G.R. No. 245887 - City of Davao vs. AP Holdings, Inc.

The case involves a motion for reconsideration of a decision rendered on 14 September 1999 by the Regional Trial Court.
The petitioner is the Bureau of Customs, and the respondents are the Court of Appeals and R & B Surety and Insurance Company, Inc.
The issue arose out of obligations linked to four embroidery bonds issued in favor of Endelo which was under scrutiny due to an alleged suspension of its operating license.

The suspension of Endelo’s license to operate rendered the obligation to re-export the imported materials impossible to perform, or in effect, equivalent to a cancellation/revocation of the license—thereby discharging the surety from its liability.
Even if R & B Surety were found liable, it contended that it should not be held solidarily liable with Communications Insurance Company, Inc. (CICI) as was erroneously determined by the RTC.
It was further argued that for bond numbers 0064 and 0073, R & B was erroneously charged for more than the face value of the bonds; and in bond number 0067, it was mistakenly charged twice, in violation of Section 176 of the Insurance Code which limits the liability of the surety strictly to the bond’s face value.

The respondent also maintained that it should not incur legal interest that would increase its liability beyond the bond amount, asserting that such interest was for default and judicial collection rather than part of the surety’s contractual obligation.

Evidence showed that Endelo’s license had been suspended in 1970, after allegations of pilferage and a subsequent investigation, but no conclusive proof was provided that this suspension made re-exporting the imported materials impossible.
It was noted that Endelo bore the burden to prove that the suspension was not only illegal and unnecessary, but that it also indefinitely prevented compliance with its export obligations.
The investigation records were reportedly no longer available, having been condemned due to retention policies of the Bureau of Customs, yet this absence was not taken as evidence of the impropriety of the suspension.

The four bonds, detailed with their respective face values (P500,000.00, P1,000,000.00, P1,000,000.00, and P500,000.00), totaled P3,000,000.00.
However, the trial court had required R & B Surety to pay a total of P4,305,017.00, which included duties and taxes due, surpassing the total face value of the bonds.
The computation as argued by the petitioner broke down the total amount into dues corresponding to each bond, leading to the conclusion that R & B’s liability should be computed as P2,588,568.00 (excluding legal interest), thereby challenging the imposition of a charge above the contractual limit.
The application of legal interest on the amount due was justified by the court on the grounds of default and the cost of judicial collection.

The Solicitor General was required to comment on the motion for reconsideration.
In his concluding statement, the Solicitor General supported denying the motion for reconsideration except for the plea for modification regarding the computed amount of liability against R & B Surety.

Whether the suspension of Endelo’s license to operate rendered the re-exportation of materials impossible, thereby justifying the discharge of R & B Surety from its obligations.
Whether R & B Surety should be held solidarily liable alongside CICI, or if its liability should be separate and limited exclusively under the contract of suretyship.
Whether R & B Surety was erroneously charged in excess of the face value of the bonds and, in one instance, charged twice, in direct violation of Section 176 of the Insurance Code.
Whether R & B Surety should be liable for legal interest on the amount due, which would increase its obligation beyond the bond’s face value.