THE GOVERNMENT OF THE PHILIPPINE ISLANDS, PLAINTIFF AND APPELLEE, VS. THE VISAYAN SURETY & INSURANCE CORPORATION, DEFENDANT AND APPELLANT.

Judgment having been rendered by the Court of First Instance of Cebu in
civil case No. 10433, ordering the Visayan Surety and Insurance
Corporation to pay certain sums of money to the Pacific Commercial
Company and to the claimants to be enumerated hereinbelow, said
defendant appealed from the judgment and assigns in its brief six
alleged errors claimed by it to have been committed by the court, of
which the third involves the supposed unconstitutionality of Act No.
3688 and the fourth raises the question of lack of jurisdiction of the
court over the person and the subject matter of the litigation.

Said case was commenced through a complaint filed on October 23, 1934,
by the Pacific Commercial Company in the name of the Government of the
Philippine Islands, pursuant to the provisions of Act No. 3688, for the
recovery of a certain sum of money from the defendant, upon a bond
filed by the latter in favor of the Government of the Philippine
Islands to answer for the full and faithful performance of the contract
executed by M. de los Reyes for the construction of a causeway and
landing at the Port of Santa Fe, Bantayan Island, Province of Cebu, and
to answer for the payment of all obligations for materials used and
labor employed in said construction. Upon the filing of the complaint,
the court ordered, in compliance with the provisions of said Act, that
all the creditors of the contractor for labor employed and materials
used by him in the construction of said causeway and landing be
notified of their right to intervene in this action on or before
February 13, 1935, for the recovery of their credits, directing to that
effect the publication of the order in the newspaper “The Advertiser”,
of general circulation in Cebu, once a week for three successive weeks,
the last publication to be made not less than three months before the
date above-indicated.

On December 17, 1934, the Luzon Lumber
Company entered its appearance, seeking payment of the sum of P629.10
plus interest thereon at 12 per cent per annum from September 30, 1933,
for materials furnished to said contractor. On January 23, 1935, Jose
Ibanez also entered his appearance in the case, seeking payment of the
sum of P243, likewise for materials furnished. On May 10, 1935, Yutivo
Sons Hardware Company entered its appearance to claim the sum of P1,320
also for materials. This claim was later reduced to the sum of P996.32,
plus interest thereon at 12 per cent and an additional 20 per cent
attorney’s fees and costs. After the evidence for the claimants had
been presented, the attorney for the defendant filed a motion asking
for the dismissal of the case on the ground that there was no cause of
action and that the court had no jurisdiction over the same. Said
motion having been denied and the defendant having been ordered to
present its evidence within five (5) days, its attorney gave notice of
his refusal to present said evidence. On January 30, 1936, the court
rendered the judgment appealed from, ordering the defendant to pay to
the Pacific Commercial Company the sum of P681.37 with legal interest
thereon from December 21, 1934; to the Luzon Lumber Company, the sum of
P526.39 with legal interest thereon from December 18, 1934; to Jose
Ibañez, the sum of P203.32, with legal interest thereon from January
23, 1935; and to Yutivo Sons Hardware Company, the sum of P946.32, with
legal interest thereon from May 11, 1935, plus the additional sum of
P189.26 for attorney’s fees and costs.

The alleged lack of
jurisdiction of the court is rather a consequence deduced by the
appellant from the first alleged error attributed to the court, which
error is made to consist in the alleged failure of the court to dismiss
the complaint on the ground that the claimants did not follow the
procedure prescribed by Act No. 3688 in bringing the action against the
defendant in the name of the Government of the Philippine Islands. This
alleged error is based on the following reasons:

(a) That the filing of the action is premature.

(b)
That the proper procedure for using the name of the Government of the
Philippine Islands in bringing the action has not been followed.

(c) That personal notice has not been given to the creditors.

(d) That the notice has not been published in some newspaper.

(e) That the order of October 23, 1934, is illegal, and

(f) That the contractor M. de los Reyes has not been joined as party defendant.

(a)
As to the premature filing of the complaint, the appellant contends
that, the work under said contract having been completed on May 19,
1934, and accepted on July 8, 1934, when the complaint was filed on
October 23, 1934, the period of six months had not yet elapsed and the
Government, in accordance with the provisions of Act No. 3688, had not
yet brought an action or expressly waived its right to bring an action
upon the penal bond of the defendant, nor had the claimants applied to
the Department of Public Works for a copy of the contract and of the
bond in order to be authorized to bring the action in the name of the
Government of the Philippine Islands.

It is a fact, however,
that on September 10, 1934, the district engineer of Cebu, Alejo
Aquino, addressed a letter (Exhibit C) to the Pacific Commercial
Company at Cebu, stating that, with reference to its unpaid claim
against the contractor Marciano de los Reyes, and at the request of the
Director of Public Works, it was advised to bring its civil action in
court upon the penal bond executed by the Visayan Surety and Insurance
Corporation as security of the contract entered by Reyes with the
Government. Even without having to decide whether or not said letter in
fact amounts to an express waiver on the part of the Government of its
right to bring an action for damages against the contractor within the
period of six months, under the provisions of said Act No. 3688, there
is, however, a fact which completely overcomes the defendant’s
objection, and it is that, more than six months having elapsed with
excess from the acceptance of the work on July 8, 1934, up to the time
the decision in this case was rendered on January 30, 1936, without the
Government having filed any claim against the appellant during all that
time or later, up to this date, it is evident that the Government, by
reason of the long time that elapsed, has lost its right to claim
damages against the contractor or his surety, the Visayan Surety and
Insurance Corporation, with preference over the herein
claimants-appellees. It is that preferred right which the law attempts
to preserve in favor of the Government within the period of six months
following the acceptance of the completed work, and that is the reason
behind the provision that nobody, without an express waiver of the
Government, may bring an action in the name of the Government against
the contractor and his sureties.

(b) This court is
of the opinion that the foregoing refutes the second ground alleged to
the effect that due procedure for using the name of the Government of
the Philippine Islands in the filing of the complaint had not been
followed. The only thing to be added is that the office of the district
engineer of Cebu is the representative at Cebu of the Government Bureau
of Public Works, and it was said office that had the construction of
the Santa Fe causeway and landing at Bantayan under its charge,
direction and supervision, as proven by the uncontradicted testimony of
Pedro Principe, chief clerk of the office of the engineer of Cebu, who
has charge and supervision over the records and files of said office.
The above-stated communication, Exhibit C, of the district engineer of
Cebu, Alejo Aquino, should therefore be considered as a communication
backed up by the authority of the Director of Public Works.

(c)
The appellant argues in the third ground of its first assignment of
alleged error that personal notice has not been given to all the
creditors. With respect to this point, as the court very well stated,
any objection in this respect cannot be of benefit to the defendant.
The legal provision requiring such notice is for the protection of the
creditors of the contractor. The true parties who may raise such
objection would only be the creditors adversely affected.

(d)
The appellant further contends that, according to Act No. 3688, the
notice should be published in some newspaper of general circulation,
and the order of the court, according to it, was published in only one
newspaper “The Advertiser”. This court is of the opinion that this is
sufficient because, although there may be more than one newspaper in
Cebu, the law does not require the publication to be made in more than
one newspaper but only in some newspaper.

(e) The
court’s order of October 23, 1934, whereby notice was given to the
contractor’s creditors for materials furnished or for labor employed
that they could intervene in order to claim their respective credits,
is alleged to be illegal for having fixed February 13, 1935, as the
last day for the presentation of the claims, while Act No. 3688
provides that the claims may be presented at any time within one year
from the acceptance of the work. If there were any anomaly in the order
in question, it would not be the defendant who would be entitled to
allege the same in its favor, because it has not all been prejudiced by
said order, and the only one who might complain against it would be
some creditor who was unable to present his claim by reason of the
shortening of the period fixed by law.

It is contended that
the publication of the order in question is something that vests the
court with jurisdiction to try the present case, and said order being
null and void ab initio, the court has not acquired
jurisdiction in this case. The order of the court having been published
in the manner prescribed by law, this court is of the opinion that the
law has been substantially-complied with, although the period fixed for
the presentation of claims has been reduced by some months. The
objection of the defendant should all the more be considered without
merit because no creditor has been excluded. The claim of Yutivo Sons
Hardware Company was presented after February 13, 1935, but it was,
however, admitted by the court, in spite of the opposition filed by the
appellant. It is argued that the period for the presentation of claims
has not been extended after February 13, 1935, and that the extension
of said period without publication of the order of extension destroys
the jurisdiction of the court over the subject matter of the
litigation. This court is of the opinion that once the jurisdiction of
the court is acquired by the publication of the order of October 23,
1934, any extension of the period, provided it be within the same
period of one year fixed by law for the presentation of the claims, is
no longer jurisdictional.

(f) Another alleged
ground for the first error is that the contractor M. de los Reyes has
not been joined as party defendant. The allegation of this supposed
defect is without merit and to refute it suffice it to call attention
to the fact that, according to the surety bond, the contractor M. de
los Reyes and the defendant bound themselves jointly and severally in
favor of the Government and of any other person, partnership or
corporation, who might furnish labor and materials to the contractor,
in the sum of P7,270, and according to the provisions of articles 1330
and 1831 of the Civil Code, the defendant, as surety, may be compelled
to pay to the claimants without first having all the property of the
principal debtor exhausted when, as it happens in this case, the
defendant has bound itself jointly and severally with the contractor
(Chinese Chamber of Commerce vs. Pua Te Ching, 16 Phil., 406; Inchausti & Co. vs. Yulo, 34 Phil., 978; Jaucian vs. Querol, 38 Phil, 707; Ferrer vs. Lopez and Santos, 56 Phil., 592).

The case of Uy Tam and Uy Yet vs.
Leonard (30 Phil., 471) is cited by the appellant for the purpose of
showing, as may be inferred from that part of the decision in said case
underlined by said appellant, that as the persons who furnished
materials to the contractor were not parties to the contract of
suretyship, they have no right of action against the surety. If this is
the appellant’s contention, attention is invited to the provisions of
Act No. 3688, under which the penal bond in question was executed by
the appellant, which expressly provide that “any person, company or
corporation who has furnished labor or materials used in the
construction or repair of any public building or public work, and
payment for which has not been made, shall have the right to intervene
and be made a party to any action instituted by the Government of the
Philippine Islands on the bond of the contractor, and to have their
rights and claims adjudicated in such action and judgment rendered
thereon, * * *.”

And according to the same surety bond, the
appellant, as hereinbefore stated, bound itself to pay to the
Government and to any person, partnership, or corporation that has
supplied the contractor with labor or materials, their credits to the
extent of the amount stated in said bond.

Another of the
supposed errors assigned by the appellant consists, as contended by it,
in the alleged failure of the court to hold that Act No. 3688 is
unconstitutional and that the penal bond executed by it is null and
void. The appellant, arguing on this alleged error, contends that Act
No. 3688 compels the contractor to file a penal bond not only in favor
of the Government but also in favor of the persons supplying the
contractor with labor and materials in cases of public works. This,
according to it, constitutes class legislation on the ground that it
does not afford the same privilege to persons furnishing labor and
materials to contractors in private works. It also contends that said
law impairs the obligations of contracts inasmuch as it grants favors
to persons who are not parties to the contract, as are the ones
furnishing labor and materials to the contractor.

This court
is of the opinion that both contentions are untenable. The Government,
by means of said law, compels all those entering into a contract with
it for the prosecution of public works, to execute a bond under certain
terms and conditions, without exempting from this obligation any
contractor, whatever his class and rank in society, if he has to
undertake some work for the Government. The Government is protecting
itself when, pursuant to said law, it requires the execution of the
bond to secure faithful compliance with the obligations of the
contractor in the performance of the works, and is also protecting
itself when, in accordance with the same law, it extends the bond in
favor of third persons who might have some claim by reason of the labor
and materials used in the building or work of the same Government. The
same privilege is not made to extend to contractors of private works
because said contractors should know how to protect themselves in the
most appropriate manner they deem convenient for their interests. And
it cannot be said that the law in question impairs contractual
obligations by favoring persons who are not parties to the contract of
suretyship, because the law does not produce the effect of changing or
altering the terms of an obligation so contracted, but has for its
object to determine beforehand the effects of the bond with respect to
third persons who may later have some interest in the works by reason
of the labor or materials furnished. And in this respect, the law is
not unconstitutional.

“Impairment of Obligation.—a. In General.—Any
enactment of a legislative character is said to ‘impair’ the obligation
of a contract which attempts to take from a party a right to which he
is entitled by its terms, or which deprives him of the means of
enforcing such a right. But it may be said in general that a law which
does not strike at the vitality of a contract either by altering its
terms or preventing its preservation and enforcement does not impair
its obligation. * * *” (12 C. J., 1056.)

“A law does not
impair the obligation of a contract within the meaning of the
Constitution, if neither party m relieved thereby from performing
anything of that which he obligated himself to do. But if either party
is absolved from performing any of these things, such obligation is
impaired, whether absolution is affected, directly and expressly or
indirectly, and only as the result of some modification of the legal
proceedings for enforcement.” (State ex rel. National Bond & Security Co. vs.
Krahmer, 106 Minn., 422; 117 N. W., 780; 21 L. R. A. [N. S.], 157.
Footnote, I Cooley’s Constitutional Limitations, p. 583, 8th ed.)

In the light of the above-quoted doctrines, this court does not see how
the appellant can contend that Act No. 3688 impairs the obligation of a
contract, when said law does not take from it any right derived from
the bond nor deprive it of the means of enforcing some of its right.

Another alleged error attributed to the court by the appellant is that,
according to it, it has not been proven that the materials taken from
the claimants were used in the contract secured by it. The court found
it to have been proven satisfactorily that the materials furnished by
the claimants to the contractor were used by the latter in the
construction of the work contracted. This court is of the opinion that
this conclusion is warranted by the evidence.

Finding no
merit either in the other errors assigned by the appellant, the
judgment appealed from is affirmed, with costs to said appellant. So
ordered.

Avanceña, C. J., Villa-Real, Abad Santos, Imperial, Diaz, and Laurel, JJ., concur.