G.R. No. 150751 Case Digest

G.R. No. 150751, September 20, 2004

Central Shipping Company, Inc.

vs Insurance Company of North America

Ponente: Panganiban

Facts:

July 25, 1990, Central Shipping received on board its vessel 276 pieces of round logs and undertook to transport said shipment to Manila for delivery to Alaska Lumber Co. The cargo was insured for P3m against total loss. While on voyage, the vessel completely sank.

Insurance Company alleged that the total loss of the shipment was caused by the fault and negligence of the petitioner. The consignee, Alaska presented a claim for the value of the shipment against the petitioner but the latter failed and refused to settle the claim, hence being the insurer, Insurance company paid and now seeks to be subrogated by the shipping company.

The shipping company argues that the ship was seaworthy and properly manned, putting defense that the proximate cause of the sinking vessel and the loss was a natural disaster which could have not been foreseen. RTC was unconvinced and favoured the insurance company.

CA affirmed the RTC finding that the south western monsoon encountered by the vessel was not unforeseeable.

Issues:

(1) Whether the carrier is liable for the loss of the cargo; and (2) whether the doctrine of limited liability is applicable. These issues involve a determination of factual questions of whether the loss of the cargo was due to the occurrence of a natural disaster; and if so, whether its sole and proximate cause was such natural disaster or whether petitioner was partly to blame for failing to exercise due diligence in the prevention of that loss.

Ruling:

Petition is devoid of merit.

(1) Liability for lost cargo: From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport, according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible; that is, unless they can prove that such loss, destruction or deterioration was brought about -- among others -- by flood, storm, earthquake, lightning or other natural disaster or calamity. In all other cases not specified under Article 1734 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence.

In the present case, petitioner has not given the Court sufficient cogent reasons to disturb the conclusion of the CA that the weather encountered by the vessel was not a storm as contemplated by Article 1734(1). Established is the fact that between 10:00 p.m. on July 25, 1990 and 1:25 a.m. on July 26, 1990, M/V Central Bohol encountered a south western monsoon in the course of its voyage.

(2) Doctrine of Limited Liability: The doctrine of limited liability under Article 587 of the Code of Commerce is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the ship owner and the captain. It has already been established that the sinking of M/V Central Bohol had been caused by the fault or negligence of the ship captain and the crew, as shown by the improper stowage of the cargo of logs. Closer supervision on the part of the ship owner could have prevented this fatal miscalculation. As such, the ship owner was equally negligent. It cannot escape liability by virtue of the limited liability rule.

G.R. No. 168433 Case Digest

G.R. No. 168433, February 10, 2009

UCPB General Insurance Co., Inc.

vs Aboitiz Shipping Corp.

Ponente: Tinga

Facts:

On June 1991, 3 units of waste water treatment plant with accessories were purchased by San Miguel Corp from Super Max Engineering. The goods came from Charleston, USA and arrived in port of Manila on board MV Scandutch Star. From Manila it was transported to Cebu on board of Aboitiz Supercon II. In Cebu, with clearance from the Bureau of Customs, the goods were delivered and received by San Miguel at its plant site. It was then discovered that the motor of the unit was damaged.

Pursuant to the insurance agreement, UCPB General Insurance paid San Miguel P1,703,381.40 representing the value of the damaged unit. In turn, San Miguel executed a subrogation form in favor of UCPB. Then, UCPB filed a complaint on Kuly 1992 as subrogee of San Miguel seeking to recover from Aboitiz. Aboitiz moved to admit East Asiatic Co. as general agent of DAMCO Intermodal System. RTC held Aboitiz, East Asiatic and DAMCO solidarily liable.

CA reversed the decision of the RTC and ruled that UCPBs right of action did not accrue because UCPB failed to file a formal notice within 24 hours from the damaged. In a memorandum, UCPB asserts that the claim requirement does not apply to cases concerning damages to the merchandise had already been known to the carrier. UCPB revealed that the damage to the cargo was found upon discharge from the foreign carrier witnessed by the carrier’s representative who signed the request for bad order survey and the turnover of bad order cargoes. This knowledge, UCPB argues, dispenses with the need to give the carrier a formal notice of claim. Incidentally, the carrier’s representative mentioned by UCPB as present at the time the merchandise was unloaded was in fact a representative of respondent Eagle Express Lines (Eagle Express). UCPB further claims that the issue of the applicability of Art. 366 of the Code of Commerce was never raised before the trial court and should, therefore, not have been considered by the CA.

Eagle Express, in its Memorandum dated February 7, 2007, asserts that it cannot be held liable for the damage to the merchandise as it acted merely as a freight forwarders agent in the transaction. It allegedly facilitated the transhipment of the cargo from Manila to Cebu but represented the interest of the cargo owner, and not the carriers.

Aboitiz, on the other hand, points out, in its Memorandum dated March 29, 2007, that it obviously cannot be held liable for the damage to the cargo which, by UCPBs admission, was incurred not during transhipment to Cebu on board one of Aboitizs vessels, but was already existent at the time of unloading in Manila. Aboitiz also argues that Art. 366 of the Code of Commerce is applicable and serves as a condition precedent to the accrual of UCPBs cause of action against it.

Issue: Whether any of the remaining parties may still be held liable by UCPB.

Ruling:

UCPB obviously made a gross misrepresentation to the Court when it claimed that the issue regarding the applicability of the Code of Commerce, particularly the 24-hour formal claim rule, was not raised as an issue before the trial court. The appellate court, therefore, correctly looked into the validity of the arguments raised by Eagle Express, Aboitiz and Pimentel Customs on this point after the trial court had so ill-advisedly centered its decision merely on the matter of extraordinary diligence.

Interestingly enough, UCPB itself has revealed that when the shipment was discharged and opened at the ICTSI in Manila in the presence of an Eagle Express representative, the cargo had already been found damaged. In fact, a request for bad order survey was then made and a turnover survey of bad order cargoes was issued, pursuant to the procedure in the discharge of bad order cargo. The shipment was then repacked and transhipped from Manila to Cebu on board MV Aboitiz Supercon II. When the cargo was finally received by SMC at its Mandaue City warehouse, it was found in bad order, thereby confirming the damage already uncovered in Manila.

We have construed the 24-hour claim requirement as a condition precedent to the accrual of a right of action against a carrier for loss of, or damage to, the goods. The shipper or consignee must allege and prove the fulfilment of the condition. Otherwise, no right of action against the carrier can accrue in favor of the former.

The shipment in this case was received by SMC on August 2, 1991. However, as found by the Court of Appeals, the claims were dated October 30, 1991, more than three (3) months from receipt of the shipment and, at that, even after the extent of the loss had already been determined by SMCs surveyor. The claim was, therefore, clearly filed beyond the 24-hour time frame prescribed by Art. 366 of the Code of Commerce.

Petition was denied. CA's decision was affirmed.

G.R. No. 165647 Case Digest

G.R. No. 165647, March 26, 2009

Philippines First Insurance Co., Inc.

vs Wallem Phils. Shipping, Inc.

Ponente: Tinga

Facts:

October 1995, Anhui Chemicals Import and Export Corp. loaded on board M/S Offshore Master a shipment consisting of sodium sulphate anhydrous, complete and in good order for transportation to and delivery at the port of Manila for consignee, covered by a clean bill of lading.

On October 16, 1995, the shipment arrived in port of manila and was discharged which caused various degrees of spillage and losses as evidence by the turn over survey of the arrastre operator. Asia Star Freight delivered the shipments from pier to the consignees in Quezon City, during the unloading, it was found by the consignee that the shipment was damaged and in bad condition.

April 29, 1996, the consignee filed a claim with Wallem for the value of the damaged shipment, to no avail. Since the shipment was insured with Phil. First Insurance against all risks in the amount of P2,470,213.50. The consignee filed a claim against the First Insurance. First insurance after examining the turn-over survey, the bad order certificate and other documents paid the consignee but later on sent a demand letter to Wallem for the recovery of the amount paid to the consignee (in exercise of its right of subrogation). Wallem did not respond to the claim.

First Insurance then instituted an action before RTC for damages against Wallem. RTC held the shipping company and the arrastre operator solidarily liable since both are charged with the obligation to deliver the goods in good order condition.

The CA reversed and set aside the RTC's decision. CA says that there is no solidary liability between the carrier and the  arrastre because it was clearly established that the damage and losses of the shipment were attributed to the mishandling by the arrastre operator in the discharge of the shipment.

Issues:

1. Whether or not the Court of Appeals erred in not holding that as a common carrier, the carriers duties extend to the obligation to safely discharge the cargo from the vessel;

2. Whether or not the carrier should be held liable for the cost of the damaged shipment;

3. Whether or not Wallems failure to answer the extra judicial demand by petitioner for the cost of the lost/damaged shipment is an implied admission of the formers liability for said goods;

4. Whether or not the courts below erred in giving credence to the testimony of Mr. Talens.

Ruling:

(1) Yes, the vessel is a common carrier, and thus the determination of the existence or absence of liability will be gauged on the degree of diligence required of a common carrier. (2) The first and second issue will be resolved concurrently.

(3) The damage of the shipment was documented by the turn0over survey and request for bad order survey, with these documents, petitioner insist that the shipment incurred damages while still in the care and responsibility of Wallem before it was turned over to the arrastre operator.  However, RTC found the testimony of Mr. Talens (cargo surveyor) that the loss was caused by the mishandling of the arrastre operator. This mishandling was affirmed by the CA which was the basis for declaring the arrastre operator solely liable for the damage.

It is established that damage or losses were incurred by the shipment during the unloading. As common carrier, they are bound to observe extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions enumerated under Article 1734 of the Civil Code, common carriers are responsible for the loss, destruction, or deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are unconditionally placed in the possession of, and received by the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive them.

For marine vessels, Article 619 of the Code of Commerce provides that the ship captain is liable for the cargo from the time it is turned over to him at the dock or afloat alongside the vessel at the port of loading, until he delivers it on the shore or on the discharging wharf at the port of unloading, unless agreed otherwise.

COGSA provides that under every contract of carriage of goods by sea, the carrier in relation to the loading, handling, stowage, carriage, custody, care, and discharge of such goods, shall be subject to the responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3 (2) thereof then states that among the carriers responsibilities are to properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried.

On the other hand, the functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the establishment of the consignee or shipper and the ship's tackle. Being the custodian of the goods discharged from a vessel, an arrastre operator's duty is to take good care of the goods and to turn them over to the party entitled to their possession.

Handling cargo is mainly the arrastre operator's principal work so its drivers/operators or employees should observe the standards and measures necessary to prevent losses and damage to shipments under its custody. Thus, in this case the appellate court is correct insofar as it ruled that an arrastre operator and a carrier may not be held solidarily liable at all times. But the precise question is which entity had custody of the shipment during its unloading from the vessel?

The records are replete with evidence which show that the damage to the bags happened before and after their discharge and it was caused by the stevedores of the arrastre operator who were then under the supervision of Wallem.

It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of the carrier. In the instant case, the damage or losses were incurred during the discharge of the shipment while under the supervision of the carrier. Consequently, the carrier is liable for the damage or losses caused to the shipment. As the cost of the actual damage to the subject shipment has long been settled, the trial courts finding of actual damages in the amount of P397,879.69 has to be sustained.

(4) Mr Talens credibility must be respected.

CA's decision is set aside. Wallem is liable.

G.R. No. 183526 Case Digest

G.R. No. 183526, August 25, 2009

Violeta Lalican

vs The Insular Life Insurance Company

Ponente: Chico-Nazario

Facts:

Violeta is the widow of the Eulogio Lalican. During his lifetime, Eulogio applied for an insurance policy with Insular Life on April 24, 1997 which contained a 20-year endowment variable income package flexi plan worth P500k with two riders worth P500k each. Violeta was named the primary beneficiary.

Under the terms, Eulogio was to pay premiums on a quarterly basin in the amount of P8,062  with a grace period of 31 days for the payment of each premium subsequent to the first. If any premium was not paid on or before the due date, the policy would be in default, and if the premium remained unpaid until the end of the grace period, the policy would automatically lapse and become void.

Eulogio paid the premiums, however he failed to pay the premium due on January 24, 1998, even after the lapse of the grace period of 31 days. Therefore, lapsed and become void. Eulogio submitted to the Cabanatuan District Office of Insular Life an application for reinstatement together with the payment of the premium due on January 24. Insular Life notified Eulogio that his application for reinstatement could not be fully processed because of the unpaid interest thereon. Eulogio was likewise advised by Malaluan (insurance agent) to pay the premiums that subsequently became due April 1998 and July 1998, plus interest.

September 17, 1998. Eulogio went to Malaluan's house and paid for the interest which was received by Malaluan's husband. Later that day, Eulogio died. Without the knowledge of Eulogio's death, Malaluan forwarded to the Insular Life the application for reinstatement and the payment made by Eulogio. However, Insular Life did not act upon such reinstatement for they knew already of Eulogio's death.

September 28, 1998, Violeta filed for the insurance claim. Insular Life then informed Violeta in a letter that her claim could not be processed because the insurance policy had lapsed already and that Eulogio failed to reinstate the same and the payment made done thru Malaluan's husband was, under the insurance policy, was considered a deposit only until approval of the said application. Enclosed to this letter was a check representing the full refund of the past payments made by Eulogio, amounting to P25,417.

Violeta requested for a reconsideration of her claim and returned the check to Insular Life. Insular Life agreed to conduct a re-evaluation of Violeta's claim. Without waiting for the result of the re-evaluation, Violeta filed with the RTC a complaint for death claim benefit alleging the Insular Life was engaged in unfair claim settlement practice and deliberately failed to act with reasonable promptness on her insurance claim. Violeta claims for the P1.5M insurance, plus interest, attorney's fees and cost of suit.

Insular Life filed with the RTC an answer with counterclaim saying that the insurance claim was rendered void due to non-payment of the premium and countered that Violeta should be ordered to pay attorney's fees and expenses of litigation incurred by Insular Life.

RTC declared that Violeta failed to establish by preponderance of evidence her cause of action against the defendant. Violeta failed to establish that the receipt of payment by Malaluan amounted to the reinstatement of the insurance policy. Violeta filed for motion for reconsideration but was denied as well; hence she elevated her case for review on Certiorari.

Issues: (a) Whether the decision of the court can still be reviewed despite having allegedly attained finality and despite the mode of appeal of Violeta erroneous. (b) Whether the RTC has decided the case on a question of law not in accord with law and applicable decisions of the Supreme Court.

Ruling:

Petition lacks merit.

RTC's decision has long acquired finality for Violeta failed to file a notice of appeal more than five months after the decision was rendered.

As to the substantial claim of whether there is insurable interest, the Court says that the matter of insurable interest is entirely irrelevant and the real point of contention herein is whether Eulogio was able to reinstate the lapsed insurance policy on his life before his death.

The Court rules in the negative, for the insurance policy is clear on the procedure of the reinstatement of the insurance contract, of which Eulogio has failed to accomplish before his death. As provided by the policy, insurance shall be deemed reinstated upon the approval of the insurance policy of the application for reinstatement. The approval should be made during the lifetime of the insured, in the case at bar, it wasn’t.

G.R. No. 119655 Case Digest

G.R. No. 119655 May 24, 1996

Sps. Antonio A Tibay, etc.

vs Court of Appeals and Fortunate Life and General Insurance Co., Inc.

Ponente: Bellosillo

Facts:

January 22, 1987 Fortune Life issued a fire insurance policy in favor of Violeta Tibay and/or Nicolas Roraldo on their two-storey residential building located in Makati City, together with all their personal effects therein. The insurance was for P600k covering the period of Jan 23 19887 to Jan 23 1988. On Jan 23 1987 Violeta paid P600 of the premium of P2, 983.50 leaving a considerable balance unpaid.

On March 8, 1987, the insured building was completely destroyed by fire. Two days later Violeta paid the balance of the premium and filed, on the same day, a claim on the fire insurance policy. Fortune denied the claim. Violeta then filed for damages against Fortune representing the amount of the insurance policy plus interest and attorney's fees.

RTC adjudged Fortune liable for the claim of Violeta. On appeal, CA reversed the decision of the RTC declaring Fortune not liable. Hence this petition.

Issue: May a fire insurance policy be valid, binding and enforceable upon mere partial payment of premium?

Ruling:

We find no merit, hence, we affirm the CA.

In a contract of insurance, the consideration is the premium which must be paid at the time and in the way and manner specified in the policy, and if not so paid, the policy will lapse and be forfeited by its own terms.

Clearly the Policy provides for payment of premium in full. Accordingly, where the premium has only been partially paid and the balance paid only after the peril insured against has occurred, the insurance contract did not take effect and the insured cannot collect at all on the policy.

Petitioners maintain otherwise. Insisting that FORTUNE is liable on the policy despite partial payment of the premium due and the express stipulation thereof to the contrary, petitioners rely heavily on the 1967 case of Philippine Phoenix and Insurance Co., Inc. v. Woodworks, Inc. where the Court through Mr. Justice Arsenio P. Dizon sustained the ruling of the trial court that partial payment of the premium made the policy effective during the whole period of the policy. In that case, the insurance company commenced action against the insured for the unpaid balance on a fire insurance policy. In its defense the insured claimed that non-payment of premium produced the cancellation of the insurance contract.

The 1967 Phoenix case is not persuasive; neither is it decisive of the instant dispute. For one, the factual scenario is different. In Phoenix it was the insurance company that sued for the balance of the premium, i.e., it recognized and admitted the existence of an insurance contract with the insured. In the case before us, there is, quite unlike in Phoenix, a specific stipulation that (t)his policy . . . is not in force until the premium has been fully paid and duly receipted by the Company . . . Resultantly, it is correct to say that in Phoenix a contract was perfected upon partial payment of the premium since the parties had not otherwise stipulated that prepayment of the premium in full was a condition precedent to the existence of a contract.

In Phoenix, by accepting the initial payment of P3,000.00 and then later demanding the remainder of the premium without any other precondition to its enforceability as in the instant case, the insurer in effect had shown its intention to continue with the existing contract of insurance, as in fact it was enforcing its right to collect premium, or exact specific performance from the insured. This is not so here. By express agreement of the parties, no vinculum juris or bond of law was to be established until full payment was effected prior to the occurrence of the risk insured against.

The insurance contract itself expressly provided that the policy would be effective only when the premium was paid in full. It would have been altogether different were it not so stipulated. Ergo, petitioners had absolute freedom of choice whether or not to be insured by FORTUNE under the terms of its policy and they freely opted to adhere thereto.

It must be emphasized here that all actuarial calculations and various tabulations of probabilities of losses under the risks insured against are based on the sound hypothesis of prompt payment of premiums. Upon this bedrock insurance firms are enabled to offer the assurance of security to the public at favorable rates. But once payment of premium is left to the whim and caprice of the insured, as when the courts tolerate the payment of a mere P600.00 as partial undertaking out of the stipulated total premium of P2,983.50 and the balance to be paid even after the risk insured against has occurred, as petitioners have done in this case, on the principle that the strength of the vinculum juris is not measured by any specific amount of premium payment, we will surely wreak havoc on the business and set to naught what has taken actuarians centuries to devise to arrive at a fair and equitable distribution of risks and benefits between the insurer and the insured.

The terms of the insurance policy constitute the measure of the insurer's liability. 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.

Petition is denied.

G.R. No. 138941 Case Digest

G.R. No. 138941 October 8, 2001

American Home Insurance Company

vs Tantuco Enterprises, Inc.

Ponente: Puno

Facts:

Tantuco Enterprises is engaged in the coconut oil milling and refining industry. It owns two oil mills both located in Lucena City. The two oil mills were separately covered by fire insurance policies issued by American Home, 3M and 6M respectively to the two mills.

A fire broke out on September 30, 1991 gutted and consumed the new oil mill (6M policy). Tantuco immediately notified the insurance company of the incident. American Home then sent appraisers who inspected the burned premises and the properties destroyed. Thereafter, American Home rejected the insurance claim on ground that no policy was issued covering the burned oil mill, saying that the 6M policy insures the property located in building no. 5, while the affected oil mill was under building no. 14.

A complaint for specific performance and damages was consequently instituted by the respondent with the RTC. RTC rendered the insurance company liable on the insurance policy. American Home appealed at the CA, but the CA upheld the same decision.

Issues:

(1) The Court of Appeals erred in its conclusion that the issue of non-payment of the premium was beyond its jurisdiction because it was raised for the first time on appeal.

(2) The Court of Appeals erred in its legal interpretation of 'Fire Extinguishing Appliances Warranty' of the policy.

(3) With due respect, the conclusion of the Court of Appeals giving no regard to the parole evidence rule and the principle of estoppel is erroneous.

Ruling:

Petition is devoid of merit.

(1) In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider that the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be.

Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. This is obvious from the categorical statement embodied in the policy, extending its protection:

On machineries and equipment with complete accessories usual to a coconut oil mill including stocks of copra, copra cake and copra mills whilst contained in the new oil mill building, situate (sic) at UNNO. ALONG NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY UNBLOCKED.

If the parties really intended to protect the first oil mill, then there is no need to specify it as new.

(2) Anent petitioner's argument that the respondent is barred by estoppel from claiming that the description of the insured oil mill in the policy was wrong, we find that the same proceeds from a wrong assumption. Evidence on record reveals that respondent's operating manager, Mr. Edison Tantuco, notified Mr. Borja (the petitioner's agent with whom respondent negotiated for the contract) about the inaccurate description in the policy. However, Mr. Borja assured Mr. Tantuco that the use of the adjective new will distinguish the insured property. The assurance convinced respondent, despite the impreciseness in the specification of the boundaries, the insurance will cover the new oil mill.

(3) When the issues to be resolved in the trial court were formulated at the pre-trial proceedings, the question of the supposed inadequate payment was never raised. Most significant to point, petitioner fatally neglected to present, during the whole course of the trial, any witness to testify that respondent indeed failed to pay the full amount of the premium.

(4) Petitioner argues that the warranty clearly obligates the insured to maintain all the appliances specified therein. The breach occurred when the respondent failed to install internal fire hydrants inside the burned building as warranted. This fact was admitted by the oil mill's expeller operator, Gerardo Zarsuela.

Again, the argument lacks merit. We agree with the appellate court's conclusion that the aforementioned warranty did not require respondent to provide for all the fire extinguishing appliances enumerated therein. Additionally, we find that neither did it require that the appliances are restricted to those mentioned in the warranty. In other words, what the warranty mandates is that respondent should maintain in efficient working condition within the premises of the insured property, fire fighting equipments such as, but not limited to, those identified in the list, which will serve as the oil mill's first line of defense in case any part of it bursts into flame.

To be sure, respondent was able to comply with the warranty. Within the vicinity of the new oil mill can be found the following devices: numerous portable fire extinguishers, two fire hoses, fire hydrant, and an emergency fire engine. All of these equipments were in efficient working order when the fire occurred.

G.R. No. 116940 Case Digest

G.R. No. 116940 June 11, 1997

The Phil. American Gen. Insurance Co., Inc.

vs Court of Appeals and Felman Shipping Lines

Ponente: Bellosillo

Facts:

July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases of 1-liter Coca-Cola soft drink bottles to be transported to Zamboanga City to Cebu. The shipment was insured with Philamgen.

July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola filed a claim with respondent Felman for recovery of damages. Felman denied thus prompted cocacola to file an insurance claim with Philamgen. Philamgen later on claimed its right of subrogation against Felman which disclaimed any liability for the loss.

Philamgen alleged that the sinking and loss were due to the vessel's unseaworthiness, that the vessel was improperly manned and its officers were grossly negligent. Felman filed a motion to dismiss saying that there is no right of subrogation in favor of Philamgen was transmitted by the shipper.

RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to the lower court for trial on the merits. Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left the port of Zamboanga as evidenced by the certificate issued by the Phil. Coast Guard and the ship owner’s surveyor. Thus, the loss is due to a fortuitous event, in which, no liability should attach unless there is stipulation or negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-heavy and the cocacola bottles were also improperly stored on deck. Nonetheless, the CA denied the claim of Philamgen, saying that Philamgen was not properly subrogated to the rights and interests of the shipper plus the filing of notice of abandonment had absolved the ship owner from liability under the limited liability rule.

Issues: (a) Whether the vessel was seaworthy, (b) whether limited liability rule should apply and (c) whether Philamgen was properly subrogated to the rights against Felman.

Ruling:

(a) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc., is the vessel's being top-heavy. Evidence shows that days after the sinking coca-cola bottles were found near the vicinity of the sinking which would mean that the bottles were in fact stowed on deck which the vessel was not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in the decrease of the vessel's metacentric height thus making it unstable.

(b) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts of the captain in the care of the goods. This liability however can be limited through abandonment of the vessel, its equipment and freightage. Nonetheless, there are exceptions wherein the ship agent could still be held answerable despite the abandonment, as where the loss or injury was due to the fault of the ship owner and the captain. The international rule is that the right of abandonment of vessels, as legal limitation of liability, does not apply to cases where the injury was occasioned by the fault of the ship owner. Felman was negligent, it cannot therefore escape liability.

(c) Generally, in marine insurance policy, the assured impliedly warrants to the assurer that the vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the policy. However, the implied warranty of seaworthiness can be excluded by terms in writing in the policy of the clearest language. The marine policy issued by Philamgen to cocacola has dispensed that the "seaworthiness of the vessel as between the assured and the underwriters in hereby admitted."

The result of the admission of seaworthiness by Philamgen may mean two things: (1) the warranty of seaworthiness is fulfilled and (2) the risk of unseaworthiness is assumed by the insurance company. This waiver clause would mean that Philamgen has accepted the risk of unseaworthiness, therefore Philamgen is liable.

On the matter of subrogation, it is provided that;

 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.

Pan Malayan Insurance Corp. vs CA: 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.

Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc., gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.