Stronghold Insurance Co. Inc. vs Republic-Asahi Glass Corp.

G.R. 147561 | June 22, 2006

C.J. Panganiban

Digest author: Fortes, Betina

Topic: Rule 86 - Claims allowed

Petitioner: Stronghold Insurance Co. Inc.

Respondents: Republic-Asahi Glass Corp.

Case Summary: Republic-Asahi Glass Corp. entered into a contract w/ the proprietor of JDS
Construction, Jose Santos, Jr., for construction work, w/c was supposed to be completed w/in a period
of 240 days. Moreover, JDS was to post a performance bond to guarantee the faithful and satisfactory
performance of its undertakings. Thus, JDS executed, jointly and severally, w/ Stronghold Insurance
Co. Inc. (SICI) said perf bond. However, Republic-Asahi eventually extrajudicially rescinded the
contract due to the alarmingly slow pace of the construction. As a result, Republic-Asahi had to hire
another contractor to finish the project, for w/c Republic-Asahi incurred an additional expense. Thus,
Republic-Asahi filed a complaint against JDS and SICI, seeking from them, jointly and severally,
payment of damages in accordance w/ the bond. However, Santos already died a year before the
summons were served. Thus, SICI alleged that Republic-Asahi’s money claims against the former and
JDS have already been extinguished by the death of Santos. The lower court agreed w/ SICI and
dismissed the complaint. CA reversed, ruling that SICI’s obligation under the surety agreement was
not extinguished by the death of Santos. SC agreed w/ the CA, holding that SICI’s liability under the
bond was not automatically extinguished by the death of Santos, the principal, as whatever monetary
liabilities or obligations Santos had under his contracts w/ Republic-Asahi were not intransmissible by
their nature, by stipulation, or by provision of law.

Doctrines Involved:
● Sec 5 ROC 86 expressly allows the prosecution of money claims arising from a contract
against the estate of a deceased debtor
○ Such claims are not actually extinguished
○ What is extinguished is only the obligee’s action or suit filed before the court, w/c is
not then acting as a probate court

FACTS:
1. Republic-Asahi Glass Corp. entered into a contract w/ the proprietor of JDS Construction,
Jose Santos, Jr., for the construction of roadways and a drainage system in Republic-Asahi’s
compound, where Republic-Asahi was to pay JDS P5.3M
a. The construction was supposed to be completed w/in a period of 240 days beginning
May 8, 1989.
b. Moreover, JDS was to post a performance bond of P795k in order to guarantee the
faithful and satisfactory performance of its undertakings
i. Thus, JDS executed, jointly and severally, w/ Stronghold Insurance Co. Inc.
(SICI) said perf bond.
2. Several times prior to Nov. 1989, Republic-Asahi’s engineers called the attention of JDS to
the alarmingly slow pace of the construction, w/c resulted in the fear that the construction will
not be finished w/in the 240-day period.
a. However, these reminders went unheeded by JDS
3. On Nov. 24, 1989, Republic-Asahi extrajudicially rescinded the contract pursuant to Art XIII
thereof as Republic-Ashi was dissatisfied w/ the progress of the work undertaken by JDS.
a. According to Art XV of the contract, such rescission shall not be construed as a
waiver of Republic-Asahi’s right to recover damages from JDS and the latter’s
sureties
 4. Republic-Asahi alleged that, as a result of the failure of JDS to comply w/ the provisions of
the contract, w/c resulted to the rescission, Republic-Asahi had to hire another contractor to
finish the project, for w/c Republic-Asahi incurred an additional expense of P3,256,874
5. Thus, Republic-Asahi sent letters to SICI filing the former’s claim under the bond for not less
than P795k.
a. However, these went unheeded.
6. This prompted Republic-Asahi to file a complaint against JDS and SICI, seeking from JDS
payment of P3,256,874 and from JDS and SICI, jointly and severally, payment of P750k as
damages in accordance w/ the bond; exemplary damages in the amt of P100k; and atty’s fees
in the amt of at least P100k.
7. However, Santos already died a year before the summons were served.
8. Thus, SICI alleged that Republic-Asahi’s money claims against the former and JDS have
already been extinguished by the death of Santos.
a. That even if this were not the case, SICI had already been released from its liability
under the bond as there was no liquidation w/ the active participation of SICI as
surety and Santos as contractor, pursuant to procedural due process.
i. At this point in time, such liquidation was impossible due to the death of
Santos
ii. Accordingly, there was no ascertainment of the liabilities of Santos and SICI
under the bond.
iii. The unilateral liquidation on the part of Republic-Asahi of the work
accomplishments did not bind SICI for being violative of procedural due
process.
1. The claim of Republic-Asahi for the forfeiture of the bond in the amt
of P795k had no factual and legal basis as payment of such bond was
conditioned on the payment of damages w/c Republic-Asahi may
sustain in the event JDS failed to complete the contracted works.
2. However, Republic-Asahi can no longer prove its claim for damages
because of the death of Santos.
iv. Moreover, SICI was not informed by Republic-Asahi of the death of Santos.
9. Lower court dismissed the complaint of Republic-Asahi on the ground that the claim against
JDS did not survive the death of its sole proprietor, Santos.
10. Republic-Asahi filed a motion for recon.
11. Lower court gave due course to the motion and reinstated the case.
12. SICI filed a Memorandum for Bondsman/Defendant SICI (Re: Effect of Death of Santos)
reiterating its prayer for the dismissal of the complaint
13. Lower court reconsidered its previous Order and ordered the case dismissed insofar as SICI
is concerned.
14. Republic-Asahi filed a motion for recon
a. w/c was denied
15. Thus, Republic-Asahi filed before CA
16. CA reversed and set aside the lower court, remanding the case thereto for the reception of
evidence of all parties, including SICI.
a. Ruled that SICI’s obligation under the surety agreement was not extinguished by the
death of Santos → Republic-Asahi could still go after SICI for the bond
17. SICI filed a petition for review before SC, adopting the defense of the heirs of Santos, which
is the death of Santos, against the claim of Republic-Asahi as obligee.

ISSUES + HELD:
1. W/N SICI’s liability under the bond was automatically extinguished by the death of Santos,
the principal - NO
a. Pet. SICI: The death of Santos, the bond principal, extinguished his (Santos’)
liability under the bond → SICI is automatically released from any liability under the
same
 b. Court: GR – death of either the creditor or debtor does not extinguish the obligation
i. Obligation are transmissible to the heirs, EXCEPT when the transmission is
prevented by:
1. Law
2. Stipulations of the parties
3. Nature of the obligation
a. Only obligations that are personal or are identified w/ the
persons themselves are extinguished by death
c. Sec 5 ROC 86 expressly allows the prosecution of money claims arising from a
contract against the estate of a deceased debtor
i. Such claims are not actually extinguished
ii. What is extinguished is only the obligee’s action or suit filed before the court,
w/c is not then acting as a probate court
d. In this case, whatever monetary liabilities or obligations Santos had under his
contracts w/ Republic-Asahi were not intransmissible by their nature, by stipulation,
or by provision of law.
i. Thus, his death did not result in the extinguishment of those obligations or
liabilities, w/c merely passed on to his estate.
ii. Death is not a defense that he or his estate can set up to wipe out the
obligations under the bond → SICI, as surety, cannot use his death to escape
its monetary obligation under its bond.
e. The liability of SICI is contractual in nature, as it executed a perf bond.
f. As a surety, SICI is solidarily liable w/ Santos in accordance w/ the NCC:
i. "Art. 2047. By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter
should fail to do so.
"If a person binds himself solidarily with the principal debtor, the provisions
of Section 4, 17 Chapter 3, Title I of this Book shall be observed. In such case
the contract is called a suretyship."
ii. "Art. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed against
the others, so long as the debt has not been fully collected."
g. Garcia vs CA: The surety’s liability to the creditor or promisee of the principal is said
to be direct, primary, and absolute; in other words, s/he is directly and equally bound
w/ the principal.
h. In this case, Republic-Asahi may sue, separately or together, the principal debtor and
SICI, in view of the solidary nature of their liability.
i. The death of the principal debtor will not work to convert, decrease, or
nullify the substantive right of the solidary creditor.
ii. Thus, Republic-Asahi may still sue SICI alone, despite the death of Santos, in
accordance w/ the solidary nature of the latter’s liability under the bond.

RULING: Petition DENIED

CA Decision AFFIRMED

NOTES:

Sec 5 ROC 86:

"SEC. 5. Claims which must be filed under the notice. If not filed, barred; exceptions. — All claims
for money against the decedent, arising from contract, express or implied, whether the same be due,
not due, or contingent, all claims for funeral expenses and expenses for the last sickness of the
decedent, and judgment for money against the decedent, must be filed within the time limited in the
notice; otherwise they are barred forever, except that they may be set forth as counterclaims in any
action that the executor or administrator may bring against the claimants. . . . ."