1. PHILIPPINE BANK OF COMMERCE, (PBC) absorbed by PHIL. COMMERCIAL INT’L BANK, VS. CA, ROMMEL'S 2.
2. DEV’T BANK OF PHIL (DBP) vs. CA & CARLOS CAJES
MARKETING CORP (RMC)
1. RMC maintained current accounts W/ PBC; current account deposits are accepted by bank based on deposit
slips prepared and signed by depositor indicating Acct No., depositor’s name, date & amt. of deposit; deposit
slips are prepared in duplicate by depositor, original retained by bank, while duplicate returned to depositor
2. RMC’s Presi. entrusted RMC cash funds to his secretary, Yabut, for depositing in PBC; but Yabut’s modus:
accomplish original and duplicate deposit slips, original showed her husb’s name as depositor and his current
Acct No, on duplicate was written Acct No. of her husband but name of depositor left blan PBC's teller-
Mabayad, would validate and stamp both original and duplicate of these deposit slips retaining only original,
duplicate kept by Yabut who would then fill up name of RMC blank, thus, cash was deposited in her husb’s
acct PBC regularly furnished RMC monthly statements showing its accounts balances but it’s NOT practice
of RMC to check these monthly statements reposing complete trust and confidence on PBC.
3. RMC upon discov. filed suit in RTC w/c ruled infav. of RMC CA affirmed 7 deleted exemplary & atty’s fees
ISSUE: W/n proximate cause of loss is PBC’s negligence= YES
SC: 1. PBC’s teller-Mabayad, was negligent in validating, officially stamping and signing all deposit slips
prepared and presented by Yabut, despite duplicate copy NOT completely accomplished; odd circumstance
alone that such duplicate lacked one vital information (name of Acct. holder) should have already put her on
guard.
2. This is coupled by PBC’s negli- in its careless selection and supervision of Mabayad exemplified in PBC’s
Manager’s testimony that while he ordered investigation of incident, he never came to know that blank
deposit slips were validated in total disregard of bank's validation procedures; only after lapse of more than
(7) years that bank manager became aware of the practice of teller Mabayad
-Proxim. cause- cause w/c in natural and continuous sequence, unbroken by any efficient intervening cause,
produces injury, w/o w/c result would not have occurred; also assuming that RMC was negligent in entrusting
cash to dishonest employee, CANNOT be denied that PBC, thru its teller, had last clear chance to prevent
injury, simply by faithfully observing their self-imposed validation procedure
3. For banks, degree of diligence is more than that of good father of a family considering fiduciary nature of
their relationship w/ their depositors, banks are duty bound to treat accts. of their clients w/ highest degree
of care; utmost fidelity; as a business affected w/ public interest bank is under obligation to treat accts of its
depositors w/ meticulous care, always having in mind fiduciary nature of their relationship.
-While RMC never checked monthly statements of account sent by PBC it NOT change that were it not for
wanton and reckless negligence of PBC’s employee loss would not have occurred.
4. Considering that fraud was committed for more than 1 yr., common human experience dictates that there’s
collusion between Yabut and Mabayad thus PBC entitled to claim reimbursement from Mabayad for whatever
they shall be ordered to pay in this case; damages mitigated because of RMC’s contrib. negli of NOT checking
monthly statements sent by PBC
1.19.4 hectares land located in Bohol, was originally owned by Mumar since 1917 & who sold it to Carlos in
1950 who was issued Tax Dec. & he occupied and cultivated said land unknwon to Carlos, Alvarez succeeded
in obtaining regis. of parcel of land in his name w.c included the 19.4, Alvarez never occupied Alvarez sold
it to Sps. Beduya to whom TCT issued Sps obtained loan from DBP & mortgaged land Sps. failed to pay
hence, mortgage foreclosed & DBP was highest bidder Carlos also applied for loan from DBP, offering his
19.4 in w/c DBP’s rep. inspected land and appraised its value but after releasing loan DBP found that land
mortgaged by Carlos was included in TCT in Sps name, thus, DBP cancelled loan 1986- re-appraisal of land
was conducted by DBP’s rep. that discovered that Carlos was occupying portion of said land DBP filed a
complaint for recovery of possession w/ damages against Carlos in RTC Tagbilaran City w/c ruled infav. of DBP
declaring it owner of entire land CA reversed declaring Carlos the onwer of 19.4
ISSUE: W/n DBP is innocent purchaser for value in foreclosure sale w/c cannot be compeeled to reconvey the
19.4 har to Carlos= NO.
SC: 1. Cert. of title conclusive upon whole world BUT subject to right of person deprived of land thru fraud to
bring action for reconveyance
2. As banking institution, mortgagee must exercise due diligence before entering into said contract. Judicial
notice is taken of the standard practice for banks, before approving loan, to send reps. to land premises & to
investigate who are real owners thereof; since it’s impressed w/ public interest, they are expected to exercise
more care & prudence than private individuals in their dealings
- Here, DBP’s rep. came to know of property for 1st time in 1979 when he inspected it to determine whether
portion occupied by Carlos and mortgaged by him to DBP was included in TCT w/c means that when land was
mortgaged by Sps in 1972, no investigation was made by DBP, failing to exercise due care and diligence in
establishing condition of the land as regards its actual owners and possessors before it entered into mortgage
contract; also DBP was already informed by Gaudencio Beduya that Carlos occupied land; instead of inquiring
into Carlos' occupation over land, DBP simply proceeded w/ foreclosure sale, pretending that no doubts
surround ownership of land covered
3. Decree of registration extinguished a right acquired by person when such right refers to lien/encumbrance
on land NOT right of ownership w/c was not annotated on title; Regis. NEVER mode of acquiring ownership
Carlos been in OCEN possession of property since 1950 corroborated by witness testim & tax decs; his
possession tacked to that of his predecessor Mumar, w/c dates back to 1917 thus more than 30 years elapsed
before decree of registration was issued in favor of Alvarez; hence entitled to reconveyance w/c may be filed
at any time since it’s in actual possession of land.
-DBP NOT estopped from questioning Carlos’ title since upon learning that land occupied by Carlos was also
covered by TCT, DBP immediately demanded full payment of loan and cancelled mortgage contract w/ Carlos.
3.SERRANO vs. CENTRAL BANK OF PHILIPPINES (CBP) ; OVERSEAS BANK OF MANILA (OBM)
1. Pet. for mandamus &prohibition, w/ prelim. inj. seeking establishment of joint and solidary liability to
P350K, against CBP & OBM on alleged failure of OBM to return time deposits made by Serrano and assigned
to him, & that CBP failed to exercise strict supervision over OBM to protect depositors and general public
2. Serrano made time deposit of 150K w/ OBM & Concepcion’s time deposit of 200K was assigned to him
despite his demands for encashment of time deposits from OBM, NO time deposit cert. was honored by
OBM CBP admits that it’s w/ duty of administering banking system of Republic but denies duty to exercise
most stringent supervision of banks; OBM while operating, was only on limited degree of banking operations
since Monetary Board decided in its Reso. to prohibit OBM from making new loans in view of its chronic
reserve deficiencies; CBP NOT guarantor of permanent solvency of any banking institution; CBP denied that
constructive trust was created in favor of Serrano when their time deposits were made w/ OBM since during
that time OBM NOT insolvent bank; CBP NO knowledge of Serrano’s claim that props. given by OBM as
additional collaterals to CBP for OBM’s overdrafts and emergency loans were acquired thru use of depositors'
money of Serrano
3. In a case in SC (Ramos vs CBP) , OBM sought to prevent CBP from closing/declaring it insolvent, and
liquidating its assets Serrano filed motion to intervene w/c was denied by SC SC ruled in that case infav.
of OBM thus Serrano filed a motion for judgment praying for a decision adjudging CBP jointly and severally
liable w/ OBM
ISSUE: W/n claim of Serrano’s pet. for mandamus & prohib is proper= NO
SC: 1. Nature of Serrano’s claims- recovery of time deposits plus interest from OBM and recovery of damages
against CBP for its alleged failure to strictly supervise acts of OBM and protect interests of its depositors by
virtue of constructive trust created when CBP required them to increase its collaterals for its overdrafts said
emergency loans, said collaterals allegedly acquired through the use of depositors money.
- shoud be ventilated in CFI since NOT proper in actions for mandamus and prohibition as NO clear abuse of
discretion by CBP in its exercise of supervision over OBM, and if there was, Serrano NOT proper party to raise
that question, but rather OBM; Neither to prohibit since questioned acts of CBP (acts of dissolving and
liquidating OBM), w/c Serrano here intends to use as his basis for damages against CBP had been
accomplished long time ago.
2. Both parties overlooked nature of bank deposits when Serrano claimed that there should be created a
constructive trust in his favor when OBM la increased its collaterals in favor of CBP for OBM’s overdrafts and
emergency loans, since these collaterals were acquired by the use of depositors' money.
-Bank deposits are irregular deposits; they are loans because they earn interest & to be treated as loans and
are covered by law on loans since bank can use the same; Serrano in making time deposits earning interests
w/ OBM was creditor of OBM NOT depositor & OBM was the debtor; failure of OBM to honor time deposit is
failure to pay obligation as debtor NOT breach of trust arising from depositary's failure to return subject
matter of the deposit.
4. CA AGRO-INDUSTRIAL DEVELOPMENT CORP VS. CA and SECURITY BANK (SB)
1. Pet. & Sps. Pugao entered into an agreement whereby Pet. purchased from Pugaos 2 parcels of land w/
agreem. that titles to lots be transferred to Pet. upon full payment of purchase price and owner's copies of
TCTs be deposited in safety deposit box (SDB)of any bank they rented SDB of SB w/c signed contract that
SB NOT depositary neither has possession nor control of it & SB NO interest in said contents 2 renter's keys
were given, 1 to Pet & other to Pugaos; guard key remained in SB; SDB has 2 keyholes, w/c may be opened
only by 1 guard key together w/ 1 renter’s key Ramos offered to buy said land hence Pet & Pugaos went to
SB to open SDB and get title but when opened yielded no titles, thus ramos withdrew offer
2. Pet. filed Damages against SB w/ CFI Pasig, Metro Manila SB’s Answer- no cause of action because of
pars. 13 and 14 of contract of lease states loss of any of items contained in box NOT give rise to an action
against it CFI infav. of SB dismissing Pet’s com CA affirmed CFI on theory that contract executed by Pet &
SB is a contract of lease in w/c SB NO right to open box because it had neither the possession nor control
ISSUE: Is contractual relation between commercial bank and another party in contract of rent of SDB w/
respect to its contents placed by latter one of bailor and bailee or one of lessor and lessee= BAILOR &BAILEE
SC: 1. Contract for the rent of SDB NOT an ordinary contract of lease but NOT contract of deposit that is to be
strictly governed by Civil Code on deposit; contract in the case at bar is a special kind of deposit; cannot be
ordinary contract of lease because full and absolute possession and control of SDB NOT given to joint renters;
thus US prevailing rule is that relation betwee bank renting out SDB and its customer w/ respect to its contents
is that of a bailor and bailee, bailment being for hire and mutual benefit.
2. Sec. 72 of General Banking Act-bank receive in custody funds, documents, and valuable objects, and rent
SDB for safeguarding; primary function is still found w/in parameters of contract of deposit; renting out of
SDB NOT independent from, but related to said principal function; in absence of any stipulation prescribing
degree of diligence required, that of good father of family is to be observed; Hence, any stipulation exempting
depositary from any liability arising from loss of thing deposited on account of fraud, negligence or delay
would be void for being contrary to law and public policy.
-Here Par. 13 and 14 of contract of Lease (bank NOT depositary of contents & NO interest therein) are
inconsistent w/ Bank's responsibility as depositary under Section 72(a) of General Banking Act; NOT correct
to assert that Bank has neither possession nor control of contents since in fact, SDBox itself is located in its
premises and is under its absolute control; moreover, SB keeps guard key
-Pet. should be dismissed, but on grounds that SB’s exoneration cannot be based on characterization of
impugned contract of lease, but rather on fact that no competent proof was presented to show that SB was
aware of agreement between Pet & Pugaos to effect that titles were withdrawable from SDB only upon both
parties' joint signatures, and NO evidence submitted to reveal that loss of titles was due to fraud/negligence
of SB, thus contract was one of deposit
5. BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of COMMERCIAL AND TRUST CO.), petitioner,
vs.CA EASTERN PLYWOOD CORP. and BENIGNO D. LIM, respondents.
FACTS:
Private respondents Eastern Plywood Corporation (Eastern) and Benigno D. Lim (Lim), an officer and
stockholder of Eastern, held at least one joint bank account with the Commercial Bank and Trust Co. (CBTC),
the predecessor-in-interest of petitioner Bank of the Philippine Islands (BPI). Sometime in March 1975, a joint
checking account with Lim in the amount of P120,000.00 was opened by Mariano Velasco with funds
withdrawn from the account of Eastern and/or Lim. Various amounts were later deposited or withdrawn from
the joint account of Velasco and Lim.
Velasco died on 7 April 1977. At the time of his death, the outstanding balance of the account stood at
P662,522.87. On 5 May 1977, by virtue of an Indemnity Undertaking executed by Lim for himself and as
President and General Manager of Eastern, one-half of this amount was provisionally released and transferred
to one of the bank accounts of Eastern with CBTC.
Thereafter, on 18 August 1978, Eastern obtained a loan of P73,000.00 from CBTC as "Additional Working
Capital," evidenced by the "Disclosure Statement on Loan/Credit Transaction" (Disclosure Statement) signed
by CBTC through its branch manager. . The loan was payable on demand with interest at 14% per annum.
For this loan, Eastern issued on the same day a negotiable promissory note for P73,000.00 payable on demand
to the order of CBTC with interest at 14% per annum. In the Disclosure Statement, the box with the printed
word "UNSECURED" was marked with "X" — meaning unsecured, while the line with the words "this loan is
wholly/partly secured by" is followed by the typewritten words "Hold-Out on a 1:1 on C/A No. 2310-001-42,"
which refers to the joint account of Velasco and Lim with a balance of P331,261.44.
Eastern and Lim, and CBTC signed another document entitled "Holdout Agreement," dated 18 August 1978,
wherein it was stated that "as security for the Loan have offered [CBTC] and the latter accepts a holdout on
said [Current Account No. 2310-011-42 in the joint names of Lim and Velasco] to the full extent of their alleged
interests therein as these may appear as a result of final and definitive judicial action or a settlement between
and among the contesting parties thereto."
Sometime in 1980, CBTC was merged with BPI. On December 2, 1987, BPI filed with the RTC of Manila a
complaint against Lim and Eastern demanding payment of the promissory note for P73,000.00. Defendants
Lim and Eastern, in turn, filed a counterclaim against BPI for the return of the balance in the disputed account
subject of the Holdout Agreement and the interests thereon after deducting the amount due on the
promissory note.
the trial court ruled that "the promissory note in question is subject to the 'hold-out' agreement," and that
based on this agreement, "it was the duty of plaintiff Bank [BPI] to debit the account of the defendants under
the promissory note to set off the loan even though the same has no fixed maturity." As to the defendants'
counterclaim, the trial court, recognizing the fact that the entire amount in question had been withdrawn by
Velasco's heirs pursuant to the order of the intestate court in denied it because the "said claim cannot be
awarded without disturbing the resolution" of the intestate court.
On 23 January 1991, the Court of Appeals rendered a decision affirming the decision of the trial court. it ruled
that the settlement of Velasco's estate had nothing to do with the claim of the defendants for the return of
the balance of their account with CBTC/BPI as they were not privy to that case, and that the defendants, as
depositors of CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have protected the defendants'
interest in Sp. Proc. No. 8959 when the said account was claimed by Velasco's estate. It then ordered BPI "to
pay defendants the amount of P331,261.44 representing the outstanding balance in the bank account of
defendants."
On 22 April 1992, BPI filed the instant petition alleging therein that the Holdout Agreement in question was
subject to a suspensive condition the "P331,261.44 shall become a security for respondent Lim's promissory
note only if respondents' Lim and Eastern Plywood Corporation's interests to that amount are established as
a result of a final and definitive judicial action or a settlement between and among the contesting parties
thereto.
Issues:
can BPI demand payment of the loan of P73,000.00 despite the existence of the Holdout Agreement and; is
BPI still liable to the private respondents on the account subject of the Holdout Agreement after its withdrawal
by the heirs of Velasco.
Decision:
Yes The collection suit of BPI is based on the promissory note for P73,000.00. On its face, the note is an
unconditional promise to pay the said amount, and as stated by the respondent Court of Appeals, further
correctly ruled that BPI was not a holder in due course because the note was not indorsed to BPI by the payee,
CBTC. Only a negotiation by indorsement could have operated as a valid transfer to make BPI a holder in due
course. It acquired the note from CBTC by the contract of merger or sale between the two banks. BPI,
therefore, took the note subject to the Holdout Agreement.
It is clear from paragraph 02 thereof that CBTC, or BPI as its successor-in-interest, had every right to demand
that Eastern and Lim settle their liability under the promissory note. It cannot be compelled to retain and
apply the deposit in Lim and Velasco's joint account to the payment of the note. What the agreement
conferred on CBTC was a power, not a duty. Generally, a bank is under no duty or obligation to make the
application. To apply the deposit to the payment of a loan is a privilege, a right of set-off which the bank has
the option to exercise.
Also, paragraph 05 of the Holdout Agreement itself states that notwithstanding the agreement, CBTC was not
in any way precluded from demanding payment from Eastern and from instituting an action to recover
payment of the loan. What it provides is an alternative, not an exclusive, method of enforcing its claim on the
note. When it demanded payment of the debt directly from Eastern and Lim, BPI had opted not to exercise
its right to apply part of the deposit subject of the Holdout Agreement to the payment of the promissory note
for P73,000.00.
Yes. The account was proved and established to belong to Eastern even if it was deposited in the names of
Lim and Velasco. As the real creditor of the bank, Eastern has the right to withdraw it or to demand payment
thereof. BPI cannot be relieved of its duty to pay Eastern simply because it already allowed the heirs of Velasco
to withdraw the whole balance of the account.
As early as 12 May 1979, CBTC was notified by the Corporate Secretary of Eastern that the deposit in the joint
account of Velasco and Lim was being claimed by them and that one-half was being claimed by the heirs of
Velasco. 23
Moreover, the order of the court in Sp. Proc. No. 8959 merely authorized the heirs of Velasco to withdraw
the account. BPI was not specifically ordered to release the account to the said heirs; hence, it was under no
judicial compulsion to do so. The authorization given to the heirs of Velasco cannot be construed as a final
determination or adjudication that the account belonged to Velasco
6. SECURITY BANK AND TRUST COMPANY, Inc., vs. RODOLFO M. CUENCA,
SECURITY BANK AND TRUST COMPANY, Inc., petitioner, vs.
RODOLFO M. CUENCA, respondent.
PANGANIBAN, J.:
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 showing that the latter waived his
right to be notified thereof, or to give consent thereto.
FACTS:
Defendant-appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a corporation engaged in logging operations. It was
a holder of a Timber License Agreement issued by the DENR
On 10 November 1980, Security Bank and Trust Co. granted appellant Sta. Ines a credit line in the amount of
(P8,000,000.00) effective til November 30, 1981 to assist the latter in meeting the additional capitalization
requirements of its logging operations.
To secure payment, it executed a chattel mortgage over some of its machineries and equipments. And as an
additional security, its President and Chairman of the Board of Directors Rodolfo Cuenca, executed an
Indemnity agreement in favor of Security Bank whereby he bound himself jointly and severally with Sta. Ines.
Specific stipulations:
 The bank reserves the right to amend any of the aforementioned terms and conditions upon written notice
to the Borrower.
 As additional security for the payment of the loan, Rodolfo M. Cuenca executed an Indemnity Agreement
dated 17 December 1980 solidary binding himself:
 ‘Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in favor of the
bank for the payment, upon demand and without the benefit of excussion of whatever amount x x x the
client may be indebted to the bank x x x by virtue of aforesaid credit accommodation(s) including the
substitutions, renewals, extensions, increases, amendments, conversions and revivals of the aforesaid credit
accommodation(s) x x x .’
1985: Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta. Ines.
Subsequently, the shareholdings of Cuenca in Sta. Ines were sold at a public auction to Adolfo Angala. Before
and after this, Sta Ines availed of its credit line.
Sta Ines encountered difficulty in making the amortization payments on its loans and requested SBTC for a
complete restructuring of its indebtedness. SBTC accommodated SIMC’s request and signified its approval in
a letter dated 18 February 1988 wherein SBTC and Sta. Ines, without notice to or the prior consent of ] Cuenca,
agreed to restructure the past due obligations of defendant-appellant Sta. Ines. To formalize their agreement
to restructure the loan obligations of Sta. Ines, Security Bank and Sta. Ines executed a Loan Agreement dated
31 October 1989 ‘
Sta Ines made payments up to (P1,757,000.00) The defaulted in the payment of its restructured loan
obligations to SBTC despite demands made upon appellant SIMC and CUENCA,
SBTC filed a complaint for collection of sum of resulting after trial on the merits in a decision by the court a
quo, from which Cuenca appealed
CA: Released Cuenca from liability because 1989 Loan Agreement novated the 1980 credit accommodation
which extinguished the Indemnity Agreement for which Cuenca was liable solidarily. No notice/consent to
restructure. Since with expiration date, liable only up to that date and up to that amount (8M). Amounted to
extension.of time with no notice to suret therefore released from liability.
ISSUES:
(a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability under
the Indemnity Agreement YES
(b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal,
extension, increase, amendment, conversion or revival of the said credit accommodation. NO
HELD: Petition of Bank no merit.CA affirmed.
RATIO:
 A. Original Obligation Extinguished by Novation
An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, Novation of a
contract is never presumed. Indeed, the following requisites must be established: (1) there is a previous valid
obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4)
there is a valid new contract.16
We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan
Agreement extinguished the obligation18 obtained under the 1980 credit accomodation. This is evident from
its explicit provision to "liquidate" the principal and the interest of the earlier indebtedness, as the following
shows:
"1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrower’s present
total outstanding Indebtedness to the Lender (the "Indebtedness") while the Second Loan shall be applied
to liquidatethe past due interest and penalty portion of the Indebtedness.
Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity Agreement
1) NOT mere renewal/ Extension
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, which
had allegedly extended the original P8 million credit facility. Hence, his obligation as a surety should be
deemed extinguished, "[a]n extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty. x x x."
2) Binding Nature of the Credit Approval Memorandum
Bank objects to the appellate court’s reliance on that document, contending that it was not a binding
agreement because it was not signed by the parties. It adds that it was merely for its internal use. Indeed, it
cannot take advantage of that document by agreeing to be bound only by those portions that are favorable
to it, while denying those that are disadvantageous.
B. NO Waiver of Consent
In the Indemnity Agreement, while respondent held himself liable for the credit accommodation or any
modification thereof, such clause should be understood in the context of the P8 million limit and the
November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope of the
original credit accommodation, without informing or getting the consent of respondent who was solidarily liable.
A contract of surety "cannot extend to more than what is stipulated. It is strictly construed against the creditor,
every doubt being resolved against enlarging the liability of the surety." 31 Likewise, the Court has ruled that "it is a
well-settled 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 x x x. Ambiguous contracts are construed against the party who caused the
ambiguity.32In the absence of an unequivocal provision that respondent waived his right to be notified of or to give
consent to any alteration of the credit accommodation, we cannot sustain petitioner’s view that there was such a
waiver.
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. At most, the alleged basis of respondent’s
waiver is vague and uncertain. It confers no clear authorization on the bank or Sta. Ines to modify or extend the
original obligation without the consent of the surety or notice thereto.
1) NOT Continuing Surety
That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope of the
principal obligation inordinately.
To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit
accommodation: (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 aforementioned expiry date and not exceeding the total of P8 million.
NO PROVISION: ”each suretyship is a continuing one which shall remain in full force and effect until this bank is
notified of its revocation.
2) Special Nature of the JSS
It is a common banking practice to require the JSS ("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 creditor’s 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.
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, for the bank or Sta. Ines to assume that he would still agree
to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a stockholder
of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the obligation.
Neither did he have any reason to bind himself further to a bigger and more onerous obligation.