GR 189563; (December, 2016) (Digest)
G.R. No. 189563. December 07, 2016
GILAT SATELLITE NETWORKS, LTD., PETITIONER, V. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., RESPONDENT.
FACTS
Petitioner Gilat Satellite Networks, Ltd. sold equipment to One Virtual Inc. under a Purchase Agreement, with respondent United Coconut Planters Bank General Insurance Co., Inc. acting as surety via a Surety Bond. Upon One Virtual’s failure to pay, Gilat demanded payment from the surety. The surety refused, invoking the arbitration clause in the principal Purchase Agreement and arguing that Gilat had not proven full performance of its obligations (e.g., installation and commissioning of equipment), which was a precondition for payment.
The trial court ruled in favor of Gilat, but the Court of Appeals reversed, ordering the parties to proceed to arbitration. The Supreme Court, in a Decision dated April 7, 2014, reversed the CA. It held the surety directly, primarily, and absolutely liable under the Surety Bond and could not invoke the arbitration clause. It ordered the surety to pay the debt with interest. Both parties filed motions: the surety for reconsideration of the liability finding, and Gilat for partial reconsideration/clarification regarding the computation of legal interest.
ISSUE
The core issues were: (1) Whether the surety could avoid liability by invoking the arbitration clause or disputing the seller’s performance under the principal contract; and (2) The proper computation of legal interest on the award.
RULING
The Supreme Court denied the surety’s motion and granted Gilat’s motion for clarification/modification. On liability, the Court reiterated that a surety’s obligation is direct, primary, and absolute. The surety contract is separate from the principal contract. Therefore, the surety cannot compel the creditor to arbitrate disputes with the principal debtor as a precondition for payment. The surety’s defense that the seller did not fully perform was unavailing because the surety bond was a pure guarantee of payment, not of performance. The trial court had already found, based on evidence, that Gilat had delivered the equipment, which finding was final.
On interest, the Court modified its earlier Decision for precise computation in line with Bangko Sentral Circular No. 799. It ordered: (1) 12% per annum interest on the principal from June 5, 2000, until June 30, 2013; (2) 6% per annum interest thereon from July 1, 2013, until finality of judgment; (3) interest-upon-interest (12% then 6%) on the accrued interests from the date of judicial demand (April 23, 2002); and (4) an additional 6% per annum interest on the total monetary award from finality until full satisfaction. The award of attorney’s fees was affirmed.