View full case

VECTOR SHIPPING CORPORATION v. AMERICAN HOME ASSURANCE COMPANY

FACTS:

Vector Shipping Corporation (Vector) and Francisco Soriano appeal a decision holding them jointly and severally liable to pay P7,455,421.08 to American Home Assurance Company (respondent) as actual damages based on respondent being the subrogee of its insured, Caltex Philippines, Inc. Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector. On September 30, 1987, Caltex entered into a contract with Vector for the transport of its petroleum cargo through the M/T Vector. Caltex insured the cargo with respondent. On December 20, 1987, the M/T Vector and the M/V Doña Paz collided, leading to the sinking of both vessels and the loss of Caltex's petroleum cargo. Respondent indemnified Caltex for the loss. On March 5, 1992, respondent filed a complaint against Vector and Soriano to recover the amount it paid to Caltex. The trial court dismissed the case based on prescription, but the Court of Appeals reversed the decision and held Vector and Soriano liable.

ISSUES:

  1. Whether the respondent's action was already barred by prescription.

  2. Whether the cause of action arose from a quasi-delict or a breach of contract.

  3. Whether the running of the prescriptive period was interrupted by the failure of the respondent to serve any extrajudicial demand.

  4. Whether respondent had the right of subrogation despite the absence of an allegation in the complaint that it actually paid Caltex for the loss of the cargo.

  5. Whether the subrogation receipt presented by the respondent was admissible as evidence.

RULING:

  1. The respondent's action did not yet prescribe. The applicable provision was Article 1144 of the Civil Code, which allows actions upon an obligation created by law to be brought within ten years from the time the cause of action accrues. In this case, the cause of action accrued upon the respondent's payment of the insurance claim on July 12, 1988, and the complaint was filed on March 5, 1992, which was within the ten-year period.

  2. The cause of action in this case stemmed from an obligation created by law. The action was not based on a written contract, but on the respondent's right of subrogation under Article 2207 of the Civil Code. As such, the cause of action fell under Article 1144 (2) of the Civil Code.

  3. The running of the prescriptive period was interrupted because the respondent's cause of action was not based on a quasi-delict that prescribed in four years from the date of the collision, but on an obligation created by law which has a longer prescriptive period of ten years from the accrual of the action.

  4. The respondent preponderantly established its right of subrogation. The evidence presented, including Marine Open Policy No. 34-5093-6 issued by the respondent to Caltex, the formal written claim of Caltex, and the subrogation receipt dated July 12, 1988 showing that respondent paid Caltex as the full settlement of its claim, were duly presented, marked, and admitted during the trial. The payment made to Caltex as the insured was duly documented, making the respondent subrogated as a matter of course.

  5. The subrogation receipt presented by the respondent was admissible as evidence to prove the payment made to Caltex. The failure to call the witness who was supposed to identify the receipt is not enough to render the receipt inadmissible, especially since other evidence already established the right of subrogation.

PRINCIPLES:

  • Actions must be brought within the prescribed period, as stated under Article 1144 of the Civil Code.

  • The right of subrogation under Article 2207 of the Civil Code allows an insurer to be subrogated to the rights of the insured against the wrongdoer or the person who violated the contract.

  • The prescriptive period for a cause of action based on an obligation created by law is ten years from the accrual of the action.

  • Subrogation is the substitution of another person in the place of the creditor, to whose rights he succeeds in relation to the debt. It is independent of any mere contractual relations between the parties and covers every instance in which one party pays a debt for which another is primarily answerable.