OBLICON_Chapter 3_Joint&Solidary Obligations (38 pages)

(1)Cembrano v. City of Butuan, G.R. No. 163605, September 20, 2006)

(8)(Republic Glass Corp. v. Qua, G.R. No. 144413, July 30, 2004)
(14) (E. Zobel, Inc. v. Court of Appeals, G.R. No. 113931, May 06, 1998)
(18) (International Finance Corp. v. Imperial Textile Mills Inc., G.R. No. 160324, November 15, 2005)
(21) (Heirs of Poe v. Malayan Insurance Co., Inc., G.R. No. 156302, April 07, 2009)
(30) (Pimentel v. Gutierrez, G.R. No. 3377, August 24, 1909)
(34) (Stronghold Insurance Co., Inc. v. Republic-Asahi Glass Corp., G.R. No. 147561, June 22, 2006)
(37) (Garcia vs. CA)
(37) (PNB v. Independent Planters Ass'n, G.R. No. L-28046, May 16, 1983)

(Cembrano v. City of Butuan, G.R. No. 163605,
September 20, 2006)
FIRST DIVISION
[G.R. No. 163605. September 20, 2006.]
GIL M. CEMBRANO and DOLLFUSS R. GO,
petitioners, vs. CITY OF BUTUAN, represented by CITY
MAYOR LEONIDES R. THERESA PLAZA, CVC LUMBER
INDUSTRIES, INC., MONICO PAG-ONG and ISIDRO
PLAZA, respondents.
DECISION
CALLEJO, SR., J p:
Before the Court is a Petition for Review on
Certiorari of the Decision 1 of the Court of Appeals
(CA) in C.A.-G.R. SP No. 75328, nullifying the Orders
2 of the Regional Trial Court (RTC), Butuan City,
Agusan Del Norte, Branch 4, in Civil Case No. 3851,
as well as the Resolution 3 of the CA denying the
motion for reconsideration thereof. The assailed
Orders 4 of the RTC directed the Sheriff to garnish
the bank account of the City of Butuan amounting
to P926,845.00 and directed the Development Bank
of the Philippines (DBP) to release the amount to
petitioners Atty. Gil M. Cembrano and Atty. Dollfuss
R. Go.
The Antecedents
CVC Lumber Industries, Inc. (CVC) was a timber
concession licensee in Bunawen and Veruela,
Agusan del Sur. Cembrano, then its Marketing
Manager, participated in a bidding for the supply
of piles and poles which were to be used for the
construction of the new City Hall of Butuan City. The
contract was awarded to CVC, under which it was
to deliver to the City of Butuan 757 timber piles at a
unit cost of P1,485.00 or a total of P1,124,145.00
within 60 days from receipt of the order; in the
event of delay in the delivery, CVC would be liable
for liquidated damages, to be deducted from the
total value of the contract price, and in case of
partial delivery, liquidated damages would be
deducted from the total value of the delivered
portion, per Rule 9 of Presidential Decree (P.D.) No.
526. 5
On May 6, 1991, the City of Butuan issued a
Purchase Order 6 for 757 timber piles to "CVC or Gil
Cembrano." To partly finance the purchase of the
merchandise, petitioner Cembrano, along with
Gener Cembrano, secured a P150,000.00 loan from
1|OBLICON_Chapter 3_Joint&Solidary Obligations
the DBP, as evidenced by a Promissory Note 7
dated June 4, 1991. To secure the loan, they
executed a real estate mortgage over a parcel of
land covered by Transfer Certificate of Title (TCT)
No. T-5491. 8 The purchase order was modified on
August 22, 1991 with respect to the specifications of
the timber piles. The seller/supplier furnished the
same to CVC or Gil M. Cembrano. 9
Within the 60-day period, CVC was able to make
two (2) deliveries of 117 and 57 pieces which
respondent accepted and paid for. On August 26
and September 9, 1991, Cembrano received
payment of P148,574.25 and P84,645.00,
respectively, for the aforesaid deliveries, as
evidenced by the disbursement vouchers issued by
the City in favor of CVC Lumber Industries, Inc. It
appears on the face of the vouchers that the
payee is "CVC or Gil Cembrano." 10
On November 13, 1991, the 60-day period for CVC
to make deliveries of the timber piles expired. CVC
offered to deliver 100 timber piles worth
P148,500.00, but respondent refused. On November
19, 1991, CVC, through petitioner Cembrano,
requested for an extension, until December 11,
1991, to complete the delivery of timber piles. 11
City Engineer Edgardo T. Sanchez denied this
request, and recommended that a new bidding be
held on the unexecuted portion of the contract. 12
The re-bidding was held on December 2, 1991 with
the approval of former City Mayor Guillermo
Sanchez, without notice to CVC. HIaTDS
At the instance of CVC, through Cembrano, an
investigation regarding the unilateral cancellation
of the contract and the subsequent re-bidding was
conducted. The City Legal Officer rendered a
report upholding the validity of the contract with
CVC and the purchase order issued by the City to
it, considering "the suspicious haste attendant to its
termination and the irregularities surrounding the re-
bidding process." 13 The City Legal Officer made
the following recommendation to the Mayor:
1. To honor the contract with CVC Lumber
Industries, Inc. or Mr. Gil M. Cembrano and
compromise with the same by requiring the said
contractor to complete delivery of timber piles
within the period of 45 calendar days without
charging the provided liquidated damages, which
Compromise Agreement shall provide for its
automatic expiration after the lapse of the above-
mentioned period;
2. To declare the December 2, 1991 bidding Null
and Void and confirm the stop payment order of
this office permanently;
3. To endorse to the Committee on Good
Government and to the Office of the Ombudsman
the irregular acts of the City General Service
Department Head for appropriate Administrative
and Criminal action[s], respectively;
4. To suspend the City General Service Department
Head for a period of not more than 90 days for him
to fully face the charges filed against him before
the Committee on Good Government;
5. To request the Committee on Good Government
to conduct further investigation within the Office of
the City General Service to determine involvement
of other government employees in the said
irregularities 14
CVC and Cembrano, through Go as counsel, filed
a complaint for breach of contract and damages
against respondent, claiming that CVC sustained
damages amounting to P856,695.00 the value of
the timber piles which it was ready to deliver and
the value of those it failed to deliver on account of
the cancellation of the contract on November 13,
1992. Cembrano alleged therein that he was the
Marketing Supervisor and an agent of CVC, that he
secured a loan from the DBP and executed a real
estate mortgage over his property as collateral to
partly finance the purchase of the timber
poles/piles. The case was docketed as Civil Case
No. 3851.
In its Answer, the City of Butuan admitted the
allegations in the complaint.
Meanwhile, during a meeting of the CVC Board of
Directors on September 3, 1992, Monico Pag-Ong
was elected President and Isidro B. Plaza as
Corporate Secretary. 15 Plaza also became the
resident manager of the corporation.
On May 27, 1996, the trial court rendered judgment
in favor of the defendants and ordered the
dismissal of the complaint on the following
ratiocination:
It may be recalled that as of November 13, 1991
the contract had already been terminated for
failure of the plaintiff [CVC and Cembrano] to
complete deliveries on the original period. Since
the request for extension by the plaintiff was
denied, the defendant [City] was no longer obliged
to accept any delivery as said acceptance can be
considered a waiver or abandonment of the right
to rescind. The obligation of plaintiff to make
complete delivery, according to the contract,
expired on November 13, 1991. The law is clear that
obligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith. The power to rescind is
given to the injured party which, in this case is the
defendant. The plaintiff being a party who did not
2|OBLICON_Chapter 3_Joint&Solidary Obligations
perform the undertaking which [sic] he was bound
by the terms of the agreement to perform, it is not
entitled to insist upon the performance of the
contract by the defendant or recover damages by
reason of the breach. 16
Cembrano appealed the decision to the CA. The
appeal was docketed as CA-G.R. CV No. 55049.
The CA rendered judgment reversing the decision
of the trial court and ordered the City of Butuan to
pay its liability to Cembrano and CVC. The
dispositive portion of the Decision 17 reads:
IN VIEW OF THE FOREGOING, the decision
appealed from is hereby REVERSED and SET ASIDE.
Defendant City of Butuan is directed to pay the
plaintiffs the total sum of P926,845.00 in accordance
with the above computation, with 6% interest as of
the date this decision attains finality.
Costs against defendant-appellee. DHEcCT
SO ORDERED. 18
The appellate court declared that it was
undisputed that CVC, through Cembrano, its
Marketing Supervisor, participated and won the
bidding for the supply of 757 timber piles and poles,
19 and that the contract was between CVC and
the City of Butuan. The CA likewise affirmed the
findings of the Investigation Report made by the
City Legal Officer, and CVC's entitlement to
damages amounting to P926,845.00. 20
The City of Butuan thereafter filed a petition for
review on certiorari with this Court, docketed as
G.R. No. 149466. However, the petition was denied
on November 12, 2001 for failure to observe the 15-
day period to appeal, and failure to serve a copy
thereof to the CA. 21 The City filed a motion for
reconsideration, which the Court denied with
finality on January 16, 2002. 22 Thus, the CA
decision became final and executory.
On March 1, 2002, Cembrano, in his behalf and as
attorney-in-fact of CVC, executed a Deed of
Assignment 23 covering 1/2 of the monetary award
of the CA in favor of Go, his uncle.
In a letter 24 dated March 19, 2002, Go wrote the
City Mayor of Butuan City, requesting payment of
the P926,845.00 awarded to it via the decision in
CA-G.R. CV No. 55049 plus interests, to avoid the
embarrassment of the implementation of a writ of
execution against the City. However, in a letter 25
dated July 15, 2002, CVC, through its Resident
Manager Isidro B. Plaza, informed the City Mayor
that it was laying claim to the money judgment and
requested that the amount be remitted it.
In a 2nd Indorsement 26 dated July 17, 2002, the
City Legal Officer recommended that the
Sangguniang Panglungsod appropriate P926,845.00
to pay for the award in favor of CVC under CA-G.R.
CV No. 55049. During a meeting with the
Sangguniang Panglungsod Chairman and
Members of the Committee on Appropriation and
Finance, Cembrano and Go agreed that under the
decision, the amount due to CVC was P926,845.00
with 6% interest per year. The Sanggunian resolved
to refer the matter to the City Budget Officer. 27
In a letter 28 dated October 30, 2002, the City Legal
Officer requested the City Budget Officer to release
P926,845.00 plus 6% legal interest to CVC. The City
Treasurer and the City Mayor signed a check 29
dated November 5, 2002 for the said amount with
"CVC LUMBER INDUSTRIES, INC/MONICO E. PAG-
ONG" as payee. The check was received by Pag-
Ong for CVC, as evidenced by a disbursement
voucher. 30
Thereafter, Atty. Go, acting as counsel for CVC and
Cembrano, filed a "Alternative Motion for Issuance
of a Writ of Execution or Entry of Judgment" 31 in
the RTC in Civil Case No. 3851. The court issued an
order granting the motion. The Sheriffs arrived in the
Office of the City Mayor to enforce the writ on
November 28, 2002, but were told that the City had
already remitted the amount. Thus, the Sheriffs
submitted a Return on the Writ of Execution
declaring that they failed to enforce the writ on
account of the City's claim that it had already
remitted the P926,845.00 to CVC.
In a letter 32 dated November 29, 2002, Plaza wrote
the City Treasurer that the proceeds of the 210 piles
of poles and piles delivered to the City at the price
of P311,850.00 had not been remitted to CVC. He
requested that CVC be furnished copies of
vouchers, checks, official receipts, including
Cembrano's authority to transact business with the
city government and other documents. Plaza,
likewise, informed Go that the amount of
P120,000.00 as his attorney's fees and litigation
expenses under the decision in CA-G.R. CV No.
55049 was ready for claiming. 33
The City Legal Officer filed a Manifestation, 34 also
dated November 29, 2002, that it had already paid
the P926,845.00 to CVC, through Pag-Ong, its
President. Go filed an "Urgent Motion (To Direct
Sheriffs To Garnish Defendant's Bank Account)," 35
alleging that the payment by the City of Butuan to
Monico Pag-Ong was not in compliance with the
decision in CA-G.R. CV No. 55049, as affirmed by
the Supreme Court. It was, likewise, asserted that
the creditors under the CA decision were CVC Unit
VI and Cembrano, not Plaza or Pag-Ong. It insisted
that the payment made by the City to Pag-Ong did
not discharge its obligation to Cembrano. It was,
likewise, asserted that the creditors under the CA
decision were CVC Unit IV and Cembrano, not
Plaza or Pag-Ong. It insisted that the payment
made by the City to Pag-Ong did not discharge its
obligation to Cembrano. It was alos averred that
the logging operations of CVC and Triumph-Timber
Corporation were consolidated in one timber
concession license, and that the two corporations
conducted the operations under an independent
3|OBLICON_Chapter 3_Joint&Solidary Obligations
and separate entity which was CVC Unit VI. The
plaintiffs-movants prayed that:
WHEREFORE, it is respectfully prayed of this
Honorable Court to issue an order directing Sheriffs
ROGER KINANAHAS, with the assistance of VICENTE
TIU and ARTHUR CALO, to enforce the writ of
execution by way of garnishment of defendant's
bank accounts pursuant to Section 9, Rule 39,
specifically paragraph (c) of the Revised Rules of
Court. IcADSE
Plaintiffs further pray for such other remedies that
may be just and equitable in the premises. 36
The City opposed the motion, contending that
Cembrano was merely the agent or marketing
supervisor of CVC as alleged in the complaint in
Civil Case No. 3851; although Cembrano was
impleaded as one of the plaintiffs, the real party-in-
interest entitled to the sum of P926,845.00 was CVC.
Cembrano was bound by his allegation in the
complaint that he was merely the Marketing
Supervisor for CVC. It pointed out that Go and
Cembrano failed to implead Plaza and Pag-Ong,
who were indispensable parties in their motion;
hence, the motion was a mere scrap of paper. The
City of Butuan suggested that the issue of who
between plaintiff CVC or Cembrano was entitled to
the amount of P926,845.00 should be resolved by
them. 37
For his part, Pag-Ong filed a Manifestation, stating
that he refrained from intervening in the case for
the simple reason that he was the President of CVC,
thus clothed with the authority to receive the
P926,845.00. He appended thereto the minutes of
the meeting of the CVC Board of Directors on
September 3, 1982, during which he was appointed
President. 38
On January 8, 2003, the court issued an Order 39
granting the motion of Ong and Cembrano, and
ordered the Sheriff to garnish the bank account of
the City of Butuan in the DBP for the enforcement of
the writ of execution. It ruled that the payment
made by the City of Butuan to Pag-Ong was illegal
because it was made in a motion for writ of
execution, and Pag-Ong was not a party to the
case and had no personality. For their part, Go and
Cembrano filed a motion to compel the DBP to
remit the garnished amount to them. On February
3, 2003, the trial court issued an Order 40 granting
the motion and ordered the DBP to remit
P926,845.00 to Cembrano and Go in cash. The
dispositive portion of the Order reads:
WHEREFORE, in view of the foregoing, the
garnishee, Development Bank of the Philippines,
Butuan City Branch, through its manager, Mr.
Wilfred Alava, is hereby ordered to release one half
of the garnished amount or the sum of P490,609.955
in CASH to Atty. Dollfuss R. Go.
As there is no showing from the pleadings filed by
defendant City of Butuan that CVC Lumber
Industries, Inc., still exist, Mr. Wilfred Alava is likewise
ordered to release the remaining half of the
garnished amount in the sum of P490,609.955 in
CASH to plaintiff Gil M. Cembrano.
IT IS SO ORDERED. 41
The DBP complied and released the amount of
P981,219.91 to CVC and Cembrano. 42
On February 4, 2003, the City of Butuan filed a
Petition for Certiorari and Prohibition 43 with the CA
against CVC, Pag-Ong, Plaza and Cembrano,
assailing the January 8, 2003 Order of the trial court.
The case was docketed as CA-G.R. SP No. 75328. It
insisted that it had already paid respondent CVC
and Cembrano as ordered by the CA in CA-G.R.
CV No. 55049.
Atty. Go filed a Comment 44 on the petition for and
in behalf respondents except Pag-Ong and Plaza,
alleging that the RTC had the inherent power to
rule that such payment made by the City of Butuan
to Pag-Ong was illegal.
For its part, the City of Butuan filed a Reply, 45
claiming that the petition had become moot and
academic because the DBP had already released
the money to Go and Cembrano on February 4,
2003.
On August 5, 2003, the CA rendered judgment
granting the petition. The fallo reads:
IN VIEW OF ALL THE FOREGOING, the instant petition
is hereby GRANTED and the assailed Orders
RECALLED and SET ASIDE, and a new one entered
RECALLING and DECLARING NULL and VOID the
Orders dated January 8, 2003 and February 3, 2003,
and altogether quashing the writ of execution or
garnishment issued in this case. As a further
consequence of this order, Atty. Dollfuss R. Go and
plaintiff Gil M. Cembrano are ordered each to
return to the petitioner City of Butuan the amount of
P490,605.955, which they received as a result of the
implementation of the writ of garnishment issued in
the case. Costs against the respondents. TCacIA
SO ORDERED. 46
The CA ruled that, under the Decision of the CA in
CA-G.R. CV No. 55049, either respondent
Cembrano or Pag-Ong could receive the award of
P926,845.00 for the respondent CVC. Moreover, the
City of Butuan acted in good faith in delivering the
check to the President of CVC. Inasmuch as it had
already remitted the judgment debt, the City was
released of its obligation under the Decision in CA-
G.R. CV No. 55049; hence, the trial court committed
grave abuse of its discretion amounting to excess of
jurisdiction when it ordered the garnishment of the
bank account of petitioner Butuan City with the
DBP, and in ordering the bank to release
P490,609.955 to Atty. Dollfuss R. Go, and the
remaining half to Cembrano.
4|OBLICON_Chapter 3_Joint&Solidary Obligations
The CA, likewise, declared that: "[w]hatever intra-
corporate disputes over any controversy existing
between Cembrano, on the one hand, and Pag-
Ong on the other, is something which they have to
thresh out in an appropriate proceeding and not in
the case before it." 47 Consequently, the appellate
court ordered Go and Cembrano to return what
each received from the DBP to the City of Butuan.
The appellate court also stated the judgment
creditor can very well satisfy the judgment debt
even before a writ of execution shall have been
issued by the court for the implementation of its
decision. 48
Go and Cembrano filed a Motion for
Reconsideration, insisting that the trial court did not
commit any grave abuse of its discretion in issuing
the assailed orders of the trial court. As gleaned
from the evidence on record in Civil Case No. 3851,
the transaction subject matter thereof was
between Cembrano and the City of Butuan, and
Plaza and Pag-Ong had no participation or
involvement therein whatsoever. Cembrano
maintained that it was he who funded the
purchase and delivery of the timber poles and piles
to the City of Butuan, since he secured the
P150,000.00 loan from the DBP, the amount CVC
used to finance the purchase of timber poles and
piles. This is gleaned from the evidence adduced
during the trial, consisting of the Promissory Note he
executed in favor of DBP for P150,000.00, and the
real estate mortgage executed by him in favor of
the DBP over the property belonging to his mother
covered by TCT No. 17068 as security for the
payment of said loan. 49 They appended to the
motion the real estate mortgage executed by
Cembrano in favor of the DBP and their formal offer
of evidence filed in Civil Case No. 3851.
The CA, however, denied the motion for
reconsideration in a Resolution 50 dated April 5,
2005.
Cembrano and Go, now petitioners, assail the
Decision and Resolution of the CA on the following
grounds:
I
BOTH PETITONERS WERE DEPRIVED OF THEIR
CONSTITUTIONAL AND PROCEDURAL DUE PROCESS
WHEN THE HONORABLE COURT OF APPEALS
ORDERED THEM TO RETURN TO THE CITY OF BUTUAN
THE AMOUNT OF P490,609.955 51
II
THAT THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS ERRORS OF LAW NAY GRAVE
ABUSE OF DISCRETION IN DECLARING PAYMENT BY
THE CITY OF BUTUAN TO MONICO PAG-ONG AND
ISIDRO PLAZA, WHO WERE NOT PARTIES TO CIVIL
CASE NO. 3851 AND CA-G.R. CV No. 55049, IS A
VALID PAYMENT OF THE JUDGMENT DEBT IN CA-G.R.
CV No. 55049 AND IN SETTING ASIDE AND
DECLARING NULL AND VOID THE WRIT OF
GARNISHMENT ISSUED BY THE COURT A QUO. 52
III
THE DECISION OF THE HONORABLE COURT OF
APPEALS IN CA G.R. CV No. 55049 HAD BECOME
FINAL AND EXECUTORY AND COULD NOT BE
CHANGED BY THE HONORABLE COURT OF APPEALS
1ST DIVISION ON A MERE PETITION FOR CERTIORARI
IN CA-G.R. SP No. 75328. 53
Petitioner Go avers that he was merely the counsel
of petitioner Cembrano in Civil Case No. 3851, and
was not a party in said case nor in CA-G.R. CV No.
55049. He and petitioner Cembrano were deprived
of their right to due process when they were
ordered by the CA in CA-G.R. SP No. 75328 to return
the P490,609.955 garnished by the Sheriff in Civil
Case No. 3851. The proper recourse of the
respondent City was to file a separate complaint to
resolve the issue of who is entitled to the amount;
the issue of whether petitioner Go was obliged to
return the amount which he received as attorney's
fees and reimbursement of litigation expenses and
whether petitioner Cembrano was entitled to the
P490,609.95 would have to be ventilated and
resolved after a full-blown trial. EaHIDC
Petitioners aver that the CA committed a serious
error when it declared that the payment by the
respondent Butuan City to respondent CVC,
through its President Pag-Ong, validly discharged it
from its obligation in CA-G.R. CV No. 55049; it
likewise erred in ruling that the acceptance of
P926,845.00 by respondent Pag-Ong released the
City of Butuan from its obligations on the premise
that Pag-Ong, as president of CVC, could be
considered as a person in possession of credit.
Petitioner Cembrano, being one of the plaintiffs in
Civil Case No. 3851 and an appellant in CA-G.R. CV
No. 55049, is entitled to one-half of the award,
which he had already assigned to petitioner Go;
hence, the latter is entitled to one-half of the
award, or P490,609.955. Petitioner Go maintains that
the deed of assignment is a valid contract between
him and petitioner Cembrano. Petitioners cite the
ruling of this Court in Harry E. Keeler Electric Co. v.
Rodriguez. 54
Petitioner Go avers that he was not a party in Civil
Case No. 3851 (CA-G.R. CV No. 55049 and CA-G.R.
SP No. 75328). He was merely the counsel of the
plaintiffs in Civil Case No. 3851, and who were the
appellants CA-G.R. CV No. 55049. Hence, the CA in
CA-G.R. SP No. 75328 cannot compel him to return
the P490,609.955 he received from the DBP.
Petitioners insist that the proper remedy of
respondent City of Butuan is to file the proper
complaint against them so that they can file the
appropriate pleadings in their defense.
5|OBLICON_Chapter 3_Joint&Solidary Obligations
For its part, the respondent City of Butuan avers that
it complied with the decision in CA-G.R. CV No.
55049 when it remitted the full amount of
P926,845.00 to respondent CVC. Contrary to his
claim, petitioner Cembrano is not entitled to one-
half of the monetary award in CA-G.R. CV No.
55049 for the simple reason that he was merely
CVC Marketing Supervisor, and happened to
participate in the public bidding for the supply of
timber piles solely in that capacity. As ruled by the
CA in CA-G.R. SP No. 75328, petitioner Cembrano
admitted in his Urgent Motion (to Direct Sheriff to
Garnish Defendant's Account) that he was clothed
with the proper authority to participate in the
bidding and deliver the timber piles under the
contract. It maintains that what should prevail is the
dispositive portion of the decision in CA-G.R. CV No.
55049, and that a writ of execution which does not
strictly adhere to the dispositive portion of the
decision is invalid.
It further maintains that it acted on its honest belief
that respondent Pag-Ong, as CVC president, was
authorized to receive payment in behalf of said
corporation. Citing Article 1240 of the New Civil
Code, respondent City maintains that its payment
to CVC, through its President, satisfied its obligations
under the decision of the CA in CA-G.R. CV No.
55049. It was completely unaware of any dispute
between CVC and Cembrano. Moreover, if
petitioners believed that they were entitled to the
P490,609.955 out of its remittance of P926,845.00 to
CVC, they should have presented evidence in the
RTC to prove their claim.
For their part, respondents Pag-Ong and Plaza aver
that as president of CVC and chief executive
officer, Pag-ong was authorized to receive the
amount of P926,845.00 from respondent Butuan
City.
The threshold issues in this case are: (1) whether or
not the remittance of the P926,845.00 made by
respondent City of Butuan to the respondent CVC,
through its president respondent Pag-Ong, released
it from its obligation under the decision in CA-G.R.
CV No. 55049; and (2) whether the CA erred in
ordering the petitioner to return the P981,219.91 to
the account of respondent City with the DBP.
The Ruling of the Court
On the first issue, the respondent City, as judgment
debtor, is burdened to prove with legal certainty
that its obligation under the CA decision in CA-G.R.
CV No. 55049 has been discharged by payment,
which under Article 1240 of the Civil Code, is a
mode of extinguishing an obligation. 55 Article 1240
of the Civil Code provides that payment shall be
made to the person in whose favor the obligation
has been constituted, or his successor-in-interest, or
any person authorized to receive it. 56
Payment made by the debtor to the person of the
creditor or to one authorized by him or by the law
to receive it extinguishes the obligation. 57 When
payment is made to the wrong party, however, the
obligation is not extinguished as to the creditor who
is without fault or negligence even if the debtor
acted in utmost good faith and by mistake as to
the person of the creditor or through error induced
by fraud of a third person. 58
In general, a payment in order to be effective to
discharge an obligation, must be made to the
proper person. Thus, payment must be made to the
obligee himself or to an agent having authority,
express or implied, to receive the particular
payment. Payment made to one having apparent
authority to receive the money will, as a rule, be
treated as though actual authority had been given
for its receipt. Likewise, if payment is made to one
who by law is authorized to act for the creditor, it
will work a discharge. The receipt of money due on
a judgment by an officer authorized by law to
accept it will, therefore, satisfy the debt. 59
When there is a concurrence of several creditors or
of several debtors or of several creditors and
debtors in one and the same obligation, it is
presumed that the obligation is joint and not
solidary. 60 The most fundamental effect of joint
divisible obligations is that each creditor can
demand only for the payment of his proportionate
share of the credit, while each debtor can be held
liable only for the payment of his proportionate
share of the debt. As a corollary to this rule, the
credit or debt shall be presumed, in the absence of
any law or stipulation to the contrary, to be divided
into as many shares as there are creditors and
debtors, the credits or debts being considered
distinct from one another. 61 It necessarily follows
that a joint creditor cannot act in representation of
the others. Neither can a joint debtor be compelled
to answer for the liability of the others. 62 The
pertinent rules are provided in Articles 1207 63 and
1208 64 of the Civil Code. ScAHTI
We agree with the petitioners' contention that,
under the fallo of the CA decision in CA-G.R. CV
No. 55049, respondent City was ordered to pay
P926,845.00 to the plaintiffs in Civil Case No. 3851:
IN VIEW OF THE FOREGOING, the decision
appealed from is hereby REVERSED and SET ASIDE.
Defendant City of Butuan is directed to pay the
plaintiffs the total sum of P926,845.00 in accordance
with the above computation with 6% interest as of
the date this decision attains finality.
Costs against defendant-appellee. 65
xxx xxx xxx
The Court adopts with approval the investigation
report of the City Legal Officer. As a consequence
of which, We find plaintiffs to be entitled to
damages as follows:
- The value of the timber piles defendants
refused to accept computed at
P1,485.00 per timber pile P148,500.00
6|OBLICON_Chapter 3_Joint&Solidary Obligations
- The value of 447 timber piles which
plaintiffs were ready and could
have delivered were it not for the
unilateral termination of the
contract P708,345.00
- Attorney's fees P50,000.00
- Litigation expenses P20,000.00
or a total of P926,845.00 66
As gleaned from the complaint in Civil Case No.
3851, the plaintiffs therein are petitioner Gil
Cembrano and respondent CVC; as such, the
judgment creditors under the fallo of the CA
decision are petitioner Cembrano and respondent
CVC. Each of them is entitled to one-half (1/2) of
the amount of P926,845.00 or P463,422.50 each.
In compliance with the decision of the CA in CA-
G.R. CV 55409, respondent City remitted the
P926,845.00 to respondent CVC, and that
respondent Pag-Ong received the amount for and
in behalf of CVC and not in his personal capacity.
Considering that respondent Pag-ong as CVC
president was authorized to receive the money,
respondent City's payment discharged respondent
City of its obligation under the decision in CA-G.R.
CV No. 55049. However, since petitioner Cembrano
did not receive any centavo out of the P926,845.00
remitted to respondent CVC, the obligation to remit
one-half of the amount, or P463,422.50, to petitioner
Cembrano was not extinguished.
The petitioners and the respondent City are correct
in their contention that the general rule is that the
fallo or the dispositive portion of the decision is the
subject of execution. Where there is a conflict
between the dispositive portion and the opinion of
the court contained in the text or body of the
decision, the former must prevail over the latter on
the theory that the dispositive portion is the final
order, while the opinion is merely a statement
ordering nothing. 67 The other parts of the decision
may be resorted to in order to determine the ratio
decidendi of the dispositive portion of the decision.
68 Where the inevitable conclusion from the body
of the decision is so clear as to show that there was
a mistake in the dispositive portion, the body of the
decision will prevail. 69
In this case, the fallo or dispositive portion of the CA
decision in CA-G.R. CV No. 55049 is plain and
unambiguous in that respondent City was ordered
to pay to petitioner Cembrano and respondent
CVC the amount of P926,845.00 plus interest. In the
body of its decision, the CA declared that the
"plaintiffs are to be entitled" to damages, as follows:
The Court adopts with approval the investigation
report of the City Legal Officer. As a consequence
of which, We find plaintiffs to be entitled to
damages as follows:

- The value of the timber piles defendants
refused to accept computed at
P1,485.00 per timber pile P148,500.00
- The value of 447 timber piles which
plaintiffs were ready and could
have delivered were it not for the
unilateral termination of the
contract P708,345.00
- Attorney's fees P50,000.00
- Litigation expenses P20,000.00
or a total of P926,845.00 70
We note that under the decision of the appellate
court, the value of 447 timber piles which the
"plaintiffs" could have delivered to respondent City
was P708,345.00. DaACIH
We agree with respondents' contention that under
the decision of the CA, the winning bidder for the
sale and supply of timber piles/poles was
respondent CVC, and that petitioner Cembrano
was merely the CVC Marketing Supervisor who
represented it during the bidding, and that this was
also alleged in the complaint before the RTC. The
CA in CA-G.R. CV No. 55049 further declared that
respondent CVC, not petitioner Cembrano,
secured the DBP loan to augment its capital.
Consequently, respondents argue, CVC being the
contracting party and petitioner Cembrano being
a mere agent of CVC, the latter is entitled to the
value of the timber poles/piles subject to be
supplied to respondent City contrary to the plain
and unambiguous fallo of the decision. However, if
this contention of respondents had been correct,
the CA should have dismissed the complaint insofar
as petitioner Cembrano was concerned, on the
premise that he had no cause of action against
respondent City. The CA did not do so, and instead
ordered respondent City to pay P926,845.00 to
petitioner Cembrano and respondent CVC.
It bears stressing that there were two plaintiffs in Civil
Case No. 3851. It appears in the complaint that
petitioner Cembrano was a party-plaintiff. He
alleged that it was he who secured a loan from the
DBP of P150,000.00 and mortgaged the property of
his uncle as security therefor to partly finance the
purchase of timber poles/piles to the respondent
City. The plaintiffs adduced in evidence the
Promissory Note executed by Cembrano and the
Real Estate Mortgage he executed in favor of the
DBP. 71 The Purchase Order issued by the City was
delivered to respondent CVC or Cembrano. Based
on the disbursement voucher for the payment of
the P24,640.00 paid by the respondent City for the
supply of poles/piles, it appears that the payee is
CVC or Cembrano. In the report of the City Legal
Officer which was approved by the Court of
Appeals, it declared that the contract of
respondent City for the supply of timber poles/piles
was CVC or Cembrano. In fine, Cembrano was a
7|OBLICON_Chapter 3_Joint&Solidary Obligations
party-plaintiff in his personal capacity and not
merely as Marketing Supervisor of respondent CVC.
The CA resolved that, based on the evidence on
record, petitioner Cembrano and respondent CVC
were entitled to the amount of P926,845.00.
To reiterate, it is the dispositive part of the judgment
that actually settles and declares the rights and
obligations of the parties, finally, definitively,
authoritatively, notwithstanding the existence of
inconsistent statements in the body that may tend
to confuse; it is the dispositive part that controls, for
purposes of execution. 72
Respondent CVC did not file any motion for the
reconsideration of the CA decision in CA-G.R. CV
No. 55049. Since petitioner Cembrano had assigned
his rights and interests under the decision to
petitioner Go, the latter received the amount of
P490,609.955 on the basis of the deed of
assignment executed by petitioner Cembrano.
Petitioner Go cannot be compelled to return the
same to respondent City.
Since respondent CVC was entitled to only
P490,605.955 under the CA decision in CA-G.R. CV
No. 55049 but received P926,845.00, there was, in
fine, an overpayment of P490,605.955 made by
respondent City. Thus, respondent CVC is obliged
to return the amount of P490,605.955 to respondent
City. Since petitioner Cembrano had already
assigned P490,609.955 to petitioner Go, the latter
likewise had the right to receive the P490,609.955
from DBP. Petitioner Cembrano should thus be
made to return the amount of P490,609.955 he
received from the DBP to respondent City.
IN LIGHT OF ALL THE FOREGOING, the petition is
PARTIALLY GRANTED. The decision of the Court of
Appeals is AFFIRMED with MODIFICATION. Petitioner
Gil Cembrano is ORDERED to return to respondent
City of Butuan the amount of P490,609.955, with 6%
interest per annum to be computed from the finality
of this decision. Respondent CVC is ORDERED to
return to respondent Butuan City the amount of
P490,609.955, with 6% interest per annum to be
computed from the date of finality of this decision.
No costs. ADCEcI
SO ORDERED.
Panganiban, C.J., Ynares-Santiago, Austria-Martinez
and Chico-Nazario, JJ., concur.
(Republic Glass Corp. v. Qua, G.R. No. 144413, July
30, 2004)
FIRST DIVISION
[G.R. No. 144413. July 30, 2004.]
REPUBLIC GLASS CORPORATION and GERVEL, INC.,
petitioners, vs. LAWRENCE C. QUA, respondent.
DECISION
CARPIO, J p:
The Case
Before the Court is a petition for review 1 assailing
the 6 March 2000 Decision 2 and the 26 July 2000
Resolution of the Court of Appeals in CA-G.R. CV
No. 54737. The Court of Appeals set aside the Order
3 of 3 May 1996 of the Regional Trial Court of
Makati, Branch 63 (RTC-Branch 63), in Civil Case
No. 88-2643 and reinstated the Decision 4 of 12
January 1996 in respondents favor.
The Facts
Petitioners Republic Glass Corporation (RGC) and
Gervel, Inc. (Gervel) together with respondent
Lawrence C. Qua (Qua) were stockholders of
Ladtek, Inc. (Ladtek). Ladtek obtained loans from
Metropolitan Bank and Trust Company
(Metrobank) 5 and Private Development
Corporation of the Philippines 6 (PDCP) with RGC,
Gervel and Qua as sureties. Among themselves,
RGC, Gervel and Qua executed Agreements for
Contribution, Indemnity and Pledge of Shares of
Stocks (Agreements). 7
The Agreements all state that in case of default in
the payment of Ladteks loans, the parties would
reimburse each other the proportionate share of
any sum that any might pay to the creditors. 8 Thus,
a common provision appears in the Agreements:
RGC, GERVEL and QUA each covenant that each
will respectively reimburse the party made to pay
the Lenders to the extent and subject to the
limitations set forth herein, all sums of money which
the party made to pay the Lenders shall pay or
become liable to pay by reason of any of the
foregoing, and will make such payments within five
(5) days from the date that the party made to pay
the Lenders gives written notice to the parties
hereto that it shall have become liable therefor and
has advised the Lenders of its willingness to pay
whether or not it shall have already paid out such
sum or any part thereof to the Lenders or to the
persons entitled thereto. (Emphasis supplied)
Under the same Agreements, Qua pledged
1,892,360 common shares of stock of General
Milling Corporation (GMC) in favor of RGC and
Gervel. The pledged shares of stock served as
security for the payment of any sum which RGC
and Gervel may be held liable under the
Agreements.
8|OBLICON_Chapter 3_Joint&Solidary Obligations
Ladtek defaulted on its loan obligations to
Metrobank and PDCP. Hence, Metrobank filed a
collection case against Ladtek, RGC, Gervel and
Qua docketed as Civil Case No. 8364 (Collection
Case No. 8364) which was raffled to the Regional
Trial Court of Makati, Branch 149 (RTC-Branch
149). During the pendency of Collection Case No.
8364, RGC and Gervel paid Metrobank P7 million.
Later, Metrobank executed a waiver and quitclaim
dated 7 September 1988 in favor of RGC and
Gervel. Based on this waiver and quitclaim, 9
Metrobank, RGC and Gervel filed on 16 September
1988 a joint motion to dismiss Collection Case No.
8364 against RGC and Gervel. Accordingly, RTC-
Branch 149 dismissed the case against RGC and
Gervel, leaving Ladtek and Qua as defendants. 10
In a letter dated 7 November 1988, RGC and
Gervels counsel, Atty. Antonio C. Pastelero,
demanded that Qua pay P3,860,646, or 42.22% of
P8,730,543.55, 11 as reimbursement of the total
amount RGC and Gervel paid to Metrobank and
PDCP. Qua refused to reimburse the amount to
RGC and Gervel. Subsequently, RGC and Gervel
furnished Qua with notices of foreclosure of Quas
pledged shares.
Qua filed a complaint for injunction and damages
with application for a temporary restraining order,
docketed as Civil Case No. 88-2643 (Foreclosure
Case No. 88-2643), with RTC-Branch 63 to prevent
RGC and Gervel from foreclosing the pledged
shares. Although it issued a temporary restraining
order on 9 December 1988, RTC-Branch 63 denied
on 2 January 1989 Quas Urgent Petition to
Suspend Foreclosure Sale. RGC and Gervel
eventually foreclosed all the pledged shares of
stock at public auction. Thus, Quas application for
the issuance of a preliminary injunction became
moot. 12
Trial in Foreclosure Case No. 88-2643 ensued. RGC
and Gervel offered Quas Motion to Dismiss 13 in
Collection Case No. 8364 as basis for the
foreclosure of Quas pledged shares. Quas Motion
to Dismiss states:
8. The foregoing facts show that the payment of
defendants Republic Glass Corporation and Gervel,
Inc. was for the entire obligation covered by the
Continuing Surety Agreements which were Annexes
B and C of the Complaint, and that the same
naturally redound[ed] to the benefit of defendant
Qua herein, as provided for by law, specifically
Article 1217 of the Civil Code, which states that:
xxx xxx xxx
10. It is very clear that the payment of defendants
Republic Glass Corporation and Gervel, Inc. was
much more than the amount stipulated in the
Continuing Surety Agreement which is the basis for
the action against them and defendant Qua,
which was just SIX MILLION TWO HUNDRED
[THOUSAND] PESOS (P6,200,000.00), hence, logically
the said alleged obligation must now be
considered as fully paid and extinguished.
RGC and Gervel likewise offered as evidence in
Foreclosure Case No. 88-2643 the Order dismissing
Collection Case No. 8364, 14 which RTC-Branch 149
subsequently reversed on Metrobanks motion for
reconsideration. Thus, RTC-Branch 149 reinstated
Collection Case No. 8364 against Qua.
On 12 January 1996, RTC-Branch 63 rendered a
Decision in Foreclosure Case No. 88-2643 (12
January 1996 Decision) ordering RGC and Gervel
to return the foreclosed shares of stock to Qua. The
dispositive portion of the 12 January 1996 Decision
reads:
WHEREFORE, premises considered, this Court hereby
renders judgment ordering defendants jointly and
severally liable to return to plaintiff the 1,892,360
shares of common stock of General Milling
Corporation which they foreclosed on December 9,
1988, or should the return of these shares be no
longer possible then to pay to plaintiff the amount
of P3,860,646.00 with interest at 6% per annum from
December 9, 1988 until fully paid and to pay
plaintiff P100,000.00 as and for attorneys fees. The
costs will be for defendants account.
SO ORDERED. 15
However, on RGC and Gervels Motion for
Reconsideration, RTC-Branch 63 issued its Order of 3
May 1996 (3 May 1996 Order) reconsidering and
setting aside the 12 January 1996 Decision. The 3
May 1996 Order states:
After a thorough review of the records of the case,
and an evaluation of the evidence adduced by
the parties as well as their contentions, the issues to
be resolved boil down to the following:
1. Whether or not the parties obligation to
reimburse, under the Indemnity Agreements was
premised on the payment by any of them of the
entire obligation;
2. Whether or not there is basis to plaintiffs
apprehension that he would be made to pay twice
for the single obligation; and
3. Whether or not plaintiff was benefited by the
payments made by defendants.
Regarding the first issue, a closer scrutiny of the
pertinent provisions of the Indemnity Agreements
executed by the parties would not reveal any
significant indication that the parties liabilities are
indeed premised on the payment by any of them
of the entire obligation. These agreements clearly
provide that the parties obligation to reimburse
accrues upon mere advice that one of them has
paid or will so pay the obligation. It is not specified
whether the payment is for the entire obligation or
not.
9|OBLICON_Chapter 3_Joint&Solidary Obligations
Accordingly, the Court stands corrected in this
regard. The obvious conclusion that can be seen
now is that payment of the entire obligation is not a
condition sine qua non for the paying party to
demand reimbursement. The parties have expressly
contracted that each will reimburse whoever is
made to pay the obligation whether entirely or just
a portion thereof.
On the second issue, plaintiffs apprehension that
he would be made to pay twice for the single
obligation is unfounded. Under the above-
mentioned Indemnity Agreements, in the event that
the creditors are able to collect from him, he has
the right to ask defendants to pay their
proportionate share, in the same way defendants
had collected from the plaintiff, by foreclosing his
pledged shares of stock, his proportionate share,
after they had made payments. From all
indications, the provisions of the Indemnity
Agreements have remained binding between the
parties.
On the third issue, there is merit to defendants
assertion that plaintiff has benefited from the
payments made by defendants. As alleged by
defendants, and this has not been denied by
plaintiff, in Civil Case No. 8364 filed before Branch
149 of this Court, where the creditors were
enforcing the parties liabilities as sureties, plaintiff
succeeded in having the case dismissed by arguing
that defendants payments [were] for the entire
obligation, hence, the obligation should be
considered fully paid and extinguished. With the
dismissal of the case, the indications are that the
creditors are no longer running after plaintiff to
enforce his liabilities as surety of Ladtek.
Whether or not the surety agreements signed by
the parties and the creditors were novated is not
material in this controversy. The fact is that there
was payment of the obligation. Hence, the
Indemnity Agreements govern.
In the final analysis, defendants payments gave
rise to plaintiffs obligation to reimburse the former.
Having failed to do so, upon demand, defendants
were justified in foreclosing the pledged shares of
stocks.
xxx xxx xxx
WHEREFORE, premises considered, the decision
dated January 12, 1996 is reconsidered and set
aside. The above-entitled complaint against
defendants is DISMISSED.
Likewise, defendants counterclaim is also
dismissed.
SO ORDERED. 16 (Emphasis supplied)
Qua filed a motion for reconsideration of the 3 May
1996 Order which RTC-Branch 63 denied.
Aggrieved, Qua appealed to the Court of Appeals.
During the pendency of the appeal, Qua filed a
Manifestation 17 with the Court of Appeals
attaching the Decision 18 of 21 November 1996
rendered in Collection Case No. 8364. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, judgment is
hereby rendered ordering defendants Ladtek, Inc.
and Lawrence C. Qua:
1. To pay, jointly and severally, the plaintiff the
amount of P44,552,738.34 as of October 31, 1987
plus the stipulated interest of 30.73% per annum
and penalty charges of 12% per annum from
November 1, 1987 until the whole amount is fully
paid, less P7,000,000.00 paid by defendants
Republic Glass Corporation and Gervel, Inc., but
the liability of defendant Lawrence C. Qua should
be limited only to P5,000,000.00 and P1,200,000.00,
the amount stated in the Continuing Suretyship
dated June 15, 1983, Exh. D and Continuing
Suretyship dated December 14, 1981, Exh. D-1,
respectively, plus the stipulated interest and
expenses incurred by the plaintiff.
2. To pay, jointly and severally, the plaintiff an
amount equivalent to ten (10%) percent of the total
amount due as and by way of attorneys fees;
3. To pay the cost of suit.
The Counterclaims of the defendants Ladtek, Inc.
and Lawrence C. Qua against the plaintiff are
hereby dismissed.
Likewise, the cross-claims of the defendants are
dismissed.
SO ORDERED. 19 (Emphasis supplied)
On 6 March 2000, the Court of Appeals rendered
the questioned Decision setting aside the 3 May
1996 Order of RTC-Branch 63 and reinstating the 12
January 1996 Decision ordering RGC and Gervel to
return the foreclosed shares of stock to Qua. 20
Hence, this petition.
The Ruling of the Court of Appeals
In reversing the 3 May 1996 Order and reinstating
the 12 January 1996 Decision, the appellate court
quoted the RTC-Branch 63s 12 January 1996
Decision:
The liability of each party under the indemnity
agreements therefore is premised on the payment
by any of them of the entire obligation. Without
such payment, there would be no corresponding
share to reimburse. Payment of the entire obligation
naturally redounds to the benefit of the other
solidary debtors who must then reimburse the
paying co-debtors to the extent of his
corresponding share.
10 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
In the case at bar, Republic Glass and Gervel
made partial payments only, and so they did not
extinguish the entire obligation. But Republic Glass
and Gervel nevertheless obtained quitclaims in their
favor and so they ceased to be solidarily liable with
plaintiff for the balance of the debt (Exhs. D, E,
and I). Plaintiff thus became solely liable for the
unpaid portion of the debt even as he is being held
liable for reimbursement on the said portion.
What happened therefore, was that Metrobank
and PDCP in effect enforced the Suretyship
Agreements jointly as against plaintiff and
defendants. Consequently, the solidary obligation
under the Suretyship Agreements was novated by
the substantial modification of its principal
conditions. . . . The resulting change was from one
with three solidary debtors to one in which
Lawrence Qua became the sole solidary co-debtor
of Ladtek.
Defendants cannot simply pay off a portion of the
debt and then absolve themselves from any further
liability when the obligation has not been totally
extinguished.
xxx xxx xxx
In the final reckoning, this Court finds that the
foreclosure and sale of the shares pledged by
plaintiff was totally unjustified and without basis
because the obligation secured by the underlying
pledge had been extinguished by novation. . . 21
The Court of Appeals further held that there was an
implied novation or substantial incompatibility in the
suretys mode or manner of payment from one for
the entire obligation to one merely of proportionate
share. The appellate court ruled that RGC and
Gervels payment to the creditors only amounted
to their proportionate shares of the obligation,
considering the following evidence:
The letter of the Republic to the appellant, Exhibit
G, dated June 25, 1987, which mentioned the
letter from PDCP confirming its willingness to release
the joint and solidary obligation of the Republic and
Gervel subject to some terms and conditions, one
of which is the appellants acceptable repayment
plan of his pro-rata share; and the letter of PDCP
to the Republic, Exhibit H, mentioning full
payment of the pro rata share of the Republic
and Gervel, and the need of the appellant to
submit an acceptable repayment plan covering his
pro-rata share, the release from solidary liability
by PDCP, Exhibit J, mentioning full payment by
the Republic and Gervel of their pro rata share in
the loan, as solidary obligors, subject however to
the terms and conditions of the hold out
agreement; and the non-payment in full of the
loan, subject of the May 10, 1984 Promissory Note,
except the 7 million payment by both Republic and
Gervel, as mentioned in the Decision (Case No.
8364, Metrobank vs. Ladtek, et al). Precisely, Ladtek
and the appellant, in said Decision were directed
to pay Metrobank the balance of P9,560,798,
supposedly due and unpaid.
Thus, the payment did not extinguish the entire
obligation and did not benefit Qua. Accordingly,
RGC and Gervel cannot demand reimbursement.
The Court of Appeals also held that Qua even
became solely answerable for the unpaid balance
of the obligations by virtue of the quitclaims
executed by Metrobank and PDCP in favor of RGC
and Gervel. RGC and Gervel ceased to be
solidarily liable for Ladteks loan obligations. 22
The Issues
RGC and Gervel raise the following issues for
resolution:
I.
WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO
QUAS JUDICIAL STATEMENTS THAT RGC AND
GERVEL PAID THE ENTIRE OBLIGATION.
II.
WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A
CONDITION SINE QUA NON FOR RGC AND GERVEL
TO DEMAND REIMBURSEMENT FROM QUA UNDER
THE INDEMNITY AGREEMENTS EXECUTED BY THEM
AFTER RGC AND GERVEL PAID METROBANK UNDER
THE SURETY AGREEMENT.
III.
ASSUMING ARGUENDO THAT THERE WAS NOVATION
OF THE SURETY AGREEMENTS SIGNED BY THE PARTIES
AND THE CREDITORS, WHETHER THE NOVATION IS
MATERIAL IN THIS CASE. 23
The Courts Ruling
We deny the petition.
Whether Qua was in estoppel
RGC and Gervel contend that Qua is in estoppel
for making conflicting statements in two different
and separate cases. Qua cannot now claim that
the payment made to Metrobank was not for the
entire obligation because of his Motion to Dismiss
Collection Case No. 8364 where he stated that
RGC and Gervels payment was for the entire
obligation. HATICc
The essential elements of estoppel in pais are
considered in relation to the party to be estopped,
and to the party invoking the estoppel in his favor.
On the party to be estopped, such party (1)
commits conduct amounting to false
representation or concealment of material facts or
at least calculated to convey the impression that
the facts are inconsistent with those which the party
subsequently attempts to assert; (2) has the intent,
or at least expectation that his conduct shall at
least influence the other party; and (3) has
knowledge, actual or constructive, of the real facts.
On the party claiming the estoppel, such party (1)
has lack of knowledge and of the means of
knowledge of the truth on the facts in question; (2)
11 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
has relied, in good faith, on the conduct or
statements of the party to be estopped; (3) has
acted or refrained from acting based on such
conduct or statements as to change the position or
status of the party claiming the estoppel, to his
injury, detriment or prejudice. 24
In this case, the essential elements of estoppel are
inexistent.
While Quas statements in Collection Case No. 8364
conflict with his statements in Foreclosure Case No.
88-2643, RGC and Gervel miserably failed to show
that Qua, in making those statements, intended to
falsely represent or conceal the material facts. Both
parties undeniably know the real facts.
Nothing in the records shows that RGC and Gervel
relied on Quas statements in Collection Case No.
8364 such that they changed their position or status,
to their injury, detriment or prejudice. RGC and
Gervel repeatedly point out that it was the
presiding judge 25 in Collection Case No. 8364 who
relied on Quas statements in Collection Case No.
8364. RGC and Gervel claim that Qua deliberately
led the Presiding Judge to believe that their
payment to Metrobank was for the entire
obligation. As a result, the presiding judge ordered
the dismissal of Collection Case No. 8364 against
Qua. 26
RGC and Gervel further invoke Section 4 of Rule 129
of the Rules of Court to support their stance:
Sec. 4. Judicial admissions. An admission, verbal
or written, made by a 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.
A party may make judicial admissions in (a) the
pleadings filed by the parties, (b) during the trial
either by verbal or written manifestations or
stipulations, or (c) in other stages of the judicial
proceeding. 27
The elements of judicial admissions are absent in this
case. Qua made conflicting statements in
Collection Case No. 8364 and in Foreclosure Case
No. 88-2643, and not in the same case as
required in Section 4 of Rule 129. To constitute
judicial admission, the admission must be made in
the same case in which it is offered. If made in
another case or in another court, the fact of such
admission must be proved as in the case of any
other fact, although if made in a judicial
proceeding it is entitled to greater weight. 28
RGC and Gervel introduced Quas Motion to
Dismiss and the Order dismissing Collection Case
No. 8364 to prove Quas claim that the payment
was for the entire obligation. Qua does not deny
making such statement but explained that he
honestly believed and pleaded in the lower court
and in CA-G.R. CV No. 58550 that the entire debt
was fully extinguished when the petitioners paid P7
million to Metrobank. 29
We find Quas explanation substantiated by the
evidence on record. As stated in the Agreements,
Ladteks original loan from Metrobank was only P6.2
million. Therefore, Qua reasonably believed that
RGC and Gervels P7 million payment to Metrobank
pertained to the entire obligation. However,
subsequent facts indisputably show that RGC and
Gervels payment was not for the entire obligation.
RTC-Branch 149 reinstated Collection Case No. 8364
against Qua and ruled in Metrobanks favor,
ordering Qua to pay P6.2 million.
Whether payment of the entire obligation is an
essential condition for reimbursement
RGC and Gervel assail the Court of Appeals ruling
that the parties liabilities under the Agreements
depend on the full payment of the obligation. RGC
and Gervel insist that it is not an essential condition
that the entire obligation must first be paid before
they can seek reimbursement from Qua. RGC and
Gervel contend that Qua should pay 42.22% of any
amount which they paid or would pay Metrobank
and PDCP.
RGC and Gervels contention is partly meritorious.
Payment of the entire obligation by one or some of
the solidary debtors results in a corresponding
obligation of the other debtors to reimburse the
paying debtor. 30 However, we agree with RGC
and Gervels contention that in this case payment
of the entire obligation is not an essential condition
before they can seek reimbursement from Qua. The
words of the Agreements are clear.
RGC, GERVEL and QUA each covenant that each
will respectively reimburse the party made to pay
the Lenders to the extent and subject to the
limitations set forth herein, all sums of money which
the party made to pay the Lenders shall pay or
become liable to pay by reason of any of the
foregoing, and will make such payments within five
(5) days from the date that the party made to pay
the Lenders gives written notice to the parties
hereto that it shall have become liable therefor and
has advised the Lenders of its willingness to pay
whether or not it shall have already paid out such
sum or any part thereof to the Lenders or to the
persons entitled thereto. (Emphasis supplied)
The Agreements are contracts of indemnity not only
against actual loss but against liability as well. In
Associated Insurance & Surety Co., Inc. v. Chua, 31
we distinguished between a contract of indemnity
against loss and a contract of indemnity against
liability, thus: 32
The agreement here sued upon is not only one of
indemnity against loss but of indemnity against
liability. While the first does not render the
indemnitor liable until the person to be indemnified
12 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
makes payment or sustains loss, the second
becomes operative as soon as the liability of the
person indemnified arises irrespective of whether or
not he has suffered actual loss. (Emphasis supplied)
Therefore, whether the solidary debtor has paid the
creditor, the other solidary debtors should indemnify
the former once his liability becomes absolute.
However, in this case, the liability of RGC, Gervel
and Qua became absolute simultaneously when
Ladtek defaulted in its loan payment. As a result,
RGC, Gervel and Qua all became directly liable at
the same time to Metrobank and PDCP. Thus, RGC
and Gervel cannot automatically claim for
indemnity from Qua because Qua himself is liable
directly to Metrobank and PDCP.
If we allow RGC and Gervel to collect from Qua his
proportionate share, then Qua would pay much
more than his stipulated liability under the
Agreements. In addition to the P3,860,646 claimed
by RGC and Gervel, Qua would have to pay his
liability of P6.2 million to Metrobank and more than
P1 million to PDCP. Since Qua would surely exceed
his proportionate share, he would then recover
from RGC and Gervel the excess payment. This
situation is absurd and circuitous.
Contrary to RGC and Gervels claim, payment of
any amount will not automatically result in
reimbursement. If a solidary debtor pays the
obligation in part, he can recover reimbursement
from the co-debtors only in so far as his payment
exceeded his share in the obligation. 33 This is
precisely because if a solidary debtor pays an
amount equal to his proportionate share in the
obligation, then he in effect pays only what is due
from him. If the debtor pays less than his share in the
obligation, he cannot demand reimbursement
because his payment is less than his actual debt.
To determine whether RGC and Gervel have a right
to reimbursement, it is indispensable to ascertain
the total obligation of the parties. At this point, it
becomes necessary to consider the decision in
Collection Case No. 8364 on the parties obligation
to Metrobank. To repeat, Metrobank filed
Collection Case No. 8364 against Ladtek, RGC,
Gervel and Qua to collect Ladteks unpaid loan.
RGC and Gervel assail the Court of Appeals
consideration of the decision in Collection Case No.
8364 34 because Qua did not offer the decision in
evidence during the trial in Foreclosure Case No.
88-2643 subject of this petition. RTC-Branch 62 35
rendered the decision in Collection Case No. 8364
on 21 November 1996 while Qua filed his Notice of
Appeal of the 3 May 1996 Order on 19 June 1996.
Qua could not have possibly offered in evidence
the decision in Collection Case No. 8364 because
RTC-Branch 62 rendered the decision only after
Qua elevated the present case to the Court of
Appeals. Hence, Qua submitted the decision in
Collection Case No. 8364 during the pendency of
the appeal of Foreclosure Case No. 88-2643 in the
Court of Appeals.
As found by RTC-Branch 62, RGC, Gervel and Quas
total obligation was P14,200,854.37 as of 31
October 1987. 36 During the pendency of
Collection Case No. 8364, RGC and Gervel paid
Metrobank P7 million. Because of the payment,
Metrobank executed a quitclaim 37 in favor of RGC
and Gervel. By virtue of Metrobanks quitclaim, RTC-
Branch 62 dismissed Collection Case No. 8364
against RGC and Gervel, leaving Ladtek and Qua
as defendants. Considering that RGC and Gervel
paid only P7 million out of the total obligation of
P14,200,854.37, which payment was less than RGC
and Gervels combined shares in the obligation, 38
it was clearly partial payment. Moreover, if it were
full payment, then the obligation would have been
extinguished. Metrobank would have also released
Qua from his obligation.
RGC and Gervel also made partial payment to
PDCP. Proof of this is the Release from Solidary
Liability that PDCP executed in RGC and Gervels
favor which stated that their payment of
P1,730,543.55 served as full payment of their
corresponding proportionate share in Ladteks
foreign currency loan. 39 Moreover, PDCP filed a
collection case against Qua alone, docketed as
Civil Case No. 2259, in the Regional Trial Court of
Makati, Branch 150. 40
Since they only made partial payments, RGC and
Gervel should clearly and convincingly show that
their payments to Metrobank and PDCP exceeded
their proportionate shares in the obligations before
they can seek reimbursement from Qua. This RGC
and Gervel failed to do. RGC and Gervel, in fact,
never claimed that their payments exceeded their
shares in the obligations. Consequently, RGC and
Gervel cannot validly seek reimbursement from
Qua.
Whether there was novation of the Agreements
RGC and Gervel contend that there was no
novation of the Agreements. RGC and Gervel
further contend that any novation of the
Agreements is immaterial to this case. RGC and
Gervel disagreed with the Court of Appeals on the
effect of the implied novation which supposedly
transpired in this case. The Court of Appeals found
that there was an implied novation or substantial
incompatibility in the mode or manner of payment
by the surety from the entire obligation, to one
merely of proportionate share. RGC and Gervel
claim that if it is true that an implied novation
occurred, then the effect would be to release
respondent (Qua) as the entire obligation is
considered extinguished by operation of law. Thus,
Qua should now reimburse RGC and Gervel his
proportionate share under the surety agreements.
Novation extinguishes an obligation by (1)
changing its object or principal conditions; (2)
substituting the person of the debtor; and (3)
subrogating a third person in the rights of the
creditor. Article 1292 of the Civil Code clearly
provides that in order that an obligation may be
extinguished by another which substitutes the same,
13 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
it should be declared in unequivocal terms, or that
the old and new obligations be on every point
incompatible with each other. 41 Novation may
either be extinctive or modificatory. Novation is
extinctive when an old obligation is terminated by
the creation of a new obligation that takes the
place of the former. Novation is merely
modificatory when the old obligation subsists to the
extent it remains compatible with the amendatory
agreement. 42
We find that there was no novation of the
Agreements. The parties did not constitute a new
obligation to substitute the Agreements. The terms
and conditions of the Agreements remain the
same. There was also no showing of complete
incompatibility in the manner of payment of the
parties obligations. Contrary to the Court of
Appeals ruling, the mode or manner of payment
by the parties did not change from one for the
entire obligation to one merely of proportionate
share. The creditors, namely Metrobank and PDCP,
merely proceeded against RGC and Gervel for
their proportionate shares only. 43 This preference is
within the creditors discretion which did not
necessarily affect the nature of the obligations as
well as the terms and conditions of the Agreements.
A creditor may choose to proceed only against
some and not all of the solidary debtors. The
creditor may also choose to collect part of the
debt from some of the solidary debtors, and the
remaining debt from the other solidary debtors.
In sum, RGC and Gervel have no legal basis to seek
reimbursement from Qua. Consequently, RGC and
Gervel cannot validly foreclose the pledge of
Quas GMC shares of stock which secured his
obligation to reimburse. 44 Therefore, the
foreclosure of the pledged shares of stock has no
leg to stand on.
WHEREFORE, we DENY the petition. The Decision
dated 6 March 2000 of the Court of Appeals in CA-
G.R. CV No. 54737 is AFFIRMED. Costs against
petitioners.
SO ORDERED.
Davide, Jr., C .J ., Quisumbing and Azcuna, JJ .,
concur
Ynares-Santiago, J ., took no part.
(E. Zobel, Inc. v. Court of Appeals, G.R. No. 113931,
May 06, 1998)
SECOND DIVISION
[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.
Herrera, Teehankee & Faylona for petitioner.
De los Reyes, Banaga, Briones & Associates for
private respondents.
SYNOPSIS
A complaint for sum of money with prayer for a writ
of preliminary attachment was filed by respondent
SOLIDBANK against respondent spouses Raul and
Elea Claveria who failed to pay their loan which
was secured by a chattel mortgage and a
Continuing Guaranty of herein petitioner E. Zobel,
Inc. which was also joined as party-defendant. The
petitioner moved to dismiss the complaint
contending that its liability was extinguished
pursuant to Article 2080 of the Civil Code
considering that it has lost its right to subrogate to
the chattel mortgage in view of the failure of
SOLIDBANK to register the chattel mortgage with
the appropriate government agency. The trial court
in an order denied the said motion on the ground
that based on the provisions of the document
signed by the petitioner, it acted as a surety and
not as a guarantor. On petition for certiorari, the
Court of Appeals affirmed the said order.
Hence, this petition for review.
The Court ruled 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. Likewise, 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. Thus, having 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, the Court ruled that
Article 2080 of the New Civil Code does not apply
where the liability is as a surety, not as a guarantor.
aSEHDA
SYLLABUS
14 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
CONTRACT OF GUARANTY AND CONTRACT OF
SURETY; DISTINGUISHED. 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. 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. 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. 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.
2. ID.; ID.; CONTRACT OF SURETY; CASE AT BAR.
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. 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. SCADIT
3. ID.; ID.; ID.; THE USE OF THE TERM "GUARANTEE"
DOES NOT IPSO FACTO MEAN THAT THE CONTRACT
IS ONE OF GUARANTY. 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. 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.
4. ID.; ID.; ARTICLE 2080 OF THE CIVIL CODE NOT
APPLICABLE. 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 Saving
Association vs. Guinhawa, 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.
5. ID.; ID.; PETITIONER NOT RELEASED FROM
OBLIGATION; CASE AT BAR. 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. cHCIDE
DECISION
MARTINEZ, J p:
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.
cdasia
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.
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.
15 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
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.
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
Thereafter, petitioner questioned said Orders before
the respondent Court of Appeals, through a
petition for certiorari, 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.
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.
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,
16 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
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 principals. 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.
"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 Supplied) cdasia
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
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
17 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
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.
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 or such notice. No 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. cdasia
Regalado, Melo and Puno, JJ ., concur.
Mendoza, J ., took no part, having concurred in the
decision of the Court of Appeals when I was a
member of that Court.
(International Finance Corp. v. Imperial Textile Mills
Inc., G.R. No. 160324, November 15, 2005)
THIRD DIVISION
[G.R. No. 160324. November 15, 2005.]
INTERNATIONAL FINANCE CORPORATION, Petitioner,
vs. IMPERIAL TEXTILE MILLS, INC., ** respondent.
DECISION
PANGANIBAN, J p:
The terms of a contract govern the rights and
obligations of the contracting parties. When the
obligor undertakes to be "jointly and severally"
liable, it means that the obligation is solidary. If
solidary liability was instituted to "guarantee" a
principal obligation, the law deems the contract to
be one of suretyship.
The creditor in the present Petition was able to show
convincingly that, although denominated as a
"Guarantee Agreement," the Contract was actually
a surety. Notwithstanding the use of the words
"guarantee" and "guarantor," the subject Contract
was indeed a surety, because its terms were clear
and left no doubt as to the intention of the parties.
The Case
Before us is a Petition for Review 1 under Rule 45 of
the Rules of Court, assailing the February 28, 2002
Decision 2 and September 30, 2003 Resolution 3 of
18 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
the Court of Appeals (CA) in CA-GR CV No. 58471.
The challenged Decision disposed as follows:
"WHEREFORE, the appeal is PARTIALLY GRANTED.
The decision of the trial court is MODIFIED to read as
follows:
"1. Philippine Polyamide Industrial Corporation is
ORDERED to pay [Petitioner] International Finance
Corporation, the following amounts:
'(a) US$2,833,967.00 with accrued interests as
provided in the Loan Agreement;
'(b) Interest of 12% per annum on accrued interest,
which shall be counted from the date of filing of the
instant action up to the actual payment;
'(c) P73,340.00 as attorney's fees;
'(d) Costs of suit.'
"2. The guarantor Imperial Textile Mills, Inc. together
with Grandtex is HELD secondarily liable to pay the
amount herein adjudged to [Petitioner]
International Finance Corporation." 4
The assailed Resolution denied both parties'
respective Motions for Reconsideration. AHCTEa
The Facts
The facts are narrated by the appellate court as
follows:
"On December 17, 1974, [Petitioner] International
Finance Corporation (IFC) and [Respondent]
Philippine Polyamide Industrial Corporation (PPIC)
entered into a loan agreement wherein IFC
extended to PPIC a loan of US$7,000,000.00,
payable in sixteen (16) semi-annual installments of
US$437,500.00 each, beginning June 1, 1977 to
December 1, 1984, with interest at the rate of 10%
per annum on the principal amount of the loan
advanced and outstanding from time to time. The
interest shall be paid in US dollars semi-annually on
June 1 and December 1 in each year and interest
for any period less than a year shall accrue and be
pro-rated on the basis of a 360-day year of twelve
30-day months.
"On December 17, 1974, a 'Guarantee Agreement'
was executed with . . . Imperial Textile Mills, Inc.
(ITM), Grand Textile Manufacturing Corporation
(Grandtex) and IFC as parties thereto. ITM and
Grandtex agreed to guarantee PPIC's obligations
under the loan agreement.
"PPIC paid the installments due on June 1, 1977,
December 1, 1977 and June 1, 1978. The payments
due on December 1, 1978, June 1, 1979 and
December 1, 1979 were rescheduled as requested
by PPIC. Despite the rescheduling of the installment
payments, however, PPIC defaulted. Hence, on
April 1, 1985, IFC served a written notice of default
to PPIC demanding the latter to pay the
outstanding principal loan and all its accrued
interests. Despite such notice, PPIC failed to pay the
loan and its interests.
"By virtue of PPIC's failure to pay, IFC, together with
DBP, applied for the extrajudicial foreclosure of
mortgages on the real estate, buildings, machinery,
equipment plant and all improvements owned by
PPIC, located at Calamba, Laguna, with the
regional sheriff of Calamba, Laguna. On July 30,
1985, the deputy sheriff of Calamba, Laguna issued
a notice of extrajudicial sale. IFC and DBP were the
only bidders during the auction sale. IFC's bid was
for P99,269,100.00 which was equivalent to
US$5,250,000.00 (at the prevailing exchange rate of
P18.9084 = US$1.00). The outstanding loan, however,
amounted to US$8,083,967.00 thus leaving a
balance of US$2,833,967.00. PPIC failed to pay the
remaining balance.
"Consequently, IFC demanded ITM and Grandtex,
as guarantors of PPIC, to pay the outstanding
balance. However, despite the demand made by
IFC, the outstanding balance remained unpaid.
"Thereafter, on May 20, 1988, IFC filed a complaint
with the RTC of Manila against PPIC and ITM for the
payment of the outstanding balance plus interests
and attorney's fees.
"The trial court held PPIC liable for the payment of
the outstanding loan plus interests. It also ordered
PPIC to pay IFC its claimed attorney's fees.
However, the trial court relieved ITM of its obligation
as guarantor. Hence, the trial court dismissed IFC's
complaint against ITM.
xxx xxx xxx
"Thus, apropos the decision dismissing the complaint
against ITM, IFC appealed [to the CA]." 5
Ruling of the Court of Appeals
The CA reversed the Decision of the trial court,
insofar as the latter exonerated ITM from any
obligation to IFC. According to the appellate court,
ITM bound itself under the "Guarantee Agreement"
to pay PPIC's obligation upon default. 6 ITM was not
discharged from its obligation as guarantor when
PPIC mortgaged the latter's properties to IFC. 7 The
CA, however, held that ITM's liability as a guarantor
would arise only if and when PPIC could not pay.
Since PPIC's inability to comply with its obligation
was not sufficiently established, ITM could not
immediately be made to assume the liability. 8
The September 30, 2003 Resolution of the CA
denied reconsideration. 9 Hence, this Petition. 10
The Issues
Petitioner states the issues in this wise:
"I. Whether or not ITM and Grandtex 11 are sureties
and therefore, jointly and severally liable with PPIC,
for the payment of the loan. TaIHEA
19 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
"II. Whether or not the Petition raises a question of
law.
"III. Whether or not the Petition raises a theory not
raised in the lower court." 12
The main issue is whether ITM is a surety, and thus
solidarily liable with PPIC for the payment of the
loan.
The Court's Ruling
The Petition is meritorious.
Main Issue:
Liability of Respondent Under
the Guarantee Agreement
The present controversy arose from the following
Contracts: (1) the Loan Agreement dated
December 17, 1974, between IFC and PPIC; 13 and
(2) the Guarantee Agreement dated December 17,
1974, between ITM and Grandtex, on the one
hand, and IFC on the other. 14
IFC claims that, under the Guarantee Agreement,
ITM bound itself as a surety to PPIC's obligations
proceeding from the Loan Agreement. 15 For its
part, ITM asserts that, by the terms of the Guarantee
Agreement, it was merely a guarantor 16 and not a
surety. Moreover, any ambiguity in the Agreement
should be construed against IFC the party that
drafted it. 17
Language of the
Contract
The premise of the Guarantee Agreement is found
in its preambular clause, which reads:
"Whereas,
"(A) By an Agreement of even date herewith
between IFC and PHILIPPINE POLYAMIDE INDUSTRIAL
CORPORATION (herein called the Company),
which agreement is herein called the Loan
Agreement, IFC agrees to extend to the Company
a loan (herein called the Loan) of seven million
dollars ($7,000,000) on the terms therein set forth,
including a provision that all or part of the Loan
may be disbursed in a currency other than dollars,
but only on condition that the Guarantors agree to
guarantee the obligations of the Company in
respect of the Loan as hereinafter provided.
"(B) The Guarantors, in order to induce IFC to enter
into the Loan Agreement, and in consideration of
IFC entering into said Agreement, have agreed so
to guarantee such obligations of the Company." 18
The obligations of the guarantors are meticulously
expressed in the following provision:
"Section 2.01. The Guarantors jointly and severally,
irrevocably, absolutely and unconditionally
guarantee, as primary obligors and not as sureties
merely, the due and punctual payment of the
principal of, and interest and commitment charge
on, the Loan, and the principal of, and interest on,
the Notes, whether at stated maturity or upon
prematuring, all as set forth in the Loan Agreement
and in the Notes." 19
The Agreement uses "guarantee" and "guarantors,"
prompting ITM to base its argument on those words.
20 This Court is not convinced that the use of the
two words limits the Contract to a mere guaranty.
The specific stipulations in the Contract show
otherwise.
Solidary Liability
Agreed to by ITM
While referring to ITM as a guarantor, the
Agreement specifically stated that the corporation
was "jointly and severally" liable. To put emphasis on
the nature of that liability, the Contract further
stated that ITM was a primary obligor, not a mere
surety. Those stipulations meant only one thing: that
at bottom, and to all legal intents and purposes, it
was a surety.
Indubitably therefore, ITM bound itself to be
solidarily 21 liable with PPIC for the latter's
obligations under the Loan Agreement with IFC. ITM
thereby brought itself to the level of PPIC and could
not be deemed merely secondarily liable. SDAaTC
Initially, ITM was a stranger to the Loan Agreement
between PPIC and IFC. ITM's liability commenced
only when it guaranteed PPIC's obligation. It
became a surety when it bound itself solidarily with
the principal obligor. Thus, the applicable law is as
follows:
"Article 2047. By guaranty, a person, called the
guarantor binds himself to the creditor to fulfill the
obligation of the principal 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 shall be called suretyship." 22
The aforementioned provisions refer to Articles 1207
to 1222 of the Civil Code on "Joint and Solidary
Obligations." Relevant to this case is Article 1216,
which 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."
Pursuant to this provision, petitioner (as creditor)
was justified in taking action directly against
respondent.
No Ambiguity in the
Undertaking
20 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
The Court does not find any ambiguity in the
provisions of the Guarantee Agreement. When
qualified by the term "jointly and severally," the use
of the word "guarantor" to refer to a "surety" does
not violate the law. 23 As Article 2047 provides, a
suretyship is created when a guarantor binds itself
solidarily with the principal obligor. Likewise, the
phrase in the Agreement "as primary obligor and
not merely as surety" stresses that ITM is being
placed on the same level as PPIC. Those words
emphasize the nature of their liability, which the law
characterizes as a suretyship.
The use of the word "guarantee" does not ipso
facto make the contract one of guaranty. 24 This
Court has recognized that the word is frequently
employed in business transactions to describe the
intention to be bound by a primary or an
independent obligation. 25 The very terms of a
contract govern the obligations of the parties or the
extent of the obligor's liability. Thus, this Court has
ruled in favor of suretyship, even though contracts
were denominated as a "Guarantor's Undertaking"
26 or a "Continuing Guaranty." 27
Contracts have the force of law between the
parties, 28 who are free to stipulate any matter not
contrary to law, morals, good customs, public order
or public policy. 29 None of these circumstances
are present, much less alleged by respondent.
Hence, this Court cannot give a different meaning
to the plain language of the Guarantee
Agreement.
Indeed, the finding of solidary liability is in line with
the premise provided in the "Whereas" clause of the
Guarantee Agreement. The execution of the
Agreement was a condition precedent for the
approval of PPIC's loan from IFC. Consistent with the
position of IFC as creditor was its requirement of a
higher degree of liability from ITM in case PPIC
committed a breach. ITM agreed with the
stipulation in Section 2.01 and is now estopped from
feigning ignorance of its solidary liability. The literal
meaning of the stipulations control when the terms
of the contract are clear and there is no doubt as
to the intention of the parties. 30
We note that the CA denied solidary liability, on the
theory that the parties would not have executed a
Guarantee Agreement if they had intended to
name ITM as a primary obligor. 31 The appellate
court opined that ITM's undertaking was collateral
to and distinct from the Loan Agreement. On this
point, the Court stresses that a suretyship is merely
an accessory or a collateral to a principal
obligation. 32 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. 33 A surety becomes liable to the debt
and duty of the principal obligor even without
possessing a direct or personal interest in the
obligations constituted by the latter. 34
ITM's Liability as Surety
With the present finding that ITM is a surety, it is clear
that the CA erred in declaring the former
secondarily liable. 35 A surety is considered in law to
be on the same footing as the principal debtor in
relation to whatever is adjudged against the latter.
36 Evidently, the dispositive portion of the assailed
Decision should be modified to require ITM to pay
the amount adjudged in favor of IFC. AaDSEC
Peripheral Issues
In addition to the main issue, ITM raised procedural
infirmities allegedly justifying the denial of the
present Petition. Before the trial court and the CA,
IFC had allegedly instituted different arguments
that effectively changed the corporation's theory
on appeal, in violation of this Court's previous
pronouncements. 37 ITM further claims that the
main issue in the present case is a question of fact
that is not cognizable by this Court. 38
These contentions deserve little consideration.
Alleged Change of
Theory on Appeal
Petitioner's arguments before the trial court (that
ITM was a "primary obligor") and before the CA
(that ITM was a "surety") were related and
intertwined in the action to enforce the solidary
liability of ITM under the Guarantee Agreement. We
emphasize that the terms "primary obligor" and
"surety" were premised on the same stipulations in
Section 2.01 of the Agreement. Besides, both terms
had the same legal consequences. There was
therefore effectively no change of theory on
appeal. At any rate, ITM failed to show to this Court
a disparity between IFC's allegations in the trial
court and those in the CA. Bare allegations without
proof deserve no credence.
Review of Factual
Findings Necessary
As to the issue that only questions of law may be
raised in a Petition for Review, 39 the Court has
recognized exceptions, 40 one of which applies to
the present case. The assailed Decision was based
on a misapprehension of facts, 41 which particularly
related to certain stipulations in the Guarantee
Agreement stipulations that had not been
disputed by the parties. This circumstance
compelled the Court to review the Contract
firsthand and to make its own findings and
conclusions accordingly.
WHEREFORE, the Petition is hereby GRANTED, and
the assailed Decision and Resolution MODIFIED in
the sense that Imperial Textile Mills, Inc. is declared
a surety to Philippine Polyamide Industrial
Corporation. ITM is ORDERED to pay International
Finance Corporation the same amounts adjudged
against PPIC in the assailed Decision. No costs.
SO ORDERED.
Corona, Carpio Morales and Garcia, JJ., concur.
Sandoval-Gutierrez, J., is on official leave.
21 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
(Heirs of Poe v. Malayan Insurance Co., Inc., G.R.
No. 156302, April 07, 2009)
THIRD DIVISION
[G.R. No. 156302. April 7, 2009.]
THE HEIRS OF GEORGE Y. POE, petitioners, vs.
MALAYAN INSURANCE COMPANY, INC.,
respondent.
DECISION
CHICO-NAZARIO, J p:
The instant Petition for Review under Rule 45 1 of the
Rules of Court assails the Decision 2 dated 26 June
2002 of the Court of Appeals in CA-G.R. SP No.
67297, which granted the Petition for Certiorari of
respondent Malayan Insurance Company, Inc.
(MICI) and recalled and set aside the Order 3
dated 6 September 2001 of the Regional Trial Court
(RTC), Branch 73, of Antipolo City, in Civil Case No.
93-2705. The RTC, in its recalled Order, denied the
Notice of Appeal of MICI and granted the Motion
for the Issuance of a Writ of Execution filed by
petitioners Heirs of George Y. Poe. The present
Petition also challenges the Resolution 4 dated 29
November 2002 of the appellate court denying
petitioners' Motion for Reconsideration. EcDSTI
Records show that on 26 January 1996 at about
4:45 a.m., George Y. Poe (George) while waiting for
a ride to work in front of Capital Garments
Corporation, Ortigas Avenue Extension, Barangay
Dolores, Taytay, Rizal, was run over by a ten-
wheeler Isuzu hauler truck with Plate No. PMH-858
owned by Rhoda Santos (Rhoda), and then being
driven by Willie Labrador (Willie). 5 The said truck
was insured with respondent MICI under Policy No.
CV-293-007446-8.
To seek redress for George's untimely death, his heirs
and herein petitioners, namely, his widow
Emercelinda, and their children Flerida and
Fernando, filed with the RTC a Complaint for
damages against Rhoda and respondent MICI,
docketed as Civil Case No. 93-2705. 6 Petitioners
identified Rhoda and respondent MICI, as follows:
Defendant RHODA SANTOS is likewise of legal age,
Filipino and a resident of Real Street, Pamplona, Las
Pias, Metro Manila where she may be served with
summons and other court processes.
[Herein respondent] MALAYAN INSURANCE
COMPANY, INC. (hereinafter "[MICI]" for brevity) is a
corporation duly organized and existing under
Philippine law with address at Yuchengco Bldg., 484
Q. Paredes Street, Binondo, Manila where it may be
served with summons and other processes of this
Honorable Court;
Defendant Rhoda Santos, who is engaged in the
business, among others, of selling gravel and sand is
the registered owner of one Isuzu Truck, with Plate
No. PMH-858 and is the employer of Willie Labrador
the authorized driver of the aforesaid truck.
[Respondent MICI] on the other hand is the insurer
of Rhoda Santos under a valid and existing
insurance policy duly issued by said [MICI], Policy
No. CV-293-007446-8 over the subject vehicle
owned by Rhoda Santos, Truck-Hauler Isuzu 10
wheeler with plate no. PMH-858, serial no. SRZ451-
1928340 and motor no. 10PA1-403803. Under said
insurance policy, [MICI] binds itself, among others,
to be liable for damages as well as any bodily injury
to third persons which may be caused by the
operation of the insured vehicle. 7 EcDSHT
And prayed that:
[J]udgment issue in favor of [herein petitioners]
ordering [Rhoda and herein respondent MICI] jointly
and solidarily to pay the [petitioners] the following:
1. Actual damages in the total amount of THIRTY SIX
THOUSAND (P36,000.00) PESOS for funeral and burial
expenses;
2. Actual damages in the amount of EIGHT
HUNDRED FIVE THOUSAND NINE HUNDRED EIGHTY
FOUR (P805,984.00) PESOS as loss of earnings and
financial support given by the deceased by reason
of his income and employment;
3. Moral damages in the amount of FIFTY
THOUSAND (P50,000.00) PESOS;
4. Exemplary damages in the amount of FIFTY
THOUSAND (P50,000.00) PESOS;
5. Attorney's fees in the amount of FIFTY THOUSAND
(P50,000.00) PESOS and litigation expense in the
amount of ONE THOUSAND FIVE HUNDRED
(P1,500.00) PESOS for each court appearance;
6. The costs of suit.
Other reliefs just and equitable in the premises are
likewise prayed for. 8
Rhoda and respondent MICI made the following
admissions in their Joint Answer: 9
That [Rhoda and herein respondent MICI] admit the
allegations in paragraphs 2, 3 and 4 of the
complaint;
That [Rhoda and respondent MICI] admit the
allegations in paragraph 5 of the complaint that
the cargo truck is insured with [respondent]
Malayan Insurance Company, Inc. [(MICI)]
however, the liability of the insured company
attached only if there is a judicial pronouncement
that the insured and her driver are liable and
moreover, the liability of the insurance company is
subject to the limitations set forth in the insurance
policy. 10 TSacCH
Rhoda and respondent MICI denied liability for
George's death averring, among other defenses,
that: a) the accident was caused by the negligent
act of the victim George, who surreptitiously and
22 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
unexpectedly crossed the road, catching the driver
Willie by surprise, and despite the latter's effort to
swerve the truck to the right, the said vehicle still
came into contact with the victim; b) the liability of
respondent MICI, if any, would attach only upon a
judicial pronouncement that the insured Rhoda
and her driver Willie are liable; c) the liability of MICI
should be based on the extent of the insurance
coverage as embodied in Rhoda's policy; and d)
Rhoda had always exercised the diligence of a
good father of a family in the selection and
supervision of her driver Willie.
After the termination of the pre-trial proceedings,
trial on the merits ensued.
Petitioners introduced and offered evidence in
support of their claims for damages against MICI,
and then rested their case. Thereafter, the hearings
for the reception of the evidence of Rhoda and
respondent MICI were scheduled, but they failed to
adduce their evidence despite several
postponements granted by the trial court. Thus,
during the hearing on 9 June 1995, the RTC, upon
motion of petitioners' counsel, issued an Order 11
declaring that Rhoda and respondent MICI had
waived their right to present evidence, and
ordering the parties to already submit their
respective Memorandum within 15 days, after
which, the case would be deemed submitted for
decision.
Rhoda and respondent MICI filed a Motion for
Reconsideration 12 of the Order dated 9 June 1995,
but it was denied by the RTC in another Order
dated 11 August 1995. 13
Consequently, Rhoda and respondent MICI filed a
Petition for Certiorari, Mandamus, 14 Prohibition and
Injunction with Prayer for a Temporary Restraining
Order and Writ of Preliminary Injunction, assailing
the Orders dated 9 June 1995 and 11 August 1995
of the RTC foreclosing their right to adduce
evidence in support of their defense. The Petition
was docketed as CA-G.R. SP No. 38948. EHSADa
The Court of Appeals, through its Third Division,
promulgated a Decision 15 on 29 April 1996,
denying due course to the Petition in CA-G.R. SP
No. 38948. Rhoda and respondent MICI elevated
the matter to the Supreme Court via a Petition for
Certiorari, 16 docketed as G.R. No. 126244. This
Court likewise dismissed the Petition in G.R. No.
126244 in a Resolution dated 30 September 1996. 17
Entry of Judgment was made in G.R. No. 126244 on
8 November 1996. 18
On 28 February 2000, the RTC rendered a Decision
in Civil Case No. 93-2705, the dispositive portion of
which reads:
Wherefore, [Rhoda and herein respondent MICI]
are hereby ordered to pay jointly and solidarily to
the [herein petitioners] the following:
1. Moral damages amounting to P100,000.00;

2. Actual damages for loss of earning capacity
amounting to P805,984.00;
3. P36,000.00 for funeral expenses;
4. P50,000.00 as exemplary damages;
5. P50,000.00 for attorney's fees plus P1,500 per court
appearance; and
6. Cost of suit. 19
Rhoda and respondent MICI received their copy of
the foregoing RTC Decision on 14 March 2000. 20
On 22 March 2000, respondent MICI and Rhoda
filed a Motion for Reconsideration 21 of said
Decision, averring therein that the RTC erred in
ruling that the obligation of Rhoda and respondent
MICI to petitioners was solidary or joint and several;
in computing George's loss of earning capacity not
in accord with established jurisprudence; and in
awarding moral damages although it was not
buttressed by evidence. ACcHIa
Resolving the Motion of respondent MICI and
Rhoda, the RTC issued an Order 22 on 24 January
2001 modifying and amending its Decision dated 28
February 2000, and dismissing the case against
respondent MICI.
The RTC held that:
After a careful evaluation of the issues at hand, the
contention of the [herein respondent MICI] as far as
the solidary liability of the insurance company with
the other defendant [Rhoda] is meritorious.
However, the assailed Decision can be modified or
amended to correct the same honest inadvertence
without necessarily reversing it and set aside to
conform with the evidence on hand.
The RTC also re-computed George's loss of earning
capacity, as follows:
The computation of actual damages for loss of
earning capacity was determined by applying the
formula adopted in the American Expectancy
Table of Mortality or the actuarial of Combined
Experience Table of Mortality applied in . . . Villa Rey
Transit, Inc. v. Court of Appeals (31 SCRA 521).
Moral damages is awarded in accordance with
Article 2206 of the New Civil Code of the
Philippines. While death indemnity in the amount of
P50,000.00 is automatically awarded in cases where
the victim had died (People v. Sison, September 14,
1990 [189 SCRA 643]). 23
In the end, the RTC decreed:
WHEREFORE, in view of the foregoing consideration,
the Decision of this Court dated 28 February 2000 is
hereby amended or modified. Said Decision should
read as follows:
23 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
"Wherefore, defendant Rhoda Santos is hereby
ordered to pay to the [herein petitioners] the
following:
1. Moral damages amounting to P100,000.00;
2. Actual damages for loss of earning capacity
amounting to P102,106.00;
3. P36,000.00 for funeral expenses;
4. P50,000.00 as death indemnity;
5. P50,000.00 for attorney's fees plus P1,500.00 per
court appearance;
6. Costs of the suit.
The case against Malayan Insurance Company,
Inc. is hereby dismissed." 24 HSaCcE
It was petitioners' turn to file a Motion for
Reconsideration 25 of the 24 January 2001 Order, to
which respondent MICI filed a "Vigorous Opposition
to the Plaintiff's Motion for Reconsideration." 26
On 15 June 2001, the RTC issued an Order
reinstating its Decision dated 28 February 2000,
relevant portions of which state:
Finding the arguments raised by the [herein
petitioners] in their Motion for Reconsideration of
the Order of this Court dated January 24, 2001 to
be more meritorious to [herein respondent's]
Malayan Insurance Co., Inc. (sic) arguments in its
vigorous opposition thereto, said motion is hereby
granted.
Accordingly, the Order under consideration is
hereby reconsidered and set aside. The decision of
this Court dated February 28, 2000 is hereby
reinstated.
Notify parties herein. 27
Respondent MICI received a copy of the 15 June
2001 Order of the RTC on 27 June 2001.
Aggrieved by the latest turn of events, respondent
MICI filed on 9 July 2001 a Notice of Appeal 28 of
the 28 February 2000 Decision of the RTC, reinstated
by the 15 June 2001 Resolution of the same court.
Rhoda did not join respondent MICI in its Notice of
Appeal. 29
Petitioners filed their Opposition 30 to the Notice of
Appeal of respondent MICI, with a Motion for the
Issuance of Writ of Execution.
After considering the recent pleadings of the
parties, the RTC, in its Order dated 6 September
2001, denied the Notice of Appeal of respondent
MICI and granted petitioners' Motion for the
Issuance of Writ of Execution. The RTC reasoned in
its Order:
The records disclosed that on February 28, 2000 this
Court rendered a Decision in favor of the [herein
petitioners] and against [Rhoda and herein
respondent MICI]. The Decision was said to have
been received by MICI on March 14, 2000. Eight
days after or on March 22, 2000, MICI mailed its
Motion for Reconsideration to this Court and
granted the same in the Order dated January 24,
2001. From this Order, [petitioners] filed a Motion for
Reconsideration on February 21, 2001 to which MICI
filed a vigorous opposition. On June 15, 2001 this
Court granted [petitioners'] motion reinstating the
Decision dated February 28, 2000. According to
MICI, the June 15, 2001 order was received by it on
June 27, 2001. MICI filed a Notice of Appeal on July
9, 2001 or twelve (12) days from receipt of said
Order. IDAEHT
[Petitioners] contend that the Notice of Appeal was
filed out of time while [respondent] MICI opposes,
arguing otherwise. The latter interposed that the
Order dated June 15, 2001 is in reality a new
Decision thereby giving it a fresh fifteen (15) days
within which to file notice of appeal.
[Respondent] MICI's contention is not meritorious.
The fifteen (15) day period within which to file a
notice of appeal should be reckoned from the
date it received the Decision on March 14, 2000. So
that when MICI mailed its Motion for
Reconsideration on March 22, 2000, eight (8) days
had already lapsed, MICI has remaining seven (7)
days to file a notice of appeal. However, when it
received the last Order of this Court it took
[respondent] MICI twelve (12) days to file the same.
Needless to say, MICI's Notice of Appeal was filed
out of time. The Court cannot countenance the
argument of MICI that a resolution to a motion for a
final order or judgment will have the effect of giving
a fresh reglementary period. This would be contrary
to what was provided in the rules of procedure. 31
Accordingly, the RTC adjudged:
WHEREFORE, premises considered, [herein
respondent] MICI's Notice of Appeal is hereby
Denied for having filed out of time making the
Decision of this Court dated February 28, 2000 as
final and executory. Accordingly, the Motion for
Issuance of Writ of Execution filed by [herein
petitioners] is hereby Granted.
Notify parties herein. 32
Respondent MICI filed a Petition for Certiorari 33
under Rule 65 of the Rules of Court before the Court
of Appeals, which was docketed as CA-G.R. SP No.
67297. The Petition assailed, for having been
rendered by the RTC with grave abuse of discretion
amounting to lack or excess of jurisdiction, the
following: (1) the Order dated 6 September 2001,
denying the Notice of Appeal of respondent MICI
and granting petitioners' Motion for the Issuance of
24 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
Writ of Execution; (2) the Decision dated 28
February 2000, holding Rhoda and respondent MICI
jointly and severally liable for George's death; and
(3) the Order dated 15 June 2001, reinstating the
Decision dated 28 February 2000. aAEIHC
The Court of Appeals granted the Petition for
Certiorari of respondent MICI in a Decision dated 26
June 2000, ratiocinating thus:
Prescinding therefrom, we hold that the fifteen (15)
day period to appeal must be reckoned from the
time the [herein respondent] Malayan received the
order dated 15 June 2001 reversing in toto the order
of 24 January 2000 and reinstating in full the
Decision dated 28 February 2000. Thus,
[respondent] Malayan had until 12 July 2001 within
which to file its notice of appeal. Therefore, when
[respondent] Malayan filed its notice of appeal on
09 July 2001, it was well within the reglementary
period and should have been given due course by
the public respondent court.
It was therefore, an excess of jurisdiction on the part
of the public respondent court when it reckoned
the [respondent] Malayan's period to appeal on
the date it received on 14 March 2000 the former's
decision dated 28 February 2000. As earlier
expostulated, the said decision was completely
vacated insofar as the [respondent] Malayan is
concerned when the public respondent court in its
order dated 24 January 2001 dismissed the case
against the former. Thus, to reckon the fifteen (15)
days to appeal from the day the [respondent]
Malayan received the said decision on 14 March
2000, is the height of absurdity because there was
nothing for the [respondent] Malayan to appeal
inasmuch as the public respondent court vacated
the said decision in favor of the former.
The aforesaid conclusion finds support in Sta.
Romana vs. Lacson (104 SCRA 93), where the court,
relying on the case of Magdalena Estate, Inc. vs.
Caluag, 11 SCRA 334, held that where the court of
origin made a thoroughly (sic) restudy of the
original judgment and rendered the amended and
clarified judgment only after considering all the
factual and legal issues, the amended and clarified
decision was an entirely new decision which
superseded (sic). For all intents and purposes, the
court concluded the trial court rendered a new
judgment from which the time to appeal must be
reckoned.
In the instant case, what is involved is not merely a
substantial amendment or modification of the
original decision, but the total reversal thereof in the
order dated 24 January 2000. Given the rationale in
the aforecited cases, it is only logical that the
period of appeal be counted from 27 June 2001,
the date that [respondent] Malayan received the
order dated 15 June 2001 reversing in toto the order
of 24 January 2000 and reinstating the Decision
dated 28 February 2000. 34 (Emphasis supplied.)
TAIESD
The fallo of the Decision of the Court of Appeals
reads:
WHEREFORE, in consideration of the foregoing
premises, the petition for certiorari is partially
GRANTED. Accordingly, the public respondent
court's order dated 06 September 2001 is hereby
RECALLED and SET ASIDE.
Public respondent court is hereby directed to
approve the petitioner Malayan's notice of appeal
and to refrain from executing the writ of execution
granted on 06 September 2001. 35
The Court of Appeals denied petitioners' Motion for
Reconsideration in a Resolution dated 29
November 2002.
Understandably distraught, petitioners come before
this Court in this Petition for Review, which raise the
following issues: ETaHCD
I.
Whether or not the respondent Court of Appeals
committed grave abuse of discretion when it ruled
that private respondent could file a Petition for
Certiorari even though its Motion for
Reconsideration was still pending resolution with the
lower court.
II.
Whether or not the respondent Court of Appeals
committed grave abuse of discretion when it ruled
that the private respondent had filed its Notice of
Appeal with the trial court within the reglementary
period. 36
The Court first turns its attention to the primary issue
for its resolution: whether the Notice of Appeal filed
by respondent MICI before the RTC was filed out of
time.
The period for filing a Notice of Appeal is set by Rule
41, Section 3 of the 1997 Rules of Court:
SEC. 3. Period of ordinary appeal. The appeal
shall be taken within fifteen (15) days from notice of
the judgment or final order appealed from. Where
a record on appeal is required, the appellants shall
file a notice of appeal and a record on appeal
within thirty (30) days from notice of the judgment
or final order. . . . .
The period of appeal shall be interrupted by a
timely motion for new trial or reconsideration. No
motion for extension of time to file a motion for new
trial or reconsideration shall be allowed.
It is clear under the Rules that an appeal should be
taken within 15 days from the notice of judgment or
final order appealed from. 37 A final judgment or
order is one that finally disposes of a case, leaving
nothing more for the court to do with respect to it. It
is an adjudication on the merits which, considering
25 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
the evidence presented at the trial, declares
categorically what the rights and obligations of the
parties are; or it may be an order or judgment that
dismisses an action. 38
Propitious to petitioners is Neypes v. Court of
Appeals, 39 which the Court promulgated on 14
September 2005, and wherein it laid down the fresh
period rule: CSEHcT
To standardize the appeal periods provided in the
Rules and to afford litigants fair opportunity to
appeal their cases, the Court deems it practical to
allow a fresh period of 15 days within which to file
the notice of appeal in the Regional Trial Court,
counted from receipt of the order dismissing a
motion for a new trial or motion for reconsideration.
Henceforth, this "fresh period rule" shall also apply to
Rule 40 governing appeals from the Municipal Trial
Courts to the Regional Trial Courts; Rule 42 on
petitions for review from the Regional Trial Courts to
the Court of Appeals; Rule 43 on appeals from
quasi-judicial agencies to the Court of Appeals and
Rule 45 governing appeals by certiorari to the
Supreme Court. The new rule aims to regiment or
make the appeal period uniform, to be counted
from receipt of the order denying the motion for
new trial, motion for reconsideration (whether full or
partial) or any final order or resolution. (Emphases
ours.)
The fresh period of 15 days becomes significant
when a party opts to file a motion for new trial or
motion for reconsideration. In this manner, the trial
court which rendered the assailed decision is given
another opportunity to review the case and, in the
process, minimize and/or rectify any error of
judgment. 40 With the advent of the fresh period
rule, parties who availed themselves of the remedy
of motion for reconsideration are now allowed to
file a notice of appeal within fifteen days from the
denial of that motion. 41
The Court has accentuated that the fresh period
rule is not inconsistent with Rule 41, Section 3 of the
Rules of Court which states that the appeal shall be
taken "within fifteen (15) days from notice of
judgment or final order appealed from." The use of
the disjunctive word "or" signifies disassociation and
independence of one thing from another. It should,
as a rule, be construed in the sense which it
ordinarily implies. 42 Hence, the use of "or" in the
above provision supposes that the notice of appeal
may be filed within 15 days from the notice of
judgment or within 15 days from notice of the final
order in the case. HDITCS
Applying the fresh period rule, the Court agrees
with the Court of Appeals and holds that
respondent MICI seasonably filed its Notice of
Appeal with the RTC on 9 July 2001, just 12 days
from 27 June 2001, when it received the denial of its
Motion for Reconsideration of the 15 June 2001
Resolution reinstating the 28 February 2000 Decision
of the RTC.
The fresh period rule may be applied to the case of
respondent MICI, although the events which
transpired concerning its Notice of Appeal took
place in June and July 2001, inasmuch as rules of
procedure may be given retroactive effect on
actions pending and undetermined at the time of
their passage. The Court notes that Neypes was
promulgated on 14 September 2005, while the
instant Petition was still pending before this Court.
Reference may be made to Republic v. Court of
Appeals, 43 involving the retroactive application of
A.M. No. 00-2-03-SC which provided that the 60-day
period within which to file a petition for certiorari
shall be reckoned from receipt of the order denying
the motion for reconsideration. In said case, the
Court declared that rules of procedure "may be
given retroactive effect to actions pending and
undetermined at the time of their passage and this
will not violate any right of a person who may feel
that he is adversely affected, inasmuch as there is
no vested rights in rules of procedure."
Hence, the fresh period rule laid down in Neypes
was applied by the Court in resolving the
subsequent cases of Sumaway v. Urban Bank, Inc.,
44 Elbia v. Ceniza, 45 First Aqua Sugar Traders, Inc.
v. Bank of the Philippine Islands, 46 even though the
antecedent facts giving rise to said cases transpired
before the promulgation of Neypes.
In De los Santos v. Vda de Mangubat, 47
particularly, the Court applied the fresh period rule,
elucidating that procedural law refers to the
adjective law which prescribes rules and forms of
procedure in order that courts may be able to
administer justice. Procedural laws do not come
within the legal conception of a retroactive law, or
the general rule against the retroactive operation
of statutes. The fresh period rule is irrefragably
procedural, prescribing the manner in which the
appropriate period for appeal is to be computed or
determined and, therefore, can be made
applicable to actions pending upon its effectivity
without danger of violating anyone else's rights.
AaSIET
Since the Court affirms the ruling of the Court of
Appeals that respondent MICI filed its Notice of
Appeal with the RTC within the reglementary
period, the appropriate action, under ordinary
circumstances, would be for the Court to remand
the case to the RTC so that the RTC could approve
the Notice of Appeal of respondent MICI and
respondent MICI could already file its appeal with
the Court of Appeals.
However, considering that the case at bar has
been pending for almost sixteen years, 48 and the
records of the same are already before this Court,
remand is no longer necessary.
26 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
Jurisprudence dictates that remand of a case to a
lower court does not follow if, in the interest of
justice, the Supreme Court itself can resolve the
dispute based on the records before it. As a rule,
remand is avoided in the following instances: (a)
where the ends of justice would not be subserved
by a remand; or (b) where public interest demands
an early disposition of the case; or (c) where the
trial court has already received all the evidence
presented by both parties, and the Supreme Court
is in a position, based upon said evidence, to
decide the case on its merits. 49 In Lao v. People,
50 the Supreme Court, in consideration of the years
that it had taken for the controversy therein to
reach it, concluded that remand of the case to a
lower court was no longer the more expeditious
and practical route to follow, and it then decided
the said case based on the evidentiary record
before it.
The consistent stand of the Court has always been
that a case should be decided in its totality,
resolving all interlocking issues in order to render
justice to all concerned and to end the litigation
once and for all. Verily, courts should always strive
to settle the entire controversy in a single
proceeding, leaving no root or branch to bear the
seed of future litigation. 51 Where the public interest
so demands, the court will broaden its inquiry into a
case and decide the same on the merits rather
than merely resolve the procedural question raised.
52 Such rule obtains in this case.
The Court is convinced that the non-remanding of
the case at bar is absolutely justified. Petitioners
have already suffered from the tragic loss of a
loved one, and must not be made to endure more
pain and uncertainty brought about by the
continued pendency of their claims against those
liable. The case has been dragging on for almost 16
years now without the petitioners having been fully
compensated for their loss. The Court cannot
countenance such a glaring indifference to
petitioners' cry for justice. To be sure, they deserve
nothing less than full compensation to give effect to
their substantive rights. 53
The complete records of the present case have
been elevated to this Court, and the pleadings and
evidence therein could fully support its factual
adjudication. Indeed, after painstakingly going
over the records, the Court finds that the material
and decisive facts are beyond dispute: George
was killed when he was hit by the truck driven by
Willie, an employee of Rhoda; and the truck is
insured with respondent MICI. The only issue left for
the Court to resolve is the extent of the liability of
Rhoda and respondent MICI for George's death
and the appropriate amount of the damages to be
awarded to petitioners.
The Court now turns to the issue of who is liable for
damages for the death of George. IEHTaA
Respondent MICI does not deny that it is the insurer
of the truck. Nevertheless, it asserts that its liability is
limited, and it should not be held solidarily liable
with Rhoda for all the damages awarded to
petitioners.
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. In a joint obligation, each obligor
answers only for a part of the whole liability and to
each obligee belongs only a part of the correlative
rights. Well-entrenched is the rule that solidary
obligation cannot lightly be inferred. There is
solidary liability only when the obligation expressly
so states, when the law so provides or when the
nature of the obligation so requires. 54
It is settled that where the insurance contract
provides for indemnity against liability to third
persons, the liability of the insurer is direct and such
third persons can directly sue the insurer. The direct
liability of the insurer under indemnity contracts
against third party liability does not mean, however,
that the insurer can be held solidarily liable with the
insured and/or the other parties found at fault,
since they are being held liable under different
obligations. The liability of the insured carrier or
vehicle owner is based on tort, in accordance with
the provisions of the Civil Code; 55 while that of the
insurer arises from contract, particularly, the
insurance policy. The third-party liability of the
insurer is only up to the extent of the insurance
policy and that required by law; and it cannot be
held solidarily liable for anything beyond that
amount. 56 Any award beyond the insurance
coverage would already be the sole liability of the
insured and/or the other parties at fault. 57 ADHCSE
In Vda. de Maglana v. Consolacion, 58 it was ruled
that an insurer in an indemnity contract for third-
party liability is directly liable to the injured party up
to the extent specified in the agreement, but it
cannot be held solidarily liable beyond that
amount. According to respondent MICI, its liability
as insurer of Rhoda's truck is limited. Following Vda.
de Maglana, petitioners would have had the
option either (1) to claim the amount awarded to
them from respondent MICI, up to the extent of the
insurance coverage, and the balance from Rhoda;
or (2) to enforce the entire judgment against
Rhoda, subject to reimbursement from respondent
MICI to the extent of the insurance coverage. The
Court, though, is precluded from applying its ruling
in Vda. de Maglana by the difference in one vital
detail between the said case and the one at bar.
The insurer was able to sufficiently establish its
limited liability in Vda. de Maglana, while the same
cannot be said for respondent MICI herein.
The Court highlights that in this case, the insurance
policy between Rhoda and respondent MICI,
covering the truck involved in the accident which
killed George, was never presented. There is no
means, therefore, for this Court to ascertain the
supposed limited liability of respondent MICI under
27 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
said policy. Without the presentation of the
insurance policy, the Court cannot determine the
existence of any limitation on the liability of
respondent MICI under said policy, and the extent
or amount of such limitation.
It should be remembered that respondent MICI
readily admits that it is the insurer of the truck that
hit and killed George, except that it insists that its
liability under the insurance policy is limited. As the
party asserting its limited liability, respondent MICI
then has the burden of evidence to establish its
claim. In civil cases, the party that alleges a fact
has the burden of proving it. Burden of proof is the
duty of a party to present evidence on the facts in
issue necessary to prove its claim or defense by the
amount of evidence required by law. 59
Regrettably, respondent MICI failed to discharge
this burden. 60 The Court cannot rely on mere
allegations of limited liability sans proof.
The failure of respondent MICI to present the
insurance policy which, understandably, is not in
petitioners' possession, but in the custody and
absolute control of respondent MICI as the insurer
and/or Rhoda as the insured gives rise to the
presumption that its presentation is prejudicial to
the cause of respondent MICI. 61 When the
evidence tends to prove a material fact which
imposes a liability on a party, and he has it in his
power to produce evidence which, from its very
nature, must overthrow the case made against him
if it is not founded on fact, and he refuses to
produce such evidence, the presumption arises
that the evidence, if produced, would operate to
his prejudice and support the case of his adversary.
62 cHDEaC
Respondent MICI had all the opportunity to prove
before the RTC that its liability under the insurance
policy it issued to Rhoda, was limited; yet,
respondent MICI failed to do so. The failure of
respondent MICI to rebut that which would have
naturally invited an immediate, pervasive, and stiff
opposition from it created an adverse inference
that either the controverting evidence to be
presented by respondent MICI would only prejudice
its case, or that the uncontroverted evidence of
petitioners indeed speaks of the truth. And such
adverse inference, recognized and adhered to by
courts in judging the weight of evidence in all kinds
of proceedings, surely is not without basis its
rationale and effect rest on sound, logical and
practical considerations, viz.:
The presumption that a man will do that which
tends to his obvious advantage, if he possesses the
means, supplies a most important test for judging of
the comparative weight of evidence . . . If, on the
supposition that a charge or claim is unfounded,
the party against whom it is made has evidence
within his reach by which he may repel that which is
offered to his prejudice, his omission to do so
supplies a strong presumption that the charge or
claim is well founded; it would be contrary to every
principle of reason, and to all experience of human
conduct, to form any other conclusion." (Starkie on
Evidence, p. 846, Moore on Facts, Vol. I, p. 544)
xxx xxx xxx
The ordinary rule is that one who has knowledge
peculiarly within his own control, and refuses to
divulge it, cannot complain if the court puts the
most unfavorable construction upon his silence,
and infers that a disclosure would have shown the
fact to be as claimed by the opposing party."
(Societe, etc. v. Allen, 90 Fed. Rep. 815, 817, 33
C.C.A. 282, per Taft, C.J., Moore on Facts, Vol. I, p.
561). 63
The inference still holds even if it be assumed, for
argument's sake, that the solidary liability of
respondent MICI with Rhoda is improbable, for it
has likewise been said that:
Weak evidence becomes strong by the neglect of
the party against whom it is put in, in not showing
by means within the easy control of that party that
the conclusion drawn from such evidence is untrue.
(Pittsburgh, etc., R. Co. v. Callaghan, 50 III. App.
676, 681, Moore on Facts, Vol. I, p. 572). 64 AIECSD
Given the admission of respondent MICI that it is the
insurer of the truck involved in the accident that
killed George, and in the utter absence of proof to
establish both the existence and the
extent/amount of the alleged limited liability of
respondent MICI as insurer, the Court could only
conclude that respondent MICI had agreed to fully
indemnify third-party liabilities. Consequently, there
is no more difference in the amounts of damages
which petitioners can recover from Rhoda or
respondent MICI; petitioners can recover the said
amounts in full from either of them, thus, making
their liabilities solidary or joint and several.
The Court now comes to the issue of the amounts of
the damages awarded.
In its Decision dated 22 February 2000, the RTC
awarded petitioners moral and actual damages, as
well as funeral expenses and attorney's fees.
Subsequently, in its Order dated 24 January 2001,
the RTC reduced the amount of actual damages
from P805,984.00 to P102,106.00, but additionally
awarded death indemnity in the amount of
P50,000.00. Its award of moral damages and funeral
expenses as well as attorney's fees remained
constant in its 28 February 2000 decision and was
carried over to its 24 January 2001 Order.
The Court shall now proceed to scrutinize said
award of damages.
As regards the award of actual damages, Article
2199 of the Civil Code provides that "[e]xcept as
provided by law or by stipulation one is entitled to
an adequate compensation only for such
pecuniary loss suffered by him as he has duly
proved . . . ."
28 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
The RTC awarded P36,000.00 for burial expenses.
The award of P36,000.00 for burial expenses is duly
supported by receipts evidencing that petitioners
did incur this expense. The petitioners held a wake
for two days at their residence and another two
days at the Loyola Memorial Park. 65 The amount
covered the expenses by petitioners for the wake,
funeral and burial of George. 66
As to compensation for loss of earning capacity,
the RTC initially awarded P805,984.00 in its 28
February 2000 Decision, which it later reduced to
P102,106.00 on 24 January 2001.
Article 2206 of the Civil Code provides that in
addition to the indemnity for death caused by a
crime or quasi-delict, the "defendant shall be liable
for the loss of the earning capacity of the
deceased, and the indemnity shall be paid to the
heirs of the latter, . . . ." Compensation of this nature
is awarded not for loss of earnings but for loss of
capacity to earn money. Hence, it is proper that
compensation for loss of earning capacity should
be awarded to the petitioners in accordance with
the formula established in decided cases for
computing net earning capacity, to wit:
The formula for the computation of unearned
income is:
Net Earning Capacity = life expectancy x (gross
annual income - reasonable and necessary living
expenses).
Life expectancy is determined in accordance with
the formula:
2/3 x [80 - age of deceased at the time of death]
67
Jurisprudence provides that the first factor, i.e., life
expectancy, shall be computed by applying the
formula (2/3 x [80 - age at death]) adopted in the
American Expectancy Table of Mortality or the
Actuarial of Combined Experience Table of
Mortality. SCaIcA
The second factor is computed by multiplying the
life expectancy by the net earnings of the
deceased, i.e., the total earnings less expenses
necessary in the creation of such earnings or
income and less living and other incidental
expenses. The loss is not equivalent to the entire
earnings of the deceased, but only such portion
that he would have used to support his dependents
or heirs. Hence, the Court deducts from his gross
earnings the necessary expenses supposed to be
used by the deceased for his own needs. The Court
explained in Villa Rey Transit v. Court of Appeals: 68
[The award of damages for loss of earning capacity
is] concerned with the determination of the losses
or damages sustained by the private respondents,
as dependents and intestate heirs of the deceased,
and that said damages consist, not of the full
amount of his earnings, but of the support they
received or would have received from him had he
not died in consequence of the negligence of
petitioner's agent. In fixing the amount of that
support, we must reckon with the "necessary
expenses of his own living", which should be
deducted from his earnings. Thus, it has been
consistently held that earning capacity, as an
element of damages to one's estate for his death
by wrongful act is necessarily his net earning
capacity or his capacity to acquire money, "less
necessary expense for his own living". Stated
otherwise, the amount recoverable is not the loss of
the entire earning, but rather the loss of that portion
of the earnings which the beneficiary would have
received. In other words, only net earnings, and not
gross earnings are to be considered that is, the total
of the earnings less expenses necessary in the
creation of such earnings or income and less living
and other incidental expenses."
Applying the aforestated jurisprudential guidelines
in the computation of the amount of award for
damages set out in Villa Rey, the Court computes
the award for the loss of George's earning capacity
as follows:
Life expectancy = 2/3 x [80 - age of deceased at
the time of death]
2/3 x [80 - 56]
2/3 x [24]
FORMULA NET EARNING CAPACITY (NEC)
If:
Age at time of death of George Poe = 58 69
Monthly Income at time of death = P6,946 70
Gross Annual Income (GAI) = [(6,946) (12)] =
P83,352
Reasonable/Necessary Living Expenses (R/NLE) =
50% 71 of GAI = P41,676 IEaATD
NEC = [2/3 (80 - 58)] [83,352 - 41,676]
= [2/3 (22)] [41,676]
= [14.67] [41,676]
= P611,386.92
Therefore, George's lost net earning capacity is
equivalent to P611,386.92
The RTC awarded moral damages 72 in the amount
of P100,000.00. With respect to moral damages, the
same are awarded under the following
circumstances:
The award of moral damages is aimed at a
restoration, within the limits of the possible, of the
spiritual status quo ante. Moral damages are
29 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
designed to compensate and alleviate in some
way the physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar
injury unjustly caused a person. Although incapable
of pecuniary computation, they must be
proportionate to the suffering inflicted. The amount
of the award bears no relation whatsoever with the
wealth or means of the offender.
In the instant case, petitioners' testimonies reveal
the intense suffering which they continue to
experience as a result of George's death. 73 It is not
difficult to comprehend that the sudden and
unexpected loss of a husband and father would
cause mental anguish and serious anxiety in the
wife and children he left behind. Moral damages in
the amount of P100,000.00 are proper for George's
death. 74
The RTC also awarded P50,000.00 as death
indemnity which the Court shall not disturb. The
award of P50,000.00 as death indemnity is in
accordance with current rulings of the Court. 75
Finally, the RTC awarded attorney's fees to
petitioners. Petitioners are entitled to attorney's fees.
Under Article 2008 of the Civil Code, attorney's fees
may be granted when a party is compelled to
litigate or incur expenses to protect his interest by
reason of an unjustified act of the other party. 76 In
Metro Manila Transit Corporation v. Court of
Appeals, 77 the Court held that an award of
P50,000.00 as attorney's fees was reasonable.
Hence, petitioners are entitled to attorney's fees in
that amount. 78 TAIDHa
WHEREFORE, premises considered, the instant
Petition is PARTIALLY GRANTED. While the Court
AFFIRMS the Decision, dated 26 June 2002, and
Resolution, dated 29 November 2002, of the Court
of Appeals in CA-G.R. SP No. 67297, granting the
Petition for Certiorari of respondent Malayan
Insurance Company, Inc., the Court, nonetheless,
RESOLVES, in consideration of the speedy
administration of justice, and the peculiar
circumstances of the case, to give DUE COURSE to
the present Petition and decide the same on its
merits.
Rhoda Santos and respondent Malayan Insurance
Company, Inc. are hereby ordered to pay jointly
and severally the petitioners Heirs of George Y. Poe
the following:
(1) Funeral expenses P36,000.00;
(2) Actual damages for loss of earning capacity
P611,386.92;
(3) Moral damages amounting to P100,000.00;
(4) Death indemnity P50,000.00; and
(5) Attorney's fees P50,000.00 plus P1,500.00 per
court appearance.
No costs.
SO ORDERED.
Ynares-Santiago, Carpio-Morales, * Nachura and
Peralta, JJ., concur.
 (Pimentel v. Gutierrez, G.R. No. 3377, August 24,
1909)
FIRST DIVISION
[G.R. No. 3377. August 24, 1909.]
BONIFACIO PIMENTEL, plaintiff-appellee, vs.
EUGENIO GUTIERREZ, defendant-appellant.
Dadivas, Rich & Azarraga for appellant.
Barrios & Acua for appellee.
SYLLABUS
1. ACTION ON CONTRACT; LIABILITY OF PARTIES TO A
CONTRACT. G., M., and M. entered into a
contract by the terms of which they promised to
pay to P. the sum of P3,000 with interest. Later
certain payments were made which were applied
to the payment of the interest due. Subsequently
G., representing himself, as well as M. and M.,
entered into a new contract with P., by which the
original contract was to cease to draw interest from
a certain date. An action was brought by P. upon
the said contract, making G. and M. parties
defendant. The third party, M., was dead at the
time the action was brought or died during the time
the action was pending; the evidence does not
disclose when he died. G. answered for himself and
the other defendants, pretending to represent
them. G. in his answer alleged that a new contract
had been made between himself, representing his
co-defendants, and P., by which the contract was
to be liquidated by the payment of P30 per month.
P. admitted that he had entered into a contract
with the defendants, by which the contract was not
to draw interest from the 1st of December, 1904, but
denied the contract set up by G., by which he was
to receive P30 per month until the full amount of the
said contract should be paid.
Held.
First. That the defendants were severally and not
jointly liable under the terms of the contract, and
that each was liable to pay an aliquot part of said
contract.
Second. That the lower court committed an error in
holding that G. was liable for the full amount of the
said contract.
Third. That the third party defendant, M., having
died either before or during the trial, and his estate
not being represented in any way in the action, his
responsibility, or the responsibility of his estate for the
payment of the aliquot part of the original
indebtedness, was in no way affected.
2. WITNESSES; REFUSAL OF JUDGE TO POSTPONE
HEARING OF CAUSE. In the present case the
lower court committed no error in refusing to
adjourn or postpone the trial of the cause, upon the
application of the defendant, for the reason that
he did not have present in court certain witnesses.
The cause had been at issue for more than a year
before the time set for the trial. It was not shown
that the facts which the party desired to prove by
the absent witness not be proven by other witnesses
obtainable. The party making the application had
not used due diligence in preparing himself for the
trial of the cause.
DECISION
30 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
JOHNSON, J p:
On the 27th day of February, 1905, plaintiff
commenced an action in the Court of First Instance
of the Province of Romblon against the defendant,
for the purpose of recovering a judgment for the
sum of P3,000, with interest at 10 per cent per
annum from the 20th day of March, 1901.
The basis of the plaintiff's claim was contract which
he alleged was executed and delivered by the
defendants upon the 20th day of March, 1901, for
the sum of 3,000 pesos at 10 per cent per annum.
On the 23d day of August, 1905, Eugenio Gutierrez,
for himself and as representative of the defendants,
Leon Montaa and Feliciano Moreno, filed an
amended answer, admitting a part of the
allegations of the plaintiff and denying others. The
defendant admitted the execution and delivery of
the original contract for 3,000 pesos and alleged
that a part of said amount had been paid, and
further alleged that upon the 1st day of December,
1904, he and the plaintiff had entered into a new
contract, by virtue of the terms of which they, the
defendants, were to pay the balance of said
contract by paying P30 per month until the full
amount of said contract should be paid, and
alleging further that the plaintiff in the new contract
of the said 1st day of December (1904) had agreed
to forego the collection of the interest agreed upon
in the original contract. The defendant admitted
that there was still due the plaintiff on said original
contract the sum of P2,636.44, and prayed that the
said action might be dismissed with cost against the
plaintiff.
On the 30th day of August, 1905, the plaintiff replied
to the amended answer of the defendant, in which
he denied certain of the allegations of the answer
and admitted others. The plaintiff denied that he
had executed and delivered or had consented to
the execution and delivery of the said contract of
the 1st day of December, 1904, by which he had
agreed to accept P30 per month until the full
amount was paid, but admitted that he had
agreed to suspend the interest and also admitted
that the defendant had paid in money and effects
the sum of P785.36; that this amount of P785.36 had
been applied to the payment of the interest on said
original contract.
On the 1st day of December, 1905, the defendant
presented a motion asking that the said amended
complaint be struck from the files, for the reason
that it was not a proper reply to the answer of the
defendant, which motion the court denied.
On the 1st day of December, 1905, the defendant
presented a demurrer to the said amended
complaint, upon the ground that the complaint did
not allege the period within which defendants were
to pay the sum of the original contract of 3,000
pesos, which demurrer was also denied by the
court.
On the 23d day of February, 1906, the defendant
asked that the deposition of one Eduardo Montiel,
who was then a prisoner in Bilibid, be taken, which
motion was denied.
After hearing the evidence adduced during the
trial of the cause, the lower court rendered a
judgment in favor of the plaintiff and against the
defendant Eugenio Gutierrez, for the sum of
P3,366.38. The lower court found that the
defendant had paid the sum of P747.03, at different
times which was applied upon the payment of
interest. From this judgment of the lower court the
defendant appealed, and made the following
assignments of error:
"I.
"The court below erred in overruling the motion of
the defendants of September 1, 1905, requesting
that the reply of the plaintiff filed on the 29th of
August, 1905, amending his original complaint of
the 27th of February, 1905, be stricken from the
record.
"II.
"The court below erred in overruling the motion of
September 1, 1905, requesting the dismissal of the
complaint on the ground that the facts therein
stated are not sufficient to constitute a cause of
action.
"II.
"The court below erred in overruling the motion of
the defendants of February 23, 1906, requesting
that the testimony of Eduardo Montiel, who is
confined in Bilibid Prison and therefore absent from
the Province of Romblon, be taken by deposition,
as they consider said witness an important one.
"III.
"The court below erred in sentencing the defendant
Eugenio Gutierrez alone to pay the total amount of
the debt, and dismissing the case, on account of
lack of evidence, with respect to the other
defendants, Feliciano Moreno and Leon Montaa.
"IV.
"The court below erred in holding in its judgment
that if the plaintiff signed the document offered in
evidence by the defendant Gutierrez (Exhibit D of
the defendants) in order to prove that the plaintiff
had agreed to accept monthly payments of P30
until the debt was paid in full, he did so in
ignorance of the contents of the instrument.
"V.
"The court below erred in holding in its judgment
that such a stipulation as the one contained in the
said document Exhibit D of the defendants, to
accept monthly payments of P30, is invalid for the
reason that no obligating motive for said stipulation
exists; in view of which, the court below erred in
failing to consider it as a renewal of the contract.
"VI.
"The court below erred in holding that interest on
the loan ceased only on the 1st of January, 1905,
instead of on the 1st of December, 1904.
"VII.
"The court below erred in admitting as evidence the
document which appears as Exhibit B, first sheet,
offered by the plaintiff in order to establish the fact
that the latter received from the defendant
Gutierrez only P747.03 on account of interest.
"VIII.
"The court below erred in holding that the sum of
P685.85 contained in the first receipt, Exhibit B of the
defendants of April 8, 1904, is included in the sum of
31 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
P747.03 contained in the second receipt, Exhibit A
of the defendants of December 6, 1904.
"VIII.
"The court below erred in considering that the
earnings which appear in the account-book, Exhibit
2 of the court, and which were entered
subsequently to the 8th day of April, 1904, are
fictitious and false.
"IX.
"The court below erred in holding that on the 20th
of March, 1901, the plaintiff loaned to the
defendant Gutierrez 3,000 pesos, Philippine
currency, as indicated by the sign P.
"X.
"The court below erred in holding that the plaintiff is
entitled to recover the same amount or sum in
Philippine currency which he loaned in 1901 in
Mexican currency, without establishing the legal
ration of exchange between the two currencies."
With reference to the first assignment of error, to wit,
that the lower court committed an error, in
admitting the reply of the plaintiff, we are of the
opinion, and so hold, that the lower court
committed no error, for the reason that the
defendant in his amended answer had alleged
certain new matter, to wit, payments and a new
contract, which the plaintiff, by virtue of section 104
of the Code of Procedure in Civil Actions, had a
right to answer by a replication. It is true that
section 104 gives the plaintiff the right reply t new
matter or special defenses set up in the defendant's
answer, by an amendment to his complaint, but it is
not necessary. If the plaintiff does not reply to new
matter set up in the complaint, under the provisions
of section 104, he is deemed to have denied them
without a replication, and would be permitted to
present proof denying the new matter in the
answer without a replication. In the present case,
however, the plaintiff preferred to file an amended
complaint or replication. No error was committed in
permitting him so to do.
With reference to the second assignment of error,
to wit, that the court committed an error in not
sustaining the demurrer of the defendant to the
amended complaint or reply of the plaintiff, we are
of the opinion, and so hold, that the court
committed no error in overruling the demurrer, if
what the defendant presented could be
considered a demurrer. The reply was sufficient in
form and substance.
With reference to the third assignment of error, to
wit, that the court committed an error in denying
the application of the defendant to be permitted
to take the deposition of one Eduardo Montiel, it
appears that the application to take the said
deposition was made on the 23d day of February,
1906. From the record, it appears that the trial of
the cause was set for the 23d day of February, 1906.
It will also be noted from an examination of the
record that all of the pleading had been filed in the
cause and the case was ready for trial on the 16th
day of February, 1905. More than a year had
elapsed, therefore, after the cause was at issue,
before the time set for trial. The record does not
disclose on what date the court had fixed the day
of the trial. It must have been, however, naturally
some time before the said 23d day of February.
The defendant had, therefore, all of the time
between the 16th day of February, 1905, and the
23d day of February, 1906, within which to have
obtained the deposition of the said Montiel, had he
really desired it; and moreover, under the provision
of section 361 of the Code of Procedure in Civil
Actions, the defendant might have taken the
deposition of the witness without the intervention of
the court. Said section 361 provides the method for
taking depositions of witnesses, when the same is
permitted under section 355. It appears that the
defendant, therefore, had not used due diligence
in preparing himself for the trial of the cause, and
furthermore the affidavit presented by the
defendant does not attempt to show that the facts
which he expected to prove by the witness Montiel
could not have been proven by some other
accessible witness. The defendant should have
taken advantage of the provisions of section 361
prior to the time fixed for the trial of the cause, or
have shown to the court that he had used due
diligence in an effort to secure the presence of the
said Montiel, and that he could not safely proceed
to the trial of the cause without the presence of
said witness or his deposition. It would appear that
the effort of the defendant was simply to delay the
trial of the cause. In our opinion, the court, under
the circumstances, committed no error in refusing
to delay the trial of the cause for the reasons stated
by the defendant.
With reference to the fourth assignment of error, to
wit, that the court committed an error in rendering
a judgment against the defendant Eugenio
Gutierrez alone, for the full amount of the debt,
dismissing the case as to the other defendants,
Leon Montaa and Feliciano Moreno, the
defendant contends that under the contracts the
defendants were only liable for their proportionate
share of the obligation, citing articles 1137 and 1138
of the Civil Code. It is true that under said articles of
the Civil Code, where two or more person are
obligated in the same contract, and where there is
nothing in the contract to the contrary, the parties
are liable pro rata upon said contract; in other
words, by virtue of the provisions of the Civil Code,
where two or more persons sign a contract, in order
that each shall be responsible for the full amount of
the obligation, express words to that effect must be
used. If two persons sign a contract under the
provisions of the Civil Code, and no words are used
to make each liable for the full amount, each is
only liable for a proportionate amount of the
contract. In the present case the contract was
written in the following words:
"We, Feliciano Moreno, Eugenio Gutierrez, and Leon
Montaa, hereby acknowledge to have this day
received from Bonifacio Pimentel the sum of three
thousand pesos in silver coin, as a loan, which sum
of money we three will use in business transactions,
it having been agreed with the lender that said
money will earn a premium or interest at the rate of
10 per cent per annum, that is to say we promise to
pay three hundred pesos at the end of each year,
and said amount will commence to bear interest
32 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
from the date; likewise we agree that in case of an
unexpected event our property is to serve as
collateral.
"In witness to the truth, we, together with the lender,
sign this formal agreement in duplicate.
"Romblon, March 20, 1901.
(Signed) "FELICIANO MORENO.
"EUGENIO GUTIERREZ.
"LEON MONTAA.
"BONIFACIO PIMENTEL."
From a reading of the contract in question, it will be
seen that it is una obligacion mancomunada y no
solidaria and that the three debtors are not liable
separately for the payment of the full amount. They
are each only liable for an aliquot part of the
original obligation. (See articles 1137 and 1138, Civil
Code.) The lower court therefore committed an
error in rendering a judgment for the full amount
against one of the said codebtors.
It appears from an examination of the record that
Eugenio Gutierrez has assumed all responsibility in
relation to the contract. Not only by his answer
does this fact appear, but by the alleged contract
(Exhibit D) of December 1, 1904. He there assumes
to make a contract for himself and for the other
defendants. Under this contract and the pleadings
filed in this cause, the defendant Gutierrez tried to
assume all obligation in respect to the said original
contract. The record shows that Leon Montaa had
died (the record does not show the date) prior to
the 1st of December, 1904. There is nothing to show
that the said Gutierrez represented the estate of
the said Montaa in this litigation. The personal
representatives of the said Leon Montaa were not
made parties to this action. Therefore no judgment
can be rendered which would affect their rights or
interests in any way. Inasmuch, however, as the said
Gutierrez represented himself and the other
defendant, Feliciano Moreno, Feliciano Moreno
being thus represented in litigation, and the
contract being one creating a joint liability, a
judgment may properly be rendered against each
of them, Gutierrez and Moreno. In view of the fact
that the contract was a joint obligation and not a
several one, the lower court committed an error in
dismissing the action as to the said Moreno. The
lower court should have rendered a judgment
against each of the said defendants Moreno and
Gutierrez for an aliquot part of the original contract.
With reference to the fifth assignment of error, we
are of the opinion, and so hold, that the plaintiff did
not execute and deliver the alleged contract, by
which he was to receive P30 per month until the
said obligation was fully liquidated. We do find,
however, that the plaintiff agreed to forego the
payment of the interest upon said contract until the
same was paid.
With reference to the sixth assignment of error,
having found that the lower court committed no
error in declaring that the plaintiff did not execute
and deliver the contract of December 1, 1904,
makes it unnecessary for us to discuss this
assignment of error.
With reference to the seventh assignment of error,
to wit, that the lower court committed an error in
holding that the contract did not draw interest after
the 1st day of January, 1905, instead of the 1st day
of December, 1904, we are of the opinion that the
court committed an error in this respect, for the
reason that, by virtue of the indorsement signed by
the plaintiff, made upon the original contract
(Exhibit A), it was thereby agreed that the interest
upon said contract should cease upon the said 1st
day of December, 1904.
With reference to the eight assignment of error, to
wit, that the lower court committed an error in
holding that the defendant paid to the plaintiff the
sum of P747.03 to be applied upon the interest, it
will be noted that upon the first page of Exhibit B
there appears to be a credit of P717.41, while upon
the second page of Exhibit B a credit seems to
have been given on the 6th day of December,
1904, of P747.03. The defendant himself testified
that the credit on the first page of Exhibit B, of
P686.85, was included in the credit of P747.03. There
is no question, it would seem, therefore, about the
payment made by the defendant to the plaintiff of
this sum of P747.03. The only question between the
two parties with reference to this sum is whether it
was a part payment of the principal or a payment
on the interest due. The plaintiff claims that it was a
payment of the interest due; the defendant denies
this fact. There is no proof that the defendant, at
the time he made the payment, indicated to what
it should be applied. It is a rule well established that
when a debtor makes payment to his creditor, in a
case where the creditor holds two or more
accounts against him, the creditor may apply the
payment to whichever him, the creditor may apply
the payment to whichever of the indebtedness he
pleases, in the absence of an express statement on
the part of the debtor that the payment should be
applied to one or another of the different claims.
There being no proof, therefore, or request on the
part of the defendant that the sum should be
applied upon the payment of the principal, the
plaintiff had a right to apply it to the payment of
the interest then due. The lower court committed
no error, therefore, in view of the proof, in applying
this payment to the liquidation of the interest due.
(See arts. 1172, 1173, 1174, Civil Code.)
With reference to the ninth assignment of error, the
defendant himself testified (p. 22-a of the record )
that the sum of P686.85, mentioned in Exhibit B, was
included in the sum of P747.03. Therefore the finding
of the court was in accordance with the proof
adduced during the trial of the cause.
With reference to the tenth assignment of error, the
record does not disclose that the book which was
marked "Exhibit No. 2" was ever presented in
evidence as proof. It is true that certain questions
were asked with reference to the same. Granting
that the parties intended to offer it as evidence,
and that it was actually admitted as proof, while it
contains some items which can scarcely be
explained, yet the last page of it disclose the fact
that the plaintiff's claim was proven beyond
question, or at least by a preponderance of proof,
to wit, that the defendant had paid only the sum of
P747.03, and the sum of P38.35. We are of the
opinion, and so hold, that the statement of the
33 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
lower court with reference to this exhibit in no way
affects or vitiates his conclusions.
With reference to the eleventh assignment of error,
we are of the opinion, and so hold, that the lower
court committed no error in indicating the kind of
money in which the judgment was rendered by the
sign for pesos. This court has held, in the case of
Dougherty vs. Evangelista (7 Phil. Rep., 37), that in
the absence of explanation or proof to the contrary
the word "peso" in the judgment of the court must
be understood to be "peso" in the established
currency of this country at the time when the
judgment was rendered. (See also Gaspar vs.
Molina, 5 Phil. Rep., 197).
With reference to the twelfth assignment of error,
the lower court found that there was due from the
defendant to the plaintiff a certain number of
"peso," without indicating whether they were
Mexican or Filipino pesos. The original contract
expressly stated "Mexican pesos." There was no
evidence adduced during the trial which in any
way indicated that there was any difference
between the value of Mexican pesos and Filipino
pesos, and unless the proof showed that there was
a difference, under the decision of this court in the
case of Dougherty vs. Evangelista, supra, we will
assume that the word "peso" used in the judgment
of the lower court means the peso constituting the
currency of this country. The defendant in the court
below not having attempted to show that there
was a difference, and not having called the
attention of the court below to the fact that there
was a difference, we will consider that there was no
difference and that the judgment of the lower
court will not therefore be set aside for the reasons
contended for by the appellant.
Our conclusions upon all of the facts of the record
are as follows:
First. That the plaintiff loaned to the defendant,
upon the 20th day of March, 1901, the sum of
P3,000, at 10 per cent per annum.
Second. That upon the 1st day of December, 1904,
the plaintiff agreed to relieve the defendant from
the necessity of paying interest upon the said sum
thereafter. (See Exhibit C.)
Third. That the defendant had paid to the plaintiff
the sums of P747.03 and P38.35, to be applied on
the payment of the interest of said note, or a total
of P785.38.
Fourth. That under the terms of the contract the
defendants were each liable to pay an aliquot part
of the said original contract.
Fifth. That the estate of Leon Montaa not being
represented in this action, no judgment can be
rendered against him or his personal representative.
The contract was executed and delivered on the
20th day of March, 1901, and drew interest at the
rate of 10 per cent until the 1st day of December,
1904. The defendants had paid to the plaintiff the
sum of P785.38. This amount was applied to the
payment of the interest by the plaintiff. The interest
due upon the 1st day of December, 1904, was
P1,109.16. Deducting the amount paid (P78.38)
from the amount of interest due (1,109.16) left a
balance of interest unpaid on the 1st day of
December, 1904, of P323.78. The total amount due
on said contract, then, on the 1st day of
December, 1904, was the amount of the original
contract (3,000) plus the interest unpaid (P323.78),
making a total of P3,323.78. This action was
commenced on the 27th day of February, 1905. The
plaintiff is entitled, therefore, to draw interest from
the date of the judicial demand (the 27th of
February, 1905).
The judgment of the lower court is hereby modified,
and it is hereby directed that a judgment be
entered against the defendants, Eugenio Gutierrez
and Feliciano Moreno, each respectively, for a one-
third part of the sum of P3,323.78, with interest from
the 27th day of February, 1905, with costs. Leon
Montaa nor his representatives not being made a
party in this action, no judgment can be rendered
against him. So ordered.
Arellano, C.J., Torres and Moreland, JJ., concur.
(Stronghold Insurance Co., Inc. v. Republic-Asahi
Glass Corp., G.R. No. 147561, June 22, 2006)
FIRST DIVISION
[G.R. No. 147561. June 22, 2006.]
STRONGHOLD INSURANCE COMPANY, INC.,
petitioner, vs. REPUBLIC-ASAHI GLASS
CORPORATION, respondent.
DECISION
PANGANIBAN, C.J p:
A surety company's 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
Before us is a Petition for Review 1 under Rule 45 of
the Rules of Court, seeking to reverse the March 13,
2001 Decision 2 of the Court of Appeals (CA) in CA-
G.R. 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 court for the reception of
evidence of all parties." 3
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 . . . Jose D. Santos, Jr., the proprietor
of JDS Construction (JDS), for the construction of
roadways and a drainage system in Republic-
Asahi's compound in Barrio Pinagbuhatan, Pasig
City, where [respondent] was to pay . . . 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
34 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
performance of its undertakings' . . . JDS, shall post
a performance bond of seven hundred ninety five
thousand pesos (P795,000.00). . . . 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 . . . JDS
seven hundred ninety five thousand pesos
(P795,000.00) by way of downpayment. DEHcTI
"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 . . . 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 . . . JDS under
the terms of the contract.
"Several times prior to November of 1989,
[respondent's] engineers called the attention of . . .
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 . . . JDS.
"On November 24, 1989, dissatisfied with the
progress of the work undertaken by . . . JDS,
[respondent] Republic-Asahi extrajudicially
rescinded the contract pursuant to Article XIII of
said contract, and wrote a letter to . . . JDS
informing the latter of such rescission. Such
rescission, according to Article XV of the contract
shall not be construed as a waiver of [respondent's]
right to recover damages from . . . JDS and the
latter's sureties.
"[Respondent] alleged that, as a result of . . . JDS's
failure to comply with the provisions of the contract,
which resulted in the said contract's rescission, it
had to hire another 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).
"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 . . .
JDS and SICI. It sought from . . . 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 . . . 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 attorney's fees in the
amount of at least P100,000.00.
"According to the Sheriff's 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, . . . Jose D.
Santos, Jr. died the previous year (1990), and . . .
JDS Construction was no longer at its address at
2nd 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 [respondent's] 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 . . . 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-
appellant's 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 attorney's
fees, and P5,000.00 as litigation expenses. SEIDAC
"On August 16, 1991, the lower court issued an order
dismissing the complaint of [respondent] against . . .
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:
'ACCORDINGLY, the complaint against the
defendants Jose D. Santos, Jr., doing business under
35 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
trade and style, 'JDS Construction' and Stronghold
Insurance Company, Inc. is ordered DISMISSED.
'SO ORDERED.'
"On September 4, 1991, [respondent] filed a Motion
for Reconsideration seeking reconsideration of the
lower court's 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,
1991 at 2:00 o'clock 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
[respondent's] 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] SICI. On April 16, 1993, the lower court
denied [respondent's] motion for reconsideration. . .
. ." 4
Ruling of the Court of Appeals
The CA ruled that SICI's 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 respondent's 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 [respondent's] 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 non-performance of the same. . . .
[P]ursuant to the [S]urety [C]ontract, SICI is liable for
the non-performance of said [C]ontract on the part
of JDS Construction." 5
Hence, this Petition. 6
Issue
Petitioner states the issue for the Court's
consideration in the following manner:
"Death is a defense of Santos' heirs which
Stronghold could also adopt as its defense against
obligee's claim." 7
More precisely, the issue is whether petitioner's
liability under the performance bond was
automatically extinguished by the death of Santos,
the principal. acHTIC
The Court's Ruling
The Petition has no merit.
Sole Issue:
Effect of Death on the Surety's Liability
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 extinguish the obligation. 8
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
obligation. 9 Only obligations that are personal 10
or are identified with the persons themselves are
extinguished by death. 11
Section 5 of Rule 86 12 of the Rules of Court
expressly allows the prosecution of money claims
arising from a contract against the estate of a
deceased debtor. Evidently, those claims are not
actually extinguished. 13 What is extinguished is only
the obligee's action or suit filed before the court,
which is not then acting as a probate court. 14
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 of those
obligations or liabilities, which merely passed on to
his estate. 15 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:
36 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
"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, attorney's 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; EcAHDT
"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." 16
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 4, 17 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."
Elucidating on these provisions, the Court in Garcia
v. Court of Appeals 18 stated thus:
". . . . The surety's 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. . . . ."
19
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 debtor,
respondent may still sue petitioner alone, in
accordance with the solidary nature of the latter's
liability under the performance bond.
WHEREFORE, the Petition is DENIED and the Decision
of the Court of Appeals AFFIRMED. Costs against
petitioner. TCaAHI
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Callejo, Sr. and
Chico-Nazario, JJ., concur.
37 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
Garcia vs CA (no specific citation)
(PNB v. Independent Planters Ass'n, G.R. No. L-
28046, May 16, 1983)
SECOND DIVISION
[G.R. No. L-28046. May 16, 1983.]
PHILIPPINE NATIONAL BANK, plaintiff-appellant, vs.
INDEPENDENT PLANTERS ASSOCIATION, INC.,
ANTONIO DIMAYUGA, DELFIN FAJARDO, CEFERINO
VALENCIA, MOISES CARANDANG, LUCIANO
CASTILLO, AURELIO VALENCIA, LAURO LEVISTE,
GAVINO GONZALES, LOPE GEVANA and
BONIFACIO LAUREANA, defendant-appellees.
Basa, Ilao, del Rosario & Diaz for plaintiff-appellant.
Laurel Law Office for Dimayuga.
Tomas Yumol for Fajardo, defendant-appellee.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
ARTICLE 1216, NEW CIVIL CODE; SUBSTANTIVE RIGHT
OF CREDITOR TO SEEK SATISFACTION OF HIS CREDIT
AGAINST ANY OF HIS SOLIDARY DEBTORS, NOW
SETTLED. It is now settled that the quoted Article
1216 grants the creditor the substantive right to seek
satisfaction of his credit from one, some or all of his
solidary debtors, as he deems fit op convenient for
the protection of his interests.
2. REMEDIAL LAW; COURTS; JURISDICTION;
JURISDICTION RETAINED DESPITE DEATH OF ONE OF
SOLIDARY DEBTORS DURING THE PENDENCY OF THE
SUIT. If, after instituting a collection suit based on
contract against some or all of them and, during its
pendency, one of the defendants dies, the court
retains jurisdiction to continue the proceedings and
decide the case in respect of the surviving
defendants.
3. STATUTORY CONSTRUCTION; SUBSTANTIVE LAW
NOT SUBJECT TO AMENDMENT BY A PROCEDURAL
RULE. "Obviously, this provision diminishes the
Bank's right under the New Civil Code to proceed
against any one, some or all of the solidary debtors.
Such a construction is not sanctioned by the
principle, which is too well settled to require
citation, that a substantive law cannot be
amended by a procedural rule. Otherwise stated,
Section 6, Rule 86 of the Revised Rules, of Court
cannot be made to prevail over Article 1216 of the
New Civil Code, the former being merely
procedural, while the latter, substantive." PNB v.
Asuncion, 80 SCRA 321 at 323-324.
DECISION
PLANA, J p:
Appeal by the Philippine National Bank (PNB) from
the Order of the defunct Court of First Instance of
Manila (Branch XX) in its Civil Case No. 46741
dismissing PNB's complaint against several solidary
debtors for the collection of a sum of money on the
ground that one of the defendants (Ceferino
Valencia) died during the pendency of the case
(i.e., after the plaintiff had presented its evidence)
and therefore the complaint, being a money claim
based on contract, should be prosecuted in the
testate or intestate proceeding for the settlement of
the estate of the deceased defendant pursuant to
Section 6 of Rule 86 of the Rules of Court which
reads:
"SEC. 6. Solidary obligation of decedent. Where
the obligation of the decedent is solidary with
another debtor, the claim shall be filed against the
decedent as if he were the only debtor, without
prejudice to the right of the estate to recover
contribution from the other debtor. In a joint
obligation of the decedent, the claim shall be
confined to the portion belonging to him."
The appellant assails the order of dismissal, invoking
its right of recourse against one, some or all of its
solidary debtors under 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."
The sole issue thus raised is whether in an action for
collection of a sum of money based on contract
against all the solidary debtors, the death of one
defendant deprives the court of jurisdiction to
proceed with the case against the surviving
defendants.
It is now settled that the quoted Article 1216 grants
the creditor the substantive right to seek satisfaction
of his credit from one, some or all of his solidary
debtors, as he deems fit or convenient for the
protection of his interests; and if, after instituting a
collection suit based on contract against some or
all of them and, during its pendency, one of the
defendants dies, the court retains jurisdiction to
continue the proceedings and decide the case in
respect of the surviving defendants. Thus in Manila
Surety & Fidelity Co., Inc. vs. Villarama et al., 107
Phil. 891 at 897, this Court ruled: prcd
"Construing Section 698 of the Code of Civil
Procedure from whence the aforequoted provision
(Sec. 6, Rule 86) was taken, this Court held that
where two persons are bound in solidum for the
same debt and one of them dies, the whole
indebtedness can be proved against the estate of
the latter, the decedent's liability being absolute
and primary; and if the claim is not presented within
the time provided by the rules, the same will be
barred as against the estate. It is evident from the
foregoing that Section 6 of Rule 187 (now Rule 86)
provides the procedure should the creditor desire
to go against the deceased debtor, but there is
certainly nothing in the said provision making
compliance with such procedure a condition
precedent before an ordinary action against the
surviving solidary debtors, should the creditor
choose to demand payment from the latter, could
be entertained to the extent that failure to observe
the same would deprive the court jurisdiction to
38 | O B L I C O N _ C h a p t e r 3 _ J o i n t & S o l i d a r y O b l i g a t i o n s
take cognizance of the action against the surviving
debtors. Upon the other hand, the Civil Code
expressly allows the creditor to proceed against
any one of the solidary debtors or some or all of
them simultaneously. There is, therefore, nothing
improper in the creditor's filing of an action against
the surviving solidary debtors alone, instead of
instituting a proceeding for the settlement of the
estate of the deceased debtor wherein his claim
could be filed."
Similarly, in PNB vs. Asuncion, 80 SCRA 321 at 323-
324, this Court, speaking thru Mr. Justice Makasiar,
reiterated the doctrine.
"A cursory perusal of Section 6, Rule 86 of the
Revised Rules of Court reveals that nothing therein
prevents a creditor from proceeding against the
surviving solidary debtors. Said provision merely sets
up the procedure in enforcing collection in case a
creditor chooses to pursue his claim against the
estate of the deceased solidary debtor.
"It is crystal clear that Article 1216 of the New Civil
Code is the applicable provision in this matter. Said
provision gives the creditor the right to `proceed
against anyone of the solidary debtors or some or
all of them simultaneously.' The choice is
undoubtedly left to the solidary creditor to
determine against whom he win enforce collection.
In case of the death of one of the solidary debtors,
he (the creditor) may, if he so chooses, proceed
against the surviving solidary debtors without
necessity of filing a claim in the estate of the
deceased debtors. It is not mandatory for him to
have the case dismissed against the surviving
debtors and file its claim in the estate of the
deceased solidary debtor . . .
"As correctly argued by petitioner, if Section 6, Rule
86 of the Revised Rules of Court were applied
literary, Article 1216 of the New Civil Code would, in
effect, be repealed since under the Rules of Court,
petitioner has no choice but to proceed against
the estate of Manuel Barredo only. Obviously, this
provision diminishes the Bank's right under the New
Civil Code to proceed against any one, some or all
of the solidary debtors. Such a construction is not
sanctioned by the principle, which is too well
settled to require citation, that a substantive law
cannot be amended by a procedural rule.
Otherwise stated, Section 6, Rule 86 of the Revised
Rules of Court cannot be made to prevail over
Article 1216 of the New Civil Code, the former being
merely procedural, while the latter, substantive."
WHEREFORE, the appealed order of dismissal of the
court a quo in its Civil Case No. 46741 is hereby set
aside in respect of the surviving defendants; and
the case is remanded to the corresponding
Regional Trial Court for further proceedings. No
costs.
SO ORDERED
Teehankee (Actg. C.J.), Escolin, Vasquez and
Gutierrez, Jr., JJ., concur.
Melencio-Herrera and Relova JJ., is on leave.