-
 appellee Aboitiz Shipping Corporation to pay the plaintiff-appellant
Insurance Company of North America the sum of P280,176.92 with
interest thereon at the legal rate from the date of the institution of this
case until fully paid, and attorneys fees in the sum of P50,000, plus
the costs of suit.[21]

The CA opined that the right of subrogation accrues simply upon payment by the
insurance company of the insurance claim. As subrogee, ICNA is entitled to
reimbursement from Aboitiz, even assuming that it is an unlicensed foreign
corporation. The CA ruled:

At any rate, We find the ground invoked for the dismissal of the
complaint as legally untenable. Even assuming arguendo that the
plaintiff-insurer in this case is an unlicensed foreign corporation, such
circumstance will not bar it from claiming reimbursement from the
defendant carrier by virtue of subrogation under the contract of
insurance and as recognized by Philippine courts. x x x

xxxx

Plaintiff insurer, whether the foreign company or its duly authorized

Agent/Representative in the country, as subrogee of the claim of the
insured under the subject marine policy, is therefore the real party in
interest to bring this suit and recover the full amount of loss of the
subject cargo shipped by it from Manila to the consignee in Cebu
City. x x x[22]

The CA ruled that the presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. Hence, the trial
court erred in dismissing the complaint and in not finding that based on the
evidence on record and relevant provisions of law, Aboitiz is liable for the loss or
damage sustained by the subject cargo.

Issues

The following issues are up for Our consideration:

 (1) THE HONORABLE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR IN RULING THAT ICNA HAS A
CAUSE OF ACTION AGAINST ABOITIZ BY VIRTUE OF
THE RIGHT OF SUBROGATION BUT WITHOUT
CONSIDERING THE ISSUE CONSISTENTLY RAISED BY
ABOITIZ THAT THE FORMAL CLAIM OF STIP WAS NOT
MADE WITHIN THE PERIOD PRESCRIBED BY ARTICLE
366 OF THE CODE OF COMMERCE; AND, MORE SO, THAT
THE CLAIM WAS MADE BY A WRONG CLAIMANT.

(2) THE HONORABLE COURT OF APPEALS COMMITTED A

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

(3) THE HONORABLE COURT OF APPEALS COMMITTED A

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

(4) THE HONORABLE COURT OF APPEALS COMMITTED A

REVERSIBLE ERROR IN RULING THAT THE
EXTENT AND KIND OF DAMAGE SUSTAINED BY THE
SUBJECT CARGO WAS CAUSED BY THE FAULT OR
NEGLIGENCE OF ABOITIZ.[23] (Underscoring supplied)

Elsewise stated, the controversy rotates on three (3) central questions: (a) Is
respondent ICNA the real party-in-interest that possesses the right of subrogation
to claim reimbursement from petitioner Aboitiz? (b) Was there a timely filing of
the notice of claim as required under Article 366 of the Code of Commerce? (c) If
so, can petitioner be held liable on the claim for damages?

Our Ruling

We answer the triple questions in the affirmative.

A foreign corporation not licensed to do business in the Philippines is not

absolutely incapacitated from filing a suit in local courts. Only when that
foreign corporation is transacting or doing business in the country will a license be
necessary before it can institute suits.[24] It may, however, bring suits on isolated
business transactions, which is not prohibited under Philippine law. [25] Thus, this
Court has held that a foreign insurance company may sue in Philippine courts upon
the marine insurance policies issued by it abroad to cover international-bound
cargoes shipped by a Philippine carrier, even if it has no license to do business in
this country. It is the act of engaging in business without the prescribed license,
and not the lack of license per se, which bars a foreign corporation from access to
our courts.[26]

In any case, We uphold the CA observation that while it was the ICNA UK
Limited which issued the subject marine policy, the present suit was filed by the
said companys authorized agent in Manila. It was the domestic corporation that
brought the suit and not the foreign company. Its authority is expressly provided
for in the open policy which includes the ICNA office in the Philippines as one of
the foreign companys agents.

As found by the CA, the RTC erred when it ruled that there was no proper
indorsement of the insurance policy by MSAS, the shipper, in favor of STIP of
Don Bosco Technical High School, the consignee.

The terms of the Open Policy authorize the filing of any claim on the insured
goods, to be brought against ICNA UK, the company who issued the insurance, or
against any of its listed agents worldwide.[27] MSAS accepted said provision when
it signed and accepted the policy. The acceptance operated as an acceptance of the
authority of the agents. Hence, a formal indorsement of the policy to the agent in
the Philippines was unnecessary for the latter to exercise the rights of the insurer.

Likewise, the Open Policy expressly provides that:

 The Company, in consideration of a premium as agreed and
subject to the terms and conditions printed hereon, does insure MSAS
Cargo International Limited &/or Associates &/or Subsidiary
Companies in behalf of the title holder: Loss, if any, payable to the
Assured or Order.

The policy benefits any subsequent assignee, or holder, including the

consignee, who may file claims on behalf of the assured. This is in keeping with
Section 57 of the Insurance Code which states:

A policy may be so framed that it will inure to the benefit of

whosoever, during the continuance of the risk, may become the owner
of the interest insured. (Emphasis added)

Respondents cause of action is founded on it being subrogated to the rights of

the consignee of the damaged shipment. The right of subrogation springs from
Article 2207 of the Civil Code, which states:

Article 2207. If the plaintiffs property has been insured, and he

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

As this Court held in the case of Pan Malayan Insurance Corporation v. Court of
Appeals,[28] payment by the insurer to the assured operates as an equitable
assignment of all remedies the assured may have against the third party who
caused the damage. Subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues simply upon
payment of the insurance claim by the insurer.[29]

Upon payment to the consignee of indemnity for damage to the insured goods,
ICNAs entitlement to subrogation equipped it with a cause of action against
petitioner in case of a contractual breach or negligence.[30] This right of
subrogation, however, has its limitations. First, both the insurer and the consignee
are bound by the contractual stipulations under the bill of lading. [31] Second, the
insurer can be subrogated only to the rights as the insured may have against the
wrongdoer. If by its own acts after receiving payment from the insurer, the insured
releases the wrongdoer who caused the loss from liability, the insurer loses its
claim against the latter.[32]

The giving of notice of loss or injury is a condition precedent to the action for
loss or injury or the right to enforce the carriers liability. Circumstances
peculiar to this case lead Us to conclude that the notice requirement was
complied with. As held in the case of Philippine American General Insurance Co.,
Inc. v. Sweet Lines, Inc.,[33] this notice requirement protects the carrier by affording
it an opportunity to make an investigation of the claim while the matter is still fresh
and easily investigated. It is meant to safeguard the carrier from false and
fraudulent claims.

Under the Code of Commerce, the notice of claim must be made within
twenty four (24) hours from receipt of the cargo if the damage is not apparent from
the outside of the package. For damages that are visible from the outside of the
package, the claim must be made immediately. The law provides:

Article 366. Within twenty four hours following the receipt of

the merchandise, the claim against the carrier for damages or average
which may be found therein upon opening the packages, may be
made, provided that the indications of the damage or average which
give rise to the claim cannot be ascertained from the outside part of
such packages, in which case the claim shall be admitted only at the
time of receipt.

After the periods mentioned have elapsed, or the transportation

charges have been paid, no claim shall be admitted against the carrier
with regard to the condition in which the goods transported were
delivered. (Emphasis supplied)

The periods above, as well as the manner of giving notice may be modified
in the terms of the bill of lading, which is the contract between the
parties. Notably, neither of the parties in this case presented the terms for giving
notices of claim under the bill of lading issued by petitioner for the goods.
 The shipment was delivered on August 11, 1993. Although the letter
informing the carrier of the damage was dated August 15, 1993, that letter,
together with the notice of claim, was received by petitioner only on September 21,
1993. But petitioner admits that even before it received the written notice of claim,
Mr. Mayo B. Perez, Claims Head of the company, was informed by telephone
sometime in August 13, 1993. Mr. Perez then immediately went to the warehouse
and to the delivery site to inspect the goods in behalf of petitioner.[34]

In the case of Philippine Charter Insurance Corporation (PCIC) v. Chemoil

Lighterage Corporation,[35] the notice was allegedly made by the consignee
through telephone. The claim for damages was denied. This Court ruled that such a
notice did not comply with the notice requirement under the law. There was no
evidence presented that the notice was timely given. Neither was there evidence
presented that the notice was relayed to the responsible authority of the carrier.

As adverted to earlier, there are peculiar circumstances in the instant case

that constrain Us to rule differently from the PCIC case, albeit this ruling is being
made pro hac vice, not to be made a precedent for other cases.

Stipulations requiring notice of loss or claim for damage as a condition

precedent to the right of recovery from a carrier must be given a reasonable and
practical construction, adapted to the circumstances of the case under adjudication,
and their application is limited to cases falling fairly within their object and
purpose.[36]

Bernhard Willig, the representative of consignee who received the shipment,

relayed the information that the delivered goods were discovered to have sustained
water damage to no less than the Claims Head of petitioner, Mayo B.
Perez. Immediately, Perez was able to investigate the claims himself and he
confirmed that the goods were, indeed, already corroded.

Provisions specifying a time to give notice of damage to common carriers

are ordinarily to be given a reasonable and practical, rather than a strict
construction.[37]We give due consideration to the fact that the final destination of
the damaged cargo was a school institution where authorities are bound by rules
and regulations governing their actions. Understandably, when the goods were
delivered, the necessary clearance had to be made before the package was
opened. Upon opening and discovery of the damaged condition of the goods, a
report to this effect had to pass through the proper channels before it could be
finalized and endorsed by the institution to the claims department of the shipping
company.

The call to petitioner was made two days from delivery, a reasonable period
considering that the goods could not have corroded instantly overnight such that it
could only have sustained the damage during transit. Moreover, petitioner was able
to immediately inspect the damage while the matter was still fresh. In so doing, the
main objective of the prescribed time period was fulfilled. Thus, there was
substantial compliance with the notice requirement in this case.
To recapitulate, We have found that respondent, as subrogee of the consignee, is
the real party in interest to institute the claim for damages against petitioner;
and pro hac vice, that a valid notice of claim was made by respondent.

We now discuss petitioners liability for the damages sustained by the

shipment. The rule as stated in Article 1735 of the Civil Code is that in cases
where the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove
that they observed extraordinary diligence required by law.[38] Extraordinary
diligence is that extreme measure of care and caution which persons of unusual
prudence and circumspection use for securing and preserving their own property
rights.[39] This standard is intended to grant favor to the shipper who is at the mercy
of the common carrier once the goods have been entrusted to the latter for
shipment.[40]

Here, the shipment delivered to the consignee sustained water damage. We

agree with the findings of the CA that petitioner failed to overturn this
presumption:

x x x upon delivery of the cargo to the consignee Don Bosco

Technical High School by a representative from Trabajo Arrastre, and
the crates opened, it was discovered that the workbenches and work
tools suffered damage due to wettage although by then they were
already physically dry. Appellee carrier having failed to discharge the
burden of proving that it exercised extraordinary diligence in the
vigilance over such goods it contracted for carriage, the presumption
of fault or negligence on its part from the time the goods were
unconditionally placed in its possession (July 26, 1993) up to the time
the same were delivered to the consignee (August 11, 1993), therefore
 stands. The presumption that the carrier was at fault or that it acted
negligently was not overcome by any countervailing evidence. x x
x[41] (Emphasis added)

The shipment arrived in the port of Manila and was received by petitioner
for carriage on July 26, 1993. On the same day, it was stripped from the container
van. Five days later, on July 31, 1993, it was re-stuffed inside another container
van. On August 1, 1993, it was loaded onto another vessel bound for Cebu. During
the period between July 26 to 31, 1993, the shipment was outside a container van
and kept in storage by petitioner.

The bill of lading issued by petitioner on July 31, 1993 contains the notation
grounded outside warehouse, suggesting that from July 26 to 31, the goods were
kept outside the warehouse. And since evidence showed that rain fell
over Manila during the same period, We can conclude that this was when the
shipment sustained water damage.

To prove the exercise of extraordinary diligence, petitioner must do more

than merely show the possibility that some other party could be responsible for the
damage.It must prove that it used all reasonable means to ascertain the nature and
characteristic of the goods tendered for transport and that it exercised due care in
handling them.[42] Extraordinary diligence must include safeguarding the shipment
from damage coming from natural elements such as rainfall.

Aside from denying that the grounded outside warehouse notation referred
not to the crate for shipment but only to the carrier van, petitioner failed to mention
where exactly the goods were stored during the period in question. It failed to show
that the crate was properly stored indoors during the time when it exercised
custody before shipment to Cebu. As amply explained by the CA:

On the other hand, the supplemental report submitted by the surveyor

has confirmed that it was rainwater that seeped into the cargo based
on official data from the PAGASA that there was, indeed, rainfall in
the Port Area of Manila from July 26 to 31, 1993. The Surveyor
specifically noted that the subject cargo was under the custody of
appellee carrier from the time it was delivered by the shipper on July
26, 1993 until it was stuffed inside Container No. ACCU-213798-4
on July 31, 1993. No other inevitable conclusion can be deduced from
the foregoing established facts that damage from wettage suffered by
the subject cargo was caused by the negligence of appellee carrier in
 grounding the shipment outside causing rainwater to seep into the
cargoes.

Appellees witness, Mr. Mayo tried to disavow any responsibility for

causing wettage to the subject goods by claiming that the notation
GROUNDED OUTSIDE WHSE. actually refers to the container and
not the contents thereof or the cargoes. And yet it presented no
evidence to explain where did they place or store the subject goods
from the time it accepted the same for shipment on July 26, 1993 up to
the time the goods were stripped or transferred from the container
van to another container and loaded into the vessel M/V Supercon
Carrier I on August 1, 1993 and left Manila for Cebu City on August
2, 1993. x x x If the subject cargo was not grounded outside prior to
shipment to Cebu City, appellee provided no explanation as to where
said cargo was stored from July 26, 1993 to July 31, 1993. What the
records showed is that the subject cargo was stripped from the
container van of the shipper and transferred to the container
on August 1, 1993 and finally loaded into the appellees vessel bound
for Cebu City on August 2, 1993. The Stuffing/Stripping Report
(Exhibit D) at the Manila port did not indicate any such defect or
damage, but when the container was stripped upon arrival in Cebu
City port after being discharged from appellees vessel, it was noted
that only one (1) slab was slightly broken at the bottom allegedly hit
by a forklift blade (Exhibit F).[43] (Emphasis added)

Petitioner is thus liable for the water damage sustained by the goods due to
its failure to satisfactorily prove that it exercised the extraordinary diligence
required of common carriers.

WHEREFORE, the petition is DENIED and the appealed Decision AFFIRMED.

SO ORDERED
Insurance Case Digest: Fortune Insurance And Surety Co., Inc. V. CA (1995)

G.R. No. 115278 May 23, 1995

Lessons Applicable: Stipulations Cannot Be Segregated (Insurance)

FACTS:

Producers Bank of the Philippines insured with Fortune Insurance and

Surety Co. P725,000 which was lost during a robbery of Producer's armored
vehicle while it was in transit from Pasay City City to its Makati head office.
 The armored car was driven by Benjamin Magalong Y de Vera, escorted by
Security Guard Saturnino Atiga Y Rosete.

After an investigation conducted by the Pasay police authorities, the driver

Magalong and guard Atiga were charged, together with Edelmer Bantigue Y
Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-
Highway Robbery Law)

Upon claiming, Fortune refused stating that it is not liable since under the
general exceptions of the policy:

any loss caused by any dishonest, fraudulent or criminal act of the

insured or any officer, employee, partner, director, trustee or
authorized representative of the Insured whether acting alone or in
conjunction with others. . . .

RTC: favored Producers Bank since Driver and Security Guard were merely
assigned

CA: Affirmed RTC

ISSUE: W/N the driver and security guard are employees under the general
exception

HELD: YES. Petition is granted.

It is clear to us that insofar as Fortune is concerned, it was its intention to

exclude and exempt from protection and coverage losses arising from
dishonest, fraudulent, or criminal acts of persons granted or having
unrestricted access to Producers' money or payroll. When it used then the
term "employee," it must have had in mind any person who qualifies as
such as generally and universally understood, or jurisprudentially
established in the light of the four standards in the determination of the
employer-employee relationship, 21 or as statutorily declared even in a
 limited sense as in the case of Article 106 of the Labor Code which
considers the employees under a "labor-only" contract as employees of the
party employing them and not of the party who supplied them to the
employer

Producers entrusted the three with the specific duty to safely transfer the
money to its head office, with Alampay to be responsible for its custody in
transit; Magalong to drive the armored vehicle which would carry the
money; and Atiga to provide the needed security for the money, the
vehicle, and his two other companions.

A "representative" is defined as one who represents or stands in the place

of another; one who represents others or another in a special capacity, as
an agent, and is interchangeable with "agent."

Great Pacific v CA G.R. No. L-31845 April 30, 1979

J. De Castro

Facts:

Ngo Hing filed an application with the Great Pacific for a twenty-year endowment
policy in the amount of P50,000.00 on the life of his one-year old daughter Helen.
He supplied the essential data which petitioner Mondragon, the Branch Manager,
wrote on the form. The latter paid the annual premium the sum of P1,077.75
going over to the Company, but he retained the amount of P1,317.00 as his
commission for being a duly authorized agent of Pacific Life.

Upon the payment of the insurance premium, the binding deposit receipt was
issued Ngo Hing. Likewise, petitioner Mondragon handwrote at the bottom of the
back page of the application form his strong recommendation for the approval of
the insurance application. Then Mondragon received a letter from Pacific Life
disapproving the insurance application. The letter stated that the said life
insurance application for 20-year endowment plan is not available for minors
below seven years old, but Pacific Life can consider the same under the Juvenile
Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not
communicated by petitioner Mondragon to private respondent Ngo Hing. Instead,
on May 6, 1957, Mondragon wrote back Pacific Life again strongly recommending
the approval of the 20-year endowment insurance plan to children, pointing out
that since the customers were asking for such coverage.

Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery
before the Court of First Instance of Cebu, which ruled against him.

Issues:

1. Whether the binding deposit receipt constituted a temporary contract of the

life insurance in question

2. Whether Ngo Hing concealed the state of health and physical condition of
Helen Go, which rendered void the policy

Held: No. Yes. Petition dismissed.

Ratio:

The receipt was intended to be merely a provisional insurance contract. Its

perfection was subject to compliance of the following conditions: (1) that the
company shall be satisfied that the applicant was insurable on standard rates; (2)
that if the company does not accept the application and offers to issue a policy for
a different plan, the insurance contract shall not be binding until the applicant
accepts the policy offered; otherwise, the deposit shall be refunded; and (3) that
if the company disapproves the application, the insurance applied for shall not be
in force at any time, and the premium paid shall be returned to the applicant.

The receipt is merely an acknowledgment that the latter's branch office had
received from the applicant the insurance premium and had accepted the
application subject for processing by the insurance company. There was still
approval or rejection the same on the basis of whether or not the applicant is
"insurable on standard rates." Since Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had
never become in force at any time. The binding deposit receipt is conditional and
does not insure outright. This was held in Lim v Sun.

The deposit paid by private respondent shall have to be refunded by Pacific Life.

2. Ngo Hing had deliberately concealed the state of health of his daughter Helen
Go. When he supplied data, he was fully aware that his one-year old daughter is
typically a mongoloid child. He withheld the fact material to the risk insured.

The contract of insurance is one of perfect good faith uberrima fides meaning
good faith, absolute and perfect candor or openness and honesty; the absence of
any concealment or demotion, however slight.

The concealment entitles the insurer to rescind the contract of insurance.

Insurance Case Digest: Aboitiz Shipping Corp. V. Insurance Co. Of North America
(2008)

G.R. No. 168402 August 6, 2008

Lessons Applicable: Insurer's right of subrogration (Insurance)

FACTS:

June 20, 1993: MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured an "all-risk" marine insurance
policy from ICNA UK Limited of London for wooden work tools and
workbenches purchased by consignee Science Teaching Improvement
Project (STIP), Ecotech Center, Sudlon Lahug, Cebu City.

July 26, 1993: the cargo was received by Aboitiz Shipping Corporation
(Aboitiz) through its duly authorized booking representative, Aboitiz
Transport System

August 1, 1993: container van was loaded on board MV Super Concarrier I

The vessel left Manila en route to Cebu City

August 3, 1993: shipment arrived in Cebu City

August 5, 1993: Stripping Report, checker noted that the crates were
slightly broken or cracked at the bottom

August 11, 1993: cargo was withdrawn by the representative of the

consignee, Science Teaching Improvement Project (STIP) and delivered to
Don Bosco Technical High School, Punta Princesa, Cebu City

August 13, 1993: Mayo B. Perez, Head of Aboiti received a call from the
receiver Mr. Bernhard Willig that the cargo sustained water damage so he
checked the other cargo but they were dry

In a letter dated August 15, 1993, Willig informed Aboitiz that the damage
was caused by water entering through the broken bottom parts of the
crate

Consignee filed a claim against ICNA

 CAC reported to ICNA that the shipment was placed outside the
warehouse when it was delivered on July 26, 1993 and it was only on July
31, 1993 when the shipment was stuffed inside another container van for
shipment to Cebu. Weather report shows that the heavy rains on July 28
and 29, 1993 caused the damages.

Aboitiz refused to settle the claim

ICNA paid the amount of P280,176.92 to consignee and a subrogation

receipt was duly signed by Willig.

ICNA then advised Aboitiz of the receipt signed in its favor but received no
reply so it filed for collection at the RTC.

RTC: against ICNA - subrogation Form is self-serving and has no probative

value since Wellig was not presented to the witness stand

CA: reversed RTC ruling - right of subrogation accrues simply upon payment
by the insurance company of the insurance claim even assuming that it is
an unlicensed foreign corporation

ISSUE: W/N ICNA can claim under the right of subrogation

HELD: YES. CA affirmed.

Only when that foreign corporation is "transacting" or "doing business" in

the country will a license be necessary before it can institute suits. It may,
however, bring suits on isolated business transactions, which is not
prohibited under Philippine law

The policy benefits any subsequent assignee, or holder, including the

consignee, who may file claims on behalf of the assured.

Insurance Code
Sec. 57

Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever,
during the continuance of the risk, may become the owner of the interest insured.

Civil Code

Art. 2207

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

This right of subrogation, however, has its limitations.

First, both the insurer and the consignee are bound by the
contractual stipulations under the bill of lading

Second, the insurer can be subrogated only to the rights as the

insured may have against the wrongdoer. If by its own acts after
receiving payment from the insurer, the insured releases the
wrongdoer who caused the loss from liability, the insurer loses its
claim against the latter.

Civil Code

Art. 366

Article 366. Within twenty four hours following the receipt of the merchandise,
the claim against the carrier for damages or average which may be found therein
upon opening the packages, may be made, provided that the indications of the
damage or average which give rise to the claim cannot be ascertained from the
outside part of such packages, in which case the claim shall be admitted only at
the time of receipt.

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

The call was made 2 from delivery, a reasonable period considering that the
goods could not have corroded instantly overnight such that it could only
have sustained the damage during transit.

Civil Code

Art. 1735

Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common
carriers are presumed to have been at fault or to have acted negligently, unless
they prove that they observed extraordinary diligence as required in Article 1733.

the shipment delivered to the consignee sustained water damage. We

agree with the findings of the CA that petitioner failed to overturn this
presumption