Summary: Pacific Timber Export Corporation vs. Court of Appeals (GR L-38613, 25 February 1982)

Pacific Timber Export Corporation vs. Court of Appeals
[GR L-38613, 25 February 1982]
First Division, De Castro (J): 6 concur

Facts: On 19 March 1963, the Pacific Timber Export Corporation (PTEC) secured temporary insurance from the Workmen's Insurance Company Inc. (WICI) for its exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs to be shipped from the Diapitan Bay, Quezon Province to Okinawa and Tokyo, Japan. WICI issued on said date Cover Note 1010, insuring the said cargo of PTEC "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner." The regular marine cargo policies were issued by WICI in favor of PTEC on 2 April 1963. The two marine policies bore the numbers of 53 HO 1032 and 53 HO 1033. Policy 53 HO 1032 was for 542 pieces of logs equivalent to 499,950 board feet. Policy 53 HO 1033 was for 853 pieces of logs equivalent to 695, 548 board feet. The total cargo insured under the two marine policies accordingly consisted of 1,395 logs, or the equivalent of 1,195,498 bd. ft. After the issuance of Cover Note 1010, but before the issuance of the two marine policies 53 HO 1032 and 53 HO 1033, some of the logs intended to be exported were lost during loading operations in the Diapitan Bay. The logs were to be loaded on the 'SS Woodlock' which docked about 500 meters from the shortline of the Diapitan Bay. The logs were taken from the log pond of PTEC and from which they were towed in rafts to the vessel. At about 10:00 a.m. on 29 March 1963, while the logs were alongside the vessel, bad weather developed resulting in 75 pieces of logs which were rafted together to break loose from each other 45 pieces of logs were salvaged, but 30 pieces were verified to have been lost or washed away as a result of the accident. In a letter dated 4 April 1963, PTEC informed WICI about the loss of approximately 32 pieces of logs during loading of the SS Woodlock. Although dated 4 April 1963, the letter was received in the office of WICI only on 15 April 1963. PTEC subsequently submitted a Claim Statement demanding payment of the loss under Policies 53 HO 1033, and 53 HO 1033, in the total amount of P19,286.79. On 17 July 1963, WICI requested the First Philippine Adjustment Corporation to inspect the loss and assess the damage. The adjustment company submitted its Report on 23 August 1963. In said report, the adjuster found that 'the loss of 30 pieces of logs is not covered by Policies 53 HO 1032 and 1033 inasmuch as said policies covered the actual number of logs loaded on board the SS Woodlock. However, the loss of 30 pieces of logs is within the 1,250,000 bd. ft. covered by Cover Note 1010 insured for $70,000.00. On 14 September 1963, the adjustment company submitted a computation of WICI's probable liability on the loss sustained by the shipment, in the total amount of P11,042.04. On 13 January 1964, WICI wrote PTEC denying the latter's claim, on the ground that its investigation revealed that the entire shipment of logs covered by the two marine policies 53 HO 1032 and 53 HO 1033 were received in good order at their point of destination. It was further stated that the said loss may not be considered as covered under Cover Note 1010 because the said Note had become null and void by virtue of the issuance of Marine Policies 53 HO 1032 and 1033. The denial of the claim by WICI was brought by PTEC to the attention of the Insurance Commissioner by means of a letter dated 21 March 1964. In a reply letter dated 30 March 1964, Insurance Commissioner Francisco Y. Mandanas observed that it is only fair and equitable to indemnify the insured under Cover Note 1010, and advised early settlement of the said marine loss and salvage claim. On 26 June 1964, WICI informed the Insurance Commissioner that, on advice of their attorneys, the claim of PTEC is being denied on the ground that the cover note is null and void for lack of valuable consideration. The Court of First Instance of Manila ruled in favor of PTEC and against WICI which ordered the latter to pay the sum of P11,042.04 with interest at the rate of 12% interest from receipt of notice of loss on 15 April 1963 up to the complete payment, the sum of P3,000.00 as attorney's fees and the costs. The Court of Appeals, however, reversed the decision of the trial court and thus dismissed PTEC's complaint with costs. PTEC filed the petition for review.

Issue: Whether the Cover Note is without consideration, is null and void, and thus recovery cannot be made thereon.

Held: NO. The Cover Note was not without consideration. The fact that no separate premium was paid on the Cover Note before the loss insured against occurred, does not militate against the validity of PTEC's contention, for no such premium could have been paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not contain particulars of the shipment that would serve as basis for the computation of the premiums. As a logical consequence, no separate premiums are intended or required to be paid on a Cover Note. This is a fact admitted by an official of WICI, Juan Jose Camacho, in charge of issuing cover notes of WICI. At any rate, it is not disputed that PTEC paid in full all the premiums as called for by the statement issued by WICI after the issuance of the two regular marine insurance policies, thereby leaving no account unpaid by PTEC due on the insurance coverage, which must be deemed to include the Cover Note. If the Note is to be treated as a separate policy instead of integrating it to the regular policies subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere offer. It may be true that the marine insurance policies issued were for logs no longer including those which had been lost during loading operations. This had to be so because the risk insured against is not for loss during loading operations anymore, but for loss during transit, the logs having already been safely placed aboard. This would make no difference, however, insofar as the liability on the cover note is concerned, for the number or volume of logs lost can be determined independently, as in fact it had been so ascertained at the instance of WICI itself when it sent its own adjuster to investigate and assess the loss, after the issuance of the marine insurance policies. The adjuster went as far as submitting his report to WICI, as well as its computation of WICI's liability on the insurance coverage. This coverage could not have been no other than what was stipulated in the Cover Note, for no loss or damage had to be assessed on the coverage arising from the marine insurance policies. For obvious reasons, it was not necessary to ask PTEC to pay premium on the Cover Note, for the loss insured against having already occurred, the more practical procedure is simply to deduct the premium from the amount due PTEC on the Cover Note. The non-payment of premium on the Cover Note is, therefore, no cause for PTEC to lose what is due it as if there had been payment of premium, for non-payment by it was not chargeable against its fault. Had all the logs been lost during the loading operations, but after the issuance of the Cover Note, liability on the note would have already arisen even before payment of premium. This is how the cover note as a "binder" should legally operate; otherwise, it would serve no practical purpose in the realm of commerce, and is supported by the doctrine that where a policy is delivered without requiring payment of the premium, the presumption is that a credit was intended and policy is valid.

	This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.