1988 – Malayan Insurance Co., Inc. v. CA, GR No. L-36413 (PANTRANCO collision, Solidary Liability, Insurance Policy, Subrogation)

3.1. DATE OF PROMULGATION

• September 26, 1988

3.2. DECIDING COURT

• Supreme Court of the Philippines

3.3. DIVISION

• Second Division

3.4. PONENTE

• Padilla, J.

3.5. CONCURRENCE AND ATTENDANCE

3.5.3. ABSENT/OTHERS

• None

3.6. SEPARATE OPINIONS

3.7.PARTIES

3.8. COUNSEL

3.8.1. PETITIONER

• Freqillana, Jr.

3.8.2 RESPONDENTS

• BF Estrella & Associates
  • for Martin C. Vallejos
• Memesio Callanta
  • for Sio Choy and San Leon Rice Mill
• Vicente Erfe Law Office
  • for Pangasinan Transportation Co

3.9. NATURE OF ACTION

• Review on certiorari

3.10. LAWS AND PROVISIONS CITED

• Civil Code, Article 2184
• Civil Code, Article 2180
• Civil Code, Article 2194
• Civil Code, Article 1217

3.11. CASES CITED

• Coquia vs. Fieldman’s Insurance Co., Inc., G.R. No. L-23276, November 29, 1968, 26 SCRA 178.
• The Imperial Insurance, Inc. vs. David, G.R. No. L-32425, November 21, 1984, 133 SCRA 317.
• Philippine Phoenix Surety Insurance Co. vs. Woodworks, Inc., G.R. No. L-25317, August 6, 1979, 92 SCRA 419.
• Fireman’s Fund Insurance Company, et al. vs. Jamila & Company, Inc., et al., G.R. No. L- 27427, April 7, 1976, 70 SCRA 323.

4.1. FACTS

• 1967, March 29
  • Petitioner issued an insurance to private respondent Sio Choy for a Willy’s Jeep, which covers for own damages not exceeding P600 and third-party liability in the amount of P20,000
• 1976, December 19
  • Said jeep, driven by one Mr. Campollo, employee of respondent San Leon Rice Mill Inc, collided with a passenger bus belonging to respondent Pangasinan Transportation Co., Inc (PANTRANCO) at the national highway in Bario San Pedro, Rosales, Pangasinan, causing damage to the insured vehicle and injuries to Campollo and respondent Vallejos, who was riding it at that time.

4.2. PROCEDURAL HISTORY

• CFI Pangasinan
  • Respondent Vallejos filed an action for damages against Sio Choy, Malayan Insurance Co., Inc. and PANTRANCO, praying that the defendants jointly and severally, pay him:
    • P15,000 as reimbursement for medical and hospital expenses
    • P6,000 for lost income
    • P51,000.00 as actual moral and compensatory damages
    • P5,000.00 for attorney’s fees.
  • PANTRANCO prayed to be absolved from any and all liability. It claimed that the jeep was speeding exessively, and that it had observed the diligence of a good father of a family to prevent damage.
  • Defendant Sio Choy and petitioner insurance company denied liability, claiming the fault was imputable solely to PANTRANCO
  • Defendant Choy later filed a separate answer with a cross-claim that:
    • He paid Vallejos P5,000.00 for hospitalization and other expenses
    • Petitioner 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.
  • Petitioner filed a third-party complaint against respondent San Leon Rice Mill ont the following grounds:
    • 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;
    • 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.
  • 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.
  • CFI ruled for Vallejos and against Sio Choy, Malayan Insurance Co., Inc., and San Leon Rice Mill, holding them jointly and severally liable for the following:
    • (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 attorney’s fees or the total of P29,103.00, plus costs.
    • Liability of Malayan Insurance Co, Inc. is only limited to P20,000.00.
• Court of Appeals
  • Upon appeal by petitioner, CA affirmed the CFI decision but ruling that San Leon Rice Mill Inc has no obligation to indemnify or reimburse the petitioner insurance company, since San Leon Rice Mill Inc. is not a privy to the contract of insurance between Sio Choy and the insurance company.
• Supreme Court
  • Petition files a petition for review on certiorari, praying for a reversal or reimbursement by San Leon Rice Mill Inc any amount in excess of one half of the entire amount of damages,
  • The Supreme Court only gives due course to the petition limited to the liability of San Leon Rice Mill Inc.

4.3. ISSUES

• Whether the trial court was corrent in holding petitioner and respondents Sio Choy and San Leon Rice Mill inc ‘solidarily liable’ to respondent Vallejos?
• 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?

4.4. HELD

• Whether the trial court was correct in holding petitioner and respondents Sio Choy and San Leon Rice Mill Inc ‘solidarily liable’ to respondent Vallejos?
  • No. Only respondents Sio Choy and San Leon Rice Mill Inc are solidarily liable to respondent 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.
  • 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.
  • 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 solidary.
  • 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, 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, 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. 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.”
  • 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.
• 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?
  • Yes
  • 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, (italics supplied) or upon written assignment of claim, and payment to the insured makes the insurer an assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co, 264 N.C. 456, 142 SE 2d 18).”
  • It follows, therefore, that petitioner, upon paying respondent Vallejos the amount of not 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.
  • 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.

4.5. DISPOSITION

• Petition granted. Decision of the trial court affirmed with modification.

4.6. SEPARATE OPINION

• None