Cellpage International Corporation v. The Solid Guaranty, Inc.
REITERATIONFacts
The Antecedents: Cellpage International Corporation (Cellpage) approved Jomar Powerhouse Marketing Corporation's (JPMC) application for a credit line, requiring JPMC to provide a surety bond. JPMC secured three surety bonds from The Solid Guaranty, Inc. (Solid Guaranty) totaling P7,000,000.00. JPMC purchased cellcards from Cellpage amounting to P7,002,600.00 and issued postdated checks totaling P2,457,000.00, which were dishonored for insufficient funds. Cellpage demanded payment from JPMC, which failed to pay, and subsequently demanded payment from Solid Guaranty, which refused. Procedural History: Cellpage filed a complaint for sum of money against JPMC and Solid Guaranty. The Regional Trial Court (RTC) ruled in favor of Cellpage, holding JPMC and Solid Guaranty jointly and solidarily liable. Solid Guaranty appealed to the Court of Appeals (CA), arguing that its liability was limited by the principal contract, which was not submitted. The CA reversed the RTC decision, dismissing the complaint against Solid Guaranty, citing the ruling in First Lepanto-Taisho Insurance Corporation v. Chevron Philippines, Inc., which required the attachment of the principal agreement. The Petition: Cellpage filed a Petition for Review on Certiorari before the Supreme Court, arguing that the CA erred in exonerating Solid Guaranty, as the surety bonds did not require a written principal agreement as a condition for liability, and that Solid Guaranty was estopped from questioning its liability.
Issue(s)
Whether or not Solid Guaranty is liable to Cellpage in the absence of a written principal contract. Whether or not Solid Guaranty is barred by estoppel from questioning the binding effect of the surety bond it issued to JPMC.
Ruling
The Petition is granted. The Decision of the Court of Appeals is reversed and set aside, and the Decision of the Regional Trial Court is reinstated with modification. Solid Guaranty, Inc. is solidarily liable with Jomar Powerhouse Marketing Corporation for the payment of the latter's obligation to Cellpage International Corp. up to the face amount of the surety bonds, equivalent to P7,000,000.00, subject to legal interest.
Ratio Decidendi
On the issue of Solid Guaranty's liability in the absence of a written principal contract: The Court held that the liability of a surety is determined strictly by the terms of the surety contract in relation to the principal contract. However, this does not necessarily mean that a written principal agreement is always required for the surety to be liable. Article 1356 of the Civil Code states that contracts are obligatory in whatever form they are entered into, provided the essential requisites for their validity are present. Therefore, an oral agreement, if valid, can be guaranteed by a surety contract. The Court examined the surety bonds issued by Solid Guaranty and found that they did not expressly require the submission of a written principal agreement as a condition for Solid Guaranty's performance. The phrase "in accordance with the terms and conditions of the agreement" in the surety bond was interpreted not as a condition precedent for liability, but as a description of the obligation being guaranteed. Since Solid Guaranty, as the drafter of the contract of adhesion, failed to clearly and unequivocally stipulate this condition, its liability should be construed against it. On the issue of estoppel: The Court found no need to discuss this issue separately, as it had already ruled in favor of Cellpage on the primary issue of Solid Guaranty's liability based on the terms of the surety bonds. The Court noted that the existence of a valid principal agreement was not in question, as it was substantiated by issue slips, delivery receipts, and purchase orders, and was acknowledged by Solid Guaranty itself. The CA's own ruling that the absence of a written agreement affected only the right to demand performance, not the validity of the bonds, implicitly acknowledged the existence and validity of the principal contract. Therefore, Solid Guaranty, having issued the bonds and received premiums, could not escape its solidary liability with JPMC upon JPMC's default.
Main Doctrine
The liability of a surety is determined strictly by the terms of the surety contract. Unless the surety contract expressly requires the submission of a written principal agreement as a condition for its liability, the surety cannot escape its obligation even if the principal agreement was not reduced to writing or attached to the surety bond.