G.R. No. 55466. December 03, 1990
MANILA SURETY & FIDELITY CO., INC., PETITIONER, VS. COURT OF APPEALS AND WILLIAM H. QUASHA, RESPONDENTS.
PARAS, J.:
This is a petition
for review on certiorari of the
resolution of the Court of
Appeals dated August 5, 1980* in CA
G.R. No. 42461 -R entitled “Republic of the Philippines vs. Leon Bessire, et
al.”, affirming with modification the lower court’s judgment dated April 30,
1968** with respect to the payment of 12% interest per
annum and denying petitioner’s motion for reconsideration dated October 6,
1980.
The facts as found by the Court of Appeals are as follows:
Sometime after 1951, the Republic of the Philippines, thru its
Bureau of Internal Revenue, assessed the Bessire Housing Corporation (BESCO) in
the amount of P16,840.04 representing percentage taxes for the year 1951. Apparently pressed for payment, the manager
thereof (Leon Bessire) executed in personal capacity on October 30, 1956, with
Mutual Security Insurance Corporation an “Ordinary Bond for Payment of
Taxes”, known as MUSIC S-575-A, wherein the parties undertook to jointly
and severally pay the Republic the aforementioned assessment in twelve (12)
equal installments as scheduled therein. On same day that the bond was posted Leon Bessire, Manila Surety and
Corazon Santos Escobar in her personal capacity and as attorney-in-fact of
Eduardo Escobar signed an indemnity agreement binding themselves solidarily to
indemnify Mutual Security for any damages losses it may sustain as a result of
its having consented to become a surety in favor of the Bureau of Internal Revenue
(BIR). On December 28, 1936, Leon
Bessire paid the first installment of P1,403.34 due on November 30, 1956 and
another installment on a later date. He
failed to pay the succeeding installments thus prompting the Commissioner of
the Internal Revenue to send a letter of February 20, 1958 that unless Mr.
Bessire paid P14,035.36 plus the accrued delinquency penalties within 15 days,
the bond would be forfeited. A letter
of demand was also sent on the same date to Mutual Security. (Rollo, p. 32-33; Petition, Annex A, pp.
2-3)
On May 19, 1958, Atty. William H. Quasha as substitute for
Corazon Santos Escobar signed an Indemnity Agreement whereby he undertook to
jointly and severally with Leon Bessire and BESCO, indemnify Manila Surety for
any damage or loss it may suffer in consequence of its having consented to
continue being counter surety upon the indemnity agreement MUSIC S-575-A
(Rollo, p. 67; Comment, p. 2). On July
18, 1958 the Acting Commissioner of Internal Revenue acknowledged the payment
by Leon Bessire of P300.00 and demanded the full payment of the balance of
P13,733.36 on or before July 31, 1958. A letter of demand was also sent to Mutual Security (Rollo, pp. 33-34; Petition, Annex A,
pp. 3-4).
On July 31, 1958, Leon Bessire sent a check for P1,403.34 and asked for further
time to pay the outstanding balance in view of his financial difficulties. On September 26, 1958, the Acting
Commissioner of Internal Revenue wrote Leon Bessire to pay the P12,330.02 in
full on or before October 15, 1958 and Mutual Security to do the same or steps
for the forfeiture of the bond would be taken (Rollo, p. 34; Petition, Annex A,
p. 4).
Leon Bessire made further payments: P400.00 on November 13, 1958; P500.00 on February 13, 1959;
P500.00 on May 12, 1959; and P500.00 on October 28, 1959. On April 7, 1960, a letter of demand was
again sent to Leon Bessire giving him until April 30, 1960 to pay the balance
of P10,430.02 and a letter of substantially the same tenor to Mutual
Security. On June 12, 1961, Leon Bessire died. (Rollo, pp. 34-35;
Petition, Annex A, pp. 4-5)
On February 9, 1962, the
Republic of the Philippines upon the request of the BIR filed a complaint
against Leon Bessire and Mutual Security Insurance Corporation (Mutual), to
have the surety bond guaranteeing the payment of percentage taxes
forfeited and for the said defendants jointly and severally to pay P10,032.02 plus interest
at the legal rate and costs (Rollo, p. 31).
On March 7, 1962, MutuaI
filed its answer with cross claim against Leon Bessire. On July 5, 1963 it filed a third party
complaint against petitioner, Manila Surety and Fidelity Co., Inc. (Manila
Surety). On July 26, 1963, Manila Surety filed a fourth-party complaint against herein
private respondent, William H. Quasha (Rollo, p. 32; Petition, Annex A, p. 2).
After trial on the merits, the lower court,
through then Judge Luis B. Reyes, rendered its decision on April 30, 1968, the
dispositive portion of which reads:
“Wherefore, judgment is rendered as follows:
“1. Declaring Surety Bond MUSIC S575-A, issued by
defendant Mutual Security Insurance Corporation, forfeited and ordering said
defendant to pay plaintiff the
sum of P10,030.02 plus the legal rate of interest from February 9, 1962, the
date of the filing of the suit, until said amount is fully paid, and to pay the costs of this suit.
“2. Ordering third party defendant Manila Surety
Fidelity Co. Inc., to pay third party plaintiff Mutual Security Insurance
Corporation whatever amount the latter as defendant, is adjudged to pay
plaintiff, plus interest at 12% per annum from the date of payment which
interest shall be accumulated and added to the principal quarterly and shall
earn interest at the same rate, and attorneys’ fees equivalent 10% of the total amount due under the surety bond, and
“3. Ordering fourth party defendant to pay and/or
indemnify fourth party plaintiff Manila Surety & Fidelity Co., Inc. the
amount of the judgment which it is ordered to pay in favor of third party
plaintiff Mutual Security Insurance
Corporation, with interest thereon at the rate of 12% per annum from July 3,
1963, until fully paid, and the sum equivalent to 10% of the total amount
claimed, as and for attorneys’ fees.
“The counterclaim of fourth party defendant is dismissed.
“SO ORDERED.” (Rollo, p. 68).
Mutual, Manila Surety and Quasha all file their respective
appeals to the respondent Court of Appeals which rendered judgment on March 21,
1980 affirming the judgment of the lower court (Petitioner’s brief, p. 4). On April 17, 1980, William H. Quasha,
private respondent herein, filed a Motion for Reconsideration of the
aforementioned judgment alleging as the sole ground therefore that the
respondent Court of Appeals erred in affirming without modifying a portion of
the decision which ordered fourth party defendant appellant William H. Quasha
to pay and/or indemnify fourth party plaintiff appellant Manila Surety the
amount of judgment it is ordered to pay third party plaintiff appellant Mutual,
with interest thereon at the rate of 12% per annum from July 3, 1963 until fully paid (Petitioner’s brief p. 4).
Thereafter or on August 5, 1980, respondent Court of Appeals rendered its
questioned Resolution the dispositive portion of which reads:
“Wherefore, our March 21, 1980
decision is hereby modified as follows: number 3, paragraph 1 of the dispositive portion of the decision appealed from should read:
“3. Ordering fourth party defendant to pay and/or
indemnify fourth party plaintiff Manila Surety
& Fidelity
Co. Inc., the amount of judgment
which it is ordered to pay in favor of third party plaintiff Mutual Security Insurance
Corporation and the sum equivalent to
10% of the total amount claimed, as
and for attorneys’ fees.
“The portion which provides for an interest on the amount of judgment at the rate of 12% per annum from July 3, 1963
until fully paid
is deleted.
“SO ORDERED.” (Rollo, pp. 51-52 Petition, Annex B, pp. 3-4).
On August 25, 1980, herein petitioner Manila Surety filed its Motion for Reconsideration of
the aforequoted Resolution, which motion was summarily denied by respondent Court of Appeals in its Resolution
dated October 6, 1980 (Rollo, p.
54; Petition, Annex C, p.
1). Hence this petition.
The sole issue to be resolved in this petition is whether or not respondent Quasha’s liability to
pay the 12% interest in case of
default under the Indemnity Agreement arises
only after the decision
of respondent Court of Appeals becomes final and executory.
The respondent Court of
Appeals in its resolution held:
“xxx the amount of liability of both the movant and Manila
Surety upon the surety bond is determined
only after the decision of the case becomes final and executory. Hence, before
the decision becomes final and executory and the extent of the liability
of Manila Surety is not yet determined, Manila
Surety as co-surety can not demand the 12% per cent interest per annum from the movant co-surety because during
this intervening period, there
is no liability
yet of the movant to pay, hence, there is no interest yet to be reckoned. xxx” (Rollo,
p. 51, Petition; Annex B,
p. 3).
The petition is impressed
with merit.
The Indemnity Agreement, whereby private respondent Quasha bound
himself
jointly and severally with Leon Bessire and the BESCO in favor of petitioner, provides:
“2. INDEMNITY: To indemnify the COMPANY for any damage, loss, costs, charges, or expenses of whatever kind and nature, including counsel for
attorney’s fees, which the COMPANY may, at
any time, sustain or incur as
a consequence of having become
surety upon the above-mentioned bond; x x x” (Record on Appeal, p. 77).
In the case of Associated Insurance & Surety Co. Inc. vs. Wellington Chua, et al.,
7 SCRA 52 [1963] where a similar provision
appears, this Court held:
“x x x The agreement herein sued upon is not only one of
indemnity against loss but of indemnity against liability. While the first does not render the
indemnitor liable until the person to be indemnified makes payment or sustains
loss, the second becomes operative as soon
as the liability of the person indemnified
arises, irrespective of whether or not
he has suffered actual loss.”
(Underscoring ours)
The next question here is when did the liability of Manila Surety
in favor of Mutual arise so as to give rise to the corresponding liability on the part of Quasha vis-a-vis Manila Surety. The Indemnity Agreement whereby Manila
Surety undertook to indemnify Mutual
provides:
“3. ACCRUAL OF ACTION – Where the obligation involves
a liquidated amount, for the payment of which the COMPANY has become legally liable under the terms of the
obligation and its suretyship undertaking or by the demand of the obligee or
otherwise x x x the undersigned jointly and severally
undertake to pay to the COMPANY on
the latter’s demand the full amount, necessary to discharge the COMPANY’s aforesaid liability; x x x.”
(Record on Appeal, p. 44) (Underscoring ours)
Clearly, the liability of Manila Surety
arose on July 5, 1963, the date
on which the third party complaint was
filed against it by Mutual,
which was the date of judicial demand, and from that point on, it had already
incurred liability, thereby giving rise
to the concommitant liability of Quasha
under his indemnity agreement with Manila Surety. Said indemnity agreement provides:
“3. MATURITY OF THE OBLIGATION UNDER THIS
BOND: Said indemnity shall be paid to
the COMPANY as soon as it has become liable
for the payment of any amount, under
the above-mentioned bond, whether or not
it shall have paid such sum or
sums of money, or any part therefore.” (Rollo, p. 56; Petition, Annex D, p. 77-78). (Underscoring ours).
Interpreting a similar provision in an indemnity agreement, this
Court held:
“x x x In the indemnity agreement executed by appellant in
favor of appellee, there appears the following clause: ‘Said indemnity shall be paid to the COMPANY
as soon as it has become liable
for the payment of any amount under the abovementioned bond, whether or not it
shall have paid such sums or sums of money or any part thereof.’ It
is there said that the liability
of appellee as bondsman would attach as soon as it has become liable for the
payment of any amount regardless of whether
said amount shall have been paid or not. This is the situation that actually obtains here. The NARIC, or its legal successor,
the Prisco, has actually filed an
action in court demanding payment of the obligation from appellee under the
bond it has posted on behalf of both
Felicisima Policarpio and Hermina Cruz, which action is more than enough to entitle the appellee to
enforce the indemnity agreement executed by appellant. This constitutes the cause of action of
appellee in the present case.” (Manila Surety & Fidelity Co. Inc. v. Teodulo Cruz, L-10414, April
18, 1958, 103 Phil. 367) (Underscoring ours).
In addition thereto, the indemnity agreement also provides:
“4. INTEREST IN CASE OF DEFAULT: And in case of nonpayment of the said sum or
sums of money, an interest of twelve (12%) per cent per annum, which interest,
while not paid, shall be liquidated and accumulated monthly to the capital owed
by the undersigned, drawing the same interest as the said capital.” (Rollo, p. 56; Petition, Annex D, p. 78).
Since respondent Quasha’s
liability arose on July 5, 1963, the date the third party complaint was filed
and the same not having been paid, his liability to pay the 12% per cent
interest per annum, in case of default as stated in the aforementioned
indemnity agreement also arose.
In the cases of Tagawa
vs. Aldanese, 43 Phil. 852, 859 [1922];
Plaridel Surety Insurance Co. vs.
P. L. Galang Machinery Co., 100
Phil. 679 [1957], it was held:
“If a surety upon
demand fails to pay, he can be held liable
for interest, even if in thus paying,
the liability becomes more than that in
the principal obligation. The increased
liabilities is not because of the
contract but because of the default and the necessity of judicial collection.”
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. In order to judge the
intention of the parties, their
contemporaneous and subsequent acts shall be principally considered. (Mercantile Insurance Co., Inc. vs. Felipe
Ysmael, Jr. & Co. Inc., 169 SCRA 66
[1989]; Sy vs. Court of Appeals, 131 SCRA 116 [1984]; GSIS vs. Court of
Appeals, et al., 145 SCRA 311 [1986]).
The above-quoted specific previsions
of the Indemnity Agreement clearly show that respondent is liable under said
provisions. Hence, the stipulation
agreed upon by the parties is valid and enforceable (Paramount
Surety & Insurance Co., Inc. v. Pastor D. Ago, 171 SCRA 481 [1989]) and
obligations arising from contracts have the force of law (Paramount Surety & Insurance Co.,
Inc. vs. Pastor D. Ago, 171 SCRA 481 [1989]; Villonco Realty Co. Inc. vs. Bormacheco, 65 SCRA 352 [1975];
Lazo vs. Republic Surety
Insurance Co. Inc. 31 SCRA 329
[1970]; Perez Rubio vs. CA; 141 SCRA 488 [1986].
Elucidating further on the obligations of the parties in agreements of this nature, this
Court ruled: “The indemnity agreement
was not executed for the benefit of the creditors; it was rather for the benefit of the surety and if the latter
thought it necessary in its own
interest to impose this stipulation, and the indemnitors voluntarily agreed to
the same, the court should respect the agreement of the parties and require
them to abide by their contract.” (Mercantile Insurance Co., Inc. vs. Felipe
Ysmael, 169 SCRA 66 [1989]; Security Bank vs. Globe Assurance, 107 Phil. 733
[1960]).
PREMISES CONSIDERED, (1) the instant petition is
hereby GRANTED; (2) the appealed resolution of the respondent Court of Appeals
is hereby SET ASIDE; (3) the original decision of respondent Court of Appeals
dated March 21, 1980 is hereby REINSTATED, with MODIFICATION that the liability of respondent Quasha to pay
the 12% interest in case of default be reckoned from July 5, 1963, the date the
third party complaint was filed.
SO ORDERED.
Melencio-Herrera, (Chairman), Padilla, Sarmiento, and Regalado, JJ., concur.
* Penned by Justice Hugo E. Gutierrez,
Jr. and concurred in by Justices Pedro D. Cenzon and Mariano Zosa.
** Penned by Judge Luis B.
Reyes.