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AUTOCORP GROUP v. INTRA STRATA ASSURANCE CORPORATION

FACTS:

The case involves Autocorp Group, represented by its President Peter Y. Rodriguez, who obtained two re-export bonds from Intra Strata Assurance Corporation (ISAC) in favor of the Bureau of Customs (BOC). The bonds were executed to guarantee the re-export of certain vehicles and to pay the taxes and duties thereon. Autocorp Group and Rodriguez executed Indemnity Agreements with ISAC, agreeing to act as surety of the bonds and to indemnify ISAC for any damages, losses, costs, taxes, penalties, charges, and expenses. They also agreed to pay attorney's fees and to waive any venue of action. Petitioners failed to re-export the items and pay the taxes and duties, and the BOC considered the bonds forfeited. ISAC filed a complaint against petitioners to recover the face value of the bonds. The Regional Trial Court (RTC) ordered petitioners to pay ISAC and/or the BOC the face value of the bonds, as well as attorney's fees. The RTC decision was affirmed by the Court of Appeals, with a modification in the amount of attorney's fees awarded. Petitioners filed a petition for review on certiorari before the Supreme Court, questioning the judgment rendered by the Court of Appeals.

The petitioners argue that their obligation to ISAC is not yet due and demandable, and they cannot be held liable in the absence of an actual forfeiture of the bonds by the BOC or an explicit pronouncement by the BOC that ISAC is already liable on the bonds. They claim that there is yet no actual forfeiture and only a recommendation of forfeiture has been made. The petitioners argue that the civil case was prematurely filed since no writ of execution has been issued against the bonds, and there is no evidence of legal demand against one of the bonds or any notice for its forfeiture and/or confiscation by the BOC. The Court of Appeals, on the other hand, ruled that an actual forfeiture is not necessary for the petitioners to be liable as surety under the Indemnity Agreements executed between them and ISAC.

ISSUES:

  1. Whether the obligation of the petitioners to indemnify ISAC became due and demandable prior to the actual forfeiture or payment of the subject bonds.

  2. Whether the lack of demand by ISAC on petitioners as regards one of the subject bonds is a valid defense against the claim of ISAC.

  3. Whether an extrajudicial demand is necessary before filing a civil case for collection.

  4. Whether the Bureau of Customs (BOC) was properly included as a party in the case.

  5. Whether the inclusion of the BOC as a party deprives the defendants of their personal defenses against the BOC.

  6. Whether ISAC can file a case against the petitioners even if it has not paid the BOC yet.

  7. Whether the BOC is a necessary party in the case filed by ISAC.

  8. Whether petitioner Rodriguez can be held liable as a guarantor or surety.

  9. Whether the provisions of Article 2079 of the Civil Code apply to a surety.

  10. Whether the provision in the Indemnity Agreements authorizing ISAC to consent to the granting of any extension, modification, alteration, and/or renewal of the subject bonds is legal.

  11. Whether there is any illegality in the agreement whereby the sureties bound themselves to be liable in case of an extension or renewal of the bond without executing another indemnity agreement and without being notified.

RULING:

  1. The Court ruled that the obligation of the petitioners to indemnify ISAC became due and demandable the moment the subject bonds became answerable for the petitioners' non-compliance with their undertaking with the BOC. The Court emphasized that the Indemnity Agreements explicitly provide that the petitioners shall be liable to indemnify ISAC "whether or not payment has actually been made by ISAC" and ISAC may proceed against petitioners by court action or otherwise "even prior to making payment to the BOC."

  2. The Court held that a demand by ISAC on petitioners is not necessary before the obligation becomes due and demandable. Demand is only required to put an obligor in a due and demandable obligation.

  3. An extrajudicial demand is not required before filing a civil case for collection, unless stipulated otherwise.

  4. The misjoinder of parties does not warrant the dismissal of the action. The BOC is deemed a necessary party and should not be dropped as a party to the case.

  5. The defendants' personal defenses against the BOC are available against ISAC, as ISAC steps into the shoes of the BOC. However, ISAC's right to seek indemnity from the defendants does not constitute subrogation unless ISAC has already made payment to the BOC.

  6. ISAC can file a case against the petitioners even if it has not paid the BOC yet. The right to file the case is based on the express provision of the Indemnity Agreements, making the petitioners liable to ISAC at the moment ISAC's bonds become due and demandable for Autocorp Group's liability to the BOC.

  7. The BOC is a necessary party in the case filed by ISAC. This allows the petitioners to invoke their defenses against both the BOC and ISAC, giving them the opportunity to disprove their liability to the BOC and negate their liability to ISAC.

  8. Petitioner Rodriguez can be held liable as a surety. The Court of Appeals correctly ruled that both petitioners assumed liability as sureties based on the provisions of the Indemnity Agreement.

  9. The provisions of Article 2079 of the Civil Code apply to a surety. Even though the Court of Appeals erred in stating that Article 2079 does not apply to a surety, it does not affect the decision since the petitioners authorized ISAC to grant or consent to the granting of any extension or modification of the bonds.

  10. The provision in the Indemnity Agreements authorizing ISAC to consent to the granting of any extension, modification, alteration, and/or renewal of the subject bonds is legal.

  11. There is no illegality in the agreement whereby the sureties bound themselves to be liable in case of an extension or renewal of the bond without executing another indemnity agreement and without being notified.

PRINCIPLES:

  • The obligation of a surety to indemnify becomes due and demandable once the subject bonds become answerable for the principal's non-compliance.

  • The absence of actual forfeiture or payment of the bonds does not prevent the surety from being held liable if the Indemnity Agreement explicitly provides for such liability.

  • A demand is not required for an obligation to be due and demandable. Demand is only necessary to put an obligor in a due and demandable obligation.

  • An extrajudicial demand is not necessary before filing a civil case for collection, unless stipulated otherwise.

  • Misjoinder or non-joinder of parties is not a ground for dismissal of an action. Parties may be dropped or added by order of the court at any stage of the action.

  • A necessary party is one who ought to be joined if complete relief is to be accorded, or for a complete determination or settlement of the claim subject of the action.

  • The inclusion of a necessary party does not deprive the defendants of their personal defenses against that party, as those defenses are available against the party stepping into its shoes.

  • The benefit of subrogation, which transfers the credit and all the rights thereto appertaining, is granted only to the guarantor or surety who pays.

  • The right of a guarantor or surety to file a case against the principal debtor arises at the moment the debtor becomes liable, without the need for actual payment by the guarantor or surety.

  • All defenses available against the principal debtor can also be invoked against the guarantor or surety.

  • The guarantor or surety can invoke the provisions of the Civil Code on Guarantee, including Article 2079, which provides for the extinguishment of a guaranty in certain circumstances.

  • The provisions of the Civil Code on Guarantee, other than the benefit of excussion, are applicable and available to a surety.

  • An agreement authorizing a surety to consent to the granting of any extension, modification, alteration, and/or renewal of the subject bonds is valid.

  • A surety can bind itself to be liable in case of an extension or renewal of the bond without executing another indemnity agreement and without being notified.