GR 95573; (October, 1995) (Digest)
G.R. No. 95573 October 25, 1995
Government Service Insurance System (GSIS), petitioner, vs. National Food Authority, Honorable Court of Appeals and Alberto L. Fajardo, respondents.
FACTS
The National Food Authority (NFA) entered into a Contract of Palay Milling with Alberto L. Fajardo on July 1, 1983. As required, Fajardo secured a surety bond from the GSIS in the amount of P56,666.67, and he executed an indemnity agreement in favor of GSIS. During the milling operations from June to November 1983, Fajardo incurred shortages in milled rice and empty jute sacks. After demands for payment went unheeded, NFA filed a complaint for sum of money against both Fajardo and GSIS.
The Regional Trial Court ruled in favor of NFA, ordering Fajardo and GSIS to pay jointly and severally the bond amount of P56,666.67 with interest. It also ordered Fajardo separately to pay the larger balance of the shortages and damages. The trial court, however, dismissed GSIS’s cross-claim against Fajardo based on the indemnity agreement. The Court of Appeals affirmed this decision in full.
ISSUE
The primary issues were: (1) whether GSIS could avoid liability on its surety bond to NFA due to alleged fraud by Fajardo in obtaining the bond; and (2) whether the dismissal of GSIS’s cross-claim against Fajardo under the indemnity agreement was proper.
RULING
The Supreme Court denied the petition in part and granted it in part. On the first issue, the Court held GSIS liable on its surety bond to NFA. The liability of a surety under its bond is separate and distinct from its recourse against the principal obligor. Allegations of fraud and misrepresentation by Fajardo in securing the bond constitute a matter between GSIS and Fajardo; they cannot be invoked to defeat the obligation owed to the innocent obligee, the NFA. Furthermore, such allegations involve factual questions not reviewable in a petition for certiorari, which is limited to errors of jurisdiction.
On the second issue, the Court ruled that the dismissal of GSIS’s cross-claim was a reversible error. The Court of Appeals itself had recognized the validity of the indemnity agreement executed by Fajardo in favor of GSIS. This agreement expressly obligated Fajardo to indemnify GSIS for all amounts it would be compelled to pay under the bond. Since Fajardo did not contest the agreement’s existence and execution, he was bound by its terms. Consequently, the Supreme Court modified the appellate decision and ordered Fajardo to reimburse GSIS for whatever amount the latter paid to NFA pursuant to the judgment.