Title
Stronghold Insurance Co., Inc. vs. Republic-Asahi Glass Corp.
Case
G.R. No. 147561
Decision Date
Jun 22, 2006
JDS Construction's contract with Republic-Asahi was rescinded due to poor performance. SICI, the surety, claimed liability extinguished by Santos's death, but the Court ruled SICI remains solidarily liable under the performance bond.
death of principal obligor
performance bond
solidary liability
A

Case Summary (G.R. No. 147561)

Key Dates

  • May 8, 1989: Contract commencement date (240-day completion period).
  • May 23–24, 1989: Downpayment and contract execution; performance bond posted (P795,000).
  • Aug 14 & Sep 15, 1989: Two progress billings paid (total P274,621.01), representing ~7.301% of work claimed by respondent.
  • November 24, 1989: Republic-Asahi extrajudicially rescinds the contract pursuant to Article XIII of the contract.
  • 1990: Death of Jose D. Santos, Jr.
  • Jan 6, 1990 and Mar 22, 1991: Republic-Asahi’s notices/demands on SICI to pay under the bond.
  • June 14, 1991: Sheriff’s return indicating service on SICI; JDS not located; Santos deceased.
  • July 10, 1991: SICI files answer asserting defense based on principal’s death and procedural due process concerns.
  • Aug 16, 1991; Oct 15, 1991; Jan 28, 1993: Lower court proceedings and orders including dismissal as to SICI.
  • March 13, 2001: Court of Appeals decision reversing lower court and remanding for reception of evidence; affirmed SICI’s liability.
  • June 22, 2006: Supreme Court decision denying the petition and affirming the Court of Appeals.

Applicable Law and Authorities

  • 1987 Constitution (governing constitution given the decision date).
  • Civil Code provisions cited in the decision: Art. 2047 (guaranty/suretyship), Art. 1216 (solidary obligations), Art. 1311 (effect between parties, assigns, heirs).
  • Rules of Court: Rule 86, Sec. 5 (claims against decedent’s estate).
  • Act No. 3688 (right of suppliers to sue on penal bond, as acknowledged by the performance bond).
  • Controlling jurisprudence cited: Garcia v. Court of Appeals and other authorities referenced in the opinion.

Factual Background

Republic-Asahi contracted JDS to perform construction works for P5,300,000 (inclusive of VAT) to be completed in 240 days. JDS and SICI executed Performance Bond No. SICI-25849/g(13)9769 in the penal sum of P795,000 to guarantee faithful performance. Respondent made partial progress payments but alleged unsatisfactory progress (only ~7.301% completed by September 1989). On November 24, 1989, Republic-Asahi rescinded the contract pursuant to the contract’s rescission clause. It later engaged another contractor and incurred additional expenses of P3,256,874. Republic-Asahi demanded payment under the bond; when SICI did not pay, it filed suit against JDS and SICI for contractual damages, bond forfeiture, exemplary damages, and attorneys’ fees. JDS’s proprietor died in 1990 and JDS could not be located.

Procedural History

Sheriff’s return shows summons were served on SICI. SICI answered, asserting that the death of the principal extinguished the claims against the contractor and therefore released the surety; it also argued lack of due process in any unilateral liquidation/determination of damages by Republic-Asahi and other defenses. The trial court initially dismissed the complaint against all defendants on the ground that the claim against JDS did not survive the death of its sole proprietor, later reconsidered as to SICI, and ultimately on January 28, 1993 ordered dismissal of the case insofar as SICI was concerned. Republic-Asahi appealed. The Court of Appeals reversed, holding SICI’s obligation under the bond was not extinguished by the death of Santos and that performance was rendered impossible by the contractor’s default, thereby leaving the surety liable. The Supreme Court thereafter denied SICI’s petition for review and affirmed the Court of Appeals.

Issue Presented

Whether the death of Jose D. Santos, Jr., the principal obligor and sole proprietor of JDS, automatically extinguished SICI’s liability under the performance bond such that SICI is released from obligation to respondent.

Court’s Analysis — General Rule on Effect of Death

The Court reiterated the general rule that the death of either creditor or debtor does not extinguish obligations; obligations are transmissible to heirs except where transmission is prevented by law, stipulation, or the nature of the obligation. Only obligations that are purely personal or inherently tied to the person are extinguished by death. Rule 86, Section 5 of the Rules of Court expressly requires money claims against a decedent arising from contract to be filed and thus contemplates transmissibility of such claims. The Court found the monetary liabilities of Santos under his contracts were not intransmissible by nature, stipulation, or law; therefore, those obligations passed to his estate and were not extinguished by death.

Court’s Analysis — Nature of Surety’s Obligation and Solidary Liability

The Court examined the performance bond’s terms, which expressly bound “we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally.” The bond’s language and Civil Code Art. 2047 characterize the surety’s obligation as accessory to the principal obligation but nonetheless direct and solidary with the principal debtor. Art. 1216 permits the creditor to proceed against any one of the solidary debtors; demand against one does not bar action against others until full collection. Jurisprudence cited by the Court (Garcia v. Court of Appeals) c

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