STRONGHOLD INSURANCE COMPANY, INCORPORATED V.

TOKYU CONSTRUCTION
COMPANY LTD,.
DOCTRINE:
The subsequent acts in the insurance policy such as modification of the principal
agreement affect the insurance bonds and the absence of prior principal agreement
likewise rendered the insurance policy void.
FACTS:
Respondent Tokyu Construction Company was awarded by Manila International
Airport Authority a contract to construct NAIA terminal 2.
On June 2, 1996 respondent entered into a sub-contract agreement with Gabriel
Enterprise for the construction of storm drainage and sewage treatment plant in the
area. In relations with the agreement Gabriel enterprise obtain surety bond and
performance bond with the petitioner Stronghold Insurance Company valid for the
period of one year from the date it was issued.
Subsequently, Gabriel enterprise failed to satisfy its obligation on the maturity date,
However Tokyu Construction Company modify its sub agreement and extend its
completion which Gabriel enterprise obtained another performance bond now on
Tico Insurance Company because the one year performance insurance bond from
petitioner stronghold already expired. The same Gabriel Enterprise defaulted.
ISSUE:
W/N the bonds are null and void having executed without a valid and existing
principal contract since the bond was executed prior to the principal contract.
W/N the bonds were invalidated due to modification in the sub contract agreement.
W/N the bond has expired.
RULING:
The contention of the petitioner that the surety bond was invalid because it was
executed a head of the principal contract is not entertained since it was not raised
before the lower courts, to allow would violate the basic rule of fair play, justice and
due process. Even assuming to merit the contention would raised questions of facts
which the court is not Trier of facts.
On the issue whether the bond was terminated due to certain modifications in the
sub-contract agreement without notice to surety, The court said as early when
Gabriel first failed to comply with its obligation on the due date prior to the
modification of the agreement already makes the surety liable. The consent of the
surety to the agreement is not material being not a party thereto, its role only

arisen when the debtor failed to satisfy its obligation. The surety can only be
released from the obligation when there is a material alteration in the principal
contract, in the case at bar there was none.
W/N the bond was expired, since the sub contract agreement was extended for
another year wherein Gabriel obtained a new bond from Tico Insurance Company,
the liability of the petitioner is limited only when Gabriel enterprise first defaulted
under petitioner stronghold insurance bond.