Case Summary (G.R. No. 70648)
Factual Background
- In May 1965 Lim, as proprietor of Southern Air Lines (“SAL”), contracted in Tokyo to purchase two DC-3A aircraft and spare parts from Japan Domestic Airlines (“JDA”) for US $109,000, to be paid in installments.
- Pioneer issued a surety bond in Lim’s favor for the balance of the purchase price. Lim granted Pioneer a chattel mortgage over the aircraft upon their arrival in Manila.
- Bormaheco, the Cervanteses, and Maglana contributed funds—intended as equity in a proposed airline corporation—to Lim, signing separate indemnity agreements in Pioneer’s favor to secure reimbursement of any bond payments.
- Lim defaulted. Pioneer paid JDA a total of P298,626.12, foreclosed the mortgage, and realized P37,050 from public sale proceeds. Pioneer then sued Lim and the contributors for reimbursement.
Proceedings Below
– Trial Court (CFI Manila, Civil Case No. 66135)
• Held Lim liable to Pioneer for P311,056.02 plus interest, attorney’s fees, and damages.
• Dismissed Pioneer’s complaint against Bormaheco, the Cervanteses, and Maglana but awarded them reimbursement and damages on their cross-claims.
– Court of Appeals (CA-G.R. CV No. 66195)
• Dismissed Pioneer’s action against all defendants on the ground that Pioneer collected P295,000 in reinsurance proceeds and lacked standing as the real party in interest.
• Otherwise affirmed the trial court’s awards to Lim’s co-contributors.
Issues in G.R. No. 84197 (Pioneer)
- Whether Pioneer, having collected reinsurance proceeds and foreclosure realizations, retained standing and a cause of action against the indemnitors.
- Whether Pioneer could represent its reinsurer without showing attorney-in-fact authority.
Analysis on Real Party in Interest
– Reinsurance and Subrogation: Upon paying JDA, Pioneer was subrogated to JDA’s rights under Article 2207, New Civil Code. When Pioneer received P295,000 from its reinsurer, the reinsurer became the real party in interest for that sum.
– Standing: Under Old Rule 3, Rule 2, only the real party in interest may sue. Pioneer sued in its own name, without attorney-in-fact authority from its reinsurer. Cited precedents hold that an attorney-in-fact cannot prosecute in his own name.
– Deficiency: Pioneer’s unpaid portion amounted to P3,666.28, but it realized P37,050 from foreclosure. Pioneer thus was overcompensated by P33,383.72 and had no remaining claim.
– Unjust Enrichment: Allowing Pioneer to recover the excess would violate Article 22, New Civil Code.
Analysis on Liability of Indemnitors
– Mortgage Foreclosure as Exclusive Remedy: By foreclosing the chattel mortgage (Recto Law, Art. 1484), Pioneer elected that remedy and extinguished the indemnity agreements (Articles 2067, 2080; jurisprudence).
– Extension of Debt: Subsequent modifications of installment due dates without guarantors’ consent extinguished guaranty (Art. 2079).
– Prescription and Bond Stipulation: Pioneer’s claim against JDA had prescribed under bond terms; by paying after prescription, it was barred from reimbursement (Art. 1318).
– Result: Pioneer had no cause of action against Bormaheco, the Cervanteses, or Maglana and was liable to them for damages and attorney’s fees due to wrongful attachment.
Issues in G.R. No. 84157 (Lim)
Did Lim and the co-contributors form a de facto part
Case Syllabus (G.R. No. 70648)
Facts
- In May 1965, Jacob S. Lim (owner of Southern Air Lines, SAL) agreed in Tokyo with Japan Domestic Airlines (JDA) to purchase two DC-3A aircraft and spare parts for US$109,000 in installments.
- Pioneer Insurance & Surety Corporation issued Surety Bond No. 6639 in favor of JDA for Lim’s unpaid balance; Lim executed a chattel mortgage over the aircraft as security.
- Bormaheco, the Cervantes spouses, and Maglana contributed funds (totaling P151,000 plus miscellaneous expenses) toward a proposed SAL corporation; they signed indemnity agreements to hold Pioneer harmless.
- Lim defaulted; Pioneer paid JDA P298,626.12, foreclosed extrajudicially on the chattel mortgage, and sold the aircraft for P37,050.00; co-owners filed third-party claims.
Procedural History
- July 19 1966: Pioneer filed for judicial foreclosure with preliminary attachment against Lim, Bormaheco, Cervanteses, and Maglana.
- Respondents answered with cross-claims for reimbursement of contributions and damages.
- Trial Court (Civil Case No. 66135):
• Held Lim liable to Pioneer for P311,056.02 plus interest, fees, and P70,000 moral/exemplary damages.
• Ordered Lim to pay cross-claimants P184,878.74 plus interest, damages, and P20,000 fees each.
• Dismissed Pioneer’s complaint against Bormaheco, Cervanteses, and Maglana; awarded them indemnity and fees. - Court of Appeals (CA-G.R. CV No. 66195):
• Dismissed Pioneer’s complaint in full.
• Affirmed trial court’s award on cross-claims.
Issues
- G.R. No. 84197 (