G.R. No. 89775 November 26, 1992 JACINTO UY DIO and NORBERTO UY, petitioners, vs.HON.

COURT OF APPEALS and METROPOLITAN BANK AND TRUST COMPANY, respondents. DAVIDE, JR., J.: Continuing Suretyship Agreements signed by the petitioners set off this present controversy. Petitioners assail the 22 June 1989 Decision of the Court in CA-G.R. CV No. 17724 1 which reversed the 2 December 1987 Decision of Branch 45 of the Regional Trial Court (RTC) of Manila in a collection suit entitled "Metropolitan Bank and Trust Company vs. Uy Tiam, doing business under the name of "UY TIAM ENTERPRISES & FREIGHT SERVICES," Jacinto Uy Dio and Norberto Uy" and docketed as Civil Case No. 82-9303. They likewise challenge public respondent's Resolution of 21 August 1989 2 denying their motion for the reconsideration of the former. The impugned Decision of the Court summarizes the antecedent facts as follows: It appears that in 1977, Uy Tiam Enterprises and Freight Services (hereinafter referred to as UTEFS), thru its representative Uy Tiam, applied for and obtained credit accommodations (letter of credit and trust receipt accommodations) from the Metropolitan Bank and Trust Company (hereinafter referred to as METROBANK) in the sum of P700,000.00 (Original Records, p. 333). To secure the aforementioned credit accommodations Norberto Uy and Jacinto Uy Dio executed separate Continuing Suretyships (Exhibits "E" and "F" respectively), dated 25 February 1977, in favor of the latter. Under the aforesaid agreements, Norberto Uy agreed to pay METROBANK any indebtedness of UTEFS up to the aggregate sum of P300,000.00 while Jacinto Uy Dio agreed to be bound up to the aggregate sum of P800,000.00. Having paid the obligation under the above letter of credit in 1977,

UTEFS, through Uy Tiam, obtained another credit accommodation from METROBANK in 1978, which credit accommodation was fully settled before an irrevocable letter of credit was applied for and obtained by the abovementioned business entity in 1979 (September 8, 1987, tsn, pp. 14-15). The Irrevocable Letter of Credit No. SN-Loc-309, dated March 30, 1979, in the sum of P815, 600.00, covered UTEFS' purchase of "8,000 Bags Planters Urea and 4,000 Bags Planters 21-0-0." It was applied for and obtain by UTEFS without the participation of Norberto Uy and Jacinto Uy Dio as they did not sign the document denominated as "Commercial Letter of Credit and Application." Also, they were not asked to execute any suretyship to guarantee its payment. Neither did METROBANK nor UTEFS inform them that the 1979 Letter of Credit has been opened and the Continuing Suretyships separately executed in February, 1977 shall guarantee its payment (Appellees brief, pp. 2-3; rollo, p. 28). The 1979 letter of credit (Exhibit "B") was negotiated. METROBANK paid Planters Products the amount of P815,600.00 which payment was covered by a Bill of Exchange (Exhibit "C"), dated 4 June 1979, in favor of (Original Records, p. 331). Pursuant to the above commercial transaction, UTEFS executed and delivered to METROBANK and Trust Receipt (Exh. "D"), dated 4 June 1979, whereby the former acknowledged receipt in trust from the latter of the aforementioned goods from Planters Products which amounted to P815, 600.00. Being the entrusted, the former agreed to deliver to METROBANK the entrusted goods in the event of non-sale or, if sold, the proceeds of the sale thereof, on or before September 2, 1979. However, UTEFS did not acquiesce to the obligatory stipulations in the trust receipt. As a consequence, METROBANK sent letters to the said principal obligor and its sureties, Norberto Uy and Jacinto Uy Dio, demanding payment of the amount due. Informed of the amount due, UTEFS made partial payments to the Bank which were accepted by the latter. Answering one of the demand letters, Dio, thru counsel, denied his

liability for the amount demanded and requested METROBANK to send him copies of documents showing the source of his liability. In its reply, the bank informed him that the source of his liability is the Continuing Suretyship which he executed on February 25, 1977. As a rejoinder, Dio maintained that he cannot be held liable for the 1979 credit accommodation because it is a new obligation contracted without his participation. Besides, the 1977 credit accommodation which he guaranteed has been fully paid. Having sent the last demand letter to UTEFS, Dio and Uy and finding resort to extrajudicial remedies to be futile, METROBANK filed a complaint for collection of a sum of money (P613,339.32, as of January 31, 1982, inclusive of interest, commission penalty and bank charges) with a prayer for the issuance of a writ of preliminary attachment, against Uy Tiam, representative of UTEFS and impleaded Dio and Uy as parties-defendants. 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 (suretiesdefendant 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 suretiesdefendants, the bank argued that sureties-movants 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, suretiesdefendants 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: a) dismissing the COMPLAINT against JACINTO UY DIO and NORBERTO UY; b) ordering the plaintiff to pay to Dio and Uy the amount of P6,000.00 as attorney's fees and expenses of litigation; and c) denying all other claims of the parties for want of legal and/or factual basis.
SO ORDERED. (Records, p. 336) 4

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 PLAINTIFFAPPELLANT 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.
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

On 22 June 1989, public respondent promulgated the assailed Decision the dispositive portion of which reads: WHEREFORE, premises considered, the judgment appealed from is hereby REVERSED AND SET, ASIDE. In lieu thereof, another one is rendered: 1) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and severally, to appellant METROBANK the amount of P2,397,883.68 which represents the amount due as of July 17, 1987 inclusive of principal, interest and charges; 2) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and severally, appellant METROBANK the accruing interest, fees and charges thereon from July 18, 1987 until the whole monetary obligation is paid; and 3) Ordering sureties-appellees Jacinto Uy Dio and Norberto Uy to pay, jointly and severally, to plaintiff P20,000.00 as attorney's fees. With costs against appellees.
SO ORDERED. 6

In ruling for the herein private respondent (hereinafter METROBANK), public respondent held that the Continuing Suretyship Agreements separately executed by the petitioners in 1977 were intended to guarantee payment of Uy Tiam's outstanding as well as future obligations; each suretyship arrangement was intended to remain in full force and effect until METROBANK would have been notified of its revocation. Since no such notice was given by the petitioners, the suretyships are deemed outstanding and hence, cover even the 1979 letter of credit issued by METROBANK in favor of Uy Tiam. Petitioners filed a motion to reconsider the foregoing Decision. They questioned the public respondent's construction of the suretyship agreements and its ruling with respect to the extent of their liability thereunder. They argued the even if the agreements were in full force and effect when METROBANK granted Uy Tiam's application for a letter of credit in 1979, the public respondent nonetheless seriously erred in holding them liable for an amount over and above their respective face values. In its Resolution of 21 August 1989, public respondent denied the motion:
. . . considering that the issues raised were substantially the same grounds utilized by the lower court in rendering judgment for defendants-appellees which We upon appeal found and resolved to be untenable, thereby reversing and setting aside said judgment and rendering another in favor of plaintiff, and no new or fresh issues have been posited to justify reversal of Our decision herein, . . . . 7

Hence, the instant petition which hinges on the issue of whether or not the petitioners may be held liable as sureties for the obligation contracted by Uy Tiam with METROBANK on 30 May 1979 under and by virtue of the Continuing Suretyship Agreements signed on 25 February 1977. Petitioners vehemently deny such liability on the ground that the Continuing Suretyship Agreements were automatically extinguished upon payment of the principal obligation secured thereby, i.e., the letter of credit obtained by Uy Tiam in 1977. They further claim that they were not advised by either METROBANK or Uy Tiam that the

Continuing Suretyship Agreements would stand as security for the 1979 obligation. Moreover, it is posited that to extend the application of such agreements to the 1979 obligation would amount to a violation of Article 2052 of the Civil Code which expressly provides that a guaranty cannot exist without a valid obligation. Petitioners further argue that even granting, for the sake of argument, that the Continuing Suretyship Agreements still subsisted and thereby also secured the 1979 obligations 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:
I. For and in consideration of any existing indebtedness to the BANK of UY TIAM (hereinafter called the "Borrower"), for the payment of which the SURETY is now obligated to the BANK, either as guarantor or otherwise, and/or in order to induce the BANK, in its discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at the request, or for the account of the Borrower, either with or without security, and/or to purchase or discount, or to make any loans or advances evidence or secured by any notes, bills, receivables, drafts, acceptances, checks, or other instruments or evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise, the SURETY agrees to guarantee, and does hereby guarantee, the punctual payment at maturity to the loans, advances credits and/or other obligations hereinbefore referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to the BANK by the Borrower , together with any and all expenses which may be incurred by the BANK in collecting all or any such instruments or other indebtedness or obligations herein before referred to, and/or in enforcing any rights hereunder, and the SURETY also agrees that the BANK may make or cause any and all such payments to be made strictly in accordance with the terms and provisions of any agreement(s) express or implied, which has (have) been or may hereafter be made or entered into by the Borrow in reference thereto, regardless of any law,

regulation or decree, unless the same is mandatory and non-waivable in character, nor or hereafter in effect, which might in any manner affect any of the terms or provisions of any such agreement(s) or the Bank's rights with respect thereto as against the Borrower, or cause or permit to be invoked any alteration in the time, amount or manner of payment by the Borrower of any such instruments, obligations or indebtedness; provided, however, that the liability of the SURETY hereunder shall not exceed at any one time the aggregate principal sum of PESOS: THREE HUNDRED THOUSAND ONLY (P300,000.00) (irrespective of the currenc(ies) in which the obligations hereby guaranteed are payable), and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK as referred to above. 13

Paragraph I of the Continuing Suretyship Agreement executed by petitioner Dio contains identical provisions except with respect to the guaranteed aggregate principal amount which is EIGHT THOUSAND PESOS (P800,000.00). 14 Paragraph IV of both agreements stipulate that:
VI. This is a continuing guaranty and shall remain in full force and effect until written notice shall have been received by the BANK that it has been revoked by the SURETY, but any such notice shall not release the SURETY, from any liability as to any instruments, loans, advances or other obligations hereby 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. As to the amount of their liability under the Continuing Suretyship Agreements, petitioners contend that the public respondent gravely erred in finding them liable for more than the amount specified in their respective agreements, to wit: (a) P800,000.00 for petitioner Dio and (b) P300,000.00 for petitioner Uy. The limit of the petitioners respective liabilities must be determined from the suretyship agreement each had signed. It is undoubtedly

true that the law looks upon the contract of suretyship with a jealous eye, and the rule is settled that the obligation of the surety cannot be extended by implication beyond its specified limits. To the extent, and in the manner, and under the circumstances pointed out in his obligation, he is bound, and no farther. 17 Indeed, the Continuing Suretyship Agreements signed by petitioner Dio and petitioner Uy fix the aggregate amount of their liability, at any given time, at P800,000.00 and P300,000.00, respectively. The law is clear that a guarantor may bond himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 18 In the case at bar, both agreements provide for liability for interest and expenses, to wit:
. . . and such interest as may accrue thereon either before or after any maturity(ies) thereof and such expenses as may be incurred by the BANK referred to above. 19

They further provide that:

In the event of judicial proceedings being instituted by the BANK against the SURETY to enforce any of the terms and conditions of this undertaking, the SURETY further agrees to pay the BANK a reasonable compensation for and as attorney's fees and costs of collection, which shall not in any event be less than ten per cent (10%) of the amount due (the same to be due and payable irrespective of whether the case is settled judicially or extrajudicially). 20

Thus, by express mandate of the Continuing Suretyship Agreements which they had signed, petitioners separately bound themselves to pay interest, expenses, attorney's fees and costs. The last two items are pegged at not less than ten percent (10%) of the amount due. Even without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. Article 2055 of the Civil Code provides: 21 Art. 2055. A guaranty is not presumed; it must be express and cannot extend to more than what is stipulated therein. If it be simple or indefinite, it shall comprise not only the principal

obligation, but also all its accessories, including the judicial costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay. Interest and damages are included in the term accessories. However, such interest should run only from the date when the complaint was filed in court. Even attorney's fees may be imposed whenever appropriate, pursuant to Article 2208 of the Civil Code. Thus, in Plaridel Surety & Insurance Co ., Inc. vs. P.L. Galang Machinery Co., Inc., 22 this Court held: Petitioner objects to the payment of interest and attorney's fees because: (1) they were not mentioned in the bond; and (2) the surety would become liable for more than the amount stated in the contract of suretyship. xxx xxx xxx The objection has to be overruled, because as far back as the year 1922 this Court held in Tagawa vs. Aldanese, 43 Phil. 852, that creditors suing on a suretyship bond may recover from the surety as part of their damages, interest at the legal rate even if the surety would thereby become liable to pay more than the total amount stipulated in the bond. The theory is that interest is allowed only by way of damages for delay upon the part of the sureties in making payment after they should have done so. In some states, the interest has been charged from the date of the interest has been charged from the date of the judgment of the appellate court. In this jurisdiction, we rather prefer to follow the general practice, which is to order that interest begin to run from the date when the complaint was filed in court, . . . Such theory aligned with sec. 510 of the Code of Civil Procedure which was subsequently recognized in the Rules of Court (Rule 53, section 6) and with Article 1108 of the Civil Code (now Art. 2209 of the New Civil Code). In other words the surety is made to pay interest, not by reason of the contract, but by reason of its failure to pay when demanded and for having compelled the plaintiff to resort to the courts to obtain

payment. It should be observed that interest does not run from the time the obligation became due, but from the filing of the complaint. As to attorney's fees. Before the enactment of the New Civil Code, successful litigants could not recover attorney's fees as part of the damages they suffered by reason of the litigation. Even if the party paid thousands of pesos to his 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-Loc-309 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.

[G.R. No. 109941. August 17, 1999]

PACIONARIA C. BAYLON, petitioner, vs. THE HONORABLE COURT OF APPEALS (Former Ninth Division) and LEONILA

TOMACRUZ, respondents. DECISION

GONZAGA-REYES, J.:

This is a petition for review by way of certiorari under Rule 45 of the Revised Rules of Court of the decision of the Court of Appeals[1] dated November 29, 1991 in CA-G.R. CV No. 27779 affirming the decision[2] of the Regional Trial Court of Quezon City, Branch 88, dated June 14, 1990 in Civil Case No. Q-89-2483 and the Resolution of the Court of Appeals dated April 27, 1993 denying petitioner's Motion for Reconsideration. The pertinent facts, as found by the trial court and affirmed by respondent court, are briefly narrated as follows: Sometime in 1986, petitioner Pacionaria C. Baylon introduced private respondent Leonila Tomacruz, the co-manager of her husband at PLDT, to Rosita B. Luanzon.[3] Petitioner told private respondent that Luanzon has been engaged in business as a contractor for twenty years and she invited private respondent to lend Luanzon money at a monthly interest rate of five percent (5%), to be used as capital for the latter's business. Private respondent, persuaded by the assurances of petitioner that Luanzon's business was stable and by the high interest rate, agreed to lend Luanzon money in the amount of P150,000. On June 22, 1987, Luanzon issued and signed a promissory note acknowledging receipt of the P150,000 from private respondent and obliging herself to pay the former the said amount on or before August 22, 1987.[4] Petitioner signed the promissory note, affixing her signature under the word "guarantor." Luanzon also issued a postdated Solidbank check no. CA418437 dated August 22, 1987 payable to Leonila Tomacruz in the amount of P150,000.[5] Subsequently, Luanzon replaced this check with another postdated Solidbank check no. 432945 dated December 22, 1987, in favor of the same payee and covering the same amount.[6] Several checks

in the amount of P7,500 each were also issued by Luanzon and made payable to private respondent.[7] Private respondent made a written demand upon petitioner for payment, which petitioner did not heed. Thus, on May 8, 1989, private respondent filed a case for the collection of a sum of money with the Regional Trial Court (RTC) of Quezon City, Branch 88, against Luanzon and petitioner herein, impleading Mariano Baylon, husband of petitioner, as an additional defendant. However, summons was never served upon Luanzon. In her answer, petitioner denied having guaranteed the payment of the promissory note issued by Luanzon. She claimed that private respondent gave Luanzon the money, not as a loan, but rather as an investment in Art Enterprises and Construction, Inc. the construction business of Luanzon. Furthermore, petitioner avers that, granting arguendo that there was a loan and petitioner guaranteed the same, private respondent has not exhausted the property of the principal debtor nor has she resorted to all the legal remedies against the principal debtor as required by law. Finally, petitioner claims that there was an extension of the maturity date of the loan without her consent, thus releasing her from her obligation.[8] After trial on the merits, the lower court ruled in favor of private respondent. In its Decision dated June 14, 1990, it stated that The evidence and the testimonies on record clearly established a (sic) fact that the transaction between the plaintiff and defendants was a loan with five percent (5%) monthly interest and not an investment. In fact they all admitted in their testimonies that they are not given any stock certificate but only promissory notes similar to Exhibit B wherein it was clearly stated that defendant Luanzon would pay the amount of indebtedness on the date due. Postdated checks were issued simultaneously with the promissory

notes to enable the plaintiff and others to withdraw their money on a certain fixed time. This shows that they were never participants in the business transaction of defendant Luanzon but were creditors. The evidences presented likewise show that plaintiff and others loan their money to defendant Luanzon because of the assurance of the monthly income of five percent (5%) of their money and that they could withdraw it anytime after the due date add to it the fact that their friend, Pacionaria Baylon, expresses her unequivocal gurarantee to the payment of the amount loaned. xxx xx xxx

WHEREFORE, premises considered, judgment is hereby rendered against the defendants Pacionaria C. Baylon and Mariano Baylon, to pay the plaintiff the sum of P150,000.00, with interest at the legal rate from the filing of this complaint until full payment thereof, to pay the total sum of P21,000.00 as attorneys fees and costs of suit.[9] On appeal, the trial court's decision was affirmed by the Court of Appeals. Hence, this present case wherein petitioner makes the following assignment of errors I. RESPONDENT COURT ERRED IN HOLDING THAT THE PRIVATE RESPONDENT TOMACRUZ WAS A CREDITOR OF DEFENDANT LUANZON AND NOT AN INVESTOR IN THE CONSTRUCTION BUSINESS OF ART ENTERPRISES & CONSTRUCTION, INC. II. GRANTING, WITHOUT ADMITTING, THAT PETITIONERAPPELLANT BAYLON WAS A "GUARANTOR" AS APPEARING IN THE NOTE (EXH. "A") THE RESPONDENT COURT ERRED IN RULING THAT PETITIONER-

APPELLANT BAYLON IS LIABLE TO THE PRIVATE RESPONDENT BECAUSE THE LATTER HAS NOT TAKEN STEPS TO EXHAUST THE PROPERTY OF THE PRINCIPAL DEBTOR AND HAS NOT RESORTED TO ALL THE LEGAL REMEDIES PROVIDED BY LAW AGAINST THE DEBTOR, DEFENDANT LUANZON. III. GRANTING, WITHOUT ADMITTING THAT PETITIONER-APPELLANT BAYLON WAS A GUARANTOR UNDER THAT NOTE (EXHIBIT "A") DATED JUNE 22, 1987, THE LOWER COURT ERRED IN RESOLVING THAT SHE WAS NOT RELEASED FROM HER GUARANTY BY THE SUBSEQUENT TRANSACTIONS BETWEEN THE RESPONDENT-APPELLANT AND DEFENDANT LUANZON. At the outset, we note that petitioners claim that the factual findings of the lower court, which were affirmed by the Court of Appeals, were based on a misapprehension of facts and contradicted by the evidence on records[10] is a bare allegation and devoid of merit. As a rule, the conclusions of fact of the trial court, especially when affirmed by the Court of Appeals, are final and conclusive and cannot be reviewed on appeal by the Supreme Court.[11] Although this rule admits of several exceptions, [12] none of the exceptions are in point in the present case. The factual findings of the respondent court are borne out by the record and are based on substantial evidence. Petitioner claims that there is no loan to begin with; that private respondent gave Luanzon the amount of P150,000, not as a loan, but rather as an investment in the construction project of the latter.[13] In support of her claim, petitioner cites the use by private respondent of the words investment, dividends, and commission in her testimony before the lower court; the fact that private respondent received monthly checks from Luanzon in the amount of P7,500 from July to December, 1987, representing

dividends on her investment; and the fact that other employees of the Development Bank of the Philippines made similar investments in Luanzons construction business.[14] However, all the circumstances mentioned by petitioner cannot override the clear and unequivocal terms of the June 22, 1987 promissory note whereby Luanzon promised to pay private respondent the amount of P150,000 on or before August 22, 1987. The promissory note states as follows: June 22, 1987 To Whom It May Concern: For value received, I hereby promise to pay Mrs. LEONILA TOMACRUZ the amount of ONE HUNDRED FIFTY THOUSAND PESOS ONLY (P150,000.00) on or before August 22, 1987. The above amount is covered by _____ Check No. _____ dated August 22, 1987. (signed) ROSITA B. LUANZON GURARANTOR: (signed) PACIONARIA O. BAYLON Tel. No. 801-28-00 18 P. Mapa St., DBP Village

Almanza, Las Pinas, M.M.[15] If the terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulation shall control.[16] Resort to extrinsic aids and other extraneous sources are not necessary in order to ascertain the parties' intent when there is no ambiguity in the terms of the agreement.[17] Both petitioner and private respondent do not deny the due execution and authenticity of the June 22, 1987 promissory note. All of petitioner's arguments are directed at uncovering the real intention of the parties in executing the promissory note, but no amount of argumentation will change the plain import of the terms thereof, and accordingly, no attempt to read into it any alleged intention of the parties thereto may be justified.[18] The clear terms of the promissory note establish a creditor-debtor relationship between Luanzon and private respondent. The transaction at bench is therefore a loan, not an investment. It is petitioner's contention that, even though she is held to be a guarantor under the terms of the promissory note, she is not liable because private respondent did not exhaust the property of the principal debtor and has not resorted to all the legal remedies provided by the law against the debtor. [19] Petitioner is invoking the benefit of excussion pursuant to article 2058 of the Civil Code, which provides that The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor. It is axiomatic that the liability of the guarantor is only subsidiary.[20] All the properties of the principal debtor must first be exhausted before his own is levied upon. Thus, the creditor may hold the guarantor liable only after judgment has been obtained against the principal debtor and the latter is unable to pay, for obviously the exhaustion of the principals property - the

benefit of which the guarantor claims - cannot even begin to take place before judgment has been obtained.[21] This rule is embodied in article 2062 of the Civil Code which provides that the action brought by the creditor must be filed against the principal debtor alone, except in some instances when the action may be brought against both the debtor and the principal debtor.[22] Under the circumstances availing in the present case, we hold that it is premature for this Court to even determine whether or not petitioner is liable as a guarantor and whether she is entitled to the concomitant rights as such, like the benefit of excussion, since the most basic prerequisite is wanting - that is, no judgment was first obtained against the principal debtor Rosita B. Luanzon. It is useless to speak of a guarantor when no debtor has been held liable for the obligation which is allegedly secured by such guarantee. Although the principal debtor Luanzon was impleaded as defendant, there is nothing in the records to show that summons was served upon her. Thus, the trial court never even acquired jurisdiction over the principal debtor. We hold that private respondent must first obtain a judgment against the principal debtor before assuming to run after the alleged guarantor. IN VIEW OF THE FOREGOING, the petition is granted and the questioned Decision of the Court of Appeals dated November 29, 1991 and Resolution dated April 27, 1993 are SET ASIDE. No pronouncement as to costs. SO ORDERED.

G.R. No. L-45848 November 9,1977 TOWERS ASSURANCE CORPORATION, petitioner, vs.ORORAMA SUPERMART, ITS OWNER-PROPRIETOR, SEE HONG and

JUDGE BENJAMIN K. GOROSPE, Presiding Judge, Court of First Instance of Misamis Oriental, Branch I, respondents. Benjamin Tabique & Zosimo T. Vasalla for petitioner. Rodrigo F. Lim, Jr. for private respondent.

AQUINO, J.: This case is about the liability of a surety in a counterbond for the lifting of a writ of preliminary attachment. On February 17, 1976 See Hong, the proprietor of Ororama Supermart in Cagayan de Oro City, sued the spouses Ernesto Ong and Conching Ong in the Court of First Instance of Misamis Oriental for the collection of the sum of P 58,400 plus litigation expenses and attorney's fees (Civil Case No. 4930). See Hong asked for a writ of preliminary attachment. On March 5, 1976, the lower court issued an order of attachment. The deputy sheriff attached the properties of the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City. To lift the attachment, the Ong spouses filed on March 11, 1976 a counterbond in 'the amount of P 58,400 with Towers Assurance Corporation as surety. In that undertaking, the Ong spouses and Towers Assurance Corporation bound themselves to pay solidarity to See Hong the sum of P 58,400. On March 24, 1976 the Ong spouses filed an answer with a counterclaim. For non-appearance at the pre- trial, the Ong spouses were declared in default. On October 25, 1976, the lower court rendered a decision, ordering not only the Ong spouses but also their surety, Towers Assurance Corporation, to pay solidarily to See Hong the sum of P 58,400. The court also ordered the Ong spouses to pay P 10,000 as litigation expenses and attorney's fees.

Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama Supermart filed a motion for execution. The lower court granted that motion. The writ of execution was issued on March 14 against the judgment debtors and their surety. On March 29, 1977, Towers Assurance Corporation filed the instant petition for certiorari where it assails the decision and writ of execution. We hold that the lower court acted with grave abuse of discretion in issuing a writ of execution against the surety without first giving it an opportunity to be heard as required in Rule 57 of tie Rules of Court which provides: SEC. 17. When execution returned unsatisfied, recovery had upon bound. If the execution be returned unsatisfied in whole or in part, the surety or sureties on any counterbound given pursuant to the provisions of this rule to secure the payment of the judgment shall become charged on such counterbound, and bound to pay to the judgment creditor upon demand, the amount due under the judgment, which amount may be recovered from such surety or sureties after notice and summary hearing in the same action . Under section 17, in order that the judgment creditor might recover from the surety on the counterbond, it is necessary (1) that execution be first issued against the principal debtor and that such execution was returned unsatisfied in whole or in part; (2) that the creditor made a demand upon the surety for the satisfaction of the judgment, and (3) that the surety be given notice and a summary hearing in the same action as to his liability for the judgment under his counterbond. The first requisite mentioned above is not applicable to this case because Towers Assurance Corporation assumed a solidary liability for the satisfaction of the judgment. A surety is not entitled to the exhaustion of the properties of the principal debtor (Art. 2959, Civil Code; Luzon Steel Corporation vs. Sia, L-26449, May 15, 1969, 28 SCRA 58, 63). But certainly, the surety is entitled to be heard before an execution can be issued against him since he is not a party in the case involving his principal. Notice and hearing constitute the essence of procedural due process. (Martinez vs. Villacete 116 Phil. 326; Insurance &

Surety Co., Inc. vs. Hon. Piccio, 105 Phil. 1192, 1200, Luzon Surety Co., Inc. vs. Beson, L-26865-66, January 30. 1970. 31 SCRA 313). WHEREFORE, the order and writ of execution, insofar as they concern Towers Corporation, are set aside. The lower court is directed to conduct a summary hearing on the surety's liability on its counterbound. No costs. SO ORDERED.

G.R. No. L-49401 July 30, 1982 RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. HON. JOSE P. ARRO, Judge of the Court of First instance of Davao, and RESIDORO CHUA, respondents. Laurente C. Ilagan for petitioner. Victor A. Clapano for respondents.

DE CASTRO, J.: Petition for certiorari to annul the orders of respondent judge dated October 6, 1978 and November 7, 1978 in Civil Case No. 11-154 of the Court of First Instance of Davao, which granted the motion filed by private respondent to dismiss the complaint of petitioner for a sum of money, on the ground that the complaint states no cause of action as against private respondent. After the petition had been filed, petitioner, on December 14, 1978 mailed a manifestation and motion requesting the special civil action for certiorari be treated as a petition for review. 1 Said manifestation and motion was noted in the resolution of January 10, 1979. 2 It appears that on October 19, 1976 Residoro Chua and Enrique Go, Sr. executed a comprehensive surety agreements 3 to guaranty

among others, any existing indebtedness of Davao Agricultural Industries Corporation (referred to therein as Borrower, and as Daicor in this decision), and/or induce the bank at any time or from time to time thereafter, to make loans or advances or to extend credit in other manner to, or at the request, or for the account of the Borrower, either with or without security, and/or to purchase on discount, or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable, provided that the liability shall not exceed at any one time the aggregate principal sum of P100,000.00. On April 29, 1977 a promissory note 4 in the amount of P100,000.00 was issued in favor of petitioner payable on June 13, 1977. Said note was signed by Enrique Go, Sr. in his personal capacity and in behalf of Daicor. The promissory note was not fully paid despite repeated demands; hence, on June 30, 1978, petitioner filed a complaint for a sum of money against Daicor, Enrique Go, Sr. and Residoro Chua. A motion to dismiss dated September 23, 1978 was filed by respondent Residoro Chua on the ground that the complaint states no cause of action as against him. 5 It was alleged in the motion that he can not be held liable under the promissory note because it was only Enrique Go, Sr. who signed the same in behalf of Daicor and in his own personal capacity. In an opposition dated September 26, 1978 6 petitioner alleged that by virtue of the execution of the comprehensive surety agreement, private respondent is liable because said agreement covers not merely the promissory note subject of the complaint, but is continuing; and it encompasses every other indebtedness the Borrower may, from time to time incur with petitioner bank. On October 6, 1978 respondent court rendered a decision granting private respondent's motion to dismiss the complaint. 7 Petitioner filed a motion for reconsideration dated October 12, 1978 and on November 7, 1978 respondent court issued an order denying the said motion. 8 The sole issue resolved by respondent court was the interpretation of the comprehensive surety agreement, particularly in reference to the

indebtedness evidenced by the promissory note involved in the instant case, said comprehensive surety agreement having been signed by Enrique Go, Sr. and private respondent, binding themselves as solidary debtors of said corporation not only to existing obligations but to future ones. Respondent court said that corollary to that agreement must be another instrument evidencing the obligation in a form of a promissory note or any other evidence of indebtedness without which the said agreement serves no purpose; that since the promissory notes, which is primarily the basis of the cause of action of petitioner, is not signed by private respondent, the latter can not be liable thereon. Contesting the aforecited decision and order of respondent judge, the present petition was filed before this Court assigning the following as errors committed by respondent court: 1. That the respondent court erred in dismissing the complaint against Chua simply on the reasons that 'Chua is not a signatory to the promissory note" of April 29, 1977, or that Chua could not be held liable on the note under the provisions of the comprehensive surety agreement of October 29, 1976; and/or 2. That the respondent court erred in interpreting the provisions of the Comprehensive Surety Agreement towards the conclusion that respondent Chua is not liable on the promissory note because said note is not conformable to the Comprehensive Surety Agreement; and/or 3. That the respondent court erred in ordering that there is no cause of action against respondent Chua in the petitioner's complaint. The main issue involved in this case is whether private respondent is liable to pay the obligation evidence by the promissory note dated April 29,1977 which he did not sign, in the light of the provisions of the comprehensive surety agreement which petitioner and private respondent had earlier executed on October 19, 1976. We find for the petitioner. The comprehensive surety agreement was jointly executed by Residoro Chua and Enrique Go, Sr., President and General Manager, respectively of Daicor, on October 19, 1976 to cover existing as well as future obligations which Daicor may incur

with the petitioner bank, subject only to the proviso that their liability shall not exceed at any one time the aggregate principal sum of P100,000.00. Thus, paragraph I of the agreement provides: For and in consideration of any existing indebtedness to you of Davao Agricultural Industries Corporation with principal place of business and postal address at 530 J. P. Cabaguio Ave., Davao City (hereinafter called the "Borrower), and/or in order to induce, you in your discretion, at any time or from time to time hereafter, to make loans or advances or to extend credit in any other manner to, or at he request or for the account of the Borrower, either with or without security, and/or to purchase or discount or to make any loans or advances evidenced or secured by any notes, bills, receivables, drafts, acceptances, checks or other instruments or evidences of indebtedness (all hereinafter called "instruments") upon which the Borrower is or may become liable as maker, endorser, acceptor, or otherwise) the undersigned agrees to guarantee, and does hereby guarantee in joint and several capacity, the punctual payment at maturity to you of any and all such instruments, loans, advances, credits and/or other obligations herein before referred to, and also any and all other indebtedness of every kind which is now or may hereafter become due or owing to you by the Borrower, together with any and all expenses which may be incurred by you in collecting an such instruments or other indebtedness or obligations hereinbefore referred to ..., provided, however, that the liability of the undersigned shag not exceed at any one time the aggregate principal sum of P100,000.00 ... The agreement was executed obviously to induce petitioner to grant any application for a loan Daicor may desire to obtain from petitioner bank. The guaranty is a continuing one which shall remain in full force and effect until the bank is notified of its termination.
This is a continuing guaranty and shall remain in fun force and effect until written notice shall have been received by you that it has been revoked by the undersigned, ... 9

At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell charcoal and importation of activated carbon, 10 the

comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promisory note, is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower "is or may become liable as maker, endorser, acceptor or otherwise". There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity. By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code. Thus Article 2053. 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. In view of the foregoing, the decision (which should have been a mere "order"), dismissing the complaint is reversed and set side. The case is remanded to the court of origin with instructions to set aside the motion to dismiss, and to require defendant Residoro Chua to answer the complaint after which the case shall proceed as provided by the Rules of Court. No costs. SO ORDERED.

G.R. No. L-30554 February 28, 1983 PLARIDEL SURETY & INSURANCE COMPANY, petitioner, vs. ARTEX DEVELOPMENT COMPANY, INC., and HON. JESUS P. MORFE, Presiding Judge, Branch XIII, Court of First Instance of

Manila, respondents. Bonifacio L. Hilario and Arturo Topacio, Jr., for petitioner. Norberto Quisumbing for respondents.

GUTIERREZ, JR., J.: This is a petition for review on certiorari of the orders of the respondent judge dismissing the complaint in Civil Case No. 73904 and denying a motion for reconsideration of the dismissal order. The petitioner filed with the Court of First Instance of Manila a complaint for a sum of money against respondent Artex Development Co. Inc., wherein it prayed that judgment be rendered in its favor as follows: a) Ordering the respondent (defendant) Artex Development Co. Inc. to pay plaintiff the sum of P20,570.24, plus interest thereon at the rate of 12% per annum computed monthly and automatically accumulated to the outstanding capital and shall bear the same interests as said capital until fully paid; b) Ordering the defendant to pay plaintiff, the sum equivalent to 15% per centum of the amount due as and for attorneys fees; and c) For costs of suit. The action was brought by the petitioner to recover from the respondent company P20,570.24 worth of renewal premiums and costs of documentary stamps on various surety bonds posted by petitioner Plaridel Surety and Insurance Co., in behalf of respondent Artex Development Co. Inc., as principal in favor of the Republic of the Philippines through the Bureau of Customs and the Board of Industries. These surety bonds were posted pursuant to Republic Act No. 4086 and its implementing Rules and Regulations No. 1-64 particularly paragraph 9, which provides: Par. 9. Withdrawal Under Bond. Persons or firms who or which

have pending applications for tax exemption privileges under the Act and whose imported raw materials, chemicals, dyestuffs and spare parts are actually within the Bureau of Customs jurisdiction, may withdraw such raw materials chemicals, dyestuffs and spare parts from the customs house upon the posting of a bond equivalent to the customs duties and taxes due thereon in accordance with the rules and regulations of the Department of Finance and the Bureau of Customs. Consequently, the respondent withdrew from the Bureau of Customs' custody shipments of imported raw materials, chemicals, dyestuffs and spare parts which were then subject to customs duties, special import taxes, sales and/or compensating taxes because the respondent's applications for tax exemption of these items were not then approved by the Board of Industries. In consideration of the obligation assumed by the petitioner, the private respondent agreed to pay the premiums and cost of documentary stamps due thereon as per stipulations contained in the separate agreement of counter-guaranty: (a) PREMIUM To pay to the Surety Company at its principal offices in the sum of ... in advance as premiums of same for each period of (12) mos. beginning March 1965 or fraction thereof, to be computed from this date until said bonds and its renewals, extensions or substitutions be cancelled in full by the person or entity guaranteed thereby, or by a court of competent jurisdiction. It is an admitted fact that the premiums due and costs of documentary stamps for the first year duration of the undertaking under these surety bonds, which was from March 1965 to March 1966, were paid in accordance with the agreements of counterguaranty. On December 19, 1966, respondent Artex Development Co. Inc., was granted tax exemption by the Board of Industries (BOI Certificate No. 22). Thereafter, the respondent stopped paying premiums and costs of documentary stamps to the petitioner. On September 11, 1968, the private respondent filed its motion to dismiss petitioner's complaint on the ground that it states no cause of

action and/or that the claim or demand setforth therein has been extinguished. The petitioner filed its opposition to the motion to dismiss followed by the respondent's filing its reply to the opposition. Acting on the motion to dismiss, the respondent judge issued one of the assailed orders which reads as follows: After careful consideration of defendant's motion to dismiss, dated 9 September, 1968, plaintiff's opposition thereto, dated September 12, 1968, and movant's closing written arguments (Reply to Opposition, dated 20 September 1968), this Court finds said motion to dismiss to be well taken. WHEREFORE, said motion to dismiss, dated 9 September, 1968 is hereby granted, and plaintiff's action or complaint is hereby dismissed, without pronouncement as to costs. The respondent judge later issued the other assailed order denying petitioner's motion for reconsideration. The private respondent contents that the grant of tax exemption by the Board of Industries on December 19, 1966 rendered null and void and extinguished the surety bonds and agreement of counter guaranty. It argues that guaranty and suretyship are accessory to and dependent upon the principal obligation guaranteed or secured by them and cannot exist without a valid obligation. Therefore, as a necessary consequence, the obligation of defendant to pay premiums and cost of documentary stamps allegedly due on the extinguished agreements of counter guaranty has likewise been rendered of no force and effect. Petitioner, on the other hand, maintains that, granting arguendo that the grant of tax exemption in favor of respondent corporation had the effect of releasing the surety bonds involved, still the petitioner had the valid and subsisting right to claim unpaid renewal premiums and costs of documentary stamps that had accrued in its favor prior to the grant of tax exemptions. Petitioner maintains that it had renewed the surety bonds in March 1966, more or less eight months before the application for tax exemption was granted by the Board of Industries. With respect to accrued premiums and costs of documentary stamps

on renewals of the surety bonds made after the grant of tax exemptions to the respondent corporation, the petitioner maintains that the surety bonds which were renewed subsequent thereto should continue in full force and effect until the Chairman of the Board of Industries shall order their cancellation. Petitioner submits that the mere grant of tax exemptions would not discharge the surety bonds because it is possible that the grantee may have violated some of the terms and conditions imposed by the Board of Industries in connection with authority granted to it to withdraw the items from customs' custody under bond. We agree with the private respondents. We note that Condition No. 2 of the original surety bonds reads: 2. That in case the application (of respondent Artex Development Co. Inc. for tax exemption) is approved by the Board of Industries. then this bond shall be null and void and of no force and effect. The petitioner could not possibly be liable for any violation under the original surety bonds which were already void and of no force and effect. Suretyship cannot exist without a valid obligation, (Municipality of Gasan v. Marasigan, et al., 63 Phil. 510). As stated in Visayan Surety and Insurance corporation v. Laperal (69 Phil. 688): Segun el articulo 1822 del Codigo Civil la fianza es un contrato accesorio y la responsabilidad que contrae el fiador es subsidiaria.Por ella el fiador se obliga a pagar o a cumplir por un tercero, solamente en el caso de no hacerlo este. Explicando la naturaleza y efectos de la fianza Manresa en sus comentarios al Codigo Civil, Tomo XII, paginas 137, 138 y 140, dice: Dos son las acepciones que en el tecnicismo juridico tiene la palabra fianza uno, lato, amplio y extenso que comprende, dentro de sus terminos todos los contratos de garantia; y otro restringido y estricto, que es lo que constituye la fianza propiamente dicha. En ambos sentidos, denota el aseguramiento por medios subsidiarios de una obligacion principal, que es la caracteristica de su esencia pues sin dicha obligacion principal no se concibe la existencia de la fianza, y por eso es siempre un contrato accesorio, dependiente de otro para cuya seguridad se constituye.

En este concepto puede definirse la fianza, diciendo que es un contrato mediante el cual uno de los contratantes da su garantia personal para asegurar el cumplimento de una obligacion contraida por otra distinta persona, comprometiendose a cumplirla por ella, si esta no lo hiciere en el tiempo y en la forma en que se obligo a Ilevarla a efecto. Recordando las indicaciones consignadas en la introduccion al presente titulo, facil es precisar la naturaleza y aun la extension de la fianza en el concepto en que ha de ser objects de nuestro estudio. En cuanto a la primera, tres son los caracteres que la distinguen y diferencian determinando la razon de su especialidad, drivada del objeto mismo de dicho contrato. Esos caracteres, son: 1 , la cualidad accesoria y subsidiara de la obligacion contraida 2 , la condicion unilateral de la misma y 3, la circumstancia de haber ser el fiador persona distinta del principal obligado. Es accesoria la obligacion contraida, porque careceria de objeto sin otro principal cuyo cumplimiento asegure y garantice, hasta el punto de que sin esta no se concibe su existencia. Ha de vivir pues, unida a la convencion a que debe su nacimiento y no puede asumir los caracteres de una obligacion principal, independiente y con vida propia ... Insofar as the complaint seeks recovery of the payment for one year renewed premiums and costs of documentary stamps from March 1966 to March 1967, petitioner cannot recover for the simple reason that private respondent had already paid them in advance. Petitioner never disputed the payment made by private respondent. Consequently, whatever obligation of private respondent to remit premiums and costs of documentary stamps from March 1966 to March 1967 had already been extinguished. As to the alleged obligation to remit the premiums for the period March 1967 to March 1969, the purported renewals were without any consideration at all Petitioner incurred no risk from the time respondent's tax exemption application was approved. Any renewals were void from the beginning because the cause or object of said renewals did not exist at the time of the purported transaction (Arts, 1409, 1352, and 1353, Civil Code).

The lower court correctly ruled that "upon approval of defendant's (respondent's) application for tax exemption on December 19, 1966, any purported renewal of the original bond after that was, therefore, without consideration and will not warrant the collection of premiums and the payment of cost of documentary stamps." We also see no need for a formal release of the surety bonds by the Board of Industries or the Bureau of Customs. By express stipulation of the parties themselves, the surety bonds became null and void upon the grant of tax exemption. The complaint was correctly dismissed by the respondent judge. WHEREFORE, the petition for review on certiorari is dismissed for lack of merit. The questioned orders of the respondent judge are affirmed. Costs against the petitioner.

G.R. No. 72275 November 13, 1991 PACIFIC BANKING CORPORATION, petitioner, vs.HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA, JR., respondents. Ocampo, Dizon & Domingo for petitioner. Angara, Concepcion, Regala & Cruz for private respondent.

MEDIALDEA, J.:p This is a petition for review on certiorari of the decision (pp 21-31, Rollo) of the Intermediate Appellate Court (now Court of Appeals) in AC-G.R. C.V. No. 02753, 1 which modified the decision of the trial court against herein private respondent Roberto Regala, Jr., one of the defendants in the case for sum of money filed by Pacific Banking

Corporation. The facts of the case as adopted by the respondent appellant court from herein petitioner's brief before said court are as follows: On October 24, 1975, defendant Celia Syjuco Regala (hereinafter referred to as Celia Regala for brevity), applied for and obtained from the plaintiff the issuance and use of Pacificard credit card (Exhs. "A", "A-l",), under the Terms and Conditions Governing the Issuance and Use of Pacificard (Exh. "B" and hereinafter referred to as Terms and Conditions), a copy of which was issued to and received by the said defendant on the date of the application and expressly agreed that the use of the Pacificard is governed by said Terms and Conditions. On the same date, the defendant-appelant Robert Regala, Jr., spouse of defendant Celia Regala, executed a "Guarantor's Undertaking" (Exh. "A-1-a") in favor of the appellee Bank, whereby the latter agreed "jointly and severally of Celia Aurora Syjuco Regala, to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Aurora Syjuco Regala with the use of the Pacificard, or renewals thereof, issued in her favor by the Pacific Banking Corporation". It was also agreed that "any changes of or novation in the terms and conditions in connection with the issuance or use of the Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from responsibility hereunder, it being understood that I fully agree to such charges, novation or extension, and that this understanding is a continuing one and shall subsist and bind me until the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. Plaintiff-appellee Pacific Banking Corporation has contracted with accredited business establishments to honor purchases of goods and/or services by Pacificard holders and the cost thereof to be advanced by the plaintiff-appellee for the account of the defendant cardholder, and the latter undertook to pay any statements of account rendered by the plaintiff-appellee for the advances thus made within thirty (30) days from the date of the statement, provided that any overdue account shall earn interest at the rate of 14% per annum from date of default.

The defendant Celia Regala, as such Pacificard holder, had purchased goods and/or services on credit (Exh. "C", "C-l" to "C112") under her Pacificard, for which the plaintiff advanced the cost amounting to P92,803.98 at the time of the filing of the complaint. In view of defendant Celia Regala's failure to settle her account for the purchases made thru the use of the Pacificard, a written demand (Exh. "D") was sent to the latter and also to the defendant Roberto Regala, Jr. (Exh. " ") under his "Guarantor's Undertaking." A complaint was subsequently filed in Court for defendant's ( sic) repeated failure to settle their obligation. Defendant Celia Regala was declared in default for her failure to file her answer within the reglementary period. Defendant-appellant Roberto Regala, Jr., on the other hand, filed his Answer with Counterclaim admitting his execution of the "Guarantor's Understanding", "but with the understanding that his liability would be limited to P2,000.00 per month." In view of the solidary nature of the liability of the parties, the presentation of evidence ex-parte as against the defendant Celia Regala was jointly held with the trial of the case as against defendant Roberto Regala. After the presentation of plaintiff's testimonial and documentary evidence, fire struck the City Hall of Manila, including the court where the instant case was pending, as well as all its records. Upon plaintiff-appellee's petition for reconstitution, the records of the instant case were duly reconstituted. Thereafter, the case was set for pre-trial conference with respect to the defendant-appellant Roberto Regala on plaintiff-appellee's motion, after furnishing the latter a copy of the same. No opposition thereto having been interposed by defendant-appellant, the trial court set the case for pre-trial conference. Neither did said defendant-appellant nor his counsel appear on the date scheduled by the trial court for said conference despite due notice. Consequently, plaintiff-appellee moved that the defendant-appellant Roberto Regala he declared as in default and that it be allowed to present its evidence ex-parte, which motion was granted. On July 21, 1983, plaintiff-appellee presented its evidence

ex-parte. (pp. 23-26, Rollo) After trial, the court a quo rendered judgment on December 5, 1983, the dispositive portion of which reads: WHEREFORE, the Court renders judgment for the plaintiff and against the defendants condemning the latter, jointly and severally, to pay said plaintiff the amount of P92,803.98, with interest thereon at 14% per annum, compounded annually, from the time of demand on November 17, 1978 until said principal amount is fully paid; plus 15% of the principal obligation as and for attorney's fees and expense of suit; and the costs. The counterclaim of defendant Roberto Regala, Jr. is dismissed for lack of merit. SO ORDERED. (pp. 22-23, Rollo) The defendants appealed from the decision of the court a quo to the Intermediate Appellate Court. On August 12, 1985, respondent appellate court rendered judgment modifying the decision of the trial court. Private respondent Roberto Regala, Jr. was made liable only to the extent of the monthly credit limit granted to Celia Regala, i.e., at P2,000.00 a month and only for the advances made during the one year period of the card's effectivity counted from October 29, 1975 up to October 29, 1976. The dispositive portion of the decision states: WHEREFORE, the judgment of the trial court dated December 5, 1983 is modified only as to appellant Roberto Regala, Jr., so as to make him liable only for the purchases made by defendant Celia Aurora Syjuco Regala with the use of the Pacificard from October 29, 1975 up to October 29, 1976 up to the amount of P2,000.00 per month only, with interest from the filing of the complaint up to the payment at the rate of 14% per annum without pronouncement as to costs. (p. 32, Rollo) A motion for reconsideration was filed by Pacific Banking Corporation which the respondent appellate court denied for lack of merit on September 19, 1985 (p. 33, Rollo).

On November 8, 1985, Pacificard filed this petition. The petitioner contends that while the appellate court correctly recognized Celia Regala's obligation to Pacific Banking Corp. for the purchases of goods and services with the use of a Pacificard credit card in the total amount of P92,803.98 with 14% interest per annum, it erred in limiting private respondent Roberto Regala, Jr.'s liability only for purchases made by Celia Regala with the use of the card from October 29, 1975 up to October 29, 1976 up to the amount of P2,000.00 per month with 14% interest from the filing of the complaint. There is merit in this petition. The pertinent portion of the "Guarantor's Undertaking" which private respondent Roberto Regala, Jr. signed in favor of Pacific Banking Corporation provides: I/We, the undersigned, hereby agree, jointly and severally with Celia Syjuco Regala to pay the Pacific Banking Corporation upon demand any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of the Pacificard or renewals thereof issued in his favor by the Pacific Banking Corporation. Any changes of or Novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. (p. 12, Rollo) The undertaking signed by Roberto Regala, Jr. although denominated "Guarantor's Undertaking," was in substance a contract of surety. As distinguished from a contract of guaranty where the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so, in a contract of suretyship, the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of the Philippines). We need not look elsewhere to determine the nature and extent of private respondent Roberto Regala, Jr.'s undertaking. As a surety he

bound himself jointly and severally with the debtor Celia Regala "to pay the Pacific Banking Corporation upon demand, any and all indebtedness, obligations, charges or liabilities due and incurred by said Celia Syjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor by Pacific Banking Corporation." This undertaking was also provided as a condition in the issuance of the Pacificard to Celia Regala, thus: 5. A Pacificard is issued to a Pacificard-holder against the joint and several signature of a third party and as such, the Pacificard holder and the guarantor assume joint and several liabilities for any and all amount arising out of the use of the Pacificard. (p. 14, Rollo) The respondent appellate court held that "all the other rights of the guarantor are not thereby lost by the guarantor becoming liable solidarily and therefore a surety." It further ruled that although the surety's liability is like that of a joint and several debtor, it does not make him the debtor but still the guarantor (or the surety), relying on the case of Government of the Philippines v. Tizon. G.R. No. L22108, August 30, 1967, 20 SCRA 1182. Consequently, Article 2054 of the Civil Code providing for a limited liability on the part of the guarantor or debtor still applies. It is true that under Article 2054 of the Civil Code, "(A) guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. 2 It is likewise not disputed by the parties that the credit limit granted to Celia Regala was P2,000.00 per month and that Celia Regala succeeded in using the card beyond the original period of its effectivity, October 29, 1979. We do not agree however, that Roberto Jr.'s liability should be limited to that extent. Private respondent Roberto Regala, Jr., as surety of his wife, expressly bound himself up to the extent of the debtor's (Celia) indebtedness likewise expressly waiving any "discharge in case of any change or novation of the terms and conditions in connection with the issuance of the Pacificard credit card." Roberto, in fact, made his commitment as a surety a continuing one, binding upon himself until all the liabilities of Celia Regala have been fully paid. All these were clear under the "Guarantor's Undertaking" Roberto signed, thus:

. . . Any changes of or novation in the terms and conditions in connection with the issuance or use of said Pacificard, or any extension of time to pay such obligations, charges or liabilities shall not in any manner release me/us from the responsibility hereunder, it being understood that the undertaking is a continuing one and shall subsist and bind me/us until all the liabilities of the said Celia Syjuco Regala have been fully satisfied or paid. (p. 12, supra; emphasis supplied) Private respondent Roberto Regala, Jr. had been made aware by the terms of the undertaking of future changes in the terms and conditions governing the issuance of the credit card to his wife and that, notwithstanding, he voluntarily agreed to be bound as a surety. As in guaranty, a surety may secure additional and future debts of the principal debtor the amount of which is not yet known (see Article 2053, supra). The application by respondent court of the ruling in Government v. Tizon, supra is misplaced. It was held in that case that: . . . although the defendants bound themselves in solidum, the liability of the Surety under its bond would arise only if its co-defendants, the principal obligor, should fail to comply with the contract. To paraphrase the ruling in the case of Municipality of Orion vs. Concha, the liability of the Surety is "consequent upon the liability" of Tizon, or "so dependent on that of the principal debtor" that the Surety "is considered in law as being the same party as the debtor in relation to whatever is adjudged, touching the obligation of the latter"; or the liabilities of the two defendants herein "are so interwoven and dependent as to be inseparable." Changing the expression, if the defendants are held liable, their liability to pay the plaintiff would be solidary, but the nature of the Surety's undertaking is such that it does not incur liability unless and until the principal debtor is held liable. A guarantor or surety does not incur liability unless the principal debtor is held liable. It is in this sense that a surety, although solidarily liable with the principal debtor, is different from the debtor. It does not mean, however, that the surety cannot be held liable to the same extent as the principal debtor. The nature and extent of the

liabilities of a guarantor or a surety is determined by the clauses in the contract of suretyship(see PCIB v. CA, L-34959, March 18, 1988, 159 SCRA 24). ACCORDINGLY, the petition is GRANTED. The questioned decision of respondent appellate court is SET ASIDE and the decision of the trial court is REINSTATED.

G.R. No. L-43862 January 13, 1989 MERCANTILE INSURANCE CO., INC., plaintiff-appellee, vs.FELIPE YSMAEL, JR., & CO., INC., defendants-appellants. Beltran, Evangelista & Cuasay for plaintiff-appellee. Abraham F. Sarmiento Law Office for defendants-appellants.

BIDIN, J.: This is an appeal from the decision** dated October 30, 1971 of the Court of First Instance of Manila (now Regional Trial Court) in Civil Case No. 82168 entitled "Mercantile Insurance Co., Inc. (herein referred to as the plaintiff-appellee) vs. Felipe Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to as the defendant-appellant) ordering defendants-appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr., to pay jointly and severally to the plaintiff the sum of P100,000.00 plus 15% thereof as attorney's fees, and costs. On appeal to the Court of Appeals, this case which involves only a question of law, was certified to this Court. The factual milieu of this case as found by the trial court is as follows: Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed an application for an overdraft line of Pl,000,000.00 and credit line of Pl,000,000.00 with the Philippine National Bank. The latter was willing to grant credit accommodation of P2,000,000.00 applied for provided

that the applicant shall have filed a bond in the sum of P140,000.00 to guarantee the payment of the said amount. Accordingly, on March 6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented by Felipe Ysmael filed surety bond No. G(16) 007 of Mercantile Insurance Co., Inc. in the sum of P100,000.00 (Exh. A). On December 4, 1967, Felipe Ysmael Jr. & Co., Inc. as principal and the Mercantile Insurance Co., Inc. executed another surety bond MERICO Bond No. G (16) 0030 in the sum of P40,000.00. It is the condition in both bonds that if the principal Felipe Ysmael, Jr. & Co., Inc. shall perform and fulfill its undertakings with the Philippine National Bank, then these surety bonds shall be null and void (Exh. B). As security and in consideration of the execution of the surety bonds, exhibits A and B, Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile Insurance Co., Inc. an indemnity agreement (Exh. D) wherein the defendants Felipe Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. bound themselves jointly and severally to indemnify the plaintiff, hold save it harmless from and against any and all payments, damages, costs, losses, penalties, charges and expenses which said company as surety (relative to MERICO Bond No. 0007) shall incur or become liable to pay plus an additional amount as attorney's fees equal to 20% of the amount due to the company, Paragraph 3 of the indemnity agreement expressly provides: 3) ACCRUAL OF ACTION: Notwithstanding the provisions of the next preceding paragraph, where the obligation involves a liquidated amount for the payment of which the company has become legally liable under the terms of the obligation and its suretyship undertaking or by the demand of the obligee or otherwise and the latter has merely allowed the COMPANY a term or extension for payment of the latter's demand the full amount necessary to discharge the COMPANY's aforesaid liability irrespective of whether or not payment has actually been made by the COMPANY, the COMPANY for the protection of its interest may forthwith proceed against the undersigned or either of them by court action or otherwise to enforce payment even prior to making payment to the obligee which may hereafter be done by the COMPANY.

On September 6, 1967, Gabriel Daza, Jr., Edgardo L. Tordesillas and Augusta Torres in their official capacities and the defendants executed another indemnity agreement (Exh. E) with the plaintiff in consideration of the surety bond (referring to MERICO Bond No. G (16) 0030. In the indemnity agreement (Exh. E) the same provisions of paragraph 3 found in exhibit D is provided for. By agreement dated September 5, 1967 (Exh. C), the amount of the Bond was reduced by P40,000.00 so that the total liability of the plaintiff to the Philippine National Bank in view of the aforesaid reduction is P100,000.00 (Exh. C), P60,000.00 on Surety Bond No. 0007 plus P40,000.00 on Surety Bond No. 0030. In view of the failure of the defendants to pay the overdraft and credit line with the Philippine National Bank demanded from the Mercantile Insurance Co., Inc. settlement of its obligation under surety bonds No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for P 40,000.00 which expired since September 4, 1968 (Exh. P) otherwise drastic measures for collection to protect the interest of the bank would be taken. Attached to the demand letter is a statement of account. By letter of December 17, 1970, the Legal Department of plaintiff company wrote a letter of demand to the defendants (Exhs. G and H) inviting their attention to the letter of demand of the Philippine National Bank sent to the plaintiff and demanding from the defendants the settlement of said account. These letters were received as shown by the registry return receipts (Exhs. G-2 and H2). Since the defendants failed to settle their obligation with the Philippine National Bank, on February 10, 1971, plaintiff brought the present action. Instead of filing their answer, the defendants (appellants herein) filed a motion to DISMISS, which motion was subsequently denied. Thereafter, the defendants filed their answer and the case was set for pre-trial. On the date scheduled for pre-trial, the defendants and their counsel failed to appear, thus on motion of the plaintiff, they were declared in default and plaintiff was allowed to present its evidence ex-parte. Upon motion for reconsideration filed by the defendants, the case was ordered re-opened and the case was scheduled for

reception of defendant's evidence. Thereafter, the parties were required to submit their respective memoranda and the case was submitted for decision. On October 30, 1971, the trial court rendered its decision, the dispositive part of which reads: WHEREFORE, in view of the foregoing considerations, judgment is rendered for the plaintiff and the defendants are ordered to pay jointly and severally the plaintiff the sum of P100,000.00 plus the further sum of 15% thereof in the concept of reasonable attorney's fees and the costs. Plaintiff upon payment of this judgment, shall deliver the sum of P100,000.00 to the Philippine National Bank in partial satisfaction of the obligation of the defendants to said Bank. SO ORDERED. (Record on Appeal, p. 96) Said decision was appealed to the Court of Appeals on questions of facts and law. Acting on the appeal and finding that the only question raised therein involves a question of law, the Court of Appeals by resolution *** dated April 29, 1976, certified the same to this Court, for proper disposition (Rollo, pp. 62-63). This Court, thru its First Division by Resolution dated May 31, 1978, resolved to have the case docketed and declared the same submitted for decision (Rollo, p. 65). The defendants-appellants raised the following assignments of errors in the Court of Appeals: I THE LOWER COURT ERRED IN NOT DISMISSING THE CASE FOR LACK OF CAUSE OF ACTION, THE COMPLAINT BEING PREMATURE BECAUSE THE PLAINTIFF HAS PAID NOTHING ON THE SURETY BONDS AND HAS SUFFERED NO ACTUAL DAMAGE. II THE LOWER COURT ERRED IN NOT DECLARING THAT

PARAGRAPH 3 OF THE INDEMNITY AGREEMENTS IS VOID. III CONSEQUENTLY, THE TRIAL COURT ERRED IN ORDERING THE DEFENDANTS-APPELLANT'S TO PAY JOINTLY AND SEVERALLY TO THE PLAINTIFF THE SUM OF P100,000.00 PLUS THE FURTHER SUM OF 15% THEREOF IN THE CONCEPT OF REASONABLE ATTORNEY'S FEES AND THE COSTS. (Brief for Defendants-Appellants, CA, pp. 1-2). The crux of the controversy is whether or not the surety can be allowed indemnification from the defendants-appellants, upon the latter's default even before the former has paid to the creditor. There is no dispute that the overdraft line of P1,000,000.00 and the credit line of Pl,000,000.00 applied for by the defendant was granted by the Philippine National Bank on the strength of the two surety bonds denominated as MERICO Bond No. G(16) 0007 for one hundred thousand pesos (Exh. A) and MERICO Bond No. G(16) 0030 for forty thousand pesos (Exh. B), later reduced as above stated on September 5, 1967 (Exh. C) by P40,000.00 or a total amount of P100,000.00. As security and in consideration of the execution of the surety bonds, the defendants executed with the plaintiff identical indemnity agreements (Exhs. D and E) which provide, among others that payment of indemnity or compensation may be claimed irrespective of whether or not plaintiff company has actually paid the same. Defendants-appellants maintain that the complaint is premature and that paragraph 3 of the indemnity agreements is void for being contrary to law, public policy and good morals. They argued that to allow plaintiff surety (appellee herein) to receive indemnity or compensation for something it has not paid in its capacity as surety would constitute unjust enrichment at the expense of another. (Brief for Defendants-Appellants, CA, p.6). To bolster their contention, defendants-appellants argue that it is an indispensable requisite for an action to prosper, that the party bringing the action must have a cause of action against the other party; and that for a cause of action to be ripe for litigation, there must

be both wrongful violation and damages; all of which are not present in the case at bar because plaintiff-appellee has not suffered any injury whatsoever, notwithstanding the demand sent to it by the Philippine National Bank, nor has plaintiff-appellee made a single actual payment to said bank. Hence, to allow plaintiff-appellee to recover from them something which it has not paid in its capacity as surety would violate the fundamental principle which states NEMOCUM ALTERIUS DETRIMENTO LOCOPLETARI POTEST (No person should unjustly enrich himself at the expense of another). [Defendants-Appellants' Brief, pp. 7-8; 49]. The question as to whether or not under the Indemnity Agreement of the parties, the Surety can demand indemnification from the principal, upon the latter's default, even before the former has paid to the creditor, has long been settled by this Court in the affirmative. It has been held that: The stipulation in the indemnity agreement allowing the surety to recover even before it paid the creditor is enforceable. In accordance therewith, the surety may demand from the indemnitors even before paying the creditors. (Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA 528 [1965] citing; Security Bank v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto Surety and Ins. Co., v. Aguilar, et al., G.R. No. L-5625, March 16, 1954). Hence, appellants contention that the action of the appellee (surety company) is premature or that the complaint fails to state a cause of action because the surety has not paid anything to the bank, cannot be sustained (Cosmopolitan Ins. Co., Inc. v. Reyes, supra). In fact, such contention is belied not only by the allegations in the complaint but also by the agreement entered into between the appellants and the appellee in favor of the bank. The records show that the cause of action is distinctly set forth in the complaint, the pertinent portion of which states: 6. That defendants, by virtue of the two Surety Bonds (Annexes "A" and "B") were extended by the Philippine National Bank, a credit accommodation in the sum of TWO MILLION (P2,000,000.00) PESOS;

7. That the Philippine National Bank is demanding and collecting from the plaintiff the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS which is the defendants' account with the said bank that is secured and covered by the above-mentioned bonds (Annexes "A" and "B"); 8. That under the terms of the Indemnity Agreements (Annexes "D" and "E") more particularly paragraph 3, plaintiff may forthwith proceed against the defendants to impose payment, even prior to making payment to the Philippine National Bank; 9. That notwithstanding series of demands made by plaintiff, the defendants failed and refused to pay the Philippine National Bank the sum of ONE HUNDRED THOUSAND (P l00,000.00) PESOS; 10. That on account of defendants' default, plaintiff becomes liable to the Philippine National Bank in the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS;' (Record on Appeal, p. 2.) Correspondingly, it is readily apparent that said cause of action was derived from the terms of the Indemnity Agreement, paragraph 3 thereof, as above quoted. By virtue of the provisions of the Indemnity Agreement, defendants-appellants have undertaken to hold plaintiffappellee free and harmless from any suit, damage or liability which may be incurred by reason of non-performance by the defendantsappellants of their obligation with the Philippine National Bank. The Indemnity Agreement is principally entered into as security of plaintiffappellee in case of default of defendants-appellants; and the liability of the parties under the surety bonds is joint and several, so that the obligee PNB may proceed against either of them for the satisfaction of the obligation. (Brief for Plaintiff-Appellee, p. 7). II Defendants-appellants have, by virtue of the Indemnity Agreement, given the plaintiff-appellee the prerogative of filing an action even prior to the latter's making any payment to the Philippine National Bank. Contracts are respected as the law between the contracting parties (Henson v. IAC, 148 SCRA 11 [1987], citing Castro v. CA, 99 SCRA

722 [1980] and Escano v. CA, 100 SCRA 197 [1980]) It is settled that the parties may establish such stipulations, clauses, terms and conditions as they may want to include, and as long as such agreements are not contrary to law, morals, good customs, public policy or public order, they shall have the force of law between them (Herrera v. Petrophil Corp., 146 SCRA [1986]. Contracts should be interpreted according to their literal meaning and should not be interpreted beyond their obvious intentment ( Ibid.). It is a basic and fundamental rule in the interpretation of contracts that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of the stipulation shall control. In the case at bar, there is no dispute as to meaning of the terms of the Indemnity Agreement. The only bone of contention is whether or not such terms are null and void as defendants-appellants would have this Court declare. A careful analysis of the contract in question will show that the provisions therein do not contravene any law or public policy much less do they militate against the public good. In fact, as shown above, they are fully sanctioned by well-established jurisprudence. Having voluntarily entered into such contract, the appellants cannot now be heard to complain. Their indemnity agreement have the force and effect of law. Elucidating further on the obligations of the parties in agreements of this nature, this Court ruled: ...The indemnity agreement was not executed for the benefit of the creditors; it was rather for the benefit of the surety and if the latter thought it necessary in its own interest to impose this stipulation, and the indemnitors voluntarily agreed to the same, the court should respect the agreement of the parties and require them to abide by their contract. (Security Bank v. Globe Assurance, 107 Phil. 733 [1960]. III Finally, the trial court did not err in ordering defendants-appellants to

pay jointly and severally the plaintiff the sum of P100,000.00 plus 15% as attorney's fees. It must be stressed that in the case at bar, the principal debtors, defendants-appellants herein, are simultaneously the same persons who executed the Indemnity Agreement. Thus, the position occupied by them is that of a principal debtor and indemnitor at the same time, and their liability being joint and several with the plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment of the obligation as covered by the surety bonds. There is, therefore, no principle of guaranty involved and, therefore, the provision of Article 2071 of the Civil Code does not apply. Otherwise stated, there is no more need for the plaintiff-appellee to exhaust all the properties of the principal debtor before it may proceed against defendantsappellants. As to the attorney's fees, it has been squarely ruled by this Court that the award of fifteen (15) per cent for cases of this nature is not unreasonable (Cosmopolitan Insurance Co., Inc. v. Reyes, supra). WHEREFORE, the decision appealed from is hereby AFFIRMED. SO ORDERED.

G.R. No. 80078 May 18, 1993 ATOK FINANCE CORPORATION, petitioner, vs.COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents. Syquia Law Offices for petitioner. Batino, Angala, Allaga & Zara Law Offices for private respondents.

FELICIANO, J.: Atok Finance Corporation ("Atok Finance") asks us to review and set aside the Decision of the Court of Appeals which reversed a decision of the trial court ordering private respondents to pay jointly and severally to petitioner Atok Finance certain sums of money. On 27 July 1979, private respondents Sanyu Chemical corporation ("Sanyu Chemical") as principal and Sanyu Trading Corporation ("Sanyu Trading") along with individual private stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E. Halili and Pablico Bermundo as sureties, executed in the continuing Suretyship Agreement in favor of Atok Finance as creditor. Under this Agreement, Sanyu Trading and the individual private respondents who were officers and stockholders of Sanyu Chemical did:
(1) For valuable and/or other consideration . . ., jointly and severally unconditionally guarantee to ATOK FINANCE CORPORATION (hereinafter called Creditor), the full, faithful and prompt payment and discharge of any and all indebtedness of [Sanyu Chemical] . . . (hereinafter called Principal) to the Creditor. The word "indebtedness" is used herein in its most comprehensive sense and includes any and all advances, debts, obligations and liabilities of Principal or any one or more of them, here[to]fore, now or hereafter made, incurred or created, whether voluntary or involuntary and however arising, whether direct or acquired by the Creditor by assignment or succession, whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined and whether the Principal may be may be liable individually of jointly with others, or whether recovery upon such indebtedness may be or hereafter become barred by any statute of limitations, or whether such indebtedness may be or otherwise become unenforceable. 1 (Emphasis supplied)

Other relevant provisions of the Continuing Suretyship Agreement follow: (2) This is a continuing suretyship relating to any indebtedness, including that arising under successive transactions which shall either continue the indebtedness from time to time or renew it after it has been satisfied. This suretyship is binding upon the heirs, successors, executors, administrators and assigns of the surety, and the benefits hereof shall extend to and include the successors and assigns of the

Creditor. (3) The obligations hereunder are joint and several and independent of the obligations of the Principal . A separate action or actions may be prosecuted against the Principal and whether or not the Principal be joined in any such action or actions. xxx xxx xxx. (6) In addition to liens upon, and rights of set-off against the moneys, securities or other property of the Surety given to the Creditor by law, the Creditor shall have the lien upon and a right of self-off against all moneys, securities, and other property of the Surety now and hereafter in the possession of the Creditor; and every such lien or right of self-off may be exercised without need of demands upon or notice to the Surety. No lien or right of set-off shall be deemed to have been waived by any act, omission or conduct on the part of the Creditor, or by any neglect to exercise such right of set-off or to enforce such lien, or by any delay in so doing, and every right of setoff or lien shall continue in full force and effect until such right of setoff of lien is specifically waived or released by an instrument in writing executed by the Creditor. (7) Any indebtedness of the Principal now or hereafter held by the Surety is hereby subordinated to the indebtedness of the Principal to the Creditor; and if the Creditor so requests, such indebtedness of the Principal of the Surety shall be collected, enforced and shall be paid over to the Creditor and shall be paid over to the Creditor and shall be paid over to the Creditor on account of the indebtedness of the Principal to the Creditor but without reducing or affecting in any manner the liability of the Surety under the provisions of this suretyship.
xxx xxx xxx 2

(Emphases supplied) On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of 27 November 1981 with a total face value of P125,871.00, to Atok Finance in consideration of receipt from Atok Finance of the amount of P105,000.00. The assigned

receivables carried a standard term of thirty (30) days; it appeared, however, that the standard commercial practice was to grant an extension up to one hundred twenty (120) days without penalties. The relevant portions of this Deed of Assignment read as follows: 1. FOR VALUE RECEIVED, the ASSIGNOR does hereby SELL, TRANSFER and ASSIGN all his/its rights, title and interest in the contracts, receivables, accounts, notes, leases, deeds of sale with reservation of title, invoices, mortgages, checks, negotiable instruments and evidences of indebtedness listed in the schedule forming part hereinafter called "Contract" or "Contracts." 2. To induce the ASSIGNEE to purchase the above Contracts , the ASSIGNOR does hereby certify, warrant and represent that : (a). He/It is the sole owner of the assigned Contracts free and clear of claims of any other party except the herein ASSIGNEE and has the right to transfer absolute title thereto the ASSIGNEE; (b). Each assigned Contract is bonafide and the amount owing and to become due on each contract is correctly stated upon the schedule or other evidences of the Contract delivered pursuant thereto; (c). Each assigned Contract arises out of the sale of merchandise/s which had been delivered and/or services which have been rendered and none of the Contract is now, nor will at any time become, contingent upon the fulfillment of any contract or condition whatsoever, or subject to any defense, offset or counterclaim; (d). No assigned Contract is represented by any note or other evidence of indebtness or other security document except such as may have been endorsed, assigned and delivered by the ASSIGNOR to the ASSIGNEE simultaneously with the assignment of such Contract; (e). No agreement has been made, or will be made, with any debtor for any deduction discount or return of merchandise, except as may be specifically noted at the time of the assignment of the Contract; (f). None of the terms or provisions of the assigned Contracts have been amended, modified or waived;

(g). The debtor/s under the assigned Contract/s are solvent and his/its/their failure to pay the assigned Contracts and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty; and (h). Each assigned Contract is a valid obligation of the buyer of the merchandise and/or service rendered under the Contract And that no Contract is overdue. The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments Law and other applicable laws. Any violation thereof shall render the ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts, the amounts due thereon. xxx xxx xxx 4. The ASSIGNOR shall without compensation or cost, collect and receive in trust for the ASSIGNEE all payments made upon the assigned contracts and shall remit to the ASSIGNEE all collections on the said Contracts as follows : P5,450.00 due on January 2, 1982 on every 15th day (semi-monthly) until November 1, 1982.
P110,550.00 balloon payment after 12 months. 3 (Emphasis supplied)

Later, additional trade receivables were assigned by Sanyu Chemical to Atok Finance with a total face value of P100,378.45. On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, the Arrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court of Manila to collect the sum of P120,240.00 plus penalty charges amounting to P0.03 for every peso due and payable for each month starting from 1 September 1983. Atok Finance alleged that Sanyu Chemical had failed to collect and remit the amount due under the trade receivables. Sanyu Chemical and the individual private respondents sought dismissal of Atok's claim upon the ground that such claim had

prescribed under Article 1629 of the Civil Code and for lack of cause of action. The private respondents contended that the Continuing Suretyship Agreement, being an accessory contract, was null and void since, at the time of its execution, Sanyu Chemical had no preexisting obligation due to Atok Finance. At the trial, Sanyu Chemical and the individual private respondents failed to present any evidence on their behalf, although the individual private respondents submitted a memorandum in support of their argument. After trial, on 1 April 1985, the trial court rendered a decision in favor of Atok Finance. The dispositive portion of this decision reads as follows: ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff ATOK FINANCE CORPORATION; and against the defendants SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, ordering the said defendants, jointly and severally, to pay the plaintiff: (1) P120,240.00 plus P0.03 for each peso for each month from September 1, 1983 until the whole amount is fully paid; (2) P50,000.00 as attorney's fees; and (3) To pay the costs.
SO ORDERED. 4

Private respondents went on appeal before the then Intermediate Appellate Court ("IAC"), and the appeal was there docketed as ACG.R. No. 07005-CV. The case was raffled to the Third Civil Cases Division of the IAC. In a resolution dated 21 March 1986, that Division dismissed the appeal upon the ground of abandonment, since the private respondents had failed to file their appeal brief notwithstanding receipt of the notice to do so. On 4 June 1986, entry of judgment was made by the Clerk of Court of the IAC. Accordingly, Atok Finance went before the trial court and sought a writ of execution to enforce the decision of the trial court of 1 April 1985. The trial court issued a writ of execution on 23 July 1986. 5 Petitioner alleged that the writ of execution was served on private respondents. 6

However, on 27 August 1986, private respondents filed a Petition for Relief from Judgment before the Court of Appeals. This Petition was raffled off to the 15th Division of the Court of Appeals. In that Petition, private respondents claimed that their failure to file their appeal brief was due to excusable negligence, that is, that their previous counsel had entrusted the preparation and filing of the brief to one of his associates, which associate, however, had unexpectedly resigned from the law firm without returning the records of cases he had been handling, including the appeal of private respondents. Atok Finance opposed the Petition for Relief arguing that no valid ground existed for setting aside the resolution of the Third Division of the then IAC. The 15th Division of the Court of Appeals nonetheless granted the Petition for Relief from Judgment "in the paramount interest of justice," 7 set aside the resolution of the Third Civil Cases Division of the then IAC, and gave private respondents a non-extendible period of fifteen (15) days within which to file their appeal brief. Private respondents did file their appeal brief. The 15th Division, on 18 August 1987, rendered a Decision on the merits of the appeal, and reversed and set aside the decision of the trial court and entered a new judgment dismissing the complaint of Atok Finance, ordering it to pay private respondents P3,000.00 as attorney's fees and to pay the costs. Atok Finance moved to set aside the decision of the 15th Division of the Court of Appeals, inviting attention to the resolution of the IAC's Third Civil Cases Division of 21 March 1986 originally dismissing private respondent's appeal for abandonment thereof. In a resolution dated 18 August 1987, the 15th Division denied Atok Finance's motion stating that it had granted the Petition for Relief from Judgment and given private respondents herein fifteen (15) days within which to file an appeal brief, while Atok Finance did not file an appellee's brief, and that its decision was arrived at "on the basis of appellant's brief and the original records of the appeal case." In the present Petition for Review, Atok Finance assigns the following as errors on the part of the Court of Appeals in rendering its decision of 18 August 1987:

(1) that it had erred in ruling that a continuing suretyship agreement cannot be effected to secure future debts; (2) that it had erred in ruling that the continuing suretyship agreement was null and void for lack of consideration without any evidence whatsoever [being] adduced by private respondents ;
(3) that it had erred in granting the Petition for Relief from Judgment while execution proceedings [were] on-going on the trial court. 8 (Emphasis in the original)

As a preliminary matter, we note that a Division of the Court of Appeals is co-equal with any other Division of the same court. Accordingly, a Division of the Court of Appeals has no authority to consider and grant a petition for relief from a judgment rendered by another Division of the same court. In the case at bar, however, we must note that an intervening event had occurred between the resolution of 21 March 1986 of the Third Civil Cases Division of the IAC dismissing private respondents' appeal and the 30 September 1986 order of the 15th Division of the Court of Appeals granting the Petition for Relief from Judgment. On 28 July 1986, the old Intermediate Appellate Court went out of existence and a new court, the Court of Appeals, came into being, was organized and commenced functioning. 9 This event, and the probability that some confusion may have accompanied the period of transition from the IAC to the Court of Appeals, lead us to believe that the defect here involved should be disregarded as being of secondary importance. At the same time, nothing in this decision should be read as impliedly holding that a petition from relief judgment is available in respect of a decision rendered by the Court of Appeals; this issue is best reserved for determination in some future cases where it shall have been adequately argued by the parties. We turn, therefore, to a consideration of the first substantive issue addressed by the Court of Appeals in rendering its Decision on the merits of the appeal: whether the individual private respondents may be held solidarily liable with Sanyu Chemical under the provisions of the Continuing Suretyship Agreement, or whether that Agreement must be held null and void as having been executed without consideration and without a pre-existing principal obligation to sustain

it. The Court of Appeals held on this first issue as follows: It is the contention of private appellants that the suretyship agreement is null and void because it is not in consonance with the laws on guaranty and security. The said agreement was entered into by the parties two years before the Deed of Assignment was executed. Thus, allegedly, it ran counter to the provision that guaranty cannot exist independently because by nature it is merely an accessory contract. The law on guaranty is applicable to surety to some extent Manila Surety and Fidelity Co. v. Baxter Construction & Co., 53 O.G. 8836; and, Arran v. Manila Fidelity & Surety Co., 53 O.G. 7247. We find merit in this contention. Although obligations arising from contracts have the force of law between the contracting parties, (Article 1159 of the Civil Code) this does not mean that the law is inferior to it; the terms of the contract could not be enforces if not valid. So, even if, as in this case, the agreement was for a continuing suretyship to include obligations enumerated in paragraph 2 of the agreement, the same could not be enforced. First, because this contract, just like guaranty, cannot exist without a valid obligation (Art. 2052, Civil Code); and, second, although it may be given as security for future debt (Art. 2053, C.C.), the obligation contemplated in the case at bar cannot be considered "future debt" as envisioned by this law.
There is no proof that when the suretyship agreement was entered into, there was a pre-existing obligation which served the principal obligation between the parties. Furthermore, the "future debts" alluded to in Article 2053 refer to debts already existing at the time of the constitution of the agreement but the amount thereof is unknown, unlike in the case at bar where the obligation was acquired two years after the agreement . 10 (Emphasis supplied).

We consider that the Court of Appeals here was in serious error. It is true that a serious guaranty or a suretyship agreement is an accessory contract in the sense that it is entered into for the purpose of securing the performance of another obligation which is denominated as the principal obligation. It is also true that Article

2052 of the Civil Code states that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however, like most legal principles, to be read in an absolute and literal manner and carried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself: Art. 2052. A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or an unenforceable contract . It may also guaranty a natural obligation." (Emphasis supplied). Moreover, Article 2053 of the Civil Code states: Art. 2053. 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) The Court of Appeals apparently overlooked our caselaw interpreting Articles 2052 and 2053 of the Civil Code. In National Rice and Corn Corporation (NARIC) v. Jose A. Fojas and Alto Surety Co., Inc., 11 the private respondents assailed the decision of the trial court holding them liable under certain surety bonds filed by private respondent Fojas and issued by private respondent Alto Surety Co. in favor of petitioner NARIC, upon the ground that those surety bonds were null and void "there being no principal obligation to be secured by said bonds." In affirming the decision of the trial court, this Court, speaking through Mr. Justice J.B.L. Reyes, made short shrift of the private respondents' doctrinaire argument: Under his third assignment of error, appellant Fojas questions the validity of the additional bonds (Exhs. D and D-1) on the theory that when they were executed, the principal obligation referred to in said bonds had not yet been entered into , as no copy thereof was attached to the deeds of suretyship. This defense is untenable, because in its complaint the NARIC averred, and the appellant did not deny that these bonds were posted to secure the additional credit that Fojas has applied for, and the credit increase over his original contract was sufficient consideration for the bonds. That the latter were signed and filed before the additional credit was extended by

the NARIC is no ground for complaint . Article 1825 of the Civil Code of 1889, in force in 1948, expressly recognized that "a guaranty may also be given as security for future debts the amount of which is not yet known." (Emphasis supplied) In Rizal Commercial Banking Corporation v . Arro, 12 the Court was confronted again with the same issue, that is, whether private respondent was liable to pay a promissory note dated 29 April 1977 executed by the principal debtor in the light of the provisions of a comprehensive surety agreement which petitioner bank and the private respondent had earlier entered into on 19 October 1976. Under the comprehensive surety agreement, the private respondents had bound themselves as solidary debtors of the Diacor Corporation not only in respect of existing obligations but also in respect of future ones. In holding private respondent surety (Residoro Chua) liable under the comprehensive surety agreement, the Court said: The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one, which, in this case is the loan obtained by Daicor as evidenced by a promissory note. What obviously induced petitioner bank to grant the loan was the surety agreement whereby Go and Chua bound themselves solidarily to guaranty the punctual payment of the loan at maturity . By terms that are unequivocal, it can be clearly seen that the surety agreement was executed to guarantee future debts which Daicor may incur with petitioner, as is legally allowable under the Civil Code . Thus
Article 2053. A guarantee 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. 13 (Emphasis supplied)

It is clear to us that the Rizal Commercial Banking Corporation and the NARIC cases rejected the distinction which the Court of Appeals in the case at bar sought to make with respect to Article 2053, that is, that the "future debts" referred to in that Article relate to "debts already existing at the time of the constitution of the agreement but the amount [of which] is unknown," and not to debts not yet incurred and existing at that time. Of course, a surety is not bound under any particular principal obligation until that principal obligation is born. But

there is no theoretical or doctrinal difficulty inherent in saying that the suretyship agreement itself is valid and binding even before the principal obligation intended to be secured thereby is born, any more that there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent. 14 Comprehensive or continuing surety agreements are in fact quite commonm place in present day financial and commercial practice. A bank or a 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 surety agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor. As we understand it, this is precisely what happened in the case at bar. We turn to the second substantive issue, that is, whether private respondents are liable under the Deed of Assignment which they, along with the principal debtor Sanyu Chemical, executed in favor of petitioner, on the receivables thereby assigned. The contention of Sanyu Chemical was that Atok Finance had no cause of action under the Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors' solvency had ceased. In submitting this contention, Sanyu Chemical relied on Article 1629 of the Civil Code which reads as follows: Art. 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the assignment if the period had already expired. If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after maturity. Once more, the Court of Appeals upheld the contention of private

respondents and held that Sanyu Chemical was free from liability under the Deed of Assignment. The Court of Appeals said: . . . Article 1629 provides for the duration of assignor's warranty of debtor's solvency depending on whether there was a period agreed upon for the existence of such warranty, analyzing the law thus: (1) if there is a period (or length of time) agreed upon, then for such period; (2) if no period (or length of time) was agreed upon, then: (a) one year from assignment if debt was due at the time of the assignment (b) one year from maturity if debt was not yet due at the time of the assignment.. The debt referred to in this law is the debt under the assigned contract or the original debts in favor of the assignor which were later assigned to the assignee. The debt alluded to in the law, is not the debt incurred by the assignor to the assignee as contended by the appellant. Applying the said law to the case at bar, the records disclose that none of the assigned receivables had matured on November 27, 1981 when the Deed of Assignment was executed. The oldest debt then existing was that contracted on November 3, 1981 and the latest was contracted on December 4, 1981. Each of the invoices assigned to the assignee contained a term of 30 days (Exhibits B-3-A to 5 and extended by the notation which appeared in the "Schedule of Assigned Receivables" which states that the ". . . the terms stated on our invoices were normally extended up to a period of 120 days. . ." (Exhibit B-2). Considering the terms in the invoices plus the ordinary practice of the company, thus, the assigned debts matured between April 3, 1982 to May 4, 1982 . The assignor's warranty for debtor's warranty, in this case, would then be from the maturity period up to April 3, 1983 or May 4, 1983 to cover all of the receivables in the invoices.

The letter of demand executed by appellee was dated August 29, 1983 (Exhibit D) and the complaint was filed on January 13, 1984. Both dates were beyond the warranty period.
In effect, therefore, company-appellant was right when it claimed that appellee had no cause of action against it or had lost its cause ofaction. 15 (Emphasis supplied)

Once again, however, we consider that the Court of Appeals was in reversible error in so concluding. The relevant provision of the Deed of Assignment may be quoted again in this connection: 2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts, the ASSIGNOR [Sanyu Chemical] does hereby certify, warrant and represent that . . . (g) the debtor/s under the assigned contract/s are solvent and his/its/their failure to pay the assigned contract/s and/or any installment thereon upon maturity thereof shall be conclusively considered as a violation of this warranty; and . . . The foregoing warranties and representations are in addition to those provided for in the Negotiable Instruments Law and other applicable laws. Any violation thereof shall render the ASSIGNOR immediately and unconditionally liable to pay the ASSIGNEE jointly and severally with the debtors under the assigned contracts, the amounts due thereon. xxx xxx xxx (Emphasis supplied) It may be stressed as a preliminary matter that the Deed of Assignment was valid and binding upon Sanyu Chemical. Assignment of receivables is a commonplace commercial transaction today. It is an activity or operation that permits the assignee to monetize or realize the value of the receivables before the maturity thereof. In other words, Sanyu Chemical received from Atok Finance the value of its trade receivables it had assigned; Sanyu Chemical obviously benefitted from the assignment. The payments due in the first instance from the trade debtors of Sanyu Chemical would

represent the return of the investment which Atok Finance had made when it paid Sanyu Chemical the transfer value of such receivables. Article 1629 of the Civil Code invoked by private respondents and accepted by the Court of Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to Atok Finance rests not on the breach of the warranty of solvency; the liability of Sanyu Chemical was not ex lege (ex Article 1629) but rather ex contractu. Under the Deed of Assignment, the effect of non-payment by the original trade debtors was breach of warranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidary liability by the assignor under the receivables assigned. In other words, the assignor Sanyu Chemical becomes a solidary debtor under the terms of the receivables covered and transferred by virtue of the Deed of Assignment. And because assignor Sanyu Chemical became, under the terms of the Deed of Assignment, solidary obligor under each of the assigned receivables, the other private respondents (the Arrieta spouses, Pablito Bermundo and Leopoldo Halili), became solidarily liable for that obligation of Sanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement. Put a little differently, the obligations of individual private respondent officers and stockholders of Sanyu Chemical under the Continuing Suretyship Agreement, were activated by the resulting obligations of Sanyu Chemical as solidary obligor under each of the assigned receivables by virtue of the operation of the Deed of Assignment. That solidary liability of Sanyu Chemical is not subject to the limiting period set out in Article 1629 of the Civil Code. It follows that at the time the original complaint was filed by Atok Finance in the trial court, it had a valid and enforceable cause of action against Sanyu Chemical and the other private respondents. We also agree with the Court of Appeals that the original obligors under the receivables assigned to Atok Finance remain liable under the terms of such receivables. WHEREFORE, for all the foregoing, the Petition for Review is hereby GRANTED DUE COURSE, and the Decision of the Court of Appeals dated 18 August 1987 and its Resolution dated 30 September 1987 are hereby REVERSED and SET ASIDE. A new judgment is hereby entered REINSTATING the Decision of the trial court in Civil Case

No. 84-22198 dated 1 April 1985, except only that, in the exercise of this Court's discretionary authority equitably to mitigate the penalty clause attached to the Deed of Assignment, that penalty is hereby reduced to eighteen percent (18%) per annum (instead of P0.03 for every peso monthly [or 36% per annum]). As so modified, the Decision of the trial court is hereby AFFIRMED. Costs against private respondents. SO ORDERED.

G.R. No. 103066 April 25, 1996 WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON. COURT OF APPEALS and INTERNATIONAL CORPORATE BANK, respondents. MENDOZA, J.:p This is a petition for review on certiorari of the decision 1 of the Court of Appeals in C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial Court of the National Capital Judicial Region, Branch XLV, Manila, which ordered petitioner Willex Plastic Industries Corporation and the Inter-Resin Industrial Corporation, jointly and severally, to pay private respondent International Corporate Bank certain sums of money, and the appellate court's resolution of October 17, 1989 denying petitioner's motion for reconsideration. The facts are as follows: Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of credit with the Manila Banking Corporation. To secure payment of the credit accomodation, Inter-Resin Industrial and the Investment and Underwriting Corporation of the Philippines (IUCP) executed two documents, both entitled "Continuing Surety Agreement" and dated December 1, 1978, whereby they bound themselves solidarily to pay Manilabank "obligations of every kind, on which the [Inter-Resin

Industrial] may now be indebted or hereafter become indebted to the [Manilabank]." The two agreements (Exhs. J and K) are the same in all respects, except as to the limit of liability of the surety, the first surety agreement being limited to US$333,830.00, while the second one is limited to US$334,087.00. On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic Industries Corp., executed a "Continuing Guaranty" in favor of IUCP whereby "For and in consideration of the sum or sums obtained and/or to be obtained by Inter-Resin Industrial Corporation" from IUCP, Inter-Resin Industrial and Willex Plastic jointly and severally guaranteed "the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine Currency and such interests, charges and penalties as hereafter may be specified." On January 7, 1981, following demand upon it, IUCP paid to Manilabank the sum of P4,334,280.61 representing Inter-Resin Industrial's outstanding obligation. (Exh. M-1) On February 23 and 24, 1981, Atrium Capital Corp., which in the meantime had succeeded IUCP, demanded from Inter-Resin Industrial and Willex Plastic the payment of what it (IUCP) had paid to Manilabank. As neither one of the sureties paid, Atrium filed this case in the court below against Inter-Resin Industrial and Willex Plastic. On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in turn succeeded Atrium, the sum of P687,600.00 representing the proceeds of its fire insurance policy for the destruction of its properties. In its answer, Inter-Resin Industrial admitted that the "Continuing Guaranty" was intended to secure payment to Atrium of the amount of P4,334,280.61 which the latter had paid to Manilabank. It claimed, however, that it had already fully paid its obligation to Atrium Capital. On the other hand, Willex Plastic denied the material allegations of the complaint and interposed the following Special Affirmative Defenses: (a) Assuming arguendo that main defendant is indebted to plaintiff,

the former's liability is extinguished due to the accidental fire that destroyed its premises, which liability is covered by sufficient insurance assigned to plaintiff; (b) Again, assuming arguendo, that the main defendant is indebted to plaintiff, its account is now very much lesser than those stated in the complaint because of some payments made by the former; (c) The complaint states no cause of action against WILLEX; (d) WLLLEX is only a guarantor of the principal obliger, and thus, its liability is only secondary to that of the principal; (e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against the principal obliger; (f) Plaintiff has no personality to sue. On April 29, 1986, Interbank was substituted as plaintiff in the action. The case then proceeded to trial. On March 4, 1988, the trial court declared Inter-Resin Industrial to have waived the right to present evidence for its failure to appear at the hearing despite due notice. On the other hand, Willex Plastic rested its case without presenting any evidence. Thereafter Interbank and Willex Plastic submitted their respective memoranda. On April 5, 1988, the trial court rendered judgment, ordering InterResin Industrial and Willex Plastic jointly and severally to pay to Interbank the following amounts: (a) P3, 646,780.61, representing their indebtedness to the plaintiff, with interest of 17% per annum from August 11, 1982, when InterResin Industrial paid P687,500.00 to the plaintiff, until full payment of the said amount; (b) Liquidated damages equivalent to 178 of the amount due; and (c) Attorney's fees and expenses of litigation equivalent to 208 of the total amount due.

Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals. Willex Plastic filed its brief, while Inter-Resin Industrial presented a "Motion to Conduct Hearing and to Receive Evidence to Resolve Factual Issues and to Defer Filing of the Appellant's Brief." After its motion was denied, Inter-Resin Industrial did not file its brief anymore. On February 22, 1991, the Court of Appeals rendered a decision affirming the ruling of the trial court. Willex Plastic filed a motion for reconsideration praying that it be allowed to present evidence to show that Inter-Resin Industrial had already paid its obligation to Interbank, but its motion was denied on December 6, 1991: The motion is denied for lack of merit. We denied defendant-appellant Inter-Resin Industrial's motion for reception of evidence because the situation or situations in which we could exercise the power under BP 129 did not exist. Movant here has not presented any argument which would show otherwise. Hence, this petition by Willex Plastic for the review of the decision of February 22, 1991 and the resolution of December 6, 1991 of the Court of Appeals. Petitioner raises a number of issues. [1] The main issue raised is whether under the "Continuing Guaranty" signed on April 2, 1979 petitioner Willex Plastic may be held jointly and severally liable with Inter-Resin Industrial for the amount paid by Interbank to Manilabank. As already stated, the amount had been paid by Interbank's predecessor-in-interest, Atrium Capital, to Manilabank pursuant to the "Continuing Surety Agreements" made on December 1, 1978. In denying liability to Interbank for the amount, Willex Plastic argues that under the "Continuing Guaranty," its liability is for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by the latter to Manilabank for the account of Inter-Resin Industrial. In support of this contention Willex Plastic cites the following portion of the "Continuing Guaranty":

For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto you and/or your principal/s, successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges and penalties as may hereinafter be specified. The contention is untenable. What Willex Plastic has overlooked is the fact that evidence aliunde was introduced in the trial court to explain that it was actually to secure payment to Interbank (formerly IUCP) of amounts paid by the latter to Manilabank that the "Continuing Guaranty" was executed. In its complaint below, Interbank's predecessor-in-interest, Atrium Capital, alleged: 5. to secure the guarantee made by plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, the plaintiff required defendant IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the other defendant WPIC [Willex Plastic]. In its answer, Inter-Resin Industrial admitted this allegation although it claimed that it had already paid its obligation in its entirety. On the other hand, Willex Plastic, while denying the allegation in question, merely did so "for lack of knowledge or information of the same." But, at the hearing of the case on September 16, 1986, when asked by the trial judge whether Willex Plastic had not filed a crossclaim against Inter-Resin Industrial, Willex Plastic's counsel replied in the negative and manifested that "the plaintiff in this case [Interbank] is the guarantor and my client [Willex Plastic] only signed as a guarantor to the guarantee." 2 For its part Interbank adduced evidence to show that the "Continuing Guaranty" had been made to guarantee payment of amounts made

by it to Manilabank and not of any sums given by it as loan to InterResin Industrial. Interbank's witness testified under cross examination by counsel for Willex Plastic that Willex "guaranteed the exposure/of whatever exposure of ACP [Atrium Capital] will later be made because of the guarantee to Manila Banking Corporation." 3 It has been held that explanatory evidence may be received to show the circumstances under which a document has been made and to what debt it relates. 4 At all events, Willex Plastic cannot now claim that its liability is limited to any amount which Interbank, as creditor, might give directly to Inter-Resin Industrial as debtor because, by failing to object to the parol evidence presented, Willex Plastic waived the protection of the parol evidence rule. 5 Accordingly, the trial court found that it was "to secure the guarantee made by plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute a chattel mortgage in its favor and a Continuing Guaranty which was signed by the defendant Willex Plastic Industries Corporation." 6 Similarly, the Court of Appeals found it to be an undisputed fact that "to secure the guarantee undertaken by plaintiff-appellee [Interbank] of the credit accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-appellee required defendant-appellants to sign a Continuing Guaranty." These factual findings of the trial court and of the Court of Appeals are binding on us not only because of the rule that on appeal to the Supreme Court such findings are entitled to great weight and respect but also because our own examination of the record of the trial court confirms these findings of the two courts. 7 Nor does the record show any other transaction under which InterResin Industrial may have obtained sums of money from Interbank. It can reasonably be assumed that Inter-Resin Industrial and Willex Plastic intended to indemnify Interbank for amounts which it may have paid Manilabank on behalf of Inter-Resin Industrial. Indeed, in its Petition for Review in this Court, Willex Plastic admitted that it was "to secure the aforesaid guarantee, that INTERBANK required principal debtor IRIC [Inter-Resin Industrial] to execute a

chattel mortgage in its favor, and so a "Continuing Guaranty" was executed on April 2, 1979 by WILLEX PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin Industrial]." [2] Willex Plastic argues that the "Continuing Guaranty," being an accessory contract, cannot legally exist because of the absence of a valid principal obligation. 8 Its contention is based on the fact that it is not a party either to the "Continuing Surety Agreement" or to the loan agreement between Manilabank and Interbank Industrial. Put in another way the consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient. For a "guarantor or surety is bound by the same consideration that makes the contract effective between the principal parties thereto. It is never necessary that a guarantor or surety should receive any part or benefit, if such there be, accruing to his principal." 9 In an analogous case, 10 this Court held: At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for the purpose of having an additional capital for buying and selling coco-shell charcoal and importation of activated carbon, the comprehensive surety agreement was admittedly in full force and effect. The loan was, therefore, covered by the said agreement, and private respondent, even if he did not sign the promissory note, is liable by virtue of the surety agreement. The only condition that would make him liable thereunder is that the Borrower "is or may become liable as maker, endorser, acceptor or otherwise." There is no doubt that Daicor is liable on the promissory note evidencing the indebtedness. The surety agreement which was earlier signed by Enrique Go, Sr. and private respondent, is an accessory obligation, it being dependent upon a principal one which, in this case is the loan obtained by Daicor as evidenced by a promissory note. [3] Willex Plastic contends that the "Continuing Guaranty" cannot be retroactivelt applied so as to secure payments made by Interbank under the two "Continuing Surety Agreements." Willex Plastic invokes

the ruling in El Vencedor v. Canlas 11 and Dio v. Court of Appeals 12 in support of its contention that a contract of suretyship or guaranty should be applied prospectively. The cases cited are, however, distinguishable from the present case. In El Vencedor v. Canlas we held that a contract of suretyship "is not retrospective and no liability attaches for defaults occurring before it is entered into unless an intent to be so liable is indicated." There we found nothing in the contract to show that the paries intended the surety bonds to answer for the debts contracted previous to the execution of the bonds. In contrast, in this case, the parties to the "Continuing Guaranty" clearly provided that the guaranty would cover "sums obtained and/or to be obtained" by Inter-Resin Industrial from Interbank. On the other hand, in Dio v. Court of Appeals the issue was whether the sureties could be held liable for an obligation contracted after the execution of the continuing surety agreement. It was held that by its very nature a continuing suretyship contemplates a future course of dealing. "It is prospective in its operation and is generally intended to provide security with respect to future transactions." By no means, however, was it meant in that case that in all instances a contrast of guaranty or suretyship should be prospective in application. Indeed, as we also held in Bank of the Philippine Islands v . Foerster, 13 although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by the evidence is controlling. What was said there 14 applies mutatis mutandis to the case at bar: In our opinion, the appealed judgment is erroneous. It is very true that bonds or other contracts of suretyship are ordinarily not to be construed as retrospective, but that rule must yield to the intention of the contracting parties as revealed by the evidence, and does not interfere with the use of the ordinary tests and canons of interpretation which apply in regard to other contracts. In the present case the circumstances so clearly indicate that the bond given by Echevarria was intended to cover all of the indebtedness of the Arrocera upon its current account with the

plaintiff Bank that we cannot possibly adopt the view of the court below in regard to the effect of the bond. [4] Willex Plastic says that in any event it cannot be proceeded against without first exhausting all property of Inter-Resin Industrial. Willex Plastic thus claims the benefit of excussion. The Civil Code provides, however: Art. 2059. This excussion shall not take place: (1) If the guarantor has expressly renounced it; (2) If he has bound himself solidarily with the debtor; The pertinent portion of the "Continuing Guaranty" executed by Willex Plastic and Inter-Resin Industrial in favor of IUCP (now Interbank) reads: If default be made in the payment of the NOTE/s herein guaranteed you and/or your principal/s may directly proceed against Me/Us without first proceeding against and exhausting DEBTOR/s properties in the same manner as if all such liabilities constituted My/Our direct and primary obligations. (emphasis supplied) This stipulation embodies an express renunciation of the right of excussion. In addition, Willex Plastic bound itself solidarily liable with Inter-Resin Industrial under the same agreement: For and in consideration of the sums obtained and/or to be obtained by INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the DEBTOR/S, from you and/or your principal/s as may be evidenced by promissory note/s, checks, bills receivable/s and/or other evidence/s of indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and unconditionally guarantee unto you and/or your principal/s, successor/s and assigns the prompt and punctual payment at maturity of the NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to the extent of the aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00), Philippine Currency, and such interests, charges and penalties as may hereinafter he specified.

[5] Finally it is contended that Inter-Resin Industrial had already paid its indebtedness to Interbank and that Willex Plastic should have been allowed by the Court of Appeals to adduce evidence to prove this. Suffice it to say that Inter-Resin Industrial had been given generous opportunity to present its evidence but it failed to make use of the same. On the otherhand, Willex Plastic rested its case without presenting evidence. The reception of evidence of Inter-Resin Industrial was set on January 29, 1987, but because of its failure to appear on that date, the hearing was reset on March 12, 26 and April 2, 1987. On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon motion of Willex Plastic, the hearings on March 12 and 26, 1987 were cancelled and "reset for the last time" on April 2 and 30, 1987. On April 2, 1987, Inter-Resin Industrial again failed to appear. Accordingly the trial court issued the following order: Considering that, as shown by the records, the Court had exerted every earnest effort to cause the service of notice or subpoena on the defendant Inter-Resin Industrial but to no avail, even with the assistance of the defendant Willex the defendant Inter-Resin Industrial is hereby deemed to have waived the right to present its evidence. On the other hand, Willex Plastic announced it was resting its case without presenting any evidence. Upon motion of Inter-Resin Industrial, however, the trial court reconsidered its order and set the hearing anew on July 23, 1987. But Inter-Resin Industrial again moved for the postponement of the hearing be postponed to August 11, 1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the hearings were reset on October 13, 1987, this time upon motion of Interbank. To give Interbank time to comment on a motion filed by Inter-Resin Industrial, the reception of evidence for Inter-Resin Industrial was again reset on November 17, 26 and December 11, 1987. However, Inter-Resin Industrial again moved for the postponement of the hearing. Accordingly the hearing was reset on November 26 and

December 11, 1987, with warning that the hearings were intransferrable. Again, the reception of evidence for Inter-Resin Industrial was reset on January 22, 1988 and February 5, 1988 upon motion of its counsel. As Inter-Resin Industrial still failed to present its evidence, it was declared to have waived its evidence. To give Inter-Resin Industrial a last opportunity to present its evidence, however, the hearing was postponed to March 4, 1988. Again Inter-Resin Industrial's counsel did not appear. The trial court, therefore, finally declared Inter-Resin Industrial to have waived the right to present its evidence. On the other hand, Willex Plastic, as before, manifested that it was not presenting evidence and requested instead for time to file a memorandum. There is therefore no basis for the plea made by Willex Plastic that it be given the opportunity of showing that Inter-Resin Industrial has already paid its obligation to Interbank. WHEREFORE, the decision of the Court of Appeals is AFFIRMED, with costs against the petitioner. SO ORDERED.

[G.R. No. 55466 : December 3, 1990.] 191 SCRA 805-813 MANILA SURETY & FIDELITY CO., INC., Petitioner, vs. COURT OF APPEALS and WILLIAM H. QUASHA, Respondents. DECISION

PARAS, J.: This is a petition for review on certiorari of the resolution of the Court of Appeals dated August 5, 1980 * in CA G.R. No. 42461-R entitled "Republic of the Philippines vs. Leon Bessire, et al.", affirming with modification the lower court's judgment dated April 30, 1968 ** with respect to the payment of 12% interest per annum and denying petitioner's motion for reconsideration dated October 6, 1980. The facts as found by the Court of Appeals are as follows: Sometime after 1951, the Republic of the Philippines, thru its Bureau of Internal Revenue, assessed the Bessire Housing Corporation (BESCO) in the amount of P16,840.04 representing percentage taxes for the year 1951. Apparently pressed for payment, the manager thereof (Leon Bessire) executed in his personal capacity on October 30, 1956, with Mutual Security Insurance Corporation an "Ordinary Bond for Payment of Taxes", known as MUSIC S-575-A, wherein the parties undertook to jointly and severally pay the Republic the aforementioned assessment in twelve (12) equal installments as scheduled therein. On the same day that the bond was posted Leon Bessire, Manila Surety and Corazon Santos Escobar in her personal capacity and as attorney-in-fact of Eduardo Escobar signed an indemnity agreement binding themselves solidarily to indemnify Mutual Security for any damages or losses it may sustain as a result of its having consented to become a surety in favor of the Bureau of Internal Revenue (BIR). On December 28, 1956, Leon Bessire paid the first installment of P1,403.34 due on November 30, 1956 and another installment on a later date. He failed to pay the succeeding installments thus prompting the Commissioner of Internal Revenue to send a letter of February 20, 1958 that unless Mr. Bessire paid P14,035.36 plus the accrued delinquency penalties within 15 days, the bond would be forfeited. A letter of demand was also sent on the same date to Mutual Security. (Rollo, p. 32-33; Petition, Annex A, pp. 2-3) On May 19, 1958, Atty. William H. Quasha as substitute for Corazon Santos Escobar signed an Indemnity Agreement whereby he undertook to jointly and severally with Leon Bessire

and BESCO, indemnify Manila Surety for any damage or loss it may suffer in consequence of its having consented to continue being counter surety upon the indemnity agreement MUSIC S575-A (Rollo, p. 67; Comment, p. 2). On July 18, 1958 the Acting Commissioner of Internal Revenue acknowledged the payment by Leon Bessire of P300.00 and demanded the full payment of the balance of P13,733.36 on or before July 31, 1958. A letter of demand was also sent to Mutual Security (Rollo, pp. 33-34; Petition, Annex A, pp. 3-4). On July 31, 1958, Leon Bessire sent a check for P1,403.34 and asked for further time to pay the outstanding balance in view of his financial difficulties. On September 26, 1958, the Acting Commissioner of Internal Revenue wrote Leon Bessire to pay the P12,330.02 in full on or before October 15, 1958 and Mutual Security to do the same or steps for the forfeiture of the bond would be taken (Rollo, p. 34; Petition, Annex A, p. 4). Leon Bessire made further payments: P400.00 on November 13, 1958; P500.00 on February 13, 1959; P500.00 on May 12, 1959; and P500.00 on October 28, 1959. On April 7, 1960, a letter of demand was again sent to Leon Bessire giving him until April 30, 1960 to pay the balance of P10,430.02 and a letter of substantially the same tenor to Mutual Security. On June 12, 1961, Leon Bessire died. (Rollo, pp. 34-35; Petition, Annex A, pp. 4-5).
: nad

On February 9, 1962, the Republic of the Philippines upon the request of the BIR filed a complaint against Leon Bessire and Mutual Security Insurance Corporation (Mutual), to have the surety bond guaranteeing the payment of percentage taxes forfeited and for the said defendants jointly and severally to pay P10,032.02 plus interest at the legal rate and costs (Rollo, p. 31).
: rd

On March 7, 1962, Mutual filed its answer with cross claim against Leon Bessire. On July 5, 1963 it filed a third party complaint against petitioner, Manila Surety and Fidelity Co., Inc. (Manila Surety). On July 26, 1963, Manila Surety filed a fourthparty complaint against herein private respondent, William H. Quasha (Rollo, p. 32; Petition, Annex A, p. 2). After trial on the merits, the lower court, through then Judge Luis

B. Reyes, rendered its decision on April 20, 1968, the dispositive portion of which reads: "Wherefore, judgment is rendered as follows: "1. Declaring Surety Bond MUSIC S-575-A, issued by defendant Mutual Security Insurance Corporation, forfeited and ordering said defendant to pay plaintiff the sum of P10,030.02 plus the legal rate of interest from February 9, 1962, the date of the filing of the suit, until said amount is fully paid, and to pay the costs of this suit. "2. Ordering third party defendant Manila Surety Fidelity Co. Inc., to pay third party plaintiff Mutual Security Insurance Corporation whatever amount the latter as defendant, is adjudged to pay plaintiff, plus interest at 12% per annum from the date of payment which interest shall be accumulated and added to the principal quarterly and shall earn interest at the same rate, and attorneys' fees equivalent to 10% of the total amount due under the surety bond, and "3. Ordering fourth party defendant to pay and/or indemnify fourth party plaintiff Manila Surety & Fidelity Co., Inc. the amount of the judgment which it is ordered to pay in favor of third party plaintiff Mutual Security Insurance Corporation, with interest thereon at the rate of 12% per annum from July 3, 1963, until fully paid, and the sum equivalent to 10% of the total amount claimed, as and for attorneys' fees. "The counterclaim of fourth party defendant is dismissed. "SO ORDERED." (Rollo, p. 68) Mutual, Manila Surety and Quasha all filed their respective appeals to the respondent Court of Appeals which rendered judgment on March 21, 1980 affirming the judgment of the lower court (Petitioner's brief, p. 4). On April 17, 1980, William H. Quasha, private respondent herein, filed a Motion for Reconsideration of the aforementioned judgment alleging as the sole ground therefore that the respondent Court of Appeals erred in affirming without modifying a portion of the decision which ordered fourth party defendant appellant William H. Quasha to

pay and or indemnify fourth party plaintiff appellant Manila Surety the amount of judgment it is ordered to pay third party plaintiff appellant Mutual, with interest thereon at the rate of 12% per annum from July 3, 1963 until fully paid (Petitioner's brief, p. 4). Thereafter or on August 5, 1980, respondent Court of Appeals rendered its questioned Resolution the dispositive portion of which reads: "Wherefore, our March 21, 1980 decision is hereby modified as follows: number 3, paragraph 1 of the dispositive portion of the decision appealed from should read: "3. Ordering fourth party defendant to pay and or indemnify fourth party plaintiff Manila Surety & Fidelity Co. Inc., the amount of judgment which it is ordered to pay in favor of third party plaintiff Mutual Security Insurance Corporation and the sum equivalent to 10% of the total amount claimed, as and for attorneys' fees. "The portion which provides for an interest on the amount of judgment at the rate of 12% per annum from July 3, 1963 until fully paid is deleted. "SO ORDERED." (Rollo, pp. 51-52 Petition, Annex B, pp. 3-4) On August 25, 1980, herein petitioner Manila Surety filed its Motion for Reconsideration of the aforequoted Resolution, which motion was summarily denied by respondent Court of Appeals in its Resolution dated October 6, 1980 (Rollo, p. 54; Petition, Annex c, p. 1). Hence this petition. The sole issue to be resolved in this petition is whether or not respondent Quasha's liability to pay the 12% interest in case of default under the Indemnity Agreement arises only after the decision of respondent Court of Appeals becomes final and executory. The respondent Court of Appeals in its resolution held: ". . . the amount of liability of both the movant and Manila Surety upon the surety bond is determined only after the

decision of the case becomes final and executory. Hence, before the decision becomes final and executory and the extent of the liability of Manila Surety is not yet determined, Manila Surety as co-surety cannot demand the 12% per cent interest per annum from the movant as co-surety because during this intervening period, there is no liability yet of the movant to pay, hence, there is no interest yet to be reckoned. . . ." (Rollo, p. 51, Petition; Annex B, p.3). The petition is impressed with merit. The Indemnity Agreement, whereby private respondent Quasha bound himself jointly and severally with Leon Bessire and the BESCO in favor of petitioner, provides: "2. INDEMNITY: To indemnify the COMPANY for any damage, loss, costs, charges, or expenses of whatever kind and nature, including counsel for attorney's fees, which the COMPANY may, at any time, sustain or incur as a consequence of having become surety upon the abovementioned bond; . . ." (Record on Appeal, p. 77) In the case of Associated Insurance & Surety Co. Inc. vs. Wellington Chua, et al., 7 SCRA 52 [1963] where a similar provision appears, this Court held: ". . . The agreement herein sued upon is not only one of indemnity against loss but of indemnity against liability. While the first does not render the indemnitor liable until the person to be indemnified makes payment or sustains loss, the second becomes operative as soon as the liability of the person indemnified arises, irrespective of whether or not he has suffered actual loss." (Emphasis ours) The next question here is when did the liability of Manila Surety in favor of Mutual arise so as to give rise to the corresponding liability on the part of Quasha vis-a-vis Manila Surety. The Indemnity Agreement whereby Manila Surety undertook to indemnify Mutual provides: "3. ACCRUAL OF ACTION Where the obligation involves a liquidated amount, for the payment of which the COMPANY has become legally liable under the terms of

the obligation and its suretyship undertaking or by the demand of the obligee or otherwise . . . the undersigned jointly and severally undertake to pay to the COMPANY on the latter's demand the full amount, necessary to discharge the COMPANY's aforesaid liability; . . ." (Record on Appeal, p. 44) (Emphasis ours) Clearly, the liability of Manila Surety arose on July 5, 1963, the date on which the third party complaint was filed against it by Mutual, which was the date of judicial demand, and from that point on, it had already incurred liability, thereby giving rise to the concommitant liability of Quasha under his indemnity agreement with Manila Surety. Said indemnity agreement provides: "3. MATURITY OF THE OBLIGATION UNDER THIS BOND: Said indemnity shall be paid to the COMPANY as soon as it has become liable for the payment of any amount, under the abovementioned bond, whether or not it shall have paid such sum or sums of money, or any part thereof" (Rollo, p. 56; Petition, Annex D, pp. 77-78). (Emphasis ours) Interpreting a similar provision in an indemnity agreement, this Court held: ". . . In the indemnity agreement executed by appellant in favor of appellee, there appears the following clause: 'Said indemnity shall be paid to the COMPANY as soon as it has become liable for the payment of any amount under the abovementioned bond, whether or not it shall have paid such sums or sums of money or any part thereof.' It is there said that the liability of appellee as bondsman would attach as soon as it has become liable for the payment of any amount regardless of whether said amount shall have been paid or not. This is the situation that actually obtains here. The NARIC, or its legal successor, the Prisco, has actually filed an action in court demanding payment of the obligation from appellee under the bond it has posted on behalf of both Felicisima Policarpio and Herminia Cruz, which action is more than enough to entitle the appellee to enforce the indemnity agreement executed by appellant. This constitutes the

cause of action of appellee in the present case." (Manila Surety & Fidelity Co. Inc. v. Teodulo Cruz, L-10414, April 18, 1958, 103 Phil. 367) (Emphasis ours) In addition thereto, the indemnity agreement also provides: "4. INTEREST IN CASE OF DEFAULT: And in case of non payment of the said sum or sums of money, an interest of twelve (12%) per cent per annum, which interest, while not paid, shall be liquidated and accumulated monthly to the capital owed by the undersigned, drawing the same interest as the said capital." (Rollo, p. 56; Petition, Annex D, p. 78) Since respondent Quasha's liability arose on July 5, 1963 the date the third party complaint was filed and the same not having been paid, his liability to pay the 12% per cent interest per annum, in case of default as stated in the aforementioned indemnity agreement also arose. In the cases of Tagawa vs. Aldanese, 43 Phil. 852, 859 [1922]; Plaridel Surety Insurance Co. vs. P.L. Galang Machinery Co., 100 Phil. 679 [1957], it was held: "If a surety upon demand fails to pay, he can be held liable for interest, even if in thus paying, the liability becomes more than that in the principle obligation. The increased liabilities is not because of the contract but because of the default and the necessity of judicial collection." It is a basic and fundamental rule in the interpretation of contract that if the terms thereof are clear and leave no doubt as to the intention of the contracting parties, the literal meaning shall control. In order to judge the intention of the parties, their contemporaneous and subsequent acts shall be principally considered. (Mercantile Insurance Co., Inc. vs. Felipe Ysmael, Jr. & Co. Inc., 169 SCRA 66 [1989]; Sy vs. Court of Appeals, 131 SCRA 116 [1984]; GSIS vs. Court of Appeals, et al., 145 SCRA 311 [1986]). The above-quoted specific provisions of the Indemnity Agreement clearly show that respondent is liable under said provisions. Hence, the stipulation agreed upon by the parties is valid and enforceable (Paramount Surety & Insurance Co., Inc. v.

Pastor D. Ago, 171 SCRA 481 [1989]) and obligations arising from contracts have the force of law (Paramount Surety & Insurance Co., Inc. vs. Pastor D. Ago, 171 SCRA 481 [1989]; Villonco Realty Co., Inc. vs. Bormacheco, 65 SCRA 352 [1975]; Lazo vs. Republic Surety Insurance Co., Inc., 31 SCRA 329 [1970]; Perez Rubio vs. CA, 141 SCRA 488 [1986]). Elucidating further on the obligations of the parties in agreements of this nature, this Court ruled: "The indemnity agreement was not executed for the benefit of the creditors; it was rather for the benefit of the surety and if the latter thought it necessary in its own interest to impose this stipulation, and the indemnitors voluntarily agreed to the same, the court should respect the agreement of the parties and require them to abide by their contract." (Mercantile Insurance Co., Inc. vs. Felipe Ysmael, 169 SCRA 66 [1989]; Security Bank vs. Globe Assurance, 107 Phil. 733 [1960]).
: nad

PREMISES CONSIDERED, (1) the instant petition is hereby GRANTED; (2) the appealed resolution of the respondent Court of Appeals is hereby SET ASIDE; (3) the original decision of respondent Court of Appeals dated March 21, 1980 is hereby REINSTATED, with MODIFICATION that the liability of respondent Quasha to pay the 12% interest in case of default be reckoned from July 5, 1963, the date the third party complaint was filed.

G.R. No. 84084 August 20, 1990 FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. ABDULGANI SALIK, BALABAGAN AMPILAN ALI KUBA GANDHI PUA, DAVID MALANAO, THE ADMINISTRATOR, PHILIPPINE OVERSEAS AND EMPLOYMENT ADMINISTRATION, THE SECRETARY OF LABOR AND EMPLOYMENT, respondents. David I. Unay, Jr. for petitioner. Kamid D. Abdul for private respondents.

PARAS, J.: This is a petition for certiorari seeking to annul 1) the Order dated March 28, 1988 of the Honorable Secretary of Labor and Employment in POEA, LRO/RRD Case No. 87-09-1022-DP entitled Abdulgani Salik, et al, v. Pan Pacific Overseas and Recruiting Services and Finman General Assurance Corporation, which directed herein petitioner to pay jointly and severally with Pan Pacific the claims of herein private respondents amounting to P25,000.00 and 2) the Order dated June 7, 1988, which denied petitioner's motion for reconsideration (Rollo, p. 2). The facts of the case are as follows: Abdulgani Salik et al., private respondents, allegedly applied with Pan Pacific Overseas Recruiting Services, Inc. (hereinafter referred to as Pan Pacific) on April 22, 1987 and were assured employment abroad by a certain Mrs. Normita Egil. In consideration thereof, they allegedly paid fees totalling P30,000.00. But despite numerous assurances of employment abroad given by Celia Arandia and Mrs. Egil, they were not employed (Ibid., p. 15). Accordingly, they filed a joint complaint with the Philippine Overseas Employment Administration (herein referred to as POEA) against Pan Pacific for Violation of Articles 32 and 34(a) of the Labor Code, as amended, with claims for refund of a total amount of P30,000.00 (Ibid.). The POEA motu proprio impleaded and summoned herein petitioner surety Finman General Assurance Corporation (hereinafter referred to as Finman), in the latter's capacity as Pan Pacific's bonding company. Summons were served upon both Pan Pacific and Finman, but they failed to answer. On October 9, 1987, a hearing was called, but only the private

respondents appeared. Despite being deemed in default for failing to answer, both Finman and Pan Pacific were still notified of the scheduled hearing. Again they failed to appear. Thus, exparte proceedings ensued. During the hearing, herein private respondents reiterated the allegations in their complaint that they first paid P20,000.00 thru Hadji Usop Kabagani for which a receipt was issued signed by Engineer Arandia and countersigned by Mrs. Egil and a certain Imelda who are allegedly employed by Pan Pacific; that they paid another P10,000.00 to Engr. Arandia who did not issue any receipt therefor; that the total payment of P30,000.00 allegedly represents payments for herein private respondents in the amount of P5,000.00 each, and Abdulnasser Ali, who did not file any complaint against Pan Pacific (Ibid., pp. 15-16). Herein private respondents presented as their witness, Hadji Usop Kabagani who they Identified as the one who actually financed their application and who corroborated their testimonies on all material points including the non-issuance of a receipt for P10,000.00 by Engr. Arandia. Herein petitioner, Finman, in an answer which was not timely filed, alleged, among others, that herein private respondents do not have a valid cause of action against it; that Finman is not privy to any transaction undertaken by Pan Pacific with herein private respondents; that herein private respondents claims are barred by the statute of frauds and by the fact that they executed a waiver; that the receipts presented by herein private respondents are mere scraps of paper; that it is not liable for the acts of Mrs. Egil that Finman has a cashbond of P75,000.00 only which is less than the required amount of P100,000.00; and that herein private respondents should proceed directly against the cash bond of Pan Pacific or against Mrs. Egil ( Ibid., pp. 1617). On March 18,1988, the Honorable Franklin M. Drilon, then the Secretary of Labor and Employment, upon the recommendation of the POEA hearing officer, issued an Order, the dispositive portion of which reads:

WHEREFORE, premises considered, both respondents are hereby directed to pay jointly and severally the claims of complainants, as follows: 1. Abdulgani Salik P5,000.00 2. Balabagan Ampilan 5,000.00 3. Ali Kuba 5,000.00 4. Gandhi Dua 5,000.00 5. David Malanao 5,000.00 Based on the records of this Administration, respondent agency is presently serving a total period of suspension of seventeen (1 7) months imposed in three (3) separate orders issued on June 2, 1987, August 17, 1987 and September 23, 1987. Under the new schedule of penalties published on January 21, 1987 in the Philippine Inquirer, the penalty of cancellation shall be imposed when the offender has been previously penalized with suspension the total period of which is 12 months or more. Moreover, the penalty imposable in the case at bar is two (2) months suspension for each count of violation or a total period of suspension of ten (10) months as the acts were committed in April 1987. Thus, whether under the old schedule of penalties which required a total period of suspension of twenty-four (24) months for cancellation to be imposed or under the new schedule which provides for a twelve (12) month total suspension period, the penalty of cancellation may be properly imposed upon the herein respondent agency. In view thereof, the license of Pan Pacific Overseas Recruiting Services is hereby cancelled, effective immediately. SO ORDERED. (Ibid., pp. 20-21). A motion for reconsideration having been denied ( Ibid., p. 22), herein petitioner instituted the instant petition for certiorari, raising the following assigned errors:

I THE HONORABLE ADMINISTRATOR AND THE HONORABLE, SECRETARY OF LABOR ACTED WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN MOTU PROPRIO IMPLEADING FINMAN AS CO-RESPONDENT OF PAN PACIFIC IN POEA LRO/RRD CASE NO. 87-09-1022 DP WHICH WAS FILED BY ABDULGANI SALIK, ET AL.; II THE HONORABLE SECRETARY OF LABOR ACTED WITHOUT OR IN EXCESS OF JURISDICTION AND WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION IN DIRECTING FINMAN TO PAY JOINTLY AND SEVERALLY WITH PAN PACIFIC THE CLAIMS OF PRIVATE RESPONDENTS ON THE BASIS OF THE SURETYSHIP AGREEMENT BETWEEN FINMAN AND PAN PACIFIC AND THE PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION (POEA FOR SHORT); AND III THE FINDINGS OF FACT MADE BY THE POEA AND UPON WHICH THE HONORABLE SECRETARY OF LABOR BASED ITS QUESTIONED ORDERS ARE NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND ARE CONTRARY TO LAW. ( Ibid., p. 101) As required by this Court, herein public respondents filed their memorandum on July 28, 1989 (Ibid., p. 84); while that of petitioner and private respondents were filed on September 11, 1989 (Ibid., p. 89) and March 16, 1990 (Ibid., p. 120), respectively. The petition is devoid of merit. In its first and second assigned errors, petitioner maintains that POEA has no jurisdiction to directly enforce the suretyship undertaking of FINMAN (herein petitioner) under the surety bond (Ibid., p. 104). In the case at bar, it remains uncontroverted that herein

petitioner and Pan Pacific entered into a suretyship agreement, with the former agreeing that the bond is conditioned upon the true and faithful performance and observance of the bonded principal (Pan Pacific) of its duties and obligations. It was also understood that under the suretyship agreement, herein petitioner undertook itself to be jointly and severally liable for all claims arising from recruitment violation of Pan Pacific ( Ibid., p. 23), in keeping with Section 4, Rule V, Book I of the Implementing Rules of the Labor Code, which provides: Section 4. Upon approval of the application, the applicant shall pay to the Ministry (now Department) a license fee of P6,000.00, post a cash bond of P50,000.00 or negotiable bonds of equivalent amount convertible to cash issued by banking or financial institution duly endorsed to the Ministry (now Department) as well as a surety bond of P150,000.00 from an accredited bonding company to answer for valid and legal claims arising from violations of the conditions of the license or the contracts of employment and guarantee compliance with the provisions of the Code, its implementing rules and regulations and appropriate issuances of the Ministry (now Department). (Emphasis supplied) Accordingly, the nature of Finman's obligation under the suretyship agreement makes it privy to the proceedings against its principal (Pan Pacific). As such Finman is bound, in the absence of collusion, by a judgment against its principal even though it was not a party to the proceedings Leyson v. Rizal Surety and Insurance Co., 16 SCRA 551 (1966). Furthermore, in Government of the Philippines v. Tizon (20 SCRA 1182 [1967]), this Court ruled that where the surety bound itself solidarily with the principal obligor the former is so dependent on the principal debtor "that the surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter." Applying the foregoing principles to the case at bar, it can be very well said that even if herein Finman was not impleaded in the instant case, still it (petitioner) can be held jointly and severally liable for all claims arising from recruitment violation of Pan Pacific. Moreover, as correctly stated by the Solicitor General, private respondents have a legal

claim against Pan Pacific and its insurer for the placement and processing fees they paid, so much so that in order to provide a complete relief to private respondents, petitioner had to be impleaded in the case (Rollo, p. 87). Furthermore, Finman contends that herein respondent Secretary of Labor cannot validly assume jurisdiction over the case at bar; otherwise, proceedings will be railroaded resulting in the deprivation of the former of any remedial measures under the law. The records of the case reveal that herein Finman filed a motion for reconsideration of the adverse decision dated March 18, 1988 of respondent Secretary of Labor. In the said motion for reconsideration, no jurisdictional challenge was made ( Ibid., p. 22). It was only when it filed this petition that it assailed the jurisdiction of the respondent Secretary of Labor, and that of the POEA. But then, it was too late. Estoppel had barred herein petitioner from raising the issue, regardless of its merits (Akay Printing Press v. Minister of Labor and Employment, 140 SCRA 381 [1985]). Hence, Finman's contention that POEA's and respondent Secretary's actions in impleading and directing herein petitioner to pay jointly and severally with Pan Pacific the claims of private respondents constitute a grave abuse of discretion amounting to lack of jurisdiction has no basis. (Ibid., p. 101.) As regards the third assigned error, herein petitioner maintains that the findings of fact made by the POEA upon which respondent Secretary of Labor based his questioned Orders are not supported by substantial evidence and are contrary to law, is likewise untenable. Herein petitioner, in raising this third issue, is, in effect, asking this Court to review the respondent Secretary's findings of facts. Well-settled is the rule that findings of facts of the respondent Secretary are generally accorded great weight unless there was grave abuse of discretion or lack of jurisdiction in arriving at such findings (Asiaworld Publishing House, Inc. vs. Ople, 152

SCRA 219 (1987). In the case at bar, it is undisputed that when the case was first set for hearing, only the private respondents appeared, despite summons having been served upon both herein petitioner and Pan Pacific. This, notwithstanding, both herein petitioner and Pan Pacific were again notified of the scheduled hearing, but, as aforestated they also' failed to a pear (Rollo, p. 15). Accordingly, owing to the absence of any controverting evidence, respondent Secretary of Labor admitted and considered private respondents' testimonies and evidence as substantial. Under the circumstances, no justifiable reason can be found to justify disturbance of the findings of facts of the respondent Secretary of Labor, supported as they are by substantial evidence and in the absence of grave abuse of discretion (Asiaworld Publishing House, Inc. v. Ople, supra); and in line with the well established principle that the findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but at times even finality. (National Federation of Labor Union (NAFLU) v. Ople, 143 SCRA 124 [1986]) PREMISES CONSIDERED, the questioned Orders of respondent Secretary of Labor are hereby AFFIRMED in toto, SO ORDERED.