IV.

SURETYSHIP

09-14-2022
Despi, Melanie Irene
a. Definition
Sec. 175 of the insurance code as amended- A contract of
suretyship is an agreement whereby a party called the
surety guarantees the performance by another party called
the principal or obligor of an obligation or undertaking by
in favor of a third party called the obligee.

It includes official recognizances, stipulations bonds or

undertakings issued by any company by virtue and under
the provisions of Act No. 356, as amended by Act No. 2206
b. Nature of
Contract
• Evidenced by a writing called "surety bond"

• SOLIDARY
• LIMITED / FIXED
• CONTRACTUAL
c. Liability of Surety
The extent of a surety’s liability is
determined by the language of the
suretyship contract or bond itself.

It cannot be extended by implication,

beyond the terms of the contract. Thus,
it becomes necessary to examine the
terms of the contract itself in order to
determine liabilities of a surety under
the surety bond.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION (now known as FLT PRIME
INSURANCE CORPORATION), Petitioner, -versus- CHEVRON PHILIPPINES, INC.
(formerly known as CALTEX [PHILIPPINES], INC.), Respondent. G.R. No. 177839,
January 18, 2012, Villarama, Jr. J.
Facts:
Chevron Philippines sued First Lepanto-Taisho Insurance Corp. for payment of
unpaid oil and petroleum purchases made by its distributor Fumitechniks Corp.

Fumitechniks applied for and was issued a Surety Bond by First Lepanto.

Fumitechniks defaulted on its obligation to Chevron. As such, Chevron notified

First Lepanto of Fumitechniks’ unpaid purchases.

First Lepanto then demanded from Fumitechniks the delivery of documents

including, among others, a copy of the agreement secured by the Surety Bond
Fumitechniks responded by saying that no such agreement was executed with Chevron.

First Lepanto then advised Chevron the non-existence of the principal agreement as confirmed by
Fumitechniks. Chevron formally demanded from First Lepanto the payment of its claim under the surety
bond. First Lepanto reiterated its position that without the basic contract subject of the bond, it cannot act
on Chevron’s claim. Thus, Chevron sued.
Issue:

Whether or not First Lepanto, as surety, is liable

to Chevron, the creditor, in the absence of a
written contract with the principal.
Ruling:
NO. To determine whether First Lepanto is liable to Chevron under the surety bond, we need to
examine the terms of the contract itself. A reading of the bond shows that it secures the payment
of purchases on credit by Fumitechniks in accordance with the terms and conditions of the
“agreement” it entered into with Chevron. The word “agreement” has reference to the
distributorship agreement, the principal contract and by implication included the credit
agreement in the rider. But in this case, Chevron has executed written agreements only with its
direct customers but not to distributors like Fumitechniks and it also never relayed the terms and
conditions of its distributorship agreement to First Lepanto after the delivery of the bond.
NATIONAL POWER CORPORATION, Petitioner, -versus- COURT OF APPEALS and
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC., Respondents. G.R. No.
L-43706, November 14, 1986, Paras, J.
Facts:
NPC entered into a contract with the Far Eastern Electric, Inc. (FFEI) on December 26,
1962 for the erection of the transmission lines for the Angat Hydroelectric Project. FEEI
agreed to complete the work within 120 days from the signing of the contract, otherwise it
would pay NPC P200.00 per calendar day as liquidated damages, while NPC agreed to
pay the sum of P97,829.00 as consideration.

On the other hand, Philippine American General Insurance Co., Inc. (Philamgen) issued a
surety bond in the amount of P30,672 for the faithful performance of the undertaking by
FEEI, as required.
The work was abandoned on June 26, 1963, leaving the construction unfinished. On July
19, 1963, in a joint letter, Philamgen and FEEI informed NPC that FEEI was giving up
the construction due to financial difficulties. On the same date, NPC wrote Philamgen
informing it of the withdrawal of FEEI from the work and formally holding both FEEI
and Philamgen liable for the cost of the work to be completed as of July 20, 1962 plus
damages.

The work was completed by NPC on September 30, 1963. On January 30, 1967 NPC
notified Philamgen that FEEI had an outstanding obligation in the amount of P75,019.85,
exclusive of interest and damages, and demanded the remittance of the amount of the
surety bond the answer for the cost of completion of the work. In reply, Philamgen
requested for a detailed statement of account, but after receipt of the same, Philamgen
did not pay as demanded but contended instead that its liability under the bond has
expired on September 20, 1964 and claimed that no notice of any obligation of the surety
was made within 30 days after its expiration. RTC ruled in favor of NPC, which was
later reversed by the CA.
Issue:

Whether or not Philamgen is liable.

Ruling:
YES. The surety bond must be read in its entirety and together with the contract between NPC and the
contractors. The provisions must be construed together to arrive at their true meaning. Certain stipulations
cannot be segregated and then made to control.

In the case at bar, it cannot be denied that the breach of contract in this case, that is, the abandonment of
the unfinished work of the transmission line of the petitioner by the contractor Far Eastern Electric, Inc.
was within the effective date of the contract and the surety bond. Such abandonment gave rise to the
continuing liability of the bond as provided for in the contract which is deemed incorporated in the surety
bond executed for its completion. To rule therefore that private respondent was not properly notified
would be gross error.
 FINMAN GENERAL ASSURANCE CORP., Petitioner, -versus- WILLIAM
INOCENCIO, ET AL. AND EDWIN CARDONES, THE ADMINISTRATOR,
PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE
SECRETARY OF LABOR AND EMPLOYMENT, Respondents. G.R. No. 90273-75,
November 15, 1989, Feliciano, J.
Facts:
Pan Pacific Overseas is a recruitment agency which offers jobs abroad duly registered with
the POEA. Finman General is acting as Pan Pacific’s surety (as required by POEA rules and
Art. 31 of the Labor Code). Pan Pacific was sued by William Inocencio and 3 others for
alleged violation of Article 32 and 34 of the Labor Code. Inocencio alleged that Pan Pacific
charged and collected fees but failed to provide employment abroad.

POEA ruled in favor of Inocencio et al and had impleaded Finman (upon request of
Inocencio) in the complaint as well (Pan Pacific changed business address without prior
notice to POEA). The Labor Secretary affirmed POEA’s ruling.

Finman General asserts that it should not be impleaded in the case because it is not a party
to the contract between Pan Pacific and Inocencio et al.
Issue:

Whether or not Finman General is solidarily liable

in the case at bar
Ruling:
YES. Since Pan Pacific had thoughtfully refrained from notifying the POEA of its new address
and from responding to the complaints, petitioner Finman may well be regarded as an
indispensable party to the proceedings before the POEA. Whether Finman was an indispensable
or merely a proper party to the proceedings, the SC held that the POEA could properly implead it
as party respondent either upon the request of Inocencio et al or motu propio.

Such is the situation under the Revised Rules of Court. Finman General is solidarily liable.
Under Section 176 of the Insurance Code, as amended, the liability of a surety in a surety bond
(Finman) is joint and several with the principal obligor (Pan Pacific).
COUNTRY BANKERS INSURANCE CORPORATION, Petitioner, -versus ANTONIO
LAGMAN, Respondent. G.R. No. 165487, July 13, 2011, Perez, J.
Facts:
Nelson Santos (Santos) applied for a license with the National Food Authority
(NFA) to engage in the business of storing palay in his warehouse at Barangay
Malacampa, Camiling, Tarlac.

Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued

Warehouse Bond No. 03304 for P1,749,825.00 on 5 November 1989 and
Warehouse Bond No. 02355 for P749,925.00 on 13 December 1989 (1989
Bonds) through its agent, Antonio Lagman (Lagman). Santos was the bond
principal, Lagman was the surety and the Republic of the Philippines, through the
NFA was the obligee.
In consideration of these issuances, corresponding Indemnity Agreements were executed by Santos, as
bond principal, together with Ban Lee Lim Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine)
and Lagman, as co-signors. The latter bound themselves jointly and severally liable to Country
Bankers for any damages, prejudice, losses, costs, payments, advances and expenses of whatever kind
and nature, including attorneys fees and legal costs, which it may sustain as a consequence of the said
bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or become
liable to pay thereunder; and to pay interest at the rate of 12% per annum computed and compounded
monthly, as well as to pay attorneys fees of 20% of the amount due it.
Issue:

Whether or not the 1989 Bonds have expired and

the 1990 Bond novates the 1989 Bonds
Ruling:
NO. The official receipts in question serve as proof of payment of the premium for one year on
each surety bond. It does not, however, automatically mean that the surety bond is effective for
only one (1) year. In fact, the effectivity of the bond is not wholly dependent on the payment of
premium.
Section 177 of the Insurance Code expresses: Sec. 177. The surety is entitled to payment of the
premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor.
No contract of suretyship or bonding shall be valid and binding unless and until the premium
therefor has been paid, except where the obligee has accepted the bond, in which case the bond
becomes valid and enforceable irrespective of whether or not the premium has been paid by the
obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or
filed with the obligee, the surety shall collect only reasonable amount, not exceeding fifty per
centum of the premium due thereon as service fee plus the cost of stamps or other taxes
imposed for the issuance of the contract or bond: Provided, however, That if the non-acceptance
of the bond be due to the fault or negligence of the surety, no such service fee, stamps or taxes
shall be collected
V. LIFE INSURANCE

09-14-2022
Despi, Melanie Irene
a. Definition
Sec. 179 of the insurance code as amended- Life insurance
is an insurance on human lives and insurance thereto or
connected therewith.

Based on sec 180 of the insurance code, life insurance may

be denned as insurance payable on the death of a person, or
on his surviving a period or otherwise contingently on the
continuance or cessation of life.

• a mutual agreement
• a contract to make specific payments
b.Types:
a. Individual Life
Insurance on human lives and insurance appertaining thereto or connected therewith;

b. Group Life
A blanket policy covering a number of individuals

c. Industrial Life
A form of life insurance under which the premiums are payable either monthly or oftener, if the
face amount of insurance provided in any policy is not more than five hundred times that of the
current statutory minimum daily wage in the City of Manila and if the words “industrial” policy
are printed upon the policy as part of the descriptive matter.
c. other classifications of life
insurance policies:

a. Whole Life or Ordinary Policies- The insured agrees to pay annual, semi-annual or
quarterly premiums while he lives. The insurer agrees to pay the face value of the policy
upon the death of the insured.

b. Limited Payment Life Policies- A whole life or ordinary policy where premiums are
paid only for a specified period of years.

c. Term Policy- Insured pays only once and insurer’s liability arises only upon the death
of the insured within the agreed term as period. If the latter survives the period, the
contract terminates and the insurer is not liable.
d. Endowment Policy- Insurer agrees to pay a certain sum to the insured if the latter outlives a
designated period; if he dies before that time, the proceeds are paid to the beneficiary.

e. Life Annuity- Debtor binds (the insurer) himself to pay an annual pension or income during
the life of one or more persons in consideration of a capital consisting of money or other
property, whose ownership is transferred to him with the burden of income.
d. Risks:
• Personal risk is any risk that can affect the health or safety of an individual,
such as being injured by an accident or suffering from an illness.

• Property risk is any risk that can cause a partial or total loss to property,
such as theft, fire, or so-called "acts of God".

• Liability risk is the personal or business risk associated with being found
liable to another because of negligence or willful acts that caused a loss to
another's property or person, such as injuring someone while driving under
the influence of alcohol, or because the insured failed to perform a duty,
such as performing contractual obligations.
 RE: CLAIMS FOR BENEFITS OF THE HEIRS OF THE LATE MARIO V.
CHANLIONGCO, FIDELA B. CHANLIONGCO, MARIO B. CHANLIONGCO II, MA.
ANGELINA C. BUENAVENTURA and MARIO C. CHANLIONGCO, JR., Claimants.
A.M. No. 190, October 18, 1977, Makasiar, J.
This matter refers to the claims for retirement benefits filed by the heirs of the late ATTY.
MARIO V. CHANLIONGCO an attorney in this Court, under the provisions of R.A. No.
1616, as amended by R.A. No. 4986.

• It appears from the records that at the time of his death on July 12, 1976, Atty.
Chanliongco was more than 63 years of age, with more than 38 years of service in
the government. He did not have any pending criminal administrative or not case
against him, neither did he have any money or property accountability.
• According to law, the benefits accruing to the deceased consist of: (1) retirement
benefits; (2) money value of terminal leave; (3) life insurance and (4) refund of
retirement premium. From the records now before US, it appears that the GSIS had
already the released the life insurance proceeds; and the refund of rent to the
claimants.
What, therefore, to be settled are the retirement benefits and the money
value of leave, both of which are to be paid by this court as the deceased's
last employer. The record also shows that the late Atty. Chanliongco died
ab intestate.

Hence, the retirement benefits shall accrue to his estate and will be
distributed among his Legal heirs, as in the case of a life if no beneficiary
is named in the policy (Vda. de vs. GSIS, L-28093, Jan. 30, 1971, 37
SCRA 315, 325).
 THE INSULAR LIFE ASSURANCE COMPANY, LTD., Plaintiff-appellee, -versus-
CARPONIA T. EBRADO and PASCUALA VDA. DE EBRADO, Defendants-appellants.
G.R. No. L-44059, October 28, 1977, Martin, J.
Facts:
Buenaventura Ebrado was issued a whole-life plan by petitioner, and
Carponia Ebrado was named as the revocable beneficiary in his policy.
Buenaventura died as a result of an accident. As the insurance policy was
in force, petitioner was liable to pay the coverage of the face value of the
policy. Carponia filed a claim for the proceeds of the policy although she
admits that she and the deceased were common-law spouses. Pascuala also
filed a claim. The CFI rendered judgment declaring Carponia to be
disqualified to claim, and the insurance proceeds was to be paid to the
estate of the deceased.
Issue:

Whether or not a common-law spouse named as a

beneficiary claim the proceeds of an insurance
policy?
Ruling:
NO. Art. 739 (NCC) states, among others, that a donation made between persons who
are guilty of adultery or concubinage at the time of the donation is void. A life insurance
policy is no different from a civil donation insofar as the beneficiary is concerned. Both
are founded on the same consideration: liberality. As a consequence, the proscription in
Art. 739 should equally operate in life insurance contracts. In such a case, there is no
need that a conviction for adultery or concubinage is exacted before the disabilities
mentioned in Art. 739 may effectuate. Criminal conviction is not a condition precedent
(as regards the first paragraph of the same article). So long as marriage remains, the
threshold of family laws, reason and morality dictate that the impediments imposed
upon a married couple should likewise be imposed upon extra-marital relationship. If
legitimate relationship is circumscribed by these legal disabilities, with more reason
should an illicit relationship be restricted by these disabilities.
GREAT PACIFIC LIFE ASSURANCE COMPANY, Petitioner, -versus- HONORABLE
COURT OF APPEALS, Respondents. G.R. No. L-31845, April 30, 1979, De Castro, J.
Facts:
Ngo Hing filed an application with the Great Pacific for a twenty-year endowment policy in the amount of
P50,000.00 on the life of his one-year old daughter Helen. He supplied the essential data which petitioner
Mondragon, the Branch Manager, wrote on the form. The latter paid the annual premium the sum of
P1,077.75 going over to the Company, but he retained the amount of P1,317.00 as his commission for being
a duly authorized agent of Pacific Life.

Upon the payment of the insurance premium, the binding deposit receipt was issued Ngo Hing.
Likewise, petitioner Mondragon handwrote at the bottom of the back page of the application form his
strong recommendation for the approval of the insurance application. Then Mondragon received a
letter from Pacific Life disapproving the insurance application.
The letter stated that the said life insurance application for 20-year endowment plan is not
available for minors below seven years old,but Pacific Life can consider the same under the
Juvenile Triple Action Plan, and advised that if the offer is acceptable, the Juvenile Non-
Medical Declaration be sent to the company.

The non-acceptance of the insurance plan by Pacific Life was allegedly not communicated by
petitioner Mondragon to private respondent Ngo Hing. Instead, on May 6, 1957, Mondragon
wrote back Pacific Life again strongly recommending the approval of the 20-year endowment
insurance plan to children, pointing out that since the customers were asking for such
coverage. Helen Go died of influenza. Ngo Hing sought the payment of the proceeds of the
insurance, but having failed in his effort, he filed the action for the recovery before the Court
of First Instance of Cebu, which ruled against him.
Issue:

1. Whether the binding deposit receipt constituted a

temporary contract of the life insurance in question

2. Whether Ngo Hing concealed the state of health and

physical condition of Helen Go, which rendered void the
policy
Ruling:
1. NO. The receipt was intended to be merely a provisional insurance contract.
Its perfection was subject to compliance of the following conditions: (1) that
the company shall be satisfied that the applicant was insurable on standard
rates; (2) that if the company does not accept the application and offers to issue
a policy for a different plan, the insurance contract shall not be binding until
the applicant accepts the policy offered; otherwise, the deposit shall be
refunded; and (3) that if the company disapproves the application, the
insurance applied for shall not be in force at any time, and the premium paid
shall be returned to the applicant. The receipt is merely an acknowledgment
that the latter's branch office had received from the applicant the insurance
premium and had accepted the application subject for processing by the
insurance company.
There was still approval or rejection the same on the basis of whether or not the
applicant is "insurable on standard rates." Since Pacific Life disapproved the insurance
application of respondent Ngo Hing, the binding deposit receipt in question had never
become in force at any time. The binding deposit receipt is conditional and does not
insure outright. This was held in Lim v Sun. The deposit paid by private respondent
shall have to be refunded by Pacific Life.

2. YES. Ngo Hing had deliberately concealed the state of health of his daughter Helen
Go. When he supplied data, he was fully aware that his one-year old daughter is
typically a mongoloid child. He withheld the fact material to the risk insured. “The
contract of insurance is one of perfect good faith uberrima fides meaning good faith,
absolute and perfect candor or openness and honesty; the absence of any concealment
or demotion, however slight.” The concealment entitles the insurer to rescind the
contract of insurance.