G.R. No. 115278 May 23, 1995 FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs. COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents. DAVIDE, JR., J.: The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there should be recovery. The petitioner contends otherwise. This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof. After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts: 1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of which is hereto attached as Exhibit "A"; 2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City; 3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B"; 4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto attached as Exhibit "C"; 5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged,
Transcript
G.R. No. 115278 May 23, 1995
FORTUNE INSURANCE AND SURETY CO., INC., petitioner,vs.COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents.
DAVIDE, JR., J.:
The fundamental legal issue raised in this petition for review on certiorari is whether thepetitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the privaterespondent or whether recovery thereunder is precluded under the general exceptions clausethereof. Both the trial court and the Court of Appeals held that there should be recovery. Thepetitioner contends otherwise.
This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, byprivate respondent Producers Bank of the Philippines (hereinafter Producers) against petitionerFortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of thesum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during arobbery of Producer's armored vehicle while it was in transit to transfer the money from itsPasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817and assigned to Branch 146 thereof.
After joinder of issues, the parties asked the trial court to render judgment based on thefollowing stipulation of facts:
1. The plaintiff was insured by the defendants and an insurancepolicy was issued, the duplicate original of which is heretoattached as Exhibit "A";
2. An armored car of the plaintiff, while in the process oftransferring cash in the sum of P725,000.00 under the custody ofits teller, Maribeth Alampay, from its Pasay Branch to its HeadOffice at 8737 Paseo de Roxas, Makati, Metro Manila on June 29,1987, was robbed of the said cash. The robbery took place whilethe armored car was traveling along Taft Avenue in Pasay City;
3. The said armored car was driven by Benjamin Magalong Y deVera, escorted by Security Guard Saturnino Atiga Y Rosete.Driver Magalong was assigned by PRC Management Systemswith the plaintiff by virtue of an Agreement executed on August 7,1983, a duplicate original copy of which is hereto attached asExhibit "B";
4. The Security Guard Atiga was assigned by Unicorn SecurityServices, Inc. with the plaintiff by virtue of a contract of SecurityService executed on October 25, 1982, a duplicate original copyof which is hereto attached as Exhibit "C";
5. After an investigation conducted by the Pasay policeauthorities, the driver Magalong and guard Atiga were charged,
together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino andJohn Doe, with violation of P.D. 532 (Anti-Highway Robbery Law)before the Fiscal of Pasay City. A copy of the complaint is heretoattached as Exhibit "D";
6. The Fiscal of Pasay City then filed an information charging theaforesaid persons with the said crime before Branch 112 of theRegional Trial Court of Pasay City. A copy of the said informationis hereto attached as Exhibit "E." The case is still being tried as ofthis date;
7. Demands were made by the plaintiff upon the defendant to paythe amount of the loss of P725,000.00, but the latter refused topay as the loss is excluded from the coverage of the insurancepolicy, attached hereto as Exhibit "A," specifically under page 1thereof, "General Exceptions" Section (b), which is marked asExhibit "A-1," and which reads as follows:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in report of
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(b) any loss caused by any dishonest, fraudulent orcriminal act of the insured or any officer, employee,partner, director, trustee or authorizedrepresentative of the Insured whether acting aloneor in conjunction with others. . . .
8. The plaintiff opposes the contention of the defendant andcontends that Atiga and Magalong are not its "officer, employee, .. . trustee or authorized representative . . . at the time of therobbery. 1
On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositiveportion thereof reads as follows:
WHEREFORE, premises considered, the Court finds for plaintiff and againstdefendant, and
(a) orders defendant to pay plaintiff the net amountof P540,000.00 as liability under Policy No. 0207(as mitigated by the P40,000.00 special clausededuction and by the recovered sum ofP145,000.00), with interest thereon at the legalrate, until fully paid;
(b) orders defendant to pay plaintiff the sum ofP30,000.00 as and for attorney's fees; and
(c) orders defendant to pay costs of suit.
All other claims and counterclaims are accordingly dismissed forthwith.
SO ORDERED. 2
The trial court ruled that Magalong and Atiga were not employees or representatives ofProducers. It Said:
The Court is satisfied that plaintiff may not be said to have selected and engagedMagalong and Atiga, their services as armored car driver and as security guardhaving been merely offered by PRC Management and by Unicorn Security andwhich latter firms assigned them to plaintiff. The wages and salaries of bothMagalong and Atiga are presumably paid by their respective firms, which alonewields the power to dismiss them. Magalong and Atiga are assigned to plaintiff infulfillment of agreements to provide driving services and property protection assuch — in a context which does not impress the Court as translating intoplaintiff's power to control the conduct of any assigned driver or security guard,beyond perhaps entitling plaintiff to request are replacement for such driverguard. The finding is accordingly compelled that neither Magalong nor Atiga wereplaintiff's "employees" in avoidance of defendant's liability under the policy,particularly the general exceptions therein embodied.
Neither is the Court prepared to accept the proposition that driver Magalong andguard Atiga were the "authorized representatives" of plaintiff. They were merelyan assigned armored car driver and security guard, respectively, for the June 29,1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office.Quite plainly — it was teller Maribeth Alampay who had "custody" of theP725,000.00 cash being transferred along a specified money route, and henceplaintiff's then designated "messenger" adverted to in the policy. 3
Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CVNo. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealeddecision.
The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga wereneither employees nor authorized representatives of Producers and ratiocinated as follows:
A policy or contract of insurance is to be construed liberally in favor of the insuredand strictly against the insurance company (New Life Enterprises vs. Court ofAppeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211SCRA 554). Contracts of insurance, like other contracts, are to be construedaccording to the sense and meaning of the terms which the parties themselveshave used. If such terms are clear and unambiguous, they must be taken andunderstood in their plain, ordinary and popular sense (New Life EnterprisesCase, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA193).
The language used by defendant-appellant in the above quoted stipulation isplain, ordinary and simple. No other interpretation is necessary. The word"employee" must be taken to mean in the ordinary sense.
The Labor Code is a special law specifically dealing with/and specificallydesigned to protect labor and therefore its definition as to employer-employeerelationships insofar as the application/enforcement of said Code is concernedmust necessarily be inapplicable to an insurance contract which defendant-appellant itself had formulated. Had it intended to apply the Labor Code indefining what the word "employee" refers to, it must/should have so statedexpressly in the insurance policy.
Said driver and security guard cannot be considered as employees of plaintiff-appellee bank because it has no power to hire or to dismiss said driver andsecurity guard under the contracts (Exhs. 8 and C) except only to ask for theirreplacements from the contractors. 5
On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial courtand the Court of Appeals erred in holding it liable under the insurance policy because the lossfalls within the general exceptions clause considering that driver Magalong and security guardAtiga were Producers' authorized representatives or employees in the transfer of the money andpayroll from its branch office in Pasay City to its head office in Makati.
According to Fortune, when Producers commissioned a guard and a driver to transfer its fundsfrom one branch to another, they effectively and necessarily became its authorizedrepresentatives in the care and custody of the money. Assuming that they could not beconsidered authorized representatives, they were, nevertheless, employees of Producers. Itasserts that the existence of an employer-employee relationship "is determined by law andbeing such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on theother, the provisions in the contracts of Producers with PRC Management System for Magalongand with Unicorn Security Services for Atiga which state that Producers is not their employerand that it is absolved from any liability as an employer, would not obliterate the relationship.
Fortune points out that an employer-employee relationship depends upon four standards: (1)the manner of selection and engagement of the putative employee; (2) the mode of payment ofwages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence ofa power to control the putative employee's conduct. Of the four, the right-of-control test hasbeen held to be the decisive factor. 6 It asserts that the power of control over Magalong andAtiga was vested in and exercised by Producers. Fortune further insists that PRC ManagementSystem and Unicorn Security Services are but "labor-only" contractors under Article 106 of theLabor Code which provides:
Art. 106. Contractor or subcontractor. — There is "labor-only" contracting wherethe person supplying workers to an employer does not have substantial capital orinvestment in the form of tools, equipment, machineries, work premises, amongothers, and the workers recruited and placed by such persons are performingactivities which are directly related to the principal business of such employer. Insuch cases, the person or intermediary shall be considered merely as an agent
of the employer who shall be responsible to the workers in the same manner andextent as if the latter were directly employed by him.
Fortune thus contends that Magalong and Atiga were employees of Producers, following theruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only"contractor is equivalent to a finding that there is an employer-employee relationship between theowner of the project and the employees of the "labor-only" contractor.
On the other hand, Producers contends that Magalong and Atiga were not its employees since ithad nothing to do with their selection and engagement, the payment of their wages, theirdismissal, and the control of their conduct. Producers argued that the rule in InternationalTimber Corp. is not applicable to all cases but only when it becomes necessary to prevent anyviolation or circumvention of the Labor Code, a social legislation whose provisions may setaside contracts entered into by parties in order to give protection to the working man.
Producers further asseverates that what should be applied is the rule in American PresidentLines vs. Clave, 8 to wit:
In determining the existence of employer-employee relationship, the followingelements are generally considered, namely: (1) the selection and engagement ofthe employee; (2) the payment of wages; (3) the power of dismissal; and (4) thepower to control the employee's conduct.
Since under Producers' contract with PRC Management Systems it is the latter which assignedMagalong as the driver of Producers' armored car and was responsible for his faithful dischargeof his duties and responsibilities, and since Producers paid the monthly compensation ofP1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear thatMagalong was not Producers' employee. As to Atiga, Producers relies on the provision of itscontract with Unicorn Security Services which provides that the guards of the latter "are in nosense employees of the CLIENT."
There is merit in this petition.
It should be noted that the insurance policy entered into by the parties is a theft or robberyinsurance policy which is a form of casualty insurance. Section 174 of the Insurance Codeprovides:
Sec. 174. Casualty insurance is insurance covering loss or liability arising fromaccident or mishap, excluding certain types of loss which by law or custom areconsidered as falling exclusively within the scope of insurance such as fire ormarine. It includes, but is not limited to, employer's liability insurance, publicliability insurance, motor vehicle liability insurance, plate glass insurance,burglary and theft insurance, personal accident and health insurance as writtenby non-life insurance companies, and other substantially similar kinds ofinsurance. (emphases supplied)
Except with respect to compulsory motor vehicle liability insurance, the Insurance Codecontains no other provisions applicable to casualty insurance or to robbery insurance inparticular. These contracts are, therefore, governed by the general provisions applicable to alltypes of insurance. Outside of these, the rights and obligations of the parties must be
determined by the terms of their contract, taking into consideration its purpose and always inaccordance with the general principles of insurance law. 9
It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity todefraud the insurer — the moral hazard — is so great that insurers have found it necessary tofill up their policies with countless restrictions, many designed to reduce this hazard. Seldomdoes the insurer assume the risk of all losses due to the hazards insured against." 10 Personsfrequently excluded under such provisions are those in the insured's service and employment. 11
The purpose of the exception is to guard against liability should the theft be committed by onehaving unrestricted access to the property. 12 In such cases, the terms specifying the excludedclasses are to be given their meaning as understood in common speech. 13 The terms "service"and "employment" are generally associated with the idea of selection, control, andcompensation. 14
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolvedagainst the insurer, 15 or it should be construed liberally in favor of the insured and strictlyagainst the insurer. 16 Limitations of liability should be regarded with extreme jealousy and mustbe construedin such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goeswithout saying then that if the terms of the contract are clear and unambiguous, there is no roomfor construction and such terms cannot be enlarged or diminished by judicial construction. 18
An insurance contract is a contract of indemnity upon the terms and conditions specified therein.19 It is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In theabsence of statutory prohibition to the contrary, insurance companies have the same rights asindividuals to limit their liability and to impose whatever conditions they deem best upon theirobligations not inconsistent with public policy.
With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualifyas employees or authorized representatives of Producers under paragraph (b) of the generalexceptions clause of the policy which, for easy reference, is again quoted:
GENERAL EXCEPTIONS
The company shall not be liable under this policy in respect of
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(b) any loss caused by any dishonest, fraudulent or criminal act ofthe insured or any officer, employee, partner, director, trustee orauthorized representative of the Insured whether acting alone or inconjunction with others. . . . (emphases supplied)
There is marked disagreement between the parties on the correct meaning of the terms"employee" and "authorized representatives."
It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exemptfrom protection and coverage losses arising from dishonest, fraudulent, or criminal acts ofpersons granted or having unrestricted access to Producers' money or payroll. When it usedthen the term "employee," it must have had in mind any person who qualifies as such as
generally and universally understood, or jurisprudentially established in the light of the fourstandards in the determination of the employer-employee relationship, 21 or as statutorilydeclared even in a limited sense as in the case of Article 106 of the Labor Code which considersthe employees under a "labor-only" contract as employees of the party employing them and notof the party who supplied them to the employer. 22
Fortune claims that Producers' contracts with PRC Management Systems and Unicorn SecurityServices are "labor-only" contracts.
Producers, however, insists that by the express terms thereof, it is not the employer ofMagalong. Notwithstanding such express assumption of PRC Management Systemsand Unicorn Security Services that the drivers and the security guards each shall supplyto Producers are not the latter's employees, it may, in fact, be that it is because thecontracts are, indeed, "labor-only" contracts. Whether they are is, in the light of thecriteria provided for in Article 106 of the Labor Code, a question of fact. Since the partiesopted to submit the case for judgment on the basis of their stipulation of facts which arestrictly limited to the insurance policy, the contracts with PRC Management Systems andUnicorn Security Services, the complaint for violation of P.D. No. 532, and theinformation therefor filed by the City Fiscal of Pasay City, there is a paucity of evidenceas to whether the contracts between Producers and PRC Management Systems andUnicorn Security Services are "labor-only" contracts.
But even granting for the sake of argument that these contracts were not "labor-only" contracts,and PRC Management Systems and Unicorn Security Services were truly independentcontractors, we are satisfied that Magalong and Atiga were, in respect of the transfer ofProducer's money from its Pasay City branch to its head office in Makati, its "authorizedrepresentatives" who served as such with its teller Maribeth Alampay. Howsoever viewed,Producers entrusted the three with the specific duty to safely transfer the money to its headoffice, with Alampay to be responsible for its custody in transit; Magalong to drive the armoredvehicle which would carry the money; and Atiga to provide the needed security for the money,the vehicle, and his two other companions. In short, for these particular tasks, the three acted asagents of Producers. A "representative" is defined as one who represents or stands in the placeof another; one who represents others or another in a special capacity, as an agent, and isinterchangeable with "agent." 23
In view of the foregoing, Fortune is exempt from liability under the general exceptions clause ofthe insurance policy.
WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appealsin CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional TrialCourt of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in CivilCase No. 1817 is DISMISSED.
No pronouncement as to costs.
SO ORDERED.
Bellosillo and Kapunan, JJ., concur.
Padilla, J., took no part.
Quiason, J., is on leave.
G.R. No. 144413 July 30, 2004
REPUBLIC GLASS CORPORATION and GERVEL, INC, petitioners,vs.LAWRENCE C. QUA, respondent.
D E C I S I O N
CARPIO, J.:
The Case
Before the Court is a petition for review1 assailing the 6 March 2000 Decision2 and the 26 July2000 Resolution of the Court of Appeals in CA-G.R. CV No. 54737. The Court of Appeals setaside the Order3 of 3 May 1996 of the Regional Trial Court of Makati, Branch 63 ("RTC-Branch63"), in Civil Case No. 88-2643 and reinstated the Decision4 of 12 January 1996 in respondent’sfavor.
The Facts
Petitioners Republic Glass Corporation ("RGC") and Gervel, Inc. ("Gervel") together withrespondent Lawrence C. Qua ("Qua") were stockholders of Ladtek, Inc. ("Ladtek"). Ladtekobtained loans from Metropolitan Bank and Trust Company ("Metrobank")5 and PrivateDevelopment Corporation of the Philippines6 ("PDCP") with RGC, Gervel and Qua as sureties.Among themselves, RGC, Gervel and Qua executed Agreements for Contribution, Indemnityand Pledge of Shares of Stocks ("Agreements").7
The Agreements all state that in case of default in the payment of Ladtek’s loans, the partieswould reimburse each other the proportionate share of any sum that any might pay to thecreditors.8 Thus, a common provision appears in the Agreements:
RGC, GERVEL and QUA each covenant that each will respectively reimburse the partymade to pay the Lenders to the extent and subject to the limitations set forth herein, allsums of money which the party made to pay the Lenders shall pay or become liable topay by reason of any of the foregoing, and will make such payments within five (5) daysfrom the date that the party made to pay the Lenders gives written notice to the partieshereto that it shall have become liable therefor and has advised the Lenders of itswillingness to pay whether or not it shall have already paid out such sum or any partthereof to the Lenders or to the persons entitled thereto. (Emphasis supplied)
Under the same Agreements, Qua pledged 1,892,360 common shares of stock of GeneralMilling Corporation ("GMC") in favor of RGC and Gervel. The pledged shares of stock served as
security for the payment of any sum which RGC and Gervel may be held liable under theAgreements.
Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed acollection case against Ladtek, RGC, Gervel and Qua docketed as Civil Case No. 8364("Collection Case No. 8364") which was raffled to the Regional Trial Court of Makati, Branch149 ("RTC-Branch 149"). During the pendency of Collection Case No. 8364, RGC and Gervelpaid Metrobank P7 million. Later, Metrobank executed a waiver and quitclaim dated 7September 1988 in favor of RGC and Gervel. Based on this waiver and quitclaim,9 Metrobank,RGC and Gervel filed on 16 September 1988 a joint motion to dismiss Collection Case No. 8364against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the case against RGC andGervel, leaving Ladtek and Qua as defendants.10
In a letter dated 7 November 1988, RGC and Gervel’s counsel, Atty. Antonio C. Pastelero,demanded that Qua pay P3,860,646, or 42.22% of P8,730,543.55,11 as reimbursement of thetotal amount RGC and Gervel paid to Metrobank and PDCP. Qua refused to reimburse theamount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua with notices offoreclosure of Qua’s pledged shares.
Qua filed a complaint for injunction and damages with application for a temporary restrainingorder, docketed as Civil Case No. 88-2643 ("Foreclosure Case No. 88-2643"), with RTC-Branch63 to prevent RGC and Gervel from foreclosing the pledged shares. Although it issued atemporary restraining order on 9 December 1988, RTC-Branch 63 denied on 2 January 1989Qua’s "Urgent Petition to Suspend Foreclosure Sale." RGC and Gervel eventually foreclosed allthe pledged shares of stock at public auction. Thus, Qua’s application for the issuance of apreliminary injunction became moot.12
Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Qua’s Motion toDismiss13 in Collection Case No. 8364 as basis for the foreclosure of Qua’s pledged shares.Qua’s Motion to Dismiss states:
8. The foregoing facts show that the payment of defendants Republic GlassCorporation and Gervel, Inc. was for the entire obligation covered by the ContinuingSurety Agreements which were Annexes "B" and "C" of the Complaint, and that thesame naturally redound[ed] to the benefit of defendant Qua herein, as provided for bylaw, specifically Article 1217 of the Civil Code, which states that:
xxx
10. It is very clear that the payment of defendants Republic Glass Corporation andGervel, Inc. was much more than the amount stipulated in the Continuing SuretyAgreement which is the basis for the action against them and defendant Qua, which wasjust SIX MILLION TWO HUNDRED [THOUSAND] PESOS (P6,200,000.00), hence,logically the said alleged obligation must now be considered as fully paid andextinguished.
RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Orderdismissing Collection Case No. 8364,14 which RTC-Branch 149 subsequently reversed onMetrobank’s motion for reconsideration. Thus, RTC-Branch 149 reinstated Collection Case No.8364 against Qua.
On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643("12 January 1996 Decision") ordering RGC and Gervel to return the foreclosed shares of stockto Qua. The dispositive portion of the 12 January 1996 Decision reads:
WHEREFORE, premises considered, this Court hereby renders judgment orderingdefendants jointly and severally liable to return to plaintiff the 1,892,360 shares ofcommon stock of General Milling Corporation which they foreclosed on December 9,1988, or should the return of these shares be no longer possible then to pay to plaintiffthe amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988until fully paid and to pay plaintiff P100,000.00 as and for attorney’s fees. The costs willbe for defendants’ account.
SO ORDERED.15
However, on RGC and Gervel’s Motion for Reconsideration, RTC-Branch 63 issued its Order of3 May 1996 ("3 May 1996 Order") reconsidering and setting aside the 12 January 1996Decision. The 3 May 1996 Order states:
After a thorough review of the records of the case, and an evaluation of the evidenceadduced by the parties as well as their contentions, the issues to be resolved boil downto the following:
1. Whether or not the parties’ obligation to reimburse, under the IndemnityAgreements was premised on the payment by any of them of the entireobligation;
2. Whether or not there is basis to plaintiff’s apprehension that he would be madeto pay twice for the single obligation; and
3. Whether or not plaintiff was benefited by the payments made by defendants.
Regarding the first issue, a closer scrutiny of the pertinent provisions of the IndemnityAgreements executed by the parties would not reveal any significant indication that theparties’ liabilities are indeed premised on the payment by any of them of the entireobligation. These agreements clearly provide that the parties’ obligation to reimburseaccrues upon mere advice that one of them has paid or will so pay the obligation. It isnot specified whether the payment is for the entire obligation or not.
Accordingly, the Court stands corrected in this regard. The obvious conclusion thatcan be seen now is that payment of the entire obligation is not a condition sinequa non for the paying party to demand reimbursement. The parties have expresslycontracted that each will reimburse whoever is made to pay the obligation whetherentirely or just a portion thereof.
On the second issue, plaintiff’s apprehension that he would be made to pay twice for thesingle obligation is unfounded. Under the above-mentioned Indemnity Agreements, inthe event that the creditors are able to collect from him, he has the right to askdefendants to pay their proportionate share, in the same way defendants had collectedfrom the plaintiff, by foreclosing his pledged shares of stock, his proportionate share,
after they had made payments. From all indications, the provisions of the IndemnityAgreements have remained binding between the parties.
On the third issue, there is merit to defendants’ assertion that plaintiff has benefited fromthe payments made by defendants. As alleged by defendants, and this has not beendenied by plaintiff, in Civil Case No. 8364 filed before Branch 149 of this Court,where the creditors were enforcing the parties’ liabilities as sureties, plaintiffsucceeded in having the case dismissed by arguing that defendants’ payments[were] for the entire obligation, hence, the obligation should be considered fullypaid and extinguished. With the dismissal of the case, the indications are that thecreditors are no longer running after plaintiff to enforce his liabilities as surety of Ladtek.
Whether or not the surety agreements signed by the parties and the creditors werenovated is not material in this controversy. The fact is that there was payment of theobligation. Hence, the Indemnity Agreements govern.
In the final analysis, defendants’ payments gave rise to plaintiff’s obligation to reimbursethe former. Having failed to do so, upon demand, defendants were justified in foreclosingthe pledged shares of stocks.
xxx
WHEREFORE, premises considered, the decision dated January 12, 1996 isreconsidered and set aside. The above-entitled complaint against defendants isDISMISSED.
Likewise, defendants’ counterclaim is also dismissed.
SO ORDERED.16 (Emphasis supplied)
Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied.
Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua fileda Manifestation17 with the Court of Appeals attaching the Decision18 of 21 November 1996rendered in Collection Case No. 8364. The dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering defendantsLadtek, Inc. and Lawrence C. Qua:
1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October31, 1987 plus the stipulated interest of 30.73% per annum and penalty charges of 12%per annum from November 1, 1987 until the whole amount is fully paid, lessP7,000,000.00 paid by defendants Republic Glass Corporation and Gervel, Inc., but theliability of defendant Lawrence C. Qua should be limited only to P5,000,000.00 andP1,200,000.00, the amount stated in the Continuing Suretyship dated June 15,1983, Exh. "D" and Continuing Suretyship dated December 14, 1981, Exh. "D-1",respectively, plus the stipulated interest and expenses incurred by the plaintiff.
2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%) percent ofthe total amount due as and by way of attorney’s fees;
3. To pay the cost of suit.
The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against theplaintiff are hereby dismissed.
Likewise, the cross-claims of the defendants are dismissed.
SO ORDERED.19 (Emphasis supplied)
On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3May 1996 Order of RTC-Branch 63 and reinstating the 12 January 1996 Decision ordering RGCand Gervel to return the foreclosed shares of stock to Qua.20
Hence, this petition.
The Ruling of the Court of Appeals
In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellatecourt quoted the RTC-Branch 63’s 12 January 1996 Decision:
The liability of each party under the indemnity agreements therefore is premised on thepayment by any of them of the entire obligation. Without such payment, there would beno corresponding share to reimburse. Payment of the entire obligation naturallyredounds to the benefit of the other solidary debtors who must then reimburse thepaying co-debtors to the extent of his corresponding share.
In the case at bar, Republic Glass and Gervel made partial payments only, and so theydid not extinguish the entire obligation. But Republic Glass and Gervel neverthelessobtained quitclaims in their favor and so they ceased to be solidarily liable with plaintifffor the balance of the debt (Exhs. "D", "E", and "I"). Plaintiff thus became solely liable forthe unpaid portion of the debt even as he is being held liable for reimbursement on thesaid portion.
What happened therefore, was that Metrobank and PDCP in effect enforced theSuretyship Agreements jointly as against plaintiff and defendants. Consequently, thesolidary obligation under the Suretyship Agreements was novated by the substantialmodification of its principal conditions. xxx The resulting change was from one with threesolidary debtors to one in which Lawrence Qua became the sole solidary co-debtor ofLadtek.
Defendants cannot simply pay off a portion of the debt and then absolve themselvesfrom any further liability when the obligation has not been totally extinguished.
xxx
In the final reckoning, this Court finds that the foreclosure and sale of the shares pledgedby plaintiff was totally unjustified and without basis because the obligation secured bythe underlying pledge had been extinguished by novation. xxx21
The Court of Appeals further held that there was an implied novation or substantialincompatibility in the surety’s mode or manner of payment from one for the entire obligation toone merely of proportionate share. The appellate court ruled that RGC and Gervel’s payment tothe creditors only amounted to their proportionate shares of the obligation, considering thefollowing evidence:
The letter of the Republic to the appellant, Exhibit "G", dated June 25, 1987, whichmentioned the letter from PDCP confirming its willingness to release the joint andsolidary obligation of the Republic and Gervel subject to some terms and conditions, oneof which is the appellant’s acceptable repayment plan of his "pro-rata share"; and theletter of PDCP to the Republic, Exhibit "H", mentioning full payment of the "pro ratashare" of the Republic and Gervel, and the need of the appellant to submit anacceptable repayment plan covering his "pro-rata share"’, the release from solidaryliability by PDCP, Exhibit "J", mentioning full payment by the Republic and Gervel of their"pro rata share" in the loan, as solidary obligors, subject however to the terms andconditions of the hold out agreement; and the non-payment in full of the loan, subject ofthe May 10, 1984 Promissory Note, except the 7 million payment by both Republic andGervel, as mentioned in the Decision (Case No. 8364, Metrobank vs. Ladtek, et al).Precisely, Ladtek and the appellant, in said Decision were directed to pay Metrobank thebalance of P9,560,798, supposedly due and unpaid.
Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly,RGC and Gervel cannot demand reimbursement. The Court of Appeals also held that Qua evenbecame solely answerable for the unpaid balance of the obligations by virtue of the quitclaimsexecuted by Metrobank and PDCP in favor of RGC and Gervel. RGC and Gervel ceased to besolidarily liable for Ladtek’s loan obligations.22
The Issues
RGC and Gervel raise the following issues for resolution:
I.
WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUA’S JUDICIALSTATEMENTS THAT RGC AND GERVEL PAID THE ENTIRE OBLIGATION.
II.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUANON FOR RGC AND GERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDERTHE INDEMNITY AGREEMENTS EXECUTED BY THEM AFTER RGC AND GERVELPAID METROBANK UNDER THE SURETY AGREEMENT.
III.
ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETYAGREEMENTS SIGNED BY THE PARTIES AND THE CREDITORS, WHETHER THENOVATION IS MATERIAL IN THIS CASE.23
The Court’s Ruling
We deny the petition.
Whether Qua was in estoppel
RGC and Gervel contend that Qua is in estoppel for making conflicting statements in twodifferent and separate cases. Qua cannot now claim that the payment made to Metrobank wasnot for the entire obligation because of his Motion to Dismiss Collection Case No. 8364 wherehe stated that RGC and Gervel’s payment was for the entire obligation.
The essential elements of estoppel in pais are considered in relation to the party to beestopped, and to the party invoking the estoppel in his favor. On the party to be estopped,such party (1) commits conduct amounting to false representation or concealment of materialfacts or at least calculated to convey the impression that the facts are inconsistent with thosewhich the party subsequently attempts to assert; (2) has the intent, or at least expectation thathis conduct shall at least influence the other party; and (3) has knowledge, actual orconstructive, of the real facts. On the party claiming the estoppel, such party (1) has lack ofknowledge and of the means of knowledge of the truth on the facts in question; (2) has relied, ingood faith, on the conduct or statements of the party to be estopped; (3) has acted or refrainedfrom acting based on such conduct or statements as to change the position or status of theparty claiming the estoppel, to his injury, detriment or prejudice.24
In this case, the essential elements of estoppel are inexistent.
While Qua’s statements in Collection Case No. 8364 conflict with his statements in ForeclosureCase No. 88-2643, RGC and Gervel miserably failed to show that Qua, in making thosestatements, intended to falsely represent or conceal the material facts. Both parties undeniablyknow the real facts.
Nothing in the records shows that RGC and Gervel relied on Qua’s statements in CollectionCase No. 8364 such that they changed their position or status, to their injury, detriment orprejudice. RGC and Gervel repeatedly point out that it was the presiding judge25 in CollectionCase No. 8364 who relied on Qua’s statements in Collection Case No. 8364. RGC and Gervelclaim that Qua "deliberately led the Presiding Judge to believe" that their payment to Metrobankwas for the entire obligation. As a result, the presiding judge ordered the dismissal of CollectionCase No. 8364 against Qua.26
RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support theirstance:
Sec. 4. Judicial admissions. – An admission, verbal or written, made by a party in thecourse of the proceedings in the same case, does not require proof. The admission maybe contradicted only by showing that it was made through palpable mistake or that nosuch admission was made.
A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trialeither by verbal or written manifestations or stipulations, or (c) in other stages of the judicialproceeding.27
The elements of judicial admissions are absent in this case. Qua made conflicting statements inCollection Case No. 8364 and in Foreclosure Case No. 88-2643, and not in the "same case" asrequired in Section 4 of Rule 129. To constitute judicial admission, the admission must be madein the same case in which it is offered. If made in another case or in another court, the fact ofsuch admission must be proved as in the case of any other fact, although if made in a judicialproceeding it is entitled to greater weight.28
RGC and Gervel introduced Qua’s Motion to Dismiss and the Order dismissing Collection CaseNo. 8364 to prove Qua’s claim that the payment was for the entire obligation. Qua does notdeny making such statement but explained that he "honestly believed and pleaded in the lowercourt and in CA-G.R. CV No. 58550 that the entire debt was fully extinguished when thepetitioners paid P7 million to Metrobank."29
We find Qua’s explanation substantiated by the evidence on record. As stated in theAgreements, Ladtek’s original loan from Metrobank was only P6.2 million. Therefore, Quareasonably believed that RGC and Gervel’s P7 million payment to Metrobank pertained to theentire obligation. However, subsequent facts indisputably show that RGC and Gervel’s paymentwas not for the entire obligation. RTC-Branch 149 reinstated Collection Case No. 8364 againstQua and ruled in Metrobank’s favor, ordering Qua to pay P6.2 million.
Whether payment of the entire obligation is an essential condition for reimbursement
RGC and Gervel assail the Court of Appeals’ ruling that the parties’ liabilities under theAgreements depend on the full payment of the obligation. RGC and Gervel insist that it is notan essential condition that the entire obligation must first be paid before they can seekreimbursement from Qua. RGC and Gervel contend that Qua should pay 42.22% of anyamount which they paid or would pay Metrobank and PDCP.
RGC and Gervels’ contention is partly meritorious.
Payment of the entire obligation by one or some of the solidary debtors results in acorresponding obligation of the other debtors to reimburse the paying debtor.30 However, weagree with RGC and Gervel’s contention that in this case payment of the entire obligation is notan essential condition before they can seek reimbursement from Qua. The words of theAgreements are clear.
RGC, GERVEL and QUA each covenant that each will respectively reimburse the partymade to pay the Lenders to the extent and subject to the limitations set forth herein, allsums of money which the party made to pay the Lenders shall pay or becomeliable to pay by reason of any of the foregoing, and will make such payments within five(5) days from the date that the party made to pay the Lenders gives written notice to theparties hereto that it shall have become liable therefor and has advised the Lenders ofits willingness to pay whether or not it shall have already paid out such sum or any partthereof to the Lenders or to the persons entitled thereto. (Emphasis supplied)
The Agreements are contracts of indemnity not only against actual loss but against liability aswell. In Associated Insurance & Surety Co., Inc. v. Chua,31 we distinguished between acontract of indemnity against loss and a contract of indemnity against liability, thus:32
The agreement here sued upon is not only one of indemnity against loss but ofindemnity against liability. While the first does not render the indemnitor liable until theperson to be indemnified makes payment or sustains loss, the second becomesoperative as soon as the liability of the person indemnified arises irrespective ofwhether or not he has suffered actual loss. (Emphasis supplied)
Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors shouldindemnify the former once his liability becomes absolute. However, in this case, the liability ofRGC, Gervel and Qua became absolute simultaneously when Ladtek defaulted in its loanpayment. As a result, RGC, Gervel and Qua all became directly liable at the same time toMetrobank and PDCP. Thus, RGC and Gervel cannot automatically claim for indemnity fromQua because Qua himself is liable directly to Metrobank and PDCP.
If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would paymuch more than his stipulated liability under the Agreements. In addition to the P3,860,646claimed by RGC and Gervel, Qua would have to pay his liability of P6.2 million to Metrobankand more than P1 million to PDCP. Since Qua would surely exceed his proportionate share, hewould then recover from RGC and Gervel the excess payment. This situation is absurd andcircuitous.
Contrary to RGC and Gervel’s claim, payment of any amount will not automatically result inreimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursementfrom the co-debtors only in so far as his payment exceeded his share in the obligation.33 This isprecisely because if a solidary debtor pays an amount equal to his proportionate share in theobligation, then he in effect pays only what is due from him. If the debtor pays less than hisshare in the obligation, he cannot demand reimbursement because his payment is less than hisactual debt.
To determine whether RGC and Gervel have a right to reimbursement, it is indispensable toascertain the total obligation of the parties. At this point, it becomes necessary to consider thedecision in Collection Case No. 8364 on the parties’ obligation to Metrobank. To repeat,Metrobank filed Collection Case No. 8364 against Ladtek, RGC, Gervel and Qua to collectLadtek’s unpaid loan.
RGC and Gervel assail the Court of Appeals’ consideration of the decision in Collection CaseNo. 836434 because Qua did not offer the decision in evidence during the trial in ForeclosureCase No. 88-2643 subject of this petition. RTC-Branch 6235 rendered the decision in CollectionCase No. 8364 on 21 November 1996 while Qua filed his Notice of Appeal of the 3 May 1996Order on 19 June 1996. Qua could not have possibly offered in evidence the decision inCollection Case No. 8364 because RTC-Branch 62 rendered the decision only after Quaelevated the present case to the Court of Appeals. Hence, Qua submitted the decision inCollection Case No. 8364 during the pendency of the appeal of Foreclosure Case No. 88-2643in the Court of Appeals.
As found by RTC-Branch 62, RGC, Gervel and Qua’s total obligation was P14,200,854.37 as of31 October 1987.36 During the pendency of Collection Case No. 8364, RGC and Gervel paid
Metrobank P7 million. Because of the payment, Metrobank executed a quitclaim37 in favor ofRGC and Gervel. By virtue of Metrobank’s quitclaim, RTC-Branch 62 dismissed Collection CaseNo. 8364 against RGC and Gervel, leaving Ladtek and Qua as defendants. Considering thatRGC and Gervel paid only P7 million out of the total obligation of P14,200,854.37, whichpayment was less than RGC and Gervel’s combined shares in the obligation,38 it was clearlypartial payment. Moreover, if it were full payment, then the obligation would have beenextinguished. Metrobank would have also released Qua from his obligation.
RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from SolidaryLiability that PDCP executed in RGC and Gervel’s favor which stated that their payment ofP1,730,543.55 served as "full payment of their corresponding proportionate share" in Ladtek’sforeign currency loan.39 Moreover, PDCP filed a collection case against Qua alone, docketed asCivil Case No. 2259, in the Regional Trial Court of Makati, Branch 150.40
Since they only made partial payments, RGC and Gervel should clearly and convincingly showthat their payments to Metrobank and PDCP exceeded their proportionate shares in theobligations before they can seek reimbursement from Qua. This RGC and Gervel failed to do.RGC and Gervel, in fact, never claimed that their payments exceeded their shares in theobligations. Consequently, RGC and Gervel cannot validly seek reimbursement from Qua.
Whether there was novation of the Agreements
RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervelfurther contend that any novation of the Agreements is immaterial to this case. RGC and Gerveldisagreed with the Court of Appeals on the effect of the "implied novation" which supposedlytranspired in this case. The Court of Appeals found that "there was an implied novation orsubstantial incompatibility in the mode or manner of payment by the surety from the entireobligation, to one merely of proportionate share." RGC and Gervel claim that if it is true that animplied novation occurred, then the effect "would be to release respondent (Qua) as the entireobligation is considered extinguished by operation of law." Thus, Qua should now reimburseRGC and Gervel his proportionate share under the surety agreements.
Novation extinguishes an obligation by (1) changing its object or principal conditions; (2)substituting the person of the debtor; and (3) subrogating a third person in the rights of thecreditor. Article 1292 of the Civil Code clearly provides that in order that an obligation may beextinguished by another which substitutes the same, it should be declared in unequivocal terms,or that the old and new obligations be on every point incompatible with each other.41 Novationmay either be extinctive or modificatory. Novation is extinctive when an old obligation isterminated by the creation of a new obligation that takes the place of the former. Novation ismerely modificatory when the old obligation subsists to the extent it remains compatible with theamendatory agreement.42
We find that there was no novation of the Agreements. The parties did not constitute a newobligation to substitute the Agreements. The terms and conditions of the Agreements remain thesame. There was also no showing of complete incompatibility in the manner of payment of theparties’ obligations. Contrary to the Court of Appeals’ ruling, the mode or manner of payment bythe parties did not change from one for the entire obligation to one merely of proportionateshare. The creditors, namely Metrobank and PDCP, merely proceeded against RGC and Gervelfor their proportionate shares only.43 This preference is within the creditors’ discretion which didnot necessarily affect the nature of the obligations as well as the terms and conditions of the
Agreements. A creditor may choose to proceed only against some and not all of the solidarydebtors. The creditor may also choose to collect part of the debt from some of the solidarydebtors, and the remaining debt from the other solidary debtors.
In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently,RGC and Gervel cannot validly foreclose the pledge of Qua’s GMC shares of stock whichsecured his obligation to reimburse.44 Therefore, the foreclosure of the pledged shares of stockhas no leg to stand on.
WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court ofAppeals in CA-G.R. CV No. 54737 is AFFIRMED. Costs against petitioners.
SO ORDERED.
Davide, Jr., C.J., Chairman, Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.
G.R. No. L-22042 August 17, 1967
DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON,plaintiffs-appellees,vs.ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO.,INC., defendants.CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant.
Generoso Almario and Associates for plaintiffs-appellees.Achacoso and Associates for defendant-appellant.
BENGZON, J.P., J.:
Julio Aguilar owned and operated several jeepneys in the City of Manila among which was onewith plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital Insurance& Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-partyliability. As a consequence thereof an insurance policy was executed by the Capital Insurance &Surety Co., Inc., the pertinent provisions of which in so far as this case is concerned containsthe following:
Section II —LIABILITY TO THE PUBLIC
1. The Company, will, subject to the limits of liability, indemnify the Insured in the eventof accident caused by or arising out of the use of the Motor Vehicle/s or in connectionwith the loading or unloading of the Motor Vehicle/s, against all sums includingclaimant's costs and expenses which the Insured shall become legally liable to pay inrespect of:
a. death of or bodily injury to any person
b. damage to property
During the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte, one ofthe drivers of the jeepneys operated by Aguilar, while driving along the intersection of JuanLuna and Moro streets, City of Manila, bumped with the jeepney abovementioned one GervacioGuingon who had just alighted from another jeepney and as a consequence the latter diedsome days thereafter.
A corresponding information for homicide thru reckless imprudence was filed against Iluminadodel Monte, who pleaded guilty. A penalty of four months imprisonment was imposed on him.
As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages prayingthat the sum of P82,771.80 be paid to them jointly and severally by the defendants, driverIluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co.,Inc. For failure to answer the complaint, Del Monte and Aguilar were declared in default. CapitalInsurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action againstit. During the trial the following facts were stipulated:
COURT: The Court wants to find if there is a stipulation in the policy whereby the insuredis insured against liability to third persons who are not passengers of jeeps.
ALMARIO: As far as I know, in my honest belief, there is no particularization as to thepassengers, whether the passengers of the jeep insured or a passenger of another jeepor whether it is a pedestrian. With those, we can submit the stipulation.
SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal)
On August 27, 1962, the Court of First Instance of Manila rendered its judgment with thefollowing dispositive portion:
WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio Aguilarjointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death oftheir father, plus P1,000.00 for attorney's fees plus costs.
The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay theplaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00)Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudgedagainst Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction ofthe judgment rendered against Iluminado del Monte and Julio Aguilar in this case.
SO ORDERED.
The case was appealed to the Court of Appeals which appellate court on September 30, 1963certified the case to Us because the appeal raises purely questions of law.
The issues raised before Us in this appeal are (1) As the company agreed to indemnify theinsured Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first showhimself to be entitled to indemnity before the insurance company may be held liable for thesame? (3) Plaintiffs not being parties to the insurance contract, do they have a cause of actionagainst the company; and (4) Does the fact that the insured is liable to the plaintiffs necessarilymean that the insurer is liable to the insured?
In the discussion of the points thus raised, what is paramount is the interpretation of theinsurance contract with the aim in view of attaining the objectives for which the insurance wastaken. The Rules of Court provide that parties may be joined either as plaintiffs or defendants,as the right to relief in respect to or arising out of the same transactions is alleged to exist (Sec.6, Rule 3). The policy, on the other hand, contains a clause stating:
E. Action Against Company
No action shall lie against the Company unless, as a condition precedent thereto, theInsured shall have fully complied with all of the terms of this Policy, nor until the amountof the Insured's obligation to pay shall have been finally determined either by judgmentagainst the Insured after actual trial or by written agreement of the Insured, the claimant,and the Company.
Any person or organization or the legal representative thereof who has secured suchjudgment or written agreement shall thereafter be entitled to recover under this policy tothe extent of the insurance afforded by the Policy. Nothing contained in this policy shallgive any person or organization any right to join the Company as a co-defendant in anyaction against the Insured to determine the Insured's liability.
Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve theCompany of any of its obligations hereunder.
Appellant contends that the "no action" clause in the policy closes the avenue to any third partywhich may be injured in an accident wherein the jeepney of the insured might have been thecause of the injury of third persons, alleging the freedom of contracts. Will the mere fact thatsuch clause was agreed upon by the parties in an insurance policy prevail over the Rules ofCourt which authorizes the joining of parties plaintiffs or defendants?
The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all? (2) Ifso, can plaintiffs sue the insurer jointly with the insured?
The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnifythe insured "against all sums . . . which the Insured shall become legally liable to pay in respectof: a. death of or bodily injury to any person . . . ." Clearly, therefore, it is one for indemnityagainst liability;1 from the fact then that the insured is liable to the third person, such third personis entitled to sue the insurer.1äwphï1.ñët
The right of the person injured to sue the insurer of the party at fault (insured), depends onwhether the contract of insurance is intended to benefit third persons also or only the insured.And the test applied has been this: Where the contract provides for indemnity against liability tothird persons, then third persons to whom the insured is liable, can sue the insurer. Where thecontract is for indemnity against actual loss or payment, then third persons cannot proceedagainst the insurer, the contract being solely to reimburse the insured for liability actuallydischarged by him thru payment to third persons, said third persons' recourse being thus limitedto the insured alone.2
The next question is on the right of the third person to sue the insurer jointly with the insured.The policy requires, as afore-stated, that suit and final judgment be first obtained against theinsured; that only "thereafter" can the person injured recover on the policy; it expressly disallows
suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. Asadverted to before, the query is which procedure to follow — that of the insurance policy or theRules of Court.
The "no action" clause in the policy of insurance cannot prevail over the Rules of Courtprovision aimed at avoiding multiplicity of suits. In a case squarely on the point, AmericanAutomobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action" clausein a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity ofsuits. We quote:
Appellants filed a plea in abatement on the grounds that the suit had been prematurelybrought against the insurance company, and that it had been improperly joined withZunker, as said insurance company, under the terms of the policy, was only liable afterjudgment had been awarded against Zunker. . . .
* * * That plea was properly overruled, because under the laws of Texas a dual suit willalways be avoided whenever all parties can have a fair trial when joined in one suit.Appellee, had he so desired, could have prosecuted his claim to judgment as againstZunker and then have sued on that judgment against the insurance company, but thelaw does not make it imperative that he should do so, but would permit him to dispose ofthe whole matter in one suit.
The rule has often been announced in Texas that when two causes of action areconnected with each other, or grow out of the same transaction, they may be properlyjoined, and in such suit all parties against whom the plaintiff asserts a common or analternative liability may be joined as defendants. . . . Even if appellants had presentedany plea in abatement as to joinder of damages arising from a tort with those arisingfrom a contract, it could not, under the facts of this case, be sustained, for the rule is thata suit may include an action for breach of contract and one for tort, provided they areconnected with each other or grew out of the same transaction.
Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third personsnot a party to the contract, as herein, by a "no action" clause in the contract of insurance.
Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So ordered.
Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.Concepcion, C.J. and Dizon, J., are on leave.
G.R. No. L-69450 November 22, 1988
EASTERN ASSURANCE & SURETY CORPORATION, petitioner,vs.INTERMEDIATE APPELLATE COURT and REPUBLIC OF THE PHILIPPINES (DEPT. OFAGRARIAN REFORM), respondents.
Ferrer, Mariano, Sangalang & Gatdula for petitioner.
FELICIANO, J.:
The Petition at bar seeks a review of the Decision 1 dated 11 December 1984 rendered by thethen Intermediate Appellate Court, in AC-G.R. CV No. 67253.
On 8 January 1976 , the Region 7 (Cebu) Office of respondent Department of Agrarian Reform("DAR") put up for public bidding a job or project consisting of the repair of seven (7) units of(USAID) Willys Mitsubishi/Eisenhower jeeps. Among the bidders was Motor City, an automotiverepair, company, which latter on emerged as the winning bidder.
The winning bid was accompanied by a Proposal Bond 2— required by the DAR of all bidders —in the amount of P33,275.00 and issued by petitioner Eastern Assurance and SuretyCorporation ("Eastern"), as surety, on behalf of Motor City, its principal. The Proposal Bondprovided, in pertinent part:
NOW, THEREFORE, the conditions of this obligation are such that if the above-bounden principal [i.e., Motor City] shall, in the event of his becoming asuccessful bidder in the above proposal: (1) fails to guarantee the true andfaithful performance of the contract in case of award; (2) shall refuse to acceptthe same or (3) shall not answer for any delay and/or default in the execution ofthe contract as provided in the proposal; then the DEPARTMENT OFAGRARIAN REFORM shall be entitled to be indemnified of any loss or damage itmay suffer by reason thereof not to exceed the sum of THIRTY THREETHOUSAND TWO HUNDRED SEVENTY FIVE ONLY (P33,275.00) PESOS,Philippine Currency, otherwise this obligation shall be void and without effect.(Emphasis supplied)
On 31 January 1976, a Contract for Repair of Jeeps 3 was entered into between respondentDAR as owner and Motor City as contractor, the latter obligating itself thereunder as follows:
1. That for and/in consideration of the sum of THIRTY THOUSAND PESOS(P30,000.00) Philippine Currency, which the OWNER agrees to pay unto theCONTRACTOR, the said CONTRACTOR agrees and undertakes to repair theowner's seven (7) units of (USAID) Willys Mitsubishi/Eisenhower Jeeps, whichare more particularly described as follows:
5. That the CONTRACTOR agrees to put up the amount of TEN THOUSANDPESOS (Pl0,000.00) as Performance Bond upon award of the bid;
xxx xxx xxx
8. That the CONTRACTOR agrees to finish the repairs on all seven (7) unitswithin ninety (90) working days, counted from the day of the award of the bid,and should the CONTRACTOR fail to finish the repairs within the said period, he(CONTRACTOR) shall indemnify the OWNER the amount equivalent to 1% ofthe quoted lot price for each day of late delivery.
xxx xxx xxx
(Emphasis supplied)
It turned out, however, that only six (6) out of the seven (7) aforementioned jeeps were repairedfully and delivered promptly to respondent DAR. The seventh unit, bearing Motor No. 70750 andChassis No. 36201, continued to remain undelivered, despite the grant of several extensions infavor of and the issuance on 13 March 1978 of a final letter to Motor City, demanding that thelatter complete the repair and effect delivery of the seventh vehicle.
On 12 July 1978, respondent DAR commenced a suit 4 for specific performance and damagesagainst Motor City. Included there as a co-defendant was petitioner Eastern which, it wasalleged, "had posted the performance bond herewith attached as Annex 'B' undertaking toanswer and guarantee the true and faithful compliance and performance of the [Contract forRepair of Jeeps]."
In an Answer with Cross-Claim 5 petitioner Eastern (defendant below) denied having incurredany liability under the Proposal Bond, alleging that such bond "did not bind answering defendantas [the] same was a mere proposal and not an actual undertaking." That pleading also sought,by way of cross-claim, judgment ordering Motor City to indemnify Eastern in an amountequivalent to whatever the latter would be ordered by the court to pay the complainant plustwenty percent (20%)thereof as attorney's fees. Eastern submitted in support of its cross-claiman Indemnity Agreement, 6 executed in its favor by Antonio Puchadez, who had signed thedocument in his capacity as President and General Manager of Motor City as well as in his ownpersonal capacity.
On 15 February 1980, the trial court rendered a Decision 7, the dispositive portion of which read:
THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of theplaintiffs as follows: directing Motor City to deliver to the plaintiff one (1) unit of(USAID) Willys Mitsubishi/Eisenhower Jeep with Motor No. MD-70750 alreadyrepaired pursuant to the specifications in the "Contract for Repair of Jeeps;"directing Motor City to pay an indemnity equivalent to 1% of P30,000.00 for eachday of late delivery (the period starts from February 1, 1976 until delivery of theunit); in case of default, the payment thereof to be assumed or to be liquidated byEastern Assurance and Surety Corporation but not to exceed P33,275.00.
If eventually Eastern Assurance and Surety Corporation should pay followingdefault by Motor City, then the latter solidarily with Antonio Puchadez shouldreimburse Eastern Assurance Surety Corporation all the amounts paid by thelatter to the plaintiff with 20% of the amount as attorney's fees. With costs againstboth Motor City and Eastern Assurance and Surety Corporation.
SO ORDERED.
On appeal, the ruling of the trial court was affirmed with a slight modification. The appellatecourt held that the one percent (1%) indemnity charge for late delivery stipulated under therepair contract, "shall be [computed] from March 3, 1978" and not 1 February 1976.
The instant Petition for Review, in essence, raises only one (1) issue; whether or not petitionerEastern may be held liable to respondent DAR for the contractual breach committed here byMotor City.
The broadest argument of petitioner Eastern is that it incurred no liability under the ProposalBond after the Contract for Repair of Jeeps had been entered into between the DAR and MotorCity. Eastern is here relying upon the difference, in conceptual terms, between a proposal bondand a performance bond. A proposal or bid bond has for its purpose to assure the owner of theproject of the good faith of the bidder and that the bidder will enter into a contract with theproject owner should his proposal be accepted. A performance bond is, upon the other handdesigned to afford the project owner security that the bidder, now the contractor, will faithfullycomply with the requirements of the contract awarded to the contractor and make gooddamages sustained by the project owner in case of the contractor's failure to so perform. 8
Eastern's argument is, however, clearly too broad to be helpful; for liability under a surety bondis determined not upon the basis of its abstract nature or its title or caption but rather inaccordance with the particular terms and conditions set out in such bond. 9 It is thus necessaryto look into the actual terms of the Proposal Bond in question.
Thereunder, liability on the part of petitioner Eastern as surety would be incurred upon thehappening of anyone of the following three (3) events: the failure or refusal of Motor City asprincipal (1) "to guarantee the true and faithful performance of the contract in case of an award;(2) "to accept the [award]; and (3) to "answer for any delay and/or default in the execution of thecontract as provided in the proposal." There is no dispute that the first condition refers to failureto post a performance bond in the amount of P10,000.00; there is also no dispute that Eastern'sprincipal did not in fact post any such performance bond. There should therefore be no questionthat there was a breach of condition No.1 of the Proposal Bond. It is urged by petitioner Easternthat the beneficiary of the bond, public respondent DAR, had waived the stipulation in theRepair Contract providing for the posting of such bond by entering into the contract with MotorCity although the latter had not posted the P10,000.00 Performance Bond. We do not believethat the DAR had waived the breach of this condition. Certainly there was no express waiver.Implied waiver of a contractual stipulation for the giving of security or collateral is not favoredand has to be clearly shown. There is also no dispute that the second condition was notbreached for Motor City did accept the award of the contract and did enter into the Contract forRepair of Jeeps.
In respect of the third condition, i.e., failure of Motor City to answer for delay or default "in theexecution of the contract as provided in the proposal", petitioner Eastern contends that thisprovision refers merely to the execution, that is, the signing or conclusion of the Contract forRepair of Jeeps, and not to the performance or implementation or carrying out of the provisionsof such contract. There are at least two (2) difficulties with this argument of Eastern. First, theordinary or dictionary meaning of "to execute" a contract (and especially to "execute a contractas provided in the proposal") is or includes:
... 1: to put into effect: carry out fully and completely: PERFORM, EFFECT ... 3:to give effect to : do what is provided or required ... : perform the requirements of: perform the acts necessary to the effectiveness of ... 6 : COMPLETE ... :
perform what is required to give validity to (as by signing and perhaps sealingand delivering) ... . 10
Thus, the term "execution" is understood ordinarily and literally as referring to both;
... 1 : the act or process of executing : PERFORMANCE, ACCOMPLISHMENT ...3 ...c: [and] the act of signing, sealing, and delivering a legal instrument or givingit the forms required to make it valid ... . 11
Thus, the ordinary meaning of execution is not limited to the signing or concluding of a contractbut includes as well the performance or implementation or accomplishment of the terms andconditions of such contract. Second, if one assumes, for purposes of analysis only, thatpetitioner Eastern's contention is correct, then the second condition in the Proposal Bond(refusal "to accept [the contract]") and the third condition (failure to "answer for any delay and/ordefault in the execution of the contract as provided in the proposal") must be taken to refer tothe same thing or circumstance. But either the second or the third condition would then have tobe regarded as superfluous and meaningless, a result that must be abjured in view of theprinciple of effectiveness in the interpretation of contracts.
When viewed in its entirety, the Proposal Bond may be seen to be not merely a proposal (or bid)bond but also a performance bond. For it covers not merely the acceptance of the award andthe conclusion of a contract but also the carrying out or performance of the provisions of thecontract. We note also that the P10,000.00 Performance Bond explicitly required by paragraph5 of the Contract for Repair of Jeeps is lower in face amount than the Proposal Bond which hasa maximum value or face amount of P33,275.00. If petitioner Eastern's argument that its liabilityunder the Proposal Bond ceased the moment the Repair Contract was entered into is correct,then paragraph 5 of that Contract would be reduced to nonsense: for it must be nonsensical torequire a proposal bond in an amount 300% more than the amount of the required performancebond, if the proposal bond were to become functus oficio the moment the contract was legallyentered into. Upon the other hand, the requirement of posting of a performance bond ofP10,000.00 is quite understandable if it be understood as simply additional security for thecarrying out of the terms of the contract, that is, additional to the Proposal Bond. 12
Finally, we note that the Proposal Bond is set out in a printed contract form of petitioner Eastern.The three (3) circumstances occurrence of which would trigger off the liability of Eastern underthe bond, appear to be standard stipulations imposed by petitioner upon all persons seeking tosecure proposal bonds from Eastern. To this extent, the Proposal Bond is a contract ofadhesion, having been prepared solely by Eastern. Accordingly, any ambiguity or obscurity thatmay be found to infect the terms of the Proposal Bond, must be construed against Eastern. 13
In sum, we hold that petitioner Eastern's liability under the Proposal Bond accrued the momentthe principal obligor, Motor City, failed to post the P10,000.00 Performance Bond and incurredin delay and eventually defaulted in the repair and delivery of the seventh jeep unit, part of thesubject matter of the Contract for Repair of Jeeps with respondent DAR.
WHEREFORE, the Petition for Review is DENIED for lack of merit. The Decision dated 11December 1984 of the then Intermediate Appellate Court in A.C.— G.R. CV 67523 is herebyAFFIRMED with the modification that the one percent (1%) indemnity charge per day of delay indelivery provided for in the Contract for Repair of Jeeps shall be computed from 13 March 1978
(not 3 March 1978), the date of last demand. Petitioner's liability for such indemnity charge shallnot exceed the face amount of the Proposal Bond (P33,275.00). Costs against petitioner.
Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur.
Involved in this appeal is no more than the procedure to hold a surety hable upon a counter-bond posted by it for the release of an automobile seized from a defendant in a replevin actionunder a writ issued by the Trial Court at the plaintiffs instance.
The suit for the replevy of the car was brought by Antonio Zaragoza in the Court of FirstInstance at Quezon City 1 against Ma. Angela Fidelino and/or John Doe. His complaint allegedthat the car had been sold to Fidelino but the latter had failed to pay the price in the mannerstipulated in their agreement. The car was taken from Fidelino's possession by the sheriff on thestrength of a writ of delivery 2 but was promptly returned to her on orders of the Court when asurety bond for the car's releases 3 was posted in her behalf "by Mabini Insurance & FidelityCo., Inc.
The action resulted in a judgment 4 for the plaintiff the dispositive part of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and againstthe defendant, ordering the latter to pay to the plaintiff the sum of P19,417.46,representing the balance of the purchase price of the car sold including interestthereon, collection charges, notarial fees and sheriffs fees and expenses in connwith the recovery of the vehicle sold; to pay liquidated damage in the amount ofP6,471.84 equivalent to 33 1/3 % of the balance outstanding and to pay the costsof this suit.
Within the reglementary period for taking an appeal, Zaragoza moved for the amendment of thedecision so as to include the surety, Mabini Insurance & Fidelity Co., Inc., as a party solidarilyliable with the defendant for the payment of the sums awarded in the judgment. 5 Despite havingbeen duly furnished with copies of the motion and the notice of hearing, neither Fidelino nor thesurety company filed any opposition to the motion, nor did either of them appear at the hearingthereof. 6 The Trial Court deemed the motion meritorious and granted it. Its Order of April 16,1968 7 decreed the following:
WHEREFORE, the motion is hereby granted, and the dispositive portion of thedecision in this case is hereby amended to read as follows:
WHEREFORE, judgment is hereby rendered in favor of theplaintiff and against the defendant, ordering defendant MariaAngela Fidelino and her surety, the Mabini Insurance & FidelityCo., Inc., to pay jointly and severally to the plaintiff the sum ofP19,417.46, representing the balance of the purchase price of thecar sold, including interests thereon, collection charges, notarialfees and sheriffs fees and expenses in connection with therecovery of the vehicle sold, liquidated damages in the amount ofP6,471.84 equivalent to 33 1/3% of the balance outstanding andto pay the costs of this suit.
No motion for reconsideration was filed or appeal taken by the defendant Fidelino as regardseither the original or the amended decision. It was the surety which presented a motion forreconsideration, and upon its denial, appealed to this Court. 8 It ascribes to the Court a quo, asmight be expected, reversible error in amending the judgment in the manner just described. Itargues that the Lower Court never acquired jurisdiction over it since no summons was everserved on it, its filing of a counter-bond not being equivalent to voluntary submission to theCourt's jurisdiction; Zaragoza failed to make a proper application with notice before finality of thedecision as provided by Section 20, Rule 57 of the Rules of Court; and when the orderamending the judgment was promulgated, the judgment had already become final, the runningof the period of appeal not having been suspended by Zaragoza's motion to amend decision, 9
and so, the Court no longer had authority to amend it on April 16, 1968.
The appellant surety deposits quite correctly, that the situation at bar is governed by Section 10,Rule 60, in relation to Section 20, Rule 57, of the Rules of Court. Section 10, Rule 60, providesas follows:
SEC. 10. Judgment to include recovery against sureties. — The amount, if any,to be awarded to either party upon any bond filed by the other in accordance withthe provisions of this rule, shag be claimed, ascertained, and granted under thesame procedure as prescribed in section 20 of Rule 57.
And Section 20, Rule 57 reads as follows:
SEC. 20. Claim for damages on account of illegal attachment. — If the judgmenton the action be in favor of the party against whom attachment was issued, hemay recover, upon the bond given or deposit made by the attaching creditor, anydamages resulting from the attachment. Such damages may be awarded onlyupon application and after proper hearing, and shall be included in the finaljudgment. The application must be filed before the trial or before appeal isperfected or before the judgment becomes executory, with due notice to theattaching creditor and his surety or sureties, setting forth the facts showing hisright to damages and the amount thereof
xxx xxx xxx 10
It would seem at first blush that Section 20, Rule 57 above quoted is not relevant. Its title andfirst sentence speak [1] of an illegal attachment, and [2] of a judgment "in favor of the partyagainst whom (said illegal) attachment was issued." In the case at bar, the writ of delivery wasnot illegal; and the judgment was for, not against, the party in whose favor the writ of delivery
was issued. In other words, it would appear that for Section 20, Rule 57 to apply to the instantaction," 11 the judgment should have been "in favor of" defendant Fidelino (the party "againstwhom" the writ of delivery was issued). This however was not the case. The judgment was infact against, NOT in favor of Fidelino.
It thus sums indeed that the first sentence of Section 20 precludes recovery of damages by aparty against whom an attachment is issued and enforced if the judgment be adverse to him.This is not however correct. Although a party be adjudged liable to another, ff it be establishedthat the attachment issued at the latter's instance was wrongful and the former had sufferedinjury thereby, recovery for damages may be had by the party thus prejudiced by the wrongfulattachment, even if the judgment be adverse to him. Slight reflection will show the validity of thisproposition. For it is entirely possible for a plaintiff to have a meritorious cause of action againsta defendant but have no proper ground for a preliminary attachment. In such a case, if theplaintiff nevertheless applies for and somehow succeeds in obtaining an attachment, but issubsequently declared by final judgment as not entitled thereto, and the defendant shows thathe has suffered damages by reason of the attachment, there can be no gainsaying thatindemnification is justly due the latter. So has this Court already had occasion to rule, in Baronv. David, 51 Phil. 1, and Javellana v. D.O. Plaza Enterprises, 32 SCRA 26].
Be all this as it may, the second and third sentences of Section 20, Rule 57, in relation toSection 10, Rule 60, are unquestionably relevant to the matter of the surety's liability upon acounter-bond for the discharge of a writ of delivery in a replevin suit. 12 Under Section 10, Rule60 (which makes reference "to either party upon any bond filed by the other in accordance withthe provisions of this rule" [60]), the surety's liability for damages upon its counter-bond should"W claimed, ascertained, and granted under the same procedure as prescribed in section 20 ofRule 57; 13 and andd section 20 pertinently decrees that '(s)uch damages may be awarded onlyupon application and after proper hearing, and shall be included in the final judgment .. (whichmeans that the (application must be filed before the trial or before appeal is perfected or beforethe judgment becomes executory, with due notice to the attaching creditor and his surety orsureties, setting forth the facts showing his right to damages and the amount thereof." Statedotherwise, to hold a surety on a counter-bond liable, what is entailed is (1) the filing of anapplication therefor with the Court having jurisdiction of the action; (2) the presentation thereofbefore the judgment becomes executory (or before the trial or before appeal is perfected); (3)the statement in said application of the facts showing the applicant's right to damages and theamount thereof, (4) the giving of due notice of the application to the attaching creditor and hissurety or sureties; and (5) the holding of a proper hearing at which the attaching creditor and thesureties may be heard on the application. These requisites apply not only in cases of seizure ordelivery under Rule 60, but also in cases of preliminary injunctions under Rule 58, 14 andreceiverships under Rule 59. 15
It should be stressed, however, that enforcement of a surety's liability on a counter-bond givenfor the release of property seized under a writ of preliminary attachment is governed, not by saidSection 20, but by another specifically and specially dealing with the matter; Section 17 of Rule57, which reads as follows:
SEC. 17. When execution returned unsatiated, recovery had upon bond. — If theexecution be returned unsatisfied in whole or in part, the surety or sureties onany counter-bond given pursuant to the provisions of this rule to secure thepayment of the judgment shall become charged on such counter-bond, andbound to pay to the judgment creditor upon demand, the amount due under the
judgment, which amount may be recovered from such surety or sureties afternotice and summary hearing in the same action."
The record shows that the appellant surety company bound itself "jointly and severally" with thedefendant Fidelino "in the sum of PESOS FORTY EIGHT THOUSAND ONLY (P48,000.00),Philippine Currency, which is double the value of the property stated in the affidavit of theplaintiff, for the delivery thereof if such delivery is adjudged, or for the payment of such sum tohim as may be recovered against the defendant and the costs of the action. 16
This being so, the appellant surety's liability attached upon the promulgation of the verdictagainst Fidelino. All that was necessary to enforce the judgment against it was, as aforestated,an application therefor with the Court, with due notice to the surety, and a proper hearing, i.e.,that it be formally notified that it was in truth being made responsible for its co-principal'sadjudicated prestation (in this case, the payment of the balance of the purchase price of theautomobile which could no longer be found and therefore could not be ordered returned), 17 andan opportunity, at a hearing called for the purpose, to show to the Court why it should not beadjudged so responsible. A separate action was not necessary; it was in fact proscribed. 18 Andagain, the record shows substantial compliance with these basic requirements, obviouslyimposed in deference to due process.
Appellant surety undoubtedly received copy of Zaragoza's Motion to Amend Decision. 19 Thatmotion made clear its purpose—that the decision "be amended, or an appropriate order beissued, to include .. (the surety) as a party jointly and severally liable with the defendant to theextent of the sums awarded in the decision to be paid to plaintiff'-as well as the basis thereof-thecounter-bond filed by it by the explicit terms of which it bound itself "jointly and severally (withthe defendant) .. for the payment of such sum to him (plaintiff) as may be recovered against thedefendant and the cost of the action." The motion contained, at the foot thereof, a "notice thaton Saturday, March 23, 1968, at 8:30 a.m., or as soon thereafter as the matter may be heard,the .. (plaintiffs counsel would) submit the foregoing motion for the consideration of the Court."And likewise indubitable is the fact that, as the Court a quo has observed, "neither .. Fidelinoscounsel nor the surety company filed any opposition to said motion, nor did they appear in thehearing of the motion on March 23, 1968 .. (for which reason) the motion was deemedsubmitted for resolution." 20 The surety's omission to appear at the hearing despite notice ofcourse constituted a waiver of the right to be heard on the matter.
The surety's theory that never having been served with summons, it never came under theLower Court's jurisdiction, is untenable. The terms of the counter-bond voluntarily filed by it indefendant's behalf leave no doubt of its assent to be bound by the Court's adjudgment of thedefendant's liability, i.e., its acceptance of the Court's jurisdiction. For in that counterbond, itimplicitly prayed for affirmative relief; the release of the seized car, in consideration of which itexplicitly bound itself solidarily with said defendant to answer for the delivery of the car subjectof the action "if such delivery is adjudged," i.e., commanded by the Court's judgment, or "for thepayment of such sum as may be recovered against the defendant and the costs of the action,"the reference to a possible future judgment against the defendant, and necessarily against itself,being certain and unmistakable. The filing of that bond was clearly an act of voluntarysubmission to the Court's authority, which is one of the modes for the acquisition of jurisdictionover a party. 21
The same theory as that espoused by appellant surety in this case was, in substance, passedupon and declared to be without merit in a 1962 decision of this Court, Dee v. Masloff. 22 There,
a surety on a counter-bond given to release property from receivership, also sought to avoidliability by asserting that it was not a party to the case, had never been made a party, and hadnot been notified of the trial. The Court overruled the contention, and upheld the propriety of theamendment of the judgment which ordered the appellant surety company to pay — to the extentof its bond and jointly and severally with defendant — the judgment obligation. The Court ruledthat since such "amended judgment .. (had been) rendered after the appellant surety companyas party jointly and severally liable with the defendant .. for the damages already awarded to theappellees, to which the appellant surety company filed its "Opposition" and "Rejoinder" to the"Reply to Opposition filed by the appellees, without putting in issue the reasonableness of theamount awarded for damages but confining itself to the defense in avoidance of liability on itsbond that it was not a party to the case and never made a party therein and was not notified ofthe trial of the case, and that the appellees were guilty of laches, the requirement of hearing wasfully satisfied or complied with; .. (in any case,) appellant surety company never prayed for anopportunity to present evidence in its behalf."
The appellant surety's last argument that by the time the Court amended its decision, thedecision had already become final, and therefore unalterable, is also untenable. The motion foramendment of the decision was unquestionably in the nature of a motion for reconsiderationunder Section 1 (c), Rule 37 of the Rules of Court which, having been filed within "the period forperfecting an appeal," had the effect of interrupting said period of appeal. 23
WHEREFORE, judgment is hereby rendered AFFIRMING in toto the Decision of the Court aquo dated February 12, 1968, as amended by the Order of April 16, 1968. Costs against theappellant surety.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.
G.R. No. 89020 May 5, 1992
STRONGHOLD INSURANCE CO., INC., petitioner,vs.COURT OF APPEALS, respondent.
Gascon, Garcia & Associates for petitioner.
Castillo, Laman, Tan & Pantaleon for Northern Motors, Inc.
PARAS, J.:
In this petition for review on certiorari, petitioner Stronghold Insurance Co., Inc. assails thedecision * of the Court of Appeals in CA-G.R. CV No. 16154 affirming the order of the RegionalTrial Court, Branch 167, Pasig, Metro Manila in its Civil Case No. 52177. The dispositive portionof this order of the Trial court reads:
WHEREFORE, in view of the foregoing consideration, the claim of the defendantagainst SICI Bond No. 11652 of the Stronghold Insurance Company, Inc. isfound to have been established and said surety company is adjudged liable fordamages suffered by the defendant as found by this Court in its decision dated
June 9, 1986, to the extent of the amount of the replevin bond, which isP42,000.00 (p. 20, Rollo)
The factual antecedents are not disputed.
On March 21, 1985, Leisure Club, Inc. filed Civil Case No. 52177 against Northern Motors Inc.for replevin and damages. It sought the recovery of certain office furnitures and equipments. Inan order dated March 22, 1985, the lower court ordered the delivery of subject properties toLeisure Club Inc. subject to the posting of the requisite bond under Section 2, Rule 60 of theRules of Court. Accordingly, Leisure Club Inc. posted a replevin bond (SICI Bond No. 11652)dated March 25, 1985 in the amount of P42,000.00 issued by Stronghold Insurance Co., Inc. Indue course, the lower court issued the writ of replevin, thereby enabling Leisure Club Inc. totake possession of the disputed properties.
Northern Motors Inc. filed a counterbond for the release of the disputed properties. However,efforts to recover these properties proved futile as Leisure Club Inc. was never heard of again.
For failure to appear in the pre-trial of the case, Leisure Club, Inc. was declared non-suited.Northern Motors Inc. presented its evidence ex-parte and on June 9, 1986, the lower courtrendered its decision in favor of Northern Motors Inc., the dispositive portion of which reads —
PREMISE CONSIDERED, the instant petition is hereby dismissed and on thecounterclaim, plaintiff is ordered to pay defendant the following:
a) the actual value of the property sold at public auction by defendant, andrepossessed by plaintiff, of P20,900.00;
b) exemplary damages of P10,000.00;
c) attorney's fees in the amount of P10,000.00; and
d) costs of suit.
SO ORDERED. (p. 21, Rollo)
In the said decision, the lower court ruled that:
1. Northern Motors Inc. had rightful ownership and right of possession over thesubject properties.
2. Leisure Club Inc. is a sister company of Macronics Inc., a debtor of NorthernMotors Inc., and former owner of these properties.
3) Under the circumstances, Leisure Club Inc. instituted the action for replevin aspart of a scheme to spirit away these properties and pave the way for the evasionof lawful obligations by its sister company. (Decision dated June 4, 1986, p. 4).
On July 3, 1986, Northern Motors Inc. filed a "Motion for Issuance of Writ of Execution AgainstBond of Plaintiff's Surety", pursuant to Section 10, Rule 20 of the Rules of Court, which wastreated by the lower court as an application for damages against the replevin bond.
At the hearing of the said motion as well as the opposition thereto filed by Stronghold InsuranceCo., Inc., Northern Motors Inc. presented one witness in the person of its former managerClarissa G. Ocampo, whose testimony proved that:
(a) Northern Motors Inc., and Macronics Marketing entered into a leasedagreement wherein the latter leased certain premises from the former.
(b) Macronics failed to pay its bills to Northern Motors Inc., so the latter wasforced to terminate the lease.
(c) Because of Macronics' unpaid liabilities to Northern Motors Inc., the latter wasforced to sell off the former's properties in an auction sale wherein NorthernMotors Inc. was the buyer. Macronics was duly notified of the sale.
(d) These properties sold were the sole means available by which NorthernMotors Inc. could enforce its claim against Macronics. (TSN dated January 30,1987; pp. 94-95, Rollo)
Stronghold Insurance Co., Inc. did not cross-examine the said witness. Instead it asked forcontinuance in order to present its own witness. Stronghold, however, never presented anywitness.
On July 21, 1987, the lower court issued its now disputed Order finding Stronghold liable underits surety bond for the damages awarded to Northern Motors Inc. in the June 8, 1986 Decision.In the said Order, the lower court held:
Submitted for resolution is the "Motion for Issuance of Writ of Execution AgainstBond of Plaintiff's Surety" filed by the defendant and the opposition thereto filedby the Stronghold Insurance Company, Inc.
In the decision rendered by the Court on June 9, 1977, the defendant NorthernMotors, Inc. was the prevailling party and the judgment in its favor ordered theplaintiff to pay the actual value of the property sold at public auction by thedefendant and repossessed by plaintiff in the amount of P20,900.00, which is infavor of the plaintiff if the latter is found not entitled to the writ of replevin earlierissued against the defendant.
The thrust of the opposition of the bonding company is to the effect that themotion for a writ of execution is not the proper remedy but an application againstthe bond should have been the remedy pursued. The surety company contendsthat it is not a party to the case and that the decision clearly became final andexecutory and, therefore, is no longer liable on the bond. The surety companylikewise raised the issue as to when the decision became final and executory.Moreover, the surety company avers that the defendant failed to prove anydamage by reason of the insurance of replevin bond.
Sec. 20 of Rule 57, in relation to Sec. 10 of Rule 60, provides that the partyagainst whom the bond was issued may recover on the bond for any damageresulting from the issuance of the bond upon application and hearing. Theapplication must be filed either: before trial; before appeal is perfected; beforejudgment becomes final and executory.
Being the prevailing party, it is undeniable that the defendant is entitled torecover against the bond. The application for that propose was made before thedecision became final and before the appeal was perfected. Both the prevailingand losing parties may appeal the decision. In the case of the plaintiff appearsthat its counsel did not claim the decision which was sent by registered mail onJune 20, 1986 and filed the motion for execution against the bond on July 3,1986. Hence, with respect to the defendant the motion against the bond was filedbefore any appeal was instituted and definitely on or before the judgmentbecame final.
Although the claim against the bond was denominated as a motion for issuanceof a writ of execution, the allegations are to the effect that the defendant isapplying for damages against the bond. In fact, the defendant invokes Sec. 10,Rule 60, in relation to Sec. 20, Rule 57, Rules of Court. Evidently, therefore, thedefendant is in reality claiming damages against the bond.
It is undisputed that the replevin bond was obtained by the plaintiff to answer forwhatever damages the defendant may suffer for the wrongful issuance of thewrit. By virtue of the writ, the plaintiff took possession of the auctioned properties.Despite a redelivery bond issued by the defendant, the plaintiff refused to returnthe properties and in the fact repossessed the same. Clearly, defendant suffereddamages by reason of the wrongful replevin, in that it has been deprived of theproperties upon which it was entitled to enforce its claim. Moreover, the extent ofthe damages has been qualified in the decision dated June 9, 1986.
(pp. 21-23, Rollo)
This Order was appealed by Stronghold to the Court of Appeals. In a decision dated July 7,1989, the Court of Appeals affirmed the order of the lower court. This decision is now thesubject of the instant petition.
Petitioner raises the following assignment of error:
1. The lower court erred in awarding damages against herein petitioner despitecomplete absence of evidence in support of the application.
2. The lower court erred in just adopting the dispositive portion of the decisiondated June 7, 1986 as basis for the award of damages against herein petitioner.
3. The lower court erred in awarding exemplary damages in favor of NorthernMotors, Inc. and against petitioner Stronghold Insurance Co., Inc.
4. The lower court erred in awarding the attorney's fees of P10,000.00 asdamages against the bond.
(pp. 10-11, Rollo)
We find no merit in the petition.
In the case of Visayan Surety & Insurance Corp. vs. Pascual, 85 Phil. 779, the Court explainedthe nature of the proceedings to recover damages against a surety, in this wise:
In such case, upon application of the prevailing party, the court must order thesurety to show cause why the bond should not respond for the judgment ofdamages. If the surety should contest the reality or reasonableness of thedamages claimed by the prevailing party, the court must set the application andanswer for hearing. The hearing will be summary and will be limited to such newdefense, not previously set up by the principal, as the surety may allege and offerto prove. (Id. at 785; emphasis supplied) (p. 96, Rollo)
Stronghold Insurance Co., Inc., never denied that it issued a replevin bond. Under the terms ofthe said bond, Stronghold Insurance together with Leisure Club Inc. solidarily bound themselvesin the sum of P42,000 —
(a) for the prosecution of the action,
(b) for the return of the property to the defendant if the return thereof beadjudged, and
(c) for the payment of such sum as may in the cause be recovered against theplaintiff and the costs of the action.
In the case at bar, all the necessary conditions for proceeding against the bond are present, towit:
(i) the plaintiff a quo, in bad faith, failed to prosecute the action, and afterrelieving the property, it promptly disappeared;
(ii) the subject property disappeared with the plaintiff, despite a court order fortheir return; and
(iii) a reasonable sum was adjudged to be due to respondent, by way of actualand exemplary damages, attorney's fees and costs of suit.(p. 63, Rollo)
On the propriety of the award for damages and attorney's fees, suffice it to state, that ascorrectly observed by the Court of Appeals, the record shows that the same is supported bysufficient evidence. Northern Motors proved the damages it suffered thru evidence presented inthe hearing of the case itself and in the hearing of its motion for execution against the replevinbond. No evidence to the contrary was presented by Stronghold Insurance Co., Inc. in its behalf.It did not impugn said award of exemplary damages and attorney's fees despite having everyopportunity to do so.
As correctly held by respondent Court of Appeals ––
Stronghold Insurance, Inc. has no ground to assail the awards against it in thedisputed Order. Unless it has a new defense, it cannot simplistically dissociateitself from Leisure Club, Inc. and disclaim liability vis-a-vis the findings made inthe Decision of the lower court dated June 9, 1986. Under Section 2, Rule 60 thebond it filed is to ensure "the return of the property to the defendant if the returnthereof be adjudged, and for the payment to the defendant of such sum as hemay recover from the plaintiff in the action." The bond itself ensures, inter alia,"the payment of such sum as may in the cause be recovered against the plaintiffand the cost of the action." (pp. 24-25, Rollo)
Beside, Leisure Club Inc.'s act of filing a replevin suit without the intention of prosecuting thesame but for the mere purpose of disappearing with the provisionally recovered property inorder to evade lawfully contracted obligations constitutes a wanton, fraudulent, reckless,oppressive and malevolent breach of contract which justifies award of exemplary damagesunder Art. 2232 of the Civil Code.
The attorney's fees awarded in favor of Northern Motors Inc. are likewise warranted underArticle 2208 of the New Civil Code.
In any event, the trial court has decided with finality that the circumstances justifying the awardof exemplary damages and attorney's fees exist. The obligation of Stronghold Insurance Co.,Inc., under the bond is specific. It assures "the payment of such sum as may in the cause berecovered against the plaintiff, and the costs of the action." (emphasis supplied)
WHEREFORE, the petition is DENIED for lack of merit. No costs.
SO ORDERED.
Melencio-Herrera, Padilla, Regalado and Nocon, JJ., concur.
G.R. No. 107062 February 21, 1994
PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner,vs.THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO, INC., respondents.
Ocampo, Dizon & Domingo and Rey Nathaniel C. Ifurung for petitioner.
A.M. Sison, Jr. & Associates for private respondent.
NOCON, J.:
Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid to get afavorable decision from the Regional Trial Court and then again in the Court of Appeals. 1 Theseare non-appearance during the pre-trial despite due notice, and non-payment of docket feesupon filing of its third-party complaint. Just how strict should these rules be applied is a crucialissue in this present dispute.
Petitioner, Interworld Assurance Corporation (the company now carries the corporate namePhilippine Pryce Assurance Corporation), was the butt of the complaint for collection of sum ofmoney, filed on May 13, 1988 by respondent, Gegroco, Inc. before the Makati Regional TrialCourt, Branch 138. The complaint alleged that petitioner issued two surety bonds (No. 0029,dated July 24, 1987 and No. 0037, dated October 7, 1987) in behalf of its principal SagumGeneral Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONEMILLION (1,000,000.00) PESOS, respectively.
On June 16, 1988, summons, together with the copy of the complaint, was served on petitioner.Within the reglementary period, two successive motions were filed by petitioner praying for atotal of thirty (30) days extention within which to file a responsible pleading.
In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner admitted havingexecuted the said bonds, but denied liability because allegedly 1) the checks which were to payfor the premiums bounced and were dishonored hence there is no contract to speak of betweenpetitioner and its supposed principal; and 2) that the bonds were merely to guarantee paymentof its principal's obligation, thus, excussion is necessary. After the issues had been joined, thecase was set for pre-trial conference on September 29, 1988. the petitioner received its noticeon September 9, 1988, while the notice addressed to its counsel was returned to the trial courtwith the notation "Return to Sender, Unclaimed." 2
On the scheduled date for pre-trial conference, only the counsel for petitioner appeared whileboth the representative of respondent and its counsel were present. The counsel for petitionermanifested that he was unable to contract the Vice-President for operations of petitioner,although his client intended to file a third party complaint against its principal. Hence, the pre-trial was re-set to October 14, 1988. 3
On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party Complaint" withthe Third-Party Complaint attached. On this same day, in the presence of the representative forboth petitioner and respondent and their counsel, the pre-trial conference was re-set toDecember 1, 1988. Meanwhile on November 29, 1988, the court admitted the Third PartyComplaint and ordered service of summons on third party defendants. 4
On scheduled conference in December, petitioner and its counsel did not appearnotwithstanding their notice in open court. 5 The pre-trial was nevertheless re-set to February 1,1989. However, when the case was called for pre-trial conference on February 1, 1989,petitioner was again nor presented by its officer or its counsel, despite being duly notified.Hence, upon motion of respondent, petitioner was considered as in default and respondent wasallowed to present evidence ex-parte, which was calendared on February 24, 1989. 6 Petitionerreceived a copy of the Order of Default and a copy of the Order setting the reception ofrespondent's evidence ex-parte, both dated February 1, 1989, on February 16, 1989. 7
On March 6, 1989, a decision was rendered by the trial court, the dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and againstthe defendant Interworld Assurance Corporation to pay the amount ofP1,500,000.00 representing the principal of the amount due, plus legal interestthereon from April 7, 1988, until date of payment; and P20,000.00 as and forattorney's fees. 8
Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989, having beendenied it elevated its case to the Court of Appeals which however, affirmed the decision of thetrial court as well as the latter's order denying petitioner's motion for reconsideration.
Before us, petitioner assigns as errors the following:
I. The respondent Court of Appeals gravely erred in declaring that the case wasalready ripe for pre-trial conference when the trial court set it for the holdingthereof.
II. The respondent Court of Appeals gravely erred in affirming the decision of thetrial court by relying on the ruling laid down by this Honorable Court in the case ofManchester Development Corporation v. Court of Appeals, 149 SCRA 562, anddisregarding the doctrine laid down in the case of Sun Insurance Office, Ltd.(SIOL) v. Asuncion, 170 SCRA 274.
III. The respondent Court of Appeals gravely erred in declaring that it would beuseless and a waste of time to remand the case for further proceedings asdefendant-appellant has no meritorious defense.
We do not find any reversible error in the conclusion reached by the court a quo.
Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since the lastpleading, which was supposed to be the third-party defendant's answer has not been filed, thecase is not yet ripe for pre-trial. This argument must fail on three points. First, the trial courtasserted, and we agree, that no answer to the third party complaint is forthcoming as petitionernever initiated the service of summons on the third party defendant. The court further said:
. . . Defendant's claim that it was not aware of the Order admitting the third-partycomplaint is preposterous. Sec. 8, Rule 13 of the Rules, provides:
Completeness of service — . . . Service by registered mail iscomplete upon actual receipt by the addressee, but if he fails toclaim his mail from the post office within five (5) days from thedate of first notice of the postmaster, service shall take effect atthe expiration of such time. 9
Moreover, we observed that all copies of notices and orders issued by the court for petitioner'scounsel were returned with the notation "Return to Sender, Unclaimed." Yet when he chose to,he would appear in court despite supposed lack of notice.
Second, in the regular course of events, the third-party defendant's answer would have beenregarded as the last pleading referred to in Sec. 1, Rule 20. However, petitioner cannot justdisregard the court's order to be present during the pre-trial and give a flimsy excuse, such asthat the answer has yet to be filed.
The pre-trial is mandatory in any action, the main objective being to simplify, abbreviate andexpedite trial, if not to fully dispense with it. Hence, consistent with its mandatory character theRules oblige not only the lawyers but the parties as well to appear for this purpose before the
Court 10 and when a party fails to appear at a pre-trial conference he may be non-suited orconsidered as in default. 11
Records show that even at the very start, petitioner could have been declared as in defaultsince it was not properly presented during the first scheduled pre-trial on September 29, 1988.Nothing in the record is attached which would show that petitioner's counsel had a specialauthority to act in behalf of his client other than as its lawyer.
We have said that in those instances where a party may not himself be present at the pre-trial,and another person substitutes for him, or his lawyer undertakes to appear not only as anattorney but in substitution of the client's person, it is imperative for that representative or thelawyer to have "special authority" to enter into agreements which otherwise only the client hasthe capacity to make. 12
Third, the court of Appeals properly considered the third-party complaint as a mere scrap ofpaper due to petitioner's failure to pay the requisite docket fees. Said the court a quo:
A third-party complaint is one of the pleadings for which Clerks of court ofRegional Trial Courts are mandated to collect docket fees pursuant to Section 5,Rule 141 of the Rules of Court. The record is bereft of any showing tha(t) theappellant paid the corresponding docket fees on its third-party complaint. Unlessand until the corresponding docket fees are paid, the trial court would not acquirejurisdiction over the third-party complaint (Manchester Development Corporationvs. Court of Appeals, 149 SCRA 562). The third-party complaint was thusreduced to a mere scrap of paper not worthy of the trial court's attention. Hence,the trial court can and correctly set the case for pre-trial on the basis of thecomplaint, the answer and the answer to the counterclaim. 13
It is really irrelevant in the instant case whether the ruling in Sun Insurance Office, Ltd. (SIOL) v.Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was applied. Sun Insurance andManchester are mere reiteration of old jurisprudential pronouncements on the effect of non-payment of docket fees. 16 In previous cases, we have consistently ruled that the court cannotacquire jurisdiction over the subject matter of a case, unless the docket fees are paid.
Moreover, the principle laid down in Manchester could have very well been applied in SunInsurance. We then said:
The principle in Manchester [Manchester Development Corp. v. C.A., 149 SCRA562 (1987)] could very well be applied in the present case. The pattern and theintent to defraud the government of the docket fee due it is obvious not only inthe filing of the original complaint but also in the filing of the second amendedcomplaint.
xxx xxx xxx
In the present case, a more liberal interpretation of the rules is called forconsidering that, unlike Manchester, private respondent demonstrated hiswillingness to abide by the rules by paying the additional docket fees as required.The promulgation of the decision in Manchester must have had that soberinginfluence on private respondent who thus paid the additional docket fee as
ordered by the respondent court. It triggered his change of stance by manifestinghis willingness to pay such additional docket fees as may be ordered. 17
Thus, we laid down the rules as follows:
1. It is not simply the filing of the complaint or appropriate initiatory pleading, butthe payment of the prescribed docket fee, that vests a trial court with jurisdictionover the subject-matter or nature of the action. Where the filing of the initiatorypleading is not accompanied by payment of the docket fee, the court may allowpayment of the fee within a reasonable time, but in no case beyond theapplicable prescriptive or reglamentary period.
2. The same rule applies to permissive counterclaims, third-party claims andsimilar pleadings, which shall not be considered filed until and unless the filingfee prescribed therefor is paid. The court may also allow payment of said feewithin a prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by the filing of theappropriate pleading and payment of the prescribed filing fee, but subsequently,the judgment awards a claim nor specified in the pleading, or if specified thesame has not been left for determination by the court, the additional filing feetherefor shall constitute a lien on the judgment. It shall be the responsibility of theclerk of court or his duly authorized deputy to enforce said lien and assess andcollect the additionalfee. 18
It should be remembered that both in Manchester and Sun Insurance plaintiffs therein paiddocket fees upon filing of their respective pleadings, although the amount tendered were foundto be insufficient considering the amounts of the reliefs sought in their complaints. In the presentcase, petitioner did not and never attempted to pay the requisite docket fee. Neither is there anyshowing that petitioner even manifested to be given time to pay the requisite docket fee, as infact it was not present during the scheduled pre-trial on December 1, 1988 and then again onFebruary 1, 1989. Perforce, it is as if the third-party complaint was never filed.
Finally, there is reason to believe that partitioner does not really have a good defense. Petitionerhinges its defense on two arguments, namely: a) that the checks issued by its principal whichwere supposed to pay for the premiums, bounced, hence there is no contract of surety to speakof; and 2) that as early as 1986 and covering the time of the Surety Bond, Interworld AssuranceCompany (now Phil. Pryce) was not yet authorized by the insurance Commission to issue suchbonds.
The Insurance Code states that:
Sec. 177. The surety is entitled to payment of the premium as soon as thecontract of suretyship or bond is perfected and delivered to the obligor. Nocontract of suretyship or bonding shall be valid and binding unless and until thepremium therefor has been paid, except where the obligee has accepted thebond, in which case the bond becomes valid and enforceable irrespective ofwhether or not the premium has been paid by the obligor to the surety. . . .(emphasis added)
The above provision outrightly negates petitioner's first defense. In a desperate attempt toescape liability, petitioner further asserts that the above provision is not applicable because therespondent allegedly had not accepted the surety bond, hence could not have delivered thegoods to Sagum Enterprises. This statement clearly intends to muddle the facts as found by thetrial court and which are on record.
In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter ofthe original action. 19 Secondly, the testimony of Mr. Leonardo T. Guzman, witness for therespondent, reveals the following:
Q. What are the conditions and terms of sales you extended toSagum General Merchandise?
A. First, we required him to submit to us Surety Bond to guarantypayment of the spare parts to be purchased. Then we sell to themon 90 days credit. Also, we required them to issue post-datedchecks.
Q. Did Sagum General merchandise comply with your surety bondrequirement?
A. Yes. They submitted to us and which we have accepted twosurety bonds.
Q Will you please present to us the aforesaid surety bonds?
A. Interworld Assurance Corp. Surety Bond No. 0029 forP500,000 dated July 24, 1987 and Interworld Assurance Corp.Surety Bond No. 0037 for P1,000.000 dated October 7, 1987. 20
Likewise attached to the record are exhibits C to C-18 21 consisting of delivery invoicesaddressed to Sagum General Merchandise proving that parts were purchased, delivered andreceived.
On the other hand, petitioner's defense that it did not have authority to issue a Surety Bondwhen it did is an admission of fraud committed against respondent. No person can claim benefitfrom the wrong he himself committed. A representation made is rendered conclusive upon theperson making it and cannot be denied or disproved as against the person relying thereon. 22
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dismissing thepetition before them and affirming the decision of the trial court and its order denying petitioner'sMotion for Reconsideration are hereby AFFIRMED. The present petition is DISMISSED for lackof merit.
SO ORDERED.
Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.
G.R. No. L-9674 April 29, 1957
MELECIO ARRANZ, plaintiff-appellant,vs.MANILA FIDELITY AND SURETY CO., INC., defendant-appellee.
Jose F. Aguirre for appellant.De Santos and Herrera for appellee.
LABRADOR, J.:
Appeal from an order of dismissal of the complaint rendered by the judge of the Court of FirstInstance, Honorable Rafael Amparo, presiding.
The complaint alleges the following facts: On November 25, 1949, the defendant appelleeManila Fidelity & Surety Co., executed and delivered to the Manila Ylang Ylang Distillery asurety bond, by virtue of which defendant-appellee, as surety, understood to pay jointly andseverally with plaintiff as principal, the sum of P90,000. The surety bond executed by Arranzand the defendant-appellee contains the following stipulation:
The surety hereunder waives notice of default and expressly agrees that it shall not benecessary for the Manila Ylang Ylang Distillery, Ltd. to proceed against the Principalupon his default or to exhaust the property of said Principal, before proceeding againstthe surety, the Surety's liability under this bond being a primary one and shall be eligibleand demandable immediately upon occurrence of such default. (p. 16, R.O.A.)
To secure the surety against loss arising from the surety bond, plaintiff executed a secondmortgaged over the properties which were transferred by the Manila Ylang Ylang Distillery toplaintiff. When the first installment of P50,000 became due on June 30, 1950, the surety,defendant-appellee, did not have funds to pay the same, and neither did it have funds to pay thesecond installment of P40,000 which became due on June 30, 1951. So the complaint was filedby the Manila Ylang Ylang Distillery on November 16, 1950, and a supplemental complaint waslater filed on January 2, 1952, to include the second installment of P40,000 then already due.The defendant had no funds with which to pay either the P50,000 or the P40,000 due under theagreement and the only amount it was able to raise was P20,000. And that was paid to ManilaYlang Ylang Distillery on account.
As defendant surety had no money with which to respond for the obligation, plaintiff made anarrangement with the Philippine National Bank, whereby he would mortgage the sameproperties to the latter in order to raise the amount needed to pay the amount of the loan. ThePhilippine National Bank wanted that defendant surety cancel the second mortgage executed inits favor by Arranz, but the defendant refused to do so unless Arranz pay to it the followingsums:
(a) P20,000, the partial payment made to the Manila Ylang Ylang Distillery on account ofthe latter's judgment credit;
(b) P3,045.12 from December 31, 1950 to December 31, 1954;
(c) (c)P7,691.09, including renewal premium on Bond No. 8674, from November 25,1950 to November 25, 1954, and incidental expenses and interests;
(d) P10,000, for attorney's fees, and
(e) P25,000, to be held by defendant in trust to answer for an alleged contingent liabilityof the Manila Ylang Ylang Distillery to it.
As the plaintiff feared that the credit accommodation he sought from the Philippine NationalBank could not be secured without release by the surety of its second mortgage, Arranz paidthe above amounts except the P25,000, and thereupon the second mortgage executed in favorof surety, defendant-appellee, was cancelled.
The complaint seeks to recover (a) P7,200, the premiums corresponding to the period fromNovember 25, 1950 to November 25, 1954; and (b) P7,000 representing attorney's fees. Arranzclaims that these two amounts were never due and owing to the defendant surety and that hepaid it against his will in order to be able to save the properties from loss and obtain the creditaccommodation from the Philippine National Bank.
The defendant presented a motion to dismiss the complaint on the ground that there was nocause of action and inasmuch as the sums sought to be recovered were paid by virtue of thecompromise, and no allegation is made in the complaint that said compromise is vitiated bymistake, violence, intimidation, undue influence and fraud. In answer to the motion to dismiss,plaintiff alleged that he was compelled to pay the amounts. The court ruled that the payment ofthe sum of P14,200 demanded in plaintiff's complaint was paid as a price for the release of theproperties held on second mortgage by the defendant, or that the same was the considerationfor said release in order to save his properties, and therefore dismissed the complaint.
We are unable to agree with the judgment of the trial court that the sum of P14,200 was paid asa consideration for the release of the mortgage. There is no allegation in the complaint to thateffect. From the allegations of the complaint, we gather the following facts: (1) that the suretydid not have the money with which to pay the obligation, the payment of which was guaranteedin the contract of suretyship; (2) that the premium of P7,200 sought to be collected by thedefendant from the plaintiff and the P7,000 also collected as attorney's fees, were never duefrom the plaintiff, because the surety was not able to put up the amount that it undertook to payif the principal did not pay the same; (3) that plaintiff was compelled against his will by thecircumstances to pay the sums now sought to be recovered. The question which the motion fordismissal poses therefore is plaintiff under obligation to pay the premium on the bond becauseof failure of his surety to pay the indebtedness secured by it (surety)?
There is no allegation in the complaint or in any other paper in the case that the surety promisedthe principal that it will pay the loan or obligation contracted by the principal (plaintiff herein) forthe latter's account. In the contract of suretyship the creditor was given the right to sue theprincipal, or the latter and the surety at the same time. This does not imply, however, that thesurety covenanted or agreed with the principal that it will pay the loan for the benefit of theprincipal. Such a promise is not implied by law either. Plaintiff, therefore, cannot claim that therehas been a breach on the part of the surety of any obligation it has made or undertaken underthe suretyship contract. And the failure or refusal of the surety to pay the debt for the principal'saccount did not have the effect of relieving the principal of his obligation to pay the premium onthe bond furnished.
The premium is the consideration for furnishing the bond or the guaranty. While the liability ofthe surety to the obligee subsists the premium is collectible from the principal. Under the terms
of the contract of suretyship the surety's obligation is that the principal pay the loan and theinterest thereon, and that the surety shall be relieved of his obligation when the loan orobligation secured is paid.
Now, therefore, if the above abounded Principal shall pay promptly said installments andinterest thereon and shall in all respects do and fully observe all and singular thecovenants, agreements and conditions as provided for in the aforesaid agreement ofNovember 21, 1949, Annexes "A" and "B" respectively, to the true intent and meaningthereof, this obligation shall be null and void, otherwise, it shall remain in full force andeffect. (p. 16, R.O.A..)
As the loan and interest remained unpaid the surety continued to be bound to the creditor-obligee, and as a corollary its right to collect the premium on the bond also continued.
Plaintiff-appellant, therefore, cannot excuse himself from the payment of the premium on thebond upon the failure or refusal of the surety to pay the loan and the interest. Even if, therefore,the payment of the premium were against his will, still plaintiff-appellant has no cause of actionfor the return thereof, because the surety was entitled thereto.
For the foregoing considerations, the order of dismissal is affirmed on other grounds. Soordered.
Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Endencia and Felix, JJ., concur.Concepcion and Reyes, J. B. L., JJ., concur in the result.
A.M. No. 21901-96 June 27, 1978
REPARATIONS COMMISSION, plaintiff-appellants,vs.UNIVERSAL DEEP-SEA FISHING CORPORATION and MANILA SURETY AND FIDELITYCO., INC., defendant-appellants.
Appeal of the defendant Universal Deep-Sea Fishing Corporation, defendant and third-partyplaintiff Manila Surety and Fidelity Co., Inc., and third-party defendant Pablo Sarmiento from thedecision of the Court of First Instance of Manila, the dispositive portion of which reads asfollows:
WHEREFORE, judgment is rendered as follows:
1. The defendant Universal Deep-Sea Fishing Corporation is hereby sentencedto pay the plaintiff the sum of P100,242.04 in the first cause of action,
P141,343.45 in the second cause of action and P54,500.00 in the third cause ofaction, all with interest at the rate of 6% per annum from August 10, 1962, thedate of the filing of the complaint, until fully paid;
2. Defendant Manila Surety & Fidelity Co., Inc., is hereby sentenced to pay theplaintiff, jointly and severally with defendant Universal Deep-Sea FishingCorporation, the sum of P53,643.00 in the first cause of action, P68,777.77 in thesecond cause of action and P54,508.00 in the third cause of action;
3. Defendant Universal Deep-Sea Fishing Corporation and Pablo Sarmiento arehereby sentenced to pay, jointly and severally, the Manila Surety & Fidelity Co.,Inc., the sum of P53,643.00 and P68,777.77 with interest thereon at the rate of12% per annum from August 10, 1962 until fully paid plus P2,000.00 asattorney's fees;
4. Defendant Universal Deep-Sea Fishing Corporation is hereby sentenced topay the Manila Surety & Fidelity Co., Inc., the sum of P54,508.00 with interestthereon at the rate of 12% per annum from August 10, 1962, until fully paid;
It is not disputed that the Universal Deep-Sea Fishing Corporation, hereinafter referred to asUNIVERSAL for short. was awarded six (6) trawl boats by the. Reparations Commission as end-user of reparations goods. These fishing boats, christened the M/S UNIFISH 1, M/S UNIFISH 2.M/S UNIFISH 3. M/S UNIFISH 4, M/S UNIFISH 5, and M/S UNIFISH 6. were delivered toUNIVERSAL two at a time, f.o.b. Japanese port.
The M/S UNIFISH 1 and M/S UNIFISH 2, with an aggregate purchase price of P536,428.44,were delivered to UNIVERSAL on November 20,1958, and the contract of Conditional Purchaseand Sale of Reparations Goods, executed by and between the parties on February 12, 1960,provided among others, that "the first installment representing 10% of the amount or FIFTYTHREE THOUSAND SIX HUNDRED FORTY TWO PESOS AND EIGHTY FOUR CENTAVOS(P53,642.84) shall be paid within 24 months from the date of complete delivery thereof, thebalance shall be paid in the manner herein stated as shown in the Schedule of Payments, 2 ... towit:
TOTAL F.O.B. COST — P536,428.44
AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COST) — P53,642.84
DUE DATE OF 1st INSTALLMENT — May 8, 1961
TERM: Ten (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM
No. ofInstallments
Date Due Amount
1 May 8,1962
P56,597.20
2 May 8,1963
P56,597.20
3 May 8,1964
P56,597.20
4 May 8,1965
P56,597.20
5 May 8,1966
P56,597.2
6 May 8,1967
P56,597.20
7 May 8,1968
P56,597.20
8 May 8,1969
P56,597.20
9 May 8,1970
P56,597.20
10 May 8,1971
P56,597.20
To guarantee the faithful compliance with the obligations under said contract, a performancebond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila Surety &Fidelity Co., Inc., as surety, was executed in favor of the Reparations Commission. 3 ACorresponding indemnity agreement was executed to indemnify the surety company for anydamage, loss charges, etc., which it may sustain or incur as a consequence of having become asurety upon the performance bond. 4
The M/S UNIFISH 3 and M/S UNIFISH 4, with a total purchase price of P687,777.76 weredelivered to UNIVERSAL on April 20, 1959 and the Contract of Conditional Purchase and SaleReparations Goods, dated November 25, 1959, 5 provided that "the first installment representing10% of the amount or SIXTY-EIGHT THOUSAND SEVEN HUNDRED SEVENTY-SEVENPESOS AND SEVENTY-SEVEN CENTAVOS shall be paid within 24 months from the date ofcomplete delivery thereof, the balance shall be paid in the manner herein stated as shown in theSchedule of Payments, . . . , to wit:
TOTAL F.O.B. COSTS — P687,777.76
AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) — P68,777.77
DUE DATE OF 1st INSTALLMENT — July, 1961
TERM: Ten (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM
No. ofInstallments
Due Date Amount
1 July,1962
P72,565.68
2 July,1963
P72,565.68
3 July,1964
P72,565.68
4 July,1965
P72,565.68
5 July,1966
P72,565.68
6 July,1967
P72,565.68
7 July,1968
P72,565.68
8 July,1969
P72,565.68
9 July,1970
P72,565.68
10 July,1971
P72,565.68
A performance bond in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co.,Inc., was also submitted to guarantee the faithful compliance with the obligations set forth in thecontract, 6 and indemnity agreement was executed in favor of the surety company inconsideration of the said bond. 7
The delivery of the M/S UNIFISH 5 and M/S UNIFISH 6 is covered by a contract for theUtilization of Reparations Goods (M/S "UNIFISH 5" and M/S "UNIFISH 6") executed by theparties on February 12, 1960, 8 and the Schedule of Payments attached thereto, provided, asfollows:
AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) — P54,500.00
DUE DATE OF 1st INSTALLMENT — Oct. 17, 1961
TERM: TEN (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM
No. ofInstallments
Date Due Amount
1 Oct. 17,1962
P57,501.57
2 Oct. 17,1963
P57,501.57
3 Oct. 17,1964
P57,501.57
4 Oct. 17,1965
P57,501.57
5 Oct. 17,1966
P57,501.57
6 Oct. 17,1967
P57,501.57
7 Oct. 17,1968
P57,501.57
8 Oct. 17,1969
P57,501.57
9 Oct. 17,1970
P57,501.57
10 Oct. 17,1971
P57,501.579
A performance bond in judgment, amount of P54,500.00 issued by judgment, Manila Surety &Fidelity Co., Inc., 10 was submitted, and an indemnity agreement was executed by UNIVERSALin favor of judgment, surety company. 11
On August 10, 1962, judgment, Reparations Commission instituted judgment, present actionagainst UNIVERSAL and judgment, surety company to recover various amounts of money dueunder these contracts. In answer, UNIVERSAL claimed that judgment, amounts of moneysought to be collected are not yet due and demandable. The surety company also contendedthat judgment, action is premature, but set up a cross-claim against UNIVERSAL forreimbursement of whatever amount of money it may have to pay judgment, plaintiff by reason ofjudgment, complaint, including interest, and for judgment, collection of accumulated and unpaidpremiums on judgment, bonds with interest thereon. With leave of courts first obtained,judgment, surety company filed a third-party complaint against Pablo S. Sarmiento, one of theindemnitors in judgment, indemnity agreements. The third-party defendant Pablo S. Sarmiento
denied personal liability claiming that he signed judgment, indemnity agreements in question inhis capacity as acting general manager of UNIVERSAL. After appropriate proceedings andupon judgment, preceding facts, judgment, trial court rendered judgment, judgment hereinbeforestated. hence, this appeal.
(1) The principal issue for resolution is whether or not judgment, first installments underjudgment, three (3) contracts of conditional purchase and sale of reparations goods werealready due and demandable when judgment, complaint was filed. UNIVERSAL contends thatthere is an obscurity in judgment, terms of judgment, contracts in question which were causedby the plaintiff as to judgment, amounts and due dates of judgment, first installments whichshould have been first fixed before a creditor can demand its payment from judgment, debtor.To be explicit. counsel points to judgment, Schedule of Payment attached to, and forming a partof, the contract for judgment, purchase and sale of judgment, M/S UNIFISH 1 and M/S UNIFISH2 which states that judgment, amount of first installment is P53,642.84 and judgment, due dateof its payment is May 8, 1961. However, judgment, amount of the first of succeeding itemizedinstallments is P56,597.20 and judgment, due date is May 8, 1962. In the case of the M/SUNIFISH 3 and M/S UNIFISH 4, the first installments are P68,777.77 and due in July, 1961 andP72,565.68 and due in July 1962, respectively. In the contract for the purchase and sale of theM/S UNIFISH 5 and M/S UNIFISH 6, the amounts indicated as first installments are P54,500.00and P57,501.57, and the due dates of payment are October 17, 1961 and October 17, 1962,respectively.
The terms of the contracts for the purchase and sale of the reparations vessels, however, arevery clear and leave no doubt as to the intent of the contracting parties. Thus, in the contractconcerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties expressly agreed that the firstinstallment representing 10% of the purchase price or P53,642.84 shall be paid within 24months from the date of complete delivery of the vessel or on May 8, 1961, and the balance tobe paid in ten (10) equal yearly installments. The amount of P56,597.20 due on May 8, 1962,which is also claimed to be a "first installment," is but the first of the ten (10) equal yearlyinstallments of balance of judgment, purchase price. In judgment, case of ReparationsCommission vs. Northern Lines, Inc. et al., 12 where judgment, Schedule of Payments, likewiseon RC-LEGAL DEPT FORM NO. 1, also allegedly indicated two (2) due dates for judgment,payment of judgment, first installment, judgment, Court said:
(a) The major premise in appellants' process of reasoning is that the firstinstallments due on April 25, 1963, and May 26, 1963, are 'first installments.although they are not so designated in judgment, schedule appended to each ofjudgment, contracts between judgment, parties. Appellant's, moreover, assumethat judgment, 'first' installment is included in judgment, ten (10) equal yearlyinstallments' mentioned subsequently to said 'first' installment. In feet, however,only one installment is labeled as 'first' in each one of said schedules, and that isjudgment, installment due on 'April 25, 1962' - as regards M/S Don Salvador orMagsaysay - and that due on 'May 26, 1962'- as regards M/S Don Amando orEstancia. The schedules do not describe judgment, 'ten (10) equal yearlyinstallments' — following the one characterized therein as 'first' — meaning'number,' not order or sequence, of installments — and the numerals 1, 2, 3, 4, 5,6, 7, 8, 9, 10 written before each of said 'ten (10) equal yearly installmentsfollowing the 'first' to accrue after the due date of said 'first' installment. Just thesame, the parties have not so described (as 'first') — in the schedules formingpart of their contracts — the installments numbered '1' in the list contained in
each. Moreover, considering that the words 'TERMS: Ten (10) EQUAL YEARLYINSTALLMENTS,' appear after the lines reading: 'AMOUNT OF 1stINSTALLMENT (10% OF F.O.B. COSTS) P174,761.42' and DUE DATE OF 1stINSTALLMENT April 25, 1962 (or May 26, 1962) and that, subsequently to said'TERM: Ten (10) EQUAL YEARLY INSTALLMENTS,' there is a list of ten (10)equal yearly installments, it is clear that the latter do not include the onedesignated as 'first' installment.
xxx xxx xxx
(b) The pertinent part of Section 12 of Rep. Act No. 1789, pursuant to which thevessels in question were sold to the Buyer reads:
. . . Capital goods . . . disposed of to private parties as provided for in subsection(a) of Section two hereof shall be sold on a cash or credit basis, under rules andregulations as may be determined by the Commission. Sales on a credit basisshall be payable in installments: Provided, That judgment, first installment shallbe paid within twenty-four months after complete delivery of judgment, capitalgoods and judgment, balance within a period not exceeding ten years, . . . plusjudgment, service provided for in section ten thereof; Provided further, Thatjudgment, unpaid balance of judgment, price thereof shall bear interest atjudgment, rate of not more than three percent per annum. . . . .
It should be noted that, pursuant to judgment, schedules attached to judgment,contracts with judgment, Buyer, judgment, 'complete delivery' of judgment,vessels took place on April 25, and May 26, 1960, respectively, so that judgment,the 24 months taxed by law for judgment, payment of judgment, 'First installmentexpired on April 25, 1962 and May 26,1962, which are judgment, very datesstated in judgment, aforementioned schedules for judgment, payment ofjudgment, respective '1st' installments. What is more, in view of said legalprovision, judgment, Commission had no authority to agree that the 1stinstallment shall be paid on any later date, and judgment, Buyer must have beenaware of this fact. Hence, judgment, parties could not have intended judgment,first installments to become due on April 25, and May 26, 1963 It is, likewise,obvious - particularly when considered in relation to judgment, provision abovequoted - that judgment, 'ten (10) equal yearly installments.' mentioned in theschedules, refer to the 'balance' of the price to be paid by the buyer, afterdeducting judgment, 'first' installment, so hat, altogether, there would be 'eleven'installments, namely, the first , which would be the 10% of the F.O.B. cost of thevessel — as agreed upon between 'The Governments of the Philippines andJapan — and 'ten (10) yearly installments,' representing the balance of "heamount due to he Commission from judgment, Buyer, including tile interestthereon.
Viewing judgment, contracts between judgment, parties in judgment, light of the foregoingexposition, judgment, first installment on judgment, M/S UNIFISH 1 and M/S UNIFISH 2 ofjudgment, amount of P53,642.84 was due on May 8, 1961, while judgment, first installments onjudgment, M/S UNIFISH 3 and M/S UNIFISH 4, and judgment, M/S UNIFISH 5 and M/SUNIFISH 6 in judgment, amounts of P68,777.77 and P54,500.00 were due on July 31, 1961 andOctober 17, 1961, respectively. Accordingly judgment, obligation of UNIVERSAL to pay
judgment, first installments on the purchase price of judgment, six (6) reparations vessels wasalready due and demandable when the present action was commenced on August 10, 1962.Also due and demanded from UNIVERSAL were the first of the ten (10) equal yearlyinstallments on the balance of the purchase price of the M/S UNIFISH I and M/S UNIFISH 2 inthe amount of P56,597.20 and P72,565.68 on judgment, M/S UNIFISH 3 and M/S UNIFISH 4.The first accrued on May 8, 1962, while judgment, second fell due on July 31, 1962.
(2) The claim of judgment, surety company to the effect that the trial court erred in not awardingit the amount of P7,251.42, as premium is the performance bonds, is well taken. The paymentof premiums on the bonds to the surety company had been expressly undertaken byUNIVERSAL in the indemnity agreements executed by it in favor of judgment, surety company.The premium is judgment, consideration for furnishing judgment, bonds and judgment,obligation to pay judgment, same subsists for as long as judgment, liability of judgment, suretyshall exist. 13 Hence, UNIVERSAL should pay judgment, amount of P7,251.42 to judgment,surety company.
(3) The surety company also claims that judgment, trial court erred in not applying judgment,amount of P10,000.00, paid as down payment by UNIVERSAL to judgment, ReparationsCommission, to judgment, guaranteed indebtedness. According to judgment, surety company,under Article 1254 of judgment, Civil rode, where there is no imputation of payment made byeither judgment, debtor or creditor, The debt which is the most onerous to the debtor shall bedeemed to have been satisfied, so that the amount of P10,000.00 paid by UNIVERSAL as downpayment on the purchase of the, M/S UNIFISH 1 and M/S UNIFISH 2 should be applied to theguaranteed portion of the debt, this releasing part of the liability hence the obligation of 'Thesurety company shall be only P43,643.00, instead of P53,643.00.
The rules contained in Articles 1252 to 1254 of judgment, Civil Code apply to a person owingseveral debts of judgment, same kind to a single creditor. They cannot be made applicable to aperson whose obligation as a mere surety is both contingent and singular, 14 which in this caseis the full and faithful compliance with the terms of the contract of conditional purchase and saleof reparations goods, The obligation included the payment, not only of the first installment in theamount of P53,643.00, but also of the ten (10) equal yearly installments of P56,597.20 perannum. The amount of P10,000.00 was, indeed, deducted from judgment, amount ofP53,643.00, but then judgment, first of judgment, ten (10) equal yearly installments had alsoaccrued, hence, no error was committed in holding judgment, surety company to judgment, fullextent of its undertaking.
(4) Finally, We find no merit in judgment, claim of judgment, third-party defendant Pablo S.Sarmiento that he is not personally liable having merely executed judgment, indemnityagreements 15 in his capacity as acting general manager of UNIVERSAL. Pablo S. Sarmientoappears to have signed the indemnity agreement twice — the first, in this capacity as actinggeneral manager of UNIVERSAL, and the second, in his individual capacity. The indemnityagreements in question state the following. among others:
In consideration of judgment, responsibility undertaken by judgment, Company,for judgment, original bond, and for any renewal, extension or substitutionthereof, judgment, undersigned, jointly and severally, bind themselves in favor ofjudgment, said COMPANY in judgment, following terms:
xxx xxx xxx
Dated at City of Manila this - - - - day of July l969.
600 Cottage 3, UNIVERSAL DEEP-SEA FISHING CORP.
Aguinaldo Com- BY:
pound, Echague, s/PABLO S. SARMIENTO Manila t/PABLO S. SARMIENTOSignature
s/PABLO S. SARMIENTO Address t/PABLO S. SARMIENTO Signature
Besides, the "acknowledgment" stated that "Pablo S. Sarmiento for himself and on behalf ofUniversal Deep-Sea Fishing Corporation" personally appeared before the notary andacknowledged that judgment, document is his own free and voluntary act and deed.
WHEREFORE, judgment, judgment appealed from is hereby affirmed with judgment,modification that judgment, UNIVERSAL Deep-Sea Fishing Corporation is further ordered topay judgment, Manila Surety & Fidelity Co., Inc., judgment, amount of P7,251.42 for judgment,premiums and documentary stamps on judgment, performance bonds. Appellants shall payproportionate costs.
SO ORDERED.
Antonio, Aquino, Santos, and Guerrero, JJ., concur.
Fernando and Barredo, JJ., took no part.
G.R. No. 78848 November 14, 1988
SHERMAN SHAFER, petitioner,vs.HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and MAKATIINSURANCE COMPANY, INC., respondents.
R.M. Blanco for petitioner.
Camacho and Associates for respondents.
PADILLA, J.:
This is a petition for review on certiorari of the Order * of the Regional Trial Court, OlongapoCity, Branch 75, dated 24 April 1986 dismissing petitioner's third party complaint filed in CriminalCase No. 381-85, a prosecution for reckless imprudence resulting in damage to property andserious physical injuries. 1
On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889, 2
over his Ford Laser car with Plate No. CFN-361 from Makati Insurance Company, Inc., for third
party liability (TPL).<äre||anº•1àw> During the effectivity of the policy, an information 3 forreckless imprudence resulting in damage to property and serious physical injuries was filedagainst petitioner. The information reads as follows:
That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo,Philippines, and within the jurisdiction of this Honorable Court, the above-namedaccused, being then the driver and in actual physical control of a Ford Laser carbearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminallydrive, operate and manage the said Ford Laser car in a careless, reckless andimprudent manner without exercising reasonable caution, diligence and due careto avoid accident to persons and damage to property and in disregard of existingtraffic rules and regulations, causing by such carelessness, recklessness andimprudence the said Ford Laser car to hit and bump a Volkswagen car bearingPlate No. NJE-338 owned and driven by Felino llano y Legaspi, thereby causingdamage in the total amount of P12,345.00 Pesos, Philippine Currency, and as aresult thereof one Jovencio Poblete, Sr. who was on board of the saidVolkswagen car sustained physical injuries, to wit:
1. 2 cm. laceration of left side of tongue.
2. 6 cm. laceration with partial transection of muscle (almost full thickness) leftside of face.
3. Full thickness laceration of lower lip and adjacent skin.
which injuries causing [sic] deformity on the face. 4
The owner of the damaged Volkswagen car filed a separate civil action against petitioner fordamages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car whenallegedly hit and bumped by the car driven by petitioner, did not reserve his right to file aseparate civil action for damages. Instead, in the course of the trial in the criminal case, Poblete,Sr. testified on his claim for damages for the serious physical injuries which he claimed to havesustained as a result of the accident.
Upon motion, petitioner was granted leave by the former presiding judge of the trail court to filea third party complaint against the herein private respondent, Makati Insurance Company, Inc.Said insurance company, however, moved to vacate the order granting leave to petitioner to filea third party complaint against it and/or to dismiss the same. 5
On 24 April 1987, the court a quo issued an order dismissing the third party complaint on theground that it was premature, based on the premise that unless the accused (herein petitioner)is found guilty and sentenced to pay the offended party (Poblete Sr.) indemnity or damages, thethird party complaint is without cause of action. The court further stated that the betterprocedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of thecase to determine whether or not the accused, also the third party plaintiff, has a cause of actionagainst the third party defendant for the enforcement of its third party liability (TPL) under theinsurance contract. 6 Petitioner moved for reconsideration of said order, but the motion wasdenied; 7 hence, this petition.
It is the contention of herein petitioner that the dismissal of the third party complaint amounts toa denial or curtailment of his right to defend himself in the civil aspect of the case. Petitionerfurther raises the legal question of whether the accused in a criminal action for recklessimprudence, where the civil action is jointly prosecuted, can legally implead the insurancecompany as third party defendant under its private car insurance policy, as one of his modes ofdefense in the civil aspect of said proceedings.
On the other hand, the insurance company submits that a third party complaint is, under therules, available only if the defendant has a right to demand contribution, indemnity, subrogationor any other relief in respect of plaintiff's claim, to minimize the number of lawsuits and avoid thenecessity of bringing two (2) or more suits involving the same subject matter. The insurancecompany further contends that the contract of motor vehicle insurance, the damages andattorney's fees claimed by accused/third party plaintiff are matters entirely different from hiscriminal liability in the reckless imprudence case, and that petitioner has no cause of actionagainst the insurer until petitioner's liability shall have been determined by final judgment, asstipulated in the contract of insurance. 8
Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended toprovide compensation for the death or bodily injuries suffered by innocent third parties orpassengers as a result of a negligent operation and use of motor vehicles. 9 The victims and/ortheir dependents are assured of immediate financial assistance, regardless of the financialcapacity of motor vehicle owners.
The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance isfor loss or damage. Where an insurance policy insures directly against liability, the insurer'sliability accrues immediately upon the occurrence of the injury or event upon which the liabilitydepends, and does not depend on the recovery of judgment by the injured party against theinsured. 10
The injured for whom the contract of insurance is intended can sue directly the insurer. Thegeneral purpose of statutes enabling an injured person to proceed directly against the insurer isto protect injured persons against the insolvency of the insured who causes such injury, and togive such injured person a certain beneficial interest in the proceeds of the policy, and statutesare to be liberally construed so that their intended purpose may be accomplished. It has evenbeen held that such a provision creates a contractual relation which inures to the benefit of anyand every person who may be negligently injured by the named insured as if such injuredperson were specifically named in the policy. 11
In the event that the injured fails or refuses to include the insurer as party defendant in his claimfor indemnity against the insured, the latter is not prevented by law to avail of the proceduralrules intended to avoid multiplicity of suits. Not even a "no action" clause under the policy-whichrequires that a final judgment be first obtained against the insured and that only thereafter canthe person insured recover on the policy can prevail over the Rules of Court provisions aimed atavoiding multiplicity of suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party complaint on theground that petitioner had no cause of action yet against the insurance company (third partydefendant). There is no need on the part of the insured to wait for the decision of the trial courtfinding him guilty of reckless imprudence. The occurrence of the injury to the third partyimmediately gave rise to the liability of the insurer under its policy.
A third party complaint is a device allowed by the rules of procedure by which the defendant canbring into the original suit a party against whom he will have a claim for indemnity orremuneration as a result of a liability established against him in the original suit. 13 Third partycomplaints are allowed to minimize the number of lawsuits and avoid the necessity of bringingtwo (2) or more actions involving the same subject matter. They are predicated on the need forexpediency and the avoidance of unnecessary lawsuits. If it appears probable that a secondaction will result if the plaintiff prevails, and that this result can be avoided by allowing the thirdparty complaint to remain, then the motion to dismiss the third party complaint should be denied.14
Respondent insurance company's contention that the third party complaint involves extraneousmatter which will only clutter, complicate and delay the criminal case is without merit. An offensecauses two (2) classes of injuries the first is the social injury produced by the criminal act whichis sought to be repaired thru the imposition of the corresponding penalty, and the second is thepersonal injury caused to the victim of the crime, which injury is sought to be compensated thruindemnity, which is civil in nature. 15
In the instant case, the civil aspect of the offense charged, i.e., serious physical injuriesallegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case.Petitioner may thus raise all defenses available to him insofar as the criminal and civil aspectsof the case are concerned. The claim of petitioner for payment of indemnity to the injured thirdparty, under the insurance policy, for the alleged bodily injuries caused to said third party, arosefrom the offense charged in the criminal case, from which the injured (Jovencio Poblete, Sr.)has sought to recover civil damages. Hence, such claim of petitioner against the insurancecompany cannot be regarded as not related to the criminal action.
WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 isSET ASIDE and a new one entered admitting petitioner's third party complaint against theprivate respondent Makati Insurance Company, Inc.
SO ORDERED.
Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur.
G.R. No. 96452 May 7, 1992
PERLA COMPANIA DE SEGUROS, INC. petitioner,vs.THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.
G.R. No. 96493 May 7, 1992
FCP CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM,respondents.
Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner.
Wilson L. Tee for respondents Herminio and Evelyn Lim.
NOCON, J.:
These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. inG.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking toannul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No.13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in CivilCase No. 83-19098 for replevin and damages. The dispositive portion of the decision of theCourt of Appeals reads, as follows:
WHEREFORE, the decision appealed from is reversed; and appellee PerlaCompania de Seguros, Inc. is ordered to indemnify appellants Herminio andEvelyn Lim for the loss of their insured vehicle; while said appellants are orderedto pay appellee FCP Credit Corporation all the unpaid installments that were dueand payable before the date said vehicle was carnapped; and appellee PerlaCompania de Seguros, Inc. is also ordered to pay appellants moral damages ofP12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on shamgrounds to honor the just insurance claim of appellants by way of example andcorrection for public good, and attorney's fees of P10,000.00 as a just andequitable reimbursement for the expenses incurred therefor by appellants, andthe costs of suit both in the lower court and in this appeal. 2
The facts as found by the trial court are as follows:
On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed apromissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthlyinstallments according to the schedule of payment indicated in said note, 3 and secured by achattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motorand serial No. SUPJYK-03780, which is registered under the name of private respondentHerminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla forbrevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5
On the same date, Supercars, Inc., with notice to private respondents spouses, assigned topetitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on saidpromissory note and chattel mortgage as shown by the Deed of Assignment. 6
At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the backof Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim,who was driving said car before it was carnapped, immediately called up the Anti-CarnappingUnit of the Philippine Constabulary to report said incident and thereafter, went to the nearestpolice substation at Araneta, Cubao to make a police report regarding said incident, as shownby the certification issued by the Quezon City police. 7
On November 10, 1982, private respondent Evelyn Lim reported said incident to the LandTransportation Commission in Quezon City, as shown by the letter of her counsel to said office,8 in compliance with the insurance requirement. She also filed a complaint with theHeadquarters, Constabulary Highway Patrol Group. 9
On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla butsaid claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was usingthe vehicle before it was carnapped, was in possession of an expired driver's license at the timeof the loss of said vehicle which is in violation of the authorized driver clause of the insurancepolicy, which states, to wit:
AUTHORIZED DRIVER:
Any of the following: (a) The Insured (b) Any person driving on the Insured'sorder, or with his permission. Provided that the person driving is permitted, inaccordance with the licensing or other laws or regulations, to drive the ScheduledVehicle, or has been permitted and is not disqualified by order of a Court of Lawor by reason of any enactment or regulation in that behalf. 11
On November 17, 1982, private respondents requests from petitioner FCP for a suspension ofpayment on the monthly amortization agreed upon due to the loss of the vehicle and, since thecarnapped vehicle insured with petitioner Perla, said insurance company should be made to paythe remaining balance of the promissory note and the chattel mortgage contract.
Perla, however, denied private respondents' claim. Consequently, petitioner FCP demandedthat private respondents pay the whole balance of the promissory note or to return the vehicle 12
but the latter refused.
On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filedan amended third party complaint against petitioner Perla on December 8, 1983. After trial onthe merits, the trial court rendered a decision, the dispositive portion which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows:
1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly andseverally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24%per annum from July 2, 1983 until fully paid;
2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; andthe costs of suit.
Upon the other hand, likewise, ordering the DISMISSAL of the Third-PartyComplaint filed against Third-Party Defendant. 13
Not satisfied with said decision, private respondents appealed the same to the Court of Appeals,which reversed said decision.
After petitioners' separate motions for reconsideration were denied by the Court of Appeals in itsresolution of December 10, 1990, petitioners filed these separate petitions for review oncertiorari.
Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellatecourt in holding that private respondents did not violate the insurance contract because theauthorized driver clause is not applicable to the "Theft" clause of said Contract.
For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exemptedthe debtor from his admitted obligations under the promissory note particularly the payment ofinterest, litigation expenses and attorney's fees.
We find no merit in Perla's petition.
The comprehensive motor car insurance policy issued by petitioner Perla undertook toindemnify the private respondents against loss or damage to the car (a) by accidental collisionor overturning, or collision or overturning consequent upon mechanical breakdown orconsequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning orburglary, housebreaking or theft; and (c) by malicious act. 14
Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner'sconsent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause,and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by therespondent court in its decision:
. . . Theft is an entirely different legal concept from that of accident. Theft iscommitted by a person with the intent to gain or, to put it in another way, with theconcurrence of the doer's will. On the other hand, accident, although it mayproceed or result from negligence, is the happening of an event without theconcurrence of the will of the person by whose agency it was caused. (Bouvier'sLaw Dictionary, Vol. I, 1914 ed., p. 101).
Clearly, the risk against accident is distinct from the risk against theft. The"authorized driver clause" in a typical insurance policy is in contemplation oranticipation of accident in the legal sense in which it should be understood, andnot in contemplation or anticipation of an event such as theft. The distinction —often seized upon by insurance companies in resisting claims from their assureds— between death occurring as a result of accident and death occurring as aresult of intent may, by analogy, apply to the case at bar. Thus, if the insuredvehicle had figured in an accident at the time she drove it with an expired license,then, appellee Perla Compania could properly resist appellants' claim forindemnification for the loss or destruction of the vehicle resulting from theaccident. But in the present case. The loss of the insured vehicle did not resultfrom an accident where intent was involved; the loss in the present case wascaused by theft, the commission of which was attended by intent. 15
It is worthy to note that there is no causal connection between the possession of a valid driver'slicense and the loss of a vehicle. To rule otherwise would render car insurance practically asham since an insurance company can easily escape liability by citing restrictions which are notapplicable or germane to the claim, thereby reducing indemnity to a shadow.
We however find the petition of FCP meritorious.
This Court agrees with petitioner FCP that private respondents are not relieved of theirobligation to pay the former the installments due on the promissory note on account of the lossof the automobile. The chattel mortgage constituted over the automobile is merely an accessorycontract to the promissory note. Being the principal contract, the promissory note is unaffectedby whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balanceon the promissory note should be paid, and not just the installments due and payable before theautomobile was carnapped, as erronously held by the Court of Appeals.
However, this does not mean that private respondents are bound to pay the interest, litigationexpenses and attorney's fees stipulated in the promissory note. Because of the peculiarrelationship between the three contracts in this case, i.e., the promissory note, the chattelmortgage contract and the insurance policy, this Court is compelled to construe all threecontracts as intimately interrelated to each other, despite the fact that at first glance there is norelationship whatsoever between the parties thereto.
Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amountstated therein in accordance with the schedule provided for. To secure said promissory note,private respondents constituted a chattel mortgage in favor of Supercars, Inc. over theautomobile the former purchased from the latter. The chattel mortgage, in turn, required privaterespondents to insure the automobile and to make the proceeds thereof payable to Supercars,Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to petitionerFCP, with the knowledge of private respondents. Private respondents were able to secure aninsurance policy from petitioner Perla, and the same was made specifically payable to petitionerFCP. 16
The insurance policy was therefore meant to be an additional security to the principal contract,that is, to insure that the promissory note will still be paid in case the automobile is lost throughaccident or theft. The Chattel Mortgage Contract provided that:
THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILLCAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BEINSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIREFOR A PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEARTHEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITHAN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THEMORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDINGBALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALLLOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THEMORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR ANDFORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, .. . . 17
It is clear from the abovementioned provision that upon the loss of the insured vehicle, theinsurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP,the outstanding balance of the mortgage at the time of said loss under the mortgage contract. Ifthe claim on the insurance policy had been approved by petitioner Perla, it would have paid theproceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing
private respondents' obligation to petitioner FCP. Therefore, private respondents were justifiedin asking petitioner FCP to demand the unpaid installments from petitioner Perla.
Because petitioner Perla had unreasonably denied their valid claim, private respondents shouldnot be made to pay the interest, liquidated damages and attorney's fees as stipulated in thepromissory note. As mentioned above, the contract of indemnity was procured to insure thereturn of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla torecognize the valid claim of the private respondents should not in any way prejudice the latter.
Private respondents can not be said to have unduly enriched themselves at the expense ofpetitioner FCP since they will be required to pay the latter the unpaid balance of its obligationunder the promissory note.
In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiringpetitioner Perla to indemnify private respondents for the loss of their insured vehicle. However,the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing theunpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement ofaccount prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid.
As to the award of moral damages, exemplary damages and attorney's fees, privaterespondents are legally entitled to the same since petitioner Perla had acted in bad faith byunreasonably refusing to honor the insurance claim of the private respondents. Besides, awardsfor moral and exemplary damages, as well as attorney's fees are left to the sound discretion ofthe Court. Such discretion, if well exercised, will not be disturbed on appeal. 19
WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to requireprivate respondents to pay petitioner FCP the amount of P55,055.93, with legal interest fromJuly 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all otherrespects. No pronouncement as to costs.
SO ORDERED.
Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur.
G.R. No. 60506 August 6, 1992
FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILAM. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, allsurnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DEMAGLANA, petitioners,vs.HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II,and AFISCO INSURANCE CORPORATION, respondents.
Jose B. Guyo for petitioners.
Angel E. Fernandez for private respondent.
ROMERO, J.:
The nature of the liability of an insurer sued together with the insured/operator-owner of acommon carrier which figured in an accident causing the death of a third person is sought to bedefined in this petition for certiorari.
The facts as found by the trial court are as follows:
. . . Lope Maglana was an employee of the Bureau of Customs whose workstation was at Lasa, here in Davao City. On December 20, 1978, early morning,Lope Maglana was on his way to his work station, driving a motorcycle owned bythe Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in hisdeath. He died on the spot. The PUJ jeep that bumped the deceased was drivenby Pepito Into, operated and owned by defendant Destrajo. From theinvestigation conducted by the traffic investigator, the PUJ jeep was overtakinganother passenger jeep that was going towards the city poblacion. Whileovertaking, the PUJ jeep of defendant Destrajo running abreast with theovertaken jeep, bumped the motorcycle driven by the deceased who was goingtowards the direction of Lasa, Davao City. The point of impact was on the lane ofthe motorcycle and the deceased was thrown from the road and met his untimelydeath. 1
Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages andattorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation(AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An informationfor homicide thru reckless imprudence was also filed against Pepito Into.
During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty ofone (1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4)years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all theaccessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in theamount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in case ofinsolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplarydamages with costs. No appeal was interposed by accused who later applied for probation. 2
On December 14, 1981, the lower court rendered a decision finding that Destrajo had notexercised sufficient diligence as the operator of the jeepney. The dispositive portion of thedecision reads:
WHEREFORE, the Court finds judgment in favor of the plaintiffs againstdefendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for lossof income; to pay plaintiffs the sum of P12,000.00 which amount shall bededucted in the event judgment in Criminal Case No. 3527-D against the driver,accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70representing funeral and burial expenses of the deceased; to pay plaintiffs thesum of P5,000.00 as moral damages which shall be deducted in the eventjudgment (sic) in Criminal Case No. 3527-D against the driver, accused Into; topay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.
The defendant insurance company is ordered to reimburse defendant Destrajowhatever amounts the latter shall have paid only up to the extent of its insurancecoverage.
SO ORDERED. 3
Petitioners filed a motion for the reconsideration of the second paragraph of the dispositiveportion of the decision contending that AFISCO should not merely be held secondarily liablebecause the Insurance Code provides that the insurer's liability is "direct and primary and/orjointly and severally with the operator of the vehicle, although only up to the extent of theinsurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurancepolicy issued by AFISCO, should have been awarded in their favor.
In its comment on the motion for reconsideration, AFISCO argued that since the InsuranceCode does not expressly provide for a solidary obligation, the presumption is that the obligationis joint.
In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling thatsince the insurance contract "is in the nature of suretyship, then the liability of the insurer issecondary only up to the extent of the insurance coverage." 5
Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer isdirect, primary and solidary with the jeepney operator because the petitioners became directbeneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 Thismotion was likewise denied for lack of merit.
Hence, petitioners filed the instant petition for certiorari which, although it does not seek thereversal of the lower court's decision in its entirety, prays for the setting aside or modification ofthe second paragraph of the dispositive portion of said decision. Petitioners reassert theirposition that the insurance company is directly and solidarily liable with the negligent operatorup to the extent of its insurance coverage.
We grant the petition.
The particular provision of the insurance policy on which petitioners base their claim is asfollows:
Sec. 1 — LIABILITY TO THE PUBLIC
1. The Company will, subject to the Limits of Liability, pay all sums necessary todischarge liability of the insured in respect of
(a) death of or bodily injury to any THIRD PARTY
(b) . . . .
2. . . . .
3. In the event of the death of any person entitled to indemnity under this Policy,the Company will, in respect of the liability incurred to such person indemnify hispersonal representatives in terms of, and subject to the terms and conditionshereof. 7
The above-quoted provision leads to no other conclusion but that AFISCO can be held directlyliable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75,"[w]here an insurance policy insures directly against liability, the insurer's liability accruesimmediately upon the occurrence of the injury or even upon which the liability depends, anddoes not depend on the recovery of judgment by the injured party against the insured." 8 Theunderlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle LiabilityInsurance is "to protect injured persons against the insolvency of the insured who causes suchinjury, and to give such injured person a certain beneficial interest in the proceeds of the policy .. ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the no-faultclause, AFISCO's liability is now limited to P15,000.00.
However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In MalayanInsurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue asto the nature of the liability of the insurer and the insured vis-a-vis the third party injured in anaccident. We categorically ruled thus:
While it is true that where the insurance contract provides for indemnity againstliability to third persons, such third persons can directly sue the insurer, however,the direct liability of the insurer under indemnity contracts against third partyliability does not mean that the insurer can be held solidarily liable with theinsured and/or the other parties found at fault. The liability of the insurer is basedon contract; that of the insured is based on tort.
In the case at bar, petitioner as insurer of Sio Choy, is liable to respondentVallejos (the injured third party), but it cannot, as incorrectly held by the trialcourt, be made "solidarily" liable with the two principal tortfeasors, namelyrespondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer weresolidarily liable with said, two (2) respondents by reason of the indemnity contractagainst third party liability — under which an insurer can be directly sued by athird party — this will result in a violation of the principles underlying solidaryobligation and insurance contracts. (emphasis supplied)
The Court then proceeded to distinguish the extent of the liability and manner of enforcing thesame in ordinary contracts from that of insurance contracts. While in solidary obligations, thecreditor may enforce the entire obligation against one of the solidary debtors, in an insurancecontract, the insurer undertakes for a consideration to indemnify the insured against loss,damage or liability arising from an unknown or contingent event. 11 Thus, petitioner therein,which, under the insurance contract is liable only up to P20,000.00, can not be made solidarilyliable with the insured for the entire obligation of P29,013.00 otherwise there would result "anevident breach of the concept of solidary obligation."
Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under theinsurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the totalamount of P53,901.70 in accordance with the decision of the lower court. Since under both thelaw and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph
of the dispositive portion of the decision in question may have unwittingly sown confusionamong the petitioners and their counsel. What should have been clearly stressed as to leave noroom for doubt was the liability of AFISCO under the explicit terms of the insurance contract.
In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, butnot solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such,petitioners have the option either to claim the P15,000 from AFISCO and the balance fromDestrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO tothe extent of the insurance coverage.
While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticedthat the lower court erred in the computation of the probable loss of income. Using the formula:2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amountis P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordancewith prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15
WHEREFORE, premises considered, the present petition is hereby GRANTED. The award ofP28,800.00 representing loss of income is INCREASED to P192,000.00 and the deathindemnity of P12,000.00 to P50,000.00.
SO ORDERED.
Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur.
G.R. No. L-49699 August 8, 1988
PERLA COMPANIA de SEGUROS, INC., petitioner,vs.HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance ofCamarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, forthemselves and as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and GRACE allsurnamed RAMOS, FERNANDO M. ABCEDE, SR., for himself and Guardian Ad Litem forminor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem forminors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA., respondents.
Jose B. Sanez for petitioner.
James B. Pajares for private respondents.
CORTES, J.:
The instant petition for certiorari and prohibition with preliminary injunction concerns the abilityof insurers under the "no fault indemnity" provision of the Insurance Code. *
On December 27, 1977, in a collision between the IH Scout in which private respondents wereriding and a Superlines bus along the national highway in Sta. Elena, Camarines Norte, privaterespondents sustained physics injuries in varying degrees of gravity. Thus, they filed with the
Court of First Instance of Camarines Norte on February 23,1978 a complaint for damagesagainst Superlines, the bus driver and petitioner, the insurer of the bus [Rollo, pp. 27-39.] Thebus was insured with petitioner for the amount of P50,000.00 as and for passenger liability andP50,000.00 as and for third party liability. The vehicle in which private respondents were ridingwas insured with Malayan Insurance Co.
Even before summons could be served, respondent judge issued an order dated March 1, 1978[Rollo, pp. 40-41], the pertinent portion of which stated:
The second incident is the prayer for an order of this court for the InsuranceCompany, Perla Compania de Seguros, Inc., to pay immediately the P5,000.00under the "no fault clause" as provided for under Section 378 of the InsuranceCode, and finding that the requisite documents to be attached in the record, thesaid Insurance Company is therefore directed to pay the plaintiffs (privaterespondents herein) within five (5) days from receipt of this order.
Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision [Rollo,p. 44] and likewise moved for the reconsideration of the order. Petitioner held the position thatunder Sec. 378 of the Insurance Code, the insurer liable to pay the P5,000.00 is the insurer ofthe vehicle in which private respondents were riding, not petitioner, as the provision states that"[i]n the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle inwhich the occupant is riding, mounting or dismounting from." Respondent judge, however,denied reconsideration. A second motion for reconsideration was filed by petitioner. However, inan order dated January 3, 1979, respondent judge denied the second motion for reconsiderationand ordered the issuance of a writ of execution [Rollo, p. 69.] Hence, the instant petition prayingprincipally for the annulment and setting aside of respondent judge's orders dated March 1,1978 and January 3, 1979.
The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-74.]
The sole issue raised in this petition is whether or not petitioner is the insurer liable to indemnifyprivate respondents under Sec. 378 of the Insurance Code.
The key to the resolution of the issue is of courts e Sec. 378, which provides:
Sec. 378. Any claim for death or injury to any passenger or third party pursuantto the provision of this chapter shall be paid without the necessity of proving faultor negligence of any kind. Provided, That for purposes of this section —
(i) The indemnity in respect of any one person shall not exceed five thousandpesos;
(ii) The following proofs of loss, when submitted under oath, shall be sufficientevidence to substantiate the claim:
(a) Police report of accident, and
(b) Death certificate and evidence sufficient to establish the properpayee, or
(c) Medical report and evidence of medical or hospitaldisbursement in respect of which refund is claimed;
(iii) Claim may be made against one motor vehicle only. In the case of anoccupant of a vehicle, claim shall lie against the insurer of the vehicle in whichthe occupant is riding, mounting or dismounting from. In any other case, claimshall lie against the insurer of the directly offending vehicle. In all cases, the rightof the party paying the claim to recover against the owner of the vehicleresponsible for the accident shall be maintained. [Emphasis supplied.]
From a reading of the provision, which is couched in straight-forward and unambiguouslanguage, the following rules on claims under the "no fault indemnity" provision, where proof offault or negligence is not necessary for payment of any claim for death Or injury to a passengeror a third party, are established:
1. A claim may be made against one motor vehicle only.
2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle. inwhich he is riding, mounting or dismounting from.
3. In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie againstthe insurer of the directly offending vehicle.
4. In all cases, the right of the party paying the claim to recover against the owner of the vehicleresponsible for the accident shall be maintained.
The law is very clear — the claim shall lie against the insurer of the vehicle in which the"occupant" ** is riding, and no other. The claimant is not free to choose from which insurer hewill claim the "no fault indemnity," as the law, by using the word "shall, makes it mandatory thatthe claim be made against the insurer of the vehicle in which the occupant is riding, mounting ordismounting from.
That said vehicle might not be the one that caused the accident is of no moment since the lawitself provides that the party paying the claim under Sec. 378 may recover against the owner ofthe vehicle responsible for the accident. This is precisely the essence of "no fault indemnity"insurance which was introduced to and made part of our laws in order to provide victims ofvehicular accidents or their heirs immediate compensation, although in a limited amount,pending final determination of who is responsible for the accident and liable for thevictims'injuries or death. In turn, the "no fault indemnity" provision is part and parcel of theInsurance Code provisions on compulsory motor vehicle ability insurance [Sec. 373-389] andshould be read together with the requirement for compulsory passenger and/or third partyliability insurance [Sec. 377] which was mandated in order to ensure ready compensation forvictims of vehicular accidents.
Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, asprivate respondents were not occupants of the bus, they cannot claim the "no fault indemnity"provided in Sec. 378 from petitioner. The claim should be made against the insurer of thevehicle they were riding. This is very clear from the law. Undoubtedly, in ordering petitioner topay private respondents the 'no fault indemnity,' respondent judge gravely abused his discretion
in a manner that amounts to lack of jurisdiction. The issuance of the corrective writ of certiorariis therefore warranted.
WHEREFORE, the petition is GRANTED and respondent judge's order dated March 1, 1978,requiring petitioner to pay private respondents the amount of P5,000.00 as "no fault indemnity'under Sec. 378 of the Insurance Code, and that of January 3, 1979, denying the second motionfor reconsideration and issuing a writ of execution, are ANNULLED and SET ASIDE. Thetemporary restraining order issued by the Court on January 24, 1979 is made permanent.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
