Mercantile Insurance Co., Inc. v. Court of Appeals
REITERATIONFacts
The Antecedents: This case concerns a performance bond posted by Mercantile Insurance Co., Inc. (Mercantile) to secure Jose Lopez's obligations under a Contract of Conditional Purchase and Sale for a fishing vessel, the M/V "Jolo Lema," acquired from Japanese suppliers through the Reparations Commission (Repacom). Lopez failed to make the first installment payment on the vessel, leading Repacom to demand payment from Mercantile under the bond. The underlying dispute involves Lopez's default on payments and the subsequent attempts by Repacom to recover the outstanding amount from the surety. Procedural History: Repacom initially filed a collection action against Mercantile, Eagle Guaranty Co., Inc. (Eagle), and Jose Lopez, which was later dismissed. A second suit was filed by Repacom against the same parties. The Regional Trial Court ruled that Mercantile was liable under its performance bond for P68,385.90 plus interest, and dismissed Mercantile's counterclaim due to res judicata. Mercantile appealed this decision to the Court of Appeals, which affirmed the trial court's ruling. Mercantile then filed the present Petition for Review on Certiorari with the Supreme Court. The Petition: Mercantile seeks to annul the Court of Appeals' decision, arguing that a prior writ of preliminary injunction in Lapeña v. Repacom released it from its obligation under the bond. Petitioner contends that the writ reduced the vessel's price, and a subsequent bond posted by Eagle was intended to cover this reduced price, thereby releasing Mercantile. Mercantile also argues its bond was posted before the Contract of Conditional Purchase and Sale was finalized, thus it could not have secured obligations under that contract. The petition further asserts that Mercantile's counterclaim was not barred by prior judgment.
Issue(s)
Whether the writ of preliminary injunction issued in the Lapeña case released petitioner Mercantile from its obligation under the performance bond. Whether the posting of the Eagle bond constituted novation, thereby releasing petitioner Mercantile from its obligation. Whether petitioner Mercantile's counterclaim against Repacom was barred by prior judgment (res judicata).
Ruling
The Supreme Court denied the petition for lack of merit and affirmed the decision of the Court of Appeals. Mercantile Insurance Co., Inc. was held liable under its performance bond, and its counterclaim was dismissed.
Ratio Decidendi
On the effect of the writ of preliminary injunction: The Court held that the writ of preliminary injunction issued in Lapeña v. Repacom did not release Mercantile from its obligation. The writ merely suspended the imposition of the free market rate of exchange and enjoined Repacom from requiring Lopez to pay at that rate, effectively adjusting the peso value of the obligation based on the preferred rate. This adjustment did not extinguish Mercantile's commitment under the bond, which was to secure ten percent (10%) of the purchase price. The Court clarified that the reduction in the peso purchase price was merely a conversion adjustment and did not alter the dollar value or the surety's undertaking. The bond was posted to secure Lopez's obligations under the Contract of Conditional Purchase and Sale, and the reference in the contract to the Mercantile bond confirmed this intent, regardless of the bond being posted before the contract was formally signed. On novation: The Court found no merit in Mercantile's contention that the posting of the Eagle bond constituted novation. The Court reiterated the principle that novation is never presumed and must be clearly and unequivocally shown. The mere fact that a creditor accepts a guaranty or payments from a third person does not constitute novation if there is no agreement to release the original debtor. In this case, there was no express intention by the parties to extinguish the Mercantile bond, and the Eagle bond appeared to be an additional surety rather than a substitution. The Court noted that the Eagle bond was posted after the Mercantile bond had already been forfeited, further undermining the claim of novation. The principle that a third person becoming liable does not constitute novation unless the original debtor is released was applied. On res judicata: The Court affirmed the appellate court's ruling that Mercantile's counterclaim against Repacom was barred by prior judgment. The Court reasoned that Repacom was not impleaded in Civil Case No. 75663, the decision of which had become final and executory. The principle of res judicata applies not only to issues actually litigated but also to matters that could have been raised in relation thereto, as provided by Section 48(b), Rule 39 of the Revised Rules of Court. Therefore, Mercantile's claim against Repacom was already barred by a prior judgment.
Main Doctrine
A writ of preliminary injunction enjoining the use of the free market rate of exchange for the conversion of the purchase price of goods from US Dollars to Philippine Pesos does not extinguish the obligor's liability under a performance bond, as it merely adjusts the peso value of the obligation and does not release the surety from its undertaking. Furthermore, the posting of an additional bond by the principal obligor does not constitute novation unless there is an express agreement to release the original surety.