Autocorp Group vs. Intra Strata Assurance Corporation

A surety’s obligation to indemnify a guarantor arises the moment the guarantor’s bond becomes due and demandable due to the principal’s default, even without actual forfeiture of the bond or prior payment by the guarantor, provided the indemnity agreement expressly stipulates such liability.

Autocorp Group, represented by its President Peter Y. Rodriguez, obtained two ordinary re-export bonds from Intra Strata Assurance Corporation (ISAC) in favor of the Bureau of Customs (BOC) to guarantee the re-export of imported vehicles and the payment of taxes and duties. Petitioners executed Indemnity Agreements in favor of ISAC, agreeing to jointly and severally indemnify ISAC for any liability it may incur on the bonds. Rodriguez signed both as Autocorp’s President and in his personal capacity. Autocorp failed to re-export the vehicles or pay the taxes, prompting the BOC to consider the bonds forfeited. ISAC subsequently filed a collection suit against petitioners, impleading the BOC as a necessary party plaintiff.

• The Bonds: On 19 August 1990 and 21 December 1990, Autocorp Group secured Instrata Bond No. 5770 (P327,040.00) and Instrata Bond No. 7154 (P707,609.00 after increase) from ISAC in favor of the BOC to guarantee the re-export of two Hyundai vehicles and/or payment of taxes.
• The Indemnity Agreements: Petitioners executed identical indemnity agreements in favor of ISAC, stipulating that they would jointly and severally indemnify ISAC for any damages, losses, or expenses incurred by reason of its suretyship. The agreements contained specific clauses: (1) "Maturity of Our Obligations" allowing ISAC to proceed against petitioners even prior to making payment to the BOC once ISAC becomes legally liable; (2) "Our Liability Hereunder" making the indemnitors' liability primary and exigible immediately upon default; and (3) "Renewals, Alterations and Substitutions" authorizing ISAC to grant extensions or modifications without the necessity of a new indemnity agreement. Petitioners also waived their rights under Articles 2077, 2078, 2079, 2080, and 2081 of the Civil Code.
• Default and Forfeiture: Autocorp Group failed to re-export the vehicles or pay the taxes and duties. The BOC considered the two bonds, with a total face value of P1,034,649.00, forfeited.
• Demand and Litigation: After failing to secure payment from petitioners despite demands, ISAC filed a collection suit in the RTC of Makati City, impleading the BOC as a necessary party plaintiff to ensure the judgment would be adjudged unto the BOC.

• Prematurity of Action: Petitioners argued that ISAC's claim was premature because there was no actual forfeiture of the bonds by the BOC (no writ of execution) and no legal demand made by ISAC on Bond No. 5770.
• Improper Impleading of BOC: Petitioners contended that the BOC was improperly impleaded as it was not represented by the Solicitor General and that such inclusion would result in collusion, depriving petitioners of their personal defenses against the BOC.
• Exoneration of Rodriguez: Petitioner Rodriguez maintained that he was merely a guarantor, and any amendment to the effectivity of the bonds without his consent extinguished his liability under Article 2079 of the Civil Code.

• Due and Demandable Obligation: Respondent ISAC argued that under the express terms of the indemnity agreements, petitioners' obligation became due and demandable the moment the bonds became answerable for non-compliance, regardless of actual forfeiture or payment.
• Necessary Party: Respondent ISAC asserted that the BOC was a necessary party to ensure a complete settlement of the liability of Autocorp Group to the BOC.
• Surety Liability: Respondent ISAC countered that Rodriguez was a surety with primary liability, not merely a guarantor, and that the indemnity agreement authorized ISAC to consent to extensions without Rodriguez's consent.

• Prematurity of Action: Whether ISAC's action against petitioners is premature in the absence of actual forfeiture of the bonds by the BOC or prior payment by ISAC.
• Misjoinder of Parties: Whether the inclusion of the BOC as a necessary party plaintiff warrants the dismissal of the action or deprives petitioners of their defenses.
• Exoneration of Surety: Whether petitioner Rodriguez is exonerated from liability due to the alleged modification of the bonds without his consent under Article 2079 of the Civil Code.

• Prematurity of Action: The action was not premature. The indemnity agreements expressly authorized ISAC to proceed against petitioners the moment the bonds became due and demandable due to Autocorp's default, irrespective of actual forfeiture or payment. This stipulation is a valid contractual expression of Article 2071 of the Civil Code, which allows a guarantor to proceed against the principal debtor when the debt becomes demandable. Furthermore, extrajudicial demand is not a prerequisite to filing a judicial demand for collection; demand is only necessary to constitute delay for the purpose of earning interest or damages.
• Misjoinder of Parties: The inclusion of the BOC did not warrant dismissal. Under Section 11, Rule 3 of the Rules of Court, misjoinder of parties is not a ground for dismissal. The BOC is a necessary party under Section 8, Rule 3, as its presence is required for a complete determination of Autocorp's liability to the BOC. Although the BOC should have been impleaded as an unwilling co-plaintiff under Section 10, Rule 3, this procedural irregularity did not prejudice petitioners. Impleading the BOC allowed petitioners to invoke their defenses against both the BOC and ISAC simultaneously. ISAC's right to seek indemnity does not constitute legal subrogation (which requires payment under Article 2067), but petitioners' defenses against the BOC remain available against ISAC because ISAC's contractual right only arises if Autocorp is liable to the BOC.
• Exoneration of Surety: Rodriguez was not exonerated. While Article 2079 of the Civil Code applies to sureties, the indemnity agreement expressly authorized ISAC to consent to extensions, modifications, or renewals of the bond without the necessity of a new indemnity agreement. Such a stipulation is valid and binding, precluding Rodriguez from invoking Article 2079 to extinguish his liability.

• Right of Guarantor to Proceed Against Principal Before Payment (Art. 2071, Civil Code) — A guarantor, even before having paid, may proceed against the principal debtor to obtain release from the guaranty or demand security when the debt has become demandable by reason of the expiration of the period for payment, among other instances. The Court applied this principle to uphold the indemnity agreement's stipulation allowing ISAC to sue petitioners the moment the bonds became due and demandable, even prior to actual payment by ISAC to the BOC.
• Misjoinder of Parties (Sec. 11, Rule 3, Rules of Court) — Neither misjoinder nor non-joinder of parties is a ground for dismissal of an action. Misjoined parties may be dropped or added by order of the court. The Court held that even if the BOC was improperly impleaded as a plaintiff instead of an unwilling co-plaintiff, this did not warrant the dismissal of the action.
• Necessary Party (Sec. 8, Rule 3, Rules of Court) — A necessary party is one who is not indispensable but who ought to be joined as a party if complete relief is to be accorded as to those already parties, or for a complete determination or settlement of the claim subject of the action. The Court held the BOC was a necessary party because a complete settlement of Autocorp's liability to the BOC required the BOC's presence.
• Applicability of Guaranty Provisions to Sureties — The provisions of the Civil Code on Guarantee, other than the benefit of excussion, are applicable and available to the surety. The Court recognized that Article 2079 on the extinguishment of guaranty applies to sureties, but found it unavailing due to the contractual waiver.
• Validity of Stipulations Authorizing Extensions in Surety Agreements — An agreement whereby sureties bind themselves to be liable in case of an extension or renewal of the bond, without the necessity of executing another indemnity agreement and without the necessity of being notified of such extension or renewal, is valid and does not militate against the law, good customs, morals, public order, or public policy.

• "petitioners’ obligation to indemnify ISAC became due and demandable the moment the bonds issued by ISAC became answerable for petitioners’ non-compliance with its undertaking with the BOC."
• "The Indemnity Agreements, therefore, give ISAC the right to recover from petitioners the face value of the subject bonds plus attorney’s fees at the time ISAC becomes liable on the said bonds to the BOC, regardless of whether the BOC had actually forfeited the bonds, demanded payment thereof and/or received such payment."
• "ISAC cannot be said to have stepped into the shoes of the BOC, because the BOC still retains said rights until it is paid. ISAC’s right to file Civil Case No. 95-1584 is based on the express provision of the Indemnity Agreements making petitioners liable to ISAC at the very moment ISAC’s bonds become due and demandable for the liability of Autocorp Group to the BOC, without need for actual payment by ISAC to the BOC."

• Philippine American General Insurance Co., Inc. v. Mutuc, 158 Phil. 699 (1974) — Followed. The Court cited this case to uphold the validity of the stipulation in the indemnity agreement binding the surety to be liable in case of extension or renewal of the bond without the necessity of a new indemnity agreement or notification.
• Manila Surety and Fidelity Co., Inc. v. Batu Corporation and Company, 101 Phil. 494 (1957) — Followed. Cited for the proposition that the provisions of the Civil Code on Guarantee, other than the benefit of excussion, are applicable and available to the surety.

• Article 2071, Civil Code — Enumerates the instances when a guarantor, even before having paid, may proceed against the principal debtor. Applied to justify ISAC's action against petitioners before actual payment to the BOC, as the debt had become demandable.
• Article 2079, Civil Code — Provides that an extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. The Court held that while this provision applies to sureties, it did not exonerate Rodriguez because the indemnity agreement expressly authorized ISAC to consent to extensions.
• Article 2067, Civil Code — States that the guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. Applied negatively to clarify that ISAC was not subrogated to the BOC's rights because it had not yet paid the BOC.
• Section 8, Rule 3, Rules of Court — Defines a necessary party. Applied to classify the BOC as a necessary party whose presence was required for a complete determination of the claim.
• Section 10, Rule 3, Rules of Court — Provides the procedure for impleading an unwilling co-plaintiff. Applied to note the procedural irregularity in impleading the BOC as a plaintiff instead of a defendant, though this did not invalidate the proceedings.
• Section 11, Rule 3, Rules of Court — States that misjoinder and non-joinder of parties is not a ground for dismissal of an action. Applied to reject petitioners' argument that the improper impleading of the BOC warranted dismissal.

Ynares-Santiago, Austria-Martinez, Nachura, Reyes