G.R. No. L-17048; September 19, 1961
ASSOCIATED INSURANCE & SURETY CO., INC., plaintiff-appellee, vs. VIVENCIO RIEL and JOVITO R. SALONGA, defendants, JOVITO R. SALONGA, defendant-appellant.

FACTS

The case originated from an indemnity agreement executed by defendants Vivencio Riel and Jovito R. Salonga in favor of plaintiff Associated Insurance & Surety Co., Inc. (AISCO). This agreement secured a surety bond posted by AISCO for Riel. Upon execution of the bond’s judgment, AISCO paid P2,000 and subsequently filed a complaint to recover this amount from Riel and Salonga under the indemnity agreement, which stipulated 12% annual interest and attorney’s fees.
During the pendency of the suit, Riel made several interest payments, reducing the outstanding principal obligation to P2,073.60 as of January 30, 1958. Meanwhile, defendant Salonga filed a third-party complaint against Teodoro Rivera based on a separate indemnity agreement wherein Rivera bound himself to reimburse Salonga for any liability arising from the main case. The trial court declared Rivera in default. Despite evidence of partial payments and AISCO’s subsequent manifestations agreeing to a reduced computation, the lower court rendered judgment holding Riel and Salonga jointly and severally liable for the original P2,000 principal with interest from the complaint’s filing date, plus attorney’s fees. It failed to rule on the third-party complaint.

ISSUE

The primary issues were whether the trial court erred in its computation of the principal debt and interest, in its award of attorney’s fees, and in failing to adjudicate the third-party complaint.

RULING

The Supreme Court modified the trial court’s decision. On the first issue, the Court held that the lower court erroneously ignored the partial payments made. Exhibit “G” conclusively established that payments had reduced the outstanding obligation and updated the interest. Therefore, the correct principal sum due was P2,073.60, and interest should run from January 31, 1958, the day after the last payment accounted for in Exhibit “G”, and not from the earlier filing of the complaint. This adjustment was mandated by the factual evidence of payment.
Regarding attorney’s fees, the Court ruled that the lower court should have considered AISCO’s own judicial manifestations, which constituted admissions against interest. AISCO had agreed that attorney’s fees should be 15% of the interest due, not 15% of the total amount due. The Court enforced this stipulation, reducing the award accordingly.
Finally, the Court held that the trial court committed reversible error in not ruling on the admitted third-party complaint after receiving evidence. To avoid multiplicity of suits, the Supreme Court itself resolved the matter. Based on Exhibit “1”, the indemnity agreement between Salonga and Rivera, the Court found Rivera liable to indemnify Salonga for whatever amount the latter would pay to AISCO pursuant to the modified judgment. The decision was thus amended to reflect the corrected amounts and to hold third-party defendant Rivera directly liable to Salonga.