GR L 20199; (November, 1965) (Digest)
G.R. No. L-20199 November 23, 1965
THE COSMOPOLITAN INSURANCE CO., INC., plaintiff-appellee, vs. ANGEL B. REYES, defendant-appellant.
FACTS
The Cosmopolitan Insurance Co., Inc. (appellee) filed a surety bond in favor of the Collector of Internal Revenue to secure the payment of income tax liabilities of Angel B. Reyes (appellant) amounting to P25,422.85. In consideration for the bond, Reyes executed an Indemnity Agreement in favor of Cosmopolitan. The agreement contained provisions wherein Reyes bound himself to indemnify Cosmopolitan for any payments, losses, or expenses it may incur as surety, and specifically allowed Cosmopolitan to proceed against Reyes to enforce payment even prior to Cosmopolitan making actual payment to the obligee (the Collector of Internal Revenue). Upon Reyes’ default, an amount of P10,645.38 became due, making Cosmopolitan liable on its bond. Cosmopolitan then filed an action against Reyes for indemnification under the agreement before it had actually paid the debt to the Collector of Internal Revenue.
ISSUE
Whether, under the terms of the Indemnity Agreement, the surety (Cosmopolitan) can demand indemnification from the principal (Reyes) upon the latter’s default, even before the surety has actually paid the creditor.
RULING
Yes. The Supreme Court affirmed the decision of the Court of First Instance ordering Reyes to pay Cosmopolitan the sum of P10,645.38 plus attorney’s fees. The Court held that the stipulation in the indemnity agreement allowing the surety to recover from the principal even before paying the creditor is valid and enforceable. This ruling is supported by the doctrine established in Security Bank vs. Globe Assurance and Alto Surety and Insurance Co., Inc. vs. Aguilar, et al., where similar indemnity agreements were upheld. The Court rejected the appellant’s contention that such a stipulation is contrary to public policy or Article 2071 of the Civil Code, stating that the provisions of the contract do not militate against the public good. The Court also found the award of attorney’s fees at fifteen percent (15%) of the amount due to be reasonable.