Pedro Pastoral vs Mutual Ins. Corp.

Petitioner Pedro Pastoral entered into a contract of lease with Mapada & Company, Inc. wherein the former would lease to the latter a crane to be paid in the amount of P900.00 monthly. The contract stipulates that Mapada & Company, Inc. shall pay Pedro Pastoral P15,000 if the crane is not returned 10 days after notice therefor. To comply with the agreement, Mapada & Company, Inc. put up a surety bond of P15, 000 executed by herein defendant Mutual Security Insurance Corporation to guarantee the compliance of Mapada & Company of all the terms and conditions stipulated in the contract. Said company requested that, since it was expecting money from a construction contract, petitioner defer its collection of rentals for the month of October and November. Petitioner granted the request. However, despite repeated demands, Mapada & Company failed to pay the rentals nor to return the crane. So petitioner demanded payment from herein defendant Mutual Insurance Corp. The court ruled in favor of petitioner, ordering defendant to solidarily pay the unpaid rentals until the crane was returned, or pay in the amount of P15, 000 for the crane. Defendant appealed arguing that petitioner failed to report to it within 5 days of the violation of the lease contract, therefore defendant is released from its liability under the surety bond. The Court of Appeals ruled in favor of defendants, saying that the petitioner's failure to inform the surety of the defaults is a violation of the conditions of the bond, which releases the defendant from liability. Petitioner filed a Motion for Reconsideration but it was dismissed. Thus, the present petition. ISSUE: Whether or not petitioner's failure to notify releases

the surety from its liability under the surety bond. HELD: Granted. The court ruled that before the obligation becomes fixed and binding, the guaranty requires the action by the creditor. Prior to November 21, 1957 when petitioner received a copy of the of the suretyship contract, he had no knowledge thereof. Therefore, such surety was not yet perfected. The two defaults had already occurred before November 21, so petitioner was in no position to give notice to defendants as required by the bond. He only learned of its existence on November 21 and the 5-day notification period had already expired on November 5. By virtue of Article 1186 of the New Civil Code, the surety is deemed to have waived the condition to the rentals since it voluntarily prevented the fulfillment thereof when it did not notify the petitioner earlier. The defendants as the gurantor was under the obligation to notify the petitioner of the conditions attached to the bond, since petitioner's assent to the bond is necessary. A surety or guaranty contract does not have a retroactive effect, and is only prospective, unless there is stipulation to the contrary. Since petitioner only knew of the conditions of the surety bond on November 21, such conditions cannot be made to apply prior to such date. The decision of the Court of Appeals is reversed