Suretyship
CA and Gegroco (1994)
A. Definition
S2 (a): A contract of insurance is an agreement whereby
one undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an unknown
or contingent event.
A contract of suretyship shall be deemed to be an
insurance contract only if made by a surety who or which,
is doing an insurance business as hereinafter provided.
(b): The term doing an insurance business or transacting an
insurance business shall include:
1) Making or proposing to make, as insurer, any insurance
contract;
2) Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
3) Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the doing
of an insurance business within the meaning of this Code;
4) Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to
evade this Code.
In the application of provisions of this Code, that no profit
is derived from making of insurance contracts, agreements,
or transactions or that no separate or direct consideration
is received, shall not be deemed conclusive to show that
the making thereof does not constitute doing or
transacting of an insurance business.
S177: A contract of suretyship is an agreement whereby a
surety guarantees performance by a principal or obligor of
an obligation or undertaking in favor of a third party called
obligee. It includes official recognizances, stipulations,
bonds or undertakings issued by any company by virtue of
of Act No. 536, amended by Act No. 2206 (Act to Allow
Certain Corporations to be Accepted as Surety)
B. Extent of Liability
S178: Liability of the surety or sureties shall be joint and
several with the obligor and shall be limited to the amount
of the bond. It is determined strictly by terms of the
contract in relation to the principal contract between
obligor and obligee.
C. Premium Payment
S179: Surety is entitled to payment of the premium as soon
as contract of suretyship or bond is perfected and
delivered to obligor. No of suretyship or bonding shall be
valid and binding, unless and until premium has been paid,
except where obligee has accepted the bond, in which case
the bond becomes valid and enforceable irrespective of
whether or not premium has been paid by the obligor to
the surety: if the contract of suretyship or bond is not
accepted by or filed with the obligee, surety shall collect
only a reasonable amount, not exceeding 50% of the
premium due thereon as service fee plus cost of stamps or
taxes imposed for issuance of the contract or bond: If non-
acceptance of bond be due to fault or negligence of surety,
no such service fee, stamps or taxes shall be collected.
1. PH Pryce Assurance v.
F: In 1988, respondent Gegroco Inc. filed a collection case
for 1.5 Million from PH Pryce’s predecessor Interworld,
which issued 2 surety bonds for Sagum General
Merchandise. In its Answer, Interworld’s defenses were
that checks issued by Sagum for the payment of premium
bounced and thus, the suretyship did not materialize and
that in the event that it did, payment must first be sought
from Sagum, and that when the bonds were issued,
Interworld was not yet authorized by the Insurance
Commission to issue such. Upon pre-trial conference and
trial of the case, however, Interworld did not appear,
hence, it was declared in default.
On the strength of Gregroco’s ex-parte evidence, the RTC of
Makati ordered Interworld to pay 1.5 Million pesos and the
CA affirmed (no explanation).
Issue: W/N the CA erred in ordering Interworld to pay
Gregroco?
Held: NO. Under S177 of the Insurance Code, no contract of
suretyship shall be binding until payment of premium,
except where the obligee has accepted the bond,
irrespective of whether or not the obligor has paid the
premium to the surety. In the instant case, Interworld
admitted to have issued the bonds in its Answer. Also,
Interworld’s defense that it was not authorized to issue
said bonds is an admission of fraud from which it cannot
claim any benefit. Lastly, Interworld’s belated defense that
Sagum did not receive the parts it purchased from
Gregroco is negated by invoices presented. CA AFFIRMED.
D. Applicability of Civil Code
S180: 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 of suretyship.
2. Zaragoza v. Fidelino and Mabini Insurance (1988)
F: Respondent Maria Fidelino bought petitioner Antonio
Zaragoza’s car but failed to pay for the same. Hence,
Zaragoza filed a replevin suit to recover his car against
Fidelino. Pursuant to the case, the sheriff took possession
of the car but returned the same to Fidelino upon the
latter’s filing of a surety bond issued by co-respondent
Mabini Insurance.
The CFI of QC ordered Fidelino to pay 19.4K to Zaragoza
and 6.4K of liquidated damages. Without an appeal from
Fidelino, Zaragoza filed a motion to amend the decision to
include Mabini Insurance, which the CFI granted.
Issue: W/N the CFI erred in including Mabini in its
amended decision, even without service of summons or
acquisition of jurisdiction over Mabini?
Held: NO. Mabini’s reliance on Sec. 20 of R57 of the Rules
of Court on Damages from Illegal Attachment is misplaced
as Section 17 of the same Rule particularly deals with the
Surety’s Liability on Counter-bond. Under said Section, if
execution is unsatisfied in whole or in part, the surety shall
be charged after notice and summary hearing. In the
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
receiving summons or jurisdiction over it not having been
acquired is untenable as its bond is a voluntary submission
to the CFI’s authority. CFI AFFIRMED.
3. Eastern Assurance v. IAC and DAR (1989)
F: In 1976, the DAR held a public bidding for the repair of 7
Eisenhower jeeps and Motor City emerged as the winning
bidder. Motor City’s bid was accompanied by a Proposal
Bond required by DAR and petitioner Eastern Assurance
put up such bond in the amount of 33.2K. The problem
arose when Motor City only repaired 6 of the 7 jeeps with
the 7th jeep left undelivered despite several extensions.
Hence, DAR filed a suit for specific performance against
Motor City with Eastern Assurance as co-defendant. For its
part, Eastern Assurance averred that the Proposal bond
was not binding because it was exactly a mere proposal.
The RTC directed Motor City to deliver the 7th Eisenhower
Jeep already repaired and in case of default Eastern
Assurance shall pay no greater than 33.2K. The IAC
affirmed.
Issue: W/N Eastern Assurance should be held liable on its
Proposal Bond?
Held: YES. Although conceptually a Proposal Bond assures
that the bidder will enter into a contract with the project
owner, Eastern Assurance’s Proposal Bond guaranteed
that Motor City would post a Performance Bond, accept the
award, and would not be in delay or default in executing
the contract. Since Motor City failed to post a Performance
Bond and was in delay in the repair and delivery of the 7 th
Jeep, Eastern Assurance should be liable to the DAR.
Eastern Assurance’s defense that its 3 rd guaranty of
execution merely refers to the signing of contracts
contradicts the dictionary meaning of execution, which is
to complete performance. Here, the Proposal Bond is also a
Performance Bond. IAC AFFIRMED.
4. Stronghold Insurance Co. v. CA (1992)
F: In 1985, Leisure Club filed a replevin case against
Northern Motors for the recovery of furniture and
equipment. To provisionally recover the furniture and
equipment, Leisure Club posted a 42K Replevin Bond
issued by petitioner Stronghold. Northern Motors then
filed a counter-bond for the release of the properties, but
Leisure Club was never heard of again.
On the strength of Northern Motors’ ex parte evidence, the
RTC of Pasig dismissed Leisure Club’s replevin case. On
Motion for Execution of the Replevin Bond, the RTC
subsequently held Stronghold liable as Leisure Club’s
surety. The CA affirmed the RTC’s decision.
Issue: W/N the CA erred in holding Stronghold Insurance
liable?
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.
5. Prudential Guarantee v. Equinox Land (2007)
F: In 1996, respondent Equinox Land sent invitations to
building contractors for the addition of 5 floors to its EDSA
building. J’Marc Construction had the winning bid of 37
Million pesos and pursuant to the contract, J’Marc
submitted a 9.2 Million Surety Bond to guarantee the
unliquidated portion of the advance payment and a 7.4
Million Performance Bond, both issued by petitioner
Prudential. Problem arose when J’Marc neglected to cover
drainpipes, which were clogged by wet cement and this
snowballed to several delays and mishaps. Eventually,
Equinox terminated its contract with J’Marc with only 19%
done and claimed relief from Prudential for J’Marc’s
violations. Equinox would also file a complaint for
damages against J’Marc and Prudential.
The Construction Industry Arbitration Commission (CIAC)
ordered J’Marc to pay Equinox 5.2 Million in damages and
payment Equinox had advanced while Prudential is liable
for an aggregate amount of 8.7 Million for both Surety and
Performance Bonds. However, the CIAC would later reduce
J’Marc’s liability to roughly 4 Million and Prudential to 4.1
Million. The CA merely modified the CIAC’s amended
decision by declaring that J’Marc and Prudential were
liable for 5.3 Million and 5.9 Million, respectively.
Issue: W/N the CA erred in finding Prudential solidarily
liable with J’Marc for damages?
Held: NO. Under S175 of the Insurance Code, Prudential
entered into a suretyship by guaranteeing J’Marc’s
contractual obligation to Equinox. Moreover, the Civil Code
provides that a surety solidarily binds itself with the
principal debtor, hence, while the suretyship is a
secondary contract, the surety may be made primarily or
directly liable. CA AFFIRMED.
6. Intra-Strata v. Republic (2008)
7. Reparations Commission v. Universal Deep Sea
Fishing Corp. (1979)
Marine Insurance
A. Definition
Domestic Shipping Development Act of 2004
B. Perils of the Sea v. Perils of the Ship
C. Insurable Interest in Marine Insurance
D. Concealment and Misrepresentation
E. Implied Warranties
F. Deviation
G. Kinds of Losses Covered
a. Total
b. Partial
c. Actual
H. Abandonment
I. Measure of Indemnity