Question 19, 2018 Civil Law Bar Exam

XIX

(Question XIX, Civil Law, 2018 Bar Exam)

Sebastian, who has a pending assessment from the Bureau of Internal Revenue (BIR), was required to post a bond. He entered into an agreement with Solid Surety Company (SSC) for SSC to issue a bond in favor of the BIR to secure payment of his taxes, if found to be due. In consideration of the issuance of the bond, he executed an Indemnity Agreement with SSC whereby he agreed to indemnify the latter in the event that he was found liable to pay the tax. The BIR eventually decided against Sebastian, and judicially commenced action against both Sebastian and SSC to recover Sebastian’s unpaid taxes. Simultaneously, BIR also initiated action to foreclose on the bond. Even before paying the BIR, SSC sought indemnity from Sebastian on the basis of the Indemnity Agreement. Sebastian refused to pay since SSC had not paid the BIR anything yet, and alleged that the provision in the Indemnity Agreement which allowed SSC to recover from him, by mere demand, even if it (SSC) had not yet paid the creditor, was void for being contrary to law and public policy.

Can Sebastian legally refuse to pay SSC? (2.5%)

Suggested Answer:

No. Answer

Under jurisprudence, the stipulation in the indemnity agreement allowing the surety to recover even before it paid the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even before paying the creditors. Rule

In the case at bar, Sebastian entered into an indemnity agreement with SSC. The contract stipulated that Sebastian will indemnify SSC in the event that he was found liable to pay the tax. When BIR found him liable and after demand from SSC, Sebastian’s obligation to pay under the indemnity became due. Apply

Thus, Sebastian cannot legally refuse to pay. Conclusion

(Notice: The suggested answers simulate those that a bar examinee may provide, and thus specific citations are not provided. Notwithstanding, in the reviewers, the bar exam question is answered under the appropriate topic which discusses the concepts and principles, as well as provide for specific citations. Accordingly, please refer to it on the reviewer or in the Library.)

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