Pioneer Insurance & Surety Corp. v. Tan
REITERATIONFacts
The Antecedents: Pioneer Insurance & Surety Corporation (petitioner) issued a fire insurance policy to United Laboratories, Inc. (Unilab) covering Unilab's goods delivered to Carmen G. Tan (respondent), proprietor of Save More Drug. The delivery receipts stipulated that goods remained property of Unilab until fully paid, but the risk of loss was for the buyer's account from the moment of delivery. On August 28, 2004, a fire razed the Save More warehouse, destroying Unilab's goods. Unilab claimed P13,430,528.22 from petitioner, which was paid. Petitioner then sought to recover this amount from respondent through subrogation. Procedural History: The Regional Trial Court (RTC) ruled in favor of petitioner, holding that respondent was liable by subrogation and that the nature of the obligation (payment of money) was not extinguished by a fortuitous event. The Court of Appeals (CA) initially affirmed the RTC but later reversed its decision in an Amended Decision, finding the contract to be one of consignment and thus holding respondent not liable. The CA's Amended Decision was later fortified by a Resolution. The Petition: Petitioner assails the CA's Amended Decision and Resolution, arguing that the CA erred in allowing respondent to change her theory of defense on appeal and in ruling based on a contract of consignment, which was not raised during the trial.
Issue(s)
Whether the Court of Appeals erred in allowing the respondent to change her theory of defense on appeal. Whether the contract between respondent and Unilab is one of consignment or sale, and who bears the risk of loss. Whether petitioner can recover from respondent based on the former's right to subrogation.
Ruling
The petition is GRANTED. The Amended Decision dated June 16, 2017, and the Resolution dated June 5, 2018, of the Court of Appeals are REVERSED and SET ASIDE. The Decision dated December 27, 2013, of the Regional Trial Court of Makati City, Branch 62, is REINSTATED.
Ratio Decidendi
On the issue of changing theory on appeal: The Court ruled that the respondent's action of shifting her theory of defense from a contract of sale to a contract of consignment for the first time on appeal is not sanctioned by law. The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal, as it violates fair play and due process. The trial court operated on the premise of a contract of sale, and the respondent's defense was based on the absence of negligence or fault, attributing the loss to a fortuitous event. Allowing a new theory on appeal, especially one that requires presentation of further evidence like the contract of consignment, would strip the reviewing court of jurisdiction and render its judgment invalid. The exception to this rule, where no further evidence is needed, does not apply here because the existence and efficacy of the alleged consignment contract were neither alleged nor proven during the trial. On the nature of the contract and risk of loss: Based on the respondent's own admissions in her Answer with Counterclaim, where she stated she was a "buyer of various drugs, medicines and pharmaceutical products of United Laboratories, Inc.," the contract between her and Unilab was established as a contract of sale. The trial court's proceedings were geared towards this established fact. The delivery receipts also contained terms indicating a contract of sale, specifically that "Goods remain the property of UNITED LABORATORIES, INC., until fully paid but risk of loss arising from any cause shall be for buyer's own account from the moment the goods are delivered to the buyer." This stipulation clearly places the risk of loss on the buyer upon delivery. On the right to subrogation: Since the contract was deemed a contract of sale and the risk of loss was with the respondent upon delivery, Unilab retained an insurable interest over the goods until full payment. Consequently, Unilab could recover from the petitioner for any loss covered by the policy. By right of subrogation, the petitioner, having paid Unilab's claim, is entitled to collect from the respondent, who bore the risk of loss. The RTC correctly ordered the respondent to pay the petitioner the amount paid as insurance proceeds, with legal interest and attorney's fees.
Main Doctrine
A party is generally prohibited from shifting its theory of defense on appeal, especially when such shift requires presentation of further evidence not previously offered, as it violates principles of fair play and due process. The nature of the contract (sale vs. consignment) must be established based on evidence presented during the trial.