Title
Philippine National Bank vs. Manila Surety and Fidelity Co., Inc.
Case
G.R. No. L-20567
Decision Date
Jul 30, 1965
PNB's negligence in collecting funds from the Bureau of Public Works exonerated MSFC as surety, as PNB's inaction deprived MSFC of recourse under the irrevocable assignment, releasing MSFC from liability.

Case Digest (G.R. No. L-20567)
Expanded Legal Reasoning Model

Facts:

  • Parties and Background
    • The Philippine National Bank (PNB) opened a letter of credit and advanced $120,000.00 to Edgington Oil Refinery for 8,000 tons of hot asphalt.
    • Of the total, 2,000 tons worth P279,000.00 were released and delivered to Adams & Taguba Corporation (ATACO) under a trust receipt guaranteed by Manila Surety & Fidelity Co., Inc. (Surety), up to P75,000.00.
  • Assignment and Power of Attorney
    • ATACO assigned the Bank as its assignee and attorney-in-fact to collect from the Bureau of Public Works the amounts due under Purchase Order No. 71947.
    • The assignment included:
      • The assignment was irrevocable until the credit accommodation was fully liquidated.
      • The Bank was given power of attorney to collect and receive payments, endorse documents, and apply payments on the indebtedness. This power of attorney was also irrevocable until full payment.
  • Delivery and Payment
    • ATACO delivered asphalt to the Bureau of Public Works valued at P431,466.52, which the Bureau accepted.
    • The Bank collected payments from April 21, 1948, to November 18, 1948, totaling P106,382.01.
    • The Bank ceased collection thereafter for unexplained reasons.
  • Discovery of Uncollected Funds and Lawsuit
    • In 1952, the Bank’s investigators found additional moneys payable to ATACO amounting to P311,230.41, which were instead collected by another creditor.
    • The Bank demanded payment from ATACO and the Surety, which were refused.
    • The Bank sued both in the Court of First Instance to recover the balance of P158,563.18 as of February 15, 1950, plus interest and costs.
  • Trial Court Decision
    • The trial court ordered ATACO and Surety to pay the Bank P174,462.34 less P8,000 paid by the Surety, with interest at 5% per annum from February 25, 1956. The Surety’s maximum liability was capped at P75,000.
    • The court ordered ATACO and its principal to indemnify the Surety for any payments the Surety made.
    • The complaint regarding 17% special tax was dismissed, as well as the defendants’ counterclaims.
  • Appeal and Court of Appeals Decision
    • Only the Surety appealed to the Court of Appeals; the Bank and ATACO did not perfect their appeals.
    • The Court of Appeals found that the Bank had been negligent for ceasing collection from the Bureau of Public Works after November 18, 1948.
    • This negligence allowed other creditors to collect funds due ATACO, prejudicing the Surety, and resulting in the exoneration of the Surety’s liability.
  • Petition to the Supreme Court
    • The Bank challenged the Court of Appeals’ ruling, arguing that the power of attorney was merely additional security and that the surety bore the duty to ensure payment by the principal debtor.
    • The Bank contended it had no active duty to collect on the debt, citing a prior case (Judge Advocate General vs. Court of Appeals).

Issues:

  • Whether the Bank was negligent in failing to collect payments due from the Bureau of Public Works under its irrevocable power of attorney.
  • Whether such alleged negligence by the Bank exonerates Manila Surety & Fidelity Co., Inc. from its liability as surety.
  • Whether the Bank owed the Surety a duty of active diligence in collecting payments from the principal debtor’s creditors.

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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