VICENTE G HENSON JR. VS. UCPB GENERAL INS.CO., G.R. NO.

223134

FACTS:

National Arts Studio leased a portion of the ground floor of the building owned by the Henson. Later,
National Arts moved to and rented the second floor of the building and made renovations with the
buildings piping assembly. Copylandia moved in to the ground floor.

On May 9, 2006, a water leak occurred and damaged Copylandia’s various equipment to the amount of
P2,062,640.00. Copylandia filed a claim with UCPB General Insurance for said amount. On November 2,
2006, UCPB settled with Copylandia paying P1,326, 342.76. UCPB was subrograted to the rights of
Copylandia over all claims and demands, arising from the incident. On May 20, 2010, UCPB demanded
from National Arts Studio for payment but to no avail. It filed a complaint for damages against National
Arts. Meanwhile, sometime in 2010, Henson transferred the ownership of the building to Citrinne
Holdings,Inc. where he is stockholder and the president.

On October 6, 2011, UCPB filed an Amended Complaint (Second Amendment) impleading Citrinne as
party defendant as the new owner of the building. On April 21, 2014, UCPB again filed a Motion to
Admit Attached Complaint and Pre Trial Brief (Third Amendment) praying that Henson, instead of
Citrinne, be impleaded as party defendant because it was Henson who was then the owner of the
building when the water leak damage occurred.

According to the UCPB, the defendants were negligent in maintaining the building’s draining system.
Such negligence resulted in substantial damage to Copylandia’s various equipment.

Cintrinne on the other hand, opposed the Motion To Admit on the ground of prescription arguing that
since UCPB’s cause of action is based on quasi-delict, the case should have been brought within four
years from it accrual on May 9, 2006. Thus, UCPB is barred for proceeding against CHI/Henson,
especially since the latter (CHI/Henson) never received any prior demand form the UCPB.

The RTC Ruling

RTC ruled in favor of UCPB and accordingly ordered the: 1) dropping of Citrinne as party defendant and
joining Henson as one of the party-defendants in the case. The RTC said UCPB’s cause of action against
Henson arose after it paid Copylandia its insurance claim, subrogating to the rights and claims of
Copylandia. As it merely enforced its right of subrogation, the prescriptive period is ten years based on
an obligation created by law counted from date of payment, November 2, 2006. As such, UCPB’s claim
against Henson is yet to prescribe when it sought to include Henson as party-defendant on April 21,
2014.

Citrinne moved for reconsideration which was denied. Henson filed a petition for certiorari (Rule 65)
with the CA.
The CA Ruling

CA affirmed the ruling that UCPB’s cause of action has not yet prescribed since it was not based on
quasi-delict which must be brought within 4 years from date of occurrence of the negligent act, but
based on an obligation created by law, which has a longer prescriptive period of ten years reckoned
from its accrual. CA denied the motion for reconsideration.

The Supreme Court Ruling

The RTC and CA ruling was based on the case of Vector Shipping Corporation vs. American Home
Assurance Corporation (Vector). [713 Phil 198 (2013)]

In Vector, Caltex entered a contract of affreightment with Vector Shipping for the transport of the
Caltex’s goods. Caltex insured its goods with American Home Assurance Co. During transport on Dec. 20,
1987, Vector’s ship collided with another vessel and sank, resulting to total loss of Caltex’s goods.
American Home indemnified Caltex on July 12, 1988. Thereafter, it filed a suit against Vector for the
recovery of such amount on March 5, 1992. At first, RTC ruled that American Home’s claim against
Vector has prescribed as it was based on a quasi-delict which should have been filed within four (4)
years from the time Caltex suffered a total loss of its goods. But, the CA reversed the ruling, saying that
the claim has yet to prescribed as it is based on a breach of Vector’s contract of affreightment with
Caltex, which has a longer prescriptive period often 10 years, from the time of loss.

In Vector, the Court agreed that the claim has yet to prescribe, but qualified that “the present action
was not upon a written contract, but upon an obligation created by law”. The Supreme Court CLARIFIED
that while they concurred with the ruling of the CA that American Home’s action has not yet prescribed,
it said that it couldn’t adopt the characterization by the CA that the cause of action was based on the
contract of affreightment between Caltex and Vector with the breach of contract being the failure of
Vector to make the M/T Vector seaworthy. The Court said that the present action was not upon a
written contract, but upon an obligation created by law. Hence, the action by American Home was not
upon a written contract [Art. 1144 (1)] but upon an obligation created by law. [Art. 1144 (2)].
Subrogation of insurer to the right of the insured was by virtue of the express provision of law under
Art. 2207 of the Civil Code. Said provision states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from
the insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the amount paid by
the insurance company does not fully cover the injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the person causing the loss or injury.

The Court invoked its ruling in Pan Malayan Insurance Corp. vs. CA, stating that the juridical
situation under Art. 2207 is based on the well-settled principle of subrogation:
 “Payment by insurer to the assured operates as an equitable assignment to the insurance
company of all remedies which the assured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon,
nor does it grow out of, any privity of contract of upon written assignment of claim. It
accrues simply upon payment of the insurance claim by the insurer.”

In Vector, the Court stated that the insured’s (American Home’s) claim against the debtor (Vector)
was premised on the right of subrogation pursuant to Art. 2207 of the Civil Code, and hence, an
obligation created by law.

However, in this case, the Court said that the Vector Court FAILED TO DISCERN that NO NEW
OBLIGATION WAS CREATED BETWEEN AMERICAN HOME AND VECTOR for the reason that a
subrogee only steps into the shoes of the subrogor hence, the subrogee-insurer only assumes the
rights of the subrogror-insured based on the latter’ original obligation with the debtor.

The Court proceeded to lay down the legal effects of subrogation:

1) it is primarily between the subrogee-insurer and the subrogor-insured

2) by payment, subrogee acquires, by operation of law, all rights of the subrogor-insured
against debtor (the wrongdoer)
3) debtor is a stranger to this juridical tie because it only remains bound by its original
obligation to its creditor whose rights, however, have already been assumed by the
subrogee.

The Court pointed out that by subrogation, Caltex is obliged to respect this assumption of rights
by American Home against Vector. In cannot deny American Home of its right to claim against
Vector. But, the subrogation by American Home did not alter the original obligation between
Caltex and Vector.

The Court said that in Vector, the Court erroneously concluded that “the cause of action (against
Vector) accrued as of the time (American Home) actually indemnified Caltex on July 12, 1988.
Instead, it is actually the SUBROGATION OF RIGHTS BETWEEN CALTEX AND AMERICAN HOME
THAT AROSE FROM THE TIME THE INDEMNITY WA PAID. But, the accrual of the cause of action
that Caltex had against Vector did not change because no new obligation was created as between
them (Caltex and Vector) by reason of subrogation. The cause of action against Vector therefore
accrued at the time it breached its original obligation with Caltex, whose right of action just so
happened to have been assumed in the interim by American Home due to subrogation. “A right of
action is the right to presently enforce a cause of action, while a cause of action consists of the
operative fact which give rise to such right of action.”

The Court held that subrogation allows only the insurer to assume ipso jure the old creditor’s
rights without need of any contract, to go after the debtor, but it does not mean that a new
obligation is created between the debtor and the insurer. The insurer, as the new creditor,
remains bound by the limitations of the old creditor’s claims against the debtor, including the
aspect of prescription. Thus, the debtor’s right to invoke the defense of prescription cannot be
circumvented by the mere expedient of successive payments of certain insurers that purport to
create new obligations, when, in fact, what remains subsisting is only the original obligation.
On this basis, the Court must abandon the ruling in Vector that an insurer may file an action
against the tortfeasor within ten years from the time the insurer indemnifies the insured. Since
the insurer only steps into the shoes of the insured, for purposes of prescription, the insurer
inherits only the remaining period within which the insured may file an action against the
wrongdoer for tort. The prescriptive period of the action begins at the time the tort was
committed (i.e., the collision) and the loss/injury occurred against the insured. The
indemnification of the insured by the insurer only allows it to be subrogated to the former’s rights
but does not create a new reckoning point for the cause of action that the insured original has
against the wrongdoer.

This Decision by the Court, abandoning the Vector doctrine should apply prospectively. Then the
Court prescribed GUIDELINES to the application of Vector and this Henson decision vis-à-vis the
prescriptive period in cases where the insurer is subrogated to the rights of the insured against
the wrongdoer based on a quasi delict.

Application to the Case at Bar

The Court found that if adjudged by the present parameters of legal subrogation, prescription
should have already set in. But, the prevailing rule applicable to the case is Vector (Vector
doctrine). Hence, the reckoning date for the 10 year prescriptive period is Nov. 2, 2006, which is
the date when Copylandia was indemnified. Therefore, when the amended complaint against
Henson was filed on April 21, 2014, the case cannot be said to have prescribed under Vector.

The petition is denied.