CASUALTY & LIABILITY INSURANCE Sec. 174.

CASUALTY INSURANCE is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. It includes, but is not limited to, employer's liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. FORTUNE INSURANCE AND SURETY CO. INC.VCA (PRODUCERS BANK OF THE PHILIPPINES) 244 SCRA 308DAVIDE; May 23, 1995 NATURE: Petition for Review on certiorari of CA decision FACTS: PRODUCERS BANK of the Philippines filed a complaint against FORTUNE INSURANCE and Surety Co., Inc. for recovery of P725,000.00 under the policy issued by Fortune. The sum was allegedly lost during a robbery of PRODUCER'S armored vehicle while it was in transit to transfer the money from its Pasay City Branch to its head office in Makati under the custody of its teller, Maribeth Alampay. The armored car was driven by Benjamin Magalong Y de Vera, escorted by Security Guard Saturnino Atiga Y Rosete. Driver Magalong was assigned by PRC Management Systems. After an investigation by the Pasay police, driver Magalong and guard Atiga were charged, together with Batigue , Aquino and John Doe, with violation of P.D. 532 (Anti-Highway Robbery Law) Demands were made by the Producers upon the FORTUNE to pay the amount of the loss but the latter refused to pay as the loss is excluded from the coverage of the insurance policy specifically under "General Exceptions"
o The company shall not be liable under this policy in respect of x x x (b) any loss caused by any dishonest, fraudulent or criminal act of the insured or any officer, employee, partner, director, trustee or authorized representative of the Insured whether acting alone or in conjunction with others.

Reasoning - It should be noted that the insurance policy entered into by the parties is a THEFT OR ROBBERY INSURANCE POLICY which is a form of casualty insurance. Section174 of the Insurance Code provides: Sec. 174. Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types of loss which by law or custom are considered as failing exclusively within the scope of insurance such as fire

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Fortune opposes the contention of Producers that Atiga and Magalong are not its "officer, employee, trustee or authorized representative x x x at the time of the robbery TRIAL COURT > On being EMPLOYEES Magalong and Atiga were not employees or representatives of Producers as their services as armored car driver and as security guard having been merely offered by PRC Management and by Unicorn Security and which latter firms assigned them to plaintiff. The wages and salaries of both Magalong and Atiga are presumably paid by their respective firms, which alone wields the power to dismiss them > On being AUTHORIZED REPRESENTATIVE They were merely an assigned armored car driver and security guard for the money transfer. It was teller Maribeth Alampay who had "custody" of theP725,000.00 cash being transferred along a specified money route COURT OF APPEALS: Affirmed in toto > A policy or contract of insurance is to be construed liberally in favor of the insured and strictly against the insurance company. Contracts of insurance, like other contracts, are to be construed according to the sense and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. > The language used by Fortune in the policy is plain, ordinary and simple. No other interpretation is necessary. The word "employee" should be taken to mean in the ordinary sense. The Labor Code is a special law specifically dealing with/and specifically designed to protect labor and therefore its definition, as to employer-employee relationships insofar as the application/enforcement of said Code is concerned must necessarily be inapplicable to an insurance contract. Had it intended to apply the Labor Code in defining what the word "employee" refers to, it must/should have so stated expressly in the insurance policy. Said driver and security guard cannot be considered as employees of Producers bank because it has no power to hire or to dismiss said driver and security guard under the contracts except only to ask for their replacements from the contractors. FORTUNES CONTENTION > When Producers commissioned a guard and a driver to transfer its funds from one branch to another, they effectively and necessarily became its authorized representatives in the care and custody of the money. Assuming that they could not be considered authorized representatives, they were, nevertheless, employees of Producers. It asserts that the existence of an employer-employee relationship "is

determined by law and being such, it cannot be the subject of agreement." Thus, if there was in reality an employer-employee relationship between Producers, on the one hand, and Magalong and Atiga, on the other, the provisions in the contracts of Producers with PRC Management System for Magalong and with Unicorn Security Services for Atiga which state that Producers is not their employer and that it is absolved from any liability a san employer, would not obliterate the relationship. > An employer-employee relationship depends upon four standards: (1) the manner of selection and engagement of the putative employee (2) the mode of payment of wages (3) the presence or absence of a power to dismiss and (4) the presence and absence of a power to control the putative employee's conduct. > Of the four, the right-of-control test has been held to be the decisive factor. It asserts that the power of control over Magalong and Atiga was vested in and exercised by Producers. Fortune further insists that PRC Management System and Unicorn Security Services are but "labor-only" contractors under Article 106 of the Labor Code which provides: Art. 106. Contractor or subcontractor. - There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him. > International Timber Corp. vs. NLRC - a "labor-only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employee of the "labor-only" contractor PRODUCERS CONTENTION > Magalong and Atiga were not its employees since it had nothing to do with their selection and engagement, the payment of their wages, their dismissal, and the control of their conduct. > International Timber Corp. is not applicable to all cases but only when it becomes necessary to prevent any violation or circumvention of the Labor Code, asocial legislation whose provisions may set aside contracts entered into by parties in order to give protection to the working man. > American President Lines vs. Clave should be applied which stated In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct.Since under Producers' contract with PRC Management Systems it is the latter which assigned Magalong as the driver of Producers' armored car and was responsible for his faithful discharge of his duties and responsibilities, and since Producers paid the monthly compensation of P1,400.00 per driver to PRC Management Systems and not to Magalong, it is clear that Magalong was not Producers' employee. As to Atiga, Producers relies on the provision of its contract with Unicorn Security Services which provides that the guards of the latter "are in no sense employees of the CLIENT." ISSUE: WON Fortune Insurance and Surety Co. Inc. is liable under the Money, Security, and Payroll Robbery policy it issued to Producers Bank of the Philippines or WON recovery is precluded under the general exceptions clause of the policy HELD: NO. A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, or it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its obligation. It goes without saying then that if the terms of the contract are clear and unambiguous, there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. An insurance contract is a contract of indemnity upon the terms and conditions specified therein. It is settled that the terms of the policy constitute the measure of the insurer's liability. In the absence of statutory prohibition to the contrary, insurance companies have the same rights as individuals to limit their liability and to impose whatever conditions they deem best upon their obligations not inconsistent with public policy.

or marine. It includes, but is not limited to, employer's liability insurance, public liability insurance, motor vehicle liability insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as written by non-life insurance companies, and other substantially similar kinds of insurance. - Except with respect to compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance. Outside of these, the rights and obligations of the parties must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. - With the foregoing principles in mind, it may now be asked whether Magalong and Atiga qualify as employees or authorized representatives has been aptly observed that in burglary, robbery, and theft insurance, "the opportunity to defraud the insurer the moral hazard is so great that insurers have found it necessary to fill up their policies with countless restrictions, many designed to reduce this hazard. Seldom does the insurer assume the risk of all losses due to the hazards insured against." Persons frequently excluded under such provisions are those in the insured's service and employment. The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. In such cases, the terms specifying the excluded classes are to be given their meaning as understood in commons peech. The terms "service" and "employment" are generally associated with the idea of selection, control, and compensation. - There is marked disagreement between the parties on the correct meaning of the terms "employee" and "authorized representatives." It is clear to us that insofar as FORTUNE is concerned, it was its intention to exclude and exempt from protection and coverage losses arising from dishonest, fraudulent, or criminal acts of persons granted or having unrestricted access to Producers' money or payroll . When it used then the term "employee," it must have had in mind any person who qualifies as such as generally and universally understood , or jurisprudentially established in the light of the four standards in the determination of the employer-employee relationship or as statutorily declared even in a limited sense as in the case of Article 106 of the Labor Code which considers the employees under a "labor-only" contract as employees of the party employing them and not of the party who supplied them to the employer. - But even granting for the sake of argument that these contracts were not "labor-only" contracts, and PRC Management Systems and Unicorn Security Services were truly independent contractors, we are satisfied that Magalong and Atiga were, in respect of the transfer of Producer's money from its Pasay City branch to its head office in Makati, its "authorized representatives" who served as such with its teller Maribeth Alampay. Howsoever viewed, Producers entrusted the three with the specific duty to safely transfer the money to its head office, with Alampay to be responsible for its custody in transit; Magalong to drive the armored vehicle which would carry the money; and Atiga to provide the needed security for the money, the vehicle, and his two other companions. In short, for these particular tasks, the three acted as agents of Producers. A "representative" is defined as one who represents or stands in the place of another; one who represents others or another in a special capacity, as an agent, and is interchangeable with "agent." Disposition: instant petition is hereby GRANTED. CA decision and RTC Makati decision are REVERSED and SET ASIDE. Civil Case is DISMISSED. COMPULSORY MOTOR VEHICLE LIABILITY Method of Coverage Sec. 374. It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the public highways unless there is in force in relation thereto a policy of insurance or guaranty in cash or surety bond issued in accordance with the provisions of this chapter to indemnify the death, bodily injury, and/or damage to property of a third-party or passenger, as the case may be, arising from the use thereof. (As amended by Presidential Decree No. 1455 and 1814 ). No-fault Clause Sec. 378. Any CLAIM for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section: (i) The total indemnity in respect of any person shall not exceed five thousand pesos;

(ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident; and (b) Death certificate and evidence sufficient to establish the proper payee; or (c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against one motor vehicle only . In the case of an OCCUPANT OF A VEHICLE, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from . In ANY OTHER CASE, claim shall lie against the insurer of the directly offending vehicle. In ALL CASES, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. Perla Compania de Seguros vs. Ancheta | 1988; Cortes, J. Keywords: [Claim should be made against the insurer of the vehicle the complainants were riding] FACTS * There was a collision between the IH Scout (in which private respondents were riding) and a Superlines bus . Private respondents sustained injuries. A complaint for damages was filed against Superlines, the bus driver and petitioner insurance company, the insurer of the bus. * The vehicle in which the private respondents were riding was insured with Malayan Insurance Co. * Even before summons could be served, the judge issued an order for the Insurance Company to pay immediately within 5 days the P5,000 under the no-fault clause as provided for in 378 of IC. * Petitioner moved for the reconsideration of the order; it was denied. PETITIONER CONTENDS that under 378 of IC, the insurer liable to pay the P5,000 is the insurer of the vehicle in which private respondents were riding, not petitioner. ISSUES & ARGUMENTS WON petitioner is the insurer liable to indemnify the private respondents under 378 of IC. HELD NO. RATIONALE 378. Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section: (i) The total indemnity in respect of any person shall not exceed five thousand pesos; (ii) The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim: (a) Police report of accident; and (b) Death certificate and evidence sufficient to establish the proper payee; or (c) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed; (iii) Claim may be made against ONE MOTOR VEHICLE ONLY. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. * SC says: the provision is clear and unambiguous. Under 378, the claim shall lie against the insurer of the vehicle in which the occupant is riding and no other. The claimant is not free to choose from which insurer he will claim the no fault indemnity as the law uses the term shall. * That said vehicle might not be the one that caused the accident is of no

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moment since the law itself provides that the party paying the claim may recover against the owner of the vehicle responsible for the accident. * ESSENCE of no fault indemnity clause : to provide victims of vehicular accidents or their heirs immediate compensation pending final determination of who is responsible for the accident. * The no fault indemnity provision is part and parcel of the Insurance Code provisions on compulsory motor vehicle liability insurance (373-389) and should be read together with the requirement for compulsory passenger and/or third party liability insurance (377). Period of Filing & Action to Recover Damages Sec. 384. Any person having ANY CLAIM upon the policy issued pursuant to this Chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. NOTICE OF CLAIM must be filed within six months from date of accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe. (As amended by Presidential Decree 1814 and Batas Pambansa Blg. 874). Nature of Liability of Insurer Sec. 385. The insurance company concerned shall forthwith ascertain the truth and extent of the claim and make payment within five working days after reaching an agreement. If no agreement is reached, the insurance company shall pay only the "no-fault" indemnity provided in section three hundred seventy-eight without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit claim or document releasing it from liability under the policy of insurance or surety bond issued. (As amended by Presidential Decree No. 1455). In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter, the adjudication of such dispute shall be within the original and exclusive jurisdiction of the Commissioner, subject to the limitations provided in section four hundred sixteen. Sec. 386. It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums. Perla Cia. De Seguros, Inc. v. Court of Appeals 208 SCRA 487 (1992) FACTS: SPOUSES LIM purchased a brand new red Ford Laser car from Supercars, Inc. in a sale by installment secured by achattel mortgage. The same car is insured with Perla Compania de Seguros ( PERLA). On the same day, Supercars, Inc. assigned its rights, title and interest to FCP Credit Corporation (FCP). On a later date, the vehicle was carnapped. Spouses Lim filed a claim for loss with Perla but this was denied on the ground that Evelyn Lim, who was using the vehicle before it was carnapped, was in possession of an EXPIRED DRIVERS LICENSE at the time of the loss, in violation of the authorized driver clause of the insurance policy. ISSUE: WON Perla is liable despite the alleged violation of the authorized driver clause in the insurance contract HELD: Perla is liable to pay the insurance claim. The COMPREHENSIVE MOTOR CAR INSURANCE POLICY issued by Perla covered loss or damage to the car : (a) xxx; (b) by fire, external explosion, self-ignition or lightning or burglary, housebreaking or theft xxx. Where a car is admittedly unlawfully and wrongfully taken without the owners consent or knowledge, such taking constitutes theft, and therefore, it is the THEFT clause , and not the AUTHORIZED DRIVER clause that should apply. The Court of Appeals was correct in holding that: Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doers will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an

event without the concurrence of the will of the person by whose agency it was caused. (Bouviers Law Dictionary). Clearly, the risk against accident is distinct from the risk against theft. The AUTHORIZED DRIVER CLAUSE in a typical insurance policy is in contemplation or anticipation of accident in the legal sense in which it should be understood, and not in contemplation or anticipation of an event such as theft. The distinction often seized upon by insurance companies in resisting claims from their assureds between death occurring as a result of accident and death occurring as a result of intent may, by analogy, apply to the case at bar. Thus, if the insured vehicle had figured in an accident at the time she drove it with an expired license, then, appellee Perla Compania could properly resist appellants claim for indemnification for the loss or destruction of the vehicle resulting from the accident. But in the present case, the loss of the insured vehicle did not result from an accident where intent was involved; the loss in the present case was caused by theft, the commission of which was attended by intent. There is no causal connection between the possession of a valid drivers license and the loss of a vehicle. To rule otherwise would render car insurance practically a sham since an insurance company can easily escape liability by citing restrictions which are not applicable or germane to the claim, thereby reducing indemnity to a shadow.

SHAFER v. JUDGE 167 SCRA 386PADILLA; November 14, 1988 NATURE: Petition for review on certiorari FACTS: - SHERMAN SHAFER obtained a private car policy over his Ford Laser from MAKATI INSURANCE COMPANY , Inc., for third party liability. - During the effectivity of the policy, an INFORMATION for reckless imprudence resulting in damage to property and serious physical injuries was filed against Shafer. - The INFORMATION said that on or about the 17th day of May 1985, in the City of Olongapo. Shafer hit and bumped a Volkswagen car owned and driven by Felino llano y Legaspi , thereby causing damage in the total amount of P12,345.00 and as a result thereof one Jovencio Poblete, Sr. who was on board of the said Volkswagen car sustained physical injuries which injuries causing deformity on the face. - The owner of the damaged Volkswagen car filed a separate civil action against petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the Volkswagen car, did not reserve his right to file a separate civil action for damages. Instead, in the course of the trial in the criminal case, Poblete, Sr. testified on his claim for damages for the serious physical injuries which he claimed to have sustained as a result of the accident. - The COURT issued an order DISMISSING the third party complaint on the ground that it was premature , based on the premise that unless the accused (herein petitioner) is found guilty and sentenced to pay the offended party (Poblete Sr.) indemnity or damages, the third party complaint is without cause of action. The court further stated that the better procedure is for the accused (petitioner) to wait for the outcome of the criminal aspect of the case to determine whether or not the accused, also the third party plaintiff, has a cause of action against the third party defendant for the enforcement of its third party liability (TPL) under the insurance contract. Petitioner moved for reconsideration of said order, but the motion was denied; hence, this petition. ISSUE: WON the court a quo erred in dismissing petitioner's third party complaint on the ground that petitioner had no cause of action yet against the insurance company HELD: YES. There is no need on the part of the insured to wait for the decision of the trial court finding him guilty of reckless imprudence. The occurrence of the injury to the third party immediately gave rise to the liability of the insurer under its policy. Respondent insurance company's contention that the third party complaint involves extraneous matter which will only clutter, complicate and delay the criminal case is without merit. The civil aspect of the offense charged, i.e., serious physical injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the criminal case. Petitioner may thus raise all defenses available to him insofar as the criminal and civil aspects of the case are concerned. The claim of petitioner for payment of indemnity to the injured third party, under the insurance policy, for the alleged bodily injuries caused to said third par ty , a ros e fr om the of fen se cha rge d i n t he c rim inal ca se, fr om wh ic h t he inj ur ed (P oble te ) has soug ht t o recover civil damages. Hence, the claim of petitioner against the

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insurance company cannot be regarded as not related to the criminal action. A THIRD PARTY COMPLAINT is a device allowed by the rules of procedure by which the defendant can bring into the original suit a party against whom he will have a claim for indemnity or remuneration as a result of a liability established against him in the original suit. THIRD PARTY COMPLAINTS are allowed to minimize the number of lawsuits and avoid the necessity of bringing 2 or mor e act ions invo lving the sa me subj ect ma tte r. They a re pred icate d on th e ne ed for expe diency and the avoidance of unnecessary lawsuits. If it appears probable that a second action will result if the plaintiff prevails, and that this result can be avoided by allowing the third party complaint to remain, then the motion to dismiss the third party complaint should be denied. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (TPL) is primarily intended to provide compensation for the death or bodily injuries suffered by innocent third parties or passengers as a result of a negligent operation and use of motor vehicles. The victims and/or their dependents are assured of immediate financial assistance, regardless of the financial capacity of motor vehicle owners. The LIABILITY OF THE INSURANCE COMPANY under the Compulsory Motor Vehicle Liability Insurance is for loss or damage . Where an insurance policy insures directly against liability, the insurers liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and DOES NOT DEPEND on the recovery of judgment by the injured party against the insured. The INJURED for whom the contract of insurance is intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured bythe named insured as if such injured person were specifically named in the policy. In the event that the injured fails or refuses to include the insurer as party defendant in his claim for indemnity against the insured, the latter is not prevented by law to avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no action" clause under the policy-which requires that a final judgment be first obtained against the insured and that only the reaf te r can th e pe rson insu red rec over on the pol icy can preva il ove r the Rules of C our t prov isions aimed at avoi ding multiplicity of suits. Disposition: instant petition is GRANTED. The questioned order dated 24 April 1987 is SET ASIDE and a new one enteredadmitting petitioner's third party complaint against the private respondent Makati Insurance Company. VDA DE MAGLANA v. CONSOLACION 212 SCRA 268ROMERO; August 6, 1992 NATURE: Petition for certiorari FACTS: - LOPE MAGLANA was an employee of the Bureau of Customs whose work station was at Lasa, in Davao City. One day, when he was on his way to his work, he met an accident that resulted in his death. He died on the spot. - The PUJ jeep that bumped the deceased was driven by PEPITO INTO, operated and owned by defendant Destrajo . From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city Poblacion. While overtaking, the PUJ jeep of defendant Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased . The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. - HEIRS of Lope Maglana, Sr. filed an action for damages and attorney's fees against operator Patricio Destrajo and AFISCO . - An INFORMATION for homicide thru reckless imprudence was also filed against Pepito Into. - During the pendency of the civil case, INTO WAS SENTENCED to suffer an indeterminate penalty, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary imprisonment in case of insolvency, plus

P5,000.00 in the concept of moral and exemplary damages with costs. No appeal was interposed by accused who later applied for probation. - The LOWER COURT rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney ordering him to pay plaintiffs the sum for loss of income; funeral and burial expenses of the deceased; moral damages, and attorney's fees and costs of suit. The defendant insurance company is ordered to reimburse defendant Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. - PETITIONERS filed a MR of the second paragraph of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage. " Hence, they argued that the P20,000.00 coverage of the insurance policy issued by AFISCO, should have been awarded in their favor. - AFISCO argued that since the Insurance Code does not expressly provide for a solidary obligation, thepresumption is that the obligation is joint. - The LOWER COURT DENIED the MR ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." - Petitioners filed a second MR reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. This motion was likewise denied for lack of merit. ISSUE: WON AFISCO can be held directly liable HELD: YES, as this Court ruled in Shafer vs. Judge: "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or even upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." - The underlying reason behind the TPL of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy ." Since petitioners had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00. - However, we cannot agree that AFISCO is likewise solidarily liable with Destrajo. In Malayan Insurance Co., Inc. v. Court of Appeals , this Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis--vis the third party injured in an accident. We categorically ruled thus: While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does NOT mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The LIABILITY OF THE INSURER is based on contract; that of the INSURED is based on tort. - While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event. - Similarly, petitioners herein CANNOT validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion among the petitioners and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. Disposition: Present petition is hereby GRANTED. The award of P28,800.00 representing loss of income is INCREASED to P192,000.00 and the death indemnity of P12,000.00 to P50,000.00. FAR EASTERN SURETY v. MISA 25 SCRA 663REYES; October 26, 1968 NATURE: Appeal by petition for review from a CA judgment FACTS: - Socorro Dancel Vda.de Misa and Araceli Pinto hired a taxi cab operated by La Mallorca on September 3,1957 . The taxi they were riding

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in collided with a gravel and sand truck resulting to injuries to both Misa and Pinto. - The two passengers instituted a suit for damages against La Mallorca who, while denying responsibility, instituted a third party complaint against Far Eastern Surety to recoup from the latter any award for damages that might be recovered by the passengers . - It would appear from the case that a sticker was placed in all the taxis of La Mallorca stating that passengers of the taxis were insured against accidents. This was done to entice the public intopatronizing La Mallorca . - The TRIAL COURT awarded to Misa and Pinto actual, moral and exemplary damages, and attorneys fees payable by La Mallorca and sentenced Far Eastern to pay La Mallorca P10,000. on its third party liability insurance. - On appeal, the CA, while holding that the collision was due to the fault of the driver of the gravel and sand truck, found the taxi company liable fordamages to the passengers on the strength of its REPRESENTATION contained in the sticker above noted that the passengers were insured against accidents. In so ruling, the CA overruled the defense of the insurance company to the effect that it was responsible only if the insured, La Mallorca, was involved in accidents caused by, or arising out of, the use of the motor vehicle. A motion for reconsideration was filed in and dismissed by the CA. ISSUE: WON Far Eastern Surety is liable to the insured on its insurance policy HELD: NO, the award for damages made to the passengers was exclusively predicated on the representation made by La Mallorca that its passengers were insured against accidents and not because it was at fault in causing the accident. REASONING - In this case, the findings of the CA and the trial court that the causative factor of the mishap was the negligence of the gravel and truck driver would have been sufficient to relieve the taxi company of any liability arising from the accident. HOWEVER, in view of the sticker in all of its taxicabs, La Mallorca has insured its passengers against accidents, whether it was at fault or not. In other words, La Mallorca accepted the responsibility for damages or injuries topassengers even if it had no fault at all. - In the case of the insurance company, the SC ruled that it neither authorized nor consented to the representations made by the taxi company to its passengers. As such, the LIABILITY of the said INSURANCE COMPANY based on its insurance contract is limited to the recovery by the insured of all sums, cost and expenses which the insured shall become legally liable. The insurance company therefore cannot be held liable for the award. - The taxi company is adjudged to be the sole party responsible for the award. Disposition: The decision of the CA is modified by eliminating the award against Far Eastern. PEZA v. ALIKPALA 160 SCRA 31 | NARVASA; April 15, 1988 NATURE: Motion praying that Judge Alikpala be declared guilty of contempt of court for having decided the case on the merits despite the pendency in this Court of the certiorari action instituted by the plaintiffs FACTS - vehicular accident with 2 children running across the path of a Chevrolet "Carry-All", belonging to a partnership known as DIMAN & COMPANY driven by its driver, Perfecto Amar, as it was passing a national highway at barrio Makiling Calamba, Laguna. They were killed. It was INSURED with the Empire Insurance Co., Inc. under a so-called 'COMPREHENSIVE COVERAGE" POLICY, loss by theft excluded. The policy was in force at the time of the accident. - Placida Peza, the managing partner of Diman & Co. filed a claim with Empire, for payment of compensation to the family of the 2 children who died as a result of the accident. Empire refused to pay on the ground that the driver had no authority to operate the vehicle , a fact which it expressly excepted from liability under the policy. What Peza did was to negotiate directly with the deceased children father for an out-of-court settlement. The father agreed to accept P6,200.00 in fun settlement of the liability of the vehicles owner and driver, and Peza paid him this sum. - Peza thereafter sued Empire to recover this sum of P6,200.00 as actual damages, as well as P20,000.00as moral damages, P10,000.00 as exemplary damages, and P10,000.00 as attorney's fees. She amended her complaint shortly thereafter to include Diman & Co. as alternative party plaintiff.

- EMPIRE'S BASIC DEFENSE to the suit was anchored on the explicit requirement in the policy limiting the operation of the insured vehicle to the "authorized driver" therein defined, namely, (a) the insured, or (b) any person driving on the insured order or with his permission, provided that - that the person driving is permitted in accordance with the licensing or other laws or regulations to drive the Motor vehicle or has been so permitted and is not disqualified by order of the Court of Law of by reason of any enactment or regulation in that behalf from driving such Motor Vehicle.-- driver PERFECTO AMAR, only having a temporary operator's permit (TVR) [already expired] his drivers license having earlier been confiscated by an agent of the Land Transportation Commission for an alleged violation of Land Transportation and Traffic Rules, was not permitted by law and was in truth disqualified to operate any motor vehicle; Peza attempted to neutralize that fact by (1) the issuance of the TVR by the LTC officer to Amar; in proof of the proposition that there was no reason for confiscation of Amar's license (2) Amar's license had not expired, but had been renewed - Judge Alikpala did not admit such evidence ISSUES 1. WON Judge Alikapala committed grave abuse of discretion in not admitting evidence 2. WON confiscation of license and expiration of TVR of the driver would serve as bar for Peza in recovering from Empire HELD 1. NO - Even positing error in the Judge's analysis of the evidence attempted to be introduced and his rejection thereof, it is clear that it was at most an error of judgment, not such an error as may be branded a grave abuse of discretion, i.e., such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, against which the writ of certiorari will lie. In any event, the established principle is " that ruling of the trial court on procedural questions and on admissibility of evidence during the course of the trial are interlocutory in nature and may not be the subject of separate appeal or review on certiorari , but are to be assigned as errors and reviewed in the appeal properly taken from the decision rendered by the trial court on the merits of the case. - In the meantime, Judge Alikpala rendered judgment on the merits, since the case was then already ripe for adjudication. The judgment ordered dismissal of the case for failure on the part of the plaintiff to prove their cause of action against Empire . Notice of the judgment was served on the parties in due course. 2. YES - It would seem fairly obvious that whether the LTC agent was correct or not in his opinion that driver Amar had violated some traffic regulation warranting confiscation of his license and issuance of a TVR in lieu thereof, this would not alter the undisputed fact that Amar's license had indeed been confiscated and a TVR issued to him, and the TVR had already expired at the time that the vehicle being operated by him killed two children by accident. Neither would proof of the renewal of Amar's license change the fact that it had really been earlier confiscated by the LTC agent. Disposition: Petition is DISMISSED for lack of merit WESTERN GUARANTY CORPORATION vs. CA (RODRIGUEZ, and DE DIOS TRANSPORTATION CO) 187 SCRA 652 FELICIANO; July 20, 1990 FACTS At around 4:30 in the afternoon of 27 March 1982, while crossing Airport Road on a pedestrian lane on her way to work, respondent Priscilla E. Rodriguez was struck by a De Dios passenger bus owned by respondent De Dios Transportation Co., Inc., then driven by one Walter Saga y Aspero. The bus driver disregarded the stop signal given by a traffic policeman to allow pedestrians to cross the road. Priscilla was thrown to the ground, hitting her forehead. She was treated at the Protacio Emergency Hospital and later on hospitalized at the San Juan De Dios Hospital. Her face was permanently disfigured, causing her serious anxiety and moral distress . Respondent bus company was insured with petitioner Western Guaranty Corporation ("Western") under its Master Policy which enumerated specific liabilities of the insurance company and ended with a clause to clarify the limitations of the amount which could be granted as indemnity. Respondent Priscilla Rodriguez filed a complaint for damages before the Regional Trial Court of Makati against De Dios Transportation Co. and Walter A. Saga. Respondent De Dios Transportation Co., in turn, filed a third-party complaint against its insurance carrier, petitioner Western.

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 On 6 August 1985, the trial court rendered a decision in favor of respondent Priscilla E. Rodriguez, On appeal, the Court of Appeals affirmed in toto the decision of the trial court. Petitioner moved for the reconsideration of the appellate court's decision. In a Resolution dated 10 January 1990, the Court of Appeals denied the motion for reconsideration for lack of merit. Petitioner Western is now before us on a Petition for Review alleging that the Court of Appeals erred in holding petitioner liable to pay beyond the limits set forth in the Schedule Indemnities and in finding Western liable for loss of earnings, moral damages and attorney's fees. Succinctly stated, it is petitioner Western's position that it cannot be held liable for loss of earnings, moral damages and attorney's fees because these items are not among those included in the Schedule Indemnities set forth in the insurance policy. Petitioner Western in effect contends before this Court, as it did before the Court of Appeals, that because the Schedule of Indemnities limits the amount payable for certain kinds of expenses "hospital room", "surgical expenses", "an aesthesiologists' fee", "operating room" and "medical expenses" that Schedule should be read as excluding liability for any other type of expense or damage or loss even though actually sustained or incurred by the third party victim. We are not persuaded by Western's contention. ISSUE: WON the Schedule of indemnities as stated in the insurance policy should be construed strictly to exclude all others not explicitly stated therein HELD: NO, an insurance policy being in the nature of an adhesion contract is to be strictly construed against the insurer and liberally in favor of the insured. Firstly, the Schedule of Indemnities does NOT purport to restrict the kinds of damages that may be awarded against Western once liability has arisen. o SECTION 1, quoted above, does refer to certain "Limits of Liability" which in the case of the third party liability section of the Master Policy, is apparently P50,000.00 per person per accident. Within this over-all quantitative limit, all kinds of damages allowable by law "actual or compensatory damages"; "moral damages"; "nominal damages"; "temperate or moderate damages"; "liquidated damages"; and "exemplary damages" may be awarded by a competent court against the insurer once liability is shown to have arisen, and the essential requisites or conditions for grant of each species of damages are present. It appears to us self-evident that the Schedule of Indemnities was not intended to be an enumeration, much less a closed enumeration, of the specific kinds of damages which may be awarded under the Master Policy Western has issued. Secondly, the reading urged by Western of the Schedule of Indemnities comes too close to working fraud upon both the insured and the third party beneficiary of Section 1, quoted above. For Western's reading would drastically and without warning limit the otherwise unlimited (save for the over-all quantitative limit of liability of P50,000.00 per person per accident) and comprehensive scope of liability assumed by the insurer Western under Section 1: "all sums necessary to discharge liability of the insured in respect of [bodily injury to a third party]". This result which is not essentially different from taking away with the left hand what had been given with the right hand we must avoid as obviously repugnant to public policy. If what Western now urges is what Western intended to achieve by its Schedule of Indemnities, it was incumbent upon Western to use language far more specific and precise than that used in fact by Western, so that the insured, and potential purchasers of its Master Policy, and the Office of the Insurance Commissioner, may be properly informed and act accordingly. Petitioner Western would have us construe the Schedule of Indemnities as comprising contractual limitations of liability which, as already noted, is comprehensively defined in Section 1 "Liability to the Public" of the Master Policy. It is well-settled, however, that contractual limitations of liability found in insurance contracts should be regarded by courts with a jaundiced eye and extreme care and should be so construed as to preclude the insurer from evading compliance with its just obligations. Finally, an insurance contract is a contract of adhesion. The rule is well entrenched in our jurisprudence that the terms of such contract are to be construed strictly against the party which prepared the contract, which in this case happens to be petitioner Western. Third-Party Suit Against Insurer First Integrated Bonding vs. Hernando

Case No. : G.R. No. L-51221 July 31, 1991 | Justice Medialdea FACTS: SILVERIO BLANCO was the owner of a passenger jeepney which he insured against liabilities for death and injuries to third persons with First Integrated Bonding and Insurance Company , Inc. for P30,000. The said jeepney driven by Blanco himself bumped a five-year old child, Deogracias Advincula, causing the latter's death . The boys parents filed a complaint for damages against Blanco and First Insurance, which was granted by the lower court. FIRST INSURANCE filed a petition for certiorari contending that the victims parents have no cause of action against it because they are not parties to the insurance contract and that they may only proceed against the driver based on the provisions of the NCC. ISSUE: WON an injured party for whom the contract of insurance is intended can sue directly the insurer HELD: YES DOCTRINE: Where the insurance contract provides for indemnity against liability to a third party, such third party can directly sue the insurer. The liability of the insurer to such third person is based on contract while the liability of the insured to the third party is based on tort. It cannot evade its liability as insurer by hiding under the cloak of the insured. Its liability is primary and not dependent on the recovery of judgment from the insured. SURETYSHIP Definition Sec. 2. Whenever used in this Code, the following terms shall have the respective meanings hereinafter set forth or indicated, unless the context otherwise requires: (1) A "contract of insurance" is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. A CONTRACT OF SURETYSHIP shall be deemed to be an insurance contract, within the meaning of this Code, only if made by a surety who or which, as such, is doing an insurance business as hereinafter provided. (2) The term "doing an insurance business" or "transacting an insurance business", within the meaning of this Code, shall include: (a) making or proposing to make, as insurer, any insurance contract; (b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. (3) As used in this code, the term "Commissioner" means the "Insurance Commissioner". Sec. 175. A CONTRACT OF SURETYSHIP is an agreement whereby a party called the SURETY guarantees the performance by another party called the PRINCIPAL OR OBLIGOR of an obligation or undertaking in favor of a third party called the OBLIGEE. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206. Extent of Liability Sec. 176. The LIABILITY of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond . It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (As amended by Presidential Decree No. 1455). G.R. No. L-43706 November 14, 1986 NPC vs. CA and PHILAMGEN INSURANCE CO.

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FACTS: The National Power Corporation (NPC) entered into a contract with the Far Eastern Electric, Inc. (FFEI) on December 26, 1962 for the erection of the Angat Balintawak115-KW-3-Phase transmission lines for the Angat Hydroelectric Project. FEEI agreed to complete the work within 120 days from the signing of the contract, otherwise it would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to paythe sum of P97,829.00 as consideration. On the other hand, Philamgen issued a surety bond in the amount of P30,672.00 for the faithful performance of the undertaking by FEEI, as required. The CONDITION OF THE BOND reads: The liability of the PHILIPPINE AMERICAN GENERAL INSURANCECOMPANY, INC. under this bond will expire One (1) year from final Completion and Acceptance and said bond will be cancelled 30 days after its expiration , unless surety is notified of any existing obligation thereunder. Should the Contractor fail to complete the construction of the work as herein specified and agreed upon, or if the work is abandoned, the Corporation shall have the power to take over the work by giving notice in writing to that effect to the Contractor and his sureties of its intention to take over the construction work. In the event the corporation takes over the work from the Contractor, the latter and his bondsmen shall continue to be liable under this contract for any expense in the completion of the work in excess of the contract price and the bond filed by the Contractor shall be answerable for the same and for any and all damages that the Corporation may suffer as a result thereof. The work was abandoned by FEEI due to unavailability of materials and financial difficulties, leaving the work unfinished on June 26, 1963 . ON July 19, 1963 NPC wrote Philamgen informing it of the withdrawal of FEEI from the work and formally holding both FEEI and Philamgen liable for the cost of the work to be completed as of July 20, 1962 plus damages. On January 30, 1967 NPC notified Philamgen that FEEI had an outstanding obligation in the amount of P75,019.85, exclusive of interest and damages, and demanded the remittance of the amount of the surety bond the answer for the cost of completion of the work. In reply, Philamgen requested for a detailed statement of account, but after receipt of the same, Philamgen did not pay as demanded but contended instead that its liability under the bond has expired on September 20, 1964 and claimed that no notice of any obligation of the surety was made within 30 days after its expiration. ISSUE: WON THERE is compliance by NPC with the notice requirement as a condition in order to hold the surety philamgen liable under the bond. HELD: YES, evidence on record shows that as early as May 30, 1963, Philamgen was duly informed of the failure of its principal to comply with its undertaking. In fact, said notice of failure was also signed by its Assistant Vice President. On July 19, 1963, when FEEI informed NPC that it was abandoning the construction job, the latter forthwith informed Philamgen of the fact on the same date. Moreover, on August 1, 1963, the fact that Philamgen was seasonably notified, was even bolstered by its request from NPC for information of the percentage completed by the bond principal prior to the relinquishment of the job to the latter and the reason for said relinquishment . The 30-day notice adverted to in the surety bond applies to the completion of the work by the contractor. This completion by the contractor never materialized. The surety bond must be read in its entirety and together with the contract between NPC and the contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations cannot be segregated and then made to control. Furthermore, it is well settled that contracts of insurance are to be construed liberally in favor of the insured and strictly against the insurer. Thus ambiguity in the words of an insurance contract should be interpreted in favor of the insured. In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of the unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc. was WITHIN THE EFFECTIVE DATE of the contract and the surety bond. Such abandonment gave rise to the continuing liability of the bond as provided for in the contract which is deemed incorporated in the surety bond executed for its completion. To rule therefore that private respondent was not properly notified would be gross error Premium Payment Sec. 177. The SURETY is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, That if the contract of suretyship or bond is not

accepted by, or filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided, however, That if the nonacceptance of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes shall be collected. In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may be. Applicability of Civil Code Sec. 178. Pertinent provisions of the Civil Code of the Philippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship.

Phil Pryce Assurance vs. Court of Appeals FACTS: Petitioner, Interworld Assurance Corporation (the company now carries the corporate name Philippine Pryce Assurance Corporation), was the butt of the complaint for collection of sum of money, filed on May 13,1988 by respondent, Gegroco, Inc. before the Makati RTC . The complaint alleged that PETITIONER issued two surety bonds (No. 0029, dated July 24, 1987 and No. 0037, dated October 7, 1987) in behalf of its principal Sagum General Merchandise for P500,000.00 and P1,000,000.00,respectively. Petitioner admitted having executed the said bonds, but denied liability. ISSUE: WON CA gravely erred in declaring that it would be useless and a waste of time to remand the case for further proceedings as defendantappellant has no meritorious defense? HELD: NO, there is reason to believe that petitioner does not really have a good defense. In a desperate attempt to escape liability, petitioner further asserts that 177 of the IC is not applicable because the respondent allegedly had not accepted the surety bond, hence could not have delivered the goods to Sagum Enterprises. On the other hand, petitioner's defense that it did not have authority to issue a Surety Bond when it did is an admission of fraud committed against respondent. No person can claim benefit from the wrong he himself committed. A representation made is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon G.R. No. L-69450 November 22, 1988 EASTERN ASSURANCE & SURETY CORPORATION, petitioner, vs. INTERMEDIATE APPELLATE COURT and REPUBLIC OF THE PHILIPPINES (DEPT. OF AGRARIAN REFORM), respondents. FELICIANO, J.: The Petition at bar seeks a review of the Decision 1 dated 11 December 1984 rendered by the then Intermediate Appellate Court, in AC-G.R. CV No. 67253. On 8 January 1976 , the Region 7 (Cebu) Office of respondent Department of Agrarian Reform ("DAR") put up for public bidding a job or project consisting of the repair of seven (7) units of (USAID) Willys Mitsubishi/Eisenhower jeeps. Among the bidders was Motor City, an automotive repair, company, which latter on emerged as the winning bidder. The winning bid was accompanied by a Proposal Bond 2 required by the DAR of all bidders in the amount of P33,275.00 and issued by petitioner Eastern Assurance and Surety Corporation ("Eastern"), as surety, on behalf of Motor City, its principal. The Proposal Bond provided, in pertinent part: NOW, THEREFORE, the conditions of this obligation are such that if the above-bounden principal [i.e., Motor City] shall, in the event of his becoming a successful bidder in the above proposal: (1) fails to guarantee the true and faithful performance of the contract in case of award ; (2) shall refuse to accept the same or (3) shall not answer for any delay and/or default in the execution of the contract as provided in the proposal ; then the DEPARTMENT OF AGRARIAN REFORM shall be entitled to be indemnified of any loss or damage it may suffer by reason thereof not to exceed the sum of THIRTY THREE THOUSAND TWO HUNDRED SEVENTY FIVE ONLY (P33,275.00) PESOS, Philippine Currency, otherwise this obligation shall be void and without effect. (Emphasis supplied) On 31 January 1976, a Contract for Repair of Jeeps 3 was entered into between respondent DAR as owner and Motor City as contractor, the latter obligating itself thereunder as follows:

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1. That for and/in consideration of the sum of THIRTY THOUSAND PESOS (P30,000.00) Philippine Currency, which the OWNER agrees to pay unto the CONTRACTOR, the said CONTRACTOR agrees and undertakes to repair the owner's seven (7) units of (USAID) Willys Mitsubishi/Eisenhower Jeeps, which are more particularly described as follows: Motor Number Chassis Number 1. MD-136864 1. 95696 2. MD-31015 2. 86038 3. MD-70750 3. 36201 4. MD-136846 4. 95670 5. JH4-34885 5. 15293 6. 4J-24985 6. 15215 7. 4J 54898 7. 16294 xxx xxx xxx 5. That the CONTRACTOR agrees to put up the amount of TEN THOUSAND PESOS (Pl0,000.00) as Performance Bond upon award of the bid; xxx xxx xxx 8. That the CONTRACTOR agrees to finish the repairs on all seven (7) units within ninety (90) working days, counted from the day of the award of the bid, and should the CONTRACTOR fail to finish the repairs within the said period, he (CONTRACTOR) shall indemnify the OWNER the amount equivalent to 1% of the quoted lot price for each day of late delivery. xxx xxx xxx (Emphasis supplied) It turned out, however, that only six (6) out of the seven (7) aforementioned jeeps were repaired fully and delivered promptly to respondent DAR. The seventh unit, bearing Motor No. 70750 and Chassis No. 36201, continued to remain undelivered, despite the grant of several extensions in favor of and the issuance on 13 March 1978 of a final letter to Motor City, demanding that the latter complete the repair and effect delivery of the seventh vehicle. On 12 July 1978, respondent DAR commenced a suit 4 for specific performance and damages against Motor City. Included there as a codefendant was petitioner Eastern which, it was alleged, "had posted the performance bond herewith attached as Annex 'B' undertaking to answer and guarantee the true and faithful compliance and performance of the [Contract for Repair of Jeeps]." In an Answer with Cross-Claim 5 petitioner Eastern (defendant below) denied having incurred any liability under the Proposal Bond, alleging that such bond "did not bind answering defendant as [the] same was a mere proposal and not an actual undertaking." That pleading also sought, by way of cross-claim, judgment ordering Motor City to indemnify Eastern in an amount equivalent to whatever the latter would be ordered by the court to pay the complainant plus twenty percent (20%)thereof as attorney's fees. Eastern submitted in support of its cross-claim an Indemnity Agreement, 6 executed in its favor by Antonio Puchadez, who had signed the document in his capacity as President and General Manager of Motor City as well as in his own personal capacity. On 15 February 1980, the trial court rendered a Decision 7, the dispositive portion of which read: THE FOREGOING CONSIDERED, judgment is hereby rendered in favor of the plaintiffs as follows: directing Motor City to deliver to the plaintiff one (1) unit of (USAID) Willys Mitsubishi/Eisenhower Jeep with Motor No. MD70750 already repaired pursuant to the specifications in the "Contract for Repair of Jeeps;" directing Motor City to pay an indemnity equivalent to 1% of P30,000.00 for each day of late delivery (the period starts from February 1, 1976 until delivery of the unit); in case of default, the payment thereof to be assumed or to be liquidated by Eastern Assurance and Surety Corporation but not to exceed P33,275.00. If eventually Eastern Assurance and Surety Corporation should pay following default by Motor City, then the latter solidarily with Antonio Puchadez should reimburse Eastern Assurance Surety Corporation all the amounts paid by the latter to the plaintiff with 20% of the amount as attorney's fees. With costs against both Motor City and Eastern Assurance and Surety Corporation. SO ORDERED. On appeal, the ruling of the trial court was affirmed with a slight modification. The appellate court held that the one percent (1%) indemnity charge for late delivery stipulated under the repair contract, "shall be [computed] from March 3, 1978" and not 1 February 1976. The instant Petition for Review, in essence, raises only one (1) issue; whether or not petitioner Eastern may be held liable to respondent DAR for the contractual breach committed here by Motor City. The broadest argument of petitioner Eastern is that it incurred no liability under the Proposal Bond after the Contract for Repair of Jeeps had been entered into between the DAR and Motor City. Eastern is here relying upon the difference, in conceptual terms, between a proposal bond and a performance bond. A proposal or bid bond has for its purpose to assure the owner of the project of the good faith of the bidder and that the bidder will enter into a contract with the project owner should his proposal be accepted. A performance bond is, upon the other hand designed to afford the project owner security that the bidder, now the contractor, will faithfully comply with the requirements of the contract awarded to the contractor and make good damages sustained by the project owner in case of the

contractor's failure to so perform. 8 Eastern's argument is, however, clearly too broad to be helpful; for liability under a surety bond is determined not upon the basis of its abstract nature or its title or caption but rather in accordance with the particular terms and conditions set out in such bond. 9 It is thus necessary to look into the actual terms of the Proposal Bond in question. Thereunder, liability on the part of petitioner Eastern as surety would be incurred upon the happening of anyone of the following three (3) events: the failure or refusal of Motor City as principal (1) "to guarantee the true and faithful performance of the contract in case of an award; (2) "to accept the [award]; and (3) to "answer for any delay and/or default in the execution of the contract as provided in the proposal." There is no dispute that the first condition refers to failure to post a performance bond in the amount of P10,000.00; there is also no dispute that Eastern's principal did not in fact post any such performance bond. There should therefore be no question that there was a breach of condition No.1 of the Proposal Bond. It is urged by petitioner Eastern that the beneficiary of the bond, public respondent DAR, had waived the stipulation in the Repair Contract providing for the posting of such bond by entering into the contract with Motor City although the latter had not posted the P10,000.00 Performance Bond. We do not believe that the DAR had waived the breach of this condition. Certainly there was no express waiver. Implied waiver of a contractual stipulation for the giving of security or collateral is not favored and has to be clearly shown. There is also no dispute that the second condition was not breached for Motor City did accept the award of the contract and did enter into the Contract for Repair of Jeeps. In respect of the third condition, i.e., failure of Motor City to answer for delay or default "in the execution of the contract as provided in the proposal", petitioner Eastern contends that this provision refers merely to the execution, that is, the signing or conclusion of the Contract for Repair of Jeeps, and not to the performance or implementation or carrying out of the provisions of such contract. There are at least two (2) difficulties with this argument of Eastern. First, the ordinary or dictionary meaning of "to execute" a contract (and especially to "execute a contract as provided in the proposal") is or includes: ... 1: to put into effect: carry out fully and completely : PERFORM, EFFECT ... 3: to give effect to : do what is provided or required ... : perform the requirements of : perform the acts necessary to the effectiveness of ... 6 :COMPLETE ... : perform what is required to give validity to (as by signing and perhaps sealing and delivering) ... .10 Thus, the term "execution" is understood ordinarily and literally as referring to both; ... 1 : the act or process of executing : PERFORMANCE, ACCOMPLISHMENT ... 3 ...c: [and] the act of signing, sealing, and delivering a legal instrument or giving it the forms required to make it valid ... . 11 Thus, the ordinary meaning of execution is not limited to the signing or concluding of a contract but includes as well the performance or implementation or accomplishment of the terms and conditions of such contract. Second, if one assumes, for purposes of analysis only, that petitioner Eastern's contention is correct, then the second condition in the Proposal Bond (refusal "to accept [the contract]") and the third condition (failure to "answer for any delay and/or default in the execution of the contract as provided in the proposal") must be taken to refer to the same thing or circumstance. But either the second or the third condition would then have to be regarded as superfluous and meaningless, a result that must be abjured in view of the principle of effectiveness in the interpretation of contracts. When viewed in its entirety, the Proposal Bond may be seen to be not merely a proposal (or bid) bond but also aperformance bond. For it covers not merely the acceptance of the award and the conclusion of a contract but also the carrying out or performance of the provisions of the contract. We note also that the P10,000.00 Performance Bond explicitly required by paragraph 5 of the Contract for Repair of Jeeps is lower in face amount than the Proposal Bond which has a maximum value or face amount of P33,275.00. If petitioner Eastern's argument that its liability under the Proposal Bond ceased the moment the Repair Contract was entered into is correct, then paragraph 5 of that Contract would be reduced to nonsense: for it must be nonsensical to require a proposal bond in an amount 300% more than the amount of the required performance bond, if the proposal bond were to become functus oficio the moment the contract was legally entered into. Upon the other hand, the requirement of posting of a performance bond of P10,000.00 is quite understandable if it be understood as simplyadditional security for the carrying out of the terms of the contract, that is, additional to the Proposal Bond. 12 Finally, we note that the Proposal Bond is set out in a printed contract form of petitioner Eastern. The three (3) circumstances occurrence of which would trigger off the liability of Eastern under the bond, appear to be standard stipulations imposed by petitioner upon all persons seeking to secure proposal bonds from Eastern. To this extent, the Proposal Bond is a contract of adhesion, having been prepared solely by Eastern. Accordingly,

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any ambiguity or obscurity that may be found to infect the terms of the Proposal Bond, must be construed against Eastern. 13 In sum, we hold that petitioner Eastern's liability under the Proposal Bond accrued the moment the principal obligor, Motor City, failed to post the P10,000.00 Performance Bond and incurred in delay and eventually defaulted in the repair and delivery of the seventh jeep unit, part of the subject matter of the Contract for Repair of Jeeps with respondent DAR. WHEREFORE, the Petition for Review is DENIED for lack of merit. The Decision dated 11 December 1984 of the then Intermediate Appellate Court in A.C. G.R. CV 67523 is hereby AFFIRMED with the modification that the one percent (1%) indemnity charge per day of delay in delivery provided for in the Contract for Repair of Jeeps shall be computed from 13 March 1978 (not 3 March 1978), the date of last demand. Petitioner's liability for such indemnity charge shall not exceed the face amount of the Proposal Bond (P33,275.00). Costs against petitioner. G.R. No. 89020 May 5, 1992 STRONGHOLD INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS, respondent. PARAS, J.: In this petition for review on certiorari, petitioner Stronghold Insurance Co., Inc. assails the decision * of the Court of Appeals in CA-G.R. CV No. 16154 affirming the order of the Regional Trial Court, Branch 167, Pasig, Metro Manila in its Civil Case No. 52177. The dispositive portion of this order of the Trial court reads: WHEREFORE, in view of the foregoing consideration, the claim of the defendant against SICI Bond No. 11652 of the Stronghold Insurance Company, Inc. is found to have been established and said surety company is adjudged liable for damages suffered by the defendant as found by this Court in its decision dated June 9, 1986, to the extent of the amount of the replevin bond, which is P42,000.00 (p. 20, Rollo) The factual antecedents are not disputed. On March 21, 1985, Leisure Club, Inc. filed Civil Case No. 52177 against Northern Motors Inc. for replevin and damages. It sought the recovery of certain office furnitures and equipments. In an order dated March 22, 1985, the lower court ordered the delivery of subject properties to Leisure Club Inc. subject to the posting of the requisite bond under Section 2, Rule 60 of the Rules of Court. Accordingly, Leisure Club Inc. posted a replevin bond (SICI Bond No. 11652) dated March 25, 1985 in the amount of P42,000.00 issued by Stronghold Insurance Co., Inc. In due course, the lower court issued the writ of replevin, thereby enabling Leisure Club Inc. to take possession of the disputed properties. Northern Motors Inc. filed a counterbond for the release of the disputed properties. However, efforts to recover these properties proved futile as Leisure Club Inc. was never heard of again. For failure to appear in the pre-trial of the case, Leisure Club, Inc. was declared non-suited. Northern Motors Inc. presented its evidence exparte and on June 9, 1986, the lower court rendered its decision in favor of Northern Motors Inc., the dispositive portion of which reads PREMISE CONSIDERED, the instant petition is hereby dismissed and on the counterclaim, plaintiff is ordered to pay defendant the following: a) the actual value of the property sold at public auction by defendant, and repossessed by plaintiff, of P20,900.00; b) exemplary damages of P10,000.00; c) attorney's fees in the amount of P10,000.00; and d) costs of suit. SO ORDERED. (p. 21, Rollo) In the said decision, the lower court ruled that: 1. Northern Motors Inc. had rightful ownership and right of possession over the subject properties. 2. Leisure Club Inc. is a sister company of Macronics Inc., a debtor of Northern Motors Inc., and former owner of these properties. 3) Under the circumstances, Leisure Club Inc. instituted the action for replevin as part of a scheme to spirit away these properties and pave the way for the evasion of lawful obligations by its sister company. (Decision dated June 4, 1986, p. 4). On July 3, 1986, Northern Motors Inc. filed a "Motion for Issuance of Writ of Execution Against Bond of Plaintiff's Surety", pursuant to Section 10, Rule 20 of the Rules of Court, which was treated by the lower court as an application for damages against the replevin bond. At the hearing of the said motion as well as the opposition thereto filed by Stronghold Insurance Co., Inc., Northern Motors Inc. presented one witness in the person of its former manager Clarissa G. Ocampo, whose testimony proved that: (a) Northern Motors Inc., and Macronics Marketing entered into a leased agreement wherein the latter leased certain premises from the former. (b) Macronics failed to pay its bills to Northern Motors Inc., so the latter was forced to terminate the lease. (c) Because of Macronics' unpaid liabilities to Northern Motors Inc., the latter was forced to sell off the former's properties in an auction sale wherein Northern Motors Inc. was the buyer. Macronics was duly notified of

the sale. (d) These properties sold were the sole means available by which Northern Motors Inc. could enforce its claim against Macronics. (TSN dated January 30, 1987; pp. 94-95, Rollo) Stronghold Insurance Co., Inc. did not cross-examine the said witness. Instead it asked for continuance in order to present its own witness. Stronghold, however, never presented any witness. On July 21, 1987, the lower court issued its now disputed Order finding Stronghold liable under its surety bond for the damages awarded to Northern Motors Inc. in the June 8, 1986 Decision. In the said Order, the lower court held: Submitted for resolution is the "Motion for Issuance of Writ of Execution Against Bond of Plaintiff's Surety" filed by the defendant and the opposition thereto filed by the Stronghold Insurance Company, Inc. In the decision rendered by the Court on June 9, 1977, the defendant Northern Motors, Inc. was the prevailling party and the judgment in its favor ordered the plaintiff to pay the actual value of the property sold at public auction by the defendant and repossessed by plaintiff in the amount of P20,900.00, which is in favor of the plaintiff if the latter is found not entitled to the writ of replevin earlier issued against the defendant. The thrust of the opposition of the bonding company is to the effect that the motion for a writ of execution is not the proper remedy but an application against the bond should have been the remedy pursued. The surety company contends that it is not a party to the case and that the decision clearly became final and executory and, therefore, is no longer liable on the bond. The surety company likewise raised the issue as to when the decision became final and executory. Moreover, the surety company avers that the defendant failed to prove any damage by reason of the insurance of replevin bond. Sec. 20 of Rule 57, in relation to Sec. 10 of Rule 60, provides that the party against whom the bond was issued may recover on the bond for any damage resulting from the issuance of the bond upon application and hearing. The application must be filed either: before trial; before appeal is perfected; before judgment becomes final and executory. Being the prevailing party, it is undeniable that the defendant is entitled to recover against the bond. The application for that propose was made before the decision became final and before the appeal was perfected. Both the prevailing and losing parties may appeal the decision. In the case of the plaintiff appears that its counsel did not claim the decision which was sent by registered mail on June 20, 1986 and filed the motion for execution against the bond on July 3, 1986. Hence, with respect to the defendant the motion against the bond was filed before any appeal was instituted and definitely on or before the judgment became final. Although the claim against the bond was denominated as a motion for issuance of a writ of execution, the allegations are to the effect that the defendant is applying for damages against the bond. In fact, the defendant invokes Sec. 10, Rule 60, in relation to Sec. 20, Rule 57, Rules of Court. Evidently, therefore, the defendant is in reality claiming damages against the bond. It is undisputed that the replevin bond was obtained by the plaintiff to answer for whatever damages the defendant may suffer for the wrongful issuance of the writ. By virtue of the writ, the plaintiff took possession of the auctioned properties. Despite a redelivery bond issued by the defendant, the plaintiff refused to return the properties and in the fact repossessed the same. Clearly, defendant suffered damages by reason of the wrongful replevin, in that it has been deprived of the properties upon which it was entitled to enforce its claim. Moreover, the extent of the damages has been qualified in the decision dated June 9, 1986. (pp. 21-23, Rollo) This Order was appealed by Stronghold to the Court of Appeals. In a decision dated July 7, 1989, the Court of Appeals affirmed the order of the lower court. This decision is now the subject of the instant petition. Petitioner raises the following assignment of error: 1. The lower court erred in awarding damages against herein petitioner despite complete absence of evidence in support of the application. 2. The lower court erred in just adopting the dispositive portion of the decision dated June 7, 1986 as basis for the award of damages against herein petitioner. 3. The lower court erred in awarding exemplary damages in favor of Northern Motors, Inc. and against petitioner Stronghold Insurance Co., Inc. 4. The lower court erred in awarding the attorney's fees of P10,000.00 as damages against the bond. (pp. 10-11, Rollo) We find no merit in the petition. In the case of Visayan Surety & Insurance Corp. vs. Pascual, 85 Phil. 779, the Court explained the nature of the proceedings to recover damages against a surety, in this wise: In such case, upon application of the prevailing party, the court must order the surety to show cause why the bond should not respond for the judgment of damages. If the surety should contest the reality or reasonableness of the damages claimed by the prevailing party, the court

must set the application and answer for hearing. The hearing will be summary and will be limited to such new defense, not previously set up by the principal, as the surety may allege and offer to prove. ( Id. at 785; emphasis supplied) (p. 96, Rollo) Stronghold Insurance Co., Inc., never denied that it issued a replevin bond. Under the terms of the said bond, Stronghold Insurance together with Leisure Club Inc. solidarily bound themselves in the sum of P42,000 (a) for the prosecution of the action, (b) for the return of the property to the defendant if the return thereof be adjudged, and (c) for the payment of such sum as may in the cause be recovered against the plaintiff and the costs of the action. In the case at bar, all the necessary conditions for proceeding against the bond are present, to wit: (i) the plaintiff a quo, in bad faith, failed to prosecute the action, and after relieving the property, it promptly disappeared; (ii) the subject property disappeared with the plaintiff, despite a court order for their return; and (iii) a reasonable sum was adjudged to be due to respondent, by way of actual and exemplary damages, attorney's fees and costs of suit. (p. 63, Rollo) On the propriety of the award for damages and attorney's fees, suffice it to state, that as correctly observed by the Court of Appeals, the record shows that the same is supported by sufficient evidence. Northern Motors proved the damages it suffered thru evidence presented in the hearing of the case itself and in the hearing of its motion for execution against the replevin bond. No evidence to the contrary was presented by Stronghold Insurance Co., Inc. in its behalf. It did not impugn said award of exemplary damages and attorney's fees despite having every opportunity to do so. As correctly held by respondent Court of Appeals Stronghold Insurance, Inc. has no ground to assail the awards against it in the disputed Order. Unless it has a new defense, it cannot simplistically dissociate itself from Leisure Club, Inc. and disclaim liability vis-a-vis the findings made in the Decision of the lower court dated June 9, 1986. Under Section 2, Rule 60 the bond it filed is to ensure "the return of the property to the defendant if the return thereof be adjudged, and for the payment to the defendant of such sum as he may recover from the plaintiff in the action." The bond itself ensures, inter alia, "the payment of such sum as may in the cause be recovered against the plaintiff and the cost of the action." (pp. 2425, Rollo) Beside, Leisure Club Inc.'s act of filing a replevin suit without the intention of prosecuting the same but for the mere purpose of disappearing with the provisionally recovered property in order to evade lawfully contracted obligations constitutes a wanton, fraudulent, reckless, oppressive and malevolent breach of contract which justifies award of exemplary damages under Art. 2232 of the Civil Code. The attorney's fees awarded in favor of Northern Motors Inc. are likewise warranted under Article 2208 of the New Civil Code. In any event, the trial court has decided with finality that the circumstances justifying the award of exemplary damages and attorney's fees exist. The obligation of Stronghold Insurance Co., Inc., under the bond is specific. It assures "the payment of such sum as may in the cause be recovered against the plaintiff, and the costs of the action ." (emphasis supplied) WHEREFORE, the petition is DENIED for lack of merit. No costs. PRUDENTIAL GUARANTEE G.R. Nos. 152505-06 and ASSURANCE, INC., Petitioner, Present: PUNO, C.J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, * AZCUNA, and GARCIA, JJ. Promulgated: September 13, 2007 x -----------------------------------------------------------------------------------------x DECISION SANDOVAL-GUTIERREZ, J.: Before us for resolution is the instant Petition for Review on Certiorari assailing the Decision [1] of the Court of Appeals (Third Division) datedNovember 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57335.

The undisputed facts of the case, as established by the Construction Industry Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are: Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various building contractors. Four (4) building contractors, including JMarc Construction & Development Corporation (JMarc), responded. Finding the bid of JMarc to be the most advantageous, Equinox offered the construction project to it. On February 22, 1997, JMarc accepted the offer. Two days later, Equinox formally awarded to JMarc the contract to build the extension for a consideration of P37,000,000.00. On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the advance payment payable to JMarc; and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee JMarcs faithful performance of its obligations under the construction agreement. On March 17, 1997, Equinox and JMarc signed the contract and related documents. Under the terms of the contract, JMarc would supply all the labor, materials, tools, equipment, and supervision required to complete the project. In accordance with the terms of the contract, Equinox paid JMarc a downpayment of P9,250,000.00 equivalent to 25% of the contract price. JMarc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the months of March and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on the project. On May 23, 1997, JMarc requested an unscheduled cash advance of P300,000.00 from Equinox, explaining it had encountered cash problems. Equinox granted JMarcs request to prevent delay. On May 31, 1997, JMarc submitted its first progress billing showing that it had accomplished only 7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced payments, the net amount payable to JMarc was only P1,285,959.12. Of this amount, Equinox paid JMarc only P697,005.12 because the former paid EXAN P588,954.00 for concrete mix. Shortly after Equinox paid JMarc based on its first progress billing, the latter again requested an advanced payment of P150,000.00. Again Equinox paid JMarc this amount. Eventually, Equinox found that the amount owing to JMarcs laborers was only P121,000.00, not P150,000.00. In June 1997, EXAN refused to deliver concrete mix to the project site due to JMarcs recurring failure to pay on time. Faced with a looming delay in the project schedule, Equinox acceded to EXANs request that payments for the concrete mix should be remitted to it directly. On June 30, 1997, JMarc submitted its second progress billing showing that it accomplished only 16.0435% of the project after 4 months of construction work. Based on the contract and its own schedule, JMarc should have accomplished at least 37.70%. Faced with the problem of delay, Equinox formally gave JMarc one final chance to take remedial steps in order to finish the project on time. However, JMarc failed to undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated its contract with JMarc and took over the project. On the same date, Equinox sent Prudential a letter claiming relief from JMarcs violations of the contract. On July 11, 1997, the work on the project stopped. The personnel of both Equinox and JMarc jointly conducted an inventory of all materials, tools, equipment, and supplies at the construction site. They also measured and recorded the amount of work actually accomplished. As of July 11, 1997, JMarc accomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract. The cost of JMarcs accomplishment was only P7,051,201.00. In other words, Equinox overpaid JMarc in the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting to P273,152.50. In addition, Equinox also paid the wages of JMarcs

- versus -

EQUINOX LAND CORPORATION, Respondent.

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laborers, the billings for unpaid supplies, and the amounts owing to subcontractors of JMarc in the total sum of P664,998.09. On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint for sum of money and damages against JMarc and Prudential. Equinox prayed that JMarc be ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to pay its liability under the bonds. In its answer, JMarc alleged that Equinox has no valid ground for terminating their contract. For its part, Prudential denied Equinoxs claims and instituted a cross-claim against JMarc for any judgment that might be rendered against its bonds. During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction over it. On February 12, 1999, the trial court granted Prudentials motion and dismissed the case. On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the construction contract between Equinox and JMarc; and that its surety and performance bonds are not construction agreements, thus, any action thereon lies exclusively with the proper court. On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against JMarc and Prudential, thus: AWARD After considering the evidence and the arguments of the parties, we find that: 1. JMarc has been duly notified of the filing and pendency of the arbitration proceeding commenced by Equinox against JMarc and that CIAC has acquired jurisdiction over JMarc; 2. The construction Contract was validly terminated by Equinox due to JMarcs failure to provide a timely supply of adequate labor, materials, tools, equipment, and technical services and to remedy its inability to comply with the construction schedule; 3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the absence of adequate proof of actual and compensatory damages, we award to Equinox nominal or temperate damages in the amount of P500,000.00; 4. The percentage of accomplishment of JMarc at the time of the termination of the Contract was 19.0573% of the work valued atP7,051,201.00. This amount should be credited to JMarc. On the other hand, Equinox [i] had paid JMarc 25% of the contract price as down or advance payment, [ii] had paid JMarc its first progress billing, [iii] had made advances for payroll of the workers, and for unpaid supplies and the works of JMarcs subcontractors, all in the total sum of P11,690,483.34. Deducting the value of JMarcs accomplishment from these advances and payment, there is due from JMarc to Equinox the amount of P4,639,285.34. We hold JMarc liable to pay Equinox this amount of P4,639,285.34. 5. If JMarc had billed Equinox for its accomplishment as of July 11, 1997, 25% of the P7,051,201.00 would have been recouped as partial payment of the advanced or down payment. This would have resulted in reducing Prudentials liability on the Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find that Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80; 6. Prudential is furthermore liable on its Performance Bond for the following amounts: the advances made by Equinox on behalf of JMarc to the workers, suppliers, and subcontractors amounting to P664,985.09, the nominal damages of P500,000.00 and attorneys fees of P100,000.00 or a total amount of P1,264,985.00; 7. All other claims and counterclaims are denied; 8. JMarc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid by Equinox as expenses of arbitration; 9. The total liability of JMarc to Equinox is determined to be P5,139,285.34 plus attorneys fees of P100,000.00. The suretys liability cannot exceed that of the principal debtor [Art. 2054, Civil Code}. We hold that, notwithstanding our finding in Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the Surety Bond and Performance Bond an amount not to exceed P5,239,285.34. The cost of arbitration shall be paid by JMarc alone. The amount of P5,239,285.34 shall be paid by respondent JMarc and respondent Prudential, jointly and severally, with interest at six percent [6%] per annum from promulgation of this award. This amount, including accrued

interest, shall earn interest at the rate of 12% per annum from the time this decision becomes final and executory until the entire amount is fully paid or judgment fully satisfied. The expenses of arbitration, which shall be paid by JMarc alone, shall likewise earn interest at 6% per annum from the date of promulgation of the award, and 12% from the date the award becomes final until this amount including accrued interest is fully paid. SO ORDERED. Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the construction contract between Equinox and JMarc and that it is solidarily liable with JMarc under its bonds. Equinox filed a motion for reconsideration on the ground that there is an error in the computation of its claim for unliquidated damages; and that it is entitled to an award of liquidated damages. On February 2, 2000, the CIAC amended its Award by reducing the total liability of JMarc to Equinox to P4,060,780.21, plus attorneys fees ofP100,000 or P4,160,780.21, and holding that Prudentials liability to Equinox on the surety and performance bonds should not exceed the said amount of P4,160,780.21, payable by JMarc and Prudential jointly and severally. Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed by Prudential. On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads: WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with MODIFICATION in paragraph 4 in the Award by holding JMarc liable for unliquidated damages to Equinox in the amount of P5,358,167.09 and in paragraph 9 thereof by increasing the total liability of JMarc to Equinox toP5,958,167.09 (in view of the additional award of P500,000.00 as nominal and temperate damages and P100,000.00 in attorneys fees), and AFFIRMED in all other respects. SO ORDERED. Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals. The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with JMarc for damages. On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction and as such, can only wield such powers as are specifically granted to them by their enabling statutes. [2] Section 4 of Executive Order No. 1008,[3] provides: SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

Excluded from the coverage of the law are disputes arising from employer-employee relationships which continue to be covered by the Labor Code of the Philippines. In David v. Construction Industry and Arbitration Commission ,[4] we ruled that Section 4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case for voluntary arbitration.

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The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of employer or contractor and changes in contract cost.

As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against JMarc and Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction, contending that since the case involves a construction dispute, jurisdiction lies with CIAC. Prudentials motion was granted. However, after the CIAC assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that it is not a party to the construction contract between Equinox and JMarc; and that the surety and performance bonds it issued are not construction agreements. After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to question its jurisdiction. As we held inLapanday Agricultural & Development Corporation v. Estita ,[5] the active participation of a party in a case pending against him before a court or a quasi-judicial body is tantamount to a recognition of that courts or quasijudicial bodys jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the courts or quasijudicial bodys jurisdiction. Moreover, in its Reply to Equinoxs Opposition to the Motion to Dismiss before the RTC, Prudential, citing Philippine National Bank v. Pineda[6] and Finman General Assurance Corporation v. Salik ,[7] argued that as a surety, it is considered under the law to be the same party as the obligor in relation to whatever is adjudged regarding the latters obligation. Therefore, it is the CIAC which has jurisdiction over the case involving a construction contract between Equinox and JMarc. Such an admission by Prudential binds it and it cannot now claim otherwise. Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with JMarc. Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the suretyship, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It includes official recognizances, stipulations, bonds, or undertakings issued under Act 536[8], as amended. Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon the solidarybinding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation. In Castellvi de Higgins and Higgins v. Seliner,[9] we held that while a surety and a guarantor are alike in that each promises to answer for the debt or default of another, the surety assumes liability as a regular party to the undertaking and hence its obligation is primary. In Security Pacific Assurance Corporation v. Tria-Infante ,[10] we reiterated the rule that while a contract of surety is secondary only to a valid principal obligation, the suretys liability to the creditor is said to be direct, primary, and absolute. In other words, the surety is directly and equally bound with the principal. Thus, Prudential is barred from disclaiming that its liability with JMarc is solidary. WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in toto. Costs against petitioner. INTRA-STRATA ASSURANCE CORPORATION and PHILIPPINE HOME ASSURANCE CORPORATION, Petitioners, G.R. No. 156571 Present: QUISUMBING, J., Chairperson, TINGA, * REYES, ** LEONARDO-DE CASTRO,BRION, JJ. Promulgated: July 9, 2008 x -----------------------------------------------------------------------------------------x BRION, J.: Before this Court is the Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by Intra-Strata Assurance Corporation ( IntraStrata) and Philippine Home Assurance Corporation ( PhilHome), collectively referred to as petitioners.

The petition seeks to set aside the decision dated November 26, 2002 of the CA that in turn affirmed the ruling of the Regional Trial Court (RTC), Branch 20, Manila in Civil Case No. 83-15071. [2] In its ruling, the RTC found the petitioners liable as sureties for the customs duties, internal revenue taxes, and other charges due on the importations made by the importer, Grand Textile Manufacturing Corporation ( Grand Textile).[3] BACKGROUND FACTS Grand Textile is a local manufacturing corporation. In 1974, it imported from different countries various articles such as dyestuffs, spare parts for textile machinery, polyester filament yarn, textile auxiliary chemicals, trans open type reciprocating compressor, and trevira filament. Subsequent to the importation, these articles were transferred to Customs Bonded Warehouse No. 462. As computed by the Bureau of Customs, the customs duties, internal revenue taxes, and other charges due on the importations amounted to P2,363,147.00. To secure the payment of these obligations pursuant to Section 1904 of the Tariff and Customs Code (Code),[4] Intra-Strata and PhilHome each issued general warehousing bonds in favor of the Bureau of Customs. These bonds, the terms of which are fully quoted below, commonly provide that the goods shall be withdrawn from the bonded warehouse on payment of the legal customs duties, internal revenue, and other charges to which they shall then be subject.[5] Without payment of the taxes, customs duties, and charges due and for purposes of domestic consumption, Grand Textile withdrew the imported goods from storage.[6] The Bureau of Customs demanded payment of the amounts due from Grand Textile as importer, and from Intra-Strata and PhilHome as sureties. All three failed to pay. The government responded on January 14, 1983 by filing a collection suit against the parties with the RTC of Manila. LOWER COURT DECISIONS After hearing, the RTC rendered its January 4, 1995 decision finding Grand Textile (as importer) and the petitioners (as sureties) liable for the taxes, duties, and charges due on the imported articles. The dispositive portion of this decision states: [7] WHEREFORE, directing: premises considered, the Court RESOLVES

(1) the defendant Grand Textile Manufacturing Corporation to pay plaintiff, the sum of P2,363,174.00, plus interests at the legal rate from the filing of the Complaint until fully paid; (2) the defendant Intra-Strata Assurance Corporation to pay plaintiff, jointly and severally, with defendant Grand, the sum of P2,319,211.00 plus interest from the filing of the Complaint until fully paid; and the defendant Philippine Home Assurance Corporation to pay plaintiff the sum of P43,936.00 plus interests to be computed from the filing of the Complaint until fully paid; (3) the forfeiture of all the General Warehousing Bonds executed by IntraStrata and PhilHome; and (4) all the defendants to pay the costs of suit. SO ORDERED. The CA fully affirmed the RTC decision in its decision dated November 26, 2002. From this CA decision, the petitioners now come before this Court through a petition for review on certiorari alleging that the CA decided the presented legal questions in a way not in accord with the law and with the applicable jurisprudence. ASSIGNED ERRORS The petitioners present the following points as the conclusions the CA should have made: 1. that they were released from their obligations under their bonds when Grand Textile withdrew the imported goods without payment of taxes, duties, and other charges; and 2. that their non-involvement in the active handling of the warehoused items from the time they were stored up to their withdrawals substantially increased the risks they assumed under the bonds they issued, thereby releasing them from liabilities under these bonds. [8]

- versus -

REPUBLIC OF THE PHILIPPINES, represented by the BUREAU OF CUSTOMS, Respondent.

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In their arguments, they essentially pose the legal issue of whether the withdrawal of the stored goods, wares, and merchandise without notice to them as sureties released them from any liability for the duties, taxes, and charges they committed to pay under the bonds they issued. They additionally posit that they should be released from any liability because the Bureau of Customs, through the fault or negligence of its employees, allowed the withdrawal of the goods without the payment of the duties, taxes, and other charges due. The respondent, through the Solicitor General, maintains the opposite view. THE COURTS RULING We find no merit in the petition and consequently affirm the CA decision. Nature of the Suretys Obligations Section 175 of the Insurance Code defines a contract of suretyship as an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of another party called the obligee, and includes among its various species bonds such as those issued pursuant to Section 1904 of the Code.[9] Significantly, pertinent provisions of the Civil Code of thePhilippines shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship. [10] By its very nature under the terms of the laws regulating suretyship, the liability of the surety is joint and several but limited to the amount of the bond, and its terms are determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. [11] The definition and characteristics of a suretyship bring into focus the fact that a surety agreement is an accessory contract that introduces a third party element in the fulfillment of the principal obligation that an obligor owes an obligee. In short, there are effectively two (2) contracts involved when a surety agreement comes into play a principal contract and an accessory contract of suretyship. Under the accessory contract, the surety becomes directly, primarily, and equally bound with the principal as the original promissor although he possesses no direct or personal interest over the latters obligations and does not receive any benefit therefrom. [12] The Bonds Under Consideration That the bonds under consideration are surety bonds (and hence are governed by the above laws and rules) is not disputed; the petitioners merely assert that they should not be liable for the reasons summarized above. Two elements, both affecting the suretyship agreement, are material in the issues the petitioners pose. The first is the effect of the law on the suretyship agreement; the terms of the suretyship agreement constitute the second. A feature of the petitioners bonds, not stated expressly in the bonds themselves but one that is true in every contract, is that applicable laws form part of and are read into the contract without need for any express reference. This feature proceeds from Article 1306 of the Civil Code pursuant to which we had occasion to rule: It is to be recognized that a large degree of autonomy is accorded the contracting parties. Not that it is unfettered. They may, according to Article 1306 of the Civil Code establish such stipulations, clauses, terms, and conditions as they may deem convenient, provided that they are not contrary to law, morals, good customs, public order, or public policy. The law thus sets limits. It is a fundamental requirement that the contract entered into must be in accordance with, and not repugnant to, an applicable statute. Its terms are embodied therein. The contracting parties need not repeat them. They do not even have to be referred to. Every contract thus contains not only what has been explicitly stipulated but also the statutory provisions that have any bearing on the matter. [13] Two of the applicable laws, principally pertaining to the importer, are Sections 101 and 1204 of the Tariff and Customs Code which provide that: Sec 101. Imported Items Subject to Duty All articles when imported from any foreign country into the Philippines shall be subject to duty upon such importation even though previously exported from the Philippines, except as otherwise specifically provided for in this Code or in clear laws.

xxxx Sec. 1204. Liability of Importer for Duties Unless relieved by laws or regulations, the liability for duties, taxes, fees, and other charges attaching on importation constitutes a personal debt due from the importer to the government which can be discharged only by payment in full of all duties, taxes, fees, and other charges legally accruing. It also constitutes a lien upon the articles imported which may be enforced which such articles are in custody or subject to the control of the government. The obligation to pay, principally by the importer, is shared by the latter with a willing third party under a suretyship agreement under Section 1904 of the Code which itself provides: Section 1904. Irrevocable Domestic Letter of Credit or Bank Guarantee or Warehousing Bond After articles declared in the entry of warehousing shall have been examined and the duties, taxes, and other charges shall have been determined, the Collector shall require from the importer, an irrevocable domestic letter of credit, bank guarantee, or bond equivalent to the amount of such duties, taxes, and other charges conditioned upon the withdrawal of the articles within the period prescribed by Section 1908 of this Code and for payment of any duties, taxes, and other charges to which the articles shall then be subject and upon compliance with all legal requirements regarding their importation. We point these out to stress the legal basis for the submission of the petitioners bonds and the conditions attaching to these bonds. As heretofore mentioned, there is, firstly, a principal obligation belonging to the importer-obligor as provided under Section 101; secondly, there is an accessory obligation, assumed by the sureties pursuant to Section 1904 which, by the nature of a surety agreement, directly, primarily, and equally bind them to the obligee to pay the obligors obligation. The second element to consider in a suretyship agreement relates to the terms of the bonds themselves, under the rule that the terms of the suretyship are determined by the suretyship contract itself. [14] The General Warehousing Bond[15] that is at the core of the present dispute provides: KNOW ALL MEN BY THESE PRESENTS: That I/we GRAND TEXTILE MANUFACTURING CORPORATION Km. 21, Marilao, Bulacan, as Principal, and PHILIPPINE HOME ASSURANCE as the latter being a domestic corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, are held and firmly bound unto the Republic of the Philippines, in the sum of PESOS TWO MILLION ONLY (P2,000,000.00), Philippine Currency, to be paid to the Republic of the Philippines, for the payment whereof, we bind ourselves, our heirs, executors, administrators and assigns, jointly and severally, firmly by these presents: WHEREAS, the above-bounden Principal will from time to time make application to make entry for storing in customs-internal revenue bonded warehouse certain goods, wares, and merchandise, subject to customs duties and special import tax or internal revenue taxes or both; WHEREAS, the above principal in making application for storing merchandise in customs-internal revenue bonded warehouse as above stated, will file this in his name as principal, which bond shall be approved by the Collector of Customs or his Deputy; and WHEREAS, the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond. NOW THEREFORE, the condition of this obligation is such that if within six (6) months from the date of arrival of the importing vessel in any case, the goods, wares, and merchandise shall be regularly and lawfully withdrawn from public stores or bonded warehouse on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall then be subject; or if at any time within six (6) months from the said date of arrival, or within nine (9) months if the time is extended for a period of three (3) months, as provided in Section 1903 of the Tariff and Customs Code of the Philippines, said importation shall be so withdrawn for consumption, then the above obligation shall be void, otherwise, to remain in full force and effect. Obligations hereunder may only be accepted during the calendar year 1974 and the right to reserve by the corresponding Collector of Customs to refuse to accept further liabilities under this general bond, whenever, in his opinion, conditions warrant doing so. IN WITNESS WHEREOF, we have signed our names and affixed our seals on this 20th day of September, 1974 at Makati, Rizal, Philippines.

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Considered in relation with the underlying laws that are deemed read into these bonds, it is at once clear that the bonds shall subsist that is, shall remain in full force and effect unless the imported articles are regularly and lawfully withdrawn. . .on payment of the legal customs duties, internal revenue taxes, and other charges to which they shall be subject. Fully fleshed out, the obligation to pay the duties, taxes, and other charges primarily rested on the principal Grand Textile; it was allowed to warehouse the imported articles without need for prior payment of the amounts due, conditioned on the filing of a bond that shall remain in full force and effect until the payment of the duties, taxes, and charges due. Under these terms, the fact that a withdrawal has been made and its circumstances are not material to the sureties liability, except to signal both the principals default and the elevation to a due and demandable status of the sureties solidary obligation to pay. Under the bonds plain terms, this solidary obligation subsists for as long as the amounts due on the importations have not been paid. Thus, it is completely erroneous for the petitioners to say that they were released from their obligations under their bond when Grand Textile withdrew the imported goods without payment of taxes, duties, and charges. From a commonsensical perspective, it may well be asked: why else would the law require a surety when such surety would be bound only if the withdrawal would be regular due to the payment of the required duties, taxes, and other charges? We note in this regard the rule that a surety is released from its obligation when there is a material alteration of the contract in connection with which the bond is given, such as a change which imposes a new obligation on the promising party, or which takes away some obligation already imposed, or one which changes the legal effect of the original contract and not merely its form. A surety, however, is not released by a change in the contract which does not have the effect of making its obligation more onerous.[16] We find under the facts of this case no significant or material alteration in the principal contract between the government and the importer, nor in the obligation that the petitioners assumed as sureties. Specifically, the petitioners never assumed, nor were any additional obligation imposed, due to any modification of the terms of importation and the obligations thereunder. The obligation, and one that never varied, is on the part of the importer, to pay the customs duties, taxes, and charges due on the importation, and on the part of the sureties, to be solidarily bound to the payment of the amounts due on the imported goods upon their withdrawal or upon expiration of the given terms. The petitioners lack of consent to the withdrawal of the goods, if this is their complaint, is a matter between them and the principal Grand Textile; it is a matter outside the concern of government whose interest as creditor-obligee in the importation transaction is the payment by the importer-obligor of the duties, taxes, and charges due before the importation process is concluded. With respect to the sureties who are there as third parties to ensure that the amounts due are paid, the creditor-obligee's active concern is to enforce the sureties solidary obligation that has become due and demandable. This matter is further and more fully explored below. The Need for Notice to Bondsmen To support the conclusion that they should be released from the bonds they issued, the petitioners argue that upon the issuance and acceptance of the bonds, they became direct parties to the bonded transaction entitled to participate and actively intervene, as sureties, in the handling of the imported articles; that, as sureties, they are entitled to notice of any act of the bond obligee and of the bond principal that would affect the risks secured by the bond; and that otherwise, the door becomes wide open for possible fraudulent conspiracy between the bond obligee and principal to defraud the surety.[17] In taking these positions, the petitioners appear to misconstrue the nature of a surety relationship, particularly the fact that two types of relationships are involved, that is, the underlying principal relationship between the creditor (government) and the debtor (importer), and the accessory surety relationship whereby the surety binds itself, for a consideration paid by the debtor, to be jointly and solidarily liable to the creditor for the debtors default. The creditor in this latter relationship accepts the suretys solidary undertaking to pay if the debtor does not pay. [18] Such acceptance, however, does not change in any material way the creditors relationship with the principal debtor nor does it make the surety an active party to the principal creditor-debtor relationship. The contract of surety simply gives rise to an obligation on the part of the surety in relation with the creditor and is a one-way relationship for the benefit of the latter. [19]

In other words, the surety does not, by reason of the surety agreement, earn the right to intervene in the principal creditor-debtor relationship; its role becomes alive only upon the debtors default, at which time it can be directly held liable by the creditor for payment as a solidary obligor. A surety contract is made principally for the benefit of the creditor-obligee and this is ensured by the solidary nature of the sureties undertaking. [20] Under these terms, the surety is not entitled as a rule to a separate notice of default,[21] nor to the benefit of excussion,[22] and may be sued separately or together with the principal debtor. [23] The words of this Court in Palmares v. CA[24] are worth noting: Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principals default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principals default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. Significantly, nowhere in the petitioners bonds does it state that prior notice is required to fix the sureties liabilities. Without such express requirement, the creditors right to enforce payment cannot be denied as the petitioners became bound as soon as Grand Textile, the principal debtor, defaulted. Thus, the filing of the collection suit was sufficient notice to the sureties of their principals default. The petitioners reliance on Visayan Surety and Insurance Corporation v. Pascual [25] and Aguasin v. Velasquez[26] does not appear to us to be well taken as these cases do not squarely apply to the present case. These cases relate to bonds issued as a requirement for the issuance of writs of replevin. The Rules of Court expressly require that before damages can be claimed against such bonds, notice must be given to the sureties to bind them to the award of damages. No such requirement is evident in this case as neither the Tariff and Customs Code nor the issued bonds require prior notice to sureties. The petitioners argument focusing on the additional risks they incur if they cannot intervene in the handling of the warehoused articles must perforce fail in light of what we have said above regarding the nature of their obligation as sureties and the relationships among the parties where a surety agreement exists. We add that the petitioners have effectively waived as against the creditor (the government) any such claim in light of the provision of the bond that the surety hereon agrees to accept all responsibility jointly and severally for the acts of the principal done in accordance with the terms of this bond. [27] Any such claim including those arising from the withdrawal of the warehoused articles without the payment of the requisite duties, taxes and charges is for the principal and the sureties to thresh out between or among themselves. Government is Not Bound by Estoppel As its final point, the petitioners argue that they cannot be held liable for the unpaid customs duties, taxes, and other charges because it is the Bureau of Customs duty to ensure that the duties and taxes are paid before the imported goods are released from its custody and they cannot be made to pay for the error or negligence of the Bureaus employees in authorizing the unlawful and irregular withdrawal of the goods. It has long been a settled rule that the government is not bound by the errors committed by its agents. Estoppel does not also lie against the government or any of its agencies arising from unauthorized or illegal acts of public officers.[28] This is particularly true in the collection of legitimate taxes due where the collection has to be made whether or not there is error, complicity, or plain neglect on the part of the collecting agents. [29] In CIR v. CTA,[30] we pointedly said: It is axiomatic that the government cannot and must not be estopped particularly in matters involving taxes. Taxes are the lifeblood of the nation through which the government agencies continue to operate and with which the State effects its functions for the welfare of its constituents. Thus, it should be collected without unnecessary hindrance or delay. We see no reason to deviate from this rule and we shall not do so now. WHEREFORE, premises considered, we hereby DENY the petition and AFFIRM the Decision of the Court of Appeals. Costs against the petitioners.

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Reparations Commission vs. Universal Deep Sea Fishing Corp. FACTS: The Reparations Commission awarded six (6) trawl boats to the Universal Deep-Sea Fishing Corporation which were delivered two at a time, each delivery being covered by a Contract of Conditional Purchase and Sale providing for identical schedules of payments the first installment representing 10% of the total cost was to be paid 24 months after delivery and the balance of the total cost to be paid in ten (10) equal installments, which, in the schedule were numbered as "1", "2", "3", etc., the first of which was due one year after the first installment. When the Reparations Commission sued Universal and its surety to recover various amounts of money due under the contracts, they claimed that the amounts were not yet due and demandable. Universal alleged that there was an obscurity in the terms of the contracts in question which was caused by the plaintiff as to the amounts and due dates of the first installments which should have been first fixed before the creditor could demand its payment from the debtor, specifically referring to the schedule of payments which allegedly indicated two (2) due dates for the payment of the first installment. HELD: The Supreme Court found the terms of the contracts clear and left no doubt as to the intent of the contracting parties that the first installment due 24 months after delivery was different from the the first ten (10) equal yearly installment of the balance of the purchase price (which are not designated as "first", "second", "third", etc., installments). DOUBLE INSURANCE and REINSURANCE Double Insurance Sec. 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. Rules of Payment Sec. 94. Where the insured is overinsured by double insurance: (a) The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; (b) Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; (c) Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. Reinsurance Sec. 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance. Artex Development Co vs. Wellington Insurance FACTS: - Wellington insurance insured for P24,346,509 the building stocks and machinery of plaintiff Artex against loss or damage by fire or lightning upon August 2, 1963 with an additional sum of P833,034. - Another insurance against business interruption (use & occupancy) for P5,200,000. - On September 22, 1963 the building, and machineries were burned and a notice of loss and damage was given to Wellington. - Insurance adjusters computed the loss for the fire as P10,106,544.40 and Wellington paid only 6,481,870.07, leaving a balance of 3,624,683.43 - The computed business interruption loss was P3M but Wellington paid only P1,864,134.08 leaving a balance of P1,748,460 (computation based on case) - Artex through counsel Norberto Quisumbing made a manifestation that only about P397,000 is the remaining balance and liability which was the subject of reinsurance with Alexander and Alexander Inc, of New York, Artex acknowledging here the receipt of P3,600,000 as FINAL and FULLSETTLEMENT of all claims against Welllington

- Artex further prays to the court to affirm the lower courts decision of liquidation and prayed for modification of the amount of liability to be fixed toP397,813.00 plus 12% interest per annum thereof for the late payment until april 10, 1969 and attorneys fees of 15% of the recovery, expenses of litigation, no writ of execution however to be made within 3years from july10, 1969 per collateral agreement of the parties. - WELLINGTON in its brief raises the issue that Artex deemed to have agreed to look SOLELY to the reinsurers for indemnity in case of loss since their paid up capital stock is only P500,000 and that they have to secure such reinsurance coverage the over P24M fire insurance coverage of the policy issued by Wellington to Artex. ISSUE: WON reinsurance contract of the parties makes the insured to look SOLELY to the reinsurers for indemnity in case of loss RULING: NO, the insured who is not directly a party or privy to the reinsurance contract between Wellington and Alexander and Alexander Inc., CANNOT demand enforcement of such insurance contracts. The Contracts take effect only between the parties, their assigns and heirs as provide by Art 1311 of our civil code. Further it provides that a contract with stipulations pour autrui or in favor of a third person not a party to the contract, the parties must have CLEARLY and DELIBERATELY conferred favor upon a third person. - The SC also stated that assuming that Artex directly sue the reinsurers for payment this does not in any way affect or cancel out Wellingtons direct contractual liability to Artex. The SC dispose the case by affirming the prayer of Artex. Duty to Disclose Sec. 96. Where an insurer obtains reinsurance , except under automatic reinsurance treaties, he must communicate ALL the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk. Philippine American Life vs. Auditor General FACTS - Philamlife, a domestic life insurance corp., and American International Reinsurance Company (Airco), a corporation organized under the laws of the Republic of Panama, entered into a REINSURANCE TREATY wherein Philamlife agrees to reinsure with Airco on January 1950. Philamlife agreed to pay premiums for all reinsurances on an annual premium basis. - In July 16, 1959, the MARGIN LAW was approved and became effective, which exempts certain obligations from payment of margin fees, particularly contractual obligations calling for payment of foreign exchange issued, approved and outstanding as of the date this Act takes place. - Central Bank of the Philippines collected P268,747.48 as foreign exchange margin on Philamlife remittances to Airco purportedly totalling$610,998.63 and made subsequent to July 16, 1959.Philamlife filed a claim for refund on the ground that the reinsurance premiums remitted were paid in pursuant to the January 1950 reinsurance treaty, and therefore exempted. - Monetary Board exempted Philamlife from payment of margin fee. However, Auditor of CB refused to pass in audit Philamlifes claim for refund. Philamlife sought reconsideration but was denied, saying reinsurance treaty NOT EXEMPTED. ISSUES 1. WON the premia remitted were in pursuance of the reinsurance treaty between Philamlife and Airco of January 1959, a contract antedating the Margin Law, and therefore, Philamlife exempted from paying margin fee 2. WON Margin Law impairs the obligation of contract 3. WON reinsurance contracts abroad would be made impractical by the imposition of the 25% margin fee HELD 1. NO - For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty provided, a "reinsurance cession" which may be automatic or facultative. Ratio: A reinsurance policy is thus a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed. In contradistinction, a REINSURANCE TREATY is merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. The practice of issuing policies by insurance companies includes, among other things, the issuance of reinsurance policies on standard risks and also on substandard risks under

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special arrangements. The lumping of the different agreements under a contract has resulted in the term known to the insurance world as 'treaties.' Such a treaty is, in fact, an agreement between insurance companies to cover the different situations described. Reinsurance treaties and reinsurance policies are not synonymous. Treaties are contracts for insurance; reinsurance policies or cessions are contracts of insurance. Reasoning: Even if reinsurance treaty preceded the Margin Law by over nine years, nothing in the treaty obligates Philamlife to remit to Airco a fixed, certain, and obligatory sum by way of reinsurance premiums. The reinsurance treaty per se cannot give rise to a contractual obligation for the payment of foreign exchange. Philamlifes obligation to remit reinsurance premiums becomes fixed and definite upon the execution of the reinsurance cession. It is only after a reinsurance cession is made that payment of reinsurance premium may be exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay the margin fee arises. 2. NO Ratio: Existing laws form part of the contract "as the measure of the obligation to perform them by the one party and the right acquired by the other. If the obligation does not inhere and subsist in the contract itself, propio vigore, but in the law applicable to the contract. Reasoning: When petitioner entered into the reinsurance treaty of January 1, 1950 with Airco, it did so with the understanding that the municipal laws of the Philippines at the time said treaty was executed, became an unwritten condition thereof. Such municipal laws constitute part of the obligation of contract. Rationale of Margin Law: to reduce the excessive demand on and prevent further decline of our international reserves; to provide the Central Bank with an additional instrument for effectively coping with the problem and achieving domestic and international stability of our currency; to reduce the excessive demand-for foreign exchange.- implementation of Margin Law in accordance with police power 3. NO Reasoning: First, there is no concrete evidence that such imposition of the 25% margin fee is unreasonable. Second, if really continuance of the existing reinsurance treaty becomes unbearable, that contract itself provides that petitioner may potestatively write finis thereto on ninety days' written notice. Petitioner is not forced to continue its reinsurance treaty indefinitely with Airco. Disposition: For the reasons given, the petition for review is hereby denied, and the ruling of the Auditor General of October 24, 1961 denying refund is hereby affirmed. Costs against petitioner. So ordered FIELDMEN'S INSURANCE CO INC vs. ASIANSURETY & INSURANCE 34 SCRA 36MAKALINTAL; July 31, 1970 FACTS - On various dates between April 11, 1960 and Jan.9, 1961 the ASIAN SURETY & Insurance Company, Inc. and the FIELDMEN'S INSURANCE Company, Inc. entered into 7 reinsurance agreements under which the former, as the ceding company undertook to cede to the latter, as the reinsuring company, a SPECIFIED PORTION of the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate of the premium applicable with respect to each cession after deducting a commission . Said agreements were to take effect from certain specific dates and were to be in force until cancelled by either party upon previous notice of at least 3 months by registered mail to the other party, the cancellation to take effect as of Dec.31 of the year in which the notice was given. - On Sep. 19, 1961 FIELDMEN'S, by means of registered mail, served notice to ASIAN of the former's desire to be relieved from all participation in its various agreements with the latter effective Dec.31, 1961. This communication, although admittedly received by ASIAN on Sep. 25, 1961, did not elicit any reply from ASIAN. - On Dec. 7, 1961 FIELDMEN'S sent another letter to ASIAN expressing regrets at alleged violations committed by the latter with respect to the various agreements between them and reiterated its position that it would consider itself "no longer at risk for any reinsurance and/or cession" given by ASIAN which might be in force on Dec. 31, 1961. Not having received any formal reply from ASIAN, FIELDMEN'S sent a new a letter on Feb. 17, 1962 reminding ASIAN of the cancellation of all the reinsurance treaties and cessions as of Dec. 31, 1961 and requested ASIAN to submit its final

accounting of allcessions made to the former for the preceding months when the reinsurance agreements were inforce. - Meanwhile one of the risks reinsured with FIELDMEN'S issued in favor of the GSIS became a liability when the insured property was burned on February 16, 1962. Since the policy was issued on July 1, 1961, it was supposed to expire on July 1,1962. 2 The next day, Feb. 17, ASIAN immediately notified FIELDMEN'S of said fire loss. - FIELDMEN'S, relying on the sufficiency of its notice of termination dated September 19, 1961 and obviously bent on avoiding its liability under the reinsurance agreements with ASIAN, filed a petition for declaratory relief with the CFI of Manila to seek a declaration that all the reinsurance contracts entered into between them had terminated as of December31, 1961 and to obtain an order directing ASIAN to render final accounting of the transactions between them with respect to said reinsurance treaties as of the cut-off date. - In its answer below ASIAN denied having received FIELDMEN'S letter dated Sep 19, 1961, and argued that even assuming it did, FIELDMEN'S could not have terminated the reinsurance treaties as of Dec31, 1961 because the letter was merely an expression of FIELDMEN'S desire to cancel the treaties and not a formal notice of cancellation as contemplated in their reinsurance agreements. By way of special defense Asian contended that even if the Sep. 19 letter were considered sufficient notice of cancellation thereby rendering the reinsurance agreements terminated as of December 31, 1961 the liability of FIELDMEN'S with respect to policies or cessions issued under two of the said agreements prior to their cancellation continued to have full force and effect until the stated expiry dates of such policies or cessions . - On Dec. 4, 1962, the TRIAL COURT declared 6 of the 7reinsurance agreements in question cancelled as of Dec 31, 1961. At the same time, it upheld ASIAN'S position that all cessions of reinsurance made by it to FIELDMEN'S prior to the cancellation of the reinsurance treaties continued in full force and effect until expiry dates and ordered FIELDMEN'S to make an accounting of its business transactions with ASIAN within 30 days. - On appeal to the CA, the decision of the trial court was SUBSTANTIALLY AFFIRMED, with the slight modification that the order for accounting was eliminated, without prejudice to the filing of a proper action between the parties for that purpose. ISSUE: WON the cancellation as of Dec. 31, 1961 of the reinsurance treaties had the effect of terminating also the liability of FIELDMEN'S as reinsurer with respect to policies or cessions issued prior to thetermination of the principal reinsurance contracts or treaties HELD: NO to the 2 reinsurance contracts - Of the 6 reinsurance contracts, 2 contain provisions , which clearly and expressly recognize the continuing effectivity of policies ceded under them for reinsurance notwithstanding the cancellation of the contracts themselves. The said treaties provide "that in the event of termination of this Agreement: the liability of the Fieldmen's under current cessions shall continue in full force and effect until their natural expiry; and the 4th paragraph of Art. VI of the Personal Accident Reinsurance Treaty states: 4. On the termination of this Agreement from any cause whatever, the liability of the REINSURER (Fieldmen's) under any current cession including any amounts due to be ceded under the terms of this Agreement and which are not cancelled in the ordinary course of business shall continue in full force until their expiry unless the COMPANY(Asian) shall, prior to the thirty-first December next following such notice, elect to withdraw the existing cessions"

- With respect to the other 4 agreements, it would seem that the petition for declaratory relief is moot, and that no useful purpose would be served by defining the respective rights and obligations of the parties thereunder. The said agreements have been cancelled, and it does not appear that any claim by or liability in favor of the insured has actually arisen under any of the reinsurance cessions made prior to such cancellation. Future conflicts of the same nature as those which have motivated the present action can of

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- Thus, insofar as the two reinsurance agreements are concerned, there is clearly no merit in FIELDMEN'S claim that their cancellation carried with it ipso facto the termination of all reinsurance cessions thereunder. Such cessions continued to be in force until their respective dates of expiration. Since it was under one of said agreements that the reinsurance cession corresponding to the GSIS policy had been made, FIELDMEN'S cannot avoid liability which arose by reason of the burning of the insured property.

course be obviated by using more precise and definite terminology in the reinsurance agreements which the parties may enter into henceforth

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