647 Phil. 692
MENDOZA, J.:
- Lump sum price--------PHP1,150,000.00;
- 50% downpayment---upon submission of surety bond in an equivalent amount and performance bond equivalent to 30 % of contract amount;
- Completion date-----60 calendar days;
- Penalty----2/10 of 1% of total contract amount for every day of delay;
- Terms---50% down payment to be released after submission of bonds;
- Retention--Subject to 10% retention to be released after the project is accepted by the owner;
KNOW ALL MEN BY THESE PRESENTS:
That we, LUCKY STAR DRILLING & CONSTRUCTION CORP., 168 ACACIA St., Octagon Industrial Estate Subd., Pasig City as principal, and STRONGHOLD INSURANCE COMPANY, INC., a corporation duly organized and existing under and by virtue of laws of the Philippines, as surety, are held and firmly bound unto ASSET BUILDERS CORPORATION to the sum of Pesos FIVE HUNDRED SEVENTY FIVE THOUSAND ONLY (P575,000.00) Philippine Currency, for the payment of which, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.
THE CONDITIONS OF THIS OBLIGATION ARE AS FOLLOWS:To fully and faithfully guarantee the repayment to be done through deductions from periodic billings of the advance payment made or to be made by the Obligee to the Principal in connection with the supply of labor, materials, tools and equipment including technical supervision to drill one (1) exploratory production well located at NIA Ave. cor. Olalia St., Brgy. dela Paz, Antipolo City. This bond is callable on demand.
The liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: FIVE HUNDRED SEVENTY FIVE THOUSAND (P575,000.00) only, Philippine Currency.
WHEREAS, the Obligee requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said undertakings.
NOW, THEREFORE, if the above bounden principal shall in all respects duly and fully observe and perform all and singular the aforesaid [co]-venants, conditions and agreements to the true intent and meaning thereof, then this obligation shall be null and void, otherwise to remain in full force and effect.
Liability of surety on this bond will expire on May 09, 2007 and said bond will be cancelled five DAYS after its expiration, unless surety is notified of and existing obligations hereunder.
x x x[5]
KNOW ALL MEN BY THESE PRESENTS:
That we, LUCKY STAR DRILLING & CONSTRUCTION of 168 Acacia St., Octagon Ind'l., contractor, of Estate, Sub., Pasig City Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the Philippines, with head office at Makati, as Surety, are held and firmly bound unto the ASSET BUILDERS CORPORATION and to any individual, firm, partnership, corporation or association supplying the principal with labor or materials in the penal sum of THREE HUNDRED FORTY FIVE THOUSAND ONLY (P345,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents.
The CONDITIONS OF THIS OBLIGATION are as follows;
WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the ASSET BUILDERS CORPORATION represented by _________________, to fully and faithfully.
Comply with the supply of labor, materials, tools and equipment including technical supervision to drill one (1) exploratory production well located at NIA Ave. cor. Olalia St., Brgy. Dela Paz, Antipolo City. This bond is callable on demand.
WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS THREE HUNDRED FORTY FIVE THOUSAND ONLY (P345,000.00) Philippine Currency, inclusive of interest, attorney's fee, and other damages, and shall not be liable for any advances of the obligee to the principal.
WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated sum to secure the full and faithfull performance on its part of said contract, and the satisfaction of obligations for materials used and labor employed upon the work;
NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of said contract during the original term of said contract and any extension thereof that may be granted by the obligee, with notice to the surety and during the life of any guaranty required under the contract, and shall also perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said contract that may hereinafter be made, without notice to the surety except when such modifications increase the contract price; and such principal contractor or his or its sub-contractors shall promptly make payment to any individual, firm, partnership, corporation or association supplying the principal of its sub-contractors with labor and materials in the prosecution of the work provided for in the said contract, then, this obligation shall be null and void; otherwise it shall remain in full force and effect. Any extension of the period of time which may be granted by the obligee to the contractor shall be considered as given, and any modifications of said contract shall be considered as authorized, with the express consent of the Surety.
The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to the provision of Act No. 3688, is hereby acknowledge and confirmed. x x x
Pursuant to paragraph 1 of the Terms and Conditions of the service contract, notice is hereby made on you of the rescission of the contract and accordingly demand is hereby made on you, within seven (7) days from receipt hereof:
(1) to refund the down payment of PHP563,500.00, plus legal interest thereon;
(2) to pay liquidated damages equivalent to 2/10 of 1% of the contract price for every day of delay, or a total of PHP138,000.00;
(3) to pay the amount guaranteed by your performance bond in the amount of PHP345,000.00;
(4) to pay PHP150,000.00 in other consequential damages;
(5) to pay exemplary damages in the amount of PHP150,000.00;
(6) to vacate the project site, together with all your men and equipment.
Should you refuse to comply with our demand within the above period, we shall be constrained to sue you in court, in which event we shall demand payment of attorney's fees in the amount of at least PHP100,000.00.
On the liability of defendant Stronghold Insurance, the Court rules on the negative.
The surety bond and performance bond executed by defendants Lucky Star and Stronghold Insurance are in the nature of accessory contracts which depend for its existence upon another contract. Thus, when the agreement (Exhibit `A') between the plaintiff and defendant Asset Builders was rescinded, the surety and performance bond were automatically cancelled.
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against defendant Lucky Star Drilling & Construction, ordering the latter as follows:
- to pay plaintiff in the amount of PHP575,000.00 as actual damages plus legal interest from the filing of the complaint;
- to pay plaintiff in the amount of PHP100,000.00 as liquidated damages;
- to pay plaintiff in the amount of PHP50,000.00 as exemplary damages;
- to pay plaintiff in the amount of PHP 50,000.00 as attorney's fees;
- to pay the costs of the suit.
Defendant Stronghold Insurance Company, Inc.'s compulsory counterclaim and cross-claim are dismissed.[15]
GROUNDS
A. The Lower Court seriously erred and unjustly ACTED ARBITRARILY with manifest bias and grave abuse of discretion, CONTRARY to applicable laws and established jurisprudence in declaring the "automatic CANCELLATION" of respondent Stronghold's Surety Bond and Performance Bond, because:(a) Despite rescission, there exists a continuing VALID PRINCIPAL OBLIGATION guaranteed by Respondent's Bonds, arising out of the Contractor's DEFAULT and Non-performance.
(b) Upon breach by its Principal/contractor, the LIABILITIES of Respondent's bonds had already ACCRUED, automatically attached, and had become already DIRECT, PRIMARY and ABSOLUTE, even before Petitioner's legitimate exercise of its option under Art. 1191 of the New Civil Code.
(c) Rescission does NOT AFFECT the liabilities of the Respondent Stronghold as its LIABILITIES on its subject bonds have already become INTERWOVEN and INSEPARABLE with the liabilities of its Principal, the Contractor Lucky Star.
B. With the Lower Court's completely erroneous ruling on the liabilities of Respondent's bonds, the Lower Court equally ERRED with manifest bias and grave abuse, in its FAILURE to comply with the "duty of court" to make a finding of "unreasonable denial or withholding" by Respondent Stronghold or Petitioner's claims and impose upon the Respondent the penalties provided for under Section 241 and 244 of the Insurance Code.[16]
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis supplied]
X x x. The surety's obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal.
The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.