Living @ Sense, Inc. vs. Malayan Insurance Company, Inc.

G.R. No. 193753, September 26, 2012

(Indispensable Party, Solidary Obligation)


FACTS

Petitioner Living @ Sense, Inc. sub-contracted to Dou Mac, Inc. (DMI) its underground open-trench work for the Network Project of Globe Telecom in Mindanao. As required, DMI gave surety and performance bonds which it secured from respondent Malayan Insurance Company, Inc. (Malayan) which bound itself jointly and severally liable with DMI. The bonds will answer for the loss and damage to petitioner if DMI fails to perform its obligations under the subcontract.

The excavation and restoration works by DMI was later stopped by the government after it found DMI's work unsatisfactory. Eventually, petitioner terminated the subcontract and demanded from respondent insurance company indemnification in the amount of P1.04 million. Respondent Malayan denied petitioner's claim arguing that the liability of its principal, DMI, should first be determined before Malayan can be held liable. Thus, petitioner sued Malayan for specific performance and breach of contract.

Respondent Malayan claimed that the suit should be dismissed because petitioner failed to implead DMI as an indispensable party. Petitioner, on the other hand, argued that respondent is a surety who is directly and primarily liable to indemnify petitioner, and that the bond is "callable on demand" in the event of breach of obligation. The Regional Trial Court  ruled for the respondent, and the case was elevated to the Supreme Court on a pure question of law.

ISSUE

Is DMI an indispensable party in this case?

RULING

No, DMI is not an indispensable party in this case. Article 1216 of the Civil Code on solidary obligations allows petitioner, as creditor, to proceed against any of the solidary debtors. Since respondent Malayan bound itself "jointly and severally" with DMI under the surety and performance bonds, it is considered a solidary debtor and is therefore not an indispensable party. This is because petitioner can claim indemnity directly from respondent insurance company who has bound itself solidarily with DMI for the obligations under the bonds.

An indispensable party is defined as "a party-in-interest without whom no final determination can be had of an action, and who shall be joined either as plaintiff or defendant." Without it, the court cannot act on the case not only as to the absent party but also as to those present.

Even if assuming that DMI was indeed an indispensable party, the Regional Trial Court should not have dismissed the case but should have ordered the petitioner to implead the indispensable party, which can be done on motion of the party or on the court's own initiative at any stage of the action.

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