Ejercito v. Oriental Assurance Corporation
REITERATIONFacts
The Antecedents: Oriental Assurance Corporation (respondent) issued a Surety Bond for P3 million to guarantee FFV Travel & Tours, Inc.'s payment of airline tickets purchased on credit from IATA members. Petitioners, along with Merissa C. Somes, executed a Deed of Indemnity in favor of the respondent, agreeing to reimburse the respondent for any payments made under the bond. The bond was initially effective for one year and subsequently renewed for another year. FFV Travel & Tours, Inc. defaulted on its obligations, leading to the respondent paying the P3 million surety bond to IATA. Procedural History: Following the respondent's payment, demand letters were sent to the petitioners and Somes for reimbursement. Upon their failure to reimburse, the respondent filed a collection suit against them. The Regional Trial Court (RTC) dismissed the complaint against the petitioners, finding no written agreement to bind them to the renewed Deed of Indemnity, but held Somes liable. The Court of Appeals (CA) reversed the RTC's decision, finding the petitioners jointly and severally liable with Somes, setting aside the RTC's ruling and ordering them to pay the principal amount, interest, attorney's fees, and costs. The Petition: Petitioners Paulino M. Ejercito, Jessie M. Ejercito, and Johnny D. Chang filed a Petition for Review on Certiorari under Rule 45 of the Rules of Civil Procedure. They assail the CA's decision and resolution, arguing that the CA erred in holding them liable to indemnify the respondent under the deed of indemnity, as they did not consent to be bound beyond the original one-year effectivity period of the surety bond. They also contend that the CA erred in ruling they are liable for attorney's fees, as they did not breach their obligation within the original bond's term.
Issue(s)
Whether the Court of Appeals erred in ruling that petitioners are liable to indemnify the respondent under the deed of indemnity despite not giving their consent to be bound beyond the one-year effectivity period of the original surety bond. Whether the Court of Appeals erred in ruling that petitioners are liable to pay attorney's fees despite not breaching their obligation under the deed of indemnity during the original one-year effectivity period.
Ruling
The petition is denied. The Court of Appeals Decision dated 2 October 2009 and Resolution dated 14 April 2010 in CA-G.R. CV No. 90828 are affirmed. Petitioners are jointly and severally liable to pay Oriental Assurance Corporation the principal amount of ₱3,000,000.00 with 12% interest per annum, attorney's fees of ₱30,000.00, and costs of suit.
Ratio Decidendi
On the issue of liability for indemnification beyond the original bond period: The Court held that the petitioners are liable. The contract of indemnity is the law between the parties, and its terms must be followed if clear. The Deed of Indemnity contained explicit stipulations granting OAC the authority to grant renewals, extensions, modifications, or substitutions of the original bond. The petitioners, by signing the deed, expressly bound themselves to these terms. The Court emphasized that the petitioners, including Paulino M. Ejercito who is a lawyer, could not feign ignorance of the legal effects of the undertaking they voluntarily signed. The alleged agreement outside the contract between petitioners and Somes regarding the one-year validity was deemed irrelevant to OAC, which was not privy to it. The CA correctly found that the petitioners had authorized OAC to grant renewals, making them liable for the renewed bond. On the issue of attorney's fees: The Court affirmed the petitioners' liability for attorney's fees. The Deed of Indemnity explicitly stated that petitioners would indemnify OAC for any damages, payments, advances, prejudices, loss, costs, and expenses, including attorney's fees, which OAC might sustain or incur as a consequence of having executed the bond, its renewals, extensions, modifications, or substitutions. The stipulation on attorney's fees was to be not less than fifteen percent (15%) of the amount claimed and was payable irrespective of whether the case was settled judicially or extrajudicially. Since the petitioners were found liable for the principal obligation due to the renewal of the bond, they were also liable for the stipulated attorney's fees.
Main Doctrine
A surety's liability under a deed of indemnity extends to renewals of the bond if the deed expressly grants the surety company the authority to grant such renewals, even without the express consent of the surety for each renewal, provided the terms of the deed are clear and unequivocal. A lawyer, as one of the signatories, cannot claim ignorance of the legal effects of the undertaking.