Philippine National Bank v. Court of Appeals
REITERATIONFacts
The Antecedents: Estanislao Depusoy, doing business as E.E. Depusoy Construction, entered into a building contract with the Republic of the Philippines for the construction of the GSIS building. Depusoy obtained credit accommodation from the Philippine National Bank (PNB) amounting to P100,000.00, later extended. As conditions, Depusoy assigned all payments from the Bureau of Public Works (BPW) to PNB, furnished a surety bond, and required the surety to deposit P10,000.00. Luzon Surety Co., Inc. (LSCI) executed two surety bonds, one for P40,000.00 and another for P60,000.00, totaling P100,000.00. These bonds stated that they were to secure the faithful performance of the Deed of Assignment. Depusoy executed promissory notes for the loans. PNB applied payments received from GSIS to Depusoy's obligations. Depusoy defaulted on his building contract, leading to its rescission by the BPW. The unpaid loan balance exceeded P100,000.00. Procedural History: PNB filed a collection case against Depusoy and LSCI. The trial court dismissed the case against LSCI, ruling that the surety bonds only guaranteed the faithful performance of the Deed of Assignment. The trial court ordered Depusoy to pay PNB the principal sums and interests. The Court of Appeals affirmed the trial court's decision, with a modification that Depusoy should pay 10% interest on the judgment amount, and also attorney's fees equivalent to 10% of the amount due, as stipulated in the promissory notes. The Petition: PNB filed a petition for review on certiorari, arguing that the surety bonds covered the principal loans and that LSCI should be liable for Depusoy's default. PNB also argued that even if the bonds secured only the Deed of Assignment, LSCI was liable for Depusoy's failure to comply with its terms. PNB further sought to amend the dispositive portion to include attorney's fees.
Issue(s)
Whether the surety bonds executed by Luzon Surety Co., Inc. guaranteed the payment of Estanislao Depusoy's loans to Philippine National Bank, or merely the faithful performance of the Deed of Assignment. Whether Luzon Surety Co., Inc. is liable for Estanislao Depusoy's default under the terms of the Deed of Assignment. Whether Estanislao Depusoy should be ordered to pay attorney's fees.
Ruling
The Supreme Court affirmed the decision of the Court of Appeals, modifying it to include attorney's fees. The Court held that the surety bonds executed by LSCI guaranteed only the faithful performance of the Deed of Assignment, not the payment of Depusoy's loans to PNB. The Court found no merit in PNB's petition, except for the award of attorney's fees.
Ratio Decidendi
On the nature of the surety bonds: The Court reiterated the principle that the liability of a surety is strictly measured by the terms of the contract and cannot be extended by implication. Applying Article 1370 of the Civil Code, the Court found that the language of the surety bonds was clear and unequivocal, stating that they guaranteed the faithful performance of the Deed of Assignment. The Court noted that the bonds did not explicitly state that they guaranteed the payment of Depusoy's loans. The Court distinguished between guaranteeing the performance of an assignment and guaranteeing the payment of a debt, emphasizing that the former does not automatically encompass the latter without clear stipulation. On LSCI's liability under the Deed of Assignment: The Court found that LSCI's obligation was limited to ensuring Depusoy's faithful performance of the Deed of Assignment. The Deed of Assignment itself obligated Depusoy to assign all payments from the BPW to PNB. The Court clarified that the surety bond did not guarantee Depusoy's performance of the underlying building contract with the BPW, but rather his compliance with the assignment of payments. Since all payments made by GSIS were received by PNB for Depusoy's account, and no payments were made directly to Depusoy in violation of the assignment, LSCI was not liable for the shortfall in the loan amount. On attorney's fees: The Court agreed with PNB that the trial court erred in not awarding attorney's fees. The promissory notes expressly stipulated for attorney's fees equivalent to 10% of the amount due, and this stipulation was found to be reasonable and should be given effect. Therefore, the dispositive portion of the Court of Appeals' decision was modified to include this award.
Main Doctrine
The liability of a surety is strictly measured by the terms of the contract, and it cannot be extended by implication beyond the specified limits. A surety bond guaranteeing the faithful performance of a deed of assignment does not, by itself, guarantee the payment of the principal's loan, unless explicitly stated.