THE COMMISSIONER OF IMMIGRATION, PLAINTIFF-APPELLANT, VS. ASIAN SURETY & INSURANCE COMPANY, INC., DEFENDANT-APPELLEE.

Commissioner of Immigration versus Asian Surety and Insurance Company

The Case

This is the Commissioner of Immigration against Asian Surety and Insurance Company, a civil action upon a surety bond. The Commissioner sued to recover seven thousand pesos on a bond the company had executed to guarantee that a Chinese citizen admitted temporarily as a non-immigrant student would leave the country within the period allowed. The trial court dismissed the complaint on equitable grounds, and the Commissioner appealed. The case matters because it settles a question every examinee in suretyship and insurance must know: whether a compensated corporate surety may escape a clear contractual undertaking by invoking equity and the old rule of strict construction in favor of sureties.

Procedural History

The Commissioner of Immigration filed a complaint in the lower court for recovery of the bond. The trial court dismissed the complaint, holding that it was neither fair nor just nor equitable to penalize the surety for an omission due to the plaintiff's own fault, since the extensions of the alien's stay were granted without notice to the bonding company. The Commissioner appealed directly to the Supreme Court. The Supreme Court reversed the decision of the lower court.

Facts

Asian Surety and Insurance Company executed a bond in the sum of seven thousand pesos to guarantee that Cua Giok Ke, a Chinese citizen admitted to the Philippines temporarily as a non-immigrant student, would actually depart from the Philippines on or before April 7, 1958, or within such period as, in his discretion, the Commissioner of Immigration or his authorized representative may properly allow.

After April 7, 1958, the Bureau of Immigration extended the temporary stay of Cua Giok Ke several times without notifying the bonding company. On June 13, 1961, deportation proceedings were instituted against him, and a warrant for his arrest was issued. The Commissioner wrote the surety that the authorized stay had expired at the end of the first semester of the school year 1960 to 1961, that the alien had not left, and that the terms of the bond were violated. The Commissioner declared the bond confiscated and demanded payment of seven thousand pesos.

Upon receipt of the letter, the surety took steps to cause the surrender of Cua Giok Ke, which took place on June 16, 1961, three days later. The surety then requested the lifting of the order of confiscation, but the request was denied. The action on the bond followed.

Issues

• Whether or not the surety is liable under the bond notwithstanding that the extensions of the alien's temporary stay were granted without its knowledge and consent.
• Whether or not the equitable considerations relied upon by the lower court may release a compensated corporate surety from a clear contractual undertaking.

Applicable Provisions

Article 2079 of the New Civil Code, invoked by the surety and discussed in the concurring opinion, provides:

An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty.

It bears on the case because the surety claimed that the extensions granted to the alien without its consent extinguished its obligation, a claim the Court rejected because the bond itself contained the surety's consent to such extensions.

Ruling

On the first issue, the Court held that the surety is liable. Its admission that there was a failure to live up to the terms of the bond is fatal to its claim for exemption. The obligation under the bond was the law between the parties. The Court stressed that the bond itself provided that the alien would depart on or before the date specified, or within such period as, in his discretion, the Commissioner of Immigration or his authorized representative may properly allow. That stipulation amounts to the surety's consent to the extensions. The Court added that the surety was not entirely without fault: even if it did not know as a matter of fact that extensions were granted, it could have known by making the appropriate inquiries, and it failed to do so.

On the second issue, the Court held that the plea is at most equitable in character and its persuasive value is far from overwhelming. It lacks support in the applicable codal provisions and in the doctrine of the Court. The Court recalled its ruling that the rule holding sureties to be favorites of the law, and their contracts to be of strict interpretation, does not apply to compensated sureties. A corporate compensated surety is a business association organized to assume classified risks in large numbers, for profit and on an impersonal basis, and is in fact an insurer. The Court also warned that a policy of leniency would encourage carelessness, not to say collusion, with overstaying aliens.

Doctrine

A surety bond is the law between the parties, and a compensated corporate surety is bound by its terms. The rule of strict interpretation in favor of sureties does not apply to compensated sureties, which are in fact insurers. Where the bond itself authorizes the Commissioner of Immigration to allow extensions of the alien's stay, the surety has consented to those extensions, and Article 2079 of the New Civil Code, which extinguishes a guaranty when an extension is granted without the guarantor's consent, does not apply. Equity will not relieve a surety from a clear and undeniable contractual liability, especially where it could have learned of the extensions by making appropriate inquiries.

Disposition

The Supreme Court reversed the decision of the lower court and held Asian Surety and Insurance Company liable under the bond according to its terms, remanding the case for further proceedings to determine the liability of the third party defendants, with costs against the surety.

Remember This

Memorize this line: the rule of strict interpretation in favor of sureties does not apply to compensated sureties, for they are in fact insurers. Examiners use this case to test whether a bonding company may escape liability by invoking equity and lack of notice when the bond itself authorized the extensions.