G.R. No. 210950 , August 15, 2018
MILAGROS P. ENRIQUEZ, Petitioner, vs. THE MERCANTILE INSURANCE CO., INC., Respondent.

FACTS

Petitioner Milagros P. Enriquez filed a Complaint for Replevin to recover a Toyota Hi-Ace van valued at ₱300,000.00. To secure the writ of replevin, she obtained from respondent Mercantile Insurance Company, Inc. a replevin bond (Bond No. 138) in the amount of ₱600,000.00, which had a stated period of one year from February 24, 2003. Enriquez also executed an indemnity agreement in favor of the surety. The Regional Trial Court (RTC) later dismissed her complaint without prejudice due to her failure to present evidence and comply with court orders, including an order to return the vehicle to the sheriff. Consequently, the RTC declared the replevin bond forfeited and ultimately ordered Mercantile Insurance to pay the defendant, Wilfred Asuten, the bond amount of ₱600,000.00. The surety complied with the order and paid Asuten.
Mercantile Insurance then demanded reimbursement from Enriquez pursuant to the indemnity agreement. Upon her refusal to pay, the surety filed a collection suit. Enriquez defended herself by arguing that the bond had already expired by its own terms before the payment was made, thus nullifying her liability under the indemnity agreement. She also contended that even if liable, her obligation should be limited to the actual value of the van (₱300,000.00) and not the full bond amount.

ISSUE

The core issues were: (1) Whether the expiration of the bond’s one-year term extinguished Enriquez’s liability to indemnify the surety; and (2) Whether her liability under the indemnity agreement should be limited to the actual value of the property subject of the replevin.

RULING

The Supreme Court ruled against Enriquez, affirming the decisions of the lower courts. On the first issue, the Court held that a judicial bond, such as a replevin bond, remains effective until the court proceeding for which it was issued is finally terminated, regardless of any expiry date stated on its face. The lifetime of the bond is co-terminous with the life of the court action. This principle is established under the Guidelines on Corporate Surety Bonds (A.M. No. 04-7-02-SC). Since the bond was declared forfeited by the RTC in an order issued during the pendency of the replevin case, it was still in force when the surety was compelled to pay. Therefore, Enriquez’s obligation under the indemnity agreement to reimburse the surety remained valid and enforceable.
On the second issue, the Court held that Enriquez was liable for the full ₱600,000.00 paid by the surety. The indemnity agreement she signed contained an incontestability clause, whereby she agreed to hold the surety harmless for any payment made under the bond. This contractual stipulation is binding. The Court emphasized that the nature of a surety agreement is that the surety’s liability is solidary with the principal obligor. Upon the surety’s payment to the court-obligee (Asuten), the right of reimbursement from the principal (Enriquez) accrues for the entire amount paid. Her liability is dictated by her contract with the surety, not by the value of the property. The defense that the bond amount was double the van’s value is a matter that should have been raised in the main replevin case, not in the suit for indemnity.