Development Bank of the Philippines vs. Traverse Development Corporation and Central Surety and Insurance Company, G.R. No. 169293, October 5, 2011

DOCTRINE: In the absence of stipulation, attorneys fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code but said provision demands factual, legal, and equitable justification.

FACTS: Respondent Traverse Devt. Corp. (respondent Traverse) acquired a 1-year fire insurance for the building of the former from FGU as compliance of a condition in the real estate mortgage entered with the petitioner Devt Bank of the Phils. (petitioner). On its second year, FGU automatically renewed the insurance for another year. However, petitioner returned the FGU insurance for the second year to respondent Traverse for petitioner had already transferred the buildings insurance to Central Surety & Insurance Company (respondent Central), for the same terms.

A complaint for payment of its claim and damages was filed by the respondent Traverse against the petitioner and respondent Central, in which the lower court rendered its decision, among others, ordering the petitioner to extinguish the loan of the respondent Traverse, which was later deleted after partially granting the motion for reconsideration of the petitioner, and that it is solidarily liable with respondent Central in the payment of attorneys fees and cost of litigation. The petitioner and respondent Central appealed but was dismissed. Respondent Centrals motion for reconsideration was denied but petitioners was partially granted in the rectification of the decision but not the setting aside of the decision on the solidarity of attorneys fees and litigation cost. Hence, this petition for review.

ISSUE: Whether or not DBP can be held solidarily liable with Central for the payment of attorneys fees and cost of litigation

HELD: In the absence of stipulation, attorneys fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code, provided that said fees and expenses of litigation must be reasonable. Also, the Supreme Court held in ABS-CBN Broadcasting Corporation vs. Court of Appeals that the power of the court to award attorneys fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.

In this case, the Supreme Court failed to find any factual, legal, and equitable justification for petitioner to be solidarily liable for said fees and cost under the circumstance that the petitioner's act or omission has compelled the respondent Traverse to litigate with third persons or to incur expenses to protect his interest.

The reason for respondent Traverse to compel itself to litigate its claims is due to the fact that respondent Central persistently refused to pay such claims and not because of the transfer of insurance policy from FGU to respondent Central. Thus, only respondent Central should be held liable for the payment of attorneys fees and costs of suit.

Hence, petition was granted and the Court modified the decision of the Court of Appeals holding the petitioner not liable for the payment of the attorneys fees and cost of suit.