Trade & Investment Dev. Corp. v. Roblett Industrial Construction Corp.
REITERATIONFacts
The Antecedents: Respondent Roblett Industrial Construction Corporation (Roblett) applied for a subcontract for the supply of workers in Kuwait. To qualify, Roblett needed a bid bond, for which it obtained a letter of guarantee from the Bank of Kuwait and the Middle East (BKME). BKME required a counterguarantee from petitioner Philippine Export and Foreign Loan Guarantee Corporation (Philguarantee). Philguarantee issued a counterguarantee on the condition that Roblett provide a Deed of Undertaking and secure the counterguarantee with a surety bond. Roblett obtained Surety Bond No. G-(16)48896 from respondent Paramount Insurance Corporation (Paramount) in favor of Philguarantee. Roblett was awarded the subcontract but failed to post the required performance bond, leading to the breach of the subcontract. Consequently, BKME called on Philguarantee's counterguarantee, and Philguarantee paid BKME. Philguarantee then demanded payment from Roblett and Paramount. Procedural History: The Regional Trial Court (RTC) found Roblett and Paramount jointly and severally liable to Philguarantee. The Court of Appeals (CA) reversed the RTC's decision regarding Paramount's liability, ruling that Paramount's bond expired without a timely claim and that Philguarantee concealed material facts. Philguarantee appealed to the Supreme Court. The Petition: The Supreme Court was asked to determine Paramount's liability under the surety bond, the applicable interest rates, penalty charges, and attorney's fees.
Issue(s)
Whether respondent Paramount Insurance Corporation is liable to petitioner Philguarantee under its Surety Bond, including the defense of novation. Whether the stipulated interest rate of 16% per annum under the Deed should be applied on the advances made by petitioner to BKME instead of 6% per annum as ordered by the appellate court. Whether or not the respondents are liable to pay the penalty charge of 16% per annum as stipulated in the Deed, and if so, which respondents are liable. Whether or not petitioner is entitled to attorney's fees, and if so, the basis and amount of such fees for each respondent.
Ruling
The Supreme Court granted the petition, reversed the Court of Appeals' decision, and reinstated the Regional Trial Court's judgment with modifications. Paramount Insurance Corporation was held liable under its surety bond. The Court clarified the applicable interest rates and attorney's fees.
Ratio Decidendi
On Paramount's Liability and Novation: The Court held that Paramount is liable under the surety bond. The bond's terms clearly stipulated that Paramount would be bound to pay Philguarantee whatever damages or liabilities the latter incurred by virtue of its counterguarantee. The event insured against, the call on Philguarantee's guarantee by BKME, occurred within the bond's effective period. The Court found that Philguarantee's letter dated December 19, 1984, sufficiently notified Paramount of the call on the guarantee, even without using the exact phrase "called upon." The bond's provision for a 91-day period after expiration for cancellation allowed Philguarantee ample time to make a claim, which it did within this period. Paramount's contention that the bond was a bidder's bond and not a performance bond was deemed irrelevant, as the bond's wording clearly covered Philguarantee's liabilities arising from its counterguarantee. The Court rejected Paramount's argument that it was released from liability due to material novation when Roblett entered into a repayment/restructuring agreement with Philguarantee without its consent. The Court found no proof that a new contract was perfected; at best, only negotiations occurred. The testimony of Philguarantee's Vice-President indicated that these were verbal assurances and discussions, not a formal agreement that substituted the original obligation. Therefore, no material novation occurred that would release Paramount. On Applicable Interest Rates: The Court disagreed with the appellate court's imposition of a 6% interest rate. It clarified that when an obligation consists of the payment of a sum of money, the stipulated interest rate in writing should be applied. The Deed stipulated 16% per annum interest for Roblett's obligations, while the Surety Bond stipulated 18% per annum interest for Paramount's obligation. The Court found these stipulations valid and binding. The Court also clarified that the 12% legal interest applies from the finality of judgment until full satisfaction, as this period is considered a forbearance of credit. On Penalty Charges: The Court affirmed that penalty charges of 16% per annum compounded monthly, as stipulated in the Deed, should apply to Roblett and the Abieras. However, Paramount was not held liable for these penalty charges as it was not a privy to the Deed, and the Surety Bond did not contain any stipulation for penalty charges. On Attorney's Fees: The Court reinstated the award of attorney's fees, finding that the stipulation in the Deed for 10% attorney's fees constituted a penal clause. However, the Court found the 10% of the total amount (principal plus interest and penalties) to be exorbitant and reduced it to 10% of the principal debt only. For Paramount, which was not privy to the Deed, the Court held it jointly and severally liable with Roblett and the Abieras for a reasonable amount of attorney's fees, specifically ₱100,000.00, as ordered by the RTC, based on Article 2208 of the Civil Code.
Main Doctrine
A surety's liability is determined strictly by the terms and conditions of the surety agreement. The surety cannot escape liability if the conditions stipulated in the bond for its liability have occurred, even if the principal obligor proposes a restructuring of the debt, as long as no formal novation is perfected.