G.R. No. 223134

G.R. No. 223134, August 14, 2019,
♦ Decision, Perlas-Bernabe, [J]
♦ Dissenting Opinion, Bersamin, [C J]
♦ Concurring Opinion, Caguioa, [J]
♦ Dissenting Opinion, Reyes, [J]
♦ Concurring Opinion, Lazaro-Javier, [J]

VICENTE G. HENSON, JR., PETITIONER, VS. UCPB GENERAL INSURANCE CO., INC., RESPONDENT.

Assailed in this petition for review on certiorari1 are the Decision2 dated November 13, 2015 and the Resolution3 dated February 26, 2016 of the Court of Appeals (CA) in CA-G.R. SP. No. 138147, which affirmed the Orders dated June 10, 20144 and September 22, 20145 of the Regional Trial Court of Makati City, Branch 138 (RTC) in Civil Case No. 10-885, ruling that the suit filed by respondent UCPB General Insurance Co., Inc. (respondent) has yet to prescribe, and resultantly, allowing the inclusion of petitioner Vicente G. Henson, Jr. (petitioner) as party-defendant to the same.

From 1989 to 1999, National Arts Studio and Color Lab6 (NASCL) leased the front portion of the ground floor of a two (2)-storey building located in Sto. Rosario Street, Angeles City, Pampanga, then owned by petitioner.7 In 1999, NASCL gave up its initial lease and instead, leased the right front portion of the ground floor and the entire second floor of the said building, and made renovations with the building's piping assembly.8 Meanwhile, Copylandia Office Systems Corp. (Copylandia) moved in to the ground floor.9 On May 9, 2006, a water leak occurred in the building and damaged Copylandia's various equipment, causing injury to it in the amount of P2,062,640.00.10 As the said equipment were insured with respondent,11 Copylandia filed a claim with the former. Eventually, the two parties settled on November 2, 2006 for the amount of P1,326,342.76.12 This resulted in respondent's subrogation to the rights of Copylandia over all claims and demands arising from the said incident.13 On May 20, 2010, respondent, as subrogee to Copylandia's rights, demanded from, inter alia, NASCL for the payment of the aforesaid claim, but to no avail.14 Thus, it filed a complaint for damages15 against NASCL, among others, before the RTC, docketed as Civil Case No. 10-885.16

Meanwhile, sometime in 2010, petitioner transferred the ownership of the building to Citrinne Holdings, Inc. (CHI), where he is a stockholder and the President.17

On October 6, 2011, respondent filed an Amended Complaint (Second Amendment),18 impleading CHI as a party-defendant to the case, as the new owner of the building. However, on April 21, 2014, respondent filed a Motion to Admit Attached Amended Complaint and Pre-Trial Brief (Third [A]mendment),19 praying that petitioner, instead of CHI, be impleaded as a party-defendant to the case, considering that petitioner was then the owner of the building when the water leak damage incident happened.20

In the said complaints, respondent faults: (a) NASCL for its negligence in not properly maintaining in good order the comfort room facilities where the renovated building's piping assembly was utilized; and (b) CHI/petitioner, as the owner of the building, for neglecting to maintain the building's drainage system in good order and in tenantable condition. According to respondent, such negligence on their part directly resulted in substantial damage to Copylandia's various equipment amounting to ₱2,062,640.00.21

CHI opposed22 the motion principally on the ground of prescription, arguing that since respondent's cause of action is based on quasi-delict, it must be brought within four (4) years from its accrual on May 9, 2006. As such, respondent is already barred from proceeding against CHI/petitioner, especially since the latter never received any prior demand from the former.23

In an Order24 dated June 10, 2014, the RTC ruled in respondent's favor and accordingly, ordered the: (a) dropping of CHI as party-defendant; and (b) joining of petitioner as one of the party-defendants in the case.25

The RTC pointed out that respondent's cause of action against the party-defendants, including petitioner, arose when it paid Copylandia's insurance claim and became subrogated to the rights and claims of the latter in connection with the water leak damage incident. Since respondent was merely enforcing its right of subrogation, the prescriptive period is ten (10) years based on an obligation created by law reckoned from the date of Copylandia's indemnification, or on November 2, 2006. As such, respondent's claim against petitioner has yet to prescribe when it sought to include the latter as party-defendant on April 21, 2014.26

CHI moved for reconsideration,27 which was, however, denied in an Order28 dated September 22, 2014. Aggrieved with his inclusion as party-defendant to the case, petitioner filed a petition for certiorari29 under Rule 65 of the Rules of Court before the CA, docketed as CA-G.R. SP. No. 138147.

In a Decision30 dated November 13, 2015, the CA affirmed the RTC ruling. It held that respondent's cause of action has not yet prescribed since it was not based on quasi-delict, which must be brought within four (4) years from the date of the occurrence of the negligent act. Rather, it is based on an obligation created by law, which has a longer prescriptive period of ten (10) years reckoned from its accrual.31

Undaunted, petitioner moved for reconsideration,32 but the same was denied in a Resolution33 dated February 26, 2016; hence, this petition.

The issue for the Court's Resolution is whether or not respondent's claim has yet to prescribe.

In ruling that respondent's claim against petitioner has yet to prescribe, the courts a quo cited Vector Shipping Corporation v. American Home Assurance Company (Vector).34 In that case, therein petitioner Vector Shipping Corporation (Vector) entered into a contract of affreightment with Caltex Philippines, Inc. (Caltex) for the transport of the latter's goods. In connection therewith, Caltex insured its goods with therein respondent American Home Assurance Company (American Home). During transport on December 20, 1987, Vector's ship collided with another vessel and sank, resulting in the total loss of Caltex's goods. On July 12, 1988, American Home fully indemnified Caltex for its loss in the amount of P7,455,421.08, and thereafter, filed a suit against, inter alia, Vector for the recovery of such amount on March 5, 1992. Initially, the 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. However, the CA reversed the ruling, holding that the claim has yet to prescribe as it is based on a breach of Vector's contract of affreightment with Caltex, which has a longer prescriptive period often (10) years, again reckoned from the time of the loss.35 The Court, in Vector, agreed with the CA 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,"36 viz.:

In Vector, the Court held that the insured's (i.e., American Home's) claim against the debtor (i.e., Vector) was premised on the right of subrogation pursuant to Article 2207 of the Civil Code and hence, an obligation created by law. While indeed American Home was entitled to claim against Vector by virtue of its subrogation to the rights of the insured (i.e., Caltex), the 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 subrogor-insured based on the latter's original obligation with the debtor.

To expound, subrogation's legal effects under Article 2207 of the Civil Code are primarily between the subrogee-insurer and the subrogor-insured: by virtue of the former's payment of indemnity to the latter, it is able to acquire, by operation of law, all rights of the subrogor-insured against the debtor. The 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. In Vector's case, American Home was able to acquire ipso jure all the rights Caltex had against Vector under their contract of affreightment by virtue of its payment of indemnity. If at all, subrogation had the effect of obliging Caltex to respect this assumption of rights in that it must now recognize that its rights against the debtor, i.e., Vector, had already been transferred to American Home as the subrogee-insurer. In other words, by operation of Article 2207 of the Civil Code, Caltex cannot deny American Home of its right to claim against Vector. However, the subrogation of American Home to Caltex's rights did not alter the original obligation between Caltex and Vector.

Accordingly, the Court, in Vector, erroneously concluded that "the cause of action [against Vector] accrued as of the time [American Home] actually indemnified Caltex in the amount of ₱7,455,421.08 on July 12, 1988."39 Instead, it is the subrogation of rights between Caltex and American Home which arose from the time the latter paid the indemnity therefor. Meanwhile, the accrual of the cause of action that Caltex had against Vector did not change because, as mentioned, no new obligation was created as between them by reason of the subrogation of American Home. 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 by virtue of subrogation. "[A] right of action is the right to presently enforce a cause of action, while a cause of action consists of the operative facts which give rise to such right of action."40

The foregoing application hews more with the fundamental principles of civil law, especially on the well-established doctrines on subrogation. Article 1303 of the Civil Code states that "[s]ubrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against the debtor or against third persons x x x." In Loadstar Shipping Company, Inc. v. Malayan Insurance Company, Inc.,41 the Court had clearly explained that because of the nature of subrogation as a mode of "creditor-substitution," the rights of a subrogee cannot be superior to the rights possessed by a subrogor, viz.:

Despite its error, Vector had aptly cited the case of Pan Malayan Insurance Corporation v. CA (Pan Malayan),43 wherein it was explained that subrogation, under Article 2207 of the Civil Code, operates as a form of "equitable assignment"44 whereby "the insurer, upon payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent that the insurer has been obligated to pay."45 It is characterized as an "equitable assignment" since it is an assignment of credit without the need of consent - as it was, in fact, mentioned in Pan Malayan, "[t]he 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."46 It is only to this extent that the equity aspect of subrogation must be understood. Indeed, subrogation under Article 2207 of the Civil Code allows the insurer, as the new creditor who assumes ipso jure the old creditor's rights without the 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. Properly speaking, the insurer, as the new creditor, remains bound by the limitations of the old creditor's claims against the debtor, which includes, among others, the aspect of prescription. Hence, 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. Verily, equity should not be stretched to the prejudice of another.

To better understand the concept of legal subrogation under Article 2207 of the Civil Code as a form of "equitable assignment," it deserves mentioning that there exist intricate differences between assignment and subrogation, both in their legal and conventional senses. In Ledonio v. Capitol Development Corporation:47

As discussed above, in an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects (as notice to the debtor suffices); also, in assignment, no new contractual relation between the assignee/new creditor and debtor is created. On the other hand, in conventional subrogation, an agreement between all the parties concerning the substitution of the new creditor is necessary. Meanwhile, legal subrogation produces the same effects as assignment and also, no new obligation is created between the subrogee/new creditor and debtor. As observed in commentaries on the subject:

The effect of legal subrogation is to transfer to the new creditor the credit and all the rights and actions that could have been exercised by the former creditor either against the debtor or against third persons, be they guarantors or mortgagors. Simply stated, except only for the change in the person of the creditor, the obligation subsists in all respects as before the novation.49 (Emphasis supplied)

Unlike assignment, however, legal subrogation, to produce effects, does not need to be agreed upon by the subrogee and subrogor, unlike the need of an agreement between the assignee and assignor. As mentioned, "[l]egal subrogation is that which takes place without agreement but by operation of law because of certain acts,"50 as in the case of payment of the insurer under Article 2207 of the Civil Code.

In sum, as legal subrogation is not equivalent to conventional subrogation, no new obligation is created by virtue of the insurer's payment under Article 2207 of the Civil Code; also, as legal subrogation is not the same as an assignment of credit (as the former is in fact, called an "equitable assignment"), no privity of contract is needed to produce its legal effects. Accordingly, "the insurer can take nothing by subrogation but the rights of the insured, and is subrogated only to such rights as the insured possesses. This principle has been frequently expressed in the form that the rights of the insurer against the wrongdoer cannot rise higher than the rights of the insured against such wrongdoer, since the insurer as subrogee, in contemplation of law, stands in the place of the insured and succeeds to whatever rights he may have in the matter. Therefore, any defense which a wrongdoer has against the insured is good against the insurer subrogated to the rights of the insured,"51 and this would clearly include the defense of prescription.

Based on the above-discussed considerations, the Court must heretofore abandon the ruling in Vector that an insurer may file an action against the tortfeasor within ten (10) years from the time the insurer indemnifies the insured. Following the principles of subrogation, the insurer only steps into the shoes of the insured and therefore, for purposes of prescription, inherits only the remaining period within which the insured may file an action against the wrongdoer. To be sure, the prescriptive period of the action that the insured may file against the wrongdoer begins at the time that the tort was committed 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, and does not create a new reckoning point for the cause of action that the insured originally has against the wrongdoer.

Be that as it may, it should, however, be clarified that this Court's abandonment of the Vector doctrine should be prospective in application for the reason that judicial decisions applying or interpreting the laws or the Constitution, until reversed, shall form part of the legal system of the Philippines.52 Unto this Court devolves the sole authority to interpret what the law means, and all persons are bound to follow its interpretation. As explained in De Castro v. Judicial and Bar Council:53

Judicial decisions assume the same authority as a statute itself and, until authoritatively abandoned, necessarily become, to the extent that they are applicable, the criteria that must control the actuations, not only of those called upon to abide by them, but also of those duty-bound to enforce obedience to them.54

Hence, while the future may ultimately uncover a doctrine's error, it should be, as a general rule, recognized as a "good law" prior to its abandonment.55 In Philippine International Trading Corporation Commission on Audit,56 it was elucidated that:

It is consequently clear that a judicial interpretation becomes a part of the law as of the date that law was originally passed, subject only to the qualification that when a doctrine of this Court is overruled and a different view is adopted, and more so when there is a reversal thereof, the new doctrine should be applied prospectivelv and should not apply to parties who relied on the old doctrine and acted in good faith. To hold otherwise would be to deprive the law of its quality of fairness and justice then, if there is no recognition of what had transpired prior to such adjudication.57 (Emphasis and underscoring supplied)

The "doctrine of stare decisis," ordained in Article 8 of the Civil Code, expresses that judicial decisions applying or interpreting the law shall form part of the legal system of the Philippines. The rule follows the settled legal maxim - "legis interpretado legis vim obtinet" - that the interpretation placed upon the written law by a competent court has the force of law. The interpretation or construction placed by the courts establishes the contemporaneous legislative intent of the law. The [said interpretation or construction] would thus constitute a part of that law as of the date the statute is enacted. It is only when a prior ruling of this Court finds itself later overruled, and a different view is adopted, that the new doctrine may have to be applied prospectively in favor of parties who have relied on the old doctrine and have acted in good faith in accordance therewith under the familiar rule of "lex prospicit, non respicit."59 (Emphasis and underscoring supplied)

With these in mind, the Court therefore sets the following guidelines relative to the application of Vector and this Decision vis-a-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:

1. For actions of such nature that have already been filed and are currently pending before the courts at the time of the finality of this Decision, the rules on prescription prevailing at the time the action is filed would apply. Particularly:

2. For actions of such nature that have not yet been filed at the time of the finality of this Decision:

In this case, it is undisputed that the water leak damage incident, which gave rise to Copylandia's cause of action against any possible defendants, including NASCL and petitioner, happened on May 9, 2006. As this incident gave rise to an obligation classified as a quasi-delict, Copylandia would have only had four (4) years, or until May 9, 2010, within which to file a suit to recover damages.61 When Copylandia's rights were transferred to respondent by virtue of the latter's payment of the former's insurance claim on November 2, 2006, as evidenced by the Loss and Subrogation Receipt,62 respondent was likewise bound by the same prescriptive period. Since it was only on: (a) May 20, 2010 when respondent made an extrajudicial demand to NASCL, and thereafter, filed its complaint; (b) October 6, 2011 when respondent amended its complaint to implead CHI as party-defendant; and (c) April 21, 2014 when respondent moved to further amend the complaint in order to implead petitioner as party-defendant in lieu of CHI, prescription - if adjudged under the present parameters of legal subrogation under this Decision - should have already set in.

However, it must be recognized that the prevailing rule applicable to the pertinent events of this case is Vector. Pursuant to the guidelines stated above, specifically under guideline 1 (a), the Vector doctrine - which was even relied upon by the courts a quo - would then apply. Hence, as the amended complaint63 impleading petitioner was filed on April 21, 2014, which is within ten (10) years from the time respondent indemnified Copylandia for its injury/loss, i.e., on November 2, 2006, the case cannot be said to have prescribed under Vector. As such, the Court is constrained to deny the instant petition.

WHEREFORE, the petition is DENIED. The Decision dated November 13, 2015 and the Resolution dated February 26, 2016 of the Court of Appeals in CA-G.R. SP No. 138147 are hereby AFFIRMED with MODIFICATION based on the guidelines stated in this Decision.

Carpio (Senior Associate Justice), Leonen, Gesmundo, J. Reyes, Jr., Carandang, Inting, and Zalameda, JJ., concur.