G.R. No. 103073; March 13, 2001
REPUBLIC OF THE PHILIPPINES (Bureau of Customs), petitioner, vs. THE HONORABLE COURT OF APPEALS and R & B SURETY AND INSURANCE COMPANY, INC., respondents.

FACTS

The Republic, through the Bureau of Customs, filed a collection suit against Endelo Commercial, Inc. and its sureties, including R & B Surety, for unpaid customs duties and taxes on imported goods covered by warehousing bonds. Endelo failed to re-export the goods as required. The Regional Trial Court held R & B Surety solidarily liable with Endelo and another surety, ordering it to pay over P4.3 million. The Court of Appeals affirmed this decision. R & B Surety filed a motion for reconsideration before the Supreme Court, arguing its discharge from liability due to the alleged impossibility of performance caused by the suspension of Endelo’s license, and contesting the computation of its liability.
R & B Surety contended that the suspension of Endelo’s license rendered the obligation to re-export impossible, discharging the surety. It also argued it should not be solidarily liable with the co-surety, and that its liability was erroneously computed to exceed the bonds’ face values, violating Section 176 of the Insurance Code. It further claimed it should not be liable for legal interest, as that would increase liability beyond the bond amount.

ISSUE

The primary issues were: (1) whether the suspension of Endelo’s license discharged R & B Surety from its obligation; (2) whether R & B Surety’s liability should be limited to the face value of its bonds; and (3) whether it could be held liable for legal interest.

RULING

The Supreme Court partially granted the motion for reconsideration. On the first issue, the Court ruled that R & B Surety was not discharged. The suspension of Endelo’s license did not render the obligation impossible to perform. Endelo failed to prove the suspension was illegal or that it prevented compliance during the bond’s two-year term. The burden of proof rested on Endelo, not the petitioner, and the presumption of regularity in official functions stood. Furthermore, no evidence showed Endelo attempted to have the suspension lifted or was precluded from exporting the goods in their original state.
On the second issue, the Court upheld the statutory limit under Section 176 of the Insurance Code, which confines a surety’s liability to the bond’s face amount. The trial court’s award of P4,305,017.00 exceeded R & B Surety’s total bond coverage of P3,000,000.00. The Court recalculated the liability, limiting recovery against R & B Surety to the actual duties and taxes due per bond, but not exceeding each bond’s face value. The recomputed liability was P2,588,568.00.
On the third issue, the Court sustained the imposition of legal interest on the amount due from the filing of the complaint until full payment. This interest is imposed due to the incurrence of default and the necessity of judicial collection; it does not constitute an increase in the principal liability under the bond but is a consequence of delay.
Finally, the Court rejected the argument against solidary liability with the principal obligor, Endelo, citing Article 1216 of the Civil Code, which allows a creditor to proceed against any solidary debtor. The surety’s liability is joint and several with the principal. The decision modified the lower court’s ruling by capping R & B Surety’s principal liability at P2,588,568.00 plus legal interest.