Plaridel Surety & Insurance Company v. Artex Development Company, Inc.
REITERATIONFacts
The Antecedents: Petitioner Plaridel Surety & Insurance Company (Plaridel) filed a complaint for a sum of money against respondent Artex Development Company, Inc. (Artex) to recover P20,570.24 representing renewal premiums and costs of documentary stamps on various surety bonds posted by Plaridel for Artex. These bonds were posted pursuant to Republic Act No. 4086, allowing withdrawal of imported raw materials under bond, equivalent to the customs duties and taxes due thereon, pending approval of tax exemption applications. Procedural History: Artex withdrew shipments from customs custody under these surety bonds because its tax exemption applications were not yet approved. Artex paid the premiums and costs for the first year (March 1965 to March 1966). On December 19, 1966, Artex was granted tax exemption by the Board of Industries (BOI Certificate No. 22), after which it stopped paying premiums. Artex filed a motion to dismiss the complaint, arguing that the grant of tax exemption rendered the surety bonds and counter-guaranty agreement null and void, thus extinguishing any claim for premiums. The respondent judge granted the motion to dismiss and denied the motion for reconsideration. The Petition: Plaridel seeks review of the dismissal order, contending that even if the bonds were released, it was entitled to accrued premiums and costs for renewals made prior to the tax exemption grant. Plaridel also argued that renewals after the grant should remain in effect until formally cancelled and that the mere grant of exemption does not discharge the bonds, as violations of terms might still occur.
Issue(s)
Whether the respondent judge erred in dismissing the complaint for a sum of money. Whether the grant of tax exemption by the Board of Industries extinguished the surety bonds and the agreement of counter-guaranty, thereby nullifying the obligation to pay premiums and costs of documentary stamps. Whether Plaridel is entitled to accrued premiums and costs for renewals made prior to the grant of tax exemption. Whether renewals of surety bonds after the grant of tax exemption remain valid and subsisting.
Ruling
The petition is dismissed for lack of merit. The questioned orders of the respondent judge are affirmed. Costs against the petitioner.
Ratio Decidendi
No ratio provided in the text for whether the respondent judge erred in dismissing the complaint for a sum of money. On the issue of whether the grant of tax exemption extinguished the surety bonds and the agreement of counter-guaranty: The Court ruled in the affirmative. Condition No. 2 of the original surety bonds explicitly stated that the bond would be "null and void and of no force and effect" if the application for tax exemption was approved by the Board of Industries. This stipulation was agreed upon by the parties. Since the respondent Artex Development Co. Inc. was granted tax exemption on December 19, 1966, the surety bonds, by their own terms, became null and void from that date. Consequently, the obligation to pay premiums and costs of documentary stamps on these extinguished bonds also ceased to exist. The principle that suretyship is an accessory contract, dependent on a valid principal obligation, supports this conclusion. As stated in Visayan Surety and Insurance Corporation v. Laperal, the nature of a fianza (suretyship) is accessory and subsidiary, meaning it cannot exist without a principal obligation to secure. On the entitlement to accrued premiums and costs for renewals made prior to the grant of tax exemption: The Court found that Plaridel could not recover for the period from March 1966 to March 1967. The case records indicated that Artex had already paid these premiums and costs in advance. Plaridel did not dispute this payment. Therefore, any obligation of Artex for this period was already extinguished by payment. The Court noted that the first year's premiums and costs, covering March 1965 to March 1966, were paid in accordance with the agreements, and the subsequent period's payments were also settled. On the validity of renewals after the grant of tax exemption: The Court held that any purported renewals of the surety bonds after December 19, 1966, were without consideration and void from the beginning. This is because the principal obligation, which the bonds were meant to secure, had already been extinguished by the grant of tax exemption. According to Articles 1409, 1352, and 1353 of the Civil Code, contracts without cause or with an illicit cause, or where the cause is not stated, are void. In this case, the cause or object of the renewals did not exist at the time of the purported transactions, as the tax exemption had already been granted, rendering the bonds null and void. Therefore, Artex incurred no risk from the time its tax exemption application was approved, making any subsequent renewals baseless and without legal effect.
Main Doctrine
A surety bond and its accompanying counter-guaranty agreement become null and void upon the approval of the principal's application for tax exemption, as stipulated in the bond, thereby extinguishing the obligation to pay subsequent premiums and costs of documentary stamps.