RIZAL SURETY & INSURANCE COMPANY, PLAINTIFF-APPELLANT, VS. MANILA RAILROAD COMPANY AND MANILA PORT SERVICE, DEFENDANTS-APPELLEES.

Rizal Surety and Insurance Company versus Manila Railroad Company and Manila Port Service

The Case

This is a suit for the recovery of a sum of money, brought by Rizal Surety and Insurance Company against the Manila Railroad Company and the Manila Port Service. The insurer had paid its insured consignee for a cargo damaged while being handled by the arrastre operator, and it now seeks to recover that payment in full from the parties at fault. The case matters because it fixes the outer limit of an insurer's subrogation: the insurer steps into the shoes of the insured and can claim no more than the insured himself could lawfully claim, even if the insurer paid more.

Procedural History

The case began in the trial court, which rendered judgment ordering the defendants, jointly and severally, to pay the plaintiff the amount of five hundred pesos, with legal interest from the date of the filing of the complaint, with costs against the defendants. The trial court relied on the management contract's limited liability clause and on the leading case of Bernabe and Company versus Delgado Brothers, Incorporated. The plaintiff insurer appealed, insisting that under the Civil Code it was entitled to recover in full the amount it had paid. The appeal reached the Supreme Court, which affirmed the decision appealed from.

Facts

On or about November 29, 1960, the vessel SS Flying Trader loaded at Genoa, Italy, for shipment to Manila, among other cargoes, six cases of an offset press machine, for which a bill of lading was issued, consigned to Suter, Incorporated. The vessel arrived at the Port of Manila on or about January 16, 1961, and discharged the shipment complete and in good order into the custody of the defendant Manila Port Service as arrastre operator.

In the course of handling, one of the six cases, containing the offset press, was being lifted and loaded by the crane of the Manila Port Service into the consignee's truck when it was dropped by the crane. As a consequence, the machine was heavily damaged. The plaintiff, as insurer, paid the consignee the amount of sixteen thousand five hundred pesos, representing the cost of replacement parts and repairs, plus one hundred eighty pesos and seventy centavos paid to the adjustment bureau as adjuster's fee, for a total of sixteen thousand six hundred eighty pesos and seventy centavos.

The arrastre charges for this particular shipment were paid on the weight or measurement basis, whichever is higher, and not on the value thereof. Clause 15 of the management contract, which appeared at the dorsal part of the delivery permit used in taking delivery of the shipment from the defendants' custody and control, contained an important notice limiting the company's liability to five hundred pesos per package, unless the value of the goods is otherwise specified, declared or manifested and the corresponding arrastre charges have been paid.

Issues

• Whether or not the insurer, as subrogee, may recover from the defendants the full amount it paid to the insured consignee under the insurance contract.
• Whether or not the consignee, and therefore the insurer stepping into its shoes, is bound by the limited liability clause of the management contract incorporated by reference in the delivery permit.

Applicable Provisions

Article 2207 of the Civil Code provides:

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 wrong-doer 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.

This provision is the source of the insurer's right of subrogation, and it is the very basis on which the plaintiff claims, yet its language confines the insurer to the rights of the insured.

Ruling

On the first issue, the Court held that the literal language of Article 2207 does not warrant the interpretation pressed by the insurer. The insurer is subrogated to the rights of the insured against the wrongdoer, and it cannot recover from the defendants an amount greater than that to which the consignee could lawfully lay claim. Since the insurer was subrogated merely to the rights of the consignee, its recovery is necessarily limited to what was recoverable by the insured.

On the second issue, the Court held that the management contract is clear: the amount is limited to five hundred pesos. Such a stipulation has invariably received the approval of the Court since the leading case of Bernabe and Company versus Delgado Brothers, Incorporated, and was quoted with approval in several subsequent cases. The Court restated the doctrine in Atlantic Mutual Insurance Company versus Manila Port Service, through the then Justice, now Chief Justice, Concepcion:

Plaintiff maintains that, not being a party to the management contract, the consignee, into whose shoes plaintiff had stepped in consequence of said payment, is not subject to the provisions of said stipulation, and that the same is furthermore invalid. The lower court correctly rejected this pretense because, having taken delivery of the shipment aforementioned by virtue of a delivery permit, incorporating thereto, by reference, the provisions of said management contract, particularly paragraph 15 thereof, the gist of which was set forth in the permit, the consignee became bound by said provisions, and because it could have avoided the application of said maximum limit of five hundred pesos per package by stating the true value thereof in its claim for delivery of the goods in question, which, admittedly, the consignee failed to do.

Thus the lower court did not err in limiting the amount which the defendants were jointly and severally to pay the plaintiff to five hundred pesos, with legal interest from the date of the filing of the complaint.

Doctrine

An insurer that pays an indemnity is subrogated to the rights of the insured against the wrongdoer or the person who violated the contract, and it can recover no more than the insured could himself have recovered. The subrogee stands in the shoes of the insured and is bound by every limitation that bound the insured, including a limited liability clause in a management contract incorporated by reference in the delivery permit under which the consignee took delivery. A consignee who fails to declare the true value of the goods and to pay the corresponding arrastre charges cannot escape the stipulated maximum limit per package.

Disposition

The Supreme Court affirmed the decision appealed from, with costs against Rizal Surety and Insurance Company.

Remember This

The single line worth memorizing is that the insurer, as subrogee, recovers only what the insured could recover, and no more. Examiners use this case to test the limits of subrogation under Article 2207 and the binding effect of a limited liability clause incorporated by reference in a delivery permit.