ISSUE on negligence and damages…

G.R. No. 175540               April 7, 2014

DR. FILOTEO A. ALANO, Petitioner, vs.ZENAIDA MAGUD-LOGMAO, Respondent.

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision1of the Court of Appeals (CA), dated March 31, 2006, adjudging petitioner liable for damages, and the Resolution2dated November 22, 2006, denying petitioner's motion for reconsideration thereof, be reversed and set aside.

The CA's narration of facts is accurate, to wit:

Plaintiff-appellee Zenaida Magud-Logmao is the mother of deceased Arnelito Logmao. Defendant-appellant Dr. Filoteo Alano is the Executive Director of the National Kidney Institute (NKI).

At around 9:50 in the evening of March 1, 1988, Arnelito Logmao, then eighteen (18) years old, was brought to the East Avenue Medical Center (EAMC) in Quezon City by two sidewalk vendors, who allegedly saw the former fall from the overpass near the Farmers’ Market in Cubao, Quezon City. The patient’s data sheet identified the patient as Angelito Lugmoso of Boni Avenue, Mandaluyong. However, the clinical abstract prepared by Dr. Paterno F. Cabrera, the surgical resident on-duty at the Emergency Room of EAMC, stated that the patient is Angelito [Logmao].

Dr. Cabrera reported that [Logmao] was drowsy with alcoholic breath, was conscious and coherent; that the skull x-ray showed no fracture; that at around 4:00 o’clock in the morning of March 2, 1988, [Logmao] developed generalized seizures and was managed by the neuro-surgery resident on-duty; that the condition of [Logmao] progressively deteriorated and he was intubated and ambu-bagging support was provided; that admission to the Intensive Care Unit (ICU) and mechanical ventilator support became necessary, but there was no vacancy at the ICU and all the ventilator units were being used by other patients; that a resident physician of NKI, who was rotating at EAMC, suggested that [Logmao] be transferred to NKI; and that after arrangements were made, [Logmao] was transferred to NKI at 10:10 in the morning.

At the NKI, the name Angelito [Logmao] was recorded as Angelito Lugmoso. Lugmoso was immediately attended to and given the necessary medical treatment. As Lugmoso had no relatives around, Jennifer B. Misa, Transplant Coordinator, was asked to locate his family by enlisting police and media assistance. Dr. Enrique T. Ona, Chairman of the Department of Surgery, observed that the severity of the brain injury of Lugmoso manifested symptoms of brain death. He requested the Laboratory Section to conduct a tissue typing and tissue cross-matching examination, so that should Lugmoso expire despite the necessary medical care and management and he would be found to be a suitable organ donor and his family would consent to organ donation, the organs thus donated could be detached and transplanted promptly to any compatible beneficiary.

Jennifer Misa verified on the same day, March 2, 1988, from EAMC the identity of Lugmoso and, upon her request, she was furnished by EAMC a copy of the patient’s date sheet which bears the name Angelito Lugmoso, with address at Boni Avenue, Mandaluyong. She then contacted several radio and television stations to request for air time for the purpose of locating the family of Angelito Lugmoso of Boni Avenue, Mandaluyong, who was confined at NKI for severe head injury after allegedly falling from the Cubao overpass, as well as Police Station No. 5, Eastern Police District, whose area of jurisdiction includes Boni Avenue, Mandaluyong, for assistance in locating the relatives of Angelito Lugmoso. Certifications were issued by Channel 4, ABS-CBN and GMA attesting that the request made by the NKI on March 2, 1988 to air its appeal to locate the family and relatives of Angelito Lugmoso of Boni Avenue, Mandaluyong was accommodated. A Certification was likewise issued by Police Station No. 5, Eastern Police District, Mandaluyong attesting to the fact that on March 2, 1988, at about 6:00 p.m., Jennifer Misa requested for assistance to immediately locate the family and relatives of Angelito Lugmoso and that she followed up her request until March 9, 1988.

On March 3, 1988, at about 7:00 o’clock in the morning, Dr. Ona was informed that Lugmoso had been pronounced brain dead by Dr. Abdias V. Aquino, a neurologist, and by Dr. Antonio Rafael, a neurosurgeon and attending physician of Lugmoso, and that a repeat electroencephalogram (EEG) was in progress to confirm the diagnosis of brain death. Two hours later, Dr. Ona was informed that the EEG recording exhibited a flat tracing, thereby confirming that Lugmoso was brain dead. Upon learning that Lugmoso was a suitable organ donor and that some NKI patients awaiting organ donation had blood and tissue types compatible with Lugmoso, Dr. Ona inquired from Jennifer Misa whether the relatives of Lugmoso had been located so that the necessary consent for organ donation could be obtained. As the extensive search for the relatives of Lugmoso yielded no positive result and time being of the essence in the success of organ transplantation, Dr. Ona requested Dr. Filoteo A. Alano, Executive Director of NKI, to authorize the removal of specific organs from the body of Lugmoso for transplantation purposes. Dr. Ona likewise instructed Dr. Rose Marie Rosete-Liquete to secure permission for the planned organ retrieval and transplantation from the Medico-Legal Office of the National Bureau of Investigation (NBI), on the assumption that the incident which lead to the brain injury and death of Lugmoso was a medico legal case.

On March 3, 1988, Dr. Alano issued to Dr. Ona a Memorandum, which reads as follows:

This is in connection with the use of the human organs or any portion or portions of the human body of the deceased patient, identified as a certain Mr. Angelito Lugmoso who was brought to the National Kidney Institute on March 2, 1988 from the East Avenue Medical Center.

As shown by the medical records, the said patient died on March 3, 1988 at 9:10 in the morning due to craniocerebral injury. Please make certain that your Department has exerted all reasonable efforts to locate the relatives or next of kin of the said deceased patient such as appeal through the radios and television as well as through police and other government agencies and that the NBI [Medico-Legal] Section has been notified and is aware of the case.

If all the above has been complied with, in accordance with the provisions of Republic Act No. 349 as amended and P.D. 856, permission and/or authority is hereby given to the Department of Surgery to retrieve and remove the kidneys, pancreas, liver and heart of the said deceased patient and to transplant the said organs to any compatible patient who maybe in need of said organs to live and survive.

A Certification dated March 10, 1988 was issued by Dr. Maximo Reyes, Medico-Legal Officer of the NBI, stating that he received a telephone call from Dr. Liquete on March 3, 1988 at 9:15 a.m. regarding the case of Lugmoso, who was declared brain dead; that despite efforts to locate the

latter’s relatives, no one responded; that Dr. Liquete sought from him a second opinion for organ retrieval for donation purposes even in the absence of consent from the family of the deceased; and that he verbally agreed to organ retrieval.

At 3:45 in the afternoon of March 3, 1988, a medical team, composed of Dr. Enrique Ona, as principal surgeon, Drs. Manuel Chua-Chiaco, Jr., Rose Marie Rosete-Liquete, Aurea Ambrosio, Ludivino de Guzman, Mary Litonjua, Jaime Velasquez, Ricardo Fernando, and Myrna Mendoza, removed the heart, kidneys, pancreas, liver and spleen of Lugmoso. The medical team then transplanted a kidney and the pancreas of Lugmoso to Lee Tan Hoc and the other kidney of Lugmoso to Alexis Ambustan. The transplant operation was completed at around 11:00 o’clock in the evening of March 3, 1988.

On March 4, 1988, Dr. Antonio R. Paraiso, Head of the Cadaver Organ Retrieval Effort (CORE) program of NKI, made arrangements with La Funeraria Oro for the embalmment of the cadaver of Lugmoso good for a period of fifteen (15) days to afford NKI more time to continue searching for the relatives of the latter. On the same day, Roberto Ortega, Funeral Consultant of La Funeraria Oro, sent a request for autopsy to the NBI. The Autopsy Report and Certification of Post-Mortem Examination issued by the NBI stated that the cause of death of Lugmoso was intracranial hemorrhage secondary to skull fracture.

On March 11, 1988, the NKI issued a press release announcing its successful double organ transplantation. Aida Doromal, a cousin of plaintiff, heard the news aired on television that the donor was an eighteen (18) year old boy whose remains were at La Funeraria Oro in Quezon City. As the name of the donor sounded like Arnelito Logmao, Aida informed plaintiff of the news report.

It appears that on March 3, 1988, Arlen Logmao, a brother of Arnelito, who was then a resident of 17-C San Pedro Street, Mandaluyong, reported to Police Station No. 5, Eastern Police District, Mandaluyong that the latter did not return home after seeing a movie in Cubao, Quezon City, as evidenced by a Certification issued by said Station; and that the relatives of Arnelito were likewise informed that the latter was missing. Upon receiving the news from Aida, plaintiff and her other children went to La Funeraria Oro, where they saw Arnelito inside a cheap casket.

On April 29, 1988, plaintiff filed with the court a quo a complaint for damages against Dr. Emmanuel Lenon, Taurean Protectors Agency, represented by its Proprietor, Celso Santiago, National Kidney Institute, represented by its Director, Dr. Filoteo A. Alano, Jennifer Misa, Dr. Maximo Reyes, Dr. Enrique T. Ona, Dr. Manuel Chua-Chiaco, Jr., Dr. Rose Marie O. Rosete-Liquete, Dr. Aurea Z. Ambrosio, Dr. Ludivino de Guzman, Dr. Mary Litonjua, Dr. Jaime Velasquez, Dr. Ricardo Fernando, Dr. Myrna Mendoza, Lee Tan Koc, Alexis Ambustan, Dr. Antonio R. Paraiso, La Funeraria Oro, Inc., represented by its President, German E. Ortega, Roberto Ortega alias Bobby Ortega, Dr. Mariano B. Cueva, Jr., John Doe, Peter Doe, and Alex Doe in connection with the death of her son Arnelito. Plaintiff alleged that defendants conspired to remove the organs of Arnelito while the latter was still alive and that they concealed his true identity.

On January 17, 2000, the court a quo rendered judgment finding only Dr. Filoteo Alano liable for damages to plaintiff and dismissing the complaint against the other defendants for lack of legal basis.3

After finding petitioner liable for a quasi-delict, the Regional Trial Court of Quezon City (RTC) ordered petitioner to pay respondent P188,740.90 as actual damages; P500,000.00 as moral damages; P500,000.00 as exemplary damages; P300,000.00 as attorney's fees; and costs of suit. Petitioner appealed to the CA.

On March 31, 2006, the CA issued its Decision, the dispositive portion of which reads as follows:

WHEREFORE, the Decision appealed from is AFFIRMED, with MODIFICATION by DELETING the award ofP188,740.90 as actual damages and REDUCING the award of moral damages to P250,000.00, the award of exemplary damages to P200,000.00 and the award of attorney's fees to P100,000.00.

SO ORDERED.4

Petitioner then elevated the matter to this Court via a petition for review on certiorari, where the following issues are presented for resolution:

A. WHETHER THE COURT OF APPEALS DISREGARDED EXISTING JURISPRUDENCE PRONOUNCED BY THIS HONORABLE SUPREME COURT IN HOLDING PETITIONER DR. FILOTEO ALANO LIABLE FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES DESPITE THE FACT THAT THE ACT OF THE PETITIONER IS NOT THE PROXIMATE CAUSE NOR IS THERE ANY FINDING THAT THE ACT OF THE PETITIONER WAS THE PROXIMATE CAUSE OF THE INJURY OR DAMAGE ALLEGEDLY SUSTAINED BY RESPONDENT ZENAIDA MAGUD-LOGMAO.

B. WHETHER THE COURT OF APPEALS GRAVELY ERRED IN REFUSING AND/OR FAILING TO DECLARE THAT PETITIONER DR. ALANO ACTED IN GOOD FAITH AND PURSUANT TO LAW WHEN HE ISSUED THE AUTHORIZATION TO REMOVE AND RETRIEVE THE ORGANS OF ANGELITO LUGMOSO (LATER IDENTIFIED TO BE IN FACT ARNELITO LOGMAO) CONSIDERING THAT NO NEGLIGENCE CAN BE ATTRIBUTED OR IMPUTED ON HIM IN HIS PERFORMANCE OF AN ACT MANDATED BY LAW.

C. WHETHER THE COURT OF APPEALS GRAVELY ERRED IN AWARDING RESPONDENT ZENAIDA MAGUD-LOGMAO MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES THAT ARE NOT IN ACCORDANCE WITH AND ARE CONTRARY TO ESTABLISHED JURISPRUDENCE.5

The first two issues boil down to the question of whether respondent's sufferings were brought about by petitioner's alleged negligence in granting authorization for the removal or retrieval of the internal organs of respondent's son who had been declared brain dead.

Petitioner maintains that when he gave authorization for the removal of some of the internal organs to be transplanted to other patients, he did so in accordance with the letter of the law, Republic Act (R.A.) No. 349, as amended by Presidential Decree (P.D.) 856, i.e., giving his subordinates instructions to exert all reasonable efforts to locate the relatives or next of kin of respondent's son. In fact, announcements were made through radio and television, the assistance of police authorities was sought, and the NBI Medico-Legal Section was notified. Thus, petitioner insists that he should not be held responsible for any damage allegedly suffered by respondent due to the death of her son and the removal of her son’s internal organs for transplant purposes.

The appellate court affirmed the trial court's finding that there was negligence on petitioner's part when he failed to ensure that reasonable time had elapsed to locate the relatives of the deceased before giving the authorization to remove said deceased's internal organs for transplant purposes. However, a close examination of the records of this case would reveal that this case falls under one of the exceptions to the general rule that factual findings of the trial court, when affirmed by the appellate court, are binding on this Court. There are some important circumstances that the lower

courts failed to consider in ascertaining whether it was the actions of petitioner that brought about the sufferings of respondent.6

The Memorandum dated March 3, 1988 issued by petitioner, stated thus:

As shown by the medical records, the said patient died on March 3, 1988 at 9:10 in the morning due to craniocerebral injury. Please make certain that your Department has exerted all reasonable efforts to locate the relatives or next-of-kin of the said deceased patient, such as appeal through the radios and television, as well as through police and other government agencies and that the NBI [Medico-Legal] Section has been notified and is aware of the case.

If all the above has been complied with, in accordance with the provisions of Republic Act No. 349 as amended and P.D. 856, permission and/or authority is hereby given to the Department of Surgery to retrieve and remove the kidneys, pancreas, liver and heart of the said deceased patient and to transplant the said organs to any compatible patient who maybe in need of said organs to live and survive.7

A careful reading of the above shows that petitioner instructed his subordinates to "make certain" that "all reasonable efforts" are exerted to locate the patient's next of kin, even enumerating ways in which to ensure that notices of the death of the patient would reach said relatives. It also clearly stated that permission or authorization to retrieve and remove the internal organs of the deceased was being given ONLY IF the provisions of the applicable law had been complied with. Such instructions reveal that petitioner acted prudently by directing his subordinates to exhaust all reasonable means of locating the relatives of the deceased. He could not have made his directives any clearer. He even specifically mentioned that permission is only being granted IF the Department of Surgery has complied with all the requirements of the law. Verily, petitioner could not have been faulted for having full confidence in the ability of the doctors in the Department of Surgery to comprehend the instructions, obeying all his directives, and acting only in accordance with the requirements of the law.

Furthermore, as found by the lower courts from the records of the case, the doctors and personnel of NKI disseminated notices of the death of respondent's son to the media and sought the assistance of the appropriate police authorities as early as March 2, 1988, even before petitioner issued the Memorandum. Prior to performing the procedure for retrieval of the deceased's internal organs, the doctors concerned also the sought the opinion and approval of the Medico-Legal Officer of the NBI.

Thus, there can be no cavil that petitioner employed reasonable means to disseminate notifications intended to reach the relatives of the deceased. The only question that remains pertains to the sufficiency of time allowed for notices to reach the relatives of the deceased.

If respondent failed to immediately receive notice of her son's death because the notices did not properly state the name or identity of the deceased, fault cannot be laid at petitioner's door. The trial and appellate courts found that it was the EAMC, who had the opportunity to ascertain the name of the deceased, who recorded the wrong information regarding the deceased's identity to NKI. The NKI could not have obtained the information about his name from the patient, because as found by the lower courts, the deceased was already unconscious by the time he was brought to the NKI.

Ultimately, it is respondent's failure to adduce adequate evidence that doomed this case. 1âwphi1 As stated in Otero v. Tan,8 "[i]n civil cases, it is a basic rule that the party making allegations has the burden of proving them by a preponderance of evidence. The parties must rely on the strength of their own evidence and not upon the weakness of the defense offered by their opponent."9 Here, there is to proof that, indeed, the period of around 24 hours from the time notices were disseminated, cannot

be considered as reasonable under the circumstances. They failed to present any expert witness to prove that given the medical technology and knowledge at that time in the 1980's, the doctors could or should have waited longer before harvesting the internal organs for transplantation.

Verily, the Court cannot, in conscience, agree with the lower court. Finding petitioner liable for damages is improper. It should be emphasized that the internal organs of the deceased were removed only after he had been declared brain dead; thus, the emotional pain suffered by respondent due to the death of her son cannot in any way be attributed to petitioner. Neither can the Court find evidence on record to show that respondent's emotional suffering at the sight of the pitiful state in which she found her son's lifeless body be categorically attributed to petitioner's conduct.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated March 31, 2006, is REVERSED and SET ASIDE. The complaint against petitioner is hereby DISMISSED.

SO ORDERED.

On Surety – defenses, liabilities- and delay

G.R. No. 189563               April 7, 2014

GILAT SATELLITE NETWORKS, LTD., Petitioner, vs.UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.

SERENO, CJ:

This is an appeal via a Petition for Review on Certiorari1 filed 6 November 2009 assailing the Decision2 and Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 89263, which reversed the Decision4 of the Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02-461, ordering respondent to pay petitioner a sum of money.

The antecedent facts, as culled from the CA, are as follows:

On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic), accessories, spares, services and software, at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay a portion thereof totalling US$1.2 Million in accordance with the payment schedule dated 22 November 1999. To ensure the prompt payment of this amount, it obtained defendant UCPB General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of GILAT.

During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual the purchased products and equipment, as evidenced by airway bills/Bill of Lading (Exhibits "F", "F-1" to "F-8"). All of the equipment (including the software components for which payment was secured by the surety bond, was shipped by GILAT and duly received by One Virtual. Under an endorsement dated December 23, 1999 (Exhibit "E"), the surety issued, with One Virtual’s conformity, an amendment to the surety bond, Annex "A" thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.

One Virtual failed to pay GILAT the amount of Four Hundred Thousand Dollars (US$400,000.00) on the due date of May 30, 2000 in accordance with the payment schedule attached as Annex "A" to the surety bond, prompting GILAT to write the surety defendant UCPB on June 5, 2000, a demand letter (Exhibit "G") for payment of the said amount of US$400,000.00. No part of the amount set forth in this demand has been paid to date by either One Virtual or defendant UCPB. One Virtual likewise failed to pay on the succeeding payment instalment date of 30 November 2000 as set out in Annex "A" of the surety bond, prompting GILAT to send a second demand letter dated January 24, 2001, for the payment of the full amount of US$1,200,000.00 guaranteed under the surety bond, plus interests and expenses (Exhibits "H") and which letter was received by the defendant surety on January 25, 2001. However, defendant UCPB failed to settle the amount of US$1,200,000.00 or a part thereof, hence, the instant complaint."5 (Emphases in the original)

On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint6 against respondent UCPB General Insurance Co., Inc., to recover the amounts supposedly covered by the surety bond, plus interests and expenses. After due hearing, the RTC rendered its Decision,7 the dispositive portion of which is herein quoted:

WHEREFORE, premises considered, the Court hereby renders judgment for the plaintiff, and against the defendant, ordering, to wit:

1. The defendant surety to pay the plaintiff the amount of One Million Two Hundred Thousand Dollars (US$1,200,000.00) representing the principal debt under the Surety Bond, with legal interest thereon at the rate of 12% per annum computed from the time the judgment becomes final and executory until the obligation is fully settled; and

2. The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44,004.04) representing attorney’s fees and litigation expenses.

Accordingly, defendant’s counterclaim is hereby dismissed for want of merit.

SO ORDERED. (Emphasis in the original)

In so ruling, the RTC reasoned that there is "no dispute that plaintiff [petitioner] delivered all the subject equipments [sic] and the same was installed. Even with the delivery and installation made, One Virtual failed to pay any of the payments agreed upon. Demand notwithstanding, defendant failed and refused and continued to fail and refused to settle the obligation."8

Considering that its liability was indeed that of a surety, as "spelled out in the Surety Bond executed by and between One Virtual as Principal, UCPB as Surety and GILAT as Creditor/Bond Obligee,"9 respondent agreed and bound itself to pay in accordance with the Payment Milestones. This obligation was not made dependent on any condition outside the terms and conditions of the Surety Bond and Payment Milestones.10

Insofar as the interests were concerned, the RTC denied petitioner’s claim on the premise that while a surety can be held liable for interest even if it becomes more onerous than the principal obligation, the surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause.11 Here, respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to pay.12 The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00 representing the principal debt under the Surety Bond, with legal interest at the rate of 12% per annum computed from the time the judgment becomes final and executory, and USD44,004.04 representing attorney’s fees and litigation expenses.

On 18 October 2007, respondent appealed to the CA.13 The appellate court rendered a Decision14 in the following manner:

WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial court’s Decision dated December 28, 2006 is VACATED. Plaintiff-appellant Gilat Satellite Networks Ltd., and One Virtual are ordered to proceed to arbitration, the outcome of which shall necessary bind the parties, including the surety, defendant-appellant United Coconut Planters Bank General Insurance Co., Inc.

SO ORDERED. (Emphasis in the original)

The CA ruled that in "enforcing a surety contract, the ‘complementary-contracts-construed-together’ doctrine finds application." According to this doctrine, the accessory contract must be construed with the principal agreement.15In this case, the appellate court considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract,16 whose stipulations are also binding on the parties to the suretyship.17 Bearing in mind the arbitration clause contained in the Purchase Agreement18 and pursuant to the policy of the courts to encourage alternative dispute resolution methods,19 the trial court’s Decision was vacated; petitioner and One Virtual were ordered to proceed to arbitration.

On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009.

Hence, the instant Petition.

On 31 August 2010, respondent filed a Comment21 on the Petition for Review. On 24 November 2010, petitioner filed a Reply.22

ISSUES

From the foregoing, we reduce the issues to the following:

1. Whether or not the CA erred in dismissing the case and ordering petitioner and One Virtual to arbitrate; and

2. Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under the Suretyship Agreement.

THE COURT’S RULING

The existence of a suretyship agreement does not give the surety the right to intervene in the principal contract, nor can an arbitration clause between the buyer and the seller be invoked by a non-party such as the surety.

Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled to it applies for this relief.23 This referral, however, can only be demanded by one who is a party to the arbitration agreement.24 Considering that neither petitioner nor One Virtual has asked for a referral, there is no basis for the CA’s order to arbitrate.

Moreover, Articles 1216 and 2047 of the Civil Code25 clearly provide that the creditor may proceed against the surety without having first sued the principal debtor.26 Even the Surety Agreement itself states that respondent becomes liable upon "mere failure of the Principal to make such prompt payment."27 Thus, petitioner should not be ordered to make a separate claim against One Virtual (via arbitration) before proceeding against respondent.28

On the other hand, respondent maintains that a surety contract is merely an accessory contract, which cannot exist without a valid obligation.29 Thus, the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt30 – that is, the right to invoke the arbitration clause in the Purchase Agreement.

We agree with petitioner.

In suretyship, the oft-repeated rule is that a surety’s liability is joint and solidary with that of the principal debtor. This undertaking makes a surety agreement an ancillary contract, as it presupposes the existence of a principal contract.31 Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, its liability to the creditor or "promise" of the principal is said to be direct, primary and absolute; in other words, a surety is directly and equally bound with the principal.32 He becomes liable for the debt and duty of the principal obligor, even without possessing a direct or personal interest in the obligations constituted by the latter.33Thus, a surety is not entitled to a separate notice of default or to the benefit of excussion.34 It may in fact be sued separately or together with the principal debtor.35

After a thorough examination of the pieces of evidence presented by both parties,36 the RTC found that petitioner had delivered all the goods to One Virtual and installed them. Despite these compliances, One Virtual still failed to pay its obligation,37 triggering respondent’s liability to petitioner as the former’s surety.1âwphi1 In other words, the failure of One Virtual, as the principal debtor, to fulfill its monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.

Consequently, we cannot sustain respondent’s claim that the Purchase Agreement, being the principal contract to which the Suretyship Agreement is accessory, must take precedence over arbitration as the preferred mode of settling disputes.

First, we have held in Stronghold Insurance Co. Inc. v. Tokyu Construction Co. Ltd.,38 that "[the] acceptance [of a surety agreement], however, does not change in any material way the creditor’s relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. In other words, the acceptance does not give the surety the right to intervene in the principal contract. The surety’s role arises only upon the debtor’s default, at which time, it can be directly held liable by the creditor for payment as a solidary obligor." Hence, the surety remains a stranger to the Purchase Agreement. We agree with petitioner that respondent cannot invoke in its favor the arbitration clause in the Purchase Agreement, because it is not a party to that contract.39 An arbitration agreement being contractual in nature,40 it is binding only on the parties thereto, as well as their assigns and heirs.41

Second, Section 24 of Republic Act No. 928542 is clear in stating that a referral to arbitration may only take place "if at least one party so requests not later than the pre-trial conference, or upon the request of both parties thereafter." Respondent has not presented even an iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration.

Third, sureties do not insure the solvency of the debtor, but rather the debt itself.43 They are contracted precisely to mitigate risks of non-performance on the part of the obligor. This responsibility necessarily places a surety on the same level as that of the principal debtor.44 The effect is that the creditor is given the right to directly proceed against either principal debtor or surety. This is the reason why excussion cannot be invoked.45 To require the creditor to proceed to arbitration would render the very essence of suretyship nugatory and diminish its value in commerce. At any rate, as we have held in Palmares v. Court of Appeals,46 "if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor."

Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the payment of the latter’s obligation, provided that the delay is inexcusable.

Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first demand on respondent on 5 June 2000 or at most, from the second

demand on 24 January 2001 because of the latter’s delay in discharging its monetary obligation.47 Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from the time it demanded the fulfilment of respondent’s obligation under the suretyship contract. Significantly, respondent does not contest this point, but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001.

In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is without any justifiable cause.48 In this case, respondent’s failure to heed the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase Agreement.49 The CA, however, made no pronouncement on this matter.

We sustain petitioner.

Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the payment of a sum of money, and the debtor incurs a delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest."

Delay arises from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation, and the latter fails to comply.50 Delay, as used in Article 1169, is synonymous with default or mora, which means delay in the fulfilment of obligations.51 It is the nonfulfillment of an obligation with respect to time.52 In order for the debtor (in this case, the surety) to be in default, it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially or extrajudicially.53

Having held that a surety upon demand fails to pay, it can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation.54 The increased liability is not because of the contract, but because of the default and the necessity of judicial collection.55

However, for delay to merit interest, it must be inexcusable in nature. In Guanio v. Makati-Shangri-la Hotel,56 citing RCPI v. Verchez,57 we held thus:

In culpa contractual x x x the mere proof of the existence of the contract and the failure of its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the obligatory force of contracts, will not permit a party to be set free from liability for any kind of misperformance of the contractual undertaking or a contravention of the tenor thereof. A breach upon the contract confers upon the injured party a valid cause for recovering that which may have been lost or suffered. The remedy serves to preserve the interests of the promissee that may include his "expectation interest," which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed, or his "reliance interest," which is his interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made; or his "restitution interest," which is his interest in having restored to him any benefit that he has conferred on the other party. Indeed, agreements can accomplish little, either for their makers or for society, unless they are made the basis for action. The effect of every infraction is to create a new duty, that is, to make RECOMPENSE to the one who has been injured by the failure of another to observe his contractual obligation unless he can show extenuating circumstances, like proof of his exercise of due diligence x x x or of the attendance of fortuitous event, to excuse him from his ensuing liability. (Emphasis ours)

We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified by the circumstances – that is, One Virtual’s advice regarding petitioner’s alleged breach of obligations. The lower court’s Decision itself belied this contention when it said that "plaintiff is not disputing that it did not complete commissioning work on one of the two systems because One Virtual at that time is already in default and has not paid GILAT."58 Assuming arguendo that the commissioning work was not completed, respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time, petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated that petitioner had delivered all equipment, including the licensed software; and that the equipment had been installed and in fact, gone into operation.59 Notwithstanding these compliances, respondent still failed to pay.

As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before an action for performance was filed, interest on the amount due begins to run, not from the date of the filing of the complaint, but from the date of that extra-judicial demand.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree with the latter that interest must start to run from the time petitioner sent its first demand letter (5 June 2000), because the obligation was already due and demandable at that time.

With regard to the interest rate to be imposed, we take cue from Nacar v. Gallery Frames,62 which modified the guidelines established in Eastern Shipping Lines v. CA63 in relation to Bangko Sentral-Monetary Board Circular No. 799 (Series of 2013), to wit:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 1âwphi1 In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.

x x x x

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

Applying the above-discussed concepts and in the absence of an agreement as to interests, we are hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of extra judicial demand, until the satisfaction of the debt in accordance with the revised guidelines enunciated in Nacar.

WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.

SO ORDERED.

MARIA LOURDES P. A. SERENOChief Justice, Chairperson

On damages

G.R. No. 199022               April 7, 2014

MAGSAYSAY MARITIME CORPORATION, Petitioner, vs.OSCAR D. CHIN, JR., Respondent.

D E C I S I O N

ABAD, J.:

The Facts and the Case

Thome Ship Management Pte. Ltd., acting through its agent petitioner Magsaysay Maritime Corporation (Magsaysay) hired respondent Oscar D. Chin, Jr. to work for nine months as able seaman on board MV Star Siranger1 Chin was to receive a basic pay of US$515 per month.2 Magsaysay deployed him on July 20, 1996.

On October 22, 1996 Chin sustained injuries while working on his job aboard the vessel. Dr. Solan of Wilmington, North Carolina, USA, examined him on November 29, 1996 and found him to have suffered from lumbosacral strain due to heavy lifting of pressurized machine. The doctor gave him medications and advised him to see an orthopedist and a cardiologist. Chin was repatriated on November 30, 1996. On return to the Philippines, Chin underwent a surgical procedure called laminectomy and discectomy L-4-L-5. A year after the operation, Dr. Robert D. Lim of the Metropolitan Hospital diagnosed Chin to have a moderate rigidity of his tract.

On August 6, 1998 Chin filed a claim for disability with Pandiman Phils., Inc. which is the local agent of P & I Club of which Magsaysay Maritime is a member. Pandiman offered US$30,000.00 as disability compensation which Chin accepted on August 6, 1998. He then executed a Release and Quitclaim in favor of Magsaysay Maritime.

On September 29, 1998 Chin filed a complaint with the National Labor Relations Commission (NLRC), claiming underpayment of disability benefits and attorney’s fees. He later amended his complaint to include claims for damages.

The Labor Arbiter dismissed Chin’s complaint for lack of merit. The NLRC affirmed the dismissal on May 17, 2001. On appeal, however, the Court of Appeals (CA) reversed the dismissal and ruled that Chin was entitled to permanent total disability benefit of US$60,000.00. The CA remanded the case to the Labor Arbiter for determination of the other monetary claims of Chin. This prompted petitioner Magsaysay to come before this court on a petition for review on certiorari. The Court denied the petition, however, in a Resolution dated September 8, 2003. This Resolution became final and executory on February 23, 2004.

On September 28, 2004 petitioner Magsaysay paid the deficiency award of US$30,000.00 in full and final settlement of Chin’s disability compensation claim. On February 26, 2007, however, the Labor Arbiter rendered a Decision ordering it to pay Chin: a) P19,279.75 as reimbursement for medical

expenses; b) US$147,026.43 as loss of future wages; c) P200,000.00 as moral damages; d) P75,000.00 as exemplary damages; and e) 10% of the total award as attorney’s fees.

On November 25, 2008 the NLRC modified the Labor Arbiter’s Decision by deleting the awards of loss of future wages and moral and exemplary damages for lack of factual and legal bases. On appeal, the CA reversed the NLRC’s Decision and ordered the reinstatement of the Labor Arbiter’s Decision, hence, this petition.

The Issue Presented

The key issue in this case is whether or not the CA erred in affirming the Labor Arbiter’s award of loss of future earnings on top of his disability benefits as well as awards of moral and exemplary damages and attorney’s fees.

Ruling of the Court

Respondent Chin contends that the petition should be dismissed on the ground of res judicata in that the CA’s Decision in CA-G.R. SP 67803 authorized the determination of Chin’s other monetary claims. The additional award to him of actual, compensatory, moral and exemplary damages as well as attorney’s fees was a determination of those other claims. These awards, he claims, can no longer be disturbed.

But res judicata applies to second actions involving substantially the same parties, the same subject matter, and cause or causes of action.3 Here, there is no second action to speak of since the subsequent awards were merely the result of a remand from the CA for the Labor Arbiter to determine the amounts to which Chin is entitled to receive aside from the full US$60,000.00 permanent total disability compensation.

Definitely, the Labor Arbiter’s award of loss of earning is unwarranted since Chin had already been given disability compensation for loss of earning capacity. An additional award for loss of earnings will result in double recovery. In a catena of cases,4 the Court has consistently ruled that disability should not be understood more on its medical significance but on the loss of earning capacity. Permanent total disability means disablement of an employee to earn wages in the same kind of work, or work of similar nature that he was trained for or accustomed to perform, or any kind of work which a person of his mentality and attainment could do. Disability, therefore, is not synonymous with "sickness" or "illness." What is compensated is one’s incapacity to work resulting in the impairment of his earning capacity.5

Moreover, the award for loss of earning lacks basis since the Philippine Overseas Employment Agency (POEA) Standard Contract of Employment (POEA SCE), the governing law between the parties, does not provide for such a grant. What Section 20, paragraph (G) of the POEA SCE provides is that payment for injury, illness, incapacity, disability, or death of the seafarer covers "all claims arising from or in relation with or in the course of the seafarer’s employment, including but not limited to damages arising from the contract, tort, fault or negligence under the laws of the Philippines or any other country." The permanent disability compensation of US$60,000 clearly amounts to reasonable compensation for the injuries and loss of earning capacity of the seafarer. 1âwphi1

In awarding damages for loss of earning capacity, the Labor Arbiter relies on the rulings in Villa Rey Transit v. Court of Appeals6 and Baliwag Transit, Inc. v. Court of Appeals.7 But these cases involve essentially claims for damages arising from quasi-delict. The present case, on the other hand, involves a claim for disability benefits under Chin’s contract of employment and the governing POEA

set standards of recovery. The long-standing rule is that loss of earning is recoverable if the action is based on the quasi-delict provision of Article 2206 of the Civil Code.8

While the Labor Arbiter can grant moral and exemplary damages, the amounts he fixed in this case are quite excessive in the absence of evidence to prove the degree of moral suffering or injury that Chin suffered. It has been held that in order to arrive at a judicious approximation of emotional or moral injury, competent and substantial proof of the suffering experienced must be laid before the court.9 It is worthy to stress that moral damages are awarded as compensation for actual injury suffered and not as a penalty. The Court believes that an award of P30,000.00 as moral damages is commensurate to the anxiety and inconvenience that Chin suffered.

As for exemplary damages, the award of P25,000.00 is already sufficient to discourage petitioner Magsaysay from entering into iniquitous agreements with its employees that violate their right to collect the amounts to which they are entitled under the law. Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.10

WHEREFORE, the Court PARTIALLY GRANTS the petition and AFFIRMS the February 28, 2011 Decision of the Court of Appeals and its October 11, 2011 Resolution with MODIFICATION. The award of loss of earning is DELETED and petitioner Magsaysay Maritime Corporation is ORDERED to pay respondent Oscar D. Chin, Jr.P19,279.95 as reimbursement for medical expenses, P30,000.00 as moral damages, P25,000.00 as exemplary damages, and attorney’s fees equivalent to 10% of the total of these amounts.

SO ORDERED.