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G.R. No. L-36413 September 26, 1988 MALAYAN INSURANCE CO., INC., petitioner, vs. THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C.VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC., respondents. Freqillana Jr. for petitioner. B.F. Estrella & Associates for respondent Martin Vallejos. Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc. Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc. PADILLA, J.: Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the decision, ** dated 27 April 1970, rendered in Civil Case No. U2021 of the Court of First Instance of Pangasinan. The antecedent facts of the case are as follows: On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00. During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep. As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him, jointly and severally, the amount of P15,000.00, as reimbursement for medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages; and P5,000.00, for attorney's fees. Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid the jeep; and that it had observed the diligence of a good father of a family to prevent damage, especially in the selection and supervision of its employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability. Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to the plaintiff, claiming that the fault in the accident was solely imputable to the PANTRANCO. Sio Choy, however, later filed a separate answer with a crossclaim against the herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his cross-claim against the herein petitioner, he alleged that the petitioner had issued in his favor a private car comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of such insurance contract, which policy was in full force and effect when the vehicular accident complained of occurred. He prayed that he be reimbursed by the insurance company for the amount that he may be ordered to pay. Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and indemnify the petitioner for any sum that it may be ordered to pay the plaintiff. After trial, judgment was rendered as follows: WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as follows: (a) P4,103 as actual damages; (b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the period of three (3) years; (c) P5,000.00 as moral damages; (d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs. The above-named parties against whom this judgment is rendered are hereby held jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to only P20,000.00. As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees is also dismissed for not being proved. 1 On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company. 2 Hence, the present recourse by petitioner insurance company. The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of onehalf (1/2) of the entire amount of damages, petitioner may be ordered to pay jointly and severally with Sio Choy. The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no other aspect of the decision of the Court of Appeals shall be reviewed, hence, execution may already issue in favor of respondent Martin C. Vallejos against the respondents, without prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it has been adjudged to pay respondent Vallejos." 3 However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it is important to determine first the nature or basis of the liability of petitioner to respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill, Inc. Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by the Court of Appeals, was correct in holding petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy. As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable to respondent Vallejos. We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos. It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides: Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months. If the owner was not in the motor vehicle, the provisions of article 2180 are applicable. On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the motor vehicle mishap, is Article 2180 of the Civil Code which reads: Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxx xxx xxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged ill any business or industry. xxx xxx xxx The responsibility treated in this article shall cease when the persons herein mentioned proved that they observed all the diligence of a good father of a family to prevent damage. It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who are liable for a quasi-delict is solidarily. 4 On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third party liability clause included in the private car comprehensive policy existing between petitioner and respondent Sio Choy at the time of the complained vehicular accident. In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the heirs of said passenger against the driver and owner of the jeepney at fault as well as against the insurance company which insured the latter jeepney against third party liability, the trial court, affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees; while the insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against said owner and driver of the jeepney. Thus, in said Guingon case, it was only the owner and the driver of the jeepney at fault, not including the insurance company, who were held solidarily liable to the heirs of the victim. While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said two (2) respondents by reason of the indemnity contract against third party liability-under which an insurer can be directly sued by a third party — this will result in a violation of the principles underlying solidary obligation and insurance contracts. In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. 7 On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event." 8 In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is an evident breach of the concept of a solidary obligation. Thus, We hold that the trial court, as upheld by the Court of Appeals, erred in holding petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to respondent Vallejos. As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is not privy to the contract of insurance existing between petitioner and respondent Sio Choy. We disagree. The appellate court overlooked the principle of subrogation in insurance contracts. Thus — ... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037). The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382). Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract (emphasis supplied) or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9 It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds to each. Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. xxx xxx xxx In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill, Inc. To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 ) WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs. SO ORDERED. MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF APPEALS, ET AL. G.R. No. L-52756. AN INSURANCE LAW CASE. BY C Y. MANILA MAHOGANY MANUFACTURING CORPORATION vs. COURT OF APPEALS, ET AL. G.R. No. L-52756. AN INSURANCE LAW CASE. BY C Y. FACTS. Petitioner insured its Mercedes bench car with the private respondent. 2. The car was bumpt and damage by the truck of San Miguel corp. 3. Respondent insurance pay the insured car of petitioner. 4. Petitioner released San Miguel corp. for its liability on an amicable settlements upon receipt of 4500 paid by San Miguel corp. 5. Respondent insurance company demand the amount it paid to petitioner from San Miguel corp but the latter refused claiming that it had been released by petitioner in an amicable settlement so respondent insurance company demand reimbursement from petitioner Manila Mahogany but the petitioner refused. 7. Respondent insurance company filed a complaint against petitioner before the city court of Manila who ordered petitioner to reimbursed the respondent and this was affirmed by the CFI of Manila and affirmed further by the CA with modification that petitioner must pay the full amount it had earlier received from the respondent insurance company and not only the amount it received from the San Miguel corp. in there amicable settlement. ISSUE. WHETHER OR NOT, PETITIONER IS OBLIGED TO RETURN THE AMOUNT IT HAD RECEIVED FROM THE RESPONDENT INSURANCE COMPANY. According to the supreme court, when petitioner Manila Mahogany discharges San Miguel corp. on its liability, the right of subrogation of respondent insurance company ceased to exist so entitling it to recovered the amount it had paid to the insured which in this case is the Manila Mahogany. WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is hereby AFFIRMED with costs against petitioner. CEBU SHIPYARD AND ENGINEERING WORKS, INC., Petitioner, vs. WILLIAM LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE COMPANY, INC., Respondents. PURISIMA, J.: At bar is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court seeking a reversal of the decision of the Court of Appeal 1 which affirmed the decision of the trial court of origin finding the petitioner herein, Cebu Shipyard and Engineering Works, Inc. (CSEW) negligent and liable for damages to the private respondent, William Lines, Inc., and to the insurer, Prudential Guarantee Assurance Company, Inc. The antecedent facts that matter are as follows: Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation engaged in the business of dry-docking and repairing of marine vessels while the private respondent, Prudential Guarantee and Assurance, Inc. (Prudential), also a domestic corporation is in the non-life insurance business. William Lines, Inc. (plaintiff below) is in the shipping business. It the owner of M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank on February 16, 1991. At the time of the unfortunate occurrence sued upon, subject vessel was insured with Prudential for P45,000,000.00 pesos for hull and machinery. The Hull Policy included an "Additional Perils (INCHMAREE)" Clause covering loss of or damage to the vessel through the negligence of, among others, ship repairmen. The Policy provided as follows: Subject to the conditions of this Policy, this insurance also covers loss of or damage to Vessel directly caused by the following: xxx xxx xxx Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are not an Assured hereunder. xxx xxx xxx provided such loss or damage has not resulted from want of due diligence by the Assured, the Owners or Managers of the Vessel, of any of them Masters, Officers, Crew or Pilots are not to be considered Owners within the meaning of this Clause should they hold shares in the Vessel. 2 Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairer's Legal Liability Insurance Policy. The policy was for P10 million only, under the limited liability clause, to wit: 7. Limit of Liability The limit of liability under this insurance, in respect of any one accident or series of accidents, arising out of one occurrence, shall be [P10 million], including liability for costs and expense which are either: (a) incurred with the written consent of the underwriters hereon, or (b) awarded against the Assured. 3 On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard in Lapulapu City for annual dry-docking and repair. On February 6, 1991, an arrival conference was held between representatives of William Lines, Inc. and CSEW to discuss the work to be undertaken on the M/V Manila City. The contracts, denominated as Work Orders, were signed thereafter, with the following stipulations: 10. The Contractor shall replace at its own work and at its own cost any work or material which can be shown to be defective and which is communicated in writing within one (1) month of redelivery of the vessel or if the vessel was not in the Contractor's Possession, the withdrawal of the Contractor's workmen, or at its option to pay a sum equal to the cost of such replacement at its own works. These conditions shall apply to any such replacements. 11. Save as provided in Clause 10, the Contractor shall not be under any liability to the Customer either in contract or for delict or quasi-delict or otherwise except for negligence and such liability shall itself be subject to the following overriding limitations and exceptions, namely: (a) The total liability of the Contractor to the Customer (over and above the liability to replace under Clause 10) or of any sub-contractor shall be limited in respect of any defect or event (and a series of accidents arising out of the same defect or event shall constitute one defect or event) to the sum of Pesos Philippine Currency One Million only. (b) In no circumstance whatsoever shall the liability of the Contractor or any Sub-Contractor include any sum in respect of loss of profit or loss of use of the vessel or damages consequential on such loss of use xxx xxx xxx 20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the contract is in effect. 4 While the M/V Manila City was undergoing dry-docking and repairs within the premises of CSEW, the master, officers and crew of M/V Manila City stayed in the vessel using their cabins as living quarters. Other employees hired by William Lines to do repairs and maintenance work on the vessel were also present during the dry-docking. On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire and sank, resulting to its eventual total loss. On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging that the fire which broke out in M/V Manila City was caused by CSEW's negligence and lack of care. On July 15, 1991 was filed an Amended Complaint impleading Prudential as co-plaintiff, after the latter had paid William Lines, Inc. the value of the hull and machinery insurance on the M/V Manila City. As a result of such payment Prudential was subrogated to the claim of P45 million, representing the value of the said insurance it paid. On June 10, 1994, the trial court a quo came out with a judgment against CSEW, disposing as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendant, ordering the latter. 1. To pay unto plaintiff Prudential Guarantee and Assurance Inc., the subrogee, the amount of Forty-five Million (P45 million) Pesos, with interest at the legal rate until full payment is made. 2. To pay unto plaintiff, William Lines, Inc., the amount of Fifty-six Million Seven Hundred Fifteen Thousand (P56,715,000.00) Pesos representing loss of income of M/V MANILA CITY, with interest at the legal rate until full payment is made. 3. To pay unto plaintiff, William Lines, Inc. the amount of Eleven Million (P11 million) as payment, in addition to what it received from the insurance company to fully cover the injury or loss, in order to replace the M/V MANILA CITY, with interest at the legal rate until full payment is made; 4. To pay unto plaintiff, William Lines, Inc. the sum of Nine Hundred Twenty-Seven Thousand Thirty-nine (P927,039.00) Pesos for the loss of fuel and lub (sic) oil on board the vessel when she was completely gutted by fire at defendant, Cebu Shipyard's quay, with interest at the legal rate until full payment is made; 5. To pay unto plaintiff, William Lines, Inc. the sum of Three Million Fifty-four Thousand Six Hundred Seventy-seven Pesos and Ninety-five centavos (P3,054.677.95) as payment for the spare parts and materials used in the M/V MANILA CITY during dry-docking with interest at the legal rate until full payment is made; 6. To pay unto plaintiff William Lines, Inc., the sum of Five Hundred Thousand (P500,000 00) Pesos in moral damages; 7. To pay unto plaintiff, William Lines, Inc. the amount of Ten Million (P10,000.000.00) Pesos in attorney's fees; and to pay the costs of this suit. CSEW (defendant below) appealed the aforesaid decision to the Court of Appeals. During the pendency of the appeal, CSEW and William Lines presented a "Joint Motion for Partial Dismissal" with prejudice, on the basis of the amicable settlement inked between Cebu Shipyard and William Lines only. On July 31, 1996, the Court of Appeals ordered the partial dismissal of the case insofar as CSEW and William Lines were concerned. On September 3, 1997, the Court of Appeals affirmed the appealed decision of the trial court, ruling thus: WHEREFORE, the judgment of the lower court ordering the defendant, Cebu Shipyard and Engineering Works, Inc. to pay the plaintiff Prudential Guarantee and Assurance, Inc., the subrogee, the sum of P45 Million, with interest at the legal rate until full payment is made, as contained in the decision of Civil Case No. CEB-9935 is hereby AFFIRMED. With the denial of its motion for reconsideration by the Court of Appeal's Resolution dated February 13, 1998, CSEW found its way to this court via the present petition, contending that: I. THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT CSEW HAD "MANAGEMENT AND SUPERVISORY CONTROL" OF THE M/V MANILA CITY AT THE TIME THE FIRE BROKE OUT. II THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN APPLYING THE DOCTRINE OF RES IPSALOQUITUR AGAINST CSEW. III THE COURT OF APPEALS RULING HOLDING CSEW NEGLIGENT AND THEREBY LIABLE FOR THE LOSS OF THE M/V MANILA CITY IS BASED FINDINGS OF FACT NOT SUPPORTED BY EVIDENCE. IV THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING CSEW'S EXPERT EVIDENCE AS INADMISSIBLE OR OF NO PROBATIVE VALUE. V THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN RULING THAT PRUDENTIAL HAS THE RIGHT OF SUBROGATION AGAINST ITS OWN INSURED. VI ASSUMING ARGUENDO THAT PRUDENTIAL HAS THE RIGHT OF SUBROGATION AND THAT CSEW WAS NEGLIGENT IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THE SHIPREPAIR CONTRACTS. THE CONTRACTUAL PROVISIONS LIMITING CSEW'S LIABILITY FOR NEGLIGENCE TO A MAXIMUM OF P 1 MILLION IS NOT VALID, CONTRARY TO THE APPLICABLE RULINGS OF THIS HONORABLE COURT. Petitioner's version of the events that led to the fire runs as follows: On February 13, 1991, the CSEW completed the drydocking of M/V Manila City at its grave dock. It was then transferred to the docking quay of CSEW where the remaining repair to be done was the replating of the top of Water Ballast Tank No. 12 (Tank Top No. 12) which was subcontracted by CSEW to JNB General Services. Tank Top No. 12 was at the rear section of the vessel, on level with the flooring of the crew cabins located on the vessel's second deck. At around seven o'clock in the morning of February 16, 1991, the JNB workers trimmed and cleaned the tank framing which involved minor hotworks (welding/cutting works). The said work was completed at about 10:00 a.m. The JNB workers then proceeded to rig the steel plates, after which they had their lunch break. The rigging was resumed at 1:00 p.m. While in the process of rigging the second steel plate, the JNB workers noticed smoke coming from the passageway along the crew cabins. When one of the workers, Mr. Casas, proceeded to the passageway to ascertain the origin of the smoke, he noticed that smoke was gathering on the ceiling of the passageway but did not see any fire as the crew cabins on either side of the passageway were locked. He immediately sought out the proprietor of JNB, Mr. Buenavista, and the Safety officer CSEW, Mr. Aves, who sounded the fire alarm. CSEW's fire brigade immediately responded as well as the other fire fighting units in Metro Cebu. However, there were no WLI representative, officer or crew to guide the firemen inside the vessel. Despite the combined efforts of the firemen of the Lapulapu City Fire Department, Mandaue Fire Cordova Fire Department, Emergency Rescue Unit Foundation, and fire brigade of CSEW, the fire was not controlled until 2:00 a.m., of the following day, February 17, 1991. On the early morning of February 17, 1991, gusty winds rekindled the flames on the vessel and fire again broke out. Then the huge amounts of water pumped into the vessel, coupled with the strong current, caused the vessel to tilt until it capsized and sank. When M/V Manila City capsized, steel and angle bars were noticed to have been newly welded along the port side of the hull of the vessel, at the level of the crew cabins. William Lines did not previously apply for a permit to do hotworks on the said portion of the ship as it should have done pursuant to its work order with CSEW. 5 Respondent Prudential, on the other hand, theorized that the fire broke out in the following manner: At around eleven o'clock in the morning of February 16, 1991, the Chief Mate of M/V Manila City was inspecting the various works being done by CSEW on the vessel, when he saw that some workers of CSEW were cropping out steel plates Tank Top No. 12 using acetylene, oxygen and welding torch. He also observed that the rubber insulation wire coming out of the airconditioning unit was already burning, prompting him to scold the workers. At 2:45 in the afternoon of the same day, witnesses saw smoke coming from Tank No. 12. The vessel's reeferman reported such occurence to the Chief Mate who immediately assembled the crew members to put out the fire. When it was too hot for them to stay on board and seeing that the fire cannot be controlled, the vessel's crew were forced to withdraw from CSEW's docking quay. In the morning of February 17, 1991, M/V Manila City sank. As the vessel was insured with Prudential Guarantee, William Lines filed a claim for constructive loss, and after a thorough investigation of the surrounding circumstances of the tragedy, Prudential Guaranteed found the said insurance claim to be meritorious and issued a check in favor of William Lines in the amount of P 45 million pesos representing the total value of M/V Manila City's hull and machinery insurance. 6 The petition is unmeritorious. Petitioner CSEW faults the Court of Appeals for adjudging it negligent and liable for damages for the respondents, William Lines, Inc., and Prudential for the loss of M/V Manila City. It is petitioner's submission that the finding of negligence by the Court of Appeals is not supported by the evidence on record, and contrary to what the Court of Appeals found, petitioner did not have management and control over M/V Manila City. Although it was brought to the premises of CSEW for annual repair, William Lines, Inc. retained control over the vessel as the ship captain remained in command and the ship's crew were still present. While it imposed certain rules and regulations on William Lines, it was in the exercise of due diligence and not an indication of CSEW's exclusive control over subject vessel. Thus, CSEW maintains that it did not have exclusive control over the M/V Manila City and the trial court and the Court of Appeals erred in applying the doctrine of res ipsa loquitur. Time and again, this Court had occasion to reiterate the wellestablished rule that factual findings by the Court of Appeals are conclusive on the parties and are not reviewable by this Court. They are entitled to great weight and respect, even finality, especially when, as in this case, the Court of Appeals affirmed the factual findings arrived at by the trial court. 7 When supported by sufficient evidence, findings of fact by the Court of Appeals affirming those of the trial court, are not to be disturbed on appeal. The rationale behind this doctrine is that review of the findings of fact of the Court of Appeals is not a function that the Supreme Court normally undertakes. 8 Here, the Court of Appeals and the Cebu Regional Trial Court of origin are agreed that the fire which caused the total loss of subject M/V Manila City was due to the negligence of the employees and workers of CSEW. Both courts found that the M/V Manila City was under the custody and control of petitioner CSEW, when the ill-fated vessel caught fire. The decisions of both the lower court and the Court of Appeals set forth clearly the evidence sustaining their finding of actionable negligence on the part of CSEW. This factual finding is conclusive on the parties. The court discerns no basis for disturbing such finding firmly anchored on enough evidence. As held in the case of Roblett Industrial Construction Corporation vs. Court of Appeals, "in the absence of any showing that the trial court failed to appreciate facts and circumstances of weight and substance that would have altered its conclusion, no compelling reason exists for the Court to impinge upon matters more appropriately within its province. 9 Furthermore, in petitions for review on certiorari, only questions of law may be put into issue. Questions of fact cannot be entertained. The finding of negligence by the Court of Appeals is a question which this Court cannot look into as it would entail going into factual matters on which the finding of negligence was based. Such an approach cannot be allowed by this Court in the absence of clear showing that the case falls under any of the exceptions 10 to the well-established principle. The finding by the trial court and the Court of Appeals that M/V Manila City caught fire and sank by reason of the negligence of the workers of CSEW, when the said vessel was under the exclusive custody and control of CSEW is accordingly upheld. Under the circumstances of the case, the doctrine of res ipsa loquitur applies. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur (1) the accident was of a kind which does not ordinarily occur unless someone is negligent; and (2) that the instrumentality or agency which caused the injury was under the exclusive control of the person charged with negligence. The facts and evidence on record reveal the concurrence of said conditions in the case under scrutiny. First, the fire that occurred and consumed M/V Manila City would not have happened in the ordinary course of things if reasonable care and diligence had been exercised. In other words, some negligence must have occurred. Second, the agency charged with negligence, as found by the trial court and the Court of Appeals and as shown by the records, is the herein petitioner, Cebu Shipyard and Engineering Works, Inc., which had control over subject vessel when it was docketed for annual repairs. So also, as found by the regional trial court, "other responsible causes, including the conduct of the plaintiff, and third persons, are sufficiently eliminated by the evidence. 11 What is more, in the present case the trial court found direct evidence to prove that the workers and/or employees of CSEW were remiss in their duty of exercising due diligence in the care of subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent. Thus, even without applying the doctrine of res ipsa loquitur, in light of the direct evidence on record, the ineluctable conclusion is that the petitioner, Cebu Shipyard and Engineering Works, Inc., was negligent and consequently liable for damages to the respondent, William Lines, Inc. Neither is there tenability in the contention of petitioner that the Court of Appeals erroneously ruled on the inadmissibility of the expert testimonies it (petitioner) introduced on the probable cause and origin of the fire. Petitioner maintains that the Court of Appeals erred in disregarding the testimonies of the fire experts, Messrs. David Grey and Gregory Michael Southeard, who testified on the probable origin of the fire in M/V Manila City. Petitioner avers that since the said fire experts were one in their opinion that the fire did not originate in the area of Tank Top No. 12 where the JNB workers were doing hotworks but on the crew accommodation cabins on the portside No. 2 deck, the trial court and the Court of Appeals should have given weight to such finding based on the testimonies of fire experts; petitioner argues. But courts are not bound by the testimonies of expert witnesses. Although they may have probative value, reception in evidence of expert testimonies is within the discretion of the court. Section 49, Rule 130 of the Revised Rules of Court, provides: Sec. 49. Opinion of expert witness. - The opinion of a witness on a matter requiring special knowledge, skill, experience or training which he is shown to possess, may be received in evidence. The word "may" signifies that the use of opinion of an expert witness as evidence is a prerogative of the courts. It is never mandatory for judges to give substantial weight to expert testimonies. If from the facts and evidence on record, a conclusion is readily ascertainable, there is no need for the judge to resort to expert opinion evidence. In the case under consideration, the testimonies of the fire experts were not the only available evidence on the probable cause and origin of the fire. There were witnesses who were actually on board the vessel when the fire occurred. Between the testimonies of the fire experts who merely based their findings and opinions on interviews and the testimonies of those present during the fire, the latter are of more probative value. Verily, the trial court and the Court of Appeals did not err in giving more weight to said testimonies. On the issue of subrogation, petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull Insurance Policy. It is petitioner's submission that the loss of M/V Manila City or damage thereto is expressly excluded from the coverage of the insurance because the same resulted from "want of due diligence by the Assured, Owners or Managers" which is not included in the risks insured against. Again, this theory of petitioner is bereft of any factual or legal basis. It proceeds from a wrong premise that the fire which gutted subject vessel was caused by the negligence of the employees of William Lines, Inc. To repeat, the issue of who between the parties was negligent has already been resolved against Cebu Shipyard and Engineering Works, Inc. Upon proof of payment by Prudential to William Lines, Inc. the former was subrogated to the right of the latter to indemnification from CSEW. As aptly ruled by the Court of Appeals, the law on the manner is succinct and clear, to wit: Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. 12 Thus, when Prudential, after due verification of the merit and validity of the insurance claim of William Lines, Inc., paid the latter the total amount covered by its insurance policy, it was subrogated to the right of the latter to recover the insured loss from the liable party, CSEW. Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under the subject insurance policy. To buttress its stance that it is a co-assured, petitioner placed reliance on Clause 20 of the Work Order which states: 20 The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the contract is in effect. 13 According to petitioner, under the aforecited clause, William Lines, Inc., agreed to assume the risk of loss of the vessel while under dry-dock or repair and to such extent, it is benefited and effectively constituted as a co-assured under the policy. This theory of petitioner is devoid of sustainable merit. Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to maintain insurance on the vessel during the period of dry-docking or repair. Concededly, such a stipulation works to the benefit of CSEW as the ship repairer. However, the fact that CSEW benefits from the said stipulation does not automatically make it as a co-assured of William Lines. The intention of the parties to make each other a coassured under an insurance policy is to be gleaned principally from the insurance contract or policy itself and not from any other contract or agreement because the insurance policy denominates the assured and the beneficiaries of the insurance. The hull and machinery insurance procured by William Lines, Inc. from Prudential named only "William Lines, Inc." as the assured. There was no manifestation of any intention of William Lines, Inc. to constitute CSEW as a coassured under subject policy. It is axiomatic that when the terms of a contract are clear its stipulations control.14 Thus, when the insurance policy involved named only William Lines, Inc. as the assured thereunder, the claim of CSEW that it is a co-assured is unfounded. Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that: Subject to the conditions of this Policy, this insurance also covers loss of or damage to vessel directly caused by the following: xxx xxx xxx Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are not an Assured hereunder 15 (emphasis supplied). As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the policy, it would nullify any claim of William Lines, Inc. from Prudential for any loss or damage caused by the negligence of CSEW. Certainly, no shipowner would agree to make a shiprepairer a co-assured under such insurance policy; otherwise, any claim for loss or damage under the policy would be invalidated. Such result could not have been intended by William Lines, Inc. Finally, CSEW argues that even assuming that it was negligent and therefore liable to William Lines Inc., by stipulation in the Contract or Work Order its liability is limited to One Million (P1,000,000.00) Pesos only, and Prudential a mere subrogee of William Lines, Inc., should only be entitled to collect the sum stipulated in the said contract. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as binding as an ordinary contract, the Court recognizes instances when reliance on such contracts cannot be favored especially where the facts and circumstances warrant that subject stipulations be disregarded. 16 Thus, in ruling on the validity and applicability of the stipulation limiting the liability of CSEW for negligence to One Million (P1,000,000.00) Pesos only, the facts and circumstances vis-a-vis the nature of the provision sought to be enforced should be considered, bearing in mind the principles of equity and fair play. It is worthy to note that M/V Manila City was insured with Prudential for Forty Five Million (P45,000,000.00) Pesos. To determine the validity and sustainability of the claim of William Lines, Inc., for a total loss, Prudential conducted its own inquiry. Upon thorough investigation by its hull surveyor, M/V Manila City was found to be beyond economical salvage and repair. 17 The evaluation of the average adjuster also reported a constructive total loss. 18 The said claim of William Lines, Inc., was then found to be valid and compensable such that Prudential paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the replacement cost of the vessel (the price of a vessel similar to M/V Manila City), amounts to Fifty Million (P 50,000,000.00) Pesos. 19 Considering the aforestated circumstances, let alone the fact that negligence on the part of petitioner has been sufficiently proven, it would indeed be unfair and inequitable to limit the liability of petitioner to One Million Pesos only. As aptly held by the trial court, "it is rather unconscionable if not overstrained." To allow CSEW to limit its liability to One Million Pesos notwithstanding the fact that the total loss suffered by the assured and paid for by Prudential amounted to Forty Five Million (P45,000,000.00) Pesos would sanction the exercise of a degree of diligence short of what is ordinarily required because, then, it would not be difficult for petitioner to escape liability by the simple expedient of paying an amount very much lower than the actual damage or loss suffered by William Lines, Inc. WHEREFORE, for want of merit, the petition is hereby DENIED and the decision, dated September 3, 1997, and Resolution, dated February 13, 1998, of the Court of Appeals AFFIRMED. No pronouncement as to costs. SO ORDERED. DELSAN TRANSPORT LINES, INC., vs. THE HON. COURT OF APPEALS, ET AL. G.R. No. 127897. AN INSURANCE LAW CASE. BY C Y. Below this digest is the full case. FACTS. 1. Caltex Philippines entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc., for a period of one year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to different parts of the country. 2. petitioner took on board its vessel, MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex from Batangas to be delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured with the private respondent, American Home Assurance Corporation. Unfortunately, the vessel sank near Panay Gulf in the Visayas taking with it the entire cargo of fuel oil. 3. private respondent paid Caltex the sum of P5,096,635.67) representing the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex. 4. Due to its failure to collect from the petitioner despite prior demand, private respondent filed a complaint with the Regional Trial Court of Makati City, Branch 137, for collection of a sum of money who dismiss the case on the ground that the vessel was seaworthy to take the voyage and that the cause of the sinking was due to a force majeure. 5. The court of appeals reversed the decision of the trial court stating that the weather condition at the time of the incidents was good as reported by the PAG-ASA so the sinking was not due to a force majeure and that the vessel was improperly manned so the petitioner was liable to the private respondent. 6. In its petition to the supreme court, Petitioner Delsan Transport Lines, Inc. invokes the provision of Section 113 of the Insurance Code of the Philippines, which states that in every marine insurance upon a ship or freight, or freightage, or upon any thin which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latter’s breach of implied warranty under the marine insurance policy that the vessel was seaworthy. The failure of the private respondent to present the insurance policy in evidence is allegedly fatal to its claim inasmuch as there is no way to determine the rights of the parties thereto. ISSUES. Whether or not the payment made by the private respondent to Caltex for the insured value of the lost cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against the petitioner. Whether or not the non-presentation of the marine insurance policy bars the complaint for recovery of sum of money for lack of cause of action. According to the Supreme Court, The payment made by the private respondent for the insured value of the lost cargo operates as waiver of its right to enforce the term of the implied warranty against Caltex under the marine insurance policy but the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the private respondent as to foreclose recourse against the petitioner for any liability under its contractual obligation as a common carrier. The fact of payment grants the private respondent subrogatory right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier. And in the second issue, the SC said 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 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. So the petition was dismiss. FEDERAL EXPRESS CORPORATION,petitioner, vs.AMERICAN HOME ASSURANCE COMPANY and PHILAM INSURANCE COMPANY, INC., Respondents. DECISION PANGANIBAN, J.: Basic is the requirement that before suing to recover loss of or damage to transported goods, the plaintiff must give the carrier notice of the loss or damage, within the period prescribed by the Warsaw Convention and/or the airway bill. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the June 4, 2001 Decision2 and the September 21, 2001 Resolution3 of the Court of Appeals (CA) in CA-GR CV No. 58208. The assailed Decision disposed as follows: WHEREFORE, premises considered, the present appeal is hereby DISMISSED for lack of merit. The appealed Decision of Branch 149 of the Regional Trial Court of Makati City in Civil Case No. 95- 1219, entitled American Home Assurance Co. and PHILAM Insurance Co., Inc. v. FEDERAL EXPRESS CORPORATION and/or CARGOHAUS, INC. (formerly U-WAREHOUSE, INC.), is hereby AFFIRMED and REITERATED. Costs against the [petitioner and Cargohaus, Inc.].4 The assailed Resolution denied petitioners Motion for Reconsideration. The Facts The antecedent facts are summarized by the appellate court as follows: On January 26, 1994, SMITHKLINE Beecham (SMITHKLINE for brevity) of Nebraska, USA delivered to Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City, Metro Manila. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, REFRIGERATE WHEN NOT IN TRANSIT and PERISHABLE stamp marked on its face. That same day, Burlington insured the cargoes in the amount of $39,339.00 with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to Federal Express which transported the same to Manila. The first shipment, consisting of 92 cartons arrived in Manila on January 29, 1994 in Flight No. 0071-28NRT and was immediately stored at [Cargohaus Inc.s] warehouse. While the second, consisting of 17 cartons, came in two (2) days later, or on January 31, 1994, in Flight No. 0071-30NRT which was likewise immediately stored at Cargohaus warehouse. Prior to the arrival of the cargoes, Federal Express informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its clients cargoes. On February 10, 1994, DARIO C. DIONEDA (DIONEDA), twelve (12) days after the cargoes arrived in Manila, a non-licensed customs broker who was assigned by GETC to facilitate the release of the subject cargoes, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with two (2) air conditioners running, to cool the place instead of a refrigerator. When he asked an employee of Cargohaus why the cargoes were stored in the cool room only, the latter told him that the cartons where the vaccines were contained specifically indicated therein that it should not be subjected to hot or cold temperature. Thereafter, DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the ELISA reading of vaccinates sera are below the positive reference serum. As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring total loss for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured amount of THIRTY NINE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS ($39,339.00). Thereafter, [respondents] filed an action for damages against the [petitioner] imputing negligence on either or both of them in the handling of the cargo. Trial ensued and ultimately concluded on March 18, 1997 with the [petitioner] being held solidarily liable for the loss as follows: WHEREFORE, judgment is hereby rendered in favor of [respondents] and [petitioner and its Co-Defendant Cargohaus] are directed to pay [respondents], jointly and severally, the following: 1. Actual damages in the amount of the peso equivalent of US$39,339.00 with interest from the time of the filing of the complaint to the time the same is fully paid. 2. Attorneys fees in the amount of P50,000.00 and 3. Costs of suit. SO ORDERED. Aggrieved, [petitioner] appealed to [the CA].5 Ruling of the Court of Appeals The Test Report issued by the United States Department of Agriculture (Animal and Plant Health Inspection Service) was found by the CA to be inadmissible in evidence. Despite this ruling, the appellate court held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. We quote from the ruling as follows: Where the plaintiff introduces evidence which shows prima facie that the goods were delivered to the carrier in good condition [i.e., the shipping receipts], and that the carrier delivered the goods in a damaged condition, a presumption is raised that the damage occurred through the fault or negligence of the carrier, and this casts upon the carrier the burden of showing that the goods were not in good condition when delivered to the carrier, or that the damage was occasioned by some cause excepting the carrier from absolute liability. This the [petitioner] failed to discharge. x x x.[6 Found devoid of merit was petitioners claim that respondents had no personality to sue. This argument was supposedly not raised in the Answer or during trial. Hence, this Petition.7 The Issues In its Memorandum, petitioner raises the following issues for our consideration: I. Are the decision and resolution of the Honorable Court of Appeals proper subject for review by the Honorable Court under Rule 45 of the 1997 Rules of Civil Procedure? II. Is the conclusion of the Honorable Court of Appeals petitioners claim that respondents have no personality to sue because the payment was made by the respondents to Smithkline when the insured under the policy is Burlington Air Express is devoid of merit correct or not? III. Is the conclusion of the Honorable Court of Appeals that the goods were received in good condition, correct or not? IV. Are Exhibits F and G hearsay evidence, and therefore, not admissible? V. Is the Honorable Court of Appeals correct in ignoring and disregarding respondents own admission that petitioner is not liable? and VI. Is the Honorable Court of Appeals correct in ignoring the Warsaw Convention?8 Simply stated, the issues are as follows: (1) Is the Petition proper for review by the Supreme Court? (2) Is Federal Express liable for damage to or loss of the insured goods? This Courts Ruling The Petition has merit. Preliminary Issue: Propriety of Review The correctness of legal conclusions drawn by the Court of Appeals from undisputed facts is a question of law cognizable by the Supreme Court.9 In the present case, the facts are undisputed. As will be shown shortly, petitioner is questioning the conclusions drawn from such facts. Hence, this case is a proper subject for review by this Court. Main Issue: Liability for Damages Petitioner contends that respondents have no personality to sue -- thus, no cause of action against it -- because the payment made to Smithkline was erroneous. Pertinent to this issue is the Certificate of Insurance10 (Certificate) that both opposing parties cite in support of their respective positions. They differ only in their interpretation of what their rights are under its terms. The determination of those rights involves a question of law, not a question of fact. As distinguished from a question of law which exists when the doubt or difference arises as to what the law is on a certain state of facts -- there is a question of fact when the doubt or difference arises as to the truth or the falsehood of alleged facts; or when the query necessarily invites calibration of the whole evidence considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstance, their relation to each other and to the whole and the probabilities of the situation.11 Proper Payee The Certificate specifies that loss of or damage to the insured cargo is payable to order x x x upon surrender of this Certificate. Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds. Subrogation Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt12 in favor of respondents. The latter were thus authorized to file claims and begin suit against any such carrier, vessel, person, corporation or government. Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor. Upon payment to the consignee of an indemnity for the loss of or damage to the insured goods, the insurers entitlement to subrogation pro tanto -- being of the highest equity -- equips it with a cause of action in case of a contractual breach or negligence.13 Further, the insurers subrogatory right to sue for recovery under the bill of lading in case of loss of or damage to the cargo is jurisprudentially upheld.14 In the exercise of its subrogatory right, an insurer may proceed against an erring carrier. To all intents and purposes, it stands in the place and in substitution of the consignee. A fortiori, both the insurer and the consignee are bound by the contractual stipulations under the bill of lading.15 Prescription of Claim From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents claim and right of action are already barred. The latter, and even the consignee, never filed with the carrier any written notice or complaint regarding its claim for damage of or loss to the subject cargo within the period required by the Warsaw Convention and/or in the airway bill. Indeed, this fact has never been denied by respondents and is plainly evident from the records. Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: 6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill].16 Relevantly, petitioners airway bill states: 12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case: 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods; 12.1.2 of other damage to the goods, within fourteen (14) days from the date of receipt of the goods; 12.1.3 delay, within twenty-one (21) days of the date the goods are placed at his disposal; and 12.1.4 of non-delivery of the goods, within one hundred and twenty (120) days from the date of the issue of the air waybill. 12.2 For the purpose of 12.1 complaint in writing may be made to the carrier whose air waybill was used, or to the first carrier or to the last carrier or to the carrier who performed the transportation during which the loss, damage or delay took place.17 Article 26 of the Warsaw Convention, on the other hand, provides: ART. 26. (1) Receipt by the person entitled to the delivery of baggage or goods without complaint shall be prima facie evidence that the same have been delivered in good condition and in accordance with the document of transportation. (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. In case of delay the complaint must be made at the latest within 14 days from the date on which the baggage or goods have been placed at his disposal. (3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid. (4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part.18 Condition Precedent In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods.19 The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.20 The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.21 When an airway bill -- or any contract of carriage for that matter -- has a stipulation that requires a notice of claim for loss of or damage to goods shipped and the stipulation is not complied with, its enforcement can be prevented and the liability cannot be imposed on the carrier. To stress, notice is a condition precedent, and the carrier is not liable if notice is not given in accordance with the stipulation.[22 Failure to comply with such a stipulation bars recovery for the loss or damage suffered.[23 Being a condition precedent, the notice must precede a suit for enforcement.24 In the present case, there is neither an allegation nor a showing of respondents compliance with this requirement within the prescribed period. While respondents may have had a cause of action then, they cannot now enforce it for their failure to comply with the aforesaid condition precedent. In view of the foregoing, we find no more necessity to pass upon the other issues raised by petitioner. We note that respondents are not without recourse. Cargohaus, Inc. -- petitioners co-defendant in respondents Complaint below -- has been adjudged by the trial court as liable for, inter alia, actual damages in the amount of the peso equivalent of US $39,339.25 This judgment was affirmed by the Court of Appeals and is already final and executory.26 WHEREFORE, the Petition is GRANTED, and the assailed Decision REVERSED insofar as it pertains to Petitioner Federal Express Corporation. No pronouncement as to costs. SO ORDERED. G.R. No. 147724 June 8, 2004 LORENZO SHIPPING CORP., petitioner, vs. CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE CARRIERS, INC., respondents. DECISION PUNO, J.: On appeal is the Court of Appeals’ August 14, 2000 Decision1 in CA-G.R. CV No. 61334 and March 28, 2001 Resolution2 affirming the March 19, 1998 Decision3 of the Regional Trial Court of Manila which found petitioner liable to pay respondent Chubb and Sons, Inc. attorney's fees and costs of suit. Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic corporation engaged in coastwise shipping, was the carrier of 581 bundles of black steel pipes, the subject shipment, from Manila to Davao City. From Davao City, respondent Gearbulk, Ltd., a foreign corporation licensed as a common carrier under the laws of Norway and doing business in the Philippines through its agent, respondent Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a domestic corporation, carried the goods on board its vessel M/V San Mateo Victory to the United States, for the account of Sumitomo Corporation. The latter, the consignee, is a foreign corporation organized under the laws of the United States of America. It insured the shipment with respondent Chubb and Sons, Inc., a foreign corporation organized and licensed to engage in insurance business under the laws of the United States of America. The facts are as follows: On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW black steel pipes worth US$137,912.844 on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading designated as Bill of Lading No. T-35for the account of the consignee, Sumitomo Corporation of San Francisco, California, USA, which in turn, insured the goods with respondent Chubb and Sons, Inc.6 The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent Transmarine Carriers received the subject shipment which was discharged on December 4, 1987, evidenced by Delivery Cargo Receipt No. 115090.7 It discovered seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged in it. The consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del Pan’s Survey Report8 dated December 4, 1987 showed that the subject shipment was no longer in good condition, as in fact, the pipes were found with rust formation on top and/or at the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was "rusty, thinning, and with several holes at different places." The rusty condition of the cargo was noted on the mate’s receipts and the checker of M/V Lorcon IV signed his conforme thereon.9 After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6,11 covering 217 bundles of steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked "ALL UNITS HEAVILY RUSTED." While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter12 of intent dated December 7, 1987, to petitioner Lorenzo Shipping, which the latter received on December 9, 1987. Sumitomo informed petitioner Lorenzo Shipping that it will be filing a claim based on the damaged cargo once such damage had been ascertained. The letter reads: Please be advised that the merchandise herein below noted has been landed in bad order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at the port of Davao City on December 2, 1987. The extent of the loss and/or damage has not yet been determined but apparently all bundles are corroded. We reserve the right to claim as soon as the amount of claim is determined and the necessary supporting documents are available. Please find herewith a copy of the survey report which we had arranged for after unloading of our cargo from your vessel in Davao. We trust that you shall make everything in order. On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364 bundles of the subject steel pipes. It then sailed to Vancouver, Washington on January 23, 1988 where it unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel pipes, and also discovered the latter heavily rusted. When the steel pipes were tested with a silver nitrate solution, Toplis and Harding found that they had come in contact with salt water. The survey report,13 dated January 28, 1988 states: xxx We entered the hold for a close examination of the pipe, which revealed moderate to heavy amounts of patchy and streaked dark red/orange rust on all lifts which were visible. Samples of the shipment were tested with a solution of silver nitrate revealing both positive and occasional negative chloride reactions, indicating pipe had come in contact with salt water. In addition, all tension applied metal straps were very heavily rusted, and also exhibited chloride reactions on testing with silver nitrate. xxx It should be noted that subject bills of lading bore the following remarks as to conditions of goods: "ALL UNITS HEAVILY RUSTED." Attached herein is a copy of a survey report issued by Del Pan Surveyors of Davao City, Philippines dated, December 4, 1987 at Davao City, Philippines, which describes conditions of the cargo as sighted aboard the vessel "LORCON IV," prior to and subsequent to discharge at Davao City. Evidently, the aforementioned rust damages were apparently sustained while the shipment was in the custody of the vessel "LORCON IV," prior to being laden on board the vessel "SAN MATEO VICTORY" in Davao. Due to its heavily rusted condition, the consignee Sumitomo rejected the damaged steel pipes and declared them unfit for the purpose they were intended.14 It then filed a marine insurance claim with respondent Chubb and Sons, Inc. which the latter settled in the amount of US$104,151.00.15 On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint16 for collection of a sum of money, docketed as Civil Case No. 88-47096, against respondents Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing under an isolated transaction. On February 21, 1989, respondents Gearbulk and Transmarine filed their answer17 with counterclaim and cross-claim against petitioner Lorenzo Shipping denying liability on the following grounds: (a) respondent Chubb and Sons, Inc. has no capacity to sue before Philippine courts; (b) the action should be dismissed on the ground of forum non conveniens; (c) damage to the steel pipes was due to the inherent nature of the goods or to the insufficiency of packing thereof; (d) damage to the steel pipes was not due to their fault or negligence; and, (e) the law of the country of destination, U.S.A., governs the contract of carriage. Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989, and amended it on May 24, 1989. It denied liability, alleging, among others: (a) that rust easily forms on steel by mere exposure to air, moisture and other marine elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods were improperly packed; and, (d) prescription, laches, and extinguishment of obligations and actions had set in. The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1) respondent Chubb and Sons, Inc. has the right to institute this action; and, (2) petitioner Lorenzo Shipping was negligent in the performance of its obligations as a carrier. The dispositive portion of its Decision states: WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its equivalent in Philippine peso at the current rate of exchange with interest thereon at the legal rate from the date of the institution of this case until fully paid, the attorney’s fees in the sum of P50,000.00, plus the costs of the suit, and dismissing the plaintiff’s complaint against defendants Gearbulk, Ltd. and Philippine Transmarine Carriers, Inc., for lack of merit, and the two defendants’ counterclaim, there being no showing that the plaintiff had filed this case against said defendants in bad faith, as well as the two defendants’ cross-claim against Defendant Lorenzo Shipping Corporation, for lack of factual basis.18 Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a) respondent Chubb and Sons does not have capacity to sue before Philippine courts; and, (b) petitioner Lorenzo Shipping was not negligent in the performance of its obligations as carrier of the goods. The appellate court denied the petition and affirmed the decision of the trial court. The Court of Appeals likewise denied petitioner Lorenzo Shipping’s Motion for Reconsideration19 dated September 3, 2000, in a Resolution20 promulgated on March 28, 2001. Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for resolution: (1) Whether or not the prohibition provided under Art. 133 of the Corporation Code applies to respondent Chubb, it being a mere subrogee or assignee of the rights of Sumitomo Corporation, likewise a foreign corporation admittedly doing business in the Philippines without a license; (2) Whether or not Sumitomo, Chubb’s predecessorin-interest, validly made a claim for damages against Lorenzo Shipping within the period prescribed by the Code of Commerce; (3) Whether or not a delivery cargo receipt without a notation on it of damages or defects in the shipment, which created a prima facie presumption that the carrier received the shipment in good condition, has been overcome by convincing evidence; (4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting the steel pipes, whether or not Gearbulk and Transmarine, as common carriers, are to share liability for their separate negligence in handling the cargo.21 In brief, we resolve the following issues: (1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts; and, (2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo. Petitioner argues that respondent Chubb and Sons is a foreign corporation not licensed to do business in the Philippines, and is not suing on an isolated transaction. It contends that because the respondent Chubb and Sons is an insurance company, it was merely subrogated to the rights of its insured, the consignee Sumitomo, after paying the latter’s policy claim. Sumitomo, however, is a foreign corporation doing business in the Philippines without a license and does not have capacity to sue before Philippine courts. Since Sumitomo does not have capacity to sue, petitioner then concludes that, neither the subrogee-respondent Chubb and Sons could sue before Philippine courts. We disagree with petitioner. In the first place, petitioner failed to raise the defense that Sumitomo is a foreign corporation doing business in the Philippines without a license. It is therefore estopped from litigating the issue on appeal especially because it involves a question of fact which this Court cannot resolve. Secondly, assuming arguendo that Sumitomo cannot sue in the Philippines, it does not follow that respondent, as subrogee, has also no capacity to sue in our jurisdiction. 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.22 The principle covers the situation under which an insurer that has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy.23 It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means which the creditor could employ to enforce payment.24 The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted – he cannot acquire any claim, security, or remedy the subrogor did not have.25 In other words, a subrogee cannot succeed to a right not possessed by the subrogor.26 A subrogee in effect steps into the shoes of the insured and can recover only if insured likewise could have recovered. However, when the insurer succeeds to the rights of the insured, he does so only in relation to the debt. The person substituted (the insurer) will succeed to all the rights of the creditor (the insured), having reference to the debt due the latter.27 In the instant case, the rights inherited by the insurer, respondent Chubb and Sons, pertain only to the payment it made to the insured Sumitomo as stipulated in the insurance contract between them, and which amount it now seeks to recover from petitioner Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The capacity to sue of respondent Chubb and Sons could not perchance belong to the group of rights, remedies or securities pertaining to the payment respondent insurer made for the loss which was sustained by the insured Sumitomo and covered by the contract of insurance. Capacity to sue is a right personal to its holder. It is conferred by law and not by the parties. Lack of legal capacity to sue means that the plaintiff is not in the exercise of his civil rights, or does not have the necessary qualification to appear in the case, or does not have the character or representation he claims. It refers to a plaintiff’s general disability to sue, such as on account of minority, insanity, incompetence, lack of juridical personality, or any other disqualifications of a party.28 Respondent Chubb and Sons who was plaintiff in the trial court does not possess any of these disabilities. On the contrary, respondent Chubb and Sons has satisfactorily proven its capacity to sue, after having shown that it is not doing business in the Philippines, but is suing only under an isolated transaction, i.e., under the one (1) marine insurance policy issued in favor of the consignee Sumitomo covering the damaged steel pipes. The law on corporations is clear in depriving foreign corporations which are doing business in the Philippines without a license from bringing or maintaining actions before, or intervening in Philippine courts. Art. 133 of the Corporation Code states: Doing business without a license. – No foreign corporation transacting business in the Philippines without a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. The law does not prohibit foreign corporations from performing single acts of business. A foreign corporation needs no license to sue before Philippine courts on an isolated transaction.29 As held by this Court in the case of MarshallWells Company vs. Elser & Company:30 The object of the statute (Secs. 68 and 69, Corporation Law) was not to prevent the foreign corporation from performing single acts, but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts . . . the implication of the law (being) that it was never the purpose of the legislature to exclude a foreign corporation which happens to obtain an isolated order for business for the Philippines, from seeking redress in the Philippine courts. Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate Appellate Court31 that: . . . The private respondent may sue in the Philippine courts upon the marine insurance policies issued by it abroad to cover international-bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this country, for it is not the lack of the prescribed license (to do business in the Philippines) but doing business without such license, which bars a foreign corporation from access to our courts. We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons is not suing under an isolated transaction because the steel pipes, subject of this case, are covered by two (2) bills of lading; hence, two transactions. The stubborn fact remains that these two (2) bills of lading spawned from the single marine insurance policy that respondent Chubb and Sons issued in favor of the consignee Sumitomo, covering the damaged steel pipes. The execution of the policy is a single act, an isolated transaction. This Court has not construed the term "isolated transaction" to literally mean "one" or a mere single act. In Eriks Pte. Ltd. vs. Court of Appeals, this Court held that:32 . . . What is determinative of "doing business" is not really the number or the quantity of the transactions, but more importantly, the intention of an entity to continue the body of its business in the country. The number and quantity are merely evidence of such intention. The phrase "isolated transaction" has a definite and fixed meaning, i.e. a transaction or series of transactions set apart from the common business of a foreign enterprise in the sense that there is no intention to engage in a progressive pursuit of the purpose and object of the business organization. Whether a foreign corporation is "doing business" does not necessarily depend upon the frequency of its transactions, but more upon the nature and character of the transactions. [Emphasis supplied.] In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three transactions were challenged as void on the ground that the three American corporations which are parties to the contracts are not licensed to do business in the Philippines. This Court held that "one single or isolated business transaction does not constitute doing businesswithin the meaning of the law. Transactions which are occasional, incidental, and casual — not of a character to indicate a purpose to engage in business — do not constitute the doing or engaging in business as contemplated by law. Where the three transactions indicate no intent by the foreign corporation to engage in a continuity of transactions, they do not constitute doing business in the Philippines." Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the policy of insurance,34 is the real party in interest in the action for damages before the court a quo against the carrier Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules of Civil Procedure defines a real party in interest as one who is entitled to the avails of any judgment rendered in a suit, or who stands to be benefited or injured by it. Where an insurance company as subrogee pays the insured of the entire loss it suffered, the insurer-subrogee is the only real party in interest and must sue in its own name35 to enforce its right of subrogation against the third party which caused the loss. This is because the insurer in such case having fully compensated its insured, which payment covers the loss in full, is subrogated to the insured’s claims arising from such loss. The subrogated insurer becomes the owner of the claim and, thus entitled to the entire fruits of the action.36 It then, thus possesses the right to enforce the claim and the significant interest in the litigation.37 In the case at bar, it is clear that respondent insurer was suing on its own behalf in order to enforce its right of subrogation. On the second issue, we affirm the findings of the lower courts that petitioner Lorenzo Shipping was negligent in its care and custody of the consignee’s goods. The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin (Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping issued clean bills of lading covering the subject shipment. A bill of lading, aside from being a contract38 and a receipt,39 is also a symbol40 of the goods covered by it. A bill of lading which has no notation of any defect or damage in the goods is called a "clean bill of lading."41 A clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described.42 The case law teaches us that mere proof of delivery of goods in good order to a carrier and the subsequent arrival in damaged condition at the place of destination raises a prima facie case against the carrier.43 In the case at bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good order and condition, evidenced by the clean bills of lading it issued. When the cargo was unloaded from petitioner Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes were rusted all over. M/V San Mateo Victory of respondent Gearbulk, Ltd, which received the cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6 covering the entire shipment, all of which were marked "ALL UNITS HEAVILY RUSTED." R.J. Del Pan Surveyors found that the cargo hold of the M/V Lorcon IV was flooded with seawater, and the tank top was rusty, thinning and perforated, thereby exposing the cargo to sea water. There can be no other conclusion than that the cargo was damaged while on board the vessel of petitioner Lorenzo Shipping, and that the damage was due to the latter’s negligence. In the case at bar, not only did the legal presumption of negligence attach to petitioner Lorenzo Shipping upon the occurrence of damage to the cargo.44 More so, the negligence of petitioner was sufficiently established. Petitioner Lorenzo Shipping failed to keep its vessel in seaworthy condition. R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to be "rusty, thinning, and with several holes at different places." Witness Captain Pablo Fernan, Operations Manager of respondent Transmarine Carriers, likewise observed the presence of holes at the deck of M/V Lorcon IV.45 The unpatched holes allowed seawater, reaching up to three (3) inches deep, to enter the flooring of the hatch of the vessel where the steel pipes were stowed, submerging the latter in sea water.46 The contact with sea water caused the steel pipes to rust. The silver nitrate test, which Toplis and Harding employed, further verified this conclusion.47 Significantly, petitioner Lorenzo Shipping did not even attempt to present any contrary evidence. Neither did it offer any proof to establish any of the causes that would exempt it from liability for such damage.48 It merely alleged that the: (1) packaging of the goods was defective; and (2) claim for damages has prescribed. To be sure, there is evidence that the goods were packed in a superior condition. John M. Graff, marine surveyor of Toplis and Harding, examined the condition of the cargo on board the vessel San Mateo Victory. He testified that the shipment had superior packing "because the ends were covered with plastic, woven plastic. Whereas typically they would not go to that bother ... Typically, they come in with no plastic on the ends. They might just be banded, no plastic on the ends ..."49 On the issue of prescription of respondent Chubb and Sons’ claim for damages, we rule that it has not yet prescribed at the time it was made. Art. 366 of the Code of Commerce states: Within the twenty-four hours following the receipt of the merchandise, the claim against the carrier for damage or average, which may be found therein upon the opening of the packages, may be made, provided that the indications of the damage or average which gives rise to the claim cannot be ascertained from the outside part of such package, in which case the claim shall be admitted only at the time of the receipt. After the periods mentioned have elapsed, or transportation charges have been paid, no claim shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads:50 NOTE: No claim for damage or loss shall be honored twenty-four (24) hours after delivery. (Ref. Art. 366 C Com.) The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be presented does not begin to run until the consignee has received such possession of the merchandise that he may exercise over it the ordinary control pertinent to ownership.51 In other words, there must be delivery of the cargo by the carrier to the consignee at the place of destination.52 In the case at bar, consignee Sumitomo has not received possession of the cargo, and has not physically inspected the same at the time the shipment was discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to establish that an authorized agent of the consignee Sumitomo received the cargo at Sasa Wharf in Davao City. Respondent Transmarine Carriers as agent of respondent Gearbulk, Ltd., which carried the goods from Davao City to the United States, and the principal, respondent Gearbulk, Ltd. itself, are not the authorized agents as contemplated by law. What is clear from the evidence is that the consignee received and took possession of the entire shipment only when the latter reached the United States’ shore. Only then was delivery made and completed. And only then did the 24-hour prescriptive period start to run. Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law governs the contract of carriage because the U.S.A. is the country of destination. Petitioner Lorenzo Shipping, through its M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as against petitioner Lorenzo Shipping, the place of destination is Davao City. Hence, Philippine law applies. IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution dated March 28, 2001 are hereby AFFIRMED. Costs against petitioner. SO ORDERED. G.R. No. 60506 August 6, 1992 FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents. Jose B. Guyo for petitioners. Angel E. Fernandez for private respondent. ROMERO, J.: The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier which figured in an accident causing the death of a third person is sought to be defined in this petition for certiorari. The facts as found by the trial court are as follows: . . . Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned by defendant Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. 1 Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was interposed by accused who later applied for probation. 2 On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads: WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit. The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. SO ORDERED. 3 Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in their favor. In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, the presumption is that the obligation is joint. In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." 5 Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit. Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the lower court's decision in its entirety, prays for the setting aside or modification of the second paragraph of the dispositive portion of said decision. Petitioners reassert their position that the insurance company is directly and solidarily liable with the negligent operator up to the extent of its insurance coverage. We grant the petition. The particular provision of the insurance policy on which petitioners base their claim is as follows: Sec. 1 — LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respect of (a) death of or bodily injury to any THIRD PARTY (b) . . . . 2. . . . . 3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof. 7 The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or even upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00. However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We categorically ruled thus: While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of the indemnity contract against third party liability — under which an insurer can be directly sued by a third party — this will result in a violation of the principles underlying solidary obligation and insurance contracts. (emphasis supplied) The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation." Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion among the petitioners and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage. While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15 WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to P50,000.00. SO ORDERED. G.R. No. 147839 June 8, 2006 GAISANO CAGAYAN, INC. Petitioner, vs. INSURANCE COMPANY OF NORTH AMERICA, Respondent. DECISION AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari of the Decision1 dated October 11, 2000 of the Court of Appeals (CA) in CA-G.R. CV No. 61848 which set aside the Decision dated August 31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in Civil Case No. 92-322 and upheld the causes of action for damages of Insurance Company of North America (respondent) against Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated April 11, 2001 which denied petitioner's motion for reconsideration. The factual background of the case is as follows: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by Levi Strauss & Co.. IMC and LSPI separately obtained from respondent fire insurance policies with book debt endorsements. The insurance policies provide for coverage on "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."2The policies defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."3 The policies also provide for the following conditions: 1. Warranted that the Company shall not be liable for any unpaid account in respect of the merchandise sold and delivered by the Insured which are outstanding at the date of loss for a period in excess of six (6) months from the date of the covering invoice or actual delivery of the merchandise whichever shall first occur. 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the close of every calendar month all amount shown in their books of accounts as unpaid and thus become receivable item from their customers and dealers. x x x4 xxxx Petitioner is a customer and dealer of the products of IMC and LSPI. On February 25, 1991, the Gaisano Superstore Complex in Cagayan de Oro City, owned by petitioner, was consumed by fire. Included in the items lost or destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC and LSPI. On February 4, 1992, respondent filed a complaint for damages against petitioner. It alleges that IMC and LSPI filed with respondent their claims under their respective fire insurance policies with book debt endorsements; that as of February 25, 1991, the unpaid accounts of petitioner on the sale and delivery of ready-made clothing materials with IMC was P2,119,205.00 while with LSPI it was P535,613.00; that respondent paid the claims of IMC and LSPI and, by virtue thereof, respondent was subrogated to their rights against petitioner; that respondent made several demands for payment upon petitioner but these went unheeded.5 In its Answer with Counter Claim dated July 4, 1995, petitioner contends that it could not be held liable because the property covered by the insurance policies were destroyed due to fortuities event or force majeure; that respondent's right of subrogation has no basis inasmuch as there was no breach of contract committed by it since the loss was due to fire which it could not prevent or foresee; that IMC and LSPI never communicated to it that they insured their properties; that it never consented to paying the claim of the insured.6 At the pre-trial conference the parties failed to arrive at an amicable settlement.7 Thus, trial on the merits ensued. On August 31, 1998, the RTC rendered its decision dismissing respondent's complaint.8 It held that the fire was purely accidental; that the cause of the fire was not attributable to the negligence of the petitioner; that it has not been established that petitioner is the debtor of IMC and LSPI; that since the sales invoices state that "it is further agreed that merely for purpose of securing the payment of purchase price, the abovedescribed merchandise remains the property of the vendor until the purchase price is fully paid", IMC and LSPI retained ownership of the delivered goods and must bear the loss. Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000, the CA rendered its decision setting aside the decision of the RTC. The dispositive portion of the decision reads: WHEREFORE, in view of the foregoing, the appealed decision is REVERSED and SET ASIDE and a new one is entered ordering defendant-appellee Gaisano Cagayan, Inc. to pay: 1. the amount of P2,119,205.60 representing the amount paid by the plaintiff-appellant to the insured Inter Capitol Marketing Corporation, plus legal interest from the time of demand until fully paid; 2. the amount of P535,613.00 representing the amount paid by the plaintiff-appellant to the insured Levi Strauss Phil., Inc., plus legal interest from the time of demand until fully paid. With costs against the defendant-appellee. SO ORDERED.10 The CA held that the sales invoices are proofs of sale, being detailed statements of the nature, quantity and cost of the thing sold; that loss of the goods in the fire must be borne by petitioner since the proviso contained in the sales invoices is an exception under Article 1504 (1) of the Civil Code, to the general rule that if the thing is lost by a fortuitous event, the risk is borne by the owner of the thing at the time the loss under the principle of res perit domino; that petitioner's obligation to IMC and LSPI is not the delivery of the lost goods but the payment of its unpaid account and as such the obligation to pay is not extinguished, even if the fire is considered a fortuitous event; that by subrogation, the insurer has the right to go against petitioner; that, being a fire insurance with book debt endorsements, what was insured was the vendor's interest as a creditor.11 Petitioner filed a motion for reconsideration12 but it was denied by the CA in its Resolution dated April 11, 2001.13 Hence, the present petition for review on certiorari anchored on the following Assignment of Errors: THE COURT OF APPEALS ERRED IN HOLDING THAT THE INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT. THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14 Anent the first error, petitioner contends that the insurance in the present case cannot be deemed to be over credit since an insurance "on credit" belies not only the nature of fire insurance but the express terms of the policies; that it was not credit that was insured since respondent paid on the occasion of the loss of the insured goods to fire and not because of the non-payment by petitioner of any obligation; that, even if the insurance is deemed as one over credit, there was no loss as the accounts were not yet due since no prior demands were made by IMC and LSPI against petitioner for payment of the debt and such demands came from respondent only after it had already paid IMC and LSPI under the fire insurance policies.15 As to the second error, petitioner avers that despite delivery of the goods, petitioner-buyer IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods. Concerning the third ground, petitioner submits that there is no subrogation in favor of respondent as no valid insurance could be maintained thereon by IMC and LSPI since all risk had transferred to petitioner upon delivery of the goods; that petitioner was not privy to the insurance contract or the payment between respondent and its insured nor was its consent or approval ever secured; that this lack of privity forecloses any real interest on the part of respondent in the obligation to pay, limiting its interest to keeping the insured goods safe from fire. For its part, respondent counters that while ownership over the ready- made clothing materials was transferred upon delivery to petitioner, IMC and LSPI have insurable interest over said goods as creditors who stand to suffer direct pecuniary loss from its destruction by fire; that petitioner is liable for loss of the ready-made clothing materials since it failed to overcome the presumption of liability under Article 126516 of the Civil Code; that the fire was caused through petitioner's negligence in failing to provide stringent measures of caution, care and maintenance on its property because electric wires do not usually short circuit unless there are defects in their installation or when there is lack of proper maintenance and supervision of the property; that petitioner is guilty of gross and evident bad faith in refusing to pay respondent's valid claim and should be liable to respondent for contracted lawyer's fees, litigation expenses and cost of suit.17 As a general rule, in petitions for review, the jurisdiction of this Court in cases brought before it from the CA is limited to reviewing questions of law which involves no examination of the probative value of the evidence presented by the litigants or any of them.18 The Supreme Court is not a trier of facts; it is not its function to analyze or weigh evidence all over again.19 Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme Court.20 Nevertheless, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.21 Exceptions (4), (5), (7), and (11) apply to the present petition. At issue is the proper interpretation of the questioned insurance policy. Petitioner claims that the CA erred in construing a fire insurance policy on book debts as one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made clothing materials sold and delivered to petitioner. The Court disagrees with petitioner's stand. It is well-settled that when the words of a contract are plain and readily understood, there is no room for construction.22 In this case, the questioned insurance policies provide coverage for "book debts in connection with ready-made clothing materials which have been sold or delivered to various customers and dealers of the Insured anywhere in the Philippines."23 ; and defined book debts as the "unpaid account still appearing in the Book of Account of the Insured 45 days after the time of the loss covered under this Policy."24 Nowhere is it provided in the questioned insurance policies that the subject of the insurance is the goods sold and delivered to the customers and dealers of the insured. Indeed, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.25 Thus, what were insured against were the accounts of IMC and LSPI with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or destruction of the goods delivered. Petitioner argues that IMC bears the risk of loss because it expressly reserved ownership of the goods by stipulating in the sales invoices that "[i]t is further agreed that merely for purpose of securing the payment of the purchase price the above described merchandise remains the property of the vendor until the purchase price thereof is fully paid."26 The Court is not persuaded. The present case clearly falls under paragraph (1), Article 1504 of the Civil Code: ART. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (Emphasis supplied) xxxx Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of loss is borne by the buyer.27 Accordingly, petitioner bears the risk of loss of the goods delivered. IMC and LSPI did not lose complete interest over the goods. They have an insurable interest until full payment of the value of the delivered goods. Unlike the civil law concept of res perit domino, where ownership is the basis for consideration of who bears the risk of loss, in property insurance, one's interest is not determined by concept of title, but whether insured has substantial economic interest in the property.28 Section 13 of our Insurance Code defines insurable interest as "every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured." Parenthetically, under Section 14 of the same Code, an insurable interest in property may consist in: (a) an existing interest; (b) an inchoate interest founded on existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. Therefore, an insurable interest in property does not necessarily imply a property interest in, or a lien upon, or possession of, the subject matter of the insurance, and neither the title nor a beneficial interest is requisite to the existence of such an interest, it is sufficient that the insured is so situated with reference to the property that he would be liable to loss should it be injured or destroyed by the peril against which it is insured.29 Anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction.30 Indeed, a vendor or seller retains an insurable interest in the property sold so long as he has any interest therein, in other words, so long as he would suffer by its destruction, as where he has a vendor's lien.31 In this case, the insurable interest of IMC and LSPI pertain to the unpaid accounts appearing in their Books of Account 45 days after the time of the loss covered by the policies. The next question is: Is petitioner liable for the unpaid accounts? Petitioner's argument that it is not liable because the fire is a fortuitous event under Article 117432 of the Civil Code is misplaced. As held earlier, petitioner bears the loss under Article 1504 (1) of the Civil Code. Moreover, it must be stressed that the insurance in this case is not for loss of goods by fire but for petitioner's accounts with IMC and LSPI that remained unpaid 45 days after the fire. Accordingly, petitioner's obligation is for the payment of money. As correctly stated by the CA, where the obligation consists in the payment of money, the failure of the debtor to make the payment even by reason of a fortuitous event shall not relieve him of his liability.33 The rationale for this is that the rule that an obligor should be held exempt from liability when the loss occurs thru a fortuitous event only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. It does not apply when the obligation is pecuniary in nature.34 Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation." If the obligation is generic in the sense that the object thereof is designated merely by its class or genus without any particular designation or physical segregation from all others of the same class, the loss or destruction of anything of the same kind even without the debtor's fault and before he has incurred in delay will not have the effect of extinguishing the obligation.35 This rule is based on the principle that the genus of a thing can never perish. Genus nunquan perit.36 An obligation to pay money is generic; therefore, it is not excused by fortuitous loss of any specific property of the debtor.37 Thus, whether fire is a fortuitous event or petitioner was negligent are matters immaterial to this case. What is relevant here is whether it has been established that petitioner has outstanding accounts with IMC and LSPI. With respect to IMC, the respondent has adequately established its claim. Exhibits "C" to "C-22"38 show that petitioner has an outstanding account with IMC in the amount ofP2,119,205.00. Exhibit "E"39 is the check voucher evidencing payment to IMC. Exhibit "F"40 is the subrogation receipt executed by IMC in favor of respondent upon receipt of the insurance proceeds. All these documents have been properly identified, presented and marked as exhibits in court. The subrogation receipt, by itself, is sufficient to establish not only the relationship of respondent as insurer and IMC as the insured, 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.41 Respondent's action against petitioner is squarely sanctioned by Article 2207 of the Civil Code which provides: 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 Petitioner failed to refute respondent's evidence. As to LSPI, respondent failed to present sufficient evidence to prove its cause of action. No evidentiary weight can be given to Exhibit "F Levi Strauss",42 a letter dated April 23, 1991 from petitioner's General Manager, Stephen S. Gaisano, Jr., since it is not an admission of petitioner's unpaid account with LSPI. It only confirms the loss of Levi's products in the amount of P535,613.00 in the fire that razed petitioner's building on February 25, 1991. Moreover, there is no proof of full settlement of the insurance claim of LSPI; no subrogation receipt was offered in evidence. Thus, there is no evidence that respondent has been subrogated to any right which LSPI may have against petitioner. Failure to substantiate the claim of subrogation is fatal to petitioner's case for recovery of the amount ofP535,613.00. WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to respondent is DELETED for lack of factual basis. No pronouncement as to costs. SO ORDERED. GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), Petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, Respondents. DECISION QUISUMBING, J.: In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Government Service Insurance System (GSIS) assails the January 15, 1991 Decision[1 of the Court of Appeals in CA-G.R. No. 19849, which affirmed in toto the judgment of the Regional Trial Court of Butuan City, Branch II, dated April 30, 1985, stating in part: WHEREFORE, judgment is hereby rendered, as follows: xxx In Civil Case No. 2256: a) Dismissing the complaint against defendant Victor Uy; b) Ordering defendants Mabuhay Insurance and Guaranty Company, Inc., Guillermo Corbeta, NFA and GSIS to pay jointly and severallythe following sums of money: i. to pay plaintiff Gloria Kho Vda. de Calabia, the sum of P8,935.06 for doctors fees, medicines, hospitalizations and medical expenses; P2,319.00 for transportation expenses; and P53.30 for telegrams; P10,000.00 for the injuries she sustained; P12,000.00 loss of income for six months. ii. to plaintiff Victoria Kho, the sum of P832.00 for hospitalization and medicines; P10,000.00 for the injuries she sustained; iii. to the heirs of Wellie [Willie] Calabia, Roland Kho and Maxima Uhmad [Ugmad] Vda. de Kho, the sum of P7,500.00 as funeral expenses less P5,000.00 advanced by defendant Victor Uy. iv. to the heirs of Wellie [Willie] Calabia, Sr., heirs of Roland Kho and heirs of Maxima Ugmad Vda. de Kho; P30,000.00 each as compensatory damages. c) To pay plaintiff the sum of P10,000.00 as attorneys fees and expenses of litigation; d) Dismissing defendants counterclaim, and cross-claim; and e) To pay the costs. That this decision is without prejudice as to the right of Mabuhay Insurance & Guaranty Co., Inc., and NFA to recover from Guillermo Corbeta and GSIS the amounts they may have paid by virtue hereof.[2 For purposes of this review, we deem as also assailed the disposition by the trial court in its Order issued on July 12, 1985, modifying its original decision, by awarding moral damages to the heirs of the deceased victims, as follows: Considering that the dispositive portion of the decision in this case, an award of P10,000.00 each made to plaintiffs Gloria Kho Vda. de Calabia x x x, for injuries they sustained, this award, through [sic] not clearly stated in the decision, is the moral damages the instant motion seeks to obtain. However, the prayer for moral damages for the death of the three (3) persons above-mentioned is proper. (citation omitted) In view of the foregoing, the prayer of plaintiffs Gloria Kho Vda. de Calabia and Victoria Kho for an award of moral damages in their favor is hereby denied. However, as for the death of Wellie [Willie] Calabia, Sr., Rolando Kho and Maxima Ugmad Vda. de Kho, an award of moral damages is hereby made, and ordering and directing defendants Mabuhay Insurance and Guaranty Company Inc., Guillermo Corbeta, National Food Authority and Government Service Insurance System to pay jointly and severally the following sums to wit: P10,000.00 to the heirs of Wellie [Willie] Calabia, Sr. P10,000.00 to the heirs of Rolando Kho and P10,000.00 to the heirs of Maxima Ugmad Vda. de Kho xxx IT IS SO ORDERED.[3 The relevant facts as found by the trial court are as follows: National Food Authority (NFA, formerly National Grains Authority) was the owner of a Chevrolet truck which was insured against liabilities for death of and injuries to third persons with the GSIS. On May 9, 1979, at about 7:00 in the evening at Tabon-Tabon, Butuan City, the said truck driven by Guillermo Corbeta collided with a public utility vehicle, a Toyota Tamaraw. The Toyota Tamaraw was owned and operated by Victor Uy, under the name and style of Victory Line. The Tamaraw was a total wreck. All the collision victims were passengers of the Toyota Tamaraw. Five (5) passengers died[4 while ten (10) others sustained bodily injuries. Among those injured were private respondents, Victoria Jaime Vda. de Kho and Gloria Kho Vda. de Calabia. Among the dead were Maxima Ugmad Vda. de Kho, Roland Kho and Willie Calabia, Sr. Three (3) cases were filed with the Court of First Instance of Agusan del Norte and Butuan City. The first, Civil Case No. 2196 for quasi-delict, damages and attorneys fees, was commenced by Uy on June 5, 1979 against NFA and Corbeta. On August 27, 1979, the second, Civil Case No. 2225 for damages, was filed by an injured passenger, Librado Taer, against Uy, the operator of the public utility vehicle, and insurer, Mabuhay Insurance and Guaranty Co. (MIGC). In turn, Uy filed a cross-claim against MIGC and a third-party complaint against Corbeta and NFA. The third, Civil Case No. 2256, was instituted by herein private respondents on November 26, 1979 against the following: NFA and Corbeta for damages due to quasi-delict; GSIS as insurer of the truck; Uy for breach of contract of carriage; and MIGC as insurer of the Toyota Tamaraw. These cases were consolidated and partially tried by Judge Fortunato A. Vailoces, of the then Court of First Instance of Agusan del Norte and Butuan City. These cases were later on transferred to Branch II of the Regional Trial Court of Butuan City. Trial ensued and on April 30, 1985, the court rendered its decision[5 holding that Corbetas negligence was the proximate cause of the collision. The findings of the trial court stated that the truck which crossed over to the other lane was speeding because after the collision, its left front wheel was detached and the truck traveled for about fifty (50) meters and fell into a ravine.[6 Likewise, the court concluded that if both vehicles had traveled in their respective lanes, the incident would not have occurred.[7 However, the Chevy cargo truck had crossed over to the other lane which, under traffic rules, was the lane of the Toyota Tamaraw.[8 In Civil Case No. 2196, the trial court awarded Uy the total amount of one hundred nine thousand one hundred (P109,100.00) pesos for damages. In Civil Case No. 2225, said court dismissed the case against Uy and ordered MIGC, Corbeta and NFA to pay plaintiff Taer, jointly and severally, the total amount of forty thousand five hundred fifty-nine pesos and ninety four centavos (P40,559.94) for actual, compensatory, and moral damages plus attorneys fees. Damages were likewise awarded to the herein private respondents in Civil Case No. 2256, as earlier mentioned. Corbeta and NFA appealed the decision of the trial court in Civil Case Nos. 2196, 2225, and 2256 to the Court of Appeals. GSIS also elevated the decision in Civil Case No. 2256 to the same appellate court. The appeals were docketed as C.A.-G.R. Nos. 19847, 19848, and 19849. The Court of Appeals agreed with the conclusions of the trial court and ruled as follows: WHEREFORE, in view of the foregoing considerations, and finding no reversible error, the decisions of the Court a quo in Civil Cases Nos. 2196, 2225 and 2256 are hereby AFFIRMED in toto, with costs against the appellants. SO ORDERED.[9 On February 5 and 6, 1991, GSIS and NFA filed their motions for reconsideration respectively, which were denied by the respondent court in its Resolution[10 dated August 13, 1991. On October 4, 1991, only GSIS filed this petition for review on certiorari based on the following assigned errors: 1. The respondent court erred in holding GSIS solidarily liable with NFA. 2. The respondent court erred in holding GSIS liable beyond the terms and conditions of the contract of insurance and the limitations under Insurance Memorandum Circular (IMC) No. 5-78. 3. The respondent court erred in holding GSIS liable without proof that a notice of claim had been filed within six (6) months from the date of the accident. We find pertinent the following issues: 1) Whether the respondent court erred in holding GSIS solidarily liable with the negligent insured/owner-operator of the Chevrolet truck for damages awarded to private respondents which are beyond the limitations of the insurance policy and the Insurance Memorandum Circular No. 5-78. 2) Whether the respondent court failed to consider that the private respondents have no cause of action against the petitioner, allegedly for failure of the victims to file an insurance claim within six (6) months from the date of the accident. Petitioner denies solidary liability with the NFA or the negligent operator of the cargo truck because it claims that they are liable under different obligations. It asserts that the NFAs liability is based on quasi-delict, while petitioners liability is based on the contract of insurance. Citing articles 1207[11 and 1208[12 of the Civil Code of the Philippines, petitioner states that when there are two or more debtors or two or more creditors, the obligation as a general rule is joint. It claims that the only exceptions are: (1) when there is a stipulation for solidary obligation; (2) when the nature of the obligation requires solidary liability; and (3) when the law declares the obligation to be solidary. However, since neither the provision of the contract nor the insurance law provides for solidary liability, petitioner asserts that the presumption is that its obligation arising from a contract of insurance is joint. Petitioners position insofar as joint liability is concerned is not tenable. It is now established that the injured or the heirs of a deceased victim of a vehicular accident may sue directly the insurer of the vehicle. Note that common carriers are required to secure Compulsory Motor Vehicle Liability Insurance [CMVLI] coverage as provided under Sec. 374[13 of the Insurance Code, precisely for the benefit of victims of vehicular accidents and to extend them immediate relief.[14 As this Court held in Shafer vs. Judge, RTC of Olongapo City, Br. 75:[15 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their defendants [dependents] are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. xxx 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. (S 449 7 Am. Jur., 2d, pp. 118-119)[16 However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those required by law. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such third persons can directly[17 sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault.[18 For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort.[19 The liability of GSIS based on the insurance contract is direct, but not solidary with that of the NFA. The latters liability is based separately on Article 2180[20 of the Civil Code.[21 Obviously, the insurer could be held liable only up to the extent of what was provided for by the contract of insurance, in accordance with CMVLI law. At the time of the incident, the schedule of indemnities for death and/or bodily injuries, professional fees, hospital and other charges payable under a CMVLI coverage was provided under the Insurance Memorandum Circular (IMC) No. 5-78 which was approved on November 10, 1978. As therein provided, the maximum indemnity for death was twelve thousand (P12,000.00) pesos per victim.[22 The schedules for medical expenses were also provided by said IMC, specifically in paragraphs (C) to (G). Consequently, heirs of the victims who died in the May 9, 1979 vehicular incident, could proceed (1) against GSIS for the indemnity of P12,000 for each dead victim, and against NFA and Guillermo Corbeta for any other damages or expenses claimed; or (2) against NFA and Corbeta to pay them all their claims in full. It follows also that injured victims, Gloria Kho Vda. de Calabia and Victoria Kho, could claim their medical expenses for eight thousand nine hundred thirty-five pesos and six centavos (P8,935.06) and eight hundred thirty-two (P832.00) pesos, from any of the following: GSIS, NFA, or Corbeta. As to the other damages, only NFA or Corbeta may be held liable therefor. Computation of hospital charges and fees for the services rendered to the injured victims was conclusively established by the trial court. The petitioner failed to object to the evidence thereon, when presented by the private respondents during the trial. Thus, these factual bases for the award of damages may no longer be attacked. For generally, findings of the judge who tried the case and heard the witnesses could not be disturbed on appeal, unless there are substantial facts and particular circumstances which have been overlooked but which, if properly considered, might affect the result of the case.[23 Thus, considering the evidence on record including the schedule of indemnities provided under IMC No. 5-78, we find no cogent reason to disturb the computation of medical charges and expenses that justify the award of damages by the trial court. As to the second issue, the petitioner contends that it cannot be held liable without proof nor allegation that the private respondents filed before its office a notice of claim within six (6) months from the date of the accident. This requirement, according to the petitioner, gives the insurer the opportunity to investigate the veracity of the claim, and non-compliance therewith constitutes waiver. Since the claim was not reported to the insurer, the petitioner avers that the presumption is that the victim opted to pursue his claim against the motor vehicle owner or against the tortfeasor. However, in this case the records reveal that on September 7, 1979, the private respondents sent a notice of loss to the petitioner informing the latter of the accident. Included as Exhibit J[24 in the records, this notice constitutes evidence of the loss they suffered by reason of the vehicular collision. They stressed further that the petitioner did not deny receipt of notice of claim during the trial, and it would be too late now to state otherwise. Although merely factual, we need to emphasize that the alleged delay in reporting the loss by the insured and/or by the beneficiaries must be promptly raised by the insurer[25 in objecting to the claims. When the insured presented proof of loss before the trial court, the insurer failed to object to said presentation. The petitioner should have promptly interposed the defense of delay, or belated compliance, concerning the notice of claim. Moreover, the petitioner merely waited for the victims or beneficiaries to file their complaint. As matters stand now, the defense of laches or prescription is deemed waived because of petitioners failure to raise it not only before but also during the hearing.[26 To recapitulate, petitioner seeks a definitive ruling only on the extent of its liability, as insurer of NFA, to those injured or killed in the May 9, 1979 vehicular collision. As found by the trial court, the driver (Guillermo Corbeta), the operator (NFA), and MIGC, are solidarily liable for damages as computed below: SCHEDULE A I. For the Injured Victims 1) Gloria Kho Vda. de Calabia a) Medical expenses P 8,935.06 b) Transportation and Telegraph Expenses 2,372.30 c) Other Compensatory/Moral Damages 10,000.00 d) Loss of Income 12,000.00 Total P 33,307.36 2) Victoria Kho a) Medical expenses P 832.00 b) Other Compensatory/Moral Damages 10,000.00 Total P10,832.00 II. For the Heirs of the Deceased Victims: Compensatory/ Funeral Death Moral Expenses Indemnity Damages Total 1) Heirs of Willie Calabia, Sr. P 2,500.00 P30,000.00 P10, 000.00 42,500.00 2) Heirs of Roland Kho 2,500.00 30,000.00 10,000.00 42,500.00 3) Heirs of Maxima Ugmad Vda. de Kho 2,500.00 30,000.00 10,000.00 42,500.00 Sub-Total P 7,500.00 P90,000.00 P30,000.00 P127,500.00 Less: Advances by Victor Uy (5,000.00) NIL _ (5,000.00) Balance P2,500.00 P90,000.00 P30,000.00 122,500.00 III. Total Amount of Attorneys Fees P10,000.00 Note that, the petitioner (GSIS) was impleaded as insurer of NFA. But under the CMVLI law, the petitioner could only be held liable under its contract of insurance. And pursuant to the CMVLI law, its liability is primary, and not dependent on the recovery of judgment from the insured. Hence, GSIS is directly liable to the private respondents, in the following amounts: SCHEDULE B I. Injured Victims Medical expenses 1) Victoria Jaime Vda. de Kho P 832.00 2) Gloria Kho Vda. de Calabia P 8,935.06 II. Heirs of Deceased Victims Death Indemnity 1) Heirs of Willie Calabia, Sr. P 12,000.00 2) Heirs of Roland Kho 12,000.00 3) Heirs of Maxima Ugmad Vda. de Kho 12,000.00 The balance of the private respondents claims as shown on Schedule A above, must be paid by Corbeta or NFA, or MIGC, the parties found solidarily liable.[27 WHEREFORE, the instant petition is hereby GRANTED, but the decision of the trial court as affirmed by the Court of Appeals is hereby MODIFIED, as follows: 1. Petitioner Government Service Insurance System is ordered to pay (a) twelve thousand pesos (P12,000.00) as death indemnity to each group of heirs of the deceased, Willie Calabia Sr., Roland Kho and Maxima Ugmad Vda. de Kho; (b) eight hundred thirty-two (P832.00) pesos for medical expenses of Victoria Jaime Vda. de Kho; and (c) eight thousand, nine hundred thirty-five pesos and six centavos (P8,935.06) for medical expenses of Gloria Kho Vda. de Calabia. 2. Guillermo Corbeta, National Foods Authority, and Mabuhay Insurance & Guaranty Co., Inc., jointly and severally, are ordered to pay private respondents claims[28 as adjudged by the Regional Trial Court of Butuan City, minus the amounts that GSIS must pay to the injured victims and the heirs of the deceased victims as abovestated. This decision is immediately executory. No pronouncement as to costs. SO ORDERED. motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals. On 30 July 1986, the Appellate Court rendered judgment, setting aside the order dated 30 July 1986 in so far as it fixes the interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that Tio was entitled to collect from EASCO was reduced to 6% per annum; without pronouncement as to costs. Tio filed the petition for certiorari and prohibition. Issue [1]: Whether Sections 243 and 244, as to interest, apply in the present case. Held [1]: NO. Section 243 of the Insurance Code provides that "the amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shell be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent." Section 244 of the aforementioned Code also provides that "In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment." Herein, there was no unjustified refusal or withholding of payment on Tio's claim. The aforecited sections of the Insurance Code are not pertinent to the case, as they apply only when the court finds an unreasonable delay or refusal in the payment of the claims. Issue [2]: Whether the interest to be imposed on claims based on an insurance contract is 6% or 12%. Held [2]: 6%. The legal rate of interest is 6% per annum. Circular 416 of the Central Bank which took effect on 29 July 1974 pursuant to Presidential Decree 116 (Usury Law) which raised the legal rate of interest from 6% to 12% cannot apply as the adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. On the other hand, in the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest is 6% per annum, and not 12%, where a judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of Appeals, GR 52478, 30 October 1986, 145 SCRA 311, that the rates under the Usury Law (amended by PD 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code. Clearly, the applicable law is Article 2209 of the Civil Code which reads "If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be Claims Settlement Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991] Third Division, Fernan (J): 4 concur Facts: On 18 December 1978, Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with Eastern Assurance and Surety Corporation (EASCO) and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on 28 January 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Tio filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the Tio for the recovery of P18,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay Tio solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved from liability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." The trial court, upon motion by Tio, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at 12%. EASCO moved to quash the writ alleging that the legal interest to be computed should be 6% per annum in accordance with Article 2209 of the Civil Code and not 12% as insisted upon by Tio's counsel. In its order of 30 July 1986, the trial court denied EASCO's the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum." And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract, the legal interest was properly pegged at 6%. Finman General Assurance Corporation vs. Court of Appeals [GR 138737, 12 July 2001] First Division, Kapunan (J): 4 concur Facts: On 15 September 1981, Usiphil Incorporated obtained a fire insurance policy from Finman General Assurance Corporation (then doing business under the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and other trade equipment. Under Policy F3100 issued to Usiphil, Finman undertook to indemnify Usiphil for any damage to or loss of said properties arising from fire. Sometime in 1982, Usiphil filed with Finman an insurance claim amounting to P987,126.11 for the loss of the insured properties due to fire. Acting thereon, Finman appointed Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then required Usiphil to file a formal claim and submit proof of loss. In compliance therewith, Usiphil submitted its Sworn Statement of Loss and Formal Claim, dated 22 July 1982, signed by Reynaldo Cayetano, Usiphil's Manager. Usiphil likewise submitted Proof of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Bayne's Adjuster F.C. Medina. Palallos personally followed-up Usiphil's claim with Finman's President Joaquin Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated 28 February 1985, which indicated that the amount due Usiphil was P842,683.40. Despite repeated demands by Usiphil, Finman refused to pay the insurance claim. Thus, Usiphil was constrained to file a complaint against Finman for the unpaid insurance claim. In its Answer, Finman maintained that the claim of Usiphil could not be allowed because it failed to comply with Policy Condition 13 regarding the submission of certain documents to prove the loss. Trial ensued. On 6 July 1994, the trial court rendered judgment in favor of Usiphil. It ordered Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 28 February 1985 until fully paid; the sum equivalent to 10% of the principal obligation as and for attorney's fees, plus P1,500.00 per court appearance of counsel; the amount of P30,000.00 as exemplary damages in addition to the actual and compensatory damages awarded. The court also dismissed the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual damages. has been awarded under par. 1 of the decision's dispositive portion; dismissed the claim of interest under par. 2 of the prayer, there being no agreement to such effect; dismissed the counter-claim for lack of merit; and ordered Finman to pay the cost of suit. On appeal, the CA substantially affirmed the decision of the trial court. The appellate court modified the decision by ordering Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 3 May 1985 until fully paid. Finman filed the petition for review on certiorari. Issue [1]: Whether Usiphil has complied with Policy Condition 13 in notifying Finman of the loss. Held [1]: YES. Usiphil had substantially complied with Policy Condition 13 which reads "The insured shall give immediate written notice to the Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies, and if required verified plans and specifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by the company all that remains of any property herein described, and submit to examination under oath by any person named by the Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the Company or its representative and shall permit extracts and copies thereof to be made. No claim under this policy shall be payable unless the terms of this condition have been complied with." A perusal of the records shows that Usiphil, after the occurrence of the fire, immediately notified Finman thereof. Thereafter, Usiphil submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and; (2) Proof of Loss. The submission of these documents constitutes substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss, substantial, not strict as urged by Finman, compliance with the requirements will always be deemed sufficient. In any case, Finman itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed the document indicating that the amount due Usiphil is P842,683.40. Issue [2]: Whether the payment of 24% interest per annum is authorized by Sections 243 and 244 of the Insurance Code. Held [2]: YES. Anent the payment of 24% interest per annum computed from 3 May 1985 until fully paid, the same is authorized by Sections 243 and 244 of the Insurance Code. Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244. Further, Section 29 of the policy itself provides for the payment of such interest: "Settlement of claim clause. The amount of any .loss or damage for which the company may be liable, under this policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of the loss or damage is made either in an agreement between the insured and the company or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the company of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. unless such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent." The policy itself obliges Finman to pay the insurance claim within 30 days after proof of loss and ascertainment of the loss made in an agreement between Usiphil and Finman. Finman and Usiphil signed the agreement indicating that the amount due Usiphil was P842,683.40 on 2 April 1985. Finman thus had until 2 May 1985 to pay Usiphil's insurance. For its failure to do so, the Court of Appeals and the trial court rightfully directed Finman to pay, inter alia, 24% interest per annum in accordance with the above quoted provisions. G.R. No. 136914 January 25, 2002 COUNTRY BANKERS INSURANCE CORPORATION, petitioner, vs. LIANGA BAY AND COMMUNITY MULTI-PURPOSE COOPERATIVE, INC., respondent. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated December 29, 1998 in CA-G.R. CV Case No. 36902 affirming in toto the Decision3 dated December 26, 1991 of the Regional Trial Court of Lianga, Surigao del Sur, Branch 28, in Civil Case No. L-518 which ordered petitioner Country Bankers Insurance Corporation to fully pay the insurance claim of respondent Lianga Bay and Community Multi-Purpose Cooperative, Inc., under Fire Insurance Policy No. F-1397, for loss sustained as a result of the fire that occurred on July 1, 1989 in the amount of Two Hundred Thousand Pesos (P200,000.00), with interest at twelve percent (12%) per annum from the date of filing of the complaint until fully paid, as well as Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, Ten Thousand Pesos (P10,000.00) as attorney’s fees, and the costs of suit. The facts are undisputed: The petitioner is a domestic corporation principally engaged in the insurance business wherein it undertakes, for a consideration, to indemnify another against loss, damage or liability from an unknown or contingent event including fire while the respondent is a duly registered cooperative judicially declared insolvent and represented by the elected assignee, Cornelio Jamero. It appears that sometime in 1989, the petitioner and the respondent entered into a contract of fire insurance. Under Fire Insurance Policy No. F-1397, the petitioner insured the respondent’s stocks-in-trade against fire loss, damage or liability during the period starting from June 20, 1989 at 4:00 p.m. to June 20, 1990 at 4:00 p.m., for the sum of Two Hundred Thousand Pesos (P200,000.00). On July 1, 1989, at or about 12:40 a.m., the respondent’s building located at Barangay Diatagon, Lianga, Surigao del Sur was gutted by fire and reduced to ashes, resulting in the total loss of the respondent’s stocks-in-trade, pieces of furnitures and fixtures, equipments and records. Due to the loss, the respondent filed an insurance claim with the petitioner under its Fire Insurance Policy No. F-1397, submitting: (a) the Spot Report of Pfc. Arturo V. Juarbal, INP Investigator, dated July 1, 1989; (b) the Sworn Statement of Jose Lomocso; and (c) the Sworn Statement of Ernesto Urbiztondo. The petitioner, however, denied the insurance claim on the ground that, based on the submitted documents, the building was set on fire by two (2) NPA rebels who wanted to obtain canned goods, rice and medicines as provisions for their comrades in the forest, and that such loss was an excepted risk under paragraph No. 6 of the policy conditions of Fire Insurance Policy No. F-1397, which provides: This insurance does not cover any loss or damage occasioned by or through or in consequence, directly or indirectly, of any of the following occurrences, namely: xxx xxx xxx (d) Mutiny, riot, military or popular uprising, insurrection, rebellion, revolution, military or usurped power. Any loss or damage happening during the existence of abnormal conditions (whether physical or otherwise) which are occasioned by or through or in consequence, directly or indirectly, of any of said occurrences shall be deemed to be loss or damage which is not covered by this insurance, except to the extent that the Insured shall prove that such loss or damage happened independently of the existence of such abnormal conditions. Finding the denial of its claim unacceptable, the respondent then instituted in the trial court the complaint for recovery of "loss, damage or liability" against petitioner. The petitioner answered the complaint and reiterated the ground it earlier cited to deny the insurance claim, that is, that the loss was due to NPA rebels, an excepted risk under the fire insurance policy. In due time, the trial court rendered its Decision dated December 26, 1991 in favor of the respondent, declaring that: Based on its findings, it is therefore the considered opinion of this Court, as it so holds, that the defenses raised by defendant-Country Bankers has utterly crumbled on account of its inherent weakness, incredibility and unreliability, and after applying those helpful tools like common sense, logic and the Court’s honest appraisal of the real and actual situation obtaining in this area, such defenses remains (sic) unimpressive and unconvincing, and therefore, the defendant-Country Bankers has to be irreversibly adjudged liable, as it should be, to plaintiff-Insolvent Cooperative, represented in this action by its Assignee, Cornelio Jamero, and thus, ordering said defendant-Country Bankers to pay the plaintiff-Insolvent Cooperative, as follows: 1. To fully pay the insurance claim for the loss the insured-plaintiff sustained as a result of the fire under its Fire Insurance Policy No. F-1397 in its full face value of P200,000.00 with interest of 12% per annum from date of filing of the complaint until the same is fully paid; 2. To pay as and in the concept of actual or compensatory damages in the total sum of P50,000.00; 3. To pay as and in the concept of exemplary damages in the total sum of P50,000.00; 4. To pay in the concept of litigation expenses the sum of P5,000.00; 5. To pay by way of reimbursement the attorney’s fees in the sum of P10,000.00; and 6. To pay the costs of the suit. For being unsubstantiated with credible and positive evidence, the "counterclaim" is dismissed. IT IS SO ORDERED. Petitioner interposed an appeal to the Court of Appeals. On December 29, 1998, the appellate court affirmed the challenged decision of the trial court in its entirety. Petitioner now comes before us via the instant petition anchored on three (3) assigned errors,4 to wit: 1. THE HONORABLE COURT OF APPEALS FAILED TO APPRECIATE AND GIVE CREDENCE TO THE SPOT REPORT OF PFC. ARTURO JUARBAL (EXH. 3) AND THE SWORN STATEMENT OF JOSE LOMOCSO (EXH. 4) THAT THE RESPONDENT’S STOCK-IN-TRADE WAS BURNED BY THE NPA REBELS, HENCE AN EXCEPTED RISK UNDER THE FIRE INSURANCE POLICY. 2. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING PETITIONER LIABLE FOR 12% INTEREST PER ANNUM ON THE FACE VALUE OF THE POLICY FROM THE FILING OF THE COMPLAINT UNTIL FULLY PAID. 3. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THE PETITIONER LIABLE FOR ACTUAL AND EXEMPLARY DAMAGES, LITIGATION EXPENSES, ATTORNEYS FEES AND COST OF SUIT. A party is bound by his own affirmative allegations. This is a well-known postulate echoed in Section 1 of Rule 131 of the Revised Rules of Court. Each party must prove his own affirmative allegations by the amount of evidence required by law which in civil cases, as in this case, is preponderance of evidence, to obtain a favorable judgment.5 In the instant case, the petitioner does not dispute that the respondent’s stocks-in-trade were insured against fire loss, damage or liability under Fire Insurance Policy No. F- 1397 and that the respondent lost its stocks-in-trade in a fire that occurred on July 1, 1989, within the duration of said fire insurance. The petitioner, however, posits the view that the cause of the loss was an excepted risk under the terms of the fire insurance policy. Where a risk is excepted by the terms of a policy which insures against other perils or hazards, loss from such a risk constitutes a defense which the insurer may urge, since it has not assumed that risk, and from this it follows that an insurer seeking to defeat a claim because of an exception or limitation in the policy has the burden of proving that the loss comes within the purview of the exception or limitation set up. If a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability.6 Stated else wise, since the petitioner in this case is defending on the ground of non-coverage and relying upon an exemption or exception clause in the fire insurance policy, it has the burden of proving the facts upon which such excepted risk is based, by a preponderance of evidence.7 But petitioner failed to do so. The petitioner relies on the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo as well as on the Spot Report of Pfc. Arturo V. Juarbal dated July 1, 1989, more particularly the following statement therein: xxx investigation revealed by Jose Lomocso that those armed men wanted to get can goods and rice for their consumption in the forest PD investigation further disclosed that the perpetrator are member (sic) of the NPA PD end… x x x A witness can testify only to those facts which he knows of his personal knowledge, which means those facts which are derived from his perception.8 Consequently, a witness may not testify as to what he merely learned from others either because he was told or read or heard the same. Such testimony is considered hearsay and may not be received as proof of the truth of what he has learned. Such is the hearsay rule which applies not only to oral testimony or statements but also to written evidence as well.9 The hearsay rule is based upon serious concerns about the trustworthiness and reliability of hearsay evidence inasmuch as such evidence are not given under oath or solemn affirmation and, more importantly, have not been subjected to cross-examination by opposing counsel to test the perception, memory, veracity and articulateness of the out-of-court declarant or actor upon whose reliability on which the worth of the out-of-court statement depends.10 Thus, the Sworn Statements of Jose Lomocso and Ernesto Urbiztondo are inadmissible in evidence, for being hearsay, inasmuch as they did not take the witness stand and could not therefore be cross-examined. There are exceptions to the hearsay rule, among which are entries in official records.11 To be admissible in evidence, however, three (3) requisites must concur, to wit: (a) that the entry was made by a public officer, or by another person specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the public officer or other person had sufficient knowledge of the facts by him stated, which must have been acquired by him personally or through official information.12 The third requisite was not met in this case since no investigation, independent of the statements gathered from Jose Lomocso, was conducted by Pfc. Arturo V. Juarbal. In fact, as the petitioner itself pointed out, citing the testimony of Pfc. Arturo Juarbal,13 the latter’s Spot Report "was based on the personal knowledge of the caretaker Jose Lomocso who witnessed every single incident surrounding the facts and circumstances of the case." This argument undeniably weakens the petitioner’s defense, for the Spot Report of Pfc. Arturo Juarbal relative to the statement of Jose Lomocso to the effect that NPA rebels allegedly set fire to the respondent’s building is inadmissible in evidence, for the purpose of proving the truth of the statements contained in the said report, for being hearsay. The said Spot Report is admissible only insofar as it constitutes part of the testimony of Pfc. Arturo V. Juarbal since he himself took the witness stand and was available for crossexamination. The portions of his Spot Report which were of his personal knowledge or which consisted of his perceptions and conclusions are not hearsay. The rest of the said report relative to the statement of Jose Lomocso may be considered as independently relevant statements gathered in the course of Juarbal’s investigation and may be admitted as such but not necessarily to prove the truth thereof.14 The petitioner’s evidence to prove its defense is sadly wanting and thus, gives rise to its liability to the respondent under Fire Insurance Policy No. F-1397. Nonetheless, we do not sustain the trial court’s imposition of twelve percent (12%) interest on the insurance claim as well as the monetary award for actual and exemplary damages, litigation expenses and attorney’s fees for lack of legal and valid basis. Concerning the application of the proper interest rates, the following guidelines were set in Eastern Shipping Lines, Inc. v. Court of Appeals and Mercantile Insurance Co., Inc.:15 I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts, is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. In the said case of Eastern Shipping, the Court further observed that a "forbearance" in the context of the usury law is a "contractual obligation of lender or creditor to refrain, during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due and payable." Considering the foregoing, the insurance claim in this case is evidently not a forbearance of money, goods or credit, and thus the interest rate should be as it is hereby fixed at six percent (6%) computed from the date of filing of the complaint. We find no justification for the award of actual damages of Fifty Thousand Pesos (P50,000.00). Well-entrenched is the doctrine that actual, compensatory and consequential damages must be proved, and cannot be presumed.16 That part of the dispositive portion of the Decision of the trial court ordering the petitioner to pay actual damages of Fifty Thousand Pesos (P50,000.00) has no basis at all. The justification, if any, for such an award of actual damages does not appear in the body of the decision of the trial court. Neither is there any testimonial and documentary evidence on the alleged actual damages of Fifty Thousand Pesos (P50,000.00) to warrant such an award. Thus, the same must be deleted. Concerning the award of exemplary damages for Fifty Thousand Pesos (P50,000.00), we likewise find no legal and valid basis for granting the same. Article 2229 of the New Civil Code provides that exemplary damages may be imposed by way of example or correction for the public good. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions. They are designed to permit the courts to mould behavior that has socially deleterious consequences, and its imposition is required by public policy to suppress the wanton acts of an offender. However, it cannot be recovered as a matter of right. It is based entirely on the discretion of the court. We find no cogent and valid reason to award the same in the case at bar. With respect to the award of litigation expenses and attorney’s fees, Article 2208 of the New Civil Code17enumerates the instances where such may be awarded and, in all cases, it must be reasonable, just and equitable if the same were to be granted. Attorney’s fees as part of damages are not meant to enrich the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate.18 The award of attorney’s fees is the exception rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and justify the grant of such award. We find none in this case to warrant the award by the trial court of litigation expenses and attorney’s fees in the amounts of Five Thousand Pesos (P5,000.00) and Ten Thousand Pesos (P10,000.00), respectively, and therefore, the same must also be deleted. WHEREFORE, the appealed Decision is MODIFIED. The rate of interest on the adjudged principal amount of Two Hundred Thousand Pesos (P200,000.00) shall be six percent (6%) per annum computed from the date of filing of the Complaint in the trial court. The awards in the amounts of Fifty Thousand Pesos (P50,000.00) as actual damages, Fifty Thousand Pesos (P50,000.00) as exemplary damages, Five Thousand Pesos (P5,000.00) as litigation expenses, and Ten Thousand Pesos (P10,000.00) as attorney’s fees are hereby DELETED. Costs against the petitioner. SO ORDERED. SULPICIO LINES, INC., Petitioner, vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION,respondent. DECISION CHICO-NAZARIO, J.: Before Us is a Petition for Review on Certiorari assailing the Decision[1] of the Court of Appeals reversing the Decision[2] of the Regional Trial Court (RTC) of Manila, Branch XIV, dismissing the complaint for damages for failure of the plaintiff to prove its case with a preponderance of evidence. Assailed as well is the Resolution[3]of the Court of Appeals denying petitioner's Motion for Reconsideration. THE FACTS On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd. For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The vessel arrived at the North Harbor, Manila, on 24 February 1992. During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the cargo hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding that the contents of the crate were no longer usable for their intended purpose, they were rejected as a total loss and returned to Cebu City. The owner of the goods filed a claim with herein petitionercarrier for the recovery of the value of the rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment from respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy issued to the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage value or P194, 220.31. The payment of the insurance claim of the owner of the goods by the respondent-insurer subrogated the latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied. On 04 November 1992, respondent-insurer filed a suit for damages docketed as Civil Case No. 92-63337 with the trial court against Delbros, Inc. and herein petitioner-carrier. On 05 February 1993, petitioner-carrier filed its Answer with Counterclaim. Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was responsible for the unloading of the crates. Petitioner-carrier filed its Answer to Delbros, Inc.'s cross-claim asserting that it observed extraordinary diligence in the handling, storage and general care of the shipment and that subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate that had fallen were found to be in apparent sound condition, except that '2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list. After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc. According to the RTC: The plaintiff has failed to prove its case. The first witness for the plaintiff merely testified about the payment of the claim based on the documents accompanying the claim which were the Packing List, Commercial Invoices, Bill of Lading, Claims Statement, Marine Policies, Survey Report, Marine Risk Note, and the letter to Third Party carriers and shipping lines (Exhibit A-J). The check was paid and delivered to the assured as evidenced by the check voucher and the subrogation receipt. On cross-examination by counsel for the Sulpicio Lines, he said that their company paid the claim less 35% salvage value based on the adjuster report. This testimony is hearsay. The second witness for the plaintiff, Arturo Valdez, testified, among others, that he, together with a co-surveyor and a representative of Sulpicio Lines had conducted a survey of the shipment at the compound of Sulpicio Lines. He prepared a survey report (Exhibits G and G-1) and took a picture of shipment (Exhibit G-2). On cross-examination, he said that two cartons were torn at the sides with top portion flaps opened and the 41 cartons were properly sealed and in good order conditions. Two cartons were already opened and slightly damaged. He merely looked at them but did not conduct an inspection of the contents. What he was referring to as slightly damaged were the cartons only and not the contents. From the foregoing evidence, it is apparent that the plaintiff had failed to prove its case with a preponderance of evidence. . WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered dismissing the Complaint, defendant Sulpicio Lines' counterclaim and defendant Delbros Inc.'s cross-claim.[4]chanroblesvirtuallawlibrary A Motion for Reconsideration was then filed by herein respondent-insurer and subsequently denied by the trial court in an Order dated 07 February 1995 on the ground that it did not raise any new issue. Thus, respondent-insurer instituted an appeal with the Court of Appeals, which reversed the dismissal of the complaint by the lower court, the decretal portion of which reads: WHEREFORE, the appeal is granted. The decision appealed from is REVERSED. Defendants-appellees Delbros and Sulpicio Lines are hereby ordered to pay, jointly and severally, plaintiff-appellant the sum of P194,220.31 representing actual damages, plus legal interest counted from the filing of the complaint until fully paid.[5]chanroblesvirtuallawlibrary The appellate court disposed of the issues in the case in this wise: Furthermore, the evidence shows that one of the three crates fell during the unloading at the pier in Manila. The wooden crate which fell was damaged such that this particular crate was not anymore sent to Singapore and was instead shipped back to Cebu from Manila. Upon examination, it was found that two (2) cartons of the forty-two (42) cartons contained in this crate were externally damaged. They were torn at the sides and their top portions or flaps were open. These facts were admitted by all the parties. Defendant-appellees, however, insist that it was only the external packaging that was damaged, and that there was no actual damage to the goods such that would make them liable to the shipper. This theory is erroneous. When the goods are placed at a common carrier's possession for delivery to a specified consignee, they are in good order and condition and are supposed to be transported and delivered to the consignee in the same state. In the case herein, the goods were received by defendant-appellee Delbros in Cebu properly packed in cardboard cartons and then placed in wooden crates, for delivery to the consignee in Singapore. However, before the shipment reached Singapore (while it was in Manila) one crate and 2 cartons contained therein were not anymore in their original state. They were no longer fit to be sent to Singapore. . As We have already found, there is damage suffered by the goods of the shipper. This consists in the destruction of one wooden crate and the tearing of two of the cardboard boxes therein rendering then unfit to be sent to Singapore. Defendant-appellee Sulpicio Lines admits that this crate fell while it was being unloaded at the Manila pier. Falling of the crate was negligence on the part of defendant-appellee Sulpicio Lines under the doctrine of res ipsa loquitur. Defendantappellee Sulpicio Lines cannot exculpate itself from liability because it failed to prove that it exercised due diligence in the selection and supervision of its employees to prevent the damage.[6]chanroblesvirtuallawlibrary On 21 June 1999, herein petitioner-carrier filed its Motion for Reconsideration of the decision of the Court of Appeals which was subsequently denied in a Resolution dated 13 October 1999. Hence, the instant petition. During the pendency of the appeal before this Court, Delbros, Inc. filed a manifestation stating that its appeal[7] filed before this Court had been dismissed for being filed out of time and thus the case as against it was declared closed and terminated. As a consequence, it paid in full the amount of the damages awarded by the appellate court to the respondent-insurer. Before this Court, Delbros, Inc. prays for reimbursement, contribution, or indemnity from its co-defendant, herein petitioner-carrier Sulpicio Lines, Inc. for whatever it had paid to respondent-insurer in consonance with the decision of the appellate court declaring both Delbros, Inc. and petitionercarrier Sulpicio Lines, Inc. jointly and severally liable. ISSUES Petitioner-carrier raises the following issues in its petition: 1. The Court of Appeals erred in not holding that the trial court justly and correctly dismissed the complaint against Sulpicio Lines, which dismissal is already final. 2. The Court of Appeals erred in not dismissing the appeal for failure of appellant to comply with the technical requirement of the Rules of Court. RULING OF THE COURT We shall first address the procedural issue raised by petitionercarrier, Sulpicio Lines, Inc. that the Court of Appeals should have dismissed the appeal for failure of respondent-insurer to attach a copy of the decision of the trial court to its appellant's brief in violation of Rule 44, Section 13(h) of the Rules of Civil Procedure.[8]chanroblesvirtuallawlibrary A perusal of the records will show, however, that in a Resolution[9] dated 13 August 1996, the Court of Appeals required herein respondent-insurer to submit seven (7) copies of the questioned decision within five (5) days from notice. Said Resolution was properly complied with. As a rule, the right to appeal is a statutory right and one who seeks to avail of that right must comply with the manner required by the pertinent rules for the perfection of an appeal. Nevertheless, this Court has allowed the filing of an appeal upon subsequent compliance with the requirements imposed by law, where a strict application of the technical rules will impair the proper administration of justice. As enunciated by the Court in the case of Jaro v. Court of Appeals:[10] There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the rules of procedure. In Cusi-Hernandez vs. Diaz [336 SCRA 113] and Piglas-Kamao vs. National Labor Relations Commission [357SCRA 640], we ruled that the subsequent submission of the missing documents with the motion for reconsideration amounts to substantial compliance. The reasons behind the failure of the petitioners in these two cases to comply with the required attachments were no longer scrutinized.[11]chanroblesvirtuallawlibrary We see no error, therefore, on the part of the Court of Appeals when it gave due course to the appeal after respondent-insurer had submitted copies of the RTC decision, albeit belatedly. We now come to the substantial issues alleged by petitionercarrier. The pivotal question to be considered in the resolution of this issue is whether or not, based on the evidence presented during the trial, the owner of the goods, respondent-insurer's predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable for the same. It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not disputed that one of the three (3) crates did fall from the cargo hatch to the pier apron while petitioner-carrier was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was found that two (2) cartons were torn on the side and the top flaps were open and that two (2) cello bags, each of 50 pieces ferri inductors, were missing from the cargo. Petitioner-carrier contends that its liability, if any, is only to the extent of the cargo damage or loss and should not include the lack of fitness of the shipment for transport to Singapore due to the damaged packing. This is erroneous. Petitionercarrier seems to belabor under the misapprehension that a distinction must be made between the cargo packaging and the contents of the cargo. According to it, damage to the packaging is not tantamount to damage to the cargo. It must be stressed that in the case at bar, the damage sustained by the packaging of the cargo while in petitioner-carrier's custody resulted in its unfitness to be transported to its consignee in Singapore. Such failure to ship the cargo to its final destination because of the ruined packaging, indeed, resulted in damages on the part of the owner of the goods. The falling of the crate during the unloading is evidence of petitioner-carrier's negligence in handling the cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed in its possession for transport.[12] The standard of extraordinary diligence imposed upon common carriers is considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a goodpaterfamilias established in respect of the ordinary relations between members of society.[13] A common carrier is bound to transport its cargo and its passengers safely "as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all circumstances.[14] The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery.[15] It requires common carriers to render service with the greatest skill and foresight and 'to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.[16]chanroblesvirtuallawlibrary Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have been negligent in the handling of the damaged cargo. Under Articles 1735[17] and 1752[18] of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently in case the goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption of liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must prove that they observed extraordinary diligence as required in Article 1733[19] of the Civil Code.[20]chanroblesvirtuallawlibrary Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to overcome the presumption that it was negligent in transporting the cargo. Coming now to the issue of the extent of petitioner-carrier's liability, it is undisputed that respondent-insurer paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages the latter has incurred. Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to respondent-insurer in satisfaction of the whole amount of the judgment rendered by the Court of Appeals. The question then is: To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages suffered by the owner of the goods? Upon respondent-insurer's payment of the alleged amount of loss suffered by the insured (the owner of the goods), the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the common carrier whose negligence or wrongful act caused the loss.[21] 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.[22] 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.[23] In other words, a subrogee cannot succeed to a right not possessed by the subrogor.[24] A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered.[25]chanroblesvirtuallawlibrary As found by the Court of Appeals, there was damage suffered by the goods which consisted in the destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them unfit to be sent to Singapore.[26] The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it cannot exculpate itself from liability because it failed to prove that it exercised extraordinary diligence.[27]chanroblesvirtuallawlibrary Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is liable to pay the amount paid by respondent-insurer for the damages sustained by the owner of the goods. As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for respondent-insurer to again recover damages from herein petitioner-carrier. With respect to Delbros, Inc.'s prayer contained in its manifestation that, in case the decision in the instant case be adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay. WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs. SO ORDERED. Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987] Second Division, Paras (J): 3 concur, 2 took no part Facts: A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co. seeking collection of the sum of P868,339.15 representing Remington's losses and damages incurred in a shipment of seamless steel pipes under an insurance contract in favor of Remington as the insured, consignee or importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was made. The trial court decided in favor of Remington by ordering Cathay Insurance to pay it the sum of P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes; ordering Cathay Insurance to pay Remington interest on the aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from 3 February 1982 or 90 days from Remington's submission of proof of loss to Cathay Insurance until paid as provided in the settlement of claim provision of the policy; and ordering Cathay Insurance to pay Remington certain amounts for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court of Appeals affirmed the decision of the Regional Trial Court National Capital Region (NCR) Manila, Branch 38. Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review. Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the insurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations contained in insurance policies are regarded with extreme caution by courts and are to be strictly construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy was procured; (3) Rust is not an inherent vice of the seamless steel pipes without interference of external factors; (4) No matter how Cathay Insurance might want it otherwise, the 15-day clause of the policy had been foreclosed in the pretrial order and it was not even raised in Cathay Insurance's answer to Remington's complaint; (5) The decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur during the voyage of 7 days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad order survey from the arrastre capitalized on by Cathay Insurance was more than clarified by no less than 2 witnesses; (7) The placing of notation "rusty" in the way bills is not only Remington's right but a natural and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at Remington's bodega; (8) The Court of Appeals did not engage in any guesswork or speculation in concluding a loss allowance of 30% in the amount of P868,339.15; and (9) The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest fixed by the Insurance Policy itself and the Insurance Code. Cathay Insurance however maintains that (1) Remington does not dispute the fact that, contrary to the finding of the respondent Court (that Cathay Insurance has failed "to present any evidence of any viable exception to the application of the policy") there is in fact an express exception to the application of the policy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment is not covered by a "square provision of the contract," but Remington claims implied coverage from the phrase "perils of the sea" mentioned in the opening sentence of the policy; (3) The insistence of Remington that rusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict construction against insurer under the guise of construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve it against the insurer; (5) Remington while impliedly admitting that a loss occasioned by an inherent defect or vice in the insured article is not within the terms of the policy, erroneously insists that rusting is not an inherent vice or in the nature of steel pipes; (6) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some casualty, something which could not be foreseen as one of the necessary incidents of adventure; (7) A fact capable of unquestionable demonstration or of public knowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay Insurance had introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account of P868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures and the amount of less has not been proven by competent, satisfactory and clear evidence. Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rusting is a risk insured against. Held: YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held accountable therefor, the Court would fail to observe a cardinal rule in the interpretation of contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. PHILIPPINE CHARTER INSURANCE CORPORATION, Petitioner, vs. CHEMOIL LIGHTERAGE CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Before Us is a petition for review on certiorari which assails the Decision of the Court of Appeals[1] in CA-G.R. CV No. 56209, dated 18 December 1998. The Decision reversed and set aside the decision of the Regional Trial Court (RTC),[2] Branch 16, City of Manila, which ordered herein respondent to pay the petitioner's claim in the amount of P5,000,000.00 with legal interest from the date of the filing of the complaint. THE FACTS Petitioner Philippine Charter Insurance Corporation is a domestic corporation engaged in the business of non-life insurance. Respondent Chemoil Lighterage Corporation is also a domestic corporation engaged in the transport of goods. On 24 January 1991, Samkyung Chemical Company, Ltd., based in Ulsan, South Korea, shipped 62.06 metric tons of the liquid chemical DIOCTYL PHTHALATE (DOP) on board MT 'TACHIBANA which was valued at US$90,201.57 under Bill of Lading No. ULS/MNL-1[3] and another 436.70 metric tons of DOP valued at US$634,724.89 under Bill of Lading No. ULS/MNL-2[4] to the Philippines. The consignee was Plastic Group Phils., Inc. (PGP) in Manila. PGP insured the cargo with herein petitioner Philippine Charter Insurance Corporation against all risks. The insurance was under Marine Policies No. MRN-30721[5] dated 06 February 1991 for P31,757,969.19 and No. MRN30722[6] for P4,514,881.00. Marine Endorsement No. 2786[7] dated 11 May 1991 was attached and formed part of MRN-30721, amending the latter's insured value to P24,667,422.03, and reduced the premium accordingly. The ocean tanker MT 'TACHIBANA unloaded the cargo to Tanker Barge LB-1011 of respondent Chemoil Lighterage Corporation, which shall transport the same to Del Pan Bridge in Pasig River. Tanker Barge LB-1011 would unload the cargo to tanker trucks, also owned by the respondent, and haul it by land to PGP's storage tanks in Calamba, Laguna. Upon inspection by PGP, the samples taken from the shipment showed discoloration from yellowish to amber, demonstrating that it was damaged, as DOP is colorless and water clear. PGP then sent a letter to the petitioner dated 18 February 1991[8] where it formally made an insurance claim for the loss it sustained due to the contamination. The petitioner requested an independent insurance adjuster, the GIT Insurance Adjusters, Inc. (GIT), to conduct a Quantity and Condition Survey of the shipment. On 22 February 1991, GIT issued a Report,[9] part of which states: As unloading progressed, it was observed on February 14, 1991 that DOP samples taken were discolored from yellowish to amber. Inspection of cargo tanks showed manhole covers of ballast tanks' ceilings loosely secured. Furthermore, it was noted that the rubber gaskets of the manhole covers of the ballast tanks re-acted to the chemical causing shrinkage thus, loosening the covers and cargo ingress to the rusty ballast tanks' [10]chanroblesvirtuallawlibrary On 13 May 1991, the petitioner paid PGP the amount of P5,000,000.00[11] as full and final payment for the loss. PGP issued a Subrogation Receipt to the petitioner. Meanwhile, on 03 April 1991, PGP paid the respondent the amount of P301,909.50 as full payment for the latter's services, as evidenced by Official Receipt No. 1274.[12]chanroblesvirtuallawlibrary On 15 July 1991, an action for damages was instituted by the petitioner-insurer against respondent-carrier before the RTC, Branch 16, City of Manila, docketed as Civil Case No. 9157923.[13] The petitioner prayed for actual damages in the amount of P5,000,000.00, attorney's fees in the amount of no less thanP1,000,000.00, and costs of suit. An Answer with Compulsory Counterclaim[14] was filed by the respondent on 05 September 1991. The respondent admitted it undertook to transport the consignee's shipment from MT 'TACHIBANA to the Del Pan Bridge, Pasig River, where it was transferred to its tanker trucks for hauling to PGP's storage tanks in Calamba, Laguna. The respondent alleged that before the DOP was loaded into its barge (LB-1011), the surveyor/representative of PGP, Adjustment Standard Corporation, inspected it and found the same clean, dry, and fit for loading. The entire loading and unloading of the shipment were also done under the control and supervision of PGP's surveyor/representative. It was also mentioned by the respondent that the contract between it and PGP expressly stipulated that it shall be free from any and all claims arising from contamination, loss of cargo or part thereof; that the consignee accepted the cargo without any protest or notice; and that the cargo shall be insured by its owner sans recourse against all risks. As subrogee, the petitioner was bound by this stipulation. As carrier, no fault and negligence can be attributed against respondent as it exercised extraordinary diligence in handling the cargo.[15]chanroblesvirtuallawlibrary After due hearing, the trial court rendered a Decision on 06 January 1997, the dispositive portion of which reads: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in favor of plaintiff ordering defendant to pay plaintiff's claim of P5,000,000.00 with legal interest from the date of the filing of the complaint. The counterclaims are DISMISSED.[16]chanroblesvirtuallawlibrary Aggrieved by the trial court's decision, the respondent sought relief with the Court of Appeals where it alleged in the main that PGP failed to file any notice, claim or protest within the period required by Article 366 of the Code of Commerce, which is a condition precedent to the accrual of a right of action against the carrier.[17] A telephone call which was supposedly made by a certain Alfred Chan, an employee of PGP, to one of the Vice Presidents of the respondent, informing the latter of the discoloration, is not the notice required by Article 366 of the Code of Commerce.[18]chanroblesvirtuallawlibrary On 18 December 1998, the Court of Appeals promulgated its Decision reversing the trial court, the dispositive portion of which reads: WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and a new one is entered dismissing the complaint.[19]chanroblesvirtuallawlibrary A petition for review on certiorari[20] was filed by the petitioner with this Court, praying that the decision of the trial court be affirmed. After the respondent filed its Comment[21] and the petitioner filed its Reply[22] thereto, this Court issued a Resolution[23] on 18 August 1999, giving due course to the petition. ASSIGNMENT OF ERRORS The petitioner assigns as errors the following: I THE APPELLATE COURT GRAVELY ERRED IN FINDING THAT THE NOTICE OF CLAIM WAS NOT FILED WITHIN THE REQUIRED PERIOD. II THE APPELLATE COURT GRAVELY ERRED IN NOT HOLDING THAT DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF RESPONDENT CHEMOIL. III THE APPELLATE COURT GRAVELY ERRED IN SETTING ASIDE THE TRIAL COURT'S DECISION AND IN DISMISSING THE COMPLAINT.[24] ISSUES Synthesized, the issues that must be addressed by this Court are: I WHETHER OR NOT THE NOTICE OF CLAIM WAS FILED WITHIN THE REQUIRED PERIOD. If the answer is in the affirmative, II WHETHER OR NOT THE DAMAGE TO THE CARGO WAS DUE TO THE FAULT OR NEGLIGENCE OF THE RESPONDENT. THE COURT'S RULINGS Article 366 of the Code of Commerce has profound application in the case at bar. This provision of law imparts: Art. 366. Within twenty-four hours following the receipt of the merchandise a claim may be made against the carrier on account of damage or average found upon opening the packages, provided that the indications of the damage or average giving rise to the claim cannot be ascertained from the exterior of said packages, in which case said claim shall only be admitted at the time of the receipt of the packages. After the periods mentioned have elapsed, or after the transportation charges have been paid, no claim whatsoever shall be admitted against the carrier with regard to the condition in which the goods transported were delivered. As to the first issue, the petitioner contends that the notice of contamination was given by Alfredo Chan, an employee of PGP, to Ms. Encarnacion Abastillas, Vice President for Administration and Operations of the respondent, at the time of the delivery of the cargo, and therefore, within the required period.[25] This was done by telephone. The respondent, however, claims that the supposed notice given by PGP over the telephone was denied by Ms. Abastillas. Between the testimonies of Alfredo Chan and Encarnacion Abastillas, the latter's testimony is purportedly more credible because it would be quite unbelievable and contrary to business practice for Alfredo Chan to merely make a verbal notice of claim that involves millions of pesos.[26]chanroblesvirtuallawlibrary On this point, the Court of Appeals declared: . . . We are inclined to sustain the view that a telephone call made to defendant-company could constitute substantial compliance with the requirement of notice considering that the notice was given to a responsible official, the Vice-President, who promptly replied that she will look into the matter. However, it must be pointed out that compliance with the period for filing notice is an essential part of the requirement, i.e.. immediately if the damage is apparent, or otherwise within twenty-four hours from receipt of the goods, the clear import being that prompt examination of the goods must be made to ascertain damage if this is not immediately apparent. We have examined the evidence, and We are unable to find any proof of compliance with the required period, which is fatal to the accrual of the right of action against the carrier.[27]chanroblesvirtuallawlibrary The petitioner is of the view that there was an incongruity in the findings of facts of the trial court and the Court of Appeals, the former allegedly holding that the period to file the notice had been complied with, while the latter held otherwise. We do not agree. On the matter concerning the giving of the notice of claim as required by Article 366 of the Code of Commerce, the finding of fact of the Court of Appeals does not actually contradict the finding of fact of the trial court. Both courts held that, indeed, a telephone call was made by Alfredo Chan to Encarnacion Abastillas, informing the latter of the contamination. However, nothing in the trial court's decision stated that the notice of claim was relayed or filed with the respondent-carrier immediately or within a period of twentyfour hours from the time the goods were received. The Court of Appeals made the same finding. Having examined the entire records of the case, we cannot find a shred of evidence that will precisely and ultimately point to the conclusion that the notice of claim was timely relayed or filed. The allegation of the petitioner that not only the Vice President of the respondent was informed, but also its drivers, as testified by Alfredo Chan, during the time that the delivery was actually being made, cannot be given great weight as no driver was presented to the witness stand to prove this. Part of the testimony of Alfredo Chan is revealing: Q: ' Mr. Witness, were you in your plant site at the time these various cargoes were delivered? A: No, sir. Q: So, do you have a first hand knowledge that your plant representative informed the driver of the alleged contamination? A: What do you mean by that? Q: Personal knowledge [that] you yourself heard or saw them [notify] the driver? A: No, sir.[28]chanroblesvirtuallawlibrary From the preceding testimony, it is quite palpable that the witness Alfredo Chan had no personal knowledge that the drivers of the respondent were informed of the contamination. The requirement that a notice of claim should be filed within the period stated by Article 366 of the Code of Commerce is not an empty or worthless proviso. In a case, we held: The object sought to be attained by the requirement of the submission of claims in pursuance of this article is to compel the consignee of goods entrusted to a carrier to make prompt demand for settlement of alleged damages suffered by the goods while in transport, so that the carrier will be enabled to verify all such claims at the time of delivery or within twentyfour hours thereafter, and if necessary fix responsibility and secure evidence as to the nature and extent of the alleged damages to the goods while the matter is still fresh in the minds of the parties.[29]chanroblesvirtuallawlibrary In another case, we ruled, thus: More particularly, where the contract of shipment contains a reasonable requirement of giving notice of loss of or injury to the goods, the giving of such notice is a condition precedent to the action for loss or injury or the right to enforce the carrier's liability. Such requirement is not an empty formalism. The fundamental reason or purpose of such a stipulation is not to relieve the carrier from just liability, but reasonably to inform it that the shipment has been damaged and that it is charged with liability therefore, and to give it an opportunity to examine the nature and extent of the injury. This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims.[30]chanroblesvirtuallawlibrary The filing of a claim with the carrier within the time limitation therefore actually constitutes 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 fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action.[31]chanroblesvirtuallawlibrary The second paragraph of Article 366 of the Code of Commerce is also edifying. It is not only when the period to make a claim has elapsed that no claim whatsoever shall be admitted, as no claim may similarly be admitted after the transportation charges have been paid. In this case, there is no question that the transportation charges have been paid, as admitted by the petitioner, and the corresponding official receipt[32] duly issued. But the petitioner is of the view that the payment for services does not invalidate its claim. It contends that under the second paragraph of Article 366 of the Code of Commerce, it is clear that if notice or protest has been made prior to payment of services, claim against the bad order condition of the cargo is allowed. We do not believe so. As discussed at length above, there is no evidence to confirm that the notice of claim was filed within the period provided for under Article 366 of the Code of Commerce. Petitioner's contention proceeds from a false presupposition that the notice of claim was timely filed. Considering that we have resolved the first issue in the negative, it is therefore unnecessary to make a resolution on the second issue. WHEREFORE, in view of all the foregoing, the Decision of the Court of Appeals dated 18 December 1998, which reversed and set aside the decision of the trial court, is hereby AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Cash Surrender G.R. No. L-2910 June 29, 1951 The plaintiff, the Manufacturer Life Insurance Company in a corporation duly organized in Canada with head office at Toronto. It is duly registered and licensed to engage in life insurance business in the Philippines, and maintains a branch office in Manila. It was engaged in such business in the Philippines for more than five years before and including the year 1941. But due to the exigencies of the war it closed the branch office at Manila during 1942 up to September 1945. In the course of its operations before the war, plaintiff issued a number of life insurance policies in the Philippines containing stipulations referred to as non-forfeiture clauses, as follows: '8. Automatic Premium Loan. — This Policy shall not lapse for non-payment of any premium after it has been three full years in force, if, at the due date of such premium, the Cash Value of this Policy and of any bonus additions and dividends left on accumulation (after deducting any indebtedness to the Company and the interest accrued thereon) shall exceed the amount of said premium. In which event the company will, without further request, treat the premium then due as paid, and the amount of such premium, with interest from its actual due date at six per cent per annum, compounded yearly, and one per cent, compounded yearly, for expenses, shall be a first lien on this Policy in the Company's favour in priority to the claim of any assignee or any other person. The accumulated lien may at any time, while the Policy is in force, be paid in whole or in part. "When the premium falls due and is not paid in cash within the month's grace, if the Cash Value of this policy and of any bonus addition and dividends left on accumulation (after deducting any accumulated indebtedness) be less than the premium then due, the Company will, without further requests, continue this insurance in force for a period .. . . "10. Cash and Paid-Up Insurance Values. — At the end of the third policy year or thereafter, upon the legal surrender of this Policy to the Company while there is no default in premium payments or within two months after the due date of the premium in default, the Company will (1) grant a cash value as specified in Column (A) increased by the cash value of any bonus additions and dividends left on accumulation, which have been alloted to this Policy, less all indebtedness to the Company on this Policy on the date of such surrender, or (2) endorse this Policy as a Non-Participating Paid-up Policy for the amount as specified in Column (B) of the Table of Guaranteed Values . . .. "11. Extended Insurance. — After the premiums for three or more full years have been paid hereunder in cash, if any subsequent premium is not paid when due, and there is no indebtness to the Company, on the written request of the Insured . . .. From January 1, 1942 to December 31, 1946 for failure of the insured under the above policies to pay the corresponding premiums for one or more years, the plaintiff's head office of Toronto, applied the provision of the automatic premium loan clauses; and the net amount of premiums so advanced or loaned totalled P1,069,254.98. On this sum the defendant Collector of Internal Revenue assessed P17,917.12 — which plaintiff paid supraprotest —. The assessment was made pursuant to section 255 of the National Internal Revenue Code as amended. which partly provides: SEC. 255. Taxes on insurance premiums. — There shall be collected from every person, company, or corporation (except purely cooperative companies or associations) doing business of any sort in the Philippines a tax of one per centum of the total THE MANUFACTURERS LIFE INSURANCE CO., plaintiff-appellant, vs. BIBIANO L. MEER, in the capacity as Collector of Internal Revenue, defendant-appellee. Camus, Zavalla, Bautista and Nueves for appellant. First Assistant Solicitor General Roberto A. Gianzon, Office of the Solicitor Felix V. Makasiar and Solicitor Jose P. Alejandro for appellee. BENGZON, J.: Appeal from a decision of the Honorable Buenaventura Ocampo, then judge of the Manila court of first instance, dismissing plaintiff's complaint to recover money paid under protest for taxes. The case was submitted upon a stipulation of facts, supplemented by documentary evidence. premiums collected .. whether such premiums are paid in money, notes credits, or any substitute for money but premiums refunded within six months after payment on account of rejection of risk or returned for other reason to person insured shall not be included in the taxable receipts . . .. It is the plaintiff's contention that when it made premium loans or premium advances, as above stated, by virtue of the non-forfeiture clauses, it did not collect premiums within the meaning of the above sections of the law, and therefore it is not amendable to the tax therein provided. The plaintiff conveniently divides that issue into five minor issues, to wit: (a) Whether or not premium advances made by plaintiff-appellant under the automatic premium loan clause of its policies are "premium collected" by the Company subject to tax; (b) Whether or not, in the application of the automatic premium loan clause of plaintiffappellant's policies, there is "payment in money, notes, credit, or any substitutes for money"; (c) Whether or not the collection of the alleged deficiency premium taxes constitutes double taxation; (d) Whether the making of premium advances, granting for the sake of argument that it amounted to collection of premiums, were done in Toronto, Canada, or in the Philippines; and (e) Whether or not the fact that plaintiff-appellant was not doing business in the Philippines during the period from January 1, 1942 to September 30, 1945, inclusive, exempts it from payment of premium taxes corresponding to said period. These points will be considered in their order. The first two may best taken up together in the light of a practical illustration offered by appellant: "Suppose that "A" years of age, secures a 20-years endowment policy for P5,000 from plaintiff-appellant Company and pays an annual premium of P250. 'A' pays the first ten yearly premiums amounting to P2,500 and on this amount plaintiffappellant pays the corresponding taxes under section 255 of the National Internal Revenue Code. Suppose also that the cash value of said policy after the payment of the 10th annual premium amounts to P1,000." When on the eleventh year the annual premium fell due and the insured remitted no money within the months grace, the insurer treated the premium then over due as paid from the cash value, the amount being loan to the policyholder1 who could discharged it at anytime with interest at 6 per cent. The insurance contract, therefore, continued in force for the eleventh year. Under the circumstances described, did the insurer collect the amount of P250 as the annual premium for the eleventh year on the said policy? The plaintiff says no; but the defendant and the lower court say yes. The latter have, in our opinion, the correct view. In effect the Manufacturers Life Insurance Co. loaned to "A" on the eleventh year, the sum of P250 and the latter in turn paid with that sum the annual premium on his policy. The Company therefore collected the premium for the eleventh year. "How could there be such a collection "plaintiff argues "when as a result thereof, insurer becomes a creditor, acquires a lien on the policy and is entitled to collect interest on the amount of the unpaid premiums?". Wittingly, the "premium" and the "loan" have been interchanged in the argument. The insurer "became a creditor"of the loan, but not of the premium that had already been paid. And it is entitled to collect interest on the loan, not on the premium. In other words, "A" paid the premium for the eleventh; but in turn he became a debtor of the company for the sum of P250. This debt he could repay either by later remitting the money to the insurer or by letting the cash value compensate for it. The debt may also be deducted form the amount of the policy should "A" die thereafter during the continuance of the policy. Proceeding along the same line of argument counsel for plaintiff observes "that there is no change, much less an increase, in the amount of the assets of plaintiff-appellant after the application of the automatic premium loan clause. Its assets remain exactly the same after making the advances in question. It being so, there could have been no collection of premium . . .. "We cannot assent to this view, because there was an increase. There was the new credit for the advances made. True, the plaintiff could not sue the insured to enforce that credit. But it has means of satisfaction out of the cash surrender value. Here again it may be urged that if the credit is paid out of the cash surrender value, there were no new funds added to the company's assets. Cash surrender value "as applied to life insurance policy, is the amount of money the company agrees to pay to the holder of the policy if he surrenders it and releases his claims upon it. The more premiums the insured has paid the greater will be the surrender value; but the surrender value is always a lesser sum than the total amount of premiums paid." (Cyclopedia Law Dictionary 3d. ed. 1077.) The cash value or cash surrender value is therefore an amount which the insurance company holds in trust2 for the insured to be delivered to him upon demand. It is therefore a liability of the company to the insured. Now then, when the company's credit for advances is paid out of the cash value or cash surrender value, that value and the company's liability is thereby dismissed pro tanto. Consequently, the net assets of the insurance companyincreased corresponding; for it is plain mathematics that the decrease of a person's liabilities means a corresponding increase in his net assets. Nevertheless let us grant for the nonce that the operation of the automatic loan provision contributed no additional cash to the funds of the insurer. Yet it must be admitted that the insurer agreed to consider the premium paid on the strength of the automatic loan. The premium was therefore paid by means of a "note" or "credit" or "other substitute for money" and the taxis due because section 255 above quoted levies taxes according to the total premiums collected by the insurer "whether such premiums are paid in money, notes, credits or any substitutes for money. In connection with the third issue, appellant refers to its example about "A" who failed to pay the premium on the eleventh year and the insurer advanced P250 from the cash value. Then it reasons out that "if the amount P250 is deducted from the cash value of P1,000 of the policy, then taxing this P250 anew as premium collected, as was done in the present case, will amount to double taxation since taxes had already been collected on the cash value of P1,000 as part of the P2,500 collected as premiums for the first ten years." The trouble with the argument is that it assumes all advances are necessarily repaid from the cash value. That is true in some cases. In others the insured subsequently remits the money to repay the advance and to keep unimpaired the cash reserve of his policy. As to a matter of fact of the total amount advanced (P1,069,254.998) P158,666.63 had actually been repaid at the time of assessment notice. Besides, the premiums paid and on which taxes had already been collected, were those for the ten years. The tax demanded is on the premium for the eleventh year. In any event there is no constitutional prohibition against double taxation. On the fourth issue the appellant takes the position that as advances of premiums were made in Toronto, such premiums are deemed to have been paid there — not in the Philippines — and therefore those payments are not subject to local taxation. The thesis overlooks the actual fact that the loans are made to policyholders in the Philippines, who in turn pay therewith the premium to the insurer thru the Manila branch. Approval of appellants position will enable foreign insurers to evade the tax by contriving to require that premium payments shall be made at their head offices. What is important, the law does not contemplate premiums collected in the Philippines.It is enough that the insurer is doing insurance business in the Philippines, irrespective of the place of its organization or establishment. This brings forth the appellant's last contention that it was "engaged in business" in the Philippines during the years 1942 to September 1945, and that as section 255 applies only to companies "doing insurance business in the Philippines" this tax was improperly demanded. It is our opinion that although during those years the appellant was not open for new business because its branch office was closed, still it was practically and legally, operating in this country by collecting premiums on its outstanding policies, incurring the risks and/or enjoying the benefits consequent thereto, without having previously taken any steps indicating withdrawal in good faith field of economic activity3. As a matter of fact, in objecting to the payment of the tax, plaintiff-appellant never insisted, before the Bureau of Internal Revenue, that it was not engaged in business in this country during those years. Wherefore, finding no prejudicial error in the appealed decisions, we hereby affirm it with costs. Section 203 G.R. No. 156956 October 9, 2006 REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner, petitioner, vs. DEL MONTE MOTORS, INC., respondent. DECISION PANGANIBAN, CJ.: The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy their claims. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares; it cannot be garnished or levied upon by a single claimant, to the detriment of the others. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution3 of the lower court. The January 16, 2003 Order states in full: "On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court which has become final and executory. "During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court. "Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court."4 The Facts On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc., P11,835,375.50 representing the balance of Vilfran Liner's service contracts with respondent. The trial court further ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO). On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable. On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code. On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The RTC resolved thus: "Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the amount of P11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of Garnishment served on August 16, 2002."5 On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to obey the December 18, 2002 Resolution of the trial court. Ruling of the Trial Court The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit. Hence, this Petition.6 Issues Petitioner raises this sole issue for the Court's consideration: "Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured."7 The Court's Ruling The Petition is meritorious. Preliminary Issue: Propriety of Review Before discussing the principal issue, the Court will first dispose of the question of mootness. Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these circumstances render the case moot. Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases were made pursuant to the commissioner's power of control over the fund, not to the lower court's Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with the Insurance Commission may be levied and garnished. The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution of the issue will only postpone a task that is certain to crop up in the future. Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect not only to the relations between the insurer and the insured, but also to the internal affairs of insurance companies.8 As this case is undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules.9 Principal Issue: Exemption of Security Deposit from Levy or Garnishment Section 203 of the Insurance Code provides as follows: "Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twentyfive per centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the Philippines: Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section. "Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner." (Emphasis supplied) Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the security deposit should be answerable for the counterbond issued by CISCO. The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant. To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries. Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a similar concept as that of the security deposit is instructive.Engwicht v. Pacific States Life Assurance Co.11 held that the money required to be deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors' bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable distribution of the fund, and appoint a receiver to carry that distribution into effect."12 Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. Respondent's Inchoate Right The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist.14 Hence, it would be premature to make the security deposit answerable for CISCO's present obligation to Del Monte Motors. Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under subsisting policies issued by CISCO have been heard can respondent's share be determined. Powers of the Commissioner The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over insurance matters.15 The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows: "Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same. "The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance." (Emphasis supplied) Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.18 Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 19119 and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states: "Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines." (Emphasis supplied) Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these investments are required to be deposited. An implied trust20 is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.21 As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders protected. Commissioner's Actions Entitled to Great Respect In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries great weight and consideration,22 as he is the head of a specialized body tasked with the regulation of insurance matters and primarily charged with the implementation of the Insurance Code. The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. In addressing these needs, the administrative agencies charged with applying and implementing particular statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.23 Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that without the issuance of a valid order, the insurance commissioner could not have been in contempt of court.24 WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs. SO ORDERED. CMLVI G.R. No. L-49699 August 8, 1988 PERLA COMPANIA de SEGUROS, INC., petitioner, vs. HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR., for himself and Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for minors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA., respondents. Jose B. Sanez for petitioner. James B. Pajares for private respondents. CORTES, J.: The instant petition for certiorari and prohibition with preliminary injunction concerns the ability of insurers under the "no fault indemnity" provision of the Insurance Code. * On December 27, 1977, in a collision between the IH Scout in which private respondents were riding and a Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents sustained physics injuries in varying degrees of gravity. Thus, they filed with the Court of First Instance of Camarines Norte on February 23,1978 a complaint for damages against Superlines, the bus driver and petitioner, the insurer of the bus [Rollo, pp. 27-39.] The bus was insured with petitioner for the amount of P50,000.00 as and for passenger liability and P50,000.00 as and for third party liability. The vehicle in which private respondents were riding was insured with Malayan Insurance Co. Even before summons could be served, respondent judge issued an order dated March 1, 1978 [Rollo, pp. 40-41], the pertinent portion of which stated: The second incident is the prayer for an order of this court for the Insurance Company, Perla Compania de Seguros, Inc., to pay immediately the P5,000.00 under the "no fault clause" as provided for under Section 378 of the Insurance Code, and finding that the requisite documents to be attached in the record, the said Insurance Company is therefore directed to pay the plaintiffs (private respondents herein) within five (5) days from receipt of this order. Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision [Rollo, p. 44] and likewise moved for the reconsideration of the order. Petitioner held the position that under Sec. 378 of the Insurance Code, the insurer liable to pay the P5,000.00 is the insurer of the vehicle in which private respondents were riding, not petitioner, as the provision states that "[i]n the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from." Respondent judge, however, denied reconsideration. A second motion for reconsideration was filed by petitioner. However, in an order dated January 3, 1979, respondent judge denied the second motion for reconsideration and ordered the issuance of a writ of execution [Rollo, p. 69.] Hence, the instant petition praying principally for the annulment and setting aside of respondent judge's orders dated March 1, 1978 and January 3, 1979. The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-74.] The sole issue raised in this petition is whether or not petitioner is the insurer liable to indemnify private respondents under Sec. 378 of the Insurance Code. The key to the resolution of the issue is of courts e Sec. 378, which provides: Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the provision of this chapter shall be paid without the necessity of proving fault or negligence of any kind. Provided, That for purposes of this section — (i) The indemnity in respect of any one person shall not exceed five thousand pesos; (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident, and (b) Death certificate and evidence sufficient to establish the proper payee, or (c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. [Emphasis supplied.] From a reading of the provision, which is couched in straightforward and unambiguous language, the following rules on claims under the "no fault indemnity" provision, where proof of fault or negligence is not necessary for payment of any claim for death Or injury to a passenger or a third party, are established: 1. A claim may be made against one motor vehicle only. 2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle. in which he is riding, mounting or dismounting from. 3. In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie against the insurer of the directly offending vehicle. 4. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. The law is very clear — the claim shall lie against the insurer of the vehicle in which the "occupant" ** is riding, and no other. The claimant is not free to choose from which insurer he will claim the "no fault indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying the claim under Sec. 378 may recover against the owner of the vehicle responsible for the accident. This is precisely the essence of "no fault indemnity" insurance which was introduced to and made part of our laws in order to provide victims of vehicular accidents or their heirs immediate compensation, although in a limited amount, pending final determination of who is responsible for the accident and liable for the victims'injuries or death. In turn, the "no fault indemnity" provision is part and parcel of the Insurance Code provisions on compulsory motor vehicle ability insurance [Sec. 373-389] and should be read together with the requirement for compulsory passenger and/or third party liability insurance [Sec. 377] which was mandated in order to ensure ready compensation for victims of vehicular accidents. Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, as private respondents were not occupants of the bus, they cannot claim the "no fault indemnity" provided in Sec. 378 from petitioner. The claim should be made against the insurer of the vehicle they were riding. This is very clear from the law. Undoubtedly, in ordering petitioner to pay private respondents the 'no fault indemnity,' respondent judge gravely abused his discretion in a manner that amounts to lack of jurisdiction. The issuance of the corrective writ of certiorari is therefore warranted. WHEREFORE, the petition is GRANTED and respondent judge's order dated March 1, 1978, requiring petitioner to pay private respondents the amount of P5,000.00 as "no fault indemnity' under Sec. 378 of the Insurance Code, and that of January 3, 1979, denying the second motion for reconsideration and issuing a writ of execution, are ANNULLED and SET ASIDE. The temporary restraining order issued by the Court on January 24, 1979 is made permanent. SO ORDERED. G.R. No. 98414 February 8, 1993 FIRST QUEZON CITY INSURANCE COMPANY, INC., petitioner, vs. THE HON. COURT OF APPEALS and DE DIOS MARIKINA TRANSPORTATION CO., respondents. Ponciano U. Pitarque for petitioner. De Dios & Taoingan Law Offices and Ponce Enrile, Cayetano, Reyes for private respondent. operation, i.e., a skin grafting operation, was performed on plaintiff's right leg. Plaintiff was confined at the hospital for a total period of forty (40) days, from June 10, 1984 to August 26, 1984. During his stay at the hospital, plaintiff incurred medical expenses in the total amount of P69,444.41. Plaintiff's medical expenses were advanced by his employer Maglines but he was required to reimburse Maglines on a staggered basis by way of salary deductions. Plaintiff was released from the hospital on August 29, 1984. After his release, he returned to the hospital from time to time for further treatment and checkup. The injuries had left plaintiff with a huge, ugly scar running almost the entire length of his right leg. Also, the plaintiff incurred lost earning by way of unearned salaries amounting to P7,500.00 due to said physical injuries and the consequent hospital confinement. Plaintiff filed on June 26, 1985 the aforesaid complaint against DMTC and its driver, Gil Agpalo. Agpalo was later dropped as a party defendant because he could not be served with summons. Upon filing its answer on August 20, 1985, defendant DMTC filed a third-party complaint against First Quezon City Insurance Co. Inc. Sometime on September 17, 1985 this third-party defendant filed its answer to the thirdparty complaint. After the trial, the court a quo rendered the appealed decision, the decretal portion of which ordains: WHEREFORE, the judgment is hereby rendered dismissing defendant De Dios Marikina Transportation Co. Inc.'s counterclaim for lack of merit and ordering said defendant to pay plaintiff Jose V. del Rosario: (a) the sum of P76,944.41, as the actual and compensatory damages; (b) the sum of P15,000.00, as moral and exemplary damages; and (c) the sum of P33,641.50 as attorney's fees, as well as to pay the cost of suit; and as regards the third-party complaint herein ordering third-party defendant First Quezon City Insurance Co., Inc. to indemnify third-party plaintiff De Dios Marikina Transportation Co., Inc. in the sum of P12,000.00 with GRIÑO-AQUINO, J.: Before the Court is a petition filed by the First Quezon City Insurance Company, Inc., seeking to limit to P12,000.00, the amount specified in the insurance contract, its liability to indemnify the respondent, De Dios Marikina Transportation Company (DMTC, for short), for the damages suffered by a passenger, Jose V. del Rosario, who accidentally fell off the bus. The undisputed facts are: On June 10, 1984, at about 3:00 p.m., after sending off certain seamen at the departure area of then known as Manila International Airport (MIA), Plaintiff Jose V. del Rosario proceeded to the loading and unloading zone for public utility bus stop, which was located in front of the MIA, to wait for a passenger bus bound for Quezon City. While at the bus stop, the plaintiff saw a DMTC bus bearing body No. 236 and plate No. NVU-798 and which, per its signboard, was plying the Pasay to Quezon City (passing España) route. As it approach the bus stop, the bus slowed down with all its doors wide open: while moving at a crawling pace, i.e., as slow as an "ordinary walk," it was taking several passengers, about five or seven of them including the plaintiff, all of whom managed to board the bus while it was already at the bus stop; plaintiff was the last one to board the bus. While the plaintiff was still on the bus' running board with his hand on the bus door's handle bar, the slowly moving bus sped forward at a high speed, as a result of which, the plaintiff lost his balance and fell from the bus. As plaintiff clung instinctively to the handle bar, he was dragged by the bus along the asphalted road for about two (2) seconds. Plaintiff screamed of pain and anguished even as the other passengers shouted and the bus' driver, Gil Agpalo, an employee of defendant and third-party plaintiff DMTC, abruptly stopped the bus. Then, Gil forthwith fled from the scene, leaving the bus and the injured plaintiff behind. Thereafter, the plaintiff was brought to the Manila Sanitarium and Hospital where he was given immediate medical treatment at the emergency ward. The doctors performed a major surgical operation on plaintiff's right leg. This leg was extensively lacerated: its skin and tissues were exposed and detached from the muscles. Treatment was done under special anesthesia and consisted of debridement or cleaning repair and suturing of the injured tissue. While at the hospital, plaintiff was febrile or feverish for about forty (40) days. On July 12, 1984, a second major surgical interest thereon at the legal rate from date of filing of the thirdparty complaint on August 20, 1985, until full payment thereof. Further, there being no satisfactory warrant therefor, the court hereby dismisses the rest of the claims in the complaint and thirdparty complaint herein. (pp. 1113, Rollo.) The bus company appealed to the Court of Appeals on February 11, 1991. The Court of Appeals modified the dispositive part of the decision of the trial court as follows: WHEREFORE, with the following modifications, first in appellee's complaint: that the award of attorney's fees be reduced to P5,000.00 and that the cost of suit be deleted; and second, as regards the third-party complaint, that the third-party defendant First Quezon City Insurance Co., Inc., be ordered to indemnify third-party plaintiff DMTC, herein appellant the sum of P50,090.00 with legal interest thereon from date of filing of the third-party complaint on August 20, 1985 until its full payment, the decision appealed from is AFFIRMED in all other respects. No costs. (p. 19, Rollo.) The insurance company (now the petitioner) filed a motion for reconsideration which was denied in a resolution dated April 22, 1991. Hence, this petition for review, assailing the appellate courts' interpretation of the provision of the insurance contract on the limit of the insurer's liability. We find merit in the petition. The insurance company clearly passed the maximum limit of the petitioner's liability for damages arising from death or bodily injury at P12,000.00 per passenger and its maximum liability per accident at P50,000.00. Since only one passenger was injured in the accident, the insurer's liability for the damages suffered by said passenger is pegged to the amount of P12,000.00 only. What does the limit of P50,000.00 per accident mean? It means that the insurer's liability for any single accident will not exceed P50,000.00 regardless of the number of passengers killed or injured therein. For example, if ten (10) passengers had been injured by the operation of the insured bus, the insurer's liability for the accident would not be P120,000.00 (at the rate of P12,000.00 per passenger) but would be limited to only P50,000.00 for the entire accident, as provided in the insurance contract. The bus company may not recover from the insurance company (herein petitioner) more than P 12,000.00 per passenger killed or injured, or fifty thousand (P50,000.00) pesos per accident even if under the judgment of the court, the erring bus operator will have to pay more than P12,000.00 to each injured passenger. The trial court's interpretation of the insurance contract was the correct interpretation. WHEREFORE, the petition for review is GRANTED. The decision promulgated on February 11, 1991 by the Court of Appeals in CA-G.R. No. 24938, ordering the third-party defendant, First Quezon City Insurance Co., to indemnify the private respondent, De Dios Marikina Transportation Co. Inc. (DMTC), the sum of P50,000.00 for the damages of the passenger Jose V. Del Rosario, is hereby modified by reducing the award to P12,000.00 only. Costs against the private respondent, De Dios Marikina Transportation Co., Inc. SO ORDERED. G.R. No. 96452 May 7, 1992 PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents. G.R. No. 96493 May 7, 1992 FCP CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents. Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner. Wilson L. Tee for respondents Herminio and Evelyn Lim. NOCON, J.: These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals reads, as follows: WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of their insured vehicle; while said appellants are ordered to pay appellee FCP Credit Corporation all the unpaid installments that were due and payable before the date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just insurance claim of appellants by way of example and correction for public good, and attorney's fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred therefor by appellants, and the costs of suit both in the lower court and in this appeal. 2 The facts as found by the trial court are as follows: On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB43383. 5 On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel mortgage as shown by the Deed of Assignment. 6 At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao to make a police report regarding said incident, as shown by the certification issued by the Quezon City police. 7 On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9 On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which states, to wit: AUTHORIZED DRIVER: Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his permission.Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or regulation in that behalf. 11 On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the promissory note and the chattel mortgage contract. Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused. On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an amended third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the trial court rendered a decision, the dispositive portion which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from July 2, 1983 until fully paid; 2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the costs of suit. Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint filed against Third-Party Defendant. 13 Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which reversed said decision. After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari. Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding that private respondents did not violate the insurance contract because the authorized driver clause is not applicable to the "Theft" clause of said Contract. For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor from his admitted obligations under the promissory note particularly the payment of interest, litigation expenses and attorney's fees. We find no merit in Perla's petition. The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. 14 Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its decision: . . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101). Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction — often seized upon by insurance companies in resisting claims from their assureds — between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case. The loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent. 15 It is worthy to note that there is no causal connection between the possession of a valid driver's license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow. We however find the petition of FCP meritorious. This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay the former the installments due on the promissory note on account of the loss of the automobile. The chattel mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments due and payable before the automobile was carnapped, as erronously held by the Court of Appeals. However, this does not mean that private respondents are bound to pay the interest, litigation expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated to each other, despite the fact that at first glance there is no relationship whatsoever between the parties thereto. Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated therein in accordance with the schedule provided for. To secure said promissory note, private respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were able to secure an insurance policy from petitioner Perla, and the same was made specifically payable to petitioner FCP. 16 The insurance policy was therefore meant to be an additional security to the principal contract, that is, to insure that the promissory note will still be paid in case the automobile is lost through accident or theft. The Chattel Mortgage Contract provided that: THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17 It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla. Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the contract of indemnity was procured to insure the return of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private respondents should not in any way prejudice the latter. Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP since they will be required to pay the latter the unpaid balance of its obligation under the promissory note. In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid. As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be disturbed on appeal. 19 WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs. SO ORDERED. G.R. No. L-36480 May 31, 1988 ANDREW PALERMO, plaintiff-appellee, vs. PYRAMID INSURANCE CO., INC., defendant- appellant. GRIÑO-AQUINO, J: The Court of Appeals certified this case to Us for proper disposition as the only question involved is the interpretation of the provision of the insurance contract regarding the "authorized driver" of the insured motor vehicle. On March 7, 1969, the insured, appellee Andrew Palermo, filed a complaint in the Court of First Instance of Negros Occidental against Pyramid Insurance Co., Inc., for payment of his claim under a Private Car Comprehensive Policy MV-1251 issued by the defendant (Exh. A). In its answer, the appellant Pyramid Insurance Co., Inc., alleged that it disallowed the claim because at the time of the accident, the insured was driving his car with an expired driver's license. After the trial, the court a quo rendered judgment on October 29, 1969 ordering the defendant "to pay the plaintiff the sum of P20,000.00, value of the insurance of the motor vehicle in question and to pay the costs." On November 26, 1969, the plaintiff filed a "Motion for Immediate Execution Pending Appeal." It was opposed by the defendant, but was granted by the trial court on December 15, 1969. The trial court found the following facts to be undisputed: 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 P 20,000.00 and against third party liability for P 10,000.00. Plaintiff paid the defendant P 361.34 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 am 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.) Appellant alleges that the trial court erred in interpreting the following provision of the Private Car Comprehensive Policy MV-1251: AUTHORIZED DRIVER: Any of the following: (a) The Insured. (b) Any person driving on the Insured's order or with his permission. Provided that the person driving is 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. (Exh. "A.") There is no merit in the appellant's allegation that the plaintiff was not authorized to drive the insured motor vehicle because his driver's license had expired. The driver of the insured motor vehicle at the time of the accident was, the insured himself, hence an "authorized driver" under the policy. 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: 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 The 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.) WHEREFORE, the appealed decision is affirmed with costs against the defendant-appellant. SO ORDERED. medical and hospital expenses; P6,000.00, for lost income; P51,000.00 as actual, moral and compensatory damages; and P5,000.00, for attorney's fees. Answering, PANTRANCO claimed that the jeep of Sio Choy was then operated at an excessive speed and bumped the PANTRANCO bus which had moved to, and stopped at, the shoulder of the highway in order to avoid the jeep; and that it had observed the diligence of a good father of a family to prevent damage, especially in the selection and supervision of its employees and in the maintenance of its motor vehicles. It prayed that it be absolved from any and all liability. Defendant Sio Choy and the petitioner insurance company, in their answer, also denied liability to the plaintiff, claiming that the fault in the accident was solely imputable to the PANTRANCO. Sio Choy, however, later filed a separate answer with a crossclaim against the herein petitioner wherein he alleged that he had actually paid the plaintiff, Martin C. Vallejos, the amount of P5,000.00 for hospitalization and other expenses, and, in his cross-claim against the herein petitioner, he alleged that the petitioner had issued in his favor a private car comprehensive policy wherein the insurance company obligated itself to indemnify Sio Choy, as insured, for the damage to his motor vehicle, as well as for any liability to third persons arising out of any accident during the effectivity of such insurance contract, which policy was in full force and effect when the vehicular accident complained of occurred. He prayed that he be reimbursed by the insurance company for the amount that he may be ordered to pay. Also later, the herein petitioner sought, and was granted, leave to file a third-party complaint against the San Leon Rice Mill, Inc. for the reason that the person driving the jeep of Sio Choy, at the time of the accident, was an employee of the San Leon Rice Mill, Inc. performing his duties within the scope of his assigned task, and not an employee of Sio Choy; and that, as the San Leon Rice Mill, Inc. is the employer of the deceased driver, Juan P. Campollo, it should be liable for the acts of its employee, pursuant to Art. 2180 of the Civil Code. The herein petitioner prayed that judgment be rendered against the San Leon Rice Mill, Inc., making it liable for the amounts claimed by the plaintiff and/or ordering said San Leon Rice Mill, Inc. to reimburse and indemnify the petitioner for any sum that it may be ordered to pay the plaintiff. After trial, judgment was rendered as follows: WHEREFORE, in view of the foregoing findings of this Court judgment is hereby rendered in favor of the plaintiff and against Sio Choy and Malayan Insurance Co., Inc., and third-party defendant San Leon Rice Mill, Inc., as follows: (a) P4,103 as actual damages; (b) P18,000.00 representing the unearned income of plaintiff Martin C. Vallejos for the period of three (3) years; (c) P5,000.00 as moral damages; (d) P2,000.00 as attomey's fees or the total of P29,103.00, plus costs. The above-named parties against whom this judgment is rendered are hereby held jointly and severally liable. With respect, however, to Malayan Insurance Co., Inc., its liability will be up to only P20,000.00. G.R. No. L-36413 September 26, 1988 MALAYAN INSURANCE CO., INC., petitioner, vs. THE HON. COURT OF APPEALS (THIRD DIVISION) MARTIN C. VALLEJOS, SIO CHOY, SAN LEON RICE MILL, INC. and PANGASINAN TRANSPORTATION CO., INC., respondents. Freqillana Jr. for petitioner. B.F. Estrella & Associates for respondent Martin Vallejos. Vicente Erfe Law Office for respondent Pangasinan Transportation Co., Inc. Nemesio Callanta for respondent Sio Choy and San Leon Rice Mill, Inc. PADILLA, J.: Review on certiorari of the judgment * of the respondent appellate court in CA-G.R. No. 47319-R, dated 22 February 1973, which affirmed, with some modifications, the decision, ** dated 27 April 1970, rendered in Civil Case No. U2021 of the Court of First Instance of Pangasinan. The antecedent facts of the case are as follows: On 29 March 1967, herein petitioner, Malayan Insurance Co., Inc., issued in favor of private respondent Sio Choy Private Car Comprehensive Policy No. MRO/PV-15753, effective from 18 April 1967 to 18 April 1968, covering a Willys jeep with Motor No. ET-03023 Serial No. 351672, and Plate No. J-21536, Quezon City, 1967. The insurance coverage was for "own damage" not to exceed P600.00 and "third-party liability" in the amount of P20,000.00. During the effectivity of said insurance policy, and more particularly on 19 December 1967, at about 3:30 o'clock in the afternoon, the insured jeep, while being driven by one Juan P. Campollo an employee of the respondent San Leon Rice Mill, Inc., collided with a passenger bus belonging to the respondent Pangasinan Transportation Co., Inc. (PANTRANCO, for short) at the national highway in Barrio San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to the driver, Juan P. Campollo, and the respondent Martin C. Vallejos, who was riding in the ill-fated jeep. As a result, Martin C. Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and the PANTRANCO before the Court of First Instance of Pangasinan, which was docketed as Civil Case No. U-2021. He prayed therein that the defendants be ordered to pay him, jointly and severally, the amount of P15,000.00, as reimbursement for As no satisfactory proof of cost of damage to its bus was presented by defendant Pantranco, no award should be made in its favor. Its counter-claim for attorney's fees is also dismissed for not being proved. 1 On appeal, the respondent Court of Appeals affirmed the judgment of the trial court that Sio Choy, the San Leon Rice Mill, Inc. and the Malayan Insurance Co., Inc. are jointly and severally liable for the damages awarded to the plaintiff Martin C. Vallejos. It ruled, however, that the San Leon Rice Mill, Inc. has no obligation to indemnify or reimburse the petitioner insurance company for whatever amount it has been ordered to pay on its policy, since the San Leon Rice Mill, Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company. 2 Hence, the present recourse by petitioner insurance company. The petitioner prays for the reversal of the appellate court's judgment, or, in the alternative, to order the San Leon Rice Mill, Inc. to reimburse petitioner any amount, in excess of onehalf (1/2) of the entire amount of damages, petitioner may be ordered to pay jointly and severally with Sio Choy. The Court, acting upon the petition, gave due course to the same, but "only insofar as it concerns the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it being understood that no other aspect of the decision of the Court of Appeals shall be reviewed, hence, execution may already issue in favor of respondent Martin C. Vallejos against the respondents, without prejudice to the determination of whether or not petitioner shall be entitled to reimbursement by respondent San Leon Rice Mill, Inc. for the whole or part of whatever the former may pay on the P20,000.00 it has been adjudged to pay respondent Vallejos." 3 However, in order to determine the alleged liability of respondent San Leon Rice Mill, Inc. to petitioner, it is important to determine first the nature or basis of the liability of petitioner to respondent Vallejos, as compared to that of respondents Sio Choy and San Leon Rice Mill, Inc. Therefore, the two (2) principal issues to be resolved are (1) whether the trial court, as upheld by the Court of Appeals, was correct in holding petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. "solidarily liable" to respondent Vallejos; and (2) whether petitioner is entitled to be reimbursed by respondent San Leon Rice Mill, Inc. for whatever amount petitioner has been adjudged to pay respondent Vallejos on its insurance policy. As to the first issue, it is noted that the trial court found, as affirmed by the appellate court, that petitioner and respondents Sio Choy and San Leon Rice Mill, Inc. are jointly and severally liable to respondent Vallejos. We do not agree with the aforesaid ruling. We hold instead that it is only respondents Sio Choy and San Leon Rice Mill, Inc, (to the exclusion of the petitioner) that are solidarily liable to respondent Vallejos for the damages awarded to Vallejos. It must be observed that respondent Sio Choy is made liable to said plaintiff as owner of the ill-fated Willys jeep, pursuant to Article 2184 of the Civil Code which provides: Art. 2184. In motor vehicle mishaps, the owner is solidarily liable with his driver, if the former, who was in the vehicle, could have, by the use of due diligence, prevented the misfortune it is disputably presumed that a driver was negligent, if he had been found guilty of reckless driving or violating traffic regulations at least twice within the next preceding two months. If the owner was not in the motor vehicle, the provisions of article 2180 are applicable. On the other hand, it is noted that the basis of liability of respondent San Leon Rice Mill, Inc. to plaintiff Vallejos, the former being the employer of the driver of the Willys jeep at the time of the motor vehicle mishap, is Article 2180 of the Civil Code which reads: Art. 2180. The obligation imposed by article 2176 is demandable not only for one's own acts or omissions, but also for those of persons for whom one is responsible. xxx xxx xxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged ill any business or industry. xxx xxx xxx The responsibility treated in this article shall cease when the persons herein mentioned proved that they observed all the diligence of a good father of a family to prevent damage. It thus appears that respondents Sio Choy and San Leon Rice Mill, Inc. are the principal tortfeasors who are primarily liable to respondent Vallejos. The law states that the responsibility of two or more persons who are liable for a quasi-delict is solidarily. 4 On the other hand, the basis of petitioner's liability is its insurance contract with respondent Sio Choy. If petitioner is adjudged to pay respondent Vallejos in the amount of not more than P20,000.00, this is on account of its being the insurer of respondent Sio Choy under the third party liability clause included in the private car comprehensive policy existing between petitioner and respondent Sio Choy at the time of the complained vehicular accident. In Guingon vs. Del Monte, 5 a passenger of a jeepney had just alighted therefrom, when he was bumped by another passenger jeepney. He died as a result thereof. In the damage suit filed by the heirs of said passenger against the driver and owner of the jeepney at fault as well as against the insurance company which insured the latter jeepney against third party liability, the trial court, affirmed by this Court, adjudged the owner and the driver of the jeepney at fault jointly and severally liable to the heirs of the victim in the total amount of P9,572.95 as damages and attorney's fees; while the insurance company was sentenced to pay the heirs the amount of P5,500.00 which was to be applied as partial satisfaction of the judgment rendered against said owner and driver of the jeepney. Thus, in said Guingon case, it was only the owner and the driver of the jeepney at fault, not including the insurance company, who were held solidarily liable to the heirs of the victim. While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, 6 however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos, but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said two (2) respondents by reason of the indemnity contract against third party liability-under which an insurer can be directly sued by a third party — this will result in a violation of the principles underlying solidary obligation and insurance contracts. In solidary obligation, the creditor may enforce the entire obligation against one of the solidary debtors. 7 On the other hand, insurance is defined as "a contract whereby one undertakes for a consideration to indemnify another against loss, damage, or liability arising from an unknown or contingent event." 8 In the case at bar, the trial court held petitioner together with respondents Sio Choy and San Leon Rice Mills Inc. solidarily liable to respondent Vallejos for a total amount of P29,103.00, with the qualification that petitioner's liability is only up to P20,000.00. In the context of a solidary obligation, petitioner may be compelled by respondent Vallejos to pay the entire obligation of P29,013.00, notwithstanding the qualification made by the trial court. But, how can petitioner be obliged to pay the entire obligation when the amount stated in its insurance policy with respondent Sio Choy for indemnity against third party liability is only P20,000.00? Moreover, the qualification made in the decision of the trial court to the effect that petitioner is sentenced to pay up to P20,000.00 only when the obligation to pay P29,103.00 is made solidary, is an evident breach of the concept of a solidary obligation. Thus, We hold that the trial court, as upheld by the Court of Appeals, erred in holding petitioner, solidarily liable with respondents Sio Choy and San Leon Rice Mill, Inc. to respondent Vallejos. As to the second issue, the Court of Appeals, in affirming the decision of the trial court, ruled that petitioner is not entitled to be reimbursed by respondent San Leon Rice Mill, Inc. on the ground that said respondent is not privy to the contract of insurance existing between petitioner and respondent Sio Choy. We disagree. The appellate court overlooked the principle of subrogation in insurance contracts. Thus — ... Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs. Moses, 287 U.S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against the third person whose negligence or wrongful act caused the loss (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan Assurance Co., 283 U.S. 284, 75 L. ed. 1037). The right of subrogation is of the highest equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer (44 Am. Jur. 2d, 746, note 16, citing Newcomb vs. Cincinnati Ins. Co., 22 Ohio St. 382). Although many policies including policies in the standard form, now provide for subrogation, and thus determine the rights of the insurer in this respect, the equitable right of subrogation as the legal effect of payment inures to the insurer without any formal assignment or any express stipulation to that effect in the policy" (44 Am. Jur. 2nd 746). Stated otherwise, when the insurance company pays for the loss, such payment operates as an equitable assignment to the insurer of the property and all remedies which the insured may have for the recovery thereof. That right is not dependent upon , nor does it grow out of any privity of contract (emphasis supplied) or upon written assignment of claim, and payment to the insured makes the insurer assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co., 264 N.C. 456, 142 SE 2d 18). 9 It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of riot exceeding P20,000.00, shall become the subrogee of the insured, the respondent Sio Choy; as such, it is subrogated to whatever rights the latter has against respondent San Leon Rice Mill, Inc. Article 1217 of the Civil Code gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtors for the share which corresponds to each. Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. xxx xxx xxx In accordance with Article 1217, petitioner, upon payment to respondent Vallejos and thereby becoming the subrogee of solidary debtor Sio Choy, is entitled to reimbursement from respondent San Leon Rice Mill, Inc. To recapitulate then: We hold that only respondents Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to the respondent Martin C. Vallejos for the amount of P29,103.00. Vallejos may enforce the entire obligation on only one of said solidary debtors. If Sio Choy as solidary debtor is made to pay for the entire obligation (P29,103.00) and petitioner, as insurer of Sio Choy, is compelled to pay P20,000.00 of said entire obligation, petitioner would be entitled, as subrogee of Sio Choy as against San Leon Rice Mills, Inc., to be reimbursed by the latter in the amount of P14,551.50 (which is 1/2 of P29,103.00 ) WHEREFORE, the petition is GRANTED. The decision of the trial court, as affirmed by the Court of Appeals, is hereby AFFIRMED, with the modification above-mentioned. Without pronouncement as to costs. SO ORDERED. Bonifacio Brothers Inc. vs. Mora [GR L-20853, 29 May 1967] En Banc, Castro (J): 9 concur Facts: Enrique Mora is the owner of an Oldsmobile sedan model 1956, bearing plate QC - 8088. He mortgaged the same to the H.S. Reyes, Inc., with the condition that the former would insure the automobile, with the latter as beneficiary. The automobile was thereafter insured on 23 June 1959 with the State Bonding & Insurance Co. Inc., and motor car insurance policy A-0615 was issued to Mora. During the effectivity of an insurance contract, the car met with an accident. The insurance company then assigned the accident to the H.H. Bayne Adjustment Co. for investigation and appraisal of the damage. Mora, without the knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros. Inc. to furnish the labor and materials, some of which were supplied by the Ayala Auto Parts Co. For the cost of labor and materials, Mora was billed at P2,102.73 through the H. H. Bayne Adjustment Co. The insurance company, after claiming a franchise in the amount of P100, drew a check in the amount of P2,002.73, as proceeds of the insurance policy, payable to the order of Mora or H.S. Reyes, Inc., and entrusted the check to the H.H. Bayne Adjustment Co. for disposition and delivery to the proper party. In the meantime, the car was delivered to Mora without the consent of the H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and Ayala Auto Parts Co. of the cost of repairs and materials. Upon the theory that the insurance proceeds should be paid directly to them, the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on 8 May 1961 a complaint with the Municipal Court of Manila against Mora and the State Bonding & Insurance Co. Inc. for the collection of the sum of P2,002.73. The insurance company filed its answer with a counterclaim for interpleader, requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in order to determine who has a better right to the insurance proceeds in question. Mora was declared in default for failure to appear at the hearing, and evidence against him was received ex parte. However, the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding & Insurance Co. Inc. submitted a stipulation of facts, on the basis of which the Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a better right to the disputed amount, and ordering the State Bonding & Insurance Co. Inc. to pay to the H.S Reyes, Inc. the said sum of P2,002.73. From this decision, Bonifacio Bros. Inc. et al. elevated the case to the Court of First Instance of Manila before which the stipulation of facts was reproduced. On 19 October 1962 the latter court rendered a decision, affirming the decision of the Municipal Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for reconsideration of the decision, but the trial court denied the motion. Bonifacio Bros. Inc. et al. appealed. Issue: Whether Bonifacio Bros. has any cause of action to claim indemnity from the insurance contract entered by State Bonding & Insurance Co. and Mora. Held: The insurance contract does not contain any words or clauses to disclose an intent to give any benefit to any repairmen or material men in case of repair of the car in question. The parties to the insurance contract omitted such stipulation, which is a circumstance that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they intended to benefit. It is likewise observed from the brief of the State Bonding & Insurance Company that it has vehemently opposed the assertion or pretension of Bonifacio Bros. that they are privy to the contract. If it were the intention of the Insurance Company to make itself liable to the repair shop or material men, it could have easily inserted in the contract a stipulation to that effect. To hold now that the original parties to the insurance contract intended to confer upon Bonifacio Bros. the benefit claimed by them would require as to ignore the indispensable requisite that a stipulation pour autrui must be clearly expressed by the parties, which the Court cannot do. As regards paragraph 4 of the insurance contract, a perusal thereof would show that instead of establishing privity between Bonifacio Bros. and the insurance company, such stipulation merely establishes the procedure that the insured has to follow in order to be entitled to indemnity for repair. This paragraph therefore should not be construed as bringing into existence in favor of Bonifacio Bros. a right of action against the insurance company as such intention can never be inferred therefrom. Another cogent reason for not recognizing a right of action by Bonifacio Bros. against the insurance company is that "a policy of insurance is a distinct and independent contract between the insured and insurer, and third persons have no right either in a court of equity, or in a court of law, to the proceeds of it, unless there be some contract of trust, expressed or implied, by the insured and third person." Herein, no contract of trust, expressed or implied exists. Thus, no cause of action exists in favor of Bonifacio Bros. in so far as the proceeds of insurance are concerned. Bonifacio Bros.' claim, if at all, is merely equitable in nature and must be made effective through Enrique Mora who entered into a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle governing the operation and effect of insurance contracts in general, but is clearly covered by the express provisions of section 50 of the Insurance Act which read that "the insurance shall be applied exclusively to the proper interest of the person in whose name it is made unless otherwise specified in the policy."