Suretyship 1. PH Pryce Assurance v.

CA and Gegroco (1994)

A. Definition F: In 1988, respondent Gegroco Inc. filed a collection case
S2 (a): A contract of insurance is an agreement whereby for 1.5 Million from PH Pryce’s predecessor Interworld,
one undertakes for a consideration to indemnify another which issued 2 surety bonds for Sagum General
against loss, damage, or liability arising from an unknown Merchandise. In its Answer, Interworld’s defenses were
or contingent event. that checks issued by Sagum for the payment of premium
A contract of suretyship shall be deemed to be an bounced and thus, the suretyship did not materialize and
insurance contract only if made by a surety who or which, that in the event that it did, payment must first be sought
is doing an insurance business as hereinafter provided. from Sagum, and that when the bonds were issued,
(b): The term doing an insurance business or transacting an Interworld was not yet authorized by the Insurance
insurance business shall include: Commission to issue such. Upon pre-trial conference and
1) Making or proposing to make, as insurer, any insurance trial of the case, however, Interworld did not appear,
contract; hence, it was declared in default.
2) Making or proposing to make, as surety, any contract of On the strength of Gregroco’s ex-parte evidence, the RTC of
suretyship as a vocation and not as merely incidental to Makati ordered Interworld to pay 1.5 Million pesos and the
any other legitimate business or activity of the surety; CA affirmed (no explanation).
3) Doing any kind of business, including a reinsurance Issue: W/N the CA erred in ordering Interworld to pay
business, specifically recognized as constituting the doing Gregroco?
of an insurance business within the meaning of this Code; Held: NO. Under S177 of the Insurance Code, no contract of
4) Doing or proposing to do any business in substance suretyship shall be binding until payment of premium,
equivalent to any of the foregoing in a manner designed to except where the obligee has accepted the bond,
evade this Code. irrespective of whether or not the obligor has paid the
In the application of provisions of this Code, that no profit premium to the surety. In the instant case, Interworld
is derived from making of insurance contracts, agreements, admitted to have issued the bonds in its Answer. Also,
or transactions or that no separate or direct consideration Interworld’s defense that it was not authorized to issue
is received, shall not be deemed conclusive to show that said bonds is an admission of fraud from which it cannot
the making thereof does not constitute doing or claim any benefit. Lastly, Interworld’s belated defense that
transacting of an insurance business. Sagum did not receive the parts it purchased from
S177: A contract of suretyship is an agreement whereby a Gregroco is negated by invoices presented. CA AFFIRMED.
surety guarantees performance by a principal or obligor of
an obligation or undertaking in favor of a third party called D. Applicability of Civil Code
obligee. It includes official recognizances, stipulations, S180: Pertinent provisions of the Civil Code of the
bonds or undertakings issued by any company by virtue of Philippines shall be applied in a suppletory character
of Act No. 536, amended by Act No. 2206 (Act to Allow whenever necessary in interpreting the provisions of a
Certain Corporations to be Accepted as Surety) contract of suretyship.

B. Extent of Liability 2. Zaragoza v. Fidelino and Mabini Insurance (1988)

S178: Liability of the surety or sureties shall be joint and F: Respondent Maria Fidelino bought petitioner Antonio
several with the obligor and shall be limited to the amount Zaragoza’s car but failed to pay for the same. Hence,
of the bond. It is determined strictly by terms of the Zaragoza filed a replevin suit to recover his car against
contract in relation to the principal contract between Fidelino. Pursuant to the case, the sheriff took possession
obligor and obligee. of the car but returned the same to Fidelino upon the
latter’s filing of a surety bond issued by co-respondent
C. Premium Payment Mabini Insurance.
S179: Surety is entitled to payment of the premium as soon The CFI of QC ordered Fidelino to pay 19.4K to Zaragoza
as contract of suretyship or bond is perfected and and 6.4K of liquidated damages. Without an appeal from
delivered to obligor. No of suretyship or bonding shall be Fidelino, Zaragoza filed a motion to amend the decision to
valid and binding, unless and until premium has been paid, include Mabini Insurance, which the CFI granted.
except where obligee has accepted the bond, in which case Issue: W/N the CFI erred in including Mabini in its
the bond becomes valid and enforceable irrespective of amended decision, even without service of summons or
whether or not premium has been paid by the obligor to acquisition of jurisdiction over Mabini?
the surety: if the contract of suretyship or bond is not Held: NO. Mabini’s reliance on Sec. 20 of R57 of the Rules
accepted by or filed with the obligee, surety shall collect of Court on Damages from Illegal Attachment is misplaced
only a reasonable amount, not exceeding 50% of the as Section 17 of the same Rule particularly deals with the
premium due thereon as service fee plus cost of stamps or Surety’s Liability on Counter-bond. Under said Section, if
taxes imposed for issuance of the contract or bond: If non- execution is unsatisfied in whole or in part, the surety shall
acceptance of bond be due to fault or negligence of surety, be charged after notice and summary hearing. In the
no such service fee, stamps or taxes shall be collected. instant case, Mabini bound itself to pay jointly and
severally 48K and with the CFI no longer able to recover
the car and with Mabini receiving a Zaragoza’s Motion to
Amend Decision, Mabini as surety may be made to pay the
14.9K due Zaragoza. Lastly, Mabini’s defense of not 5. Prudential Guarantee v. Equinox Land (2007)
receiving summons or jurisdiction over it not having been F: In 1996, respondent Equinox Land sent invitations to
acquired is untenable as its bond is a voluntary submission building contractors for the addition of 5 floors to its EDSA
to the CFI’s authority. CFI AFFIRMED. building. J’Marc Construction had the winning bid of 37
Million pesos and pursuant to the contract, J’Marc
3. Eastern Assurance v. IAC and DAR (1989) submitted a 9.2 Million Surety Bond to guarantee the
F: In 1976, the DAR held a public bidding for the repair of 7 unliquidated portion of the advance payment and a 7.4
Eisenhower jeeps and Motor City emerged as the winning Million Performance Bond, both issued by petitioner
bidder. Motor City’s bid was accompanied by a Proposal Prudential. Problem arose when J’Marc neglected to cover
Bond required by DAR and petitioner Eastern Assurance drainpipes, which were clogged by wet cement and this
put up such bond in the amount of 33.2K. The problem snowballed to several delays and mishaps. Eventually,
arose when Motor City only repaired 6 of the 7 jeeps with Equinox terminated its contract with J’Marc with only 19%
the 7th jeep left undelivered despite several extensions. done and claimed relief from Prudential for J’Marc’s
Hence, DAR filed a suit for specific performance against violations. Equinox would also file a complaint for
Motor City with Eastern Assurance as co-defendant. For its damages against J’Marc and Prudential.
part, Eastern Assurance averred that the Proposal bond The Construction Industry Arbitration Commission (CIAC)
was not binding because it was exactly a mere proposal. ordered J’Marc to pay Equinox 5.2 Million in damages and
The RTC directed Motor City to deliver the 7th Eisenhower payment Equinox had advanced while Prudential is liable
Jeep already repaired and in case of default Eastern for an aggregate amount of 8.7 Million for both Surety and
Assurance shall pay no greater than 33.2K. The IAC Performance Bonds. However, the CIAC would later reduce
affirmed. J’Marc’s liability to roughly 4 Million and Prudential to 4.1
Issue: W/N Eastern Assurance should be held liable on its Million. The CA merely modified the CIAC’s amended
Proposal Bond? decision by declaring that J’Marc and Prudential were
Held: YES. Although conceptually a Proposal Bond assures liable for 5.3 Million and 5.9 Million, respectively.
that the bidder will enter into a contract with the project Issue: W/N the CA erred in finding Prudential solidarily
owner, Eastern Assurance’s Proposal Bond guaranteed liable with J’Marc for damages?
that Motor City would post a Performance Bond, accept the Held: NO. Under S175 of the Insurance Code, Prudential
award, and would not be in delay or default in executing entered into a suretyship by guaranteeing J’Marc’s
the contract. Since Motor City failed to post a Performance contractual obligation to Equinox. Moreover, the Civil Code
Bond and was in delay in the repair and delivery of the 7 th provides that a surety solidarily binds itself with the
Jeep, Eastern Assurance should be liable to the DAR. principal debtor, hence, while the suretyship is a
Eastern Assurance’s defense that its 3 rd guaranty of secondary contract, the surety may be made primarily or
execution merely refers to the signing of contracts directly liable. CA AFFIRMED.
contradicts the dictionary meaning of execution, which is
to complete performance. Here, the Proposal Bond is also a 6. Intra-Strata v. Republic (2008)
Performance Bond. IAC AFFIRMED. 7. Reparations Commission v. Universal Deep Sea
Fishing Corp. (1979)
4. Stronghold Insurance Co. v. CA (1992)
F: In 1985, Leisure Club filed a replevin case against Marine Insurance
Northern Motors for the recovery of furniture and A. Definition
equipment. To provisionally recover the furniture and Domestic Shipping Development Act of 2004
equipment, Leisure Club posted a 42K Replevin Bond B. Perils of the Sea v. Perils of the Ship
issued by petitioner Stronghold. Northern Motors then C. Insurable Interest in Marine Insurance
filed a counter-bond for the release of the properties, but D. Concealment and Misrepresentation
Leisure Club was never heard of again. E. Implied Warranties
On the strength of Northern Motors’ ex parte evidence, the F. Deviation
RTC of Pasig dismissed Leisure Club’s replevin case. On G. Kinds of Losses Covered
Motion for Execution of the Replevin Bond, the RTC a. Total
subsequently held Stronghold liable as Leisure Club’s b. Partial
surety. The CA affirmed the RTC’s decision. c. Actual
Issue: W/N the CA erred in holding Stronghold Insurance H. Abandonment
liable? I. Measure of Indemnity
Held: NO. Under the terms of the Replevin Bond,
Stronghold solidarily bound itself to 42K for prosecution of
the action, return of Northern Motors’ property, and
payment of damages and costs of the action. In the instant
case, Leisure Club did not comply with all 3 instances that
Stronghold guaranteed, thus, it must be held liable as
surety. CA AFFIRMED.