1.
Prudential vs Trans-Asia
G.R. No. 151890 June 20, 2006
PRUDENTIAL GUARANTEE and ASSURANCE
INC., petitioner vs. TRANS-ASIA SHIPPING LINES,
INC., Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 151991 June 20, 2006
TRANS-ASIA SHIPPING LINES, INC., petitioner, vs.
PRUDENTIAL GUARANTEE and ASSURANCE
INC., Respondent.
FACTS
This is a consolidation of two separate Petitions for Review
on Certiorari
1. Trans-Asia Shipping Lines Inc. is the owner of the
vessel M/V Asia Korea.
2. Prudential Guarantee and Assurance Inc. insured
M/V Asia Korea for loss/damage of the hull and
machinery arising from perils, inter alia, of fire and
explosion for the sum of P40 Million from July 1,
1993 up to July 1, 1994
3. On October 25, 1993, while the policy was in force,
a fire broke out while M/V Asia Korea is
undergoing repairs at the port of Cebu.
4. Trans-Asia filed its notice of claim for damage
sustained by the vessel and executed a document
denominated as "Loan and Trust receipt", stating
that it received from Prudential the sum of 3M
pesos as loan without interest
5. Prudential denied Trans Asia’s claim for breach of
policy conditions, among them "WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED"
followed by a letter requesting the return or
payment of the P3,000,000.00 within a period of
ten (10) days
6. Trans-Asia filed complaint for Sum of Money
against PRUDENTIAL for payment of the balance of
indemnity due upon the insurance policy
7. PRUDENTIAL denied the material allegations of the
Complaint and interposed the defense that TRANS-
ASIA breached insurance policy conditions,
8. RTC ruled for PRUDENTIAL
 TRANS-ASIA failed to prove compliance of the
terms of the warranty, the violation thereof
entitled PRUDENTIAL, the insured party, to
rescind the contract.
 Further, citing Section 107, concealment made
by TRANS-ASIA that the vessel was not
adequately maintained to preserve its class
was a material concealment sufficient to avoid
the policy and, thus, entitled the injured party
to rescind the contract.
9. On appeal by TRANS-ASIA, the Court of Appeals
reversed the judgment of RTC
 PRUDENTIAL, as the party asserting the non-
compensability of the loss had the burden of
proof to show that TRANS-ASIA breached the
warranty, which burden it failed to discharge.
 Warranty allegedly breached by TRANS-ASIA
is a rider which, while contained in the policy,
was inserted by PRUDENTIAL without the
intervention of TRANS-ASIA. As such, it
partakes of a nature of a contract d’adhesion
which should be construed against
PRUDENTIAL
 PRUDENTIAL’s renewal of the insurance policy
from noon of 1 July 1994 to noon of 1 July
1995, and then again, until noon of 1 July 1996
must be deemed a waiver by PRUDENTIAL of
any breach of warranty committed by TRANS-
ASIA.
 Transaction between PRUDENTIAL and
TRANS-ASIA is subrogation, instead of a
loan.
 However, TRANS-ASIA’s prayer for attorney’s
fees was denied,
10. Not satisfied with the judgment, PRUDENTIAL and
TRANS-ASIA filed a Motion for Reconsideration
and Partial Motion for Reconsideration thereon,
respectively, which motions were denied by the
Court of Appeals
11. Aggrieved, PRUDENTIAL filed before this Court a
Petition for Review and similarly, TRANS-ASIA,
disagreeing in the ruling of the Court of Appeals
filed a Petition for Review
ISSUE/S with HOLDING
W/N Prudential is liable to Trans-Asia arising from the
subject insurance contract - YES
A. PRUDENTIAL failed to establish that TRANS-ASIA
violated and breached the policy condition on
WARRANTED VESSEL CLASSED AND CLASS MAINTAINED,
as contained in the subject insurance contract.
In our rule on evidence, TRANS-ASIA, as the plaintiff below,
necessarily has the burden of proof to show proof of loss,
and the coverage thereof, in the subject insurance policy.
However, in the course of trial in a civil case, once plaintiff
makes out a prima facie case in his favor, the duty or the
burden of evidence shifts to defendant to controvert
plaintiff’s prima facie case, otherwise, a verdict must be
returned in favor of plaintiff. TRANS-ASIA was able to
establish proof of loss and the coverage of the loss, i.e., 25
October 1993: Fire on Board. Thereafter, the burden of
evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s
case, and to prove its special and affirmative defense that
TRANS-ASIA was in violation of the particular condition on
CLASSED AND CLASS MAINTAINED.
Foremost, PRUDENTIAL, through the Senior Manager of its
Marine and Aviation Division, Lucio Fernandez, made a
categorical admission that at the time of the procurement
of the insurance contract in July 1993, TRANS-ASIA’s vessel,
"M/V Asia Korea" was properly classed by Bureau Veritas
B. The amount of P3,000,000.00 granted by
PRUDENTIAL to TRANS- ASIA via a transaction between
the parties evidenced by a document denominated as
"Loan and Trust Receipt," dated 29 May 1995
constituted partial payment on the policy.
PRUDENTIAL largely contends that the "Loan and Trust
Receipt" executed by the parties evidenced a loan of
P3,000,000.00 which it granted to TRANS-ASIA, and not an
advance payment on the policy or a partial payment for the
loss. It further submits that it is a customary practice for
insurance companies in this country to extend loans
gratuitously as part of good business dealing with their
assured, in order to afford their assured the chance to
continue business without embarrassment while awaiting
outcome of the settlement of their claims. According to
PRUDENTIAL, the "Trust and Loan Agreement" did not
subrogate to it whatever rights and/or actions TRANS-ASIA
may have against third persons, and it cannot by no means
be taken that by virtue thereof, PRUDENTIAL was granted
irrevocable power of attorney by TRANS-ASIA, as the sole
power to prosecute lies solely with the latter.
However, what is clear from the wordings of the so-called
"Loan and Trust Receipt Agreement" is that appellant is
obligated to hand over to appellee "whatever recovery
(Trans Asia) may make and deliver to (Prudential) all
documents necessary to prove its interest in the said
property." For all intents and purposes therefore, the
money receipted is payment under the policy, with
Prudential having the right of subrogation to whatever net
recovery Trans-Asia may obtain from third parties
resulting from the fire. In the law on insurance,
subrogation is an equitable assignment to the insurer
of all remedies which the insured may have against
third person whose negligence or wrongful act caused
the loss covered by the insurance policy, which is
created as the legal effect of payment by the insurer as
an assignee in equity. The loss in the first instance is
that of the insured but after reimbursement or
compensation, it becomes the loss of the insurer. It has
been referred to as the doctrine of substitution and
rests on the principle that substantial justice should be
attained regardless of form, that is, its basis is the
doing of complete, essential, and perfect justice
between all the parties without regard to form.
Notwithstanding its designation, the tenor of the "Loan
and Trust Receipt" evidences that the real nature of the
transaction between the parties was that the amount of
P3,000,000.00 was not intended as a loan whereby
TRANS-ASIA is obligated to pay PRUDENTIAL, but
rather, the same was a partial payment or an advance
on the policy of the claims due to TRANS-ASIA.
First, the amount of P3,000,000.00 constitutes an advance
payment to TRANS-ASIA by PRUDENTIAL, subrogating the
former to the extent of "any net recovery made by TRANS
ASIA SHIPPING CORP., from any person or persons,
corporation or corporations, or other parties, on account of
loss by any casualty for which they may be liable,
occasioned by the 25 October 1993: Fire on Board."
Second, the "Loan and Trust Receipt," provides that the
prosecution of the claims against third persons are to be
carried on "at the expense of and under the exclusive
direction and control of PRUDENTIAL GUARANTEE AND
ASSURANCE INC."33 The clear import of the phrase "at the
expense of and under the exclusive direction and control"
as used in the "Loan and Trust Receipt" grants solely to
PRUDENTIAL the power to prosecute, even as the same is
carried in the name of TRANS-ASIA, thereby making
TRANS-ASIA merely an agent of PRUDENTIAL, the
principal, in the prosecution of the suit against parties who
may have occasioned the loss.
Third, per the subject "Loan and Trust Receipt," the
obligation of TRANS-ASIA to repay PRUDENTIAL is highly
speculative and contingent, i.e., only in the event and to the
extent that any net recovery is made by TRANS-ASIA from
any person on account of loss occasioned by the fire of 25
October 1993. The transaction, therefore, was made to
benefit TRANS-ASIA, such that, if no recovery from third
parties is made, PRUDENTIAL cannot be repaid the amount.
Verily, we do not think that this is constitutive of a loan. The
liberality in the tenor of the "Loan and Trust Receipt" in
favor of TRANS-ASIA leads to the conclusion that the
amount of P3,000,000.00 was a form of an advance
payment on TRANS-ASIA’s claim on MH93/1353.
Notwithstanding its designation, the tenor of the "Loan and
Trust Receipt" evidences that the real nature of the
transaction between the parties was that the amount of
P3,000,000.00 was not intended as a loan whereby TRANS-
ASIA is obligated to pay PRUDENTIAL, but rather, the same
was a partial payment or an advance on the policy of the
claims due to TRANS-ASIA.
2. Republic Flour Mills vs Forbes
G.R. No. 152313 October 19, 2011
REPUBLIC FLOUR MILLS CORPORATION, Petitioner,
vs. FORBES FACTORS, INC. Respondent.
FACTS
1. In a contract dated 26 April 1983, Forbes Factors
Inc. was appointed as the exclusive Philippine
indent representative of Richco Rotterdam B.V.
(Richco), a foreign corporation, in the sale of the
latter’s commodities.
2. Under one of the terms of the contract, Forbes was
to assume the liabilities of all the Philippine
buyers, should they fail to honor the commitments
on the discharging operations of each vessel,
including the payment of demurrage and other
penalties.
3. In such instances, Richco shall have the option to
debit the account of respondent corresponding to
the liabilities of the buyers, and respondent shall
then be deemed to be subrogated to all the rights
of Richco against these defaulting buyers.
4. Sometime in 1987, Republic Flour Mills purchased
Canadian barley and soybean meal from Richco.
The latter thereafter chartered four (4) vessels to
transport the products to the Philippines. Each of
the carrier bulk cargoes was covered by a Contract
of Sale executed between Forbes as the seller and
duly authorized representative of Richco and Flour
Mills as the buyer. The four contracts specifically
referred to the charter party in determining
demurrage or dispatch rate. The contract further
provided that petitioner guarantees to settle any
demurrage due within one (1) month from
respondent’s presentation of the statement.
5. Upon delivery of the barley and soybean meal,
Flour Mills failed to discharge the cargoes from the
four (4) vessels at the computed allowable period
to do so. Thus, it incurred a demurrage amounting
to a total of US$193,937.41.
6. On numerous occasions, on behalf of Richco,
Forbes demanded from Flour Mills the payment of
the demurrage, to no avail.
7. Richco sent a communication to Forbes, informing
it that the demurrage due from Flour Mills had
been debited from Forbes’ account.
8. Thereafter, on 12 February 1992, Forbes filed a
Complaint for demurrage and damages against
Flour Mills.
9. Flour Mills raised the defense that the delay was
due to Forbes’ inefficiency in unloading the cargo.
10. RTC held Flour Mills liable to pay demurrage and
damages to Forbes. RTC found that the delay in
discharging the cargoes within the allowable
period was due to Flour Mill’s failure to provide
enough barges on which to load the goods. It
likewise found that Flour Mills in fact
acknowledged that the latter had incurred
demurrage when it alleged that the computation
was bloated.
11. Subsequently, Flour Mills appealed to the Court of
Appeals (CA), alleging that respondent was not a
real party-in-interest to bring the collection suit.
Petitioner insisted that the payment of demurrage
should be made to the owner of the vessels that
transported the goods, and not to Forbes who was
merely the indent representative of Richco, the
charterer of the vessel
12. CA upheld the validity of the Contracts of Sale and
held that these had the force of law between the
contracting parties and must be complied with in
good faith. However, the appellate court modified
the trial court’s award of damages. It held that
exemplary damages are not intended to enrich
anyone, thus, reducing the amount from ₱300,000
to ₱50,000. It also found the award of attorney’s
fees to be excessive, and consequently reduced it
from ₱400,000 to ₱75,000.
13. Hence this Petition.
ISSUE with HOLDING
W/N Forbes has the right to demand payment of
demurrage from Flour Mills - YES
Flour Mills asserts that, by definition, demurrage is the sum
fixed by the contract of carriage as remuneration to the
ship owner for the detention of the vessel beyond the
number of days allowed by the charter party. Thus, since
respondent is not the ship owner, it has no right to demand
the payment of demurrage and has no personality to bring
the claim against petitioner.
However, Forbes unequivocally established that Richco
charged to it the demurrage due from Flour Mills. Thus, at
the moment that Richco debited the account of Forbes, the
latter is deemed to have subrogated to the rights of the
former, who in turn, paid demurrage to the ship owner. It is
therefore immaterial that Forbes is not the ship owner,
since it has been able to prove that it has stepped into the
shoes of the creditor.
Subrogation is either "legal" or "conventional." Legal
subrogation is an equitable doctrine and arises by
operation of the law, without any agreement to that effect
executed between the parties; conventional subrogation
rests on a contract, arising where "an agreement is made
that the person paying the debt shall be subrogated to the
rights and remedies of the original creditor."7 The case at
bar is an example of legal subrogation, the petitioner and
respondent having no express agreement on the right of
subrogation. Thus, it is of no moment that the Contracts of
Sale did not expressly state that demurrage shall be paid to
Forbes. By operation of law, Forbes has become the real
party-in-interest to pursue the payment of demurrage.
The subrogation was pursuant to Articles 1302 and 2067,
New Civil Code, which read:
"Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is
preferred, even without the debtor’s knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit approval
of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of the
 obligation pays, without prejudice to the effects of
confusion as to the latter’s share."
"Art. 2067. The guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the
debtor.
If the guarantor has compromised with the creditor, he
cannot demand of the debtor more than what he has really
paid."
As we held in Fireman’s Fund Insurance Company v. Jamila
& Company, Inc.:
…Subrogation has been referred to as the doctrine of
substitution. It "is an arm of equity that may guide or even
force one to pay a debt for which an obligation was
incurred but which was in whole or in part paid by
another" (83 C.J.S. 576, 678, note 16, citing Fireman's Fund
Indemnity Co. vs. State Compensation Insurance Fund, 209
Pac. 2d 55).
"Subrogation is founded on principles of justice and equity,
and its operation is governed by principles of equity. It
rests on the principle that substantial justice should be
attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the
parties without regard to form"(83 C.J.S. 579- 80)
3. RCJ Bus Lines vs Standard Insurance
G.R. No. 193629 August 17, 2011
RCJ BUS LINES, INCORPORATED, Petitioner, vs.
STANDARD INSURANCE COMPANY,
INCORPORATED, Respondent.
FACTS
1. On June 19, 1994 Flor B. Mangoba, driver of an RCJ
HINO BLUE RIBBON PASSENGER BUS, owned by
RCJ Bus Lines, bumped and hit a 1991 Mitsubishi
Lancer of Rodelene Valentino
2. The subject Mitsubishi Lancer was insured for loss
and damage with Standard Insurance Company for
₱450,000.00
3. By virtue of the insurance contract, Standard paid
Rodelene Valentino the amount of ₱162,151.22 for
the repair of the Mitsubishi Lancer car
4. After compliance with its obligation under the
policy mentioned above, Standard’s assured
executed in Standard’s favor a Release of Claim
thereby subrogating the latter to all his rights of
recovery on all claims, demands and rights of
action on account of loss, damage or injury as a
consequence of the accident from any person liable
therefor.
5. Despite demands, RCJ have failed and refused and
still continue to fail and refuse to reimburse
Standard
6. As a consequence, Standard has been compelled to
resort to court action
7. In its answer, RCJ Bus Lines, Inc. maintained that
the direct, immediate and proximate cause of the
accident was the negligence of the driver of the
Mitsubishi Lancer when, for no reason at all, it
made a sudden stop along the National Highway, as
if to initiate and/or create an accident."
8. Flor Bola Mangoba, in his own answer to the
complaint, also pointed his finger at the driver of
the Mitsubishi Lancer as the one who caused the
vehicular accident on the time, date and place in
question.
9. MeTC held in favor of Standard
10. RTC dismissed Mangoba and RCJ’s appeal for filing
their pleading beyond the reglementary period.
11. The appellate court, however, granted RCJ’s
petition and remanded the case to the RTC for
further proceedings.
12. RTC affirmed with modification the MeTC’s
Decision, but deleted the award for exemplary
damages.
 RCJ failed to observe the diligence of a good
father of a family to prevent damages
sustained by the Mitsubishi Lancer. The
testimony of Noel Oalog, the bus conductor,
confirmed that the bus was travelling at a
speed of 60 to 75 kilometers per hour, which
was beyond the maximum allowable speed of
50 kilometers per hour for a bus on an open
country road. The RTC, however, deleted the
award of exemplary damages because it found
no evidence that Mangoba acted with gross
negligence.
13. Appellate court found that the RTC committed no
reversible error in affirming RCJ’s liability as
registered owner of the bus and employer of
Mangoba, as well as Mangoba’s negligence in
driving the passenger bus.
14. Hence, this petition
ISSUES with HOLDING
W/N RCJ is liable to reimburse Standard – YES
Standard may hold RCJ liable for two reasons, both of which
rely upon facts uncontroverted by RCJ. One, RCJ is the
registered owner of the bus driven by Mangoba. Two, RCJ is
Mangoba’s employer.
It cannot be denied that the Mitsubishi Lancer sustained
damages. Moreover, it cannot also be denied that Standard
paid Rodelene Valentino ₱162,151.22 for the repair of the
Mitsubishi Lancer pursuant to a Release of Claim and
Subrogation Receipt. Neither RCJ nor Mangoba cross-
examined Standard’s claims evaluator when he testified on
his duties, the insurance contract between Rodelene
Valentino and Standard, Standard’s payment of insurance
proceeds, and RCJ and Mangoba’s refusal to pay despite
demands. After being lackadaisical during trial, RCJ cannot
escape liability now. Standard’s right of subrogation
accrues simply upon its payment of the insurance claim. 25
Article 2207 of the Civil Code reads:
Art. 2207. If the plaintiff’s property has been insured and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the
person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the
deficiency from the person causing the loss or injury.
Subrogation is the substitution of one person by another
with reference to a lawful claim or right, so that he who
substitutes another succeeds to the rights of the other in
relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an
insurer who 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.26
4. Aboitiz Shipping v. Insurance Company of North
America
DOCTRINE: The right of subrogation attaches upon
payment by the insurer of the insurance claims by the
assured. As subrogee, the insurer steps into the shoes of the
assured and may exercise only those rights that the assured
may have against the wrongdoer who caused the damage.
FACTS:
 Science Teaching Improvement Project (STIP)
purchased work tools and workbenches.
 MSAS Cargo International Limited and/or
Associated and/or Subsidiary Companies (MSAS)
was hired to transport these items.
 MSAS procured an insurance policy with Insurance
Company of North America over these goods.
 The goods were received by Aboitiz Shipping and
then transported to Cebu.
 Upon the goods’ arrival, some of the crates were
opened and cracked at the bottom and the incident
was duly reported to STIP.
 STIP withdrew the goods and delivered the same
to Don Bosco Technical High School, received by
Bernhard Willing.
 Bernhard Willing reported the damage to Aboitiz.
 STIP filed a claim against ICNA who likewise paid.
 A subrogation receipt was then signed by Bernhard
Willing and given to ICNA as proof.
 ICNA presented the same receipt to Aboitiz, hoping
to claim from the latter - but Aboitiz refused on the
following grounds:
o Subrogation does not apply (therefore
ICNA had no locus standi)
o ICNA was a foreign company and cannot
sue in Philippine courts
ISSUE:
Whether ICNA can claim from Aboitiz (does subrogation
apply in insurance contracts?)
RULING:
YES, in favor of ICNA.
A foreign corporation not licensed to do business in the
Philippines is not absolutely incapacitated from filing a suit
in local courts. Only when that foreign corporation is
"transacting" or "doing business" in the country will a
license be necessary before it can institute suits. It may,
however, bring suits on isolated business transactions,
which is not prohibited under Philippine law. Thus, this
Court has held that a foreign insurance company may
sue in 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. It is the
act of engaging in business without the prescribed license,
and not the lack of license per se, which bars a foreign
corporation from access to our courts.
Respondent's cause of action is founded on it being
subrogated to the rights of the consignee of the damaged
shipment. The right of subrogation springs from Article
2207 of the Civil Code, which states:
Article 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing
the loss or injury. (Emphasis added)
5. Keppel Cebu Shipyard v. Pioneer Insurance and
Surety Corporation
FACTS:
 WG&A commissioned KCSI to repair M/V
Superferry 3 (Superferry 3) in KCSI’s drydock.
 Before this Ship Repair Agreement between WG&A
and KCSI, the Superferry 3 was already insured for
$8.4-million with Pioneer.
 8 Ferbuary 2000, mid-repair, Superferry 3 was
gutted with fire, leading WG&A to declare “total
constructive loss”.
 WG&A then filed an insurance claim with Pioneer.
  16 June 2000, Pioneer paid the $8.4-million and
WG&A executed a Loss and Subrogation Receipt in
favor of Pioneer.
 Pioneer then tried to collect the entire $8.4-million
from KCSI based on the Ship Repair Agreement,
claiming that KCSI was solely responsible.
 KCSI refused and the matter was raised to the
Construction Industry Arbitration Commission
(CIAC) as per the arbitration clause in the Ship
Repair Agreement.
 During these proceedings, WG&A and KCSI were
able to amicably settle -- but Pioneer was still
claimant.
 28 October 2002, CIAC found both WG&A and KCSI
equally guilty of negligence which resulted in the
fire and loss of Superferry 3.
 CIAC also ruled that KSCI liability was limited to
the amount of P50,000,000.00 pursuant to Clause
20 of the Ship Repair Agreement.
 CIAC ordered KCSI to pay Pioneer the amount of
P25,000,000.00, with interest at 6% per annum
from the time of the filing of the case up to the time
the decision was promulgated, and 12% interest
per annum added to the award, or any balance
thereof, after it would become final and
executory. The CIAC further ordered that the
arbitration costs be imposed on both parties on a
pro rata basis.
 Eventually, the case reached the SC en banc.
ISSUE:
Is subrogation proper? If proper, to what extent can
subrogation be made?
RULING:
YES. With the liability of KCSI to WG&A for the loss of
Superferry 3 being limited to P50,000,000.00, it goes
without saying that Pioneer, as subrogee of WG&A, may
only claim the amount of P50,000,000.00 from KCSI. Well-
settled is the rule that the insurer can be subrogated only to
the rights as the insured may have against the wrongdoer.
As Article 2207 of the Civil Code states:
Article 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing
the loss or injury. [Emphasis supplied)
6. FEDERAL EXPRESS CORPORATION vs. AMERICAN
HOME ASSURANCE COMPANY and PHILAM INSURANCE
COMPANY, INC.
DOCTRINE:
In the exercise of its subrogatory right, an insurer may
proceed against an erring carrier and to all intents and
purposes, it stands in the place and in substitution of the
consignee.
FACTS:
 Smithkline USA hired Burlington Air Express to
deliver 109 cartons of veterinary medicine to
Smithkline and a French overseas company in
Makati.
 These items were insured with American Home
Assurance Company (AHAC) and PhilAm Insurance
Company (PHILAM).
 On the face of the cargo were the words
“REFRIGERATE WHEN NOT IN TRANSIT” and
“PERISHABLE”.
 Burlington Air Express turned over the goods to
Federal Express (FEDEX) for transport to Manila.
 12 days after the cargo arrived in Manila, it was
discovered that these were not refrigerated but
merely kept in an airconditioned space.
 Because of this, the cargo spoiled and Smithkline
abandoned the shipment, declaring “total loss”.
 Smithkline then filed a claim with the AHAC in the
Philippines, and was paid for by AHAC’s
representative in the Philippines, PHILAM.
 A subrogation receipt was executed in favor of
PHILAM.
 PHILAM now sues FEDEX and Cargohaus (the
warehouse) as being solely responsible for the loss
of the goods.
ISSUE:
Whether or not FEDEX is liable for damage to or loss of the
insured goods?
RULING:
YES. Upon receipt of the insurance proceeds, the consignee
(SMITHKLINE) executed a subrogation receipt in favor of
respondents authorizing them “to file claims and begin suit
against any such carrier, person, vessel, 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 and if that right was violated, the
consignee would have a cause of action against the person
responsible therefor.
In the exercise of its subrogatory right, an insurer may
proceed against an erring carrier and to all intents and
purposes, it stands in the place and in substitution of the
consignee.