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RepublicofthePhilippines
SUPREMECOURT
Manila
ENBANC
G.R.No.L20567July30,1965
PHILIPPINENATIONALBANK,petitioner,
vs.
MANILASURETYandFIDELITYCO.,INC.andTHECOURTOFAPPEALS(SecondDivision),respondents.
Besa,GalangandMedinaforpetitioner.
DeSantosandDelfinoforrespondents.
REYES,J.B.L.,J.:
The Philippine National Bank petitions for the review and reversal of the decision rendered by the Court of
Appeals(SecondDivision),initscaseCAG.R.No.24232R,dismissingtheBank'scomplaintagainstrespondent
ManilaSurety&FidelityCo.,Inc.,andmodifyingthejudgmentoftheCourtofFirstInstanceofManilainitsCivil
CaseNo.11263.
Thematerialfactsofthecase,asfoundbytheappellateCourt,areasfollows:
ThePhilippineNationalBankhadopenedaletterofcreditandadvancedthereon$120,000.00toEdgingtonOil
Refineryfor8,000tonsofhotasphalt.Ofthisamount,2,000tonsworthP279,000.00werereleasedanddelivered
toAdams&TagubaCorporation(knownasATACO)underatrustreceiptguaranteedbyManilaSurety&Fidelity
Co. up to the amount of P75,000.00. To pay for the asphalt, ATACO constituted the Bank its assignee and
attorneyinfacttoreceiveandcollectfromtheBureauofPublicWorkstheamountaforesaidoutoffundspayable
totheassignorunderPurchaseOrderNo.71947.Thisassignment(Exhibit"A")stipulatedthat:
Theconditionsofthisassignmentareasfollows:
1.Thesameshallremainirrevocableuntilthesaidcreditaccomodationisfullyliquidated.
2.ThePHILIPPINENATIONALBANKisherebyappointedasourAttorneyinFactforusandinourname,
place and stead, to collect and to receive the payments to be made by virtue of the aforesaid Purchase
Order,withfullpowerandauthoritytoexecuteanddeliveronourbehalf,receiptforallpaymentsmadeto
ittoendorsefordepositorencashmentchecks,moneyorderandtreasurywarrantswhichsaidBankmay
receive,andtoapplysaidpaymentstothesettlementofsaidcreditaccommodation.
ThispowerofattorneyshallalsoremainirrevocableuntilourtotalindebtednesstothesaidBankhavebeen
fullyliquidated.(ExhibitE)
ATACO delivered to the Bureau of Public Works, and the latter accepted, asphalt to the total value of
P431,466.52. Of this amount the Bank regularly collected, from April 21, 1948 to November 18, 1948,
P106,382.01.Thereafter,forunexplainedreasons,theBankceasedtocollect,untilin1952itsinvestigatorsfound
thatmoremoneyswerepayabletoATACOfromthePublicWorksoffice,becausethelatterhadallowedmother
creditortocollectfundsduetoATACOunderthesamepurchaseordertoatotalofP311,230.41.
ItsdemandsontheprincipaldebtorandtheSuretyhavingbeenrefused,theBanksuedbothintheCourtofFirst
InstanceofManilatorecoverthebalanceofP158,563.18asofFebruary15,1950,plusinterestsandcosts.
OnOctober4,1958,thetrialcourtrenderedadecision,thedispositiveportionofwhichreads:
WHEREFORE,judgmentisherebyrenderedasfollows:
1. Ordering defendants, Adams & Taguba Corporation and Manila Surety & Fidelity Co., Inc., to pay
plaintiff,PhilippinesNationalBank,thesumofP174,462.34asofFebruary24,1956,minustheamountof
P8,000whichdefendant,ManilaSuretyCo.,Inc.paidfromMarch,1956toOctober,1956withinterestat
therateof5%perannumfromFebruary25,1956,untilfullypaidprovidedthatthetotalamountthatshould
bepaidbydefendantManilaSuretyCo.,Inc.,onaccountofthiscaseshallnotexceedP75,000.00,andto
paythecosts
2. Orderinq crossdefendant,Adams &Taguba Corporation, and thirdparty defendant, PedroA.Taguba,
jointly and severally, to pay cross and thirdparty plaintiff, Manila Surety & Fidelity Co., Inc., whatever
amountthelatterhaspaidorshallpayunderthisjudgment

3.Dismissingthecomplaintinsofarastheclaimfor17%specialtaxisconcernedand
4. Dismissing the counterclaim of defendantsAdams & Taguba Corporation and Manila Surety & Fidelity
Co.,Inc.
Fromsaiddecision,onlythedefendantSuretyCompanyhasdulyperfecteditsappeal.TheCentralBankofthe
Philippinesdidnotappeal,whiledefendantATACOfailedtoperfectitsappeal.
TheBankrecoursedtotheCourtofAppeals,whichrenderedanadversedecisionandmodifiedthejudgmentof
the court of origin as to the surety's liability. Its motions for reconsideration having proved unavailing, the Bank
appealedtothisCourt.
The Court ofAppeals found the Bank to have been negligent in having stopped collecting from the Bureau of
PublicWorksthemoneysfallingdueinfavoroftheprincipaldebtor,ATACO,fromandafterNovember18,1948,
beforethedebtwasfullycollected,therebyallowingsuchfundstobetakenandexhaustedbyothercreditorsto
the prejudice of the surety, and held that the Bank's negligence resulted in exoneration of respondent Manila
Surety&FidelityCompany.
ThisholdingisnowassailedbytheBank.ItcontendsthepowerofattorneyobtainedfromATACOwasmerelyin
additionalsecurityinitsfavor,andthatitwasthedutyofthesurety,andnotthatofthecreditor,owedseetoitthat
the obligor fulfills his obligation, and that the creditor owed the surety no duty of active diligence to collect any,
sum from the principal debtor, citing JudgeAdvocate General vs. Court ofAppeals,G.R.No.L10671,October
23,1958.
This argument of appellant Bank misses the point. The Court ofAppeals did not hold the Bank answerable for
negligenceinfailingtocollectfromtheprincipaldebtorbutforitsneglectincollectingthesumsduetothedebtor
fromtheBureauofPublicWorks,contrarytoitsdutyasholderofanexclusiveandirrevocablepowerofattorney
tomakesuchcollections,sinceanagentisrequiredtoactwiththecareofagoodfatherofafamily(Civ.Code,
Art.1887)andbecomesliableforthedamageswhichtheprincipalmaysufferthroughhisnonperformance(Civ.
Code,Art. 1884). Certainly, the Bank could not expect that the Bank would diligently perform its duty under its
powerofattorney,butbecausetheycouldnothavecollectedfromtheBureaueveniftheyhadattemptedtodo
so.ItmustnotbeforgottenthattheBank'spowertocollectwasexpresslymadeirrevocable,sothattheBureauof
Public Works could very well refuse to make payments to the principal debtor itself, and a fortiori reject any
demandsbythesurety.
Even if the assignment with power of attorney from the principal debtor were considered as mere additional
securitystill,byallowingtheassignedfundstobeexhaustedwithoutnotifyingthesurety,theBankdeprivedthe
formerofanypossibilityofrecoursingagainstthatsecurity.TheBanktherebyexoneratedthesurety,pursuantto
Article2080oftheCivilCode:
ART.2080.Theguarantors,eventhoughtheybesolidary,arereleasedfromtheirobligationwhenever
by come act of the creditor they cannot be subrogated to the rights, mortgages and preferences of the
latter.(Emphasissupplied.)
Theappellantpointsouttoitsletterofdemand,Exhibit"K",addressedtotheBureauofPublicWorks,onMay5,
1949, and its letter to ATACO, Exhibit "G", informing the debtor that as of its date, October 31, 1949, its
outstanding balance was P156,374.83. Said Exhibit "G" has no bearing on the issue whether the Bank has
exercisedduediligenceincollectingfromtheBureauofPublicWorks,sincetheletterwasaddressedtoATACO,
andthefundsweretocomefromelsewhere.AstotheletterofdemandonthePublicWorksoffice,itdoesnot
appearthatanyreplytheretowasmadenorthatthedemandwaspressed,northatthedebtororthesuretywere
everapprisedthatpaymentwasnotbeingmade.ThefactremainsthatbecauseoftheBank'sinactivitytheother
creditors were enabled to collect P173,870.31, when the balance due to appellant Bank was only P158,563.18.
ThefindingofnegligencemadebytheCourtofAppealsisthusnotonlyconclusiveonusbutfullysupportedby
theevidence.
EveniftheCourtofAppealserredonthesecondreasonitadvancedinsupportofthedecisionnowunderappeal,
because the rules on application of payments, giving preference to secured obligations are only operative in
caseswherethereareseveraldistinctdebts,andnotwherethereisonlyonethatispartiallysecured,theerroris
ofnoimportance,sincetheprincipalreasonbasedontheBank'snegligencefurnishesadequatesupporttothe
decisionoftheCourtofAppealsthatthesuretywastherebyreleased.
WHEREFORE,theappealeddecisionisaffirmed,withcostsagainstappellantPhilippineNationalBank.
Bengzon,C.J.,Concepcion,Paredes,Dizon,Regala,Makalintal,Bengzon,J.P.,andZaldivar,JJ.,concur.
BautistaAngeloandBarerra,JJ.,tooknopart.
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