(42) Gilat Satellite Networks,Ltd. v.

United Coconut Planters Bank General Insurance

Co., Inc., GR 189563, April 7, 2014 [Per C.J. Sereno, First Division]
ISSUE: Whether or not Gilat is entitled to interest due to the delay in the fulfilment by
UCPB of its obligation under the Suretyship Agreement.
FACTS: One Virtual placed with Gilat Satellite Network a purchase order for various
telecommunication equipment, promising to pay portions of the price according to a
payment schedule. To ensure the prompt payment, it obtained a surety bond from UCPB.
Gilat. One Virtual failed to pay Gilat twice, prompting Gilat to write the surety UCPB two
demand letters for payment. However, UCPB failed to settle the amount. Gilat filed a
complaint against UCPB to recover the amounts supposedly covered by the surety bond,
plus interests and expenses. UCPB maintained that they did not pay because of the
advice of One Virtual not to pay and that a surety contract is merely an accessory contract,
which cannot exist without a valid obligation thus Gilat should demand first One Virtual as
the principal debtor.
HELD: Yes, Gilat is entitled to interest due to the delay in the fulfilment by UCPB of its
obligation under the Suretyship Agreement. 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. 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. Also, in Surety Agreement, the responsibility places a surety on the same
level as that of the principal debtor. Here, Gilat wrote two demand letters to UCPB, as
Surety corporation, for the payment and that UCPB failed to perform. Therefore, having
held that a surety upon demand fails to pay, it can be held liable for interest and that Gilat
is entitled to the interest from the said delay.