Title
Republic vs. Court of Appeals
Case
G.R. No. 103073
Decision Date
Mar 13, 2001
A dispute arose over R & B Surety's liability for bonds issued to secure Endelo's re-export obligations. The Court ruled R & B Surety's liability is limited to bond face value, solidary with Endelo, and upheld legal interest for delayed payment.
liability
duties and taxes
legal interest

Case Summary (G.R. No. 103073)

Factual Background

Endelo, the principal obligor, deposited imported raw materials in the bonded warehouse of the Bureau of Customs and secured several embroidery bonds underwritten in part by respondent R & B Surety and Insurance, Inc.. Allegedly there was pilferage of the imported articles, an investigation ensued, and Endelo’s license to operate was suspended in 1970. Endelo contended that the suspension prevented re-exportation of the articles and thereby excused performance under the bonds.

Trial Court Proceedings

The Regional Trial Court rendered judgment on 13 February 1989 holding respondent R & B liable for duties and taxes attributable to four embroidery bonds, and it required R & B to pay P4,305,017.00, a figure exceeding the aggregate face value of the bonds issued by R & B. The trial court treated the surety’s liability as covering the full amounts assessed by petitioner.

Court of Appeals Ruling and Motion for Reconsideration

The Court of Appeals rendered a decision dated 14 September 1999 that was subsequently the subject of a motion for reconsideration filed by respondent-movant R & B Surety and Insurance, Inc.. R & B advanced three principal grounds: that the suspension of Endelo’s license rendered performance impossible and thereby discharged the surety; that R & B’s liability was not solidary with the co-surety Communications Insurance Company, Inc. (CICI); and that R & B had been charged in excess of the face value of certain bonds and twice charged in palpable violation of Section 176 of the Insurance Code.

Solicitor General’s Response

The Solicitor General was ordered to comment on the motion for reconsideration and filed a memorandum in which he urged denial of the motion except insofar as R & B sought modification of the extent of its monetary liability under the judgment. The Solicitor General thus concurred that liability might be limited to the bond amounts but opposed other grounds urged by R & B.

Issue Presented

The principal issues were whether the suspension of Endelo’s license discharged R & B from its obligation under the surety bonds; whether R & B’s liability could exceed the face value of the bonds pursuant to Section 176 of the Insurance Code; whether R & B’s liability was solidary with that of the other surety CICI; and whether legal interest should be imposed on any reduced obligation.

Court’s Analysis on Suspension and Impossibility of Performance

The Court rejected R & B’s contention that the suspension of Endelo’s license relieved the surety of liability. The record did not establish that the suspension rendered re-exportation impossible or that the suspension amounted to a revocation that discharged the surety. Endelo had asserted the suspension was illegal in its answer but failed to present supporting evidence. The Court applied the presumption of regularity in official acts and emphasized that Endelo bore the burden to prove that the suspension was illegal or indefinite in duration and that it prevented compliance with the bonds. The Court further noted Endelo’s failure to seek administrative relief to lift the suspension and observed the absence of convincing proof that export within two years was impossible.

Court’s Analysis on Limitation of Liability Under Section 176

The Court accepted that Section 176 of the Insurance Code limits a surety’s liability to the face amount of the bond and that such liability is determined strictly by the terms of the surety contract in relation to the principal contract. The Court therefore found merit in R & B’s contention that it could not be held for amounts exceeding the face values of the bonds it had issued.

Computation of R & B’s Maximum Liability

The Court itemized the face values of the bonds issued by R & B as they appeared in the record: bond 0064 dated 20 February 1970, face value P500,000.00; bond 0067 (with indorsement) dated 18 March 1970, face value P1,000,000.00; bond 0067 (another entry) dated 01 March 1970, face value P1,000,000.00; bond 0073 dated 10 April 1970, face value P500,000.00; aggregate face value P3,000,000.00. The duties and taxes assessed to petitioner under the four causes totaled P4,305,017.00. The Court therefore computed R & B’s liability by limiting it in each cause to the lesser of the duty assessed and the face value of the bond, yielding an aggregate liability of P2,588,568.00.

Specific Numerical Apportionment

The Court explained the arithmetic applied: for bond 0064 R & B’s exposure was limited to P500,000.00 against duties assessed of P1,515,798.00; for the first 0067 entry R & B’s exposure was P662,961.00 because the assessed duty was less than the P1,000,000.00 face amount; for bond 0073 exposure was limited to P500,000.00 against duties of P1,200,651.00; for the second 0067 entry exposure equaled P925,607.00 against duties of P925,607.00. The resulting total limited liability was P2,588,568.00.

Legal Interest and Authority

The Court held that legal interest should be imposed on the reduced principal sum because such interest compensates the obligee for default and the necessity of judicial collection. The Court cited precedents, including Smith Bell and Co., Inc. v. Court of Appeals, 267 SCRA 530, and PNB v. Luzon Surety, 68 SCRA 206, to support the imposition of interest. Accordingly, legal interest was ordered to run on the sum of P2,588,568.00 from the time of the filing of the complaint until full payment.

Solidary Liability with Co-surety and Obligor

The Court rejected R & B’s claim that its liabili

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