Case Digest: The Manila Insurance vs.
Spouses Amurao however, that although the contract of suretyship is secondary to the principal contract, the
G.R. No. 179628 : January 16, 2013
THE MANILA INSURANCE COMPANY, INC., Petitioner, v. SPOUSES ROBERTO and AIDA
AMURAO, Respondents.
DEL CASTILLO, J.:
FACTS:
Spouses Roberto and Aida Amurao (Sps. Amurao) entered into a Construction Contract
Agreement (CCA) with Aegean Construction and Development Corp. (Aegean) for the
construction of a six-storey commercial building. To guarantee its obligation, Aegean posted
performance bonds secured by petitioner Manila Insurance Company, Inc. (Manila Insurance)
and Intra Strata Assurance Corporation (Intra Strata). Aegean failed to comply with its
obligation. Hence, the spouses filed a complaint before the RTC to enforce its claim against
the sureties.
During the pre-trial, Manila Insurance and Intra Strata discovered that the CCA contained an
arbitration clause. Consequently, they filed a Motion to Dismiss on the grounds of lack of
cause of action and lack of jurisdiction. The RTC denied the motion to dismiss.
Manila Insurance appealed to the Court of Appeals. The CA dismissed the petition.
Hence, Manila Insurance elevated the matter to the Supreme Court.
Manila Insurance argues that it cannot be held liable as a surety because the claim of Sps.
Amurao is premature. Manila Insurance contends that the dispute between the spouses and
Aegean should be brought first before the CIAC for arbitration.
ISSUES:
I. Whether or not Manila Insurance can be held liable as surety of Aegean?
II. Whether or not the RTC has jurisdiction over the dispute?
HELD:
CIVIL LAW: surety’s liability
FIRST ISSUE: Manila Insurance is liable as surety.
A contract of suretyship is defined as “an agreement whereby a party, called the surety,
guarantees the performance by another party, called the principal or obligor, of an obligation
or undertaking in favor of a third party, called the obligee.
The Court has consistently held that a surety’s liability is joint and several, limited to the
amount of the bond, and determined strictly by the terms of contract of suretyship in
relation to the principal contract between the obligor and the obligee.It bears stressing,
surety’s liability to the obligee is nevertheless direct, primary, and absolute. But while there
is a cause of action against Manila Insurance, the complaint must still be dismissed for lack of
jurisdiction.
REMEDIAL LAW: arbitration
SECOND ISSUE: The CIAC has jurisdiction over the case and not the RTC.
In order for the CIAC to acquire jurisdiction two requisites must concur: “first, the dispute
must be somehow connected to a construction contract; and second, the parties must have
agreed to submit the dispute to arbitration proceedings.” In this case, both requisites are
present.
DISMISSED.
CASE 2013-0003: THE MANILA INSURANCE COMPANY, INC. VS. SPOUSES ROBERTO AND AIDA
AMURAO (G.R. NO. 179628, 16 JANUARY 2013, DEL CASTILLO, J.) SUBJECT/S: JURISDICTION
OF CIAC; LIABILITY OF SURETY; (BRIEF TITLE: MANILA INSURANCE VS. AMURAO)
DISPOSITIVE:
WHEREFORE, the petition is hereby GRANTED. The Decision dated June 7, 2007 and the
Resolution dated September 7, 2007 of the Court of Appeals in CA-G.R. SP No. 96815 are
hereby ANNULLED and SET ASIDE. The Presiding Judge of the Regional Trial Court of Quezon
City, Branch 217 1s DIRECTED to dismiss Civil Case No. Q-01-45573 for lack of jurisdiction.
SO ORDERED.
SUBJECTS/DOCTRINES/DIGEST:
SPOUSES AMURAO ENTERED INTO A CONSTRUCTION AGREEMENT WITH AEGEAN
DEVELOPMENT CORP WHEREBY THE LATTER WAS TO CONSTRUCT A 6 STOREY COMMERCIAL
BUILDING. AGEAN POSTED PERFORMANCE BOND SECURED BY PETITIONER MANILA
INSURANCE COMPANY INC AND INTRA STRATA ASSURANCE CORP. WHEN AGEAN FAILED TO
FINISH THE CONSTRUCTION, SPOUSES AMURAO FILED A CASE AGAINST MANILA INSURANCE
AND INTRA STRATA. MANILA INSURANCE MOVED TO DISMISS THE CASE BECAUSE THERE IS
AN ARBITRATION CLAUSE IN THE CONSTRUCTION AGREEMENT WHICH PROVIDES THAT ANY
DISPUTE ON THE INTERPRETATION OF THE CONTRACT DOCUMENTS SHALL BE BROUGHT
BEFORE THE CIAC. RTC DENIED THE MOTION TO DISMISS. CA SUSTAINED THE MOTION TO
DISMISS. IS CA CORRECT.
NO. THE CASE SHOULD BE DISMISSED FOR LACK OF JURISDICTION. CIAC HAS JURISDICTION
OVER THE CASE.
IN ORDER FOR THE CIAC TO ACQUIRE JURISDICTION TWO REQUISITES MUST CONCUR:
“FIRST, THE DISPUTE MUST BE SOMEHOW CONNECTED TO A CONSTRUCTION CONTRACT;
AND SECOND, THE PARTIES MUST HAVE AGREED TO SUBMIT THE DISPUTE TO ARBITRATION
PROCEEDINGS.” IN THIS CASE, BOTH REQUISITES ARE PRESENT.

Section 4 of E.O. No. 1008 provides that:
SEC. 4. Jurisdiction. – The CIAC shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in
the Philippines, whether the dispute arises before or after the completion of the contract, or
after the abandonment or breach thereof. These disputes may involve government or private
contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit
the same to voluntary arbitration. The jurisdiction of the CIAC may include but is not limited
to violation of specifications for materials and workmanship, violation of the terms of
agreement, interpretation and/or application of contractual time and delays, maintenance
and defects, payment, default of employer or contractor, and changes in contract cost.
Excluded from the coverage of the law are disputes arising from employer-employee
relationships which shall continue to be covered by the Labor Code of the Philippines.
. . . the issue of whether respondent-spouses are entitled to collect on the performance bond
issued by petitioner is a “dispute arising in the course of the execution and performance of
[the CCA] by reason of difference in the interpretation of the contract documents.”
The fact that petitioner is not a party to the CCA cannot remove the dispute from the
jurisdiction of the CIAC because the issue of whether respondent spouses are entitled to
collect on the performance bond, as we have said, is a dispute arising from or connected to
the CCA.
MANILA INSURANCE ARGUED THAT WHEN IT EXECUTED THE SURETY AGREEMENT THE
CONSTRUCTION CONTRACT WAS NOT YET SIGNED. THEREFORE SPOUSES AMURAO HAVE NO
CAUSE OF ACTION AGAINST THEM. IS THIS ARGUMENT CORRECT.
NO.
A CAREFUL READING OF THE PERFORMANCE BOND REVEALS THAT THE “BOND IS
COTERMINOUS WITH THE FINAL ACCEPTANCE OF THE PROJECT.”53 THUS, THE FACT THAT IT
WAS ISSUED PRIOR TO THE EXECUTION OF THE CCA DOES NOT AFFECT ITS VALIDITY OR
EFFECTIVITY.
WHAT IS A CONTRACT OF SURETYSHIP?
A CONTRACT OF SURETYSHIP IS DEFINED AS “AN AGREEMENT WHEREBY A PARTY, CALLED
THE SURETY, GUARANTEES THE PERFORMANCE BY ANOTHER PARTY, CALLED THE PRINCIPAL
OR OBLIGOR, OF AN OBLIGATION OR UNDERTAKING IN FAVOR OF A THIRD PARTY, CALLED
THE OBLIGEE. IT INCLUDES OFFICIAL RECOGNIZANCES, STIPULATIONS, BONDS OR
UNDERTAKINGS ISSUED BY ANY COMPANY BY VIRTUE OF AND UNDER THE PROVISIONS OF
ACT NO. 536, AS AMENDED BY ACT NO. 2206.”50
WHAT IS THE NATURE OF THE SURETY’S LIABILITY?
IT IS JOINT AND SEVERAL, LIMITED TO THE AMOUNT OF THE BOND, AND DETERMINED
STRICTLY BY THE TERMS OF CONTRACT OF SURETYSHIP IN RELATION TO THE PRINCIPAL
CONTRACT BETWEEN THE OBLIGOR AND THE OBLIGEE.
TO WHAT EXTENT IS THE LIABILITY OF THE SURETY.
IT IS DIRECT, PRIMARY AND ABSOLUTE.
It bears stressing, however, that although the contract of suretyship is secondary to the
principal contract, the surety’s liability to the oblige is nevertheless direct, primary, and
absolute.
Pacionaria Baylon vs Court of Appeals and Leonila TomacruzAugust 17, 1999
Facts:
Pacionara Baylon introduced Rosita Luanzon to Leonila Tomacruz which is the co-manager of
her husband in PLDT.Baylon invited Leonila to lend Rosita money for her business as
contractor and in return pay the amount and a monthlyinterest rate of 5%.Persuaded by
Baylon’s assurances that the business was stable and the high interest rate Leonila lent
Rosita P 150,000.Rosita on the other hand issued and signed a promissory note
acknowledging the receipt of P 150,000 payable on August22, 1987. Baylon signed the
promissory note as “guarantor”.Later on, Rosita failed to pay the said amount forcing Leonila
to file a case for collection of sum of money against Rositaand Baylon. However summons
were never served to Rosita.Baylon denied having guaranteed the payment of the
promissory note and claims that the money given to Rosita was nota loan but an investment
and that assuming that the loan was guaranteed Leonila has not exhausted the property of
Rosita nor resorted to all legal remedies against Rosita as required by law.Trial court ruled in
favor of Leonila making Baylon liable for the said amount. This decision was affirmed by the
C.A.
Issue:
WON Baylon should be held liable for the amount of the promissory note.
Ruling:
No.
Rationale:
Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code,
which provides that —
The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the
property of thedebtor, and has resorted to all the legal remedies against the debtor.
It is axiomatic that the liability of the guarantor is only subsidiary. All the properties of the
principal debtor must first beexhausted before his own is levied upon. Thus, the creditor may
hold the guarantor liable only after judgment has beenobtained against the principal debtor
and the latter is unable to pay, "for obviously the 'exhaustion of the principal'sproperty' —
the benefit of which the guarantor claims — cannot even begin to take place before
judgment has beenobtained."
This rule is embodied in article 2062 of the Civil Code which provides that the action brought
by the creditor must be filed against the principal debtor alone, except in some instances
when the action may be brought against boththe debtor and the principal debtor.Under the
circumstances availing in the present case, the court held that it is premature to even
determine whether or notpetitioner is liable as a guarantor and whether she is entitled to
the concomitant rights as such, like the benefit of excussion, since the most basic
prerequisite is wanting — that is, no judgment was first obtained against the principaldebtor
Rosita B. Luanzon. It is useless to speak of a guarantor when no debtor has been held liable
for the obligationwhich is allegedly secured by such guarantee. Although the principal debtor
Luanzon was impleaded as defendant, thereis nothing in the records to show that summons
was served upon her. Thus, the trial court never even acquired jurisdictionover the principal
debtor. The court held that private respondent must first obtain a judgment against the
principal debtor before assuming to run after the alleged guarantor.
Special Steel Products vs. Villareal and So Case Digest
Special Steel Products vs. Lutgardo Villareal & Frederick So
G.R. No.143304. July 8, 2004
Facts: Special Steel Products, Inc., is a domestic corporation engaged in the
principal business of importation, sale, and marketing of BOHLER steel products.
Respondents worked for petitioner as assistant manager and salesman. Villareal
obtained a car loan from Bank of Commerce with petitioner as surety wherein they
are jointly and severally agreed to pay the bank in installment basis. In January 1997,
Villareal resigned and joined Hi-Grade Industrial and Technical Products as Executive
vice-president.
Respondent So was sponsored by petitioner to attend a training course in
Kapfenberg, Austria conducted by BOHLER. It rewarded So’s outstanding sales
performance. When So returned, the petitioner asked respondent So to sign a
memorandum to work for the company for three years. After 2 years and 4 months,
So resigned from the company. Petitioner ordered respondents an accounting of the
various Christmas giveaways they received. In return, respondents also demanded
payment of their separation benefits, commissions, monetary benefits but petitioner
refused and withheld the 13th month pay and other benefits.
Issue: Whether or not the employer can withhold its employee’s wages and benefits
as lien to protect its interest as surety in the car loan and for expenses in the training
abroad.
Ruling: The employer cannot withhold respondent’s 13th month pay and other
monetary benefits.
Article 116 of the Labor Code, as amended, provides:
“Withholding of wages and kickbacks prohibited. – It shall be unlawful for any person,
directly or indirectly, to withhold any amount from the wages (and benefits) of a
worker or induce him to give up any part of his wages by force, stealth, intimidation,
threat or by any other means whatsoever without the worker’s consent.”
The above provision is clear and needs no further elucidation. Indeed, petitioner has
no legal authority to withhold respondents’ 13th month pay and other benefits. What
an employee has worked for, his employer must pay. Thus, an employer cannot
simply refuse to pay the wages or benefits of its employee because he has either
defaulted in paying a loan guaranteed by his employer; or violated their memorandum
of agreement; or failed to render an accounting of his employer’s property.
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID BANK CORPORATION,
FIRSTBUSINESS PAPER CORPORATION (FBPC)
RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus line" credit
facilityworth P10 million in favor of (FBPC). The terms and conditions of the agreement as
well as thechecklist of documents necessary to open the credit line were stipulated in a
"letter-advise" of the Bank. The documents essential for the credit facility and submitted for
this purpose werethexxx(c) Continuing Guaranty for any and all amounts signed by
petitioner-spouses Luis Toh andVicky Tan Toh, and respondent-spouses Kenneth and Ma.
Victoria Ng Li xxxThe spouses Toh were then Chairman of the Board and Vice-President, of
FBPC, whilerespondent-spouses Ng Li were President and General Manager of the same
corporation.5The Continuing Guaranty set forth no maximum limit on the indebtedness that
respondentFBPC may incur and contained a de facto acceleration clause. So as to strengthen
this security,the Continuing Guaranty waived rights of the sureties against delay or absence
of notice ordemand on the part of respondent Bank, and gave future consent to the Bank's
action to"extend or change the time payment, and/or the manner, place or terms of
payment,"including renewal, of the credit facility or any part thereof in such manner and
upon such termsas the Bank may deem proper without notice to or further assent from the
sureties.On 16 June 1993 respondent FBPC started to avail of the credit facility and secured
letters of credit.7 FBPC opened thirteen (13) letters of credit and executed a series of trust
receipts overthe goods allegedly purchased from the proceeds of the loans.9On 13 January
1994 respondent Bank received information that respondent-spouses KennethNg Li and Ma.
Victoria Ng Li had fraudulently departed from their conjugal home.10 On 14January 1994 the
Bank served a demand letter upon FBPC and petitioner Luis Toh invoking theacceleration
clause11 in the trust receipts of FBPC and claimed payment for P10,539,758.68 asunpaid
overdue accounts on the letters of credit plus interests and penalties within twenty-four(24)
hours from receipt thereof.12 The Bank also invoked the Continuing Guaranty executed
bypetitioner-spouses Luis Toh and Vicky Tan Toh.On 17 January 1994 respondent Bank filed a
complaint for sum of money.Petitioners also contended that through FBPC Board Resolution,
petitioner Luis Toh wasremoved as an authorized signatory for FBPC and replaced by
respondent-spouses Ng Li andPadilla for all the transactions of FBPC with respondent
Bank.24 They even resigned from theirrespective positions in FBPC. Finally, petitioners
averred that sometime in June 1993 they
obtained from respondent Kenneth Ng Li their exclusion from the several surety
agreementsthey had entered into .
ISSUE:
WON spouses TOH are discharged as sureties under the Continuing Guaranty.
HELD
This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-
spouses as it is a public document that enjoys the presumption of authenticity anddue
execution. Similarly, there is no basis for petitioners to limit their responsibility so long
asthey were corporate officers and stockholders of FBPC. Nothing in the Continuing
Guarantyrestricts their contractual undertaking to such condition or eventuality.But as we
bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed somust we
also hold respondent Bank to its representations in the "letter-advise" of 16 May1993. lien released x x xx [for] there immediately arises a trust relation between the parties, and
Particularly, as to the extension of the due dates of the letters of credit, we cannotexclude the creditor as trusteeis bound to account to the surety for the value of the security in his
from the Continuing Guaranty the preconditions of the Bank that were plainlystipulated in hands.60For the same reason, the grace period granted by respondent Bank represents
the "letter-advise."Insofar as petitioners stipulate in the Continuing Guaranty that unceremoniousabandonment and forfeiture of the fifteen percent (15%) marginal deposit
respondent Bank "may at anytime, or from time to time, in [its] discretion x x x extend or and the twenty-fivepercent (25%) partial payment as fixed in the "letter-advise." These
change the time payment," thisprovision even if understood as a waiver is confined per se to payments are unmistakablyadditional securities intended to protect both respondent Bank
the grant of an extension anddoes not surrender the prerequisites therefor as mandated in and the sureties in the eventthat the principal debtor FBPC becomes insolvent during the
the "letter-advise." In otherwords, the authority of the Bank to defer collection contemplates extension period. Compliance withthese requisites was not waived by petitioners in the
only authorized extensions,that is, those that meet the terms of the "letter-advise."Certainly, Continuing Guaranty. For thisunwarranted exercise of discretion, respondent Bank bears the
while the Bank may extend the due date at its discretion pursuant to the loss; due to its unauthorizedextensions to pay granted to FBPC, petitioner-spouses Luis Toh
ContinuingGuaranty, it should nonetheless comply with the requirements that domestic and Vicky Tan Toh aredischarged as sureties under the Continuing Guaranty
letters of creditbe supported by fifteen percent (15%) marginal deposit extendible three (3)
times for a periodof thirty (30) days for each extension, subject to twenty-five percent (25%)
partial payment perextension.Furthermore, the assurance of the sureties in the Continuing
Guaranty that "[n]o act oromission of any kind on [the Bank's] part in the premises shall in
any event affect or impair thisguaranty"51 must also be read "strictissimi juris" for the reason
that petitioners are onlyaccommodation sureties, i.e., they received nothing out of the
security contract they signed.5An extension of the period for enforcing the indebtedness
does not by itself bring about thedischarge of the sureties unless the extra time is not
permitted within the terms of the waiver,i.e., where there is no payment or there is deficient
settlement of the marginal deposit and thetwenty-five percent (25%) consideration, in which
case the illicit extension releases thesureties. Under Art. 2055 of the Civil Code, the liability of
a surety is measured by the terms of his contract, and while he is liable to the full extent
thereof, his accountability is strictly limitedto that assumed by its term
It is admitted by respondent Bank before the trial court that several letters of credit
wereirrevocably extended for ninety (90) days with alarmingly flawed and inadequate
consideration- the indispensable marginal deposit of fifteen percent (15%) and the twenty-
five percent (25%)prerequisite for each extension of thirty (30) days.The foregoing
extensions of the letters of credit made by respondent Bank without observingthe rigid
restrictions for exercising the privilege are not covered by the waiver stipulated in
theContinuing Guaranty. Evidently, they constitute illicit extensions prohibited under Art.
2079 of the Civil Code, "[a]n extension granted to the debtor by the creditor without the
consent of theguarantor extinguishes the guaranty."As a result of these illicit extensions,
petitioner-spouses Luis Toh and Vicky Tan Toh are relievedof their obligations as sureties of
respondent FBPC under Art. 2079 of the Civil Code.By the same token, there is no
explanation on record for the utter worthlessness of the trustreceipts in favor of the Bank
when these documents ought to have added more security to theindebtedness of FBPC. To
be sure, the goods subject of the trust receipts were not entirely lostsince the security officer
of respondent Bank who conducted surveillance of FBPC even had thechance to intercept the
surreptitious transfer of the items under trust. In addition, the attachedproperties of FBPC
were perfunctorily abandoned by respondent Bank although the bondstherefor were
considerably reduced by the trial court.58The consequence of these omissions is to discharge
the surety, petitioners herein, or at the veryleast, mitigate the liability of the surety up to the
value of the property or lien released
–
If thecreditor has acquired a lien upon the property of a principal, the creditor at once
becomescharged with the duty of retaining such security, or maintaining such lien in the
interest of thesurety, and any release or impairment of this security as a primary resource for
the payment of a debt, will discharge the surety to the extent of the value of the property or