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Mercantile Insurance Co vs.

Ysmael Post under case digests, Commercial Law at Saturday, March 31, 2012 Posted by Schizophrenic Mind Facts: Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. anindemnity agreement. The defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound jointly and severally to indemnify the plaintiff, from and against any and all payments, damages, costs, losses, penalties, charges and expenses which said company as surety (MERICO Bond No. 0007) shall incur or become liable to pay. Paragraph 3 of the indemnity agreement expressly provides: 3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph, where the obligation involves a liquidated amount for the payment of which the company has become legally liable under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or otherwise to enforce payment even prior to making payment to the obligee which may hereafter be done by the COMPANY. Tordesillas and Torres in their official capacities and the defendantsexecuted another indemnity agreement with the plaintiff in consideration of the surety bond (MERICO Bond No. G (16) 0030. In the indemnity agreement the same provisions of paragraph 3 is found. Later on, the amount of the Bond was reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction is P100,000.00, P60,000.00 onSurety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030. The defendants failed to pay the overdraft and credit line with the Philippine National Bank demanded from Mercantil, settlement of itsobligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) Attached to the demand letter is a statement of account. By letter of December 17, 1970, plaintiff company wrote a letter of demand to the defendants regarding the the letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the defendants the settlement of said account. The defendants failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff brought the present action. Lower court dismissed case for lack of cause of action, the plaintiffhas paid nothing in the surety bonds, therefore, they have not suffered any actual damage and held that paragraph 3 of contract is void. Defendants argued that to allow surety to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute unjust enrichment at the expense of another. Issue: Whether or not surety can be allowed indemnification fromthe defendants-appellants, upon the latter's default even before the former has paid to the creditor.

Held: The overdraft line of Php1M and the credit line of Php1M applied for by the defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as Bond No. G(16) 0007 and Bond No. G(16) 0030. As security and in consideration of the execution of the surety bonds,the defendants executed with the plaintiff identical indemnityagreements which provide that payment of indemnity or compensation may be claimed whether or not plaintiff company has actually paid the same as provided in paragraph 3 of contract. The cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof. By virtue of the provisions of theIndemnity Agreement, defendants-appellants have undertaken to hold plaintiff-appellee free and harmless from any suit, damage or liability which may be incurred by reason of non-performance by the defendantsappellants of their obligation with the Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee in case of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. There is no dispute as to meaning of the terms of the Indemnity Agreement. Having voluntarily entered into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force and effect of law. The principal debtors, defendants-appellants herein, are the same persons who executed the Indemnity Agreement. Thus, the positionoccupied by them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not apply. There is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed against defendants-appellants.

G.R. No. L-20199

November 23, 1965

THE COSMOPOLITAN INSURANCE CO., INC., plaintiff-appellee, vs. ANGEL B. REYES, defendant-appellant. Facts: Cosmopolitan Insurance Co., Inc., filed a bond in favor of the Collector of Internal Revenue to secure the payment in stated installments of the total amount of P25,422.85, which appellant Reyes owed for income tax for the years, 1950, 1951, 1952 and 1953.In consideration of the bond, appellant Reyes in turn signed an Indemnity Agreement whereby he bound himself, among other things, 2) INDEMNITY: To indemnify the COMPANY upon its demand and keep it indemnified for and to hold and save it harmless from and against, any and all payments, damage, cost, losses, penalties, charges and expenses of whatever kind and nature which the COMPANY as such surety shall or may, at any time make, sustain, incur and/or suffer or for which it has or may become liable to the obligee, and to pay an additional amount as attorney's fees equal to 20% of the amount due to the COMPANY by virtue hereof which in no case shall be less than P50.00 and which shall be payable whether or not the case be extrajudicially settled, it being understood that demand made upon anyone of the undersigned herein is admitted as demand made on all of the signatories hereof. 3) ACCRUAL OF ACTION: Notwithstanding the provision of the next preceding paragraph where the obligation involves a liquidated amount for the payment of which the COMPANY has become legally liable under the terms of the obligation and its suretyship undertaking, or by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the latter's demand the full amount necessary to discharge the COMPANY'S aforesaid liability irrespective of whether or not payment has actually been made

by the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or otherwise to enforce payment, even prior to making payment to the obligee which may hereafter be done by the COMPANY; It is not denied that because of appellant Reyes' failure, the amount of P10,645.38 became due and that, as a result, appellee Cosmopolitan Insurance Co., Inc., became liable on its bond.Appellant Reyes assails, however, the validity of paragraph 3 of the Indemnity Agreement, which he contends is contrary to public policy.the appellant raises the point that there is absolutely no authority in any existing law allowing any person in his capacity as guarantor, as in this case, to obtain, to recover, to receive by way of money judgment from the debtor the amount due to the creditor. The appellant further argues: What security does appellant have, once the amount has been received by appellee from appellant, that the same would be paid to the Collector of Internal Revenue? Issue: whether, under the Indemnity Agreement of the parties, the appellee, as surety, can demand indemnification from appellant Reyes as principal, upon the latter's default, even before the former has paid to the creditor. Held: yes. The Supreme Court held that: The stipulation in the indemnity agreement allowing the surety to recover even before it paid the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even before paying the creditors. Even after analyzing the provisions of the contract entered into between the parties, the court is of the opinion that they do not in any way militate against the public good or that they are contrary to the policy of the law.

House vs dela Costa 68 Phil. 742 Facts: The petitioner, plaintiff in a civil case against C.P. Bush and George Upton for the recovery of a sum of money, obtained a preliminary attachment of certain properties of the latter. Three days thereafter, Bush and Upton secured the discharge of the attachment of these properties by filing a bond posted by Far Eastern Surety & Insurance Co., Inc., on August 25, 1934, for P2,000, the condition of the bond being that, should the plaintiff and petitioner House obtain a judgment against C.P. Bush, the latter would return to the Sheriff of Manila the properties discharged from attachment and, should he fail to do so, the Far Eastern Surety & Insurance Co., Inc., would pay the value thereof. On September 1st following, the petitioner House and C.P. Bush entered into an agreement, without the knowledge or consent of the Far Eastern Surety & Insurance Co., Inc., whereby Bush delivered to the petitioner, together with other properties, those discharged from attachment to be sold at public auction. The petitioner was the highest bidder in this sale and the properties were adjudicated to him. Eventually the petitioner obtained judgment against C.P .Bush for the amount of P2,000 and the same not having been satisfied, he asked for execution against Far Eastern Surety & Insurance Co., Inc., as surety of C.P Bush in the discharge of the properties from the attachment. The court denied this petition. Issue: Whether or not the court exceeded and abused its discretion in so ruling. Held: No. From the foregoing it appears that the petitioner and C.P. Bush, under the agreement of September 1st, substantially altered their judicial relations as to the properties discharged from attachment and for the delivery of which Far Eastern Surety & Insurance Co., Inc., was a surety, which alteration necessity released the latter from its obligations as such surety. The properties discharged from attachment having been turned over to the petitioner and thereafter publicly sold and adjudicated to him under the said agreement, the obligation of C.P. Bush to return the properties to the Sheriff, in satisfaction of the judgment in favor of the petitioner, was extinguished and compliance therewith became impossible by petitioner's own act, thereby resulting in the release of the surety from its obligation to pay the value of said properties.