Case Summary (G.R. No. 147561)
Petitioner
Stronghold Insurance Company, Inc., a corporation organized under Philippine law, bound itself jointly and severally with JDS Construction to the obligee under Performance Bond No. SICI-25849/g(13)9769.
Respondent
Republic-Asahi Glass Corporation, the obligee under the construction contract and performance bond, which rescinded the contract for slow progress and sought recovery under the bond.
Key Dates
• May 8, 1989 – Start of the 240-day contract period.
• May 24, 1989 – Execution of the construction contract and performance bond.
• November 24, 1989 – Republic-Asahi rescinded the contract.
• 1990 – Death of Jose D. Santos, Jr.
• January 6, 1990 & March 22, 1991 – Republic-Asahi’s bond-claim letters to SICI.
• June 14, 1991 – Filing of complaint against JDS Construction and SICI.
• August 16, 1991 – Lower court dismissed claims for want of surviving principal.
• January 28, 1993 – Lower court final order dismissing SICI.
• March 13, 2001 – Court of Appeals decision reversing dismissal as to SICI.
• June 22, 2006 – Supreme Court decision affirming the CA.
Applicable Law
Under the 1987 Philippine Constitution and the Civil Code, obligations are generally transmissible to heirs (Art. 1311). Suretyship (Arts. 2047, 1216) creates a solidary liability of surety and principal. Rule 86, Sec. 5 of the Rules of Court allows money claims against a deceased debtor’s estate.
Facts of the Contract and Bond
Republic-Asahi engaged JDS Construction for P5,300,000 worth of road and drainage improvements, requiring a P795,000 performance bond. Downpayment and partial progress payments totaling P1,069,621.01 were made, representing roughly 7.3% of work. Repeated warnings on slow progress went unheeded, prompting extrajudicial rescission under the contract.
Proceedings Below
After rescission, Republic-Asahi hired another contractor at an extra cost of P3,256,874. It claimed P795,000 under the bond, plus damages and fees. Summons served on SICI; JDS’s proprietor had died and the business was unlocatable. Lower court dismissed all claims against SICI and the principal on the ground that the obligation did not survive the principal’s death.
Court of Appeals Decision
The CA held that death of the principal does not extinguish obligations transmissible to heirs. It ruled the contract’s performance became impossible by JDS’s default, not by obligee’s fault. As surety, SICI remained solidarily liable and the CA reversed the lower court’s dismissal, remanding for further evidence.
Issue for Review
Whether the death of the principal obligor, Jose D. Santos, Jr., automatically extinguished SICI’s liability under the performance bond.
Supreme Court Ruling on Effect of Death
The Supreme Court affirmed the CA. It held that death of a debtor does not extinguish monetary obligations that are neither purely personal nor made intransmissible by law or stipulation. Such obligations pass to the
Case Syllabus (G.R. No. 147561)
Citation and Procedural History
- G.R. No. 147561, decided June 22, 2006 by the First Division of the Supreme Court of the Philippines.
- Petition for Review under Rule 45 seeking to reverse the March 13, 2001 Decision of the Court of Appeals in CA-GR CV No. 41630.
- Lower Court (Pasig RTC) issued an Order dated January 28, 1993 dismissing respondent’s complaint against Stronghold Insurance Co., Inc. (“SICI”), which was reversed and set aside by the Court of Appeals.
- CA remanded the case for reception of evidence; petitioner thereafter filed this Supreme Court petition.
Facts
- May 24, 1989: Republic-Asahi Glass Corporation (“respondent”) contracted with Jose D. Santos Jr., proprietor of JDS Construction, for P5,300,000.00 to build roadways and drainage in Pasig City, to be completed within 240 days from May 8, 1989.
- Contract required JDS to post a performance bond of P795,000.00; JDS and SICI issued Performance Bond No. SICI-25849/g(13)9769.
- May 23, 1989: respondent paid JDS P795,000.00 downpayment under the bond.
- August 14 and September 15, 1989: JDS submitted progress billings totaling P274,621.01 (7.301% of work); respondent paid both.
- Respondent’s engineers repeatedly warned JDS about slow progress; JDS did not accelerate work.
- November 24, 1989: respondent extrajudicially rescinded the contract under Article XIII; Article XV preserved right to damages from JDS and its surety.
- Respondent reengaged another contractor at an additional cost of P3,256,874.00.
- January 6 and March 22, 1991: respondent demanded payment under the bond (not less than P795,000.00); demands ignored.
- June 1991: respondent sued JDS and SICI for P3,256,874.00 (additional expenses), P750,000.00 (bond damages), P100,000.00 exemplary damages, and P100,000.00 attorneys’ fees.
- Summons served on SICI; JDS had died in 1990 and its whereabouts were unknown.
- July 10, 1991: SICI answered, arguing that:
- Santos’s death extinguished JDS’s liability and thus SICI’s