CASE #81

CASE DIGEST:
FACTS:
On 24 May 1989, Republic-
Asahi (respondent) entered into
a contract with JDS
Construction for the
construction of roadways and
drainage system in its
compound where the
respondent was to pay
P5,300,000.00,
inclusive of VAT, to be
completed within 240 days.
In order to guarantee the
faithful and satisfactory
CASE #81

performance, JDS shall post

a performance bond of
P795,000.00, jointly and
severally with Stronghold
Insurance (petitioner).
Dissatisfied for the alleged
alarmingly slow pace of the
construction, which resulted in
the fear that the
construction will not be finished
within the stipulated 240-day
period, the respondent extra-
judicially rescinded
the contract pursuant to Article
XIII of said contract. Such
CASE #81

rescission, according to Article

XV of the contract
shall not be construed as a
waiver of respondent’s right to
recover damages from JDS and
the latter’s sureties.
Respondent alleged that it had
to hire another contractor to
finish the project which
incurred additional
expense of P3,256,874.00 for
JDS’ failure to comply with the
provisions of the contract. A
complaint was then
CASE #81

filed against JDS and

Stronghold and sought the
payment of additional expenses
incurred from JDS; damages, in
accordance with the
performance bond, from JDS
and petitioner, jointly and
severally, P750,000.00;
exemplary
damages of P100,000.00; and
attorney’s fees of at least
P100,000.00.
However, JDS Jr. died on 1990
and JDS Construction was no
CASE #81

longer at its address and its

whereabouts
were unknown.
The lower court moved to
dismiss the complaint on the
ground that the claim against
JDS did not survive
the death of its sole proprietor.
Herein respondent then filed a
Motion for Reconsideration
which was given due
course by the Court of Appeals.
Thereafter, CA ruled that the
Stronghold’s obligation under
the surety agreement
CASE #81

was not extinguished by the

death of JDS Jr. Consequently,
Republic-Asahi could still go
after herein petitioner
for the bond.
ISSUE:
Will the petitioner’s liability,
under the performance bond, be
automatically extinguished by
the death of
JDS, the principal?
HELD:
No, the petitioner’s liability
cannot be automatically
CASE #81

extinguished by the death of its

principal.
As a general rule, the death
of either the creditor or the
debtor does not extinguish the
obligation.
Obligations are transmissible to
the heirs, except when the
transmission is prevented by the
law, the stipulations
of the parties, or the nature of
the obligation. Only obligations
that are personal or are
identified with the persons
CASE #81

themselves are extinguished by

death.
The liability of herein
petitioner is contractual in
nature, because it executed a
performance bond,
whatever monetary liabilities
or obligations Santos had
under his contracts with
respondent were not
intransmissible by their nature,
by stipulation, or by provision
of law. Hence, his death did not
result in the
CASE #81

extinguishment of those
obligations or liabilities, which
merely passed on to his estate.
Under the law and
jurisprudence, respondent may
sue, separately or together, the
principal debtor and the
petitioner herein, in view of the
solidary nature of their liability.
The death of the principal
debtor will not work
to convert, decrease or nullify
the substantive right of the
solidary creditor. Evidently,
despite the death of the
CASE #81

principal debtor, respondent

may still sue petitioner alone, in
accordance with the solidary
nature of the latter’s
liability under the performance
bond.
STRONGHOLD INSURANCE CO., INC., v. REPUBLIC-ASAHI GLASS CORP.

GR No. 147561, June 22, 2006

TOPIC:

Guaranty and Suretyship- Extinguishment of Guaranty

 
DOCTRINES: 

1. A surety company’s liability under the performance bond it issues is solidary. The death of
the principal obligor does not, as a rule, extinguish the obligation and the solidary nature of
that liability.
2. The surety’s obligation is not an original and direct one for the performance of his own act,
but merely accessory or collateral to the obligation contracted by the principal. Nevertheless,
although the contract of a surety is in essence secondary only to a valid principal obligation,
his liability to the creditor or promisee of the principal is said to be direct, primary and
absolute; in other words, he is directly and equally bound with the principal.
3.

CASE DIGEST:
FACTS:
CASE #81

On 24 May 1989, Republic-

Asahi (respondent) entered into
a contract with JDS
Construction for the
construction of roadways and
drainage system in its
compound where the
respondent was to pay
P5,300,000.00,
inclusive of VAT, to be
completed within 240 days.
In order to guarantee the
faithful and satisfactory
performance, JDS shall post
a performance bond of
CASE #81

P795,000.00, jointly and

severally with Stronghold
Insurance (petitioner).
Dissatisfied for the alleged
alarmingly slow pace of the
construction, which resulted in
the fear that the
construction will not be finished
within the stipulated 240-day
period, the respondent extra-
judicially rescinded
the contract pursuant to Article
XIII of said contract. Such
rescission, according to Article
XV of the contract
CASE #81

shall not be construed as a

waiver of respondent’s right to
recover damages from JDS and
the latter’s sureties.
Respondent alleged that it had
to hire another contractor to
finish the project which
incurred additional
expense of P3,256,874.00 for
JDS’ failure to comply with the
provisions of the contract. A
complaint was then
filed against JDS and
Stronghold and sought the
CASE #81

payment of additional expenses

incurred from JDS; damages, in
accordance with the
performance bond, from JDS
and petitioner, jointly and
severally, P750,000.00;
exemplary
damages of P100,000.00; and
attorney’s fees of at least
P100,000.00.
However, JDS Jr. died on 1990
and JDS Construction was no
longer at its address and its
whereabouts
were unknown.
CASE #81

The lower court moved to

dismiss the complaint on the
ground that the claim against
JDS did not survive
the death of its sole proprietor.
Herein respondent then filed a
Motion for Reconsideration
which was given due
course by the Court of Appeals.
Thereafter, CA ruled that the
Stronghold’s obligation under
the surety agreement
was not extinguished by the
death of JDS Jr. Consequently,
CASE #81

Republic-Asahi could still go

after herein petitioner
for the bond.
ISSUE:
Will the petitioner’s liability,
under the performance bond, be
automatically extinguished by
the death of
JDS, the principal?
HELD:
No, the petitioner’s liability
cannot be automatically
extinguished by the death of its
principal.
CASE #81

As a general rule, the death

of either the creditor or the
debtor does not extinguish the
obligation.
Obligations are transmissible to
the heirs, except when the
transmission is prevented by the
law, the stipulations
of the parties, or the nature of
the obligation. Only obligations
that are personal or are
identified with the persons
themselves are extinguished by
death.
CASE #81

The liability of herein

petitioner is contractual in
nature, because it executed a
performance bond,
whatever monetary liabilities
or obligations Santos had
under his contracts with
respondent were not
intransmissible by their nature,
by stipulation, or by provision
of law. Hence, his death did not
result in the
extinguishment of those
obligations or liabilities, which
merely passed on to his estate.
CASE #81

Under the law and

jurisprudence, respondent may
sue, separately or together, the
principal debtor and the
petitioner herein, in view of the
solidary nature of their liability.
The death of the principal
debtor will not work
to convert, decrease or nullify
the substantive right of the
solidary creditor. Evidently,
despite the death of the
principal debtor, respondent
may still sue petitioner alone, in
CASE #81

accordance with the solidary

nature of the latter’s
liability under the performance
bond.
FACTS:
On 24 May 1989, Republic-Asahi (respondent) entered into a contract with JDS Construction for
the construction of roadways and drainage system in its compound where the respondent was
to pay P5,300,000.00 inclusive of VAT, to be completed within 240 days. In order to guarantee
the faithful and satisfactory performance, JDS shall post a performance bond of P795,000.00,
jointly and severally with Stronghold Insurance (petitioner).

Dissatisfied for the alleged alarmingly slow pace of the construction, which resulted in the fear
that the construction will not be finished within the stipulated 240-day period, the respondent
extra-judicially rescinded the contract pursuant to Article XIII of said contract. Such rescission,
according to Article XV of the contract shall not be construed as a waiver of respondent’s right
to recover damages from JDS and the latter’s sureties.

Respondent alleged that it had to hire another contractor to finish the project which incurred
additional expense of P3,256,874.00 for JDS’ failure to comply with the provisions of the
contract. A complaint was then filed against JDS and Stronghold and sought the payment of
additional expenses incurred from JDS; damages, in accordance with the performance bond,
from JDS and petitioner, jointly and severally, P750,000.00; exemplary damages of P100,000.00;
and attorney’s fees of at least P100,000.00. However, JDS Jr. died on 1990 and JDS Construction
was no longer at its address and its whereabouts were unknown.

The lower court moved to dismiss the complaint on the ground that the claim against JDS did
not survive the death of its sole proprietor. Herein respondent then filed a Motion for
Reconsideration which was given due course by the Court of Appeals. Thereafter, CA ruled that
the Stronghold’s obligation under the surety agreement was not extinguished by the death of
JDS Jr. Consequently, Republic-Asahi could still go after herein petitioner for the bond.

ISSUE:
Will the petitioner’s liability, under the performance bond, be automatically extinguished by the
death of JDS, the principal?

RULING:
CASE #81

No, the petitioner’s liability cannot be automatically extinguished by the death of its principal.
As a general rule, the death of either the creditor or the debtor does not extinguish the
obligation.

Obligations are transmissible to the heirs, except when the transmission is prevented by the
law, the stipulations of the parties, or the nature of the obligation. Only obligations that are
personal or are identified with the persons themselves are extinguished by death.
The liability of herein petitioner is contractual in nature, because it executed a performance
bond, whatever monetary liabilities or obligations Santos had under his contracts with
respondent were not intransmissible by their nature, by stipulation, or by provision of law.
Hence, his death did not result in the extinguishment of those obligations or liabilities, which
merely passed on to his estate. Under the law and jurisprudence, respondent may sue,
separately or together, the principal debtor and the petitioner herein, in view of the solidary
nature of their liability. The death of the principal debtor will not work to convert, decrease or
nullify the substantive right of the solidary creditor. Evidently, despite the death of the principal
debtor, respondent may still sue petitioner alone, in accordance with the solidary nature of the
latter’s liability under the performance bond.