Manila Terminal Co. v. Hiponia
REITERATIONFacts
The Antecedents: Plaintiff Manila Terminal Co., Inc. (MTCI) was the contractor and operator of the government arrastre service. Jesus O. Hiponia was a customs broker who was required by MTCI to post arrastre bonds to secure payment of arrastre charges. Hiponia posted three such bonds: two from Philippine Guaranty Co., Inc. (one for P5,000 on March 6, 1947, and another for P10,000 on April 8, 1947) and one from Far Eastern Surety & Insurance Co., Inc. (FESIC) for P5,000 on May 29, 1947. Hiponia failed to pay arrastre charges totaling P11,315.58 for the period March 6, 1947, to December 31, 1947. Philippine Guaranty Co., Inc. paid P8,486.68, and Hiponia paid P50, leaving a balance of P2,778.90. MTCI sought to collect this balance from FESIC primarily, and alternatively from Philippine Guaranty Co., Inc. and Hiponia jointly and severally. Procedural History: Hiponia was declared in default. FESIC and Philippine Guaranty Co., Inc. filed their respective answers after their motions to dismiss were denied. FESIC filed an amended answer with a cross-complaint against Hiponia and Juan C. Capalad, based on an indemnity agreement. Hiponia did not answer the cross-complaint. Capalad answered, alleging he was merely a witness. The trial court rendered judgment ordering Hiponia and FESIC to pay MTCI jointly and severally, and dismissing FESIC's cross-complaint against Capalad. The Petition: The case was elevated to the Court of Appeals, which certified it to the Supreme Court as the issue was purely one of law. The sole question was whether FESIC could be held liable for the P2,778.90 balance, given that it was covered by prior bonds and that the charges had accrued before FESIC executed its bond.
Issue(s)
Whether appellant Far Eastern Surety & Insurance Co., Inc. (FESIC) may be held answerable for the balance of P2,778.90 as part of the arrastre charges which Hiponia failed to pay, under its bond executed on May 29, 1947, when the same can be fully covered by the two bonds previously executed by another surety. Whether FESIC's bond, executed on May 29, 1947, can be held liable for arrastre charges that had already accrued prior to its execution.
Ruling
The Supreme Court modified the decision of the lower court, dismissing the action against Far Eastern Surety & Insurance Co., Inc. The decision against defendant Jesus O. Hiponia was to stand.
Ratio Decidendi
On the issue of FESIC's liability for the balance of P2,778.90: The Court held that FESIC could not be held liable for the balance. The refusal of FESIC to pay was predicated on two grounds: (1) that it would only be liable after the first two bonds were found insufficient, and (2) that the balance had already accrued when FESIC executed its bond, thus it could not have retroactive effect. The Court found no support for the first ground, as there was nothing in FESIC's bond to infer that its liability was subsidiary to the prior bonds. The Court stated that the undertaking of FESIC appeared to be distinct and separate from that of the other surety and should be considered exclusively according to its own terms and conditions. The lower court's finding that the obligations were separate and independent was affirmed. On the issue of the retroactive effect of FESIC's bond: The Court ruled that FESIC could not be held liable for the arrastre charges that had already accrued when it executed its bond on May 29, 1947. The Court cited the principle that a bond or contract of suretyship is strictly construed and cannot be extended beyond its specified limits; it is not retrospective unless an intent to be so liable is clearly indicated. While the bond stated it would answer for charges that "may have arisen or due," this was qualified by the phrase "on all and every goods, wares and merchandise which may be imported into, or exported from, the Philippine Islands." This qualification gave the connotation that the undertaking only covered charges that might accrue in the future. The Court found the wording of the bond to be ambiguous or equivocal. In such cases, where the intention of the parties is not clearly expressed, a contract of suretyship is strictly construed against the creditor. Therefore, the Court concluded that FESIC was not liable for the payment of the amount claimed.
Main Doctrine
A contract of suretyship is strictly construed and cannot be extended beyond its specified limits. It is not retrospective, and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is clearly indicated. Ambiguous or equivocal wording in a suretyship contract, when not clearly expressing the intent of the parties, will be construed against the creditor.