G.R. No. 137775.

March 31, 2005

FGU INSURANCE CORPORATION, Petitioners,

vs.
THE COURT OF APPEALS, SAN MIGUEL CORPORATION, and ESTATE OF ANG GUI,
represented by LUCIO, JULIAN, and JAIME, all surnamed ANG, and CO TO, Respondents.

G.R. No. 140704. March 31, 2005

ESTATE OF ANG GUI, Represented by LUCIO, JULIAN and JAIME, all surnamed ANG, and CO
TO, Petitioners,
vs.
THE HONORABLE COURT OF APPEALS, SAN MIGUEL CORP., and FGU INSURANCE
CORP., Respondents.

DECISION

CHICO-NAZARIO, J.:

Petitions for review assailing the Decision of the Court of Appeals which affirmed in toto the decision
of the Regional Trial Court of Cebu City. Ordering defendants to pay plaintiff the sum of
P1,346,197.00 and an interest of 6% per annum to be reckoned from the filing of this case on
October 2, 1990; Ordering defendants to pay plaintiff the sum of P25,000.00 for attorney’s fees and
an additional sum of P10,000.00 as litigation expenses; With cost against defendants.

For the Third-Party Complaint: Ordering third-party defendant FGU Insurance Company to pay and
reimburse defendants the amount of P632,700.00.

SUMMARY:

The vessels operated by ANCO arrived at San Jose, Antique to deliver cases of alcohol to SMC.
When the barge and tugboat arrived, the clouds over the area were dark and the waves were
already big. SMC’s District Sales Supervisor, Macabuag, requested ANCO’s representative to
transfer the barge to a safer place because the vessel might not be able to withstand the big waves.
ANCO’s representative did not heed the request because he was confident that the barge could
withstand the waves. All other vessels already left the wharf to seek shelter. With the waves growing
bigger and bigger, only 10,790 cases of beer were discharged into the custody of the arrastre
operator. At about midnight of the next day the cargoes of beer in the barge were swept away.

Issue: W/N FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the
cargoes despite the findings of the respondent court that such loss was occasioned by the blatant
negligence of the latter’s employees.

In the case at bar, both the trial court and the appellate court had concluded from the evidence that
the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly negligent. The
negligence of the defendants-appellants is proved by the fact that on 01 October 1979, the only
simple vessel left at the wharf in San Jose was the D/B Lucio.

The blatant negligence of ANCO’s employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under the insurance contract.
DOCTRINE:

There must be a distinction between ordinary negligence and gross negligence or negligence
amounting to misconduct and its effect on the insured’s right to recover. Such negligence or
recklessness must not be of such gross character as to amount to misconduct or wrongful acts;
otherwise, such negligence shall release the insurer from liability under the insurance contract.

FACTS:

 Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was
engaged in the shipping business. It owned the M/T ANCO tugboat and the D/B Lucio barge
which were operated as common carriers. Since the D/B Lucio had no engine of its own, it
could not maneuver by itself and had to be towed by a tugboat for it to move from one
place to another.

 On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu,
on board the D/B Lucio, for towage by M/T ANCO, several cargoes.

 The consignee for the cargoes was SMC’s Beer Marketing Division (BMD)-Estancia Beer
Sales Office, Estancia, Iloilo, and was SMC’s BMD-San Jose Beer Sales Office, San Jose,
Antique.

 The vessels arrived at San Jose, Antique. The tugboat M/T ANCO left the barge immediately
after reaching San Jose, Antique. When the barge and tugboat arrived at San Jose, Antique,
the clouds over the area were dark and the waves were already big. SMC’s District
Sales Supervisor, Macabuag, requested ANCO’s representative to transfer the barge to a
safer place because the vessel might not be able to withstand the big waves. ANCO’s
representative did not heed the request because he was confident that the barge could
withstand the waves. All other vessels already left the wharf to seek shelter. With the waves
growing bigger and bigger, only 10,790 cases of beer were discharged into the custody of
the arrastre operator.

 At about 10pm of the next day (01 Oct. 1979), the crew of D/B Lucio abandoned the
vessel because the barge’s rope attached to the wharf was cut off by the big waves. At
around midnight, the cargoes of beer in the barge were swept away.

 As a result, ANCO failed to deliver to SMC’s consignee a number of cases of alcohol. Hence,
SMC’s claim against ANCO amounted to P1,346,197.00.

 SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO for
P1,346,197.00 plus interest, litigation expenses and attorney’s fees.

 Upon Ang Gui’s death, ANCO, as a partnership, was dissolved hence, SMC filed a second
amended complaint impleading the surviving partner, Co To and the Estate of Ang Gui.

 ANCO claimed that it had an agreement with SMC that ANCO would not be liable for any
losses or damages resulting to the cargoes by reason of fortuitous event. Since the cases of
alcohol were lost by reason of a storm, they should not be held liable.
  ANCO further asserted that there was an agreement between them and SMC to insure the
cargoes in order to recover indemnity in case of loss. Pursuant to that agreement, the
cargoes to the extent of 20,000 cases was insured with FGU Insurance Corporation (FGU)
for the total amount of P858,500.00 per Marine Insurance Policy No. 29591.

 ANCO, with leave of court, filed a Third-Party Complaint against FGU. ANCO alleged that
the loss of said cargoes occurred as a result of risks insured against in the insurance policy
and during the existence and lifetime of said insurance policy. ANCO went on to assert that
the third-party defendant corporation should be held liable to indemnify or reimburse ANCO
whatever amounts, or damages, it may be required to pay to SMC.

 In its answer to the Third-Party complaint, FGU maintained

o that the alleged loss of the cargoes cannot be attributed directly or indirectly to
any of the risks insured against in the said insurance policy. According to FGU, it
is only liable under the policy to Third-party Plaintiff ANCO and/or Plaintiff SMC in
case of any of: a) total loss of the entire shipment; b) loss of any case as a result of
the sinking of the vessel; or c) loss as a result of the vessel being on fire.

o that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary
diligence or the diligence of a good father of the family in the care and
supervision of the cargoes insured to prevent its loss and/or destruction.

o FGU prayed for the dismissal of the Third-Party Complaint.

TRIAL COURT:

 While the cargoes were indeed lost due to fortuitous event, there was failure on ANCO’s
part to observe the degree of diligence required that would exonerate them from
liability. The trial court thus held the Estate of Ang Gui and Co To liable to SMC for the
amount of the lost shipment.

 With respect to the Third-Party complaint, the court a quo found FGU liable to bear Fifty-
Three Percent (53%) of the amount of the lost cargoes. According to the trial court: the risk
insured against was the cause of the loss. …Since the total cargo was 40,550 cases which
had a total amount of P1,833,905.00 and the amount of the policy was only for
P858,500.00, defendants as assured, therefore, were considered co-insurers of third-party
defendant FGU Insurance Corporation to the extent of 975,405.00 value of the
cargo. Consequently, inasmuch as there was partial loss of only P1,346,197.00, the assured
shall bear 53% of the loss… .

ISSUES: Grounds for review raised by petitioner FGU:

1) Whether or not respondent Court of Appeals committed grave abuse of discretion in holding FGU
liable under the insurance contract considering the circumstances surrounding the loss of the
cargoes; and
2) Whether or not the Court of Appeals committed an error of law in holding that the doctrine of res
judicata applies in the instant case.

In G.R. No. 140704, petitioner Estate of Ang Gui and Co To assail the decision of the appellate court
based on the following assignments of error:
1) The Court of Appeals committed grave abuse of discretion in affirming the findings of the lower
court that the negligence of the crewmembers of the D/B Lucio was the proximate cause of the
loss of the cargoes; and
2) The respondent court acted with grave abuse of discretion when it ruled that the appeal was
without merit despite the fact that said court had accepted the decision in Civil Case No. R-19341,
as affirmed by the Court of Appeals and the Supreme Court, as res judicata.

RULING OF THE COURT

1. Common issue raised by both petitioners: whether or not the doctrine of res judicata applies
in the instant case. – NO.

 ANCO’s contention: that the decision in Civil Case No. R-19341, which was decided in its
favor, constitutes res judicata. – The contention is without merit.

 There can be no res judicata as between Civil Case No. R-19341 and the case at bar. In
order for res judicata to be made applicable in a case, the following essential requisites must
be present: 1) the former judgment must be final; 2) the former judgment must have been
rendered by a court having jurisdiction over the subject matter and the parties; 3) the
former judgment must be a judgment or order on the merits; and 4) there must be between
the first and second action identity of parties, subject matter, and of causes of action.

 There is absence of the last essential requisite of identity of parties, subject matter and
causes of action.

Civil Case No. R-19341 Present Case

Parties ANCO as plaintiff and FGU as SMC – plaintiff and Estate of Ang Gui and
defendant Co To as defendants, with the latter
merely impleading FGU as third-party
defendant.
Subject insurance contract entered into loss of the cargoes of SMC, as shipper,
matter by ANCO, the owner of the loaded in the D/B Lucio and the resulting
vessel, with FGU covering the failure of ANCO to deliver to SMC’s
vessel D/B Lucio consignees the lost cargo
involved the rights and rights and liabilities of the shipper vis-à-
liabilities of the shipowner vis- vis that of the shipowner.
à-vis that of the insurer
Action for Specific action for Breach of Contract of Carriage
Performance and Damages and Damages filed by SMC against
based on FGU Marine Hull ANCO based on Bill of Lading No. 1 and
Insurance Policy No. VMF-MH- No. 2, with defendant ANCO seeking
13519 reimbursement from FGU under
Insurance Policy No. MA-58486, should
the former be held liable to pay SMC.
the subject matter of the third-party
complaint against FGU in this case is
different from that in Civil Case No. R-
19341

 Since the case at bar arose from the same incident as that involved in Civil Case No. R-
19341, only findings with respect to matters passed upon by the court in the former
judgment are conclusive in the disposition of the instant case.
  the pivotal issues resolved by the lower court, as affirmed by both the C.A. and the Supreme
Court, can be summarized into: 1) that the D/B Lucio before and during the voyage was
seaworthy; 2) that there was proper notice of loss made by ANCO within the reglementary
period; and 3) that the vessel D/B Lucio was a constructive total loss.

 Said decision, however, did not pass upon the issues raised in the instant case. Absent
therein was any discussion regarding the liability of ANCO for the loss of the cargoes.
Neither did the lower court pass upon the issue of the alleged negligence of the
crewmembers of the D/B Lucio being the cause of the loss of the cargoes.

 Based on the foregoing discussion, we are reversing the findings of the Court of Appeals that
there is res judicata.

2. Anent ANCO’s first assignment of error, i.e., the appellate court committed error in
concluding that the negligence of ANCO’s representatives was the proximate cause of
the loss, said issue is a question of fact. Findings of fact of lower courts, particularly when
affirmed by the appellate court, are deemed final and conclusive.

 ANCO’s representatives failed to exercise the extraordinary degree of diligence required

under Art. 1733 of the Civil Code to exculpate them from liability for the loss of the cargoes. –
the patron of ANCO’s tugboat M/T ANCO left it to fend for itself notwithstanding the fact that
as the two vessels arrived at the port of San Jose, Antique, signs of the impending storm
were already manifest. Since it is the duty of the defendant to exercise and observe
extraordinary diligence in the vigilance over the cargo of the plaintiff, the patron or captain of
M/T ANCO could have placed D/B Lucio in a very safe location before they left. D/B Lucio
being a barge, without its engine, as the patron or captain of M/T ANCO knew, could not
possibly maneuver by itself. Had the patron or captain of M/T ANCO, observed extraordinary
diligence in placing the D/B Lucio in a safe place, the loss to the cargo of the plaintiff could
not have occurred.

 The other vessels were transferred and temporarily moved to Malandong, 5 kilometers from
where the barge remained. Clearly, the transferred vessels were definitely safer there, at that
particular time, a fact which petitioners failed to dispute

 ANCO’s arguments boil down to the claim that

a. the loss of the cargoes was caused by the typhoon Sisang, a fortuitous event (caso
fortuito), and there was no fault or negligence on their part.

b. that their crewmembers exercised due diligence to prevent or minimize the loss of
the cargoes but their efforts proved no match to the forces unleashed by the typhoon

 The Civil Code provides:

Art. 1733. Common carriers, from the nature of their business and for reasons of public policy are
bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the
passengers transported by them, according to all the circumstances of each case.

Such extraordinary diligence in vigilance over the goods is further expressed in Articles 1734, 1735,
and 1745 Nos. 5, 6, and 7 . . .
Art. 1734. Common carriers are responsible for the loss, destruction, or deterioration of the goods,
unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;

...

Art. 1739. In order that the common carrier may be exempted from responsibility, the natural
disaster must have been the proximate and only cause of the loss. However, the common
carrier must exercise due diligence to prevent or minimize loss before, during and after the
occurrence of flood, storm, or other natural disaster in order that the common carrier may be
exempted from liability for the loss, destruction, or deterioration of the goods . . . (Emphasis
supplied)

 Force majeure are extraordinary events not foreseeable or avoidable, events that could not
be foreseen, or which though foreseen, were inevitable. It must be one impossible to foresee
or to avoid.

 In this case, the calamity which caused the loss of the cargoes was not unforeseen nor was
it unavoidable. In fact, the other vessels in the port of San Jose, Antique, managed to
transfer to another place. Even if ANCO’s representatives wanted to transfer D/B Lucio,
they no longer had any means to do so as the tugboat M/T ANCO had already departed,
leaving the barge. The captain of the tugboat should have had the foresight not to leave
the barge alone considering the pending storm.

 The records clearly show the failure of petitioners’ representatives to exercise the
extraordinary degree of diligence mandated by law. To be exempted from responsibility, the
natural disaster should have been the proximate and only cause of the loss. There must
have been no contributory negligence on the part of the common carrier.

 Therefore, as there was blatant negligence on the part of M/T ANCO’s crewmembers, first in
leaving the engine-less barge D/B Lucio at the mercy of the storm and in failing to heed the
request of SMC’s representatives to have the barge transferred to a safer place, as was
done by the other vessels in the port; thus, making said blatant negligence the proximate
cause of the loss of the cargoes.

3. Whether or not FGU can be held liable under the insurance policy to reimburse ANCO for the
loss of the cargoes despite the findings of the respondent court that such loss was
occasioned by the blatant negligence of the latter’s employees. – NO.

 When evidence show that the insured’s negligence or recklessness is so gross as to

be sufficient to constitute a willful act, the insurer must be exonerated. The ordinary
negligence of the insured and his agents has long been held as a part of the risk which the
insurer takes upon himself, and where it is the proximate cause of the loss, does not absolve
the insurer from liability. But willful exposure, gross negligence, negligence amounting to
misconduct, etc., have often been held to release the insurer from such liability.

 The United States Supreme Court has made a distinction between ordinary negligence and
gross negligence or negligence amounting to misconduct and its effect on the insured’s right
to recover. Such negligence or recklessness must not be of such gross character as to
 amount to misconduct or wrongful acts; otherwise, such negligence shall release the insurer
from liability under the insurance contract.

 In the case at bar, both the trial court and the appellate court had concluded from the
evidence that the crewmembers of both the D/B Lucio and the M/T ANCO were blatantly
negligent.The negligence of the defendants-appellants is proved by the fact that on 01
October 1979, the only simple vessel left at the wharf in San Jose was the D/B Lucio.

 This Court does not find any reason to deviate from the conclusion drawn by the lower court,
as sustained by the Court of Appeals, that ANCO’s representatives had failed to exercise
extraordinary diligence required of common carriers in the shipment of SMC’s cargoes.

 This Court, taking into account the circumstances present in the instant case, concludes that
the blatant negligence of ANCO’s employees is of such gross character that it amounts to a
wrongful act which must exonerate FGU from liability under the insurance contract.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated 24 February 1999
is hereby AFFIRMED with MODIFICATION dismissing the third-party complaint.