G.R. No. L-30554 February 28, 1983
PLARIDEL SURETY & INSURANCE COMPANY, petitioner, vs. ARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding Judge, Branch XIII, Court of First Instance of Manila, respondents.

FACTS

Petitioner Plaridel Surety filed a complaint to recover from respondent Artex Development Co. unpaid renewal premiums and documentary stamp taxes on various surety bonds. These bonds were posted to allow Artex to withdraw imported materials from customs custody pending its application for tax exemption under Republic Act No. 4086 . The counter-guaranty agreements obligated Artex to pay premiums for each twelve-month period until the bonds were cancelled. Artex paid the premiums for the first year (March 1965 to March 1966). On December 19, 1966, the Board of Industries granted Artex’s tax exemption application. Artex subsequently stopped paying premiums. Plaridel Surety renewed the bonds in March 1966 and sought to collect premiums for periods extending beyond the grant of tax exemption.
Artex moved to dismiss the complaint, arguing the grant of tax exemption extinguished the principal obligation (the bond), thereby nullifying its accessory obligation to pay premiums. The respondent judge granted the motion and dismissed the complaint, a decision upheld upon motion for reconsideration.

ISSUE

Whether the grant of tax exemption to the principal obligor extinguished the surety bonds and the corresponding obligation to pay renewal premiums and documentary stamp taxes.

RULING

Yes. The Supreme Court affirmed the dismissal of the complaint. The legal logic rests on the accessory nature of a contract of suretyship under the Civil Code. A surety bond is an accessory contract; its existence is dependent on a valid principal obligation. The original bonds contained an express condition stating they would become “null and void and of no force and effect” upon approval of the tax exemption application. Consequently, the Board of Industries’ approval on December 19, 1966, automatically extinguished the principal bonds by the parties’ own stipulation, rendering any formal release by the Bureau of Customs or the Board unnecessary.
As a necessary consequence, the accessory obligation to pay premiums was also extinguished. Premiums for the period March 1966 to March 1967 were already paid and thus extinguished by payment. Any purported renewals of the bonds after December 19, 1966, were void for lack of consideration. From the moment the tax exemption was granted, the surety incurred no risk. The cause or object of the renewal contracts did not exist at the time of the transaction, rendering them void under Articles 1409, 1352, and 1353 of the Civil Code. Therefore, the petitioner had no valid cause of action to collect premiums for periods after the bonds were extinguished.