G.R. No.

L-16666 April 10, 1922

ROMULO MACHETTI, plaintiff-appelle,
vs.
HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE
ISLANDS, defendant-appellant
FACTS:
on July 17, 1916, one Romulo Machetti, by a written agreement
undertook to construct a building on Calle Rosario in the city of Manila
for the Hospicio de San Jose, the contract price being P64,000. One of
the conditions of the agreement was that the contractor should obtain
the "guarantee" of the Fidelity and Surety Company of the Philippine
Islands to the amount of P128,800 and the following endorsement in
the English language appears upon the contract:
MANILA, July 15, 1916.
For value received we hereby guarantee compliance with the
terms and conditions as outlined in the above contract.
FIDELITY AND SURETY COMPANY OF THE PHILIPPINE
ISLANDS.
(Sgd) OTTO VORSTER,
Vice-President.
The work progressed, however, it was found that the work had not
been carried out in accordance with the specifications in the contract.
The Hospicio de San Jose therefore answered the complaint and
presented a counterclaim for damages for the partial noncompliance
with the terms of the agreement abovementioned, in the total sum of
P71,350. After issue was thus joined, Machetti was declared insolvent.
The Hospicio filed a complaint against the Fidelity and Surety
Company asking for a judgement for P12,800 against the company
upon its guaranty.
ISSUE: Whether or not Fidelity and Surety Company is liable to pay
Hospicio de San Jose
HELD:
CFI= rendered judgment against the Fidelity and Surety Company for
P12,800 in accordance with the complaint.
The contract of guaranty is written in the English language and the
terms employed must of course be given the signification which
ordinarily attaches to them in that language. In English the term
"guarantor" implies an undertaking of guaranty, as distinguished from
suretyship. It is very true that notwithstanding the use of the words
"guarantee" or "guaranty" circumstances may be shown which convert
the contract into one of suretyship but such circumstances do not exist
in the present case; on the contrary it appear affirmatively that the
contract is the guarantor's separate undertaking in which the principal
does not join, that its rests on a separate consideration moving from
the principal and that although it is written in continuation of the
contract for the construction of the building, it is a collateral
undertaking separate and distinct from the latter. All of these
circumstances are distinguishing features of contracts of guaranty.
Now, while a surety undertakes to pay if the principal does not pay, the
guarantor only binds himself to pay if the principal cannot pay. The one
is the insurer of the debt, the other an insurer of the solvency of the
debtor.
This latter liability is what the Fidelity and Surety Company assumed in
the present case. The undertaking is a perfectly valid contract and
must be given the legal effect if ordinarily carries. The Fidelity and
Surety Company having bound itself to pay only the event its principal,
Machetti, cannot pay it follows that it cannot be compelled to pay until it
is shown that Machetti is unable to pay. Such ability may be proven by
the return of a writ of execution unsatisfied or by other means, but is
not sufficiently established by the mere fact that he has been declared
insolvent in insolvency proceedings under our statutes, in which the
extent of the insolvent's inability to pay is not determined until the final
liquidation of his estate.
G.R. No. 126490 March 31, 1998
ESTRELLA PALMARES, petitioner,
vs.
COURT OF APPEALS and M.B. LENDING
CORPORATION, respondents.
Where a party signs a promissory note as a co-maker and binds
herself to be jointly and severally liable with the principal debtor in case
the latter defaults in the payment of the loan, is such undertaking of the
former deemed to be that of a surety as an insurer of the debt, or of a
guarantor who warrants the solvency of the debtor?
FACTS:
Pursuant to a promissory note dated March 13, 1990, private
respondent M.B. Lending Corporation extended a loan to the spouses
Osmeña and Merlyn Azarraga, together with petitioner Estrella
Palmares, in the amount of P30,000.00 payable on or before May 12,
1990. Petitioner and the Azarraga spouses were able to pay a total of
P16,300.00, thereby leaving a balance of P13,700.00. No payments
were made after the last payment on September 26, 1991.
Consequently, on the basis of petitioner's solidary liability under the
promissory note, respondent corporation filed a complaint 3 against
petitioner Palmares as the lone party-defendant, to the exclusion of the
principal debtors, allegedly by reason of the insolvency of the latter.
PETITIONER:
The basis of petitioner Palmares' liability under the promissory note is
expressed in this wise:
ATTENTION TO CO-MAKERS: PLEASE READ WELL
I, Mrs. Estrella Palmares, as the Co-maker of the above-
quoted loan, have fully understood the contents of this
Promissory Note for Short-Term Loan:
That as Co-maker, I am fully aware that I shall be jointly and
severally or solidarily liable with the above principal maker of
this note;
That in fact, I hereby agree that M.B. LENDING
CORPORATION may demand payment of the above loan
from me in case the principal maker, Mrs. Merlyn
Azarraga defaults in the payment of the note subject to the
same conditions above-contained.8
Petitioner contends that although the second paragraph says that she
is liable as a surety, the third paragraph defines the nature of her
liability as that of a guarantor. According to petitioner, these are two
conflicting provisions in the promissory note and the rule is that
clauses in the contract should be interpreted in relation to one another
and not by parts. In other words, the second paragraph should not be
taken in isolation, but should be read in relation to the third paragraph.
In an attempt to reconcile the supposed conflict between the two
provisions, petitioner avers that she could be held liable only as a
guarantor for several reasons. First, the words "jointly and severally or
solidarily liable" used in the second paragraph are technical and legal
terms which are not fully appreciated by an ordinary layman like herein
petitioner, a 65-year old housewife who is likely to enter into such
transactions without fully realizing the nature and extent of her liability.
On the contrary, the wordings used in the third paragraph are easier to
comprehend. Second, the law looks upon the contract of suretyship
with a jealous eye and the rule is that the obligation of the surety
cannot be extended by implication beyond specified limits, taking into
consideration the peculiar nature of a surety agreement which holds
the surety liable despite the absence of any direct consideration
received from either the principal obligor or the creditor.
Petitioner accordingly concludes that her liability should be deemed
restricted by the clause in the third paragraph of the promissory note to
be that of a guarantor.
Regional Trial Court of Iloilo City= dismissed the complaint without
prejudice to the filing of a separate action for a sum of money against
the spouses Osmeña and Merlyn Azarraga who are primarily liable on
the instrument.
The RTC found that the offer made by petitioner to pay the
obligation is considered a valid tender of payment sufficient
to discharge a person's secondary liability on the instrument;
as co-maker, is only secondarily liable on the instrument;
and that the promissory note is a contract of adhesion.
CA= reversed the decision of the trial court, and rendered judgment
declaring herein petitioner Palmares liable to pay respondent
corporation
Respondent appellate court declared that petitioner is a
surety since she bound herself to be jointly and severally or
solidarily liable with the principal debtors, the Azarraga
spouses, when she signed as a co-maker. As such,
petitioner is primarily liable on the note and hence may be
sued by the creditor corporation for the entire obligation.
Finally, it rationalized that even if the promissory note were
to be considered as a contract of adhesion, the same is not
entirely prohibited because the one who adheres to the
contract is free to reject it entirely; if he adheres, he gives his
consent.
ISSUE: (3) whether the defendant Estrella Palmares is only a
guarantor with a subsidiary liability and not a co-maker with primary
liability. NO
HELD:
(1)The Civil Code pertinently provides:
Art. 2047. By guaranty, a person called the guarantor binds
himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor,
the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the contract is called a
suretyship.
Petitioner would like to make capital of the fact that although she
obligated herself to be jointly and severally liable with the principal
maker, her liability is deemed restricted by the provisions of the third
paragraph of her contract wherein she agreed "that M.B. Lending
Corporation may demand payment of the above loan from me in case
the principal maker, Mrs. Merlyn Azarraga defaults in the payment of
the note," which makes her contract one of guaranty and not
suretyship. The purported discordance is more apparent than real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of
the solvency of the debtor.17 A suretyship is an undertaking that the
debt shall be paid; a guaranty, an undertaking that the debtor shall
pay.18 Stated differently, a surety promises to pay the principal's debt if
the principal will not pay, while a guarantor agrees that the creditor,
after proceeding against the principal, may proceed against the
guarantor if the principal is unable to pay.19 A surety binds himself to
perform if the principal does not, without regard to his ability to do so. A
guarantor, on the other hand, does not contract that the principal will
pay, but simply that he is able to do so.20 In other words, a surety
undertakes directly for the payment and is so responsible at once if the
principal debtor makes default, while a guarantor contracts to pay if, by
the use of due diligence, the debt cannot be made out of the principal
debtor.21
Quintessentially, the undertaking to pay upon default of the principal
debtor does not automatically remove it from the ambit of a contract of
suretyship. The second and third paragraphs of the aforequoted
portion of the promissory note do not contain any other condition for
the enforcement of respondent corporation's right against petitioner. It
has not been shown, either in the contract or the pleadings, that
respondent corporation agreed to proceed against herein
petitioner only if and when the defaulting principal has become
insolvent. A contract of suretyship, to repeat, is that wherein one lends
his credit by joining in the principal debtor's obligation, so as to render
himself directly and primarily responsible with him, and without
reference to the solvency of the principal.22
It is a well-entrenched rule that in order to judge the intention of the
contracting parties, their contemporaneous and subsequent acts shall
also be principally considered.24 Several attendant factors in that genre
lend support to our finding that petitioner is a surety. For one, when
petitioner was informed about the failure of the principal debtor to pay
the loan, she immediately offered to settle the account with respondent
corporation. Obviously, in her mind, she knew that she was directly
and primarily liable upon default of her principal. For another, and this
is most revealing, petitioner presented the receipts of the payments
already made, from the time of initial payment up to the last, which
were all issued in her name and of the Azarraga spouses. 25 This can
only be construed to mean that the payments made by the principal
debtors were considered by respondent corporation as creditable
directly upon the account and inuring to the benefit of petitioner. The
concomitant and simultaneous compliance of petitioner's obligation
with that of her principals only goes to show that, from the very start,
petitioner considered herself equally bound by the contract of the
principal makers.
In this regard, we need only to reiterate the rule that a surety is bound
equally and absolutely with the principal,26 and as such is deemed an
original promisor and debtor from the beginning.27
It will further be observed that petitioner's undertaking as co-maker
immediately follows the terms and conditions stipulated between
respondent corporation, as creditor, and the principal obligors. A surety
is usually bound with his principal by the same instrument, executed at
the same time and upon the same consideration; he is an original
debtor, and his liability is immediate and direct.30 Thus, it has been
held that where a written agreement on the same sheet of paper with
and immediately following the principal contract between the buyer and
seller is executed simultaneously therewith, providing that the signers
of the agreement agreed to the terms of the principal contract, the
signers were "sureties" jointly liable with the buyer. 31 A surety usually
enters into the same obligation as that of his principal, and the
signatures of both usually appear upon the same instrument, and the
same consideration usually supports the obligation for both the
principal and the surety.32
ADDITIONAL ISSUES:
Petitioner’s pretension that the terms "jointly and severally or solidarily
liable" contained in the second paragraph of her contract are technical
and legal terms which could not be easily understood by an ordinary
layman like her is diametrically opposed to her manifestation in the
contract that she "fully understood the contents" of the promissory note
and that she is "fully aware" of her solidary liability with the principal
maker. Petitioner admits that she voluntarily affixed her signature
thereto; ergo, she cannot now be heard to claim otherwise. Any
reference to the existence of fraud is unavailing. Fraud must be
established by clear and convincing evidence, mere preponderance of
evidence not even being adequate. Petitioner's attempt to prove fraud
must, therefore, fail as it was evidenced only by her own
uncorroborated and, expectedly, self-serving allegations.
Having entered into the contract with full knowledge of its terms and
conditions, petitioner is estopped to assert that she did so under a
misapprehension or in ignorance of their legal effect, or as to the legal
effect of the undertaking.15 The rule that ignorance of the contents of
an instrument does not ordinarily affect the liability of one who signs it
also applies to contracts of suretyship. And the mistake of a surety as
to the legal effect of her obligation is ordinarily no reason for relieving
her of liability.16
Moreover, petitioner submits that she cannot as yet be compelled to
pay the loan because the principal debtors cannot be considered in
default in the absence of a judicial or extrajudicial demand.
RULING: Demand on the sureties is not necessary before bringing suit
against them, since the commencement of the suit is a sufficient
demand.34 On this point, it may be worth mentioning that a surety is not
even entitled, as a matter of right, to be given notice of the principal's
default. Inasmuch as the creditor owes no duty of active diligence to
take care of the interest of the surety, his mere failure to voluntarily
give information to the surety of the default of the principal cannot have
the effect of discharging the surety. The surety is bound to take notice
of the principal's default and to perform the obligation. He cannot
complain that the creditor has not notified him in the absence of a
special agreement to that effect in the contract of suretyship. 35
The alleged failure of respondent corporation to prove the fact of
demand on the principal debtors, by not attaching copies thereof to its
pleadings, is likewise immaterial. In the absence of a statutory or
contractual requirement, it is not necessary that payment or
performance of his obligation be first demanded of the principal,
especially where demand would have been useless; nor is it a
requisite, before proceeding against the sureties, that the principal be
called on to account. The underlying principle therefor is that a
suretyship is a direct contract to pay the debt of another. A surety is
liable as much as his principal is liable, and absolutely liable as soon
as default is made, without any demand upon the principal whatsoever
or any notice of default. As an original promisor and debtor from the
beginning, he is held ordinarily to know every default of his principal.
Petitioner questions the propriety of the filing of a complaint solely
against her to the exclusion of the principal debtors who allegedly were
the only ones who benefited from the proceeds of the loan. What
petitioner is trying to imply is that the creditor, herein respondent
corporation, should have proceeded first against the principal before
suing on her obligation as surety. We disagree.
RULING: We agree with respondent corporation that its mere failure to
immediately sue petitioner on her obligation does not release her from
liability. Where a creditor refrains from proceeding against the
principal, the surety is not exonerated. In other words, mere want of
diligence or forbearance does not affect the creditor's rights vis-a-
vis the surety, unless the surety requires him by appropriate notice to
sue on the obligation. Such gratuitous indulgence of the principal does
not discharge the surety whether given at the principal's request or
without it, and whether it is yielded by the creditor through sympathy or
from an inclination to favor the principal, or is only the result of
passiveness. And, in the absence of proof of resultant injury, a surety
is not discharged by the creditor's mere statement that the creditor will
not look to the surety,44 or that he need not trouble himself.45 The
consequences of the delay, such as the subsequent insolvency of the
principal,46 or the fact that the remedies against the principal may be
lost by lapse of time, are immaterial.47
The raison d'être for the rule is that there is nothing to prevent the
creditor from proceeding against the principal at any time.48 At any
rate, if the surety is dissatisfied with the degree of activity displayed by
the creditor in the pursuit of his principal, he may pay the debt himself
and become subrogated to all the rights and remedies of the creditor.
CONTRACT OF ADHESION ISSUE
the promissory note is a contract of adhesion since it was prepared by
respondent M.B. Lending Corporation. The note was brought to
petitioner partially filled up, the contents thereof were never explained
to her, and her only participation was to sign thereon. Thus, any
apparent ambiguity in the contract should be strictly construed against
private respondent pursuant to Art. 1377 of the Civil Code.9
At the outset, let it here be stressed that even assuming arguendo that
the promissory note executed between the parties is a contract of
adhesion, it has been the consistent holding of the Court that contracts
of adhesion are not invalid per se and that on numerous occasions the
binding effects thereof have been upheld. The peculiar nature of such
contracts necessitate a close scrutiny of the factual milieu to which the
provisions are intended to apply. Hence, just as consistently and
unhesitatingly, but without categorically invalidating such contracts, the
Court has construed obscurities and ambiguities in the restrictive
provisions of contracts of adhesion strictly albeit not unreasonably
against the drafter thereof when justified in light of the operative facts
and surrounding circumstances.12 The factual scenario obtaining in the
case before us warrants a liberal application of the rule in favor of
respondent corporation.
G.R. No. 189563 April 7, 2014
GILAT SATELLITE NETWORKS, LTD., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK GENERAL INSURANCE
CO., INC., Respondent.
FACTS:
On September 15, 1999, One Virtual placed with GILAT a purchase
order for various telecommunications equipment (sic), accessories,
spares, services and software, at a total purchase price of Two Million
One Hundred Twenty Eight Thousand Two Hundred Fifty Dollars
(US$2,128,250.00). Of the said purchase price for the goods delivered.
To ensure the prompt payment of this amount, it obtained defendant
UCPB General Insurance Co., Inc.’s surety bond dated 3 December
1999, in favor of GILAT.
During the period between [sic] September 1999 and June 2000,
GILAT shipped and delivered to One Virtual the purchased products
and equipment. All of the equipment (including the software
components for which payment was secured by the surety bond, was
shipped by GILAT and duly received by One Virtual. Under an
endorsement, the surety issued, with One Virtual’s conformity, an
amendment to the surety bond, Annex "A" thereof, correcting its expiry
date from May 30, 2001 to July 30, 2001.
One Virtual failed to pay GILAT US$400,000.00 on the due date of
May 30, 2000.GILAT sent surety defendant UCPB, a demand letter for
payment of the said amount. Thereafter, petitioner Gilat Satellite
Networks, Ltd., filed a Complaint against respondent UCPB General
Insurance Co., Inc., to recover the amounts supposedly covered by the
surety bond, plus interests and expenses.
RTC= renders judgment against defendant UCPB
In so ruling, the RTC reasoned that there is "no dispute that
plaintiff [petitioner] delivered all the subject equipments [sic]
and the same was installed. Even with the delivery and
installation made, One Virtual failed to pay any of the
payments agreed upon. Demand notwithstanding, defendant
failed and refused and continued to fail and refused to settle
the obligation."8
Considering that its liability was indeed that of a surety, as
"spelled out in the Surety Bond executed by and between
One Virtual as Principal, UCPB as Surety and GILAT as
Creditor/Bond Obligee,"9 respondent agreed and bound itself
to pay in accordance with the Payment Milestones. This
obligation was not made dependent on any condition outside
the terms and conditions of the Surety Bond and Payment
Milestones.10
CA= appealed case is DISMISSED for lack of jurisdiction. Parties
proceed to Arbitration
The CA ruled that in "enforcing a surety contract, the
‘complementary-contracts-construed-together’ doctrine finds
application." According to this doctrine, the accessory
contract must be construed with the principal agreement.15 In
this case, the appellate court considered the Purchase
Agreement entered into between petitioner and One Virtual
as the principal contract,16 whose stipulations are also
binding on the parties to the suretyship.17 Bearing in mind
the arbitration clause contained in the Purchase
Agreement18 and pursuant to the policy of the courts to
encourage alternative dispute resolution methods,19 the trial
court’s Decision was vacated; petitioner and One Virtual
were ordered to proceed to arbitration.
P= Petitioner alleges that arbitration laws mandate that no court can
compel arbitration, unless a party entitled to it applies for this
relief.23 This referral, however, can only be demanded by one who is a
party to the arbitration agreement.24 Considering that neither petitioner
nor One Virtual has asked for a referral, there is no basis for the CA’s
order to arbitrate.
Moreover, Articles 1216 and 2047 of the Civil Code clearly provide that
the creditor may proceed against the surety without having first sued
the principal debtor. Even the Surety Agreement itself states that
respondent becomes liable upon "mere failure of the Principal to make
such prompt payment."27 Thus, petitioner should not be ordered to
make a separate claim against One Virtual (via arbitration) before
proceeding against respondent.
R= On the other hand, respondent maintains that a surety contract is
merely an accessory contract, which cannot exist without a valid
obligation.29 Thus, the surety may avail itself of all the defenses
available to the principal debtor and inherent in the debt – that is, the
right to invoke the arbitration clause in the Purchase Agreement.
ISSUES: Whether or not the CA erred in dismissing the case and
ordering petitioner and One Virtual to arbitrate
RULING: YES.
The existence of a suretyship agreement does not give the surety the
right to intervene in the principal contract, nor can an arbitration clause
between the buyer and the seller be invoked by a non-party such as
the surety.
In suretyship, the oft-repeated rule is that a surety’s liability is joint and
solidary with that of the principal debtor. This undertaking makes a
surety agreement an ancillary contract, as it presupposes the
existence of a principal contract. Nevertheless, although the contract of
a surety is in essence secondary only to a valid principal obligation, its
liability to the creditor or "promise" of the principal is said to be direct,
primary and absolute; in other words, a surety is directly and equally
bound with the principal. He becomes liable for the debt and duty of
the principal obligor, even without possessing a direct or personal
interest in the obligations constituted by the latter. Thus, a surety is not
entitled to a separate notice of default or to thebenefit of excussion. It
may in fact be sued separately or together with the principal debtor.
After a thorough examination of the pieces of evidence presented by
both parties, the RTC found that petitioner had delivered all the goods
to One Virtual and installed them. Despite these compliances, One
Virtual still failed to pay its obligation, triggering respondent’s liability to
petitioner as the former’s surety.In other words, the failure of One
Virtual, as the principal debtor, to fulfill its monetary obligation to
petitioner gave the latter an immediate right to pursue respondent as
the surety.
Consequently, we cannot sustain respondent’s claim that the Purchase
Agreement, being the principal contract to which the Suretyship
Agreement is accessory, must take precedence over arbitration as the
preferred mode of settling disputes.
First, we have held in Stronghold Insurance Co. Inc. v. Tokyu
Construction Co. Ltd., that "[the] acceptance [of a surety agreement],
however, does not change in any material way the creditor’s
relationship with the principal debtor nor does it make the surety an
active party to the principal creditor-debtor relationship. In other words,
the acceptance does not give the surety the right to intervene in the
principal contract. The surety’s role arises only upon the debtor’s
default, at which time, it can be directly held liable by the creditor for
payment as a solidary obligor." Hence, the surety remains a stranger to
the Purchase Agreement. We agree with petitioner that respondent
cannot invoke in its favor the arbitration clause in the Purchase
Agreement, because it is not a party to that contract. An arbitration
agreement being contractual in nature, it is binding only on the parties
thereto, as well as their assigns and heirs.
Second, Section 24 of Republic Act No. 9285 is clear in stating that a
referral to arbitration may only take place "if at least one party so
requests not later than the pre-trial conference, or upon the request of
both parties thereafter." Respondent has not presented even an iota of
evidence to show that either petitioner or One Virtual submitted its
contesting claim for arbitration.
Third, sureties do not insure the solvency of the debtor, but rather the
debt itself. They are contracted precisely to mitigate risks of non-
performance on the part of the obligor. This responsibility necessarily
places a surety on the same level as that of the principal debtor. The
effect is that the creditor is given the right to directly proceed against
either principal debtor or surety. This is the reason why excussion
cannot be invoked. To require the creditor to proceed to arbitration
would render the very essence of suretyship nugatory and diminish its
value in commerce. At any rate, as we have held in Palmares v. Court
of Appeals,46 "if the surety is dissatisfied with the degree of activity
displayed by the creditor in the pursuit of his principal, he may pay the
debt himself and become subrogated to all the rights and remedies of
the creditor."
Interest, as a form of indemnity, may be awarded to a creditor for the
delay incurred by a debtor in the payment of the latter’s obligation,
provided that the delay is inexcusable.

INTEREST ISSUE:

Article 2209 of the Civil Code is clear: "[i]f an obligation consists in the
payment of a sum of money, and the debtor incurs a delay, the
indemnity for damages, there being no stipulation to the contrary, shall
be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest."
Delay arises from the time the obligee judicially or extrajudicially
demands from the obligor the performance of the obligation, and the
latter fails to comply.50 Delay, as used in Article 1169, is synonymous
with default or mora, which means delay in the fulfilment of
obligations.51 It is the nonfulfillment of an obligation with respect to
time.52 In order for the debtor (in this case, the surety) to be in default,
it is necessary that the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires the performance
judicially or extrajudicially.53
Having held that a surety upon demand fails to pay, it can be held
liable for interest, even if in thus paying, its liability becomes more than
the principal obligation.54 The increased liability is not because of the
contract, but because of the default and the necessity of judicial
collection.55
We agree with petitioner that records are bereft of proof to show that
respondent’s delay was indeed justified by the circumstances – that is,
One Virtual’s advice regarding petitioner’s alleged breach of
obligations. The lower court’s Decision itself belied this contention
when it said that "plaintiff is not disputing that it did not complete
commissioning work on one of the two systems because One Virtual at
that time is already in default and has not paid GILAT."58Assuming
arguendo that the commissioning work was not completed, respondent
has no one to blame but its principal, One Virtual; if only it had paid its
obligation on time, petitioner would not have been forced to stop
operations. Moreover, the deposition of Mr. Erez Antebi, vice president
of Gilat, repeatedly stated that petitioner had delivered all equipment,
including the licensed software; and that the equipment had been
installed and in fact, gone into operation.59 Notwithstanding these
compliances, respondent still failed to pay.
As to the issue of when interest must accrue, our Civil Code is explicit
in stating that it accrues from the time judicial or extrajudicial demand
is made on the surety. This ruling is in accordance with the provisions
of Article 1169 of the Civil Code and of the settled rule that where there
has been an extra-judicial demand before an action for performance
was filed, interest on the amount due begins to run, not from the date
of the filing of the complaint, but from the date of that extra-judicial
demand.60 Considering that respondent failed to pay its obligation on
30 May 2000 in accordance with the Purchase Agreement, and that
the extrajudicial demand of petitioner was sent on 5 June 2000, 61 we
agree with the latter that interest must start to run from the time
petitioner sent its first demand letter (5 June 2000), because the
obligation was already due and demandable at that time.