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(1) G.R. No.

177240

September 8, 2010

PRUDENTIAL GUARANTEE AND ASSURANCE INC., Petitioner, vs. ANSCOR LAND, INC., Respondent. DECISION VILLARAMA, JR., J.:

Through a letter7 dated November 29, 2001, or exactly one (1) year after the expiration date in the performance bond, ALI reiterated its claim against the performance bond issued by PGAI amounting to P3,852,800.84. PGAI however did not respond to the letter. On February 7, 2002, ALI commenced arbitration proceedings against KRDC and PGAI in the CIAC. PGAI answered with cross-claim contending that it was not a party to the construction contract and that the claim of ALI against the bonds was filed beyond the expiration period. On September 2, 2002, the CIAC rendered judgment8 awarding a total of P7,552,632.74 to ALI and a total ofP1,292,487.81 to KRDC. CIAC also allowed the offsetting of the awards to both parties which resulted to a net amount due to ALI of P6,260,144.93 to be paid by KRDC. Meanwhile, the CIAC found PGAI liable for the reimbursement of the unliquidated portion of the down payment as a solidary liability under the surety bond in the amount of P1,771,264.06.9 In the same judgment, the CIAC absolved PGAI from a claim against the performance bond. It reasoned that ALI belatedly filed its claim on the performance bond. The CIAC accepted the view that the November 29, 2001 letter of ALI to PGAI was the first and only claim on the performance bond, which was filed unquestionably beyond the allowed period for filing claims under the contract. The CIAC ruled that the October 16, 2000 letter of ALI to PGAI did not constitute a proper "claim" under the performance bond. In so ruling, the CIAC relied on the tenor of the letter which used the phrase "may be making claims against the said bonds". The CIAC interpreted this phrase as tentative at best and far from a positive claim against PGAI. According to the CIAC, the letter merely informed PGAI of the termination of the construction contract between ALI and KRDC and in no sense did such letter present a valid claim against the performance bond issued by PGAI. ALI then filed a petition for review on October 3, 200210 with the CA questioning the decision of the CIAC to release PGAI from its solidary liability on the performance bond. The CA found the petition meritorious in its questioned Decision11 dated April 28, 2006, to wit: WHEREFORE, the petition is GRANTED. The decretal portion of the decision is MODIFIED to the effect that PGAI is hereby pronounced solidarily liable with KRDC under the performance bond. SO ORDERED.12 Petitioner PGAI now comes to this Court to seek relief. Petitioner argues that the CIAC had no jurisdiction over the dispute as regards the claim of ALI against the performance bond because petitioner was not a party to the construction contract. It maintains that Executive Order (EO) No. 100813 did not vest jurisdiction on the CIAC to settle disputes between a party to a construction contract on one hand and a non-party on the other. The petitioner contends that CIACs jurisdiction was limited to the construction industry and cannot extend to surety or guarantee contracts. By reason of the lack of jurisdiction of the CIAC over the dispute, the September 2, 2002 judgment14 of the CIAC was void with regard to the liability of PGAI. As to the award made by the CIAC on ALIs claims, petitioner maintains that it cannot be held liable under the performance bond because clearly, under the time-bar provision in the said bond, the claim made by ALI in its

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assails the Decision1 dated April 28, 2006 of the Court of Appeals (CA) in CA-G.R. SP No. 72854 which modified the Decision2 promulgated on September 2, 2002 by the Construction Industry Arbitration Commission (CIAC) to the effect that herein petitioner Prudential Guarantee and Assurance Inc. (PGAI) was declared solidarily liable with its principal Kraft Realty and Development Corporation (KRDC) under the performance bond. The facts follow. On August 2, 2000, Anscor Land, Inc. (ALI) and KRDC entered into a Construction Contract 3 for the construction of an 8-unit townhouse (project) located in Capitol Hills, Quezon City. Under the contract, KRDC was to build and complete the project within 275 continuous calendar days from the date of receipt of a notice to proceed for the consideration of P18,800,000.00. As part of its undertaking, KRDC submitted a surety bond amounting to P4,500,000.00 to secure the reimbursement of the down payment paid by ALI in case of failure to finish the project and a performance bond amounting to P4,700,000.00 to guarantee the supply of labor, materials, tools, equipment, and necessary supervision to complete the project. The said bonds were issued in favor of ALI by herein petitioner PGAI. Under the Performance Bond,4 the parties agreed on a time-bar provision which states: Furthermore, it is hereby agreed and understood that PRUDENTIAL GUARANTEE AND ASSURANCE INC., shall not be liable for any claim not discovered and presented to the company within ten days from the expiration of this bond or from the occurrence of the default or failure of the principal, whichever is the earliest, and that the obligee hereby waives his right to file any claim against the Surety after the termination of the period of ten days above mentioned after which time this bond shall definitely terminate and be deemed absolutely cancelled. KRDC then received a notice to proceed on November 24, 1999. On October 16, 2000 or 325 days after KRDC received the notice to proceed, and 50 days beyond the contract date of completion, ALI sent PGAI a letter5notifying the latter that the contract with KRDC was terminated due to "very serious delays". The letter also informed PGAI that ALI "may be making claims against the said bonds". KRDC, through a letter on October 20, 2000, asked ALI to reconsider its decision to terminate the contract and requested that it be allowed to continue with the project. On October 27, 2000, ALI replied 6 with regrets that it stands by its earlier decision to terminate the construction contract.

letter to PGAI dated November 29, 2001 was submitted one (1) year late. Petitioner points out that such letter was the first and only definite claim that ALI made against the performance bond and unfortunately, it was filed beyond the allowed period. Hence, the Decision of the CA declaring PGAI solidarily liable with KRDC under the performance bond is erroneous and should be struck down. On the other hand, respondent avers that the construction contract itself provided that the performance and surety bond shall be deemed part of the construction contract, to wit: Article 1 CONTRACT DOCUMENTS 1.1 The following shall form part of this Contract and together with this Contract, are known as the "Contract Documents": a. Bid Proposal xxxx d. Notice to proceed xxxx j. Appendices A & B (respectively, Surety Bond for Performance and, Supply of Materials by the Developer)15 By reason of this express provision in the construction contract, respondent maintains that petitioner PGAI became a party to such contract when it submitted its Surety and Performance bonds. Consequently, petitioners argument that CIAC has not acquired jurisdiction over PGAI because the latter was not a party to the construction contract, is untenable. As to the alleged lack of jurisdiction of CIAC over the dispute arising from the surety contract, respondent cites EO No. 1008, which provides that any dispute connected with a construction contract comes within the original and exclusive jurisdiction of the CIAC. The surety bond being an integral part of the construction contract, it is necessarily connected thereto which brings it under the jurisdiction of the CIAC. On the issue of timeliness of the "claim", respondent insists that its letter dated October 16, 2000 was for all intents and purposes a notification of termination of the construction contract and at the same time a notice to petitioner that respondent is in fact making a claim on the performance bond. Contrary to PGAIs view that the November 29, 2001 letter was the first and only claim made, respondent asserts that the said letter was merely a reiteration of its earlier October 16, 2000 claim. In fine, there are two (2) main issues for this Court to resolve, to wit: I. Whether or not the CIAC had jurisdiction over the dispute. II.

Whether or not the respondent made its claim on the performance bond within the period allowed by the timebar provision. First Issue Jurisdiction of the CIAC Section 4 of EO No. 1008 defines the jurisdiction of the CIAC: Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration. The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship; violation of the terms of agreement; interpretation and/or application of contractual time and delays; maintenance and defects; payment, default of employer or contractor and changes in contract cost. Excluded from the coverage of this law are disputes arising from employer-employee relationships which shall continue to be covered by the Labor Code of the Philippines. (Italics supplied.) EO No. 1008 expressly vests in the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties that have agreed to submit their dispute to voluntary arbitration. Under the aforequoted provision, it is apparent that a dispute must meet two (2) requirements in order to fall under the jurisdiction of the CIAC: first, the dispute must be somehow connected to a construction contract; and second, the parties must have agreed to submit the dispute to arbitration proceedings. As regards the first requirement, the Performance Bond issued by the petitioner was meant to guarantee the supply of labor, materials, tools, equipment, and necessary supervision to complete the project. A guarantee or a surety contract under Article 204716 of the Civil Code of the Philippines is an accessory contract because it is dependent for its existence upon the principal obligation guaranteed by it. 17 In fact, the primary and only reason behind the acquisition of the performance bond by KRDC was to guarantee to ALI that the construction project would proceed in accordance with the contract terms and conditions. In effect, the performance bond becomes liable for the completion of the construction project in the event KRDC fails in its contractual undertaking. Because of the performance bond, the construction contract between ALI and KRDC is guaranteed to be performed even if KRDC fails in its obligation. In practice, a performance bond is usually a condition or a necessary component of construction contracts. In the case at bar, the performance bond was so connected with the construction contract that the former was agreed by the parties to be a condition for the latter to push through and at the same time, the former is reliant on the latter for its existence as an accessory contract. Although not the construction contract itself, the performance bond is deemed as an associate of the main construction contract that it cannot be separated or severed from its principal. The Performance Bond is significantly and substantially connected to the construction contract that there can be no doubt it is the CIAC, under Section 4 of EO No. 1008, which has jurisdiction over any dispute arising from or connected with it.

On the second requirement that the parties to a dispute must have previously agreed to submit to arbitration, it is clear from Article 24 of the Construction Contract itself that the parties have indeed agreed to submit their disputes to arbitration, to wit: Article 24 DISPUTES AND ARBITRATION All disputes, controversies, or differences between the parties arising out of or in connection with this Contract, or arising out of or in connection with the execution of the WORK shall be settled in accordance with the procedures laid down by the Construction Industry Arbitration Commission. The cost of arbitration shall be borne jointly by both CONTRACTOR and DEVELOPER on a fifty-fifty (50-50) basis.18 Petitioner however argues that such provision in the construction contract does not bind it because it is not a party to such contract and in effect did not give its consent to submit to arbitration in case of any dispute on the performance bond. Such argument is untenable. The Performance Bond issued by petitioner states that PGAI agreed -To guarantee the supply of labor, materials, tools, equipment and necessary supervision to complete the construction of Proposed Sigma Townhouses of the Obligee as per Notice to Proceed dated November 23, 1999, copy of which is hereto attached and made an integral part of this bond.19 When it executed the performance bond, PGAIs undertaking thereunder was that of a surety to the obligation of KRDC, the principal under the construction contract. PGAI should not be allowed now to insist that it had nothing to do with the construction contract and should be viewed as a non-party. Since the liability of petitioner as surety is solidary with that of KRDC, it was properly impleaded as it would be the party ultimately answerable under the bond should KRDC be adjudged liable for breach of contract. Furthermore, it is well settled that accessory contracts should not be read independently of the main contract. They should be construed together in order to arrive at their true meaning.20 In Velasquez v. Court of Appeals,21 the Court labeled such rule as the "complementary contracts construed together" doctrine. It states: That the "complementary contracts construed together" doctrine applies in this case finds support in the principle that the surety contract is merely an accessory contract and must be interpreted with its principal contract, which in this case was the loan agreement. This doctrine closely adheres to the spirit of Art. 1374 of the Civil Code which states that Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. In the case at bar, the performance bond was silent with regard to arbitration. On the other hand, the construction contract was clear as to arbitration in the event of disputes. Applying the said doctrine, we rule that the silence of the accessory contract in this case could only be construed as acquiescence to the main contract. The construction contract breathes life into the performance bond. We are not ready to assume that the performance bond contains reservations with regard to some of the terms and conditions in the construction contract where in fact it is silent. On the other hand, it is more reasonable to assume that the party who issued the performance bond carefully and meticulously studied the construction contract that it guaranteed, and if it had reservations, it would have and should have mentioned them in the surety contract. Second Issue Petitioners Liability Under the Performance Bond

On the second issue, the crux of the controversy revolves upon a letter dated October 16, 2000 sent by ALI to PGAI. It reads: xxxx This pertains to the contract between Kraft Realty Development Corp. and Anscor Land, Inc., which is covered by surety and performance bonds by your good company. Please be advised that we are now terminating the contract of Kraft due to the breach by Kraft of the terms and conditions of the construction contract. More specifically, the project has accumulated very serious delays, in spite of the full cooperation that this company has extended to Kraft. Kindly refer to the attached letter of termination dated 16 October 2000. Anscor Land [Inc.] may be making claims against the said bonds and in this regard, kindly coordinate with the following for any matter with which we can assist you with. Engr. Teodelito de Vera Anscor Land, Inc. Tel. 812-7941 to 48 Fax 813-5301 Thank you for your kind attention.22 (Italics supplied.) The question really is whether or not the foregoing letter constituted a valid claim and effectively complied with thetime-bar provision in the performance bond. It is clear that ALI communicated two (2) important points to PGAI in the letter. First, that ALI is terminating the construction contract with KRDC and second, that ALI may be making a claim on the bonds issued by PGAI. The time-bar provision in the Performance Bond provides that any claim against the bond should be "discovered and presented to the company within ten days from the expiration of this bond or from the occurrence of the default or failure of the principal, whichever is the earliest". The purpose of this provision in the performance bond is to give the issuer, in this case PGAI, notice of the claim at the earliest possible time and to afford the issuer sufficient time to evaluate, and examine the validity of the claim while the evidence or indicators of breach are fresh. In the construction industry, time is precious, delay costs money and postponement in making a claim could cause additional expenses. In line with the rationale behind the time-bar provision, we rule that the letter dated October 16, 2000 was a sufficient claim. The tenor of the letter adequately put PGAI on notice that ALI has terminated the contract because of serious delays tantamount to breach by KRDC of its obligations. The letter timely informed PGAI that ALI was in fact terminating the construction contract and thereby giving rise to the obligation of PGAI under the performance bond. PGAI was informed within the time-bar provision and had all the opportunity to conduct its evaluation and examination as to the validity of the termination. The CA thus correctly ruled that:

The fact of contract termination had been made known to PGAI as early as October 16, 2000. This termination consequently meant that the principal KRDC would no longer be able to supply "labor, materials, tools, equipment and necessary supervision" to complete the project. It was at this time, therefore, that PGAIs obligation guaranteeing the project completion arose, although the amount of payment was still undetermined. That ALI merely used the word "may" in expressing its intent to proceed against the bond does not make its claim any less categorical as argued by PGAI. The point is the very condition giving rise to the obligation to pay, i.e. KRDCs default and the resulting contract termination, was clearly mentioned in the 16 October 2000 letter. The citation of this fact is more than sufficient to place PGAI in notice that ALI shall be making claims on the bonds. xxxx But the important consideration is that ALI, by its 16 October 2000 letter, was informing PGAI of the contract termination, the very condition for its liabilities under the performance bond to accrue. ALI had no other purpose in sending the letter than to notify PGAI that it was intending to proceed against the performance bond. PGAI makes much out of ALIs failure to identify the particular bond against which it would be claiming. But the contract termination necessarily implies that there would be hiatus in the supply of labor and materials. Surely, no bond would answer for the non-implementation of contractual provisions other than the performance bond. Further, the surety bond only guarantees reimbursement of the portion of the downpayment and not the supply of labor, materials and equipment.23 (Emphasis supplied, italics in the original.) In interpreting the time-bar provision, the absence of any ambiguity in the words used would lead to the conclusion that the generally accepted meaning of the words shall control. In the time-bar provision, the word "claim" does not give rise to any ambiguity in interpretation and does not call for a stretched understanding. In Finasia Investments and Finance Corporation v. Court of Appeals,24 the Court had the occasion to rule that: The word "claim" is also defined as:

performance bond and it intends to recover it. Undeniably, ALI has substantially complied with the time-bar provision of the performance bond. WHEREFORE, the petition is DENIED and the Decision dated April 28, 2006 of the Court of Appeals in CAG.R. SP No. 72854 is hereby AFFIRMED. With costs against the petitioner. SO ORDERED.

(2) PRUDENTIAL GUARANTEE and ASSURANCE, INC., Petitioner, - versus EQUINOX LAND CORPORATION, Respondent.

G.R. Nos. 152505-06

Promulgated:

September 13, 2007

x -----------------------------------------------------------------------------------------x
Right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured, unsecured. In conflicts of law, a receiver may be appointed in any state which has jurisdiction over the defendant who owes a claim.25 (Italics supplied.) In the case at bar, the claim of ALI against PGAI arose from the failure of KRDC to perform its obligation under the construction contract. ALI therefore already had the "claim" or "right to payment" against PGAI in the maximum amount of P4,700,000.00 from the moment KRDC failed to comply with its obligation. According to the time-bar provision, in order to enforce such claim or recover the said amount, ALI shall present its claim within ten (10) days from the occurrence of the default or failure of KRDC. The October 16, 2000 letter was the presentation of the claim. ALIs intent to recover its claim was communicated clearly to PGAI. By informing PGAI of the termination of the contract with KRDC, ALI in effect presented a situation where PGAI is put on notice that ALI in fact has a right to payment by virtue of the

DECISION SANDOVAL-GUTIERREZ, J.: Before us for resolution is the instant Petition for Review on Certiorari assailing the [1] Decision of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57335. The undisputed facts of the case, as established by the Construction Industry Arbitration Commission (CIAC) and affirmed by the Court of Appeals, are: Sometime in 1996, Equinox Land Corporation (Equinox), respondent, decided to construct five (5) additional floors to its existing building, the Eastgate Centre, located at 169 EDSA, Mandaluyong City. It then sent invitations to bid to various building contractors. Four (4) building contractors, including JMarc Construction & Development Corporation (JMarc), responded.

Finding the bid of JMarc to be the most advantageous, Equinox offered the construction project to it. On February 22, 1997, JMarc accepted the offer. Two days later, Equinox formally awarded to JMarc the contract to build the extension for a consideration of P37,000,000.00. On February 24, 1997, JMarc submitted to Equinox two (2) bonds, namely: (1) a surety bond issued by Prudential Guarantee and Assurance, Inc. (Prudential), herein petitioner, in the amount of P9,250,000.00 to guarantee the unliquidated portion of the advance payment payable to JMarc; and (2) a performance bond likewise issued by Prudential in the amount of P7,400,000.00 to guarantee JMarcs faithful performance of its obligations under the construction agreement. On March 17, 1997, Equinox and JMarc signed the contract and related documents. Under the terms of the contract, JMarc would supply all the labor, materia ls, tools, equipment, and supervision required to complete the project. In accordance with the terms of the contract, Equinox paid JMarc a downpayment of P9,250,000.00 equivalent to 25% of the contract price. JMarc did not adhere to the terms of the contract. It failed to submit the required monthly progress billings for the months of March and April 1997. Its workers neglected to cover the drainpipes, hence, they were clogged by wet cement. This delayed the work on the project. On May 23, 1997, JMarc requested an unscheduled cash advance of P300,000.00 from Equinox, explaining it had encountered cash problems. Equinox granted JMarcs request to prevent delay. On May 31, 1997, JMarc submitted its first progres s billing showing that it had accomplished only 7.3825% of the construction work estimated at P2,731,535.00. After deducting the advanced payments, the net amount payable to JMarc was only P1,285,959.12. Of this amount, Equinox paid JMarc only P697,005.12 because the former paid EXAN P588,954.00 for concrete mix. Shortly after Equinox paid JMarc based on its first progress billing, the latter again requested an advanced payment of P150,000.00. Again Equinox paid JMarc this amount. Eventually, Equinox found that the amount owing to JMarcs laborers was only P121,000.00, not P150,000.00. In June 1997, EXAN refused to deliver concrete mix to the project site due to JMarcs recurring failure to pay on time. Faced with a looming delay in the project schedule, Equinox acceded to EXANs request that payments for the concrete mix should be remitted to it directly. On June 30, 1997, JMarc submitted its second progress billing showing that it accomplished only 16.0435% of the project after 4 months of construction work. Based on the contract and its own schedule, JMarc should have accomplished at least 37.70%.

Faced with the problem of delay, Equinox formally gave JMarc one final chance to take remedial steps in order to finish the project on time. However, JMarc failed to undertake any corrective measure. Consequently, on July 10, 1997, Equinox terminated its contract with JMarc and took over the project. On the same date, Equinox sent Prudential a letter claiming relief from JMarcs violations of the contract. On July 11, 1997, the work on the project stopped. The personnel of both Equinox and JMarc jointly conducted an inventory of all materials, tools, equipment, and supplies at the construction site. They also measured and recorded the amount of work actually accomplished. As of July 11, 1997, JMarc accomplished only 19.0573% of the work or a shortage of 21.565% in violation of the contract. The cost of JMarcs accomplishment was only P7,051,201.00. In other words, Equinox overpaid JMarc in the sum of P3,974,300.25 inclusive of the 10% retention on the first progress billing amounting to P273,152.50. In addition, Equinox also paid the wages of JMarcs laborers, the billings for unpaid supplies, and the amounts owing to subcontractors of JMarc in the total sum of P664,998.09. On August 25, 1997, Equinox filed with the Regional Trial Court (RTC), Branch 214, Mandaluyong City a complaint for sum of money and damages against JMarc and Prudential. Equinox prayed that JMarc be ordered to reimburse the amounts corresponding to its (Equinox) advanced payments and unliquidated portion of its downpayment; and to pay damages. Equinox also prayed that Prudential be ordered to pay its liability under the bonds. In its answer, JMarc alleged that Equinox has no valid ground for terminating their contract. For its part, Prudential denied Equinoxs claims and instituted a cross -claim against JMarc for any judgment that might be rendered against its bonds. During the hearing, Prudential filed a motion to dismiss the complaint on the ground that pursuant to Executive Order No. 1008, it is the CIAC which has jurisdiction over it. On February 12, 1999, the trial court granted Prudentials motion and dismissed the case. On May 19, 1999, Equinox filed with the CIAC a request for arbitration, docketed as CIAC Case No. 17-99. Prudential submitted a position paper contending that the CIAC has no jurisdiction over it since it is not a privy to the construction contract between Equinox and JMarc; and that its surety and performance bonds are not construction agreements, thus, any action thereon lies exclusively with the proper court. On December 21, 1999, the CIAC rendered its Decision in favor of Equinox and against JMarc and Prudential, thus:
AWARD After considering the evidence and the arguments of the parties, we find that:

1. JMarc has been duly notified of the filing and pendency of the arbitration proceeding commenced by Equinox against JMarc and that CIAC has acquired jurisdiction over JMarc; 2. The construction Contract was validly terminated by Equinox due to JMarcs failure to provide a timely supply of adequate labor, materials, tools, equipment, and technical services and to remedy its inability to comply with the construction schedule; 3. Equinox is not entitled to claim liquidated damages, although under the circumstances, in the absence of adequate proof of actual and compensatory damages, we award to Equinox nominal or temperate damages in the amount of P500,000.00; 4. The percentage of accomplishment of JMarc at the time of the termination of the Contract was 19.0573% of the work valued at P7,051,201.00. This amount should be credited to JMarc. On the other hand, Equinox [i] had paid JMarc 25% of the contract price as down or advance payment, [ii] had paid JMarc its first prog ress billing, [iii] had made advances for payroll of the workers, and for unpaid supplies and the works of JMarcs subcontractors, all in the total sum of P11,690,483.34. Deducting the value of JMarcs accomplishment from these advances and payment, there is due from JMarc to Equinox the amount of P4,639,285.34. We hold JMarc liable to pay Equinox this amount of P4,639,285.34. 5. If JMarc had billed Equinox for its accomplishment as of July 11, 1997, 25% of the P7,051,201.00 would have been recouped as partial payment of the advanced or down payment. This would have resulted in reducing Prudentials liability on the Surety Bond from P8,250,000.00 to P7,487,199.80. We, therefore, find that Prudential is liable to Equinox on its Surety Bond the amount of P7,487,199.80; 6. Prudential is furthermore liable on its Performance Bond for the following amounts: the advances made by Equinox on behalf of JMarc to the workers, suppliers, and subcontractors amounting to P664,985.09, the nominal damages of P500,000.00 and attorneys fees of P100,000.00 or a total amount of P1,264,985.00; 7. All other claims and counterclaims are denied;

Thereupon, Prudential filed with the Court of Appeals a petition for review, docketed as CA-G.R. SP No. 56491. Prudential alleged that the CIAC erred in ruling that it is bound by the terms of the construction contract between Equinox and JMarc and that it is solidarily liable with JMarc under its bonds. Equinox filed a motion for reconsideration on the ground that there is an error in the computation of its claim for unliquidated damages; and that it is entitled to an award of liquidated damages. On February 2, 2000, the CIAC amended its Award by reducing the total liability of JMarc to Equinox to P4,060,780.21, plus attorneys fees of P100,000 orP4,160,780.21, and holding that Prudentials liability to Equinox on the surety and performance bonds should not exceed the said amount of P4,160,780.21, payable by JMarc and Prudential jointly and severally. Dissatisfied, Equinox filed with the Court of Appeals a petition for review, docketed as CAG.R. SP No. 57335. This case was consolidated with CA-G.R. SP No. 56491 filed by Prudential. On November 23, 2001, the Court of Appeals rendered its Decision in CA-G.R. SP No. 57335 and CA-G.R. SP No. 56491, the dispositive portion of which reads:
WHEREFORE, the Amended Decision dated February 2, 2000 is AFFIRMED with MODIFICATION in paragraph 4 in the Award by holding JMarc liable for unliquidated damages to Equinox in the amount of P5,358,167.09 and in paragraph 9 thereof by increasing the total liability of JMarc to Equinox to P5,958,167.09 (in view of the additional award of P500,000.00 as nominal and temperate damages and P100,000.00 in attorneys fees), and AFFIRMED in all other respects. SO ORDERED.

8. JMarc shall pay the cost of arbitration and shall indemnify Equinox the total amount paid by Equinox as expenses of arbitration; 9. The total liability of JMarc to Equinox is determined to be P5,139,285.34 plus attorneys fees of P100,000.00. The suretys liability cannot exceed that of the principal debtor [Art. 2054, Civil Code}. We hold that, notwithstanding our finding in Nos. 5 and 6 of this Award, Prudential is liable to Equinox on the Surety Bond and Performance Bond an amount not to exceedP5,239,285.34. The cost of arbitration shall be paid by JMarc alone. The amount of P5,239,285.34 shall be paid by respondent JMarc and respondent Prudential, jointly and severally, with interest at six percent [6%] per annum from promulgation of this award. This amount, including accrued interest, shall earn interest at the rate of 12% per annum from the time this decision becomes final and executory until the entire amount is fully paid or judgment fully satisfied. The expenses of arbitration, which shall be paid by JMarc alone, shall likewise earn interest at 6% per annum from the date of promulgation of the award, and 12% from the date the award becomes final until this amount including accrued interest is fully paid. SO ORDERED.

Prudential seasonably filed a motion for reconsideration but it was denied by the Court of Appeals. The issue raised before us is whether the Court of Appeals erred in (1) upholding the jurisdiction of the CIAC over the case; and (2) finding Prudential solidarily liable with JMarc for damages. On the first issue, basic is the rule that administrative agencies are tribunals of limited jurisdiction and as such, can only wield such powers as are specifically granted to them by their [2] enabling statutes. Section 4 of Executive Order No. 1008,
[3]

provides:

SEC. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising from, or connected with contracts entered into by parties involved in construction in thePhilippines, whether the dispute arises before or after the completion of the contract, or after the abandonment or breach thereof. These disputes may involve government or private contracts. For the Board to acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.

The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials and workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of employer or contractor and changes in contract cost. Excluded from the coverage of the law are disputes arising from employer-employee relationships which continue to be covered by the Labor Code of the Philippines.

In Security Pacific Assurance Corporation v. Tria-Infante, we reiterated the rule that while a contract of surety is secondary only to a valid principal obligation, the suretys liability to the creditor is said to be direct, primary, and absolute. In other words, the surety is directly and equally bound with the principal. Thus, Prudential is barred from disclaiming that its liability with JMarc is solidary. WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals (Third Division) dated November 23, 2001 in CA-G.R. SP No. 56491 and CA-G.R. SP No. 57355 is AFFIRMED in toto. Costs against petitioner. SO ORDERED.

[10]

In David v. Construction Industry and Arbitration Commission, we ruled that Section 4 vests upon the CIAC original and exclusive jurisdiction over disputes arising from or connected with construction contracts entered into by parties who have agreed to submit their case for voluntary arbitration. As earlier mentioned, when Equinox lodged with the RTC its complaint for a sum of money against JMarc and Prudential, the latter filed a motion to dismiss on the ground of lack of jurisdiction, contending that since the case involves a construction dispute, jurisdiction lies with CIAC. Prudentials motion was granted. However, after the CIAC assumed jurisdiction over the case, Prudential again moved for its dismissal, alleging that it is not a party to the construction contract between Equinox and JMarc; and that the surety and performance bonds it issued are not construction agreements. After having voluntarily invoked before the RTC the jurisdiction of CIAC, Prudential is estopped to question its jurisdiction. As we held in Lapanday Agricultural & Development [5] Corporation v. Estita, the active participation of a party in a case pending against him before a court or a quasi-judicial body is tantamount to a recognition of that courts or quasi -judicial bodys jurisdiction and a willingness to abide by the resolution of the case and will bar said party from later on impugning the courts or quasi-judicial bodys jurisdiction. Moreover, in its Reply to Equinoxs Opposition to the Motion to Dismiss before the RTC, [6] Prudential, citing Philippine National Bank v. Pineda and Finman General Assurance Corporation [7] v. Salik, argued that as a surety, it is considered under the law to be the same party as the obligor in relation to whatever is adjudged regarding the lat ters obligation. Therefore, it is the CIAC which has jurisdiction over the case involving a construction contract between Equinox and JMarc. Such an admission by Prudential binds it and it cannot now claim otherwise. Anent the second issue, it is not disputed that Prudential entered into a suretyship contract with JMarc. Section 175 of the Insurance Code defines a suretyship as a contract or agreement whereby a party, called the suretyship, guarantees the performance by another party, called the principal or obligor, of an obligation or undertaking in favor of a third party, called the obligee. It [8] includes official recognizances, stipulations, bonds, or undertakings issued under Act 536 , as amended. Corollarily, Article 2047 of the Civil Code provides that suretyship arises upon the solidary binding of a person deemed the surety with the principal debtor for the purpose of fulfilling an obligation. In Castellvi de Higgins and Higgins v. Seliner, we held that while a surety and a guarantor are alike in that each promises to answer for the debt or default of another, the surety assumes liability as a regular party to the undertaking and hence its obligation is primary.
[9]

[4]

(3) G.R. No. 126490 March 31, 1998


ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B. LENDING CORPORATION, respondents.

REGALADO, J.: Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the solvency of the debtor? Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan
matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991. 2

Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint 3 against petitioner Palmares as the lone party-defendant, to the exclusion of the principal debtors, allegedly by reason of the
insolvency of the latter.

In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August 1990, immediately after the loan matured, she
offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan.

During the pre-trial conference, the parties submitted the following issues for the resolution of the trial court: (1) what the rate of interest, penalty and damages should be; (2) whether the liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability. 5 Thereafter, the parties agreed to submit the case for decision based on the pleadings filed and the memoranda to be submitted by them. On November 26, 1992, the Regional Trial Court of Iloilo City, Branch 23, rendered judgment dismissing the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Osmea and Merlyn Azarraga who are primarily liable on the instrument. 6 This was based on the
findings of the court a quo that the filing of the complaint against herein petitioner Estrella Palmares, to the exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer made by petitioner to pay the obligation is considered a valid tender of payment sufficient to discharge a person's secondary liability on the instrument; as co-maker, is only secondarily liable on the instrument; and that the promissory note is a contract of adhesion.

5. Palmares cannot be compelled to pay the loan at this point. B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in strictly imposing the interests and penalty charges on the outstanding balance of the promissory note. The foregoing contentions of petitioner are denied and contradicted in their material points by respondent corporation. They are further refuted by accepted doctrines in the American jurisdiction after which we patterned our statutory law on surety and guaranty. This case then affords us the opportunity to make an extended exposition on the ramifications of these two specialized contracts, for such guidance as may be taken therefrom in similar local controversies in the future. The basis of petitioner Palmares' liability under the promissory note is expressed in this wise: ATTENTION TO CO-MAKERS: PLEASE READ WELL I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this Promissory Note for Short-Term Loan: That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above principal maker of this note; That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note subject to the same conditions above-contained. 8 Petitioner contends that the provisions of the second and third paragraph are conflicting in that while the second paragraph seems to define her liability as that of a surety which is joint and solidary with the principal maker, on the other hand, under the third paragraph her liability is actually that of a mere guarantor because she bound herself to fulfill the obligation only in case the principal debtor should fail to do so, which is the essence of a contract of guaranty. More simply stated, although the second paragraph says that she is liable as a surety, the third paragraph defines the nature of her liability as that of a guarantor. According to petitioner, these are two conflicting provisions in the promissory note and the rule is that clauses in the contract should be interpreted in relation to one another and not by parts. In other words, the second paragraph should not be taken in isolation, but should be read in relation to the third paragraph. In an attempt to reconcile the supposed conflict between the two provisions, petitioner avers that she could be held liable only as a guarantor for several reasons. First, the words "jointly and severally or solidarily liable" used in the second paragraph are technical and legal terms which are not fully appreciated by an ordinary layman like herein petitioner, a 65-year old housewife who is likely to enter into such transactions without fully realizing the nature and extent of her liability. On the contrary, the wordings used in the third paragraph are easier to comprehend. Second, the law looks upon the contract of suretyship with a jealous eye and the rule is that the obligation of the surety cannot be extended by implication beyond specified limits, taking into consideration the peculiar nature of a surety agreement which holds the surety liable despite the absence of any direct consideration received from either the principal obligor or the creditor. Third, the promissory note is a contract of adhesion since it was prepared by respondent M.B. Lending Corporation. The note was brought to petitioner partially filled up, the contents thereof were never explained to her, and her only participation was to sign thereon. Thus, any apparent ambiguity in the contract should be strictly construed against private respondent pursuant to Art. 1377 of the Civil Code. 9

Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation: 1. The sum of P13,700.00 representing the outstanding balance still due and owing with interest at six percent (6%) per month computed from the date the loan was contracted until fully paid; 2. The sum equivalent to the stipulated penalty of three percent (3%) per month, of the outstanding balance; 3. Attorney's fees at 25% of the total amount due per stipulations; 4. Plus costs of suit.
7

Contrary to the findings of the trial court, respondent appellate court declared that petitioner Palmares is a surety since she bound herself to be jointly and severally or solidarily liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker. As such, petitioner is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation. It also adverted to the fact that petitioner admitted her liability in her Answer although she claims that the Azarraga spouses should have been impleaded. Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty charges on the ground that the Usury Law is no longer enforceable pursuant to Central Bank Circular No. 905. Finally, it rationalized that even if the promissory note were to be considered as a contract of adhesion, the same is not entirely prohibited because the one who adheres to the contract is free to reject it entirely; if he adheres, he gives his consent. Hence this petition for review on certiorari wherein it is asserted that: A. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily liable to pay the promissory note. 1. The terms of the promissory note are vague. Its conflicting provisions do not establish Palmares' solidary liability. 2. The promissory note contains provisions which establish the co-maker's liability as that of a guarantor. 3. There is no sufficient basis for concluding that Palmares' liability is solidary. 4. The promissory note is a contract of adhesion and should be construed against M. B. Lending Corporation.

Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third paragraph of the promissory note to be that of a guarantor. Moreover, petitioner submits that she cannot as yet be compelled to pay the loan because the principal debtors cannot be considered in default in the absence of a judicial or extrajudicial demand. It is true that the complaint alleges the fact of demand, but the purported demand letters were never attached to the pleadings filed by private respondent before the trial court. And, while petitioner may have admitted in her Amended Answer that she received a demand letter from respondent corporation sometime in 1990, the same did not effectively put her or the principal debtors in default for the simple reason that the latter subsequently made a partial payment on the loan in September, 1991, a fact which was never controverted by herein private respondent. Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of P2,745,483.39 in favor of private respondent when, in truth and in fact, the outstanding balance of the loan is only P13,700.00. Where the interest charged on the loan is exorbitant, iniquitous or unconscionable, and the obligation has been partially complied with, the court may equitably reduce the penalty 10 on grounds of substantial justice. More importantly, respondent
corporation never refuted petitioner's allegation that immediately after the loan matured, she informed said respondent of her desire to settle the obligation. The court should, therefore, mitigate the damages to be paid since petitioner has shown a sincere desire for a compromise. 11

mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly, self-serving allegations. 14 Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to
contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. 16

Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally liable with the principal maker, her liability is deemed restricted by the provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending Corporation may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note," which makes her contract one of guaranty and not suretyship. The purported discordance is more apparent than real. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is

After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the petition for lack of merit, but to except therefrom the issue anent the propriety of the monetary award adjudged to herein respondent corporation. At the outset, let it here be stressed that even assuming arguendo that the promissory note executed between the parties is a contract of adhesion, it has been the consistent holding of the Court that contracts of adhesion are not invalid per se and that on numerous occasions the binding effects thereof have been upheld. The peculiar nature of such contracts necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply. Hence, just as consistently and unhesitatingly, but without categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances. 12 The factual scenario obtaining in the case before us warrants a liberal application of the rule in favor of
respondent corporation.

an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. 19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. 20 In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. 21

Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other condition for the enforcement of respondent corporation's right against petitioner. It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal. 22 In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule on strictissimi juris, which holds that when the meaning of a contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction applicable to all written contracts, then the liability of the surety, under his contract, as thus interpreted and construed, is not to be extended beyond its strict meaning. 23 The rule, however, will apply only after it has been definitely ascertained that the contract is one of suretyship and not a contract of
guaranty. It cannot be used as an aid in determining whether a party's undertaking is that of a surety or a guarantor.

The Civil Code pertinently provides: Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. It is a cardinal rule in the interpretation of contracts 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 stipulation shall control. 13 In the case at bar,
petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety.

Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a guarantor because her liability attaches only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements adverted to above. It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall also be principally considered. 24 Several attendant factors in that genre lend support to our finding that
petitioner is a surety. For one, when petitioner was informed about the failure of the principal debtor to pay the loan, she immediately offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses. 25 This can only be construed to mean that the payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant and simultaneous compliance of petitioner's obligation with that of her principals only goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers.

Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence,

In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, 26and as such is deemed an original promisor and debtor from the beginning. 27 This is because in suretyship there is but one contract,
and the surety is bound by the same agreement which binds the principal. precisely the situation obtaining in this case before the Court.
28

In essence, the contract of a surety starts with the agreement,

29

which is

It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and conditions stipulated between respondent corporation, as creditor, and the principal obligors. A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. 30 Thus, it has been held that where a written agreement on the
same sheet of paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with the buyer. 31 A surety usually enters into the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument, and the same consideration usually supports the obligation for both the principal and the surety. 32

We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not affect the creditor's rights vis-avis the surety, unless the surety requires him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent. 43 And, in the absence of proof

of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, 44 or that he need not trouble himself. 45 The consequences of the delay, such as the subsequent insolvency of the principal, 46 or the fact that the remedies against the principal may be lost by lapse of time, are immaterial. 47

There is no merit in petitioner's contention that the complaint was prematurely filed because the principal debtors cannot as yet be considered in default, there having been no judicial or extrajudicial demand made by respondent corporation. Petitioner has agreed that respondent corporation may demand payment of the loan from her in case the principal maker defaults, subject to the same conditions expressed in the promissory note. Significantly, paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. 33 As a surety, petitioner is equally
bound by such waiver.

The raison d'tre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. 48 At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay
the debt himself and become subrogated to all the rights and remedies of the creditor. 49

It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. 50 In order to constitute an extension discharging the surety, it should appear that the extension was for a
definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. The contract must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise have enforced it, and which precludes the surety from paying the debt. 51

Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the suit is a sufficient demand. 34 On this point, it may be worth mentioning that a surety is not even entitled, as a
matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. 35

None of these elements are present in the instant case. Verily, the mere fact that respondent corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve here in petitioner from the consequences of her undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has been discharged by some act of the creditor, 52 herein respondent corporation,
failing in which we cannot grant the relief prayed for.

The alleged failure of respondent corporation to prove the fact of demand on the principal debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the absence of a statutory or contractual requirement, it is not necessary that payment or performance of his obligation be first demanded of the principal, especially where demand would have been useless; nor is it a requisite, before proceeding against the sureties, that the principal be called on to account. 36 The underlying principle therefor is that a suretyship is a direct contract to
pay the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made, without any demand upon the principal whatsoever or any notice of default. 37 As an original promisor and debtor from the beginning, he is held ordinarily to know every default of his principal. 38

As a final issue, petitioner claims that assuming that her liability is solidary, the interests and penalty charges on the outstanding balance of the loan cannot be imposed for being illegal and unconscionable. Petitioner additionally theorizes that respondent corporation intentionally delayed the collection of the loan in order that the interests and penalty charges would accumulate. The statement, likewise traversed by said respondent, is misleading. In an affidavit 53 executed by petitioner, which was attached to her petition, she stated, among others, that: 8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's loan has been released and that she has not paid the same upon its maturity. I received a telephone call from Mr. Augusto Banusing of MB Lending informing me of this fact and of my liability arising from the promissory note which I signed. 9. I requested Mr. Banusing to try to collect first from Merlyn and Osmea Azarraga. At the same time, I offered to pay MB Lending the outstanding balance of the principal obligation should he fail to collect from Merlyn and Osmea Azarraga. Mr. Banusing advised me not to worry because he will try to collect first from Merlyn and Osmea Azarraga. 10. A year thereafter, I received a telephone call from the secretary of Mr. Banusing who reminded that the loan of Merlyn and Osmea Azarraga, together with interest and penalties thereon, has not been paid. Since I had no available funds at that time, I offered to pay MB Lending by delivering to them a parcel of land which I own. Mr. Banusing's secretary, however, refused my offer for the reason that they are not interested in real estate.

Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly were the only ones who benefited from the proceeds of the loan. What petitioner is trying to imply is that the creditor, herein respondent corporation, should have proceeded first against the principal before suing on her obligation as surety. We disagree. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. 39Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. 40 Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. 41 Perforce, in accordance with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. 42

10

11. In March 1992, I received a copy of the summons and of the complaint filed against me by MB Lending before the RTC-Iloilo. After learning that a complaint was filed against me, I instructed Sheila Gatia to go to MB Lending and reiterate my first offer to pay the outstanding balance of the principal obligation of Merlyn Azarraga in the amount of P30,000.00. 12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty. Venus, counsel of MB Lending. 13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer to pay the outstanding balance of the principal obligation loan (sic) of Merlyn and Osmea Azarraga is acceptable. Later, Atty. Venus informed Ms. Gatia that my offer is not acceptable to Mr. Banusing. The purported offer to pay made by petitioner can not be deemed sufficient and substantial in order to effectively discharge her from liability. There are a number of circumstances which conjointly inveigh against her aforesaid theory. 1. Respondent corporation cannot be faulted for not immediately demanding payment from petitioner. It was petitioner who initially requested that the creditor try to collect from her principal first, and she offered to pay only in case the creditor fails to collect. The delay, if any, was occasioned by the fact that respondent corporation merely acquiesced to the request of petitioner. At any rate, there was here no actual offer of payment to speak of but only a commitment to pay if the principal does not pay. 2. Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned. Respondent corporation was acting well within its rights when it refused to accept the offer. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due. 54 The obligee is entitled to demand fulfillment of the obligation or performance as stipulated. A
change of the object of the obligation would constitute novation requiring the express consent of the parties. 55

In a case previously decided by this Court which likewise involved private respondent M.B. Lending Corporation, and which is substantially on all fours with the one at bar, we decided to eliminate altogether the penalty interest for being excessive and unwarranted under the following rationalization: Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of the penalty interest of three percent (3 %) per month on total amount due but unpaid should be equitably reduced. The purpose for which the penalty interest is intended that is, to punish the obligor will have been sufficiently served by the effects of compounded interest. Under the exceptional circumstances in the case at bar, e.g., the original amount loaned was only P15,000.00; partial payment of P8,600.00 was made on due date; and the heavy (albeit still lawful) regular compensatory interest, the penalty interest stipulated in the parties' promissory note is iniquitous and unconscionable and may be equitably reduced further by eliminating such penalty interest altogether. 59 Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated. Finally, with respect to the award of attorney's fees, this Court has previously ruled that even with an agreement thereon between the parties, the court may nevertheless reduce such attorney's fees fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. 60 To that end, it is not even necessary to show, as in other
contracts, that it is contrary to morals or public policy. 61 The grant of attorney's fees equivalent to 25% of the total amount due is, in our opinion, unreasonable and immoderate, considering the minimal unpaid amount involved and the extent of the work involved in this simple action for collection of a sum of money. We, therefore, hold that the amount of P10,000.00 as and for attorney's fee would be sufficient in this case. 62

WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of attorney's fees is reduced to P10,000.00. SO ORDERED. Melo, Puno, Mendoza and Martinez, JJ., concur.

3. After the complaint was filed against her, petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount of P30,000.00 but the same was likewise rejected. Again, respondent corporation cannot be blamed for refusing the amount being offered because it fell way below the amount it had computed, based on the stipulated interests and penalty charges, as owing and due from herein petitioner. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. 56 In other words, the prestation must be fulfilled completely. A person
entering into a contract has a right to insist on its performance in all particulars. 57

(4) [G.R. No. 151060. August 31, 2005] JN DEVELOPMENT CORPORATION, and SPS. RODRIGO and LEONOR STA. ANA, petitioners, vs. PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, respondent. [G.R. No. 151311. August 31, 2005] NARCISO V. CRUZ, petitioner, vs. PHILIPPINE EXPORT and FOREIGN LOAN GUARANTEE CORPORATION, respondent. DECISION

Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the moment the latter accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, then the obligation shall be deemed fully complied with. 58 Precisely, this is what respondent
corporation wanted to avoid when it continually refused to settle with petitioner at less than what was actually due under their contract.

This notwithstanding, however, we find and so hold that the penalty charge of 3% per month and attorney's fees equivalent to 25% of the total amount due are highly inequitable and unreasonable. It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00 had already been paid even before the filing of the present case. Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. And, even if there has been no performance, the penalty may also be reduced if it is iniquitous or leonine.

TINGA, J.:

Before us are consolidated petitions questioning the Decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 61318, entitled Philippine Export and Foreign Loan Guarantee Corporation v. JN Development Corporation, et al., which reversed the Decision of the Regional Trial Court (RTC) of Makati, Branch 60.

11

On 13 December 1979, petitioner JN Development Corporation (JN) and Traders Royal Bank (TRB) entered into an agreement whereby TRB would extend to JN an Export Packing Credit Line for Two Million Pesos (P2,000,000.00). The loan was covered by several securities, including a real estate mortgage[2] and a letter of guarantee from respondent Philippine Export and Foreign Loan Guarantee Corporation (PhilGuarantee), now Trade and Investment Development Corporation of the Philippines, covering seventy percent (70%) of the credit line. [3] With PhilGuarantee issuing a guarantee in favor of TRB,[4] JN, petitioner spouses Rodrigo and Leonor Sta. Ana[5] and petitioner Narciso Cruz[6] executed a Deed of Undertaking[7] (Undertaking) to assure repayment to PhilGuarantee. It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8 October 1980 TRB requested PhilGuarantee to make good its guarantee.[8] PhilGuarantee informed JN about the call made by TRB, and inquired about the action of JN to settle the loan.[9] Having received no response from JN, on 10 March 1981 PhilGuarantee paid TRB Nine Hundred Thirty Four Thousand Eight Hundred Twenty Four Pesos and Thirty Four Centavos (P934,824.34).[10] Subsequently, PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May 1983, JN, through Rodrigo Sta. Ana, proposed to settle the obligation by way of development and sale of the mortgaged property.[11] PhilGuarantee, however, rejected the proposal. PhilGuarantee thus filed a Complaint[12] for collection of money and damages against herein petitioners. In its Decision dated 20 August 1998, the RTC dismissed PhilGuarantees Complaint as well as the counterclaim of petitioners. It ruled that petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB. Crucial to this holding was the courts finding that TRB was able to foreclose the real estate mortgage executed by JN, thus extinguishing petitioners obligation.[13] Moreover, there was no showing that after the said foreclosure, TRB had demanded from JN any deficiency or the payment of the difference between the proceeds of the foreclosure sale and the actual loan.[14] In addition, the RTC held that since PhilGuarantees guarantee was good for only one year from 17 December 1979, or until 17 December 1980, and since it was not renewed after the expiry of said period, PhilGuarantee had no more legal duty to pay TRB on 10 March 1981.[15] The RTC likewise ruled that Cruz cannot be held liable under the Undertaking since he was not the one who signed the document, in line with its finding that his signature found in the records is totally different from the signature on the Undertaking. [16] According to the RTC, the failure of TRB to sue JN for the recovery of the loan precludes PhilGuarantee from seeking recoupment from the spouses Sta. Ana and Cruz what it paid to TRB. Thus, PhilGuarantees payment to TRB amounts to a waiver of its right under Art. 2058 of the Civil Code.[17] Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The appellate court reversed the RTC and ordered petitioners to pay PhilGuarantee Nine Hundred Thirty Four Thousand Six Hundred Twenty Four Pesos and Thirty Four Centavos (P934,624.34), plus service charge and interest.[18]

In reaching its denouement, the CA held that the RTCs finding that the loan was extinguished by virtue of the foreclosure sale of the mortgaged property had no factual support, [19] and that such finding is negated by Rodrigo Sta. Anas testimony that JN did not receive any notice of foreclosure from PhilGuarantee or from TRB. [20] Moreover, Sta. Ana even offered the same mortgaged property to PhilGuarantee to settle its obligations with the latter.[21] The CA also ruled that JNs obligation had become due and demandable within the one-year period of effectivity of the guarantee; thus, PhilGuarantees payment to TRB conformed with its guarantee, although the payment itself was effected one year after the maturity date of the loan.[22] Contrary to the trial courts finding, the CA ruled that the contract of guarantee was not extinguished by the alleged lack of evidence on PhilGuarantees consent to the extensions granted by TRB to JN.[23] Interpreting Art. 2058 of the Civil Code,[24] the appellate court explained that while the provision states that the guarantor cannot be compelled to pay unless the properties of the debtor are exhausted, the guarantor is not precluded from waiving the benefit of excussion and paying the obligation altogether.[25] Finally, the CA found that Narciso Cruz was unable to prove the alleged forgery of his signature in the Undertaking, the evidence presented not being sufficient to overcome the presumption of regularity of the Undertaking which is a notarized document. [26] Petitioners sought reconsideration of the Decision and prayed for the admission of documents evidencing the foreclosure of the real estate mortgage, but the motion for reconsideration was denied by the CA for lack of merit. The CA ruled that the documentary evidence presented by petitioners cannot be considered as newly discovered evidence, it being already in existence while the case was pending before the trial court, the very forum before which it should have been presented. Besides, a foreclosure sale per se is not proof of petitioners payment of the loan to PhilGuarantee, the CA added.[27] So now before the Court are the separate petitions for review of the CA Decision. JN and the spouses Sta. Ana, petitioners in G.R. No. 151060, posit that the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in its Decision.[28] Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the CA erred when it held that petitioners are liable to PhilGuarantee despite its payment after the expiration of its contract of guarantee and the lack of PhilGuarantees consent to the extensions granted by TRB to JN. Moreover, Cruz questions the reversal of the ruling of the trial court anent his liability as a signatory to the Undertaking. [29] On the other hand, PhilGuarantee maintains that the date of default, not the actual date of payment, determines the liability of the guarantor and that having paid TRB when the loan became due, it should be indemnified by petitioners.[30] It argues that, contrary to petitioners claim, there could be no waiver of its right to excussion more explicit than its act of payment to TRB very directly.[31] Besides, the right to excussion is for the benefit of the guarantor and is not a defense for the debtor to raise and use to evade liability.[32] Finally, PhilGuarantee maintains that there is no sufficient evidence proving the alleged forgery of Cruzs signature on the Undertaking, which is a notarized document and as such must be accorded the presumption of regularity.[33] The Court finds for PhilGuarantee.

12

Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.[34] The guarantor who pays for a debtor, in turn, must be indemnified by the latter.[35] However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal remedies against the debtor. [36] This is what is otherwise known as the benefit of excussion. It is clear that excussion may only be invoked after legal remedies against the principal debtor have been expanded. Thus, it was held that the creditor must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor, for obviously the exhaustio n of the principals property cannot even begin to take place before judgment has been obtained.[37] The law imposes conditions precedent for the invocation of the defense. Thus, in order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover the amount of the debt.[38] While a guarantor enjoys the benefit of excussion, nothing prevents him from paying the obligation once demand is made on him. Excussion, after all, is a right granted to him by law and as such he may opt to make use of it or waive it. PhilGuarantees waiver of the right of excussion cannot prevent it from demanding reimbursement from petitioners. The law clearly requires the debtor to indemnify the guarantor what the latter has paid.[39] Petitioners claim that PhilGuarantee had no more obligation to pay TRB because of the alleged expiration of the contract of guarantee is untenable. The guarantee, dated17 December 1979, states: In the event of default by JNDC and as a consequence thereof, PHILGUARANTEE is made to pay its obligation arising under the aforesaid guarantee PHILGUARANTEE shall pay the BANK the amount of P1.4 million or 70% of the total obligation unpaid .... This guarantee shall be valid for a period of one (1) year from date hereof but may be renewed upon payment by JNDC of the guarantee fee at the same rate of 1.5% per annum.[40] The guarantee was only up to 17 December 1980. JNs obligation with TRB fell due on 30 June 1980, and demand on PhilGuarantee was made by TRB on 08 October 1980. That payment was actually made only on 10 March 1981 does not take it out of the terms of the guarantee. What is controlling is that default and demand on PhilGuarantee had taken place while the guarantee was still in force. There is likewise no merit in petitioners claim that PhilGuarantees failure to give its express consent to the alleged extensions granted by TRB to JN had extinguished the guarantee. The requirement that the guarantor should consent to any extension granted by the creditor to the debtor under Art. 2079 is for the benefit of the guarantor. As such, it is likewise waivable by the guarantor. Thus, even assuming that extensions were indeed granted by TRB to JN,

PhilGuarantee could have opted to waive the need for consent to such extensions. Indeed, a guarantor is not precluded from waiving his right to be notified of or to give his consent to extensions obtained by the debtor. Such waiver is not contrary to public policy as it is purely personal and does not affect public interest.[41] In the instant case, PhilGuarantees waiver can be inferred from its actual payment to TRB after the latters demand, despite JNs failure to pay the renewal/guarantee fee as indicated in the guarantee.[42] For the above reasons, there is no basis for petitioners claim that PhilGuarantee was a mere volunteer payor and had no legal obligation to pay TRB. The law does not prohibit the payment by a guarantor on his own volition, heedless of the benefit of excussion. In fact, it recognizes the right of a guarantor to recover what it has paid, even if payment was made before the debt becomes due,[43] or if made without notice to the debtor,[44] subject of course to some conditions. Petitioners invocation of our ruling in Willex Plastic Industries, Corp. v. Court of Appeals[45] is misplaced, if not irrelevant. In the said case, the guarantor claimed that it could not be proceeded against without first exhausting all of the properties of the debtor. The Court, finding that there was an express renunciation of the benefit of excussion in the contract of guarantee, ruled against the guarantor. The cited case finds no application in the case a quo. PhilGuarantee is not invoking the benefit of excussion. It cannot be overemphasized that excussion is a right granted to the guarantor and, therefore, only he may invoke it at his discretion. The benefit of excussion, as well as the requirement of consent to extensions of payment, is a protective device pertaining to and conferred on the guarantor. These may be invoked by the guarantor against the creditor as defenses to bar the unwarranted enforcement of the guarantee. However, PhilGuarantee did not avail of these defenses when it paid its obligation according to the tenor of the guarantee once demand was made on it. What is peculiar in the instant case is that petitioners, the principal debtors themselves, are muddling the issues and raising the same defenses against the guarantor, which only the guarantor may invoke against the creditor, to avoid payment of their own obligation to the guarantor. The Court cannot countenance their self-seeking desire to be exonerated from the duty to reimburse PhilGuarantee after it had paid TRB on their behalf and to unjustly enrich themselves at the expense of PhilGuarantee. Petitioners assert that TRBs alleged foreclosure of the real estate mortgage over the land executed as security for the loan agreement had extingu ished PhilGuarantees obligation; thus, PhilGuarantees recourse should be directed against TRB, as per the pari-passu provision[46] in the contract of guarantee.[47] We disagree. The foreclosure was made on 27 August 1993, after the case was submitted for decision in 1992 and before the issuance of the decision of the court a quo in 1998.[48] Thus, foreclosure was resorted to by TRB against JN when they both had become aware that PhilGuarantee had already paid TRB and that there was a pending case filed by PhilGuarantee against petitioners. This matter was not raised and proved in the trial court, nor in the appeal before the CA, but raised for the first time in petitioners motion for reconsideration in the CA. In their appellants Brief, petitioners claimed that there was no need for the defendant-appellee JNDC to present any

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evidence before the lower court to show that indeed foreclosure of the REM took place. [49] As properly held by the CA, Firstly, the documents evidencing foreclosure of mortgage cannot be considered as newly discovered evidence. The said documents were already subsisting and should have been presented during the trial of the case. The alleged foreclosure sale was made on August 23, 1993 while the decision was rendered by the trial court on August 20, 1998 about five (5) years thereafter. These documents were likewise not submitted by the defendants-appellees when they submitted their appellees Brief to this Court. Thus, these cannot be considered as newly discovered evidence but are more correctly ascribed as suppressed forgotten evidence Secondly, the alleged foreclosure sale is not proof of payment of the loan by defendant-appellees to the plaintiffs-appellants.[50] Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN, and its cause of action was premised on its payment of JNs obligation after the latters default. PhilGuarantee was well within its rights to demand reimbursement for such payment made, regardless of whether the creditor, TRB, was subsequently able to obtain payment from JN. If double payment was indeed made, then it is JN which should go after TRB, and not PhilGuarantee. Petitioners have no one to blame but themselves, having allowed the foreclosure of the property for the full value of the loan despite knowledge of PhilGuarantees payment to TRB. Having been aware of such payment, they should have opposed the foreclosure, or at the very least, filed a supplemental pleading with the trial court informing the same of the foreclosure sale. Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not being parties to the said agreement. The clause is clearly for the benefit of the guarantor and no other. The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of settlement of JNs obligations to PhilGuarantee, the very same parcel of land mortgaged as security for the loan agreement. This further weakens the position of petitioners, since it becomes obvious that they acknowledged the payment made by PhilGuarantee on their behalf and that they were in fact willing to negotiate with PhilGuarantee for the settlement of the said obligation before the filing of the complaint a quo. Anent the issue of forgery, the CA is correct in reversing the decision of the trial court. Save for the denial of Narciso Cruz that it was not his signature in the Undertaking and the perfunctory comparison of the signatures, nothing in the records would support the claim of forgery. Forgery cannot be presumed and must be proved by clear, positive and convincing evidence and the burden of proof lies on the party alleging forgery.[52] Mere denial will not suffice to overcome the positive value of the Undertaking, which is a notarized document, has in its favor the presumption of regularity, and carries the evidentiary weight conferred upon it with respect to its due execution.[53] Even in cases where the alleged forged signature was compared to samples of genuine signatures to show its variance therefrom, this Court still found such evidence insufficient.[54] Mere variance of the signatures cannot be considered as conclusive proof that the same were forged.[55]

WHEREFORE, the consolidated petitions are DENIED. The Decision of the Court of Appeals in CA-G.R. CV No. 61318 is AFFIRMED. No pronouncement as to costs. SO ORDERED. Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

(G.R. No. 33174 July 4, 1991


PHILIPPINE NATIONAL BANK, petitioner, vs. THE HONORABLE COURT OF APPEALS (Special Fourth Division), LUZON SURETY CO., INC., and ESTANISLAO E. DEPUSOY, trading under the style of E.E. DEPUSOY CONSTRUCTION, respondents. Domingo A. Santiago, Jr., Lucas R. Vidad, Nicolas C. Alino, Cesar T. Basa and Roland A. Niedo for petitioner. Tolentino, Cruz, Reyes, Lava & Manuel for respondent Luzon Surety Co., Inc. F.M. Ejercito for respondent E.E. Depusoy Construction.

DAVIDE, JR., J.:p Before Us is a petition for the review on certiorari of the decision of the Court of Appeals promulgated on 12 December 1970 in

affirming, with modification, the decision of the then Court of First Instance (now Regional Trial Court) of Manila, Branch VII, dated 30 September 1959 in Civil Case No. 35163 an action for collection of sum of money filed by petitioner against private respondents. The dispositive portion of the trial court's decision reads:
CA-G.R. No. 36615-R 1
2

IN VIEW WHEREOF: 1. The case against Luzon Surety Co. is dismissed but its counterclaim is also dismissed for lack of sufficient merit; 2. Defendant Estanislao Depusoy is condemned to pay unto the Philippine National Bank the respective sums as principal of P35,000.00, P30,000.00, P10,000.00, and P25,000.00 together with the interests as outlined in the statement of account set forth in the body of this decision. No pronouncements as to costs. SO ORDERED. 3

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The dispositive portion of the decision of respondent Court of Appeals reads: WHEREFORE, with the modification that the defendant Depusoy shall pay 10% interest on the amount of the judgment, the decision of the trial court is hereby affirmed in all other respects. Without pronouncement as to costs. 4 However, immediately preceding this is a paragraph reading: We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulations of the parties should be given effect. As carefully summarized by the Court of Appeals, the relevant facts in this case are as follows: On August 6, 1955, Estanislao Depusoy, doing business under the name of E.E. Depusoy Construction, and the Republic of the Philippines, represented by the Director of Public Works, entered into a building contract, Exhibit 2-Luzon, for the construction of the GSIS building at Arroceros Street, Manila, Depusoy to furnish all materials, labor, plans, and supplies needed in the construction. Depusoy applied for credit accommodation with the plaintiff. This was approved by the Board of Directors in various resolutions subject to the conditions that he would assign all payments to be received from the Bureau of Public Works of the GSIS to the bank, furnish a surety bond, and the surety to deposit P10,000.00 to the plaintiff. The total accommodation granted to Depusoy was P100,000.00. This was later extended by another P10,000.00 and P25,000.00, but in no case should the loan exceed P100,000.00, Exhibits K-1, K-2, K-3 and K-4. In compliance with these conditions, Depusoy executed a Deed of Assignment of all money to be received by him from the GSIS as follows: That I, Estanislao Depusoy, of legal age, Filipino, married to Lourdes G. Gonzales, doing business under the style of E. E. San Beda Subdivision, Manila, for and in consideration of certain loans, overdrafts or other credit accommodations to be granted by the PHILIPPINE NATIONAL BANK, Manila, have assigned, transferred and conveyed and by these presents do hereby assign, transfer and convey unto the said PHILIPPINE NATIONAL BANK, its successors and assigns all payment to be received from my contract with the Bureau of Public Works, Republic of the Philippines date (sic) August 6, 1955. By virtue of this assignment it is hereby understood that the assignor hereby acknowledges the monies, sums or payments due from the Bureau of Public Works, Republic of the Philippines, and which are hereby assigned to the PHILIPPINE NATIONAL BANK as monies, sums and payments belonging to the PHILIPPINE NATIONAL BANK, and that any act or misappropriation or conversion which the assignor or the latter's representatives may commit with respect to the said sums, monies and payments will subject the assignor or the latter's representatives to the criminal liabilities imposed by the Penal Code and such other damages which the Civil Code provides. It is further understood that the PHILIPPINE NATIONAL BANK can collect and receive any and all sums, monies and payments above-mentioned from the Bureau of Public Works, Republic of the Philippines, and for that matter said bank is hereby authorized to indorse for deposit or for encashment any and all checks, treasury warrants, money orders, drafts and other kinds of negotiable instruments that might be issued in connection with the payment herein assigned.

This assignment shall be irrevocable subject to the terms and conditions of the promissory notes, overdrafts and any other kind of documents which the PHILIPPINE NATIONAL BANK have (sic) required or may require the assignor to execute to evidence the above-mentioned obligation. Luzon thereafter executed two surety bonds, one for the sum of P40,000.00 Exhibit D, and the other for P60,000.00, Exhibit E. Exhibit its D and E, except for the amount, are expressed in the same words as follows: That we, E. E. DEPUSOY CONSTRUCTION CO., of 32 2nd Street, San Beda Subdv., Manila, as principal and LUZON SURETY COMPANY, INC., a corporation duly organized and existing under and by virtue of the laws of the Philippines, as surety, are held and firmly bound unto the PHILIPPINE NATIONAL BANK of Manila in the sum of SIXTY THOUSAND PESOS ONLY (P60,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors, and assigns, jointly and severally, firmly by these presents: The conditions of the obligation are as follows: WHEREAS, the above bounden principal, on the . . . . day of September, 1956 in consideration of a certain loan of (P60,000.00) executed a Deed of Assignment in favor of the Philippine National Bank on all payments to be received by him from the Bureau of Public Works in connection with a contract dated August 6, 1956. WHEREAS, said PHILIPPINE NATIONAL BANK, requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said Agreement. NOW, THEREFORE, if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms, conditions and agreement stipulated in said Agreement then, this obligation shall be null and void; otherwise, it shall remain in full force and effect. The liability of LUZON SURETY COMPANY, INC., under this bond will expire January 31, 1957. Furthermore, it is hereby agreed and understood that the LUZON SURETY COMPANY, INC. will not be liable for any claim not discovered and presented to the company within THREE (3) months from the expiration of this bond and that the obligee hereby waives his right to file any court action against the surety after the termination of the period of the three months above mentioned. With the consent of Luzon, the bond was extended for another 6 months from January 31, 1957. Under the credit accommodation granted by the plaintiff bank, Depusoy obtained several amounts from the bank. On January 14, 1957, Depusoy received P50,000.00 from the bank which he promised to pay in installments on the dates therein indicated, Exhibit A. On January 17, 1957, he received another P50,000.00 under the same conditions as the promissory note Exhibit A, except with respect to the time of payment. Under this arrangement all payments made by the GSIS were payable to the Philippine National Bank. The treasury warrants or checks, however, were not sent directly to the plaintiff. They were received by Depusoy, who in turn delivered them to the plaintiff bank. The plaintiff then applied the money thus received, first, to the payment of the amount due on the promissory notes at the time of the receipt of the treasury warrants or checks, and the balance was credited to the current account of

15

Depusoy with the plaintiff bank. A total of P1,309,461.89 were (sic) paid by the GSIS to the plaintiff bank for the account of Estanislao Depusoy, Exhibit 1-Luzon. Of this amount, P246,408.91 were (sic) paid according to Exhibit 1 for the importation of construction materials, and P1,063,408.91 were (sic) received by the Loans and Discounts Department of the plaintiff bank. This amount was disposed off by the plaintiffs Loans & Discounts Department as follows: a) P795,976.64 were (sic) credited to the current account of Depusoy with the plaintiff; b) P20,000.00 were (sic) credited to the plaintiffs Foreign Department; c) P2,552.94 were (sic) credited to the payment of interest; and d) P210,000.00 were (sic) applied to the principal of indebtedness. (Exh. N-1). Depusoy defaulted in his building contract with the Bureau of Public Works, and sometime in September, 1957, the Bureau of Public Works rescinded its contract with Depusoy. No further amounts were thereafter paid by the GSIS to the plaintiff bank. The amount of the loan of Depusoy which remains unpaid, including interest, is over P100,000.00. Demands for payment were made upon Depusoy and Luzon, and as no payment was made, . . . 5 herein petitioner filed with the trial court a complaint (Civil Case No. 35163) against Estanislao Depusoy and private respondent Luzon Surety Co. Inc. (LSCI). After trial on the merits, the trial court rendered a decision the dispositive portion of which is above adverted to. In dismissing the case as against LSCI, the trial court ruled that the surety bonds it issued, Exhs. "D" and "E"; . . . guaranteed only the faithful performance of the deed of assignments, Exhibit C, and nothing else. That the bonds were extended by the letters Exhs. E and I did not change their conditions. . . . 6 Petitioner appealed from said decision to the Court of Appeals, (C.A.-G.R. No. 6615-R) relying on the following assigned errors: I The trial court erred in holding that defendant-appellee Luzon Surety Company, Inc. "guaranteed only the faithful performance of the deed of assignment, Exh. "C", and nothing else"; in holding the defense of the appellee Luzon Surety Company, Inc., that there has been no breach of the terms and conditions of the bonds Exhs. "D" and "E"; in finding that the "bonds" can only be therefore understood to guarantee that the payment due from the GSIS to Depusoy would be delivered unto the bank. II The trial court erred in not finding that the bonds (Exhs. "D" and "E") should be read jointly with the resolutions approving the loan (Exhs. "K" to "K-5"), the promissory notes and the deed of assignment in the determination of the true intent of the parties in the execution of the bonds which are the basis of the liability of the defendant-appellee Luzon Surety Company, Inc., in not considering resolutions Exhs. "K" to "K-5"; promissory notes Exhs. "B", "G", and "H" and the deed of assignment, Exh. "C" as integral parts of the surety bonds Exhs. "D" and "E" as therein incorporated by reference in said surety bonds as such necessarily bound the appellee Luzon Surety Company to their terms.

III The trial court erred in not construing the terms of the bonds in favor of the plaintiff-appellant PNB and against the defendant-appellee Luzon Surety Company, Inc. IV The lower court erred in not holding that the bonds Exhs. "D" and "E" and letters of extension Exhs. "F" and "I" were compensated surety agreements executed as required by PNB board resolution Exhs. "K" to "K-5" for the purpose of securing the payment to the PNB of the amount advanced by the said bank to the appellee Estanislao Depusoy to finance the construction of the GSIS building subject to the construction contract Exh. "2-Luzon" or Exh. "O-PNB"; in not finding that Exhs. "F" and "I" are indubitable proofs that defendant-appellee Luzon Surety Company, Inc., is liable for the repayment of the P100,000.00 loan and the additional accommodations granted to the defendant-appellee Estanislao Depusoy; and in not finding and holding that Exhs. "D" and "E" in the sense that they have been extended so as to secure new accommodations aside from the original obligation mentioned in said bonds. V The trial court erred in finding that all payments due from the GSIS construction to Depusoy were actually delivered unto the bank; and in not finding that Depusoy made diversions from these amounts for which the surety should be bound to answer under the terms of its bonds. VI The trial court erred in not finding that when appellee Depusoy incurred breach (sic) in his construction contract with the Bureau of Public Works said default on the part of the principal in his contract resulted in a consequent breach of his undertaking under the deed of assignment; and that consequently any breach in the undertaking of the principal in said deed of assignment communicated liability to the surety; in not finding likewise that breach on the part of the appellee Depusoy in his undertaking under the promissory notes meant breach of the terms of the deed of assignment which incorporated said promissory notes and that this breach in the deed of assignment communicated liability to the surety under the terms of the bonds; and that trial court (sic) erred in not finding that there was a breach of the bonds due to the failure of the appellee Luzon Surety Company, Inc. to see to it that the full amount of P1,309,461.89 remitted by the GSIS to the PNB was actually received by the PNB; in not finding that the PNB did not receive all the amounts still due to the said institutions as remitted by the GSIS under the terms of the deed of assignment. VII The trial court erred in not sentencing defendant-appellee Estanislao Depusoy to pay the attorney's fees equivalent to 10% of the amounts due and the costs of the suit. VIII The trial court erred in not admitting in the evidence proof of the amount actually received by the foreign department of the PNB and the letter of the GSIS to the PNB as part of the rebuttal evidence of the defendant-appellee (see evidences (sic) offered as part of the record on appeal for purposes of review). IX

16

The trial court erred in relying exclusively for its decision on the relation of facts presented by the appellee-Luzon Surety Company; disregarding evidences (sic) presented by the PNB consist of documentary evidences (sic) disclosing patent facts appearing on the face of said documents and that consequently the decision is not based on the real facts and law of the case; and consequently dismissing the case against the Luzon Surety. 7 In due course the Court of Appeals rendered the decision adverted to above. In disposing of the assigned errors, it patiently examined and analyzed the facts and made an extensive, exhaustive and well-reasoned disquisition thereon which We deem necessary to quote: The assignment of error maybe (sic) reduced into one single question, what is the obligation of Luzon under the surety bonds, or, stated otherwise, what obligation had been guaranteed by Luzon under the terms of the surety bonds? It is the contention of the plaintiff that the surety bonds, Exhibits D and E, guaranteed the payment of the loans or the debt of Depusoy to the plaintiff to the extent of P100,000.00. Luzon, however, contends that what it guaranteed was the performance of Depusoy of his obligation under the Deed of Assignment, Exhibit C, and not other agreements between Depusoy and the bank. This contention was upheld by the lower court. This, we believe is the correct construction of the surety bonds. Under the surety bonds, Depusoy and Luzon bound themselves to the plaintiff in the sum of P100,000.00. It recited that the principal, Depusoy, and Luzon bound themselves jointly and severally to the PNB under the following conditions: that "in consideration of a certain loan, Depusoy executed a Deed of Assignment in favor of the PNB on all payments to be received by him from the Bureau of Public Works in connection with a contract of August 6, 1956"; that the PNB required the principal to give a good and sufficient bond to secure the full and faithful performance on his part of said agreement; and that, "if the principal shall well and truly perform and fulfill all the undertakings, covenants, terms and conditions, and agreements stipulated in said agreement, this obligation shall be null and void". Now, what are the undertakings, covenants, terms, conditions, and agreements stipulated in the said agreement or Deed of Assignment? The undertakings of the principal Depusoy, under the Deed of Assignment, Exhibit C, were to assign, transfer, and convey to the plaintiff bank all payments to be received by Depusoy from the Bureau of Public Works; that Depusoy acknowledged that such sums assigned and received by the plaintiff would belong to the PNB, and if any conversion should be made by the assignor or his representative, he would be criminally liable; that the PNB could collect and receive all sums and monies, and payments, and the bank was authorized to endorse for deposit or for encashment all checks or money orders, or negotiable instruments that it might receive in connection with the assignment. Nowhere in the Deed of Assignment nor in the bonds did Luzon guarantee that Depusoy would pay his indebtedness to the plaintiff and that upon Depusoy's default, Luzon would be liable. When the terms of the agreement are clear, there can be no room for construction. If the intention of the parties, and particularly of Luzon, was to guarantee the payment of the debt of Depusoy to the plaintiff, the bonds would have recited in its preamble that the principal was indebted to the PNB and that the PNB required the principal to give a good and sufficient bond to secure the faithful performance on his part of the terms of the promissory notes. Instead of doing so, it recited that in consideration of a certain loan, the principal had executed a Deed of Assignment. The recital of the loan in the amount of P40,000.00, Exhibit D and P60,000.00, Exhibit E, is merely a statement of the cause or consideration of the Deed of Assignment and not a statement of the obligation. The Deed of Assignment necessarily was executed for a consideration, otherwise, it would be null and void. The obligation recited in the surety bonds, Exhibits D and E, is not the loan, but the Deed of Assignment; and that precisely was what was guaranteed by Luzon in the bonds, Exhibits D and E, as shown by the following: 1) Contrary to the usual practice of the plaintiff, Luzon did not sign the promissory notes, Exhibits A and B; 2) Although the resolutions of the Board of Directors required that the surety should make a deposit of P10,000.00, Luzon did not make such a deposit, the verbal testimony of Delfin Santiago, Manager of the Loans and Discounts Department, to the contrary notwithstanding. The documentary evidence was submitted to prove that was the fact;

3) Delfin Santiago finally admitted that what was guaranteed was not the loan but the Deed of Assignment. Delfin Santiago testified as follows: Q Did you inform the Luzon Surety Company, Inc. of your actuation on this fact, that is in your giving Mr. Depusoy portions of the payments made by the GSIS to the Philippine National Bank pursuant to the Deed of Assignment? A No, because I understand that the Luzon Surety Company, Inc. stands as surety on that assignment on which the full payment of the contract is assigned to the payments. (TSN, p. 54) xxx xxx xxx Q Usually Mr. Santiago, it is the practice of the Philippine National Bank in cases where a surety company guarantees the account of the borrower, the Philippine National Bank requires the surety company to sign the promissory note as a co-maker, is it not? A In case the condition is approved, the surety I remember very well, the last accommodation given to Mr. Depusoy . . . that was the condition, but the Luzon Surety Company, Inc. did not want to sign, so at the request of the Luzon Surety Company, Inc. and Mr. Depusoy, the approved accommodation was modified in such a way as only to the surety bond. ATTY. NERI: If Your Honor please. We object to the question, it was not covered by the direct examination. COURT: Answer. A Well, apparently that was the intention because you decided to sign jointly and severally the promissory note. Q And because that was our intention the Philippine National Bank agreed to that desire of Luzon Surety Company, Inc. by issuing only a similar surety bond and not signing as co-maker, and jointly and severally on the promissory note? ATTY. NERI: Objection Your Honor, the contract is the best evidence. COURT: Answer.

17

A As usual, as at the beginning, we take it that your bonding the Deed of Assignment is the understanding that all payments for the whole contract will go to us. (TSN, pp. 55-57, July 21, 1958) xxx xxx xxx Q Did you read the terms of the bond? A Yes, sir, that's right. Q And you further noted in the bond it merely guaranteed the deed of assignment, is that correct? of Mr. Depusoy? A Yes, sir. ATTY. CRUZ: And not this particular loan, is it not? ATTY. NERI: We refer to the document, Your Honor. COURT: Sustained. (TSN, pp. 9-10, June 26, 1959) xxx xxx xxx ATTY. NERI: Now, Mr. Depusoy in his testimony stated that when you received these amounts from the GSIS and issued credit memos . . . in favor of Mr. Depusoy, you did not notify the Luzon Surety Company, Inc. of the fact of the issuance of this (sic) credit memos in favor of Mr. Depusoy will you state to this Honorable Court the reason why is that you did not give notice to the Luzon Surety Company, Inc.? A I did not notify the Luzon Surety Company, Inc. of this transaction because the bond filed by the Luzon Surety Company, Inc., but the terms of the bond filed by Luzon Surety Company is that they understand the transaction of Mr. Depusoy with the Philippine National Bank. COURT: They understand the transaction to be. . . WITNESS: . . . The nature of the transaction with Mr. Depusoy in the sense that as we . . . as appearing in this bond Exhibit D . . . all payments to be received by him from the Bureau of Public Works in connection with the contract to secure the full and faithfully performance on his part of the said agreement, the agreement referred to

is the assignment of payment in connection with the contract of Mr. Depusoy with the GSIS. (TSN, pp. 27-29 June 1, 1959) In support of his contention that the surety bond was intended to guarantee the loan, the appellant gave the following grounds or reasons: 1) The resolution of the Board of Directors of the plaintiff approving the loan or credit accommodation to Depusoy required that Depusoy should put up a bond executed by the Luzon Surety Company, Inc., Exhibits K-3, K-4 and K-5. The resolutions of the Board of Directors were unilateral acts of the plaintiff and were conditions imposed upon the debtor, Depusoy, Luzon was not a party to these resolutions and under the rule of res inter alios acta, they cannot bind or prejudice Luzon in the absence of evidence that the terms of the resolutions had been brought to the attention of Luzon and that it had acceded thereto. All that the bond stated is that the PNB required the principal to give a good and sufficient bond. There can be no other consideration for the execution of the bonds other than stated thereon in the absence of allegation that they did not express the true intention of the parties. 2) Appellant contends that the promissory notes and the building contract mentioned in the Deed of Assignment became part and parcel of the Deed of Assignment under the principle of incorporation by reference. We agree that the Deed of Assignment became part and parcel of the bond, but to say that all promissory notes, overdrafts, and any other kind of documents which the PNB might require the assignor to execute to evidence the aforementioned obligation were also incorporated by reference to the surety bond and became obligation of Luzon is to include in the assignment, covenants and obligations beyond the contemplation of the parties. The appellant relies on the last paragraph of the Deed of Assignment which reads: "This assignment shall be irrevocable and subject to the terms and conditions of the promissory notes, overdrafts, and any other kind of document which the PNB can require or may require the assignor to execute to evidence the above-mentioned obligation". It is argued that under this stipulation, Luzon guaranteed the payment of the promissory notes which are the subject of this action and also the building contract between Depusoy, its principal, and the Bureau of Public Works. This is a very far-fetched construction. This paragraph does not impose any obligation upon Depusoy. All that was required of Depusoy was to execute such documents which might be required by the PNB to evidence the Deed of Assignment. The words of the phrase "subject to" are words of qualification and not of contract (Cox vs. Vat 149, 110 pp. 96-148 CCH 147) and means subject to, meaning under the control, power or dominion or subordinate to and not being words of contract imposing upon defendant no contractual obligation (40 Words & Phrases 386-389). What was evidently intended is the Deed of Assignment when it stated "subject to the terms and conditions of the promissory notes and overdrafts" was that any amount received by the PNB would be applied to the payment of the promissory notes and overdrafts in accordance with their terms and conditions as they fell due because the Deed of Assignment was executed not for the purpose of making the PNB the owner of all the monies received from the GSIS, but as a security for the payment of the debt of Depusoy arising from the credit accommodation granted to him by the appellant. And that this was the intention is evident from the fact that upon receipt of the treasury warrants and checks from the GSIS, the appellant applied the same to the payment of the debt of Depusoy which was due with interest and the remainder was credited to Depusoy's current account. This balance was subject to the free disposal of Depusoy. Hence, out of the over P1 million received by the Loans & Discounts Department of the appellant, almost P800,000.00 were credited to the current account of Depusoy and only a little over P200,000.00 was applied to his debt. Appellant contends that since in the Deed of Assignment, Depusoy undertook to assign, transfer, and convey to PNB all payments to be received by him from his contract with the Bureau of Public Works, Luzon had thereby guaranteed the faithful performance by Depusoy of his

18

building contract with the Bureau of Public Works, and Depusoy having defaulted in his building contract by reason of which the Bureau of Public Works rescinded the building contract, the PNB did not receive from the GSIS the full contract price of over P2 million. This indeed is a very far-fetched construction of the contract. What was transferred or assigned by Depusoy to the PNB were all payments to be received by him under the contract with the Bureau of Public Works. Necessarily, what was to be received by Depusoy depends upon his performance under the contract. As long as he faithfully performed the contract, he would receive from the GSIS the amount due him. From the moment he defaulted and failed to comply with the terms of the contract, he would receive nothing and he could not assign what he did not have. To argue that under the terms of the Deed of Assignment, Luzon also guaranteed the faithful performance of the building contract of Depusoy with the Bureau of Public Works is fanciful and wishful thinking. 3) Appellant also contends that under Exhibits F and I, it can be seen that what was really intended to be guaranteed by the surety agreement was the payment of the loan. We quote Exhibits F and I. Relative to our above-captioned bonds in the amount of P40,000.00 dated May 28, 1956 and September 24, 1956, respectively, please be advised that same is hereby extended for a further period of six (6) months from January 31, 1957. All other terms and conditions of our above-mentioned bonds shall remain the same except the period of expiration herein above mentioned. These bonds also cover the new accommodation given our Principal. Relative to the above numbered bonds, in the amount of P40,000.00 and P60,000.00 dated May 28, 1956 and September 24, 1956, respectively, the account secured thereby having been reduced by virtue of payments made by our principal, which, according to him has but a balance of P75,000.00 we have the honor to inform you that we are agreeable to the extension of further credit to our principal to the extent of the amount of the said bonds, under the same terms and conditions thereof. At first glance, from the statement in Exhibit F, which reads: "This bond also covers the new accommodation given our principal", and in Exhibit I, that "we are agreeable to the extension of further credit to or principal to the extent of the amount of the said bond", it would appear that Luzon was referring to the obligation of Depusoy to pay the loan. But particular attention must be paid to the statement in Exhibit F that "all of the terms and conditions of our above-mentioned bonds shall remain the same except the period of expiration herein below mentioned". What was really agreed by Luzon was the extension of the duration of the surety bond, for under the terms of the bonds they expired six months from their respective dates. Any statement in Exhibit I that may be construed as referring to the debt of Depusoy was made only by an Asst. Manager who evidently was not familiar with the terms of the surety bond. It must be noted that the surety bond was executed by CS Rodriguez, General Manager. Moreover, it cannot prevail over the testimony of Delfin Santiago, Manager of the Loans & Discounts Department, that what was guaranteed by the surety bond was the Deed of Assignment. It is also contended that if what was intended to be guaranteed by Luzon is the Deed of Assignment, the surety bond guaranteed nothing, because with the execution of the Deed of Assignment, nothing thereafter remained to be done. This is not true, for the terms of the Deed of Assignment, Depusoy authorized the PNB to receive all monies due from the Bureau of Public Works and to endorse for deposit all instruments of credit that might be issued in connection with the payments therein assigned. Under this stipulation, Luzon guaranteed that all the monies due Depusoy under his building contract with the Bureau of Public Works should be paid to the PNB. It is true that all the checks and warrants issued by the GSIS were to be made payable to the PNB. But under the arrangement between the PNB, GSIS, and the Bureau of Public Works, and Depusoy, it was Depusoy who received the warrants or checks either from the Bureau of Public Works or from the GSIS, and Depusoy delivered the same to the PNB. The PNB did not take the trouble of going to the GSIS or the Bureau of Public Works to get the checks. One reason because the PNB did not know when any amount would be due. There is nothing then that could prevent an arrangement thereafter between Depusoy and the GSIS, or the Bureau of Public Works to make the checks payable to Depusoy, and Depusoy from forging the signature of the

PNB and appropriating the money. This would be a violation of the Deed of Assignment for which Luzon would be liable. It is not disputed that no payment was made directly to Depusoy after the Deed of Assignment. All amounts due to Depusoy were paid to the PNB for the account of Depusoy. It is true that in accordance with Exhibit M, only P1,063,408.91 were received by the Loans and Discounts Department of the plaintiff bank, and that of the total amount of P1,309,461.89 paid by the GSIS, P246,062.98 were paid for the importation of construction materials. As to the so-called 10% retention fund, there is no evidence that the Bureau of Public Works had retained any amount. In any case what was assigned was "all payments to be received" under the building contract, and the 10% retention was not to be received by Depusoy until certain conditions had been met. In its eight assignment of error, the appellant contends that the lower court in not admitting proof of the amount actually received by the PNB and the letter of the GSIS, Exhibit Q (sic). Aside from the purely technical reason for their rejection, their admission cannot affect the result. Exhibit Q is a letter of the General Manager of the GSIS to plaintiff advising plaintiff of the rescission of the building contract. Exhibits Q, P, P-1 and P-2 are statements of the amounts received by plaintiff's foreign department. There is no evidence that the GSIS had paid any amount to Depusoy in violation of the Deed of Assignment. Not a single cent had been received directly by Depusoy from the GSIS or the Bureau of Public Works. xxx xxx xxx We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulation of the parties should be given effect. 8

having been denied by the respondent Court of Appeals in its resolution of 1 February 1971, petitioner filed the instant petition on 3 March 1971 asserting therein that:
Its motion for reconsideration 9
10

. . . the Decision and the Resolution of respondent COURT (Annexes A and B) are both not in accord with the evidence, the law, and jurisprudence on the matter. I. THE SURETY BONDS COVER THE PRINCIPAL LOANS, THE SURETY THEREBY BECOMING LIABLE UPON DEFAULT OF THE LATTER. II. EVEN ASSUMING ARGUENDO THAT THE BONDS SECURE ONLY THE DEED OF ASSIGNMENT, STILL THE SURETY IS LIABLE FOR FAILURE OF THE PRINCIPAL TO COMPLY WITH THE TERMS OF SUCH DEED. III. THE DISPOSITIVE PORTION OF THE DECISION SHOULD BE AMENDED TO THE END THAT PRIVATE RESPONDENT RESPONDENTS BE ADJUDGED LIABLE FOR ATTORNEY'S FEES. 11 In support of its petition, petitioner practically summoned the same arguments which it relied upon before the Court of Appeals.

On 3 March 1971 private respondent filed a motion to dismiss the petition 1. That the petition is without merit;

12

on the following grounds:

19

2. That the question raised therein are too unsubstantial to require consideration; and 3. That the question raised are factual. In the resolution of 8 March 1971 this Court dismissed the petition for being factual and for lack of merit; 13however,
14 15 16

As earlier adverted to, there is merit in the third assigned error. The paragraph immediately preceding the decretal portion of the decision of respondent Court of Appeals reads as follows: We agree with the appellant that the trial court erred in not sentencing Estanislao Depusoy to pay attorney's fees equivalent to 10% of the amount due. This is expressly provided for in the promissory notes, and as it does not appear to be unreasonable, the stipulation of the parties should be given effect. The dispositive portion of the questioned decision should then be modified in the sense that the "10% interest" indicated therein should be considered and understood as and for attorney's fees. WHEREFORE, with the above modification, the Decision of the Court of Appeals of 12 December 1970 in CA-G.R.No. 36615-R is AFFIRMED, with costs against petitioner. SO ORDERED.

upon motion for reconsideration this Court reconsidered the resolution and gave due course to the petition. The petitioner was then required to submit its Brief, which it complied with on 12 July 1971 . Private respondent LSCI filed its brief on 10 August 1971. Private respondent Depusoy did not file any.
17 18

Except for the third assigned error, We find no merit in this petition. The issues raised are factual. The findings of facts of the Court of Appeals can withstand the most incisive scrutiny. They are sufficiently supported by the evidence on record and the conclusions drawn therefrom do not justify a departure from the deeply rooted and well settled doctrine that findings of facts of the Court of Appeals are conclusive on this Court,19

recognized exceptions thereto

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considering that the do not come to the rescue of petitioner.

Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.

We are in full accord with the conclusion of the trial court and the Court of Appeals that the bonds executed by private respondent LSCI were to guarantee the faithful performance of Depusoy of his obligation under the Deed of Assignment and not to guarantee the payment of the loans or the debt of Depusoy to petitioner to the extent of P100,000.00. The language of the bonds is clear, explicit and unequivocal. It leaves no room for interpretation. Article 1370 of the Civil Code provides: 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. Besides, even if there had been any doubt on the terms and conditions of the surety agreement, the doubt should be resolved in favor of the surety. As concretely put in Article 2055 of the Civil Code, "A guaranty is not presumed, it must be expressed and cannot extend to more than what is stipulated therein."

(6) TOMAS ANG, Petitioner, - versus ASSOCIATED BANK AND ANTONIO ANG ENG LIONG, Respondents.

G.R. No. 146511

Promulgated: September 5, 2007

DECISION AZCUNA, J.:


This petition for certiorari under Rule 45 of the Rules on Civil Procedure seeks to review [1] [2] the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in [3] CA-G.R. CV No. 53413 which reversed and set aside the January 5, 1996 Decision of the Regional Trial Court, Branch 16, Davao City, in Civil Case No. 20,299-90, dismissing the complaint filed by respondents for collection of a sum of money. On August 28, 1990, respondent Associated Bank (formerly Associated Banking Corporation and now known as United Overseas Bank Philippines) filed a collection suit against Antonio Ang Eng Liong and petitioner Tomas Ang for the two (2) promissory notes that they executed as principal debtor and co-maker, respectively. In the Complaint, respondent Bank alleged that on October 3 and 9, 1978, the defendants obtained a loan of P50,000, evidenced by a promissory note bearing PN-No. DVO-78382, and P30,000, evidenced by a promissory note bearing PN-No. DVO-78-390. As agreed, the loan would be payable, jointly and severally, on January 31, 1979 andDecember 8, 1978, [5] respectively. In addition, subsequent amendments to the promissory notes as well as the [6] disclosure statements stipulated that the loan would earn 14% interest rate per annum, 2% service charge per annum, 1% penalty charge per month from due date until fully paid, and attorneys fees equivalent to 20% of the outstanding obligation. Despite repeated demands for payment, the latest of which were on September 13, 1988 and September 9, 1986, on Antonio Ang Eng Liong and Tomas Ang, respectively, respondent
[4]

We reiterated the unrippled rule that the liability of the surety is measured by the terms of the contract, and, while he is liable to the full extent thereof, such liability is strictly limited to that assumed by its terms.
In the recent case of Umali, et al. vs. Court of Appeals, et al., 21
22

In La Insular vs. Machuca Go Tanco, et al., supra., this Court held: It is undoubtedly true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligations of the surety cannot be extended by implication beyond its specified limits. Article 1827 of the Civil Code so discloses (Uy Aloc vs. Cho Jan Ling, 27 Phil. Rep., 427); and with this doctrine the common law is accordant. As was said by Justice Story in Miller vs. Stewart (9 Wheat. 680; 6 L. ed., 189): Nothing can be clearer, both upon principles and authority, than the doctrine that the liability of a surety is not to be extended, by implication, beyond the terms of his contract. To the extent and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther.

20

Bank claimed that the defendants failed and refused to settle their obligation, resulting in a total indebtedness of P539,638.96 as of July 31, 1990, broken down as follows:
PN-No. DVO-78-382 P50,000.00 Past due charges for 4,199 days (from 01-31-79 to 07-31-90) P203,538.98 P11,663.89 P69,983.34 P285,186.21 P500.00 P334,686.21
[7]

plus P30,000, P20,000 and P50,000 for moral and exemplary damages, and attorneys fees, respectively. In its Reply, respondent Bank countered that it is the real party in interest and is the holder of the notes since the Associated Banking Corporation and Associated Citizens Bank are its predecessors-in-interest. The fact that Tomas Ang never received any moneys in consideration of the two (2) loans and that such was known to the bank are immaterial because, as an accommodation maker, he is considered as a solidary debtor who is primarily liable for the payment of the promissory notes. Citing Section 29 of the Negotiable Instruments Law (NIL), the bank posited that absence or failure of consideration is not a matter of defense; neither is the fact that the holder knew him to be only an accommodation party. Respondent Bank likewise retorted that the promissory notes were completely filled up at the time of their delivery. Assuming that such was not the case, Sec. 14 of the NIL provides that the bank has the prima facie authority to complete the blank form. Moreover, it is presumed that one who has signed as a maker acted with care and had signed the document with full knowledge of its content. The bank noted that Tomas Ang is a prominent businessman in Davao City who has been engaged in the auto parts business for several years, hence, certainly he is not so nave as to sign the notes without knowing or bothering to verify the amounts of the loans covered by them. Further, he is already in estoppel since despite receipt of several demand letters there was not a single protest raised by him that he signed for only one note in the amount of P30,000. It was denied by the bank that there were extensions of time for payment accorded to Antonio Ang Eng Liong. Granting that such were the case, it said that the same would not relieve Tomas Ang from liability as he would still be liable for the whole obligation less the share of his codebtor who received the extended term. The bank also asserted that there were no additional or new stipulations imposed other than those agreed upon. The penalty charge, service charge, and attorneys fees were reflected in the amendments to the promissory notes and disclosure statements. Reference to the Usury Law was misplaced as usury is legally non-existent; at present, interest can be charged depending on the agreement of the lender and the borrower. Lastly, the bank contended that the provisions on presentment for payment and notice of dishonor were expressly waived by Tomas Ang and that such waiver is not against public policy pursuant to Sections 82 (c) and 109 of the NIL. In fact, there is even no necessity therefor since being a solidary debtor he is absolutely required to pay and primarily liable on both promissory notes. On October 19, 1990, the trial court issued a preliminary pre-trial order directing the [10] parties to submit their respective pre-trial guide. When Antonio Ang Eng Liong failed to submit [11] his brief, the bank filed an ex-parte motion to declare him in default. Per Order of November 23, 1990, the court granted the motion and set the ex-parte hearing for the presentation of the banks [12] [13] evidence. Despite Tomas Angs motion to modify the Order so as to exclude or cancel the exparte hearing based on then Sec. 4, Rule 18 of the old Rules of Court (now Sec. 3[c.], Rule 9 of the [14] Revised Rules on Civil Procedure), the hearing nonetheless proceeded.
[9]

Outstanding Balance Add 14% Interest 2% Service Charge 12% Overdue Charge Total Less: Charges paid Amount Due

PN-No. DVO-78-390 P30,000.00 Past due charges for 4,253 days (from 12-8-78 to 07-31-90) P125,334.41 P7,088.34 P42,530.00 P174,952.75 None P204,952.75

In his Answer, Antonio Ang Eng Liong only admitted to have secured a loan amounting to P80,000. He pleaded though that the bank be ordered to submit a more reasonable computation considering that there had been no correct and reasonable statement of account sent to him by the bank, which was allegedly collecting excessive interest, penalty charges, and attorneys fees despite knowledge that his business was destroyed by fire, hence, he had no source of income for several years. For his part, petitioner Tomas Ang filed an Answer with Counterclaim and Cross[8] claim. He interposed the affirmative defenses that: the bank is not the real party in interest as it is not the holder of the promissory notes, much less a holder for value or a holder in due course; the bank knew that he did not receive any valuable consideration for affixing his signatures on the notes but merely lent his name as an accommodation party; he accepted the promissory notes in blank, with only the printed provisions and the signature of Antonio Ang Eng Liong appearing therein; it was the bank which completed the notes upon the orders, instructions, or representations of his co-defendant; PN-No. DVO-78-382 was completed in excess of or contrary to the authority given by him to his co-defendant who represented that he would only borrow P30,000 from the bank; his signature in PN-No. DVO-78-390 was procured through fraudulent means when his codefendant claimed that his first loan did not push through; the promissory notes did not indicate in what capacity he was intended to be bound; the bank granted his co-defendant successive extensions of time within which to pay, without his (Tomas Ang) knowledge and consent; the bank imposed new and additional stipulations on interest, penalties, services charges and attorneys fees more onerous than the terms of the notes, without his knowledge and consent, in the absence of legal and factual basis and in violation of the Usury Law; the bank caused the inclusion in the promissory notes of stipulations such as waiver of presentment for payment and notice of dishonor which are against public policy; and the notes had been impaired since they were never presented for payment and demands were made only several years after they fell due when his co-defendant could no longer pay them. Regarding his counterclaim, Tomas Ang argued that by reason of the banks acts or omissions, it should be held liable for the amount of P50,000 for attorneys fees and expenses of litigation. Furthermore, on his cross-claim against Antonio Ang Eng Liong, he averred that he should be reimbursed by his co-defendant any and all sums that he may be adjudged liable to pay,

21

Eventually, a decision was rendered by the trial court on February 21, 1991. For his supposed bad faith and obstinate refusal despite several demands from the bank, Antonio Ang Eng Liong was ordered to pay the principal amount of P80,000 plus 14% interest per annum and 2% service charge per annum. The overdue penalty charge and attorneys fees were, however, reduced for being excessive, thus: WHEREFORE, judgment is rendered against defendant Antonio Ang Eng Liong and in favor of plaintiff, ordering the former to pay the latter: On the first cause of action: 1) the amount of P50,000.00 representing the principal obligation with 14% interest per annum from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid; P11,663.89 as accrued service charge; and P34,991.67 as accrued overdue penalty charge On the second cause of action: 1) the amount of P50,000.00 (sic) representing the principal account with 14% interest from June 27, 1983 with 2% service charge and 6% overdue penalty charges per annum until fully paid; P7,088.34 representing accrued service charge; P21,265.00 as accrued overdue penalty charge; the amount of P10,000.00 as attorneys fees; and the amount of P620.00 as litigation expenses and to pay the costs. SO ORDERED.
[16]

[15]

by the banks actions, he is now precluded from asserting his cross -claim against Antonio Ang Eng Liong, upon whom a final and executory judgment had already been issued.

The court denied the motion as well as the motion for reconsideration thereon. Tomas Ang subsequently filed a petition for certiorari and prohibition before this Court, which, however, [22] resolved to refer the same to the Court of Appeals. In accordance with the prayer of Tomas Ang, the appellate court promulgated its Decision on January 29, 1992 in CA G.R. SP No. 26332, which annulled and set aside the portion of the Order dated November 23, 1990 setting the exparte presentation of the banks evidence against Antonio Ang Eng Liong, the Decision dated February 21, 1991 rendered against him based on such evidence, and the Writ of Execution issued [23] on April 5, 1991. Trial then ensued between the bank and Tomas Ang. Upon the latters motion during the pre-trial conference, Antonio Ang Eng Liong was again declared in default for his failure to answer [24] the cross-claim within the reglementary period. When Tomas Ang was about to present evidence in his behalf, he filed a Motion for [25] Production of Documents, reasoning: xxx 2. That corroborative to, and/or preparatory or incident to his testimony[,] there is [a] need for him to examine original records in the custody and possession of plaintiff, viz:

[21]

) 3)

2) 3) 4) 5)

a. b. c. d.

original Promissory Note (PN for brevity) # DVO-78-382 dated October 3, 1978[;] original of Disclosure Statement in reference to PN # DVO-78-382; original of PN # DVO-78-390 dated October 9, 1978; original of Disclosure Statement in reference to PN # DVO-78-390;

The decision became final and executory as no appeal was taken therefrom. Upon the banks ex[17] parte motion, the court accordingly issued a writ of execution on April 5, 1991.

Thereafter, on June 3, 1991, the court set the pre-trial conference between the bank and [18] [19] Tomas Ang, who, in turn, filed a Motion to Dismiss on the ground of lack of jurisdiction over the case in view of the alleged finality of the February 21, 1991 Decision. He contended that Sec. 4, Rule 18 of the old Rules sanctions only one judgment in case of several defendants, one of whom [20] is declared in default. Moreover, in his Supplemental Motion to Dismiss, Tomas Ang maintained that he is released from his obligation as a solidary guarantor and accommodation party because,

e. Statement or Record of Account with the Associated Banking Corporation or its successor, of Antonio Ang in CA No. 470 (cf. Exh. O) including bank records, withdrawal slips, notices, other papers and relevant dates relative to the overdraft of Antonio Eng Liong in CA No. 470; f. Loan Applications of Antonio Ang Eng Liong or borrower relative to PN Nos. DVO-78-382 and DVO-78-390 (supra);

22

g.

Other supporting papers and documents submitted by Antonio Ang Eng Liong relative to his loan application vis--vis PN. Nos. DVO-78-382 and DVO-78-390 such as financial statements, income tax returns, etc. as required by the Central Bank or bank rules and regulations. 3. That the above matters are very material to the defenses of defendant Tomas Ang, viz: the bank is not a holder in due course when it accepted the [PNs] in blank.

The real borrower is Antonio Ang Eng Liong which fact is known to the bank. That the PAYEE not being a holder in due course and knowing that defendant Tomas Ang is merely an accommodation party, the latter may raise against such payee or holder or successor-in-interest (of the notes) PERSONAL and EQUITABLE DEFENSES such as FRAUD in INDUCEMENT, DISCHARGE ON NOTE, Application of [Articles] 2079, 2080 and 1249 of the Civil Code, NEGLIGENCE in delaying collection despite Eng Liongs OVERDRAFT in C.A. No. 470, etc. [26] In its Order dated May 16, 1994, the court denied the motion stating that the promissory notes and the disclosure statements have already been shown to and inspected by Tomas Ang during the trial, as in fact he has already copies of the same; the Statements or Records of Account of Antonio Ang Eng Liong in CA No. 470, relative to his overdraft, are immaterial since, pursuant to the previous ruling of the court, he is being sued for the notes and not for the overdraft which is personal to Antonio Ang Eng Liong; and besides its non-existence in the banks records, there would be legal obstacle for the production and inspection of the income tax return of Antonio Ang Eng Liong if done without his consent. When the motion for reconsideration of the aforesaid Order was denied, Tomas Ang filed a petition for certiorari and prohibition with application for preliminary injunction and restraining order [28] before the Court of Appeals docketed as CA G.R. SP No. 34840. On August 17, 1994, however, [29] the Court of Appeals denied the issuance of a Temporary Restraining Order. Meanwhile, notwithstanding its initial rulings that Tomas Ang was deemed to have waived his right to present evidence for failure to appear during the pendency of his petition before the Court [30] of Appeals, the trial court decided to continue with the hearing of the case. After the trial, Tomas Ang offered in evidence several documents, which included a copy of the Trust Agreement between the Republic of the Philippines and the Asset Privatization Trust, as certified by the notary public, and news clippings from the Manila Bulletin dated May 18, [31] 1994 and May 30, 1994. All the documentary exhibits were admitted for failure of the bank to [32] submit its comment to the formal offer. Thereafter, Tomas Ang elected to withdraw his petition in [33] CA G.R. SP No. 34840 before the Court of Appeals, which was then granted. On January 5, 1996, the trial court rendered judgment against the bank, dismissing the [34] complaint for lack of cause of action. It held that:
[27]

Exh. 9 and its [sub-markings], the Trust Agreement dated 27 February 1987 for the defense shows that: the Associated Bank as of June 30, 1986 is one of DBPs or Development Bank of the [Philippines] non-performing accounts for transfer; on February 27, 1987 through Deeds of Transfer executed by and between the Philippine National Bank and Development Bank of the Philippines and the National Government, both financial institutions assigned, transferred and conveyed their non-performing assets to the National Government; the National Government in turn and as TRUSTOR, transferred, conveyed and assigned by way of trust unto the Asset Privatization Trust said non-performing assets, [which] took title to and possession of, [to] conserve, provisionally manage and dispose[,] of said assets identified for privatization or disposition; one of the powers and duties of the APT with respect to trust properties consisting of receivables is to handle the administration, collection and enforcement of the receivables; to bring suit to enforce payment of the obligations or any installment thereof or to settle or compromise any of such obligations, or any other claim or demand which the government may have against any person or persons[.] The Manila Bulletin news clippings dated May 18, 1994 and May 30, 1994, Exh. 9-A, 9B, 9-C, and 9-D, show that the Monetary Board of the Bangko Sentral ng Pilipinas approved the rehabilitation plan of the Associated Bank. One main feature of the rehabilitation plan included the financial assistance for the bank by the Philippine Deposit Insurance Corporation (PDIC) by way of the purchase of AB Assets worth P1.3945 billion subject to a buy-back arrangement over a 10 year period. The PDIC had approved of the rehab scheme, which included the purchase of ABs bad loans worthP1.86 at 25% discount. This will then be paid by AB within a 10-year period plus a yield comparable to the prevailing market rates x x x. Based then on the evidence presented by the defendant Tomas Ang, it would readily appear that at the time this suit for Sum of Money was filed which was on August [28], 1990, the notes were held by the Asset Privatization Trust by virtue of the Deeds of Transfer and Trust Agreement, which was empowered to bring suit to enforce payment of the obligations. Consequently, defendant Tomas Ang has sufficiently established that plaintiff at the time this suit was filed was not the holder of the notes to warrant the dismissal of the complaint. [35]

Respondent Bank then elevated the case to the Court of Appeals. In the appellants brief captioned, ASSOCIATED BANK, Plaintiff-Appellant versus ANTONIO ANG ENG LIONG and TOMAS ANG, Defendants, TOMAS ANG, Defendant-Appellee, the following errors were alleged: I. THE LOWER COURT ERRED IN NOT HOLDING DEFENDANT ANTONIO ANG ENG LIONG AND DEFENDANT-APPELLEE TOMAS ANG LIABLE TO PLAINTIFF-APPELLANT ON THEIR UNPAID LOANS DESPITE THE LATTERS DOCUMENTARY EXHIBITS PROVING THE SAID OBLIGATIONS. II.

23

THE LOWER COURT ERRED IN DISMISSING PLAINTIFF-APPELLANTS COMPLAINT ON THE BASIS OF NEWSPAPER CLIPPINGS WHICH WERE COMPLETELY HEARSAY IN CHARACTER AND IMPROPER FOR JUDICIAL NOTICE.[36] The bank stressed that it has established the causes of action outlined in its Complaint by a preponderance of evidence. As regards the Deed of Transfer and Trust Agreement, it contended that the same were never authenticated by any witness in the course of the trial; the Agreement, which was not even legible, did not mention the promissory notes subject of the Complaint; the bank is not a party to the Agreement, which showed that it was between the Government of the Philippines, acting through the Committee on Privatization represented by the Secretary of Finance as trustor and the Asset Privatization Trust, which was created by virtue of Proclamation No. 50; and the Agreement did not reflect the signatures of the contracting parties. Lastly, the bank averred that the news items appearing in the Manila Bulletin could not be the subject of judicial notice since [37] they were completely hearsay in character. On October 9, 2000, the Court of Appeals reversed and set aside the trial courts ruling. [38] The dispositive portion of the Decision reads WHEREFORE, premises considered, the Decision of the Regional Trial Court of Davao City, Branch 16, in Civil Case No. 20,299-90 is hereby REVERSED AND SET ASIDE and another one entered ordering defendant-appellee Tomas Ang to pay plaintiff-appellant Associated Bank the following:

In answering the lone issue, the Court of Appeals held that the bank is a holder under Sec. 191 of the NIL. It concluded that despite the execution of the Deeds of Transfer and Trust Agreement, the Asset Privatization Trust cannot be declared as the holder of the subject promissory notes for the reason that it is neither the payee or indorsee of the notes in possession thereof nor is it the bearer of said notes. The Court of Appeals observed that the bank, as the payee, did not indorse the notes to the Asset Privatization Trust despite the execution of the Deeds of Transfer and Trust Agreement and that the notes continued to remain with the bank until the institution of the collection suit. With the bank as the holder of the promissory notes, the Court of Appeals held that Tomas Ang is accountable therefor in his capacity as an accommodation party. Citing Sec. 29 of the NIL, he is liable to the bank in spite of the latters knowledge, at the time of taking the notes, that he is only an accommodation party. Moreover, as a co-maker who agreed to be jointly and severally liable on the promissory notes, Tomas Ang cannot validly set up the defense that he did not receive any consideration therefor as the fact that the loan was granted to the principal debtor already constitutes a sufficient consideration. Further, the Court of Appeals agreed with the bank that the experience of Tomas Ang in business rendered it implausible that he would just sign the promissory notes as a co-maker without even checking the real amount of the debt to be incurred, or that he merely acted on the belief that the first loan application was cancelled. According to the appellate court, it is apparent that he was negligent in falling for the alibi of Antonio Ang Eng Liong and such fact would not serve to exonerate him from his responsibility under the notes. Nonetheless, the Court of Appeals denied the claims of the bank for service, penalty and overdue charges as well as attorneys fees on the ground that the promissory notes made no mention of such charges/fees. In his motion for reconsideration, as follows: xxx 2) Related to the above jurisdictional issues, defendant-appellee Tomas Ang has recently discovered that upon the filing of the complaint on August 28, 1990, under the jurisdictional rule laid down in BP Blg. 129, appellant bank fraudulently failed to specify the amount of compounded interest at 14% per annum, service charges at 2% per annum and overdue penalty charges at 12% per annum in the prayer of the complaint as of the time of its filing, paying a total of only P640.00(!!!) as filing and court docket fees although the total sum involved as of that time was P647,566.75 including 20% attorneys fees. In fact, the stated interest in the body of the complaint alone amount to P328,373.39 (which is actually compounded and capitalized) in both causes of action and the total service and overdue penalties and charges and attorneys fees further amount to P239,193.36 in both causes of action, as of July 31, 1990, the time of filing of the complaint. Significantly, appellant fraudulently misled the Court, describing the 14% imposition as interest, when in fact the same was capitalized as principal by appellant bank every month to earn more interest, as stated in the notes. In view thereof, the trial court never acquired jurisdiction over the case and the same may not be now corrected by the filing of deficiency fees because the causes of action had already
[40]

1. P50,000.00 representing the principal amount of the loan under PN-No. DVO-78-382 plus 14% interest thereon per annum computed from January 31, 1979 until the full amount thereof is paid; 2. P30,000.00 representing the principal amount of the loan under PN-No. DVO-78-390 plus 14% interest thereon per annum computed from December 8, 1978 until the full amount thereof is paid; All other claims of the plaintiff-appellant are DISMISSED for lack of legal basis. Defendant-appellees counterclaim is likewise DISMISSED for lack of legal and factual bases. No pronouncement as to costs. SO ORDERED.[39] The appellate court disregarded the banks first assigned error for being irrelevant in the final determination of the case and found its second assigned error as not meritorious. Instead, it posed for resolution the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action as the bank was said to be not the holder of the notes at the time the collection case was filed.

Tomas Ang raised for the first time the assigned errors

24

prescribed and more importantly, the jurisdiction of the Municipal Trial Court had been increased to P100,000.00 in principal claims last March 20, 1999, pursuant to SC Circular No. 21-99, section 5 of RA No. 7691, and section 31, Book I of the 1987 Administrative Code. In other words, as of today, jurisdiction over the subject falls within the exclusive jurisdiction of the MTC, particularly if the bank foregoes capitalization of the stipulated interest. 3) BY FAILING TO GIVE NOTICE OF ITS APPEAL AND APPEAL BRIEF TO APPELLEE ANG ENG LIONG, THE APPEALED JUDGMENT OF THE TRIAL COURT WHICH LEFT OUT TOMAS ANGS CROSS-CLAIM AGAINST ENG LIONG (BECAUSE IT DISMISSED THE MAIN CLAIM), HAD LONG BECOME FINAL AND EXECUTORY, AS AGAINST ENG LIONG. Accordingly, Tomas Angs right of subrogation against Ang Eng Liong, expressed in his cross-claim, is now SEVERAL TIMES foreclosed because of the fault or negligence of appellant bank since 1979 up to its insistence of an ex-parte trial, and now when it failed to serve notice of appeal and appellants brief upon him. Accordingly, appellee Tomas Ang should be released from his suretyship obligation pursuant to Art. 2080 of the Civil Code. The above is related to the issues above-stated. This Court may have erred in ADDING or ASSIGNING its own bill of error for the benefit of appellant bank which defrauded the judiciary by the payment of deficient docket fees.[41] Finding no cogent or compelling reason to disturb the Decision, the Court of Appeals [42] denied the motion in its Resolution dated December 26, 2000. Petitioner now submits the following issues for resolution: 1. Is [A]rticle 2080 of the Civil Code applicable to discharge petitioner Tomas Ang as accommodation maker or surety because of the failure of [private] respondent bank to serve its notice of appeal upon the principal debtor, respondent Eng Liong? 2. 3. Did the trial court have jurisdiction over the case at all? Did the Court of Appeals [commit] error in assigning its own error and raising its own issue?

last demand letter sent to him was dated September 9, 1986, or more than twenty years have elapsed such that prescription had already set in. Consequently, the banks claim must be dismissed as the trial court loses jurisdiction over the case. Petitioner also argues that the Court of Appeals should not have assigned its own error and raised it as an issue of the case, contending that no question should be entertained on appeal unless it has been advanced in the court below or is within the issues made by the parties in the pleadings. At any rate, he opines that the appellate courts decision that the bank is the real party in interest because it is the payee named in the note or the holder thereof is too simplistic since: (1) the power and control of Asset Privatization Trust over the bank are clear from the explicit terms of the duly certified trust documents and deeds of transfer and are confirmed by the newspaper clippings; (2) even under P.D. No. 902-A or the General Banking Act, where a corporation or a bank is under receivership, conservation or rehabilitation, it is only the representative (liquidator, receiver, trustee or conservator) who may properly act for said entity, and, in this case, the bank was held by Asset Privatization Trust as trustee; and (3) it is not entirely accurate to say that the payee who has not indorsed the notes in all cases is the real party in interest because the rights of the payee may be subject of an assignment of incorporeal rights under Articles 1624 and 1625 of the Civil Code. Lastly, petitioner maintains that when respondent Bank served its notice of appeal and appellants brief only on him, it rendered the judgment of the trial court final and executory with respect to Antonio Ang Eng Liong, which, in effect, released him (Antonio Ang Eng Liong) from any and all liability under the promissory notes and, thereby, foreclosed petitioners cross -claims. By such act, the bank, even if it be the holder of the promiss ory notes, allegedly discharged a simple contract for the payment of money (Sections 119 [d] and 122, NIL [Act No. 2031]), prevented a surety like petitioner from being subrogated in the shoes of his principal (Article 2080, Civil Code), and impaired the notes, producing the effect of payment (Article 1249, Civil Code). The petition is unmeritorious. Procedurally, it is well within the authority of the Court of Appeals to raise, if it deems proper under the circumstances obtaining, error/s not assigned on an appealed case. In Mendoza [44] v. Bautista, this Court recognized the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned, thus: As a rule, no issue may be raised on appeal unless it has been brought before the lower tribunal for its consideration. Higher courts are precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal. However, as with most procedural rules, this maxim is subject to exceptions. Indeed, our rules recognize the broad discretionary power of an appellate court to waive the lack of proper assignment of errors and to consider errors not assigned. Section 8 of Rule 51 of the Rules of Court provides: SEC. 8. Questions that may be decided. No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will

4)

4. Are petitioners other real and personal defenses such as successive extensions coupled with fraudulent collusion to hide Eng Liongs default, the payees grant of additional burdens, coupled with the insolvency of the principal debtor, and the defense of incomplete but delivered instrument, meritorious?[43] Petitioner allegedly learned after the promulgation of the Court of Appeals decision that, pursuant to the parties agreement on the compounding of interest with the principal amount (per month in case of default), the interest on the promissory notes as of July 31, 1990 should have been only P81,647.22 for PN No. DVO-78-382 (instead ofP203,538.98) and P49,618.33 for PN No. DVO-78-390 (instead of P125,334.41) while the principal debt as of said date should increase to P647,566.75 (instead of P539,638.96). He submits that the bank carefully and shrewdly hid the fact by describing the amounts as interest instead of being part of either the principal or penalty in order to pay a lesser amount of docket fees. According to him, the total fees that should have been paid at the time of the filing of the complaint on August 28, 1990 was P2,216.30 and not P614.00 or a shortage of 71%. Petitioner contends that the bank may not now pay the deficiency because the

25

be considered, unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. Thus, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors in the appeal in these instances: (a) grounds not assigned as errors but affecting jurisdiction over the subject matter; (b) matters not assigned as errors on appeal but are evidently plain or clerical errors within contemplation of law; (c) matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interests of justice or to avoid dispensing piecemeal justice; (d) matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored; (e) matters not assigned as errors on appeal but closely related to an error assigned; and (f) matters not assigned as errors on appeal but upon which the determination of a question properly assigned is dependent. (Citations omitted)[45] To the Courts mind, even if the Court of Appeals regarded petitioners two assigned errors as irrelevant and not meritorious, the issue of whether the trial court erred in dismissing the complaint for collection of sum of money for lack of cause of action (on the ground that the bank was not the holder of the notes at the time of the filing of the action) is in reality closely related to and determinant of the resolution of whether the lower court correctly ruled in not holding Antonio Ang Eng Liong and petitioner Tomas Ang liable to the bank on their unpaid loans despite documentary exhibits allegedly proving their obligations and in dismissing the complaint based on newspaper clippings. Hence, no error could be ascribed to the Court of Appeals on this point. Now, the more relevant question is: who is the real party in interest at the time of the institution of the complaint, is it the bank or the Asset Privatization Trust? To answer the query, a brief history on the creation of the Asset Privatization Trust is proper. Taking into account the imperative need of formally launching a program for the rationalization of the government corporate sector, then President Corazon C. Aquino issued [46] Proclamation No. 50 on December 8, 1986. As one of the twin cornerstones of the program was to establish the privatization of a good number of government corporations, the proclamation created the Asset Privatization Trust, which would, for the benefit of the National Government, take title to and possession of,
conserve, provisionally manage and dispose of transferred assets that were identified for privatization or disposition. [48] [47]

the non-performing accounts of DBP and PNB, including, among others, the DBPs equity with [49] respondent Bank, were entrusted to the Asset Privatization Trust. As provided for in the Agreement, among the powers and duties of the Asset Privatization Trust with respect to the trust properties consisting of receivables was to handle their administration and collection by bringing suit to enforce payment of the obligations or any installment thereof or settling or compromising any of such obligations or any other claim or demand which the Government may have against any person or persons, and to do all acts, institute all proceedings, and to exercise all other rights, powers, and privileges of ownership that an absolute owner of the properties would otherwise have [50] the right to do. Incidentally, the existence of the Asset Privatization Trust would have expired five (5) [51] years from the date of issuance of Proclamation No. 50. However, its original term was extended [52] from December 8, 1991 up to August 31, 1992, and again from December 31, 1993 until June [53] [54] 30, 1995, and then from July 1, 1995 up to December 31, 1999, and further from January 1, [55] 2000 until December 31, 2000. Thenceforth, the Privatization and Management Office was established and took over, among others, the powers, duties and functions of the Asset [56] Privatization Trust under the proclamation. Based on the above backdrop, respondent Bank does not appear to be the real party in interest when it instituted the collection suit on August 28, 1990 against Antonio Ang Eng Liong and petitioner Tomas Ang. At the time the complaint was filed in the trial court, it was the Asset Privatization Trust which had the authority to enforce its claims against both debtors. In fact, during the pre-trial conference, Atty. Roderick Orallo, counsel for the bank, openly admitted that it was [57] under the trusteeship of the Asset Privatization Trust. The Asset Privatization Trust, which should have been represented by the Office of the Government Corporate Counsel, had the authority to file and prosecute the case. The foregoing notwithstanding, this Court can not, at present, readily subscribe to petitioners insistence that the case must be dismissed. Significantly, it stands without refute, both in the pleadings as well as in the evidence presented during the trial and up to the time this case reached the Court, that the issue had been rendered moot with the occurrence of a supervening event the buy-back of the bank by its former owner, Leonardo Ty, sometime in October 1993. By such re acquisition from the Asset Privatization Trust when the case was still pending in the lower court, the bank reclaimed its real and actual interest over the unpaid promissory notes; hence, it could [58] rightfully qualify as a holder thereof under the NIL. Notably, Section 29 of the NIL defines an accommodation party as a person "who has signed the instrument as maker, drawer, acceptor, or indorser, without receiving value therefor, and for the purpose of lending his name to some other person." As gleaned from the text, an accommodation party is one who meets all the three requisites, viz: (1) he must be a party to the instrument, signing as maker, drawer, acceptor, or indorser; (2) he must not receive value therefor; [59] and (3) he must sign for the purpose of lending his name or credit to some other person. An accommodation party lends his name to enable the accommodated party to obtain credit or to raise money; he receives no part of the consideration for the instrument but assumes liability to the other [60] party/ies thereto. The accommodation party is liable on the instrument to a holder for value even though the holder, at the

In accordance with the provisions of Section 23 of the proclamation, then President Aquino subsequently issued Administrative Order No. 14 on February 3, 1987, which approved the identification of and transfer to the National Government of certain assets (consisting of loans, equity investments, accrued interest receivables, acquired assets and other assets) and liabilities (consisting of deposits, borrowings, other liabilities and contingent guarantees) of the Development Bank of the Philippines (DBP) and the Philippine National Bank (PNB). The transfer of assets was implemented through a Deed of Transfer executed on February 27, 1987 between the National Government, on one hand, and the DBP and PNB, on the other. In turn, the National Government designated the Asset Privatization Trust to act as its trustee through a Trust Agreement, whereby

26

time of taking the instrument, knew him or her to be merely an accommodation party, as if the [61] contract was not for accommodation. As petitioner acknowledged it to be, the relation between an accommodation party and the accommodated party is one of principal and surety the accommodation party being the [62] [63] surety. As such, he is deemed an original promisor and debtor from the beginning; he is considered in law as the same party as the debtor in relation to whatever is adjudged touching the [64] obligation of the latter since their liabilities are interwoven as to be inseparable. Although a contract of suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability to the creditor is immediate, primary and absolute; he is directly and equally bound [65] with the principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to the debt and duty of the principal obligor even without possessing a direct or personal interest in [66] the obligations nor does he receive any benefit therefrom. Contrary to petitioners adamant stand, however, Article 2080 of the Civil Code does not [68] apply in a contract of suretyship. Art. 2047 of the Civil Code states that if a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on joint and solidary obligations) shall govern the relationship of petitioner with the bank. The case of Inciong, Jr. v. CA
[69] [67]

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship." (Italics supplied.) While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: "A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of rights of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code." Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. (Citations omitted)[70] In the instant case, petitioner agreed to be jointly and severally liable under the two promissory notes that he co-signed with Antonio Ang Eng Liong as the principal debtor. This being so, it is completely immaterial if the bank would opt to proceed only against petitioner or Antonio Ang Eng Liong or both of them since the law confers upon the creditor the prerogative to choose whether to enforce the entire obligation against any one, some or all of the debtors. Nonetheless, petitioner, as an accommodation party, may seek reimbursement from Antonio Ang Eng Liong, [71] being the party accommodated. It is plainly mistaken for petitioner to say that just because the bank failed to serve the notice of appeal and appellants brief to Antonio Ang Eng Liong, the trial courts judgment, in effect, became final and executory as against the latter and, thereby, bars his (petitioners) cross -claims against him: First, although no notice of appeal and appellants brief were served to Antonio Ang Eng Liong, he was nonetheless impleaded in the case since his name appeared in the caption of [72] both the notice and the brief as one of the defendants-appellees; Second, despite including in the caption of the appellees brief his co-debtor as one of the defendants-appellees, petitioner did [73] not also serve him a copy thereof; Third, in the caption of the Court of Appeals decision, Antonio [74] Ang Eng Liong was expressly named as one of the defendants-appellees; and Fourth, it was only in his motion for reconsideration from the adverse judgment of the Court of Appeals that [75] petitioner belatedly chose to serve notice to the counsel of his co-defendant-appellee.

is illuminating:

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that: "The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter." It is to be noted, however, that petitioner signed the promissory note as a solidary comaker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: "Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest x x x at the rate of SIXTEEN (16) per cent per annum until fully paid." A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states: "By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

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Likewise, this Court rejects the contention of Antonio Ang Eng Liong, in his special appearance through counsel, that the Court of Appeals, much less this Court, already lacked jurisdiction over his person or over the subject matter relating to him because he was not a party in CA-G.R. CV No. 53413. Stress must be laid of the fact that he had twice put himself in default one, in not filing a pre-trial brief and another, in not filing his answer to petitioners cross -claims. As a matter of course, Antonio Ang Eng Liong, being a party declared in default, already waived his right to take part in the trial proceedings and had to contend with the judgment rendered by the court based on the evidence presented by the bank and petitioner. Moreover, even without considering these default judgments, Antonio Ang Eng Liong even categorically admitted having secured a loan totalingP80,000. In his Answer to the complaint, he did not deny such liability but merely pleaded that the bank be ordered to submit a more reasonable computation instead of collecting excessive interest, penalty charges, and attorneys fees. For failing to tender an issue and in not denying the material allegations stated in the complaint, a judgment on the pleadings[76] would have also been proper since not a single issue was generated by the Answer he filed. As the promissory notes were not discharged or impaired through any act or omission of [77] [78] [79] the bank, Sections 119 (d) and 122 of the NIL as well as Art. 1249 of the Civil Code would necessarily find no application. Again, neither was petitioners right of reimbursement barred nor was the banks right to proceed against Antonio Ang Eng Liong expressly renounced by the omission to serve notice of appeal and appellants brief to a party already declared in default. Consequently, in issuing the two promissory notes, petitioner as accommodating party [80] warranted to the holder in due course that he would pay the same according to its tenor. It is no [81] defense to state on his part that he did not receive any value therefor because the phrase "without receiving value therefor" used in Sec. 29 of the NIL means "without receiving value by virtue of the instrument" and not as it is apparently supposed to mean, "without receiving [82] payment for lending his name." Stated differently, when a third person advances the face value of the note to the accommodated party at the time of its creation, the consideration for the note as regards its maker is the money advanced to the accommodated party. It is enough that value was [83] given for the note at the time of its creation. As in the instant case, a sum of money was received by virtue of the notes, hence, it is immaterial so far as the bank is concerned whether one of the signers, particularly petitioner, has or has not received anything in payment of the use of his [84] name. Under the law, upon the maturity of the note, a surety may pay the debt, demand the collateral security, if there be any, and dispose of it to his benefit, or, if applicable, subrogate himself in the place of the creditor with the right to enforce the guaranty against the other signers of [85] the note for the reimbursement of what he is entitled to recover from them. Regrettably, none of these were prudently done by petitioner. When he was first notified by the bank sometime in 1982 regarding his accountabilities under the promissory notes, he lackadaisically relied on Antonio Ang Eng Liong, who represented that he would take care of the matter, instead of directly [86] communicating with the bank for its settlement. Thus, petitioner cannot now claim that he was prejudiced by the supposed extension of time given by the bank to his co -debtor. Furthermore, since the liability of an accommodation party remains not only primary but also unconditional to a holder for value, even if the accommodated party receives an extension of

the period for payment without the consent of the accommodation party, the latter is still liable for the whole obligation and such extension does not release him because as far as a holder for value [87] [88] is concerned, he is a solidary co-debtor. In Clark v. Sellner, this Court held: x x x The mere delay of the creditor in enforcing the guaranty has not by any means impaired his action against the defendant. It should not be lost sight of that the defendant's signature on the note is an assurance to the creditor that the collateral guaranty will remain good, and that otherwise, he, the defendant, will be personally responsible for the payment. True, that if the creditor had done any act whereby the guaranty was impaired in its value, or discharged, such an act would have wholly or partially released the surety; but it must be born in mind that it is a recognized doctrine in the matter of suretyship that with respect to the surety, the creditor is under no obligation to display any diligence in the enforcement of his rights as a creditor. His mere inaction indulgence, passiveness, or delay in proceeding against the principal debtor, or the fact that he did not enforce the guaranty or apply on the payment of such funds as were available, constitute no defense at all for the surety, unless the contract expressly requires diligence and promptness on the part of the creditor, which is not the case in the present action. There is in some decisions a tendency toward holding that the creditor's laches may discharge the surety, meaning by laches a negligent forbearance. This theory, however, is not generally accepted and the courts almost universally consider it essentially inconsistent with the relation of the parties to the note. (21 R.C.L., 1032-1034)[89] Neither can petitioner benefit from the alleged insolvency of Antonio Ang Eng Liong for want of clear and convincing evidence proving the same. Assuming it to be true, he also did not exercise diligence in demanding security to protect himself from the danger thereof in the event that he (petitioner) would eventually be sued by the bank. Further, whether petitioner may or may not obtain security from Antonio Ang Eng Liong cannot in any manner affect his liability to the bank; the said remedy is a matter of concern exclusively between themselves as accommodation party and accommodated party. The fact that petitioner stands only as a surety in relation to Antonio Ang Eng Liong is immaterial to the claim of the bank and does not a whit diminish nor defeat the rights of the latter as a holder for value. To sanction his theory is to give unwarranted legal recognition to the patent absurdity of a situation where a co-maker, when sued on an instrument by a holder in due course and for value, can escape liability by the convenient expedient of interposing the defense [90] that he is a merely an accommodation party. In sum, as regards the other issues and errors alleged in this petition, the Court notes that these were the very same questions of fact raised on appeal before the Court of Appeals, although at times couched in different terms and explained more lengthily in the petition. Suffice it to say that the same, being factual, have been satisfactorily passed upon and considered both by the trial and appellate courts. It is doctrinal that only errors of law and not of fact are reviewable by this Court in petitions for review on certiorari under Rule 45 of the Rules of Court. Save for the most cogent and compelling reason, it is not our function under the rule to examine, evaluate or weigh the probative [91] value of the evidence presented by the parties all over again. WHEREFORE, the October 9, 2000 Decision and December 26, 2000 Resolution of the Court of Appeals in CA-G.R. CV No. 53413 are AFFIRMED. The petition isDENIED for lack of merit.

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KNOW ALL MEN BY THESE PRESENTS: No costs. SO ORDERED. (7) ASSET BUILDERS CORPORATION, Petitioner, - versus STRONGHOLD INSURANCE COMPANY, INCORPORATED, Respondent. G.R. No. 187116 Promulgated: October 18, 2010 That we, LUCKY STAR DRILLING & CONSTRUCTION CORP., 168 ACACIA St., Octagon Industrial Estate Subd., Pasig City as principal, and STRONGHOLD INSURANCE COMPANY, INC., a corporation duly organized and existing under and by virtue of laws of the Philippines, as surety, are held and firmly bound unto ASSET BUILDERS CORPORATION to the sum of Pesos FIVE HUNDRED SEVENTY FIVE THOUSAND ONLY (P575,000.00) Philippine Currency, for the payment of which, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. THE CONDITIONS OF THIS OBLIGATION ARE AS FOLLOWS: To fully and faithfully guarantee the repayment to be done through deductions from periodic billings of the advance payment made or to be made by the Obligee to the Principal in connection with the supply of labor, materials, tools and equipment including technical supervision to drill one (1) exploratory production well located at NIA Ave. cor. Olalia St., Brgy. dela Paz, Antipolo City. This bond is callable on demand. The liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: FIVE HUNDRED SEVENTY FIVE THOUSAND (P575,000.00) only, Philippine Currency. WHEREAS, the Obligee requires said principal to give a good and sufficient bond in the above stated sum to secure the full and faithful performance on his part of said undertakings. NOW, THEREFORE, if the above bounden principal shall in all respects duly and fully observe and perform all and singular the aforesaid [co]-venants, conditions and agreements to the true intent and meaning thereof, then this obligation shall be null and void, otherwise to remain in full force and effect. Liability of surety on this bond will expire on May 09, 2007 and said bond will be cancelled five DAYS after its expiration, unless surety is notified of and existing obligations hereunder. x x x[5] With respect to the second contract, PERFORMANCE BOND G(13) No. 115388, dated [6] May 09, 2006, it covers the sum of P345,000.00. Thus: KNOW ALL MEN BY THESE PRESENTS: That we, LUCKY STAR DRILLING & CONSTRUCTION of 168 Acacia St., Octagon Indl., contractor, of Estate, Sub., Pasig City Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the Philippines, with head office at Makati, as Surety, are held and firmly bound unto the ASSET BUILDERS CORPORATION and to any individual, firm, partnership, corporation or association supplying the principal with labor or materials in the penal sum of THREE HUNDRED FORTY FIVE THOUSAND ONLY (P345,000.00), Philippine Currency, for the payment of which

DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure [1] assails the February 27, 2009 Decision of the Regional Trial Court, Pasig City, Branch 71 (RTC), in Civil Case No. 71034, ordering defendant Lucky Star to pay petitioner Asset Builders Corporation the sum of P575,000.00 with damages, but absolving respondent Stronghold Insurance Company, Incorporated (Stronghold) of any liability on its Surety Bond and Performance Bond. THE FACTS On April 28, 2006, Asset Builders Corporation (ABC) entered into an agreement with Lucky Star Drilling & Construction Corporation (Lucky Star) as part of the completion of its project to construct the ACG Commercial Complex on NHA Avenue corner Olalia Street, Barangay Dela [2] [3] Paz, Antipolo City. As can be gleaned from the Purchase Order, Lucky Star was to supply labor, materials, tools, and equipment including technical supervision to drill one (1) exploratory production well on the project site. The total contract price for the said project was P1,150,000.00. The salient terms and conditions of said agreement are as follows: i. Lump sum price--------PHP1,150,000.00; ii. 50% downpayment---upon submission of surety bond in an equivalent amount and performance bond equivalent to 30 % of contract amount; iii. Completion date-----60 calendar days; iv. Penalty----2/10 of 1% of total contract amount for every day of delay; v. Terms---50% down payment to be released after submission of bonds; vi. RetentionSubject to 10% retention to be released after the project is accepted by the owner; To guarantee faithful compliance with their agreement, Lucky Star engaged respondent Stronghold which issued two (2) bonds in favor of petitioner. The first, SURETY BOND G(16) No. [4] 141558, dated May 9, 2006, covers the sum of P575,000.00 or the required downpayment for the drilling work. The full text of the surety bond is herein quoted:

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sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. The CONDITIONS OF THIS OBLIGATION are as follows; WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the ASSET BUILDERS CORPORATION represented by _________________, to fully and faithfully. Comply with the supply of labor, materials, tools and equipment including technical supervision to drill one (1) exploratory production well located at NIA Ave. cor.Olalia St., Brgy. Dela Paz, Antipolo City. This bond is callable on demand. WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS THREE HUNDRED FORTY FIVE THOUSAND ONLY (P345,000.00) Philippine Currency, inclusive of interest, attorneys fee, and other damages, and shall not be liable for any advances of the obligee to the principal. WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated sum to secure the full and faithfull performance on its part of said contract, and the satisfaction of obligations for materials used and labor employed upon the work; NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of said contract during the original term of said contract and any extension thereof that may be granted by the obligee, with notice to the surety and during the life of any guaranty required under the contract, and shall also perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said contract that may hereinafter be made, without notice to the surety except when such modifications increase the contract price; and such principal contractor or his or its sub-contractors shall promptly make payment to any individual, firm, partnership, corporation or association supplying the principal of its sub-contractors with labor and materials in the prosecution of the work provided for in the said contract, then, this obligation shall be null and void; otherwise it shall remain in full force and effect. Any extension of the period of time which may be granted by the obligee to the contractor shall be considered as given, and any modifications of said contract shall be considered as authorized, with the express consent of the Surety. The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to the provision of Act No. 3688, is hereby acknowledge and confirmed. x x x On May 20, 2006, ABC paid Lucky Star P575,000.00 (with 2% withholding tax) as advance [7] payment, representing 50% of the contract price. Lucky Star, thereafter, commenced the drilling work. By July 18, 2006, just a few days before the agreed completion date of 60 calendar days, Lucky Star managed to accomplish only ten (10) % of the drilling work. On the same date, [8] petitioner sent a demand letter to Lucky Star for the immediate completion of the drilling work with

a threat to cancel the agreement and forfeit the bonds should it still fail to complete said project within the agreed period. On August 3, 2006, ABC sent a Notice of Rescission of Contract with Demand for Damages [9] to Lucky Star. Pertinent portions of said notice read: Pursuant to paragraph 1 of the Terms and Conditions of the service contract, notice is hereby made on you of the rescission of the contract and accordingly demand is hereby made on you, within seven (7) days from receipt hereof: (1) to refund the down payment of PHP563,500.00, plus legal interest thereon; (2) to pay liquidated damages equivalent to 2/10 of 1% of the contract price for every day of delay, or a total of PHP138,000.00; (3) to pay the amount guaranteed by your performance bond in the amount of PHP345,000.00; (4) to pay PHP150,000.00 in other consequential damages; (5) to pay exemplary damages in the amount of PHP150,000.00;

(6) to vacate the project site, together with all your men and equipment. Should you refuse to comply with our demand within the above period, we shall be constrained to sue you in court, in which event we shall demand payment of attorneys fees in the amount of at least PHP100,000.0.

On August 16, 2006, ABC sent a Notice of Claim for payment to Stronghold to make good [10] its obligation under its bonds. Despite notice, ABC did not receive any reply either from Lucky Star or Stronghold, prompting it to file its Complaint for Rescission with Damages against both before the [11] RTC on November 21, 2006. In its Answer (with Complusory Counterclaim and Cross-Claim), dated January 24, 2007, Stronghold denied any liability arguing that ABC had not shown any proof that it made an advance payment of 50% of the contract price of the project. It further averred that ABCs rescission of its contract with Lucky Star virtually revoked the claims against the two bonds and absolved them from [12] further liability. Lucky Star, on the other hand, failed to file a responsive pleading within the prescribed [13] period and, thus, was declared in default by the RTC in its Order dated August 24, 2007.

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On February 27, 2009, the RTC rendered the assailed decision ordering Lucky Star to pay [14] ABC but absolving Stronghold from liability. Relevant parts of the decision, including the decretal portion, read:

(c) Rescission does NOT AFFECT the liabilities of the Respondent Stronghold as its LIABILITIES on its subject bonds have already become INTERWOVEN and INSEPARABLE with the liabilities of its Principal, the Contractor Lucky Star. B. With the Lower Courts completely erroneous ruling on the liabilities of Respondents bonds, the Lower Court equally ERRED with manifest bias and grave abuse, in its FAILURE to comply with the duty of court to make a finding of unreasonable denial or withholding by Respondent Stronghold or Petitioners claims and impose upon the [16] Respondent the penalties provided for under Section 241 and 244 of the Insurance Code. Essentially, the primary issue is whether or not respondent insurance company, as surety, can be held liable under its bonds. The Court rules in the affirmative. Respondent, along with its principal, Lucky Star, bound itself to the petitioner when it executed in its favor surety and performance bonds. The contents of the said contracts clearly establish that the parties entered into a surety agreement as defined under Article 2047 of the New Civil Code. Thus: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis supplied] As provided in Article 2047, the surety undertakes to be bound solidarily with the principal obligor. That undertaking makes a surety agreement an ancillary contract as it presupposes the existence of a principal contract. Although the contract of a surety is in essence secondary only to a valid principal obligation, the surety becomes liable for the debt or duty of another although it possesses no direct or personal interest over the obligations nor does it receive any benefit [17] therefrom. Let it be stressed that notwithstanding the fact that the surety contract is secondary [18] to the principal obligation, the surety assumes liability as a regular party to the undertaking. [19] Stronghold Insurance Company, Inc. v. Republic-Asahi Glass Corporation, reiterating [20] the ruling in Garcia v. Court of Appeals, expounds on the nature of the suretys liability: X x x. The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. Suretyship, in essence, contains two types of relationship the principal relationship between the obligee (petitioner) and the obligor (Lucky Star), and the accessory surety relationship between the principal (Lucky Star) and the surety (respondent). In this arrangement, the obligee accepts the suretys solidary undertaking to pay if the obligor does not pay. Such acceptance,

On the liability of defendant Stronghold Insurance, the Court rules on the negative. The surety bond and performance bond executed by defendants Lucky Star and Stronghold Insurance are in the nature of accessory contracts which depend for its existence upon another contract. Thus, when the agreement (Exhibit A) between the plaintiff and defendant Asset Builders was rescinded, the surety and performance bond were automatically cancelled. WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against defendant Lucky Star Drilling & Construction, ordering the latter as follows: 1. to pay plaintiff in the amount of PHP575,000.00 as actual damages plus legal interest from the filing of the complaint; to pay plaintiff in the amount of PHP100,000.00 as liquidated damages; to pay plaintiff in the amount of PHP50,000.00 as exemplary damages; to pay plaintiff in the amount of PHP 50,000.00 as attorneys fees;

2. 3. 4.

5. to pay the costs of the suit. Defendant Stronghold Insurance Company, Inc.s compulsory counterclaim and cross -claim are dismissed.[15] Hence, this petition. Petitioner ABC prays for the reversal of the challenged decision based on the following GROUNDS A. The Lower Court seriously erred and unjustly ACTED ARBITRARILY with manifest bias and grave abuse of discretion, CONTRARY toapplicable laws and established jurisprudence in declaring the automatic CANCELLATION of respondent Strongholds Surety Bond and Performance Bond, because: (a) Despite rescission, there exists a continuing VALID PRINCIPAL OBLIGATION guaranteed by Respondents Bonds, arising out of the Contractors DEFAULT and Non-performance. (b) Upon breach by its Principal/contractor, the LIABILITIES of Respondents bonds had already ACCRUED, automatically attached, and had become already DIRECT, PRIMARY and ABSOLUTE, even before Petitioners legitimate exercise of its option under Art. 1191 of the New Civil Code.

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however, does not change in any material way the obligees relationship with the principal obligor. Neither does it make the surety an active party to the principal obligee-obligor relationship. Thus, the acceptance does not give the surety the right to intervene in the principal contract. The suretys role arises only upon the obligors default, at which time, it can be directly held liable by the obligee [21] for payment as a solidary obligor. In the case at bench, when Lucky Star failed to finish the drilling work within the agreed time frame despite petitioners demand for completion, it was already in delay. Due to this default, Lucky Stars liability attached and, as a necessary consequence, respondents liability under the surety agreement arose. Undeniably, when Lucky Star reneged on its undertaking with the petitioner and further failed to return the P575,000.00 downpayment that was already advanced to it, respondent, as surety, became solidarily bound with Lucky Star for the repayment of the said amount to petitioner. The clause, this bond is callable on demand, strongly speaks of respondents primary and direct responsibility to the petitioner. Accordingly, after liability has attached to the principal, the obligee or, in this case, the petitioner, can exercise the right to proceed against Lucky Star or respondent or both. Article 1216 of the New Civil Code states: The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. Contrary to the trial courts ruling, respondent insurance company was not automatically released from any liability when petitioner resorted to the rescission of the principal contract for failure of the other party to perform its undertaking. Precisely, the liability of the surety arising from the surety contracts comes to life upon the solidary obligors default. It should be emphasized that petitioner had to choose rescission in order to prevent further loss that may arise from the delay of the progress of the project. Without a doubt, Lucky Stars unsatisfactory progress in the drilling work and its failure to complete it in due time amount to non-performance of its obligation. In fine, respondent should be answerable to petitioner on account of Lucky Stars non performance of its obligation as guaranteed by the performance bond. Finally, Article 1217 of the New Civil Code acknowledges the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the one who paid (the surety). Thus, respondent is entitled to reimbursement from Lucky Star for the amount it may be required to pay petitioner arising from its bonds. WHEREFORE, the February 27, 2009 Decision of the Regional Trial Court, Pasig City, Branch 71, is AFFIRMED with MODIFICATION. Respondent Stronghold Insurance is hereby declared jointly and severally liable with Lucky Star for the payment of P575,000.00 and the payment of P345,000.00 on the basis of its performance bond. SO ORDERED.
[22]

(8) [G.R. No. 158138. April 12, 2005] PHILIPPINE BANK OF, COMMUNICATIONS, petitioner, vs. ELENA LIM, RAMON CALDERON, and TRI-ORO INTERNATIONAL TRADING & MANUFACTURING CORPORATION, respondents. DECISION
PANGANIBAN, J.:

A restrictive stipulation on the venue of actions contained in a promissory note applies to the surety agreement supporting it, because the nature of the two contracts and the factual circumstances surrounding their execution are intertwined or interconnected. The surety agreement is merely an accessory to the principal loan agreement embodied in the promissory note. Hence, the enforcement of the former depends upon the latter. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the April 29, 2003 Decision[2] of the Court of Appeals (CA) in CA-GR SP No. 69786. The challenged Decision disposed as follows: WHEREFORE, based on the foregoing, the instant petition is hereby GRANTED. The assailed Orders dated June 9, 2000 and January 9, 2002 are hereby ANNULED and SET ASIDE. Civil Case No. 99-94976 is hereby ordered DISMISSED without prejudice to the filing thereof in the venue exclusively stipulated by the parties.[3] The Facts The facts are related by the CA as follows: On September 3, 1999, the Philippine Bank of Communications (hereinafter [petitioner]) filed a complaint against [Respondents Elena Lim, Ramon Calderon and Tri-Oro International Trading & Manufacturing Corporation (Tri-Oro for brevity)] with the Regional Trial Court of Manila for the collection of a deficiency amounting to P4,014,297.23 exclusive of interest. [Petitioner] alleged therein that [respondents] obtained a loan from it and executed a continuing surety agreement dated November 16, 1995 in favor of [petitioner] for all loans, credits, etc., that were extended or may be extended in the future to [respondents]. [Petitioner] granted a renewal of said loan upon [respondents] request, the most recent being on January 21, 1998 as evidenced by Promissory Note Renewal BD-Variable No. 8298021001 in the amount of P3,000,000.00. It was expressly stipulated therein that the venue for any legal action that may arise out of said promissory note shall be Makati City, to the exclusion of all other courts x x x. [Respondents allegedly] failed to pay said obligation upon maturity. Thus, [petitioner] foreclosed the real estate mortgage executed by [respondents] valued at P1,081,600.00 leaving a deficiency balance of P4,014,297.23 as of August 31, 1999.

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[Respondents] moved to dismiss the complaint on the ground of improper venue, invoking the stipulation contained in the last paragraph of the promissory note with respect to the restrictive/exclusive venue. [The trial court] denied said motion asseverating that [petitioner] ha[d] separate causes of action arising from the promissory note and the continuing surety agreement. Thus, [under] Rule 4, Section 2, of the 1997 Rules of Civil Procedure, as amended, x x x venue was properly laid in Manila. [The trial court] supported [its] order with cases where venue was held to be merely permissive. A motion for reconsideration of said order was likewise denied. [4] Ruling of the Court of Appeals On appeal, the CA ruled that respondents alleged debt was based on the Promissory Note, which had provided an exclusionary stipulation on venue to the exclusion of all other courts. [5]The parties Surety Agreement, though silent as to venue, was an accessory contract that should have been interpreted in consonance with the Promissory Note. [6] Hence, this Petition.[7] The Issue Petitioner raises the following issue for our consideration: Whether or not the Honorable Court of Appeals had decided the issue of venue in a way not in accord with law and applicable decisions of this Honorable Court and had thereby departed from the accepted and usual course of judicial proceedings, as to call for this Honorable Supreme Courts power of supervision and appellate review.[8] The Courts Ruling The Petition is unmeritorious. Sole Issue: Venue At the outset, this Court observes that petitioner took liberties with the stipulated facts to suit its allegations in the present Petition. In its Complaint, petitioner bank averred that respondents had entered into the Surety Agreement (SA) to guarantee existing and future credit facilities, and that they had executed the Promissory Note (PN) to document their loan.[9] Now, the bank is claiming that Tri-Oro issued the PN on which the other respondents should be made liable as sureties.[10] This strategy is obviously intended to disconnect the SA from the PN and to support the claim of petitioner that the stipulation on venue does not apply to the SA. However, as will be discussed below, the cause of action to recover on the basis of the SA is inseparable from that which is based on the PN.

Rule on Venue Section 2 of Rule 4 of the Rules of Court provides that personal actions[11] must be commenced and tried (1) in the place where the plaintiff resides, or (2) where the defendant resides, or (3) in case of non-resident defendants, where they may be found, at the choice of the plaintiff.[12] This rule on venue does not apply when the law specifically provides otherwise, or when -- before the filing of the action -- the contracting parties agree in writing on the exclusive venue thereof.[13] Venue is not jurisdictional and may be waived by the parties. [14] A stipulation as to venue does not preclude the filing of the action in other places, unless qualifying or restrictive words are used in the agreement.[15] In the instant case, the stipulation on the exclusivity of the venue as stated in the PN is not at issue. What petitioner claims is that there was no restriction on the venue, because none was stipulated in the SA on which petitioner had allegedly based its suit. [16] Accordingly, the action on the SA may be filed in Manila, petitioners place of residence. Petitioner adds that its Complaint filed in the trial court had two causes of action: the first was founded on a breach of the PN; and the second, on a violation of the SA.[17] Consequently, it was allegedly correct to join the causes of action and to file the case in Manila, per Section 5 of Rule 2 of the Rules of Court, which reads:[18] Section 5. Joinder of Causes of Action. A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: xxx xxx xxx

(c) Where the causes of action are between the same parties but pertain to different venue or jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of the said court and venue lies therein. [19] Surety Agreement Suretyship arises upon the solidary binding of a person -- deemed the surety -- with the principal debtor, for the purpose of fulfilling an obligation. [20] The prestation is not an original and direct obligation for the performance of the suretys own act, but merely accessory or collateral to the obligation contracted by the principal.[21] Although the surety contract is secondary to the principal obligation, the surety assumes liability as a regular party to the undertaking.[22] In enforcing a surety contract, the complementary-contracts-construed-together doctrine finds application.[23] According to this principle, an accessory contract must be read in its entirety and together with the principal agreement.[24] This principle is used in construing contractual stipulations in order to arrive at their true meaning; certain stipulations cannot be segregated and

33

then made to control.[25] This no-segregation principle is based on Article 1374 of the Civil Code, which we quote: Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly. The aforementioned doctrine is applicable to the present case. Incapable of standing by itself, the SA can be enforced only in conjunction with the PN. The latter documents the debt that is sought to be collected in the action against the sureties. The factual milieu of the present case shows that the SA was entered into to facilitate existing and future loan agreements. Petitioner approved the loan covered by the PN, partly because of the SA that assured the payment of the principal obligation. The circumstances that related to the issuance of the PN and the SA are so intertwined that neither one could be separated from the other. It makes no sense to argue that the parties to the SA were not bound by the stipulations in the PN. Notably, the PN was a contract of adhesion that petitioner required the principal debtor to execute as a condition of the approval of the loan. It was made in the form and language prepared by the bank. By inserting the provision that Makati City would be the venue for any legal action [that] may arise out of [the] Promissory Note,[26] petitioner also restricted the venue of actions against the sureties. The legal action against the sureties arose not only from the SA, but also from the PN. Cause of Action Petitioner correctly argues that there are two causes of action contained in its Complaint. A cause of action is a partys act or omission that violates the rights of the other.[27] Only one suit may be commenced for a single cause of action.[28] If two or more suits are instituted on the basis of the same cause of action, only one case should remain and the others must be dismissed. [29] As against Tri-Oro International Trading & Manufacturing Corporation, petitioners cause of action is the alleged failure to pay the debt in violation of the PN; as against Elena Lim and Ramon Calderon, in violation of the SA. Because of the variance between the causes of action, petitioner could have filed separate actions against respondents to recover the debt, on condition that it could not recover twice from the same cause. It could have proceeded against only one or all of them,[30] as full payment by any one of them would have extinguished the obligation. [31] By the same token, respondents could have been joined as defendants in one suit, because petitioners alleged right of relief arose from the same transaction or series of transactions that had common questions of fact. [32] To avoid a multiplicity of suits, joinder of parties is encouraged by the law. The cause of action, however, does not affect the venue of the action. The vital issue in the present case is whether the action against the sureties is covered by the restriction on venue stipulated in the PN. As earlier stated, the answer is in the affirmative. Since the cases pertaining

to both causes of action are restricted to Makati City as the proper venue, petitioner cannot rely on Section 5 of Rule 2 of the Rules of Court. Liberal Construction Petitioners final plea for liberality in applying the rules on venue must be rejected. As earlier discussed, the PN was a contract of adhesion. Ambiguities therein are to be construed against the party that prepared the contract.[33] On the same principle, petitioner can no longer disavow the stipulation on venue, considering that it drafted the Surety Agreement. Besides, this alleged technicality caused no miscarriage of substantial justice, as petitioner may refile the case. [34] The inconveniences brought about by its failure to observe the rules on venue sprang from its own acts. Hence, it cannot blame the courts or anyone else for the resulting delay in the adjudication of the merits of its cause. WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner. SO ORDERED. Sandoval-Gutierrez, Corona, Carpio-Morales, and Garcia, JJ., concur.
(9) [G.R. No. 160466. January 17, 2005]

SPOUSES ALFREDO and SUSANA ONG, petitioners, vs. PHILIPPINE COMMERCIAL INTERNATIONAL BANK, respondent. DECISION
PUNO, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court to set aside the Decision of the Court of Appeals in CA-G.R. SP No. 39255, dated February 17, 2003, affirming the decision of the trial court denying petitioners motion to dismiss. The facts: Baliwag Mahogany Corporation (BMC) is a domestic corporation engaged in the manufacture and export of finished wood products. Petitioners-spouses Alfredo and Susana Ong are its President and Treasurer, respectively. On April 20, 1992, respondent Philippine Commercial International Bank (now Equitable-Philippine Commercial International Bank or E-PCIB) filed a case for collection of a sum of money against petitionersspouses. Respondent bank sought to hold petitioners-spouses liable as sureties on the three (3) promissory notes they issued to secure some of BMCs loans, totalling five million pesos (P5,000,000.00).
[1]

The complaint alleged that in 1991, BMC needed additional capital for its business and applied for various loans, amounting to a total of five million pesos, with the respondent bank. Petitioners-spouses acted as sureties for these loans and issued three (3) promissory notes for the purpose. Under the terms of the notes, it was stipulated that respondent bank may consider debtor BMC in default and demand payment of the remaining balance of the loan upon the levy, attachment or garnishment of any of its properties, or upon BMCs insolvency, or if it is declared to be in a state of suspension of payments. Respondent bank granted BMCs loan applications.

34

On November 22, 1991, BMC filed a petition for rehabilitation and suspension of payments with the Securities and Exchange Commission (SEC) after its properties were attached by creditors. Respondent bank considered debtor BMC in default of its obligations and sought to collect payment thereof from petitionersspouses as sureties. In due time, petitioners-spouses filed their Answer. On October 13, 1992, a Memorandum of Agreement (MOA) was executed by debtor BMC, the petitioners-spouses as President and Treasurer of BMC, and the consortium of creditor banks of BMC (of which respondent bank is included). The MOA took effect upon its approval by the SEC on November 27, 1992.
[2] [3]

absolutely bound with the principal debtor for the payment of the debt and is deemed as an original promissor and debtor from the beginning.
[5]

Thereafter, petitioners-spouses moved to dismiss the complaint. They argued that as the SEC declared the principal debtor BMC in a state of suspension of payments and, under the MOA, the creditor banks, including respondent bank, agreed to temporarily suspend any pending civil action against the debtor BMC, the benefits of the MOA should be extended to petitioners-spouses who acted as BMCs sureties in their contracts of loan with respondent bank. Petitioners-spouses averred that respondent bank is barred from pursuing its collection case filed against them.
[4]

Under the suretyship contract entered into by petitioners-spouses with respondent bank, the former obligated themselves to be solidarily bound with the principal debtor BMC for the payment of its debts to respondent bank amounting to five million pesos (P5,000,000.00). Under Article 1216 of the Civil Code, respondent bank as creditor may proceed against petitioners-spouses as sureties despite the execution of the MOA which provided for the suspension of payment and filing of collection suits against BMC. Respondent banks right to collect payment from the surety exists independently of its right to proceed directly against the principal debtor. In fact, the creditor bank may go against the surety alone without prior demand for payment on the principal debtor.
[6] [7]

The trial court denied the motion to dismiss. Petitioners-spouses appealed to the Court of Appeals which affirmed the trial courts ruling that a creditor can proceed against petitioners -spouses as surety independently of its right to proceed against the principal debtor BMC. Hence this appeal. Petitioners-spouses claim that the collection case filed against them by respondent bank should be dismissed for three (3) reasons: First, the MOA provided that during its effectivity, there shall be a suspension of filing or pursuing of collection cases against the BMC and this provision should benefit petitioners as sureties. Second, principal debtor BMC has been placed under suspension of payment of debts by the SEC; petitioners contend that it would prejudice them if the principal debtor BMC would enjoy the suspension of payment of its debts while petitioners, who acted only as sureties for some of BMCs debts, would be compelled to make the payment; petitioners add that compelling them to pay is contrary to Article 2063 of the Civil Code which provides that a compromise between the creditor and principal debtor benefits the guarantor and should not prejudice the latter. Lastly, petitioners rely on Article 2081 of the Civil Code which provides that: the guarantor may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt; but not those which are purely personal to the debtor. Petitioners aver that if the principal debtor BMC can set up the defense of suspension of payment of debts and filing of collection suits against respondent bank, petitioners as sureties should likewise be allowed to avail of these defenses. We find no merit in petitioners contentions. Reliance of petitioners-spouses on Articles 2063 and 2081 of the Civil Code is misplaced as these provisions refer to contracts of guaranty. They do not apply to suretyship contracts. Petitionersspouses are not guarantors but sureties of BMCs debts. There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for any unpaid amount. This is the principle of excussion. In a suretyship contract, however, the benefit of excussion is not available to the surety as he is principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is directly, equally and

The provisions of the MOA regarding the suspension of payments by BMC and the non-filing of collection suits by the creditor banks pertain only to the property of the principal debtor BMC. Firstly, in the rehabilitation receivership filed by BMC, only the properties of BMC were mentioned in the petition with the SEC. Secondly, there is nothing in the MOA that involves the liabilities of the sureties whose properties are separate and distinct from that of the debtor BMC. Lastly, it bears to stress that the MOA executed by BMC and signed by the creditor-banks was approved by the SEC whose jurisdiction is limited only to corporations and corporate assets. It has no jurisdiction over the properties of BMCs officers or sureties.
[8]

Clearly, the collection suit filed by respondent bank against petitioners-spouses as sureties can prosper. The trial courts denial of petitioners motion to dismiss was proper. IN VIEW WHEREOF, the petition is DISMISSED for lack of merit. No pronouncement as to costs. SO ORDERED. Austria-Martinez, Callejo, Sr., Tinga, and Chico-Nazario, JJ., concur.

(10) BANCO DE ORO-EPCI, INC., G.R. No. 179901 Petitioner, -versusJAPRL DEVELOPMENT CORPORATION, RAPID FORMING CORPORATION and JOSE U. AROLLADO, Respondents. Promulgated: April 14, 2008 DECISION CORONA, J.: [1] [2] This petition for review on certiorari seeks to set aside the decision of the Court of Appeals [3] (CA) in CA-G.R. SP No. 95659 and its resolution denying reconsideration. After evaluating the financial statements of respondent JAPRL Development Corporation [4] (JAPRL) for fiscal years 1998, 1999 and 2000, petitioner Banco de Oro-EPCI, Inc. extended

35

credit facilities to it amounting to P230,000,000 on March 28, 2003. Respondents Rapid Forming Corporation (RFC) and Jose U. Arollado acted as JAPRLs sureties. Despite its seemingly strong financial position, JAPRL defaulted in the payment of four trust [6] receipts soon after the approval of its loan. Petitioner later learned from MRM Management, JAPRLs financial adviser, that JAPRL had altered and falsified its financial statements. It allegedly bloated its sales revenues to post a big income from operations for the concerned fiscal years to [7] project itself as a viable investment. The information alarmed petitioner. Citing relevant provisions [8] of the Trust Receipt Agreement, it demanded immediate payment of JAPRLs outstanding [9] obligations amounting to P194,493,388.98. SP PROC. NO. Q-03-064

[5]

secretaries of corporate officers in the regular course of business. Hence, it denied the motion for lack of merit. Respondents moved for reconsideration [26] resolve the matter.
[25]

but withdrew it before the Makati RTC could

RTC SEC CASE NO. 68-2008-C

On February 20, 2006, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the RTC of Calamba, Laguna, Branch 34 (Calamba RTC). Finding JAPRLs petition sufficient in form [27] and in substance, the Calamba RTC issued a stay order on March 13, 2006. In view of the said order, respondents hastily moved to suspend the proceedings in Civil [28] Case No. 03-991 pending in the Makati RTC. On July 7, 2006, the Makati RTC granted the motion with regard to JAPRL and RFC but ordered Arollado to file an answer. It ruled that, because he was jointly and solidarily liable with [29] JAPRL and RFC, the proceedings against him should continue. Respondents moved for [30] [31] reconsideration but it was denied. On August 11, 2006, respondents filed a petition for certiorari in the CA alleging that the Makati RTC committed grave abuse of discretion in issuing the October 10, 2005 and July 7, 2006 [33] orders. They asserted that the court did not acquire jurisdiction over their persons due to defective service of summons. Thus, the Makati RTC could not hear the complaint for sum of [34] money. In its June 7, 2007 decision, the CA held that because the summonses were served on a mere administrative assistant, the Makati RTC never acquired jurisdiction over respondents. Thus, [35] it granted the petition. Petitioner moved for reconsideration but it was denied.
[36] [32]

On August 30, 2003, JAPRL (and its subsidiary, RFC) filed a petition for rehabilitation in the [10] Regional Trial Court (RTC) of Quezon City, Branch 90 (Quezon City RTC). It disclosed that it had been experiencing a decline in sales for the three preceding years and a staggering loss in [11] 2002. Because the petition was sufficient in form and substance, a stay order was issued on [13] September 28, 2003. However, the proposed rehabilitation plan for JAPRL and RFC was [14] eventually rejected by the Quezon City RTC in an order dated May 9, 2005.
[12]

CIVIL CASE NO. 03-991

Because JAPRL ignored its demand for payment, petitioner filed a complaint for sum of money with an application for the issuance of a writ of preliminary attachment against respondents [15] in the RTC of Makati City, Branch 145 (Makati RTC) on August 21, 2003. Petitioner essentially asserted that JAPRL was guilty of fraud because it (JAPRL) altered and falsified its financial [16] statements. The Makati RTC subsequently denied the application (for the issuance of a writ of preliminary attachment) for lack of merit as petitioner was unable to substantiate its allegations. Nevertheless, [17] it ordered the service of summons on respondents. Pursuant to the said order, summonses were issued against respondents and were served upon them. Respondents moved to dismiss the complaint due to an allegedly invalid service of [18] summons. Because the officers return stated that an administrative assistant had received the [19] [20] summons, JAPRL and RFC argued that Section 11, Rule 14 of the Rules of Court contained [21] an exclusive list of persons on whom summons against a corporation must be served. An administrative assistant was not one of them. Arollado, on the other hand, cited Section 6, Rule [22] [23] 14 thereof which mandated personal service of summons on an individual defendant. The Makati RTC, in its October 10, 2005 order, noted that because corporate officers are often busy, summonses to corporations are usually received only by administrative assistants or
[24]

Hence, this petition.

Petitioner asserts that respondents maliciously evaded the service of summonses to prevent the Makati RTC from acquiring jurisdiction over their persons. Furthermore, they employed bad faith to delay proceedings by cunningly exploiting procedural technicalities to avoid the [37] payment of their obligations. We grant the petition. Respondents, in their petition for certiorari in the CA, questioned the jurisdiction of the Makati RTC over their persons (i.e., whether or not the service of summons was validly made). Therefore, it was only the October 10, 2005 order of the said trial court which they in effect [38] assailed. However, because they withdrew their motion for reconsideration of the said order, it became final. Moreover, the petition was filed 10 months and 1 day after the assailed order was

36

issued by the Makati RTC, way past the 60 days allowed by the Rules of Court. For these reasons, the said petition should have been dismissed outright by the CA. More importantly, when respondents moved for the suspension of proceedings in Civil Case No. 03-991 before the Makati RTC (on the basis of the March 13, 2006 order of the Calamba RTC), they waived whatever defect there was in the service of summons and were deemed to have [40] submitted themselves voluntarily to the jurisdiction of the Makati RTC. We withhold judgment for the moment on the July 7, 2006 order of the Makati RTC suspending the proceedings in Civil Case No. 03-991 insofar as JAPRL and RFC are concerned. Under the Interim Rules of Procedure on Corporate Rehabilitation, a stay order defers all actions or [41] claims against the corporation seeking rehabilitation from the date of its issuance until the [42] dismissal of the petition or termination of the rehabilitation proceedings. The Makati RTC may proceed to hear Civil Case No. 03-991 only against Arollado if there is no ground to go after JAPRL and RFC (as will later be discussed). A creditor can demand [43] payment from the surety solidarily liable with the corporation seeking rehabilitation. Respondents abused procedural technicalities (albeit unsuccessfully) for the sole purpose of preventing, or at least delaying, the collection of their legitimate obligations. Their reprehensible scheme impeded the speedy dispensation of justice. More importantly, however, considering the amount involved, respondents utterly disregarded the significance of a stable and efficient banking [44] system to the national economy. [45] Banks are entities engaged in the lending of funds obtained through deposits from the [46] [47] public. They borrow the publics excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments. Banks operate (and earn income) by extending credit facilities financed primarily by deposits [48] from the public. They plough back the bulk of said deposits into the economy in the form of [49] loans. Since banks deal with the publics money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate [50] governance. Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same. In this case, petitioner alleged that JAPRL fraudulently altered and falsified its financial statements in order to obtain its credit facilities. Considering the amount of petitioners exposure in JAPRL, justice and fairness dictate that the Makati RTC hear whether or not respondents indeed committed fraud in securing the credit accomodation. A finding of fraud will change the whole picture. In this event, petitioner can use the finding of fraud to move for the dismissal of the rehabilitation case in the Calamba RTC.

[39]

The protective remedy of rehabilitation was never intended to be a refuge of a debtor guilty of fraud. Meanwhile, the Makati RTC should proceed to hear Civil Case No. 03-991 against the three respondents guided by Section 40 of the General Banking Law which states: Section 40. Requirement for Grant of Loans or Other Credit Accommodations. Before granting a loan or other credit accommodation, a bank must ascertain that the debtor is capable of fulfilling his commitments to the bank. Towards this end, a bank may demand from its credit applicants a statement of their assets and liabilities and of their income and expenditures and such information as may be prescribed by law or by rules and regulations of the Monetary Board to enable the bank to properly evaluate the credit application which includes the corresponding financial statements submitted for taxation purposes to the Bureau of Internal Revenue. Should such statements prove to be false or incorrect in any material detail, the bank may terminate any loan or credit accommodation granted on the basis of said statements and shall have the right to demand immediate repayment or liquidation of the obligation.

In formulating the rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (emphasis supplied) Under this provision, banks have the right to annul any credit accommodation or loan, and demand the immediate payment thereof, from borrowers proven to be guilty of fraud. Petitioner would then [51] be entitled to the immediate payment of P194,493,388.98 and other appropriate damages. Finally, considering that respondents failed to pay the four trust receipts, the Makati City Prosecutor should investigate whether or not there is probable cause to indict respondents for [52] violation of Section 13 of the Trust Receipts Law. ACCORDINGLY, the petition is hereby GRANTED. The June 7, 2007 decision and August 31, 2007 resolution of the Court of Appeals in CA-G.R. SP No. 95659 are REVERSED and SET ASIDE. The Regional Trial Court of Makati City, Branch 145 is ordered to proceed expeditiously with the trial of Civil Case No. 03-991 with regard to respondent Jose U. Arollado, and the other respondents if warranted. SO ORDERED.

(11) Suico Rattan & Buri Interiors, Inc. and Spouses Esmeraldo and Elizabeth D. Suico Petitioners,

G.R. No. 138145 Present:

37

- versus -

PANGANIBAN, CJ., Chairperson, YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR. and CHICO-NAZARIO, JJ.

which has a peso equivalent ofP12,218,866.23. As a consequence of these negotiations, [11] Metrobank issued various checks in favor of petitioners totaling P12,194,443.23, the last one of [12] which was datedJuly 24, 1991. Subsequently, SRBII and the Suico spouses were unable to pay their obligations prompting Metrobank to extra-judicially foreclose the four mortgages constituted over the subject properties. Metrobank, being the lone and highest bidder, acquired the said properties during the [13] auction sale. A Certificate of Sale dated November 18, 1992 was then issued in its favor. On November 5, 1992, Metrobank filed an action for the recovery of a sum of money arising from the obligations of SRBII and the Suico spouses on their export bills purchases incurred [14] between June and July, 1991. SRBII and the Suico spouses filed their Answer contending that their indebtedness are secured by a real estate mortgage and that the value of the mortgaged [15] properties is more than enough to answer for all their obligations to Metrobank. On June 8, 1993, the RTC issued a pre-trial order enumerating the parties claims, [16] testimonial and documentary evidence to be presented and the issues raised. Thereafter, trial ensued. After trial, the RTC rendered judgment on September 26, 1994 with the following dispositive portion: WHEREFORE, foregoing premises considered, the Complaint is hereby dismissed. All obligations of defendants to plaintiffs incurred by the former either as principal, surety or guarantor, which matured and had become due and demandable on the date of the foreclosure of the Real Estate Mortgage are hereby declared already fully paid by the mortgage security. SO ORDERED.[17] Aggrieved by the decision of the RTC, Metrobank filed an appeal with the CA. On January 14, 1999, the CA rendered a Decision disposing as follows: WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE, and a new one rendered ordering appellees, jointly and severally, to pay appellant the sum of P16,585,286.27 representing the principal obligations and interests as of October 31, 1992, plus interest on the principal sum of P12,218,866.23 at the rate of P26% per annum from November 1, 1992 until the said amounts are fully paid, the sum equivalent to two percent (2%) of the total amount due as and for attorneys fees, and to pay the costs. SO ORDERED.[18] While the CA affirmed the trial courts ruling that under the provisions of the real estate mortgage contracts executed by herein petitioners, the clear intent of the contracting parties is that the mortgages shall not be limited to the amount secured under the said contracts but shall extend to other obligations that they may obtain from Metrobank, including renewals or extensions thereof, the CA ruled that since the proceeds from the foreclosure sale of the mortgaged properties

[10]

Court of Appeals and Metropolitan Bank and Trust Promulgated: Co., Inc., Respondents. June 15, 2006 x------------------------------------------------x

DECISION
AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court [1] assailing the Decision of the Court of Appeals (CA) dated January 14, 1999 in CA-G.R. CV No. [2] 48320, which reversed and set aside the Decision of the Regional Trial Court (RTC) of Cebu in Civil Case No. CEB-13156; and the CA Resolution datedApril 6, 1999, denying petitioners motion [3] for reconsideration. The facts of the case are as follows: Suico Rattan & Buri Interiors, Inc. (SRBII) is a domestic corporation engaged in the business of export of rattan and buri products. Spouses Esmeraldo and Elizabeth Suico (Suico spouses) are officers of SRBII. On the other hand, Metropolitan Bank and Trust Co., Inc. (Metrobank) is a commercial banking corporation duly organized and existing under the laws of the Philippines. In the course of its business, SRBII applied for a credit line with Metrobank. On September 5, 1991, SRBII and Metrobank, Mandaue branch, entered into a Credit Line Agreement (Agreement) wherein the latter granted the former a discounting line amounting to P7,000,000.00 and an export bills purchase or draft against payment line (EBP/DP line) P10,000,000.00 for a maximum [4] aggregate principal amount of P17,000,000.00. As provided for under the Agreement, drawings on the credit line are secured by a Continuing Surety Agreement for the sum of P17,500,000.00 [5] executed by the Suico spouses, a Real Estate Mortgage executed on September 5, 1991 by SRBII and the Suico spouses over properties located at Brgy. Tabok, Mandaue City, Cebu and covered by Transfer Certificate of Title (TCT) Nos. 21663 and 21665, and Fire Insurance policies over the properties duly endorsed in favor of Metrobank. The Agreement expressly provides that [6] the EBP/DP line is clean. Previous to the execution of the Agreement, the Suico spouses had already incurred loan obligations from Metrobank which are secured by separate Real Estate Mortgages executed [7] [8] [9] on May 8, 1986, March 23, 1987 and August 24, 1987 over the same properties which are the subject of the Real Estate Mortgage executed on September 5, 1991. Between June 13, 1991 and July 11, 1991, SRBII also incurred obligations with Metrobank by entering into twelve negotiations for the purchase of export bills by the former from the latter. These obligations are evidenced by drafts drawn by SRBII in favor of Metrobank for a sum amounting to US$441,279.25

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amounted only to P10,383,141.63, the same is not sufficient to answer for the entire obligation of petitioners to Metrobank and that the latter may still recover the deficiency of P16,585,286.27 representing the value of the export bills purchased by herein petitioners. SRBII and the Suico spouses filed a Motion for Reconsideration but the same was denied by [19] the CA through its Resolution issued on April 6, 1999. Hence, the present petition with the following Assignment of Errors: I THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE REAL ESTATE MORTGAGE DATED SEPTEMBER 5, 1991 SERVED AS THE COLLATERAL FOR ALL THE OBLIGATIONS OF THE PETITIONERS. II THE RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECIDING THE CASE BASED ON AN ISSUE NOT RAISED IN THE PLEADINGS OR ADMISSIONS OF THE PARTIES. III THE RESPONDENT COURT OF APPEALS ERRED IN NOT TAKING COGNIZANCE THAT RES JUDICATA HAD ALREADY SET IN, IN VIEW OF THE TERMINATION OF THE PROCEEDINGS IN EXTRAJUDICIAL FORECLOSURE SALE. IV THE RESPONDENT COURT OF APPEALS ERRED IN ORDERING THE PETITIONERS TO PAY SOLIDARILY THE AMOUNT OF P16,585,286.27 REPRESENTING THE PRINCIPAL OBLIGATION AND INTEREST AS OF OCTOBER 31, 1992 AND TO PAY AN INTEREST ON THE PRINCIPAL SUM OF P12,218,866,23 AT THE RATE OF 26% PER ANNUM FROM NOVEMBER 1, 1992 UNTIL THE SAID AMOUNTS ARE FULLY PAID. V THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT PETITIONERS SUICO SPOUSES ARE SOLIDARILY LIABLE WITH PETITIONER CORPORATION FOR PAYMENT OF INTEREST PRIOR TO THE FILING OF THE COMPLAINT. VI THE RESPONDENT COURT OF APPEALS ERRED IN ORDERING PETITIONERS TO PAY THE SUM EQUIVALENT TO TWO PERCENT (2%) OF THE TOTAL AMOUNT DUE AS AND FOR ATTORNEYS FEES AND TO PAY THE COSTS.[20]

As to the first assigned error, petitioners claim that the Real Estate Mortgage executed on September 5, 1991 answered for all their obligations to Metrobank. Petitioners contend that the language of the subject mortgage contract is explicit in that it shall secure all other obligations of petitioners of whatever kind or nature, whether direct or indirect, principal or secondary and whether said obligations have been contracted before, during or after the execution of the said mortgage contract. Petitioners also contend that the secured obligations shall include those which were incurred by petitioners from other branches of Metrobank because the properties covered by the subject mortgage contract had earlier been mortgaged to the other branches of Metrobank. Petitioners argue that despite the existence of prior mortgages, Metrobanks acceptance of the mortgaged properties as collateral for their Credit Line Agreement only means that the value of the said properties is sufficient to answer for the previous and present obligations of petitioners and that Metrobank accepts the said properties as continuing collaterals. Petitioners argue that Metrobank is now estopped from claiming that the subject mortgage contract does not answer for all of petitioners obligations in its favor. With respect to the second assigned error, petitioners contend that the CA erred in ruling that the banks cause of action is based on its claim for a deficiency judgment arising from insufficient proceeds of the foreclosure sale of the mortgaged properties; Metrobanks cause of action is for a sum of money; at the time of the filing of the complaint, there is no deficiency judgment to speak of because the complaint was filed on November 5, 1992 while the foreclosure sale was only held on November 18, 1992; the complaint was not amended to include recovery of the deficiency as part of its cause of action. Anent the third assignment of error, petitioners assert that Metrobank is guilty of splitting a single cause of action when it filed its complaint for a sum of money onNovember 5, 1992 and, thereafter, on November 18, 1992, foreclosed the properties subject matter of the mortgage. Petitioners contend that in the event that a mortgage debtor fails to pay his obligation, the mortgage creditor has the option to file an action to collect the indebtedness or to foreclose the property subject matter of the mortgage. However, the creditor may not pursue both remedies. Petitioners contend that the present action for a sum of money is already barred by res judicata by reason of the extrajudicial foreclosure sale of the mortgaged properties, as evidenced by the execution of the Definite Deed of Sale in favor of Metrobank on January 21, 1994. As to the fourth assigned error, petitioners contend that the CA erred in holding that they are still liable to pay the deficiency in their obligation which was not covered by the proceeds of the sale of the foreclosed mortgaged properties. Petitioners assert that in bidding and in subsequently buying the subject mortgaged properties during the foreclosure sale for a price which is much lower than their market value, Metrobank effectively prevented petitioners from paying their entire obligation. Petitioners claim that they are not interested in the redemption of the foreclosed properties, rather they are more concerned with the payment of their obligation considering that these properties are the only ones with which they expect to settle their indebtedness. Hence, since Metrobank, in buying the foreclosed properties at a very low price, prevented petitioners from paying their entire obligation, it is already barred by the principle of estoppel, equity and fair play from recovering the remaining balance of petitioners obligation to it. With respect to the fifth assigned error, the Suico spouses contend that the CA committed error in holding them solidarily liable with SRBII for the payment of the remaining balance of the latters obligation plus interest on the ground that they are mere sureties and as such they can only

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be held liable if the principal does not pay. Absent any showing that SRBII cannot pay, petitioners contend that they are not liable to pay. The Suico spouses also contend that, as sureties, they are liable to pay interest only at the time of the filing of the complaint. As to the last assigned error, petitioners contend that the CA erred in awarding attorneys fees equivalent to 2% of the total amount due because petitioners did not act in bad faith nor did they willfully refuse to pay their obligation, which allegedly prompted Metrobank to litigate. Moreover, petitioners argue that the award of attorneys fees by the CA is contrary to the general rule that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. In its Comment, respondent bank contends that the export bills purchases made by petitioners are not secured by any real estate mortgage. To support its argument respondent bank cites the stipulation contained in the Credit Line Agreement that the export bills purchases are clean or unsecured. Respondent bank further argues that the export bills purchases were availed of by petitioners through the banks Cebu Downtown Center Branch (otherwise referred to in the records as the Plaridel Branch) while the other loan obligations of petitioners, which were secured by real estate mortgages, were obtained from its Mandaue City Branch. Moreover, respondent bank asserts that petitioners obligations with the formers Mandaue City Branch are evidenced by documents which are distinct and separate from the documents representing petitioners export bills purchases with the Metrobank Cebu Downtown Center Branch. In any case, respondent bank contends that even if the real estate mortgage contracts executed by petitioners be considered as securing all of the latters obligations, including their export bills purchases, the fact remains that the foreclosure of the mortgaged properties generated an amount which is insufficient to answer for all the obligations of petitioners to respondent bank. Respondent bank contends that under the law, it is not prevented from claiming the balance of petitioners obligation which was not covered by the proceeds of the foreclosure sale. Respondent bank also argues that it is erroneous for petitioners to claim that just because it (Metrobank) did not require petitioners to put up additional security when they availed of subsequent loans, the previous mortgages are already sufficient to secure all their subsequent obligations. Respondent bank further contends that the CA is correct in ruling that it (Metrobank) is entitled to deficiency judgment considering that petitioners themselves raised the issue that the real estate mortgages they executed secured all their obligations with respondent bank. Respondent argues that the issue on deficiency judgment necessarily arose because the proceeds of the foreclosure sale are not sufficient to answer for all the obligations of petitioners to respondent bank. In any case, respondent bank contends that the CA is clothed with ample authority to resolve an issue even if it is not raised if such resolution is necessary in arriving at a just decision. Respondent bank asserts that there is no splitting of cause of action because the complaint it filed against petitioners is simply for the purpose of collecting the balance of th e latters obligation which was not covered by the proceeds of the sale of the mortgaged properties. Respondent bank also contends that the Suico spouses are solidarily liable with SRBII because by reason of their execution of the Continuing Surety Agree ment, the spouses liability became direct, primary and absolute.

As to the attorneys fees awarded by the CA, respondent bank counters that petitioners are guilty of fraud and misrepresentation when they gave their assurance and warranty that documents such as letters of credit and commercial invoices are valid and existing when, in fact, they are not, thereby inducing respondent bank to grant and approve its transactions with petitioners involving the export bills purchases. By reason of such fraud and misrepresentation, respondent bank contends that it was compelled to incur expenses to protect its interest and enforce its claims. The Court finds the petition partly meritorious. The issues raised boil down to two basic questions: first, whether the mortgage contract executed on September 5, 1991 serves as security for all the obligations of petitioners to respondent bank; and second, whether the foreclosure of the mortgaged properties precludes respondent bank from claiming the sum of P16,585,286.27 representing the amount covered by the export bills purchased by herein petitioners between June and July 1991. As to the first question, the Court agrees with petitioners that all their obligations, including their indebtedness arising from their purchase of export bills, are secured by the Real Estate Mortgage contract executed on September 5, 1991. We are not persuaded by respondent banks contention that the export bills purchases of petitioners from June 13, 1991 to July 11, 1991 were not secured by any real estate mortgage because of the stipulation in the Agreement that the export bill purchase/draft against payment (EBP/DP) line is clean, which means that it is unsecured. The following provisions appear in the Agreement: WHEREAS, the CLIENT is desirous of obtaining credit accommodations from the BANK and the latter is willing to extend such credit accommodations to the CLIENT upon the terms and conditions hereinafter stipulated. NOW, THEREFORE, the CLIENT and the BANK, in consideration of the following terms and conditions have agreed and covenanted as follows: 1. The BANK hereby grants and shall make available to the CLIENT a credit line up to the aggregate principal amount of PESOS: SEVENTEEN MILLION ONLY (P17,000,000.00) PESOS in lawful currency of the Republic of the Philippines, to be availed as follows:
P 7,000,000.00 - DISCOUNTING LINE (REM) for one (1) year, interest at prevailing rate, available by way of PNs not more than 360 days, discounted. 10,000,000.00 - EBP/DP LINE (CLEAN) for one (1) year, interest at prevailing rate.

2. Drawings on the line shall be secured by: 1. Continuing Suretyship of Spouses Esmeraldo Suico and Elizabeth D. Suico. 2. REM for P7.0 MM over TCT Nos. 21663 & 21665 w/ an aggregate area of 10,318 sq. m. and situated at Brgy. Tabok, Mandaue City, for item 1 only

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3. Fire Insurance policy(ies) duly endorsed in banks favor. [21] (Emphasis supplied) It is true that the terms contained in the Agreement provide that the EBP/DP LINE is clean and that it is only those drawings made on the DISCOUNTING LINE which are secured by the mortgage constituted by petitioners spouses Suico over the subject properties. However, a perusal of the entire Agreement shows that the credit line extended to petitioners refers only to transactions that the latter may enter into after the execution of the said Agreement. There is nothing in the said document which shows that the credit line covered the export bill purchases incurred prior to the execution of the Agreement. In other words, the provision that the EBP/DP LINE is clear or not covered by real estate mortgage simply refers to credit accommodations which petitioners may avail from respondent bank subsequent to the execution of the Agreement. It does not, in any way, refer to credit accommodations which were already extended by respondent bank to petitioners prior to September 5, 1991, the date the Agreement was constituted. The parties could not have intended that the Agreement shall also pertain to the export bills purchases made by petitioners prior to its execution, that is, between June and July 1991, considering that the maximum amount covered by the EBP/DP LINE under the Agreement is only P10,000,000.00 while the outstanding obligation of petitioners for the export bills purchases as of July 1991 already totaled US$441,279.25 which, at the time of the transactions, had a peso equivalent of P12,218,866.23. On the other hand, pertinent portions of the Real Estate Mortgage executed on the same date as the Agreement provide as follows: That for and in consideration of certain loans and other credit accommodations obtained from the Mortgagee amounting to SIX MILLION TWO HUNDRED FIFTY THOUSAND (P6,250,000.00) PESOS ONLY Philippine Currency, and to secure the payment of the same and those others that the Mortgagee may heretofore have extended or hereafter extend to the Mortgagor and/or SUICO RATTAN & BURI INTERIORS, INC., a domestic corporation with principal office and place of business at Tabok, Mandaue City, Philippines, hereinafter referred to, regardless of number, as the Borrower, including interest at the rate specified in the promissory note(s) or other evidence of indebtedness secured by this mortgage and expenses, and all other obligations of the Mortgagor/Borrower to the Mortgagee of whatever kind or nature, whether direct or indirect, principal or secondary, as appear in the accounts, books and records of the Mortgagee, whether such obligations have been contracted before, during or after the constitution of this mortgage, the Mortgagor does hereby transfer and convey by way of mortgage unto the Mortgagee, its successors or assigns, the parcels of land which are described in the list inserted at the back of this document, or in a supplementary list attached hereto, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon and all easements, sugar quotas, agricultural or land indemnities, aids or subsidies, including all other rights or benefits annexed to or inherent therein, now existing or which may hereafter exist, and also other assets acquired with the proceeds of the loan hereby secured, all of which the Mortgagor declares that he is the absolute owner free from all liens and encumbrances.

[22] (emphasis supplied) From the language of the contract, it is clear that the mortgaged properties were intended to secure all loans, credit accommodations and all other obligations of herein petitioners to Metrobank, whether such obligations have been contracted before, during or after the constitution of the mortgage. The Court finds no conflict between the provisions of the Agreement and the Real Estate Mortgage contract both dated September 5, 1991, insofar as the export bills purchases from June 13, 1991 to July 11, 1991 are concerned. The stipulations in the September 5, 1991 Agreement refer only to future export bill purchases, thus excluding those purchases made in June and July, 1991; even as the provisions of the subject Real Estate Mortgage pertain to all obligations of petitioners including those which were constituted even before the execution of the said mortgage. Thus, although the Agreement does not refer to export bill purchases incurred prior to the execution of said Agreement, the Real Estate Mortgage encompasses all obligations incurred by petitioners, including the June and July 1991 export bill purchases but not the purchases made after September 5, 1991 under the Agreement. Neither is the Court persuaded by respondent banks contention that petitioners obligations arising from their purchase of export bills is separate and distinct from their other loan obligations with respondent bank because the export bills purchases were availed by petitioners through the banks Cebu Downtown Center/Plaridel branch while the other loan obligations of petitioners were obtained from its Mandaue City branch. The Court quotes, with approval, the trial courts ratiocination on this matter: It matters not that the EBP/DP line was availed of by defendants with the Plaridel branch, because the Credit Line Agreement and the Real Estate Mortgages clearly indicate that defendants were indebted to plaintiff bank and not to its Mandaue or Plaridel branch. This is clearly evident in the opening paragraph of the Credit Line Agreement and the Real Estate Mortgages when plaintiff defines itself as a Commercial Banking Corporation organized and existing under and by virtue of the laws of the Republic of the Philippines, with principal offices and places of business at Metrobank Plaza, Gil. J. Puyat Avenue, Makati, Metro Manila. Clearly therefore, defendants were deemed to be indebted to plaintiff with main office in Makati and not with its Mandaue or Plaridel branch. [23] It bears to note that the complaint for a sum of money was filed in the name of Metrobank alone, without impleading its Plaridel or Mandaue branches. By not impleading either of these branches, it only goes to show that respondent bank, itself, insofar as the present case is concerned, considers the whole Metrobank corporation as the aggrieved party. Hence, it is now estopped from claiming that the mortagaged properties secure only those transactions entered into with its Mandaue branch simply because the mortgage contracts were entered into through the said branch. It does not matter that the export bills purchases of petitioners were entered into through

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the facility of respondent banks Plaridel branch and evidenced by separate and distinct documents because in all these transactions there is only one creditor, which is the corporate entity known as Metrobank. On the other hand, the Court is not persuaded by petitioners claim that the foreclosed properties command a market price of P50,000,000.00 at the time of the foreclosure sale. No evidence appears on record to prove this allegation. Granting that the mortgaged properties were sold during the auction for an amount which is way below their market price, the same does not place the petitioners at a disadvantage. On the contrary, the low price works to their advantage because it would be easier for them to redeem the property sold. The Court agrees with the CA when it cited the case of Prudential Bank v. Martinez where the Court held as follows:
Moreover, the fact that the mortgaged property is sold at an amount less than its actual market value should not militate against the right to such recovery. We fail to see any disadvantage going for the mortgagor. On the contrary, a mortgagor stands to gain with a reduced price because he possesses the right of redemption. When there is the right to redeem, inadequacy of price should not be material, because the judgment debtor may reacquire the property or also sell his right to redeem and thus recover the loss he claims to have suffered by the reason of the price obtained at the auction sale. (De Leon v. Salvador, L-30871, December 28, 1970 and Bernabe v. Cruz, et. al., L-31603, December 28, 1970; 36 SCRA 567). Generally, in forced sales, low prices are usually offered and the mere inadequacy of the price obtained at the sheriffs sale unless shocking to the conscience will not be sufficient to set aside a sale if there is no showing that in the event of a regular sale, a better price can be obtained (Ponce de Leon v. Rehabilitation Finance Corporation, L24571, December 18, 1970, 36 SCRA 289).[24]

in law to be on the same footing as the principal debtor in relation to whatever is adjudged against [29] the latter. Equally settled is the principle that contracts have the force of law between the parties and [30] are to be complied with in good faith. From the moment the contract is perfected, the parties are bound to comply with what is expressly stipulated as well as with what is required by the nature of [31] the obligation in keeping with good faith, usage and the law. In the present case, it is clear from [32] the Continuing Surety Agreement executed by the Suico spouses that they hold themselves solidarily liable with SRBII in the payment of the latters obligations to res pondent bank to the extent of P17,500,000.00, plus interests and other incidental charges such as penalties, costs and expenses in collecting their obligation. The same principle applies with respect to the payment of interest. It is clear from the various letters executed by SRBII in favor of respondent bank that it agreed to pay interest in favor of respondent bank at the rate of 26% per annum based on the value of the draft, the same to be reckoned after twelve days from the date of purchase or from the [33] date of dishonor, whichever is earlier, up to the date of final payment. Since the Suico spouses obligated themselves to be solidarily bound with SRBII, it follows that they are also liable to pay interest as stipulated in the above-cited letters. Having settled that the mortgaged properties served as security for all the petitioners obligations to Metrobank and that the formers liability is solidary, the next question to be resolved is whether, under the facts and circumstances obtaining in the present case, the respondent bank is precluded from recovering the amount representing the value of the export bills purchased by petitioners from it in June and July, 1991. The rule is settled that a mortgage creditor may, in the recovery of a debt secured by a real estate mortgage, institute against the mortgage debtor either a personal action for debt or a [34] real action to foreclose the mortgage. These remedies available to the mortgage creditor are deemed alternative and not cumulative. An election of one remedy operates as a waiver of the [35] other. In sustaining the rule that prohibits mortgage creditors from pursuing both the remedies of a personal action for debt or a real action to foreclose the mortgage, the Court held in the case of Bachrach Motor Co., Inc. v. Esteban Icarangal, et al. that a rule which would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice and obnoxious to law and equity, but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of the plaintiff, and then again in the [36] place where the property lies. Hence, a remedy is deemed chosen upon the filing of the suit for collection or upon the filing of the complaint in an action for foreclosure of mortgage, pursuant to [37] the provisions of Rule 68 of the Rules of Court. As to extrajudicial foreclosure, such remedy is deemed elected by the mortgage creditor upon filing of the petition not with any court of justice but with the office of the sheriff of the province where the sale is to be made, in accordance with the [38] provisions of Act No. 3135, as amended by Act No. 4118. Records show that the complaint for a sum of money was filed with the RTC on November 5, 1992. On the other hand, there is no direct evidence to show when respondent bank filed a petition with the provincial sheriff of Cebu for the extrajudicial foreclosure of the mortgaged properties. The petition for extrajudicial foreclosure of the mortgaged properties was not presented in evidence. What appears on record is that the auction sale of the foreclosed properties was

Hence, it is wrong for petitioners to conclude that when respondent bank supposedly bought the foreclosed properties at a very low price, the latter effectively prevented the former from satisfying their whole obligation. Petitioners still had the option of either redeeming the properties and, thereafter, selling the same for a price which corresponds to what they c laim as the properties actual market value or by simply selling their right to redeem for a price which is equivalent to the difference between the supposed market value of the said properties and the price obtained during the foreclosure sale. In either case, petitioners will be able to recoup the loss they claim to have suffered by reason of the inadequate price obtained at the auction sale and, thus, enable them to settle their obligation with respondent bank. Moreover, petitioners are not justified in concluding that they should be considered as having paid their obligations in full since respondent bank was the one who acquired the mortgaged properties and that the price it paid was very inadequate. The fact that it is respondent bank, as the mortgagee, which eventually acquired the mortgaged properties and that the bid price was low is not a valid reason for petitioners to refuse to pay the remaining balance of their obligation. Settled is the rule that a mortgage is simply a security and [25] not a satisfaction of indebtedness. As to petitioners contention that they are not liable to pay since there is no showing that the principal debtor cannot pay, the time-honored rule is that the surety obligates himself to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable [26] to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal [27] debtor is solvent and is able to pay or no prior demand is made on the principal debtor. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary [28] and absolute; or equivalent to that of a regular party to the undertaking. A surety is considered

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conducted on November 17, 1992. However, as mentioned earlier, the remedy of extrajudicial foreclosure is deemed chosen not on the date of foreclosure sale but upon the filing of the petition for foreclosure with the office of the sheriff of the province where the sale is to be made. Hence, for purposes of determining which remedy was first elected the personal action for debt or the real action for foreclosure there is a need to determine when the respondent bank filed a petition for extrajudicial foreclosure. The Certificate of Sale executed by the Ex-Officio Provincial Sheriff indicates that the [39] extrajudicial foreclosure sale was conducted on November 17, 1992. In the absence of evidence to the contrary, the Court presumes that the sheriff regularly performed his duties and that the [40] ordinary course of business had been followed in the conduct of the auction sale. Section 3 of Act No. 3135, as amended by Act No. 4118 provides:
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places of the municipality or city where the property is situated and if such property is worth more than four hundred pesos, such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general circulation in the municipality or city. (Emphasis supplied)

forthwith. It must be emphasized that as aptly observed by petitioners, Metrobank did not amend its complaint accordingly. Given the fact that the proceeds of the auction sale were not sufficient to answer for the entire obligation of petitioners to respondent bank, the latter still has the right to recover the balance due it after applying the proceeds of the sale. We agree with the CA that where the mortgage creditor chooses the remedy of foreclosure and the proceeds of the foreclosure sale are insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the [41] debtor. The law gives the mortgagee the right to claim for the deficiency resulting from the price obtained in the sale of the property at public auction and the outstanding obligation at the time of [42] the foreclosure proceedings. This rule is based on the principle earlier mentioned that the mortgage is only a security and not a satisfaction of the mortgagors entire obligation. Moreover, [43] [44] unlike in pledge and chattel mortgage on a thing sold on installment, where the Civil Code expressly forecloses the right of creditors to sue for any deficiency resulting from the sale of the [45] property given as a security for the obligation, there is nothing in Act. No. 3135, the law governing extrajudicial foreclosures, which expressly or impliedly prohibits the recovery of such deficiency. If the legislature had intended to deny the creditor the right to sue for any deficiency resulting from the foreclosure of a security given to guarantee an obligation, the law would [46] expressly so provide. Absent such a provision in Act. No. 3135, as amended, the creditor is not precluded from taking action to recover any unpaid balance on the principal obligation simply [47] because he chose to extrajudicially foreclose the real estate mortgage. Hence, in the present case, the Courts dismissal of the complaint should be without prejudice to the filing of another action for the recovery of the balance left in petitioners obligation after the foreclosure sale of the mortgaged properties. The CA or this Court has no jurisdiction to rule on the amount of deficiency that is yet to be claimed and proved in the proper forum by Metrobank. WHEREFORE, the petition is partially GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 48320 are REVERSED andSET ASIDE. The Decision of the Regional Trial Court of Cebu, Branch 8 in Civil Case No. CEB-13156 is REINSTATED with MODIFICATION to the effect that the portion of the RTC Decision, declaring that all obligations of defendants to plaintiffs incurred by the former either as principal, surety or guarantor, which matured and had become due and demandable on the date of the foreclosure of the Real Estate Mortgage are considered fully paid by the mortgage security, is DELETED subject to the right of Metropolitan Bank and Trust Co., Inc. to recover the amount of deficiency in a proper action in the proper court. No pronouncement as to cost. SO ORDERED.

Hence, it is reasonable to assume that the requirements regarding notice and publication prior to the conduct of the sale have been complied with. Going back 20 days fromNovember 17, 1992, which was the date the auction sale was conducted, the petition for extrajudicial foreclosure could have been filed by respondent bank not later than October 27, 1992. Considering that the complaint for a sum of money was only filed on November 5, 1992, the only conclusion that can be arrived at is that respondent bank first elected to avail of the remedy of extrajudicial foreclosure. Thus, by availing of such remedy it is deemed to have waived its right to file an ordinary case for collection. The question that remains then is: may the complaint for a sum of money filed by respondent bank be considered as a suit for the recovery o f deficiency in petitioners obligation? The Court rules in the negative. It is undisputed that the suit filed by respondent bank with the trial court was a personal action for the collection of a sum of money. The complaint was premised on the refusal of herein petitioners buyers to pay and accept the value of the drafts or bills of exchange and the subsequent failure of petitioners to answer for the value of the said drafts plus interest upon notice and demand sent by respondent bank. There was no mention, either in the body of the complaint or in the prayer, for the recovery of the balance of petitioners obligations which were not covered by the foreclosure sale. In fact, the foreclosure sale was not even mentioned. In other words, in filing the complaint with the RTC, respondent bank was not suing for any deficiency. Understandably, the respondent bank could not have claimed such deficiency because, as correctly observed by petitioners, at the time of the filing of the complaint on November 5, 1992, the foreclosure sale is yet to be conducted. Hence, the complaint cannot, in any way, be construed as an action for the recovery of deficiency in petitioners obligation. It is actually an ordinary action for collection which is barred by reason of respondents prior election of the remedy of foreclosure. Thus, the Court is left with no recourse but to sustain the dismissal of the complaint by the RTC subject to the right of Metrobank to recover the alleged deficiency, as will be discussed

(12) GATEWAY ELECTRONICS G.R. No. 172041 CORPORATION and GERONIMO B. DELOS REYES, JR.,

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Petitioners,

Present: QUISUMBING, J., Chairperson, * AUSTRIA-MARTINEZ, CARPIO MORALES, TINGA, and VELASCO, JR., JJ. Promulgated:

- versus -

In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebtedness herein secured at maturity, I/WE jointly and severally agree and engage to the CREDITOR, its successors and assigns, the prompt payment, x x x of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon x x x. I/WE further warrant the due and faithful performance by the DEBTOR(S) of all obligations to be performed under any contracts evidencing indebtedness/obligations and any supplements, amendments, changes or modifications made thereto, including but not limited to, the due and punctual payment by the said DEBTOR(S). MY/OUR liability on this Deed of Suretyship shall be solidary, direct and immediate and not contingent upon the pursuit by the CREDITOR x x x of whatever remedies it or they may have against the DEBTOR(S) or the securities or liens it or they may possess; and I/WE hereby agree to be and remain bound upon this suretyship, x x x and notwithstanding also that all obligations of the DEBTOR(S) to you outstanding and unpaid at any time may exceed the aggregate principal sum hereinabove stated.[3] Later developments saw Asianbank extending to Gateway several export packing loans in the total aggregate amount of USD 1,700,883.48. This loan package was later consolidated with [4] Dollar Promissory Note (PN) No. FCD-0599-2749 for the amount of USD 1,700,883.48 and secured by a chattel mortgage over Gateways equipment for USD 2 million. Gateway initially made payments on its loan obligations, but eventually defaulted. Upon Gateways request, Asianbank extended the maturity dates of the loan several times. These extensions bore the conformity of three of Gateways officers, among them Andrew. On July 15 and 30, 1999, Gateway issued two Philippine Commercial International Bank checks for the amounts of USD 40,000 and USD 20,000, respectively, as payment for its arrearages and interests for the periods June 30 and July 30, 1999; but both checks were dishonored for insufficiency of funds. Asianbanks demands for payment made upon Gateway and its sureties went unheeded. As of November 23, 1999, Gateways obligation to Asianbank, inclusive of principal, interest, and penalties, totaled USD 2,235,452.17. Thus, on December 15, 1999, Asianbank filed with the Regional Trial Court (RTC) in Makati City a complaint for a sum of money against Gateway, Geronimo, and Andrew. The complaint, as later amended, was eventually raffled to Branch 60 of the court and docketed as Civil Case No. 99-2102 entitled Asian Bank Corporation v. Gateway Electronics Corporation, Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. In its answer to the amended complaint, Gateway traced the cause of its financial difficulties, described the steps it had taken to address its mounting problem, and faulted Asianbank for trying to undermine its efforts toward recovery. Andrew also filed an answer alleging, among other things, that the deed of suretyship he executed covering the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-

ASIANBANK CORPORATION, Respondent.

December 18, 2008 x-----------------------------------------------------------------------------------------x DECISION VELASCO, JR., J.: This petition for review under Rule 45 seeks to nullify and set aside the [1] Decision dated October 28, 2005 of the Court of Appeals (CA) in CA-G.R. CV No. 80734 and its [2] Resolution of March 17, 2006 denying petitioners motion for reconsideration. The Facts Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation that used to be engaged in the semi-conductor business. During the period material, petitioner Geronimo B. delos Reyes, Jr. was its president and one Andrew delos Reyes its executive vice-president. On July 23, 1996, Geronimo and Andrew executed separate but almost identical deeds of suretyship for Gateway in favor of respondent Asianbank Corporation (Asianbank), pertinently providing: I/We Geronimo B. de los Reyes, Jr. x x x warrant to the ASIANBANK CORPORATION, x x x due and punctual payment by the following individuals/companies/firms, hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated opposite their respective names, to wit: NAME OF DEBTOR(S) GATEWAY ELECTRONICS CORPORATION AMOUNT OF OBLIGATION *P10,000,000.00*DOMESTIC BILLS [PURCHASED LINE] *US$3,000,000.00*OMNIBUS CREDIT LINE owing to the said ASIANBANK CORPORATION, hereafter called the CREDITOR, as evidenced by all notes, drafts, overdrafts and other [credit] obligations of every kind and nature contracted/incurred by said DEBTOR(S) in favor of said CREDITOR.

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Omnibus Credit Line did not include PN No. FCD-0599-2749, the payment of which was extended several times without his consent. Geronimo, on the other hand, alleged that the subject deed of suretyship, assuming the authenticity of his signature on it, was signed without his wifes consent and should, thus, be considered as a mere continuing offer. Like Andrew, Geronimo argued that he ought to be relieved of his liability under the surety agreement inasmuch as he too never consented to the repeated loan maturity date extensions given by Asianbank to Gateway. After due hearing, the RTC rendered judgment dated October 7, 2003 Gateway, the dispositive portion of which states:
[5]

In its March 17, 2006 Resolution, however, the CA denied the motion for reconsideration and its supplement. Hence, Gateway and Geronimo filed this petition anchored on the following grounds: I The [CA] erred in disregarding the established rule that an action commenced by a creditor against a judicially declared insolvent for the recovery of his claim should be dismissed and referred to the insolvency court. Where, therefore, as in this case, petitioner GEC [referring to Gateway] has been declared insolvent x x x, respondent Asianbanks claim for the payment of GECs loans should be ventilated before the insolvency court x x x. II

in favor of

WHEREFORE then, in view of the foregoing, judgment is rendered holding defendants Gateway Electronics Corporation, Geronimo De Los Reyes and Andrew De Los Reyes jointly and severally liable to pay the plaintiff the following: a) The sum of $2,235,452.17 United States Currency with interest to be added on at the prevailing market rate over a given thirty day London Interbank Offered Rate (LIBOR) plus a spread of 5.5358 percent or ten and [45,455/100,000] percent per annum for the first 35 days and every thirty days beginning November 23, 1999 until fully paid; b) a penalty charge after November 23, 1999 of two percent (2%) per month until fully paid; c) attorneys fees of twenty percent (20%) of the total amount due and unpaid; and d) costs of the suit. SO ORDERED. Thereafter, Gateway, Geronimo, and Andrew appealed to the CA, their recourse docketed as CA-G.R. CV No. 80734. Following the filing of its and Geronimos joint appellants brief, Gateway [6] filed on November 10, 2004 a petition for voluntary insolvency with the RTC in Imus, Cavite, Branch 22, docketed as SEC Case No. 037-04, in which Asianbank was listed in the attached Schedule of Obligations as one of the creditors. On March 16, 2005, Metrobank, as successor-ininterest of Asianbank, via a Notice of Creditors Claim, prayed that it be allowed to participate in the Gatewayss creditors meeting. In its Decision dated October 28, 2005, the CA affirmed the decision of the Makati City RTC. In time, Gateway and Geronimo interposed a motion for reconsideration. This was followed by a Supplemental Motion for Reconsideration dated January 20, 2006, stating that in SEC Case No. 037-04, the RTC in Imus, Cavite had issued an Order dated December 2, 2004, declaring Gateway insolvent and directing all its creditors to appear before the court on a certain date for the purpose of choosing among themselves the assignee of Gateways estate which the courts sheriff has [7] meanwhile placed in custodia legis. Gateway and Geronimo thus prayed that the assailed decision of the Makati City RTC be set aside, the insolvency court having acquired exclusive jurisdiction over the properties of Gateway by virtue of Section 60 of Act No. 1956, without prejudice to Asianbank pursuing its claim in the insolvency proceedings.

The [CA] erred in admitting as evidence the Deed of Surety purportedly signed by petitioner GBR [referring to Geronimo] despite the unexplained failure of respondent Asianbank to present the originals of the Deed of Surety during the trial. III The [CA] erred in holding that the repeated extensions granted by respondent Asianbank to GEC without notice to and the express consent of petitioner GBR did not discharge petitioner GBR from his liabilities as surety GEC in that: A. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. B. The [CA] interpreted the supposed Deed of Surety of petitioner GBR as too comprehensive and all encompassing as to amount to absurdity. C. The repeated extensions granted by Asianbank to GEC prevented petitioner GBR from exercising his right of subrogation under Article 2080 of the Civil Code. As such, petitioner GBR should be released from his obligations as surety of GEC. IV It is a well-settled rule that when a bank deviates from normal banking practice in a transaction and sustains injury as a result thereof, the bank is deemed to have assumed the risk and no right of payment accrues to the latter against any party to the transaction. By repeatedly extending the period for the payment of GECs obligations and granting GEC other loans after the suretyship agreement despite GECs default and in failing to foreclose the chattel mortgage constituted as security for GECs loan contrary to normal banking practices, Asianbank failed to exercise reasonable caution for its own protection and assumed the risk of non-payment through its own acts, and thus has no right to proceed against petitioner GBR as surety for the payment of GECs loans. V In Agcaoili v. GSIS, this Honorable Court had occasion to state that in determining the precise relief to give, the court will balance the equities or the respective interests of the parties and take into account the relative hardship that one relief or another may occasion to them. Upon a balancing of interests of both petitioner GBR and respondent Asianbank, greater and irreparable harm and injury would be suffered by petitioner GBR than respondent Asianbank if the assailed

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Decision and Resolution of the [CA] would be upheld x x x. This Honorable Court x x x should thus exercise its equity jurisdiction in the instant case to the end that it may render complete justice to both parties and declare petitioner GBR as released and discharged from any liability in respect of respondent Asianbanks claims.[8] The Ruling of the Court Gateway May Be Discharged from Liability But Not Geronimo Gateway, having been declared insolvent, argues that jurisdiction over all claims against all of its properties and assets properly pertains to the insolvency court. Accordingly, Gateway [9] adds, citing Sec. 60 of Act No. 1956, as amended, or the Insolvency Law, any pending action against its properties and assets must be dismissed, the claimant relegated to the insolvency proceedings for the claimants relief. The contention, as formulated, is in a qualified sense meritorious. Under Sec. 18 of Act No. 1956, as couched, the issuance of an order declaring the petitioner insolvent after the insolvency court finds the corresponding petition for insolvency to be meritorious shall stay all pending civil actions against the petitioners property. For reference, said Sec. 18, setting forth the [10] effects and contents of a voluntary insolvency order, pertinently provides:

SECTION 60. Creditors proving claims cannot sue; Stay of action.No creditor, proving his debt or claim, shall be allowed to maintain any suit therefor against the debtor, but shall be deemed to have waived all right of action and suit against him, and all proceedings already commenced, or any unsatisfied judgment already obtained thereon, shall be deemed to be discharged and surrendered thereby; and after the debtors discharge, upon proper application and proof to the court having jurisdiction, all such proceedings shall be, dismissed, and such unsatisfied judgments satisfied of record: Provided, x x x. A creditor proving his debt or claim shall not be held to have waived his right of action or suit against the debtor when a discharge has have been refused or the proceedings have been determined to the without a discharge. No creditor whose debt is provable under this Act shall be allowed, after the commencement of proceedings in insolvency, to prosecute to final judgment any action therefor against the debtor until the question of the debtors discharge shall have been determined, and any such suit proceeding shall, upon the application of the debtor or of any creditor, or the assignee, be stayed to await the determination of the court on the question of discharge: Provided, That if the amount due the creditor is in dispute, the suit, by leave of the court in insolvency, may proceed to judgment for purpose of ascertaining the amount due, which amount, when adjudged, may be allowed in the insolvency proceedings, but execution shall be stayed aforesaid. (Emphasis supplied.)

Section 18. Upon receiving and filing said petition, schedule, and inventory, the court x x x shall make an order declaring the petitioner insolvent, and directing the sheriff of the province or city in which the petition is filed to take possession of, and safely keep, until the appointment of a receiver or assignee, all the deeds, vouchers, books of account, papers, notes, bonds, bills, and securities of the debtor and all his real and personal property, estate and effects x x x. Said order shall further forbid the payment to the creditor of any debts due to him and the delivery to the debtor, or to any person for him, of any property belonging to him, and the transfer of any property by him, and shall further appoint a time and place for a meeting of the creditors to choose an assignee of the estate. Said order shall [be published] x x x. Upon the granting of said order, all civil proceedings pending against the said insolvent shall be stayed. When a receiver is appointed, or an assignee chosen, as provided in this Act, the sheriff shall thereupon deliver to such receiver or assignee, as the case may be all the property, assets, and belongings of the insolvent which have come into his possession x x x. (Emphasis supplied.) Complementing Sec. 18 which appropriately comes into play upon the granting of [the] order of insolvency is the succeeding Sec. 60 which properly applies to the period after the commencement of proceedings in insolvency. The two provisions may be harmonized as follows: Upon the filing of the petition for insolvency, pending civil actions against the property of the petitioner are not ipso facto stayed, but the insolvent may apply with the court in which the actions are pending for a stay of the actions against the insolvents property. If the court grants such application, pending civil actions against the petitioners property shall be stayed; otherwise, they shall continue. Once an order of insolvency nevertheless issues, all civil proceedings against the petitioners property are, by statutory command, automatically stayed. Sec. 60 is reproduced below:

Applying the aforequoted provisions, it can rightfully be said that the issuance of the insolvency order of December 2, 2004 had the effect of automatically staying the civil action for a sum of money filed by Asianbank against Gateway. In net effect, the proceedings before the CA in CA-G.R. CV No. 80734, but only insofar as the claim against Gateway was concerned, was, or ought to have been, suspended after December 2, 2004, Asianbank having been duly notified of and in fact was a participant in the insolvency proceedings. The Court of course takes stock of the proviso in Sec. 60 of Act No. 1956 which in a way provided the CA with a justifying tool to continue and to proceed to judgment in CA-G.R. CV No. 80734, but only for the purpose of ascertaining the amount due from Gateway. At any event, on the postulate that jurisdiction over the properties of the insolvent-declared Gateway lies with the insolvency court, execution of the CA insolvency judgment against Gateway can only be pursued before the insolvency court. Asianbank, no less, tends to agree to this conclusion when it stated: [E]ven it if is assumed that the declaration of insolvency of petitioner Gateway can be taken cognizance of, such fact does relieve petitioner Geronimo and/or [11] Andrew delos Reyes from performing their obligations based on the Deeds of Suretyship x x x. Geronimo, however, is a different story. Asianbank argues that the stay of the collection suit against Gateway is without bearing on the liability of Geronimo as a surety, adding that claims against a surety may proceed independently from that against the principal debtor. Pursuing the point, Asianbank avers that Geronimo may not invoke the insolvency of Gateway as a defense to evade liability. Geronimo counters with the argument that his liability as a surety cannot be separated from Gateways liability. As surety, he continues, he is entitled to avail himself of all the defenses pertaining to Gateway, including its insolvency, suggesting that if Gateway is eventually released from what it owes Asianbank, he, too, should also be so relieved.

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Geronimos above contention is untenable. Suretyship is covered by Article 2047 of the Civil Code, which states: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. The Courts disquisition in Palmares v. Court of Appeals on suretyship is instructive, thus: A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. A suretyship is an undertaking that the debt shall be paid x x x. Stated differently, a surety promises to pay the principals debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal does not, without regard to his ability to do so. x x x In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default x x x. xxxx A creditors right to proceed against the surety exists independently of his right to proceed against the principal. Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same as that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. Perforce, x x x a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound.[12] Clearly, Asianbanks right to collect payment for the full amount from Geronimo, as surety, [13] exists independently of its right against Gateway as principal debtor; it could thus proceed against one of them or file separate actions against them to recover the principal debt covered by the deed on suretyship, subject to the rule prohibiting double recovery from the same [14] cause. This legal postulate becomes all the more cogent in case of an insolvency situation where, as here, the insolvency court is bereft of jurisdiction over the sureties of the principal debtor. As Asianbank aptly points out, a suit against the surety, insofar as the suretys solid ary liability is concerned, is not affected by an insolvency proceeding instituted by or against the principal debtor. The same principle holds true with respect to the surety of a corporation in distress which is subject of a rehabilitation proceeding before the Securities and Exchange Commission

(SEC). As we held in Commercial Banking Corporation v. CA, a surety of the distressed corporation can be sued separately to enforce his liability as such, notwithstanding an SEC order [15] declaring the former under a state of suspension of payment. Geronimo also states that, as things stand, his liability, as compared to that of Gateway, is contextually more onerous and burdensome, precluded as he is from seeking recourse against the insolvent corporation. From this premise, Geronimo claims that since Gateway cannot, owing to the order of insolvency, be made to pay its obligation, he, too, being just a surety, cannot also be made to pay, obviously having in mind Art. 2054 of the Civil Code, as follows: A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor.

The Court is not convinced. The above article enunciates the rule that the obligation of a guarantor may be less, but cannot be more than the obligation of the principal debtor. The rule, however, cannot plausibly be stretched to mean that a guarantor or surety is freed from liability as such guarantor or surety in the event the principal debtor becomes insolvent or is unable to pay the obligation. This interpretation would defeat the very essence of a suretyship contract which, by definition, refers to an agreement whereunder one person, the surety, engages to be answerable [16] for the debt, default, or miscarriage of another known as the principal. Geronimos position that a surety cannot be made to pay when the principal is unable to pay is clearly specious and must be rejected. The CA Did Not Err in Admitting the Deed of Suretyship as Evidence Going to the next ground, Geronimo maintains that the CA erred in admitting the Deed of Suretyship purportedly signed by him, given that Asianbank failed to present its original copy. This contention is bereft of merit. As may be noted, paragraph 6 of Asianbanks complaint alleged the following: 6. The loan was secured by the Deeds of Suretyship dated July 23, 1996 that were executed by defendants Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. Attached as Annexes B and C, respectively, are photocopies of the Deeds of Suretyship executed by defendants Geronimo B. De Los Reyes, Jr. and Andrew S. De Los Reyes. Subsequently, a chattel mortgage over defendant Gateways equipment for $2 million, United States currency, was executed.[17] Geronimo traversed in his answer the foregoing allegation in the following wise: 2.5. Paragraph 6 is denied, subject to the special and affirmative defenses and allegations hereinafter set forth.

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The ensuing special and affirmative defenses were raised in Gateways answer: 15. Granting even that [Geronimo] signed the Deed of Suretyship, his wife x x x had not given her consent thereto. Accordingly, the security created by the suretyship shall be construed only as a continuing offer on the part of [Geronimo] and plaintiff and may only be perfected as a binding contract upon acceptance by Mrs. Delos Reyes. x x x 17. Moreover, assuming, gratia argumenti, that [Geronimo] may be bound by the suretyship agreement, there is no showing that he has consented to the repeated extensions made by plaintiff in favor of GEC or to a waiver of notice of such extensions. It should be pointed out that Mr. Geronimo delos Reyes executed the suretyship agreement in his personal capacity and not in his capacity as Chairman of the Board of GEC. His consent, insofar as the continuing application of the suretyship agreement to GECs obligations in view of the repeated extension extended by plaintiff [is concerned], is therefore necessary. Obviously, plaintiff cannot now hold him liable as a surety to GECs obligations.[18]

and shall deny only the remainder. Where a defendant is without knowledge or information sufficient to form a belief as to the truth of a material averment made in the complaint, he shall so state, and this shall have the effect of a denial. (Emphasis supplied.)

In the instant case, Geronimo should have categorically stated that he did not execute the Deed of Suretyship and that the signature appearing on it was not his or was falsified. His Answer does not, however, contain any such statement. Necessarily then, Geronimo had not specifically denied, and, thus, is deemed to have admitted, the genuineness and due execution of the deed in question. In this regard, Sec. 11, Rule 8 of the Rules of Court states: Sec. 11. Allegations not specifically denied deemed admitted.Material averment in the complaint, other than those as to the amount of unliquidated damages, shall be deemed admitted when not specifically denied. x x x Owing to Geronimos virtual admission of the genuineness and due execution of the deed of suretyship, Asianbank, contrary to the view of Gateway and Geronimo, need not present the original of the deed during the hearings of the case. Sec. 4, Rule 129 of the Rules says so: Sec. 4. Judicial admissions.An admission, verbal or written, made by the party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. (Emphasis supplied.)

The Rules of Court prescribes, under its Secs. 7 and 8, Rule 8, the procedure should a suit or defense is predicated on a written document, thus: Sec. 7. Action or defense based on document.Whenever an action or defense is based upon a written instrument or document, the substance of such instrument or document shall be set forth in the pleading, and the original or a copy thereof shall be attached to the pleading as an exhibit, which shall be deemed to be a part of the pleading, or said copy may with like effect be set forth in the pleading. Sec. 8. How to contest such documents.When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but the requirement of an oath does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. (Emphasis supplied.)

Geronimo Is Liable for PN No. FCD-0599-2749 under His Deed of Suretyship This brings us to the third ground which involves the issue of the coverage of the suretyship. Preliminarily, an overview on the process of taking out loans should first be made. Generally, especially for large loans, banks first approve a line or facility out of which a client may avail itself of loans in the form of promissory notes without need of further processing and/or approval every time a draw down is made. In the instant case, Asianbank approved in favor of Gateway the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line. Asianbank approved these credit lines which were covered by a chattel mortgage as well as the deeds of suretyship, such that loans extended from these lines would already be secured and pre-approved. In other words, these facilities are not financial obligations yet. Asianbank did not yet lend out any money to Gateway with the approval of these lines. The loan transaction occurred or the principal obligation, as secured by a surety agreement, was born after the execution of loan documents, such as PN No. FCD-0599-2749. Geronimo now excepts from the ruling that the deed of suretyship he executed covered PN No. FCD-0599-2749 which embodied several export packing loans issued by Asianbank to Gateway. He claims that the deed only secured the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line. Geronimo describes as absurd the notion that a deed of suretyship would secure a loan obligation contracted three (3) years after the execution of the surety deed.

Given the above perspective, Asianbank, by attaching a photocopy of the Deed of Suretyship to its underlying complaint, hewed to the requirements of the above twin provisions. Asianbank, thus, effectively alleged the due execution and genuineness of the said deed. From that point, Geronimo, if he intended to contest the surety deed, should have specifically denied the due execution and genuineness of the deed in the manner provided by Sec. 10, Rule 8 of the Rules of Court, thus: Sec. 10. Specific denial.A defendant must specify each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters upon which he relies to support his denial. Where a defendant desires to deny only a part of an averment, he shall specify so much of it as is true and material

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Geronimos thesis that the deed in question cannot be accorded prospective application is erroneous. To be sure, the provisions of the subject deed of suretyship indicate a continuing [19] suretyship. In Fortune Motors (Phils.) v. Court of Appeals, the Court, citing cases, defined and upheld the validity of a continuing suretyship in this wise: x x x Of course, a surety is not bound under any parti cular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. [20] In Dio vs. Court of Appeals,[21] we again had occasion to discourse on continuing guaranty/suretyship thus: x x x A continuing guaranty is one which is not limited to a single transacti on, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period x x x. In other jurisdictions, it has been held that the use of particular words and expressions such as payment of any debt, any indebtedness, any deficiency, or any sum, or the guaranty of any transaction or money to be furnished the principal debtor at any time, or on such time that the principal debtor may require, have been construed to indicate a continuing guaranty. (Emphasis supplied.)

of the PhP 10 million-Domestic Bills Purchased Line and the USD 3 million-Omnibus Credit Line, as evidenced by: x x x notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments.[22]

Evidently, under the deed of suretyship, Geronimo undertook to secure all obligations obtained under the Domestic Bills Purchased Line and Omnibus Credit Line, without any specification as to the period of the loan. Geronimos application of Garcia v. Court of Appeals, a case covering two separate loans, denominated as SWAP Loan and Export Loan, is quite misplaced. There, the Court ruled that the continuing suretyship only covered the SWAP Loan as it was only this loan that was referred to in the continuing suretyship. The Court wrote in Garcia: Particular attention must be paid to the statement appearing on the face of the Indemnity [Suretyship] Agreement x x x evidenced by those certain loan documents dated April 20, 1982 x x x. From this statement, it is clear that the Indemnity Agreement refers only to the loan document of April 20, 1982 which is the SWAP loan. It did not include the EXPORT loan. Hence, petitioner cannot be held answerable for the EXPORT loan. [23] (Emphasis supplied.)

The Indemnity Agreement in Garcia specifically identified loan documents evidencing obligations of the debtor that the agreement was intended to secure. In the present case, however, the suretyship Geronimo assumed did not limit itself to a specific loan document to the exclusion of another. The suretyship document merely mentioned the Domestic Bills Purchased Line and Omnibus Credit Line as evidenced by all notes, drafts x x x contracted/incurred by [Gateway] in [24] favor of [Asianbank]. As explained earlier, such credit facilities are not loans by themselves. Thus, the Deed of Suretyship was intended to secure future loans for which these facilities were opened in the first place. Lest it be overlooked, both the trial and appellate courts found the Omnibus Credit Line referred to in the Deed of Suretyship as covering the export packing credit loans Asianbank extended to Gateway. We agree with this factual determination. By the very use of the term omnibus, and in practice, an omnibus credit line refers to a credit facility whence a borrower may avail of various kinds of credit loans. Defined as such, an omnibus line is broad enough to refer to or cover an export packing credit loan. Geronimos allegation that an export packing credit loan is separate and distinct from an omnibus credit line is but a bare and self-serving assertion bereft of any factual or legal basis. One [25] who alleges something must prove it: a mere allegation is not evidence. Geronimo has not discharged his burden of proof. His contention cannot be given any weight.

By its nature, a continuing suretyship covers current and future loans, provided that, with respect to future loan transactions, they are, to borrow from Dio, as cited above, within the description or contemplation of the contract of guaranty. The Deed of Suretyship Geronimo signed envisaged a continuing suretyship when, by the express terms of the deed, he warranted payment

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As a final and major ground for his release as surety, Geronimo alleges that Asianbank repeatedly extended the maturity dates of the obligations of Gateway without his knowledge and consent. Pressing this point, he avers that, contrary to the findings of the CA, he did not waive his right to notice of extensions of Gateways obligations. Such contention is unacceptable as it glosses over the fact that the waiver to be notified of extensions is embedded in surety document itself, built in the ensuing provision: In case of default by any and/or all of the DEBTOR(S) to pay the whole part of said indebtedness herein secured at maturity, I/WE jointly and severally, agree and engage to the CREDITOR, its successors and assigns, the prompt payment, without demand or notice from said CREDITOR of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments.[26] (Emphasis supplied.)

Whether or not Asianbank really deviated from normal banking practice by extending the period for Gateway to comply with its loan obligation or by not going after the chattel mortgage adverted to is really of no moment. Banks are primarily in the business of extending loans and earn income from their lending operations by way of service and interest charges. This is why Asianbank opted to give Gateway ample opportunity to pay its obligations instead of foreclosing the chattel mortgage and in the process holding on to assets of which the bank has really no direct use. The following excerpts from Palmares are in point: We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not affect the creditors rights vis--vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. Such gratuitous indulgence of the principal does not discharge the surety whether given at the principals request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal x x x. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent. And, in the absence of proof of resultant injury, a surety is not discharged by the creditors mere statement that the creditor will not look to the surety, or that he need not trouble himself.The consequences of the delay, such as the subsequent insolvency of the principal, or the fact that the remedies against the principal may be lost by lapse of time, are immaterial.[28] The Courts Equity Jurisdiction Finds No Application to the Instant Case Geronimo urges the Court to release and discharge him from any liability arising from Asianbanks claims if what he terms as complete justice is to be served. He cites, as supporting [29] reference, Agcaoili v. GSIS, presenting in the same breath the following arguments : first, the Deed of Suretyship is a gratuitous contract from which he did not benefit; second, Asianbank assured him that the deed would not be enforced against him; third, the enforcement of the judgment of the CA would reduce Geronimo and his family to a life of penury; and fourth, Geronimo would be unable to exercise his right of subrogation, Gateway having already been declared as insolvent. The first and last arguments have already been addressed and found to be without merit. The second argument is a matter of defense which has remained unproved and even belied by Asianbank by its filing of the complaint. We see no need to further belabor any of them. As regards the third allegation, suffice it to state that the predicament Geronimo finds himself in is his very own doing. His misfortune is but the result of the implementation of a bona fide contract he freely executed, the terms of which he is presumed to have thoroughly examined. He was not at all compelled to act as surety; he had a choice. It may be more offensive to public policy or good customs if he be allowed to go back on his undertaking under the surety contract. The Court cannot be a party to the contracts impairment and relieve a surety from the effects of an unwise but nonetheless a valid surety contract.

In light of the above provision, Geronimo verily waived his right to notice of the maturity of notes, drafts, overdraft, and other credit obligations for which Gateway shall become indebted. This waiver necessarily includes new agreements resulting from the novation of previous agreements due to changes in their maturity dates. Additionally, Geronimos lament about losing his right to subrogation is erroneous. He argues that by virtue of the order of insolvency issued by the insolvency court, title and right to possession to all the properties and assets of Gateway were vested upon Gateways assignee in accordance with Sec. 32 of the Insolvency Law. The transfer of Gateways property to the insolvency assignee, if this be the case, does not negate Geronimos right of subrogation, for such right may be had or exercised in the insolvency proceedings. The possibility that he may only recover a portion of the amount he is liable to pay is the risk he assumed as a surety of Gateway. Such loss does not, however, render ineffectual, let alone invalidate, his suretyship. Geronimos other arguments to escape liability are puerile and really partake more of a plea for liberality. They need not detain us long. In gist, Geronimo argues: first, that he is a gratuitous surety of Gateway; second, Asianbank deviated from normal banking practice, such as when it extended the period for payment of Gateways obligation and when it opted not to foreclose the chattel mortgage constituted as guarantee of Gateways loan obligati on; and third, implementing the appealed CAs decision would cause him great harm and injury. Anent the first argument, suffice it to state that Geronimo was then the president of Gateway and, as such, was benefited, albeit perhaps indirectly, by the loan thus granted by Asianbank. And as we said in Security Pacific Assurance Corporation, the surety is liable for the debt of another although the surety possesses no direct or personal interest over the obligation nor [27] does the surety receive any benefit from it.

50

WHEREFORE, the instant petition is hereby DENIED. The appealed Decision dated October 28, 2005 of the CA and its March 17, 2006 Resolution in CA-G.R. CV No. 80734 are hereby AFFIRMED with the modification that any claim of Asianbank or its successor-in-interest against Gateway, if any, arising from the judgment in this suit shall be pursued before the RTC, Branch 22 in Imus, Cavite as the insolvency court. Costs against petitioners. SO ORDERED.

On February 18, 1993, the trial court issued an Order, portions of which reads: After a careful consideration of the matter on hand, the Court finds the ground of the motion to dismiss without merit. The document referred to as "Continuing Guaranty" dated August 21, 1985 (Exh. 7) states as follows: For and in consideration of any existing indebtedness to you of Agro Brokers, a single proprietorship owned by Mr. Raul Claveria for the payment of which the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any other manner, to, or at the request or for the account of the borrower, . . . The provisions of the document are clear, plain and explicit. Clearly therefore, defendant E. Zobel, Inc. signed as surety. Even though the title of the document is "Continuing Guaranty", the Court's interpretation is not limited to the title alone but to the contents and intention of the parties more specifically if the language is clear and positive. The obligation of the defendant Zobel being that of a surety, Art. 2080 New Civil Code will not apply as it is only for those acting as guarantor. In fact, in the letter of January 31, 1986 of the defendants (spouses and Zobel) to the plaintiff it is requesting that the chattel mortgage on the vessels and tugboat be waived and/or rescinded by the bank inasmuch as the said loan is covered by the Continuing Guaranty by Zobel in favor of the plaintiff thus thwarting the claim of the defendant now that the chattel mortgage is an essential condition of the guaranty. In its letter, it said that because of the Continuing Guaranty in favor of the plaintiff the chattel mortgage is rendered unnecessary and redundant. With regard to the claim that the failure of the plaintiff to register the chattel mortgage with the proper government agency, i.e. with the Office of the Collector of Customs or with the Register of Deeds makes the obligation a guaranty, the same merits a scant consideration and could not be taken by this Court as the basis of the extinguishment of the obligation of the defendant corporation to the plaintiff as surety. The chattel mortgage is an additional security and should not be considered as payment of the debt in case of failure of payment. The same is true with the failure to register, extinction of the liability would not lie. WHEREFORE, the Motion to Dismiss is hereby denied and defendant E. Zobel, Inc., is ordered to file its answer to the complaint within ten (10) days from receipt of a copy of this Order. 5 Petitioner moved for reconsideration but was denied on April 26, 1993.
6

(13) G.R. No. 113931 May 6, 1998


E. ZOBEL, INC., petitioner, vs. THE COURT OF APPEALS, CONSOLIDATED BANK AND TRUST CORPORATION, and SPOUSES RAUL and ELEA R. CLAVERIA, respondents.

MARTINEZ, J.: This petition for review on certiorari seeks the reversal of the decision 1 of the Court of Appeals dated July 13, 1993 which
affirmed the Order of the Regional Trial Court of Manila, Branch 51, denying petitioner's Motion to Dismiss the complaint, as well as the Resolution 2 dated February 15, 1994 denying the motion for reconsideration thereto.

The facts are as follows: Respondent spouses Raul and Elea Claveria, doing business under the name "Agro Brokers," applied for a loan with respondent Consolidated Bank and Trust Corporation (now SOLIDBANK) in the amount of Two Million Eight Hundred Seventy Five Thousand Pesos (P2,875,000.00) to finance the purchase of two (2) maritime barges and one tugboat 3 which would be used in their molasses business. The loan was granted subject to the condition that respondent
spouses execute a chattel mortgage over the three (3) vessels to be acquired and that a continuing guarantee be executed by Ayala International Philippines, Inc., now herein petitioner E. Zobel, Inc., in favor of SOLIDBANK. The respondent spouses agreed to the arrangement. Consequently, a chattel mortgage and a Continuing Guaranty 4 were executed.

Thereafter, petitioner questioned said Orders before the respondent Court of Appeals, through a petition forcertiorari, alleging that the trial court committed grave abuse of discretion in denying the motion to dismiss. On July 13, 1993, the Court of Appeals rendered the assailed decision the dispositive portion of which reads: WHEREFORE, finding that respondent Judge has not committed any grave abuse of discretion in issuing the herein assailed orders, We hereby DISMISS the petition. A motion for reconsideration filed by petitioner was denied for lack of merit on February 15, 1994.

Respondent spouses defaulted in the payment of the entire obligation upon maturity. Hence, on January 31, 1991, SOLIDBANK filed a complaint for sum of money with a prayer for a writ of preliminary attachment, against respondents spouses and petitioner. The case was docketed as Civil Case No. 91-55909 in the Regional Trial Court of Manila. Petitioner moved to dismiss the complaint on the ground that its liability as guarantor of the loan was extinguished pursuant to Article 2080 of the Civil Code of the Philippines. It argued that it has lost its right to be subrogated to the first chattel mortgage in view of SOLIDBANK's failure to register the chattel mortgage with the appropriate government agency. SOLIDBANK opposed the motion contending that Article 2080 is not applicable because petitioner is not a guarantor but a surety.

Petitioner now comes to us via this petition arguing that the respondent Court of Appeals erred in its finding: (1) that Article 2080 of the New Civil Code which provides: "The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter," is not applicable to petitioner; (2) that petitioner's obligation to respondent SOLIDBANK under the continuing guaranty is that of a surety; and (3) that the failure of respondent SOLIDBANK to register the chattel mortgage did not extinguish petitioner's liability to respondent SOLIDBANK.

51

We shall first resolve the issue of whether or not petitioner under the "Continuing Guaranty" obligated itself to SOLIDBANK as a guarantor or a surety. A contract of surety is an accessory promise by which a person binds himself for another already bound, and agrees with the creditor to satisfy the obligation if the debtor does not. 7 A contract of guaranty, on the other hand, is a
collateral undertaking to pay the debt of another in case the latter does not pay the debt.
8

Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. However, under our civil law, they may be distinguished thus: A surety is usually bound with his principal by the same instrument, executed at the same time, and on the same consideration. He is an original promissor and debtor from the beginning, and is held, ordinarily, to know every default of his principal. Usually, he will not be discharged, either by the mere indulgence of the creditor to the principal, or by want of notice of the default of the principal, no matter how much he may be injured thereby. On the other hand, the contract of guaranty is the guarantor's own separate undertaking, in which the principal does not join. It is usually entered into before or after that of the principal, and is often supported on a separate consideration from that supporting the contract of the principal. The original contract of his principal is not his contract, and he is not bound to take notice of its non-performance. He is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. 9 Simply put, a surety is distinguished from a guaranty in that a guarantor is the insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay. 10 Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the contract categorically obligates petitioner as "surety" to induce SOLIDBANK to extend credit to respondent spouses. This can be seen in the following stipulations.

attached of distrained, or should be or become subject to any mandatory order of court or other legal process, then, or any time after the happening of any such event any or all of the instruments of indebtedness or other obligations hereby guaranteed shall, at your option become (for the purpose of this guaranty) due and payable by the undersigned forthwith without demand of notice, and full power and authority are hereby given you, in your discretion, to sell, assign and deliver all or any part of the property upon which you may then have a lien hereunder at any broker's board, or at public or private sale at your option, either for cash or for credit or for future delivery without assumption by you of credit risk, and without either the demand, advertisement or notice of any kind, all of which are hereby expressly waived. At any sale hereunder, you may, at your option, purchase the whole or any part of the property so sold, free from any right of redemption on the part of the undersigned, all such rights being also hereby waived and released. In case of any sale and other disposition of any of the property aforesaid, after deducting all costs and expenses of every kind for care, safekeeping, collection, sale, delivery or otherwise, you may apply the residue of the proceeds of the sale and other disposition thereof, to the payment or reduction, either in whole or in part, of any one or more of the obligations or liabilities hereunder of the undersigned whether or not except for disagreement such liabilities or obligations would then be due, making proper allowance or interest on the obligations and liabilities not otherwise then due, and returning the overplus, if any, to the undersigned; all without prejudice to your rights as against the undersigned with respect to any and all amounts which may be or remain unpaid on any of the obligations or liabilities aforesaid at any time (s). xxx xxx xxx Should the Borrower at this or at any future time furnish, or should be heretofore have furnished, another surety or sureties to guarantee the payment of his obligations to you, the undersigned hereby expressly waives all benefits to which the undersigned might be entitled under the provisions of Article 1837 of the Civil Code (beneficio division), the liability of the undersigned under any and all circumstances being joint and several ; (Emphasis Ours) The use of the term "guarantee" does not ipso facto mean that the contract is one of guaranty. Authorities recognize that the word "guarantee" is frequently employed in business transactions to describe not the security of the debt but an intention to be bound by a primary or independent obligation. 11 As aptly observed by the trial court, the
interpretation of a contract is not limited to the title alone but to the contents and intention of the parties.

For and in consideration of any existing indebtedness to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL P. CLAVERIA, of legal age, married and with business address . . . (hereinafter called the Borrower), for the payment of which the undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request or for the account of the Borrower, either with or without purchase or discount, or to make any loans or advances evidenced or secured by any notes, bills receivable, drafts, acceptances, checks or other instruments or evidences of indebtedness . . . upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the undersigned agrees to guarantee, and does hereby guarantee, the punctual payment, at maturity or upon demand, to you of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower , together with any and all expenses which may be incurred by you in collecting all or any such instruments or other indebtedness or obligations hereinbefore referred to, and or in enforcing any rights hereunder, and also to make or cause any and all such payments to be made strictly in accordance with the terms and provisions of any agreement (g), express or implied, which has (have) been or may hereafter be made or entered into by the Borrower in reference thereto, regardless of any law, regulation or decree, now or hereafter in effect which might in any manner affect any of the terms or provisions of any such agreements(s) or your right with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness; . . . ( Emphasis Ours) One need not look too deeply at the contract to determine the nature of the undertaking and the intention of the parties. The contract clearly disclose that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and obligated itself as an original promissor. It bound itself jointly and severally to the obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other legal remedies or exhaust respondent spouses' properties before it can hold petitioner liable for the obligation. This can be gleaned from a reading of the stipulations in the contract, to wit: . . . If default be made in the payment of any of the instruments, indebtedness or other obligation hereby guaranteed by the undersigned, or if the Borrower, or the undersigned should die, dissolve, fail in business, or become insolvent, . . ., or if any funds or other property of the Borrower, or of the undersigned which may be or come into your possession or control or that of any third party acting in your behalf as aforesaid should be

Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner, finds no application to the case at bar. In Bicol Savings and Loan Association vs. Guinhawa, 12 we have ruled that Article
2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor.

But even assuming that Article 2080 is applicable, SOLIDBANK's failure to register the chattel mortgage did not release petitioner from the obligation. In the Continuing Guaranty executed in favor of SOLIDBANK, petitioner bound itself to the contract irrespective of the existence of any collateral. It even released SOLIDBANK from any fault or negligence that may impair the contract. The pertinent portions of the contract so provides: . . . the undersigned (petitioner) who hereby agrees to be and remain bound upon this guaranty, irrespective of the existence, value or condition of any collateral, and notwithstanding any such change, exchange, settlement, compromise, surrender, release, sale, application, renewal or extension, and notwithstanding also that all obligations of the Borrower to you outstanding and unpaid at any time(s) may exceed the aggregate principal sum herein above prescribed. This is a Continuing Guaranty and shall remain in full force and effect until written notice shall have been received by you that it has been revoked by the undersigned, but any such notice shall not be released the undersigned from any liability as to any instruments, loans, advances or other obligations hereby guaranteed, which may be held by you, or in which you may have any interest, at the time of the receipt of such notice. No

52

act or omission of any kind on your part in the premises shall in any event affect or impair this guaranty , nor shall same be affected by any change which may arise by reason of the death of the undersigned, of any partner (s) of the undersigned, or of the Borrower, or of the accession to any such partnership of any one or more new partners. (Emphasis supplied) In fine, we find the petition to be without merit as no reversible error was committed by respondent Court of Appeals in rendering the assailed decision. WHEREFORE, the decision of the respondent Court of Appeals is hereby AFFIRMED. Costs against the petitioner. SO ORDERED.

An Ex-Parte Motion for Preliminary Attachment dated 06 March 1989 was filed by Reynaldo Anzures praying that pending the hearing on the merits of the case, a Writ of Preliminary Attachment be issued ordering the sheriff to attach the properties of Villaluz in accordance with the Rules. On 03 July 1989, the trial court issued an Order for the issuance of a writ of preliminary attachment upon complainants posting of a bond which is hereby fixed at P2,123,400.00 and the Courts approval of the same under the condition prescribed by Sec. 4 of Rule 57 of the Rules of Court. An attachment bond was thereafter posted by Reynaldo Anzures and approved by the court. Thereafter, the sheriff attached certain properties of Villaluz, which were duly annotated on the corresponding certificates of title. On 25 May 1990, the trial court rendered a Decision on the case acquitting Villaluz of the crime charged, but held her civilly liable. The dispositive portion of the said decision is reproduced hereunder: WHEREFORE, premises considered, judgment is hereby rendered ACQUITTING the accused TERESITA E. VILLALUZ with cost de oficio. As to the civil aspect of the case however, accused is ordered to pay complainant Reynaldo Anzures the sum of TWO MILLION ONE HUNDRED TWENTY THREE THOUSAND FOUR HUNDRED (P2,123,400.00) PESOS with legal rate of interest from December 18, 1987 until fully paid, the sum of P50,000.00 as attorneys fees and the cost of suit.[7]
[6] [5] [4]

[3]

G.R. No. 144740

(14) SECURITY PACIFIC ASSURANCE CORPORATION, Petitioner, - versus THE HON. AMELIA TRIA-INFANTE, In her Promulgated: official capacity as Presiding Judge, August 31, 2005 Regional Trial Court, Branch 9, Manila; THE PEOPLE OF THE PHILIPPINES, represented by Spouses REYNALDO and ZENAIDA ANZURES; and REYNALDO R. BUAZON, In his official capacity as Sheriff IV, Regional Trial Court, Branch 9, Manila, Respondents. x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x DECISION CHICO-NAZARIO, J.: Before Us is a petition for review on certiorari, assailing the Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 58147, dated 16 June 2000 and 22 August 2000, respectively. The said Decision and Resolution declared that there was no grave abuse of discretion on the part of respondent Judge in issuing the assailed order dated 31 March 2000, which was the subject in CA-G.R. SP No. 58147. THE FACTS The factual milieu of the instant case can be traced from this Courts decision in G.R. No. 106214 promulgated on 05 September 1997. On 26 August 1988, Reynaldo Anzures instituted a complaint against Teresita Villaluz (Villaluz) for violation of Batas Pambansa Blg. 22. The criminal information was brought before the Regional Trial Court, City of Manila, and raffled off to Branch 9, then presided over by Judge Edilberto G. Sandoval, docketed as Criminal Case No. 89-69257.
[1] [2]

Villaluz interposed an appeal with the Court of Appeals, and on 30 April 1992, the latter [8] rendered its Decision, the dispositive portion of which partly reads: WHEREFORE, in CA-G.R. CV No. 28780, the Decision of the Regional Trial Court of Manila, Branch 9, dated May 25, 1990, as to the civil aspect of Criminal Case No. 89-69257, is hereby AFFIRMED, in all respects.

The case was elevated to the Supreme Court (G.R. No. 106214), and during its pendency, Villaluz posted a counter-bond in the amount of P2,500,000.00 issued by petitioner Security Pacific [9] [10] Assurance Corporation. Villaluz, on the same date of the counter-bond, filed an Urgent Motion [11] to Discharge Attachment. On 05 September 1997, we promulgated our decision in G.R. No. 106214, affirming in toto the decision of the Court of Appeals. In view of the finality of this Courts decision in G.R. No. 106214, the private complainant [12] moved for execution of judgment before the trial court.

53

On 07 May 1999, the trial court, now presided over by respondent Judge, issued a Writ of [13] Execution. Sheriff Reynaldo R. Buazon tried to serve the writ of execution upon Villaluz, but the latter no longer resided in her given address. This being the case, the sheriff sent a Notice of Garnishment upon petitioner at its office in Makati City, by virtue of the counter-bond posted by Villaluz with said insurance corporation in the amount ofP2,500,000.00. As reported by the sheriff, petitioner refused to assume its obligation on the counter-bond it posted for the discharge of the attachment made by [14] Villaluz. Reynaldo Anzures, through the private prosecutor, filed a Motion to Proceed with [15] [16] Garnishment, which was opposed by petitioner contending that it should not be held liable on the counter-attachment bond. The trial court, in its Order dated 31 March 2000, granted the Motion to Proceed with [18] Garnishment. The sheriff issued a Follow-Up of Garnishment addressed to the President/General Manager of petitioner dated 03 April 2000. On 07 April 2000, petitioner filed a Petition for Certiorari with Preliminary Injunction and/or [19] Temporary Restraining Order with the Court of Appeals, seeking the nullification of the trial courts order dated 31 March 2000 granting the motion to proceed with garnishment. Villaluz was also named as petitioner. The petitioners contended that the respondent Judge, in issuing the order dated 31 March 2000, and the sheriff committed grave abuse of discretion and grave errors of law in proceeding against the petitioner corporation on its counter-attachment bond, despite the fact that said bond was not approved by the Supreme Court, and that the condition by which said [20] bond was issued did not happen. On 16 June 2000, the Court of Appeals rendered a Decision, which reads:
[21] [17]

the total amount garnished from petitioner had amounted to P1,541,063.85, and so the remaining [28] amount still sought to be executed was P958,936.15. Petitioner tendered and paid the amount of P300,000.00 upon signing of the MOU, and the balance of P658,936.15 was to be paid in installment at P100,000.00 at the end of each month from February 2001 up to July 2001. At the end of August 2001, the amount of P58,936.00 would have to be paid. This would make the [29] aggregate amount paid to the private respondents P2,500,000.00. There was, however, a proviso in the MOU which states that this contract shall not be construed as a waiver or abandonment of the appellate review pending before the Supreme Court and that it will be subject to all such interim orders and final outcome of said case. On 13 August 2001, the instant petition was given due course, and the parties were obliged [30] to submit their respective Memoranda. ISSUES The petitioner raises the following issues for the resolution of this Court: Main Issue - WHETHER OR NOT THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN AFFIRMING THE 31 MARCH 2000 ORDER OF PUBLIC RESPONDENT JUDGE WHICH ALLOWED EXECUTION ON THE COUNTER-BOND ISSUED BY THE PETITIONER. Corollary Issues (1) WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY OF VILLALUZ WAS DISCHARGED WITHOUT NEED OF COURT APPROVAL OF THE COUNTER-BOND POSTED; and (2) WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT THE ATTACHMENT ON THE PROPERTY OF VILLALUZ WAS DISCHARGED BY THE MERE ACT OF POSTING THE COUNTER-BOND. THE COURTS RULING Petitioner seeks to escape liability by contending, in the main, that the writ of attachment which was earlier issued against the real properties of Villaluz was not discharged. Since the writ was not discharged, then its liability did not accrue. The alleged failure of this Court in G.R. No. 106214 to approve the counter-bond and to cause the discharge of the attachment against Villaluz prevented the happening of a condition upon which the counter-bonds issuance was premised, [31] such that petitioner should not be held liable thereon. Petitioner further asserts that the agreement between it and Villaluz is not a suretyship agreement in the sense that petitioner has become an additional debtor in relation to private [32] respondents. It is merely waiving its right of excussion that would ordinarily apply to counterbond guarantors as originally contemplated in Section 12, Rule 57 of the 1997 Rules. In their Comment, the private respondents assert that the filing of the counter-bond by Villaluz had already ipso facto discharged the attachment on the properties and made the petitioner liable on the bond. Upon acceptance of the premium, there was already an express contract for surety between Villaluz and petitioner in the amount ofP2,500,000.00 to answer for any adverse judgment/decision against Villaluz.
[33]

the dispositive portion of

WHEREFORE, premises considered, the Court finds no grave abuse of discretion on the part of respondent judge in issuing the assailed order. Hence, the petition is dismissed. A Motion for Reconsideration was filed by petitioner, but was denied for lack of merit by [23] the Court of Appeals in its Resolution dated 22 August 2000. Undeterred, petitioner filed the instant petition under Rule 45 of the 1997 Rules of Civil Procedure, with Urgent Application for a Writ of Preliminary Injunction and/or Temporary [24] Restraining Order. On 13 December 2000, this Court issued a Resolution requiring the private respondents to file their Comment to the Petition, which they did. Petitioner was required to file its [26] Reply thereafter. Meanwhile, on 17 January 2001, petitioner and the spouses Reynaldo and Zenaida Anzures [27] executed a Memorandum of Understanding (MOU). In it, it was stipulated that as of said date,
[25] [22]

54

Petitioner filed a Reply dated 09 May 2001 to private respondents Comment, admitting the binding effect of the bond as between the parties thereto. What it did not subscribe to was the theory that the attachment was ipso facto or automatically discharged by the mere filing of the bond in court. Such theory, according to petitioner, has no foundation. Without an order of discharge of attachment and approval of the bond, petitioner submits that its stipulated liability on said bond, premised on their occurrence, could not possibly arise, for to hold otherwise would be to trample upon the statutorily guaranteed right of the parties to contractual autonomy. Based on the circumstances present in this case, we find no compelling reason to reverse the ruling of the Court of Appeals. Over the years, in a number of cases, we have made certain pronouncements about counter-bonds. In Tijam v. Sibonghanoy, [36] Appeals, we held:
[35]

[34]

Petitioner does not deny that the contract between it and Villaluz is one of surety. However, it points out that the kind of surety agreement between them is one that merely waives its right of excussion. This cannot be so. The counter-bond itself states that the parties jointly and severally bind themselves to secure the payment of any judgment that the plaintiff may recover against the defendant in the action. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are [40] interwoven as to be inseparable. Suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promise of the principal is said to be direct, primary and absolute; in other words, he is directly and equally bound with the principal. The surety therefore becomes liable for the debt or duty of another although he possesses no direct or personal interest over the [41] obligations nor does he receive any benefit therefrom. In view of the nature and purpose of a surety agreement, petitioner, thus, is barred from disclaiming liability. Petitioners argument that the mere filing of a counter-bond in this case cannot automatically discharge the attachment without first an order of discharge and approval of the bond, is lame. Under the Rules, there are two (2) ways to secure the discharge of an attachment. First, the party whose property has been attached or a person appearing on his behalf may post a security. Second, said party may show that the order of attachment was improperly or irregularly [42] [43] issued. The first applies in the instant case. Section 12, Rule 57, provides: SEC. 12. Discharge of attachment upon giving counter-bond. After a writ of attachment has been enforced, the party whose property has been attached, or the person appearing on his behalf, may move for the discharge of the attachment wholly or in part on the security given. The court shall, after due notice and hearing, order the discharge of the attachment if the movant makes a cash deposit, or files a counter-bond executed to the attaching party with the clerk of the court where the application is made, in an amount equal to that fixed by the court in the order of attachment, exclusive of costs. But if the attachment is sought to be discharged with respect to a particular property, the counter-bond shall be equal to the value of that property as determined by the court. In either case, the cash deposit or the counter-bond shall secure the payment of any judgment that the attaching party may recover in the action. A notice of the deposit shall forthwith be served on the attaching party. Upon the discharge of an attachment in accordance with the provisions of this section, the property attached, or the proceeds of any sale thereof, shall be delivered to the party making the deposit or giving the counter-bond, or to the person appearing on his behalf, the deposit or counter-bond aforesaid standing in place of the property so released. Should such counter-bond for any reason be found to be or become insufficient, and the party furnishing the same fail to file an additional counter-bond, the attaching party may apply for a new order of attachment.

as reiterated in Vanguard Assurance Corp. v. Court of

. . . [A]fter the judgment for the plaintiff has become executory and the execution is returned unsatisfied, as in this case, the liability of the bond automatically attaches and, in failure of the surety to satisfy the judgment against the defendant despite demand therefore, writ of execution may issue against the surety to enforce the obligation of the bond.
[37]

In Luzon Steel Coporation v. Sia, et al.:

. . . [C]ounterbonds posted to obtain the lifting of a writ of attachment is due to these bonds being security for the payment of any judgment that the attaching party may obtain; they are thus mere replacements of the property formerly attached, and just as the latter may be levied upon after final judgment in the case in order to realize the amount adjudged, so is the liability of the countersureties ascertainable after the judgment has become final. . . .

In Imperial Insurance, Inc. v. De Los Angeles,

[38]

we ruled:

. . . Section 17, Rule 57 of the Rules of Court cannot be construed that an execution against the debtor be first returned unsatisfied even if the bond were a solidary one, for a procedural may not amend the substantive law expressed in the Civil Code, and further would nullify the express stipulation of the parties that the suretys obligation should be solidary with that of the defendan t. In Philippine British Assurance Co., Inc. v. Intermediate Appellate Court, we further held that the counterbond is intended to secure the payment of any judgment that the attaching creditor may recover in the action.
[39]

55

It should be noted that in G.R. No. 106214, per our Resolution dated 15 January [44] [45] 1997, we permitted Villaluz to file a counter-attachment bond. On 17 February 1997, we required the private respondents to comment on the sufficiency of the counter-bond posted by Villaluz. It is quite palpable that the necessary steps in the discharge of an attachment upon giving counter-bond have been taken. To require a specific order for the discharge of the attachment when this Court, in our decision in G.R. No. 106214, had already declared that the petitioner is solidarily bound with Villaluz would be mere surplusage. Thus: During the pendency of this petition, a counter-attachment bond was filed by petitioner Villaluz before this Court to discharge the attachment earlier issued by the trial court. Said bond amounting to P2.5 million was furnished by Security Pacific Assurance, Corp. which agreed to bind itself jointly and severally with petitioner for any judgment that may be recovered by private [46] respondent against the former.

The contract of surety is only between petitioner Villaluz and petitioner corporation. The petitioner corporation cannot escape liability by stating that a court approval is needed before it can be made liable. This defense can only be availed by petitioner corporation against petitioner Villaluz but not against third persons who are not parties to the contract of surety. The petitioners hold themselves out as jointly and severally liable without any conditions in the counter-attachment bond. The petitioner corporation cannot impose requisites before it can be made liable when [48] the law clearly does not require such requisites to be fulfilled. (Emphases supplied.)

Verily, a judgment must be read in its entirety, and it must be construed as a whole so as to bring all of its parts into harmony as far as this can be done by fair and reasonable interpretation and so as to give effect to every word and part, if possible, and to effectuate the intention and [49] purpose of the Court, consistent with the provisions of the organic law. Insurance companies are prone to invent excuses to avoid their just obligation. seems that this statement very well fits the instant case.
[50]

It

We are not unmindful of our ruling in the case of Belisle Investment and Finance Co., Inc. v. [47] State Investment House, Inc., where we held: . . . [T]he Court of Appeals correctly ruled that the mere posting of a counterbond does not automatically discharge the writ of attachment. It is only after hearing and after the judge has ordered the discharge of the attachment if a cash deposit is made or a counterbond is executed to the attaching creditor is filed, that the writ of attachment is properly discharged under Section 12, Rule 57 of the Rules of Court. The ruling in Belisle, at first glance, would suggest an error in the assailed ruling of the Court of Appeals because there was no specific resolution discharging the attachment and approving the counter-bond. As above-explained, however, consideration of our decision in G.R. No. 106214 in its entirety will readily show that this Court has virtually discharged the attachment after all the parties therein have been heard on the matter. On this score, we hew to the pertinent ratiocination of the Court of Appeals as regards the heretofore cited provision of Section 12, Rule 57 of the 1997 Rules of Civil Procedure, on the discharge of attachment upon giving counter-bond: . . . The filing of the counter-attachment bond by petitioner Villaluz has discharged the attachment on the properties and made the petitioner corporation liable on the counter-attachment bond. This can be gleaned from the DEFENDANTS BOND FOR THE DISSOLUTION OF ATTACHMENT, which states that Security Pacific Assurance Corporation, as surety, in consideration of the dissolution of the said attachment jointly and severally, binds itself with petitioner Villaluz for any judgment that may be recovered by private respondent Anzures against petitioner Villaluz.

WHEREFORE, in view of all the foregoing, the Decision and Resolution of the Court of Appeals dated 16 June 2000 and 22 August 2000, respectively, are both AFFIRMED. Costs against petitioner. SO ORDERED. (15) SPOUSES NOE and CLARITA QUIAMCO, Petitioners, Present: PUNO, C.J., Chairperson, - versus CORONA, * CARPIO MORALES, * NACHURA and LEONARDO-DE CASTRO, JJ. G.R. No. 170852

CAPITAL INSURANCE & SURETY CO., INC., Respondent. September 12, 2008

Promulgated:

x--------------------------------------------------x

RESOLUTION CORONA, J.:

56

This is a petition for review on certiorari of the August 25, 2005 decision [3] 24, 2005 resolution of the Court of Appeals (CA) in CA-G.R. CV No. 74390.

[1]

[2]

and November

Hence this petition raising two issues: (1) whether the surety agreement was perfected and (2) whether petitioners are liable to respondent. Petitioners argue that one of the conditions of the bond was to stay the execution of the judgment in the labor case: WHEREAS, [petitioners] being dissatisfied with the decision/judgment desired to stay and suspend the execution of the same pending appeal; WHEREAS, in order to stay the execution of the above-mentioned decision/judgment, [petitioners] are willing to post bond xxxx[12] (Emphasis supplied)

Petitioner spouses Noe and Clarita Quiamco are husband and wife engaged in the sea [4] transportation business. On April 30, 1997, a decision in a labor case was rendered against Clarita as representative of Sto. Nio Ferry Boat Services. Petitioners received the decision on [5] May 7, 1997. Petitioners then applied for a supersedeas bond with respondent Capital Insurance & Surety Co., Inc., a surety and non-life insurance company. This bond was required in order to perfect their appeal to the National Labor Relations Commission (NLRC). Respondent required petitioners to do the following: (1) to issue and deliver to it an undated check in the amount equivalent to that of the supersedeas bond which it would issue; (2) to execute a supplementary counter-guaranty with chattel mortgage over the sea vessel M/L Gretchen 2 owned by petitioners and to surrender their original copy of certificate of ownership over the vessel; (3) to execute an indemnity agreement wherein petitioners would agree to indemnify respondent all damages it might sustain in its capacity as surety and (4) to pay the premiums. Except for the original copy of the [6] certificate of ownership of M/L Gretchen 2, these requirements were complied with. Accordingly, the bond was issued on May 23, 1997 and delivered to petitioners who filed it [7] in the NLRC on May 24, 1997. On July 16, 1997, the NLRC dismissed the appeal for petitioners failure to post the bond [8] within 10 days from receipt of the decision (May 7, 1997). This made the decision in the labor case final against them. On June 17, 1998, a writ of execution for the amount of P461,514.67 was served by the sheriff of the NLRC on respondent to collect on the supersedeas bond. This was to fully satisfy the judgment amount in the labor case. Respondent paid to the NLRC the amount guaranteed by the bond. It notified petitioners and forthwith deposited the undated check. It was, however, [9] dishonored because the account was already closed. On December 3, 1998, respondent filed in the Regional Trial Court (RTC) of Cebu City, [10] Branch 22, a complaint for sum of money and damages with prayer for a writ of preliminary attachment against petitioners. The RTC ruled in favor of respondent. It ordered petitioners to pay to respondent the amount of P461,514.67 plus legal interest of 6% per annum, attorneys fees equivalent to 10% of P461,514.67 and P10,000 as litigation expenses. On appeal, the CA affirmed the RTCs decision but deleted the award of attorneys fees and litigation expenses for lack of basis. Reconsideration was denied in a resolution dated November 24, 2005. The CA agreed with the RTC that the surety agreement between petitioners and respondent had been perfected. Its perfection was not dependent on the acceptance by the NLRC of the appeal of petitioners in the labor case. Thus, respondent correctly paid the indebtedness of [11] petitioners.

Therefore, they insist that the surety agreement was not perfected because the execution of the judgment was not stayed considering that the NLRC rejected the bond for being posted out of time and dismissed the appeal. We disagree. There is no dispute that the parties entered into a contract of suretyship wherein respondent as surety bound itself solidarily with petitioners (the principal debtors) to fulfill an [13] obligation. The obligation was to pay the monetary award in the labor case should the decision become final and executory against petitioners. Contracts are perfected by mere consent. This is manifested by the meeting of the offer [14] and the acceptance upon the object and cause which are to constitute the contract. Here, the [15] object of the contract was the issuance of the bond. The cause or consideration consisted of the premiums paid. The bond was issued after petitioners complied with the requirements. At this point, the contract of suretyship was perfected. Petitioners cannot insist that the contract was subject to a suspensive condition, that is, the stay of the judgment of the labor arbiter. This was not a condition for the perfection of the contract but merely a statement of the purpose of the bond in its whereas clauses. Aside from this, there was no mention of the condition that before the contract could become valid and binding, [17] perfection of the appeal was necessary. If the intention was to make it a suspensive condition, then the parties should have made it clear in certain and unambiguous terms. From the moment the contract is perfected, the parties are bound to comply with what is expressly stipulated as well as with what is required by the nature of the obligation in keeping with [18] good faith, usage and the law. A surety is considered in law to be on the same footing as the [19] principal debtor in relation to whatever is adjudged against the latter. Accordingly, as surety of petitioners, respondent was obliged to pay on the bond when a writ of execution was served on it. Consequently, it now has the right to seek full reimbursement from petitioners for the amount [20] paid. Moreover, petitioners stipulations:
[21] [16]

signed an indemnity agreement which contained the following

57

INDEMNIFICATION: - To indemnify the SURETY for all damages, payments, advances, losses, costs, taxes, penalties, charges, attorneys fees and expenses of whatever kind and nature that the SURETY may at any time sustain or incur as a consequence of having become surety upon the above-mentioned bond, and to pay, reimburse and make good to the SURETY, its successors and assigns,all sums or all money which it shall pay or become liable to pay by virtue to said bond even if said payment/s or liability exceeds the amount of the bond. The indemnity for attorneys fees shall be twenty (20%) percent of the amount claimed by the SURETY, but in no case less than TWO THOUSAND PESOS (P2,000.00), whether the SURETYS claim is settled judicially or extra-judicially.

- versus -

PROJECT MOVERS REALTY AND DEVELOPMENT CORPORATION and STONGHOLD INSURANCE COMPANY, INC., Respondents.

YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CALLEJO, SR., CHICO-NAZARIO, and NACHURA, JJ.

Promulgated: April 4, 2007

INCONSTESTABILITY OF PAYMENT MADE BY THE SURETY: - Any payment or disbursement made by the SURETY on account of the above-mentioned bond, either in the belief that the SURETY was obligated to made such payment or in the belief that said payment was necessary in order to avoid a greater loss or obligation for which the SURETY might be liable by virtue of the terms of the above-mentioned bond shall be final, and will not be contested by the undersigned, who jointly and severally bind themselves to indemnity the SURETY for any such payment or disbursement. (Emphasis supplied) Undoubtedly, under these provisions, they are obligated to reimburse respondent.
[22]

x--------------------------------------------------x

DECISION

CALLEJO, SR., J.: This is a Petition for Review on Certiorari of the Decision of the Court of Appeals (CA) [2] dated May 7, 2004 in CA-G.R. CV No. 69962, and its Resolution datedNovember 16, 2004. The [3] assailed Decision affirmed with modification the Order dated September 19, 2000 issued by the Regional Trial Court (RTC), Makati City, Branch 56, in Civil Case No. 99-1051. Antecedents On December 19, 1997, Project Movers Realty and Development Corporation (PMRDC) obtained a loan from Emerita Garon in the amount of P6,088,783.68. The loan was covered by [4] Promissory Note No. PMRDC-97-12-332 to mature on December 19, 1998. The stipulated [5] interest rate, in accordance with the schedule of payment attached to the note, was 36% per annum. To secure the payment of the loan, PMRDC undertook to assign to Garon its leasehold rights over a space at the Monumento Plaza Commercial Complex, covered by Original Certificate of Leasehold Title (OCLT) No. 1108. The parties stipulated that failure to pay the note or any portion thereof, or any interest thereon, shall constitute default, and the entire obligation shall become due and payable without need of demand. On December 31, 1997, PMRDC obtained another loan from Garon in the amount of US$189,418.75, at 17% per annum, to mature on December 31, 1998. The transaction was [6] covered by Promissory Note No. PMRDC-D97-12-333. This loan was secured by an assignment of leasehold rights over another space of the Monumento Plaza Commercial Complex covered by OCLT No. 0161.
[1]

One final note. It was never respondents obligation to inquire about the deadline for which the bond was being issued. It was the duty of petitioners to make sure it was filed on time. The delay in filing the bond was purely the result of petitioners negligence or oversight. They should bear the consequences. WHEREFORE, the petition is hereby DENIED. Costs against petitioners. SO ORDERED.

(16) EMERITA GARON, Petitioner,

G.R. No. 166058 Present:

To secure its obligation to assign the leasehold rights to Garon, PMRDC procured a surety [7] bond from Stronghold Insurance Company, Inc. (SICI). The surety bond was subject to the following conditions:

58

WHEREAS, this bond is conditioned to guarantee the assignment of Leasehold Rights of the Principal at Monumento Plaza Building in favor of the Obligee over the Certain Original Certificate of Leasehold Title No. 0161 and 0108 (sic). WHEREAS, the liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: TWELVE MILLION SEVEN HUNDRED FIFTY-FIVE THOUSAND ONE HUNDRED THIRTY-NINE & 85/100 (P12,755,139.85) Only, Philippine Currency. xxx Liability of surety on this bond will expire on November 7, 1998 and said bond will be cancelled five days after its expiration, unless surety is notified of any existing obligations thereunder.[8] When PMRDC defaulted in the payment of its obligations, Garon sent a demand [9] letter dated November 3, 1998, requiring PMRDC to execute and deliver a unilateral Deed of Assignment of its leasehold rights over the commercial spaces covered by OCLT Nos. 1108 and [10] 0161. Garon also sent a formal demand letter dated November 6, 1998 for SICI to comply with its obligation under the surety bond. In view of PMRDCs and SICIs failure to comply with their respective obligations, Garon filed [11] a Complaint for collection before the RTC of Makati City. The case was raffled to Branch 56, and was docketed as Civil Case No. 99-1051. The complaint contained the following prayer: WHEREFORE, plaintiff respectfully prays that after hearing on the merits, this Court render[s] judgment in favor of plaintiff and against defendants as follows: 1. Ordering defendant PMRDC to pay plaintiff the sums of: 1.1. PESOS: Six Million Eighty-Eight Thousand Seven Hundred Eighty-Three and 68/100 (P6,088,783.68) under PMRDC-97-12-332; and 1.2. DOLLARS: One Hundred Eighty-Nine Thousand Four Hundred Eighteen and 75/100 (US$189,418.75) under PMRDC-97-12-333. 2. Declaring defendant Stronghold solidarily liable, and ordering it to pay plaintiff the sum of PESOS: Twelve Million Seven Hundred Fifty-Five Thousand One Hundred Thirty-Nine and 85/100 (P12,755,139.85) under SICI Bond No. 67831. 3. Ordering defendant PMRDC to pay: 3.1. Interest at 36% per annum and a penalty of 3% per month until full payment on the unpaid amount due under PMRDC-97-12-332; 3.2. Interest at 17% per annum and a penalty of 3% per month until full payment on the unpaid amount due under PMRDC-97-12-333; 3.3. Legal interest on the interest accruing at the time of the filing of the complaint conformably with Article 2212 of the New Civil Code.

4. On the third cause of action, ordering: 4.1. defendant PMRDC to pay PESOS: Ten Thousand (P10,000.00) as attorneys fees stipulated in PMRDC-97-12-332; 4.2. defendant PMRDC to pay PESOS: Ten Thousand (P10,000.00) as attorneys fees stipulated in PMRDC-97-12-333; and 4.3. defendant Stronghold to pay Attorneys fees in the amount of P200,000.00. 4.4. defendants PMRDC and Stronghold to pay plaintiff such amounts of litigation expenses and costs of suit as may be proven during trial. Other reliefs just and equitable under the premises are likewise prayed for. [12] In its Answer, SICI averred, as special and affirmative defenses, that the complaint stated no cause of action and was prematurely filed; its obligation had been extinguished; the liability on the bond had been discharged by the act of plaintiff and by the act of law; and its liability on the [14] bond had prescribed. It likewise contended that at the time plaintiff sent the demand letter, the [15] obligation guaranteed by the bond had not yet matured. It further claimed that it was misled by plaintiff and PMRDC that the bond guaranteed its investment with the project of PMRDC at Monumento Plaza. SICI also asserted that Garon did not exercise the diligence of a good father of a family to avoid or minimize losses since she did not even require the surrender of the OCLTs before the promissory notes were signed and the loans released. SICI also set up a cross-claim against PMRDC for the payment of any amount it may be ordered to pay to Garon, pursuant to the [16] [17] Indemnity Agreement executed by the latter. For its part, PMRDC denied that it executed the above-stated promissory notes and alleged [18] instead that they were merely roll-overs of PN No. 97-07-228 and 97-08-260. It also alleged that it had already complied with its undertaking under the promissory notes when it put up a surety [19] bond; and when Garon chose to demand from SICI, she effectively waived the right to claim from [20] it. PMRDC further denied liability on the stipulated interest on the ground that the same is [21] exorbitant and unconscionable. As a counterclaim, PMRDC asked for moral and exemplary [22] damages, as well as for attorneys fees. As and by way of cross-claim against SICI, it likewise [23] demanded the payment of moral damages and attorneys fees. Garon filed her Reply and a motion the motion and ruled as follows:
[24] [25] [13]

to render summary judgment. The RTC granted

WHEREFORE, premises considered, this Court hereby renders judgment in favor of plaintiff Mrs. Emerita I. Garon as follows: 1. Defendant Project Movers Realty and Development Corporation is hereby directed to pay plaintiff as follows: On Promissory Note No. PMRDC 97-12-332: (A) The sum of PESOS: Six Million Eighty-Eight Thousand Seven Hundred EightyThree and 68/100 (P6,088,783.68) under PMRDC-97-12-332;

59

(B) paid.

Interest thereon at 36% per annum computed from 19 December 1997 until fully

Meanwhile, on October 11, 2000 and February 16, 2001, PMRDC and SICI filed their [33] respective Notices of Appeal which the RTC approved. However, in view of PMRDCs failure to [34] file its appellants brief, the CA issued a Resolution dismissing its appeal for having been abandoned. The Resolution became final and executory. On the other hand, in its brief, SICI raised the following errors: I. THE LOWER COURT PALPABLY COMMITTED GRAVE ERROR IN GRANTING APPELLEES MOTION FOR SUMMARY JUDGMENT, DESPITE LACK OF VALID BASIS THEREFOR. II. THE LOWER COURT LIKEWISE PALPABLY COMMITTED GRAVE ERROR IN RENDERING THE SUMMARY JUDGMENT HOLDING APPELLANT STRONGHOLD LIABLE UNDER ITS SURETY BOND TO APPELLEE DESPITE LACK OF FACTUAL AND LEGAL BASIS FOR ITS JUDGMENT.[35] According to SICI, the RTC erroneously rendered summary judgment notwithstanding the [36] genuine issues raised by the parties. It claimed that its obligations under the surety bond never became effective because of PMRDCs failure to assign its leasehold rights. It likewise insisted that when the promissory notes matured, Garon could no longer run after it as its liability under the surety bond had already expired.
[37]

(C) A penalty of 3% per month computed from 03 November 1998 until full payment on all unpaid amounts consisting of the principal and interest. On Promissory Note PMRDC No. 97-12-333: (A) The peso equivalent of the sum of DOLLARS: One Hundred Eighty-Nine Thousand Four Hundred Eighteen and 75/100 (US$189,418.75) under PMRDC-97-12-333. (B) Interest thereon at the stipulated rate of 17% per annum computed from 31 December 1997; (C) A penalty of 3% per month computed from 03 November 1998 until full payment on all unpaid amounts consisting of the principal and interest. 2. Defendant Stronghold Insurance Company, Inc. is hereby held jointly and solidarily liable to plaintiff Mrs. Garon in the amount of PESOS: TWELVE MILLION SEVEN HUNDRED FIFTY FIVE THOUSAND ONE HUNDRED THIRTY NINE AND EIGHTY FIVE CENTAVOS (P12,755,139.85). 3. Defendants Project Movers Realty and Development Corporation and Stronghold Insurance Company, Inc. are also ordered to pay plaintiff Mrs. Garon jointly and severally the sum of PESOS: TWO HUNDRED THOUSAND as attorneys fees plus costs of suit. All other claims and counter-claims of the parties are hereby ordered dismissed. SO ORDERED.[26] The RTC found that the assignment of PMRDCs leasehold rights was merely an accessory obligation and not an alternative one; hence, Garons demand on SICIs obligation on the surety bond could not be considered a waiver of her right to collect from PMRDC. On SICIs contention that her claim was premature, the RTC ruled that the formers liability arose upon PMRDCs failure to assign the leasehold rights, not on the maturity date of the loan. The court further held that SICIs claim of prescription is without merit because plaintiff made a demand on November 6, 1998, while the surety bond expired on November 7, 1998. Garon filed a Motion for Execution Pending Appeal, while SICI filed a Motion for [28] [29] [30] Reconsideration. The court denied the motion for reconsideration and granted the motion for execution pending appeal. SICI then filed a special civil action for Certiorari with Temporary [31] Restraining Order (TRO) and/or Writ of Preliminary Injunction before the CA, docketed as CAG.R. SP No. 63334 assailing the order of the court granting execution pending [32] appeal. On February 23, 2001, the CA issued a TRO enjoining petitioner from enforcing the writ of execution pending appeal.
[27]

RTC.

On May 7, 2004, the CA affirmed with modification the decision of the The fallo reads:

WHEREFORE, foregoing considered, the appealed decision is affirmed with the modification that defendant-appellant SICI is not liable to plaintiff-appellee. No pronouncement as to cost. SO ORDERED.[38] In upholding the propriety of the summary judgment rendered by the RTC, the CA declared that no genuine issue was raised since the parties admitted executing the promissory notes and surety bond, and the non-performance of the correlative obligations; the liabilities of the parties were likewise clearly set forth in the contracts. The CA further affirmed the RTCs finding that PMRDC was not relieved of its liability despite the enforcement of Garons right against SICI; so long as the debt has not been fully paid, SICI is still liable. The CA found, however, that appellant cannot be held liable because its liability had long expired (on November 7, 1998) prior to the maturity dates of the loans on December 17 and 31, 1998. Thus, at the time PMRDC defaulted, the surety bond had long expired. Garon, now petitioner, comes before this Court on the sole ground that: THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN MODIFYING THE TRIAL COURTS DECISION AND FINDING THAT PROMISSORY NOTES NO. PMRDC 97-12-332 AND

60

PMRDC NO. 97-12-333 MATURED ONLY ON 17 DECEMBER 1998 AND 31 DECEMBER 1998, RESPECTIVELY.[39] Petitioner avers that it was specifically stated in the promissory notes that failure to pay any of the note or interest thereon shall constitute default, and the entire obligation shall immediately become due and payable. In view of PMRDCs default, the entire obligation became due and demandable. Moreover, the liability of respondent SICI attached the moment PMRDC failed to assign its leasehold rights. Thus, the CAs ruling that respondent cannot be held liable because the notes have not yet matured is utterly incorrect. For its part, respondent SICI avers that petitioner invoked the alleged acceleration clauses of the promissory notes only before this Court. It likewise argues that the maturity date of the loan is immaterial because the promissory notes were not guaranteed by the surety bond. As such, [40] respondent SICI cannot be made to answer for the payment of the loan. In her Reply, petitioner asserts that the promissory notes, which explicitly provide for the acceleration of the maturity dates, are all part of the record. Since respondent SICI did not deny the authenticity and due execution of the notes, the contents may be read in evidence in the resolution of the issues. She further states that in view of the admission of respondent SICI that the leasehold rights of PMRDC were never assigned to petitioner, the SICI should be held liable. Thus, the issue in this case is whether respondent SICI is liable to petitioner under its surety bond. The present controversy arose from the following contracts: (1) the contracts of loan [42] [43] covered by promissory notes No. PMRDC-97-12-332 and PMRDC-D97-12-333 dated December 19 and 31, 1997, between petitioner and PMRDC; and (2) the surety [44] bond dated November 7, 1997, between PMRDC and respondent SICI. In the subject promissory notes, PMRDC undertook to pay the amount of the loan covered by the two notes, as well as to assign its leasehold rights over two spaces in the Monumento Plaza Commercial Complex covered by OCLT Nos. 0161 and 1108, as a security for the loan. To secure PMRDCs obligation to assign its leasehold rights to petitioner, the former procured the surety bond from respondent SICI subject to the following conditions: WHEREAS, this bond is conditioned to guarantee the assignment of Leasehold Rights of the Principal at Monumento Plaza Building in favor of the Obligee over the Certain Original Certificate of Leasehold Title No. 0161 and 0108 (sic). WHEREAS, the liability of the surety company upon determination under this bond shall in no case exceed the penal sum of PESOS: TWELVE MILLION SEVEN HUNDRED FIFTY FIVE THOUSAND ONE HUNDRED THIRTY NINE & 85/100 (P12,755,139.85) Only, Philippine Currency. xxx
[41]

Liability of surety on this bond will expire on November 7, 1998 and said bond will be cancelled five days after its expiration, unless surety is notified of any existing obligations thereunder.[45] Thus, respondent SICI, in turn, undertook to guarantee the assignment of leasehold rights ; and bound itself to be liable to petitioner in case of PMRDCs failure to assign the leasehold rights in an amount not exceeding P12,755,139.85. This undertaking, however, was to expire on November 7, 1998. It must be stressed that the principal obligation guaranteed by the surety bond is the assignment of the leasehold rights of PMRDC to petitioner over the subject spaces. Petitioner made a formal demand on November 3, 1998 for PMRDC to perform the obligation, but the latter defaulted. As such, PMRDCs liability as principal arose. Consequently, respondents liability as surety likewise arose. Respondent therefore cannot claim that its obligation arose only upon the maturity of the subject loans. To sustain this contention would mean that respondent cannot be held liable under the surety bond, because if demand is made after the maturity dates of the loans December 19 and 31, 1998 it could again assert that its liability had expired on November 7, 1998. Suretyship arises upon the solidary binding of a person (deemed the surety) with the [46] principal debtor, for the purpose of fulfilling an obligation. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged as touching the obligation of the [47] latter, and their liabilities are interwoven as to be inseparable. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute, or [48] equivalent to that of a regular party to the undertaking. Notwithstanding the timeliness of the demand on respondent, the latter cannot be held liable in the instant case. Indeed, the liability of respondent arose the moment PMRDC failed to assign its leasehold rights; and the demand on respondent was made prior to the expiration of the surety bond. However, an examination of the terms of the surety bond clearly shows that respondent guaranteed the assignment of the leasehold rights, not the payment of a particular sum of money owed by PMRDC to petitioner. The principal obligation therefore is the assignment of the leasehold right, and the accessory obligation is the surety agreement. The Court notes, however, that respondent is a stranger to the contract of loan between petitioner and PMRDC; it cannot thus be held liable for an obligation which it did not undertake to perform or at least to guarantee. It is basic that the parties are bound by the terms of their contract which is the law between them. The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. It cannot be extended by implication, beyond the terms of the [49] contract. Contracts have the force of law between the parties who are free to stipulate any [50] matter not contrary to law, morals, good customs, public order or public policy. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal [51] meaning of its stipulations shall control. Since respondents undertaking under the surety bond was to guarantee the assignment of leasehold rights, the security of the principal debt, its obligation cannot extend to the payment of the principal obligation; to do so would mean going beyond the terms of the contract.

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The records show that in her demand letters dated November 3 and 6, 1998, petitioner made formal demands on both PMRDC and respondent for the assignment of PMRDCs leasehold right. However, in her complaint in Civil Case No. 99-1051 where the present case arose, petitioner prayed for the payment of the principal debt, not theassignment of PMRDCs leasehold rights. The pertinent portion of the complaint reads: WHEREFORE, plaintiff respectfully prays that after hearing on the merits, this court render[s] judgment in favor of plaintiff and against defendants as follows: 1. Ordering defendant PMRDC to pay plaintiff the sums of: xxx 2. Declaring defendant Stronghold solidarily liable and ordering it to pay plaintiff the sum of x x x. (Emphasis supplied)[52] It thus shows that petitioner was enforcing her right to collect the debt, rather than her right to secure it through the assignment of the leasehold right. Respondent is being made solidarily liable for the payment of such debt which obviously is beyond its undertaking under the surety bond. In sum, respondents liability on the bond arose from the time PMRDC failed to comply with its obligation to assign its leasehold rights over the subject properties as security for the payment of her debt covered by the promissory notes, not on the maturity of the loan. However, respondent cannot be held liable to make such payment for the following reasons: (1) its undertaking under the surety bond was merely to guarantee the assignment of PMRDCs leasehold rights and not the payment of the principal obligation; and (2) petitioner, in instituting the instant case, is seeking to enforce her right to collect the principal debt rather than enforce the security. IN LIGHT OF ALL THE FOREGOING, the instant petition is hereby DENIED. The Decision of the Court of Appeals dated May 7, 2004, and its Resolution datedNovember 16, 2004, are AFFIRMED. SO ORDERED. (17) TIU HIONG GUAN, LUISA DE VERA TIU, JUANITO RELLERA and PURITA RELLERA, Petitioners,

METROPOLITAN BANK & TRUST COMPANY, Respondent.

Promulgated: August 9, 2006

x --------------------------------------------------------------------------------------- x

DECISION AZCUNA, J.: This is a petition for review by Tiu Hiong Guan, Luisa de Vera Tiu, Juanito Rellera, and Purita Rellera, assailing the Decision and Resolution of the Court of Appeals dated May 23, 2000 and August 11, 2000, respectively, in CA-G.R. CV No. 57571 entitled Metropolitan Bank & Trust Co. v. Tiu Hiong Guan, et al. The facts
[2] [1]

of the case are as follows:

Sometime in October 1990, petitioners applied for a continuing credit facility for and in behalf of themselves and their corporation, Sunta Rubberized Industrial Corporation(Sunta), and executed in their personal and official capacities a Continuing Surety Agreement. In the said Agreement, petitioners jointly and severally obligated themselves to pay all loans and credit accommodations that they and Sunta may incur, supposedly not exceeding three million pesos. It was further stipulated therein that, in case of default in the payment thereof, notwithstanding Sunta's dissolution, failure in business, insolvency, and the filing of a petition for bankruptcy or suspension of payments in the proceeding related thereto, the whole obligation shall become due and payable without benefit of demand or notice of payment. On July 9, 1990, petitioners opened an irrevocable Commercial Letter of Credit (LC) for the purchase of raw materials amounting to P480,000 in favor of Sunta. These materials were delivered and custody thereof transferred to Sunta, after which a Trust Receipt Agreement was jointly and severally executed by petitioners in their personal capacities. On August 18, 1990, Sunta and petitioners also in their personal capacities obtained a loan of P350,000.

G.R. No. 144339 Present: PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, CORONA, GARCIA, JJ.

After maturity of the obligation, there was both failure of payment and compliance with the surety and trust receipt agreements, sight draft, and promissory note. The total unpaid obligation as of February 15, 1993 was P1,571,972.86. Prayed for by respondent in its complaint a quo were the payments of P741,599.64, with interest and penalties on the promissory note, per Order dated June 9, 1993; P830,373.20, with interest and penalties as stipulated in the Trust Receipt Agreement; and attorney's fees. In their Answer, petitioners admitted execution of the Continuing Surety Agreement not in their personal capacities but as officers of Sunta. It was also asserted therein that none of them

- versus AZCUNA, and

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personally benefited from the loan transaction, while two of them signed the LC as mere officers of Sunta. The failure of Sunta to pay its obligation was attributed to both force majeure when fire gutted down its factory buildings, equipment, machinery, raw materials and finished products and the Order dated April 20, 1993 by the Securities and Exchange Commission (SEC) in SEC Case No. 4240 suspending all actions for claims against Sunta that are pending before any court or tribunal. It was contended that the real party-in-interest as far as the actionable documents herein were concerned was Sunta, not petitioners who merely acted as its agents and as guarantors of its obligation. Therefore, petitioners should not be compelled to pay the obligations of Sunta, because Sunta is solvent and its assets have not yet been exhausted. Petitioners further argued that, although Sunta had possession of the finished products later destroyed by fire, respondent still retained its ownership over them. As mere agents carrying out the orders of their principal, petitioners claimed that they could not be held responsible for the loss of property, unless there was negligence, deceit, fraud, or excess of authority. Hence, the said loss should fall upon its owner. In its Decision dated May 28, 1997, the Regional Trial Court (RTC) of Manila, Branch 51, ruled in favor of respondent in the following manner: IN VIEW OF THE FOREGOING, this Court believes and so [holds] that the [respondent] has established the preponderant proof to support its position as against [petitioners'] claim that they are not jointly and severally liable with SUNTA. WHEREFORE, judgment is hereby rendered in favor of the [respondent] and against the [petitioners], ordering the [petitioners] jointly and severally to pay [respondent]: 1. The sum of P741,599.64 as of February 15, 1993 with interest at 28.792% per annum and penalty charges of 18% per annum until fully paid representing the amount due on the promissory note; 2. The sum of P830,373.20 as of February 15, 1993 with interest at the current rate [and] with penalty charges of 12% per annum until fully paid representing the value or proceeds of the amount held in trust as stipulated; 3. [A]ttorney's fees in the amount equivalent to 10% of the amount due from the [petitioners]; and 4. The costs of suit. [Petitioners'] counterclaim is hereby dismissed for lack of merit. SO ORDERED.
[3]

Petitioners went on appeal asking for reversal of the RTC Decision. The Court of Appeals rendered its assailed Decision, the dispositive portion of which reads: THE FOREGOING CONSIDERED, the appealed Decision is hereby AFFIRMED. SO ORDERED.
[4]

As stated, reconsideration was denied. Hence, this petition positing: WHETHER PETITIONERS CAN BE HELD LIABLE FOR THE UNPAID LOAN DUE AND OWING RESPONDENT.

Petitioners should be held liable for their unpaid obligation of P1,571,972.86 as of February 15, 1993, with penalties, interest, attorneys fees, and costs of suit, based on both the nonnegotiable Promissory Note and Continuing Surety Agreement they executed. Under the Promissory Note, petitioners Tiu Hiong Guan and Juanito Rellera promised to pay respondent jointly and severally the single-payment loan of P350,000 at 28.92% interest per annum, binding themselves in both their personal and official capacities. In case of default inter alia in the payment of any installment, interest, or charges, it is stipulated that the entire principal, as well as the interest and charges, shall become due and payable at the option of and without notice by respondent. A penalty charge of 18% per annum and attorney's fees of 10% were also agreed upon therein. The Continuing Surety Agreement clearly states that the liability of all petitioners, as sureties, shall be solidary with Sunta, as their principal, for all of the latter's loans, credits, overdrafts, advances, discounts and/or other credit accommodations not exceeding P3,000,000. In case of default inter alia in the payment of any obligation upon maturity or any amortization thereof, it is similarly stipulated that all instruments, indebtedness, or other obligations thereby secured shall become due and payable by the sureties, at the option of and without demand or notice by respondent. In fact, their liability is expressly stated to be direct and immediate, not contingent upon the pursuit by respondent of whatever remedies it may have against Sunta. All parties therein have agreed that the sureties shall at any time pay respondent, with or without demand upon Sunta, any of the loans, indebtedness, or other obligations secured, whether due or not. Any notice given by respondent to any of the sureties shall be sufficient notice to all. From these two documents, the liability of petitioners is joint and several in both their personal and official capacities. They are not mere guarantors, but sureties. They do not insure the solvency of the debtor, but rather the debt itself. They obligate themselves to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially capable to fulfill [5] his obligation.

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Time and again, x x x the liability of a surety is determined strictly on the basis of the terms [6] and conditions set out in the surety agreement. Solidary liability is one of its primary [7] characteristics. The creditor may proceed against any one of the solidary debtors or some or all [8] of them simultaneously. Thus, respondent may proceed against Sunta alone or some or all of petitioners herein. Suretyship arises upon the solidary binding of a person deemed the surety with the [9] principal debtor, for the purpose of fulfilling an obligation. [A] suretyship is merely an accessory x x x to a principal obligation. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute; or equivalent to that of a regular party to the undertaking. A surety becomes liable to the debt and duty of the principal obligor even without [10] possessing a direct or personal interest in the obligations constituted by the latter. Petitioners are considered as being the same party as the debtor in relation to whatever is adjudged touching [11] the obligation of the latter, and their liabilities are interwoven as to be inseparable. It is irrelevant that none of petitioners personally benefited from the loan transaction between Sunta and respondent. The failure to pay attributable to either force majeure or the SEC Order does not veer away from the fact of liability as sureties. Even though ownership over the goods remains with respondent, the loss thereof has nothing to do with the loan that petitioners bound themselves to be solidarily liable with respondent. The Trust Receipt Agreement between them is a mere collateral agreement independent of the Continuing Surety Agreement, the purpose of [12] which is to serve as additional security for the loan. [P]arties are bound by the terms of their [13] contract, which is the law between them. WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 57571, dated May 23, 2000 and August 11, 2000, respectively, are hereby AFFIRMED. Costs against petitioners. SO ORDERED.
(18) G.R. No. 140047 July 13, 2004 PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner, vs. V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO; SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents. DECISION DAVIDE, JR., C.J.: This case is an offshoot of a service contract entered into by a Filipino construction firm with the Iraqi Government for the construction of the Institute of Physical Therapy-Medical Center, Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing. In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan Guarantee Corporation1 (hereinafter Philguarantee) sought reimbursement from the respondents of the sum of money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio Construction, Inc. (VPECI). The factual and procedural antecedents in this case are as follows:

On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical TherapyMedical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal Trading and Contracting Company (hereinafter Ajyal), a firm duly licensed with the Kuwait Chamber of Commerce for a total contract price of ID5,416,089/046 (or about US$18,739,668).2 On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction business, entered into a joint venture agreement with Ajyal wherein the former undertook the execution of the entire Project, while the latter would be entitled to a commission of 4% of the contract price. 3 Later, or on 8 April 1981, respondent 3-Plex, not being accredited by or registered with the Philippine Overseas Construction Board (POCB), assigned and transferred all its rights and interests under the joint venture agreement to VPECI, a construction and engineering firm duly registered with the POCB.4 However, on 2 May 1981, 3-Plex and VPECI entered into an agreement that the execution of the Project would be under their joint management.5 The SOB required the contractors to submit (1) a performance bond of ID271,808/610 representing 5% of the total contract price and (2) an advance payment bond of ID541,608/901 representing 10% of the advance payment to be released upon signing of the contract.6 To comply with these requirements, respondents 3-Plex and VPECI applied for the issuance of a guarantee with petitioner Philguarantee, a government financial institution empowered to issue guarantees for qualified Filipino contractors to secure the performance of approved service contracts abroad.7 Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee 8 were issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the performance and advance payment bonds, but they were not accepted by SOB. What SOB required was a letter-guarantee from Rafidain Bank, the government bank of Iraq. Rafidain Bank then issued a performance bond in favor of SOB on the condition that another foreign bank, not Philguarantee, would issue a counter-guarantee to cover its exposure. Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its favor from the petitioner. Thus, three layers of guarantees had to be arranged.9 Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance Bond Guarantee) in the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F11 (Advance Payment Guarantee) in the amount of ID541,608/901, both for a term of eighteen months from 25 May 1981. These letters of guarantee were secured by (1) a Deed of Undertaking12 executed by respondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos; and (2) a surety bond13 issued by respondent First Integrated Bonding and Insurance Company, Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to increase the amount of coverage from P6.4 million to P6.967 million and to change the bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait. 14 On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract 15 for the construction of the Institute of Physical Therapy Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within a period of 547 days or 18 months. Under the Contract, the Joint Venture would supply manpower and materials, and SOB would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars.16 The construction, which was supposed to start on 2 June 1981, commenced only on the last week of August 1981. Because of this delay and the slow progress of the construction work due to some setbacks and difficulties, the Project was not completed on 15 November 1982 as scheduled. But in October 1982, upon foreseeing the impossibility of meeting the deadline and upon the request of Al Ahli Bank, the joint venture

64

contractor worked for the renewal or extension of the Performance Bond and Advance Payment Guarantee. Petitioner's Letters of Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance Payment Bond) with expiry date of 25 November 1982 were then renewed or extended to 9 February 1983 and 9 March 1983, respectively.17 The surety bond was also extended for another period of one year, from 12 May 1982 to 12 May 1983.18 The Performance Bond was further extended twelve times with validity of up to 8 December 1986,19 while the Advance Payment Guarantee was extended three times more up to 24 May 1984 when the latter was cancelled after full refund or reimbursement by the joint venture contractor. 20 The surety bond was likewise extended to 8 May 1987.21 As of March 1986, the status of the Project was 51% accomplished, meaning the structures were already finished. The remaining 47% consisted in electro-mechanical works and the 2%, sanitary works, which both required importation of equipment and materials.22 On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counter-guarantee. Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the performance guarantee for being a drastic action in contravention of its mutual agreement with the latter that (1) the imposition of penalty would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the developments on the negotiations for a foreign loan to finance the completion of the project.23 It also wrote SOB protesting the call for lack of factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi government's lack of foreign exchange with which to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the past several years with the provision in the contract that 75% of the billings would be paid in US dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project.25 On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related expenses.26 Both petitioner Philguarantee and respondent VPECI sought the assistance of some government agencies of the Philippines. On 10 August 1987, VPECI requested the Central Bank to hold in abeyance the payment by the petitioner "to allow the diplomatic machinery to take its course, for otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed against a Filipino contractor." 27 On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the performance counter-guarantee for VPECI's project in Iraq. 28 On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner for the advances made on its counter-guarantee.29 The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January 1988. 30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83 representing interest and penalty charges demanded by the latter bank.31

On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the amount ofP47,872,373.98 plus accruing interest, penalty charges, and 10% attorney's fees pursuant to their joint and solidary obligations under the deed of undertaking and surety bond. 32 When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a sum of money against the respondents before the RTC of Makati City. After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause of action against the respondents. It opined that at the time the call was made on the guarantee which was executed for a specific period, the guarantee had already lapsed or expired. There was no valid renewal or extension of the guarantee for failure of the petitioner to secure respondents' express consent thereto. The trial court also found that the joint venture contractor incurred no delay in the execution of the Project. Considering the Project owner's violations of the contract which rendered impossible the joint venture contractor's performance of its undertaking, no valid call on the guarantee could be made. Furthermore, the trial court held that no valid notice was first made by the Project owner SOB to the joint venture contractor before the call on the guarantee. Accordingly, it dismissed the complaint, as well as the counterclaims and cross-claim, and ordered the petitioner to pay attorney's fees of P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3Plex and the Santos Spouses, plus costs. 33 In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision, ratiocinating as follows: First, appellant cannot deny the fact that it was fully aware of the status of project implementation as well as the problems besetting the contractors, between 1982 to 1985, having sent some of its people to Baghdad during that period. The successive renewals/extensions of the guarantees in fact, was prompted by delays, not solely attributable to the contractors, and such extension understandably allowed by the SOB (project owner) which had not anyway complied with its contractual commitment to tender 75% of payment in US Dollars, and which still retained overdue amounts collectible by VPECI. Second, appellant was very much aware of the violations committed by the SOB of its contractual undertakings with VPECI, principally, the payment of foreign currency (US$) for 75% of the total contract price, as well as of the complications and injustice that will result from its payment of the full amount of the performance guarantee, as evident in PHILGUARANTEE's letter dated 13 May 1987 . Third, appellant was fully aware that SOB was in fact still obligated to the Joint Venture and there was still an amount collectible from and still being retained by the project owner, which amount can be set-off with the sum covered by the performance guarantee. Fourth, well-apprised of the above conditions obtaining at the Project site and cognizant of the war situation at the time in Iraq, appellant, though earlier has made representations with the SOB regarding a possible amicable termination of the Project as suggested by VPECI, made a complete turn-around and insisted on acting in favor of the unjustified "call" by the foreign banks.35 The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Court of Appeals erred in affirming the trial court's ruling that

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I RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTERGUARANTEE. II PETITIONER CANNOT CLAIM SUBROGATION. III IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLE UNDER THEIR DEED OF UNDERTAKING.36 The main issue in this case is whether the petitioner is entitled to reimbursement of what it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed of undertaking and surety bond from the respondents. The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable the nature and extent of its liability are analogous to those of suretyship. Its liability accrued upon the failure of the respondents to finish the construction of the Institute of Physical Therapy Buildings in Baghdad. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the contract is called suretyship. 37 Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. In both contracts, there is a promise to answer for the debt or default of another. However, in this jurisdiction, they may be distinguished thus: 1. A surety is usually bound with his principal by the same instrument executed at the same time and on the same consideration. On the other hand, the contract of guaranty is the guarantor's own separate undertaking often supported by a consideration separate from that supporting the contract of the principal; the original contract of his principal is not his contract. 2. A surety assumes liability as a regular party to the undertaking; while the liability of a guarantor is conditional depending on the failure of the primary debtor to pay the obligation. 3. The obligation of a surety is primary, while that of a guarantor is secondary. 4. A surety is an original promissor and debtor from the beginning, while a guarantor is charged on his own undertaking. 5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not bound to take notice of the non-performance of his principal.

6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to the principal or by want of notice of the default of the principal, no matter how much he may be injured thereby. A guarantor is often discharged by the mere indulgence of the creditor to the principal, and is usually not liable unless notified of the default of the principal. 38 In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F, which provides in part as follows: In consideration of your issuing the above performance guarantee/counter-guarantee, we hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad, Iraq, plus interest and other incidental expenses related thereto. In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest and other incidental expenses. (Emphasis supplied)39 Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time and in the form he bound himself.40 In other words, an unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous event, beyond the mere default of the principal, and generally upon notice of the principal's default and reasonable diligence in exhausting proper remedies against the principal. 41 It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner's guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party should not be considered a surety where the contract itself stipulates that he is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one of suretyship.42 Having determined petitioner's liability as guarantor, the next question we have to grapple with is whether the respondent contractor has defaulted in its obligations that would justify resort to the guaranty. This is a mixed question of fact and law that is better addressed by the lower courts, since this Court is not a trier of facts. It is a fundamental and settled rule that the findings of fact of the trial court and the Court of Appeals are binding or conclusive upon this Court unless they are not supported by the evidence or unless strong and cogent reasons dictate otherwise.43 The factual findings of the Court of Appeals are normally not reviewable by us under Rule 45 of the Rules of Court except when they are at variance with those of the trial court. 44 The trial court and the Court of Appeals were in unison that the respondent contractor cannot be considered to have defaulted in its obligations because the cause of the delay was not primarily attributable to it. A corollary issue is what law should be applied in determining whether the respondent contractor has defaulted in the performance of its obligations under the service contract. The question of whether there is

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a breach of an agreement, which includes default or mora,45 pertains to the essential or intrinsic validity of a contract. 46 No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule followed by most legal systems, however, is that the intrinsic validity of a contract must be governed by the lex contractus or "proper law of the contract." This is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci intentionis). The law selected may be implied from such factors as substantial connection with the transaction, or the nationality or domicile of the parties.47 Philippine courts would do well to adopt the first and most basic rule in most legal systems, namely, to allow the parties to select the law applicable to their contract, subject to the limitation that it is not against the law, morals, or public policy of the forum and that the chosen law must bear a substantive relationship to the transaction. 48 It must be noted that the service contract between SOB and VPECI contains no express choice of the law that would govern it. In the United States and Europe, the two rules that now seem to have emerged as "kings of the hill" are (1) the parties may choose the governing law; and (2) in the absence of such a choice, the applicable law is that of the State that "has the most significant relationship to the transaction and the parties." 49 Another authority proposed that all matters relating to the time, place, and manner of performance and valid excuses for non-performance are determined by the law of the place of performance or lex loci solutionis, which is useful because it is undoubtedly always connected to the contract in a significant way.50 In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours.51 Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what is incumbent upon him." Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. 52 It is the non-fulfillment of an obligation with respect to time.53 It is undisputed that only 51.7% of the total work had been accomplished. The 48.3% unfinished portion consisted in the purchase and installation of electro-mechanical equipment and materials, which were available from foreign suppliers, thus requiring US Dollars for their importation. The monthly billings and payments made by SOB54reveal that the agreement between the parties was a periodic payment by the Project owner to the contractor depending on the percentage of accomplishment within the period. 55 The payments were, in turn, to be used by the contractor to finance the subsequent phase of the work. 56 However, as explained by VPECI in its letter to the Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars adversely affected the completion of the project; thus: 4. Despite protests from the plaintiff, SOB continued paying the accomplishment billings of the Contractor purely in Iraqi Dinars and which payment came only after some delays. 5. SOB is fully aware of the following:

5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency (US$), to finance the purchase of various equipment, materials, supplies, tools and to pay for the cost of project management, supervision and skilled labor not available in Iraq and therefore have to be imported and or obtained from the Philippines and other sources outside Iraq. 5.3 That the Ministry of Labor and Employment of the Philippines requires the remittance into the Philippines of 70% of the salaries of Filipino workers working abroad in US Dollars; 5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannot be used to purchase equipment, materials, supplies, etc. outside of Iraq; 5.6 That most of the materials specified by SOB in the CONTRACT are not available in Iraq and therefore have to be imported; 5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui Dinars) out of Iraq and hence, imported materials, equipment, etc., cannot be purchased or obtained using Iraqui Dinars as medium of acquisition. 8. Following the approved construction program of the CONTRACT, upon completion of the civil works portion of the installation of equipment for the building, should immediately follow, however, the CONTRACT specified that these equipment which are to be installed and to form part of the PROJECT have to be procured outside Iraq since these are not being locally manufactured. Copy f the relevant portion of the Technical Specification is hereto attached as Annex "C" and made an integral part hereof; 10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist the Iraqi government in completing the PROJECT, the Contractor without any obligation on its part to do so but with the knowledge and consent of SOB and the Ministry of Housing & Construction of Iraq, offered to arrange on behalf of SOB, a foreign currency loan, through the facilities of Circle International S.A., the Contractor's Sub-contractor and SACE MEDIO CREDITO which will act as the guarantor for this foreign currency loan. Arrangements were first made with Banco di Roma. Negotiation started in June 1985. SOB is informed of the developments of this negotiation, attached is a copy of the draft of the loan Agreement between SOB as the Borrower and Agent. The Several Banks, as Lender, and counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine (Mediocredito) Sezione Speciale Per L'Assicurazione Del Credito All'Exportazione (Sace). Negotiations went on and continued until it suddenly collapsed due to the reported default by Iraq in the payment of its obligations with Italian government, copy of the news clipping dated June 18, 1986 is hereto attached as Annex "D" to form an integral part hereof; 15. On September 15, 1986, Contractor received information from Circle International S.A. that because of the news report that Iraq defaulted in its obligations with European banks, the approval by Banco di Roma of the loan to SOB shall be deferred indefinitely, a copy of the letter of Circle International together with the news clippings are hereto attached as Annexes "F" and "F-1", respectively.57

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As found by both the Court of Appeals and the trial court, the delay or the non-completion of the Project was caused by factors not imputable to the respondent contractor. It was rather due mainly to the persistent violations by SOB of the terms and conditions of the contract, particularly its failure to pay 75% of the accomplished work in US Dollars. Indeed, where one of the parties to a contract does not perform in a proper manner the prestation which he is bound to perform under the contract, he is not entitled to demand the performance of the other party. A party does not incur in delay if the other party fails to perform the obligation incumbent upon him. The petitioner, however, maintains that the payments by SOB of the monthly billings in purely Iraqi Dinars did not render impossible the performance of the Project by VPECI. Such posture is quite contrary to its previous representations. In his 26 March 1987 letter to the Office of the Middle Eastern and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-President Jesus M. Taedo stated that while VPECI had taken every possible measure to complete the Project, the war situation in Iraq, particularly the lack of foreign exchange, was proving to be a great obstacle; thus: VPECI has taken every possible measure for the completion of the project but the war situation in Iraq particularly the lack of foreign exchange is proving to be a great obstacle. Our performance counterguarantee was called last 26 October 1986 when the negotiations for a foreign currency loan with the Italian government through Banco de Roma bogged down following news report that Iraq has defaulted in its obligation with major European banks. Unless the situation in Iraq is improved as to allay the bank's apprehension, there is no assurance that the project will ever be completed. 58 In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance because it must appear that the tolerance or benevolence of the creditor must have ended. 59 As stated earlier, SOB cannot yet demand complete performance from VPECI because it has not yet itself performed its obligation in a proper manner, particularly the payment of the 75% of the cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in delay. Even assuming that there was delay and that the delay was attributable to VPECI, still the effects of that delay ceased upon the renunciation by the creditor, SOB, which could be implied when the latter granted several extensions of time to the former. 60 Besides, no demand has yet been made by SOB against the respondent contractor. Demand is generally necessary even if a period has been fixed in the obligation. And default generally begins from the moment the creditor demands judicially or extra-judicially the performance of the obligation. Without such demand, the effects of default will not arise.61 Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor. 62 It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI.63 In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor. As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had collectibles from SOB which could be set off with the amount covered by the performance guarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated 10 February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint venture contractor from the petitioner would "be deducted from the dues of the two contractors."64

Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, the petitioner raised as among the arguments to be presented in support of the cancellation of the counter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Project was more than enough to cover the counterguarantee of ID271,808/610; thus: 6.1 Present the following arguments in cancelling the counterguarantee: The Iraqi Government does not have the foreign exchange to fulfill its contractual obligations of paying 75% of progress billings in US dollars. It could also be argued that the amount of ID281,414/066 retained by SOB from the proposed project is more than the amount of the outstanding counterguarantee.65 In a nutshell, since the petitioner was aware of the contractor's outstanding receivables from SOB, it should have set up compensation as was proposed in its project situationer. Moreover, the petitioner was very much aware of the predicament of the respondents. In fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated: VPECI also maintains that the delay in the completion of the project was mainly due to SOB's violation of contract terms and as such, call on the guarantee has no basis. While PHILGUARANTEE is prepared to honor its commitment under the guarantee, PHILGUARANTEE does not want to be an instrument in any case of inequity committed against a Filipino contractor. It is for this reason that we are constrained to seek your assistance not only in ascertaining the veracity of Al Ahli Bank's claim that it has paid Rafidain Bank but possibly averting such an event. As any payment effected by the banks will complicate matters, we cannot help underscore the urgency of VPECI's bid for government intervention for the amicable termination of the contract and release of the performance guarantee. 66 But surprisingly, though fully cognizant of SOB's violations of the service contract and VPECI's outstanding receivables from SOB, as well as the situation obtaining in the Project site compounded by the Iran-Iraq war, the petitioner opted to pay the second layer guarantor not only the full amount of the performance bond counterguarantee but also interests and penalty charges. This brings us to the next question: May the petitioner as a guarantor secure reimbursement from the respondents for what it has paid under Letter of Guarantee No. 81-194-F? As a rule, a guarantor who pays for a debtor should be indemnified by the latter67 and would be legally subrogated to the rights which the creditor has against the debtor. 68 However, a person who makes payment without the knowledge or against the will of the debtor has the right to recover only insofar as the payment has been beneficial to the debtor.69 If the obligation was subject to defenses on the part of the debtor, the same defenses which could have been set up against the creditor can be set up against the paying guarantor. 70 From the findings of the Court of Appeals and the trial court, it is clear that the payment made by the petitioner guarantor did not in any way benefit the principal debtor, given the project status and the conditions obtaining at the Project site at that time. Moreover, the respondent contractor was found to have valid defenses against SOB, which are fully supported by evidence and which have been meritoriously set up against the paying

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guarantor, the petitioner in this case. And even if the deed of undertaking and the surety bond secured petitioner's guaranty, the petitioner is precluded from enforcing the same by reason of the petitioner's undue payment on the guaranty. Rights under the deed of undertaking and the surety bond do not arise because these contracts depend on the validity of the enforcement of the guaranty. The petitioner guarantor should have waited for the natural course of guaranty: the debtor VPECI should have, in the first place, defaulted in its obligation and that the creditor SOB should have first made a demand from the principal debtor. It is only when the debtor does not or cannot pay, in whole or in part, that the guarantor should pay.71 When the petitioner guarantor in this case paid against the will of the debtor VPECI, the debtor VPECI may set up against it defenses available against the creditor SOB at the time of payment. This is the hard lesson that the petitioner must learn. As the government arm in pursuing its objective of providing "the necessary support and assistance in order to enable [Filipino exporters and contractors to operate viably under the prevailing economic and business conditions,"72 the petitioner should have exercised prudence and caution under the circumstances. As aptly put by the Court of Appeals, it would be the height of inequity to allow the petitioner to pass on its losses to the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank and constantly apprised it of the developments in the Project implementation. WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit, and the decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED. No pronouncement as to costs. SO ORDERED. Panganiban, Ynares-Santiago, Carpio, and Azcuna, JJ., concur

Under consideration is this petition for review on certiorari to set aside and reverse that [1] portion of the Decision dated January 31, 2002 of the Court of Appeals (CA) in CA G.R. CV No. 56487 entitled China Banking Corporation vs. Olbes, Ogilvy & Mather, Inc. (OO&M), Ramon R. Olbes and Ricardo R. Olbes, holding herein petitioners Ramon R. Olbes and Ricardo R. Olbes solidarily liable with OO&M on the loan obligation obtained by the latter from respondent China Banking Corporation. The CA recites the facts, as follows: On four occasions in 1989 up to 1990, [herein respondent] China Banking Corporation , as lender and [OO&M] as borrower entered into loan agreements covered by promissory notes bearing numbers T-227, T-228, T-229, T-230 and T-231 .

The promissory notes [PNs] contain identical provisions with a few exceptions. The identical provisions material to the present case include the escalation clause found in the th 4 paragraph of each of the five [PNs], , the name of Ramon Olbes with a signature appearing thereon as agent of the borrower corporation, and the name of Ricardo Olbes which was rubber stamped in the first 4 notes as co-maker. The material differences, on the other hand, concern the dates of execution , the dates of maturity [of the notes], the amounts received by [OO&M] on the 5 [PNs] (P200,000.00, P315,000.00, P700,000.00, P100,000.00 and P200,000.00, respectively), and the interest rates thereon per annum (19% for [PN] T-227, 24% for [PN] T-228 and 27% for the 3 others). To secure the payment of the [PNs], [petitioners] Ramon Olbes and Ricardo Olbes executed on November 12, 1990 in favor of [respondent bank] a suretyship agreement whereby they jointly and severally undertook to pay upon maturity any and all obligations for which the borrower corporation may then or thereafter be indebted to the extent of one million pesos (P1,000,000) plus interests and attorneys fees. Initial payments on the [PNs] were made by [OO&M] and the Olbeses. Since March 12, 1992, however, no further payments were made by them, and by [respondent banks] computation, the 5 [PNs] had outstanding balances of P88,000.00, P140,000.00, P407,500.00, P52,400.00, P121,600.00 respectively or a total of P809,500.00 as of that date, exclusive of interests and penalty charges. As demands for payment proved futile, [respondent bank] filed a complaint for collection before the Regional Trial Court (RTC) Branch 7 of Manila on December 2, 1992 against [OO&M] and the Olbeses. The [OO&M] denied liability on the [PNs], claiming that it had fully met its obligation and that the alleged balance came about due to the unwarranted application of the escalation clause provided for in paragraph 4 of each of the notes.

G.R. No. 152082 (19)RAMON R. OLBES and RICARDO R. OLBES, Petitioners, - versus CHINA BANKING CORPORATION, Respondent. Promulgated: March 10, 2006

x-----------------------------------------------------------------------------------x

DECISION GARCIA, J.:

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Both Olbeses denied any liability under the suretyship agreement, they claiming that they 4. signed it merely as officers of [OO&M] and that its import was never explained to them by [respondent bank]. Ricardo Olbes also denied liability as co-maker, he claiming that he was signing as an officer of [OO&M]. All the defendants denied liability on the penalty charges and attorneys fees . They thus interposed a counterclaim for attorneys fees. (Underscoring and words in bracket added.) 5.

On the fourth cause of action, P52,400.00 representing the unpaid principal of promissory note No. T230 (Exhibit D) plus 27% interest per annum from March 12, 1992, with deductions on the said unpaid principal corresponding to the amounts included therein by escalating the interest rates; Defendant-appellant corporation, as maker of promissory note No. T-231, and defendantsappellants Ricardo and Ramon Olbes as sureties thereof, are also hereby ordered to pay jointly and severally plaintiff-appellee; and On the fifth cause of action, P121,600.00 representing the unpaid principal of promissory note No. T231 plus 27% interest per annum from March 12, 1992, with deductions on the said unpaid corresponding to the amounts included therein by escalating the interest rates. [2] Inasmuch as the assailed decision sustained their solidary liability with, for the loan obligation of, OO&M, petitioners have interposed the instant recourse, ascribing to the CA the commission of the following errors, viz:

On September 12, 1998, in Civil Case No. 92-63676, the Regional Trial Court of Manila, Branch 7, on the premise that Ramon Olbes is liable on the promissory notes (PNs) based on the suretyship agreement as is Ricardo Olbes who is furthermore personally liable as co-maker, rendered judgment for respondent bank, as plaintiff a quo, and against OO&M and the Olbeses, as defendants a quo. Therefrom, herein petitioners and OO&M went on appeal to the CA whereat their recourse was docketed as CA G.R. CV No. 56487. On January 31, 2002, the CA rendered the herein assailed Decision affirming that of the trial court, particularly its disposition on the solidary liability of herein petitioners Ramon R. Olbes and Ricardo R. Olbes, with the modification of disallowing the application by the respondent bank of the escalating interest rate on the loan transactions. In full, the dispositive portion of the CA Decision reads: ACCORDINGLY, judgment is hereby rendered AFFIRMING the appealed decision with MODIFICATION in accordance with the foregoing discussions. As modified, the judgment reads as follows: Defendant-appellant corporation, as maker of promissory notes Nos. T-227, T-228. T-229 and T-230, defendant-appellant Ricardo Olbes, as comaker thereof, and appellants Ricardo Olbes and Ramon Olbes as sureties, are hereby ordered to pay plaintiff-appellee jointly and severally: 1. On the first cause of action, P88,000.00 representing the unpaid principal of the promissory note No. T-227 (Exhibit A) plus 19% interest per annum from March 12, 1992, with deductions on the said unpaid principal corresponding to the amounts included therein by escalating the interest rates; On the second cause of action, P140,000.00 representing the unpaid principal of promissory note No. T-228 (Exhibit B) plus 24% interest per annum from March 12,1992, with deductions on the said unpaid principal corresponding to the amounts included therein by escalating the interest rates; On the third cause of action, P407,500.00 representing the unpaid principal of promissory not No. T229 (Exhibit C) plus 27% interest per annum from March 12, 1992, with deductions on the said unpaid principal corresponding to the amounts included therein by escalating the interest rates; and; 1.

In holding petitioners liable retroactively for the loan obligations of OO&M under the surety agreement. In holding petitioner Ricardo Olbes liable on 4 of the subject promissory notes as co-maker based on a mere title of co-maker rubber stamped under his name on the said promissory notes despite the absence of any provision showing him to have understood that he was affixing his signature as such.[3] The petition is without merit. Petitioners disclaim, at the outset, liability on the PNs on the basis of the suretyship agreement they executed on November 12, 1990 after the execution of the last promissory note on January 23, 1990. To them, their undertaking under the suretyship agreement cannot be made to cover past transactions, such as the five promissory notes in question. Petitioners posture is valid to a degree. It bears to point out, however, that the rule on the retrospective application of a suretyship agreement admits of exceptions. The Court referred to [4] one in Willex Plastic Industries, Corp. vs. CA. There, we held that no liability attaches under a contract of suretyship for defaults occurring before it is entered into unless an intent to be so liable is indicated. Indeed, as we said in an old but still very much applicable case of Bank of the [5] Philippine Islands vs. Foerster, although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties, as revealed by the evidence, is controlling. Put in another way, the rule that bonds or other contracts of suretyship are ordinarily not to be construed as retrospective must yield to the intention of the contracting parties as revealed by the evidence, and does not interfere with the use of ordinary tests and canons of [6] interpretation which apply in regard to other contracts. The specific suretyship agreement under consideration provides:

2.

2.

3.

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For and in consideration of the covenants hereinafter mentioned and of the granting of credits, overdrafts, loans, discounts, trust receipts and such further credit facilities as may from time to time be incurred with the Creditor by the Principal(s), the Surety(ies) hereby jointly and severally undertake, bind themselves and warrant to the said Creditor, its successors or assigns the prompt payment at maturity or on demand, as the case may be, of all overdrafts, promissory notes, discounts, letters of credit, drafts, bills of exchange, promissory notes, etc., without any further endorsements by the Surety(ies), for which the Principal(s) may now be indebted or may hereafter become indebted to the Creditor.[7] (Emphasis added.) As correctly observed by the CA, the Suretyship Agreement, as couched, expressly covered both current (may now be indebted) and future (may hereafter become indebted) loans of the principal. In net effect, the agreement thus executed by petitioners was intended to secure the payments of the amounts borrowed by and for which OO&M signed the PNs in question. Not to be overlooked is the fact that the Suretyship Agreement expressly contemplated a solidary obligation, providing as it did that .the surety(ies) hereby jointly and severally undertake, bind themselves and warrant to the said Creditor. It is a cardinal rule that if the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal [8] meaning of its stipulation shall control. In the present case, there can be no mistaking about petitioners intent, as sureties, to be jointly and severally obligated with the principal maker of the notes in dispute. As such sureties, Ramon Olbes and Ricardo Olbes are personally liable under the suretyship agreement. Petitioners next fault the CA for holding petitioner Ricardo Olbes liable as co-maker on four (4) of the subject PNs on the basis of the word co-maker rubber-stamped under his name on the said notes despite the absence of any provision indicating that he understood that he was affixing his signature in that capacity. The Court is far from being convinced. What the CA wrote on petitioner Ricardo Olbess posture respecting the rubber-stamping angle reads: And so is the finding of the court a quo that appellant Ricardo Olbes is personally liable as co-maker of 4 of the 5 promissory notes. Said appellants denial of personal liability upon the ground that the word co-maker was merely stamped and not printed as are the rest of the wordings of the promissory notes and that it was stamped arbitrarily does not persuade. It is presumed that private transactions have been fair and regular ( Section 3 (p), Rule 131, Revised Rules of Court). It is also basic in evidence that he who alleges has the burden of proving his allegation. Appellant (i.e. Ricardo Olbes), therefore, had the burden of proving that the word co maker was rubber stamped unfairly, irregularly and arbitrarily. But the record does not support his claim. On the contrary, plaintiff-appellees witness Jacqueline Azarcon testified, and appellant Ricardo Olbes failed to refute, that the promissory notes were stamped before they were given to appellants for their signature.[9] (Emphasis in the original) Having affixed his consenting signature in a contract with full knowledge of its terms and conditions, petitioner Ricardo Olbes is precluded from asserting, as he presently does, that he

acted under a misapprehension or in ignorance of the legal effect of the contract, or the undertaking he assumed thereunder. He, just like his co-petitioner, Ramon Olbes, does not appear to be unlettered. The trial court in fact described both petitioners as intelligent men, and top [10] officers of a corporation which has 200 affiliates worldwide, Being an experienced businessman, doubtless routinely dealing with commercial papers and documents passing his table, petitioner Ricardo Olbes knew, or at least presumed to know, the import of the documents he executed as co-maker. He cannot be heard on his allegation of not knowing the legal effect of what he was entering into on the pretext that respondent bank failed to inform him about such detail. It cannot be over-emphasized that it behooves every contracting party to learn and know the contents of a document before he signs and delivers it. If blame has to be assigned, the faulting finger should be pointed at petitioner Ricardo Olbes, who apparently did not undertake the usual due diligence in the pursuit of his business concerns. Had he done so, he would have easily discovered that he was signing the action documents in question either as a surety and/or co-maker. An error so patent and obvious that nobody could have made it, or one which could have been avoided by ordinary prudence, cannot [11] be invoked by the one who made it in order to evade liability, let alone annul a contract. Lastly, petitioner Ricardo Olbess lament about the word comaker being stamped, instead of being typed or printed, thus indicating, according him, an insertion or intercalating situation, need not delay us long. Irregular or fraudulent stamping is obviously Ricardo Olbess thesis. But, as found by the CA, the PNs were stamped before they were presented to Ricardo Olbes for his signature, a reality arguing against the notion of fraudulent dealing on the part of the respondent bank. Apart from this consideration, the appellate court added, no evidence has been adduced to overturn the presumption that private transactions have been fair and regular. Needless to stress, the categorical factual conclusion of the CA ought not to be disturbed in this recourse. For, it is not this Courts function to review, examine, evaluate or weigh anew the probative value of the [12] [13] evidence presented below, save for the most compelling and cogent reasons. The exceptional circumstance does not presently obtain. WHEREFORE, the instant petition is DENIED, and the assailed CA decision dated January 31, 2002 is AFFIRMED. Costs against petitioners. SO ORDERED.

SPOUSES SANTIAGO and RUFINA TANCHAN, Petitioners,

G.R. No. 164510 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO,

- versus -

71

NACHURA, and REYES, JJ. ALLIED BANKING CORPORATION, Promulgated: Respondent. November 25, 2005 x----------------------------------------------------------x The liability of the sureties under both CG/CSAs is limited to Php150,000,000.00.

[11]

DECISION

Exhibit G and all the Philippine peso promissory notes, including Exhibit H, are secured not only by the two CG/CSAs but also by a Real Estate Mortgage executed on February 14, 1997 by Henry, for himself and as the legal guardian of the minors Henry Paul L. Tanchan and Don Henry L. Tanchan; his wife Ma. Julie Ann; and Spouses Pablo and Milagros Lim, over real properties registered in their names under Transfer Certificates of Title No. 115804, No. 111149, [12] No. 110672 and No. 3815, all located in Cebu City. In separate final demand letters, both dated May 14, 1998, respondent sought from Foremost payment of US$1,054,000.00, as the outstanding principal balance, exclusive of interest and charges, of its obligations under the seven US$ promissory notes, and PhP28,900,000.00 [13] under its Philippine peso promissory notes. Separate demands for payment were also made [14] [15] upon Spouses Tanchan and the petitioners as sureties. In a letter dated April 6, 1998, Foremost offered to cede to respondent, by way [16] of dacion en pago, the mortgaged real properties in full payment of its loan obligations. On August 3, 1998, respondent instituted the extra-judicial foreclosure of the real estate mortgage to satisfy its claim against Foremost in the aggregate amount of Php55,578,826.77, inclusive of interest, other charges and attorney's fees, equivalent to 10% of the total amount due [17] as of May 3, 1998, plus the costs and expenses of foreclosure. At the public auction sale,respondents bid of only Php37,745,283.67 for all the mortgaged properties, including the [18] buildings and improvements thereon, was adjudged the sole and highest bid. On October 13, 1998, respondent filed with the RTC a Complaint for Collection of Sum of Money with Petition for Issuance of Writ of Preliminary Injunction against Foremost, SpousesTanchan and herein petitioners (collectively referred to as Foremost, et al.), praying [19] that they be ordered to pay, jointly and severally, the following amounts:
Promissory Note 0051-96-09495 Amount US$ 80,000.00 plus interest at the rate of 11.4% per annum fromDecember 29, 1997 until fully paid and a penalty charge on the unpaid interest at the rate of 1% per month reckoned from December 29, 1997 until fully paid and a penalty charge on the unpaid principal reckoned from May 28, 1998 until fully paid. US$110,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month, all reckoned fromDecember 29, 1997 until fully paid. US$250,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromNovember 30, 1997 until fully paid. US$115,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29,

AUSTRIA-MARTINEZ, J.: By way of Petition for Review under Rule 45 of the Rules of Court, spouses Santiago [1] and Rufina Tanchan (petitioners) seek the modification of the June 15, 2004 Decision of the Court [2] [3] of Appeals (CA) which affirmed the August 3, 2001 Decision and August 8, 2002 Order of [4] Branch 137, Regional Trial Court (RTC), Makati in Civil Case No. 98-2468. The relevant facts are of record. For value received, Cebu Foremost Construction, Inc. (Foremost), through its Chairman and President Henry Tanchan (Henry) and his spouse, Vice-President and Treasurer Ma. Julie AnnTanchan (Ma. Julie Ann) executed and delivered to Allied Banking Corporation (respondent) [5] [6] seven US$ promissory notes, including Promissory Note No. 0051-97-03696 (Exhibit G) for US$379,000.00, at 9.50% interest rate per annum, due on February 9, 1998. Foremost also issued to respondent several Philippine peso promissory notes covering various loans in the aggregate amount of Php28,900,000.00, including Promissory Note No. 005197-03688 (Exhibit H) for PhpP16,500,000.00, at an interest rate of 14.5% per annum, due on [8] February 9, 1998. All the foregoing promissory notes are secured by two Continuing Guaranty/ Comprehensive Surety Agreements (CG/CSA) executed in the personal capacities of spouses Henry and Ma. Julie Ann (Spouses Tanchan) and Henrys brother, herein petitioner [9] Santiago Tanchan (Santiago), for himself and as attorney-in-fact of his wife and copetitioner Rufina Tanchan (Rufina) under a Special Power of Attorney, dated April 30, 1993, which grants Santiago authority to: x x x borrow and/or contract debts and obligations involving, affecting or creating a charge or liability on, or which may involve, affect or create a liability on the Property and/or my interest therein, whether or not such debt/s or obligation/s contracted or to be contracted will benefit me or the family, and to sign, execute and deliver in my name to or in favor of any party, under such terms and conditions as my attorney-in-fact may deem necessary, appropriate or convenient, any and all documents instruments or contract/s (including without limitations, promissory notes, loan agreements, assignments, surety or guaranty undertakings, security agreements) involving, affecting or creating a charge or liability on the Property. [10]
[7]

0051-96-17617

0051-96-19008

0051-96-24801

72

1997 until fully paid. 0051-96-00603 US$75,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29, 1997 until fully paid. US$45,000.00 plus interest at the rate of 11.4% per annum and a penalty charge at the rate of 1% per month all reckoned fromDecember 29, 1997 until fully paid. US$379,000.00 plus interest at the rate of 11.4% per annum reckoned from January 8, 1998 until fully paid and a penalty charge at the rate of 1% per month from February 9, 1998 until fully paid. PhpP7,466,795.67 plus interest at the rate of 20% per annum and a penalty charge at the rate of 3% per month from August 10, 1998. (Emphasis supplied)

may suffer by reason of the issuance of said writ should the Court finally adjudge that plaintiff [respondent] was not entitled thereto. SO ORDERED.[21] Thus, armed with a writ of attachment, [23] name of Foremost, et al.
[22]

0051-97-02444

the sheriff levied several parcels of land registered in the


[24]

0051-97-03696 (Exhibit G) 0051-97-03688 (Exhibit H)

Respondent also prayed for payment of attorney's fees equivalent to 25% of the total amount due, expenses and costs of suit, In support of its application for issuance of a writ of preliminary attachment, respondent submitted an Affidavit executed by Elmer Elumbaring (Elumbaring), Branch Cashier/Loans Supervisor, Cebu, Jakosalem Branch, stating that: 4. Defendants [Foremost, et al.] committed fraud in contracting the obligations upon which the action is brought in that: a) to induce plaintiff [respondent] to grant the credit accommodation they represented to the plaintiff [respondent] that they were in a financial position to pay their obligations on maturity date in consideration of which plaintiff [respondent] granted the credit accommodations. It turned out, however, that they were not in such financial position when they failed to pay their obligations on maturity date; b) they falsely represented that the proceeds of the Loan would be used as additional working capital in consideration of which, plaintiff [respondent] granted the loans but when defendants [Foremost, et al.] received the said proceeds, they diverted the same to a purpose other than that for which they were intended as shown by the fact that defendants [Foremost, et al.] were not able to fully pay the obligations at its maturity date; 5. There is no security whatsoever for the claim plaintiff [respondent] seeks to enforce by this action, and only by the issuance of a writ of preliminary attachment can its interest be protected.[20] The application for writ of preliminary attachment was granted by the RTC in an Order dated November 3, 1998, to wit: WHEREFORE, finding plaintiff's [respondent's] application for the issuance of a writ of preliminary attachment sufficient in form and substance, and the ground set forth therein being among those allowed by the Rules (Rule 57, Sec. 1 [e]), let a Writ of Preliminary Attachment issue against the properties of defendants Cebu Foremost Construction, Incorporated, Santiago Tanchan, Jr., Rufina C. Tanchan, Henry Tanchan and Ma. Julie Ann T. Tanchan, upon plaintiff's [respondent's] filing of a bond in the amount of FIFTY-FOUR MILLION (P54,000,000.00) PESOS, conditioned to answer for whatever damage that the said defendants [Foremost, et al.]

In their Amended Answer with Counterclaim, Foremost, et al. acknowledged the authenticity and due execution of the promissory notes but denied liability for the amounts alleged in the Complaint, the computation of which they dispute due to the arbitrariness of the imposition of new interest rates. They impugned the cause of action of respondent to collect the amount due underExhibit G and Exhibit H in view of the bank's prior extra-judicial foreclosure of the securities thereon, which recourse bars collection of the amounts due on the same promissory [25] notes. Foremost, et al. questioned the inclusion of Rufina as a party-defendant even when she was not bound by the CG/CSAs which her husband Santiago signed in excess of his authority under the special power of attorney to contract loans for the family but not to guarantee loans [26] obtained by third persons. The issuance of the writ of preliminary attachment was likewise objected to by Foremost on the ground that it contracted the loans in good faith but was prevented from paying the same only because of the economic crisis that beset the country. On the part of Spouses Tanchan and herein petitioners, they claim that they had no personal participation or influence in the loan transactions except to ensure its payment; hence, they could not have practiced fraud upon respondent [27] because they did not personally contract the loans with it. Thus, each sought payment of Php100,000,000.00 as moral damages for the emotional and mental vexation visited upon them [28] by respondent in causing the unwarranted preliminary attachment of their properties. At the pre-trial, respondent submitted an Amended Pre-trial Brief where it admitted that Foremost's Exhibit G and Exhibit H were among those secured by the real estate [29] mortgage that it earlier foreclosed, but the proceeds of the foreclosure sale satisfied only part of the amounts due on said promissory notes and left a deficiency which is now the subject of their [30] complaint. The RTC issued a Pre-trial Order which limited the issues to be resolved to the following: 1. Does the [respondent] have a cause of action with respect to the promissory notes marked as [Exhibits] G[31] and H[32]? 2. Is [petitioner] Rufina C. Tanchan liable on the basis of the Continuing Guaranty/Comprehensive Surety Agreements because of her authority from [sic] Santiago Tanchan, Jr. was limited to borrow money only for the benefit of the family? 3. Is the unilateral increase of the interest rate of [respondent] valid?

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4. What is the amount and nature of the damages that should be adjudged against the [33] losing party in favor of the prevailing party? As directed by the RTC in its Pre-trial Order, both parties presented affidavits in lieu of direct examination of their witnesses. For respondent, Fresnido Bandilla (Bandilla), Manager, Legal Department, testified that the obligations of Foremost which were secured by the real estate mortgage had amounted to Php61,155,339.36 as of the date of the foreclosure sale, and that with respondent's bid of only Php37,745,283.67 being adjudged the lone and highest bid, there remained an unpaid balance of [34] [35] Php23,415,115.69. Elumbaring corroborated Bandilla's testimony. On the other hand, Henry averred that even in the wake of the Asian financial crisis, Foremost struggled to meet interest payments on its loan obligations with respondent, but the point came when there were no more construction jobs to be had, and Foremost was [36] constrained to default on its obligations. Santiago testified that he and his spouse could not have defrauded respondent because they did not directly contract the loans with it but merely acted as sureties. Thus, the issuance of the writ of attachment against their properties was arbitrary, and brought upon them social [37] humiliation and emotional torment. After the parties submitted their respective memoranda, 2001 Decision, the dispositive portion of which reads:
[38]

SO ORDERED.[39]

Foremost, et al. filed a Motion for Partial Reconsideration of Decision on the ground that respondent failed to state a cause of action for the payment of any deficiency account under Exhibit G and Exhibit H. Its Complaint does not contain any allegation regarding a deficiency account; nor even an allusion to the foreclosure sale conducted in partial satisfaction of said promissory notes. Although in its Amended Pre-trial Brief, respondent mentioned that a deficiency account remained after the foreclosure of the real estate mortgage, such statement did not have the effect of amending the Complaint itself. Neither did the testimonies of Bandilla and Elumbaring about a deficiency account take the place of a specific allegation of such cause of action in the Complaint. Thus, in the absence of an allegation in the Complaint of a cause of action for the [40] payment of a deficiency account, the RTC had no factual or legal basis to grant such claim. Spouses Tanchan and herein petitioners also filed a Motion to Lift the Writ of Preliminary [41] Attachment. The RTC denied the Motion to Lift the Writ of Attachment in an Order dated September [43] 25, 2001, and the Motion for Partial Reconsideration, in an Order dated August 8, 2002. Foremost, et al. appealed to the CA under the following assignment of errors:
[42]

the RTC rendered its August 31, 1. The lower court erred in not holding that having opted to extra-judicially foreclose the real estate mortgage which was executed to secure the promissory notes marked as Exhibits G and H, the [respondent] is barred from filing an action for collection of the same; 2. The lower court erred in not holding that Rufina Tanchan did not authorize her husband, Santiago J. Tanchan, Jr. to sign the Continuing Guaranty/ Comprehensive Surety Agreement marked as Exhibit I; and 3. The lower court erred in not lifting the writ of preliminary attachment and granting the claim for damages of the individual defendants by virtue of the wrongful issuance of the writ of preliminary attachment.[44] The CA dismissed the appeal in the June 15, 2004 Decision assailed herein. Only petitioners took the present recourse to raise the following issues: I. Whether or not the petitioners as mere sureties of the loans obtained by Cebu Foremost Construction, Inc. were guilty of fraud in incurring the obligations so that a writ of preliminary attachment may be issued against them? II. Whether or not the respondent may claim for deficiency judgment on its seventh and eight causes of action, not having alleged in its complaint that said loans were secured by a real estate mortgage and after the foreclosure there was a deficiency as in fact in its complaint, the respondent sought full recovery of the promissory notes subject of its seventh and eighth cause of action?

WHEREFORE, judgment is hereby rendered ordering defendants Cebu Foremost Construction, Inc., Santiago Tanchan, Jr., Rufina C. Tanchan, Henry Tanchan and Ma. Julie Ann Tanchan, solidarily, [to] pay plaintiff Allied Banking Corporation the following amounts: (1) US $80,000.00, plus 8.75 % interest per annum from 7 June 1996 to 6 May 1997, 9.5% interest per annum from 7 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date and until fully paid; (2) US $110,00.00, plus 8.75% interest per annum from 24 September to 29 May 1997, 9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (3) US $570,000.00, plus 8.75% interest per annum from 8 October 1996 to 29 May 1997, 9.5% interest per annum from 30 May 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (4) US $115,000.00 plus 9.5% interest per month from 12 December 1996 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (5) US $75,000.00, plus 9.5% interest per annum from 7 January 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (7) US $379,000.00, plus 9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest per annum from 9 December 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid; (8) P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per month, from the foreclosure sale on 10 August 1998 until fully paid; (9) attorney's fees equivalent to 10% of the amount due plaintiff. However, the liability of defendants' Santiago Tanchan, Jr., RufinaC. Tanchan, Henry Tanchan and Ma. Julie Ann T. Tanchan is limited to P150,00,000.00 only. Defendants' counterclaims are dismissed for lack of sufficient merit.

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III. Whether or not the lower court and the Court of Appeals erred in not awarding petitioners damages for the wrongful issuance of a writ of preliminary attachment against them? [45] Being interrelated, the first and third issues will be resolved jointly. The issues involve the validity of the writ of preliminary attachment as against the properties of petitioners only, but not as against the properties of Foremost and Spouses Tanchan, neither of whom appealed before the Court. The discussion that follows, therefore, shall pertain only to the effect of the writ on petitioners. One of the grounds cited by the CA in refusing to discharge the writ of attachment is that it is now too late for [petitioners] to question the validity of the writ because they waited three long [46] years to have it lifted or discharged. Under Section 13, Rule 57 of the Rules of Court, a party whose property has been ordered attached may file a motion with the court in which the action is pending for the discharge of the attachment on the ground that it has been improperly issued or enforced. In addition, said party may file, under Section 20, Rule 57, a claim for damages on account of improper attachment within the following periods: Sec. 20. Claim for damages on account of improper, irregular or excessive attachment . - An application for damages on account of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected or before the judgment becomes executory, with due notice to the attaching obligee or his surety or sureties, setting forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in the judgment on the main case. If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must claim damages sustained during the pendency of the appeal by filing an application in the appellate court with notice to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.[47] (Emphasis supplied) Records reveal that the RTC issued the writ of preliminary attachment on November 3, [48] 1998, and as early as March 23, 1999, in their Amended Answer with Counterclaim, petitioners [49] already sought the discharge of the writ. Moreover, after the RTC rendered its Decision on August 3, 2001 but before appeal therefrom was perfected, petitioners filed on August 23, 2001 a Motion to Lift the Writ of Preliminary Attachment, reiterating their objection to the writ and [50] seeking payment of damages for its wrongful issuance. Clearly, petitioners' opposition to the writ was timely. The question now is whether petitioner has a valid reason to have the writ discharged and to claim damages.

It should be borne in mind that the questioned writ of preliminary attachment was issued by the RTC under Section 1(d), Rule 57 of the Rules of Court, to wit Sec. 1. Grounds upon which attachment may issue. - A plaintiff or any proper party may, at the commencement of the action or at any time thereafter, have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered in the following cases: xxxx (d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought; x x x x. and on the basis solely of respondent's allegations in its Complaint that defendants [Foremost, et al.] failed to pay their obligations on maturity dates, with the amount of US$1,054,000.00 and Php7,466795.69 remaining unpaid; that defendants are disposing/concealing their properties with intent to defraud the plaintiff and/or are guilty of fraud in the performance of their obligations; and [51] that there is no security whatsoever for the claim sought to be enforced. Petitioners argue that the foregoing allegations are not sufficient to justify issuance of the writ, especially in the absence of findings that they, as sureties, participated in specific fraudulent [52] acts in the execution and performance of the loan agreements with respondent. In refusing to lift the writ, the RTC held that the lack of a specific factual finding of fraud in its decision is not among the grounds provided under Sections 12 and 13, Rule 57 of the Rules of [53] Court for the discharge of the writ. The CA agreed for the reason that the RTC's affirmative action on the complaint filed by respondent signifies its agreement with the allegations found therein that Foremost, et al., including herein petitioners, committed fraudulent acts in [54] procuring loans from respondent. Both courts are in error. The present case fits perfectly into the mold of Allied Banking Corporation v. South Pacific [55] Sugar Corporation, where a writ of preliminary attachment issued in favor of Allied Banking Corporation was discharged by the lower courts for lack of evidence of fraud. In sustaining the discharge of the writ, the Court held: Moreover, even a cursory examination of the banks complaint will reveal that it cited no factual circumstance to show fraud on the part of respondents. The complaint only had a general statement in the Prayer for the Issuance of a Writ of Preliminary Attachment, reproduced in the attached affidavit of petitioners witness Go who stated as follows: xxxx
4. Defendants committed fraud in contracting the obligations upon which the present action is based and in the performance thereof. Among others, defendants induced plaintiff to grant the subject loans to defendant corporation by willfully

75

and deliberately misrepresenting that, one, the proceeds of the loans would be used as additional working capital and, two, they would be in a financial position to pay, and would most certainly pay, the loan obligations on their maturity dates. In truth, defendants had no intention of honoring their commitments as shown by the fact that upon their receipt of the proceeds of the loans, they diverted the same to illegitimate purposes and then brazenly ignored and resisted plaintiffs lawful demands for them to settle their past due loan obligations

xxxx Such general averment will not suffice to support the issuance of the writ of preliminary attachment. It is necessary to recite in what particular manner an applicant for the writ of attachment was defrauded x x x. Likewise, written contracts are presumed to have been entered into voluntarily and for a sufficient consideration. Section 1, Rule 131 of the Rules of Court instructs that each party must prove his own affirmative allegations. To repeat, in this jurisdiction, fraud is never presumed. Moreover, written contracts such as the documents executed by the parties in the present case, are presumed to have been entered into for a sufficient consideration. (Citations omitted) In the aforecited case -- as in the present case -- the bank presented the testimony of its account officer who processed the loan application, but the Court discarded her testimony for [56] it did not detail how the corporation induced or deceived the bank into granting the loans. Also apropos is Ng Wee v. Tankiansee where the appellate court was questioned for discharging a writ of preliminary attachment to the extent that it affected the properties of respondent Tankiansee, a corporate officer of Wincorp, both defendants in the complaint for damages which petitioner Ng Wee had filed with the trial court. In holding that the appellate court correctly spared respondent Tankiansee from the writ of preliminary attachment, the Court cited the following basis: In the instant case, petitioners October 12, 2000 Affidavit is bereft of any factual statement that respondent committed a fraud. The affidavit narrated only the alleged fraudulent transaction between Wincorp and Virataand/or Power Merge, which, by the way, explains why this Court, in G.R. No. 162928, affirmed the writ of attachment issued against the latter. As to the participation of respondent in the said transaction, the affidavit merely states that respondent, an officer and director of Wincorp, connived with the other defendants in the civil case to defraud petitioner of his money placements. No other factual averment or circumstance details how respondent committed a fraud or how he connived with the other defendants to commit a fraud in the transaction sued upon. In other words, petitioner has not shown any specific act or deed to support the allegation that respondent is guilty of fraud. The affidavit, being the foundation of the writ, must contain such particulars as to how the fraud imputed to respondent was committed for the court to decide whether or not to issue the writ. Absent any statement of other factual circumstances to show that respondent, at the time of contracting the obligation, had a preconceived plan or intention not to pay, or without any showing of how respondent committed the alleged fraud, the general averment in the affidavit that respondent is an officer and director of Wincorp who allegedly connived with the other defendants
[57]

to commit a fraud, is insufficient to support the issuance of a writ of preliminary attachment x x x. Verily, the mere fact that respondent is an officer and director of the company does not necessarily give rise to the inference that he committed a fraud or that he connived with the other defendants to commit a fraud. While under certain circumstances, courts may treat a corporation as a mere aggroupment of persons, to whom liability will directly attach, this is only done when the wrongdoing has been clearly and convincingly established. (Emphasis supplied) Indeed, a writ of preliminary attachment is too harsh a provisional remedy to be issued based on mere abstractions of fraud. Rather, the rules require that for the writ to issue, there must be a recitation of clear and concrete factual circumstances manifesting that the debtor practiced fraud upon the creditor at the time of the execution of their agreement in that said [59] debtor had a pre-conceived plan or intention not to pay the creditor. Being a state of mind, fraud cannot be merely inferred from a bare allegation of non-payment of debt or non-performance of [60] obligation. As shown in Ng Wee, the requirement becomes all the more stringent when the application for preliminary attachment is directed against a defendant officer of a defendant corporation, for it will not be inferred from the affiliation of one to the other that the officer participated in or facilitated in any fraudulent practice attributed to the corporation. There must be evidence clear and convincing that the officer committed a fraud or connived with the corporation to commit a fraud; only then may the properties of said officer, along with those of the corporation, be held under a writ of preliminary attachment. There is every reason to extend the foregoing rule, by analogy, to a mere surety of the defendant. A surety's involvement is marginal to the principal agreement between the defendant and the plaintiff; hence, in order for the surety to be subject to a proceeding for issuance of a writ of preliminary attachment, it must be shown that said surety participated in or facilitated the fraudulent practice of the defendant, such as by offering a security solely to induce the plaintiff to enter into the agreement with the defendant. There is neither allegation nor innuendo in the Complaint of respondent or the Affidavit of Elumbaring that petitioners as sureties or officers of Foremost participated in or facilitated the commission of fraud by Foremost, et al. against respondent. In fact, there is no mention of petitioners, much less a recital of their role or influence in the execution of the loan agreements. The RTC cited an allegation that petitioners are disposing/concealing their properties with intent to defraud respondent, but there is no hint of such scheme in the five paragraphs of the [61] [62] Complaint or in the four corners of the Affidavit of Elumbaring. All that is alleged is that Foremost obtained loans from respondent but failed to pay the same, but as the Court has [63] repeatedly held, no fraud can be inferred from a mere failure to pay a loan. In fine, there was no factual basis for the issuance of a writ of preliminary attachment against the properties of petitioners. The immediate dissolution of the writ is called for. In so ruling, however, the Court does not go so far as to grant petitioners' claim for moral damages. A wrongful attachment may give rise to liability for moral damages but evidence must be
[58]

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adduced not only of the torment and humiliation brought upon the defendant by the attaching party [64] but also of the latter's bad faith or malice in causing the wrongful attachment, such as evidence [65] that the latter deliberately made false statements in its application for attachment. Absent such [66] evidence of malice, the attaching party cannot be held liable for moral damages. In the present case, petitioners cite the allegations made by respondent in its application for attachment as evidence of bad faith. However, the allegations in question contain nothing but the stark truth that Foremost obtained loans and that it failed to pay. The Court fails to see any malice in such bare allegations as would make respondent liable to petitioners for moral damages. To recapitulate, the Court partly dissolves the writ of preliminary attachment for having wrongfully issued against the properties of petitioners who were not shown to have committed fraud in the execution of the loan agreements between Foremost and respondent, but declines to award moral damages to petitioners in the absence of evidence that respondent acted with malice in causing the wrongful issuance of the writ. The second issue involves that portion of the August 3, 2001 RTC Decision awarding respondent (7) US $379,000.00, plus 9.5% interest per annum from 12 February 1997 to 8 December 1997, 11.4% interest per annum from 9 December 1997 until fully paid, and 1% penalty per month on the amount due from maturity date until fully paid under Promissory Note No. 005197-03696, and (8) P7,582,945.85, plus 28.5% interest per annum, and 3% penalty per month, from the foreclosure sale on 10 August 1998 until fully paid under Promissory Note No. 0051 -97-03688. Petitioners argue that respondent is barred from claiming any amount under the Promissory Notes, Exhibits G and H, because it had already elected to foreclose on the mortgage security, and it failed to allege in its pleadings that a deficiency remained after the public auction sale of the [67] securities and that what it is seeking is the payment of such deficiency. There is no question that a mortgage creditor has a single cause of action against a mortgagor debtor, which is to recover the debt; but it has the option of either filing a personal action for collection of sum of money or instituting a real action to foreclose on the mortgage [68] security. An election of the first bars recourse to the second; otherwise, there would be multiplicity of suits in which the debtor would be tossed from one venue to another, depending on [69] the location of the mortgaged properties and the residence of the parties. On the other hand, a creditor who elects to foreclose on the mortgage may yet file an independent civil action for recovery of whatever deficiency may remain in the outstanding obligation of the debtor, after [70] deducting the price obtained in the sale of the mortgaged properties at public auction. The complaint, though, must specifically allege that what is being sought is the recovery of the [71] [72] deficiency, or that in the pre-trial, such claim be raised as an issue. Contrary to petitioners' argument, it is clear from the allegations in the Complaint that what respondent sought was the payment of the deficiency amount under the subject promissory notes. In particular, while the Promissory Note, Exhibit H, is for the amount of Php16,500,000.00, what respondent sought to recover was only Php7,582,945.85, consistent with the fact that part of said promissory note has been satisfied from the proceeds of the extra-judicial foreclosure. While the exact phrase deficiency account is not employed in the Complaint, the intention of respondent to recover the same is borne out by its allegations.

More importantly, in the Pre-trial Order issued by the RTC, the right of respondent to recover the deficiency account under the subject promissory notes was raised as a specific issue. WHEREFORE, the petition is PARTLY GRANTED. The June 15, 2004 Decision of the Court of Appeals is MODIFIED to the effect that the November 3, 1998 Writ of Preliminary Attachment is LIFTED and DISSOLVED insofar as it affects the properties of petitioners Spouses Santiago and Rufina Tanchan. No costs. SO ORDERED.

STRONGHOLD INSURANCE COMPANY, INC., Petitioner,

G.R. No. 147561 Present: Panganiban, CJ, Chairman, Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ Promulgated: June 22, 2006

- versus -

REPUBLIC-ASAHI GLASS CORPORATION, Respondent.

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- -- x DECISION
PANGANIBAN, CJ:

A
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surety companys liability under the performance bond it issues is solidary. The death of the principal obligor does not, as a rule, extinguish the obligation and the solidary nature of that liability. The Case
[1]

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to [2] reverse the March 13, 2001 Decision of the Court of Appeals (CA) in CA-GR CV No. 41630. The assailed Decision disposed as follows:

WHEREFORE, the Order dated January 28, 1993 issued by the lower court is REVERSED and SET ASIDE. Let the records of the instant case be REMANDED to the lower [3] court for the reception of evidence of all parties.

On January 6, 1990, [respondent] sent a letter to [petitioner] SICI filing its claim under the bond for not less than P795,000.00. On March 22, 1991, [respondent] again sent another letter reiterating its demand for payment under the aforementioned bond. Both letters allegedly went unheeded. [Respondent] then filed [a] complaint against x x x JDS and SICI. It sought from x x x JDS payment of P3,256,874.00 representing the additional expenses incurred by [respondent] for the completion of the project using another contractor, and from x x x JDS and SICI, jointly and severally, payment of P750,000.00 as damages in accordance with the performance bond; exemplary damages in the amount of P100,000.00 and attorneys fees in the amount of at least P100,000.00. According to the Sheriffs Return dated June 14, 1991, submitted to the lower court by Deputy Sheriff Rene R. Salvador, summons were duly served on defendant-appellee SICI. However, x x x Jose D. Santos, Jr. died the previous year (1990), and x x x JDS Construction nd was no longer at its address at 2 Floor, Room 208-A, San Buena Bldg. Cor. Pioneer St., Pasig, Metro Manila, and its whereabouts were unknown. On July 10, 1991, [petitioner] SICI filed its answer, alleging that the [respondents] money claims against [petitioner and JDS] have been extinguished by the death of Jose D. Santos, Jr. Even if this were not the case, [petitioner] SICI had been released from its liability under the performance bond because there was no liquidation, with the active participation and/or involvement, pursuant to procedural due process, of herein surety and contractor Jose D. Santos, Jr., hence, there was no ascertainment of the corresponding liabilities of Santos and SICI under the performance bond. At this point in time, said liquidation was impossible because of the death of Santos, who as such can no longer participate in any liquidation. The unilateral liquidation on the party (sic) of [respondent] of the work accomplishments did not bind SICI for being violative of procedural due process. The claim of [respondent] for the forfeiture of the performance bond in the amount of P795,000.00 had no factual and legal basis, as payment of said bond was conditioned on the payment of damages which [respondent] may sustain in the event x x x JDS failed to complete the contracted works. [Respondent] can no longer prove its claim for damages in view of the death of Santos. SICI was not informed by [respondent] of the death of Santos. SICI was not informed by [respondent] of the unilateral rescission of its contract with JDS, thus SICI was deprived of its right to protect its interests as surety under the performance bond, and therefore it was released from all liability. SICI was likewise denied due process when it was not notified of plaintiff-appellants process of determining and fixing the amount to be spent in the completion of the unfinished project. The procedure contained in Article XV of the contract is against public policy in that it denies SICI the right to procedural due process. Finally, SICI alleged that [respondent] deviated from the terms and conditions of the contract without the written consent of SICI, thus the latter was released from all liability. SICI also prayed for the award of P59,750.00 as attorneys fees, and P5,000.00 as litigation expenses. On August 16, 1991, the lower court issued an order dismissing the complaint of [respondent] against x x x JDS and SICI, on the ground that the claim against JDS did not survive the death of its sole proprietor, Jose D. Santos, Jr. The dispositive portion of the [O]rder reads as follows:

The Facts The facts of the case are narrated by the CA in this wise:
On May 24, 1989, [respondent] Republic-Asahi Glass Corporation (Republic-Asahi) entered into a contract with x x x Jose D. Santos, Jr., the proprietor of JDS Construction (JDS), for the construction of roadways and a drainage system in Republic-Asahis compound in Barrio Pinagbuhatan, Pasig City, where [respondent] was to pay x x x JDS five million three hundred thousand pesos (P5,300,000.00) inclusive of value added tax for said construction, which was supposed to be completed within a period of two hundred forty (240) days beginning May 8, 1989. In order to guarantee the faithful and satisfactory performance of its undertakings x x x JDS, shall post a performance bond of seven hundred ninety five thousand pesos (P795,000.00). x x x JDS executed, jointly and severally with [petitioner] Stronghold Insurance Co., Inc. (SICI) Performance Bond No. SICI-25849/g(13)9769. On May 23, 1989, [respondent] paid to x x x JDS seven hundred ninety five thousand pesos (P795,000.00) by way of downpayment. Two progress billings dated August 14, 1989 and September 15, 1989, for the total amount of two hundred seventy four thousand six hundred twenty one pesos and one centavo (P274,621.01) were submitted by x x x JDS to [respondent], which the latter paid. According to [respondent], these two progress billings accounted for only 7.301% of the work supposed to be undertaken by x x x JDS under the terms of the contract. Several times prior to November of 1989, [respondents] engineers called the attention of x x x JDS to the alleged alarmingly slow pace of the construction, which resulted in the fear that the construction will not be finished within the stipulated 240-day period. However, said reminders went unheeded by x x x JDS. On November 24, 1989, dissatisfied with the progress of the work undertaken by x x x JDS, [respondent] Republic-Asahi extrajudicially rescinded the contract pursuant to Article XIII of said contract, and wrote a letter to x x x JDS informing the latter of such rescission. Such rescission, according to Article XV of the contract shall not be construed as a waiver of [respondents] r ight to recover damages from x x x JDS and the latters sureties. [Respondent] alleged that, as a result of x x x JDSs failure to comply with the provisions of the contract, which resulted in the said contracts rescission, it had to hire ano ther contractor to finish the project, for which it incurred an additional expense of three million two hundred fifty six thousand, eight hundred seventy four pesos (P3,256,874.00).

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ACCORDINGLY, the complaint against the defendants Jose D. Santos, Jr., doing business under trade and style, JDS Construction and Stronghold Insurance Compan y, Inc. is ordered DISMISSED. SO ORDERED. On September 4, 1991, [respondent] filed a Motion for Reconsideration seeking reconsideration of the lower courts August 16, 1991 order dismissing its complaint. [Petitioner] SICI field its Comment and/or Opposition to the Motion for Reconsideration. On October 15, 1991, the lower court issued an Order, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the Motion for Reconsideration is hereby given due course. The Order dated 16 August 1991 for the dismissal of the case against Stronghold Insurance Company, Inc., is reconsidered and hereby reinstated (sic). However, the case against defendant Jose D. Santos, Jr. (deceased) remains undisturbed. Motion for Preliminary hearing and Manifestation with Motion filed by [Stronghold] Insurance Company Inc., are set for hearing on November 7, 1991at 2:00 oclock in the afternoon. SO ORDERED. On June 4, 1992, [petitioner] SICI filed its Memorandum for Bondsman/Defendant SICI (Re: Effect of Death of defendant Jose D. Santos, Jr.) reiterating its prayer for the dismissal of [respondents] complaint. On January 28, 1993, the lower court issued the assailed Order reconsidering its Order dated October 15, 1991, and ordered the case, insofar as SICI is concerned, dismissed. [Respondent] filed its motion for reconsideration which was opposed by [petitioner] [4] SICI. On April 16, 1993, the lower court denied [respondents] motion for reconsideration. x x x.

non-performance of the same. x x x [P]ursuant to the [S]urety [C]ontract, SICI is liable for [5] the non-performance of said [C]ontract on the part of JDS Construction. Hence, this Petition.
[6]

Issue Petitioner states the issue for the Courts consideration in the following manner:
Death is a defense of Santos heirs which Stronghold could also adopt as its defense against [7] obligees claim.

More precisely, the issue is whether petitioners liability under the performance bond was automatically extinguished by the death of Santos, the principal. The Courts Ruling The Petition has no merit.

Sole Issue: Effect of Death on the Suretys Liability

Ruling of the Court of Appeals The CA ruled that SICIs obligation under the surety agreement was not extinguished by the death of Jose D. Santos, Jr. Consequently, Republic-Asahi could still go after SICI for the bond. The appellate court also found that the lower court had erred in pronouncing that the performance of the Contract in question had become impossible by respondents act of rescission. The Contract was rescinded because of the dissatisfaction of respondent with the slow pace of work and pursuant to Article XIII of its Contract with JDS. The CA ruled that [p]erformance of the [C]ontract was impossible, not because of [respondents] fault, but because of the fault of JDS Construction and Jose D. Santos, Jr. for failure on their part to make satisfactory progress on the project, which amounted to

Petitioner contends that the death of Santos, the bond principal, extinguished his liability under the surety bond. Consequently, it says, it is automatically released from any liability under the bond. As a general rule, the death of either the creditor or the debtor does not [8] extinguish the obligation. Obligations are transmissible to the heirs, except when the transmission is prevented by the law, the stipulations of the parties, or the nature of the [9] [10] obligation. Only obligations that are personal or are identified with the persons [11] themselves are extinguished by death. Section 5 of Rule 86 of the Rules of Court expressly allows the prosecution of money claims arising from a contract against the estate of a deceased debtor. Evidently, [13] those claims are not actually extinguished. What is extinguished is only the obligees action or suit filed before the court, which is not then acting as a probate [14] court.
[12]

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In the present case, whatever monetary liabilities or obligations Santos had under his contracts with respondent were not intransmissible by their nature, by stipulation, or by provision of law. Hence, his death did not result in the extinguishment [15] of those obligations or liabilities, which merely passed on to his estate. Death is not a defense that he or his estate can set up to wipe out the obligations under the performance bond. Consequently, petitioner as surety cannot use his death to escape its monetary obligation under its performance bond. The liability of petitioner is contractual in nature, because it executed a performance bond worded as follows:
KNOW ALL MEN BY THESE PRESENTS: That we, JDS CONSTRUCTION of 208-A San Buena Building, contractor, of Shaw Blvd., Pasig, MM Philippines, as principal and the STRONGHOLD INSURANCE COMPANY, INC. a corporation duly organized and existing under and by virtue of the laws of the Philippines with head office at Makati, as Surety, are held and firmly bound unto the REPUBLIC ASAHI GLASS CORPORATION and to any individual, firm, partnership, corporation or association supplying the principal with labor or materials in the penal sum of SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00), Philippine Currency, for the payment of which sum, well and truly to be made, we bind ourselves, our heirs, executors, administrators, successors and assigns, jointly and severally, firmly by these presents. The CONDITIONS OF THIS OBLIGATION are as follows; WHEREAS the above bounden principal on the ___ day of __________, 19__ entered into a contract with the REPUBLIC ASAHI GLASS CORPORATION represented by _________________, to fully and faithfully. Comply with the site preparation works road and drainage system of Philippine Float Plant at Pinagbuhatan,Pasig, Metro Manila. WHEREAS, the liability of the Surety Company under this bond shall in no case exceed the sum of PESOS SEVEN HUNDRED NINETY FIVE THOUSAND (P795,000.00) Philippine Currency, inclusive of interest, attorneys fee, and other damages, and shall not be liable for any advances of the obligee to the principal. WHEREAS, said contract requires the said principal to give a good and sufficient bond in the above-stated sum to secure the full and faithfull performance on its part of said contract, and the satisfaction of obligations for materials used and labor employed upon the work; NOW THEREFORE, if the principal shall perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of said contract during the original term of said contract and any extension thereof that may be granted by the obligee, with notice to the surety and during the life of any guaranty required under the contract, and shall also perform well and truly and fulfill all the undertakings, covenants, terms, conditions, and agreements of any and all duly authorized modifications of said contract that may hereinafter be made, without notice to the surety except when such modifications increase the contract price; and such principal contractor or his or its sub-contractors shall promptly make payment to any individual, firm,

partnership, corporation or association supplying the principal of its sub-contractors with labor and materials in the prosecution of the work provided for in the said contract, then, this obligation shall be null and void; otherwise it shall remain in full force and effect. Any extension of the period of time which may be granted by the obligee to the contractor shall be considered as given, and any modifications of said contract shall be considered as authorized, with the express consent of the Surety. The right of any individual, firm, partnership, corporation or association supplying the contractor with labor or materials for the prosecution of the work hereinbefore stated, to institute action on the penal bond, pursuant to the provision of Act No. 3688, is hereby acknowledge and [16] confirmed.

As a surety, petitioner is solidarily liable with Santos in accordance with the Civil Code, which provides as follows:
Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section [17] 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. xxx xxx xxx

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected.
[18]

Elucidating on these provisions, the Court in Garcia v. Court of Appeals thus:

stated

x x x. The suretys obligation is not an original and direct one for the performance of his own act, but merely accessory or collateral to the obligation contracted by the principal. Nevertheless, although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor or promisee of the principal is said to be direct, primary and absolute; in other [19] words, he is directly and equally bound with the principal. x x x.

Under the law and jurisprudence, respondent may sue, separately or together, the principal debtor and the petitioner herein, in view of the solidary nature of their liability. The death of the principal debtor will not work to convert, decrease or nullify the substantive right of the solidary creditor. Evidently, despite the death of the principal

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debtor, respondent may still sue petitioner alone, in accordance with the solidary nature of the latters liability under the performance bond. WHEREFORE, the Petition is DENIED and the Decision of the Court of Appeals AFFIRMED. Costs against petitioner. SO ORDERED.
DR. CECILIA DE LOS SANTOS, Petitioner, G.R. No. 150931 Present: PUNO, C.J., Chairperson, CARPIO, CORONA, AZCUNA, and LEONARDO-DE CASTRO, JJ.

- versus -

Bautista (Atty. Bautista), were present in the same gathering. After some discussion, they all agreed that the outstanding P100,000 loan together with the accrued interest would be deducted [5] from the new loan of P500,000. De Leon signed a typewritten promissory note, which he brought with him, acknowledging the debt of P500,000 payable within 12 months from 28 August 1995, at a fixed monthly interest rate of [6] 3% and a penalty of 2% per month in case of default. Then, Cecilia signed as a witness under the phrase signed in the presence of. However, Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon, in his own handwriting, inserted the word guarantor besides Cecilias name, as Cecilia nodded her head to what de Leon was doing. De Leon also added the phrase, as security for this loan this TCT No. T-47375, Registry of Baguio City, is being submitted by way of mortgage. On maturity date, de Leon failed to pay any of the monthly installments. Priscila made several verbal demands on de Leon for payment but to no avail. Priscilas counsel then sent de Leon a demand letter dated 17 July 1996 asking for payment of the principal loan with interest and [7] penalties. De Leon failed to respond. On 4 September 1996,Priscilas counsel again sent a [8] demand letter not only to de Leon as principal debtor, but also to Cecilia. Cecilia was being made to answer for de Leons debt as the latters guarantor. Cecilia then remitted to Priscila P15,000 to [9] pay one months interest on the loan. However, this was the only payment Cecilia made to Priscila as Cecilia claimed she had no money to pay the full amount of the loan. After several failed attempts to collect the loan, Priscila filed with the Registry of Deeds of Baguio City an adverse claim on the property registered under TCT No. T-47375. However, the [10] Register of Deeds denied the registration of Priscilas claim on several grounds: (a) the issue involved is a money claim which does not fall within Section 70 of Presidential Decree No. [11] 1529; (b) the annexes were not marked; (c) the family names of Jose and Evangeline, registered owners, do not tally with those on the [12] title; and (d) there is no statement that there is no other provision in the Property Registration Decree for registering the same. On 20 November 1996, Priscila filed an action for recovery of money with the Regional Trial [13] Court of Quezon City, Branch 100, against de Leon and Cecilia. De Leondid not file an answer and the trial court declared him in default. Cecilia, on the other hand, filed an answer denying that she signed as guarantor of de Leons loan. On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the complaint [14] for insufficiency of evidence. On 12 January 2000, Priscila filed a Motion for Reconsideration on the grounds that the trial court erred in (a) dismissing the complaint against de Leon despite his being declared in default; and (b) finding that Cecilia was not a guarantor of de Leons loan. [15] In an Order dated 8 February 2000, the trial court modified its decision and ruled that de Leon acted fraudulently or in bad faith in refusing to pay his debt to Priscila. However, the trial court affirmed its decision dismissing the complaint against Cecilia. The trial court ruled that there was no express consent given by Cecilia binding her as guarantor. The dispositive portion of the Order provides: WHEREFORE, in view of the foregoing, the Decision of the Court dated November 26, 1999, is hereby amended as follows:

DR. PRISCILA BAUTISTA VIBAR, Respondent.

Promulgated: July 16, 2008

x-----------------------------------------------------------------------------------------x

DECISION

CARPIO, J.: The Case [1] [2] Before the Court is a petition for review on certiorari assailing the Decision dated 29 June [3] 2001 and Resolution dated 21 November 2001 of the Court of Appeals in CA-G.R. CV No. 66605. The Facts Petitioner Cecilia de los Santos (Cecilia) and respondent Priscila Bautista Vibar (Priscila) were former co-workers in the Medical Department of the Social Security System. They were close and trusted friends for 33 years. Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed money and borrowed P100,000 from Priscila. De Leon issued a promissory note dated 2 June 1994 and bound himself to pay the loan three months from date with a monthly interest rate of [4] 3%. Cecilia signed as a guarantor of de Leons loan. On 28 June 1995, de Leon asked Priscila for another loan. Together with Cecilia and Avelina Conte, de Leon went to Priscilas house. Priscila and her sister, Atty. Josefina

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WHEREFORE, judgment is hereby rendered in favor of plaintiff Dra. Priscila Vibar and against defendant Jose de Leon, and hereby orders the latter to pay the plaintiff the following amounts: (1) P500,000.00 representing the total amount of the loan extended with interest at 3% per month and penalty of 2% per month (due to default) from July 17, 1996 until the obligation is fully paid; (2) P30,000.00 representing moral damages; (3) P20,000.00 representing attorney's fees; and (4) costs of suit. Further, the Court hereby DISMISSES the instant complaint against defendant Dra. Cecilia de los Santos for insufficiency of evidence. No pronouncement as to costs. SO ORDERED. Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 66605. The Ruling of the Court of Appeals On 29 June 2001, the appellate court affirmed the trial courts ruling against de Leon but [16] modified the same with respect to Cecilia. The appellate court declared Cecilia as guarantor of de Leons loan. The relevant portions of the Decision state: x x x The conduct of defendant-appellee de los Santos during the signing, however, belies her intention to act merely as a witness. It cannot be gainsaid that she did not react when she heard Atty. Bautistas protest about her signing the promissory note in the capacity only of a witness and not as a guarantor. Neither did defendant-appellee de los Santos object when defendantappellee de Leon got back the promissory note and wrote the word guarantor after her signature in full view of all those present, including defendant-appellee de los Santos. In fact, said appellee nodded, signifying approval, when defendant-appellee de Leon placed the word guarantor after her signature on the promissory note. xxxx In this factual milieu, if defendant-appellee de los Santos intended only to sign as a witness, she should have reacted when the word guarantor was written on the note in her presence. She should have expressed her strong and firm objections to such imposition of liability. But defendantappellee de los Santos kept mum. Such silence can lead to no other conclusion that she has impliedly given her consent to be the guarantor of de Leons loan. Moreover, defendant-appellee de los Santos is estopped from claiming otherwise. Estoppel in pais arises x x x. Moreover, one can imply from defendant-appellee de los Santos letter dated May 5, 1996 addressed to the Register of Deeds, City of Baguio that defendant-appellee de los Santos agreed to be bound as guarantor x x x.

It is significant to note that she made no statement therein repudiating her having signed the same in the capacity of a guarantor, contrary to what she now claims in her defense. Her failure to correct or refute such statement reinforces the claim that indeed she guaranteed payment of the loan in question, and that writing was to her interest considering her liabilities under the note as guarantor. x x x Thus, defendant-appellee de los Santos can be compelled to pay plaintiff-appellant Vibar the judgment debt if it remains unsatisfied after execution is enforced against the properties of the principal debtor, defendant-appellee Jose de Leon. x x x

Cecilia filed a Motion for Reconsideration which the appellate court denied in a Resolution [17] dated 21 November 2001. Hence, this petition. The Issue The main issue for resolution is whether Cecilia is liable as guarantor of de Leons loan from Priscila. Cecilia contends that she is not liable as guarantor. Her behavior, as when she allegedly kept mum or nodded her head and smiled, was not an implied consent as guarantor. She insists that the law is clear that a guaranty is not presumed and that there must be a concrete positive act of acceptance or consent to the guaranty. Thus, without such knowledge or consent, there is no estoppel in pais. Priscila, on the other hand, maintains that from the totality of Cecilias acts, she consented to be bound as guarantor of de Leons loan. Her nod of approval and non-objection to the insertion of the word guarantor at the signing of the second promissory note show that she agreed to be a guarantor, just like in the first promissory note. Even after discovering that the loan was unpaid and already overdue, Cecilia did not contest that she was a guarantor and even paid partially to Priscila. Instead, Cecilia claimed she had no money to pay the entire loan. It was only after the case was filed that Cecilia challenged the insertions in the promissory note. Hence, Priscila insists that Cecilia is estoppedfrom denying that she is a guarantor. The Courts Ruling The issue before us is a question of fact, the determination of which is beyond this Courts [18] power of review for it is not a trier of facts. However, there are instances when questions of fact may be reviewed by this Court, as when the findings of the Court of Appeals are contrary to those [19] of the trial court. In the present case, the trial court and the Court of Appeals made conflicting findings of fact. Thus, a review of such factual findings is in order. Here, the controversy centers on whether there exists a contract of guaranty to hold Cecilia liable for the loan of de Leon, the principal debtor. The trial court found that Cecilia had no knowledge of, and did not consent to, the guaranty. On the other hand, the appellate court ruled that Cecilias conduct during the signing of the promissory note and he r non-objection to the insertion of the word guarantor show that she acted as guarantor. Cecilias nodding of her head upon the insertion of the word guarantor signified her consent to be a guarantor. We rule that Cecilia was a guarantor of de Leons loan.

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Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to the promissory note and Cecilias actions as the best evidence to prove that Cecilia signed as guarantor. The promissory note indicates that Cecilia signed as a witness, as manifested by the typewritten format. However, the word guarantor as handwritten beside Cecilias name makes Cecilia a guarantor. From the records of the case and the evidence presented, we are convinced that the insertion was made with the express consent of Cecilia. Firstly, Cecilias act of nodding her head signified her assent to the insertion of the word guarantor. The word guarantor could have been inserted by Cecilia herself, or by someone authorized by Cecilia. In either case, Cecilia would be bound as guarantor. In this case, Cecilia, by nodding her head, authorized de Leon, who prepared the promissory note, to insert the word guarantor. Since de Leon made the insertion only after Atty. Bautista had raised the need for Cecilia to be a guarantor, a positive or negative reaction was expected from Cecilia, who responded by giving her nod of approval. Otherwise, Cecilia should have immediately expressed her objection to the insertion of the word guarantor. Cecilias act of nodding her head showed her consent to be a guarantor. Secondly, Priscila would not have extended a loan to de Leon without the representations of Cecilia. Cecilia arranged for de Leon and Priscila to meet so that de Leon could borrow money from Priscila. Cecilia vouched for de Leons capacity to pay. As a friend and common link between the borrower and lender, Cecilia took active part in the first loan of P100,000 and even signed as guarantor. On the second promissory note, the word guarantor again appears, admitted by both Cecilia and Priscila as an insertion made by de Leon at the time of signing. The first loan of P100,000, which Cecilia guaranteed, was paid from the proceeds of the second loan. As shown by the intervention of Atty. Bautista in bringing up the need for Cecilia to act as guarantor, Priscila would not have granted the second bigger loan of P500,000 without the guaranty of Cecilia. It was only natural for Priscila to commit to the second bigger loan subject at least to the same guarantee as the first smaller loan. Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed. However, the records show that Cecilia had several meetings with Priscila and the latters counsel before the [20] demand letters were sent. In these meetings, Cecilia acknowledged her liability as guarantor [21] but simply claimed that she had no money to pay Priscila. In fact, Cecilia made an initial payment of P15,000 as partial compliance of her obligation as guarantor. This only shows that Cecilia never denied her liability to Priscila as guarantor until this case was filed in court. Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the status of [22] the property mentioned in the promissory note as a mortgage security for de Leons loan. The letter states: May 5, 1996 The Register of Deeds City of Baguio Sir: This is relative to a Promissory Note dated June 28, 1995 x x x.

In the aforestated Promissory Note, the undersigned appears to be a Guarantor and it is a condition therein that as security for this loan this TCT No. 47375, Registry of Baguio City, is being submitted, by way of mortgage. However, information has been received that said registered owners, individually or collectively, have executed and fi led with your Office an affidavit of loss of said duplicate owners copy. If such information is correct, may I request for a certification to said effect, and possibly, a certified true copy of such document. xxxx Here, Cecilia clearly stated that she appears to be a guarantor in the promissory note. This serves as a written admission that Cecilia knew she was a guarantor. During the trial, Cecilia did [23] not impugn the letter or its contents. In fact, Cecilia submitted this letter in evidence. Cecilia wrote the Register of Deeds to protect her interest, hoping that the property covered by TCT No. T47375 could answer for de Leons loan and save her from personally paying as guarantor. This explains Cecilias letter admitting that she appears as a guarantor in the promissory note. It is axiomatic that the written word guarantor prevails over the typewritten word witness. In case of conflict, the written word prevails over the printed word. Section 15 of Rule 130 provides: Sec. 15. Written words control printed. - When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the former controls the latter.

The rationale for this rule is that the written words are the latest expression of the will of the parties. Thus, in this case, the latest expression of Cecilias will is that she signed the promissory note as guarantor. We agree with the Court of Appeals that estoppel in pais arose in this case. Generally, estoppel is a doctrine that prevents a person from adopting an inconsistent [24] position, attitude, or action if it will result in injury to another. One who, by his acts, representations or admissions, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, can no longer deny the existence of such fact as it will [25] prejudice the latter. Cecilias conduct in the course of the negotiations and contract signing shows that she consented to be a guarantor of the loan as witnessed by everyone present. Her act of nodding her head, and at the same time even smiling, expressed her voluntary assent to the insertion of the word guarantor after her signature. It is the same as saying that she agreed to the insertion. Also, Cecilias acts of making the partial payment of P15,000 and writing the letter to the Register of Deeds sustain the ruling that Cecilia affirmed her obligation as de Leons guarantor to the loan. Thus, Cecilia is now estopped from denying that she is a guarantor. WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 21 November 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 66605.

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SO ORDERED.
[G.R. No. 148864. August 21, 2003]

SPOUSES EDUARDO B. EVANGELISTA and EPIFANIA C. EVANGELISTA, petitioners, vs. MERCATOR FINANCE CORP., LYDIA P. SALAZAR, LAMECS REALTY AND DEVELOPMENT CORP. and the REGISTER OF DEEDS OF BULACAN, respondents. DECISION
**

After pre-trial, Mercator moved for summary judgment on the ground that except as to the amount of damages, there is no factual issue to be litigated. Mercator argued that petitioners had admitted in their pre-trial brief the existence of the promissory note, the continuing suretyship agreement and the subsequent promissory notes restructuring the loan, hence, there is no genuine issue regarding their liability. The mortgage, foreclosure proceedings and the subsequent sales are valid and the complaint must be dismissed. Petitioners opposed the motion for summary judgment claiming that because their personal liability to Mercator is at issue, there is a need for a full-blown trial. The RTC granted the motion for summary judgment and dismissed the complaint. It held:
[11] [12]

PUNO, J.:

Petitioners, Spouses Evangelista (Petitioners), are before this Court on a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, assailing the decision of the Court of Appeals dismissing their petition. Petitioners filed a complaint for annulment of titles against respondents, Mercator Finance Corporation, Lydia P. Salazar, Lamecs Realty and Development Corporation, and the Register of Deeds of Bulacan. Petitioners claimed being the registered owners of five (5) parcels of land contained in the Real Estate Mortgage executed by them and Embassy Farms, Inc. (Embassy Farms). They alleged that they executed the Real Estate Mortgage in favor of Mercator Financing Corporation (Mercator) only as officers o f Embassy Farms. They did not receive the proceeds of the loan evidenced by a promissory note, as all of it went to Embassy Farms. Thus, they contended that the mortgage was without any consideration as to them since they did not personally obtain any loan or credit accommodations. There being no principal obligation on which the mortgage rests, the real estate mortgage is void. With the void mortgage, they assailed the validity of the foreclosure proceedings conducted by Mercator, the sale to it as the highest bidder in the public auction, the issuance of the transfer certificates of title to it, the subsequent sale of the same parcels of land to respondent Lydia P. Salazar (Salazar), and the transfer of the titles to her name, and lastly, the sale and transfer of the properties to respondent Lamecs Realty & Development Corporation (Lamecs). Mercator admitted that petitioners were the owners of the subject parcels of land. It, however, contended that on February 16, 1982, plaintiffs executed a Mortgage in favor of defendant Mercator Finance Corporation for and in consideration of certain loans, and/or other forms of credit accommodations obtained from the Mortgagee (defendant Mercator Finance Corporation) amounting to EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE & 78/100 (P844,625.78) PESOS, Philippine Currency and to secure the payment of the same and those others that the MORTGAGEE may extend to the MORTGAGOR (plaintiffs) x x x. It contended that since petitioners and Embassy Farms signed the promissory note as comakers, aside from the Continuing Suretyship Agreement subsequently executed to guarantee the indebtedness of Embassy Farms, and the succeeding promissory notes restructuring the loan, then petitioners are jointly and severally liable with Embassy Farms. Due to their failure to pay the obligation, the foreclosure and subsequent sale of the mortgaged properties are valid. Respondents Salazar and Lamecs asserted that they are innocent purchasers for value and in good faith, relying on the validity of the title of Mercator. Lamecs admitted the prior ownership of petitioners of the subject parcels of land, but alleged that they are the present registered owner. Both respondents likewise assailed the long silence and inaction by petitioners as it was only after a lapse of almost ten (10) years from the foreclosure of the property and the subsequent sales that they made their claim. Thus, Salazar and Lamecs averred that petitioners are in estoppel and guilty of laches. During pre-trial, the parties agreed on the following issues:
[1] [2] [3] [4] [5] [6] [7] [8] [9]

A reading of the promissory notes show (sic) that the liability of the signatories thereto are solidary in view of the phrase jointly and severally. On the promissory note appears ( sic) the signatures of Eduardo B. Evangelista, Epifania C. Evangelista and another signature of Eduardo B. Evangelista below the words Embassy Farms, Inc. It is crystal clear then that the plaintiffs-spouses signed the promissory note not only as officers of Embassy Farms, Inc. but in their personal capacity as well(.) Plaintiffs(,) by affixing their signatures thereon in a dual capacity have bound themselves as solidary debtor(s) with Embassy Farms, Inc. to pay defendant Mercator Finance Corporation the amount of indebtedness. That the principal contract of loan is void for lack of consideration, in the light of the foregoing is untenable.
[13]

Petitioners motion for reconsideration was denied for lack of merit. Thus, petitioners went up to the Court of Appeals, but again were unsuccessful. The appellate court held:
[14]

The appellants insistence that the loans secured by the mortgage they executed were not personally theirs but those of Embassy Farms, Inc. is clearly self-serving and misplaced. The fact that they signed the subject promissory notes in the(ir) personal capacities and as officers of the said debtor corporation is manifest on the very face of the said documents of indebtedness (pp. 118, 128-131, Orig. Rec.). Even assuming arguendo that they did not, the appellants lose sight of the fact that third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own property (Lustan vs. Court of Appeals, 266 SCRA 663, 675). x x x. In constituting a mortgage over their own property in order to secure the purported corporate debt of Embassy Farms, Inc., the appellants undeniably assumed the personality of persons interested in the fulfillment of the principal obligation who, to save the subject realities from foreclosure and with a view towards being subrogated to the rights of the creditor, were free to discharge the same by payment (Articles 1302 [3] and 1303, Civil Code of the Philippines). (emphases in the original)
[15]

The appellate court also observed that if the appellants really felt aggrieved by the foreclosure of the subject mortgage and the subsequent sales of the realties to other parties, why then did they commence the suit only on August 12, 1997 (when the certificate of sale was issued on January 12, 1987, and the certificates of title in the name of Mercator on September 27, 1988)? Petitioners procrastination for about nine (9) years is difficult to understand. On so flimsy a ground as lack of consideration, (w)e may even venture to say that the complaint was not worth the time of the courts. A motion for reconsideration by petitioners was likewise denied for lack of merit. Thus, this petition where they allege that:
[16] [17]

a. b. c.

d.

Whether or not the Real Estate Mortgage executed by the plaintiffs in favor of defendant Mercator Finance Corp. is null and void; Whether or not the extra-judicial foreclosure proceedings undertaken on subject parcels of land to satisfy the indebtedness of Embassy Farms, Inc. is (sic) null and void; Whether or not the sale made by defendant Mercator Finance Corp. in favor of Lydia Salazar and that executed by the latter in favor of defendant Lamecs Realty and Development Corp. are null and void; Whether or not the parties are entitled to damages.
[10]

THE COURT A QUO ERRED AND ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN AFFIRMING IN TOTO THE MAY 4, 1998 ORDER OF THE TRIAL COURT GRANTING RESPONDENTS MOTION FOR SUMMARY JUDGMENT DESPITE THE EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS AND ITS NONENTITLEMENT TO A JUDGMENT AS A MATTER OF LAW, THEREBY DECIDING THE CASE IN A WAY PROBABLY NOT IN ACCORD WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT.
[18]

We affirm. Summary judgment is a procedural technique aimed at weeding out sham claims or defenses at an e arly stage of the litigation. The crucial question in a motion for summary judgment is whether the issues raised in the pleadings are genuine or fictitious, as shown by affidavits, depositions or admissions accompanying the
[19]

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motion. A genuine issue means an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived so as not to constitute a genuin e issue for trial. To forestall summary judgment, it is essential for the non-moving party to confirm the existence of genuine issues where he has substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which a reasonable finding of fact could return a verdict for the non-moving party. The proper inquiry would therefore be whether the affirmative defenses offered by petitioners constitute genuine issue of fact requiring a full-blown trial. In the case at bar, there are no genuine issues raised by petitioners. Petitioners do not deny that they obtained a loan from Mercator. They merely claim that they got the loan as officers of Embassy Farms without intending to personally bind themselves or their property. However, a simple perusal of the promissory note and the continuing suretyship agreement shows otherwise. These documentary evidence prove that petitioners are solidary obligors with Embassy Farms. The promissory note states:
[20] [21] [22]

Petitioners further allege that there is an ambiguity in the wording of the promissory note and claim that since it was Mercator who provided the form, then the ambiguity should be resolved against it. Courts can interpret a contract only if there is doubt in its letter. But, an examination of the promissory note shows no such ambiguity. Besides, assuming arguendo that there is an ambiguity, Section 17 of the Negotiable Instruments Law states, viz:
[25]

SECTION 17. Construction where instrument is ambiguous. Where the language of the instrument is ambiguous or there are omissions therein, the following rules of construction apply: xxx xxx xxx (g) Where an instrument containing the word I promise to pay is signed by two or more persons, they are deemed to be jointly and severally liable thereon.
Petitioners also insist that the promissory note does not convey their true intent in executing the document. The defense is unavailing. Even if petitioners intended to sign the note merely as officers of Embassy Farms, still this does not erase the fact that they subsequently executed a continuing suretyship agreement. A surety is one who is solidarily liable with the principal. Petitioners cannot claim that they did not personally receive any consideration for the contract for well-entrenched is the rule that the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. A surety is bound by the same consideration that makes the contract effective between the principal parties thereto. Having executed the suretyship agreement, there can be no dispute on the personal liability of petitioners. Lastly, the parol evidence rule does not apply in this case. We held in Tarnate v. Court of Appeals, that where the parties admitted the existence of the loans and the mortgage deeds and the fact of default on the due repayments but raised the contention that they were misled by respondent bank to believe that the loans were long-term accommodations, then the parties could not be allowed to introduce evidence of conditions allegedly agreed upon by them other than those stipulated in the loan documents because when they reduced their agreement in writing, it is presumed that they have made the writing the only repository and memorial of truth, and whatever is not found in the writing must be understood to have been waived and abandoned. IN VIEW WHEREOF, the petition is dismissed. Treble costs against the petitioners. SO ORDERED. Panganiban, and Sandoval-Gutierrez, JJ., concur. Corona, and Carpio-Morales, JJ., on official leave.
[26] [27] [28] [29]

For value received, I/We jointly and severally promise to pay to the order of MERCATOR FINANCE CORPORATION at its office, the principal sum of EIGHT HUNDRED FORTY-FOUR THOUSAND SIX HUNDRED TWENTY-FIVE PESOS & 78/100 (P 844,625.78), Philippine currency, x x x, in installments as follows: September 16, 1982 P154,267.87 October 16, 1982 P154,267.87 November 16, 1982 P154,267.87 December 16, 1982 P154,267.87 January 16, 1983 P154,267.87 February 16, 1983 P154,267.87
xxx xxx x x x. The note was signed at the bottom by petitioners Eduardo B. Evangelista and Epifania C. Evangelista, and Embassy Farms, Inc. with the signature of Eduardo B. Evangelista below it. The Continuing Suretyship Agreement also proves the solidary obligation of petitioners, viz:
[23]

(Embassy Farms, Inc.) Principal (Eduardo B. Evangelista) Surety [G.R. No. 103066. April 25, 1996] (Epifania C. Evangelista) WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and Surety INTERNATIONAL CORPORATE BANK,respondents. (Mercator Finance Corporation) SYLLABUS Creditor 1. REMEDIAL LAW; EVIDENCE; PAROL EVIDENCE RULE; FAILURE TO OBJECT TO THE To: MERCATOR FINANCE COPORATION PRESENTATION OF PAROL EVIDENCE CONSTITUTES A WAIVER THEREOF. - It has been (1) For valuable and/or other consideration, EDUARDO B. EVANGELISTA and EPIFANIA C. held that explanatory evidence may be received to show the circumstances under which a EVANGELISTA (hereinafter called Surety), jointly and severally unconditionally guarantees (sic) to document has been made and to what debt it relates. At all events, Willex Plastic cannot now MERCATOR FINANCE COPORATION (hereinafter called Creditor), the full, faithful and prompt claim that its liability is limited to any amount which Interbank, as creditor, might give directly to payment and discharge of any and all indebtedness of EMBASSY FARMS, INC. (hereinafter called Inter-Resin Industrial as debtor because, by failing to object to the parol evidence presented, Willex Principal) to the Creditor. xxx xxx xxx Plastic waived the protection of the parol evidence rule. (3) The obligations hereunder are joint and several and independent of the obligations of the 2. ID.; ID.; FINDINGS OF FACT OF THE TRIAL COURT; RULE; APPLICABLE IN CASE AT BAR. Principal. A separate action or actions may be brought and prosecuted against the Surety whether The trial court found that it was to secure the guarantee made by plaintiff of the credit or not the action is also brought and prosecuted against the Principal and whether or not the accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff Principal be joined in any such action or actions. required defendant IRIC to execute a chattel mortgage in its favor and a Continuing Guaranty xxx xxx x x x. which was signed by the defendant Willex Plastic Industries Corporation. Similarly, the Court of The agreement was signed by petitioners on February 16, 1982. The promissory notes subsequently Appeals found it to be an undisputed fact that to secure the guarantee undertaken by plaintiff executed by petitioners and Embassy Farms, restructuring their loan, likewise prove that petitioners are appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank,
[24]

solidarily liable with Embassy Farms.

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plaintiff-appellee required defendant-appellant to sign a Continuing Guaranty. These factual findings of the trial court and of the Court of Appeals are binding on us not only because of the rule that on appeal to the Supreme Court such findings are entitled to great weight and respect but also because our own examination of the record of the trial court confirms these findings of the two courts. 3. CIVIL LAW; SPECIAL CONTRACTS; GUARANTY; THE CONSIDERATION NECESSARY TO SUPPORT A SURETY OBLIGATION NEED NOT PASS DIRECTLY TO THE SURETY, A CONSIDERATION MOVING TO THE PRINCIPAL ALONE IS SUFFICIENT. - Willex Plastic argues that the Continuing Guaranty, being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the Continuing Surety Agreement or to the loan agreement between Manilabank and Inter Resin Industrial. Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. 4. ID.; ID.; ID.; ALTHOUGH A CONTRACT OF SURETY IS ORDINARILY NOT TO BE CONSTRUED AS RETROSPECTIVE, IN THE END THE INTENTION OF THE PARTIES AS REVEALED BY THE EVIDENCE IS CONTROLLING. - Willex Plastic contends that the Continuing Guaranty cannot be retroactively applied so as to secure the payments made by Interbank under the two Continuing Surety Agreements. Willex Plastic invokes the ruling in El Vencedor v. Canlas (44 Phil. 699 [1923]) and Dio v. Court of Appeals (216 SCRA 9 [1992]) in support of its contention that a contract of suretyship or guaranty should be applied prospectively. The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we held that a contract of suretyship is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debts contracted previous to the execution of the bonds. In contrast, in this case, the parties to the Continuing Guaranty clearly provided that the guaranty would cover sums obtained and/or to be obtained by Inter-Resin Industrial from Interbank. On the other hand, in Dio v. Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its operation and is generally intended to provide security with respect to future transactions. By no means, however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. Indeed, as we also held in Bank of the Philippine Islands v. Foerster, (49 Phil. 843 [1926]) although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling. What was said there applies mutatis mutandis to the case at bar: In our opinion, the appealed judgment is erroneous. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must yield to the intention of the contracting parties as revealed by the evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which apply in regard to other contracts. In the present case the circumstances so clearly indicate that the bond given by Echevarria was intended to cover all of the indebtedness of the Arrocera upon its current account with the plaintiff Bank that we cannot possibly adopt the view of the court below in regard to the effect of the bond. APPEARANCES OF COUNSEL Tangle-Chua, Cruz & Aquino for petitioner.

Fe B. Macalino & Associates for respondent Interbank. DECISION


MENDOZA, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of the National Capital Judicial Region, Branch XLV, Manila, which ordered petitioner Willex Plastic Industries Corporation and the Inter-Resin Industrial Corporation, jointly and severally, to pay private respondent International Corporate Bank certain sums of money, and the appellate courts resolution of October 17, 1989 denying petitioners motion for reconsideration. The facts are as follows: Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit accommodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled Continuing Surety Agreement and dated December 1, 1978, whereby they bound themselves solidarily to pay Manilabank obligations of every kind, on which the [Inter-Resin Industrial] may now be indebted or hereafter become indebted to the [Manilabank]. The two agreements (Exhs. J and K) are the same in all respects, except as to the limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while the second one is limited to US$334,087.00. On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a Continuing Guaranty in favor of IUCP whereby For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties as hereafter may be specified. On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrials outstanding obligation. (Exh. M-1) On February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-Resin Industrial and Willex Plastic. On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of P687,500.00 representing the proceeds of its fire insurance policy for the destruction of its properties. In its answer, Inter-Resin Industrial admitted that the Continuing Guaranty was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. On the other hand, Willex Plastic denied the material allegations of the complaint and interposed the following Special Affirmative Defenses: (a) Assuming arguendo that main defendant is indebted to plaintiff, the formers liability is extinguished due to the accidental fire that destroyed its premises, which liability is covered by sufficient insurance assigned to plaintiff; (b) Again, assuming arguendo, that the main defendant is indebted to plaintiff, its account is now very much lesser than those stated in the complaint because of some payments made by the former; (c) The complaint states no cause of action against WILLEX;
[1]

86

(d) WILLEX is only a guarantor of the principal obligor, and thus, its liability is only secondary to that of the principal; (e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the principal obligor; (f) Plaintiff has no personality to sue. On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial. On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to present evidence for its failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without presenting any evidence. Thereafter Interbank and Willex Plastic submitted their respective memoranda. On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin Industrial and Willex Plastic jointly and severally to pay to Interbank the following amounts: (a) P3,646,780.61, representing their indebtedness to the plaintiff, with interest of 17% per annum from August 11, 1982, when Inter-Resin Industrial paid P687,500.00 to the plaintiff, until full payment of the said amount; (b) Liquidated damages equivalent to 17% of the amount due; and (c) Attorneys fees and expenses of litigation equivalent to 20% of the total amount due. Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic filed its brief, while Inter-Resin Industrial presented a Motion to Conduct Hearing and to Receive Evidence to Resolve Factual Issues and to Defer Filing of the Appellants Brief. After its motion was denied, Inter-Resin Industrial did not file its brief anymore. On February 22, 1991, the Court of Appeals rendered a decision affirming the ruling of the trial court. Willex Plastic filed a motion for reconsideration praying that it be allowed to present evidence to show that Inter-Resin Industrial had already paid its obligation to Interbank, but its motion was denied on December 6, 1991: The motion is denied for lack of merit. We denied defendant-appellant Inter-Resin Industrials motion for reception of evidence because the situation or situations in which we could exercise the power under B.P. 129 did not exist. Movant here has not presented any argument which would show otherwise. Hence, this petition by Willex Plastic for the review of the decision of February 22, 1991 and the resolution of December 6,1991 of the Court of Appeals. Petitioner raises a number of issues. [1] The main issue raised is whether under the Continuing Guaranty signed on April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to Manilabank. As already stated, the amount had been paid by Interbanks predecessor -in-interest, Atrium Capital, to Manilabank pursuant to the Continuing Surety Agreements made on December 1, 1978. In denying liability to Interbank for the amount, Willex Plastic argues that under the Continuing Guaranty, its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial. In support of this contention Willex Plastic cites the following portion of the Continuing Guaranty: For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto you and/or your principal/s, successor/s and assigns

the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges and penalties as may hereinafter be specified. The contention is untenable. What Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the Continu ing Guaranty was executed. In its complaint below, Interbanks predecessor-in-interest. Atrium Capital, alleged:
5. to secure the guarantee made by plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the other defendant WPIC [Willex Plastic].

In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it had already paid its obligation in its entirety. On the other hand, Willex Plastic, while denying the allegation in question, merely did so for lack of knowledge or information of the same. But, at the hearing of the case on September 16, 1986, when asked by the trial judge whether Willex Plastic had not filed a crossclaim against Inter-Resin Industrial, Willex Plastics counsel replied in the negative and manifested that the plaintiff in this case [Interbank] is the guaran tor and my client [Willex Plastic] only signed as a guarantor to the guarantee. For its part Interbank adduced evidence to show that the Continuing Guaranty had been made to guarantee payment of amounts made by it to Manilabank and not of any sums given by it as loan to Inter-Resin Industrial. Interbanks witness testified under cross- examination by counsel for Willex Plastic that Willex guaranteed the exposure/of whatever exposure of ACP [Atrium Capital] will later be made because of the guarantee to Manila Banking Corporation. It has been held that explanatory evidence may be received to show the circumstances under which a document has been made and to what debt it relates. At all events, Willex Plastic cannot now claim that its liability is limited to any amount which Interbank, as creditor, might give directly to Inter-Resin Industrial as debtor because, by failing to object to the parol evidence presented, Willex Plastic waived the protection of the parol evidence rule. Accordingly, the trial court found that it was to secure the guarantee made by plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries Corporation. Similarly, the Court of Appeals found it to be an undisputed fact that to secure the guarantee undertaken by plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required defendant-appellants to sign a Continuing Guaranty. These factual findings of the trial court and of the Court of Appeals are binding on us not only because of the rule that on appeal to the Supreme Court such findings are entitled to great weight and respect but also because our own examination of the record of the trial court confirms these findings of the two courts. Nor does the record show any other transaction under which Inter-Resin Industrial may have obtained sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex Plastic intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of Inter-Resin Industrial. Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was to secure the aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor, and so a Continuing Guaranty was executed on April 2,
[2] [3] [4] [5] [6] [7]

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1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin Industrial]. [2] Willex Plastic argues that the Continuing Guaranty, being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. Its contention is based on the fact that it is not a party either to the Continuing Surety Agreement or to the loan agreement between Manilabank and Inter-Resin Industrial. Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety is bound by the same consideration that makes the contract effectiv e between the principal parties thereto. . . . It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal. In an analogous case, this Court held: At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell charcoal and importation of activated carbon, the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promissory note, is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower is or may become liable as maker, endorser, acceptor or otherwise. There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. [3] Willex Plastic contends that the Continuing Guaranty cannot be retroactively applied so as to secure the payments made by Interbank under the two Continuing Surety Agreements. Willex Plastic invokes the ruling m El Vencedor v. Canlas and Dio v. Court of Appeals in support of its contention that a contract of suretyship or guaranty should be applied prospectively. The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we held that a contract of suretyship is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated. There we found nothing in the contract to show that the parties intended the surety bonds to answer for the debts contracted previous to the execution of the bonds. In contrast, in this case, the parties to the Continuing Guaranty clearly provided that the guaranty would cover s ums obtained and/or to be obtained by Inter-Resin Industrial from Interbank. On the other hand, in Dio v. Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. It is prospective in its operation and is generally intended to provide security with respect to future transactions. By no means, however, was it meant in that case that in all instances a contract of guaranty or suretyship should be prospective in application. Indeed, as we also held in Bank of the Philippine Islands v. Foerster, although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling. What was said there applies mutatis mutandis to the case at bar: In our opinion, the appealed judgment is erroneous. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must yield to the intention of the contracting parties as revealed by the evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which apply in regard to other contracts.
[8] [9] [10] [11] [12] [13] [14]

In the present case the circumstances so clearly indicate that the bond given by Echevarria was intended to cover all of the indebtedness of the Arrocera upon its current account with the plaintiff Bank that we cannot possibly adopt the view of the court below in regard to the effect of the bond. [4] Willex Plastic says that in any event it cannot be proceeded against without first exhausting all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of excussion. The Civil Code provides, however: Art. 2059. This excussion shall not take place: (1) If the guarantor has expressly renounced it; (2) If he has bound himself solidarily with the debtor; xxx xxx xxx The pertinent portion of the Continuing Guaranty executed by Willex Plastic and Inter -Resin Industrial in favor of IUCP (now Interbank) reads: If default be made in the payment of the NOTE/s herein guaranteed you and/or your principal/s may directly proceed against Me/Us without first proceeding against and exhausting DEBTOR/s properties in the same manner as if all such liabilities constituted My/Our direct and primary obligations. (italics supplied) This stipulation embodies an express renunciation of the right of excussion. In addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under the same agreement: For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto you and/ or your principal/s, successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges and penalties as may hereinafter he specified. [5] Finally it is contended that Inter-Resin Industrial had already paid its indebtedness to Interbank and that Willex Plastic should have been allowed by the Court of Appeals to adduce evidence to prove this. Suffice it to say that Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to make use of the same. On the other hand, Willex Plastic rested its case without presenting evidence. The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but because of its failure to appear on that date, the hearing was reset on March 12, 26 and April 2, 1987. On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex Plastic, the hearings on March 12 and 26, 1987 were cancelled and reset for the last time on April 2 and 30, 1987. On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court issued the following order: Considering that, as shown by the records, the Court had exerted every earnest effort to cause the service of notice or subpoena on the defendant Inter-Resin Industrial but to no avail, even with the assistance of the defendant Willex. . . the defendant Inter-Resin Industrial is hereby deemed to have waived the right to present its evidence. On the other hand, Willex Plastic announced it was resting its case without presenting any evidence.

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Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set the hearing anew on July 23, 1987. But Inter-Resin Industrial again moved for the postponement of the hearing to August 11, 1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the hearings were reset on October 13,1987, this time upon motion of Interbank. To give Interbank time to comment on a motion filed by Inter-Resin Industrial, the reception of evidence for Inter-Resin Industrial was again reset on November 17, 26 and December 11, 1987. However, Inter-Resin Industrial again moved for the postponement of the hearing. Accordingly, the hearing was reset on November 26 and December 11, 1987, with warning that the hearings were intransferrable. Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988 and February 5, 1988 upon motion of its counsel. As Inter-Resin Industrial still failed to present its evidence, it was declared to have waived its evidence. To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing was postponed to March 4, 1988. Again Inter-Resin Industrials counsel did not appear. The trial court, therefore, finally declared Inter-Resin Industrial to have waived the right to present its evidence. On the other hand, Willex Plastic, as before, manifested that it was not presenting evidence and requested instead for time to file a memorandum. There is therefore no basis for the plea made by Willex Plastic that it be given the opportunity of showing that Inter-Resin Industrial has already paid its obligation to Interbank. WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the petitioner. SO ORDERED. Regalado (Chairman), Romero, Puno, and Torres, Jr., JJ., concur.

The main contention raised in this petition is that petitioners are not under obligation to reimburse respondent, a claim that can be easily debunked. The more perplexing question is whether this obligation to repay is solidary, as contended by respondent and the lower courts, or merely joint as argued by petitioners.

On 28 April 1980, Private Development Corporation of the Philippines (PDCP) entered into a loan agreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend to Falcon the amount of US$320,000.00, for specific purposes and subject to certain [2] terms and conditions. On the same day, three stockholders-officers of Falcon, namely: respondent Rafael Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an Assumption of Solidary Liability whereby they agreed to assume in [their] individual capacity, solidary liability with [Falcon] for the due and punctual payment of the loan contr acted by Falcon [3] with PDCP. In the meantime, two separate guaranties were executed to guarantee the payment of the same loan by other stockholders and officers of Falcon, acting in their personal and [4] individual capacities. One Guaranty was executed by petitioner Salvador Escao (Escao), while [5] the other by petitioner Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J. Rodriguez (Rodriguez). Two years later, an agreement developed to cede control of Falcon to Escao, Silos and Joseph M. Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and the heirs of then already deceased George T. Scholey assigned their shares of stock [6] in Falcon to Escao, Silos and Matti. Part of the consideration that induced the sale of stock was a desire by Ortigas, et al., to relieve themselves of all liability arising from their previous joint and several undertakings with Falcon, including those related to the loan with PDCP. Thus, an [7] Undertaking dated 11 June 1982 was executed by the concerned parties, namely: with Escao, Silos and Matti identified in the document as SURETIES, on one hand, and Ortigas, Inductivo and the Scholeys as OBLIGORS, on the other. The Undertaking reads in part: 3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to release OBLIGORS from their said guarantees [sic], SURETIES hereby irrevocably agree and undertake to assume all of OBLIGORs said guarantees [sic] to PDCP and PAIC under the following terms and conditions: a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the payment of FALCONs obligations with it, any of [the] OBLIGORS shall immediately inform SURETIES thereof so that the latter can timely take appropriate measures; b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS for collection of said loans and/or credit facilities, SURETIES agree to defend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution, indemnity, subrogation or other relief in respect to any of the claims of PDCP and/or PAIC; and

[1]

SALVADOR P. ESCAO and MARIO M. SILOS,


Petitioners,

G. R. No. 151953
Present: QUISUMBING, Chairperson, CARPIO, CARPIO MORALES, TINGA, and VELASCO, JR., JJ.

- versus -

RAFAEL ORTIGAS, JR., Respondent. Promulgated:

June 29, 2007 x---------------------------------------------------------------------------------x

DECISION
TINGA, J.:

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c. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCP and/or PAIC, SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from such payment; 4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due from FALCON arising out of, or in connection with, their said guarantees[sic].[8] Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP. It would also execute a Deed of Chattel Mortgage over its personal properties to further secure the loan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattel mortgage, there remained a subsisting deficiency of P5,031,004.07, which Falcon did [9] not satisfy despite demand. On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of money with the Regional Trial Court of Makati (RTC) against Falcon, Ortigas, Escao, Silos, Silverio and Inductivo. The case was docketed as Civil Case No. 89-5128. For his part, Ortigas filed together with his answer a cross-claim against his co-defendants Falcon, Escao and Silos, and [10] also manifested his intent to file a third-party complaint against the Scholeys and Matti. The cross-claim lodged against Escao and Silos was predicated on the 1982 Undertaking, wherein they agreed to assume the liabilities of Ortigas with respect to the PDCP loan. Escao, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to terms with PDCP was Escao, who in December of 1993, entered into a compromise agreement whereby he agreed to pay the bank P1,000,000.00. In exchange, PDCP waived or assigned in favor of Escao one-third (1/3) of its entire claim in the complaint against all of the other defendants [11] [12] in the case. The compromise agreement was approved by the RTC in a Judgment dated 6 January 1994. Then on 24 February 1994, Ortigas entered into his own compromise agreement with PDCP, allegedly without the knowledge of Escao, Matti and Silos. Thereby, Ortigas agreed to pay [14] PDCP P1,300,000.00 as full satisfaction of the PDCPs claim against Ortigas, in exchange for PDCPs release of Ortigas from any liability or claim arising from the Falcon loan agreement, and a renunciation of its claims against Ortigas. In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he [15] agreed to pay P500,000.00 in exchange for PDCPs waiver of its claims against him.
[13]

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escao, Silos and Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint [16] against Matti and Silos, while he maintained his cross-claim against Escao. In 1995, Ortigas filed a motion for Summary Judgment in his favor against Escao, Silos and Matti. On 5 October 1995, the RTC issued the Summary Judgment, ordering Escao, Silos and Matti to pay Ortigas, jointly and severally, the amount of P1,300,000.00, as well as P20,000.00 in attorneys [17] fees. The trial court ratiocinated that none of the third-party defendants disputed the 1982 Undertaking, and that the mere denials of defendants with respect to non-compliance of Ortigas of the terms and conditions of the Undertaking, unaccompanied by any substantial fact which would be admissible in evidence at a hearing, are not sufficient to raise genuine issues of fact necessary [18] to defeat a motion for summary judgment, even if such facts were raised in the pleadings. In an Order dated 7 March 1996, the trial court denied the motion for reconsideration of the Summary Judgment and awarded Ortigas legal interest of 12% per annum to be computed from 28 February [19] 1994.

From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals. Escao and Silos appealed jointly while Matti appealed by his lonesome. In a [20] Decision dated 23 January 2002, the Court of Appeals dismissed the appeals and affirmed the Summary Judgment. The appellate court found that the RTC did not err in rendering the summary judgment since the three appellants did not effectively deny their execution of the 1982 Undertaking. The special defenses that were raised, payment and excussion, were characterized by the Court of Appeals as appear[ing] to be merely sham in the light of the pleadings and [21] supporting documents and affidavits. Thus, it was concluded that there was no genuine issue that would still require the rigors of trial, and that the appealed judgment was decided on the bases of the undisputed and established facts of the case. Hence, the present petition for review filed by Escao and Silos. Two main issues are raised. First, petitioners dispute that they are liable to Ortigas on the basis of the 1982 Undertaking, a document which they do not disavow and have in fact annexed to their petition. Second, on the assumption that they are liable to Ortigas under the 1982 Undertaking, petitioners argue that they are jointly liable only, and not solidarily. Further assuming that they are liable, petitioners also submit that they are not liable for interest and if at all, the proper interest rate is 6% and not 12%. Interestingly, petitioners do not challenge, whether in their petition or their memorandum before the Court, the appropriateness of the summary judgment as a relief favorable to Ortigas. Under Section 3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may avail if the pleadings, supporting affidavits, depositions and admissions on file show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Petitioner have not attempted to demonstrate before us that there existed a genuine issue as to any material fact that would preclude summary judgment. Thus, we affirm with ease the common rulings of the lower courts that summary judgment is an appropriate recourse in this case. The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas on the basis of the 1982 Undertaking in this Summary Judgment. An examination of the document reveals several clauses that make it clear that the agreement was brought forth by the
[22]

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desire of Ortigas, Inductivo and the Scholeys to be released from their liability under the loan agreement which release was, in turn, part of the consideration for the assignment of their shares in Falcon to petitioners and Matti. The whereas clauses manifest that Ortigas had bound himself with Falcon for the payment of the loan with PDCP, and that amongst the consideration for OBLIGORS and/or their principals aforesaid selling is SURETIES relieving OBLIGORS of any and [23] all liability arising from their said joint and several undertakings with FALCON. Most crucial is the clause in Paragraph 3 of the Undertaking wherein petitio ners irrevocably agree and undertake to assume all of OBLIGORs said guarantees [sic] to PDCP x x x under the following terms and [24] conditions. At the same time, it is clear that the assumption by petitioners of Ortigass guarantees [sic] to PDCP is governed by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c) of Paragraph 3. First, upon receipt by any of OBLIGORS of any demand fro m PDCP for the payment of Falcons obligations with it, any of OBLIGORS was to immediately inform SURETIES thereof so that the latter can timely take appropriate measures. Second, should any and/or all of OBLIGORS be impleaded by PDCP in a suit for collection of its loan, SURETIES agree[d] to defend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein for contribution, indemnity, subrogation or other [25] relief in respect to any of the claims of PDCP. Third, if any of the OBLIGORS is for any reason made to pay any amount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said amount/s [26] within seven (7) calendar days from such payment.

Undertaking shall prevent OBLIGORS, or any one of them, from themselves negotiating with [29] PDCP x x x for the release of their said guarantees [sic]. There is no argument to support petitioners position on the import of the phrase made to pay in the Undertaking, other than an unduly literalist reading that is clearly inconsistent with the thrust of the document. Under the Civil Code, the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them [30] taken jointly. Likewise applicable is the provision that if some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual. As a means to effect the general intent of the document to relieve Ortigas from liability to PDCP, it is his interpretation, not that of petitioners, that holds sway with this Court. Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph 3, as they claim. Following the general assertion in the petition that Ortigas violated the terms of the Undertaking, petitioners add that Ortigas paid PDCP BANK the amount of P1.3 million [32] without petitioners ESCANO and SILOSs knowledge and consent. Paragraph 3(a) of the Undertaking does impose a requirement that any of the OBLIGORS shall immediately inform SURETIES if they received any demand for payment of FALCONs obligations to PDCP, but that requirement is reasoned so that the [SURETIES] can timely take appropriate [33] measures presumably to settle the obligation without having to burden the OBLIGORS. This notice requirement in paragraph 3(a) is markedly way off from the suggestion of petitioners that Ortigas, after already having been impleaded as a defendant in the collection suit, was obliged under the 1982 Undertaking to notify them before settling with PDCP. The other arguments petitioners have offered to escape liability to Ortigas are similarly weak. Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that Ortigas had, in his answer, denied any liability to PDCP and had alleged that he signed the Assumption of Solidary Liability not in his personal capacity, but as an officer of Falcon. However, such position, according to petitioners, could not be justified since Ortigas later voluntarily paid PDCP the amount of P1.3 Million. Such circumstances, according to petitioners, amounted to estoppel on the part of Ortigas. Even as we entertain this argument at depth, its premises are still erroneous. The Partial Compromise Agreement between PDCP and Ortigas expressly stipulated that Ortigass offer to pay PDCP was conditioned without [Ortigass] admitting liability to plaintiff PDCP Banks complaint, [34] and to terminate and dismiss the said case as against Ortigas solely. Petitioners profess it is [35] unthinkable for Ortigas to have voluntarily paid PDCP without admitting his liability, yet such contention based on assumption cannot supersede the literal terms of the Partial Compromise Agreement. Petitioners further observe that Ortigas made the payment to PDCP after he had already assigned his obligation to petitioners through the 1982 Undertaking. Yet the fact is PDCP did pursue a judicial claim against Ortigas notwithstanding the Undertaking he executed with
[31]

Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not made to pay PDCP the amount now sought to be reimbursed, as Ortigas voluntarily paid PDCP the amount of P1.3 Million as an amicable settlement of the claims posed by the bank against him. However, the subject clause in paragraph 3(c) actually reads [i]n the event that any of OBLIGORS [27] is for any reason made to pay any amount to PDCP x x x As pointed out by Ortigas, the phrase for any reason reasonably includes any extra -judicial settlement of obligation such as what Ortigas had undertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated in the clause to render the eventual payment adverted to therein unlimited and unqualified. The interpretation posed by petitioners would have held water had the Undertaking made clear that the right of Ortigas to seek reimbursement accrued only after he had delivered payment to PDCP as a consequence of a final and executory judgment. On the contrary, the clear intent of the Undertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow OBLIGORS as soon as possible, and not only after Ortigas had been subjected to a final and executory adverse judgment. Paragraph 1 of the Undertaking enjoins petitioners to exert all efforts to cause PDCP x x x to within a reasonable time release all the OBLIGORS x x x from their guarantees [sic] to PDCP x [28] x x In the event that Ortigas and his fellow OBLIGORS could not be released from their guaranties, paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon to make a call on its stockholders for the payment of their unpaid subscriptions and to pledge or assign such payments to Ortigas, et al., as security for whatever amounts the latter may be held liable under their guaranties. In addition, paragraph 1 also makes clear that nothing in the

91

petitioners. Not being a party to such Undertaking, PDCP was not precluded by a contract from pursuing its claim against Ortigas based on the original Assumption of Solidary Liability. At the same time, the Undertaking did not preclude Ortigas from relieving his distress through a settlement with the creditor bank. Indeed, paragraph 1 of the Undertaking expressly states that nothing herein shall prevent OBLIGORS, or any one of them, from themselves [36] negotiating with PDCP x x x for the release of their said guarantees [sic]. Simply put, the Undertaking did not bar Ortigas from pursuing his own settlement with PDCP. Neither did the Undertaking bar Ortigas from recovering from petitioners whatever amount he may have paid PDCP through his own settlement. The stipulation that if Ortigas was for any reason made to pay any amount to PDCP[,] x x x SURETIES shall reimburse OBLIGORS for said amount/s within [37] seven (7) calendar days from such payment makes it clear that petitioners remain liable to reimburse Ortigas for the sums he paid PDCP. We now turn to the set of arguments posed by petitioners, in the alternative, that is, on the assumption that they are indeed liable. Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming that the Undertaking did not provide for express solidarity. They cite Article 1207 of the New Civil Code, which states in part that [t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for the Undertaking, as the language used in the agreement clearly shows that it is a surety [38] agreement between the obligors (Ortigas group) and the sureties (Escao group). Ortigas points out that the Undertaking uses the word SURETIES although the document, in describing the parties. It is further contended that the principal objective of the parties in executing the Undertaking cannot be attained unless petitioners are solidarily liable because the total loan obligation can not be paid or settled to free or release the OBLIGORS if one or any of the [39] SURETIES default from their obligation in the Undertaking.

that effect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas, as the party alleging that the obligation is in fact solidary, bears the burden to overcome the presumption of jointness of obligations. We rule and so hold that he failed to discharge such burden.

Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in the Undertaking as SURETIES, a term repeated no less than t hirteen (13) times in the document. Ortigas claims that such manner of identification sufficiently establishes that the obligation of petitioners to him was joint and solidary in nature. The term surety has a specific meaning under our Civil Code. Article 2047 provides the statutory definition of a surety agreement, thus: Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasis supplied][40] As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily with the principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes the existence of a principal contract. It appears that Ortigass argument rests solely on the solidary nature of the obligation of the surety under Article 2047. In tandem with the nomenclature SURETIES accorded to petitioners and Matti in the Undertaking, however, this argument can only be viable if the obligations established in the Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place. That clearly is not the case here, notwithstanding the use of the nomenclature SURETIES in the Undertaking. Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in [41] lieu of proceeding against the principal debtor for the same obligation. At the same time, there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. The moment the surety fully answers to the creditor for the obligation created by the [42] principal debtor, such obligation is extinguished. At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for the surety does in fact become [43] subrogated to all the rights and remedies of the creditor.

In case, there is a concurrence of two or more creditors or of two or more debtors in one and the same obligation, Article 1207 of the Civil Code states that among them, [t]here is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Article 1210 supplies further caution against the broad interpretation of solidarity by providing: The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. These Civil Code provisions establish that in case of concurrence of two or more creditors or of two or more debtors in one and the same obligation, and in the absence of express and indubitable terms characterizing the obligation as solidary, the presumption is that the obligation is only joint. It thus becomes incumbent upon the party alleging that the obligation is indeed solidary in character to prove such fact with a preponderance of evidence. The Undertaking does not contain any express stipulation that the petitioners agreed to bind themselves jointly and severally in their obligations to the Ortigas group, or any such terms to

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Note that Article 2047 itself specifically calls for the application of the provisions on joint [44] and solidary obligations to suretyship contracts. Article 1217 of the Civil Code thus comes into play, recognizing the right of reimbursement from a co-debtor (the principal debtor, in case of [45] suretyship) in favor of the one who paid (i.e., the surety). However, a significant distinction still lies between a joint and several debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor can compel any one of the joint and several debtors or the surety alone to answer for the entirety of the principal debt. The difference lies in the respective faculties of the joint and several debtor and the surety to seek reimbursement for the sums they paid out to the creditor. Dr. Tolentino explains the differences between a solidary co-debtor and a surety: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil Code. The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. The civil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civil law relationship existing between the co-debtors liable in solidum is similar to the common law suretyship.[46]

however, does not mean that suretyship is withdrawn from the applicable provisions governing [49] guaranty. For if that were not the implication, there would be no material difference between the surety as defined under Article 2047 and the joint and several debtors, for both classes of obligors would be governed by exactly the same rules and limitations. Accordingly, the rights to indemnification and subrogation as established and granted to the guarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. These rights granted to the surety who pays materially differ from those granted under Article 1217 to the solidary debtor who pays, since the indemnification that pertains to the latter extends only [to] the share which corresponds to each [co-debtor]. It is for this reason that the Court cannot accord the conclusion that because petitioners are identified in the Undertaking as SURETIES, they are consequently joint and severally liable to Ortigas. In order for the conclusion espoused by Ortigas to hold, in light of the general presumption favoring joint liability, the Court would have to be satisfied that among the petitioners and Matti, there is one or some of them who stand as the principal debtor to Ortigas and another as surety who has the right to full reimbursement from the principal debtor or debtors. No suggestion is made by the parties that such is the case, and certainly the Undertaking is not revelatory of such intention. If the Court were to give full fruition to the use of the term SURETIES as conclusive indication of the existence of a surety agreement that in turn gives rise to a solidary obligation to pay Ortigas, the necessary implication would be to lay down a corresponding set of rights and obligations as between the SURETIES which petitioners and Matti did not clearly intend. It is not impossible that as between Escao, Silos and Matti, there was an agreement whereby in the event that Ortigas were to seek reimbursement from them per the terms of the Undertaking, one of them was to act as surety and to pay Ortigas in full, subject to his right to full reimbursement from the other two obligors. In such case, there would have been, in fact, a surety agreement which evinces a solidary obligation in favor of Ortigas. Yet if there was indeed such an agreement, it does not appear on the record. More consequentially, no such intention is reflected in the Undertaking itself, the very document that creates the conditional obligation that petitioners and Matti reimburse Ortigas should he be made to pay PDCP. The mere utilization of the term SURETIES could not work to such effect, especially as it does not appear who exactly is the principal debtor whose obligation is assured or guaranteed by the surety. Ortigas further argues that the nature of the Undertaking requires solidary obligation of the Sureties, since the Undertaking expressly seeks to reliev[e] obligors of any and all liability arising from their said joint and several undertaking with [F]alcon, and for the sureties to [50] irrevocably agree and undertake to assume all of obligors said guarantees to PDCP. We do not doubt that a finding of solidary liability among the petitioners works to the benefit of Ortigas in the facilitation of these goals, yet the Undertaking itself contains no stipulation or clause that establishes petitioners obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselves establish that the nature of the obligation requires solidarity. Even if the liability of petitioners and Matti were adjudged as merely joint, the full relief and reimbursement of Ortigas arising from his payment to PDCP would still be accomplished through the complete execution of such a judgment.

In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor who effected the payment to the creditor may claim from his co -debtors only the share which corresponds to each, with the interest for the payment already made. Such solidary debtor will not be able to recover from the co-debtors the full amount already paid to the creditor, because the right to recovery extends only to the proportional share of the other co-debtors, and not as to the particular proportional share of the solidary debtor who already paid. In contrast, even as the surety is solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor has the right to recover the full amount paid, and not just any proportional share, from the principal debtor or debtors. Such right to full reimbursement falls within the other rights, actions and benefits which pertain to the surety by reason of the subsidiary obligation assumed by the surety. What is the source of this right to full reimbursement by the surety? We find the right under Article 2066 of the Civil Code, which assures that [t]he guarantor who pays for a debtor must be indemnified by the latter, such indemnity comprising of, among others, the total amount [47] of the debt. Further, Article 2067 of the Civil Code likewise establishes that [t]he guarantor who [48] pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisions should not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on joint and several obligations should apply to sureties. We reject that argument, and instead adopt Dr. Tolentinos observation that [t]he reference in the second paragraph of [Article 2047] to the provisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations,

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Petitioners further claim that they are not liable for attorneys fees since the Undertaking contained no such stipulation for attorneys fees, and that the situation did not fall under the instances under Article 2208 of the Civil Code where attorneys fees are recoverable in the absence of stipulation.

established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[52] Since what was the constituted in the Undertaking consisted of a payment in a sum of money, the rate of interest thereon shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand. The interest rate imposed by the RTC is thus proper. However, the computation should be reckoned from judicial or extrajudicial demand. Per records, there is no indication that Ortigas made any extrajudicial demand to petitioners and Matti after he paid PDCP, but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party Complaint praying that petitioners and Matti be made to reimburse him for the payments made to PDCP. It is the filing of this Third Party Complaint on 14 March 1994 that should be considered as the date of [53] judicial demand from which the computation of interest should be reckoned. Since the RTC held that interest should be computed from 28 February 1994, the appropriate redefinition should be made. WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5 October 1995 is MODIFIED by declaring that petitioners and Joseph M. Matti are only jointly liable, not jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00. The Order of the Regional Trial Court dated 7 March 1996 is MODIFIED in that the legal interest of 12% per annum on the amount of P1,300,000.00 is to be computed from 14 March 1994, the date of judicial demand, and not from28 February 1994 as directed in the Order of the lower court. The assailed rulings are affirmed in all other respects. Costs against petitioners. SO ORDERED.

We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his being impleaded in the suit filed by PDCP. The Undertaking was precisely executed as a means to obtain the release of Ortigas and the Scholeys from their previous obligations as sureties of Falcon, especially considering that they were already divesting their shares in the corporation. Specific provisions in the Undertaking obligate petitioners to work for the release of Ortigas from his surety agreements with Falcon. Specific provisions likewise mandate the immediate repayment of Ortigas should he still be made to pay PDCP by reason of the guaranty agreements from which he was ostensibly to be released through the efforts of petitioners. None of these provisions were complied with by petitioners, and Article 2208(2) precisely allows for the recovery of attorneys fees [w]hen the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. Finally, petitioners claim that they should not be liable for interest since the Undertaking does not contain any stipulation for interest, and assuming that they are liable, that the rate of interest should not be 12% per annum, as adjudged by the RTC. The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals with respect to the manner of computing legal interest:
[51]

set forth the rules

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably

DIAMOND BUILDERS CONGLOMERATION, ROGELIO S. ACIDRE, TERESITA P. ACIDRE, GRACE C. OSIAS, VIOLETA S. FAIYAZ and EMMA S. CUTILLAR, Petitioners,

G.R. No. 171820 Present: YNARES-SANTIAGO, J., Chairperson, CHICO-NAZARIO, * VELASCO, NACHURA, and REYES, JJ. Promulgated: December 13, 2007

- versus -

COUNTRY BANKERS INSURANCE CORPORATION, Respondent.

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e. x------------------------------------------------------------------------------------x DECISION NACHURA, J.:

Plaintiff shall pay [petitioner Rogelio] the amount of P570,000.00 as follows:


th

i. P370,000.00 the 5 day from approval of this compromise agreement by this Honorable Court and to coincide (with) the start of the 75 days for [petitioner Rogelio] to complete the construction of the building. ii. P200,000.00 When the aforedescribed building is fully constructed pursuant to agreements stated in paragraph 1 hereof.
[1]

Before us is a petition for review on certiorari to annul the Decision of the Court of Appeals [2] (CA) in CA-G.R. C.V. No. 48603, which reversed the Decision of the Regional Trial Court, Branch 7, Manila (RTC Manila) in Civil Case No. 92-62029 and granted respondent Country Bankers Insurance Corporations (Country Bankers) prayer for a sum of money against the petitioners. The controversy originated from a civil case pending before the Regional Trial Court, Branch 125, Caloocan City (RTC Caloocan) filed by Marceliano Borja (Borja) against Rogelio S. Acidre (Rogelio) for the latters breach of his obligation to construct a residential and commercial building. Rogelio is the sole proprietor of petitioner Diamond Builders Conglomeration (DBC). To put an end to the foregoing litigation, the parties entered into a Compromise [4] Agreement which provided, in part: COMPROMISE AGREEMENT 1. xxx
[3]

iii. Said building must be fully finished pursuant to the agreement stated in paragraph 1 hereof within 75 days (excluding Sundays and Holidays) counted from receipt of payment of P370,000.00. The date of receipt to be issued by [petitioner Rogelio] will control. th th The 75 day will be 12:00 noon of the 75 day. iv. From receipt of the aforesaid amount of P370,000.00, [petitioner Rogelio] shall submit in favor of plaintiff a performance or surety bond in the equivalent amount of P370,000.00 to answer or indemnify plaintiff in the event the building is not finished on th the 75 day. v. In the event the building is finished within 75 days as heretofore stated and pursuant to the agreements set forth in paragraph 1 hereof, in addition to the amount ofP200,000.00, the plaintiff shall also pay [petitioner Rogelio] the amount of P90,000.00 by way of [bonus]. However, in the event [petitioner Rogelio] shall fail to fully complete the construction of the building pursuant to the agreements set forth in paragraph 1 hereof within 75 days as heretofore stated, [petitioner Rogelio] shall not be entitled to any further payments and the performance or surety bond above-mentioned shall be fully implemented by way of penalizing [petitioner Rogelio] and/or as award for damages in favor of plaintiff. xxxx f. xxx

a. In lieu of rescission, the parties have mutually agreed, subject to the provisions hereunder, to fully implement the building contract dated October 1, 1990 and supplemented on October 2, 1990 with an additional scope of work marked as Annex A of the complaint and the Letter-Agreement dated November 16, 1991 signed by the [petitioner Rogelio] and plaintiffs son(,) Ferdinand A. Borja, marked as Annex B of the complaint, which required full compliance of the structural design of Engr. Ramos and explicit reminders in the constructing of the residential/commercial building and the additional works therein specified for the added consideration of P100,000.00 as alleged in paragraphs 2 and 3 of the complaint, Annex C hereof. b. [Petitioner Rogelio] admits full payment of plaintiff to him the amount of P1,530,000.00 leaving the balance of P570,000.00 of the contractual price of P2,100,000.00 for the construction of the buildings aforementioned. c. [Petitioner Rogelio] agrees to fully complete the construction of the residential/commercial building mentioned in paragraph 1 hereof provided plaintiff would pay to him, subject to hereunder terms, the aforesaid amount of P570,000.00. d. The plaintiff agrees to pay [petitioner Rogelio] the amount of P570,000.00 subject to the terms hereunder set forth and subject strictly to the condition that [petitioner Rogelio] will finish the building above-described pursuant to the agreements [Annex(es) A and B] set forth in paragraph 1 hereof.

g. That the construction herein contemplated shall not extend beyond 75 days. Said period shall commence five days from the date of the final approval hereof by this Honorable Court. i. That any violation and/or avoidance of the terms and conditions of this Compromise Agreement by either of the parties herein shall forthwith entitle the aggrieved party to an immediate execution hereof and to the necessary and corresponding reliefs and remedies therefore. (Emphasis supplied.)
[5]

The RTC Caloocan approved the Compromise Agreement and rendered a Decision in accordance with the terms and conditions contained therein. In compliance with the Compromise Agreement, Rogelio obtained a Surety Bond from [7] Country Bankers in favor of the spouses Borja. In this regard, Rogelio and his spouse, petitioner Teresita P. Acidre, together with DBC employees Grace C. Osias, Violeta S. Faiyaz and Emma S.
[6]

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Cutillar (the other petitioners herein), signed an Indemnity Agreement consenting to their joint and several liability to Country Bankers should the surety bond be executed upon. On April 23, 1992, Country Bankers received a Motion for Execution of the surety bond filed by Borja with the RTC Caloocan for Rogelios alleged violation of the Compromise Agreement. [10] Consequently, Country Bankers, in a letter dated May 13, 1992, advised petitioners that in the event it is constrained to pay under the surety bond to Borja, it shall proceed against petitioners for reimbursement. In turn, petitioners wrote Country Bankers informing the latter of the filing of an Opposition to [11] Borjas Motion for Execution. In spite of the opposition, however, the RTC Caloocan issued a [12] Writ of Execution on May 25, 1992. Petitioners then filed a motion for reconsideration. On May 29, 1992, Sheriff Perceverando Pangan of RTC Caloocan served Country Bankers a copy of the writ. Posthaste, Country Bankers, in writing, requested Sheriff Pangan for a 10-day [13] grace period within which to settle the claim. Subsequently, Rogelio filed an Urgent Omnibus Motion to suspend the Writ of Execution and to resolve the Motion for Reconsideration dated June 3, 1992. Upon receipt of the Omnibus Motion, Country Bankers forthwith wrote Sheriff Pangan and requested that the implementation of the Writ of Execution be held in abeyance so as not to render moot and academic the RTC [15] Caloocans resolution on the Omnibus Motion. Nonetheless, on June 9, 1992, Country Bankers was served a Notice of [16] Levy/Sheriffs Sale with a list of its personal properties to be sold at the scheduled public auction on June 15, 1992. The next day, or on June 10, 1992, Country Bankers verified with the RTC Caloocan the status of petitioners Omnibus Motion. It was informed that the motion had yet to be acted upon. On the same date, Sheriff Pangan arrived at Country Bankers offic e, and the latter was thus [17] constrained to pay the amount of the surety bond. Significantly, on June 22, 1992, twelve (12) days after the satisfaction of judgment in Civil Case No. C-14745, Rogelio filed a Petition for Certiorari and Prohibition with Preliminary Injunction [18] and Restraining Order with the CA, docketed as CA-G.R. SP No. 28205. Although the appellate court issued a Temporary Restraining Order (TRO), the petition was eventually denied due course and dismissed outright for being fait accompli, as what it sought to enjoin or prohibit had already [19] been fully satisfied and executed. In the meantime, after Country Bankers was compelled to pay the amount of the surety bond, it demanded reimbursement from the petitioners under the Indemnity [20] Agreement. However, petitioners refused to reimburse Country Bankers. In addition, upon the dismissal of their petition in CA-G.R. SP No. 28205, petitioners wrote Country Bankers and informed the latter that the voluntary payment of the bond effectively [21] prevented them from contesting the validity of the issuance of the Writ of Execution.
[14] [9]

[8]

As a result, Country Bankers filed a complaint for sum of money against the petitioners which, as previously stated, the RTC Manila dismissed. It disposed of the case, thus: WHEREFORE, and considering the foregoing, judgment is hereby rendered: 1. Dismissing the complaint for lack of merit;

2. On the counterclaim, ordering [Country Bankers] to pay [petitioners] attorneys fees of P50,000.00, plus the costs of suit. SO ORDERED.

On appeal, the CA reversed and set aside the decision of the RTC Manila, to wit: WHEREFORE, premises considered, the Appeal is GRANTED and the Decision dated November 2, 1992 of Branch 7 of the Regional Trial Court of Manila is hereby REVERSED and a new one entered, ordering [petitioners] to pay [Country Bankers] the sum of THREE HUNDRED SEVENTY THOUSAND PESOS (P370,000.00), as reimbursement or actual damages, plus interest thereon at the rate of 12% per annum computed from the date of judicial demand, or from July 24, 1992, the date of filing of the complaint until the said amount has been fully paid. SO ORDERED. In reversing the trial court, the CA ruled that Country Bankers, as surety of Rogelios loan obligation, did not effect voluntary payment on the bond. The appellate court found that what Country Bankers paid was an obligation legally due and demandable. It declared that Country Bankers acted upon compulsion of a writ of execution, which appears to have been regularly, and validly issued, and, by its very nature, is immediately enforceable. Hence, this appeal positing a sole issue for our resolution, to wit: Whether petitioners should indemnify Country Bankers for the payment of the surety bond.

In fine, petitioners contend that Country Bankers is not entitled to reimbursement when it voluntarily paid the surety bond considering it knew full well the remedies availed of by petitioners to stay the execution of the compromise judgment. Thus, Country Bankers must bear the loss or damage arising from its voluntary act. We deny the appeal and affirm the appellate c ourts ruling. Country Bankers should be reimbursed for the P370,000.00 it paid to Borja under the surety bond. In impugning the CAs decision, petitioners invoke their pending Omnibus Motion to stay the execution of the compromise judgment. Petitioners theory is that, although the RTC Caloocan had already issued a writ of execution and Country Bankers had been served a Notice of

96

Levy/Sheriffs Sale of its properties at the impending public auction, the payment made by Country Bankers to Borja is a voluntary act. Petitioners push their theory even further, and deign to suggest that Country Bankers should have itself intervened in the proceedings before the RTC Caloocan to stay the writ of execution. We reject this preposterous suggestion. Petitioners ought to be reminded of the nature of a judgment on a compromise and a writ of execution issued in connection therewith. A compromise judgment is a decision rendered by a court sanctioning the agreement between the parties concerning the determination of the controversy at hand. Essentially, it is a contract, stamped with judicial imprimatur, between two or more persons, who, for preventing or putting an end to a lawsuit, adjust their difficulties by mutual consent in the manner which they agree on, and which each of them prefers in the hope of gaining, balanced by the danger of [22] losing. Upon court approval of a compromise agreement, it transcends its identity as a mere contract binding only upon the parties thereto, as it becomes a judgment that is subject to [23] execution in accordance with Rule 39 of the Rules of Court. Ordinarily, a judgment based on compromise is not appealable. It should not be disturbed except upon a showing of vitiated consent or forgery. The reason for the rule is that when both parties enter into an agreement to end a pending litigation and request that a decision be rendered approving said agreement, it is only natural to presume that such action constitutes an implicit, as [24] undeniable as an express, waiver of the right to appeal against said decision. Thus, a decision [25] on a compromise agreement is final and executory, and is conclusive between the parties. It is beyond cavil that if a party fails or refuses to abide by a compromise agreement, the other party may either enforce the compromise or regard it as rescinded and insist upon his original [26] demand. Following this mandatory rule, the RTC Caloocan granted Borjas motion, and subsequently issued an order to the sheriff to execute the compromise judgment. Notwithstanding the foregoing, petitioners still maintain that since they had taken steps to stay the execution of the compromise judgment, Country Bankers, with full knowledge of their active opposition to the execution thereof, should not have readily complied with the RTC Caloocan Order. Petitioners argument contemplates a brazen defiance of a validly issued court order, which had not been restrained by the appellate court or this Court. The argument is unacceptable. The Compromise Agreement between Borja and Rogelio explicitly provided that the latters [27] failure to complete construction of the building within the stipulated period shall cause the full implementation of the surety bond as a penalty for the default, and as an award of damages to Borja. Furthermore, the Compromise Agreement contained a default executory clause in case of a violation or avoidance of the terms and conditions thereof. Therefore, the payment made by Country Bankers to Borja was proper, as failure to pay would have amounted to contumacious disobedience of a valid court order. Clearly, even without the aforesaid default clause, the compromise judgment remained executory as against Rogelio, as the principal obligor (co-debtor), and Country Bankers as surety of the obligation. Section 4, Rule 39 of the Rules of Court provides:

SEC. 4. Judgments not stayed by appeal. Judgments in actions for injunction, receivership, accounting and support, and such other judgments as are now or may hereafter be declared to be immediately executory, shall be enforceable after their rendition and shall not be stayed by an appeal taken therefrom, unless otherwise ordered by the trial court. On appeal therefrom, the appellate court in its discretion may make an order suspending, modifying, restoring or granting the injunction, receivership, accounting, or award of support. The stay of execution shall be upon such terms as to bind or otherwise as may be considered proper for the security or protection of the rights of the adverse party.

Other judgments in actions declared to be immediately executory and not stayed by the filing of an [28] [29] appeal are for: (1) compromise, (2) forcible entry and unlawful detainer, (3) direct [30] [31] contempt, and (4) expropriation. Likewise, Section 9, paragraph (a), of judgments for money, thus:
[32]

of the same Rule outlines the procedure for execution

SEC. 9 Execution of judgments for money, how enforced. (a) Immediate payment on demand. The officer shall enforce an execution of a judgment for money by demanding from the judgment obligor the immediate payment of the full amount stated in the writ of execution and all lawful fees. The judgment obligor shall pay in case, certified bank check payable to the judgment oblige, or any other form of payment acceptable to the latter, the amount of the judgment debt under proper receipt directly to the judgment oblige or his authorized representative if present at the time of payment. The lawful fees shall be handed under proper receipt to the executing sheriff who shall turn over the said amount within the same day to the clerk of court of the court that issued the writ. As Rogelios obligation under the compromise agreement, and approved by the RTC Caloocan, [33] [34] had a penal clause which is monetary in nature, the writ of execution availed of by Borja, and paid by Country Bankers, strictly complied with the rules on execution of money judgments. It is true that the petitioners did not directly question the compromise judgment. What was pending before the Caloocan RTC was petitioners Omnibus Motion praying for a stay in the implementation of the writ of execution. However, the bottom line issue raised in the Omnibus Motion is, actually, a question on the compromise judgment, since its resolution would require an inquiry into the stipulations contained in the Compromise Agreement, particularly the provision on immediate execution. Thus, when the RTC Manila ruled that the payment on the bond made by Country Bankers was voluntary, the lower court effectively disregarded the rule on the non-appealable nature and the immediately executory character of a judgment on a compromise. Moreover, it has not escaped our attention that petitioners belatedly filed a Petition for Certiorari and Prohibition with prayer for a TRO with the CA, ostensibly to stop the execution of

97

the compromise judgment. Not only was the filing thereof late, it was done twelve (12) days after the satisfaction of the compromise judgment. We are, therefore, perplexed why, despite the urgency of the matter, petitioners merely banked on a pending motion for reconsideration to stay the enforcement of an already issued writ of execution. Petitioners total reliance thereon was certainly misplaced. Admittedly, the general rule is that certiorari will not lie unless a motion for reconsideration is first filed before the respondent tribunal to allow it an opportunity to correct the imputed [35] errors. Nonetheless, the rule admits of exceptions, thus: (a) where the order is a patent nullity, as where the court a quo has no jurisdiction;

practically no end to litigation since the losing party would always try to thwart execution by appealing from every order granting the writ. In this case, this aphorism should apply. Rogelio, after agreeing to an amicable settlement with Borja to put an end to the case before the RTC Caloocan, cannot flout compliance of the court order of execution by refusing to reimburse Country Bankers, the surety of his obligation in the compromise agreement. Still, petitioners stubbornly refuse to pay Country Bankers, contending that the CA itself, in CA-G.R. SP No. 28205, declared that the payment effected was voluntary. We are not persuaded. Article 2047 of the Civil Code specifically calls for the application of the provisions on solidary obligations to suretyship contracts. In particular, Article 1217 of the Civil Code recognizes the right of reimbursement from a co-debtor (the principal co-debtor, in case of suretyship) in favor of the [38] one who paid (i.e., the surety). In contrast, Article 1218 of the Civil Code is definitive on when reimbursement is unavailing, such that only those payments made after the obligation has prescribed or became illegal shall not entitle a solidary debtor to reimbursement. Nowhere in the invoked CA Decision does it declare that a surety who pays, by virtue of a writ of execution, is not entitled to reimbursement from the principal co-debtor. The CA Decision was confined to the mootness of the issue presented and petitioners preclusion from the relief it prayed for, i.e., a stay of the writ of execution, considering that the writ had already been satisfied. More importantly, the Indemnity Agreement signed by Rogelio and the other petitioners explicitly provided for an incontestability clause on payments made by Country Bankers. The said clause reads: INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: - Any payment or disbursement made by [Country Bankers] on account of the above-mentioned Bond, its renewals, extensions, alterations or substitutions either in the belief that [Country Bankers] was obligated to make such payment or in the belief that said payment was necessary or expedient in order to avoid greater losses or obligations for which [Country Bankers] might be liable by virtue of the terms of the above-mentioned Bond, its renewals, extensions, alterations, or substitutions, shall be final and shall not be disputed by the undersigned, who hereby jointly and severally bind themselves to indemnify [Country Bankers] of any and all such payments, as stated in the preceding clauses. In case [Country Bankers] shall have paid, settled or compromised any liability, loss, costs, damages, attorneys fees, expenses, claims, demands, suits, or judgments as above-stated, arising out of or in connection with said bond, an itemized statement thereof, signed by an officer of [Country Bankers] and other evidence to show said payment, settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as the liability of [petitioners] in any and all suits and claims against [petitioners] arising out of said bond or this bond application.

(b) where the questions raised in the certiorari proceedings have been duly raised and passed upon by the lower court, or are the same as those raised and passed upon in the lower court; (c) where there is an urgent necessity for the resolution of the question and any further delay would prejudice the interests of the Government or of the petitioner or the subject matter of the action is perishable; (d) (e) relief; (f) where, in a criminal case, relief from an order of arrest is urgent and the granting of such relief by the trial court is improbable; (g) (h) to object; and (i) where the proceedings in the lower court are a nullity for lack of due process; where the proceedings was ex-parte or in which the petitioner had no opportunity
[36]

where, under the circumstances, a motion for reconsideration would be useless; where petitioner was deprived of due process and there is extreme urgency for

where the issue raised is one purely of law or where public interest is involved.

Evidently, it would not have been premature for petitioners to have filed a petition before the CA, upon the issuance by the RTC Caloocan of a writ of execution, because the RTC Caloocan already denied their Opposition to Borjas Motion for Execution on the surety bond. If, as petitioners insist, they had a meritorious challenge to the satisfaction of the writ of execution, they should have immediately filed a Petition for Certiorari with the CA and therein alleged the exceptional circumstance warranting the non-filing of a motion for reconsideration. Petitioners should not have persisted on waiting for the resolution of their Omnibus Motion. We have consistently ruled that an order for the issuance of a writ of execution is ordinarily not appealable. The reason for this is that the merits of the case should not be delved [37] into anew after a determination has been made thereon with finality. Otherwise, there would be

Ineluctably, petitioners are obligated to reimburse Country Bankers the amount of P370,000.00.

98

Finally, petitioners desperately attempt to inveigle out of this burden, which is of their own making, by imputing a lack of initiative on Country Bankers part to intervene in the execution proceedings before the RTC. This contention, as with the rest of petitioners arguments, deserves scant consideration. Suffice it to state that Country Bankers is a surety of the obligation with a penal clause, constituted in the compromise judgment; it is not a joint and solidary co-debtor of Rogelio. In the recent case of Escao v. Ortigas, we elucidated on the distinction between a surety as a co-debtor under a suretyship agreement and a joint and solidary co-debtor, thus: (A)s indicated by Article 2047, a suretyship requires a principal debtor to whom the surety is solidarily bound by way of an ancillary obligation of segregate identity from the obligation between the principal debtor and the creditor. The suretyship does not bind the surety to the creditor, inasmuch as the latter is vested with the right to proceed against the former to collect the credit in lieu of proceeding against the principal debtor for the same obligation. At the same time, there is also a legal tie created between the surety and the principal debtor to which the creditor is not privy or party to. The moment the surety fully answers to the creditor for the obligation created by the principal debtor, such obligation is extinguished. At the same time, the surety may seek reimbursement from the principal debtor for the amount paid, for the surety does in fact become subrogated to all the rights and remedies of the creditor.
[39]

for P1,000,000.00 to Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05 from the case-to-case basis and trust receipts. These loans were evidenced by promissory notes (Exhibits A to L, inclusive JIGS; Exhibits V to BB, inclusive ELBA) and secured by surety bonds (Exhibits M to Q inclu sive JIGS; Exhibits CC to FF, inclusive ELBA) executed by defendant-appellee Commonwealth Insurance Company (CIC). Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations of JIGS totaled P2,894,128.00 while that securing ELBAs obligation was P1,570,000.00. Hence, the total face value of the surety bonds issued by appellee CIC was P4,464,128.00. JIGS and ELBA defaulted in the payment of their respective loans. On October 30, 1984, appellant RCBC made a written demand (Exhibit N) on appellee CIC to pay JIGs account to the full extend (sic) of the suretyship. A similar demand (Exhibit O) was made on December 17, 1984 for appellee CIC to pay ELBAs account to the full extend (sic) of the suretyship. In response to those demands, appellee CIC made several payments from February 25, 1985 to February 10, 1988 in the total amount of P2,000,000.00. There having been a substantial balance unpaid, appellant RCBC made a final demand for payment (Exhibit P) on July 7, 1988 upon appellee CIC but the latter ignored it. Thus, appellant RCBC filed the Complaint for a Sum of Money on September 19, 1988 against appellee CIC.
[4]

WHEREFORE, the Petition is DENIED. The Decision of the Court of Appeals in CA-G.R. C.V. No. 48603 is hereby AFFIRMED. Costs against the petitioner. SO ORDERED. [G.R. No. 130886. January 29, 2004] COMMONWEALTH INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS and RIZAL COMMERCIAL BANKING CORPORATION,respondents. DECISION

The trial court rendered a decision dated March 5, 1993, the dispositive portion of which reads as follows: WHEREFORE, premises considered, in the light of the above facts, arguments, discussion, and more important, the law and jurisprudence, the Court finds the defendants Commonwealth Insurance Co. and defaulted third party defendants Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman solidarily liable to pay herein plaintiff Rizal Commercial Banking Corporation the sum of Two Million Four Hundred Sixty-Four Thousand One Hundred TwentyEight Pesos (P2,464,128.00), to pay the plaintiff attorneys fees of P10,000.00 and to pay the costs of suit. IT IS SO ORDERED.
[5]

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari assailing the Decision of the Court of Appeals (CA), promulgated on May 16, 1997 in CA-G.R. CV No. 44473 , which modified the decision dated March 5, 1993 of the Regional Trial Court of Makati (Branch 64); and the Resolution dated September 25, 1997, denying petitioners motion for reconsideration.
[1] [2] [3]

Not satisfied with the trial courts decision, RCBC filed a motion for reconsideration praying that in addition to the principal sum of P2,464,128.00, defendant CIC be held liable to pay interests thereon from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court denied the motion. RCBC then appealed to the Court of Appeals. On May 16, 1997, the CA rendered the herein assailed decision, ruling thus: ...

The facts of the case as summarized by the Court of Appeals are as follows: In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines, one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other,

99

Being solidarily bound, a suretys obligation is primary so that according to Art. 1216 of the Civil Code, he can be sued alone for the entire obligation. However, one very important characteristic of this contract is the fact that a suretys liability shall be limited to the amou nt of the bond (Sec. 176, Insurance Code). This does not mean however that even if he defaults in the performance of his obligation, the extend (sic) of his liability remains to be the amount of the bond. If he pays his obligation at maturity upon demand, then, he cannot be made to pay more than the amount of the bond. But if he fails or refuses without justifiable cause to pay his obligation upon a valid demand so that he is in mora solvendi (Art. 1169, CC), then he must pay damages or interest in consequence thereof according to Art. 1170. Even if this interest is in excess of the amount of the bond, the defaulting surety is liable according to settled jurisprudence. ... Appellant RCBC contends that when appellee CIC failed to pay the obligation upon extrajudicial demand, it incurred in delay in consequence of which it became liable to pay legal interest. The obligation to pay such interest does not arise from the contract of suretyship but from law as a result of delay or mora. Such an interest is not, therefore, covered by the limitation of appellees liability expressed in the contract. Appellee CIC refutes this argument stating that since the surety bonds expressly state that its liability shall in no case exceed the amount stated therein, then that stipulation controls. Therefore, it cannot be made to assume an obligation more than what it secured to pay. The contention of appellant RCBC is correct because it is supported by Arts. 1169 and 1170 of the Civil Code and the case of Asia Surety & Insurance Co., Inc. and Manila Surety & Fidelity Co. supra. On the other hand, the position of appellee CIC which upholds the appealed decision is untenable. The best way to show the untenability of this argument is to give this hypothetical case situation: Surety issued a bond for P1 million to secure a Debtors obligation of P1 million to Creditor. Debtor defaults and Creditor demands payment from Surety. If the theory of appellee and the lower court is correct, then the Surety may just as well not pay and use the P1 million in the meantime. It can choose to pay only after several years after all, his liability can never exceed P1 million. That would be absurd and the law could not have intended it. (Emphasis supplied)
[6]

2. Defendant-appellee Commonwealth Insurance Company shall pay plaintiff-appellant RIZAL COMMERCIAL BANKING CORP. and (sic) attorneys fee of P10,000.00 and cost of this suit; 3. The third-party defendants JIGS MANUFACTURING CORPORATION, ELBA INDUSTRIES and ILUMINADA N. DE GUZMAN shall respectively indemnify COMMONWEALTH INSURANCE CORPORATION for whatever it had paid and shall pay to RIZAL COMMERCIAL BANKING CORPORATION of their respective individual obligations pursuant to this decision. SO ORDERED.
[7]

CIC filed a motion for reconsideration but the CA denied the same. Hence, herein petition by CIC raising a single assignment of error, to wit: Respondent Court of Appeals grievously erred in ordering petitioner to pay respondent RCBC the amount of the surety bonds plus legal interest of 12% per annum minus payments made by the petitioner.
[8]

The sole issue is whether or not petitioner should be held liable to pay legal interest over and above its principal obligation under the surety bonds issued by it. Petitioner argues that it should not be made to pay interest because its issuance of the surety bonds was made on the condition that its liability shall in no case exceed the amount of the said bonds. We are not persuaded. Petitioners argument is misplaced. Jurisprudence is clear on this matter. As early as Tagawa vs. Aldanese and Union Gurantee Co. and reiterated in Plaridel Surety & Insurance Co., Inc. vs. P.L. Galang Machinery Co., Inc. , and more recently, in Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc. , we have sustained the principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, its liability becomes more than the principal obligation. The increased liability is not because of the contract but because of the default and the necessity of judicial collection.
[9] [10] [11] [12]

and disposed of the case as follows: WHEREFORE, the appealed Decision is MODIFIED in the manner following: The appellee Commonwealth Insurance Company shall pay the appellant Rizal Commercial Banking Corporation: 1. On the account of JIGS, P2,894,128.00 ONLY with 12% legal interest per annum from October 30, 1984 minus payments made by the latter to the former after that date; and on the account of ELBA, P1,570,000.00 ONLY with 12% legal interest per annum from December 17, 1984 minus payments made by the latter to the former after that day; respecting in both accounts the applications of payment made by appellant RCBC on appellee CICs payments;

Petitioners liability under the suretyship contract is different from its liability un der the law. There is no question that as a surety, petitioner should not be made to pay more than its assumed obligation under the surety bonds. However, it is clear from the above-cited jurisprudence that petitioners liability for the payment of interest is not by reason of the suretyship agreement itself but because of the delay in the payment of its obligation under the said agreement.
[13]

Petitioner admits having incurred in delay. Nonetheless, it insists that mere delay does not warrant the payment of interest. Citing Section 244 of the Insurance Code, petitioner submits that under the said provision of law, interest shall accrue only when the delay or refusal to pay is unreasonable; that the delay in the payment of its obligation is not unreasonable because such
[14]

100

delay was brought about by negotiations being made with RCBC for the amicable settlement of the case. We are not convinced. It is not disputed that out of the principal sum of P4,464,128.00 petitioner was only able to pay P2,000,000.00. Letters demanding the payment of the respective obligations of JIGS and ELBA were initially sent by RCBC to petitioner on October 30, 1984 and December 17, 1984. Petitioner made payments on an installment basis spanning a period of almost three years, i.e., from February 25, 1985 until February 10, 1988. On July 7, 1988, or after a period of almost five months from its last payment, RCBC, thru its legal counsel, sent a final letter of demand asking petitioner to pay the remaining balance of its obligation including interest. Petitioner failed to pay. As of the date of the filing of the complaint on September 19, 1988, petitioner was even unable to pay the remaining balance of P2,464,128.00 out of the principal amount it owes RCBC.
[15] [16] [17]

per annum to be computed from default, i.e. from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied)
[19]

Petitioners contention that what prevented it from paying its obligation to RCBC is the fact that the latter insisted on imposing interest and penalties over and above the principal sum it seeks to recover is not plausible. Considering that petitioner admits its obligation to pay the principal amount, then it should have paid the remaining balance of P2,464,128.00, notwithstanding any disagreements with RCBC regarding the payment of interest. The fact that the negotiations for the settlement of petitioners obligation did not push through does not excuse it from paying the principal sum due to RCBC. The issue of petitioners payment of interest is a matter that is totally different from its obligation to pay the principal amount covered by the surety bonds it issued. Petitioner offered no valid excuse for not paying the balance of its principal obligation when demanded by RCBC. Its failure to pay is, therefore, unreasonable. Thus, we find no error in the appellate courts ruling that petitioner is liable to pay interest. As to the rate of interest, we do not agree with petitioners contention that the rate should be 6% per annum. The appellate court is correct in imposing 12% interest. It is in accordance with our ruling in Eastern Shipping Lines, Inc. vs. Court of Appeals, wherein we have established certain guidelines in awarding interest in the concept of actual and compensatory damages, to wit:
[18]

In the present case, there is no dispute that petitioners obligation consists of a loan or forbearance of money. No interest has been agreed upon in writing between petitioner and respondent. Applying the above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at 12% per annum to be computed from the time the extra-judicial demand was made. This is in accordance with the provisions of Article 1169 of the Civil Code and of the settled rule that where there has been an extra-judicial demand before action for performance was filed, interest on the amount due begins to run not from the date of the filing of the complaint but from the date of such extra-judicial demand. RCBCs extra-judicial demand for the payment of JIGS obligation was made on October 30, 1984; while the extra -judicial demand for the payment of ELBAs obligation was made on December 17, 1984. On the other hand, the complaint for a sum of money was filed by RCBC with the trial court only on September 19, 1988.
[20] [21]

WHEREFORE, the instant petition is DENIED and the assailed Decision and Resolution of the Court of Appeals are AFFIRMED in toto. SO ORDERED. Puno, (Chairman), Quisumbing, Callejo, Sr., and Tinga, JJ., concur.

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil Code govern in determining the measure of recoverable damages. II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12%

[G. R. No. 127261. September 7, 2001]

VISAYAN SURETY & INSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES JUN + BARTOLOME and SUSAN BARTOLOME and DOMINADOR V. + IBAJAN, respondents.

101

DECISION
PARDO, J.:

On September 1, 1993, the trial court issued a writ of replevin in favor of intervenor Dominador Ibajan but it was returned unsatisfied. On March 7, 1994, intervenor Dominador Ibajan filed with the trial court a motion/application for judgment against plaintiffs bond. On June 6, 1994, the trial court rendered judgement the dispositive portion of which reads:

The Case The case is a petition to review and set aside a decision[1] of the Court of Appeals affirming that of the Regional Trial Court, Bian, Laguna, Branch 24, holding the surety liable to the intervenor in lieu of the principal on a replevin bond. The Facts The facts, as found by the Court of Appeals,[2] are as follows: On February 2, 1993, the spouses Danilo Ibajan and Mila Ambe Ibajan filed with the Regional Trial Court, Laguna, Bian a complaint against spouses Jun and Susan Bartolome, for replevin to recover from them the possession of an Isuzu jeepney, with damages. Plaintiffs Ibajan alleged that they were the owners of an Isuzu jeepney which was forcibly and unlawfully taken by defendants Jun and Susan Bartolome on December 8, 1992, while parked at their residence. On February 8, 1993, plaintiffs filed a replevin bond through petitioner Visayan Surety & Insurance Corporation. The contract of surety provided thus:

WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in fa vor of Dominador Ibajan and against Mila Ibajan and the Visayan Surety and Insurance Corporation ordering them to pay the former jointly and severally the value of the subject jeepney in the amount [7] of P150,000.00 and such other damages as may be proved by Dominador Ibajan plus costs.
On June 28, 1994, Visayan Surety and Insurance Corporation and Mila Ibajan filed with the trial court their respective motions for reconsideration. On August 16, 1994, the trial court denied both motions. On November 24, 1995, Visayan Surety and Insurance Corporation (hereafter Visayan Surety) appealed the decision to the Court of Appeals.[8] On August 30, 1996, the Court of Appeals promulgated its decision affirming the judgment of the trial court.[9] On September 19, 1996, petitioner filed a motion for reconsideration. [10] On December 2, 1996, the Court of Appeals denied the motion for reconsideration for lack of merit.[11] Hence, this petition.[12] The Issue The issue in this case is whether the surety is liable to an intervenor on a replevin bond posted by petitioner in favor of respondents.[13] Respondent Dominador Ibajan asserts that as intervenor, he assumed the personality of the original defendants in relation to the plaintiffs bond for the issuance of a writ of replevin. Petitioner Visayan Surety contends that it is not liable to the intervenor, Dominador Ibajan, because the intervention of the intervenor makes him a party to the suit, but not a beneficiary to the plaintiffs bond. The intervenor was not a party to the contract of surety, hence, he was not bound by the contract. The Courts Ruling The petition is meritorious. An intervenor is a person, not originally impleaded in a proceeding, who has legal interest in the matter in litigation, or in the success of either of the parties, or an interest against both, or is so situated as to be adversely affected by a distribution or other disposition of property in the custody of the court or of an officer thereof.[14]

WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the VISAYAN SURETY & INSURANCE CORP., of Cebu, Cebu, with branch office at Manila, jointly and severally bind ourselves in the sum of Three Hundred Thousand Pesos (P300,000.00) for the return of the property to the defendant, if the return thereof be adjudged, and for the payment to the defendant of such sum as he/she may [3] recover from the plaintiff in the action.
On February 8, 1993, the trial court granted issuance of a writ of replevin directing the sheriff to take the Isuzu jeepney into his custody. Consequently, on February 22, 1993, Sheriff Arnel Magat seized the subject vehicle and turned over the same to plaintiff spouses Ibajan.[4] On February 15, 1993, the spouses Bartolome filed with the trial court a motion to quash the writ of replevin and to order the return of the jeepney to them. On May 3, 1993, Dominador V. Ibajan, father of plaintiff Danilo Ibajan, filed with the trial court a motion for leave of court to intervene, stating that he has a right superior to the plaintiffs over the ownership and possession of the subject vehicle. On June 1, 1993, the trial court granted the motion to intervene. On August 8, 1993, the trial court issued an order granting the motion to quash the writ of replevin and ordering plaintiff Mila Ibajan to return the subject jeepney to the intervenor Dominador Ibajan. [5] On August 31, 1993, the trial court ordered the issuance of a writ of replevin directing the sheriff to take into his custody the subject motor vehicle and to deliver the same to the intervenor who was the registered owner.[6]

102

May an intervenor be considered a party to a contract of surety which he did not sign and which was executed by plaintiffs and defendants? It is a basic principle in law that contracts can bind only the parties who had entered into it; it cannot favor or prejudice a third person.[15] Contracts take effect between the parties, their assigns, and heirs, except in cases where the rights and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.[16] A contract of surety is an agreement where a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third person called the obligee.[17] Specifically, suretyship is a contractual relation resulting from an agreement whereby one person, the surety, engages to be answerable for the debt, default or miscarriage of another, known as the principal. [18] The obligation of a surety cannot be extended by implication beyond its specified limits. [19] When a surety executes a bond, it does not guarantee that the plaintiffs cause of action is meritorious, and that it will be responsible for all the costs that may be adjudicated against its principal in case the action fails. The extent of a suretys liability is determined only by the clause of the contract of suretyship.[20] A contract of surety is not presumed; it cannot extend to more than what is stipulated. [21] Since the obligation of the surety cannot be extended by implication, it follows that the surety cannot be held liable to the intervenor when the relationship and obligation of the surety is limited to the defendants specified in the contract of surety. WHEREFORE, the Court REVERSES and sets aside the decision of the Court of Appeals in CA-G. R. CV No. 49094. The Court rules that petitioner Visayan Surety & Insurance Corporation is not liable under the replevin bond to the intervenor, respondent Dominador V. Ibajan. No costs. SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

Respondents. December 8, 2010 x------------------------------------------------------------------------------------x DECISION NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, [1] [2] assailing the Decision dated February 28, 2006 and the Resolution dated August 9, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 80362.

The facts of the case are as follows: Respondents filed a case for specific performance against petitioners before the Regional Trial Court (RTC) of Quezon City, docketed as Civil Case No. Q-98-35425. Respondents are the registered owners of a condominium unit in Embassy Garden Homes, West Triangle, Quezon City, [3] registered under Condominium Certificate of Title (CCT) No. 2130, issued by the Register of [4] Deeds of Quezon City. On October 22, 1993, respondents borrowed money from petitioner bank in the amount of Nine Hundred Thousand Pesos (P900,000.00). Respondents executed a Real Estate [5] Mortgage over the condominium unit as collateral, and the same was annotated at the back of CCT No. 2130. On October 3, 1995, respondents again borrowed One Million One Hundred Thousand Pesos (P1,100,000.00) from petitioner bank, which was also secured by a mortgage over the same [6] property annotated at the back of CCT No. 2130. On January 2, 1996, respondents paid One Million Eleven Thousand Five Hundred Fifty-Five [7] Pesos and 54 centavos (P1,011,555.54), as evidenced by Official Receipt No. 147741 issued by petitioner bank. On the face of the receipt, it was written that the payment was in full payment of the loan and interest. Respondents then asked petitioner bank to cancel the mortgage annotations on CCT No. 2130 since the loans secured by the real estate mortgage were already paid in full. However, the bank refused to cancel the same and demanded payment of Four Million Six Hundred Thirty-Three Thousand Nine Hundred Sixteen Pesos and Sixty-Seven Centavos (P 4,633,916.67), representing the outstanding obligation of respondents as of February 27, 1998. Respondents requested for an accounting which would explain how the said amount was arrived at. However, instead of heeding respondents request, petitioner bank applied for extra -judicial foreclosure of the mortgages over the condominium unit. The public auction sale was scheduled on September 4, 1998. Petitioner Stephen Z. Taala, a notary public, was tasked to preside over the [8] auction sale.

BANK OF COMMERCE and STEPHEN Z. TAALA, Petitioners,

G.R. No. 174006 Present: CARPIO, J., Chairperson, NACHURA, PERALTA, ABAD, and MENDOZA, JJ. Promulgated:

- versus -

Spouses ANDRES and ELIZA FLORES,

103

Respondents filed suit with the RTC, Quezon City, assailing the validity of the foreclosure and auction sale of the property. They averred that the loans secured by the property had already [9] been paid in full. Furthermore, they claimed that the Notice of Auction Sale by Notary Public failed to comply with the provisions of Act No. 3135, as amended by Act No. 4118, requiring the publication and posting of the notice of auction sale in at least three (3) public places in Quezon [10] City. Respondents likewise prayed for the payment of moral and exemplary damages, and attorneys fees, and for the issuance of a temporary restraining order and/or writ of preliminary [11] injunction to enjoin the extra-judicial foreclosure sale of the property. On October 23, 1998, the RTC granted respondents prayer for issuance of a writ of [12] preliminary injunction, restraining petitioner bank from foreclosing on the mortgage. Petitioner bank admitted that there were only two (2) mortgage loans annotated at the back of CCT No. 2130, but denied that respondents had already fully settled their outstanding [13] obligations with the bank. It averred that several credit lines were granted to respondent Andres Flores by petitioner bank that were secured by promissory notes executed by him, and which were either increased or extended from time to time. The loan that was paid on January 2, 1996, in the amount of P1,011,555.54, was only one of his loans with the bank. There were remaining loans already due and demandable, and had not been paid by respondents despite repeated demands by petitioner bank. The remaining loans, although not availed of at the same time, were similarly secured by the subject real estate mortgage as provided in the continuing guaranty agreement [14] therein. Petitioner bank alleged that respondents requested and were granted an increase in their Bills Discounted Line from Nine Hundred Thousand Pesos (P900,000.00) to Two Million Pesos (P2,000,000.00), which was secured by the same real estate mortgage on CCT No. 2130. However, the subject condominium unit commanded only a market value of One Million Seven Hundred Twenty-Three Thousand Six Hundred Pesos (P1,723,600.00), and a loan value of Nine Hundred Fifty-Nine Thousand Six Hundred Sixteen Pesos (P959,616.00). Since the market value of the condominium unit was lower than the combined loans, the parties agreed to fix the amount of the real estate mortgage atP1,100,000.00. Moreover, petitioner bank stressed that under the terms [15] of the two real estate mortgages, future loans of respondents were also covered. On December 4, 2002, the RTC rendered a resolution,
[16]

evidence submitted by petitioner bank, specifically the promissory notes and statement of account dated February 27, 1998, negated this contention. The RTC declared that respondents incurred other debts from petitioner bank, which must be paid first before they could be absolved of liability, and, consequently, demand the release of the mortgage. The RTC also struck down respondents assertion that petitioner bank did not comply with the posting and publication requirements under Act No. 3135, as amended. Respondents filed a motion for reconsideration, which was, however, denied by the RTC [18] in a decision dated August 8, 2003. Aggrieved, respondents appealed to the CA. Meanwhile, on March 25, 2004, the auction sale of the subject property was conducted, and petitioner bank was awarded the property, as the highest bidder. On February 28, 2006, the CA rendered a Decision reversing the decision and the resolution of the RTC. The dispositive portion of the CA Decision reads: IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED; the challenged Decision dated December 4, 2002, is REVERSED and SET ASIDE; and a new one entered: (a) ordering the cancellation of the real estate mortgage annotations on the dorsal side of CCT No. 2130 of the Registry of Deeds of Quezon City; (b) ordering appellee Bank to issue a corresponding release of mortgages to plaintiffsappellants CCT No. 2130; (c) declaring null and void the challenged extra-judicial foreclosure and public auction sale held on March 25, 2004 together with the Certificate of Sale dated April 14, 2004 issued in favor of appellee Bank; and, (d) appellees counterclaims are ordered dismissed, for lack of sufficient basis therefor. No costs. SO ORDERED.[20]
[19]

the fallo of which reads:

FROM THE FOREGOING MILIEU, the present case for specific performance with damages and injunction filed by plaintiffs, Sps. Andres and Eliza Flores against defendants, Bank of Commerce and Stephen Z. Taala, is hereby DISMISSED. Likewise, the counterclaim filed by defendants, Bank of Commerce and Stephen Z. Taala against plaintiffs, Sps. Andres and Eliza Flores is DISMISSED for insufficiency of evidence. SO ORDERED.[17] In denying respondents complaint for specific performance, the RTC ratiocinated that respondents right of action hinged mainly on the veracity of their claim that they faithfully complied with their loan obligations and had fully paid them in January 1996. The RTC stated that the

The CA ratiocinated that the principal obligation or loan was already extinguished by the full payment thereof. Consequently, the real estate mortgages securing the principal obligation were also extinguished. A real estate mortgage, being an accessory contract, cannot survive without the principal obligation it secures. The CA also noted that the two mortgages were individually annotated at the back of CCT No. 2130. Thus, the CA opined that the individual annotations clearly indicated that the said mortgages were not meant to serve as a continuing guaranty for any future loan that respondents would obtain from petitioner bank.

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Petitioners filed a motion for reconsideration. On August 9, 2006, the CA issued a [21] Resolution denying the same. Hence, the instant petition. The sole issue for resolution is whether the real estate mortgage over the subject condominium unit is a continuing guaranty for the future loans of respondent spouses despite the full payment of the principal loans annotated on the title of the subject property. We resolve this issue in the affirmative. The contested portion of the Deed of Real Estate Mortgage dated October 22, 1993 for the principal obligation of P900,000.00 and of the second one dated October 3, 1995 for the sum of P1,100,000.00, uniformly read: WITNESSETH: That for and in consideration of the credit accommodations granted by the MORTGAGEE [Bank of Commerce] to the MORTGAGOR [Andres Flores] and/or _____________________ hereby initially fixed at _____________________________PESOS: (P____________), Philippine Currency, and as security for the payment of the same, on demand or at maturity as the case may be, be the interest accruing thereon, the cost of collecting the same, the cost of keeping the mortgaged property(ies), of all amounts now owed or hereafter owing by the MORTGAGOR to the MORTGAGEE under this or separate instruments and agreements, or in respect of any bill, note, check, draft accepted, paid or discounted, or advances made and all other obligations to every kind already incurred or which may hereafter be incurred, for the use or accommodation of the MORTGAGOR, as well as the faithful performance of the terms and conditions of this mortgage and of the separate instruments and/or documents under which credits have been or may hereafter be advanced by the MORTGAGEE to the MORTGAGOR, including their renewals, extensions and substitutions, any and all of which separate instruments and/or documents and their renewals, extensions and substitutions are hereunto incorporated and made integral parts hereof, the MORTGAGOR [Andres Flores] has transferred and conveyed, as by these presents it/he does hereby transfer and convey, by way of First Mortgage, to the MORTGAGEE [Bank of Commerce], its successors and assigns, all its/ his rights, title and interest to that parcel(s) of land, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, including all other rights or benefits annexed to or inherent therein now existing or which may hereafter exist, situated in Embassy Garden Homes, Quezon City, Philippines, and more particularly described in Original/Transfer Certificate(s) of Title No. CCT No. 2130 of the Registry of Deeds [of] Quezon City, as follows: CCT No. 2130 Unit No. L-2, located on Building L, consisting of Ninety Five point Twenty (95.20) Square Meters, more of less, with Parking Space No. L-2.[22]

It is petitioner banks contention that the said undertaking, stipulated in the Deed of Real Estate Mortgage dated October 22, 1993 and October 3, 1995, is a continuing guaranty meant to secure future debts or credit accommodations granted by petitioner bank in favor of respondents. On the other hand, respondents posit that, since they have already paid the loans secured by the real estate mortgages, the mortgage should not be foreclosed because it does not include future debts of the spouses or debts not annotated at the back of CCT No. 2130. A continuing guaranty is a recognized exception to the rule that an action to foreclose a [23] mortgage must be limited to the amount mentioned in the mortgage contract. Under Article 2053 of the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as a continuing guaranty or suretyship. A continuing guaranty is not limited to a single transaction, but contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. In other words, a continuing guaranty is one that covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination [24] thereof. A guaranty shall be construed as continuing when, by the terms thereof, it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved. In other jurisdictions, it has been held that the use of particular words and expressions, such as payment of "any debt," "any indebtedness," "any deficiency," or "any sum," or the guaranty of "any transaction" or money to be furnished the principal debtor "at any time" or "on such time" [25] that the principal debtor may require, has been construed to indicate a continuing guaranty.

In the instant case, the language of the real estate mortgage unambiguously reveals that the security provided in the real estate mortgage is continuing in nature. Thus, it was intended as security for the payment of the loans annotated at the back of CCT No. 2130, and as security for all amounts that respondents may owe petitioner bank. It is well settled that mortgages given to secure future advance or loans are valid and legal contracts, and that the amounts named as consideration in said contracts do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and other indebtedness [26] can be gathered. A mortgage given to secure advancements is a continuing security and is not discharged by repayment of the amount named in the mortgage until the full amounts of the advancements are [27] paid. Respondents full payment of the loans annotated on the title of the property shall not effect the release of the mortgage because, by the express terms of the mortgage, it was meant to secure all future debts of the spouses and such debts had been obtained and remain unpaid. Unless full payment is made by the spouses of all the amounts that they have incurred from petitioner bank, the property is burdened by the mortgage.

105

WHEREFORE, in view of the foregoing, the Decision dated February 28, 2006 and the Resolution dated August 9, 2006 of the Court of Appeals in CA-G.R. CV No. 80362 are hereby REVERSED and SET ASIDE. The decision of the Regional Trial Court dated December 4, 2002 is hereby REINSTATED.

SO ORDERED. ROBERTO TOTANES, Petitioner, G.R. No. 179880 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and * LEONARDO-DE CASTRO, JJ. Promulgated: January 19, 2009

On July 9, 1986, Antiquera duly executed and delivered Promissory Note No. 2081 in favor of the respondent, whereby he promised to pay the latter on July 16, 1986, the sum of P150,000.00 with 24% interest per annum until fully paid. On July 29, 1986, Antiquera executed Promissory Note No. 2099 for another P150,000.00, payable on August 5, 1986, with the same rate of interest. Antiquera agreed in both promissory notes that he would pay an additional amount by way of penalty, equivalent to 1/10 of 1% per day of the total amount due from date of default until [5] full payment. To secure the aforesaid obligations, a surety agreement form was executed and signed by [6] Antiquera as principal and the petitioner as surety. As surety, petitioner bound himself to pay jointly and severally with Antiquera, the latters obligation with the respondent. His liability, [7] however, was limited to P300,000.00, plus interest. For the alleged acts of defraudation committed by Antiquera, Marquez and the petitioner; and for failure of Antiquera to pay his obligations covered by the promissory notes, respondent instituted a complaint for sum of money with damages. Antiquera and the petitioner were declared in default, hence, ex parte hearings ensued. After trial, the RTC rendered a Decision in favor of the respondent, but dismissed the case as against the petitioner. On motion for reconsideration, the RTC reversed itself but only [9] insofar as it dismissed the case against the petitioner. Consequently, petitioner was held jointly [10] and severally liable with Antiquera for P300,000.00 with 22% interest per annum until fully paid. Petitioner appealed the aforesaid order to the CA. Petitioner, however, failed to persuade the appellate court which affirmed the RTCs disposition. The CA sustained the validity of the continuing surety agreement signed by petitioner. The suretyship, according to the CA, was not limited to a single transaction; rather, it contemplated a future course of dealing, covering a series [11] of transactions, generally for an indefinite time or until revoked. To buttress its conclusion, the [12] CA cited Atok Finance Corporation v. Court of Appeals, which it held to be on-all-fours with the instant case. Finally, the CA declared that petitioners liability as a surety was not negated by the trial courts finding that he did not, in any way, participate in the alleged kiting operations or connive with Antiquera in committing the acts of defraudation, saying that petitioners liability as a [13] surety was separate and distinct from the fraudulent acts of which he was found innocent. Petitioner now comes before us in this petition for review on certiorari raising the following errors: 1) THE ASSAILED DECISION MISTAKENLY AND UNLAWFULLY HELD PETITIONER LIABLE FOR THE DEBT OF ANOTHER INDIVIDUAL, MANUEL ANTIQUERA. UNDER THE GENERAL RULE ON RELATIVITY OF CONTRACT, RESPONDENT IS NOT LIABLE FOR THE CONTRACTUAL OBLIGATION OF MANUEL ANTIQUERA. NONE OF THE RECOGNIZED EXCEPTIONS APPLY TO PETITIONER. PETITIONER IS NOT THE MAKER, CO-MAKER, INDORSER, AGENT, BROKER, ACCOMMODATION PARTY, GUARANTOR OR SURETY OF MANUEL ANTIQUERA. 2) RESPONDENT IS ESTOPPED FROM ENFORCING THE LOAN TRANSACTIONS (i.e., SURETY AGREEMENT AND PROMISSORY NOTES) RESPONDENT CLAIMS TO BE VOID
[8]

- versus -

CHINA BANKING CORPORATION, Respondent.

x------------------------------------------------------------------------------------x RESOLUTION NACHURA, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court, filed by petitioner Roberto Totanes against respondent China Banking Corporation, assails the Court of Appeals (CA) [1] [2] Decision dated June 26, 2007 and its Resolution dated September 19, 2007, in CA-G.R. CV No. 68795. The facts, as found by the appellate court, are as follows: Petitioner and Manuel Antiquera (Antiquera) maintained their individual savings and current accounts with respondent in the latters Legaspi City Branch. Petitioner and Antiquera, in conspiracy with respondents branch manager Ronnie Lou Marquez (Marquez), allegedly engaged in what is commonly known in banking as kiting operation, by manipulating the handling and [3] operations of their deposit accounts. Petitioner and Antiquera, likewise, effected transfers of funds to each others accounts by drawing checks from their respective current accounts and depositing the same with the others accounts by way of debit and credit memos, all in connivance with Marquez, to make it appear that their respective accounts were sufficiently funded, when in [4] truth and in fact, they were not.

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OR UNAUTHORIZED FOR LACK OF APPROVAL BY RESPONDENTS BOARD OF DIRECTORS, AS REQUIRED IN RESPONDENTS POLICY STATEMENTS DATED OCTOBER 19, 1983 (EXHIBIT E) AND SEPTEMBER 26, 1986 (EXHIBIT F). 3) THE ASSAILED DECISION MISINTERPRETED AND MISAPPLIED THE RULING IN ATOK FINANCE CORPORATION VS. COURT OF APPEALS WHICH CONCERNED ITSELF WITH THE APPLICABILITY OF THE PERFECTED SURETY AGREEMENT IN RELATION TO FUTURE OBLIGATIONS, WHILE IN THE PRESENT CASE THE ISSUE IS THE PERFECTION OF THE CREDIT LINE AND THE SUPPORTING SURETY AGREEMENT. 4) ASSUMING THE CREDIT LINE AND THE SUPPORTING SURETY AGREEMENT EXIST, THE UNILATERAL LOAN EXTENSIONS GRANTED BY RESPONDENT TO MANUEL ANTIQUERA HAD RESULTED IN THE EXTINGUISHMENT OF PETITIONERS OBLIGATION, IF ANY, UNDER THE SURETY AGREEMENT.[14]

or doctrinal impediment for us to say that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before [17] the occurrence of the condition precedent. Comprehensive or continuing surety agreements are, in fact, quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to [18] the principal debtor. As surety, petitioners liability is joint and several. He does not insure the solvency of the [19] debtor, but rather the debt itself.

In fine, the issue for resolution is whether the petitioner may be held jointly and severally liable with Antiquera for the latters unsettled obligation with the respondent. We rule in the affirmative. Petitioners liability was based on the surety agreement he executed and signed freely and voluntarily. He, however, argues that said agreement was not perfected because the principal obligation, which is the credit line, did not materialize. As such, being a stranger to any contract entered into by Antiquera with the respondent, he should not be held liable. Both the trial and appellate courts recognized the genuineness and due execution of the promissory notes signed by Antiquera. We find no cogent reason to depart from such conclusion. These documents undoubtedly show the perfection of the principal contract, that is, the contract of loan; and consequently, the perfection of the accessory contract of suretyship. We reiterate the well-established principle that factual findings of the trial court are conclusive on the parties and not reviewable by this Court and they carry even more weight when the CA affirms these findings, as in the present case. We are not duty-bound to analyze and weigh all over [15] again the evidence already considered in the proceedings below. From the terms of the contract, it appears that petitioner jointly and severally undertook, bound himself and warranted to the respondent the prompt payment of alloverdrafts, promissory notes, discounts, letters of credit, drafts, bills of exchange, and other obligations of every kind and nature, including trust receipts and discounts of drafts, bills of exchange, promissory notes, etc. x x x for which the Principal(s) may now be indebted or may hereafter become indebted to the [16] Creditor. The fact that the contract of suretyship was signed by the petitioner prior to the execution of the promissory note does not negate the formers liability. The contract entered into by the petitioner is commonly known as a continuing surety agreement. Of course, a surety is not bound to any particular principal obligation until that principal obligation is born. But there is no theoretical

Suretyship arises upon the solidary binding of a person deemed the surety with the [20] principal debtor, for the purpose of fulfilling an obligation. The prestation is not an original and direct obligation for the performance of the suretys own act, but merely accessory or collateral to [21] the obligation contracted by the principal. Although a surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute, or equivalent to that of a regular party to the undertaking. A surety becomes liable for the debt and duty of the principal obligor even without possessing a direct or personal interest in the obligations constituted by the [22] latter. WHEREFORE, premises considered, the petition is DENIED for lack of merit. The Decision of the Court of Appeals dated June 26, 2007 and its Resolution dated September 19, 2007, in CA-G.R. CV No. 68795, are AFFIRMED. SO ORDERED.

[G.R. No. 112191. February 7, 1997] FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L. RODRIGUEZA, petitioners, vs. THE HONORABLE COURT OF APPEALS and FILINVEST CREDIT CORPORATION, respondents. DECISION
PANGANIBAN, J.:

To fund their acquisition of new vehicles (which are later retailed or resold to the general public), car dealers normally enter into wholesale automotive financing schemes whereby vehicles are delivered by the manufacturer or assembler on the strength of trust receipts or drafts executed by the car dealers, which are backed up by sureties. These trust receipts or drafts are then

107

assigned and/or discounted by the manufacturer to/with financing companies, which assume payment of the vehicles but with the corresponding right to collect such payment from the car dealers and/or the sureties. In this manner, car dealers are able to secure delivery of their stock-intrade without having to pay cash therefor; manufacturers get paid without any receivables/collection problems; and financing companies earn their margins with the assurance of payment not only from the dealers but also from the sureties. When the vehicles are eventually resold, the car dealers are supposed to pay the financing companies -- and the business goes merrily on. However, in the event the car dealer defaults in paying the financing company, may the surety escape liability on the legal ground that the obligations were incurred subsequent to the execution of the surety contract? This is the principal legal question raised in this petition for review (under Rule 45 of the Rules of Court) seeking to set aside the Decision of the Court of Appeals (Tenth Division) promulgated on September 30, 1993 in CA G.R. CV No. 09136 which affirmed in toto the decision of the Regional Trial Court of Manila - Branch 11 in Civil Case No. 83-21994, the dispositive portion of which reads:
[1] [2] [3] [4]

execute trust receipts over said vehicles and accept drafts drawn by CARCO, which will discount the same together with the trust receipts and invoices and assign them in favor of Respondent Filinvest, which will pay the motor vehicles for Fortune. Under the same agreement, Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash or on terms to Respondent Filinvest immediately without necessity of demand. Subsequently, several motor vehicles were delivered by CARCO to Fortune, and trust receipts covered by demand drafts and deeds of assignment were executed in favor of Respondent Filinvest. However, when the demand drafts matured, not all the proceeds of the vehicles which Petitioner Fortune had sold were remitted to Respondent Filinvest. Fortune likewise failed to turn over to Filinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest through counsel, sent a demand letter dated December 12, 1983 to Fortune for the payment of its unsettled account in the amount of P1,302,811.00. Filinvest sent similar demand letters separately to Chua and Rodrigueza as sureties. Despite said demands, the amount was not paid. Hence, Filinvest filed in the Regional Trial Court of Manila a complaint for a sum of money with preliminary attachment against Fortune, Chua and Rodrigueza.
[8] [9]

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, by ordering the latter to pay, jointly and severally, the plaintiff the following amounts: 1. The sum of P1,348,033.89, plus interest thereon at the rate of P922.53 per day starting April 1, 1985 until the said principal amount is fully paid; 2. The amount of P50,000.00 as attorneys fees and another P50,000.00 as liquidated damages; and 3. That the defendants, although spared from paying exemplary damages, are further ordered to pay, in solidum, the costs of this suit. Plaintiff therein was the financing company and the defendants the car dealer and its sureties. The Facts On or about August 4, 1981, Joseph L. G. Chua and Petitioner Edgar Lee Rodrigueza (Petitioner Rodrigueza) each executed an undated Surety Undertaking whereunder they absolutely, unconditionally and solidarily guarantee(d) to Respondent Filinvest Credit Corporation (Respondent Filinvest) and its affiliated and subsidiary companies the full, fa ithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune Motors (Phils.) Corporation (Petitioner Fortune) under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary companies now in force or hereafter made.
[5]

In an order dated September 26, 1984, the trial court declared that there was no factual issue to be resolved except for the correct balance of defendants account with Filinvest as agreed upon by the parties during pre-trial. Subsequently, Filinvest presented testimonial and documentary evidence. Defendants (petitioners herein), instead of presenting their evidence, filed a Motion for Judgment on Demurrer to Evidence anchored principally on the ground that the Surety Undertakings were null and void because, at the time they were executed, there was no principal obligation existing. The trial court denied the motion and scheduled the case for reception of defendants evidence. On two scheduled dates, however, defendants failed to present their evidence, prompting the court to deem them to have waived their right to present evidence. On December 17, 1985, the trial court rendered its decision earlier cited ordering Fortune, Chua and Rodrigueza to pay Filinvest, jointly and severally, the sum of P1,348,033.83 plus interest at the rate of P922.53 per day from April 1, 1985 until fully paid, P50,000.00 in attorneys fees, anotherP50,000.00 in liquidated damages and costs of suit.
[10] [11]

As earlier mentioned, their appeal was dismissed by the Court of Appeals (Tenth Division) which affirmed in toto the trial courts decision. Hence, this recourse. Issues Petitioners assign the following errors in the appealed Decision: 1. that the Court of Appeals erred in declaring that surety can exist even if there was no existing indebtedness at the time of its execution. 2. that the Court of Appeals erred when it declared that there was no novation.

The following year or on April 5, 1982, Petitioner Fortune, Respondent Filinvest and Canlubang Automotive Resources Corporation (CARCO) entered into an Automotive Wholesale Financing Agreement (Financing Agreement) under which CARCO will deliver motor vehicles to Fortune for the purpose of resale in the latters ordinary course of business; Fortune, in turn, will
[6] [7]

3. that the Court of Appeals erred when it declared, that the evidence was sufficient to prove the amount of the claim.
[12]

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Petitioners argue that future debts which can be guaranteed under Article 2053 of the Civil Code refer only to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown, and that a guaranty being an accessory obliga tion cannot exist without a principal obligation. Petitioners claim that the surety undertakings cannot be made to cover the Financing Agreement executed by Fortune, Filinvest and CARCO since the latter contract was not yet in existence when said surety contracts were entered into. Petitioners further aver that the Financing Agreement would effect a novation of the surety contracts since it changed the principal terms of the surety contracts and imposed additional and onerous obligations upon the sureties. Lastly, petitioners claim that no accounting of the payments made by Petitioner Fortune to Respondent Filinvest was done by the latter. Hence, there could be no way by which the sureties can ascertain the correct amount of the balance, if any. Respondent Filinvest, on the other hand, imputes estoppel (by pleadings or by judicial admission) upon petitioners when in their Motion to Discharge Attachment, they admitted their liability as sureties thus: Defendants Chua and Rodrigueza could not have perpet rated fraud because they are only sureties of defendant Fortune Motors x x x;
x x x The defendants (referring to Rodrigueza and Chua) are not parties to the trust receipts agreements since they are ONLY sureties x x x.
[13]

On the matter of novation, this has already been ruled upon when this Court denied defendants Motion to dismiss on the argument that what happened was really an assignment of credit, and not a novation of contract, which does not require the consent of the debtors. The fact of knowledge is enough. Besides, as explained by the plaintiff, the mother or the principal contract was the Financing Agreement, whereas the trust receipts, the sight drafts, as well as the Deeds of assignment were only collaterals or accidental modifications which do not extinguish the original contract by way of novation. This proposition holds true even if the subsequent agreement would provide for more onerous terms for, at any rate, it is the principal or mother contract that is to be followed. When the changes refer to secondary agreements and not to the object or principal conditions of the contract, there is no novation; such changes will produce modifications of incidental facts, but will not extinguish the original obligation (Tolentino, Commentaries on Jurisprudence of the Civil Code of the Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiffs Memorandum of September 6, 1985, p. 3).
On the evidence adduced by the plaintiff to show the status of defendants accounts, which took into consideration payments by defendants made after the filing of the case, it is enough to state that a statement was carefully prepared showing a balance of the principal obligation plus interest totalling P1,348,033.89 as of March 31, 1985 (Exh. M). This accounting has not been traversed nor contradicted by defendants although they had the opportunity to do so. Likewise, there was absolute silence on the part of defendants as to the correctness of the previous statement of account made as of December 16, 1983 (referring to Exh. I), but more important, however, is that defendants received demand letters from the plaintiff stating that, as of December 1983 (Exhs. J, K and L), this total amount of obligation was P1,302,811,00, and yet defendants were not heard to have responded to said demand letters, let alone have taken any exception thereto. There is such a thing as evidence by silence (Sec. 23, Rule 130, Revised Rules of Court).
[14]

The Court of Appeals, affirming the above decision of the trial court, further explained: x x x In the case at bar, the surety undertakings in question unequivocally state that Chua and Rodrigueza absolutely, unconditionally and solidarily guarantee to Filinvest the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of Fortune under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest in force at the time of the exe cution of the Surety Undertakings or made thereafter. Indeed, if Chua and Rodrigueza did not intend to guarantee all of Fortunes future obligation with Filinvest, then they should have expressly stated in their respective surety undertakings exactly what said surety agreements guaranteed or to which obligations of Fortune the same were intended to apply. For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortunes obligations under the AWFA, then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. K and L) urging them to pay Fortunes liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they believe they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the Surety Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust receipts or demand drafts.

In rejecting the arguments of petitioners and in holding that they (Fortune and the sureties) were jointly and solidarily liable to Filinvest, the trial court declared: As to the alleged non-existence of a principal obligation when the surety agreement was signed, it is enought (sic) to state that a guaranty may also be given as security for future debts, the amount of which is not known (Art. 2053, New Civil Code). In the case of NARIC vs. Fojas, L-11517, promulgated April 10, 1958, it was ruled that a bond posted to secure additional credit that the principal debtor had applied for, is not void just because the said bond was signed and filed before the additional credit was extended by the creditor. The obligation of the sureties on future obligations of Fortune is apparent from a proviso under the Surety Undertakings marked Exhs. B and C that the sureties agree with the plaintiff as follows: In consideration of your entering into an arrangement with the party (Fortune) named above, x x x x by which you may purchase or otherwise require from, and or enter into with obligor x x x trust receipt x x x arising out of wholesale and/or retail transactions by or with obligor, the undersigned x x x absolutely, unconditionally, and solidarily guarantee to you x x x the full, faithful and prompt performance, payment and discharge of any and all obligations x x x of obligor under and with respect to any and all such contracts and any and all agreements (whether by way of guaranty or otherwise) of obligor with you x x x now in force or hereafter made. (Underlinings supplied).

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Appellants argue that it was unfair for Filinvest to have executed the AWFA only after two (2) years from the date of the Surety undertakings because Chua and Rodrigueza were thereby made to wait for said number of years just to know what kind of obligation they had to guarantee.
The argument cannot hold water. In the first place, the Surety Undertakings did not provide that after a period of time the same will lose its force and effect. In the second place, if Chua and Rodrigueza did not want to guarantee the obligations of Fortune under the AWFA, trust receipts and demand drafts, then why did they not simply terminate the Surety Undertakings by serving ten (10) days written notice to Filinvest as expressly allowed in said surety agreements. It is highly plausible that the reason why the Surety Undertakings were not terminated was because the execution of the same was part of the consideration why Filinvest and CARCO agreed to enter into the AWFA with Fortune.
[15]

already existing at the time of the constitution of the agreement but the amount [of which] is unknown and not to debts not yet incurred and existing at that time) has previously been rejected, citing the RCBC and NARIC cases. We further said: x x x Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. Comprehensive or continuing surety agreements are in fact quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, commonly requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. In Dio vs. Court of Appeals, we again had occasion to discourse on continuing guaranty/suretyship thus:
[19]

The Courts Ruling We affirm the decisions of the trial and appellate courts. First Issue: Surety May Secure Future Obligations The case at bench falls on all fours with Atok Finance Corporation vs. Court of Appeals which reiterated our rulings in National Rice and Corn Corporation (NARIC) vs. Court of Appeals and Rizal Commercial Banking Corporation vs. Arro. In Atok Finance, Sanyu Chemical as principal, and Sanyu Trading along with individual private stockholders of Sanyu Chemical, namely, spouses Daniel and Nenita Arrieta, Leopoldo Halili and Pablito Bermundo, as sureties, executed a continuing suretyship agreement in favor of Atok Finance as creditor. Under the agreement, Sanyu Trading and the individual private stockholders and officers of Sanyu Chemical jointly and severally unconditionally guarantee(d) to Atok Finance Corporation (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] x x x to the Creditor. Subsequently, Sanyu Chemical assigned its trade receivables outstanding with a total face value of P125,871.00 to Atok Finance in consideration of receipt of the amount of P105,000.00. Later, additional trade receivables with a total face value of P100,378.45 were also assigned. Due to nonpayment upon maturity, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Bermundo and Halili to collect the sum ofP120,240.00 plus penalty charges due and payable. The individual private respondents contended that the continuing suretyship agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance. The trial court rendered a decision in favor of Atok Finance and ordered defendants to pay, jointly and severally, aforesaid amount to Atok.
[16] [17] [18]

x x x A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract, of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract of guaranty states that the same is to secure advances to be made from time to time the guaranty will be construed to be a continuing one.
In other jurisdictions, it has been held that the use of particular words and expressions such as payment of a ny debt, any indebtedness, any deficiency, or any sum, or the guaranty of any transaction or money to be furnished the principal debtor at any time, or on such time that the principal debtor may require, have been construed to indicate a continuing guaranty.
[20]

On appeal, the then Intermediate Appellate Court reversed the trial court and dismissed the complaint on the ground that there was no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served as the principal obligation between the parties. Furthermore, the future debts alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was acquired two years after the agreement. We ruled then that the appellate court was in serious error. The distinction which said court sought to make with respect to Article 2053 (that future debts referred to therein relate to debts

We have no reason to depart from our uniform ruling in the above-cited cases. The facts of the instant case bring us to no other conclusion than that the surety undertakings executed by Chua and Rodrigueza were continuing guaranties or suretyships covering all future obligations of Fortune Motors (Phils.) Corporation with Filinvest Credit Corporation. This is evident from the written contract itself which contained the words absolutely, unconditionally and solidarily guarantee(d) to Respondent Filinvest and its affiliated and subsidiary companies the full, faithful and prompt performance, payment and discharge of any and all obligations and agreements of

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Petitioner Fortune under or with respect to any and all such contracts and any and all other agreements (whether by way of guaranty or otherwise) of the latter with Filinvest and its affiliated and subsidiary companies now in force or hereafter made. Moreover, Petitioner Rodrigueza and Joseph Chua knew exactly where they stood at the time they executed their respective surety undertakings in favor of Fortune. As stated in the petition:
Before the execution of the new agreement, Edgar L. Rodrigueza and Joseph Chua were required to sign blank surety agreements, without informing them how much amount they would be liable as sureties. However,because of the desire of petitioners, Chua and Rodrigueza to have the cars delivered to petitioner, Fortune, they signed the blank promissory notes. (underscoring supplied)
[21]

must appear by express agreement of the parties, or by their acts which are too clear and unequivocal to be mistaken.
[25]

Under the surety undertakings however, the obligation of the sureties referred to absolutely, unconditionally and solidarily guaranteeing the full, faithful and prompt performance, payment and discharge of all obligations of Petitioner Fortune with respect to any and all contracts and other agreements with Respondent Filinvest in force at that time or thereafter made. There were no qualifications, conditions or reservations stated therein as to the extent of the suretyship. The Financing Agreement, on the other hand, merely detailed the obligations of Fortune to CARCO (succeeded by Filinvest as assignee). The allegation of novation by petitioners is, therefore, misplaced. There is no incompatibility of obligations to speak of in the two contracts. They can stand together without conflict. Furthermore, the parties have not performed any explicit and unequivocal act to manifest their agreement or intention to novate their contract. Neither did the sureties object to the Financing Agreement nor try to avoid liability thereunder at the time of its execution. As aptly discussed by the Court of Appeals:
x x x For another, if Chua and Rodrigueza truly believed that the surety undertakings they executed should not cover Fortunes obligations under the AWFA (Financing Agreement), then why did they not inform Filinvest of such fact when the latter sent them the aforementioned demand letters (Exhs. K and L) urging them to pay Fortunes liability under the AWFA. Instead, quite uncharacteristic of persons who have just been asked to pay an obligation to which they are not liable, Chua and Rodrigueza elected or chose not to answer said demand letters. Then, too, considering that appellant Chua is the corporate president of Fortune and a signatory to the AWFA, he should have simply had it stated in the AWFA or in a separate document that the Surety Undertakings do not cover Fortunes obligations in the aforementioned AWFA, trust receipts or demand drafts.
[26]

It is obvious from the foregoing that Rodrigueza and Chua were fully aware of the business of Fortune, an automobile dealer; Chua being the corporate president of Fortune and even a signatory to the Financial Agreement with Filinvest. Both sureties knew the purpose of the surety undertaking which they signed and they must have had an estimate of the amount involved at that time. Their undertaking by way of the surety contracts was critical in enabling Fortune to acquire credit facility from Filinvest and to procure cars for resale, which was the business of Fortune. Respondent Filinvest, for its part, relied on the surety contracts when it agreed to be the assignee of CARCO with respect to the liabilities of Fortune with CARCO. After benefiting therefrom, petitioners cannot now impugn the validity of the surety contracts on the ground that there was no pre-existing obligation to be guaranteed at the time said surety contracts were executed. They cannot resort to equity to escape liability for their voluntary acts, and to heap injustice to Filinvest, which relied on their signed word.
[22]

This is a clear case of estoppel by deed. By the acts of petitioners, Filinvest was made to believe that it can collect from Chua and/or Rodrigueza in case of Fortunes default. Filinvest relied upon the surety contracts when it demanded payment from the sureties of the unsettled liabilities of Fortune. A refusal to enforce said surety contracts would virtually sanction the perpetration of fraud or injustice.
[23]

Third Issue: Amount of Claim Substantiated The contest on the correct amount of the liability of petitioners is a purely factual issue. It is an oft repeated maxim that the jurisdiction of this Court in cases brought before it from the Court of Appeals under Rule 45 of the Rules of Court is limited to reviewing or revising errors of law. It is not the function of this Court to analyze or weigh evidence all over again unless there is a showing that the findings of the lower court are totally devoid of support or are glaringly erroneous as to constitute serious abuse of discretion. Factual findings of the Court of Appeals are conclusive on the parties and carry even more weight when said court affirms the factual findings of the trial court.
[27]

Second Issue: No Novation Neither do we find merit in the averment of petitioners that the Financing Agreement contained onerous obligations not contemplated in the surety undertakings, thus changing the principal terms thereof and effecting a novation. We have ruled previously that there are only two ways to effect novation and thereby extinguish an obligation. First, novation must be explicitly stated and declared in unequivocal terms. Novation is never presumed. Second, the old and new obligations must be incompatible on every point. The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. The will to novate, whether totally or partially,
[24]

In the case at bar, the findings of the trial court and the Court of Appeals with respect to the assigned error are based on substantial evidence which were not refuted with contrary proof by petitioners. Hence, there is no necessity to depart from the above judicial dictum. WHEREFORE, premises considered, the petition is DENIED and the assailed Decision of the Court of Appeals concurring with the decision of the trial court is hereby AFFIRMED. Costs against petitioners.

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SO ORDERED. Melo, and Francisco, JJ., concur.

hereinafter called the DEBTOR(S), of such amounts whether due or not, as indicated opposite their respective names, to wit: NAME OF DEBTOR(S) AMOUNT OF OBLIGATION

Narvasa, C.J. (Chairman), took no part due to personal relationship to party. Davide, Jr., took no part due to close relationship of a party.
PHIL. BLOOMING MILLS CORP. TEN MILLION PESOS

(P 10,000,000.00) owing to said TRADERS ROYAL BANK, hereafter called the CREDITOR, as evidenced by all notes, drafts, overdrafts and other credit obligations of every kind and nature contracted/incurred by said DEBTOR(S) in favor of said CREDITOR. In case of default by any and/or all of the DEBTOR(S) to pay the whole or part of said indebtedness herein secured at maturity, I/We, jointly and severally, agree and engage to the CREDITOR, its successors and assigns, the prompt payment, without demand or notice from said CREDITOR, of such notes, drafts, overdrafts and other credit obligations on which the DEBTOR(S) may now be indebted or may hereafter become indebted to the CREDITOR, together with all interests, penalty and other bank charges as may accrue thereon and all expenses which may be incurred by the latter in collecting any or all such instruments. I/WE further warrant the due and faithful performance by the DEBTOR(S) of all the obligations to be performed under any contracts, evidencing indebtedness/obligations and any supplements, amendments, charges or modifications made thereto, including but not limited to, the due and punctual payment by the said DEBTOR(S). I/WE hereby expressly waive notice of acceptance of this suretyship, and also presentment, demand, protest and notice of dishonor of any and all such instruments, loans, advances, credits, or other indebtedness or obligations hereinbefore referred to. MY/OUR liability on this Deed of Suretyship shall be solidary, direct and immediate and not contingent upon the pursuit by the CREDITOR, its successors or assigns, of whatever remedies it or they may have against the DEBTOR(S) or the securities or liens it or they may possess; and I/WE hereby agree to be and remain bound upon this suretyship, irrespective of the existence, value or condition of any collateral, and notwithstanding also that all obligations of the DEBTOR(S) to you outstanding and unpaid at any time may exceed the aggregate principal sum herein above stated. In the event of judicial proceedings, I/WE hereby expressly agree to pay the creditor for and as attorneys fees a sum equivalent to TEN PER CENTUM (10%) of the total indebtedness (principal and interest) then unpaid, exclusive of all costs or expenses for collection allowed by law.7 (Emphasis supplied) On 24 March and 6 August 1980, TRB granted PBM letters of credit on application of Ching in his capacity as Senior Vice President of PBM. Ching later accomplished and delivered to TRB trust receipts, which acknowledged receipt in trust for TRB of the merchandise subject of the letters of credit. Under the trust receipts, PBM had the right to sell the merchandise for cash with the obligation to turn over the entire proceeds of the sale to TRB as payment of PBMs indebtedness. Letter of Credit No. 479 AD, covered by Trust Receipt No. 106, has a face value of US$591,043, while Letter of Credit No. 563 AD, covered by Trust Receipt No. 113, has a face value of US$155,460.34.

G.R. No. 142381

October 15, 2003

PHILIPPINE BLOOMING MILLS, INC., and ALFREDO CHING, petitioners, vs. COURT OF APPEALS and TRADERS ROYAL BANK, respondents. DECISION CARPIO, J.: The Case This is a petition for review on certiorari1 to annul the Decision2 dated 16 July 1999 of the Court of Appeals in CA-G.R. CV No. 39690, as well as its Resolution dated 17 February 2000 denying the motion for reconsideration. The Court of Appeals affirmed with modification the Decision3 dated 31 August 1992 rendered by Branch 113 of the Regional Trial Court of Pasay City ("trial court"). The trial courts Decision declared petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB") for the payment of the credit accommodations extended to Philippine Blooming Mills, Inc. ("PBM"). Antecedent Facts This case stems from an action to compel Ching to pay TRB the following amounts: 1. P959,611.96 under Letter of Credit No. 479 AD covered by Trust Receipt No. 106;4 2. P1,191,137.13 under Letter of Credit No. 563 AD covered by Trust Receipt No. 113; 5 and 3. P3,500,000 under the trust loan covered by a notarized Promissory Note. 6 Ching was the Senior Vice President of PBM. In his personal capacity and not as a corporate officer, Ching signed a Deed of Suretyship dated 21 July 1977 binding himself as follows: xxx as primary obligor(s) and not as mere guarantor(s), hereby warrant to the TRADERS ROYAL BANK, its successors and assigns, the due and punctual payment by the following individuals and/or companies/firms,

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Ching further executed an Undertaking for each trust receipt, which uniformly provided that: xxx 6. All obligations of the undersigned under the agreement of trusts shall bear interest at the rate of __ per centum ( __%) per annum from the date due until paid. 7. [I]n consideration of the Trust Receipt, the undersigned hereby jointly and severally undertake and agree to pay on demand on the said BANK, all sums and amounts of money which said BANK may call upon them to pay arising out of, pertaining to, and/or in any manner connected with this receipt. In case it is necessary to collect the draft covered by the Trust Receipt by or through an attorney-at-law, the undersigned hereby further agree(s) to pay an additional of 10% of the total amount due on the draft as attorneys fees, exclusive of all costs, fees and other expenses of collection but shall in no case be less than P200.00"8(Emphasis supplied) On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as co-maker in the notarized Promissory Note evidencing this trust loan. The Promissory Note reads: FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and severally, promise to pay the TRADERS ROYAL BANK or order, at its Office in 4th Floor, Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of Pesos: THREE MILLION FIVE HUNDRED THOUSAND ONLY (P3,500,000.00), Philippine Currency, with the interest rate of Eighteen Percent (18%) per annum until fully paid. In case of non-payment of this note at maturity, I/We, jointly and severally, agree to pay an additional amount equivalent to two per cent (2%) of the principal sum per annum, as penalty and collection charges in the form of liquidated damages until fully paid, and the further sum of ten percent (10%) thereof in full, without any deduction, as and for attorneys fees whether actually incurred or not, exclusive of costs and other judicial/extrajudicial expenses; moreover, I/We jointly and severally, further empower and authorize the TRADERS ROYAL BANK at its option, and without notice to set off or to apply to the payment of this note any and all funds, which may be in its hands on deposit or otherwise belonging to anyone or all of us, and to hold as security therefor any real or personal property which may be in its possession or control by virtue of any other contract.9 (Emphasis supplied) PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479 AD) for P959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD) for P1,191,137.13. PBM also defaulted on its P3,500,000 trust loan. On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the Securities and Exchange Commission ("SEC"), docketed as SEC Case No. 2250.10 The petition sought to suspend payment of PBMs obligations and prayed that the SEC allow PBM to continue its normal business operations free from the interference of its creditors. One of the listed creditors of PBM was TRB. 11 On 9 July 1982, the SEC placed all of PBMs assets, liabilities, and obligations under the rehabilitation receivership of Kalaw, Escaler and Associates.12 On 13 May 1983, ten months after the SEC placed PBM under rehabilitation receivership, TRB filed with the trial court a complaint for collection against PBM and Ching. TRB asked the trial court to order defendants to pay solidarily the following amounts: (1) P6,612,132.74 exclusive of interests, penalties, and bank charges [representing its indebtedness arising from the letters of credit issued to its various suppliers];

(2) P4,831,361.11, exclusive of interests, penalties, and other bank charges [due and owing from the trust loan of 27 April 1981 evidenced by a promissory note]; (3) P783,300.00 exclusive of interests, penalties, and other bank charges [due and owing from the money market loan of 1 April 1981 evidenced by a promissory note]; (4) To order defendant Ching to pay P10,000,000.00 under the Deed of Suretyship in the event plaintiff can not recover the full amount of PBMs indebtedness from the latter; (5) The sum equivalent to 10% of the total sum due as and for attorneys fees; (6) Such other amounts that may be proven by the plaintiff during the trial, by way of damages and expenses for litigation.13 On 25 May 1983, TRB moved to withdraw the complaint against PBM on the ground that the SEC had already placed PBM under receivership.14 The trial court thus dismissed the complaint against PBM.15 On 23 June 1983, PBM and Ching also moved to dismiss the complaint on the ground that the trial court had no jurisdiction over the subject matter of the case. PBM and Ching invoked the assumption of jurisdiction by the SEC over all of PBMs assets and liabilities.16 TRB filed an opposition to the Motion to Dismiss. TRB argued that (1) Ching is being sued in his personal capacity as a surety for PBM; (2) the SEC decision declaring PBM in suspension of payments is not binding on TRB; and (3) Presidential Decree No. 1758 ("PD No. 1758"),17 which Ching relied on to support his assertion that all claims against PBM are suspended, does not apply to Ching as the decree regulates corporate activities only.18 In its order dated 15 August 1983,19 the trial court denied the motion to dismiss with respect to Ching and affirmed its dismissal of the case with respect to PBM. The trial court stressed that TRB was holding Ching liable under the Deed of Suretyship. As Chings obligation was solidary, the trial court ruled that TRB could proceed against Ching as surety upon default of the principal debtor PBM. The trial court also held that PD No. 1758 applied only to corporations, partnerships and associations and not to individuals. Upon the trial courts denial of his Motion for Reconsideration, Ching filed a Petition for Certiorari and Prohibition20before the Court of Appeals. The appellate court granted Chings petition and ordered the dismissal of the case. The appellate court ruled that the SEC assumed jurisdiction over Ching and PBM to the exclusion of courts or tribunals of coordinate rank. TRB assailed the Court of Appeals Decision21 before this Court. In Traders Royal Bank v. Court of Appeals,22this Court upheld TRB and ruled that Ching was merely a nominal party in SEC Case No. 2250. Creditors may sue individual sureties of debtor corporations, like Ching, in a separate proceeding before regular courts despite the pendency of a case before the SEC involving the debtor corporation. In his Answer dated 6 November 1989, Ching denied liability as surety and accommodation co-maker of PBM. He claimed that the SEC had already issued a decision23 approving a revised rehabilitation plan for PBMs creditors, and that PBM obtained the credit accommodations for corporate purposes that did not redound to his personal benefit. He further claimed that even as a surety, he has the right to the defenses personal to PBM. Thus, his liability as surety would attach only if, after the implementation of payments scheduled under the rehabilitation plan, there would remain a balance of PBMs debt to TRB. 24 Although Ching admitted PBMs availment of the credit accommodations, he did not show any proof of payment by PBM or by him.

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TRB admitted certain partial payments on the PBM account made by PBM itself and by the SEC-appointed receiver.25 Thus, the trial court had to resolve the following remaining issues: 1. How much exactly is the corporate defendants outstanding obligation to the plaintiff?

However, Atty. Aranda himself testified that both items (a) and (b) quoted above were never complied with or implemented. Not only was there no initial deposit of P150,000 as required in the resolution, TRB also disapproved the document prepared by the receiver, which would have released Ching from his suretyship.35 The Ruling of the Trial Court

2. Is defendant Alfredo Ching personally answerable, and for exactly how much?26 TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management Department of TRB, and Ms. Carla Pecson, manager of the International Department of TRB, as witnesses. Both witnesses testified to the following: 1. The existence of a Deed of Suretyship dated 21 July 1977 executed by Ching for PBMs liabilities to TRB up to P10,000,000;27 2. The application of PBM and grant by TRB on 13 March 1980 of Letter of Credit No. 479 AD for US$591,043, and the actual availment by PBM of the full proceeds of the credit accommodation;28 3. The application of PBM and grant by TRB on 6 August 1980 of Letter of Credit No. 563 AD for US$156,000, and the actual availment by PBM of the full proceeds of the credit accommodation; 29 and 4. The existence of a trust loan of P3,500,000 evidenced by a notarized Promissory Note dated 27 April 1981 wherein Ching bound himself solidarily with PBM;30 and 5. Per TRBs computation, Ching is liable for P19,333,558.16 as of 31 October 1991.31 Ching presented Atty. Vicente Aranda, corporate secretary and First Vice President of the Human Resources Department of TRB, as witness. Ching sought to establish t hat TRBs Board of Directors adopted a resolution fixing the PBM account at an amount lower than what TRB wanted to collect from Ching. The trial court allowed Atty. Aranda to testify over TRBs manifestation that the Answer failed to plead the subject matter of his testimony. Atty. Aranda produced TRB Board Resolution No. 5935, series of 1990, which contained the minutes of the special meeting of TRBs Board of Directors held on 8 June 1990. 32 In the resolution, the Board of Directors advised TRBs Management "not to release Alfredo Ching from his JSS liability to the bank."33 The resolution also stated the following: a) Accept the P1.373 million deposits remitted over a period of 17 years or until 2006 which shall be applied directly to the account (as remitted per hereto attached schedule). The amount of P1.373 million shall be considered as full payment of PBMs account. (The receiver is amenable to this alternative) The initial deposit/remittance which amounts to P150,000.00 shall be remitted upon approval of the above and conforme to PISCOR and PBM. Subsequent deposits shall start on the 3rd year and annually thereafter (every June 30th of the year) until June 30, 2006. Failure to pay one annual installment shall make the whole obligation due and demandable. b) Write-off immediately P4.278 million. The balance [of] P1.373 million to remain outstanding in the books of the Bank. Said balance will equal the deposits to be remitted to the Bank for a period of 17 years. 34 The trial court found Ching liable to TRB for P19,333,558.16 under the Deed of Suretyship. The trial court explained: [T]he liability of Ching as a surety attaches independently from his capacity as a stockholder of the Philippine Blooming Mills. Indisputably, under the Deed of Suretyship defendant Ching unconditionally agreed to assume PBMs liability to the plaintiff in the event PBM defaulted in the payment of the said obligation in addition to whatever penalties, expenses and bank charges that may occur by reason of default. Clear enough, under the Deed of Suretyship (Exh. J), defendant Ching bound himself jointly and severally with PBM in the payment of the latters obligation to the plaintiff. The obligation being solidary, the plaintiff Bank can hold Ching liable upon default of the principal debtor. This is explicitly provided in Article 1216 of the New Civil Code already quoted above.36 The dispositive portion of the trial courts Decision reads: WHEREFORE, judgment is hereby rendered declaring defendant Alfredo Ching liable to plaintiff bank in the amount of P19,333,558.16 (NINETEEN MILLION THREE HUNDRED THIRTY THREE THOUSAND FIVE HUNDRED FIFTY EIGHT & 16/100) as of October 31, 1991, and to pay the legal interest thereon from such date until it is fully paid. To pay plaintiff 5% of the entire amount by way of attorneys fees. SO ORDERED.37 The Ruling of the Court of Appeals On appeal, Ching stated that as surety and solidary debtor, he should benefit from the changed nature of the obligation as provided in Article 1222 of the Civil Code, which reads: Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. Ching claimed that his liability should likewise be reduced since the equitable apportionment of PBMs remaining assets among its creditors under the rehabilitation proceedings would have the effect of reducing PBMs liability. He also claimed that the amount for which he was being held liable was excessive. He contended that the outstanding principal balance, as stated in TRB Board Resolution No. 5893-1990, was only P5,650,749.09.38Ching also contended that he was not liable for interest, as the loan documents did not stipulate the interest rate, pursuant to Article 1956 of the Civil Code. 39 Finally, Ching asserted that the Deed of Suretyship executed on 21 July 1977 could not guarantee obligations incurred after its execution. 40 TRB did not file its appellees brief. Thus, the Court of Appeals resolved to submit the case for decision. 41 The Court of Appeals considered the following issues for its determination:

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1. Whether the Answer of Ching amounted to an admission of liability. 2. Whether Ching can still be sued as a surety after the SEC placed PBM under rehabilitation receivership, and if in the affirmative, for how much.42 The Court of Appeals resolved the first two questions in favor of TRB. The appellate court stated: Ching did not deny under oath the genuineness and due execution of the L/Cs, Trust Receipts, Undertaking, Deed of Surety, and the 3.5 Million Peso Promissory Note upon which TRBs action rested. He is, therefore, presumed to be liable unless he presents evidence showing payment, partially or in full, of these obligations (Investment and Underwriting Corporation of the Philippines v. Comptronics Philippines, Inc. and Gene v. Tamesis, 192 SCRA 725 [1990]). As surety of a corporation placed under rehabilitation receivership, Ching can answer separately for the obligations of debtor PBM (Rizal Banking Corporation v. Court of Appeals, Philippine Blooming Mills, Inc., and Alfredo Ching, 178 SCRA 738 [1990], and Traders Royal Bank v. Philippine Blooming Mills and Alfredo Ching, 177 SCRA 788 [1989]). Even a[n] SEC injunctive order cannot suspend payment of the suretys obligation since the rehabilitation receivers are limited to the existing assets of the corporation. 43 The dispositive portion of the Decision of the Court of Appeals reads: WHEREFORE, the judgment of the lower court is hereby AFFIRMED but modified with respect to the amount of liability of defendant Alfredo Ching which is lowered from P19,333,558.16 to P15,773,708.78 with legal interest of 12% per annum until it is fully paid. SO ORDERED.44 The Court of Appeals denied Chings Motion for Reconsideration for lack of merit. Hence, this petition. Issues Ching assigns the following as errors of the Court of Appeals: 1. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT PETITIONER ALFREDO CHING WAS LIABLE FOR OBLIGATIONS CONTRACTED BY PBM LONG AFTER THE EXECUTION OF THE DEED OF SURETYSHIP. 2. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT RULED THAT THE PETITIONERS WERE LIABLE FOR THE TRUST RECEIPTS DESPITE THE FACT THAT PRIVATE RESPONDENT HAD PREVENTED THEIR FULFILLMENT. 3. THE COURT OF APPEALS COMMITTED AN ERROR WHEN IT FOUND PETITIONER ALFREDO CHING LIABLE FOR P15,773,708.78 WITH LEGAL INTEREST AT 12% PER ANNUM UNTIL FULLY PAID DESPITE THE FACT THAT UNDER THE REHABILITATION PLAN OF PETITIONER PBM, WHICH WAS APPROVED

BY THE SECURITIES AND EXCHANGE COMMISSION, PRIVATE RESPONDENT IS ONLY ENTITLED TOP1,373,415.00.45 Ching asserted that the Deed of Suretyship dated 21 July 1977 could not answer for obligations not yet in existence at the time of its execution. Specifically, Ching maintained that the Deed of Suretyship could not answer for debts contracted by PBM in 1980 and 1981. Ching contended that no accessory contract of suretyship could arise without an existing principal contract of loan. Ching likewise argued that TRB could no longer claim on the trust receipts because TRB had already taken the properties subject of the trust receipts. Ching likewise maintained that his obligation as surety could not exceed the P1,373,415 apportioned to PBM under the SEC-approved rehabilitation plan. In its Comment, TRB asserted that the first two assigned errors raised factual issues not brought before the trial court. Furthermore, TRB pointed out that Ching never presented PBMs rehabilitation plan before the trial court. TRB also stated that the Supreme Court ruling in Traders Royal Bank v. Court of Appeals46 constitutes res judicata between the parties. Therefore, TRB could proceed against Ching separately from PBM to enforce in full Chings liability as surety.47 The Ruling of the Court The petition has no merit. The case before us is an offshoot of the trial courts denial of Chings motion to have the case dismissed against him. The petition is a thinly veiled attempt to make this Court reconsider its decision in the prior case of Traders Royal Bank v. Court of Appeals.48 This Court has already resolved the issue of Chings separate liability as a surety despite the rehabilitation proceedings before the SEC. We held in Traders Royal Bank that: Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the SEC could not assume jurisdiction over his person and properties. The Securities and Exchange Commission was empowered, as rehabilitation receiver, to take custody and control of the assets and properties of PBM only, for the SEC has jurisdiction over corporations only [and] not over private individuals, except stockholders in an intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal party in SEC Case No. 2250, Chings properties were not included in the rehabilitation receivership that the SEC constituted to take custody of PBMs assets. Therefore, the petitioner bank was not barred from filing a suit against Ching, as a surety for PBM. An anomalous situation would arise if individual sureties for debtor corporations may escape liability by simply cofiling with the corporation a petition for suspension of payments in the SEC whose jurisdiction is limited only to corporations and their corporate assets. xxx Ching can be sued separately to enforce his liability as surety for PBM, as expressly provided by Article 1216 of the New Civil Code. xxx It is elementary that a corporation has a personality distinct and separate from its individual stockholders and members. Being an officer or stockholder of a corporation does not make ones property the property also of the corporation, for they are separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482). Chings act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest in the SEC jurisdiction over his person or property, for jurisdiction does not depend on the consent or acts of the parties but upon

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express provision of law (Tolentino vs. Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City, Br. I, 145 SCRA 408). (Emphasis supplied) Traders Royal Bank has fully resolved the issue regarding Chings liability as a surety of the credit accommodations TRB extended to PBM. The decision amounts to res judicata49 which bars Ching from raising the same issue again. Hence, the only question that remains is the amount of Chings liability. Nevertheless, we shall resolve the issues Ching has raised in his attempt to escape liability under his surety. Whether Ching is liable for obligations PBM contracted after execution of the Deed of Suretyship Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM "may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship for "future debts". Article 2053 of the Civil Code provides: A guaranty may also be given as security for future debts, the amount of which is not yet known; there can be no claim against the guarantor until the debt is liquidated. A conditional obligation may also be secured. (Emphasis supplied) Furthermore, this Court has ruled in Dio v. Court of Appeals that: Under the Civil Code, a guaranty may be given to secure even future debts, the amount of which may not be known at the time the guaranty is executed. This is the basis for contracts denominated as continuing guaranty or suretyship. A continuing guaranty is one which is not limited to a single transaction, but which contemplates a future course of dealing, covering a series of transactions, generally for an indefinite time or until revoked. It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable. Otherwise stated, a continuing guaranty is one which covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until the expiration or termination thereof. A guaranty shall be construed as continuing when by the terms thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period; especially if the right to recall the guaranty is expressly reserved. Hence, where the contract states that the guaranty is to secure advances to be made "from time to time," it will be construed to be a continuing one. In other jurisdictions, it has been held that the use of particular words and expressions such as payment of "any debt," "any indebtedness," or "any sum," or the guaranty of "any transaction," or money to be furnished the principal debtor "at any time," or "on such time" that the principal debtor may require, have been construed to indicate a continuing guaranty. Whether Chings liability is limited to the amount stated in PBMs rehabilitation plan Ching would like this Court to rule that his liability is limited, at most, to the amount stated in PBMs rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222 of the Civil Code which reads: Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.
50

In granting the loan to PBM, TRB required Chings surety precisely to insure full rec overy of the loan in case PBM becomes insolvent or fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBMs failure to pay in full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBMs loan in case PBM fails to pay in full for any reason, including its insolvency. TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBMs loan. This is clear from Article 1216 of the Civil Code: ART. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (Emphasis supplied) Ching further claims a reduced liability under TRB Board Resolution No. 5935. This resolution states that PBMs outstanding loans may be reduced to P1.373 million subject to certain conditions like the payment of P150,000 initial payment.51 The resolution also states that TRB should not release Chings solidary liability under his surety. The resolution even directs TRBs management to study Chings criminal liability under the trust documents.52 Chings own witness testified that Resolution No. 5935 was never implemented. For one, PBM or its receiver never paid the P150,000 initial payment to TRB. TRB also rejected the document that PBMs receiver presented which would have released Ching from his suretyship. Clearly, Ching cannot rely on Resolution No. 5935 to escape liability under his suretyship. Chings attempts to have this Court review the factual issues of the case are improper. It is not a function of the Supreme Court to assess and evaluate again the evidence, testimonial and evidentiary, adduced by the parties particularly where the findings of both the trial court and the appellate court coincide on the matter. 53 Whether Ching is liable for the trust receipts Ching is still liable for the amounts stated in the letters of credit covered by the trust receipts. Other than his bare allegations, Ching has not shown proof of payment or settlement with TRB. Atty. Vicente Aranda, TRBs corporate secretary and First Vice President of its Human Resource Management Department, testified that the conditions in the TRB board resolution presented by Ching were not met or implemented, thus: ATTY. AZURA Q Going into the resolution itself. A certain stipulation ha[s] been outlined, and may I refer you to condition or step No. 1, which reads: "a) Accept the P1.373 million deposits remitted over a period of 17 years or until 2006 which shall be applied directly to the account (as remitted per hereto attached schedule). The amount of P1.373 million shall be considered as full payment of PBMs account. (The receiver is amenable to this alternative.) The initial deposit/remittance which amounts to P150,000.00 shall be remitted upon approval of the above and conforme of PISCOR [xxx] and PBM. Subsequent deposits shall start on the 3rd year and annually thereafter (every June 30th of the year) until June 30, 2006. Failure to pay one annual installment shall make the whole obligation due and demandable. Now Mr. Witness, would you be in a position to inform [the court] if these conditions listed in item (a) in Resolution No. 5935, series of 1990, were implemented or met?

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A Yes. I know for a fact that the conditions, more particularly the initial deposit/remittance in the amount ofP150,000.00 which have to be done with approval was not remitted or met. Q Will you clarify your answer. Would you be in a position to inform the court if those conditions were met? Because your initial answer was yes. A Yes sir, I am in a position to state that these conditions were not met. Q Let me refer you to the condition listed as item (b) of the same resolution which I read and quote: "Write off immediately P4.278 million. The balance of P1.373 million to remain outstanding in the books of the bank. Said balance will be remitted to the Bank for a period of 17 years." Mr. Witness, would you be in a position to inform the court if the bank implemented that particular condition? A In the implementation of this settlement the receiver prepared a document for approval and conformity of the bank. The said document would in effect release the suretyship of Alfredo Ching and for that reason the bank refused or denied fixing its conformity and approval with the court. xxx ATTY. ATIENZA ON REDIRECT EXAMINATION Q Mr. Witness you stated that the reason why the plaintiff bank did not implement these conditionalities [sic] was because the former defendant corporation requested that the suretyship of Alfredo Ching be released, is that correct? A I did not say that. I said that in effect the document prepared by the lawyer of the receiver xxx the bank would release the suretyship of Alfredo Ching, that is why the bank is not amenable to such a document. Q Despite this approved resolution the bank, because of said requirement or conformity did not seek to implement these conditionalities [sic]? A Yes sir because the conditions imposed by the board is not being followed in that document because it was the condition of the board that the suretyship should not be released but the document being presented to the bank for signature and conformity in effect if signed would release the suretyship. So it would be a violation with the approval of the board so the bank did not sign the conformity. 54 Ching also claims that TRB prevented PBM from fulfilling its obligations under the trust receipts when TRB, together with other creditor banks, took hold of PBMs inventories, including the goods covered by the trust receipts. Ching asserts that this act of TRB released him from liability under the suretyship. Ching forgets that he executed, on behalf of PBM, separate Undertakings for each trust receipt expressly granting to TRB the right to take possession of the goods at any time to protect TRBs interests. TRB may exercise such right without waiving its right to collect the full amount of the loan to PBM. The Undertakings also provide that any suspension of payment or any assignment by PBM for the benefit of creditors renders the loan due and demandable. Thus, the separate Undertakings uniformly provide: 2. That the said BANK may at any time cancel the foregoing trust and take possession of said merchandise with the right to sell and dispose of the same under such terms and conditions it may deem best, or of the proceeds of such of the same as may then have been sold, wherever the said merchandise or proceeds may then be found and all the provisions of the Trust Receipt shall apply to and be

deemed to include said above-mentioned merchandise if the same shall have been made up or used in the manufacture of any other goods, or merchandise, and the said BANK shall have the same rights and remedies against the said merchandise in its manufactured state, or the product of said manufacture as it would have had in the event that such merchandise had remained [in] its original state and irrespective of the fact that other and different merchandise is used in completing such manufacture. In the event of any suspension, or failure or assignment for the benefit of creditors on the part of the undersigned or of the non-fulfillment of any obligation, or of the non-payment at maturity of any acceptance made under said credit, or any other credit issued by the said BANK on account of the undersigned or of the non-payment of any indebtedness on the part of the undersigned to the said BANK, all obligations, acceptances, indebtedness and liabilities whatsoever shall thereupon without notice mature and become due and payable and the BANK may avail of the remedies provided herein.55 (Emphasis supplied) Presidential Decree No. 115 ("PD No. 115"), otherwise known as the Trust Receipts Law, expressly allows TRB to take possession of the goods covered by the trust receipts. Thus, Section of 7 of PD No. 115 states: SECTION 7. Rights of the entruster. The entruster shall be entitled to the proceeds from the sale of the goods, documents or instruments released under a trust receipt to the entrustee to the extent of the amount owing to the entruster or as appears in the trust receipt, or to the return of the goods, documents or instruments in case of non-sale, and to the enforcement of all other rights conferred on him in the trust receipt provided such are not contrary to the provisions of this Decree. The entruster may cancel the trust and take possession of the goods, documents or instruments subject of the trust or of the proceeds realized therefrom at any time upon default or failure of the entrustee to comply with any of the terms and conditions of the trust receipt or any other agreement between the entruster and the entrustee, and the entruster in possession of the goods, documents or instruments may, on or after default, give notice to the entrustee of the intention to sell, and may, not less than five days after serving or sending of such notice, sell the goods, documents or instruments at public or private sale, and the entruster may, at a public sale, become a purchaser. The proceeds of any such sale, whether public or private, shall be applied (a) to the payment of the expenses thereof; (b) to the payment of the expenses of re-taking, keeping and storing the goods, documents or instruments; (c) to the satisfaction of the entrustees indebtedness to the entruster. The entrustee shall receive any surplus but shall be liable to the entruster for any deficiency. Notice of sale shall be deemed sufficiently given if in writing, and either personally served on the entrustee or sent by post-paid ordinary mail to the entrustees last known business address. (Emphasis supplied) Thus, even though TRB took possession of the goods covered by the trust receipts, PBM and Ching remained liable for the entire amount of the loans covered by the trust receipts. Absent proof of payment or settlement of PBM and Chings credit obligations with TRB, Chings liability is what the Deed of Suretyship stipulates, plus the applicable interest and penalties. The trust receipts, as well as the Letter of Undertaking dated 16 April 198056 executed by PBM, stipulate in writing the payment of interest without specifying the rate. In such a case, the applicable interest rate shall be the legal rate, which is now 12% per annum.57 This is in accordance with Central Bank Circular No. 416, which states: By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the "Usury Law," the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve per cent (12%) per annum. (Emphasis supplied)

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On the other hand, the Promissory Note evidencing the P3,500,000 trust loan provides for 18% interest per annum plus 2% penalty interest per annum in case of default. This stipulated interest should continue to run until full payment of the P3,500,000 trust loan. In addition, the accrued interest on all the credit accommodations should earn legal interest from the date of filing of the complaint pursuant to Article 2212 of the Civil Code. Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The trial court found and the appellate court affirmed that the outstanding principal amounts as of the filing of the complaint with the trial court on 13 May 1983 were P959,611.96 under Trust Receipt No. 106, P1,191,137.13 under Trust Receipt No. 113, and P3,500,000 for the trust loan. As extracted from TRBs Statement of Account as of 31 October 1991,58 the accrued interest on the trust receipts and the trust loan as of the filing of the complaint on 13 May 1983 were P311,387.5159 under Trust Receipt No. 106, P338,739.8160 under Trust Receipt No. 113, and P1,287,616.4461 under the trust loan. The penalty interest on the trust loan amounted to P137,315.07.62Ching did not rebut this Statement of Account which TRB presented during trial. Thus, the following is the summary of Chings liability under the suretyship as of 13 May 1983, the date of filing of TRBs complaint with the trial court: 1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD) Outstanding Principal P 959,611.96 Accrued Interest (12% per annum) 311,387.51

SO ORDERED. Davide, Jr., C.J. (Chairman), Vitug and Azcuna, JJ., concur. Ynares-Santiago, J., on leave.

JOSE C. TUPAZ IV and PETRONILA C. TUPAZ, Petitioners,

G.R. No. 145578

Present: Davide, Jr., C.J., Chairman, - versus Quisumbing, Ynares-Santiago, Carpio, and Azcuna, JJ. THE COURT OF APPEALS and BANK OF THE PHILIPPINE ISLANDS, Respondents.

Promulgated:

November 18, 2005

x ---------------------------------- --------------- x

DECISION
2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD)

CARPIO, J.:
Outstanding Principal P 1,191,137.13 Accrued Interest (12% per annum) 338,739.82 3. On the Trust Loan (Promissory Note) Outstanding Principal P 3,500,000.00 Accrued Interest (18% per annum) 1,287,616.44 Accrued Penalty Interest (2% per annum) 137,315.07 WHEREFORE, we AFFIRM the decision of the Court of Appeals with MODIFICATION. Petitioner Alfredo Ching shall pay respondent Traders Royal Bank the following (1) on the credit accommodations under the trust receipts, the total principal amount of P2,150,749.09 with legal interest at 12% per annum from 14 May 1983 until full payment; (2) on the trust loan evidenced by the Promissory Note, the principal sum of P3,500,000 with 20% interest per annum from 14 May 1983 until full payment; (3) on the total accrued interest as of 13 May 1983, P2,075,058.84 with 12% interest per annum from 14 May 1983 until full payment. Petitioner Alfredo Ching shall also pay attorneys fees to respondent Traders Royal Bank equivalent to 5% of the total principal and interest.

The Case
[1] [2]

This is a petition for review of the Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000. The 7 September 2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals Resolution of 18 October 2000 denied petitioners motion for reconsideration. The Facts Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were Vice -President for Operations and Vice-President/Treasurer, respectively, of El Oro Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with the Philippine Army to supply the latter with survival bolos.

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To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro Corporation, applied with respondent Bank of the Philippine Islands (respondent bank) for two commercial letters of credit. The letters of credit were in favor of El Oro Corporations suppliers, [3] Tanchaoco Manufacturing Incorporated (Tanchaoco Incorporated) and Maresco Rubber and [4] Retreading Corporation (Maresco Corporation). Respondent bank granted petitioners application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco Corporation. Simultaneous with the issuance of the letters of credit, petitioners signed trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2 00896-3 (for P564,871.05). Petitioner Jose Tupaz bound himself to sell the goods covered by the letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 29 December 1981. On 9 October 1981, petitioners signed, in their capacities as officers of El Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5 (for P294,000). Petitioners bound themselves to sell the goods covered by that letter of credit and to remit the proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before 8 December 1981. After Tanchaoco Incorporated and Maresco Corporation delivered the raw materials to El Oro Corporation, respondent bank paid the former P564,871.05 and P294,000, respectively. Petitioners did not comply with their undertaking under the trust receipts. Respondent bank made several demands for payments but El Oro Corporation made partial payments only. On 27 [5] [6] June 1983 and 28 June 1983, respondent banks counsel and its representative respectively sent final demand letters to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed Forces of the Philippines had delayed paying for the survival bolos. Respondent bank charged petitioners with estafa under Section 13, Presidential Decree No. [7] 115 (Section 13) or Trust Receipts Law (PD 115). After preliminary investigation, the then Makati Fiscals Office found probable cause to indict petitioners. The Makati Fiscals Office filed the corresponding Informations (docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court, Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court) on 20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued. During the trial, respondent bank presented evidence on the civil aspect of the cases.

WHEREFORE, judgment is hereby rendered ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz based upon reasonable doubt. However, El Oro Engraver Corporation, Jose C. Tupaz, IV and Petronila Tupaz, are hereby ordered, jointly and solidarily, to pay the Bank of the Philippine Islands the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum; plus 10% of the total amount due as attorneys fees; P5,000.00 as expenses of litigation; and costs of the suit.[8]

In holding petitioners civilly liable with El Oro Corporation, the trial court held: [S]ince the civil action for the recovery of the civil liability is deemed impliedly instituted with the criminal action, as in fact the prosecution thereof was actively handled by the private prosecutor, the Court believes that the El Oro Engraver Corporation and both accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily should be held civilly liable to the Bank of the Philippine Islands. The mere fact that they were unable to collect in full from the AFP and/or the Department of National Defense the proceeds of the sale of the delivered survival bolos manufactured from the raw materials covered by the trust receipt agreements is no valid defense to the civil claim of the said complainant and surely could not wipe out their civil obligation. After all, they are free to institute an action to collect the same.[9]

Petitioners appealed to the Court of Appeals. Petitioners contended that: (1) their acquittal operates to extinguish [their] civil liability and (2) at any rate, they are not personally liable for El Oro Corporations debts. The Ruling of the Court of Appeals In its Decision of 7 September 2000, the Court of Appeals affirmed the trial courts ruling. The appellate court held: It is clear from [Section 13, PD 115] that civil liability arising from the violation of the trust receipt agreement is distinct from the criminal liability imposed therein. In the case of Vintola vs. Insular Bank of Asia and America, our Supreme Court held that acquittal in the estafa case (P.D. 115) is no bar to the institution of a civil action for collection. This is because in such cases, the civil liability of the accused does not arise ex delicto but rather based ex contractu and as such is distinct and independent from any criminal proceedings and may proceed regardless of the result of the latter. Thus, an independent civil action to enforce the civil liability may be filed against the corporation aside from the criminal action against the responsible officers or employees. xxx

The Ruling of the Trial Court

On 16 July 1992, the trial court rendered judgment acquitting petitioners of estafa on reasonable doubt. However, the trial court found petitioners solidarily liable with El Oro Corporation for the balance of El Oro Corporations principal debt under the trust receipts. The dispositive portion of the trial courts Decision provides:

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[W]e hereby hold that the acquittal of the accused-appellants from the criminal charge of estafa did not operate to extinguish their civil liability under the letter of credit-trust receipt arrangement with plaintiff-appellee, with which they dealt both in their personal capacity and as officers of El Oro Engraver Corporation, the letter of credit applicant and principal debtor. Appellants argued that they cannot be held solidarily liable with their corporation, El Oro Engraver Corporation, alleging that they executed the subject documents including the trust receipt agreements only in their capacity as such corporate officers. They said that these instruments are mere pro-forma and that they executed these instruments on the strength of a board resolution of said corporation authorizing them to apply for the opening of a letter of credit in favor of their suppliers as well as to execute the other documents necessary to accomplish the same.

3.

GRANTING THAT THE QUESTIONED OBLIGATION WAS ALREADY DUE AND PAYABLE, xxx PETITIONERS ARE NOT PERSONALLY LIABLE TO xxx RESPONDENT BANK, SINCE THEY SIGNED THE LETTER[S] OF CREDIT AS SURETY AS OFFICERS OF EL ORO, AND THEREFORE, AN EXCLUSIVE LIABILITY OF EL ORO; [AND]

4.

IN THE ALTERNATIVE, THE QUESTIONED TRANSACTIONS ARE SIMULATED AND VOID.[11]

The Issues

The petition raises these issues: Such contention, however, is contradicted by the evidence on record. The trust receipt agreement indicated in clear and unmistakable terms that the accused signed the same as surety for the corporation and that they bound themselves directly and immediately liable in the event of default with respect to the obligation under the letters of credit which were made part of the said agreement, without need of demand. Even in the application for the letter of credit, it is likewise clear that the undertaking of the accused is that of a surety as indicated [in] the following words: In consideration of your establishing the commercial letter of credit herein applied for substantially in accordance with the foregoing, the undersigned Applicant and Surety hereby agree, jointly and severally, to each and all stipulations, provisions and conditions on the reverse side hereof. xxx Having contractually agreed to hold themselves solidarily liable with El Oro Engraver Corporation under the subject trust receipt agreements with appellee Bank of the Philippine Islands, herein accused-appellants may not, therefore, invoke the separate legal personality of the said corporation to evade their civil liability under the letter of credit-trust receipt arrangement with said appellee, notwithstanding their acquittal in the criminal cases filed against them. The trial court thus did not err in holding the appellants solidarily liable with El Oro Engraver Corporation for the outstanding principal obligation of P624,129.19 (as of January 23, 1992) with the stipulated interest at the rate of 18% per annum, plus 10% of the total amount due as attorneys fees, P5,000.00 as expenses of litigation and costs of suit.[10] (1) Whether petitioners bound themselves personally liable for El Oro Corporations debts under the trust receipts; (2) If so (a) whether petitioners liability is solidary with El Oro Corporation; and (b) whether petitioners acquittal of estafa under Section 13, PD 115 extinguished their civil liability.

The Ruling of the Court The petition is partly meritorious. We affirm the Court of Appeals ruling with the modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporations debt under the trust receipt dated 30 September 1981.

On Petitioners Undertaking Under the Trust Receipts

Hence, this petition. Petitioners contend that: 1. A JUDGMENT OF ACQUITTAL OPERATE[S] TO EXTINGUISH THE CIVIL LIABILITY OF PETITIONERS[;] GRANTING WITHOUT ADMITTING THAT THE QUESTIONED OBLIGATION WAS INCURRED BY THE CORPORATION, THE SAME IS NOT YET DUE AND PAYABLE;

A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts incurred by these individuals, acting as such corporate agents, are not theirs but [12] the direct liability of the corporation they represent. As an exception, directors or officers are [13] personally liable for the corporations debts only if they so contractually agree or stipulate. Here, the dorsal side of the trust receipts contains the following stipulation: To the Bank of the Philippine Islands

2.

In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to

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you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE, without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . before making demand upon me/us.[14](Capitalization in the original)

you, on demand, whatever sum or sums of money which you may call upon me/us to pay to you, arising out of, pertaining to, and/or in any way connected with, this Trust Receipt, in the event of default and/or non-fulfillment in any respect of this undertaking on the part of the said . I/we further agree that my/our liability in this guarantee shall be DIRECT AND IMMEDIATE,without any need whatsoever on your part to take any steps or exhaust any legal remedies that you may have against the said . Before making demand upon me/us. (Underlining supplied; capitalization in the original) The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself solidarily liable with El Oro Corporation for the latters debt under that trust receipt.

In the trust receipt dated 9 October 1981, petitioners signed below this clause as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature are the words Vice -Pres Treasurer and under petitioner Jose Tupazs signature are the words Vice -PresOperations. By so signing that trust receipt, petitioners did not bind themselves personally liable for El Oro [15] Corporations obligation. In Ong v. Court of Appeals, a corporate representative signed a solidary guarantee clause in two trust receipts in his capacity as corporate representative. There, the Court held that the corporate representative did not undertake to guarantee personally the payment of the corporations debts, thus: [P]etitioner did not sign in his personal capacity the solidary guarantee clause found on the dorsal portion of the trust receipts. Petitioner placed his signature after the typewritten words ARMCO INDUSTRIAL CORPORATION found at the end of the solidary guarantee clause. Evidently, petitioner did not undertake to guaranty personally the payment of the principal and interest of ARMAGRIs debt under the two trust receipts. Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that they are not personally liable for El Oro Corporations obligation. For the trust receipt dated 30 September 1981, the dorsal portion of which petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity. Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30 September 1981, petitioner Petronila Tupaz is not liable under such trust receipt. The Nature of Petitioner Jose Tupazs Liability Under the Trust Receipt Dated 30 September 1981

This is error. [16] In Prudential Bank v. Intermediate Appellate Court, the Court interpreted a [17] substantially identical clause in a trust receipt signed by a corporate officer who bound himself personally liable for the corporations obligation. The petitioner in that case contended that the stipulation we jointly and severally agree and undertake rendered the corporate officer solidarily liable with the corporation. We dismissed this claim and held the corporate officer liable as guarantor only. The Court further ruled that had there been more than one signatories to the trust receipt, the solidary liability would exist between the guarantors. We held: Petitioner [Prudential Bank] insists that by virtue of the clear wording of the xxx clause x x x we jointly and severally agree and undertake x x x, and the concluding sentence on exhaustion, [respondent] Chis liability therein is solidary. xxx Our xxx reading of the questioned solidary guaranty clause yields no other conclusion than that the obligation of Chi is only that of a guarantor. This is further bolstered by the last sentence which speaks of waiver of exhaustion, which, nevertheless, is ineffective in this case because the space therein for the party whose property may not be exhausted was not filled up. Under Article 2058 of the Civil Code, the defense of exhaustion (excussion) may be raised by a guarantor before he may be held liable for the obligation. Petitioner likewise admits that the questioned provision is a solidary guarantyclause, thereby clearly distinguishing it from a contract of surety. It, however, described the guaranty as solidary between the guarantors; this would have been correct if two (2) guarantors had signed it. The clause we jointly and severally agree and undertake refers to the undertaking of the two (2) parties who are to sign it or to the liability existing between themselves. It does not refer to the undertaking between either one or both of them on the one hand and the petitioner on the other with respect to the liability described under the trust receipt. xxx
Furthermore, any doubt as to the import or true intent of the solidary guaranty clause should be resolved against the petitioner. The trust receipt, together with the questioned solidary guaranty clause, is on a form drafted and prepared solely by the petitioner; Chis participation therein is limited to the affixing of his signature thereon. It is, therefore, a contract of adhesion; as such, it must be strictly construed against the party responsible for its preparation.[18] (Underlining supplied; italicization in the original)

As stated, the dorsal side of the trust receipt dated 30 September 1981 provides: To the Bank of the Philippine Islands In consideration of your releasing to under the terms of this Trust Receipt the goods described herein, I/We, jointly and severally, agree and promise to pay to

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However, respondent banks suit against petitioner Jose Tupaz stands despite the Courts finding that he is liable as guarantor only. First, excussion is not a pre-requisite to secure judgment against a guarantor. The guarantor can still demand deferment of the execution of the judgment [19] against him until after the assets of the principal debtor shall have been exhausted. Second, the [20] benefit of excussion may be waived. Under the trust receipt dated 30 September 1981, petitioner Jose Tupaz waived excussion when he agreed that his liability in [the] guaranty shall be DIRECT AND IMMEDIATE, without any need whatsoever on xxx [the] part [of respondent bank] to take any steps or exhaust any legal remedies xxx. The clear import of this stipulat ion is that petitioner Jose Tupaz waived the benefit of excussion under his guarantee. As guarantor, petitioner Jose Tupaz is liable for El Oro Corporations principal debt and other accessory liabilities (as stipulated in the trust receipt and as provided by law) under the trust receipt dated 30 September 1981. That trust receipt (and the trust receipt dated 9 October 1981) provided for payment of attorneys fees equivalent to 10% of the total amount due and an interest at the rate of 7% per annum, or at such other rate as the bank may fix, from the date due until paid [21] xxx. In the applications for the letters of credit, the parties stipulated that drafts drawn under the [22] letters of credit are subject to interest at the rate of 18% per annum. The lower courts correctly applied the 18% interest rate per annum considering that the face value of each of the trust receipts is based on the drafts drawn under the letters of credit. Based on the guidelines laid down in [23] Eastern Shipping Lines, Inc. v. Court of Appeals, the accrued stipulated interest earns 12% interest per annum from the time of the filing of the Informations in the Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of the date of the finality of this Decision will earn interest at 18% per annum until fully paid since this was the stipulated rate in the applications [24] for the letters of credit. The accounting of El Oro Corporations debts as of 23 January 1992, which the trial court used, is no longer useful as it does not specify the amounts owing under each of the trust receipts. Hence, in the execution of this Decision, the trial court shall compute El Oro Corporations total liability under each of the trust receipts dated 30 September 1981 and 9 October 1981 based on the following formula:[25] TOTAL AMOUNT DUE = [principal + interest + interest on interest] partial payments made[26] Interest = principal x 18 % per annum x no. of years from due date[27] until finality of judgment Interest on interest = interest computed as of the filing of the complaint (17 January 1984) x 12% x no. of years until finality of judgment Attorneys fees is 10% of the total amount computed as of finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 18% per annum until fully paid.

In so delegating this task, we reiterate what we said in Rizal Commercial Banking Corporation v. [28] Alfa RTW Manufacturing Corporation where we also ordered the trial court to compute the amount of obligation due based on a formula substantially similar to that indicated above: The total amount due xxx [under] the xxx contract[] xxx may be easily determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties.

Petitioner Jose Tupazs Acquittal did not Extinguish his Civil Liability

The rule is that where the civil action is impliedly instituted with the criminal action, the civil liability is not extinguished by acquittal [w]here the acquittal is based on reasonable doubt xxx as only preponderance of evidence is required in civil cases; where the court expressly declares that the liability of the accused is not criminal but only civil in nature xxx as, for instance, in the felonies of estafa, theft, and malicious mischief committed by certain relatives who thereby incur only civil liability (See Art. 332, Revised Penal Code); and, where the civil liability does not arise from or is not based upon the criminal act of which the accused was acquitted xxx.[29] (Emphasis supplied)
[30]

Here, respondent bank chose not to file a separate civil action to recover payment under the trust receipts. Instead, respondent bank sought to recover payment in Criminal Case Nos. 8848 and 8849. Although the trial court acquitted petitioner Jose Tupaz, his acquittal did not extinguish his civil liability. As the Court of Appeals correctly held, his liability arose not from the criminal act of which he was acquitted (ex delito) but from the trust receipt contract (ex contractu) of 30 September 1981. Petitioner Jose Tupaz signed the trust receipt of 30 September 1981 in his personal capacity. On the other Matters Petitioners Raise Petitioners raise for the first time in this appeal the contention that El Oro Corporations debts under the trust receipts are not yet due and demandable. Alternatively, petitioners assail the trust receipts as simulated. These assertions have no merit. Under the terms of the trust receipts dated 30 September 1981 and 9 October 1981, El Oro Corporations debts fell due on 29 December 1981 and 8 December 1981, respectively. Neither is there merit to petitioners claim that the trust receipts were simulated. During the trial, petitioners did not deny applying for the letters of credit and subsequently executing the trust receipts to secure payment of the drafts drawn under the letters of credit.

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WHEREFORE, we GRANT the petition in part. We AFFIRM the Decision of the Court of Appeals dated 7 September 2000 and its Resolution dated 18 October 2000 with the following MODIFICATIONS: 1) El Oro Engraver Corporation is principally liable for the total amount due under the trust receipts dated 30 September 1981 and 9 October 1981, as computed by the Regional Trial Court, Makati, Branch 144, upon finality of this Decision, based on the formula provided above; 2) Petitioner Jose C. Tupaz IV is liable for El Oro Engraver Corporations total debt under the trust receipt dated 30 September 1981 as thus computed by the Regional Trial Court, Makati, Branch 144; and 3) Petitioners Jose C. Tupaz IV and Petronila C. Tupaz are not liable under the trust receipt dated 9 October 1981. SO ORDERED. G.R. No. 173526 August 28, 2008

through his representatives and agents, assured respondent that the outstanding account of Macrogen Realty would be paid, and requested respondent to continue working on the construction project. Relying on the assurances made by petitioner, who was no less than the President of Macrogen Realty, respondent continued the construction project. In August 1998, respondent suspended work on the construction project since the conditions that it imposed for the continuation thereof, including payment of unsettled accounts, had not been complied with by Macrogen Realty. On 1 September 1999, respondent instituted with the Construction Industry Arbitration Commission (CIAC) a case for arbitration against Macrogen Realty seeking payment by the latter of its unpaid billings and project costs. Petitioner, through counsel, then conveyed to respondent his purported willingness to amicably settle the arbitration case. On 17 April 2000, before the arbitration case could be set for trial, respondent and Macrogen 5 Realty entered into a Compromise Agreement, with petitioner acting as signatory for and in behalf of Macrogen Realty. Under the Compromise Agreement, Macrogen Realty agreed to pay respondent the total amount of P6,000,000.00 in six equal monthly installments, with each th installment to be delivered on the 15 day of the month, beginning 15 June 2000. Macrogen Realty also agreed that if it would default in the payment of two successive monthly installments, immediate execution could issue against it for the unpaid balance, without need of judgment or decree from any court or tribunal. Petitioner guaranteed the obligations of Macrogen Realty under 6 the Compromise Agreement by executing a Contract of Guaranty in favor of respondent, by virtue of which he irrevocably and unconditionally guaranteed the full and complete payment of the principal amount of liability of Macrogen Realty in the sum of P6,000,000.00. Upon joint motion of respondent and Macrogen Realty, the CIAC approved the Compromise Agreement on 25 April 7 2000. However, contrary to petitioners assurances, Macrogen Realty failed and refused to pay all the monthly installments agreed upon in the Compromise Agreement. Hence, on 7 September 2000, 8 respondent moved for the issuance of a writ of execution against Macrogen Realty, which CIAC granted. On 29 November 2000, the sheriff filed a return stating that he was unable to locate any property of Macrogen Realty, except its bank deposit of P20,242.33, with the Planters Bank, Buendia Branch. Respondent then made, on 3 January 2001, a written demand on petitioner, as guarantor of Macrogen Realty, to pay the P6,000,000.00, or to point out available properties of the Macrogen Realty within the Philippines sufficient to cover the obligation guaranteed. It also made verbal demands on petitioner. Yet, respondents demands were left unheeded. Thus, according to respondent, petitioners obligation as guarantor was already due and demandable. As to Marilyns liability, respondent conten ded that Macrogen Realty was owned and controlled by petitioner and Marilyn and/or by corporations owned and controlled by them. Macrogen Realty is 99% owned by the Asian Appraisal Holdings, Inc. (AAHI), which in turn is 99% owned by Marilyn. Since the completion of the construction project would have redounded to the benefit of both petitioner and Marilyn and/or their corporations; and considering, moreover, Marilyns enormous interest in AAHI, the corporation which controls Macrogen Realty, Marilyn
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BENJAMIN BITANGA, petitioner, vs. PYRAMID CONSTRUCTION ENGINEERING CORPORATION, respondent. DECISION CHICO-NAZARIO, J.: Assailed in this Petition for Review under Rule 45 of the Revised Rules of Court are: (1) the 2 Decision dated 11 April 2006 of the Court of Appeals in CA-G.R. CV No. 78007 which affirmed with 3 modification the partial Decision dated 29 November 2002 of the Regional Trial Court (RTC), Branch 96, of Quezon City, in Civil Case No. Q-01-45041, granting the motion for summary judgment filed by respondent Pyramid Construction and Engineering Corporation and declaring petitioner Benjamin Bitanga and his wife, Marilyn Bitanga (Marilyn), solidarily liable to 4 pay P6,000,000.000 to respondent; and (2) the Resolution dated 5 July 2006 of the appellate court in the same case denying petitioners Motion for Reconsideration. The generative facts are: On 6 September 2001, respondent filed with the RTC a Complaint for specific performance and damages with application for the issuance of a writ of preliminary attachment against the petitioner and Marilyn. The Complaint was docketed as Civil Case No. Q-01-45041. Respondent alleged in its Complaint that on 26 March 1997, it entered into an agreement with Macrogen Realty, of which petitioner is the President, to construct for the latter the Shoppers Gold Building, located at Dr. A. Santos Avenue corner Palayag Road, Sucat, Paraaque City. Respondent commenced civil, structural, and architectural works on the construction project by May 1997. However, Macrogen Realty failed to settle respondents progress billings. Petitioner,
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cannot be unaware of the obligations incurred by Macrogen Realty and/or petitioner in the course of the business operations of the said corporation. Respondent prayed in its Complaint that the RTC, after hearing, render a judgment ordering petitioner and Marilyn to comply with their obligation under the Contract of Guaranty by paying respondent the amount of P6,000,000.000 (less the bank deposit of Macrogen Realty with Planters Bank in the amount of P20,242.23) and P400,000.000 for attorneys fees and expenses of litigation. Respondent also sought the issuance of a writ of preliminary attachment as security for the satisfaction of any judgment that may be recovered in the case in its favor. Marilyn filed a Motion to Dismiss, asserting that respondent had no cause of action against her, since she did not co-sign the Contract of Guaranty with her husband; nor was she a party to the Compromise Agreement between respondent and Macrogen Realty. She had no part at all in the execution of the said contracts. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of another corporation is not by itself a sufficient ground for disregarding the separate personality of the latter corporation. Respondent misread Section 4, Rule 3 of the Revised Rules of Court. The RTC denied Marilyns Motion to Dismiss for lack of merit, and in its Order dated 24 January 2002 decreed that: The Motion To Dismiss Complaint Against Defendant Marilyn Andal Bitanga filed on November 12, 2001 is denied for lack of merit considering that Sec. 4, Rule 3, of the Rules of Court (1997) specifically provides, as follows: "SEC. 4. Spouses as parties. Husband and wife shall sue or be sued jointly, except as provided by law." and that this case does not come within the exception.
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petitioner could not be held liable as guarantor. Consequently, petitioner presented his counterclaim for damages. At the pre-trial held on 5 September 2002, the parties submitted the following issues for the resolution of the RTC: (1) whether the defendants were liable under the contract of guarantee dated April 17, 2000 entered into between Benjamin Bitanga and the plaintiff; (2) whether defendant wife Marilyn Bitanga is liable in this action; (3) whether the defendants are entitled to the benefit of excussion, the plaintiff on the one hand claiming that it gave due notice to the guarantor, Benjamin Bitanga, and the defendants contending that no proper notice was received by Benjamin Bitanga; (4) if damages are due, which party is liable; and (5) whether the benefit of excussion can still be invoked by the defendant guarantor even after the 14 notice has been allegedly sent by the plaintiff although proper receipt is denied. On 20 September 2002, prior to the trial proper, respondent filed a Motion for Summary 15 Judgment. Respondent alleged therein that it was entitled to a summary judgment on account of petitioners admission during the pre-trial of the genuineness and due execution of the Contract of Guaranty. The contention of petitioner and Marilyn that they were entitled to the benefit of excussion was not a genuine issue. Respondent had already exhausted all legal remedies to collect from Macrogen Realty, but its efforts proved unsuccessful. Given that the inability of Macrogen Realty as debtor to pay the amount of its debt was already proven by the return of the 16 writ of execution to CIAC unsatisfied, the liability of petitioner as guarantor already arose. In any event, petitioner and Marilyn were deemed to have forfeited their right to avail themselves of the 17 benefit of excussion because they failed to comply with Article 2060 of the Civil Code when petitioner ignored respondents demand letter dated 3 January 2001 for payment of the amount he 18 guaranteed. The duty to collect the supposed receivables of Macrogen Realty from its creditors could not be imposed on respondent, since petitioner and Marilyn never informed respondent about such uncollected credits even after receipt of the demand letter for payment. The allegation of petitioner and Marilyn that they could not respond to respondents demand letter since they did not receive the same was unsubstantiated and insufficient to raise a genuine issue of fact which could defeat respondents Motion for Summary Judgment. The claim that Marilyn never participated in the transactions that culminated in petitioners execution of the Contract of Guaranty was nothing more than a sham. In opposing respondents foregoing Motion for Summary Judgment, petitioner and Marilyn countered that there were genuinely disputed facts that would require trial on the merits. They appended thereto an affidavit executed by petitioner, in which he declared that his spouse Marilyn could not be held personally liable under the Contract of Guaranty or the Compromise Agreement, nor should her share in the conjugal partnership be made answerable for the guaranty petitioner assumed, because his undertaking of the guaranty did not in any way redound to the benefit of

Petitioner filed with the RTC on 12 November 2001, his Answer to respondents Complaint averring therein that he never made representations to respondent that Macrogen Realty would faithfully comply with its obligations under the Compromise Agreement. He did not offer to guarantee the obligations of Macrogen Realty to entice respondent to enter into the Compromise Agreement but that, on the contrary, it was respondent that required Macrogen Realty to offer some form of security for its obligations before agreeing to the compromise. Petitioner further alleged that his wife Marilyn was not aware of the obligations that he assumed under both the Compromise Agreement and the Contract of Guaranty as he did not inform her about said contracts, nor did he secure her consent thereto at the time of their execution. As a special and affirmative defense, petitioner argued that the benefit of excussion was still available to him as a guarantor since he had set it up prior to any judgment against him. According to petitioner, respondent failed to exhaust all legal remedies to collect from Macrogen Realty the amount due under the Compromise Agreement, considering that Macrogen Realty still had uncollected credits which were more than enough to pay for the same. Given these premise,

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their family. As guarantor, petitioner was entitled to the benefit of excussion, and he did not waive his right thereto. He never received the respondents demand letter dated 3 January 2001, as Ms. Dette Ramos, the person who received it, was not an employee of Macrogen Realty nor was she authorized to receive the letter on his behalf. As a guarantor, petitioner could resort to the benefit of 19 excussion at any time before judgment was rendered against him. Petitioner reiterated that Macrogen Realty had uncollected credits which were more than sufficient to satisfy the claim of respondent. On 29 November 2002, the RTC rendered a partial Decision, the dispositive portion of which provides: WHEREFORE, summary judgment is rendered ordering defendants SPOUSES BENJAMIN BITANGA and MARILYN ANDAL BITANGA to pay the [herein respondent], jointly and severally, the amount of P6,000,000.00, less P20,242.23 (representing the amount garnished bank deposit of MACROGEN in the Planters Bank, Buendia Branch); and the costs of suit. Within 10 days from receipt of this partial decision, the [respondent] shall inform the Court whether it shall still pursue the rest of the claims against the defendants. Otherwise, such claims shall be 20 considered waived. Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted Decision, which the 21 RTC denied in an Order dated 26 January 2003. In time, petitioner and Marilyn filed an appeal with the Court of Appeals, docketed as CA-G.R. CV 78007. In its Decision dated 11 April 2006, the appellate court held: UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed from must be, as it hereby is, MODIFIED to the effect that defendant-appellant Marilyn Bitanga is adjudged not liable, whether solidarily or otherwise, with her husband the defendant-appellant Benjamin Bitanga, under 22 the compromise agreement or the contract of guaranty. No costs in this instance. In holding that Marilyn Bitanga was not liable, the Court of Appeals cited Ramos v. Court of 23 Appeals, in which it was declared that a contract cannot be enforced against one who is not a party to it. The Court of Appeals stated further that the substantial ownership of shares in Macrogen Realty by Marilyn Bitanga was not enough basis to hold her liable. The Court of Appeals, in its Resolution dated 5 July 2006, denied petitioners Motion for 24 Reconsideration of its earlier Decision. Petitioner is now before us via the present Petition with the following assignment of errors: I THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE VALIDITY OF THE PARTIAL SUMMARY JUDGMENT BY THE REGIONAL TRIAL COURT OF QUEZON CITY, BRANCH 96,

DESPITE THE CLEAR EXISTENCE OF DISPUTED GENUINE AND MATERIAL FACTS OF THE CASE THAT SHOULD HAVE REQUIRED A TRIAL ON THE MERITS. II THE COURT OF APPEALS GRAVELY ERRED IN NOT UPHOLDING THE RIGHT OF PETITIONER BENJAMIN M. BITANGA AS A MERE GUARANTOR TO THE BENEFIT OF EXCUSSION UNDER ARTICLES 2058, 2059, 2060, 2061, AND 2062 OF THE CIVIL CODE OF 25 THE PHILIPPINES. As in the two courts below, it is petitioners position that summary judgment is improper in Civil Case No. Q-01-45041 because there are genuine issues of fact which have to be threshed out during trial, to wit: (A) Whether or not there was proper service of notice to petitioner considering the said letter of demand was allegedly received by one Dette Ramos at Macrogen office and not by him at his residence. (B) Whether or not petitioner is entitled to the benefit of excussion? We are not persuaded by petitioners arguments. Rule 35 of the Revised Rules of Civil Procedure provides: Section 1. Summary judgment for claimant. A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the pleading in answer thereto has been served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof. For a summary judgment to be proper, the movant must establish two requisites: (a) there must be no genuine issue as to any material fact, except for the amount of damages; and (b) the party presenting the motion for summary judgment must be entitled to a judgment as a matter of law. Where, on the basis of the pleadings of a moving party, including documents appended thereto, no genuine issue as to a material fact exists, the burden to produce a genuine issue shifts to the 27 opposing party. If the opposing party fails, the moving party is entitled to a summary judgment. In a summary judgment, the crucial question is: are the issues raised by the opposing party not 28 genuine so as to justify a summary judgment? First off, we rule that the issue regarding the propriety of the service of a copy of the demand letter on the petitioner in his office is a sham issue. It is not a bar to the issuance of a summary judgment in respondents favor. A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue which is a sham, fictitious, contrived or false claim. To forestall summary judgment, it
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is essential for the non-moving party to confirm the existence of genuine issues, as to which he has 29 substantial, plausible and fairly arguable defense, i.e., issues of fact calling for the presentation of evidence upon which reasonable findings of fact could return a verdict for the non-moving party, although a mere scintilla of evidence in support of the party opposing summary judgment will be insufficient to preclude entry thereof. Significantly, petitioner does not deny the receipt of the demand letter from the respondent. He merely raises a howl on the impropriety of service thereof, stating that "the address to which the said letter was sent was not his residence but the office of Macrogen Realty, thus it cannot be considered as the correct manner of conveying a letter of demand upon him in his personal 30 capacity." Section 6, Rule 13 of the Rules of Court states: SEC. 6. Personal service. Service of the papers may be made by delivering personally a copy to the party or his counsel, or by leaving it in his office with his clerk or with a person having charge thereof. If no person is found in his office, or his office is not known, or he has no office, then by leaving the copy, between the hours of eight in the morning and six in the evening, at the partys or counsels residence, if known, with a person of sufficient age and discretion then residing therein. The affidavit of Mr. Robert O. Pagdilao, messenger of respondents counsel states in part: 2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then one of the Associates of the ACCRA Law Offices, instructed me to deliver to the office of Mr. Benjamin Bitanga a letter dated 3 January 2001, pertaining to Construction Industry Arbitration Commission (hereafter, "CIAC") Case No. 9956, entitled "Pyramid Construction Engineering Corporation vs. Macrogen Realty Corporation." 3. As instructed, I immediately proceeded to the office of Mr. Bitanga located at the 12 Floor, Planters Development Bank Building, 314 Senator Gil Puyat Avenue, Makati City. I delivered the said letter to Ms. Dette Ramos, a person of sufficient age and discretion, who introduced herself as 31 one of the employees of Mr. Bitanga and/or of the latters companies. (Emphasis supplied.) We emphasize that when petitioner signed the Contract of Guaranty and assumed obligation as guarantor, his address in the said contract was the same address where the demand letter was 32 served. He does not deny that the said place of service, which is the office of Macrogen, was also the address that he used when he signed as guarantor in the Contract of Guaranty. Nor does he deny that this is his office address; instead, he merely insists that the person who received the letter and signed the receiving copy is not an employee of his company. Petitioner could have easily substantiated his allegation by a submission of an affidavit of the personnel manager of his office that no such person is indeed employed by petitioner in his office, but that evidence was not 33 submitted. All things are presumed to have been done correctly and with due formality until the contrary is proved. This juris tantum presumption stands even against the most well-reasoned 34 allegation pointing to some possible irregularity or anomaly. It is petitioners burden to overcome the presumption by sufficient evidence, and so far we have not seen anything in the record to support petitioners charges of anomaly beyond his bare allegation. Petitioner cannot now be heard
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to complain that there was an irregular service of the demand letter, as it does not escape our attention that petitioner himself indicated "314 Sen. Gil Puyat Avenue, Makati City" as his office address in the Contract of Guaranty. Moreover, under Section 6, Rule 13 of the Rules of Court, there is sufficiency of service when the papers, or in this case, when the demand letter is personally delivered to the party or his counsel, or by leaving it in his office with his clerk or with a person having charge thereof, such as what was done in this case. We have consistently expostulated that in summary judgments, the trial court can determine a genuine issue on the basis of the pleadings, admissions, documents, affidavits or counter affidavits submitted by the parties. When the facts as pleaded appear uncontested or undisputed, then there 35 is no real or genuine issue or question as to any fact, and summary judgment is called for. The Court of Appeals was correct in holding that: Here, the issue of non-receipt of the letter of demand is a sham or pretended issue, not a genuine and substantial issue. Indeed, against the positive assertion of Mr. Roberto O. Pagdilao (the private courier) in his affidavit that he delivered the subject letter to a certain Ms. Dette Ramos who introduced herself as one of the employees of [herein petitioner] Mr. Benjamin Bitanga and/or of the latters companies, said [petitioner] merely offered a bare denial. But bare denials, unsubstantiated by facts, which would be admissible in evidence at a hearing, are not sufficient to raise a genuine 36 issue of fact sufficient to defeat a motion for summary judgment. We further affirm the findings of both the RTC and the Court of Appeals that, given the settled facts of this case, petitioner cannot avail himself of the benefit of excussion. Under a contract of guarantee, the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. The guarantor who pays for a debtor, in turn, must be indemnified by the latter. However, the guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor and resorted to all the legal 37 remedies against the debtor. This is what is otherwise known as the benefit of excussion. Article 2060 of the Civil Code reads: Art. 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the 38 debt. The afore-quoted provision imposes a condition for the invocation of the defense of excussion. Article 2060 of the Civil Code clearly requires that in order for the guarantor to make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment and point out to the creditor available property of the debtor within the Philippines sufficient to cover 39 the amount of the debt.

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It must be stressed that despite having been served a demand letter at his office, petitioner still failed to point out to the respondent properties of Macrogen Realty sufficient to cover its debt as required under Article 2060 of the Civil Code. Such failure on petitioners part forecloses his right to set up the defense of excussion. Worthy of note as well is the Sheriffs return stating that the only property of Macrogen Realty which he found was its deposit of P20,242.23 with the Planters Bank. Article 2059(5) of the Civil Code thus finds application and precludes petitioner from interposing the defense of excussion. We quote: Art. 2059. This excussion shall not take place: xxxx (5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation. As the Court of Appeals correctly ruled: We find untenable the claim that the [herein petitioner] Benjamin Bitanga cannot be compelled to pay Pyramid because the Macrogen Realty has allegedly sufficient assets. Reason: The said [petitioner] had not genuinely controverted the return made by Sheriff Joseph F. Bisnar, who affirmed that, after exerting diligent efforts, he was not able to locate any property belonging to the Macrogen Realty, except for a bank deposit with the Planters Bank at Buendia, in the amount ofP20,242.23. It is axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt is proven by the return of the writ of execution that had not 40 been unsatisfied. WHEREFORE, premises considered, the instant petition is DENIED for lack of merit. The Decision of the Court of Appeals dated 11 April 2006 and its Resolution dated 5 July 2006 are AFFIRMED. Costs against petitioner. SO ORDERED. Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ., concur.

Penned by Associate Justice Renato C. Dacudao with Associate Justices Mario L. Guaria III and Fernanda Lampas-Peralta, concurring. Rollo, pp. 37-52.
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Penned by Judge Lucas P. Bersamin (now a Justice of the Court of Appeals). Rollo, pp. 61-64. Id. at 93. GUARANTY
th

This Guaranty made and executed this 17 day of April 2000 at Makati City, Philippines, by and between: Benajamin M. Bitanga, of legal age, Filipino, married, with office address located at 314 Sen. Gil Puyat Avenue, Makati City (hereafter referred to as the "Guarantor") - in favor of PYRAMID CONSTRUCTION ENGINEERING CORPORATION, a corporation organized and existing under the laws of the Republic of the Philippines, with office address located at Pyramid Building, 124 Kaingin Road, Balintawak, Quezon City, represented herein by its duly authorized representative, Mr. Engracio Ang, Jr. (hereafter referred to as "PYRAMID"). W I T N E S S E T H: That WHEREAS, on 17 April 2000, Pyramid and Macrogen Realty Corporation (hereafter referred to as the "Debtor") executed a Compromise Agreement (hereafter referred to as "Agreement"), acknowledged before Jose Vicente B. Salazar Notary Public for Makati City, as Doc. No. 118, Page 25, Book No. 2, Series of 2000; WHEREAS, in said Agreement, Macrogen, in order to put an end to CIAC Case No. 36-99, agreed to pay and Pyramid has agreed to accept the total amount of SIX MILLION PESOS (P6,000,000.00), payable in six monthly installments, on the 15th day of each month, beginning in June 15, 2000; WHEREAS, the Guarantor agrees to execute and deliver to Pyramid an irrevocable and unconditional guaranty for the due and punctual payment of the principal amount of Six Million Pesos (P6,000,000.00) due and payable by the Debtor to Pyramid under the Agreement.

Footnotes
1

Appeal by Certiorari to the Supreme Court.

NOW, THEREFORE, for and in consideration of the foregoing and for other good and valuable consideration, receipt of which is hereby acknowledged by the Guarantor, the latter agrees as follows: SECTION 1. SCOPE OF GUARANTY

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1.1. The Guarantor hereby absolutely, unconditionally and irrevocably guarantees to Pyramid the full and complete payment by Debtor of the principal amount of Six Million pesos (P6,000,000.00). 1.2. The Guarantor irrevocably and unconditionally agrees that this Guaranty shall be a continuing guaranty and as such shall remain in full force and effect and be binding on the Guarantor until all sums payable by the Debtor under and pursuant to the Agreement shall have been fully paid by the Debtor. (Rollo, pp. 136-137.)
7

23

G.R. No. 132196, 9 December 2005, 477 SCRA 85. Rollo, pp. 63-64. Id. at 443. Id. at 445-446. Equitable PCI Bank v. Ong, G.R. No. 156207, 15 September 2006, 502 SCRA 127, 129.

24

25

26

Rollo, p. 101. Id. at 104. Id. at 106.

27

28

Wood Technology Corporation v. Equitable Banking Corporation, G.R. No. 153867, 17 February 2005, 451 SCRA 725, 733.
29

10

Agbada v. Inter-Urban Developers, Inc., 438 Phil. 168, 190-191 (2002). Records, p. 402. Rollo, p. 201. Id. at 98. Omnia praesemuntur rite et solemniter esse acta donee probetur in contrarium. Gold Line Transit, Inc. v. Ramos, 415 Phil. 492, 502-503 (2001). Rivera v. Solidbank, G.R. No. 163269, 19 April 2006, 487 SCRA 512, 535. Rollo, pp. 47-48.

Id. at 202.
30

11

Id. at 120.
31

12

Rollo, p. 124.
32

13

Id. at 113.
33

14

Id. at 125-126.
34

15

Id. at 127.
35

16

Machetti v. Hospicio de San Jose, 43 Phil. 297, 301 (1922).


36

17

Article 2060. In order that the guarantor may make use of the benefit of excussion, he must set it up against the creditor upon the latters demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt.
18

37

JN Development Corporation v. Philippine Export and Foreign Loan Guarantee Corporation,G.R. No. 151060, 31 August 2005, 468 SCRA 554, 564.
38

Luzon Steel Corporation v. Sia, 138 Phil. 62, 68 (1969). Article 2062 of the Civil Code.

Other relevant provisions of the Civil Code reads:

19

20

The RTC was referring to the respondents prayer for attorneys fees and expenses of litigation in its Complaint. The records, however, do not show that respondent acted pursuant to this directive of the RTC. Rollo, p. 374.
21

Art. 2058. The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. Art. 2061. The guarantor having fulfilled all the conditions required in the preceding article, the creditor who is negligent in exhausting the property pointed out shall suffer the loss, to the extent of said property, for the insolvency of the debtor resulting from such negligence. Art. 2062. In every action by the creditor, which must be against the principal debtor alone, except in the cases mentioned in article 2059, the former shall ask the court to notify the guarantor of the action. The guarantor may appear so that he may, if he so desire, set up such defenses as are

Rollo, p. 376. Id. at 51-52.

22

128

granted him by law. The benefit of excussion mentioned in article 2058 shall always be unimpaired, even if judgment should be rendered against the principal debtor and the guarantor in case of appearance by the latter.
39

The Surety Undertaking signed by Jeanette states: I/WE, the undersigned, bind myself/ourselves jointly and severally with Mr. Danilo Alto to pay SECURITY DINERS INTERNATIONAL CORPORATION, hereinafter referred to as Security Diners all the obligations and charges including but not limited to fees, interest, attorneys fees and all other costs incurred by him/her in connection with the use of the DINERS CLUB CARD in accordance with the terms and conditions governing the issuance and use of the Diners Club Card. Any change or novation in the agreement or any extension of time granted by SECURITY DINERS to pay such obligations, charges and fees, shall not release me/us from this Surety Undertaking, it being understood that said undertaking is a continuing one and shall subsist and bind me/us until all such obligations, charges and fees have been fully paid and satisfied. It is understood that the indication of a credit limit to the cardholder shall not relieve me/us of liability for charges and all other amounts voluntarily incurred by the cardholder in excess of the credit limit. On the basis of the completed and signed Application Form and Surety Undertaking, the SDIC issued to Danilo Diners Card No. 36510293216-0006. The latter used this card and initially paid his obligations to SDIC. On February 8, 1988, Danilo wrote SDIC a letter (Exhibit B) requesting it to upgrade his Regular (Local) Diners Club Card to a Diamond (Edition) one. As a requirement of SDIC, Danilo secured from Jeanette her approval. The latter obliged and so on March 2, 1988, she signed a Note (Exhibit C) which states: This certifies that I, Jeanette D. Molino, approve of the request of Danilo and Gloria Alto with Card No. 3651-203216-0006 and 3651-203412-5007 to upgrade their card from regular to diamond edition. Danilos request was granted and he was issued a Diamond (Edition) Diners Club Card. He used this card and made purchases (Exhibits D, D-1 to D-7) from member establishments. On October 1, 1988 Danilo had incurred credit charged plus appropriate interest and service charges in the aggregate amount of P166,408.31. He defaulted in the payment of this obligation. SDIC demanded of Danilo and Jeanette to pay said obligation but they did not pay. So, on November 9, 1988, SDIC filed an action to collect said indebtedness against Danilo and Jeanette. This was docketed in the Regional Trial Court of Makati, Branch 145 as Civil Case No. [2] 88-2381. xxx
Defendant Danilo Alto failed to file an Answer, and during the pre-trial conference respondent moved to have the complaint dismissed against him, without prejudice to a subsequent re-filing. Petitioner was left as the lone defendant, sued in her capacity as surety of Danilo. In the Answer with Compulsory Counterclaim that she filed with the RTC, petitioner claimed that her liability under the Surety Undertaking was limited to P10,000.00 and that she did not expressly and categorically agree to act as surety for Danilo in an amount higher than P10,000.00. [3] By way of counterclaim, she asked for moral and exemplary damages.

JN Development Corporation v. Philippine Export and Foreign Loan Guarantee Corporation, supra note 37.
40

Rollo, p. 48.

[G.R. No. 136780. August 16, 2001]

JEANETTE D. MOLINO, petitioner, vs. SECURITY DINERS INTERNATIONAL CORPORATION, respondent. DECISION
GONZAGA-REYES, J.:

Assailed by this petition for review on certiorari is the decision of the Court of Appeals dated September 28, 1998[1] which held petitioner liable as surety for the outstanding credit card debts of Danilo Alto with herein respondent corporation. The decision of the Court of Appeals satisfactorily sums up the facts that led to the filing of this case:

The Security Diners International Corporation (SDIC) operates a credit card system under the name of Diners Club through which it extends credit accommodation to its cardholders for the purchase of goods and payment of services from its member establishments to be reimbursed later on by the cardholder upon proper billing. There are two types of credit cards issued: one, the Regular (Local) Card which entitles the cardholder to purchase goods and pay services from member establishments in an amount not exceeding P10,000.00; and two, the Diamond (Edition) Card which entitles the cardholder to purchase goods and pay services from member establishments in unlimited amounts. One of the requirements for the issuance of either of these cards is that an applicant should have a surety. On July 24, 1987, Danilo A. Alto applied for a Regular (Local) Card with SDIC. He got as his surety his own sister-in-law Jeanette Molino Alto. Thus, Danilo signed the printed application form (Exhibit A) and Jeanette signed the Surety Undertaking (Exhibit A -5). Attached to the Application Form was an Agreement (Use of Diners Club Card), paragraph 16 of which reads: 16. SURETY. The cardholder shall furnish an adequate surety or sureties acceptable to Security Diners who shall be jointly and severally liable with the cardholder to pay Security Diners all the obligations and charges incurred and credit extended on the basis of the card. In the event the surety/sureties furnished the cardholder are discharged the cardholder must furnish a new surety or sureties acceptable to Security Diners within thirty (30) days. Otherwise the cardholders privileges shall be automatically terminated in accordance with Section 11 hereof.

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On August 19, 1991, the trial court rendered a decision dismissing the complaint for failure of respondent to prove its case by a preponderance of the evidence. It found that while petitioner clearly bound herself as surety under the terms of Danilo Altos Regular Diners Club Card, there was no evidence that after the card had been upgraded to Diamond (Edition) petitioner consented or agreed to act as surety for Danilo. Exhibit C or Exhibit 1, inter alia, which was a note bearing petitioners signature certifying to her approval of Danilos request to have his card upgraded should be read simply as a statement of no objection to his request for upgrading, and not as an assumption of liability for the debts that Danilo may later owe through the said card.[4] The trial court also took note of the testimony of Alfredo Vicente, an officer of respondent, who opined that the consent to be bound as surety to an upgraded card should be categorical[5] and not in a simple no objection form. The trial court went on further to state that petitioner was not liable for any amount, not even for P10,000.00 which is the maximum credit limit for Regular Diners Club Cards, since at the time of the upgrading Danilo had no outstanding credit card debts.[6] This is evident from the fact that Danilos request for upgrading was approved, since one of the requirements for the approval of a request for the upgrading of a credit card from Regular to Diamond is that the applicant must have paid all his billings for the last three months prior to his request. Hence, the trial court disposed of the case with these pronouncements:

WHEREFORE, the appealed Decision is REVERSED and one is rendered ordering defendantappellee Jeanette D. Molino-Alto to pay plaintiff-appellant Security Diners International, Inc. the following:
1. The sum of P166,408.31 plus interest of 3% per annum and 2% per month from November 9, 1988 until the obligation is fully paid; 2. The amount equivalent to 10% of the obligation mentioned in the preceding paragraph as attorneys fees; and 3. Costs.

SO ORDERED.

[9]

Petitioners motion for reconsideration of the above decision was denied for lack of merit on December 1, 1998. Hence, the petition before us, which assigns the following errors:
I

WHEREFORE, judgment is rendered dismissing the complaint against defendant Jeanette D. Molino-Alto for failure of the plaintiff to prove its case by a clear preponderance of evidence. Said defendants counterclaim is also dismissed. No pronouncement as to costs. SO ORDERED.
[7]

The material findings of the Court of Appeals, which are contrary to those of the lower court, are erroneous.
II

The findings of the Court of Appeals are conflicting and/or without citation of specific evidence on which they are based.
III

The Court of Appeals found contrary to the lower court, and declared that the Surety Undertaking signed by petitioner when Danilo Alto first applied for a Regular Diners Club Card clearly applied to the unpaid purchases of Danilo Alto under the Diamond card. In holding thus, the Court of Appeals referred to the terms of the said Surety Undertaking, which stated that any change or novation in the agreement on the use of the Diners Club card does not release the surety from his obligations, it being understood that the undertaking is a continuing one which subsists until all obligations and charges under the subject credit card are paid and satisfied. It also cited Pacific Banking Corporation vs. Intermediate Appellate Court,[8] a 1991 decision which held the surety liable to the extent of the credit cardholders indebtedness, under the clear terms of the Guarantors Undertaking that the surety signed with the credit card company. The Court of Appeals further declared that it was erroneous of the trial court to conclude that petitioner was completely relieved of liability under Danilo Altos credit card since the Surety Undertaking she signed remained valid and enforceable even after the upgrading of the said card; besides, petitioner herself admitted that she was liable to the extent of P10,000.00. Additionally, the Court of Appeals reduced the attorneys fees (stipulated in the Agreement for the Use of Diners Club Card) from 25% to 10% of the amount due, judging this to be a more reasonable rate under the circumstances. The dispositive portion of the decision of the Court of Appeals reads:

The Court of Appeals erred in disregarding the applicable legal principle established by this Honorable Court that, unlike in ordinary solidary debtors, the surety does not incur liability unless [10] the principal debtor is held liable.
Petitioner posits that she did not expressly give her consent to be bound as surety under the upgraded card. She points out that the note she signed, marked as Exhibit C, registering her approval of the request of Danilo Alto to upgrade his card, renders the Surety Undertaking she signed under the terms of the previous card without probative value, immaterial and irrelevant as it covers only the liability of the surety in the use of the regular credit card by the principal debtor xxx .[11] She argues further that because the principal debtor, Danilo Alto, was not held liable, having been dropped as a defendant, she could not be said to have incurred liability as surety. The petition is devoid of merit. The resolution of whether petitioner is liable as surety under the Diamond card revolves around the effect of the upgrading by Danilo Alto of his card. Was the upgrading a novation of the original agreement governing the use of Danilo Altos first credit card, as to extinguish that obligation and the Surety Undertaking which was simply accessory to it?

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Novation, as a mode of extinguishing obligations, may be done in two ways: by explicit declaration, or by material incompatibility (implied novation). As we stated in Fortune Motors vs. Court of Appeals, supra:

obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor by Pacific Banking Corporation. xxx
xxxxxxxxxxx

xxx The test of incompatibility is whether the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Novation must be established either by the express terms of the new agreement or by the acts of the parties clearly demonstrating the intent to dissolve the old obligation as a consideration for the emergence of the new one. The will to novate, whether totally or partially, must appear by express agreement of the parties, or by their acts which are too clear or unequivocal to be mistaken. There is no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo Alto, basically since it was committed with the intent of cancelling and replacing the said card. However, the novation did not serve to release petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first credit card. The nature and extent of petitioners obligations are set out in clear and unmistakable terms in the Surety Undertaking. Thus: 1. She bound herself jointly and severally with Danilo Alto to pay SDIC all obligations and charges in the use of the Diners Club Card, including fees, interest, attorneys fees, and costs; 2. She declared that any change or novation in the Agreement or any extension of time granted by SECURITY DINERS to pay such obligation, charges, and fees, shall not release (her) from this Surety Undertaking; 3. (S)aid undertaking is a continuous one and shall subsist and bind (her) until all such obligations, charges and fees have been fully paid and satisfied; and 4. The indication of a credit limit to the cardholder shall not relieve (her) of liability for charges and [12] all other amounts voluntarily incurred by the cardholder in excess of said credit limit.
We cannot give any additional meaning to the plain language of the subject undertaking. The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. [13] Article 1370 of the Civil Code provides: 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. This case is no different from Pacific Banking Corporation vs. IAC, supra, correctly applied by the Court of Appeals, which involved a Guarantors Undertaking (although thus denominated, it was in substance a contract of surety) signed by the husband for the credit card application of his wife. Like herein petitioner, the husband also argued that his liability should be limited to the credit limit allowed under his wifes card but the Court declared him liable to the full extent of his wifes indebtedness. Thus:

It is likewise not disputed by the parties that the credit limit granted to Celia Regala was P2,000.00 per month and that Celia Regala succeeded in using the card beyond the original period of its effectivity, October 29, 1979. We do not agree, however, that Roberto Jr.s liability should be limited to that extent. Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself up to the extent of the debtors (Celias) indebtedness likewise expressly waiving any discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card. Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the Guarantors Undertaking Roberto signed, thus: x x x. Any changes of or novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisified or paid. (italics supplied)
As a last-ditch measure, petitioner asseverates that, being merely a surety, a pronouncement should first be made declaring the principal debtor liable before she herself can be proceeded against. The argument, which is hinged upon the dropping of Danilo as defendant in the complaint, is bereft of merit. The Surety Undertaking expressly provides that petitioners liability is solidary. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable.[14] Although the contract of a surety is in essence secondary only to a valid principal obligation, his liability to the creditor is direct, primary and absolute; he becomes liable for the debt and duty of another although he possesses no direct or personal interest over the obligations nor does he receive any benefit therefrom.[15] There being no question that Danilo Alto incurred debts of P166,408.31 in credit card advances, an obligation shared solidarily by petitioner, respondent was certainly within its rights to proceed singly against petitioner, as surety and solidary debtor, without prejudice to any action it may later file against Danilo Alto, until the obligation is fully satisfied. This is so provided under Article 1216 of the Civil Code:

The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may be subsequently directed against the others, so long as the debt has not been fully collected.
Petitioner is a graduate of business administration, and possesses considerable work experience in several banks. She knew the full import and consequence of the Surety Undertaking that she executed. She had the option to withdraw her suretyship when Danilo upgraded his card to one that permitted unlimited purchases, but instead she approved the upgrading. While we commiserate in the financial predicament she now faces, it is also evident that the liability she incurred is only the legitimate consequence of an undertaking that she freely and intelligently obliged to. Prospective sureties to credit card applicants would be well-advised to study carefully the terms of the agreements prepared by the credit card companies before giving their consent, and pay heed to stipulations that could lead to onerous effects, like in the present case where the credit applied for was limitless. At the same time, it bears articulating that although courts in appropriate cases

We need not look elsewhere to determine the nature and extent of private respondent Roberto Regala, Jr.s undertaking. As a surety he bound himself jointly and severally with the debtor Celia Regala to pay the Pacific Banking Corporation upon demand, any and all indebtedness,

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may equitably reduce the award for penalty as provided under such suretyship agreements if the same is iniquitous or unconscionable,[16] we are unable to give relief to petitioner by way of reducing the amount of the principal liability as surety under the circumstances of this case. WHEREFORE, the petition is dismissed for lack of merit. The decision of the Court of Appeals is AFFIRMED in all respects. SO ORDERED. Melo, (Chairman), Panganiban, and Sandoval-Gutierrez, JJ., concur. Vitug, J., in the result, (pro hac vice).

3. cost of suit. SO ORDERED.2 The Regional Trial Court (RTC) of Makati, Branch 135, in its Decision dated July 10, 20003 and Order dated October 2, 2000,4 affirmed the MTC Decision. The CA also affirmed the lower courts decisions when it dismissed the petition for review filed before it. The CA, however, deleted the award of attorneys fees inasmuch as the MTC Decision does not contain any justification for its award.5 The CA denied petitioners motion for reconsideration.6 Petitioner merely reiterated in the present petition the arguments he previously raised before the lower courts and the appellate court. Petitioner submits the following contentions: 1. Petitioner is not liable for the purchases made by Lodovica after the expiration of the original term of the credit card because he was not notified of the renewal of the credit and the increase of the credit limit; 2. The surety undertaking, being a contract of adhesion, should have been taken against Respondent; 3. Petitioner is not liable for the purchases made by Lodovica after the expiration of the original term of the credit card because the circumstances at the time he agreed to act as surety for Lodovica were no longer existing at the time of the renewal.7 Petitioners case is not a novel one. In the analogous case of Molino v. Security Diners International Corporation,8the Court already had the occasion to rule that suretyship under these circumstances is a continuing one and the surety is bound by the liabilities of the principal until it has been fully paid. In the Molino case, Jeanette Molino, the petitioner, acted as a surety for her brother-in-law, Danilo Alto, in his application for a local credit card with the Security Diners International Corporation (SDIC). The card was subsequently upgraded and the credit limit increased. When Alto failed to pay his liability under the credit card, SDIC filed an action for collection against Alto and Molino. The Court summed up the issues as: whether Molino is liable as surety, and whether the upgrading of the card constituted a novation that will extinguish her obligation and undertaking, which was resolved in this wise, viz.: There is no doubt that the upgrading was a novation of the original agreement covering the first credit card issued to Danilo Alto, basically since it was committed with the intent of cancelling and replacing the said card. However, the novation did not serve to release petitioner from her surety obligations because in the Surety Undertaking she expressly waived discharge in case of change or novation in the agreement governing the use of the first credit card. The nature and extent of petitioners obligations are set out in clear and unmistakable terms in the Surety Undertaking. Thus: 1. She bound herself jointly and severally with Danilo Alto to pay SDIC all obligations and charges in the use of the Diners Club Card, including fees, interest, attorneys fees, and costs;

G.R. NO. 147275

March 31, 2006

VICENTE ONGKEKO, Petitioner, vs. BPI EXPRESS CARD CORPORATION, Respondent. DECISION AUSTRIA-MARTINEZ, J.: Assailed in the present petition for review on certiorari are the Decision dated January 25, 2001 and Resolution dated February 23, 2001, rendered by the Court of Appeals (CA) in CA-G.R. SP No. 61427.1 The facts that gave rise to the present case are undisputed. On September 13, 1990, Lina Lodovica (Lodovica) applied for a credit card with respondent, with Vicente Ongkeko (petitioner) acting as surety. Her application was approved and she was originally given a P3,000.00 credit limit. When Lodovicas card expired in 1991, it was renewed and her credit limit was increased to P10,000.00. As of May 12, 1996, Lodovica had an outstanding balance of P22,476.61. On May 28, 1996, respondent brought an action for sum of money against Lodovica and petitioner. Petitioner filed his Answer admitting his undertaking, but he maintained that he can only be liable for the original credit limit ofP3,000.00, and that the renewal of the credit card without his consent extinguished his undertaking. The Metropolitan Trial Court (MTC) of Makati, Branch 66, rendered judgment on January 31, 2000, finding petitioner liable. The dispositive portion of the Decision reads: WHEREFORE, judgment is rendered ordering defendant Ongkeko to pay plaintiff the following: 1. the amount of P22,476.61 as of May 12, 1996 plus the interest of 3% per month and 1% penalty charge per month from date of the filing of the complaint on May 28, 1996 until the account is fully paid; 2. 25% of the amount due as attorneys fees or P10,000.00 whichever is lesser;

132

2. She declared that "any change or novation in the Agreement or any extension of time granted by SECURITY DINERS to pay such obligation, charges, and fees, shall not release (her) from this Surety Undertaking"; 3. "(S)aid undertaking is a continuous one and shall subsist and bind (her) until all such obligations, charges, and fees have been fully paid and satisfied"; and 4. "The indication of a credit limit to the cardholder shall not relieve (her) of liability for charges and all other amounts voluntarily incurred by the cardholder in excess of said credit limit." We cannot give any additional meaning to the plain language of the subject undertaking. The extent of a suretys liability is determined by the language of the suretyship contract or bond itself. Article 1370 of the Civil Code provides: "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." This case is no different from Pacific Banking Corporation vs. IAC, supra, correctly applied by the Court of Appeals, which involved a Guarantors Undertaking (although thus denominated, it was in substance a contract of surety) signed by the husband for the credit card application of his wife. Like herein petitioner, the husband also argued that his liability should be limited to the credit limit allowed under his wifes card but the Court declared him liable to the full extent of his wifes indebtedness. x x x x x x Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself up to the extent of the debtors (Celias) indebtedness likewise expressly waiving any "discharge in case of any change or no vation of the terms and conditions in connection with the issuance of the Pacificard credit card." Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the "Guarantors Undertaking" Roberto signed, thus: x x x9(Emphasis supplied) Petitioners undertaking in this case is similar to that of the petitioner in the Molino case and the Pacific Banking Corporation case10 cited therein. It reads, in part: SURETY UNDERTAKING I/We, the undersigned, bind myself/ourselves, jointly and severally with ____________ and/or his/her extension card user, to pay the BPI EXPRESS CARD CORP. all the obligations, charges, and liabilities incurred under and with the use of the BPI EXPRESS CREDIT CARD or the renewals and extensions thereof, issued to said credit cardholder and/or extension user by the BPI EXPRESS CREDIT CARD in accordance with the terms, conditions, covenance and stipulations governing the issuance and use of the BPI EXPRESS CREDIT CARD set forth herewith. Notwithstanding any change or novation in the terms and conditions governing the issuance and use of the BPI EXPRESS CREDIT CARD, or any extension of time given the cardholder and/or extension user of the card to pay such obligations, charges and liabilities this undertaking shall continue to be binding upon me/us until all such obligations, charges and liabilities shall have been fully paid and satisfied.11 (Underscoring supplied) Petitioners undertaking is clear and concise. He solidarily obliged himself to pay respondent all the liabilities incurred under the credit card account, whether under the principal, renewal, or extension card issued, regardless of the changes or novation in the terms and conditions in the issuance and use of the credit card. Petitioners liability shall be extinguished only when the obligations are fully paid and satisfied.

Petitioner cannot seek sanctuary in his arguments considering that the terms and conditions of his undertaking are unambiguous and well defined; there is no room for any interpretation only application. Given that Lodovica reneged on her obligations covered by the credit card account, petitioner is, therefore, liable. Indeed, petitioners surety undertaking partakes the nature of a contract of adhesion, in that the stipulations were unilaterally prepared and imposed by respondent on a take-it-or-leave-it basis; however, the Court has also ruled that such a contract is "as binding as ordinary contracts, the reason being that the party who adheres to the contract is free to reject it entirely."12 Petitioner is the employer of Lodovica. It is safe to assume that he takes great care of his affairs and he very well knows the potential consequences of his acts. He took on the responsibility freely and intelligently, and whatever liability he may have incurred in this case is one within bounds of the law. Finally, in the Molino case, the Court took time to exhort prospective sureties to exercise caution in signing surety undertakings prepared by credit card companies, and to read carefully the terms and conditions of the agreement. The Court finds the present case another opportune time to reiterate said exhortation, to wit: x x x Prospective sureties to credit card applicants would be well-advised to study carefully the terms of the agreements prepared by the credit card companies before giving their consent, and pay heed to stipulations that could lead to onerous effects x x x.13 WHEREFORE, the petition is DENIED for lack of merit. Double costs against petitioner. SO ORDERED.

[ G.R. No. 154183, August 07, 2003 ]


SPOUSES VICKY TAN TOH AND LUIS TOH, PETITIONERS, VS. SOLID BANK CORPORATION, FIRST BUSINESS PAPER CORPORATION, KENNETH NG LI AND MA. VICTORIA NG LI, RESPONDENTS. DECISION

BELLOSILLO, J.: RESPONDENT SOLID BANK CORPORATION AGREED TO EXTEND an "omnibus line" credit facility worth P10 million in favor of respondent First Business Paper Corporation (FBPC). The terms and conditions of the agreement as well as the checklist of documents necessary to open the credit line were stipulated in a "letteradvise" of the Bank dated 16 May 1993 addressed to FBPC and to its President, respondent Kenneth Ng Li.[1] The "letter-advise"[2] was effective upon "compliance with the documentary requirements."[3] The documents essential for the credit facility and submitted for this purpose were the (a) Board Resolution or excerpts of the Board of Directors Meeting, duly ratified by a Notary Public, authorizing the loan and security arrangement as well as designating the officers to negotiate and sign for FBPC specifically stating authority to mortgage, pledge and/or assign the properties of the corporation; (b) agreement to purchase Domestic Bills; and, (c) Continuing Guaranty for any and all amounts signed by petitioner-spouses Luis Toh and Vicky Tan Toh, and respondent-spouses Kenneth and Ma. Victoria Ng Li.[4] The spouses Luis Toh and Vicky Tan Toh were then Chairman of the Board and Vice-President, respectively, of FBPC, while respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li were President and General Manager, respectively, of the same corporation.[5] It is not disputed that the credit facility as well as its terms and conditions was not cancelled or terminated, and that there was no prior notice of such fact as required in the "letter-advise," if any was done.

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On 10 May 1993, more than thirty (30) days from date of the "letter-advise," petitioner-spouses Luis Toh and Vicky Tan Toh and respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li signed the required Continuing Guaranty, which was embodied in a public document prepared solely by respondent Bank. [6] The terms of the instrument defined the contract arising therefrom as a surety agreement and provided for the solidary liability of the signatories thereto for and in consideration of "loans or advances" and "credit in any other manner to, or at the request or for the account" of FBPC. The Continuing Guaranty set forth no maximum limit on the indebtedness that respondent FBPC may incur and for which the sureties may be liable, stating that the credit facility "covers any and all existing indebtedness of, and such other loans and credit facilities which may hereafter be granted to FIRST BUSINESS PAPER CORPORATION." The surety also contained a de facto acceleration clause if "default be made in the payment of any of the instruments, indebtedness, or other obligation" guaranteed by petitioners and respondents. So as to strengthen this security, the Continuing Guaranty waived rights of the sureties against delay or absence of notice or demand on the part of respondent Bank, and gave future consent to the Bank's action to "extend or change the time payment, and/or the manner, place or terms of payment," including renewal, of the credit facility or any part thereof in such manner and upon such terms as the Bank may deem proper without notice to or further assent from the sureties. The effectivity of the Continuing Guaranty was not contingent upon any event or cause other than the written revocation thereof with notice to the Bank that may be executed by the sureties. On 16 June 1993 respondent FBPC started to avail of the credit facility and procure letters of credit. [7] On 17 November 1993 FBPC opened thirteen (13) letters of credit and obtained loans totaling P15,227,510.00.[8] As the letters of credit were secured, FBPC through its officers Kenneth Ng Li, Ma. Victoria Ng Li and Redentor Padilla as signatories executed a series of trust receipts over the goods allegedly purchased from the proceeds of the loans.[9] On 13 January 1994 respondent Bank received information that respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had fraudulently departed from their conjugal home.[10] On 14 January 1994 the Bank served a demand letter upon FBPC and petitioner Luis Toh invoking the acceleration clause[11] in the trust receipts of FBPC and claimed payment for P10,539,758.68 as unpaid overdue accounts on the letters of credit plus interests and penalties within twenty-four (24) hours from receipt thereof.[12] The Bank also invoked the Continuing Guaranty executed by petitioner-spouses Luis Toh and Vicky Tan Toh who were the only parties known to be within national jurisdiction to answer as sureties for the credit facility of FBPC. [13] On 17 January 1994 respondent Bank filed a complaint for sum of money with ex parte application for a writ of preliminary attachment against FBPC, spouses Kenneth Ng Li and Ma. Victoria Ng Li, and spouses Luis Toh and Vicky Tan Toh, docketed as Civil Case No. 64047 of RTC-Br. 161, Pasig City.[14] Alias summonses were served upon FBPC and spouses Luis Toh and Vicky Tan Toh but not upon Kenneth Ng Li and Ma. Victoria Ng Li who had apparently absconded.[15] Meanwhile, with the implementation of the writ of preliminary attachment resulting in the impounding of purported properties of FBPC, the trial court was deluged with third-party claims contesting the propriety of the attachment.[16] In the end, the Bank relinquished possession of all the attached properties to the third-party claimants except for two (2) insignificant items as it allegedly could barely cope with the yearly premiums on the attachment bonds.[17] Petitioner-spouses Luis Toh and Vicky Tan Toh filed a joint answer to the complaint where they admitted being part of FBPC from its incorporation on 29 August 1991, which was then known as "MNL Paper, Inc.," until its corporate name was changed to "First Business Paper Corporation." [18] They also acknowledged that on 6 March 1992 Luis Toh was designated as one of the authorized corporate signatories for transactions in relation

to FBPC's checking account with respondent Bank.[19] Meanwhile, for failing to file an answer, respondent FBPC was declared in default.[20] Petitioner-spouses however could not be certain whether to deny or admit the due execution and authenticity of the Continuing Guaranty.[21] They could only allege that they were made to sign papers in blank and the Continuing Guaranty could have been one of them. Still, as petitioners asserted, it was impossible and absurd for them to have freely and consciously executed the surety on 10 May 1993, the date appearing on its face[22] since beginning March of that year they had already divested their shares in FBPC and assigned them in favor of respondent Kenneth Ng Li although the deeds of assignment were notarized only on 14 June 1993.[23] Petitioners also contended that through FBPC Board Resolution dated 12 May 1993 petitioner Luis Toh was removed as an authorized signatory for FBPC and replaced by respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li and Redentor Padilla for all the transactions of FBPC with respondent Bank.[24] They even resigned from their respective positions in FBPC as reflected in the 12 June 1993 Secretary's Certificate submitted to the Securities and Exchange Commission[25] as petitioner Luis Toh was succeeded as Chairman by respondent Ma. Victoria Ng Li, while one Mylene C. Padilla took the place of petitioner Vicky Tan Toh as Vice-President.[26] Finally, petitioners averred that sometime in June 1993 they obtained from respondent Kenneth Ng Li their exclusion from the several surety agreements they had entered into with different banks, i.e., Hongkong and Shanghai Bank, China Banking Corporation, Far East Bank and Trust Company, and herein respondent Bank.[27]As a matter of record, these other banks executed written surety agreements that showed respondent Kenneth Ng Li as the only surety of FBPC's indebtedness.[28] On 16 May 1996 the trial court promulgated its Decision in Civil Case No. 64047 finding respondent FBPC liable to pay respondent Solid Bank Corporation the principal of P10,539,758.68 plus twelve percent (12%) interest per annum from finality of the Decision until fully paid, but absolving petitioner-spouses Luis Toh and Vicky Tan Toh of any liability to respondent Bank.[29] The court a quo found that petitioners "voluntarily affixed their signature[s]" on the Continuing Guaranty and were thus "at some given point in time willing to be liable under those forms,"[30]although it held that petitioners were not bound by the surety contract since the letters of credit it was supposed to secure were opened long after petitioners had ceased to be part of FBPC. [31] The trial court described the Continuing Guaranty as effective only while petitioner-spouses were stockholders and officers of FBPC since respondent Bank compelled petitioners to underwrite FBPC's indebtedness as sureties without the requisite investigation of their personal solvency and capability to undertake such risk.[32] The lower court also believed that the Bank knew of petitioners' divestment of their shares in FBPC and their subsequent resignation as officers thereof as these facts were obvious from the numerous public documents that detailed the changes and substitutions in the list of authorized signatories for transactions between FBPC and the Bank, including the many trust receipts being signed by persons other than petitioners,[33] as well as the designation of new FBPC officers which came to the notice of the Bank's VicePresident Jose Chan Jr. and other officers.[34] On 26 September 1996 the RTC-Br. 161 of Pasig City denied reconsideration of its Decision.[35] On 9 October 1996 respondent Bank appealed the Decision to the Court of Appeals, docketed as CA-G.R. CV No. 55957.[36] Petitioner-spouses did not move for reconsideration nor appeal the finding of the trial court that they voluntarily executed the Continuing Guaranty. The appellate court modified the Decision of the trial court and held that by signing the Continuing Guaranty, petitioner-spouses became solidarily liable with FBPC to pay respondent Bank the amount of P10,539,758.68 as principal with twelve percent (12%) interest per annum from finality of the judgment until completely

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paid.[37] The Court of Appeals ratiocinated that the provisions of the surety agreement did not "indicate that Spouses Luis and Vicky Toh x x x signed the instrument in their capacities as Chairman of the Board and VicePresident, respectively, of FBPC only."[38] Hence, the court a quo deduced, "[a]bsent any such indication, it was error for the trial court to have presumed that the appellees indeed signed the same not in their personal capacities."[39] The appellate court also ruled that as petitioners failed to execute any written revocation of the Continuing Guaranty with notice to respondent Bank, the instrument remained in full force and effect when the letters of credit were availed of by respondent FBPC.[40] Finally, the Court of Appeals rejected petitioners' argument that there were "material alterations" in the provisions of the "letter-advise," i.e., that only domestic letters of credit were opened when the credit facility was for importation of papers and other materials, and that marginal deposits were not paid, contrary to the requirements stated in the "letter-advise."[41] The simple response of the appellate court to this challenge was, first, the "letter-advise" itself authorized the issuance of domestic letters of credit, and second, the several waivers extended by petitioners in the Continuing Guaranty, which included changing the time and manner of payment of the indebtedness, justified the action of respondent Bank not to charge marginal deposits. [42] Petitioner-spouses moved for reconsideration of the Decision, and after respondent Bank's comment, filed a lengthy Reply with Motion for Oral Argument.[43] On 2 July 2002 reconsideration of the Decision was denied on the ground that no new matter was raised to warrant the reversal or modification thereof.[44] Hence, this Petition for Review. Petitioner-spouses Luis Toh and Vicky Tan Toh argue that the Court of Appeals denied them due process when it did not grant their motion for reconsideration and without "bother[ing] to consider [their] Reply with Motion for Oral Argument." They maintain that the Continuing Guaranty is not legally valid and binding against them for having been executed long after they had withdrawn from FBPC. Lastly, they claim that the surety agreement has been extinguished by the material alterations thereof and of the "letter-advise" which were allegedly brought about by (a) the provision of an acceleration clause in the trust receipts; (b) the flight of their co-sureties, respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li; (c) the grant of credit facility despite the nonpayment of marginal deposits in an amount beyond the credit limit of P10 million pesos; (d) the inordinate delay of the Bank in demanding the payment of the indebtedness; (e) the presence of ghost deliveries and fictitious purchases using the Bank's letters of credit and trust receipts; (f) the extension of the due dates of the letters of credit without the required 25% partial payment per extension; (g) the approval of another letter of credit, L/C 93-0042, even after respondent-spouses Kenneth Ng Li and Ma. Victoria Ng Li had defaulted on their previous obligations; and, (h) the unmistakable pattern of fraud. Respondent Solid Bank maintains on the other hand that the appellate court is presumed to have passed upon all points raised by petitioners' Reply with Motion for Oral Argument as this pleading formed part of the records of the appellate court. It also debunks the claim of petitioners that they were inexperienced and ignorant parties who were taken advantage of in the Continuing Guaranty since petitioners are astute businessmen who are very familiar with the "ins" and "outs" of banking practice. The Bank further argues that the notarization of the Continuing Guaranty discredits the uncorroborated assertions against the authenticity and due execution thereof, and that the Decision of the trial court in the civil case finding the surety agreement to be valid and binding is nowres judicata for failure of petitioners to appeal therefrom. As a final point, the Bank refers to the various waivers made by petitioner-spouses in the Continuing Guaranty to justify the extension of the due dates of the letters of credit. To begin with, we find no merit in petitioners' claim that the Court of Appeals deprived them of their right to due process when the court a quo did not address specifically and explicitly their Reply with Motion for Oral Argument. While the Resolution of the appellate court of 2 July 2002 made no mention thereof in disposing of their arguments on reconsideration, it is presumed that "all matters within an issue raised in a case were laid before the court and passed upon it."[45] In the absence of evidence to the contrary, we must rule that the

court a quodischarged its task properly. Moreover, a reading of the assailed Resolution clearly makes reference to a "careful review of the records," which undeniably includes the Reply with Motion for Oral Argument, hence there is no reason for petitioners to asseverate otherwise. This Court holds that the Continuing Guaranty is a valid and binding contract of petitioner-spouses as it is a public document that enjoys the presumption of authenticity and due execution. Although petitioners as appellees may raise issues that have not been assigned as errors by respondent Bank as party-appellant, i.e., unenforceability of the surety contract, we are bound by the consistent finding of the courts a quo that petitioner-spouses Luis Toh and Vicky Tan Toh "voluntarily affixed their signature[s]" on the surety agreement and were thus "at some given point in time willing to be liable under those forms." [46] In the absence of clear, convincing and more than preponderant evidence to the contrary, our ruling cannot be otherwise. Similarly, there is no basis for petitioners to limit their responsibility thereon so long as they were corporate officers and stockholders of FBPC. Nothing in the Continuing Guaranty restricts their contractual undertaking to such condition or eventuality. In fact the obligations assumed by them therein subsist "upon the undersigned, the heirs, executors, administrators, successors and assigns of the undersigned, and shall inure to the benefit of, and be enforceable by you, your successors, transferees and assigns," and that their commitment "shall remain in full force and effect until written notice shall have been received by [the Bank] that it has been revoked by the undersigned." Verily, if petitioners intended not to be charged as sureties after their withdrawal from FBPC, they could have simply terminated the agreement by serving the required notice of revocation upon the Bank as expressly allowed therein.[47] In Garcia v. Court of Appeals[48] we ruled Regarding the petitioner's claim that he is liable only as a corporate officer of WMC, the surety agreement shows that he signed the same not in representation of WMC or as its president but in his personal capacity. He is therefore personally bound. There is no law that prohibits a corporate officer from binding himself personally to answer for a corporate debt. While the limited liability doctrine is intended to protect the stockholder by immunizing him from personal liability for the corporate debts, he may nevertheless divest himself of this protection by voluntarily binding himself to the payment of the corporate debts. The petitioner cannot therefore take refuge in this doctrine that he has by his own acts effectively waived. But as we bind the spouses Luis Toh and Vicky Tan Toh to the surety agreement they signed so must we also hold respondent Bank to its representations in the "letter-advise" of 16 May 1993. Particularly, as to the extension of the due dates of the letters of credit, we cannot exclude from the Continuing Guaranty the preconditions of the Bank that were plainly stipulated in the "letter-advise." Fairness and justice dictate our doing so, for the Bank itself liberally applies the provisions of cognate agreements whenever convenient to enforce its contractual rights, such as, when it harnessed a provision in the trust receipts executed by respondent FBPC to declare its entire indebtedness as due and demandable and thereafter to exact payment thereof from petitioners as sureties.[49] In the same manner, we cannot disregard the provisions of the "letteradvise" in sizing up the panoply of commercial obligations between the parties herein. Insofar as petitioners stipulate in the Continuing Guaranty that respondent Bank "may at any time, or from time to time, in [its] discretion x x x extend or change the time payment," this provision even if understood as a waiver is confined per se to the grant of an extension and does not surrender the prerequisites therefor as mandated in the "letter-advise." In other words, the authority of the Bank to defer collection contemplates only authorizedextensions, that is, those that meet the terms of the "letter-advise." Certainly, while the Bank may extend the due date at its discretion pursuant to the Continuing Guaranty, it should nonetheless comply with the requirements that domestic letters of credit be supported by fifteen percent (15%) marginal deposit extendible three (3) times for a period of thirty (30) days for each extension, subject to twenty-five percent (25%) partial payment per extension. This reading of the Continuing Guaranty is consistent with Philippine National Bank v. Court of Appeals[50] that any doubt on the terms and conditions of the surety agreement should be resolved in favor of the surety. Furthermore, the assurance of the sureties in the Continuing Guaranty that "[n]o act or omission of any kind on

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[the Bank's] part in the premises shall in any event affect or impair this guaranty"[51] must also be read "strictissimi juris" for the reason that petitioners are only accommodation sureties, i.e., they received nothing out of the security contract they signed.[52] Thus said, the acts or omissions of the Bank conceded by petitioners as not affecting nor impairing the surety contract refer only to those occurring "in the premises," or those that have been the subject of the waiver in the Continuing Guaranty, and stretch to no other. Stated otherwise, an extension of the period for enforcing the indebtedness does not by itself bring about the discharge of the sureties unless the extra time is not permitted within the terms of the waiver, i.e., where there is no payment or there is deficient settlement of the marginal deposit and the twenty-five percent (25%) consideration, in which case the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the liability of a surety is measured by the terms of his contract, and while he is liable to the full extent thereof, his accountability is strictly limited to that assumed by its terms. It is admitted in the Complaint of respondent Bank before the trial court that several letters of credit were irrevocably extended for ninety (90) days with alarmingly flawed and inadequate consideration - the indispensable marginal deposit of fifteen percent (15%) and the twenty-five percent (25%) prerequisite for each extension of thirty (30) days. It bears stressing that the requisite marginal deposit and security for every thirty (30) - day extension specified in the "letter-advise" were not set aside or abrogated nor was there any prior notice of such fact, if any was done. Moreover, these irregular extensions were candidly admitted by Victor Ruben L. Tuazon, an account officer and manager of respondent Bank and its lone witness in the civil case -