C.V. Gaspar Salvage & Lighterage Corporation vs. LG Insurance Company, Ltd.

A barge engaged in transporting goods for compensation is a common carrier subject to the presumption of negligence under Article 1735 of the Civil Code, and the insurer is validly subrogated to the insured's rights against the wrongdoer upon payment of the insurance claim under Article 2207, without need of privity of contract or written assignment. A customs broker that assumes full responsibility for cargo damage under a service contract is solidarily liable with the carrier it engaged.

Sunkyong America, Inc. shipped 23,842 bags of Peruvian fishmeal from Chimbote, Peru to its consignee, Great Harvest, in Manila. The shipment was insured against all risks for US$753,117.75 with LG Insurance Company, Ltd., U.S. Branch, through its American Manager, WM H. McGee & Co., Inc., a U.S.-organized corporation. Great Harvest engaged Fortune Brokerage and Freight Services, Inc. as its customs broker. The cargo was to be transported from the Port of Manila to Great Harvest's warehouse in Valenzuela, Bulacan via barges owned by C.V. Gaspar Salvage & Lighterage Corporation.

On August 5, 1997, Sunkyong America, Inc. shipped 23,842 bags (1,207.50 MT) of Peruvian fishmeal from Chimbote, Peru for delivery to its consignee, Great Harvest, in Manila. The shipment was insured against all risks for US$753,117.75 with LG Insurance Company, Ltd., United States Branch, through its American Manager, WM H. McGee & Co., Inc. Great Harvest engaged Fortune Brokerage and Freight Services, Inc. as its customs broker. The cargo was loaded on board the vessel MV Pearl Islands complete and in good order and condition.

On September 16, 1997, the shipment arrived at the Port of Manila and was discharged into four barges owned by C.V. Gaspar Salvage & Lighterage Corporation for delivery to Great Harvest's warehouse in Valenzuela, Bulacan. While the barges were moored at the Pasig River, the cargo loaded on barge "AYNA-1" got wet, resulting in damage to 3,662 bags of fishmeal. Of these, 2,085 bags were dumped into the Pasig River as they were already emitting strong foul odor, 877 bags were accepted by Great Harvest with 65% loss allowance, and 700 bags were disposed to salvors. A survey later revealed a hole or gap of about 50mm diameter in the bottom plating of AYNA-1 at the starboard side of the center longitudinal T-frame, through which water seeped into Hatch No. 2, causing the damage.

Great Harvest filed separate claims against Fortune Brokerage and C.V. Gaspar for the damaged cargo. When both ignored its claims, Great Harvest filed a claim against its insurance policy with LG Insurance. LG Insurance paid Great Harvest's claim, and Great Harvest executed a subrogation receipt in LG Insurance's favor. LG Insurance and WM H. McGee then demanded from Fortune Brokerage and C.V. Gaspar the amount paid to Great Harvest. Both refused to pay, prompting the filing of an action for damages docketed as Civil Case No. 99-1864. Venancio Mesina was impleaded as Fortune Brokerage's authorized representative who signed the service contract, although he had already retired effective September 15, 1999. LG Insurance alleged that the damage was attributable to the negligence of Fortune Brokerage in utilizing an unseaworthy barge and the negligence of C.V. Gaspar in supplying the unseaworthy barge that suffered a hole at the bottom of its plating.

The RTC ruled in favor of LG Insurance and WM H. McGee, finding that a common carrier is presumed negligent if it fails to prove extraordinary diligence, and that subrogation was present as evidenced by the subrogation receipt. The RTC found no evidence of Mesina's personal liability. The CA affirmed with modification, deleting the award of attorney's fees, holding that Fortune Brokerage assumed full responsibility under the service contract for any and all damage to the cargo and could not escape liability by denying Mesina's authority to sign it.

• Defective Complaint (C.V. Gaspar): C.V. Gaspar argued that the complaint was fatally defective for having been filed in violation of Section 5, Rule 7 of the 1997 Rules of Civil Procedure, and that the Verification and Certification of Non-Forum Shopping was belatedly filed with the Amended Complaint, which did not cure the defect in the original complaint.
• Foreign Corporation's Capacity to Sue (C.V. Gaspar): C.V. Gaspar alleged that a foreign corporation has no personality to sue in the Philippines, and that Fajardo Law Office is not authorized to initiate, file, and prosecute the case on behalf of LG Insurance and WM H. McGee.
• AYNA-1 Not a Common Carrier (C.V. Gaspar): C.V. Gaspar contended that AYNA-1 is not a common carrier.
• Validity of Service Contract (C.V. Gaspar): C.V. Gaspar maintained that the service contract between C.V. Gaspar and Fortune Brokerage is valid.
• No Solidary Liability (C.V. Gaspar): C.V. Gaspar argued that it should not be held solidarily liable with Fortune Brokerage because it is not a party to the contract between Fortune Brokerage and Great Harvest.
• Failure to Prove Claim (Fortune Brokerage): Fortune Brokerage alleged that LG Insurance and WM H. McGee failed to prove their claim.
• Not a Party to the Service Contract (Fortune Brokerage): Fortune Brokerage argued that it is not a party to the service contract, contending that it was Great Harvest which hired C.V. Gaspar and that the service contract was signed by Mesina, one of its employees, instead of its President.
• Defects in the Complaint (Fortune Brokerage): Fortune Brokerage maintained that the Complaint and the Amended Complaint suffer from defects and irregularities.

• Authority of Counsel: Whether Fajardo Law Office, through Atty. Fajardo, is authorized to file the Complaint and Amended Complaint and to sign the Verification and Certification on Non-Forum Shopping on behalf of LG Insurance and WM H. McGee.
• Subrogation: Whether there was a valid subrogation of rights between Great Harvest and LG Insurance and WM H. McGee.
• Common Carrier Status: Whether AYNA-1 is a common carrier.
• Solidary Liability: Whether C.V. Gaspar and Fortune Brokerage should be held solidarily liable to LG Insurance and WM H. McGee for the amount paid to Great Harvest.

• Authority of Counsel: Yes. The authority of Fajardo Law Office and Atty. Fajardo was established by a Special Power of Attorney designating the firm as WM H. McGee's resident agent and to represent it in the suit, which necessarily includes signing the requisite Verification and Certification of Non-Forum Shopping. The late filing constituted substantial compliance with the Rules of Court.
• Subrogation: Yes. Subrogation validly accrued upon LG Insurance's payment of Great Harvest's insurance claim, as evidenced by the subrogation receipt, under Article 2207 of the Civil Code. The right of subrogation accrues simply upon payment and does not depend on privity of contract or a written assignment.
• Common Carrier Status: Yes. AYNA-1 is a common carrier within the definition under Article 1732 of the Civil Code, being one of four barges commissioned to transport goods for compensation from the Port of Manila to Great Harvest's warehouse. As such, it is bound to observe extraordinary diligence and is presumed negligent when goods are damaged.
• Solidary Liability: Yes. C.V. Gaspar failed to overcome the presumption of negligence, the unseaworthy condition of AYNA-1 having caused the damage. Fortune Brokerage assumed full liability under its service contract for any and all damage to the cargo and cannot escape liability by denying Mesina's authority, he having been found by the RTC to be an employee entrusted with shipside permits acting upon Fortune Brokerage's orders.

• Authority of Counsel: LG Insurance is a foreign corporation not doing business in the Philippines, but a foreign corporation not licensed to do business in the country is not absolutely incapacitated from filing suit in local courts. A license is necessary only when the foreign corporation is "transacting" or "doing business" in the country; it may bring suits on isolated business transactions. A foreign insurance company may sue in Philippine courts upon marine insurance policies issued abroad to cover international-bound cargoes shipped by a Philippine carrier. The authority of Fajardo Law Office and Atty. Fajardo was established by a Special Power of Attorney designating the firm as WM H. McGee's resident agent and to represent it in the suit. The designation necessarily includes signing the Verification and Certification of Non-Forum Shopping. While the filing of a certification of non-forum shopping is mandatory, the requirement must not be interpreted too literally so as to defeat the objective of preventing forum shopping. The late filing of the Verification and Certification with the Amended Complaint constituted substantial compliance with the Rules of Court.

• Subrogation: Article 2207 of the Civil Code provides that if the plaintiff's property has been insured and the insurer has paid the indemnity for the injury or loss, the insurer is subrogated to the rights of the insured against the wrongdoer. It was undisputed that Great Harvest insured the shipment with LG Insurance, that the cargo was damaged, that Great Harvest demanded payment from both Fortune Brokerage and C.V. Gaspar and was refused, and that Great Harvest then claimed under the insurance policy. Upon payment of the claim, LG Insurance was subrogated to Great Harvest's rights. Subrogation under Article 2207 operates as an equitable assignment, whereby the insurer, upon payment to the assured, is subrogated to the rights of the assured to recover from the wrongdoer. The right of subrogation is not dependent upon any privity of contract or written assignment of claim; it accrues simply upon payment of the insurance claim by the insurer. From the time of payment, LG Insurance stepped into the shoes of Great Harvest.

• Common Carrier Status: Article 1732 of the Civil Code defines common carriers as persons, corporations, firms, or associations engaged in the business of carrying or transporting passengers or goods by land, water, or air, for compensation, offering their services to the public. The provision makes no distinction between one whose principal business is carrying and one who does it as an ancillary activity, nor between scheduled and unscheduled service, nor between services offered to the general public and those offered to a narrow segment. AYNA-1 was one of four barges commissioned to transport 23,842 bags of fishmeal from the Port of Manila to Great Harvest's warehouse in Valenzuela, Bulacan, and thus falls within the definition. As a common carrier, it is bound to observe extraordinary diligence in the vigilance over the goods transported. Common carriers are presumed to have been at fault or negligent if goods are lost, destroyed, or deteriorated. To overcome this presumption, the carrier must prove it exercised extraordinary diligence. The survey revealed a hole of about 50mm diameter in the bottom plating of AYNA-1, through which water seeped into Hatch No. 2, causing the damage. C.V. Gaspar failed to overcome the presumption of negligence, the unseaworthy bottom plating of AYNA-1 being the proximate cause.

• Solidary Liability: Fortune Brokerage assumed full liability under its service contract with Great Harvest for any and all damage to the cargo. Fortune Brokerage alleged that Great Harvest hired C.V. Gaspar and that the service contract was signed by Mesina instead of its President. However, the Service Contract was between Fortune Brokerage and C.V. Gaspar. The RTC found that Mesina was an employee of Fortune Brokerage entrusted with shipside permits, and that he presented Service Contracts from 1992 to 1997 proving he was acting upon Fortune Brokerage's orders. Fortune Brokerage cannot deny Mesina's authority to contract with C.V. Gaspar while having previously relied on the same authority to justify its operations. A customs broker may also be regarded as a common carrier, as the transportation of goods is an integral part of its business. Fortune Brokerage cannot escape liability under the service contract it executed with C.V. Gaspar.

• Presumption of Negligence of Common Carriers — Under Article 1735 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently if the goods are lost, destroyed, or deteriorated. To overcome this presumption, the carrier must prove that it exercised extraordinary diligence in the transportation of the goods. In this case, C.V. Gaspar failed to rebut the presumption because the damage was caused by a hole in the bottom plating of AYNA-1, rendering the barge unseaworthy.

• Subrogation as Equitable Assignment — Under Article 2207 of the Civil Code, subrogation operates as a form of equitable assignment whereby the insurer, upon payment to the assured, is subrogated to the rights of the assured to recover from the wrongdoer to the extent of the payment. The right of subrogation is not dependent upon any privity of contract or upon a written assignment of claim; it accrues simply upon payment of the insurance claim by the insurer. In this case, LG Insurance was subrogated upon payment of Great Harvest's claim, evidenced by the subrogation receipt.

• Capacity of Foreign Corporations to Sue — A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing suit in local courts. A license is necessary only when the foreign corporation is "transacting" or "doing business" in the country. It may bring suits on isolated business transactions. A foreign insurance company may sue upon marine insurance policies issued abroad to cover international-bound cargoes shipped by a Philippine carrier, even without a license to do business in the country. In this case, LG Insurance, a U.S.-organized corporation not doing business in the Philippines, was permitted to sue on the marine insurance policy.

• Substantial Compliance with Non-Forum Shopping Requirement — While the filing of a certification of non-forum shopping is mandatory under the Rules of Court, the requirement must not be interpreted too literally as to defeat the objective of preventing forum shopping. Late filing of the certification constitutes substantial compliance. In this case, the Verification and Certification of Non-Forum Shopping attached to the Amended Complaint, though missing from the original Complaint, constituted substantial compliance.

• "A foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing a suit in local courts. Only when that foreign corporation is 'transacting' or 'doing business' in the country will a license be necessary before it can institute suits." — This passage establishes the doctrine permitting unlicensed foreign corporations to sue on isolated transactions in Philippine courts, a principle applied to allow LG Insurance to maintain its action despite lacking a Philippine license.

• "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." — This formulation, quoted from Pan Malayan Insurance Corp. vs. Court of Appeals, defines the essential nature of subrogation under Article 2207 and is frequently cited in subsequent insurance jurisprudence.

• "Article 1732 does not make any distinction between one whose principal business activity is the carrying of persons or goods or both, and one who does the carrying only an ancillary activity; between a person or enterprise offering transportation service on a regular or scheduled basis, and one offering the service on an occasional, episodic or unscheduled basis; and a carrier offering its services to the general public, and one who offers services or solicits business only from a narrow segment of the general population." — This passage articulates the broad, inclusive definition of common carriers under Philippine law, applied to hold that the barge AYNA-1 qualified as a common carrier despite being engaged only in a specific transport job.

• Aboitiz Shipping Corp. vs. Insurance Co. of North America, 583 Phil. 257 (2008) — Followed for the proposition that a foreign corporation not licensed to do business in the Philippines is not absolutely incapacitated from filing suit, and that a foreign insurance company may sue upon marine insurance policies issued abroad.
• Pan Malayan Insurance Corp. vs. Court of Appeals, 262 Phil. 919 (1990) — Followed for the doctrine that subrogation under Article 2207 operates as an equitable assignment accruing upon payment of the insurance claim, independent of privity of contract or written assignment.
• Henson, Jr. vs. UCPB General Insurance Co., Inc., G.R. No. 223134, Aug. 14, 2019 — Followed to reinforce the characterization of subrogation as an equitable assignment of credit without need of consent.
• Asia Lighterage & Shipping, Inc. vs. Court of Appeals, 456 Phil. 610 (2003) — Followed for the definition of common carriers under Article 1732 and the presumption of negligence under Article 1735, applied to hold AYNA-1 a common carrier.
• Loadmasters Customs Services, Inc. vs. Glodel Brokerage Corp., 654 Phil. 67 (2011) — Followed for the proposition that a customs broker may be regarded as a common carrier, as the transportation of goods is an integral part of its business.
• Varorient Shipping Co., Inc. vs. NLRC, 564 Phil. 119 (2007) — Followed for the distinction between non-compliance and substantial compliance with the requirements for verification and certification of non-forum shopping.

• Article 2207, Civil Code of the Philippines — Provides that if the plaintiff's property has been insured and the insurer has paid indemnity for the injury or loss, the insurer is subrogated to the rights of the insured against the wrongdoer. Applied to hold that LG Insurance was validly subrogated upon payment of Great Harvest's insurance claim.
• Article 1732, Civil Code of the Philippines — Defines common carriers as persons, corporations, firms, or associations engaged in the business of carrying or transporting goods for compensation, offering their services to the public, without distinction as to the nature or frequency of the service. Applied to classify AYNA-1 as a common carrier.
• Article 1733, Civil Code of the Philippines — Requires common carriers to observe extraordinary diligence in the vigilance over the goods they transport. Cited as the standard of care binding upon AYNA-1 as a common carrier.
• Article 1735, Civil Code of the Philippines — Establishes the presumption that common carriers are at fault or negligent when goods are lost, destroyed, or deteriorated. Applied to presume C.V. Gaspar negligent for the damage to the fishmeal cargo.
• Section 5, Rule 7, 1997 Rules of Civil Procedure — Governs the verification and certification against non-forum shopping. Interpreted to allow substantial compliance where the certification was belatedly filed with the Amended Complaint.

Leonen (Chairperson), Hernando, Delos Santos, and J. Lopez, JJ., concurred.