Haystack: Firestone Tire and Rubber vs. Ines Chaves & Co. (GR L-17106, 19 October 1966)

Firestone Tire and Rubber vs. Ines Chaves & Co.
[G.R. No. L-17106. October 19, 1966.]
En Banc, Regala (J): 8 concurring

Facts: The check, dated 9 June 1959 and for P1,437.50, was intended as part payment of Ines Chaves' debt, worth P6.241.75. The principal amount represented the price of automobile tires, tubes and other accessories which Firestone had sold and delivered to Ines Chaves on different dates. When presented to the Security Bank and Trust Co. by Firestone, the check was returned for insufficiency of funds. Despite repeated demands by Firestone, Ines Chaves failed to settle its account.

Thus, a suit was filed on 14 January 1960 by Firestone Tire and Rubber Co. of the Philippines against Ines Chaves & Co., Ltd. in the CFI Manila, for the collection of P6,241.75, plus interest and attorney's fees. The claim for interest and attorney's fees was based on the following stipulation appearing on each invoice issued by Firestone. After trial and on 12 April 1960, the court gave judgment for Firestone for the principal amount but denied the claim for interest and attorney's fees as stipulated in the invoices for lack of proof that Ines Chaves had agreed to the condition. Instead, the court ordered the payment of interest at the legal rate (from 3 July 1959, which is the end of the period of 30 days from the last receipt) until fully paid, and an additional amount equal to 25% of the principal as attorney's fees after finding Ines Chaves guilty of bad faith in issuing a check which was subsequently dishonored. Hence, the appeal to the Supreme Court.

The Supreme Court affirmed the decision appealed from, with costs against Ines Chaves & Co.

1. Stipulation appearing in invoice
The following stipulation appear on each invoice issued by Firestone: "All accounts shall be paid upon delivery of the merchandise according to the terms of the invoice, at Manila Office; and the purchaser shall pay one per centum (1%) per month from the date of default, and in case of suit for the collection of account and interest he expressly submits to the jurisdiction of the Courts of Manila, Cebu and Iloilo, and agrees to pay twenty five per centum (25%) thereof as attorney's fees and liquidated damages."

2. Fees now included in the concept of actual damages; Article 2208 of the New Civil Code
The general rule is that attorney's fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. Indeed, before the effectivity of the Civil Code, such fees could not be recovered in the absence of a stipulation. It was only with the advent of the new Code that the right to collect attorney's fees in the cases mentioned in article 2208 was recognized. Such fees are now included in the concept of actual damages.

3. When one is liable for damages; Article 19 and 1170 of the New Civil Code
A case is where the defendant is guilty of "gross and evident bad faith in refusing to satisfy plaintiff's plainly valid, just and demandable claim.” This is a corollary of the general principle expressed in article 19 of the Code that everyone must, in the performance of his duties, observe honesty and good faith and the rule embodied in article 1170 that anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for damages.

4. No estafa when issuer informs payee that post dated check is without funds to cover it; Nothing in record to show Firestone knew that there were no funds in the bank
Where a person issues a post dated check without funds to cover it and informs the payee of this fact, he cannot be held guilty of estafa because there is no deceit. Thus, if the payee agreed to accept the check, knowing that it was not covered by adequate funds in the bank, no finding of bad faith can be made against the payor. In the present case, however, there is nothing in the record to show that Firestone knew that there were no funds in the bank when it accepted the check from Ines Chaves, much less that Firestone "agreed" to take the check with knowledge of the lack of funds. There is nothing to show that Ines Chaves even hinted to Firestone at the lack of funds when the check was issued. On the contrary, by issuing the check, Ines Chaves in effect represented to Firestone that there were funds in the bank for its payment. The Court think the lower court correctly found Ines Chaves' conduct wanting in good faith. The award of attorney's fees was thus warranted.

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