G.R. No.
220400, March 20, 2019 reported her missing truck to the Western Police District Anti-Carnapping
ANNIE TAN, PETITIONER, v. GREAT HARVEST ENTERPRISES, INC.,
RESPONDENT.
DECISION
LEONEN, J.:
Common carriers are obligated to exercise extraordinary diligence over the
goods entrusted to their care. This is due to the nature of their business,
with the public policy behind it geared toward achieving allocative efficiency
and minimizing the inherently inequitable dynamics between the parties to
the transaction.
This resolves a Petition for Review on Certiorari 1 filed under Rule 45 of the
Rules of Civil Procedure by Annie Tan (Tan), assailing the Court of Appeals
March 13, 2015 Decision2 and September 15, 2015 Resolution 3 in CA-G.R.
CV No. 100412. The assailed judgments upheld the Regional Trial Court
January 3, 2012 Decision4 in Civil Case No. Q-94-20745, which granted
Great Harvest Enterprises, Inc.'s (Great Harvest) Complaint for sum of
money against Tan.
On February 3, 1994, Great Harvest hired Tan to transport 430 bags of soya
beans worth P230,000.00 from Tacoma Integrated Port Services, Inc.
(Tacoma) in Port Area, Manila to Selecta Feeds in Camarin, Novaliches,
Quezon City.5
That same day, the bags of soya beans were loaded into Tan's hauling
truck. Her employee, Rannie Sultan Cabugatan (Cabugatan), then delivered
the goods to Selecta Feeds.6
At Selecta Feeds, however, the shipment was rejected. Upon learning of the
rejection, Great Harvest instructed Cabugatan to deliver and unload the
soya beans at its warehouse in Malabon. Yet, the truck and its shipment
never reached Great Harvest's warehouse.7
On February 7, 1994, Great Harvest asked Tan about the missing delivery.
At first, Tan assured Great Harvest that she would verify the whereabouts of
its shipment, but after a series of follow-ups, she eventually admitted that
she could not locate both her truck and Great Harvest's goods. 8 She
Unit and the National Bureau of Investigation.9
On February 19, 1994, the National Bureau of Investigation informed Tan
that her missing truck had been found in Cavite. However, the truck had
been cannibalized and had no cargo in it.10 Tan spent over P200,000.00 to
have it fixed.11
Tan filed a Complaint against Cabugatan and Rody Karamihan
(Karamihan), whom she accused of conspiring with each other to steal the
shipment entrusted to her.12 An Information13 for theft was filed against
Karamihan, while Cabugatan was charged with qualified theft.14
On March 2, 1994, Great Harvest, through counsel, sent Tan a letter
demanding full payment for the missing bags of soya beans. On April 26,
1994, it sent her another demand letter. Still, she refused to pay for the
missing shipment or settle the matter with Great Harvest.15 Thus, on June 2,
1994, Great Harvest filed a Complaint for sum of money against Tan.16
In her Answer, Tan denied that she entered into a hauling contract with
Great Harvest, insisting that she merely accommodated it. Tan also pointed
out that since Great Harvest instructed her driver to change the point of
delivery without her consent, it should bear the loss brought about by its
deviation from the original unloading point.17
In its August 4, 2000 Decision, 18 the Regional Trial Court of Manila found
Karamihan guilty as an accessory after the fact of theft, and sentenced him
to serve a prison sentence between six (6) months of arresto
mayor maximum to one (1) year of prision correccional minimum. He was
also ordered to indemnify Tan P75,000.00, the amount he had paid
Cabugatan for the 430 bags of soya beans.19
In its January 3, 2012 Decision, 20 the Regional Trial Court of Quezon City
granted Great Harvest's Complaint for sum of money. It found that Tan
entered into a verbal contract of hauling with Great Harvest, and held her
responsible for her driver's failure to deliver the soya beans to Great
Harvest.21 The dispositive portion of the Decision read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter:
1
 1. To pay the sum of P230,000.00 with interest thereon at the
rate of 12% per annum starting from June 2, 1994 (when the
case was filed) and until paid;
2. To pay the sum of P50,000.00 as Attorney's fees; and
3. Costs against the defendant.
SO ORDERED.22
Tan moved for reconsideration of the January 3, 2012 Decision, but her
Motion was denied by the trial court in its November 21, 2012 Order.23
Tan filed an Appeal, but the Court of Appeals dismissed it in its March 13,
2015 Decision.24
In affirming the January 3, 2012 Decision, the Court of Appeals found that
the parties' standard business practice when the recipient would reject the
cargo was to deliver it to Great Harvest's warehouse. Thus, contrary to
Tan's claim, there was no deviation from the original destination.25
The Court of Appeals also held that the cargo loss was due to Tan's failure
to exercise the extraordinary level of diligence required of her as a common
carrier, as she did not provide security for the cargo or take out insurance
on it.26
The dispositive portion of the Court of Appeals Decision read:
WHEREFORE, the premises considered, the instant appeal is
hereby DISMISSED and the assailed Decision dated January 3, 2012
[is] AFFIRMED in toto.
IT IS SO ORDERED.27 (Emphasis in the original)
Tan moved for reconsideration, but her Motion was denied by the Court of
Appeals in its September 15, 2015 Resolution.28
Thus, Tan filed her Petition for Review on Certiorari, 29 maintaining that her
Petition falls under the exceptions to a Rule 45 petition since the assailed
Court of Appeals Decision was based on a misapprehension of facts.30
Petitioner contends that she is not liable for the loss of the soya beans and
points out that the agreement with respondent Great Harvest was to deliver
them to Selecta Feeds, an obligation with which she complied. She claims
that what happened after that was beyond her control. When Selecta Feeds
rejected the soya beans and respondent directed Cabugatan to deliver the
goods to its warehouse, respondent superseded her previous instruction to
Cabugatan to return the goods to Tacoma, the loading point. Hence, she
was no longer required to exercise the extraordinary diligence demanded of
her as a common carrier.31
Tan opines that she is not liable for the value of the lost soya beans since
the truck hijacking was a fortuitous event and because "the carrier is not an
insurer against all risks of travel."32
She prayed for: (1) P500,000.00 in actual damages to compensate for the
expenses she incurred in looking for and fixing her truck; (2) P500,000.00 in
moral damages for the stress and mental anguish she experienced in
searching for her truck and the missing soya beans; (3) P500,000.00 in
exemplary damages to deter respondent from filing a similar baseless
complaint in the future; and (4) P200,000.00 as attorney's fees. On the other
hand, if she is found liable to respondent, petitioner concedes that her
liability should only be pegged at P75,000.00, the actual price Karamihan
paid for respondent's shipment.33
On January 25, 2016,34 respondent was directed to comment on the petition
but it manifested35 that it was waiving its right to file a comment.
The sole issue for this Court's resolution is whether or not petitioner Annie
Tan should be held liable for the value of the stolen soya beans.
The Petition must fail.
The Rules of Court is categorical that only questions of law may be raised in
petitions filed under Rule 45, as this Court is not a trier of facts. Further,
factual findings of appellate courts, when supported by substantial evidence,
are binding upon this Court.36
However, these rules do admit of exceptions.37 In particular, petitioner
referred to the exception "[w]hen the judgment is based on a
misapprehension of facts"38 to justify the questions of fact in her Petition for
Review on Certiorari.
2
A careful review of the records of this case convinces us that the assailed
judgments of the Court of Appeals are supported by substantial evidence.
Article 1732 of the Civil Code defines common carriers as "persons,
corporations, firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water or air, for
compensation, offering their services to the public." The Civil Code outlines
the degree of diligence required of common carriers in Articles 1733, 1755,
and 1756:
ARTICLE 1733. Common carriers, from the nature of their business and for
reasons of public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers transported by
them, according to all the circumstances of each case.
. . . .ARTICLE 1755. A common carrier is bound to carry the passengers
safely as far as human care and foresight can provide, using the utmost
diligence of very cautious persons, with a due regard for all the
circumstances.
ARTICLE 1756. In case of death of or injuries to passengers, common
carriers are presumed to have been at fault or to have acted negligently,
unless they prove that they observed extraordinary diligence as prescribed
in articles 1733 and 1755.
Law and economics provide the policy justification of our existing
jurisprudence. The extraordinary diligence required by the law of common
carriers is primarily due to the nature of their business, with the public policy
behind it geared toward achieving allocative efficiency between the parties
to the transaction.
Allocative efficiency is an economic term that describes an optimal market
where customers are willing to pay for the goods produced. 39 Thus, both
consumers and producers benefit and stability is achieved.
The notion of common carriers is synonymous with public service under
Commonwealth Act No. 146 or the Public Service Act. 40 Due to the public
nature of their business, common carriers are compelled to exercise
extraordinary diligence since they will be burdened with the externalities or
the cost of the consequences of their contract of carriage if they fail to take
the precautions expected of them.
Common carriers are mandated to internalize or shoulder the costs under
the contracts of carriage. This is so because a contract of carriage is
structured in such a way that passengers or shippers surrender total control
over their persons or goods to common carriers, fully trusting that the latter
will safely and timely deliver them to their destination. In light of this
inherently inequitable dynamics— and the potential harm that might befall
passengers or shippers if common carriers exercise less than extraordinary
diligence— the law is constrained to intervene and impose sanctions on
common carriers for the parties to achieve allocative efficiency.41
Here, petitioner is a common carrier obligated to exercise extraordinary
diligence42 over the goods entrusted to her. Her responsibility began from
the time she received the soya beans from respondent's broker and would
only cease after she has delivered them to the consignee or any person with
the right to receive them.43
Petitioner's argument is that her contract of carriage with respondent was
limited to delivering the soya beans to Selecta Feeds. Thus, when Selecta
Feeds refused to accept the delivery, she directed her driver to return the
shipment to the loading point. Respondent refutes petitioner's claims and
asserts that their standing agreement was to deliver the shipment to
respondent's nearest warehouse in case the consignee refused the delivery.
After listening to the testimonies of both parties, the trial court found that
respondent was able to prove its contract of carriage with petitioner. It also
found the testimony of respondent's witness, Cynthia Chua (Chua), to be
more believable over that of petitioner when it came to the details of their
contract of carriage:
Defendant's assertion that the diversion of the goods was done without her
consent and knowledge is self-serving and is effectively belied by the
positive testimony of witness Cynthia Chua, Account Officer of plaintiff
corporation (page 23, TSN, March 26, 1996). Equally self-serving is
defendant's claim that she is not liable for the loss of the soyabeans (sic)
considering that the plaintiff has no existing contract with her. Such a
sweeping submission is also belied by the testimony of plaintiff's witness
Cynthia Chua who categorically confirmed the existing business relationship
of plaintiff and defendant for hauling and delivery of goods as well as the
arrangement to deliver the rejected goods to the plaintiff's nearest
warehouse in the event that goods are rejected by the consignee with prior
approval of the consignor (page 11, TSN, March 26, 1996).44
3
The trial court's appreciation of Chua's testimony was upheld by the Court of
Appeals:
Verily, the testimony alone of appellee's Account Officer, Cynthia Chua,
dispels the contrary allegations made by appellant in so far as the nature of
their business relationship is concerned. Consistently and without qualms,
said witness narrated the details respecting the company's relations with the
appellant and the events that transpired before, during and after the
perfection of the contract and the subsequent loss of the subject cargo. Said
testimony and the documentary exhibits, i.e., the Tacoma waybill and the
appellee's waybill, prove the perfection and existence of the disputed verbal
contract.
Emphatically, from the aforesaid waybills, it was duly established that while
verbal, the parties herein has (sic) agreed for the hauling and delivery of the
soya beans from the company's broker to the intended recipient. It was
further proven by evidence that appellant had agreed and consented to the
delivery of the soya beans to the company's nearest warehouse in case the
cargo goods had been rejected by the recipient as it had been the practice
between the parties.45 (Citation omitted)
This Court accords the highest respect to the trial court's assessment of a
witness' credibility, as it was in a better position to observe the witness'
demeanor while testifying.46 We see no reason to disturb the factual findings
of the lower courts, especially since they were supported by substantial
evidence.
Furthermore, Article 1734 of the Civil Code holds a common carrier fully
responsible for the goods entrusted to him or her, unless there is enough
evidence to show that the loss, destruction, or deterioration of the goods
falls under any of the enumerated exceptions:
ARTICLE 1734. Common carriers are responsible for the loss, destruction,
or deterioration of the goods, unless the same is due to any of the following
causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or
calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the
containers;
(5) Order or act of competent public authority.
Nothing in the records shows that any of these exceptions caused the loss
of the soya beans. Petitioner failed to deliver the soya beans to respondent
because her driver absconded with them. She cannot shift the blame for the
loss to respondent's supposed diversion of the soya beans from the loading
point to respondent's warehouse, as the evidence has conclusively shown
that she had agreed beforehand to deliver the cargo to respondent's
warehouse if the consignee refused to accept it.47
Finally, petitioner's reliance on De Guzman v. Court of Appeals48 is
misplaced. There, the common carrier was absolved of liability because the
goods were stolen by robbers who used "grave or irresistible threat,
violence[,] or force"49 to hijack the goods. De Guzman viewed the armed
hijack as a fortuitous event:
Under Article 1745 (6) above, a common carrier is held responsible — and
will not be allowed to divest or to diminish such responsibility — even for
acts of strangers like thieves or robbers, except where such thieves or
robbers in fact acted "with grave or irresistible threat, violence or force." We
believe and so hold that the limits of the duty of extraordinary diligence in
the vigilance over the goods carried are reached where the goods are lost
as a result of a robbery which is attended by "grave or irresistible threat,
violence[,] or force."50
In contrast to De Guzman, the loss of the soya beans here was not attended
by grave or irresistible threat, violence, or force. Instead, it was brought
about by petitioner's failure to exercise extraordinary diligence when she
neglected vetting her driver or providing security for the cargo and failing to
take out insurance on the shipment's value. As the Court of Appeals held:
Besides, as the records would show, appellant did not observe extra-
ordinary (sic) diligence in the conduct of her business as a common carrier.
In breach of their agreement, appellant did not provide security while the
goods were in transit and she also did not pay for the insurance coverage of
said goods. These measures could have prevented the hijacking (sic) or
could have ensured the payment of the damages sustained by the
appellee.51
4
WHEREFORE, the Petition is DENIED. Petitioner Annie Tan is directed to
pay respondent Great Harvest Enterprises, Inc. the sum of Two Hundred
Thirty Thousand Pesos (P230,000.00) with interest at the rate of twelve
percent (12%) per annum from June 2, 1994 until June 30, 2013, and at the
rate of six percent (6%) per annum from July 1, 2013 until its full
satisfaction. She is further directed to pay Fifty Thousand Pesos
(P50,000.00) as attorney's fees and the costs of suit.
SO ORDERED.
G.R. No. L-47822 December 22, 1988
PEDRO DE GUZMAN, petitioner,
vs.
COURT OF APPEALS and ERNESTO CENDANA, respondents.
Vicente D. Millora for petitioner.
Jacinto Callanta for private respondent.
FELICIANO, J.:
Respondent Ernesto Cendana, a junk dealer, was engaged in buying up
used bottles and scrap metal in Pangasinan. Upon gathering sufficient
quantities of such scrap material, respondent would bring such material to
Manila for resale. He utilized two (2) six-wheeler trucks which he owned for
hauling the material to Manila. On the return trip to Pangasinan, respondent
would load his vehicles with cargo which various merchants wanted
delivered to differing establishments in Pangasinan. For that service,
respondent charged freight rates which were commonly lower than regular
commercial rates.
Sometime in November 1970, petitioner Pedro de Guzman a merchant and
authorized dealer of General Milk Company (Philippines), Inc. in Urdaneta,
Pangasinan, contracted with respondent for the hauling of 750 cartons of
Liberty filled milk from a warehouse of General Milk in Makati, Rizal, to
petitioner's establishment in Urdaneta on or before 4 December 1970.
Accordingly, on 1 December 1970, respondent loaded in Makati the
merchandise on to his trucks: 150 cartons were loaded on a truck driven by
respondent himself, while 600 cartons were placed on board the other truck
which was driven by Manuel Estrada, respondent's driver and employee.
Only 150 boxes of Liberty filled milk were delivered to petitioner. The other
600 boxes never reached petitioner, since the truck which carried these
boxes was hijacked somewhere along the MacArthur Highway in Paniqui,
Tarlac, by armed men who took with them the truck, its driver, his helper
and the cargo.
On 6 January 1971, petitioner commenced action against private
respondent in the Court of First Instance of Pangasinan, demanding
payment of P 22,150.00, the claimed value of the lost merchandise, plus
damages and attorney's fees. Petitioner argued that private respondent,
being a common carrier, and having failed to exercise the extraordinary
diligence required of him by the law, should be held liable for the value of
the undelivered goods.
In his Answer, private respondent denied that he was a common carrier and
argued that he could not be held responsible for the value of the lost goods,
such loss having been due to force majeure.
On 10 December 1975, the trial court rendered a Decision 1 finding private
respondent to be a common carrier and holding him liable for the value of
the undelivered goods (P 22,150.00) as well as for P 4,000.00 as damages
and P 2,000.00 as attorney's fees.
On appeal before the Court of Appeals, respondent urged that the trial court
had erred in considering him a common carrier; in finding that he had
habitually offered trucking services to the public; in not exempting him from
liability on the ground of force majeure; and in ordering him to pay damages
and attorney's fees.
The Court of Appeals reversed the judgment of the trial court and held that
respondent had been engaged in transporting return loads of freight "as a
casual
occupation — a sideline to his scrap iron business" and not as a common
carrier. Petitioner came to this Court by way of a Petition for Review
assigning as errors the following conclusions of the Court of Appeals:
1. that private respondent was not a common carrier;
2. that the hijacking of respondent's truck was force majeure;
and
5
 3. that respondent was not liable for the value of the
undelivered cargo. (Rollo, p. 111)
We consider first the issue of whether or not private respondent Ernesto
Cendana may, under the facts earlier set forth, be properly characterized as
a common carrier.
The Civil Code defines "common carriers" in the following terms:
Article 1732. Common carriers are persons, corporations,
firms or associations engaged in the business of carrying or
transporting passengers or goods or both, by land, water, or
air for compensation, offering their services to the public.
The above article makes no distinction between one
whose principal business activity is the carrying of persons or goods or both,
and one who does such carrying only as an ancillary activity (in local Idiom
as "a sideline"). Article 1732 also carefully avoids making any distinction
between a person or enterprise offering transportation service on a regular
or scheduled basis and one offering such service on an occasional, episodic
or unscheduled basis. Neither does Article 1732 distinguish between a
carrier offering its services to the "general public," i.e., the general
community or population, and one who offers services or solicits business
only from a narrow segment of the general population. We think that Article
1733 deliberaom making such distinctions.
So understood, the concept of "common carrier" under Article 1732 may be
seen to coincide neatly with the notion of "public service," under the Public
Service Act (Commonwealth Act No. 1416, as amended) which at least
partially supplements the law on common carriers set forth in the Civil Code.
Under Section 13, paragraph (b) of the Public Service Act, "public service"
includes:
... every person that now or hereafter may own, operate,
manage, or control in the Philippines, for hire or
compensation, with general or limited clientele, whether
permanent, occasional or accidental, and done for general
business purposes, any common carrier, railroad, street
railway, traction railway, subway motor vehicle, either for
freight or passenger, or both, with or without fixed route and
whatever may be its classification, freight or carrier service of
any class, express service, steamboat, or steamship line,
pontines, ferries and water craft, engaged in the
transportation of passengers or freight or both, shipyard,
marine repair shop, wharf or dock, ice plant,
ice-refrigeration plant, canal, irrigation system, gas, electric
light, heat and power, water supply and power petroleum,
sewerage system, wire or wireless communications systems,
wire or wireless broadcasting stations and other similar public
services. ... (Emphasis supplied)
It appears to the Court that private respondent is properly characterized as
a common carrier even though he merely "back-hauled" goods for other
merchants from Manila to Pangasinan, although such back-hauling was
done on a periodic or occasional rather than regular or scheduled manner,
and even though private respondent's principal occupation was not the
carriage of goods for others. There is no dispute that private respondent
charged his customers a fee for hauling their goods; that fee frequently fell
below commercial freight rates is not relevant here.
The Court of Appeals referred to the fact that private respondent held no
certificate of public convenience, and concluded he was not a common
carrier. This is palpable error. A certificate of public convenience is not a
requisite for the incurring of liability under the Civil Code provisions
governing common carriers. That liability arises the moment a person or firm
acts as a common carrier, without regard to whether or not such carrier has
also complied with the requirements of the applicable regulatory statute and
implementing regulations and has been granted a certificate of public
convenience or other franchise. To exempt private respondent from the
liabilities of a common carrier because he has not secured the necessary
certificate of public convenience, would be offensive to sound public policy;
that would be to reward private respondent precisely for failing to comply
with applicable statutory requirements. The business of a common carrier
impinges directly and intimately upon the safety and well being and property
of those members of the general community who happen to deal with such
carrier. The law imposes duties and liabilities upon common carriers for the
safety and protection of those who utilize their services and the law cannot
allow a common carrier to render such duties and liabilities merely
facultative by simply failing to obtain the necessary permits and
authorizations.
We turn then to the liability of private respondent as a common carrier.
6
Common carriers, "by the nature of their business and for reasons of public
policy" 2 are held to a very high degree of care and diligence ("extraordinary
diligence") in the carriage of goods as well as of passengers. The specific
import of extraordinary diligence in the care of goods transported by a
common carrier is, according to Article 1733, "further expressed in Articles
1734,1735 and 1745, numbers 5, 6 and 7" of the Civil Code.
Article 1734 establishes the general rule that common carriers are
responsible for the loss, destruction or deterioration of the goods which they
carry, "unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning or other
natural disaster or calamity;
(2) Act of the public enemy in war, whether
international or civil;
(3) Act or omission of the shipper or owner of
the goods;
(4) The character-of the goods or defects in
the packing or-in the containers; and
(5) Order or act of competent public authority.
It is important to point out that the above list of causes of loss, destruction or
deterioration which exempt the common carrier for responsibility therefor, is
a closed list. Causes falling outside the foregoing list, even if they appear to
constitute a species of force majeure fall within the scope of Article 1735,
which provides as follows:
In all cases other than those mentioned in numbers 1, 2, 3, 4
and 5 of the preceding article, if the goods are lost, destroyed
or deteriorated, common carriers are presumed to have been
at fault or to have acted negligently, unless they prove that
they observed extraordinary diligence as required in Article
1733. (Emphasis supplied)
Applying the above-quoted Articles 1734 and 1735, we note firstly that the
specific cause alleged in the instant case — the hijacking of the carrier's
truck — does not fall within any of the five (5) categories of exempting
causes listed in Article 1734. It would follow, therefore, that the hijacking of
the carrier's vehicle must be dealt with under the provisions of Article 1735,
in other words, that the private respondent as common carrier is presumed
to have been at fault or to have acted negligently. This presumption,
however, may be overthrown by proof of extraordinary diligence on the part
of private respondent.
Petitioner insists that private respondent had not observed extraordinary
diligence in the care of petitioner's goods. Petitioner argues that in the
circumstances of this case, private respondent should have hired a security
guard presumably to ride with the truck carrying the 600 cartons of Liberty
filled milk. We do not believe, however, that in the instant case, the standard
of extraordinary diligence required private respondent to retain a security
guard to ride with the truck and to engage brigands in a firelight at the risk of
his own life and the lives of the driver and his helper.
The precise issue that we address here relates to the specific requirements
of the duty of extraordinary diligence in the vigilance over the goods carried
in the specific context of hijacking or armed robbery.
As noted earlier, the duty of extraordinary diligence in the vigilance over
goods is, under Article 1733, given additional specification not only by
Articles 1734 and 1735 but also by Article 1745, numbers 4, 5 and 6, Article
1745 provides in relevant part:
Any of the following or similar stipulations shall be considered
unreasonable, unjust and contrary to public policy:
xxx xxx xxx
(5) that the common carrier shall not be
responsible for the acts or omissions of his or
its employees;
(6) that the common carrier's liability for acts
committed by thieves, or of robbers who
do not act with grave or irresistible threat,
violence or force, is dispensed with or
diminished; and
(7) that the common carrier shall not
responsible for the loss, destruction or
deterioration of goods on account of the
defective condition of the car vehicle, ship,
7
 airplane or other equipment used in the merchandise which was lost because of an event entirely beyond private
contract of carriage. (Emphasis supplied) respondent's control.

Under Article 1745 (6) above, a common carrier is held responsible — and ACCORDINGLY, the Petition for Review on certiorari is hereby DENIED and
will not be allowed to divest or to diminish such responsibility — even for the Decision of the Court of Appeals dated 3 August 1977 is AFFIRMED. No
acts of strangers like thieves or robbers, except where such thieves or pronouncement as to costs.
robbers in fact acted "with grave or irresistible threat, violence or force." We
believe and so hold that the limits of the duty of extraordinary diligence in SO ORDERED.
the vigilance over the goods carried are reached where the goods are lost
as a result of a robbery which is attended by "grave or irresistible threat, G.R. No. 203865
violence or force."
UNITRANS INTERNATIONAL FORWARDERS, INC., Petitioner
In the instant case, armed men held up the second truck owned by private vs.
respondent which carried petitioner's cargo. The record shows that an
information for robbery in band was filed in the Court of First Instance of INSURANCE COMPANY OF NORTH AMERICA, UNKNOWN
Tarlac, Branch 2, in Criminal Case No. 198 entitled "People of the CHARTERER OF THE VESSEL M/S "DORIS WULLF", AND TMS SHIP
Philippines v. Felipe Boncorno, Napoleon Presno, Armando Mesina, Oscar AGENCIES, Respondents
Oria and one John Doe." There, the accused were charged with willfully and
unlawfully taking and carrying away with them the second truck, driven by
Manuel Estrada and loaded with the 600 cartons of Liberty filled milk DECISION
destined for delivery at petitioner's store in Urdaneta, Pangasinan. The
decision of the trial court shows that the accused acted with grave, if not
irresistible, threat, violence or force.3 Three (3) of the five (5) hold-uppers
CAGUIOA, J.:
were armed with firearms. The robbers not only took away the truck and its
cargo but also kidnapped the driver and his helper, detaining them for
several days and later releasing them in another province (in Zambales).
The hijacked truck was subsequently found by the police in Quezon City. Before the Court is a Petition for Review on Certiorari1 (Petition) under Rule
The Court of First Instance convicted all the accused of robbery, though not 45 of the Rules of Court filed by petitioner Unitrans International
of robbery in band.  4 Forwarders, Inc. (Unitrans) against respondents Insurance Company of
North America (ICNA), the unknown charterer of the vessel M/S "Doris
In these circumstances, we hold that the occurrence of the loss must Wullf" (unknown charterer of M/S Doris Wullf), and TMS Ship Agencies
reasonably be regarded as quite beyond the control of the common carrier (TSA).
and properly regarded as a fortuitous event. It is necessary to recall that
even common carriers are not made absolute insurers against all risks of
travel and of transport of goods, and are not held liable for acts or events The instant Petition assails the Decision2 dated October 27, 2011 (assailed
which cannot be foreseen or are inevitable, provided that they shall have Decision) and Resolution3 dated October 12, 2012 (assailed Resolution)
complied with the rigorous standard of extraordinary diligence. rendered by the Court of Appeals4 (CA) in CA-G.R. CV No. 95367.

We, therefore, agree with the result reached by the Court of Appeals that
private respondent Cendana is not liable for the value of the undelivered The Facts and Antecedent Proceedings

8
As culled from the records of the case, the essential facts and antecedent
proceedings of the instant case are as follows:
On July 28, 2003, ICNA filed an Amended Complaint5 for collection of sum
of money (Complaint) arising from marine insurance coverage on two (2)
musical instruments imported from Melbourne Australia on April 22, 2002.
The Complaint, which was filed before the Regional Trial Court of Makati
City, Branch 139 (RTC), was instituted against South East Asia Container
Line (SEACOL) and the unknown owner/charterer of the vessel M/S
Buxcrown, both doing business in the Philippines through its local ship
agent Unitrans, and against the unknown charterer of M/S Doris Wullf, doing
business in the Philippines through its local ship agent TSA, for the
collection of the principal amount of Twenty-Two Thousand, Six Hundred
Fifty-Seven Dollars and Eighty Three Cents (US$22,657.83) with interests
thereon and attorney's fees. The case was docketed as Civil Case No. 03-
505.
ICNA alleged in its Complaint that:
1. On or about 22 April 2002, in Melbourne, Australia, SEACOL [, a foreign
company,] solicited and received shipment of pieces of STC musical
instruments from the shipper Dominant Musical Instrument for transportation
to and delivery at the port of Manila, complete and in good condition, as
evidenced by Bill of Lading No. 502645. SEACOL then loaded the insured
shipment on board M/S Buxcrown for transportation from Melbourne
Australia to Singapore. In Singapore, the shipment was transferred from
M/S Buxcrown to M/S Doris Wullf for final transportation to the port of
Manila.
2. The aforesaid shipment was insured with ICNA against all risk under its
Policy No. MOPA-06310 in favor of the consignee, San Miguel Foundation
for the Performing Arts (San Miguel).
3. On 12 May 2002, M/S Doris Wullf arrived and docked at the Manila
International Container Port, North Harbor, Manila. The container van was
discharged from the vessel [, was received by Unitrans,] and upon stripping
the contents thereof, it was found that two of the cartons containing the
musical instruments were in bad order condition, per Turn Over Survey
Report6 dated 14 May 2002. Unitrans then delivered the subject shipment
to the consignee. After further inspection, it was found out that two units of
musical instruments were damaged and could no longer be used for their
intended purpose, hence were declared a total loss;
4. Obviously, the damages sustained by the insured cargo were caused by
the fault and negligence of the [therein] defendants;
5. Formal claims were filed against [the therein] defendants but they refused
and failed to pay the same without valid and legal grounds;
6. As cargo-insurer of the subject shipment and by virtue of the insurance
claim filed by the consignee, ICNA paid the sum of $22,657.83.
7. By reason of the said payment, ICNA was subrogated to consignee's
rights of recovery against [the] defendants [therein];
8. Due to the unjustified refusal of the defendants [therein] to pay its claims,
ICNA was constrained to engage the services of counsel.7
In its Answer with Counterclaim8 dated July 8, 2004, Unitrans denied being
a ship agent of SEACOL and the vessel M/S Buxcrown's unknown owner or
charter. According to Unitrans, BTI Logistics PTY LTD. (BTI Logistics), a
foreign freight forwarder, engaged its services as delivery or receiving agent
in connection to the subject shipment. As such agent, Unitrans' obligations
were limited to receiving and handling the bill of lading sent to it by BTI
Logistics, prepare an inward cargo manifest, notify the party indicated of the
9
arrival of the subject shipment, and release the bill of lading upon order of The complaint against TMS is hereby DISMISSED for insufficiency of
the consignee or its representative so that the subject shipment could be evidence including the counterclaim of TMS.
withdrawn from the pier/customs. It further alleged that the consignee, San
Miguel, also engaged its services as customs broker for the subject
shipment. As such, Unitrans' obligation was limited to paying on behalf of SO ORDERED.11
San Miguel the necessary duties and kindred fees, file with the Bureau of
Customs (BOC) the Import Entry Internal Revenue Declaration together with
other pertinent documents, as well as to pick up the shipment and then
The RTC found that the witness of Unitrans itself admitted in open court that
transport and deliver the said shipment to the consignee's premises in good
"Unitrans is a non-vessel operating common carrier (NVOCC). Moreover,
condition.
this witness admitted that Unitrans is the delivery and collecting agent of
BTI, who is duty bound to [deliver] the subject shipment in good order and
condition to San Miguel. Thus, Unitrans is a common carrier. Under Article
On its part, TSA and the unknown charterer of M/S Doris Wullf alleged in 1742 of the New Civil Code, it states: 'Even if the loss, destruction, or
their Amended Answer with Compulsory Counterclaim9 dated July 11, 2004 deterioration of the goods should be caused by the character of the goods,
that while TSA is indeed the commercial agent of M/S Doris Wullf, both or [the] faulty nature of the packing or of the containers, the common carrier
parties are not parties whatsoever to the bill of lading and have no must exercise due diligence to forestall or lessen the loss.' It appears that
connection in any way with SEACOL, the unknown owner and/or charterer Unitrans, as common carrier, did not observe this requirement of the law."12
of the vessel M/S Buxcrown and Unitrans. It was further alleged that the
subject shipment was discharged from the vessel M/S Doris Wullf complete
and in the same condition as when it was loaded therein, which is a fact
Feeling aggrieved, Unitrans appealed the RTC's Decision before the CA.13
stated in the Turn-Over Survey Report.
The Ruling of the CA
In its assailed Decision, the CA denied Unitrans' appeal for lack of merit.
The Ruling of the RTC
The dispositive portion of the assailed Decision reads:

In its Decision10 dated March 29, 2010, the RTC granted the Complaint and
WHEREFORE, the appeal is DENIED and the Decision appealed from is
held Unitrans liable to ICNA for the sum of US$22,657.83 or its equivalent in
AFFIRMED.
Philippine Peso, i.e., One Million, Forty-Two Thousand, Two Hundred Sixty
Pesos and Eighteen Centavos (₱1,042,260.18) with interest. The dispositive IT IS SO ORDERED.14
portion of the RTC's Decision reads:
In sum, the CA denied Unitrans' argument that the failure of the Court to
issue summons and acquire jurisdiction with respect to SEACOL and the
unknown charterer/owner of M/S Buxcrown, which are based abroad, is
WHEREFORE, in view of the foregoing considerations, the Court hereby
tantamount to a failure to include indispensable parties because Unitrans
GRANTS in favor of the plaintiff against defendant Unitrans, hence Unitrans
failed to show that the aforesaid entities are indispensable parties. As
is hereby ordered to pay plaintiff the sum of P1,042,260.18
observed by the CA, "Unitrans merely concluded that the said parties were
(US$22,657.83XP46.00), with interest at six percent (6%) per annum from
indispensable because they were repeatedly impleaded by ICNA as
date hereof until finality, and twelve percent (12%) per annum from finality
defendants in its original complaint x x x."15
until fully paid plus cost of suit.

10
Further, "[t]he contention of Unitrans, that the trial court x x x had no factual
and legal basis in holding it liable as a common carrier and agent of BTI
Logistics is sorely bereft of merit."16
Unitrans filed its Motion for Clarification and Reconsideration17 of the
assailed Decision on November 17, 2011, which was denied by the CA in its
assailed Resolution.
Hence, the instant Petition.
TSA and the unknown charterer of M/S Doris Wullf filed their Comment (To
Petitioner's Petition for Review on Certiorari)18 on April 23, 2013. ICNA filed
its Comment19 on April 30, 2013. Unitrans filed its Consolidated Reply
Brief20 on February 12, 2014.
On October 7, 2016, TSA and the unknown charterer of M/S Doris Wullf
filed their Memorandum.21 ICNA filed its Memorandum22 on October 18,
2016. Unitrans filed its Memorandum23 on October 27, 2016.
Issue
The "central question to be resolved by the Court is whether the CA was
correct in rendering the assailed Decision, which affirmed the RTC's
Decision holding Unitrans liable to ICNA.
The Court's Ruling
The instant Petition is centered on how "the RTC Decision only singled out
herein petitioner [Unitrans] x x x [and] is completely silent on how the rest of
the defendants came to be absolved from any liability and/or exonerated
from being held solidarity liable with herein petitioner, notwithstanding a
prayer therefor in the Complaint."24
In the main, Unitrans posits the view that the RTC's finding of liability on the
part of Unitrans, as affirmed by the CA, supposedly amounts to a
misapprehension of the evidence and the facts.25
Unitrans even goes further by arguing that the RTC Decision is non-
compliant with Section 14, Article VIII of the 1987 Constitution, which states
that "[n]o decision shall be rendered by any court without expressing therein
clearly and distinctively the facts and the law on which it is based."26
Unitrans opines that the RTC's Decision transgressed the aforementioned
constitutional provision because it was supposedly "totally left in the dark on
how and why its co-defendants, except for [TSA], had been absolved."27
The instant Petition is bereft of merit.
First and foremost, Unitrans' issue on how the RTC and CA allegedly
misapprehended the facts of the instant case and failed to fully appreciate
evidence on record is undoubtedly a question of fact, asking the Court to
recalibrate, reassess, and reexamine evidentiary matters.
A question of facts exists when the doubt or difference arises as to the truth
or falsehood of facts or when the query invites calibration of the whole
evidence considering mainly the credibility of the witnesses, the existence
and relevancy of specific surrounding circumstances as well as their relation
to each other and to the whole, and the probability of the situation.28 That is
precisely what Unitrans is asking the Court to do - to reassess, reexamine,
and recalibrate the evidence on record.
A catena of cases has consistently held that questions of fact cannot be
raised in an appeal via certiorari before the Court and are not proper for its
consideration.29 The Court is not a trier of facts. It is not the Court's function
to examine and weigh all over again the evidence presented in the
proceedings below.30
11

Upon careful review of the records of the instant case, the Court finds no
cogent reason to reverse the RTC's and CA's factual findings and their
appreciation of the evidence on record. The Court finds that the RTC's and
CA's factual and legal conclusion that Unitrans is liable to ICNA with respect
to the damaged musical instruments is amply supported by the evidence on
record.
As found by the RTC in its Decision, and as affirmed by the CA in its
assailed Decision, Unitrans' own witness, Mr. Gerardo Estanislao Del
Rosario (Del Rosario) himself testified in open court that Unitrans, as a
freight forwarding entity and an accredited non-vessel operating common
carrier, was the one engaged by BTI Logistics as its delivery agent in
Manila. Del Rosario attested that BTI Logistics was the forwarding agent in
Australia who received the cargo shipment from the consignor" for shipment
to Manila. Del Rosario further testified that Unitrans acted as the
delivery/forwarding agent of BTI Logistics with respect to the subject
shipment. Del Rosario unequivocally testified that under its agreement with
BTI Logistics, Unitrans engaged itself "to handle the cargo and to make sure
that it was delivered to the consignee from the port of Manila to the
consignee."31 As noted by the CA, "Del Rosario also admitted that in so far
as the subject shipment is concerned, Unitrans acted as a local agent of BTI
Logistics, which was duty bound to deliver the same to the right party."32
Moreover, to reiterate, in its Answer with Counterclaim, Unitrans had
already expressly admitted that San Miguel also engaged its services as
customs broker for the subject shipment; one of its obligations was to pick
up the shipment and then transport and deliver the same to the consignee's
premises in good condition.
Having been placed with the obligation to deliver the subject shipment from
the port of Manila to San Miguel's premises in good condition, during the
pre-trial conference conducted on June 20, 2007, it was admitted by
Unitrans that "[t]he subject shipment was delivered by [petitioner]
Unitrans."33 Yet, it is not disputed by any party that the subject shipment,
i.e., musical instruments, were severely damaged beyond use and did not
arrive in good condition at the premises of the consignee, San Miguel. It is
indubitably clear that Unitrans failed to fulfill its obligation to deliver the
subject shipment in good condition.
Emphasis must be placed on the fact that Unitrans itself admitted, through
its own witness and general manager, Del Rosario, that in handling the
subject shipment and making sure that it was delivered to the consignee's
premises in good condition as the delivery/forwarding agent, Unitrans was
acting as a freight forwarding entity and an accredited non-vessel operating
common carrier.1âшphi1
Article 1735 of the Civil Code states that if the goods are lost, destroyed or
deteriorated, common carriers are presumed to have been at fault or to
have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733.
In turn, Article 1733 states that common carriers, from the nature of their
business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of
the passengers transported by them, according to all the circumstances of
each case.
Hence, jurisprudence holds that a common carrier is presumed to have
been negligent if it fails to prove that it exercised extraordinary vigilance
over the goods it transported. When the goods shipped are either lost or
arrived in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of
negligence to hold it liable. To overcome the presumption of negligence, the
common carrier must establish by adequate proof that it exercised
extraordinary diligence over the goods. It must do more than merely show
that some other party could be responsible for the damage.34
In the instant case, considering that it is undisputed that the subject goods
were severely damaged, the presumption of negligence on the part of the
common carrier, i.e., Unitrans, arose. Hence, it had to discharge the burden,
by way of adequate proof, that it exercised extraordinary diligence over the
goods; it is not enough to show that some other party might have been
12
responsible for the damage. Unitrans failed to discharge this burden. Hence,
it cannot escape liability.
With respect to Unitrans' argument that it was unfair for it to be subjected to
sole liability, as aptly explained by the RTC in its Decision, Unitrans itself,
through its own witness, Del Rosario, "declared [that TSA] never had an
occasion to handle this subject cargo."35 Hence, the RTC noted that "[t]he
witness for [petitioner] Unitrans has practically exempted [respondent TSA]
when he stated that the subject cargo [was] never in possession of [TSA].
Thus, [respondent TSA] could not be made liable for [this] obvious
reason."36
Hence, for the reasons explained above, the Court is not convinced of
Unitrans' argument that the RTC's Decision violated Section 14, Article VIII
of the 1987 Constitution. To the contrary, the Court finds that the RTC's
Decision clearly and distinctively narrated the facts and the applicable law;
the RTC's Decision clearly explained the reason why Unitrans is the entity
imposed with the liability.
WHEREFORE, premised considered, the instant Petition is hereby DENIED.
The Decision dated October 27, 2011 and Resolution dated October 12,
2012 rendered by the Court of Appeals in CA-G.R. CV No. 95367 are
AFFIRMED with MODIFICATION. The total of the amount adjudged against
petitioner and the 6% interest thereon computed by the RTC from its
Decision until finality shall earn interest at 6% per annum from finality of this
Decision until fully paid plus cost of suit.
SO ORDERED.
SECOND DIVISION
[ G.R. No. 194126, October 17, 2018 ]
INDUSTRIAL PERSONNEL AND MANAGEMENT SERVICES, INC.,
PETITIONER, V. COUNTRY BANKERS INSURANCE CORPORATION,
RESPONDENT.
DECISION
CAGUIOA, J:
Before this Court is a Petition for Review on Certiorari[1] (Petition) under
Rule 45 of the Rules of Court filed by petitioner Industrial Personnel and
Management Services, Inc. (IPAMS) assailing the Decision[2] dated
October 14, 2010 (assailed Decision) of the Court of Appeals (CA) Eleventh
Division in CA-G.R. SP No. 114683, which reversed and set aside the
following rulings:
the Resolution[3] dated June 26, 2007 and Order[4] dated December 4,
2007 issued by the Insurance Commission (IC);
the Decision[5] dated September 17, 2008 and Resolution[6] dated April 29,
2009 issued by the Department of Finance (DOF); and
the Decision[7] dated January 8, 2010 and Resolution[8] dated June 1, 2010
issued by the Office of the President (OP).
These issuances upheld the ruling of the IC that respondent Country
Bankers Corporation (Country Bankers) shall be subjected to disciplinary
action pursuant to Section 241 (now Section 247) and Section 247 (now
Section 254) of the Insurance Code, as amended,[9] if respondent Country
Bankers does not settle the subject claims presented by petitioner IPAMS.
The Facts and Antecedent Proceedings
As narrated by the CA in its assailed Decision, the essential facts and
antecedent proceedings of the instant case are as follows:
In 2000, Industrial Personnel and Management Services, Inc. (IPAMS)
began recruiting registered nurses for work deployment in the United States
of America (U.S.). It takes eighteen (18) to twenty four (24) months for the
13
entire immigration process to complete. As the process requires huge
amounts of money, such amounts are advanced [to] the nurse applicants.
By reason of the advances made to the nurse applicants, the latter were
required to post surety bond. The purpose of the bond is to guarantee the
following during its validity period: (a) that they will comply with the entire
immigration process, (b) that they will complete the documents required,
and (c) that they will pass all the qualifying examinations for the issuance of
immigration visa. The Country Bankers Insurance Corporation (Country
Bankers for brevity) and IPAMS agreed to provide bonds for the said
nurses. [Under the agreement of IPAMS and Country Bankers, the latter will
provide surety bonds and the premiums therefor were paid by IPAMS on
behalf of the nurse applicants.[10]]
[The surety bonds issued specifically state that the liability of the surety
company, i.e., respondent Country Bankers, "shall be limited only to actual
damages arising from Breach of Contract by the applicant."[11]]
A Memorandum of Agreement (MOA) was executed by the said parties on
February 1, 2002 [which stipulated the various requirements for collecting
claims from Country Bankers, namely:
B. REQUIREMENTS FOR CLAIM
Requirements are as follows:
SURETY BOND:
1st demand letter requiring his/her to submit complete documents.
2nd Demand letter (follow up of above).
Affidavit stating reason of any violation to be executed by responsible officer
of Recruitment Agency;
Statement of Account (detailed expenses).
Transmittal Claim Letter.[12] (Emphasis and underscoring in the original)]
[On the basis of the MOA, IPAMS submitted its claims under the surety
bonds issued by Country Bankers. For its part, Country Bankers, upon
receipt of the documents enumerated under the MOA, paid the claims to
IPAMS.[13]] According to IPAMS, starting 2004, some of its claims were not
anymore settled by Country Bankers.
[In 2004, Country Bankers was not able to pay six (6) claims of IPAMS. The
claims were not denied by Country Bankers, which instead asked for time
within which to pay the claims, as it alleged to be cash strapped at that time.
Thereafter, the number of unpaid claims increased. By February 16, 2007,
the total amount of unpaid claims was P11,309,411.56.
IPAMS took the matter up with the General Manager of Country Bankers,
Mr. Ignacio Ong (Ong). In response, Country Bankers, through its letter[14]
dated November 14, 2005 signed by Mr. Ong, acknowledged the obligations
of Country Bankers, apologized for the delay in the payment of claims, and
proposed to amortize the settlement of claims by paying a semi-monthly
amount of P850,000.00. In addition, Country Bankers promised to pay
future claims within a ninety (90)-day period. That commitment made by
Country Bankers was not fulfilled and IPAMS had to deal with Country
Bankers' new General Manager, Ms. Tess Valeriano (Valeriano). Ms.
Valeriano assured IPAMS that the obligations of Country Bankers would be
paid promptly.
However, the counsel of Country Bankers, Atty. Marisol Caleja, started to
oppose the payment of claims and insisted on the production of official
receipts of IPAMS on the expenses it incurred for the application of nurses.
IPAMS opposed this, saying that the Country Bankers' insistence on the
production of official receipts was contrary to, and not contemplated in, the
MOA and was an impossible condition considering that the U.S. authorities
did not issue official receipts. In lieu of official receipts, IPAMS submitted
statements of accounts, as provided in the MOA.[15]]
Then, [in a letter[16] dated August 22, 2006,] Country Bankers limited the
authority of its agent [assigned to the accounts of IPAMS,] Mr. Jaime C.
Lacaba [(Lacaba),] to transact business with IPAMS.
14
[Due to the unwillingness of Country Bankers to settle the claims of IPAMS, A motion to reconsider the x x x aforementioned decision was filed but was
the latter sought the intervention of the IC, through a letter-complaint dated denied [by the DOF in its Resolution[22] dated] April 29, 2009.
February 9, 2007.[17] ]

On appeal to the [OP], the ruling of the [DOF] was affirmed in a

Country Bankers on the other hand alleged that until the third quarter of
2006, it never received any complaint from IPAMS. Due to remarkable high
loss ratio of IPAMS, the latter's accounts were evaluated and audited by the
Country Bankers. The IPAMS was informed of the same problem. Instead of
complying with the requirements for claim processes, IPAMS insisted that
the supporting documents cannot be produced.
[D]ecision[23] docketed as O.P. Case No. 09-E-190 and dated January 8,
2010[:
WHEREFORE, herein appeal is DISMISSED for lack of merit. The Decision
of the Secretary of Finance dated September 17, 2008 and its Resolution
dated April 29, 2009 are hereby AFFIRMED.][24]

[The] [c]ontending parties went to a series of conferences to settle the

differences but to no avail. The [IC] therefore ordered the parties to submit A subsequent motion to reconsider the same was denied by the said office
[their] respective Position Papers.[18] On June 26, 2007, the Claims in its [R]esolution[25] dated June 1, 2010.
Division of the [IC] [issued] a [R]esolution[19] declaring the following:
"IN VIEW OF THE FOREGOING, this Commission believes and so holds
that there is no ground for the refusal of CBIC to pay the claims of IPAMS. Hence, [the] instant [P]etition [for Review filed by respondent Country
Its failure to settle the claim after having entered into an Agreement with the Bankers before the CA under Rule 43 of the Rules of Court.][26]
complainant, IPAMS, demonstrates respondent's bad faith in the fulfillment
of their obligation, to the prejudice of the complainant.
The Ruling of the CA
Accordingly, we find the insurance company liable to settle the subject claim
otherwise, this Commission shall be constrained to take disciplinary action
pursuant to Sections 241 and 247 of the Insurance Code, as amended."
(Underscoring supplied) In its assailed Decision, the CA granted the Rule 43 Petition filed by
respondent Country Bankers, reversing and setting aside the rulings of the
The move by Country Bankers to reconsider the above resolution was IC, DOF, and OP, the dispositive portion of which states:
denied by the [IC] in an [O]rder[20] dated December 4, 2007.
Country Bankers made an appeal before the [DOF]. The [DOF] decided to
affirm the assailed orders of the [IC]. The dispositive portion of the said WHEREFORE, premises considered, the petition is GRANTED and the
[D]ecision[21] [dated September 30, 2008] reads: following issuances are hereby REVERSED and SET ASIDE:

"WHEREFORE, foregoing premises considered, the questioned Resolution

of the Commission dated June 26, 2007, as reiterated in its Order dated June 1, 2010 decision of the Office of the President in O.P. Case No. 09-E-
December 7, 2007, is hereby AFFIRMED and that the same be 190;
implemented in accordance with Sec. 241, in relation to Sec. 247 of the
Insurance Code and other pertinent rules and regulations on the matter."

15
January 8, 2010 decision of the Office of the President in O.P. Case No. 09-
E-190;
Department of Finance resolution dated April 29, 2009;
Department of Finance decision dated September 17, 2008;
Insurance Commission order dated December 4, 2007; and the
Insurance Commission resolution dated June 26, 2007.
SO ORDERED.[27] (Emphasis in the original)
The CA held that respondent Country Bankers was justified in delaying the
payment of the claims to petitioner IPAMS because of the purported lack of
submission by petitioner IPAMS of official receipts and other "competent
proof[28] on the expenses incurred by petitioner IPAMS in its recruitment of
nurse applicants. The CA held that Section 241 (now Section 247) of the
Insurance Code, which defines an unfair claim settlement practice, and
Section 247 (now Section 254), which provides for the suspension or
revocation of the insurer's authority to conduct business, should not be
made to apply to respondent Country Bankers because of the failure of
petitioner IPAMS to provide competent proof of its claims.
Instead of filing a motion for reconsideration, petitioner IPAMS decided to
directly file the instant Petition[29] dated November 2, 2010 on November 4,
2010 before the Court.
On April 4, 2011, respondent Country Bankers filed its Comment (To
Petition for Review on Certiorari dated November 2, 2010).[30] On August
18, 2011, petitioner IPAMS filed its Reply.[31]
Issue
Stripped to its core, the present Petition asks the Court to resolve whether
the CA erred in issuing its assailed Decision which reversed and set aside
the rulings of the IC, DOF, and OP, which found that respondent Country
Bankers has no ground to refuse the payment of petitioner IPAMS' claims
and shall accordingly be subjected to disciplinary action pursuant to
Sections 241 (now Section 247) and 247 (now Section 254) of the
Insurance Code if the latter does not settle the subject claims of petitioner
IPAMS.
The Court's Ruling
The appeal is partly meritorious.
In reversing and setting aside the rulings of the IC, DOF, and OP, the CA, in
the main, found that as provisions of applicable law are deemed written into
contracts, Article 2199 of the Civil Code[32] should be applied regarding the
MOA between petitioner IPAMS and respondent Country Bankers. The CA
reasoned that since "[c]ompetent proof x x x must be presented to justify
award for actual damages,"[33] respondent Country Bankers was correct in
not paying the subject claims of petitioner IPAMS because the latter failed to
present official receipts and other "competent" evidence establishing the
actual costs and expenses incurred by petitioner IPAMS.
Apparently, the CA concurred with the reason posited by respondent
Country Bankers for not paying the claims presented by petitioner IPAMS,
i.e., the failure of petitioner IPAMS to present official receipts of expenses it
incurred. Consequently, the CA found that mere Statements of Accounts
with detailed expenses, without accompanying official receipts or any other
"competent" evidence, cannot prove actual expenses. Hence, respondent
Country Bankers was supposedly justified in not paying the claims of
petitioner IPAMS.
Autonomy of Contracts
At the onset, it is important to note that according to the autonomy
characteristic of contracts, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy.[34]
16
The stipulation of the MOA at issue is the provision enumerating
requirements (Requirements for Claim Clause) that must be presented by
petitioner IPAMS in order to make a valid claim against the surety bond. To
reiterate, the Requirements for Claim Clause provides:
B. REQUIREMENTS FOR CLAIM
Requirements are as follows:
SURETY BOND:
F. 1st demand letter requiring his/her to submit complete documents.
G. 2nd Demand letter (follow up of above).
H. Affidavit stating reason of any violation to be executed by responsible
office of Recruitment Agency;
I. Statement of Account (detailed expenses).
J. Transmittal Claim Letter.[35] (Emphasis and underscoring in the original)
Petitioner IPAMS and respondent Country Bankers in essence made a
stipulation to the effect that mere demand letters, affidavits, and statements
of accounts are enough proof of actual damages — that more direct and
concrete proofs of expenditures by the petitioner such as official receipts
have been dispensed with in order to prove actual losses.
As to why the parties agreed on the sufficiency of the listed requirements
under the MOA goes into the motives of the parties, which is not hard to
understand, considering that the covered transactions, i.e., the processing
of applications of nurses in the U.S., are generally not subject to the
issuance of official receipts by the U.S. government and its agencies.[36]
Considering the foregoing, the question is crystallized: Can the parties
stipulate on the requirements that must be presented in order to claim
against a surety bond? And the answer is a definite YES, pursuant to the
autonomy characteristic of contracts, they can. In an insurance contract,
founded on the autonomy of contracts, the parties are generally not
prevented from imposing the terms and conditions that determine the
contract's obligatory force.[37]
Thus, the view posited by the CA that the Requirements for Claim Clause is
contrary to law because it is incongruent with Article 2199 of the Civil Code
and, therefore, an exception to the rule on autonomy of contracts is
erroneous. A more thorough examination of Article 2199 does not support
the CA's view.
Article 2199 of the Civil Code states:
Article 2199. Except as provided by law or by stipulation, one is entitled to
an adequate compensation only for such pecuniary loss suffered by him as
he has duly proved. Such compensation is referred to as actual or
compensatory damages. (Emphasis and underscoring supplied)
The law is clear and unequivocal when it states that one is entitled to
adequate compensation for pecuniary loss only for such losses as he has
duly proved EXCEPT: (1) when the law provides otherwise, or (2) by
stipulation of the parties. Otherwise stated, the amount of actual damages is
limited to losses that were actually incurred and proven, except when the
law provides otherwise, or when the parties stipulate that actual damages
are not limited to the actual losses incurred or that actual damages are to be
proven by specific documents agreed upon.
The submission of official receipts and other pieces of evidence as a
prerequisite for the payment of claims is excused by stipulation of the
parties; and in lieu thereof, the presentation of statement of accounts with
detailed expenses, demand letters, and affidavits is, by express stipulation,
sufficient evidence for the payment of claims.
To reiterate, Article 2199 of the Civil Code explicitly provides that the
prerequisite of proof for the recovery of actual damages is not absolute. This
was illustrated in People of the Philippines v. Jonjie Eso y Hungoy, et al.,
[38] wherein this Court held that the requirement of providing actual proof
found under Article 2199 for the recovery of actual and compensatory
damages (in that case, funeral expenses) may. be dispensed with,
considering that there was a stipulation to that effect made by the parties.
17

In the instant case, it is not disputed by any party that in the MOA entered
into by the petitioner IPAMS and respondent Country Bankers, the parties
expressly agreed upon a list of requirements to be fulfilled by the petitioner
in order to claim from respondent Country Bankers under the surety bond.
Hence, it is crystal clear that the petitioner IPAMS and respondent Country
Bankers, by express stipulation, agreed that in order for the former to have
a valid claim under the surety bond, the only requirements that need to be
submitted are the two demand letters, an Affidavit stating reason of any
violation to be executed by responsible officer of the Recruitment Agency, a
Statement of Account detailing the expenses incurred, and the Transmittal
Claim Letter. Evidently, the parties did not include as preconditions for the
payment of claims the submission of official receipts or any other more
direct or concrete piece of evidence to substantiate the expenditures of
petitioner IPAMS. If the parties truly had the intention of treating the
submission of official receipts as a requirement for the payment of claims,
they would have included such requirement in the MOA. But they did not.
It is elementary that when the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there
can be no evidence on such terms other than the contents of the written
agreement.[39] Further, when the terms of the contract are clear and leave
no doubt upon the intention of the contracting parties, the stipulations of the
parties are controlling.[40]
In the case at hand, respondent Country Banker failed to present any
compelling evidence that convinces the Court that the parties had the
intention of adding requirements other than the five requirements for
payment of claims enumerated in the Requirements for Claim Clause. On
the contrary, several circumstances show that the submission of official
receipts was really NOT intended by the parties to be a precondition for the
payment of claims.
As found by the OP in its Decision dated January 8, 2010, respondent
Country Bankers "knew as a matter of IPAMS' regular course of business
that these covered transactions are generally not issued official receipts by
US government and its agencies and the US based professional
organizations and institutions involved to complete the requirements for the
issuance of an immigrant visa."[41]
Further, as found by the IC in its Resolution dated June 26, 2007, which the
CA did not controvert in its assailed Decision, respondent Country Bankers
had previously admitted liability and promised to make payment on similar
claims under the surety agreement even without the submission of official
receipts.[42] In fact, respondent Country Bankers had previously paid
similar claims made by petitioner IPAMS on the basis of the same set of
documents, even without the submission of official receipts and other pieces
of evidence.
As the contemporaneous and subsequent acts of the contracting parties
shall be principally considered in determining the intention of the parties,[43]
and that, by virtue of estoppel, an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as
against the person relying thereon,[44] the prior actuations of respondent
Country Bankers clearly establish that it did not intend the submission of
official receipts to be a prerequisite for the payment of claims. Respondent
Country Bankers is therefore estopped from claiming that the submission of
official receipts and other "competent proof” is a further requirement for the
payment of claims.
Hence, the Court finds that, by stipulation of petitioner IPAMS and
respondent Country Bankers in their MOA, the parties waived the
requirement of actually proving the expenses incurred by petitioner IPAMS
through the submission of official receipts and other documentary evidence.
Thus, respondent Country Bankers was not justified in denying the payment
of claims presented by petitioner IPAMS based on the lack of official
receipts.
Under the Insurance Code, all defects in the proof of loss, which the insured
might remedy, are waived as grounds for objection when the insurer omits
to specify to him without unnecessary delay.
While placing utmost concentration on Article 2199 of the Civil Code in
ruling that competent proof is required for the payment of the subject claims,
18
the assailed Decision of the CA failed to take into consideration the
applicable provisions of the Insurance Code.
The subject agreement of the parties indubitably contemplates a surety
agreement,[45] which is governed mainly by the Insurance Code,
considering that a contract of suretyship shall be deemed an insurance
contract within the contemplation of the Insurance Code if made by a surety
which is doing an insurance business.[46] In this case, the surety, i.e.,
respondent Country Bankers, is admittedly an insurance company engaged
in the business of insurance. In fact, the CA itself in its assailed Decision
mentioned that a contract of suretyship is defined and covered by the
Insurance Code.[47]
Moreover, the Insurance Code[48] specifically provides applicable
provisions on suretyship, stating that pertinent provisions of the Civil Code
shall only apply suppletorily whenever necessary in interpreting the
provisions of a contract of suretyship.[49] Jurisprudence also holds that a
specific law should prevail over a law of general character.[50]
Hence, in the resolution of the instant case, the CA erred in not considering
the applicable provisions under the Insurance Code on the required proof of
loss and when such requirement is waivable.
Therefore, Section 92[51] of the Insurance Code must be taken into
consideration. The said provision states that all defects in the proof of loss,
which the insured might remedy, are waived as grounds for objection when
the insurer omits to specify to him without unnecessary delay. It is the duty
of the insurer to indicate the defects on the proofs of loss given, so that the
deficiencies may be supplied by the insured. When the insurer recognizes
his liability to pay the claim, there is waiver by the insurer of any defect in
the proof of loss.[52]
In the instant case, it must be emphasized that respondent Country
Bankers, through its General Manager, Mr. Ong, issued a letter dated
November 14, 2005 which readily acknowledged the obligations of Country
Bankers under the surety agreement, apologized for the delay in the
payment of claims, and proposed to amortize the settlement of claims by
paying a semi-monthly amount of P850,000.00.[53] In addition, Country
Bankers promised to pay future claims within a 90-day period:
First of all, allow us to apologize for the delay in our response to you
considering that we still had to do some reconciliation of our records with
that of Mr. Lacaba. After evaluating the total number of claims filed by
IPAMS, we have come up with the final figure of P20,575,492.25.
In this regard, we wish to propose to amortize the settlement of the said
amount by paying you the semi-monthly amount of P850,000.00 until the
entire amount of P20,575,492.25 is fully paid. With respect to future claims
(after the cut-off date, October 28, 2005), we shall see to it that they are
settled within the 90 days time frame allowed us.[54]
It bears stressing that respondent Country Bankers, after undergoing an
evaluation of the total number of claims of petitioner IPAMS, undertook the
settlement of such claims even WITHOUT the submission of official
receipts.
In fact, respondent Country Bankers raised up the issue on the missing
official receipts and other evidence to prove the expenses incurred by
petitioner IPAMS only when the latter requested the intervention of the IC in
2007. If respondent Country Bankers truly believed that the submission of
official receipts was critical in providing proof as to petitioner IPAMS' claims,
then it would have raised the issue on the lack of official receipts at the
earliest possible opportunity. This only shows that the argument of
respondent Country Bankers on the lack of official receipts was a mere
afterthought to evade its obligation to pay the claims presented by petitioner
IPAMS.
While not denying the existence of the said letter, respondent Country
Bankers attempts to downplay it by arguing that the claims covered by the
letter and the claims raised by petitioner IPAMS before the IC are different
and distinct from each other. Such argument deserves scant consideration.
19
While the claims in the said letter may be different from the specific claims
presented before the IC, both sets of claims were similarly made under the
same suretyship agreement between the parties. Thus, the fact still remains
that respondent Country Bankers had previously acknowledged the validity
of a set of claims under a surety bond within the purview of the
Requirements for Claim Clause despite the lack of official receipts and other
pieces of evidence aside from the required documents enumerated in the
MOA. To be sure, it must also be pointed out that the representations of
respondent Country Bankers in the said letter likewise refer to future and
similar claims of petitioner IPAMS. Hence, respondent Country Bankers'
attempt to downplay the ramifications of its letter dated November 14, 2005
is puerile.
Also, it must be emphasized that the IC, after holding a series of
conferences between the parties and after the assessment of the respective
position papers and evidence from both parties, made the factual finding in
its Resolution dated June 26, 2007 that respondent Country Bankers
committed certain acts constituting a waiver of its right to require the
presentation of additional documents to prove the expenses incurred by
petitioner IPAMS, such as the issuance of the letter dated November 14,
2005 and the acceptance by respondent Country Bankers of reimbursement
from the nurse applicants of petitioner IPAMS on the basis of the
Statements of Accounts presented, even without any official receipt
attached.[55] In fact, the records show that respondent Country Bankers
does not deny the fact that it accepted the reimbursements from the nurse
applicants based on the Statements of Accounts of petitioner IPAMS.[56]
Furthermore, the DOF likewise factually determined that respondent
Country Bankers, through its new General Manager, Ms. Valeriano, had
assured IPAMS that the obligations of Country Bankers would be paid
promptly, again, even without the submission of official receipts and other
pieces of evidence.[57] The DOF similarly found that the proposal by
respondent Country Bankers to amortize the settlement of petitioner IPAMS'
claims by paying the latter the semi-monthly amount of P850,000.00 and
respondent Country Bankers' acceptance of reimbursements from the
nurse applicants based on the mere Statements of Accounts submitted by
petitioner IPAMS are tantamount to an acknowledgment on the part of
respondent Country Bankers of its liability for claims under the surety bonds.
Moreover, the OP also factually found that respondent Country Bankers
"knew as a matter of IPAMS' regular course of business that these covered
transactions are generally not issued official receipts by US government and
its agencies and the US based professional organizations and institutions
involved to complete the requirements for the issuance of an immigrant
visa."[58]
These factual findings of three separate administrative agencies, which
were not at all reversed or refuted by the CA in its assailed Decision, should
not be perturbed by the Court without any compelling countervailing reason.
The Court has continuously adopted the policy of respecting the findings of
facts of specialized administrative agencies.
In Villafor v. Court of Appeals,[59] the Court held that the findings of fact of
an administrative agency must be respected as long as they are supported
by substantial evidence, even if such evidence might not be overwhelming
or even preponderant, because it is not the task of an appellate court to
weigh once more the evidence submitted before the administrative body
and to substitute its own judgment for that of the administrative agency in
respect of sufficiency of evidence.[60]
Hence, considering that the IC, through the Insurance Commissioner, is
particularly tasked by the Insurance Code to issue such rulings, instructions,
circulars, orders and decisions as may be deemed necessary to secure the
enforcement of the provisions of the law, to ensure the efficient regulation of
the insurance industry, and considering that there are no compelling
reasons provided by respondent Country Bankers to overthrow the IC's
factual findings, the Court upholds the findings of the IC, as concurred in by
both the DOF and OP, that respondent Country Bankers committed certain
acts constituting a waiver of its right to require the presentation of additional
documents to prove the expenses incurred by petitioner IPAMS.
Accordingly, under Section 92 of the Insurance Code, the failure to attach
official receipts and other documents evidencing the expenses incurred by
petitioner IPAMS, even assuming that it can be considered a defect on the
20
required proof of loss, is therefore considered waived as ground for
objecting the claims of petitioner IPAMS.
For the foregoing reasons, the ruling of the CA, which sets aside the rulings
of the IC, DOF, and OP, which found that respondent Country Bankers has
no ground to refuse the payment of petitioner IPAMS' claims and shall
accordingly be subjected to disciplinary action pursuant to Sections 241
(now Section 247) and 247 (now Section 254) of the Insurance Code if the
latter does not settle the subject claims of petitioner IPAMS, should be
reversed.
Be that as it may, despite the reversal of the CA's assailed Decision,
petitioner IPAMS' prayers for (1) the suspension/revocation of the license of
respondent Country Bankers due to its commission of an unfair claim
settlement practice for unreasonable delay in paying petitioner IPAMS' claim
for the total amount of P21,230,643.19; (2) awarding of a total amount of
P21,230,643.19 and 20% thereof; and (3) awarding of moral and exemplary
damages, as well as attorney's fees and judicial costs, are denied.
It must be stressed that the instant case resolved by the Court is not a
claims adjudication case. The subject Resolution and Order of the IC that
was concurred in by the DOF and OP, which the Court now reinstates, were
issued in the IC's capacity as a regulator and not as an adjudicator of
claims, as admitted by the IC itself.[61] Hence, while the Court herein
reinstates the IC's Resolution finding that disciplinary action is warranted in
the eventuality that respondent Country Bankers continues to delay settling
the claims of petitioner IPAMS, the matter should be referred back to the IC
so that it could determine the remaining amount and extent of the liability
that should be settled by respondent Country Bankers in order to avoid the
IC's disciplinary action.
WHEREFORE, in view of the foregoing, the appeal is hereby PARTIALLY
GRANTED. The Decision dated October 14, 2010 issued by the Court of
Appeals in CA-G.R. SP No. 114683 is REVERSED AND SET ASIDE. The
Resolution dated June 26, 2007 and Order dated December 4, 2007 issued
by the Insurance Commission, the Decision dated September 17, 2008 and
Resolution dated April 29, 2009 issued by the Department of Finance, and
the Decision dated January 8, 2010 and Resolution dated June 1, 2010
issued by the Office of the President are REINSTATED and AFFIRMED.
SO ORDERED.
SURETY
G.R. No. 205007, September 16, 2019
THE MERCANTILE INSURANCE CO., INC., PETITIONER, v. DMCI-
LAING CONSTRUCTION, INC.,° RESPONDENT.
DECISION
CAGUIOA, J.:
This is a petition for review on certiorari1 (Petition) under Rule 45 of the
Rules of Court assailing the Decision2 dated July 30, 2012 (Assailed
Decision) and Resolution3 dated January 7, 2013 (Assailed Resolution)
rendered by the Court of Appeals (CA) in CA-G.R. SP. No. 80705.
The Assailed Decision and Resolution reverse the Decision4 promulgated on
November 7, 2003 issued by the Construction Industry Arbitration
Commission (CIAC) Arbitral Tribunal (Tribunal) in CIAC Case No. 10-2003
which, in turn, dismissed the claim filed by respondent DMCI Laing
Construction, Inc. (DLCI) against Altech Fabrication Industries, Inc. (Altech)
and petitioner The Mercantile Insurance Co., Inc. (Mercantile).
The Facts
The facts, as narrated by the CA, are as follows:
On March 17, 1997, Rockwell Land Corporation ("Rockwell"), as the owner
and developer, entered into an agreement with [DLCI], as the General
Contractor, for the construction of The Condominium Towers and
associated external landscaping works of Hidalgo Place, Rizal Tower, Luna
21
Garden, [and] Amorsolo Square (the "Project") at the Rockwell Center, Panels  %  No  %  No 
Makati City. Part of [DLCI's] scope of work in the Project [was] the supply
and installation of glazed aluminum and curtain walling. Part of the terms Hidalgo 4623  75%  3406  14%  664 
and conditions of the contract between Rockwell and DLCI (the "Main Rizal 4830  60%  2919  5%  264 
Contract") [was] the appointment of [Altech] as Rockwell's nominated Luna 3100  36% 1110 NIL NIL
sub[-]contractor to DLCI for the supply and installation of glazed aluminum
and curtain walling. Amorsolo [east and 3500 35% 1235 NIL NIL
west]
On July 30, 1997, in compliance with the agreement between Rockwell and Project Total    16,053  54%    8670  6%  928
DLCI, Rockwell sent a Notice of Award to Proceed [(NTP)] to Altech for the
supply and installation of the glazed aluminum and curtain walling at the
Project. Said [NTP] bears the conformity of DLCI and Altech. We would record that this situation is totally unacceptable, and we hereby
request, in compliance with the proposed sub-contract conditions, the
Pursuant to the [NTP] and the Sub-Contract Agreement [(Sub Contract)] submission of your revised sub-contract works programme and recovery
between DLCI and Altech, Altech secured a Performance Bond from proposals identifying the methodology by which the agreed completion
Mercantile for its scope of work in the [P]roject. On September 5, 1997, dates for your works are to be maintained.
Mercantile, as surety, with Altech, as principal, issued Performance Bond
No. G(13)-1500/97 in favor of Rockwell and DLCI, as obligee, for the x x x x
amount of PhP90,448,941.60.
We would remind you that as a direct consequence of these delays[,] Altech
On September 8, 1997, Mercantile issued [B]ond [E]ndorsement No. E- maybe held liable for x x x any costs, losses or expenses caused by the
109/97 ST, correcting the effectivity of the Performance Bond from delays, and subsequently suffered by DLCI.7
September 5, 1997 to September 5, 1999. Thereafter, on September 12,
1997, Mercantile issued [B]ond [E]ndorsement No. E-116/97 ST, correcting
the obligee of the [P]erformance [B]ond to DLCI alone, and not in favor DLCI was constrained, in several instances, to undertake the completion
of Rockwell and DLCI. Subsequently, on August 26, 1999, Mercantile and rectification of unfinished and sub-par works to avert further delay. DLCI
issued [B]ond [E]ndorsement [N]o. E-220/99 ST, extending the effectivity apprised Altech of these instances, as well as its intention to charge the
of the Performance Bond for another six (6) months from September 5, corresponding costs against Altech's account.8
1999 to March 5, 2000.5 (Emphasis supplied)
On September 3, 1999, DLCI sent a letter to Mercantile, demanding
"liquidation of the [Performance Bond]" with interest at the stipulated
On November 9, 1998, DLCI called Altech's attention to the poor progress of rate of 2o/o per month (First Call).9 DLCI's First Call was reiterated in its
the works subject of their Sub-Contract in its Letter 6 addressed to Altech's subsequent letters dated September 30, 1999,10 October 18, 1999, 11 and
President and General Manager, Nicanor Peña: March 3, 2000.12 The First Call and the reiterative letters sent by DLCI
demanded the liquidation of the Performance Bond, but did not indicate the
[W]e detail below a programme status report of your installation works- exact amount claimed.13
Panel installation at Rockwell as [of] [November 7, 1998] On January 20, 2000, Altech advised DLCI that it had relinquished its major
assets to its bank: due to financial difficulties. 14 Nevertheless, Altech
                                            assured DLCI that it "[would] continue to provide [its] whole hearted support
Total    Planned   Planned Actual Actual in terms of the logistical needs of the [P]roject." 15

22
On February 21, 2000, DLCI terminated its Sub-Contract with Altech
effective immediately. The Termination Letter reads, in part:
This termination is due to [Altech's] failure x x x to perform in accordance
with the agreed terms of the sub-contract stipulated in the Notice of Award
as well as in the documents referred to therein such as, but not limited to,
the [Sub-Contract]. Despite numerous written communications from us,
[Altech has] failed to proceed with the sub-contract works with due
diligence and [has] consistently failed to meet the required quality
standards. Furthermore, [Altech has], by [its] own admission, entered into a
deed of arrangement with its creditors in which it surrendered its major
assets to the latter. The aforementioned acts are clearly events of default
falling under [Paragraph] 17 of the [Sub-Contract] which justify [its]
immediate termination x x x.
For purposes of record, we will conduct an assessment and evaluation of
the sub-contract works on Wednesday[,] [February 23, 2000] before we
formally take-over the same. We invite you to send your representatives to
witness the assessment.
We reserve the right to claim from [Altech] reimbursement of all costs,
as well as compensation for all damages, arising from [Altech's]
default, including but not limited to costs of both direct and
consequential delays. Likewise, we reserve the right to claim the
refund of any payment which, after a review of your accomplishment
and records, may be found to have been not due or wrongly paid to
[Altech].16 (Emphasis supplied)
Subsequently, Mercantile advised DLCI that it had referred its demand to
Altech for appropriate action through its Letter17 dated March 13, 2000. On
March 28, 2000, Mercantile advised DLCI that since Altech had informed
them that negotiations were underway for an amicable settlement, they
would hold further evaluation of DLCI's claim in abeyance "to give enough
elbow room to [Altech] to settle [the claim] on [its] own." 18
After negotiations between DLCI and Altech fell through, DLCI reiterated its
demand for liquidation on November 28, 2000.19
Mercantile denied DLCI's claim on February 26, 2001 on the ground that the
Performance Bond expired on March 5, 2000. 20
Aggrieved, DLCI filed a complaint against Altech and Mercantile before the
CIAC (CIAC Complaint) on May 29, 2003,21 seeking to collect the sum of
Php31,618,494.81 representing the costs it allegedly incurred to complete
the sub-contracted works, with interest and costs of litigation. 22
Despite earnest efforts to serve the CIAC Complaint upon Altech, DLCI was
unable to do so since Altech was no longer holding office at its registered
principal address. Its corporate officers refused to respond to the CIAC
Complaint.23
For its part, Mercantile argued that DLCI failed to file the CIAC Complaint
within a "reasonable period of time" as required by the Sub Contract.24 In
addition, Mercantile challenged the validity of the termination of the Sub-
Contract, as well as DLCI's right to claim against the Performance Bond. 25
CIAC Ruling
In a Decision promulgated on November 7, 2003, the Tribunal dismissed
DLCI's Complaint.26
The Tribunal ruled that DLCI did not file the CIAC Complaint within a
reasonable period, as required by Section 2, Paragraph 25 of the Sub
Contract, which states:
x x x Notice of the demand for arbitration of a dispute shall be filed in writing
with the other party to the Sub-Contractor. The demand for arbitration shall
be made within a reasonable time after the dispute has arisen and attempts
to settle amicably have failed. In no case, however, shall the demand be
made later than the time of final payment, except as otherwise stipulated in
the Sub-Contract.27 (Italics omitted)
According to the Tribunal, DLCI was unable to justify why it waited for more
than three (3) years and three (3) months after termination of the Sub-
Contract before filing the CIAC Complaint. 28 According to the Tribunal,
DLCI's delay amounts to a violation of the Sub-Contract, and triggers the
application of laches.29
Moreover, the Tribunal held that Mercantile should be released from its
obligations under the Performance Bond pursuant to Article 2080 of the Civil
Code,30 since DLCI's delay had deprived it of the opportunity to exercise its
right of subrogation against Altech.31 It held:
23
It is not controverted that when [DLCI] filed its claim with CIAC on [May 29,
2003], [Altech] could no longer be found and efforts to serve it with the letter
request for arbitration proved futile. As already held x x x [DLCI] is found
guilty of inexcusable delay in filing this claim for arbitration. The
consequence of this delay is to deprive [Mercantile] of its right to go after
[Altech] on a cross-claim in this suit. This surely deprives [Mercantile] of its
right of subrogation against Altech as [i]ndemnitor in the Performance Bond.
x x x [I]n accordance with the provisions of Article 2080 x x x [Mercantile] is
"released from its obligation" under the [P]erformance [B]ond.32
The Tribunal also ruled that DLCI's First Call was not a valid demand since
it did not indicate the specific amount DLCI sought to recover from
Mercantile.33 Consequently, the Tribunal concluded that DLCI's claim is
already barred, since the Performance Bond had already expired two (2)
years before DLCI finally ascertained the total amount of its claim. 34
In addition, the Tribunal found the termination of the Sub-Contract
unjustified, as DLCI's own Project Financial Manager John O'Connor
admitted that Altech achieved 95% accomplishment as of the month of
termination. According to the Tribunal, 95% work accomplishment qualifies
as substantial completion under the Uniform General Conditions of Contract
for Private Construction prescribed by the Construction Industry Authority of
the Philippines (CIAP) in CIAP Document 102. 35
In any case, the Tribunal held that DLCI is not entitled to reimbursement for
costs it had incurred in order to complete the Project, since its claims
consist of expenses incurred after the unilateral termination of the Sub-
Contract; it emphasized that the term "cost to complete" assumes a definite
meaning in the const1uction industry, and relates to "the right of the owner
(or in this case, the main contractor) to collect damages against the
contractor (in this case, the sub-contractor) for the latter's failure to complete
the work as stipulated, prompting the former to take-over the project and
complete the work by administration or by a different contractor." 36
Aggrieved, DLCI filed a petition for review before the CA, insisting on its
right to claim against the Performance Bond.
CA Ruling
The CA granted DLCI's petition for review through the Assailed Decision,
the dispositive portion of which reads:
WHEREFORE, the instant petition is GRANTED. The [CIAC Decision] is
REVERSED and SET ASIDE. [Altech] and [Mercantile] are jointly and
solidarily liable to pay [DLCI] the amount of Php31,618,494.81
representing the costs incurred by [DLCI] in completing the project
and an interest at the rate of 2% per month on the said amount due
from September 3, 1999 until the amount of Php31,618,494.81 is fully
paid. Furthermore, a 12% interest per annum shall be imposed on the
award upon the finality of this Decision until the payment
thereof.37 (Emphasis supplied; emphasis in the original omitted)
The CA observed that negotiations between and among DLCI, Altech and
Mercantile continued after the termination of the Sub-Contract, and that
DLCI served its final written demand38 upon Altech and Mercantile on
January 20, 2003. A meeting between DLCI and Mercantile's
representatives followed on .January 27, 2003, where said parties mutually
agreed that attempts to arrive at an amicable settlement have failed. 39
Considering the foregoing, the CA ruled that the filing of the CIAC Complaint
four (4) months later, or on May 29, 2003, was done within a reasonable
time.40
The CA further held that Mercantile cannot invoke laches to evade liability in
this case since the CIAC Complaint was brought within the prescriptive
period of ten (10) years for filing an action upon a written contract (i.e., the
Performance Bond),41 inasmuch as DLCI's right of action only arose on
January 27, 2003, when negotiations between the parties ceased.
Ultimately, the CA found Mercantile liable under the Performance Bond.
Citing Article 2047 of the Civil Code governing suretyship, it held:
By executing the [P]erformance [B]ond, Mercantile, as surety, guaranteed
the performance and completion by Altech of its sub contracted works, and
in case of Altech's failure to complete the [P]roject according to the terms of
the Sub-Contract x x x, Mercantile's liability, as surety, sets in.
A careful review of the record[s] of the case revealed that Altech has
reneged on its undertaking under the Sub-Contract before DLCI asked
Mercantile for the liquidation of the [P]erformance [B]ond on September 3,
1999. On various dates, DLCI sent letters to Altech concerning the latter's
continued poor performance and delays which seriously affected the
progress of DLCI' s programmed work. DLCI mentioned that it may have no
other alternative but to seek recourse through the terms of the Sub-Contract
24
and that repair works, as well as, associated costs as a result of damage to
other contractors' works due to Altech's delay shall be charged to Altech's The Court directed DLCI to file its comment on the Petition in its
account. Resolution53 dated March 18, 2013.

Apparently, Altech had already been in default even prior to DLCI's call DLCI filed its Comment54 on July 2, 2013, to which Mercantile filed its
on the [P]erformance [B]ond. By reason of said default, liability Reply.55
attached to Altech and as a consequence, the liability of Mercantile as
surety had arisen. By the language of the bond issued by Mercantile, it The Issue
guaranteed the full and faithful compliance by Altech of its obligations
set forth in its Sub-Contract with DLCI. This guarantee made by The Court is called upon to determine whether the CA erred when it directed
Mercantile gave DLCI the right to proceed against the former following Mercantile to pay DLCI the sum of Php31,618,494.81 on the basis of the
Altech's default or non-compliance with its obligation. 42 (Emphasis Performance Bond, with stipulated interest at the rate of 2% per month.
supplied)
The Court's Ruling
Contrary to the Tribunal's findings, the CA held that DLCI's First Call was
The Petition is denied for lack of merit. The Assailed Decision and
valid despite its failure to reflect the specific amount claimed. While DLCI's
Resolution are affirmed, with modification.
exact monetary claim was still undetermined at the time of the First Call, it
was already understood, by the terms of the Performance Bond, that such
The CIAC Complaint was timely filed.
amount would not exceed Php90,448,941.60. 43 In addition, the CA ruled that
Mercantile cannot escape its liability under the Performance Bond due to its
Foremost, Mercantile insists that the CIAC Complaint should have been
alleged expiration, considering that it was Mercantile's own inaction which
dismissed outright since DLCI failed to file it within a reasonable time. A
delayed the evaluation of DLCI's claim.44
plain reading of Section 2, Paragraph 25 of the Sub-Contract belies this
claim.
Further, the CA ruled that the termination of the Sub-Contract was justified
by Altech's consistent delay and poor workmanship, regardless of the level
Section 2, Paragraph 25 of the Sub-Contract requires that any demand for
of its accomplishment at the time of termination. 45 As a result, Mercantile is
arbitration between and among the parties shall be made within a
liable for the costs of completion claimed by DLCI having guaranteed the full
reasonable time after the dispute has arisen and attempts to settle
and faithful compliance of Altech's obligations under the Sub-Contract. 46
amicably have failed.56
Finally, while the CA found Mercantile liable to pay DLCI's claim, it fom1d no
Mercantile does not dispute that all efforts to arrive at an amicable
basis to hold it liable for costs of litigation and attorney's fees there being no
settlement proved futile on January 27, 2003,57 following its refusal to heed
evidence that the former acted in bad faith.47
DLCI's final demand for payment. Verily, the filing of the CIAC Complaint
four (4) months later, that is, on May 29, 2003, was done within a
Mercantile's motion for reconsideration was denied by the CA through the
reasonable time from the reckoning date set by Section 2, Paragraph 25 of
Assailed Resolution, which Mercantile received on January 10, 2013. 48
the Sub Contract.
On January 17, 2013, Mercantile filed a Motion for Extension of
DLCJ's demand for liquidation through
Time49 praying that it be granted a period of thirty (30) days, or until
the First Call was valid.
February 24, 201350 to file its Petition, which the Court granted.51
It is a well-established rule that a contract stands as the law between the
Mercantile filed the present Petition on February 20, 2013.52
parties for as long as it is not contrary to law, morals, good customs, public
25
order, or public policy.58 Hence, to determine the validity of DLCI's demand
for liquidation, reference to the conditions of the Performance Bond is
proper.
On the conditions for recovery, the Performance Bond states:
[T]his bond is conditioned x x x upon the OBLIGEE's [DLCI's] first
demand, the SURETY [(Mercantile)] shall immediately indemnify [DLCI]
notwithstanding any dispute to the effect that the principal has fulfilled
its contractual obligation, the amount demanded; PROVIDED however,
that the liability of [Mercantile] under this bond shall in no case exceed the x
x x sum [of Php90,448,941.60]. [Mercantile] further agrees to pay [DLCI]
interest at the rate of 2% per month on the amount due from the date of
rece[i]pt by [Mercantile] of [DLCI's] first demand letter up to the date of
actual payment.59 (Emphasis supplied; italics omitted)
By these terms, Mercantile obligated itself to pay DLCI immediately upon
demand, notwithstanding any dispute as to the fulfillment of Altech's
obligations under the Sub-Contract. The Performance Bond thus stands as
a contract of surety contemplated under Article 2047 of the Civil Code which
states:
ART. 2047. By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter should
fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book 60shall be
observed. In such case the contract is called a suretyship. (Emphasis
supplied)
Through a contract of suretyship, one party called the surety, guarantees
the performance by another party, called the principal or obligor, of an
obligation or undertaking in favor of another party, called the obligee. 61 As a
result, the surety is considered in law as being the same party as the debtor
in relation to whatever is adjudged touching upon the obligation of the latter,
and their liabilities are interwoven as to be inseparable. 62
While the contract of surety stands secondary to the principal obligation, the
surety's liability is direct, primary and absolute, albeit limited to the amount
for which the contract of surety is issued. 63 The surety's liability attaches the
moment a demand for payment is made by the creditor. The Court's ruling
in Trade and Investment Development Corporation of the Philippines v. Asia
Paces Corporation64 lends guidance:
x x x [S]ince the surety is a solidary debtor, it is not necessary that the
original debtor first failed to pay before the surety could be made
liable; it is enough that a demand for payment is made by the creditor
for the surety's liability to attach. Article 1216 of the Civil Code provides
that:
Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously.
The demand made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so long as the debt
has not been fully collected.65 (Emphasis supplied)
While the Performance Bond in this case is "conditioned" upon DLCI's first
demand, a close reading of its terms unequivocally indicates that
Mercantile's liability thereunder consists of a pure obligation since such
liability attaches immediately upon demand, and is neither dependent upon
any future or uncertain event, nor a past event unknown to the
parties.66 Thus, the Performance Bond is one that is callable on demand,
wherein mere demand triggers Mercantile's obligation (as surety) to
indemnify DLCI (the obligee) the amount for which said bond was issued,
that is, Php90,448,941.60.67
Accordingly, the requirement of "first demand" in this case should be
understood in light of Article 1169,68 wherein the obligee is deemed to be in
delay upon judicial or extra-judicial demand. Clearly, Mercantile's liability
became due upon its receipt of the First Call.
In this respect, DLCI's alleged failure to state the value of its claim is of no
moment. As astutely observed by the CA:
x x x [The Tribunal] makes much out of DLCI's failure to state the specific
amount that it is claiming. It must be emphasized that at the time of the call
on the bond, Mercantile's obligation guaranteeing project completion already
arose and it is understood that the exact amount, while still undetermined,
shall not exceed the amount of the bond [Php90,448,941.60].69
The Tribunal appears to have overlooked the fact that the First Call
26
demanded for the liquidation of the Performance Bond, that is, the payment
of the entire amount for which it was issued. Payments made in response to
DLCI's demand for liquidation would have then been subject
to subsequent adjustment following the final settlement of Altech and DLCI's
respective accounts. This much is clear from the terms of the Performance
Bond.70
The Performance Bond itself provides that Mercantile's liability is not
contingent upon the determination of the actual amount for which Altech is
liable. In the event of an overpayment, Mercantile can proceed against DLCI
based on the principle of unjust enrichment. 71 Any amount subject to
reimbursement would then assume the nature of a forbearance of money,
subject to legal interest.
In any case, it bears stressing that Mercantile made no mention of the
purported defect in DLCI's First Call at any time prior to the CIAC
proceedings. To recall, Mercantile premised its refusal to evaluate DLCI's
claim solely on the pending negotiations between DLCI and Altech.
Mercantile's objection regarding the validity and completeness of the First
Call, which it belatedly raised during the CIAC proceedings, appears to have
been an afterthought.
For these reasons, the Court finds Mercantile's refusal to evaluate DLCI's
claim unjustified.
DLCI is entitled to claim the costs it
incurred  as  a  consequence  of  Altech'
s delay and poor workmanship.
Under the Performance Bond, Altech and Mercantile jointly and severally
bound themselves "for the payment of the [Performance] Bond in the event
that Altech [should] fail to fully and faithfully undertake and complete its
scope of work in strict compliance with the general conditions, plans and
specifications, bill of quantities and other documents, which were [furnished
to] Altech x x x and which [were] incorporated in said Performance Bond x x
x by reference."72
In turn, the general conditions of the Sub-Contract between DLCI and Altech
provide:
6. Commencement [and] Completion
x x x x
(12) Time is an essential feature of the [Sub-Contract]. If [Altech] shall
fail to complete the Sub-Contract Works within the time or times
required by its obligations hereunder[, Altech] shall indemnify [DLCI]
for any costs, losses or expenses caused by such delay, including but
not limited to any liquidated damages or penalties for which [DLCI] may
become liable under the Main Contract as a result wholly or partly of
[Altech's] default x x x.
xxxx
17. [Altech's] Default
x x x x
(f) [If Altech] fails to execute the Sub-Contract works or to perform his
other obligations in accordance with the Sub-Contract after being
required in writing so to do by [DLCI]; x x x
x x x x
(3) [DLCI] may in lieu of giving a notice of termination x x x take part only of
the Sub-Contract Works out of the hands of [Altech] and may[,] by himself,
his servants or agents execute such part and in such event [DLCI] may
recover his reasonable costs of so doing from [Altech], or deduct such costs
from monies otherwise becoming due to [Altech]. 73 (Emphasis supplied;
italics omitted)
The records show that Altech failed to accomplish its work in a timely and
satisfactory manner. This is apparent from the correspondences,74 which
DLCI submitted as evidence. Mercantile had the full opportunity to contest
the truthfulness and veracity of these correspondences and the matters to
which they pertain. Instead of doing so, Mercantile merely argued that
DLCI's failure to "pray for Liquidated Damages and Cost for Rectification of
work" belies its claim of delay and poor workmanship.75
Mercantile's undue reliance on nomenclature does not support its cause. To
recall, the CIAC Complaint prayed for the payment of costs incurred to
complete the sub-contract works.76 These costs represent those incurred as
a consequence of Altech's delay and poor workmanship. Verily, these costs
are chargeable against the Performance Bond, inasmuch as the latter
stands as a guarantee for Altech's full and faithful compliance with the Sub-
27
Contract. Adjust
ment
Mercantile further attempts to evade liability on the Performance Bond by
drawing a distinction between first, costs incurred before and after   Additional works/dollar 107,532,754.60
termination of the Sub-Contract and also, between costs incurred to fluctuation
complete the project and those which are claimed due to overpayment.   Less: [Rockwell Debit ___(168,773,746.89)____
However, these distinctions are irrelevant to Mercantile's liability under the Memo]78 ___________________
Performance Bond.     (61,240,9
92.29)
At the risk of being repetitive, Mercantile's Performance Bond guarantees
Altech's full and faithful compliance with the Sub-Contract. Accordingly, the    
scope of the Performance Bond should be understood to cover all costs     391,003,
incurred by DLCI as a result of Altech's failure to comply with its obligations 715.71
under said agreement. To limit the scope of the Performance Bond only to
costs incurred before termination of the Sub Contract would be to create an    
additional condition for recovery which does not appear on the face of the 3.
Performance Bond. To stress, Mercantile's liability is conditioned only upon DLCI's
DLCI's first demand, "notwithstanding any dispute to the effect that the liabilitie
principal has fulfilled its contractual obligation [or] the amount demanded."77 s to
date
It is likewise erroneous for Mercantile to argue that DLCI's claim is a mere   Payment on Altech's letter 36,930,126.62
request for reimbursement for overpayment which falls outside of the scope of credit and telegraphic
of the Performance Bond. transfers79
Reference to DLCI's breakdown of claims is proper, thus:   Payment in favor of 5,485,386.43
Altech's local suppliers
1. Total       Interest expense80 240,709.94
sub-   Payment to Fuji Reynolds 81
1,763,819.91
contrac
t   Payment to J.A. 80,000.00
amount Shillinglaw82
  Aluminum works 361,451,520.00   Contra-charges83 ___1,236,609.26________
________________
  Glazing works __       
90,793,188.00__________
______________     (45,736,6
52.16)
  452,244,
708.00
4.
  Total
2. amoun

28
t paid Liability
by
DLCI
to Based on DLCI's breakdown of claims, the sub-contract price, after due
Altech adjustment,87 amounts to Php391,003,715.71.
  Measured worli:s less 297,125,482.52
charges Due to Altech's delay and poor workmanship, DLCI was constrained to incur
additional expenses to complete the sub-contract works, which, in turn,
  Additional works/dollar ___74,221,471.20_______ amounted to Php73,887,492.20.88 These expenses, when charged against
fluctuation _________________ Altech's account, bring down the total sub-contract price to
    (371,346, Php317,116,223.51.
953.72)
    It appears, however, that Altech was able to previously bill and receive
payment for accomplished work in the amount of Php371,346,953.7289 —
  Balance currently (26,079,8 an amount evidently more than what Altech is entitled to after taking DLCI's
remaining on Altech's 90.17) additional expenses for completion into account.
estimated final account
    Thus, DLCI's claim of Php31,618,494.81 represents the difference between
the adjusted sub-contract price of Php317,116,223.51 and DLCI's previous
5.        payments of Php371,346,953.72, less the retention amount which remains
Future _____________________ with DLCI. The fact that DLCI paid in excess of what Altech is now entitled
support ___________________ to under the Sub-Contract does not place the claim beyond the scope of the
/DLCI Performance Bond, inasmuch as the claim results from additional expenses
liabilitie incurred by DLCI to complete the sub-contract works — expenses which
s84 DLCI would not have otherwise incurred had Altech fully and faithfully
    (28,150,8 complied with its obligations under the Sub-Contract.
40.04)
        Altech's obligation to perform the specified works under the Sub Contract
constitutes an obligation to do. Obligations to do have as their object a
Retenti 22,612,235.40 prestation consisting of a performance of a certain activity which, in turn,
on cannot be exacted without exercising violence against the person of the
amount debtor.90 Accordingly, the debtor's failure to fulfill the prestation gives rise to
earlier the creditor's right to obtain from the latter's assets the satisfaction of the
withhel money value of the prestation.91
d from
Altech85 As Altech's surety, Mercantile is bound to answer for the costs incurred by
           DLCI as a consequence of the latter's non-fulfillment, pursuant to Article
==================== 1167 of the Civil Code:
=========
ART. 1167. If a person obliged to do something fails to do it, the same shall
Altech's (31,618,494.81)86 be executed at his cost.

29

This same rule shall be observed if he does it in contravention of the tenor
of the obligation. Furthermore, it may be decreed that what has been poorly
done be undone.
It is well to note that Mercantile had the opportunity to contest the costs
claimed by DLCI, but again, did not do so. Accordingly, the sum payable, as
computed by DLCI, stands.
Article  2080 of the Civil  Code  does not
apply.
In a last ditch effort to escape liability, Mercantile maintains that it should be
deemed released from its obligations under the Performance Bond as it had
been deprived of the opportunity to exercise its right of subrogation against
Altech due to DLCI's "inexcusable delay" in filing the CIAC Complaint.
Mercantile bases this assertion on Article 2080 of the Civil Code.
It has already been settled that no delay may be attributed to DLCI with
respect to the filing of the CIAC Complaint. Nevertheless, even if it is
assumed, for the sake of argument, that DLCI was in fact guilty of
inexcusable delay, Mercantile's argument still fails.
A plain reading of Article 2080 indicates that the article applies to
guarantors. Mercantile's position that the provision applies with equal force
to sureties fails to appreciate the fundamental distinctions between the
respective liabilities of a guarantor and a surety.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the
solvency of the debtor. A suretyship is an undertaking that the debt shall be
paid; a guaranty, an undertaking that the debtor shall pay. Stated differently,
a surety promises to pay the principal's debt if the principal will not pay,
while a guarantor agrees that the creditor, after proceeding against the
principal, may proceed against the guarantor if the principal is unable to
pay. A surety binds himself to perform if the principal does not,
without regard to his ability to do so. A guarantor, on the other hand,
does not contract that the principal will pay, but simply that he is able to do
so. In other words, a surety undertakes directly for the payment and is
so responsible at once if the principal debtor makes default, while a
guarantor contracts to pay if, by the use of due diligence, the debt
cannot be made out of the principal debtor. x x x92 (Emphasis supplied;
emphasis and underscoring in the original omitted)
In Bicol Savings  & Loan Association  v. Guinhawa,93 the Court
unequivocally ruled that Article 2080 applies only with respect to the liability
of a guarantor. The Court reiterated this ruling in the subsequent case
of Ang v. Associated Bank,94 where it held:
As petitioner acknowledged it to be, the relation between an
accommodation party and the accommodated party is one of principal and
surety — the accommodation party being the surety. As such, he is deemed
an original promisor and debtor from the beginning; he is considered in law
as the same party as the debtor in relation to whatever is adjudged touching
the obligation of the latter since their liabilities are interwoven as to be
inseparable. Although a contract of suretyship is in essence accessory or
collateral to a valid principal obligation, the surety's liability to the creditor
is immediate, primary and absolute; he is directly and equally bound with
the principal. As an equivalent of a regular party to the undertaking, a
surety becomes liable to the debt and duty of the principal obligor
even without possessing a direct or personal interest in the
obligations nor does he receive any benefit therefrom.
Contrary to petitioner's adamant stand, however, Article 2080 of the
Civil Code does not apply in a contract of suretyship. [Article] 2047 of
the Civil Code states that if a person binds himself solidarily with the
principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of
the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of
the Code (on joint and solidary obligations) shall govern the relationship of
petitioner[-surety] with the bank.95 (Emphasis supplied; italics in the original
and citations omitted)
Verily, a surety's liability stands without regard to the debtor's ability to
perform his obligations under the contract subject of the suretyship.
Mercantile's reliance on Article 2080 is thus misplaced.
DLCI  is  entitled  to  reimbursement  for
litigation expenses.
The records show that DLCI claimed the amount of Php200,000.00
representing litigation expenses incurred in connection with the present
case. The Tribunal denied the claim, Mercantile being the prevailing party
30
therein.96 Construction Industry Arbitration Commission, Altech Fabrication Industries,
Inc. and Mercantile Insurance, Co., lnc."101 the records do not show that the
The CA also denied DLCI's claim for reimbursement, as it found Mercantile's CA had in fact acquired jurisdiction over Altech either by service of
position "not so untenable as to amount to gross and evident bad faith." 97 summons or voluntary participation.102

The Court disagrees.
Article 2208 of the Civil Code entitles the plaintiff to an award of attorney's
fees and expenses of litigation when "the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and
demandable claim."98
To recall, the Performance Bond explicitly required Mercantile
to immediately indemnify DLCI notwithstanding any dispute as to
Altech's fulfillment of its contractual obligations under the Sub-
Contract.99 Mercantile's refusal to heed DLCI's demand for liquidation to
purportedly await Altech's action thereon despite the clear and unequivocal
terms of the Performance Bond defeated the very purpose for which the
said bond had been procured. Mercantile's unjust refusal to evaluate DLCI's
claim appears to have been a deliberate attempt to delay action thereon
until the expiration of the Perfonnance Bond. Such gross and evident bad
faith on the part of Mercantile warrants the award of litigation expenses in
DLCI's favor.
Only  Mercantile  may  be  held  liable in
this case.
It is a well-settled rule that a judgment binds only those who were made
parties to the case, thus:
In relation to the rules of civil procedure, it is elementary that a judgment of
a court is conclusive and binding only upon the parties and their
successors-in-interest after the commencement of the action in court. A
decision rendered on a complaint in a civil action or proceeding does not
bind or prejudice a person not impleaded therein, for no person shall be
adversely affected by the outcome of a civil action or proceeding in which he
is not a party. The principle that a person cannot be prejudiced by a ruling
rendered in an action or proceeding in which he has not been made a party
conforms to the constitutional guarantee of due process of law.100
Accordingly, the CA erred when it rendered judgment against Altech which,
for all intents and purposes, stands as a non-party to the present case.
Nevertheless, the Court deems it necessary to stress that Mercantile retains
the right to seek full reimbursement from Altech on the basis of Article
2066103 of the Civil Code in a separate case filed for the purpose.
WHEREFORE, premises considered, the petition for review
on certiorari is DENIED. The Decision dated July 30, 2012 and Resolution
dated January 7, 2013 rendered by the Court of Appeals in CA-G.R. SP.
No. 80705 are AFFIRMED WITH MODIFICATION.
Petitioner The Mercantile Insurance, Co. Inc. is liable to pay respondent
DMCI-Laing Construction, Inc. the following amounts as surety, pursuant to
the terms of Performm1ce Bond No. G (13)-1500/97 dated September 5,
1997:
1. Php31,618,494.81, representing the costs incurred by respondent as
a result of the delay and poor workmanship of petitioner's principal,
Altech Fabrication Industries, Inc. (Principal Award);
2. Interest applied on the Principal Award, at the rate of two percent
(2%) per month as stipulated under Performance Bond No. G (13)-
1500/97, reckoned from September 3, 1999, the date petitioner
received respondent's first demand (Stipulated Interest) until full
payment;
3. Litigation expenses amounting to Php200,000.00.
This pronouncement shall be without prejudice to all legal remedies which
petitioner The Mercantile Insurance, Co., Inc. may pursue against its
principal, Altech Fabrication Industries, Inc.
SO ORDERED.

While the CA petition was docketed as "DMCI  Laing Construction, Inc. v.

31