G.R. No. 226731 , June 17, 2020
CELLPAGE INTERNATIONAL CORPORATION, PETITIONER, VS. THE SOLID GUARANTY, INC., RESPONDENT.

FACTS

Cellpage International Corporation (Cellpage) approved a credit line for Jomar Powerhouse Marketing Corporation (JPMC) for the purchase of cellcards, conditioned on JPMC providing a surety bond. JPMC secured three surety bonds from The Solid Guaranty, Inc. (Solid Guaranty) totaling P7,000,000.00. In August 2002, JPMC purchased cellcards from Cellpage amounting to P7,002,600.00. JPMC issued postdated checks as partial payment, but these were dishonored due to insufficient funds. Cellpage demanded payment from both JPMC and Solid Guaranty, but both failed to pay. Cellpage filed a complaint for sum of money. The Regional Trial Court (RTC) ruled in favor of Cellpage, holding JPMC and Solid Guaranty jointly and solidarily liable. Solid Guaranty appealed, arguing that the surety bonds were accessory to a principal contract, and since no written credit line agreement was submitted, there could be no valid claim against it. The Court of Appeals (CA) reversed the RTC, applying the ruling in First Lepanto-Taisho Insurance Corporation v. Chevron Philippines, Inc., and dismissed the complaint against Solid Guaranty, holding that the failure to submit a written principal agreement affected Cellpage’s right to demand performance. Cellpage filed a Petition for Review on Certiorari.

ISSUE

1. Whether or not Solid Guaranty is liable to Cellpage in the absence of a written principal contract.
2. Whether or not Solid Guaranty is barred by estoppel from questioning the binding effect of the surety bond it issued to JPMC.

RULING

The Supreme Court granted the Petition, reversed the CA Decision, and reinstated the RTC Decision with modifications.
1. On the absence of a written principal contract: The Court ruled that a written principal agreement is not required for the surety to be liable. Under Article 1356 of the Civil Code, contracts are obligatory in whatever form, provided essential requisites are present. The surety’s liability is determined strictly by the terms of the suretyship contract in relation to the principal contract, but the principal contract need not be in writing. The CA’s reliance on First Lepanto was misplaced because, unlike in that case, the surety bonds issued by Solid Guaranty did not contain a condition requiring the submission or attachment of a written principal agreement. The bonds insured payment for purchases on credit according to the terms of the “agreement” between JPMC and Cellpage, but this did not explicitly require a written document. Therefore, Solid Guaranty’s liability attached upon JPMC’s default.
2. On estoppel: The Court found that Solid Guaranty was barred by estoppel from denying its liability. By issuing the surety bonds, accepting premiums, and even demanding payment from JPMC after Cellpage’s claim, Solid Guaranty recognized the validity and binding effect of the bonds. Its actions induced Cellpage to extend credit to JPMC. Allowing Solid Guaranty to avoid liability would result in unjust enrichment.
The Court modified the RTC Decision regarding interest. The legal interest on the principal obligation of P7,002,600.00 is set at 12% per annum from the date of last extra-judicial demand until June 30, 2013, and at 6% per annum from July 1, 2013, until full satisfaction. Solid Guaranty’s solidary liability with JPMC is limited to the face amount of the bonds, P7,000,000.00, subject to the same interest rates.