Manila Surety & Fidelity Co., Inc. v. Court of Appeals

This is a petition for review on certiorari of the resolution of the Court of Appeals dated August 5, 1980* in CA G.R. No. 42461 -R entitled "Republic of the Philippines vs. Leon Bessire, et al.", affirming with modification the lower court's judgment dated April 30, 1968** with respect to the payment of 12% interest per annum and denying petitioner's motion for reconsideration dated October 6, 1980.

The facts as found by the Court of Appeals are as follows:

Sometime after 1951, the Republic of the Philippines, thru its Bureau of Internal Revenue, assessed the Bessire Housing Corporation (BESCO) in the amount of P16,840.04 representing percentage taxes for the year 1951. Apparently pressed for payment, the manager thereof (Leon Bessire) executed in personal capacity on October 30, 1956, with Mutual Security Insurance Corporation an "Ordinary Bond for Payment of Taxes", known as MUSIC S-575-A, wherein the parties undertook to jointly and severally pay the Republic the aforementioned assessment in twelve (12) equal installments as scheduled therein. On same day that the bond was posted Leon Bessire, Manila Surety and Corazon Santos Escobar in her personal capacity and as attorney-in-fact of Eduardo Escobar signed an indemnity agreement binding themselves solidarily to indemnify Mutual Security for any damages losses it may sustain as a result of its having consented to become a surety in favor of the Bureau of Internal Revenue (BIR). On December 28, 1936, Leon Bessire paid the first installment of P1,403.34 due on November 30, 1956 and another installment on a later date. He failed to pay the succeeding installments thus prompting the Commissioner of the Internal Revenue to send a letter of February 20, 1958 that unless Mr. Bessire paid P14,035.36 plus the accrued delinquency penalties within 15 days, the bond would be forfeited. A letter of demand was also sent on the same date to Mutual Security. (Rollo, p. 32-33; Petition, Annex A, pp. 2-3)

On May 19, 1958, Atty. William H. Quasha as substitute for Corazon Santos Escobar signed an Indemnity Agreement whereby he undertook to jointly and severally with Leon Bessire and BESCO, indemnify Manila Surety for any damage or loss it may suffer in consequence of its having consented to continue being counter surety upon the indemnity agreement MUSIC S-575-A (Rollo, p. 67; Comment, p. 2). On July 18, 1958 the Acting Commissioner of Internal Revenue acknowledged the payment by Leon Bessire of P300.00 and demanded the full payment of the balance of P13,733.36 on or before July 31, 1958. A letter of demand was also sent to Mutual Security (Rollo, pp. 33-34; Petition, Annex A, pp. 3-4).

On July 31, 1958, Leon Bessire sent a check for P1,403.34 and asked for further time to pay the outstanding balance in view of his financial difficulties. On September 26, 1958, the Acting Commissioner of Internal Revenue wrote Leon Bessire to pay the P12,330.02 in full on or before October 15, 1958 and Mutual Security to do the same or steps for the forfeiture of the bond would be taken (Rollo, p. 34; Petition, Annex A, p. 4).

Leon Bessire made further payments: P400.00 on November 13, 1958; P500.00 on February 13, 1959; P500.00 on May 12, 1959; and P500.00 on October 28, 1959. On April 7, 1960, a letter of demand was again sent to Leon Bessire giving him until April 30, 1960 to pay the balance of P10,430.02 and a letter of substantially the same tenor to Mutual Security. On June 12, 1961, Leon Bessire died. (Rollo, pp. 34-35; Petition, Annex A, pp. 4-5)

On February 9, 1962, the Republic of the Philippines upon the request of the BIR filed a complaint against Leon Bessire and Mutual Security Insurance Corporation (Mutual), to have the surety bond guaranteeing the payment of percentage taxes forfeited and for the said defendants jointly and severally to pay P10,032.02 plus interest at the legal rate and costs (Rollo, p. 31).

On March 7, 1962, MutuaI filed its answer with cross claim against Leon Bessire. On July 5, 1963 it filed a third party complaint against petitioner, Manila Surety and Fidelity Co., Inc. (Manila Surety). On July 26, 1963, Manila Surety filed a fourth-party complaint against herein private respondent, William H. Quasha (Rollo, p. 32; Petition, Annex A, p. 2).

After trial on the merits, the lower court, through then Judge Luis B. Reyes, rendered its decision on April 30, 1968, the dispositive portion of which reads:

"Wherefore, judgment is rendered as follows:

"1.  Declaring Surety Bond MUSIC S575-A, issued by defendant Mutual Security Insurance Corporation, forfeited and ordering said defendant to pay plaintiff the sum of P10,030.02 plus the legal rate of interest from February 9, 1962, the date of the filing of the suit, until said amount is fully paid, and to pay the costs of this suit.

"2.  Ordering third party defendant Manila Surety Fidelity Co. Inc., to pay third party plaintiff Mutual Security Insurance Corporation whatever amount the latter as defendant, is adjudged to pay plaintiff, plus interest at 12% per annum from the date of payment which interest shall be accumulated and added to the principal quarterly and shall earn interest at the same rate, and attorneys' fees equivalent 10% of the total amount due under the surety bond, and

"3.  Ordering fourth party defendant to pay and/or indemnify fourth party plaintiff Manila Surety & Fidelity Co., Inc. the amount of the judgment which it is ordered to pay in favor of third party plaintiff Mutual Security Insurance Corporation, with interest thereon at the rate of 12% per annum from July 3, 1963, until fully paid, and the sum equivalent to 10% of the total amount claimed, as and for attorneys' fees.

"The counterclaim of fourth party defendant is dismissed.

"SO ORDERED." (Rollo, p. 68).

Mutual, Manila Surety and Quasha all file their respective appeals to the respondent Court of Appeals which rendered judgment on March 21, 1980 affirming the judgment of the lower court (Petitioner's brief, p. 4). On April 17, 1980, William H. Quasha, private respondent herein, filed a Motion for Reconsideration of the aforementioned judgment alleging as the sole ground therefore that the respondent Court of Appeals erred in affirming without modifying a portion of the decision which ordered fourth party defendant appellant William H. Quasha to pay and/or indemnify fourth party plaintiff appellant Manila Surety the amount of judgment it is ordered to pay third party plaintiff appellant Mutual, with interest thereon at the rate of 12% per annum from July 3, 1963 until fully paid (Petitioner's brief p. 4).

Thereafter or on August 5, 1980, respondent Court of Appeals rendered its questioned Resolution the dispositive portion of which reads:

"Wherefore, our March 21, 1980 decision is hereby modified as follows: number 3, paragraph 1 of the dispositive portion of the decision appealed from should read:

"3.  Ordering fourth party defendant to pay and/or indemnify fourth party plaintiff Manila Surety & Fidelity Co. Inc., the amount of judgment which it is ordered to pay in favor of third party plaintiff Mutual Security Insurance Corporation and the sum equivalent to 10% of the total amount claimed, as and for attorneys' fees.

"The  portion which provides for an interest on the amount of judgment at the rate of 12% per annum from July 3, 1963 until fully paid is deleted.

"SO ORDERED." (Rollo, pp. 51-52 Petition, Annex B, pp. 3-4).

On August 25, 1980, herein petitioner Manila Surety filed its Motion for Reconsideration of the aforequoted Resolution, which motion was summarily denied by respondent Court of Appeals in its Resolution dated October 6, 1980 (Rollo, p. 54; Petition, Annex C, p. 1). Hence this petition.

The sole issue to be resolved in this petition is whether or not respondent Quasha's liability to pay the 12% interest in case of default under the Indemnity Agreement arises only after the decision of respondent Court of Appeals becomes final and executory.