G.R. No. L-22366 October 30, 1969
RODOLFO GUERRERO, petitioner, vs. THE HON. COURT OF APPEALS and ALTO SURETY & INSURANCE CO., INC., respondents.

FACTS

Sometime in September 1953, Jose Robles borrowed P25,000 from Chan Too. Alto Surety & Insurance Co., Inc. (ALTO) executed a bond for this amount in favor of Chan Too, binding itself jointly and severally with Robles. In consideration for the bond, Robles, Vicente Legarda, and petitioner Rodolfo Guerrero executed an “Agreement of Counter-Guaranty with Mortgage and Pledge,” undertaking jointly and severally to indemnify ALTO for any loss, payments, or attorney’s fees incurred due to the bond. A provision stated that the indemnities would be paid to ALTO “as soon as demand is received from the creditor, or as soon as it becomes liable to make payment of any sum under the terms of the… Bond… whether the said sum or sums or part thereof, have been actually paid or not.”
Robles failed to pay Chan Too, who filed a case (Civil Case No. 29357) against Robles and ALTO. Judgment was rendered based on a compromise agreement where Robles recognized a total liability of P35,750 (including principal, interest, and attorney’s fees) and ALTO recognized its joint and several liability for P25,000 plus P300 attorney’s fees. The agreement included a schedule of payments by Robles and provisions for execution in case of default. Robles defaulted, and a writ of execution was issued.
On January 30, 1958, ALTO filed the present action against petitioner Guerrero based on the counter-guaranty agreement, seeking to recover P25,000 with interest and attorney’s fees. The Court of First Instance rendered judgment, later amended, ordering Guerrero to pay ALTO P20,725 (the balance of the original obligation) with interest and attorney’s fees. The Court of Appeals affirmed the trial court’s original (unamended) judgment. Guerrero appealed to the Supreme Court.

ISSUE

Whether the compromise agreement in Civil Case No. 29357, to which Guerrero was not a party, novated or released him from his obligation under the separate counter-guaranty agreement with ALTO.

RULING

No. The Supreme Court set aside the Court of Appeals’ decision and revived the amended judgment of the trial court.
The Court held that Guerrero was not a party to Civil Case No. 29357 or the compromise agreement therein; the parties were only Chan Too, Robles, and ALTO. Therefore, the compromise agreement determined only the rights and obligations of those parties. ALTO’s action against Guerrero was based not on the compromise judgment but on the separate and distinct counter-guaranty agreement.
The Court characterized the counter-guaranty agreement as a contract of indemnity against liability, not just against actual loss. Under its terms, Guerrero’s obligation to indemnify ALTO matured as soon as ALTO became liable to make payment under the bond, regardless of whether payment had actually been made. ALTO’s liability arose upon the filing of Chan Too’s complaint and the subsequent judicial demand. The Court cited precedents (Associated Insurance & Surety Co., Inc. vs. Chua and Alto Surety & Insurance Co., Inc. vs. Andan) distinguishing indemnity against liability, which becomes operative when liability arises, from indemnity against loss, which requires actual payment.
The defense of novation was rejected. Novation is never presumed and must be proved by clear and convincing evidence. There was no express release, and the old (counter-guaranty) and new (compromise agreement) obligations were not incompatible. ALTO’s choice to first realize its credit from Robles did not constitute a waiver of its right to proceed against the other solidary debtors (Guerrero and Legarda) under the indemnity agreement. As long as any part of the debt remained unpaid, ALTO could demand payment from any or all solidary debtors. The compromise agreement did not release Guerrero from his indemnity obligation.