Escolar Documentos
Profissional Documentos
Cultura Documentos
341,OCTOBER3,2000
781
SecurityBankandTrustCompany,Inc.vs.Cuenca
*
G.R.No.138544.October3,2000.
SECURITYBANKANDTRUSTCOMPANY,INC.,petitioner,vs.
RODOLFOM.CUENCA,respondent.
Actions Motions for Reconsideration Pleadings and Practice A
motion for reconsideration is not pro forma just because it reiterated the
arguments earlier passed upon and rejected by the court.Respondent
contendsthatpetitionersMotionforReconsiderationoftheCADecision,in
merely rehashing the arguments already passed upon by the appellate court,
was pro forma that as such, it did not toll the period for filing the present
Petition for Review. Consequently, the Petition was filed out of time. We
disagree. A motion for reconsideration is not pro forma just because it
reiterated the arguments earlier passed upon and rejected by the appellate
court.TheCourthasexplainedthatamovantmayraisethesamearguments,
preciselytoconvincethecourtthatitsrulingwaserroneous.
SameSameSameWherethecircumstancesofacasedonotshowan
intentonthepartofthemovantmerelytodelaytheproceedings,theSupreme
Courthasrefusedtocharacterizethemotionassimplyproforma.Thereis
noclearshowingofintentonthepartofpetitionertodelaytheproceedings.
InMarikinaValleyDevelopmentCorporationvs.Flojo,theCourtexplained
thataproformamotionhadnootherpurposethantogaintimeandtodelay
orimpedetheproceedings.Hence,wherethecircumstancesofacasedonot
show an intent on the part of the movant merely to delay the proceedings,
our Court has refused to characterize the motion as simply pro forma. It
held: We note finally that because the doctrine relating to pro forma
motions for reconsideration impacts upon the reality and substance of the
statutory right of appeal, that doctrine should be applied reasonably, rather
thanliterally.Therighttoappeal,
_______________
*THIRDDIVISION.
782
782
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
VOL.341,OCTOBER3,2000
783
SecurityBankandTrustCompany,Inc.vs.Cuenca
784
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
and the November 30, 1981 term. It did not give the bank or Sta. Ines any
licensetomodifythenatureandscopeoftheoriginalcreditaccommodation,
without informing or getting the consent of respondent who was solidarily
liable. Taking the banks submission to the extreme, respondent (or his
successors) would be liable for loans even amounting to, say, P100 billion
obtained 100 years after the expiration of the credit accommodation, on the
groundthatheconsentedtoallalterationsandextensionsthereof.
SameSameSameIt is a wellsettled legal principle that if there is
any doubt on the terms and conditions of the surety agreement, the doubt
should be resolved in favor of the surety In the absence of an unequivocal
provisionthatthesuretywaivedhisrighttobenotifiedofortogiveconsent
to any alteration of the credit accommodation, waiver could not be
presumed.Ithasbeenheldthatacontractofsuretycannotextendtomore
than what is stipulated. It is strictly construed against the creditor, every
doubtbeingresolvedagainstenlargingtheliabilityofthesurety.Likewise,
theCourthasruledthatitisawellsettledlegalprinciplethatifthereisany
doubtonthetermsandconditionsofthesuretyagreement,thedoubtshould
beresolvedinfavorofthesuretyxxx.Ambiguouscontractsareconstrued
against the party who caused the ambiguity. In the absence of an
unequivocalprovisionthatrespondentwaivedhisrighttobenotifiedoforto
giveconsenttoanyalterationofthecreditaccommodation,wecannotsustain
petitionersviewthattherewassuchawaiver.
Same Same Same The submission that only the borrower, not the
surety, is entitled to be notified of any modification in the original loan
accommodationisuntenablesuchtheoryiscontrarytotheprinciplethata
suretycannotassumeanobligationmoreonerousthanthatoftheprincipal.
WerejectpetitionerssubmissionthatonlySta.Inesastheborrower,not
respondent, was entitled to be notified of any modification in the original
loan accommodation. Following the banks reasoning, such modification
wouldnotbevalidastoSta.Inesifnonoticeweregivenbutwouldstillbe
validastorespondenttowhomnonoticeneedbegiven.Thelattersliability
would thus be more burdensome than that of the former. Such untenable
theoryiscontrarytotheprinciplethatasuretycannotassumeanobligation
moreonerousthanthatoftheprincipal.
SameSameSameContinuingSuretiesWordsandPhrasesThatthe
IndemnityAgreementisacontinuingsuretydoesnotauthorizethelenderto
extend the scope of the principal obligation inordinately A continuing
guarantyisonewhichcoversalltransactions,includingthose
785
VOL.341,OCTOBER3,2000
785
SecurityBankandTrustCompany,Inc.vs.Cuenca
(1) that the obligation should not exceed P8 million, and (2) that the
accommodation should expire not later than November 30, 1981. Hence, it
was a continuing surety only in regard to loans obtained on or before the
aforementionedexpirydateandnotexceedingthetotalofP8million.
Same Same Same Same Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial and
commercialpractice.InAtokFinanceCorp.v.CA,222SCRA232,245,
May 18, 1993, per Feliciano, J., the Court explained the nature of a
continuing surety in this wise: Comprehensive or continuing surety
agreements are in fact quite commonplace in present day financial and
commercial practice. A bank or financing company which anticipates
entering into a series of credit transactions with a particular company,
commonly requires the projected principal debtor to execute a continuing
surety agreement along with its sureties. By executing such an agreement,
the principal places itself in a position to enter into the projected series of
transactions with its creditor with such suretyship agreement, there would
benoneedtoexecuteaseparatesuretycontractorbondforeachfinancingor
creditaccommodationextendedtotheprincipaldebtor.
Same Same Same Banks and Banking It is a common banking
practice to require the JSS (joint and solidary signature) of a major
stockholderorcorporateofficer,asanadditionalsecurityforloansgranted
tocorporations.ItisacommonbankingpracticetorequiretheJSS(joint
and solidary signature) of a major stockholder or corporate officer, as an
additional security for loans granted to corporations. There are at least two
reasons for this. First, in case of default, the creditors recourse, which is
normally limited to the corporate properties under the veil of separate
corporate personality, would extend to the personal assets of the surety.
Second, such surety would be compelled to ensure that the loan would be
used for the purpose agreed upon, and that it would be paid by the
corporation.
786
786
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
PETITIONforreviewoncertiorariofadecisionoftheCourtof
Appeals.
ThefactsarestatedintheopinionoftheCourt.
De Borja, Medialdea, Bello, Gueuarra & Gerodias for
petitioner.
Carpio,Villaraza&CruzforrespondentR.Cuenca.
Beltran, De Grano, Mendoza & Sarmiento for Sta. Ines
MelaleCorporation.
PANGANIBAN,J.:
Being an onerous undertaking, a surety agreement is strictly
construedagainstthecreditor,andeverydoubtisresolvedinfavor
ofthesolidarydebtor.Thefundamentalrulesoffairplayrequirethe
creditortoobtaintheconsentofthesuretytoanymaterialalteration
in the principal loan agreement, or at least to notify it thereof.
Hence, petitioner bank cannot hold herein respondent liable for
loans obtained in excess of the amount or beyond the period
stipulated in the original agreement, absent any clear stipulation
showingthatthelatterwaivedhisrighttobenotifiedthereof,orto
give consent thereto. This is especially true where, as in this case,
respondentwasnolongertheprincipalofficerormajorstockholder
ofthecorporatedebtor,thetimethelaterobligationswereincurred.
Hewasthusnolongerinapositiontocompelthe
787
VOL.341,OCTOBER3,2000
787
SecurityBankandTrustCompany,Inc.vs.Cuenca
debtor to pay the creditor and had no more reason to bind himself
anewtothesubsequentobligations.
TheCase
This is the main principle used in denying the present Petition for
Review under Rule 45 of the1 Rules of Court. Petitioner assails the
December22,1998Decision oftheCourtofAppeals(CA)inCA
GR CV No. 56203, the dispositive portion of which reads as
follows:
WHEREFORE, the judgment appealed from is hereby amended in the
sense that defendantappellant Rodolfo M. Cuenca [herein respondent] is
RELEASEDfromliabilitytopayanyamountstatedinthejudgment.
Furthermore,[Respondent]RodolfoM.Cuencascounterclaimishereby
DISMISSEDforlackofmerit.
2
Inallotherrespect[s],thedecisionappealedfromisAFFIRMED.
3
AlsochallengedistheApril14,1999CAResolution, whichdenied
petitionersMotionforReconsideration.
4
JusticesHectorL.HofileaandOmarU.Amin(members).
2CADecision,pp.3233rollo,pp.5253.
3Rollo,p.56.PennedbyJusticeAminwiththeconcurrenceofJusticesHofilea
andMarinaL.Buzon.
4WrittenbyJudgeEribertoU.Rosario,Jr.(nowamemberoftheCourtofAppeals).
788
788
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
TheFacts
5
ThefactsarenarratedbytheCourtofAppealsasfollows:
The antecedent material and relevant facts are that defendantappellant Sta.
Ines Melale (Sta. Ines) is a corporation engaged in logging operations. It
was a holder of a Timber License Agreement issued by the Department of
EnvironmentandNaturalResources(DENR).
On 10 November 1980, [Petitioner] Security Bank and Trust Co.
granted appellant Sta. Ines Melale Corporation [SIMC] a credit line in the
amount of [e]ight [m]illion [p]esos (P8,000,000.00) to assist the latter in
meetingtheadditionalcapitalizationrequirementsofitsloggingoperations.
TheCreditApprovalMemorandumexpresslystatedthattheP8MCredit
LoanFacilityshallbeeffectiveuntil30November1981:
JOINTCONDITIONS:
1. Against Chattel Mortgage on logging trucks and/or inventories
(except logs) valued at 200% of the lines plus JSS of Rodolfo M.
Cuenca
2. Submission of an appropriate Board Resolution authorizing the
borrowings, indicating therein the companys duly authorized
signatory/ies
3. Reasonable/compensating deposit balances in current account shall
bemaintainedatalltimesinthisconnection,aMakatiaccountshall
beopenedpriortoavailmentonlines
4. LinesshallexpireonNovember30,1981and
5. The bank reserves the right to amend any of the aforementioned
terms and conditions upon written notice to the Borrower.
(Emphasissupplied.)
To secure the payment of the amounts drawn by appellant SIMC from
theabovementionedcreditline,SIMCexecutedaChattelMortgagedated23
December 1980 (Exhibit A) over some of its machinery and equipment in
favor of [Petitioner] SBTC. As additional security for the payment of the
loan, [Respondent] Rodolfo M. Cuenca executed an Indemnity Agreement
dated 17 December 1980 (Exhibit B) in favor of [Petitioner] SBTC
wherebyhesolidarilyboundhimselfwithSIMCasfollows:
xxxxxxxxx
_______________
5CADecision,pp.49rollo,pp.2429.
789
VOL.341,OCTOBER3,2000
789
SecurityBankandTrustCompany,Inc.vs.Cuenca
RodolfoM.Cuencaxxxherebybindshimselfxxxjointlyandseverallywith the
client (SIMC) in favor of the bank for the payment, upon demand and without the
benefitofexcussionofwhateveramountxxxtheclientmaybeindebtedtothebankx
x x by virtue of aforesaid credit accommodation(s) including the substitutions,
renewals, extensions, increases, amendments, conversions and revivals of the
aforesaidcreditaccommodation(s)xxx.(Emphasissupplied).
On26November1981,four(4)dayspriortotheexpirationoftheperiodof
effectivity of the P8MCredit Loan Facility, appellant SIMC made a first
drawdownfromitscreditlinewith[Petitioner]SBTCintheamountof[s]ix
[m]illion[o]ne[h]undred[t]housand[p]esos(P6,100,000.00).Tocoversaid
drawdown,SIMCdulyexecutedpromissoryNoteNo.TD/TLS359981for
saidamount(ExhibitC).
Sometime in 1985, [Respondent] Cuenca resigned as President and
Chairman of the Board of Directors of defendantappellant Sta. Ines.
Subsequently, the shareholdings of [Respondent] Cuenca in defendant
appellant Sta. Ines were sold at a public auction relative to Civil Case No.
18021entitledAdolfoA.Angalavs.UniversalHoldings,Inc.andRodolfo
M.Cuenca.SaidshareswereboughtbyAdolfoAngalawhowasthehighest
bidderduringthepublicauction.
Subsequently, appellant SIMC repeatedly availed of its credit line and
obtained six (6) other loan[s] from [Petitioner] SBTC in the aggregate
amount of [s]ix [m]illion [t]hree [h]undred [s]ixty[n]ine [t]housand
[n]ineteenand50/100[p]esos(P6,369,019.50).Accordingly,SIMCexecuted
Promissory Notes Nos. DLS/74/760/85, DLS/74773/85, DLS/74/78/85,
DLS/74/760/85, DLS/74/12/86, and DLS/74/47/86 to cover the amounts of
theabovementionedadditionalloansagainstthecreditline.
6
expire on July 15, 1998, was suspended by the Department of Environment and Natural
ResourcesonDecember6,1989andeventuallycancelledonMay4,1990.(RTCDecision,p.
3rollo,p.12.)
790
790
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
PROMISSORYNOTENO.
PROMISSORYNOTENO.
RL74/596/88
AMOUNT
AMOUNT
P8,800,000.00
RL74/597/88
P3,400,000.00
TOTAL
P12,200,000.00
(ExhibitsHandI,Expediente,atVol.II,pp.338to343).
To formalize their agreement to restructure the loan obligations of
defendantappellant Sta. Ines, [Petitioner] Security Bank and defendant
appellant Sta. Ines executed a Loan Agreement dated 31 October 1989
(Exhibit5Cuenca,Expediente,atVol.I,pp.33to41).Section1.01ofthe
saidLoanAgreementdated31October1989provides:
791
VOL.341,OCTOBER3,2000
791
SecurityBankandTrustCompany,Inc.vs.Cuenca
1.01 AmountThe Lender agrees to grant loan to the Borrower in the aggregate
amount of TWELVE MILLION TWO HUNDRED THOUSAND PESOS
(P12,200,000.00),Philippines[c]urrency(theLoan).Theloanshallbereleasedintwo
(2)tranchesofP8,800,000.00forthefirsttranche(theFirstLoan)andP3,400,000.00
for the second tranche (the Second Loan) to be applied in the manner and for the
purposestipulatedhereinbelow.
1.02PurposeTheFirstLoanshallbeappliedtoliquidatetheprincipalportionof
the Borrowers present total outstanding indebtedness to the Lender (the
indebtedness) while the Second Loan shall be applied to liquidate the past due
interestandpenaltyportionoftheIndebtedness.(Italicssupplied.)(cf.p.1ofExhibit
5Cuenca,Expediente,atVol.I,p.33)
RulingoftheCourtofAppeals
InreleasingRespondentCuencafromliability,theCAruledthatthe
1989LoanAgreementhadnovatedthe1980creditaccommodation
earliergrantedbythebanktoSta.Ines.Accordingly,suchnovation
extinguishedtheIndemnityAgreement,bywhichCuenca,whowas
then the board chairman and president of Sta. Ines, had bound
himselfsolidarilyliableforthepaymentoftheloanssecuredbythat
credit accommodation. It noted that the 1989 Loan Agreement had
been executed without notice to, much less consent from, Cuenca
whoatthetimewasnolongerastockholderofthecorporation.
792
792
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
original.
793
VOL.341,OCTOBER3,2000
793
SecurityBankandTrustCompany,Inc.vs.Cuenca
i. WhetherornottheHonorableCourtofAppealserredinrulingthat
Respondent Cuencas liability under the Indemnity Agreement
coveredonlyavailmentsonSIMCscreditlinetotheextentofeight
millionpesos(P8,000,000.00)andmadeonorbefore30November
1981
ii. WhetherornottheHonorableCourtofAppealserredinrulingthat
the restructuring of SIMCs indebtedness under the P8 million
credit accommodation was tantamount to an extension granted to
SIMCwithoutRespondentCuencasconsent,thusextinguishinghis
liabilityundertheIndemnityAgreementpursuanttoArticle2079of
theCivilCode
iii. WhetherornottheHonorableCourtofappealserredinrulingthat
the restructuring of SIMCs indebtedness under the P8 million
credit accommodation constituted a novation of the principal
obligation, thus extinguishing Respondent Cuencas liability under
theindemnityagreement
B. WhetherornotRespondentCuencasliabilityunctertheIndemnity
AgreementwasextinguishedbythepaymentsmadebySIMC
C. Whether or not petitioners Motion for Reconsideration was pro
forma
D. Whether or not service of the Petition by registered mail
sufficientlycompliedwithSection11,Rule13ofthe1997Rulesof
CivilProcedure.
Distilling the foregoing, the Court will resolve the following issues: (a)
whether the 1989 Loan Agreement novated the original credit
accommodation and Cuencas liability under the Indemnity Agreement and
(b)whetherCuencawaivedhisrighttobenotifiedofandtogiveconsentto
any substitution, renewal, extension, increase, amendment, conversion or
revival of the said credit accommodation. As preliminary matters, the
proceduralquestionsraisedbyrespondentwillalsobeaddressed.
TheCourtsRuling
ThePetitionhasnomerit.
794
794
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
PreliminaryMatters:ProceduralQuestions
MotionforReconsideration
NotProForma
RespondentcontendsthatpetitionersMotionforReconsiderationof
theCADecision,inmerelyrehashingtheargumentsalreadypassed
uponbytheappellatecourt,wasproformathatassuch,itdidnot9
toll the period for filing the present Petition
for Review.
10
Consequently,thePetitionwasfiledoutoftime.
Wedisagree.Amotionforreconsiderationisnotproformajust
becauseitreiteratedtheargumentsearlierpasseduponandrejected
bytheappellatecourt.TheCourthasexplainedthatamovantmay
raise the same arguments,
precisely to convince the court that its
11
rulingwaserroneous.
Moreover, there is no clear showing of intent on the part of
petitionertodelaytheproceedings.InMarikinaValleyDevelopment
12
Corporationvs.Flojo, theCourtexplainedthataproformamotion
had no other purpose than to gain time and to delay or impede the
proceedings.Hence,wherethecircumstancesofacasedonotshow
anintentonthepartofthemovantmerelytodelaytheproceedings,
our Court has refused to characterize the motion as simply pro
forma.Itheld:
Wenotefinallythatbecausethedoctrinerelatingtoproformamotionsfor
reconsiderationimpactsupontherealityandsubstanceofthestatutoryright
of appeal, that doctrine should be applied reasonably, rather than literally.
The right to appeal, where it exists, is an important and valuable right.
Public policy would be better served by according the appellate court an
effective opportunity to review the decision of the trial court on the merits,
ratherthanbyabortingtherighttoappealbyaliteral
_______________
92,Rule37oftheRulesofCourt,providesthat[a]proformamotionfornewtrialor
reconsiderationshallnottollthereglementaryperiodofappeal.
10RespondentsMemorandum,pp.114115rollo,pp.480481.
11SeeGuerraEnterprisesv.CFI,32SCRA314,April17,1970.
12251SCRA87,December8,1995,perFeliciano,J.
795
VOL.341,OCTOBER3,2000
795
SecurityBankandTrustCompany,Inc.vs.Cuenca
Section11,Rule13ofthe1997RulesofCourt,providesasfollows:
SEC.11.Prioritiesinmodesofserviceandfiling.Wheneverpracticable,
theserviceandfilingofpleadingsandotherpapersshallbedonepersonally.
Except with respect to papers emanating from the court, a resort to other
RespondentmaintainsthatthepresentPetitionforReviewdoesnot
contain a sufficient written explanation why it was served by
registeredmail.
We do
not think so. The Court held in Solar Entertainment v.
13
Ricafort that the aforecited rule was mandatory, and that only
whenpersonalserviceorfilingisnotpracticablemayresorttoother
modes be had, which must then be accompanied by a written
explanationastowhypersonalserviceorfilingwasnotpracticable
tobeginwith.
In this case, the Petition does state that it was served on the
respective counsels of Sta. Ines and Cuenca by registered mail in
lieu of personal service due to limitations in time and distance.14
This explanation sufficiently shows that personal service was not
practicable. In any event, we find no adequate reason to reject the
contentionofpetitionerandtherebydepriveitoftheopportunityto
fullyargueitscause.
_______________
13293SCRA661,August5,1998,perDavide,J.(nowCJ).
14PetitionforReview,p.29rollo,p.92.
796
796
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
FirstIssue:OriginalObligationExtinguishedbyNovation
Anobligationmaybeextinguishedbynovation,pursuanttoArticle
1292oftheCivilCode,whichreadsasfollows:
ART. 1292. In order that an obligation may be extinguished by another
which substitute the same, it is imperative that it be so declared in
unequivocalterms,orthattheoldandthenewobligationsbeoneverypoint
incompatiblewitheachother.
Novationofacontractisneverpresumed.Ithasbeenheldthat[i]n
the absence of an express agreement, novation takes place only
when the
old and the new obligations are incompatible on every
15
point. Indeed, the following requisites must be established: (1)
thereisapreviousvalidobligation(2)thepartiesconcernedagree
toanewcontract(3)theoldcontractisextinguishedand(4)there
16
isavalidnewcontract.
Petitioner contends that there was no absolute incompatibility
betweentheoldandthenewobligations,andthatthelatterdidnot
extinguishtheearlierone.Itfurtherarguesthatthe1989Agreement
didnotchangetheoriginalloaninrespecttothepartiesinvolvedor
theobligationsincurred.Itaddsthatthetermsofthe1989Contract
17
were not more onerous. Since the original credit accomodation
was not extinguished, it concludes that Cuenca is still liable under
theIndemnityAgreement.
We reject these contentions. Clearly, the requisites of novation
arepresentinthiscase.The1989LoanAgreementextinguishedthe
18
obligation obtained under the 1980 credit accomodation. This is
evident from its explicit provision to liquidate the principal and
theinterestoftheearlierindebtedness,asthefollowingshows:
_______________
15LimTayv.CA,293SCRA364,August5,1998,perPanganiban,J.
16Cruzv.CA,293SCRA239,July27,1998citingVitug,Compendium of Civil
LawandJurisprudence,1993ed.,p.528.
17PetitionersMemorandum,pp.2526rollo,pp.336337.
18Aswillbeshownlater,onlyoneloanwasobtainedbeforetheexpirydateofthe
1980creditaccommodation.
797
VOL.341,OCTOBER3,2000
797
SecurityBankandTrustCompany,Inc.vs.Cuenca
1.02. Purpose. The First Loan shall be applied to liquidate the principal
portion of the Borrowers present total outstanding Indebtedness to the
Lender (the Indebtedness) while the Second Loan shall be applied to
19
liquidate the past due interest and penalty portion of the Indebtedness.
(Italicssupplied.)
20
1994,pp.21,90,9596.
22CreditApprovalMemorandum,p.1rollo,p.109.
231989LoanAgreement,p.4rollo,p.128.
24Ibid.
798
798
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
AllegedExtension
Petitionerinsiststhatthe1989LoanAgreementwasamererenewal
orextensionoftheP8millionoriginalaccommodationitwasnota
25
novation.
This argument must be rejected. To begin with, the 1989 Loan
Agreement expressly stipulated that its purpose was to liquidate,
not to renew or extend, the outstanding indebtedness. Moreover,
respondent did not sign or consent to the 1989 Loan Agreement,
whichhadallegedlyextendedtheoriginalP8millioncreditfacility.
Hence, his obligation as a surety should be deemed extinguished,
pursuanttoArticle2079oftheCivilCode,whichspecificallystates
that[a]nextensiongrantedtothedebtorbythecreditorwithoutthe
consent of the
guarantor extinguishes the guaranty, x x x. In an
26
earliercase, the Court explained the rationale of this provision in
thiswise:
The theory behind Article 2079 is that an extension of time given to the
principal debtor by the creditor without the suretys consent would deprive
thesuretyofhisrighttopaythecreditorandtobeimmediatelysurrogatedto
the creditors remedies against the principal debtor upon the maturity date.
Thesuretyissaidtobeentitledtoprotecthimselfagainstthecontingencyof
the principal debtor or the indemnitors becoming insolvent during the
extendedperiod.
BindingNatureofthe
CreditApprovalMemorandum
1987,perFeliciano,J.
799
VOL.341,OCTOBER3,2000
799
SecurityBankandTrustCompany,Inc.vs.Cuenca
27Complaint,p.2rollo,p.135.
28PetitionersMemorandum,p.19rollo,p.330.
800
800
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
801
VOL.341,OCTOBER3,2000
801
SecurityBankandTrustCompany,Inc.vs.Cuenca
betweenthepartiesthereto,includingthesubstitutions,renewals,extensions,
increases, amendments, conversions and revivals of the aforesaid credit
accommodation(s),andfurtherbind(s)himself/themselveswiththeCLIENT
in favor of the BANK for the faithful compliance of all the terms and
conditions contained in the aforesaid credit accommodation(s), all of which
areincorporatedhereinandmadeparthereofbyreference.
Whilerespondentheldhimselfliableforthecreditaccommodation
oranymodificationthereof,suchclauseshouldbeunderstoodinthe
contextoftheP8millionlimitandtheNovember30,1981term.It
didnotgivethebankorSta.Inesanylicensetomodifythenature
andscopeoftheoriginalcreditaccommodation,withoutinforming
or getting the consent of respondent who was solidarily liable.
Taking the banks submission to the extreme, respondent (or his
successors)wouldbeliableforloansevenamountingto,say,P100
billion obtained 100 years after the expiration of the credit
accommodation, on the ground that he consented to all alterations
andextensionsthereof.
Indeed,ithasbeenheldthatacontractofsuretycannotextend
to more than what is stipulated. It is strictly construed against the
creditor,everydoubtbeingresolvedagainstenlargingtheliabilityof
31
thesurety. Likewise, the Court has ruled that it is a wellsettled
legalprinciplethatifthereisanydoubtonthetermsandconditions
ofthesuretyagreement,thedoubtshouldberesolvedinfavorofthe
surety x x x. Ambiguous contracts
are construed against the party
32
who caused the ambiguity. In the absence of an unequivocal
provisionthatrespondentwaivedhisrighttobenotifiedofortogive
consent to any alteration of the credit accommodation, we cannot
sustainpetitionersviewthattherewassuchawaiver.
It should also be observed that the Credit Approval
Memorandum clearly shows that the bank did not have absolute
authority to unilaterally change the terms of the loan
accommodation. Indeed, it may do so only upon notice to the
borrower,pursuanttothiscondition:
_______________
31Aguenzav.CA,271SCRA1,April7,1997,perHermosisima,J.SeealsoZenith
InsuranceCorp.v.CA,119SCRA485,December29,1982.
32Garciav.CA,258SCRA446,456,July5,1996,perMelo,J.
802
802
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
WerejectpetitionerssubmissionthatonlySta.Inesastheborrower,
notrespondent,wasentitledtobenotifiedofanymodificationinthe
34
original loan accommodation. Following the banks reasoning,
such modification would not be valid as to Sta. Ines if no notice
were given but would still be valid as to respondent to whom no
notice need be given. The latters liability would thus be more
burdensome than that of the former. Such untenable theory is
contrary to the principle that a surety 35cannot assume an obligation
moreonerousthanthatoftheprincipal.
ThepresentcontroversymustbedistinguishedfromPhilamgenv.
36
Mutuc in which the Court sustained a stipulation whereby the
suretyconsentedtobeboundnotonlyforthespecifiedperiod,but
to any extension thereafter made, an extension x x x that could be
hadwithouthishavingtobenotified.
In that case, the surety agreement contained this unequivocal
stipulation:Itisherebyfurtheragreedthatincaseofanyextension
ofrenewalofthebond,weequallybindourselvestotheCompany
underthesametermsandconditionsashereinprovidedwithoutthe
necessityofexecutinganotherindemnityagreementforthepurpose
and that we hereby equally waive our right to be notified of any
renewal or extension of the bond which may be granted under this
indemnityagreement.
Inthepresentcase,thereisnosuchexpressstipulation.Atmost,
the alleged basis of respondents waiver is vague and uncertain. It
confersnoclearauthorizationonthebankorSta.Inestomodifyor
extend the original obligation without the consent of the surety or
noticethereto.
_______________
33CreditApprovalMemorandum,p.2rollo,p.110.
34PetitionersMemorandum,pp.2425rollo,pp.335336.
35Article2054,CivilCode.
3661SCRA22,26,November13,1974,perFernando,J.
803
VOL.341,OCTOBER3,2000
803
SecurityBankandTrustCompany,Inc.vs.Cuenca
ContinuingSurety
Contending that the Indemnity Agreement was in the nature of a
continuing surety, petitioner maintains that there was no need for
respondent to execute another surety contract to secure the 1989
LoanAgreement.
This argument is incorrect. That the Indemnity Agreement is a
continuingsuretydoesnotauthorizethebanktoextendthescopeof
37
38
theprincipalobligationinordinately. InDinov.CA, theCourtheld
that a continuing guaranty is one which covers all transactions,
including those arising in the future, which are within the
J.,theCourtexplainedthenatureofacontinuingsuretyinthiswise:
Comprehensiveorcontinuingsuretyagreementsareinfactquitecommonplaceinpresentday
financial and commercial practice. A bank or financing company which anticipates entering
intoaseriesofcredittransactionswithaparticularcompany,commonlyrequirestheprojected
principaldebtortoexecuteacontinuingsuretyagreementalongwithitssureties.Byexecuting
suchanagreement,theprincipalplacesitselfinapositiontoenterintotheprojectedseriesof
transactions with its creditor with such suretyship agreement, there would be no need to
execute a separate surety contract or bond for each financing or credit accommodation
extendedtotheprincipaldebtor.
38216 SCRA 9, November 26, 1992, per Davide, J. (now CJ). See also Fortune
Motorsv.CA,267SCRA653,February7,1997.
804
804
SUPREMECOURTREPORTSANNOTATED
SecurityBankandTrustCompany,Inc.vs.Cuenca
SpecialNatureoftheJSS
It is a common banking practice to require the JSS (joint and
solidary signature) of a major stockholder or corporate officer, as
anadditionalsecurityforloansgrantedtocorporations.Thereareat
least two reasons for this. First, in case of default, the creditors
recourse,whichisnormallylimitedtothecorporatepropertiesunder
the veil of separate corporate personality, would extend to the
personal assets of the surety. Second, such surety would be
compelled to ensure that the loan would be used for the purpose
agreedupon,andthatitwouldbepaidbythecorporation.
Following this practice, it was therefore logical and reasonable
for the bank to have required the JSS of respondent, who was the
chairman and president of Sta. Ines in 1980 when the credit
accommodation was granted. There was no reason or logic,
however,forthebankorSta.Inestoassumethathewouldstillagree
toactassuretyinthe1989LoanAgreement,becauseatthattime,he
wasnolongeranofficerorastockholderofthedebtorcorporation.
Verily,hewasnotinapositionthentoensurethepaymentofthe
805
VOL.341,OCTOBER3,2000
805
SecurityBankandTrustCompany,Inc.vs.Cuenca
obligation.Neitherdidhehaveanyreasontobindhimselffurtherto
abiggerandmoreonerousobligation.
Indeed,thestipulationinthe1989LoanAgreementprovidingfor
the surety of respondent, without even informing him, smacks of
negligence on the part of the bank and bad faith on that of the
principal debtor. Since that Loan Agreement constituted a new
indebtedness,theoldloanhavingbeenalreadyliquidated,thespirit
offairplayshouldhaveimpelledSta.Inestoasksomebodyelseto
actasasuretyforthenewloan.
Inthesamevein,alittleprudenceshouldhaveimpelledthebank
to insist on the JSS of one who was in a position to ensure the
payment of the loan. Even a perfunctory attempt at credit
investigation would have revealed that respondent was no longer
connectedwiththecorporationatthetime.Asitis,thebankisnow
relying on an unclear Indemnity Agreement in order to collect an
obligationthatcouldhavebeensecuredbyafairlyobtainedsurety.
Foritsdefeatinthislitigation,thebankhasonlyitselftoblame.
Insum,weholdthatthe1989LoanAgreementextinguishedby
novation the obligation under the 1980 P8 million credit
accommodation.Hence,theIndemnityAgreement,whichhadbeen
an accessory to the 1980 credit accommodation, was also
extinguished. Furthermore, we reject petitioners submission that
respondentwaivedhisrighttobenotifiedof,ortogiveconsentto,
anymodificationorextensionofthe1980creditaccommodation.
Inthislight,wefindnomoreneedtoresolvetheissueofwhether
theloanobtainedbeforetheexpirydateofthecreditaccommodation
hasbeenpaid.
WHEREFORE, the Petition is DENIED and the assailed
DecisionAFFIRMED.Costsagainstpetitioner.
SOORDERED.
Melo(Chairman),Vitug,PurisimaandGonzagaReyes,JJ.,
concur.
Petitiondenied,judgmentaffirmed.
Notes.The consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration
movingto
806
806
SUPREMECOURTREPORTSANNOTATED
Calvanvs.CourtofAppeals
theprincipalalonebeingsufficientaguarantororsuretyisbound
bythesameconsiderationthatmakesthecontracteffectivebetween
the principal parties thereto. (Willex Plastic Industries Corporation
vs.CourtofAppeals,256SCRA478[1996])
Themerecircumstanceofthecreditorreceivingpaymentsfroma
third party who acquiesced to assume the obligation of the debtor
when there is clearly no agreement to release the debtor from her
responsibilitydoesnotconstitutenovationatmost,itonlycreates
ajuridicalrelationofcodebtorshiporsuretyshiponthepartofthe
third party to the contractual obligation of the debtor, and the
creditorcanstillenforcetheobligationagainstthedebtor.(Reyesvs.
CourtofAppeals,264SCRA35[1996])
Bythecontractofsuretyship,itisnotfortheobligeetoseetoit
that the principal pays the debt or fulfills the contract, but for the
surety to see to it that the principal pay or perform. (Paramount
InsuranceCorporationvs.CourtofAppeals,310SCRA377[1999])
o0o
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