CHARACTERISTICS OF THE CONTRACT - the contract of guaranty is delivered it previously to Vamenta & Co.
iously to Vamenta & Co. and Isidro Vamenta, and an action was
unilateral
THE TEXAS COMPANY (PHIL.), INC. vs. TOMAS ALONSO
G.R. No. L-47495 August 14, 1941
FACTS: Leonor S. Bantug and Tomas Alonso were sued by the Texas
Company in the CFI for the recovery of the sum of P629, unpaid balance of
the account of Leonora S. Bantug in connection with the agency contract with
the Texas Company for the faithful performance of which Tomas Alonso signed
the following:
For value received, we jointly and severally do hereby bind
ourselves and each of us, in solidum, with Leonor S. Bantug the agent
named in the within and foregoing agreement, for full and complete
performance of same hereby waiving notice of non-performance by
or demand upon said agent, and the consent to any and all extensions
of time for performance. Liability under this undertaking, however,
shall not exceed the sum of P2,000, Philippine currency.
Tomas Alonso set up special defenses that Leonor S. Bantug made
him believe that he was merely a co-security of one Vicente Palanca and he was
never notified of the acceptance of his bond by the Texas Company. The CFI
sentenced Leonor S. Bantug and Tomas Alonso to pay jointly and severally
to the Texas Company the sum of P629. The CA held that Leonor S. Bantug
solely liable with the consequent absolution of Tomas Alonso.
ISSUE: Whether or not there was a merely an offer of guaranty on the part of
Tomas Alonso, thus he cannot be held liable because he was never notified by
the Texas Company of its acceptance. (Yes)
HELD: The bond in question was executed at the request of the petitioner by
virtue of the following clause of the agency contract:
Additional Security. — The Agent shall whenever requested by the
Company in addition to the guaranty herewith provided, furnish
further guaranty or bond, conditioned upon the Agent's faithful
performance of this contract, in such individuals of firms as joint and
several sureties as shall be satisfactory to the Company.
In view of the foregoing clause which should be the law between the
parties, it is obvious that, before a bond is accepted by the petitioner, it has to be
in such form and amount and with such sureties as shall be satisfactory hereto;
in other words, the bond is subject to petitioner's approval. The logical
implication arising from this requirement is that, if the petitioner is satisfied with
any such bond, notice of its acceptance or approval should necessarily be given
to the property party in interest, namely, the surety or guarantor. In this
connection, we are likewise bound by the finding of the Court of Appeals that
there is no evidence in this case tending to show that the respondent, Tomas
Alonso, ever had knowledge of any act on the part of petitioner amounting
to an implied acceptance.
While unnecessary to this decision, we choose to add a few words
explanatory of the rule regarding the necessity of acceptance in case of bonds.
Where there is merely an offer of, or proposition for, a guaranty, or merely a
conditional guaranty in the sense that it requires action by the creditor before the
obligation becomes fixed, it does not become a binding obligation until it is
accepted and, unless there is a waiver of notice of such acceptance is given to,
or acquired by, the guarantor, or until he has notice or knowledge that the creditor
has performed the conditions and intends to act upon the guaranty. The
acceptance need not necessarily be express or in writing, but may be indicated
by acts amounting to acceptance. Where, upon the other hand, the transaction is
not merely an offer of guaranty but amounts to direct or unconditional promise
of guaranty, unless notice of acceptance is made a condition of the guaranty, all
that is necessary to make the promise binding is that the promise should act upon
it, and notice of acceptance is not necessary, the reason being that the contract
of guaranty is unilateral.
CHARACTERISTICS OF THE CONTRACT – jointly and severally liable
G.R. No. L-22071 October 9, 1924
THE HONGKONG & SHANGHAI BANKING CORPORATION, plaintiff-
cross-defendant,
vs.
VICENTE ALDANESE, defendant and cross-plaintiff-appellee,
VAMENTA & CO., ISIDORO VAMENTA and THE UNION
GUARANTEE CO., LTD., cross-defendants;
THE UNION GUARANTEE CO., LTD., appellant.
FACTS: There arrived at the port of Manila on October 15, 1919, certain
merchandise consigned to the Hong Kong & Shanghai Banking
Corporation. Before the receipt of the bill of lading of the merchandise, Messrs.
Vamenta & Co. and Isidro Vamenta declared that the value of said
merchandise was P6,854.40, and succeeded in withdrawing the merchandise
from the customhouse by giving a bond executed by the Union Guarantee Co.,
Ltd., as surety for the sum of P9,450, promising to present the bill of lading
within four months from the date of said bond. The period expired without said
bill of lading having been presented, notwithstanding the repeated demands made
for the purpose.
The herein plaintiff corporation presented said bill of lading which
the value of merchandise in question was P18,681.60, and claimed it from the
Collector of Customs (Aldanese), but the latter could not deliver the same, having
Page 1 of 33
brought against him by the herein plaintiff.
The CFI rendered judgment where the defendant Vicente Aldanese,
in his capacity as Collector of Customs, is sentenced to pay the Hong Kong &
Shanghai Banking Corporation the sum of $9,840.80. Messrs. Vamenta & Co.,
Isidro Vamenta and Union Guarantee co., Ltd., are sentenced to pay the same
sum to Mr. Vicente Aldanese.
The Collector of Customs had already paid the plaintiff the sum of
P20,334.91 as the value of the merchandise in question, with interest thereon in
compliance with the judgment above set out. In compliance with the judgment
rendered against him, Isidro Vamenta paid the Collector of Customs P8,000.
On cross-claim, the court sentenced Vamenta & Co., Isidro
Vamenta and the Union Guarantee Co., Ltd., Isidro Vamenta and the Union
Guarantee Co., Ltd., to pay the Collector of Customer jointly and severally
the balance of P20,334.91 paid by said Collector of Customs, after deducting the
P8,000 paid to the latter by Isidro Vamenta, that is, the sum P12,334,91. In said
judgment, the Union Guarantee Co., Ltd., was sentenced as aforesaid, but only
up to the amount of the bond given, that is, up to the sum of P9,450.
ISSUE: Whether or Union Guarantee Co., Ltd. is jointly and severally liable
with co-defendant up to the amount of bond of P9,450 only. (Yes)
HELD: There remains, therefore the sum of P12,334.91 for which the Collector
of Customs has the right to be reimbursed. To determine who are liable for this
sum and to what extent, the following must be borne in mind:
For the total sum of P20,334.91, Vamenta & Co. and Isidoro
Vamenta are liable although jointly and severally with the Union Guarantee
Co., Ltd. up to the sum of P9,450, the amount of the bond given by them.
From the standpoint of view of Vamenta & Co. and Isidoro Vamenta,
their liability in connection with said total sum is more onerous with regard to
the amount for which they are liable alone and separately from the surety the
Union Guarantee Co., Ltd., that is, the sum of P10,844.91. To this amount,
therefore, must the payment of P8,000 made by them be applied, for it is so
provided by article 1174 of the Civil Code.
Therefore, Vamenta & Co., Isidro Vamenta and the Union
Guarantee Co., Ltd., are jointly and severally liable for the balance of
P12,334.91 up to the sum of P9,450, Vamenta & Co. and Isidoro Vamenta
being liable only for the remaining sum, that is, P2,884.91.
CONSTRUCTION OF CONTRACT
MENZI & CO., INC. v. QUING CHUAN as administrator of the intestate
of Quing Tong Co.
FACTS: King Meng purchased merchandise on credit from the plaintiff-
appellee Menzi & Co., Inc. On October 3, 1932, his account showed a balance
against him in the amount of P3,168.80 The plaintiff corporation required him to
give a bond for P10,000. Quing Tong Co gave the bond under certain
conditions, one of which is that Quing Tong Co guaranteed the payment of the
merchandise and goods which King Meng should purchase from the plaintiff
in his own name or in that of King Yap Yek, paying in the manner to be set out
in the invoices, with interest at 12 per cent, the value of the merchandise from
the date of maturity. King Meng purchased from the plaintiff on different dates
merchandise and goods totalling P32,453.70. Adding to this sum the preexisting
debt of P3,168.80, gives a total of P35,622.30. On the other hand, King Meng
had made payments amounting to P35,264.60. The plaintiff corporation applied
and thereafter to the amount of the successive purchases made by King Meng
from October 3, 1932, resulting in a balance in favor of the plaintiff in the sum
of P358, payment of which is claimed, with interest and attorney’s fees, from
the intestate of the surety Quing Tong Co. The trial court gave judgment for the
plaintiff corporation, but on appeal to the Court of Appeals, the latter reversed
the judgment of the trial court and absolved the administrator of the intestate of
Quing Tong Co from the complaint.
ISSUE: Whether or not the surety is liable for the balance of the former
indebtedness of P3,168.00. (No)
HELD: We believe that the application of payments made by the plaintiff
corporation is erroneous for the reason that, where, as in the present case, there
is more than one indebtedness, the payment or payments made by the debtor, in
the absence of any agreement to the contrary, should first be applied, under the
provisions of article 1174 of the Civil Code, to the most burdensome of the
matured debts. The debt of P32,453.70 was more burdensome than the old
indebtedness of P3,168.80 because, unlike the latter, it earned interest at 12 per
cent.
Moreover, according to the decision of the Court of Appeals, the
period fixed for the payment of the invoices is one week, after which they become
due and payable. Accordingly, the various payments made by King Meng should
have been applied first to the amount of the goods taken one week earlier. From
this it follows that the amount claimed by the plaintiff is the balance of the former
indebtedness of P3,168.80 from which the surety is not liable because the bond
given by him cannot be extended to debts incurred before the execution thereof.
Finding no merit in the errors assigned in the petitioner’s brief, the
appealed judgment is affirmed.
EFFECTS OF GUARANTY – right of excussion (see p. 287-not applicable
to surety)
JOSE M. A. ARROYO, guardian of Tito Jocsing, an imbecile, plaintiff-
appellee, vs.
FLORENTINO HILARIO JUNGSAY, ET AL., defendants-appellants.
G.R. No. L-10168 July 22, 1916
FACTS: The plaintiff in this case is the guardian of one Tito Jocsing, an
imbecile, appointed by the court to succeed Jungsay, the former guardian, who
absconded with the funds of his ward. The defendants are the absconding
guardian and his bondsmen. From a judgment in favor of the plaintiff and
against the defendants for the sum of P6,000, together with interest and costs, the
bondsmen appealed.
ISSUE: Whether the appellants (bondsmen) should be credited with P4,400, the
alleged value of certain property attached as that of the absconding guardian, all
of which is in the exclusive possession of third parties under claim of ownership.
HELD: The appellants in contending for the credit, rely upon article 1834 of the
Civil Code, which gives to the surety the benefit of a levy (excusion), even when
a judgment is rendered against both the surety and the principal. But, according
to article 1832, before the surety is entitled to this benefit, he must point out to
the creditor property of the principal debtor which can be sold and which is
sufficient to cover the amount of the debt.
In Hill & Co. vs. Bourcier and Pond (29 La. Ann., 841), where
provisions similar to our Civil Code were under consideration, the court said:
The surety has the right, under certain circumstances, to demand the
discussion of the property of the principal debtor. Where suit is
brought against the surety alone, he may interpose the plea, and
compel the creditor to discuss the principal debtor. The effect of this
is to stay proceedings against the surety until judgment has been
obtained against the principal debtor, and execution against his
property has proved insufficient. When the suit is brought against the
surety and the principal debtor the plea of discussion does not require
or authorize any suspension of the proceedings; but the judgment will
be so modified as to require the creditor to proceed by execution
against the property of the principal, and to exhaust it before resorting
to the property of the surety.
In either case, the surety who desires to avail himself of this right must
demand it in limine, `on the institution of proceedings against him.'
He must, moreover, point out to the creditor property of the principal
debtor, not incumbered, subject to seizure; and must furnish a
sufficient sum to have the discussion carried into effect. (R. C. C.,
3045, 3046, 3047.) A plea which does not meet these requirements
must be disregarded.
The property pointed out by the sureties is not sufficient to pay the
indebtedness; it is not salable; it is so incumbered that third parties have, as we
have indicated, full possession under claim of ownership without leaving to the
absconding guardian a fractional or reversionary interest without determining
first whether the claim of one or more of the occupants is well founded. In all
these respects the sureties have failed to meet the requirements of article 1832
of the Civil Code.
The judgment appealed from, being in accordance with the law.
[G.R. No. 103066. April 25, 1996]
WILLEX PLASTIC INDUSTRIES, CORPORATION, petitioner, vs. HON.
COURT OF APPEALS and INTERNATIONAL CORPORATE
BANK, respondents.
This is a petition for review on certiorari of the decision [1] of the Court of
Appeals in C.A.-G.R. CV No. 19094, affirming the decision of the Regional Trial
Court of the National Capital Judicial Region, Branch XLV, Manila, which
ordered petitioner Willex Plastic Industries Corporation and the Inter-Resin
Industrial Corporation, jointly and severally, to pay private respondent
International Corporate Bank certain sums of money, and the appellate courts
resolution of October 17, 1989 denying petitioners motion for reconsideration.
The facts are as follows:
Sometime in 1978, Inter-Resin Industrial Corporation opened a letter of
credit with the Manila Banking Corporation. To secure payment of the credit
accommodation, Inter-Resin Industrial and the Investment and Underwriting
Corporation of the Philippines (IUCP) executed two documents, both entitled
Continuing Surety Agreement and dated December 1, 1978, whereby they bound
themselves solidarily to pay Manilabank obligations of every kind, on which the
[Inter-Resin Industrial] may now be indebted or hereafter become indebted to the
[Manilabank]. The two agreements (Exhs. J and K) are the same in all respects,
except as to the limit of liability of the surety, the first surety agreement being
limited to US$333,830.00, while the second one is limited to US$334,087.00.
Page 2 of 33
On April 2, 1979, Inter-Resin Industrial, together with Willex Plastic
Industries Corp., executed a Continuing Guaranty in favor of IUCP whereby For
and in consideration of the sum or sums obtained and/or to be obtained by Inter-
Resin Industrial Corporation from IUCP, Inter-Resin Industrial and Willex
Plastic jointly and severally guaranteed the prompt and punctual payment at
maturity of the NOTE/S issued by the DEBTOR/S . . . to the extent of the
aggregate principal sum of FIVE MILLION PESOS (P5,000,000.00) Philippine
Currency and such interests, charges and penalties as hereafter may be specified.
On January 7, 1981, following demand upon it, IUCP paid to Manilabank
the sum of P4,334,280.61 representing Inter-Resin Industrials outstanding
obligation. (Exh. M-1) On February 23 and 24, 1981, Atrium Capital Corp.,
which in the meantime had succeeded IUCP, demanded from Inter-Resin
Industrial and Willex Plastic the payment of what it (IUCP) had paid to
Manilabank. As neither one of the sureties paid, Atrium filed this case in the
court below against Inter-Resin Industrial and Willex Plastic.
On August 11, 1982, Inter-Resin Industrial paid Interbank, which had in
turn succeeded Atrium, the sum of P687,500.00 representing the proceeds of its
fire insurance policy for the destruction of its properties.
In its answer, Inter-Resin Industrial admitted that the Continuing Guaranty
was intended to secure payment to Atrium of the amount of P4,334,280.61 which
the latter had paid to Manilabank. It claimed, however, that it had already fully
paid its obligation to Atrium Capital.
On the other hand, Willex Plastic denied the material allegations of the
complaint and interposed the following Special Affirmative Defenses:
(a) Assuming arguendo that main defendant is indebted to plaintiff, the formers
liability is extinguished due to the accidental fire that destroyed its premises,
which liability is covered by sufficient insurance assigned to plaintiff;
(b) Again, assuming arguendo, that the main defendant is indebted to plaintiff,
its account is now very much lesser than those stated in the complaint because of
some payments made by the former;
(c) The complaint states no cause of action against WILLEX;
(d) WILLEX is only a guarantor of the principal obligor, and thus, its liability is
only secondary to that of the principal;
(e) Plaintiff failed to exhaust the ultimate remedy in pursuing its claim against
the principal obligor;
(f) Plaintiff has no personality to sue.
On April 29, 1986, Interbank was substituted as plaintiff in the action. The
case then proceeded to trial.
On March 4, 1988, the trial court declared Inter-Resin Industrial to have
waived the right to present evidence for its failure to appear at the hearing despite
due notice. On the other hand, Willex Plastic rested its case without presenting
any evidence. Thereafter Interbank and Willex Plastic submitted their respective
memoranda.
On April 5, 1988, the trial court rendered judgment, ordering Inter-Resin
Industrial and Willex Plastic jointly and severally to pay to Interbank the
following amounts:
(a) P3,646,780.61, representing their indebtedness to the plaintiff, with interest
of 17% per annum from August 11, 1982, when Inter-Resin Industrial paid
P687,500.00 to the plaintiff, until full payment of the said amount;
(b) Liquidated damages equivalent to 17% of the amount due; and
(c) Attorneys fees and expenses of litigation equivalent to 20% of the total
amount due.
Inter-Resin Industrial and Willex Plastic appealed to the Court of Appeals.
Willex Plastic filed its brief, while Inter-Resin Industrial presented a Motion to
Conduct Hearing and to Receive Evidence to Resolve Factual Issues and to Defer
Filing of the Appellants Brief. After its motion was denied, Inter-Resin Industrial
did not file its brief anymore.
On February 22, 1991, the Court of Appeals rendered a decision affirming
the ruling of the trial court.
Willex Plastic filed a motion for reconsideration praying that it be allowed
to present evidence to show that Inter-Resin Industrial had already paid its
obligation to Interbank, but its motion was denied on December 6, 1991:
The motion is denied for lack of merit. We denied defendant-appellant Inter-
Resin Industrials motion for reception of evidence because the situation or
situations in which we could exercise the power under B.P. 129 did not
exist. Movant here has not presented any argument which would show otherwise.
 Hence, this petition by Willex Plastic for the review of the decision of
February 22, 1991 and the resolution of December 6,1991 of the Court of
Appeals.
Petitioner raises a number of issues.
[1] The main issue raised is whether under the Continuing Guaranty
signed on April 2, 1979 petitioner Willex Plastic may be held jointly and
severally liable with Inter-Resin Industrial for the amount paid by Interbank to
Manilabank.
As already stated, the amount had been paid by Interbanks predecessor-
in-interest, Atrium Capital, to Manilabank pursuant to the Continuing Surety
Agreements made on December 1, 1978. In denying liability to Interbank for the
amount, Willex Plastic argues that under the Continuing Guaranty, its liability is
for sums obtained by Inter-Resin Industrial from Interbank, not for sums paid by
the latter to Manilabank for the account of Inter-Resin Industrial. In support of
this contention Willex Plastic cites the following portion of the Continuing
Guaranty:
For and in consideration of the sums obtained and/or to be obtained by INTER-
RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the
DEBTOR/S, from you and/or your principal/s as may be evidenced by promissory
note/s, checks, bills receivable/s and/or other evidence/s of indebtedness
(hereinafter referred to as the NOTE/S), I/We hereby jointly and severally and
unconditionally guarantee unto you and/or your principal/s, successor/s and
assigns the prompt and punctual payment at maturity of the NOTE/S issued by
the DEBTOR/S in your and/or your principal/s, successor/s and assigns favor to
the extent of the aggregate principal sum of FIVE MILLION PESOS
(P5,000,000.00), Philippine Currency, and such interests, charges and penalties
as may hereinafter be specified.
The contention is untenable. What Willex Plastic has overlooked is the
fact that evidence aliunde was introduced in the trial court to explain that it was
actually to secure payment to Interbank (formerly IUCP) of amounts paid by the
latter to Manilabank that the Continuing Guaranty was executed. In its complaint
below, Interbanks predecessor-in-interest. Atrium Capital, alleged:
5. to secure the guarantee made by plaintiff of the credit
accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank, the plaintiff required defendant
IRIC [Inter-Resin Industrial] to execute a chattel mortgage in
its favor and a Continuing Guaranty which was signed by the
other defendant WPIC [Willex Plastic].
In its answer, Inter-Resin Industrial admitted this allegation although it
claimed that it had already paid its obligation in its entirety. On the other hand,
Willex Plastic, while denying the allegation in question, merely did so for lack
of knowledge or information of the same. But, at the hearing of the case on
September 16, 1986, when asked by the trial judge whether Willex Plastic had
not filed a crossclaim against Inter-Resin Industrial, Willex Plastics counsel
replied in the negative and manifested that the plaintiff in this case [Interbank] is
the guarantor and my client [Willex Plastic] only signed as a guarantor to the
guarantee.[2]
For its part Interbank adduced evidence to show that the Continuing
Guaranty had been made to guarantee payment of amounts made by it to
Manilabank and not of any sums given by it as loan to Inter-Resin
Industrial. Interbanks witness testified under cross- examination by counsel for
Willex Plastic that Willex guaranteed the exposure/of whatever exposure of ACP
[Atrium Capital] will later be made because of the guarantee to Manila Banking
Corporation.[3]
It has been held that explanatory evidence may be received to show the
circumstances under which a document has been made and to what debt it
relates.[4] At all events, Willex Plastic cannot now claim that its liability is limited
to any amount which Interbank, as creditor, might give directly to Inter-Resin
Industrial as debtor because, by failing to object to the parol evidence presented,
Willex Plastic waived the protection of the parol evidence rule. [5]
Accordingly, the trial court found that it was to secure the guarantee made
by plaintiff of the credit accommodation granted to defendant IRIC [Inter-Resin
Industrial] by Manilabank, [that] the plaintiff required defendant IRIC to execute
a chattel mortgage in its favor and a Continuing Guaranty which was signed by
the defendant Willex Plastic Industries Corporation. [6]
Similarly, the Court of Appeals found it to be an undisputed fact that to
secure the guarantee undertaken by plaintiff-appellee [Interbank] of the credit
accommodation granted to Inter-Resin Industrial by Manilabank, plaintiff-
appellee required defendant-appellants to sign a Continuing Guaranty. These
factual findings of the trial court and of the Court of Appeals are binding on us
not only because of the rule that on appeal to the Supreme Court such findings
are entitled to great weight and respect but also because our own examination of
the record of the trial court confirms these findings of the two courts. [7]
Nor does the record show any other transaction under which Inter-Resin
Industrial may have obtained sums of money from Interbank. It can reasonably
be assumed that Inter-Resin Industrial and Willex Plastic intended to indemnify
Interbank for amounts which it may have paid Manilabank on behalf of Inter-
Resin Industrial.
Indeed, in its Petition for Review in this Court, Willex Plastic admitted
that it was to secure the aforesaid guarantee, that INTERBANK required
Page 3 of 33
principal debtor IRIC [Inter-Resin Industrial] to execute a chattel mortgage in its
favor, and so a Continuing Guaranty was executed on April 2, 1979 by WILLEX
PLASTIC INDUSTRIES CORPORATION (WILLEX for brevity) in favor of
INTERBANK for and in consideration of the loan obtained by IRIC [Inter-Resin
Industrial].
[2] Willex Plastic argues that the Continuing Guaranty, being an accessory
contract, cannot legally exist because of the absence of a valid principal
obligation.[8] Its contention is based on the fact that it is not a party either to the
Continuing Surety Agreement or to the loan agreement between Manilabank and
Inter-Resin Industrial.
Put in another way the consideration necessary to support a surety
obligation need not pass directly to the surety, a consideration moving to the
principal alone being sufficient. For a guarantor or surety is bound by the same
consideration that makes the contract effective between the principal parties
thereto. . . . It is never necessary that a guarantor or surety should receive any
part or benefit, if such there be, accruing to his principal. [9] In an analogous
case,[10] this Court held:
At the time the loan of P100,000.00 was obtained from petitioner by Daicor, for
the purpose of having an additional capital for buying and selling coco-shell
charcoal and importation of activated carbon, the comprehensive surety
agreement was admittedly in full force and effect. The loan was, therefore,
covered by the said agreement, and private respondent, even if he did not sign
the promissory note, is liable by virtue of the surety agreement. The only
condition that would make him liable thereunder is that the Borrower is or may
become liable as maker, endorser, acceptor or otherwise. There is no doubt that
Daicor is liable on the promissory note evidencing the indebtedness.
The surety agreement which was earlier signed by Enrique Go, Sr. and private
respondent, is an accessory obligation, it being dependent upon a principal one
which, in this case is the loan obtained by Daicor as evidenced by a promissory
note.
[3] Willex Plastic contends that the Continuing Guaranty cannot be
retroactively applied so as to secure the payments made by Interbank under the
two Continuing Surety Agreements. Willex Plastic invokes the ruling m
El Vencedor v. Canlas[11] and Dio v. Court of Appeals[12] in support of its
contention that a contract of suretyship or guaranty should be applied
prospectively.
The cases cited are, however, distinguishable from the present case. In El
Vencedor v. Canlas we held that a contract of suretyship is not retrospective and
no liability attaches for defaults occurring before it is entered into unless an intent
to be so liable is indicated. There we found nothing in the contract to show that
the parties intended the surety bonds to answer for the debts contracted previous
to the execution of the bonds. In contrast, in this case, the parties to the
Continuing Guaranty clearly provided that the guaranty would cover
sums obtained and/or to be obtained by Inter-Resin Industrial from Interbank.
On the other hand, in Dio v. Court of Appeals the issue was whether the
sureties could be held liable for an obligation contracted after the execution of
the continuing surety agreement.
It was held that by its very nature a continuing suretyship contemplates a
future course of dealing. It is prospective in its operation and
is generally intended to provide security with respect to future transactions. By
no means, however, was it meant in that case that in all instances a contract of
guaranty or suretyship should be prospective in application.
Indeed, as we also held in Bank of the Philippine Islands v.
Foerster,[13] although a contract of suretyship is ordinarily not to be construed as
retrospective, in the end the intention of the parties as revealed by the evidence
is controlling. What was said there[14] applies mutatis mutandis to the case at bar:
In our opinion, the appealed judgment is erroneous. It is very true that
bonds or other contracts of suretyship are ordinarily not to be construed as
retrospective, but that rule must yield to the intention of the contracting parties
as revealed by the evidence, and does not interfere with the use of the ordinary
tests and canons of interpretation which apply in regard to other contracts.
In the present case the circumstances so clearly indicate that the bond
given by Echevarria was intended to cover all of the indebtedness of the Arrocera
upon its current account with the plaintiff Bank that we cannot possibly adopt the
view of the court below in regard to the effect of the bond.
[4] Willex Plastic says that in any event it cannot be proceeded against
without first exhausting all property of Inter-Resin Industrial. Willex Plastic thus
claims the benefit of excussion.The Civil Code provides, however:
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
xxxxxxxxx
The pertinent portion of the Continuing Guaranty executed by Willex
Plastic and Inter-Resin Industrial in favor of IUCP (now Interbank) reads:
If default be made in the payment of the NOTE/s herein guaranteed you and/or
your principal/s may directly proceed against Me/Us without first proceeding
against and exhausting DEBTOR/s properties in the same manner as if all such
liabilities constituted My/Our direct and primary obligations. (italics supplied)
This stipulation embodies an express renunciation of the right of
excussion. In addition, Willex Plastic bound itself solidarily liable with Inter-
Resin Industrial under the same agreement:
For and in consideration of the sums obtained and/or to be obtained by
INTER-RESIN INDUSTRIAL CORPORATION, hereinafter referred to as the
DEBTOR/S, from you and/or your principal/s as may be evidenced by
promissory note/s, checks, bills receivable/s and/or other evidence/s of
indebtedness (hereinafter referred to as the NOTE/S), I/We hereby jointly and
severally and unconditionally guarantee unto you and/ or your principal/s,
successor/s and assigns the prompt and punctual payment at maturity of the
NOTE/S issued by the DEBTOR/S in your and/or your principal/s, successor/s
and assigns favor to the extent of the aggregate principal sum of FIVE MILLION
PESOS (P5,000,000.00), Philippine Currency, and such interests, charges and
penalties as may hereinafter he specified.
[5] Finally it is contended that Inter-Resin Industrial had already paid its
indebtedness to Interbank and that Willex Plastic should have been allowed by
the Court of Appeals to adduce evidence to prove this. Suffice it to say that Inter-
Resin Industrial had been given generous opportunity to present its evidence but
it failed to make use of the same. On the other hand, Willex Plastic rested its case
without presenting evidence.
The reception of evidence of Inter-Resin Industrial was set on January 29,
1987, but because of its failure to appear on that date, the hearing was reset on
March 12, 26 and April 2, 1987.
On March 12, 1987 Inter-Resin Industrial again failed to appear. Upon
motion of Willex Plastic, the hearings on March 12 and 26, 1987 were cancelled
and reset for the last time on April 2 and 30, 1987.
On April 2, 1987, Inter-Resin Industrial again failed to appear.
Accordingly the trial court issued the following order:
Considering that, as shown by the records, the Court had exerted every earnest
effort to cause the service of notice or subpoena on the defendant Inter-Resin
Industrial but to no avail, even with the assistance of the defendant Willex. . . the
defendant Inter-Resin Industrial is hereby deemed to have waived the right to
present its evidence.
On the other hand, Willex Plastic announced it was resting its case without
presenting any evidence.
Upon motion of Inter-Resin Industrial, however, the trial court
reconsidered its order and set the hearing anew on July 23, 1987. But Inter-Resin
Industrial again moved for the postponement of the hearing to August 11,
1987. The hearing was, therefore, reset on September 8 and 22, 1987 but the
hearings were reset on October 13,1987, this time upon motion of Interbank. To
give Interbank time to comment on a motion filed by Inter-Resin Industrial, the
reception of evidence for Inter-Resin Industrial was again reset on November 17,
26 and December 11, 1987. However, Inter-Resin Industrial again moved for the
postponement of the hearing. Accordingly, the hearing was reset on November
26 and December 11, 1987, with warning that the hearings were intransferrable.
Again, the reception of evidence for Inter-Resin Industrial was reset on
January 22, 1988 and February 5, 1988 upon motion of its counsel. As Inter-
Resin Industrial still failed to present its evidence, it was declared to have waived
its evidence.
To give Inter-Resin Industrial a last opportunity to present its evidence,
however, the hearing was postponed to March 4, 1988. Again Inter-Resin
Industrials counsel did not appear. The trial court, therefore, finally declared
Inter-Resin Industrial to have waived the right to present its evidence. On the
other hand, Willex Plastic, as before, manifested that it was not presenting
evidence and requested instead for time to file a memorandum.
There is therefore no basis for the plea made by Willex Plastic that it be
given the opportunity of showing that Inter-Resin Industrial has already paid its
obligation to Interbank.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED,
with costs against the petitioner.
RIGHT OF EXCUSSION
[G.R. No. 125625. July 19, 1999]
FELIMON VARONA vs. CA, et al.
This resolves petitioner's motions for reconsideration of the Resolution of this
Court, denying the petition for review of the decision of the Court of Appeals
which affirmed the decision of the trial court, ordering petitioner to execute the
deed of transfer of the properties in favor of the plaintiff and to deliver the
possession of the properties subject matter of the complaint to the plaintiff;
Petitioner disagrees with the ruling of this court finding him in estoppel,
reiterating the arguments contained in his petition that subject properties, being
Page 4 of 33
conjugal in character, cannot be bound by an agreement to which the consent of
the other spouse has not been secured.
It bears stressing that petitioner is estopped from invoking the nullity of subject
agreement after he had freely and voluntarily entered thereinto and after
admitting its authenticity and genuineness. He cannot be allowed to repudiate his
own act and representation to the prejudice of the private respondents who relied
thereupon. Moreover, the proper party to assail the validity of the said agreement
is the wife of petitioner whose prior consent thereto has not been obtained
pursuant to Article 173 of the Civil Code,1[Art. 173. The wife may, during the
marriage and within ten years from the transaction questioned, ask the courts for
the annulment of any contract of the husband entered into without her consent,
when such consent, when such consent is required, or any act or contract of the
husband which tends to defraud her or impair her interest in the conjugal
property. Should the wife fail to exercise this right, she or her heirs, after the
dissolution of the marriage, may demand the value of property fraudulently
alienated by the husband.]
Petitioner also seeks reconsideration of the ruling of the Court - that he cannot
be extended the benefit of exclusion; theorizing that as guarantor, he cannot be
compelled to pay unless the creditor has exhausted all the properties of, and
exerted all the legal remedies against the debtor Jenkins, which step the private
respondent allegedly failed to take.
Again, petitioner's contention is untenable. The benefit of exclusion cannot be
availed of by him because he failed to set it up against the private respondent
when the latter demanded payment and point out sufficient properties of the
debtors within the Philippines, available to cover the debt. Also, exclusion cannot
take place in the present case since the debtor spouses Jenkins have already left
the country and cannot therefore be sued here.
WHEREFORE, the motion for reconsideration under consideration is hereby
DENIED with finality.
EXTINGUISHMENT OF GUARANTY
SPOUSES VICKY TAN TOH and LUIS TOH, petitioners, vs. SOLID
BANK CORPORATION, FIRST BUSINESS PAPER
CORPORATION, KENNETH NG LI and MA. VICTORIA NG
LI, respondents.
FACTS:
Respondent Solid Bank Corporation (SBC) agreed to extend an omnibus line
credit facility worth P10 million in favor of respondent First Business Paper
Corporation (FBPC). The terms and conditions of the agreement as well as the
checklist of documents necessary to open the credit line were stipulated in a
letter-advise of the addressed to FBPC and to its President, respondent Kenneth
Ng Li. The letter-advise was effective upon compliance with the documentary
requirements.
Among the documentary requirements was a Continuing Guaranty for any and
all amounts signed by petitioner-spouses Luis Toh and Vicky Tan Toh, and
respondent-spouses Kenneth and Ma. Victoria Ng Li. The spouses Luis Toh and
Vicky Tan Toh were then Chairman of the Board and Vice-President,
respectively, of FBPC, while respondent-spouses Kenneth Ng Li and Ma.
Victoria Ng Li were President and General Manager, respectively, of the same
corporation.
The Continuing Guaranty set forth no maximum limit on the indebtedness that
respondent FBPC may incur and for which the sureties may be liable, stating that
the credit facility covers any and all existing indebtedness of, and such other
loans and credit facilities which may hereafter be granted to FIRST BUSINESS
PAPER CORPORATION. The surety also contained a de facto acceleration
clause if default be made in the payment of any of the instruments, indebtedness,
or other obligation guaranteed by petitioners and respondents. The Continuing
Guaranty was not contigent on any event or cause other than the written
revocation by the sureties with notice to the bank.
FBPC later on acquired 13 letter of credits amounting to P 15, 227, 510. 00.
However, on January 13, 1994 the bank was given information that the Sps. Li
had fraudulently departed their conjugal home. On the following day, the bank
sent a demand letter to FBPC and petitioner Luis Toh invoking the acceleration
clause and claimed payment for the remaining balance of P 10, 539, 758.68 plus
interests and penalties to be paid within 24 hours. The bank also invoked the
Continuing Guaranty the Sps. Toh signed with Sps. Li.
Respondent Bank filed a complaint for sum of money with ex parte application
for a writ of preliminary attachment against FBPC, spouses Kenneth Ng Li and
Ma. Victoria Ng Li, and spouses Luis Toh and Vicky Tan Toh. Sps. Koh admitted
that they were once part of the FBPC and that Luis Toh was designated as one of
the corporate signatories however could not be certain whether to deny or admit
the due execution and authenticity of the Continuing Guaranty. They could only
allege that they were made to sign papers in blank and the Continuing Guaranty
could have been one of them. The Sps. Toh alleges that they already sold their
shares to Sps. Li and that through an FBPC Board Resolution Luis Toh was
removed as a corporate signatory. They also said that sometime in June 1993,
they obtained from Kenneth Li an exclusion from the surety agreements they
entered into with several banks.
The trial court ordered FBPC to pay the principal amount of P 10, 7539, 758. 68
plus 12% interest per annum until fully paid however, it absolved the Sps. Toh
from any liability to respondent Bank. The trial court also found that the
petitioners voluntarily affixed their signatures on the Continuing Guaranty but
they were not bound by the surety contract since the letters of credit it was
supposed to secure were opened long after the Sps. Toh ceased to be part of
FBPC.
The Court of Appeals modified the trial court’s decision noting that their signing
of the Continuing Guaranty made them solidarily liable with FBPC for the
amount plus interest. The appelate court said that they signed the Continuing
Guaranty in their personal capacities due to them having failed to indicate that
they were signing as Chairman of the Board and Vice President of FBPC only.
The appellate court also ruled that as petitioners failed to execute any written
revocation of the Continuing Guaranty with notice to respondent Bank, the
instrument remained in full force and effect when the letters of credit were
availed of by respondent FBPC.
ISSUE:
Whether or not the Sps. Toh are discharged as sureties of the Continuing
Guaranty.
HELD:
Yes.
This Court holds that the Continuing Guaranty is a valid and binding contract of
petitioner-spouses as it is a public document that enjoys the presumption of
authenticity and due execution. Similarly, there is no basis for petitioners to limit
their responsibility thereon so long as they were corporate officers and
stockholders of FBPC. Nothing in the Continuing Guaranty restricts their
contractual undertaking to such condition or eventuality. If petitioners intended
not to be charged as sureties after their withdrawal from FBPC, they could have
simply terminated the agreement by serving the required notice of revocation
upon the Bank as expressly allowed therein.
However, the bank must also be held liable for its actions regarding the extension
of the due dates of the letters of credit, this court cannot exclude from the
Continuing Guaranty the preconditions of the Bank that were plainly stipulated
in the letter-advise. Furthermore, the assurance of the sureties in the Continuing
Guaranty that no act or omission of any kind on the Bank’s part in the
premises shall in any event affect or impair this guaranty must also be
read strictissimi juris for the reason that petitioners are only accommodation
sureties. Thus said, the acts or omissions of the Bank conceded by petitioners as
not affecting nor impairing the surety contract refer only to those occurring in the
premises, or those that have been the subject of the waiver in the Continuing
Guaranty, and stretch to no other. An extension of the period for enforcing the
indebtedness does not by itself bring about the discharge of the sureties unless
the extra time is not permitted within the terms of the waiver, in which case
the illicit extension releases the sureties. Under Art. 2055 of the Civil Code, the
liability of a surety is measured by the terms of his contract, and while he is
liable to the full extent thereof, his accountability is strictly limited to that
assumed by its terms.
The extensions of the letters of credit made by respondent Bank without
observing the rigid restrictions for exercising the privilege are not covered by the
waiver stipulated in the Continuing Guaranty. Evidently, they
constitute illicit extensions prohibited under Art. 2079 of the Civil Code, [a]n
extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty.
The decision of the CA is reversed and set aside. The decision of the trial court
is deemed reinstated. The Sps. Toh are absolved of any liability to Solid Bank
Corporation.
G.R. No. 42829 September 30, 1935
RADIO CORPORATION OF THE PHILIPPINES, plaintiff-appellee,
vs.
JESUS R. ROA, ET AL., defendants.
RAMON CHAVES, ANDRES ROA and MANUEL ROA, appellants.
Facts:
The defendant Jesus R. Roa became indebted to the Philippine Theatrical
Enterprises, Inc., in the sum of P28,400 payable in seventy-one equal monthly
installments at the rate of P400 a month commencing thirty days after December
11, 1931, with five days grace monthly until complete payment of said sum. On
that same date the Philippine Theatrical Enterprises, Inc., assigned all its right
and interest in that contract to the Radio Corporation of the Philippines.
The paragraph of that contract in which the accelerating clause appears reads as
follows:
In case the vendee-mortgagor fails to make any of the payments as
hereinbefore provided, the whole amount remaining unpaid under
this mortgage shall immediately become due and payable and this
Page 5 of 33
mortgage on the property herein mentioned as well as the Luzon
Surety Bond may be foreclosed by the vendor-mortgagee;
Radio Corporation of the Philippines wrote the following letter to the principal
debtor Jesus R. Roa:
DEAR SIR: We acknowledge with thanks the receipt of your letter of
March 9th together with your remittance of P200 for which we
enclose receipt No. 7558. We are applying this amount to the balance
of your January installment.
We have no objection to the extension requested by you to pay the
February installment by the first week of April. We would,
however, urge you to make every efforts to bring the account up-
to date as we are given very little discretion by the RCP in giving
extension of payment.
Issue:
Whether or not the extension granted in the above copied letter by the plaintiff,
without the consent of the guarantors, the herein appellants, extinguishes the
latter's liability not only as to the installments due at that time, as held by the trial
court, but also as to the whole amount of their obligation. Articles 1851 of the
Civil Code reads as follows:
ART. 1851. An extension grated to the debtor by the creditor, without
the consent of the guarantor, extinguishes the latter's liability.
Held:
This court has held that mere delay in suing for the collection of the does not
release the sureties. This court stated:
. . . The rule that an extension of time granted to the debtor by the
creditor, without the consent of the sureties, extinguishes the latter's
liability is common both to Spanish jurisprudence and the common
law; and it is well settled in English and American jurisprudence that
where a surety is liable for different payments, such as installments
of rent, or upon a series of promissory notes, an extension of time as
to one or more will not affect the liability of the surety for the others.
...
There is one stipulation in the contract (Exhibit A) which, at first
blush, suggests a doubt as to the propriety of applying the doctrine
above stated to the case before us. We refer to clause (f) which
declares that the non-fulfillment on the part of the debtors of the
stipulation with respect to the payment of any installment of the
indebtedness, with interest, will give to the creditor the right to treat
and declare all of said installments as immediately due. If the
stipulation had been to the effect that the failure to pay any installment
when due would ipso facto cause the other installments to fall due at
once, it might be plausibly contended that after default of the payment
of one installment the act of the creditor in extending the time as to
such installment would interfere with the right of the surety to
exercise his legal rights against the debtor, and that the surety would
in such case be discharged by the extension of time, in conformity
with article 1851 and 1852 of the Civil Code. But it will be noted that
in the contract now under consideration the stipulation is not that the
maturity of the latter installments shall be ipso facto accelerated by
default in the payment of a prior installment, but only that it shall give
the creditor a right treat the subsequent installments as due; and in this
case it does not appear that the creditor has exercised this election. On
the contrary, this action was not instituted until after all of the
installments had fallen due in conformity with original contract. It
results that the stipulation contained in paragraph (f) does not effect
the application of the doctrine above enunciated to the case before us.
The stipulation in the contract under consideration, copied above, is to the effect
that upon failure to pay any installment when due the other installments ipso
facto become due and payable. In view of of the fact that under the express
provision of the contract, quoted above, the whole unpaid balance automatically
becomes due and payable upon failure to pay one installment, the act of the
plaintiff in extending the payment of the installment corresponding to February,
1932, to April, 1932, without the consent of the guarantors, constituted in fact an
extension of the payment of the whole amount of the indebtedness, as by that
extension the plaintiff could not have filed an action for the collection of the
whole amount until after April, 1932. Therefore appellants' contention that after
default of the payment of one installment the act of the herein creditor in
extending the time of payment discharges them as guarantors in conformity with
articles 1851 and 1852 of the Civil Code is correct.
It is a familiar rule that if a creditor, by positive contract with the
principal debtor, and without the consent of the surety, extends the
time of payment, he thereby discharges the surety. . . . The time of
payment may be quite as important a consideration to the surety as
 the amount he has promised conditionally to pay. . . .Again, a surety
has the right, on payment of the debt, to be subrogated to all the rights
of the creditor, and to proceed at once to collect it from the principal;
but if the creditor has tied own hands from proceeding promptly, by
extending the time of collection, the hands of the surety will equally
be bound; and before they are loosed, by the expiration of the
extended credit, the principal debtor may have become insolvent and
the right of subrogation rendered worthless. It should be observed,
however, that it is really unimportant whether the extension given has
actually proved prejudicial to the surety or not. The rule stated is quite
independent of the event, and the fact that the principal is insolvent
or that the extension granted promised to be beneficial to the surety
would give no right to the creditor to change the terms of the contract
without the knowledge or consent of the surety. Nor does it matter for
how short a period the time of payment may be extended. The
principle is the same whether the time is long or short. The creditor
must be in such a situation that when the surety comes to be
substituted in his place by paying the debt, he may have an immediate
right of action against the principal. The suspension of the right to sue
for a month, or even a day, is as effectual to release the surety as a
year or two years. (21 R.C.L., 1018-1020.)
In view of the forgoing the judgment of the trial court is reversed as to the
appellants Ramon Chavez, Andres Roa and Manuel Roa, without costs.
G.R. No. L-41795 August 30, 1935
J.W. SHANNON and MRS. J.W. SHANNON, plaintiffs-appellees,
vs.
THE PHILIPPINE LUMBER & TRANSPORTATION CO., INC., and E.E.
ELSER, defendants.
E.E. ELSER, appellant.
Facts:
 Philippine Lumber & Transportation Co., Inc., obtained a loan of
P12,000 from Mrs. J.W. Shannon and executed a note promising to
pay the said sum to the creditor or to her husband, J.W. Shannon, on
or before March 1, 1927, with interest at 10 per cent per annum,
payable monthly and in advance on the first day of each month.
 The obligation with its terms was secured, jointly and severally, by
Walter E. Jones and E.E. Elser who signed the note. The principal
was not paid on its due date or thereafter, but the stipulated interest
up to October, 1929, inclusive, was paid.
 Walter E. Jones died on November 24, 1929, and the plaintiffs filed
a claim and recovered from his estate P1,062 in part payment of
occurred interest due.
 On August 1, 1927, while the principal obligation was pending
payment, J.W. Shannon obtained a loan of P1,000 from Walter E.
Jones; on April 9, 1928, he obtained another loan of P2,000, and on
April 28, 1928, he made Jones pay on his account a certain bill of
exchange drawn upon him in the sum of P1,656, making Shannon's
total loan from Jones P4,656.
 Both agreed that this amount should be paid at the rate of P125 a
month, with 10 per cent interest per annum, failing which, Jones was
authorized to retain and apply to the monthly payments whatever
amounts he might have belonging to Shannon or to his wife.
 Jones did not receive monthly payments from Shannon under this
agreement, but instead he deducted them from the monthly interest
which, on the other hand, the Philippine Lumber & Transportation
Co., Inc., of which he was the president, was bound to pay.
 As the Philippine Lumber & Transportation Co., Inc., and its
sureties had not paid the principal and the stipulated interest from
November 1, 1929, the Shannons brought suit against the debtor
corporation and the surety, E.E. Elser, for the recovery of said
amounts.
 The Philippine Lumber & Transportation Co., Inc., neither appeared
nor answered the complaint, and it was declared in default. Neither
did it intervene nor defend itself at the trial.
 E.E. Elser appealed from the judgment ordering the Philippine
Lumber & Transportation Co., Inc., to pay to the plaintiff
 The appellant argues that the judgment is erroneous: in not holding
that after the note became due, the plaintiffs had received from the
Philippine Lumber & Transportation Co., Inc., payments in advance
of the stipulated interest for a relatively long period of time, and that,
consequently, said plaintiffs, as creditors, extended the period fixed
for the payment of the principal without his consent; in not permitting
him to adduce evidence on his defense of laches whereby he
attempted to show that in 1927 and 1928 the principal debtor had
property and money with which to pay its entire obligation; in not
holding that the plaintiffs were guilty of unreasonable delay in
bringing their action, thereby causing him damages, and in not
absolving him from the complaint.
 The first assigned error relates to the loans made by Jones to Shannon
up to the amount of P4,656. The appellant contends that these loans
were in truth payments in advance of the stipulated interest which the
Page 6 of 33
principal debtor had to pay monthly and which had the effect of
extending the stated period for the payment of the indebtedness,
thereby relieving him of his obligation as surety under article
1851 of the Civil Code, because his consent was not first obtained;
and in support of his contention cites the decision of this court
in Banco Español Filipino vs. Donaldson Sim & Co. (5 Phil., 418).
Issue: Whether or not Elser liability as a surety has been extinguished
Held:
NO.
 The facts, as we find them, do not support the contention. It
indisputably appears that those amounts of money were obtained by
Shannon not as payments in advance of the interest which the
principal debtor was bound to pay, but as independent loans which
Jones granted to him. The only connection of these loans with the
interest of the indebtedness of the Philippine Lumber &
Transportation Co., Inc., consisted in the agreement between Jones
and Shannon to the effect that in case the latter should fail to pay the
monthly interest, the former was authorized to deduct it from any
amount which he might have at his disposal belonging to Shannon or
to his wife. As, on the other hand, Jones was the president of the
principal debtor, and the latter had to pay monthly interest on its
indebtedness, Jones deducted monthly from this last interest that
which Shannon failed to pay. It is therefore, evident that neither the
provisions of article 1851 of the Civil Code nor the doctrine on the
matter enunciated in the Banco Español Filipino case is squarely in
point.
 The appellant attempted to prove at the trial that the plaintiffs had
been guilty of laches and had brought their action against him tardily,
because in 1927 and 1928 the principal debtor had sufficient property
and money with which it could have fully paid its obligation, and in
so acting the plaintiffs caused him damages. This kind of evidence
was timely objected to, and the objection was sustained by the court.
This ruling is the subject of the second and third assigned errors. We
hold that the judgment is not erroneous on these grounds. True, the
plaintiffs let pass some years from the maturity of the note before
bringing the action for the recovery of its amount. But we hold that
the delay does not constitute laches in the sense that it had the effect
of releasing both the principal debtor and its sureties from their
obligations, nor did it occasion loss of rights and privileges of such
moment as to give rise to the discharge of the obligation contracted
by the appellant. In the aforecited Banco Español Filipino case, in
ruling upon a similar question, we said: "The decision en casacion of
the Supreme Court of Spain is jurisprudence properly interpreting the
Spanish Civil Code. The following doctrine is laid down in the
judgment of March 22, 1901: `The court which pronounced sentence
in this case has not violated article 1851 of the Civil Code, because
the mere circumstance that the creditor does not demand the
compliance with the obligation immediately upon the same becoming
due, and that he more or less delays his action, does not mean or reveal
an intention to grant an extension to the debtor, as according to article
1847 the obligation of the surety extinguishes at the same time as that
of the debtor, and for the same causes as the other obligations. ...'
Deferring the filing of the action does not imply a change in the
efficacy of the contract or liability of any kind on the part of the
debtor. It is merely, without demonstration or proof to the contrary,
respite, waiting, courtesy, leniency, passivity, inaction. It does not
constitute novation, because this must be express. It does not
engender liability, because on the part of the creditor such can not
arise except from delay, and for this class of delay interpellation on
the part of the party who considers himself injured thereby is
necessary. In order that this waiting or inaction, of itself beneficial to
the parties obligated, can be interpreted as injurious to any of them, it
is altogether necessary that this be represented by means of a protest
or interpellation against the delay. Without action of this kind it
continues to be what it is merely a failure of the creditor to act, which
it itself does not create liability. It can not do so, as we see in the
aforesaid sentencia de casacion.
 In Clark vs. Sellner (42 Phil., 384), this court had occasion to reiterate
the same doctrine as follows: "The trial judge took into account the
fact that at the time of the maturity of the note, the collateral security
given to guarantee the payment was worth more than what was due
on the note, but is depreciated to such an extent that, at the time of the
institution of this action, it was entirely valueless. And taking this
circumstance, together with the fact that this case was not commenced
until after the lapse of four years from the date on which the payment
fell due, and with the further fact that the defendant had not received
any part of the amount mentioned in the note, he was of the opinion,
and so decided, that the defendant could not be held liable. The theory
of the judge a quo was that the plaintiff's failure to enforce the
guaranty for the payment of the debt, and his delay in instituting this
action constitute laches, which had the effect of extinguishing his
right of action. We see no sufficient ground for applying such a theory
to the case before us. As stated, the defendant's position being, as it
 is, that of a joint surety, he may, at any time after the maturity of the
note, make payment, thus subrogating himself in the place of the
creditor with the right to enforce the guaranty against the other signers
of the note for the reimbursement of what he is entitled to recover
from them. The mere delay of the creditor in enforcing the guaranty
has not by any means impaired his action against the defendant. It
should not be lost sight of that the defendant's signature on the note is
an assurance to the creditor that the collateral guaranty will remain
good, and that otherwise, he, the defendant, will be personally
responsible for the payment. True, that if the creditor had done any
act whereby the guaranty was impaired in its value, or discharged,
such an act would have wholly or partially released the surety; but it
must be borne in mind that it is a recognized doctrine in the matter of
suretyship that with respect to the surety, the creditor is under no
obligation to display any diligence in the enforcement of his rights as
a creditor. His mere inaction, indulgence, passiveness, or delay in
proceeding against the principal debtor, or the fact that he did not
enforce the guaranty or apply on the payment of such funds as were
available, constitute no defense at all for the surety, unless the
contract expressly requires diligence and promptness on the part of
the creditor, which is not the case in the present action. There is in
some decisions a tendency toward holding that the creditor's laches
may discharge the surety, meaning by laches a negligent forbearance.
This theory, however, is not generally accepted and the courts almost
universally consider it essentially inconsistent with the relation of the
parties to the note. (21 R.C.L., 1032-1034.)"
 And in Ibañez de Aldecoa vs. Hongkong & Shanghai Banking
Corporation (42 Phil., 1000; 246 U.S., 627; 62 Law. ed., 907), ] `the
mere failure to bring an action upon a credit, as soon as the same or
any part of it matures, does not constitute an extension of the term of
the obligation.' And it was further held that the extension, to produce
the extinction of the liability, `must be based on some new
agreement by which the creditor deprives himself of the right to
immediately enforce the claim.' This interpretation of the local
courts of the local law we defer to. The construction, moreover,
expresses the rule that obtains in other jurisdictions."
In view of the foregoing, the appealed judgment is affirmed, with the costs of
this instance to the appellant. So ordered.
G.R. No. L-158025 November 5, 1920
CARMEN CASTELLVI DE HIGGINS and HORACE L.
HIGGINS, plaintiffs-appellants,
vs.
GEORGE C. SELLNER, defendant-appellee.
Facts: SUPRA.
Held:With particular reference, therefore, to appellants assignments of error, we
hold that defendant Sellner is a guarantor within the meaning of the provisions
of the Civil Code.
There is also an equitable aspect to the case which reenforces this conclusion.
The note executed by the Keystone Mining Company matured on November 29,
1915. Interest on the note was not accepted by the makers until September 30,
1916. When the note became due, it is admitted that the shares of stock used as
collateral security were selling at par; that is, they were worth pesos 30,000.
Notice that the note had not been paid was not given to and when the Keyston
Mining Company stock was worthless. Defendant, consequently, through the
laches of plaintiff, has lost possible chance to recoup, through the sale of the
stock, any amount which he might be compelled to pay as a surety or guarantor.
The "indulgence," as this word is used in the law of guaranty, of the
creditors of the principal, as evidenced by the acceptance of interest, and by
failure promptly to notify the guarantor, may thus have served to discharge
the guarantor.
For quite different reasons, which, nevertheless, arrive at the same result,
judgment is affirmed.
Legal and judicial bonds
Marlou Velasquez v. Solidbank
PARTIES may not impugn the effectivity of a contract, after much benefit has
been gained to the prejudice of another. They are bound by the obligations they
expressly set out to do.
Before Us is a petition for review on certiorari of the Decision[1] of
the Court of Appeals (CA) which affirmed with modification that of the Regional
Trial Court (RTC) in Cebu City,[2] holding petitioner Marlou Velasquez liable
under his letter of undertaking to respondent Solidbank Corporation.
The Facts
Petitioner is engaged in the export business operating under the name Wilderness
Trading. Respondent is a domestic banking corporation organized under
Philippine laws.
The case arose out of a business transaction for the sale of dried sea cucumber
for export to South Korea between Wilderness Trading, as seller, and Goldwell
Trading of Pusan, South Korea, as buyer. To facilitate payment of the products,
Page 7 of 33
Goldwell Trading opened a letter of credit in favor of Wilderness Trading in the
amount of US$87,500.00[3] with the Bank of Seoul, Pusan, Korea.
On November 12, 1992, petitioner applied for credit accommodation with
respondent bank for pre-shipment financing. The credit accommodation was
granted. Petitioner was successful in his first two export transactions both drawn
on the letter of credit. The third export shipment, however, yielded a different
result.
On February 22, 1993, petitioner submitted to respondent the
necessary documents for his third shipment. Wanting to be paid the value of the
shipment in advance, petitioner negotiated for a documentary sight draft to be
drawn on the letter of credit, chargeable to the account of Bank of Seoul. The
sight draft represented the value of the shipment in the amount of
US$59,640.00.[4]
As a condition for the issuance of the sight draft, petitioner executed
a letter of undertaking in favor of respondent. Under the terms of the letter of
undertaking, petitioner promised that the draft will be accepted and paid by Bank
of Seoul according to its tenor. Petitioner also held himself liable if the sight draft
was not accepted. The letter of undertaking provided:
SOLIDBANK CORPORATION Feb. 22, 1993
32 Borromeo Street
Cebu City
Gentlemen: Re: PURCHASE OF ONE DOC. SIGHT
DRAFT DRAWN UNDER
LC#M2073210NS00040 FOR
US$59,640.00 UNDER OUR
CEBP93/102.
In consideration of your negotiating the above described
draft(s), we hereby warrant that the above referred to
draft(s) and accompanying documents are genuine and
accurately represent the facts stated therein and that the
draft(s) will be accepted and paid in accordance with
its/their tenor. We further undertake and agree, jointly and
severally, to hold you free and harmless from and to
defend all actions, claims and demands whatsoever, and
to pay on demand all damages, actual or compensatory,
including attorneys fees, in case of suit, at least equal to
__% of the amount due, which you may suffer arising by
reason of or on account of your negotiating the above
draft(s) because of the following discrepancies or reasons
or any other discrepancy or reason whatever:
1) B/L MARKED SAID TO
CONTAIN & SHIPPERS
LOAD, STOWAGE &
COUNT.
2) LATE SHIPMENT.
3) QUANTITY SHIPPED @
US$14.00 OVERDRAWN
BY 0.06 TON.
4) NO INSPECTION
CERTIFICATE
PRESENTED.
We hereby undertake to pay on demand the full amount of
the draft(s) or any unpaid balance of the draft(s), with
interest at the prevailing rate of today from the date of
negotiation, plus all charges and expenses whatsoever
incurred in connection therewith. You shall neither be
obligated to contest or dispute any refusal to accept or to
pay the whole or any part of the above draft(s) nor to
proceed in anyway against the drawee thereof, the issuing
bank, or against any indorser thereof before making a
demand on us for the payment of the whole or any unpaid
balance of the draft(s).[5] (Emphasis added)
By virtue of the letter of undertaking, respondent advanced the value
of the shipment which, at the current rate of exchange at that time
was P1,495,115.16, less bank charges, to petitioner. Respondent then sent all the
documents pertinent to the export transaction to the Bank of Seoul.
Respondent failed to collect on the sight draft as it was dishonored by
non-acceptance by the Bank of Seoul. The reasons given for the dishonor were
late shipment, forged inspection certificate, and absence of countersignature of
the negotiating bank on the inspection certificate. [6] Goldwell Trading likewise
issued a stop payment order on the sight draft because most of the bags of dried
sea cucumber exported by petitioner contained soil.
Due to the dishonor of the sight draft and the stop payment order,
respondent demanded restitution of the sum advanced.[7] Petitioner failed to heed
the demand.
On June 3, 1993, respondent filed a complaint for recovery of sum of
money[8] with the RTC in Cebu City. In his answer, petitioner alleged that his
liability under the sight draft was extinguished when respondent failed to protest
its non-acceptance, as required under the Negotiable Instruments Law (NIL). He
also alleged that the letter of undertaking is not binding because it is a superfluous
document, and that he did not violate any of the provisions of the letter of credit.[9]
RTC and CA Dispositions
On September 25, 1996, the RTC rendered judgment[10] in favor of respondent
with the following fallo:
IN VIEW OF THE FOREGOING, judgment is hereby
rendered ordering the defendant:
(1) to pay the plaintiff the
principal sum of P1,495,
115.16 plus interest at 20%
per annum counted
from February 22, 1993 up
to the time the entire amount
shall have been fully paid;
(2) to pay attorneys fees
equivalent to 10% of the
total amount due the
plaintiff; and
(3) to pay the costs.
SO ORDERED.[11]
The RTC ratiocinated:
This court is not convinced with the defendants
argument that because of plaintiffs failure to protest the
dishonor of the sight draft, his liability is extinguished
because his liability remains under the letter of
undertaking which he signed and without which plaintiff
would not have advanced or credited to him the amount.
Section 152 of the Negotiable Instruments
Law under which defendant claims extinguishment of his
liability to plaintiff is not a bar to the filing of other
appropriate remedies which the aggrieved party may
pursue to vindicate his rights and in this instant case,
plaintiff wants his right vindicated by virtue of the letter
of undertaking which defendant signed. By the letter of
undertaking, defendant bound himself to pay on demand
all damages including attorneys fees which plaintiff may
suffer arising by reason of or on account of negotiating
the above draftbecause of the following discrepancies or
any other discrepancy or reasons whatsoever and further
to pay on demand full amount of any unpaid balance with
interest at the prevailing rate. He should be bound to the
fulfillment of what he expressly obligated himself to do
and perform in the letter of undertaking without which,
plaintiff would not have advance (sic) and credited to him
the amount in the draft. He should not enrich himself at
the expense of plaintiff.[12] (Emphasis added)
Disagreeing, petitioner elevated the matter to the CA.
On June 27, 2002, the CA affirmed with
the RTC decision, disposing as follows:
WHEREFORE, premises considered, the
assailed Decision is hereby AFFIRMED with
MODIFICATION. Defendant-appellant Marlou L.
Velasquez is hereby ordered to pay plaintiff-appellee
Solidbank Corporation, the following: (1) the principal
amount of One Million Four Hundred Ninety-Five
Thousand One Hundred Fifteen and Sixteen Centavos
(P1,495,115.16) plus interest at twelve percent (12%) per
annum from February 22, 1993 until fully paid, (2)
attorneys fees equivalent to five percent (5%) of the total
amount due, and (3) costs of the suit.
SO ORDERED.[13]
In ruling against petitioner, the CA opined:
The fact that said draft was dishonored and not paid by the
Bank of Seoul-Korea, (sic) it is incumbent upon
defendant-appellant Velasquez to comply with his
obligation under the Letter of Undertaking. He cannot be
allowed to impugn the contract of undertaking he entered
into by saying that it was a superfluous document, and
therefore, not binding on him. The contract of undertaking
is the law between them, and must be enforced
accordingly. This is in accord with Article 1159 of the
New Civil Code, which provides that obligations arising
from contracts have the force of law between the
contracting parties and should be complied with in good
faith. And parties to a contract are bound to the fulfillment
of what has expressly been stipulated therein, regardless
of the fact that it turn (sic) out to be financially
disadvantageous.[14]
xxxx
The fact that Defendant-appellant benefited from the
advance payment made by Plaintiff appellee, (sic) it is
incumbent upon him to return what he received because
the purpose of the advance payment was not attained
and/or realized, as the sight draft was not paid
accordingly, otherwise, it will result to unjust enrichment
on the part of Defendant-appellant at the expense of
Plaintiff-appellee, in violation of Articles 19 and 22 of the
New Civil Code. The doctrine of unjust enrichment and
restitution simply means that the exercise of a right ends
when the right disappears, and it disappears when it is
abused, especially to the prejudice of others.[15] (Emphasis
added)
Petitioner moved for reconsideration[16] but his motion was denied.[17] Hence, the
present recourse.
Issues
Petitioner raises twin issues for Our consideration, to wit:
THE COURT OF APPEALS HAS DECIDED A
QUESTION OF SUBSTANCE, NOT HERETOFORE
DETERMINED BY THIS HONORABLE COURT,
OR HAS DECIDED IT IN A WAY PROBABLY NOT
IN ACCORD WITH LAW OR WITH THE
APPLICABLE DECISIONS OF THIS HONORABLE
COURT, IN THAT:
I.
THE COURT OF APPEALS RULED THAT
PETITIONER IS LIABLE ON THE
ACCESSORY CONTRACT, THE LETTER
OF UNDERTAKING, DESPITE
THE FACT THATPETITIONER WAS
ALREADY RELEASED FROM
LIABILITY UNDER THE SIGHT DRAFT,
THE PRINCIPAL CONTRACT, UNDER
THE PROVISIONS OF THE NEGOTIABLE
INSTRUMENTS LAW AND THE CIVIL
CODE.
II.
THE COURT OF APPEALS HELD
PETITIONER LIABLE UNDER THE
ACCESSORY CONTRACT, THE LETTER
OF UNDERTAKING, DESPITE
THE FACT THAT THERE WAS NO
PROOF WHATSOEVER THAT
PETITIONER VIOLATED EITHER THE
PRINCIPAL CONTRACT, THE SIGHT
DRAFT, OR EVEN THE LETTER OF
UNDERTAKING.[18] (Underscoring supplied)
modification
The main issue is whether or not petitioner should be held liable to respondent
under the sight draft or the letter of undertaking. There is no dispute that
petitioner duly signed and executed these documents. It is likewise admitted that
the sight draft was dishonored by non acceptance by the Bank of Seoul.
Our Ruling
The petition is without merit.
Petitioner is not liable under the sight draft but he is
liable under his letter of undertaking; liability under
the letter of undertaking was not extinguished by
non-protest of the dishonor of the sight draft.
Petitioner argues that he cannot be held liable under either the sight
draft or the letter of undertaking. He claims that the failure of respondent to
protest the dishonor of the sight draft under Section 152 of the NIL discharged
him from liability under the negotiable instrument. It is also contended that his
liability under the letter of undertaking is that of a mere guarantor; that the letter
of undertaking is only an accessory contract to the sight draft. Since he was
discharged from liability under the sight draft, he cannot be held liable under the
letter of undertaking.
For its part, respondent counters that petitioners liability springs from
the letter of undertaking, independently of the sight draft. It would not have
Page 8 of 33
advanced the amount without the letter of undertaking. According to respondent,
the letter of undertaking is an independent agreement and not merely an
accessory contract. To permit petitioner to escape liability under the letter of
undertaking would result in unjust enrichment.
Petitioners liability under the letter of undertaking is independent
from his liability under the sight draft. He may be held liable under either the
sight draft or the letter of undertaking or both.
Admittedly, petitioner was discharged from liability under the sight
draft when respondent failed to protest it for non-acceptance by the Bank of
Seoul. A sight draft made payable outside the Philippines is a foreign bill of
exchange.[19] When a foreign bill is dishonored by non-acceptance or non-
payment, protest is necessary to hold the drawer and indorsers liable. Verily,
respondents failure to protest the non-acceptance of the sight draft resulted in the
discharge of petitioner from liability under the instrument.
Section 152 of the NIL is explicit:
Section 152. In what cases protest
necessary. Where a foreign bill appearing on its face to be
such is dishonored by non-acceptance, it must be duly
protested for non-acceptance, and where such a bill which
has not been previously dishonored by non-acceptance, is
dishonored by non-payment, it must be duly protested for
non-payment. If it is not so protested, the drawer and
indorsers are discharged. Where a bill does not appear on
its face to be a foreign bill, protest thereof in case of
dishonor is unnecessary. (Emphasis added)
Petitioner, however, can still be made liable under the letter of
undertaking. It bears stressing that it is a separate contract from the sight
draft. The liability of petitioner under the letter of undertaking is direct and
primary. It is independent from his liability under the sight draft. Liability
subsists on it even if the sight draft was dishonored for non-acceptance or non-
payment.
Respondent agreed to purchase the draft and credit petitioner its value
upon the undertaking that he will reimburse the amount in case the sight draft is
dishonored. The bank would certainly not have agreed to grant petitioner an
advance export payment were it not for the letter of undertaking. The
consideration for the letter of undertaking was petitioners promise to pay
respondent the value of the sight draft if it was dishonored for any reason by the
Bank of Seoul.
We cannot accept petitioners thesis that he is only a mere guarantor
under the letter of credit. Petitioner cannot be both the primary debtor and the
guarantor of his own debt. This is inconsistent with the very purpose of a
guarantee which is for the creditor to proceed against a third person if the debtor
defaults in his obligation. Certainly, to accept such an argument would make a
mockery of commercial transactions.
Petitioner bound himself liable to respondent under the letter of
undertaking if the sight draft is not accepted. He also warranted that the sight
draft is genuine; will be paid by the issuing bank in accordance with its tenor;
and that he will be held liable for the full amount of the draft upon demand,
without necessity of proceeding against the drawee bank.[20] Petitioner breached
his undertaking when the Bank of Seoul dishonored the sight draft and Goldwell
Trading ordered a stop payment order on it for discrepancies in the export
documents.
Petitioner is liable without need for respondent to establish collateral facts such
as violations of the letter of credit.
It is also argued that petitioner cannot be held liable under the letter
of undertaking because respondent failed to prove that he violated any of the
provisions in the letter of credit or that sixty (60) of the seventy-one (71) bags
shipped to Goldwell Trading contained soil instead of dried sea cucumber.
We cannot agree. Respondent need not prove that petitioner violated
the provisions of the letter of credit in order to be held liable under the letter of
undertaking. Parties are bound to fulfill what has been expressly stipulated in the
contract.[21] Petitioners liability under the letter of undertaking is clear. He is
liable to respondent if the sight draft is not accepted by the Bank of Seoul. Mere
non-acceptance of the sight draft is sufficient for liability to attach. Here, the
sight draft was dishonored for non-acceptance. The non-acceptance of the sight
draft triggered petitioners liability under the letter of undertaking.
Records also show that the Bank of Seoul found discrepancies in the
documents submitted by petitioner. Goldwell Trading issued a stop payment
order because the products shipped were defective. It found that most of the bags
shipped contained soil instead of dried sea cucumber. If petitioner disputes the
finding of Goldwell Trading, he can file a case against said company but he
cannot dispute his liability under either the sight draft or the letter of undertaking.
As We see it, this is a straightforward case of collection of sum of
money on the basis of a letter of undertaking. Respondent advanced the export
payment to petitioner on the understanding that the draft will be honored and
paid. The draft was dishonored. Justice and equity dictate that petitioner be held
liable to respondent bank.
Page 9 of 33
WHEREFORE, the petition is DENIED for lack of merit.
Autocorp group v. intra starter
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari from the Decision[1] of the
Court of Appeals dated 30 June 2004 in CA-G.R. CV No. 62564 which affirmed
with modification the Decision[2] of the Regional Trial Court (RTC)
of Makati City, Branch 150 in Civil Case No. 95-1584 dated 16 September 1998.
The factual and procedural antecedents of this case are as follows:
On 19 August 1990, petitioner Autocorp Group, represented by its
President, petitioner Peter Y. Rodriguez, secured an ordinary re-export bond,
Instrata Bond No. 5770, from private respondent Intra Strata Assurance
Corporation (ISAC) in favor of public respondent Bureau of Customs (BOC), in
the amount of P327,040.00, to guarantee the re-export of one unit of Hyundai
Excel 4-door 1.5 LS and/or to pay the taxes and duties thereon.
On 21 December 1990, petitioners obtained another ordinary re-
export bond, Instrata Bond No. 7154, from ISAC in favor of the BOC, in the
amount of P447,671.00, which was eventually increased to P707,609.00 per
Bond Endorsement No. BE-0912/91 dated 10 January 1991, to guarantee the re-
export of one unit of Hyundai Sonata 2.4 GLS and/or to pay the taxes and duties
thereon.
Petitioners executed and signed two Indemnity Agreements with
identical stipulations in favor of ISAC, agreeing to act as surety of the subject
bonds. Petitioner Rodriguez signed the Indemnity Agreements both as President
of the Autocorp Group and in his personal capacity. Petitioners thus agreed to
the following provisions:
INDEMNITY: - The undersigned agree at all times to
jointly and severally indemnify the COMPANY and keep
it indemnified and hold and save it harmless from and
against any and all damages, losses, costs, stamps, taxes,
penalties, charges and expenses of whatsoever kind and
nature including counsel or attorneys fee which the
COMPANY shall or may at any time sustain or incur in
consequence of having become surety upon the bond
herein above referred to or any extension, renewal,
substitution or alteration thereof, made at the instance of
the undersigned or any of them, or any other bond
executed on behalf of the undersigned or any of them, and
to pay; reimburse and make good to the COMPANY, its
successors and assigns, alls sums and amounts of money
which it or its representatives shall pay or cause to be
paid, or become liable to pay on accounts of the
undersigned or any of them, of whatsoever kind and
nature, including 25% of the amount involved in the
litigation or other matters growing out of or connected
therewith, for and as attorneys fees, but in no case less
than P300.00 and which shall be payable whether or not
the case be extrajudicially settled, it being understood that
demand made upon anyone of the undersigned herein is
admitted as demand made on all of the signatories
hereof. It is hereby further agreed that in case of any
extension or renewal of the bond, we equally bind
ourselves to the COMPANY under the same terms and
conditions as therein provided without the necessity of
executing another indemnity agreement for the purpose
and that we may be granted under this indemnity
agreement.
MATURITY OF OUR OBLIGATIONS AS
CONTRACTED HEREWITH AND ACCRUAL OF
ACTION: - Notwithstanding of (sic) the next preceding
paragraph where the obligation involves a liquidated
amount for the payment of which the COMPANY has
become legally liable under the terms of the obligation
and its suretyship undertaking, or by the demand of the
obligee or otherwise and the latter has merely allowed the
COMPANYs aforesaid liability irrespective of whether or
not payment has actually been made by the COMPANY,
the COMPANY for the protection of its interest may
forthwith proceed against the undersigned or either of
them by court action or otherwise to enforce payment,
even prior to making payment to the obligee which may
hereafter be done by the COMPANY.
INTEREST IN CASE OF DELAY: - In the event of delay
in payment of the said sum or sums by the undersigned
they will pay interest at the rate of 12% per annum or
same, which interest, if not paid, will be liquidated and
accumulated to the capital quarterly, and shall earn the
same interest as the capital; all this without prejudice to
the COMPANYs right to demand judicially or
extrajudicially the full payment of its claims.
INCONTESTABILITY OF PAYMENT MADE BY
THE COMPANY: - Any payment or disbursement made
by the COMPANY on account of the above-mentioned
Bond, its renewals, extensions or substitutions,
replacement or novation in the belief either that the
COMPANY was obligated to make such payment or that
said payment was necessary in order to avoid greater
losses or obligations for which the COMPANY might be
liable by virtue of the terms of the above-mentioned
Bond, its renewal, extensions or substitutions, shall be
final and will not be disputed by the undersigned, who
bind themselves to jointly and severally indemnify the
COMPANY of any such payments, as stated in the
preceding clauses:
WAIVER OF VENUE OF ACTION: - We hereby agree
that any question which may arise between the
COMPANY and the undersigned by reason of this
document and which has to be submitted for decision to a
court of justice shall be brought before the court of
competent jurisdiction in Makati, Rizal, waiving for this
purpose any other venue.
WAIVER: - The undersigned hereby waive all the
rights[,] privileges and benefits that they have or may
have under Articles 2077, 2078, 2079, 2080 and 2081, of
the Civil Code of the Philippines.
The undersigned, by this instrument, grant a special
power of attorney in favor of all or any of the other
undersigned so that any of the undersigned may represent
all the others in all transactions related to this Bond, its
renewals, extensions, or any other agreements in
connection with this Counter-Guaranty, without the
necessity of the knowledge or consent of the others who
hereby promise to accept as valid each and every act done
or executed by any of the attorneys-in-fact by virtue of the
special power of attorney.
OUR LIABILITY HEREUNDER: - It shall not be
necessary for the COMPANY to bring suit against the
principal upon his default or to exhaust the property of the
principal, but the liability hereunder of the undersigned
indemnitors shall be jointly and severally, a primary one,
the same as that of the principal, and shall be exigible
immediately upon the occurrence of such default.
CANCELLATION OF BOND BY THE COMPANY: -
The COMPANY may at any time cancel the above-
mentioned Bond, its renewals, extensions or substitutions,
subject to any liability which might have accrued prior to
the date of cancellation refunding the proportionate
amount of the premium unearned on the date of
cancellation.
RENEWALS, ALTERATIONS AND
SUBSTITUTIONS: - The undersigned hereby empower
and authorize the COMPANY to grant or consent to the
granting of any extension, continuation, increase,
modification, change, alteration and/or renewal of the
original bond herein referred to, and to execute or consent
to the execution of any substitution for said Bond with the
same or different, conditions and parties, and the
Page 10 of 33
undersigned hereby hold themselves jointly and severally
liable to the COMPANY for the original Bond herein
above-mentioned or for any extension, continuation,
increase, modification, change, alteration, renewal or
substitution thereof without the necessary of any new
indemnity agreement being executed until the full amount
including principal, interest, premiums, costs, and other
expenses due to the COMPANY thereunder is fully paid
up.
SEVERABILITY OF PROVISIONS: - It is hereby
agreed that should any provision or provisions of this
agreement be declared by competent public authority to
be invalid or otherwise unenforceable, all remaining
provisions herein contained shall remain in full force and
effect.
NOTIFICATION: - The undersigned hereby accept due
notice of that the COMPANY has accepted this guaranty,
executed by the undersigned in favor of the
COMPANY.[3]
In sum, ISAC issued the subject bonds to guarantee compliance by
petitioners with their undertaking with the BOC to re-export the imported
vehicles within the given period and pay the taxes and/or duties due thereon. In
turn, petitioners agreed, as surety, to indemnify ISAC for the liability the latter
may incur on the said bonds.
Petitioner Autocorp Group failed to re-export the items guaranteed by
the bonds and/or liquidate the entries or cancel the bonds, and pay the taxes and
duties pertaining to the said items despite repeated demands made by the BOC,
as well as by ISAC. By reason thereof, the BOC considered the two bonds, with
a total face value of P1,034,649.00, forfeited.
Failing to secure from petitioners the payment of the face value of the
two bonds, despite several demands sent to each of them as surety under the
Indemnity Agreements, ISAC filed with the RTC on 24 October 1995 an action
against petitioners to recover the sum of P1,034,649.00, plus 25% thereof
or P258,662.25 as attorneys fees. ISAC impleaded the BOC as a necessary party
plaintiff in order that the reward of money or judgment shall be adjudged unto
the said necessary plaintiff.[4] The case was docketed as Civil Case No. 95-1584.
Petitioners filed a Motion to Dismiss on 11 December 1995 on the
grounds that (1) the Complaint states no cause of action; and (2) the BOC is an
improper party.
The RTC, in an Order[5] dated 27 February 1996, denied petitioners
Motion to Dismiss. Petitioners thus filed their Answer to the Complaint, claiming
that they sought permission from the BOC for an extension of time to re-export
the items covered by the bonds; that the BOC has yet to issue an assessment for
petitioners alleged default; and that the claim of ISAC for payment is premature
as the subject bonds are not yet due and demandable.
During the pre-trial conference, petitioners admitted the genuineness
and due execution of Instrata Bonds No. 5770 and No. 7154, but specifically
denied those of the corresponding Indemnity Agreements. The parties agreed to
limit the issue to whether or not these bonds are now due and demandable.
On 16 September 1998, the RTC rendered its Decision ordering
petitioners to pay ISAC and/or the BOC the face value of the subject bonds in
the total amount of P1,034,649.00, and to pay ISAC P258,662.25 as attorneys
fees, thus:
WHEREFORE, judgment is hereby rendered
in favor of the [herein private respondent ISAC] and as
against the [herein petitioners] who are ordered to pay the
[private respondent] Intra Strata Assurance Corporation
and/or the Bureau of Customs the amount
of P1,034,649.00 which is the equivalent amount of the
subject bonds as well as to pay the plaintiff corporation
the sum of P258,662.25 as and for attorneys fees.[6]

Petitioners Motion for Reconsideration was denied by the RTC in a
Resolution dated 15 January 1999.[7]
Petitioners appealed to the Court of Appeals. On 30 June 2004, the
Court of Appeals rendered its Decision affirming the RTC Decision, only
modifying the amount of the attorneys fees awarded:
WHEREFORE, the appealed 16 September
1998 Decision is MODIFIED to reduce the award of
attorneys fees to One Hundred Three Thousand Four
Hundred Sixty Four Pesos & Ninety Centavos
(P103,464.90). The rest is affirmed in toto. Costs against
[herein petitioners].[8]
Petitioners contend that their obligation to ISAC is not yet due and
demandable. They cannot be made liable by ISAC in the absence of an actual
forfeiture of the subject bonds by the BOC and/or an explicit pronouncement by
the same bureau that ISAC is already liable on the said bonds. In this case, there
is yet no actual forfeiture of the bonds, but merely a recommendation of
forfeiture, for no writ of execution has been issued against such bonds. [10] Hence,
Civil Case No. 95-1584 was prematurely filed by ISAC.Petitioners further argue
that:
Secondly, it bears emphasis that as borne by
the records, not only is there no writ of forfeiture against
Surety Bond No. 7154, there is likewise no evidence
adduced on record to prove that respondent Intra Strata
has made legal demand against Surety Bond No.
5770 neither is there a showing that respondent BOC
initiated a demand or issued notice for its forfeiture and/or
confiscation.[11]

The Court of Appeals, in its assailed Decision, already directly

addressed petitioners arguments by ruling that an actual forfeiture of the subject
In a Resolution dated 5 January 2005, the Court of Appeals refused
bonds is not necessary for petitioners to be liable thereon to ISAC as surety
to reconsider its Decision.
under the Indemnity Agreements.

Petitioners thus filed the instant Petition for Review on Certiorari,

According to the relevant provision of the Indemnity Agreements
assigning the following errors allegedly committed by the Court of Appeals:
executed between petitioner and ISAC, which reads:

I. THE HONORABLE COURT OF

[W]here the obligation involves a liquidated amount for
APPEALS GRAVELY ERRED IN
the payment of which [ISAC] has become legally liable
RENDERING JUDGMENT AGAINST
under the terms of the obligation and its suretyship
PETITIONERS BASED ON A
undertaking or by the demand of the [BOC] or otherwise
PREMATURE ACTION AND/OR RULING
and the latter has merely allowed the [ISACs] aforesaid
IN FAVOR OF RESPONDENTS WHO
liability, irrespective of whether or not payment has
HAVE NO CAUSE OF ACTION AGAINST
actually been made by the [ISAC], the [ISAC] for the
PETITIONERS.
protection of its interest may forthwith proceed against
[petitioners Autocorp Group and Rodriguez] or either of
them by court action or otherwise to enforce payment,
II. THE HONORABLE COURT OF APPEALS even prior to making payment to the [BOC] which may
GRAVELY ERRED IN AFFIRMING THE hereafter be done by [ISAC][,] [12]
DECISION OF BRANCH
150, REGIONAL TRIAL COURT OF MAK
ATI CITY BASED ON
MISAPPREHENSION OF FACTS,
UNSUPPORTED BY EVIDENCE ON petitioners obligation to indemnify ISAC became due and demandable the
RECORD & CONTRARY TO LAW. moment the bonds issued by ISAC became answerable for petitioners non-
compliance with its undertaking with the BOC. Stated differently, petitioners
became liable to indemnify ISAC at the same time the bonds issued by ISAC
III. THE HONORABLE COURT OF APPEALS were placed at the risk of forfeiture by the BOC for non-compliance by
GRAVELY ERRED IN NOT GIVING petitioners with its undertaking.
MERIT TO THE ISSUE RAISED BY
PETITIONERS THAT THE BUREAU OF
CUSTOMS IS IMPROPERLY IMPLEADED The subject bonds, Instrata Bonds No. 5770 and No. 7154, became
BY INTRA STRATA. due and demandable upon the failure of petitioner Autocorp Group to comply
with a condition set forth in its undertaking with the BOC, specifically to re-
export the imported vehicles within the period of six months from their date of
IV. THE HONORABLE COURT OF APPEALS entry. Since it issued the subject bonds, ISAC then also became liable to the
GRAVELY ERRED [IN] AFFIRMING THE BOC. At this point, the Indemnity Agreements already give ISAC the right to
PORTION OF THE DECISION HOLDING proceed against petitioners via court action or otherwise.
PETITIONER PETER Y. RODRIGUEZ AS
JOINTLY LIABLE WHEN AMENDMENTS
WERE INTRODUCED, WITHOUT HIS The Indemnity Agreements, therefore, give ISAC the right to recover
CONSENT AND APPROVAL.[9] from petitioners the face value of the subject bonds plus attorneys fees at the time
ISAC becomes liable on the said bonds to the BOC, regardless of whether the
BOC had actually forfeited the bonds, demanded payment thereof and/or
received such payment. It must be pointed out that the Indemnity Agreements
explicitly provide that petitioners shall be liable to indemnify ISAC whether or
The present Petition is without merit. not payment has actually been made by the [ISAC] and ISAC may proceed
against petitioners by court action or otherwise even prior to making payment to
the [BOC] which may hereafter be done by [ISAC].

Absence of
actual Even when the BOC already admitted that it not only made a demand
forfeiture of upon ISAC for the payment of the bond but even filed a complaint against ISAC
the subject for such payment,[13] such demand and complaint are not necessary to hold
bonds petitioners liable to ISAC for the amount of such bonds. Petitioners attempts to
prove that there was no actual forfeiture of the subject bonds are completely
irrelevant to the case at bar.

Page 11 of 33
 It is worthy to note that petitioners did not impugn the validity of the
stipulation in the Indemnity Agreements allowing ISAC to proceed against
petitioners the moment the subject bonds become due and demandable, even
prior to actual forfeiture or payment thereof. Even if they did so, the Court would
be constrained to uphold the validity of such a stipulation for it is but a slightly
expanded contractual expression of Article 2071 of the Civil Code which
provides, inter alia, that the guarantor may proceed against the principal debtor
the moment the debt becomes due and demandable. Article 2071 of the Civil
Code provides:
Art. 2071. The guarantor, even before having
paid, may proceed against the principal debtor:
(1) When he is sued for the payment;
(2) In case of insolvency of the principal debtor;
(3) When the debtor has bound himself to
relieve him from the guaranty within a specified period,
and this period has expired;
(4) When the debt has become demandable,
by reason of the expiration of the period for payment;
(5) After the lapse of ten years, when the
principal obligation has no fixed period for its maturity,
unless it be of such nature that it cannot be extinguished
except within a period longer than ten years;
(6) If there are reasonable grounds to fear that
the principal debtor intends to abscond;
(7) If the principal debtor is in imminent danger
of becoming insolvent.
In all these cases, the action of the guarantor is
to obtain release from the guaranty, or to demand a
security that shall protect him from any proceedings by the
creditor and from the danger of insolvency of the
debtor. (Emphases ours.)
Petitioners also invoke the alleged lack of demand on the part of ISAC
on petitioners as regards Instrata Bond No. 5770 before it instituted Civil Case
No. 95-1584. Even if proven true, such a fact does not carry much weight
considering that demand, whether judicial or extrajudicial, is not required before
an obligation becomes due and demandable.A demand is only necessary in order
to put an obligor in a due and demandable obligation in delay,[14] which in turn is
for the purpose of making the obligor liable for interests or damages for the
period of delay.[15] Thus, unless stipulated otherwise, an extrajudicial demand is
not required before a judicial demand, i.e., filing a civil case for collection, can
be resorted to.
Inclusion of
the Bureau
of Customs
as a party to
the case
ISAC included the BOC as a necessary party plaintiff in order that the
reward of money or judgment shall be adjudged unto the said necessary
plaintiff.[16]
Petitioners assail this inclusion of the BOC as a party in Civil Case
No. 95-1584 on the ground that it was not properly represented by the Solicitor
General. Petitioners also contend that the inclusion of the BOC as a party in Civil
Case No. 95-1584 is highly improper and should not be countenanced as the net
result would be tantamount to collusion between Intra Strata and the Bureau of
Page 12 of 33
Customs which would deny and deprive petitioners their personal defenses
against the BOC.[17]
In its assailed Decision, the Court of Appeals did not find merit in
petitioners arguments on the matter, holding that when the BOC forfeited the
subject bonds issued by ISAC, subrogation took place so that whatever right the
BOC had against petitioners were eventually transferred to ISAC. As ISAC
merely steps into the shoes of the BOC, whatever defenses petitioners may have
against the BOC would still be available against ISAC.
The Court likewise cannot sustain petitioners position.
The misjoinder of parties does not warrant the dismissal of the
action. Section 11, Rule 3 of the Rules of Court explicitly states:
SEC. 11. Misjoinder and non-joinder of
parties.Neither misjoinder nor non-joinder of parties is
ground for dismissal of an action. Parties may be
dropped or added by order of the court on motion of any
party or on its own initiative at any stage of the action and
on such terms as are just. Any claim against a misjoined
party may be severed and proceeded with separately.
Consequently, the purported misjoinder of the BOC as a party cannot result in
the dismissal of Civil Case No. 95-1584. If indeed the BOC was improperly
impleaded as a party in Civil Case No. 95-1584, at most, it may be dropped by
order of the court, on motion of any party or on its own initiative, at any stage of
the action and on such terms as are just.
Should the BOC then be dropped as a party to Civil Case No. 95-
1584?
ISAC alleged in its Complaint[18] that the BOC is being joined as a
necessary party in Civil Case No. 95-1584.
A necessary party is defined in Section 8, Rule 3 of the Rules of Court
as follows:
SEC. 8. Necessary party.A necessary party is
one who is not indispensable but who ought to be joined
as a party if complete relief is to be accorded as to those
already parties, or for a complete determination or
settlement of the claim subject of the action.
The subject matter of Civil Case No. 95-1584 is the liability of
Autocorp Group to the BOC, which ISAC is also bound to pay as the guarantor
who issued the bonds therefor. Clearly, there would be no complete settlement
of the subject matter of the case at bar the liability of Autocorp Group to the BOC
should Autocorp Group be merely ordered to pay its obligations with the BOC
to ISAC. BOC is, therefore, a necessary party in the case at bar, and should not
be dropped as a party to the present case.
It can only be conceded that there was an irregularity in the manner
the BOC was joined as a necessary party in Civil Case No. 95-1584. As the BOC,
through the Solicitor General, was not the one who initiated Civil Case No. 95-
1584, and neither was its consent obtained for the filing of the same, it may be
considered an unwilling co-plaintiff of ISAC in said action. The proper way to
implead the BOC as a necessary party to Civil Case No. 95-1584 should have
been in accordance with Section 10, Rule 3 of the Rules of Court, viz:
SEC. 10. Unwilling co-plaintiff. If the consent
of any party who should be joined as plaintiff can not be
obtained, he may be made a defendant and the reason
therefor shall be stated in the complaint.

Nonetheless, the irregularity in the inclusion of the BOC as a party to Civil Case
No. 95-1584 would not in any way affect the disposition thereof. As the Court
already found that the BOC is a necessary party to Civil Case No. 95-1584, it
would be a graver injustice to drop it as a party.
Petitioners argument that the inclusion of the BOC as a party to this
case would deprive them of their personal defenses against the BOC is utterly
baseless.
First, as ruled by the Court of Appeals, petitioners defenses against
the BOC are completely available against ISAC, since the right of the latter to
seek indemnity from petitioner depends on the right of the BOC to proceed
against the bonds.
The Court, however, deems it essential to qualify that ISACs right to
seek indemnity from petitioners does not constitute subrogation under the Civil
Code, considering that there has been no payment yet by ISAC to the BOC. There
are indeed cases in the aforementioned Article 2071 of the Civil Code wherein
the guarantor or surety, even before having paid, may proceed against the
principal debtor, but in all these cases, Article 2071 of the Civil Code merely
grants the guarantor or surety an action to obtain release from the guaranty, or to
demand a security that shall protect him from any proceedings by the creditor
and from the danger of insolvency of the debtor. The benefit of subrogation, an
extinctive subjective novation by a change of creditor, which transfers to the
person subrogated, the credit and all the rights thereto appertaining, either against
the debtor or against third persons,[19] is granted by the Article 2067 of the Civil
Code only to the guarantor (or surety) who pays.[20]
ISAC cannot be said to have stepped into the shoes of the BOC,
because the BOC still retains said rights until it is paid. ISACs right to file Civil
Case No. 95-1584 is based on the express provision of the Indemnity Agreements
making petitioners liable to ISAC at the very moment ISACs bonds become due
and demandable for the liability of Autocorp Group to the BOC, without need
for actual payment by ISAC to the BOC. But it is still correct to say that all the
defenses available to petitioners against the BOC can likewise be invoked against
ISAC because the latters contractual right to proceed against petitioners only
arises when the Autocorp Group becomes liable to the BOC for non-compliance
with its undertakings. Indeed, the arguments and evidence petitioners can present
against the BOC to prove that Autocorp Groups liability to the BOC is not yet
due and demandable would also establish that petitioners liability to ISAC under
the Indemnity Agreements has not yet arisen.
Second, making the BOC a necessary party to Civil Case No. 95-1584
actually allows petitioners to simultaneously invoke its defenses against both the
BOC and ISAC. Instead of depriving petitioners of their personal defenses
against the BOC, Civil Case No. 95-1584 actually gave them the opportunity to
kill two birds with one stone: to disprove its liability to the BOC and, thus, negate
its liability to ISAC.
Liability of
petitioner
Rodriguez
Petitioner Rodriguez posits that he is merely a guarantor, and that his
liability arises only when the person with whom he guarantees the credit,
Autocorp Group in this case, fails to pay the obligation. Petitioner Rodriguez
invokes Article 2079 of the Civil Code on Extinguishment of Guaranty, which
states:
Art. 2079. An extension granted to the debtor
by the creditor without the consent of the guarantor
extinguishes the guaranty. The mere failure on the part of
the creditor to demand payment after the debt has become
due does not of itself constitute any extension of time
referred to herein.
Petitioner Rodriguez argues that there was an amendment as to the effectivity of
the bonds, and this constitutes a modification of the agreement without his
consent, thereby exonerating him from any liability.
We must take note at this point that petitioners have not presented any evidence
of this alleged amendment as to the effectivity of the bonds.[21] Be that as it may,
Page 13 of 33
even if there was indeed such an amendment, such would not cause the
exoneration of petitioner Rodriguez from liability on the bonds.
The Court of Appeals, in its assailed Decision, held that the use of the
term guarantee in a contract does not ipso facto mean that the contract is one of
guaranty. It thus ruled that both petitioners assumed liability as a regular party
and obligated themselves as original promissors, i.e., sureties, as shown in the
following provisions of the Indemnity Agreement:
INDEMNITY: - The undersigned [Autocorp
Group and Rodriguez] agree at all times to jointly and
severally indemnify the COMPANY [ISAC] and keep it
indemnified and hold and save it harmless from and
against any and all damages, losses, costs, stamps, taxes,
penalties, charges and expenses of whatsoever kind and
nature including counsel or attorneys fee which the
COMPANY [ISAC] shall or may at any time sustain or
incur in consequence of having become surety upon the
bond herein above referred to x x x
xxxx
OUR LIABILITY HEREUNDER: - It shall
not be necessary for the COMPANY [ISAC] to bring suit
against the principal [Autocorp Group] upon his default or
to exhaust the property of the principal [Autocorp
Group], but the liability hereunder of the undersigned
indemnitors [Rodriguez] shall be jointly and severally,
a primary one, the same as that of the principal
[Autocorp Group], and shall be exigible immediately
upon the occurrence of such default. (Emphases
supplied.)
The Court of Appeals concluded that since petitioner Rodriguez was
a surety, Article 2079 of the Civil Code does not apply. The appellate court
further noted that both petitioners authorized ISAC to consent to the granting of
an extension of the subject bonds.
The Court of Appeals committed a slight error on this point. The
provisions of the Civil Code on Guarantee, other than the benefit of excussion,
are applicable and available to the surety.[22] The Court finds no reason why the
provisions of Article 2079 would not apply to a surety.
This, however, would not cause a reversal of the Decision of the Court
of Appeals. The Court of Appeals was correct that even granting arguendo that
there was a modification as to the effectivity of the bonds, petitioners would still
not be absolved from liability since they had authorized ISAC to consent to the
granting of any extension, modification, alteration and/or renewal of the subject
bonds, as expressly set out in the Indemnity Agreements:
RENEWALS, ALTERATIONS AND
SUBSTITUTIONS: - The undersigned [Autocorp
Group and Rodriguez] hereby empower and authorize
the COMPANY [ISAC] to grant or consent to the
granting of any extension, continuation, increase,
modification, change, alteration and/or renewal of the
original bond herein referred to, and to execute or
consent to the execution of any substitution for said Bond
with the same or different, conditions and parties, and the
undersigned [Autocorp Group and Rodriguez] hereby
hold themselves jointly and severally liable to the
COMPANY [ISAC] for the original Bond herein
above-mentioned or for any extension, continuation,
increase, modification, change, alteration, renewal or
substitution thereof without the necessary of any new
indemnity agreement being executed until the full
amount including principal, interest, premiums, costs, and
other expenses due to the COMPANY [ISAC] thereunder
is fully paid up.[23] (Emphases supplied.)
 The foregoing provision in the Indemnity Agreements clearly
authorized ISAC to consent to the granting of any extension, modification,
alteration and/or renewal of the subject bonds.
There is nothing illegal in such a provision. In Philippine American
General Insurance Co., Inc. v. Mutuc,[24] the Court held that an agreement
whereby the sureties bound themselves to be liable in case of an extension or
renewal of the bond, without the necessity of executing another indemnity
agreement for the purpose and without the necessity of being notified of such
extension or renewal, is valid; and that there is nothing in it that militates against
the law, good customs, good morals, public order or public policy.
WHEREFORE, the instant Petition for Review
on Certiorari is DENIED. The Decision of the Court of Appeals dated 30 June
2004 in CA-G.R. CV No. 62564 which affirmed with modification the Decision
of the Regional Trial Court of Makati City, in Civil Case No. 95-1584 dated 16
September 1998 is AFFIRMED in toto. Costs against petitioners
Delos Santos v. VIbar
The Case
Before the Court is a petition for review on certiorari [1] assailing the
Decision[2] dated 29 June 2001 and Resolution[3] dated 21 November 2001 of the
Court of Appeals in CA-G.R. CV No. 66605.
The Facts
Petitioner Cecilia de los Santos (Cecilia) and
respondent Priscila Bautista Vibar (Priscila) were former co-workers in the
Medical Department of the Social Security System. They were close and trusted
friends for 33 years.
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon)
to Priscila. De Leon needed money and borrowed P100,000 from Priscila. De
Leon issued a promissory note dated 2 June 1994 and bound himself to pay the
loan three months from date with a monthly interest rate of 3%.[4] Cecilia signed
as a guarantor of de Leons loan.
On 28 June 1995, de Leon asked Priscila for another loan. Together with
Cecilia and Avelina Conte, de Leon went to Priscilas house. Priscila and her
sister, Atty. Josefina Bautista (Atty. Bautista), were present in the same
gathering. After some discussion, they all agreed that the
outstanding P100,000 loan together with the accrued interest would be deducted
from the new loan of P500,000.[5]
De Leon signed a typewritten promissory note, which he brought with him,
acknowledging the debt of P500,000 payable within 12 months from 28 August
1995, at a fixed monthly interest rate of 3% and a penalty of 2% per month in
case of default.[6] Then, Cecilia signed as a witness under the phrase signed in the
presence of. However, Atty. Bautista brought up the need for Cecilia to sign as
guarantor. Thereupon, de Leon, in his own handwriting, inserted the word
guarantor besides Cecilias name, as Cecilia nodded her head to what de Leon
was doing. De Leon also added the phrase, as security for this loan this TCT No.
T-47375, Registry of Baguio City, is being submitted by way of mortgage.
On maturity date, de Leon failed to pay any of the monthly
installments. Priscila made several verbal demands on de Leon for payment but
to no avail. Priscilas counsel then sent de Leon a demand letter dated 17 July
1996 asking for payment of the principal loan with interest and
penalties.[7] De Leon failed to respond. On 4 September 1996, Priscilascounsel
again sent a demand letter not only to de Leon as principal debtor, but also to
Cecilia.[8] Cecilia was being made to answer for de Leons debt as the latters
guarantor.Cecilia then remitted to Priscila P15,000 to pay one months interest on
the loan.[9] However, this was the only payment Cecilia made to Priscila as
Cecilia claimed she had no money to pay the full amount of the loan.
After several failed attempts to collect the loan, Priscila filed with the Registry
of Deeds of Baguio City an adverse claim on the property registered under TCT
Page 14 of 33
No. T-47375.However, the Register of Deeds denied the registration
of Priscilas claim on several grounds:[10]
(a) the issue involved is a money claim which does not fall within
Section 70 of Presidential Decree No. 1529;[11]
(b) the annexes were not marked;
(c) the family names of Jose and Evangeline, registered owners, do
not tally with those on the title;[12] and
(d) there is no statement that there is no other provision in the
Property Registration Decree for registering the same.
On 20 November 1996, Priscila filed an action for recovery of money with the
Regional Trial Court of Quezon City, Branch 100, against de Leon and
Cecilia.[13] De Leon did not file an answer and the trial court declared him in
default. Cecilia, on the other hand, filed an answer denying that she signed as
guarantor of de Leons loan.
On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the
complaint for insufficiency of evidence.[14] On 12 January 2000, Priscila filed a
Motion for Reconsideration on the grounds that the trial court erred in (a)
dismissing the complaint against de Leon despite his being declared in default;
and (b) finding that Cecilia was not a guarantor of de Leons loan.
In an Order dated 8 February 2000,[15] the trial court modified its decision and
ruled that de Leon acted fraudulently or in bad faith in refusing to pay his debt
to Priscila.However, the trial court affirmed its decision dismissing the complaint
against Cecilia. The trial court ruled that there was no express consent given by
Cecilia binding her as guarantor. The dispositive portion of the Order provides:
WHEREFORE, in view of the foregoing, the Decision of
the Court dated November 26, 1999, is hereby amended as
follows:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff Dra. Priscila Vibar and against defendant Jose de
Leon, and hereby orders the latter to pay the plaintiff the
following amounts:
(1) P500,000.00 representing the total amount of
the loan extended with interest at 3% per month
and penalty of 2% per month (due to default)
from July 17, 1996 until the obligation is fully
paid;
(2) P30,000.00 representing moral damages;
(3) P20,000.00 representing attorney's fees; and
(4) costs of suit.
Further, the Court hereby DISMISSES the instant
complaint against defendant Dra. Cecilia
de los Santos for insufficiency of evidence. No
pronouncement as to costs.
SO ORDERED.
Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No.
66605.
The Ruling of the Court of Appeals
On 29 June 2001, the appellate court affirmed the trial courts ruling against de
Leon but modified the same with respect to Cecilia.[16] The appellate court
declared Cecilia as guarantor of de Leons loan. The relevant portions of the
Decision state:
x x x The conduct of defendant-
appellee de los Santos during the signing, however, belies
her intention to act merely as a witness. It cannot be
gainsaid that she did not react when she heard Atty.
Bautistas protest about her signing the promissory note in
the capacity only of a witness and not as a
guarantor. Neither did defendant-
appellee de los Santos object when defendant-appellee de
Leon got back the promissory note and wrote the word
guarantor after her signature in full view of all those
present, including defendant-appellee de los Santos. In
fact, said appelleenodded, signifying approval, when
defendant-appellee de Leon placed the word guarantor
after her signature on the promissory note.
xxxx
 In this factual milieu, if defendant-
appellee de los Santos intended only to sign as a witness,
she should have reacted when the word guarantor was
written on the note in her presence. She should have
expressed her strong and firm objections to such
imposition of liability. But defendant-
appellee de los Santos kept mum. Such silence can lead to
no other conclusion that she has impliedly given her
consent to be the guarantor of de Leons loan.
Moreover, defendant-appellee de los Santos
is estopped from claiming
otherwise. Estoppel in pais arises x x x.
Moreover, one can imply from defendant-
appellee de los Santos letter dated May 5, 1996 addressed
to the Register of Deeds, City of Baguio that defendant-
appellee de los Santos agreed to be bound as guarantor
x x x.
It is significant to note that she made no statement therein
repudiating her having signed the same in the capacity of
a guarantor, contrary to what she now claims in her
defense. Her failure to correct or refute such statement
reinforces the claim that indeed she guaranteed payment of
the loan in question, and that writing was to her interest
considering her liabilities under the note as guarantor.
x x x Thus, defendant-appellee de los Santos can be
compelled to pay plaintiff-appellant Vibar the judgment
debt if it remains unsatisfied after execution is enforced
against the properties of the principal debtor, defendant-
appellee Jose de Leon. x x x
Cecilia filed a Motion for Reconsideration which the appellate court denied in a
Resolution dated 21 November 2001.[17]
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as guarantor of de Leons
loan from Priscila.
Cecilia contends that she is not liable as guarantor. Her behavior, as when she
allegedly kept mum or nodded her head and smiled, was not an implied consent
as guarantor. She insists that the law is clear that a guaranty is not presumed and
that there must be a concrete positive act of acceptance or consent to the
guaranty. Thus, without such knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of Cecilias acts, she
consented to be bound as guarantor of de Leons loan. Her nod of approval and
non-objection to the insertion of the word guarantor at the signing of the second
promissory note show that she agreed to be a guarantor, just like in the first
promissory note. Even after discovering that the loan was unpaid and already
overdue, Cecilia did not contest that she was a guarantor and even paid partially
to Priscila. Instead, Cecilia claimed she had no money to pay the entire loan. It
was only after the case was filed that Cecilia challenged the insertions in the
promissory note. Hence, Priscila insists that Cecilia is estopped from denying
that she is a guarantor.
The Courts Ruling
The issue before us is a question of fact, the determination of which is beyond
this Courts power of review for it is not a trier of facts.[18] However, there are
instances when questions of fact may be reviewed by this Court, as when the
findings of the Court of Appeals are contrary to those of the trial court.[19] In the
present case, the trial court and the Court of Appeals made conflicting findings
of fact. Thus, a review of such factual findings is in order.
Page 15 of 33
Here, the controversy centers on whether there exists a contract of guaranty to
hold Cecilia liable for the loan of de Leon, the principal debtor. The trial court
found that Cecilia had no knowledge of, and did not consent to, the guaranty. On
the other hand, the appellate court ruled that Cecilias conduct during the signing
of the promissory note and her non-objection to the insertion of the word
guarantor show that she acted as guarantor. Cecilias nodding of her head upon
the insertion of the word guarantor signified her consent to be a guarantor.
We rule that Cecilia was a guarantor of de Leons loan.
Cecilia denies that she had actual knowledge of the
guaranty. However, Priscila points to the promissory note
and Cecilias actions as the best evidence to prove that Cecilia signed as
guarantor. The promissory note indicates that Cecilia signed as a witness, as
manifested by the typewritten format. However, the word guarantor as
handwritten beside Cecilias name makes Cecilia a guarantor. From the records
of the case and the evidence presented, we are convinced that the insertion was
made with the express consent of Cecilia.
Firstly, Cecilias act of nodding her head signified her assent to the insertion of
the word guarantor. The word guarantor could have been inserted by Cecilia
herself, or by someone authorized by Cecilia. In either case, Cecilia would be
bound as guarantor. In this case, Cecilia, by nodding her head, authorized de
Leon, who prepared the promissory note, to insert the word guarantor. Since de
Leon made the insertion only after Atty. Bautista had raised the need for Cecilia
to be a guarantor, a positive or negative reaction was expected from Cecilia, who
responded by giving her nod of approval. Otherwise, Cecilia should have
immediately expressed her objection to the insertion of the word
guarantor. Cecilias act of nodding her head showed her consent to be a guarantor.
Secondly, Priscila would not have extended a loan to de Leon without the
representations of Cecilia. Cecilia arranged for de Leon and Priscila to meet so
that de Leon could borrow money from Priscila. Cecilia vouched for de Leons
capacity to pay. As a friend and common link between the borrower and lender,
Cecilia took active part in the first loan of P100,000 and even signed as
guarantor. On the second promissory note, the word guarantor again appears,
admitted by both Cecilia and Priscila as an insertion made by de Leon at the time
of signing. The first loan of P100,000, which Cecilia guaranteed, was paid from
the proceeds of the second loan. As shown by the intervention of Atty. Bautista
in bringing up the need for Cecilia to act as guarantor, Priscila would not have
granted the second bigger loan of P500,000 without the guaranty of Cecilia. It
was only natural for Priscila to commit to the second bigger loan subject at least
to the same guarantee as the first smaller loan.
Thirdly, Cecilia claimed ignorance of the guaranty only after this case was
filed. However, the records show that Cecilia had several meetings
with Priscila and the latters counsel before the demand letters were sent. [20] In
these meetings, Cecilia acknowledged her liability as guarantor but simply
claimed that she had no money to pay Priscila.[21] In fact, Cecilia made an initial
payment of P15,000 as partial compliance of her obligation as guarantor. This
only shows that Cecilia never denied her liability to Priscila as guarantor until
this case was filed in court.
Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring
on the status of the property mentioned in the promissory note as a mortgage
security for de Leons loan.[22] The letter states:
May 5, 1996
The Register of Deeds
City of Baguio
Sir:
This is relative to a Promissory Note dated June 28,
1995 x x x.
In the aforestated Promissory Note, the undersigned
appears to be a Guarantor and it is a condition therein that
as security for this loan this TCT No. 47375, Registry
of Baguio City, is being submitted, by way of
mortgage. However, information has been received that
said registered owners, individually or collectively, have
executed and filed with your Office an affidavit of loss of
said duplicate owners copy. If such information is correct,
may I request for a certification to said effect, and possibly,
a certified true copy of such document.
xxxx
Here, Cecilia clearly stated that she appears to be a guarantor in the promissory
note. This serves as a written admission that Cecilia knew she was a
guarantor. During the trial, Cecilia did not impugn the letter or its contents. In
fact, Cecilia submitted this letter in evidence. [23] Cecilia wrote the Register of
Deeds to protect her interest, hoping that the property covered by TCT No. T-
47375 could answer for de Leons loan and save her from personally paying as
guarantor. This explains Cecilias letter admitting that she appears as a guarantor
in the promissory note.
It is axiomatic that the written word guarantor prevails over the typewritten word
witness. In case of conflict, the written word prevails over the printed
word. Section 15 of Rule130 provides:
 Sec. 15. Written words control printed. - When an
instrument consists partly of written words and partly of a
printed form, and the two are inconsistent, the former
controls the latter.
The rationale for this rule is that the written words are the latest expression of
the will of the parties. Thus, in this case, the latest expression of Cecilias will is
that she signed the promissory note as guarantor.
We agree with the Court of Appeals that estoppel in pais arose in this
case. Generally, estoppel is a doctrine that prevents a person from adopting an
inconsistent position, attitude, or action if it will result in injury to
another.[24] One who, by his acts, representations or admissions, or by his own
silence when he ought to speak out, intentionally or through culpable negligence,
induces another to believe certain facts to exist and such other rightfully relies
and acts on such belief, can no longer deny the existence of such fact as it will
prejudice the latter.[25]
Cecilias conduct in the course of the negotiations and contract signing shows that
she consented to be a guarantor of the loan as witnessed by everyone present. Her
act of nodding her head, and at the same time even smiling, expressed her
voluntary assent to the insertion of the word guarantor after her signature. It is
the same as saying that she agreed to the insertion. Also, Cecilias acts of making
the partial payment of P15,000 and writing the letter to the Register of Deeds
sustain the ruling that Cecilia affirmed her obligation as de Leons guarantor to
the loan. Thus, Cecilia is now estopped from denying that she is a guarantor.
WHEREFORE, we DENY the petition. We AFFIRM the 29 June
2001 Decision and 21 November 2001 Resolution of the Court of Appeals in
CA-G.R. CV No. 66605.
Bitanga v. Pyramid
On 6 September 2001, respondent filed with the RTC a Complaint for specific
performance and damages with application for the issuance of a writ of
preliminary attachment against the petitioner and Marilyn. The Complaint was
docketed as Civil Case No. Q-01-45041.
Respondent alleged in its Complaint that on 26 March 1997, it entered into an
agreement with Macrogen Realty, of which petitioner is the President, to
construct for the latter theShoppers Gold Building, located at Dr. A. Santos
Avenue corner Palayag Road, Sucat, Paraaque City. Respondent commenced
civil, structural, and architectural works on the construction project by May
1997. However, Macrogen Realty failed to settle respondents progress
billings. Petitioner, through his representatives and agents, assured respondent
that the outstanding account of Macrogen Realty would be paid, and requested
respondent to continue working on the construction project. Relying on the
assurances made by petitioner, who was no less than the President
of Macrogen Realty, respondent continued the construction project.
In August 1998, respondent suspended work on the construction
project since the conditions that it imposed for the continuation thereof, including
payment of unsettled accounts, had not been complied with
by Macrogen Realty. On 1 September 1999, respondent instituted with the
Construction Industry Arbitration Commission (CIAC) a case for arbitration
against Macrogen Realty seeking payment by the latter of its unpaid billings and
project costs. Petitioner, through counsel, then conveyed to respondent his
purported willingness to amicably settle the arbitration case. On 17 April 2000,
before the arbitration case could be set for trial, respondent and Macrogen Realty
entered into a Compromise Agreement,[5] with petitioner acting as signatory for
and in behalf of Macrogen Realty. Under the Compromise
Agreement, Macrogen Realty agreed to pay respondent the total amount
of P6,000,000.00 in six equal monthly installments, with each installment to be
delivered on the 15th day of the month, beginning 15 June 2000.Macrogen Realty
also agreed that if it would default in the payment of two successive monthly
installments, immediate execution could issue against it for the unpaid balance,
without need of judgment or decree from any court or tribunal. Petitioner
guaranteed the obligations of Macrogen Realty under the Compromise
Agreement by executing a Contract of Guaranty[6] in favor of respondent, by
virtue of which he irrevocably and unconditionally guaranteed the full and
complete payment of the principal amount of liability of Macrogen Realty in the
sum of P6,000,000.00. Upon joint motion of respondent and Macrogen Realty,
the CIAC approved the Compromise Agreement on 25 April 2000.[7]
However, contrary to petitioners assurances, Macrogen Realty
failed and refused to pay all the monthly installments agreed upon in the
Compromise Agreement. Hence, on 7 September 2000, respondent moved
for the issuance of a writ of execution[8] against Macrogen Realty, which
CIAC granted.
On 29 November 2000, the sheriff[9] filed a return stating that he was
unable to locate any property of Macrogen Realty, except its bank deposit
of P20,242.33, with the Planters Bank, Buendia Branch.
Page 16 of 33
Respondent then made, on 3 January 2001, a written demand[10] on petitioner, as
guarantor of Macrogen Realty, to pay the P6,000,000.00, or to point out
available properties of the Macrogen Realty within the Philippines sufficient to
cover the obligation guaranteed. It also made verbal demands on petitioner. Yet,
respondents demands were left unheeded.
Thus, according to respondent, petitioners obligation as guarantor
was already due and demandable. As to Marilyns liability, respondent contended
that Macrogen Realty was owned and controlled by petitioner and Marilyn
and/or by corporations owned and controlled by them. Macrogen Realty is 99%
owned by the Asian Appraisal Holdings, Inc. (AAHI), which in turn is 99%
owned by Marilyn. Since the completion of the construction project would have
redounded to the benefit of both petitioner and Marilyn and/or their corporations;
and considering, moreover, Marilyns enormous interest in AAHI, the corporation
which controls Macrogen Realty, Marilyn cannot be unaware of the obligations
incurred by Macrogen Realty and/or petitioner in the course of the business
operations of the said corporation.
Respondent prayed in its Complaint that the RTC, after hearing,
render a judgment ordering petitioner and Marilyn to comply with their
obligation under the Contract of Guaranty by paying respondent the amount
of P6,000,000.000 (less the bank deposit of Macrogen Realty with Planters Bank
in the amount of P20,242.23) and P400,000.000 for attorneys fees and expenses
of litigation. Respondent also sought the issuance of a writ of preliminary
attachment as security for the satisfaction of any judgment that may be recovered
in the case in its favor.
Marilyn filed a Motion to Dismiss,[11] asserting that respondent had no cause of
action against her, since she did not co-sign the Contract of Guaranty with her
husband; nor was she a party to the Compromise Agreement between respondent
and Macrogen Realty. She had no part at all in the execution of the said
contracts. Mere ownership by a single stockholder or by another corporation of
all or nearly all of the capital stock of another corporation is not by itself a
sufficient ground for disregarding the separate personality of the latter
corporation. Respondent misread Section 4, Rule 3 of the Revised Rules of
Court.
The RTC denied Marilyns Motion to Dismiss for lack of merit, and
in its Order dated 24 January 2002 decreed that:
The Motion To Dismiss Complaint Against Defendant
Marilyn Andal Bitanga filed on November 12, 2001 is
denied for lack of merit considering that Sec. 4, Rule 3, of
the Rules of Court (1997) specifically provides, as
follows:
SEC. 4. Spouses as
parties. Husband and wife shall sue
or be sued jointly, except as
provided by law.
and that this case does not come within the exception.[12]
Petitioner filed with the RTC on 12 November 2001, his Answer[13] to
respondents Complaint averring therein that he never made representations to
respondent that MacrogenRealty would faithfully comply with its obligations
under the Compromise Agreement. He did not offer to guarantee the obligations
of Macrogen Realty to entice respondent to enter into the Compromise
Agreement but that, on the contrary, it was respondent that
required Macrogen Realty to offer some form of security for its obligations
before agreeing to the compromise. Petitioner further alleged that his wife
Marilyn was not aware of the obligations that he assumed under both the
Compromise Agreement and the Contract of Guaranty as he did not inform her
about said contracts, nor did he secure her consent thereto at the time of their
execution.
As a special and affirmative defense, petitioner argued that the benefit
of excussion was still available to him as a guarantor since he had set it up prior
to any judgment against him. According to petitioner, respondent failed to
exhaust all legal remedies to collect from Macrogen Realty the amount due under
the Compromise Agreement, considering that Macrogen Realty still had
uncollected credits which were more than enough to pay for the same. Given
these premise, petitioner could not be held liable as guarantor.Consequently, of P6,000,000.00, less P20,242.23 (representing the
petitioner presented his counterclaim for damages. amount garnished bank deposit of MACROGEN in the
Planters Bank, Buendia Branch); and the costs of suit.

At the pre-trial held on 5 September 2002, the parties submitted the following
issues for the resolution of the RTC:
Within 10 days from receipt of this partial decision, the
[respondent] shall inform the Court whether it shall still
pursue the rest of the claims against the defendants.
(1) whether the defendants were liable under the contract Otherwise, such claims shall be considered waived.[20]
of guarantee dated April 17, 2000 entered into
between Benjamin Bitanga and the plaintiff;

(2) whether defendant wife Marilyn Bitanga is liable in Petitioner and Marilyn filed a Motion for Reconsideration of the afore-quoted
this action; Decision, which the RTC denied in an Order dated 26 January 2003.[21]

(3) whether the defendants are entitled to the benefit
of excussion, the plaintiff on the one hand
claiming that it gave due notice to the
guarantor, Benjamin Bitanga, and the
defendants contending that no proper notice
was received by Benjamin Bitanga;
(4) if damages are due, which party is liable; and
(5) whether the benefit of excussion can still be invoked
by the defendant guarantor even after the
notice has been allegedly sent by the plaintiff
although proper receipt is denied.[14]
In time, petitioner and Marilyn filed an appeal with the Court of Appeals,
docketed as CA-G.R. CV 78007. In its Decision dated 11 April 2006, the
appellate court held:
UPON THE VIEW WE TAKE OF THIS CASE, THUS,
the judgment appealed from must be, as it hereby is,
MODIFIED to the effect that defendant-appellant
Marilyn Bitanga is adjudged not liable,
whether solidarily or otherwise, with her husband the
defendant-appellant Benjamin Bitanga, under the
compromise agreement or the contract of guaranty. No
costs in this instance.[22]

In holding that Marilyn Bitanga was not liable, the Court of Appeals
cited Ramos v. Court of Appeals,[23] in which it was declared that a contract
cannot be enforced against one who is not a party to it. The Court of Appeals
On 20 September 2002, prior to the trial proper, respondent filed a Motion for stated further that the substantial ownership of shares in Macrogen Realty by
Summary Judgment.[15] Respondent alleged therein that it was entitled to a Marilyn Bitanga was not enough basis to hold her liable.
summary judgment on account of petitioners admission during the pre-trial of the
genuineness and due execution of the Contract of Guaranty. The contention of
petitioner and Marilyn that they were entitled to the benefit of excussion was not
a genuine issue. Respondent had already exhausted all legal remedies to collect The Court of Appeals, in its Resolution dated 5 July 2006, denied
from Macrogen Realty, but its efforts proved unsuccessful. Given that the petitioners Motion for Reconsideration[24] of its earlier Decision.
inability of Macrogen Realty as debtor to pay the amount of its debt was already
proven by the return of the writ of execution to CIAC unsatisfied, the liability of
petitioner as guarantor already arose.[16] In any event, petitioner and Marilyn
were deemed to have forfeited their right to avail themselves of the benefit Petitioner is now before us via the present Petition with the following assignment
of excussion because they failed to comply with Article 2060[17] of the Civil of errors:
Code when petitioner ignored respondents demand letter dated 3 January
2001 for payment of the amount he guaranteed.[18] The duty to collect the
supposed receivables of Macrogen Realty from its creditors could not be
I
imposed on respondent, since petitioner and Marilyn never informed respondent
about such uncollected credits even after receipt of the demand letter for
payment. The allegation of petitioner and Marilyn that they could not respond to
respondents demand letter since they did not receive the same was THE COURT OF APPEALS GRAVELY ERRED IN
unsubstantiated and insufficient to raise a genuine issue of fact which could AFFIRMING THE VALIDITY OF THE PARTIAL
defeat respondents Motion for Summary Judgment. The claim that Marilyn never SUMMARY JUDGMENT BY THE REGIONAL TRIAL
participated in the transactions that culminated in petitioners execution of the COURT OF QUEZON CITY, BRANCH 96, DESPITE
Contract of Guaranty was nothing more than a sham. THE CLEAR EXISTENCE OF DISPUTED GENUINE
AND MATERIAL FACTS OF THE CASE THAT
SHOULD HAVE REQUIRED A TRIAL ON THE
MERITS.
In opposing respondents foregoing Motion for Summary Judgment, petitioner
and Marilyn countered that there were genuinely disputed facts that would
require trial on the merits. They appended thereto an affidavit executed by
petitioner, in which he declared that his spouse Marilyn could not be held II
personally liable under the Contract of Guaranty or the Compromise Agreement,
nor should her share in the conjugal partnership be made answerable for the
guaranty petitioner assumed, because his undertaking of the guaranty did not in
any way redound to the benefit of their family. As guarantor, petitioner was THE COURT OF APPEALS GRAVELY ERRED IN
entitled to the benefit of excussion, and he did not waive his right thereto. He NOT UPHOLDING THE RIGHT OF PETITIONER
never received the respondents demand letter dated 3 January 2001, as BENJAMIN M. BITANGA AS A MERE GUARANTOR
Ms. Dette Ramos, the person who received it, was not an employee TO THE BENEFIT OF EXCUSSION UNDER
of Macrogen Realty nor was she authorized to receive the letter on his behalf. As ARTICLES 2058, 2059, 2060, 2061, AND 2062 OF THE
a guarantor, petitioner could resort to the benefit of excussion at any time before CIVIL CODE OF THE PHILIPPINES.[25]
judgment was rendered against him.[19] Petitioner reiterated
that Macrogen Realty had uncollected credits which were more than sufficient to
satisfy the claim of respondent.

On 29 November 2002, the RTC rendered a partial Decision,

the dispositive portion of which provides: As in the two courts below, it is petitioners position that summary
judgment is improper in Civil Case No. Q-01-45041 because there are genuine
issues of fact which have to be threshed out during trial, to wit:

WHEREFORE, summary judgment is rendered ordering

defendants SPOUSES BENJAMIN BITANGA and
MARILYN ANDAL BITANGA to pay the [herein (A) Whether or not there was proper service of notice to
respondent], jointly and severally, the amount petitioner considering the said letter of demand was

Page 17 of 33
 allegedly received by
one Dette Ramos at Macrogen office and not by him at his
residence.
(B) Whether or not petitioner is entitled to the benefit
of excussion?[26]
We are not persuaded by petitioners arguments.
Rule 35 of the Revised Rules of Civil Procedure provides:
Section 1. Summary judgment for claimant. A
party seeking to recover upon a claim, counterclaim, or
cross-claim or to obtain a declaratory relief may, at any
time after the pleading in answer thereto has been served,
move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all
or any part thereof.
For a summary judgment to be proper, the movant must
establish two requisites: (a) there must be no genuine issue as to any
material fact, except for the amount of damages; and (b) the party
presenting the motion for summary judgment must be entitled to a
judgment as a matter of law. Where, on the basis of the pleadings of a
moving party, including documents appended thereto, no genuine issue as
to a material fact exists, the burden to produce a genuine issue shifts to the
opposing party. If the opposing party fails, the moving party is entitled to
a summary judgment.[27]
In a summary judgment, the crucial question is: are the issues raised
by the opposing party not genuine so as to justify a summary judgment?[28]
First off, we rule that the issue regarding the propriety of the service
of a copy of the demand letter on the petitioner in his office is a sham issue. It is
not a bar to the issuance of a summary judgment in respondents favor.
A genuine issue is an issue of fact which requires the presentation of
evidence as distinguished from an issue which is a sham, fictitious, contrived or
false claim. To forestall summary judgment, it is essential for the non-moving
party to confirm the existence of genuine issues, as to which he has substantial,
plausible and fairly arguable defense, i.e.,[29] issues of fact calling for the
presentation of evidence upon which reasonable findings of fact could return a
verdict for the non-moving party, although a mere scintilla of evidence in support
of the party opposing summary judgment will be insufficient to preclude entry
thereof.
Significantly, petitioner does not deny the receipt of the demand letter
from the respondent. He merely raises a howl on the impropriety of service
thereof, stating that the address to which the said letter was sent was not his
residence but the office of Macrogen Realty, thus it cannot be considered as the
correct manner of conveying a letter of demand upon him in his personal
capacity.[30]
Section 6, Rule 13 of the Rules of Court states:
SEC. 6. Personal service. Service of the papers may be
made by delivering personally a copy to the party or his
counsel, or by leaving it in his office with his clerk or
with a person having charge thereof. If no person is
found in his office, or his office is not known, or he has no
office, then by leaving the copy, between the hours of
eight in the morning and six in the evening, at the partys
or counsels residence, if known, with a person of
sufficient age and discretion then residing therein.
The affidavit of Mr. Robert O. Pagdilao, messenger of respondents
counsel states in part:
2. On 4 January 2001, Atty. Jose Vicente B. Salazar, then
one of the Associates of the ACCRA Law
Page 18 of 33
Offices, instructed me to deliver to the office
of Mr. Benjamin Bitanga a letter dated 3
January 2001, pertaining to Construction
Industry Arbitration Commission (hereafter,
CIAC) Case No. 99-56, entitled Pyramid
Construction Engineering Corporation
vs. MacrogenRealty Corporation.
3. As instructed, I immediately proceeded to the office of
Mr. Bitanga located at the
12th Floor, Planters Development Bank Buildi
ng, 314 Senator
Gil Puyat Avenue, Makati City. I delivered
the said letter to Ms. Dette Ramos, a person of
sufficient age and discretion, who introduced
herself as one of the employees of
Mr. Bitanga and/or of the latters
companies.[31](Emphasis supplied.)
We emphasize that when petitioner signed the Contract of Guaranty
and assumed obligation as guarantor, his address in the said contract was the
same address where the demand letter was served.[32] He does not deny that the
said place of service, which is the office of Macrogen, was also the address that
he used when he signed as guarantor in the Contract of Guaranty. Nor does he
deny that this is his office address; instead, he merely insists that the person who
received the letter and signed the receiving copy is not an employee of his
company. Petitioner could have easily substantiated his allegation by a
submission of an affidavit of the personnel manager of his office that no such
person is indeed employed by petitioner in his office, but that evidence was not
submitted.[33] All things are presumed to have been done correctly and with due
formality until the contrary is proved. This juris tantum presumption stands even
against the most well-reasoned allegation pointing to some possible irregularity
or anomaly.[34] It is petitioners burden to overcome the presumption by sufficient
evidence, and so far we have not seen anything in the record to support petitioners
charges of anomaly beyond his bare allegation. Petitioner cannot now be heard
to complain that there was an irregular service of the demand letter, as it does not
escape our attention that petitioner himself indicated 314 Sen.
Gil Puyat Avenue, Makati City as his office address in the Contract of
Guaranty.
Moreover, under Section 6, Rule 13 of the Rules of Court, there is
sufficiency of service when the papers, or in this case, when the demand letter is
personally delivered to the party or his counsel, or by leaving it in his
office with his clerk or with a person having charge thereof, such as what was
done in this case.
We have consistently expostulated that in summary judgments, the trial court can
determine a genuine issue on the basis of the pleadings, admissions, documents,
affidavits or counter affidavits submitted by the parties. When the facts as
pleaded appear uncontested or undisputed, then there is no real or genuine issue
or question as to any fact, and summary judgment is called for. [35]
The Court of Appeals was correct in holding that:
Here, the issue of non-receipt of the letter of demand is a
sham or pretended issue, not a genuine and substantial
issue. Indeed, against the positive assertion of Mr.
Roberto O. Pagdilao (the private courier) in his affidavit
that he delivered the subject letter to a certain
Ms. Dette Ramos who introduced herself as one of the
employees of [herein petitioner] Mr.
Benjamin Bitangaand/or of the latters companies, said
[petitioner] merely offered a bare denial. But bare denials,
unsubstantiated by facts, which would be admissible in
evidence at a hearing, are not sufficient to raise a genuine
issue of fact sufficient to defeat a motion for summary
judgment.[36]
We further affirm the findings of both the RTC and the Court of
Appeals that, given the settled facts of this case, petitioner cannot avail himself
of the benefit of excussion.
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. The
guarantor who pays for a debtor, in turn, must be indemnified by the
latter. 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. This is what is otherwise known as the benefit
of excussion.[37]
Article 2060 of the Civil Code reads:
Art. 2060. 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 from him, and point
out to the creditor available property of the debtor within
Philippine territory, sufficient to cover the amount of the
debt.[38]
The afore-quoted provision imposes a condition for the invocation of
the defense of excussion. Article 2060 of the Civil Code clearly requires that in
order for the guarantor to 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.[39]
It must be stressed that despite having been served a demand letter at his office,
petitioner still failed to point out to the respondent properties of Macrogen Realty
sufficient to cover its debt as required under Article 2060 of the Civil Code. Such
failure on petitioners part forecloses his right to set up the defense of excussion.
Worthy of note as well is the Sheriffs return stating that the only property
of Macrogen Realty which he found was its deposit of P20,242.23 with the
Planters Bank.
Article 2059(5) of the Civil Code thus finds application and precludes petitioner
from interposing the defense of excussion. We quote:
Art. 2059. This excussion shall not take place:
xxxx
(5) If it may be presumed that an execution on the property
of the principal debtor would not result in the satisfaction
of the obligation.
As the Court of Appeals correctly ruled:
We find untenable the claim that the [herein petitioner]
Benjamin Bitanga cannot be compelled to pay Pyramid
because the Macrogen Realty has allegedly sufficient
assets. Reason: The said [petitioner] had not
genuinely controverted the return made by Sheriff Joseph
F. Bisnar, who affirmed that, after exerting diligent
efforts, he was not able to locate any property belonging
to the Macrogen Realty, except for a bank deposit with the
Planters Bank at Buendia, in the amount of P20,242.23. It
is axiomatic that the liability of the guarantor arises when
the insolvency or inability of the debtor to pay the amount
of debt is proven by the return of the writ of execution that
had not been unsatisfied.[40]
IN ALL, we fail to point out any impropriety in the rendition of a
summary judgment in favor of the respondent.
WHEREFORE, premises considered, the instant petition
is DENIED for lack of merit. The Decision of the Court of Appeals dated 11
April 2006 and its Resolution dated 5 July 2006 are AFFIRMED. Costs against
petitioner.
Assailed in this Petition for Review under Rule 45 [1] of the Revised Rules of
Court are: (1) the Decision[2] dated 11 April 2006 of the Court of Appeals in CA-
G.R. CV No. 78007 which affirmed with modification the partial
Decision[3] dated 29 November 2002 of the Regional Trial Court (RTC), Branch
96, of Quezon City, in Civil Case No. Q-01-45041, granting the motion for
summary judgment filed by respondent Pyramid Construction and Engineering
Corporation and declaring petitioner Benjamin Bitanga and his wife,
Marilyn Bitanga (Marilyn), solidarily liable to pay P6,000,000.000 to
respondent; and (2) the Resolution[4] dated 5 July 2006 of the appellate court in
the same case denying petitioners Motion for Reconsideration.
GATEWAY ELECTRONICS CORP. VS. ASIABANK, G.R. No. 172041,
December 18, 2008
FACTS:
Page 19 of 33
Petitioner Gateway Electronics Corporation (Gateway) is a domestic corporation
that used to be engaged in the semi-conductor business. During the period
material, petitioner Geronimo B. delos Reyes, Jr. was its president and one
Andrew delos Reyes its executive vice-president.
On July 23, 1996, Geronimo and Andrew executed separate but almost identical
deeds of suretyship for Gateway in favor of respondent Asianbank Corporation
(Asianbank).
Later developments saw Asianbank extending to Gateway several export packing
loans in the total aggregate amount of USD 1,700,883.48. This loan package was
later consolidated with Dollar Promissory Note (PN) No. FCD-0599-2749 for the
amount of USD 1,700,883.48 and secured by a chattel mortgage over Gateways
equipment for USD 2 million.
Gateway initially made payments on its loan obligations, but eventually
defaulted. Upon Gateways request, Asianbank extended the maturity dates of the
loan several times. These extensions bore the conformity of three of Gateways
officers, among them Andrew.
On December 15, 1999, Asianbank filed with the Regional Trial Court (RTC)
in Makati City a complaint for a sum of money against Gateway, Geronimo, and
Andrew.
After due hearing, the RTC rendered judgment dated October 7, 2003 in favor of
Gateway.
Gateway, Geronimo, and Andrew appealed to the CA, their recourse docketed as
CA-G.R. CV No. 80734. Following the filing of its and Geronimos joint
appellants brief, Gateway filed on November 10, 2004 a petition for voluntary
insolvency with the RTC in Imus, Cavite, Branch 22.
In its Decision dated October 28, 2005, the CA affirmed the decision of the
Makati City RTC. In time, Gateway and Geronimo interposed a motion for
reconsideration. Gateway and Geronimo thus prayed that the assailed decision of
the Makati City RTC be set aside, the insolvency court having acquired exclusive
jurisdiction over the properties of Gateway by virtue of Section 60 of Act No.
1956, without prejudice to Asianbank pursuing its claim in the insolvency
proceedings.
The CA denied the motion for reconsideration hence this petition
ISSUE:
Whether Geronimo is discharged from liability because of the insolvency of
Gateway, the principal.
Whether the repeated grant of extension of Asiabank to Gateway without notice
and express consent to Geronimo discharges the latter from liability.
HELD:
Geronimos above contention is untenable.
Suretyship is covered by Article 2047 of the Civil Code, which 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 case the
contract is called a suretyship.
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 paid x x
x.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. x x x In other words, a surety
undertakes directly for the payment and is so
responsible at once if the principal debtor makes
default x x x.
xxxx
A creditors right to proceed against the
surety exists independently of his right to proceed
against the principal. Under Article 1216 of the Civil
Code, the creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously.
The rule, therefore, is that if the obligation is joint and
several, the creditor has the right to proceed even
against the surety alone. Since, generally, it is not
necessary for the creditor to proceed against a principal in
order to hold the surety liable, where, by the terms of the
contract, the obligation of the surety is the same as that of
the principal, then soon as the principal is in default, the
 surety is likewise in default, and may be sued immediately
and before any proceedings are had against the principal.
Perforce, x x x a surety is primarily liable, and with the
rule that his proper remedy is to pay the debt and pursue
the principal for reimbursement, the surety cannot at law,
unless permitted by statute and in the absence of any
agreement limiting the application of the security, require
the creditor or obligee, before proceeding against the
surety, to resort to and exhaust his remedies against the
principal, particularly where both principal and surety are
equally bound.
Clearly, Asianbanks right to collect payment for the full amount from
Geronimo, as surety, exists independently of its right against Gateway
as principal debtor; it could thus proceed against one of them or file
separate actions against them to recover the principal debt covered by
the deed on suretyship, subject to the rule prohibiting double recovery
from the same cause. This legal postulate becomes all the more
cogent in case of an insolvency situation where, as here, the
insolvency court is bereft of jurisdiction over the sureties of the
principal debtor. As Asianbank aptly points out, a suit against the
surety, insofar as the suretys solidary liability is concerned, is not
affected by an insolvency proceeding instituted by or against the
principal debtor.
EN BANC
[G.R. No. L-28700. March 30, 1970.]
MABUHAY INSURANCE AND GUARANTY, INC., Petitioner, v. HON.
COURT OF APPEALS, HON. JESUS P. MORFE, ET AL., Respondents.
Dueñas, De Venancio & Vargas for Petitioner.
SYLLABUS
1. CRIMINAL PROCEDURE; BAIL; PURPOSE.— The office of bail in
criminal case is "to secure the due attendance of the party accused to answer the
indictment and to submit to trial and judgment of the court thereon."cralaw
virtua1aw library
2. ID.; APPEAL; PERIOD.— The accused has fifteen days from promulgation
or reading of the judgment of conviction by the Court of First Instance within
which to take an appeal to the higher courts under Rule 122, Section 6 of the
Rules of Court.
3. ID.; BAIL; CANCELLATION OF BAIL BOND.— The trial court’s duty to
place the accused under custody and detention for service of his sentence and
consequent cancellation of his bail bond does not arise until after the judgment
becomes final upon the lapse of the fifteen day period for perfecting an appeal
(Rule 120, Sec. 7 and 8).
4. ID.; ID.; LIABILITY OF BONDSMAN UNDER BAIL BOND; INSTANT
CASE.—Petitioner’s responsibility under its bail bond subsisted for as long as
the case was under the jurisdiction and control of the trial court and said
jurisdiction would only be lost upon surrender of the accused for execution of the
judgment of conviction or upon due perfection of an appeal from the judgment.
Petitioner’s bail bond necessarily subsisted and was effective up to December
20, 1966, which was the last day of the fifteen-day period for the perfection of
an appeal by the accused. If the accused presented his notice of appeal, the trial
Court then would order his being taken into custody in the absence of a new bail
bond on appeal duly allowed and approved by it.
5. ID.; ID.; BONDSMEN; HOW RELIEVED FROM HIS UNDERTAKING.—
A bondsman who wishes to be relieved from his undertaking as such should
petition the court for his discharge as a surety in accordance with the provisions
of Rule 114, Section 16 of the Rules of Court.
6. REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; NOT
SUBSTITUTE FOR TIMELY APPEAL.— Where petitioner has failed to file a
timely appeal from the trial court’s order, it can no longer avail of the remedy of
the special civil action for certiorari in lieu of its lost right of appeal, since no
errors of jurisdiction was committed by the trial court.
DECISION
TEEHANKEE, J.:
Page 20 of 33
In this appeal from the decision of the Court of Appeals sustaining
on certiorari the questioned orders of the lower Court ordering the confiscation
and execution of the bail bond, we reiterate the doctrine that courts upon
rendering Judgments of conviction in criminal cases have the discretion to
postpone, until the last day for the perfection of appeal by the accused, the
determination of the question whether or not they should order the accused’s
detention or execution of the judgment of conviction.
Petitioner, a surety company, originally instituted in 1967, a special civil action
for certiorari in the Court of Appeals to annul the questioned orders of the Court
of First Instance of Manila, directing the confiscation of the bail bond posted by
petitioner for the provisional release of the accused in a criminal case and
directing the execution of its order of confiscation of the bond.
The antecedent facts, as narrated by the Court of Appeals in its decision
dismissing the petitioner’s said action for certiorari follow: "Abdurakman Assih
y Jamlaila was charged of and tried before the Court of First Instance of Manila
for the crime of illegal possession of firearm and ammunition. The herein
petitioner posted a bond for the provisional release of the accused in the sum of
P3,000.00, conditioned that ‘Abdurakman Assih will appear and answer the
charge . . . in whatever Court it may be tried, and with at all times hold himself
amenable to the orders and processes of the Court, and if convicted will appear
for judgment and render himself to the execution thereof . . .’
"During the trial, petitioner presented or caused to be presented the body and
person of the accused before the trial Court. On November 2, 1966, said court
rendered its judgment finding accused Abdurakman Assih guilty as charged, and
sentenced him to an indeterminate penalty ranging from a minimum of ONE (1)
year and ONE (1) day to TWO (2) years imprisonment. The accused voluntarily
presented himself before the Court for the reading of the sentence on December
5, 1966. After the sentence was read, the accused, in his own behalf, prayed in
open court that he be allowed 15 days within which to decide whether or not to
appeal from the judgment. Said prayer was granted in the Order dated December
5, 1966, as was accused’s motion to be allowed out on bail ‘in the meantime
under his original bond.’ At the same time, the court fixed a new bond for his
provisional liberty in case of appeal. The lower court further ordered that the
bondsman of the accused be notified to produce the person of the accused on
December 20, 1966 at 9:00 A.M., either to serve his sentence or to perfect an
appeal, as the case may be. It is not disputed that copy of this order was served
on and received by petitioner Mabuhay Insurance & Guaranty Co., Inc.
"On December 20, 1966, the last day for perfecting his appeal, Abdurakman
Assih merely filed his notice of appeal with the trial court without himself
appearing in person. For this failure to appear in person on the date set by the
order of December 5, 1966, the respondent Judge, on January 17, 1967, issued
an order declaring Abdurakman Assih a fugitive from justice; deferred action on
his notice of appeal until he shall have re-submitted himself to effective order of
the Court by voluntary surrender and purged himself of the taint of being a
fugitive from justice; declared the bond of the accused forfeited; and gave the
petitioner bondsman 30 days within which to show cause, if any, why judgment
should not be issued against its bond.
"The petitioner took no steps to produce the person of the accused Abdurakman
Assih in court within the period set by the said court in its order dated January
17, 1967, nor did the petitioner show cause why judgment should not be rendered
against the bond. Hence, on March 3, 1967, the court issued an order directing
immediate execution of the judgment rendered against said bond which order
was received by the petitioner on March 9, 1967.
"Instead of taking an appeal, the petitioner filed a Motion for Reconsideration of
the Order dated March 3, 1967, praying that the writ of execution be set aside,
only on May 11, 1967, or more than 60 days after notice of said order. In an
Order dated May 12, 1967, the respondent judge denied the motion for lack of
merit . . ."cralaw virtua1aw library
". . . there is no evidence on record showing that the accused Abdurakman Assih
has voluntarily surrendered or has been surrendered by the petitioner to the court
a quo. Up to this moment, it is not known by this Court whether he is in the
custody of the proper authorities or not." 1
We find no merit in the present appeal seeking reversal of the Court of Appeals’
decision dismissing petitioner’s action, by a four-to-one vote.
1. Petitioner’s contention based on the dissenting appellate justice’s opinion that
after the sentence of conviction is read to the accused, the accused should be
deemed placed under the custody of the trial court to serve the sentence and his
bail bond is deemed automatically cancelled, finds no support in law nor in our
jurisprudence.
The office of bail in criminal cases is "to secure the due attendance of the party
accused to answer the indictment and to submit to trial and judgment of the court
thereon." 2 The accused has fifteen days from promulgation or reading of the
judgment of conviction by the Court of First Instance within which to take an
appeal to the higher courts under Rule 122, Section 6 of the Rules of Court. The
trial court’s duty to place the accused under custody and detention for service of
his sentence and consequent cancellation of his bail bond does not arise until
after the judgment becomes final upon the lapse of the fifteen-day period for
perfecting an appeal (Rule 120, Secs. 7 and 8).
The trial court therefore properly acted within its jurisdiction in giving the
accused the benefit of the fifteen day period within which to decide whether or
not to appeal the judgment of conviction after the same was read on December
5, 1966 and to order that petitioner as bondsman of the accused be notified to
produce the person of the accused on the fifteenth day, i.e., December 20, 1966,
either to serve his sentence or to perfect an appeal as the case may be.
2. Under the very terms of the bail bond posted by petitioner whereby it
undertook that the accused will ‘appear and answer the charge . . . and will at all
times hold himself amenable to the orders and processes of the court, and if
convicted will appear for judgment and render himself to the execution thereof .
. .," it was clearly the duty of petitioner as bondsman to produce the person of the
accused on December 20, 1966, in accordance with the trial court’s order of
December 5, 1966 when the judgment of conviction was promulgated and notice
of which was duly served upon and received by petitioner. In other words,
petitioner’s responsibility under its bail bond subsisted for as long as the case
was under the jurisdiction and control of the trial court and said jurisdiction
would only be lost upon surrender of the accused for execution of the judgment
of conviction or upon due perfection of an appeal from the judgment. Petitioner’s
bail bond necessarily subsisted and was effective up to December 20, 1966,
which was the last day of the fifteen-day period for the perfection of an appeal
by the accused. If the accused presented his notice of appeal, the trial Court then
would order his being taken into custody in the absence of a new bail bond on
appeal duly allowed and approved by it. It cannot be contended, therefore, that
the trial Court’s action requiring petitioner as bondsman to produce the person of
the accused on the fifteenth day from promulgation of sentence for the perfection
of his appeal or for service of sentence with the lapse of the period for appeal
amounted to an extension of the terms of the bail bond without the knowledge or
consent of petitioner-bondsman and was beyond the jurisdiction of the trial court.
3. The question herein presented has heretofore been resolved by the Court in the
same manner as here, and no valid reason has been presented by petitioner for
revision or modification of our previous rulings. In People v. Valle, 3 the Court,
speaking through the Chief Justice, thus dismissed similar contentions of the
therein bondsman-appellant.
"The first assignment of error 4 has nothing to do with the propriety or validity
of the order of confiscation of the bond. Moreover, since the defendant was
entitled to appeal, the lower court had the discretion to postpone, until the last
day for the perfection of such appeal, the determination of the question whether
it should or should not order defendant’s detention or the execution of the
decision of conviction.
"With respect to the other alleged errors 5 assigned by appellant, it should be
noted that its liability, under the bond continued until after the accused had been
surrendered and the court had ordered the cancellation of said bond. Thus, in
People v. Lorredo (50 Phil. 218) it was held:chanrob1es virtual 1aw library
‘Moreover, one of the conditions of the bond subscribed by the appellants is that
if the accused is convicted, he will render himself amenable to the judgment as
well as to the execution thereof. After notification of the judgment, the accused
had fifteen days within which to perfect his appeal and it is only after the
expiration of the said fifteen days, without the accused having made use of his
right, that the said judgment becomes final. (Sec. 47, General Orders No. 58).
Neither the fact, then, that the court granted the accused ten days within which
to comply with the judgment, nor the fact that his attorney guaranteed said
compliance, relieves his sureties from their liability in case of noncompliance
with said judgment, because, as we have already seen, in order to be relieved
from the obligation contracted by them by virtue of their bond, a judicial order
relieving them of their liability is necessary.’"
4. A bondsman who wishes to be relieved from his undertaking as such should
petition the Court for his discharge as a surety in accordance with the provisions
of Rule 114, section 16 of the Rules of Court.
"Sec. 16. Discharge of sureties. — Upon application filed with the court and after
due notice to the fiscal, the bail bond shall be cancelled and the sureties
discharged from liability (a) where the sureties so request upon surrender of the
defendant to the court: (b) where the defendant is re-arrested or ordered into
custody on the same charge or for the same offense; (c) where the defendant is
discharged by the court at any stage of the proceedings or acquitted or is
convicted and surrendered to serve the sentence; and (d) where the defendant dies
during the pendency of the action."cralaw virtua1aw library
Petitioner did not avail itself of the above-quoted provision and ask for its
discharge as a surety nor did it manifest to the trial Court at the promulgation of
sentence its wish to be relieved of its responsibility for the custody of the accused.
Under the above-quoted Rule, petitioner could very well have asked the trial
court to relieve it as the jailer and custodian of the accused by surrendering the
person of the accused to the said court and asking for the cancellation of its bail
bond.
5. Finally, it should be noted that petitioner filed a motion for reconsideration of
the trial Court’s order of March 3, 1967 for execution of the judgment against the
bond only on May 11, 1967 or more than 60 days from its receipt on March 9,
1967 of said order, which motion for reconsideration was in due course denied
by the trial court. Petitioner having failed to file a timely appeal from the Court’s
order could no longer avail of the remedy of the special civil action
for certiorari in lieu of its lost right of appeal, since no errors of jurisdiction were
committed by the trial court.
ACCORDINGLY, the appealed judgment of the Court of Appeals is affirmed
and the petition is dismissed. With costs against petitioner.
Page 21 of 33
Rights of the Surety
G.R. No. L-27249 July 31, 1970
MANILA SURETY & FIDELITY CO., INC., plaintiff-appellant,
vs.
NOEMI ALMEDA, doing business under the name and style of ALMEDA
TRADING, GENEROSO ESQUILLO and NATIONAL MARKETING
CORPORATION, defendants-appellees.
De Santos & Delfino for plaintiff-appellant.
Government Corporate Counsel Leopoldo M. Abellera and Trial Attorney
Arsenio J. Mepale for defendant-appellee National Marketing Corporation.
REYES, J.B.L., J.:
This is an appeal from the ruling of the Court of First Instance of Manila,
rendered in Civil Case No. 62518, that the insolvency of a debtor-principal does
not release the surety from its obligation to the creditor under the bond.
The lower court found that on 4 December 1961, Noemi Almeda, married to
Generoso Esquillo, and doing business under the name and style of Almeda
Trading, entered into a contract with the National Marketing Corporation
(NAMARCO) for the purchase of goods on credit, payable in 30 days from the
dates of deliveries thereof. As required by' the NAMARCO, a bond for
P5,000.00, undertaken by the Manila Surety & Fidelity Co., Inc. (Exhibit "A"),
was posted by the purchaser to secure the latter's faithful compliance with the
terms of the contract. The agreement was later supplemented on 17 October 1962
and a new bond for the same amount of P5,000.00, also undertaken by the Manila
Surety & Fidelity Co., Inc. (Exhibit "C"),1 was given in favor of the NAMARCO
The bonds uniformly contained the following provisions:
2. Should the Principal's account on any purchase be not
paid on time, then the Surety, shall, upon demand, pay said
account immediately to the NAMARCO;
3. Should the account of the Principal exceed the amount
of FIVE THOUSAND (P5,000.00) PESOS, Philippine
Currency, such excess up to twenty (20%) per cent of said
amount shall also be deemed secured by this Bond;
4. The Surety expressly waives its right to demand
payment and notice of non-payment and agreed that the
liability of the Surety shall be direct and immediate and
not contingent upon the exhaustion by the NAMARCO of
whatever remedies it may have against the Principal and
same shall be valid and continuous until the obligation so
guaranteed is paid in full; and
5. The Surety also waives its right to be notified of any
extension of the terms of payment which the NAMARCO
may give to the Principal, it being understood that were
extension is given to satisfy the account, that such
extension shall not extinguish the guaranty unless the
same is made against the express wish of the Surety.
The records show that on 8 June 1965, the marketing firm demanded from the
purchaser Almeda Trading the settlement of its back accounts which, as of 15
May 1965, allegedly amounted to P16,335.09. Furnished with copy of the
NAMARCO's demand- letter, the surety company thereafter also wrote to the
said purchaser urging it to liquidate its unsettled accounts with the NAMARCO
(Exhibit "E-1"). It appears, however, that previous to this, or on 26 March 1965,
Generoso Esquillo instituted voluntary insolvency proceeding in the Court of
First Instance of Laguna (Sp. Proc. No. SP-181), and by order of said court of 6
April 1965, he was declared insolvent, with listed credits amounting to
P111,873.002 and properties valued at P39,0,00.00. In the meeting of the named
creditors of the insolvent held on 14 May 1965 for the purpose of electing the
assignee of his properties, the NAMARCO was represented and its contingent
claim duly registered.3
On 10 September 1965, the Manila Surety & Fidelity Co., Inc., commenced in
the Court of First Instance of Manila Civil Case No. 62518 against the spouses
Noemi Almeda and Generoso Esquillo, and the NAMARCO, to secure its release
from liability under the bonds executed in favor of NAMARCO. The action was
based on the allegation that the defendant spouses had become insolvent and that
defendant NAMARCO had rescinded its agreement with them and had already
demanded payment of the outstanding accounts of the couple.
6 Defendant NAMARCO filed its answer denying the averments of the complaint
and setting up, as affirmative defenses, lack of cause of action and the court's
want of jurisdiction. On 16 December 1966, the court rendered judgment
sustaining NAMARCO's contention that the insolvency of the debtor-principal
did not discharge the surety's liability under the bond. Thus, the complaint was
dismissed and plaintiff surety company was ordered to pay off the indebtedness
of the defendant spouses to the NAMARCO to the extent of its (the Surety's)
undertaking, plus attorneys' fees and costs. From this decision, plaintiff surety
interposed the present appeal.
Plaintiff-appellant's action to secure its discharge from the suretyship was based
on Article 2071 of the Civil Code,4Which provides the surety with certain
protective remedies that may be resorted to before he has paid, but after he has
become liable to do so.5
Upon the other hand, the lower court's ruling, now on appeal, is anchored on an
equally explicit provision of the Insolvency law ( Act 1956, as amended), to writ:.
SEC. 68. ...
No discharge (of the insolvent from his obligations) shall
release, discharge or affect any person liable for the same
debt, for or with the debtor, either as partner, joint
contractor, indorser, surety, or otherwise.
The issue posed by this appeal, therefore, is whether a surety can avail itself of
the relief, specifically afforded in Article 2071 of the Civil Code and be released
from its liability under the bonds, notwithstanding a prior declaration of the
insolvency of the debtor-principal in an insolvency proceeding.
We see no reversible error in the decision appealed.
There is no question that under the bonds posted in favor of the NAMARCO in
this case, the surety company assumed to make immediate payment to said firm
of any due and unsettled accounts of the debtor-principal, even without demand
and notice of the debtor's non-payment, the surety, in fact, agreeing that its
liability to the creditor shall be direct, without benefit of exhaustion of the
debtor's properties, and to remain valid and continuous until the guaranteed
obligation is fully satisfied. In short, appellant secured to the creditor not just the
payment by the debtor-principal of his accounts, but the payment itself of such
accounts. Clearly, a contract of suretyship was thus created, the appellant
becoming the insurer, not merely of the debtor's solvency or ability to pay, but
of the debt itself.6 Under the Civil Code, with the debtor's insolvency having been
judicially recognized, herein appellant's resort to the courts to be released from
the undertaking thus assumed would have been appropriate. 7 Nevertheless, the
guarantor's action for release can only be exercised against the principal debtor
and not against the creditor, as is apparent from the precise terms of the legal
provision. "The guarantor" (says Article 2071 of the Civil Code of the
Philippines) "even before having paid, may proceed against the principal
debtor ------------------ to obtain a release from the guaranty ---------------." The
juridical rule grants no cause of action against the creditor for a release of the
guaranty, before payment of the credit, for a plain reason: the creditor is not
compellable to release the guaranty (which is a property right) against his will.
For, the release of the guarantor imports an extinction of his obligation to the
creditor; it connotes, therefore, either a remission or a novation by subrogation,
and either operation requires the creditor's assent for its validity (See Article 1270
and Article 1301). Especially should this be the case where the principal debtor
has become insolvent, for the purpose of a guaranty is exactly to protect the
creditor against such a contingency.
In what manner, then, can the article operate? Where the debtor can not make
full payment, the release of the guarantor can only be obtained with the assent of
the creditor, by persuading the latter to accept an equally safe security, either
another suitable guaranty or else a pledge or mortgage. Absent the creditor's
consent, the principal debtor may only proceed to protect the demanding
guarantor by a counterbond or counter guaranty, as is authorized by the codal
precept (Article 2071 in fine). To this effect is the opinion of the Spanish
commentator, Scaevola, in his explanations to Article 1843 of the Spanish Civil
Code (from which Article 2071 of our Code is derived). Says Scaevola:
Como se prestaran tales garantias al fiador? Lo contesta el
aludido parrafo final del Articulo 1843. Se hara por uno
de estos dos modos: ora consiguiendo el deudor que el
acreedor abandone libremente aquella fianza, lo cual
ocurrira dandole el deudor otra garantia analoga, ya por
razon de la persona fiadora, ya ofreciendole el deudor al
mismo fiador, pero continuando este como tal, una
garantia que lo ponga a cubierto de los procedimientos del
acreedor y del peligro de insolvencia del deudor.
(Scaevola Codigo Civil, 2d Ed., Vol. 28, pp. 651652).
The appellant's troubles are compounded by the fact that when the complaint for
release from suretyship was filed in the Manila court on 10 September 1965, the
insolvency case in the Laguna court was already pending and the debtor-principal
Generoso Esquillo had been judicially declared an insolvent. By the time the
appellant sued, therefore, the insolvency court had already acquired jurisdiction
over all the debtor's properties and of all claims by and against him, to the
exclusion of any other court.8 In the circumstances, the lawful recourse of the
guarantor of an obligation of the insolvent would be to file a contingent claim in
the insolvency proceeding, if his rights as such guarantor or surety are not to be
barred by the subsequent discharge of the insolvent debtor from all his liabilities.9
Page 22 of 33
In the case at bar, it is true that the guaranteed claim of NAMARCO was
registered or filed in the insolvency proceeding. But appellant can not utilize this
fact in support of its petition for release from the assumed undertaking. For one
thing, it is almost a certainty that creditor NAMARCO can not secure full
satisfaction of its credit out of the debtor's properties brought into the insolvency
proceeding. Considering that under the contract of suretyship, which remains
valid and subsisting, the entire obligation may even be demanded directly against
the surety itself, the creditor's act in resorting first to the properties of the
insolvent debtor is to the surety's advantage At least, the latter would be
answerable only for whatever amount may remain not covered or unsatisfied by
the disposition of the insolvent's properties, 1 0 with the right to go against
debtor-principal after it has made the necessary payment to the creditor. For
another, the fact that the debtor- principal may be discharged from all his
outstanding obligations in the insolvency case would not benefit the surety, as to
relieve it of its liability under the surety agreement. That is so provided in Section
68 of the Insolvency Act which shall be controlling in the case.
Finally, even supposing that the present action is not blocked by the insolvency
proceedings because it does not aim at reducing the insolvent's assets, but only
at having the suretyship substituted by other equivalent security, still it is difficult
to see how the principal debtor, with his business, property and assets impounded
by the insolvency court, can obtain other securities with which to replace the
guaranty given by the plaintiff-appellant. The action at bar would seem, under
the circumstances, destined to end in futility.
WHEREFORE, with the modification that appellant's liability shall be limited to
the payment of whatever amount may remain due to the appellee NAMARCO
and is unsatisfied in the insolvency proceeding, but not to exceed the amount of
the surety's undertaking under the bonds, the decision appealed from is affirmed
in all other respects. Costs against appellant surety company.
G.R. No. L-31789 June 29, 1972
ANTONIO R. BANZON and ROSA BALMACEDA, petitioners,
vs.
HON. FERNANDO CRUZ, Spouses PEDRO CARDENAS and LEONILA
BALUYOT and ASSOCIATED INSURANCE & SURETY COMPANY,
INC. represented by INSURANCE COMMISSIONER in her capacity as
LIQUIDATOR OF ASSOCIATED INSURANCE & SURETY COMPANY,
INC., respondents.
L. T. Castillo for petitioners.
Dakila F. Castro & Associates for respondents spouses Pedro Cardenas and
Leonila Baluyot.
Feliberto V. Castillo for respondent Associated Insurance & Surety Co., Inc.
Office of the Solicitor General Felix Q. Antonio, Assistant Solicitor General
Dominador L. Quiroz and Solicitor Lolita O. Galang for respondent Insurance
Commissioner, etc.
TEEHANKEE, J.:p
An original action to enjoin respondent court from forcing a writ of possession
and order of demolition over one of two Caloocan City lots originally owned by
petitioners- spouses pending the outcome of their suit for reconveyance of said
lots from private respondents.
Sometime in 1952, Maximo Sta. Maria obtained crop loans from the Philippine
National Bank (hereinafter referred as the bank). Respondent Associated
Insurance & Surety Co., Inc. (hereinafter referred to as Associated) acted as
surety of Sta. Maria, filing surety bonds in favor of the bank to answer for prompt
repayment of the loans. Petitioner Antonio R. Banzon and Emilio Ma. Naval in
turn acted as indemnitors of Associated and were obligated to indemnify and hold
harmless Associated from any liability thus acting as surety of the loan. Sta.
Maria failed to pay his obligations to the bank, which accordingly demanded
payment from Associated as surety.
Instead of paying the bank, Associated filed a complaint dated November 19,
1956 with the Court of First Instance of Manila 1 against debtor Sta. Maria and
indemnitors Banzon and Naval, alleging that the outstanding obligations of Sta.
Maria with the bank guaranteed by it amounted to P6,100.00, P9,346.44 and
P14,811.32, or a total of P30,257.86, excluding interest. On December 11, 1957,
the said court rendered judgment ordering Sta. Maria, Banzon and Naval "to pay
jointly and severally unto plaintiff for the benefit of the Philippine National
Bank" the amounts mentioned above, with interest thereon at 12% per annum,
P593.76 for premiums and documentary stamps due, and 15% attorney's fees,
"the 15% and the interest to be paid for the benefit only of the plaintiff."
What happened thereafter is narrated in the decision of this Court rendered on
November 29, 1968 in the appeal instituted by petitioner Banzon and his spouse,
co- petitioner Rosa Balmaceda, from a subsequent action of Associated in the
Court of First Instance of Rizal wherein the Rizal court ordered Banzon to
surrender for cancellation his owner's duplicates of titles to his two Caloocan Banzon never became a party
City lots which had been levied upon and purchased at the execution sale by defendant to the aforesaid civil case
Associated in supposed satisfaction of the Manila court's judgment, docketed as and hence not bound by any
Case L-23971 of this Court, entitled Associated Ins. & Surety Co. Inc. plaintiff- judgment rendered therein. It is
appellee vs. Antonio Banzon and Rosa Balmaceda, defendants-appellants,2 as erroneous on the part of the
follows: petitioner to contend that the
objection as to lack of jurisdiction
on the defendant's person has been
As the above decision3 became final and executory, the
waived for said waiver applies only
corresponding writ of execution was issued and levy was
when summons has been served
made upon the properties of the judgment debtor Antonio
although defectively, such as one
R. Banzon covered by Transfer Certificates of Title Nos.
not served by the proper officer. If
39685 and 53759 issued in his name by the Register of
the contention of the oppositor
Deeds of Rizal. The first covered a parcel of land
were true, that is, no summons was
containing an area of 650 square meters situated in Barrio
ever served upon him and that he
Calaanan, Caloocan, Rizal, and the second, another parcel
was completely unaware of the
of 650 square meters situated in the same barrio of the
proceedings in the civil case
same municipality. After the proceedings required by law
aforementioned, the properties in
in connection with execution sales, the aforesaid
question could not be levied upon
properties were sold, the judgment creditor, Associated
for that would amount to a
Insurance and Surety Co., Inc., having been the highest
deprivation of oppositor's property
bidder, for the total sum of P41,000.00. The Sheriff of
without due process of law.
Rizal issued in its favor the corresponding certificate of
sale dated June 27, 1957, which was duly registered on
June 30, 1959. As the period of redemption expired on "The burden, however, rests upon
June 20, 1960 without the judgment debtor or any proper the oppositors to prove that there
party having exercised it, the judgment creditor and was in fact no service of summons
purchaser obtained in due time the corresponding final and this, the court believes, the
certificate of sale, which was likewise duly registered. oppositors have failed to
substantiate with sufficient
evidence. It is a fundamental rule
In view of the foregoing, herein petitioner-appellee made
that the regularity of all official
demands upon Antonio R. Banzon to deliver to it the
actions and proceedings will be
owner's duplicate of Certificate of Title Nos. 39685 and
presumed until the contrary is
53759 mentioned heretofore, but the latter refused to do
proved. In said civil case No.
so. As a result it filed in the Court of First Instance of Rizal
31237, the records show,
in Case No. 3885, G.L.R.O. Record No. 11267, a petition
particularly the answer and the
for an order directing Antonio R. Banzon to present his
motion to dismiss, that the
owner's duplicate of Certificae of Title Nos. 89685 and
proceedings were conducted by
53759 to the Register of Deeds of Rizal for cancellation,
counsel in behalf of all the
and for another order directing the Register of Deeds of
defendants therein including the
Rizal to cancel said duplicates and to issue new transfer
oppositor, Antonio Banzon. The
certificates of title covering the properties in the name of
presumption therefore, of the
petitioner.
regularity of the proceedings as
against said defendant will be
Banzon filed his opposition to the petition claiming maintained including the fact that
mainly that (1) the decision of the Court of First Instance either summons was duly served or
of Manila in Civil Case No. 31237 was void as far as he that the defendant Banzon
was concerned because he had never been summoned in voluntarily appeared in court
connection therewith, an that (2) the levy and sale of the without such summons. It is
properties covered by the petition were likewise void therefore incumbent upon the
because they were conjugal properties belonging to him oppositors to rebut this
and his wife, Rosa Balmaceda. presumption with competent and
proper evidence such as the return
made by the sheriff who served the
After a hearing on the motion and opposition mentioned
summons in question. This,
above, the lower court, on February 7, 1961, rendered a however, the oppositors have not
decision whose dispositive portion is as follows: met.

"In view of the foregoing, "Moreover, the circumstances of

judgment is hereby rendered in
favor of the petitioner granting the
relief prayed for. The oppositors
are hereby ordered to surrender to
the Register of Deeds of Rizal the
Certificate of Title in question for
cancellation and let a new one be
issued in the name of the
petitioner."
In this appeal interposed by them, the Banzons seek a
reversal of the above decision upon the same grounds
relied upon in their opposition filed in the lower court.4
This Court in its decision of November 29, 1968 affirmed the decision of the trial
court, relying upon the lower court's findings on Banzon's failure to substantiate
his claims which "would amount to a deprivation of (Banzon's) property without
due process of law" had he but discharged his burden of proof, thus:
With respect to appellant's contention that Antonio R.
Banzon had not been duly served with summons in
connection with Civil Case No. 31237 of the Court of First
Instance of Manila, it is enough for us to quote here the
pertinent portions of the well-considered decision of the
lower court —
"With respect to the first contention
of oppositors, the latter in effect
contends that not having been
served by summons, Antonio
Page 23 of 33
the case all the more bear out the
strength of this presumption when
it considered that the oppositor
Antonio Banzon received a notice
of execution and levy of these
properties and notice of the sale of
the same at public auction. Had the
oppositors have been prejudiced by
being deprived of due process, they
should have filed either a third
party claim upon the property
levied or an injunction proceeding
to prevent its sale at public auction,
nor would they have allowed the
consummation of the sale and the
lapse of one year within which the
redemption would have been
exercised. These facts gravely
militate against the merits of the
opposition, not only insofar as it
strengthens the aforesaid
presumption of regularity, but also
insofar as they are indicative of the
fact that the properties levied upon
are not conjugal property or even if
they were that the debt involved
was one which redound to the
benefit of the family for which the
conjugal partnership may be held
liable."
 Appellants' second contention namely, that the properties
now in question are their conjugal properties, is belied by
the record before us which shows that Transfer Certificate
of Title Nos. 39685 and 53759 were issued in the name of
Antonio R. Banzon. Moreover, there is no sufficient
evidence in the record to show that the properties were
acquired during appellants' marriage.
IN VIEW OF ALL THE FOREGOING, the decision
appealed from is hereby affirmed, with costs.5
It has now been exposed that notwithstanding the judgment of December 11,
1957 obtained from the Manila court by Associated and executed by it against
petitioner Banzon as indemnitor " for the benefit of the Philippine National
Bank," and which judgment it obtained and executed on the representation to the
said court that the bank was exacting payment from it as surety of the debtor Sta.
Maria's loans, and that it was therefore enforcing Banzon's undertaking as
indemnitor in turn to indemnify it, that it never discharged its liability as surety
to the bank nor ever made any payment to the bank, whether in money or
property, to discharge Sta. Maria's outstanding obligations as guaranteed by it.
As will be shown later, this suit of Associated against Banzon as indemnitor and
the execution against him of the judgment obtained in trust "for the benefit of the
PhiIippine National Bank" were absolutely premature and uncalled for, since
Article 2071 of the Civil Code permits the surety, even before having paid, to
proceed only "against the principal debtor ... (4) when the debt has become
demandable, by reason of the expiration of the period for payment" and that "the
action of the guarantor is to obtain release from the guaranty, or to demand a
security that shall protect him from any proceedings by the creditor and from the
danger of insolvency of the debtor."
In fact, since the bank failed to exact payment from Associated as surety of the
debtor Maximo Sta. Maria's matured obligations, the bank itself filed
on February 10, 1961, its own complaint with the Court of First Instance of
Pampanga against principal debtor Maximo Sta. Maria, his six brothers and
sisters (who had executed a special power of attorney in Sta. Maria's favor to
mortgage a 16-hectare parcel of land jointly owned by all of them as security also
for the bank's loans), and Associated itself, surety, as defendants, for the
collection of the outstanding obligations due from the principal debtor, Maximo
Sta. Maria.
After trial, the court ordered all the defendants jointly and severally to pay the
bank the outstanding amounts due on the crop loans to Sta. Maria, which as of
that much later date, August 20, 1963, amounted only to P6,100.00 and P9,346.44
or a total of P15,446.44, exclusive of interests. It should be noted therefore, that
the debtor Sta. Maria had been making payments all along to the bank on account
of his crop loans so much so that by 1963, the total principal due and amount
outstanding thereon amounted only to P15,446.44. This amounts to practically
one-half of the advance judgment for the total amount of P30,257.86, excluding
interests, obtained by Associated six (6) years earlier in 1957 against Banzon
" for the benefit of the Philippine National Bank" allegedly as the amount due
from Sta. Maria and which Associated as surety would have to pay the bank, and
which as it turns out, Associated never paid to the bank.
These facts and figures are of record in this Court's decision of August 29, 1969,
in Philippine National Bank vs. Sta. Maria, et al.," wherein it is further recorded
that "(D)efendant Maximo Sta. Maria and his surety, defendant Associated
Insurance & Surety Co., Inc. who did not resist the action, did not appeal the
judgment (sentencing all defendants jointly and severally to pay the bank the
above referred to principal amount of P15,446.44, excluding interests)."
This Court sustained the appeal taken by the debtor Maximo Sta. Maria's brothers
and sisters, and reversed the lower court's judgment against them, as follows:
... This appeal has been taken by his six brothers and
sisters, defendants-appellants who reiterate in their brief
their main contention in their Answer to the complaint that
under the special power of attorney, Exh. E, they had not
given their brother, Maximo, the authority to borrow
money but only to mortgage the real estate jointly owned
by them; and that if they are liable at all, their liability
should not go beyond the value of the property which they
had authorized to be given as security for the loans
obtained by Maximo. In their answer, defendants-
appellants had further contended that they did not benefit
whatsoever from the loans, and that the plaintiff bank's
only recourse against them is to foreclose on the property
which they had authorized Maximo to mortgage.
We find the appeal of defendants-appellants, except for
defendant Valeriana Sta. Maria who had executed another
special power of attorney, Exh. E-1, expressly authorizing
Maximo to borrow money on her behalf, to be well taken.
1. Plaintiff bank has not made out a cause of action against
defendants-appellants (except Valeriana), so as to hold
Page 24 of 33
them liable for the unpaid balances of the loans obtained
by Maximo under the chattel mortgages executed by him
in his own name alone.
xxx xxx xxx
6. Finally, as to the 10% award of attorney's fees, this
Court believes that considering the resources of plaintiff
bank and the fact that the principal debtor, Maximo Sta.
Maria, had not contested the suit, an award of five (5%)
per cent of the balance due on the principal, exclusive of
interests, i.e., a balance of P6,100.00 on the first cause of
action and a balance of P9,846.44 on the second cause of
action, per the bank's statements of August 20, 1968,
(Exhs. Q-1 and BB-1 respectively) should be sufficient.
WHEREFORE, the judgment of the trial court against
defendant-appellants Emeteria, Teofilo, Quintin, Rosario
and Leonila, all surnamed Sta. Maria is hereby reversed
and set aside, with costs in both instances against plaintiff.
The judgment against defendant-appellant Valeriana Sta.
Maria is modified in that her liability is held to be joint
and not solidary, and the award of attorney's fees is
reduced as set forth in the preceding paragraph, without
costs in this instance.
The bank thus collected directly from its debtor Sta. Maria the amounts owing to
it, with Associated never having put in one centavo. Per the bank's letter
dated February 20, 1970 to Associated, it informed Associated that the amounts
of its judgment credit against judgment defendants in the aforementioned case
terminated by this Court's decision of August 29, 1969, "had already
been satisfied as of February 16, 1970 by virtue of the payment made by and
thru the Provincial Sheriff of Bataan on the proceeds of the extra-judicial sale of
the mortgaged properties of defendants Sta. Marias," in view of which "we
(Philippine National Bank) have now released the Associated Insurance &
Surety Co., Inc. of its joint obligation with Maximo Sta. Maria et al. in the
aforementioned case."7
This should have put an end to the matter and Banzon's two lots therefore restored
fully to his ownership, but for certain complications involving the intervention
of the other private respondents, the spouses Pedro Cardenas and Leonila
Baluyot, and Associated's own unjustifiable actions, as shall presently be seen.
According to the Banzons' petition at bar, sometime in 1965, even before
ownership over the two parcels of land belonging to the Banzons could be
consolidated in the name of Associated (since the judgment was " for the benefit
of the Philippine National Bank" and it had not discharged its surety's liability to
the bank), Associated "in clear collusion and confederation with (respondent)
Pedro Cardenas, allowed and permitted the latter to execute and levy one of the
two parcels of land (that covered by T.C.T. No. 39685-Rizal, Lot 6, Block No.
176 of subdivision plan Psd-2896, G.L.R.O. Rec. No. 11267) for a judgment debt
of P5,100.00 (of Associated in favor of Cardenas)8notwithstanding that the
property in question was worth P130,000.00 more or less, and further
notwithstanding the fact that said respondent (Associated) knew the property was
merely being held in trust by it for the benefit of the Philippine National Bank and
therefore, not being the legal owner thereof, it cannot validly dispose of it in any
manner."9 Respondent Cardenas being allegedly the lone bidder in the auction
sale for execution of his P5,100.00-judgment against Associated was awarded
the property in full satisfaction of his judgment, and eventually succeeded in
having Banzon's title cancelled and a new one, T.C.T. No. 8567-Caloocan City
issued thereto in his name, notwithstanding that Associated's right thereto was
still sub-judice in Associated vs. Banzon, to be resolved much later yet by this
Court's decision of November 29, 1968. Associated made no move to question
or challenge this action of Cardenas, notwithstanding an order for its liquidation
and dissolution issued on December 31, 1965 by the Court of First Instance of
Manila and eventually affirmed by this Court per resolution of June 20, 1968 in
G.R. No. L-38934. Nor did Associated make any effort to resist execution on
said property of Banzon's, knowing as it did that its interest in said property was
impressed with a trust character since the clear tenor and intent of the judgment
granted against Banzon nominally in its favor but expressly " for the benefit of
the Philippine National Bank" was to make the execution and operation of the
judgment contingent or conditioned upon Associated's being made or compelled
to pay the bank, which contingency never materialized.
The Cardenas spouses thereafter filed with the Court of First Instance of Rizal,
Caloocan City Branch XII, Reg. Case No. C-211 (LRC Case No. 112167)
entitled "Pedro Cardenas, et al., petitioners vs. Antonio Banzon, et al.,
respondents," to secure possession from the Banzons of the lot covered by T.C.T.
No. 8567. A writ of possession was issued in said case on May 21, 1965, but the
enforcement thereof was held in abeyance in view of the filing with the same
court of Civil Case No. C-531 entitled "Antonio Banzon, et al. vs. Pedro
Cardenas and Leonila Baluyot, Associated Insurance and Surety Co., Inc. and
Benito Macrohon." Banzon's complaint in Civil Case No. C-531 was, however,
dismissed on August 6, 1969, on the ground that "the matter of the legality of the
transfer of ownership of the property in question from the plaintiff to the
Associated Insurance & Surety Co., Inc., has been upheld by the Supreme Court
in its decision promulgated on November 29, 1968, and consequently the transfer
to the spouses Pedro Cardenas and Leonila Baluyot must perforce be considered
also as valid and legal."
Consequently, respondent Cardenas filed a motion on October 13, 1969, in Case
No. C-211 for the issuance of an alias writ of possession; this was granted on
October 23, 1969. The alias writ was served on Banzon, who refused to vacate
the premises and to remove the improvements thereon. In view of this, an order
was issued on December 9, 1969, for the issuance of a writ of demolition, but its
enforcement was held in abeyance because a temporary restraining order, later
changed to a writ of preliminary injunction, was issued by the Court of Appeals
on December 13, 1969, in view of the filing by the Banzons with the said
appellate court of a petition for injunction. 10
On February 28, 1970 the Court of Appeals rendered judgment dismissing the
petition because it found the same to be allegedly "merely a device to prevent the
execution of a final judgment by the filing of a new suit based upon the same
grounds which have already been interposed and passed upon in the case where
the final judgment had already been rendered ... ." Cardenas thereafter filed a
motion for the enforcement of the order of demolition and writ of possession
previously issued in Reg. Case No. C-211. On March 13, 1970, Judge Fernando
A. Cruz of the Court of First Instance of Rizal, Caloocan City Branch XII, issued
an order granting the motion.11
On March 13, 1970, the Banzons having learned of the bank's release of
Associated as of February 20,1970, supra, accordingly filed a complaint for
reconveyance and damages with the Court of First Instance of Manila against
respondents Associated and the Cardenas spouses.12 In their complaint, the
Banzons impute bad faith, collusion and confederation between Associated and
the Cardenases with regard to the latter's prematurely obtaining T.C.T. No. 8567
covering one of Banzon's lots in their name. The Banzons therein alleged for the
first time their new cause of action based on the subsequent development that the
Philippine National Bank had collected directly on February 16, 1970 from the
principal debtor Sta. Maria the loan guaranteed by Associated (which amounted
only to a principal of P15,446.44 as of August, 1963, excluding interests or
just one-half of the premature judgment for P30,257.88 excluding interests
obtained by Associated six (6) years earlier in 1957 against Banzon in trust and
for the benefit of the bank allegedly as the amount owed by Sta. Maria and to be
discharged by Associated, which Associated never discharged); 12a and that the
bank, per its letter of February 20, 1970 had therefore absolutely released
Associated of any liability on its surety undertaking. 12b The Banzons therefore
prayed for the return and reconveyance of their two parcels of land covered by
T.C.T. No. 8567 (in Cardenas' name) and No. 53759 (still in Banzon's name), in
discharge of Associated's implied trust not to unjustly enrich itself and
appropriate Banzon's properties at absolutely no cost to itself.
On March 16, 1970, the Sheriff of Caloocan City served upon the Banzons copy
of the aforesaid order giving them until March 20, 1970, within which to deliver
possession of the parcel of land covered by T.C.T. No. 8567, and to remove the
improvements thereon; otherwise, the said sheriff would proceed to enforce the
same.
Petitioners Banzons therefore came to this Court on March 20, 1970, by means
of the present petition for injunction. At petitioners' instance, the Court on March
24, 1970 restrained respondents and their representatives from enforcing the
questioned writ of execution and order of demolition, and respondent Associated
from disposing in any manner of its alleged rights and interests over the two lots
in question.
Respondents Cardenas spouses filed in due course their Answer dated April 2,
1970, admitting in effect the antecedents of the case as recited above, citing even
this Court's decision of November 29, 1968 in Associated vs. Banzon, supra,
which affirmed the money judgment in favor of Associated " for the benefit of
the Philippine National Bank" 13 but alleging that ownership to one parcel (Lot
6, Block 176 covered by T.C.T. No. 8567) "has already absolutely and
irrevocably vested in herein respondent Pedro Cardenas." 14 Said respondents
further averred that "there is no longer anything that may be restrained," since
per the sheriff's return of March 23, 1970, he enforced on said date respondent
court's writ of possession and demolition order and demolished all the
improvements erected in the premises. 15
To this petitioners countered that "the special deputy sheriff of Rizal did succeed
in demolishing the building erected on that lot in question. This he
did notwithstanding the fact that he has been duly informed by petitioner Banzon
of the existence of a restraining order in this case. However, after accomplishing
his purpose, he and his men left the premises."16
Most relevant, however, was a pleading entitled "Explanation and Manifestation"
dated April 25, 1970 filed by Atty. Feliberto Castillo, as former counsel for
Associated "in the interest of justice and in the name of truth and as an officer of
the Court," wherein with respect to the summons for Associated received by his
law office, he manifests:
3. That he is entertaining a serious doubt whether he could
still represent the Associated Insurance & Surety Co., Inc.
in view of the fact that in Civil Case No. 56995 of the
Court of First Instance of Manila, entitled "Republic of
the Philippines, represented by the Insurance
Page 25 of 33
Commissioner vs. Associated Insurance Surety Co., Inc."
the said Court of First Instance of Manila ordered the
liquidation and dissolution of this surety company, which
was appealed to the Court of Appeals, CA-G. R. No.
37985-R but affirmed the decision of the Court of First
Instance of Manila in a decision promulgated on January
3, 1968, which was appealed again by the Associated
Insurance & Surety Co., Inc to the Honorable
Tribunal, G.R. No. L-29834, also affirming the decision of
the Court of Appeals by denying the petition for writ of
certiorari in its resolution of June 20, 1968, and therefore,
since then, the decision of the Court of First Instance of
Manila ordering the liquidation and dissolution of the
Associate Insurance & Surety Co., Inc. became final and
executory, an thereafter, the Insurance Commissioner
demanded the surrender of books, documents and other
papers of this surety company, an as a matter of fact,
books, documents and other papers salvaged were already
surrendered to the Insurance Commissioner for
liquidation of this company, so that by virtue thereof, the
Insurance Commissioner being the liquidator appointed
by the court to liquidate the Associated Insurance &
Surety Co., Inc., is now the legal representative of this
surety company to whom a copy of this paper will be
furnished." 17
In his "Explanation and Manifestation," Atty. Castillo further states that his law
office was the counsel for Associated in the cases involved in these
proceedings, viz., Civil Case No. 31237 of the Court of First Instance of Manila,
Case No. 3885, G.L.R.O. Record No. 11267 of the Court of First Instance of
Rizal, for consolidation in Associated's favor of T.C.T. No. 29685-Rizal and
T.C.T. No. 53759-Rizal, and in G.R. No. L-23971 of the Supreme
Court, Associated vs. Banzon, supra, affirming on November 29, 1968 the Rizal
court's judgment for consolidation; and
— That since Associated was ordered liquidated and dissolved by the Manila
court of first instance in Civil Case No. 56995, as affirmed by the Court of
Appeals in CA-G.R. No. 37985-R, which became final upon this Court's denial
of review per its resolution of June 20, 1968 in G.R. No. L-28934, the Insurance
Commissioner as the appointed liquidator of Associated is the legal
representative thereof who may duly act for Associated and upon whom
summons should be served;
— That even before the promulgation of the Supreme Court decision on
November 29, 1968 in Associated vs. Banzon he, as counsel for Associated,
never attempted to secure new titles for his said client, considering that its
ownership over the parcel of land covered by them was then "still sub judice;"
— That even after the promulgation of the said Supreme Court decision, he never
attempted to secure new titles for his client, because by that time Associated had
already been ordered dissolved and liquidated, hence, to be represented in all
instances by the Insurance Commissioner as liquidator;
— That he wonders how respondent Pedro Cardenas was able to secure T.C.T.
No. 8567 (formerly T.C.T. No. 39685-Rizal) in his name in 1965, when
Associated, which really owed Cardenas a certain sum, could only secure new
titles over the parcels of land after — not before — November 29, 1968, when
the Supreme Court's decision in G.R. No. L-23971 was promulgated; and that in
his opinion, the issuance to respondent Cardenas of T.C.T. No. 8567 was
"fraudulent and irregular for being without basis when the same was issued, so
that the register of deeds of Caloocan City committed some sort of mistakes or
negligence in issuing this title to respondent Pedro Cardenas, and as such, this
T.C.T. No. 8567 is null and void and without force and effect and calls for an
investigation of the guilty parties responsible for the issuance of this T.C.T. No.
8567 in the name of respondent Pedro Cardenas, who might have committed
some falsifications;" (for indeed how could Cardenas cause title to said lot to be
transferred to Associated for him in turn levy against it for his P5,100.00
judgment against Associated when Associated's case against Banzon for such
transfer and consolidation of title was then still pending appeal before this Court,
and Associated's judgment against Banzon was one of trust, expressly therein
declared to be "for the benefit of the Philippine National Bank?")18 and
— That "anybody who will attempt to offer the said parcel of land for sale would
be committing a crime as the position of the same belongs exclusively to the
Insurance Commissioner who is the liquidator of the Associated Instance &
Security Co., Inc.; consequently, the petitioner should not entertain any worry as
said parcel of land is not being disposed of not only because the power to sell the
same exclusively belongs to the Insurance Commissioner but also because
the Associated Insurance & Surety Co., has no titles yet over these parcels of
land as it did not attempt to secure any even before and after the promulgation
of the decision of the Honorable Tribunal in G.R. No. 23971 in view of the
circumstances earlier explained."
On May 11, 1970, we issued summons on the Insurance Commissioner as
liquidator of Associated to answer the petition. In her answer filed on May 29,
1970, the Acting Insurance Commissioner through the Solicitor General
disclaimed knowledge of practically all the allegations of the petition for lack of
knowledge or information sufficient to form a belief as to their truth, manifesting
that she first learned of the material facts averred in the petition when she
received copy of Atty. Castillo's "Explanation and Manifestation", because the
records and documents pertinent to this case were not among those surrendered
to her, and affirming she is the liquidator of Associated by virtue of the Manila
court's order dated December 31, 1965 of liquidation and dissolution of said
corporation, as follows:
3. That the herein Acting Insurance Commissioner is
liquidator of Associated Insurance & Surety Co., Inc. by
virtue of an order of liquidation and dissolution of said
corporation dated December 31, 1965, by the Court of
First Instance of Manila in Civil Case No. 56995, which
decision was affirmed on appeal by the Court of Appeals
in its decision (CA-G.R. No. 37895) dated January 3,
1968, which decision was again affirmed on appeal by this
Honorable Tribunal when it denied the petition for a writ
of certiorari in its Resolution of June 20, 1968 (G.R. No.
L-38934) and which on July 9, 1968, became final and
executory;
4. That by virtue of the aforesaid decision, the Insurance
Commissioner as liquidator of Associated Insurance &
Surety Co., Inc., is vested by authority of law with the title
to all of the property, contracts, and rights of action of
said corporation as of the date of the order of liquidation
(Sec. 175-C, par. 3 of the Insurance Act, as amended);
5. That any subsequent sale or disposition of the property
of said corporation without the knowledge and consent of
the herein Acting Insurance Commissioner and approval
but the Liquidation Court is contrary to law and null and
void;
6. That after the aforesaid order of liquidation and
dissolution became final and executory, the Acting
Insurance Commissioner demanded for the surrender of
all the books, documents and properties of Associated
Insurance & Surety Co., Inc. However, the records and
documents pertinent to the above-entitled case were not
among those surrendered to the Insurance Commissioner
and it was only upon receipt of the "Explanation and
Manifestation" of Atty. Feliberto Castillo, dated April 25,
1970, and the present "Petition" that she came to know for
the first time of the alleged facts averred in this case." 19
A "Motion to Dissolve Temporary Restraining Order and to Dismiss Petition"
was filed on February 12, 1971, by respondents spouses Cardenas and Baluyot.
They contend that the restraining order issued by this Court should be dissolved,
and the petition itself, insofar as they are concerned, be dismissed, because the
petition is predicated on petitioners' complaint for reconveyance and damages in
Civil Case No. 79244 before Branch VIII of the Court of First Instance of Manila,
and the said court issued an order on October 28, 1970, dismissing the said
complaint with respect to defendants therein Cardenas and Baluyot, which
dismissal was not appealed and became final and executory on January 5, 1971,
per entry of judgment attached to the motion. Consequently, according to these
respondents, the temporary restraining order issued by this Court enjoining the
enforcement of the writ of execution and the order of demolition in Reg. Case
No. C-211 of the Court of First Instance of Rizal, has become inoperative and
without any legal basis, the present petition has lost its legal basis, and petitioners
have no more cause of action against respondents Cardenas and Baluyot. The
said order of dismissal of the complaint against these respondents was issued
pursuant to Section 5, Rule 16 of the Rules of Court, after a preliminary hearing
on the affirmative defenses of bar by prior judgment and lack of cause of action
set up by said respondents in their answer, with the lower court opinion that
petitioners' action was already barred by the prior judgments of this Court
of November 29, 1968 in Associated vs. Banzon and of the Court of Appeals
of February 28, 1970 in Banzon vs. Hon. Fernando Cruz, supra. 20
The Solicitor General filed on March 29, 1971 on behalf of the Insurance
Commissioner as liquidator of Associated a strong opposition to the motion to
dissolve the restraining order and dismiss the petition. 21 The commissioner-
liquidator after complaining that "she is still demanding for the surrender of all
the books, documents and properties of Associated" and that "it was only upon
receipt on March 11, 1971 of the voluminous records of the cases handled by
counsel Feliberto V. Castillo for (Associated) that (her) undersigned counsel
have verified and confirmed the truth of the status of the different cases,"
contends inter alia as follows:
18. That, however, during the pendency of the aforesaid
appeal of petitioner Antonio R. Banzon with this
Honorable Tribunal and while the case was still sub-
judice, particularly on February 8, 1964, the herein
respondent Pedro Cardenas as winning party in a case
entitled "Pedro Cardenas vs. Victoria Vda. de Tengco and
Pablo Tuazon," Civil Case No. 36174, Court of First
Instance of Manila, and where the Associated Insurance
and Surety Co., Inc. was surety for the defendants therein,
executed and levied upon one of the parcels of lands
Page 26 of 33
involved in the aforesaid appeal. Ultimately, Pedro
Cardenas was able to acquire the land in question (Lot No.
6, Block No. 176, then covered by T.C.T. No. 39685) as
highest bidder, for the judgment debt of defendants in said
action, plus incidental expenses for the sum of P5,100.00
only;
19. That subsequently thereafter, said respondents
Cardenas, thru some scheme and devise, succeeded in
having the title of said parcel of land transferred in their
names under T.C.T. No. 8567, Registry of Deeds of
Caloocan City, on May 5, 1965, at a time when the
Associated Insurance & Surety Co., Inc. had not yet
earned the authority to consolidate in its name said
property, as the case was then pending with this Honorable
Tribunal. As alleged in paragraph 18 hereof, the question
of consolidation was resolved by this Honorable Tribunal
on February 28, 1968; 21a
20. That by the nature of the decision in Civil Case No.
31237, CFI, Manila, as alleged in paragraph 15 hereof, the
property or sums of money recovered from defendants
therein shall be reserved for the benefit of the Philippine
National Bank for the purpose of paying the principal
debtor's (Maximo Sta. Maria's) obligation therein, and
consequently, the Associated Insurance & Surety Co., Inc.
shall hold the property in question or the sums recovered
in said action, in trust and for the purpose of paying the
aforesaid obligation of Maximo Sta. Maria.22
21. That the Associated Insurance & Surety Co.,
Inc. failed to pay from its own funds under its surety
undertaking, nor from funds realized from the
property levied upon by virtue of the decision in Civil
Case No. 31237, CFI, Manila, but on the other hand,
the principal debtor Sta. Maria paid his own obligation
the Philippine National Bank thus, releasing
it (Associated Insurance & Surety Co., Inc.) from its
obligation under the suretyship undertaking with respect
to said obligation of Maximo Sta. Maria, and similarly
herein petitioner Antonio R. Banzon was released from
this obligation as co-indemnitor in said undertaking;
22. That in fairness to petitioners Antonio R. Banzon and
Rosa Balmaceda, the two parcels of land executed and
levied upon by virtue of the decision in Civil Case No.
31237, Court of First Instance of Manila, deserve to be
reconveyed to them;
23. That one of the lots involved, namely, Lot No. 6, Block
No. 176 covered by T.C.T. No. 8567, Registry of Deeds of
Caloocan City, in the names of the present respondents
Pedro Cardenas and Leonila Baluyot, being one of the two
parcels of lands levied upon in Civil Case No. 31237
but transferred to respondents under dubious
circumstances and patently unauthorized by law, should
be ordered reconveyed to the Associated Insurance Co.,
Inc. through the Insurance Commissioner for the purpose
stated in the next preceding paragraph, as the transaction
on the transfer of said parcel of land to them is null and
void from the very beginning."23
Petitioners likewise oppose the motion of the Cardenases. They contend that the
present petition is not solely predicated on their complaint for reconveyance and
damages in Civil Case No. 79244 for, as admitted by the Insurance
Commissioner, they are entitled to the reconveyance of the lot covered by T.C.T.
No. 8567 and for contribution or indemnification for damages which they may
recover from Associated; that respondents Cardenases secured said title
fraudulently and irregularly without any legal basis, hence, said title having been
anomalously issued, is null and void and without force and effect, and, that, as
stated by Insurance Commissioner-liquidator, in fairness and justice to
petitioners, the two parcels of land levied in favor of Associated by virtue of the
decision on Civil Case No. 31237 should be reconveyed to them; and that to
dissolve the temporary restraining order and to dismiss the present petition would
leave petitioners without a legal remedy.
In a minute resolution dated April 19, 1971, the Court denied the said motion of
respondents Cardenas and Baluyot "to dissolve temporary restraining order and
to dismiss petition."
1. The immediate objectives of this petition are: (a) to enjoin respondent Judge
Fernando Cruz of the Court First Instance of Rizal, Caloocan City Branch, and
respondents Pedro Cardenas and Leonila Baluyot, and their representatives, from
enforcing the writ of execution and of demolition issued by said respondent
Judge in Reg. Case No. C-211 in relation to the lot covered by T.C.T. No 8567;
and (b) to enjoin respondent Associated from disposing its alleged rights and
interests in the two lots covered by T.C.T. No. 8567 and T.C.T. No. 53759, the
injunction in both cases to be made effective during the pendency of the
reconveyance case, Civil Case No. 79244, filed by petitioners as plaintiffs before
the Manila court of first instance.
The real and substantive objectives of the petition are to seek the rightful
restoration and reconveyance to petitioners Banzons of their two Caloocan city
lots, covered by T.C.T. No. 53759 (still in Banzon's name, but on the back
whereof is annotated the sheriff's final deed of sale in favor of Associated) and
by T.C.T. No. 8567 (in the name of respondents Cardenases) on the fundamental
ground that Associated's levy in execution of said lots was in trust for the benefit
of the Philippine National Bank for the purpose of paying the bank the loan
obligation of Maximo Sta. Maria which Associated had guaranteed as surety and
against which liability Banzon in turn as indemnitor had undertaken to indemnify
and hold harmless Associated.
Now, the basic 1957 judgment of the Manila court sentencing Banzon to pay
Associated a total of P30,257.86 excluding interest, " for the benefit of the
Philippine National Bank" expressly made of record the said court's intent and
disposition that the execution and operation of its judgment against Banzon
were contingent and conditionedupon Associated as plaintiff-surety actually
paying or being made or compelled to pay the bank-creditor an equivalent
amount as guaranteed by it. That this is so is made more evident when we
consider the provisions of Article 2071 of the Civil Code which permit the surety
to file such an advance suit against the principal debtor (not against an indemnitor
such as Banzon) only to obtain release from the guaranty or security against the
danger of the debtor's insolvency. Where the debtor directly discharged his loan
obligation to the bank which in turn released Associated from
its suretyship liability without Associated having incurred a centavo of liability,
it is indisputable that Associated in turn would necessarily release Banzon
as indemnitor and the basic 1957 judgment would be inoperable and
unenforceable against Banzon.
When Associated nevertheless prematurely and contary to the intent and
condition of the basic 1957 judgment levied in execution on the two Caloocan
City lots of Banzon the interest it acquired was clearly impressed with a trust
character. Such acquisition of Banzon's properties by Associated was effected,
if not through fraud 23a on Associated's part, certainly through mistake 23b and
there Associated was "by force of law, considered a trustee of implied trust for
the benefit of the person from whom the property comes" by virtue of Article
1456 of the Code 23c — since Associated not having paid nor having been
compelled to pay the bank had no right in law or equity to so execute the
judgment against Banzon as indemnitor. Had there been no fraudulent
concealment or suppression of the fact of such non-payment by Associated or a
mistaken notion just assumed without factual basis that Associted had paid the
bank and was thus entitled to enforce its judgement against Banzon as
indemnitor, the writ for execution of the judgment against Banzon's properties
would not been issued.23d
Furthermore, Associated's conduct, upon being sued by the Philippine National
Bank directly with the principal debtor Sta. Maria for collection of the
debt23e and sentenced by the Pampanga court of first instance in 1963 (which it
did not appeal) to pay the debt in the much lesser amount of only P15,446.44,
excluding interests, in not so discharging its liability notwithstanding that it had
already executed its 1957 judgment against Banzon as indemnitor and taken in
execution Banzon's two properties, was indeed rank fraud. Associated therefore
stands legally bound by force of law to now discharge its implied trust and return
Banzon's properties to him as their true and rightful owner.
The obligation imposed upon Associated as implied trustee to so restore Banzon's
properties becomes even more compelling when it is considered that in the
premature execution sale by virtue of the basic 1957 judgment, Associated
ostensibly was the highest bidder therefor applying its purported judgment credit
of P41,000.00 when in law such judgment was not subject to execution since the
condition of Associated as surety being made to pay the bank to make the
judgment operable and enforceable had not materialized and in fact Associated
not having paid anything to the bank did not possess such purported judgment
credit of P41,000.00, nor did it put out a single centavo for which it could hold
Banzon answerable and therefore take Banzon's properties in execution and
satisfaction thereof. Actually, as already indicated above, the principal debt of
the bank's debtor, when directly collected by the bank six (6) years later,
amounted merely to 1/2 the amount or P15,446.44 as of August, 1963, excluding
interests.23f As already stated above, Associated did not pay even this much
lesser amount, notwithstanding the Pampanga court's judgment against it in the
suit directly filed by the bank.
Finally, it would be an outrage on simple justice and iniquitous unjust enrichment
if a surety such as Associated, after taking title in execution to the indemnitor's
properties in order to protect or reimburse itself from liability to the creditor for
the debt guaranteed by it, were to be allowed to retain ownership of the
properties even though it did not incur or discharge its liability at all, since it
succeeded in evading payment to the creditor who thereafter collect the debt
directly from the debtor. Thus, the law (Article 1456, Civil Code) impresses
properties thus acquired with trust character and constitutes the erring surety as
"trustee of an implied trust for the benefit of the person from who the property
comes," in this case, Banzon as the true and rightful owner of the properties.
Associated had in the lot, and with the knowledge that Associated's basic 1957
judgment against Banzon was "for the benefit of the Philippine National Bank"
and hence Associated's interest in the Banzon properties was impressed with
a trust character, subject to the obligation of Associated as implied trustee to
return the properties to Banzon, the trust character of the lot titled by Cardenas
necessarily passed to him. Cardenas could not claim actual or absolute ownership
of the lot so titled but could only hold the same as trustee, like Associated as
his causante or predecessor.
The respondents Cardenases' pleadings of record should clearly that they
were fully aware of these vital antecedents and premises of the suits between
Associated and the Banzons. In their memorandum, they cite the Manila court of
first instance's basic decision in Civil Case No. 31237 "condemning defendants
to pay jointly and severally upon (sic) plaintiff (Associated) but for the benefit of
the Philippine National Bank" 24 the several amounts sought by Associated, as
surety, totalling P30,257.86. As far as their own claim against Associated is
concerned, they likewise recite in their memorandum that:
On April 29, 1959, then Judge (now Justice) Jesus Perez
of the Court of First Instance of Manila rendered a
decision in Civil Case No. 36194, entitled "Pedro
Cardenas vs. Victoria Vda. de Tengco, et al." ordering the
defendants, including Associated Insurance & Surety Co.,
Inc., as surety, to pay certain sums of money to Pedro
Cardenas. The liability of the Associated Insurance &
Surety Co., Inc., was affirmed by the Court of Appeals in
a Decision promulgated on October 30, 1963, in CA-G.R.
No. 25227-R. Consequently, pursuant to a Writ of
Execution issued on February 8, 1964, the City Sheriff of
Caloocan sold on March 23, 1964 at a public auction to
Pedro Cardenas, the highest and only bidder, all the
"rights, interests, claims and title" of the judgment-debtor
Associated Insurance & Surety Co. Inc., over the
property plus the improvements thereon covered by
Transfer Certificate of Title No. 39685 (one on the
properties acquired from Antonio Banzon). The property
not having been redeemed within the one year period, a
Deed of Absolute Sale was issued in favor of Pedro
Cardenas on April 2, 1965. On April 23, 1965, Pedro
Cardenas filed a petition with the Court of First Instance
of Rizal, Branch XII, Caloocan City, in Registration Case
No. C-211 (LRC Rec. No. 11267), entitled "Pedro
Cardenas, Petitioner," for the issuance of a new transfer
certificate of title over the property in question and to
declare null and void the one previously issued. On May
5, 1965, a Transfer Certificate of Title was issued by the
Register of Deeds of Caloocan City in the name of Pedro
Cardenas pursuant to the order of the court in aforecited
Registration Case No. C-211, dated May 3, 1965, as
amended. 25
It is obvious that since what Cardenas acquired in his execution for his P5,100.00
judgment against Associated was only "all the rights, interests, claims and title
of the judgment-debtor (Associated) over the property ... (one of the properties
acquired from Antonio Banzon)" and Associated's rights, if they could be so
denominated, over Banzon's properties were merely those of a trustee, supra,
and Cardenas thereby acquired no absolute "rights, interests, claim and title" at
all but Associated's obligation as trustee to restore Banzon's lawful properties to
him.
3. As a point of law, even though under Associated's suretyship agreement
guaranteeing Sta. Maria's crop loans with the bank, it was permitted, supposedly
for its protection, to proceed judicially against the principal debtor and
indemnitors even prior to the surety's making payment to the creditor bank,
Article 2071 of the Civil Code regulates such relations and provides that in such
cases, the surety's right is against the principal debtor and that "in all these cases,
the action of the guarantor is to obtain release from the guaranty, or to demand
a security that shall protect him from any proceedings by the creditor and from
the danger of insolvency of the debtor."
Associated thus did not even have any valid cause of action against Banzon as
its indemnitor, but could proceed only against Sta. Maria as the principal debtor.
And even as against such principal debtor, it could not prematurely demand
payment even before it had paid the creditor, its action being limited only for the
purpose of obtaining release from the guaranty or a security against an eventual
insolvency of the debtor. As was emphasized by Mr. Justice Reyes for the Court
in General Indemnity Co., Inc. vs. Alvarez, 26 while a guarantor may under
Article 2071 of the Civil Code proceed against the principal debtor, even before
having paid, when the debt has become demandable, "(T)he last paragraph of this
same article, however, provides that in such instance, the only action the
guarantor can file against the debtor is 'to obtain release from the guaranty, or to
demand a security that shall protect him from any proceeding by the creditor and
from the danger of insolvency of the debtor.' An action by the guarantor against
the principal debtor for payment, before the former has paid the creditor, is
premature."

4. The realization of the Banzon's rightful objectives in law and equity as thus
2. As Cardenas in levying in turn for satisfaction of his P5,100.00 judgment
restated has somewhat been hampered and beclouded by the ineptitude and sorry
against Associated on one of Banzon's lots acquired only whatever interest
Page 27 of 33
neglect with which they and/or their counsel have pursued their remedies in the
various suits brought by them. To cite the latest instance, the pending suit filed
by them in the Manila court of first instance, Civil Case No. 79244, is from the
record the first real case that they have properly filed for reconveyance of their
two Caloocan City lots based on their new cause of action that with the debtor's
direct payment to the bank, Associated had been released as surety and Banzon
consequently likewise released as Associated's indemnitor, and therefore
Associated in discharge of the implied trust under which it executed the basic
1957 judgment " for the benefit of the Philippine National Bank" against Banzon
was now called upon to discharge such trust and reconvey and restore Banzon's
properties to him.
Yet Banzon filed no appeal from the Manila Court's dismissal of his complaint
against the Cardenas spouses for reconveyance of the lot wrongfully titled by the
latter on the lower court's mistaken concept that this Court's decision of
November 29, 1968 in Associated vs. Banzon, supra, constituted res
judicata and apparently allowed such dismissal to become final. In reality, since
Associated never had to pay the bank, Banzon's two lots, which had been levied
upon prematurely under Associated's judgment against Banzon and were
therefore held by it in implied trust for Banzon by force of law, "deserve to be
reconveyed to them" — in the very words of the insurance commissioner, who
alone and officially represents and acts for Associated as liquidator.
As manifested by Associated's former counsel even when Associated was acting
on its own unauthorizedly and in violation of law, since an order for its
liquidation and dissolution had already been issued by the Manila court since
December 31, 1965, he, as Associated's counsel, never attempted to transfer
Banzon's titles to Associated since the question was sub-judice before this Court
and resolved only per its decision in Associated vs. Banzon of November 29,
1968, as of which time, this Court had already previously affirmed on June
20,1968 in G.R. No. L-28934, the Manila court's dissolution and liquidation
order against Associated thus removing all doubt that only the Insurance
Commissioner as liquidator could act in any and all matters for Associated. 27
5. Under Sec. 175-C, paragraph 3 of the Insurance Act as
amended, 28 the Insurance Commissioner as liquidator of Associated was vested
by authority of law with the title to all of the property, contracts and rights of
action of Associated as of the date of the judicial order of liquidation, and
any sale or disposition of Associated's properties or rights without the knowledge
and consent of the insurance commissioner as liquidator and without the
approval by the liquidation court is contrary to law and null and void.
Accordingly, petitioners Banzons are, as against their and their counsel's neglect
and inattention, nevertheless saved from the otherwise fatal consequences of the
invoked final dismissal of their complaint against the Cardenases in Civil Case
No. 79244 of the Manila court for recovery of the lot wrongfully titled in the
Cardenases' name per T.C.T. No. 8567. Since in all the litigations subsequent to
Associated's prematurely obtaining in the Manila court of first instance in Civil
Case 31237 the basic 1957 judgment as surety against Banzon as a mere
indemnitor to cover the principal debtor Sta. Maria's demandable loans to the
bank and thereafter levying in execution on Banzon's two Caloocan City lots,
notwithstanding that such judgment was expressly held to be in trust and for the
benefit of the bank, the insurance commissioner, as liquidator of Associated and
therefore an indispensable partywas never impleaded and therefore there could
be no final determination of said actions. Under Rule 3, section 7,indispensable
parties must always be joined either as plaintiffs or defendants, for the court
cannot proceed without them, and hence all judgments and proceedings held after
the liquidation and dissolution order against Associated became void for lack of
an indispensable party in the person of the insurance commissioner-liquidator.
The insurance commissioner as liquidator of Associated by authority of law was
indisputably an indispensable party with such an interest in the controversies
affecting the judgment for Associated (against Banzon) and against Associated
(in favor of Cardenas) that a final decree would necessarily affect its rights
(administered by the Commissioner in the public interest and for the public's
protection) so that the courts could not proceed therein without the
commissioner-liquidator's official presence.
6. The wrongful dismissal by the Manila court of the Banzons' reconveyance suit,
Civil Case No. 79244, as against the Cardenases thus does not produce what
would otherwise have been fatal consequences due to the Banzons' failure to
appeal from such dismissal.
Their reconveyance case as against Associated as principal defendant remains
pending in court. And the insurance commissioner as liquidator of Associated,
now that she is fully aware of the status of these antecedent cases after she finally
received on March 11, 1971 the voluminous records thereof which had hitherto
not been surrendered to her office despite demands therefor, is called upon to
appear for Associated in the said case, if she has not as yet been duly impleaded
as such liquidator. With the insurance commissioner, as liquidator of Associated
and an indispensable party now in the case, the said reconveyance suit may now
proceed anew and the Cardenas spouses caused by the liquidator to be duly
impleaded anew for they are also indispensable parties insofar as the insurance
commissioner-liquidator's claim on behalf of Associated to the lot covered by
T.C.T. No. 8567 issued in their name is concerned. Herein petitioners seek
principally in the said case the reconveyance to them by Associated of their two
parcels of land covered by T.C.T. No. 8567 and T.C.T. No. 53759, as acquired
in execution by Associated, and thereafter, with respect to the lot covered by
T.C.T. No. 8567, by the Cardenases, by virtue of the trust characterimpressed
Page 28 of 33
upon them and Associated's duty as implied trustee to restore said properties to
the Banzons.
Considering that the insurance commissioner herself , who now legally can alone
represent Associated as liquidator, has herein recognized such trust
character and has expressed the belief that the said lot, no less than the other lot
covered by T.C.T. No. 8567, should, in justice to petitioners, be reconveyed to
them on account, among others, of petitioner Banzon's release from his
obligation as indemnitor by virtue of the principal debtor's subsequent payment
of his obligation with the Philippine National Bank which likewise released
Associated from any liability as surety, the present petition should therefore be
granted in the interest of justice and equity so as to enable the insurance
commissioner-liquidator in due course to discharge the trust of reconveying
Banzons' properties to them.
7. The circumstances that respondents Cardenases, insofar as the lot wrongfully
claimed by them, caused the Caloocan City special deputy sheriff to enforce on
March 23, 1970 respondent court's challenged order of demolition and writ of
possession on the very day that this Court ordered the issuance of a restraining
order against the enforcement of said challenged order and writ, and
notwithstanding that said sheriff was duly advised by Banzon of the petition at
bar having been filed on March 20, 1970, does not make the restraining order in
any manner moot. The Court does not look with favor upon parties "racing to
beat an injunction or restraining order" which they have reason to believe might
be forthcoming from the Court by virtue of the filing and pendency of the
appropriate petition therefor. Where the restraining order or preliminary
injunction are found to have been properly issued, as in the case at
bar, mandatory writs shall be issued by the Court to restore matters to the status
quo ante. 29
In the case at bar, with the insurance commissioner as liquidator of
Associated, recognizing through the Solicitor General that the Banzons' two lots
wrongfully taken from them by Associated's premature actions should be
reconveyed to them, there is established a clear and indubitable showing on the
record that the petitioners are entitled to a writ restoring the status quo ante. A
mandatory writ shall therefore issue commanding respondent court to
forthwith restore petitioners to their possession of Lot 6, Block 176, covered by
T.C.T. 8567 from which they have been removed by enforcement of said
respondent court's enjoined order of demolition and writ of possession dated
March 13, 1970, Annex "F" of the petition. As to petitioners' building thereon
claimed to be worth P10,000.00 (but countered by Cardenas to be a "mere
barong-barong" 30), respondent court shall at Banzon's petition cause respondents
Cardenases to restore the demolished building or pay Banzon the determined
value thereof. As to the fruits of possession of the land, with Cardenas
acknowledging that he has been leasing the same to a third person at P200.00 a
month, 31 respondents Cardenases shall forthwith pay to petitioners Banzons the
whole amount of rentals so received by them to the time that possession of the
lot is effectively restored to petitioners. By the very nature of this mandatory writ,
the same shall be immediately executory upon promulgation of this decision.
WHEREFORE, the petition for a permanent injunction, during the pendency of
Civil Case No. 79244 of the Court of First Instance of Manila against the
disposition in any manner of the two parcels of land subject of said case other
than their reconveyance to petitioners as the true and rightful owners thereof as
expressly recognized by the insurance commissioner as liquidator of Associated
is hereby granted. In lieu of the permanent injunction against enforcement of
respondent court's order dated March 13, 1970 in Case No. C-211 thereof
ordering the delivery of possession of the property covered by T.C.T. No. 8567
to respondents Cardenases and demolition of petitioners Banzons' improvements
thereon, (which were prematurely carried out by respondent court's sheriff on
March 23, 1970) a writ of mandatory injunction commanding respondent court
to forthwith restore the status ante quo and to restore petitioners Banzons to full
possession of the property and enjoyment of the fruits and rentals thereof under
the terms and conditions stated in the next preceding paragraph is hereby issued,
which shall be immediately executory upon promulgation of this decision. With
costs against respondents Pedro Cardenas and Leonila Baluyot.
This decision is without prejudice to such civil and criminal liability as the
officers of the defunct Associated Insurance & Surety Co., Inc. may have
incurred by virtue of their acts of commission and omission which have resuited
in grave prejudice and damage to petitioners as well as to the public interest, as
in the suppression from and non-surrender to the Insurance Commissioner as
liquidator of the records of the relevant antecedent cases, and in the possible
misrepresentation to the courts therein that Associated had duly discharged to the
bank its liability as surety and could therefore lawfully levy on the properties of
Banzon as indemnitor, which would have resulted in the respondents' unjust
enrichment at Banzon's expense. The insurance commissioner is directed to
conduct the corresponding investigation for the purpose of filing such criminal
and other appropriate actions as may be warranted agains the responsible parties.
So ordered.
Suretyship
G.R. No. L-7721 March 25, 1914
INCHAUSTI & CO., plaintiff-appellant, - That the instrument of August 12, 1909, was novated by that of May
vs. 12, 1911, executed by Manuel, Francisco and Carmen Yulo.
GREGORIO YULO, defendant-appellee.
Facts: The Court 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.
Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of
Issues:
his haciendas in Negros Occidental, had been borrowing money from
Inchausti & Co under specific conditions.
1. Whether the plaintiff can sue Gregorio Yulo alone, there being other
April 9, 1903: Teodoro Yulo died testate and for the execution of the provisions obligors; - YES
of his will, he had appointed as administrators his widow and five of his sons, 2. If so, whether it lost this right by the fact of its having agreed with the
including Gregorio Yulo. other obligors in the reduction of the debt, the proroguing of the
Gregoria Regalado – the wife – died the following year on October 22nd. The obligation and the extension of the time for payment, in accordance
remaining were the following legitimate children: Pedro, Francisco, Teodoro with the instrument of May 12, 1911;- NO
(incompetent), Manuel, Gregorio, Mariano, Carmen, Concepción (minor), 3. Whether this contract with the said three obligors constitutes a
and Jose (minor) Yulo. The children preserved the same relations under the novation of that of August 12, 1909, entered into with the six debtors
name of Hijos de T. Yulo continuing their current account with Inchausti & Co who assumed the payment of two hundred fifty-three thousand and
until said balance amounted to P200,000 upon which the creditor firm tried to some odd pesos, the subject matter of the suit;- NO
obtain security for the payment of the money 4. If so, whether it does have any effect at all in the action brought, and
in this present suit.-Yes
First – June 26, 1908: Gregorio Yulo, for himself and in representation of his
brothers executed a notarial document admitting their indebtedness to Held:
Inchausti & Co. in the sum of P203,221.27 and, in order to secure the same
with interest thereon at 10% per annum, they especially mortgaged an undivided
1. With respect to the first it cannot be doubted that, the debtors having
six-ninth of their 38 rural properties, their remaining urban properties, lorchas,
obligated themselves in solidum, the creditor can bring its action in
and family credits which were listed.
toto against any one of them, inasmuch as this was surely its purpose
in demanding that the obligation contracted in its favor should be
Second – January 11, 1909: Gregorio Yulo in representation of Hijos de T.
solidary having in mind the principle of law that, "when the obligation
Yulo answered a letter of the firm of Inchausti & Co saying that they received
is constituted as a conjoint and solidary obligation each one of the
the abstract of their current account, expressing their conformity with the balance
debtors is bound to perform in full the undertaking which is the
of P271,863.12. This was reduced to P253,445.42 on July 17, 1909, to which
subject matter of such obligation." (Civil Code, articles 1137 and
the brothers expressed conformity. Regarding this conformity a new document
1144
evidencing the mortgage credit was formalized.
2. Even though the creditor may have stipulated with some of the
solidary debtors diverse installments and conditions, as in this case,
Third – August 12, 1909: Gregorio Yulo, for himself and in representation of
Inchausti & Company did with its debtors Manuel, Francisco, and
his brother Manuel Yulo, and in their own behalf Pedro, Francisco, Carmen, and
Carmen Yulo through the instrument of May 12, 1911, this does not
Concepcion ratified all the contents of the prior document of June 26, 1908,
lead to the conclusion that the solidarity stipulated in the instrument
severally and jointly acknowledged and admitted their indebtedness to
of August 12, 1909 is broken, as we already know the law provides
Inchausti & Co for the net amount of P253,445.42 which they obligated
that "solidarity may exist even though the debtors are not bound in
themselves to pay, with interest at 10% per annum, in five installments at the rate
the same manner and for the same periods and under the same
of P50,000, except the last, this being P53,445.42, beginning June 30, 1910,
conditions." (Ibid, article 1140.) Whereby the second point is
continuing successively on the 30th of each June until the last payment on June
resolved.
30, 1914.
3. There can also be no doubt that the contract of May 12, 1911, does
Among other clauses, they expressly stipulated the following:
not constitute a novation of the former one of August 12, 1909, with
- The default in payment of any of the installments or the
respect to the other debtors who executed this contract, or more
noncompliance of any of the other obligations will result in the
concretely, with respect to the defendant Gregorio Yulo: First,
maturity of all the said instalments and Inchausti & Co. may exercise
because "in order that an obligation may be extinguished by another
at once all the rights and actions in order to obtain the immediate and
which substitutes it, it is necessary that it should be so expressly
total payment of our debt
declared or that the old and the new be incompatible in all points"
- All the obligations will be understood as having been contracted
(Civil Code, article 1204); and the instrument of May 12, 1911, far
in solidum
from expressly declaring that the obligation of the three who executed
- The instrument shall be confirmed and ratified in all its parts, within
it substitutes the former signed by Gregorio Yulo and the other
the present week, by their brother Mariano, otherwise it will not be
debtors, expressly and clearly stated that the said obligation of
binding on Inchausti & Co. who can make use of their rights to
Gregorio Yulo to pay the two hundred and fifty-three thousand and
demand and obtain the immediate payment of their credit without any
odd pesos sued for exists, stipulating that the suit must continue its
further extension or delay.
course and, if necessary, these three parties who executed the contract
of May 12, 1911, would cooperate in order that the action against
Fourth – This instrument was neither ratified nor confirmed by Mariano Yulo.
Gregorio Yulo might prosper (7th point in the statement of facts),
Fifth – The Yulos did not pay the first installment of the obligation.
with other undertakings concerning the execution of the judgment
which might be rendered against Gregorio Yulo in this same suit. "It
Sixth – March 27, 1911: Inchausti & Co. brought an ordinary action against
is always necessary to state that it is the intention of the contracting
Gregorio Yulo for the payment of the balance of P253,445.42 with interest at
parties to extinguish the former obligation by the new one" (Judgment
10% per annum, on that date aggregating to P42,944.76.
in cassation, July 8, 1909). There exist no incompatibility between the
old and the new obligation as will be demonstrated in the resolution
Seventh – May 12, 1911: Francisco, Manuel, and Carmen Yulo executed in
of the last point, and for the present we will merely reiterate the legal
favor of Inchausti & Co. another notarial instrument in recognition of the debt
doctrine that an obligation to pay a sum of money is not novated in a
and the obligation of payment.1 Stipulated in addition was that Inchausti & Co.
new instrument wherein the old is ratified, by changing only the term
should include in their suit brought against Gregorio Yulo, his brother and joint
of payment and adding other obligations not incompatible with the
co-obligee, Pedro Yulo, and they will procure by all legal means and in the least
old one.
time possible a judgment in their favor against Gregorio and Pedro.

Eighth – July 10, 1911: Gregorio Yulo answered the complaint and alleged as
defenses:
- That an accumulation of interest had taken place and that compound
interest was asked for in Philippine currency at par with Mexican;
- That in the instrument of August 12, 1909, two conditions were
agreed one of which ought to be approved by the CFI, and the other
ratified and confirmed by the other brother Mariano Yulo, neither of
which was complied with; proceedings over the inheritances of
Teodoro Yulo and Gregoria Regalado, though later they were
dismissed, pending the present suit
With respect to the last point, the following must be borne in mind:
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

1 Debt is reduced for them to P225,000 of each successive year until the total obligation shall be finally
Interest is likewise reduced for them to 6% per annum, from and satisfactorily paid on June 30, 1919 (xxx)
March 15, 1911
Installments are increased to 8, the first of P20,000, beginning
on June 30, 1911, and the rest of P30,000 each on the same date
Page 29 of 33
obstacle against the prospering of the suit as it had been brought. It would have Against the propriety and legality of a judgment against Gregorio Yulo for this
been very just then to have absolved the solidary debtor who having to pay the sum, to wit, the three-sixths part of the debt which forms the subject matter of
debt in its entirety would not be able to demand contribution from his codebtors the suit, we do not think that there was any reason or argument offered which
in order that they might reimburse him pro rata for the amount advanced for sustains an opinion that for the present it is not proper to order him to pay all or
them by him. But such hypothesis must be put out of consideration by reason of part of the debt, the object of the action.
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
It has been said in the brief of the appellee that the prematurity of the action is
debt was reduced to P225,000 and the attorney of the plaintiff admits in his plea
one of the defenses derived from the nature of the obligation, according to the
that Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.)
opinion of the commentator of the Civil Code, Mucius Scaevola, and
This is a fact which this Supreme Court must hold as firmly established,
consequently the defendant Gregorio Yulo may make use of it in accordance with
considering that the plaintiff in its brief, on page 27, corroborates the same in
article 1148 of the said Code. It may be so and yet, taken in that light, the effect
these words: "What effect," it says, "could this contract have over the rights and
would not be different from that already stated in this decision; Gregorio Yulo
obligations of the defendant Gregorio Yulo with respect to the plaintiff company?
could not be freed from making any payment whatever but only from the
In the first place, we are the first to realize that it benefits him with respect to the
payment of that part of the debt which corresponds to his codebtors Francisco,
reduction of the amount of the debt. The obligation being solidary, the remission
Manuel, and Carmen. The same author, considering the case of the opposing
of any part of the debt made by a creditor in favor of one or more of the solidary
contention of two solidary debtors as to one of whom the obligation is pure and
debtors necessarily benefits the others, and therefore there can be no doubt that,
unconditional and as to the other it is conditional and is not yet demandable, and
in accordance with the provision of article 1143 of the Civil Code, the defendant
comparing the disadvantages which must flow from holding that the obligation
has the right to enjoy the benefits of the partial remission of the debt granted by
is demandable with these which must follow if the contrary view is adopted,
the creditor."
favors this solution of the problem:

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 might make
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.
Page 30 of 33
There is a middle ground, (he says), from which we can safely set out,
to wit, that the creditor may of course, 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.
Extinguishment of suretyship
ROMULO MACHETTI, plaintiff-appelle,
vs.
HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE
ISLANDS, defendant-appellant
One Romulo Machetti, by a written agreement undertook to construct a building
on Calle Rosario in the city of Manila for the Hospicio de San Jose, the contract
price being P64,000. One of the conditions of the agreement was that the
contractor should obtain the "guarantee" of the Fidelity and Surety Company
of the Philippine Islands to the amount of P128,800 and the following
endorsement in the English language appears upon the contract:
For value received we hereby guarantee compliance with the terms
and conditions as outlined in the above contract.
Machetti constructed the building under the supervision of architects
representing the Hospicio de San Jose and, as the work progressed, payments
were made to him from time to time upon the recommendation of the architects,
until the entire contract price, with the exception of the sum of the P4,978.08,
was paid. Subsequently it was found that the work had not been carried out
in accordance with the specifications which formed part of the contract and
that the workmanship was not of the standard required, and the Hospicio
de San Jose therefore answered the complaint and presented a counterclaim
for damages for the partial noncompliance with the terms of the agreement
abovementioned, in the total sum of P71,350. After issue was thus joined,
Machetti, on petition of his creditors, was, on February 27, 1918, declared
insolvent and on March 4, 1918, an order was entered suspending the proceeding
in the present case in accordance with section 60 of the Insolvency Law, Act No.
1956.
The Hospicio de San Jose on January 29, 1919, filed a motion asking that the
Fidelity and Surety Company be made cross-defendant to the exclusion of
Machetti and that the proceedings be continued as to said company, but still
remain suspended as to Machetti. This motion was granted and on February 7,
1920, the Hospicio filed a complaint against the Fidelity and Surety Company
asking for a judgement for P12,800 against the company upon its guaranty. After
trial, the Court of First Instance rendered judgment against the Fidelity and
Surety Company for P12,800 in accordance with the complaint. The case is now
before this court upon appeal by the Fidelity and Surety Company form said
judgment.
As will be seen, the original action which Machetti was the plaintiff and the
Hospicio de San Jose defendant, has been converted into an action in which the
Hospicio de San Jose is plaintiff and the Fidelity and Surety Company, the
original plaintiff's guarantor, is the defendant, Machetti having been practically
eliminated from the case.
But in this instance the guarantor's case is even stronger than that of an ordinary
surety. The contract of guaranty is written in the English language and the terms
employed must of course be given the signification which ordinarily attaches to
them in that language. In English the term guarantor" implies an undertaking of
guaranty, as distinguished from suretyship. It is very true that notwithstanding
the use of the words "guarantee" or "guaranty" circumstances may be shown
which convert the contract into one of suretyship but such circumstances do not
exist in the present case; on the contrary it appear affirmatively that the contract
is the guarantor's separate undertaking in which the principal does not join, that
its rests on a separate consideration moving from the principal and that although
it is written in continuation of the contract for the construction of the building, it
is a collateral undertaking separate and distinct from the latter. All of these
circumstances are distinguishing features of contracts of guaranty.
Now, while a surety undertakes to pay if the principal does not pay, the guarantor
only binds himself to pay if the principal cannot pay. The one is the insurer of
the debt, the other an insurer of the solvency of the debtor. (Saint vs.Wheeler &
Wilson Mfg. Co., 95 Ala., 362; Campbell, vs. Sherman, 151 Pa. St., 70; Castellvi
de Higgins and Higgins vs. Sellner, 41 Phil., 142; ;U.S. vs. Varadero de la
Quinta, 40 Phil., 48.) This latter liability is what the Fidelity and Surety Company
assumed in the present case. The undertaking is perhaps not exactly that of
a fianza under the Civil Code, but is a perfectly valid contract and must be given
the legal effect if ordinarily carries. The Fidelity and Surety Company having
bound itself to pay only the event its principal, Machetti, cannot pay it follows
that it cannot be compelled to pay until it is shown that Machetti is unable to pay.
Such ability may be proven by the return of a writ of execution unsatisfied or by
other means, but is not sufficiently established by the mere fact that he has been
declared insolvent in insolvency proceedings under our statutes, in which the
Page 31 of 33
extent of the insolvent's inability to pay is not determined until the final
liquidation of his estate.
ROSA VILLA MONNA, plaintiff-appellee,
vs.
GUILLERMO GARCIA BOSQUE, ET AL., defendants.
GUILLERMO GARCIA BOSQUE, F. H. GOULETTE, and R. G.
FRANCE, appellants..
Facts:
Plaintiff Monna was the owner of a printing establishment and bookstore, and
known as La Flor de Cataluna, Viuda de E. Bota. The plaintiff, then and now a
resident of Barcelona, Spain, acting through Manuel Pirretas, as attorney in fact,
sold the establishment to the defendants Guillermo Garcia Bosque and Jose
Pomar Ruiz, for the stipulated sum of P55,000, payable as follows: Fifteen
thousand pesos (P15,000) on November 1, next ensuing upon the execution of
the contract, being the date when the purchasers were to take possession; ten
thousand pesos (P10,000) at one year from the same date; fifteen thousand pesos
(P15,000) at two years; and the remaining fifteen thousand pesos (P15,000) at
the end of three years. By the contract of sale the deferred installments bear
interest at the rate of 7 per centum per annum. In the same document the
defendants France and Goulette obligated themselves as solidary sureties
with the principals Bosque and Ruiz, to answer for any balance, including
interest, which should remain due and unpaid after the dates stipulated for
payment of said installments, expressly renouncing the benefit of exhaustion
of the property of the principals. The first installment of P15,000 was paid
conformably to agreement.
Manuel Pirretas, the attorney in fact of the plaintiff, absented himself from the
Philippine Islands on a prolonged visit to Spain; and in contemplation of his
departure he executed a document, purporting to be a partial substitution of
agency, whereby he transferred to "the mercantile entity Figueras Hermanos,
or the person, or persons, having legal representation of the same," the
powers that had been previously conferred on Pirretas by the plaintiff "in order
that," so the document runs, "they may be able to effect the collection of such
sums of money as may be due to the plaintiff by reason of the sale of the
bookstore and printing establishment already mentioned, issuing for such
purpose the receipts, vouchers, letters of payment, and other necessary
documents for whatever they shall have received and collected of the character
indicated."
When the time came for the payment of the second installment and accrued
interest due at the time, the purchasers were unable to comply with their
obligation, and after certain negotiations between said purchasers and one
Alfredo Rocha, representative of Figueras Hermanos, acting as attorney in fact
for the plaintiff, an agreement was reached, whereby Figueras Hermanos
accepted the payment of P5,800 on November 10, 1920, and received for the
balance five promissory notes payable, respectively, on December 1, 1920,
January 1, 1921, February 1, 1921, March 1, 1921, and April 1, 1921. The first
three of these notes were in the amount of P1,000 each, and the last two for
P2,000 each, making a total of P7,000. It was furthermore agreed that the debtors
should pay 9 per centum per annum on said deferred installments, instead of the
7 per centum mentioned in the contract of sale. These notes were not paid
promptly at maturity but the balance due upon them was finally paid in full by
Bosque on December 24, 1921.
About this time the owners of the business La Flor de Cataluña, appear to have
converted it into a limited partnership under the style of Guillermo Garcia
Bosque, S. en C.;" and presently a corporation was formed to take over the
business under the name "Bota Printing Company, Inc." By a document executed
on April 21, 1922, the partnership appears to have conveyed all its assets to this
corporation for the purported consideration of P15,000, Meanwhile the seven
notes representing the unpaid balance of the second installment and interest were
failing due without being paid. Induced by this dilatoriness on the part the debtor
and supposedly animated by a desire to get the matter into better shape, M. T.
Figueras entered into the agreement attached as Exhibit 1 to the answer of
Bosque. In this document it is recited that Guillermo Garcia Bosque. S. en C., is
indebted to Rosa Villa, viuda de E. Bota, in the amount of P32,000 for which R.
G. France and F. H. Goulette are bound as joint and several sureties, and that the
partnership mentioned had transferred all its assets to the Bota Printing
Company, Inc., of which one George Andrews was a principal stockholder. It is
then stipulated that France and Goulette shall be relieved from all liability on
their contract as sureties and that in lieu thereof the creditor, Doña Rosa Villa y
Monna, accepts the Bota Printing Company, Inc., as debtor to the extent of
P20,000, which indebtedness was expressly assumed by it, and George Andrews
as debtor to the extent of P12,000, which he undertook to pay at the rate of P200
per month thereafter. To this contract the name of the partnership Guillermo
Garcia Bosque, S. en C., was affixed by Guillermo Garcia Bosque while the name
of the Bota Printing Company, Inc., was signed by G. Andrews, the latter also
signing in his individual capacity. The name of the plaintiff was affixed by M.T.
Figueras in the following style: "p.p. Rosa Villa, viuda de E. Bota, M. T.
Figueras, party of the second part."
No question is made as to the authenticity of this document or as to the intention
of Figueras to release the sureties; and the latter rely upon the discharge as
complete defense to the action. The defendant Bosque also relies upon the same
agreement as constituting a novation such as to relieve him from personal
liability. All of the defendants furthermore maintain that even supposing that M.
T. Figueras authority to novate the original contract and discharge the sureties
therefrom, nevertheless the plaintiff has ratified the agreement by accepting part
payment of the amount due thereunder with full knowledge of its terms. In her
amended complaint the plaintiff asserts that Figueras had no authority to execute
the contract containing the release (Exhibit 1) and that the same had never been
ratified by her.
Issue:
Whether the plaintiff is bound by Exhibit 1 constitutes the main controversy in
the case, since if this point should be determined in the affirmative the plaintiff
obviously has no right of action against any of the defendants.
Held:
The partial substitution of agency (Exhibit B to amended complaint) purports to
confer on Figueras Hermanos or the person or persons exercising legal
representation of the same all of the powers that had been conferred on Pirretas
by the plaintiff in the original power of attorney. This original power of attorney
is not before us, but assuming, as is stated in Exhibit B, that this document
contained a general power to Pirretas to sell the business known as La Flor de
Cataluña upon conditions to be fixed by him and power to collect money due to
the plaintiff upon any account, with a further power of substitution, yet it is
obvious upon the face of the act of substitution (Exhibit B) that the sole purpose
was to authorize Figueras Hermanos to collect the balance due to the
plaintiff upon the price of La Flor de Cataluña, the sale of which had already
been affected by Pirretas. The words of Exhibit B on this point are quite explicit
("to the end that the said lady may be able to collect the balance of the selling
price of the Printing Establishment and Bookstore above-mentioned, which has
been sold to Messrs. Bosque and Pomar"). There is nothing here that can be
construed to authorize Figueras Hermanos to discharge any of the debtors
without payment or to novate the contract by which their obligation was
created
A contention submitted exclusively in behalf of France and Goulette, the
appellant sureties, is that they were discharged by the agreement between
the principal debtor and Figueras Hermanos, as attorney in fact for the
plaintiff, whereby the period for the payment of the second installment was
extended, without the assent of the sureties, and new promissory notes for
unpaid balance were executed in the manner already mentioned in this
opinion. The execution of these new promissory notes undoubtedly constituted
and extension of time as to the obligation included therein, such as would release
a surety, even though of the solidary type, under article 1851 of the Civil Code.
Nevertheless it is to be borne in mind that said extension and novation related
only to the second installment of the original obligation and interest accrued up
to that time. Furthermore, the total amount of these notes was afterwards paid in
full, and they are not now the subject of controversy. It results that the extension
thus effected could not discharge the sureties from their liability as to other
installments upon which alone they have been sued in this action. The rule that
an extension of time granted to the debtor by the creditor, without the consent of
the sureties, extinguishes the latter's liability is common both to Spanish
jurisprudence and the common law; and it is well settled in English and American
jurisprudence that where a surety is liable for different payments, such as
installments of rent, or upon a series of promissory notes, an extension of time
as to one or more will not affect the liability of the surety for the others. The
contention of the sureties on this point is therefore untenable.
There is one stipulation in the contract (Exhibit A) which, at first suggests a doubt
as to propriety of applying the doctrine above stated to the case before us. We
refer to cause (f) which declares that the non-fulfillment on the part of the debtors
of the stipulation with respect to the payment of any installment of the
indebtedness, with interest, will give to the creditor the right to treat and declare
all of said installments as immediately due. If the stipulation had been to the
effect that the failure to pay any installment when due would ipso facto cause to
other installments to fall due at once, it might be plausibly contended that after
default of the payment of one installment the act of the creditor in extending the
time as to such installment would interfere with the right of the surety to exercise
his legal rights against the debtor, and that the surety would in such case be
discharged by the extension of time, in conformity with articles 1851 and 1852
of the Civil Code. But it will be noted that in the contract now under consideration
the stipulation is not that the maturity of the later installments shall be ipso
facto accelerated by default in the payment of a prior installment, but only that it
shall give the creditor a right to treat the subsequent installments as due, and in
this case it does not appear that the creditor has exercised this election. On the
contrary, this action was not instituted until after all of the installments had fallen
due in conformity with the original contract. It results that the stipulation
contained in paragraph (f) does not affect the application of the doctrine above
enunciated to the case before us.
Finally, it is contended by the appellant sureties that they were discharged by a
fraud practiced upon them by the plaintiff in failing to require the debtor to
execute a mortgage upon the printing establishment to secure the debt which is
the subject of this suit. In this connection t is insisted that at the time France and
Goulette entered into the contract of suretyship, it was represented to them that
they would be protected by the execution of a mortgage upon the printing
establishment by the purchasers Bosque and Pomar. No such mortgage was in
Page 32 of 33
fact executed and in the end another creditor appears to have obtained a mortgage
upon the plant which is admitted to be superior to the claim of the plaintiff. The
failure of the creditor to require a mortgage is alleged to operate as a discharge
of the sureties. With this insistence we are unable to agree, for the reason that
the proof does not show, in our opinion, that the creditor, on her attorney in
fact, was a party to any such agreement. On the other hand it is to be collected
from the evidence that the suggestion that a mortgage would be executed on the
plant to secure the purchase price and that this mortgage would operate for the
protection of the sureties came from the principal and not from any representative
of the plaintiff.
As a result of our examination of the case we find no error in the record
prejudicial to any of the appellants, and the judgment appealed from will be
affirmed.
G.R. No. L-20588 December 17, 1923
THE ASIATIC PETROLEUM COMPANY (PHILIPPINE ISLANDS),
LTD., plaintiff-appellant,
vs.
FRANCISCO HIZON Y SINGIAN and JUSTINO A. DAVID, defendants.
FRANCISCO HIZON Y SINGIAN,defendant-appellant.
Facts:
Plaintiff is a corporation lawfully engaged in the selling of petroleum products
in the Philippine Islands. In the year 1916 the plaintiff made a contract with
Justino A. David, whereby the latter became the selling agent of the plaintiff at
San Fernando, in the Province of Pampanga, with authority extending not only
over the municipality of San Fernando but over the neighboring places of
Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat, in the same
province. In accordance with this contract and in conformity with the practices
of the contracting parties thereunder, the said Justino A. David from time to time
over a period of about five years received for sale and distribution at the places
mentioned various consignments of kerosene, gasoline, and similar petroleum
products, which were sold and disposed of by Justino A. David as selling agent.
The relation thus established was continued without interruption until in the year
1921, when all the transactions between the two parties were gone over, and it
was found that David was indebted to the plaintiff in the amount of nearly
P60,000, a sum which, by subsequent payments, was reduced to P40,786.98, as
found and adjudged by the trial court.
The alleged liability of the appellant, Francisco Hizon y Singian, is planted upon
a document (Exhibit B-1), which, as appearing in evidence, is pasted to the
Exhibit B. By the said exhibit B-1, Francisco Hizon y Singian obligates himself
to answer jointly and severally with the agent (Justino A. David) for all the
obligations contracted or to be contracted by the latter in accordance with the
terms of the contract of agency (Exhibit B), and the said Francisco Hizon y
Singian further agrees finally to answer for any balance that should be due to the
plaintiff from said agent upon liquidation of the account, or accounts, between
said two parties.
As already stated the document B-1 is pasted to the contract Exhibit B, also made
upon a printed form, but the two documents do not form integral parts of the
same sheet, or sheets. However, the document B-1 refers to the contract of
agency to which it is appended; and when the two are considered together, it
would appear that the contract Exhibit B is the identical instrument referred to in
Exhibit B-1 and that the former was executed in relation with the latter. Upon
this point, however, a question is made, which constitutes in our opinion the
decisive feature of the case
As already stated the contract Exhibit B declares that David shall serve the
plaintiff company as its only selling agent at San Fernando, Guagua, Angeles,
San Simon, Capas, Magalang, and Mabalakat, in the Province of Pampanga; and
the indebtedness which is the subject of this action was incurred by said David
as selling agent of the plaintiff at all the places named.
From the time demand was first made upon the present appellant, Hizon, for the
satisfaction of the balance due to the plaintiff upon liquidation of the account of
David, the appellant has insisted that he had obligated himself to answer for
indebtedness to be incurred by David as selling agent at and for the town of San
Fernando and that he had been given to understand, at the time he contracted the
obligation, that the indebtedness so incurred would not be in excess of P5,000.
The representation as to the amount into which the indebtedness would run — a
representation which seems to have come exclusively from David — we consider
unimportant, since the written contract places no limit upon the amount of the
obligation; but the defendant's contention concerning the place, or places, over
which David's agency extended is of a more serious character.
In this connection it is important to note that in the principal contract (Exhibit B),
as submitted in evidence, the words "Guagua, Angeles, San Simon, Capas,
Magalang, Mabalakat" (after the words San Fernando), have been inserted in the
printed form by means of a typewriting machine, and owing to lack of space in
the printed form, it was necessary for the typist to interline the words "Guagua,
Angeles, and San Simon." Furthermore, the word "Mabalakat" as written by the
typist, overlaps and obscures the succeeding printed words, "in the," standing
before "Province of Pampanga." There is of course nothing particularly In the light of what has been said it becomes necessary to reverse the appealed
suspicious about this, but the situation thus revealed suggests the possibility that judgment in so far as it awards the sum of P5,000 against the appellant Francisco
the words Guagua, Angeles, San Simon, Capas, Magalang, and Mabalakat may Hizon y Singian, and he will be completely absolved from the complaint.
have been inserted after the contract of suretyship had been signed and
acknowledged by the appellant Hizon. Conclusive proof on this point comes,
however, from another quarter and from a source not at all dependent upon the
credibility of the oral testimony of the appellant Hizon. Said proof consists in the
fact now to be stated.

Now, after the principal contract had been acknowledged by Justino A. David,
as appears from the notarial certificate appended thereto, and after the contract
of suretyship had been at the same time acknowledged by the appellant, as
appears from the contemporaneous notarial certificate appended thereto, the
notary public delivered to David one copy of the principal contract, together with
one copy of the contract of suretyship acknowledged by the appellant; and these
two documents went to the hands of the plaintiff and have appeared in evidence
as Exhibits B and B-1, as already stated. The other copy of the principal contract
was retained in possession of the notary, in accordance with notarial usage in
such matters. It thus became a part of his official records and, with other
documents, was afterwards delivered by the notary to the clerk of court, of the
Province of Pampanga, by whom it was transmitted to the division of archives of
the Philippine Library and Museum.

In the course of the trial of this case, a duly authenticated copy of said contract,
as appearing in the official archives of said division, was introduced in evidence
in this case; and upon comparison of said copy with the Exhibit B, the two
documents are found to differ in the sole circumstance that the words Guagua,
Angeles, San Simon, Capas, Magalang, and Mabalakat, are wanting in the
instrument now preserved in the division of archives.

Upon this circumstance, in relation with the testimony of the notary public and
the appellant, the trial judge reached the conclusion that at the time the appellant
signed and acknowledged the contract of suretyship the principal contract made
no mention of other places than San Fernando, had been interpolated in the
document Exhibit B after the contract of suretyship had been acknowledged.

Issue: Whether or not Hizon has been released as a surety

Held:

We believe that there can be little doubt as to the correctness of this conclusion,
and it completely bears out the contention of the appellant to the effect that he
really obligated himself only to answer for such indebtedness as might be
incurred by David as agent at San Fernando. We may add that no witness was
produced by the plaintiff for the purpose of explaining in any way the
discrepancy between the two documents above referred to.

The circumstance should not pass unnoticed that the appellant's contention
concerning the extent of the agency at the time he obligated himself was
formulated at a time when he did not know of the existence of a copy of the
contract of agency in the files of the division of archives; and the subsequent
discovery of this piece of evidence is strongly suggestive of the appellant's good
faith in claiming that he had obligated himself only for the results of an agency
to be established at San Fernando. Our conclusion upon a careful consideration
of the evidence is that, when the appellant acknowledged the contract of
suretyship, the principal contract was limited to the agency at that place and that
the document Exhibit B was subsequently amended by agreement between the
plaintiff and Justino A. David, but without the knowledged or consent of the
appellant, by the insertion therein of the names of the other places mentioned in
said exhibit.

It is fundamental in the law of suretyship that any agreement between the creditor
and the principal debtor which essentially varies the terms of the principal
contract, without the consent of the surety, will release the surety from liability.
(21 R.C.L., 1004.) This principle is equally valid under the civil as under the
common law; and though not specifically expressed in the Civil Code, it may be
deduced, so far as its application to the facts of this case is concerned, from the
second paragraph of article 1822 in relation with article 1143 of the same Code.
It requires no argument to show that the increase of liability incident to the
extension of the agency to other places that San Fernando was prejudicial to the
interest of the appellant, and the change could not be lawfully made without his
consent.

The trial judge was therefore not in error in holding that the appellant was in
effect discharged from liability under the contract of suretyship (Exhibit B-1);
but his Honor nevertheless gave judgment against the defendant for the sum of
P5,000. In doing so he proceeded upon the idea that the defendant admitted that
he had intended to obligate himself to the extent of P5,000, and his Honor
concluded that by entering into the contract of suretyship the defendant had
induced the plaintiff to make the contract of agency — which appears to have
been signed by the representative of the plaintiff after it had been signed and
acknowledged by David; for which reason his Honor considered it just to hold
the defendant to the extent at least in which he had intended to bind himself. The
validity of this conclusion cannot be admitted. The only obligation which was
created on the part of the defendant was the contract of suretyship (Exhibit B-1),
and when that obligation was nullified by the subsequent alteration of the
principal contract, the appellant was discharged in toto.
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