G.R. No. L-40517 January 31, 1984
LUZON SURETY COMPANY, INC., plaintiff-appellee, vs. PASTOR T. QUEBRAR and FRANCISCO KILAYKO, defendants-appellants.

FACTS

Luzon Surety Company, Inc. issued two administrator’s bonds for Pastor T. Quebrar in 1954, with Francisco Kilayko as co-indemnitor. The indemnity agreements obligated the defendants to pay an annual premium and to indemnify the surety for all liabilities. Premiums were paid for the first year only. The estates were settled and a project of partition was approved in 1957. However, the court bonds remained uncancelled until 1962. The surety company demanded payment of accrued premiums from 1955 to 1962, totaling P4,872.00.
The defendants refused payment, contending their liability for premiums ceased after the estate settlement. They argued the bonds were no longer in force, making further premium payments unnecessary. During pre-trial, the sole agreed issue was whether the bonds were in effect from their filing until their 1962 cancellation. The Court of First Instance of Manila ruled in favor of the surety company, holding the defendants liable for the premiums.

ISSUE

Whether the defendants-appellants are liable to pay the surety premiums for the period from August 9, 1955, to October 20, 1962, despite the approval of the project of partition in 1957.

RULING

Yes, the defendants are liable. The Supreme Court affirmed the lower court’s decision. The legal logic rests on the nature of judicial bonds and the correlative liability for premiums. The administrator’s bonds were required by Rule 81 of the Rules of Court, and the statutory conditions became part of the bond contracts. The bond’s purpose is to secure the administrator’s faithful performance of duties for the entire duration of his appointment. The liability of the surety is co-extensive with that of the administrator and persists until the bond is formally discharged by court order.
The Court rejected the argument that premium payment was a condition precedent for the bond’s effectivity. The premium is the consideration for the surety’s undertaking. The obligation to pay it subsists as long as the surety’s liability exists. The bonds remained in force until their judicial cancellation in 1962; the approval of the project of partition did not automatically terminate the administrator’s duties or the surety’s risk. The indemnity agreements expressly covered payment of yearly premiums for the period the bonds were “in effect.” Since the bonds were legally operative until 1962, the defendants’ contractual duty to pay the accrued premiums remained. The principle of strictissimi juris was found inapplicable as the bond terms, read with the governing statute, were clear and unambiguous.