G.R. No. L-45530; May 25, 1939
CHINA INSURANCE AND SURETY COMPANY, INC. vs. Y. CHONG, SY YAM and PEDRO MARQUEZ LIM

FACTS

Plaintiff China Insurance and Surety Company, Inc. executed a bond in favor of the Government for P12,000, with defendant Y. Chong as principal, pursuant to the Bonded Warehouse Act. Defendants jointly and severally executed a counterbond in favor of the plaintiff. The principal paid the premium for the first year (April 2, 1934 to April 2, 1935). Before the expiration of the first year, plaintiff sent renewal notices for the next premium. Defendant Y. Chong did not pay and informed plaintiff that he had obtained a substitute bond from another surety company. The substitute bond was filed with the Iloilo branch of the Bureau of Commerce and Industry on September 14, 1935. However, plaintiff’s original bond was not cancelled by the Bureau’s main office in Manila until January 19, 1936. Plaintiff sued defendants to recover premiums for the period from April 2, 1935 to April 2, 1937, based on the counterbond. The trial court dismissed the complaint, holding that the counterbond expired one year after its execution and that plaintiff ceased to run any risk upon the filing of the substitute bond.

ISSUE

Whether the defendants are liable for the renewal premiums on the counterbond for the period after the first year, despite the filing of a substitute bond, where the original bond had not yet been officially cancelled.

RULING

Yes. The counterbond was valid and subsisting until the plaintiff’s bond in favor of the Government was officially cancelled. The bond had no fixed period and could only be cancelled at the discretion of the Director of the Bureau of Commerce and Industry. The official cancellation occurred on January 19, 1936, not on the date the substitute bond was filed in Iloilo. The obligation to pay premiums under the counterbond continued for every year or fraction thereof that the bond remained in force. The plaintiff remained at risk and could have been held liable on its bond until its cancellation. The appealed judgment is reversed. Defendants are ordered to pay plaintiff P480, with stipulated interest, jointly and severally. Attorney’s fees are not awarded as they were not clearly stipulated and litigation for cancellation was unnecessary.