PHILAM vs.
CA (2000)
Gonzaga-Reyes, J.
FACTS:
On January 9, 1989, petitioner received from one Florence Pulido an application for life
insurance, dated December 16, 1988, in the amount of P100,000.00 which designated her
sister, herein private respondent, as its principal beneficiary. Because the insurance
applied for was non-medical, petitioner did not require a medical examination and issued a
policy on the sole basis of the application on February 11, 1989. On April 1992, petitioner
received private respondent’s claim, which declared that the insured, Florence Pulido, died
of acute pneumonia on September 10, 1991.
Petitioner withheld payment on the ground that the policy claimed under was void from
the start for having been procured in fraud. It is petitioner’s contention that even before
they received private respondent’s claim for death benefits, their investigation concerning
the subject policy yielded the information that the insured, Florence Pulido, died in 1988,
before the application for insurance on her life was made. While this was communicated to
private respondent in a letter dated April 29, 1992, private respondent had already filed her
claim earlier that month. In another letter dated July 27, 1992, however, petitioner
confirmed to private respondent receipt of the claim papers and assured her that her case
was “being given preferential attention and prompt action”.
Following the filing by private respondent of her claim, petitioner caused another
investigation respecting the subject policy. Pursuant to the findings of this second
investigation, petitioner stood by its initial decision to treat the policy as void and not to
honor the claim. On November 9, 1992, private respondent enlisted the services of
counsel in reiterating her claim for death benefits. Petitioner still refused to make payment
and thus, this action. RTC and CA ruled in favor of Pulido.
ISSUE:
Whether or not the policy was procured through fraud.
HELD:
NO
RATIONALE:
- Fraud is a question of fact which must be alleged and proved at the level of the
lower court. There is no reversible error in the finding of both respondent court
and the trial court in favor of the correctness of the entries in Certificate of
Death, duly registered with the Local Civil Registrar of Bagulin, La Union,
which declared that Florence Pulido died of acute pneumonia on September 10,
1991. Dr. Irineo Gutierrez, the Municipal Health Officer of Bagulin, La Union
whose signature appeared in the death certificate, testified in addition that he
ministered to the ailing Florence Pulido for two days immediately prior to her
death. This fact is likewise noted in the death certificate.
- Death certificates, and notes by a municipal health officer prepared in the
regular performance of his duties, are prima facie evidence of facts therein
stated. A duly-registered death certificate is considered a public document and
the entries found therein are presumed correct, unless the party who contests its
accuracy can produce positive evidence establishing otherwise. Petitioner’s
contention that the death certificate is suspect because Dr. Gutierrez was not
present when Florence Pulido died, and knew of Florence’s death only through
Ramon Piganto, does not merit a conclusion of fraud. No motive was imputed
to Dr. Gutierrez for seeking to perpetuate a falsity in public records. Petitioner
was likewise unable to make out any clear motive as to why Ramon Piganto
would purposely lie.
- Mere allegations of fraud could not substitute for the full and convincing
evidence that is required to prove it. Petitioner’s evidence, which were
composed of reports of its investigators, were not substantiated because those
who prepared the reports did not take the witness stand, and therefore could not
rebut the positive evidence of respondents.
LONDRES vs. NATIONAL LIFE (1954)
Bautista, J.
FACTS:
On April 14, 1943, the National Life Insurance Company of the Philippines issued a policy
on the life of Jose C. Londres whereby it undertook to pay its beneficiary upon his death
the sum of P3,000. All the premiums due under the policy were actually paid on their dates
of maturity and the policy was in force when the insured died on February 7, 1945. On
said date, the battle of the liberation of the City of Manila was still raging. While the
northern part may have been liberated, not so the southern part, as shown from the very
affidavits submitted by appellee wherein it was stated that on the aforesaid date, the
insured, Jose Londres, and his two sons were taken by the Japanese soldiers from their
house at Singalong Street and were massacred by their captors. It may therefore be said
that the policy became due when the City of Manila was still under the yoke of the enemy
and became payable only after liberation which took place on March 10, 1945 when
President Osmeña issued Proclamation No. 6 following the restoration of the civil
government by General Douglas Mac Arthur.
Salvacion V. Londres, as beneficiary, demanded from the company the payment of the
proceeds of the policy on May 16, 1949. Her demand having been refused, she instituted
the present action against the company in the Court of First Instance of Manila. Defendant
raised several defenses, but nevertheless offered to pay Londres Php2,400 as proceeds
based on the Ballantyne scale*. CFI ruled in favor of Londres.
*During World War 2, the Japanese Military peso depreciated relative to the
Commonwealth Peso with the conversion rate declining from 1.25 PHJ = 1 PHP by May
Page 1 of 15
15, 1943 to 1.44:1 in June 1943, 20:1 in July 1944 and 120:1 in January 1945. The
Ballantyne Scale was adopted by the Congress of the Philippines in 1945 to calculate these
conversion rates.
ISSUE:
Whether or not the proceeds should be paid based on the Ballantyne scale.
HELD:
NO
RATIONALE:
- The policy became payable only after liberation even if it matured sometime
before, because before that eventuality the insurance company, appellant herein,
was not yet in a position to pay the value of the policy for the simple reason that
it had not yet reopened. The Court took judicial notice of the fact that, during
those days of liberation, while the people were rejoicing because of the happy
event, the banks, the insurance companies, and for that matter other commercial
and business firms, were still feeling the adverse effects of the sudden fall of
values and were uncertain and apprehensive as to the manner the readjustment
would be made by the new Government. It is for this reason that the beneficiary,
after realizing the truth about the death of her husband, and after gathering
evidence to substantiate his death, had difficulty in effecting the collection of her
claim from the insurance company because at that time it had not yet reopened
for business purposes. Although the record did not disclose the exact date on
which the insurance company reopened for this purpose, this Court took judicial
notice that it only did so after liberation. At that time the legal tender was
already the present currency.
- However, it is an undisputed fact that the beneficiary submitted to the company
formally her claim and demanded payment thereof on May 16, 1949, attaching
thereto sufficient proof of the death of the insured, which claim however the
company did not entertain, not because the proof submitted was not sufficient in
contemplation of law, but because the policy was executed during the
occupation and the determination of its value has not yet been passed upon by
the Government. And following the provisions of our Insurance Law to the
effect that in case of maturity by death, the conclusion is inescapable that from
the point of view of the insurance company, the proceeds of the policy became
payable only upon the expiration of that period
- Where the parties have agreed that the payment of the obligation will be made in
the currency that would prevail by the end of the stipulated period, and this takes
place after liberation, the obligation shall be paid in accordance with the
currency then prevailing, or Philippine currency. Therefore, that the present
claim should be paid in accordance with the present legal tender, or the
Philippine currency.
- As to National Life’s plea that the premiums paid by its policyholders were
effectively lost in view of the nullification of the deposits made by it with the
Philippine National Bank of all fiat money received from its policyholders,
which money was declared without value by Executive Order No. 49 of the
President, the Court had this to say: "The parties herein gambled and speculated
on the date of the termination of the war and the liberation of the Philippines by
the Americans. This can be gleaned from the stipulation about redemption,
particularly that portion to the effect that redemption could be effected not
before the expiration of one year from June 24, 1944. This kind of agreement is
permitted by law. We find nothing immoral or unlawful in it."
FERNANDEZ vs. NATIONAL LIFE (1959)
Endencia, J.
FACTS:
National Life insured the life of Juan Fernandez for Php10,000. The beneficiaries were his
mother and sisters. The insured died on Nov. 2, 1944 (during the Jap occupation), while
the policy was in force. After a lapse of more than 7 years (1952), the beneficiaries thru
counsel wrote National Life to claim the proceeds of the policy. The insurer replied that
because the policy matured upon the death of the insured in 1944, the proceeds should be
computed in accordance with the Ballantyne scale, which amounted only to Php500.
Beneficiaries maintain that the obligation of the insurer matured only upon approval of the
company, which was in 1954.
ISSUE:
(1) Whether or not the liability of the insurer matured upon death.
(2) Whether the Ballantyne scale should be used.
HELD/RATIONALE:
(1) YES, the argument of the beneficiaries is untenable.
- In life insurance, the policy matures either upon expiration of the term set forth
therein in which case its proceeds are immediately payable to the insured
himself, or upon his death occurring at any time prior to the expiration of such
stipulated term, in which case, the proceeds are payable to his beneficiaries
within 60 days after their filing of proof of death.
- In the case at bar, the policy matured upon death of the insured on Nov. 2, 1944,
and the obligation of the insurer to pay arose as of that date. The 60-day period
fixed by law within which to pay is merely procedural in nature.
- It is the happening of the suspensive condition of death that renders a life policy
matured and not the filing of proof of death.
(2) YES
- The insured having died during the Japanese occupation, the proceeds of the
policy should be adjusted in accordance with the Ballantyne scale.
- The case of Londres finds no application because in that case, the policy
matured, i.e. insured died, when the battle for liberation in Manila was ongoing
and the office of the insurer was closed due to this; hence, the beneficiaries
Page 2 of 15
 could have not claimed upon maturity. While in the present case, National Life’s
office was opened until January 1945, or months after the policy matured on
Nov. 2, 1944—meaning the beneficiaries could have already claimed upon the
policy’s maturity.
TIO vs. CA (1991)
Fernan, CJ
FACTS:
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.
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.
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. CA set aside the trial
court’s order and ruled in favor of EASCO, reducing the interest to 6%.
Hence, this petition.
ISSUE:
What is the proper interest rate to be imposed?
HELD:
6%
RATIONALE:
- Section 243 of the Insurance Code provides:
“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… 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.”
- In the case at bar, the Court of Appeals made no finding that there was
an unjustified refusal or withholding of payment on petitioner's claim.
In fact, respondent court had this to say on EASCO's refusal to settle
the claim of petitioner: “... EASCO's refusal to settle the claim to Tio
Khe Chio was based on some ground which, while not sufficient to
free it from liability under its policy, nevertheless is sufficient to
negate any assertion that in refusing to pay, it acted unjustifiably.”
- Sections 243 and 244 of the Insurance Code are not pertinent to the instant case.
They apply only when the court finds an unreasonable delay or refusal in the
payment of the claims—this case falls within the exception of Sec. 243.
- Neither does Circular No. 416 of the Central Bank which took effect on July 29,
1974 pursuant to Presidential Decree No. 116 (Usury Law) which raised the
legal rate of interest from six (6%) to twelve (12%) per cent apply to the case at
bar as by the petitioner. The adjusted rate mentioned in the circular refers only to
loans or forbearances of money, goods or credits and court judgments thereon
but not to court judgments for damages arising from injury to persons and loss
of property which does not involve a loan.
- The proper law to apply in this case is 2209 of the Civil Code which reads: “If
the obligation consists in the payment of a sum of money and the debtor incurs
in delay, the indemnity for damages, there being no stipulation to the contrary,
shall be the payment of interest agreed upon, and in the absence of stipulation,
the legal interest which is six per cent per annum.”
CATHAY INSURANCE VS. CA | Grino-Aquino, J. (1989)
FACTS
* Private respondent Lugay procured 7 fire insurance policies with herein petitioners, 6
insurance companies. Her business, the Cebu Filipina Press, was destroyed by fire on
December 18, 1981.She submitted sworn Statements of Loss and Formal Claims to the
insurers. She also submitted proofs of loss as required by the adjusters. She claimed a total
loss of more than P4M.
* After 10 months of waiting, she sued to collect on December 15, 1982.
Page 3 of 15
* TC: Rendered judgment in favor of Lugay. Petitioners were ordered to pay her the 4M, * It must be noted that in allowing recovery under Policy No. 2, respondent Commissioner
plus 20% of the same amount as counsel fees plus double interests. CA Affirmed. placed much weight on the final report prepared by Dela Merced Adjustment Corporation,
an independent fire, marine and casualty adjuster contracted by Zenith to investigate the
ISSUES & ARGUMENTS claims of its various policyholders. Said report concluded that "the sound value of
WoN Insurance company is liable to pay such monetary wards. YES. P26,666.67 represent[ed] the whole loss and damage" incurred by petitioner, but with the
application of the three-fourths loss clause, Zenith's liability was reduced to P20,000.
RATIONALE
* Lugay’s cause of action had already accrued before she filed her complaint is supported * What is now in contention before us is petitioner's claim under Item 2 of that policy
by Sec. 243 of the Insurance Code which fixes a maximum period of 90 days after the which respondent Commissioner rejected because petitioner allegedly relied merely on the
receipt of the proofs of loss by the insurer for the latter to pay the insured’s claim. (See report of Zenith's adjuster without bothering to produce supporting documents indicating
Sec. 243: “…then the loss or damage shall be paid within ninety days after such receipt.”) that he had suffered immense losses by reason of the fire.
* As the fire which destroyed the Cebu Filipina Press occurred on December 19, 1981 and
the proofs of loss were submitted from January 15, 1982 through June 21, 1982, payment ISSUES & ARGUMENTS
should have been made within 90 days thereafter, or on or before September 21, 1982. WoN respondent Commissioner acted with grave abuse of discretion. YES.
Hence, when the assured file her complaint on December 15, 1982, her cause of action had
a ready accrued. RATIONALE
* There is no merit in the petitioners' contention that the proof of loss were insufficient
* petitioner offered his testimony and that of his wife as well as documentary exhibits. The
because respondent Emilia Chan Luga failed to comply with the adjuster's request for the
foregoing evidence for petitioner preponderantly showed the presence of some P590,000
submission of her bank statements. Condition No. 13 does not require the insured to
worth of goods in his retail store during the fire.
produce her bank statements.
* Substantial compliance with the requirements will always be deemed sufficient.
* The proofs were ample and more than enough for the insurer’s to do a just assessment.
* More significantly, this Court has observed that respondent Zenith introduced in
evidence the final report submitted by its own adjuster, Dela Merced Adjustment
* The trial court's award (which was affirmed by the Court of Appeals) of double interest
Corporation. Respondent Commissioner however ignored such report, reasoning that with
on the private respondent's claim is lawful and justified under Sections 243 and 244 of the
regard to Item 2 of Policy the claim for loss of the stocks in trade was not successfully
Insurance Code.
proven in view of petitioner's failure to present evidence.
* The petitioners' contention that the charging of double interest was improper because no
* Said document was offered as evidence by Zenith itself and could very well be
unreasonable delay in the processing of the fire claim was proven, is refuted by the trial
considered as an admission of its liability. Being in the nature of an admission against
court' explicit finding that "there was a delay that was not reasonable in processing the
interest, it is the best evidence which affords the greatest certainty of the facts in dispute.
claim and doing payments" * Under Section 244, a prima facie evidence of unreasonable
Respondent Commissioner should not have perfunctorily dismissed that particular
delay in payment of the claim is created by the failure of the insurer to pay the claim
evidence as a worthless piece of paper.
within the time fixed in both Section 242 and 243 of the Insurance Code.
FINMAN GENERAL ASSURANCE VS. CA | Kapunan, J. (2001)
* SC Modified the 20% of the proceeds of the policies and reduced it to 10%.
FACTS
NODA VS. CA | Fernan, J. (1987)
* Private respondent Usiphil Inc. obtained a fire insurance policy from petitioner (then
FACTS doing business under the name Summa Insurance Corporation). Petitioner undertook to
indemnify private respondent for any damage to or loss of its properties arising from fire.
* Petitioner Noda obtained from Respondent Zenith Insurance 2 fire insurance policies.
* private respondent filed with petitioner an insurance claim amounting to P987,126.11 for
The 1st policy had a face value of 30K. The 2 nd policy consisted of Item 1 for 40K and Item
the loss of the insured properties due to fire.
2 for 60K.
* H.H. Bayne (Insurance company’s adjuster) then required private respondent to file a
* Fire destroyed petitioner’s insured properties. When he failed to obtain indemnity on his
formal claim and submit proof of loss. In compliance therewith, private respondent
claims from Zenith, he filed a complaint with the Insurance Commission.
submitted its Sworn Statement of Loss and Formal Claim. Respondent likewise submitted
* While the case was pending with the Insurance Commission, Zenith, on March 4, 1980,
Proof of Loss.
settled petitioner I s fire loss claim under Item 1 of the 2 nd policy in the amount of
* Representatives for Petitioner and Respondent signed a Statement/Agreement which
P15,472.50.
indicated that the amount due respondent was P842,683.40. Still, no payment was made to
* Insurance commissioner: Rendered judgment in favor of Noda and ordered Zenith to pay
respondent.
him the amount of 20K.
* Respondent filed a complaint. In its Answer, petitioner maintained that the claim of
private respondent could not be allowed because it failed to comply with Policy Condition

Page 4 of 15
No. 13 regarding the submission of certain documents to prove the loss.
* TC: Ruled in favor of Respondent Usiphil. It Ordered petitioner insurance company to
pay the principal amount plus 24% interest. CA Affirmed.
ISSUES & ARGUMENTS
WoN Petitioner insurance company is liable. YES.
RATIONALE
* With regard to Petitioner’s contention of Respondent’s failure to submit certain
documents in accordance with Policy Condition No. 13:
- Said Condition required the submission of numerous documents: Certification from the
government office indicating the occurrence of the fire, Three color photographs of the
debris of the properties after the fire, Estimation of damage by at least 2 contractors,
Certificate of Registration and Bank statements among many others.
- Private respondent had substantially complied with Policy Condition No. 13. It
submitted: (1) Sworn Statement of Loss and Formal Claim and; (2) Proof of Loss. The
submission of these documents, constitutes substantial compliance with the above
provision. Indeed, as regards the submission of documents to prove loss, substantial, not
strict compliance with the requirements will always be deemed sufficient.
* In any case, petitioner itself acknowledged its liability when through its Finance
Manager, it signed the Statement/Agreement indicating that the amount due private
respondent is P842,683.40.
* Anent the payment of 24% interest per annum, suffice it to say that the same is
authorized by Sections 243 and 244 of the Insurance Code.
* 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. Further, Section 29 of the policy itself provides for the
payment of such interest.
DELSAN TRANSPORT VS. CA | De Leon, Jr., J. (2001)
FACTS
* Caltex entered into a contract of affreightment with petitioner DelsanTransport wherein
the latter undertook to transport Caltex’s kiloliters of fuel from the Batangas-Bataan
Refinery to Zamboanga. The shipment was loaded aboard Delsan’s vessel, the MT
Maysun. The shipment was insured by Respondent insurance company, American Home
Assurance.
* The vessel sank after 2 days of voyage. Subsequently, private respondent paid Caltex
(P5,096,635.67) representing the insured value of the lost cargo. Exercising its right of
subrogation under Article 2207 of the New Civil Code, the private respondent demanded
of the petitioner the same amount it paid to Caltex.
* Due to its failure to collect from the petitioner despite prior demand, private respondent
filed a complaint.
* TC dismissed the complaint. It found that the vessel was seaworthy to undertake the
voyage and that the incident was caused by force majeure (specifically, by the unexpected
inclement weather condition, Delsan claimed that the waves were 20ft high).
* CA: Reversed. No force majeure. CA gave credence to the report submitted by PAGASA
that the wind speed and the waves on that day were normal (waves were less than 2m
high). In the absence of any explanation as to what may have caused the sinking of the
vessel coupled with the finding that the same was improperly manned, the appellate court
ruled that the petitioner is liable on its obligation as common carrier .
ISSUE/S & HELD
WoN Delsan is liable to pay respondent insurance company as subrogee of Caltex. YES.
RATIONALE
* The right of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate payment of
a debt by one who in justice and good conscience ought to pay.
* Consequently, the payment made by the private respondent (insurer) to Caltex (assured)
operates as an equitable assignment to the former of all the remedies which the latter may
have against the petitioner.
* The SC agrees with the finding of the CA that the sinking of the vessel was not caused
by force majeure (Relied on the PAGASA Report).
* The presentation in evidence of the marine insurance policy is not indispensable in this
case before the insurer may recover from the common carrier the insured value of the lost
cargo in the exercise of its subrogatory right. The subrogation receipt, by itself, is
sufficient to establish not only the relationship of herein private respondent as insurer and
Caltex, as the assured shipper, but also the amount paid to settle the insurance claim. The
right of subrogation accrues simply upon payment by the insurance company of the
insurance claim.
* The presentation of the insurance policy was necessary in the case of Home Insurance
Corporation v. CA (a case cited by petitioner) because the shipment therein (hydraulic
engines) passed through several stages with different parties involved in each stage.
* The insurance contract, which was not presented in evidence in that case would have
indicated the scope of the insurer’s liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to the cargo was sustained.
* Hence, our ruling on the presentation of the insurance policy in the said case of Home
Insurance Corporation is not applicable to the case at bar. In contrast, there is no doubt that
the cargo of industrial fuel oil belonging to Caltex, in the case at bar, was lost while on
board petitioner’s vessel, MT Maysun, which sank while in transit
ANG V FULTON
TRAVELLERS V INSURANCE
LOPEZ V. FILIPINAS
FINMAN V INOCENCION
EAGLE STAR V. CHIN YU | Reyes, J.
March 31, 1955|
NATURE
Petition for review on certiorari
Page 5 of 15

FACTS
- Atkin, Kroll & Co., loaded on the S. S. Roeph Silverlight owned and operated by Leigh
Hoegh & Co., 14 bales of assorted underwear consigned to Chia Yu in the City of Manila.
- The shipment was insured against all risks by Eagle Star Ins. Co. under a policy issued to
the shipper and by the latter assigned to the consignee.
- The vessel arrived in Manila but of the 14 consigned to Chia Yu only 10 were delivered
to him as the remaining 4 could not be found. 50% of the 3 delivered bales were also
found damaged
-Chia Yu claimed indemnity for the missing and damaged bales but the claim was
declined, first, by the carrier and later by the insurer, where Chia Yu brought the present
action against both, including their respective agents in the Philippines.
- An action was filed at the CFI after more than 2 years after delivery of the damaged
bales and the date when the missing bales should have been delivered, the action was
resisted by the Atkins and Eagle Star principally on the ground of prescription.
-TC favored Chia Yu and CA affirmed.
-CARRIER’s defense of prescription is made to rest on the following stipulation of the bill
of lading:
In any event the carrier and the ship shall be discharged from all liability in respect of
loss or damage unless suit is brought within one year after the delivery of the goods or
the date when the goods should have been delivered. (This stipulation is but a repetition
of a provision in the CA 65 which says that bills of lading covering shipments from the
US to the Phils should be brought w/in one year after the delivery of the goods or the
date when the goods should have been delivered to hold the carrier liable.)
- INSURER’s claim of prescription is founded upon the terms of the policy and not upon
the bill of lading. Under our law, as per Art. 1144 NCC, prescription is 10 years after the
right of action accrues.
-But counsel for the insurer claim that this statutory limitation must yield to the ff.
stipulation in the policy: No suit action on this Policy, for the recovery of any claim, shall
be sustainable in any Court of law or equity unless the insured shall have fully complied
with all the terms and conditions of this Policy nor unless commenced with twelve (12)
months next after the happening of the loss . . .
ISSUES & ARGUMENTS
WON Atkin’s action has prescribed? NO
RATIONALE
- SEC. 61-A. (Insurance Code) Any condition, stipulation or agreement in any policy of
insurance, limiting the time for commencing an action thereunder to a period of less than
one year from the time when the cause of action accrues, is void.
-Insular Government vs. Frank: "matters respecting a remedy, such as the bringing of suit,
admissibility of evidence, and statute of limitations, depend upon the law of the place
where the suit is brought." Any policy clause contrary to this amendment to the Insurance
Act can’t be given effect in an action in our courts.
- In this case, if the policy is given effect, the prescriptive clause would reduce the period
allowed the insured for bringing his action to less than 1 year as the prescriptive clause
would begin from the happening of the loss, Moreover, the insured has to comply first
with all the terms and conditions of the policy which consumes time.
-Being contrary to the law of the forum, such stipulation can’t be given effect.
-The prescription clause could be harmonized with section 61-A of the Insurance Act by
taking it to mean that the time given the insured for bringing his suit is twelve months
after the cause of action accrues.
- If so, when did the cause of action accrue? Chia Yu’s action did not accrue until his claim
was finally rejected by the insurance company. This is because, before such final rejection,
there was no real necessity for bringing suit.
- As the policy provides that the insured should file his claim, first, with the carrier and
then with the insurer, he had a right to wait for his claim to be finally decided before going
to court.
- Furthermore, there is nothing in the record to show that the claim was rejected in the year
1947, either by the insurance company in London or its settling agents in the Philippines.
- For the purpose of this action, Chia Yu's claim was considered to have been finally
rejected by the insurer on April 22, 1948. Having been filed within twelve months form
that date, the action cannot be deemed to have prescribed even on the supposition
that the period given the insured for bringing suit under the prescriptive clause of the
policy is twelve months after the accrual of the cause of action.
- Contractual limitations contained in insurance policies are regarded with extreme
jealousy by courts and will be strictly construed against the insurer and should not be
permitted to prevent a recovery when their just and honest application would not produce
that result. (46 C. J. S. 273.)
ACCFA V. ALPHA INSURANCE | Reyes, J.
July 29, 1968|
NATURE
Petition for review on certiorari
FACTS
- To guarantee the Asingan Farmers' Cooperative Marketing Association, Inc. (FACOMA)
against loss on account of personal dishonesty, amounting to larceny/estafa of its
Secretary-Treasurer, Ladines, appellee Alpha Insurance & Surety Company had issued, on
14 February 1958, its bond with Ladines as principal and the appellee as solidary surety.
On the same date, the Asingan FACOMA assigned its rights to the appellant, Agricultural
Credit Cooperative and Financing Administration (ACCFA) with approval of the principal
and the surety.
- During the effectivity of the bond, Ladines converted and misappropriated, to his
personal benefit, some of the FACOMA funds, of which a part belonged to the ACCFA.
Upon discovery of the loss, ACCFA immediately notified in writing the survey company
on 10 October 1958, and presented the proof of loss within the period fixed in the bond;
but despite repeated demands the surety company refused and failed to pay. ACCFA filed
suit against appellee on 30 May 1960.
- Defendant Alpha Insurance & Surety Co., Inc., (now appellee) moved to dismiss the
complaint as it was filed more than one year after plaintiff made claim for loss, contrary to
the eighth condition of the bond
- At first, the Court of First Instance denied dismissal; but, upon reconsideration, the court
reversed its original stand, and dismissed the complaint on the ground that the action was
filed beyond the contractual limitation period. Hence, this appeal.
Page 6 of 15
ISSUES & ARGUMENTS
WON the provision of a fidelity bond that no action shall be had or maintained thereon
unless commenced within one year from the making of a claim for the loss upon which the
action is based, is valid, in view of Section 61-A of the Insurance Act invalidating
stipulations limiting the time for commencing an action thereon to less than one year from
the time the cause of action accrues? NO
RATIONALE
-A fidelity bond is, in the nature of a contract of insurance against loss from misconduct,
and is governed by the same principles of interpretation. Consequently, the condition of
the bond in question, limiting the period for bringing action is subject to the provisions of
Section 61-A of the Insurance Act (No. 2427), as amended by Act 4101 of the pre-
Commonwealth Philippine Legislature, prescribing that:
SEC. 61-A: A condition, stipulation or agreement in any policy of insurance, limiting
the time for commencing an action thereunder to a period of less than one year from the
time when the cause of action accrues is void.
- Since a "cause of action" requires, as essential elements, not only a legal right of the
plaintiff and a correlative obligation of the defendant but also "an act or omission of the
defendant in violation of said legal right," the cause of action does not accrue until the
party obligated refuses, expressly or impliedly, to comply with its duty (in this case, to
pay the amount of the bond).
-The year for instituting action in court must be reckoned from the time of appellee's
refusal to comply with its bond. It can’t be counted from the creditor's filing of the claim
of loss, for that does not import that the surety company will refuse to pay.
-In so far, therefore, as condition eight of the bond requires action to be filed within one
year from the filing of the claim for loss, such stipulation contradicts the public policy
expressed in Section 61-A of the Philippine Insurance Act.
- Condition eight of the bond, therefore, is null and void, and the appellant is not
bound to comply with its provisions. The discouraging of unnecessary litigation must be
deemed a rule of public policy, considering the unrelieved congestion in the courts.
-As a consequence, the action may be brought within the statutory period of limitation
for written contracts (New Civil Code, Article 1144).
SUN INSURANCE V CA (SUPRA)
MAYER STEEL (SUPRA)
VDA. DE GABRIEL V. CA | Vitug, J., November 14, 1996|
NATURE
Petition for review on certiorari
FACTS
- Marcelino Gabriel, the insured, was employed by Emerald Construction & Development
Corporation (ECDC) at its construction project in Iraq.
- He was covered by a personal accident insurance under a group policy procured from
private respondent by ECDC for its overseas workers. The insured risk was for “bodily
injury caused by violent accidental external and visible means which injury (would) solely
and independently of any other cause" result in death or disability.
-Within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC
reported Gabriel's death to private respondent Fortune Insurance & Surety Co. by
telephone but its claim was denied on the ground of prescription under Sec. 384 of the
Insurance Code
-TC: complaint was timely filed or w/in 1 year from private respondent’s denial of claim.
CA reversed.
ISSUE: WoN the claim has prescribed? YES
RATIONALE
- Respondent correctly invoked Sec. 384 of the Insurance Code
- The notice of death was given to private respondent, more than a year after the death of
petitioner's husband. Private respondent, in invoking prescription, was not referring to the
one-year period from the denial of the claim within which to file an action against an
insurer but obviously to the written notice of claim that had to be submitted within six
months from the time of the accident.
COASTWISE V CA (SUPRA)
VDA. DE MAGLANA V. CONSOLACION | Romero, J.
August 6, 1992|
NATURE
Petition for review on certiorari
FACTS
- Lope Maglana was an employee of the Bureau of Customs whose work station was at
Lasa, Davao City. On his way to his work, he met an accident that resulted in his death.
- The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned
by defendant Destrajo. From the investigation conducted by the traffic investigator, the
PUJ jeep was overtaking another passenger jeep that was going towards the city
poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the
overtaken jeep, bumped the motorcycle driven by the deceased. The point of impact was
on the lane of the motorcycle and the deceased was thrown from the road and met his
untimely death.
- Heirs of Lope Maglana, Sr. filed an action for damages and attorney's fees against
operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO). An
information for homicide thru reckless imprudence was also filed against Pepito Into.
- During the pendency of the civil case, Into was sentenced to suffer an indeterminate
penalty, with all the accessory penalties provided by law, and to indemnify the heirs of
Lope Maglana, Sr. No appeal was interposed by accused who later applied for probation.
- LC: Destrajo had not exercised sufficient diligence as the operator of the jeepney
ordering him to pay plaintiffs the sum for loss of income; funeral and burial expenses of
the deceased; moral damages, and attorney's fees and costs of suit. The defendant
insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter
shall have paid only up to the extent of its insurance coverage.
- Petitioners filed a motion for the reconsideration of the second paragraph of the decision
contending that AFISCO should not merely be held secondarily liable because the
Page 7 of 15
Insurance Code provides that the insurer's liability is "direct and primary and/or jointly
and severally with the operator of the vehicle, although only up to the extent of the
insurance coverage." Hence, they argued that the P20,000.00 coverage of the insurance
policy issued by AFISCO, should have been awarded in their favor.
- AFISCO argued that since the Insurance Code does not expressly provide for a solidary
obligation, the presumption is that the obligation is joint.
- LC denied the motion for reconsideration ruling that since the insurance contract "is in
the nature of suretyship, then the liability of the insurer is secondary only up to the extent
of the insurance coverage."
- Petitioners filed a second motion for reconsideration reiterating that the liability of the
insurer is direct, primary and solidary with the jeepney operator because the petitioners
became direct beneficiaries under the provision of the policy which, in effect, is a
stipulation pour autrui. This motion was likewise denied for lack of merit.
ISSUE: WoN the AFISCO is directly liable? YES
RATIONALE
- Shafer vs. Judge, RTC of Olongapo City, Br. 75, "where an insurance policy insures
directly against liability, the insurer's liability accrues immediately upon the occurrence of
the injury or even upon which the liability depends, and does not depend on the recovery
of judgment by the injured party against the insured."
- The underlying reason behind the third party liability (TPL) of the Compulsory Motor
Vehicle Liability Insurance is "to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial
interest in the proceeds of the policy . . ." Since petitioners had received from AFISCO the
sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to
P15,000.00.
- However, AFISCO is not solidarily liable with Destrajo.
- Malayan Insurance Co., Inc. v. Court of Appeals: While it is true that where the
insurance contract provides for indemnity against liability to third persons, such third
persons can directly sue the insurer, however, the direct liability of the insurer under
indemnity contracts against third party liability does not mean that the insurer can be held
solidarily liable with the insured and/or the other parties found at fault. The liability of the
insurer is based on contract; that of the insured is based on tort…. For if petitioner-
insurer were solidarily liable with said, two (2) respondents by reason of the indemnity
contract against third party liability under which an insurer can be directly sued by a third
party this will result in a violation of the principles underlying solidary obligation and
insurance contracts.
- While in solidary obligations, the creditor may enforce the entire obligation against one
of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration
to indemnify the insured against loss, damage or liability arising from an unknown or
contingent event.
- Similarly, petitioners cannot validly claim that AFISCO, whose liability under the
insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total
amount of P53,901.70 in accordance with the decision of the lower court. Since under
both the law and the insurance policy, AFISCO's liability is only up to P20,000.00
-The liability of AFISCO based on the insurance contract is direct but not solidary with
Destrajo which is based on Art. 2180 CC. Thus, petitioners have the option either to
claim P15,000 from AFISCO and the balance from Destrajo or enforce the entire
judgment from Destrajo subject to reimbursement from AFISCO to the extent of the
insurance coverage.
CEBU SHIPYARD V WILLIAM LINES
PIONEER INSURANCE & SURETY CORP V CA, BORMAHECO, MAGLANA
AND LIM G.R. No. 84197
LIM V CA, PIONEER INSURANCE AND SURETY CORP, BORMAHECO,
CERVANTES AND MAGLANA
FACTS:
 2 consolidated petitions
 1965 – Jacob S. Lim was the owner-operator of Southern Air Lines (SAL) a
single proprietorship
 May 17, 1985 at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered
into and executed a sales contract for the sale and purchase of and purchase of
two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the
total agreed price of US $109,000.00 to be paid in installments. One DC-3
Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the
other aircraft, arrived in Manila on July 18,1965.
 On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner
in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639
(Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price
of the aircrafts and spare parts.
 It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to be
their contributions to a new corporation proposed by Lim to expand his airline
business. They executed two (2) separate indemnity agreements (Exhibits D-1
and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed
by Lim for SAL, Bormaheco and the Cervanteses.
 indemnity agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save harmless
Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer may
incur in consequence of having become surety
 June 10, 1965 - Lim doing business under the name and style of SAL executed
in favor of Pioneer as deed of chattel mortgage as security for the latter's
suretyship in favor of the former. It was stipulated therein that Lim transfer and
convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered
with the Office of the Register of Deeds of the City of Manila and with the Civil
Page 8 of 15
 Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil
Aeronautics Law (Republic Act No. 776), respectively.
 Lim defaulted on his subsequent installment payments prompting JDA to request
payments from the surety. Pioneer paid a total sum of P298,626.12.
 Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana,
however, filed a third party claim alleging that they are co-owners of the
aircrafts,
 On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana.
ISSUES/HELD/RATIO:
G.R. No. 84197-relevant discussion
1. Has Pioneer a cause of action against defendants with respect to so much of its
obligations to JDA as has been paid with reinsurance money? NO
2. If the answer to the preceding question is in the negative, has Pioneer still any claim
against defendants, considering the amount it has realized from the sale of the mortgaged
properties? NO
The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the
difference between the two amounts, or P3,666.28. This is the amount for which Pioneer
may sue defendants, assuming that the indemnity agreement is still valid and effective. But
since the amount realized from the sale of the mortgaged chattels are P35,000.00 for one
of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still
overpaid by P33,383.72. Therefore, Pioneer has no more claim against defendants.
The payment to the petitioner made by the reinsurers was not disputed in the appellate
court. Considering this admitted payment, the only issue that cropped up was the effect of
payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that
the respondents had no interest in the reinsurance contract as this is strictly between the
petitioner as insured and the reinsuring company pursuant to Section 91 (should be
Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same
rights by subrogation as are acquired in similar cases where the
original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses
Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original insurance policies are
in general applicable to actions or contracts of reinsurance.
(Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126
GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully cover the
injury or loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald
Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany
Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity
from the insurer, it is provided in said article that the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the
amount paid by the insurer does not fully cover the loss, then the
aggrieved party is the one entitled to recover the deficiency. Evidently,
under this legal provision, the real party in interest with regard to the
portion of the indemnity paid is the insurer and not the insured.
(Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an attorney-
in-fact of the reinsurer. Moreover, the indemnity agreement ceased to be valid and
effective after the execution of the chattel mortgage. This is judicial admission and
aside from the chattel mortgage there is no other security for the claim sought to be
enforced by this action, which necessarily means that the indemnity agreement had ceased
to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised
Rules of Court.
The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the
right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the
New Civil Code of the Philippines.
Other bases/issues:
Independently of the preceding proposition Pioneer's election of the remedy of foreclosure
precludes any further action to recover any unpaid balance of the price. SAL or Lim,
having failed to pay the second to the eight and last installments to JDA and Pioneer as
surety having made of the payments to JDA, the alternative remedies open to Pioneer were
as provided in Article 1484 of the New Civil Code, known as the Recto Law (=p). Pioneer
exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial
foreclosure and the instant suit.
Also, Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the
same. Consequently, Pioneer has no more cause of action to recover from these
Page 9 of 15
defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express
stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten
days from default of Lim or SAL on every installment, released Pioneer from liability
from the claim. Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity. (Art 1318)
Petition in G.R. No. 84197 is not meritorious.
G.R. No. 84157
1. What legal rules govern the relationship among co-investors whose agreement was to
do business through the corporate vehicle but who failed to incorporate the entity in which
they had chosen to invest?
2. How are the losses to be treated in situations where their contributions to the intended
'corporation' were invested not through the corporate form?
Principles governing: While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by the supposed
charter and the laws of the state relating thereto and not by the rules governing partners, it
is ordinarily held that persons who attempt, but fail, to form a corporation and who carry
on business under the corporate name occupy the position of partners inter. Thus, where
persons associate themselves together under articles to purchase property to carry on a
business, and their organization is so defective as to come short of creating a corporation
within the statute, they become in legal effect partners inter se, and their rights as members
of the company to the property acquired by the company will be recognized.
Petitioner denied having received any amount from respondents Bormaheco, the
Cervanteses and Maglana. The trial court and the appellate court, however, found through
Exhibit 58, that the petitioner received the amount of P151,000.00 representing the
participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the
subject airplanes and spare parts. The record shows that defendant Maglana gave
P75,000.00 to petitioner Jacob Lim thru the Cervanteses.
It is therefore clear that the petitioner never had the intention to form a corporation
with the respondents despite his representations to them. This gives credence to the
cross-claims of the respondents to the effect that they were induced and lured by the
petitioner to make contributions to a proposed corporation which was never formed
because the petitioner reneged on their agreement.
Applying therefore the principles of law earlier cited to the facts of the case, necessarily,
no de facto partnership was created among the parties which would entitle the petitioner to
a reimbursement of the supposed losses of the proposed corporation. The record shows
that the petitioner was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.
DISPOSITIVE: petitions are DISMISSED. Decision of CA AFFIRMED.
MANILA MAHOGANY MFG CORP V CA & ZENITH INSURANCE
OCT 12, 1997; PADILLA, J
FACTS:
 From March 6, 1970 – 1971, petitioner insured its Mercedes Benz 4-door sedan
w/ respondent insurance company. On May 4, 1970, vehicle was bumped and
damaged by a truck owned by San Miguel Corp (SMC).
 Zenith paid P5K to petitioner in amicable settlement. Petitioner’s general
manager executed a Release Claim, subrogating respondent company to all its
right to action against SMC
 Dec. 11, 1972 – respondent co. wrote Insurance Adjusters Inc. To demand
reimbursement from SMC. Insurance Adjusters refused saying that SMC had
already paid petitioner P4,500 for the damages to petitioner’s vehicle, as
evidenced by a cash voucher and Release of Claim executed by the GM of
petitioner discharging SMC from “all actions, claims, demands the rights of
action that now exist or hereafter develop arising out of or as a consequence of
the accident
 Respondent demanded the P4.5K amount from petitioner. Petitioner refused.
Suit filed for recovery.
 City Court ordered petitioner to pay respondent. CFI affirmed. CA affirmed with
modification that petitioner was to pay respondent the total amount of 5K it had
received from respondent co.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only 5K was
received by petitioner from respondent, petitioner argues that it was entitled to go after
SMC to claim the additional which was eventually paid to it
Respondent’s argument: No qualification to its right of subrogation
ISSUE:
WON petitioner should pay respondent despite the subrogation in the Release of Claim
was conditioned on recovery of the total amount of damages petitioner has sustained?
HELD:
NO.
RATIONALE:
SC: no other evidence to support its allegation that a gentleman’s agreement existed
between the parties, not embodied in the Release of Claim, such Release of Claim must be
taken as the best evidence of the intent and purpose of the parties
 CA correct in holding petitioner should reimburse respondent 5K
o When Manila Mahogany executed another release claim discharging
SMC from all rights of action after the insurer had paid the proceeds
of the policy – the compromise agreement of 5K- the insurer is
Page 10 of 15
 entitled to recover from the insured the amount of insurance money
paid
o Petitioner by its own acts released SMC, thereby defeating
respondent’s right of subrogation, the right of action against the
insurer was also nullified
 Since the insurer can be subrogated to only such rights as the insured may have,
should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer losses his rights against the latter.
But in such a case, the insurer will be entitled to recover from the insured
whatever it has paid to the latter, unless the release was made w/ the consent of
the insurer
DISPOSITIVE: PETITION DENIED
FIREMAN’S FUND V JAMILLA (1976)
FACTS:
-Jamila was contracted to supply security guards to Firestone.
-Jamila assumed responsibility of the acts of guards. First Quezon City Insurance Co., Inc.
executed a bond in the sum of P20,000.00 to guarantee Jamila's obligations under that
contract;
-Theft happened allegedly due to Firestone’s employees in connivance with the guards.
- Fireman's Fund, as insurer of firestone, paid to Firestone the amount of the loss.
-Fireman's Fund was subrogated itself to Firestone's right to get reimbursement from
Jamila, and that Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay
the amount of the loss in spite of repeated demands.
- TC: dismissed the complaint as to Jamila on the ground that there was no allegation that
it had consented to the subrogation and, therefore, Fireman's Fund had no cause of action
against it
- Firestone and Fireman's Fund appealed on the ground that Fireman's Fund Insurance
Company was suing on the basis of legal subrogation whereas the lower court erroneously
predicated its dismissal order on the theory that there was no conventional subrogation
because the debtor's consent was lacking. They cited article 2207 of the Civil Code which
provides that "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"
- Jamila, in reply, argues that legal
(1) Subrogation under article 2207 requires the debtor's consent
(2) That legal subrogation takes place in the cases mentioned in article 1302
of the Civil Code and the instant case is not among the three cases
enumerated in that article, and
(3) That there could be no subrogation in this case because according to the
plaintiffs the contract between. Jamila and Firestone was entered into on June 1,
1965 but the loss complained of occurred on May 18, 1963. (Regarding this
issue the SC held that That allegation, which was uncalled for because it is not
found in the complaint, created confusion which heretofore did not exist. No
copy of the contract was annexed to the complaint.)
ISSUE:
WON Subrogation was proper
HELD:
YES
RATIONALE:
- Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As
the insurer, Fireman's Fund is entitled to go after the person or entity that
violated its contractual commitment to answer for the loss insured.
- In alleging in their complaint that Fireman's Fund "became a party in
interest in this case by virtue of a subrogation right given in its favor by"
Firestone, were not relying on the novation by change of creditors as
contemplated in articles 1291 and 1300 to 1303 of the Civil Code but rather
on article 2207.
- SC defined the concept, nature and principle of subrogation as follows:
o "Subrogation is founded on principles of justice and equity, and
its operation is governed by principles of equity. It rests on the
principle that substantial justice should be attained regardless of
form, that is, its basis is the doing of complete, essential, and
perfect justice between all the parties without regard to form"
o Subrogation is a normal incident of indemnity insurance. Upon
payment of the loss, the insurer is entitled to be subrogated pro tanto
to any right of action which the insured may have against the third
person whose. negligence or wrongful act caused the loss.
o The right of subrogation is of the highest equity. The loss in the first
instance is that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer
o When the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property
and all remedies which the insured may have for the recovery
thereof. THAT RIGHT IS NOT DEPENDENT UPON, NOR
DOES IT GROW OUT OF, ANY PRIVITY OF CONTRACT, OR
UPON WRITTEN ASSIGNMENT OF CLAIM, and payment to
the insured makes the insurer an assignee in equity
PHILAMGEN vs. CA
(1997)
FACTS:
-Coca-Cola Bottlers Philippines, Inc., loaded on “MV Asilda” owned and operated by
respondent Felman Shipping Lines (FELMAN), 7,500 cases of 1-liter Coca-Cola softdrink
bottles to be transported from Zamboanga City to Cebu City for consignee Coca-
Page 11 of 15
Cola Bottlers Philippines, Inc., Cebu.
- The shipment was insured with petitioner Philippine American General Insurance Co.,
Inc. (PHILAMGEN), under a Marine Open Policy.
-the vessel sank in the waters of Zamboanga del Norte bringing down its entire cargo
ncluding the 7,500 cases of 1-liter Coca-Cola softdrink bottles.
-Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent FELMAN
for recovery of damages
-PHILMAGEN after paying Coca Cola the amount of P755,250.00, subrogated itself.
-PHILAMGEN alleged that:
(1) The sinking and total loss of the vessel and its cargo were due to the vessel’s
unseaworthiness as she was put to sea in an unstable condition
(2) that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port or
beach after the vessel started to list.
- FELMAN on the other hand argues that no right of subrogation in favor of
PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over the vessel together with her freight
and appurtenances for the purpose of limiting and extinguishing its liability under Art. 587
of the Code of Commerce
-TC: dismissed the complaint of PHILMAGEN
-CA: set aside the dismissal and remanded the case to the lower court for trial on the
merits.
-TC: rendered judgment in favor of FELMAN. It ruled that “MV Asilda” was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine
Coast Guard and the shipowner’s surveyor. Thus the loss of the vessel and its entire
shipment could only be attributed to either a fortuitous event, in which case, no
liability should attach unless there was a stipulation to the contrary, or to the
negligence of the captain and his crew, in which case, Art. 587 of the Code of
Commerce 1should apply. And that even assuming that the vessel was not sea worthy,
PHILAMGEN could not recover from FELMAN since the assured (Coca-Cola
Bottlers Philippines, Inc.) had breached its implied warranty on the vessel’s
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an
undue, wrong and mistaken payment.
-CA: found “MV Asilda” unseaworthy for being top- heavy as 2,500 cases of Coca-Cola
softdrink bottles were improperly stowed on deck. The vessel was seaworthy with respect
to the structure of the ship itself, but it was not seaworthy with respect to the cargo.
Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that
the assured’s implied warranty of seaworthiness was not complied with.
Perfunctorily, PHILAMGEN was not properly subrogated to the rights and interests
of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited
liability rule.
1
Art. 587 states: The ship agent shall also be civilly liable for the indemnities in
favor of third parties which may arise from the conduct of the captain in the care
of the goods which he loaded on the vessel; but he may exempt himself
therefrom by abandoning the vessel with all her equipments and the freight it
may have earned during the voyage.
ISSUE:
(1) WON “MV Asilda” was seaworthy when it left the port of Zamboanga.
(2) WON the limited liability under Art. 587 of the Code of Commerce should apply.
(3) WON PHILAMGEN was properly subrogated to the rights and legal actions
which the shipper had against FELMAN, the shipowner.
HELD:
RATIONALE:
(1) MV Asilda” was unseaworthy when it left the port of Zamboanga. SC subscribed to the
findings of Elite Adjusters, Inc regarding the sinking of “MV Asilda.” Wherein the latter
stated that:
-The vessel was top-heavy which is to say that while the vessel may not have
been overloaded, yet the distribution or stowage of the cargo on board was done
in such a manner that the vessel was in top-heavy condition at the time of her
departure and which condition rendered her unstable and unseaworthy for that
particular voyage.
-The vessel was originally a fishing vessel, hence, it was not designed to carry a
substantial amount or quantity of cargo on deck. Had the cargo been placed
under deck, her stability would not have been affected and the vessel would not
have been in any danger of capsizing, even given the prevailing weather
conditions at that time of sinking.
(2) Art. 587 of the Code of Commerce is not applicable to the case at bar. . 587 speaks
only of situations where the fault or negligence is committed solely by the captain. Where
the shipowner is likewise to be blamed, Art. 587 will not apply, and such situation will be
covered by the provisions of the Civil Code on common carrier. Closer supervision on the
part of the shipowner could have prevented this fatal miscalculation. As such, FELMAN
was equally negligent. It cannot therefore escape liability through the expedient of filing a
notice of abandonment of the vessel by virtue of Art. 587 of the Code of Commerce.
(3) Felman was liable. The general rule is that a person cannot claim on an insurance
policy if there has been a violation of the implied warranty of seaworthiness. In this case,
however, PHILAMGEN had in its policy an “admission of seaworthiness," in effect,
seaworthiness is presumed and the insured may claim despite the absence of
seaworthiness. Hence, PHILAMGEN as subrogee has a claim against Felman based on
Art. 2207 of the Civil Code which provides: 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.Also, As ruled in the case Pan Malayan Insurance
Corporation v. Court of Appeals,iwe said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the
assured may have against the third party whose negligence or wrongful act caused
the loss. The right of subrogation is not dependent upon, nor does it grow out of any
privity of contract or upon payment by the insurance company of the insurance
claim. It accrues simply upon payment by the insurance company of the insurance
claim.
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 The payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave
the former the right to bring an action as subrogee against FELMAN. Having failed to
rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of
1-liter Coca-Cola softdrink bottles is inevitable
ST. PAUL FIRE & MARINE INSURANCE VS. MACONDRAY (1976)
FACTS:
-On 29 June 1960, Winthrop Products, Inc., of New York, New York, U.S.A.(Shipper),
shipped aboard the SS “Tai Ping”, owned and operated by Wilhelm Wilhelmsen (Carrier),
218 cartons and drums of drugs and medicine, with the freight prepaid, which were
consigned to Winthrop-Steams, Inc., Manila, Philippines (Consignee).
-Barber Steamship Lines, Inc., agent of Wilhelm Wilhelmsen issued Bill of Lading 34,
in the name of Winthrop Products, Inc. as shipper, with arrival notice in Manila to
consignee Winthrop-Stearns, Inc., Manila, Philippines.
-The shipment was insured by the shipper against loss and/or damage with the St. Paul
Fire & Marine Insurance Company.
-The SS “Tai Ping” arrived at the Port of Manila and discharged its shipment into the
custody of Manila Port Service, the arrastre contractor for the Port of Manila.
-The said shipment was discharged complete and in good order with the exception of
1 drum and several cartons which were in bad order condition. Because consignee
failed to receive the whole shipment and as several cartons of medicine were received
in bad order condition, the consignee filed the corresponding claim in the amount of
P1,109.67 representing the C.I.F. value of the damaged drum and cartons of medicine
with the carrier, and the Manila Port Service. However, both refused to pay such claim.
-Consequently, the consignee filed its claim with the insurer, St. Paul Fire & Marine
Insurance Co., and the insurance company, on the basis of such claim, paid to the
consignee the insured value of the lost and damaged goods, including other expenses
in connection therewith, in the total amount of $1,134.46.
-On 5 August 1961, as subrogee of the rights of the shipper and/or consignee, the
insurer, St. Paul Fire & Marine Insurance, instituted with the CFI of Manila an
action against Macondray & Co., Barber Steamship Lines, Wilhelm Wilhelmsen,
Manila Port Service and/or Manila Railroad Company for the recovery of said
amount of $1,134.46, plus costs.
- TC: rendered judgment in favor of St. Paul ordering Macondray & Co., Inc., Barber
Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the insurance company,
jointly and severally, the sum of P300.00, with legal interest thereon from the filing of
the complaint until fully paid, and Manila Railroad Company and Manila Port
Service to pay to the insurance company, jointly and severally, the sum of P809.67
(Total amount of P1108.87), with legal interest thereon from the filing of the complaint
until fully paid, the costs to be borne by all the defendants.
- St Paul appealed contending that it should recover the amount it actually paid to the
consignee, which was $1,134.46, or its equivalent in pesos at the rate of P3.90 (dollar rate
conversion at the time of judgment)
- On the otherhand, the defendant-appellees argue their liability is limited to the C.I.F.
value of the goods, pursuant to contract of sea carriage embodied in the bill of lading that
the consignee's (Winthrop-Stearns Inc.) claim against the carrier (Macondray & Co., Inc.,
Barber Steamship Lines, Inc., Wilhelm Wilhelmsen and the arrastre operators (Manila Port
Service and Manila Railroad Company) was only for the sum of Pl,109.67.
-CA: certified the case to the Supreme Court on the ground that the appeal involves purely
questions of law.
ISSUE:
(1)WON St. Paul (the insurer) is entitled to a greater amount of $1134.46 instead of
P1109.67 which was awarded by the lower court.
(1)WON the dollar rate at the time of judgment should apply instead of the rate at the time
of loss or damage.
HELD:
(1)NO (2) NO
RATIONALE:
(1)
-The purpose of the bill of lading is to provide for the rights and liabilities of the parties in
reference to the contract to carry. The stipulation in the bill of lading limiting the common
carrier’s liability to the value of the goods appearing in the bill, unless the shipper or
owner declares a greater value, is valid and binding.
- The parties have the freedom to establish such stipulations, clauses, terms, or conditions
as they may deem convenient, provided they are not contrary to law, morals, good customs
and public policy. A stipulation fixing or limiting the sum that may be recovered from
the carrier on the loss or deterioration of the goods is valid, provided it is (a)
reasonable and just under the circumstances, and (b) has been fairly and freely
agreed upon.
- In the case at bar, the liabilities of Macondray, etc. with respect to the lost or damaged
shipments are expressly limited to the C.I.F. value of the goods as per contract of sea
carriage embodied in the bill of lading, which reads: “Whenever the value of the goods
is less than $500 per package or other freight unit, their value in the calculation and
adjustment of claims for which the Carrier may be liable shall for the purpose of avoiding
uncertainties and difficulties in fixing value be deemed to be the invoice value, plus
freight and insurance if paid, IRRESPECTIVE OF WHETHER ANY OTHER
VALUE IS GREATER OR LESS. The limitation of liability and other provisions herein
shall inure not only to the benefit of the carrier, its agents, servants and employees, but
also to the benefit of any independent contractor performing services including
stevedoring in connection with the goods covered hereunder.”
- The conditions are reasonable and were freely and fairly agreed upon by the shipper and
consignee; hence the bill of lading is valid and binding.
-St. Paul Fire Insurance, as insurer, after paying the claim of the insured for damages
under the insurance, IS SUBROGATED MERELY TO THE RIGHTS OF THE
ASSURED, CONSIGNEE HEREIN. As subrogee, it can recover only the amount that
is recoverable by the latter. Since the right of the assured, in case of loss or damage to
the goods, is limited or restricted by the provisions in the bill of lading, a suit by the
insurer as subrogee necessarily is subject to like limitations and restrictions. The
insurer after paying the claim of the insured for damages under the insurance is subrogated
merely to the rights of the insured and therefore can necessarily recover only that to what
was recoverable by the insured. Upon payment for a total loss of goods insured, the
insurance is only subrogated to such rights of action as the assured has against 3rd persons
Page 13 of 15
who caused or are responsible for the loss. The right of action against another person, the
equitable interest in which passes to the insurer, being only that which the assured has, it
follows that if the assured has no such right of action, none passes to the insurer, and if the
assured’s right of action is limited or restricted by lawful contract between him and
the person sought to be made responsible for the loss, a suit by the insurer, in the
right of the assured, is subject to like limitations or restrictions.

(2) The contention of the insurance company – that because of extraordinary inflation, it
should be reimbursed for its dollar payments at the rate of exchange on the date of the
judgment and not on the date of the loss or damage – is untenable. The obligation of the
carrier is to pay for the damage commenced ON THE DATE IT FAILED TO
DELIVER THE SHIPMENT IN GOOD CONDITION TO THE CONSIGNEE.
Herein, the C.I.F. Manila value of the goods which were lost or damaged, according to the
claim of the consignee dated 26 September 1960 is $226.37 (for the pilferage) and
$324.33 (shortlanded) or P456.14 and P653.53, respectively. The peso equivalent was
based by the consignee on the exchange rate of P2.015 to $1.00 which was the rate
existing at that time. The trial court committed no error in adopting the aforesaid rate of
exchange.

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