Fireman’s Fund v. Jamilla 6. The lower court set aside its order of dismissal.

It sustained
G.R. No. L-27427 April 7, 1976 plaintiffs' contention that there was no res judicata as to First
Quezon City Insurance Co., Inc. because Civil Case No. 56311
Plaintiff: FIREMAN'S FUND INSURANCE COMPANY and was dismissed without prejudice.
FIRESTONE TIRE AND RUBBER COMPANY OF THE PHILIPPINES, 7. However, due to inadvertence, the lower court did not state in
Defendant-Appellees: JAMILA & COMPANY, INC. and FIRST its order of September 3, 1966 why it set aside its prior order
QUEZON CITY INSURANCE CO., INC., defendants-appellees. dismissing the complaint with respect to Jamila.
8. What is now to be recounted shows the lack of due care on the
AQUINO, J. part of the lower court and the opposing lawyers in their
management of the case. Such lack of due care has given the
DOCTRINE: Loss or injury of risk must be covered by the policy - case a farcical ambiance and might partially explain the long
Article 2207 of the Civil Code which provides that "if the plaintiff's delay in its adjudication.
property has been insured, and he has received indemnity from the 9. Jamila, upon noticing that the order of September 3, 1966 had
insurance company for the injury or loss arising out of the wrong or obliterated its victory without any reason therefor, filed a
breach of contract complained of, the insurance company shall be motion for reconsideration. It had originally moved for the
subrogated to the rights of the insured against the wrongdoer or the dismissal of the complaint on the ground of lack of cause of
person who has violated the contract" action.
FACTS: 10. Its contention was based on two grounds, to wit: (1) that the
1. The gist of the complaint is that Jamila or the Veterans complaint did not allege that Firestone, pursuant to the
Philippine Scouts Security Agency contracted to supply security contractual stipulation quoted in the complaint, had
guards to Firestone; that Jamila assumed responsibility for the investigated the loss and that Jamila was represented in the
acts of its security guards; that First Quezon City Insurance Co., investigation and (2) that Jamila did not consent to the
Inc. executed a bond in the sum of P20,000.00 to guarantee subrogation of Fireman's Fund to Firestone's right to get
Jamila's obligations under that contract; reimbursement from Jamila and its surety. The lower court in
2. On May 18, 1963 properties of Firestone valued at P11,925.00 its order of dismissal had sustained the second ground.
were lost allegedly due to the acts of its employees who connived 11. Jamila in its motion for the reconsideration of the order of
with Jamila's security guard; that Fireman's Fund, as insurer, September 3, 1966 invoked the first ground which had never
paid to Firestone the amount of the loss; that Fireman's Fund been passed upon by the lower court. Firestone and Fireman's
was subrogated to Firestone's right to get reimbursement from Fund in their opposition joined battle, in a manner of speaking,
Jamila, and that Jamila and its surety, First Quezon City on that first ground.
Insurance Co., Inc., failed to pay the amount of the loss in spite 12. But the lower court in its order of October 18, 1966, granting
of repeated demands. Jamila's motion for reconsideration, completely ignored that
3. Lower Court: dismissed the complaint as to Jamila on the first ground. It reverted to the second ground which was relied
ground that there was no allegation that it had consented to the upon in its order of September 3, 1966. The lower court
subrogation and, therefore, Fireman's Fund had no cause of reiterated its order of July 22, 1966 that Fireman's Fund had no
action against it. cause of action against Jamila because Jamila did not consent to
4. In the same order the lower court dismissed the complaint as to the subrogation. The court did not mention Firestone, the co-
First Quezon City Insurance Co., Inc. on the ground of res plaintiff of Fireman's Fund.
judicata. It appears that the same action was previously filed in 13. Firestone and Fireman's Fund filed a motion for the
Civil Case No. 56311 which was dismiss because of the failure of reconsideration of the lower court's order of October 18, 1966 on
the same plaintiffs and their counsel to appear at the pre trial. the ground that Fireman's Fund Insurance Company was suing
5. Firestone and Fireman's Fund moved for the reconsideration of on the basis of legal subrogation whereas the lower court
the order of dismissal. erroneously predicated its dismissal order on the theory that
 there was no conventional subrogation because the debtor's ISSUE: W/N the complaint of Firestone and Fireman's Fund states a
consent was lacking. cause of action against Jamila
14. The plaintiffs cited article 2207 of the Civil Code which provides HELD: YES. Fireman's Fund's action against Jamila is squarely
that "if the plaintiff's property has been insured, and he has sanctioned by article 2207. As the insurer, Fireman's Fund is entitled to
received indemnity from the insurance company for the injury or go after the person or entity that violated its contractual commitment to
loss arising out of the wrong or breach of contract complained of, answer for the loss insured against.
the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated RULING:
the contract".  We hold that Firestone is really a nominal, party in this case. It
15. The lower court denied plaintiffs' motion. They filed a second had already been indemnified for the loss which it had
motion for reconsideration. In that motion they sensibly called sustained. Obviously, it joined as a party-plaintiff in order to
the lower court's attention to the fact that the issue of help Fireman's Fund to recover the amount of the loss from
subrogation was of no moment because Firestone, the subrogor, Jamila and First Quezon City Insurance Co., Inc. Firestone had
is a party-plaintiff and could sue directly Jamila in its own right. tacitly assigned to Fireman's Fund its cause of action against
Without resolving that contention, the lower court denied Jamila for breach of contract. Sufficient ultimate facts are
plaintiffs' second motion for reconsideration. alleged in the complaint to sustain that cause of action.
16. In this appeal Firestone and Fireman's Fund contend that the  The trial court erred in applying to this case the rules on
trial court's dismissal of their complaint is contrary to the novation. The plaintiffs in alleging in their complaint that
aforementioned article 2207 which provides for legal Fireman's Fund "became a party in interest in this case by
subrogation. virtue of a subrogation right given in its favor by" Firestone,
17. Jamila, in reply, stubbornly argues that legal subrogation under were not relying on the novation by change of creditors as
article 2207 requires the debtor's consent; that legal subrogation contemplated in articles 1291 and 1300 to 1303 of the Civil Code
takes place in the cases mentioned in article 1302 of the Civil but rather on article 2207.
Code and the instant case is not among the three cases  Article 2207 is a restatement of a settled principle of American
enumerated in that article, and that there could be no jurisprudence. Subrogation has been referred to as the doctrine
subrogation in this case because according to the plaintiffs the of substitution. It "is an arm of equity that may guide or even
contract between. Jamila and Firestone was entered into on force one to pay a debt for which an obligation was incurred but
June 1, 1965 but the loss complained of occurred on May 18, which was in whole or in part paid by another
1963.  "Subrogation is founded on principles of justice and equity, and
18. With respect to the factual point raised by Jamila, it should be its operation is governed by principles of equity. It rests on the
stated that plaintiffs' counsel gratuitously alleged in their brief principle that substantial justice should be attained regardless
that Firestone and Jamila entered into a "contract of guard of form, that is, its basis is the doing of complete, essential, and
services" on June 1, 1965. That allegation, which was uncalled perfect justice between all the parties without regard to form.”
for because it is not found in the complaint, created confusion  Subrogation is a normal incident of indemnity insurance. Upon
which heretofore did not exist. No copy of the contract was payment of the loss, the insurer is entitled to be subrogated pro
annexed to the complaint. tanto to any right of action which the insured may have against
19. That confusing statement was an obvious error since it was the third person whose. negligence or wrongful act caused the
expressly alleged in the complaint that the loss occurred on May loss
18, 1963. The fact that such an error was committed is another  The right of subrogation is of the highest equity. The loss in the
instance substantiating our previous observation that plaintiffs' first instance is that of the insured but after reimbursement or
counsel had not exercised due care in the presentation of his compensation, it becomes the loss of the insurer.
case.  "Although many policies including policies in the standard form,
now provide for subrogation, and thus determine the rights of
 the insurer in this respect, the equitable right of subrogation as
the legal effect of payment inures to the insurer without any
formal assignment or any express stipulation to that effect in
the policy".
 Stated otherwise, when the insurance company pays for the loss,
such payment operates as an equitable assignment to the
insurer of the property and all remedies which the insured may
have for the recovery thereof. That right is not dependent upon,
nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to the insured makes the
insurer an assignee in equity.

Finding the trial court's order of dismissal to be legally

SO ORDERED.