Case Digest (G.R. No. L-47369)
Facts:
In Joseph Cochingyan, Jr. and Jose K. Villanueva v. R & B Surety and Insurance Company, Inc. (G.R. No. L-47369, June 30, 1987), petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva executed indemnity agreements in December 1963 to secure Surety Bond No. 4765 issued by respondent R & B Surety in favor of the Philippine National Bank (PNB). Pacific Agricultural Suppliers, Inc. (PAGRICO) had obtained an increased credit line from PNB, and R & B Surety bound itself jointly and severally with PAGRICO to PNB for P400,000, plus interest and collection costs. Petitioners signed as indemnitors in their individual and representative capacities, agreeing to pay annual premiums and to indemnify R & B Surety for any liability it sustained under the bond, including attorney’s fees. When PAGRICO defaulted, R & B Surety made partial payments totaling P70,000 to PNB and demanded reimbursement from petitioners. Unheeded demands led the respondent to file suit in the Court of First Instance oCase Digest (G.R. No. L-47369)
Facts:
- Background of Credit and Surety Bond
- In November 1963, Pacific Agricultural Suppliers Inc. (PAGRICO) obtained PNB approval to increase its credit line from ₱400,000 to ₱800,000 (“Principal Obligation”), conditioned on posting a ₱400,000 surety bond.
- R & B Surety and Insurance Co., Inc. (“R & B Surety”) issued Surety Bond No. 4765 in favor of PNB, binding PAGRICO and R & B Surety “jointly and severally” to comply with the credit terms, with PNB entitled to proceed directly against R & B Surety. The bond covered principal, accrued interest, and collection costs.
- Indemnity Agreements
- Two identical indemnity agreements were executed:
- On December 23, 1963, by Catholic Church Mart (CCM) and Joseph Cochingyan, Jr. (in personal and corporate capacity).
- On December 24, 1963, by PAGRICO, Pacific Copra Export Inc. (PACOCO), José K. Villanueva (personal and manager capacity), and Liu Tua Beh (personal and president capacity).
- Key stipulations included:
- Payment of annual premiums (₱5,103.05).
- Indemnification of R & B Surety for damages, costs, attorney’s fees (minimum 20% of claim), upon demand or court order, whether or not R & B Surety actually paid PNB.
- Authorization for R & B Surety to grant extensions or accept part payments without other obligors’ consent.
- Finality of any payment by R & B Surety and obligation of indemnitors to reimburse.
- Default and Proceedings Below
- PAGRICO defaulted on its obligation. PNB demanded payment of ₱400,000 from R & B Surety; the latter paid ₱70,000 in installments and sought reimbursement from Cochingyan and Villanueva.
- R & B Surety filed suit in the Court of First Instance of Manila against Cochingyan, Villanueva, and Liu, claiming:
- Unpaid bond premiums (₱20,412.20 plus ₱5,103.05 yearly).
- Principal bond amount (₱400,000) with interest on the ₱70,000 paid.
- Defenses:
- Cochingyan claimed the indemnity was a mere formality; he was a stranger, and R & B Surety was estopped.
- Villanueva asserted “accommodation” signing; novation by a subsequent Trust Agreement; and premature suit.
- Trial court found no evidence supporting defenses, rendered judgment for R & B Surety ordering Cochingyan and Villanueva to pay ₱400,000 with interest, unpaid premiums, and attorney’s fees; dismissed Liu.
- Petitioners appealed to the Court of Appeals, which certified the case to the Supreme Court raising only questions of law.
Issues:
- Whether the Trust Agreement of December 28, 1965, whereby CCM (as Trustor), PNB (as Beneficiary), and a trustee agreed that CCM would assume PAGRICO’s and R & B Surety’s obligations, effected objective or subjective novation of the Surety Bond and extinguished petitioners’ indemnity obligations.
- Whether PNB’s agreement in the Trust Agreement “to hold in abeyance any action” against R & B Surety extended the maturity of the Surety Bond without petitioners’ consent, thereby extinguishing their obligations under Article 2079 of the Civil Code.
- Whether the suit by R & B Surety against petitioners was premature because PNB had not first sued R & B Surety to enforce the bond.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)