Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 110668 February 6, 1997

SMITH, BELL & CO., INC., petitioner,
vs.
COURT OF APPEALS and JOSEPH BENGZON CHUA, 1 respondents.

PANGANIBAN, J.:
The main issue raised in this case is whether a local claim or settling agent is personally
and/or solidarily liable upon a marine insurance policy issued by its disclosed foreign
principal.
This is a petition for review on certiorari of the Decision of respondent Court 2 promulgated
on January 20, 1993 in CA-G.R. CV No. 31812 affirming the decision 3 of the trial
court 4 which disposed as follows: 5
Wherefore, the Court renders judgment condemning the defendants
(petitioner and First Insurance Co. Ltd.) jointly and severally to pay the
plaintiff (private respondent) the amount of US$7,359.78. plus 24% interest
thereon annually until the claim is fully paid, 10% as and for attorney's fees,
and the cost.
The Facts
The facts are undisputed by the parties, 6 and are narrated by respondent Court, quoting the
trial court, as follows: 7
The undisputed facts of the case have been succintly (sic) summarized by the lower court(,)
as follows:
. . . in July 1982, the plaintiffs, doing business under the style of Tic Hin
Chiong, Importer, bought and imported to the Philippines from the firm Chin
Gact Co., Ltd. of Taipei; Taiwan, 50 metric tons of Dicalcium Phosphate, Feed

Grade F-15% valued at US$13,000.00 CIF Manila. These were contained in

1,250 bags and shipped from the Port of Kaohsiung, Taiwan on Board S.S.
"GOLDEN WEALTH" for the Port on (sic) Manila. On July 27, 1982, this
shipment was insured by the defendant First Insurance Co. for US$19,500.00
"against all risks" at port of departure under Marine Policy No.
1000M82070033219, with the note "Claim, if any, payable in U.S. currency at
Manila (Exh. "1", 'D" for the plaintiff) and with defendant Smith, Bell, and Co.
stamped at the lower left side of the policy as "Claim Agent."
The cargo arrived at the Port of Manila on September 1, 1982 aboard the
above-mentioned carrying vessel and landed at port on September 2, 1982.
thereafter, the entire cargo was discharged to the local arrastre contractor,
Metroport Services Inc. with a number of the cargo in apparent bad order
condition. On September 27, 1982, the plaintiff secured the services of a
cargo surveyor to conduct a survey of the damaged cargo which were (sic)
delivered by plaintiff's broker on said date to the plaintiffs premises at 12th
Avenue, Grace Park, Caloocan City. The surveyor's report (Exh. "E") showed
that of the 1,250 bags of the imported material, 600 were damaged by tearing
at the sides of the container bags and the contents partly empty. Upon
weighing, the contents of the damaged bags were found to be 18,546.0 kg
short. Accordingly, on October 16 following, the plaintiff filed with Smith, Bell,
and Co., Inc. a formal statement of claim (Exh. "G") with proof of loss and a
demand for settlement of the corresponding value of the losses, in the sum of
US$7,357.78.00. (sic) After purportedly conveying the claim to its principal,
Smith, Bell, and Co., Inc. informed the plaintiff by letter dated February 15,
1983 (Exh."G-2") that its principal offered only 50% of the claim or
US$3,616.17 as redress, on the alleged ground of discrepancy between the
amounts contained in the shipping agent's reply to the claimant of only
US$90.48 with that of Metroport's. The offer not being acceptable to the
plaintiff, the latter wrote Smith, Bell, & Co. expressing his refusal to the
"redress" offer. contending that the discrepancy was a result of loss from
vessel to arrastre to consignees' warehouse\which losses were still within the
"all risk" insurance cover. No settlement of the claim having been made, the
plaintiff then caused the instant case to be filed. (p. 2, RTC Decision; p. 142,
Record).
Denying any liability, defendant-appellant averred in its answer that it is merely a settling or
claim agent of defendant insurance company and as SUCH agent, it is not personally liable
under the policy in which it has not even taken part of. It then alleged that plaintiff-appellee
has no cause of action against it.
Defendant The First Insurance Co. Ltd. did not file an Answer, hence it was declared in
default.

After due trial and proceeding, the lower court rendered a decision favorable
to plaintiff-appellee. It ruled that plaintiff-appellee has fully established the
liability of the insurance firm on the subject insurance contract as the former
presented concrete evidence of the amount of losses resulting from the risks
insured against which were supported, by reliable report and assessment of
professional cargo surveyor. As regards defendant-appellant, the lower court
held that since it is admittedly a claim agent of the foreign insurance firm
doing business in the Philippines justice is better served if said agent is made
liable without prejudice to its right of action against its principal, the insurance
firm. . . .
The Issue
"Whether or not a local settling or claim agent of a disclosed principal a foreign insurance
company can be held jointly and severally liable with said principal under the latter's
marine cargo insurance policy, given that the agent is not a party to the insurance
contract" 8 is the sole issue-raised by petitioner.
Petitioner rejects liability under the said insurance contract, claiming that: (1) it is merely an
agent and thus not personally liable to the party with whom it contracts on behalf of its
principal; (2) it had no participation at all in the contract of insurance; and (3) the suit is not
brought against the real party-in-interest. 9
On the other hand, respondent Court in ruling against petitioner disposed of the main issue
by citing a case it decided in 1987, where petitioner was also a party-litigant. 10 In that case,
respondent Court held that petitioner as resident agent of First Insurance Co. Ltd. was
"authorized to settle claims against its principal. Its defense that its authority excluded
personal liability must be proven satisfactorily. There is a complete dearth of evidence
supportive of appellant's non-responsibility as resident agent." The ruling continued with the
statement that "the interest of justice is better served by holding the settling or claim agent
jointly and severally liable with its principal." 11
Likewise, private respondent disputed the applicability of the cases of E Macias &
Co. vs. Warner, Barnes & Co. 12and Salonga vs. Warner, Barnes & Co., Ltd. 13 invoked by
petitioner in its appeal. According to private respondent, these two cases impleaded only
the "insurance agent" and did not include the principal. While both the foreign principal
which was declared in default by the trial court and petitioner, as claim agent, were found
to be solidarily liable in this case, petitioner still had "recourse" against its foreign principal.
Also, being a contract of adhesion, an insurance agreement must be strictly construed
against the insurer. 14
The Court's Ruling

There are three reasons why we find for petitioner.

First Reason: Existing Jurisprudence
Petitioner, undisputedly a settling agent acting within the scope of its authority, cannot be
held personally and/or solidarily liable for the obligations of its disclosed principal merely
because there is allegedly a need for a speedy settlement of the claim of private
respondent. In the leading case of Salonga vs. Warner, Barnes & Co., Ltd. this Court ruled
in this wise: 15
We agree with counsel for the appellee that the defendant is a settlement and
adjustment agent of the foreign insurance company and that as such agent it
has the authority to settle all the losses and claims that may arise under the
policies that may be issued by or in behalf of said company in accordance
with the instructions it may receive from time to time from its principal, but we
disagree with counsel in his contention that as such adjustment and
settlement agent, the defendant has assumed personal liability under said
policies, and, therefore, it can be sued in its own right. An adjustment and
settlement agent is no different from any other agent from the point of view of
his responsibility (sic), for he also acts in a representative capacity. Whenever
he adjusts or settles a claim, he does it in behalf of his principal, and his
action is binding not upon himself but upon his principal. And here again, the
ordinary rule of agency applies. The following authorities bear this out:
"An insurance adjuster is ordinarily a special agent for the
person or company for whom he acts, and his authority
is prima facie coextensive with the business intrusted to
him. . . ."
"An adjuster does not discharge functions of a quasi-judicial
nature, but represents his employer, to whom he owes faithful
service, and for his acts, in the employer's interest, the
employer is responsible so long as the acts are done while the
agent is acting within the scope of his employment." (45 C.J.S.,
1338- 1340.)
It, therefore, clearly appears that the scope and extent of the functions of an
adjustment and settlement agent do not include personal liability. His
functions are merely to settle and adjusts claims in behalf of his principal if
those claims are proven and undisputed, and if the claim is disputed or is
disapproved by the principal, like in the instant case, the agent does not
assume any personal liability. The recourse of the insured is to press his
claim against the principal. (Emphasis supplied).

The foregoing doctrine may have been enunciated by this Court in 1951, but the passage of
time has not eroded its value or merit. It still applies with equal force and vigor.
Private respondent's contention that Salonga does not apply simply because only the agent
was sued therein while here both agent and principal were impleaded and found solidarily
liable is without merit.
Such distinction is immaterial. The agent can not be sued nor held liable whether singly or
solidarily with its principal.
Every cause of action ex contractu must be founded upon a contract, oral or written, either
express or implied. 16The only "involvement" of petitioner in the subject contract of insurance
was having its name stamped at the bottom left portion of the policy as "Claim Agent."
Without anything else to back it up, such stamp cannot even be deemed by the remotest
interpretation to mean that petitioner participated in the preparation of said contract. Hence,
there is no privity of contract, and correspondingly there can be no obligation or liability, and
thus no Cause of action against petitioner attaches. Under Article 1311 17 of the Civil Code,
contracts are binding only upon the parties (and their assigns and heirs) who execute them.
The subject cargo insurance was between the First Insurance Company, Ltd. and the Chin
Gact Co., Ltd., both of Taiwan, and was signed in Taipei, Taiwan by the president of the First
Insurance Company, Ltd. and the president of the Chin Gact Co., Ltd. 18 There is absolutely
nothing in the contract which mentions the personal liability of petitioner.
Second Reason: Absence of Solidarity Liability
May then petitioner, in its capacity as resident agent (as found in the case cited by the
respondent Court 19) be held solidarily liable with the foreign insurer? Article 1207 of the Civil
Code clearly provides that "(t)here is a solidary liability only when the obligation expressly
so states, or when the law or the nature of the obligation requires solidarity." The wellentrenched rule is that solidary obligation cannot lightly be inferred. It must be positively and
clearly expressed. The contention that, in the end, it would really be First Insurance
Company, Ltd. which would be held liable is specious and cannot be accepted. Such a
stance would inflict injustice upon petitioner which would be made to advance the funds to
settle the claim without any assurance that it can collect from the principal which
disapproved such claim, in the first place. More importantly, such ,position would have
absolutely no legal basis.
The Insurance Code is quite clear as to the Purpose and role of a resident agent. Such
agent, as a representative of the foreign insurance company, is tasked only to receive legal
processes on behalf of its principal and not to answer personally for any insurance claims.
We quote:

Sec. 190. The Commissioner must require as a condition precedent to the

transaction of insurance business in the Philippines by any foreign insurance
company, that such company file in his office a written power of attorney
designating some person who shall be a resident of the Philippines as its
general agent, on whom any notice provided by law or by any insurance
policy, proof summons and other legal processes may be served in all actions
or other legal proceedings against such company, and consenting that
service upon such general agent shall be admitted and held as valid as if
served upon the foreign company at its home office. Any such foreign
company shall, as further condition precedent to the transaction of insurance
business in the Philippines, make and file with the Commissioner an
agreement or stipulation, executed by the proper authorities of said company
in form and substance as follows:
The (name of company) does hereby stipulate and agree in consideration of
the permission granted by the Insurance Commissioner to transact business
in the Philippines, that if at any time such company shall leave the
Philippines, or cease to transact business therein, or shall be without any
agent in the Philippines on whom any notice, proof of loss, summons, or legal
process may be served, then in any action or proceeding arising out of any
business or transaction which occurred in the Philippines, service of any
notice provided by law, or insurance policy, proof of loss, summons, or other
legal process may be made upon the Insurance Commissioner shall have the
same force and effect as if made upon the company.
Whenever such service of notice, proof of loss, summons or other legal
process shall be made upon the Commissioner he must, within ten days
thereafter, transmit by mail, postage paid, a copy of such notice, proof of loss,
summons, or other legal process to the company at its home or principal
office. The sending of such copy of the Commissioner shall be necessary part
of the service of the notice, proof of loss, or other legal process. (Emphasis
supplied).
Further, we note that in the case cited by respondent Court, petitioner was found to be a
resident agent of First Insurance Co. Ltd. In the instant case however, the trial court had to
order the service of summons upon First Insurance Co., Ltd. which would not have been
necessary if petitioner was its resident agent. Indeed, from our reading of the records of this
case, we find no factual and legal bases for the finding of respondent Court that petitioner is
the resident agent of First Insurance Co., Ltd.
Third Reason: Not Real Party-In-Interest

Lastly, being a mere agent and representative, petitioner is also not the real party-in-interest
in this case. An action is brought for a practical purpose, that is, to obtain actual and positive
relief. If the party sued is not the proper party, any decision that may be rendered against
him would be futile, for the decision cannot be enforced or executed. Section 2, Rule 3 of
the Rules of Court identifies who the real parties-in-interest are, thus:
Sec. 2. Parties in interest. Every action must be prosecuted and defended
in the name of the real party in interest. All persons having an interest in the
subject of the action and in obtaining the relief demanded shall be joined as
plaintiffs. All persons who claim an interest in the controversy or the subject
thereof adverse to the, plaintiff, or who are necessary to a complete
determination or settlement of the questions involved therein shall be joined
as defendants.
The cause of action of private respondent is based on a contract of insurance which as
already shown was not participated in by petitioner. It is not a "person who claim(s) an
interest adverse to the plaintiff" nor is said respondent "necessary to a complete
determination or settlement of the questions involved" in the controversy. Petitioner is
improperly impleaded for not being a real-party-interest. It will not benefit or suffer in case
the action prospers. 20
Resort to Equity Misplaced
Finally, respondent Court also contends that "the interest of justice is better served by
holding the settling agent jointly and severally liable with its principal." As no law backs up
such pronouncement, the appellate Court is thus resorting to equity. However, equity which
has been aptly described as "justice outside legality," is availed of only in the absence of,
and never against, statutory law or judicial pronouncements. 21 Upon the other hand the
liability of agents is clearly provided for by our laws and existing jurisprudence.
WHEREFORE, in view of the foregoing considerations, the Petition is GRANTED and the
Decision appealed from is REVERSED and SET ASIDE.
No costs.
SO ORDERED.
Narvasa, C.J., Davide, Jr., Melo and Francisco, JJ., concur.
Footnotes
1 Doing business under the name and style "Tic Hin Chiong Importer."

2 Tenth Division, composed of J. Regina G. Ordoez-Benitez, ponente,

and JJ. Arturo B. Buena and Eduardo G. Montenegro, concurring.
3 In Civil Case No. 83-17118.
4 Regional Trial Court of Manila, Branch 22, presided by Judge Ricarte N.
Togonon.
5 Rollo, p. 20.
6 Ibid., pp. 8-9 & 30-32.
7 Ibid., pp. 18-20; assailed Decision, pp. 1-3.
8 Ibid., p. 72; petitioner's memorandum, p. 6.
9 Ibid., p. 73-74; ibid, pp. 7-8.
10 Choa Tiek Seng vs. The First Insurance Company, Ltd. and/or Smith, Bell
& Company, Inc., CA-G.R. CV No. 06768, April 6, 1987.
11 Rollo, p. 21; assailed Decision, p. 4.
12 43 Phil. 155 (1922).
13 88 Phil. 125 (1951).
14 Rollo, p. 58; private respondent's memorandum, p. 3.
15 Salonga vs. Warner Barnes & Co., Ltd., supra, on pp. 131-132.
16 E. Macias & Co. vs. Warner, Barnes & Co., supra, at p. 162.
17 "Article 1311. Contracts take effect only between the parties, their assigns
and heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision
of law. The heir is not liable beyond the value of the property he received from
the decedent.
If a contract should contain some stipulation in favor of a third person, he may
demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have dearly and deliberately
conferred a favor upon a third person."

18 Exhibit "D"; Original Records, p. 57.

19 Choa Tiek Seng vs. The First Insurance Company, Ltd. and/or Smith, Bell
& Company, Inc., supra.
20 Ngo The Hua v. Chung Kiat Hua, 9 SCRA 113, 116, September 30, 1963.
21 Causapin vs. Court of Appeals, 233 SCRA 615, 625, July 4, 1994.