STRONGHOLD INSURANCE G.R. No. 147561
COMPANY, INC.,
Petitioner, Present:
Panganiban,
CJ,
Chairman,
- versus - Ynares-Santiago,
Austria-Martinez,
Callejo, Sr., and
Chico-Nazario, JJ
REPUBLIC-ASAHI GLASS Promulgated:
CORPORATION,
Respondent. June 22, 2006
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PANGANIBAN, CJ:
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surety company’s liability under the
performance bond it issues is solidary.
The death of the principal obligor does not, as a rule, extinguish the
obligation and the solidary nature of that liability.
The Case
Before us
is a Petition for Review[1]
under Rule 45 of the Rules of Court, seeking to reverse the March 13, 2001
Decision[2] of
the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed Decision disposed as follows:
“WHEREFORE, the Order dated
The Facts
The facts of the case are narrated by
the CA in this wise:
“On P5,300,000.00) inclusive of value added tax for said
construction, which was supposed to be completed within a period of two hundred
forty (240) days beginning May 8, 1989.
In order ‘to guarantee the faithful and satisfactory performance of its
undertakings’ x x x JDS, shall post a performance bond of seven hundred ninety
five thousand pesos (P795,000.00).
x x x JDS executed, jointly and severally with [petitioner] Stronghold
Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769.
“On
May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand
pesos (P795,000.00) by way of downpayment.
“Two
progress billings dated August 14, 1989 and September 15, 1989, for the total
amount of two hundred seventy four thousand six hundred twenty one pesos and
one centavo (P274,621.01) were submitted by x x x JDS to [respondent],
which the latter paid. According to [respondent],
these two progress billings accounted for only 7.301% of the work supposed to
be undertaken by x x x JDS under the terms of the contract.
“Several
times prior to November of 1989, [respondent’s] engineers called the attention
of x x x JDS to the alleged alarmingly slow pace of the construction, which
resulted in the fear that the construction will not be finished within the
stipulated 240-day period. However, said
reminders went unheeded by x x x JDS.
“On
November 24, 1989, dissatisfied with the progress of the work undertaken by x x
x JDS, [respondent] Republic-Asahi extrajudicially rescinded the contract
pursuant to Article XIII of said contract, and wrote a letter to x x x JDS
informing the latter of such rescission.
Such rescission, according to Article XV of the contract shall not be
construed as a waiver of [respondent’s] right to recover damages from x x x JDS
and the latter’s sureties.
“[Respondent]
alleged that, as a result of x x x JDS’s failure to comply with the provisions
of the contract, which resulted in the said contract’s rescission, it had to
hire another contractor to finish the project, for which it incurred an
additional expense of three million two hundred fifty six thousand, eight
hundred seventy four pesos (P3,256,874.00).
“On P795,000.00. On
“[Respondent]
then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment of P3,256,874.00
representing the additional expenses incurred by [respondent] for the
completion of the project using another contractor, and from x x x JDS and
SICI, jointly and severally, payment of P750,000.00 as damages in
accordance with the performance bond; exemplary damages in the amount of P100,000.00
and attorney’s fees in the amount of at least P100,000.00.
“According
to the Sheriff’s Return dated
“On P795,000.00 had no factual and
legal basis, as payment of said bond was conditioned on the payment of damages
which [respondent] may sustain in the event x x x JDS failed to complete the
contracted works. [Respondent] can no
longer prove its claim for damages in view of the death of P59,750.00 as attorney’s fees, and P5,000.00 as
litigation expenses.
“On
‘ACCORDINGLY,
the complaint against the defendants Jose D. Santos, Jr., doing business under
trade and style, ‘JDS Construction’ and Stronghold Insurance Company, Inc. is
ordered DISMISSED.
‘SO
ORDERED.’
“On
‘WHEREFORE,
premises considered, the Motion for Reconsideration is hereby given due
course. The Order dated
‘Motion
for Preliminary hearing and Manifestation with Motion filed by [Stronghold]
Insurance Company Inc., are set for hearing on
‘SO
ORDERED.’
“On
“On
January 28, 1993, the lower court issued the assailed Order reconsidering its
Order dated October 15, 1991, and ordered the case, insofar as SICI is
concerned, dismissed. [Respondent] filed
its motion for reconsideration which was opposed by [petitioner] SICI. On
Ruling of the
Court of Appeals
The CA ruled that SICI’s obligation
under the surety agreement was not extinguished by the death of Jose D. Santos,
Jr. Consequently, Republic-Asahi could
still go after SICI for the bond.
The appellate court also found that
the lower court had erred in pronouncing that the performance of the Contract
in question had become impossible by respondent’s act of rescission. The Contract was rescinded because of the
dissatisfaction of respondent with the slow pace of work and pursuant to
Article XIII of its Contract with JDS.
The CA ruled that “[p]erformance of
the [C]ontract was impossible, not because of [respondent’s] fault, but because
of the fault of JDS Construction and Jose D. Santos, Jr. for failure on their
part to make satisfactory progress on the project, which amounted to
non-performance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI
is liable for the non-performance of said [C]ontract on the part of JDS
Construction.”[5]
Hence,
this Petition.[6]
Issue
Petitioner states the issue for the
Court’s consideration in the following manner:
“Death
is a defense of
More precisely, the issue is whether
petitioner’s liability under the performance bond was automatically
extinguished by the death of
The Court’s
Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the
Surety’s Liability
Petitioner contends that the death of
As a general rule, the death of either the creditor or the debtor
does not extinguish the obligation.[8] Obligations are transmissible to the heirs,
except when the transmission is prevented by the law, the stipulations of the
parties, or the nature of the obligation.[9] Only obligations that are personal[10] or are
identified with the persons themselves are extinguished by death.[11]
Section 5 of Rule 86[12] of the
Rules of Court expressly allows the prosecution of money claims arising from a
contract against the estate of a deceased debtor. Evidently, those claims are not actually
extinguished.[13] What is extinguished is only the obligee’s action or suit filed before
the court, which is not then acting as a probate court.[14]
In the present case, whatever monetary liabilities or obligations
The liability of
petitioner is contractual in nature, because it executed a performance bond
worded as follows:
“KNOW ALL MEN BY THESE
PRESENTS:
“That we, JDS CONSTRUCTION of 208-A
San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD
INSURANCE COMPANY, INC. a corporation duly organized and existing under and by
virtue of the laws of the Philippines with head office at Makati, as Surety,
are held and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any
individual, firm, partnership, corporation or association supplying the
principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE
THOUSAND (P795,000.00), Philippine Currency, for the payment of which
sum, well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally, firmly by these
presents.
“The CONDITIONS OF
THIS OBLIGATION are as follows;
“WHEREAS the above bounden principal
on the ___ day of __________, 19__ entered into a contract with the REPUBLIC
ASAHI GLASS CORPORATION represented by _________________, to fully and
faithfully. Comply with the site preparation works road and drainage system of
Philippine Float Plant at Pinagbuhatan,
“WHEREAS, the liability of the Surety
Company under this bond shall in no case exceed the sum of PESOS SEVEN HUNDRED
NINETY FIVE THOUSAND (P795,000.00) Philippine Currency, inclusive of
interest, attorney’s fee, and other damages, and shall not be liable for any
advances of the obligee to the principal.
“WHEREAS, said contract requires the
said principal to give a good and sufficient bond in the above-stated sum to
secure the full and faithfull performance on its part of said contract, and the
satisfaction of obligations for materials used and labor employed upon the work;
“NOW THEREFORE, if the principal shall
perform well and truly and fulfill all the undertakings, covenants, terms,
conditions, and agreements of said contract during the original term of said
contract and any extension thereof that may be granted by the obligee, with
notice to the surety and during the life of any guaranty required under the
contract, and shall also perform well and truly and fulfill all the
undertakings, covenants, terms, conditions, and agreements of any and all duly
authorized modifications of said contract that may hereinafter be made, without
notice to the surety except when such modifications increase the contract
price; and such principal contractor or his or its sub-contractors shall
promptly make payment to any individual, firm, partnership, corporation or
association supplying the principal of its sub-contractors with labor and
materials in the prosecution of the work provided for in the said contract,
then, this obligation shall be null and void; otherwise it shall remain in full
force and effect. Any extension of the
period of time which may be granted by the obligee to the contractor shall be
considered as given, and any modifications of said contract shall be considered
as authorized, with the express consent of the Surety.
“The right of any individual, firm,
partnership, corporation or association supplying the contractor with labor or
materials for the prosecution of the work hereinbefore stated, to institute
action on the penal bond, pursuant to the provision of Act No. 3688, is hereby
acknowledge and confirmed.”[16]
As a surety,
petitioner is solidarily liable with
“Art. 2047. By guaranty
a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.
“If a person binds
himself solidarily with the principal debtor, the provisions of Section 4,[17]
Chapter 3, Title I of this Book shall be observed. In such case the contract is called a
suretyship.”
x x x x x x x x x
“Art. 1216. The creditor may proceed against any one of
the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not
be an obstacle to those which may subsequently be directed against the others,
so long as the debt has not been fully collected.”
Elucidating on these
provisions, the Court in Garcia v. Court
of Appeals[18]
stated thus:
“x
x x. The surety’s 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 promisee
of the principal is said to be direct, primary and absolute; in other words, he
is directly and equally bound with the
principal. x x x.”[19]
Under the law and
jurisprudence, respondent may sue, separately or together, the principal debtor
and the petitioner herein, 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, respondent may still sue petitioner
alone, in accordance with the solidary nature of the latter’s liability under
the performance bond.
WHEREFORE, the Petition is DENIED and the Decision of the Court
of Appeals AFFIRMED. Costs against
petitioner.
SO ORDERED.
ARTEMIO
V. PANGANIBAN
Chairman,
First Division
W E C O N C U R:
CONSUELO YNARES-SANTIAGO MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice Associate Justice
ROMEO J. CALLEJO, SR.
MINITA V. CHICO-NAZARIO
Associate Justice
Associate Justice
Pursuant
to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
[1] Rollo,
pp. 9-20.
[2]
[3] Assailed CA Decision, p. 14; rollo, p. 36.
[4]
[5]
[6] To
resolve old cases, the Court created the Committee on Zero Backlog of Cases on
[7] Petitioner’s
Memorandum, p. 6; rollo, p. 172. Original in uppercase.
[8] A.
Tolentino, Commentaries And
Jurisprudence On The Civil Code 272, Vol. IV (1991).
[9]
“Art.
1311. Contracts take effect only between
the parties, their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law.
The heir is not liable beyond the value of the property he received from
the decedent.”
[10] Examples
of purely personal actions are those for support, divorce, annulment of
marriage, legal separation (Lapuz Sy
v. Eufemio, 43 SCRA 177, January 31, 1972).
See also Javier Security Special
Watchman Agency v. Shell-Craft & Button Corp., 117 Phil. 218, January
31, 1963, for an illustration of a contract that is not transmissible by its
nature, as when the special or personal qualification of the obligor
constitutes one of the principal motives of the contract.
[11] A.
Tolentino, Commentaries And
Jurisprudence On The Civil Code, supra note 8.
[12] “SEC.
5. Claims which must be filed under
the notice. If not filed, barred;
exceptions.--All claims for money against the decedent, arising from
contract, express or implied, whether the same be due, not due, or contingent,
all claims for funeral expenses and expenses for the last sickness of the
decedent, and judgment for money against the decedent, must be filed within the
time limited in the notice; otherwise they are barred forever, except that they
may be set forth as counterclaims in any action that the executor or
administrator may bring against the claimants. x x x.”
[13] E. Paras, Rules Of Court Annotated 125,
Vol. 1 (1989).
[14]
[15] See
Limjoco v. Intestate of Fragante, 80
Phil. 776,
[16] Performance Bond; rollo, p. 69.
[17] This
refers to the Civil Code, Arts.
1207 to 1222.
[18] 191
SCRA 493,
[19]