G.R. No. 177839; January 18, 2012
FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME INSURANCE CORPORATION), Petitioner, vs. CHEVRON PHILIPPINES, INC. (formerly known as CALTEX [PHILIPPINES], INC.), Respondent.

FACTS

Respondent Chevron Philippines, Inc. sued petitioner First Lepanto-Taisho Insurance Corporation for payment of unpaid oil and petroleum purchases made by its distributor, Fumitechniks Corporation. Fumitechniks had been issued Surety Bond FLTICG (16) No. 01012 by petitioner in the amount of ₱15,700,000.00 to guarantee payment for fuel products withdrawn under a credit line with respondent. The bond, executed on October 15, 2001, stated it was issued to guarantee payment “in accordance with the terms and conditions of the agreement.” Fumitechniks defaulted, and a check it issued was dishonored. Respondent notified petitioner of the unpaid purchases. Petitioner requested copies of documents like delivery receipts and the principal agreement secured by the bond. Fumitechniks informed petitioner that no such written agreement was executed between it and respondent. Consequently, petitioner advised respondent it could not act on the claim without the basic contract, asserting the bond was an accessory contract that could not exist without a principal agreement. Respondent formally demanded payment. The Regional Trial Court (RTC) dismissed the complaint, finding the surety bond could not stand without the written principal agreement, as its terms were never relayed to petitioner. The Court of Appeals (CA) reversed the RTC, ruling petitioner was estopped from assailing the oral credit line agreement and that the Statute of Frauds did not apply as the contract had been partially executed.

ISSUE

Whether a surety is liable to the creditor under a surety bond in the absence of a written principal contract between the creditor and the principal debtor.

RULING

No. The Supreme Court reversed the Court of Appeals and reinstated the RTC decision dismissing the complaint.
The Court held that a contract of suretyship is an ancillary contract that presupposes the existence of a valid principal obligation. The extent of a surety’s liability is determined strictly by the language of the suretyship contract itself and cannot be extended by implication. Examining the surety bond, the Court found it was a standard form that explicitly referred to and was intended to secure a written principal agreement, as indicated by the rider stating it guaranteed payment “in accordance with the terms and conditions of the agreement” and a provision in the bond form requiring a copy of the agreement to be attached and made an integral part thereof. Since no such written agreement was presented or proven to exist, the supposed principal obligation was not established. An oral credit line agreement could not serve as the principal contract contemplated by the clear terms of the surety bond. The bond, being an accessory contract, could not exist independently. Therefore, petitioner could not be held liable. The Court also noted that the parol evidence rule barred the introduction of evidence to prove an oral agreement that would vary the terms of the written surety bond, which expressly called for a written principal contract.