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    ASSET BUILDERS CORPORATION v. STRONGHOLD INSURANCE COMPANY, INC.

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    Ansai Claudine Calugan
    Stronghold Insurance Company issued performance bonds to guarantee Lucky Star Drilling & Construction Corporation's work in constructing a commercial complex for Asset Builders Corporation. Lucky Star failed to complete the drilling work on time. The Supreme Court ruled that as the surety, Stronghold should be held liable for Lucky Star's non-performance, as suretyship makes the surety responsible for payment if the principal obligor (Lucky Star) defaults. While a surety does not intervene in the principal contract, its role is to be directly liable to the obligee (Asset Builders) for payment upon the obligor's (Lucky Star's) default.

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    ASSET BUILDERS CORPORATION v. STRONGHOLD INSURANCE COMPANY, INC.

    Uploaded by

    Ansai Claudine Calugan
    313 views2 pages
    Stronghold Insurance Company issued performance bonds to guarantee Lucky Star Drilling & Construction Corporation's work in constructing a commercial complex for Asset Builders Corporation. Lucky Star failed to complete the drilling work on time. The Supreme Court ruled that as the surety, Stronghold should be held liable for Lucky Star's non-performance, as suretyship makes the surety responsible for payment if the principal obligor (Lucky Star) defaults. While a surety does not intervene in the principal contract, its role is to be directly liable to the obligee (Asset Builders) for payment upon the obligor's (Lucky Star's) default.

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    Stronghold Insurance Company issued performance bonds to guarantee Lucky Star Drilling & Construction Corporation's work in constructing a commercial complex for Asset Builders Corporation. Lucky Star failed to complete the drilling work on time. The Supreme Court ruled that as the surety, Stronghold should be held liable for Lucky Star's non-performance, as suretyship makes the surety responsible for payment if the principal obligor (Lucky Star) defaults. While a surety does not intervene in the principal contract, its role is to be directly liable to the obligee (Asset Builders) for payment upon the obligor's (Lucky Star's) default.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    313 views2 pages

    ASSET BUILDERS CORPORATION v. STRONGHOLD INSURANCE COMPANY, INC.

    Uploaded by

    Ansai Claudine Calugan
    Stronghold Insurance Company issued performance bonds to guarantee Lucky Star Drilling & Construction Corporation's work in constructing a commercial complex for Asset Builders Corporation. Lucky Star failed to complete the drilling work on time. The Supreme Court ruled that as the surety, Stronghold should be held liable for Lucky Star's non-performance, as suretyship makes the surety responsible for payment if the principal obligor (Lucky Star) defaults. While a surety does not intervene in the principal contract, its role is to be directly liable to the obligee (Asset Builders) for payment upon the obligor's (Lucky Star's) default.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    ASSET BUILDERS CORPORATION v.

    STRONGHOLD INSURANCE COMPANY,


    INC.
    G.R. No. 187116. October 18, 2010
    MENDOZA, J.:

    FACTS:
    Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-debtor
    (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety).
    (Lucky Star) as part of the completion of its project to construct the ACG Commercial On April
    28, 2006, Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling
    & Construction Corporation Complex 3 Lucky Star was to supply labor, materials, tools, and
    equipment including technical supervision to drill one (1) exploratory production well on the
    project site. The total contract price for the said project was P1,150,000.00. To guarantee faithful
    compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two
    (2) bonds in favor of petitioner. The first, SURETY BOND G(16) No. 141558, dated May 9,
    2006, covers the sum of P575,000.004 or the required downpayment for the drilling work. On
    May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance
    payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling
    work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days,
    Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same date,
    petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work
    with a threat to cancel the agreement and forfeit the bonds should it still fail to complete said
    project within the agreed period.

    On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages to
    Lucky Star

    ISSUE: Whether or not Stronghold should be held liable.

    RULING: Suretyship, in essence, contains two types of relationship – the principal relationship
    between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety
    relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement,
    the obligee accepts the surety’s solidary undertaking to pay if the obligor does not pay. Such
    acceptance, however, does not change in any material way the obligee’s relationship with the
    principal obligor. Neither does it make the surety an active party to the principal obligee-obligor
    relationship. Thus, the acceptance does not give the surety the right to intervene in the principal
    contract. The surety’s role arises only upon the obligor’s default, at which time, it can be directly
    held liable by the obligee for payment as a solidary obligor.

    In the case at bench, when Lucky Star failed to finish the drilling work within the agreed
    time frame despite petitioner’s demand for completion, it was already in delay. Due to this
    default, Lucky Star’s liability attached and, as a necessary consequence, respondent’s liability
    under the surety agreement arose. In fine, respondent should be answerable to petitioner on
    account of Lucky Star’s non-performance of its obligation as guaranteed by the performance
    bond.

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