Source: http://lawlibrary.chanrobles.com/index.php?option=com_content&view=article&id=82932:56818&catid=1582&Itemid=566
Timestamp: 2019-04-19 22:15:13+00:00

Document:
G.R. No. 189563, April 07, 2014 - GILAT SATELLITE NETWORKS, LTD., Petitioner, v. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.
GILAT SATELLITE NETWORKS, LTD., Petitioner, v. UNITED COCONUT PLANTERS BANK GENERAL INSURANCE CO., INC., Respondent.
This is an appeal via a Petition for Review on Certiorari 1 filed 6 November 2009 assailing the Decision2 and Resolution3 of the Court of Appeals (CA) in CA–G.R. CV No. 89263, which reversed the Decision4 of the Regional Trial Court (RTC), Branch 141, Makati City in Civil Case No. 02–461, ordering respondent to pay petitioner a sum of money.
On September 15, 1999, One Virtual placed with GILAT a purchase order for various telecommunications equipment (sic), accessories, spares, services and software, at a total purchase price of Two Million One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars (US$2,128,250.00). Of the said purchase price for the goods delivered, One Virtual promised to pay a portion thereof totalling US$1.2 Million in accordance with the payment schedule dated 22 November 1999. To ensure the prompt payment of this amount, it obtained defendant UCPB General Insurance Co., Inc.’s surety bond dated 3 December 1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000, GILAT shipped and delivered to One Virtual the purchased products and equipment, as evidenced by airway bills/Bill of Lading (Exhibits “F”, “F–1” to “F–8”). All of the equipment (including the software components for which payment was secured by the surety bond, was shipped by GILAT and duly received by One Virtual. Under an endorsement dated December 23, 1999 (Exhibit “E”), the surety issued, with One Virtual’s conformity, an amendment to the surety bond, Annex “A” thereof, correcting its expiry date from May 30, 2001 to July 30, 2001.
The defendant surety to pay the plaintiff the amount of Forty Four Thousand Four Dollars and Four Cents (US$44,004.04) representing attorney’s fees and litigation expenses.
Accordingly, defendant’s counterclaim is hereby dismissed for want of merit.
Insofar as the interests were concerned, the RTC denied petitioner’s claim on the premise that while a surety can be held liable for interest even if it becomes more onerous than the principal obligation, the surety shall only accrue when the delay or refusal to pay the principal obligation is without any justifiable cause.11 Here, respondent failed to pay its surety obligation because of the advice of its principal (One Virtual) not to pay.12 The RTC then obligated respondent to pay petitioner the amount of USD1,200,000.00 representing the principal debt under the Surety Bond, with legal interest at the rate of 12% per annum computed from the time the judgment becomes final and executory, and USD44,004.04 representing attorney’s fees and litigation expenses.
WHEREFORE, this appealed case is DISMISSED for lack of jurisdiction. The trial court’s Decision dated December 28, 2006 is VACATED. Plaintiff–appellant Gilat Satellite Networks Ltd., and One Virtual are ordered to proceed to arbitration, the outcome of which shall necessary bind the parties, including the surety, defendant–appellant United Coconut Planters Bank General Insurance Co., Inc.
The CA ruled that in “enforcing a surety contract, the ‘complementary–contracts–construed–together’ doctrine finds application.” According to this doctrine, the accessory contract must be construed with the principal agreement.15 In this case, the appellate court considered the Purchase Agreement entered into between petitioner and One Virtual as the principal contract,16 whose stipulations are also binding on the parties to the suretyship.17 Bearing in mind the arbitration clause contained in the Purchase Agreement18 and pursuant to the policy of the courts to encourage alternative dispute resolution methods,19 the trial court’s Decision was vacated; petitioner and One Virtual were ordered to proceed to arbitration.
On 9 September 2008, petitioner filed a Motion for Reconsideration with Motion for Oral Argument. The motion was denied for lack of merit in a Resolution20 issued by the CA on 16 September 2009.
Whether or not petitioner is entitled to legal interest due to the delay in the fulfilment by respondent of its obligation under the Suretyship Agreement.
Petitioner alleges that arbitration laws mandate that no court can compel arbitration, unless a party entitled to it applies for this relief.23 This referral, however, can only be demanded by one who is a party to the arbitration agreement.24 Considering that neither petitioner nor One Virtual has asked for a referral, there is no basis for the CA’s order to arbitrate.
On the other hand, respondent maintains that a surety contract is merely an accessory contract, which cannot exist without a valid obligation.29 Thus, the surety may avail itself of all the defenses available to the principal debtor and inherent in the debt30 – that is, the right to invoke the arbitration clause in the Purchase Agreement.
After a thorough examination of the pieces of evidence presented by both parties,36 the RTC found that petitioner had delivered all the goods to One Virtual and installed them. Despite these compliances, One Virtual still failed to pay its obligation,37 triggering respondent’s liability to petitioner as the former’s surety. In other words, the failure of One Virtual, as the principal debtor, to fulfill its monetary obligation to petitioner gave the latter an immediate right to pursue respondent as the surety.
Consequently, we cannot sustain respondent’s claim that the Purchase Agreement, being the principal contract to which the Suretyship Agreement is accessory, must take precedence over arbitration as the preferred mode of settling disputes.
Second, Section 24 of Republic Act No. 928542 is clear in stating that a referral to arbitration may only take place “if at least one party so requests not later than the pre–trial conference, or upon the request of both parties thereafter.” Respondent has not presented even an iota of evidence to show that either petitioner or One Virtual submitted its contesting claim for arbitration.
Anent the issue of interests, petitioner alleges that it deserves to be paid legal interest of 12% per annum from the time of its first demand on respondent on 5 June 2000 or at most, from the second demand on 24 January 2001 because of the latter’s delay in discharging its monetary obligation.47 Citing Article 1169 of the Civil Code, petitioner insists that the delay started to run from the time it demanded the fulfilment of respondent’s obligation under the suretyship contract. Significantly, respondent does not contest this point, but instead argues that it is only liable for legal interest of 6% per annum from the date of petitioner’s last demand on 24 January 2001.
In rejecting petitioner’s position, the RTC stated that interests may only accrue when the delay or the refusal of a party to pay is without any justifiable cause.48 In this case, respondent’s failure to heed the demand was due to the advice of One Virtual that petitioner allegedly breached its undertakings as stated in the Purchase Agreement.49 The CA, however, made no pronouncement on this matter.
We agree with petitioner that records are bereft of proof to show that respondent’s delay was indeed justified by the circumstances – that is, One Virtual’s advice regarding petitioner’s alleged breach of obligations. The lower court’s Decision itself belied this contention when it said that “plaintiff is not disputing that it did not complete commissioning work on one of the two systems because One Virtual at that time is already in default and has not paid GILAT.”58 Assuming arguendo that the commissioning work was not completed, respondent has no one to blame but its principal, One Virtual; if only it had paid its obligation on time, petitioner would not have been forced to stop operations. Moreover, the deposition of Mr. Erez Antebi, vice president of Gilat, repeatedly stated that petitioner had delivered all equipment, including the licensed software; and that the equipment had been installed and in fact, gone into operation.59 Notwithstanding these compliances, respondent still failed to pay.
As to the issue of when interest must accrue, our Civil Code is explicit in stating that it accrues from the time judicial or extrajudicial demand is made on the surety. This ruling is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra–judicial demand before an action for performance was filed, interest on the amount due begins to run, not from the date of the filing of the complaint, but from the date of that extra–judicial demand.60 Considering that respondent failed to pay its obligation on 30 May 2000 in accordance with the Purchase Agreement, and that the extrajudicial demand of petitioner was sent on 5 June 2000,61 we agree with the latter that interest must start to run from the time petitioner sent its first demand letter (5 June 2000), because the obligation was already due and demandable at that time.
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
Applying the above–discussed concepts and in the absence of an agreement as to interests, we are hereby compelled to award petitioner legal interest at the rate of 6% per annum from 5 June 2000, its first date of extrajudicial demand, until the satisfaction of the debt in accordance with the revised guidelines enunciated in Nacar.
WHEREFORE, the Petition for Review on Certiorari is hereby GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA–G.R. CV No. 89263 are REVERSED. The Decision of the Regional Trial Court, Branch 141, Makati City is REINSTATED, with MODIFICATION insofar as the award of legal interest is concerned. Respondent is hereby ordered to pay legal interest at the rate of 6% per annum from 5 June 2000 until the satisfaction of its obligation under the Suretyship Contract and Purchase Agreement.
2 Id. at 12–21; CA Decision dated 6 October 2008, penned by Associate Justice Magdangal M. De Leon and concurred in by Associate Justices Josefina Guevara–Salonga and Ramon R. Garcia.
3 Id. at 23–24; CA Resolution dated 16 September 2009.
4 Id. at 151–156; RTC Decision dated 28 December 2006 penned by Pairing Judge Dina Pestaño Teves.
“20.1. In the event of a dispute between Buyer and Seller arising out of, or relating to this Agreement, its interpretation or performance hereunder, the parties shall exert their best efforts to resolve the dispute amicably through negotiations.
25 Civil Code, Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.
Civil Code, Art. 2047. x x x If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.
31Asset Builders Corporation, v. Stronghold Insurance Co., Inc., G.R. No. 187116, 18 October 2010, 633 SCRA 370, citing Security Pacific Assurance Corporation v. Hon. Tria–Infante, 505 Phil. 609, 620 (2005).
32 Id., citing Stronghold Insurance Company, Inc. v. Republic–Asahi Glass Corporation, 525 Phil. 270 (2006).
33Totanes v. China Banking Corporation, G.R. No. 179880, 19 January 2009, 576 SCRA 323, citing Tiu Hiong Guan v. Metropolitan Bank and Trust Company, 530 Phil. 12 (2006).
34Intra–Strata Assurance Corporation & Philippine Home Assurance Corp. v. Republic of the Philippines, 579 Phil. 631 (2008), citing 74 Am. Jur. §35, and Manila Surety & Fidelity Co, Inc. v. Batu Construction & Co., 101 Phil. 494 (1957).
35 Id., citing NASSCO v. Torrento, 126 Phil. 777 (1967); Civil Code, Article 1216.
38 G.R. Nos. 158820–21, 5 June 2009, 588 SCRA 410, 422.
40Gonzales v. Climax Mining Ltd., 541 Phil. 143 (2007). See also Manila Electric Company v. Pasay Transportation Co., 57 Phil. 600, 603 (1932).
41 Heirs of Augusto L. Salas, Jr., v. Laperal Realty Corp., 378 Phil. 369 (1999), citing Civil Code, Art. 1311.
43Totanes v. China Banking Corporation, supra note 33.
44 See International Finance Corporation v. Imperial Textile Mills, Inc., 511 Phil. 591 (2005).
45 Intra–Strata Assurance Corp. v. Republic, 579 Phil. 631 (2008), citing Manila Surety & Fidelity Co, Inc. v. Batu Construction & Co., 101 Phil. 494 (1957).
46 351 Phil. 664, 686 (1998), citing 74 Am. Jur. 2d, Principal and Surety, § 68, 53.
50Social Security System v. Moonwalk Development & Housing Corp., G.R. No. 73345, 7 April 1993, 221 SCRA 119.
51Santos Ventura Hocorma Foundation, Inc. v. Santos, 484 Phil. 447 (2004), citing IV Arturo M. Tolentino, Civil Code of the Philippines, 101 (1987 ed.).
53 Id. citing Tolentino at 102.
54 Commonwealth Insurance Corporation v. Court of Appeals, 466 Phil. 104 (2004), citing Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc., 406 Phil. 745(year?).
56 G.R. No. 190601, 7 February 2011, 641 SCRA 591, 596–597.
57 516 Phil. 725, citing FGU Insurance Corp. v. G.P. Sarmiento Trucking Corp., 435 Phil. 333, 341–342 (2002).
60Commonwealth Insurance Corporation v. Court of Appeals, supra note 54, citing Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines, 1991 Reprint, Vol. IV, p. 103; Padilla, Civil Code Annotated, 1987 Edition, Vol. IV, p. 61.
62 G.R. No. 189871, 13 August 2013.

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