EN BANC
G.R. No. 223134, August 14, 2019
VICENTE G. HENSON, JR., PETITIONER, v. UCPB GENERAL INSURANCE CO., INC., RESPONDENT.
D E C I S I O N
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the Decision2 dated November 13, 2015 and the Resolution3 dated February 26, 2016 of the Court of Appeals (CA) in CA-G.R. SP. No. 138147, which affirmed the Orders dated June 10, 20144 and September 22, 20145 of the Regional Trial Court of Makati City, Branch 138 (RTC) in Civil Case No. 10-885, ruling that the suit filed by respondent UCPB General Insurance Co., Inc. (respondent) has yet to prescribe, and resultantly, allowing the inclusion of petitioner Vicente G. Henson, Jr. (petitioner) as party-defendant to the same.
We concur with the CA's ruling that respondent's action did not yet prescribe. The legal provision governing this case was not Article 1146 of the Civil Code, but Article 1144 of the Civil Code, which states:In Vector, the Court held that the insured's (i.e., American Home's) claim against the debtor (i.e., Vector) was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and hence, an obligation created by law. While indeed American Home was entitled to claim against Vector by virtue of its subrogation to the rights of the insured (i.e., Caltex), the Court failed to discern that no new obligation was created between American Home and Vector for the reason that a subrogee only steps into the shoes of the subrogor; hence, the subrogee-insurer only assumes the rights of the subrogor-insured based on the latter's original obligation with the debtor.Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:We need to clarify, however, that we cannot adopt the CA's characterization of the cause of action as based on the contract of affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make the M/T Vector seaworthy, so as to make this action come under Article 1144 (1), supra. Instead, we find and hold that the present action was not upon a written contract, but upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is because the subrogation of respondent to the rights of x x x the insured was by virtue of the express provision of law embodied in Article 2207 of the Civil Code, to wit:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance Corporation v. [CA,37] as follows:Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer [Compañia Maritima v. Insurance Company of North America, 120 Phil. 998 (1964); Fireman's Fund Insurance Company v. Jamila & Company, Inc., 162 Phil. 421 (1976)].Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of Vector and Soriano to pay the demand for reimbursement by respondent because it concerned only the agreement for the transport of Caltex's petroleum cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v. [CA], supra, respondent's right of subrogation pursuant to Article 2207, supra, was "not dependent upon, nor d[id] it grow out of, any privity of contract or upon written assignment of claim [but] accrue[d] simply upon payment of the insurance claim by the insurer."
Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of P7,455,421.08 on July 12, 1988, the action was not yet barred by the time of the filing of its complaint on March 5, 1992, which was well within the 10-year period prescribed by Article 1144 of the Civil Code.38 (Emphases and underscoring supplied)
The rights of a subrogee cannot be superior to the rights possessed by a subrogor. "Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered."Despite its error, Vector had aptly cited the case of Pan Malayan Insurance Corporation v. CA (Pan Malayan),43 wherein it was explained that subrogation, under Article 2207 of the Civil Code, operates as a form of "equitable assignment"44 whereby "the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay."45It is characterized as an "equitable assignment" since it is an assignment of credit without the need of consent - as it was, in fact, mentioned in Pan Malayan, "[t]he right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer."46It is only to this extent that the equity aspect of subrogation must be understood. Indeed, subrogation under Article 2207 of the Civil Code allows the insurer, as the new creditor who assumes ipso jure the old creditor's rights without the need of any contract, to go after the debtor, but it does not mean that a new obligation is created between the debtor and the insurer. Properly speaking, the insurer, as the new creditor, remains bound by the limitations of the old creditor's claims against the debtor, which includes, among others, the aspect of prescription. Hence, the debtor's right to invoke the defense of prescription cannot be circumvented by the mere expedient of successive payments of certain insurers that purport to create new obligations when, in fact, what remains subsisting is only the original obligation. Verily, equity should not be stretched to the prejudice of another.
Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified and therefore, no right to collect is passed on to the subrogee.42 (Emphases and underscoring supplied)
An assignment of credit has been defined as an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation - and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.As discussed above, in an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects (as notice to the debtor suffices); also, in assignment, no new contractual relation between the assignee/new creditor and debtor is created. On the other hand, in conventional subrogation, an agreement between all the parties concerning the substitution of the new creditor is necessary. Meanwhile, legal subrogation produces the same effects as assignment and also, no new obligation is created between the subrogee/new creditor and debtor. As observed in commentaries on the subject:
On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation is that which takes place without agreement but by operation of law because of certain acts. Conventional subrogation is that which takes place by agreement of parties.
Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the rights of the original creditor, this Court still cannot definitively rule that assignment of credit and conventional subrogation are one and the same.
A noted authority on civil law provided a discourse on the difference between these two transactions, to wit -Conventional Subrogation and Assignment of Credits. - In the Argentine Civil Code, there is essentially no difference between conventional subrogation and assignment of credit. The subrogation is merely the effect of the assignment. In fact[,] it is expressly provided (Article 769) that conventional redemption shall be governed by the provisions on assignment of credit.This Court has consistently adhered to the foregoing distinction between an assignment of credit and a conventional subrogation. Such distinction is crucial because it would determine the necessity of the debtor's consent. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce the legal effects. What the law requires in an assignment of credit is not the consent of the debtor, but merely notice to him as the assignment takes effect only from the time he has knowledge thereof. A creditor may, therefore, validly assign his credit and its accessories without the debtor's consent. On the other hand, conventional subrogation requires an agreement among the parties concerned - the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties.48 (Emphases and underscoring supplied)
Under our Code, however, conventional subrogation is not identical to assignment of credit. In the former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that the new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditor's right to another. x x x
The effect of legal subrogation is to transfer to the new creditor the credit and all the rights and actions that could have been exercised by the former creditor either against the debtor or against third persons, be they guarantors or mortgagors. Simply stated, except only for the change in the person of the creditor, the obligation subsists in all respects as before the novation.49 (Emphasis supplied)Unlike assignment, however, legal subrogation, to produce effects, does not need to be agreed upon by the subrogee and subrogor, unlike the need of an agreement between the assignee and assignor. As mentioned, "[l]egal subrogation is that which takes place without agreement but by operation of law because of certain acts,"50 as in the case of payment of the insurer under Article 2207 of the Civil Code.
Judicial decisions assume the same authority as a statute itself and, until authoritatively abandoned, necessarily become, to the extent that they are applicable, the criteria that must control the actuations, not only of those called upon to abide by them, but also of those duty-bound to enforce obedience to them.54Hence, while the future may ultimately uncover a doctrine's error, it should be, as a general rule, recognized as a "good law" prior to its abandonment.55 In Philippine International Trading Corporation Commission on Audit,56 it was elucidated that:
It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectivelv and should not apply to parties who relied on the old doctrine and acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication.57 (Emphasis and underscoring supplied)In Pesca v. Pesca58 the Court further elaborated:
The "doctrine of stare decisis," ordained in Article 8 of the Civil Code, expresses that judicial decisions applying or interpreting the law shall form part of the legal system of the Philippines. The rule follows the settled legal maxim - "legis interpretado legis vim obtinet" - that the interpretation placed upon the written law by a competent court has the force of law. The interpretation or construction placed by the courts establishes the contemporaneous legislative intent of the law. The [said interpretation or construction] would thus constitute a part of that law as of the date the statute is enacted. It is only when a prior ruling of this Court finds itself later overruled, and a different view is adopted, that the new doctrine may have to be applied prospectively in favor of parties who have relied on the old doctrine and have acted in good faith in accordance therewith under the familiar rule of "lex prospicit, non respicit."59 (Emphasis and underscoring supplied)With these in mind, the Court therefore sets the following guidelines relative to the application of Vector and this Decision vis-a-vis the prescriptive period in cases where the insurer is subrogated to the rights of the insured against the wrongdoer based on a quasi-delict:
(a) For cases that were filed by the subrogee-insurer during the applicability of the Vector ruling (i.e., from Vector's finality on August 15, 201360 up until the finality of this Decision), the prescriptive period is ten (10) years from the time of payment by the insurer to the insured, which gave rise to an obligation created by law.2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:
Rationale: Since the Vector doctrine was the prevailing rule at this time, issues of prescription must be resolved under Vector's parameters.
(b) For cases that were filed by the subrogee-insurer prior to the applicability of the Vector ruling (i.e., before August 15, 2013), the prescriptive period is four (4) years from the time the tort is committed against the insured by the wrongdoer.
Rationale: The Vector doctrine, which espoused unique rules on legal subrogation and prescription as aforedescribed, was not yet a binding precedent at this time; hence, issues of prescription must be resolved under the rules prevailing before Vector, which, incidentally, are the basic principles of legal subrogation vis-a-vis prescription of actions based on quasi-delicts.
(a) For cases where the tort was committed and the consequent loss/injury against the insured occurred prior to the finality of this Decision, the subrogee-insurer is given a period not exceeding four (4) years from the time of the finality of this Decision to file the action against the wrongdoer; provided, that in all instances, the total period to file such case shall not exceed ten (10) years from the time the insurer is subrogated to the rights of the insured.
Rationale: The erroneous reckoning and running of the period of prescription pursuant to the Vector doctrine should not be taken against any and all persons relying thereon because the same were based on the then-prevailing interpretation and construction of the Court. Hence, subrogees-insurers, who are, effectively, only now notified of the abandonment of Vector, must be given the benefit of the present doctrine on subrogation as ruled in this Decision.
However, the benefit of the additional period (i.e., not exceeding four [4] years) under this Decision must not result in the insured being given a total of more than ten (10) years from the time the insurer is subrogated to the rights of the insured (i.e., the old prescriptive period in Vector); otherwise, the insurer would be able to unduly propagate its right to file the case beyond the ten (10)-year period accorded by Vector to the prejudice of the wrongdoer.
(b) For cases where the tort was committed and the consequent loss/injury against the insured occurred only upon or after the finality of this Decision, the Vector doctrine would hold no application. The prescriptive period is four (4) years from the time the tort is committed against the insured by the wrongdoer.
Rationale: Since the cause of action for quasi-delict and the consequent subrogation of the insurer would arise after due notice of Vector's abandonment, all persons would now be bound by the present doctrine on subrogation as ruled in this Decision.
Very truly yours, (SGD) EDGAR O. ARICHETA Clerk of Court |
Endnotes:
1Rollo, pp. 10-27.
2 Id. at 196-203. Penned by Associate Justice Stephen C. Cruz with Associate Justices Elihu A. Ybañez and Ramon Paul L. Hernando (now a Member of this Court), concurring.
3 Id. at 193-194.
4 Id. at 52-55. Penned by Presiding Judge Josefino A. Subia.
5 Id. at 56-58.
6 "National Art Studio," "National Art Studio Lab," or "National Art Studio and Color Lab" in some parts of the rollo.
7 See rollo, pp. 196-197.
8 See id. at 197.
9 See id.
10 See id.
11 See Policy Schedule; id. at 117-141.
12 See id. at 198.
13 See Loss and Subrogation Receipt; id. at 142.
14 Id. at 198.
15 Not attached to the rollo.
16Rollo, p. 198.
17 Id.
18 Dated October 6, 2011. Id. at 61-64.
19 Dated April 21, 2014. Id. at 92-94.
20 See id. at 198.
21 See Amended Complaints; id. at 62 and 114. See also id. at 20.
22 See Comment/Opposition (to Motion to Admit Attached Amended Complaint and Pre-Trial Brief [The Amendment]) dated May 5, 2014; id. at 151-154.
23 See id. at 53.
24 Id. at 52-55.
25 See id. at 55.
26 See id. at 53-54.
27 See motion for reconsideration dated July 4, 2014; id. at 174-181.
28 Id. at 56-58.
29 With Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction dated November 24, 2014. Id. at 30-47.
30 Id. at 196-203.
31 See id. at 202.
32 See motion for reconsideration dated December 1, 2015; id. at 259-268.
33 Id. at 193-194.
34 713 Phil. 198 (2013).
35 See id. at 201-204.
36 Id. at 206.
37 262 Phil. 919 (1990).
38 Id. at 206-208.
39 Id. at 208.
40Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc., G.R. No. 87434, August 5, 1992, 212 SCRA 194, 208.
41 748 Phil. 569 (2014).
42 Id. at 584-585.
43 Supra note 37.
44 Id. at 923.
45 Id.
46 Id.
47 553 Phil. 344 (2007).
48 Id. at 360-362; citations omitted.
49 De Leon, Hector and De Leon, Hector Jr., COMMENTS AND CASES ON OBLIGATIONS AND CONTRACTS. 2014 Edition, p. 480.
50Ledonio v. Capitol Development Corporation, supra note 47, at 361.
51Pasker v. Harleysville Mutual Ins. Co., 192 N.J. Super. 133 (1983), citing 44 Am.Jur.2d, Insurance, § 1821 at 748; emphasis and underscoring supplied.
52 See Office of the Ombudsman v. Vergara, G.R. No. 216871, December 6, 2017, 848 SCRA 151, 17 citing Carpio Morales v. CA, 772 Phil. 672, 775 (2015).
53 632 Phil. 657 (2010).
54 Id. at 686, citing Caltex (Philippines), Inc. v. Palomar, 124 Phil. 763, 774 (1966).
55Carpio Morales v. CA, supra note 52, at 775.
56 G.R. No. 205837, November 21, 2017, 845 SCRA 583.
57 Id. at 596-597; citing Columbia Pictures v. CA, 329 Phil. 875, 908 (1996).
58 408 Phil. 713 (2001).
59 Id. at 720.
60 See supra note 34.
61 Article 1146 (2) of the CIVIL CODE reads:Art. 1146. The following actions must be instituted within four years:62Rollo, p. 142.
x x x x
(2) Upon a quasi-delict.
63 Under Section 8, Rule 10 of the Rules of Court, an amended complaint supersedes an original one. As a consequence, the original complaint is deemed withdrawn and no longer considered as part of the records (Mercado v. Spouses Espina, 704 Phil. 545, 551 [2013], citing Figuracion v. Libi, 564 Phil. 46, 58 [2007]). Hence, for purposes of determining whether or not the claim is already barred by the statute of limitations, the date of filing of the amended complaint shall be controlling (see Wallem Philippines Shipping, Inc. v. S.R. Farms, Inc., 638 Phil. 324, 333 [2010], citing Republic v. Sandiganbayan, 355 Phil. 181, 205 [1998]).
BERSAMIN, C.J.:
The majority opinion overturns the ruling in Vector Shipping Corporation v. American Home Assurance Company1 wherein the Court has held that subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law; hence, the applicable prescriptive period is 10 years.
I submit that the present case has not given the Court any grounds to warrant the overturn. The dictum in Vector Shipping Corporation v. American Home Assurance Company remains good law in the context of Article 2207 of the Civil Code.
Before anything more, however, a review of the antecedents is enlightening.
National Arts Studio and Color Lab (National Arts Studio) leased for the period from 1989 to 1999 the front portion of the ground floor of a two-storey building then owned by Vicente G. Henson (Henson) located on Sto. Rosario Street in Angeles City, Pampanga.2 In 1999, National Arts Studio leased the right front portion of the ground floor and the entire second floor of the building, and renovated its piping assembly. Meanwhile, Copylandia Office Systems Corporation (Copylandia) moved to the ground floor.3
A water leak occurred in the building on May 9, 2006 and damaged Copylandia's various equipment to.the tune of P2,062.640.00.4 Copylandia filed its claim for indemnity with respondent UCPB General Insurance Co., Inc. (UCPBGen), the insurer of its equipment.5 On November 2, 2006, Copylandia and UCPBGen agreed to settle for P1,326,342.76,6 thereby subrogating UCPBGen to the rights of Copylandia arising from the water leak incident. On May 20, 2010, UCPBGen demanded payment from National Arts Studio, but without success.7 Hence, UCPBGen sued National Arts Studio, among others, for damages in the Regional Trial Court (RTC) in Makati City. The suit, docketed as Civil Case No. 10-885, was raffled to Branch 138 of the RTC.8
In 2010, Henson transferred the ownership of the building to Citrinne Holdings, Inc. (CTI), wherein he was a stockholder and the President at the same time.9
UCPBGen amended its complaint on October 6, 2011 to implead CTI as a party-defendant by virtue of its being the new owner of the building. UCPBGen later changed its mind, and filed on April 21, 2014 a Motion to Admit Attached Amended Complaint and Pre-Trial Brief praying that Henson, instead of CTI, be impleaded as the party-defendant considering that he was the owner of the building at the time of the water leak incident.10
CTI opposed the motion principally on the ground of prescription, and contended that UCPBGen's cause of action, having arisen from quasi-delict, must be brought within four years from its accrual on May 9, 2006.11
On June 10, 2014, the RTC directed the dropping of CTI as a party-defendant and the joining of Henson as one of the party-defendants.12 It observed that UCPBGen's cause of action against the defendants, including Henson, arose when it paid Copylandia's insurance claim and thereby became subrogated to the latter's rights and claims arising from the water leak incident; that UCPBGen was merely enforcing its right of subrogation which prescribed in 10 years reckoned from the date of Copylandia's indemnification on November 2, 2006; and that UCPBGen's claim against Henson had yet to prescribe on April 21, 2014 when it sought to include him as party-defendant.
On September 22, 2014, the RTC denied CTI's motion for reconsideration.13
On his part, Henson brought a petition for certiorari in the Court of Appeals (CA).
On November 13, 2015, the CA rendered its decision upholding the ruling of the RTC.14 The CA agreed that UCPBGen's cause of action was not based on quasi-delict, but on an obligation created by law, and, as such, the prescriptive period was 10 years reckoned from its accrual.
After the CA denied Henson's motion for reconsideration on February 26, 2016,15 he appealed to the Court.
The issue for consideration is whether or not the CA correctly ruled that UCPBGen's cause of action was based on an obligation created by law that prescribed in 10 years.16
The majority opinion states that -
In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is created by virtue of the insurer's payment under Article 2207 of the Civil Code; also, as legal subrogation is not the same as an assignment of credit (as the former is in fact, called an "equitable assignment"), no privity of contract is needed to produce its legal effects. Accordingly, the insurer can take nothing by subrogation but the rights of the insured, and is subrogated only to such rights as the insured possesses. This principle has been frequently expressed in the form that the rights of the insurer against the wrongdoer cannot rise higher than the rights of the insured against such wrongdoer, since the insurer as subrogee, in contemplation of law, stands in the place of the insured and succeeds to whatever rights he may have in the matter. Therefore, any defense which a wrongdoer has against the insured is good against the insurer subrogated to the rights of the insured, and this would clearly include the defense of prescription.The majority opinion concludes that because the insurer merely stepped into the shoes of the insured, its cause of action against the debtor was already barred by prescription considering that the cause of action was in the nature of a quasi-delict that was subject to the prescriptive period of four years.18
Based on the above-discussed considerations, the Court must heretofore abandon the ruling in Vector that an insurer may file an action against the tortfeasor within ten (10) years from the time he indemnifies the insured. Following the principles of subrogation, the insurer only steps into the shoes of the insured and therefore, for purposes of prescription, inherits only the remaining period within which the insured may file an action against the wrongdoer. To be sure, the prescriptive period of the action that the insured may file against the wrongdoer begins at the time that the tort was committed and the loss/injury occurred against the insured. The indemnification of the insured by the insurer only allows it to be subrogated to the former's rights, and does not create a new reckoning point for the cause of action that the insured originally has against the wrongdoer.
Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector doctrine should be prospective in application for the reason that judicial decisions applying or interpreting the laws or the Constitution, until reversed, shall form part of the legal system of the Philippines.17
Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.To me, the letter and intent of the law are too clear and forthright to be ignored. Subrogation of the insurer under Article 2207 of the Civil Code gives rise to an obligation created by law. With the clarity and forthrightness of the legal provision on the nature of subrogation as an obligation arising from law, the cause of action based on subrogation prescribes in 10 years pursuant to Article 1144(2) of the Civil Code.
The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance Corporation v. Court of Appeals, as follows:In Fireman's Fund Insurance Company v. Jamila & Company, Inc.,20 the Court has expounded on the rule enunciated under Article 2207 of the Civil Code, viz.:Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obliged to pay. Payment by the insurer to the assured operates as an equitable assignment to the former of all remedies which the latter may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer. [Compania Maritama v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213; Fireman's Fund Insurance Company v. Jamila & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of Vector and Soriano to pay the demand for reimbursement by respondent because it concerned only the agreement for the transport of Caltex's petroleum cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v. Court of Appeals, supra, respondent's right of subrogation pursuant to Article 2207, supra, was "not dependent upon, nor d[id] it grow out of, any privity of contract or upon written assignment of claim [but] accrue[d] simply upon payment of the insurance claim by the insurer."19
Article 2207 is a restatement of a settled principle of American jurisprudence. 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, 578, note 16, citing Fireman's Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d 55).There is no question that the right of subrogation is a creature of equity, owing its origin at common law,22 and later evolved as a doctrine through the decision of Lord Hardwicke in Randal v. Cockran.23 Lord Hardwicke pronounced in Randal v. Cockran that:
"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).
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, or upon written assignment of claim, and payment to the insured makes the insurer an assignee in equity (Shambley vs. Jobe-Blackley Plumbing and Heating Co., 264 N. C. 456, 142 SE 2d 18).21
x x x The person originally sustaining the loss was the owner; but after satisfaction made to him, the insurer.As can be seen, the doctrine of subrogation essentially holds that an insurer who has fully indemnified an insured against a loss covered by a contract of insurance between them may ordinarily enforce, in the insurer's own name, any right of recourse available to the insured. The role of equity comes into play once the insurer has indemnified the insured. Payment is the crucial event that allows the insurer to succeed to the rights of the insured. Unless the insurer pays pursuant to the policy, there is no loss that he has sustained and, therefore, there arises no right of recovery.25
No doubt, but from that time, as to the goods themselves, if restored in specie, or compensation made for them, the assured stands as a trustee for the insurer, in proportion for what he paid.24
The automatic transfer of rights from the payor to the payee occurs at the moment of payment, and it takes place by act of law.27 Yet, the ipso jure transfer of rights from the insured to the insurer does not result to a simple case of assignment.
(1) The person making the payment to the third party was recognized as having acquired at the moment of paying a right to claim a contribution or an indemnity (as the case might be) from the principal obligor; (2) The acquisition of that right did not result from an express agreement to transfer such right, which the third party had against the principal obligor; and (3) Both the common law courts and the courts of equity accepted that this acquisition of rights against the principal obligor was an operation of equity, not of the common law.26
x x x x In this jurisdiction, we have our own legal provision which in substance differs from the American law. We refer to Article 2207 of the New Civil Code which provides:In contrast, assignment is preceded by an agreement by virtue of which the owner of a credit (known as the assignor), by a legal cause - such as sale, dation in payment, exchange or donation - and without need of the debtor's consent, transfers that credit and its accessory rights to another (known as the assignee), who thereby acquires the power to enforce it, to the same extent as the assignor could have enforced it against the debtor.33 Unlike the right to subrogation that arises only upon the insurer's payment of the insured's claim, assignment of the insured's property damage claim may take place even before the damage occurs.34 After the assignment of the claims of the insured, the insurer becomes the real party-in-interest and may bring a claim in its own name against the tortfeasor or the latter's insurer.35ART. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. The reason is obvious. The payment of the indemnity by the insurer to the insured does not make the latter a trustee of the former as in the American law. This matter being statutory, the same must be governed by our own law in this jurisdiction.
This interpretation finds support in the explanatory note given by the Code Commission in proposing the adoption of the article under consideration. Thus, said Commission, in its report on the proposed Civil Code of the Philippines, referring to the article in question, says:The rule in article 2227 (Art. 2207 of the Code as enacted) about insurance indemnity is different from the American law. Said article provides:It is insisted that despite the subrogation of the insurer to the rights of the insured, the latter can still bring the action in its name because the subrogation vests in the latter the character of a trustee charged with the duty to pay to the insurer so much of the recovery as corresponds to the amount it had received as a partial indemnity. This cannot be true in this for before a person can sue for the benefit of another under a trusteeship, he must be "a trustee of an express trust" (Section 3, Rule 3, Rules of Court). Thus, under this provision, "in order that a trustee may sue or be sued alone, it is essential that his trust should be express, that is, a trust created by the direct and positive acts of the parties, by some writing, deed, or will or by proceedings in court. The provision does not apply in cases of implied trust, that is, a trust which may be inferred merely from the acts of the parties or from other circumstances" (Moran, Comments on the Rules of Court, Vol. I, 1952 Ed., p. 35).
Art. 2227. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who was 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 of injury.
According to American jurisprudence, the fact that the plaintiff has been indemnified by an insurance company cannot lessen the damages to be paid by the defendant. Such rules give more damages than those actually suffered by the plaintiff, and the defendant, if also sued by the insurance company for imbursement, would have to pay in many cases twice the damages he has caused. The proposed article would seem to be a better adjustment of the rights of the three parties concerned. (Report of Code Commission on the Proposed Civil Code of the Philippines, p. 73) (Emphasis supplied)
It also contended that to adopt a contrary rule to what is authorized by the American statutes would be splitting a cause of action or promoting multiplicity of suits which should be avoided. This contention cannot also hold water considering that under our rules both the insurer and the insured may join as plaintiffs to press their claims against the wrongdoer when the same arise out of the same transaction or event. This is authorized by Section 6, Rule 3, of the Rules of Court.32 x x x x
Endnotes:
1 G.R. No. 159213, July 3, 2013, 700 SCRA 385.
2Rollo, pp. 196-197.
3 Id.
4 Id.
5 Id. at 198.
6 Id.
7 Id.
8 Id.
9 Id.
10 Id.
11 Id. at 53.
12 Id. at 52-55.
13 Id. at 56-58.
14 Id. at 196-203; penned by Associate Justice Stephen C. Cruz, with Associate Justice Elihu A. Ybañez and Associate Justice Ramon Paul L. Hernando concurring.
15 Id. at 193-194.
16 Decision, p. 4.
17 Id. at 10-11.
18 Id. at 6.
19 Supra note 1, at 394-395.
20 L-27427, April 7, 1976, 70 SCRA 323.
21 Id. at 327-328.
22 See Marasinghe, M.L., An Historical Introduction to the Doctrine of Subrogation: The Early History of the Doctrine I and II, An Historical Introduction to the Doctrine of Subrogation: The Early History of the Doctrine I and II, Valparaiso University Law Review, Vol. 10, No. 1, pp. 45-65; and Vol. 10 No. 2, pp. 275-299.
23 1 Ves. Sen. 98, 27 Eng. Rep. 916 (1748).
24 Id., as quoted and cited in Marasinghe, supra note 22, at 63.
25 Marasinghe, supra, note 22, at 298.
26 Marasinghe, M.L., supra note 24, at 279.
27 Id. at 277, citing London Assurance Co. v. Sainsbury where it was held that:
The care of a sheriff who has paid the whole debt is very strong, for he stands in the place of the debtor, by act of Law; yet he must sue in the name of the plaintiff.
London Assurance Co. v. Sainsbury is said to have settled three issues, namely: (1) the trust concept enables the insurer to sue a tortfeasor of the assured once the payment was made pursuant to the policy; (2) such an action must be brought in the name of the assured; and (3) the subrogation process occurs by operation of law.
28 Bueler, Jennifer A., Understanding the Difference Between the Right to Subrogation and Assignment of an Insurance Claim - Keisker v. Farmer, Missouri Law Review, Volume 68, Issue 4, Fall 2003, p. 950.
29 Id. at 949.
30 Snellings III; George M., The Role of Subrogation by Operation of Law and Related Problems in the Insurance Field, Louisiana Law Review, Volume 22, Number 1, December 1961, pp. 225, 227.
31 101 Phil. 1031 (August 16, 1957).
32 Id. at 1035-1037 (italicized portions are part of the original text).
33 See Ledonio v. Capitol Development Corporation, G.R. No. 149040, July 4, 2007, 526 SCRA 379, 393-394.
34 Bueler, Jennifer A., supra note 28 at 951.
35 Id. at p. 953.
36 Id. at p. 949.
37 Snellings III, George M., The Role of Subrogation by Operation of Lew and Related Problems in the Insurance Field, Louisiana Law Review, Volume 22, Number 1, December 1961 p. 228.
38 Marasmghe, M.L., An Historical Introduction to the Doctrine of Subrogation: The Early History of the Doctrine I, Valparaiso University Law Review, Vol. 10, No. 1, p. 63.
CAGUIOA, J.:
I concur.
Because of the occurrence of a water leak in the building that Copylandia Office Systems Corp. (Copylandia) was leasing, its various equipment which were insured with respondent UCPB General Insurance Company, Inc. (UCPB Gen) were damaged on May 9, 2006. Copylandia filed a claim in the amount of P2,062,400.00 with UCPB Gen and on November 2, 2006, the parties settled for the amount of P1,326,342.76. More than 4 years after the damage to the equipment had been sustained, or on May 20, 2010, UCPB Gen, as subrogee to Copylandia's rights, made a demand on National Arts Studio and Color Lab (NASCL) — the entity that apparently caused the water leak — for the payment of Copylandia's claim. Eventually, UCPB Gen filed a complaint for damages against NASCL when UCPB Gen's demand failed.
Both the RTC and the CA held that UCPB Gen's cause of action has not yet prescribed since the applicable prescriptive period is 10 years based on legal subrogation which they considered to be an obligation created by law under Article 11441 of the Civil Code, and not 4 years based on quasi delict (Article 11462).
I concur with the ponencia that the applicable prescriptive period is 4 years because the cause of action is based on quasi-delict. Stated differently, the right that UCPB Gen is subrogated to is the right of Copylandia to damages arising from the quasi-delict committed by NASCL which resulted in the damage to its various equipment. The obligation of NASCL arises from quasi-delict under Article 2176 of the Civil Code and not from law.3 Under Article 2176,
Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no preexisting contractual relation between the parties, is called a quasi-delict and is governed by the provisions of this Chapter [on Quasi-Delicts].The corresponding obligation vis-a-vis the right created by legal subrogation under Article 2207 must be subsumed within or under the right that the subrogee may exercise against "the wrongdoer or the person who has violated the contract" because the subrogee merely steps into the shoes of the insured. Thus, the corresponding obligation of NASCL arises from quasi-delict and not from the law creating the right of subrogation in favor of respondent.
We need to clarify, however, that we cannot adopt the CA's characterization of the cause of action as based on the contract of affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make the M/T Vector seaworthy, as to make this action come under Article 1144 (1), supra. Instead, we find and hold that the present action was not upon a written contract, but upon an obligation created by law. Hence, it came under Article 1144 (2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the insured was by virtue of the express provision of law embodied in Article 2207 of the Civil Code, to wit:I join the ponente that it is now opportune to revisit the Court's interpretation of Article 2207 in Vector insofar as the obligation of "the wrongdoer or the person who has violated the contract" to the subrogee is concerned.Article 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. (Emphasis supplied)5
[1] One issue raised by Glassing is dispositive of this appeal. Glassing contends that St. Paul's suit is barred by the statute of limitations. We agree.Borrowing the words of St. Paul II, since the right of subrogation is purely derivative, UCPB Gen's claim is derivative of Copylandia's claim; and the latter's claim accrued on May 9, 2006, the occurrence of the damage to its various equipment. The 4-year prescriptive period for tort or quasi-delict began to run on UCPB Gen's action at the same time that the same statute of limitations would have begun to run on Copylandia's action against NASCL. Also, since the Philippines has no statutory authority extending the limitation period for subrogation claims of insurers that have paid damages to their insureds similar to the State of Montana, U.S.A., amjl the insurer's claim is derivative from that of the insured, the insurer's claim is subject to the same 4-year prescriptive period applicable to quasi-delicts as though the cause of action were sued upon by Copylandia. Consequently, the claim of UCPB Gen, as subrogee, had prescribed on May 9, 2010.34
In support of his argument, Glassing maintains that the same statute of limitations applies to an action for subrogation as applies to the injured party's claim. Because the accident occurred on June 12, 1985, and St. Paul did not file its action for subrogation until July 24, 1990, Glassing argues that the applicable three year statute of limitations on Lynn's negligence claim had expired, thus barring St. Paul's claim. See. § 27-2-204, MCA.
The District Court however, ruled that St. Paul's right of subrogation did not accrue until its duty to pay was triggered by the rendering of the excess judgment in favor of St. Paul's insured, Lynn. The court concluded that "[p]rior to that time neither Lynn's right to underinsured motorist benefits nor St. Paul's right to subrogation existed." In reaching its conclusion that the statute of limitations had not expired on St. Paul's claim, the District Court determined a distinction existed between uninsured motorist benefits and underinsured motorist benefits. The court concluded that "[u]nderinsured motorist benefits are not triggered until a settlement or judgment has been rendered by which the insured persons damages are not fully compensated." Therefore, the court found that St. Paul's subrogation claim did not accrue or come into existence until November 17, 1989, the date judgment was rendered in Gallatin County. Accordingly, the court concluded that St. Paul's suit was timely filed. However, the court did not state what the applicable statute of limitations would be on St. Paul's suit against Glassing. We conclude that the District Court erred in ruling that St. Paul's claim was not time-barred for two reasons.
First, the court's conclusion that St. Paul's claim accrued on the date of judgment ignores the basic premise of subrogation; that as a subrogee, St. Paul has no independent claim for its damages. It is a well established principle of subrogation law, that subrogation is "the substitution of another person in place of the creditor, so that the person substituted will succeed to the rights of the creditor in relation to the debt or claim." Skauge v. Mountain States Tel. Tel. (1977), 172 Mont. 521, 526, 565 P.2d 628, 630.
Additional subrogation principles provide:Subrogation confers no greater rights than the subrogor had at the time the surety became subrogated. The subrogated insurer stands in the same position as the subrogor, for one cannot acquire by subrogation what another, whose rights he claims, did not have.16 Couch on Insurance 2d, § 61:36 (1983).The right of subrogation is purely derivative as the insurer succeeds only to the rights of the insured, and no new cause of action is created. In other words, the concept of subrogation merely gives the insurer the right to prosecute the cause of action which the insured possessed against anyone legally responsible for the latter's harm....16 Couch on Insurance 2d, § 61:37 (1983).
[2] Because an insurer's claim is derived from that of the insured, its claim is subject to the same defenses, including the statute of limitations as though the action were sued upon by the insured. Beedie v. Shelly (1980), 187 Mont. 556, 561, 610 P.2d 713, 716. Accordingly, St. Paul's claim is derivative of Lynn's claim, and her claim accrued on June 12, 1985, the date of the accident.
Second, we are cited to no authority for the proposition that the principles of subrogation vary with the type of risk insured against. We recognize that there are jurisdictions which have statutes extending the limitation period for subrogation claims of insurers that have paid damages to their insureds under uninsured or underinsured motorist policy provisions from the date of payment made under the policy. See, Liberty Mut. Ins. Co. v. Fales (Cal. 1973) 505 P.2d 213. However, Montana has no such statutory authority extending the limitation date. Whether there should be such a statute is a matter to be determined by the legislature.
Rather, this Court follows the general principles of subrogation which provide:Since the insurer's claim by subrogation is derivative from that of the insured, it is subject to the same statute of limitations as though the cause of action were sue[d] upon by the insured. Consequently, the insurer's action is barred if it sued after expiration of the period allowed for the suing out of tort claims.16 Couch on Insurance 2d, § 61:234 (1983).
On appeal, St. Paul argues that the following statement from [St. Paul Fire Marine Ins. Co. v. Allstate Ins. Co. (1993 Mont. 47, 847 P.2d 705)] (St. Paul I), supports its contention that its right to subrogation arose upon the rendering of the judgment:St. Paul's right to subrogation arises from the judgment entered in favor of its insured against the defendant, and that judgment is the result of the defendant's tortious conduct within the State of Montana. St. Paul I, 847 P.2d at 707.We note however, that we made this statement in relation to the jurisdiction question which was before us. We concluded that the District Court had personal jurisdiction over Glassing because of the tortious conduct which occurred in the State of Montana, and that the judgment was entered as a result of this tortious conduct. Therefore, the statement does not support St. Paul's argument that its subrogation rights arose upon judgment.
[3, 4] It is apparent from St. Paul's argument, that St. Paul confuses the accrual of a claim for subrogation, and the attachment of the right of subrogation. An insurer's right to subrogation attaches, by operation of law, upon paying an insured's loss. Skauge, 565 P.2d at 630. Accordingly, we held in St. Paul I, that "[i]n this case, St. Paul became substituted for its insured as a matter of law when it paid Ellen Lynn pursuant to its insurance policy with her and is entitled to pursue her right to collect the amount of her judgment against the defendant." St. Paul I, 847 P.2d at 707. While St. Paul's right to subrogation arose upon its payment to Lynn, the right to subrogation does not operate to extend the statute of limitations.While a subrogated insurer frequently contends that its action against the third-party tortfeasor who allegedly caused the damage or injury for which the insurer had to recompense its insured did not accrue, and the statute of limitations did not begin to run thereon, until the insurer had made the payments required under its insurance contract, courts have held, generally, that such a contention was without merit... [T]he statute of limitations be sins to run on such actions at the same time that the statute of limitations would have been to run on the insured's action...against the third-party tortfeasor.Annotation, "When Does Statute of Limitations Begin to Run upon Action by Subrogated Insurer Against Third-Party Tortfeasor," 91 ALR 3d 844, 850 § 3; See also, Beedie, 610 P.2d 716; Preferred Risk Mut. Ins. Co. v. Vargas (Ariz.App. 1988), 754 P.2d 346; Nationwide Mut. Ins. Co. v. State Farm (N.C.App. 1993), 426 S.E.2d 298.33
x x x Otherwise, what the Act intends to prohibit after the lapse of the one[-]year prescriptive period can be done indirectly by the shipper or owner of the goods by simply filing a claim against the insurer even after the lapse of one year. This would be the result if we follow the petitioner's argument that the insurer can, at any time, proceed against the carrier and the ship since it is not bound by the time-bar provision. In this situation, the one[-]year limitation will be practically useless. x x x38Applying the Vector ruling, the insurer in Filipino Merchants would have a 10-year period to be indemnified based on subrogation and not be bound by the one-year prescriptive period under COGSA. If that is allowed, the rights of the insurer against the wrongdoer will rise higher than the rights of the insured against such wrongdoer and the insurer will have greater rights than the one in whose place he is substituted.
Endnotes:
1 ART. 1144. The following actions must be brought within ten years from the time the right of action accrues:(1) Upon a written contract;2 ART. 1146. The following actions must be instituted within four years:
(2) Upon an obligation created by law;
(3) Upon a judgment.(1) Upon an injury to the rights of the plaintiff;3 CIVIL CODE, Art. 1157.
(2) Upon a quasi-delict.
4 713 Phil. 198 (2013). Penned by Associate Justice Lucas P. Bersamin and concurred by Chief Justice Maria Lourdes P.A. Sereno and Associate Justices Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro and Martin S. Villarama, Jr.
5 Id. at 206-207.
6 44 Am. Jur. 2d, Extent of right; dependence upon rights of insured, § 1795, p. 785 (1982).
7 Id.; citations omitted.
8 Id. at 785-786, citations omitted.
9Virginia Electric & Power Co. v Carolina Peanut Co. (CA4 NC), 186 F2d 816, 32 ALR2d 234 cited in 44 Am. Jur. 2d, Extent of right; dependence upon rights of insured, § 1795, note 87 p. 786 (1982).
10 Id. at 786; citations omitted.
11 162 Phil. 421 (1976).
12 Id. at 424.
13 Id.
14 83 C.J.S., Definition, § 1 and Origin, Nature, and Purpose of Doctrine, §2, specifically pp. 576-580.
15 44 Am. Jur. 2d, Insurer's right of subrogation, generally, § 1820, specifically pp. 745-746 (1969).
16 44 Am. Jur. 2d, Insurer's right of subrogation, generally, § 1794, pp. 782-785 (1982).
17 83 C.J.S., Operation and Effect, § 14, pp. 611-614.
18 Id. at 611.
19 Id. at 612; citations omitted.
20 Id.; citations omitted.
21 Id. at 612-613; citations omitted.
22 Id. at 613; citations omitted.
23Coal Operators Cas. Co. v. U.S. D.C.Pa., 16 F.Supp. 681 cited in 83 C.J.S., Operation and Effect, § 14, note 19, p. 613.
24Coal Operators Casualty Co. v. U.S. D.C.Pa., id., cited in 83 C.J.S. Operation and Effect, § 14, note 20, id.
25 44 Am. Jur. 2d, pp. 785-787(1982).
26 44 Am. Jur. 2d, pp. 748-749 (1969).
27 44 Am. Jur. 2d, Extent of right; dependence upon rights of insured, § 1795, p. 785 (1982).
28 Id.; citations omitted.
29 Id. at 785-786, citations omitted.
30 Id. at 786; citations omitted.
31Beedie v. Shelly, (Mont) 610 P2d 713 cited in 44 Am. Jur. 2d, Extent of right; dependence upon rights of insured, § 1795, note 89, p. 786 (1982).
32 269 Mont. 76, 887 P.2d 218, 51 St. Rep. 1437, accessed at <https://www.casemine.com/judgement/us/5914bdb0_add7b049347a3ba4#>.
33 Id.
34 REVISED ADMINISTRATIVE CODE OF 1987 (Executive Order No. 292, 1987), Book I, Chapter 8, Section 31 provides that "Year" shall be understood to be twelve calendar months.
35Virginia Electric & Power Co. v Carolina Peanut Co. (CA4 NC), 186 F2d 816, 32 ALR2d 234 cited in 44 Am. Jur. 2d, Extent of right; dependence upon rights of insured, § 1795, note 87, p. 786 (1982).
36 229 Phil. 73 (1986).
37 Id. at 75.
38 Id. at 79.
39Vector Shipping Corp. v. American Home Assurance Co., supra note 4, at 201.
40 Id. at 202.
REYES, A., JR., J.:
I agree with the denial of the petition but I respectfully enter my dissent with respect to the abandonment of the Vector1 doctrine.
In Vector, the Court held that the insurer's (i.e. American Home's) claim against the debtor (i.e. Vector) was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and hence, an obligation created by law. While indeed American Home was entitled to claim against Vector by virtue of its subrogation to the rights of the insured (i.e. Caltex), the Court failed to discern that no new obligation was created between American Home and Vector for the reason that a subrogee only steps into the shoes of the subrogor; hence, the subrogee-insurer only assumes the rights of the subrogor-insured based on the latter's original obligation with the debtor.As gleaned from the foregoing, the ponencia proceeds under these premises:
To expound, subrogation's legal effects under Article 2207 of the Civil Code are primarily between the subrogee-insurer and the subrogor-insured: by virtue of the former's payment of indemnity to the latter, it is able to acquire, by operation of law, all the rights of the subrogor-insured against the debtor. The debtor is a stranger to this juridical tie because it only remains bound by its original obligation to its creditor whose rights, however, have already been assumed by the subrogee. In Vector's case, American Home was able to acquire ipso jure all the rights Caltex had against Vector under their contract of affreightment by virtue of its payment of indemnity. If at all, subrogation had the effect of obliging Caltex to respect this assumption of rights in that it must now recognize that its rights against the debtor, i.e. Vector, had already been transferred to American Home as subrogee-insurer. In other words, by operation of Article 2207 of the Civil Code, Caltex cannot deny American Home of its right to claim against Vector. However, subrogation of American Home to Caltex's rights did not alter the original obligation between Caltex and Vector.
Accordingly, the Court, in Vector, erroneously concluded that "the cause of action [against Vector] accrued as of the time [American Home] actually indemnified Caltex in the amount of P7,455,421.08 on July 12, 1988." Instead, it is the subrogation of rights between Caltex and American Home which arose from the time the latter paid the indemnity therefor. Meanwhile, the accrual of the cause of action that Caltex had against Vector did not change because, as mentioned, no new obligation was created as between them by reason of the subrogation of American Home. The cause of action against Vector therefore accrued at the time it breached its original obligation with Caltex whose right of action just so happened to have been assumed in the interim by American Home by virtue of subrogation. "[A] right of action is the right to presently enforce a cause of action, while a cause of action consists of the operative facts which gives rise to such right of action."3 (Emphases Ours)
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.A reading of the said provision reveals two (2) possible situations: (1) total legal subrogation; and (2) partial legal subrogation.
This contemplates legal subrogation which grows not out of privity of contract but arises by the fact of payment. In Malayan Insurance Co., Inc. v. Alberto, et al.,5 the Court explained the nature of legal subrogation in this wise:
(1) A property has been insured; (2) There is a loss, injury or damage to the insured; (3) The loss or injury was caused by or through the fault of the wrongdoer; and (4) The insured received indemnity from the insurance company for the injury, loss, or damage arising out of the wrong or breach complained of.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer 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. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to enforce payment.The provision is clear, legal subrogation is a right that springs from Article 2207 of the Civil Code. The resulting obligation arising therefrom is, therefore, created by law.
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.6 (Emphases Ours)
In order for cause of action to arise, the following elements must be present: (1) a right in favor-of the plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of the plaintiff or constituting a breach of obligation of the defendant to the plaintiff.11In Indophil Textile Mills, Inc. v. Engr. Adviento,12 the Court enunciated that a claim liability under quasi-delict requires the concurrence of the following elements: (a) damages suffered by the plaintiff; (b) fault or negligence of the defendant, or some other person for whose acts he must respond; and (c) the connection of cause and effect between the fault or negligence of the defendant and the damages incurred by the plaintiff.13
(a) the insured suffered a loss for which the defendant is liable, either as the wrongdoer whose act or omission caused the loss or because the defendant is legally responsible to the insured for the loss caused by the wrongdoer;Under this jurisdiction, as an obligation that arose by operation of law, an action for legal subrogation prescribes in ten (10) years as statutorily provided in Article 1144.17
(b) the claimed loss was one for which the insurer was not primarily liable;
(c) the insurer has compensated the insured in whole or in part for the same loss for which the defendant is primarily liable;
(d) the insurer has paid the claim of its insured to protect its own interest and not as a volunteer;
(e) the insured has an existing, assignable cause of action against the defendant which the insured could have asserted for its own benefit had it not been compensated for its loss by the insurer;
(f) the insurer has suffered damages caused by the act or omission upon which the liability of the defendant depends;
(g) justice requires that the loss be entirely shifted from the insurer to the defendant, whose equitable position is inferior to that of the insurer; and
(h) the insurer's damages are in a liquidated sum, generally the amount paid to the insured.16
Endnotes:
1 See Vector Shipping Corp., et al. v. American Home Assurance Co., et al., 713 Phil. 198 (2013).
2 Supra.
3See ponencia, pp. 6-7.
4 CIVIL CODE OF THE PHILIPPINES, Article 1157.
Article 1157. Obligations arise from:a) Law;5 680 Phil. 813 (2012).
b) Contracts;
c) Quasi-contracts;
d) Acts or omissions punished by law; and
e) Quasi-delicts. (Emphases Ours)
6 Id. at 829.
7 Marasinghe, M.L., An Historical Introduction to the Doctrine of Subrogation; The Early History of the Doctrine II, Valparaiso University Law Review, Vol. 10, Number 2, p. 292.
8 Id. at 294.
9 RULES OF COURT, Rule 2, Section 2.
10 G.R. No. 192971, January 10, 2018, 850 SCRA 209.
11 Id. at 218.
12 740 Phil. 336 (2014).
13 Id. at 350.
14 Article 1146. The following actions must be instituted within four years:(1) Upon an injury to the rights of the plaintiff;15 No. A079345. July 31, 1998, citing Caito v. United California Bank, supra, 20 Cal.3d at p. 704; Fireman's Fund Ins. Co. v. Wilshire Film Ventures, Inc. (1997) 52 Cal. App. 4th 553, 555-556 [60 Cal Rptr. 2d 591]; Patent Scaffolding Co. v. William Simpson Constr. Co., supra, 256 Cal. App. 2d at p. 509; Grant v. de Otte (1954) 122 Cal. App. 2d 724, 728 [265 P.2d 952]; 11 Witkin, Summary of Cal. Law, supra, Equity, § 169, p. 849.
(2) Upon a quasi-delict.
16 Supra.
17 Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:(1) Upon a written contract;18Phil. Air Lines, Inc. v. Heald Lumber Co., 101 Phil. 1031, 1035 (1957).
(2) Upon an obligation created by law;
(3) Upon a judgment.
19Home Owner's Loan Corp. v. Parker, 73 P.2d 170 (Okla. 1937).
20Fireman's Fund Insurance Company v. Maryland Casualty Company et al., supra note 15.
21 Mullen, J.M., The Equitable Doctrine of Subrogation, Maryland Law Review Vol 3 Issue 3, 3 Md. L. Rev. 202 (1939), p. 201.
22Fireman's Fund Insurance Company v. Jamila & Company, Inc., 162 Phil. 421, 429 (1976).
23PHILAMGEN v. Court of Appeals, 339 Phil. 455, 466 (1997).
LAZARO-JAVIER, J.:
I concur with the concise but exhaustive ponencia of my senior colleague, Madam Justice Estela M. Perlas-Bernabe. May I just add a few thoughts to explain why I support Justice Perlas-Bernabe's ponencia.
As their respective names suggest, legal subrogation differs from conventional1 subrogation in that the former arises by operation of law while the latter comes from the agreement between the subrogor and the subrogee. Legal subrogation is oftentimes referred to as an equitable assignment of credit not only to indicate its historical origin but also its reference to circumstances (or the equities of a case) upon which the law builds and provides for a remedy.2
But more than what its name suggests, it is the purpose of legal subrogation that defines the scope of its legal effects. It has been said that legal subrogation is "an equitable principle to prevent unjust enrichment."3 Accordingly:
The right of subrogation, with its origin in the Civil Law, is merely an equitable right. It is not enforced at the expense of a legal right. In this State the Court of Appeals in a number of cases has enunciated the principles just stated and has refused substitution... when by so doing it will work an injury upon other persons by destroying their legal or equitable rights. From the above, it is clear that the right of subrogation is not granted against a superior equity or a legal right, but that a judgment creditor has no such superior equity as entitles him to the benefit of this principle.Legal subrogation, therefore, gives rise to an indivisible right of recovery, that is, indivisible from the original right pertaining to the equitable subrogor. The equitable subrogee's right cannot rise higher than that of the equitable subrogor.
It would hardly seem necessary to cite authorities for the statement that if the creditor in connection with whose rights subrogation is claimed has no rights thus to be equitably conveyed to the person claiming subrogation, no right of subrogation can arise. Subrogation being a right to which a person claiming it is substituted by virtue of equitable principles, this right exists as to securities, which the creditor did not have or did not know about at the time his obligation was incurred.Extent of the Right
This phase of the matter could probably be summarily disposed of by saying that the equitable doctrine of subrogation when applied accords to the subrogated person all of the rights of the creditor to which the subrogee becomes thus entitled....
In Packham v. German Fire Insurance Company, an insurance company had become subrogated to the rights of an insurer by paying his fire insurance loss claims on furniture and fixtures. The rights to which the insurance company was subrogated (of course, those of the insured) comprised a claim against a third person tortfeasor, who by a negligent fire had destroyed or damaged the insured's furniture and fixtures and merchandise and caused him a loss of profits. The insurance covered the furniture and fixtures only and had nothing to, do with the merchandise and loss of profits. The insured endeavored to handle his claim against the tort feasor in such a way that he could therein by settlement recover against the latter for the loss of merchandise and loss of profits, but not for the furniture and fixtures. In connection with this, he sued the insurance company, but the appellate court, applying the equitable doctrine of subrogation to the circumstances, felt that there could be no recovery, as by reason of having disentitled himself to sue against the tort feasor for loss of furniture and fixtures, he had thus voluntarily destroyed a right to which his insurer was entitled under the equitable doctrine of subrogation, and the insurer's right of recovery for his damages, being an indivisible right, he could not recover against the fire insurance company.4 (emphasis added)
Endnotes:
1 conventional, (n.d.) West's Encyclopedia of American Law, edition 2. (2008), https://legal-dictionary.thefreedictionary.com/conventional (last accessed August 22, 2019). Conventional mean "derived from or contingent upon the mutual agreement of the parties, as opposed to that created by or dependent upon a statute or other act of the law." James M. Mullen, The Equitable Doctrine of Subrogation, 3 Md. L. Rev. 202 (1939), available at: http://digitalcommons.law.umaryland.edu/mlr/vol3/iss3/1 (last accessed August 22, 2019): "Thus, transposing one of the instances given above, if A as holder of a second mortgage on the property of B pays off the first mortgage, and has it assigned to him by the first mortgagee, the rights claimed would be adjudicated on the basis of the written assignment and not by virtue of ai y principle of equitable subrogation."
2James M. Mullen, Supra.
3Id.
4Id.