~epublic of tbe llbilippines. ~upreme ~ourt. ;JMnniln FIRST DIVISION. and. Petitioners, INSURANCE. Petitioner, DECISION.

Transcription

1 ~epublic of tbe llbilippines ~upeme ~out ;JMnniln FIRST DIVISION ~.. " ;....~ :.>:1.J,.~ ;,,: ; t.i ::. ;!'-;:.... ~: :,_.. 1:.tli :;1t~. t_ "'\ ~~;~ i 1;:- 1"1..::-',\~c ; '14:. 1--:::.....!. i \ i..;;.;..._ ~- Lili... 1 ':: I ~ '\ ~ 1 \' J : 1 i. I I j ~ : l l I.. \\ ---\!!it."'' ~.,......_. \:. ij)'! ' JUL l! : l :J~ ' ' I -..., ' Ii,;,. «\t' -..: :-, l,...q ~- 13.., J,;:.i; VIL-REY BUILDERS, PLANNERS and Petitiones, G.R. No vesus - LEXBER, INC., Respondent. x x STRONGHOLD COMPANY, INC., - vesus - INSURANCE Petitione, G.R. No Pesent: SERENO, CJ, Chaipeson, LEONARDO-DE CASTRO, BERSAMIN, REYES,* and CAGUIOA,JJ LEXBER, INC., Respondent. Pomulgated: JUN > " ~ x: DECISION. SERENO, CJ: Befoe us ae petitions fo eview on cetioai unde Rule 45 of the Rules of Cout seeking to nullify the Cout of Appeals (CA) Decision 1 and Resolution 2 in CA-G.R. CV No The CA Decision found Vil-Rey Plannes and Buildes (Vil-Rey) and Stonghold Insuance Company, Inc. (Stonghold), solidaily liable to Lexbe, Inc. (Lexbe) in the amount of * Designated additional Membe/ in lieu of Associate Justice Estela M. Pelas-Benabe pe affle dated 23 May Rollo (G.R. No ), pp The Decision dated 16 Apil 2009 issued by the Cout of Appeals (CA) Thiteenth Division was penned by Associate Justice Estela M. Pelas-Benabe (now a Membe of this Cout), with Associate Justices Amelita G. Tolentino and Ramon M. Bato, J., concuing. 2 Id. at 52, dated I Septembe ~

2 Decision 2 G.R. Nos & ,.. '... ' P284, plus attoney's fees of PS0,000. The CA Resolution denied the 1, : motions.fo econsideation filed by Vil-Rey and Stonghold '. FACTS ~:"'' _.. '1 t ;~ ~,.. ' t ~. ~ -; -'..:.. ~'::,.,Vil-Rey and Lexbe enteed into a Constuction Contact dated Api:1.l.199D;. (fist contact) wheeby the fome undetook to wok on the compacted backfill of the latte's 56,565-squae-mete popety in Baangay Bangad, Cabanatuan City. Based on the fist contact, Vil-Rey shall complete the poject in 60 days fo a consideation of PS, 100,000. Lexbe eleased to Vil-Rey a mobilization downpayment of PS00,000 secued by Suety Bond G(l 6) No (fist suety bond) issued by Stonghold. Fo its pat, Vil-Rey ageed to indemnify Stonghold fo whateve amount the latte might be adjudged to pay Lexbe unde the suety bond. 5 \ ~ , "t.... Vil-Rey and Lexbe mutually teminated the fist contact and enteed into a Constuction Contact dated 1 July (second contact) to cove the emaining woks, but unde evised tems and conditions. The contact amount was P2,988,700.20, and the scope of wok was equied to be completed in 60 days. On 23 Decembe 1996, Vil-Rey and Lexbe executed Wok Ode No. CAB (thid contact) fo the completion of the emaining woks by 15 Januay Unde the thid contact, a consideation of Pl,168, shall be paid on the following basis: 50o/o downpayment to be secued by a suety bond in the same amount issued by Stonghold upon appoval of the wok ode and 50% balance upon completion of the woks. Accodingly, Stonghold issued Suety Bond G(16) No (second suety bond) in the amount of P584, in favo oflexbe. Vil-Rey again obligated itself to indemnify Stonghold fo whateve amount the latte might be held to pay unde the suety bond. 9 In a lette dated 21 Januay 199i 0 addessed to Lexbe, Vil-Rey equested the extension of the contact peiod to 31 Januay Lexbe ganted the equest fo extension. 11 Howeve, Vil-Rey failed to complete the woks by the end of the extended peiod, o even afte Lexbe gave it anothe five days to finish the woks. 12 Lexbe then wote Stonghold seeking to collect on the two suety bonds issued in favo of the fome Id. at Id. at Id. at Id. at Id. at Id. at Id. at Id. at Id. at 81, Id. at Id. at 83.

3 Decision 3 G.R. Nos & When negotiations failed, Lexbe filed a Complaint 14 fo sum of money and damages against Vil-Rey and Stonghold befoe the Regional Tial Cout of Quezon City, Banch 93 (RTC). In its Answe (with Counteclaim), 15 Vil-Rey denied that it was guilty of beach of contact and insisted that it was Lexbe that owed the amount of Pl,960, to the fome. Vil-Rey alleged that unde the fist contact, it was able to finish 75.33o/o of the woks, but that Lexbe paid an amount equivalent to only 50% of the contact, theeby leaving a balance of Pl,291,830 in Vil-Rey's favo. Futhemoe, consideing that almost 100% of the woks wee finished unde the thid contact, Vil-Rey had eceivables of P668, epesenting the contact amount of Pl,168, less the downpayment of P500,000. It also payed fo the payment of moal damages and attoney's fees. Stonghold filed its Answe 16 alleging that its liability unde the suety bonds was vey specific. Unde the fist suety bond, it guaanteed only the mobilization down payment of 10% of the total consideation fo the fist contact. The mobilization downpayment was fully liquidated pio to the mutual temination of the fist contact. Also, no collection could be made on the second suety bond, because Lexbe failed to allege that thee wee defects in the mateials used and wokmanship utilized by Vil-Rey in undetaking the woks. Stonghold put fowad its counteclaim against Lexbe fo attoney's fees, litigation expenses, and coss-claim against Vil Rey fo any and all amounts Stonghold may be odeed to pay unde the suety bonds pusuant to the indemnity ageements. RULING OF THE RTC In a Decision dated 12 Decembe 2005, 17 the RTC adjudged Vil-Rey and Stonghold jointly and seveally liable to Lexbe in the amount of P2,988,700.20, with inteest at the ate of 12% pe annum as actual and compensatoy damages fom the time of the beach until full satisfaction. The tial cout also odeed Vil-Rey and Stonghold to pay attoney's fees in the amount of P500,000 plus the costs of suit. It upheld the indemnity ageements and ganted Stonghold's coss-claim against Vil-Rey. The R TC emphasized that paties to a contact ae bound by the stipulations theein. When the contact equies the accomplishment of tasks at a given time and the obligo fails to delive, thee is beach of contact that entitles the obligee to damages. In this case, when Vil-Rey failed to finish the woks on time, it became liable to Lexbe fo damages bought about by the beach. The tial cout found no meit in the claim of Vil-Rey that thee was undepayment and bushed aside the latte's counteclaim. 14 Id. at Id. at Id. at Id. at The Decision was penned by Paiing Judge Samuel H. Gaelan.

4 Decision 4 G.R. Nos & As egads Stonghold, the tial cout found that the woding of the suety bonds did not embody the paties' tue intent, which was to ensue the faithful pefomance by Vil-Rey of its obligations. Consideing its failue in this egad, Stonghold should pay the total amount of the two suety bonds to Lexbe. In an Ode dated 22 Octobe 2007, 18 the RTC deceed a patial econsideation and odeed Vil-Rey and Stonghold to pay Lexbe in solidum in the amount of Pl,084, This epesented the tue total amount of the two suety bonds, with l 2o/o inteest pe annum as actual and compensatoy damages fom the time of the beach until full satisfaction. Futhemoe, attoney's fees wee educed to P200,000. Vil-Rey and Stonghold filed an appeal befoe the CA. RULING OF THE CA In the assailed Decision dated 16 Apil 2009, 19 the CA modified the RTC Ode and futhe loweed the liability of Vil-Rey and Stonghold to P284, with inteest at the ate of 6% pe annum fom 11 Febuay 1997 until the finality of the Decision. Theeafte, the amount shall ean 12% inteest pe annum until full satisfaction. The appellate cout also educed attoney's fees to P50,000. The CA uled that, consideing the mutual temination of the fist and second contacts, no liability could be assessed against Vil-Rey. Whateve claims Lexbe had against Vil-Rey had been deemed waived with the execution of the thid contact. Consequently, Stonghold could not be made to pay unde the fist suety bond, which coveed only the mobilization downpayment unde the fist contact. Nevetheless, thee was a clea beach of the thid contact, and Vil Rey should be held liable fo the natual and pobable consequences of the beach as duly poven. In this case, Lexbe was able to pove that it sustained damages in the amount of P284,084.46, which was the amount it paid anothe contacto tasked to complete the woks left unfinished by Vil Rey. That amount was chaged against the second suety bond, which guaanteed not only the wokmanship and the quality of the mateials used in the poject, but also the obligations of Vil-Rey. The CA modified the inteest imposed consideing that the obligation beached was not a loan o fobeaance of money. Like the RTC, it denied the counteclaims of Vil-Rey and Stonghold against Lexbe, but upheld Stonghold's coss-claim against Vil-Rey. 18 Id. at The Ode was penned by Pesiding Judge Ramon Paul L. Henando. 19 Id. at

5 Decision 5 G.R. Nos & Vil-Rey's motion fo econsideation and Stonghold's motion fo patial econsideation.wee denied by the CA in the challenged Resolution dated 1 Septembe ISSUES Dissatisfied, Vil-Rey and Stonghold filed the instant petitions befoe us aising the following issues fo ou esolution: 1. Whethe Vil-Rey is liable fo beach of contact 2. Whethe Stonghold's liability unde the second suety bond was extinguished by the extension of the thid contact 3. Whethe Lexbe is entitled to attoney's fees OuRRULING I. Vil-Rey is liable fo beach of contact. In esisting the uling of the CA that Vil-Rey was guilty of beach of contact, the latte alleges that the appellate cout's findings ae based on a misappehension of facts. 21 Vil-Rey agues that the consideation fo the thid contact was Pl,168,728.37, of which it was paid only PS00,000. Consideing that thee emained a balance of P668,728.37, the amount was moe than enough to offset that incued by Lexbe in ode to finish the woks. The agument misses the point. Beach of contact is the failue of a paty, without legal eason, to comply with the tems of a contact o pefonn any pomise that foms eithe a pat o the whole of it. 22 The failue of Vil-Rey to complete the woks unde the thid contact was neve an issue in this case. In fact, that failue was eadily admitted by Moises Villata, its managing patne, 23 in his testimony befoe the tial cout: Q. What happened afte you accomplished 95% unde the [thid contact]? A. The only emaining thee would be the compaction and fill density test. Q. Could you please tell us why you did not finish the compaction and density test unde the [thid] contact. A. Because I lacked funds. I was not paid anymoe Id. at Rollo (G.R. No. I 8940 I), pp R.S. Tomas, Inc. v. Rizal Cement Co., Inc., 685 Phil. 9 (2012). 23 Rollo (G.R. No ), p Id. at 23.

6 Decision 6 G.R. Nos & To claify, aside fom this testimony, no poof was pesented to show that Vil-Rey was able to accomplish 95% of the woks unde the thid contact. Nevetheless, even if we wee to assume that this claim is tue, it still falls shot of the obligation to finish 100% of the woks. In the thid contact, Vil-Rey and Lexbe ageed on the following tems of payment: 50% downpayment upon appoval of this wok ode against a suety bond fom Stonghold Insuance Copoation 50% balance upon completion of wok The wok will be completed on o befoe 15 Januay 1997 x x x. 25 It is clea that the next payment fo Vil-Rey would have fallen due upon completion of the woks. Thus, it cannot put up the defense that its failue to comply with its obligation was because it was not paid. Unde the above povisions, the paties clealy took on ecipocal obligations. These ae obligations that aise fom the same cause, such that the obligation of one is dependent upon that of the othe. 26 The ecipocal obligation in this case was Lexbe's payment of the 50% balance upon Vil-Rey's completion of the woks on o befoe 15 Januay Howeve, despite the gant of extension until 31 Januay 1997, and even afte the lapse of anothe five-day gace peiod, Vil-Rey failed to finish the woks unde the thid contact. The law povides that the obligation of a peson who fails to fulfill it shall be executed at that peson's cost. 27 The CA was coect in uling that Vil-Rey should be held liable fo the amount paid by Lexbe to anothe contacto to complete the woks. Fmihemoe, Aticle 2201 of the Civil Code povides: Aticle In contacts and quasi-contacts, the damages fo which the obligo who acted in good faith is liable shall be those that ae the natual and pobable consequences of the beach of the obligation, and which the paties have foeseen o could have easonably foeseen at the time the obligation was constituted. In case of faud, bad faith, malice o wanton attitude, the obligo shall be esponsible fo all damages which may be easonably attibuted to the non-pefomance of the obligation. In the absence of a clea showing of bad faith on the pat of Vil-Rey, it shall be liable fo damages only with egad to those that ae the natual 25 Rollo (G.R. No ), p Metopolitan Bank and Tust Co. v. Chiok, G.R. Nos , & , 26 Novembe 2014, 742 SCRA 435, CIVIL CODE, Aticle 1167.

7 Decision 7 G.R. Nos & and pobable consequences of its beach. In this case, the failue of Vil-Rey to finish the woks compelled Lexbe to secue the sevices of anothe contacto, to which the latte paid a total of P284, Consideing that this amount was not a loan o fobeaance of money, We impose inteest at the ate of 6 /o pe annum 28 fom 17 Febuay until the finality of this Decision. Theeafte, it shall ean inteest at the ate of 6% pe annum until. f:. 30 satls action. We shall not close this discussion without passing upon anothe ecipocal obligation assumed by the paties unde the thid contact. As ageed, Vil-Rey shall acquie a suety bond fom Stonghold equivalent to 50% of the contact pice of Pl, 168, upon Lexbe' s downpayment of the same amount. Accodingly, on 24 Decembe 1996, Vil-Rey secued the second suety bond in the amount of P584, On the same day, Lexbe made a downpayment ~f only P500, Aticle 1169 of the Civil Code povides that in ecipocal obligations, delay by one of the paties begins fom the moment the othe fulfills the obligation. In this case, Lexbe is guilty of delay with egad to the amount of P84,364.19, which should be paid. Also, the delay shall make it liable to Vil-Rey fo damages, 32 which We impose in the fom of inteest at the ate 28 Naca v. Galley Fames, G.R. No , 13 August 2013, 703 SCRA 439, 458. The Cout uled thus: To ecapitulate and fo futue guidance, the guidelines laid down in the case of Easten Shipping Lines ae accodingly modified to embody BSP-MB Cicula No. 799, as follows: I. When an obligation, egadless of its souce, i.e., law, contacts, quasi-contacts, delicts o quasi-delicts is beached, the contaveno can be held liable fo damages. The povisions unde Title XVIII on "Damages" of the Civil Code goven in detemining the measue ofecoveable damages. 11. With egad paticulaly to an awad of inteest in the concept of actual and compensatoy damages, the ate of inteest, as well as the accual theeof, is imposed, as follows: 1. When the obligation is beached, and it consists in the payment of a sum of money, i.e., a loan o fobeaance of money, the inteest due should be that which may have been stipulated in witing. Futhemoe, the inteest due shall itself ean legal inteest fom the time it is judicially demanded. In the absence of stipulation, the ate of inteest shall be 6% pe annum to be computed fom default, i.e., fom judicial o extajudicial demand unde and subject to the povisions of Aticle 1169 of the Civil Code. 2. When an obligation, not constituting a loan o fobeaance of money, is beached, an inteest on the amount of damages awaded may be imposed at the discetion of the cout at the ate of 6% pe annum. No inteest, howeve, shall be adjudged on unliquidated claims o damages, except when o until the demand can be.established with easonable cetainty. Accodingly, whee the demand is established with easonable cetainty, the inteest shall begin to un fom the time the claim is made judicially o extajudicial)y (At. 1169, Civil Code), but when such cetainty cannot be so easonably established at the time the demand is made, the inteest shall begin to un only fom the date the judgment of the cout is made (at which time the quantification of damages may be deemed to have been easonably ascetained). The actual base fo the computation of legal inteest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the cout awading a sum of money becomes final and executoy, the ate of legal inteest, whethe the case falls unde paagaph 1 o paagaph 2, above, shall be 6% pe annum fom such finality until its satisfaction, this inteim peiod being deemed to be by then an equivalent to a fobeaance of cedit. 29 The day afte the lapse of the five-day gace peiod that Lexbe gave Vil-Rey. The notice of delay and noncompliance sent by Lexbe was eceived by Vil-Rey on 1 l Febuay 1997 [Rollo (G.R. No ), p. 49]. In the said notice, Lexbe gave Vil-Rey a gace peiod of five days fom notice within which to complete the poject. 30 Id. 31 Rollo (G.R. No ), p CIVIL CODE, Aticle 1170, which states: Those who in the pefomance of thei obligations ae guilty of faud, negligence, o delay, and those who in any manne contavene the teno theeof, ae liable fo damages.

8 Decision 8 G.R. Nos & of 6% pe annum 33 fom 24 Decembe 1996 until the finality of this Decision. Theeafte, it shall ean inteest at the ate of 6% pe annum until ~ 34 sat1s1act10n. - The paties shall be allowed to compensate the amounts due them to the extent of thei espective obligations. II. The extension of the thid contact did not extinguish Stonghold's liability unde the second suety bond. Stonghold claims that the extension of time fo the completion of the woks unde the thid contact fom 15 Januay 1997 to 31 Januay 1997 was made without its consent as suety. 35 It is agued that an extension of payment given by the cedito to the debto without notice to o consent of the suety extinguishes the suety's obligation, unless a continuing guaantee was executed by the suety. Stonghold insists that the CA eed in constuing the second suety bond as a continuing guaantee despite clea stipulations to the cqntay. 36 Futhemoe, consideing that the second suety bond guaanteed only the mateials and the wokmanship that would be utilized by Vil-Rey, the absence of any complaint fom Lexbe in this espect dischaged Stonghold. 37 The following wee the conditions and the obligations assumed by Stonghold unde the second suety bond: TO GUARANTEE [VIL-REY'S] OBLIGATIONS AND TO ANSWER FOR ANY DEFECTS IN THE MATERIALS USED AND WORKMANSHIP UTILIZED IN THE LAND FILLING OF LEXBER HOMES CABANA TUAN (REMAINING WORKS). AND THAT THE LIABILITY OF THIS BOND SHALL NOT EXCEED THE SUM OF PESOS, FIVE HUNDRED EIGHTY FOUR THOUSAND THREE HUNDRED SIXTY FOUR & 19/100 ONLY, (P584,364.19), PHILIPPINE CURRENCY. 38 The second suety bond clealy guaanteed the full and faithful pefomance of the "obligations" of Vil-Rey unde the thid contact, and it was not secued just to answe fo "defects in the mateials used and wokmanship utilized." As a pefomance bond, the second suety bond guaanteed that Vil-Rey would pefom the contact, and povided that if the 33 Supa note Id. 35 Rollo (G.R. No ), pp Id. at Id. at Id. at 79.

9 Decision 9 G.R. Nos & latte defaults and fails to complete the contact, Stonghold itself shall complete the contact o pay damages up to the limit of the bond. 39 A suety bond is an accessoy contact dependent fo its existence upon the pincipal obligation it guaantees. 40 Being so associated with the thid contact as a necessay condition o component theeof, the second suety bond cannot be sepaated o seveed fom its pincipal. 41 Consideing that the thid contact povided that the woks shall be completed on o befoe 15 Januay 1997, the second suety bond was deemed to have guaanteed the completion of the woks on the same date. It is tue that a suety is dischaged fom its obligation when thee is a mateial alteation of the pincipal contact, such as a change that imposes a new obligation on the obligo; o takes away some obligation aleady imposed; o changes the legal effect, and not meely the fom, of the oiginal contact. 42 Nevetheless, no elease fom the obligation shall take place when the change in the contact does not have the effect of making the obligation moe oneous to the suety. 43 In this case, the extension of the thid contact fo 15 days and the gant of an additional five-day gace peiod did not make Stonghold's obligation moe oneous. On the contay, the extensions wee aimed at the completion of the woks, which would have been fo the benefit of Stonghold. This pespective comes fom the povision of the second suety bond that "if [Vil-Rey] shall in all espects duly and fully obseve and pefom all xxx the afoesaid covenants, conditions and ageements to the tue intent and meaning theeof, then this obligation shall be null and void, othewise to emain in full foce and effect." 44 The completion of the woks would have dischaged Stonghold fom its liability. We find no meit in the contention of Stonghold that the extensions extinguished its obligation as a suety. 45 We note that it also ealized the impotance of the completion of the woks as fa as it was concened, as shown in its lette to Vil-Rey dated 25 Mach 1997: Enclosed is a copy of the lette dated Febuay 18, 1997 we eceived on Febuay 20, 1997 fom Lexbe, Inc., posting fomal claim against ou bonds at caption due to you failue to complete you contacted poject within the stipulated peiod. Please take appopiate action to make good you commitment and contactual obligations to the Obligee within five (5) days fom eceipt 39 J Plus Asia Development Cop. v. Utility Assuance Cop., G.R. No , 26 June 2013, 700 SCRA 134, Pudential Guaantee & Assuance, Inc. v. Ansco Land, Inc., 644 Phil. 634 (20 I 0). 41 Id. 42 Stonghold Insuance Co., Inc. v. Tokyu Constuction Co., ltd., 606 Phil. 400, 413 (2009). 43 Id. 44 Rollo (G.R. No ), p Id. at

10 Decision 10 G.R. Nos & heeof and advise us on any development you have with them on the matte fo ou guidance. 46 Even as late as 25 Mach 1997, Stonghold still sought the completion of the woks to the point of giving Vil-Rey a peiod of five days to fulfill its commitments. Clealy, it cannot now claim that it was pejudiced by the extensions given by Lexbe, when it was pepaed to give an extension of its own just so Vil-Rey could finish the woks. Stonghold contends that the extension of time fo the completion of the thid contact without its knowledge dischaged it fom its obligation unde the second suety bond. What futhe militates against this contention is the fact that it was aised fo the fist time in the Motion fo Patial Reconsideation 47 of the CA Decision dated 16 Apil Pio to the filing of that motion by Stonghold, its consistent agument befoe the RTC and even befoe the CA was that the second suety bond guaanteed only the mateials and the wokmanship utilized by Vil-Rey; and that the absence of any complaint fom Lexbe in this egad dischaged Stonghold. We have uled that issues, gounds, points of law, o theoies not bought to the attention of the tial couts cannot be passed upon by eviewing couts. 48 Thus, when a paty delibeately adopts a cetain theoy, which becomes the basis fo the manne on which the case is tied and decided, the paty will not be pemitted to change that theoy on appeal; othewise, it would be unfai to the advese paty. 49 At any ate, as suety, Stonghold has the ight to be indemnified fo whateve it may be odeed to pay Lexbe. This ight is povided in the law and not meely based on the indemnity ageement Stonghold executed with Vil-Rey. In Escafzo v. Otigas, J., 50 we explained the ight to full eimbusement by a suety fo whateve it pays the cedito: [E]ven as the suety is solidaily bound with the pincipal debto to the cedito, the suety who does pay the cedito has the ight to ecove the full amount paid, and not just any popotional shae, fom the pincipal debto o debtos. Such ight to full eimbusement falls within the othe ights, actions and benefits which petain to the suety by eason of the subsidiay obligation assumed by the suety. What is the souce of this ight to full eimbusement by the suety? We find the ight unde Aticle 2066 of the Civil Code, which assues that "[t]he guaanto who pays fo a debto must be indemnified by the latte," such indemnity compising of, among othes, "the total amount 46 Id. at Id. at Geneal Cedit Cop. v. A/sons Development and Investment Cop., 542 Phil. 219 (2007). 49 Chua v. CA, 449 Phil. 25 (2003) Phil. 24 (2007).

11 Decision 11 G.R. Nos & of the debt." Futhe, Aticle 2067 of the Civil Code likewise establishes that "[t]he guaanto who pays is subogated by vitue theeof to all the ights which the cedito had against the debto." Aticles 20(56 and 2067 explicitly petain to guaantos, and one might ague that the povisions should not extend to sueties, especially in light of the qualifie in Aticle 2047 that the povisions on joint and seveal obligations should apply to sueties. We eject that agument, and instead adopt D. Tolentino's obsevation that "[t]he efeence in the second paagaph of [Aticle 204 7] to the povisions of Section 4, Chapte 3, Title I, Book IV, on soliday o seveal obligations, howeve, does not mean that suetyship is withdawn fom the applicable povisions govening guaanty." Fo if that wee not the implication, thee would be no mateial diffeence between the suety as defined unde Aticle and the joint and seveal debtos, fo both classes of obligos would be govened by exactly the same ules and limitations. Accodingly, the ights to indemnification and subogation as established and ganted to the guaanto by Aticles 2066 and 2067 extend as well to sueties as defined unde Aticle xx x 51 III. Lexbe is entitled to educed attoney's fees. Section 9.3 of the fist contact povides that in the event Lexbe has to institute judicial poceedings in ode to enfoce any tem o condition theein, Vil-Rey shall pay attoney's fees equivalent to not less than 25% of the total amount adjudged. 52 This povision was adopted in the second contact 53 and even in the thid contact, which povides that all conditions in the second contact shall emain in foce. 54 Attoney's fees as povided fo in the contacts ae in the natue of liquidated damages ageed upon by the paties. These fees ae to be paid in case of beach of the contactual stipulations necessitating a paty to seek judicial intevention to potect its ights. 55 Nomally, the obligo is bound to pay the stipulated indemnity without the necessitt of poof of the existence o the measue of damages caused by the beach. 5 In this case, the failue of Vil-Rey to fulfill its obligation to finish the woks unde the thid contact compelled Lexbe to seek judicial intevention. Pusuant to a contactual stipulation theefo, the payment of attoney's fees to Lexbe shall be the obligation of Vil-Rey and Stonghold. Howeve, consideing the cicumstances suounding this case, We educe the awad to 10% of P284,084.46, which was the amount Lexbe paid 51 Id. at Rollo (G.R. No ), p Id. at Id. at Spouses Suatengco v. Reyes, 594 Phil. 609 (2008). 56 Id.

12 Decision 12 G.R. Nos & to anothe contacto fo the completion of the woks. Liquidated damages may be equitably educed by the couts. 57 Since the failue of Vil-Rey to fulfill its obligations was appaently caused by financial difficulties, and Lexbe was also guilty of delay with egad to the latte's ecipocal obligation to make a downpayment of 50% of the amount of the thid contact upon Vil-Rey's acquisition of a suety bond in the same amount, the couts' powe may be popely execised in this case. WHEREFORE, the Cout of Appeals Decision dated 16 Apil 2009 and Resolution dated 1 Septembe 2009 in CA-G.R. CV No ae heeby MODIFIED as follows: 1. Vil-Rey Plannes and Buildes and Stonghold Insuance Company, Inc., ae heeby ORDERED to jointly and seveally pay the following amounts to Lexbe, Inc.: a. P284,084.46, with inteest at the ate of 6% pe annum fom 1 7 Febuay 1997 until full payment b. 10% of P284, as attoney's fees 2. Vil-Rey Plannes and Buildes is heeby ORDERED to indemnify Stonghold Insuance Company, Inc., fo whateve amount the latte shall pay Lexbe, Inc. 3. Lexbe, Inc. is heeby ORDERED to pay Vil-Rey Plannes and Buildes the amount of P84,364. l 9, with inteest at the ate of 6o/o pe annum fom 24 Decembe 1996 until full payment. Vil-Rey Plannes and Buildes and Lexbe, Inc., shall be allowed to compensate the amounts due them to the extent of thei espective obligations. SO ORDERED. MARIA LOURDES P. A. SERENO Chief Justice, Chaipeson 57 CIVIL CODE, Aticle 2227, which states: Liquidated damages, whethe intended as an indemnity o a penalty, shall be equitably educed if they ae iniquitous o unconscionable.

13 Decision 13 G.R. Nos & WE CONCUR: T~J~O-~tJifio Associate Justice BIENVENIDO L. REYES Associate Justice CERTIFICATION Pusuant to Section 13, Aticle VIII of the Constitution, I cetify that the conclusions in the above Decision had been eached in consultation befoe the case was assigned to the wite of the opinion of the Cout's Division. MARIA LOURDES P.A. SERENO Chief Justice