GR L 26473; (February, 1972) (Digest)
G.R. No. L-26473 February 29, 1972
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. PAL-FOX LUMBER CO., INC. AND FAR EASTERN SURETY & INSURANCE COMPANY, INC., defendants, FAR EASTERN SURETY & INSURANCE CO., INC., defendant-appellant; FAR EASTERN SURETY & INSURANCE CO., INC., third-party plaintiff-appellant, vs. GASPAR PALANCA & JOSEPH LEE, third-party defendants.
FACTS
The Republic sued Pal-Fox Lumber Co. and its surety, Far Eastern Surety & Insurance Co., to recover unpaid forest charges. The surety was liable under a P5,000.00 forestry bond guaranteeing payment of charges. The trial court held both defendants jointly and severally liable for P5,000.00, with Pal-Fox solely liable for the balance, and ordered the surety’s indemnitors to reimburse it. The surety appealed, raising issues on evidence and prescription. During Supreme Court proceedings, the surety manifested its willingness to pay the P5,000.00 principal, which the Court accepted, dismissing the case against it. The Republic moved for reconsideration, insisting the surety must also pay legal interest from the complaint’s filing.
ISSUE
Whether the appellant surety company, having agreed to pay the P5,000.00 principal obligation under its bond, is also liable for the payment of legal interest thereon.
RULING
Yes, the surety is liable for legal interest. The Court affirmed the trial court’s decision with modification. The surety’s denial of liability for interest, based on the bond’s stipulation limiting its liability to the “sum of P5,000.00,” is untenable. The Court applied its ruling in National Marketing Corporation vs. Marquez, which held that a simple or indefinite guaranty comprises not only the principal obligation but also all its accessories, including interest, unless expressly excluded. The forestry bond executed by the surety did not exclude the payment of interest accruing on the principal forest charges. Consequently, the moratory interest due from the principal’s default forms part of the accessory obligation covered by the surety’s contract. The legal interest represents damages for the delay in payment, an accessory to the main debt. Therefore, the surety’s liability extends to such interest from the time the complaint was filed until the principal sum is fully paid. The Court modified the resolution to order the appellant to pay the adjudged interest up to the date of actual payment of the P5,000.00 principal.