Surety

The main issue to be resolved is one of first impression: whether a surety is liable to the creditor in the absence of a written contract with the principal.

A surety contract is merely a collateral one, its basis is the principal contract or undertaking which it secures. Necessarily, the stipulations in such principal agreement must at least be communicated or made known to the surety particularly in this case where the bond expressly guarantees the payment of respondent’s fuel products withdrawn by Fumitechniks in accordance with the terms and conditions of their agreement. The bond specifically makes reference to a written agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control. Moreover, being an onerous undertaking, a surety agreement is strictly construed against the creditor, and every doubt is resolved in favor of the solidary debtor. Having accepted the bond, respondent as creditor must be held bound by the recital in the surety bond that the terms and conditions of its distributorship contract be reduced in writing or at the very least communicated in writing to the surety. Such non-compliance by the creditor (respondent) impacts not on the validity or legality of the surety contract but on the creditor’s right to demand performance (First Lepanto-Taisho Insurance Corporation (now known as FLT Prime Insurance Corporation) Vs. Chevron Philippines, inc. (formerly known as Caltex Philippines, Inc.), G.R. No. 177839. January 18, 2011)