Case Digest (G.R. No. 113296)
Facts:
On May 24, 1989, Republic-Asahi Glass Corporation (“Republic-Asahi”) contracted with Jose D. Santos, Jr., sole proprietor of JDS Construction, for the construction of roadways and drainage within Republic-Asahi’s plant in Pasig City. The contract price was ₱5,300,000.00, and completion was required within 240 days from May 8, 1989. To guarantee performance, JDS Construction, with Stronghold Insurance Company, Inc. (“SICI”) as surety, issued Performance Bond No. SICI-25849/g(13)9769 in the amount of ₱795,000.00. Despite downpayments and two progress billings totaling ₱274,621.01, work lagged. On November 24, 1989, Republic-Asahi extrajudicially rescinded the contract for unsatisfactory progress, incurred an additional ₱3,256,874.00 to complete the works with another contractor, and demanded payment under the bond. After JDS’s proprietor died in 1990 and JDS’s whereabouts became unknown, Republic-Asahi sued both JDS (through its estate) and SICI in the trial court for damages andCase Digest (G.R. No. 113296)
Facts:
- Contract Formation and Performance Bond
- On May 24, 1989, Republic-Asahi Glass Corporation (Republic-Asahi) contracted with Jose D. Santos, Jr., proprietor of JDS Construction (JDS), for road and drainage works in Pasig City for ₱5,300,000.00, to be completed in 240 days from May 8, 1989.
- To guarantee performance, JDS and Stronghold Insurance Co., Inc. (SICI) executed Performance Bond No. SICI-25849/g(13)9769 in the penal sum of ₱795,000.00.
- Progress and Alleged Non-Performance
- Republic-Asahi paid a downpayment of ₱795,000.00 on May 23, 1989, and subsequent progress billings totaling ₱274,621.01 (7.301% of the work) in August and September 1989.
- Engineers repeatedly warned JDS of slow progress; by November 1989, completion within the 240-day period appeared unlikely.
- Contract Rescission and Claim Under the Bond
- On November 24, 1989, Republic-Asahi extrajudicially rescinded the contract under Article XIII, notifying JDS and reserving the right to damages per Article XV.
- Republic-Asahi incurred ₱3,256,874.00 in additional expenses to finish the work with another contractor.
- On January 6 and March 22, 1990, it demanded payment under the bond (₱795,000.00), without response from SICI.
- Death of the Principal and Lower Court Proceedings
- Summons were served on SICI; JDS’s principal, Jose D. Santos, Jr., had died in 1990 and JDS was unlocatable.
- In July 1991, SICI answered, arguing that Santos’s death extinguished the obligation and that no liquidation with due process occurred.
- The trial court (Aug 16, 1991) dismissed the complaint as claims against JDS did not survive Santos’s death; subsequent motions for reconsideration led to reinstatement and then final dismissal as to SICI on January 28, 1993.
- Court of Appeals Decision
- The CA held that SICI’s liability under the bond was solidary and not extinguished by the principal’s death.
- It found that contract performance became impossible due to JDS’s fault, triggering bond liability.
- The CA reversed the lower court’s January 28, 1993 Order and remanded for reception of evidence.
Issues:
- Whether the death of the principal obligor, Jose D. Santos, Jr., automatically extinguished SICI’s liability under the performance bond.
Ruling:
- (Subscriber-Only)
Ratio:
- (Subscriber-Only)
Doctrine:
- (Subscriber-Only)