Death Not An Escape To Liability
Death is not a defense that he or his estate can set up to wipe out the obligations under the
performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary
obligation under its performance bond. (Stronghold Insurance Company, Inc. vs. Republic
Asahi Glass Corp., G.R. No. 147561, June 22, 2006).
Suretys obligation is not original; but
direct and primary to creditor
The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or
collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence
secondary only to a valid principal obligation, his liability to the creditor or promise of the principal is said to be direct,
primary and absolute; in other words, he is directly and equally bound with the principal. (Garcia vs. CA, 191 SCRA
439 (1990); IFC vs. Imperial Textile Mills, Inc., G.R. No. 160324, November 15, 2005).
Under the law and jurisprudence, the creditor may sue, separately or together, the principal debtor and the surety, in
view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or
nullify the substantive right of the solidary creditor. Evidently, despite the death of the principal debtor, the creditor
may still sue petitioner alone, in accordance with the solidary nature of the latters liability under the performance
bond. (Stronghold Insurance Co., Inc. vs. Republic Asahi Glass Corp., supra.).
Santos Ventura Hocorma Foundation, Inc. vs Ernesto
Santos & Riverland, Inc.
Chester Cabalza recommends his visitors to please read the original & full text of the case cited. Xie xie!
Santos Ventura Hocorma Foundation, Inc. vs Ernesto Santos & Riverland, Inc.
G.R. No. 1530004
November 5, 2004
Facts:
Subject of the present petition for review on certiorari is the Decision, dated January 30, 2002, as well as the April 12, 2002,
Resolution of the Court of Appeals, The appellate court reversed the Decision, dated October 4, 1996, of the Regional Trial Court of
Makati City, and likewise denied petitioner's Motion for Reconsideration.
On October 26, 1990, the parties executed a Compromise Agreement which amicably ended all their pending litigations. The
pertinent portions of the Agreement, include the following: (1) Defendant Foundation shall pay Plaintiff Santos P14.5 Million on (a)
P1.5 Million immediately upon the execution of this agreement and (b) The balance of P13 Million shall be paid, whether in one lump
sum or in installments, at the discretion of the Foundation, within a period of not more than two years from the execution of this
agreement; (2) Immediately upon the execution of this agreement (and [the] receipt of the P1.5 Million), plaintiff Santos shall cause
the dismissal with prejudice of Civil Cases; (3) Failure of compliance of any of the foregoing terms and conditions by either or both
parties to this agreement shall ipso facto and ipso jure automatically entitle the aggrieved party to a writ of execution for the
enforcement of this agreement.
In compliance with the Compromise Agreement, respondent Santos moved for the dismissal of the aforesaid civil cases. He also
caused the lifting of the notices of lis pendens on the real properties involved. For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
On October 28, 1992, respondent Santos sent another letter to petitioner inquiring when it would pay the balance of P13 million.
There was no response from petitioner. Consequently, respondent Santos applied with the Regional Trial Court of Makati City, for
the issuance of a writ of execution of its compromise judgment dated September 30, 1991. The RTC granted the writ.
Petitioner, however, filed numerous motions to block the enforcement of the said writ. The challenge of the execution of the
aforesaid compromise judgment even reached the Supreme Court. All these efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in Mabalacat, Pampanga were auctioned. In the said auction, Riverland,
Inc. was the highest bidder for P12 million and it was issued a Certificate of Sale covering the real properties subject of the auction
sale. Subsequently, another auction sale was held on February 8, 1995, for the sale of real properties of petitioner in Bacolod City.
Again, Riverland, Inc. was the highest bidder. The Certificates of Sale issued for both properties provided for the right of redemption
within one year from the date of registration of the said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for Declaratory Relief and Damages alleging that there was delay on
the part of petitioner in paying the balance of P13 million.
Issues:
a)W/N the CA committed reversible error when it awarded legal interest in favor of the respondents notwithstanding the fact that
neither in the compromise agreement nor in the compromise of judgment by the judge provides for payment of interest to the
respondent?
b)W/N the CA erred in awarding legal interest to the respondents although the obligation of the petitioner to the respondent is to pay
a sum of money that had been converted into an obligation to pay in kind?
c)W/N respondents are barred from demanding payment of interest by reason of the waiver provision in the compromise agreement,
which became the law among the parties.
Held:
On October 4, 1996, the trial court rendered a Decision dismissing the respondents' complaint and ordering them to pay attorney's
fees and exemplary damages to petitioner. Respondents then appealed to the Court of Appeals.
The only issue to be resolved is whether the respondents are entitled to legal interest.
The appellate court reversed the ruling of the trial court: WHEREFORE, finding merit in the appeal, the appealed Decision is hereby
REVERSED and judgment is hereby rendered ordering appellee SVHFI to pay appellants Santos and Riverland, Inc.: (1) legal
interest on the principal amount of P13 million at the rate of 12% per annum from the date of demand on October 28, 1992 up to the
date of actual payment of the whole obligation; and (2) P20,000 as attorney's fees and costs of suit. SO ORDERED.
Delay
Delay as used in this article is synonymous to default or mora which means delay in the fulfillment of obligations. It is the non-
fulfillment of the obligation with respect to time. In the case at bar, the obligation was already due and demandable after the lapse of
the two-year period from the execution of the contract. The two-year period ended on October 26, 1992. When the respondents
gave a demand letter on October 28, 1992, to the petitioner, the obligation was already due and demandable. Furthermore, the
obligation is liquidated because the debtor knows precisely how much he is to pay and when he is to pay it.
The petition lacks merit
In the case at bar, the Compromise Agreement was entered into by the parties on October 26, 1990. It was judicially approved on
September 30, 1991. Applying existing jurisprudence, the compromise agreement as a consensual contract became binding
between the parties upon its execution and not upon its court approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligations of the parties thereto. The purpose of the compromise is precisely to replace and
terminate controverted claims.
As to the remaining P13 million, the terms and conditions of the compromise agreement are clear and unambiguous. It provides that
the balance of P13 Million shall be paid, whether in one lump sum or in installments, at the discretion of the Foundation, within a
period of not more than two (2) years from the execution of this agreement.
WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 30, 2002 of the Court of Appeals and its April
12, 2002 Resolution in CA-G.R. CV No. 55122 are AFFIRMED. Costs against petitioner. SO ORDERED
Posted by Chester Cabalza at 12:44 PM
Gilat Satellite vs. United Coconut Digest
G.R. No. 189563 : April 7, 2014
GILAT SATELLITE NETWORKS LTD., Petitioner, v. UNITED COCONUT PLANTERS BANK GENERAL
INSURANCE CO., INC., Respondent.
SERENO, C.J.:
FACTS:
On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment,
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 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. 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, the surety issued, with One Virtuals 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 to the surety bond, prompting GILAT to write the surety
defendant UCPB on June 5, 2000, a demand letter 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 installment date of 30 November 2000 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 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.
On 24 April 2002, petitioner Gilat Satellite Networks, Ltd., filed a Complaint 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 for the plaintiff.
On 18 October 2007, respondent appealed to the CA. The appellate dismissed the case for lack of jurisdiction.
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 Resolution issued by the CA on 16 September 2009.
ISSUES: 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.
HELD:
CIVIL LAW: suretyship agreement
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. This referral, however, can only be demanded by one who is a party to the arbitration
agreement. Considering that neither petitioner nor One Virtual has asked for a referral, there is no basis for the CAs
order to arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that the creditor may proceed against the surety
without having first sued the principal debtor. Even the Surety Agreement itself states that respondent becomes liable
upon mere failure of the Principal to make such prompt payment. Thus, petitioner should not be ordered to make a
separate claim against One Virtual (via arbitration) before proceeding against respondent.
On the other hand, respondent maintains that a surety contract is merely an accessory contract, which cannot exist
without a valid obligation. Thus, the surety may avail itself of all the defenses available to the principal debtor and
inherent in the debt 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 suretys 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.
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. 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. Thus, a surety is not entitled to a
separate notice of default or to the benefit of excussion. It may in fact be sued separately or together with the
principal debtor.
After a thorough examination of the pieces of evidence presented by both parties, 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, triggering respondents liability to petitioner as the formers surety. 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 respondents 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., that the acceptance of a surety
agreement, however, does not change in any material way the creditors 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 suretys role arises only upon the debtors
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. An arbitration agreement
being contractual in nature, it is binding only on the parties thereto, as well as their assigns and heirs.
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. They are contracted precisely to
mitigate risks of nonperformance on the part of the obligor. This responsibility necessarily places a surety on the
same level as that of the principal debtor. 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. 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, 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.
CIVIL LAW: interest; delay
Interest, as a form of indemnity, may be awarded to a creditor for the delay incurred by a debtor in the payment of the
latters 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 latters delay in discharging its monetary obligation. Citing Article 1169 of the Civil Code, petitioner
insists that the delay started to run from the time it demanded the fulfilment of respondents 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 petitioners last demand on 24 January 2001.
In rejecting petitioners 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. In this case, respondents 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: if 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. Delay, as used in Article 1169, is synonymous with default or mora, which
means delay in the fulfilment of obligations. 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.
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. The increased liability is not because of the contract, but because of the
default and the necessity of judicial collection.
However, for delay to merit interest, it must be inexcusable in nature.
In Guanio v. Makati-Shangri-la Hotel, citing RCPI v. Verchez, we held thus:
In culpa contractual 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 or of the attendance of fortuitous event, to excuse him from
his ensuing liability.
We agree with petitioner that records are bereft of proof to show that respondents delay was indeed justified by the
circumstances that is, One Virtuals advice regarding petitioners alleged breach of obligations. The lower courts
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.
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.
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. 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,
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.
GRANTED.
at April 06, 2014
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