Cosmopolitan Insurance Co. v. Reyes
REITERATIONFacts
The Antecedents: Appellee Cosmopolitan Insurance Co., Inc. (surety) filed a bond for the Collector of Internal Revenue to secure the payment of P25,422.85 owed by appellant Angel B. Reyes (principal) for income tax. Appellant Reyes signed an Indemnity Agreement, binding himself to indemnify the surety upon its demand and to hold it harmless from any and all payments, damages, costs, losses, penalties, charges, and expenses. The agreement also stipulated that the surety could proceed against the undersigned for indemnification even prior to making payment to the obligee. Procedural History: The Court of First Instance of Manila ordered appellant Reyes to pay appellee Cosmopolitan Insurance Co., Inc. the sum of P10,645.38 plus 15% thereof for attorney's fees. The Petition: Appellant Reyes appealed the decision, questioning the validity of paragraph 3 of the Indemnity Agreement and the reasonableness of the attorney's fees awarded.
Issue(s)
Whether the appellee, as surety, can demand indemnification from appellant Reyes, as principal, upon the latter's default, even before the appellee has paid the creditor. Whether the attorney's fees awarded are unreasonable or unconscionable.
Ruling
The Supreme Court affirmed the decision of the Court of First Instance, ordering appellant Angel B. Reyes to pay appellee Cosmopolitan Insurance Co., Inc. the sum of P10,645.38 plus fifteen (15) per cent thereof for attorney's fees. The Court held that the stipulation in the Indemnity Agreement allowing the surety to demand indemnification even before paying the creditor is valid and enforceable.
Ratio Decidendi
On the issue of demanding indemnification prior to payment: The Court held that the stipulation in paragraph 3 of the Indemnity Agreement, which allows the surety to demand indemnification from the principal debtor even before the surety has made payment to the creditor, is valid and enforceable. This is based on the principle that parties are bound by the terms of their contract, provided they do not contravene public policy or the law. The Court cited previous rulings in Security Bank vs. Globe Assurance and Alto Surety and Insurance Co., Inc. vs. Aguilar, et al., which upheld similar indemnity agreements. The Court clarified that Article 2071 of the Civil Code, which deals with the actions a guarantor may take, does not preclude such a stipulation for indemnification upon default. The Court emphasized that the Indemnity Agreement was entered into by the parties and did not militate against public good or the policy of the law. The liability of the surety became immediately demandable upon the principal's default, as stipulated in the agreement. On the issue of attorney's fees: The Court found the award of fifteen (15) per cent attorney's fees to be reasonable. It noted that the appellant did not raise the issue of attorney's fees in his answer, and further supported its conclusion by referencing a case where a higher percentage of attorney's fees was sustained by the Court. The Court reiterated that the award of attorney's fees is generally left to the discretion of the trial court and will not be disturbed on appeal unless such discretion is shown to have been abused.
Main Doctrine
Under an Indemnity Agreement, a surety may demand indemnification from the principal debtor upon the latter's default, even before the surety has paid the creditor, provided the agreement contains such a stipulation and it does not contravene public policy.