Lorenzo Shipping Corp. vs. Chubb and Sons, Inc.

A foreign insurer-subrogee that paid a loss under a single marine insurance policy may sue before Philippine courts as an isolated transaction, and its capacity is not defeated by the incapacity of its insured (a foreign corporation doing business without a license) because the right of subrogation does not embrace the subrogor’s personal disabilities, only its rights pertaining to the debt. Moreover, a clean bill of lading creates a prima facie presumption that the carrier received the goods in good order; proof of delivery in good condition and arrival in damaged condition shifts to the carrier the burden of proving extraordinary diligence, which is not satisfied where the vessel’s unseaworthiness caused the damage.

Mayer Steel Pipe Corporation shipped 581 bundles of black steel pipes from Manila to Davao City for the account of Sumitomo Corporation, a United States consignee. Petitioner Lorenzo Shipping carried the cargo coastwise and issued a clean bill of lading. The cargo was insured by respondent Chubb and Sons, Inc., a foreign insurer not licensed to do business in the Philippines. Upon discharge in Davao, the pipes were found heavily rusted, submerged in seawater inside the vessel’s hold. The onward carrier, respondent Gearbulk, loaded the damaged cargo for transport to the United States, marking its bills of lading “ALL UNITS HEAVILY RUSTED.” Sumitomo rejected the shipment, and Chubb paid the insurance claim. Chubb then sued Lorenzo Shipping and the onward carriers in Philippine courts to recover the amount paid.

• The Shipment and Damage: On November 21, 1987, Mayer Steel Pipe Corporation loaded 581 bundles of ERW black steel pipes worth US$137,912.84 aboard M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for carriage from Manila to Davao City. Petitioner issued a clean Bill of Lading No. T-3 to the account of consignee Sumitomo Corporation of San Francisco, California, which insured the goods with respondent Chubb and Sons, Inc. The vessel arrived at Sasa Wharf, Davao City on December 2, 1987. During discharge on December 4, 1987, respondent Transmarine Carriers (agent of Gearbulk) discovered seawater in the hatch and steel pipes submerged. A survey by R.J. Del Pan Surveyors revealed the pipes “heavily rusted” and the cargo hold flooded with seawater; the tank top was “rusty, thinning, and with several holes at different places.” The mate’s receipts noted the rusty condition and the checker of M/V Lorcon IV signed his conforme.

• Onward Carriage: After the survey, respondent Gearbulk loaded the shipment on board M/V San Mateo Victory for transport to the United States. It issued Bills of Lading Nos. DAV/OAK 1–7 (364 bundles to Oakland, California) and DAV/SEA 1–6 (217 bundles to Vancouver, Washington), all marked “ALL UNITS HEAVILY RUSTED.”

• Notice of Claim: On December 7, 1987, Sumitomo sent petitioner a letter of intent, received on December 9, 1987, stating it would file a claim once damage was quantified, and enclosed the Del Pan survey report.

• Survey at Destination and Rejection: M/V San Mateo Victory arrived at Oakland on January 17, 1988 and at Vancouver on January 23, 1988. Toplis and Harding, Inc. surveyed the pipes and found them heavily rusted with positive chloride reactions to silver nitrate, confirming contact with salt water. Sumitomo rejected the damaged cargo as unfit for its intended purpose.

• Insurance Settlement and Suit: Sumitomo filed a marine insurance claim, which respondent Chubb settled for US$104,151.00. On December 2, 1988, Chubb filed a complaint for collection in the RTC of Manila against Lorenzo Shipping, Gearbulk, and Transmarine, alleging it was not doing business in the Philippines and suing on an isolated transaction. The RTC found Chubb had capacity to sue and that Lorenzo Shipping was negligent; it dismissed the complaint against the other defendants and their counterclaim and cross-claim. The Court of Appeals affirmed.

• Capacity to Sue of the Insurer-Subrogee: Petitioner maintained that respondent Chubb, as a foreign insurer not licensed to do business in the Philippines, could not sue because its subrogor, Sumitomo, was itself a foreign corporation doing business without a license and thus lacked capacity; the subrogee cannot acquire greater rights than the subrogor.

• Prescription under the Code of Commerce: Petitioner argued that consignee Sumitomo failed to make a timely claim for damages within twenty-four hours from receipt of the cargo as required by Article 366 of the Code of Commerce and the bill of lading.

• Overcoming the Prima Facie Presumption of Good Condition: Petitioner claimed that the delivery cargo receipt without notation of damage created a prima facie presumption of good order upon receipt, and that it had overcome that presumption with convincing evidence.

• Joint Liability of Subsequent Carriers: Petitioner contended that even if it were negligent, respondents Gearbulk and Transmarine, as common carriers, should share liability for their own separate negligence in handling the rusted cargo.

• Capacity to Sue: Respondent Chubb countered that it was suing on an isolated marine insurance policy, which constitutes an isolated transaction exempt from the license requirement, and that its right of subrogation was personal to it; the incapacity of the insured does not attach to the insurer’s independent right to recover what it paid.

• Timeliness of Claim: Respondent argued that the twenty-four-hour claim period did not begin until the consignee physically received the goods at the destination in the United States; at Davao, the consignee had not yet taken delivery.

• Negligence of Petitioner: Respondent Gearbulk and Transmarine asserted that Philippine law governed the carriage from Manila to Davao and that petitioner’s unseaworthy vessel caused the damage, while they merely received the cargo in its already rusted condition.

• Capacity to Sue: Whether respondent Chubb and Sons, Inc., as subrogee of Sumitomo Corporation, had the capacity to sue before Philippine courts given that its insured was a foreign corporation doing business in the Philippines without a license.

• Negligence of the Carrier: Whether petitioner Lorenzo Shipping was negligent in its custodial and transport obligations, rendering it liable for the damage to the steel pipes.

• Prescription of the Claim: Whether the claim for damages had prescribed under the twenty-four-hour rule of Article 366 of the Code of Commerce.

• Joint Liability and Applicable Law: Whether Gearbulk and Transmarine should share liability for separate negligence and whether American law governed the contract of carriage.

• Capacity to Sue: Respondent Chubb possessed capacity to sue. The defense that Sumitomo, as a foreign corporation doing business without a license, lacked capacity was not raised in the trial court and could not be litigated on appeal. Moreover, assuming Sumitomo could not sue, the incapacity did not bar the subrogee. Subrogation transfers only the rights, remedies, and securities pertaining to the debt or claim; it does not carry the personal disabilities of the subrogor. Capacity to sue is a personal right conferred by law, not included in the bundle of rights arising from the debt. Furthermore, respondent Chubb was suing on a single marine insurance policy — an isolated transaction — which does not require a license under Article 133 of the Corporation Code. The number of bills of lading does not determine the number of transactions; the policy was the single act.

• Negligence of the Carrier: Petitioner Lorenzo Shipping was negligent. The clean bill of lading constituted prima facie evidence that the goods were received in good order. The subsequent arrival in Davao with the cargo heavily rusted, submerged in seawater, and the discovery of a rusty, thinning, and perforated tank top shifted the burden to the carrier. Petitioner failed to prove extraordinary diligence; the unpatched holes allowed seawater to enter the hold, directly causing the rust. The cargo’s packaging was not defective; the surveyor described it as superior. Petitioner did not present contrary evidence nor establish any exempting cause under Article 1734 of the Civil Code.

• Prescription of the Claim: The claim did not prescribe. The twenty-four-hour period under Article 366 of the Code of Commerce begins to run only upon delivery of the merchandise to the consignee at the place of destination, when the consignee obtains possession and control over the goods. Sumitomo did not receive the cargo in Davao; delivery was completed only upon arrival in the United States. The claim was made within the prescriptive period.

• Joint Liability and Applicable Law: The argument was rejected. Philippine law governed because the place of destination against petitioner Lorenzo Shipping was Davao City, not the United States. Gearbulk and Transmarine, as onward carriers that received the already rusted cargo, were not liable.

• Doctrine of Subrogation — Subrogation is the substitution of one person in place of another with reference to a lawful claim or right, so that the subrogee steps into the shoes of the creditor and succeeds to all rights and remedies pertaining to the debt or claim. However, the subrogee cannot acquire any claim, security, or remedy the subrogor did not have. The rights inherited are those that relate to the debt, not the personal disabilities of the creditor, such as lack of capacity to sue. The insurer, having fully compensated the insured, becomes the sole real party in interest and must sue in its own name.

• Doctrine of Isolated Transaction — A foreign corporation not licensed to do business in the Philippines may sue on an isolated transaction. What constitutes “doing business” depends not on the quantity or number of transactions but on the intention to engage in a continuity of commercial enterprise. An isolated transaction is one that is occasional, incidental, and not indicative of a purpose to pursue business progressively. A single marine insurance policy, even if covering a shipment under multiple bills of lading, is an isolated transaction.

• Clean Bill of Lading and Presumption of Negligence — A clean bill of lading is one that contains no notation of defect or damage. It constitutes prima facie evidence that the carrier received the goods as described. Proof of delivery to the carrier in good order and subsequent arrival in damaged condition establishes a prima facie case of negligence, shifting to the carrier the burden of proving that it exercised extraordinary diligence. The presumption is not overcome by bare denial; the carrier must prove an exempting cause under Article 1734 of the Civil Code.

• Prescriptive Period Under Article 366, Code of Commerce — The twenty-four-hour period for claiming damages or average against a carrier under Article 366 of the Code of Commerce commences only when the consignee receives actual possession of the merchandise at the destination and is able to exercise ordinary control over it. A mere delivery to an intermediate carrier or agent does not trigger the period.

• “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 – he cannot acquire any claim, security, or remedy the subrogor did not have.”

• “Capacity to sue is a right personal to its holder. It is conferred by law and not by the parties. … [It] could not perchance belong to the group of rights, remedies or securities pertaining to the payment respondent insurer made for the loss … .”

• “A clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the goods as therein described. … [M]ere proof of delivery of goods in good order to a carrier and the subsequent arrival in damaged condition at the place of destination raises a prima facie case against the carrier.”

• “The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be presented does not begin to run until the consignee has received such possession of the merchandise that he may exercise over it the ordinary control pertinent to ownership.”

• Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70 (1924) — Established that a foreign corporation performing a single act of business was not barred from suing; the prohibition was intended to prevent acquiring domicile for business without submitting to local jurisdiction. Followed.

• Universal Shipping Lines, Inc. vs. Intermediate Appellate Court, 188 SCRA 170 (1990) — Applied the isolated transaction rule to a marine insurer suing on a foreign-issued policy covering international cargo; the lack of a license is not a bar if the insurer is not doing business in the Philippines. Followed.

• Eriks Pte. Ltd. vs. Court of Appeals, 267 SCRA 567 (1997) — Clarified that “isolated transaction” may refer to a series of transactions set apart from common business, determined by intention, not frequency. Distinguished in principle.

• Gonzales vs. Raquiza, 180 SCRA 254 (1989) — Held that three isolated contracts by a foreign corporation did not constitute “doing business.” Followed as persuasive analogy.

• Columbia Pictures, Inc. vs. Court of Appeals, 261 SCRA 144 (1996) — Defined lack of legal capacity to sue as referring to plaintiff’s general disability, such as minority or lack of juridical personality. Followed.

• Coastwise Lighterage Corp. vs. Court of Appeals, 245 SCRA 796 (1995) — Reiterated that proof of delivery in good order and arrival in damaged condition creates a prima facie case of negligence against the carrier. Followed.

• Article 133, Corporation Code — Prohibits a foreign corporation transacting business without a license from maintaining any suit in Philippine courts but permits suit against it. Applied to distinguish isolated transactions from “doing business”; the insurer’s single policy fell within the exception.

• Article 366, Code of Commerce — Requires claims for damage or average to be made within twenty-four hours after receipt of the merchandise. Interpreted to mean that the period commences only upon delivery to the consignee at the place of destination, not upon discharge to an intermediate carrier.

• Rule 3, Section 2, 1997 Rules of Civil Procedure — Defines a real party in interest as one who stands to be benefited or injured by the judgment. The fully subrogated insurer is the real party in interest and must sue in its own name.

• Article 1735, Civil Code — Establishes a presumption of fault or negligence on the part of common carriers if goods are lost, destroyed, or deteriorated, unless they prove extraordinary diligence. Applied to shift the burden to petitioner.

• Bill of Lading No. T-3 — Contained a contractual clause echoing Article 366, requiring claims within twenty-four hours after delivery. Construed consistently with the statutory provision.

Quisumbing, Austria-Martinez, Callejo, Sr., and Tinga, JJ., concurred.