Case Summary (G.R. No. L-9542)
Factual Background
On November 4, 1950, P. L. Galang Machinery Co., Inc. and Constancio San Jose entered into a contract whereby San Jose undertook to cut, deliver and sell 2,550,000 board feet of peeler and veneer logs at P60 per thousand board feet f.o.b. vessel at Polilio, to be delivered in three monthly instalments of 850,000 board feet beginning January 1951. Relying upon that agreement, the corporation effected a resale to Marubeni Co., Ltd., of Tokyo. To secure San Jose's performance, the surety executed a performance bond on November 9, 1950, for P30,600, binding itself jointly and severally with San Jose for faithful performance. The corporation advanced San Jose P16,300 with interest at 10 percent per annum. San Jose failed to deliver the January and February instalments and requested extensions which were denied. He later advised he expected to deposit the bond amount with the surety.
Trial Court Proceedings
P. L. Galang Machinery Co., Inc. notified the surety on February 8, 1951, of San Jose's failure and demanded payment under the bond, which demand the surety refused. The corporation filed suit on May 8, 1951, against San Jose and the surety. The Manila Court of First Instance rendered judgment requiring the surety, jointly and severally with San Jose, to pay P30,000 with legal interest from the date of filing the complaint, plus fifteen percent of the amount as attorneys' fees and costs. The Court of Appeals affirmed that judgment. The present proceeding is a review by certiorari of that appellate affirmance.
The Parties' Contentions
The surety objected to the award of interest and attorneys' fees on two principal grounds. First, interest and attorneys' fees were not expressly stipulated in the performance bond. Second, to award such items would extend the surety's liability beyond the principal amount stated in the bond, contrary to the rule that a surety's obligation cannot be enlarged beyond the terms of the undertaking. The plaintiff-corporation maintained that the surety's refusal to pay after demand justified recovery of interest as damages for delay and that attorneys' fees were recoverable under the discretionary provisions of Art. 2208 where the court deemed recovery just and equitable or where the defendant acted in gross and evident bad faith.
Issue Presented
The controlling question was whether the surety could be held liable, beyond the principal sum stated in the bond, for legal interest from the filing of the complaint and for attorney's fees, notwithstanding the absence of explicit stipulation in the bond.
Ruling of the Supreme Court
The Court affirmed the decision below with modification. It held that legal interest was recoverable from the surety as damages for delay and that interest should run from the date of filing the complaint. The Court also upheld an award of attorney's fees but reduced the allowance from fifteen percent to ten percent of the principal amount, as more proportionate to the relief sought and the services rendered.
Legal Basis and Reasoning
The Court traced longstanding precedent permitting recovery of interest from sureties notwithstanding the absence of an express stipulation in the obligation. It cited Tagawa v. Aldanese, 43 Phil. 852, which held that creditors suing on a suretyship bond may recover legal interest as part of their damages, because interest is allowed as compensation for the surety's delay in making payment after demand. The Court explained that such interest is not founded upon the contract but upon the surety's failure to pay when required and upon having compelled the creditor to resort to judicial remedies. Consequently, interest did not run from the time the obligation became due but from the filing of the complaint, in conformity with sec. 510 of the Code of Civil Procedure and Rule 53, section 6 of the Rules of Court, and with Article 1108 of the Civil Code as referenced. As to attorneys' fees, the Court observed t
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Case Syllabus (G.R. No. L-9542)
Parties and Posture
- PLAMDEL SURETY & INSURANCE CO,, INC., PETITIONER AND ' APPELLANT was the surety on a performance bond executed for the faithful performance of a logging contract.
- P. L. GALANG MACHINERY CQ., INC., RESPONDENTS AND APPELLEES was the obligee under the logging contract and the plaintiff who sued for the bond amount.
- The case reached the Court by certiorari from the Court of Appeals which had affirmed the judgment of the Manila Court of First Instance.
- The Court reviewed whether the surety was liable for legal interest and attorney’s fees in addition to the principal bond amount.
Key Facts
- On November 4, 1950, P. L. Galang Machinery Co., Inc. contracted with Constancio San Jose for the delivery of 2,550,000 board feet of peeler and veneer logs at P60 per thousand board feet f.o.b. vessel at Polilio, to be delivered in three monthly installments of 850,000 board feet each beginning January 1951.
- Relying on that contract, P. L. Galang Machinery Co., Inc. sold the logs to Marubeni Co., Ltd., of Tokyo at P845 per thousand board feet f.o.b. vessel at Polilio.
- On November 9, 1950, Plaridel Surety & Insurance Co. executed a performance bond in the sum of P30,600 binding itself jointly and severally with Constancio San Jose as principal.
- The corporation advanced P16,300 to San Jose with interest at ten percent per annum pursuant to Exhibit C.
- San Jose failed to deliver the January and February 1951 allotments, requested an extension which was denied, and admitted his liability under the bond in correspondence.
- P. L. Galang Machinery Co., Inc. notified the surety on February 8, 1951, demanded payment of the bond, and filed suit on May 8, 1951, after the surety refused payment.
Procedural History
- The Manila Court of First Instance rendered judgment requiring the surety and the principal to pay P30,000 with legal interest from the date of filing, plus fifteen percent of that amount as attorney’s fees and costs.
- The Court of Appeals affirmed the judgment of the trial court.
- The surety petitioned for certiorari to the Court to challenge the award of interest and attorney’s fees.
Issues
- Whether the surety was liable to pay legal interest on the bond amount though interest was not expressly stipulated in the bond.
- Whether the su