GR L 23916; (August, 1970) (Digest)
G.R. No. L-23916, August 31, 1970
PACIFIC MERCHANDISING CORPORATION, Plaintiff-Appellee, v. DIESTRO LOGGING DEVELOPMENT CORPORATION, and CONSOLACION INSURANCE AND SURETY CO., INC., Defendants, CONSOLACION INSURANCE AND SURETY CO., INC., Defendant-Appellant.
FACTS
On January 23, 1963, plaintiff Pacific Merchandising Corporation sold motor vehicles to defendant Diestro Logging Development Corporation for P32,000.00, payable within 45 days. Defendant Consolacion Insurance and Surety Co., Inc. issued a surety bond to guarantee payment. Diestro executed an indemnity agreement in favor of Consolacion. Diestro received the vehicles in good condition but failed to pay the purchase price despite demands. Pacific demanded payment from Consolacion as surety, but Consolacion did not pay, having been advised by Diestro that the trucks were not received in good condition. The parties submitted the case for decision on a stipulation of facts. The trial court rendered judgment ordering both defendants to pay jointly and severally the sum of P32,000.00 with interest and attorney’s fees equivalent to 25% of the indebtedness. Consolacion appealed, contesting its liability for attorney’s fees.
ISSUE
Whether the defendant-appellant surety company (Consolacion Insurance and Surety Co., Inc.) is liable for the payment of attorney’s fees awarded to the plaintiff-appellee.
RULING
No. The Supreme Court modified the decision by eliminating the award of attorney’s fees against the defendant-appellant surety company. The stipulation of facts limited the surety’s liability to P32,000.00, the amount of the bond. While paragraph 9 of the stipulation recognized the plaintiff’s right to reasonable attorney’s fees, this right was enforceable only against the principal debtor, Diestro, to give effect to paragraph 8 limiting the surety’s liability. Furthermore, the surety’s refusal to pay upon extrajudicial demand was not in gross and evident bad faith, as it relied on its principal’s advice regarding the condition of the trucks, which, if true, could have been a defense. The award of attorney’s fees against the surety was not justified under Article 2208 of the Civil Code, as it would impose a penalty on the right to litigate.