Philippine Commercial and Industrial Bank v. Honorable Court of Appeals & Alpha Insurance and Surety Company, Inc.
REITERATIONFacts
The Antecedents: Philippine Commercial and Industrial Bank (PCIB) filed a complaint against Alpha Insurance and Surety Co., Inc. (ALPHA), Community Builders, Inc., and Filadelfo Rojas for failure to pay a P150,000 loan. ALPHA had issued Surety Bond No. G-1689 for P50,000 to guarantee payment. ALPHA admitted issuing the bond but claimed the debt was paid by Rojas's assignment of receivables and that the bond was issued for a lesser amount and dated earlier than the promissory note. Procedural History: The trial court declared Rojas and Community Builders in default. After trial, the Court of First Instance (CFI) ruled in favor of PCIB, ordering Rojas, Community Builders, and ALPHA to pay P50,000, and Rojas and Community Builders to pay the remaining P100,000. Rojas and Community Builders' appeal was dismissed. ALPHA appealed to the Court of Appeals, which reversed the CFI decision, holding that it was not shown that the surety bond bore any relation to the promissory note. The Petition: PCIB filed a petition with the Supreme Court, raising a purely procedural issue: that the Court of Appeals erred in ruling in favor of ALPHA on a question of fact not raised before the CFI and not within the issues defined in the pleadings or the pre-trial order.
Issue(s)
Whether the Court of Appeals erred in ruling that the surety bond bore no relation to the promissory note, considering ALPHA's Answer and the issues raised in the CFI. Whether the pre-trial order limited the issues for trial, precluding ALPHA from raising the issue of the bond's relation to the note, given ALPHA's contentions and the scope of the order. Whether ALPHA is liable under Surety Bond No. G-1689 for the P150,000 loan, considering the bond's express terms and the nature of the debt.
Ruling
The petition is denied, and the decision of the Court of Appeals is affirmed. ALPHA is absolved from liability to PCIB.
Ratio Decidendi
On the issue of whether the relation of the surety bond to the promissory note was raised: The Court found that ALPHA's Answer did not admit that the surety bond secured the P150,000 debt. While paragraph 3 of the complaint alleged the bond guaranteed the promissory note, ALPHA's answer admitted the allegations only "in so far as the same refers to its surety bond." The Court interpreted this admission liberally, considering ALPHA's denial of knowledge of the debt in a prior paragraph, concluding that ALPHA merely admitted the execution of the bond but denied it secured the specific debt in question. This denial properly raised the issue of the bond's relation to the debt. On the scope of the pre-trial order: The Court clarified that while a pre-trial order controls the subsequent course of action, it is limited to issues not disposed of by admissions or agreements. The pre-trial order explicitly stated ALPHA's contention that the bond was issued for less than the claim and prior to the promissory note. Since this issue was not resolved by agreement, it remained a proper subject for litigation and could be raised on appeal. The Court also noted that ALPHA had raised this issue in its Memorandum and Motion for Reconsideration before the trial court. On ALPHA's liability under the surety bond: The Court reiterated the basic principle that liability on a bond is contractual and restricted to the obligation expressly assumed. Surety Bond No. G-1689 expressly stated it was executed to secure a P50,000 discounting line of credit accommodation granted by PCIB to Community Builders Co., Inc. The P150,000 promissory note, however, was signed by both Rojas and Community Builders, and the amount secured by the bond was only P50,000, not the P150,000 debt. Therefore, the debt PCIB sought to enforce was not within the purview of Surety Bond No. G-1689, and ALPHA could not be held answerable for it, even if the bond was offered as security for the larger debt.
Main Doctrine
A surety's liability is strictly contractual and cannot be extended by implication beyond the terms of the contract of suretyship. The extent of the surety's obligation is determined solely by the clause of the contract of suretyship.