Insurance Case Digests: Suretyship 3B; A.Y.

2018-2019

National Power Corporation v CA, GR L-43706, 14 November 1986

DOCTRINE: Insurance; Liability of surety bond; The 30- day notice requirement in
the surety bond as a condition to hold the surety liable under the bond applies to the
completion of the work by the contractor, not when the contractor failed to complete the
construction work.—As correctly assessed by the trial court, the evidence on record shows
that as early as May 30, 1963, Philamgen was duly informed of the failure of its principal
to comply with its undertaking. In fact, said notice of failure was also signed by its
Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was
abandoning the construction job, the latter forthwith informed Philamgen of the fact on
the same date. Moreover, on August 1, 1963, the fact that Philamgen was seasonably
notified, was even bolstered by its request from NPC for information of the percentage
completed by the bond principal prior to the relinquishment of the job to the latter and
the reason for said relinquishment. (Record on Appeal, pp. 193–195). The 30-day notice
adverted to in the surety bond applies to the completion of the work by the contractor.
This completion by the contr actor never materialized.
FACTS: On August 4, 1964, ECI being a successful bidder, executed a contract in Manila
with the National Waterworks and Sewerage Authority (NAWASA) to furnish all the tools,
labor, equipment, and materials (not furnished by the owner) and to construct the
proposed 2nd Ipo-Bicti Tunnel at Norzaragay, Bulacan within 800 calendar days. The
tunnel would be passing through the mountain, from the Ipo river, a part of Norzaragay
where the Ipo Dam of NPC is located.
By September 1967, ECI already completed the tunnel excavation work. All the equipment
not needed at the Bicti site were then transferred to the Ipo site, where some projects were
not yet completed.
On November 4, 1967, typhoon “Welming” hit Central Luzon, passing through NCP’s
Angat Hydro-electric project and Dam at Ipo, Norzaragay, Bulacan. Due to the heavy
downpour, the water in the reservoir of the Angat Dam, was rising perilously at the rate
of 60 cm per hour. To prevent an overflow of water from the dam since the water level has
reached danger heights, the NPC caused the opening of the spillway gates.
ECI filed a case against NPC. The trial court established the fact that due to the negligent
manner with which the spillway gates of the dam were opened, an extraordinary large
volume of water rushed out of the gates, and hit the installations and constructions of ECI
at the Ipo Site, as a result, of which the latter's stockpile of materials and supplies, camp
facilities and permanent structures and accessories were washed away, lost or destroyed.
CA sustained the factual findings of the trial court (“[NPC] knew of the coming of the
typhoon four days before it actually hit the project area.") but modified the damages
awarded.
NPC assailed the CA decision as being erroneous on the ground that the destruction and
loss of ECI's equipment and facilities were due to force majeure. It argues that the rapid

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rise of the water level in the reservoir of its Angat Dam due to heavy rains brought about
by the typhoon was an extraordinary occurrence that could not have been foreseen.
ISSUE: WON the destruction and loss of the ECI's equipment and facilities were due to
force majeure.
RULING: No. NPC was undoubtedly negligent because it opened the spillway gates of
the Angat Dam only at the height of typhoon "Welming" when it knew very well that it
was safer to have opened the same gradually and earlier, as it was also undeniable that
NPC knew of the coming typhoon at least four days before it actually struck.
Even though the typhoon was an act of God or force majeure, NPC cannot escape liability
because its negligence was the proximate cause of the loss and damage (Nakpil and Sons).

Leyson v Rizal Surety, GR No. L-21250, 31 March 1966

DOCTRINE: Suretyship; When bond may cover violations of trust committed before
its filing.—Although the bond (approved by the court on June 27, 1952) does not specify
the date when it shall take effect, the fact is that both in its order requiring the filing of
increased bond and in its subsequent order approving it, the court made it plain that the
bond would answer “for the faithful execution of his (administrator’s) trust as of the date
of his appointment.” Since the administrator was appointed on December 8, 1947, his
bond must be understood to have taken effect.
- Construction.— A suretyship contained in a form prepared by the surety must be
construed against the surety and in favor of the promisee.
- Accommodation and compensated sureties, distinguished. — Corporate surety differs
significantly from an individual private surety. First, unlike the private surety, the
corporate surety signs for cash and not for friendship. The private surety is regarded as
someone doing a rather foolish act for praiseworthy motives; the corporate surety, to the
contrary, is in business to make profit and charges a premium depending upon the
amount of guaranty and the risk involved. Second, the corporate surety, like an insurance
company, prepares the instrument, which is a type of contract of adhesion, whereas the
private surety usually does not prepare the note or bond which he signs. Third, the
obligation of the private surety is often assumed on the basis of the debtor’s
representations and without legal advice, while the corporate surety does not bind itself
until a full investigation has been made. In the case of the corporate surety, the rule of
strictissimi juris is not applicable, and courts apply the rules of interpretation
appertaining to contracts of insurance.
- Nature of surety’s obligation on administrator’s bond. —The nature of a surety’s
obligation on an administrator’s bond makes him privy to the proceedings against his
principal. As such he is bound and concluded, in the absence of collusion, by a judgment
against his principal, even though the surety was not a party to the proceedings.

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FACTS: The Rizal Surety & Insurance Co. brings this appeal from an order of the Court
of First Instance of Manila which declared it liable for P6,051.57 on its bond it had given
in behalf of Victorio L. Rodriguez.
Rodriguez was the administrator of the estate of Honofre Leyson. On December 27, 1951,
the Manila Court of First Instance, in which the estate was at the time pending settlement,
ordered Rodriguez relieved of his trust after finding him guilty of maladministration. As
Rodriguez appealed the order of relief, the court, as a measure of “protection of this
estate,” required him to file an increased bond of P10.000 (which then was P500 only) to
answer for “the faithful execution of his trust as of the date of his appointment.”
Required to account for the period June 27, 1951 to August 30, 1954, Rodriguez was found
short of P6,248.22. (The amount of shortage was later found by final judgment of the
Court of Appeals to be P6,051.57.) Despite several deadlines given to him, Rodriguez
failed to pay the money in court, for which reason he was ordered arrested and declared
in contempt.
On November 8, 1962, the Court, acting on motion of the new administratrix, ordered the
confiscation of Rodriguez’ bond for the satisfaction of the amount of P6,051.57. It is from
this order that the surety company appeals. It is first of all contended that appellant
cannot be held liable on its bond because the defalcations, for which the bond was ordered
forfeited, were committed by the principal before the bond was filed. The rule is invoked
that a contract of suretyship must be strictly construed and since the contract in this case
contains no provision making it expressly retroactive, the point is made that the bond
cannot cover violations of trust by the administrator before the filing of that bond.
ISSUES: 1. WON is there any merit in the claim that the bond was confiscated without
giving the appellant a chance to be heard on “the reality and reasonableness of the
damages.”
2. WON the surety is liable to the extent of P6,051.57, which amount was found due from
the said former administrator.
RULING: No. the record shows that the surety was given an opportunity to be heard.
2. Yes. It has already been held that the nature of a surety’s obligation on an
administrator’s bond, which makes him privy to the proceedings against his principal, is
such that he is bound and concluded, in the absence of fraud or collusion, by a judgment
against his principal, even though the surety was not a party to the proceedings.

Philippine Pryce Assurance v. CA, GR No. 107062, 21 February 1994

DOCTRINE: Insurance; Surety bonds; Where obligee has accepted the surety bond, it
becomes valid and enforceable irrespective of whether or not the premium has been paid
by the obligor to the surety.—Finally, there is reason to believe that petitioner does not
really have a good defense. Petitioner hinges its defense on two arguments, namely: a)

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that the checks issued by its principal which were supposed to pay for the premiums,
bounced, hence there is no contract of surety to speak of; and 2) that as early as 1986 and
covering the time of the Surety Bond, Interworld Assurance Company (now Phil. Pryce)
was not yet authorized by the Insurance Commission to issue such bonds. The Insurance
Code states that: “SECTION 177. The surety is entitled to payment of the premium as soon
as the contract of suretyship or bond is perfected and delivered to the obligor. No contract
of suretyship or bonding shall be valid and binding unless and until the premium therefor
has been paid, except where the obligee has accepted the bond, in which case the bond
becomes valid and enforceable irrespective of whether or not the premium has been paid
by the obligor to the surety. x x x” (emphasis added) The above provision outrightly
negates petitioner’s first defense. In a desperate attempt to escape liability, petitioner
further asserts that the above provision is not applicable because the respondent allegedly
had not accepted the surety bond, hence could not have delivered the goods to Sagum
Enterprises. This statement clearly intends to muddle the facts as found by the trial court
and which are on record.
FACTS: Petitioner, Interworld Assurance Corporation (now Philippine Pryce Assurance
Corporation), was sued for collection of sum of money by respondent Gegroco, Inc.
The complaint alleged that Pryce issued two surety bonds in behalf of its principal Sagum
General Merchandise for P500,000.00 and P1,000,000.00 respectively.
Pryce admitted having executed the said bonds, but denied liability because allegedly 1)
the checks which were to pay for the premiums bounced and were dishonored hence there
is no contract to speak of between Pryce and its supposed principal Sagum; and 2) the
bonds were merely to guarantee payment of its principal's obligation, thus, there is a
benefit of excussion (a right under Art. 2066 which only a guarantor may invoke against
the creditor wherein the guarantor will point out to the creditor all the debtor’s properties
in the Philippines sufficient to cover amount of debt).
After the issues had been joined, the case was set for pre-trial conference. Pryce failed to
appear during the pre-trial that was reset 3 times because of the non-appearance of Pryce
and/or its counsel during the scheduled pre-trials. He also failed to pay the docket fees
for the Third-Party Complaint it filed against his principal Sagum. Pryce was considered
as in default and respondent was allowed to present evidence ex-parte.
RTC ruled in favor of respondent Gregoco.
CA affirmed the RTC ruling.
ISSUE: Whether or not there was a contract of suretyship between Pryce and its principal
Sagum which makes Pryce solidarily liable to Gregoco.
RULING: YES. The Supreme Court We did find any reversible error in the conclusion
reached by the court a quo.
The Insurance Code states that:

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Sec. 177. The surety is entitled to payment of the premium as soon as the contract
of suretyship or bond is perfected and delivered to the obligor. No contract of
suretyship or bonding shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety. . .
The above provision outrightly negates petitioner's first defense. In a desperate attempt
to escape liability, petitioner further asserts that the above provision is not applicable
because the respondent allegedly had not accepted the surety bond, hence could not have
delivered the goods to Sagum Enterprises. This statement clearly intends to muddle the
facts as found by the trial court and which are on record.
Likewise attached to the record are exhibits consisting of delivery invoices addressed to
Sagum General Merchandise proving that parts were purchased, delivered and received.
On the other hand, petitioner's defense that it did not have authority to issue a Surety
Bond when it did is an admission of fraud committed against respondent. No person can
claim benefit from the wrong he himself committed. A representation made is rendered
conclusive upon the person making it and cannot be denied or disproved as against the
person relying thereon. The petition has been dismissed for lack of merit.

AFP General Insurance vs Molina, GR No. 151133, 30 June 2008

DOCTRINE: Contracts; Suretyship; Bonds; A surety bond, once accepted by the
obligee becomes valid and enforceable, irrespective of whether or not the premium has
been paid by the obligor.—The Insurance Code supports the private respondents’
arguments. The petitioner’s reliance on Sections 64 and 77 of the Insurance Code is
misplaced. The said provisions refer to insurance contracts in general. The instant case
pertains to a surety bond; thus, the applicable provision of the Insurance Code is Section
177, which specifically governs suretyship. It provides that a surety bond, once accepted
by the obligee becomes valid and enforceable, irrespective of whether or not the premium
has been paid by the obligor. The private respondents, the obligees here, accepted the
bond posted by Radon Security and issued by the petitioner. Hence, the bond is both valid
and enforceable. A verbis legis non est recedendum (from the language of the law there
must be no departure).
FACTS: The private respondents are the complainants in a case for illegal dismissal,
docketed as NLRC NCR Case No. 02-00672-90, filed against Radon Security & Allied
Services Agency and/or Raquel Aquias and Ever Emporium, Inc. In his Decision dated
August 20, 1996, the Labor Arbiter ruled that the private respondents were illegally
dismissed and ordered Radon Security to pay them separation pay, backwages, and other
monetary claims.
Radon Security appealed the Labor Arbiter’s decision to public respondent NLRC and
posted a supersedeas bond, issued by herein petitioner AFPGIC as surety.

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On April 6, 1998, the NLRC affirmed with modification the decision of the Labor Arbiter.
The NLRC found the herein private respondents constructively dismissed and ordered
Radon Security to pay them their separation pay, in lieu of reinstatement with backwages,
as well as their monetary benefits limited to three years, plus attorney’s fees equivalent to
10% of the entire amount, with Radon Security and Ever Emporium, Inc. adjudged jointly
and severally liable.
Radon Security duly moved for reconsideration, but this was denied by the NLRC in its
Resolution dated June 22, 1998. Radon Security then filed a Petition for Certiorari
docketed as G.R. No. 134891 with this Court, but we dismissed this petition in our
Resolution of August 31, 1998.
In dismissing the appeal of AFPGIC, the NLRC pointed out that AFPGIC’s theory that the
bond cannot anymore be proceeded against for failure of Radon Security to pay the
premium is untenable, considering that the bond is effective until the finality of the
decision. The NLRC stressed that a contrary ruling would allow respondents to simply
stop paying the premium to frustrate satisfaction of the money judgment.
AFPGIC then moved for reconsideration, but the NLRC denied the motion in its
Resolution dated February 29, 2000.
AFPGIC then filed a special civil action for certiorari, docketed as CA-G.R. SP No. 58763,
with the Court of Appeals, on the ground that the NLRC committed a grave abuse of
discretion in affirming the Order dated March 30, 1999 of the Labor Arbiter.
ISSUE: WON the Court of Appeals seriously erred in sustaining the public respondent
NLRC although the latter gravely abused its discretion when it arbitrarily ignored the fact
that subject appeal bond was already cancelled for non-payment of premium and thus it
could not be subject of execution or garnishment.
RULING: The filing of a cash or surety bond is a jurisdictional requirement in an appeal
involving monetary award, and the bond shall be in effect until the final disposition of the
case. A surety bond, once accepted by the obligee (the employee to whom money benefits
were due), becomes valid and enforceable, irrespective of whether or not the premiums
thereon have been paid by the obligor (the employer liable for payment).

Capital Insurance v. Ronquillo Trading, GR No. L-36488, 25 July 1983

DOCTRINE: Insurance; Suretyship; Termination of contract of surety discharges the
liability of the principal to pay premiums despite pendency of a lawsuit to enforce said
liability that accrued during the contract’s stipulated lifetime.—Obviously, the duration
of the bond is for “every twelve (12) months or fraction thereof, while this bond or any
renewal or substitution is in effect.” Since the appellees opted not to renew the contract
they cannot be obliged to pay the premiums. More specifically, where a contract of surety
is terminated under its terms, the liability of the principal for premiums after such

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termination ceases notwithstanding the pendency of a lawsuit to enforce a liability that

accrued during its stipulated lifetime.
FACTS: Capital Surety and Insurance Co., Inc., thru its general agent, executed and
issued a surety bond in the amount of $14,800.00 or its peso equivalent in behalf of
Ronquillo Trading and in favor of S.S. Eurygenes, its master, and/or its agents, Delgado
Shipping Agencies.
The bond was a guarantee for any additional freight which may be determined to be due
on a cargo of 258 surplus army vehicles consigned from Pusan, Korea to the Ronquillo
Trading on board the S.S. Eurygenes and booked on said vessel by the Philippine
Merchants Steamship Company, Inc.
In consideration for the issuance by the appellant of the aforesaid surety bond the
appellees executed an indemnity agreement whereby among other things, they jointly and
severally promised to pay the appellant the sum of P1,827.00 in advance as premium and
documentary stamps for each period of twelve months while the surety bond was in effect.
On April 30, 1963 or about five (5) days before the expiration of the liability on the bond,
P.D. Marchessini and Co., Ltd. and Delgado Shipping Agencies, Inc., filed a case in the
Court of First Instance of Manila against the Philippine Merchants Steamship Co., Inc.,
Jose L. Bautista, doing business under the name and style of "Ronquillo Trading", and the
herein appellant Capital Insurance & Surety Co., Inc. for the sum of $14,800.00 or its
equivalent in Philippine currency, for the loss they allegedly suffered as a direct
consequence of the failure of the defendants to load the stipulated quantity of 406 U.S.
surplus army vehicles.
The appellant was made party defendant because of the bond it posted in behalf of the
appellees. Upon the expiration of the 12 months life of the bond, the appellant made a
formal demand for the payment of the renewal premiums and cost of documentary
stamps for another year in the amount of P1,827.00.
The appellees refused to pay, contending that the liability of the appellant under the
surety bond accrued during the period of twelve months the said bond was originally in
force and before its expiration and that the defendants-appellees were under no
obligation to renew the surety bond.
The appellant, therefore, filed a complaint to recover the sum of P1,827.00 against the
appellees in the City Court of Manila wherein said court rendered judgment absolving the
appellees from the complaint. The appellant appealed the judgment to the Court of
First Instance of Manila where the decision of the city court was affirmed and the
complaint dismissed. Its motion for reconsideration having been denied, appellant filed
the instant appeal.
ISSUE: Whether or not a surety's liability under the bond has accrued, during the period
of twelve months the bond was originally in force and before its expiration and that herein

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appellees were under no obligation to pay the premiums and costs of documentary stamps
for the succeeding period it was in effect.
RULING: Yes, The bond was given to secure payment by appellees of such additional
freight as would already be due on the cargo when it actually arrived in Manila. The bond
was not executed to secure obligation or liability which was still to arise after its twelve
month life. While it was true that the lower court held that the bond was still in effect after
its expiry date, the effectivity was not due to a renewal made by the appellees but because
the surety bond provided that "the liability of the surety will not expire if, as in this case,
it was notified of an existing obligation thereunder".
The meaning of the bond's still being in effect was that, the suit on the bond instituted by
the obligees prior to the expiration of the "liability" thereunder was only for the purpose
of enforcing that liability and amounted to notice to appellant of an already existing or
accrued liability so as not to let that liability lapse or expire and thereby bar enforcement.
It must be noted that in the surety bond it was stipulated that the "liability of surety on
this bond would expire on May 5, 1963 and said bond would be cancelled 15 days after its
expiration, unless surety was notified of any existing obligations thereunder."
Under this stipulation the bond expired on the stated date and the phrase "unless surety
was notified of any existing obligations thereunder" refers to obligations incurred during
the term of the bond.
Under the Indemnity Agreement, the appellees "agreed to pay the COMPANY the sum of
ONE THOUSAND EIGHT HUNDRED ONLY (P1,800.00) Pesos, Philippine Currency, in
advance as premium thereof for every twelve (12) months or fraction thereof, while this
bond or any renewal or substitution thereof was in effect."
Obviously, the duration of the bond was for "every twelve (12) months or fraction thereof,
while this bond or any renewal or substitution was in effect." Since the appellees opted
not to renew the contract they cannot be obliged to pay the premiums.
More specifically, where a contract of surety is terminated under its terms, the liability of
the principal for premiums after such termination ceases notwithstanding the pendency
of a lawsuit to enforce a liability that accrued during its stipulated lifetime. The appeal
was dismissed for lack of merit. The decision of the court a quo was affirmed.

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