Living @ Sense, Inc. vs. Malayan Insurance Company, Inc.

A party who binds itself jointly and severally with a principal debtor under a surety bond creates a solidary obligation, and the principal debtor is not an indispensable party in a suit to enforce the bond, as the creditor may proceed against any solidary debtor under Article 1216 of the Civil Code; moreover, failure to implead an indispensable party warrants the impleading of that party, not the dismissal of the action.

Petitioner Living @ Sense, Inc., as main contractor for a Globe Telecom project, entered into a Sub-Contract Agreement with Dou Mac, Inc. (DMI) for underground open-trench work. DMI secured surety and performance bonds from respondent Malayan Insurance Company, Inc., binding itself jointly and severally with DMI to answer for unliquidated downpayments and potential losses. After the Department of Public Works and Highways issued a work-stoppage order due to unsatisfactory work and DMI failed to adopt corrective measures, petitioner terminated the agreement and sought indemnification from respondent.

• The Sub-Contract and Bonds: Petitioner, as main contractor for Globe Telecom's FOC Network Project in Mindanao, subcontracted underground open-trench work to DMI. Petitioner required DMI to secure bonds to guarantee performance. DMI obtained surety and performance bonds from respondent Malayan Insurance, both in the amount of ₱5,171,488.00. The bonds expressly bound DMI and Malayan Insurance "jointly and severally" to petitioner.
• Breach and Demand: During the excavation and restoration works, the DPWH issued a work-stoppage order against DMI due to unsatisfactory work. DMI failed to adopt corrective measures, prompting petitioner to terminate the Agreement. Petitioner demanded indemnification from respondent in the total amount of ₱1,040,895.34.
• Denial of Claim: Respondent denied the claim, asserting that the liability of its principal, DMI, must first be ascertained before its own liability as a surety could attach.

• Solidary Liability: Petitioner argued that respondent is a surety directly and primarily liable to indemnify petitioner, having bound itself jointly and severally with DMI.
• Callable on Demand: Petitioner maintained that the bond is "callable on demand" in the event DMI fails to perform its obligations under the Agreement.
• Right to Choose Debtor: Petitioner asserted that under Article 1216 of the Civil Code, the rule on solidary obligations permits the creditor to proceed against any of the solidary debtors, rendering DMI's presence in the suit unnecessary.

• Indispensable Party: Respondent countered that DMI is an indispensable party that must be impleaded in the suit.
• Prior Determination of Liability: Respondent argued that DMI's liability must first be determined before respondent, as surety, can be held liable.

• Indispensable Party: Whether DMI is an indispensable party in a suit to enforce surety and performance bonds where the surety bound itself jointly and severally with the principal.
• Proper Remedy: Whether the dismissal of the complaint is the proper remedy for the failure to implead an indispensable party.

• Indispensable Party: DMI is not an indispensable party. The surety and performance bonds expressly bound respondent "jointly and severally" with DMI, creating a solidary obligation. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors. Because petitioner can claim indemnity directly from respondent, a final determination can be had without DMI's presence.
• Proper Remedy: Even assuming DMI were an indispensable party, dismissal of the complaint was reversible error. The failure to implead an indispensable party is not a ground for dismissal; the proper remedy is to order the impleading of the missing party, which may be done at any stage of the action on motion of a party or on the court's own initiative.

• Indispensable Parties — An indispensable party is a party-in-interest without whom no final determination can be had of an action, and who shall be joined mandatorily. Their presence is necessary to vest the court with jurisdiction; absence renders all subsequent actions of the court null and void for want of authority. In this case, the principal debtor was not an indispensable party because the solidary nature of the surety's obligation allowed the creditor to proceed directly against the surety alone, meaning a final determination could be had without the principal.
• Remedy for Non-Impleading — Failure to implead an indispensable party does not warrant the dismissal of the action. The correct remedy is to implead the party claimed to be indispensable, as parties may be added by order of the court on motion or on its own initiative at any stage of the action.

• "The nature of the solidary obligation under the surety does not make one an indispensable party."
• "Failure to implead an indispensable party is not a ground for the dismissal of an action, as the remedy in such case is to implead the party claimed to be indispensable, considering that parties may be added by order of the court, on motion of the party or on its own initiative at any stage of the action."

• Inciong v. CA, 327 Phil. 364 (1996) — Cited for the proposition that the term "jointly and severally" expresses a solidary obligation.
• Republic v. Sandiganbayan, 255 Phil. 71 (1989) — Cited for the definition of an indispensable party and the principle that the nature of a solidary obligation under a surety does not make the principal an indispensable party.
• Lotte Phil. Co., Inc. v. Dela Cruz, 502 Phil. 816 (2005) — Cited for the rule that the absence of an indispensable party renders all subsequent actions of the court null and void for want of authority to act.
• Vda. De Manguerra v. Risos, G.R. No. 152643, August 28, 2008, 563 SCRA 499 — Cited for the doctrine that failure to implead an indispensable party is not a ground for dismissal, but requires the impleading of the party.

• Article 1216, Civil Code — Provides that the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. Applied to hold that petitioner could proceed directly against respondent surety without impleading the principal debtor DMI, as the bond created a solidary obligation.

Carpio, A.T. (Chairperson), Leonardo de Castro, T.J., Brion, A.D., Perez, J.P.