Atkins, Kroll & Co. v. Reyes
REITERATIONFacts
The Antecedents: Celia Reyes, doing business under the trade name "Celia David," ordered 600 cases of Luneta sardines for P9,936.00, paying P6,500.00 and leaving a balance of P3,436.00. Subsequently, she ordered 3,000 cases of Modesto evaporated milk for P48,000.00 on a "net cash" basis. She failed to pay for the milk, and a P10,000.00 check she issued for partial payment was dishonored due to insufficient funds. To guarantee the payment of the milk, Celia Reyes, through Alto Surety and Insurance Co., Inc., executed a surety bond for P25,000.00. Procedural History: Atkins, Kroll & Co., Inc. filed suit to recover the outstanding indebtedness. An amended complaint impleaded Alto Surety & Insurance Co., Inc. to enforce the performance bond. The surety company admitted the bond but claimed it was not accepted by the creditor and that its liability was dependent on the principal debtor. Celia Reyes denied liability and counterclaimed for damages. The Court of First Instance of Manila rendered judgment against both Celia Reyes and Alto Surety and Insurance Co., Inc. The Petition: Celia Reyes' appeal was dismissed, leaving only the contentions of the surety company to be considered. The surety company argued that the bond was executed with the understanding that Celia Reyes would be given time to pay her obligations, which understanding was allegedly violated when the plaintiff filed suit shortly after the bond was executed.
Issue(s)
Whether the surety bond was executed with the understanding that Celia Reyes would be granted an extension of time to pay her obligations. Whether the plaintiff violated any agreement by filing suit shortly after the bond was executed.
Ruling
The Supreme Court affirmed the judgment of the Court of First Instance, holding that the surety company failed to prove that the bond was executed with the understanding of an extended period for payment. The Court found no stipulation in the written suretyship agreement or in the bond itself indicating any such extension, and the surety's subsequent actions did not support this claim.
Ratio Decidendi
On the issue of an understanding for an extended period of payment: The Court found no evidence in the record to support the surety's claim that the bond was executed with an agreement for an extension of time to pay. While Celia Reyes might have hoped for such an extension by furnishing the bond, there was no indication that the creditor agreed to this expectation. The written suretyship agreement and the bond itself, prepared by the surety company, made no mention of any extension of the principal's obligation to pay. The absence of such a crucial condition in the surety's own document was considered strong evidence against its contention. Furthermore, the surety's written answer to the demand for payment and its answer to the amended complaint did not raise the defense of an extended term of payment, further weakening its claim. The Court reiterated its ruling that the strictissimi juris rule of interpretation does not apply to corporate sureties engaged in the business of furnishing bonds for compensation and secured by counterbonds, and found no error in the lower court's holding that no extension of the period to pay was stipulated. On whether the plaintiff violated an agreement by filing suit: Since the Court found no agreement for an extended period of payment, the plaintiff's act of filing suit shortly after the bond was executed did not constitute a violation of any understanding. The surety's liability was not conditioned upon the principal obtaining additional time to make her payments, as there was no such stipulation in the contract. The bond was executed to guarantee the payment of all indebtedness then due or which might thereafter become due, and the faithful performance of her obligations.
Main Doctrine
A corporate surety engaged in the business of furnishing bonds for compensation, and secured from possible loss by adequate counterbonds, is not entitled to the strictissimi juris rule of interpretation; and the absence of a stipulation for an extension of payment in the surety agreement is strong evidence against the surety's contention that such an extension was agreed upon.