G.R. No. 192099 - Ejercito vs. Oriental Assurance Corp.

On May 10, 1999, Oriental Assurance Corporation (respondent), through its Executive Vice President Luz N. Cotoco, issued a Surety Bond in favor of FFV Travel & Tours, Inc. (Company).
The bond guaranteed the Company’s payment for airline tickets purchased on credit from International Air Transport Association (IATA) members, to the extent of ₱3,000,000.00.

On the same day, petitioners Paulino M. Ejercito, Jessie M. Ejercito, Johnny D. Chang, and Merissa C. Somes executed a Deed of Indemnity in favor of the respondent.

The Surety Bond was effective for one year from May 10, 1999, to May 10, 2000.
It was renewed for another year, from May 10, 2000, until May 10, 2001, as evidenced by Bond Endorsement No. OAC-2000/0145 dated April 17, 2000.
The renewal premium amounting to ₱15,024.54 was paid by the insured corporation under Official Receipt No. 100262.
Somes paid the renewal premium and utilized the renewed bond by submitting it to IATA.

FFV Travel & Tours, Inc. defaulted on its obligations amounting to ₱5,484,086.97 and USD 18,760.98 as of July 31, 2000.
IATA demanded payment of the bond from the respondent. Respondent complied on November 28, 2000, evidenced by China Bank Check No. 104949.
IATA executed a Release of Claim on November 29, 2000, acknowledging payment of the surety bond.

Respondent sent demand letters to the petitioners and Somes for reimbursement of the ₱3,000,000 pursuant to the indemnity agreement.
Petitioners and Somes failed to reimburse the respondent, prompting the latter to file a collection suit.

The RTC dismissed the complaint against the petitioners for lack of merit but held Somes liable for payment of ₱3,000,000 with 12% annual interest from the date of complaint filing until full payment.
RTC’s basis: no written agreement to renew the Deed of Indemnity, evidenced by lack of signatures on the Renewal Notice, which Somes did not sign.
Somes’ liability was due to her paying the renewal premium and presenting the renewed bond to IATA.

The CA reversed the RTC ruling, holding the petitioners jointly and severally liable to pay the amount with interest, attorney’s fees, and costs of suit.
The CA ruled that petitioners authorized respondent to grant any renewal or extension under the indemnity agreement’s stipulation.
The Deed of Indemnity contained a clause empowering the respondent to grant extensions, renewals, modifications, or changes to the original bond without petitioners’ prior consent.
Petitioners, being educated and voluntarily signing the agreement (one petitioner being a lawyer), were presumed to understand the binding nature of their undertaking.

Whether the Court of Appeals erred in ruling that petitioners are liable to indemnify the respondent under the Deed of Indemnity, despite petitioners’ alleged lack of consent to be bound beyond the original one-year bond validity.

Whether the Court of Appeals erred in ruling that petitioners are liable to pay attorney’s fees, considering petitioners did not breach their obligation under the Deed of Indemnity during the original bond’s one-year effectivity.