GR 85647; (April, 1991) (Digest)
G.R. No. 85647 ; April 22, 1991
MERCANTILE INSURANCE CO., INC., petitioner, vs. HON. COURT OF APPEALS and REPARATIONS COMMISSION, respondents.
FACTS
On March 2, 1965, Jose G. Lopez entered into a Contract of Conditional Purchase and Sale with the Reparations Commission (Repacom) for the acquisition of the fishing vessel M/V “Jolo Lema.” To secure his obligations under the contract, Lopez posted a performance bond issued by Mercantile Insurance Co., Inc. in the amount of P68,385.90. The contract explicitly referenced this Mercantile bond. Lopez subsequently defaulted on his first installment payment due on August 28, 1965. Following this default, Repacom demanded payment from Mercantile under the bond, but Mercantile refused.
Thereafter, on November 20, 1965, Lopez posted a second performance bond issued by Eagle Guaranty Co., Inc. (Eagle) to secure his continuing obligations. Lopez again defaulted on the next installment due on August 28, 1966. After both Lopez and Eagle refused to pay, Repacom instituted a collection suit against Lopez, Mercantile, and Eagle to recover the unpaid purchase price.
ISSUE
The primary issue is whether the posting of the subsequent Eagle bond released Mercantile from its liability under its own performance bond.
RULING
The Supreme Court denied Mercantile’s petition and affirmed the Court of Appeals’ decision holding Mercantile liable. The legal logic is anchored on the principles of suretyship and novation. A surety is not released from its obligation merely by the creditor’s acceptance of an additional or supplementary bond from another surety, unless there is a clear agreement to substitute or release the original surety. Here, the Eagle bond was deemed a supplement, not a substitution, for the Mercantile bond. The Court emphasized that for novation to occur—specifically a change in the person of the debtor or surety—it is essential that the old obligor be expressly released from the obligation. No such release of Mercantile was proven. The contract with Repacom expressly recorded the Mercantile bond, and there was no subsequent agreement between Repacom, Lopez, and Eagle to discharge Mercantile. Consequently, Mercantile remained solidarily liable as a surety for Lopez’s default which occurred before the Eagle bond was even issued. The bonds were compatible and cumulative in effect, making Eagle a co-surety rather than a replacement.