G.R. No. 166044 - Country Bankers Insurance Corp. vs. Keppel Cebu Shipyard

On January 27, 1992, Unimarine Shipping Lines, Inc. engaged Keppel Cebu Shipyard (formerly Cebu Shipyard and Engineering Works, Inc.) to dry-dock and repair its vessel M/V Pacific Fortune. Bill No. 26035 amounted to ₱4,486,052.00, later negotiated to ₱3,850,000.00 as evidenced by Cebu Shipyard’s February 18, 1992 letter, signed by Paul Rodriguez. Payment was to be made in U.S. dollars at prevailing exchange rates, via two installments (₱2,350,000 due May 30, 1992; ₱1,500,000 due June 30, 1992), post-dated peso checks, plus 10% VAT (₱385,000), and secured by surety bonds equal to 120% of credit (₱4,620,000).
Unimarine obtained:

CBIC Surety Bond No. G(16)29419 for ₱3,000,000.00 on January 15, 1992, issued by agent Bethoven Quinain, extended by endorsement to January 15, 1993.
Plaridel Surety Bond No. G(16)-00365 for ₱1,620,000.00 on February 19, 1992.
A Contract of Undertaking (February 17, 1992) irrevocably waiving rights of excussion and binding Unimarine to punctual payment.

Unimarine failed to pay the May 30 installment; the issued check for ₱2,350,000 was dishonored for insufficient funds. Cebu Shipyard sent multiple faxes (June–August 1992) reminding Unimarine of its obligations and warning of interest charges and legal action.
On November 18, 1992, Cebu Shipyard’s counsel demanded ₱4,859,458.00 (₱3,850,000 principal + ₱385,000 VAT + ₱624,458 interest/penalties) within seven days, and formally notified CBIC and Plaridel to fulfill their surety undertakings.

January 8, 1993: Cebu Shipyard filed Civil Case No. CBB-13447 against Unimarine, CBIC, and Plaridel. CBIC denied cause of action, contended Quinain exceeded his authority (bond limited to DPWH and government agencies, capped at ₱500,000), alleged novation, payment by assignment, and prescription, and argued its liability was limited to the bond’s face value.
CBIC filed a cross and third-party complaint against Unimarine, indemnity signatories (Paul Rodriguez, Peter Rodriguez, Albert Hontanosas), and agent Quinain, seeking indemnification. Hontanosas counterclaimed that his signature was forged.

RTC Decision (February 10, 1997): Held CBIC as surety jointly and severally liable with Unimarine and Plaridel for ₱4,620,000 (bond value), plus Unimarine to pay additional ₱259,458; awarded ₱100,000 attorney’s fees; ordered indemnification of CBIC by cross- and third-party defendants.
CA Decision (January 29, 2004): Affirmed RTC with modification, holding agent Quinain jointly and severally liable with CBIC under Surety Bond No. 29419; denied motions for reconsideration (October 28, 2004). CBIC filed a Rule 45 petition to the Supreme Court.

Did the Court of Appeals err in applying Civil Code Article 1911 to hold CBIC liable for acts of its agent Quinain beyond his authority?
Did the extension of the performance period granted by Cebu Shipyard to Unimarine release CBIC as surety?
Could CBIC be held jointly and severally liable beyond the bond’s face value?
Was CBIC properly held liable for attorney’s fees amounting to ₱100,000.00?

Liability of Unimarine to Cebu Shipyard for the ship-repair contract.
Extinguishment of obligation by novation or assignment of vessel-sale proceeds.
Liability of CBIC under Surety Bond No. 29419.
Liability of indemnity signatories (Rodriguez brothers, Hontanosas) and agent Quinain.
Entitlement to attorney’s fees and litigation expenses.