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CA affirms insurance firm’s P4.87-M surety bond liability to travel agency

THE Court of Appeals (CA) affirmed the Insurance Commission’s (IC) order to Centennial Guarantee Assurance Corp. (CGAC) to pay its P4.87-M surety bond obligation to Travel Managers International, Inc.

In an 11-page decision on Aug. 31 and made public on Sept. 1, the CA Thirteenth Division ruled the IC did not commit an error in its order as CGAC was bound to pay the surety bond since its client failed to pay its outstanding balance to the travel agency.

“Thus, when Great Times failed to pay the balance of P4.87 million despite respondent Travel Managers’ demand to pay, the petitioner CGAC, as surety, became solidarily bound with Great Times for the payment of the said amount to the respondent,” according to the ruling penned by Associate Justice Nina G. Antonio-Valenzuela.

“The surety has the burden to prove that the surety has been discharged by some act of the creditor.”

A surety bond is a three-party legal agreement between a firm that needs a bond, an obligee, and a surety company that sells the bond.

Travel Managers, the respondent, is accredited by the International Air Transport Association to issue real-time electronic international and local airline tickets to customers.

The travel agency earlier asked the IC to compel CGAC to fulfill its client’s surety bond outstanding obligation of P4.87 million.

Great Times, a travel agency without accreditation, asked Travel Managers to issue international airline electronic tickets for its clients.

Travel Managers required the unaccredited agency to pay a surety bond of P5 million, which Great Times sought to fulfill through the insurance firm.

The respondent had already issued 81 electronic tickets to Great Times’ clients, which brought the bond to a total of P5.28 million.

Great Times made several partial payments that brought the pending bond amount to P4.87 million, which it failed to pay completely.

“It bears stressing, however, that although the contract of suretyship is secondary to the principal contract, the surety’s liability to the obligee is nevertheless direct, primary, and absolute,” said the appellate court. — John Victor D. Ordoñez

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