comm (insurance case digests)

7/28/2019 Comm (Insurance Case Digests)

1/12

Vda. de Maglana vs. Consolacion [GR 60506, 6 August 1992]Third Division, Romero (J): 3 concur

Facts:Lope Maglana was an employee of the Bureau of Customs whose work station was atLasa, in DavaoCity. On 20 December 1978, early morning, Lope Maglana was on hisway to his work station, driving amotorcycle owned by the Bureau of Customs. AtKm. 7, Lanang, he met an accident that resulted in his death.He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated andownedby Destrajo. From the investigation conducted by the traffic investigator,the PUJ jeep was overtaking anotherpassenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of Destrajo runningabreast with theovertaken jeep, bumped the motorcycle driven by the deceased who was going towards thedirection of Lasa, Davao City. The point of impact was on the lane of themotorcycle and the deceased wasthrown from the road and met his untimely death.Consequently, the heirs of Lope Maglana, Sr., filed anaction for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation(AFISCO) before the then Court of First Instance of Davao, Branch II. An information for homicide thrureckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into wassentenced to suffer an indeterminate penalty of 1 year, 8 months and 1 day of prision correccional, asminimum,to 4 years, 9 months and 11 days of prision correcional, as maximum, with all the accessorypenalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 withsubsidiary imprisonment in case of insolve

ncy, plus P5,000.00 in the concept of moral and exemplarydamages with costs. Noappeal was interposed by the accused who later applied for probation. On 14December 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficientdiligence as the operator of the jeepney. The court ordered Destrajo to pay the heirs of Maglana the sum ofP28,000.00 for loss of income; the sum of P12,000.00 which amount shall be deducted in the event judgmentin CriminalCase 3527-D against the driver, accused Into, shall have been enforced; the sumof P5,901.70representing funeral and burial expenses of the deceased; the sum ofP5,000.00 as moral damages which shallbe deducted in the event judgment (sic) in Criminal Case 3527-D against the driver, accused Into; the sum ofP3,000.00 asattorney's fees and to pay the costs of suit. The court ordered the insurance company is ordered to reimburse Destrajo whatever amounts the latter shall have paid only up to the extent of its insurancecoverage. The heirs of Maglana filed a

motion for the reconsideration of the second paragraph of thedispositive portionof the decision contending that AFISCO should not merely be held secondarily liablebecause the Insurance Code provides that the insurer's liability is "directand primary and/or jointly andseverally with the operator of the vehicle, although only up to the extent of the insurance coverage." In itsOrder of February 9,1982, the lower court denied the motion for reconsideration ruling that since theinsurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to theextent of the insurance coverage." The heirs filed a second motion for reconsideration reiterating that theliability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners becamedirect beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. This motionwas likewise denied for lack ofmerit. The heirs filed the petition for certiorari.

Issue [1]:Whether AFISCO is primarily liable, not secondarily liable, on the insurance policy.

Held [1]:The particular provision of the insurance policy on which the heirs base their claim provides"SECTION 1 LIABILITY TO THE PUBLIC 1. The Company will, subject tothe Limits of Liability, payall sums necessary to discharge liability of the insured in respect of. (a) death of or bodily injury to anyTHIRD PARTY; xxx 3. In t


2/12

he event of the death of any person entitled to indemnity under this Policy, theCompany will, in respect of the liability incurred to such person indemnify hispersonal representatives interms of, and subject to the terms and conditions hereof." The above-quoted provision leads to no otherconclusion but that AFISCO canbe held directly liable by the heirs. As the Court ruled in Shafer vs. Judge,RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer'sliability accrues immediately upon the occurrence of the injury or event upon which the liability depends, anddoes not depend on the recovery of judgment by the injured party against the insured." The underlying reasonbehind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protectinjured persons against the insolvency of the insured who causes such injury, and to give such injured persona certain beneficial interest in the proceeds of the policy." Since the heirs had received from AFISCOthe sumof P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00.

Issue [2]:Whether AFISCO is solidarily liable with Destrajo.

Held [2]:NO. In Malayan Insurance Co., Inc. v. Court of Appeals, the Court had the opportunity to resolvethe issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in anaccident, where it ruled that"While it is true that where the insurance contract provides for indemnity again

stliability to third persons, such third persons can directly sue the insurer, however, the direct liability of theinsurer under indemnity contracts against third party liability does not mean that the insurer can be heldsolidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based oncontract; that of the insured is based on tort." The Court thenproceeded to distinguish the extent of theliability and manner of enforcing thesame in ordinary contracts from that of insurance contracts. While insolidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in aninsurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage orliability arising from an unknown or contingent event." Herein, the heirs cannot validly claim that AFISCO,whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo forthe total amount of P53,901.70 in accordance with t

he decision of the lower court. Since under both the lawand the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositiveportion of the decision in question may have unwittingly sown confusion among the heirs and their counsel.What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under theexplicit terms of theinsurance contract. The liability of AFISCO based on the insurance contract is direct, butnot solidary with that of Destrajo which is based on Article 2180 of the Civil Code. As such, the heirs havethe option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Guingon v. Del Monte, 20 SCRA 1043 (1967)G.R. No. L-22042 August 17, 1967

FACTS:

Julio Aguilar owner and operator of several jeepneys insured them with Capital Insurance & Surety Co., Inc.

February 20, 1961: Along the intersection of Juan Luna and Moro streets, City of Manila, the jeepneys operated by Aguilar driven by Iluminado del Monte andGervacio Guingon bumped and Guingon died some days after


3/12

Iluminado del Monte was charged with homicide thru reckless imprudence and was penalized 4 months imprisonment

The heirs of Gervacio Guingon filed an action for damages praying that P82,771.80 be paid to them jointly and severally by the driver del Monte, owner and operator Aguilar, and the Capital Insurance & Surety Co., Inc.

CFI: Iluminado del Monte and Julio Aguilar jointly and severally to pay plaintiffs the sum of P8,572.95 as damages for the death of their father, plus P1,000.00 for attorney's fees plus costs

Capital Insurance and Surety Co., Inc. is hereby sentenced to pay P5,000plus P500 as attorney's fees and costs to be applied in partial satisfaction ofthe judgment rendered against Iluminado del Monte and Julio Aguilar in this case

ISSUE:1. W/N there a stipulation pour autriu to enable that will enable the heirs to sue against Capital Insurance and Surety Co., Inc.? - YES2. W/N the heirs can sue the insurer and insured jointly? - YES

HELD: Affirmed in toto.

1. YES

policy: the insurer agreed to indemnify the insured "against all sums . . .which the Insured shall become legally liable to pay in respect of: a. death of

or bodily injury to any person . . . ." - indemnity against liabilityTEST: Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, CAN sue the insurer. Where the contract is for indemnity against actual loss or payment, then third persons CANNOT proceed against the insurer, the contract being solely to reimbursethe insured for liability actually discharged by him thru payment to third persons, said third persons' recourse being thus limited to the insured alone.

2. YES

policy: expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter's liability

no action close: suit and final judgment be first obtained against the i

nsured; that only "thereafter" can the person injured recover on the policySec. 5 of Rule 2 on "Joinder of causes of action" and Sec. 6 of Rule 3 on "Permissive joinder of parties" cannot be superseded, at least with respect to third persons not a party to the contract, as herein, by a "no action" clause in the contract of insurance.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Fortune Insurance and Surety Co. Inc. vs. Court of Appeals [GR 115278, 23 May 1995]First Division, Davide Jr (J): 2 concur, 1 took no part, 1 on leave

Facts:Producers Bank of the Philippines was insured by the Fortune Insurance and Suret

y Co. Inc. and aninsurance policy was issued. An armored car of Producers, whilein the process of transferring cash in the sumof P725,000.00 under the custodyof its teller, Maribeth Alampay, from its Pasay Branch to its Head Office at8737Paseo de Roxas, Makati, Metro Manila on 29 June 1987, was robbed of the said cash. The robbery tookplace while the armored car was traveling along Taft Avenuein Pasay City. The said armored car was drivenby Benjamin Magalong y de Vera, escorted by Security Guard Saturnino Atiga y Rosete. Driver Magalongwas assigned by PRC Management Systems with Producers by virtue of an Agreement executed on 7August1983. The Security Guard Atiga was assigned by Unicorn Security Services,Inc. with Producers by virtue ofa contract of Security Service executed on 25 Oc


4/12

tober 1982. After an investigation conducted by the Pasaypolice authorities, thedriver Magalong and guard Atiga were charged, together with Edelmer Bantigue YEulalio, Reynaldo Aquino and John Doe, with violation of PD 532 (Anti-Highway Robbery Law) before theFiscal of Pasay City. The Fiscal of Pasay City then filed aninformation charging the aforesaid persons withthe said crime before Branch 112of the Regional Trial Court of Pasay City. The case is still being tried as ofthe date of filing of the present case. Demands were made by Producers upon Fortune to pay the amount ofthe loss of P725,000.00, but the latter refused to pay asthe loss is excluded from the coverage of theinsurance policy, specifically under page 1 thereof, "General Exceptions" Section (b), and which reads asfollows:"GENERAL EXCEPTIONS The company shall not be liable under this policy in respectof xxx (b)any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner,director, trustee or authorized representative of the Insured whether acting alone or in conjunction withothers..." Producers opposed the contention of Fortune and contended that Atiga and Magalong are not its"officer, employee, trustee or authorized representative at the time of the robbery. On 26 April 1990, the trialcourt rendered its decision in favor of Producers. It ordered Fortune to pay Producers the net amount ofP540,000.00 asliability under Policy 0207 (as mitigated by the P40,000.00 special clause deduction and bythe recovered sum of P145,000.00), with interest thereon at the legal rate, until fully paid; the sum ofP30,000.00 as and for attorney's fees; and to pay the costs of suit. Fortune appealed this decision to the Courtof Appeals (CA-GR CV 32946). In its decision promulgated on 3 May 1994, it affirmed in totothe appealeddecision. On 20 June 1994, Fortune filed the petition for review on

certiorari.

Issue:Whether Fortune is liable under the Money, Security, and Payroll Robbery policyit issued to the issuedto Producers or whether recovery thereunder is precludedunder the general exceptions clause thereof.

Held:It should be noted that the insurance policy entered into by the parties is a theft or robbery insurancepolicy which is a form of casualty insurance. Section 174 of the Insurance Code provides that "Casualtyinsurance is insurance covering loss or liability arising from accident or mishap, excluding certain types oflosswhich by law or custom are considered as falling exclusively within the scope o

f insurance such as fire ormarine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident andhealthinsurance as written by non-life insurance companies, and other substantially similar kinds of insurance."Except with respect to compulsory motor vehicleliability insurance, the Insurance Code contains no otherprovisions applicableto casualty insurance or to robbery insurance in particular. These contracts are,therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rightsand obligations of the parties must be determined by the terms of their contract, taking into consideration itspurpose and always in accordance with the general principles of insurance law. It has been aptlyobserved thatin burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is sogreat that insurers have found it necessa

ry to fill up their policies with countless restrictions, many designedto reducethis hazard. Seldom does the insurer assume the risk of all losses due to the hazards insuredagainst." Persons frequently excluded under such provisions are those in the insured's service andemployment. The purpose of the exception is to guard against liability should the theft be committed by onehaving unrestricted access to the property." In such cases, the terms specifying the excluded classesare to begiven their meaning as understood in common speech. The terms "service" and "employment" are generallyassociated with the idea of selection, control,and compensation. A contract of insurance is a contract ofadhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed


5/12


6/12

BACKGROUND FACTS

Grand Textile is a local manufacturing corporation. In 1974, it imported from different countries various articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse No. 462. As computed by the Bureau of Customs, the customs duties, internal revenue taxes, and other charges due on the importations amounted to P2,363,147.00. To secure the paymentof these obligations pursuant to Section 1904 of the Tariff and Customs Code (Code),4 Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These bonds, the terms of which are fully quoted below,commonly provide that the goods shall be withdrawn from the bonded warehouse "on payment of the legal customs duties, internal revenue, and other charges to which they shall then be subject."5

Without payment of the taxes, customs duties, and charges due and for purposes of domestic consumption, Grand Textile withdrew the imported goods from storage.6The Bureau of Customs demanded payment of the amounts due from Grand Textile asimporter, and from Intra-Strata and PhilHome as sureties. All three failed to pay. The government responded on January 14, 1983 by filing a collection suit against the parties with the RTC of Manila.

LOWER COURT DECISIONS

After hearing, the RTC rendered its January 4, 1995 decision finding Grand Textile (as importer) and the petitioners (as sureties) liable for the taxes, duties,and charges due on the imported articles. The dispositive portion of this decision states: 7

WHEREFORE, premises considered, the Court RESOLVES directing:

(1) the defendant Grand Textile Manufacturing Corporation to pay plaintiff, thesum of P2,363,174.00, plus interests at the legal rate from the filing of the Complaint until fully paid;

(2) the defendant Intra-Strata Assurance Corporation to pay plaintiff, jointly and severally, with defendant Grand, the sum of P2,319,211.00 plus interest fromthe filing of the Complaint until fully paid; and the defendant Philippine HomeAssurance Corporation to pay plaintiff the sum of P43,936.00 plus interests to be computed from the filing of the Complaint until fully paid;

(3) the forfeiture of all the General Warehousing Bonds executed by Intra-Strataand PhilHome; and

(4) all the defendants to pay the costs of suit.

SO ORDERED.

The CA fully affirmed the RTC decision in its decision dated November 26, 2002.From this CA decision, the petitioners now come before this Court through a petition for review on certiorari alleging that the CA decided the presented legal questions in a way not in accord with the law and with the applicable jurisprudence.

ASSIGNED ERRORS

The petitioners present the following points as the conclusions the CA should have made:


7/12

1. that they were released from their obligations under their bonds when Grand Textile withdrew the imported goods without payment of taxes, duties, and other charges; and

2. that their non-involvement in the active handling of the warehoused items from the time they were stored up to their withdrawals substantially increased therisks they assumed under the bonds they issued, thereby releasing them from liabilities under these bonds.8

In their arguments, they essentially pose the legal issue of whether the withdrawal of the stored goods, wares, and merchandise without notice to them as sureties released them from any liability for the duties, taxes, and charges they committed to pay under the bonds they issued. They additionally posit that they should be released from any liability because the Bureau of Customs, through the fault or negligence of its employees, allowed the withdrawal of the goods without the payment of the duties, taxes, and other charges due.

The respondent, through the Solicitor General, maintains the opposite view.

THE COURTS RULING

We find no merit in the petition and consequently affirm the CA decision.

Nature of the Suretys Obligations

Section 175 of the Insurance Code defines a contract of suretyship as an agreement whereby a party called the surety guarantees the performance by another partycalled the principal or obligor of an obligation or undertaking in favor of another party called the obligee, and includes among its various species bonds suchas those issued pursuant to Section 1904 of the Code.9 Significantly, "pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract ofsuretyship."10 By its very nature under the terms of the laws regulating suretyship, the liability of the surety is joint and several but limited to the amountof the bond, and its terms are determined strictly by the terms of the contractof suretyship in relation to the principal contract between the obligor and the

obligee.11

The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor although he possessesno direct or personal interest over the latters obligations and does not receiveany benefit therefrom.12

The Bonds Under Consideration

That the bonds under consideration are surety bonds (and hence are governed by the above laws and rules) is not disputed; the petitioners merely assert that they should not be liable for the reasons summarized above. Two elements, both affecting the suretyship agreement, are material in the issues the petitioners pose.The first is the effect of the law on the suretyship agreement; the terms of the suretyship agreement constitute the second.

A feature of the petitioners bonds, not stated expressly in the bonds themselvesbut one that is true in every contract, is that applicable laws form part of and


8/12

are read into the contract without need for any express reference. This featureproceeds from Article 1306 of the Civil Code pursuant to which we had occasionto rule:

It is to be recognized that a large degree of autonomy is accorded the contracting parties. Not that it is unfettered. They may, according to Article 1306 of the Civil Code "establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that they are not contrary to law, morals, goodcustoms, public order, or public policy." The law thus sets limits. It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied therein. Thecontracting parties need not repeat them. They do not even have to be referred to. Every contract thus contains not only what has been explicitly stipulated butalso the statutory provisions that have any bearing on the matter."13

Two of the applicable laws, principally pertaining to the importer, are Sections101 and 1204 of the Tariff and Customs Code which provide that:

Sec 101. Imported Items Subject to Duty All articles when imported from any foreign country into the Philippines shall be subject to duty upon such importationeven though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in clear laws.

x x x x

Sec. 1204. Liability of Importer for Duties Unless relieved by laws or regulations, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due from the importer to the government whichcan be discharged only by payment in full of all duties, taxes, fees, and othercharges legally accruing. It also constitutes a lien upon the articles importedwhich may be enforced which such articles are in custody or subject to the control of the government.

The obligation to pay, principally by the importer, is shared by the latter witha willing third party under a suretyship agreement under Section 1904 of the Code which itself provides:

Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond After articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other charges shall have been determined, theCollector shall require from the importer, an irrevocable domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, andother charges conditioned upon the withdrawal of the articles within the periodprescribed by Section 1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then be subject and upon compliancewith all legal requirements regarding their importation.

We point these out to stress the legal basis for the submission of the petitioners bonds and the conditions attaching to these bonds. As heretofore mentioned, there is, firstly, a principal obligation belonging to the importer-obligor as pro

vided under Section 101; secondly, there is an accessory obligation, assumed bythe sureties pursuant to Section 1904 which, by the nature of a surety agreement, directly, primarily, and equally bind them to the obligee to pay the obligors obligation.

The second element to consider in a suretyship agreement relates to the terms ofthe bonds themselves, under the rule that the terms of the suretyship are determined by the suretyship contract itself.14 The General Warehousing Bond15 that is at the core of the present dispute provides:


9/12

KNOW ALL MEN BY THESE PRESENTS:

That I/we GRAND TEXTILE MANUFACTURING CORPORATION Km. 21, Marilao, Bulacan,as Principal, and PHILIPPINE HOME ASSURANCE as the latter being a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, are held and firmly bound unto the Republic of the Philippines, in the sum of PESOS TWO MILLION ONLY (P2,000,000.00), Philippine Currency, tobe paid to the Republic of the Philippines, for the payment whereof, we bind ourselves, our heirs, executors, administrators and assigns, jointly and severally,firmly by these presents:

WHEREAS, the above-bounden Principal will from time to time make applicationto make entry for storing in customs-internal revenue bonded warehouse certaingoods, wares, and merchandise, subject to customs duties and special import taxor internal revenue taxes or both;

WHEREAS, the above principal in making application for storing merchandise in customs-internal revenue bonded warehouse as above stated, will file this in his name as principal, which bond shall be approved by the Collector of Customs or his Deputy; and

WHEREAS, the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of thisbond.

NOW THEREFORE, the condition of this obligation is such that if within six (6) months from the date of arrival of the importing vessel in any case, the goods, wares, and merchandise shall be regularly and lawfully withdrawn from publicstores or bonded warehouse on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall then be subject; or if at any time within six (6) months from the said date of arrival, or within nine (9) months if the time is extended for a period of three (3) months, as provided in Section 1903 of the Tariff and Customs Code of the Philippines, said importation shall be so withdrawn for consumption, then the above obligation shall be void, otherwise, to remain in full force and effect.

Obligations hereunder may only be accepted during the calendar year 1974 and

the right to reserve by the corresponding Collector of Customs to refuse to accept further liabilities under this general bond, whenever, in his opinion, conditions warrant doing so.

IN WITNESS WHEREOF, we have signed our names and affixed our seals on this 20th day of September, 1974 at Makati, Rizal, Philippines.

Considered in relation with the underlying laws that are deemed read into thesebonds, it is at once clear that the bonds shall subsist that is, "shall remain in full force and effect" unless the imported articles are "regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes,and other charges to which they shall be subject." Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principa

l Grand Textile; it was allowed to warehouse the imported articles without needfor prior payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, andcharges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties liability, except to signal boththe principals default and the elevation to a due and demandable status of the sureties solidary obligation to pay. Under the bonds plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew


10/12

the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges?

We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changesthe legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effectof making its obligation more onerous.16

We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is on the part of the importer, to pay the customs duties,taxes, and charges due on the importation, and on the part of the sureties, tobe solidarily bound to the payment of the amounts due on the imported goods upontheir withdrawal or upon expiration of the given terms. The petitioners lack ofconsent to the withdrawal of the goods, if this is their complaint, is a matterbetween them and the principal Grand Textile; it is a matter outside the concern

of government whose interest as creditor-obligee in the importation transactionis the payment by the importer-obligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the sureties who arethere as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties solidary obligation that has become due and demandable. This matter is further and more fully explored below.

The Need for Notice to Bondsmen

To support the conclusion that they should be released from the bonds they issued, the petitioners argue that upon the issuance and acceptance of the bonds, they became direct parties to the bonded transaction entitled to participate and actively intervene, as sureties, in the handling of the imported articles; that, a

s sureties, they are entitled to notice of any act of the bond obligee and of the bond principal that would affect the risks secured by the bond; and that otherwise, the door becomes wide open for possible fraudulent conspiracy between thebond obligee and principal to defraud the surety.17

In taking these positions, the petitioners appear to misconstrue the nature of asurety relationship, particularly the fact that two types of relationships areinvolved, that is, the underlying principal relationship between the creditor (government) and the debtor (importer), and the accessory surety relationship whereby the surety binds itself, for a consideration paid by the debtor, to be jointly and solidarily liable to the creditor for the debtors default. The creditor inthis latter relationship accepts the suretys solidary undertaking to pay if thedebtor does not pay.18 Such acceptance, 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. The contractof surety simply gives rise to an obligation on the part of the surety in relation with the creditor and is a one-way relationship for the benefit of the latter.19

In other words, the surety does not, by reason of the surety agreement, earn theright to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is mad


11/12

e principally for the benefit of the creditor-obligee and this is ensured by thesolidary nature of the sureties undertaking.20 Under these terms, the surety isnot entitled as a rule to a separate notice of default,21 nor to the benefit ofexcussion,22 and may be sued separately or together with the principal debtor.23The words of this Court in Palmares v. CA24 are worth noting:

Demand on the surety is not necessary before bringing the suit against them. Onthis point, it may be worth mentioning that a surety is not even entitled, as amatter of right, to be given notice of the principals default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The suretyis bound to take notice of the principals default and to perform the obligation.He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship.

Significantly, nowhere in the petitioners bonds does it state that prior notice is required to fix the sureties liabilities. Without such express requirement, thecreditors right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filingof the collection suit was sufficient notice to the sureties of their principalsdefault.

The petitioners reliance on Visayan Surety and Insurance Corporation v. Pascual25

and Aguasin v. Velasquez26 does not appear to us to be well taken as these cases do not squarely apply to the present case. These cases relate to bonds issuedas a requirement for the issuance of writs of replevin. The Rules of Court expressly require that before damages can be claimed against such bonds, notice mustbe given to the sureties to bind them to the award of damages. No such requirement is evident in this case as neither the Tariff and Customs Code nor the issuedbonds require prior notice to sureties.

The petitioners argument focusing on the additional risks they incur if they cannot intervene in the handling of the warehoused articles must perforce fail in light of what we have said above regarding the nature of their obligation as sureties and the relationships among the parties where a surety agreement exists. Weadd that the petitioners have effectively waived as against the creditor (the go

vernment) any such claim in light of the provision of the bond that "the suretyhereon agrees to accept all responsibility jointly and severally for the acts ofthe principal done in accordance with the terms of this bond."27 Any such claimincluding those arising from the withdrawal of the warehoused articles withoutthe payment of the requisite duties, taxes and charges is for the principal andthe sureties to thresh out between or among themselves.

Government is Not Bound by Estoppel

As its final point, the petitioners argue that they cannot be held liable for the unpaid customs duties, taxes, and other charges because it is the Bureau of Customs duty to ensure that the duties and taxes are paid before the imported goodsare released from its custody and they cannot be made to pay for the error or n

egligence of the Bureaus employees in authorizing the unlawful and irregular withdrawal of the goods.

It has long been a settled rule that the government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or anyof its agencies arising from unauthorized or illegal acts of public officers.28This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents.29 In CIR v. CTA,30 we pointedly said:


12/12

It is axiomatic that the government cannot and must not be estopped particularlyin matters involving taxes.lawphi1 Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary hindrance or delay.

We see no reason to deviate from this rule and we shall not do so now.

WHEREFORE, premises considered, we hereby DENY the petition and AFFIRM the Decision of the Court of Appeals. Costs against the petitioners.

SO ORDERED.

ARTURO D. BRIONAssociate Justice~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

comm (insurance case digests)

Documents