TOPIC RIGHT OF SUBROGATION

CASE TITLE Asian Terminals vs Philam Insurance

The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which provides as follows:

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. x x x.

FACTS:

On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) 219
packages containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without engine, tires
and batteries, on board the vessel S/S "Calayan Iris" from Japan to Manila. The shipment, which had a
declared value of US$81,368 or ₱29,400,000, was insured with Philam against all risks under Marine Policy
No. 708-8006717-4.4

The carrying vessel arrived at the port of Manila, and when the shipment was unloaded by the staff of ATI, it
was found that the package marked as 03-245-42K/1 was in bad order. The Turn Over Survey of Bad Order
Cargoes identified two packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being dented and broken.
Thereafter, the cargoes were stored for temporary safekeeping inside CFS Warehouse in Pier No. 5.

In May, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker of
Universal Motors, and delivered to the latter’s warehouse in Mandaluyong City. Upon the request of Universal
Motors, a bad order survey was conducted on the cargoes and it was found that one Frame Axle Sub without
LWR was deeply dented on the buffle plate while six Frame Assembly with Bush were deformed and
misaligned Owing to the extent of the damage to said cargoes, Universal Motors declared them a total loss.

Universal Motors filed a formal claim for damages in the amount of ₱643,963.84 against Westwind, ATI and
R.F. Revilla Customs Brokerage, Inc. When Universal Motors’ demands remained unheeded, it sought
reparation from and was compensated in the sum of ₱633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt in favor of Philam.

Philam, as subrogee of Universal Motors, filed a Complaint for damages against Westwind, ATI and
R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City, Branch 148.

THE RULING OF RTC:

the RTC rendered judgment in favor of Philam and ordered Westwind and ATI to pay Philam, jointly and
severally, the sum of ₱633,957.15 with interest at the rate of 12% per annum, ₱158,989.28 by way of attorney’s
fees and expenses of litigation.

The court a quo ruled that there was sufficient evidence to establish the respective participation of Westwind
and ATI in the discharge of and consequent damage to the shipment. It found that the subject cargoes were
compressed while being hoisted using a cable that was too short and taut.The trial court observed that while
the staff of ATI undertook the physical unloading of the cargoes from the carrying vessel, Westwind’s duty
officer exercised full supervision and control throughout the process. It held Westwind vicariously liable for
failing to prove that it exercised extraordinary diligence in the supervision of the ATI stevedores who unloaded
the cargoes from the vessel. However, the court absolved R.F. Revilla Customs Brokerage, Inc. from liability
in light of its finding that the cargoes had been damaged before delivery to the consignee.

The trial court acknowledged the subrogation between Philam and Universal Motors on the strength
of the Subrogation Receipt. It likewise upheld Philam’s claim for the value of the alleged damaged vehicle
parts contained in Case Nos. 03-245-42K/1 and 03-245-51K or specifically for "7 pieces of Frame Axle Sub
Without Lower and Frame Assembly with Bush."

Westwind filed a Motion for Reconsideration15 which was, however, denied.

RULING OF THE CA:

CA affirmed with modification the ruling of the RTC. The appellate court directed Westwind and ATI to pay
Philam, jointly and severally, the amount of ₱190,684.48 with interest at the rate of 12% per annum until fully
paid, attorney’s fees of ₱47,671 and litigation expenses. The CA stressed that Philam may not modify its
allegations by claiming in its Appellee’s Brief that the six pieces of Frame Assembly with Bush, which were
purportedly damaged, were also inside Case No. 03-245-42K/1.

The appellate court accordingly affirmed Westwind and ATI’s joint and solidary liability for the damage
to only one (1) unit of Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It also noted that
when said cargo sustained damage, it was not yet in the custody of the consignee or the person who had the
right to receive it. The CA pointed out that Westwind’s duty to observe extraordinary diligence in the care of
the cargoes subsisted during unloading thereof by ATI’s personnel since the former exercised full control and
supervision over the discharging operation.

The appellate court also held that Philam’s action for damages had not prescribed notwithstanding the
absence of a notice of claim.

All the parties moved for reconsideration, but their motions were denied Thus, they each filed a petition for
review on certiorari which were consolidated together by this Court considering that all three petitions assail
the same CA decision and resolution and involve the same parties.

Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner Philam in G.R. No. 181262 and
petitioner Westwind in G.R. No. 181319 can be summed up into and resolved by addressing three questions:
(1) Has Philam’s action for damages prescribed? (2) and (3) What is the extent of their liability?

PETITIONER’S ARGUMENTS:

G.R. No. 181163

Petitioner ATI disowns liability for the damage to the Frame Axle Sub without Lower inside Case No. 03-245-
42K/1. It shifts the blame to Westwind, whom it charges with negligence in the supervision of the stevedores
who unloaded the cargoes. ATI admits that the damage could have been averted had Westwind observed
extraordinary diligence in handling the goods. Even so, ATI suspects that Case No. 03-245-42K/1 is "weak
and defective" considering that it alone sustained damage out of the 219 packages.

Notwithstanding, petitioner ATI submits that, at most, it can be held liable to pay only ₱5,000 per package
pursuant to its Contract for Cargo Handling Services. ATI maintains that it was not properly notified of the
actual value of the cargoes prior to their discharge from the vessel.
G.R. No. 181262

Petitioner Philam supports the CA in holding both Westwind and ATI liable for the deformed and misaligned
Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It, however, faults the appellate court for
disallowing its claim for the value of six Chassis Frame Assembly which were likewise supposedly inside Case
Nos. 03-245-51K and 03-245-42K/1. As to the latter container, Philam anchors its claim on the results of the
Inspection/Survey Report23 of Chartered Adjusters, Inc., which the court received without objection from
Westwind and ATI. Petitioner believes that with the offer and consequent admission of evidence to the effect
that Case No. 03-245-42K/1 contains six pieces of dented Chassis Frame Assembly, Philam’s claim thereon
should be treated, in all respects, as if it has been raised in the pleadings. Thus, Philam insists on the
reinstatement of the trial court’s award in its favor for the payment of ₱633,957.15 plus legal interest,
₱158,989.28 as attorney’s fees and costs.

G.R. No. 181319

Petitioner Westwind denies joint liability with ATI for the value of the deformed Frame Axle Sub without Lower
in Case No. 03-245-42K/1. Westwind argues that the evidence shows that ATI was already in actual custody
of said case when the Frame Axle Sub without Lower inside it was misaligned from being compressed by the
tight cable used to unload it. Accordingly, Westwind ceased to have responsibility over the cargoes as provided
in paragraph 4 of the Bill of Lading which provides that the responsibility of the carrier shall cease when the
goods are taken into the custody of the arrastre.

Westwind contends that sole liability for the damage rests on ATI since it was the latter’s stevedores who
operated the ship’s gear to unload the cargoes. Westwind reasons that ATI is an independent company, over
whose employees and operations it does not exercise control. Moreover, it was ATI’s employees who selected
and used the wrong cable to lift the box containing the cargo which was damaged.

Westwind likewise believes that ATI is bound by its acceptance of the goods in good order despite a finding
that Case No. 03-245-42K/1 was partly torn and crumpled on one side. Westwind also notes that the discovery
that a piece of Frame Axle Sub without Lower was completely deformed and misaligned came only on May
12, 1995 or 22 days after the cargoes were turned over to ATI and after the same had been hauled by R.F.
Revilla Customs Brokerage, Inc.

Westwind further argues that the CA erred in holding it liable considering that Philam’s cause of action has
prescribed since the latter filed a formal claim with it only on August 17, 1995 or four months after the cargoes
arrived on April 20, 1995. Westwind stresses that according to the provisions of clause 20, paragraph 2 of the
Bill of Lading as well as Article 366 of the Code of Commerce, the consignee had until April 20, 1995 within
which to make a claim considering the readily apparent nature of the damage, or until April 27, 1995 at the
latest, if it is assumed that the damage is not readily apparent.

Lastly, petitioner Westwind contests the imposition of 12% interest on the award of damages to Philam
reckoned from the time of extrajudicial demand. Westwind asserts that, at most, it can only be charged with
6% interest since the damages claimed by Philam does not constitute a loan or forbearance of money.

ISSUE:

Who should be held liable for the damaged cargoes?

HELD:

Foremost, the Court holds that petitioner Philam has adequately established the basis of its claim
against petitioners ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee,
Universal Motors Corporation, pursuant to the Subrogation Receipt executed by the latter in favor of the
former. The right of subrogation accrues simply upon payment by the insurance company of the insurance
claim. Petitioner Philam’s action finds support in Article 2207 of the Civil Code, which provides as follows:

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. x x x.

In their respective comments to Philam’s Formal Offer of Evidence, petitioners ATI and Westwind objected
to the admission of Marine Certificate No. 708-8006717-4 and the Subrogation Receipt as documentary
exhibits "B" and "P," respectively. Petitioner Westwind objects to the admission of both documents for being
hearsay as they were not authenticated by the persons who executed them. For the same reason, petitioner
ATI assails the admissibility of the Subrogation Receipt. As regards Marine Certificate No. 708-8006717-4,
ATI makes issue of the fact that the same was issued only on April 27, 1995 or 12 days after the shipment
was loaded on and transported via S/S "Calayan Iris."

In Malayan Insurance Co., Inc. vs. Alberto, the Court explained the effect of payment by the insurer of the
insurance claim in this wise

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer
of all the remedies that the insured may have against the third party whose negligence or wrongful act
caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of
subrogation has its roots in equity. It is designed to promote and accomplish justice; and is the mode that
equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience,
ought to pay.

ADDITIONAL NOTES/DOCTRINES: