PHILIPPINE PRYCE ASSURANCE CORPORATION V. CA, GEGROCO, INC.

February 21, 1994 | Nocon, J.

Suretyship > Premium Payment (Sec. 179, IC1)
AKGL

DOCTRINE: No contract of suretyship or bonding shall be valid and binding unless and until the premium therefor
has been paid, except where the obligee has accepted the bond, in which case the bond becomes valid and
enforceable irrespective of whether or not the premium has been paid by the obligor to the surety.
CASE SUMMARY: Gegroco filed to collect from Philippine Pryce. But, as a defense, Philippine Pryce alleged that
the check payment of Gegroco bounced, thus there was no valid and binding contracts of suretyship/bonds.

FACTS:
 Gegroco, Inc. filed complaint for collection of sum of money against Interworld Assurance Corporation (now
Philippine Pryce Assurance Corporation). The complaint alleged that Philippine Pryce issued 2 surety bonds
totaling P1.5M in favor of Gegroco in behalf of its principal Sagum General Merchandise.
 Summons, together with the copy of the complaint, was served on Philippine Pryce. In its Answer,
Philippine Pryce admitted having executed the said bonds, but denied liability because allegedly
o the checks which were to pay for the premiums bounced and were dishonored hence there is no
contract to speak of between petitioner and its supposed principal
o that the bonds were merely to guarantee payment of its principal’s obligation, thus, excussion2 is
necessary
 Despite the postponement of pre-trial, the Philippine Pryce was again not represented by its officer or its
counsel, despite being duly notified. Hence, upon motion of Gegroco, Philippine Pryce was considered as in
default.
 [TC] Interworld Assurance to pay the amount of P1.5M representing the principal of the amount due
 [CA] Affirmed

ISSUE: W/N the payment of premium is necessary for a contract of surety or bonding may be considered as valid
and binding? General rule, YES. But, an exception, which is applicable to the case, is where the obligee has
accepted the bond.

RULING:
Defense 1: Checks issued by its principal which were supposed to pay for the premiums, bounced, hence there is
no contract of surety
 Sec. 177 (now Sec. 179. Please see footnote) outrightly negates petitioner’s first defense.
 However, to escape liability, Philippine Pryce attempted to muddle the facts as already appreciated by the
TC. It now claimed that Gegroco allegedly had not accepted the surety bond. But, based on testimonial and
documentary evidence on record, Philippine Pryce had actually issued bonds in favor of Gegroco:
1. Philippine Pryce, in its answer, admitted to have issued the bonds subject matter of the original
action
2. Sagum was required to submit surety bonds to guaranty payment of the spare parts to be
purchased. Based on the testimony for Gegroco, Sagum was able to comply with your surety bond
requirement.
3. Delivery invoices addressed to Sagum proving that parts were purchased, delivered and received.
 Thus, because of the issuance surety bonds, the contracts of suretyship/bonding became valid.
Defense 2: Interworld Assurance was not yet authorized by the Insurance Commission to issue such bonds
 No person can claim benefit from the wrong he himself committed. A representation made is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person relying
thereon.

DISPOSITION: WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dismissing the petition
before them and affirming the decision of the trial court and its order denying petitioner’s Motion for Reconsideration
are hereby AFFIRMED. The present petition is DISMISSED for lack of merit.

1 Sec. 179, IC: “The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. No contract
of suretyship or bonding shall be valid and binding unless and until the premium therefor has been paid, except where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety xxx”
2 Excussion is a process or proceedings whereby a creditor must proceed against a principal debtor before proceeding against a surety or subsidiary debtor.
 PHILIPPINE PRYCE ASSURANCE CORPORATION V. CA, GEGROCO, INC.
NOTES:
Defense 3 (Procedural): CA gravely erred in declaring that the case was already ripe for pre- trial conference
 No answer to the third party complaint is forthcoming as petitioner never initiated the service of summons on
the third party defendant. All copies of notices and orders issued by the court for petitioner’s counsel were
returned with the notation “Return to Sender, Unclaimed.”
 Philippine Pryce cannot just disregard the court’s order to be present during the pre-trial and give a flimsy
excuse, such as that the answer has yet to be filed. The pre-trial is mandatory in any action, the main
objective being to simplify, abbreviate and expedite trial, if not to fully dispense with it.
 CA properly considered the third-party complaint as a mere scrap of paper due to petitioner’s failure to pay
the requisite docket fees.