Citizens Surety v. CA

CASE 85
Citizens Surety v. CA, GR L-48958, June 28, 1988 [Per J. Gutierrez, Jr., Third Division]
FACTS:
On December 4 1959 - Citizen’s Surety issued 2 surety bonds as guarantee for Principal Pascual Perez Enterprises in its
obligation for a Contract of Sale entered into with Singer Sewing Machine Co. Pascual Perez and his attorney in fact (wife)
executed the indemnity agreements obligating himself and the Enterprises to indemnify the petitioner jointly and severally.
Pascual Perez also placed a collateral security a stock of lumber with a total value of P400,000.00 through a deed of assignment
on same day. Then, Pascual Perez also executed a second real estate mortgage in favor of Citizens Surety. Pascual Perez
Enterprises failed to comply with the obligation with Singer Sewing Machine Co. Citizens Surety paid for the total amount of the
surety bonds at P144,000.00. Except for partial payments in the total sum of P55,600.00 and notwithstanding several demands,
Pascual M. Perez Enterprises failed to reimburse Citizen’s Surety for the losses it sustained under the said surety bonds. Citizens
Surety filed a claim for sum of money against the estate of the Attorney in Fact and Wife of Pascual M. Perez. Perez
averred: that the bonds and indemnity agreements had been extinguished by the deed of assignment due to the CA’s judgment
which extinguished the obligation by virtue of execution of deed of assignment and release of second mortgage.
ISSUE:
WON the obligation under the surety bonds and indemnity agreements had been extinguished by reason of the execution of the
deed of assignment via dation of payment
.
Held:
No. there was no dation in payment. Perez averred : Obligation under the surety bonds and indemnity agreements had been
extinguished by reason of the execution of the deed of assignment via dation of payment.
Court ruled (with Citizen’s Surety): It is a rule that there is no room for construction thereof when words of a contract are plain
and readily understandable. However, this case is under the exceptions.
On its face, the document (Deed of Assignment) speaks of an assignment where there seems to be a complete conveyance of the
stocks of lumber to Citizen’s surety, as assignee. However, in the light of the circumstances obtaining at the time of the execution
of said deed of assignment, Court cannot regard the transaction as an absolute conveyance
Respondent court CA stated that "by virtue of the execution of deed of assignment, ownership of lumber materials had been
transferred from Perez to Citizen's Surety, and this amounted to dation in payment whereby Perez is considered to have alienated
his property in favor of the Citizen's Surety in satisfaction of a monetary debt (Article 1245). Perez's obligation therefore, under
the surety bonds is extinguished upon the execution of the deed of assignment." Court ruled that his is not sustained by the
records.
1. The transaction cannot be dation in payment because the obligation on the part of Citizens Surety to pay Singer Sewing
Machine had not yet arisen. There was nothing extinguished on that date, hence there is no dation in payment.
2. The deed of assignment cannot be regarded as an absolute conveyance whereby the obligation under the surety bonds was
automatically extinguished. The subsequent acts of Perez bolster the fact that the deed of assignment was intended merely as a
security for the issuance of the two bonds.
o Partial payments amounting to P55,600 were made after the execution of the deed of assignment to satisfy the obligation
under the two surety bonds.
o Since later payments were made to pay the indebtedness, it follows that no debt was extinguished upon the execution of the
deed of assignment.
o Moreover, a second real estate mortgage was executed on April 12, 1960 and eventually cancelled only on May 15, 1962. If
indeed the deed of assignment extinguished the obligation, there was no reason for a second mortgage to still have to be
executed.
o We agree with the two dissenting opinions in the Court of Appeals that the only conceivable reason for the execution of still
another mortgage on April 12, 1960 was because the obligation under the indemnity bonds still existed. It was not yet
extinguished when the deed of assignment was executed on December 4, 1959.
o The deed of assignment was therefore intended merely as another collateral security for the issuance of the two surety
bonds.

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CASE 85

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