G.R. No. L-12077; June 27, 1958
EMMANUEL C. ONGSIAKO, ET AL., plaintiffs, vs. THE WORLD WIDE INSURANCE and SURETY CO., INC., ET AL., defendants. THE WORLD WIDE INSURANCE and SURETY CO. INC., cross-claimant-appellant, vs. CATALINA DE LEON, cross-defendant-appellee.

FACTS

On November 10, 1951, Catalina de Leon executed a promissory note in favor of Augusto V. Ongsiako for P1,200.00, payable 90 days after date with 1% monthly interest. On the same date, a surety bond was executed by Catalina de Leon as principal and World Wide Insurance & Surety Co., Inc. as surety, binding themselves jointly and severally to pay Ongsiako. The bond incorporated the terms of the promissory note and contained a special condition stating, “The Liability of the World-Wide Insurance & Surety Co., Inc. under this bond will expire on February 10, 1952.” The note matured on February 10, 1952. Neither the principal nor the surety paid upon maturity. Ongsiako made demands, including a letter to the surety company on February 12, 1952, notifying it of the default and requesting payment. The surety company refused, claiming it was merely a guarantor whose liability could only be exacted after exhaustion of the principal debtor’s property. Ongsiako filed an action in the Municipal Court of Manila, which ruled in his favor. On appeal to the Court of First Instance, Catalina de Leon was declared in default. The court rendered judgment ordering both Catalina de Leon and the surety company to pay the obligation, but with the proviso that execution against the surety would only issue after a return of unsatisfied execution against the principal. The surety company appealed, raising purely legal questions.

ISSUE

Whether the surety company’s liability under the bond had expired on February 10, 1952, thereby releasing it from its obligation, given that the principal obligation matured on the same date.

RULING

No. The Supreme Court affirmed the lower court’s decision. The stipulation that the surety’s liability would expire on the exact date of the principal obligation’s maturity (February 10, 1952) was deemed unfair and unreasonable, as it would nullify the very nature of the surety undertaking. The Court held that a reasonable interpretation of the bond requires that the surety’s liability attaches as soon as the principal debtor defaults and notice is given to the surety within a reasonable time. Since the creditor made a demand on the surety just two days after the maturity date, the surety’s liability remained enforceable. The Court condemned the surety company’s practice of inserting such a deceptive clause as a trick to evade responsibility. The appeal was found frivolous. The decision was affirmed with treble costs against the appellant surety company.