Republic v. Pal-Fox Lumber Co.
REITERATIONFacts
The Antecedents: The Republic of the Philippines sued Pal-Fox Lumber Co., Inc. for P11,851.56 in forest charges and surcharges. Far Eastern Surety & Insurance Co., Inc. (Surety Company) was impleaded as jointly and severally liable up to P5,000.00 based on a forestry bond it executed, guaranteeing faithful compliance and prompt payment of all charges. The Republic sought P5,000.00 jointly and severally from both defendants, plus interest, and the balance of P6,841.56 from Pal-Fox Lumber Co., Inc. alone. Procedural History: The Surety Company filed an answer with a cross-claim against Pal-Fox Lumber Co., Inc., which was declared in default. The Surety Company also filed a third-party complaint against Gaspar Palanca and Joseph Lee based on an indemnity agreement, and they were also declared in default. The trial court rendered judgment ordering the defendants to pay the Republic jointly and severally P5,000.00 plus interest, and Pal-Fox Lumber Co., Inc. the balance plus interest. The cross-defendant and third-party defendants were ordered to indemnify the Surety Company for any amount it might pay to the plaintiff, plus premium, attorney's fees, and interest. The Petition: The Surety Company appealed to the Court of Appeals, raising issues on the probative value of documents admitted only as part of a witness's testimony, the burden of proving non-payment, and prescription of action. The Court of Appeals certified the case to the Supreme Court as it involved questions of law. During the pendency of the case before the Supreme Court, the Surety Company expressed willingness to pay P5,000.00. The Supreme Court allowed payment of P5,000.00, dismissing the case against the Surety Company. However, upon motion for reconsideration by the plaintiff, the Supreme Court modified its resolution to include payment of legal interest on the P5,000.00 from April 24, 1957, until October 3, 1966, provided that failure to pay would result in the dismissal of the case against the Surety Company being set aside.
Issue(s)
Whether the Surety Company is liable for legal interest on the P5,000.00 covered by the forestry bond. What is the probative value of documents admitted only as part of the testimony of the witness who identified them? Who has the burden of proving that the claim of the plaintiff is not yet paid? Whether the action has prescribed.
Ruling
The decision appealed from is affirmed, with the modification that the appellant (Surety Company) should pay the interest adjudged in said decision up to the date of payment of the principal sum of P5,000.00.
Ratio Decidendi
On the liability for legal interest: The Supreme Court affirmed the liability of the Surety Company for legal interest on the P5,000.00. The Court cited the case of National Marketing Corporation vs. Marquez, et al., which held that a surety's liability can exceed the principal amount of the bond if it includes moratory interest due to failure to pay the principal obligation after it falls due. The Court emphasized that the bond's stipulation for P5,000.00 did not exclude interest, and Article 2055, paragraph 2, of the Civil Code of the Philippines is applicable. This article states that a simple or indefinite guaranty comprises not only the principal obligation but also all its accessories, including judicial costs incurred after the guarantor has been judicially required to pay. In this case, the interest is an accessory to the principal obligation of paying forest charges. On the probative value of documents: The text does not explicitly detail the Supreme Court's resolution of this issue, but it was raised as a legal point by the Court of Appeals. The context suggests that the admission of these documents was part of the evidence presented to establish the debt, and the Supreme Court's ultimate affirmation of the decision implies that the evidence was deemed sufficient to establish the liability for forest charges. On the burden of proving non-payment: This issue was also raised by the Court of Appeals. The Supreme Court's affirmation of the decision implies that the burden was met by the plaintiff, or that the defendant failed to discharge it. The fact that the Surety Company eventually agreed to pay P5,000.00 suggests an acknowledgment of the underlying obligation. On prescription of action: This was another issue raised by the appellant. The Supreme Court's affirmation of the decision, despite the Surety Company's appeal on this ground, indicates that the action was not deemed to have prescribed. The case proceeded to judgment on the merits, and the Surety Company's eventual agreement to pay P5,000.00 suggests that the issue of prescription was resolved against it or rendered moot by its concession.
Main Doctrine
A surety company's liability under a bond guaranteeing the payment of forest charges and other lawful impositions includes not only the principal amount but also the legal interest thereon, as such interest is an accessory to the principal obligation and is covered by the general terms of the bond unless expressly excluded.