Here are select July 2012 rulings of the Supreme Court of the Philippines on commercial law:
Banks; diligence required. FEBTC should have been more circumspect in dealing with its clients. It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. In handling loan transactions, banks are under obligation to ensure compliance by the clients with all the documentary requirements pertaining to the approval and release of the loan applications. For failure of its branch manager to exercise the requisite diligence in abiding by the MORB and the banking rules and practices, FEBTC was negligent in the selection and supervision of its employees. Far East Bank and Trust Company (now Bank of the Philippine Islands) vs. Tentmakers Group, Inc., Gregoria Pilares Santos and Rhoel P. Santos, G.R. No. 171050, July 4, 2012.
Carriage of Goods by Sea Act; prescription. The COGSA is the applicable law for all contracts for carriage of goods by sea to and from Philippine ports in foreign trade; it is thus the law that the Court shall consider in the present case since the cargo was transported from Brazil to the Philippines.
Under Section 3(6) of the COGSA, the carrier is discharged from liability for loss or damage to the cargo “unless the suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.” Jurisprudence, however, recognized the validity of an agreement between the carrier and the shipper/consignee extending the one-year period to file a claim. Benjamin Cua (Cua Hian Tek) vs. Wallem Philippines Shipping, Inc. and Advance Shipping Corporation, G.R. No. 171337. July 11, 2012.
Insurance; double insurance. By the express provision of Section 93 of the Insurance Code, double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. The requisites in order for double insurance to arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against. Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012.
Insurance; other insurance clause. Section 5 is actually the other insurance clause (also called “additional insurance” and “double insurance”), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was upheld by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 3 is a condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance Code. It was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not absolutely declare void any violation thereof but expressly provides that the condition “shall not apply when the total insurance or insurances in force at the time of the loss or damage is not more than P200,000.00.” Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012.
Insurance; overinsurance clause. Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers the situation where there is over insurance due to double insurance. In such case, Section 15 provides that Malayan shall “not be liable to pay or contribute more than its ratable proportion of such loss or damage.” This is in accord with the principle of contribution provided under Section 94(e) of the Insurance Code, which states that “where the insured is over insured by double insurance, each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.” Malayan Insurance Co., Inc. vs. Philippine First Insurance, Co., Inc., et al., G.R. No. 184300, July 11, 2012.
Insurance; false claim. It has long been settled that a false and material statement made with an intent to deceive or defraud voids an insurance policy. In Yu Cua v. South British Insurance Co., the claim was fourteen times bigger than the real loss; in Go Lu v. Yorkshire Insurance Co, eight times; and in Tuason v. North China Insurance Co., six times. In the present case, the claim is twenty five times the actual claim proved.
The most liberal human judgment cannot attribute such difference to mere innocent error in estimating or counting but to a deliberate intent to demand from insurance companies payment for indemnity of goods not existing at the time of the fire. This constitutes the so-called “fraudulent claim” which, by express agreement between the insurers and the insured, is a ground for the exemption of insurers from civil liability.
In its Reply, UMC admitted the discrepancies when it stated that “discrepancies in its statements were not covered by the warranty such that any discrepancy in the declaration in other instruments or documents as to matters that may have some relation to the insurance coverage voids the policy.”
On UMC’s allegation that it did not breach any warranty, it may be argued that the discrepancies do not, by themselves, amount to a breach of warranty. However, the Insurance Code provides that “apolicy may declare that a violation of specified provisions thereof shall avoid it.” Thus, in fire insurance policies, which contain provisions such as Condition No. 15 of the Insurance Policy, a fraudulent discrepancy between the actual loss and that claimed in the proof of loss voids the insurance policy. Mere filing of such a claim will exonerate the insurer.
Considering that all the circumstances point to the inevitable conclusion that UMC padded its claim and was guilty of fraud, UMC violated Condition No. 15 of the Insurance Policy. Thus, UMC forfeited whatever benefits it may be entitled under the Insurance Policy, including its insurance claim.
While it is a cardinal principle of insurance law that a contract of insurance is to be construed liberally in favor of the insured and strictly against the insurer company, contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Courts are not permitted to make contracts for the parties; the function and duty of the courts is simply to enforce and carry out the contracts actually made. United Merchants Corporation vs. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012.
Insurance; limitation in liability. An insurer who seeks to defeat a claim because of an exception or limitation in the policy has the burden of establishing that the loss comes within the purview of the exception or limitation. If loss is proved apparently within a contract of insurance, the burden is upon the insurer to establish that the loss arose from a cause of loss which is excepted or for which it is not liable, or from a cause which limits its liability. In the present case, CBIC failed to discharge its primordial burden of establishing that the damage or loss was caused by arson, a limitation in the policy. United Merchants Corporation vs. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012.
Rehabilitation; when appropriate. Rehabilitation contemplates a continuance of corporate life and activities in an effort to restore and reinstate the corporation to its former position of successful operation and solvency. The purpose of rehabilitation proceedings is to enable the company to gain a new lease on life and thereby allow creditors to be paid their claims from its earnings. The rehabilitation of a financially distressed corporation benefits its employees, creditors, stockholders and, in a larger sense, the general public.
Rehabilitation proceedings in our jurisdiction, much like the bankruptcy laws of the United States, have equitable and rehabilitative purposes. On one hand, they attempt to provide for the efficient and equitable distribution of an insolvent debtor’s remaining assets to its creditors; and on the other, to provide debtors with a “fresh start” by relieving them of the weight of their outstanding debts and permitting them to reorganize their affairs. The rationale of Presidential Decree No. 902-A, as amended, is to “effect a feasible and viable rehabilitation,” by preserving a floundering business as going concern, because the assets of a business are often more valuable when so maintained than they would be when liquidated.
Under Section 23, Rule 4 of the Interim Rules, a rehabilitation plan may be approved if there is a showing that rehabilitation is feasible and the opposition entered by the creditors holding a majority of the total liabilities is unreasonable. In determining whether the objections to the approval of a rehabilitation plan are reasonable or otherwise, the court has the following to consider: (a) that the opposing creditors would receive greater compensation under the plan than if the corporate assets would be sold; (b) that the shareholders would lose their controlling interest as a result of the plan; and (c) that the receiver has recommended approval.
Rehabilitation is therefore available to a corporation who, while illiquid, has assets that can generate more cash if used in its daily operations than sold. Its liquidity issues can be addressed by a practicable business plan that will generate enough cash to sustain daily operations, has a definite source of financing for its proper and full implementation, and anchored on realistic assumptions and goals. This remedy should be denied to corporations whose insolvency appears to be irreversible and whose sole purpose is to delay the enforcement of any of the rights of the creditors, which is rendered obvious by the following: (a) the absence of a sound and workable business plan; (b) baseless and unexplained assumptions, targets and goals; (c) speculative capital infusion or complete lack thereof for the execution of the business plan; (d) cash flow cannot sustain daily operations; and (e) negative net worth and the assets are near full depreciation or fully depreciated. Wonder Book Corporation vs. Philippine Bank of Communications, G.R. No. 187316, July 16, 2012.
(Hector thanks Mel Lumagui for his assistance to Lexoterica.)