RIZAL SURETY & INSURANCE COMPANY, PETITIONER, VS. COURT OF APPEALS AND UNITED STATES LINES COMPANY, RESPONDENTS.

On December 5, 1960,
Rizal Surety & Insurance Co. insured against all
risks a shipment of six (6) bales of cotton remnants loaded on
board the S.S. PIONEER MIST in New York
and consigned to Imperial Shirt Factory
in Manila.  Upon arrival of the ship in Manila,
on the same date, the cargo was discharged unto the custody of the Manila Port Service,^[1] the arrastre
operator at the Port of Manila.

When the consignee Imperial
Shirt Factory took delivery of
the cargo, it discovered that four (4) bales
were either short landed and/or short delivered, possibly due to the fault or
negligence of either or both the MPS or the
U.S. Lines Company, owner of the vessel.  Because of this loss, Rizal Surety
paid the consignee P1,422.42, pursuant to the terms of the insurance contract.

Rizal Surety, as subrogee
of the consignee, turned to the defendants for reimbursement of what it had
paid.  On March 23, 1961, it filed its claim with the MPS^[2] and on April 25, 1961, demand was made by it on the U.S.
Lines.  MPS wrote back on April 27, 1961, acknowledging receipt of the claim
and stating that the matter was “under careful consideration”.^[3] On the other hand, the U.S. Lines replied on May 15,
1961, denying the
claim and stating that the shipment was landed in good order as evidenced by the attached verifax copies of the discharge tally sheets allegedly attested by both its checker and that of the MPS.  It also requested Rizal
Surety to take up the matter with the MPS.

On July 11, 1961,
Rizal Surety filed suit in the Court of First Instance of Manila, impleading MPS
and the U.S. Lines as alternative defendants, to recover the amount of P1,235.32, representing the reasonable value of the short
landed and/or short delivered goods.  The
U.S. Lines answered on July 21,
1961, with a
counterclaim for P400.00 as attorney’s fees for having been unnecessarily joined as party
defendant.  The MPS filed its answer on July 29, 1961, denying negligence and responsibility for the loss
of the shipment.

On October
27, 1961, the legal
counsel of MPS recommended to its
general manager the settlement of Rizal Surety’s claim with the payment of P1,200.00.^[4] On May 15, 1962, the MPS paid said claim.^[5]

Upon Rizal
Surety’s instance, the trial court, on June 18, 1962, dismissed
the complaint; however, the hearing
on the counterclaim filed by U.S. Lines was continued.  Subsequently, the trial court rendered
its decision awarding P300.00 as
attorney’s fees to U.S. Lines on the ground that Rizal Surety was responsible for unnecessarily dragging
the former into the suit since it
failed to confront the MPS with the copies of the discharge tally sheets furnished by the U.S. Lines.

Rizal Surety’s motion to reconsider was denied.  On appeal to the Court of Appeals, the
decision was affirmed on two
grounds:  (1) the U.S. Lines was unnecessarily made a party defendant
and (2) Rizal Surety’s
claim against it was “clearly unfounded”.

Hence, Rizal Surety filed this petition for review of the decision of the Court of
Appeals.

Petitioner’s first submission is that both courts erred in
holding that the U.S. Lines was unnecessarily made a party defendant
because of the former’s omission in not confronting
MPS with the tally sheet copies, thus entitling the latter to attorney’s fees
under par. 2 of Article 2208 of the Civil
Code.  This provision authorizes
the award of attorney’s fees when the defendant’s act or omission has caused plaintiff – the
U.S. Lines as counterclaimant – to unnecessarily incur expenses to protect its interests.  The submission is meritorious.  There is no proof that had petitioner
confronted the MPS with the verifax copies of
the good order tally sheets, the latter would
have immediately admitted its liability before the lapse of the one (1) year prescriptive period for filing the action.  On the contrary,
there is evidence on record that the
MPS could not have admitted its liability and paid petitioner’s valid claim before May 15, 1962, when payment was actually made, because its records were not
immediately available.^[6]

In impleading U.S. Lines as alternative defendant in the
lower court, petitioner acted pursuant
to Section 13, Rule 3 of the
Rules of Court.  Contrary to respondent’s
claim, there is uncertainty here, as far as petitioner was
concerned, because prior to the filing of the complaint neither respondent U.S. Lines nor the MPS
admitted liability.  The answers of both to the complaint also denied liability for the loss.  To be sure, the appellate court’s finding
of fact even stated that the loss of the
shipment was “due to the
negligence of either or both the [MPS] and the defendant-appellee [U.S. Lines]”.^[7]

Moreover, par. 2 of
Article 2208 is not applicable to the case.  The lower court granted attorney’s fees to
respondent U.S. Lines as litigation expenses unnecessarily incurred.  First of all, the litigation expenses recoverable therein are those
incurred in suing third persons,
upon the premise that such expenses were unnecessary.  The expenses
mentioned in the second situation
in said par. 2 are therefore non-litigation;
otherwise, there would have been no justification for the
distinction.  Secondly, the article in
question starts out with the general rule: 
“In the absence of stipulation, attorney’s fees and expenses of
litigation, other than judicial costs, cannot be recovered x x x.”  Now a
party sued in court is compelled – under pain of default – to become a party
defendant either necessarily or unnecessarily. 
If necessarily, he can not recover the attorney’s fees and litigation
expenses incurred even if he should win, since it is not the fact of winning
alone that entitles recovery
of such items but rather the attendance of special circumstances – the enume­rated
exceptions in Article 2208 – in addition.  Otherwise, everytime
a defendant wins, automatically plaintiff must pay attorney’s fees, thereby
putting a premium on the right to litigate, which should not be so.  For those expenses then, the law deems the award of costs as sufficient
reimbursement.^[8]
On the other hand, if a party is unnecessarily made a defendant it will not be par. 2 of the
article but par. 4 of the article that will apply, because the term “unnecessarily” connotes the
idea that the cause of action against such party was clearly unfounded
in the first place.  This brings Us then to the second point raised.

Following the very words of the law, in order that plaintiff –
here, respondent as, caunterclaimant – may be
entitled to its prayer, the suit must be “clearly unfounded“.  It is therefore necessary to examine the
facts which force petitioner – as the defendant in the counterclaim – to file
the complaint to protect its rights under the law and ask some pertinent
questions in connection therewith.

In the first place it is
not disputed that the goods were received by the consignee in bad order.  For petitioner to recover, judicial action must
be commenced within a certain limited period of time granted to the consignee,
into whose shoes it stepped into, counted from the date of the delivery of the
goods.  Claim for the loss was timely
presented.  However, in answer to the
same, the MPS stated that the claim was “under careful
consideration”.  Addressing itself
to the U.S. Lines, petitioner was shown and given the verifax
copies of the tally sheets purportedly signed by the representatives of the MPS and the U. S. Lines certifying that the
goods were discharged in good order.

Considering that the Rules of Court give the petitioner the right to sue the U.S. Lines and the MPS in
the alternative, as it did, the following questions become pertinent:  Was petitioner bound to accept immediately
the verifax copies of the tally sheets presented by
the U.S. Lines giving them full probative value?  Being mere copies, they cannot be considered
the best evidence.  Which of the two,
U.S. Lines or petitioner, is more interested to show that the U.S. Lines was
not responsible?  Definitely,
the U.S. Lines.  Surely, it was incumbent upon U.S.
Lines to persuade and convince petitioner that it has no responsibility.  Was petitioner under obligation to go to MPS
and insist that it was the only
one responsible because of the verifax copies of the
tally sheets, the authenticity, and genuineness of which the MPS could possibly
doubt?^[9]
We believe not because for
petitioner, it is immaterial as to which of the two defendants paid the claim,
so long as it
is paid.  Now, why should petitioner take
the trouble of establishing or helping respondent U.S. Lines to establish the
latter’s own defense to the former’s prejudice?  We therefore believe that if there was the
duty to show non-liability, it was incumbent upon U.S. Lines not merely to show
to petitioner the verifax copies of the tally sheets,
which incidentally did not bind the consignee because only the U.S. Lines’ and
the MPS’ representatives signed them, but to convince codefendant MPS that it
is the only one responsible to pe­titioner. 
This was not done.  U.S. Lines
expected petitioner to accept blindly the copies of the tally sheets at their
face value.  And because petitioner did
not, but instead tried to enforce its claim, availing itself of the right to sue
in the alternative, it is contended that pe­titioner is liable to pay
attorney’s fees for filing a “clearly unfounded civil action”.

Thus pressed by the limited period within which to file a suit,
aggravated by the work of operating its own business, facing an uncertainty
under the MPS’ statement that the claim was
“under careful consideration”, notified by the U.S. Lines that
it has no responsibility based on mere
copies of the tally sheets and observing apathy on the part of both prospective defendants – who would be
favored by the lapse of the one year period
– in the settlement of what it honestly believed to be a legitimate
money claim, it is reasonable to
expect petitioner Rizal Surety to act the way it did.  The suit is, in Our
view, not “clearly unfounded” as the Court of Ap­peals erroneously held.

Furthermore, to be “clearly unfounded”, the cause of
action must be so
untenable as to amount to gross and evident bad faith.^[10]
There might have been such bad faith on petitioner’s part if it knew before
filing the complaint against U.S. Lines that MPS would admit liabi­lity.  But the facts on record negative this
hypothesis.  The legal counsel for MPS recommended settlement of petitioner’s claim only after the complaint and its answer thereto
denying responsibility had been
filed.  And the claim was paid even much
later – ten months from the filing of the complaint, to be specific.

WHEREFORE, the decision appealed from awarding P300.00 as
attorney’s fees to respondent U.S. Lines is hereby reversed.  No costs.

SO ORDERED.

Concepcion, C.J., Reyes, J.B.L., Dizon, Regala, Makalintal, Zaldivar, Sanchez, and Castro, JJ., concur.

^[1]
Hereinafter to be referred to simply as “MPS”.

^[2]
Magyo, Session of Aug. 7,
1962, T.s.n., p. 4.

^[3]
Ibid,
p. 5.

^[4]
Exn.
1-MPS. Exh. 7-U.S. Lines.

^[5]
Magyo, Session of Aug. 7, 1962, T.s.n.,
p. 4.

^[6]
Ibid.

^[7]
Petition, Annex A, pp. 3-4.

^[8]
Tan Ti v. Alvear, 26 Phil. 566; Herrera v. Luy
Kim Guan, L-17043, Jan. 31, 1961; Justiva v. Gustillo, L-16396, Jan. 31, 1963.

^[9]
It is reasonable to assume that MPS would not have immediately changed the
tenor of its reply to petitioner even in the face of the verifax
copies of the tally sheets.  The MPS
would still have to verify their authenticity against its own copies, which however
were not immediately available.  In
effect, such action on the part of MPS would have constituted a denial – albeit provisionally – of
their genuineness.  Petitioner would then
still be left in
uncertainty.  In this connection, see the
recently decided case of Fireman’s Fund Insurance Co. v. Compania General de Tabacos de
Filipinas, L-22625, April 27, 1967, where
this Court remarked that when the
consignee or its subrogee is not in a position to be
certain as to the authenticity of the cargo receipts, or that the arrastre operator would recognize their authenticity, it is justified in suing both carrier
and the arrastre operator in the alternative.

^[10]
Herrera v. Luy Kim Guan, supra.