Republic of the Philippines v. The Honorable Court of Appeals
REVERSALFacts
The Antecedents: The Republic of the Philippines, represented by the Bureau of Customs, filed a case against R & B Surety and Insurance Company, Inc. (R & B) and Endelo for the latter's failure to re-export imported raw materials within the stipulated period, thereby making them liable for duties and taxes. R & B, as surety for Endelo, contended that the suspension of Endelo's license to operate rendered the obligation impossible of performance, discharging R & B from its liability. R & B also argued against solidary liability with another surety, Communications Insurance Company, Inc. (CICI), and claimed erroneous charges exceeding the bond's face value. Procedural History: The Regional Trial Court (RTC) held R & B liable for P4,305,017.00. The Court of Appeals (CA) modified this, and the Supreme Court, in a prior resolution, denied R & B's motion for reconsideration. This current resolution addresses R & B's subsequent motion for reconsideration. The Petition: R & B moved for reconsideration, arguing that the suspension of Endelo's license discharged the surety, that it was not solidarily liable with CICI, and that it was erroneously charged beyond the face value of the bonds, plus legal interest.
Issue(s)
Whether the suspension of Endelo's license to operate rendered the obligation to re-export impossible of performance, thereby discharging the surety (R & B). Whether R & B Surety is solidarily liable with CICI. Whether R & B Surety was erroneously charged for more than the face value of the bonds and for double the amount in one instance. Whether R & B Surety is liable for legal interest.
Ruling
The motion for reconsideration is partially granted. The liability of R & B Surety and Insurance, Inc. is limited to P2,588,568.00 plus legal interest from the filing of the complaint until fully paid. The prior decision of the Court is modified accordingly.
Ratio Decidendi
On the suspension of license rendering the obligation impossible of performance: The Court held that it was not sufficiently shown that the suspension of Endelo's license rendered the re-exportation impossible or constituted a cancellation or revocation that would discharge the surety. Endelo's claim of illegal and unnecessary suspension was not substantiated by evidence. Furthermore, Endelo failed to prove the duration of the suspension or that it prevented compliance. The Court reiterated that the burden of proof for the illegality of the suspension rested on Endelo, not the petitioner. The presumption of regularity in the performance of official functions was applied. The Court also noted that Endelo made no effort to have the suspension lifted, bolstering the presumption that the suspension was proper and the pilferage was the main cause. The Court concluded that Endelo was not precluded from exporting the materials within the two-year period. On solidary liability with CICI: The Court found this contention unacceptable. The joint and several liability of the surety (R & B) and the obligor (Endelo) grants the petitioner the right to compel performance from either or both. The liability is primarily between the surety and the obligor, not between co-sureties in relation to the obligee. On erroneous charges exceeding the face value of the bonds: The Court found merit in this argument. Citing Section 176 of the Insurance Code, the Court stated that the liability of the surety is limited to the amount of the bond. The trial court's award of P4,305,017.00 exceeded the total face value of R & B's bonds, which amounted to P3,000,000.00. The Court recalculated R & B's liability based on the face value of each bond and the corresponding duties and taxes due, arriving at P2,588,568.00. On liability for legal interest: The Court sustained the imposition of legal interest. It explained that legal interest is imposed for the incurrence of default and the necessity of judicial collection, and it does not increase the surety's liability beyond the bond amount in a way that violates Section 176 of the Insurance Code, as it pertains to the period of default and collection costs.
Main Doctrine
The suspension of a license does not automatically render an obligation impossible of performance, especially when the obligor fails to prove the illegality or indefinite nature of the suspension or to take recourse to lift it. A surety's liability is limited to the face value of the bond, but legal interest may be imposed from the time of default.