FIRST DIVISION
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PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, - versus - TRANS-ASIA SHIPPING LINES, INC., Respondent. |
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G.R. No. 151890 |
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TRANS-ASIA SHIPPING LINES, INC., petitioner, -
versus – PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. |
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G.R. No.
151991 Present: PANGANIBAN,
C.J. Chairperson, YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ. Promulgated: June 20, 2006 |
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CHICO-NAZARIO, J:
This is a consolidation
of two separate Petitions for Review on Certiorari
filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in
G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No.
151991, assailing the Decision[1]
dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which
reversed the Judgment[2]
dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in
Civil Case No. CEB-20709. The
The Facts
The material antecedents as found by the court a quo and adopted by the appellate court
are as follows:
Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia
Korea. In consideration of payment of
premiums, defendant [PRUDENTIAL] 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, beginning [from] the period [of]
On
“Received from Prudential Guarantee and
Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan
without interest under Policy No. MH 93/1353 [sic], repayable only in the event
and to the extent that any net recovery is made by Trans-Asia Shipping
Corporation, 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.” (Exhibit “4”)
In a letter dated
“After a careful review and evaluation of
your claim arising from the above-captioned incident, it has been ascertained
that you are in breach of policy conditions, among them “WARRANTED VESSEL
CLASSED AND CLASS MAINTAINED”.
Accordingly, we regret to advise that your claim is not compensable and
hereby DENIED.”
This
was followed by defendant’s letter dated
Following this
development, on P8,395,072.26
from PRUDENTIAL, alleging that the same represents the balance of the indemnity
due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42%
per annum citing Section 243[6]
of Presidential Decreee No. 1460, otherwise known as the “Insurance Code,” as
amended.
In its Answer,[7]
PRUDENTIAL denied the material allegations of the Complaint and interposed the defense
that TRANS-ASIA breached insurance policy conditions, in particular: “WARRANTED
VESSEL CLASSED AND CLASS MAINTAINED.”
PRUDENTIAL further alleged that it acted as facts and law require and incurred
no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that
its claim has been effectively waived and/or abandoned, or it is estopped from
pursuing the same. By way of a
counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it
allegedly advanced to TRANS-ASIA by way of a loan without interest and without
prejudice to the final evaluation of the claim, including the amounts of P500,000.00,
for survey fees and P200,000.00, representing attorney’s fees.
The Ruling of the Trial
Court
On
Further, citing Section
107[10]
of the Insurance Code, the court a quo
ratiocinated that the 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. The court a quo found merit in PRUDENTIAL’s
contention that there was nothing in the adjustment of the particular average
submitted by the adjuster that would show that TRANS-ASIA was not in breach of
the policy. Ruling on the denominated
loan and trust receipt, the court a quo
said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to
receive the amount of P3,000,000.00 as advance payment, it should have
so clearly stated as such.
The court a quo did not award PRUDENTIAL’s claim
for P500,000.00, representing expert survey fees on the ground of lack
of sufficient basis in support thereof. Neither
did it award attorney’s fees on the rationalization that the instant case does
not fall under the exceptions stated in Article 2208[11]
of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim
stating that there is factual and legal basis for TRANS-ASIA to return the
amount of P3,000,000.00 by way of loan without interest.
The decretal portion of the Judgment of the RTC reads:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint for its failure to prove a cause of action.
On defendant’s counterclaim, plaintiff is directed to
return the sum of P3,000,000.00 representing the loan extended to it by
the defendant, within a period of ten (10) days from and after this judgment
shall have become final and executory.[12]
The Ruling of the Court of Appeals
On appeal by TRANS-ASIA,
the Court of Appeals, in its assailed Decision of
On the issue of TRANS-ASIA’s
alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED,
the Court of Appeals ruled that 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. PRUDENTIAL cannot rely on the lack of
certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as
its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of
a certification does not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, the Court of Appeals considered PRUDENTIAL’s
admission that at the time the insurance contract was entered into between the
parties, the vessel was properly classed by Bureau Veritas, a classification
society recognized by the industry. The
Court of Appeals similarly gave weight to the fact that it was the
responsibility of Richards Hogg International (Phils.) Inc., the average
adjuster hired by PRUDENTIAL, to secure a copy of such certification to support
its conclusion that mere absence of a certification does not warrant denial of
TRANS-ASIA’s claim under the insurance policy.
In the same token, the
Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to
be 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, the party which
drafted the contract. Likewise, according
to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from
Further, the Court of
Appeals, contrary to the ruling of the court a quo, interpreted the
transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of
a loan.
The Court of Appeals concluded that TRANS-ASIA has no obligation to
pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding
that the aforesaid amount was PRUDENTIAL’s partial payment to TRANS-ASIA’s
claim under the policy. Finally, the
Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA
entitled to double interest on the policy for the duration of the delay of
payment of the unpaid balance, citing Section 244[13]
of the Insurance Code.
Finding for therein
appellant TRANS-ASIA, the Court of Appeals ruled in this wise:
WHEREFORE, the foregoing consideration, We find for
Appellant. The instant appeal is ALLOWED
and the Judgment appealed from REVERSED.
The P3,000,000.00 initially paid by appellee Prudential Guarantee
Assurance Incorporated to appellant Trans-Asia and covered by a “Loan and Trust
Receipt” dated 29 May 1995 is HELD to be in partial settlement of the loss
suffered by appellant and covered by Marine Policy No. MH93/1363 issued by
appellee. Further, appellee is hereby
ORDERED to pay appellant the additional amount of P8,395,072.26
representing the balance of the loss suffered by the latter as recommended by
the average adjuster Richard Hogg International (Philippines) in its Report,
with double interest starting from the time Richard Hogg’s Survey Report was completed,
or on 13 August 1996, until the same is fully paid.
All other claims and counterclaims are hereby DISMISSED.
All costs against appellee.[14]
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 in the
Resolution dated
The Issues
Aggrieved, PRUDENTIAL filed before this Court a Petition
for Review, docketed as G.R. No. 151890, relying on the following grounds, viz:
I.
THE AWARD IS GROSSLY UNCONSCIONABLE.
II.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5,
OF THE INSURANCE POLICY.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS
INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A
MATERIAL WARRANTY.
IV.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY
CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER.
V.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED
RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE
BREACH OF THE WARRANTY BY TRANS-ASIA.
VI.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE “LOAN AND
TRUST RECEIPT” EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS
CONSTITUTING PARTIAL PAYMENT THEREOF.
VII.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE
BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE
PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY.
VIII.
THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL
COURT, IN FINDING THAT PRUDENTIAL “UNJUSTIFIABLY REFUSED” TO PAY THE CLAIM AND
IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE
INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.[15]
Similarly, TRANS-ASIA, disagreeing in the ruling of the
Court of Appeals filed a Petition for Review docketed as G.R. No. 151991,
raising the following grounds for the allowance of the petition, to wit:
I.
THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING
ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE
AWARDED IN THE CASES ENUMERATED IN
ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF
RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE
CLAIM.
II.
THE “DOUBLE INTEREST” REFERRED TO IN THE DECISION DATED
In our Resolution of
In sum, for our main resolution are: (1) the liability, if
any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract;
(2) the liability, if any, of TRANS-ASIA to PRUDENTIAL arising from the transaction
between the parties as evidenced by a document denominated as “Loan and Trust
Receipt,” dated 29 May 1995; and (3) the amount of interest to be imposed on
the liability, if any, of either or both parties.
Ruling of the Court
Prefatorily, it must be emphasized that in a petition for
review, only questions of law, and not questions of fact, may be raised.[19] This rule may be disregarded only when the findings of fact
of the Court of Appeals are contrary to the findings and conclusions of the
trial court, or are not supported by the evidence on record.[20] In the case at bar, we find an incongruence
between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the
issues, we are constrained to assess the evidence adduced by the parties to
make appropriate findings of facts as are necessary.
I.
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 resisting the claim of TRANS-ASIA, PRUDENTIAL posits
that TRANS-ASIA violated an express and material warranty in the subject insurance
contract, i.e., Marine Insurance
Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which
stipulates that the insured vessel, “M/V ASIA KOREA” is required to be CLASSED
AND CLASS MAINTAINED. According to
PRUDENTIAL, on
The warranty condition CLASSED AND CLASS MAINTAINED was
explained by PRUDENTIAL’s Senior Manager of the Marine and Aviation Division,
Lucio Fernandez. The pertinent portions
of his testimony on direct examination is reproduced hereunder, viz:
ATTY. LIM
Q Please tell
the court, Mr. Witness, the result of the evaluation of this claim, what final
action was taken?
A It was
eventually determined that there was a breach of the policy condition, and
basically there is a breach of policy warranty condition and on that basis the
claim was denied.
Q To refer you
(sic) the “policy warranty condition,” I am showing to you a policy here marked
as Exhibits “1”, “1-A” series, please point to the warranty in the policy which
you said was breached or violated by the plaintiff which constituted your basis
for denying the claim as you testified.
A Warranted
Vessel Classed and Class Maintained.
ATTY. LIM
Witness pointing, Your Honor, to that portion in Exhibit
“1-A” which is the second page of the policy below the printed words: “Clauses,
Endorsements, Special Conditions and Warranties,” below this are several
typewritten clauses and the witness pointed out in particular the clause
reading: “Warranted Vessel Classed and Class Maintained.”
COURT
Q Will you
explain that particular phrase?
A Yes, a
warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be
entered in the classification society.
COURT
Slowly.
WITNESS
(continued)
A A
classification society is an organization which sets certain standards for a
vessel to maintain in order to maintain their membership in the classification
society. So, if they failed to meet that
standard, they are considered not members of that class, and thus breaching the
warranty, that requires them to maintain membership or to maintain their class
on that classification society. And it
is not sufficient that the member of this classification society at the time of
a loss, their membership must be continuous for the whole length of the policy
such that during the effectivity of the policy, their classification is
suspended, and then thereafter, they get reinstated, that again still a breach
of the warranty that they maintained their class (sic). Our maintaining team membership in the classification
society thereby maintaining the standards of the vessel (sic).
ATTY. LIM
Q Can
you mention some classification societies that you know?
A Well we have
the Bureau Veritas, American Bureau of Shipping, D&V Local Classification
Society, The Philippine Registration of Ships Society,
At the outset, it must be
emphasized that the party which alleges a fact as a matter of defense has the
burden of proving it. PRUDENTIAL, as the
party which asserted the claim that TRANS-ASIA breached the warranty in the
policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the
initiative to show proof in support of its defense; otherwise, failing to
establish the same, it remains self-serving.
Clearly, if no evidence on the alleged breach of TRANS-ASIA of the
subject warranty is shown, a fortiori,
TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden
of evidence to establish the fact of breach.
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.[23] TRANS-ASIA was able to establish proof of
loss and the coverage of the loss, i.e.,
We sustain the findings
of the Court of Appeals that PRUDENTIAL was not successful in discharging the
burden of evidence that TRANS-ASIA breached the subject policy 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, thus:
Q Kindly
examine the records particularly the policy, please tell us if you know whether
M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic)
insurance was procured that Exhibit “1” on 1st July 1993 (sic).
WITNESS
A I recall
that they were classed.
ATTY. LIM
Q With
what classification society?
A I
believe with Bureau Veritas.[24]
As found by the Court of
Appeals and as supported by the records, Bureau Veritas is a classification
society recognized in the marine industry.
As it is undisputed that TRANS-ASIA was properly classed at the time the
contract of insurance was entered into, thus, it becomes incumbent upon
PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly
CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately,
PRUDENTIAL failed to support the allegation.
We are in accord with the
ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s
records to the effect that TRANS-ASIA’s “M/V Asia Korea” was CLASSED AND CLASS
MAINTAINED at the time of the occurrence of the fire cannot be tantamount to
the conclusion that TRANS-ASIA in fact
breached the warranty contained in the policy.
With more reason must we sustain the findings of the Court of Appeals on
the ground that as admitted by PRUDENTIAL, it was likewise the responsibility
of the average adjuster, Richards Hogg International (Phils.), Inc., to secure
a copy of such certification, and the alleged breach of TRANS-ASIA cannot be
gleaned from the average adjuster’s survey report, or adjustment of particular
average per “M/V Asia Korea” of the 25 October 1993 fire on board.
We are not unmindful of
the clear language of Sec. 74 of the Insurance Code which provides that, “the
violation of a material warranty, or other material provision of a policy on
the part of either party thereto, entitles the other to rescind.” It is generally accepted that “[a] warranty
is a statement or promise set forth in the policy, or by reference incorporated
therein, the untruth or non-fulfillment of which in any respect, and without
reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment,
renders the policy voidable by the insurer.”[25] However, it is similarly indubitable that for
the breach of a warranty to avoid a policy, the same must be duly shown by the
party alleging the same. We cannot
sustain an allegation that is unfounded.
Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the
warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA
must be allowed to recover its rightful claims on the policy.
B. Assuming arguendo that TRANS-ASIA violated the policy condition
on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid
waiver of the same.
The Court of Appeals, in
reversing the Judgment of the RTC which held that TRANS-ASIA breached the
warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL
can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as
alleged, ratiocinating, thus:
Third, after the loss, Prudential renewed the insurance policy of
Trans-Asia for two (2) consecutive years, from
PRUDENTIAL finds fault
with the ruling of the appellate court when it ruled that the renewal policies
are deemed a waiver of TRANS-ASIA’s alleged breach, averring herein that the
subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued
only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a
request to TRANS-ASIA that it be furnished a copy of the certification
specifying that the insured vessel “M/V Asia Korea” was CLASSED AND CLASS
MAINTAINED. PRUDENTIAL posits that it
came to know of the breach by TRANS-ASIA of the subject warranty clause only on
We are not impressed.
We do not find that the Court of Appeals was in error when it held that PRUDENTIAL,
in renewing TRANS-ASIA’s insurance policy for two consecutive years after the
loss covered by Policy No. MH93/1363, was considered to have waived
TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition
renders the contract defeasible at the option of the insurer; but if he so
elects, he may waive his privilege and power to rescind by the mere expression
of an intention so to do. In that event
his liability under the policy continues as before.[28] There can be no clearer intention of the
waiver of the alleged breach than the renewal of the policy insurance granted
by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years
1994 and 1995, respectively.
To our mind, the argument
is made even more credulous by PRUDENTIAL’s
lack of proof to support its allegation that the renewals of the
policies were taken only after a request was made to TRANS-ASIA to furnish them
a copy of the certificate attesting that “M/V Asia Korea” was CLASSED AND CLASS
MAINTAINED. Notwithstanding PRUDENTIAL’s
claim that no certification was issued to that effect, it renewed the policy,
thereby, evidencing an intention to waive TRANS-ASIA’s alleged breach. Clearly, by granting the renewal policies
twice and successively after the loss, the intent was to benefit the insured,
TRANS-ASIA, as well as to waive compliance of the warranty.
The foregoing finding renders a determination of whether
the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its
assignment of errors. Whether it is a
rider will not effectively alter the result for the reasons that: (1)
PRUDENTIAL was not able to discharge the burden of evidence to show that
TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was
shown to have been waived by PRUDENTIAL.
II.
A.
The amount of P3,000,000.00 granted by
PRUDENTIAL to TRANS-
It is undisputed that
TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction
receipt denominated as a “Loan and Trust Receipt,” dated
LOAN AND TRUST RECEIPT
Claim File
No. MH-93-025
P3,000,000.00
Check No.
PCIB066755
Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the
sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest,
under Policy No. MH93/1353, repayable only in the event and to the extent that
any net recovery is 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.
As security for such repayment, we hereby pledge to
PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and
deliver to it all documents necessary to prove our interest in said
property. We also hereby agree to
promptly prosecute suit against such persons, corporation or corporations
through whose negligence the aforesaid loss was caused or who may otherwise be
responsible therefore, with all due diligence, in our own name, but at the
expense of and under the exclusive direction and control of PRUDENTIAL
GUARANTEE AND ASSURANCE INC.
TRANS-ASIA
SHIPPING CORPORATION[29]
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.[30] 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.
The Court of Appeals held
that the real character of the transaction between the parties as evidenced by
the “Loan and Trust Receipt” is that of an advance payment by PRUDENTIAL of
TRANS-ASIA’s claim on the insurance, thus:
The Philippine Insurance Code (PD 1460 as amended) was
derived from the old Insurance Law Act No. 2427 of the Philippine Legislature
during the American Regime. The
Insurance Act was lifted verbatim from the law of
x x x x
Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus:
“The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan.”
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.[31]
We agree. 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.”[32]
Second, we find that per
the “Loan and Trust Receipt,” even as TRANS-ASIA agreed to “promptly prosecute
suit against such persons, corporation or corporations through whose negligence
the aforesaid loss was caused or who may otherwise be responsible therefore, with
all due diligence” in its name, the prosecution of the claims against such
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.[34] 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.
III.
A.
PRUDENTIAL is directed to pay TRANS-ASIA
the amount of P8,395,072.26, representing the balance of the loss suffered by
TRANS-ASIA and covered by Marine Policy No. MH93/1363.
Our foregoing discussion
supports the conclusion that TRANS-ASIA is entitled to the unpaid claims
covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26.
B.
Likewise, PRUDENTIAL is directed to pay
TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of P8,395,072.26.
The Court of Appeals
denied the grant of attorney’s fees. It
held that attorney’s fees cannot be awarded absent a showing of bad faith on
the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that
the rejection was erroneous. According
to the Court of Appeals, attorney’s fees can be awarded only in the cases enumerated
in Article 2208 of the Civil Code which finds no application in the instant
case.
We disagree. Sec. 244 of
the Insurance Code grants damages consisting of attorney’s fees and other
expenses incurred by the insured after a finding by the Insurance Commissioner
or the Court, as the case may be, of an unreasonable denial or withholding of
the payment of the claims due. Moreover,
the law imposes an interest of twice the ceiling prescribed by the Monetary
Board on the amount of the claim due the insured from the date following the
time prescribed in Section 242[35]
or in Section 243,[36]
as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to
pay the claims within the time prescribed in Sections 242 or 243, when
applicable, as prima facie evidence
of unreasonable delay in payment.
To the mind of this
Court, Section 244 does not require a showing of bad faith in order that
attorney’s fees be granted. As earlier
stated, under Section 244, a prima facie evidence
of unreasonable delay in payment of the claim is created by failure of the
insurer to pay the claim within the time fixed in both Sections 242 and 243 of
the Insurance Code. As established in
Section 244, by reason of the delay and the consequent filing of the suit by
the insured, the insurers shall be adjudged to pay damages which shall consist
of attorney’s fees and other expenses incurred by the insured.[37]
Section 244 reads:
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 unreasonable 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.
Sections 243 and 244 of
the Insurance Code apply when the court finds an unreasonable delay or refusal
in the payment of the insurance claims.
In the case at bar, the
facts as found by the Court of Appeals, and confirmed by the records show that
there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid
balance of P8,395,072.26 to TRANS-ASIA. On P11,395,072.26 as the total indemnity due to TRANS-ASIA.[38] On P8,395,072.26
representing the balance of the total indemnity. On P3,000,000.00. On P8,395,072.26 representing the balance of the proceeds of
the insurance claim.
As can be gleaned from the foregoing, there was an
unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it
refuted the latter’s right to the insurance claims, from the time proof of loss
was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in
satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a suit for
collection.
Succinctly, an award equivalent to ten percent (10%) of the
unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable
under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,[41] where a finding of an unreasonable
delay under Section 244 of the Insurance Code was made by this Court, we grant
an award of attorney’s fees equivalent to ten percent (10%) of the total
proceeds. We find no reason to deviate
from this judicial precedent in the case at bar.
C. Further, the aggregate amount (P8,395,072.26 plus 10%
thereof as attorney’s fees) shall be
imposed double interest in accordance with Section 244 of the Insurance Code.
Section 244 of the Insurance Code is categorical in
imposing an interest twice the ceiling prescribed by the Monetary Board due the
insured, from the date following the time prescribed in Section 242 or in
Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be
applicable as what is involved herein is a marine insurance, clearly, a policy
other than life insurance.
Section 243 is
hereunder reproduced:
SEC. 243. 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 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 ground that the claim is fraudulent.
As specified, the assured
is entitled to interest on the proceeds for the duration of the delay at the
rate of twice the ceiling prescribed by the Monetary Board except when the
failure or refusal of the insurer to pay was founded on the ground that the
claim is fraudulent.
D.
The term “double interest” as used in the
Decision of the Court of Appeals must be interpreted to mean 24% per annum.
PRUDENTIAL assails the
award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in
the assailed Decision of
The contention fails to
persuade. It is settled that an award of
double interest is lawful and justified under Sections 243 and 244 of the
Insurance Code.[43] In Finman
General Assurance Corporation v. Court of Appeals,[44]
this Court held that the payment of 24% interest per annum is authorized by the
Insurance Code.[45] There is no gainsaying that the term “double
interest” as used in Sections 243 and 244 can only be interpreted to mean twice
12% per annum or 24% per annum interest, thus:
The term
“ceiling prescribed by the Monetary Board” means the legal rate of interest of
twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B.
Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that
when Sections 242, 243 and 244 of the Insurance Code provide that the insurer
shall be liable to pay interest “twice the ceiling prescribed by the Monetary
Board”, it means twice 12% per annum or 24% per annum interest on the proceeds
of the insurance.[46]
E.
The payment of double interest should be
counted from
The Court of Appeals, in
imposing double interest for the duration of the delay of the payment of the
unpaid balance due TRANS-ASIA, computed the same from
To be sure, Section 243
imposes 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. Significantly,
Section 243 mandates the payment of any loss or damage for which an insurer may
be liable, under any policy other than life insurance policy, 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. It is clear that under Section 243, the
insurer has until the 30th day after proof of loss and ascertainment
of the loss or damage to pay its liability under the insurance, and only after
such time can the insurer be held to be in delay, thereby necessitating the
imposition of double interest.
In the case at bar, it
was not disputed that the survey report on the ascertainment of the loss was
completed by the adjuster, Richard Hoggs International (Phils.), Inc. on
IV.
A.
An interest of 12% per annum is similarly
imposed on the TOTAL amount of liability adjudged in section III herein,
computed from the time of finality of judgment until the full satisfaction
thereof in conformity with this Court’s ruling in Eastern Shipping Lines, Inc.
v. Court of Appeals.
This Court in
Eastern Shipping
Lines, Inc. v. Court of Appeals,[47]
inscribed the rule of thumb[48]
in the application of interest to be imposed on obligations, regardless of
their source. Eastern emphasized
beyond cavil that when the
judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, regardless of whether the obligation involves a loan or
forbearance of money, 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[49] of
credit.
We find application of
the rule in the case at bar proper, thus, a rate of 12% per annum from the
finality of judgment until the full satisfaction thereof must be imposed on the
total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the
finality of judgment until the satisfaction of the same is deemed equivalent to
a forbearance of credit, hence, the imposition of the aforesaid interest.
Fallo
WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is
GRANTED, thus, we award the grant of attorney’s fees and make a clarification
that the term “double interest” as used in the 6 November 2001 Decision of the
Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at
the rate of 24% per annum, with a further clarification, that the same should be
computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of
Appeals, in CA-G.R. CV No. 68278, dated
1.
PRUDENTIAL
is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing
the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No.
MH93/1363;
2.
PRUDENTIAL
is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees
equivalent to 10% of the amount of P8,395,072.26;
3.
The
aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s
fees) shall be imposed double interest
at the rate of 24% per annum to be computed from
4. An
interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in
paragraphs (1), (2), and (3) herein, computed from the time of finality of
judgment until the full satisfaction thereof.
No
costs.
SO ORDERED.
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MINITA
V. CHICO-NAZARIO
Associate Justice |
WE CONCUR:
Chief Justice
Chairperson
Associate Justice
Associate Justice
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ROMEO J.
CALLEJO, SR. Associate
Justice |
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Pursuant to Article VIII, Section 13
of the Constitution, it is hereby certified that the conclusions in the above
Decision were reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
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ARTEMIO V.
PANGANIBAN Chief Justice |
[1] Penned
by Associate Justice Romeo A. Brawner with Associate Justices Elvi John S.
[2] Penned by Judge Menrado P.
Paredes, CA rollo, pp. 10-15; Rollo (G.R. No. 151890), pp. 113-118; Rollo
(G.R. No. 151991), pp. 86-91.
[3] Rollo (G.R. No. 151890), pp. 75-76; Rollo (G.R. No. 151991), pp. 43-44.
[4] Rollo (G.R. No. 151991), pp. 88-89; Rollo (G.R. No. 151890), pp. 115-116. pp. 30-31.
[5] Records, pp. 1-5.
[6] Sec. 243 of the Insurance Code reads: 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 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 ground that the claim is fraudulent.
[7] Records, pp. 30-48.
[8] CA rollo, pp. 10-15.
[9]
[10] Section 107 of the Insurance Code reads: “In marine insurance each party is bound to communicate, in addition to what is required by section twenty-eight, all the information which he possesses, material to the risk, except such as is mentioned in section thirty, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose.”
[11] Article 2208 of the Civil Code reads: “In the absence of stipulation, attorney’s fees and expenses of litigation, other than judicial costs, cannot be recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest;
(3) In criminal cases of malicious prosecution against the plaintiff;
(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff’s plainly valid, just and demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just and equitable that attorney’s fees and expenses of litigation should be recovered. In all cases, the attorney’s fees and expenses of litigation must be reasonable.”
[12] CA rollo, p. 15.
[13] Section 244 of the Insurance Code
reads: 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 unreasonable 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 such
claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable
delay in payment.
[14] CA rollo, p. 145.
[15] Rollo
(G.R. No. 151890), p. 17.
[16] Rollo (G.R. No. 151991), p. 18.
[17] Rollo
(G.R. No. 151890), pp. 343-348.
[18] Rollo
(G.R. No. 151890), p. 349; Rollo
(G.R. No. 151991), p. 301.
[19] Mercado
v. People, 441 Phil. 216, 224 (2002).
[20]
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 Court of
Appeals 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; or 11) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by
the parties, which, if properly considered, would justify a different
conclusion.
[21] Sec. 74 of the Insurance Code reads: “The violation of a material warranty, or other material provision of a policy, on the part of either party thereto, entitles the other to rescind.”
[22] TSN,
[23] Francisco
L. Jison v. Court of Appeals, 350 Phil. 138, 173 (1998).
[24] TSN,
[25] William
R. Vance, Handbook on the Law of
Insurance (3rd ed., 1951), p. 408.
[26] Rollo
of G.R. No. 151890, p. 66.
[27]
[28] Supra note 25 at 427.
[29] Records, p. 36.
[30] Rollo
(G.R. No. 151890), p. 41.
[31] Rollo
of G.R. No. 151991, pp. 80-82.
[32] Records, p. 36.
[33]
[34] See Article 1933 of the Civil Code which reads: “By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.”
[35] Section 242 of the Insurance Code reads: “The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy, unless such proceeds are made payable in installments or as an annuity, in which case the installments, or annuities shall be paid as they become due: Provided, however, That in the case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within sixty days after presentation of the claim and filing of the proof of the death of the insured. Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary 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.
The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall include the discounted value of all premiums paid in advance of their due dates, but are not due and payable at maturity.
[36] Section 243 of the Insurance Code reads: “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 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 ground that the claim is fraudulent.
[37] Cathay
Insurance Company, Incorporated v. Court of Appeals, G.R. No. 85624,
[38] Index of Exhibits for the Plaintiff,
Exhibit “C.”
[39] Index of Exhibits for the Defendant, Exhibit “5”.
[40]
[41] Supra note 37.
[42] Rollo
(G.R. No. 151890), p. 18.
[43] Supra note 38.
[44] 413 Phil. 531.
[45]
[46] Teodorico C. Martin, Commentaries and Jurisprudence on the
Philippine Commercial Laws, Vol. 2, (1986, Rev. Ed.), pp. 278-279.
[47] G.R. No. 97412,
[48]
I. When an obligation, regardless of its source,
i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 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 or 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 (Article 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 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.
[49] Within usury law, the term forbearance signifies contractual
obligation of lender or creditor to refrain, during given period of time, from
requiring borrower or debtor to repay loan or debt then due and payable. See Black’s
Law Dictionary, 5th ed. , p. 580 (1979), citing Hafer v. Spaeth, 22