Palermo vs. pyramid insurance co., inc. 677 scra 161 5/31/1988

FACTS: “On October 12, 1968, after having purchased a brand new Nissan Cedric de Luxe Sedan car bearing Motor No. 087797 from the Ng Sam Bok Motors Co. in Bacolod City, plaintiff insured the same with the defendant insurance company against any loss or damage for P20,000.00 and against third party liability for P10,000.00. Plaintiff paid the defendant P361.34 premium for one year, March 12, 1968 to March 12, 1969, for which defendant issued Private Car Comprehensive Policy No. MV-1251, marked Exhibit ‘A.’

“The automobile was, however, mortgaged by the plaintiff with the vendor, Ng Sam Bok Motors Co., to secure the payment of the balance of the purchase price, which explains why the registration certificate in the name of the plaintiff remains in the hands of the mortgagee, Ng Sam Bok Motors Co.

“On April 17, 1968, while driving the automobile in question, the plaintiff met a violent accident. The La Carlota City fire engine crashed head on, and as a consequence, the plaintiff sustained physical injuries, his father, Cesar Palermo, who was with him in the car at the time was likewise seriously injured and died shortly thereafter, and the car in question was totally wrecked.

“The defendant was immediately notified of the occurrence, and upon its orders, the damaged car was towed from the scene of the accident to the compound of Ng Sam Bok Motors in Bacolod City where it remains deposited up to the present time.

“The insurance policy, Exhibit ‘A,’ grants an option unto the defendant, in case of accident either to indemnify the plaintiff for loss or damage to the car in cash or to replace the damaged car. The defendant, however, refused to take either of the above-mentioned alternatives for the reason as alleged, that the insured himself had violated the terms of the policy when he drove the car in question with an expired driver’s license.” (Decision, Oct. 29, 1969, p. 68, Record on Appeal.


HELD: YES. While the Motor Vehicle Law prohibits a person from operating a motor vehicle on the highway without a license or with an expired license, an infraction of the Motor Vehicle Law on the part of the insured, is not a bar to recovery under the insurance contract. It however renders him subject to the penal sanctions of the Motor Vehicle Law.

The requirement that the driver be “permitted. in accordance with the licensing or other laws or regulations to drive the Motor Vehicle and is not disqualified from driving such motor vehicle by order of a Court of Law or by reason of any enactment or regulation in that behalf,” applies only when the driver “is driving on the insured’s order or with his permission.” It does not apply when the person driving is the insured himself.

This view may be inferred from the decision of this Court in Villacorta vs. Insurance Commission, 100 SCRA 467, where it was held that: LLpr

“The main purpose of the ‘authorized driver’ clause, as may be seen from its text, is that a person other than the insured owner, who drives the car on the insured’s order, such as his regular driver, or with his permission, such as a friend or member of the family or the employees of a car service or repair shop, must be duly licensed drivers and have no disqualification to drive a motor vehicle.

In an American case, where the insured herself was personally operating her automobile but without a license to operate it, her license having expired prior to the issuance of the policy, the Supreme Court of Massachusetts was more explicit:

“. . . Operating an automobile on a public highway without a license, which act is a statutory crime is not precluded by public policy from enforcing a policy indemnifying her against liability for bodily injuries inflicted by use of the automobile.” (Drew C. Drewfield McMahon vs. Hannah Pearlman, et al., 242 Mass. 367, 136 N.E. 154, 23 A.L.R. 1467.).

Villacorta vs. insurance commission 100 scra 467 10/28/1980

FACTS: Complainant (petitioner) was the owner of a Colt Lancer, Model 1976, insured with respondent company under Private Car Policy No. MBI/PC-0704 for P35,000.00 — Own Damage; P30,000.00 — Theft; and P30,000.00 — Third Party Liability, effective May 16, 1977 to May 16, 1978. On May 9, 1978, the vehicle was brought to the Sunday Machine Works, Inc., for general check-up and repairs. On May 11, 1978, while it was in the custody of the Sunday Machine Works, the car was allegedly taken by six (6) persons and driven out to Montalban, Rizal. While travelling along Mabini St., Sitio Palyasan, Barrio Burgos, going North at Montalban, Rizal, the car figured in an accident, hitting and bumping a gravel and sand truck parked at the right side of the road going south. As a consequence, the gravel and sand truck veered to the right side of the pavement going south and the car veered to the right side of the pavement going north. The driver, Benito Mabasa, and one of the passengers died and the other four sustained physical injuries. The car, as well, suffered extensive damage. Complainant, thereafter, filed a claim for total loss with the respondent company but claim was denied. Hence, complainant was compelled to institute the present action.”||| (Villacorta v. Insurance Commission, G.R. No. L-54171, [October 28, 1980], 188 PHIL 497-504)

ISSUE: won there was no violation of authorize driver clause, won theft clause applies.

HELD: YES for both. A car owner who entrusts his car to an established car service and repair shop necessarily entrusts his car key to the shop owner and employees who are presumed to have the insured’s permission to drive the car for legitimate purposes of checking or road-testing the car. The mere happenstance that the employee(s) of the shop owner diverts the use of the car to his own illicit or unauthorized purpose in violation of the trust reposed in the shop by the insured car owner does not mean that the “authorized driver” clause has been violated such as to bar recovery, provided that such employee is duly qualified to drive under a valid driver’s license.

The situation is no different from the regular or family driver, who instead of carrying out the owner’s order to fetch the children from school takes out his girl friend instead for a joy ride and instead wrecks the car. There is no question of his being an “authorized driver” which allows recovery of the loss although his trip was for a personal or illicit purpose without the owner’s authorization. cdll

Secondly, and independently of the foregoing (since when a car is unlawfully taken, it is the theft clause, not the “authorized driver” clause, that applies), where a car is admittedly as in this case unlawfully and wrongfully taken by some people, be they employees of the car shop or not to whom it had been entrusted, and taken on a long trip to Montalban without the owner’s consent or knowledge, such taking constitutes or partakes of the nature of theft as defined in Article 308 of the Revised Penal Code, viz. “(W)ho are liable for theft. — Theft is committed by any person who, with intent to gain but without violence against or intimidation of persons nor force upon things, shall take personal property of another without the latter’s consent,” for purposes of recovering the loss under the policy in question.

The evidence does not warrant respondent commission’s findings that it was a mere “joy ride”. From the very investigator’s report cited in its comment, 3 the police found from the waist of the car driver Benito Mabasa y Bartolome who smashed the car and was found dead right after the incident “one Cal. 45 Colt. and one apple type grenade,” hardly the materials one would bring along on a “joy ride”. Then, again, it is equally evident that the taking proved to be quite permanent rather than temporary, for the car was totally smashed in the fatal accident and was never returned in serviceable and useful condition to petitioner-owner.

Assuming, despite the totally inadequate evidence, that the taking was “temporary” and for a “joy ride”, the Court sustains as the better view that which holds that when a person, either with the object of going to a certain place, or learning how to drive, or enjoying a free ride, takes possession of a vehicle belonging to another, without the consent of its owner, he is guilty of theft because by taking possession of the personal property belonging to another and using it, his intent to gain is evident since he derives therefrom utility, satisfaction, enjoyment and pleasure. Justice Ramon C. Aquino cites in his work Groizard who holds that the use of a thing constitutes gain and Cuello Calon who calls it “hurt de uso”.

First Integrated Bonding & Insurance Co., Inc. v. Hernando, G.R. No. 51221, [July 31, 1991], 276 PHIL 884-893

FACTS: Silverio Blanco was the owner of a passenger jeepney which he insured against liabilities for death and injuries to third persons with First Integrated Bonding and Insurance Company, Inc. (First Insurance) under Motor Vehicle Policy No. V-05-63751 with the face value of P30,000.00 (p. 15, Rollo).

On November 25, 1976, the said jeepney driven by Blanco himself bumped a five-year old child, Deogracias Advincula, causing the latter’s death.

A complaint (pp. 38-41, Rollo) for damages was brought by the child’s parents, the Advincula spouses, against Silverio Blanco. First Insurance was also impleaded in the complaint as the insurer. The complaint was docketed as Civil Case No. 1104 of the Court of First Instance of Abra (now Regional Trial Court).

Summons were served on Silverio Blanco and First Insurance. However, only Blanco filed an answer. Upon motion of the Advincula spouses, First Insurance was declared in default (p. 45, Rollo) on January 19,..

The insured argued that the injured have no cause of action against the petitioner for not being a party to the contract of insurance.

ISSUE: won the petitioner is liable.

HELD: YES. 1. CIVIL LAW; INSURANCE; CLAIM FOR INDEMNITY; BASIS OF LIABILITY THEREOF. — It is settled that where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer (Caguia vs. Fieldman’s Insurance Co., Inc. G.R. No. 23276, November 29, 1968, 26 SCRA 178). The liability of the insurer to such third person is based on contract while the liability of the insured to the third party is based on tort (Malayan Insurance Co., Inc. vs. CA, L-36413, September 26, 1988, 165 SCRA 536).

2. ID.; ID.; ID.; ID.; CASE OF SHAFER vs. JUDGE, RTC OF OLONGAPO CITY CITED. — This rule was explained in the case of Shafer vs. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, November 14, 1988: “The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer 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, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. “In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a ‘no action’ clause under the policy which requires that a final judgment be first obtained against the insured and that only thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits.”

3. ID.; ID.; ID.; ID.; PRIMARY LIABILITY. — First Insurance cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is primary and not dependent on the recovery of judgment from the insured. “. . . the insurer’s liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured (Shafer vs. Judge, RTC of Olongapo, G.R. No. 78848, November 14, 1988).

MALAYAN INSURANCE CO., INC. V. PAP CO., LTD., G.R. NO. 200784, [AUGUST 7, 2013], 716 PHIL 155-171

FACTS: On May 13, 1996, Malayan Insurance Company (Malayan) issued Fire Insurance Policy No. F-00227-000073 to PAP Co., Ltd. (PAP Co.) for the latter’s machineries and equipment located at Sanyo Precision Phils. Bldg., Phase III, Lot 4, Block 15, PEZA, Rosario, Cavite (Sanyo Building). The insurance, which was for Fifteen Million Pesos (P15,000,000.00) and effective for a period of one (1) year, was procured by PAP Co. for Rizal Commercial Banking Corporation (RCBC), the mortgagee of the insured machineries and equipment.

After the passage of almost a year but prior to the expiration of the insurance coverage, PAP Co. renewed the policy on an “as is” basis. Pursuant thereto, a renewal policy, Fire Insurance Policy No. F-00227-000079, was issued by Malayan to PAP Co. for the period May 13, 1997 to May 13, 1998. 

On October 12, 1997 and during the subsistence of the renewal policy, the insured machineries and equipment were totally lost by fire. Hence, PAP Co. filed a fire insurance claim with Malayan in the amount insured.

In a letter, dated December 15, 1997, Malayan denied the claim upon the ground that, at the time of the loss, the insured machineries and equipment were transferred by PAP Co. to a location different from that indicated in the policy. Specifically, that the insured machineries were transferred in September 1996 from the Sanyo Building to the Pace Pacific Bldg., Lot 14, Block 14, Phase III, PEZA, Rosario, Cavite (Pace Pacific). Contesting the denial, PAP Co. argued that Malayan cannot avoid liability as it was informed of the transfer by RCBC, the party duty-bound to relay such information. However, Malayan reiterated its denial of PAP Co.’s claim. Distraught, PAP Co. filed the complaint below against Malayan.


HELD: NO. Condition No. 9 (c) of the renewal policy provides:

9. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy, by or on behalf of the Company:

xxx xxx xxx

(c) If property insured be removed to any building or place other than in that which is herein stated to be insured.

Evidently, by the clear and express condition in the renewal policy, the removal of the insured property to any building or place required the consent of Malayan. Any transfer effected by the insured, without the insurer’s consent, would free the latter from any liability.

The records are bereft of any convincing and concrete evidence that Malayan was notified of the transfer of the insured properties from the Sanyo factory to the Pace factory. The Court has combed the records and found nothing that would show that Malayan was duly notified of the transfer of the insured properties.

What PAP did to prove that Malayan was notified was to show that it relayed the fact of transfer to RCBC, the entity which made the referral and the named beneficiary in the policy. Malayan and RCBC might have been sister companies, but such fact did not make one an agent of the other. The fact that RCBC referred PAP to Malayan did not clothe it with authority to represent and bind the said insurance company. After the referral, PAP dealt directly with Malayan.

The Court agrees with Malayan that the transfer to the Pace Factory exposed the properties to a hazardous environment and negatively affected the fire rating stated in the renewal policy. The increase in tariff rate from 0.449% to 0.657% put the subject properties at a greater risk of loss. Such increase in risk would necessarily entail an increase in the premium payment on the fire policy.

Unfortunately, PAP chose to remain completely silent on this very crucial point. Despite the importance of the issue, PAP failed to refute Malayan’s argument on the increased risk.

Considering that the original policy was renewed on an “as is basis,” it follows that the renewal policy carried with it the same stipulations and limitations. The terms and conditions in the renewal policy provided, among others, that the location of the risk insured against is at the Sanyo factory in PEZA. The subject insured properties, however, were totally burned at the Pace Factory. Although it was also located in PEZA, Pace Factory was not the location stipulated in the renewal policy. There being an unconsented removal, the transfer was at PAP’s own risk. Consequently, it must suffer the consequences of the fire. Thus, the Court agrees with the report of Cunningham Toplis Philippines, Inc., an international loss adjuster which investigated the fire incident at the Pace Factory, which opined that “[g]iven that the location of risk covered under the policy is not the location affected, the policy will, therefore, not respond to this loss/claim.”

It can also be said that with the transfer of the location of the subject properties, without notice and without Malayan’s consent, after the renewal of the policy, PAP clearly committed concealment, misrepresentation and a breach of a material warranty. Section 26 of the Insurance Code provides:

Section 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

Under Section 27 of the Insurance Code, “a concealment entitles the injured party to rescind a contract of insurance.”

Moreover, under Section 168 of the Insurance Code, the insurer is entitled to rescind the insurance contract in case of an alteration in the use or condition of the thing insured. Section 168 of the Insurance Code provides, as follows: TAECaD

Section 68. An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer, by means within the control of the insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.

Accordingly, an insurer can exercise its right to rescind an insurance contract when the following conditions are present, to wit:

1) the policy limits the use or condition of the thing insured;

2) there is an alteration in said use or condition;

3) the alteration is without the consent of the insurer;

4) the alteration is made by means within the insured’s control; and

5) the alteration increases the risk of loss.

In the case at bench, all these circumstances are present. It was clearly established that the renewal policy stipulated that the insured properties were located at the Sanyo factory; that PAP removed the properties without the consent of Malayan; and that the alteration of the location increased the risk of loss.


FACTS: The facts relevant to the present review disclose that sometime in January 1986, private respondent Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for PIM with petitioner Oriental Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for P3M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the payment of the premium for a P3M policy.

The logs were loaded on two (2) barges: (1) on barge PCT7000, 610 pieces of logs with a volume f 1,000 cubic meters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters.

On 28 January 1986, the two barges were towed by one tugboat, the MT “Seminole.” But, as fate would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

Panama demanded payment for the loss but Oriental Assurance refused on the ground that its contracted liability was for “TOTAL LOSS ONLY.” The rejection was upon the recommendation of the Tan Gatue Adjustment Company.

Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123, docketed as Civil Case No. C-12601.



HELD: NONE. The terms of the contract constitute the measure of the insurer’s liability and compliance therewith is a condition precedent to the insured’s right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible.

More importantly, the insurer’s liability was for “total loss only.” A total loss may be either actual or constructive (Sec. 129, Insurance Code). An actual total loss is caused by:

“(a) A total destruction of the thing insured;

“(b) The irretrievable loss of the thing by sinking, or by being broken up;

“(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or

“(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.” (Section 130, Insurance Code).

A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code. This provision reads:

“SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against.

“(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;

“(b) If it is injured to such an extent as to reduce its value more than three-fourths;

“xxx xxx xxx”

Respondent Appellate Court treated the loss as a constructive total loss, and for the purpose of computing the more than three-fourths value of the logs actually lost, considered the cargo in one barge as separate from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge TPAC-1000, mathematically speaking, is more than three-fourths (3/4) of the 598 pieces of logs loaded in that barge and may, therefore, be considered as constructive total loss.

The basis thus used is, in our opinion, reversible error. The requirements for the application of Section 139 of the Insurance Code, quoted above, have not been met. The logs involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.


FACTS: On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay) a common carrier, entered into a contract with the petitioners whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation (Pioneer).

On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. As alleged by the petitioners in their complaint and as found by both the trial and appellate courts, the barge where the logs were loaded was not seaworthy such that it developed a leak. The appellate court further found that one of the hatches was left open causing water to enter the barge and because the barge was not provided with the necessary cover or tarpaulin, the ordinary splash of sea waves brought more water inside the barge.

On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy but respondent refused to pay on the ground that its liability depended upon the “Total loss by Total Loss of Vessel only”. Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and respondent Pioneer.

In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.

The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with its seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables, anchors, fuel and provisions, the manner of loading his cargo and the cargo of other shippers, and the hiring of a sufficient number of competent officers and seamen.


A. WON the implied warranty of seaworthiness provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to make in safety the contemplated voyage.

B. WON the loss of the cargo was due to the perils of the sea.

C. WON there was barratry on the part of the crew/officers


A. NO. From the above-quoted provisions, there can be no mistaking the fact that the term “cargo” can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not.

As we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):

“The same conclusion must be reached if the question be discussed with reference to the seaworthiness of the ship. It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). . . .”

Moreover, the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and may not be used by him as a defense in order to recover on the marine insurance policy.

As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406):

“There was no lookout, and both that and the rate of speed were contrary to the Canadian Statute. The exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial.”

Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel but he has full control in the choice of the common carrier that will transport his goods. Or the cargo owner may enter into a contract of insurance which specifically provides that the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship.

B. NO. On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized by the “storm and waves” which buffeted the vessel, the records show that the court ruled otherwise. It stated:

xxx xxx xxx

” . . . The other affirmative defense of defendant Lighterage, ‘That the supposed loss of the logs was occasioned by force majeure . . . .’, was not supported by the evidence. At the time Mable 10 sank, there was no typhoon but ordinary strong wind and waves, a condition which is natural and normal in the open sea. The evidence shows that the sinking of Mable 10 was due to improper loading of the logs on one side so that the barge was tilting on one side and for that it did not navigate on even keel; that it was no longer seaworthy that was why it developed leak; that the personnel of the tugboat and the barge committed a mistake when it turned loose the barge from the tugboat east of Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli point where it was protected by the mountain side from the storm and waves coming from the east direction. . . .”

In fact, in the petitioners’ complaint, it is alleged that “the barge Mable 10 of defendant carrier developed a leak which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing more water to come in”, and that “the loss of said plaintiffs’ cargo was due to the fault, negligence, and/or lack of skill of defendant carrier and/or defendant carrier’s representatives on barge Mable 10.” LexLib

It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate the petitioners’ claim under the insurance policy.

C. NONE. Barratry as defined in American Insurance Law is “any willful misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice of the owner’s interest.” (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1961, p. 929.)

Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or mere negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases cited therein.)

In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the vessel’s crew. There was only simple negligence or lack of skill. Hence, the second assignment of error must likewise be dismissed.


FACTS: On December 19, 1987, motor tanker MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of petroleum products shipped by petitioner Caltex. MT Vector is a tramping motor tanker owned and operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as gasoline, kerosene, diesel and crude oil. During that particular voyage, the MT Vector carried on board gasoline and other oil products owned by Caltex by virtue of a charter contract between them. On December 20, 1987, at about 6:30 a.m., the passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59 crew members including the master and his officers, and passengers totaling 1,493 as indicated in the Coast Guard Clearance. The MV Doña Paz is a passenger and cargo vessel owned and operated by Sulpicio Lines, Inc. plying the route of Manila/ Tacloban/ Catbalogan/ Manila/ Catbalogan/ Tacloban/ Manila, making trips twice a week.

At about 10:30 p.m. of December 20, 1987, the two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector claimed that they were sleeping at the time of the incident. The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels that responded to distress calls. Among those who perished were public school teacher Sebastian Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers but proved to be on board the vessel. On March 22, 1988, the board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation, were at fault and responsible for its collision with MV Doña Paz.

On February 13, 1989, Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s wife and mother respectively, filed with the Regional Trial Court, Branch 8, Manila, a complaint for “Damages Arising from Breach of Contract of Carriage” against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo ablaze.


HELD: NO. A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner to another person for a specified time or use; a contract of affreightment is one by which the owner of a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of goods, on a particular voyage, in consideration of the payment of freight.

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship’s store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of the ship.

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for damages caused by negligence. prLL

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The charterer is free from liability to third persons in respect of the ship.

Second: MT Vector is a common carrier

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage charter. Does a charter party agreement turn the common carrier into a private one? We need to answer this question in order to shed light on the responsibilities of the parties.

In this case, the charter party agreement did not convert the common carrier into a private carrier. The parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

Under the Carriage of Goods by Sea Act:

SECTION 3.  (1) The carrier shall be bound before and at the beginning of the voyage to exercise due diligence to —

(a) Make the ship seaworthy;

(b) Properly man, equip, and supply the ship;

xxx xxx xxx

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be seaworthy, it must be adequately equipped for the voyage and manned with a sufficient number of competent officers and crew. The failure of a common carrier to maintain in seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article 1755 of the Civil Code.

The provisions owed their conception to the nature of the business of common carriers. This business is impressed with a special public duty. The public must of necessity rely on the care and skill of common carriers in the vigilance over the goods and safety of the passengers, especially because with the modern development of science and invention, transportation has become more rapid, more complicated and somehow more hazardous. For these reasons, a passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its crew, the carrier being obliged by law to impliedly warrant its seaworthiness.

This aside, we now rule on whether Caltex is liable for damages under the Civil Code.

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as even the Philippine Coast Guard itself was convinced of its seaworthiness. All things considered, we find no legal basis to hold petitioner liable for damages.

As Vector Shipping Corporation did not appeal from the Court of Appeals’ decision, we limit our ruling to the liability of Caltex alone. However, we maintain the Court of Appeals’ ruling insofar as Vector is concerned.


FACTS: Petitioner New World International Development (Phils.), Inc. (New World) bought from DMT Corporation (DMT) through its agent, Advatech Industries, Inc. (Advatech) three emergency generator sets worth US$721,500.00.

DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit International, Inc. (LEP Profit) in Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S California Luna V59, owned and operated by NYK Fil-Japan Shipping Corporation (NYK) for delivery to petitioner New World in Manila. NYK issued a bill of lading, declaring that it received the goods in good condition.

NYK unloaded the shipment in Hong Kong and transshipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to Manila, however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at the Manila South Harbor on October 5, 1993 respecting the loss and damage that the goods on board his vessel suffered.

Marina Port Services, Inc. (Marina), the Manila South Harbor arrastre or cargo-handling operator, received the shipment on October 7, 1993. Upon inspection of the three container vans separately carrying the generator sets, two vans bore signs of external damage while the third van appeared unscathed. The shipment remained at Pier 3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. Eventually, on October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation (Serbros), to withdraw the shipment and deliver the same to petitioner New World’s job site in Makati City. IASEca

An examination of the three generator sets in the presence of petitioner New World’s representatives, Federal Builders (the project contractor) and surveyors of petitioner New World’s insurer, Seaboard-Eastern Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could no longer be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK, DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP and NYK acknowledged receipt of the demand, both denied liability for the loss.

Since Seaboard covered the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16, 1993. Replying on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized list of the damaged units, parts, and accessories, with corresponding values, for the processing of the claim. But petitioner New World did not submit what was required of it, insisting that the insurance policy did not include the submission of such a list in connection with an insurance claim. Reacting to this, Seaboard refused to process the claim.

On October 11, 1994 petitioner New World filed an action for specific performance and damages against all the respondents before the Regional Trial Court (RTC) of Makati City, Branch 62, in Civil Case 94-2770.

On August 16, 2001 the RTC rendered a decision absolving the various respondents from liability with the exception of NYK. The RTC found that the generator sets were damaged during transit while in the care of NYK’s vessel, ACX Ruby. The latter failed, according to the RTC, to exercise the degree of diligence required of it in the face of a foretold raging typhoon in its path.

The RTC ruled, however, that petitioner New World filed its claim against the vessel owner NYK beyond the one year provided under the Carriage of Goods by Sea Act (COGSA). New World filed its complaint on October 11, 1994 when the deadline for filing the action (on or before October 7, 1994) had already lapsed. The RTC held that the one-year period should be counted from the date the goods were delivered to the arrastre operator and not from the date they were delivered to petitioner’s job site.

As regards petitioner New World’s claim against Seaboard, its insurer, the RTC held that the latter cannot be faulted for denying the claim against it since New World refused to submit the itemized list that Seaboard needed for assessing the damage to the shipment. Likewise, the belated filing of the complaint prejudiced Seaboard’s right to pursue a claim against NYK in the event of subrogation.





A. YES. The Court does not regard as substantial the question of reasonableness of Seaboard’s additional requirement of an itemized listing of the damage that the generator sets suffered. The record shows that petitioner New World complied with the documentary requirements evidencing damage to its generator sets.

The marine open policy that Seaboard issued to New World was an all-risk policy. Such a policy insured against all causes of conceivable loss or damage except when otherwise excluded or when the loss or damage was due to fraud or intentional misconduct committed by the insured. The policy covered all losses during the voyage whether or not arising from a marine peril.

Here, the policy enumerated certain exceptions like unsuitable packaging, inherent vice, delay in voyage, or vessels unseaworthiness, among others. But Seaboard had been unable to show that petitioner New World’s loss or damage fell within some or one of the enumerated exceptions.

What is more, Seaboard had been unable to explain how it could not verify the damage that New World’s goods suffered going by the documents that it already submitted, namely, (1) copy of the Supplier’s Invoice KL2504; (2) copy of the Packing List; (3) copy of the Bill of Lading 01130E93004458; (4) the Delivery of Waybill Receipts 1135, 1222, and 1224; (5) original copy of Marine Insurance Policy MA-HO-000266; (6) copies of Damage Report from Supplier and Insurance Adjusters; (7) Consumption Report from the Customs Examiner; and (8) Copies of Received Formal Claim from the following: a) LEP International Philippines, Inc.; b) Marina Port Services, Inc.; and c) Serbros Carrier Corporation. Notably, Seaboard’s own marine surveyor attended the inspection of the generator sets. 

Seaboard cannot pretend that the above documents are inadequate since they were precisely the documents listed in its insurance policy. Being a contract of adhesion, an insurance policy is construed strongly against the insurer who prepared it. The Court cannot read a requirement in the policy that was not there.

Further, it appears from the exchanges of communications between Seaboard and Advatech that submission of the requested itemized listing was incumbent on the latter as the seller DMT’s local agent. Petitioner New World should not be made to suffer for Advatech’s shortcomings.

B. YES. Regarding prescription of claims, Section 3 (6) of the COGSA provides that the carrier and the ship shall be discharged from all liability in case of loss or damage unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.

But whose fault was it that the suit against NYK, the common carrier, was not brought to court on time? The last day for filing such a suit fell on October 7, 1994. The record shows that petitioner New World filed its formal claim for its loss with Seaboard, its insurer, a remedy it had the right to take, as early as November 16, 1993 or about 11 months before the suit against NYK would have fallen due.

In the ordinary course, if Seaboard had processed that claim and paid the same, Seaboard would have been subrogated to petitioner New World’s right to recover from NYK. And it could have then filed the suit as a subrogee. But, as discussed above, Seaboard made an unreasonable demand on February 14, 1994 for an itemized list of the damaged units, parts, and accessories, with corresponding values when it appeared settled that New World’s loss was total and when the insurance policy did not require the production of such a list in the event of a claim.

Besides, when petitioner New World declined to comply with the demand for the list, Seaboard against whom a formal claim was pending should not have remained obstinate in refusing to process that claim. It should have examined the same, found it unsubstantiated by documents if that were the case, and formally rejected it. That would have at least given petitioner New World a clear signal that it needed to promptly file its suit directly against NYK and the others. Ultimately, the fault for the delayed court suit could be brought to Seaboard’s doorstep.

Section 241 of the Insurance Code provides that no insurance company doing business in the Philippines shall refuse without just cause to pay or settle claims arising under coverages provided by its policies. And, under Section 243, the insurer has 30 days after proof of loss is received and ascertainment of the loss or damage within which to pay the claim. If such ascertainment is not had within 60 days from receipt of evidence of loss, the insurer has 90 days to pay or settle the claim. And, in case the insurer refuses or fails to pay within the prescribed time, the insured shall be entitled to interest on the proceeds of the policy for the duration of delay at the rate of twice the ceiling prescribed by the Monetary Board.

Notably, Seaboard already incurred delay when it failed to settle petitioner New World’s claim as Section 243 required. Under Section 244, a prima facieevidence 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 Section 243.


FACTS: Loadstar International Shipping, Inc. (Loadstar Shipping) and Philippine Associated Smelting and Refining Corporation (PASAR) entered into a Contract of Affreightment for domestic bulk transport of the latter’s copper concentrates for a period of one year from November 1, 1998 to October 31, 1999. The contract was extended up to the end of October 2000.

On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo Hold. Nos. 1 and 2 of MV “Bobcat”, a marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar International) and operated by Loadstar Shipping under a charter party agreement. The shipper and consignee under the Bill of Lading are Philex Mining Corporation (Philex) and PASAR, respectively. The cargo was insured with Malayan Insurance Company, Inc. (Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is the third party liability insurer of Loadstar Shipping.

On said date (September 10, 2000), MV “Bobcat” sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte. On September 12, 2000, while in the vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection found a crack on starboard side of the main deck which caused seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The cracks at the top deck starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39 meters wide, and at top deck aft section starboard side on other point, measuring 0.82 meters long x 0.32 meters wide, were welded.

Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000, PASAR and Philex’s representatives boarded and inspected the vessel and undertook sampling of the copper concentrates. In its preliminary report dated September 15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates from Cargo Hold No. 2 were contaminated by seawater. Consequently, PASAR rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold No. 2.

On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar Shipping. In its final report dated November 16, 2000, Elite Surveyor recommended payment to the assured the amount of [P]32,351,102.32 as adjusted. On the basis of such recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.

Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a prospective buyer for the damaged copper concentrates and the opportunity to nominate/refer other salvage buyers to PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s proposal to take the damaged copper concentrates at a residual value of US$90,000.00. On December 9, 2000, Loadstar Shipping wrote Malayan requesting for the reversal of its decision to accept PASAR’s proposal and the conduct of a public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%.

On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping, which refused to comply. Consequently, on September 19, 2001, Malayan instituted with the RTC a complaint for damages. The complaint was later amended to include Loadstar International as party defendant.


HELD: NO. Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of the allegedly damaged goods. The right of subrogation stems from Article 2207 of the New Civil Code which states:

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.

“The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer.” The right of subrogation is however, not absolute. “There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer’s right of subrogation is defeated. . . . Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. . . . And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting ‘voluntary payment,’ the former has no right of subrogation against the third party liable for the loss . . . .”

The rights of a subrogee cannot be superior to the rights possessed by a subrogor. “Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered.”

Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified and therefore, no right to collect is passed on to the subrogee.

ASIAN TERMINALS, INC. V. MALAYAN INSURANCE CO., INC., G.R. NO. 171406, [APRIL 4, 2011], 662 PHIL 473-494

FACTS: On November 14, 1995, Shandong Weifang Soda Ash Plant shipped on board the vessel MV “Jinlian I” 60,000 plastic bags of soda ash dense (each bag weighing 50 kilograms) from China to Manila. The shipment, with an invoice value of US$456,000.00, was insured with respondent Malayan Insurance Company, Inc. under Marine Risk Note No. RN-0001-21430, and covered by a Bill of Lading issued by Tianjin Navigation Company with Philippine Banking Corporation as the consignee and Chemphil Albright and Wilson Corporation as the notify party.

On November 21, 1995, upon arrival of the vessel at Pier 9, South Harbor, Manila, the stevedores of petitioner Asian Terminals, Inc., a duly registered domestic corporation engaged in providing arrastre and stevedoring services, unloaded the 60,000 bags of soda ash dense from the vessel and brought them to the open storage area of petitioner for temporary storage and safekeeping, pending clearance from the Bureau of Customs and delivery to the consignee. When the unloading of the bags was completed on November 28, 1995, 2,702 bags were found to be in bad order condition.

On November 29, 1995, the stevedores of petitioner began loading the bags in the trucks of MEC Customs Brokerage for transport and delivery to the consignee. On December 28, 1995, after all the bags were unloaded in the warehouses of the consignee, a total of 2,881 bags were in bad order condition due to spillage, caking, and hardening of the contents.

On April 19, 1996, respondent, as insurer, paid the value of the lost/damaged cargoes to the consignee in the amount of P643,600.25.

Ruling of the Regional Trial Court

On November 20, 1996, respondent, as subrogee of the consignee, filed before the Regional Trial Court (RTC) of Manila, Branch 35, a Complaint for damages against petitioner, the shipper Inchcape Shipping Services, and the cargo broker MEC Customs Brokerage.

After the filing of the Answers, trial ensued.

On June 26, 1998, the RTC rendered a Decision finding petitioner liable for the damage/loss sustained by the shipment but absolving the other defendants. The RTC found that the proximate cause of the damage/loss was the negligence of petitioner’s stevedores who handled the unloading of the cargoes from the vessel. The RTC emphasized that despite the admonitions of Marine Cargo Surveyors Edgar Liceralde and Redentor Antonio not to use steel hooks in retrieving and picking-up the bags, petitioner’s stevedores continued to use such tools, which pierced the bags and caused the spillage. The RTC, thus, ruled that petitioner, as employer, is liable for the acts and omissions of its stevedores under Articles 2176 and 2180 paragraph (4) of the Civil Code.


HELD: YES. Non-presentation of the insurance contract or policy is not fatal in the instant case

Petitioner claims that respondent’s non-presentation of the insurance contract or policy between the respondent and the consignee is fatal to its cause of action.

We do not agree.

First of all, this was never raised as an issue before the RTC. In fact, it is not among the issues agreed upon by the parties to be resolved during the pre-trial. As we have said, “the determination of issues during the pre-trial conference bars the consideration of other questions, whether during trial or on appeal.” Thus, “[t]he parties must disclose during pre-trial all issues they intend to raise during the trial, except those involving privileged or impeaching matters. . . . The basis of the rule is simple. Petitioners are bound by the delimitation of the issues during the pre-trial because they themselves agreed to the same.”

Neither was this issue raised on appeal. Basic is the rule that “issues or grounds not raised below cannot be resolved on review by the Supreme Court, for to allow the parties to raise new issues is antithetical to the sporting idea of fair play, justice and due process.”

Non-presentation of the insurance contract or policy is not necessarily fatal. In Delsan Transport Lines, Inc. v. Court of Appeals, we ruled that:

Anent the second issue, it is our view and so hold that 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 of the lost cargo of industrial fuel oil, 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. aSAHCE

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. First, from the shipper to the port of departure; second, from the port of departure to the M/S Oriental Statesman; third, from the M/S Oriental Statesman to the M/S Pacific Conveyor; fourth, from the M/S Pacific Conveyor to the port of arrival; fifth, from the port of arrival to the arrastre operator; sixth, from the arrastre operator to the hauler, Mabuhay Brokerage Co., Inc. (private respondent therein); and lastly, from the hauler to the consignee. We emphasized in that case that in the absence of proof of stipulations to the contrary, the hauler can be liable only for any damage that occurred from the time it received the cargo until it finally delivered it to the consignee. Ordinarily, it cannot be held responsible for the handling of the cargo before it actually received it. 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.

In International Container Terminal Services, Inc. v. FGU Insurance Corporation, we used the same line of reasoning in upholding the Decision of the CA finding the arrastre contractor liable for the lost shipment despite the failure of the insurance company to offer in evidence the insurance contract or policy. We explained:

Indeed, jurisprudence has it that the marine insurance policy needs to be presented in evidence before the trial court or even belatedly before the appellate court. InMalayan Insurance Co., Inc. v. Regis Brokerage Corp., the Court stated that the presentation of the marine insurance policy was necessary, as the issues raised therein arose from the very existence of an insurance contract between Malayan Insurance and its consignee, ABB Koppel, even prior to the loss of the shipment. In Wallem Philippines Shipping, Inc. v. Prudential Guarantee and Assurance, Inc., the Court ruled that the insurance contract must be presented in evidence in order to determine the extent of the coverage. This was also the ruling of the Court in Home Insurance Corporation v. Court of Appeals.

However, as in every general rule, there are admitted exceptions. In Delsan Transport Lines, Inc. v. Court of Appeals, the Court stated that the presentation of the insurance policy was not fatal because the loss of the cargo undoubtedly occurred while on board the petitioner’s vessel, unlike in Home Insurance in which the cargo passed through several stages with different parties and it could not be determined when the damage to the cargo occurred, such that the insurer should be liable for it.

As in Delsan, there is no doubt that the loss of the cargo in the present case occurred while in petitioner’s custody. Moreover, there is no issue as regards the provisions of Marine Open Policy No. MOP-12763, such that the presentation of the contract itself is necessary for perusal, not to mention that its existence was already admitted by petitioner in open court. And even though it was not offered in evidence, it still can be considered by the court as long as they have been properly identified by testimony duly recorded and they have themselves been incorporated in the records of the case.

Judicial notice does not apply

Finally, petitioner implores us to take judicial notice of Section 7.01, Article VII of the Management Contract for cargo handling services it entered with the PPA, which limits petitioner’s liability to P5,000.00 per package.

Unfortunately for the petitioner, it cannot avail of judicial notice.

Sections 1 and 2 of Rule 129 of the Rules of Court provide that:

SECTION 1. Judicial notice, when mandatory. — A court shall take judicial notice, without the introduction of evidence, of the existence and territorial extent of states, their political history, forms of government and symbols of nationality, the law of nations, the admiralty and maritime courts of the world and their seals, the political constitution and history of the Philippines, the official acts of the legislative, executive and judicial departments of the Philippines, the laws of nature, the measure of time, and the geographical divisions.

SEC. 2. Judicial notice, when discretionary. — A court may take judicial notice of matters which are of public knowledge, or are capable of unquestionable demonstration or ought to be known to judges because of their judicial functions.

The Management Contract entered into by petitioner and the PPA is clearly not among the matters which the courts can take judicial notice of. It cannot be considered an official act of the executive department. The PPA, which was created by virtue of Presidential Decree No. 857, as amended, is a government-owned and controlled corporation in charge of administering the ports in the country. Obviously, the PPA was only performing a proprietary function when it entered into a Management Contract with petitioner. As such, judicial notice cannot be applied.