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Cochingyan Vs R&B SURETY

This case involved a surety bond issued by R&B Surety and Insurance Co. to guarantee a loan from the Philippine National Bank to Pacific Agricultural Suppliers. Joseph Cochingyan Jr. and Jose Villanueva had signed indemnity agreements with R&B Surety as part of the surety bond transaction. When PAGRICO defaulted on its loan, R&B Surety made payments to PNB but then sought reimbursement from Cochingyan and Villanueva based on the indemnity agreements. Cochingyan and Villanueva argued they were released from the indemnity agreements because a later trust agreement extended the term of the surety bond without their consent. However

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839 views2 pages

Cochingyan Vs R&B SURETY

This case involved a surety bond issued by R&B Surety and Insurance Co. to guarantee a loan from the Philippine National Bank to Pacific Agricultural Suppliers. Joseph Cochingyan Jr. and Jose Villanueva had signed indemnity agreements with R&B Surety as part of the surety bond transaction. When PAGRICO defaulted on its loan, R&B Surety made payments to PNB but then sought reimbursement from Cochingyan and Villanueva based on the indemnity agreements. Cochingyan and Villanueva argued they were released from the indemnity agreements because a later trust agreement extended the term of the surety bond without their consent. However

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No.

L-47369 June 30, 1987 JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA, petitioners, vs. R & B SURETY AND INSURANCE COMPANY, INC., respondent.

FACTS: In November 1963, Pacific Agricultural Suppliers, Inc. (PAGRICO) was granted an increase in its line of credit from P400,000.00 to P800,000.00 (the "Principal Obligation"), with the Philippine National Bank (PNB). PAGRICO submitted Surety Bond No, issued by the respondent R & B Surety and Insurance Co., Inc. (R & B Surety") in the amount of P400,000.00 in favor of the PNB. In consideration of R & B Surety's issuance of the Surety Bond, two identical indemnity agreements were entered into with R & B Surety executed by the Catholic Church Mart (CCM) and by petitioner Joseph Cochingyan, Jr, and (b) another agreement dated 24 December 1963 was executed by PAGRICO. When PAGRICO failed to comply with its Principal Obligation to the PNB, the PNB demanded payment from R & B Surety of the sum of P400,000.00, the full amount of the Principal Obligation. R & B Surety made a series of payments to PNB by virtue of that demand totalling P70,000.00 evidenced by detailed vouchers and receipts. R & B Surety in turn sent formal demand letters to petitioners Joseph Cochingyan, Jr. and Jose K. Villanueva for reimbursement of the payments made by it to the PNB and for a discharge of its liability to the PNB under the Surety Bond. When petitioners failed to heed its demands, R & B Surety brought suit against Joseph Cochingyan, Jr., Jose K. Villanueva and Liu Tua Ben. ISSUES: Whether the Trust Agreement extended the term of the Surety Bond so as to release petitioners from their obligation as indemnitors thereof as they did not give their consent to the execution of the Trust Agreement; and HELD:

The Indemnity Agreement speaks of the several indemnitors "apply[ing] jointly and severally (in solidum) to the R & B Surety] to become SURETY upon a SURETY BOND demanded by and in favor of [PNB] in the sum of [P400,000.00] for the faithful compliance of the terms and conditions set forth in said SURETY BOND ." This part of the Agreement suggests that the indemnitors (including the petitioners) would become co-sureties on the Security Bond in favor of PNB. The record, however, is bereft of any indication that the petitioners-indemnitors ever in fact became co-sureties of R & B Surety vis-a-vis the PNB. The petitioners, so far as the record goes, remained simply indemnitors bound to R & B Surety but not to PNB, such that PNB could not have directly demanded payment of the Principal Obligation from the petitioners. Thus, we do not see how Article 2079 of the Civil Code-which provides in part that "[a]n extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty" could apply in the instant case. The petitioner-indemnitors are, as, it were, second-tier parties so far as the PNB was concerned and any extension of time granted by PNB to any of the first-tier obligators (PAGRICO, R &B Surety and the trustors[s]) could not prejudice the second-tier parties. The theory behind Article 2079 is that an extension of time given to the principal debtor by the creditor without the surety of his right to pay the creditor and to be immediately subrogate ed to the creditor's remedies against the principal debtor upon the original maturity date. The surety is said to be entitled to protect himself against the principal debtor upon the orginal maturity date. The surety is said to be entitled to protect himself against the contingency of the principal debtor or the indemnitors becoming insolvent during the extended period

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