FIRST LEPANTO-TAISHO INSURANCE CORPORATION (NOW KNOWN AS FLT PRIME

INSURANCE CORPORATION) vs. CHEVRON PHILIPPINES, INC. (FORMERLY KNOWN AS

CALTEX PHILIPPINES, INC.)
G.R. No. 177839, January 18, 2012, J. Villarama

A surety contract is merely a collateral one, its basis is the principal contract or undertaking
which it secures. Necessarily, the stipulations in such principal agreement must at least be
communicated or made known to the surety.

Facts:

Fumitechniks applied for and was issued a Surety Bond by First Lepanto-Taisho (FLT). As
stated in the attached rider, the bond was in compliance w/ the requirement for the grant of a
credit line with Chevron to guarantee payment/remittance of the cost of fuel products
withdrawn within the stipulated time in accordance with the terms and conditions of the
agreement.

Fumitechniks defaulted on its obligation. The check it issued to Chevron was dishonored
for reason of Account Closed. Chevron notified FLT of Fumitechniks unpaid purchases. In reply,
FLT requested that it be furnished copies of the documents such as delivery receipts. Chevron
complied by sending copies of invoices showing deliveries of fuel and petroleum products.

Simultaneously, a letter was sent to Fumitechniks demanding that the latter submit to FLT a
copy of the agreement secured by the Bond, together with copies of docs such as delivery receipts.
Fumitechniks told FLT that it cannot submit the requested agreement since no such agreement
was executed between Fumitechniks and Chevron.

Consequently, FLT advised Chevron of the non-existence of the principal agreement as

confirmed by Fumitechniks. FLT explained that being an accessory contract, the bond cannot
exist without a principal agreement as it is essential that the copy of the basic contract be
submitted to the proposed surety for the appreciation of the extent of the obligation to be covered
by the bond applied for.

Because of FLTs failure to pay Chevron despite the latters demands, Chevron sued FLT for
the payment of unpaid oil and petroleum purchases of Fumitechniks. The RTC dismissed the
complaint & FLTs counterclaim. The RTC ruled that the terms and conditions of the oral credit
line agreement between Chevron and Fumitechniks have not been relayed to FLT. Since the
surety bond is a mere accessory contract, the bond cannot stand in the absence of the written
agreement secured thereby.

The CA, however, reversed the RTCs decision and ruled in favor of Chevron. The CA held that
FLT is estopped from assailing the oral credit line agreement, having consented to the same upon
presentation by Fumitechniks of the surety bond it issued.

Issue:

Whether a surety is liable to the creditor in the absence of a written contract with the
principal.
Ruling:

A surety is not liable to the creditor in the absence of a written contract with the principal.

A surety contract should be read and interpreted together with the contract entered into
between the creditor and the principal. A surety contract is merely a collateral one, its basis is the
principal contract or undertaking which it secures. Necessarily, the stipulations in such principal
agreement must at least be communicated or made known to the surety particularly in this case
where the bond expressly guarantees the payment of Chevrons fuel products withdrawn by
Fumitechniks in accordance with the terms and conditions of their agreement.

A reading of Surety Bond shows that it secures the payment of purchases on credit by
Fumitechniks in accordance with the terms and conditions of the agreement it entered into
with Chevron. Agreement refers to the distributorship agreement, the principal contract and by
implication included the credit agreement mentioned in the rider.

It is basic that if the terms of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall control. Moreover, being an
onerous undertaking, a surety agreement is strictly construed against the creditor, and every
doubt is resolved in favor of the solidary debtor.

Having accepted the bond, Chevron as creditor must be held bound by the recital in the
surety bond that the terms and conditions of its distributorship contract be reduced in writing or
at the very least communicated in writing to the surety. However, it turned out that Chevron has
executed written agreements only with its direct customers but not distributors like Fumitechniks
and it also never relayed the terms and conditions of its distributorship agreement to FLT after
the delivery of the bond. Such non-compliance by the creditor (Chevron) impacts not on the
validity or legality of the surety contract but on the creditors right to demand performance.

HERMOJINA ESTORES vs. SPOUSES ARTURO and LAURA SUPANGAN

G.R. No. 175139, April 18, 2012, J. Del Castillo

Interest may be imposed even in the absence of stipulation in the contract.

Facts:

Hermojina Estores and Spouses Supangan entered into a Conditional Deed of Sale where Estores
offered to sell, and Spouses offered to buy a parcel of land in Cavite for Php 4.7 Million. After almost 7 years and
despite the payment of Php 3.5 Million by the Spouses, Estores still failed to comply with her obligation to
handle the peaceful transfer of ownership as stated in 5 provisions in the contract.

In a letter in 2000, Spouses demanded the return of the amount within 15 days from receipt. In reply,
Estores promised to return the same within 120 days. The Spouses agreed but imposed an interest of 12% per
annum. Estores still failed despite demands
 Due to Estores failure to heed the Spouses demands, the Spouses filed a complaint with the RTC
against Estores and Roberto Arias (Estores alleged agent). However, Estores claimed that they were willing to
pay the principal amount but without the interest as it was not agreed upon. She insisted that since the
Conditional Deed of Sale provided only for the return of the downpayment in case of breach, they cant be liable
for legal interest as well.

The RTC found that the Spouses are entitled to the interest (only at 6% per annum) and also to
attorneys fees. The CA affirmed the RTC ruling and held that interest should start on date of formal demand by
Spouses to return the money not when contract was executed as stated by the RTC. The CA likewise held that
Arias cant be solidarily liable as he acted as agent only and did not expressly bind himself or exceeded his
authority

Issues:

1. Whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties.
2. What interest rate should be applied, 6% (Article 2209 of the Civil Code) or 12% (Central
Bank Circular 416).

Ruling:

Interest may be imposed even in the absence of stipulation in the contract.

Article 2210 of the Civil Code expressly provides that interest may, in the discretion of the court, be
allowed upon damages awarded for breach of contract. In this case, there is no question that petitioner is
legally obligated to return the Php 3.5 Million because of her failure to fulfill the obligation under the
Conditional Deed of Sale, despite demand. Petitioner enjoyed the use of the money from the time it was given
to her until now. Thus, she is already in default of her obligation from the date of demand.

Forbearance is defined as a contractual obligation of lender or creditor to refrain during a given period
of time, from requiring the borrower or debtor to repay a loan or debt then due and payable. This definition
describes a loan where a debtor is given a period within which to pay a loan or debt. In such case, forbearance of
money, goods or credits will have no distinct definition from a loan. However, the phrase forbearance of
money, goods or credits is meant to have a separate meaning from a loan, otherwise there would have been no
need to add that phrase as a loan is already sufficiently defined in the Civil Code.

Forbearance of money, goods or credits should therefore refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or credits pending happening
of certain events or fulfillment of certain conditions.

In this case, the respondent-spouses parted with their money even before the conditions were
fulfilled. They have therefore allowed or granted forbearance to the seller (petitioner) to use their money
pending fulfillment of the conditions. They were deprived of the use of their money for the period pending
fulfillment of the conditions and when those conditions were breached, they are entitled not only to the return
of the principal amount paid, but also to compensation for the use of their money. And the compensation for
the use of their money, absent any stipulation, should be the same rate of legal interest applicable to a loan since
the use or deprivation of funds is similar to a loan.
2. The proper interest rate to be applied is 12%.

The general rule is that the applicable interest rate shall be computed in accordance with
the stipulation of the parties. However, if no stipulation is made and the obligation arises out of a
loan or forbearance of money, goods or credits, the applicable rate of interest shall be 12% per
annum. In other cases, it shall be 6%.

In this case, no stipulation was made. While the contract involved is not a loan but a
Conditional Deed of Sale, the stipulation governing the return of the money can be considered as
a forbearance of money, which requires 12% interest.