PARAMOUNT SURETY & INSURANCE CO., INC., PLAINTIFF-APPELLEE, VS. PASTOR D. AGO AND IWAI & COMPANY, LTD., DEFENDANTS-APPELLANTS.

This is an appeal from the decision of the then Branch VIII,
Court of First Instance of Manila^[*] in Civil
Case No. L-4955 entitled “Paramount Surety & Insurance Co., Inc. vs.
Pastor D. Ago & Iwai & Company, Ltd., Cross-Claim­ant v. Pastor D. Ago,
Cross-Defendant.“

The dispositive
portion of the trial court’s decision reads:

“FOR ALL THE FOREGOING CONSIDERATIONS, the Court finds for
plaintiff Paramount Surety & Insurance Co., Inc. and orders defendants Pastor D. Ago and Iwai & Company, Ltd. to pay said plaintiff, jointly and severally:

(a)   P1,237.50 as accrued pre­miums from February 29, 1960, to November 29, 1960, with 12% per
annum from the filing of the ins­tant
complaint on January 29, 1962
until fully paid.

(b) P1,965.00,
representing bank interests paid by plaintiff to the China Banking Corporation,
also with 12% per annum from the institution of the present complaint until
fully paid;

(c)  P63.66, the cost of documen­tary stamps; and

(d) Twenty (20%) percent
of the total of the above-mentioned amounts, as attorney’s fees, plus the costs.

“In view of the conclusion thus reached, the
respective counterclaims of the defendants, as well as the cross-claim, are hereby dismissed for lack of merit.

“SO ORDERED.” (Record on Appeal pp. 76-77)

The undisputed facts of
this case are as follows:

On August 2,
1959, Pastor D. Ago and Iwai & Co., Ltd. a partnership duly organized and existing under the laws of Japan and
doing business in the Philippines, obtained a loan evidenced by a 90-day promissory note in the sum of P50,000.00 from the China Banking Corporation with Paramount
Surety & Insurance Co., Inc. as co-maker for the accommodation of Pastor D. Ago and Iwai &
Co., Ltd.  Paramount consented to act as such
on the consideration that the latter (defendants) shall pay it the
sum of P2,250.00 as premium for every period of 90 days or
fraction thereof from August 7, 1959 until the promissory note or any of its renewals,
substitutions or extensions is finally can­celled by the China
Banking Corporation.  It appears that the
promissory note was finally cancelled by the China Banking Corporation on November
29, 1960.  But defendants-accommodated parties failed to
pay the accrued premiums with
interest thereon, from February 29, 1960 to November 29, 1960 (Record on Appeal, pp. 2-3).

After failure of the
accommodated parties to pay their obligations despite repeated demands, Paramount Surety & Insurance Co., Inc. filed with the
Court of First Instance, Branch VIII
of Manila, on January 29, 1962 a complaint for collection of a sum of money, against defendants Pastor D. Ago
& Iwai & Company, Inc. relative to said promissory note of
defendants for P50,000.00 in favor of the China
Banking Corporation, which plaintiff signed as co-maker for the
defendants.  Plaintiff seeks to recover
the aforesaid unpaid premiums in the amount of P4,237.50
with 12% interest per annum from the filing of the instant complaint,
plus the sum of P1,965.00 representing bank interests debi­ted by the China
Banking Corporation against plaintiffs’ current account with said Bank and the
sum of P63.66 for documentary stamps, as well as 20% of the
total obligation aforementioned, by way of attorney’s fees (Record on Appeal, pp. 1-22).

After pleadings were
filed in the lower court, the parties filed the following stipulation of facts on February 28, 1966:

COME NOW the parties in the above­-entitled
case, by their undersigned counsel, and to this Honorable Court respectfully
submit the following partial stipulation of facts, to wit:

1.   That the parties admit their respective
capacity to sue and be sued
under the complaint;

2.    That on or about August 7, 1959, defendants
Pastor D. Ago and Iwai & Co. Ltd. obtained a loan in the amount of
P50,000.00 from the China Banking Corporation on a thirty (30) days term, which loan is evidenced by a Promissory Note hereto attached as Annex
“A”;

3.    That defendant requested, on the same date, the herein plaintiff
to act as their co-maker of the afore­mentioned Promissory Note, Annex ‘A’, and
the plaintiff consented and did in fact sign as co-maker as shown by said Annex
‘A’ upon the written undertaking having been executed by the defendants Pastor
D. Ago and Iwai & Co., Ltd. as contained in the Indemnity Agree­ment hereto
attached as Annex ‘B’;

4.    That the Promissory Note, Annex A, which
matured on November 5, 1959, was renewed on the same date due to non-payment
and the maturity date thereof fell on December 20, 1959 as evidenced by a
Promissory note hereto attached as Annex C;

5.    That upon request made by the defendant
Pastor D. Ago in his letter
dated December 16, 1959, copy of which is
hereto attached as Annex D, with the conformity of plaintiff and
defendant Iwai & Co., Ltd., the Promissory Note (Annex C) was again renewed
due to non-payment as per Promissory Note dated Feb­ruary 1, 1960, true copy of
which is hereto attached as Annex E, and the maturity date of said last note
being February 29, 1960; and

6.    That in his letter dated February 29, 1960,
defendant Pastor D. Ago, with the conformity of plaintiff and the defendant
Iwai & Co., Ltd. requested again for another renewal due to non-payment
which was granted by the Bank as evidenced by a Promissory note for forty-five
(45) days, true copy of which is hereto attached as Annex F, with April 14,
1960 as the maturity and due date.” (Rec. on Appeal, pp.
46-48).

For failure of plaintiff and its counsel to appear for trial
despite due notice, as early as May 30, 1966, the court upon motion of the
defendants who waived their counterclaims provided the complaint is dismissed,
issued an order dated July 1, 1966 dismissing the complaint as well as the
counterclaim contained in the answer of defend­ants, without prejudice and
without pronouncement as to costs (Record on Appeal, pp. 49-50).

On July 25, 1966, the trial court on motion of the plaintiff,
reconsidered the aforestated order of dismissal and
set it aside.

On June 18, 1967, the trial court rendered the herein questioned
decision.

Defendants Pastor D. Ago and
Iwai & Co., Ltd. appealed the decision to the Court of Appeals.

Defendant Ago filed on March 28, 1968 his brief while plaintiff-appellee submitted its brief on May 9, 1968.  However, the appeal interposed by
cross-claimant Iwai & Co., Ltd. was dismissed by the Court of Appeals for
failure to file appellant’s brief without prejudice to the appeal of defendant
Pastor D. Ago (Records, p. 24).

The Court of Appeals in its resolution promulgated on April 18,
1974, pursuant to the provision of Section 17 in relation to Section 31 of the
Judiciary Act as amen­ded, and
Section 3 of Rule 50 of the Rules of Court, certi­fied the instant case to the
Supreme Court on the ground that “the case is submitted on a stipulation
of facts and will depend upon the
proper construction or interpretation of certain documentary
evidence which falls within the
exclusive jurisdiction of the
Supreme Court.” (Rollo, pp. 30-31)

A careful examination of
the records show that the respondent Ago and Iwai & Company signed
the promissory note in conjunction with the pertinent provisions of their
Indemnity Agreement, which provides:

“PREMIUM: — To pay the
COMPANY the sum of Two
Thousand Two Hundred Fifty Only (P2,250.00) in advance and as premium therefor, for each period of ninety days or fractional part thereof, to be computed from this date, said
amount to be payable on or before the day of every such period or fractional
part thereof, until said Bond, or any renewal, extension, alteration or subs­titution
thereof, be cancelled in full by the person or entity in whose favor it was made, by a court of competent jurisdic­tion.  (Underscoring supplied).  x x x (Record on Appeal, Decision, p. 72).

“INDEMNITY. — To indemnify and make good to the Company,
jointly and severally, any damages, prejudice, loss, costs, payments, advances
and expenses of whatever kind and nature, including attor­ney’s fees and legal
costs, which the COMPANY may, at any time, sustain or incur, as well as to
reimburse to said COMPANY all sums and amounts of money which the COMPANY or
its representatives shall or may or cause to be paid or become liable to pay,
on account of or arising from the execution of the abovementioned bond or any
extension, renewal, alteration, or substitution thereof made at the instance of the under­signed or
anyone of them.  x x x (Record on Appeal, Decision,
pp. 72-73).

“INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: — Any payment or disburse­ment made by the
COMPANY x x x either in the
belief that the COMPANY was obligated to make such payment or in the belief
that said payment was necessary or expedient in order to avoid greater losses
or obligation for which the Company might be liable x x
x shall be final and shall not be disputed by the undersigned who hereby
jointly and severally bind themselves to indemnify the COMPANY of any and all
such payments, as stated in the preceding clauses.  x x
x (Record on Appeal, Decision, p. 73).

“ATTORNEY’S FEES: — In
the event an action is instituted for the recovery of any amount under this
bond application and/or such bond as the COMPANY may execute pursuant to the
terms hereof or un­der any extension, renewal x x x the undersigned hereby agree and obligate themselves,
jointly and severally, to pay unto the COMPANY, as and for attorney’s fees, a
sum equivalent to twenty (20%) per cent of the amount claimed by the COMPANY,
in such action, the same to be due and payable irrespective of whether the case
is settled judicially, however, that said attorney’s fees shall in no case be
less than P200.00.” (Record on Appeal, Deci­sion, p.
74).

“It is a basic and fundamental rule in the interpre­tation
of contract that if the terms thereof are clear and leave no doubt as to the
intention of the contract­ing parties, the literal meaning shall control x x x.  In
order to judge the intention of the parties, their con­temporaneous and
subsequent acts shall be principally consi­dered.” (Sy v. Court of Appeals, 131 SCRA 116, GSIS v. CA et al.,
145 SCRA 311).

Further, the basic rule
in the interpretation of pleadings is that, “pleadings (should) be liberally cons­trued so as to do substantial justice” (Rule 6, Section 15).

The above-quoted specific
provisions of the Indem­nity Agreement clearly show that respondents are liable
under said provisions.  Hence, the
stipulation agreed upon by the parties is valid and enforceable (Compana Maritima v.
Central Bank, 141 SCRA 142, 365), and obligations arising from contracts have
the force of law (Villonco Realty Co., v. Bormaheco, 65 SCRA 352; Lazo v.
Republic Surety and Insurance Co., Inc., 36 SCRA 437, Perez Rubio v. CA, 141
SCRA 488).

As aptly stated by the lower court, plaintiff is entitled
“legally and morally to recover from the defendants the amount claimed in
the complaint.” Ago’s contention that “he
is not liable thereto because plaintiff was to blame for not paying the bank
immediately of the value of the promissory note when the same became due and
paya­ble,” is untenable.  So is the
pretension of Iwai & Co., Ltd. that it could not be bound because it signed
the docu­ments in question upon the request of Ago “without investigating
the matter” and “without reading the contract.” (Record on Appeal, pp. 74-75).

There is no dispute that the defendants Pastor D. Ago and Iwai
& Co., obtained the loan of P50,000.00 from the
China Banking Corporation and are therefore, under the terms and conditions of
said contract, liable under the Indemnity Agreement signed by them for accrued
premiums, interest and expenses of whatever kind including attorney’s
fees.  Undeniably, the intent of the
parties has been shown unmistakably with clarity and specificity by the
language used therein.