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Surety Bond Dispute: Gilat vs. UPCB

This case involves a dispute between Gilat Satellite Networks and United Coconut Planters Bank regarding a surety bond issued by UCPB for equipment purchased by One Virtual from Gilat. One Virtual failed to make payments to Gilat as agreed. Gilat demanded payment from UCPB as the surety, but payment was not made. The RTC and CA ruled in favor of different parties. The Supreme Court ruled that UCPB as the surety was directly obligated to Gilat, and could not invoke the arbitration clause in the principal contract between Gilat and One Virtual since it was not a party to that contract. The Supreme Court also ruled that Gilat was entitled to legal interest due to the delay in payment by

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Shella Hannah Salih
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892 views1 page

Surety Bond Dispute: Gilat vs. UPCB

This case involves a dispute between Gilat Satellite Networks and United Coconut Planters Bank regarding a surety bond issued by UCPB for equipment purchased by One Virtual from Gilat. One Virtual failed to make payments to Gilat as agreed. Gilat demanded payment from UCPB as the surety, but payment was not made. The RTC and CA ruled in favor of different parties. The Supreme Court ruled that UCPB as the surety was directly obligated to Gilat, and could not invoke the arbitration clause in the principal contract between Gilat and One Virtual since it was not a party to that contract. The Supreme Court also ruled that Gilat was entitled to legal interest due to the delay in payment by

Uploaded by

Shella Hannah Salih
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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GILAT SATELLITE NETWORKS, LTD.

VS UNITED COCONUT PLANTERS BANK


GENERAL INSURANCE CO., INC.
G.R. No. 189563
April 07, 2014

FACTS:

On Sept 15 1999, One Virtual placed a purchase order with petitioner (Gilat) for various
telecommunications equipment amounting to US$ 2,128,250.00. One Virtual promised to pay
a portion amounting to US$ 1.2 Million and to ensure prompt payment it obtained
respondent’s (UPCB) surety bond in favor of Gilat.

During period of 1999 to 2000, Gilat shipped and delivered to One Virtual the equipments
evidenced by airway bill of lading and all were duly received by One Virtual. However, One
Virtual failed to pay the amount of US$400,000.00 on the due date prompting Gilat to write
a demand letter to UPCB for the payment of the said amount being the surety but there was
no payment made by either One Virtual or UPCB. Also, the succeeding installments were not
paid which resulted to a second demand letter for the full amount of US$1.2 Million under the
surety bond which was not settled by UPCB resulting to the filing of the complaint.

RTC ruled in favor of the petitioner and ordered the payment of US$1.2 Million with “Legal
Interest” for the reason due to the failure of the respondent being the surety to pay or settle
the agreed surety bond even after the delivery and installation made by Gilat for One Virtual
who failed to pay the agreed payments. Respondent’s contends the legal interest

CA dismissed the appeal and vacated the decision and ruled that in enforcing a contract,
“complementary-contracts-construed-together” doctrine should be applied which states that
accessory contracts must be construed with the principal contract. The Purchase Agreement
being the principal contract, its stipulation would be binding upon the parties of suretyship
and the based on the arbitration clause contained in the Purchase Agreement, the trial court’s
decision is vacated and petitioner and One Virtual were to proceed to arbitration.

ISSUE:

Whether or not CA erred in dismissing the case and ordering petitioner and One Virtual to
arbitrate?

Whether or not petitioner is entitled to legal interest due to delay of fulfillment by respondent
of its obligation under Suretyship Agreement?

HELD:

Yes. Despite the suretyship agreement being ancillary contract, which follows the principal
contract and being a secondary contract, such liability to the creditor is direct, primary and
absolute, in other words, a surety is directly and equally bound with the principal. Respondent
cannot invoke in its favor the arbitration clause in the Purchase Agreement because it is not
a party to the contract, arbitration clause being contractual in nature is only binding upon the
parties thereto as well as its assigns and heirs

Yes. Article 2209 of the Civil Code is clear that if an obligation consists in the payment of sum
of money, and 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.

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