G.R. No. L-18568 November 29, 1963
PEOPLE’S SURETY AND INSURANCE COMPANY, INC., plaintiff-appellee, vs. GABRIEL & SONS TRANSPORTATION COMPANY, INC., ANTONIO P. GABRIEL, SABINO DAVID and ANTONIO VILLARAMA, defendants-appellants.

FACTS

Gabriel & Sons Transportation Company entered into a stevedoring contract with Luzon Stevedoring Co., requiring a guaranty bond. On October 28, 1954, People’s Surety issued Bond “A” for P38,400. In consideration, two indemnity agreements were executed: one by the Transportation Co., Antonio Gabriel, and Sabino David (Exhibit C), and another by Antonio Gabriel and Dr. Antonio Villarama (Exhibit D), binding them to indemnify the surety. On November 17, 1954, the surety issued a second bond, Bond “B” for P9,600, for the same contract. The Transportation Co. defaulted. Luzon Stevedoring sued the surety, obtaining a judgment for P9,855.68, which the surety paid.
The surety then sued the Transportation Co., Gabriel, and Villarama for reimbursement. The lower court held them jointly and severally liable. Villarama and Gabriel appealed, contesting liability under the indemnity agreement (Exhibit D) for losses under Bond “B”.

ISSUE

Are indemnitors Antonio P. Gabriel and Antonio Villarama liable under their indemnity agreement (Exhibit D) for the surety’s losses arising from Bond “B”?

RULING

No. The Supreme Court modified the decision, absolving Villarama and Gabriel from liability for losses under Bond “B”. The legal logic rests on the strict interpretation of the indemnity agreement, Exhibit D. This document is a contract of adhesion prepared by the surety company; any ambiguity must be construed against the drafter. The first paragraph of Exhibit D explicitly states it is executed in consideration of the surety having become surety upon a specific bond for P38,400 (Bond “A”), a copy of which is attached and made an integral part of the agreement.
The Court rejected the surety’s argument that a general clause in Exhibit D, referencing “any other… bond executed on behalf of the undersigned,” applied to Bond “B”. To interpret the agreement as covering an entirely separate bond (Bond “B”) executed later would render meaningless the specific description and attachment of Bond “A”. The parties’ intent was clearly limited to the bond specified. Testimony from the surety’s own clerk confirmed Bond “B” was not covered by any indemnity agreement. Therefore, the indemnity obligation under Exhibit D is confined to losses under Bond “A”. Since the payment made by Gabriel was specifically applied to the obligation under Bond “A” (an application permitted under Article 1252 of the Civil Code), and as Bond “A” was more onerous and older, the payment rightfully extinguished that liability, leaving no basis to hold Villarama and Gabriel liable for the distinct obligation under Bond “B”. The judgment against the principal debtor, Gabriel & Sons Transportation Co., Inc., was affirmed.