Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-30554 February 28, 1983

PLARIDEL SURETY & INSURANCE COMPANY, petitioner, 

vs.
ARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding Judge,
Branch XIII, Court of First Instance of Manila, respondents.

Bonifacio L. Hilario and Arturo Topacio, Jr., for petitioner.

Norberto Quisumbing for respondents.

GUTIERREZ, JR., J.:

This is a petition for review on certiorari of the orders of the respondent judge dismissing the
complaint in Civil Case No. 73904 and denying a motion for reconsideration of the dismissal order.
The petitioner filed with the Court of First Instance of Manila a complaint for a sum of money against
respondent Artex Development Co. Inc., wherein it prayed that judgment be rendered in its favor as
follows:

a) Ordering the respondent (defendant) Artex Development Co. Inc. to pay plaintiff the
sum of P20,570.24, plus interest thereon at the rate of 12% per annum computed
monthly and automatically accumulated to the outstanding capital and shall bear the
same interests as said capital until fully paid;

b) Ordering the defendant to pay plaintiff, the sum equivalent to 15% per centum of the
amount due as and for attorneys fees; and

c) For costs of suit.

The action was brought by the petitioner to recover from the respondent company P20,570.24 worth
of renewal premiums and costs of documentary stamps on various surety bonds posted by petitioner
Plaridel Surety and Insurance Co., in behalf of respondent Artex Development Co. Inc., as principal in
favor of the Republic of the Philippines through the Bureau of Customs and the Board of Industries.

These surety bonds were posted pursuant to Republic Act No. 4086 and its implementing Rules and
Regulations No. 1-64 particularly paragraph 9, which provides:

Par. 9. Withdrawal Under Bond. – Persons or firms who or which have pending
applications for tax exemption privileges under the Act and whose imported raw
materials, chemicals, dyestuffs and spare parts are actually within the Bureau of
Customs jurisdiction, may withdraw such raw materials chemicals, dyestuffs and spare
parts from the customs house upon the posting of a bond equivalent to the customs
duties and taxes due thereon in accordance with the rules and regulations of the
Department of Finance and the Bureau of Customs.

Consequently, the respondent withdrew from the Bureau of Customs' custody shipments of imported
raw materials, chemicals, dyestuffs and spare parts which were then subject to customs duties,
special import taxes, sales and/or compensating taxes because the respondent's applications for tax
exemption of these items were not then approved by the Board of Industries.

In consideration of the obligation assumed by the petitioner, the private respondent agreed to pay the
premiums and cost of documentary stamps due thereon as per stipulations contained in the separate
agreement of counter-guaranty:
 (a) PREMIUM – To pay to the Surety Company at its principal offices in the sum of ... in
advance as premiums of same for each period of (12) mos. beginning March 1965 or
fraction thereof, to be computed from this date until said bonds and its renewals,
extensions or substitutions be cancelled in full by the person or entity guaranteed
thereby, or by a court of competent jurisdiction.

It is an admitted fact that the premiums due and costs of documentary stamps for the first year
duration of the undertaking under these surety bonds, which was from March 1965 to March 1966,
were paid in accordance with the agreements of counter-guaranty.

On December 19, 1966, respondent Artex Development Co. Inc., was granted tax exemption by the
Board of Industries (BOI Certificate No. 22). Thereafter, the respondent stopped paying premiums
and costs of documentary stamps to the petitioner.

On September 11, 1968, the private respondent filed its motion to dismiss petitioner's complaint on
the ground that it states no cause of action and/or that the claim or demand setforth therein has been
extinguished. The petitioner filed its opposition to the motion to dismiss followed by the respondent's
filing its reply to the opposition.

Acting on the motion to dismiss, the respondent judge issued one of the assailed orders which reads
as follows:

After careful consideration of defendant's motion to dismiss, dated 9 September, 1968,

plaintiff's opposition thereto, dated September 12, 1968, and movant's closing written
arguments (Reply to Opposition, dated 20 September 1968), this Court finds said
motion to dismiss to be well taken.

WHEREFORE, said motion to dismiss, dated 9 September, 1968 is hereby granted, and
plaintiff's action or complaint is hereby dismissed, without pronouncement as to costs.

The respondent judge later issued the other assailed order denying petitioner's motion for
reconsideration.

The private respondent contents that the grant of tax exemption by the Board of Industries on
December 19, 1966 rendered null and void and extinguished the surety bonds and agreement of
counter guaranty. It argues that guaranty and suretyship are accessory to and dependent upon the
principal obligation guaranteed or secured by them and cannot exist without a valid obligation.
Therefore, as a necessary consequence, the obligation of defendant to pay premiums and cost of
documentary stamps allegedly due on the extinguished agreements of counter guaranty has likewise
been rendered of no force and effect.

Petitioner, on the other hand, maintains that, granting arguendo that the grant of tax exemption in
favor of respondent corporation had the effect of releasing the surety bonds involved, still the
petitioner had the valid and subsisting right to claim unpaid renewal premiums and costs of
documentary stamps that had accrued in its favor prior to the grant of tax exemptions. Petitioner
maintains that it had renewed the surety bonds in March 1966, more or less eight months before the
application for tax exemption was granted by the Board of Industries.

With respect to accrued premiums and costs of documentary stamps on renewals of the surety bonds
made after the grant of tax exemptions to the respondent corporation, the petitioner maintains that the
surety bonds which were renewed subsequent thereto should continue in full force and effect until the
Chairman of the Board of Industries shall order their cancellation.

Petitioner submits that the mere grant of tax exemptions would not discharge the surety bonds
because it is possible that the grantee may have violated some of the terms and conditions imposed
by the Board of Industries in connection with authority granted to it to withdraw the items from
customs' custody under bond.

We agree with the private respondents. We note that Condition No. 2 of the original surety bonds
reads:
 2. That in case the application (of respondent Artex Development Co. Inc. for tax
exemption) is approved by the Board of Industries. then this bond shall be null and void
and of no force and effect.

The petitioner could not possibly be liable for any violation under the original surety bonds which were
already void and of no force and effect. Suretyship cannot exist without a valid obligation,
(Municipality of Gasan v. Marasigan, et al., 63 Phil. 510). As stated in Visayan Surety and Insurance
corporation v. Laperal (69 Phil. 688):

Segun el articulo 1822 del Codigo Civil la fianza es un contrato accesorio y la

responsabilidad que contrae el fiador es subsidiaria.Por ella el fiador se obliga a pagar
o a cumplir por un tercero, solamente en el caso de no hacerlo este. Explicando la
naturaleza y efectos de la fianza Manresa en sus comentarios al Codigo Civil, Tomo
XII, paginas 137, 138 y 140, dice:

Dos son las acepciones que en el tecnicismo juridico tiene la palabra

fianza uno, lato, amplio y extenso que comprende, dentro de sus terminos
todos los contratos de garantia; y otro restringido y estricto, que es lo que
constituye la fianza propiamente dicha. En ambos sentidos, denota el
aseguramiento por medios subsidiarios de una obligacion principal, que
es la caracteristica de su esencia pues sin dicha obligacion principal no se
concibe la existencia de la fianza, y por eso es siempre un contrato
accesorio, dependiente de otro para cuya seguridad se constituye.

En este concepto puede definirse la fianza, diciendo que es un contrato mediante el

cual uno de los contratantes da su garantia personal para asegurar el cumplimento de
una obligacion contraida por otra distinta persona, comprometiendose a cumplirla por
ella, si esta no lo hiciere en el tiempo y en la forma en que se obligo a Ilevarla a efecto.

Recordando las indicaciones consignadas en la introduccion al presente titulo, facil es

precisar la naturaleza y aun la extension de la fianza en el concepto en que ha de ser
objects de nuestro estudio. En cuanto a la primera, tres son los caracteres que la
distinguen y diferencian determinando la razon de su especialidad, drivada del objeto
mismo de dicho contrato. Esos caracteres, son: 1º , la cualidad accesoria y subsidiara
de la obligacion contraida 2 º, la condicion unilateral de la misma y 3º, la circumstancia
de haber ser el fiador persona distinta del principal obligado.

Es accesoria la obligacion contraida, porque careceria de objeto sin otro principal cuyo
cumplimiento asegure y garantice, hasta el punto de que sin esta no se concibe su
existencia. Ha de vivir pues, unida a la convencion a que debe su nacimiento y no
puede asumir los caracteres de una obligacion principal, independiente y con vida
propia ...

Insofar as the complaint seeks recovery of the payment for one year renewed premiums and costs of
documentary stamps from March 1966 to March 1967, petitioner cannot recover for the simple reason
that private respondent had already paid them in advance. Petitioner never disputed the payment
made by private respondent. Consequently, whatever obligation of private respondent to remit
premiums and costs of documentary stamps from March 1966 to March 1967 had already been
extinguished.

As to the alleged obligation to remit the premiums for the period March 1967 to March 1969, the
purported renewals were without any consideration at all Petitioner incurred no risk from the time
respondent's tax exemption application was approved. Any renewals were void from the beginning
because the cause or object of said renewals did not exist at the time of the purported transaction
(Arts, 1409, 1352, and 1353, Civil Code).

The lower court correctly ruled that "upon approval of defendant's (respondent's) application for tax
exemption on December 19, 1966, any purported renewal of the original bond after that was,
therefore, without consideration and will not warrant the collection of premiums and the payment of
cost of documentary stamps."
We also see no need for a formal release of the surety bonds by the Board of Industries or the
Bureau of Customs. By express stipulation of the parties themselves, the surety bonds became null
and void upon the grant of tax exemption.

The complaint was correctly dismissed by the respondent judge.

WHEREFORE, the petition for review on certiorari is dismissed for lack of merit. The questioned
orders of the respondent judge are affirmed. Costs against the petitioner.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ., concur.