GR 130886; (January, 2004) (Digest)
G.R. No. 130886; January 29, 2004
COMMONWEALTH INSURANCE CORPORATION, Petitioner, vs. COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION, Respondents.
FACTS
Rizal Commercial Banking Corporation (RCBC) granted export loan lines to Jigs Manufacturing Corporation and Elba Industries, Inc., which were secured by surety bonds issued by Commonwealth Insurance Corporation (CIC). The principal debtors defaulted. RCBC made written demands on CIC to pay under the suretyship. CIC made partial payments but left a substantial balance unpaid. RCBC filed a complaint for sum of money.
The Regional Trial Court held CIC solidarily liable but limited its award to the principal sums under the bonds, denying RCBC’s claim for interest. RCBC appealed. The Court of Appeals modified the decision, holding CIC liable for 12% legal interest per annum on the bond amounts from the dates of extrajudicial demand, despite the bonds stating CIC’s liability “shall in no case exceed” the specified amounts.
ISSUE
Whether a surety, whose bond contains a clause limiting its liability to a specified sum, can be held liable for payment of legal interest in excess of that sum when it incurs delay after a valid demand.
RULING
Yes. The Supreme Court affirmed the Court of Appeals. The liability for interest arises not from the contract of suretyship but from the law as a form of damages due to the surety’s delay or mora solvendi after a valid demand. Articles 1169 and 1170 of the Civil Code provide that an obligor incurs in delay from the time the obligee demands fulfillment and is liable for damages resulting from the delay.
The contractual limitation in the surety bond applies only to the principal obligation secured. It does not shield the surety from the legal consequences of its own default. To rule otherwise would lead to an absurd situation where a surety could deliberately withhold payment without penalty, using the funds for its own benefit, knowing its exposure is capped at the principal sum. This would contravene the principle that a surety’s obligation is solidary and primary under Article 1216. The interest awarded is not part of the secured debt but is a statutory imposition for the surety’s failure to pay upon demand. Therefore, CIC is liable for 12% legal interest per annum on the respective bond amounts from the dates of RCBC’s extrajudicial demands.