Escolar Documentos
Profissional Documentos
Cultura Documentos
The court issued an order, dated 29 July 1983, granting the attachment writ,
which writ was returned unserved and unsatisfied as defendant Uy Tiam was
nowhere to be found at his given address and his commercial enterprise was
already non-operational (Original Records, p. 37).
On April 11, 1984, Norberto Uy and Jacinto Uy Dio (sureties-defendant herein)
filed a motion to dismiss the complaint on the ground of lack of cause of action.
They maintained that the obligation which they guaranteed in 1977 has been
extinguished since it has already been paid in the same year. Accordingly, the
Continuing Suretyships executed in 1977 cannot be availed of to secure Uy
Tiam's Letter of Credit obtained in 1979 because a guaranty cannot exist without
a valid obligation. It was further argued that they can not be held liable for the
obligation contracted in 1979 because they are not privies thereto as it was
contracted without their participation (Records, pp. 42-46).
On April 24, 1984, METROBANK filed its opposition to the motion to dismiss.
Invoking the terms and conditions embodied in the comprehensive suretyships
separately executed by sureties-defendants, the bank argued that suretiesmovants bound themselves as solidary obligors of defendant Uy Tiam to both
existing obligations and future ones. It relied on Article 2053 of the new Civil
Code which provides: "A guaranty may also be given as security for future debts,
the amount of which is not yet known; . . . ." It was further asserted that the
agreement was in full force and effect at the time the letter of credit was obtained
in 1979 as sureties-defendants did not exercise their right to revoke it by giving
notice to the bank. (Ibid., pp. 51-54).
Meanwhile, the resolution of the aforecited motion to dismiss was held in
abeyance pending the introduction of evidence by the parties as per order dated
February 21, 1986 (Ibid., p. 71).
Having been granted a period of fifteen (15) days from receipt of the order dated
March 7, 1986 within which to file the answer, sureties-defendants filed their
responsive pleading which merely rehashed the arguments in their motion to
dismiss and maintained that they are entitled to the benefit of excussion (Original
Records, pp. 88-93).
On February 23, 1987, plaintiff filed a motion to dismiss the complaint against
defendant Uy Tiam on the ground that it has no information as to the heirs or
legal representatives of the latter who died sometime in December, 1986, which
motion was granted on the following day (Ibid., pp. 180-182).
After trial, . . . the court a quo, on December 2, 198, rendered its judgment, a portion
of which reads:
The evidence and the pleadings, thus, pose the querry (sic):
Are the defendants Jacinto Uy Dioand Norberto Uy liable for the
obligation contracted by Uy Tiam under the Letter of Credit (Exh. B) issued
on March 30, 1987 by virtue of the Continuing Suretyships they executed
on February 25, 1977?
Under the admitted proven facts, the Court finds that they are not.
a) When Uy and Dio executed the continuing suretyships, exhibits E and
F, on February 25, 1977, Uy Tiam was obligated to the plaintiff in the
amount of P700,000.00 and this was the obligation which both
obligation which both defendants guaranteed to pay. Uy Tiam paid this
1977 obligation and such payment extinguished the obligation they
assumed as guarantors/sureties.
b) The 1979 Letter of Credit (Exh. B) is different from the 1977 Letter of
Credit which covered the 1977 account of Uy Tiam. Thus, the obligation
under either is apart and distinct from the obligation created in the other
as evidenced by the fact that Uy Tiam had to apply anew for the 1979
transaction (Exh. A). And Dio and Uy, being strangers thereto, cannot be
answerable thereunder.
c) The plaintiff did not serve notice to the defendants Dio and Uy when it
extended to Credit at least to inform them that the continuing
suretyships they executed on February 25, 1977 will be considered by the
plaintiff to secure the 1979 transaction of Uy Tiam.
d) There is no sufficient and credible showing that Dio and Uy were fully
informed of the import of the Continuing Suretyships when they affixed
their signatures thereon that they are thereby securing all future
obligations which Uy Tiam may contract the plaintiff. On the contrary, Dio
and Uy categorically testified that they signed the blank forms in the office
of Uy Tiam at 623 Asuncion Street, Binondo, Manila, in obedience to the
instruction of Uy Tiam, their former employer. They denied having gone to
the office of the plaintiff to subscribe to the documents (October 1, 1987,
tsn, pp. 5-7, 14; October 15, 1987, tsn, pp. 3-8, 13-16). (Records, pp. 333334). 3
xxx xxx xxx
In its Decision, the trial court decreed as follows:
PREMISES CONSIDERED, judgment is hereby rendered:
From the said Decision, the private respondent appealed to the Court of Appeals. The
case was docketed as CA-G.R. CV No. 17724. In support thereof, it made the
following assignment of errors in its Brief:
I. THE LOWER COURT SERIOUSLY ERRED IN NOT FINDING AND
HOLDING THAT DEFENDANTS-APPELLEES JACINTO UY DIO AND
NORBERTO UY ARE SOLIDARILY LIABLE TO PLAINTIFF-APPELLANT
FOR THE OBLIGATION OF DEFENDANT UY TIAM UNDER THE LETTER
OF CREDIT ISSUED ON MARCH 30, 1979 BY VIRTUE OF THE
CONTINUING SURETYSHIPS THEY EXECUTED ON FEBRUARY 25,
1977.
SO ORDERED. 6
II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFAPPELLANT IS ANSWERABLE TO DEFENDANTS-APPELLEES JACINTO
UY DIO AND NORBERTO UY FOR ATTORNEY'S FEES AND EXPENSES
OF LITIGATION. 5
incurred by Uy Tiam, they cannot be held liable for more than what they guaranteed
to pay because it s axiomatic that the obligations of a surety cannot extend beyond
what is stipulated in the agreement.
On 12 February 1990, this Court resolved to give due course to the petition after
considering the allegations, issues and arguments adduced therein, the Comment
thereon by the private respondent and the Reply thereto by the petitioners; the parties
were required to submit their respective Memoranda.
The issues presented for determination are quite simple:
1. Whether petitioners are liable as sureties for the 1979 obligations of Uy Tiam
to METROBANK by virtue of the Continuing Suretyship Agreements they
separately signed in 1977; and
2. On the assumption that they are, what is the extent of their liabilities for said
1979 obligations.
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not known at the time the guaranty is
executed. 8 This is the basis for contracts denominated as continuing guaranty or
suretyship. A continuing guaranty is one which is not limited to a single transaction,
but which contemplates a future course of dealing, covering a series of transactions,
generally for an indefinite time or until revoked. It is prospective in its operation and is
generally intended to provide security with respect to future transactions within certain
limits, and contemplates a succession of liabilities, for which, as they accrue, the
guarantor becomes liable. 9 Otherwise stated, a continuing guaranty is one which
covers all transactions, including those arising in the future, which are within the
description or contemplation of the contract, of guaranty, until the expiration or
termination thereof. 10 A guaranty shall be construed as continuing when by the terms
thereof it is evident that the object is to give a standing credit to the principal debtor to
be used from time to time either indefinitely or until a certain period, especially if the
right to recall the guaranty is expressly reserved. Hence, where the contract of
guaranty states that the same is to secure advances to be made "from time to time"
the guaranty will be construed to be a continuing one. 11
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of "any debt," "any indebtedness," "any deficiency," or
"any sum," or the guaranty of "any transaction" or money to be furnished the principal
debtor "at any time," or "on such time" that the principal debtor may require, have
been construed to indicate a continuing guaranty. 12
In the case at bar, the pertinent portion of paragraph I of the suretyship agreement
executed by petitioner Uy provides thus:
guaranteed, which may be held by the BANK, or in which the BANK may have
any interest at the time of the receipt (sic) of such notice. No act or omission of
any kind on the BANK'S part in the premises shall in any event affect or impair
this guaranty, nor shall same (sic) be affected by any change which may arise by
reason of the death of the SURETY, or of any partner(s) of the SURETY, or of the
Borrower, or of the accession to any such partnership of any one or more new
partners. 15
The foregoing stipulations unequivocally reveal that the suretyship agreement in the
case at bar are continuing in nature. Petitioners do not deny this; in fact, they candidly
admitted it. Neither have they denied the fact that they had not revoked the suretyship
agreements. Accordingly, as correctly held by the public respondent:
Undoubtedly, the purpose of the execution of the Continuing Suretyships was to
induce appellant to grant any application for credit accommodation (letter of
credit/trust receipt) UTEFS may desire to obtain from appellant bank. By its
terms, each suretyship is a continuing one which shall remain in full force and
effect until the bank is notified of its revocation.
xxx xxx xxx
When the Irrevocable Letter of Credit No. SN-Loc-309 was obtained from
appellant bank, for the purpose of obtaining goods (covered by a trust receipt)
from Planters Products, the continuing suretyships were in full force and effect.
Hence, even if sureties-appellees did not sign the "Commercial Letter of Credit
and Application, they are still liable as the credit accommodation (letter of
credit/trust receipt) was covered by the said suretyships. What makes them liable
thereunder is the condition which provides that the Borrower "is or may become
liable as maker, endorser, acceptor or otherwise." And since UTEFS which (sic)
was liable as principal obligor for having failed to fulfill the obligatory stipulations
in the trust receipt, they as insurers of its obligation, are liable thereunder. 16
Petitioners maintain, however, that their Continuing Suretyship Agreements cannot be
made applicable to the 1979 obligation because the latter was not yet in existence
when the agreements were executed in 1977; under Article 2052 of the Civil Code, a
guaranty "cannot exist without a valid obligation." We cannot agree. First of all, the
succeeding article provides that "[a] guaranty may also be given as security for future
debts, the amount of which is not yet known." Secondly, Article 2052 speaks about
a valid obligation, as distinguished from a void obligation, and not an existing or
current obligation. This distinction is made clearer in the second paragraph of Article
2052 which reads:
Nevertheless, a guaranty may be constituted to guarantee the performance of a
voidable or an unenforceable contract. It may also guarantee a natural obligation.
lawyers, he could not charge the amount to his opponent (Tan Ti vs. Alvear, 26
Phil. 566).
However the New Civil Code permits recovery of attorney's fees in eleven
cases enumerated in Article 2208, among them, "where the court deems it just
and equitable that attorney's (sic) fees and expenses of litigation should be
recovered" or "when the defendant acted in gross and evident bad faith in
refusing to satisfy the plaintiff's plainly valid, just and demandable claim." This
gives the courts discretion in apportioning attorney's fees.
The records do not reveal the exact amount of the unpaid portion of the principal
obligation of Uy Tiam to MERTOBANK under Irrevocable Letter of Credit No. SN-Loc309 dated 30 March 1979. In referring to the last demand letter to Mr. Uy Tiam and
the complaint filed in Civil Case No. 82-9303, the public respondent mentions the
amount of "P613,339.32, as of January 31, 1982, inclusive of interest commission
penalty and bank charges."23 This is the same amount stated by METROBANK in its
Memorandum. 24 However, in summarizing Uy Tiam's outstanding obligation as of 17
July 1987, public respondent states:
Hence, they are jointly and severally liable to appellant METROBANK of
UTEFS' outstanding obligation in the sum of P2,397,883.68 (as of July 17,
1987) P651,092.82 representing the principal amount, P825,133.54, for
past due interest (5-31-82 to 7-17-87) and P921,657.32, for penalty
charges at 12% per annum (5-31-82 to 7-17-87) as shown in the
Statement of Account (Exhibit I). 25
Since the complaint was filed on 18 May 1982, it is obvious that on that date, the
outstanding principal obligation of Uy Tiam, secured by the petitioners'
Continuing Suretyship Agreements, was less than P613,339.32. Such amount
may be fully covered by the Continuing Suretyship Agreement executed by
petitioner Dio which stipulates an aggregate principal sum of not exceeding
P800,000.00, and partly covered by that of petitioner Uy which pegs his
maximum liability at P300,000.00.
Consequently, the judgment of the public respondent shall have to be modified to
conform to the foregoing exposition, to which extent the instant petition is impressed
with partial merit.
WHEREFORE, the petition is partly GRANTED, but only insofar as the challenged
decision has to be modified with respect to the extend of petitioners' liability. As
modified, petitioners JACINTO UY DIO and NORBERTO UY are hereby declared
liable for and are ordered to pay, up to the maximum limit only of their respective
Continuing Suretyship Agreement, the remaining unpaid balance of the principal
obligation of UY TIAM or UY TIAM ENTERPRISES & FREIGHT SERVICES under
Irrevocable Letter of Credit No. SN-Loc-309, dated 30 March 1979, together with the
interest due thereon at the legal rate commencing from the date of the filing of the
complaint in Civil Case No. 82-9303 with Branch 45 of the Regional Trial Court of
Manila, as well as the adjudged attorney's fees and costs.
All other dispositions in the dispositive portion of the challenged decision not
inconsistent with the above are affirmed.
SO ORDERED.
SALVADOR P. ESCAO
and MARIO M. SILOS,
Petitioners,
G. R. No. 151953
c.
In the event that any of [the]
OBLIGORS is for any reason made to pay any
amount to PDCP and/or PAIC, SURETIES shall
reimburse OBLIGORS for said amount/s within
seven (7) calendar days from such payment;
4. OBLIGORS hereby waive in favor of SURETIES any
and all fees which may be due from FALCON arising out of, or in
connection with, their said guarantees[sic].[8]
Falcon eventually availed of the sum of US$178,655.59 from the credit line
extended by PDCP. It would also execute a Deed of Chattel Mortgage over its
personal properties to further secure the loan. However, Falcon subsequently
defaulted in its payments. After PDCP foreclosed on the chattel mortgage, there
In the meantime, after having settled with PDCP, Ortigas pursued his claims
against Escao, Silos and Matti, on the basis of the 1982 Undertaking. He initiated a
third-party complaint against Matti and Silos, [16] while he maintained his cross-claim
against Escao. In 1995, Ortigas filed a motion for Summary Judgment in his favor
against Escao, Silos and Matti. On 5 October 1995, the RTC issued the Summary
Judgment, ordering Escao, Silos and Matti to pay Ortigas, jointly and severally, the
amount of P1,300,000.00, as well as P20,000.00 in attorneys fees.[17] The trial court
ratiocinated that none of the third-party defendants disputed the 1982 Undertaking,
and that the mere denials of defendants with respect to non-compliance of Ortigas of
the terms and conditions of the Undertaking, unaccompanied by any substantial fact
which would be admissible in evidence at a hearing, are not sufficient to raise
genuine issues of fact necessary to defeat a motion for summary judgment, even if
such facts were raised in the pleadings.[18] In an Order dated 7 March 1996, the trial
court denied the motion for reconsideration of the Summary Judgment and awarded
Ortigas legal interest of 12% per annum to be computed from 28 February 1994.[19]
From the Summary Judgment, recourse was had by way of appeal to the
Court of Appeals. Escao and Silos appealed jointly while Matti appealed by his
lonesome. In a Decision[20] dated 23 January 2002, the Court of Appeals dismissed
the appeals and affirmed the Summary Judgment. The appellate court found that the
RTC did not err in rendering the summary judgment since the three appellants did not
effectively deny their execution of the 1982 Undertaking. The special defenses that
were raised, payment and excussion, were characterized by the Court of Appeals as
appear[ing] to be merely sham in the light of the pleadings and supporting
documents and affidavits.[21] Thus, it was concluded that there was no genuine issue
that would still require the rigors of trial, and that the appealed judgment was decided
on the bases of the undisputed and established facts of the case.
Hence, the present petition for review filed by Escao and Silos.[22] Two main
issues are raised. First, petitioners dispute that they are liable to Ortigas on the basis
of the 1982 Undertaking, a document which they do not disavow and have in fact
annexed to their petition. Second, on the assumption that they are liable to Ortigas
under the 1982 Undertaking, petitioners argue that they are jointly liable only, and not
solidarily. Further assuming that they are liable, petitioners also submit that they are
not liable for interest and if at all, the proper interest rate is 6% and not 12%.
Interestingly, petitioners do not challenge, whether in their petition or their
memorandum before the Court, the appropriateness of the summary judgment as a
relief favorable to Ortigas. Under Section 3, Rule 35 of the 1997 Rules of Civil
Procedure, summary judgment may avail if the pleadings, supporting affidavits,
depositions and admissions on file show that, except as to the amount of damages,
there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law. Petitioner have not attempted to demonstrate before
us that there existed a genuine issue as to any material fact that would preclude
summary judgment. Thus, we affirm with ease the common rulings of the lower
courts that summary judgment is an appropriate recourse in this case.
The vital issue actually raised before us is whether petitioners were correctly
held liable to Ortigas on the basis of the 1982 Undertaking in this Summary
Judgment. An examination of the document reveals several clauses that make it clear
that the agreement was brought forth by the desire of Ortigas, Inductivo and the
Scholeys to be released from their liability under the loan agreement which release
was, in turn, part of the consideration for the assignment of their shares in Falcon to
petitioners and Matti. The whereas clauses manifest that Ortigas had bound himself
with Falcon for the payment of the loan with PDCP, and that amongst the
consideration for OBLIGORS and/or their principals aforesaid selling is SURETIES
relieving OBLIGORS of any and all liability arising from their said joint and several
undertakings with FALCON.[23] Most crucial is the clause in Paragraph 3 of the
Undertaking wherein petitioners irrevocably agree and undertake to assume all of
OBLIGORs said guarantees [sic] to PDCP x x x under the following terms and
conditions.[24]
At the same time, it is clear that the assumption by petitioners of Ortigass
guarantees [sic] to PDCP is governed by stipulated terms and conditions as set forth
in sub-paragraphs (a) to (c) of Paragraph 3. First, upon receipt by any of
OBLIGORS of any demand from PDCP for the payment of Falcons obligations with
it, any of OBLIGORS was to immediately inform SURETIES thereof so that the
latter can timely take appropriate measures. Second, should any and/or all of
OBLIGORS be impleaded by PDCP in a suit for collection of its loan, SURETIES
agree[d] to defend OBLIGORS at their own expense, without prejudice to any and/or
all of OBLIGORS impleading SURETIES therein for contribution, indemnity,
subrogation or other relief[25] in respect to any of the claims of PDCP. Third, if any of
the OBLIGORS is for any reason made to pay any amount to [PDCP], SURETIES
[were to] reimburse OBLIGORS for said amount/s within seven (7) calendar days
from such payment.[26]
Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas
was not made to pay PDCP the amount now sought to be reimbursed, as Ortigas
voluntarily paid PDCP the amount of P1.3 Million as an amicable settlement of the
claims posed by the bank against him. However, the subject clause in paragraph 3(c)
actually reads [i]n the event that any of OBLIGORS is for any reason made to
pay any amount to PDCP x x x[27] As pointed out by Ortigas, the phrase for any
reason reasonably includes any extra-judicial settlement of obligation such as what
Ortigas had undertaken to pay to PDCP, as it is indeed obvious that the phrase was
incorporated in the clause to render the eventual payment adverted to therein
unlimited and unqualified.
The interpretation posed by petitioners would have held water had the
Undertaking made clear that the right of Ortigas to seek reimbursement accrued only
after he had delivered payment to PDCP as a consequence of a final and executory
judgment. On the contrary, the clear intent of the Undertaking was for petitioners and
Matti to relieve the burden on Ortigas and his fellow OBLIGORS as soon as
possible, and not only after Ortigas had been subjected to a final and executory
adverse judgment.
Paragraph 1 of the Undertaking enjoins petitioners to exert all efforts to
cause PDCP x x x to within a reasonable time release all the OBLIGORS x x x from
their guarantees [sic] to PDCP x x x[28] In the event that Ortigas and his fellow
OBLIGORS could not be released from their guaranties, paragraph 2 commits
petitioners and Matti to cause the Board of Directors of Falcon to make a call on its
stockholders for the payment of their unpaid subscriptions and to pledge or assign
such payments to Ortigas, et al., as security for whatever amounts the latter may be
held liable under their guaranties. In addition, paragraph 1 also makes clear that
nothing in the Undertaking shall prevent OBLIGORS, or any one of them, from
themselves negotiating with PDCP x x x for the release of their said guarantees
[sic].[29]
There is no argument to support petitioners position on the import of the
phrase made to pay in the Undertaking, other than an unduly literalist reading that is
clearly inconsistent with the thrust of the document. Under the Civil Code, the various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly.[30] Likewise applicable is the
provision
that
if
some
stipulation
of
any
contract
should admit of several meanings, it shall be understood as bearing that import
which is most adequate to render it effectual.[31] As a means to effect the general
intent of the document to relieve Ortigas from liability to PDCP, it is his interpretation,
not that of petitioners, that holds sway with this Court.
Neither do petitioners impress us of the non-fulfillment of any of the other
conditions set in paragraph 3, as they claim. Following the general assertion in the
petition that Ortigas violated the terms of the Undertaking, petitioners add that Ortigas
paid PDCP BANK the amount of P1.3 million without petitioners ESCANO and
SILOSs knowledge and consent.[32]Paragraph 3(a) of the Undertaking does impose a
requirement that any of the OBLIGORS shall immediately inform SURETIES if
they received any demand for payment of FALCONs obligations to PDCP, but that
requirement is reasoned so that the [SURETIES] can timely take appropriate
measures[33] presumably to settle the obligation without having to burden the
OBLIGORS. This notice requirement in paragraph 3(a) is markedly way off from the
suggestion of petitioners that Ortigas, after already having been impleaded as a
defendant in the collection suit, was obliged under the 1982 Undertaking to notify
them before settling with PDCP.
The other arguments petitioners have offered to escape liability to Ortigas
are similarly weak.
Petitioners impugn Ortigas for having settled with PDCP in the first place.
They note that Ortigas had, in his answer, denied any liability to PDCP and had
alleged that he signed the Assumption of Solidary Liability not in his personal
capacity, but as an officer of Falcon. However, such position, according to petitioners,
could not be justified since Ortigas later voluntarily paid PDCP the amount of P1.3
Million. Such circumstances, according to petitioners, amounted to estoppel on the
part of Ortigas.
Even as we entertain this argument at depth, its premises are still erroneous.
The Partial Compromise Agreement between PDCP and Ortigas expressly stipulated
that Ortigass offer to pay PDCP was conditioned without [Ortigass] admitting liability
to plaintiff PDCP Banks complaint, and to terminate and dismiss the said case as
against Ortigas solely.[34] Petitioners profess it is unthinkable for Ortigas to have
voluntarily paid PDCP without admitting his liability,[35] yet such contention based on
assumption cannot supersede the literal terms of the Partial Compromise Agreement.
Petitioners further observe that Ortigas made the payment to PDCP after he
had already assigned his obligation to petitioners through the 1982 Undertaking. Yet
the fact is PDCP did pursue a judicial claim against Ortigas notwithstanding the
Undertaking he executed with petitioners. Not being a party to such Undertaking,
PDCP was not precluded by a contract from pursuing its claim against Ortigas based
on the original Assumption of Solidary Liability.
At the same time, the Undertaking did not preclude Ortigas from relieving his
distress through a settlement with the creditor bank. Indeed, paragraph 1 of the
Undertaking expressly states that nothing herein shall prevent OBLIGORS, or any
one of them, from themselves negotiating with PDCP x x x for the release of their said
guarantees [sic].[36] Simply put, the Undertaking did not bar Ortigas from pursuing his
own settlement with PDCP. Neither did the Undertaking bar Ortigas from recovering
from petitioners whatever amount he may have paid PDCP through his own
settlement. The stipulation that if Ortigas was for any reason made to pay any
amount to PDCP[,] x x x SURETIES shall reimburse OBLIGORS for said amount/s
within seven (7) calendar days from such payment[37] makes it clear that petitioners
remain liable to reimburse Ortigas for the sums he paid PDCP.
We now turn to the set of arguments posed by petitioners, in the alternative,
that is, on the assumption that they are indeed liable.
Petitioners submit that they could only be held jointly, not solidarily, liable to
Ortigas, claiming that the Undertaking did not provide for express solidarity. They cite
Article 1207 of the New Civil Code, which states in part that [t]here is a solidary
liability only when the obligation expressly so states, or when the law or the nature of
the obligation requires solidarity.
Ortigas in turn argues that petitioners, as well as Matti, are jointly and
severally liable for the Undertaking, as the language used in the agreement clearly
shows that it is a surety agreement [38] between the obligors (Ortigas group) and the
sureties (Escao group). Ortigas points out that the Undertaking uses the word
SURETIES although the document, in describing the parties. It is further contended
that the principal objective of the parties in executing the Undertaking cannot be
attained unless petitioners are solidarily liable because the total loan obligation can
not be paid or settled to free or release the OBLIGORS if one or any of the
SURETIES default from their obligation in the Undertaking.[39]
In case, there is a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207 of the Civil Code states that
among them, [t]here is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires solidarity. Article 1210
supplies further caution against the broad interpretation of solidarity by providing:
The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.
These Civil Code provisions establish that in case of concurrence of two or
more creditors or of two or more debtors in one and the same obligation, and in the
absence of express and indubitable terms characterizing the obligation as solidary,
the presumption is that the obligation is only joint. It thus becomes incumbent upon
the party alleging that the obligation is indeed solidary in character to prove such fact
with a preponderance of evidence.
The Undertaking does not contain any express stipulation that the petitioners
agreed to bind themselves jointly and severally in their obligations to the Ortigas
group, or any such terms to that effect. Hence, such obligation established in the
Undertaking is presumed only to be joint. Ortigas, as the party alleging that the
obligation is in fact solidary, bears the burden to overcome the presumption of
jointness of obligations. We rule and so hold that he failed to discharge such burden.
Ortigas places primary reliance on the fact that the petitioners and Matti
identified themselves in the Undertaking as SURETIES, a term repeated no less
than thirteen (13) times in the document. Ortigas claims that such manner of
identification sufficiently establishes that the obligation of petitioners to him was joint
and solidary in nature.
The term surety has a specific meaning under our Civil Code. Article 2047
provides the statutory definition of a surety agreement, thus:
Art. 2047. By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the contract is called a
suretyship. [Emphasis supplied][40]
act or omission has compelled the plaintiff to litigate with third persons or to incur
expenses to protect his interest.
It is not impossible that as between Escao, Silos and Matti, there was an
agreement whereby in the event that Ortigas were to seek reimbursement from them
per the terms of the Undertaking, one of them was to act as surety and to pay Ortigas
in full, subject to his right to full reimbursement from the other two obligors. In such
case, there would have been, in fact, a surety agreement which evinces a solidary
obligation in favor of Ortigas. Yet if there was indeed such an agreement, it does not
appear on the record. More consequentially, no such intention is reflected in the
Undertaking itself, the very document that creates the conditional obligation that
petitioners and Matti reimburse Ortigas should he be made to pay PDCP. The mere
utilization of the term SURETIES could not work to such effect, especially as it does
not appear who exactly is the principal debtor whose obligation is assured or
guaranteed by the surety.
The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals [51] set
forth the rules with respect to the manner of computing legal interest:
Ortigas further argues that the nature of the Undertaking requires solidary
obligation of the Sureties, since the Undertaking expressly seeks to reliev[e] obligors
of any and all liability arising from their said joint and several undertaking with
[F]alcon, and for the sureties to irrevocably agree and undertake to assume all of
obligors said guarantees to PDCP.[50]We do not doubt that a finding of solidary liability
among the petitioners works to the benefit of Ortigas in the facilitation of these goals,
yet the Undertaking itself contains no stipulation or clause that establishes petitioners
obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by
themselves establish that the nature of the obligation requires solidarity. Even if the
liability of petitioners and Matti were adjudged as merely joint, the full relief and
reimbursement of Ortigas arising from his payment to PDCP would still be
accomplished through the complete execution of such a judgment.
Petitioners further claim that they are not liable for attorneys fees since the
Undertaking contained no such stipulation for attorneys fees, and that the situation
did not fall under the instances under Article 2208 of the Civil Code where attorneys
fees are recoverable in the absence of stipulation.
We disagree. As Ortigas points out, the acts or omissions of the petitioners
led to his being impleaded in the suit filed by PDCP. The Undertaking was precisely
executed as a means to obtain the release of Ortigas and the Scholeys from their
previous obligations as sureties of Falcon, especially considering that they were
already divesting their shares in the corporation. Specific provisions in the
Undertaking obligate petitioners to work for the release of Ortigas from his surety
agreements with Falcon. Specific provisions likewise mandate the immediate
repayment of Ortigas should he still be made to pay PDCP by reason of the guaranty
agreements from which he was ostensibly to be released through the efforts of
petitioners. None of these provisions were complied with by petitioners, and Article
2208(2) precisely allows for the recovery of attorneys fees [w]hen the defendants
Finally, petitioners claim that they should not be liable for interest since the
Undertaking does not contain any stipulation for interest, and assuming that they are
liable, that the rate of interest should not be 12% per annum, as adjudged by the
RTC.
- versus -
Promulgated:
November 18, 2005
x ---------------------------------- --------------- x
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the Decision[2] of the Court of Appeals dated 7
September 2000 and its Resolution dated 18 October 2000. The
7 September
2000 Decision affirmed the ruling of the Regional Trial Court, Makati, Branch 144 in a
case for estafa under Section 13, Presidential Decree No. 115. The Court of Appeals
Resolution of 18 October 2000 denied petitioners motion for reconsideration.
The Facts
Petitioners Jose C. Tupaz IV and Petronila C. Tupaz (petitioners) were VicePresident for Operations and Vice-President/Treasurer, respectively, of El Oro
Engraver Corporation (El Oro Corporation). El Oro Corporation had a contract with
the Philippine Army to supply the latter with survival bolos.
To finance the purchase of the raw materials for the survival bolos, petitioners,
on behalf of El Oro Corporation, applied with respondent Bank of the Philippine
Islands (respondent bank) for two commercial letters of credit. The letters of credit
were in favor of El Oro Corporations suppliers, Tanchaoco Manufacturing
Incorporated[3] (Tanchaoco Incorporated) and Maresco Rubber and Retreading
Corporation[4] (Maresco Corporation). Respondent bank granted petitioners
application and issued Letter of Credit No. 2-00896-3 for P564,871.05 to Tanchaoco
Incorporated and Letter of Credit No. 2-00914-5 for P294,000 to Maresco
Corporation.
Simultaneous with the issuance of the letters of credit, petitioners signed
trust receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C.
Tupaz IV (petitioner Jose Tupaz) signed, in his personal capacity, a trust receipt
corresponding to Letter of Credit No. 2-00896-3 (for P564,871.05). Petitioner Jose
Tupaz bound himself to sell the goods covered by the letter of credit and to remit the
proceeds to respondent bank, if sold, or to return the goods, if not sold, on or before
29 December 1981.
On 9 October 1981, petitioners signed, in their capacities as officers of El
Oro Corporation, a trust receipt corresponding to Letter of Credit No. 2-00914-5
(for P294,000). Petitioners bound themselves to sell the goods covered by that letter
of credit and to remit the proceeds to respondent bank, if sold, or to return the goods,
if not sold, on or before 8 December 1981.
After Tanchaoco Incorporated and Maresco Corporation delivered the raw
materials to El Oro Corporation, respondent bank paid the former P564,871.05
and P294,000, respectively.
Petitioners did not comply with their undertaking under the trust receipts.
Respondent bank made several demands for payments but El Oro Corporation made
partial payments only. On 27 June 1983 and 28 June 1983, respondent banks
counsel[5] and its representative[6] respectively sent final demand letters to El Oro
Corporation. El Oro Corporation replied that it could not fully pay its debt because the
Armed Forces of the Philippines had delayed paying for the survival bolos.
Respondent bank charged petitioners with estafa under Section 13,
Presidential Decree No. 115 (Section 13) [7] or Trust Receipts Law (PD 115). After
preliminary investigation, the then Makati Fiscals Office found probable cause to
indict petitioners. The Makati Fiscals Office filed the corresponding Informations
(docketed as Criminal Case Nos. 8848 and 8849) with the Regional Trial Court,
Makati, on 17 January 1984 and the cases were raffled to Branch 144 (trial court) on
20 January 1984. Petitioners pleaded not guilty to the charges and trial ensued.
During the trial, respondent bank presented evidence on the civil aspect of the cases.
The Ruling of the Trial Court
On 16 July 1992, the trial court rendered judgment acquitting petitioners of
estafa on reasonable doubt. However, the trial court found petitioners solidarily liable
with El Oro Corporation for the balance of El Oro Corporations principal debt under
the trust receipts. The dispositive portion of the trial courts Decision provides:
WHEREFORE,
judgment
is
hereby
rendered
ACQUITTING both accused Jose C. Tupaz, IV and Petronila Tupaz
based upon reasonable doubt.
In holding petitioners civilly liable with El Oro Corporation, the trial court held:
[S]ince the civil action for the recovery of the civil liability is
deemed impliedly instituted with the criminal action, as in fact the
prosecution thereof was actively handled by the private prosecutor,
the Court believes that the El Oro Engraver Corporation and both
accused Jose C. Tupaz and Petronila Tupaz, jointly and solidarily
should be held civilly liable to the Bank of the Philippine Islands.
The mere fact that they were unable to collect in full from the AFP
and/or the Department of National Defense the proceeds of the
sale of the delivered survival bolos manufactured from the raw
materials covered by the trust receipt agreements is no valid
defense to the civil claim of the said complainant and surely could
not wipe out their civil obligation. After all, they are free to institute
an action to collect the same.[9]
Petitioners appealed to the Court of Appeals. Petitioners contended that: (1)
their acquittal operates to extinguish [their] civil liability and (2) at any rate, they are
not personally liable for El Oro Corporations debts.
The Ruling of the Court of Appeals
In its Decision of 7 September 2000, the Court of Appeals affirmed the trial
courts ruling. The appellate court held:
It is clear from [Section 13, PD 115] that civil liability arising
from the violation of the trust receipt agreement is distinct from the
criminal liability imposed therein. In the case of Vintola vs. Insular
Bank of Asia and America, our Supreme Court held that acquittal in
the estafa case (P.D. 115) is no bar to the institution of a civil action
for collection. This is because in such cases, the civil liability of the
accused does not arise ex delicto but rather based ex
contractu and as such is distinct and independent from any criminal
proceedings and may proceed regardless of the result of the latter.
Thus, an independent civil action to enforce the civil liability may be
filed against the corporation aside from the criminal action against
the responsible officers or employees.
xxx
[W]e hereby hold that the acquittal of the accusedappellants from the criminal charge of estafa did not operate to
extinguish their civil liability under the letter of credit-trust receipt
arrangement with plaintiff-appellee, with which they dealt both in
their personal capacity and as officers of El Oro Engraver
Corporation, the letter of credit applicant and principal debtor.
Appellants argued that they cannot be held solidarily liable
with their corporation, El Oro Engraver Corporation, alleging that
they executed the subject documents including the trust receipt
agreements only in their capacity as such corporate officers. They
said that these instruments are mere pro-forma and that they
executed these instruments on the strength of a board resolution of
said corporation authorizing them to apply for the opening of a letter
of credit in favor of their suppliers as well as to execute the other
documents necessary to accomplish the same.
1.
2.
3.
4.
IN
THE
ALTERNATIVE,
THE
QUESTIONED
TRANSACTIONS ARE SIMULATED AND VOID.[11]
The Issues
The petition raises these issues:
(1) Whether petitioners bound themselves personally liable for El Oro
Corporations debts under the trust receipts;
(2) If so
(a)
whether petitioners liability is solidary with El Oro Corporation;
and
(b)
whether petitioners acquittal of estafa under Section 13, PD 115
extinguished their civil liability.
The Ruling of the Court
The petition is partly meritorious. We affirm the Court of Appeals ruling with the
modification that petitioner Jose Tupaz is liable as guarantor of El Oro Corporations
debt under the trust receipt dated 30 September 1981.
A corporation, being a juridical entity, may act only through its directors, officers,
and employees. Debts incurred by these individuals, acting as such corporate agents,
are not theirs but the direct liability of the corporation they represent. [12] As an
exception, directors or officers are personally liable for the corporations debts only if
they so contractually agree or stipulate.[13]
liable for El Oro Corporations debts. Not being a party to the trust receipt dated 30
September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.
The Nature of Petitioner Jose Tupazs Liability
Under the Trust Receipt Dated 30 September 1981
Here, the dorsal side of the trust receipts contains the following stipulation:
To the Bank of the Philippine Islands
In
consideration
of
your
releasing
to
under the terms of this Trust Receipt
the goods described herein, I/We, jointly and severally, agree and
promise to pay to you, on demand, whatever sum or sums of
money which you may call upon me/us to pay to you, arising out of,
pertaining to, and/or in any way connected with, this Trust Receipt,
in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said .
I/we further agree that my/our liability in this guarantee shall be
DIRECT AND IMMEDIATE, without any need whatsoever on your
part to take any steps or exhaust any legal remedies that you may
have against the said . before making
demand upon me/us.[14] (Capitalization in the original)
In the trust receipt dated 9 October 1981, petitioners signed below this clause
as officers of El Oro Corporation. Thus, under petitioner Petronila Tupazs signature
are the words Vice-PresTreasurer and under petitioner Jose Tupazs signature are
the words Vice-PresOperations. By so signing that trust receipt, petitioners did not
bind themselves personally liable for El Oro Corporations obligation. In Ong v. Court
of Appeals,[15] a corporate representative signed a solidary guarantee clause in two
trust receipts in his capacity as corporate representative. There, the Court held that
the corporate representative did not undertake to guarantee personally the payment
of the corporations debts, thus:
[P]etitioner did not sign in his personal capacity the
solidary guarantee clause found on the dorsal portion of the trust
receipts. Petitioner placed his signature after the typewritten words
ARMCO INDUSTRIAL CORPORATION found at the end of the
solidary guarantee clause. Evidently, petitioner did not undertake to
guaranty personally the payment of the principal and interest of
ARMAGRIs debt under the two trust receipts.
Hence, for the trust receipt dated 9 October 1981, we sustain petitioners claim that
they are not personally liable for El Oro Corporations obligation.
For the trust receipt dated 30 September 1981, the dorsal portion of which
petitioner Jose Tupaz signed alone, we find that he did so in his personal capacity.
Petitioner Jose Tupaz did not indicate that he was signing as El Oro Corporations
Vice-President for Operations. Hence, petitioner Jose Tupaz bound himself personally
As stated, the dorsal side of the trust receipt dated 30 September 1981
provides:
To the Bank of the Philippine Islands
In
consideration
of
your
releasing
to
under the terms of this Trust Receipt
the goods described herein, I/We, jointly and severally, agree and
promise to pay to you, on demand, whatever sum or sums of
money which you may call upon me/us to pay to you, arising out of,
pertaining to, and/or in any way connected with, this Trust Receipt,
in the event of default and/or non-fulfillment in any respect of this
undertaking on the part of the said .
I/we further agree that my/our liability in this guarantee shall be
DIRECT AND IMMEDIATE, without any need whatsoever on your
part to take any steps or exhaust any legal remedies that you may
have against the said .
Before making demand upon me/us. (Underlining supplied;
capitalization in the original)
The lower courts interpreted this to mean that petitioner Jose Tupaz bound himself
solidarily liable with El Oro Corporation for the latters debt under that trust receipt.
This is error.
In Prudential Bank v. Intermediate Appellate Court,[16] the Court
interpreted a substantially identical clause[17] in a trust receipt signed by a corporate
officer who bound himself personally liable for the corporations obligation. The
petitioner in that case contended that the stipulation we jointly and severally agree
and undertake rendered the corporate officer solidarily liable with the corporation. We
dismissed this claim and held the corporate officer liable as guarantor only. The Court
further ruled that had there been more than one signatories to the trust receipt, the
solidary liability would exist between the guarantors. We held:
Petitioner [Prudential Bank] insists that by virtue of the
clear wording of the xxx clause x x x we jointly and severally agree
and undertake x x x, and the concluding sentence on exhaustion,
[respondent] Chis liability therein is solidary.
xxx
Our xxx reading of the questioned solidary guaranty
clause yields no other conclusion than that the obligation of Chi is
only that of a guarantor. This is further bolstered by the last
sentence which speaks of waiver of exhaustion, which,
Eastern Shipping Lines, Inc. v. Court of Appeals,[23] the accrued stipulated interest
earns 12% interest per annum from the time of the filing of the Informations in the
Makati Regional Trial Court on 17 January 1984. Further, the total amount due as of
the date of the finality of this Decision will earn interest at 18% per annum until fully
paid since this was the stipulated rate in the applications for the letters of credit.[24]
The accounting of El Oro Corporations debts as of 23 January 1992, which
the trial court used, is no longer useful as it does not specify the amounts owing
under each of the trust receipts. Hence, in the execution of this Decision, the trial
court shall compute El Oro Corporations total liability under each of the trust receipts
dated 30 September 1981 and 9 October 1981 based on the following formula:[25]
TOTAL AMOUNT DUE = [principal + interest + interest on
interest] partial payments made[26]
Interest = principal x 18 % per annum x no. of years from
due date[27] until finality of judgment
Interest on interest = interest computed as of the filing of
the complaint (17 January 1984) x 12% x no. of years until finality
of judgment
Attorneys fees is 10% of the total amount computed as of
finality of judgment
Total amount due as of the date of finality of judgment will
earn an interest of 18% per annum until fully paid.
The lower courts correctly applied the 18% interest rate per
annum considering that the face value of each of the trust receipts is based on the
drafts drawn under the letters of credit. Based on the guidelines laid down in
2)
3)
SO ORDERED.
During the pre-trial conference, the parties submitted the following issues for the
resolution of the trial court: (1) what the rate of interest, penalty and damages should
be; (2) whether the liability of the defendant (herein petitioner) is primary or
subsidiary; and (3) whether the defendant Estrella Palmares is only a guarantor with a
subsidiary liability and not a co-maker with primary liability. 5
Thereafter, the parties agreed to submit the case for decision based on the pleadings
filed and the memoranda to be submitted by them. On November 26, 1992, the
Regional Trial Court of Iloilo City, Branch 23, rendered judgment dismissing the
complaint without prejudice to the filing of a separate action for a sum of money
against the spouses Osmea and Merlyn Azarraga who are primarily liable on the
instrument. 6 This was based on the findings of the court a quo that the filing of the
complaint against herein petitioner Estrella Palmares, to the exclusion of the Azarraga
spouses, amounted to a discharge of a prior party; that the offer made by petitioner to
pay the obligation is considered a valid tender of payment sufficient to discharge a
person's secondary liability on the instrument; as co-maker, is only secondarily liable
on the instrument; and that the promissory note is a contract of adhesion.
Respondent Court of Appeals, however, reversed the decision of the trial court, and
rendered judgment declaring herein petitioner Palmares liable to pay respondent
corporation:
adhesion, the same is not entirely prohibited because the one who adheres to the
contract is free to reject it entirely; if he adheres, he gives his consent.
Hence this petition for review on certiorari wherein it is asserted that:
A. The Court of Appeals erred in ruling that Palmares acted as surety and is
therefore solidarily liable to pay the promissory note.
1. The terms of the promissory note are vague. Its conflicting provisions do
not establish Palmares' solidary liability.
2. The promissory note contains provisions which establish the co-maker's
liability as that of a guarantor.
3. There is no sufficient basis for concluding that Palmares' liability is
solidary.
4. The promissory note is a contract of adhesion and should be construed
against M. B. Lending Corporation.
5. Palmares cannot be compelled to pay the loan at this point.
1. The sum of P13,700.00 representing the outstanding balance still due and
owing with interest at six percent (6%) per month computed from the date
the loan was contracted until fully paid;
2. The sum equivalent to the stipulated penalty of three percent (3%) per
month, of the outstanding balance;
3. Attorney's fees at 25% of the total amount due per stipulations;
4. Plus costs of suit. 7
Contrary to the findings of the trial court, respondent appellate court declared that
petitioner Palmares is a surety since she bound herself to be jointly and severally or
solidarily liable with the principal debtors, the Azarraga spouses, when she signed as
a co-maker. As such, petitioner is primarily liable on the note and hence may be sued
by the creditor corporation for the entire obligation. It also adverted to the fact that
petitioner admitted her liability in her Answer although she claims that the Azarraga
spouses should have been impleaded. Respondent court ordered the imposition of
the stipulated 6% interest and 3% penalty charges on the ground that the Usury Law
is no longer enforceable pursuant to Central Bank Circular No. 905. Finally, it
rationalized that even if the promissory note were to be considered as a contract of
in her Amended Answer that she received a demand letter from respondent
corporation sometime in 1990, the same did not effectively put her or the principal
debtors in default for the simple reason that the latter subsequently made a partial
payment on the loan in September, 1991, a fact which was never controverted by
herein private respondent.
Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of
P2,745,483.39 in favor of private respondent when, in truth and in fact, the
outstanding balance of the loan is only P13,700.00. Where the interest charged on
the loan is exorbitant, iniquitous or unconscionable, and the obligation has been
partially complied with, the court may equitably reduce the penalty 10 on grounds of
substantial justice. More importantly, respondent corporation never refuted petitioner's
allegation that immediately after the loan matured, she informed said respondent of
her desire to settle the obligation. The court should, therefore, mitigate the damages
to be paid since petitioner has shown a sincere desire for a compromise. 11
After a judicious evaluation of the arguments of the parties, we are constrained to
dismiss the petition for lack of merit, but to except therefrom the issue anent the
propriety of the monetary award adjudged to herein respondent corporation.
At the outset, let it here be stressed that even assuming arguendo that the promissory
note executed between the parties is a contract of adhesion, it has been the
consistent holding of the Court that contracts of adhesion are not invalid per se and
that on numerous occasions the binding effects thereof have been upheld. The
peculiar nature of such contracts necessitate a close scrutiny of the factual milieu to
which the provisions are intended to apply. Hence, just as consistently and
unhesitatingly, but without categorically invalidating such contracts, the Court has
construed obscurities and ambiguities in the restrictive provisions of contracts of
adhesion strictly albeit not unreasonably against the drafter thereof when justified in
light of the operative facts and surrounding circumstances. 12 The factual scenario
obtaining in the case before us warrants a liberal application of the rule in favor of
respondent corporation.
The Civil Code pertinently provides:
Art. 2047. By guaranty, a person called the guarantor binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter should
fail to do so.
If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the
contract is called a suretyship.
It is a cardinal rule in the interpretation of contracts that if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly bound
herself to be jointly and severally or solidarily liable with the principal maker of the
note. The terms of the contract are clear, explicit and unequivocal that petitioner's
liability is that of a surety.
Her pretension that the terms "jointly and severally or solidarily liable" contained in the
second paragraph of her contract are technical and legal terms which could not be
easily understood by an ordinary layman like her is diametrically opposed to her
manifestation in the contract that she "fully understood the contents" of the
promissory note and that she is "fully aware" of her solidary liability with the principal
maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she
cannot now be heard to claim otherwise. Any reference to the existence of fraud is
unavailing. Fraud must be established by clear and convincing evidence, mere
preponderance of evidence not even being adequate. Petitioner's attempt to prove
fraud must, therefore, fail as it was evidenced only by her own uncorroborated and,
expectedly, self-serving allegations. 14
Having entered into the contract with full knowledge of its terms and conditions,
petitioner is estopped to assert that she did so under a misapprehension or in
ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule
that ignorance of the contents of an instrument does not ordinarily affect the liability of
one who signs it also applies to contracts of suretyship. And the mistake of a surety
as to the legal effect of her obligation is ordinarily no reason for relieving her of
liability. 16
Petitioner would like to make capital of the fact that although she obligated herself to
be jointly and severally liable with the principal maker, her liability is deemed
restricted by the provisions of the third paragraph of her contract wherein she agreed
"that M.B. Lending Corporation may demand payment of the above loan from me in
case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note,"
which makes her contract one of guaranty and not suretyship. The purported
discordance is more apparent than real.
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of
the debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an
undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay
the principal's debt if the principal will not pay, while a guarantor agrees that the
creditor, after proceeding against the principal, may proceed against the guarantor if
the principal is unable to pay. 19 A surety binds himself to perform if the principal does
not, without regard to his ability to do so. A guarantor, on the other hand, does not
contract that the principal will pay, but simply that he is able to do so. 20 In other
words, a surety undertakes directly for the payment and is so responsible at once if
the principal debtor makes default, while a guarantor contracts to pay if, by the use of
due diligence, the debt cannot be made out of the principal debtor. 21
Quintessentially, the undertaking to pay upon default of the principal debtor does not
automatically remove it from the ambit of a contract of suretyship. The second and
third paragraphs of the aforequoted portion of the promissory note do not contain any
other condition for the enforcement of respondent corporation's right against
petitioner. It has not been shown, either in the contract or the pleadings, that
respondent corporation agreed to proceed against herein petitioner only if and
when the defaulting principal has become insolvent. A contract of suretyship, to
repeat, is that wherein one lends his credit by joining in the principal debtor's
obligation, so as to render himself directly and primarily responsible with him, and
without reference to the solvency of the principal. 22
In a desperate effort to exonerate herself from liability, petitioner erroneously invokes
the rule on strictissimi juris, which holds that when the meaning of a contract of
indemnity or guaranty has once been judicially determined under the rule of
reasonable construction applicable to all written contracts, then the liability of the
surety, under his contract, as thus interpreted and construed, is not to be extended
beyond its strict meaning. 23 The rule, however, will apply only after it has been
definitely ascertained that the contract is one of suretyship and not a contract of
guaranty. It cannot be used as an aid in determining whether a party's undertaking is
that of a surety or a guarantor.
Prescinding from these jurisprudential authorities, there can be no doubt that the
stipulation contained in the third paragraph of the controverted suretyship contract
merely elucidated on and made more specific the obligation of petitioner as generally
defined in the second paragraph thereof. Resultantly, the theory advanced by
petitioner, that she is merely a guarantor because her liability attaches only upon
default of the principal debtor, must necessarily fail for being incongruent with the
judicial pronouncements adverted to above.
It is a well-entrenched rule that in order to judge the intention of the contracting
parties, their contemporaneous and subsequent acts shall also be principally
considered. 24 Several attendant factors in that genre lend support to our finding that
petitioner is a surety. For one, when petitioner was informed about the failure of the
principal debtor to pay the loan, she immediately offered to settle the account with
respondent corporation. Obviously, in her mind, she knew that she was directly and
primarily liable upon default of her principal. For another, and this is most revealing,
petitioner presented the receipts of the payments already made, from the time of
initial payment up to the last, which were all issued in her name and of the Azarraga
spouses. 25 This can only be construed to mean that the payments made by the
principal debtors were considered by respondent corporation as creditable directly
upon the account and inuring to the benefit of petitioner. The concomitant and
simultaneous compliance of petitioner's obligation with that of her principals only goes
to show that, from the very start, petitioner considered herself equally bound by the
contract of the principal makers.
In this regard, we need only to reiterate the rule that a surety is bound equally and
absolutely with the principal, 26and as such is deemed an original promisor and debtor
from the beginning. 27 This is because in suretyship there is but one contract, and the
surety is bound by the same agreement which binds the principal. 28 In essence, the
contract of a surety starts with the agreement, 29 which is precisely the situation
obtaining in this case before the Court.
It will further be observed that petitioner's undertaking as co-maker immediately
follows the terms and conditions stipulated between respondent corporation, as
creditor, and the principal obligors. A surety is usually bound with his principal by the
same instrument, executed at the same time and upon the same consideration; he is
an original debtor, and his liability is immediate and direct. 30 Thus, it has been held
that where a written agreement on the same sheet of paper with and immediately
following the principal contract between the buyer and seller is executed
simultaneously therewith, providing that the signers of the agreement agreed to the
terms of the principal contract, the signers were "sureties" jointly liable with the
buyer. 31 A surety usually enters into the same obligation as that of his principal, and
the signatures of both usually appear upon the same instrument, and the same
consideration usually supports the obligation for both the principal and the surety. 32
There is no merit in petitioner's contention that the complaint was prematurely filed
because the principal debtors cannot as yet be considered in default, there having
been no judicial or extrajudicial demand made by respondent corporation. Petitioner
has agreed that respondent corporation may demand payment of the loan from her in
case the principal maker defaults, subject to the same conditions expressed in the
promissory note. Significantly, paragraph (G) of the note states that "should I fail to
pay in accordance with the above schedule of payment, I hereby waive my right to
notice and demand." Hence, demand by the creditor is no longer necessary in order
that delay may exist since the contract itself already expressly so declares. 33 As a
surety, petitioner is equally bound by such waiver.
Even if it were otherwise, demand on the sureties is not necessary before bringing
suit against them, since the commencement of the suit is a sufficient demand. 34 On
this point, it may be worth mentioning that a surety is not even entitled, as a matter of
right, to be given notice of the principal's default. Inasmuch as the creditor owes no
duty of active diligence to take care of the interest of the surety, his mere failure to
voluntarily give information to the surety of the default of the principal cannot have the
effect of discharging the surety. The surety is bound to take notice of the principal's
default and to perform the obligation. He cannot complain that the creditor has not
notified
whether given at the principal's request or without it, and whether it is yielded by the
creditor through sympathy or from an inclination to favor the principal, or is only the
result of passiveness. The neglect of the creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such delay continues until the
principal becomes insolvent. 43 And, in the absence of proof of resultant injury, a
surety is not discharged by the creditor's mere statement that the creditor will not look
to the surety, 44 or that he need not trouble himself. 45 The consequences of the delay,
such as the subsequent insolvency of the principal, 46 or the fact that the remedies
against the principal may be lost by lapse of time, are immaterial. 47
The raison d'tre for the rule is that there is nothing to prevent the creditor from
proceeding against the principal at any time. 48 At any rate, if the surety is dissatisfied
with the degree of activity displayed by the creditor in the pursuit of his principal, he
may pay the debt himself and become subrogated to all the rights and remedies of
the creditor. 49
It may not be amiss to add that leniency shown to a debtor in default, by delay
permitted by the creditor without change in the time when the debt might be
demanded, does not constitute an extension of the time of payment, which would
release the surety. 50 In order to constitute an extension discharging the surety, it
should appear that the extension was for a definite period, pursuant to an enforceable
agreement between the principal and the creditor, and that it was made without the
consent of the surety or with a reservation of rights with respect to him. The contract
must be one which precludes the creditor from, or at least hinders him in, enforcing
the principal contract within the period during which he could otherwise have enforced
it, and which precludes the surety from paying the debt. 51
None of these elements are present in the instant case. Verily, the mere fact that
respondent corporation gave the principal debtors an extended period of time within
which to comply with their obligation did not effectively absolve here in petitioner from
the consequences of her undertaking. Besides, the burden is on the surety, herein
petitioner, to show that she has been discharged by some act of the creditor, 52 herein
respondent corporation, failing in which we cannot grant the relief prayed for.
As a final issue, petitioner claims that assuming that her liability is solidary, the
interests and penalty charges on the outstanding balance of the loan cannot be
imposed for being illegal and unconscionable. Petitioner additionally theorizes that
respondent corporation intentionally delayed the collection of the loan in order that the
interests and penalty charges would accumulate. The statement, likewise traversed
by said respondent, is misleading.
In an affidavit 53 executed by petitioner, which was attached to her petition, she stated,
among others, that:
8. During the latter part of 1990, I was surprised to learn that Merlyn
Azarraga's loan has been released and that she has not paid the same upon
its maturity. I received a telephone call from Mr. Augusto Banusing of MB
Lending informing me of this fact and of my liability arising from the
promissory note which I signed.
9. I requested Mr. Banusing to try to collect first from Merlyn and Osmea
Azarraga. At the same time, I offered to pay MB Lending the outstanding
balance of the principal obligation should he fail to collect from Merlyn and
Osmea Azarraga. Mr. Banusing advised me not to worry because he will try
to collect first from Merlyn and Osmea Azarraga.
10. A year thereafter, I received a telephone call from the secretary of Mr.
Banusing who reminded that the loan of Merlyn and Osmea Azarraga,
together with interest and penalties thereon, has not been paid. Since I had
no available funds at that time, I offered to pay MB Lending by delivering to
them a parcel of land which I own. Mr. Banusing's secretary, however,
refused my offer for the reason that they are not interested in real estate.
11. In March 1992, I received a copy of the summons and of the complaint
filed against me by MB Lending before the RTC-Iloilo. After learning that a
complaint was filed against me, I instructed Sheila Gatia to go to MB
Lending and reiterate my first offer to pay the outstanding balance of the
principal obligation of Merlyn Azarraga in the amount of P30,000.00.
12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to
Atty. Venus, counsel of MB Lending.
13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my
offer to pay the outstanding balance of the principal obligation loan (sic) of
Merlyn and Osmea Azarraga is acceptable. Later, Atty. Venus informed Ms.
Gatia that my offer is not acceptable to Mr. Banusing.
The purported offer to pay made by petitioner can not be deemed sufficient and
substantial in order to effectively discharge her from liability. There are a number of
circumstances which conjointly inveigh against her aforesaid theory.
1. Respondent corporation cannot be faulted for not immediately demanding payment
from petitioner. It was petitioner who initially requested that the creditor try to collect
from her principal first, and she offered to pay only in case the creditor fails to collect.
The delay, if any, was occasioned by the fact that respondent corporation merely
acquiesced to the request of petitioner. At any rate, there was here no actual offer of
payment to speak of but only a commitment to pay if the principal does not pay.
on total amount due but unpaid should be equitably reduced. The purpose
for which the penalty interest is intended that is, to punish the obligor
will have been sufficiently served by the effects of compounded interest.
Under the exceptional circumstances in the case at bar, e.g., the original
amount loaned was only P15,000.00; partial payment of P8,600.00 was
made on due date; and the heavy (albeit still lawful) regular compensatory
interest, the penalty interest stipulated in the parties' promissory note is
iniquitous and unconscionable and may be equitably reduced further by
eliminating such penalty interest altogether. 59
Accordingly, the penalty interest of 3% per month being imposed on petitioner should
similarly be eliminated.
Finally, with respect to the award of attorney's fees, this Court has previously ruled
that even with an agreement thereon between the parties, the court may nevertheless
reduce such attorney's fees fixed in the contract when the amount thereof appears to
be unconscionable or unreasonable. 60 To that end, it is not even necessary to show,
as in other contracts, that it is contrary to morals or public policy. 61 The grant of
attorney's fees equivalent to 25% of the total amount due is, in our opinion,
unreasonable and immoderate, considering the minimal unpaid amount involved and
the extent of the work involved in this simple action for collection of a sum of money.
We, therefore, hold that the amount of P10,000.00 as and for attorney's fee would be
sufficient in this case. 62
WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the
MODIFICATION that the penalty interest of 3% per month is hereby deleted and the
award of attorney's fees is reduced to P10,000.00.
SO ORDERED.
AMOUNT OF OBLIGATION
On 27 April 1981, PBM obtained a P3,500,000 trust loan from TRB. Ching signed as
co-maker in the notarized Promissory Note evidencing this trust loan. The Promissory
Note reads:
FOR VALUE RECEIVED THIRTY (30) DAYS after date, I/We, jointly and severally,
promise to pay the TRADERS ROYAL BANK or order, at its Office in 4th Floor,
Kanlaon Towers Bldg., Roxas Blvd., Pasay City, the sum of Pesos: THREE MILLION
FIVE HUNDRED THOUSAND ONLY (P3,500,000.00), Philippine Currency, with the
interest rate of Eighteen Percent (18%) per annum until fully paid.
In case of non-payment of this note at maturity, I/We, jointly and severally,
agree to pay an additional amount equivalent to two per cent (2%) of the
principal sum per annum, as penalty and collection charges in the form of
liquidated damages until fully paid, and the further sum of ten percent (10%)
thereof in full, without any deduction, as and for attorneys fees whether actually
incurred or not, exclusive of costs and other judicial/extrajudicial expenses; moreover,
I/We jointly and severally, further empower and authorize the TRADERS ROYAL
BANK at its option, and without notice to set off or to apply to the payment of this note
any and all funds, which may be in its hands on deposit or otherwise belonging to
anyone or all of us, and to hold as security therefor any real or personal property
which may be in its possession or control by virtue of any other contract.9 (Emphasis
supplied)
PBM defaulted in its payment of Trust Receipt No. 106 (Letter of Credit No. 479 AD)
for P959,611.96, and of Trust Receipt No. 113 (Letter of Credit No. 563 AD)
for P1,191,137.13. PBM also defaulted on its P3,500,000 trust loan.
On 1 April 1982, PBM and Ching filed a petition for suspension of payments with the
Securities and Exchange Commission ("SEC"), docketed as SEC Case No.
2250.10 The petition sought to suspend payment of PBMs obligations and prayed that
the SEC allow PBM to continue its normal business operations free from the
interference of its creditors. One of the listed creditors of PBM was TRB.11
xxx
6. All obligations of the undersigned under the agreement of trusts shall bear
interest at the rate of __ per centum ( __%) per annum from the date due
until paid.
7. [I]n consideration of the Trust Receipt, the undersigned hereby jointly and
severally undertake and agree to pay on demand on the said BANK, all
sums and amounts of money which said BANK may call upon them to pay
arising out of, pertaining to, and/or in any manner connected with this
receipt. In case it is necessary to collect the draft covered by the Trust
Receipt by or through an attorney-at-law, the undersigned hereby further
agree(s) to pay an additional of 10% of the total amount due on the draft as
attorneys fees, exclusive of all costs, fees and other expenses of collection
but shall in no case be less than P200.00"8(Emphasis supplied)
On 9 July 1982, the SEC placed all of PBMs assets, liabilities, and obligations under
the rehabilitation receivership of Kalaw, Escaler and Associates.12
On 13 May 1983, ten months after the SEC placed PBM under rehabilitation
receivership, TRB filed with the trial court a complaint for collection against PBM and
Ching. TRB asked the trial court to order defendants to pay solidarily the following
amounts:
(1) P6,612,132.74 exclusive of interests, penalties, and bank charges
[representing its indebtedness arising from the letters of credit issued to its
various suppliers];
(2) P4,831,361.11, exclusive of interests, penalties, and other bank charges
[due and owing from the trust loan of 27 April 1981 evidenced by a
promissory note];
In his Answer dated 6 November 1989, Ching denied liability as surety and
accommodation co-maker of PBM. He claimed that the SEC had already issued a
decision23 approving a revised rehabilitation plan for PBMs creditors, and that PBM
obtained the credit accommodations for corporate purposes that did not redound to
his personal benefit. He further claimed that even as a surety, he has the right to the
defenses personal to PBM. Thus, his liability as surety would attach only if, after the
implementation of payments scheduled under the rehabilitation plan, there would
remain a balance of PBMs debt to TRB.24 Although Ching admitted PBMs availment
of the credit accommodations, he did not show any proof of payment by PBM or by
him.
TRB admitted certain partial payments on the PBM account made by PBM itself and
by the SEC-appointed receiver.25 Thus, the trial court had to resolve the following
remaining issues:
1. How much exactly is the corporate defendants outstanding obligation to
the plaintiff?
2. Is defendant Alfredo Ching personally answerable, and for exactly how
much?26
TRB presented Mr. Lauro Francisco, loan officer of the Remedial Management
Department of TRB, and Ms. Carla Pecson, manager of the International Department
of TRB, as witnesses. Both witnesses testified to the following:
1. The existence of a Deed of Suretyship dated 21 July 1977 executed by
Ching for PBMs liabilities to TRB up to P10,000,000;27
2. The application of PBM and grant by TRB on 13 March 1980 of Letter of
Credit No. 479 AD for US$591,043, and the actual availment by PBM of the
full proceeds of the credit accommodation;28
3. The application of PBM and grant by TRB on 6 August 1980 of Letter of
Credit No. 563 AD for US$156,000, and the actual availment by PBM of the
full proceeds of the credit accommodation;29 and
4. The existence of a trust loan of P3,500,000 evidenced by a notarized
Promissory Note dated 27 April 1981 wherein Ching bound himself solidarily
with PBM;30 and
5. Per TRBs computation, Ching is liable for P19,333,558.16 as of 31
October 1991.31
Ching presented Atty. Vicente Aranda, corporate secretary and First Vice President of
the Human Resources Department of TRB, as witness. Ching sought to establish that
TRBs Board of Directors adopted a resolution fixing the PBM account at an amount
lower than what TRB wanted to collect from Ching. The trial court allowed Atty.
Aranda to testify over TRBs manifestation that the Answer failed to plead the subject
matter of his testimony. Atty. Aranda produced TRB Board Resolution No. 5935,
series of 1990, which contained the minutes of the special meeting of TRBs Board of
Directors held on 8 June 1990.32 In the resolution, the Board of Directors advised
TRBs Management "not to release Alfredo Ching from his JSS liability to the
bank."33 The resolution also stated the following:
HUNDRED THIRTY THREE THOUSAND FIVE HUNDRED FIFTY EIGHT & 16/100)
as of October 31, 1991, and to pay the legal interest thereon from such date until it is
fully paid. To pay plaintiff 5% of the entire amount by way of attorneys fees.
a) Accept the P1.373 million deposits remitted over a period of 17 years or until 2006
which shall be applied directly to the account (as remitted per hereto attached
schedule). The amount of P1.373 million shall be considered as full payment of
PBMs account. (The receiver is amenable to this alternative)
SO ORDERED.37
On appeal, Ching stated that as surety and solidary debtor, he should benefit from the
changed nature of the obligation as provided in Article 1222 of the Civil Code, which
reads:
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the debt
for which the latter are responsible.
Ching claimed that his liability should likewise be reduced since the equitable
apportionment of PBMs remaining assets among its creditors under the rehabilitation
proceedings would have the effect of reducing PBMs liability. He also claimed that
the amount for which he was being held liable was excessive. He contended that the
outstanding principal balance, as stated in TRB Board Resolution No. 5893-1990,
was only P5,650,749.09.38Ching also contended that he was not liable for interest, as
the loan documents did not stipulate the interest rate, pursuant to Article 1956 of the
Civil Code.39 Finally, Ching asserted that the Deed of Suretyship executed on 21 July
1977 could not guarantee obligations incurred after its execution.40
TRB did not file its appellees brief. Thus, the Court of Appeals resolved to submit the
case for decision.41
The Court of Appeals considered the following issues for its determination:
1. Whether the Answer of Ching amounted to an admission of liability.
2. Whether Ching can still be sued as a surety after the SEC placed PBM
under rehabilitation receivership, and if in the affirmative, for how much.42
The Court of Appeals resolved the first two questions in favor of TRB. The appellate
court stated:
Ching did not deny under oath the genuineness and due execution of the L/Cs, Trust
Receipts, Undertaking, Deed of Surety, and the 3.5 Million Peso Promissory Note
upon which TRBs action rested. He is, therefore, presumed to be liable unless he
presents evidence showing payment, partially or in full, of these obligations
(Investment and Underwriting Corporation of the Philippines v. Comptronics
Philippines, Inc. and Gene v. Tamesis, 192 SCRA 725 [1990]).
PBM in 1980 and 1981. Ching contended that no accessory contract of suretyship
could arise without an existing principal contract of loan. Ching likewise argued that
TRB could no longer claim on the trust receipts because TRB had already taken the
properties subject of the trust receipts. Ching likewise maintained that his obligation
as surety could not exceed the P1,373,415 apportioned to PBM under the SECapproved rehabilitation plan.
In its Comment, TRB asserted that the first two assigned errors raised factual issues
not brought before the trial court. Furthermore, TRB pointed out that Ching never
presented PBMs rehabilitation plan before the trial court. TRB also stated that the
Supreme Court ruling in Traders Royal Bank v. Court of Appeals46 constitutes res
judicata between the parties. Therefore, TRB could proceed against Ching separately
from PBM to enforce in full Chings liability as surety.47
The Ruling of the Court
SO ORDERED.44
The Court of Appeals denied Chings Motion for Reconsideration for lack of merit.
The case before us is an offshoot of the trial courts denial of Chings motion to have
the case dismissed against him. The petition is a thinly veiled attempt to make this
Court reconsider its decision in the prior case of Traders Royal Bank v. Court of
Appeals.48 This Court has already resolved the issue of Chings separate liability as a
surety despite the rehabilitation proceedings before the SEC. We held in Traders
Royal Bank that:
Although Ching was impleaded in SEC Case No. 2250, as a co-petitioner of PBM, the
SEC could not assume jurisdiction over his person and properties. The Securities and
Exchange Commission was empowered, as rehabilitation receiver, to take custody
and control of the assets and properties of PBM only, for the SEC has jurisdiction
over corporations only [and] not over private individuals, except stockholders in an
intra-corporate dispute (Sec. 5, P.D. 902-A and Sec. 2 of P.D. 1758). Being a nominal
party in SEC Case No. 2250, Chings properties were not included in the rehabilitation
receivership that the SEC constituted to take custody of PBMs assets. Therefore, the
petitioner bank was not barred from filing a suit against Ching, as a surety for PBM.
An anomalous situation would arise if individual sureties for debtor corporations may
escape liability by simply co-filing with the corporation a petition for suspension of
payments in the SEC whose jurisdiction is limited only to corporations and their
corporate assets.
xxx
Ching can be sued separately to enforce his liability as surety for PBM, as
expressly provided by Article 1216 of the New Civil Code.
xxx
It is elementary that a corporation has a personality distinct and separate from its
individual stockholders and members. Being an officer or stockholder of a corporation
does not make ones property the property also of the corporation, for they are
separate entities (Adelio Cruz vs. Quiterio Dalisay, 152 SCRA 482).
Chings act of joining as a co-petitioner with PBM in SEC Case No. 2250 did not vest
in the SEC jurisdiction over his person or property, for jurisdiction does not depend on
the consent or acts of the parties but upon express provision of law (Tolentino vs.
Social Security System, 138 SCRA 428; Lee vs. Municipal Trial Court of Legaspi City,
Br. I, 145 SCRA 408). (Emphasis supplied)
Traders Royal Bank has fully resolved the issue regarding Chings liability as a surety
of the credit accommodations TRB extended to PBM. The decision amounts to res
judicata49 which bars Ching from raising the same issue again. Hence, the only
question that remains is the amount of Chings liability. Nevertheless, we shall resolve
the issues Ching has raised in his attempt to escape liability under his surety.
Whether Ching is liable for obligations PBM contracted after execution of the Deed of
Suretyship
Ching is liable for credit obligations contracted by PBM against TRB before and after
the execution of the 21 July 1977 Deed of Suretyship. This is evident from the tenor
of the deed itself, referring to amounts PBM "may now be indebted or may hereafter
become indebted" to TRB.
The law expressly allows a suretyship for "future debts". Article 2053 of the Civil Code
provides:
A guaranty may also be given as security for future debts, the amount of which is not
yet known; there can be no claim against the guarantor until the debt is liquidated. A
conditional obligation may also be secured. (Emphasis supplied)
Furthermore, this Court has ruled in Dio v. Court of Appeals50 that:
Under the Civil Code, a guaranty may be given to secure even future debts, the
amount of which may not be known at the time the guaranty is executed. This is the
basis for contracts denominated as continuing guaranty or suretyship. A continuing
guaranty is one which is not limited to a single transaction, but which contemplates a
future course of dealing, covering a series of transactions, generally for an indefinite
time or until revoked. It is prospective in its operation and is generally intended to
provide security with respect to future transactions within certain limits, and
contemplates a succession of liabilities, for which, as they accrue, the guarantor
becomes liable. Otherwise stated, a continuing guaranty is one which covers all
transactions, including those arising in the future, which are within the description or
contemplation of the contract of guaranty, until the expiration or termination thereof. A
guaranty shall be construed as continuing when by the terms thereof it is evident that
the object is to give a standing credit to the principal debtor to be used from time to
time either indefinitely or until a certain period; especially if the right to recall the
guaranty is expressly reserved. Hence, where the contract states that the guaranty is
to secure advances to be made "from time to time," it will be construed to be a
continuing one.
In other jurisdictions, it has been held that the use of particular words and
expressions such as payment of "any debt," "any indebtedness," or "any sum," or the
guaranty of "any transaction," or money to be furnished the principal debtor "at any
time," or "on such time" that the principal debtor may require, have been construed to
indicate a continuing guaranty.
Whether Chings liability is limited to the amount stated in PBMs rehabilitation plan
Ching would like this Court to rule that his liability is limited, at most, to the amount
stated in PBMs rehabilitation plan. In claiming this reduced liability, Ching invokes
Article 1222 of the Civil Code which reads:
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the debt
for which the latter are responsible.
In granting the loan to PBM, TRB required Chings surety precisely to insure full
recovery of the loan in case PBM becomes insolvent or fails to pay in full. This was
the very purpose of the surety. Thus, Ching cannot use PBMs failure to pay in full as
justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full
PBMs loan in case PBM fails to pay in full for any reason, including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the
entire amount of PBMs loan. This is clear from Article 1216 of the Civil Code:
ART. 1216. The creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as
the debt has not been fully collected. (Emphasis supplied)
Ching further claims a reduced liability under TRB Board Resolution No. 5935. This
resolution states that PBMs outstanding loans may be reduced to P1.373 million
subject to certain conditions like the payment of P150,000 initial payment.51 The
resolution also states that TRB should not release Chings solidary liability under his
surety. The resolution even directs TRBs management to study Chings criminal
liability under the trust documents.52
Chings own witness testified that Resolution No. 5935 was never implemented. For
one, PBM or its receiver never paid the P150,000 initial payment to TRB. TRB also
rejected the document that PBMs receiver presented which would have released
Ching from his suretyship. Clearly, Ching cannot rely on Resolution No. 5935 to
escape liability under his suretyship.
Chings attempts to have this Court review the factual issues of the case are
improper. It is not a function of the Supreme Court to assess and evaluate again the
evidence, testimonial and evidentiary, adduced by the parties particularly where the
findings of both the trial court and the appellate court coincide on the matter.53
xxx
ATTY. ATIENZA ON REDIRECT EXAMINATION
Q Mr. Witness you stated that the reason why the plaintiff bank did not
implement these conditionalities [sic] was because the former defendant
corporation requested that the suretyship of Alfredo Ching be released, is
that correct?
A I did not say that. I said that in effect the document prepared by the lawyer
of the receiver xxx the bank would release the suretyship of Alfredo Ching,
that is why the bank is not amenable to such a document.
Q Despite this approved resolution the bank, because of said requirement or
conformity did not seek to implement these conditionalities [sic]?
A Yes sir because the conditions imposed by the board is not being followed
in that document because it was the condition of the board that the
suretyship should not be released but the document being presented to the
bank for signature and conformity in effect if signed would release the
suretyship. So it would be a violation with the approval of the board so the
bank did not sign the conformity.54
Ching also claims that TRB prevented PBM from fulfilling its obligations under the
trust receipts when TRB, together with other creditor banks, took hold of PBMs
inventories, including the goods covered by the trust receipts. Ching asserts that this
act of TRB released him from liability under the suretyship. Ching forgets that he
executed, on behalf of PBM, separate Undertakings for each trust receipt expressly
granting to TRB the right to take possession of the goods at any time to protect TRBs
interests. TRB may exercise such right without waiving its right to collect the full
amount of the loan to PBM. The Undertakings also provide that any suspension of
payment or any assignment by PBM for the benefit of creditors renders the loan due
and demandable. Thus, the separate Undertakings uniformly provide:
2. That the said BANK may at any time cancel the foregoing trust and take
possession of said merchandise with the right to sell and dispose of the same
under such terms and conditions it may deem best, or of the proceeds of such
of the same as may then have been sold, wherever the said merchandise or
proceeds may then be found and all the provisions of the Trust Receipt shall apply to
and be deemed to include said above-mentioned merchandise if the same shall have
been made up or used in the manufacture of any other goods, or merchandise, and
the said BANK shall have the same rights and remedies against the said
merchandise in its manufactured state, or the product of said manufacture as it would
have had in the event that such merchandise had remained [in] its original state and
irrespective of the fact that other and different merchandise is used in completing
such manufacture. In the event of any suspension, or failure or assignment for
the benefit of creditors on the part of the undersigned or of the non-fulfillment
of any obligation, or of the non-payment at maturity of any acceptance made
under said credit, or any other credit issued by the said BANK on account of the
forbearance of any money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall be twelve per cent (12%)
per annum. (Emphasis supplied)
On the other hand, the Promissory Note evidencing the P3,500,000 trust loan
provides for 18% interest per annum plus 2% penalty interest per annum in case of
default. This stipulated interest should continue to run until full payment of
the P3,500,000 trust loan. In addition, the accrued interest on all the credit
accommodations should earn legal interest from the date of filing of the complaint
pursuant to Article 2212 of the Civil Code.
Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
The trial court found and the appellate court affirmed that the outstanding principal
amounts as of the filing of the complaint with the trial court on 13 May 1983
were P959,611.96 under Trust Receipt No. 106, P1,191,137.13 under Trust Receipt
No. 113, and P3,500,000 for the trust loan. As extracted from TRBs Statement of
Account as of 31 October 1991,58 the accrued interest on the trust receipts and the
trust loan as of the filing of the complaint on 13 May 1983 were P311,387.5159 under
Trust Receipt No. 106, P338,739.8160 under Trust Receipt No. 113,
and P1,287,616.4461 under the trust loan. The penalty interest on the trust loan
amounted to P137,315.07.62Ching did not rebut this Statement of Account which TRB
presented during trial.
Thus, the following is the summary of Chings liability under the suretyship as of 13
May 1983, the date of filing of TRBs complaint with the trial court:
1. On Trust Receipt No. 106 (Letter of Credit No. 479 AD)
Outstanding Principal P 959,611.96
Accrued Interest (12% per annum) 311,387.51
2. On Trust Receipt No. 113 (Letter of Credit No. 563 AD)
Outstanding Principal P 1,191,137.13
Accrued Interest (12% per annum) 338,739.82
3. On the Trust Loan (Promissory Note)
Outstanding Principal P 3,500,000.00
Accrued Interest (18% per annum) 1,287,616.44
Accrued Penalty Interest (2% per annum) 137,315.07
Petitioner filed with the RTC on 12 November 2001, his Answer13 to respondents
Complaint averring therein that he never made representations to respondent that
Macrogen Realty would faithfully comply with its obligations under the Compromise
Agreement. He did not offer to guarantee the obligations of Macrogen Realty to entice
respondent to enter into the Compromise Agreement but that, on the contrary, it was
respondent that required Macrogen Realty to offer some form of security for its
obligations before agreeing to the compromise. Petitioner further alleged that his wife
Marilyn was not aware of the obligations that he assumed under both the
Compromise Agreement and the Contract of Guaranty as he did not inform her about
said contracts, nor did he secure her consent thereto at the time of their execution.
As a special and affirmative defense, petitioner argued that the benefit of excussion
was still available to him as a guarantor since he had set it up prior to any judgment
against him. According to petitioner, respondent failed to exhaust all legal remedies to
collect from Macrogen Realty the amount due under the Compromise Agreement,
considering that Macrogen Realty still had uncollected credits which were more than
enough to pay for the same. Given these premise, petitioner could not be held liable
as guarantor. Consequently, petitioner presented his counterclaim for damages.
At the pre-trial held on 5 September 2002, the parties submitted the following issues
for the resolution of the RTC:
(1) whether the defendants were liable under the contract of guarantee
dated April 17, 2000 entered into between Benjamin Bitanga and the plaintiff;
(2) whether defendant wife Marilyn Bitanga is liable in this action;
(3) whether the defendants are entitled to the benefit of excussion, the
plaintiff on the one hand claiming that it gave due notice to the guarantor,
Benjamin Bitanga, and the defendants contending that no proper notice was
received by Benjamin Bitanga;
(4) if damages are due, which party is liable; and
(5) whether the benefit of excussion can still be invoked by the defendant
guarantor even after the notice has been allegedly sent by the plaintiff
although proper receipt is denied.14
On 20 September 2002, prior to the trial proper, respondent filed a Motion for
Summary Judgment.15Respondent alleged therein that it was entitled to a summary
judgment on account of petitioners admission during the pre-trial of the genuineness
and due execution of the Contract of Guaranty. The contention of petitioner and
Marilyn that they were entitled to the benefit of excussion was not a genuine issue.
Respondent had already exhausted all legal remedies to collect from Macrogen
Realty, but its efforts proved unsuccessful. Given that the inability of Macrogen Realty
as debtor to pay the amount of its debt was already proven by the return of the writ of
execution to CIAC unsatisfied, the liability of petitioner as guarantor already
arose.16 In any event, petitioner and Marilyn were deemed to have forfeited their right
to avail themselves of the benefit of excussion because they failed to comply with
Article 206017 of the Civil Code when petitioner ignored respondents demand letter
dated 3 January 2001 for payment of the amount he guaranteed.18 The duty to collect
the supposed receivables of Macrogen Realty from its creditors could not be imposed
on respondent, since petitioner and Marilyn never informed respondent about such
uncollected credits even after receipt of the demand letter for payment. The allegation
of petitioner and Marilyn that they could not respond to respondents demand letter
since they did not receive the same was unsubstantiated and insufficient to raise a
genuine issue of fact which could defeat respondents Motion for Summary Judgment.
The claim that Marilyn never participated in the transactions that culminated in
petitioners execution of the Contract of Guaranty was nothing more than a sham.
In opposing respondents foregoing Motion for Summary Judgment, petitioner and
Marilyn countered that there were genuinely disputed facts that would require trial on
the merits. They appended thereto an affidavit executed by petitioner, in which he
declared that his spouse Marilyn could not be held personally liable under the
Contract of Guaranty or the Compromise Agreement, nor should her share in the
conjugal partnership be made answerable for the guaranty petitioner assumed,
because his undertaking of the guaranty did not in any way redound to the benefit of
their family. As guarantor, petitioner was entitled to the benefit of excussion, and he
did not waive his right thereto. He never received the respondents demand letter
dated 3 January 2001, as Ms. Dette Ramos, the person who received it, was not an
employee of Macrogen Realty nor was she authorized to receive the letter on his
behalf. As a guarantor, petitioner could resort to the benefit of excussion at any time
before judgment was rendered against him.19 Petitioner reiterated that Macrogen
Realty had uncollected credits which were more than sufficient to satisfy the claim of
respondent.
On 29 November 2002, the RTC rendered a partial Decision, the dispositive portion of
which provides:
Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted Decision,
which the RTC denied in an Order dated 26 January 2003.21
In time, petitioner and Marilyn filed an appeal with the Court of Appeals, docketed as
CA-G.R. CV 78007. In its Decision dated 11 April 2006, the appellate court held:
UPON THE VIEW WE TAKE OF THIS CASE, THUS, the judgment appealed
from must be, as it hereby is, MODIFIED to the effect that defendantappellant Marilyn Bitanga is adjudged not liable, whether solidarily or
otherwise, with her husband the defendant-appellant Benjamin Bitanga,
under the compromise agreement or the contract of guaranty. No costs in
this instance.22
In holding that Marilyn Bitanga was not liable, the Court of Appeals cited Ramos v.
Court of Appeals,23 in which it was declared that a contract cannot be enforced
against one who is not a party to it. The Court of Appeals stated further that the
substantial ownership of shares in Macrogen Realty by Marilyn Bitanga was not
enough basis to hold her liable.
The Court of Appeals, in its Resolution dated 5 July 2006, denied petitioners Motion
for Reconsideration24 of its earlier Decision.
Petitioner is now before us via the present Petition with the following assignment of
errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE
VALIDITY OF THE PARTIAL SUMMARY JUDGMENT BY THE REGIONAL
TRIAL COURT OF QUEZON CITY, BRANCH 96, DESPITE THE CLEAR
EXISTENCE OF DISPUTED GENUINE AND MATERIAL FACTS OF THE
CASE THAT SHOULD HAVE REQUIRED A TRIAL ON THE MERITS.
II
Significantly, petitioner does not deny the receipt of the demand letter from the
respondent. He merely raises a howl on the impropriety of service thereof, stating that
"the address to which the said letter was sent was not his residence but the office of
Macrogen Realty, thus it cannot be considered as the correct manner of conveying a
letter of demand upon him in his personal capacity."30
Section 6, Rule 13 of the Rules of Court states:
SEC. 6. Personal service. Service of the papers may be made by
delivering personally a copy to the party or his counsel, or by leaving it in
his office with his clerk or with a person having charge thereof. If no
person is found in his office, or his office is not known, or he has no office,
then by leaving the copy, between the hours of eight in the morning and six
in the evening, at the partys or counsels residence, if known, with a person
of sufficient age and discretion then residing therein.
The affidavit of Mr. Robert O. Pagdilao, messenger of respondents counsel states in
part:
2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then one of the
Associates of the ACCRA Law Offices, instructed me to deliver to the office
of Mr. Benjamin Bitanga a letter dated 3 January 2001, pertaining to
Construction Industry Arbitration Commission (hereafter, "CIAC") Case No.
99-56, entitled "Pyramid Construction Engineering Corporation vs. Macrogen
Realty Corporation."
3. As instructed, I immediately proceeded to the office of Mr. Bitanga located
at the 12th Floor, Planters Development Bank Building, 314 Senator Gil
Puyat Avenue, Makati City. I delivered the said letter to Ms. Dette Ramos,
a person of sufficient age and discretion, who introduced herself as one of
the employees of Mr. Bitanga and/or of the latters companies.31 (Emphasis
supplied.)
We emphasize that when petitioner signed the Contract of Guaranty and assumed
obligation as guarantor, his address in the said contract was the same address where
the demand letter was served.32 He does not deny that the said place of service,
which is the office of Macrogen, was also the address that he used when he signed
as guarantor in the Contract of Guaranty. Nor does he deny that this is his office
address; instead, he merely insists that the person who received the letter and signed
the receiving copy is not an employee of his company. Petitioner could have easily
substantiated his allegation by a submission of an affidavit of the personnel manager
of his office that no such person is indeed employed by petitioner in his office, but that
evidence was not submitted.33 All things are presumed to have been done correctly
and with due formality until the contrary is proved. This juris tantum presumption
stands even against the most well-reasoned allegation pointing to some possible
irregularity or anomaly.34 It is petitioners burden to overcome the presumption by
sufficient evidence, and so far we have not seen anything in the record to support
petitioners charges of anomaly beyond his bare allegation. Petitioner cannot now be
heard to complain that there was an irregular service of the demand letter, as it does
not escape our attention that petitioner himself indicated "314 Sen. Gil Puyat Avenue,
Makati City" as his office address in the Contract of Guaranty.
Moreover, under Section 6, Rule 13 of the Rules of Court, there is sufficiency of
service when the papers, or in this case, when the demand letter is personally
delivered to the party or his counsel, or by leaving it in his office with his clerk or
with a person having charge thereof, such as what was done in this case.
We have consistently expostulated that in summary judgments, the trial court can
determine a genuine issue on the basis of the pleadings, admissions, documents,
affidavits or counter affidavits submitted by the parties. When the facts as pleaded
appear uncontested or undisputed, then there is no real or genuine issue or question
as to any fact, and summary judgment is called for.35
Art. 2060. In order that the guarantor may make use of the benefit of
excussion, he must set it up against the creditor upon the latters demand for
payment from him, and point out to the creditor available property of the
debtor within Philippine territory, sufficient to cover the amount of the debt.38
The afore-quoted provision imposes a condition for the invocation of the defense of
excussion. Article 2060 of the Civil Code clearly requires that in order for the
guarantor to make use of the benefit of excussion, he must set it up against the
creditor upon the latters demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the
debt.39
It must be stressed that despite having been served a demand letter at his office,
petitioner still failed to point out to the respondent properties of Macrogen Realty
sufficient to cover its debt as required under Article 2060 of the Civil Code. Such
failure on petitioners part forecloses his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property of Macrogen
Realty which he found was its deposit of P20,242.23 with the Planters Bank.
Article 2059(5) of the Civil Code thus finds application and precludes petitioner from
interposing the defense of excussion. We quote:
Art. 2059. This excussion shall not take place:
xxxx
(5) If it may be presumed that an execution on the property of the principal
debtor would not result in the satisfaction of the obligation.
As the Court of Appeals correctly ruled:
We find untenable the claim that the [herein petitioner] Benjamin Bitanga
cannot be compelled to pay Pyramid because the Macrogen Realty has
allegedly sufficient assets. Reason: The said [petitioner] had not genuinely
controverted the return made by Sheriff Joseph F. Bisnar, who affirmed that,
after exerting diligent efforts, he was not able to locate any property
belonging to the Macrogen Realty, except for a bank deposit with the
Planters Bank at Buendia, in the amount ofP20,242.23. It is axiomatic that
the liability of the guarantor arises when the insolvency or inability of the
debtor to pay the amount of debt is proven by the return of the writ of
execution that had not been unsatisfied.40
WHEREFORE, premises considered, the instant petition is DENIED for lack of merit.
The Decision of the Court of Appeals dated 11 April 2006 and its Resolution dated 5
July 2006 are AFFIRMED. Costs against petitioner.
SO ORDERED.
It appears that JN failed to pay the loan to TRB upon its maturity; thus, on 8
October 1980 TRB requested PhilGuarantee to make good its guarantee.
[8]
PhilGuarantee informed JN about the call made by TRB, and inquired about the
action of JN to settle the loan. [9] Having received no response from JN, on 10 March
1981 PhilGuarantee paid TRB Nine Hundred Thirty Four Thousand Eight Hundred
Twenty Four Pesos and Thirty Four Centavos (P934,824.34).[10] Subsequently,
PhilGuarantee made several demands on JN, but the latter failed to pay. On 30 May
1983, JN, through Rodrigo Sta. Ana, proposed to settle the obligation by way of
development and sale of the mortgaged property.[11] PhilGuarantee, however,
rejected the proposal.
PhilGuarantee thus filed a Complaint[12] for collection of money and damages
against herein petitioners.
In
its Decision dated
20
August
1998,
the
RTC
dismissed
PhilGuarantees Complaint as well as the counterclaim of petitioners. It ruled that
petitioners are not liable to reimburse PhilGuarantee what it had paid to TRB. Crucial
to this holding was the courts finding that TRB was able to foreclose the real estate
mortgage executed by JN, thus extinguishing petitioners obligation. [13] Moreover,
there was no showing that after the said foreclosure, TRB had demanded from JN
any deficiency or the payment of the difference between the proceeds of the
foreclosure sale and the actual loan.[14] In addition, the RTC held that since
PhilGuarantees guarantee was good for only one year from 17 December 1979, or
until 17 December 1980, and since it was not renewed after the expiry of said period,
PhilGuarantee had no more legal duty to pay TRB on 10 March 1981. [15] The RTC
likewise ruled that Cruz cannot be held liable under the Undertaking since he was not
the one who signed the document, in line with its finding that his signature found in
the records is totally different from the signature on the Undertaking.[16]
According to the RTC, the failure of TRB to sue JN for the recovery of the loan
precludes PhilGuarantee from seeking recoupment from the spouses Sta. Ana and
Cruz what it paid to TRB. Thus, PhilGuarantees payment to TRB amounts to a
waiver of its right under Art. 2058 of the Civil Code.[17]
Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA. The
appellate court reversed the RTC and ordered petitioners to pay PhilGuarantee Nine
Hundred Thirty Four Thousand Six Hundred Twenty Four Pesos and Thirty Four
Centavos (P934,624.34), plus service charge and interest.[18]
In reaching its denouement, the CA held that the RTCs finding that the loan was
extinguished by virtue of the foreclosure sale of the mortgaged property had no
factual support,[19] and that such finding is negated by Rodrigo Sta. Anas testimony
that JN did not receive any notice of foreclosure from PhilGuarantee or from
TRB. [20] Moreover, Sta. Ana even offered the same mortgaged property to
PhilGuarantee to settle its obligations with the latter.[21]
The CA also ruled that JNs obligation had become due and demandable within
the one-year period of effectivity of the guarantee; thus, PhilGuarantees payment to
TRB conformed with its guarantee, although the payment itself was effected one year
after the maturity date of the loan. [22] Contrary to the trial courts finding, the CA ruled
that the contract of guarantee was not extinguished by the alleged lack of evidence
on PhilGuarantees consent to the extensions granted by TRB to JN. [23] Interpreting
Art. 2058 of the Civil Code, [24] the appellate court explained that while the provision
states that the guarantor cannot be compelled to pay unless the properties of the
debtor are exhausted, the guarantor is not precluded from waiving the benefit of
excussion and paying the obligation altogether.[25]
Finally, the CA found that Narciso Cruz was unable to prove the alleged forgery
of his signature in the Undertaking, the evidence presented not being sufficient to
overcome the presumption of regularity of the Undertaking which is a notarized
document. [26]
Petitioners sought reconsideration of the Decision and prayed for the admission
of documents evidencing the foreclosure of the real estate mortgage, but the motion
for reconsideration was denied by the CA for lack of merit. The CA ruled that the
documentary evidence presented by petitioners cannot be considered as newly
discovered evidence, it being already in existence while the case was pending before
the trial court, the very forum before which it should have been presented. Besides, a
foreclosure sale per se is not proof of petitioners payment of the loan to
PhilGuarantee, the CA added.[27]
So now before the Court are the separate petitions for review of the
CA Decision. JN and the spouses Sta. Ana, petitioners in G.R. No. 151060, posit that
the CA erred in interpreting Articles 2079, 2058, and 2059 of the Civil Code in
its Decision.[28] Meanwhile, petitioner Narciso Cruz in G.R. No. 151311 claims that the
CA erred when it held that petitioners are liable to PhilGuarantee despite its payment
after the expiration of its contract of guarantee and the lack of PhilGuarantees
consent to the extensions granted by TRB to JN. Moreover, Cruz questions the
reversal of the ruling of the trial court anent his liability as a signatory to the
Undertaking.[29]
On the other hand, PhilGuarantee maintains that the date of default, not the
actual date of payment, determines the liability of the guarantor and that having paid
TRB when the loan became due, it should be indemnified by petitioners. [30] It argues
that, contrary to petitioners claim, there could be no waiver of its right to excussion
more explicit than its act of payment to TRB very directly.[31] Besides, the right to
excussion is for the benefit of the guarantor and is not a defense for the debtor to
raise and use to evade liability.[32] Finally, PhilGuarantee maintains that there is no
sufficient evidence proving the alleged forgery of Cruzs signature on the Undertaking,
which is a notarized document and as such must be accorded the presumption of
regularity.[33]
The Court finds for PhilGuarantee.
Under a contract of guarantee, the guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor in case the latter should fail to do so. [34] The
guarantor who pays for a debtor, in turn, must be indemnified by the latter.
[35]
However, the guarantor cannot be compelled to pay the creditor unless the latter
has exhausted all the property of the debtor and resorted to all the legal remedies
against the debtor.[36] This is what is otherwise known as the benefit of excussion.
It is clear that excussion may only be invoked after legal remedies against the
principal debtor have been expanded. Thus, it was held that the creditor must first
obtain a judgment against the principal debtor before assuming to run after the
alleged guarantor, for obviously the exhaustion of the principals property cannot
even begin to take place before judgment has been obtained.[37] The law imposes
conditions precedent for the invocation of the defense. Thus, in order that the
guarantor may make use of the benefit of excussion, he must set it up against the
creditor upon the latters demand for payment and point out to the creditor available
property of the debtor within the Philippines sufficient to cover the amount of the debt.
[38]
While a guarantor enjoys the benefit of excussion, nothing prevents him from
paying the obligation once demand is made on him. Excussion, after all, is a right
granted to him by law and as such he may opt to make use of it or waive it.
PhilGuarantees waiver of the right of excussion cannot prevent it from demanding
reimbursement from petitioners. The law clearly requires the debtor to indemnify the
guarantor what the latter has paid.[39]
This guarantee shall be valid for a period of one (1) year from date hereof but may be
renewed upon payment by JNDC of the guarantee fee at the same rate of 1.5% per
annum.[40]
The guarantee was only up to 17 December 1980. JNs obligation with TRB fell
due on 30 June 1980, and demand on PhilGuarantee was made by TRB on 08
October 1980. That payment was actually made only on 10 March 1981 does not
take it out of the terms of the guarantee. What is controlling is that default and
demand on PhilGuarantee had taken place while the guarantee was still in force.
There is likewise no merit in petitioners claim that PhilGuarantees failure to give
its express consent to the alleged extensions granted by TRB to JN had extinguished
the guarantee. The requirement that the guarantor should consent to any extension
granted by the creditor to the debtor under Art. 2079 is for the benefit of the
guarantor. As such, it is likewise waivable by the guarantor. Thus, even assuming
that extensions were indeed granted by TRB to JN, PhilGuarantee could have opted
to waive the need for consent to such extensions. Indeed, a guarantor is not
precluded from waiving his right to be notified of or to give his consent to extensions
obtained by the debtor. Such waiver is not contrary to public policy as it is purely
personal and does not affect public interest. [41] In the instant case, PhilGuarantees
waiver can be inferred from its actual payment to TRB after the latters demand,
despite JNs failure to pay the renewal/guarantee fee as indicated in the guarantee.[42]
For the above reasons, there is no basis for petitioners claim that
PhilGuarantee was a mere volunteer payor and had no legal obligation to pay TRB.
The law does not prohibit the payment by a guarantor on his own volition, heedless of
the benefit of excussion. In fact, it recognizes the right of a guarantor to recover what
it has paid, even if payment was made before the debt becomes due, [43] or if made
without notice to the debtor,[44] subject of course to some conditions.
The cited case finds no application in the case a quo. PhilGuarantee is not
invoking the benefit of excussion. It cannot be overemphasized that excussion is a
right granted to the guarantor and, therefore, only he may invoke it at his discretion.
....
these defenses when it paid its obligation according to the tenor of the guarantee
once demand was made on it. What is peculiar in the instant case is that petitioners,
the principal debtors themselves, are muddling the issues and raising the same
defenses against the guarantor, which only the guarantor may invoke against the
creditor, to avoid payment of their own obligation to the guarantor. The Court cannot
countenance their self-seeking desire to be exonerated from the duty to reimburse
PhilGuarantee after it had paid TRB on their behalf and to unjustly enrich themselves
at the expense of PhilGuarantee.
Petitioners assert that TRBs alleged foreclosure of the real estate mortgage
over the land executed as security for the loan agreement had extinguished
PhilGuarantees obligation; thus, PhilGuarantees recourse should be directed against
TRB, as per the pari-passu provision[46] in the contract of guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, after the case was submitted for
decision in 1992 and before the issuance of the decision of the court a quo in 1998.
[48]
Thus, foreclosure was resorted to by TRB against JN when they both had become
aware that PhilGuarantee had already paid TRB and that there was a pending case
filed by PhilGuarantee against petitioners. This matter was not raised and proved in
the trial court, nor in the appeal before the CA, but raised for the first time in
petitioners motion for reconsideration in the CA. In their appellants Brief, petitioners
claimed that there was no need for the defendant-appellee JNDC to present any
evidence before the lower court to show that indeed foreclosure of the REM took
place.[49] As properly held by the CA,
Firstly, the documents evidencing foreclosure of mortgage cannot be considered
as newly discovered evidence. The said documents were already subsisting and
should have been presented during the trial of the case. The alleged foreclosure sale
was made on August 23, 1993 while the decision was rendered by the trial court
on August 20, 1998 about five (5) years thereafter. These documents were likewise
not submitted by the defendants-appellees when they submitted their appellees Brief
to this Court. Thus, these cannot be considered as newly discovered evidence but
are more correctly ascribed as suppressed forgotten evidence Secondly, the
alleged foreclosure sale is not proof of payment of the loan by defendant-appellees to
the plaintiffs-appellants.[50]
Besides, the complaint a quo was filed by PhilGuarantee as guarantor for JN,
and its cause of action was premised on its payment of JNs obligation after the
latters default. PhilGuarantee was well within its rights to demand reimbursement for
such payment made, regardless of whether the creditor, TRB, was subsequently able
to obtain payment from JN. If double payment was indeed made, then it is JN which
should go after TRB, and not PhilGuarantee. Petitioners have no one to blame but
themselves, having allowed the foreclosure of the property for the full value of the
loan despite knowledge of PhilGuarantees payment to TRB. Having been aware of
such payment, they should have opposed the foreclosure, or at the very least, filed a
supplemental pleading with the trial court informing the same of the foreclosure sale.
Likewise, petitioners cannot invoke the pari-passu clause in the guarantee, not
being parties to the said agreement. The clause is clearly for the benefit of the
guarantor and no other.
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of settlement
of JNs obligations to PhilGuarantee, the very same parcel of land mortgaged as
security for the loan agreement. This further weakens the position of petitioners,
since it becomes obvious that they acknowledged the payment made by
PhilGuarantee on their behalf and that they were in fact willing to negotiate with
PhilGuarantee for the settlement of the said obligation before the filing of the
complaint a quo.
Anent the issue of forgery, the CA is correct in reversing the decision of the trial
court. Save for the denial of Narciso Cruz that it was not his signature in the
Undertaking and the perfunctory comparison of the signatures, nothing in the records
would support the claim of forgery. Forgery cannot be presumed and must be proved
by clear, positive and convincing evidence and the burden of proof lies on the party
alleging forgery.[52] Mere denial will not suffice to overcome the positive value of the
Undertaking, which is a notarized document, has in its favor the presumption of
regularity, and carries the evidentiary weight conferred upon it with respect to its due
execution.[53] Even in cases where the alleged forged signature was compared to
samples of genuine signatures to show its variance therefrom, this Court still found
such evidence insufficient.[54] Mere variance of the signatures cannot be considered
as conclusive proof that the same were forged.[55]
WHEREFORE, the consolidated petitions are DENIED. The Decision of the
Court of Appeals in CA-G.R. CV No. 61318 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.