C Corp. entered into a contract with D, Inc. for the construction of the latter’s production warehouse. In consideration thereof, D, Inc. was obliged to pay C Corp. the amount of ₱50,000,000.00 within a period of one (1) month from the time of the project’s completion. To secure the payment of the said sum, D, Inc. entered into a surety agreement with S Company.
After more than a month from the completion date of the project, C Corp. remained unpaid. Claiming that it was suffering from serious financial reverses, D, Inc. asked C Corp. for an extension of three (3) months to pay the ₱50,000,000.00 it still owed, to which C Corp. agreed. However, after more than three (3) months, D, Inc. still refused to pay. Hence, C Corp. proceeded to collect the above sum from the surety, S Company.
For its part, S Company refused the claim and raised the defense that the extension of time granted by C Corp. to D, Inc. without its consent released it from liability.
(a) Will the defense of S Company against the claim hold water? Explain. (3%)
(b) Assuming that S Company instead refused the claim on the ground that C Corp. has yet to exhaust D, Inc.’s property to satisfy the claim before proceeding against it, will this defense prosper? Explain. (2%)
Suggested Answer:
(a) No. Answer
Under jurisprudence, a contract of surety creates a solidary obligation on the part of the surety to guarantee the performance of the debtor. The surety is directly liable for the non-performance of the debtor. Rule
In the case at bar, S Company bound itself to be a surety to secure D Inc.’s obligation resulting in a solidary liability. The extension granted by C Corp. does not affect the solidary liability of S Company. Apply
Thus, the defense of S Company against the claim does not hold water. Conclusion
(b) No. Answer
Under jurisprudence, the surety is solidarily liable with the debtor. As a result, the surety is directly liable for the non-performance of the debtor without need of exhausting the debtor’s property. Rule
In the case at bar, as a surety, S Company was a surety and thus directly liable for D, Inc.’s non-performance of the obligation. It is not necessary to exhaust the property of D, Inc. to render S Company liable.. Apply
Thus, the defense will not prosper. Conclusion
