AGRA VS PNG

SYNOPSIS
The petitioners are the sureties in the loan granted by the Philippine
National Bank (PNB) to the Fil-Eastern Wood Industries, Inc. on July 17,
1967, in the amount of P2,500,000.00 with an interest rate of 21 % per
annum. On August 20, 1976, for failure to pay the said loan, the PNB
filed an action for collection of a sum of money against Fil-Eastern and the
petitioners. In their answer, the petitioners admitted that they signed the
Surety Agreement, but they challenged their liability on the ground that
they were allegedly coerced by their employer, Felipe Ysmael, Jr., to sign
the Surety Agreement; they did not receive a single centavo in
consideration thereof and the cause of the complainant was barred by
laches and estoppel considering that the PNB with full knowledge of the
deteriorating financial condition of the Fil-Eastern, did not take steps to
collect from the said corporation while it was still solvent. After trial, the
Regional Trial Court (RTC) ruled against herein petitioners. On appeal,
the Court of Appeals modified the RTC ruling by deleting the award of
attorney's fees.
Hence, this petition.
The Court ruled that it is true that prescription is different from laches,
but petitioners' reliance on Nielson Co., Inc., vs. Lepanto Consolidated
Mining Co., 18 SCRA 1040, is misplaced. As held in the aforecited case,
laches is principally a question of equity. Necessarily, there is no absolute
rule as to what constitutes laches or staleness of demand; each case is to be
determined accordingly to its particular circumstances. The question of
laches is an equitable doctrine, its application is controlled by equitable
considerations. Petitioners, however, failed to show that the collection suit
against herein sureties was inequitable. Remedies in equity address only
situations tainted with inequity, not those expressly governed by statutes.
Indeed, the petitioners failed to prove the presence of all the established
requisites of laches. The other equitable circumstances above enumerated
failed to support petitioners' cause. Petitioners were already barred from
questioning the voluntariness of their consent. Furthermore, the Court has
categorically ruled that a surety is liable for the debt of another, although
he or she received no benefit therefrom.
The petition was DENIED.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOIDABLE CONTRACTS;
VITIATED CONSENT; ACTION TO ANNUL SHALL BE FILED WITHIN FOUR
YEARS FROM CESSATION OF SUCH DEFECTS. - As pointed out by the Court of
Appeals, petitioners failed to challenge their consent to the Agreement within the
prescriptive period. Article 1391 of the Civil Code provides that the action to annul a
contract vitiated by intimidation, violence or undue influence shall be filed within four
yrears from the cessation of such defects. In this case, Petitioners Agra, Gamo and Novales
resigned from Fil-Eastern in 1967, 1968 and 1969, respectively. It was only in 1976, when
PNB sought to enforce the contract, that they alleged a defect in their consent. By their
inaction, their alleged cause of action based on vitiated consent had prescribed. There was
no question that petitioners, in their capacity as sureties, were answerable for the obligations
of Fil-Eastern to PNB.
2. REMEDIAL LAW; ACTIONS; LACHES; APPLICATION THEREOF IS
CONTROLLED BY EQUITABLE CONSIDERATIONS.- True, prescription is different
from laches, but petitioners' reliance on Nielson is misplaced. As held in the aforecited
case, laches is principally a question of equity. Necessarily, there is no absolute rule as to
what constitutes laches or staleness of demand; each case is to be determined according to
its particular circumstances. The question of laches is addressed to the sound discretion of
the court and since laches is an equitable doctrine, its application is controlled by equitable
considerations. Petitioners, howevr, failed to know that the collection suit against herein
sureties was inequitable. Remedies in equity address only situations tainted with inequity,
not those expressly governened by statutes.
3. ID.; ID.; ID.; REQUISITES. - (1) conduct on the part of the defendant, or one under
whom he claims, giving rise to the situation of which complaint is made and for which the
complainant seeks a remedy; (2) delay in asserting the complainant's rights, the complainant
having had knowledge or notice of the defendant's conduct and having been afforded an
opportunity to institute a suit; (3) lack of knowledge or notice on the part of the defendant
that the complainant would assert the right on which he bases his claim; and (4) injury or
prejudice to the defendant in the event relief is accorded to the complainant, or the suit is
not held barred.
4. ID.; ID.; ID.; NOT APPLICABLE IN DELAYS WITHIN THE PRESCRIPTIVE
PERIOD. - Although the collection suit was filed more than seven years after the obligation
of the sureties became due, the lapse was within the prescriptive period for filing an action.
In this light, we find immaterial petitioners' insistence that the cause of action accrued on
December 31, 1968, when the obligation became due, and not on August 30, 1976, when the
judicial demand was made. In either case, both submissions fell within the ten-year
prescriptive period. In any event, the fact of delay, standing alone, is insufficient to
constitute laches. x x x Again we point that, unless reasons of inequitable proportions are
adduced, a delay within the prescriptive period is sanctioned by law and is not considered to
be a delay that would bar relief.
5. CIVIL LAW; OBLIGATIONS AND CONTRACTS; SURETY; HAS DIRECT,
PRIMARY AND ABSOLUTE OBLIGATION. - The Court stresses that the obligation of
a surety is direct, primary and absolute. Thus, the Court has held: [A]lthough the contract
of a surety is in essence secondary only to a valid principal obligation, his liability to the
creditor or promisee of the principal is said to be direct, primary, and absolute; in other
words, he is directly and equally bound with the principal. The surety therefore becomes
liable for the debt or duty of another although he possesses no direct or personal interest
over the obligations nor does he receive any benefit therefrom.
6. ID.; ID.; ID.; ID.; CASE AT BAR. - When petitioners signed as sureties, they expressly
and unequivocally agreed to the stipulation that the liability on this guaranty shall be
solidary, direct and immediate and not contingent upon the pursuit by the creditor, its
successors, indorsees or assigns, of whatever remedies it or they have against the principal
or the securities or liens it or they may possess. If they had mistaken the import of the
Surety Agreement, they could have easily asked for its revocation. The Agreement
stipulates that it may be revoked by the Surety at any time, but only after forty-eight hours
notice in writing to the Creditor, and such revocation shall not operate to relieve the Surety
from responsibility for obligations incurred by the Principal prior to the termination of such
period. This they did not do.
7. ID.; ID.; ID.; LIABLE FOR THE DEBT OF ANOTHER ALTHOUGH HE
RECEIVED NO BENEFIT THEREFROM. - This Court has categorically ruled that a
surety is liable for the debt of another, although he or she received no benefit therefrom.
8. REMEDIAL LAW; ACTIONS; PRINCIPLE OF EQUITY; NOT APPLICABLE IN
CASE AT BAR. - In the present case, there is no showing of any mistake or any inequity.
The fact alone that seven years had lapsed before PNB filed the collection suit does not
mean that it discovered the obligation of the sureties only then. There was a Surety
Arrangement, and the law says that the said contract can be enforced by action within ten
years. The bank and the sureties all knew that the action to enforce the contract did not
have to be filed immediately. In other words, the bank committed no mistake or inequitable
conduct that needed correction, and the sureties had no misconception about their liabilities
under the contract. Clearly, petitioners have no recourse in equity, because they failed to
show any inequity on the part of PNB.
9. ID.; APPEAL; ASSIGNMENT OF ERROR; ISSUES; CANNOT BE RAISED FOR
FIRST TIME ON APPEAL. - In their Memorandum, petitioners belatedly ask the Court to
rule that, in case of a court ruling adverse to them, the conjugal properties would not be
liable for the husbands' debts that did not redound to the benefit of the conjugal partnership.
This issue cannot be allowed, for it is being raised for the first time only in petitioners'
Memorandum. Issues, arguments, theories and causes of action not raised below may no
longer be posed on appeal. Furthermore, petitioners are asking the Court to issue a ruling
on a hypothetical situation. In effect, they are asking the Court to render an advisory
opinion, a task which is beyond its constitutional mandate.
ANTONIO R. AGRA, CAYETANO FERRERIA,
NAPOLEON M. GAMO and VICENTE O. NOVALES,
petitioners, vs. PHILIPPINE NATIONAL BANK,
respondent.
DECISION
PANGANIBAN, J.:
Laches is a recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches cannot, as a
rule, abate a collection suit filed within the prescriptive period mandated
by the Civil Code.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the November 26, 1997 Decision of the Court of
Appeals,[if !supportFootnotes][1][endif] which disposed as follows:
IN VIEW OF THE FOREGOING, the decision of the lower
court is hereby AFFIRMED, with the modification that the
award of attorneys fees is hereby DELETED and the twelve
percent (12%) interest on the P2,500,000.00 the
defendant-appellants are to pay PNB should start from
August 30, 1976, the date when the complaint was filed. [if !
supportFootnotes][2][endif]

The decretal portion of the aforementioned trial court ruling reads:

WHEREFORE, in view of the foregoing, in the interest of
justice, judgment is rendered in favor of the plaintiff
ordering all the sureties jointly and severally, to pay PNB as
follows:
a) the amount of P2,500,000.00 plus twelve per centum
(12%) accrued interest from August 1, 1976;
b) ten percent (10%) of the total amount due as attorneys
fees and cost of the suit.
SO ORDERED.
Also assailed by petitioners is the April 2, 1998 Resolution of the
Court of Appeals, which denied their Motion for Reconsideration. [if !
supportFootnotes][3][endif]

The Facts
The facts are summarized by the Court of Appeals (CA) in this wise: [if !
supportFootnotes][4][endif]
On August 30, 1976, an action for collection of a sum of
money was filed by the Philippine National Bank (PNB, for
brevity) against Fil-Eastern Wood Industries, Inc. (Fil-
Eastern, for short) in its capacity as principal debtor and
against Cayetano Ferreria, Pedro Atienza, Vicente O.
Novales, Antonio R. Agra, and Napoleon M. Gamo in their
capacity as sureties.
In its complaint, plaintiff PNB alleged that on July 17, 1967
Fil-Eastern was granted a loan in the amount of [t]wo
[m]illion [f]ive [h]undred [t]housand [p]esos
(P2,500,000.00) with interest at twelve percent (12%) per
annum. Drawings from said demand loan were made on
different dates as evidenced by several promissory notes
and were credited to the account of Fil-Eastern. To secure
the payment of the said loan Fil-Eastern as principal and
sureties Ferreria, Atienza, Novales, Agra, and Gamo
executed a Surety Agreement whereby the sureties, jointly
and severally with the principal, guaranteed and warranted
to PNB, its successors or assigns, prompt payment of
subject obligation including notes, drafts, bills of exchange,
overdrafts and other obligations of every kind, on which Fil-
Eastern was indebted or may thereafter become indebted
to PNB. It was further alleged that as of May 31, 1976 the
total indebtedness of Fil-Eastern and its sureties on subject
loan amounted to [f]ive [m]illion [t]wo [h]undred [n]inety-
[s]even [t]housand, [n]ine [h]undred [s]eventy-[s]ix [p]esos
and [s]eventeen [c]entavos (P5,297,976.17), excluding
attorneys fees. Notwithstanding repeated demands, the
defendants refused and failed to pay their loans.
The defendants (herein sureties) filed separate answers
(pp. 49, 68, 205, 208 and 231). Collating these, We drew
the following: All of them claimed that they only signed the
Surety Agreement with the understanding that the same
was a mere formality required of the officers of the
corporation. They did not in any way or manner receive a
single cent from the proceeds of said loan and/or derive
any profit therefrom. Neither did they receive any
consideration valuable or otherwise, from defendant Fil-
Eastern. They further claim that the loan in question was
negotiated and approved under highly irregular, anomalous
and suspicious circumstances to the point that the Surety
Agreement executed thereafter is invalid, null and void and
without force and effect. The extension of time of payment
of the loan in question released and discharged the
answering defendants from any liability under the Surety
Agreement. The Surety Agreement is null and void from the
beginning due to a defect in the consent of the defendants
and that their liabilities under the Surety Agreement, if any,
has been extinguished by novation. The cause of action of
the complainant is barred by laches and estoppel in that
the plaintiff with full knowledge of the deteriorating
financial condition of Fil-Eastern did not take steps to
collect from said defendant corporation while still solvent.
They also maintained that if anyone is liable for the
payment of said loan, it is Felipe Ysmael, Jr. and not them
or it is only Fil-Eastern and the controlling officers who
profited and made use of the proceeds of the loan.
Defendant Agra likewise said that he was made to sign the
Surety Agreement and he did it because of the moral
influence and pressure exerted upon him by Felipe Ysmael,
Jr. (their employer at the time of signing), thereby arousing
strong fears of losing a much needed employment to
support his family should he refuse to sign as Surety.
In the order of the trial court dated October 30, 1978,
defendant Fil-Eastern was declared in default for its failure
to answer the complaint within the reglementary period
and the case was scheduled for pre-trial conference. The
individual defendants with the courts approval thereafter
filed an amended third-party complaint against Felipe
Ysmael, Jr.
The amended third-party complaint alleged that at the time
of execution of the alleged Surety Agreement subject
matter of the principal complaint, third-party plaintiffs were
but employees of Ysmael Steel Manufacturing Co., owned
by third-party-defendant. Third-party-plaintiffs were in no
financial position to act as sureties to a P2.5 million loan.
They became incorporators of original defendant Fil-Eastern
because of fear of losing their employment brought about
by the tremendous pressure and moral influence exerted
upon them by their employer-third-party-defendant. They
signed the Surety Agreement upon the order of the third-
party-defendant. In signing the said document, the third-
party-plaintiffs were assured by the third-party-defendant
that they had nothing to fear and worry about because the
latter will assume all liabilities as well as profits therefrom
and that the loan subject of the Surety Agreement was with
the prior approval and blessing of a high government
official. They were likewise assured that the surety
agreement was but a formality and that because of such
pressure, influence as well as assurances, third-party-
plaintiffs signed the Surety Agreement.
Third-party-defendant Felipe Ysmael, Jr. in his answer
alleged that the Surety Agreement was freely and
voluntarily signed and executed by third-party-plaintiffs
without any intimidation, undue, improper or fraudulent
representations. Further, granting arguendo that the
consent of third-party plaintiffs in signing said Surety
Agreement was vitiated with intimidation, undue influence
or fraudulent representation on the part of third-party-
defendant, said Surety Agreement is only voidable and
therefore binding unless annulled by a proper action in
court. The third-party-plaintiffs did not file the proper court
action for the annulment of said agreement. They are now
barred from filing an action for annulment of said
agreement, the prescriptive period therefor being only four
(4) years from the time the defect of the consent had
ceased, and from the discovery of the all[e]ged fraud. In
addition, third-party plaintiffs had ratified said agreement
which they signed in July 1967 by signing their names on
and execution of several promissory thereafter.
At the pre-trial conference held on March 21, 1980, the
parties failed to agree on a possible amicable settlement
hence the case was set for trial on the merits. On July 5,
1984, during the pendency of the trial, third-party
defendant Felipe Ysmael, Jr. died. He was substituted by his
legal heirs Patrick Ysmael and Jeanne Ysmael as third-party
defendants. Defendant Pedro Atienza died on January 4,
1987. It appearing that he has no legal heirs, the case
against him was dismissed.
After trial, the regional trial court (RTC) ruled against herein
petitioners. On appeal, the CA modified the RTC ruling by deleting the
award of attorneys fees. Hence, this recourse to this Court.
Ruling of the Court of Appeals
In ruling that petitioners were liable under the surety agreement, the
Court of Appeals rejected their defense of laches. It held that the lapse of
seven years and eight months from December 31, 1968 until the judicial
demand on August 30, 1976 cannot be considered as unreasonable delay
which would necessitate the application of laches. The action filed by the
plaintiff has not yet prescribed. It is well within the ten-year prescriptive
period provided for by law wherein actions based on written contracts can
be instituted.[if !supportFootnotes][5][endif]
The Court of Appeals also noted that the prescriptive period did not
begin to run from December 31, 1968 as [herein petitioners] presupposed.
It was only from the time of the judicial demand on August 30, 1976 that
the cause of action accrued. Thus, [private respondent] was well within the
prescriptive period of ten years when it instituted the case in court. The
Court of Appeals further ruled that placing the blame on [PNB] for its
failure to immediately pounce upon its debtors the moment the loan
matured is grossly unfair for xxx demand upon the sureties to pay is not
necessary.
The appellate court also held that petitioners proved only the first of
the following four essential elements of laches: (1) conduct on the part of
the defendant, or one under whom he claims, giving rise to the situation of
which complaint is made and for which the complainant seeks a remedy;
(2) delay in asserting the complainants rights, the complainant having had
knowledge or notice of the defendants conduct and having been afforded
an opportunity to institute a suit; (3) lack of knowledge or notice on the
part of the defendant that the complainant would assert the right on which
he bases his suit; and (4) injury or prejudice to the defendant in the event
relief is accorded to the complainant, or the suit is not held barred.
Issues
In their Memorandum, petitioners raise the following issues: [if !
supportFootnotes][6][endif]

1. WHETHER OR NOT THE CLAIM OF THE PNB AGAINST THE

PETITIONERS IS ALREADY BARRED BY THE EQUITABLE
DEFENSE OF LACHES?
2. WHETHER OR NOT THE RESPECTIVE CONJUGAL
PARTNERSHIPS OF THE PETITIONERS COULD BE HELD
LIABLE FOR ANY LIABILITY OF THE PETITIONERS UNDER THE
SURETY AGREEMENT IN FAVOR OF THE PNB?
Under the first issue, petitioners submit four other questions:
1-a WHETHER OR NOT THE EQUITABLE DEFENSE OF
LACHES APPLIES INDEPENDENTLY OF PRESCRIPTION?
1-b WHETHER OR NOT THE CAUSE OF ACTION OF THE PNB
AGAINST THE PETITIONERS ACCRUED ONLY FROM THE TIME
OF THE JUDICIAL DEMAND ON AUGUST 30, 1976?
1-c WHETHER OR NOT THE FOUR (4) WELL-SETTLED
ELEMENTS OF LACHES ARE PRESENT IN THIS CASE?
1-d WHETHER OR NOT THE RULING IN THE CASE OF
PHILIPPINE NATIONAL BANK VS. COURT OF APPEALS, 217
SCRA 347, IS APPLICABLE IN THIS INSTANT CASE?
In the main, the issue is whether petitioners may raise the defense of
laches in order to avoid their liability under the surety agreement.
Preliminarily, we shall also take up the question of petitioners liability as
sureties.
The Courts Ruling
The appeal is not meritorious.
Preliminary Matter: Liability of Petitioners as Sureties
The present controversy began when the Philippine National Bank
(PNB) sought to enforce the Surety Agreement. The pertinent provisions of
said Agreement are as follows:
WHEREAS, FIL-EASTERN WOOD INDUSTRIES, INC. herein
referred to as the Principal, has obtained and/or desires to
obtain certain credits, loans, overdrafts, discounts, etc.,
from the Creditor, for all of which the Creditor requires
security; and the Surety, on account of valuable
consideration received from the Principal, has agreed and
undertake to assist the principal by becoming such Surety.
NOW THEREFORE, for the purpose above mentioned, the
Surety, jointly and severally with the Principal, hereby
guarantees and warrants to the Creditor, its successors or
assigns, the prompt payment at maturity of all the notes,
drafts, bills of exchange, overdrafts and other obligations of
every kind, on which the Principal may now be indebted or
may hereafter become indebted to the Creditor, but the
liability of the Surety shall not at any time exceed the sum
of TWO MILLION FIVE HUNDRED THOUSAND ONLY
(P2,500,000.00) (demand loan of P2,500,000.00), Philippine
Currency, plus the interest thereon at the rate of (___%) per
cent per annum, and the cost and expenses of the Creditor
incurred in connection with the granting of the credits,
loans, overdrafts, etc., covered by this surety agreement,
including those for the custody, maintenance and
preservation of the securities given therefor and also for
the collection thereof.
Both the Principal and the Surety shall be considered in
default when they fail to pay the obligation upon maturity
with or without demand and in such case the Surety agrees
to pay to the creditor, its [successors] or assigns, all
outstanding obligations of the Principal, whether due or not
due and whether held by the Creditor as principal or agent,
and it is agreed that a certified statement by the Creditor
as to the amount due from the Principal shall be accepted
as correct by the Surety without question.
The Surety expressly waives all rights to demand for
payment and notice of non-payment and protest, and
agrees that the securities of every kind, that are now and
may hereafter be left with the Creditor, its successors,
indorsees or assigns, as collateral to any evidence of debt
or obligations or upon which a lien may exist thereon may
be withdrawn or surrendered at any time, and the time of
payment thereof extended, without notice to, or consent by
the Surety; and that the liability on this guaranty shall be
solidary, direct and immediate and not contingent upon the
pursuit by the Creditor, its successors, indorsees or assigns,
of whatever remedies it or they have against the Principal
or the securities or liens it or they may possess and the
Surety will at any time, whether due or not due, pay to the
Creditor with or without demand upon the Principal, any
obligation or indebtedness of the Principal not in excess of
the amount abovementioned.
This instrument is intended to be a complete and perfect
indemnity to the Creditor to the extent above stated, for
any indebtedness or liability of any kind owing by the
Principal to the Creditor from time to time, and to be valid
and continuous without further notice to the Surety, and
may be revoked by the Surety at any time, but only after
forty-eight hours notice in writing to the Creditor, and such
revocation shall not operate to relieve the Surety from
responsibility for obligations incurred by the Principal prior
to the termination of such period. (Emphasis supplied.)
It must be stressed that petitioners, as sureties, bound themselves
solidarily for the obligation of Fil-Eastern to PNB. Petitioners admit that
they signed the Surety Agreement, but they challenge their liability thereon
on the ground that they were allegedly coerced by their employer into
signing the deed. The argument is too late at best.
As pointed out by the Court of Appeals, petitioners failed to challenge
their consent to the Agreement within the prescriptive period. Article 1391
of the Civil Code provides that the action to annul a contract vitiated by
intimidation, violence or undue influence shall be filed within four years
from the cessation of such defects. In this case, Petitioners Agra, Gamo
and Novales resigned from Fil-Eastern in 1967, 1968 and 1969,
respectively. It was only in 1976, when PNB sought to enforce the
contract, that they alleged a defect in their consent. By their inaction, their
alleged cause of action based on vitiated consent had precribed. There was
no question that petitioners, in their capacity as sureties, were answerable
for the obligations of Fil-Eastern to PNB.
We shall now go to the main issue of this case: Whether petitioners
may invoke the defense of laches, considering that PNBs claim had not yet
prescribed.
Main Issue: Laches
 Petitioners admit that PNBs claim, though filed more than seven years
from the maturity of the obligation, fell within the ten-year prescriptive
period. They argue, however, that the cause was already barred by laches,
which is defined as the failure or neglect for an unreasonable or
unexplained length of time to do that which by exercising due diligence,
could or should have been done earlier warranting a presumption that he
has abandoned his right or declined to assert it. [if !supportFootnotes][7][endif] In arguing
that the appellate court erred in rejecting the defense of laches, petitioners
cite four reasons: (1) the defense of laches applies independently of
prescription; (2) the cause of action against petitioners accrued from the
maturity of the obligation, not from the time of judicial demand; (3) the
four well-settled elements of laches were duly proven; and (4) PNB v. CA
applies in the instant case. As will be shown below, all these arguments are
devoid of merit.
Application of Laches
Assailing the CA ruling that laches was inapplicable because the claim
was brought within the ten-year prescriptive period, petitioners stress that
the defense of laches differs from and is applied independently of
prescription. In support, they cite, among others, Nielson & Co., Inc. v.
Lepanto Consolidated Mining Co.,[if !supportFootnotes][8][endif] in which the Supreme
Court ruled:
[T]he defense of laches applies independently of
prescription. Laches is different from the statute of
limitations. Prescription is concerned with the fact of delay,
whereas laches is concerned with the effect of delay.
Prescription is a matter of time; laches is principally a
question of inequity of permitting a claim to be enforced,
this inequity being founded on some change in the
condition of the property or the relation of the parties.
Prescription is statutory; laches is not. Laches applies in
equity; whereas prescription applies at law. Prescription is
based on fixed time, laches is not.
True, prescription is different from laches, but petitioners reliance on
Nielson is misplaced. As held in the aforecited case, laches is principally a
question of equity. Necessarily, there is no absolute rule as to what
constitutes laches or staleness of demand; each case is to be determined
according to its particular circumstances. The question of laches is
addressed to the sound discretion of the court and since laches is an
equitable doctrine, its application is controlled by equitable considerations.
[if !supportFootnotes][9][endif]
Petitioners, however, failed to show that the collection suit
against herein sureties was inequitable. Remedies in equity address only
situations tainted with inequity, not those expressly governed by statutes.
Indeed, the petitioners failed to prove the presence of all the four
established requisites of laches, viz:
(1) conduct on the part of the defendant or one under
whom he claims, giving rise to the situation of which
complaint is made and for which the complainant seeks a
remedy;
(2) delay in asserting the complainants right, the
complainant having had knowledge or notice of defendants
conduct and having been afforded an opportunity to
institute a suit;
(3) lack of knowledge or notice on the part of the defendant
that the complainant would assert the right on which he
bases his claim; and
(4) injury or prejudice to the defendant in the event relief is
accorded to the complainant, or the suit is not held barred. [if
!supportFootnotes][10][endif]

That the first element exists is undisputed. Neither Fil-Eastern nor the
sureties, herein petitioners, paid the obligation under the Surety
Agreement.
The second element cannot be deemed to exist. Although the
collection suit was filed more than seven years after the obligation of the
sureties became due, the lapse was within the prescriptive period for filing
an action. In this light, we find immaterial petitioners insistence that the
cause of action accrued on December 31, 1968, when the obligation
became due, and not on August 30, 1976, when the judicial demand was
made. In either case, both submissions fell within the ten-year prescriptive
period. In any event, the fact of delay, standing alone, is insufficient to
constitute laches.[if !supportFootnotes][11][endif]
Petitioners insist that the delay of seven years was unreasonable and
unexplained, because demand was not necessary. Again we point that,
unless reasons of inequitable proportions are adduced, a delay within the
prescriptive period is sanctioned by law and is not considered to be a delay
that would bar relief. In Chavez v. Bonto-Perez,[if !supportFootnotes][12][endif] the Court
reiterated an earlier holding, viz:
Laches is a doctrine in equity while prescription is based on
law. Our courts are basically courts of law and not courts of
equity. Thus, laches cannot be invoked to resist the
enforcement of an existing legal right. We have ruled in
Arsenal v. Intermediate Appellate Court x x x that it is a
long standing principle that equity follows the law. Courts
exercising equity jurisdiction are bound by rules of law and
have no arbitrary discretion to disregard them. In Zabat, Jr.
v. Court of Appeals x x x, this Court was more emphatic in
upholding the rules of procedure. We said therein:
As for equity, which has been aptly described as justice
outside legality, this is applied only in the absence of, and
never against, statutory law or, as in this case, judicial
rules of procedure. Aequetas nunquam contravenit legis.
This pertinent positive rules being present here, they
should preempt and prevail over all abstract arguments
based only on equity.
Thus, where the claim was filed within the three-year
statutory period, recovery therefore cannot be barred by
laches.
Petitioners also failed to prove the third element of laches. It is absurd
to maintain that petitioners did not know that PNB would assert its right
under the Surety Agreement. It is unnatural, if not unheard of, for banks to
condone debts without adequate recompense in some other form.
Petitioners have not given us reason why they assumed that PNB would
not enforce the Agreement against them.
Finally, petitioners maintain that the fourth element is present because
they would suffer damage or injury as a result of PNBs claim. This is the
crux of the controversy. In addition to the payment of the amount
stipulated in the Agreement, other equitable grounds were enumerated by
petitioners, viz:
1. Petitioners acted as sureties under pressure from Felipe
Baby Ysmael, Jr., the headman of the Ysmael Group of
Companies where the petitioners were all employed in
various executive positions.
2. Petitioners did not receive a single centavo in
consideration of their acting as sureties.
3. The surety agreement was not really a requisite for the
grant of the loan to FIL-EASTERN because the first release
on the loan was made on July 17, 1967, or even before the
Surety Agreement was executed by petitioners on July 21,
1967.
4. Petitioners were assured that the Surety Agreement was
merely a formality, and they had reason to believe that
assurance because the loan was principally secured by an
assignment of 15% of the proceeds of the sale of logs of
FIL-EASTERN to Iwai & Co., Ltd., and such assignment was
clearly stated in PNB Board Resolution No. 407. In fact,
while it was expressly stated in all of the eight (8)
promissory notes covering the releases of the loan that the
said loan was secured by 15% of the contract of sale with
Iwai & Co., Ltd., only three (3) promissory notes stated that
the loan was also secured by the joint and several
signatures of the officers of the corporation. It is to be
noted that no mention was even made of the joint and
several signatures of petitioners as sureties. In other
words, the principal security was the assignment of 15% of
the contract for the sale of logs to Iwai & Co., Ltd.
5. For reasons not explained by PNB, PNB did not collect
the 15% of the proceeds of the sale of the logs to Iwai &
Co., Ltd., and such failure resulted in the non-collection of
the P2,500,000.00 demand loan, or at least a portion of it.
6. For reasons likewise unexplained by PNB, PNB did not
make any demand upon petitioners to pay the unpaid loan
of FIL-EASTERN until after FIL-EASTERN had become
bankrupt, and PNB was aware of this fact because it
foreclosed the chattel mortgages on the other loans of FIL-
EASTERN which were secured by said chattel mortgages. [if !
supportFootnotes][13][endif]
(Emphasis found in the original.)
These circumstances do not justify the application of laches. Rather,
they disclose petitioners failure to understand the language and the nature
of the Surety Arrangement. They cannot now argue that the Surety
Agreement was merely a formality, secondary to the assignment of 15
percent of the proceeds of the sale of Fil-Easterns logs to Iwai and Co.,
Ltd. Neither can they rely on PNBs failure to collect the assigned share in
the sale of the logs or to make a demand on petitioners until after Fil-
Eastern had become bankrupt. The Court stresses that the obligation of a
surety is direct, primary and absolute. Thus, the Court has held:
[A]lthough the contract of a surety is in essence secondary
only to a valid principal obligation, his liability to the
creditor or promisee of the principal is said to be direct,
primary, and absolute; in other words, he is directly and
equally bound with the principal. The surety therefore
becomes liable for the debt or duty of another although he
possesses no direct or personal interest over the
obligations nor does he receive any benefit therefrom. [if !
supportFootnotes][14][endif]

When petitioners signed as sureties, they expressly and unequivocally

agreed to the stipulation that the liability on this guaranty shall be
solidary, direct and immediate and not contingent upon the pursuit by the
creditor, its successors, indorsees or assigns, of whatever remedies it or
they have against the principal or the securities or liens it or they may
possess.
If they had mistaken the import of the Surety Agreement, they could
have easily asked for its revocation. The Agreement stipulates that it may
be revoked by the Surety at any time, but only after forty-eight hours
notice in writing to the Creditor, and such revocation shall not operate to
relieve the Surety from responsibility for obligations incurred by the
Principal prior to the termination of such period. This they did not do.
Equally unavailing is petitioners allegation that the Surety Agreement
was not a requisite for the grant of the loan. Even if their assertion is true,
the fact remains that they signed the contract and voluntarily bound
themselves to be solidarily liable for the loan amounting to P2,500,000.
The other equitable circumstances above enumerated fail to support
petitioners cause. As earlier stated, petitioners are already barred from
questioning the voluntariness of their consent. Furthermore, this Court has
categorically ruled that a surety is liable for the debt of another, although
he or she received no benefit therefrom.[if !supportFootnotes][15][endif]
Clearly, aside from the fact that the collection suit was filed only after
the lapse of seven years from the date the obligation became due and
demandable, petitioners failed to adduce any showing of inequity. Hence,
the rules on equity cannot protect them.
Applicability of PNB v. CA
 Petitioners allege that the CA committed grave error in failing to apply
PNB v. Court of Appeals,[if !supportFootnotes][16][endif] which they insist to be analogous
to the present case. The facts in said case are as follows:
Private Respondent B.P. Mata & Co. Inc. (Mata), is a private
corporation engaged in providing goods and services to
shipping companies. Since 1966, it has acted as a manning
or crewing agent for several foreign firms, one of which is
Star Kist foods, Inc., USA (Star Kist). As part of their
agreement, Mata makes advances for the crews basic
personal needs. Subsequently, Mata sends monthly billings
to its foreign principal Star Kist, which in turn reimburses
Mata by sending a telegraphic transfer through banks for
credit to the latters account.
Against this background, on February 21, 1975, Security
Pacific National Bank (SEPAC) of Los Angeles which had an
agency arrangement with Philippine National Bank (PNB),
transmitted a cable message to the International
Department of PNB to pay the amount of US$14,000 to
Mata by crediting the latters account with the Insular Bank
of Asia and America (IBAA), per order of Star Kist. Upon
receipt of this cabled message on February 24, 1975, PNBs
International Department noticed an error and sent a
service message to SEPAC Bank. The latter replied with the
instructions that the amount of US$14,000 should only be
for US$1,400.
On the basis of the cable message dated February 24,
1975, Cashiers Check No. 269522 in the amount of
US$1,400 (P9,772.96) representing reimbursement from
Star Kist, was issued by the Star Kist for the account of
Mata on February 25, 1975 through the Insular Bank of Asia
and America (IBAA).
However, fourteen days after or on March 11, 1975, PNB
effected another payment through Cashiers Check No.
270271 in the amount of US$14,000 (P97,878.60)
purporting to be another transmittal of reimbursement
from Star Kist, private respondents foreign principal.
Six years later, or more specifically, on May 13, 1981, PNB
requested Mata for refund of US$14,000 (P97,878.60) after
it discovered its error in effecting the second payment.
On February 4, 1982, PNB filed a civil case for collection
and refund of US$14,000 against Mata arguing that based
on a constructive trust under Article 1456 of the Civil Code,
it has a right to recover the said amount it erroneously
credited to respondent Mata.[if !supportFootnotes][17][endif]
On the ground of laches, the Court decided against the claim of PNB,
stating that:
[i]t is amazing that it took petitioner almost seven years
before it discovered that it had erroneously paid private
respondent. Petitioner would attribute its mistake to the
heavy volume of international transactions handled by the
Cable and Remittance Division of the International
Department of PNB. Such specious reasoning is not
persuasive. It is unbelievable for a bank, and a government
bank at that, which regularly publishes its balanced
financial statements annually or more frequently, by the
quarter, to notice its error only seven years later. As a
universal bank with worldwide operations, PNB cannot
afford to commit such costly mistakes. Moreover, as
between parties where negligence is imputable to one and
not to the other, the former must perforce bear the
consequences of its neglect. Hence, petitioner should bear
the cost of its own negligence.
Petitioners maintain that the delay in PNB v. CA was even shorter than
that in the present case. If the bank in the aforesaid case was negligent in
not discovering the overpayment, herein petitioners assert that the
negligence was even more culpable in the present case. They add that,
given the standard practice of banks to flag delinquent accounts, the
inaction for almost seven years of herein respondent bank was gross and
inexcusable.
We are not persuaded. There are no absolute rules in the application of
equity, and each case must be examined in the light of its peculiar facts. In
PNB v. CA, there was a mistake, an inexcusable one, on the part of
petitioner bank in making an overpayment and repeating the same error
fourteen days later. If the bank could not immediately discover the mistake
despite all its agents and employees, the beneficiary of the amount could
not be expected to do so. It is, thus, inequitable to allow PNB to collect the
amount, after such a long delay, from the beneficiary who had assumed,
after all those years, that the amount really belonged to it.
In the present case, there is no showing of any mistake or any
inequity. The fact alone that seven years had lapsed before PNB filed the
collection suit does not mean that it discovered the obligation of the
sureties only then. There was a Surety Arrangement, and the law says that
the said contract can be enforced by action within ten years. The bank and
the sureties all knew that the action to enforce the contract did not have to
be filed immediately. In other words, the bank committed no mistake or
inequitable conduct that needed correction, and the sureties had no
misconception about their liabilities under the contract.
Clearly, petitioners have no recourse in equity, because they failed to
show any inequity on the part of PNB.
Additional Issue: Liability of Conjugal Assets
In their Memorandum, petitioners belatedly ask the Court to rule that,
in case of a court ruling adverse to them, the conjugal properties would not
be liable for the husbands debts that did not redound to the benefit of the
conjugal partnership.[if !supportFootnotes][18][endif]
This issue cannot be allowed, for it is being raised for the first time
only in petitioners Memorandum. Issues, arguments, theories and causes of
action not raised below may no longer be posed on appeal. [if !supportFootnotes][19][endif]
Furthermore, petitioners are asking the Court to issue a ruling on a
hypothetical situation. In effect, they are asking the Court to render an
advisory opinion, a task which is beyond its constitutional mandate.
WHEREFORE, the petition is hereby DENIED and the assailed Decision
of the Court of Appeals is AFFIRMED. Costs against petitioners.
SO ORDERED.

JN DEVELOPMENT CORPORATION, and SPS.

RODRIGO and LEONOR STA. ANA, petitioners, vs.
PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION, respondent.
[G.R. No. 151311. August 31, 2005]
NARCISO V. CRUZ, petitioner, vs. PHILIPPINE
EXPORT and FOREIGN LOAN GUARANTEE
CORPORATION, respondent.
DECISION
TINGA, J.:
Before us are consolidated petitions questioning the Decision[1] of
the Court of Appeals (CA) in CA-G.R. CV No. 61318, entitled
Philippine Export and Foreign Loan Guarantee Corporation v. JN
Development Corporation, et al., which reversed the Decision of the
Regional Trial Court (RTC) of Makati, Branch 60.
On 13 December 1979, petitioner JN Development Corporation
(JN) and Traders Royal Bank (TRB) entered into an agreement
whereby TRB would extend to JN an Export Packing Credit Line for
Two Million Pesos (P2,000,000.00). The loan was covered by
several securities, including a real estate mortgage[2] and a letter of
guarantee from respondent Philippine Export and Foreign Loan
Guarantee Corporation (PhilGuarantee), now Trade and Investment
Development Corporation of the Philippines, covering seventy
percent (70%) of the credit line.[3] With PhilGuarantee issuing a
guarantee in favor of TRB,[4] JN, petitioner spouses Rodrigo and
Leonor Sta. Ana[5] and petitioner Narciso Cruz[6] executed a Deed of
Undertaking[7] (Undertaking) to assure repayment to PhilGuarantee.
It appears that JN failed to pay the loan to TRB upon its maturity;
thus, on 8 October 1980 TRB requested PhilGuarantee to make
good its guarantee.[8] PhilGuarantee informed JN about the call
made by TRB, and inquired about the action of JN to settle the loan.
[9]
Having received no response from JN, on 10 March 1981
PhilGuarantee paid TRB Nine Hundred Thirty Four Thousand Eight
Hundred Twenty Four Pesos and Thirty Four Centavos
(P934,824.34).[10] Subsequently, PhilGuarantee made several
demands on JN, but the latter failed to pay. On 30 May 1983, JN,
through Rodrigo Sta. Ana, proposed to settle the obligation by way
of development and sale of the mortgaged property.[11]
PhilGuarantee, however, rejected the proposal.
PhilGuarantee thus filed a Complaint[12] for collection of money and
damages against herein petitioners.
In its Decision dated 20 August 1998, the RTC dismissed
PhilGuarantees Complaint as well as the counterclaim of
petitioners. It ruled that petitioners are not liable to reimburse
PhilGuarantee what it had paid to TRB. Crucial to this holding was
the courts finding that TRB was able to foreclose the real estate
mortgage executed by JN, thus extinguishing petitioners obligation.
[13]
Moreover, there was no showing that after the said foreclosure,
TRB had demanded from JN any deficiency or the payment of the
difference between the proceeds of the foreclosure sale and the
actual loan.[14] In addition, the RTC held that since PhilGuarantees
guarantee was good for only one year from 17 December 1979, or
until 17 December 1980, and since it was not renewed after the
expiry of said period, PhilGuarantee had no more legal duty to pay
TRB on 10 March 1981.[15] The RTC likewise ruled that Cruz cannot
be held liable under the Undertaking since he was not the one who
signed the document, in line with its finding that his signature found
in the records is totally different from the signature on the
Undertaking.[16]
According to the RTC, the failure of TRB to sue JN for the recovery
of the loan precludes PhilGuarantee from seeking recoupment from
the spouses Sta. Ana and Cruz what it paid to TRB. Thus,
PhilGuarantees payment to TRB amounts to a waiver of its right
under Art. 2058 of the Civil Code.[17]
Aggrieved by the RTC Decision, PhilGuarantee appealed to the CA.
The appellate court reversed the RTC and ordered petitioners to
pay PhilGuarantee Nine Hundred Thirty Four Thousand Six
Hundred Twenty Four Pesos and Thirty Four Centavos
(P934,624.34), plus service charge and interest.[18]
In reaching its denouement, the CA held that the RTCs finding that
the loan was extinguished by virtue of the foreclosure sale of the
mortgaged property had no factual support,[19] and that such finding
is negated by Rodrigo Sta. Anas testimony that JN did not receive
any notice of foreclosure from PhilGuarantee or from TRB. [20]
Moreover, Sta. Ana even offered the same mortgaged property to
PhilGuarantee to settle its obligations with the latter.[21]
The CA also ruled that JNs obligation had become due and
demandable within the one-year period of effectivity of the
guarantee; thus, PhilGuarantees payment to TRB conformed with
its guarantee, although the payment itself was effected one year
after the maturity date of the loan.[22] Contrary to the trial courts
finding, the CA ruled that the contract of guarantee was not
extinguished by the alleged lack of evidence on PhilGuarantees
consent to the extensions granted by TRB to JN.[23] Interpreting Art.
2058 of the Civil Code,[24] the appellate court explained that while
the provision states that the guarantor cannot be compelled to pay
unless the properties of the debtor are exhausted, the guarantor is
not precluded from waiving the benefit of excussion and paying the
obligation altogether.[25]
Finally, the CA found that Narciso Cruz was unable to prove the
alleged forgery of his signature in the Undertaking, the evidence
presented not being sufficient to overcome the presumption of
regularity of the Undertaking which is a notarized document. [26]
Petitioners sought reconsideration of the Decision and prayed for
the admission of documents evidencing the foreclosure of the real
estate mortgage, but the motion for reconsideration was denied by
the CA for lack of merit. The CA ruled that the documentary
evidence presented by petitioners cannot be considered as newly
discovered evidence, it being already in existence while the case
was pending before the trial court, the very forum before which it
should have been presented. Besides, a foreclosure sale per se is
not proof of petitioners payment of the loan to PhilGuarantee, the
CA added.[27]
So now before the Court are the separate petitions for review of the
CA Decision. JN and the spouses Sta. Ana, petitioners in G.R. No.
151060, posit that the CA erred in interpreting Articles 2079, 2058,
and 2059 of the Civil Code in its Decision.[28] Meanwhile, petitioner
Narciso Cruz in G.R. No. 151311 claims that the CA erred when it
held that petitioners are liable to PhilGuarantee despite its payment
after the expiration of its contract of guarantee and the lack of
PhilGuarantees consent to the extensions granted by TRB to JN.
Moreover, Cruz questions the reversal of the ruling of the trial court
anent his liability as a signatory to the Undertaking.[29]
On the other hand, PhilGuarantee maintains that the date of default,
not the actual date of payment, determines the liability of the
guarantor and that having paid TRB when the loan became due, it
should be indemnified by petitioners.[30] It argues that, contrary to
petitioners claim, there could be no waiver of its right to excussion
more explicit than its act of payment to TRB very directly.[31]
Besides, the right to excussion is for the benefit of the guarantor
and is not a defense for the debtor to raise and use to evade
liability.[32] Finally, PhilGuarantee maintains that there is no sufficient
evidence proving the alleged forgery of Cruzs signature on the
Undertaking, which is a notarized document and as such must be
accorded the presumption of regularity.[33]
The Court finds for PhilGuarantee.
Under a contract of guarantee, the guarantor binds himself to the
creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so.[34] The guarantor who pays for a debtor, in
turn, must be indemnified by the latter.[35] However, the guarantor
cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor and resorted to all the legal
remedies against the debtor.[36] This is what is otherwise known as
the benefit of excussion.
It is clear that excussion may only be invoked after legal remedies
against the principal debtor have been expanded. Thus, it was held
that the creditor must first obtain a judgment against the principal
debtor before assuming to run after the alleged guarantor, for
obviously the exhaustion of the principals property cannot even
begin to take place before judgment has been obtained.[37] The law
imposes conditions precedent for the invocation of the defense.
Thus, in order that the guarantor may make use of the benefit of
excussion, he must set it up against the creditor upon the latters
demand for payment and point out to the creditor available property
of the debtor within the Philippines sufficient to cover the amount of
the debt.[38]
While a guarantor enjoys the benefit of excussion, nothing prevents
him from paying the obligation once demand is made on him.
Excussion, after all, is a right granted to him by law and as such he
may opt to make use of it or waive it. PhilGuarantees waiver of the
right of excussion cannot prevent it from demanding reimbursement
from petitioners. The law clearly requires the debtor to indemnify the
guarantor what the latter has paid.[39]
Petitioners claim that PhilGuarantee had no more obligation to pay
TRB because of the alleged expiration of the contract of guarantee
is untenable. The guarantee, dated17 December 1979, states:
In the event of default by JNDC and as a consequence
thereof, PHILGUARANTEE is made to pay its obligation
arising under the aforesaid guarantee PHILGUARANTEE
shall pay the BANK the amount of P1.4 million or 70% of
the total obligation unpaid
....
This guarantee shall be valid for a period of one (1) year
from date hereof but may be renewed upon payment by
JNDC of the guarantee fee at the same rate of 1.5% per
annum.[40]
The guarantee was only up to 17 December 1980. JNs obligation
with TRB fell due on 30 June 1980, and demand on PhilGuarantee
was made by TRB on 08 October 1980. That payment was actually
made only on 10 March 1981 does not take it out of the terms of the
guarantee. What is controlling is that default and demand on
PhilGuarantee had taken place while the guarantee was still in
force.
There is likewise no merit in petitioners claim that PhilGuarantees
failure to give its express consent to the alleged extensions granted
by TRB to JN had extinguished the guarantee. The requirement that
the guarantor should consent to any extension granted by the
creditor to the debtor under Art. 2079 is for the benefit of the
guarantor. As such, it is likewise waivable by the guarantor. Thus,
even assuming that extensions were indeed granted by TRB to JN,
PhilGuarantee could have opted to waive the need for consent to
such extensions. Indeed, a guarantor is not precluded from waiving
his right to be notified of or to give his consent to extensions
obtained by the debtor. Such waiver is not contrary to public policy
as it is purely personal and does not affect public interest.[41] In the
instant case, PhilGuarantees waiver can be inferred from its actual
payment to TRB after the latters demand, despite JNs failure to pay
the renewal/guarantee fee as indicated in the guarantee.[42]
For the above reasons, there is no basis for petitioners claim that
PhilGuarantee was a mere volunteer payor and had no legal
obligation to pay TRB. The law does not prohibit the payment by a
guarantor on his own volition, heedless of the benefit of excussion.
In fact, it recognizes the right of a guarantor to recover what it has
paid, even if payment was made before the debt becomes due,[43] or
if made without notice to the debtor,[44] subject of course to some
conditions.
Petitioners invocation of our ruling in Willex Plastic Industries, Corp.
v. Court of Appeals[45] is misplaced, if not irrelevant. In the said case,
the guarantor claimed that it could not be proceeded against without
first exhausting all of the properties of the debtor. The Court, finding
that there was an express renunciation of the benefit of excussion
in the contract of guarantee, ruled against the guarantor.
The cited case finds no application in the case a quo.
PhilGuarantee is not invoking the benefit of excussion. It cannot be
overemphasized that excussion is a right granted to the guarantor
and, therefore, only he may invoke it at his discretion.
The benefit of excussion, as well as the requirement of consent to
extensions of payment, is a protective device pertaining to and
conferred on the guarantor. These may be invoked by the guarantor
against the creditor as defenses to bar the unwarranted
enforcement of the guarantee. However, PhilGuarantee did not
avail of these defenses when it paid its obligation according to the
tenor of the guarantee once demand was made on it. What is
peculiar in the instant case is that petitioners, the principal debtors
themselves, are muddling the issues and raising the same defenses
against the guarantor, which only the guarantor may invoke against
the creditor, to avoid payment of their own obligation to the
guarantor. The Court cannot countenance their self-seeking desire
to be exonerated from the duty to reimburse PhilGuarantee after it
had paid TRB on their behalf and to unjustly enrich themselves at
the expense of PhilGuarantee.
Petitioners assert that TRBs alleged foreclosure of the real estate
mortgage over the land executed as security for the loan agreement
had extinguished PhilGuarantees obligation; thus, PhilGuarantees
recourse should be directed against TRB, as per the pari-passu
provision[46] in the contract of guarantee.[47] We disagree.
The foreclosure was made on 27 August 1993, after the case was
submitted for decision in 1992 and before the issuance of the
decision of the court a quo in 1998.[48] Thus, foreclosure was
resorted to by TRB against JN when they both had become aware
that PhilGuarantee had already paid TRB and that there was a
pending case filed by PhilGuarantee against petitioners. This matter
was not raised and proved in the trial court, nor in the appeal before
the CA, but raised for the first time in petitioners motion for
reconsideration in the CA. In their appellants Brief, petitioners
claimed that there was no need for the defendant-appellee JNDC to
present any evidence before the lower court to show that indeed
foreclosure of the REM took place.[49] As properly held by the CA,
Firstly, the documents evidencing foreclosure of mortgage
cannot be considered as newly discovered evidence. The
said documents were already subsisting and should have
been presented during the trial of the case. The alleged
foreclosure sale was made on August 23, 1993 while the
decision was rendered by the trial court on August 20, 1998
about five (5) years thereafter. These documents were
likewise not submitted by the defendants-appellees when
they submitted their appellees Brief to this Court. Thus,
these cannot be considered as newly discovered evidence
but are more correctly ascribed as suppressed forgotten
evidence Secondly, the alleged foreclosure sale is not proof
of payment of the loan by defendant-appellees to the
plaintiffs-appellants.[50]
Besides, the complaint a quo was filed by PhilGuarantee as
guarantor for JN, and its cause of action was premised on its
payment of JNs obligation after the latters default. PhilGuarantee
was well within its rights to demand reimbursement for such
payment made, regardless of whether the creditor, TRB, was
subsequently able to obtain payment from JN. If double payment
was indeed made, then it is JN which should go after TRB, and not
PhilGuarantee. Petitioners have no one to blame but themselves,
having allowed the foreclosure of the property for the full value of
the loan despite knowledge of PhilGuarantees payment to TRB.
Having been aware of such payment, they should have opposed
the foreclosure, or at the very least, filed a supplemental pleading
with the trial court informing the same of the foreclosure sale.
Likewise, petitioners cannot invoke the pari-passu clause in the
guarantee, not being parties to the said agreement. The clause is
clearly for the benefit of the guarantor and no other.
The Court notes the letter[51] of Rodrigo Sta. Ana offering, by way of
settlement of JNs obligations to PhilGuarantee, the very same
parcel of land mortgaged as security for the loan agreement. This
further weakens the position of petitioners, since it becomes
obvious that they acknowledged the payment made by
PhilGuarantee on their behalf and that they were in fact willing to
negotiate with PhilGuarantee for the settlement of the said
obligation before the filing of the complaint a quo.
Anent the issue of forgery, the CA is correct in reversing the
decision of the trial court. Save for the denial of Narciso Cruz that it
was not his signature in the Undertaking and the perfunctory
comparison of the signatures, nothing in the records would support
the claim of forgery. Forgery cannot be presumed and must be
proved by clear, positive and convincing evidence and the burden of
proof lies on the party alleging forgery.[52] Mere denial will not suffice
to overcome the positive value of the Undertaking, which is a
notarized document, has in its favor the presumption of regularity,
and carries the evidentiary weight conferred upon it with respect to
its due execution.[53] Even in cases where the alleged forged
signature was compared to samples of genuine signatures to show
its variance therefrom, this Court still found such evidence
insufficient.[54] Mere variance of the signatures cannot be considered
as conclusive proof that the same were forged.[55]
WHEREFORE, the consolidated petitions are DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No. 61318 is
AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 187403 February 12, 2014

TRADE AND INVESTMENT DEVELOPMENT CORPORATION OF THE
PHILIPPINES (Formerly PHILIPPINE EXPORT AND FOREIGN LOAN
GUARANTEE CORPORATION.), Petitioner,
vs.
ASIA PACES CORPORATION, PACES INDUSTRIAL CORPORATION,
NICOLAS C. BALDERRAMA, SIDDCOR INSURANCE CORPORATION
(now MEGA PACIFIC INSURANCE CORPORATION), PHILIPPINE
PHOENIX SURETY AND INSURANCE, INC., PARAMOUNT INSURANCE
CORPORATION, AND FORTUNE LIFE AND GENERAL INSURANCE
*

COMPANY, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari are the Decision dated April
1 2

30, 2008 and Resolution dated March 27, 2009 of the Court of Appeals (CA)
3

in CA-G.R. CV No. 86558 which affirmed the Decision dated April 29, 2005 of
4

the Regional Trial Court of Makati, Branch 132 (RTC) in Civil Case No. 95-
1812. The CA upheld the RTCs finding that the liabilities of Paramount
Insurance Corporation (Paramount), and respondents Philippine Phoenix
Surety and Insurance, Inc. (Phoenix), Mega Pacific Insurance Corporation 5

(Mega Pacific), and Fortune Life and General Insurance Company (Fortune)
on their respective counter-surety bonds have been extinguished due to the
extension of the principal obligations these bonds covered, to which said
respondents did not give their consent.
The Facts
On January 19, 1981, respondents Asia Paces Corporation (ASPAC) and
Paces Industrial Corporation (PICO) entered into a sub-contracting
agreement, denominated as "200 KV Transmission Lines Contract No.
20-/80-II Civil Works & Electrical Erection," with the Electrical Projects
Company of Libya (ELPCO), as main contractor, for the construction and
erection of a double circuit bundle phase conductor transmission line in the
country of Libya. To finance its working capital requirements, ASPAC obtained
loans from foreign banks Banque Indosuez and PCI Capital (Hong Kong)
Limited (PCI Capital) which, upon the latters request, were secured by
several Letters of Guarantee issued by petitioner Trade and Investment
Development Corporation of the Philippines (TIDCORP), then Philippine
6

Export and Foreign Loan Guarantee Corp., a government owned and

controlled corporation created for the primary purpose of, among others,
"guarantee[ing], with the prior concurrence of the Monetary Board, subject to
the rules and regulations that the Monetary Board may prescribe, approved
foreign loans, in whole or in part, granted to any entity, enterprise or
corporation organized or licensed to engage in business in the Philippines." 7

Under the Letters of Guarantee, TIDCORP irrevocably and unconditionally

guaranteed full payment of ASPACs loan obligations to Banque Indosuez
and PCI Capital in the event of default by the latter. The denominations of
8

these letters, including the loan agreements secured by each, are detailed as
follows:
9

LETTER OF GUARANTEE
 LOAN AGREEMENT SECURED
CREDITOR
Letter of Guarantee No. 82-446 F
dated March 11, 1982
(LG No. 82-446 F)
Loan Agreement dated March 9, 1982 (with an extension dated March 25,
1983), in the amount of US$250,000.00
Banque
Indosuez
Letter of Guarantee No. 82-498 F
dated June 10, 1982
(LG No. 82-498 F)
Loan Agreement dated June 10, 1982, in the amount of US$250,000.00
PCI
Capital
Letter of Guarantee No. 82-548 F
dated October 5, 1982
(LG No. 82-548 F)
Loan Agreement dated October 5, 1982, in the amount of US$2,000,000.00
PCI
Capital
As a condition precedent to the issuance by TIDCORP of the Letters of
Guarantee, ASPAC, PICO, and ASPACs President, respondent Nicolas C.
Balderrama (Balderrama) had to execute several Deeds of Undertaking, 10

binding themselves to jointly and severally pay TIDCORP for whatever

damages or liabilities it may incur under the aforementioned letters. In the
same light, ASPAC, as principal debtor, entered into surety agreements
(Surety Bonds) with Paramount, Phoenix, Mega Pacific and Fortune (bonding
companies), as sureties, also holding themselves solidarily liable to
TIDCORP, as creditor, for whatever damages or liabilities the latter may incur
under the Letters of Guarantee. The details of said bonds, including their
11

respective coverage amounts and expiration dates, among others, are as

follows:
SURETY BOND
LETTER OF
GUARANTEE COVERED
COVERAGE
AMOUNT 12

BONDING
COMPANY/
SURETY
FINAL
EXPIRATION
 DATE
Surety Bond No. G(16)01943 13

LG No. 82-446 F
P2,752,000.00
Paramount
March 5, 1986 14

Surety Bond No. G(16)01906 15

LG No. 82-498 F
P1,845,000.00
Paramount
June 4, 1986 16

Surety Bond No.

G(16)15495 17

P1,849,000.00
Fortune
November 21, 1985 18

Surety Bond No.

G(16)01903 19

LG No. 82-548 F
P11,970,000.00
Phoenix
September 28, 1985 20

Surety Bond No.

G(16)01497 21

P5,030,000.00
Mega
Pacific
September 28, 1985 22

ASPAC eventually defaulted on its loan obligations to Banque Indosuez and

PCI Capital, prompting them to demand payment from TIDCORP under the
Letters of Guarantee. The demand letter of Banque Indosuez was sent to
TIDCORP on March 5, 1984, while that of PCI Capital was sent on February
23

21, 1985. In turn, TIDCORP demanded payment from Paramount,

24 25

Phoenix, Mega Pacific, and Fortune under the Surety Bonds. TIDCORPs
26 27 28

demand letters to the bonding companies were sent on May 28, 1985, or
before the final expiration dates of all the Surety Bonds, but to no avail.
29

Taking into account the moratorium request issued by the Minister of

30

Finance of the Republic of the Philippines (whereby members of the

international banking community were requested to grant government
financial institutions, such as TIDCORP, among others, a 90-day roll over
31

from their foreign debts beginning October 17, 1983), TIDCORP and its
various creditor banks, such as Banque Indosuez and PCI Capital, forged a
Restructuring Agreement on April 16, 1986, extending the maturity dates of
32
the Letters of Guarantee. The bonding companies were not privy to the
33

Restructuring Agreement and, hence, did not give their consent to the
payment extensions granted by Banque Indosuez and PCI Capital, among
others, in favor of TIDCORP. Nevertheless, following new payment
schedules, TIDCORP fully settled its obligations under the Letters of
34

Guarantee to both Banque Indosuez and PCI Capital on December 1, 1992,

and April 19 and June 4, 1991, respectively. Seeking payment for the
35

damages and liabilities it had incurred under the Letters of Guarantee and
with its previous demands therefor left unheeded, TIIDCORP filed a collection
case against: (a) ASPAC, PICO, and Balderrama on account of their
36

obligations under the deeds of undertaking; and (b) the bonding companies
on account of their obligations under the Surety Bonds.
The RTC Ruling
In a Decision dated April 29, 2005, the RTC partially granted TIDCORPs
37

complaint and thereby found ASPAC, PICO, and Balderrama jointly and
severally liable to TIDCORP in the sum of P277,891,359.66 pursuant to the
terms of the Deeds of Undertaking, but absolved the bonding companies from
liability on the ground that the moratorium request and the consequent
payment extensions granted by Banque Indosuez and PCI Capital in
TIDCORPs favor without their consent extinguished their obligations under
the Surety Bonds. As basis, the RTC cited Article 2079 of the Civil Code
which provides that an extension granted to the debtor by the creditor without
the consent of the guarantor/surety extinguishes the guaranty/suretyship,
and, in this relation, added that the bonding companies "should not be held
liable as sureties for the extended period."
38

Dissatisfied, TIDCORP and Balderrama filed separate appeals before the

CA. For its part, TIDCORP averred, among others, that Article 2079 of the
39

Civil Code is only limited to contracts of guaranty, and, hence, should not
apply to contracts of suretyship. Meanwhile, Balderrama theorized that the
main contractors (i.e., ELPCO) failure to pay ASPAC due to the war/political
upheaval in Libya which further resulted in the latters inability to pay Banque
Indosuez and PCI Capital had the effect of releasing him from his obligations
under the Deeds of Undertaking.
The CA Ruling
In a Decision dated April 30, 2008, the CA upheld the RTCs ruling that the
40

moratorium request "had the effect of an extension granted to a debtor, which

extension was without the consent of the guarantor, and thus released the
surety companies from their respective liabilities under the issued surety
bonds" pursuant to Article 2079 of the Civil Code. To this end, it noted that
41

"the maturity of the foreign loans was extended to December 31, 1989 or up
to December 31, 1994 as provided under Section 4.01 of the Restructuring
Agreement," and that "said extension is beyond the expiry date[s] of the
surety bonds x x x and the maturity date of the principal obligations it
purportedly secured, which extension was without [the bonding companies]
consent," It further discredited TIDCORPs contention that Article 2079 of the
42

Civil Code is only limited to contracts of guaranty by citing the Courts

pronouncement on the provisions applicability to suretyships in the case of
Security Bank and Trust Co., Inc. v. Cuenca (Security Bank). As for
43

Balderrama, the CA debunked his assignment of error, ratiocinating that "[h]is

undertaking to pay is not dependent upon the payment to be made by
ELPCO to ASPAC." The CA, however, modified the RTC decision to the
44

extent of holding ASPAC, PICO, and Balderrama liable to TIDCORP for

attorneys fees in the reasonable amount of P2,000,000.00 since the payment
of attorneys fees was stipulated by the parties in the Deed of Undertaking
dated April 2, 1982. 45

Aggrieved, TIDCORP and Balderrama filed separate motions for

reconsideration, which were, however, denied in a Resolution dated March
46 47

27, 2009. Only TIDCORP elevated the matter to the Court on appeal.
Pending resolution thereof, or on October 6, 2010, TIDCORP filed a Motion
for Partial Withdrawal of its claim against Paramount in view of their
48

Compromise Agreement dated June 24, 2010 which was approved by the
49 50

CA in CA-G.R. CV No. 92818, entitled "Trade & Investment Corporation of the

Phils., et al. v. Roblet Industrial Construction Corp. and Paramount Insurance
Corp., et al."51

The Issue Before the Court

The essential issue raised for the Courts resolution is whether or not the CA
erred in holding that the bonding companies liabilities to TIDCORP under the
Surety Bonds have been extinguished by the payment extensions granted by
Banque Indosuez and PCI Capital to TIDCORP under the Restructuring
Agreement.
The Courts Ruling
The petition is granted.
A surety is considered in law as being the same party as the debtor in relation
to whatever is adjudged touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable. Although the contract of a
surety is in essence secondary only to a valid principal obligation, his liability
to the creditor is direct, primary and absolute; he becomes liable for the debt
and duty of another although he possesses no direct or personal interest over
the obligations nor does he receive any benefit therefrom. The fundamental
52

reason therefor is that a contract of suretyship effectively binds the surety as

a solidary debtor. This is provided under Article 2047 of the Civil Code which
states:
Article 2047. 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 case the
contract is called a suretyship. (Emphasis and underscoring supplied)
Thus, since the surety is a solidary debtor, it is not necessary that the original
debtor first failed to pay before the surety could be made liable; it is enough
that a demand for payment is made by the creditor for the suretys liability to
attach.53

Article 1216 of the Civil Code provides that:

Article 1216. The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may subsequently be
directed against the others, so long as the debt has not been fully collected.
Comparing a suretys obligations with that of a guarantor, the Court, in the
case of Palmares v. CA, illumined that a surety is responsible for the debts
54

payment at once if the principal debtor makes default, whereas a guarantor

pays only if the principal debtor is unable to pay, viz.:55

A surety is an insurer of the debt, whereas a guarantor is an insurer of the

solvency of the debtor. A suretyship is an undertaking that the debt shall be
1wphi1

paid; a guaranty, an undertaking that the debtor shall pay. Stated differently, a
surety promises to pay the principals debt if the principal will not pay, while a
guarantor agrees that the creditor, after proceeding against the principal, may
proceed against the guarantor if the principal is unable to pay. A surety binds
himself to perform if the principal does not, without regard to his ability to do
so. A guarantor, on the other hand, does not contract that the principal will
pay, but simply that he is able to do so. In other words, a surety undertakes
directly for the payment and is so responsible at once if the principal debtor
makes default, while a guarantor contracts to pay if, by the use of due
diligence, the debt cannot be made out of the principal debtor.
(Emphases and underscoring supplied; citations omitted)
Despite these distinctions, the Court in Cochingyan, Jr. v. R&B Surety &
Insurance Co., Inc., and later in the case of Security Bank, held that Article
56

2079 of the Civil Code, which pertinently provides that "[a]n extension granted
to the debtor by the creditor without the consent of the guarantor extinguishes
the guaranty," equally applies to both contracts of guaranty and suretyship.
The rationale therefor was explained by the Court as follows: 57

The theory behind Article 2079 is that an extension of time given to the
principal debtor by the creditor without the suretys consent would deprive the
surety of his right to pay the creditor and to be immediately subrogated to the
creditors remedies against the principal debtor upon the maturity date. The
surety is said to be entitled to protect himself against the contingency of the
principal debtor or the indemnitors becoming insolvent during the extended
period. (Emphasis and underscoring supplied; citations omitted)
Applying these principles, the Court finds that the payment extensions
granted by Banque Indosuez and PCI Capital to TIDCORP under the
Restructuring Agreement did not have the effect of extinguishing the bonding
companies obligations to TIDCORP under the Surety Bonds, notwithstanding
the fact that said extensions were made without their consent. This is
because Article 2079 of the Civil Code refers to a payment extension granted
by the creditor to the principal debtor without the consent of the guarantor or
surety. In this case, the Surety Bonds are suretyship contracts which secure
the debt of ASPAC, the principal debtor, under the Deeds of Undertaking to
pay TIDCORP, the creditor, the damages and liabilities it may incur under the
Letters of Guarantee, within the bounds of the bonds respective coverage
periods and amounts. No payment extension was, however, granted by
TIDCORP in favor of ASPAC in this regard; hence, Article 2079 of the Civil
Code should not be applied with respect to the bonding companies liabilities
to TIDCORP under the Surety Bonds.
The payment extensions granted by Banque Indosuez and PCI Capital
pertain to TIDCORPs own debt under the Letters of Guarantee wherein it
(TIDCORP) irrevocably and unconditionally guaranteed full payment of
ASPACs loan obligations to the banks in the event of its (ASPAC) default. In
other words, the Letters of Guarantee secured ASPACs loan agreements to
the banks. Under this arrangement, TIDCORP therefore acted as a 58

guarantor, with ASPAC as the principal debtor, and the banks as creditors.
59

Proceeding from the foregoing discussion, it is quite clear that there are two
sets of transactions that should be treated separately and distinctly from one
another following the civil law principle of relativity of contracts "which
provides that contracts can only bind the parties who entered into it, and it
cannot favor or prejudice a third person, even if he is aware of such contract
and has acted with knowledge thereof." Verily, as the Surety Bonds concern
60

ASPACs debt to TIDCORP and not TIDCORPs debt to the banks, the
payments extensions (which conversely concern TIDCORPs debt to the
banks and not ASPACs debt to TIDCORP) would not deprive the bonding
companies of their right to pay their creditor (TIDCORP) and to be
immediately subrogated to the latters remedies against the principal debtor
(ASPAC) upon the maturity date. It must be stressed that these payment
extensions did not modify the terms of the Letters of Guarantee but only
provided for a new payment scheme covering TIDCORPs liability to the
banks. In fine, considering the inoperability of Article 2079 of the Civil Code in
this case, the bonding companies liabilities to TIDCORP under the Surety
Bonds except those issued by Paramount and covered by its Compromise
Agreement with TIDCORP have not been extinguished. Since these
obligations arose and have been duly demanded within the coverage periods
of all the Surety Bonds, TIDCORPs claim is hereby granted and the CAs
61

ruling on this score consequently reversed. Nevertheless, given that no

appeal has been filed on Balderramas adjudged liability or on the award of
attorney's fees, the CA's dispositions on these matters are now deemed as
final and executory.
WHEREFORE, the petition is GRANTED. The Decision dated April 30, 2008
and Resolution dated March 27, 2009 of the Court of Appeals in CA-G.R. CV
No. 86558 are MODIFIED in that respondents Philippine Phoenix Surety and
Insurance, Inc., Mega Pacific Insurance Corporation, Fortune Life and
General Insurance Company are ORDERED to fulfill their respective
obligations to petitioner Trade and Investment Development Corporation of
the Philippines (TIDCORP) under the Surety Bonds subject of this case,
discounting the obligations arising from the Surety Bonds issued by
Paramount Insurance Corporation and covered by its Compromise
Agreement with TIDCORP.
SO ORDERED.