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CCC Insurance V Kawasaki Steel - 5
CCC Insurance V Kawasaki Steel - 5
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CCC INSURANCE CORPORATION, petitioner, vs.
KAWASAKI STEEL CORPORATION, F.F. MAÑACOP
CONSTRUCTION CO., INC., and FLORANTE F.
MAÑACOP, respondents.
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* FIRST DIVISION.
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1 Rollo, pp. 37-49; penned by Associate Justice Perlita J. Tria-Tirona,
with Associate Justices Buenaventura J. Guerrero and Rodrigo V. Cosico,
concurring.
2 CA Rollo, pp. 71-79; penned by Judge Eriberto U. Rosario, Jr.
3 Rollo, pp. 51-54.
4 Id., at pp. 64-87.
5 Article 5, Consortium Agreement.
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339
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VOL. 759, JUNE 22, 2015 341
CCC Insurance Corporation vs. Kawasaki Steel
Corporation
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342
342 SUPREME COURT REPORTS ANNOTATED
CCC Insurance Corporation vs. Kawasaki Steel
Corporation
343
The Court of Appeals, in its Decision dated May 30,
2002, reversed the appealed RTC Decision, reasoning as
follows:
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344
which was the reason for the bonds posted by [FFMCCI] and
CCCIC, or in the subject bonds themselves.
It is not provided, neither in the Consortium Agreement nor in
the subject bonds themselves that before KAWASAKI may
proceed against the bonds posted by [FFMCCI] and CCCIC, the
Philippine government as employer must first exercise its rights
against the bond issued in its favor by the consortium.
Hence, this Court finds that the court a quo did err in ruling
that “[u]nder the Consortium Agreement, the bonds are counter-
guarantees which only guarantee the plaintiff KAWASAKI for
reimbursement to the extent of the value of the bonds in case the
employer (government) successfully exercised its rights under the
bonds issued to it by plaintiff KAWASAKI”; and that
“[c]onsidering that the government did not exercise its rights
against the bond issued to it by the Consortium Leader, it follows
that the Consortium Leader cannot collect from the counter-
guarantees furnished by [FFMCCI].”
Time and again, the Supreme Court has stressed the rule that
a contract is the law between the parties, and courts have no
choice but to enforce such contract so long as they are not
contrary to law, morals, good customs or public policy.
With respect to the second, third and fourth issues raised,
suffice it to say that this Court finds Article 2079 of the Civil Code
of the Philippines not applicable.
[Kawasaki] claims that since the issue in this case is the
liability of CCCIC to KAWASAKI, the extension of forty-three (43)
days within which to complete the Pangasinan Fishing Port
Network Project granted by the Philippine government, who is
not a party to the two (2) bonds posted by [FFMCCI] and CCCIC,
to the consortium, does not absolve CCCIC’s liabilities to
KAWASAKI under the subject bonds.
We agree.
As stated earlier, the parties insofar as the surety bond and
performance bond are concerned are: KAWA-
345
In the end, the Court of Appeals decreed:
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346
In its Resolution dated November 14, 2002, the Court of
Appeals denied the Motion for Reconsideration of CCCIC.
However, in the same Resolution, the appellate court
partially granted the Third-Party Complaint of CCCIC by
holding Mañacop liable under the Indemnity Agreements
he executed in favor of the insurance company, while
declaring the RTC was without jurisdiction over FFMCCI
due to invalid service of summons. The Court of Appeals
ultimately resolved:
In the instant Petition for Review on Certiorari, CCCIC
assails the aforementioned Decision and Resolution of the
Court of Appeals on six grounds, viz.:
A.
THE COURT OF APPEALS, CONTRARY TO LAW, FAILED
TO CONSIDER THE TRUE NATURE OF THE TRANSACTION
BETWEEN THE PARTIES AND THE TRUE NATURE OF A
COUNTER-GUARANTEE.
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23 Id., at p. 48.
24 Id., at p. 54.
347
B.
THE COURT OF APPEALS, CONTRARY TO LAW, FAILED
TO APPRECIATE THE APPLICABILITY OF ARTICLE 2079 OF
THE CIVIL CODE, WHICH PROVIDES THAT AN EXTENSION
GRANTED TO THE DEBTOR BY THE CREDITOR WITHOUT
THE CONSENT OF THE GUARANTOR EXTINGUISHES THE
GUARANTY.
C.
THE COURT OF APPEALS, CONTRARY TO LAW,
ERRONEOUSLY FAILED TO CONSIDER THE FACT THAT
KAWASAKI AND FFMCCI HAVE NOVATED THEIR
ORIGINAL AGREEMENT WITHOUT THE KNOWLEDGE AND
CONSENT OF CCCIC, THEREBY RELEASING THE LATTER
FROM ANY OBLIGATION UNDER THE BONDS IT ISSUED.
D.
THE COURT OF APPEALS, CONTRARY TO LAW,
ERRONEOUSLY RENDERED CCCIC LIABLE TO PAY THE
FULL AMOUNT OF THE SURETY AND PERFORMANCE
BONDS DESPITE THE FACT THAT FFMCCI WAS ABLE TO
PARTIALLY EXECUTE ITS PORTION OF THE WORK AND
THAT KAWASAKI HAD BEEN FULLY COMPENSATED FOR
TAKING OVER THE UNFINISHED PORTION.
E.
THE COURT OF APPEALS, CONTRARY TO LAW,
ERRONEOUSLY AWARDED ATTORNEY’S FEES TO
KAWASAKI UNDER PARAGRAPH 2 OF ARTICLE 2208 OF
THE CIVIL CODE.
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F.
THE COURT OF APPEALS, CONTRARY TO LAW,
ERRONEOUSLY RULED THAT THERE WAS NO VALID
SERVICE OF SUMMONS UPON FFMCCI.25
CCCIC avers that its liabilities under the Surety and
Performance Bonds are directly linked with the obligation
of the Kawasaki-FFMCCI Consortium to finish the Project
for the Republic, so that its liability as surety of FFMCCI
will only arise if the Republic made a claim on the PCIB
Letter of Credit furnished by Kawasaki, on behalf of the
Consortium. Since the Republic has not exercised its right
against said Letter of Credit, Kawasaki does not have a
cause of action against CCCIC.
CCCIC also maintains that its obligations under the
Surety and Performance Bonds had been extinguished
when (a) the Republic extended the completion period for
the Project upon the request of Kawasaki but without the
knowledge or consent of CCCIC, based on Article 2079 of
the Civil Code; and (b) when Kawasaki and FFMCCI
executed the Agreement dated August 24, 1989, without
the consent of CCCIC, there being a novation of the
Consortium Agreement.
CCCIC further argues that when Kawasaki, under the
Agreement dated August 24, 1989, voluntarily took over
the Transferred Portion of Work from FFMCCI, it resulted
in the reduction of revenue of FFMCCI on which CCCIC
relied upon as a source of indemnification. CCCIC
additionally posits that Kawasaki already received
compensation for doing the Transferred Portion of Work, so
the Court of Appeals had no basis for still ordering
Kawasaki to pay the full value of the Surety and
Performance Bonds, plus interest.
Moreover, CCCIC contends that the Court of Appeals
erred in awarding attorney’s fees in favor of Kawasaki
based on
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Jurisprudence also defines a contract of suretyship as
“an agreement where a party called the surety guarantees
the performance by another party called the principal or
obligor of an obligation or undertaking in favor of a third
person called the obligee. Specifically, suretyship is a
contractual relation resulting from an agreement whereby
one person, the surety, engages to be answerable for the
debt, default or miscarriage of another, known as the
principal.”26 The Court expounds
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26 Visayan Surety & Insurance Corporation v. Court of Appeals, 417
Phil. 110, 116-117; 364 SCRA 631, 636 (2001).
350
ARTICLE 10 – BONDS
10.1 The CONSORTIUM LEADER [Kawasaki] shall arrange,
at [its] own cost, all necessary bonds or
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Pertinent portions of Surety Bond No. B-88/11191 read:
SURETY BOND
KNOW ALL MEN BY THESE PRESENTS:
That we, F.F. MAÑACOP CONSTRUCTION CO., INC., x x x,
as principal, and CCC Insurance Corporation, x x x, as SURETY,
are held and firmly bound unto KAWASAKI STEEL
CORPORATION, hereinafter referred to as the OBLIGEE: in the
sum of PESOS: THREE MILLION ONE HUNDRED THREE
THOUSAND EIGHT HUNDRED THREE & 90/100 ONLY
(P3,103,803.90), Philippine currency, for the payment of which,
well and truly to be made, we bind ourselves, our heirs, executors,
administrators, successors and assigns, jointly and severally,
firmly bound from notice of acceptance, by these presents.
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28 Rollo, p. 79.
352
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29 Id., at p. 99.
353
PERFORMANCE BOND
KNOW ALL MEN BY THESE PRESENTS:
That we, F.F. MAÑACOP CONSTRUCTION CO., INC., x x x,
as principal, and CCC Insurance Corporation, x x x, as SURETY,
are held and firmly bound unto KAWASAKI STEEL
CORPORATION, hereinafter referred to as the OBLIGEE: in the
sum of PESOS: TWO MILLION SIXTY-NINE THOUSAND TWO
HUNDRED TWO & 60/100 ONLY (P2,069,202.60), Philippine
currency, for the payment of which, well and truly to be made, we
bind ourselves, our heirs, executors, administrators, successors
and assigns, jointly and severally, firmly bound from notice of
acceptance, by these presents.
THE CONDITIONS OF THIS OBLIGATION ARE AS
FOLLOWS:
TO GUARANTEE THE FULL AND FAITHFUL
PERFORMANCE OF THE PRINCIPAL OF ITS
OBLIGATION IN CONNECTION WITH THE PROJECT
FOR THE CONSTRUCTION OF PANGASINAN FISHING
PORT NETWORK LOCATED AT PANGASINAN IN
ACCORDANCE WITH THE PLANS AND SPECIFICATION OF
THE CONTRACT; AND
PROVIDED, HOWEVER, THAT THE LIABILITY OF THE
HEREIN SURETY SHALL IN NO CASE EXCEED THE
AMOUNT OF PESOS: TWO MILLION SIXTY-NINE
THOUSAND TWO HUNDRED TWO & 60/100 ONLY
(P2,069,202.60) PHILIPPINE CURRENCY.
x x x x
WHEREAS, the said OBLIGEE requires said Principal to give
a good and sufficient bond in the above stated sum to secure the
full and faithful performance on his part of said
UNDERTAKING.
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The Court reiterates that a surety’s liability is
determined strictly by the terms of contract of suretyship,
in relation to the principal contract between the obligor and
the obligee. Hence, the Court looks at the Surety and
Performance Bonds, in relation to the Consortium
Agreement.
According to the principle of relativity of contracts in
Article 1311 of the Civil Code,31 a contract takes effect only
between the parties, their assigns, and heirs; except when
the
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30 Id., at p. 101.
31 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.
If a contract should contain some stipulation in favor of a third person,
he may demand its fulfillment provided he communicated his acceptance
to the obligor before its revocation. A mere incidental benefit or interest of
a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person.
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32 Rollo, p. 46.
33 Molino v. Security Diners International Corporation, 415 Phil. 587,
595; 363 SCRA 358, 367-368 (2001).
357
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The aforequoted provision clearly speaks of an extension
for the payment of a debt granted by the creditor to a
debtor without the consent of the surety. The theory behind
Article 2079 was further explained by the Court in Trade
and Investment Development Corporation of the Philippines
(formerly Philippine Export and Foreign Loan Guarantee
Corporation) v. Asia Paces Corporation,35 thus:
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35 G.R. No. 187403, February 12, 2014, 716 SCRA 67, 78-83.
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Similarly, there are two sets of transactions in the
present case covered by two different contracts: the
Consortium Agreement between Kawasaki and FFMCCI
and the Construction Contract between the Republic and
the Kawasaki-FFMCCI Consortium. The Surety and
Performance Bonds guaranteed the performance of the
obligations of FFMCCI to Kawasaki under the Consortium
Agreement. The Republic was not a party in either the
Surety and Performance Bonds or the Consortium
Agreement. Under these circumstances, there was no
creditor-debtor relationship between the Republic and
FFMCCI and Article 2079 of the Civil Code did not apply.
The extension granted by the Republic to Kawasaki
modified the deadline for the completion of the Project
under the Construction Contract, but had no effect on the
obligations of FFMCCI to Kawasaki under the Consortium
Agree-
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CCCIC failed to discharge the burden of proving
novation of the Consortium Agreement by the Agreement
dated August 24, 1989. The Court failed to see the presence
of the essential requisites for a novation of contract,
specifically, the irreconcilable incompatibility between the
old and new contracts. Indeed, Kawasaki and FFMCCI
executed the Agreement dated August 24, 1989 pursuant to
Article 8.3 of the Consortium Agreement:
8.3 If, for any reason, any PARTY should fail in the
performance of its PORTION OF WORK or contractual
obligations and if such defaulting PARTY refuses to cure or
makes no remedial action, without presenting any valid cause,
within fifteen (15) days following demand of rectification by
registered letter sent by the other PARTY, the defaulting
PARTY’s PORTION OF WORK may be performed at the account
and responsibility of the defaulting PARTY, by the non-defaulting
PARTY or by any other contractor selected by the non-defaulting
PARTY and approved by the EMPLOYER. In such event, the
defaulting PARTY or its representative shall, in no way, interfere
with the performance of the CONTRACT or impede the progress
thereof, on any ground, and shall allow such performing PARTY
or the said contractor to use the materials and equipment of such
defaulting PARTY, for the purpose of remedial action.
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38 Quinto v. People, 365 Phil. 259, 267-268; 305 SCRA 708, 715-716
(1999).
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368
x x x x
By the language of the bonds issued by petitioner, it
guaranteed the full and faithful compliance by Gabriel of its
obligations in the construction of the SDS and STP specifically set
forth in the subcontract agreement, and the repayment of the 15%
advance payment given by respondent. These guarantees made by
petitioner gave respondent the right to proceed against the former
following Gabriel’s noncompliance with her obligation.
Confusion, however, transpired when Gabriel and respondent
agreed, on February 26, 1997, to reduce the scope of work and,
consequently, the contract price. Petitioner viewed such revision
as novation of the original subcontract agreement; and since no
notice was given to it as a surety, it resulted in the
extinguishment of its obligation.
We wish to stress herein the nature of suretyship, which
actually involves two types of relationship — the underlying
principal relationship between the creditor (respondent) and the
debtor (Gabriel), and the accessory surety relationship between
the principal (Gabriel) and the surety (petitioner). The creditor
accepts the surety’s solidary undertaking to pay if the debtor does
not pay. Such acceptance, however, does not change in any
material way the creditor’s relationship with the principal debtor
nor does it make the surety an active party to the principal
creditor-debtor relationship. In other words, the acceptance does
not give the surety the right to intervene in the principal contract.
The surety’s role arises only upon the debtor’s default, at which
time, it can be directly held liable by the creditor for payment as a
solidary obligor.
The surety is considered in law as possessed of the identity of
the debtor in relation to whatever is adjudged touching upon the
obligation of the latter. Their liabilities are so interwoven as to be
inseparable. Although the contract of a surety is, in essence,
secondary only to a valid principal obligation, the surety’s liability
to the creditor is direct, primary, and absolute; he becomes liable
for the debt and duty of another although he pos-
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There is no showing herein that the obligations of
CCCIC as surety had become more onerous with the
execution of the Agreement dated August 24, 1989 between
Kawasaki and FFMCCI. The Agreement dated August 24,
1989 did not alter in any way the original coverage and the
terms and conditions of the Surety and Performance Bonds
of CCCIC. If truth be told, the Agreement dated August 24,
1989 made it more onerous for Kawasaki which had to take
over the Transferred Portion of Work from FFMCCI.
That Kawasaki was to receive the profits and benefits
corresponding to the Transferred Portion of Work would
not extinguish the liabilities of CCCIC under the Surety
and Performance Bonds. The right of Kawasaki to the
profits and benefits corresponding to the Transferred
Portion of Work was granted under the Agreement dated
August 24, 1989 because Kawasaki was the one that would
actually perform
370
Although the foregoing provisions only speak of a
guarantor, they also apply to a surety, as the Court held in
Escaño v. Ortigas, Jr.:40
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of the Civil Code, which assures that “[t]he guarantor who pays
for a debtor must be indemnified by the latter,” such indemnity
comprising of, among others, “the total amount of the debt.”
Further, Article 2067 of the Civil Code likewise establishes that
“[t]he guarantor who pays is subrogated by virtue thereof to all
the rights which the creditor had against the debtor.”
Articles 2066 and 2067 explicitly pertain to guarantors, and
one might argue that the provisions should not extend to sureties,
especially in light of the qualifier in Article 2047 that the
provisions on joint and several obligations should apply to
sureties. We reject that argument, and instead adopt Dr.
Tolentino’s observation that “[t]he reference in the second
paragraph of [Article 2047] to the provisions of Section 4, Chapter
3, Title I, Book IV, on solidary or several obligations, however,
does not mean that suretyship is withdrawn from the applicable
provisions governing guaranty.” For if that were not the
implication, there would be no material difference between the
surety as defined under Article 2047 and the joint and several
debtors, for both classes of obligors would be governed by exactly
the same rules and limitations.
Accordingly, the rights to indemnification and subrogation as
established and granted to the guarantor by Articles 2066 and
2067 extend as well to sureties as defined under Article 2047.
x x x. (Citations omitted)
Pursuant to Articles 2066 and 2067, the rights of CCCIC
as surety to indemnification and subrogation will arise only
after it has paid its obligations to Kawasaki as the debtor-
obligee. In Autocorp Group v. Intra Strata Assurance
Corporation,41 the Court ruled that:
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In the present case, CCCIC has yet to pay Kawasaki.
While summons was validly served upon FFMCCI, the
Third-Party Complaint of CCCIC against FFMCCI is
dismissed on the ground of lack of cause of action.
The Court disagrees with the ruling of the Court of
Appeals that there was no proper service of summons upon
FFMCCI. The appellate court overlooked the fact that the
service of summons on FFMCCI at its principal address at
#86 West Avenue, Quezon City failed because FFMCCI had
already vacated said premises without notifying anyone as
to where it transferred. For this reason, the RTC, upon the
motion of CCCIC, issued an Order42 dated September 4,
1991, directing the issuance and service of Alias Summons
to the individual directors of FFMCCI. Eventually, the
Alias Summons was personally served upon FFMCCI
director Vicente Concepcion on September 25, 1991.43
Rule 14, Section 13 of the 1964 Rules of Court, which
was then in force, allowed the service of summons upon a
director of a private domestic corporation:
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The aforementioned rule does not require that service on
the private domestic corporation be served at its principal
office in order for the court to acquire jurisdiction over the
same. The Court, in Talsan Enterprises, Inc. v. Baliwag
Transit, Inc.,44 citing Baltazar v. Court of Appeals,45
affirmed that:
Hence, the personal service of the Alias Summons on an
FFMCCI director was sufficient for the RTC to acquire
jurisdiction over FFMCCI itself.
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Bad faith has been defined as “a breach of a known duty
through some motive of interest or ill will. It must,
however, be substantiated by evidence. Bad faith under the
law cannot be presumed, it must be established by clear
and convincing evidence.”48 There is no evidence in this
case to show bad faith on the part of CCCIC. CCCIC, in
refusing the claim of Kawasaki, was merely acting based
on its belief in the righteousness of its defense. Hence, even
though Kawasaki was compelled to litigate to enforce its
claim against CCCIC, the award of attorney’s fees is not
proper.
Finally, the Court, in Nacar v. Gallery Frames,49
modified the guidelines in imposing interests, taking into
account Bangko Sentral ng Pilipinas-Monetary Board
Resolution No. 796 dated May 16, 2013 and Circular No.
799, Series of 2013,
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