Facts:
On July 17, 1916,
Romulo Machetti, by written agreement, undertook to construct a building on Calle Rosario in the city of Manila for
Hospicio de San Jose at a contract price of P64,000, the contract containing a clause that the contractor should obtain the
guaranty of
Fidelity & Surety Company of the Philippine Islands to the amount of P12,800 and bearing an English-language endorsement dated July 15, 1916 signed by Otto Vorster as Vice-President. The work was performed under the supervision of architects representing
Hospicio de San Jose, and progress payments were made until all but P4,978.08 of the contract price had been paid; subsequently the Hospicio refused to pay the balance upon finding defects and noncompliance with specifications and Machetti thereupon filed the complaint on May 28, 1917. The Hospicio answered on January 28, 1918 and counterclaimed damages of P71,350. After issue was joined, Machetti was declared insolvent on February 27, 1918 and, under section 60 of the Insolvency Law, Act No. 1956, proceedings in the case were suspended on March 4, 1918. The Hospicio moved on January 29, 1919 to make the
Fidelity & Surety Company cross-defendant and to continue the proceedings against it while keeping the action suspended as to Machetti; the motion was granted and the Hospicio filed a complaint against the company on February 7, 1920 seeking judgment for P12,800 on the guaranty. After trial the Court of First Instance entered judgment for P12,800 against
Fidelity & Surety Company, and the company appealed.
Issues:
Whether the court could lawfully continue and render judgment against the
Fidelity & Surety Company on its guaranty while proceedings against the principal,
Romulo Machetti, were suspended by insolvency. Whether the English-language instrument constituted a
guaranty distinct from
suretyship so as to make the guarantor liable only upon a showing of inability of the principal to pay.
Ruling:
Ratio:
Doctrine: