RP Vs PAL-FOX LUMBER CO., INC.

Case: REPUBLIC OF THE PHILIPPINES vs. PAL-FOX LUMBER CO., INC.
Facts:
Pal-Fox Lumber Co., Inc. was indebted to the BIR for forest charges and surcharges
amounting to P11,851.56, and that the Far Eastern Surety & Insurance Co., Inc. was jointly and
severally liable with the lumber company for the payment of said forest charges up to P5,000.00
on account of a forestry bond which the surety company executed in favor of the plaintiff
The RP commenced suit before the RTC of Manila seeking to recover, jointly and
severally, from Pal-Fox Lumber Co., Inc. and the Far Eastern Surety & Insurance Co., Inc. the sum
of P5,000.00 plus interest from the filing of the complaint, and from the Pal-Fox Lumber Co., Inc.
alone the balance of P6,841.56 plus legal interest.
RTC: rendered ordering defendants to pay to plaintiff, jointly and severally, the sum of
P5,000.00, with legal interest thereon from the filing of the complaint until fully paid, and
defendant Pal-Fox Lumber Co., Inc. to pay to plaintiff the further sum of P6,841.56, with legal
interest thereon from the filing of the complaint until fully paid.
In a manifestation filed on February 10, 1967 the surety company expressed its
willingness to pay the sum of P5,000.00 under its forestry bond anytime "that an order is issued
(by this Court) directing the defendant surety to so pay according to this manifestation." In a
resolution dated February 22, 1967 this Court granted appellant surety company's plea, thereby
allowing it to pay the Republic of the Philippines the sum of P5,000.00, in full payment of its
liability under Forestry Bond No. 7004, and dismissing the case insofar as said appellant was
concerned.
On March 27, 1967 the plaintiff moved for reconsideration, pointing out that the surety
company's correct liability under the appealed decision was P5,000.00 plus legal interest from
the filing of the complaint. In other words, the plaintiff would want the surety company to pay
the legal interest adjudged by the trial court before the case may finally be considered dismissed
insofar as appellant surety was concerned. Despite the opposition registered by the surety
company this Court resolved to MODIFY the resolution of February 22, 1967 in that the
appellant Far Eastern Surety and Insurance Co., Inc. is further ordered to pay the Republic of the
Philippines interest on the P5,000.00 at the rate of 6% per annum computed from April 24, 1957
when the complaint was filed until October 3, 1966 when the appellant offered to pay the
appellee the sum of P5,000.00 in settlement of its obligation but which offer was ignored by the
appellee; PROVIDED, that in case the appellant fails or refuses to pay the interest herein stated
the case against him would not be considered dismissed, thereby leaving the matter on the
liability of said appellant to pay interest subject to future orders by this Court along with the
other matters that may be resolved in this case." .
Issue:
Whether the surety's liability can exceed the amount of its bond.
Yes,
In the case of National Marketing Corporation vs. Marquez, et al., L-25553 it is enough to remark
that while the guarantee was for the original amount of the debt of Gabino Marquez, the
amount of the judgment by the trial court in no way violates the rights of the surety. The
judgment on the principal was only for P10,000.00, while the remaining P9,990.91 represent the
moratory interest due on account of the failure to pay the principal obligation from and after
the same had fallen due, and default had taken place. Appellant surety was fully aware that the
obligation earned interest, since the note was annexed to its contract, Exhibit "C". The contract
of guaranty executed by the appellant Company nowhere excludes this interest, and Article
2055, paragraph 2, of the Civil Code of the Philippines is clearly applicable.
If it (the guaranty) be simple or indefinite, it shall comprise not only the principal obligation but
also all its accessories , including judicial costs, provided with respect to the latter, that the
guarantor shall only be liable for those costs incurred after he has been judicially required to
pay."
WHEREFORE, the decision appealed from is affirmed, with the modification that the appellant
should pay the interest adjudged in said decision up to the date of payment of the principal sum
of P5,000.00.

RP Vs PAL-FOX LUMBER CO., INC.

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RP Vs PAL-FOX LUMBER CO., INC.

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Case: REPUBLIC OF THE PHILIPPINES vs. PAL-FOX LUMBER CO., INC.

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