GR 147561; (June, 2006) (Digest)
G.R. No. 147561 ; June 22, 2006
STRONGHOLD INSURANCE COMPANY, INC., Petitioner, vs. REPUBLIC-ASAHI GLASS CORPORATION, Respondent.
FACTS
Respondent Republic-Asahi Glass Corporation entered into a construction contract with JDS Construction, owned by Jose D. Santos, Jr. To guarantee performance, JDS, jointly and severally with petitioner Stronghold Insurance Company, Inc., executed a performance bond. Due to JDS’s slow progress, Republic-Asahi extrajudicially rescinded the contract and hired another contractor, incurring additional costs. Republic-Asahi then filed a complaint against JDS and Stronghold to recover damages under the bond.
During the proceedings, it was discovered that Jose D. Santos, Jr. had died. Stronghold moved to dismiss the complaint, arguing that its obligation under the performance bond was extinguished by the death of the principal obligor, Santos. The trial court granted the motion. The Court of Appeals reversed, holding that the death did not extinguish the solidary obligation, and remanded the case for reception of evidence.
ISSUE
Whether the death of the principal obligor, Jose D. Santos, Jr., extinguishes the solidary obligation of the surety, Stronghold Insurance, under the performance bond.
RULING
No. The Supreme Court affirmed the Court of Appeals, ruling that the death of the principal obligor does not extinguish the solidary obligation of the surety. The Court explained that a performance bond creates a solidary obligation between the principal and the surety. Under Article 1216 of the Civil Code, a creditor may proceed against any one of the solidary debtors. The obligation is not personal to the deceased principal but arises from a contract of suretyship that is accessory to the principal obligation. The nature of the principal obligation—construction—is not intrinsically personal such that it could only be performed by Santos himself; it is transmissible to his estate.
The Court further clarified that while the claim against the deceased principal must be filed in the estate proceedings, this procedural requirement does not affect the substantive solidary liability of the surety. The creditor retains the right to demand full payment from the surety alone without first proceeding against the estate of the deceased principal. The surety’s liability under the bond is direct, primary, and absolute, contingent only upon the principal’s default. Therefore, Stronghold’s obligation remained enforceable despite Santos’s death. The case was remanded to the trial court for further proceedings to determine the extent of liability.