Autocorp Group vs. Intra Strata Assurance Corporation

1/22/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 556
G.R. No. 166662. June 27, 2008.*

AUTOCORP GROUP and PETER Y. RODRIGUEZ,
petitioners, vs. INTRA STRATA ASSURANCE
CORPORATION and BUREAU OF CUSTOMS,
respondents.
Obligations and Contracts; Indemnity Agreements; The

principal debtors became liable to indemnify the surety at the same
time the bonds issued by the surety were placed at the risk of
forfeiture by the Bureau of Customs (BOC) for non-compliance by
the debtors with their undertaking.—According to the relevant
provision of the Indemnity Agreements executed between
petitioner and ISAC, which reads: “[W]here the obligation
involves a liquidated amount for the payment of which [ISAC] has
become legally liable under the terms of the obligation and its
suretyship undertaking or by the demand of the [BOC] or
otherwise and the latter has merely allowed the [ISAC’s]
aforesaid liability, irrespective of whether or not payment has
actually been made by the [ISAC], the [ISAC] for the protection of
its interest may forthwith proceed against [petitioners Autocorp
Group and Rodriguez] or either of them by court action or
otherwise to enforce payment, even prior to making payment to
the [BOC] which may hereafter be done by [ISAC][,],” petitioners’
obligation to indemnify ISAC became due and demandable the
moment the bonds issued by ISAC became answerable for
petitioners’ non-compliance with its undertaking with the BOC.
Stated differently, petitioners became liable to indemnify ISAC at
the same time the bonds issued by ISAC were placed at the risk of
forfeiture by the BOC for non-compliance by petitioners with its
undertaking.
Same; Same; Delay; Demand, whether judicial or
extrajudicial, is not required before an obligation becomes due and
demandable—a demand is only necessary in order to put an
obligor in a due and demandable obligation in delay, which in
turn is for the purpose of making the obligor liable for interests or
damages for the period of delay.—Petitioners also invoke the
alleged lack of demand on the part of ISAC on petitioners as
regards Instrata Bond No. 5770 before it instituted Civil Case No.
95-1584. Even if proven true, such a fact
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http://www.central.com.ph/sfsreader/session/000001611caa00db79203d1d003600fb002c009e/t/?o=False 1/22
* THIRD DIVISION.
251
VOL. 556, JUNE 27, 2008 251
Autocorp Group vs. Intra Strata Assurance Corporation
does not carry much weight considering that demand, whether

judicial or extrajudicial, is not required before an obligation
becomes due and demandable. A demand is only necessary in
order to put an obligor in a due and demandable obligation in
delay, which in turn is for the purpose of making the obligor liable
for interests or damages for the period of delay. Thus, unless
stipulated otherwise, an extrajudicial demand is not required
before a judicial demand, i.e., filing a civil case for collection, can
be resorted to.
Parties; The misjoinder of parties does not warrant the
dismissal of the action.—The misjoinder of parties does not
warrant the dismissal of the action. Section 11, Rule 3 of the
Rules of Court explicitly states: SEC. 11. Misjoinder and non-
joinder of parties.—Neither misjoinder nor non-joinder of
parties is ground for dismissal of an action. Parties may be
dropped or added by order of the court on motion of any party or
on its own initiative at any stage of the action and on such terms
as are just. Any claim against a misjoined party may be severed
and proceeded with separately. Consequently, the purported
misjoinder of the BOC as a party cannot result in the dismissal of
Civil Case No. 95-1584. If indeed the BOC was improperly
impleaded as a party in Civil Case No. 95-1584, at most, it may
be dropped by order of the court, on motion of any party or on its
own initiative, at any stage of the action and on such terms as are
just.
Same; Words and Phrases; A necessary party is one who is not
indispensable but who ought to be joined as a party if complete
relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action.—
ISAC alleged in its Complaint that the BOC is being joined as a
necessary party in Civil Case No. 95-1584. A necessary party is
defined in Section 8, Rule 3 of the Rules of Court as follows: SEC.
8. Necessary party.—A necessary party is one who is not
indispensable but who ought to be joined as a party if complete
relief is to be accorded as to those already parties, or for a
complete determination or settlement of the claim subject of the
action. The subject matter of Civil Case No. 95-1584 is the
liability of Autocorp Group to the BOC, which ISAC is also bound
to pay as the guarantor who issued the bonds therefor. Clearly,

there would be no complete settlement of the subject matter of the
case at bar—the liability of Autocorp Group to the BOC—should
Autocorp Group be merely ordered to pay its obliga-
252
252 SUPREME COURT REPORTS ANNOTATED
tions with the BOC to ISAC. BOC is, therefore, a necessary party
in the case at bar, and should not be dropped as a party to the
present case.
Same; Pleadings and Practice; Where the Bureau of Customs,
through the Solicitor General, was not the one who initiated the
case, and neither was its consent obtained for the filing of the
same, it may be considered an unwilling co-plaintiff in said action,
and the proper way to implead it as a necessary party should be in
accordance with Section 10, Rule 3 of the Rules of Court.—It can
only be conceded that there was an irregularity in the manner the
BOC was joined as a necessary party in Civil Case No. 95-1584.
As the BOC, through the Solicitor General, was not the one who
initiated Civil Case No. 95-1584, and neither was its consent
obtained for the filing of the same, it may be considered an
unwilling co-plaintiff of ISAC in said action. The proper way to
implead the BOC as a necessary party to Civil Case No. 95-1584
should have been in accordance with Section 10, Rule 3 of the
Rules of Court, viz.: SEC. 10. Unwilling co-plaintiff.—If the
consent of any party who should be joined as plaintiff can not be
obtained, he may be made a defendant and the reason therefor
shall be stated in the complaint. Nonetheless, the irregularity in
the inclusion of the BOC as a party to Civil Case No. 95-1584
would not in any way affect the disposition thereof. As the Court
already found that the BOC is a necessary party to Civil Case No.
95-1584, it would be a graver injustice to drop it as a party.
Obligations and Contracts; Subrogation; The benefit of
subrogation, an extinctive subjective novation by a change of
creditor, which “transfers to the person subrogated, the credit and
all the rights thereto appertaining, either against the debtor or
against third persons,” is granted by Article 2067 of the Civil Code
only to the “guarantor (or surety) who pays.”—The Court, however,
deems it essential to qualify that ISAC’s right to seek indemnity
from petitioners does not constitute subrogation under the Civil
Code, considering that there has been no payment yet by ISAC to
the BOC. There are indeed cases in the aforementioned Article
2071 of the Civil Code wherein the guarantor or surety, even
before having paid, may proceed against the principal debtor, but
in all these cases, Article 2071 of the Civil Code merely grants the
guarantor or surety an action “to obtain release from the
guaranty, or to demand a security that shall protect him from any
proceedings by the creditor and from the dan-
253
VOL. 556, JUNE 27, 2008 253
ger of insolvency of the debtor.” The benefit of subrogation, an

extinctive subjective novation by a change of creditor, which
“transfers to the person subrogated, the credit and all the rights
thereto appertaining, either against the debtor or against third
persons,” is granted by the Article 2067 of the Civil Code only to
the “guarantor (or surety) who pays.”
Guaranty; Suretyship; The provisions of the Civil Code on
Guarantee, other than the benefit of excussion, are applicable and
available to the surety.—The Court of Appeals concluded that
since petitioner Rodriguez was a surety, Article 2079 of the Civil
Code does not apply. The appellate court further noted that both
petitioners authorized ISAC to consent to the granting of an
extension of the subject bonds. The Court of Appeals committed a
slight error on this point. The provisions of the Civil Code on
Guarantee, other than the benefit of excussion, are applicable and
available to the surety. The Court finds no reason why the
provisions of Article 2079 would not apply to a surety.
Same; Same; An agreement whereby the sureties bound
themselves to be liable in case of an extension or renewal of the
bond, without the necessity of executing another indemnity
agreement for the purpose and without the necessity of being
notified of such extension or renewal, is valid, and that there is
nothing in it that militates against the law, good customs, good
morals, public order or public policy.—In Philippine American
General Insurance Co., Inc. v. Mutuc, 61 SCRA 22 (1974), the
Court held that an agreement whereby the sureties bound
themselves to be liable in case of an extension or renewal of the
bond, without the necessity of executing another indemnity
agreement for the purpose and without the necessity of being
notified of such extension or renewal, is valid; and that there is
nothing in it that militates against the law, good customs, good
morals, public order or public policy.
PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.

Sam Norman G. Fuentes for petitioners.
254

Conrado Ayuyao & Associates for respondent Intra

Strata Assurance Corporation.
Christopher S. Dy Buco for respondent Bureau of
Customs.
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari from the

Decision1 of the Court of Appeals dated 30 June 2004 in
CA-G.R. CV No. 62564 which affirmed with modification
the Decision2 of the Regional Trial Court (RTC) of Makati
City, Branch 150 in Civil Case No. 95-1584 dated 16
September 1998.
The factual and procedural antecedents of this case are
as follows:
On 19 August 1990, petitioner Autocorp Group,
represented by its President, petitioner Peter Y. Rodriguez,
secured an ordinary re-export bond, Instrata Bond No.
5770, from private respondent Intra Strata Assurance
Corporation (ISAC) in favor of public respondent Bureau of
Customs (BOC), in the amount of P327,040.00, to
guarantee the re-export of one unit of Hyundai Excel 4-door
1.5 LS and/or to pay the taxes and duties thereon.
On 21 December 1990, petitioners obtained another
ordinary re-export bond, Instrata Bond No. 7154, from
ISAC in favor of the BOC, in the amount of P447,671.00,
which was eventually increased to P707,609.00 per Bond
Endorsement No. BE-0912/91 dated 10 January 1991, to
guarantee the re-export of one unit of Hyundai Sonata 2.4
GLS and/or to pay the taxes and duties thereon.
Petitioners executed and signed two Indemnity
Agreements with identical stipulations in favor of ISAC,
agreeing to
_______________
1 Penned by Associate Justice Rebecca De Guia-Salvador with

Associate Justices Salvador J. Valdez, Jr. and Aurora Santiago-Lagman,
concurring; Rollo, pp. 36-45.
2 CA Rollo, pp. 31-34.
255
VOL. 556, JUNE 27, 2008 255

act as surety of the subject bonds. Petitioner Rodriguez

signed the Indemnity Agreements both as President of the
Autocorp Group and in his personal capacity. Petitioners
thus agreed to the following provisions:
INDEMNITY:—The undersigned agree at all times to jointly and

severally indemnify the COMPANY and keep it indemnified and
hold and save it harmless from and against any and all damages,
losses, costs, stamps, taxes, penalties, charges and expenses of
whatsoever kind and nature including counsel or attorney’s fee
which the COMPANY shall or may at any time sustain or incur in
consequence of having become surety upon the bond herein above
referred to or any extension, renewal, substitution or alteration
thereof, made at the instance of the undersigned or any of them,
or any other bond executed on behalf of the undersigned or any of
them, and to pay; reimburse and make good to the COMPANY, its
successors and assigns, alls sums and amounts of money which it
or its representatives shall pay or cause to be paid, or become
liable to pay on accounts of the undersigned or any of them, of
whatsoever kind and nature, including 25% of the amount
involved in the litigation or other matters growing out of or
connected therewith, for and as attorney’s fees, but in no case less
than P300.00 and which shall be payable whether or not the case
be extrajudicially settled, it being understood that demand made
upon anyone of the undersigned herein is admitted as demand
made on all of the signatories hereof. It is hereby further agreed
that in case of any extension or renewal of the bond, we equally
bind ourselves to the COMPANY under the same terms and
conditions as therein provided without the necessity of executing
another indemnity agreement for the purpose and that we may be
granted under this indemnity agreement.
MATURITY OF OUR OBLIGATIONS AS CONTRACTED
HEREWITH AND ACCRUAL OF ACTION:—Notwithstanding of
(sic) the next preceding paragraph where the obligation involves a
liquidated amount for the payment of which the COMPANY has
become legally liable under the terms of the obligation and its
suretyship undertaking, or by the demand of the obligee or
otherwise and the latter has merely allowed the COMPANY’s
aforesaid liability irrespective of whether or not payment has
actually been made by the COMPANY, the COMPANY for the
protection of its interest may forthwith proceed against the
undersigned or either of them by court
256

action or otherwise to enforce payment, even prior to making

payment to the obligee which may hereafter be done by the
COMPANY.
INTEREST IN CASE OF DELAY:—In the event of delay in
payment of the said sum or sums by the undersigned they will
pay interest at the rate of 12% per annum or same, which
interest, if not paid, will be liquidated and accumulated to the
capital quarterly, and shall earn the same interest as the capital;
all this without prejudice to the COMPANY’s right to demand
judicially or extrajudicially the full payment of its claims.
INCONTESTABILITY OF PAYMENT MADE BY THE
COMPANY:—Any payment or disbursement made by the
COMPANY on account of the above-mentioned Bond, its
renewals, extensions or substitutions, replacement or novation in
the belief either that the COMPANY was obligated to make such
payment or that said payment was necessary in order to avoid
greater losses or obligations for which the COMPANY might be
liable by virtue of the terms of the above-mentioned Bond, its
renewal, extensions or substitutions, shall be final and will not be
disputed by the undersigned, who bind themselves to jointly and
severally indemnify the COMPANY of any such payments, as
stated in the preceding clauses:
WAIVER OF VENUE OF ACTION:—We hereby agree that any
question which may arise between the COMPANY and the
undersigned by reason of this document and which has to be
submitted for decision to a court of justice shall be brought before
the court of competent jurisdiction in Makati, Rizal, waiving for
this purpose any other venue.
WAIVER:—The undersigned hereby waive all the rights[,]
privileges and benefits that they have or may have under Articles
2077, 2078, 2079, 2080 and 2081, of the Civil Code of the
Philippines.
The undersigned, by this instrument, grant a special power of
attorney in favor of all or any of the other undersigned so that any
of the undersigned may represent all the others in all
transactions related to this Bond, its renewals, extensions, or any
other agreements in connection with this Counter-Guaranty,
without the necessity of the knowledge or consent of the others
who hereby promise to accept as valid each and every act done or
executed by any of the attorney’s-in-fact by virtue of the special
power of attorney.
257
VOL. 556, JUNE 27, 2008 257

OUR LIABILITY HEREUNDER:—It shall not be necessary for

the COMPANY to bring suit against the principal upon his
default or to exhaust the property of the principal, but the
liability hereunder of the undersigned indemnitors shall be jointly
and severally, a primary one, the same as that of the principal,
and shall be exigible immediately upon the occurrence of such
default.
CANCELLATION OF BOND BY THE COMPANY:—The
COMPANY may at any time cancel the above-mentioned Bond, its
renewals, extensions or substitutions, subject to any liability
which might have accrued prior to the date of cancellation
refunding the proportionate amount of the premium unearned on
the date of cancellation.
RENEWALS, ALTERATIONS AND SUBSTITUTIONS:—The
undersigned hereby empower and authorize the COMPANY to
grant or consent to the granting of any extension, continuation,
increase, modification, change, alteration and/or renewal of the
original bond herein referred to, and to execute or consent to the
execution of any substitution for said Bond with the same or
different, conditions and parties, and the undersigned hereby hold
themselves jointly and severally liable to the COMPANY for the
original Bond herein above-mentioned or for any extension,
continuation, increase, modification, change, alteration, renewal
or substitution thereof without the necessary of any new
indemnity agreement being executed until the full amount
including principal, interest, premiums, costs, and other expenses
due to the COMPANY thereunder is fully paid up.
SEVERABILITY OF PROVISIONS:—It is hereby agreed that
should any provision or provisions of this agreement be declared
by competent public authority to be invalid or otherwise
unenforceable, all remaining provisions herein contained shall
remain in full force and effect.
NOTIFICATION:—The undersigned hereby accept due notice
of that the COMPANY has accepted this guaranty, executed by
the undersigned in favor of the COMPANY.3
In sum, ISAC issued the subject bonds to guarantee

compliance by petitioners with their undertaking with the
BOC to re-export the imported vehicles within the given
period and
_______________
3 Records, p. 9.
258

pay the taxes and/or duties due thereon. In turn,

petitioners agreed, as surety, to indemnify ISAC for the
liability the latter may incur on the said bonds.
Petitioner Autocorp Group failed to re-export the items
guaranteed by the bonds and/or liquidate the entries or
cancel the bonds, and pay the taxes and duties pertaining
to the said items despite repeated demands made by the
BOC, as well as by ISAC. By reason thereof, the BOC
considered the two bonds, with a total face value of
P1,034,649.00, forfeited.
Failing to secure from petitioners the payment of the
face value of the two bonds, despite several demands sent
to each of them as surety under the Indemnity Agreements,
ISAC filed with the RTC on 24 October 1995 an action
against petitioners to recover the sum of P1,034,649.00,
plus 25% thereof or P258,662.25 as attorney’s fees. ISAC
impleaded the BOC “as a necessary party plaintiff in order
that the reward of money or judgment shall be adjudged
unto the said necessary plaintiff.”4 The case was docketed
as Civil Case No. 95-1584.
Petitioners filed a Motion to Dismiss on 11 December
1995 on the grounds that (1) the Complaint states no cause
of action; and (2) the BOC is an improper party.
The RTC, in an Order5 dated 27 February 1996, denied
petitioners’ Motion to Dismiss. Petitioners thus filed their
Answer to the Complaint, claiming that they sought
permission from the BOC for an extension of time to re-
export the items covered by the bonds; that the BOC has
yet to issue an assessment for petitioners’ alleged default;
and that the claim of ISAC for payment is premature as the
subject bonds are not yet due and demandable.
During the pre-trial conference, petitioners admitted the
genuineness and due execution of Instrata Bonds No. 5770
and No. 7154, but specifically denied those of the
corresponding Indemnity Agreements. The parties agreed
to limit the
_______________
4 Id., at p. 1.
5 Id., at p. 23.
259
VOL. 556, JUNE 27, 2008 259

issue to “whether or not these bonds are now due and

demandable.”
On 16 September 1998, the RTC rendered its Decision
ordering petitioners to pay ISAC and/or the BOC the face
value of the subject bonds in the total amount of
P1,034,649.00, and to pay ISAC P258,662.25 as attorney’s
fees, thus:
“WHEREFORE, judgment is hereby rendered in favor of the

[herein private respondent ISAC] and as against the [herein
petitioners] who are ordered to pay the [private respondent] Intra
Strata Assurance Corporation and/or the Bureau of Customs the
amount of P1,034,649.00 which is the equivalent amount of the
subject bonds as well as to pay the plaintiff corporation the sum of
P258,662.25 as and for attorney’s fees.”6
Petitioners’ Motion for Reconsideration was denied by

the RTC in a Resolution dated 15 January 1999.7
Petitioners appealed to the Court of Appeals. On 30
June 2004, the Court of Appeals rendered its Decision
affirming the RTC Decision, only modifying the amount of
the attorney’s fees awarded:
“WHEREFORE, the appealed 16 September 1998 Decision is

MODIFIED to reduce the award of attorney’s fees to One
Hundred Three Thousand Four Hundred Sixty Four Pesos &
Ninety Centavos (P103,464.90). The rest is affirmed in toto. Costs
against [herein petitioners].”8
In a Resolution dated 5 January 2005, the Court of

Appeals refused to reconsider its Decision.
Petitioners thus filed the instant Petition for Review on
Certiorari, assigning the following errors allegedly
committed by the Court of Appeals:
_______________
6 CA Rollo, p. 34.

7 Records, p. 246.
8 Rollo, p. 45.
260

I. THE HONORABLE COURT OF APPEALS GRAVELY

ERRED IN RENDERING JUDGMENT AGAINST
PETITIONERS BASED ON A PREMATURE ACTION AND/OR
RULING IN FAVOR OF RESPONDENTS WHO HAVE NO
CAUSE OF ACTION AGAINST PETITIONERS.
II. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN AFFIRMING THE DECISION OF BRANCH 150,
REGIONAL TRIAL COURT OF MAKATI CITY BASED ON
MISAPPREHENSION OF FACTS, UNSUPPORTED BY
EVIDENCE ON RECORD & CONTRARY TO LAW.
III. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT GIVING MERIT TO THE ISSUE RAISED BY
PETITIONERS THAT THE BUREAU OF CUSTOMS IS
IMPROPERLY IMPLEADED BY INTRA STRATA.
IV. THE HONORABLE COURT OF APPEALS GRAVELY
ERRED [IN] AFFIRMING THE PORTION OF THE DECISION
HOLDING PETITIONER PETER Y. RODRIGUEZ AS JOINTLY
LIABLE WHEN AMENDMENTS WERE INTRODUCED,
WITHOUT HIS CONSENT AND APPROVAL.9
The present Petition is without merit.

Absence of actual forfeiture
of the subject bonds
Petitioners contend that their obligation to ISAC is not
yet due and demandable. They cannot be made liable by
ISAC in the absence of an actual forfeiture of the subject
bonds by the BOC and/or an explicit pronouncement by the
same bureau that ISAC is already liable on the said bonds.
In this case, there is yet no actual forfeiture of the bonds,
but merely a recommendation of forfeiture, for no writ of
execution has been issued against such bonds.10 Hence,
Civil Case No. 95-1584 was prematurely filed by ISAC.
Petitioners further argue that:
_______________
9 Id., at p. 142.
10 Petitioners’ Memorandum, Rollo, pp. 143-144.
261
VOL. 556, JUNE 27, 2008 261

“Secondly, it bears emphasis that as borne by the records, not

only is there no writ of forfeiture against Surety Bond No. 7154,
there is likewise no evidence adduced on record to prove that
respondent Intra Strata has made legal demand against Surety
Bond No. 5770 neither is there a showing that respondent BOC

initiated a demand or issued notice for its forfeiture and/or
confiscation.”11
The Court of Appeals, in its assailed Decision, already

directly addressed petitioners’ arguments by ruling that an
actual forfeiture of the subject bonds is not necessary for
petitioners to be liable thereon to ISAC as surety under the
Indemnity Agreements.
According to the relevant provision of the Indemnity
Agreements executed between petitioner and ISAC, which
reads:
“[W]here the obligation involves a liquidated amount for the

payment of which [ISAC] has become legally liable under the
terms of the obligation and its suretyship undertaking or by the
demand of the [BOC] or otherwise and the latter has merely
allowed the [ISAC’s] aforesaid liability, irrespective of whether or
not payment has actually been made by the [ISAC], the [ISAC] for
the protection of its interest may forthwith proceed against
[petitioners Autocorp Group and Rodriguez] or either of them by
court action or otherwise to enforce payment, even prior to
making payment to the [BOC] which may hereafter be done by
[ISAC][,]”12
petitioners’ obligation to indemnify ISAC became due and

demandable the moment the bonds issued by ISAC became
answerable for petitioners’ non-compliance with its
undertaking with the BOC. Stated differently, petitioners
became liable to indemnify ISAC at the same time the
bonds issued by ISAC were placed at the risk of forfeiture
by the BOC for non-compliance by petitioners with its
undertaking.
_______________
11 Id., at p. 146.
12 Records, p. 9.
262

The subject bonds, Instrata Bonds No. 5770 and No.

7154, became due and demandable upon the failure of
petitioner Autocorp Group to comply with a condition set
forth in its undertaking with the BOC, specifically to re-
export the imported vehicles within the period of six
months from their date of entry. Since it issued the subject

bonds, ISAC then also became liable to the BOC. At this
point, the Indemnity Agreements already give ISAC the
right to proceed against petitioners via court action or
otherwise.
The Indemnity Agreements, therefore, give ISAC the
right to recover from petitioners the face value of the
subject bonds plus attorney’s fees at the time ISAC
becomes liable on the said bonds to the BOC, regardless of
whether the BOC had actually forfeited the bonds,
demanded payment thereof and/or received such payment.
It must be pointed out that the Indemnity Agreements
explicitly provide that petitioners shall be liable to
indemnify ISAC “whether or not payment has actually
been made by the [ISAC]” and ISAC may proceed against
petitioners by court action or otherwise “even prior to
making payment to the [BOC] which may hereafter be done
by [ISAC].”
Even when the BOC already admitted that it not only
made a demand upon ISAC for the payment of the bond but
even filed a complaint against ISAC for such payment,13
such demand and complaint are not necessary to hold
petitioners liable to ISAC for the amount of such bonds.
Petitioners’ attempts to prove that there was no actual
forfeiture of the subject bonds are completely irrelevant to
the case at bar.
It is worthy to note that petitioners did not impugn the
validity of the stipulation in the Indemnity Agreements
allowing ISAC to proceed against petitioners the moment
the subject bonds become due and demandable, even prior
to actual forfeiture or payment thereof. Even if they did so,
the Court would be constrained to uphold the validity of
such a stipula-
_______________
13 Rollo, p. 185.
263
VOL. 556, JUNE 27, 2008 263

tion for it is but a slightly expanded contractual expression

of Article 2071 of the Civil Code which provides, inter alia,
that the guarantor may proceed against the principal
debtor the moment the debt becomes due and demandable.
Article 2071 of the Civil Code provides:
“Art. 2071. The guarantor, even before having paid,

may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to relieve him from
the guaranty within a specified period, and this period has
expired;
(4) When the debt has become demandable, by reason
of the expiration of the period for payment;
(5) After the lapse of ten years, when the principal obligation
has no fixed period for its maturity, unless it be of such nature
that it cannot be extinguished except within a period longer than
ten years;
(6) If there are reasonable grounds to fear that the principal
debtor intends to abscond;
(7) If the principal debtor is in imminent danger of becoming
insolvent.
In all these cases, the action of the guarantor is to obtain
release from the guaranty, or to demand a security that shall
protect him from any proceedings by the creditor and from the
danger of insolvency of the debtor.” (Emphases ours.)
Petitioners also invoke the alleged lack of demand on

the part of ISAC on petitioners as regards Instrata Bond
No. 5770 before it instituted Civil Case No. 95-1584. Even
if proven true, such a fact does not carry much weight
considering that demand, whether judicial or extrajudicial,
is not required before an obligation becomes due and
demandable. A demand is only necessary in order to put an
obligor in a due and de-
264

mandable obligation in delay,14 which in turn is for the

purpose of making the obligor liable for interests or
damages for the period of delay.15 Thus, unless stipulated
otherwise, an extrajudicial demand is not required before a
judicial demand, i.e., filing a civil case for collection, can be
resorted to.
Inclusion of the Bureau of Customs
as a party to the case
ISAC included the BOC “as a necessary party plaintiff in
order that the reward of money or judgment shall be
adjudged unto the said necessary plaintiff.”16
Petitioners assail this inclusion of the BOC as a party in

Civil Case No. 95-1584 on the ground that it was not
properly represented by the Solicitor General. Petitioners
also contend
_______________
14 Art. 1169. Those obliged to deliver or to do something incur in

delay from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be delivered
or the service is to be rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered
it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does
not comply or is not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the parties fulfills his
obligation, delay by the other begins.
15 Article 1170 of the Civil Code provides:
Art. 1170. Those who in the performance of their obligations
are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
16 Records, p. 1.
265
VOL. 556, JUNE 27, 2008 265

that the inclusion of the BOC as a party in Civil Case No.

95-1584 “is highly improper and should not be
countenanced as the net result would be tantamount to
collusion between Intra Strata and the Bureau of Customs
which would deny and deprive petitioners their personal
defenses against the BOC.”17
In its assailed Decision, the Court of Appeals did not
find merit in petitioners’ arguments on the matter, holding
that when the BOC forfeited the subject bonds issued by
ISAC, subrogation took place so that whatever right the
BOC had against petitioners were eventually transferred to
ISAC. As ISAC merely steps into the shoes of the BOC,
whatever defenses petitioners may have against the BOC
would still be available against ISAC.
The Court likewise cannot sustain petitioners’ position.

The misjoinder of parties does not warrant the dismissal
of the action. Section 11, Rule 3 of the Rules of Court
explicitly states:
“SEC. 11. Misjoinder and non-joinder of parties.—Neither

misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by
order of the court on motion of any party or on its own initiative
at any stage of the action and on such terms as are just. Any
claim against a misjoined party may be severed and proceeded
with separately.”
Consequently, the purported misjoinder of the BOC as a

party cannot result in the dismissal of Civil Case No. 95-
1584. If indeed the BOC was improperly impleaded as a
party in Civil Case No. 95-1584, at most, it may be dropped
by order of the court, on motion of any party or on its own
initiative, at any stage of the action and on such terms as
are just.
Should the BOC then be dropped as a party to Civil
Case No. 95-1584?
_______________
17 Petitioners’ Memorandum, Rollo, p. 148.
266

ISAC alleged in its Complaint18 that the BOC is being

joined as a necessary party in Civil Case No. 95-1584.
A necessary party is defined in Section 8, Rule 3 of the
Rules of Court as follows:
“SEC. 8. Necessary party.—A necessary party is one who is

not indispensable but who ought to be joined as a party if
complete relief is to be accorded as to those already parties, or for
a complete determination or settlement of the claim subject of the
action.”
The subject matter of Civil Case No. 95-1584 is the

liability of Autocorp Group to the BOC, which ISAC is also
bound to pay as the guarantor who issued the bonds
therefor. Clearly, there would be no complete settlement of
the subject matter of the case at bar—the liability of
Autocorp Group to the BOC—should Autocorp Group be
merely ordered to pay its obligations with the BOC to

ISAC. BOC is, therefore, a necessary party in the case at
bar, and should not be dropped as a party to the present
case.
It can only be conceded that there was an irregularity in
the manner the BOC was joined as a necessary party in
Civil Case No. 95-1584. As the BOC, through the Solicitor
General, was not the one who initiated Civil Case No. 95-
1584, and neither was its consent obtained for the filing of
the same, it may be considered an unwilling co-plaintiff of
ISAC in said action. The proper way to implead the BOC as
a necessary party to Civil Case No. 95-1584 should have
been in accordance with Section 10, Rule 3 of the Rules of
Court, viz.:
“SEC. 10. Unwilling co-plaintiff.—If the consent of any party

who should be joined as plaintiff can not be obtained, he may be
made a defendant and the reason therefor shall be stated in the
complaint.”
Nonetheless, the irregularity in the inclusion of the BOC as

a party to Civil Case No. 95-1584 would not in any way
affect
_______________
18 Records, pp. 1-7.
267
VOL. 556, JUNE 27, 2008 267

the disposition thereof. As the Court already found that the

BOC is a necessary party to Civil Case No. 95-1584, it
would be a graver injustice to drop it as a party.
Petitioners’ argument that the inclusion of the BOC as a
party to this case would deprive them of their personal
defenses against the BOC is utterly baseless.
First, as ruled by the Court of Appeals, petitioners’
defenses against the BOC are completely available against
ISAC, since the right of the latter to seek indemnity from
petitioner depends on the right of the BOC to proceed
against the bonds.
The Court, however, deems it essential to qualify that
ISAC’s right to seek indemnity from petitioners does not
constitute subrogation under the Civil Code, considering
that there has been no payment yet by ISAC to the BOC.
There are indeed cases in the aforementioned Article 2071

of the Civil Code wherein the guarantor or surety, even
before having paid, may proceed against the principal
debtor, but in all these cases, Article 2071 of the Civil Code
merely grants the guarantor or surety an action “to obtain
release from the guaranty, or to demand a security that
shall protect him from any proceedings by the creditor and
from the danger of insolvency of the debtor.” The benefit of
subrogation, an extinctive subjective novation by a change
of creditor, which “transfers to the person subrogated, the
credit and all the rights thereto appertaining, either
against the debtor or against third persons,”19 is granted by
the Article 2067 of the Civil Code only to the “guarantor (or
surety) who pays.”20
_______________
19 Civil Code, Article 1303 provides:

Art. 1303. Subrogation transfers to the persons subrogated the
credit with all the rights thereto appertaining, either against the
debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.
20 Civil Code, Article 2067 provides:
268

ISAC cannot be said to have stepped into the shoes of

the BOC, because the BOC still retains said rights until it
is paid. ISAC’s right to file Civil Case No. 95-1584 is based
on the express provision of the Indemnity Agreements
making petitioners liable to ISAC at the very moment
ISAC’s bonds become due and demandable for the liability
of Autocorp Group to the BOC, without need for actual
payment by ISAC to the BOC. But it is still correct to say
that all the defenses available to petitioners against the
BOC can likewise be invoked against ISAC because the
latter’s contractual right to proceed against petitioners only
arises when the Autocorp Group becomes liable to the BOC
for non-compliance with its undertakings. Indeed, the
arguments and evidence petitioners can present against
the BOC to prove that Autocorp Group’s liability to the
BOC is not yet due and demandable would also establish
that petitioners’ liability to ISAC under the Indemnity
Agreements has not yet arisen.
Second, making the BOC a necessary party to Civil Case

No. 95-1584 actually allows petitioners to simultaneously
invoke its defenses against both the BOC and ISAC.
Instead of depriving petitioners of their personal defenses
against the BOC, Civil Case No. 95-1584 actually gave
them the opportunity to kill two birds with one stone: to
disprove its liability to the BOC and, thus, negate its
liability to ISAC.
Liability of petitioner Rodriguez
Petitioner Rodriguez posits that he is merely a
guarantor, and that his liability arises only when the
person with whom he guarantees the credit, Autocorp
Group in this case, fails to pay the obligation. Petitioner
Rodriguez invokes Article 2079 of the Civil Code on
Extinguishment of Guaranty, which states:
_______________
Art. 2067. The guarantor who pays is subrogated by virtue

thereof to all the rights which the creditor had against the debtor.
269
VOL. 556, JUNE 27, 2008 269

“Art. 2079. An extension granted to the debtor by the creditor

without the consent of the guarantor extinguishes the guaranty.
The mere failure on the part of the creditor to demand payment
after the debt has become due does not of itself constitute any
extension of time referred to herein.”
Petitioner Rodriguez argues that there was an amendment

as to the effectivity of the bonds, and this constitutes a
modification of the agreement without his consent, thereby
exonerating him from any liability.
We must take note at this point that petitioners have
not presented any evidence of this alleged amendment as to
the effectivity of the bonds.21 Be that as it may, even if
there was indeed such an amendment, such would not
cause the exoneration of petitioner Rodriguez from liability
on the bonds.
The Court of Appeals, in its assailed Decision, held that
the use of the term guarantee in a contract does not ipso
facto mean that the contract is one of guaranty. It thus
ruled that both petitioners assumed liability as a regular
party and obligated themselves as original promissors, i.e.,
sureties, as shown in the following provisions of the

Indemnity Agreement:
INDEMNITY:—The undersigned [Autocorp Group and

Rodriguez] agree at all times to jointly and severally
indemnify the COMPANY [ISAC] and keep it indemnified and
hold and save it harmless from and against any and all damages,
losses, costs, stamps, taxes, penalties, charges and expenses of
whatsoever kind and nature including counsel or attorney’s fee
which the COMPANY [ISAC] shall or may at any time sustain or
incur in consequence of having become surety upon the bond
herein above referred to x x x
xxxx
OUR LIABILITY HEREUNDER:—It shall not be necessary for
the COMPANY [ISAC] to bring suit against the principal
[Autocorp Group] upon his default or to exhaust the property of
the principal [Autocorp Group], but the liability hereunder of
the under-
_______________
21 Id., at p. 212.
270

signed indemnitors [Rodriguez] shall be jointly and

severally, a primary one, the same as that of the principal
[Autocorp Group], and shall be exigible immediately upon
the occurrence of such default.” (Emphases supplied.)
The Court of Appeals concluded that since petitioner

Rodriguez was a surety, Article 2079 of the Civil Code does
not apply. The appellate court further noted that both
petitioners authorized ISAC to consent to the granting of
an extension of the subject bonds.
The Court of Appeals committed a slight error on this
point. The provisions of the Civil Code on Guarantee, other
than the benefit of excussion, are applicable and available
to the surety.22 The Court finds no reason why the
provisions of Article 2079 would not apply to a surety.
This, however, would not cause a reversal of the
Decision of the Court of Appeals. The Court of Appeals was
correct that even granting arguendo that there was a
modification as to the effectivity of the bonds, petitioners
would still not be absolved from liability since they had
authorized ISAC to consent to the granting of any
extension, modification, alteration and/or renewal of the

subject bonds, as expressly set out in the Indemnity
Agreements:
“RENEWALS, ALTERATIONS AND SUBSTITUTIONS:—The

undersigned [Autocorp Group and Rodriguez] hereby
empower and authorize the COMPANY [ISAC] to grant or
consent to the granting of any extension, continuation,
increase, modification, change, alteration and/or renewal
of the original bond herein referred to, and to execute or
consent to the execution of any substitution for said Bond with
the same or different, conditions and parties, and the
undersigned [Autocorp Group and Rodriguez] hereby hold
themselves jointly and severally liable to the COMPANY
[ISAC] for the original Bond herein above-mentioned or
for any extension, con-
_______________
22 Manila Surety and Fidelity Co., Inc. v. Batu Corporation and Company, 101
Phil. 494, 501 (1957).
271
VOL. 556, JUNE 27, 2008 271

tinuation, increase, modification, change, alteration,

renewal or substitution thereof without the necessary of
any new indemnity agreement being executed until the full
amount including principal, interest, premiums, costs, and other
expenses due to the COMPANY [ISAC] thereunder is fully paid
up.”23 (Emphases supplied.)
The foregoing provision in the Indemnity Agreements

clearly authorized ISAC to consent to the granting of any
extension, modification, alteration and/or renewal of the
subject bonds.
There is nothing illegal in such a provision. In
Philippine American General Insurance Co., Inc. v.
Mutuc,24 the Court held that an agreement whereby the
sureties bound themselves to be liable in case of an
extension or renewal of the bond, without the necessity of
executing another indemnity agreement for the purpose
and without the necessity of being notified of such
extension or renewal, is valid; and that there is nothing in
it that militates against the law, good customs, good
morals, public order or public policy.
WHEREFORE, the instant Petition for Review on

Certiorari is DENIED. The Decision of the Court of Appeals
dated 30 June 2004 in CA-G.R. CV No. 62564 which
affirmed with modification the Decision of the Regional
Trial Court of Makati City, in Civil Case No. 95-1584 dated
16 September 1998 is AFFIRMED in toto. Costs against
petitioners.
SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinez,

Nachura and Reyes, JJ., concur.
Petition denied, judgment affirmed in toto.
_______________
23 Records, p. 9.
24 158 Phil. 699; 61 SCRA 22 (1974).
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1/22/2018 SUPREME COURT REPORTS ANNOTATED VOLUME 556

G.R. No. 166662. June 27, 2008.*

Obligations and Contracts; Indemnity Agreements; The

VOL. 556, JUNE 27, 2008 251