G.R. No. L-9674; April 29, 1957
MELECIO ARRANZ, plaintiff-appellant, vs. MANILA FIDELITY AND SURETY CO., INC., defendant-appellee.

FACTS

On November 25, 1949, defendant Manila Fidelity & Surety Co. executed a surety bond in favor of Manila Ylang Ylang Distillery, binding itself jointly and severally with plaintiff Melecio Arranz as principal for the sum of P90,000. The bond waived notice of default and stipulated that the surety’s liability was primary and immediately demandable upon the principal’s default. To secure the surety against loss, plaintiff executed a second mortgage over properties transferred to him by the Distillery. When the first installment of P50,000 became due on June 30, 1950, and the second installment of P40,000 on June 30, 1951, the surety lacked funds to pay. The Distillery filed a complaint on November 16, 1950, and a supplemental complaint on January 2, 1952. The surety only managed to pay P20,000 on account. To raise funds to pay the obligation, plaintiff arranged to mortgage the same properties to the Philippine National Bank (PNB). However, PNB required the cancellation of the second mortgage in favor of the surety. The surety refused to cancel unless plaintiff paid: (a) P20,000 (the partial payment made to the Distillery); (b) P3,045.12 (interest from December 31, 1950, to December 31, 1954); (c) P7,691.09 (including renewal premiums and incidental expenses); (d) P10,000 (attorney’s fees); and (e) P25,000 (to be held in trust for an alleged contingent liability). Fearing loss of the PNB accommodation, plaintiff paid all amounts except the P25,000, leading to the cancellation of the second mortgage. Plaintiff then filed a complaint to recover P7,200 (premiums for November 25, 1950, to November 25, 1954) and P7,000 (attorney’s fees), claiming these were not due and were paid against his will to save his properties and secure the PNB loan. The trial court dismissed the complaint, ruling the payment was consideration for the mortgage release. Plaintiff appealed.

ISSUE

Whether the plaintiff has a cause of action to recover the premiums and attorney’s fees paid to the surety, given the surety’s failure to pay the guaranteed obligation.

RULING

No. The Supreme Court affirmed the dismissal of the complaint, but on different grounds. The Court held that the surety’s failure or refusal to pay the debt for the principal’s account did not relieve the principal (plaintiff) of his obligation to pay the premium on the bond. The premium is the consideration for furnishing the guaranty, and as long as the surety’s liability to the obligee subsists (because the loan remained unpaid), the surety’s right to collect the premium continues. The contract of suretyship did not contain any promise by the surety to pay the loan for the principal’s benefit, nor is such a promise implied by law. The surety’s primary liability under the bond was to the creditor (Distillery), not a direct covenant with the principal to pay the debt on his behalf. Therefore, even if the premiums were paid under compulsion of circumstances, the surety was entitled to them, and plaintiff had no cause of action for their recovery. The order of dismissal was affirmed.