G.R. No.

L-7721

March 25, 1914

INCHAUSTI & CO., plaintiff-appellant,

vs.
GREGORIO YULO, defendant-appellee.
Hausserman, Cohn and Fisher for
appellant.
Rohde and Wright for appellee.
Bruce, Lawrence, Ross and Block, Amici
Curiae, for Manuel, Francisco and
Carmen Yulo.
ARELLANO, C.J.:
This suit is brought for the recovery of a
certain sum of money, the balance of a
current account opened by the firm of
Inchausti & Company with Teodoro Yulo
and after his death continued with his
widow and children, whose principal
representative is Gregorio Yulo. Teodoro
Yulo, a property owner of Iloilo, for the
exploitation and cultivation of his
numerous haciendas in the province of
Occidental Negros, had been borrowing
money from the firm of Inchausti &
Company under specific conditions. On
April 9, 1903; Teodoro Yulo died testate
and for the execution of the provisions of
his will he had appointed as
administrators his widow and five of his
sons, Gregorio Yulo being one of the
latter. He thus left a widow, Gregoria
Regalado, who died on October 22d of

the following year, 1904, there remaining

of the marriage the following legitimate
children: Pedro, Francisco, Teodoro,
Manuel, Gregorio, Mariano, Carmen,
Concepcion, and Jose Yulo y Regalado.
Of these children Concepcion and Jose
were minors, while Teodoro was mentally
incompetent. At the death of their
predecessor in interest, Teodoro Yulo,
his widow and children held the conjugal
property in common and at the death of
this said widow, Gregoria Regalado,
these children preserved the same
relations under the name of Hijos de T.
Yulo continuing their current account with
Inchausti & Company in the best and
most harmonious reciprocity until said
balance amounted to two hundred
thousand pesos. In for the payment of
the disbursements of money which until
that time it had been making in favor of
its debtors, the Yulos.
First. Gregorio Yulo, for himself and in
representation of his brothers Pedro
Francisco, Manuel, Mariano, and
Carmen, executed on June 26, 1908, a
notarial document (Exhibit S) whereby all
admitted their indebtedness to Inchausti
& Company in the sum of P203,221.27
and, in order to secure the same with
interest thereon at 10 per cent per
annum, they especially mortgaged an
undivided six-ninth of their thirty-eight
rural properties, their remaining urban

properties, lorchas, and family credits

which were listed, obligating themselves
to make a forma inventory and to
describe in due form all the said
properties, as well as to cure all the
defects which might prevent the
inscription of the said instrument in the
registry of property and finally to extend
by the necessary formalities the
aforesaid mortgage over the remaining
three-ninths part of all the property and
rights belonging to their other brothers,
the incompetent Teodoro, and the minors
Concepcion and Jose.
Second. On January 11, 1909, Gregorio
Yulo in representation of Hijos de T. Yulo
answered a letter of the firm of Inchausti
& Company in these terms: "With your
favor of the 2d inst. we have received an
abstract of our current account with your
important firm, closed on the 31st of last
December, with which we desire to
express our entire conformity as also
with the balance in your favor of
P271,863.12." On July 17, 1909,
Inchausti & Company informed Hijos de
T. Yulo of the reduction of the said
balance to P253,445.42, with which
balance Hijos de T. Yulo expressed its
conformity by means of a letter of the
19th of the same month and year.
Regarding this conformity a new
document evidencing the mortgage
credit was formalized.

Third. On August 12, 1909, Gregorio

Yulo, for himself and in representation of
his brother Manuel Yulo, and in their own
behalf Pedro Yulo, Francisco Yulo,
Carmen Yulo, and Concepcion Yulo, the
latter being of age at the time, executed
the notarial instrument (Exhibit X).
Through this, the said persons, including
Concepcion Yulo ratified all the contents
of the prior document of June 26, 1908,
severally and jointly acknowledged and
admitted their indebtedness to Inchausti
& Company for the net amount of two
hundred fifty-three thousand four
hundred forty-five pesos and forty-two
centavos (P253,445.42) which they
obligated themselves to pay, with interest
at ten per cent per annum, in five
installments at the rate of fifty thousand
pesos (P50,000), except the last, this
being fifty-three thousand four hundred
forty-five pesos and forty-two centavos
(P53,445.42), beginning June 30, 1910,
continuing successively on the 30th of
each June until the last payment on June
30, 1914. Among other clauses, they
expressly stipulated the following:
Fifth. The default in payment of
any of the installments
established in clause 3, or the
noncompliance of any of the
other obligations which by the
present document and that of
June 26, 1908, we, the Yulos,

brothers and sisters, have

assumed, will result in the
maturity of all the said
installments, and as a
consequence thereof, if they so
deem expedient Messrs.
Inchausti & Company may
exercise at once all the rights
and actions which to them
appertain in order to obtain the
immediate and total payment of
our debt, in the same manner
that they would have so done at
the maturity of the said
installments.
Fifteenth. All the obligations
which by this, as well as by the
document of June 26, 1908,
concern us, will be understood as
having been contradicted in
solidum by all of us, the Yulos,
brothers and sisters.
Sixteenth. It is also agreed that
this instrument shall be
confirmed and ratified in all its
parts, within the present week, by
our brother Don Mariano Yulo y
Regalado who resides in
Bacolod, otherwise it will not be
binding on Messrs. Inchausti &
Company who can make use of
their rights to demand and obtain
immediate payment of their credit

without any further extension or

delay, in accordance with what
we have agreed.
Fourth. This instrument was neither
ratified nor confirmed by Mariano Yulo.
Fifth. The Yulos, brothers and sisters,
who executed the preceding instrument,
did not pay the first installment of the
obligation.
Sixth. Therefore, on March 27, 1911,
Inchausti & Company brought an
ordinary action in the Court of First
Instance of Iloilo, against Gregorio Yulo
for the payment of the said balance due
of two hundred fifty-three thousand, four
hundred forty-five pesos and forty-two
centavos P253,445.42) with interest at
ten per cent per annum, on that date
aggregating forty-two thousand, nine
hundred forty-four pesos and seventy-six
centavos (P42,944.76)
Seventh. But, on May 12, 1911,
Francisco, Manuel, and Carmen Yulo y
Regalado executed in favor Inchausti &
Company another notarial instrument in
recognition of the debt and obligation of
payment in the following terms: "First,
the debt is reduce for them to two
hundred twenty-five thousand pesos
(P225,000); second, the interest is
likewise reduced for them to 6 percent

per annum, from March 15, 1911; third,

the installments are increase to eight, the
first of P20,000, beginning on June 30,
1911, and the rest of P30,000 each on
the same date of each successive year
until the total obligation shall be finally
and satisfactorily paid on June 30, 1919,"
it being expressly agreed "that if any of
the partial payments specified in the
foregoing clause be not paid at its
maturity, the amount of the said partial
payment together with its interest shall
bear interest at the rate of 15 per cent
per annum from the date of said maturity,
without the necessity of demand until its
complete payment;" that "if during two
consecutive years the partial payments
agreed upon be not made, they shall
lose the right to make use of the period
granted to them for the payment of the
debt or the part thereof which remains
unpaid, and that Messrs. Inchausti &
Company may consider the total
obligation due and demandable, and
proceed to collect the same together with
the interest for the delay above
stipulated through all legal means." (4th
clause.)
Thus was it stipulated between Inchausti
& Company and the said three Yulos,
brothers and sisters by way of
compromise so that Inchausti &
Company might, as it did, withdraw the
claims pending in the special

proceedings for the probate of the will of

Don Teodoro Yulo and of the intestacy of
Doa Gregoria Regalado stipulating
expressly however in the sixth clause
that "Inchausti & Company should
include in their suit brought in the Court
of First Instance of Iloilo against Don
Gregorio Yulo, his brother and joint coobligee, Don Pedro Yulo, and they will
procure by all legal means and in the
least time possible a judgment in their
favor against the said Don Gregorio and
Don Pedro, sentencing the later to pay
the total amount of the obligation
acknowledged by them in the
aforementioned instrument of August 12,
1909; with the understanding that if they
should deem it convenient for their
interests, Don Francisco, Don Manuel,
and Doa Carmen Yulo may appoint an
attorney to cooperate with the lawyers of
Inchausti & Company in the proceedings
of the said case."
Eighth. Matters being thus on July 10,
1911, Gregorio Yulo answered the
complaint and alleged as defenses; first,
that an accumulation of interest had
taken place and that compound interest
was asked for the Philippine currency at
par with Mexican; second, that in the
instrument of August 21, 1909, two
conditions were agreed one of which
ought to be approved by the Court of
First Instance, and the other ratified and

confirmed by the other brother Mariano

Yulo, neither of which was complied with;
third , that with regard to the same debt
claims were presented before the
commissioners in the special
proceedings over the inheritances of
Teodoro Yulo and Gregoria Regalado,
though later they were dismissed,
pending the present suit; fourth and
finally, that the instrument of August 12,
1909, was novated by that of May 12,
1911, executed by Manuel, Francisco
and Carmen Yulo.
Ninth. The Court of First Instance of Iloilo
decided the case "in favor of the
defendant without prejudice to the
plaintiff's bringing within the proper time
another suit for his proportional part of
the joint debt, and that the plaintiff pay
the costs." (B. of E., 21.)
The plaintiff appealed from this judgment
by bill of exceptions and before this court
made the following assignment of errors:
I. That the court erred in considering the
contract of May 12, 1911, as constituting
a novation of that of August 12, 1909.
II. That the court erred in rendering
judgment in favor of the defendant.
III. And that the court erred n denying the
motion for a new trial.

"No one denies in this case," says the

trial judge, "that the estate of Teodoro
Yulo or his heirs owe Inchausti &
Company an amount of money, the
object of this action, namely,
P253,445.42" (B. of E. 18). "The fact is
admitted," says the defendant, "that the
plaintiff has not collected the debt, and
that the same is owing" (Brief, 33). "In
the arguments of the attorneys," the
judge goes on, "it was really admitted
that the plaintiff had a right to bring an
action against Gregorio Yulo, as one of
the conjoint and solidary obligors in the
contract of August 12, 1909; but the
defendant says that the plaintiff has no
right to sue him alone, since after the
present suit was brought, the plaintiff
entered into a compromise with the other
conjoint and solidary debtors, the result
being the new contract of May 12, 1911,
by virtue of which the payments were
extended, the same constituting a
novation of the contract which gave him
the same privileges that were given his
conjoint and solidary codebtors. This (the
judge concludes) is the only question
brought up by the parties." (B. of E., 19.)
And this is the only one which the
Supreme Court has to solve by virtue of
the assignments of errors alleged.
Consequently, there is no need of saying
anything regarding the first three
defenses of the answer, nor regarding

the lack of the signature of Mariano Yulo

ratifying and confirming the instrument of
August 12, 1909, upon which the
appellee still insists in his brief for this
appeal; although it will not be
superfluous to state the doctrine that a
condition, such as is contained in the
sixteenth clause of the said contract
(third point in the statement of facts), is
by no means of suspensive but a
resolutory condition; the effect of the
failure of compliance with the said
clause, that is to say, the lack of the
ratification and confirmance by Mariano
Yulo being not to suspend but to resolve
the contract, leaving Inchausti &
Company at liberty, as stipulated, "to
make use of its rights to demand and
obtain the immediate payment of its
credit."
The only question indicated in the
decision of the inferior court involves,
however, these others: First, whether the
plaintiff can sue Gregorio Yulo alone,
there being other obligors; second, if so,
whether it lost this right by the fact of its
having agreed with the other obligors in
the reduction of the debt, the proroguing
of the obligation and the extension of the
time for payment, in accordance with the
instrument of May 12, 1911; third,
whether this contract with the said three
obligors constitutes a novation of that of
August 12, 1909, entered into with the

six debtors who assumed the payment of

two hundred fifty-three thousand and
some odd pesos, the subject matter of
the suit; and fourth, if not so, whether it
does have any effect at all in the action
brought, and in this present suit.
With respect to the first it cannot be
doubted that, the debtors having
obligated themselves in solidum, the
creditor can bring its action in
toto against any one of them, inasmuch
as this was surely its purpose in
demanding that the obligation contracted
in its favor should be solidary having in
mind the principle of law that, "when the
obligation is constituted as a conjoint and
solidary obligation each one of the
debtors is bound to perform in full the
undertaking which is the subject matter
of such obligation." (Civil Code, articles
1137 and 1144.)
And even though the creditor may have
stipulated with some of the solidary
debtors diverse installments and
conditions, as in this case, Inchausti &
Company did with its debtors Manuel,
Francisco, and Carmen Yulo through the
instrument of May 12, 1911, this does not
lead to the conclusion that the solidarity
stipulated in the instrument of August 12,
1909 is broken, as we already know the
law provides that "solidarity may exist
even though the debtors are not bound

in the same manner and for the same

periods and under the same conditions."
(Ibid, article 1140.) Whereby the second
point is resolved.
With respect to the third, there can also
be no doubt that the contract of May 12,
1911, does not constitute a novation of
the former one of August 12, 1909, with
respect to the other debtors who
executed this contract, or more
concretely, with respect to the defendant
Gregorio Yulo: First, because "in order
that an obligation may be extinguished
by another which substitutes it, it is
necessary that it should be so expressly
declared or that the old and the new be
incompatible in all points" (Civil Code,
article 1204); and the instrument of May
12, 1911, far from expressly declaring
that the obligation of the three who
executed it substitutes the former signed
by Gregorio Yulo and the other debtors,
expressly and clearly stated that the said
obligation of Gregorio Yulo to pay the two
hundred and fifty-three thousand and
odd pesos sued for exists, stipulating
that the suit must continue its course
and, if necessary, these three parties
who executed the contract of May 12,
1911, would cooperate in order that the
action against Gregorio Yulo might
prosper (7th point in the statement of
facts), with other undertakings
concerning the execution of the

judgment which might be rendered

against Gregorio Yulo in this same suit.
"It is always necessary to state that it is
the intention of the contracting parties to
extinguish the former obligation by the
new one" (Judgment in cassation, July 8,
1909). There exist no incompatibility
between the old and the new obligation
as will be demonstrated in the resolution
of the last point, and for the present we
will merely reiterate the legal doctrine
that an obligation to pay a sum of money
is not novated in a new instrument
wherein the old is ratified, by changing
only the term of payment and adding
other obligations not incompatible with
the old one. (Judgments in cassation of
June 28, 1904 and of July 8, 1909.)
With respect to the last point, the
following must be borne in mind:
Facts. First. Of the nine children of T.
Yulo, six executed the mortgage of
August 12, 1909, namely, Gregorio,
Pedro, Francisco, Manuel, Carmen, and
Concepcion, admitting a debt of
P253,445.42 at 10 per cent per annum
and mortgaging six-ninths of their
hereditary properties. Second. Of those
six children, Francisco, Manuel and
Carmen executed the instrument of May
12, 1911, wherein was obtained a
reduction of the capital to 225,000 pesos
and of the interest to 6 per cent from the

15th of March of the same year of 1911.

Third. The other children of T. Yulo
named Mariano, Teodoro, and Jose have
not taken part in these instruments and
have not mortgaged their hereditary
portions. Fourth. By the first instrument
the maturity of the first installment was
June 30, 1910, whereas by the second
instrument, Francisco, Manuel, and
Carmen had in their favor as the maturity
of the first installment of their debt, June
30, 1912, and Fifth, on March 27, 1911,
the action against Gregorio Yulo was
already filed and judgment was
pronounced on December 22, 1911,
when the whole debt was not yet due nor
even the first installment of the same
respective the three aforesaid debtors,
Francisco, Manuel, and Carmen.
In jure it would follow that by sentencing
Gregorio Yulo to pay 253,445 pesos and
42 centavos of August 12, 1909, this
debtor, if he should pay all this sum,
could not recover from his joint debtors
Francisco, Manuel, and Carmen their
proportional parts of the P253,445.42
which he had paid, inasmuch as the
three were not obligated by virtue of the
instrument of May 12, 1911, to pay only
225,000 pesos, thus constituting a
violation of Gregorio Yulo's right under
such hypothesis, of being reimbursed for
the sum paid by him, with the interest of
the amounts advanced at the rate of

one-sixth part from each of his five

codebtors. (Civ. Code, article 1145, par.
2). This result would have been a
ponderous obstacle against the
prospering of the suit as it had been
brought. It would have been very just
then to have absolved the solidary
debtor who having to pay the debt in its
entirety would not be able to demand
contribution from his codebtors in order
that they might reimburse him pro
rata for the amount advanced for them
by him. But such hypothesis must be put
out of consideration by reason of the fact
that occurred during the pendency of the
action, which fact the judge states in his
decision. "In this contract of May last," he
says, "the amount of the debt was
reduced to P225,000 and the attorney of
the plaintiff admits in his plea that
Gregorio Yulo has a right to the benefit of
this reduction." (B. of E., 19.) This is a
fact which this Supreme Court must hold
as firmly established, considering that
the plaintiff in its brief, on page 27,
corroborates the same in these words:
"What effect," it says, "could this contract
have over the rights and obligations of
the defendant Gregorio Yulo with respect
to the plaintiff company? In the first
place, we are the first to realize that
it benefits him with respect to the
reduction of the amount of the debt. The
obligation being solidary, the remission of
any part of the debt made by a creditor in

favor of one or more of the solidary

debtors necessarily benefits the others,
and therefore there can be no doubt that,
in accordance with the provision of
article 1143 of the Civil Code, the
defendant has the right to enjoy the
benefits of the partial remission of the
debt granted by the creditor."
Wherefore we hold that although the
contract of May 12, 1911, has not
novated that of August 12, 1909, it has
affected that contract and the outcome of
the suit brought against Gregorio Yulo
alone for the sum of P253,445.42; and in
consequence thereof, the amount stated
in the contract of August 12, 1909,
cannot be recovered but only that stated
in the contract of May 12, 1911, by virtue
of the remission granted to the three of
the solidary debtors in this instrument, in
conformity with what is provided in article
1143 of the Civil Code, cited by the
creditor itself.
If the efficacy of the later instrument over
the former touching the amount of the
debt had been recognized, should such
efficacy not likewise be recognized
concerning the maturity of the same? If
Francisco, Manuel, and Carmen had
been included in the suit, they could
have alleged the defense of the
nonmaturity of the installments since the
first installment did not mature until June

30, 1912, and without the least doubt the

defense would have prospered, and the
three would have been absolved from
the suit. Cannot this defense of the
prematurity of the action, which is
implied in the last special defense set up
in the answer of the defendant Gregorio
Yulo be made available to him in this
proceeding?
The following commentary on article
1140 of the Civil Code sufficiently
answers this question: ". . . . Before the
performance of the condition, or before
the execution of a term which affects one
debtor alone proceedings may be had
against him or against any of the others
for the remainder which may be already
demandable but the conditional
obligation or that which has not yet
matured cannot be demanded from any
one of them. Article 1148 confirms the
rule which we now enunciate inasmuch
as in case the total claim is made by one
creditor, which we believe improper if
directed against the debtor affected by
the condition or the term, the latter can
make use of such exceptions as are
peculiarly personal to his own obligation;
and if against the other debtors,
they mightmake use of those exceptions,
even though they are personal to the
other, inasmuch as they alleged they are
personal to the other, inasmuch as they
alleged them in connection with that part

of the responsibility attaching in a special

manner to the other." (8 Manresa, Sp.
Civil Code, 196.)
Article 1148 of the Civil Code. "The
solidary debtor may utilize against the
claims of the creditor of the defenses
arising from the nature of the obligation
and those which are personal to him.
Those personally pertaining to the others
may be employed by him only with
regard to the share of the debt for which
the latter may be liable."
Gregorio Yulo cannot allege as a
defense to the action that it is premature.
When the suit was brought on March 27,
1911, the first installment of the
obligation had already matured of June
30, 1910, and with the maturity of this
installment, the first not having been
paid, the whole debt had become
mature, according to the express
agreement of the parties, independently
of the resolutory condition which gave
the creditor the right to demand the
immediate payment of the whole debt
upon the expiration of the stipulated term
of one week allowed to secure from
Mariano Yulo the ratification and
confirmation of the contract of August 12,
1909.
Neither could he invoke a like exception
for the shares of his solidary codebtors

Pedro and Concepcion Yulo, they being

in identical condition as he.
But as regards Francisco, Manuel, and
Carmen Yulo, none of the installments
payable under their obligation,
contracted later, had as yet matured. The
first payment, as already stated, was to
mature on June 30, 1912. This exception
or personal defense of Francisco,
Manuel, and Carmen Yulo "as to the part
of the debt for which they were
responsible" can be sent up by Gregorio
Yulo as a partial defense to the action.
The part of the debt for which these
three are responsible is three-sixths of
P225,000 or P112,500, so that Gregorio
Yulo may claim that, even
acknowledging that the debt for which he
is liable is P225,000, nevertheless not all
of it can now be demanded of him, for
that part of it which pertained to his
codebtors is not yet due, a state of affairs
which not only prevents any action
against the persons who were granted
the term which has not yet matured, but
also against the other solidary debtors
who being ordered to pay could not now
sue for a contribution, and for this reason
the action will be only as to the
P112,500.
Against the propriety and legality of a
judgment against Gregorio Yulo for this
sum, to wit, the three-sixths part of the

debt which forms the subject matter of

the suit, we do not think that there was
any reason or argument offered which
sustains an opinion that for the present it
is not proper to order him to pay all or
part of the debt, the object of the action.
It has been said in the brief of the
appellee that the prematurity of the
action is one of the defenses derived
from the nature of the obligation,
according to the opinion of the
commentator of the Civil Code, Mucius
Scaevola, and consequently the
defendant Gregorio Yulo may make use
of it in accordance with article 1148 of
the said Code. It may be so and yet,
taken in that light, the effect would not be
different from that already stated in this
decision; Gregorio Yulo could not be
freed from making any payment
whatever but only from the payment of
that part of the debt which corresponds
to his codebtors Francisco, Manuel, and
Carmen. The same author, considering
the case of the opposing contention of
two solidary debtors as to one of whom
the obligation is pure and unconditional
and as to the other it is conditional and is
not yet demandable, and comparing the
disadvantages which must flow from
holding that the obligation is demandable
with these which must follow if the
contrary view is adopted, favors this
solution of the problem:

There is a middle ground, (he

says), from which we can safely
set out, to wit, that the creditor
may ofcourse, demand the
payment of his credit against the
debtor not favored by any
condition or extension of time."
And further on, he decides the
question as to whether the whole
debt may be recovered or only
that part unconditionally owing or
which has already matured,
saying, "Without failing to
proceed with juridical rigor, but
without falling into extravagances
or monstrosities, we believe that
the solution of the difficulty is
perfectly possible. How? By
limiting the right of the creditor to
the recovery of the amount owed
by the debtors bound
unconditionally or as to whom the
obligation has matured, and
leaving in suspense the right to
demand the payment of the
remainder until the expiration of
the term of the fulfillment of the
condition. But what then is the
effect of solidarity? How can this
restriction of right be reconciled
with the duty imposed upon each
one of the debtors to answer for
the whole obligation? Simply this,
by recognizing in the creditor the
power, upon the performance of

the condition or the expiration of

the term of claiming from any one
or all of the debtors that part of
the obligation affected by those
conditions. (Scaevola, Civil
Code, 19, 800 and 801.)
It has been said also by the trial judge in
his decision that if a judgment be entered
against Gregorio Yulo for the whole debt
of P253,445.42, he cannot recover from
Francisco, Manuel, and Carmen Yulo
that part of the amount which is owed by
them because they are obliged to pay
only 225,000 pesos and this is eight
installments none of which was due. For
this reason he was of the opinion that he
(Gregorio Yulo) cannot be obliged to pay
his part of the debt before the contract of
May 12, 1911, may be enforced, and
"consequently he decided the case in
favor of the defendant, without prejudice
to the plaintiff proceeding in due time
against him for his proportional part of
the joint debt." (B. of E., 21 and 22.)
But in the first place, taking into
consideration the conformity of the
plaintiff and the provision of article 1143
of the Civil Code, it is no longer possible
to sentence the defendant to pay the
P253,445.42 of the instrument of August
12, 1909, but, if anything, the 225,000 of
the instrument of May 12, 1911.

In the second place, neither is it possible

to curtail the defendant's right of
recovery from the signers of the
instrument of May 12, 1911, for he was
justly exonerated from the payment of
that part of the debt corresponding to
them by reason of there having been
upheld in his favor the exception of an
unmatured installment which pertains to
them.
In the third place, it does not seem just,
Mucius Scaevola considers it "absurd,"
that, there being a debtor who is
unconditionally obligated as to when the
debt has matured, the creditor should be
forced to await the realization of the
condition (or the expiration of the term.)
Not only is there no reason for this, as
stated by the author, but the court would
even fail to consider the special law of
the contract, neither repealed nor
novated, which cannot be omitted
without violating article 1091 of the Civil
Code according to which "the obligations
arising from contracts have the force of
law between the contracting parties
and must be complied with in
accordance with the tenor of the same."
Certain it is that the trial court, in holding
that this action was premature but might
be brought in the time, regarded the
contract of August 12, 1909, as having
been expressly novated; but it is
absolutely impossible in law to sustain

such supposed novation, in accordance

with the legal principles already stated,
and nevertheless the obligation of the
contract of May 12, 1911, must likewise
be complied with in accordance with its
tenor, which is contrary in all respects to
the supposed novation, by obliging the
parties who signed the contract to carry
on the suit brought against Gregorio
Yulo. The contract of May 12, 1911, has
affected the action and the suit, to the
extent that Gregorio Yulo has been able
to make in his favor the defense of
remission of part of the debt, thanks to
the provision of article 1148, because it is
a defense derived from the nature of the
obligation, so that although the said
defendant was not party to the contract
in question, yet because of the principle
of solidarity he was benefited by it.
The defendant Gregorio Yulo cannot be
ordered to pay the P253,445.42 claimed
from him in the suit here, because he
has been benefited by the remission
made by the plaintiff to three of his
codebtors, many times named above.
Consequently, the debt is reduced to
225,000 pesos.
But, as it cannot be enforced against the
defendant except as to the three-sixths
part which is what he can recover from
his joint codebtors Francisco, Manuel,

and Carmen, at present, judgment can

be rendered only as to the P112,500.
We therefore sentence the defendant
Gregorio Yulo to pay the plaintiff
Inchausti & Company P112,500, with the
interest stipulated in the instrument of
May 12, 1911, from March 15, 1911, and
the legal interest on this interest due,
from the time that it was claimed
judicially in accordance with article 1109
of the Civil Code, without any special
finding as to costs. The judgment
appealed from is reversed. So ordered.
Carson, Trent, and Araullo, JJ., concur.

SUPREME COURT
SECOND DIVISION
BALDOMERO INCIONG,
JR.,
Petitioner,
-versus- G.R. No. 96405
June 26, 1996
COUR
T OF
APPE
ALS
and
PHILI
PPINE

BANK
OF
COM
MUNI
CATIO
NS,
Respondents.
x--------------------------------------------------x
DECISION
ROMERO, J.:
This is a Petition for
Review on Certiorari of the
Decision of the Court of
Appeals affirming that of
the Regional Trial Court of
Misamis Oriental, Branch
18,[1] which disposed of
Civil Case No. 10507 for
collection of a sum of
money and damages, as
follows:
chanro

WHEREFORE, defendant
BALDOMERO L. INCIONG,
JR. is adjudged solidarily
liable and ordered to pay
to the plaintiff Philippine

Bank of Communications,
Cagayan de Oro City, the
amount
of
FIFTY
THOUSAND
PESOS
(P50,000.00), with interest
thereon from May 5, 1983
at 16% per annum until
fully paid; and 6% per
annum
on
the
total
amount due, as liquidated
damages or penalty from
May 5, 1983 until fully
paid; plus 10% of the total
amount due for expenses
of litigation and attorneys
fees; and to pay the costs.
The counterclaim, as
well as the cross
claim, are dismissed
for lack of merit.
SO ORDERED.
Petitioners
liability
resulted
from
the
promissory note in the
amount
of
P50,000.00
which he signed with Rene
C. Naybe and Gregorio D.
Pantanosas on February 3,

1983, holding themselves

jointly and severally liable
to
private
respondent
Philippine
Bank
of
Communications, Cagayan
de Oro City branch. The
promissory note was due
on May 5, 1983.
Said due date expired
without the promissors
having
paid
their
obligation. Consequently,
on November 14, 1983
and on June 8, 1984,
private respondent sent
petitioner
telegrams
demanding
payment
thereof.[2] On December
11,
1984
private
respondent also sent by
registered mail a final
letter of demand to Rene
C. Naybe. Since both
obligors did not respond to
the
demands
made,
private respondent filed on
January
24,
1986
a
complaint for collection of

the sum of P50,000.00

against the three obligors.
On November 25, 1986,
the
complaint
was
dismissed for failure of the
plaintiff to prosecute the
case. However, on January
9, 1987, the lower court
reconsidered the dismissal
order and required the
sheriff
to
serve
the
summonses. On January
27, 1987, the lower court
dismissed the case against
defendant Pantanosas as
prayed for by the private
respondent
herein.
Meanwhile,
only
the
summons addressed to
petitioner was served as
the sheriff learned that
defendant Naybe had gone
to Saudi Arabia.
chanroblespublishingcompany

chanroblespublishingcompany

In his answer, petitioner

alleged that sometime in
January 1983, he was
approached by his friend,
Rudy Campos, who told
him that he was a partner
of Pio Tio, the branch
manager
of
private
respondent in Cagayan de
Oro City, in the falcata logs
operation
business.
Campos also intimated to
him that Rene C. Naybe
was interested in the
business
and
would
contribute a chainsaw to
the venture. He added
that, although Naybe had
no money to buy the
equipment, Pio Tio had
assured Naybe of the
approval of a loan he
would make with private
respondent. Campos then
persuaded petitioner to act
as a co-maker in the said
loan. Petitioner allegedly
acceded but with the

understanding
that
he
would only be a co-maker
for the loan of P5,000.00.
Petitioner alleged further
that five (5) copies of a
blank
promissory
note
were brought to him by
Campos at his office. He
affixed
his
signature
thereto but in one copy, he
indicated that he bound
himself
only
for
the
amount
of
P5,000.00.
Thus, it was by trickery,
fraud
and
misrepresentation that he
was made liable for the
amount of P50,000.00.
In
the
aforementioned
decision of the lower court,
it
noted
that
the
typewritten
figure
50,000- clearly appears
directly
below
the
admitted signature of the
petitioner
in
the
promissory note.[3] Hence,
the latters uncorroborated

testimony on his limited

liability cannot prevail over
the presumed regularity
and
fairness
of
the
transaction, under Sec. 5
(q) of Rule 131. The lower
court added that it was
rather odd for petitioner
to have indicated in a copy
and not in the original, of
the promissory note, his
supposed obligation in the
amount of P5,000.00 only.
Finally, the lower court
held that, even granting
that said limited amount
had actually been agreed
upon, the same would
have
been
merely
collateral between him and
Naybe and, therefore, not
binding upon the private
respondent as creditorbank.
The lower court also noted
that petitioner was a
holder of a Bachelor of
Laws degree and a labor
chanroblespublishingcompany

consultant
who
was
supposed to take due care
of his concerns, and that,
on the witness stand, Pio
Tio
denied
having
participated in the alleged
business venture although
he knew for a fact that the
falcata logs operation was
encouraged by the bank
for its export potential.
chanroblespublishingcompany

Petitioner appealed the

said decision to the Court
of Appeals which, in its
decision of August 31,
1990, affirmed that of the
lower court. His motion for
reconsideration of the said
decision
having
been
denied, he filed the instant
petition for review on
certiorari.
On February 6, 1991, the
Court denied the petition
for failure of petitioner to
comply with the Rules of
Court and paragraph 2 of
Circular No. 1-88, and to
sufficiently
show
that
respondent
court
had
committed any reversible
error in its questioned
Decision.[4] His Motion for
the Reconsideration of the
denial of his Petition was
likewise
denied
with
finality in the Resolution of
April
24,
1991.[5]
Thereafter, petitioner filed

a motion for leave to file a

second
motion
for
reconsideration which, in
the Resolution of May 27,
1991, the Court denied. In
the same Resolution, the
Court ordered the entry of
judgment in this case.[6]
Unfazed, petitioner filed a
motion for leave to file a
motion for clarification. In
the latter motion, he
asserted that he had
attached Registry Receipt
No. 3268 to page 14 of the
petition in compliance with
Circular No. 1-88. Thus, on
August 7, 1991, the Court
granted his prayer that his
petition be given due
course and reinstated the
same.[7]
Nonetheless, we fined the
petition unmeritorious.
Annexed to the petition is
a copy of an affidavit
executed on May 3, 1988,
or after the rendition of the
chanroblespublishingcompany

decision of the lower court,

by Gregorio Pantanosas,
Jr., an MTCC judge and
petitioners co-maker in
the promissory note. It
supports
petitioners
allegation that they were
induced
to
sign
the
promissory note no the
belief that it was only for
P5,000.00, adding that it
was Campos who caused
the amount of the loan to
be
increased
to
P50,000.00.
The affidavit is clearly
intended
to
buttress
petitioners contention in
the instant petition that
the Court of Appeals
should have declared the
promissory note null and
void on the following
grounds:
(a)
the
promissory
note
was
signed in the office of
Judge Pantanosas, outside
the premises of the bank;
chanroblespublishingcompany

(b) the loan was incurred

for the purpose of buying a
second-hand
chainsaw
which cost only P5,000.00;
(c) even a new chainsaw
would
cost
only
P27,500.00; (d) the loan
was not

approved by the board or

credit committee which
was the practice, at it
exceeded P5,000.00; (e)
the loan had no collateral;
(f) petitioner and Judge
Pantanosas
were
not
present at the time the
loan was released in
contravention of the bank
practice, and (g) notices of
default
are
sent
simultaneously
and
separately but no notice
was validly sent to him.[8]
Finally, petitioner contends
that
in
signing
the
promissory
note,
his
consent was vitiated by
fraud as, contrary to their
agreement that the loan
was only for the amount of
P5,000.00, the promissory
note stated the amount of
P50,000.00.
The above-stated points
are
clearly
factual.
Petitioner
is
to
be
chanroblespublishingcompany

reminded of the basic rule

that this Court is not a trier
of facts. Having lost the
chance to fully ventilate
his factual claims below,
petitioner may no longer
be accorded the same
opportunity in the abuse of
discretion on the part of
the court below. Had he
presented
Judge
Pantanosas
affidavit
before the lower court, it
would have strengthened
his
claim
that
the
promissory note did not
reflect the correct amount
of the loan.
Nor is there merit in
petitioners assertion that
since the promissory note
is not a public deed with
the formalities prescribed
by law but a mere
commercial paper which
does
not
bear
the
signature
ofattesting
witnesses, parol evidence
chanroblespublishingcompany

may
overcome
the
contents of the promissory
note.[9] The first paragraph
of the parol evidence
rule[10] states:
When the terms of
an agreement have
been
reduced
to
writing,
it
is
considered
as
containing
all
the
terms agreed upon
and there can be,
between the parties
and their successors
in
interest,
no
evidence
of
such
terms other than the
content of the written
agreement.
Clearly, the rule does not
specify that the written
agreement be a public
document.
What is required is that
agreement be in writing as
the rule is in fact founded
on long experience that
chanroblespublishingcompany

chanroblespublishingcompany

written evidence is so
much more certain and
accurate than that which
rests in fleeting memory
only, that it would be
unsafe, when parties have
expressed the terms of
their contract in writing, to
admit weaker evidence to
control and vary

the stronger and to show

that the parties intended a
different contract from
that expressed in the
writing
signed
by
them.[11] Thus, for the
parol evidence rule to
apply, a written contract
need not by in any
particular form, or be
signed by both parties.[12]
As a general rule, bills,
notes
and
other
instruments of a similar
nature are not subject to
be varied or contradicted
by
parol
or
extrinsic
evidence.[13]
By alleging fraud in his
answer,[14] petitioner was
actually
in
the
right
direction towards proving
that he and his co-makers
agreed to a loan of
P5,000.00 only considering
that,
where
a
parol
contemporaneous
agreement
was
the
chanroblespublishingcompany

inducing
and
moving
cause
of
the
written
contract, it may be shown
by
parol
evidence.[15]
However, fraud must be
established by clear and
convincing evidence, mere
preponderance
of
evidence, not even being
adequate.[16]
Petitioners
attempt to prove fraud
must, therefore, fail as it
was evidenced only by his
own uncorroborated and,
expectedly,
self-serving
testimony.
Petitioner also argues that
the
dismissal
of
the
complaint against Naybe,
the principal debtor, and
against Pantanosas, his comaker,
constituted
a
release of his obligation,
especially because the
dismissal of the case
against Pantanosas was
upon the motion of private
respondent itself. He cites
chanroblespublishingcompany

as basis for his argument,

Article 2080 of the Civil
Code which provides that:
The
guarantors,
even though they be
solidary, are released
from their obligation
whenever by come
act of the creditor,
they
cannot
be
subrogated to the
rights,
mortgages,
and preferences of
the latter.
It is to be noted, however,
that petitioner signed the
promissory note as a
solidary co-maker and not
as a guarantor. This is
patent even from the first
sentence of the promissory
note which states as
follows:
Ninety one (91) days
after date, for value
received,
I/we,
JOINTLY
and
SEVERALLY
promise
chanroblespublishingcompany

to
pay
to
the
PHILIPPINE BANK OF
COMMUNICATIONS as
its office in the City of
Cagayan
de
Oro,
Philippines the sum of
FIFTY
THOUSAND
ONLY
(P50,000.00)
Pesos,
Philippine
Currency,
together
with interest at the
rate of SIXTEEN (16)
per cent per annum
until fully paid.
chanroblespublishingcompany

A solidary or joint and

several obligation is one in
which each debtor is liable
for the entire obligation,
and
each
creditor
is
entitled to demand the
whole obligation.[17] On the
other hand, Article 2047 of
the Civil Code states:
By
guaranty
a
person, called the
guarantor,
binds
himself to the creditor
to fulfill the obligation
of
the
principal
debtor in case the
latter should fail to do
so.
If a person binds
himself solidarily with
the principal debtor,
the
provisions
of
Section 4, Chapter 3,
Title I of this Book
shall be observed, In
such a case the
contract is called a
chanroblespublishingcompany

suretyship.
(Emphasis supplied.)
While a guarantor may
bind himself solidarily with
the principal debtor, the
liability of a guarantor is
different from that of a
solidary
debtor.
Thus,
Tolentino explains:
A
guarantor
who
binds
himself
in
solidum
with
the
principal
debtor
under the provisions
of
the
second
paragraph does not
become a solidary codebtor to all intents
and purposes. There
is
a
difference
between a solidary
co-debtor,
and
a
fiador
in
solidum
(surety). The later,
outside of the liability
he assumes to pay
the debt before the
property
of
the

principal debtor has

been
exhausted,
retains all the other
rights, actions and
benefits
which
pertain to him by
reason of rights than
those bestowed upon
him in Section 4,
Chapter 3, title I,
Book IV of the Civil
Code.[18]
Section 4, Chapter 3, Title
I, Book IV of the Civil Code
states the law on joint and
several obligations. Under
Art. 1207 thereof, when
there are two or more
debtors in one and the
same
obligation,
the
presumption
is
that
obligation is joint so that
each of the debtors is
liable
only
for
a
proportionate part of the
debt. There is a solidarily
liability only when he
obligation expressly so
chanroblespublishingcompany

states, when the law so

provides or when the
nature of the obligation so
requires.[19]
Because the promissory
note involved in this case
expressly states that the
three signatories therein
are jointly and severally
liable, any
chanroblespublishingcompany

one, some or all of them

may be proceeded against
for the entire obligation.[20]
The choice is left to the
solidary
creditor
to
determine against whom
he will enforce collection.
[21]
Consequently,
the
dismissal of the case
against Judge Pontanosas
may not be deemed as
having
discharged
petitioner from liability as
well. As regards Nayve,
suffice it to say that the
court
never
acquired
jurisdiction
over
him.
Petitioner, therefore, may
only have recourse against
his co-makers, as provided
by law.
WHEREFORE, the instant
Petition for Review on
Certiorari is here DENIED
and
the
questioned
Decision of the Court of
Appeals is AFFIRMED.
Costs against petitioner.
chanroblespublishingcompany

chanroblespublishingcompany

SO ORDERED.
G.R. No. 85396 October 27, 1989
RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE
BLOOMING MILLS, INC. and
ALFREDO CHING, respondents.
Ponce Enrile, Cayetano, Reyes &
Manalastas for petitioner.
Balgos & Perez for respondents,

MELENCIO-HERRERA, J.:
Will a Securities and Exchange
Commission (SEC) Order suspending,
during the pendency of a rehabilitation
proceeding, payment of all claims
against the principal debtor bar or
preclude the creditor from recovering
from the surety? Respondents Philippine
Blooming Mills (PBM) and its Surety,
Alfredo Ching, answer in the affirmative;
petitioner Bank in the negative.
The facts:

On 4 May 1979, Alfredo Ching signed a

'Comprehensive Surety Agreement' with
Rizal Commercial Banking Corporation
(RCBC), binding himself to jointly and
severally guarantee the prompt payment
of all PBM obligations owing RCBC in
the aggregate sum of Forty Million
(P40,000,000.00) Pesos.
Between 8 September to 30 October
1980, PBM filed several applications for
letters of credit with RCBC. Through said
applications, PBM obligated itself,
among other things, to pay on demand
for all draft(s) drawn under or purporting
to be drawn under the credits. Everything
being in order, RCBC opened the
corresponding letters of credit and
imported various goods for PBM's
account. In due time the imported goods
arrived and were released, in trust, to
PBM who acknowledged receipt thereof
through various trust receipts. All in all,
PBM's obligations stood at
P7,982,649.08.
Less than a year later, or on 7 August
1981, RCBC filed a Complaint for
collection of said sum against
respondents PBM and Alfredo Ching with
the then Court of First Instance of Pasig,
docketed as CV-42333. Upon filing of a
bond satisfactory to the Court, a Writ of
Preliminary Attachment was issued
against the assets and properties of

respondents PBM and Ching on the

same day. By way of special and
affirmative defenses they alleged that
"although the trust receipts stipulate due
dates, the true intent and agreement of
the parties was that the maturity dates of
the trust receipts were to be extended at
the end of the stipulated dates, as had
been the customary practice of RCBC
with PBM."
On 23 September 1981, PBM and Ching
moved to discharge the attachment,
which RCBC opposed. On 4 December
1981 the Court issued an Order lifting
the attachment upon their filing of a
satisfactory counter-bond.
Meanwhile, on 1 April 1982, PBM filed a
Petition for Suspension of Payments with
the Securities and Exchange
Commission, docketed as SEC Case No.
2250, seeking at the same time its
rehabilitation.
In an injunctive Order, dated 6 July 1982,
all actions for claims against PBM
pending before any Court or tribunal, in
whatever stage the same may have
been, were ordered suspended by the
SEC in order to give the Commission the
opportunity to pass upon the feasibility of
any rehabilitation plans. And on 26 April
1988, SEC approved the revised

rehabilitation plan and ordered its

implementation.
On 14 October 1982, RCBC pursued its
claims with the Trial Court and filed,
unopposed, a Motion for Summary
Judgment in CV-42333, a motion for
extension to file said opposition having
been earlier withdrawn. RCBC
contended that respondents PBM and
Ching had not denied their indebtedness
to RCBC and, therefore, no genuine
issue was raised in the pleadings.
On 25 November 1982, the CFI rendered
such summary judgment** in RCBC's favor,
declaring:

WHEREFORE, judgment
is hereby rendered
against the defendants
(PBM and Ching) in favor
of plaintiff (RCBC)
ordering defendants to
pay plaintiff jointly and
severally the following:
a) P7,982,649.08
inclusive of interest,
service charges and
penalties as of August 7,
1981 on account of their
liability in solidum arising
from the trust receipts
and comprehensive

surety agreements plus

such other additional
amount by way of
interest, service charges
and penalties from
August 7,1981 until fully
paid; and
b) P10,000.00 as
attorney's fees.
With costs against the
defendants.
SO ORDERED (p. 192,
Original Record).
On appeal, respondent Court of
Appeals,*** ruling that it was precipitate and improper
for the lower Court to have continued with the
proceedings despite the SEC Order of suspension, set
aside the lower Court Decision and ordered it to hold in
abeyance the determination of the merits invoked in CV42333 pending the outcome of SEC Case No. 2250. On 6
October 1988, the Appellate Court denied RCBC's Motion
for Reconsideration.

Hence, this Petition for Review, to which

we gave due course on 31 May 1989,
and required the filing of Memoranda by
the parties, the last of which was
submitted on 27 July 1989.
RCBC takes the position that the SEC
injunctive Order pertains and affects only
PBM, the corporation under
rehabilitation, and that its right, as

creditor, to proceed against respondent

Ching, as Surety, is not affected by said
Order. In fine, RCBC avers that to hold
the injunctive Order applicable to both
respondents PBM and Ching is to
deprive RCBC of its right to proceed
against the Surety based on the latter's
separate and independent undertaking.
PBM and Ching counter that the
liabilities incurred by PBM were
corporate in character and, hence, as a
corporate officer, Alfredo Ching cannot
be held liable therefor; that the pendency
of SEC Case No. 2250 and the rendition
of an Order therein on 26 April 1988
implementing respondent PBM's
rehabilitation plan must necessarily
benefit the Surety, inasmuch as payment
of PBM obligations must be made
pursuant to that plan; and that the liability
of the Surety can not be more than what
would remain after payment of all the
obligations of the principal. Moreover,
they continue, it is usual for majority
stockholders to act as co-signors with
their respective corporations where
promissory notes, collaterals or guaranty
or security agreements are involved.
Respondent Ching's action may, it is
claimed, be classified as a corporate act.
Under the attendant facts and
circumstances, we answer the question
earlier posed in the negative.

Where an obligation expressly states a

solidary liability, the concurrence of two
or more creditors or two or more debtors
in one and the same obligation implies
that each one of the former has a right to
demand, or that each one of the latter is
bound to render, entire compliance with
the prestation (Article 1207, Civil Code).
The creditor may proceed against any
one of the solidary debtors or some or all
of them simultaneously (Article 1216,
Civil Code).
That there exists a Comprehensive
Surety Agreement between RCBC and
respondent Ching is admitted. There is
no escaping the attendant liability that
binds respondent Ching, as Surety. He is
charged as an original promissor by
virtue of his primary obligation under the
Suretyship Agreement. That Agreement
is bare of words imputing to respondent
Ching any liability other than that of a
Surety who binds himself to insure a
debt in his personal capacity, lacking
consideration therefor notwithstanding
(p. 94, Original Record). That respondent
Ching acted for and on behalf of
respondent PBM as part of its usual
corporate procedure is not supported by
the evidence nor the pleadings on
record, nor the Agreement itself .We can
not give any additional meaning to the
plain language of the subject agreement.
It is basic that the parties are bound by

the terms of their contract, which is the

law between them. As held in Zenith
Insurance Corporation vs. Court of
Appeals (No. L-57957, 29 December
1982,119 SCRA 485), the extent of a
surety's liability is determined only by the
clause of the contract of suretyship. It
cannot be extended by implication,
beyond the terms of the contract.
Conversely, liability therefor may not be
restricted unless expressly so stated.
Neither can respondent Ching seek
refuge behind the SEC injunctive Order.
Under Section 3 of P.D. 902-A, as
amended by P.D. 1758, the Commission
is given absolute jurisdiction, supervision
and control only over corporations or
associations, which are grantees of a
primary franchise and/or a license or
permit issued by the government to
operate in the Philippines. The SEC
injunctive Order can not effect a
suspension of payment of respondent
Surety's due and demandable obligation,
it being clear therefrom that the
rehabilitation receivers were limited "to
tak(ing) custody and control over all the
existing assets and property of PBM."
Nothing in said Order puts respondent
Ching within its scope.
To further avoid payment of their
obligation, PBM and Ching allege a
customary extension given by petitioner

in PBM's favor, which, it is averred, must

necessarily benefit the Surety. Suffice it
to say that the summary judgment made
by the lower Court offers an acceptable
explanation finding respondents'
obligation as matured and demandable.
Thus:
The trust receipts from
No. 2042 to 2100 in the
schedule (pages 2 and 3,
complaint) shows that the
maturity dates thereof
vary from May 12, 1981
at the latest and February
19, 1981 at the earliest.
The alleged agreement to
extend, granting its
existence, obviously
would have had a much
earlier date than the
maturity dates of the trust
receipts and considering
that the instant case was
brought on August 7,
1981, there should have
been, to say the least,
representation made
prior to the maturity dates
or at least on the dates of
maturity thereof. But it
has not even been
alleged by defendants
that such representations
were made by

defendants. It is too far

fetched to rule that the
Court will grant an
extension of time to pay,
when no such extension
has ever been requested
by defendants. The
obligation, therefore, is
covered by Article 1193
of the Civil Code and
hence, demandable
when the day comes (pp.
199-200, Original
Record).
The lower Court correctly found the case
to be without any genuine issue of fact
and ripe for summary judgment.
Respondents' bare allegation of
customary extensions is not
corroborated by any documentary
evidence but remains plain self-serving
assertions.
In fine, the SEC injunctive Order is of no
effect as far as the respondent Surety,
Alfredo Ching, is concerned. He can be
sued separately to enforce his liability as
Surety for PBM (Traders Royal Bank vs.
Court of Appeals, et al. G.R. No. 78412,
September 26, 1989).
WHEREFORE, the Decision of the Court
of Appeals, dated 30 June 1988, and its
Resolution denying reconsideration

thereof, dated 6 October 1988, are SET

ASIDE. The judgment of the lower Court
is hereby REINSTATED and made
executory as far as respondent, Alfredo
Ching, is concerned.
Costs against private respondents,
Philippine Blooming Mills and Alfredo
Ching.
SO ORDERED.
G.R. No. 155173
2004

November 23,

LAFARGE CEMENT PHILIPPINES,

INC., (formerly Lafarge Philippines,
Inc.), LUZON CONTINENTAL LAND
CORPORATION, CONTINENTAL
OPERATING CORPORATION and
PHILIP ROSEBERG, petitioners,
vs.
CONTINENTAL CEMENT
CORPORATION, GREGORY T. LIM and
ANTHONY A. MARIANO, respondents.

DECISION

PANGANIBAN, J.:

May defendants in civil cases implead in

their counterclaims persons who were
not parties to the original complaints?
This is the main question to be answered
in this controversy.
The Case
Before us is a Petition for Review1 under
Rule 45 of the Rules of Court, seeking to
nullify the May 22, 20022 and the
September 3, 2002 Orders3 of the
Regional Trial Court (RTC) of Quezon
City (Branch 80) in Civil Case No. Q-0041103. The decretal portion of the first
assailed Order reads:
"WHEREFORE, in the light of the
foregoing as earlier stated, the
plaintiff's motion to dismiss
claims is granted. Accordingly,
the defendants' claims against
Mr. Lim and Mr. Mariano
captioned as their counterclaims
are dismissed."4
The second challenged Order denied
petitioners' Motion for Reconsideration.
The Facts
Briefly, the origins of the present
controversy can be traced to the Letter of
Intent (LOI) executed by both parties on
August 11, 1998, whereby Petitioner
Lafarge Cement Philippines, Inc.
(Lafarge) -- on behalf of its affiliates and

other qualified entities, including

Petitioner Luzon Continental Land
Corporation (LCLC) -- agreed to
purchase the cement business of
Respondent Continental Cement
Corporation (CCC). On October 21,
1998, both parties entered into a Sale
and Purchase Agreement (SPA). At the
time of the foregoing transactions,
petitioners were well aware that CCC
had a case pending with the Supreme
Court. The case was docketed as GR
No. 119712, entitled Asset Privatization
Trust (APT) v. Court of Appeals and
Continental Cement Corporation.
In anticipation of the liability that the High
Tribunal might adjudge against CCC, the
parties, under Clause 2 (c) of the SPA,
allegedly agreed to retain from the
purchase price a portion of the contract
price in the amount of P117,020,846.84
-- the equivalent of US$2,799,140. This
amount was to be deposited in an
interest-bearing account in the First
National City Bank of New York
(Citibank) for payment to APT, the
petitioner in GR No. 119712.
However, petitioners allegedly refused to
apply the sum to the payment to APT,
despite the subsequent finality of the
Decision in GR No. 119712 in favor of
the latter and the repeated instructions of
Respondent CCC. Fearful that
nonpayment to APT would result in the
foreclosure, not just of its properties
covered by the SPA with Lafarge but of

several other properties as well, CCC

filed before the Regional Trial Court of
Quezon City on June 20, 2000, a
"Complaint with Application for
Preliminary Attachment" against
petitioners. Docketed as Civil Case No.
Q-00-41103, the Complaint prayed,
among others, that petitioners be
directed to pay the "APT Retained
Amount" referred to in Clause 2 (c) of the
SPA.
Petitioners moved to dismiss the
Complaint on the ground that it violated
the prohibition on forum-shopping.
Respondent CCC had allegedly made
the same claim it was raising in Civil
Case No. Q-00-41103 in another action,
which involved the same parties and
which was filed earlier before the
International Chamber of Commerce.
After the trial court denied the Motion to
Dismiss in its November 14, 2000 Order,
petitioners elevated the matter before the
Court of Appeals in CA-GR SP No.
68688.
In the meantime, to avoid being in
default and without prejudice to the
outcome of their appeal, petitioners filed
their Answer and Compulsory
Counterclaims ad Cautelam before the
trial court in Civil Case No. Q-00-41103.
In their Answer, they denied the
allegations in the Complaint. They
prayed -- by way of compulsory
counterclaims against Respondent CCC,
its majority stockholder and president

Gregory T. Lim, and its corporate

secretary Anthony A. Mariano -- for the
sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as
exemplary damages, (c) P100,000,000
each as moral damages, and (d)
P5,000,000 each as attorney's fees plus
costs of suit.
Petitioners alleged that CCC, through
Lim and Mariano, had filed the
"baseless" Complaint in Civil Case No.
Q-00-41103 and procured the Writ of
Attachment in bad faith. Relying on this
Court's pronouncement in Sapugay v.
CA,5 petitioners prayed that both Lim and
Mariano be held "jointly and solidarily"
liable with Respondent CCC.
On behalf of Lim and Mariano who had
yet to file any responsive pleading, CCC
moved to dismiss petitioners' compulsory
counterclaims on grounds that
essentially constituted the very issues for
resolution in the instant Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial
Court of Quezon City (Branch 80)
dismissed petitioners' counterclaims for
several reasons, among which were the
following: a) the counterclaims against
Respondents Lim and Mariano were not
compulsory; b) the ruling in Sapugay
was not applicable; and c) petitioners'
Answer with Counterclaims violated

procedural rules on the proper joinder of

causes of action.6
Acting on the Motion for Reconsideration
filed by petitioners, the trial court -- in an
Amended Order dated September 3,
20027 -- admitted some errors in its May
22, 2002 Order, particularly in its
pronouncement that their counterclaim
had been pleaded against Lim and
Mariano only. However, the RTC clarified
that it was dismissing the counterclaim
insofar as it impleaded Respondents Lim
and Mariano, even if it included CCC.
Hence this Petition.

Issues
In their Memorandum, petitioners raise
the following issues for our
consideration:
"[a] Whether or not the RTC
gravely erred in refusing to rule
that Respondent CCC has no
personality to move to dismiss
petitioners' compulsory
counterclaims on Respondents
Lim and Mariano's behalf.
"[b] Whether or not the RTC
gravely erred in ruling that (i)
petitioners' counterclaims against
Respondents Lim and Mariano
are not compulsory; (ii) Sapugay
v. Court of Appeals is

inapplicable here; and (iii)

petitioners violated the rule on
joinder of causes of action."9
For clarity and coherence, the Court will
resolve the foregoing in reverse order.
The Court's Ruling
The Petition is meritorious.
First Issue:
Counterclaims and Joinder of Causes
of Action.
Petitioners' Counterclaims Compulsory
Counterclaims are defined in Section 6
of Rule 6 of the Rules of Civil Procedure
as "any claim which a defending party
may have against an opposing party."
They are generally allowed in order to
avoid a multiplicity of suits and to
facilitate the disposition of the whole
controversy in a single action, such that
the defendant's demand may be
adjudged by a counterclaim rather than
by an independent suit. The only
limitations to this principle are (1) that the
court should have jurisdiction over the
subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over
third parties whose presence is essential
for its adjudication.10

A counterclaim may either be permissive

or compulsory. It is permissive "if it does
not arise out of or is not necessarily
connected with the subject matter of the
opposing party's claim."11 A permissive
counterclaim is essentially an
independent claim that may be filed
separately in another case.
A counterclaim is compulsory when its
object "arises out of or is necessarily
connected with the transaction or
occurrence constituting the subject
matter of the opposing party's claim and
does not require for its adjudication the
presence of third parties of whom the
court cannot acquire jurisdiction."12
Unlike permissive counterclaims,
compulsory counterclaims should be set
up in the same action; otherwise, they
would be barred forever. NAMARCO v.
Federation of United Namarco
Distributors13 laid down the following
criteria to determine whether a
counterclaim is compulsory or
permissive: 1) Are issues of fact and law
raised by the claim and by the
counterclaim largely the same? 2) Would
res judicata bar a subsequent suit on
defendant's claim, absent the
compulsory counterclaim rule? 3) Will
substantially the same evidence support
or refute plaintiff's claim as well as
defendant's counterclaim? 4) Is there
any logical relation between the claim
and the counterclaim? A positive answer

to all four questions would indicate that

the counterclaim is compulsory.
Adopted in Quintanilla v. CA14 and
reiterated in Alday v. FGU Insurance
Corporation,15 the "compelling test of
compulsoriness" characterizes a
counterclaim as compulsory if there
should exist a "logical relationship"
between the main claim and the
counterclaim. There exists such a
relationship when conducting separate
trials of the respective claims of the
parties would entail substantial
duplication of time and effort by the
parties and the court; when the multiple
claims involve the same factual and legal
issues; or when the claims are offshoots
of the same basic controversy between
the parties.
We shall now examine the nature of
petitioners' counterclaims against
respondents with the use of the
foregoing parameters.
Petitioners base their counterclaim on
the following allegations:
"Gregory T. Lim and Anthony A.
Mariano were the persons
responsible for making the bad
faith decisions for, and causing
plaintiff to file this baseless suit
and to procure an unwarranted
writ of attachment,
notwithstanding their knowledge
that plaintiff has no right to bring

it or to secure the writ. In taking

such bad faith actions, Gregory
T. Lim was motivated by his
personal interests as one of the
owners of plaintiff while Anthony
A. Mariano was motivated by his
sense of personal loyalty to
Gregory T. Lim, for which reason
he disregarded the fact that
plaintiff is without any valid
cause.
"Consequently, both Gregory T.
Lim and Anthony A. Mariano are
the plaintiff's co-joint tortfeasors
in the commission of the acts
complained of in this answer and
in the compulsory counterclaims
pleaded below. As such they
should be held jointly and
solidarily liable as plaintiff's codefendants to those compulsory
counterclaims pursuant to the
Supreme Court's decision in
Sapugay v. Mobil.
xxx

xxx

xxx

"The plaintiff's, Gregory T. Lim

and Anthony A. Mariano's bad
faith filing of this baseless case
has compelled the defendants to
engage the services of counsel
for a fee and to incur costs of
litigation, in amounts to be
proved at trial, but in no case
less than P5 million for each of
them and for which plaintiff

Gregory T. Lim and Anthony A.

Mariano should be held jointly
and solidarily liable.
"The plaintiff's, Gregory T. Lim's
and Anthony A. Mariano's actions
have damaged the reputations of
the defendants and they should
be held jointly and solidarily liable
to them for moral damages of
P100 million each.
"In order to serve as an example
for the public good and to deter
similar baseless, bad faith
litigation, the plaintiff, Gregory T.
Lim and Anthony A. Mariano
should be held jointly and
solidarily liable to the defendants
for exemplary damages of P100
million each." 16
The above allegations show that
petitioners' counterclaims for damages
were the result of respondents' (Lim and
Mariano) act of filing the Complaint and
securing the Writ of Attachment in bad
faith. Tiu Po v. Bautista17 involved the
issue of whether the counterclaim that
sought moral, actual and exemplary
damages and attorney's fees against
respondents on account of their
"malicious and unfounded" complaint
was compulsory. In that case, we held as
follows:
"Petitioners' counterclaim for
damages fulfills the necessary

requisites of a compulsory
counterclaim. They are damages
claimed to have been suffered by
petitioners as a consequence of
the action filed against them.
They have to be pleaded in the
same action; otherwise,
petitioners would be precluded
by the judgment from invoking
the same in an independent
action. The pronouncement in
Papa vs. Banaag (17 SCRA
1081) (1966) is in point:
"Compensatory, moral and
exemplary damages, allegedly
suffered by the creditor in
consequence of the debtor's
action, are also compulsory
counterclaim barred by the
dismissal of the debtor's action.
They cannot be claimed in a
subsequent action by the creditor
against the debtor."
"Aside from the fact that
petitioners' counterclaim for
damages cannot be the subject
of an independent action, it is the
same evidence that sustains
petitioners' counterclaim that will
refute private respondent's own
claim for damages. This is an
additional factor that
characterizes petitioners'
counterclaim as compulsory."18

Moreover, using the "compelling test of

compulsoriness," we find that, clearly,
the recovery of petitioners' counterclaims
is contingent upon the case filed by
respondents; thus, conducting separate
trials thereon will result in a substantial
duplication of the time and effort of the
court and the parties.
Since the counterclaim for damages is
compulsory, it must be set up in the
same action; otherwise, it would be
barred forever. If it is filed concurrently
with the main action but in a different
proceeding, it would be abated on the
ground of litis pendentia; if filed
subsequently, it would meet the same
fate on the ground of res judicata.19
Sapugay v. Court of Appeals
Applicable to the Case at Bar
Sapugay v. Court of Appeals finds
application in the present case. In
Sapugay, Respondent Mobil Philippines
filed before the trial court of Pasig an
action for replevin against Spouses
Marino and Lina Joel Sapugay. The
Complaint arose from the supposed
failure of the couple to keep their end of
their Dealership Agreement. In their
Answer with Counterclaim, petitioners
alleged that after incurring expenses in
anticipation of the Dealership
Agreement, they requested the plaintiff to
allow them to get gas, but that it had
refused. It claimed that they still had to

post a surety bond which, initially fixed at

P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure
a bond, but the bonding companies
required a copy of the Dealership
Agreement, which respondent continued
to withhold from them. Later, petitioners
discovered that respondent and its
manager, Ricardo P. Cardenas, had
intended all along to award the
dealership to Island Air Product
Corporation.
In their Answer, petitioners impleaded in
the counterclaim Mobil Philippines and
its manager -- Ricardo P. Cardenas -- as
defendants. They prayed that judgment
be rendered, holding both jointly and
severally liable for pre-operation
expenses, rental, storage, guarding fees,
and unrealized profit including damages.
After both Mobil and Cardenas failed to
respond to their Answer to the
Counterclaim, petitioners filed a "Motion
to Declare Plaintiff and its Manager
Ricardo P. Cardenas in Default on
Defendant's Counterclaim."
Among the issues raised in Sapugay
was whether Cardenas, who was not a
party to the original action, might
nevertheless be impleaded in the
counterclaim. We disposed of this issue
as follows:
"A counterclaim is defined as any
claim for money or other relief

which a defending party may

have against an opposing party.
However, the general rule that a
defendant cannot by a
counterclaim bring into the action
any claim against persons other
than the plaintiff admits of an
exception under Section 14, Rule
6 which provides that 'when the
presence of parties other than
those to the original action is
required for the granting of
complete relief in the
determination of a counterclaim
or cross-claim, the court shall
order them to be brought in as
defendants, if jurisdiction over
them can be obtained.' The
inclusion, therefore, of Cardenas
in petitioners' counterclaim is
sanctioned by the rules."20
The prerogative of bringing in new
parties to the action at any stage before
judgment is intended to accord complete
relief to all of them in a single action and
to avert a duplicity and even a multiplicity
of suits thereby.
In insisting on the inapplicability of
Sapugay, respondents argue that new
parties cannot be included in a
counterclaim, except when no complete
relief can be had. They add that "[i]n the
present case, Messrs. Lim and Mariano
are not necessary for petitioners to
obtain complete relief from Respondent
CCC as plaintiff in the lower court. This is

because Respondent CCC as a

corporation with a separate [legal
personality] has the juridical capacity to
indemnify petitioners even without
Messrs. Lim and Mariano."21
We disagree. The inclusion of a
corporate officer or stockholder -Cardenas in Sapugay or Lim and
Mariano in the instant case -- is not
premised on the assumption that the
plaintiff corporation does not have the
financial ability to answer for damages,
such that it has to share its liability with
individual defendants. Rather, such
inclusion is based on the allegations of
fraud and bad faith on the part of the
corporate officer or stockholder. These
allegations may warrant the piercing of
the veil of corporate fiction, so that the
said individual may not seek refuge
therein, but may be held individually and
personally liable for his or her actions.
In Tramat Mercantile v. Court of
Appeals,22 the Court held that generally, it
should only be the corporation that could
properly be held liable. However,
circumstances may warrant the inclusion
of the personal liability of a corporate
director, trustee, or officer, if the said
individual is found guilty of bad faith or
gross negligence in directing corporate
affairs.
Remo Jr. v. IAC23 has stressed that while
a corporation is an entity separate and
distinct from its stockholders, the

corporate fiction may be disregarded if

"used to defeat public convenience,
justify a wrong, protect fraud, or defend
crime." In these instances, "the law will
regard the corporation as an association
of persons, or in case of two
corporations, will merge them into one."
Thus, there is no debate on whether, in
alleging bad faith on the part of Lim and
Mariano the counterclaims had in effect
made them "indispensable parties"
thereto; based on the alleged facts, both
are clearly parties in interest to the
counterclaim.24
Respondents further assert that "Messrs.
Lim and Mariano cannot be held
personally liable [because their assailed
acts] are within the powers granted to
them by the proper board resolutions;
therefore, it is not a personal decision
but rather that of the corporation as
represented by its board of
directors."25 The foregoing assertion,
however, is a matter of defense that
should be threshed out during the trial;
whether or not "fraud" is extant under the
circumstances is an issue that must be
established by convincing evidence.26
Suability and liability are two distinct
matters. While the Court does rule that
the counterclaims against Respondent
CCC's president and manager may be
properly filed, the determination of
whether both can in fact be held jointly
and severally liable with respondent

corporation is entirely another issue that

should be ruled upon by the trial court.
However, while a compulsory
counterclaim may implead persons not
parties to the original complaint, the
general rule -- a defendant in a
compulsory counterclaim need not file
any responsive pleading, as it is deemed
to have adopted the allegations in the
complaint as its answer -- does not
apply. The filing of a responsive pleading
is deemed a voluntary submission to the
jurisdiction of the court; a new party
impleaded by the plaintiff in a
compulsory counterclaim cannot be
considered to have automatically and
unknowingly submitted to the jurisdiction
of the court. A contrary ruling would
result in mischievous consequences
whereby a party may be indiscriminately
impleaded as a defendant in a
compulsory counterclaim; and judgment
rendered against it without its
knowledge, much less participation in the
proceedings, in blatant disregard of
rudimentary due process requirements.

The correct procedure in instances such

as this is for the trial court, per Section
12 of Rule 6 of the Rules of Court, to
"order [such impleaded parties] to be
brought in as defendants, if jurisdiction
over them can be obtained," by directing
that summons be served on them. In this
manner, they can be properly appraised
of and answer the charges against them.
Only upon service of summons can the
trial court obtain jurisdiction over them.
In Sapugay, Cardenas was furnished a
copy of the Answer with Counterclaim,
but he did not file any responsive
pleading to the counterclaim leveled
against him. Nevertheless, the Court
gave due consideration to certain factual
circumstances, particularly the trial
court's treatment of the Complaint as the
Answer of Cardenas to the compulsory
counterclaim and of his seeming
acquiescence thereto, as evidenced by
his failure to make any objection despite
his active participation in the
proceedings. It was held thus:
"It is noteworthy that Cardenas
did not file a motion to dismiss
the counterclaim against him on
the ground of lack of jurisdiction.
While it is a settled rule that the
issue of jurisdiction may be
raised even for the first time on
appeal, this does not obtain in
the instant case. Although it was
only Mobil which filed an
opposition to the motion to

declare in default, the fact that

the trial court denied said motion,
both as to Mobil and Cardenas
on the ground that Mobil's
complaint should be considered
as the answer to petitioners'
compulsory counterclaim, leads
us to the inescapable conclusion
that the trial court treated the
opposition as having been filed in
behalf of both Mobil and
Cardenas and that the latter had
adopted as his answer the
allegations raised in the
complaint of Mobil. Obviously, it
was this ratiocination which led
the trial court to deny the motion
to declare Mobil and Cardenas in
default. Furthermore, Cardenas
was not unaware of said
incidents and the proceedings
therein as he testified and was
present during trial, not to speak
of the fact that as manager of
Mobil he would necessarily be
interested in the case and could
readily have access to the
records and the pleadings filed
therein.

"By adopting as his answer the

allegations in the complaint
which seeks affirmative relief,
Cardenas is deemed to have
recognized the jurisdiction of the
trial court over his person and
submitted thereto. He may not
now be heard to repudiate or
question that jurisdiction."27
Such factual circumstances are
unavailing in the instant case.
The records do not show that
Respondents Lim and Mariano
are either aware of the
counterclaims filed against them,
or that they have actively
participated in the proceedings
involving them. Further, in
dismissing the counterclaims
against the individual
respondents, the court a quo -unlike in Sapugay -- cannot be
said to have treated Respondent
CCC's Motion to Dismiss as
having been filed on their behalf.
Rules on Permissive Joinder of Causes
of Action or Parties Not Applicable
Respondent CCC contends that
petitioners' counterclaims violated the
rule on joinder of causes of action. It
argues that while the original Complaint
was a suit for specific performance
based on a contract, the counterclaim for
damages was based on the tortuous acts
of respondents.28 In its Motion to Dismiss,

CCC cites Section 5 of Rule 2 and

Section 6 of Rule 3 of the Rules of Civil
Procedure, which we quote:
"Section 5. Joinder of causes of
action. A party may in one
pleading assert, in the alternative
or otherwise, as many causes of
action as he may have against
an opposing party, subject to the
following conditions:
(a) The party joining the causes
of action shall comply with the
rules on joinder of parties; x x x"
Section 6. Permissive joinder of
parties. All persons in whom or
against whom any right to relief
in respect to or arising out of the
same transaction or series of
transactions is alleged to exist
whether jointly, severally, or in
the alternative, may, except as
otherwise provided in these
Rules, join as plaintiffs or be
joined as defendants in one
complaint, where any question of
law or fact common to all such
plaintiffs or to all such defendants
may arise in the action; but the
court may make such orders as
may be just to prevent any
plaintiff or defendant from being
embarrassed or put to expense
in connection with any
proceedings in which he may
have no interest."

The foregoing procedural rules are

founded on practicality and convenience.
They are meant to discourage duplicity
and multiplicity of suits. This objective is
negated by insisting -- as the court a quo
has done -- that the compulsory
counterclaim for damages be dismissed,
only to have it possibly re-filed in a
separate proceeding. More important, as
we have stated earlier, Respondents Lim
and Mariano are real parties in interest to
the compulsory counterclaim; it is
imperative that they be joined therein.
Section 7 of Rule 3 provides:
"Compulsory joinder of indispensable
parties. Parties in interest without
whom no final determination can be had
of an action shall be joined either as
plaintiffs or defendants."
Moreover, in joining Lim and Mariano in
the compulsory counterclaim, petitioners
are being consistent with the solidary
nature of the liability alleged therein.
Second Issue:
CCC's Personality to Move to Dismiss
the Compulsory Counterclaims
Characterizing their counterclaim for
damages against Respondents CCC,
Lim and Mariano as "joint and solidary,"
petitioners prayed:

"WHEREFORE, it is respectfully
prayed that after trial judgment
be rendered:

and several" or "several." Thus,

petitioners' usage of the term "joint and
solidary" is confusing and ambiguous.

"1. Dismissing the complaint in

its entirety;

The ambiguity in petitioners'

counterclaims notwithstanding,
respondents' liability, if proven, is
solidary. This characterization finds basis
in Article 1207 of the Civil Code, which
provides that obligations are generally
considered joint, except when otherwise
expressly stated or when the law or the
nature of the obligation requires
solidarity. However, obligations arising
from tort are, by their nature, always
solidary. We have assiduously
maintained this legal principle as early as
1912 in Worcester v. Ocampo,30 in which
we held:

"2. Ordering the plaintiff, Gregory

T. Lim and Anthony A. Mariano
jointly and solidarily to pay
defendant actual damages in the
sum of at least P2,700,000.00;
"3. Ordering the plaintiff, Gregory
T. Lim and Anthony A, Mariano
jointly and solidarily to pay the
defendants LPI, LCLC, COC and
Roseberg:
"a. Exemplary damages of P100
million each;
"b. Moral damages of P100
million each; and
"c. Attorney's fees and costs of
suit of at least P5 million each.
Other reliefs just and equitable
are likewise prayed for."29
Obligations may be classified as either
joint or solidary. "Joint" or "jointly" or
"conjoint" means mancum or
mancomunada or pro rata obligation; on
the other hand, "solidary obligations"
may be used interchangeably with "joint

"x x x The difficulty in the

contention of the appellants is
that they fail to recognize that the
basis of the present action is tort.
They fail to recognize the
universal doctrine that each joint
tort feasor is not only individually
liable for the tort in which he
participates, but is also jointly
liable with his tort feasors. x x x
"It may be stated as a general
rule that joint tort feasors are all
the persons who command,
instigate, promote, encourage,
advise, countenance, cooperate
in, aid or abet the commission of
a tort, or who approve of it after it

is done, if done for their benefit.

They are each liable as
principals, to the same extent
and in the same manner as if
they had performed the wrongful
act themselves. x x x

claim which might exist against

the others. There can be but
satisfaction. The release of one
of the joint tort feasors by
agreement generally operates to
discharge all. x x x

"Joint tort feasors are jointly and

severally liable for the tort which
they commit. The persons injured
may sue all of them or any
number less than all. Each is
liable for the whole damages
caused by all, and all together
are jointly liable for the whole
damage. It is no defense for one
sued alone, that the others who
participated in the wrongful act
are not joined with him as
defendants; nor is it any excuse
for him that his participation in
the tort was insignificant as
compared to that of the others. x
xx

"Of course the court during trial

may find that some of the alleged
tort feasors are liable and that
others are not liable. The courts
may release some for lack of
evidence while condemning
others of the alleged tort feasors.
And this is true even though they
are charged jointly and
severally."

"Joint tort feasors are not liable

pro rata. The damages can not
be apportioned among them,
except among themselves. They
cannot insist upon an
apportionment, for the purpose of
each paying an aliquot part. They
are jointly and severally liable for
the whole amount. x x x

In a "joint" obligation, each obligor

answers only for a part of the whole
liability; in a "solidary" or "joint and
several" obligation, the relationship
between the active and the passive
subjects is so close that each of them
must comply with or demand the
fulfillment of the whole obligation.31 The
fact that the liability sought against the
CCC is for specific performance and tort,
while that sought against the individual
respondents is based solely on tort does
not negate the solidary nature of their
liability for tortuous acts alleged in the
counterclaims. Article 1211 of the Civil
Code is explicit on this point:

"A payment in full for the damage

done, by one of the joint tort
feasors, of course satisfies any

"Solidarity may exist although the

creditors and the debtors may
not be bound in the same

manner and by the same periods

and conditions."
The solidary character of respondents'
alleged liability is precisely why credence
cannot be given to petitioners' assertion.
According to such assertion, Respondent
CCC cannot move to dismiss the
counterclaims on grounds that pertain
solely to its individual co-debtors.32 In
cases filed by the creditor, a solidary
debtor may invoke defenses arising from
the nature of the obligation, from
circumstances personal to it, or even
from those personal to its co-debtors.
Article 1222 of the Civil Code provides:
"A solidary debtor may, in actions
filed by the creditor, avail itself of
all defenses which are derived
from the nature of the obligation
and of those which are personal
to him, or pertain to his own
share. With respect to those
which personally belong to the
others, he may avail himself
thereof only as regards that part
of the debt for which the latter
are responsible." (Emphasis
supplied).
The act of Respondent CCC as a
solidary debtor -- that of filing a motion to
dismiss the counterclaim on grounds that
pertain only to its individual co-debtors -is therefore allowed.

However, a perusal of its Motion to

Dismiss the counterclaims shows that
Respondent CCC filed it on behalf of Corespondents Lim and Mariano; it did not
pray that the counterclaim against it be
dismissed. Be that as it may,
Respondent CCC cannot be declared in
default. Jurisprudence teaches that if the
issues raised in the compulsory
counterclaim are so intertwined with the
allegations in the complaint, such issues
are deemed automatically
joined.33 Counterclaims that are only for
damages and attorney's fees and that
arise from the filing of the complaint shall
be considered as special defenses and
need not be answered.34
CCC's Motion to Dismiss the
Counterclaim on Behalf of Respondents
Lim and Mariano Not Allowed
While Respondent CCC can move to
dismiss the counterclaims against it by
raising grounds that pertain to individual
defendants Lim and Mariano, it cannot
file the same Motion on their behalf for
the simple reason that it lacks the
requisite authority to do so. A corporation
has a legal personality entirely separate
and distinct from that of its officers and
cannot act for and on their behalf,
without being so authorized. Thus,
unless expressly adopted by Lim and
Mariano, the Motion to Dismiss the
compulsory counterclaim filed by
Respondent CCC has no force and effect
as to them.

In summary, we make the following

pronouncements:
1. The counterclaims against
Respondents CCC, Gregory T.
Lim and Anthony A. Mariano are
compulsory.
2. The counterclaims may
properly implead Respondents
Gregory T. Lim and Anthony A.
Mariano, even if both were not
parties in the original Complaint.
3. Respondent CCC or any of the
three solidary debtors (CCC, Lim
or Mariano) may include, in a
Motion to Dismiss, defenses
available to their co-defendants;
nevertheless, the same Motion
cannot be deemed to have been
filed on behalf of the said codefendants.
4. Summons must be served on
Respondents Lim and Mariano
before the trial court can obtain
jurisdiction over them.

WHEREFORE, the Petition is GRANTED

and the assailed Orders REVERSED.
The court of origin is hereby ORDERED
to take cognizance of the counterclaims
pleaded in petitioners' Answer with
Compulsory Counterclaims and to cause
the service of summons on Respondents
Gregory T. Lim and Anthony A. Mariano.
No costs.
SO ORDERED.
G.R. No. L-11307
1918

October 5,

ROMAN JAUCIAN, plaintiff-appellant,

vs.
FRANCISCO QUEROL, administrator
of the intestate estate of the deceased
Hermenegildo Rogero,defendantappellee.
Manly, Goddard & Lockwood for
appellant.
Albert E. Somersille for appellee.

STREET, J.:
This appeal by bill of exceptions was
brought to reverse a judgment of the
Court of First Instance of the Province of
Albay whereby said court has refused to
allow a claim in favor of the plaintiff,
Roman Jaucian, against the state of

Hermenegilda Rogero upon the facts

hereinbelow stated.
In October, 1908, Lino Dayandante and
Hermenegilda Rogero executed a private
writing in which they acknowledged
themselves to be indebted to Roman
Jaucian in the sum of P13,332.33. The
terms of this obligation are fully set out at
page 38 of the bill of exceptions. Its first
clause is in the following words:
We jointly and severally
acknowledge our indebtedness in
the sum of P13,332.23 Philippine
currency (a balance made
October 23, 1908) bearing
interest at the rate of 10 per cent
per annum to Roman Jaucian, of
age, a resident of the
municipality of Ligao, Province of
Albay, Philippine Islands and
married to Pilar Tell.
Hermenegilda Rogero signed this
document in the capacity of surety for
Lino Dayandante; but as clearly appears
from the instrument itself both debtors
bound themselves jointly and severally to
the creditor, and there is nothing in the
terms of the obligation itself to show that
the relation between the two debtors was
that of principal and surety.

In November, 1909, Hermenegilda

Rogero brought an action in the Court of
First Instance of Albay against Jaucian,
asking that the document in question be
canceled as to her upon the ground that
her signature was obtained by means of
fraud. In his answer to the complaint,
Jaucian, by was of cross-complaint,
asked for judgment against the plaintiff
for the amount due upon the obligation,
which appears to have matured at that
time. Judgment was rendered in the
Court of First Instance in favor of the
plaintiff, from which judgment the
defendant appealed to the Supreme
Court.
In his appeal to this court, Jaucian did
not assign as error the failure of the
lower court to give him judgment on his
cross-demand, and therefore the
decision upon the appeal was limited to
the issues concerning the validity of the
document.
While the case was pending in the
Supreme Court, Hermenegilda Rogero
died and the administrator of her estate
was substituted as the party plaintiff and
appellee. On November 25, 1913, the
Supreme Court rendered in its decision
reversing the judgment of the trial court
and holding that the disputed claim was
valid. 1

During the pendency of the appeal,

proceedings were had in the Court of
First Instance of Albay for the
administration of the estate of
Hermenegilda Rogero; Francisco Querol
was named administrator; and a
committee was appointed to pass upon
claims against the estate. This
committee made its report on September
3, 1912. On March 24, 1914, or about a
year and half after the filing of the report
of the committee on claims against the
Rogero estate, Jaucian entered an
appearance in the estate proceedings,
and filed with the court a petition in which
he averred the execution of the
document of October, 1908, by the
deceased, the failure of her co-obligor
Dayandante, to pay any part of the debt,
except P100 received from him in March,
1914, and the complete insolvency of
Dayandante. Upon these facts Jaucian
prayed the court for an order directing
the administrator of the Rogero estate to
pay him the principal sum of P13,332.33,
plus P7,221.66, as interest thereon from
October 24, 1908, to March 24, 1914,
with interest on the principal sum of
P13,332.33, plus P7,221.66, as interest
thereon from October 24, 1908, to March
24, 1914, with interest on the principal
sum from March 24, 1914, at 10 per cent
per annum, until paid.

A copy of this petition was served upon

the administrator of the estate, who, on
March 30, 1914, appeared by his
attorney and opposed the granting of the
petition upon the grounds that the claim
had never been presented to the
committee on claims for allowance; that
more than eighteen months had passed
since the filing of the report of the
committee, and that the court was
therefore without jurisdiction to entertain
the demand of the claimant. A hearing
was had upon the petition before the
Honorable P.M. Moir, then sitting in the
Court of First Instance of Albay. On April
13, 1914, he rendered his decision, in
which, after reciting the facts
substantially as above set forth, he said:
During the pendency of that
action (the cancellation suit) in
the Supreme Court
Hermenegilda Rogero died, and
Francisco Querol was named
administrator of the estate, and
he was made a party defendant
to the action then pending in the
Supreme Court. As such he had
full knowledge of the claim
presented and was given an
opportunity to make his defense.
It is presumed that defense was
made in the Supreme Court.

No contingent claim was filed

before the commissioners by
Roman Jaucian, who seems to
have rested content with the
action pending. Section 746 et
seq. of the Code of Civil
Procedure provides for the
presentation of contingent
claims, against the estate. This
claim is a contingent claim,
because, according to the
decision of the Supreme Court,
Hermenegilda Rogero was a
surety of Lino Dayandante. The
object of presenting the claim to
the commissioners is simply to
allow them to pass on the claim
and to give the administrator an
opportunity to defend the estate
against the claim. This having
been given by the administrator
defending the suit in the
Supreme Court, the court
considers this a substantial
compliance with the law, and the
said defense having been made
by the administrator, he cannot
now come into court and hide
behind a technicality and say that
the claim had not been presented
to the commissioners and that,
the commissioners having long
since made report, the claim
cannot be referred to the
commissioners and therefore the

claim of Roman Jaucian is

barred. The court considers that
paragraph (e) of the opposition is
well-taken and that there must be
legal action taken against Lino
Dayandante to determine
whether or not he is insolvent,
and that declaration under oath
to the effect that he has no
property except P100 worth of
property, which he has ceded to
Roman Jaucian, is not sufficient.
Hermenegilda Rogero having
been simply surety for Lino
Dayandante, the administrator
has a right to require that Roman
Jaucian produce a judgment for
his claim against Lino
Dayandante, in order that the
said administrator may be
subrogated to the rights of
Jaucian against Dayandante.
The simple affidavit of the
principal debtor that he had no
property except P100 worth of
property which he has ceded to
the creditor is not sufficient for
the court to order the surety to
pay the debt of the principal.
When this action shall have been
taken against Lino Dayandante
and an execution returned "no
effects," then the claim of
Jaucian against the estate will be

ordered paid or any balance that

may be due to him.
Acting upon the suggestions contained in
this order Jaucian brought an action
against Dayandante and recovered a
judgment against him for the full amount
of the obligation evidenced by the
document of October 24, 1908.
Execution was issued upon this
judgment, but was returned by the sheriff
wholly unsatisfied, no property of the
judgment debtor having been found.
On October 28, 1914, counsel for
Jaucian filed another petition in the
proceedings upon the estate of
Hermenegilda Rogero, in which they
averred, upon the grounds last stated,
that Dayandante was insolvent, and
renewed the prayer of the original
petition. It was contended that the court,
by its order of April 13, 1914, had
"admitted the claim."
The petition was again opposed by the
administrator of the estate upon the
grounds (a) that the claim was not
admitted by the order of April 13, 1914,
and that "the statement of the court with
regard to the admissibility of the claim
was mere dictum," and (b) "that the said
claim during the life and after the death
of Hermenegilda Rogero, which occurred
on August 2, 1911, was a mere

contingent claim against the property of

the said Hermenegilda Rogero, was not
reduced to judgment during the lifetime
of said Hermenegilda Rogero, and was
not presented to the commissioners on
claims during the period of six months
from which they were appointed in this
estate, said commissioner having given
due and lawful notice of their sessions
and more than one year having expired
since the report of the said
commissioners; and this credit is
outlawed or prescribed, and that this
court has no jurisdiction to consider this
claim."

On November 24, 1914, the Honorable

J. C. Jenkins, then sitting in the Court of
First Instance of Albay, after hearing
argument, entered an order refusing to
grant Jaucian's petition. To this ruling the
appellant excepted and moved for a
rehearing. On December 11, 1914, the
judge a quo entered an order denying
the rehearing and setting forth at length,
the reasons upon which he based his
denial of the petition. These grounds
were briefly, that as the claim had never
been presented to the committee on
claims, it was barred; that the court had
no jurisdiction to entertain it; that the
decision of the Supreme Court in the
action brought by the deceased against
Jaucian did not decide anything except
that the document therein disputed was
a valid instrument.
In this court the appellant contends that
the trial judge erred (a) in refusing to give
effect to the order made by the
Honorable P.M. Moir, dated April 13,
1914; and (b) in refusing to order the
administrator of the estate of
Hermenegilda Rogero to pay the
appellant the amount demanded by him.
The contention with regard to the order
of April 13, 1914, is that no appeal from it
having been taken, it became final.
An examination of the order in question,
however, leads us to conclude that it was

not a final order, and therefore it was not

appealable. In effect, it held that
whatever rights Jaucian might have
against the estate of Rogero were
subject to the performance of a condition
precedent, namely, that he should first
exhaust this remedy against
Dayandante. The court regarded
Dayandante. The court regarded
Dayandante as the principal debtor, and
the deceased as a surety only liable for
such deficiency as might result after the
exhaustion of the assets of the principal
co-obligor. The pivotal fact upon which
the order was based was the failure of
appellant to show that he had exhausted
his remedy against Dayandante, and this
failure the court regarded as a complete
bar to the granting of the petition at that
time. The court made no order requiring
the appellee to make any payment
whatever, and that part of the opinion,
upon which the order was based, which
contained statements of what the court
intended to do when the petition should
be renewed, was not binding upon him
or any other judge by whom he might be
succeeded. Regardless of what may be
our views with respect to the jurisdiction
of the court to have granted the relief
demanded by appellant in any event, it is
quite clear from what we have stated that
the order of April 13, 1914, required no
action by the administrator at that time,
was not final, and therefore was not

appealable. We therefore conclude that

no rights were conferred by the said
order of April 13, 1914, and that it did not
preclude the administrator from making
opposition to the petition of the appellant
when it was renewed.
Appellant contends that his claim against
the deceased was contingent. His theory
is that the deceased was merely a surety
of Dayandante. His argument is that as
section 746 of the Code of Civil
Procedure provides that contingent
claims "may be presented with the proof
to the committee," it follows that such
presentation is optional. Appellant,
furthermore, contends that if a creditor
holding a contingent claim does not see
fit to avail himself of the privilege thus
provided, there is nothing in the law
which says that his claim is barred or
prescribed, and that such creditor, under
section 748 of the Code of Civil
Procedure, at any time within two years
from the time allowed other creditors to
present their claims, may, if his claim
becomes absolute within that period
present it to the court for allowance. On
the other hand counsel for appellee
contends (1) that contingent claims like
absolute claims are barred for nonpresentation to the committee but (2)
that the claim in question was in reality
an absolute claim and therefore
indisputably barred.

The second contention takes logical

precedence over the first and our view of
its conclusiveness renders any
consideration of the first point entirely
unnecessary to a determination of the
case. Bearing in mind that the deceased
Hermenegilda Rogero, though surety for
Lino Dayandante, was nevertheless
bound jointly and severally with him in
the obligation, the following provisions of
law are here pertinent.
Article 1822 of the Civil Code provides:
By security a person binds
himself to pay or perform for a
third person in case the latter
should fail to do so.
"If the surety binds himself jointly
with the principal debtor, the
provisions of section fourth,
chapter third, title first, of this
book shall be observed.
Article 1144 of the same code provides:
A creditor may sue any of the
joint and several (solidarios)
debtors or all of them
simultaneously. The claims
instituted against one shall not be
an obstacle for those that may be
later presented against the
others, as long as it does not

appear that the debt has been

collected in full.
Article 1830 of the same code provides:
The surety can not be compelled
to pay a creditor until application
has been previously made of all
the property of the debtor.
Article 1831 provides:
This application can not take
place
(1) . . . (2) If he has jointly bound
himself with the debtor . . . .

by section 698 of the Code of Civil

Procedure, which provides:
When two or more persons are
indebted on a joint contract, or
upon a judgment founded on a
joint contract, and either of them
dies, his estate shall be liable
therefor, and it shall be allowed
by the committee as if the
contract had been with him alone
or the judgment against him
alone. But the estate shall have
the right to recover contribution
from the other joint debtor.

The foregoing articles of the Civil Code

make it clear that Hermenegilda Rogero
was liable absolutely and unconditionally
for the full amount of the obligation
without any right to demand the
exhaustion of the property of the
principal debtor previous to its payment.
Her position so far as the creditor was
concerned was exactly the same as if
she had been the principal debtor.

In the official Spanish translation of the

Code of Civil Procedure, the sense of the
English word "joint," as used in two
places in the section above quoted, is
rendered by the Spanish word
"mancomunadamente." This is incorrect.
The sense of the word "joint," as here
used, would be more properly translated
in Spanish by the word "solidaria,"
though even this word does not express
the meaning of the English with entire
fidelity.

The absolute character of the claim and

the duty of the committee to have
allowed it is full as such against the
estate of Hermenegilda Rogero had it
been opportunely presented and found
to be a valid claim is further established

The section quoted, it should be

explained, was originally taken by the
author, or compiler, of our Code of Civil
Procedure from the statutes of the State
of Vermont; and the word "joint" is,
therefore, here used in the sense which

attaches to it in the common law. Now, in

the common law system there is no
conception of obligation corresponding to
the divisible joint obligation contemplated
in article 1138 of the Civil Code. This
article declares in effect that, if not
otherwise expressly determined, every
obligation in which there is no conception
of obligation corresponding to the
divisible joint obligation contemplated in
article 1138 of the Civil Code. This article
declares in effect that, if not otherwise
expressly determined, every obligation in
which there are numerous debtors we
here ignore plurality of creditors shall
be considered divided into as many parts
as there are debtors, and each part shall
be deemed to be the distinct obligation of
one of the respective debtors. In other
words, the obligation is apportionable
among the debtors; and in case of the
simple joint contract neither debtor can
be required to satisfy more than his
aliquot part.
In the common law system every debtor
in a joint obligation is liable in solidum for
the whole; and the only legal peculiarity
worthy of remark concerning the "joint"
contract at common law is that the
creditor is required to sue all the debtors
at once. To avoid the inconvenience of
this procedural requirement and to
permit the creditor in a joint contract to
do what the creditor in a solidary

obligation can do under article 1144 of

the Civil Code, it is not unusual for the
parties to a common law contract to
stipulate that the debtors shall be "jointly
and severally" liable. The force of this
expression is to enable the creditor to
sue any one of the debtors or all together
at pleasure.
It will thus be seen that the purpose of
section 698 of the Code of Civil
Procedure, considered as a product of
common law ideas, is not to convert an
apportionable joint obligation into a
solidary joint obligation for the idea of
the benefit of division is totally foreign to
the common law system but to permit
the creditor to proceed at once
separately against the estate of the
deceased debtor, without attempting to
draw the other debtors into intestate or
testamentary proceedings. The joint
contract of the common law is and
always has been a solidary obligation so
far as the extent of the debtor's liability is
concerned.
In Spanish law the comprehensive and
generic term by which to indicate
multiplicity of obligation, arising from
plurality of debtors or creditors,
is mancomunidad, which term includes
(1) mancomunidad simple,
ormancomunidad properly such, and
(2) mancomunidad solidaria. In other

words the Spanish system recognizes

two species of multiple obligation,
namely, the apportionable joint obligation
and the solidary joint obligation. The
solidary obligation is, therefore, merely a
form of joint obligation.
The idea of the benefit of division as a
feature of the simple joint obligation
appears to be a peculiar creation of
Spanish jurisprudence. No such idea
prevailed in the Roman law, and it is not
recognized either in the French or in the
Italian system.
This conception is a badge of
honor to Spanish legislation,
honorably shared with the
Spanish American, since
French and Italian codes do not
recognize the distinction of
difference, just expounded,
between the two sorts of multiple
obligation. . . . (Giorgi, Theory of
Obligations, Span. ed., vol. I, p.
77, note.)
Considered with reference to
comparative jurisprudence, liability in
solidum appears to be the normal
characteristic of the multiple obligation,
while the benefit of division in the
Spanish system is an illustration of the
abnormal, evidently resulting from the
operation of a positive rule created by

the lawgiver. This exceptional feature of

the simple joint obligation in Spanish law
dates from an early period; and the rule
in question is expressed with simplicity
and precision in a passage transcribed
into the Novisima Recopilacion as
follows:
If two persons bind themselves
by contract, simply and not
otherwise, to do or accomplish
something, it is thereby to be
understood that each is bound
for one-half, unless it is specified
in the contract that each is
bound in solidum, or it is agreed
among themselves that they shall
be bound in some other manner,
and this notwithstanding any
customary law to the
contrary; . . . (Law X, tit. I, book
X, Novisima Recopilacion, copied
from law promulgated at Madrid
in 1488 by Henry IV.)
The foregoing exposition of the conflict
between the juridical conceptions of
liability incident to the multiple obligation,
as embodied respectively in the common
law system and the Spanish Civil Code,
prepares us for a few words of comment
upon the problem of translating the terms
which we have been considering from
English into Spanish or from Spanish
into English.

The Spanish expression to be chosen as

the equivalent of the English word "joint"
must, of course, depend upon the idea to
be conveyed; and it must be
remembered that the matter to be
translated may be an enunciation either
of a common law conception or of a civil
law idea. In Sharruf vs. Tayabas Land
Co. and Ginainati (37 Phil. Rep., 655), a
judge of one of the Courts of First
Instance in these Islands rendered
judgment in English declaring the
defendants to be "jointly" liable. It was
held that he meant "jointly" in the sense
of "mancomunadamente," because the
obligation upon which the judgment was
based was apportionable under article
1138 of the Civil Code. This mode of
translation does not, however, hold good
where the word to be translated has
reference to a multiple common law
obligation, as in article 698 of the Code
of Civil Procedure. Here it is necessary
to render the word "joint" by the Spanish
word "solidaria."
In translating the Spanish word
"mancomunada" into English a similar
difficulty is presented. In the Philippine
Islands at least we must probably
continue to tolerate the use of the
English word "joint" as an approximate
English equivalent, ambiguous as it may
be to a reader indoctrinated with the
ideas of the common law. The Latin

phrase pro rata is a make shift, the use

of which is not to be commended. The
Spanish word "solidary," though it is not
inaccurate here to use the compound
expression "joint obligation," as
conveying the full juridical sense of
"obligacion mancomunada" and
"obligacion solidaria," respectively.
From what has been said it is clear that
Hermenegilda Rogero, and her estate
after her death, was liable absolutely for
the whole obligation, under section 698
of the Code of Civil Procedure; and if the
claim had been duly presented to the
committee for allowance it should have
been allowed, just as if the contact had
been with her alone.
It is thus apparent that by the express
and incontrovertible provisions both of
the Civil Code and the Code of Civil
Procedure, this claim was an absolute
claim. Applying section 695 of the Code
of Civil Procedure, this court has
frequently decided that such claims are
barred if not presented to the committee
in time (In re estate of Garcia Pascual,
11 Phil. Rep., 34; Ortiga Bros. &
Co. vs. Enage and Yap Tico, 18 Phil.
Rep., 345, 351; Santos vs.Manarang, 27
Phil. Rep., 209, 213); and we are of the
opinion that, for this reason, the claim
was properly rejected by Judge Jenkins.

There is no force, in our judgment, in the

contention that the pendency of the suit
instituted by the deceased for the
cancellation of the document in which
the obligation in question was recorded
was a bar to the presentation of the
claim against the estate. The fact that the
lower court had declared the document
void was not conclusive, as its judgment
was not final, and even assuming that if
the claim had been presented to the
committee for allowance, it would have
been rejected and that the decision of
the committee would have been
sustained by the Court of First Instance,
the rights of the creditor could have been
protected by an appeal from that
decision.
Appellant apparently takes the position
that had his claim been filed during the
pendency of the cancellation suit, it
would have been met with the plea of
another suit pending and that this plea
would have been successful. This view
of the law is contrary to the doctrine of
the decision in the case of Hongkong &
Shanghai Banking
Corporation vs. Aldecoa & Co. ([1915],
30 Phil. Rep., 255.)
Furthermore, even had Jaucian, in his
appeal from the decision in the
cancellation suit, endeavored to obtain
judgment on his cross-complaint, the

death of the debtor would probably have

required the discontinuance of the action
presented by the cross-complaint or
counterclaim, under section 703.

and by virtue of such payment the surety

is subrogated in all the rights which the
creditor had against the debtor (art.
1839, same code).

As already observed the case is such as

not to require the court to apply sections
746-749, inclusive, of the Code of Civil
Procedure, nor to determine the
conditions under which contingent claims
are barred. But a few words of comment
may be added to show further that the
solidary obligation upon which this
proceeding is based is not a contingent
claim, such as is contemplated in those
sections. The only concrete illustration
of a contingent claim given is section 746
is the case where a person is liable as
surety for the deceased, that is, where
the principal debtor is dead. This is a
very different situation from that
presented in the concrete case now
before us, where the surety is the person
who is dead. In the illustration put in
section 746 where the principal debtor
is dead and the surety is the party
preferring the claim against the estate of
the deceased it is obvious that the
surety has no claim against the estate of
the principal debtor, unless he himself
satisfies the obligation in whole or in part
upon which both are bound. It is at this
moment, and not before, that the
obligation of the principal to indemnify
the surety arises (art. 1838, Civil Code);

Another simple illustration of a

contingent liability is found in the case of
the indorser of a contingent liability is
found in the case of the indorser of a
negotiable instrument, who is not liable
until his liability is fixed by dishonor and
notice, or protest an notice, in conformity
with the requirements of law. Until this
event happens there is a mere possibility
of a liability is fixed by dishonor and
notice, or protest and notice, in
conformity with the requirements of law.
Until this event happens there is a mere
possibility of a liability, which is fact may
never become fixed at all. The claims of
all persons who assume the
responsibility of a liability, which in fact
may never become fixed at all. The
claims of all persons who assume the
responsibility of mere guarantors in as
against their principles of the same
contingent character.
It is possible that "contingency," in the
cases contemplated in section 746, may
depend upon other facts than those
which relate to the creation or inception
of liability. It may be, for instance, that
the circumstance that a liability is
subsidiary, and the execution has to be

postponed after judgment is obtained

until the exhaustion of the assets of the
person or entity primarily liable, makes a
claim contingent within the meaning of
said section; but upon this point it is
unnecessary to express an opinion. It is
enough to say that where, as in the case
now before us, liability extends
unconditionally to the entire amount
stated in the obligation, or, in other
words, where the debtor is liable in
solidum and without postponement of
execution, the liability is not contingent
but absolute.
For the reasons stated, the decision of
the trial court denying appellant's petition
and his motion for a new trial was correct
and must be affirmed. No costs will be
allowed on this appeal. So ordered.

G.R. No. L-7185

1955

August 31,

REHABILITATION FINANCE
CORPORATION, petitioner,
vs.
COURT OF APPEALS and REALTY
INVESTMENTS, INC., respondents.
Sixto de la Costa and Jose M. Garcia for
petitioner.
Juan T. Chuidian for respondents.

REYES, A., J.:

On June 17, 1948, Delfin Dominguez
signed a contract with Realty
Investments, Inc., to purchase a
registered lot belonging to the latter,
making a down payment of P39.98 and
promising to pay the balance of the
stipulated price in 119 monthly
installments. Some three months
thereafter, to finance the improvement of
a house Dominguez had built on the lot
of Rehabilitation Finance Corporation
hereafter called the RFCagreed to
loan him P10,000 on the security of a
mortgage upon said house and lot, and,
at his instance, wrote Realty Investments
a letter, dated September 17, 1948,
requesting that the necessary
documents for the transfer of title of the
vendee be executed so that the same
could be registered together with
mortgage, this with the assurance that as
soon as title to the lot had been issued in
the name of Dominguez and the
mortgage in favor of the RFC registered
as first lien on the lot and the building
thereon, the RFC would pay Realty
Investments "the balance of the
purchase price of the lot in the amount of
P3,086.98." Complying with RFC's
request and relying on its assurance of
payment, Realty Investments, on the
20th of that same month, deeded over
the lot to Dominguez "free of all liens and
incumbrances" and thereafter the
mortgage deed, which Dominguez had
executed in favor of RFC three days

before, was recorded in the Registry of

Deeds for the City of Manila as first lien
on the lot and the building thereon.
It would appear that once the mortgage
was registered, the RFC let Dominguez
have P6,500 out of the proceeds of his
loan, but that the remainder of the loan
was never released because Dominguez
defaulted in the payment of the
amortizations due on the amount he had
already received, and as a consequence
the RFC foreclosed the mortgage,
bought the mortgaged property in the
foreclosure sale, and obtained title
thereto upon failure of the mortgagor to
exercise his right of redemption.
Required to make good its promise to
pay Realty Investments the balance of
the purchase price of the lot, the RFC
refused, and so Realty Investments
commenced the present action in the
Court of First Instance of Manila for the
recovery of the said balance from either
Delfin Dominguez or the RFC.
The trial court allowed recovery from
Dominguez, but absolved the RFC from
the complaint. But on appeal, the Court
of Appeals reversed that verdict,
declared the judgment against
Dominguez void for having been
rendered after his exclusion from the
case, and sentenced the RFC to pay
plaintiff the amount claimed together with
interests and costs. From this judgment
the RFC has appealed to this Court.

We find no merit in the appeal. While the

amount sought to be recovered by
plaintiff was originally owing from
Dominguez, being the balance of the
purchase price of the lot he had agreed
to buy, the obligation of paying it to
plaintiff has already been assumed by
the RFC with no other condition than that
title to the lot be first conveyed to
Dominguez and RFC's mortgage lien
thereon registered, and that condition
has already been fulfilled.
It is, however, contended for the RFC
that its obligation to pay "has been
modified, if not extinguished" by plaintiff's
letter of September 20, 1948, which
reads as follows:
September 20, 1948
The R. F. C.
Manila
SIRS:
In connection with your
guarantee to pay us the balance
of P3,086.98 of the account of
Mr. Delfin Dominguez for the
purchase of lot No. 15, block 7 of
our Riverside Subdivision, which
lot has been conveyed to him on
the strength of your guaranty to
us the said balance, we want to
inform you that, at the request of
Mr. Dominguez, we are

agreeable to have that amount

paid us at the second release of
proceeds of his loan, which he
informs us will be on or about
October 15, 1948.

Yours truly,
REALTY INVESTMENTS, INC.
C. M. HONSKINS & CO., INC.
Managing Agents
By: (Sgd.) A. B. Aquino
President

Passing upon the above contention, the

Court of Appeals says: "As narrated in
the statement of the case, both
Dominguez and the appellee kept
appellant ignorant on the terms and
conditions of their agreement concerning
the loan of P10,000 and of the manner
that sum was to be released, and in such
circumstances plaintiff's letter of
September 20, 1948, cannot be
construed in the manner contended by
appellee and sustained by the court, for
plaintiff merely said in substance and
effect that it was agreeable to have the
balance of P3,086.98 of the account of
Delfin Dominguez paid to it 'at the
second release of proceeds of his loan,
which he (Dominguez) informs us will be
on or about October 15, 1948.'

Defendant-appellee should know that it

would be absurd for the plaintiff to waive
appellee's guaranty contained in its letter
of September 17, 1948, wherein
Governor E. Ealdama bound the
Rehabilitation Finance Corporation to
pay the unpaid balance of the purchase
price of the lot in question after title
thereof was transferred in the name of
Dominguez free from any incumbrance.
If the Rehabilitation Finance Corporation
was not to make any further release of
funds on the loan, or if such release was
to be subject to future developments, it
was the duty of the Rehabilitation
Finance Corporation to answer the
latter's letter of September 20, 1948, and
to inform appellant of the terms and
conditions of the loan, but the officers of
the appellee failed to do this. For this
reason, appellee's contention in this
respect is most unfair and cannot be
upheld by the courts of justice. It was the
Rehabilitation Finance Corporation that
induced plaintiff to issue title to the lot
free from all encumbrances to
Dominguez on its guaranty, and it cannot
now without any fault of the plaintiff keep
the lot in question and Dominguez'
building without paying anything to the
plaintiff. Under the circumstance of the
case, appellant was not under any
obligation of assuming Dominguez' right
of redemption of the property foreclosed
just to save said lot, payment for which
was guaranteed by the Rehabilitation
Finance Corporation."

We are in accord with the above

pronouncement. Plaintiff was induced to
part with his title to a piece of real
property upon RFC's assurance that it
would itself pay the balance of the
purchase price due from the purchaser
after its mortgage lien thereon had been
registered. Lulled by that assurance,
plaintiff thereafter looked to the RFC,
instead of the purchase, for payment. It
is true that plaintiff later expressed
willingness to have the payment made at
a later date, whenso it was informed
by the buyer"the second release of
proceeds of his loan" would take place.
But it is evident that this period of grace
was granted by plaintiff in the belief that
the information furnished by the buyer
was true, and, as found by the Court of
Appeals (and this finding is conclusive
upon this Court), RFC never made
plaintiff know that said information was
not correct. In those circumstances, we
do not think it fair to construe plaintiff's
letter to be anything more than a mere
assent to a deferment of payment, and
such assent should not be taken as
willingness on its part to have the
payment made only if and when there
was to be second release of proceeds of
the loan. It would be unreasonable to
suppose that the creditor, already
assured of payment by the RFC itself,
would want to create uncertainty by
making such payment dependent upon a
contingency.

In view of the foregoing, the decision

appealed from is affirmed, with costs
against the RFC.
[G.R. No. 93010. August 30, 1990.]
NICENCIO TAN QUIOMBING, Petitioner,
v. COURT OF APPEALS, and Sps.
FRANCISCO and MANUELITA A.
SALIGO, Respondents.
M.B. Tomacruz Law Office
for Petitioner.
Jose J. Francisco for Private
Respondents.

DECISION

CRUZ, J.:

May one of the two solidary creditors sue by

himself alone for the recovery of amounts
due to both of them without joining the
other creditor as a co-plaintiff? In such a
case, is the defendant entitled to the
dismissal of the complaint on the ground of
non-joinder of the second creditor as an
indispensable party? More to the point, is
the second solidary creditor an
indispensable party?
These questions were raised in the case at
bar, with both the trial and respondent
courts ruling in favor of the defendants. The
petitioner is now before us, claiming that
the said courts committed reversible error
and misread the applicable laws in
dismissing his complaint.

This case stemmed from a "Construction

and Service Agreement" 1 concluded on
August 30, 1983, whereby Nicencio Tan
Quiombing and Dante Biscocho, as the First
Party, jointly and severally bound
themselves to construct a house for private
respondents Francisco and Manuelita Saligo,
as the Second Party, for the contract price of
P137,940.00, which the latter agreed to
pay.

other solidary creditor as a co-plaintiff. 5

Rather than file the amended complaint,
Quiombing chose to appeal the order of
dismissal to the respondent court, where he
argued that as a solidary creditor he could
act by himself alone in the enforcement of
his claim against the private respondents.
Moreover, the amounts due were payable
only to him under the second agreement,
where Biscocho was not mentioned at all.
cralawnad

On October 10, 1984, Quiombing and

Manuelita Saligo entered into a second
written agreement 2 under which the latter
acknowledged the completion of the house
and undertook to pay the balance of the
contract price in the manner prescribed in
the said second agreement.
On November 19, 1984, Manuelita Saligo
signed a promissory note for P125,363.50
representing the amount still due from her
and her husband, payable on or before
December 31, 1984, to Nicencio Tan
Quiombing. 3

The respondent court sustained the trial

court and held that it was not correct at that
point to assume that Quiombing and
Biscocho were solidary obligees only. It
noted that as they had also assumed the
reciprocal obligation of constructing the
house, they should also be considered
obligors of the private respondents under
the contract. If, as was possible, the answer
should allege a breach of the agreement,
"the trial court cannot decide the dispute
without the involvement of Biscocho whose
rights will necessarily be affected since he is
a part of the First Party."
cralaw virtua1aw library

On October 9, 1986, Quiombing filed a

complaint for recovery of the said amount,
plus charges and interests, which the
private respondents had acknowledged and
promised to pay but had not, despite
repeated demands as the balance of the
contract price for the construction of their
house. 4
Instead of filing an answer, the defendants
moved to dismiss the complaint on February
4, 1987, contending that Biscocho was an
indispensable party and therefore should
have been included as a co-plaintiff. The
motion was initially denied but was
subsequently reconsidered and granted by
the trial court. The complaint was
dismissed, but without prejudice to the filing
of an amended complaint to include the

Refuting the petitioners second contention,

the respondent court declared that the
"second agreement referred to the
Construction and Service Agreement as its
basis and specifically stated that it (was)
merely a `part of the original agreement."
6
The concept of the solidary obligation
requires a brief restatement.
Distinguishing it from the joint obligation,
Tolentino makes the following observations
in his distinguished work on the Civil Code:

chanrob1es

virtual 1aw library

A joint obligation is one in which each of the

debtors is liable only for a proportionate
part of the debt, and each creditor is

entitled only to a proportionate part of the

credit. A solidary obligation is one in which
each debtor is liable for the entire
obligation, and each creditor is entitled to
demand the whole obligation. Hence, in the
former, each creditor can recover only his
share of the obligation, and each debtor can
be made to pay only his part; whereas, in
the latter, each creditor may enforce the
entire obligation, and each debtor may be
obliged to pay it in full. 7
The same work describes the concept of
active solidarity thus:
chanrob1es virtual 1aw library

The essence of active solidarity consists in

the authority of each creditor to claim and
enforce the rights of all, with the resulting
obligation of paying every one what belongs
to him; there is no merger, much less a
renunciation of rights, but only mutual
representation. 8
It would follow from these observations that
the question of who should sue the private
respondents was a personal issue between
Quiombing and Biscocho in which the
spouses Saligo had no right to interfere. It
did not matter who as between them filed
the complaint because the private
respondents were liable to either of the two
as a solidary creditor for the full amount of
the debt. Full satisfaction of a judgment
obtained against them by Quiombing would
discharge their obligation to Biscocho, and
vice versa; hence, it was not necessary for
both Quiombing and Biscocho to file the
complaint. Inclusion of Biscocho as a coplaintiff, when Quiombing was competent to
sue by himself alone, would be a useless
formality.
chanrobles.com :cralaw:re d

Article 1212 of the Civil Code provides:

chanrob1es virtual 1aw library

Each one of the solidary creditors may do

whatever may be useful to the others, but

not anything which may be prejudice to the
latter.
Suing for the recovery of the contract price
is certainly a useful act that Quiombing
could do by himself alone.
Parenthetically, it must be observed that the
complaint having been filed by the
petitioner, whatever amount is awarded
against the debtor must be paid exclusively
to him, pursuant to Article 1214. This
provision states that "the debtor may pay
any of the solidary creditors; but if any
demand, judicial or extrajudicial, has been
made by any one of them, payment should
be made to him."
cralaw virtua1aw library

If Quiombing eventually collects the amount

due from the solidary debtors, Biscocho may
later claim his share thereof, but that
decision is for him alone to make. It will
affect only the petitioner as the other
solidary creditor and not the private
respondents, who have absolutely nothing
to do with this matter. As far as they are
concerned, payment of the judgment debt
to the complainant will be considered
payment to the other solidary creditor even
if the latter was not a party to the suit.
Regarding the possibility that the private
respondents might plead breach of contract
in their answer, we agree with the petitioner
that it is premature to consider this
conjecture for such it is at this stage.
The possibility may seem remote, indeed,
since they have actually acknowledged the
completion of the house in the second
agreement, where they also agreed to pay
the balance of the contract price. At any
rate, the allegation, if made and proved,
could still be enforceable against the
petitioner alone as one of the solidary

debtors, subject to his right of recourse

against Biscocho.
The respondent court was correct in ruling
that the second agreement, which was
concluded alone by the petitioner with the
private respondents, was based on the
original Construction and Service
Agreement. So too in fact was the
promissory note later signed by Manuelita
Saligo since it was for the amount owing on
the construction cost. However, this matter
is not really that important now in view of
our conclusion that the complaint could
have been filed alone by the petitioner.
The rest of the pieces should easily fall into
place.
Section 7, Rule 3 of the Rules of Court
mandates the inclusion of indispensable
parties as follows:
chanrob1es virtual 1aw library

Sec. 7. Compulsory joinder of indispensable

parties. Parties in interest without whom
no final determination can be had of an
action shall be joined either as plaintiffs or
defendants.
Indispensable parties are those with such an
interest in the controversy that a final
decree would necessarily affect their rights,
so that the court cannot proceed without
their presence. Necessary parties are those
whose presence is necessary to adjudicate
the whole controversy, but whose interests
are so far separable that a final decree can
be made in their absence without affecting
them. 9 (Necessary parties are now called
proper parties under the 1964 amendments
of the Rules of Court.) 10
According to Justice Jose Y. Feria, "where
the obligation of the parties is solidary,
either one of the parties is indispensable,

and the other is not even necessary (now

proper) because complete relief may be
obtained from either." 11
We hold that, although he signed the
original Construction and Service
Agreement, Biscocho need not be included
as a co-plaintiff in the complaint filed by the
petitioner against the private respondents.
Quiombing as solidary creditor can by
himself alone enforce payment of the
construction costs by the private
respondents and as a solidary debtor may
by himself alone be held liable for any
possible breach of contract that may be
proved by the private respondents. In either
case, the participation of Biscocho is not at
all necessary, much less indispensable.
WHEREFORE, the petition is GRANTED. The
decision of the respondent court dated
March 27, 1990, is SET ASIDE, and the
Regional Trial Court of Antipolo, Rizal, is
directed to REINSTATE Civil Case No. 913-A.
Costs against the private respondents.
SO ORDERED.

G.R. No. 134100

29, 2000

September

PURITA ALIPIO, petitioner,

vs.
COURT OF APPEALS and ROMEO G.
JARING, represented by his AttorneyIn-Fact RAMON G.
JARING,respondents.
DECISION

MENDOZA, J.:
The question for decision in this case is
whether a creditor can sue the surviving
spouse for the collection of a debt which
is owed by the conjugal partnership of
gains, or whether such claim must be
filed in proceedings for the settlement of
the estate of the decedent. The trial court
and the Court of Appeals ruled in the
affirmative. We reverse.
The facts are as follows:
Respondent Romeo Jaring1 was the
lessee of a 14.5 hectare fishpond in
Barito, Mabuco, Hermosa, Bataan. The
lease was for a period of five years
ending on September 12, 1990. On June
19, 1987, he subleased the fishpond, for
the remaining period of his lease, to the
spouses Placido and Purita Alipio and
the spouses Bienvenido and Remedios
Manuel. The stipulated amount of rent
was P485,600.00, payable in two
installments ofP300,000.00
and P185,600.00, with the second
installment falling due on June 30, 1989.
Each of the four sublessees signed the
contract.
The first installment was duly paid, but of
the second installment, the sublessees
only satisfied a portion thereof, leaving
an unpaid balance of P50,600.00.

Despite due demand, the sublessees

failed to comply with their obligation, so
that, on October 13, 1989, private
respondent sued the Alipio and Manuel
spouses for the collection of the said
amount before the Regional Trial Court,
Branch 5, Dinalupihan, Bataan. In the
alternative, he prayed for the rescission
of the sublease contract should the
defendants fail to pay the balance.
Petitioner Purita Alipio moved to dismiss
the case on the ground that her
husband, Placido Alipio, had passed
away on December 1, 1988.2 She based
her action on Rule 3, 21 of the 1964
Rules of Court which then provided that
"when the action is for recovery of
money, debt or interest thereon, and the
defendant dies before final judgment in
the Court of First Instance, it shall be
dismissed to be prosecuted in the
manner especially provided in these
rules." This provision has been amended
so that now Rule 3, 20 of the 1997
Rules of Civil Procedure provides:
When the action is for the recovery of
money arising from contract, express or
implied, and the defendant dies before
entry of final judgment in the court in
which the action was pending at the time
of such death, it shall not be dismissed
but shall instead be allowed to continue
until entry of final judgment. A favorable

judgment obtained by the plaintiff therein

shall be enforced in the manner
especially provided in these Rules for
prosecuting claims against the estate of
a deceased person.
The trial court denied petitioner's motion
on the ground that since petitioner was
herself a party to the sublease contract,
she could be independently impleaded in
the suit together with the Manuel
spouses and that the death of her
husband merely resulted in his exclusion
from the case.3 The Manuel spouses
failed to file their answer. For this reason,
they were declared in default.
On February 26, 1991, the lower court
rendered judgment after trial, ordering
petitioner and the Manuel spouses to
pay private respondent the unpaid
balance of P50,600.00 plus attorney's
fees in the amount of P10,000.00 and
the costs of the suit.
Petitioner appealed to the Court of
Appeals on the ground that the trial court
erred in denying her motion to dismiss.
In its decision4 rendered on July 10,
1997, the appellate court dismissed her
appeal. It held:
The rule that an action for recovery of
money, debt or interest thereon must be
dismissed when the defendant dies

before final judgment in the regional trial

court, does not apply where there are
other defendants against whom the
action should be maintained. This is the
teaching of Climaco v. Siy Uy, wherein
the Supreme Court held:
Upon the facts alleged in the complaint,
it is clear that Climaco had a cause of
action against the persons named as
defendants therein. It was, however, a
cause of action for the recovery of
damages, that is, a sum of money, and
the corresponding action is,
unfortunately, one that does not survive
upon the death of the defendant, in
accordance with the provisions of
Section 21, Rule 3 of the Rules of Court.
xxx

xxx

xxx

However, the deceased Siy Uy was not

the only defendant, Manuel Co was also
named defendant in the complaint.
Obviously, therefore, the order appealed
from is erroneous insofar as it dismissed
the case against Co. (Underlining added)
Moreover, it is noted that all the
defendants, including the deceased,
were signatories to the contract of sublease. The remaining defendants cannot
avoid the action by claiming that the
death of one of the parties to the contract
has totally extinguished their obligation

as held in Imperial Insurance, Inc. v.

David:
We find no merit in this appeal. Under
the law and well settled jurisprudence,
when the obligation is a solidary one, the
creditor may bring his action in toto
against any of the debtors obligated in
solidum. Thus, if husband and wife
bound themselves jointly and severally,
in case of his death, her liability is
independent of and separate from her
husband's; she may be sued for the
whole debt and it would be error to hold
that the claim against her as well as the
claim against her husband should be
made in the decedent's estate. (Agcaoili
vs. Vda. de Agcaoili, 90 Phil. 97).5
Petitioner filed a motion for
reconsideration, but it was denied on
June 4, 1998.6 Hence this petition based
on the following assignment of errors:
A. THE RESPONDENT COURT
COMMITTED REVERSIBLE
ERROR IN APPLYING
CLIMACO v. SIY UY, 19 SCRA
858, IN SPITE OF THE FACT
THAT THE PETITIONER WAS
NOT SEEKING THE DISMISSAL
OF THE CASE AGAINST
REMAINING DEFENDANTS
BUT ONLY WITH RESPECT TO
THE CLAIM FOR PAYMENT

AGAINST HER AND HER

HUSBAND WHICH SHOULD BE
PROSECUTED AS A MONEY
CLAIM.
B. THE RESPONDENT COURT
COMMITTED REVERSIBLE
ERROR IN APPLYING
IMPERIAL INSURANCE INC. v.
DAVID, 133 SCRA 317, WHICH
IS NOT APPLICABLE BECAUSE
THE SPOUSES IN THIS CASE
DID NOT BIND THEMSELVES
JOINTLY AND SEVERALLY IN
FAVOR OF RESPONDENT
JARING.7
The petition is meritorious. We hold that
a creditor cannot sue the surviving
spouse of a decedent in an ordinary
proceeding for the collection of a sum of
money chargeable against the conjugal
partnership and that the proper remedy
is for him to file a claim in the settlement
of estate of the decedent.
First. Petitioner's husband died on
December 1, 1988, more than ten
months before private respondent filed
the collection suit in the trial court on
October 13, 1989. This case thus falls
outside of the ambit of Rule 3, 21 which
deals with dismissals of collection suits
because of the death of the defendant
during the pendency of the case and the

subsequent procedure to be undertaken

by the plaintiff, i.e., the filing of claim in
the proceeding for the settlement of the
decedent's estate. As already noted,
Rule 3, 20 of the 1997 Rules of Civil
Procedure now provides that the case
will be allowed to continue until entry of
final judgment. A favorable judgment
obtained by the plaintiff therein will then
be enforced in the manner especially
provided in the Rules for prosecuting
claims against the estate of a deceased
person. The issue to be resolved is
whether private respondent can, in the
first place, file this case against
petitioner.
Petitioner and her late husband, together
with the Manuel spouses, signed the
sublease contract binding themselves to
pay the amount of stipulated rent. Under
the law, the Alipios' obligation (and also
that of the Manuels) is one which is
chargeable against their conjugal
partnership. Under Art. 161(1) of the Civil
Code, the conjugal partnership is liable
for
All debts and obligations contracted by
the husband for the benefit of the
conjugal partnership, and those
contracted by the wife, also for the same
purpose, in the cases where she may
legally bind the partnership.8

When petitioner's husband died, their

conjugal partnership was automatically
dissolved9 and debts chargeable against
it are to be paid in the settlement of
estate proceedings in accordance with
Rule 73, 2 which states:
Where estate settled upon dissolution of
marriage. When the marriage is
dissolved by the death of the husband or
wife, the community property shall be
inventoried, administered, and liquidated,
and the debts thereof paid, in the testate
or intestate proceedings of the deceased
spouse. If both spouses have died, the
conjugal partnership shall be liquidated
in the testate or intestate proceedings of
either.
As held in Calma v. Taedo,10 after the
death of either of the spouses, no
complaint for the collection of
indebtedness chargeable against the
conjugal partnership can be brought
against the surviving spouse. Instead,
the claim must be made in the
proceedings for the liquidation and
settlement of the conjugal property. The
reason for this is that upon the death of
one spouse, the powers of administration
of the surviving spouse ceases and is
passed to the administrator appointed by
the court having jurisdiction over the
settlement of estate
proceedings.11 Indeed, the surviving

spouse is not even a de

facto administrator such that
conveyances made by him of any
property belonging to the partnership
prior to the liquidation of the mass of
conjugal partnership property is void.12
The ruling in Calma v. Taedo was
reaffirmed in the recent case of Ventura
v. Militante.13 In that case, the surviving
wife was sued in an amended complaint
for a sum of money based on an
obligation allegedly contracted by her
and her late husband. The defendant,
who had earlier moved to dismiss the
case, opposed the admission of the
amended complaint on the ground that
the death of her husband terminated
their conjugal partnership and that the
plaintiff's claim, which was chargeable
against the partnership, should be made
in the proceedings for the settlement of
his estate. The trial court nevertheless
admitted the complaint and ruled, as the
Court of Appeals did in this case, that
since the defendant was also a party to
the obligation, the death of her husband
did not preclude the plaintiff from filing an
ordinary collection suit against her. On
appeal, the Court reversed, holding that

as correctly argued by petitioner, the

conjugal partnership terminates upon the
death of either spouse. . . . Where a

complaint is brought against the

surviving spouse for the recovery of an
indebtedness chargeable against said
conjugal [partnership], any judgment
obtained thereby is void. The proper
action should be in the form of a claim to
be filed in the testate or intestate
proceedings of the deceased spouse.
In many cases as in the instant one,
even after the death of one of the
spouses, there is no liquidation of the
conjugal partnership. This does not
mean, however, that the conjugal
partnership continues. And private
respondent cannot be said to have no
remedy. Under Sec. 6, Rule 78 of the
Revised Rules of Court, he may apply in
court for letters of administration in his
capacity as a principal creditor of the
deceased . . . if after thirty (30) days from
his death, petitioner failed to apply for
administration or request that
administration be granted to some other
person.14
The cases relied upon by the Court of
Appeals in support of its ruling,
namely, Climaco v. Siy Uy15 and Imperial
Insurance, Inc. v. David,16 are based on
different sets of facts. In Climaco, the
defendants, Carlos Siy Uy and Manuel
Co, were sued for damages for malicious
prosecution. Thus, apart from the fact the
claim was not against any conjugal

partnership, it was one which does not

survive the death of defendant Uy, which
merely resulted in the dismissal of the
case as to him but not as to the
remaining defendant Manuel Co.
With regard to the case of Imperial, the
spouses therein jointly and severally
executed an indemnity agreement which
became the basis of a collection suit filed
against the wife after her husband had
died. For this reason, the Court ruled that
since the spouses' liability was solidary,
the surviving spouse could be
independently sued in an ordinary action
for the enforcement of the entire
obligation.
It must be noted that for marriages
governed by the rules of conjugal
partnership of gains, an obligation
entered into by the husband and wife is
chargeable against their conjugal
partnership and it is the partnership
which is primarily bound for its
repayment.17 Thus, when the spouses
are sued for the enforcement of an
obligation entered into by them, they are
being impleaded in their capacity as
representatives of the conjugal
partnership and not as independent
debtors such that the concept of joint or
solidary liability, as between them, does
not apply. But even assuming the
contrary to be true, the nature of the

obligation involved in this case, as will be

discussed later, is not solidary but rather
merely joint, making Imperial still
inapplicable to this case.

of P50,600.00 without specifying whether

the amount is to be paid by them jointly
or solidarily. In connection with this, Art.
1207 of the Civil Code provides:

From the foregoing, it is clear that private

respondent cannot maintain the present
suit against petitioner. Rather, his
remedy is to file a claim against the
Alipios in the proceeding for the
settlement of the estate of petitioner's
husband or, if none has been
commenced, he can file a petition either
for the issuance of letters of
administration18 or for the allowance of
will,19 depending on whether petitioner's
husband died intestate or testate. Private
respondent cannot short-circuit this
procedure by lumping his claim against
the Alipios with those against the
Manuels considering that, aside from
petitioner's lack of authority to represent
their conjugal estate, the inventory of the
Alipios' conjugal property is necessary
before any claim chargeable against it
can be paid. Needless to say, such
power exclusively pertains to the court
having jurisdiction over the settlement of
the decedent's estate and not to any
other court.

The concurrence of two or more

creditors or of two or more debtors in
one and the same obligation does not
imply that each one of the former has a
right to demand, or that each one of the
latter is bound to render, entire
compliance with the prestations. There is
a solidary liability only when the
obligation expressly so estates, or when
the law or the nature of the obligation
requires solidarity.

1wphi1

Second. The trial court ordered

petitioner and the Manuel spouses to
pay private respondent the unpaid
balance of the agreed rent in the amount

Indeed, if from the law or the nature or

the wording of the obligation the contrary
does not appear, an obligation is
presumed to be only joint, i.e., the debt is
divided into as many equal shares as
there are debtors, each debt being
considered distinct from one another.20
Private respondent does not cite any
provision of law which provides that
when there are two or more lessees, or
in this case, sublessees, the latter's
obligation to pay the rent is solidary. To
be sure, should the lessees or
sublessees refuse to vacate the leased
property after the expiration of the lease
period and despite due demands by the
lessor, they can be held jointly and

severally liable to pay for the use of the

property. The basis of their solidary
liability is not the contract of lease or
sublease but the fact that they have
become joint tortfeasors.21 In the case at
bar, there is no allegation that the
sublessees refused to vacate the
fishpond after the expiration of the term
of the sublease. Indeed, the unpaid
balance sought to be collected by private
respondent in his collection suit became
due on June 30, 1989, long before the
sublease expired on September 12,
1990.
Neither does petitioner contend that it is
the nature of lease that when there are
more than two lessees or sublessees
their liability is solidary. On the other
hand, the pertinent portion of the
contract involved in this case reads:22
2. That the total lease rental for the subleased fishpond for the entire period of
three (3) years and two (2) months is
FOUR HUNDRED EIGHT-FIVE
THOUSAND SIX HUNDRED
(P485,600.00) PESOS, including all the
improvements, prawns, milkfishes, crabs
and related species thereon as well all
fishing equipment, paraphernalia and
accessories. The said amount shall be
paid to the Sub-Lessor by the SubLessees in the following manner, to wit:

A. Three hundred thousand

(P300,000.00) Pesos upon signing this
contract; and
B. One Hundred Eight-Five Thousand
Six-Hundred (P185,6000.00) Pesos to
be paid on June 30, 1989.
Clearly, the liability of the sublessees is
merely joint. Since the obligation of the
Manuel and Alipio spouses is chargeable
against their respective conjugal
partnerships, the unpaid balance
of P50,600.00 should be divided into two
so that each couple is liable to pay the
amount of P25,300.00.

MAKATI DEVELOPMENT
CORPORATION, plaintiff-appellant,
vs.
EMPIRE INSURANCE CO., defendantappellee.
RODOLFO P. ANDAL, third-party
defendant-appellee.
Salvador J. Lorayes for plaintiff-appellant
Makati Development Corporation.
Tomacruz and Ferrer for defendantappellee Empire Insurance Company,
Inc.
Crispin D. Baizas and Associates for
defendant-appellee Rodolfo Andal.
CASTRO, J.:

WHEREFORE, the petition is

GRANTED. Bienvenido Manuel and
Remedios Manuel are ordered to pay the
amount of P25,300.00, the attorney's
fees in the amount of P10,000.00 and
the costs of the suit. The complaint
against petitioner is dismissed without
prejudice to the filing of a claim by
private respondent in the proceedings for
the settlement of estate of Placido Alipio
for the collection of the share of the
Alipio spouses in the unpaid balance of
the rent in the amount of P25,300.00.
SO ORDERED.
G.R. No. L-21780

June 30, 1967

On March 31, 1959, the Makati

Development Corporation sold to
Rodolfo P. Andal a lot, with an area of
1,589 square meters, in the Urdaneta
Village, Makati, Rizal, for P55,615.
1wph1.t

A so-called "special condition" contained

in the deed of sale provides that "[T]he
VENDEE/S shall commence the
construction and complete at least 50%
of his/her/their/its residence on the
property within two (2) years from March
31, 1959 to the satisfaction of the
VENDOR and, in the event of
his/her/their/its failure to do so, the bond
which the VENDEE/S has delivered to
the VENDOR in the sum of P11,123.00

and evidenced by a cash bond receipt

dated April 10, 1959 will be forfeited in
favor of the VENDOR by the mere fact of
failure of the VENDEE/S to comply with
this special condition." To insure faithful
compliance with this "condition," Andal
gave a surety bond on April 10, 1959
wherein he, as principal, and the Empire
Insurance Company, as surety, jointly
and severally, undertook to pay the
Makati Development Corporation the
sum of P12,000 in case Andal failed to
comply with his obligation under the
deed of sale.
Andal did not build his house; instead he
sold the lot to Juan Carlos on January
18, 1960. As neither Andal nor Juan
Carlos built a house on the lot within the
stipulated period, the Makati
Development Corporation, on April 3,
1961, that is, three days after the lapse
of the two-year period, sent a notice of
claim to the Empire Insurance Co.
advising it of Andal's failure to comply
with his undertaking. Demand for the
payment of P12,000 was refused,
whereupon the Makati Development
Corporation filed a complaint in the Court
of First Instance of Rizal on May 22,
1961 against the Empire Insurance Co.
to recover on the bond in the full amount,
plus attorney's fees. In due time, the
Empire Insurance Co. filed its answer
with a third-party complaint against

Andal. It asked that the complaint be

dismissed or, in the event of a judgment
in favor of the Makati Development
Corporation, that judgment be rendered
ordering Andal to pay the Empire
Insurance Co. whatever amount it maybe
ordered to pay the Makati Development
Corporation, plus interest at 12%, from
the date of the filing of the complaint until
said amount was fully reimbursed, and
attorney's fees.

filing of the complaint to the time of

payment and to pay attorney's fees in the
sum of P500 and proportionate part of
the costs. The Makati Development
Corporation appealed directly to this
Court.

In his answer, Andal admitted the

execution of the bond but alleged that
the "special condition" in the deed of sale
was contrary to law, morals and public
policy. He averred that, at any rate, Juan
Carlos had started construction of a
house on the lot.

While no building has actually

been constructed before the
target date which is March 31,
1961, it is also a fact that even
before that date the entire area
was already fenced with a stone
wall and building materials were
also stocked in the premises
which are clear indicia of the
owner's desire to construct his
house with the least possible
delay. As a matter of fact the
incontrovertible testimony of
Juan Carlos is to the effect that
by the end of April 1961, he had
finished very much more than the
required 50% stipulated in the
contract of sale. In short there
was only really a little delay.

Hearing was held and, on March 28,

1963, the lower court rendered
judgment, sentencing the Empire
Insurance Co. to pay the Makati
Development Corporation the amount of
P1,500, with interest at the rate of 12%
from the time of the filing of the
complaint until the amount was fully paid,
and to pay attorney's fees in the amount
of P500, and the proportionate part of
the costs. The court directed that in case
the amount of the judgment was paid by
the Empire Insurance Co., Andal should
in turn pay the former the sum of P1,500
with interest at 12% from the time of the

In reducing Andal's liability for breach of

his undertaking from P12,000, as
stipulated in the bond to P1,500, the
court noted that

But the appellant argues that Andal

became liable for the full amount of his
bond upon his failure to build a house

within the two-year period which expired

on March 31, 1961 and that the trial
court was without authority to reduce
Andal's liability on the basis of Carlos'
construction of a house a month after the
stipulated period because there was no
privity of contract between Carlos and
the Makati Development Corporation.
To begin with, the so-called "special
condition" in the deed of sale is in reality
an obligation1 to build a house at least
50 per cent of which must be finished
within two years. It was to secure the
performance of this obligation that a
penal clause was inserted.
While it is true that in obligations with a
penal sanction the penalty takes the
place of "damages and the payment of
interest in case of non-compliance"2 and
that the obligee is entitled to recover
upon the breach of the obligation without
the need of proving damages,3 it is
nonetheless true that in certain instances
a mitigation of the obligor's liability is
allowed. Thus article 1229 of the Civil
Code states:
The judge shall equitably reduce
the penalty when the principal
obligation has been partly or
irregularly complied with by the
debtor. Even if there has been no
performance, the penalty may

also be reduced by the courts if it

is iniquitous or unconscionable.
Here the trial court found that Juan
Carlos had finished more than 50 per
cent of his house by April, 1961, or
barely a month after the expiration on
March 31, 1961 of the stipulated period.
There was therefore a partial
performance of the obligation within the
meaning and intendment of article
1229.4 The case of General Ins. & Surety
Corp. vs. Republic, G.R. L-13873, Jan.
31, 19635 cannot be invoked as authority
for the forfeiture of the full amount of the
bond because unlike this case there was
in that case no performance at all of any
part of the obligation to secure the
payment of salaries to teachers. Indeed,
it has been held that where there has
been partial or irregular compliance with
the provisions in a contract for special
indemnification in the event of failure to
comply with its terms, courts will rigidly
apply the doctrine of strict construction
against the enforcement in its entirety of
the indemnification, where it is clear from
the contract that the amount or character
of the indemnity is fixed without regard to
the probable damages which might be
anticipated as a result of a breach of the
terms of the contract, or, in other words,
where the indemnity provided for is
essentially a mere penalty having for its
object the enforcement of compliance

with the contract.6 The penal clause in

this case was inserted not to indemnify
the Makati Development Corporation for
any damage it might suffer as a result of
a breach of the contract but rather to
compel performance of the so-called
"special condition" and thus encourage
home building among lot owners in the
Urdaneta Village.
Considering that a house had been built
shortly after the period stipulated, the
substantial, if tardy, performance of the
obligation, having in view the purpose of
the penal clause, fully justified the trial
court in reducing the penalty.
Still it is insisted that Carlos' construction
of a house on the lot sold cannot be
considered a partial performance of
Andal's obligation because Carlos bears
no contractual relation to the Makati
Development Corporation. This case is in
many respects analogous to Insular
Gov't. vs. Amechazurra, 10 Phil. 637
(1908) where a similar claim was made
by a party and rejected by this Court.
There the defendant gave a bond for
$800 to guarantee the return to the
plaintiff of four firearms issued to him "on
demand" of the Government. Three of
the firearms were stolen from the
defendant so that on demand of the
Government he was able to produce only
one. Subsequently the constabulary

recovered two of the missing guns and

the question was whether defendant was
entitled to a mitigation of liability even if
recovery of the firearms was made
possible through the efforts of third
parties (the Constabulary) This Court
gave an affirmative answer.
Indeed the stipulation in this case to
commence the construction and
complete at least 50 per cent of the
vendee's house within two years cannot
be construed as imposing a strictly
personal obligation on Andal. To adopt
such a construction would be to limit
Andal's right to dispose of the lot. There
is nothing in the deed of sale restricting
Andal's right to sell the lot at least within
the two-year period and we think it plain
that a reading of such a limitation on one
of the rights of ownership must rest on
more explicit language in the contract. It
cannot be left to mere inference.
Accordingly, the decision appealed from
is affirmed, at appellant's cost.
Concepcion, C.J., Reyes J.B.L., Dizon,
Makalintal, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
G.R. No. 85161 September 9, 1991
COUNTRY BANKERS INSURANCE
CORPORATION and ENRIQUE

SY, petitioners,
vs.
COURT OF APPEALS and OSCAR
VENTANILLA ENTERPRISES
CORPORATION, respondents.
Esteban C. Manuel for petitioners.

termination of the Lease

Agreement (Exh. A) and
the defendant's re-entry
and repossession of the
Avenue, Broadway and
Capitol theaters under
lease on February 11,
1980;

Augusta Gatmaytan for OVEC.

MEDIALDEA, J.:p
Petitioners seek a review on certiorari of
the decision of the Court of Appeals in
CA-G.R. CV No. 09504 "Enrique Sy and
Country Bankers Insurance Corporation
v. Oscar Ventanilla Enterprises
Corporation" affirming in toto the
decision of the Regional Trial Court,
Cabanatuan City, Branch XXV, to wit:
WHEREFORE, the
complaint of the plaintiff
Enrique F. Sy is
dismissed, and on the
counterclaim of the
defendant O. Ventanilla
Enterprises Corporation,
judgment is hereby
rendered:
1. Declaring as lawful,
the cancellation and

2. Declaring as lawful,
the forfeiture clause
under paragraph 12 of
the Id Lease Agreement,
and confirming the
forfeiture of the plaintiffs
remaining cash deposit of
P290,000.00 in favor of
the defendant
thereunder, as of
February 11, 1980;
3. Ordering the plaintiff to
pay the defendant the
sum of P289,534.78,
representing arrears in
rentals, unremitted
amounts for amusement
tax delinquency and
accrued interest thereon,
with further interest on
said amounts at the rate
of 12% per annum (per
lease agreement) from
December 1, 1980 until
the same is fully paid;

4. Ordering the plaintiff to

pay the defendant the
amount of P100,000.00,
representing the
P10,000.00 portion of the
monthly lease rental
which were not deducted
from the cash deposit of
the plaintiff from February
to November, 1980, after
the forfeiture of the said
cash deposit on February
11, 1980, with interest
thereon at the rate of
12% per annum on each
of the said monthly
amounts of P10,000.00
from the time the same
became due until it is
paid;
5. Ordering the plaintiff to
pay the defendant
through the injunction
bond, the sum of
P100,000.00,
representing the
P10,000.00 monthly
increase in rentals which
the defendant failed to
realize from February to
November 1980 result
from the injunction, with
legal interest thereon

from the finality of this

decision until fully paid;
6. Ordering the plaintiff to
pay to the defendant the
sum equivalent to ten per
centum (10%) of the
above-mentioned
amounts of P289,534.78,
P100,000.00 and
P100,000.00, as and for
attorney's fees; and
7. Ordering the plaintiff to
pay the costs. (pp. 9495, Rollo)
The antecedent facts of the case are as
follows:
Respondent Oscar Ventanilla
Enterprises Corporation (OVEC), as
lessor, and the petitioner Enrique F. Sy,
as lessee, entered into a lease
agreement over the Avenue, Broadway
and Capitol Theaters and the land on
which they are situated in Cabanatuan
City, including their air-conditioning
systems, projectors and accessories
needed for showing the films or motion
pictures. The term of the lease was for
six (6) years commencing from June 13,
1977 and ending June 12,1983. After
more than two (2) years of operation of
the Avenue, Broadway and Capitol

Theaters, the lessor OVEC made

demands for the repossession of the
said leased properties in view of the Sy's
arrears in monthly rentals and nonpayment of amusement taxes. On
August 8,1979, OVEC and Sy had a
conference and by reason of Sy's
request for reconsideration of OVECs
demand for repossession of the three (3)
theaters, the former was allowed to
continue operating the leased premises
upon his conformity to certain conditions
imposed by the latter in a supplemental
agreement dated August 13, 1979.
In pursuance of their latter agreement,
Sy's arrears in rental in the amount of
P125,455.76 (as of July 31, 1979) was
reduced to P71,028.91 as of December
31, 1979. However, the accrued
amusement tax liability of the three (3)
theaters to the City Government of
Cabanatuan City had accumulated to
P84,000.00 despite the fact that Sy had
been deducting the amount of P4,000.00
from his monthly rental with the
obligation to remit the said deductions to
the city government. Hence, letters of
demand dated January 7, 1980 and
February 3, 1980 were sent to Sy
demanding payment of the arrears in
rentals and amusement tax delinquency.
The latter demand was with warning that
OVEC will re-enter and repossess the
Avenue, Broadway and Capital Theaters

on February 11, 1980 in pursuance of the

pertinent provisions of their lease
contract of June 11, 1977 and their
supplemental letter-agreement of August
13, 1979. But notwithstanding the said
demands and warnings SY failed to pay
the above-mentioned amounts in full
Consequently, OVEC padlocked the
gates of the three theaters under lease
and took possession thereof in the
morning of February 11, 1980 by posting
its men around the premises of the Id
movie houses and preventing the
lessee's employees from entering the
same.
Sy, through his counsel, filed the present
action for reformation of the lease
agreement, damages and injunction late
in the afternoon of the same day. And by
virtue of a restraining order dated
February 12, 1980 followed by an order
directing the issuance of a writ of
preliminary injunction issued in said
case, Sy regained possession and
operation of the Avenue, Broadway and
Capital theaters.
As first cause of action, Sy alleged that
the amount of deposit P600,000.00 as
agreed upon, P300,000.00 of which was
to be paid on June 13, 1977 and the
balance on December 13, 1977 was
too big; and that OVEC had assured him
that said forfeiture will not come to pass.

By way of second cause of action, Sy

sought to recover from OVEC the sums
of P100,000.00 which Sy allegedly spent
in making "major repairs" on Broadway
Theater and the application of which to
Sy's due rentals; (2) P48,000.00
covering the cost of electrical current
allegedly used by OVEC in its alleged
"illegal connection" to Capitol Theater
and (3) P31,000.00 also for the cost of
electrical current allegedly used by
OVEC for its alleged "illegal connection"
to Broadway Theater and for damages
suffered by Sy as a result of such
connection. Under the third cause of
action, it is alleged in the complaint that
on February 11, 1980, OVEC had the
three theaters padlocked with the use of
force, and that as a result, Sy suffered
damages at the rate of P5,000.00 a day,
in view of his failure to go thru the
contracts he had entered into with movie
and booking companies for the showing
of movies at ABC. As fourth cause of
action, Sy prayed for the issuance of a
restraining order/preliminary injunction to
enjoin OVEC and all persons employed
by it from entering and taking possession
of the three theaters, conditioned upon
Sy's filing of a P500,000.00 bond
supplied by Country Bankers Insurance
Corporation (CBISCO).
OVEC on the other hand, alleged in its
answer by way of counterclaims, that by

reason of Sy's violation of the terms of

the subject lease agreement, OVEC
became authorized to enter and possess
the three theaters in question and to
terminate said agreement and the
balance of the deposits given by Sy to
OVEC had thus become forfeited; that
OVEC would be losing P50,000.00 for
every month that the possession and
operation of said three theaters remain
with Sy and that OVEC incurred
P500,000.00 for attorney's service.
The trial court arrived at the conclusions
that Sy is not entitled to the reformation
of the lease agreement; that the
repossession of the leased premises by
OVEC after the cancellation and
termination of the lease was in
accordance with the stipulation of the
parties in the said agreement and the
law applicable thereto and that the
consequent forfeiture of Sy's cash
deposit in favor of OVEC was clearly
agreed upon by them in the lease
agreement. The trial court further
concluded that Sy was not entitled to the
writ of preliminary injunction issued in his
favor after the commencement of the
action and that the injunction bond filed
by Sy is liable for whatever damages
OVEC may have suffered by reason of
the injunction.

On the counterclaim of OVEC the trial

court found that the said lessor was
deprived of the possession and
enjoyment of the leased premises and
also suffered damages as a result of the
filing of the case by Sy and his violation
of the terms and conditions of the lease
agreement. Hence, it held that OVEC is
entitled to recover the said damages in
addition to the arrears in rentals and
amusement tax delinquency of Sy and
the accrued interest thereon. From the
evidence presented, it found that as of
the end of November, 1980, when OVEC
finally regained the possession of the
three (3) theaters under lease, Sy's
unpaid rentals and amusement tax
liability amounted to P289,534.78. In
addition, it held that Sy was under
obligation to pay P10,000.00 every
month from February to November, 1980
or the total amount of P100,000.00 with
interest on each amount of P10,000.00
from the time the same became due.
This P10,000.00 portion of the monthly
lease rental was supposed to come from
the remaining cash deposit of Sy but with
the consequent forfeiture of the
remaining cash deposit of P290,000.00,
there was no more cash deposit from
which said amount could be deducted.
Further, it adjudged Sy to pay attorney's
fees equivalent to 10% of the amounts
above-mentioned.

Finally, the trial court held Sy through the

injunction bond liable to pay the sum of
P10,000.00 every month from February
to November, 1980. The amount
represents the supposed increase in
rental from P50,000.00 to P60,000.00 in
view of the offer of one RTG
Productions, Inc. to lease the three
theaters involved for P60,000.00 a
month.
From this decision of the trial court, Sy
and (CBISCO) appealed the decision in
toto while OVEC appealed insofar as the
decision failed to hold the injunction
bond liable for an damages awarded by
the trial court.
The respondent Court of Appeals found
no ambiguity in the provisions of the
lease agreement. It held that the
provisions are fair and reasonable and
therefore, should be respected and
enforced as the law between the parties.
It held that the cancellation or
termination of the agreement prior to its
expiration period is justified as it was
brought about by Sy's own default in his
compliance with the terms of the
agreement and not "motivated by fraud
or greed." It also affirmed the award to
OVEC of the amount of P100,000.00
chargeable against the injunction bond
posted by CBISCO which was soundly
and amply justified by the trial court.

The respondent Court likewise found no

merit in OVECS appeal and held that the
trial court did not err in not charging and
holding the injunction bond posted by Sy
liable for all the awards as the
undertaking of CBISCO under the bond
referred only to damages which OVEC
may suffer as a result of the injunction.
From this decision, CBISCO and Sy filed
this instant petition on the following
grounds:
A
PRIVATE RESPONDENT
SHOULD NOT BE
ALLOWED TO
UNJUSTLY ENRICH OR
BE BENEFITTED AT
THE EXPENSE OF THE
PETITIONERS.
B
RESPONDENT COURT
OF APPEALS CO D
SERIOUS ERROR OF
LAW AND GRAVE
ABUSE OF
DISCRETION IN NOT
SETTING OFF THE
P100,000.00
SUPPOSED DAMAGE
RESULTING FROM THE

INJUNCTION AGAINST
THE P290,000.00
REMAINING CASH
DEPOSIT OF
PETITIONER ENRIQUE
SY.
C
RESPONDENT COURT
OF APPEALS FURTHER
COMMITTED SERIOUS
ERROR OF LAW AND
GRAVE ABUSE OF
DISCRETION IN NOT
DISMISSING PRIVATE
RESPONDENTS
COUNTER-CLAIM FOR
FAILURE TO PAY THE
NECESSARY DOCKET
FEE. (p. 10, Rollo)
We find no merit in petitioners' argument
that the forfeiture clause stipulated in the
lease agreement would unjustly enrich
the respondent OVEC at the expense of
Sy and CBISCO contrary to law,
morals, good customs, public order or
public policy. A provision which calls for
the forfeiture of the remaining deposit
still in the possession of the lessor,
without prejudice to any other obligation
still owing, in the event of the termination
or cancellation of the agreement by
reason of the lessee's violation of any of

the terms and conditions of the

agreement is a penal clause that may be
validly entered into. A penal clause is an
accessory obligation which the parties
attach to a principal obligation for the
purpose of insuring the performance
thereof by imposing on the debtor a
special presentation (generally
consisting in the payment of a sum of
money) in case the obligation is not
fulfilled or is irregularly or inadequately
fulfilled. (Eduardo P. Caguioa, Comments
and Cases on Civil Law, Vol. IV, First
Edition, pp. 199-200) As a general rule,
in obligations with a penal clause, the
penalty shall substitute the indemnity for
damages and the payment of interests in
case of non-compliance. This is
specifically provided for in Article 1226,
par. 1, New Civil Code. In such case,
proof of actual damages suffered by the
creditor is not necessary in order that the
penalty may be demanded (Article 1228,
New Civil Code). However, there are
exceptions to the rule that the penalty
shall substitute the indemnity for
damages and the payment of interests in
case of non-compliance with the
principal obligation. They are first, when
there is a stipulation to the contrary;
second, when the obligor is sued for
refusal to pay the agreed penalty; and
third, when the obligor is guilty of fraud
(Article 1226, par. 1, New Civil Code). It
is evident that in all said cases, the

purpose of the penalty is to punish the

obligor. Therefore, the obligee can
recover from the obligor not only the
penalty but also the damages resulting
from the non-fulfillment or defective
performance of the principal obligation.
In the case at bar, inasmuch as the
forfeiture clause provides that the
deposit shall be deemed forfeited,
without prejudice to any other obligation
still owing by the lessee to the lessor, the
penalty cannot substitute for the
P100,000.00 supposed damage resulting
from the issuance of the injunction
against the P290,000.00 remaining cash
deposit. This supposed damage suffered
by OVEC was the alleged P10,000.00 a
month increase in rental from
P50,000.00 to P60,000,00), which OVEC
failed to realize for ten months from
February to November, 1980 in the total
sum of P100,000.00. This opportunity
cost which was duly proven before the
trial court, was correctly made
chargeable by the said court against the
injunction bond posted by CBISCO. The
undertaking assumed by CBISCO under
subject injunction refers to "all such
damages as such party may sustain by
reason of the injunction if the Court
should finally decide that the Plaintiff
was/were not entitled thereto." (Rollo, p.
101) Thus, the respondent Court
correctly sustained the trial court in

holding that the bond shall and may

answer only for damages which OVEC
may suffer as a result of the injunction.
The arrears in rental, the unmeritted
amounts of the amusement tax
delinquency, the amount of P100,000.00
(P10,000.00 portions of each monthly
rental which were not deducted from
plaintiffs cash deposit from February to
November, 1980 after the forfeiture of
said cash deposit on February 11, 1980)
and attorney's fees which were all
charged against Sy were correctly
considered by the respondent Court as
damages which OVEC sustained not as
a result of the injunction.
There is likewise no merit to the claim of
petitioners that respondent Court
committed serious error of law and grave
abuse of discretion in not dismissing
private respondent's counterclaim for
failure to pay the necessary docket fee,
which is an issue raised for the first time
in this petition. Petitioners rely on the
rule in Manchester Development
Corporation v. Court of Appeals, G.R.
No. 75919, May 7, 1987, 149 SCRA 562
to the effect that all the proceedings held
in connection with a case where the
correct docket fees are not paid should
be peremptorily be considered null and
void because, for all legal purposes, the
trial court never acquired jurisdiction over
the case. It should be remembered

however, that in Davao Light and Power

Co., Inc. v. Dinopol, G.R. 75195, August
19, 1988, 164 SCRA 748, this Court took
note of the fact that the assailed order of
the trial court was issued prior to the
resolution in the Manchester case and
held that its strict application to the case
at bar would therefore be unduly harsh.
Thus, We allowed the amendment of the
complaint by specifying the amount of
damages within a non-extendible period
of five (5) days from notice and the reassessment of the filing fees. Then,
in Sun Insurance Office, Ltd. v. Asuncion,
G.R. 79937-38, February 3, 1989, 170
SCRA 274, We held that where the filing
of the initiatory pleading is not
accompanied by payment of the docket
fee, the court may allow payment of the
fee within a reasonable time but in no
case beyond the applicable prescriptive
or reglemen tary period.

Nevertheless, OVEC's counterclaims are

compulsory so no docket fees are
required as the following circumstances
are present: (a) they arise out of or are
necessarily connected with the
transaction or occurrence that is subject
matter of the opposing party's claim; (b)
they do not require for their adjudication
the presence of third parties of whom the
court cannot acquire jurisdiction; and (c)
the court has jurisdiction to entertain the
claim (see Javier v. Intermediate
Appellate Court, G.R. 75379, March 31,
1989, 171 SCRA 605). Whether the
respective claims asserted by the parties
arise out of the same contract or
transaction within the limitation on
counterclaims imposed by the statutes
depends on a consideration of all the
facts brought forth by the parties and on
a determination of whether there is some
legal or equitable relationship between

the ground of recovery alleged in the

counterclaim and the matters alleged as
the cause of action by the plaintiff (80
C.J.S. 48). As the counterclaims of
OVEC arise from or are necessarily
connected with the facts alleged in the
complaint for reformation of instrument of
Sy, it is clear that said counterclaims are
compulsory.
ACCORDINGLY, finding no merit in the
grounds relied upon by petitioners in
their petition, the same is hereby
DENIED and the decision dated June 15,
1988 and the resolution dated
September 21, 1988, both of the
respondent Court of Appeals are
AFFIRMED.
SO ORDERED.