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CONSUELO P. PICZON, RUBEN O. PICZON and AIDA P. ALCANTARA, ,
vs. ESTEBAN PICZON and SOSING-LOBOS & CO., INC., (G.R. No. L-
29139, November 15, 1974)
FACTS: This an appeal from the decision of the Court of First
Instance of Samar in its Civil Case No. 5156, entitled Consuelo P.
Piczon, et al. vs. Esteban Piczon, et al., sentencing defendants-
appellees, Sosing Lobos and Co., Inc., as principal, and Esteban
Piczon, as guarantor, to pay CONSUELO P. PICZON, RUBEN O.
PICZON and AIDA P.
ALCANTARA "the sum of P12,500.00 with 12% interest from August
6, 1964 until said principal amount of P12,500.00 shall have been
duly paid, and the costs." Annex "A", the actionable document of
appellants reads thus:
AGREEMENT OF LOAN KNOW YE ALL MEN BY THESE PRESENTS:
That I, ESTEBAN
PICZON, of legal age, married, Filipino, and resident of and with
postal address in the municipality of Catbalogan, Province of Samar,
Philippines, in my capacity as the President of the corporation
known as the "SOSINGLOBOS and CO., INC.," as controlling
stockholder, and at the same time as guarantor for the same, do by
these presents contract a loan of Twelve Thousand Five Hundred
Pesos (P12,500.00), Philippine Currency, the receipt of which is
hereby acknowledged, from the "Piczon and Co., Inc." another
corporation, the main offices of the two corporations being in
Catbalogan, Samar, for which I undertake, bind and agree to use the
loan as surety cash deposit for registration with the Securities and
Exchange Commission of the incorporation papers relative to the
"Sosing-Lobos and Co., Inc.," and to return or pay the same amount
with Twelve Per Cent (12%) interest per annum, commencing from
the date of execution hereof, to the "Piczon and Co., Inc., as soon as
the said incorporation papers are duly registered and the Certificate
of Incorporation issued by the aforesaid Commission.
IN WITNESS WHEREOF, I hereunto signed my name in Catbalogan,
Samar, Philippines, this 28th day of September, 1956.
(signed)Esteban Piczon.
ISSUES:
(a) SHOULD THE PAYMENT OF 12% INTEREST ON THE
PRINCIPAL OF P12,500.00 FROM AUGUST 6, 1964, ONLY, OR FROM
SEPTEMBER 28, 1956, WHEN ANNEX "A" WAS DULY EXECUTED?
SEPTEMBER 28, 1956
(b) Is Esteban Piczon liable a guarantor or a surety?
GUARANTOR
HELD: a. Instead of requiring appellees to pay interest at 12% only
from August 6, 1964, the
trial court should have adhered to the terms of the agreement which
plainly provides that Esteban Piczon had obligated Sosing-Lobos and
Co., Inc. and himself to "return or pay (to Piczon and Co., Inc.) the
same amount (P12,500.00) with Twelve Per Cent (12%) interest per
annum commencing from the date of the execution hereof", Annex
A, which was on September 28, 1956. Under Article 2209 of the Civil
Code
"(i)f the obligation consists in the payment of a sum of money, and
the debtor incurs in delay, the indemnity for damages, there being
no stipulation to the contrary, shall be the payment of the interest
agreed upon, and in the absence of stipulation, the legal interest,
which is six per cent per annum."
In the case at bar, the "interest agreed upon" by the parties in Annex
A was to commence from the execution of said document.
b. Under the terms of the contract, Annex A, Esteban Piczon
expressly bound himself only as guarantor, and there are no
circumstances in the record from which it can be deduced that his
liability could be that of a surety. A guaranty must be express,
(Article 2055, Civil Code) and it would be violative of the law to
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consider a party to be bound as a surety when the very word used in
the agreement is "guarantor."
Moreover, as well pointed out in appellees' brief, under the terms of
the pre-trial order, appellants accepted the express assumption of
liability by Sosing-Lobos & Co., Inc. for the payment of the obligation
in question, thereby modifying their original posture that inasmuch
as that corporation did not exist yet at the time of the agreement,
Piczon necessarily must have bound himself as insurer.
As already explained earlier, appellants' prayer for payment of legal
interest upon interest due from the filing of the complaint can no
longer be entertained, the same not having been made an issue in
the pleadings in the court below. We do not believe that such a
substantial matter can be deemed included in a general prayer for
"any other relief just and equitable in the premises", especially
when, as in this case, the pre-trial order does not mention it in the
enumeration of the issues to be resolved by the court
BA FINANCE vs. CA
FACTS: Renato Gaytano, doing business under the name Gebbs
International, applied for and was granted a loan with respondent
Traders Royal Bank in the amount of P60,000.00. As security for the
payment of said loan, the Gaytano spouses executed a deed of
suretyship whereby they agreed to pay jointly and severally to
Traders Royal Bank bank the amount of the loan including interests,
penalty and other bank charges.
In a letter addressed toTraders Royal Bank, Philip Wong as credit
administrator of BA Finance Corporation for and in behalf of the
latter, undertook to guarantee the loan of the Gaytano spouses.
Partial payments were made on the loan leaving an unpaid balance
in the amount of P85,807.25. Since the Gaytano spouses refused to
pay their obligation, Traders Royal Bank filed with the trial court
complaint for sum of money against the Gaytano spouses and
petitioner BA Finance Corporation as alternative defendant. The
Gaytano spouses did not present evidence for their defense. BA
Finance Corporation corporation, on the other hand, raised the
defense of lack of authority of its credit administrator to bind the
corporation.
The trial court rendered a decision in favor of plaintiff and against
defendants Gaytano spouses, ordering the latter to jointly and
severally pay the plaintiff. Not satisfied with the decision, Traders
Royal Bank appealed with the Court of Appeals. Respondent
appellate court rendered judgment modifying the decision of the
trial court. Hence, this petition.
ISSUE: WON the letter of guaranty is ultra vires and thus invalid
and/or unenforceable. YES
HELD: It is a settled rule that persons dealing with an assumed
agent, whether the assumed agency be a general or special one are
bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent
of authority, and in case either is controverted, the burden of proof
is upon them to establish it (Harry Keeler
v. Rodriguez, 4 Phil. 19).
Hence, the burden is on Traders Royal Bank to satisfactorily prove
that the credit administrator with whom they transacted acted
within the authority given to him by his principal, BA Finance
Corporation.
The only evidence presented by Traders Royal Bank was the
testimony of Philip Wong, credit administrator, w ho testifiedthat he
had authority to issue guarantees as can be deducedfrom the
wording of the memorandum given to him by BA Finance
Corporation on his lending authority. The said memorandum
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allegedly authorized Wong not only to approve and grant loans but
also to enter into contracts of guaranty in behalf of the corporation.
Although Wong was clearly authorized to approve loans even up to
P350,000.00 without any security requirement, which is far above
the amount subject of the guaranty in the amount of P60,000.00,
nothing in the said memorandum expressly vests on the credit
administrator power to issue guarantees. We cannot agree with
respondent's contention that the phrase "contingent commitment"
set forth in the memorandum means guarantees.
It has been held that a power of attorney or authority of an agent
should not be inferred from the use of vague or general words.
Guaranty is not presumed, it must be expressed and cannot be
extended beyond its specified limits (Director v. Sing Juco, 53 Phil.
205). In one case, where it appears that a wife gave her husband
power of attorney to loan money, this Court ruled that such fact did
not authorize him to make her liable as a surety for the payment of
the debt of a third person (Bank of Philippine Islands v. Coster,
47Phil. 594).
The sole allegation of the credit administrator in the absence of any
other proof that he is authorized to bind BA Finance Corporation in a
contract of guaranty with third persons should not be given weight.
The representation of one who acts as agent cannot by itself serve
as proof of his authority to act as agent or of the extent of his
authority as agent (Velasco v. La Urbana, 58Phil. 681). Wong's
testimony that he had entered into similar transactions of guaranty
in the past for and in behalf of the BA Finance Corporation, lacks
credence due to his failure
to show documents or records of the alleged past transactions.
The actuation of Wong in claiming and testifying that he has the
authority is understandable. He would naturally take steps to save
himself from personal liability for damages to respondent bank
considering that he had exceeded his authority. The rule is clear that
an agent who exceeds his authority is personally liable for damages.
Anent the conclusion of respondent appellate court that BA Finance
Corporation is estopped from alleging lack of authority due to its
failure to cancel or disallow the guaranty, the Court rules that said
conclusion has no basis in fact. Respondent bank had not shown any
evidence aside from the testimony of the credit administrator that
the disputed transaction of guaranty was in fact entered into the
official records or files of petitioner corporation, which will show
notice or knowledge on the latter's part and its consequent
ratification of the said transaction. In the absence of clear proof, it
would be unfair to hold BA Finance Corporation guilty of estoppel in
allowing its credit administrator to act as though the latter had
power to guarantee.
FIDELIZA J. AGLIBOT vs. INGERSOL L. SANTIA
G.R. No. 185945 (December 05, 2012)
FACTS: Engr. Ingersol L.Santia loaned P2,500,000 to Pacific Lending
and Capital Corporation, through its manager Fideliza J. Aglibot. The
loan was evidence by a promisorry note date July 1, 2003 and
payable in one year subject to interest at 24% per annum. Aglibot
then issued and delivered to Santia eleven post-dated personal
checks drawn from her own demand account as a guaranty or
security for the payment of the note.
Upon presentation of the checks, they were dishonored by the bank
for having been drawn against insufficient funds or closed account.
Santia then demanded payment from PLCC and Aglibot of the face
value of the checks, but neither of them heeded his demand. As a
result, eleven Informations for violation of BP 22 were filed against
Aglibot.
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Aglibot, in her defense, admitted that she did obtain the loan from
Santia, but claimed that she did so in behalf of PLCC; that before
granting the loan, Santia demanded and obtained from her a
security for the repayment thereof, but with the understanding that
upon remittance in case of the face amount of the checks, Santia
would correspondingly return to her each check so paid. Aglibot also
mainted that she was a mere guarantor of the PLCC's debt and
Santia failed to exhaust all means to collect the debt from PLCC and
therefore she is not subsidiary liable.
ISSUE: Whether or not Aglibot is a guarantor and thus, can invoke
the benefit of excussion - NO, Aglibot is an accommodation party
HELD: The RTC in its decision held that Aglibot signed the promissory
note on behalf of PLCC as manager and nowhere does it appear that
she signed as a accommodation party. The RTC further ruled that
what Aglibot agreed to do by issuing her personal checks was merely
to guarantee the indebtedness of PLCC, and thus she must be
accorded the benefit of excussion- prior exhaustion of the property
of the debtor- as provided under Article 2058 of the Civil Code-
Art. 2058. The guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the property of the debtor, and
has resorted to all the legal remedies against the debtor.
However, in the present case, Aglibot's claim as a mere guarantor is
bereft of merit for want of proof as provided under Article 1403(2)
of the Civil Code, embodying the Statute of Frauds which provides-
Art. 1403. The following contracts are unenforceable, unless they
are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
a) An agreement that by its terms is not to be performed
within a year from the making thereof;
b) A special promise to answer for the debt, default, or
miscarriage of another;
c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the buyer
accept and receive part of such goods and chattels, or the
evidences, or some of them, or such things in action, or pay at the
time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at the
time of the sale, of the amount and kind of property sold, terms of
sale, price, names of purchasers and person on whose account the
sale is made, it is a sufficient memorandum;
e) An agreement for the leasing of a longer period than one
year, or for the sale of real property or of an interest therein;
f) A representation to the credit of a third person.
Under the above provision, concerning a guaranty agreement, which
is a promise to answer for the debt or default of another, the law
clearly requires that it, or some note or memorandum thereof, be in
writing. Otherwise, it would be unenforceable unless ratified,
although under Article 1358 of the Civil Code, a contract of guaranty
does not have to appear in a public document.
Under Article 2055 of the Civil Code, it is provided that a guaranty is
not presumed, but must be express and cannot extend to more than
what is stipulated therein. This is the obvious rationale why a
contract of guaranty is unenforceable unless made in writing or
evidenced by some writing. For as pointed out by Santia, Aglibot has
not shown any proof, such as a contract, a secretary’s certificate or a
 CRED 2 YATANAK
board resolution, nor even a note or memorandum thereof,
whereby it was agreed that she would issue her personal checks in
behalf of the company to guarantee the payment of its debt to
Santia. Certainly, there is nothing shown in the Promissory Note
signed by Aglibot herself remotely containing an agreement
between her and PLCC resembling her guaranteeing its debt to
Santia. And neither is there a showing that PLCC thereafter ratified
her act of "guaranteeing" its indebtedness by issuing her own checks
to Santia.
N.B.: Why Aglibot is an accommodation party
The appellate court ruled that by issuing her own post-dated checks,
Aglibot thereby bound herself personally and solidarily to pay Santia,
and dismissed her claim that she issued her said checks in her official
capacity as PLCC’s
manager merely to guarantee the investment of Santia. It noted that
she could have issued
PL CC’s c h ec ks , b u t in s te a d s he c h os e to is s u e her own
checks, drawn against her personal account with Metrobank. It
concluded that Aglibot intended to personally assume the
repayment of the loan, pointing out that in her Counter-Affidavit,
she even admitted that she was personally indebted to Santia, and
only raised payment as her defense, a clear admission of her
liability for the said loan.
The facts below present a clear situation where Aglibot, as the
manager of PLCC, agreed to accommodate its loan to Santia by
issuing her own post-dated checks in payment thereof. She is what
the Negotiable Instruments Law calls an accommodation party.
TEXAS COMPANY vs ALONZO
FACTS: On November 5, 1935 Leonor S. Bantug and Tomas Alonso
were sued by the Texas Company (P.I.), Inc. 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.
Witness the hand and seal of the undersigned affixed in the
presence of two witness, this
12th day of August, 1929.
Leonor S. Bantug was declared in default as a result of her failure to
appear or answer, but Tomas Alonso filed an answer setting up a
general denial and the 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 of Cebu sentenced Leonor S. Bantug and Tomas Alonso to
pay jointly and severally to the Texas Company the sum of P629,
with interest at the rate of six per cent (6%) from the date of filing of
the complaint, and with proportional costs. The CA modified the
judgment; Leonor S. Bantug was held solely liable for the payment of
the aforesaid sum of P629 to the Texas Company, with the
consequent absolution of Tomas Alonso.
According to the petitioner, the CA erred in holding that there was
merely an offer of guaranty on the part of the respondent, Tomas
Alonso, and that the latter cannot be held liable thereunder because
he was never notified by the Texas Company of its acceptance.
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ISSUE: WON there was merely an offer of guaranty on the part of
Alonso? YES
HELD: The CA has placed reliance upon our decision in National Bank
vs. Garcia (47 Phil., 662), while the petitioner invokes the case of
National Bank vs. Escueta, (50 Phil., 991). In the first case, it was held
that there was merely an offer to give bond and, as there was no
acceptance of the offer, this court refused to give effect to the bond.
In the second case, the sureties were held liable under their surety
agreement which was found to have been accepted by the creditor,
and it was therein ruled that an acceptance need not always be
express or in writing.
The Court of Appeals found as a fact, and that 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 proper party in interest, namely, the surety or
guarantor. 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, so as to
justify the application of our decision in National Bank vs. Escueta.
The decision appealed of CA is affirmed.
POLICY: 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.
_________________
VISAYAN SURETY vs CA
FACTS: On February 1993, the spouses Danilo Ibajan and Mila Ambe
Ibajan (plantiffs) filed with the RTC a complaint against spouses Jun
and Susan Bartolome (defendants), for replevin to recover from
them the possession of an Isuzu jeepney, with damages. Spouses
Ibajan alleged that they were the owners of an Isuzu jeepney which
was forcibly and unlawfully taken by Spouses Bartolome on
December 1992, while parked at their residence.
Spouses Ibajan filed a replevin bond through petitioner Visayan
Surety & Insurance Corporation. The contract of surety provided
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thus: "WHEREFORE, we, sps. Danilo Ibajan and Mila Ibajan and the
VISAYAN SURETY & INSURANCE CORP., jointly and severally bind
ourselves in the sum of P300,000 for the return of the property to
the defendant, if the return thereof be adjudged, and for the
payment to the defendant of such sum as he/she may recover from
the plaintiff in the action."
RTC granted issuance of a writ of replevin and as such, the sheriff
seized the subject vehicle and turned over the same to spouses
Ibajan. However on May 1993, Dominador Ibajan, father of Danilo
Ibajan, filed a motion for leave of court to intervene, stating that he
has a right superior to the spouses Ibajan over the ownership and
possession of the subject vehicle.
RTC granted the motion to intervene. Then later, RTC issued an
order granting the motion to quash the writ of replevin and ordered
Mila Ibajan to return the subject jeepney to the intervenor
Dominador Ibajan.
RTC thereafter ordered the issuance of a writ of replevin in favor of
the intervenor Dominador who was the registered owner. This writ
of replevin in favor of intervenor Dominador was however returned
unsatisfied. Thus, in March 1994, intervenor Dominador filed with
RTC a motion/application for judgment against spouses Ibajan’s
bond.
RTC ruled in favor of Dominador and ordered spouses Ibajan and
Visayan Surety and Insurance Corporation to pay the former jointly
and severally the value of the jeepney in the amount of P150,000
and other damages. CA affirmed RTC decision.
ISSUE: WON the surety is liable to an intervenor on a replevin bond
posted by Visayan Surety in favor of defendants. NO
HELD: Who is an intervenor?
An intervenor is a person, not originally impleaded in a proceeding,
who has legal interest in the matter in litigation, or in the success of
either of the parties, or an interest against both, or is so situated as
to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof.
An intervenor is not a party to a contract of surety which he did not
sign and which was executed by plaintiffs and defendants. It is a
basic principle in law that contracts can bind only the parties who
had entered into it; it cannot favor or prejudice a third person.
Contracts take effect between the parties, their assigns, and heirs,
except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law.
A contract of surety is an agreement where a party called the surety
guarantees the performance by another party called the principal or
obligor of an obligation or undertaking in favor of a third person
called the obligee. Specifically, suretyship is a contractual relation
resulting from an agreement whereby one person, the surety,
engages to be answerable for the debt, default or miscarriage of
another, known as the principal.
The obligation of a surety cannot be extended by implication beyond
its specified limits. "When a surety executes a bond, it does not
guarantee that the plaintiff’s cause of action is meritorious, and that
it will be responsible for all the costs that may be adjudicated
against its principal in case the action fails. The extent of a surety’s
liability is determined only by the clause of the contract of
suretyship." A contract of surety is not presumed; it cannot extend
to more than what is stipulated.
Since the obligation of the surety cannot be extended by
implication, IT FOLLOWS THAT THE SURETY CANNOT BE HELD LIABLE
TO THE INTERVENOR WHEN THE
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RELATIONSHIP AND OBLIGATION OF THE SURETY IS LIMITED TO THE
DEFENDANTS SPECIFIED IN THE CONTRACT OF
SURETY. Here, the defendants are the spouses Bartolome.
SC ruled that Visayan Surety is not liable under the replevin bond to
the intervenor Dominador.
POLICY: Recall in your OBLICON: Stipulations in the contract govern.
Thus, you cannot extend the obligations of a party beyond what is
stipulated in the contract.
ESTATE OF HEMADY VS. LUZON SURETY
FACTS: The Luzon Surety Co. had filed a claim against the Estate
based on twenty different indemnity agreements, or counter bonds,
each subscribed by a distinct principal and by the deceased K. H.
Hemady, a surety solidary guarantor) in all of them, in consideration
of the Luzon Surety Co.’s of having guaranteed, the various
principals in favor of different creditors.
The Luzon Surety Co., prayed for allowance, as a contingent claim, of
the value of the twenty bonds it had executed in consideration of
the counterbonds, and further asked for judgment for the unpaid
premiums and documentary stamps affixed to the bonds, with 12
per cent interest thereon.
Before answer was filed, and upon motion of the administratrix of
Hemady’s estate, the lower court, by order of September 23, 1953,
dismissed the claims of Luzon Surety Co., on two grounds: (1) that
the premiums due and cost of documentary stamps were not
contemplated under the indemnity agreements to be a part of the
undertaking of the guarantor (Hemady), since they were not
liabilities incurred after the execution of the counterbonds; and (2)
that “whatever losses may occur after Hemady’s death, are not
chargeable to his estate, because upon his death he ceased to be
guarantor.”
Lower Court’s ruling: The administratrix further contends that upon
the death of Hemady, his liability as a guarantor terminated, and
therefore, in the absence of a showing that a loss or damage was
suffered, the claim cannot be considered contingent. This Court
believes that there is merit in this contention and finds support in
Article 2046 of the new Civil Code. It should be noted that a new
requirement has been added for a person to qualify as a guarantor,
that is: integrity. As correctly pointed out by the Administratrix,
integrity is something purely personal and is not transmissible. Upon
the death of Hemady, his integrity was not transmitted to his estate
or successors. Whatever loss therefore, may occur after Hemady’s
death, are not chargeable to his estate because upon his death he
ceased to be a guarantor. Another clear and strong indication that
the surety company has exclusively relied on the personality,
character, honesty and integrity of the now deceased K.
H. Hemady, was the fact that in the printed form of the indemnity
agreement there is a paragraph entitled ‘Security by way of first
mortgage, which was expressly waived and renounced by the
security company. The security company has not demanded from K.
H. Hemady to comply with this requirement of giving security by
way of first mortgage. In the supporting papers of the claim
presented by Luzon Surety Company, no real property was
mentioned in the list of properties mortgaged which appears at the
back of the indemnity agreement.”
ISSUE: WON the liability of Hemady as guarantor terminated upon
his death. NO
HELD: We find this reasoning untenable. Under the present Civil
Code (Article 1311), as well as under the Civil Code of 1889 (Article
1257), the rule is that —
“Contracts take effect only as between the parties, their assigns and
heirs, except in the case where the rights and obligations arising
from the contract are not transmissible by their nature, or by
stipulation or by provision of law.”
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While in our successional system the responsibility of the heirs for
the debts of their decedent cannot exceed the value of the
inheritance they receive from him, the principle remains intact that
these heirs succeed not only to the rights of the deceased but also
to his obligations. Articles 774 and 776 of the New Civil Code (and
Articles 659 and 661 of the preceding one) expressly so provide,
thereby confirming Article 1311 already
quoted. (See Art. 774 and 776)
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court ruled:
“Under the Civil Code the heirs, by virtue of the rights of succession
are subrogated to all the rights and obligations of the deceased
(Article 661) and cannot be regarded as third parties with respect to
a contract to which the deceased was a party, touching the estate of
the deceased (Barrios vs. Dolor, 2 Phil. 44).
The binding effect of contracts upon the heirs of the deceased party
is not altered by the provision in our Rules of Court that money
debts of a deceased must be liquidated and paid from his estate
before the residue is distributed among said heirs (Rule 89). The
reason is that whatever payment is thus made from the estate is
ultimately a payment by the heirs and distributees, since the
amount of the paid claim in fact diminishes or reduces the shares
that the heirs would have been entitled to receive.
Under our law, therefore, the general rule is that a party’s
contractual rights and obligations are transmissible to the
successors. The rule is a consequence of the progressive
“depersonalization” of patrimonial rights and duties that, as
observed by Victorio Polacco, has characterized the history of these
institutions.
Of the three exceptions fixed by Article 1311, the nature of the
obligation of the surety or guarantor does not warrant the
conclusion that his peculiar individual qualities are contemplated as
a principal inducement for the contract. What did the creditor Luzon
Surety Co. expect of K. H. Hemady when it accepted the latter as
surety in the counterbonds? Nothing but the reimbursement of the
moneys that the Luzon Surety Co. might have to disburse on account
of the obligations of the principal debtors. This reimbursement is a
payment of a sum of money, resulting from an obligation to give;
and to the Luzon Surety Co., it was indifferent that the
reimbursement should be made by Hemady himself or by someone
else in his behalf, so long as the money was paid to it.
The second exception of Article 1311, p. 1, is intransmissibility by
stipulation of the parties. Being exceptional and contrary to the
general rule, this intransmissibility should not be easily implied, but
must be expressly established, or at the very least, clearly inferable
from the provisions of the contract itself, and the text of the
agreements sued upon nowhere indicate that they are
nontransferable.
Because under the law (Article 1311), a person who enters into a
contract is deemed to have contracted for himself and his heirs and
assigns, it is unnecessary for him to expressly stipulate to that effect;
hence, his failure to do so is no sign that he intended his bargain to
terminate upon his death.
Similarly, that the Luzon Surety Co., did not require bondsman
Hemady to execute a mortgage indicates nothing more than the
company’s faith and confidence in the financial stability of the
surety, but not that his obligation was strictly personal.
The third exception to the transmissibility of obligations under
Article 1311 exists when they are “not transmissible by operation of
law”. The provision makes reference to those cases where the law
expresses that the rights or obligations are extinguished by death, as
is the case in legal support (Article 300), parental authority (Article
327), usufruct (Article 603), contracts for a piece of work (Article
1726), partnership (Article 1830 and agency (Article 1919). By
Page 5 of 8
contract, the articles of the Civil Code that regulate guaranty or
suretyship (Articles 2047 to 2084) contain no provision that the
guaranty is extinguished upon the death of the guarantor or the
surety. The lower court sought to infer such a limitation from Art.
2056, to the effect that “one who is obliged to furnish a guarantor
must present a person who possesses integrity, capacity to bind
himself, and sufficient property to answer for the obligation which
he guarantees”. It will be noted, however, that the law requires
these qualities to be present only at the time of the perfection of the
contract of guaranty. It is self- evident that once the contract has
become perfected and binding, the supervening incapacity of the
guarantor would not operate to exonerate him of the eventual
liability he has contracted; and if that be true of his capacity to bind
himself, it should also be true of his integrity, which is a quality
mentioned in the article alongside the capacity.
The foregoing concept is confirmed by the next Article 2057, that
runs as follows: “ART. 2057.
— If the guarantor should be convicted in first instance of a
crime involving dishonesty or should become insolvent, the creditor
may demand another who has all the qualifications required in the
preceding article. The case is excepted where the creditor has
required and stipulated that a specified person should be
guarantor.” From this article it should be immediately apparent that
the supervening dishonesty of the guarantor (that is to say, the
disappearance of his integrity after he has become bound) does not
terminate the contract but merely entitles the creditor to demand a
replacement of the guarantor. But the step remains optional in the
creditor: it is his right, not his duty; he may waive it if he chooses,
and hold the guarantor to his bargain. Hence Article 2057 of the
present Civil Code is incompatible with the trial court’s stand that
the requirement of integrity in the guarantor or surety makes the
latter’s undertaking strictly personal, so linked to his individuality
that the guaranty automatically terminates upon his death.
The contracts of suretyship entered into by K.
H. Hemady in favor of Luzon Surety Co. not being rendered
intransmissible due to the nature of the undertaking, nor by the
stipulations of the contracts themselves, nor by provision of law, his
eventual liability thereunder necessarily passed upon his death to
his heirs. The contracts, therefore, give rise to contingent claims
provable against his estate under section 5, Rule 87.
“The most common example of the contigent claim is that which
arises when a person is bound as surety or guarantor for a principal
who is insolvent or dead. Under the ordinary contract of suretyship
the surety has no claim whatever against his principal until he
himself pays something by way of satisfaction upon the obligation
which is secured. When he does this, there instantly arises in favor
of the surety the right to compel the principal to exonerate the
surety. But until the surety has contributed something to the
payment of the debt, or has performed the secured obligation in
whole or in part, he has no right of action against anybody
— no claim that could be reduced to judgment. For
Defendant administratrix it is averred that the above doctrine refers
to a case where the surety files claims against the estate of the
principal debtorand it is urged that the rule does not apply to the
case before us, where the late Hemady was a surety, not a principal
debtor. The argument evinces a superficial view of the relations
between parties. If under the Gaskell ruling, the Luzon Surety Co., as
guarantor, could file a contingent claim against the estate of the
principal debtors if the latter should die, there is absolutely no
reason why it could not file such a claim against the estate of
Hemady, since Hemady is a solidary co-debtor of his principals. What
the Luzon Surety Co. may claim from the estate of a principal debtor
it may equally claim from the estate of Hemady, since, in view of
the existing solidarity, the latter does not even enjoy the benefit of
exhaustion of the assets of the principal debtor.
Our conclusion is that the solidary guarantor’s liability is not
extinguished by his death, and that in such event, the Luzon Surety
 CRED 2 YATANAK
Co., had the right to file against the estate a contingent claim for
reimbursement.
NOTE: The liability of the solidary guarantor is not terminated by his
death.
G.R. No. 203133, February 18, 2015
YULIM INTERNATIONAL COMPANY LTD., JAMES YU, JONATHAN YU,
AND ALMERICK TIENG LIM, Petitioners, v. INTERNATIONAL
EXCHANGE BANK (NOW UNION BANK OF THE
PHILIPPINES), Respondent.
DECISION
REYES, J.:
1
In the assailed Decision dated February 1, 2012 in CA-G.R. CV No.
2
95522, the Court of Appeals (CA) modified the Decision dated
December 21, 2009 of the Regional Trial Court (RTC) of Makati City,
Branch 145, in Civil Case No. 02-749, holding that James Yu (James),
Jonathan Yu (Jonathan) and Almerick Tieng Lim (Almerick), who
were capitalist partners in Yulim International Company Ltd. (Yulim),
collectively called as the petitioners, were jointly and severally liable
with Yulim for its loan obligations with respondent International
Exchange Bank (iBank).
The Facts
On June 2, 2000, iBank, a commercial bank, granted Yulim, a
domestic partnership, a credit facility in the form of an Omnibus
Loan Line for P5,000,000.00, as evidenced by a Credit
3 4
Agreement which was secured by a Chattel Mortgage over Yulim’s
th
inventories in its merchandise warehouse at 106 4 Street, 9th
Avenue, Caloocan City. As further guarantee, the partners, namely,
James, Jonathan and Almerick, executed a Continuing Surety
5
Agreement in favor of iBank.
Yulim availed of its aforesaid credit facility with iBank, as follows:
Promissory Note Face Value PN Date Date of Maturity
No.
2110005852 P 1,298,926.00 10/26/2000 01/29/2001
2110006026 1,152,963.00 11/18/2000 02/05/2001
2110006344 499,890.00 12/04/2000 03/12/2001
2110006557 798,010.00 12/18/2000 04/23/2001
2110100189 496,521.00 01/11/2001 05/07/2001
6 I.
The above promissory notes (PN) were later consolidated under a
single promissory note, PN No. SADDK001014188, for
7
P4,246,310.00, to mature on February 28, 2002. Yulim defaulted on
the said note. On April 5, 2002, iBank sent demand letters to Yulim,
8
through its President, James, and through Almerick, but without
success. iBank then filed a Complaint for Sum of Money with
9
Replevin against Yulim and its sureties. On August 8, 2002, the
Court granted the application for a writ of replevin. Pursuant to the
10
Sheriff’s Certificate of Sale dated November 7, 2002, the items
seized from Yulim’s warehouse were worth only P140,000.00, not
P500,000.00 as the petitioners have insisted.
11
On October 2, 2002, the petitioners moved to dismiss the complaint
insisting that their loan had been fully paid after they assigned to
iBank their Condominium Unit No. 141, with parking space, at 20
Landsbergh Place in Tomas Morato Avenue, Quezon City. They
12
claimed that while the pre-selling value of the condominium unit
was P3.3 Million, its market value has since risen to P5.5
13
Million. The RTC, however, did not entertain the motion to dismiss
for non-compliance with Rule 15 of the Rules of Court.
On May 16, 2006, the petitioners filed their Answer reiterating that
they have paid their loan by way of assignment of a condominium
unit to iBank, as well as insisting that iBank’s penalties and charges
were exorbitant, oppressive and unconscionable.
14
Ruling of the RTC
After trial on the merits, the RTC rendered judgment on December
21, 2009, the dispositive portion of which reads, as follows:
WHEREFORE, in view of the foregoing considerations, the Court
finds the individual defendants James Yu, Jonathan Yu and Almerick
Page 6 of 8
Tieng Lim, not liable to the plaintiff, iBank, hence the complaint
against them is hereby DISMISSED for insufficiency of evidence,
without pronouncement as to cost.
This court, however, finds defendant corporation Yulim International
Company Ltd. liable; and it hereby orders defendant corporation to
pay plaintiff the sum of P4,246,310.00 with interest at 16.50% per
annum from February 28, 2002 until fully paid plus cost of suit.
The counterclaims of defendants against plaintiff iBank are hereby
DISMISSED for insufficiency of evidence.
15
SO ORDERED.
Thus, the RTC ordered Yulim alone to pay iBank the amount of
P4,246,310.00, plus interest at 16.50% per annum from February 28,
2002 until fully paid, plus costs of suit, and dismissed the complaint
against petitioners James, Jonathan and Almerick, stating that there
was no iota of evidence that the loan proceeds benefited their
16
families.
The petitioners moved for reconsideration on January 12,
17
2010; iBank on January 19, 2010 likewise filed a motion for partial
18 19
reconsideration. In its Joint Order dated March 8, 2010, the RTC
denied both motions.
Ruling of the CA
On March 23, 2010, Yulim filed a Notice of Partial Appeal, followed
on March 30, 2010 by iBank with a Notice of Appeal.
Yulim interposed the following as errors of the court a quo:
I. THE LOWER COURT ERRED IN ORDERING [YULIM] TO PAY
[iBANK] THE AMOUNT OF P4,246,310.00 WITH INTEREST
AT 16.5% PER ANNUM FROM FEBRUARY 28, 2002 UNTIL
FULLY PAID.
II. THE LOWER COURT ERRED IN NOT ORDERING [iBANK] TO
PAY ATTORNEY’S FEES, MORAL DAMAGES AND
20
EXEMPLARY DAMAGES.
For its part, iBank raised the following as errors of the RTC:
THE TRIAL COURT ERRED IN NOT HOLDING INDIVIDUAL
[PETITIONERS JAMES, JONATHAN AND ALMERICK]
SOLIDARILY LIABLE WITH [YULIM] ON THE BASIS OF THE
CONTINUING SURETYSHIP AGREEMENT EXECUTED BY
THEM.
II. THE TRIAL COURT ERRED IN NOT HOLDING ALL THE
[PETITIONERS] LIABLE FOR PENALTY CHARGES UNDER THE
CREDIT AGREEMENT AND PROMISSORY NOTES SUED
UPON.
III. THE TRIAL COURT ERRED IN NOT HOLDING [THE
PETITIONERS] LIABLE TO [iBANK] FOR ATTORNEY’S FEES
AND INDIVIDUAL [PETITIONERS] JOINTLY AND SEVERALLY
LIABLE WITH [YULIM] FOR COSTS OF SUIT INCURRED BY
21
[iBANK] IN ORDER TO PROTECT ITS RIGHTS.
Chiefly, the factual issue on appeal to the CA, raised by petitioners
James, Jonathan and Almerick, was whether Yulim’s loans have in
fact been extinguished with the execution of a Deed of Assignment
of their condominium unit in favor of iBank, while the corollary legal
issue, raised by iBank, was whether they should be held solidarily
liable with Yulim for its loans and other obligations to iBank.
The CA ruled that the petitioners failed to prove that they have
already paid Yulim’s consolidated loan obligations totaling
P4,246,310.00, for which it issued to iBank PN No. SADDK001014188
for the said amount. It held that the existence of a debt having been
established, the burden to prove with legal certainty that it has been
extinguished by payment devolves upon the debtors who have
offered such defense. The CA found the records bereft of any
evidence to show that Yulim had fully settled its obligation to iBank,
further stating that the so-called assignment by Yulim of its
condominium unit to iBank was nothing but a mere temporary
arrangement to provide security for its loan pending the subsequent
 CRED 2 YATANAK
execution of a real estate mortgage. Specifically, the CA found
nothing in the Deed of Assignment which could signify that iBank
had accepted the said property as full payment of the petitioners’
loan. The CA cited Manila Banking Corporation v. Teodoro,
22
Jr. which held that an assignment to guarantee an obligation is in
effect a mortgage and not an absolute conveyance of title which
confers ownership on the assignee.
Concerning the solidary liability of petitioners James, Jonathan and
Almerick, the CA disagreed with the trial court’s ruling that it must
first be shown that the proceeds of the loan redounded to the
benefit of the family of the individual petitioners before they can be
held liable. Article 161 of the Civil Code and Article 121 of the Family
Code cited by the RTC apply only where the liability is sought to be
enforced against the conjugal partnership itself. In this case,
regardless of whether the loan benefited the family of the individual
petitioners, they signed as sureties, and iBank sought to enforce the
loan obligation against them as sureties of Yulim.
Thus, the appellate court granted the appeal of iBank, and denied
that of the petitioners, as follows:
WHEREFORE, the foregoing considered, [iBank’s] appeal is PARTLY
GRANTED while [the petitioners’] appeal is DENIED. Accordingly, the
appealed decision is hereby MODIFIED in that [petitioners] James
Yu, Jonathan Yu and A[l]merick Tieng Lim are hereby held jointly and
severally liable with defendant-appellant Yulim for the payment of
the monetary awards. The rest of the assailed decision is AFFIRMED.
23
SO ORDERED.
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors are before this
Court:
1. The CA erred in ordering petitioners James, Jonathan and
Almerick jointly and severally liable with petitioner Yulim to pay
iBank the amount of P4,246,310.00 with interest at 16.5% per
annum from February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the petitioners moral
24
damages, exemplary damages, and attorney’s fees.
The petitioners insist that they have paid their loan to iBank. They
maintain that the letter of iBank to them dated May 4, 2001, which
“expressly stipulated that the petitioners shall execute a Deed of
Assignment over one condominium unit No. 141, 3rd Floor and a
parking slot located at 20 Landsbergh Place, Tomas Morato Avenue,
Quezon City,” was with the understanding that the Deed of
Assignment, which they in fact executed, delivering also to iBank all
the pertinent supporting documents, would serve to totally
extinguish their loan obligation to iBank. In particular, the
petitioners state that it was their understanding that upon approval
by iBank of their Deed of Assignment, the same “shall be considered
as full and final payment of the petitioners’ obligation.” They further
assert that iBank’s May 4, 2001 letter expressly carried the said
approval.
The petitioner invoked Article 1255 of the Civil Code, on payment by
cession, which provides:
Art. 1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is
stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by special laws.
Ruling of the Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they executed the
Continuing Surety Agreement, wherein they “jointly and severally
with the PRINCIPAL [Yulim], hereby unconditionally and irrevocably
Page 7 of 8
guarantee full and complete payment when due, whether at stated
maturity, by acceleration, or otherwise, of any and all credit
accommodations that have been granted” to Yulim by iBank,
25
including interest, fees, penalty and other charges. Under Article
2047 of the Civil Code, these words are said to describe a contract of
suretyship. It states:
Art. 2047. By guaranty a person, called the guarantor, binds himself
to the creditor to fulfill the obligation of the principal debtor in case
the latter should fail to do so.
If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title I of this Book shall be
observed. In such case the contract is called a suretyship.
In a contract of suretyship, one lends his credit by joining in the
principal debtor’s obligation so as to render himself directly and
primarily responsible with him without reference to the solvency of
26
the principal. According to the above Article, if a person binds
himself solidarily with the principal debtor, the provisions of Articles
1207 to 1222, or Section 4, Chapter 3, Title I, Book IV of the Civil
Code on joint and solidary obligations, shall be observed. Thus,
where there is a concurrence of two or more creditors or of two or
more debtors in one and the same obligation, Article 1207 provides
that among them, “[t]here is a solidary liability only when the
obligation expressly so states, or when the law or the nature of the
obligation requires solidarity.”
“A surety is considered in law as being the same party as the debtor
in relation to whatever is adjudged touching the obligation of the
latter, and their liabilities are interwoven as to be
27
inseparable.” And it is well settled that when the obligor or
obligors undertake to be “jointly and severally” liable, it means that
28
the obligation is solidary, as in this case. There can be no mistaking
the same import of Article I of the Continuing Surety Agreement
executed by the individual petitioners:
ARTICLE I
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally with the
PRINCIPAL, hereby unconditionally and irrevocably guarantee full
and complete payment when due, whether at stated maturity, by
acceleration, or otherwise, of any and all credit accommodations
that have been granted or may be granted, renewed and/or
extended by the BANK to the PRINCIPAL.
The liability of the SURETIES shall not be limited to the maximum
principal amount of FIVE MILLION PESOS (P5,000,000.00) but shall
include interest, fees, penalty and other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of payment and not
merely of collection and is intended to be a perfect and continuing
indemnity in favor of the BANK for the amounts and to the extent
stated above.
The liability of the SURETIES shall be direct, immediate and not
contingent upon the pursuit of the BANK of whatever remedies it
may have against the PRINCIPAL of the other securities for the
29
Accommodation.
Thereunder, in addition to binding themselves “jointly and severally”
with Yulim to “unconditionally and irrevocably guarantee full and
complete payment” of any and all credit accommodations that have
been granted to Yulim, the petitioners further warrant that their
liability as sureties “shall be direct, immediate and not contingent
upon the pursuit [by] the BANK of whatever remedies it may have
against the PRINCIPAL of other securities.” There can thus be no
doubt that the individual petitioners have bound themselves to be
solidarily liable with Yulim for the payment of its loan with iBank.
As regards the petitioners’ contention that iBank in its letter dated
May 4, 2001 had “accepted/approved” the assignment of its
condominium unit in Tomas Morato Avenue as full and final
 CRED 2 YATANAK Page 8 of 8

payment of their various loan obligations, the Court is far from

persuaded. On the contrary, what the letter accepted was only the
collaterals provided for the loans, as well as the consolidation of the
petitioners’ various PN’s under one PN for their aggregate amount
of P4,246,310.00. The letter goes on to spell out the terms of the
new PN, such as, that its expiry would be February 28, 2002 or a
term of 360 days, that interest would be due every 90 days, and that
the rate would be based on the 91-day Treasury Bill rate or other
market reference.
Nowhere can it be remotely construed that the letter even intimates
an understanding by iBank that the Deed of Assignment would serve
to extinguish the petitioners’ loan. Otherwise, there would have
been no need for iBank to mention therein the three “collaterals” or
“supports” provided by the petitioners, namely, the Deed of
Assignment, the Chattel Mortgage and the Continuing Surety
Agreement executed by the individual petitioners. In fact, Section
2.01 of the Deed of Assignment expressly acknowledges that it is a
mere “interim security for the repayment of any loan granted and
those that may be granted in the future by the BANK to the
ASSIGNOR and/or the BORROWER, for compliance with the terms
and conditions of the relevant credit and/or loan documents
30
thereof.” The condominium unit, then, is a mere temporary
31
security, not a payment to settle their promissory notes.
A: It should have been a Dacion en Pago.
Q: Was there such document executed in this account?
33
A: None.
To stress, the assignment being in its essence a mortgage, it was but
a security and not a satisfaction of the petitioners’
34 35
indebtedness. Article 1255 of the Civil Code invoked by the
petitioners contemplates the existence of two or more creditors and
involves the assignment of the entire debtor’s property, not a dacion
36
en pago. Under Article 1245 of the Civil Code, “[d]ation in
payment, whereby property is alienated to the creditor in
satisfaction of a debt in money, shall be governed by the law on
sales.” Nowhere in the Deed of Assignment can it be remotely said
that a sale of the condominium unit was contemplated by the
parties, the consideration for which would consist of the amount of
outstanding loan due to iBank from the petitioners.
WHEREFORE, premises considered, the petition is DENIED.
SO ORDERED.
.

Even more unmistakably, Section 2.02 of the Deed of Assignment

provides that as soon as title to the condominium unit is issued in its
name, Yulim shall “immediately execute the necessary Deed of Real
Estate Mortgage in favor of the BANK to secure the loan obligations
32
of the ASSIGNOR and/or the BORROWER.” This is a plain and direct
acknowledgement that the parties really intended to merely
constitute a real estate mortgage over the property. In fact, the
Deed of Assignment expressly states, by way of a resolutory
condition concerning the purpose or use of the Deed of Assignment,
that after the petitioners have delivered or caused the delivery of
their title to iBank, the Deed of Assignment shall then become null
and void. Shorn of its legal efficacy as an interim security, the Deed
of Assignment would then become functus officio once title to the
condominium unit has been delivered to iBank. This is so because
the petitioners would then execute a Deed of Real Estate Mortgage
over the property in favor of iBank as security for their loan
obligations.

Respondent iBank certainly does not share the petitioners’

interpretation of its May 4, 2001 letter. Joy Valerie Gatdula, Senior
Bank Officer of iBank and the Vice President of iBank’s Commercial
Banking Group, declared in her testimony that the purpose of the
Deed of Assignment was merely to serve as collateral for their loan:
Q: And during the time that the defendant[,] James Yu[,] was
negotiating with your bank, [is it] not a fact that the defendant
offered to you a [condominium] unit so that – that will constitute
full payment of his obligation?

A: No ma’am. It was not offered that way. It was offered as security

or collateral to pay the outstanding loans. But the premise is, that he
will pay x x x in cash. So, that property was offered as a security or
collateral.

Q: That was your position?

A: That was the agreement and that was how the document was
signed. It was worded out[.]

xxxx

Q: Do you remember if a real estate mortgage was executed over

this property that was being assigned to the plaintiff?

A: To my recollection, none at all.

Q: Madam Witness, this Deed of Assignment was considered as full

payment by the plaintiff bank, what document was executed by the
plaintiff bank?