G.R. No. 46193; October 10, 1938
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, plaintiff-appellee, vs. THE VISAYAN SURETY AND INSURANCE CORPORATION, defendant-appellant.

FACTS

The Government of the Philippine Islands, through the Pacific Commercial Company, filed a complaint against Visayan Surety and Insurance Corporation based on a surety bond the latter issued for contractor M. de los Reyes, who undertook the construction of a causeway and landing at the Port of Santa Fe, Cebu. The action was filed under Act No. 3688 to recover amounts due to claimants (material suppliers) for labor and materials used in the project. The lower court ordered publication of notice to creditors, and several claimants intervened. The surety corporation appealed, challenging the procedure, the court’s jurisdiction, and the constitutionality of Act No. 3688, arguing it impaired the obligation of contracts.

ISSUE

1. Whether the trial court acquired jurisdiction over the case and the person of the defendant.
2. Whether Act No. 3688 is unconstitutional for impairing the obligation of contracts.

RULING

1. Yes, the trial court acquired jurisdiction. The Supreme Court held that the procedural requirements under Act No. 3688 were substantially complied with. The action was not prematurely filed, as the Government, through the district engineer, had effectively authorized the suit. Personal notice to creditors was not required; publication sufficed. The contractor’s joinder as a party defendant was also not necessary under the law.
2. No, Act No. 3688 is not unconstitutional. The law does not impair the obligation of contracts. It does not alter the terms of the surety bond or deprive the surety of any right. Instead, it merely defines the bond’s effects concerning third persons (materialmen and laborers) who have an interest in the public work. The law is a valid exercise of police power to protect those who contribute labor and materials to public improvements. The judgment of the lower court was affirmed.

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