GR 96727; (August, 1996) (Digest)
G.R. No. 96727 August 28, 1996
RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSOCEAN TRANSPORT CORPORATION, respondents.
FACTS
The Reparations Commission (REPACOM) and Transocean Transport Corporation insured a vessel with Rizal Surety & Insurance Company. The vessel was lost, and the insurer received the proceeds, depositing the dollar portion in a non-interest bearing account as initially authorized by the Central Bank. REPACOM and Transocean entered into a partial compromise agreement, dividing a portion of the proceeds and agreeing to hold the disputed balance in trust pending final settlement. They instructed Rizal Surety to transfer this balance to an interest-bearing account after securing the necessary Central Bank authorization.
Rizal Surety refused to transfer the funds unless the insured parties executed a Loss and Subrogation Receipt releasing it from all liabilities. Consequently, the dollar balance remained in the non-interest bearing account. Transocean and REPACOM sued for the interest lost due to this refusal. The trial court ruled in their favor, a decision affirmed by the Court of Appeals, leading to this petition.
ISSUE
(1) Was a trust relationship created over the insurance proceeds? (2) Is the insurer liable for interest on the proceeds it failed to deposit in an interest-bearing account despite instructions? (3) Should attorney’s fees be awarded?
RULING
Yes, a trust was established. Upon receipt of the insurance proceeds earmarked for the two insureds, and particularly after the insureds’ compromise agreement which designated the disputed balance as held in trust pending settlement, Rizal Surety became a trustee. The Court clarified that a trust can be created by the conduct of the parties, not merely by explicit agreement. By holding the funds specifically for the benefit and subject to the joint instructions of REPACOM and Transocean, Rizal Surety assumed fiduciary duties.
Yes, the insurer is liable for the lost interest. As a trustee, Rizal Surety had the legal obligation to manage the trust property (the dollar balance) with the diligence of a good father of a family for the benefit of the beneficiaries. This duty included complying with the lawful instruction to place the funds in an interest-bearing account after Central Bank authorization was secured. Its unjustified refusal, based on an unrelated demand for a release from liability, constituted gross negligence and a breach of trust. Therefore, it is liable for the interest the funds would have earned.
No, attorney’s fees should not be awarded. The Court deleted the award because the lower courts’ decisions failed to state the factual or legal justification for the award in the body of their texts, as required by jurisprudence. The award, appearing only in the dispositive portion, was therefore disallowed. The assailed decision was affirmed with this modification.