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G.R. No. 115278 May 23, 1995 FORTUNE INSURANCE AND SURETY CO., INC., petitioner, vs.

COURT OF APPEALS and PRODUCERS BANK OF THE PHILIPPINES, respondents. DAVIDE, JR., J.: The fundamental legal issue raised in this petition for review on certiorari is whether the petitioner is liable under the Money, Security, and Payroll Robbery policy it issued to the private respondent or whether recovery thereunder is precluded under the general exceptions clause thereof. Both the trial court and the Court of Appeals held that there should be recovery. The petitioner contends otherwise. This case began with the filing with the Regional Trial Court (RTC) of Makati, Metro Manila, by private respondent Producers Bank of the Philippines (hereinafter Producers) against petitioner Fortune Insurance and Surety Co., Inc. (hereinafter Fortune) of a complaint for recovery of the sum of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of Producer's armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati. The case was docketed as Civil Case No. 1817 and assigned to Branch 146 thereof. After joinder of issues, the parties asked the trial court to render judgment based on the following stipulation of facts: 1. The plaintiff was insured by the defendants and an insurance policy was issued, the duplicate original of which is hereto attached as Exhibit "A"; 2. An armored car of the plaintiff, while in the process of transferring cash in the sum of P725,000.00 under the custody of its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at 8737 Paseo de Roxas, Makati, Metro Manila on June 29, 1987, was robbed of the said cash. The robbery took place while the armored car was traveling along Taft Avenue in Pasay City; 3. The said armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems with the plaintiff by virtue of an Agreement executed on August 7, 1983, a duplicate original copy of which is hereto attached as Exhibit "B"; 4. The Security Guard Atiga was assigned by Unicorn Security Services, Inc. with the plaintiff by virtue of a contract of Security Service executed on October 25, 1982, a duplicate original copy of which is hereto attached as Exhibit "C"; 5. After an investigation conducted by the Pasay police authorities, the driver Magalong and guard Atiga were charged,

together with Edelmer Bantigue Y Eulalio, Reynaldo Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) before the Fiscal of Pasay City. A copy of the complaint is hereto attached as Exhibit "D"; 6. The Fiscal of Pasay City then filed an information charging the aforesaid persons with the said crime before Branch 112 of the Regional Trial Court of Pasay City. A copy of the said information is hereto attached as Exhibit "E." The case is still being tried as of this date; 7. Demands were made by the plaintiff upon the defendant to pay the amount of the loss of P725,000.00, but the latter refused to pay as the loss is excluded from the coverage of the insurance policy, attached hereto as Exhibit "A," specifically under page 1 thereof, "General Exceptions" Section (b), which is marked as Exhibit "A-1," and which reads as follows: GENERAL EXCEPTIONS The company shall not be liable under this policy in report of xxx xxx xxx (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . . 8. The plaintiff opposes the contention of the defendant and contends that Atiga and Magalong are not its "officer, employee, . . . trustee or authorized representative . . . at the time of the robbery. 1 On 26 April 1990, the trial court rendered its decision in favor of Producers. The dispositive portion thereof reads as follows: WHEREFORE, premises considered, the Court finds for plaintiff and against defendant, and (a) orders defendant to pay plaintiff the net amount of P540,000.00 as liability under Policy No. 0207 (as mitigated by the P40,000.00 special clause deduction and by the recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid; (b) orders defendant to pay plaintiff the sum of P30,000.00 as and for attorney's fees; and

(c) orders defendant to pay costs of suit. All other claims and counterclaims are accordingly dismissed forthwith. SO ORDERED. 2 The trial court ruled that Magalong and Atiga were not employees or representatives of Producers. It Said: The Court is satisfied that plaintiff may not be said to have selected and engaged Magalong and Atiga, their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them. Magalong and Atiga are assigned to plaintiff in fulfillment of agreements to provide driving services and property protection as such in a context which does not impress the Court as translating into plaintiff's power to control the conduct of any assigned driver or security guard, beyond perhaps entitling plaintiff to request are replacement for such driver guard. The finding is accordingly compelled that neither Magalong nor Atiga were plaintiff's "employees" in avoidance of defendant's liability under the policy, particularly the general exceptions therein embodied. Neither is the Court prepared to accept the proposition that driver Magalong and guard Atiga were the "authorized representatives" of plaintiff. They were merely an assigned armored car driver and security guard, respectively, for the June 29, 1987 money transfer from plaintiff's Pasay Branch to its Makati Head Office. Quite plainly it was teller Maribeth Alampay who had "custody" of the P725,000.00 cash being transferred along a specified money route, and hence plaintiff's then designated "messenger" adverted to in the policy. 3 Fortune appealed this decision to the Court of Appeals which docketed the case as CA-G.R. CV No. 32946. In its decision 4 promulgated on 3 May 1994, it affirmed in toto the appealed decision. The Court of Appeals agreed with the conclusion of the trial court that Magalong and Atiga were neither employees nor authorized representatives of Producers and ratiocinated as follows: A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance company (New Life Enterprises vs. Court of Appeals, 207 SCRA 669; Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554). Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense (New Life Enterprises Case, supra, p. 676; Sun Insurance Office, Ltd. vs. Court of Appeals, 195 SCRA 193).

The language used by defendant-appellant in the above quoted stipulation is plain, ordinary and simple. No other interpretation is necessary. The word "employee" must be taken to mean in the ordinary sense. The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore its definition as to employer-employee relationships insofar as the application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract which defendantappellant itself had formulated. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should have so stated expressly in the insurance policy. Said driver and security guard cannot be considered as employees of plaintiffappellee bank because it has no power to hire or to dismiss said driver and security guard under the contracts (Exhs. 8 and C) except only to ask for their replacements from the contractors. 5 On 20 June 1994, Fortune filed this petition for review on certiorari. It alleges that the trial court and the Court of Appeals erred in holding it liable under the insurance policy because the loss falls within the general exceptions clause considering that driver Magalong and security guard Atiga were Producers' authorized representatives or employees in the transfer of the money and payroll from its branch office in Pasay City to its head office in Makati. According to Fortune, when Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship "is determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employeremployee relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability as an employer, would not obliterate the relationship. Fortune points out that an employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee; (2) the mode of payment of wages; (3) the presence or absence of a power to dismiss; and (4) the presence and absence of a power to control the putative employee's conduct. Of the four, the right-of-control test has been held to be the decisive factor. 6 It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides: Art. 106. Contractor or subcontractor. There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent

of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. Fortune thus contends that Magalong and Atiga were employees of Producers, following the ruling in International Timber Corp. vs. NLRC 7 that a finding that a contractor is a "labor-only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employees of the "labor-only" contractor. On the other hand, Producers contends that Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. Producers argued that the rule in International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code, a social legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man. Producers further asseverates that what should be applied is the rule in American President Lines vs. Clave, 8 to wit: In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT." There is merit in this petition. It should be noted that the insurance policy entered into by the parties is a theft or robbery insurance policy which is a form of casualty insurance. Section 174 of the Insurance Code provides: Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. (emphases supplied) Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be

determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. 9 It has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." 10 Persons frequently excluded under such provisions are those in the insured's service and employment. 11 The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. 12 In such cases, the terms specifying the excluded classes are to be given their meaning as understood in common speech. 13 The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. 14 A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, 15 or it should be construed liberally in favor of the insured and strictly against the insurer. 16 Limitations of liability should be regarded with extreme jealousy and must be construed in such a way, as to preclude the insurer from non-compliance with its obligation. 17 It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. 18 An insurance contract is a contract of indemnity upon the terms and conditions specified therein. 19 It is settled that the terms of the policy constitute the measure of the insurer's liability. 20 In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy. With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized representatives of Producers under paragraph (b) of the general exceptions clause of the policy which, for easy reference, is again quoted: GENERAL EXCEPTIONS The company shall not be liable under this policy in respect of xxx xxx xxx (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others. . . . (emphases supplied) There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized representatives." It is clear to us that insofar as Fortune is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll. When it used then the term "employee," it must have had in mind any person who qualifies as such as

generally and universally understood, or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship, 21 or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer. 22 Fortune claims that Producers' contracts with PRC Management Systems and Unicorn Security Services are "labor-only" contracts. Producers, however, insists that by the express terms thereof, it is not the employer of Magalong. Notwithstanding such express assumption of PRC Management Systems and Unicorn Security Services that the drivers and the security guards each shall supply to Producers are not the latter's employees, it may, in fact, be that it is because the contracts are, indeed, "labor-only" contracts. Whether they are is, in the light of the criteria provided for in Article 106 of the Labor Code, a question of fact. Since the parties opted to submit the case for judgment on the basis of their stipulation of facts which are strictly limited to the insurance policy, the contracts with PRC Management Systems and Unicorn Security Services, the complaint for violation of P.D. No. 532, and the information therefor filed by the City Fiscal of Pasay City, there is a paucity of evidence as to whether the contracts between Producers and PRC Management Systems and Unicorn Security Services are "labor-only" contracts. But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." 23 In view of the foregoing, Fortune is exempt from liability under the general exceptions clause of the insurance policy. WHEREFORE , the instant petition is hereby GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil Case No. 1817 is DISMISSED. No pronouncement as to costs. SO ORDERED. Bellosillo and Kapunan, JJ., concur. Padilla, J., took no part.

Quiason, J., is on leave. G.R. No. 144413 July 30, 2004

REPUBLIC GLASS CORPORATION and GERVEL, INC, petitioners, vs. LAWRENCE C. QUA, respondent.

DECISION

CARPIO, J.: The Case Before the Court is a petition for review1 assailing the 6 March 2000 Decision2 and the 26 July 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 54737. The Court of Appeals set aside the Order3 of 3 May 1996 of the Regional Trial Court of Makati, Branch 63 ("RTC-Branch 63"), in Civil Case No. 88-2643 and reinstated the Decision4 of 12 January 1996 in respondents favor. The Facts Petitioners Republic Glass Corporation ("RGC") and Gervel, Inc. ("Gervel") together with respondent Lawrence C. Qua ("Qua") were stockholders of Ladtek, Inc. ("Ladtek"). Ladtek obtained loans from Metropolitan Bank and Trust Company ("Metrobank")5 and Private Development Corporation of the Philippines6 ("PDCP") with RGC, Gervel and Qua as sureties. Among themselves, RGC, Gervel and Qua executed Agreements for Contribution, Indemnity and Pledge of Shares of Stocks ("Agreements").7 The Agreements all state that in case of default in the payment of Ladteks loans, the parties would reimburse each other the proportionate share of any sum that any might pay to the creditors.8 Thus, a common provision appears in the Agreements: RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make such payments within five (5) days from the date that the party made to pay the Lenders gives written notice to the parties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to pay whether or not it shall have already paid out such sum or any part thereof to the Lenders or to the persons entitled thereto. (Emphasis supplied) Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling Corporation ("GMC") in favor of RGC and Gervel. The pledged shares of stock served as

security for the payment of any sum which RGC and Gervel may be held liable under the Agreements. Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed a collection case against Ladtek, RGC, Gervel and Qua docketed as Civil Case No. 8364 ("Collection Case No. 8364") which was raffled to the Regional Trial Court of Makati, Branch 149 ("RTC-Branch 149"). During the pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. Later, Metrobank executed a waiver and quitclaim dated 7 September 1988 in favor of RGC and Gervel. Based on this waiver and quitclaim,9 Metrobank, RGC and Gervel filed on 16 September 1988 a joint motion to dismiss Collection Case No. 8364 against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the case against RGC and Gervel, leaving Ladtek and Qua as defendants.10 In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that Qua pay P3,860,646, or 42.22% of P8,730,543.55,11 as reimbursement of the total amount RGC and Gervel paid to Metrobank and PDCP. Qua refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua with notices of foreclosure of Quas pledged shares. Qua filed a complaint for injunction and damages with application for a temporary restraining order, docketed as Civil Case No. 88-2643 ("Foreclosure Case No. 88-2643"), with RTC-Branch 63 to prevent RGC and Gervel from foreclosing the pledged shares. Although it issued a temporary restraining order on 9 December 1988, RTC-Branch 63 denied on 2 January 1989 Quas "Urgent Petition to Suspend Foreclosure Sale." RGC and Gervel eventually foreclosed all the pledged shares of stock at public auction. Thus, Quas application for the issuance of a preliminary injunction became moot.12 Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss13 in Collection Case No. 8364 as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states: 8. The foregoing facts show that the payment of defendants Republic Glass Corporation and Gervel, Inc. was for the entire obligation covered by the Continuing Surety Agreements which were Annexes "B" and "C" of the Complaint, and that the same naturally redound[ed] to the benefit of defendant Qua herein, as provided for by law, specifically Article 1217 of the Civil Code, which states that: xxx 10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much more than the amount stipulated in the Continuing Surety Agreement which is the basis for the action against them and defendant Qua, which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS (P6,200,000.00), hence, logically the said alleged obligation must now be considered as fully paid and extinguished. RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing Collection Case No. 8364,14 which RTC-Branch 149 subsequently reversed on Metrobanks motion for reconsideration. Thus, RTC-Branch 149 reinstated Collection Case No. 8364 against Qua.

On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643 ("12 January 1996 Decision") ordering RGC and Gervel to return the foreclosed shares of stock to Qua. The dispositive portion of the 12 January 1996 Decision reads: WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants jointly and severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling Corporation which they foreclosed on December 9, 1988, or should the return of these shares be no longer possible then to pay to plaintiff the amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988 until fully paid and to pay plaintiff P100,000.00 as and for attorneys fees. The costs will be for defendants account. SO ORDERED.15 However, on RGC and Gervels Motion for Reconsideration, RTC-Branch 63 issued its Order of 3 May 1996 ("3 May 1996 Order") reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order states: After a thorough review of the records of the case, and an evaluation of the evidence adduced by the parties as well as their contentions, the issues to be resolved boil down to the following: 1. Whether or not the parties obligation to reimburse, under the Indemnity Agreements was premised on the payment by any of them of the entire obligation; 2. Whether or not there is basis to plaintiffs apprehension that he would be made to pay twice for the single obligation; and 3. Whether or not plaintiff was benefited by the payments made by defendants. Regarding the first issue, a closer scrutiny of the pertinent provisions of the Indemnity Agreements executed by the parties would not reveal any significant indication that the parties liabilities are indeed premised on the payment by any of them of the entire obligation. These agreements clearly provide that the parties obligation to reimburse accrues upon mere advice that one of them has paid or will so pay the obligation. It is not specified whether the payment is for the entire obligation or not. Accordingly, the Court stands corrected in this regard. The obvious conclusion that can be seen now is that payment of the entire obligation is not a condition sine qua non for the paying party to demand reimbursement. The parties have expressly contracted that each will reimburse whoever is made to pay the obligation whether entirely or just a portion thereof. On the second issue, plaintiffs apprehension that he would be made to pay twice for the single obligation is unfounded. Under the above-mentioned Indemnity Agreements, in the event that the creditors are able to collect from him, he has the right to ask defendants to pay their proportionate share, in the same way defendants had collected from the plaintiff, by foreclosing his pledged shares of stock, his proportionate share,

after they had made payments. From all indications, the provisions of the Indemnity Agreements have remained binding between the parties. On the third issue, there is merit to defendants assertion that plaintiff has benefited from the payments made by defendants. As alleged by defendants, and this has not been denied by plaintiff, in Civil Case No. 8364 filed before Branch 149 of this Court, where the creditors were enforcing the parties liabilities as sureties, plaintiff succeeded in having the case dismissed by arguing that defendants payments [were] for the entire obligation, hence, the obligation should be considered fully paid and extinguished. With the dismissal of the case, the indications are that the creditors are no longer running after plaintiff to enforce his liabilities as surety of Ladtek. Whether or not the surety agreements signed by the parties and the creditors were novated is not material in this controversy. The fact is that there was payment of the obligation. Hence, the Indemnity Agreements govern. In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the former. Having failed to do so, upon demand, defendants were justified in foreclosing the pledged shares of stocks. xxx WHEREFORE, premises considered, the decision dated January 12, 1996 is reconsidered and set aside. The above-entitled complaint against defendants is DISMISSED. Likewise, defendants counterclaim is also dismissed. SO ORDERED.16 (Emphasis supplied) Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied. Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a Manifestation17 with the Court of Appeals attaching the Decision18 of 21 November 1996 rendered in Collection Case No. 8364. The dispositive portion of the decision reads: WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek, Inc. and Lawrence C. Qua: 1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October 31, 1987 plus the stipulated interest of 30.73% per annum and penalty charges of 12% per annum from November 1, 1987 until the whole amount is fully paid, less P7,000,000.00 paid by defendants Republic Glass Corporation and Gervel, Inc., but the liability of defendant Lawrence C. Qua should be limited only to P5,000,000.00 and P1,200,000.00, the amount stated in the Continuing Suretyship dated June 15, 1983, Exh. "D" and Continuing Suretyship dated December 14, 1981, Exh. "D-1", respectively, plus the stipulated interest and expenses incurred by the plaintiff.

2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%) percent of the total amount due as and by way of attorneys fees; 3. To pay the cost of suit. The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against the plaintiff are hereby dismissed. Likewise, the cross-claims of the defendants are dismissed. SO ORDERED.19 (Emphasis supplied) On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3 May 1996 Order of RTC-Branch 63 and reinstating the 12 January 1996 Decision ordering RGC and Gervel to return the foreclosed shares of stock to Qua.20 Hence, this petition. The Ruling of the Court of Appeals In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellate court quoted the RTC-Branch 63s 12 January 1996 Decision: The liability of each party under the indemnity agreements therefore is premised on the payment by any of them of the entire obligation. Without such payment, there would be no corresponding share to reimburse. Payment of the entire obligation naturally redounds to the benefit of the other solidary debtors who must then reimburse the paying co-debtors to the extent of his corresponding share. In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish the entire obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and so they ceased to be solidarily liable with plaintiff for the balance of the debt (Exhs. "D", "E", and "I"). Plaintiff thus became solely liable for the unpaid portion of the debt even as he is being held liable for reimbursement on the said portion. What happened therefore, was that Metrobank and PDCP in effect enforced the Suretyship Agreements jointly as against plaintiff and defendants. Consequently, the solidary obligation under the Suretyship Agreements was novated by the substantial modification of its principal conditions. xxx The resulting change was from one with three solidary debtors to one in which Lawrence Qua became the sole solidary co-debtor of Ladtek. Defendants cannot simply pay off a portion of the debt and then absolve themselves from any further liability when the obligation has not been totally extinguished. xxx

In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was totally unjustified and without basis because the obligation secured by the underlying pledge had been extinguished by novation. xxx21 The Court of Appeals further held that there was an implied novation or substantial incompatibility in the suretys mode or manner of payment from one for the entire obligation to one merely of proportionate share. The appellate court ruled that RGC and Gervels payment to the creditors only amounted to their proportionate shares of the obligation, considering the following evidence: The letter of the Republic to the appellant, Exhibit "G", dated June 25, 1987, which mentioned the letter from PDCP confirming its willingness to release the joint and solidary obligation of the Republic and Gervel subject to some terms and conditions, one of which is the appellants acceptable repayment plan of his "pro-rata share"; and the letter of PDCP to the Republic, Exhibit "H", mentioning full payment of the "pro rata share" of the Republic and Gervel, and the need of the appellant to submit an acceptable repayment plan covering his "pro-rata share", the release from solidary liability by PDCP, Exhibit "J", mentioning full payment by the Republic and Gervel of their "pro rata share" in the loan, as solidary obligors, subject however to the terms and conditions of the hold out agreement; and the non-payment in full of the loan, subject of the May 10, 1984 Promissory Note, except the 7 million payment by both Republic and Gervel, as mentioned in the Decision (Case No. 8364, Metrobank vs. Ladtek, et al). Precisely, Ladtek and the appellant, in said Decision were directed to pay Metrobank the balance of P9,560,798, supposedly due and unpaid. Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and Gervel cannot demand reimbursement. The Court of Appeals also held that Qua even became solely answerable for the unpaid balance of the obligations by virtue of the quitclaims executed by Metrobank and PDCP in favor of RGC and Gervel. RGC and Gervel ceased to be solidarily liable for Ladteks loan obligations.22 The Issues RGC and Gervel raise the following issues for resolution: I. WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIAL STATEMENTS THAT RGC AND GERVEL PAID THE ENTIRE OBLIGATION. II. WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NON FOR RGC AND GERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY AGREEMENTS EXECUTED BY THEM AFTER RGC AND GERVEL PAID METROBANK UNDER THE SURETY AGREEMENT. III.

ASSUMING ARGUENDO THAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED BY THE PARTIES AND THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS CASE.23 The Courts Ruling We deny the petition. Whether Qua was in estoppel RGC and Gervel contend that Qua is in estoppel for making conflicting statements in two different and separate cases. Qua cannot now claim that the payment made to Metrobank was not for the entire obligation because of his Motion to Dismiss Collection Case No. 8364 where he stated that RGC and Gervels payment was for the entire obligation. The essential elements of estoppel in pais are considered in relation to the party to be estopped, and to the party invoking the estoppel in his favor. On the party to be estopped, such party (1) commits conduct amounting to false representation or concealment of material facts or at least calculated to convey the impression that the facts are inconsistent with those which the party subsequently attempts to assert; (2) has the intent, or at least expectation that his conduct shall at least influence the other party; and (3) has knowledge, actual or constructive, of the real facts. On the party claiming the estoppel, such party (1) has lack of knowledge and of the means of knowledge of the truth on the facts in question; (2) has relied, in good faith, on the conduct or statements of the party to be estopped; (3) has acted or refrained from acting based on such conduct or statements as to change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice.24 In this case, the essential elements of estoppel are inexistent. While Quas statements in Collection Case No. 8364 conflict with his statements in Foreclosure Case No. 88-2643, RGC and Gervel miserably failed to show that Qua, in making those statements, intended to falsely represent or conceal the material facts. Both parties undeniably know the real facts. Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364 such that they changed their position or status, to their injury, detriment or prejudice. RGC and Gervel repeatedly point out that it was the presiding judge25 in Collection Case No. 8364 who relied on Quas statements in Collection Case No. 8364. RGC and Gervel claim that Qua "deliberately led the Presiding Judge to believe" that their payment to Metrobank was for the entire obligation. As a result, the presiding judge ordered the dismissal of Collection Case No. 8364 against Qua.26 RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support their stance: Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made.

A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by verbal or written manifestations or stipulations, or (c) in other stages of the judicial proceeding.27 The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection Case No. 8364 and in Foreclosure Case No. 88-2643, and not in the "same case" as required in Section 4 of Rule 129. To constitute judicial admission, the admission must be made in the same case in which it is offered. If made in another case or in another court, the fact of such admission must be proved as in the case of any other fact, although if made in a judicial proceeding it is entitled to greater weight.28 RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing Collection Case No. 8364 to prove Quas claim that the payment was for the entire obligation. Qua does not deny making such statement but explained that he "honestly believed and pleaded in the lower court and in CA-G.R. CV No. 58550 that the entire debt was fully extinguished when the petitioners paid P7 million to Metrobank."29 We find Quas explanation substantiated by the evidence on record. As stated in the Agreements, Ladteks original loan from Metrobank was only P6.2 million. Therefore, Qua reasonably believed that RGC and Gervels P7 million payment to Metrobank pertained to the entire obligation. However, subsequent facts indisputably show that RGC and Gervels payment was not for the entire obligation. RTC-Branch 149 reinstated Collection Case No. 8364 against Qua and ruled in Metrobanks favor, ordering Qua to pay P6.2 million. Whether payment of the entire obligation is an essential condition for reimbursement RGC and Gervel assail the Court of Appeals ruling that the parties liabilities under the Agreements depend on the full payment of the obligation. RGC and Gervel insist that it is not an essential condition that the entire obligation must first be paid before they can seek reimbursement from Qua. RGC and Gervel contend that Qua should pay 42.22% of any amount which they paid or would pay Metrobank and PDCP. RGC and Gervels contention is partly meritorious. Payment of the entire obligation by one or some of the solidary debtors results in a corresponding obligation of the other debtors to reimburse the paying debtor.30 However, we agree with RGC and Gervels contention that in this case payment of the entire obligation is not an essential condition before they can seek reimbursement from Qua. The words of the Agreements are clear. RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party made to pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make such payments within five (5) days from the date that the party made to pay the Lenders gives written notice to the parties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to pay whether or not it shall have already paid out such sum or any part thereof to the Lenders or to the persons entitled thereto. (Emphasis supplied)

The Agreements are contracts of indemnity not only against actual loss but against liability as well. In Associated Insurance & Surety Co., Inc. v. Chua,31 we distinguished between a contract of indemnity against loss and a contract of indemnity against liability, thus:32 The agreement here sued upon is not only one of indemnity against loss but of indemnity against liability. While the first does not render the indemnitor liable until the person to be indemnified makes payment or sustains loss, the second becomes operative as soon as the liability of the person indemnified arises irrespective of whether or not he has suffered actual loss. (Emphasis supplied) Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify the former once his liability becomes absolute. However, in this case, the liability of RGC, Gervel and Qua became absolute simultaneously when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and Qua all became directly liable at the same time to Metrobank and PDCP. Thus, RGC and Gervel cannot automatically claim for indemnity from Qua because Qua himself is liable directly to Metrobank and PDCP. If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more than his stipulated liability under the Agreements. In addition to the P3,860,646 claimed by RGC and Gervel, Qua would have to pay his liability of P6.2 million to Metrobank and more than P1 million to PDCP. Since Qua would surely exceed his proportionate share, he would then recover from RGC and Gervel the excess payment. This situation is absurd and circuitous. Contrary to RGC and Gervels claim, payment of any amount will not automatically result in reimbursement. If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as his payment exceeded his share in the obligation.33 This is precisely because if a solidary debtor pays an amount equal to his proportionate share in the obligation, then he in effect pays only what is due from him. If the debtor pays less than his share in the obligation, he cannot demand reimbursement because his payment is less than his actual debt. To determine whether RGC and Gervel have a right to reimbursement, it is indispensable to ascertain the total obligation of the parties. At this point, it becomes necessary to consider the decision in Collection Case No. 8364 on the parties obligation to Metrobank. To repeat, Metrobank filed Collection Case No. 8364 against Ladtek, RGC, Gervel and Qua to collect Ladteks unpaid loan. RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. 836434 because Qua did not offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 subject of this petition. RTC-Branch 6235 rendered the decision in Collection Case No. 8364 on 21 November 1996 while Qua filed his Notice of Appeal of the 3 May 1996 Order on 19 June 1996. Qua could not have possibly offered in evidence the decision in Collection Case No. 8364 because RTC-Branch 62 rendered the decision only after Qua elevated the present case to the Court of Appeals. Hence, Qua submitted the decision in Collection Case No. 8364 during the pendency of the appeal of Foreclosure Case No. 88-2643 in the Court of Appeals. As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October 1987.36 During the pendency of Collection Case No. 8364, RGC and Gervel paid

Metrobank P7 million. Because of the payment, Metrobank executed a quitclaim37 in favor of RGC and Gervel. By virtue of Metrobanks quitclaim, RTC-Branch 62 dismissed Collection Case No. 8364 against RGC and Gervel, leaving Ladtek and Qua as defendants. Considering that RGC and Gervel paid only P7 million out of the total obligation of P14,200,854.37, which payment was less than RGC and Gervels combined shares in the obligation,38 it was clearly partial payment. Moreover, if it were full payment, then the obligation would have been extinguished. Metrobank would have also released Qua from his obligation. RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that PDCP executed in RGC and Gervels favor which stated that their payment of P1,730,543.55 served as "full payment of their corresponding proportionate share" in Ladteks foreign currency loan.39 Moreover, PDCP filed a collection case against Qua alone, docketed as Civil Case No. 2259, in the Regional Trial Court of Makati, Branch 150.40 Since they only made partial payments, RGC and Gervel should clearly and convincingly show that their payments to Metrobank and PDCP exceeded their proportionate shares in the obligations before they can seek reimbursement from Qua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their payments exceeded their shares in the obligations. Consequently, RGC and Gervel cannot validly seek reimbursement from Qua. Whether there was novation of the Agreements RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further contend that any novation of the Agreements is immaterial to this case. RGC and Gervel disagreed with the Court of Appeals on the effect of the "implied novation" which supposedly transpired in this case. The Court of Appeals found that "there was an implied novation or substantial incompatibility in the mode or manner of payment by the surety from the entire obligation, to one merely of proportionate share." RGC and Gervel claim that if it is true that an implied novation occurred, then the effect "would be to release respondent (Qua) as the entire obligation is considered extinguished by operation of law." Thus, Qua should now reimburse RGC and Gervel his proportionate share under the surety agreements. Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the person of the debtor; and (3) subrogating a third person in the rights of the creditor. Article 1292 of the Civil Code clearly provides that in order that an obligation may be extinguished by another which substitutes the same, it should be declared in unequivocal terms, or that the old and new obligations be on every point incompatible with each other.41 Novation may either be extinctive or modificatory. Novation is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former. Novation is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement.42 We find that there was no novation of the Agreements. The parties did not constitute a new obligation to substitute the Agreements. The terms and conditions of the Agreements remain the same. There was also no showing of complete incompatibility in the manner of payment of the parties obligations. Contrary to the Court of Appeals ruling, the mode or manner of payment by the parties did not change from one for the entire obligation to one merely of proportionate share. The creditors, namely Metrobank and PDCP, merely proceeded against RGC and Gervel for their proportionate shares only.43 This preference is within the creditors discretion which did not necessarily affect the nature of the obligations as well as the terms and conditions of the

Agreements. A creditor may choose to proceed only against some and not all of the solidary debtors. The creditor may also choose to collect part of the debt from some of the solidary debtors, and the remaining debt from the other solidary debtors. In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel cannot validly foreclose the pledge of Quas GMC shares of stock which secured his obligation to reimburse.44 Therefore, the foreclosure of the pledged shares of stock has no leg to stand on. WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court of Appeals in CA-G.R. CV No. 54737 is AFFIRMED. Costs against petitioners. SO ORDERED. Davide, Jr., C.J., Chairman, Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur. G.R. No. L-22042 August 17, 1967

DIONISIA, EULOGIO, MARINA, GUILLERMO and NORBERTO all surnamed GUINGON, plaintiffs-appellees, vs. ILUMINADO DEL MONTE, JULIO AGUILAR and CAPITAL INSURANCE and SURETY CO., INC., defendants. CAPITAL INSURANCE and SURETY CO., INC., defendant-appellant. Generoso Almario and Associates for plaintiffs-appellees. Achacoso and Associates for defendant-appellant. BENGZON, J.P., J.: Julio Aguilar owned and operated several jeepneys in the City of Manila among which was one with plate number PUJ-206-Manila, 1961. He entered into a contract with the Capital Insurance & Surety Co., Inc. insuring the operation of his jeepneys against accidents with third-party liability. As a consequence thereof an insurance policy was executed by the Capital Insurance & Surety Co., Inc., the pertinent provisions of which in so far as this case is concerned contains the following: Section II LIABILITY TO THE PUBLIC 1. The Company, will, subject to the limits of liability, indemnify the Insured in the event of accident caused by or arising out of the use of the Motor Vehicle/s or in connection with the loading or unloading of the Motor Vehicle/s, against all sums including claimant's costs and expenses which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person b. damage to property

During the effectivity of such insurance policy on February 20, 1961 Iluminado del Monte, one of the drivers of the jeepneys operated by Aguilar, while driving along the intersection of Juan Luna and Moro streets, City of Manila, bumped with the jeepney abovementioned one Gervacio Guingon who had just alighted from another jeepney and as a consequence the latter died some days thereafter. A corresponding information for homicide thru reckless imprudence was filed against Iluminado del Monte, who pleaded guilty. A penalty of four months imprisonment was imposed on him. As a corollary to such action, the heirs of Gervacio Guingon filed an action for damages praying that the sum of P82,771.80 be paid to them jointly and severally by the defendants, driver Iluminado del Monte, owner and operator Julio Aguilar, and the Capital Insurance & Surety Co., Inc. For failure to answer the complaint, Del Monte and Aguilar were declared in default. Capital Insurance & Surety Co., Inc. answered, alleging that the plaintiff has no cause of action against it. During the trial the following facts were stipulated: COURT: The Court wants to find if there is a stipulation in the policy whereby the insured is insured against liability to third persons who are not passengers of jeeps. ALMARIO: As far as I know, in my honest belief, there is no particularization as to the passengers, whether the passengers of the jeep insured or a passenger of another jeep or whether it is a pedestrian. With those, we can submit the stipulation. SIMBULAN: I admit that. (T.s.n., p. 21, Jan. 23, 1962; p. 65 Rec. on Appeal) On August 27, 1962, the Court of First Instance of Manila rendered its judgment with the following dispositive portion: WHEREFORE, judgment is rendered sentencing Iluminado del Monte and Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death of their father, plus P1,000.00 for attorney's fees plus costs. The defendant Capital Insurance and Surety Co., Inc. is hereby sentenced to pay the plaintiffs the sum of Five Thousand (P5,000.00) Pesos plus Five Hundred (P500.00) Pesos as attorney's fees and costs. These sums of P5,000.00 and P500.00 adjudged against Capital Insurance and Surety Co., Inc. shall be applied in partial satisfaction of the judgment rendered against Iluminado del Monte and Julio Aguilar in this case. SO ORDERED. The case was appealed to the Court of Appeals which appellate court on September 30, 1963 certified the case to Us because the appeal raises purely questions of law. The issues raised before Us in this appeal are (1) As the company agreed to indemnify the insured Julio Aguilar, is it only the insured to whom it is liable? (2) Must Julio Aguilar first show himself to be entitled to indemnity before the insurance company may be held liable for the same? (3) Plaintiffs not being parties to the insurance contract, do they have a cause of action against the company; and (4) Does the fact that the insured is liable to the plaintiffs necessarily mean that the insurer is liable to the insured?

In the discussion of the points thus raised, what is paramount is the interpretation of the insurance contract with the aim in view of attaining the objectives for which the insurance was taken. The Rules of Court provide that parties may be joined either as plaintiffs or defendants, as the right to relief in respect to or arising out of the same transactions is alleged to exist (Sec. 6, Rule 3). The policy, on the other hand, contains a clause stating: E. Action Against Company No action shall lie against the Company unless, as a condition precedent thereto, the Insured shall have fully complied with all of the terms of this Policy, nor until the amount of the Insured's obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant, and the Company. Any person or organization or the legal representative thereof who has secured such judgment or written agreement shall thereafter be entitled to recover under this policy to the extent of the insurance afforded by the Policy. Nothing contained in this policy shall give any person or organization any right to join the Company as a co-defendant in any action against the Insured to determine the Insured's liability. Bankruptcy or insolvency of the Insured or of the Insured's estate shall not relieve the Company of any of its obligations hereunder. Appellant contends that the "no action" clause in the policy closes the avenue to any third party which may be injured in an accident wherein the jeepney of the insured might have been the cause of the injury of third persons, alleging the freedom of contracts. Will the mere fact that such clause was agreed upon by the parties in an insurance policy prevail over the Rules of Court which authorizes the joining of parties plaintiffs or defendants? The foregoing issues raise two principal: questions: (1) Can plaintiffs sue the insurer at all? (2) If so, can plaintiffs sue the insurer jointly with the insured? The policy in the present case, as aforequoted, is one whereby the insurer agreed to indemnify the insured "against all sums . . . which the Insured shall become legally liable to pay in respect of: a. death of or bodily injury to any person . . . ." Clearly, therefore, it is one for indemnity against liability;1 from the fact then that the insured is liable to the third person, such third person is entitled to sue the insurer.1wph1.t The right of the person injured to sue the insurer of the party at fault (insured), depends on whether the contract of insurance is intended to benefit third persons also or only the insured. And the test applied has been this: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed against the insurer, the contract being solely to reimburse the insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone.2 The next question is on the right of the third person to sue the insurer jointly with the insured. The policy requires, as afore-stated, that suit and final judgment be first obtained against the insured; that only "thereafter" can the person injured recover on the policy; it expressly disallows

suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability. As adverted to before, the query is which procedure to follow that of the insurance policy or the Rules of Court. The "no action" clause in the policy of insurance cannot prevail over the Rules of Court provision aimed at avoiding multiplicity of suits. In a case squarely on the point, American Automobile Ins. Co. vs. Struwe, 218 SW 534 (Texas CCA), it was held that a "no action" clause in a policy of insurance cannot override procedural rules aimed at avoidance of multiplicity of suits. We quote: Appellants filed a plea in abatement on the grounds that the suit had been prematurely brought against the insurance company, and that it had been improperly joined with Zunker, as said insurance company, under the terms of the policy, was only liable after judgment had been awarded against Zunker. . . . * * * That plea was properly overruled, because under the laws of Texas a dual suit will always be avoided whenever all parties can have a fair trial when joined in one suit. Appellee, had he so desired, could have prosecuted his claim to judgment as against Zunker and then have sued on that judgment against the insurance company, but the law does not make it imperative that he should do so, but would permit him to dispose of the whole matter in one suit. The rule has often been announced in Texas that when two causes of action are connected with each other, or grow out of the same transaction, they may be properly joined, and in such suit all parties against whom the plaintiff asserts a common or an alternative liability may be joined as defendants. . . . Even if appellants had presented any plea in abatement as to joinder of damages arising from a tort with those arising from a contract, it could not, under the facts of this case, be sustained, for the rule is that a suit may include an action for breach of contract and one for tort, provided they are connected with each other or grew out of the same transaction. Similarly, in the instant suit, Sec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third persons not a party to the contract, as herein, by a "no action" clause in the contract of insurance. Wherefore, the judgment appealed from is affirmed in toto. Costs against appellant. So ordered. Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Concepcion, C.J. and Dizon, J., are on leave. G.R. No. L-69450 November 22, 1988 EASTERN ASSURANCE & SURETY CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT and REPUBLIC OF THE PHILIPPINES (DEPT. OF AGRARIAN REFORM), respondents. Ferrer, Mariano, Sangalang & Gatdula for petitioner.

FELICIANO, J.: The Petition at bar seeks a review of the Decision 1 dated 11 December 1984 rendered by the then Intermediate Appellate Court, in AC-G.R. CV No. 67253. On 8 January 1976 , the Region 7 (Cebu) Office of respondent Department of Agrarian Reform ("DAR") put up for public bidding a job or project consisting of the repair of seven (7) units of (USAID) Willys Mitsubishi/Eisenhower jeeps. Among the bidders was Motor City, an automotive repair, company, which latter on emerged as the winning bidder. The winning bid was accompanied by a Proposal Bond 2 required by the DAR of all bidders in the amount of P33,275.00 and issued by petitioner Eastern Assurance and Surety Corporation ("Eastern"), as surety, on behalf of Motor City, its principal. The Proposal Bond provided, in pertinent part: NOW, THEREFORE, the conditions of this obligation are such that if the abovebounden principal [i.e., Motor City] shall, in the event of his becoming a successful bidder in the above proposal: (1) fails to guarantee the true and faithful performance of the contract in case of award; (2) shall refuse to accept the same or (3) shall not answer for any delay and/or default in the execution of the contract as provided in the proposal; then the DEPARTMENT OF AGRARIAN REFORM shall be entitled to be indemnified of any loss or damage it may suffer by reason thereof not to exceed the sum of THIRTY THREE THOUSAND TWO HUNDRED SEVENTY FIVE ONLY (P33,275.00) PESOS, Philippine Currency, otherwise this obligation shall be void and without effect. (Emphasis supplied) On 31 January 1976, a Contract for Repair of Jeeps 3 was entered into between respondent DAR as owner and Motor City as contractor, the latter obligating itself thereunder as follows: 1. That for and/in consideration of the sum of THIRTY THOUSAND PESOS (P30,000.00) Philippine Currency, which the OWNER agrees to pay unto the CONTRACTOR, the said CONTRACTOR agrees and undertakes to repair the owner's seven (7) units of (USAID) Willys Mitsubishi/Eisenhower Jeeps, which are more particularly described as follows: Motor Number Chassis Number 1. MD-136864 1. 95696 2. MD-31015 2. 86038 3. MD-70750 3. 36201 4. MD136846 4. 95670 5. JH4-34885 5. 15293 6. 4J-24985 6. 15215 7. 4J 54898 7. 16294 xxx xxx xxx 5. That the CONTRACTOR agrees to put up the amount of TEN THOUSAND PESOS (Pl0,000.00) as Performance Bond upon award of the bid; xxx xxx xxx

8. That the CONTRACTOR agrees to finish the repairs on all seven (7) units within ninety (90) working days, counted from the day of the award of the bid, and should the CONTRACTOR fail to finish the repairs within the said period, he (CONTRACTOR) shall indemnify the OWNER the amount equivalent to 1% of the quoted lot price for each day of late delivery. xxx xxx xxx (Emphasis supplied) It turned out, however, that only six (6) out of the seven (7) aforementioned jeeps were repaired fully and delivered promptly to respondent DAR. The seventh unit, bearing Motor No. 70750 and Chassis No. 36201, continued to remain undelivered, despite the grant of several extensions in favor of and the issuance on 13 March 1978 of a final letter to Motor City, demanding that the latter complete the repair and effect delivery of the seventh vehicle. On 12 July 1978, respondent DAR commenced a suit 4 for specific performance and damages against Motor City. Included there as a co-defendant was petitioner Eastern which, it was alleged, "had posted the performance bond herewith attached as Annex 'B' undertaking to answer and guarantee the true and faithful compliance and performance of the [Contract for Repair of Jeeps]." In an Answer with Cross-Claim 5 petitioner Eastern (defendant below) denied having incurred any liability under the Proposal Bond, alleging that such bond "did not bind answering defendant as [the] same was a mere proposal and not an actual undertaking." That pleading also sought, by way of cross-claim, judgment ordering Motor City to indemnify Eastern in an amount equivalent to whatever the latter would be ordered by the court to pay the complainant plus twenty percent (20%)thereof as attorney's fees. Eastern submitted in support of its cross-claim an Indemnity Agreement, 6 executed in its favor by Antonio Puchadez, who had signed the document in his capacity as President and General Manager of Motor City as well as in his own personal capacity. On 15 February 1980, the trial court rendered a Decision 7, the dispositive portion of which read: THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the plaintiffs as follows: directing Motor City to deliver to the plaintiff one (1) unit of (USAID) Willys Mitsubishi/Eisenhower Jeep with Motor No. MD-70750 already repaired pursuant to the specifications in the "Contract for Repair of Jeeps;" directing Motor City to pay an indemnity equivalent to 1% of P30,000.00 for each day of late delivery (the period starts from February 1, 1976 until delivery of the unit); in case of default, the payment thereof to be assumed or to be liquidated by Eastern Assurance and Surety Corporation but not to exceed P33,275.00. If eventually Eastern Assurance and Surety Corporation should pay following default by Motor City, then the latter solidarily with Antonio Puchadez should reimburse Eastern Assurance Surety Corporation all the amounts paid by the latter to the plaintiff with 20% of the amount as attorney's fees. With costs against both Motor City and Eastern Assurance and Surety Corporation. SO ORDERED.

On appeal, the ruling of the trial court was affirmed with a slight modification. The appellate court held that the one percent (1%) indemnity charge for late delivery stipulated under the repair contract, "shall be [computed] from March 3, 1978" and not 1 February 1976. The instant Petition for Review, in essence, raises only one (1) issue; whether or not petitioner Eastern may be held liable to respondent DAR for the contractual breach committed here by Motor City. The broadest argument of petitioner Eastern is that it incurred no liability under the Proposal Bond after the Contract for Repair of Jeeps had been entered into between the DAR and Motor City. Eastern is here relying upon the difference, in conceptual terms, between a proposal bond and a performance bond. A proposal or bid bond has for its purpose to assure the owner of the project of the good faith of the bidder and that the bidder will enter into a contract with the project owner should his proposal be accepted. A performance bond is, upon the other hand designed to afford the project owner security that the bidder, now the contractor, will faithfully comply with the requirements of the contract awarded to the contractor and make good damages sustained by the project owner in case of the contractor's failure to so perform. 8 Eastern's argument is, however, clearly too broad to be helpful; for liability under a surety bond is determined not upon the basis of its abstract nature or its title or caption but rather in accordance with the particular terms and conditions set out in such bond. 9 It is thus necessary to look into the actual terms of the Proposal Bond in question. Thereunder, liability on the part of petitioner Eastern as surety would be incurred upon the happening of anyone of the following three (3) events: the failure or refusal of Motor City as principal (1) "to guarantee the true and faithful performance of the contract in case of an award; (2) "to accept the [award]; and (3) to "answer for any delay and/or default in the execution of the contract as provided in the proposal." There is no dispute that the first condition refers to failure to post a performance bond in the amount of P10,000.00; there is also no dispute that Eastern's principal did not in fact post any such performance bond. There should therefore be no question that there was a breach of condition No.1 of the Proposal Bond. It is urged by petitioner Eastern that the beneficiary of the bond, public respondent DAR, had waived the stipulation in the Repair Contract providing for the posting of such bond by entering into the contract with Motor City although the latter had not posted the P10,000.00 Performance Bond. We do not believe that the DAR had waived the breach of this condition. Certainly there was no express waiver. Implied waiver of a contractual stipulation for the giving of security or collateral is not favored and has to be clearly shown. There is also no dispute that the second condition was not breached for Motor City did accept the award of the contract and did enter into the Contract for Repair of Jeeps. In respect of the third condition, i.e., failure of Motor City to answer for delay or default "in the execution of the contract as provided in the proposal", petitioner Eastern contends that this provision refers merely to the execution, that is, the signing or conclusion of the Contract for Repair of Jeeps, and not to the performance or implementation or carrying out of the provisions of such contract. There are at least two (2) difficulties with this argument of Eastern. First, the ordinary or dictionary meaning of "to execute" a contract (and especially to "execute a contract as provided in the proposal") is or includes: ... 1: to put into effect: carry out fully and completely: PERFORM, EFFECT ... 3: to give effect to : do what is provided or required ... : perform the requirements of : perform the acts necessary to the effectiveness of ... 6 : COMPLETE ... :

perform what is required to give validity to (as by signing and perhaps sealing and delivering) ... . 10 Thus, the term "execution" is understood ordinarily and literally as referring to both; ... 1 : the act or process of executing : PERFORMANCE, ACCOMPLISHMENT ... 3 ...c: [and] the act of signing, sealing, and delivering a legal instrument or giving it the forms required to make it valid ... . 11 Thus, the ordinary meaning of execution is not limited to the signing or concluding of a contract but includes as well the performance or implementation or accomplishment of the terms and conditions of such contract. Second, if one assumes, for purposes of analysis only, that petitioner Eastern's contention is correct, then the second condition in the Proposal Bond (refusal "to accept [the contract]") and the third condition (failure to "answer for any delay and/or default in the execution of the contract as provided in the proposal") must be taken to refer to the same thing or circumstance. But either the second or the third condition would then have to be regarded as superfluous and meaningless, a result that must be abjured in view of the principle of effectiveness in the interpretation of contracts. When viewed in its entirety, the Proposal Bond may be seen to be not merely a proposal (or bid) bond but also a performance bond. For it covers not merely the acceptance of the award and the conclusion of a contract but also the carrying out or performance of the provisions of the contract. We note also that the P10,000.00 Performance Bond explicitly required by paragraph 5 of the Contract for Repair of Jeeps is lower in face amount than the Proposal Bond which has a maximum value or face amount of P33,275.00. If petitioner Eastern's argument that its liability under the Proposal Bond ceased the moment the Repair Contract was entered into is correct, then paragraph 5 of that Contract would be reduced to nonsense: for it must be nonsensical to require a proposal bond in an amount 300% more than the amount of the required performance bond, if the proposal bond were to become functus oficio the moment the contract was legally entered into. Upon the other hand, the requirement of posting of a performance bond of P10,000.00 is quite understandable if it be understood as simply additional security for the carrying out of the terms of the contract, that is, additional to the Proposal Bond. 12 Finally, we note that the Proposal Bond is set out in a printed contract form of petitioner Eastern. The three (3) circumstances occurrence of which would trigger off the liability of Eastern under the bond, appear to be standard stipulations imposed by petitioner upon all persons seeking to secure proposal bonds from Eastern. To this extent, the Proposal Bond is a contract of adhesion, having been prepared solely by Eastern. Accordingly, any ambiguity or obscurity that may be found to infect the terms of the Proposal Bond, must be construed against Eastern. 13 In sum, we hold that petitioner Eastern's liability under the Proposal Bond accrued the moment the principal obligor, Motor City, failed to post the P10,000.00 Performance Bond and incurred in delay and eventually defaulted in the repair and delivery of the seventh jeep unit, part of the subject matter of the Contract for Repair of Jeeps with respondent DAR. WHEREFORE, the Petition for Review is DENIED for lack of merit. The Decision dated 11 December 1984 of the then Intermediate Appellate Court in A.C. G.R. CV 67523 is hereby AFFIRMED with the modification that the one percent (1%) indemnity charge per day of delay in delivery provided for in the Contract for Repair of Jeeps shall be computed from 13 March 1978

(not 3 March 1978), the date of last demand. Petitioner's liability for such indemnity charge shall not exceed the face amount of the Proposal Bond (P33,275.00). Costs against petitioner. Fernan, C.J., Gutierrez, Jr., Bidin and Cortes, JJ., concur. G.R. No. L-29723 July 14, 1988 ANTONIO ZARAGOZA, plaintiff-appellee, vs. MARIA ANGELA FIDELINO and/or "JOHN DOE," defendants MABINI INSURANCE & FIDELITY CO., INC., surety-appellant.

NARVASA, J.: Involved in this appeal is no more than the procedure to hold a surety hable upon a counterbond posted by it for the release of an automobile seized from a defendant in a replevin action under a writ issued by the Trial Court at the plaintiffs instance. The suit for the replevy of the car was brought by Antonio Zaragoza in the Court of First Instance at Quezon City 1 against Ma. Angela Fidelino and/or John Doe. His complaint alleged that the car had been sold to Fidelino but the latter had failed to pay the price in the manner stipulated in their agreement. The car was taken from Fidelino's possession by the sheriff on the strength of a writ of delivery 2 but was promptly returned to her on orders of the Court when a surety bond for the car's releases 3 was posted in her behalf "by Mabini Insurance & Fidelity Co., Inc. The action resulted in a judgment 4 for the plaintiff the dispositive part of which reads as follows: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering the latter to pay to the plaintiff the sum of P19,417.46, representing the balance of the purchase price of the car sold including interest thereon, collection charges, notarial fees and sheriffs fees and expenses in conn with the recovery of the vehicle sold; to pay liquidated damage in the amount of P6,471.84 equivalent to 33 1/3 % of the balance outstanding and to pay the costs of this suit. Within the reglementary period for taking an appeal, Zaragoza moved for the amendment of the decision so as to include the surety, Mabini Insurance & Fidelity Co., Inc., as a party solidarily liable with the defendant for the payment of the sums awarded in the judgment. 5 Despite having been duly furnished with copies of the motion and the notice of hearing, neither Fidelino nor the surety company filed any opposition to the motion, nor did either of them appear at the hearing thereof. 6 The Trial Court deemed the motion meritorious and granted it. Its Order of April 16, 1968 7 decreed the following: WHEREFORE, the motion is hereby granted, and the dispositive portion of the decision in this case is hereby amended to read as follows:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, ordering defendant Maria Angela Fidelino and her surety, the Mabini Insurance & Fidelity Co., Inc., to pay jointly and severally to the plaintiff the sum of P19,417.46, representing the balance of the purchase price of the car sold, including interests thereon, collection charges, notarial fees and sheriffs fees and expenses in connection with the recovery of the vehicle sold, liquidated damages in the amount of P6,471.84 equivalent to 33 1/3% of the balance outstanding and to pay the costs of this suit. No motion for reconsideration was filed or appeal taken by the defendant Fidelino as regards either the original or the amended decision. It was the surety which presented a motion for reconsideration, and upon its denial, appealed to this Court. 8 It ascribes to the Court a quo, as might be expected, reversible error in amending the judgment in the manner just described. It argues that the Lower Court never acquired jurisdiction over it since no summons was ever served on it, its filing of a counter-bond not being equivalent to voluntary submission to the Court's jurisdiction; Zaragoza failed to make a proper application with notice before finality of the decision as provided by Section 20, Rule 57 of the Rules of Court; and when the order amending the judgment was promulgated, the judgment had already become final, the running of the period of appeal not having been suspended by Zaragoza's motion to amend decision, 9 and so, the Court no longer had authority to amend it on April 16, 1968. The appellant surety deposits quite correctly, that the situation at bar is governed by Section 10, Rule 60, in relation to Section 20, Rule 57, of the Rules of Court. Section 10, Rule 60, provides as follows: SEC. 10. Judgment to include recovery against sureties. The amount, if any, to be awarded to either party upon any bond filed by the other in accordance with the provisions of this rule, shag be claimed, ascertained, and granted under the same procedure as prescribed in section 20 of Rule 57. And Section 20, Rule 57 reads as follows: SEC. 20. Claim for damages on account of illegal attachment. If the judgment on the action be in favor of the party against whom attachment was issued, he may recover, upon the bond given or deposit made by the attaching creditor, any damages resulting from the attachment. Such damages may be awarded only upon application and after proper hearing, and shall be included in the final judgment. The application must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and his surety or sureties, setting forth the facts showing his right to damages and the amount thereof xxx xxx xxx 10 It would seem at first blush that Section 20, Rule 57 above quoted is not relevant. Its title and first sentence speak [1] of an illegal attachment, and [2] of a judgment "in favor of the party against whom (said illegal) attachment was issued." In the case at bar, the writ of delivery was not illegal; and the judgment was for, not against, the party in whose favor the writ of delivery

was issued. In other words, it would appear that for Section 20, Rule 57 to apply to the instant action," 11 the judgment should have been "in favor of" defendant Fidelino (the party "against whom" the writ of delivery was issued). This however was not the case. The judgment was in fact against, NOT in favor of Fidelino. It thus sums indeed that the first sentence of Section 20 precludes recovery of damages by a party against whom an attachment is issued and enforced if the judgment be adverse to him. This is not however correct. Although a party be adjudged liable to another, ff it be established that the attachment issued at the latter's instance was wrongful and the former had suffered injury thereby, recovery for damages may be had by the party thus prejudiced by the wrongful attachment, even if the judgment be adverse to him. Slight reflection will show the validity of this proposition. For it is entirely possible for a plaintiff to have a meritorious cause of action against a defendant but have no proper ground for a preliminary attachment. In such a case, if the plaintiff nevertheless applies for and somehow succeeds in obtaining an attachment, but is subsequently declared by final judgment as not entitled thereto, and the defendant shows that he has suffered damages by reason of the attachment, there can be no gainsaying that indemnification is justly due the latter. So has this Court already had occasion to rule, in Baron v. David, 51 Phil. 1, and Javellana v. D.O. Plaza Enterprises, 32 SCRA 26]. Be all this as it may, the second and third sentences of Section 20, Rule 57, in relation to Section 10, Rule 60, are unquestionably relevant to the matter of the surety's liability upon a counter-bond for the discharge of a writ of delivery in a replevin suit. 12 Under Section 10, Rule 60 (which makes reference "to either party upon any bond filed by the other in accordance with the provisions of this rule" [60]), the surety's liability for damages upon its counter-bond should "W claimed, ascertained, and granted under the same procedure as prescribed in section 20 of Rule 57; 13 and andd section 20 pertinently decrees that '(s)uch damages may be awarded only upon application and after proper hearing, and shall be included in the final judgment .. (which means that the (application must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching creditor and his surety or sureties, setting forth the facts showing his right to damages and the amount thereof." Stated otherwise, to hold a surety on a counter-bond liable, what is entailed is (1) the filing of an application therefor with the Court having jurisdiction of the action; (2) the presentation thereof before the judgment becomes executory (or before the trial or before appeal is perfected); (3) the statement in said application of the facts showing the applicant's right to damages and the amount thereof, (4) the giving of due notice of the application to the attaching creditor and his surety or sureties; and (5) the holding of a proper hearing at which the attaching creditor and the sureties may be heard on the application. These requisites apply not only in cases of seizure or delivery under Rule 60, but also in cases of preliminary injunctions under Rule 58, 14 and receiverships under Rule 59. 15 It should be stressed, however, that enforcement of a surety's liability on a counter-bond given for the release of property seized under a writ of preliminary attachment is governed, not by said Section 20, but by another specifically and specially dealing with the matter; Section 17 of Rule 57, which reads as follows: SEC. 17. When execution returned unsatiated, recovery had upon bond. If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counter-bond given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counter-bond, and bound to pay to the judgment creditor upon demand, the amount due under the

judgment, which amount may be recovered from such surety or sureties after notice and summary hearing in the same action." The record shows that the appellant surety company bound itself "jointly and severally" with the defendant Fidelino "in the sum of PESOS FORTY EIGHT THOUSAND ONLY (P48,000.00), Philippine Currency, which is double the value of the property stated in the affidavit of the plaintiff, for the delivery thereof if such delivery is adjudged, or for the payment of such sum to him as may be recovered against the defendant and the costs of the action. 16 This being so, the appellant surety's liability attached upon the promulgation of the verdict against Fidelino. All that was necessary to enforce the judgment against it was, as aforestated, an application therefor with the Court, with due notice to the surety, and a proper hearing, i.e., that it be formally notified that it was in truth being made responsible for its co-principal's adjudicated prestation (in this case, the payment of the balance of the purchase price of the automobile which could no longer be found and therefore could not be ordered returned), 17 and an opportunity, at a hearing called for the purpose, to show to the Court why it should not be adjudged so responsible. A separate action was not necessary; it was in fact proscribed. 18 And again, the record shows substantial compliance with these basic requirements, obviously imposed in deference to due process. Appellant surety undoubtedly received copy of Zaragoza's Motion to Amend Decision. 19 That motion made clear its purposethat the decision "be amended, or an appropriate order be issued, to include .. (the surety) as a party jointly and severally liable with the defendant to the extent of the sums awarded in the decision to be paid to plaintiff'-as well as the basis thereof-the counter-bond filed by it by the explicit terms of which it bound itself "jointly and severally (with the defendant) .. for the payment of such sum to him (plaintiff) as may be recovered against the defendant and the cost of the action." The motion contained, at the foot thereof, a "notice that on Saturday, March 23, 1968, at 8:30 a.m., or as soon thereafter as the matter may be heard, the .. (plaintiffs counsel would) submit the foregoing motion for the consideration of the Court." And likewise indubitable is the fact that, as the Court a quo has observed, "neither .. Fidelinos counsel nor the surety company filed any opposition to said motion, nor did they appear in the hearing of the motion on March 23, 1968 .. (for which reason) the motion was deemed submitted for resolution." 20 The surety's omission to appear at the hearing despite notice of course constituted a waiver of the right to be heard on the matter. The surety's theory that never having been served with summons, it never came under the Lower Court's jurisdiction, is untenable. The terms of the counter-bond voluntarily filed by it in defendant's behalf leave no doubt of its assent to be bound by the Court's adjudgment of the defendant's liability, i.e., its acceptance of the Court's jurisdiction. For in that counterbond, it implicitly prayed for affirmative relief; the release of the seized car, in consideration of which it explicitly bound itself solidarily with said defendant to answer for the delivery of the car subject of the action "if such delivery is adjudged," i.e., commanded by the Court's judgment, or "for the payment of such sum as may be recovered against the defendant and the costs of the action," the reference to a possible future judgment against the defendant, and necessarily against itself, being certain and unmistakable. The filing of that bond was clearly an act of voluntary submission to the Court's authority, which is one of the modes for the acquisition of jurisdiction over a party. 21 The same theory as that espoused by appellant surety in this case was, in substance, passed upon and declared to be without merit in a 1962 decision of this Court, Dee v. Masloff. 22 There,

a surety on a counter-bond given to release property from receivership, also sought to avoid liability by asserting that it was not a party to the case, had never been made a party, and had not been notified of the trial. The Court overruled the contention, and upheld the propriety of the amendment of the judgment which ordered the appellant surety company to pay to the extent of its bond and jointly and severally with defendant the judgment obligation. The Court ruled that since such "amended judgment .. (had been) rendered after the appellant surety company as party jointly and severally liable with the defendant .. for the damages already awarded to the appellees, to which the appellant surety company filed its "Opposition" and "Rejoinder" to the "Reply to Opposition filed by the appellees, without putting in issue the reasonableness of the amount awarded for damages but confining itself to the defense in avoidance of liability on its bond that it was not a party to the case and never made a party therein and was not notified of the trial of the case, and that the appellees were guilty of laches, the requirement of hearing was fully satisfied or complied with; .. (in any case,) appellant surety company never prayed for an opportunity to present evidence in its behalf." The appellant surety's last argument that by the time the Court amended its decision, the decision had already become final, and therefore unalterable, is also untenable. The motion for amendment of the decision was unquestionably in the nature of a motion for reconsideration under Section 1 (c), Rule 37 of the Rules of Court which, having been filed within "the period for perfecting an appeal," had the effect of interrupting said period of appeal. 23 WHEREFORE, judgment is hereby rendered AFFIRMING in toto the Decision of the Court a quo dated February 12, 1968, as amended by the Order of April 16, 1968. Costs against the appellant surety. Cruz, Gancayco, Grio-Aquino and Medialdea, JJ., concur. G.R. No. 89020 May 5, 1992 STRONGHOLD INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS, respondent. Gascon, Garcia & Associates for petitioner. Castillo, Laman, Tan & Pantaleon for Northern Motors, Inc.

PARAS, J.: In this petition for review on certiorari, petitioner Stronghold Insurance Co., Inc. assails the decision * of the Court of Appeals in CA-G.R. CV No. 16154 affirming the order of the Regional Trial Court, Branch 167, Pasig, Metro Manila in its Civil Case No. 52177. The dispositive portion of this order of the Trial court reads: WHEREFORE, in view of the foregoing consideration, the claim of the defendant against SICI Bond No. 11652 of the Stronghold Insurance Company, Inc. is found to have been established and said surety company is adjudged liable for damages suffered by the defendant as found by this Court in its decision dated

June 9, 1986, to the extent of the amount of the replevin bond, which is P42,000.00 (p. 20, Rollo) The factual antecedents are not disputed. On March 21, 1985, Leisure Club, Inc. filed Civil Case No. 52177 against Northern Motors Inc. for replevin and damages. It sought the recovery of certain office furnitures and equipments. In an order dated March 22, 1985, the lower court ordered the delivery of subject properties to Leisure Club Inc. subject to the posting of the requisite bond under Section 2, Rule 60 of the Rules of Court. Accordingly, Leisure Club Inc. posted a replevin bond (SICI Bond No. 11652) dated March 25, 1985 in the amount of P42,000.00 issued by Stronghold Insurance Co., Inc. In due course, the lower court issued the writ of replevin, thereby enabling Leisure Club Inc. to take possession of the disputed properties. Northern Motors Inc. filed a counterbond for the release of the disputed properties. However, efforts to recover these properties proved futile as Leisure Club Inc. was never heard of again. For failure to appear in the pre-trial of the case, Leisure Club, Inc. was declared non-suited. Northern Motors Inc. presented its evidence ex-parte and on June 9, 1986, the lower court rendered its decision in favor of Northern Motors Inc., the dispositive portion of which reads PREMISE CONSIDERED, the instant petition is hereby dismissed and on the counterclaim, plaintiff is ordered to pay defendant the following: a) the actual value of the property sold at public auction by defendant, and repossessed by plaintiff, of P20,900.00; b) exemplary damages of P10,000.00; c) attorney's fees in the amount of P10,000.00; and d) costs of suit. SO ORDERED. (p. 21, Rollo) In the said decision, the lower court ruled that: 1. Northern Motors Inc. had rightful ownership and right of possession over the subject properties. 2. Leisure Club Inc. is a sister company of Macronics Inc., a debtor of Northern Motors Inc., and former owner of these properties. 3) Under the circumstances, Leisure Club Inc. instituted the action for replevin as part of a scheme to spirit away these properties and pave the way for the evasion of lawful obligations by its sister company. (Decision dated June 4, 1986, p. 4).

On July 3, 1986, Northern Motors Inc. filed a "Motion for Issuance of Writ of Execution Against Bond of Plaintiff's Surety", pursuant to Section 10, Rule 20 of the Rules of Court, which was treated by the lower court as an application for damages against the replevin bond. At the hearing of the said motion as well as the opposition thereto filed by Stronghold Insurance Co., Inc., Northern Motors Inc. presented one witness in the person of its former manager Clarissa G. Ocampo, whose testimony proved that: (a) Northern Motors Inc., and Macronics Marketing entered into a leased agreement wherein the latter leased certain premises from the former. (b) Macronics failed to pay its bills to Northern Motors Inc., so the latter was forced to terminate the lease. (c) Because of Macronics' unpaid liabilities to Northern Motors Inc., the latter was forced to sell off the former's properties in an auction sale wherein Northern Motors Inc. was the buyer. Macronics was duly notified of the sale. (d) These properties sold were the sole means available by which Northern Motors Inc. could enforce its claim against Macronics. (TSN dated January 30, 1987; pp. 94-95, Rollo) Stronghold Insurance Co., Inc. did not cross-examine the said witness. Instead it asked for continuance in order to present its own witness. Stronghold, however, never presented any witness. On July 21, 1987, the lower court issued its now disputed Order finding Stronghold liable under its surety bond for the damages awarded to Northern Motors Inc. in the June 8, 1986 Decision. In the said Order, the lower court held: Submitted for resolution is the "Motion for Issuance of Writ of Execution Against Bond of Plaintiff's Surety" filed by the defendant and the opposition thereto filed by the Stronghold Insurance Company, Inc. In the decision rendered by the Court on June 9, 1977, the defendant Northern Motors, Inc. was the prevailling party and the judgment in its favor ordered the plaintiff to pay the actual value of the property sold at public auction by the defendant and repossessed by plaintiff in the amount of P20,900.00, which is in favor of the plaintiff if the latter is found not entitled to the writ of replevin earlier issued against the defendant. The thrust of the opposition of the bonding company is to the effect that the motion for a writ of execution is not the proper remedy but an application against the bond should have been the remedy pursued. The surety company contends that it is not a party to the case and that the decision clearly became final and executory and, therefore, is no longer liable on the bond. The surety company likewise raised the issue as to when the decision became final and executory. Moreover, the surety company avers that the defendant failed to prove any damage by reason of the insurance of replevin bond.

Sec. 20 of Rule 57, in relation to Sec. 10 of Rule 60, provides that the party against whom the bond was issued may recover on the bond for any damage resulting from the issuance of the bond upon application and hearing. The application must be filed either: before trial; before appeal is perfected; before judgment becomes final and executory. Being the prevailing party, it is undeniable that the defendant is entitled to recover against the bond. The application for that propose was made before the decision became final and before the appeal was perfected. Both the prevailing and losing parties may appeal the decision. In the case of the plaintiff appears that its counsel did not claim the decision which was sent by registered mail on June 20, 1986 and filed the motion for execution against the bond on July 3, 1986. Hence, with respect to the defendant the motion against the bond was filed before any appeal was instituted and definitely on or before the judgment became final. Although the claim against the bond was denominated as a motion for issuance of a writ of execution, the allegations are to the effect that the defendant is applying for damages against the bond. In fact, the defendant invokes Sec. 10, Rule 60, in relation to Sec. 20, Rule 57, Rules of Court. Evidently, therefore, the defendant is in reality claiming damages against the bond. It is undisputed that the replevin bond was obtained by the plaintiff to answer for whatever damages the defendant may suffer for the wrongful issuance of the writ. By virtue of the writ, the plaintiff took possession of the auctioned properties. Despite a redelivery bond issued by the defendant, the plaintiff refused to return the properties and in the fact repossessed the same. Clearly, defendant suffered damages by reason of the wrongful replevin, in that it has been deprived of the properties upon which it was entitled to enforce its claim. Moreover, the extent of the damages has been qualified in the decision dated June 9, 1986. (pp. 21-23, Rollo) This Order was appealed by Stronghold to the Court of Appeals. In a decision dated July 7, 1989, the Court of Appeals affirmed the order of the lower court. This decision is now the subject of the instant petition. Petitioner raises the following assignment of error: 1. The lower court erred in awarding damages against herein petitioner despite complete absence of evidence in support of the application. 2. The lower court erred in just adopting the dispositive portion of the decision dated June 7, 1986 as basis for the award of damages against herein petitioner. 3. The lower court erred in awarding exemplary damages in favor of Northern Motors, Inc. and against petitioner Stronghold Insurance Co., Inc. 4. The lower court erred in awarding the attorney's fees of P10,000.00 as damages against the bond.

(pp. 10-11, Rollo) We find no merit in the petition. In the case of Visayan Surety & Insurance Corp. vs. Pascual, 85 Phil. 779, the Court explained the nature of the proceedings to recover damages against a surety, in this wise: In such case, upon application of the prevailing party, the court must order the surety to show cause why the bond should not respond for the judgment of damages. If the surety should contest the reality or reasonableness of the damages claimed by the prevailing party, the court must set the application and answer for hearing. The hearing will be summary and will be limited to such new defense, not previously set up by the principal, as the surety may allege and offer to prove. (Id. at 785; emphasis supplied) (p. 96, Rollo) Stronghold Insurance Co., Inc., never denied that it issued a replevin bond. Under the terms of the said bond, Stronghold Insurance together with Leisure Club Inc. solidarily bound themselves in the sum of P42,000 (a) for the prosecution of the action, (b) for the return of the property to the defendant if the return thereof be adjudged, and (c) for the payment of such sum as may in the cause be recovered against the plaintiff and the costs of the action. In the case at bar, all the necessary conditions for proceeding against the bond are present, to wit: (i) the plaintiff a quo, in bad faith, failed to prosecute the action, and after relieving the property, it promptly disappeared; (ii) the subject property disappeared with the plaintiff, despite a court order for their return; and (iii) a reasonable sum was adjudged to be due to respondent, by way of actual and exemplary damages, attorney's fees and costs of suit. (p. 63, Rollo) On the propriety of the award for damages and attorney's fees, suffice it to state, that as correctly observed by the Court of Appeals, the record shows that the same is supported by sufficient evidence. Northern Motors proved the damages it suffered thru evidence presented in the hearing of the case itself and in the hearing of its motion for execution against the replevin bond. No evidence to the contrary was presented by Stronghold Insurance Co., Inc. in its behalf. It did not impugn said award of exemplary damages and attorney's fees despite having every opportunity to do so. As correctly held by respondent Court of Appeals

Stronghold Insurance, Inc. has no ground to assail the awards against it in the disputed Order. Unless it has a new defense, it cannot simplistically dissociate itself from Leisure Club, Inc. and disclaim liability vis-a-vis the findings made in the Decision of the lower court dated June 9, 1986. Under Section 2, Rule 60 the bond it filed is to ensure "the return of the property to the defendant if the return thereof be adjudged, and for the payment to the defendant of such sum as he may recover from the plaintiff in the action." The bond itself ensures, inter alia, "the payment of such sum as may in the cause be recovered against the plaintiff and the cost of the action." (pp. 24-25, Rollo) Beside, Leisure Club Inc.'s act of filing a replevin suit without the intention of prosecuting the same but for the mere purpose of disappearing with the provisionally recovered property in order to evade lawfully contracted obligations constitutes a wanton, fraudulent, reckless, oppressive and malevolent breach of contract which justifies award of exemplary damages under Art. 2232 of the Civil Code. The attorney's fees awarded in favor of Northern Motors Inc. are likewise warranted under Article 2208 of the New Civil Code. In any event, the trial court has decided with finality that the circumstances justifying the award of exemplary damages and attorney's fees exist. The obligation of Stronghold Insurance Co., Inc., under the bond is specific. It assures "the payment of such sum as may in the cause be recovered against the plaintiff, and the costs of the action." (emphasis supplied) WHEREFORE, the petition is DENIED for lack of merit. No costs. SO ORDERED. Melencio-Herrera, Padilla, Regalado and Nocon, JJ., concur. G.R. No. 107062 February 21, 1994 PHILIPPINE PRYCE ASSURANCE CORPORATION, petitioner, vs. THE COURT OF APPEALS, (Fourteenth Division) and GEGROCO, INC., respondents. Ocampo, Dizon & Domingo and Rey Nathaniel C. Ifurung for petitioner. A.M. Sison, Jr. & Associates for private respondent.

NOCON, J.: Two purely technical, yet mandatory, rules of procedure frustrated petitioner's bid to get a favorable decision from the Regional Trial Court and then again in the Court of Appeals. 1 These are non-appearance during the pre-trial despite due notice, and non-payment of docket fees upon filing of its third-party complaint. Just how strict should these rules be applied is a crucial issue in this present dispute.

Petitioner, Interworld Assurance Corporation (the company now carries the corporate name Philippine Pryce Assurance Corporation), was the butt of the complaint for collection of sum of money, filed on May 13, 1988 by respondent, Gegroco, Inc. before the Makati Regional Trial Court, Branch 138. The complaint alleged that petitioner issued two surety bonds (No. 0029, dated July 24, 1987 and No. 0037, dated October 7, 1987) in behalf of its principal Sagum General Merchandise for FIVE HUNDRED THOUSAND (P500,000.00) PESOS and ONE MILLION (1,000,000.00) PESOS, respectively. On June 16, 1988, summons, together with the copy of the complaint, was served on petitioner. Within the reglementary period, two successive motions were filed by petitioner praying for a total of thirty (30) days extention within which to file a responsible pleading. In its Answer, dated July 29, 1988, but filed only on August 4, 1988, petitioner admitted having executed the said bonds, but denied liability because allegedly 1) the checks which were to pay for the premiums bounced and were dishonored hence there is no contract to speak of between petitioner and its supposed principal; and 2) that the bonds were merely to guarantee payment of its principal's obligation, thus, excussion is necessary. After the issues had been joined, the case was set for pre-trial conference on September 29, 1988. the petitioner received its notice on September 9, 1988, while the notice addressed to its counsel was returned to the trial court with the notation "Return to Sender, Unclaimed." 2 On the scheduled date for pre-trial conference, only the counsel for petitioner appeared while both the representative of respondent and its counsel were present. The counsel for petitioner manifested that he was unable to contract the Vice-President for operations of petitioner, although his client intended to file a third party complaint against its principal. Hence, the pretrial was re-set to October 14, 1988. 3 On October 14, 1988, petitioner filed a "Motion with Leave to Admit Third-Party Complaint" with the Third-Party Complaint attached. On this same day, in the presence of the representative for both petitioner and respondent and their counsel, the pre-trial conference was re-set to December 1, 1988. Meanwhile on November 29, 1988, the court admitted the Third Party Complaint and ordered service of summons on third party defendants. 4 On scheduled conference in December, petitioner and its counsel did not appear notwithstanding their notice in open court. 5 The pre-trial was nevertheless re-set to February 1, 1989. However, when the case was called for pre-trial conference on February 1, 1989, petitioner was again nor presented by its officer or its counsel, despite being duly notified. Hence, upon motion of respondent, petitioner was considered as in default and respondent was allowed to present evidence ex-parte, which was calendared on February 24, 1989. 6 Petitioner received a copy of the Order of Default and a copy of the Order setting the reception of respondent's evidence ex-parte, both dated February 1, 1989, on February 16, 1989. 7 On March 6, 1989, a decision was rendered by the trial court, the dispositive portion reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Interworld Assurance Corporation to pay the amount of P1,500,000.00 representing the principal of the amount due, plus legal interest thereon from April 7, 1988, until date of payment; and P20,000.00 as and for attorney's fees. 8

Petitioner's "Motion for Reconsideration and New Trial" dated April 17, 1989, having been denied it elevated its case to the Court of Appeals which however, affirmed the decision of the trial court as well as the latter's order denying petitioner's motion for reconsideration. Before us, petitioner assigns as errors the following: I. The respondent Court of Appeals gravely erred in declaring that the case was already ripe for pre-trial conference when the trial court set it for the holding thereof. II. The respondent Court of Appeals gravely erred in affirming the decision of the trial court by relying on the ruling laid down by this Honorable Court in the case of Manchester Development Corporation v. Court of Appeals, 149 SCRA 562, and disregarding the doctrine laid down in the case of Sun Insurance Office, Ltd. (SIOL) v. Asuncion, 170 SCRA 274. III. The respondent Court of Appeals gravely erred in declaring that it would be useless and a waste of time to remand the case for further proceedings as defendant-appellant has no meritorious defense. We do not find any reversible error in the conclusion reached by the court a quo. Relying on Section 1, Rule 20 of the Rules of court, petitioner argues that since the last pleading, which was supposed to be the third-party defendant's answer has not been filed, the case is not yet ripe for pre-trial. This argument must fail on three points. First, the trial court asserted, and we agree, that no answer to the third party complaint is forthcoming as petitioner never initiated the service of summons on the third party defendant. The court further said: . . . Defendant's claim that it was not aware of the Order admitting the third-party complaint is preposterous. Sec. 8, Rule 13 of the Rules, provides: Completeness of service . . . Service by registered mail is complete upon actual receipt by the addressee, but if he fails to claim his mail from the post office within five (5) days from the date of first notice of the postmaster, service shall take effect at the expiration of such time. 9 Moreover, we observed that all copies of notices and orders issued by the court for petitioner's counsel were returned with the notation "Return to Sender, Unclaimed." Yet when he chose to, he would appear in court despite supposed lack of notice. Second, in the regular course of events, the third-party defendant's answer would have been regarded as the last pleading referred to in Sec. 1, Rule 20. However, petitioner cannot just disregard the court's order to be present during the pre-trial and give a flimsy excuse, such as that the answer has yet to be filed. The pre-trial is mandatory in any action, the main objective being to simplify, abbreviate and expedite trial, if not to fully dispense with it. Hence, consistent with its mandatory character the Rules oblige not only the lawyers but the parties as well to appear for this purpose before the

Court 10 and when a party fails to appear at a pre-trial conference he may be non-suited or considered as in default. 11 Records show that even at the very start, petitioner could have been declared as in default since it was not properly presented during the first scheduled pre-trial on September 29, 1988. Nothing in the record is attached which would show that petitioner's counsel had a special authority to act in behalf of his client other than as its lawyer. We have said that in those instances where a party may not himself be present at the pre-trial, and another person substitutes for him, or his lawyer undertakes to appear not only as an attorney but in substitution of the client's person, it is imperative for that representative or the lawyer to have "special authority" to enter into agreements which otherwise only the client has the capacity to make. 12 Third, the court of Appeals properly considered the third-party complaint as a mere scrap of paper due to petitioner's failure to pay the requisite docket fees. Said the court a quo: A third-party complaint is one of the pleadings for which Clerks of court of Regional Trial Courts are mandated to collect docket fees pursuant to Section 5, Rule 141 of the Rules of Court. The record is bereft of any showing tha(t) the appellant paid the corresponding docket fees on its third-party complaint. Unless and until the corresponding docket fees are paid, the trial court would not acquire jurisdiction over the third-party complaint (Manchester Development Corporation vs. Court of Appeals, 149 SCRA 562). The third-party complaint was thus reduced to a mere scrap of paper not worthy of the trial court's attention. Hence, the trial court can and correctly set the case for pre-trial on the basis of the complaint, the answer and the answer to the counterclaim. 13 It is really irrelevant in the instant case whether the ruling in Sun Insurance Office, Ltd. (SIOL) v. Asuncion 14 or that in Manchester Development Corp. v. C.A. 15 was applied. Sun Insurance and Manchester are mere reiteration of old jurisprudential pronouncements on the effect of nonpayment of docket fees. 16 In previous cases, we have consistently ruled that the court cannot acquire jurisdiction over the subject matter of a case, unless the docket fees are paid. Moreover, the principle laid down in Manchester could have very well been applied in Sun Insurance. We then said: The principle in Manchester [Manchester Development Corp. v. C.A., 149 SCRA 562 (1987)] could very well be applied in the present case. The pattern and the intent to defraud the government of the docket fee due it is obvious not only in the filing of the original complaint but also in the filing of the second amended complaint. xxx xxx xxx In the present case, a more liberal interpretation of the rules is called for considering that, unlike Manchester, private respondent demonstrated his willingness to abide by the rules by paying the additional docket fees as required. The promulgation of the decision in Manchester must have had that sobering influence on private respondent who thus paid the additional docket fee as

ordered by the respondent court. It triggered his change of stance by manifesting his willingness to pay such additional docket fees as may be ordered. 17 Thus, we laid down the rules as follows: 1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the payment of the prescribed docket fee, that vests a trial court with jurisdiction over the subject-matter or nature of the action. Where the filing of the initiatory pleading is not accompanied by payment of the docket fee, the court may allow payment of the fee within a reasonable time, but in no case beyond the applicable prescriptive or reglamentary period. 2. The same rule applies to permissive counterclaims, third-party claims and similar pleadings, which shall not be considered filed until and unless the filing fee prescribed therefor is paid. The court may also allow payment of said fee within a prescriptive or reglementary period. 3. Where the trial court acquires jurisdiction over a claim by the filing of the appropriate pleading and payment of the prescribed filing fee, but subsequently, the judgment awards a claim nor specified in the pleading, or if specified the same has not been left for determination by the court, the additional filing fee therefor shall constitute a lien on the judgment. It shall be the responsibility of the clerk of court or his duly authorized deputy to enforce said lien and assess and collect the additional fee. 18 It should be remembered that both in Manchester and Sun Insurance plaintiffs therein paid docket fees upon filing of their respective pleadings, although the amount tendered were found to be insufficient considering the amounts of the reliefs sought in their complaints. In the present case, petitioner did not and never attempted to pay the requisite docket fee. Neither is there any showing that petitioner even manifested to be given time to pay the requisite docket fee, as in fact it was not present during the scheduled pre-trial on December 1, 1988 and then again on February 1, 1989. Perforce, it is as if the third-party complaint was never filed. Finally, there is reason to believe that partitioner does not really have a good defense. Petitioner hinges its defense on two arguments, namely: a) that the checks issued by its principal which were supposed to pay for the premiums, bounced, hence there is no contract of surety to speak of; and 2) that as early as 1986 and covering the time of the Surety Bond, Interworld Assurance Company (now Phil. Pryce) was not yet authorized by the insurance Commission to issue such bonds. The Insurance Code states that: Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. . . . (emphasis added)

The above provision outrightly negates petitioner's first defense. In a desperate attempt to escape liability, petitioner further asserts that the above provision is not applicable because the respondent allegedly had not accepted the surety bond, hence could not have delivered the goods to Sagum Enterprises. This statement clearly intends to muddle the facts as found by the trial court and which are on record. In the first place, petitioner, in its answer, admitted to have issued the bonds subject matter of the original action. 19 Secondly, the testimony of Mr. Leonardo T. Guzman, witness for the respondent, reveals the following: Q. What are the conditions and terms of sales you extended to Sagum General Merchandise? A. First, we required him to submit to us Surety Bond to guaranty payment of the spare parts to be purchased. Then we sell to them on 90 days credit. Also, we required them to issue post-dated checks. Q. Did Sagum General merchandise comply with your surety bond requirement? A. Yes. They submitted to us and which we have accepted two surety bonds. Q Will you please present to us the aforesaid surety bonds? A. Interworld Assurance Corp. Surety Bond No. 0029 for P500,000 dated July 24, 1987 and Interworld Assurance Corp. Surety Bond No. 0037 for P1,000.000 dated October 7, 1987. 20 Likewise attached to the record are exhibits C to C-18 21 consisting of delivery invoices addressed to Sagum General Merchandise proving that parts were purchased, delivered and received. On the other hand, petitioner's defense that it did not have authority to issue a Surety Bond when it did is an admission of fraud committed against respondent. No person can claim benefit from the wrong he himself committed. A representation made is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. 22 WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dismissing the petition before them and affirming the decision of the trial court and its order denying petitioner's Motion for Reconsideration are hereby AFFIRMED. The present petition is DISMISSED for lack of merit. SO ORDERED. Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur. G.R. No. L-9674 April 29, 1957

MELECIO ARRANZ, plaintiff-appellant, vs. MANILA FIDELITY AND SURETY CO., INC., defendant-appellee. Jose F. Aguirre for appellant. De Santos and Herrera for appellee. LABRADOR, J.: Appeal from an order of dismissal of the complaint rendered by the judge of the Court of First Instance, Honorable Rafael Amparo, presiding. The complaint alleges the following facts: On November 25, 1949, the defendant appellee Manila Fidelity & Surety Co., executed and delivered to the Manila Ylang Ylang Distillery a surety bond, by virtue of which defendant-appellee, as surety, understood to pay jointly and severally with plaintiff as principal, the sum of P90,000. The surety bond executed by Arranz and the defendant-appellee contains the following stipulation: The surety hereunder waives notice of default and expressly agrees that it shall not be necessary for the Manila Ylang Ylang Distillery, Ltd. to proceed against the Principal upon his default or to exhaust the property of said Principal, before proceeding against the surety, the Surety's liability under this bond being a primary one and shall be eligible and demandable immediately upon occurrence of such default. (p. 16, R.O.A.) To secure the surety against loss arising from the surety bond, plaintiff executed a second mortgaged over the properties which were transferred by the Manila Ylang Ylang Distillery to plaintiff. When the first installment of P50,000 became due on June 30, 1950, the surety, defendant-appellee, did not have funds to pay the same, and neither did it have funds to pay the second installment of P40,000 which became due on June 30, 1951. So the complaint was filed by the Manila Ylang Ylang Distillery on November 16, 1950, and a supplemental complaint was later filed on January 2, 1952, to include the second installment of P40,000 then already due. The defendant had no funds with which to pay either the P50,000 or the P40,000 due under the agreement and the only amount it was able to raise was P20,000. And that was paid to Manila Ylang Ylang Distillery on account. As defendant surety had no money with which to respond for the obligation, plaintiff made an arrangement with the Philippine National Bank, whereby he would mortgage the same properties to the latter in order to raise the amount needed to pay the amount of the loan. The Philippine National Bank wanted that defendant surety cancel the second mortgage executed in its favor by Arranz, but the defendant refused to do so unless Arranz pay to it the following sums: (a) P20,000, the partial payment made to the Manila Ylang Ylang Distillery on account of the latter's judgment credit; (b) P3,045.12 from December 31, 1950 to December 31, 1954; (c) (c)P7,691.09, including renewal premium on Bond No. 8674, from November 25, 1950 to November 25, 1954, and incidental expenses and interests;

(d) P10,000, for attorney's fees, and (e) P25,000, to be held by defendant in trust to answer for an alleged contingent liability of the Manila Ylang Ylang Distillery to it. As the plaintiff feared that the credit accommodation he sought from the Philippine National Bank could not be secured without release by the surety of its second mortgage, Arranz paid the above amounts except the P25,000, and thereupon the second mortgage executed in favor of surety, defendant-appellee, was cancelled. The complaint seeks to recover (a) P7,200, the premiums corresponding to the period from November 25, 1950 to November 25, 1954; and (b) P7,000 representing attorney's fees. Arranz claims that these two amounts were never due and owing to the defendant surety and that he paid it against his will in order to be able to save the properties from loss and obtain the credit accommodation from the Philippine National Bank. The defendant presented a motion to dismiss the complaint on the ground that there was no cause of action and inasmuch as the sums sought to be recovered were paid by virtue of the compromise, and no allegation is made in the complaint that said compromise is vitiated by mistake, violence, intimidation, undue influence and fraud. In answer to the motion to dismiss, plaintiff alleged that he was compelled to pay the amounts. The court ruled that the payment of the sum of P14,200 demanded in plaintiff's complaint was paid as a price for the release of the properties held on second mortgage by the defendant, or that the same was the consideration for said release in order to save his properties, and therefore dismissed the complaint. We are unable to agree with the judgment of the trial court that the sum of P14,200 was paid as a consideration for the release of the mortgage. There is no allegation in the complaint to that effect. From the allegations of the complaint, we gather the following facts: (1) that the surety did not have the money with which to pay the obligation, the payment of which was guaranteed in the contract of suretyship; (2) that the premium of P7,200 sought to be collected by the defendant from the plaintiff and the P7,000 also collected as attorney's fees, were never due from the plaintiff, because the surety was not able to put up the amount that it undertook to pay if the principal did not pay the same; (3) that plaintiff was compelled against his will by the circumstances to pay the sums now sought to be recovered. The question which the motion for dismissal poses therefore is plaintiff under obligation to pay the premium on the bond because of failure of his surety to pay the indebtedness secured by it (surety)? There is no allegation in the complaint or in any other paper in the case that the surety promised the principal that it will pay the loan or obligation contracted by the principal (plaintiff herein) for the latter's account. In the contract of suretyship the creditor was given the right to sue the principal, or the latter and the surety at the same time. This does not imply, however, that the surety covenanted or agreed with the principal that it will pay the loan for the benefit of the principal. Such a promise is not implied by law either. Plaintiff, therefore, cannot claim that there has been a breach on the part of the surety of any obligation it has made or undertaken under the suretyship contract. And the failure or refusal of the surety to pay the debt for the principal's account did not have the effect of relieving the principal of his obligation to pay the premium on the bond furnished. The premium is the consideration for furnishing the bond or the guaranty. While the liability of the surety to the obligee subsists the premium is collectible from the principal. Under the terms

of the contract of suretyship the surety's obligation is that the principal pay the loan and the interest thereon, and that the surety shall be relieved of his obligation when the loan or obligation secured is paid. Now, therefore, if the above abounded Principal shall pay promptly said installments and interest thereon and shall in all respects do and fully observe all and singular the covenants, agreements and conditions as provided for in the aforesaid agreement of November 21, 1949, Annexes "A" and "B" respectively, to the true intent and meaning thereof, this obligation shall be null and void, otherwise, it shall remain in full force and effect. (p. 16, R.O.A..) As the loan and interest remained unpaid the surety continued to be bound to the creditorobligee, and as a corollary its right to collect the premium on the bond also continued. Plaintiff-appellant, therefore, cannot excuse himself from the payment of the premium on the bond upon the failure or refusal of the surety to pay the loan and the interest. Even if, therefore, the payment of the premium were against his will, still plaintiff-appellant has no cause of action for the return thereof, because the surety was entitled thereto. For the foregoing considerations, the order of dismissal is affirmed on other grounds. So ordered. Bengzon, Padilla, Montemayor, Reyes, A., Bautista Angelo, Endencia and Felix, JJ., concur. Concepcion and Reyes, J. B. L., JJ., concur in the result. A.M. No. 21901-96 June 27, 1978 REPARATIONS COMMISSION, plaintiff-appellants, vs. UNIVERSAL DEEP-SEA FISHING CORPORATION and MANILA SURETY AND FIDELITY CO., INC., defendant-appellants. MANILA SURETY & FIDELITY CO., INC., third-party plaintiff-appellee, vs. PABLO S. SARMIENTO, third-party defendant-appellant.

CONCEPCION JR., J.: Appeal of the defendant Universal Deep-Sea Fishing Corporation, defendant and third-party plaintiff Manila Surety and Fidelity Co., Inc., and third-party defendant Pablo Sarmiento from the decision of the Court of First Instance of Manila, the dispositive portion of which reads as follows: WHEREFORE, judgment is rendered as follows: 1. The defendant Universal Deep-Sea Fishing Corporation is hereby sentenced to pay the plaintiff the sum of P100,242.04 in the first cause of action,

P141,343.45 in the second cause of action and P54,500.00 in the third cause of action, all with interest at the rate of 6% per annum from August 10, 1962, the date of the filing of the complaint, until fully paid; 2. Defendant Manila Surety & Fidelity Co., Inc., is hereby sentenced to pay the plaintiff, jointly and severally with defendant Universal Deep-Sea Fishing Corporation, the sum of P53,643.00 in the first cause of action, P68,777.77 in the second cause of action and P54,508.00 in the third cause of action; 3. Defendant Universal Deep-Sea Fishing Corporation and Pablo Sarmiento are hereby sentenced to pay, jointly and severally, the Manila Surety & Fidelity Co., Inc., the sum of P53,643.00 and P68,777.77 with interest thereon at the rate of 12% per annum from August 10, 1962 until fully paid plus P2,000.00 as attorney's fees; 4. Defendant Universal Deep-Sea Fishing Corporation is hereby sentenced to pay the Manila Surety & Fidelity Co., Inc., the sum of P54,508.00 with interest thereon at the rate of 12% per annum from August 10, 1962, until fully paid; 5. Defendant Universal Deep-Sea Fishing Corporation shall pay the costs. 1 It is not disputed that the Universal Deep-Sea Fishing Corporation, hereinafter referred to as UNIVERSAL for short. was awarded six (6) trawl boats by the. Reparations Commission as enduser of reparations goods. These fishing boats, christened the M/S UNIFISH 1, M/S UNIFISH 2. M/S UNIFISH 3. M/S UNIFISH 4, M/S UNIFISH 5, and M/S UNIFISH 6. were delivered to UNIVERSAL two at a time, f.o.b. Japanese port. The M/S UNIFISH 1 and M/S UNIFISH 2, with an aggregate purchase price of P536,428.44, were delivered to UNIVERSAL on November 20,1958, and the contract of Conditional Purchase and Sale of Reparations Goods, executed by and between the parties on February 12, 1960, provided among others, that "the first installment representing 10% of the amount or FIFTY THREE THOUSAND SIX HUNDRED FORTY TWO PESOS AND EIGHTY FOUR CENTAVOS (P53,642.84) shall be paid within 24 months from the date of complete delivery thereof, the balance shall be paid in the manner herein stated as shown in the Schedule of Payments, 2 ... to wit: TOTAL F.O.B. COST P536,428.44 AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COST) P53,642.84 DUE DATE OF 1st INSTALLMENT May 8, 1961 TERM: Ten (10) EQUAL YEARLY INSTALLMENTS RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM No. of Installments Date Due Amount

1 2 3 4 5 6 7 8 9 10

May 8, 1962 May 8, 1963 May 8, 1964 May 8, 1965 May 8, 1966 May 8, 1967 May 8, 1968 May 8, 1969 May 8, 1970 May 8, 1971

P56,597.20 P56,597.20 P56,597.20 P56,597.20 P56,597.2 P56,597.20 P56,597.20 P56,597.20 P56,597.20 P56,597.20

To guarantee the faithful compliance with the obligations under said contract, a performance bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila Surety & Fidelity Co., Inc., as surety, was executed in favor of the Reparations Commission. 3 A Corresponding indemnity agreement was executed to indemnify the surety company for any damage, loss charges, etc., which it may sustain or incur as a consequence of having become a surety upon the performance bond. 4 The M/S UNIFISH 3 and M/S UNIFISH 4, with a total purchase price of P687,777.76 were delivered to UNIVERSAL on April 20, 1959 and the Contract of Conditional Purchase and Sale Reparations Goods, dated November 25, 1959, 5 provided that "the first installment representing 10% of the amount or SIXTY-EIGHT THOUSAND SEVEN HUNDRED SEVENTY-SEVEN PESOS AND SEVENTY-SEVEN CENTAVOS shall be paid within 24 months from the date of complete delivery thereof, the balance shall be paid in the manner herein stated as shown in the Schedule of Payments, . . . , to wit: TOTAL F.O.B. COSTS P687,777.76 AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) P68,777.77 DUE DATE OF 1st INSTALLMENT July, 1961

TERM: Ten (10) EQUAL YEARLY INSTALLMENTS RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM No. of Installments 1 2 3 4 5 6 7 8 9 10 Due Date July, 1962 July, 1963 July, 1964 July, 1965 July, 1966 July, 1967 July, 1968 July, 1969 July, 1970 July, 1971 Amount P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68 P72,565.68

A performance bond in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co., Inc., was also submitted to guarantee the faithful compliance with the obligations set forth in the contract, 6 and indemnity agreement was executed in favor of the surety company in consideration of the said bond. 7 The delivery of the M/S UNIFISH 5 and M/S UNIFISH 6 is covered by a contract for the Utilization of Reparations Goods (M/S "UNIFISH 5" and M/S "UNIFISH 6") executed by the parties on February 12, 1960, 8 and the Schedule of Payments attached thereto, provided, as follows: AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) P54,500.00 DUE DATE OF 1st INSTALLMENT Oct. 17, 1961

TERM: TEN (10) EQUAL YEARLY INSTALLMENTS RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM No. of Installments 1 2 3 4 5 6 7 8 9 10 Date Due Oct. 17, 1962 Oct. 17, 1963 Oct. 17, 1964 Oct. 17, 1965 Oct. 17, 1966 Oct. 17, 1967 Oct. 17, 1968 Oct. 17, 1969 Oct. 17, 1970 Oct. 17, 1971 Amount P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57 P57,501.57
9

A performance bond in judgment, amount of P54,500.00 issued by judgment, Manila Surety & Fidelity Co., Inc., 10 was submitted, and an indemnity agreement was executed by UNIVERSAL in favor of judgment, surety company. 11 On August 10, 1962, judgment, Reparations Commission instituted judgment, present action against UNIVERSAL and judgment, surety company to recover various amounts of money due under these contracts. In answer, UNIVERSAL claimed that judgment, amounts of money sought to be collected are not yet due and demandable. The surety company also contended that judgment, action is premature, but set up a cross-claim against UNIVERSAL for reimbursement of whatever amount of money it may have to pay judgment, plaintiff by reason of judgment, complaint, including interest, and for judgment, collection of accumulated and unpaid premiums on judgment, bonds with interest thereon. With leave of courts first obtained, judgment, surety company filed a third-party complaint against Pablo S. Sarmiento, one of the indemnitors in judgment, indemnity agreements. The third-party defendant Pablo S. Sarmiento

denied personal liability claiming that he signed judgment, indemnity agreements in question in his capacity as acting general manager of UNIVERSAL. After appropriate proceedings and upon judgment, preceding facts, judgment, trial court rendered judgment, judgment hereinbefore stated. hence, this appeal. (1) The principal issue for resolution is whether or not judgment, first installments under judgment, three (3) contracts of conditional purchase and sale of reparations goods were already due and demandable when judgment, complaint was filed. UNIVERSAL contends that there is an obscurity in judgment, terms of judgment, contracts in question which were caused by the plaintiff as to judgment, amounts and due dates of judgment, first installments which should have been first fixed before a creditor can demand its payment from judgment, debtor. To be explicit. counsel points to judgment, Schedule of Payment attached to, and forming a part of, the contract for judgment, purchase and sale of judgment, M/S UNIFISH 1 and M/S UNIFISH 2 which states that judgment, amount of first installment is P53,642.84 and judgment, due date of its payment is May 8, 1961. However, judgment, amount of the first of succeeding itemized installments is P56,597.20 and judgment, due date is May 8, 1962. In the case of the M/S UNIFISH 3 and M/S UNIFISH 4, the first installments are P68,777.77 and due in July, 1961 and P72,565.68 and due in July 1962, respectively. In the contract for the purchase and sale of the M/S UNIFISH 5 and M/S UNIFISH 6, the amounts indicated as first installments are P54,500.00 and P57,501.57, and the due dates of payment are October 17, 1961 and October 17, 1962, respectively. The terms of the contracts for the purchase and sale of the reparations vessels, however, are very clear and leave no doubt as to the intent of the contracting parties. Thus, in the contract concerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties expressly agreed that the first installment representing 10% of the purchase price or P53,642.84 shall be paid within 24 months from the date of complete delivery of the vessel or on May 8, 1961, and the balance to be paid in ten (10) equal yearly installments. The amount of P56,597.20 due on May 8, 1962, which is also claimed to be a "first installment," is but the first of the ten (10) equal yearly installments of balance of judgment, purchase price. In judgment, case of Reparations Commission vs. Northern Lines, Inc. et al., 12 where judgment, Schedule of Payments, likewise on RC-LEGAL DEPT FORM NO. 1, also allegedly indicated two (2) due dates for judgment, payment of judgment, first installment, judgment, Court said: (a) The major premise in appellants' process of reasoning is that the first installments due on April 25, 1963, and May 26, 1963, are 'first installments. although they are not so designated in judgment, schedule appended to each of judgment, contracts between judgment, parties. Appellant's, moreover, assume that judgment, 'first' installment is included in judgment, ten (10) equal yearly installments' mentioned subsequently to said 'first' installment. In feet, however, only one installment is labeled as 'first' in each one of said schedules, and that is judgment, installment due on 'April 25, 1962' - as regards M/S Don Salvador or Magsaysay - and that due on 'May 26, 1962'- as regards M/S Don Amando or Estancia. The schedules do not describe judgment, 'ten (10) equal yearly installments' following the one characterized therein as 'first' meaning 'number,' not order or sequence, of installments and the numerals 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of said 'ten (10) equal yearly installments following the 'first' to accrue after the due date of said 'first' installment. Just the same, the parties have not so described (as 'first') in the schedules forming part of their contracts the installments numbered '1' in the list contained in

each. Moreover, considering that the words 'TERMS: Ten (10) EQUAL YEARLY INSTALLMENTS,' appear after the lines reading: 'AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COSTS) P174,761.42' and DUE DATE OF 1st INSTALLMENT April 25, 1962 (or May 26, 1962) and that, subsequently to said 'TERM: Ten (10) EQUAL YEARLY INSTALLMENTS,' there is a list of ten (10) equal yearly installments, it is clear that the latter do not include the one designated as 'first' installment. xxx xxx xxx (b) The pertinent part of Section 12 of Rep. Act No. 1789, pursuant to which the vessels in question were sold to the Buyer reads: . . . Capital goods . . . disposed of to private parties as provided for in subsection (a) of Section two hereof shall be sold on a cash or credit basis, under rules and regulations as may be determined by the Commission. Sales on a credit basis shall be payable in installments: Provided, That judgment, first installment shall be paid within twenty-four months after complete delivery of judgment, capital goods and judgment, balance within a period not exceeding ten years, . . . plus judgment, service provided for in section ten thereof; Provided further, That judgment, unpaid balance of judgment, price thereof shall bear interest at judgment, rate of not more than three percent per annum. . . . . It should be noted that, pursuant to judgment, schedules attached to judgment, contracts with judgment, Buyer, judgment, 'complete delivery' of judgment, vessels took place on April 25, and May 26, 1960, respectively, so that judgment, the 24 months taxed by law for judgment, payment of judgment, 'First installment expired on April 25, 1962 and May 26,1962, which are judgment, very dates stated in judgment, aforementioned schedules for judgment, payment of judgment, respective '1st' installments. What is more, in view of said legal provision, judgment, Commission had no authority to agree that the 1st installment shall be paid on any later date, and judgment, Buyer must have been aware of this fact. Hence, judgment, parties could not have intended judgment, first installments to become due on April 25, and May 26, 1963 It is, likewise, obvious - particularly when considered in relation to judgment, provision above quoted - that judgment, 'ten (10) equal yearly installments.' mentioned in the schedules, refer to the 'balance' of the price to be paid by the buyer, after deducting judgment, 'first' installment, so hat, altogether, there would be 'eleven' installments, namely, the first , which would be the 10% of the F.O.B. cost of the vessel as agreed upon between 'The Governments of the Philippines and Japan and 'ten (10) yearly installments,' representing the balance of "he amount due to he Commission from judgment, Buyer, including tile interest thereon. Viewing judgment, contracts between judgment, parties in judgment, light of the foregoing exposition, judgment, first installment on judgment, M/S UNIFISH 1 and M/S UNIFISH 2 of judgment, amount of P53,642.84 was due on May 8, 1961, while judgment, first installments on judgment, M/S UNIFISH 3 and M/S UNIFISH 4, and judgment, M/S UNIFISH 5 and M/S UNIFISH 6 in judgment, amounts of P68,777.77 and P54,500.00 were due on July 31, 1961 and October 17, 1961, respectively. Accordingly judgment, obligation of UNIVERSAL to pay

judgment, first installments on the purchase price of judgment, six (6) reparations vessels was already due and demandable when the present action was commenced on August 10, 1962. Also due and demanded from UNIVERSAL were the first of the ten (10) equal yearly installments on the balance of the purchase price of the M/S UNIFISH I and M/S UNIFISH 2 in the amount of P56,597.20 and P72,565.68 on judgment, M/S UNIFISH 3 and M/S UNIFISH 4. The first accrued on May 8, 1962, while judgment, second fell due on July 31, 1962. (2) The claim of judgment, surety company to the effect that the trial court erred in not awarding it the amount of P7,251.42, as premium is the performance bonds, is well taken. The payment of premiums on the bonds to the surety company had been expressly undertaken by UNIVERSAL in the indemnity agreements executed by it in favor of judgment, surety company. The premium is judgment, consideration for furnishing judgment, bonds and judgment, obligation to pay judgment, same subsists for as long as judgment, liability of judgment, surety shall exist. 13 Hence, UNIVERSAL should pay judgment, amount of P7,251.42 to judgment, surety company. (3) The surety company also claims that judgment, trial court erred in not applying judgment, amount of P10,000.00, paid as down payment by UNIVERSAL to judgment, Reparations Commission, to judgment, guaranteed indebtedness. According to judgment, surety company, under Article 1254 of judgment, Civil rode, where there is no imputation of payment made by either judgment, debtor or creditor, The debt which is the most onerous to the debtor shall be deemed to have been satisfied, so that the amount of P10,000.00 paid by UNIVERSAL as down payment on the purchase of the, M/S UNIFISH 1 and M/S UNIFISH 2 should be applied to the guaranteed portion of the debt, this releasing part of the liability hence the obligation of 'The surety company shall be only P43,643.00, instead of P53,643.00. The rules contained in Articles 1252 to 1254 of judgment, Civil Code apply to a person owing several debts of judgment, same kind to a single creditor. They cannot be made applicable to a person whose obligation as a mere surety is both contingent and singular, 14 which in this case is the full and faithful compliance with the terms of the contract of conditional purchase and sale of reparations goods, The obligation included the payment, not only of the first installment in the amount of P53,643.00, but also of the ten (10) equal yearly installments of P56,597.20 per annum. The amount of P10,000.00 was, indeed, deducted from judgment, amount of P53,643.00, but then judgment, first of judgment, ten (10) equal yearly installments had also accrued, hence, no error was committed in holding judgment, surety company to judgment, full extent of its undertaking. (4) Finally, We find no merit in judgment, claim of judgment, third-party defendant Pablo S. Sarmiento that he is not personally liable having merely executed judgment, indemnity agreements 15 in his capacity as acting general manager of UNIVERSAL. Pablo S. Sarmiento appears to have signed the indemnity agreement twice the first, in this capacity as acting general manager of UNIVERSAL, and the second, in his individual capacity. The indemnity agreements in question state the following. among others: In consideration of judgment, responsibility undertaken by judgment, Company, for judgment, original bond, and for any renewal, extension or substitution thereof, judgment, undersigned, jointly and severally, bind themselves in favor of judgment, said COMPANY in judgment, following terms: xxx xxx xxx

Dated at City of Manila this - - - - day of July l969. 600 Cottage 3, UNIVERSAL DEEP-SEA FISHING CORP. Aguinaldo Com- BY: pound, Echague, s/PABLO S. SARMIENTO Manila t/PABLO S. SARMIENTO Signature s/PABLO S. SARMIENTO Address t/PABLO S. SARMIENTO Signature Besides, the "acknowledgment" stated that "Pablo S. Sarmiento for himself and on behalf of Universal Deep-Sea Fishing Corporation" personally appeared before the notary and acknowledged that judgment, document is his own free and voluntary act and deed. WHEREFORE, judgment, judgment appealed from is hereby affirmed with judgment, modification that judgment, UNIVERSAL Deep-Sea Fishing Corporation is further ordered to pay judgment, Manila Surety & Fidelity Co., Inc., judgment, amount of P7,251.42 for judgment, premiums and documentary stamps on judgment, performance bonds. Appellants shall pay proportionate costs. SO ORDERED. Antonio, Aquino, Santos, and Guerrero, JJ., concur. Fernando and Barredo, JJ., took no part. G.R. No. 78848 November 14, 1988 SHERMAN SHAFER, petitioner, vs. HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and MAKATI INSURANCE COMPANY, INC., respondents. R.M. Blanco for petitioner. Camacho and Associates for respondents.

PADILLA, J.: This is a petition for review on certiorari of the Order * of the Regional Trial Court, Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence resulting in damage to property and serious physical injuries. 1 On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No. 0889, 2 over his Ford Laser car with Plate No. CFN-361 from Makati Insurance Company, Inc., for third

party liability (TPL).<re||an1w> During the effectivity of the policy, an information 3 for reckless imprudence resulting in damage to property and serious physical injuries was filed against petitioner. The information reads as follows: That on or about the seventeeth (17th) day of May 1985, in the City of Olongapo, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused, being then the driver and in actual physical control of a Ford Laser car bearing Plate No. CFN-361, did then and there wilfully, unlawfully and criminally drive, operate and manage the said Ford Laser car in a careless, reckless and imprudent manner without exercising reasonable caution, diligence and due care to avoid accident to persons and damage to property and in disregard of existing traffic rules and regulations, causing by such carelessness, recklessness and imprudence the said Ford Laser car to hit and bump a Volkswagen car bearing Plate No. NJE-338 owned and driven by Felino llano y Legaspi, thereby causing damage in the total amount of P12,345.00 Pesos, Philippine Currency, and as a result thereof one Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained physical injuries, to wit: 1. 2 cm. laceration of left side of tongue. 2. 6 cm. laceration with partial transection of muscle (almost full thickness) left side of face. 3. Full thickness laceration of lower lip and adjacent skin. which injuries causing [sic] deformity on the face. 4 The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did not reserve his right to file a separate civil action for damages. Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on his claim for damages for the serious physical injuries which he claimed to have sustained as a result of the accident. Upon motion, petitioner was granted leave by the former presiding judge of the trail court to file a third party complaint against the herein private respondent, Makati Insurance Company, Inc. Said insurance company, however, moved to vacate the order granting leave to petitioner to file a third party complaint against it and/or to dismiss the same. 5 On 24 April 1987, the court a quo issued an order dismissing the third party complaint on the ground that it was premature, based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party (Poblete Sr.) indemnity or damages, the third party complaint is without cause of action. The court further stated that the better procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the accused, also the third party plaintiff, has a cause of action against the third party defendant for the enforcement of its third party liability (TPL) under the insurance contract. 6 Petitioner moved for reconsideration of said order, but the motion was denied; 7 hence, this petition.

It is the contention of herein petitioner that the dismissal of the third party complaint amounts to a denial or curtailment of his right to defend himself in the civil aspect of the case. Petitioner further raises the legal question of whether the accused in a criminal action for reckless imprudence, where the civil action is jointly prosecuted, can legally implead the insurance company as third party defendant under its private car insurance policy, as one of his modes of defense in the civil aspect of said proceedings. On the other hand, the insurance company submits that a third party complaint is, under the rules, available only if the defendant has a right to demand contribution, indemnity, subrogation or any other relief in respect of plaintiff's claim, to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more suits involving the same subject matter. The insurance company further contends that the contract of motor vehicle insurance, the damages and attorney's fees claimed by accused/third party plaintiff are matters entirely different from his criminal liability in the reckless imprudence case, and that petitioner has no cause of action against the insurer until petitioner's liability shall have been determined by final judgment, as stipulated in the contract of insurance. 8 Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. 9 The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. The liability of the insurance company under the Compulsory Motor Vehicle Liability Insurance is for loss or damage. Where an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. 10 The injured for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. 11 In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no action" clause under the policy-which requires that a final judgment be first obtained against the insured and that only thereafter can the person insured recover on the policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. 12 In the instant case, the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no cause of action yet against the insurance company (third party defendant). There is no need on the part of the insured to wait for the decision of the trial court finding him guilty of reckless imprudence. The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its policy.

A third party complaint is a device allowed by the rules of procedure by which the defendant can bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit. 13 Third party complaints are allowed to minimize the number of lawsuits and avoid the necessity of bringing two (2) or more actions involving the same subject matter. They are predicated on the need for expediency and the avoidance of unnecessary lawsuits. If it appears probable that a second action will result if the plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain, then the motion to dismiss the third party complaint should be denied.
14

Respondent insurance company's contention that the third party complaint involves extraneous matter which will only clutter, complicate and delay the criminal case is without merit. An offense causes two (2) classes of injuries the first is the social injury produced by the criminal act which is sought to be repaired thru the imposition of the corresponding penalty, and the second is the personal injury caused to the victim of the crime, which injury is sought to be compensated thru indemnity, which is civil in nature. 15 In the instant case, the civil aspect of the offense charged, i.e., serious physical injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus raise all defenses available to him insofar as the criminal and civil aspects of the case are concerned. The claim of petitioner for payment of indemnity to the injured third party, under the insurance policy, for the alleged bodily injuries caused to said third party, arose from the offense charged in the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to recover civil damages. Hence, such claim of petitioner against the insurance company cannot be regarded as not related to the criminal action. WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a new one entered admitting petitioner's third party complaint against the private respondent Makati Insurance Company, Inc. SO ORDERED. Melencio-Herrera (Chairperson), Paras, Sarmiento and Regalado, JJ., concur. G.R. No. 96452 May 7, 1992 PERLA COMPANIA DE SEGUROS, INC. petitioner, vs. THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents. G.R. No. 96493 May 7, 1992 FCP CREDIT CORPORATION, petitioner, vs. THE COURT OF APPEALS, Special Third Division, HERMINIO LIM and EVELYN LIM, respondents.

Yolanda Quisumbing-Javellana and Nelson A. Loyola for petitioner. Wilson L. Tee for respondents Herminio and Evelyn Lim.

NOCON, J.: These are two petitions for review on certiorari, one filed by Perla Compania de Seguros, Inc. in G.R. No. 96452, and the other by FCP Credit Corporation in G.R. No. 96493, both seeking to annul and set aside the decision dated July 30, 1990 1 of the Court of Appeals in CA-G.R. No. 13037, which reversed the decision of the Regional Trial Court of Manila, Branch VIII in Civil Case No. 83-19098 for replevin and damages. The dispositive portion of the decision of the Court of Appeals reads, as follows: WHEREFORE, the decision appealed from is reversed; and appellee Perla Compania de Seguros, Inc. is ordered to indemnify appellants Herminio and Evelyn Lim for the loss of their insured vehicle; while said appellants are ordered to pay appellee FCP Credit Corporation all the unpaid installments that were due and payable before the date said vehicle was carnapped; and appellee Perla Compania de Seguros, Inc. is also ordered to pay appellants moral damages of P12,000.00 for the latter's mental sufferings, exemplary damages of P20,000.00 for appellee Perla Compania de Seguros, Inc.'s unreasonable refusal on sham grounds to honor the just insurance claim of appellants by way of example and correction for public good, and attorney's fees of P10,000.00 as a just and equitable reimbursement for the expenses incurred therefor by appellants, and the costs of suit both in the lower court and in this appeal. 2 The facts as found by the trial court are as follows: On December 24, 1981, private respondents spouses Herminio and Evelyn Lim executed a promissory note in favor Supercars, Inc. in the sum of P77,940.00, payable in monthly installments according to the schedule of payment indicated in said note, 3 and secured by a chattel mortgage over a brand new red Ford Laser 1300 5DR Hatchback 1981 model with motor and serial No. SUPJYK-03780, which is registered under the name of private respondent Herminio Lim 4 and insured with the petitioner Perla Compania de Seguros, Inc. (Perla for brevity) for comprehensive coverage under Policy No. PC/41PP-QCB-43383. 5 On the same date, Supercars, Inc., with notice to private respondents spouses, assigned to petitioner FCP Credit Corporation (FCP for brevity) its rights, title and interest on said promissory note and chattel mortgage as shown by the Deed of Assignment. 6 At around 2:30 P.M. of November 9, 1982, said vehicle was carnapped while parked at the back of Broadway Centrum along N. Domingo Street, Quezon City. Private respondent Evelyn Lim, who was driving said car before it was carnapped, immediately called up the Anti-Carnapping Unit of the Philippine Constabulary to report said incident and thereafter, went to the nearest police substation at Araneta, Cubao to make a police report regarding said incident, as shown by the certification issued by the Quezon City police. 7

On November 10, 1982, private respondent Evelyn Lim reported said incident to the Land Transportation Commission in Quezon City, as shown by the letter of her counsel to said office, 8 in compliance with the insurance requirement. She also filed a complaint with the Headquarters, Constabulary Highway Patrol Group. 9 On November 11, 1982, private respondent filed a claim for loss with the petitioner Perla but said claim was denied on November 18, 1982 10 on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an expired driver's license at the time of the loss of said vehicle which is in violation of the authorized driver clause of the insurance policy, which states, to wit: AUTHORIZED DRIVER: Any of the following: (a) The Insured (b) Any person driving on the Insured's order, or with his permission. Provided that the person driving is permitted, in accordance with the licensing or other laws or regulations, to drive the Scheduled Vehicle, or has been permitted and is not disqualified by order of a Court of Law or by reason of any enactment or regulation in that behalf. 11 On November 17, 1982, private respondents requests from petitioner FCP for a suspension of payment on the monthly amortization agreed upon due to the loss of the vehicle and, since the carnapped vehicle insured with petitioner Perla, said insurance company should be made to pay the remaining balance of the promissory note and the chattel mortgage contract. Perla, however, denied private respondents' claim. Consequently, petitioner FCP demanded that private respondents pay the whole balance of the promissory note or to return the vehicle 12 but the latter refused. On July 25, 1983, petitioner FCP filed a complaint against private respondents, who in turn filed an amended third party complaint against petitioner Perla on December 8, 1983. After trial on the merits, the trial court rendered a decision, the dispositive portion which reads: WHEREFORE, in view of the foregoing, judgment is hereby rendered as follows: 1. Ordering defendants Herminio Lim and Evelyn Lim to pay, jointly and severally, plaintiff the sum of P55,055.93 plus interest thereon at the rate of 24% per annum from July 2, 1983 until fully paid; 2. Ordering defendants to pay plaintiff P50,000.00 as and for attorney's fees; and the costs of suit. Upon the other hand, likewise, ordering the DISMISSAL of the Third-Party Complaint filed against Third-Party Defendant. 13 Not satisfied with said decision, private respondents appealed the same to the Court of Appeals, which reversed said decision.

After petitioners' separate motions for reconsideration were denied by the Court of Appeals in its resolution of December 10, 1990, petitioners filed these separate petitions for review on certiorari. Petitioner Perla alleged that there was grave abuse of discretion on the part of the appellate court in holding that private respondents did not violate the insurance contract because the authorized driver clause is not applicable to the "Theft" clause of said Contract. For its part, petitioner FCP raised the issue of whether or not the loss of the collateral exempted the debtor from his admitted obligations under the promissory note particularly the payment of interest, litigation expenses and attorney's fees. We find no merit in Perla's petition. The comprehensive motor car insurance policy issued by petitioner Perla undertook to indemnify the private respondents against loss or damage to the car (a) by accidental collision or overturning, or collision or overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft; and (c) by malicious act. 14 Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT"' clause, and not the "AUTHORIZED DRIVER" clause that should apply. As correctly stated by the respondent court in its decision: . . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101). Clearly, the risk against accident is distinct from the risk against theft. The "authorized driver clause" in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction often seized upon by insurance companies in resisting claims from their assureds between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellants' claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case. The loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent. 15 It is worthy to note that there is no causal connection between the possession of a valid driver's license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow.

We however find the petition of FCP meritorious. This Court agrees with petitioner FCP that private respondents are not relieved of their obligation to pay the former the installments due on the promissory note on account of the loss of the automobile. The chattel mortgage constituted over the automobile is merely an accessory contract to the promissory note. Being the principal contract, the promissory note is unaffected by whatever befalls the subject matter of the accessory contract. Therefore, the unpaid balance on the promissory note should be paid, and not just the installments due and payable before the automobile was carnapped, as erronously held by the Court of Appeals. However, this does not mean that private respondents are bound to pay the interest, litigation expenses and attorney's fees stipulated in the promissory note. Because of the peculiar relationship between the three contracts in this case, i.e., the promissory note, the chattel mortgage contract and the insurance policy, this Court is compelled to construe all three contracts as intimately interrelated to each other, despite the fact that at first glance there is no relationship whatsoever between the parties thereto. Under the promissory note, private respondents are obliged to pay Supercars, Inc. the amount stated therein in accordance with the schedule provided for. To secure said promissory note, private respondents constituted a chattel mortgage in favor of Supercars, Inc. over the automobile the former purchased from the latter. The chattel mortgage, in turn, required private respondents to insure the automobile and to make the proceeds thereof payable to Supercars, Inc. The promissory note and chattel mortgage were assigned by Supercars, Inc. to petitioner FCP, with the knowledge of private respondents. Private respondents were able to secure an insurance policy from petitioner Perla, and the same was made specifically payable to petitioner FCP. 16 The insurance policy was therefore meant to be an additional security to the principal contract, that is, to insure that the promissory note will still be paid in case the automobile is lost through accident or theft. The Chattel Mortgage Contract provided that: THE SAID MORTGAGOR COVENANTS AND AGREES THAT HE/IT WILL CAUSE THE PROPERTY/IES HEREIN-ABOVE MORTGAGED TO BE INSURED AGAINST LOSS OR DAMAGE BY ACCIDENT, THEFT AND FIRE FOR A PERIOD OF ONE YEAR FROM DATE HEREOF AND EVERY YEAR THEREAFTER UNTIL THE MORTGAGE OBLIGATION IS FULLY PAID WITH AN INSURANCE COMPANY OR COMPANIES ACCEPTABLE TO THE MORTGAGEE IN AN AMOUNT NOT LESS THAN THE OUTSTANDING BALANCE OF THE MORTGAGE OBLIGATION; THAT HE/IT WILL MAKE ALL LOSS, IF ANY, UNDER SUCH POLICY OR POLICIES, PAYABLE TO THE MORTGAGE OR ITS ASSIGNS AS ITS INTERESTS MAY APPEAR AND FORTHWITH DELIVER SUCH POLICY OR POLICIES TO THE MORTGAGEE, . . . . 17 It is clear from the abovementioned provision that upon the loss of the insured vehicle, the insurance company Perla undertakes to pay directly to the mortgagor or to their assignee, FCP, the outstanding balance of the mortgage at the time of said loss under the mortgage contract. If the claim on the insurance policy had been approved by petitioner Perla, it would have paid the proceeds thereof directly to petitioner FCP, and this would have had the effect of extinguishing

private respondents' obligation to petitioner FCP. Therefore, private respondents were justified in asking petitioner FCP to demand the unpaid installments from petitioner Perla. Because petitioner Perla had unreasonably denied their valid claim, private respondents should not be made to pay the interest, liquidated damages and attorney's fees as stipulated in the promissory note. As mentioned above, the contract of indemnity was procured to insure the return of the money loaned from petitioner FCP, and the unjustified refusal of petitioner Perla to recognize the valid claim of the private respondents should not in any way prejudice the latter. Private respondents can not be said to have unduly enriched themselves at the expense of petitioner FCP since they will be required to pay the latter the unpaid balance of its obligation under the promissory note. In view of the foregoing discussion, We hold that the Court of Appeals did not err in requiring petitioner Perla to indemnify private respondents for the loss of their insured vehicle. However, the latter should be ordered to pay petitioner FCP the amount of P55,055.93, representing the unpaid installments from December 30, 1982 up to July 1, 1983, as shown in the statement of account prepared by petitioner FCP, 18 plus legal interest from July 2, 1983 until fully paid. As to the award of moral damages, exemplary damages and attorney's fees, private respondents are legally entitled to the same since petitioner Perla had acted in bad faith by unreasonably refusing to honor the insurance claim of the private respondents. Besides, awards for moral and exemplary damages, as well as attorney's fees are left to the sound discretion of the Court. Such discretion, if well exercised, will not be disturbed on appeal. 19 WHEREFORE, the assailed decision of the Court of Appeals is hereby MODIFIED to require private respondents to pay petitioner FCP the amount of P55,055.93, with legal interest from July 2, 1983 until fully paid. The decision appealed from is hereby affirmed as to all other respects. No pronouncement as to costs. SO ORDERED. Melencio-Herrera, Paras, Padilla and Regalado, JJ., concur. G.R. No. 60506 August 6, 1992 FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents. Jose B. Guyo for petitioners. Angel E. Fernandez for private respondent.

ROMERO, J.: The nature of the liability of an insurer sued together with the insured/operator-owner of a common carrier which figured in an accident causing the death of a third person is sought to be defined in this petition for certiorari. The facts as found by the trial court are as follows: . . . Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, here in Davao City. On December 20, 1978, early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned by defendant Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. 1 Consequently, the heirs of Lope Maglana, Sr., here petitioners, filed an action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO for brevity) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of one (1) year, eight (8) months and one (1) day of prision correccional, as minimum, to four (4) years, nine (9) months and eleven (11) days of prision correccional, as maximum, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of twelve thousand pesos (P12,000.00) with subsidiary imprisonment in case of insolvency, plus five thousand pesos (P5,000.00) in the concept of moral and exemplary damages with costs. No appeal was interposed by accused who later applied for probation. 2 On December 14, 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. The dispositive portion of the decision reads: WHEREFORE, the Court finds judgment in favor of the plaintiffs against defendant Destrajo, ordering him to pay plaintiffs the sum of P28,000.00 for loss of income; to pay plaintiffs the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case No. 3527-D against the driver, accused Into, shall have been enforced; to pay plaintiffs the sum of P5,901.70 representing funeral and burial expenses of the deceased; to pay plaintiffs the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case No. 3527-D against the driver, accused Into; to pay plaintiffs the sum of P3,000.00 as attorney's fees and to pay the costs of suit.

The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. SO ORDERED. 3 Petitioners filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage." 4 Hence, they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in their favor. In its comment on the motion for reconsideration, AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, the presumption is that the obligation is joint. In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." 5 Petitioners filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. 6 This motion was likewise denied for lack of merit. Hence, petitioners filed the instant petition for certiorari which, although it does not seek the reversal of the lower court's decision in its entirety, prays for the setting aside or modification of the second paragraph of the dispositive portion of said decision. Petitioners reassert their position that the insurance company is directly and solidarily liable with the negligent operator up to the extent of its insurance coverage. We grant the petition. The particular provision of the insurance policy on which petitioners base their claim is as follows:

Sec. 1 LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respect of (a) death of or bodily injury to any THIRD PARTY (b) . . . . 2. . . . .

3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof. 7 The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by petitioners. As this Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or even upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." 8 The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy . . ." 9 Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00. However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals, 10 this Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident. We categorically ruled thus: While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort. In the case at bar, petitioner as insurer of Sio Choy, is liable to respondent Vallejos (the injured third party), but it cannot, as incorrectly held by the trial court, be made "solidarily" liable with the two principal tortfeasors, namely respondents Sio Choy and San Leon Rice Mill, Inc. For if petitioner-insurer were solidarily liable with said, two (2) respondents by reason of the indemnity contract against third party liability under which an insurer can be directly sued by a third party this will result in a violation of the principles underlying solidary obligation and insurance contracts. (emphasis supplied) The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event. 11 Thus, petitioner therein, which, under the insurance contract is liable only up to P20,000.00, can not be made solidarily liable with the insured for the entire obligation of P29,013.00 otherwise there would result "an evident breach of the concept of solidary obligation." Similarly, petitioners herein cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph

of the dispositive portion of the decision in question may have unwittingly sown confusion among the petitioners and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. In fine, we conclude that the liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. 12 As such, petitioners have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage. While the petition seeks a definitive ruling only on the nature of AFISCO's liability, we noticed that the lower court erred in the computation of the probable loss of income. Using the formula: 2/3 of (80-56) x P12,000.00, it awarded P28,800.00. 13 Upon recomputation, the correct amount is P192,000.00. Being a "plain error," we opt to correct the same. 14 Furthermore, in accordance with prevailing jurisprudence, the death indemnity is hereby increased to P50,000.00. 15 WHEREFORE, premises considered, the present petition is hereby GRANTED. The award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to P50,000.00. SO ORDERED. Gutierrez, Jr., Bidin and Davide, Jr., JJ., concur. G.R. No. L-49699 August 8, 1988 PERLA COMPANIA de SEGUROS, INC., petitioner, vs. HON. CONSTANTE A. ANCHETA, Presiding Judge of the Court of First instance of Camarines Norte, Branch III, ERNESTO A. RAMOS and GOYENA ZENAROSA-RAMOS, for themselves and as Guardian Ad Litem for Minors JOBET, BANJO, DAVID and GRACE all surnamed RAMOS, FERNANDO M. ABCEDE, SR., for himself and Guardian Ad Litem for minor FERNANDO G. ABCEDE, JR., MIGUEL JEREZ MAGO as Guardian Ad Litem for minors ARLEEN R. MAGO, and ANACLETA J. ZENAROSA., respondents. Jose B. Sanez for petitioner. James B. Pajares for private respondents.

CORTES, J.: The instant petition for certiorari and prohibition with preliminary injunction concerns the ability of insurers under the "no fault indemnity" provision of the Insurance Code. * On December 27, 1977, in a collision between the IH Scout in which private respondents were riding and a Superlines bus along the national highway in Sta. Elena, Camarines Norte, private respondents sustained physics injuries in varying degrees of gravity. Thus, they filed with the

Court of First Instance of Camarines Norte on February 23,1978 a complaint for damages against Superlines, the bus driver and petitioner, the insurer of the bus [Rollo, pp. 27-39.] The bus was insured with petitioner for the amount of P50,000.00 as and for passenger liability and P50,000.00 as and for third party liability. The vehicle in which private respondents were riding was insured with Malayan Insurance Co. Even before summons could be served, respondent judge issued an order dated March 1, 1978 [Rollo, pp. 40-41], the pertinent portion of which stated: The second incident is the prayer for an order of this court for the Insurance Company, Perla Compania de Seguros, Inc., to pay immediately the P5,000.00 under the "no fault clause" as provided for under Section 378 of the Insurance Code, and finding that the requisite documents to be attached in the record, the said Insurance Company is therefore directed to pay the plaintiffs (private respondents herein) within five (5) days from receipt of this order. Petitioner denied in its Answer its alleged liability under the "no fault indemnity" provision [Rollo, p. 44] and likewise moved for the reconsideration of the order. Petitioner held the position that under Sec. 378 of the Insurance Code, the insurer liable to pay the P5,000.00 is the insurer of the vehicle in which private respondents were riding, not petitioner, as the provision states that "[i]n the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from." Respondent judge, however, denied reconsideration. A second motion for reconsideration was filed by petitioner. However, in an order dated January 3, 1979, respondent judge denied the second motion for reconsideration and ordered the issuance of a writ of execution [Rollo, p. 69.] Hence, the instant petition praying principally for the annulment and setting aside of respondent judge's orders dated March 1, 1978 and January 3, 1979. The Court issued a temporary restraining order on January 24,1979 [Rollo pp. 73-74.] The sole issue raised in this petition is whether or not petitioner is the insurer liable to indemnify private respondents under Sec. 378 of the Insurance Code. The key to the resolution of the issue is of courts e Sec. 378, which provides: Sec. 378. Any claim for death or injury to any passenger or third party pursuant to the provision of this chapter shall be paid without the necessity of proving fault or negligence of any kind. Provided, That for purposes of this section (i) The indemnity in respect of any one person shall not exceed five thousand pesos; (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident, and (b) Death certificate and evidence sufficient to establish the proper payee, or

(c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. [Emphasis supplied.] From a reading of the provision, which is couched in straight-forward and unambiguous language, the following rules on claims under the "no fault indemnity" provision, where proof of fault or negligence is not necessary for payment of any claim for death Or injury to a passenger or a third party, are established: 1. A claim may be made against one motor vehicle only. 2. If the victim is an occupant of a vehicle, the claim shall lie against the insurer of the vehicle. in which he is riding, mounting or dismounting from. 3. In any other case (i.e. if the victim is not an occupant of a vehicle), the claim shall lie against the insurer of the directly offending vehicle. 4. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. The law is very clear the claim shall lie against the insurer of the vehicle in which the "occupant" ** is riding, and no other. The claimant is not free to choose from which insurer he will claim the "no fault indemnity," as the law, by using the word "shall, makes it mandatory that the claim be made against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying the claim under Sec. 378 may recover against the owner of the vehicle responsible for the accident. This is precisely the essence of "no fault indemnity" insurance which was introduced to and made part of our laws in order to provide victims of vehicular accidents or their heirs immediate compensation, although in a limited amount, pending final determination of who is responsible for the accident and liable for the victims'injuries or death. In turn, the "no fault indemnity" provision is part and parcel of the Insurance Code provisions on compulsory motor vehicle ability insurance [Sec. 373-389] and should be read together with the requirement for compulsory passenger and/or third party liability insurance [Sec. 377] which was mandated in order to ensure ready compensation for victims of vehicular accidents. Irrespective of whether or not fault or negligence lies with the driver of the Superlines bus, as private respondents were not occupants of the bus, they cannot claim the "no fault indemnity" provided in Sec. 378 from petitioner. The claim should be made against the insurer of the vehicle they were riding. This is very clear from the law. Undoubtedly, in ordering petitioner to pay private respondents the 'no fault indemnity,' respondent judge gravely abused his discretion

in a manner that amounts to lack of jurisdiction. The issuance of the corrective writ of certiorari is therefore warranted. WHEREFORE, the petition is GRANTED and respondent judge's order dated March 1, 1978, requiring petitioner to pay private respondents the amount of P5,000.00 as "no fault indemnity' under Sec. 378 of the Insurance Code, and that of January 3, 1979, denying the second motion for reconsideration and issuing a writ of execution, are ANNULLED and SET ASIDE. The temporary restraining order issued by the Court on January 24, 1979 is made permanent. SO ORDERED. Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

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