GUARANTY AND SURETY CASES principal, co'puted fro' )arch %6, 19+%, until full.

paid, plus :on

both causes of action3 an a'ount eual to 1-5 of the total a'ounts
1. [G.R. No. 117660. December 18, 2000]
due, as liuidated da'ages, plus attorne.s fees eual to 165 of the
total a'ounts due, plus costs"[&]
AGRO CONGLOMERATES, NC. !"# MARO SORANO, $e%&%&o"er', ('. T)E *ased on the records, the following are the factual antecedents"
)ON. COURT O* A++EALS !"# REGENT SANGS !"# LOAN -AN, NC.,
re'$o"#e"%'.
On ul. 17, 19+&, petitioner Agro Conglo'erates, 0nc" as vendor, sold two
parcels of land to 2o
parcels 2onderl
nderland
and ;oo
;ood
d 0ndu
0ndustrie
stries,
s, 0nc" 0n their )e'orandu'
)e'orandu' of 
Agree'ent, [%] the par
partie
tiess cov
coven
enant
anted
ed tha
thatt the purpurcha
chase
se pri
price
ce of ;i
;ive
ve )il
)illio
lion
n
DECSON :-,666,666"663 esos would be settled b. the vendee, under the following ter's
and conditions :13 One )illion :1,666,666"663 esos shall be paid in cash upon
 J .
/USUM-NG, J 
/USUM-NG, . the sign
signing
ing of the agre
agree'e
e'ent8
nt8 :&3 Tw
Two
o )ill
)illion
ion :&,
:&,666,66
666,666"663
6"663 esos wort
worth
h of 
co''on shares of stoc/ of the 2onderland ;ood 0ndustries, 0nc"8 and :%3 The
This is a petition for review challenging the decision [1] dated October 17, 1994 balance
balance of &,66
&,666,666
6,666"66
"66 shal
shalll be paid in four eual install'ents,
install'ents, the first
of the Court of Appeals in CA!"#" $o" %&9%%, which affir'ed in toto the (udg'ent install'ent falling due, 1+6 da.s after the signing of the agree'ent and ever. si<
of the )anila #egional Trial
Trial Court, *ranch &7, in consolidated Cases $os" +%7%74, 'onths thereafter, with an interest rate of 1+5 per annu', to be advanced b. the
+%7%++, +%7-4%" vendee upon the signing of the agree'ent"
This petition
petition spri
springs
ngs fro' thre
threee co'p
co'plain
laints
ts for su's of 'one. file filed
d b. On ul. 19, 19+&, the vendor, the vendee, and the respondent ban/ #egent
respondent ban/ against herein petitioners" 0n the decision of the Court of Appeals, =avings > ?oan *an/ :for'erl. =u''a =avings > ?oan Association3, e<ecuted an
petitioners were ordered to pa. respondent ban/, as follows Addendu' [4]to the prev
previous
ious )e'o
)e'oran
randu'
du' of Agre
Agree'e
e'ent"
nt" The new arra
arrange'
nge'ent
ent
pertained to the revision of settle'ent of the initial pa.'ents of 1,666,666"66 and
prepaid interest
interest of %6,666"66 :1+5 of &,666,666"663 as follows
2herefore, (udg'ent is hereb. rendered in favor of plaintiff and against defendants,
as follows
2hereas, the parties have agreed to ualif. the stipulated ter's for the pa.'ent of 
the said O$@ )0??0O$ T#@@ B$#@ =0DTE TOB=A$ :1,%6,666"663 @=O="
13 0n Civi
Civill Case $o" +%7%
+%7%74,
74, defe
defendant
ndantss [peti
[petition
tioners,
ers, here
herein]
in] are
ordered
orde red (ointl. and seve
several
rall.,
l., to pa. to plai
plaintiff
ntiff the a'ou
a'ount
nt of 
7+,&1&"&9, together with interest and service charge thereon, at the 2@#@;O#@, in consideration
consideration of the 'utual covenant and agree'ent of the parties,
ratess of 145 and %5 per annu
rate annu',', resp
respecti
ectivel
vel.,
., co'puted fro' the. do further covenant and agree as follows
$ove'ber 16, 19+&, until full. paid, plus stipulated penalt. on unpaid
principal at the rate of 5 per annu', co'puted fro' $ove'ber 16, 1" That the F@$
F@$@@@@ inste
instead
ad of pa.i
pa.ing
ng the a'ount of O$@ )0??0O$
19+&, plus 1-5 as liuidated da'age plus 165 of the total a'ount T#@@ B$#@ =0DTE TOB=A$ :1,%6,666"663 @=O= in cash,
due, as attorne.s fees, plus costs8 hereb. authoriGes the F@$O# to obtain a loan fro' =u''a =avings
&3 0n Civil Case $o" +%7%++, defendant is ordered to pa. plaintiff the and ?oan Association with office address at FalenGuela, )etro )anila,
a'ount of %&,911"%9, together with interest and service charge being
being repr
represen
esented
ted here
herein
in b. its res
residen
ident,
t, )r
)r"" ai'e Cari
Cario
o and
thereo
thereonn at the rate of 145 and %5 pe perr ann
annu',
u', respect
respective
ivel.
l.,, referred to hereafter as ;inancier8 in the a'ount of O$@ )0??0O$
co'puted fro' anuar. 1-, 19+%, until full. paid, plus stipulated T#@@
T# @@ B$
B$#@
#@ =0DT
=0DTE
E TOB
TOB=A$
=A$ :1,%
:1,%6,66
6,666"663
6"663@=O
@=O=,
=, plus
penalt. on unpaid principal at the rate of 5 per annu', co'puted interest thereon at such rate as the F@$@@ and the ;inancier 'a.
fro' anuar. 1-, 19+%, plus liuidated da'ages
da'ages euivalent to 1-5 of  agree, which a'ount shall cover the O$@ )0??0O$ :1,666,666"663
the total a'ount due, plus attorne.s fees euivalent to 165 of the @=O=
@= O= cas
cash
h whi
which
ch wa
wass ag
agree
reedd to be pai
paid
d upo
upon n si
signi
gning
ng of the
total a'ount due, plus costs8 and )e'orandu'
)e'orand u' of Agree'en
Agree'ent, t, plus 1+5 interest on the balance of two
'illion pesos stipulated upon in 0te' $o" 1:c3 of the said agree'ent8
%3 0n Civil Case $o" +%7-4%, defendant is ordered to pa. plaintiff, on provided however, that said loan shall be 'ade for and in the na'e of 
the first cause of action, the a'ount of -16,666"66, together with the F@$O#"
interest and service charge thereon, at the rates of 145 and &5 per
annu', respectivel.,
respectivel., co'puted fro' )arch 1%, 19+%, until full. paid, &" The F@$@@ also agrees that the full a'ount of O$@ )0??0O$ T#@@
plus a penalt. of 5 per annu', based on the outstanding principal B$#@ =0DTE TOB=A$ :1,%6,666"663 @=O= be paid directl.
of the loan, co'puted fro' )arch 1%, 19+%, until full. paid8 and on to the F@$O#8 however, the F@$@@ hereb. underta/es to pa. the
the second cause of action, the a'ount of 494,9%"71, together with full a'ount of the said loan to the ;inancier on such ter's and
interest and service charge thereon at the rates of 145 and &5, per conditions agreed upon b. the ;inancier and the F@$O#, it being
annu', respectivel., co'puted fro' )arch %6, 19+%, until full. paid, understood that while the loan will be secured fro' and in the na'e
plus
plus a pe penal
nalt.
t. cha
charge
rge of 5 peperr ann
annu',
u', ba
based
sed on the unpunpaid
aid
 of the F@$O#, the F@$@@ will be the one liable to pa. the entire 861"%, ,
proceeds thereof including interest and other charges"[-]  9 1919
7 +%+%
This addendu' was not notariGed" 8 Au
Conseuentl., petitioner )ario =oriano signed as 'a/er several pro'issor. 8 g"
notes,[] pa.able to the respondent ban/"Thereafter, the ban/ released the proceeds ul 14
of the loan to petitioners" owever, petitioners failed to 'eet their obligations as . ,
the. fell due" uring that ti'e, the ban/ was e<periencing financial tur'oil and was 19 19
under the supervision of the Central *an/"Central *an/ e<a'iner and liuidator , +%
Cordula de esus, endorsed the sub(ect pro'issor. notes to the ban/s counsel for 19
collecti
collection"
on" The ban/ gave petitioners
petitioners oppo
opportuni
rtunit.
t. to settl
settlee thei
theirr accou
account
nt b. +&
e<tendin
e<te ndingg pa.'
pa.'ent
ent due date
dates"
s" )ari
)ario
o =ori
=oriano
ano 'ani
'anifeste
fested
d his inte
intention
ntion to re C&
structure the loan, .et did not show up nor sub'it his for'al written reuest" (&5 - ) u
C!16,ar ne
#espondentt ban/ filed three separate co'plaints before the #egional Trial
#esponden Trial 'e 66 ch 11
Court of )anila for Collection of =u's of 'one." The corresponding case histories 866"61%,
are illustrated in the table below  6 , 19
7 19+%
9 +%=e
D A + +!  4 pt"
!% m ! 3 =e 94, 9,
e o 3 m pt 9% ) 19
o  "% m e" e "7ar +%
Lo e % ' 1 ch
!" "% E4 be %6u
D %e r , ne
 "' 14 19&+
e &o , +%,
D " 19 19
!% D +& +%
e !% =e
e' pt"
Oc &
to ,
C& be 19
(&5 7 $ ;e r +%
C!+,&ov b" 1,
'e 1&"" +, 19
86&9 1619 +&
 , +% 0n their answer, petitioners interposed the defense of novation and insisted there
7 19) was a valid substitution of debtor" The. alleged that the addendu' specificall.
7 +&a. states that although the pro'issor. notes were in their na'es, 2onderland shall be
 9, responsible for the pa.'ent thereof"
Au 19
gu +% The trial court held that petitioners are liable, to wit
st Au
1& g" The evidences, however, disclose that 2onderland did not co'pl. with its obligation
, 7, under said Addendu' :@<h" =3 as the agree'ent to turn over the far'land to it, did
19 19 not 'aterialiGe :-7 tsn, )a. &9, 19963, and there was, actuall. no sale of the land
+& +% :-+ tsn, ibid3" ence, 2onderland is not answerable" And since the loans obtained
under the four pro'issor. notes :@<hs" A, C, !, and @3 have not been paid, despite
C& opportunities given
given b. plaintiff to defendants to 'a/e pa.'ents, it stands to reason
(&5  a ) that defendants are liable to pa. their obligations thereunder to plaintiff" 0n fact,
C!%&,n" a.
'e 91 1-1
defendants failed to file a thirdpart. co'plaint against 2onderland, which shows either b. changing the ob(ect or principal conditions, or by substituting another in
the wea/ness of its stand that 2onderland is answerable to 'a/e said pa.'ents" [7]  place of the debtor, or b. subrogating a third person in the rights of the creditor"
0n orde
[1%]
orderr that a novanovation
tion can ta/e place,
place, the concurrence
concurrence of the following
following
etitioners appealed to the Court of Appeals" The trial courts decision was reuisites [14] are indispensable
affir'ed b. the appellate court" 13 There 'ust be a previous valid obligation8
ence, this recourse, wherein petitioners raise the sole issue of &3 Ther
Theree 'ust be an agree'ent
agree'ent of the parties
parties conce
concerned
rned to a new
contract8
2@T@# T@ COB#T O; A@A?= @##@ 0$ $OT ;0$0$! TAT T@ A@$B),
=0!$@ *E T@ @T0T0O$@#=, #@=O$@$T *A$H A$ 2O$@#?A$ 0$C", %3 There 'ust be the e<tinguish'e
e<tinguish'ent
nt of the old contract8 and
CO$=T0TBT@= A $OFAT0O$ O; T@ CO$T#ACT *E =B*=T0TBT0O$ O; @*TO#, 43 There 'ust be the validit. of the new contract"
20C @D@)T= T@ @T0T0O$@#= ;#O) A$E ?0A*0?0TE OF@# T@ #O)0==O#E
$OT@=" 0n the instant case, the first reuisite for a valid novation is lac/ing" There was
no novation b. substitution of debtor because there was no prior obligation which
#evealed b. the facts on record, the conflict a'ong the parties started fro' a was substituted b. a new contract" 0t will be noted that the pro'issor. notes, which
contract of sale of a far'land between petitioners and 2onderland ;ood 0ndustries, bound the petitioners to pa., were e<ecuted after the addendu'" The addendu'
0nc" As found b. the trial court, no such sale 'aterialiGed"
'aterialiGed" 'odified the contract of sale, not the stipulations in the pro'issor. notes which
pertain to the suret. contract" At this instance, 2onderland apparentl. assured the
A contract of sale is a reciprocal transaction"
transaction" The obligation or pro'ise of each pa.'ent of future debts to be incurred b. the petitioners" Conseuentl., onl. a
part. is the cause or consideration for the obligation or pro'ise b. the other" The contract of suret. arose" 0t was wrong for petitioners to presu'e a novation had
vendee is obliged to pa. the price, while the vendor 'ust deliver actual possession ta/en place" The wellsettled rule is that novation is never presu'ed, [1-] it 'ust be
of the land" 0n the instant case the original plan was that the initial pa.'ents would clearl. and uneuivocall. shown" [1]
be paid in cash" =ubseuentl., the parties :with the participation of respondent
ban/3 e<ecuted an addendu' providing instead, that the petitioners would secure a As it tur
turned
ned out
out,, the con
contra
tract
ct of sur
suret.
et. between
between 2o2onde
nderla
rland
nd and the
loan in the na'e of Agro Conglo'erates 0nc" for the total a'ount of the initial petitioners
petitione rs was e<ti
e<tinguis
nguished
hed b. the rescission
rescission of the contract
contract of sale of the
pa.'
pa .'en
ents
ts,, wh
whil
ilee th
thee sesett
ttle
le'e
'ent
nt of sa saiid loa
oan
n wowoul
uld
d be as assu
su'
'ed b. far'land" 2ith the rescission, there was confusion or 'erger in the persons of the
2onderland"
2onderl and" Thereafter
Thereafter,, petitioner =oriano signed several pro'issor. notes and principal obligor and the suret., na'el. the petitioners herein" The addendu' which
received the proceeds in behalf of petitionerco'pan." was dependent thereon li/ewise lost its efficac."

*. this ti'e, we note a subsidiar. contract of suret.ship had ta/en effect since 0t is true that the basic and funda'ental rule in the interpretation of contract
petitioners signed the pro'issor. notes as 'a/er and acco''odation part. for the is that, if the ter's thereof are clear and leave no doubt as to the intention of the
benefit
bene fit of 2o
2onder
nderland
land"" eti
etitione
tioners
rs beca
beca'e
'e liab
liable
le as acco'
acco''oda
'odation
tion par
part."
t." An contracting parties, the literal 'eaning shall control" owever
owever,, in order to (udge the
acco''od
acco ''odatio
ation
n part
part.. is a pers
person
on who has signsigned
ed the instru'ent
instru'ent as 'a/e
'a/er,r, intention of the parties, their conte'poraneous and subseuent acts should be
acceptor
acce ptor,, or indo
indorser
rser,, with
without
out rece
receivin
iving
g val
value
ue ther
therefor
efor,, and for the purpo
purpose
se of  considered" [17]
lending his na'e to so'e other person and is liable on the instru'ent to a holder Thee co
Th contr
ntrac
actt of sa
sale
le be
betw
twee
een
n 2o2ondnder
erla
land
nd anand
d peti
petiti
tion
oner
erss di
did
d no
nott
for value, notwithstanding such holder at the ti'e of ta/ing the instru'ent /new 'aterialiGe"
'aterialiGe" *ut it was ad'i
ad'itted
tted that peti
petitione
tioners
rs rece
receive
ived
d the proceeds
proceeds of the
:the signator.3 to be an acco''odation part." [+] e has the right, after pa.ing the pro'issor. notes obtained fro' respondent ban/"
holder, to obtain rei'burse'ent fro' the part. acco''odated, since the relation
between the' has in effect beco'e one of principal and suret., the acco''odation
acco''odation =ec" && of the Civil Code provides
part. being the suret."
suret."[9] =uret.ship is defined as the relation which e<ists where
one person has underta/en an obligation and another person is also under the
obligation or other dut. to the obligee, who is entitled to but one perfor'ance, and @ver. person who through an act of perfor'ance b. another, or an. other 'eans,
as between the two who are bound, one rather than the other should perfor'" acuires or co'es into possession of so'ething at the e<pense of the latter without
[16]
 The suret.s liabilit. to the creditor or pro'isee of the principal is said to be  (ust or legal ground,
ground, shall return
return the sa'e to hi'"
hi'"
direct, pri'ar. and absolute8 in other words, he is directl. and euall. bound with
the principal" [11] And the creditor 'a. proceed against an. one of the solidar. etitioners
etitioners had no legal or (ust ground to retain the proceeds of the loan at the
debtors"[1&] e<pense of private respondent" $either could petitioners e<cuse the'selves and
hold 2onderland still liable to pa. the loan upon the rescission of their sales
2e do not give credence to petitioners assertion that, as provided b. the contract"0f petitioners sustained da'ages as a result of the rescission, the. should
addendu', their obligation to pa. the pro'issor. notes was novated b. substitution have i'pleaded 2onderland and as/ed da'ages"The noninclusion of a necessar.
of a new debtor, 2onderla
2onderland"
nd" Contrar. to petitioners contention, the attendant facts part. does not prevent the court fro' proceeding in the action, and the (udg'ent
herein do not 'a/e a case of novation" rendered therein shall be without pre(udice to the rights of such necessar. part."
$ovation is the e<tinguish'ent of an obligation b. the substitution or change
[1+]
 *ut respondent appellate court did not err in holding that petitioners are dut.
of the obligation b. a subseuent one which e<tinguishes or 'odifies the first,
bound under the law to pa. the clai's of respondent ban/ fro' who' the. had
obtained the loan proceeds"
:)ERE*ORE, the petition is @$0@ for lac/ of 'erit" The assailed decision
of the Court of Appeals dated October 17, 1994 is A;;0#)@" Costs against
petitioners"
SO ORDERED.
2. [G. R. No. 127261. Se$%ember 7, 2001]
 SA YAN SURETY ;  NSUR ANC E C OR +OR AT ON, petitioner,
vs. T)E )ONORA-LE COURT O*A++EALS, S+OUSES <UN
-ARTOLOME= !"# SUSAN -ARTOLOME !"# DOMNADOR . -A<AN,
=
respondents.
DECSON
+ARDO, J .
T>e C!'e
The case is a petition to review and set aside a decision[1] of the
Court of Appeals affir'ing that of the #egional Trial Court, *ian, ?aguna, *ranch &4,
holding the suret. liable to the intervenor in lieu of the principal on a replevin bond"
T>e *!c%'
The facts, as found b. the Court of Appeals,[&] are as follows
On ;ebruar. &, 199%, the spouses anilo 0ba(an and )ila A'be 0ba(an filed
with the #egional Trial Court, ?aguna, *ian a co'plaint against spouses un and
=usan *artolo'e, for replevin to recover fro' the' the possession of an 0suGu
 (eepne., with da'ages" laintiffs 0ba(an alleged that the. were the owners of an
0suGu (eepne. which was forcibl. and unlawfull. ta/en b. defendants un and =usan
*artolo'e on ece'ber +, 199&, while par/ed at their residence"
On ;ebruar. +, 199%, plaintiffs filed a replevin bond through petitioner Fisa.an
=uret. > 0nsurance Corporation" The contract of suret. provided thus
2@#@;O#@, we, sps" anilo 0ba(an and )ila 0ba(an and the F0=AEA$ =B#@TE >
0$=B#A$C@ CO#", of Cebu, Cebu, with branch office at )anila, (ointl. and severall.
bind ourselves in the su' of Three undred Thousand esos :%66,666"663 for the
return of the propert. to the defendant, if the return thereof be ad(udged, and for
the pa.'ent to the defendant of such su' as heIshe 'a. recover fro' the plaintiff
in the action"[%]
On ;ebruar. +, 199%, the trial court granted issuance of a writ of replevin
directing the sheriff to ta/e the 0suGu (eepne. into his custod." Conseuentl., on
;ebruar. &&, 199%, =heriff Arnel )agat seiGed the sub(ect vehicle and turned over
the sa'e to plaintiff spouses 0ba(an"[4]
On ;ebruar. 1-, 199%, the spouses *artolo'e filed with the trial court a
'otion to uash the writ of replevin and to order the return of the (eepne. to the'"
On )a. %, 199%, o'inador F" 0ba(an, father of plaintiff anilo 0ba(an, filed
with the trial court a 'otion for leave of court to intervene, stating that he has a
right superior to the plaintiffs over the ownership and possession of the sub(ect
vehicle"
On une 1, 199%, the t rial court granted the 'otion to intervene"
On August +, 199%, the trial court issued an order granting the 'otion to
uash the writ of replevin and ordering plaintiff )ila 0ba(an to return the sub(ect
 (eepne. to the intervenor o'inador 0ba(an"[-]
On August %1, 199%, the trial court ordered the issuance of a writ of replevin
directing the sheriff to ta/e into his custod. the sub(ect 'otor vehicle and to deliver
the sa'e to the intervenor who was the registered owner"[]
On =epte'ber 1, 199%, the trial court issued a writ of replevin in favor of 
intervenor o'inador 0ba(an but it was returned unsatisfied"
On )arch 7, 1994, intervenor o'inador 0ba(an filed with the trial court a
'otionIapplication for (udg'ent against plaintiffs bond"
On une , 1994, the trial court rendered (udge'ent the dispositive portion of 
which reads
2@#@;O#@, in the light of the foregoing pre'ises, (udg'ent is hereb. rendered in
favor of o'inador 0ba(an and against )ila 0ba(an and the Fisa.an =uret. and
0nsurance Corporation ordering the' to pa. the for'er (ointl. and severall. the
value of the sub(ect (eepne. in the a'ount of 1-6,666"66 and such other da'ages
as 'a. be proved b. o'inador 0ba(an plus costs"[7]
On une &+, 1994, Fisa.an =uret. and 0nsurance Corporation and )ila 0ba(an
filed with the trial court their respective 'otions for reconsideration"
On August 1, 1994, the trial court denied both 'otions"
On $ove'ber &4, 199-, Fisa.an =uret. and 0nsurance Corporation :hereafter
Fisa.an =uret.3 appealed the decision to the Court of Appeals" [+]
 On August %6, 199, the Court of Appeals pro'ulgated its decision affir'ing
the (udg'ent of the trial court"[9] On =epte'ber 19, 199, petitioner filed a 'otion
for reconsideration"[16] On ece'ber &, 199, the Court of Appeals denied the
'otion for reconsideration for lac/ of 'erit"[11]
ence, this petition"[1&]
T>e ''e
The issue in this case is whether the suret. is liable to an intervenor on a
replevin bond posted b. petitioner in favor of respondents"[1%]
#espondent o'inador 0ba(an asserts that as intervenor, he assu'ed the
personalit. of the original defendants in relation to the plaintiffs bond for the
issuance of a writ of replevin"
etitioner Fisa.an =uret. contends that it is not liable to the intervenor,
o'inador 0ba(an, because the intervention of the intervenor 'a/es hi' a part. to
the suit, but not a beneficiar. to the plaintiffs bond" The intervenor was not a part.
to the contract of suret., hence, he was not bound b. the contract"
T>e Cor%' R5&"?
The petition is 'eritorious"
An intervenor is a person, not originall. i'pleaded in a proceeding, who has
legal interest in the 'atter in litigation, or in the success of either of the parties, or
an interest against both, or is so situated as to be adversel. affected b. a
distribution or other disposition of propert. in the custod. of the court or of an
officer thereof"[14]
)a. an intervenor be considered a part. to a contract of suret. which he did
not sign and which was e<ecuted b. plaintiffs and defendantsJ
0t is a basic principle in law that contracts can bind onl. the parties who had
entered into it8 it cannot favor or pre(udice a third person" [1-] Contracts ta/e effect
between the parties, their assigns, and heirs, e<cept in cases where the rights
and obligations arising fro' the contract are not trans'issible b. their nature, or b.
stipulation or b. provision of law"[1]
A contract of suret. is an agree'ent where a part. called the suret.
guarantees the perfor'ance b. another part. called the principal or obligor of an
obligation or underta/ing in favor of a third person called the obligee"[17] =pecificall.,
suret.ship is a contractual relation resulting fro' an agree'ent whereb. one
person, the suret., engages to be answerable for the debt, default or 'iscarriage of 
another, /nown as the principal"[1+]
The obligation of a suret. cannot be e<tended b. i'plication be.ond its
specified li'its"[19] 2hen a suret. e<ecutes a bond, it does not guarantee that the
plaintiffs cause of action is 'eritorious, and that it will be responsible for all the
costs that 'a. be ad(udicated against its principal in case the action fails" The
e<tent of a suret.s liabilit. is deter'ined onl. b. the clause of the contract of 
suret.ship"[&6] A contract of suret. is not presu'ed8 it cannot e<tend to 'ore than
what is stipulated"[&1]
=ince the obligation of the suret. cannot be e<tended b. i'plication, it follows
that the suret. cannot be held liable to the intervenor when the relationship and
obligation of the suret. is li'ited to the defendants specified in the contract of 
suret."
:)ERE*ORE,  the Court REERSES  and sets aside the decision of the Court
of Appeals in CA!" #" CF $o" 49694" The Court rules that petitioner Fisa.an =uret.
> 0nsurance Corporation is not liable under the replevin bond to the intervenor,
respondent o'inador F" 0ba(an"
$o costs"
SO ORDERED.
%" 0?00$@ $AT0O$A? *A$H, plaintiffappellant, vs" )ACAA$!A #OBC@#=
0$C", defendant" ?A#0@? =B#@TE A$ 0$=B#A$C@ CO", defendantappellee"
!"#" $o" ?+%49 K 19-6-&%
@C0=0O$
?A*#AO#, "
Appeal against an order of the Court of ;irst 0nstance of )anila, on" *ienvenido A"
Tan, presiding, dis'issing the co'plaint as against laridel =uret. and 0nsurance
Co'pan."
Co'plaint is b. hilippine $ational *an/ against )acapanga roducers 0nc" and
laridel =uret. and 0nsurance Co" rincipal allegations are On ece'ber &, 19-&,
?uGon =ugar Co'pan. leased a sugar 'ill located at Calu'pit, *ulacan to
)acapanga roducers beginning with the crop .ear 19-&-% at a 'ini'u' annual
ro.alt. of -6,666, which shall be a lien on the sugar produced b. the lessee and
shall be paid before sale or re'oval of sugar fro' warehouse :cop. of lease
contract attached as Anne< A to the Co'plaint38 on ece'ber &, 19-&, )acapanga
roducers, as principal, and laridel =uret. > 0nsurance, as suret., e<ecuted and
delivered to plaintiff a perfor'ance bond in the a'ount of -6,666 for the full and
faithful co'pliance b. )acapanga roducers of all ter's and conditions of the lease
:cop. of bond attached as Anne< * to Co'plaint38 on ece'ber &1, 19-%, ?uGon
=ugar assigned to plaintiff the pa.'ent due fro' )acapanga roducers in the su'
of -6,666, representing ro.alt. for the lease of the sugar 'ill for the crop .ear
19-&-% :deed of assign'ent attached as Anne< C to Co'plaint38 plaintiff notified
)acapanga roducers and laridel =uret. > 0nsurance of said assign'ent8 plaintiff
had de'anded fro' )acapanga roducers pa.'ent of said ro.alt. of -6,666, but
the latter has refused and refuses to 'a/e pa.'ent8 and plaintiff also 'ade
de'and on laridel =uret. > 0nsurance for said pa.'ent, but the latter refused and
refuses to 'a/e pa.'ent"
laridel =uret. > 0nsurance 'oved to dis'iss the co'plaint for failure to state
cause of action, alleging that it is a guarantor and as such is responsible onl. if
)acapanga roducers has no propert. or assets to pa. its obligation as lessee"
laintiff opposed the 'otion calling attention to the provision of the perfor'ance
bond in which )acapanga roducers and laridel =uret. > 0nsurance, the for'er as
principal and the latter as suret., agreed to be held and fir'l. bound unto ?uGon
=ugar in the penal su' of -6,666, Lfor the pa.'ent of which, well and trul. be
'ade, we bind ourselves, our heirs, e<ecutors, ad'inistrators, successors, and
assigns, (ointl. and severall."L laintiff contended that, as laridel =uret. >
0nsurance bound itself solidaril. with )acapanga roducers, it beca'e a suret. in
accordance with Article &647, par" & of the Civil Code"
The trial court dis'issed the co'plaint against laridel =uret. > 0nsurance and
subseuentl. denied a 'otion to reconsider the order of dis'issal"
The action (oining laridel =uret. > 0nsurance as part. defendant is (ustified b. the
following provisions and cases"
LA#T" &647" " " "
0f a person binds hi'self solidaril. with the principal debtor, the provisions of
section 4, Charter %, Title 0 of this *oo/ shall be observed" 0n such case the contract
is called a suret.ship"L :Civil Code"3
LThe sureties on the superedeas bond given in this particular case, were (ointl. and
severall. liable with principal debtor and that an e<ecution 'ight issue against their
propert. concurrentl. with the e<ecution against the propert. of the principal"L
:)olina vs" e la #iva, et al", 7 hil", %4-"3
LArticle 1+&&, invo/ed b. the appellant, provides that Mif the suret. bound hi'self
 (ointl. with the principal debtor, the provisions of section fourth, chapter third, title
first of this boo/ shall be observed,M that is of boo/ fourth of the Civil Code" =ection
fourth of the chapter title, and boo/ 'entioned provides that Ma creditor 'a. sue
an. of the (oint debtor or all of the' si'ultaneousl."M :Art" 11443" 0n confor'it.
with this provision, the sureties ua Ti and Eap Chatco having bound the'selves in
solidu' :(ointl. and severall.3 with the principal debtor ua Te Ching, the creditor,
that is, the Chinese Cha'ber of Co''erce, 'a. sue an. of the' or all of the'
si'ultaneousl.8 which is what the Chinese Cha'ber of Co''erce did in filing suit
against the (oint and several debtors"L :Chinese Cha'ber of Co''erce vs" ua Te
Ching, 1 hil", 46"3
LAs the principal debtorMs obligationM is valid and has not been satisfied b. his
estate, and as the defendant sureties bound the'selves solidaril., article 1144 of
the Civil Code is applicable, which provides, as follows
The creditor 'a. sue an. of the solidar. debtors or all of the' si'ultaneousl." An
action instituted against one shall not be a bar to those which 'a. be subseuentl.
brought against the others, as long as the debt has not been entirel. satisfied"
:)olina vs" e la #iva, 7 hil", %4-8 Chinese Cha'ber of Co''erce vs" ua Te
Ching, 1 hil", 468 0nchausti > Co" vs" Eulo, %4 hil", 97+"3L :;errer vs" ?opeG and
=antos, - hil", -9&"3
0t is also argued on behalf of laridel =uret. and 0nsurance that as it was not a
part. to the assign'ent, and sa'e was 'ade without its consent, it is, therefore,
discharged fro' its obligation" An assign'ent without /nowledge or consent of the
suret. is not a 'aterial alteration of the contract, sufficient to discharge the suret.
:=tearns ?aw of =uret.ship, @lder, fifth edition, p" 11%"3 There is, besides, no
allegation in the co'plaint, or provision in the deed of assign'ent, or an. change
therein that 'a/es the obligation of laridel =uret. > 0nsurance 'ore onerous than
that stated in the perfor'ance bond" =uch assign'ent did not, therefore, release
the laridel =uret. > 0nsurance fro' its obligation under the suret. bond" :*an/ of
" 0" vs" Albalade(o . Cia, -% hil", 1418 *an/ of " 0" vs" !ooch, et al", 4- hil", -148
Fisa.an istributors, 0nc" vs" ;lores, et al", 9& hil", 14-, 4+ Off" !aG", 47+48 el
#osario vs" $ava, 9- hil", %7, -6 Off" !aG", 41+9"3
0t is lastl. contended that as plaintiff or the lessor had a lien in the sugar produced,
and failed to proceed against it or enforce such lien, laridel =uret. > 0nsurance was
released thereb." There is no allegation to this effect in the co'plaint, that lessor or
plaintiff ever had possession or control of the sugar, or ever waived or released the
lien thereon" Appellee cannot raise the issue in a 'otion to dis'iss"
The order of dis'issal is hereb. reversed, and the appellee ordered to answer the
co'plaint, with costs"
4" @=T#@??A A?)A#@=, petitioner, vs" COB#T O; A@A?= and )"*" ?@$0$!
CO#O#AT0O$, respondents"
!"#" $o" 1&496 K 199+6%%1
@C0=0O$
#@!A?AO, 
2here a part. signs a pro'issor. note as a co'a/er and binds herself to be (ointl.
and severall. liable with the principal debtor in case the latter defaults in the
pa.'ent of the loan, is such underta/ing of the for'er dee'ed to be that of a
suret. as an insurer of the debt, or of a guarantor who warrants the solvenc. of the
debtorJ
ursuant to a pro'issor. note dated )arch 1%, 1996, private respondent )"*"
?ending Corporation e<tended a loan to the spouses Os'eNa and )erl.n AGarraga,
together with petitioner @strella al'ares, in the a'ount of %6,666"66 pa.able on
or before )a. 1&, 1996, with co'pounded interest at the rate of 5 per annu' to
be co'puted ever. %6 da.s fro' the date thereof" 1 On four occasions after the
e<ecution of the pro'issor. note and even after the loan 'atured, petitioner and
the AGarraga spouses were able to pa. a total of 1,%66"66, thereb. leaving a
balance of 1%,766"66" $o pa.'ents were 'ade after the last pa.'ent on
=epte'ber &, 1991" &
Conseuentl., on the basis of petitionerMs solidar. liabilit. under t he pro'issor.
note, respondent corporation filed a co'plaint % against petitioner al'ares as the
lone part.defendant, to the e<clusion of the principal debtors, allegedl. b. reason
of the insolvenc. of the latter"
0n her A'ended Answer with Counterclai', 4 petitioner alleged that so'eti'e in
August 1996, i''ediatel. after the loan 'atured, she offered to settle the
obligation with respondent corporation but the latter infor'ed her that the. would
tr. to collect fro' the spouses AGarraga and that she need not worr. about it8 that
there has alread. been a partial pa.'ent in the a'ount of 17,616"668 that the
interest of 5 per 'onth co'pounded at the sa'e rate per 'onth, as well as the
penalt. charges of %5 per 'onth, are usurious and unconscionable8 and that while
she agrees to be liable on the note but onl. upon default of the principal debtor,
respondent corporation acted in bad faith in suing her alone without including the
AGarragas when the. were the onl. ones who benefited fro' the proceeds of the
loan"
uring the pretrial conference, the parties sub'itted the following issues for the
resolution of the trial court :13 what the rate of interest, penalt. and da'ages
should be8 :&3 whether the liabilit. of the defendant :herein petitioner3 is pri'ar. or
subsidiar.8 and :%3 whether the defendant @strella al'ares is onl. a guarantor
with a subsidiar. liabilit. and not a co'a/er with pri'ar. liabilit." -
Thereafter, the parties agreed to sub'it the case for decision based on the
pleadings filed and the 'e'oranda to be sub'itted b. the'" On $ove'ber &,
199&, the #egional Trial Court of 0loilo Cit., *ranch &%, rendered (udg'ent
dis'issing the co'plaint without pre(udice to the filing of a separate action for a
su' of 'one. against the spouses Os'eNa and )erl.n AGarraga who are pri'aril.
liable on the instru'ent"  This was based on the findings of the court a uo that
the filing of the co'plaint against herein petitioner @strella al'ares, to the
e<clusion of the AGarraga spouses, a'ounted to a discharge of a prior part.8 that
the offer 'ade b. petitioner to pa. the obligation is considered a valid tender of
pa.'ent sufficient to discharge a personMs secondar. liabilit. on the instru'ent8
that petitioner, as co'a/er, is onl. secondar. liable on the instru'ent8 and that the
pro'issor. note is a contract of adhesion"
#espondent Court of Appeals, however, reversed the decision of the trial court, and
rendered (udg'ent declaring herein petitioner al'ares liable to pa. respondent
corporation
1" The su' of 1%,766"66 representing the outstanding balance still due and owing
with interest at si< percent :53 per 'onth co'puted fro' the date the loan was
contracted until full. paid8
&" The su' euivalent to the stipulated penalt. of three percent :%53 per 'onth, of 
the outstanding balance8
%" Attorne.Ms fees at &-5 of the total a'ount due per stipulations8
4" lus costs of suit" 7
Contrar. to the findings of the trial court, respondent appellate court declared that
petitioner al'ares is a suret. since she bound herself to be (ointl. and severall. or
solidarit. liable with the principal debtors, the AGarraga spouses, when she signed
as a co'a/er" As such, petitioner is pri'aril. liable on the note and hence 'a. be
sued b. the creditor corporation for the entire obligation" 0t also adverted to the fact
that petitioner ad'itted her liabilit. in her Answer although she clai's that the
AGarraga spouses should have been i'pleaded" #espondent court ordered the
i'position of the stipulated 5 interest and %5 penalt. charges on the ground that
the Bsur. ?aw is no longer enforceable pursuant to Central *an/ Circular $o" 96-"
;inall., it rationaliGed that even if the pro'issor. note were to be considered as a
contract of adhesion, the sa'e is not entirel. prohibited because the one who
adheres to the contract is free to re(ect it entirel.8 if he adheres, he gives his
consent"
ence this petition for review on certiorari wherein it is asserted that
A" The Court of Appeals erred in ruling that al'ares acted as suret. and is
therefore solidaril. liable to pa. the pro'issor. note"
1" The ter's of the pro'issor. note are vague" 0ts conflicting provisions do not
establish al'aresM solidar. liabilit."
&" The pro'issor. note contains provisions which establish the co'a/erMs liabilit.
as that of a guarantor"
%" There is no sufficient basis for concluding that al'aresM liabilit. is solidar."
4" The pro'issor. note is a contract of adhesion and should be construed against
)"*" ?ending Corporation"
-" al'ares cannot be co'pelled to pa. the loan at this point"
*" Assu'ing that al'aresM liabilit. is solidar., the Court of Appeals erred in strictl.
i'posing the interests and penalt. charges on the outstanding balance of the
pro'issor. note"
The foregoing contentions of petitioner are denied and contradicted in their 'aterial
points b. respondent corporation" The. are further refuted b. accepted doctrines in
the A'erican (urisdiction after which we patterned our statutor. law on suret.ship
and guarant." This case then affords us the opportunit. to 'a/e an e<tended
e<position on the ra'ifications of these two specialiGed contracts, for such guidance
as 'a. be ta/en therefro' in si'ilar local controversies in the future"
The basis of petitioner al'aresM liabilit. under the pro'issor. note is e<pressed in
this wise
ATT@$T0O$ TO CO)AH@#= ?@A=@ #@A 2@??
0, )rs" @strella al'ares, as the Co'a/er of the aboveuoted loan, have full.
understood the contents of this ro'issor. $ote for =hortTer' ?oan
That as Co'a/er, 0 a' full. aware that 0 shall be (ointl. and severall. or solidaril.
liable with the above principal 'a/er of this note8
That in fact, 0 hereb. agree that )"*" ?@$0$! CO#O#AT0O$ 'a. de'and
pa.'ent of the above loan fro' 'e in case the principal 'a/er, )rs" )erl.n
AGarraga defaults in the pa.'ent of the note sub(ect to the sa'e conditions above
contained" +
etitioner contends that the provisions of the second and third paragraph are
conflicting in that while the second paragraph see's to define her liabilit. as that of  partiall. co'plied with, the court 'a. euitable reduce the penalt. 16 on grounds
a suret. which is (oint and solidar. with the principal 'a/er, on the other hand,
under the third paragraph her liabilit. is actuall. that of a 'ere guarantor because
she bound herself to fulfill the obligation onl. in case the principal debtor should fail
to do so, which is the essence of a contract of guarant." )ore si'pl. stated,
although the second paragraph sa.s that she is liable as a suret., the third
paragraph defines the nature of her liabilit. as that of a guarantor" According to
petitioner, these are two conflicting provisions in the pro'issor. note and the rule is
that clauses in the contract should be interpreted in relation to one another and not
b. parts" 0n other words, the second paragraph should not be ta/en in isolation, but
should be read in relation to the third paragraph"
0n an atte'pt to reconcile the supposed conflict between the two provisions,
petitioner avers that she could be held liable onl. as a guarantor for several
reasons" ;irst, the words L(ointl. and severall. or solidaril. liableL used in the
second paragraph are technical and legal ter's which are not full. appreciated b.
an ordinar. la.'an li/e herein petitioner, a -.ear old housewife who is li/el. to
enter into such transactions without full. realiGing the nature and e<tent of her
liabilit." On the contrar., the wordings used in the third paragraph are easier to
co'prehend" =econd, the law loo/s upon the contract of suret.ship with a (ealous
e.e and the rule is that the obligation of the suret. cannot be e<tended b.
i'plication be.ond specified li'its, ta/ing into consideration the peculiar nature of a
suret. agree'ent which holds the suret. liable despite the absence of an. direct
consideration received fro' either the principal obligor or the creditor" Third, the
pro'issor. note is a contract of adhesion since it was prepared b. respondent )"*"
?ending Corporation" The note was brought to petitioner partiall. filled up, the
contents thereof were never e<plained to her, and her onl. participation was to sign
thereon" Thus, an. apparent a'biguit. in the contract should be strictl. construed
against private respondent pursuant to Art" 1%77 of the Civil Code" 9
etitioner accordingl. concludes that her liabilit. should be dee'ed restricted b. the
clause in the third paragraph of the pro'issor. note to be that of a guarantor"
)oreover, petitioner sub'its that she cannot as .et be co'pelled to pa. the loan
because the principal debtors cannot be considered in default in the absence of a
 (udicial or e<tra(udicial de'and" 0t is true that the co'plaint alleges the fact of
de'and, but the purported de'and letters were never attached to the pleadings
filed b. private respondent before the trial court" And, while petitioner 'a. have
ad'itted in her A'ended Answer that she received a de'and letter fro'
respondent corporation so'eti'e in 1996, the sa'e did not effectivel. put her or
the principal debtors in default for the si'ple reason that the latter subseuentl.
'ade a partial pa.'ent on the loan in =epte'ber, 1991, a fact which was never
controverted b. herein private respondent"
;inall., it is argued that the Court of Appeals gravel. erred in awarding the a'ount
of &,74-,4+%"%9 in favor of private respondent when, in truth and in fact, the
outstanding balance of the loan is onl. 1%,766"66" 2here the interest charged on
the loan is e<orbitant, iniuitous or unconscionable, and the obligation has been
of substantial (ustice" )ore i'portantl., respondent corporation never refuted
petitionerMs allegation that i''ediatel. after the loan 'atured, she infor'ed said
respondent of her desire to settle the obligation" The court should, therefore,
'itigate the da'ages to be paid since petitioner has shown a sincere desire for a
co'pro'ise" 11
After a (udicious evaluation of the argu'ents of the parties, we are constrained to
dis'iss the petition for lac/ of 'erit, but to e<cept therefro' the issue anent the
propriet. of the 'onetar. award ad(udged to herein respondent corporation"
At the outset, let it here be stressed that even assu'ing arguendo that the
pro'issor. note e<ecuted between the parties is a contract of adhesion, it has been
the consistent holding of the Court that contracts of adhesion are not invalid per se
and that on nu'erous occasions the binding effects thereof have been upheld" The
peculiar nature of such contracts necessitate a close scrutin. of the factual 'ilieu to
which the provisions are intended to appl." ence, (ust as consistentl. and
unhesitatingl., but without categoricall. invalidating such contracts, the Court has
construed obscurities and a'biguities in the restrictive provisions of contracts of
adhesion strictl. albeit not unreasonabl. against the drafter thereof when (ustified
in light of the operative facts and surrounding circu'stances" 1& The factual
scenario obtaining in the case before us warrants a liberal application of the rule in
favor of respondent corporation"
The Civil Code pertinentl. provides
Art" &647" *. guarant., a person called the guarantor binds hi'self to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so"
0f a person binds hi'self solidaril. with the principal debtor, the provisions of
=ection 4, Chapter %, Title 0 of this *oo/ shall be observed" 0n such case the
contract is called a suret.ship"
0t is a cardinal rule in the interpretation of contracts that if the ter's of a contract
are clear and leave no doubt upon the intention of the contracting parties, the literal
'eaning of its stipulation shall control" 1% 0n the case at bar, petitioner e<pressl.
bound herself to be (ointl. and severall. or solidaril. liable with the principal 'a/er
of the note" The ter's of the contract are clear, e<plicit and uneuivocal that
petitionerMs liabilit. is that of a suret."
er pretension that the ter's L(ointl. and severall. or solidarit. liableL contained in
the second paragraph of her contract are technical and legal ter's which could not
be easil. understood b. an ordinar. la.'an li/e her is dia'etricall. opposed to her
'anifestation in the contract that she Lfull. understood the contentsL of the
pro'issor. note and that she is Lfull. awareL of her solidar. liabilit. with the
principal 'a/er" etitioner ad'its that she voluntaril. affi<ed her signature thereto8
ergo, she cannot now be heard to clai' otherwise" An. reference to the e<istence of  contract of inde'nit. or guarant. has once been (udiciall. deter'ined under the
fraud is unavailing" ;raud 'ust be established b. clear and convincing evidence,
'ere preponderance of evidence not even being adeuate" etitionerMs atte'pt to
prove fraud 'ust, therefore, fail as it was evidenced onl. b. her own
uncorroborated and, e<pectedl., selfserving allegations" 14
aving entered into the contract with full /nowledge of its ter's and conditions,
petitioner is estopped to assert that she did so under a 'isapprehension or in
ignorance of their legal effect, or as to the legal effect of the underta/ing" 1- The
rule that ignorance of the contents of an instru'ent does not ordinaril. affect the
liabilit. of one who signs it also applies to contracts of suret.ship" And the 'ista/e
of a suret. as to the legal effect of her obligation is ordinaril. no reason for relieving
her of liabilit." 1
etitioner would li/e to 'a/e capital of the fact that although she obligated herself
to be (ointl. and severall. liable with the principal 'a/er, her liabilit. is dee'ed
restricted b. the provisions of the third paragraph of her contract wherein she
agreed Lthat )"*" ?ending Corporation 'a. de'and pa.'ent of the above loan
fro' 'e in case the principal 'a/er, )rs" )erl.n AGarraga defaults in the pa.'ent
of the note,L which 'a/es her contract one of guarant. and not suret.ship" The
purported discordance is 'ore apparent than real"
A suret. is an insurer of the debt, whereas a guarantor is an insurer of the solvenc.
of the debtor" 17 A suret.ship is an underta/ing that the debt shall be paid8 a
guarant., an underta/ing that the debtor shall pa." 1+ =tated differentl., a suret.
pro'ises to pa. the principalMs debt if the principal will not pa., while a guarantor
agrees that the creditor, after proceeding against the principal, 'a. proceed against
the guarantor if the principal is unable to pa." 19 A suret. binds hi'self to perfor'
if the principal does not, without regard to his abilit. to do so" A guarantor, on the
other hand, does not contract that the principal will pa., but si'pl. that he is able
to do so" &6 0n other words, a suret. underta/es directl. for the pa.'ent and is so
responsible at once if the principal debtor 'a/es default, while a guarantor
contracts to pa. if, b. the use of due diligence, the debt cannot be 'ade out of the
principal debtor" &1
uintessentiall., the underta/ing to pa. upon default of the principal debtor does
not auto'aticall. re'ove it fro' the a'bit of a contract of suret.ship" The second
and third paragraphs of the aforeuoted portion of the pro'issor. note do not
contain an. other condition for the enforce'ent of respondent corporationMs right
against petitioner" 0t has not been shown, either in the contract or the pleadings,
that respondent corporation agreed to proceed against herein petitioner onl. if and
when the defaulting principal has beco'e insolvent" A contract of suret.ship, to
repeat, is that wherein one lends his credit b. (oining in the principal debtorMs
obligation, so as to render hi'self directl. and pri'aril. responsible with hi', and
without reference to the solvenc. of the principal" &&
0n a desperate effort to e<onerate herself fro' liabilit., petitioner erroneousl.
invo/es the rule on strictissi'i (uris, which holds that when the 'eaning of a
rule of reasonable construction applicable to all written contracts, then the liabilit.
of the suret., under his contract, as thus interpreted and construed, is not to be
e<tended be.ond its strict 'eaning" &% The rule, however, will appl. onl. after it
has been definitel. ascertained that the contract is one of suret.ship and not a
contract of guarant." 0t cannot be used as an aid in deter'ining whether a part.Ms
underta/ing is that of a suret. or a guarantor"
rescinding fro' these (urisprudential authorities, there can be no doubt that the
stipulation contained in the third paragraph of the controverted suret.ship contract
'erel. elucidated on and 'ade 'ore specific the obligation of petitioner as
generall. defined in the second paragraph thereof" #esultantl., the theor. advanced
b. petitioner, that she is 'erel. a guarantor because her liabilit. attaches onl. upon
default of the principal debtor, 'ust necessaril. fail for being incongruent with the
 (udicial pronounce'ents adverted to above"
0t is a wellentrenched rule that in order to (udge the intention of the contracting
parties, their conte'poraneous and subseuent acts shall also be principall.
considered" &4 =everal attendant factors in that genre lend support to our finding
that petitioner is a suret." ;or one, when petitioner was infor'ed about the failure
of the principal debtor to pa. the loan, she i''ediatel. offered to settle the account
with respondent corporation" Obviousl., in her 'ind, she /new that she was directl.
and pri'aril. liable upon default of her principal" ;or another, and this is 'ost
revealing, petitioner presented the receipts of the pa.'ents alread. 'ade, fro' the
ti'e of initial pa.'ent up to the last, which were all issued in her na'e and of the
AGarraga spouses" &- This can onl. be construed to 'ean that the pa.'ents 'ade
b. the principal debtors were considered b. respondent corporation as creditable
directl. upon the account and inuring to the benefit of petitioner" The conco'itant
and si'ultaneous co'pliance of petitionerMs obligation with that of her principals
onl. goes to show that, fro' the ver. start, petitioner considered herself euall.
bound b. the contract of the principal 'a/ers"
0n this regard, we need onl. to reiterate the rule that a suret. is bound euall. and
absolutel. with the principal, & and as such is dee'ed an original pro'isor and
debtor fro' the beginning" &7 This is because in suret.ship there is but one
contract, and the suret. is bound b. the sa'e agree'ent which binds the principal"
&+ 0n essence, the contract of a suret. starts with the agree'ent, &9 which is
precisel. the situation obtaining in this case before the Court"
0t will further be observed that petitionerMs underta/ing as co'a/er i''ediatel.
follows the ter's and conditions stipulated between respondent corporation, as
creditor, and the principal obligors" A suret. is usuall. bound with his principal b.
the sa'e instru'ent, e<ecuted at the sa'e ti'e and upon the sa'e consideration8
he is an original debtor, and his liabilit. is i''ediate and direct" %6 Thus, it has
been held that where a written agree'ent on t he sa'e sheet of paper with and
i''ediatel. following the principal contract between the bu.er and seller is
e<ecuted si'ultaneousl. therewith, providing that the signers of the agree'ent
agreed to the ter's of the principal contract, the signers were LsuretiesL (ointl.
liable with the bu.er" %1 A suret. usuall. enters into the sa'e obligation as that of
his principal, and the signatures of both usuall. appear upon the sa'e instru'ent,
and the sa'e consideration usuall. supports the obligation for both the principal
and the suret." %&
There is no 'erit in petitionerMs contention that the co'plaint was pre'aturel. filed
because the principal debtors cannot as .et be considered in default, there having
been no (udicial or e<tra(udicial de'and 'ade b. respondent corporation" etitioner
has agreed that respondent corporation 'a. de'and pa.'ent of the loan fro' her
in case the principal 'a/er defaults, sub(ect to the sa'e conditions e<pressed in
the pro'issor. note" =ignificantl., paragraph :!3 of the note states that Lshould 0
fail to pa. in accordance with the above schedule of pa.'ent, 0 hereb. waive '.
right to notice and de'and"L ence, de'and b. the creditor is no longer necessar.
in order that dela. 'a. e<ist since the contract itself alread. e<pressl. so declares"
%% As a suret., petitioner is euall. bound b. such waiver"
@ven if it were otherwise, de'and on the sureties is not necessar. before bringing
suit against the', since the co''ence'ent of the suit is a sufficient de'and" %4
On this point, it 'a. be worth 'entioning that a suret. is not even entitled, as a
'atter of right, to be given notice of the principalMs default" 0nas'uch as the
creditor owes no dut. of active diligence to ta/e care of the interest of the suret.,
his 'ere failure to voluntaril. give infor'ation to the suret. of the default of the
principal cannot have the effect of discharging the suret." The suret. is bound to
ta/e notice of the principalMs default and to perfor' the obligation" e cannot
co'plain that the creditor has not notified hi' in the absence of a special
agree'ent to that effect in the contract of suret.ship" %-
The alleged failure of respondent corporation to prove the fact of de'and on the
principal debtors, b. not attaching copies thereof to its pleadings, is li/ewise
i''aterial" 0n the absence of a statutor. or contractual reuire'ent, it is not
necessar. that pa.'ent or perfor'ance of his obligation be first de'anded of the
principal, especiall. where de'and would have been useless8 nor is it a reuisite,
before proceeding against the sureties, that the principal be called on to account" %
The underl.ing principle therefor is that a suret.ship is a direct contract to pa. the
debt of another" A suret. is liable as 'uch as his principal is liable, and absolutel.
liable as soon as default is 'ade, without an. de'and upon the principal
whatsoever or an. notice of default" %7 As an original pro'isor and debtor fro' the
beginning, he is held ordinaril. to /now ever. default of his principal" %+
etitioner uestions the propriet. of the filing of a co'plaint solel. against her to
the e<clusion of the principal debtors who allegedl. were the onl. ones who
benefited fro' the proceeds of the loan" 2hat petitioner is tr.ing to i'pl. is that
the creditor, herein respondent corporation, should have proceeded first against the
principal before suing on her obligation as suret." 2e disagree"
A creditorMs right to proceed against the suret. e<ists independentl. of his right to
proceed against the principal" %9 Bnder Article 1&1 of the Civil Code, the creditor
'a. proceed against an. one of the solidar. debtors or so'e or all of the'
si'ultaneousl." The rule, therefore, is that if the obligation is (oint and several, the
creditor has the right to proceed even against the suret. alone" 46 =ince, generall.,
it is not necessar. for a creditor to proceed against a principal in order to hold the
suret. liable, where, b. the ter's of t he contract, the obligation of the suret. is the
sa'e as that of the principal, then as soon as the principal is in default, the suret.
is li/ewise in default, and 'a. be sued i''ediatel. and before an. proceedings are
had against the principal" 41 erforce, in accordance with the rule that, in the
absence of statute or agree'ent otherwise, a suret. is pri'aril. liable, and with the
rule that his proper re'ed. is to pa. the debt and pursue the principal for
rei'burse'ent, the suret. cannot at law, unless per'itted b. statute and in the
absence of an. agree'ent li'iting the application of the securit., reuire the
creditor or obligee, before proceeding against the suret., to resort to and e<haust
his re'edies against the principal, particularl. where both principal and suret. are
euall. bound" 4&
2e agree with respondent corporation that its 'ere failure to i''ediatel. sue
petitioner on her obligation does not release her fro' liabilit." 2here a creditor
refrains fro' proceeding against the principal, the suret. is not e<onerated" 0n other
words, 'ere want of diligence or forbearance does not affect the creditorMs rights
visavis the suret., unless the suret. reuires hi' b. appropriate notice to sue on
the obligation" =uch gratuitous indulgence of the principal does not discharge the
suret. whether given at the principalMs reuest or without it, and whether it is
.ielded b. the creditor through s.'path. or fro' an inclination to favor the
principal, or is onl. the result of passiveness" The neglect of the creditor to sue the
principal at the ti'e the debt falls due does not discharge the suret., even if such
dela. continues until the principal beco'es insolvent" 4% And, in the absence of
proof of resultant in(ur., a suret. is not discharged b. the creditorMs 'ere state'ent
that the creditor will not loo/ to the suret., 44 or that he need not trouble hi'self"
4- The conseuences of the dela., such as the subseuent insolvenc. of the
principal, 4 or the fact that the re'edies against the principal 'a. be lost b. lapse
of ti'e, are i''aterial" 47
The raison dMPQRStre for the rule is that there is nothing to prevent the creditor fro'
proceeding against the principal at an. ti'e" 4+ At an. rate, if the suret. is
dissatisfied with the degree of activit. displa.ed b. the creditor in the pursuit of his
principal, he 'a. pa. the debt hi'self and beco'e subrogated to all the rights and
re'edies of the creditor" 49
0t 'a. not be a'iss to add that lenienc. shown to a debtor in default, b. dela.
per'itted b. the creditor without change in the ti'e when the debt 'ight be
de'anded, does not constitute an e<tension of the ti'e of pa.'ent, which would
release the suret." -6 0n order to constitute an e<tension discharging the suret., it
should appear that the e<tension was for a definite period , pursuant to an
enforceable agree'ent between the principal and the creditor, and that it was 'ade
without the consent of the suret. or with a reservation of rights with respect to hi'"
The contract 'ust be one which precludes the creditor fro', or at least hinders hi'
in, enforcing the principal contract within the period during which he could otherwise
have enforced it, and which precludes the suret. fro' pa.ing the debt" -1
$one of these ele'ents are present in the instant case" Feril., the 'ere fact that
respondent corporation gave the principal debtors an e<tended period of ti'e within
which to co'pl. with their obligation did not effectivel. absolve herein petitioner
fro' the conseuences of her underta/ing" *esides, the burden is on the suret.,
herein petitioner, to show that she has been discharged b. so'e act of the creditor,
-& herein respondent corporation, failing in which we cannot grant the relief pra.ed
for"
As a final issue, petitioner clai's that assu'ing that her liabilit. is solidar., the
interests and penalt. chargers on the outstanding balance of the loan cannot be
i'posed for being illegal and unconscionable" etitioner additionall. theoriGes that
respondent corporation intentionall. dela.ed the collection of the loan in order that
the interests and penalt. charges would accu'ulate" The state'ent, li/ewise
traversed b. said respondent, is 'isleading"
0n an affidavit -% e<ecuted b. petitioner, which was attached to her petition, she
stated, a'ong others, that
+" uring the latter part of 1996, 0 was surprised to learn that )erl.n AGarragaMs
loan has been released and that she has not paid the sa'e upon its 'aturit." 0
received a telephone call fro' )r" Augusto *anusing of )* ?ending infor'ing 'e of
this fact and of '. liabilit. arising fro' the pro'issor. note which 0 signed"
9" 0 reuested )r" *anusing to tr. to collect first fro' )erl.n and Os'eNa AGarraga"
At the sa'e ti'e, 0 offered to pa. )* ?ending the outstanding balance of the
principal obligation should he fail to collect fro' )erl.n and Os'eNa AGarraga" )r"
*anusing advised 'e not to worr. because he will tr. to collect first fro' )erl.n
and Os'eNa AGarraga"
16" A .ear thereafter, 0 received a telephone call fro' the secretar. of )r" *anusing
who re'inded that the loan of )erl.n and Os'eNa AGarraga, together with interest
and penalties thereon, has not been paid" =ince 0 had no available funds at that
ti'e, 0 offered to pa. )* ?ending b. delivering to the' a parcel of land which 0
own" )r" *anusingMs secretar., however, refused '. offer for the reason that the.
are not interested in real estate"
11" 0n )arch 199&, 0 received a cop. of the su''ons and of the co'plaint filed
against 'e b. )* ?ending before the #TC0loilo" After learning that a co'plaint was
filed against 'e, 0 instructed =heila !atia to go to )* ?ending and reiterate '. first
offer to pa. the outstanding balance of the principal obligation of )erl.n AGarraga in
the a'ount of %6,666"66"
1&" )s" !atia tal/ed to the secretar. of )r" *anusing who referred her to Att."
Fenus, counsel of )* ?ending"
1%" Att." Fenus infor'ed )s" !atia that he will consult )r" *anusing if '. offer to
pa. the outstanding balance of the principal obligation loan :sic3 of )erl.n and
Os'eNa AGarraga is acceptable" ?ater, Att." Fenus infor'ed )s" !atia that '. offer
is not acceptable to )r" *anusing"
The purported offer to pa. 'ade b. petitioner can not be dee'ed sufficient and
substantial in order to effectivel. discharge her fro' liabilit." There are a nu'ber of
circu'stances which con(ointl. inveigh against her aforesaid theor."
1" #espondent corporation cannot be faulted for not i''ediatel. de'anding
pa.'ent fro' petitioner" 0t was petitioner who initiall. reuested that the creditor
tr. to collect fro' her principal first, and she offered to pa. onl. in case the creditor
fails to collect" The dela., if an., was occasioned b. the fact that respondent
corporation 'erel. acuiesced to the reuest of petitioner" At an. rate, there was
here no actual offer of pa.'ent to spea/ of but onl. a co''it'ent to pa. if the
principal does not pa."
&" etitioner 'ade a second atte'pt to settle the obligation b. offering a parcel of
land which she owned" #espondent corporation was acting well within its rights
when it refused to accept the offer" The debtor of a thing cannot co'pel the creditor
to receive a different one, although the latter 'a. be of the sa'e value, or 'ore
valuable than that which is due" -4 The obligee is entitled to de'and fulfill'ent of
the obligation or perfor'ance as stipulated" A change of the ob(ect of the obligation
would constitute novation reuiring the e<press consent of the parties" --
%" After the co'plaint was filed against her, petitioner reiterated her offer to pa. the
outstanding balance of the obligation in the a'ount of %6,666"66 but the sa'e
was li/ewise re(ected" Again, respondent corporation cannot be bla'ed for refusing
the a'ount being offered because it fell wa. below t he a'ount it had co'puted,
based on the stipulated interests and penalt. charges, as owing and due fro'
herein petitioner" A debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been co'pletel. delivered or
rendered, as the case 'a. be" - 0n other words, the prestation 'ust be fulfilled
co'pletel." A person entering into a contract has a right to insist on its perfor'ance
in all particulars" -7
etitioner cannot co'pel respondent corporation to accept the a'ount she is willing
to pa. because the 'o'ent the latter accepts the perfor'ance, /nowing its
inco'pleteness or irregularit., and without e<pressing an. protest or ob(ection,
then the obligation shall be dee'ed full. co'plied with" -+ recisel., this is what
respondent corporation wanted to avoid when it continuall. refused to settle with
petitioner at less than what was actuall. due under their contract"
This notwithstanding, however, we find and so hold that the penalt. charge of %5
per 'onth and attorne.Ms fees euivalent to &-5 of the total a'ount due are highl.
ineuitable and unreasonable"
0t 'ust be re'e'bered that fro' the principal loan of %6,666"66, the a'ount of
1,%66"66 had alread. been paid even before the filing of the present case" Article
1&&9 of the Civil Code provides that the court shall euitabl. reduce the penalt.
when the principal obligation has been partl. or irregularl. co'plied with b. the
debtor" And, even if there has been no perfor'ance, the penalt. 'a. also be
reduced if it is iniuitous or leonine"
0n a case previousl. decided b. this Court which li/ewise involved private
respondent )"*" ?ending Corporation, and which is substantiall. on all fours with
the one at bar, we decided to eli'inate altogether the penalt. interest for being
e<cessive and unwarranted under the following rationaliGation
Bpon the 'atter of penalt. interest, we agree with the Court of Appeals that the
econo'ic i'pact of the penalt. interest of three percent :%53 per 'onth on total
a'ount due but unpaid should be euitabl. reduced" The purpose for which the
penalt. interest is intended  that is, to punish the obligor  will have been
sufficientl. served b. the effects of co'pounded interest" Bnder the e<ceptional
circu'stances in the case at bar, e"g", the original a'ount loaned was onl.
1-,666"668 partial pa.'ent of +,66"66 was 'ade on due date8 and the heav.
:albeit still lawful3 regular co'pensator. interest, the penalt. interest stipulated in
the partiesM pro'issor. note is iniuitous and unconscionable and 'a. be euitabl.
reduced further b. eli'inating such penalt. interest altogether" -9
Accordingl., the penalt. interest of %5 per 'onth being i'posed on petitioner
should si'ilarl. be eli'inated"
;inall., with respect to the award of attorne.Ms fees, this Court has previousl. ruled
that even with an agree'ent thereon between the parties, the court 'a.
nevertheless reduce such attorne.Ms fees fi<ed in the contract when the a'ount
thereof appears to be unconscionable or unreasonable" 6 To that end, it is not even
necessar. to show, as in other contracts, that it is contrar. to 'orals or public
polic." 1 The grant of attorne.Ms fees euivalent to &-5 of the total a'ount due is,
in our opinion, unreasonable and i''oderate, considering the 'ini'al unpaid
a'ount involved and the e<tent of the wor/ involved in this si'ple action for
collection of a su' of 'one." 2e, therefore, hold that the a'ount of 16,666"66 as
and for attorne.Ms fee would be sufficient in this case"&
2@#@;O#@, the (udg'ent appealed fro' is hereb. A;;0#)@, sub(ect to the
)O0;0CAT0O$ that the penalt. interest of %5 per 'onth is hereb. deleted and the
award of attorne.Ms fees is reduced to 16,666"66"
=O O#@#@"
-" =@CB#0TE AC0;0C A==B#A$C@ CO#O#AT0O$, etitioner, versus T@ O$"
A)@?0A T#0A0$;A$T@, 0n her official capacit. as residing udge, #egional Trial
Court, *ranch 9, )anila8 T@ @O?@ O; T@ 0?00$@=, represented b. =pouses
#@E$A?O and @$A0A A$B#@=8 and #@E$A?O #" *BAO$, 0n his official
capacit. as =heriff 0F, #egional Trial Court, *ranch 9, )anila, #espondents"
!"#" $o" 144746 K &66-6+%1
SECOND DSON
DECSON
C)CONA@ARO, <.
*efore Bs is a petition for review on certiorari , assailing the ecision[1] and
#esolution[&] of the Court of Appeals in CA!"#" = $o" -+147, dated 1 une &66 6
and && August &666, respectivel." The said ecision and #esolution declared that
there was no grave abuse of discretion on the part of respondent udge in issuing
the assailed order dated %1 )arch &666, which was the sub(ect in CA!"#" = $o"
-+147"
T)E *ACTS
The factual 'ilieu of the instant case can be traced fro' this CourtMs decision in
!"#" $o" 16&14 pro'ulgated on 6- =epte'ber 1997"
On & August 19++, #e.naldo AnGures instituted a co'plaint against Teresita
FillaluG :FillaluG3 for violation of *atas a'bansa *lg" &&" The cri'inal infor'ation
was brought before the #egional Trial Court, Cit. of )anila, and raffled off to *ranch
9, then presided over b. udge @dilberto !" =andoval, doc/eted as Cri'inal Case
$o" +99&-7"
An Ex-Parte )otion for reli'inar. Attach'ent[%] dated 6 )arch 19+9 was filed b.
#e.naldo AnGures pra.ing that pending the hearing on the 'erits of the case, a 2rit
of reli'inar. Attach'ent be issued ordering the sheriff to attach the properties of  &,-66,666"66" As reported b. the sheriff, petitioner refused to assu'e its
FillaluG in accordance with the #ules"
On 6% ul. 19+9, the trial court issued an Order[4] for the issuance of a writ of 
preli'inar. attach'ent Lupon co'plainantMs posting of a bond which is hereb. fi<ed
at &,1&%,466"66 and the CourtMs approval of the sa'e under the condition
prescribed b. =ec" 4 of #ule -7 of the #ules of Court""""L
An attach'ent bond[-] was thereafter posted b. #e.naldo AnGures and approved
b. the court" Thereafter, the sheriff attached certain properties of FillaluG, which
were dul. annotated on the corresponding certificates of title"
On &- )a. 1996, the trial court rendered a ecision[] on the case acuitting
FillaluG of the cri'e charged, but held her civill. liable" The dispositive portion of the
said decision is reproduced hereunder
2@#@;O#@, pre'ises considered, (udg'ent is hereb. rendered ACB0TT0$! the
accused T@#@=0TA @" F0??A?B with cost de oficio" As to the civil aspect of the case
however, accused is ordered to pa. co'plainant #e.naldo AnGures the su' of T2O
)0??0O$ O$@ B$#@ T2@$TE T#@@ TOB=A$ ;OB# B$#@
:&,1&%,466"663 @=O= with legal rate of interest fro' ece'ber 1+, 19+7 until
full. paid, the su' of -6,666"66 as attorne.Ms fees and the cost of suit"[7]
FillaluG interposed an appeal with the Court of Appeals, and on %6 April 199&, the
latter rendered its ecision,[+] the dispositive portion of which partl. reads
2@#@;O#@, in CA!"#" CF $o" &+7+6, the ecision of the #egional Trial Court of  the part of respondent (udge in issuing the assailed order" ence, the petition is
)anila, *ranch 9, dated )a. &-, 1996, as to the civil aspect of Cri'inal Case $o"
+99&-7, is hereb. A;;0#)@, in all respects""""
The case was elevated to the =upre'e Court :!"#" $o" 16&143, and during its
pendenc., FillaluG posted a counterbond in the a'ount of &,-66,666"66 issued b.
petitioner =ecurit. acific Assurance Corporation"[9] FillaluG, on the sa'e date[16]
of the counterbond, filed an Brgent )otion to ischarge Attach'ent"[11]
On 6- =epte'ber 1997, we pro'ulgated our decision in !"#" $o" 16&14,
affir'ing in toto the decision of the Court of Appeals"
0n view of the finalit. of this CourtMs decision in !"#" $o" 16&14, the private
co'plainant 'oved for e<ecution of (udg'ent before the trial court"[1&]
On 67 )a. 1999, the trial court, now presided over b. respondent udge, issued a
2rit of @<ecution"[1%]
=heriff #e.naldo #" *uaGon tried to serve the writ of e<ecution upon FillaluG, but the
latter no longer resided in her given address" This being the case, the sheriff sent a
$otice of !arnish'ent upon petitioner at its office in )a/ati Cit., b. virtue of the
counterbond posted b. FillaluG with said insurance corporation in the a'ount of  to ul. &661" At the end of August &661, the a'ount of -+,9%"66 would have to
obligation on the counterbond it posted for the discharge of the attach'ent 'ade
b. FillaluG"[14]
#e.naldo AnGures, through the private prosecutor, filed a )otion to roceed with
!arnish'ent,[1-] which was opposed b. petitioner[1] contending that it should
not be held liable on the counterattach'ent bond"
The trial court, in its Order dated %1 )arch &666,[17] granted the )otion to roceed
with !arnish'ent" The sheriff issued a ;ollowBp of !arnish'ent[1+] addressed to
the residentI!eneral )anager of petitioner dated 6% April &666"
On 67 April &666, petitioner filed a etition for Certiorari with reli'inar. 0n(unction
andIor Te'porar. #estraining Order[19] with the Court of Appeals, see/ing the
nullification of the trial courtMs order dated %1 )arch &666 granting the 'otion to
proceed with garnish'ent" FillaluG was also na'ed as petitioner" The petitioners
contended that the respondent udge, in issuing the order dated %1 )arch &666,
and the sheriff co''itted grave abuse of discretion and grave errors of law in
proceeding against the petitioner corporation on its counterattach'ent bond,
despite the fact that said bond was not approved b. the =upre'e Court, and that
the condition b. which said bond was issued did not happen"[&6]
On 1 une &666, the Court of Appeals rendered a ecision,[&1] the dispositive
portion of which reads
2@#@;O#@, pre'ises considered, the Court finds no grave abuse of discretion on
dis'issed"
A )otion for #econsideration[&&] was filed b. petitioner, but was denied for lac/ of 
'erit b. the Court of Appeals in its #esolution[&%] dated && August &666"
Bndeterred, petitioner filed the instant petition under #ule 4- of the 1997 #ules of 
Civil rocedure, with Brgent Application for a 2rit of reli'inar. 0n(unction andIor
Te'porar. #estraining Order"[&4]
On 1% ece'ber &666, this Court issued a #esolution[&-] reuiring the private
respondents to file their Co''ent to the etition, which the. did" etitioner was
reuired to file its #epl.[&] thereafter"
)eanwhile, on 17 anuar. &661, petitioner and the spouses #e.naldo and enaida
AnGures e<ecuted a )e'orandu' of Bnderstanding :)OB3"[&7] 0n it, it was
stipulated that as of said date, the total a'ount garnished fro' petitioner had
a'ounted to 1,-41,6%"+-, and so the re'aining a'ount still sought to be
e<ecuted was 9-+,9%"1-"[&+] etitioner tendered and paid the a'ount of 
%66,666"66 upon signing of the )OB, and the balance of -+,9%"1- was to be
paid in install'ent at 166,666"66 at the end of each 'onth fro' ;ebruar. &661 up
be paid" This would 'a/e the aggregate a'ount paid to the private respondents
&,-66,666"66"[&9] There was, however, a proviso in the )OB which states that
Lthis contract shall not be construed as a waiver or abandon'ent of the appellate
review pending before the =upre'e Court and that it will be sub(ect to all such
interi' orders and final outco'e of said case"L
On 1% August &661, the instant petition was given due course, and the parties were
obliged to sub'it their respective )e'oranda"[%6]
SSUES
The petitioner raises the following issues for the resolution of this Court
M!&" ''e  2@T@# O# $OT T@ COB#T O; Appeals co''itted reversible error
in affir'ing the %1 'arch &666 order of public respondent (udge which allowed
e<ecution on the counterbond issued b. the petitioner"
Coro55!r3 ''e' :13 2@T@# O# $OT T@ COB#T O; A@A?= CO##@CT?E
#B?@ TAT T@ ATTAC)@$T O$ T@ #O@#TE O; F0??A?B 2A= 0=CA#!@
20TOBT $@@ O; COB#T A#OFA? O; T@ COB$T@#*O$ O=T@8 and :&3
2@T@# O# $OT T@ COB#T O; A@A?= CO##@CT?E #B?@ TAT T@
ATTAC)@$T O$ T@ #O@#TE O; F0??A?B 2A= 0=CA#!@ *E T@ )@#@
ACT O; O=T0$! T@ COB$T@#*O$"
T)E COURTS RULNG
etitioner see/s to escape liabilit. b. contending, in the 'ain, that the writ of 
attach'ent which was earlier issued against the real properties of FillaluG was not
discharged" =ince the writ was not discharged, then its liabilit. did not accrue" The
alleged failure of this Court in !"#" $o" 16&14 to approve the counterbond and to
cause the discharge of the attach'ent against FillaluG prevented the happening of a
condition upon which the counterbondMs issuance was pre'ised, such that
petitioner should not be held liable thereon"[%1]
etitioner further asserts that the agree'ent between it and FillaluG is not a
suret.ship agree'ent in the sense that petitioner has beco'e an additional debtor
in relation to private respondents" 0t is 'erel. waiving its right of e<cussion[%&]
that would ordinaril. appl. to counterbond guarantors as originall. conte'plated in
=ection 1&, #ule -7 of the 1997 #ules"
0n their Co''ent,[%%] the private respondents assert that the filing of the counter
bond b. FillaluG had alread. ipso facto discharged the attach'ent on the properties
and 'ade the petitioner liable on the bond" Bpon acceptance of the pre'iu', there
was alread. an e<press contract for suret. between FillaluG and petitioner in the
a'ount of &,-66,666"66 to answer for an. adverse (udg'entIdecision against
FillaluG"
etitioner filed a #epl.[%4] dated 69 )a. &661 to private respondentsM Co''ent,
ad'itting the binding effect of the bond as between the parties thereto" 2hat it did
not subscribe to was the theor. that the attach'ent was ipso facto or auto'aticall.
discharged b. the 'ere filing of the bond in court" =uch theor., according to
petitioner, has no foundation" 2ithout an order of discharge of attach'ent and
approval of the bond, petitioner sub'its that its stipulated liabilit. on said bond,
pre'ised on their occurrence, could not possibl. arise, for to hold otherwise would
be to tra'ple upon the statutoril. guaranteed right of the parties to contractual
autono'."
*ased on the circu'stances present in this case, we find no co'pelling reason to
reverse the ruling of the Court of Appeals"
Over the .ears, in a nu'ber of cases, we have 'ade certain pronounce'ents about
counterbonds"
0n Tijam v. Sibonghanoy ,[%-] as reiterated in  anguard !ssurance Corp. v. Court of 
 !ppeals,[%] we held
" " " [A]fter the (udg'ent for the plaintiff has beco'e e<ecutor. and the e<ecution is
Mreturned unsatisfied,M as in this case, the liabilit. of the bond auto'aticall. attaches
and, in failure of the suret. to satisf. the (udg'ent against the defendant despite
de'and therefore, writ of e<ecution 'a. issue against the suret. to enforce the
obligation of the bond"
0n "u#on Steel Coporation v. Sia, et al.  [%7]
" " " [C]ounterbonds posted to obtain the lifting of a writ of attach'ent is due to
these bonds being securit. for the pa.'ent of an. (udg'ent that the attaching
part. 'a. obtain8 the. are thus 'ere replace'ents of the propert. for'erl.
attached, and (ust as the latter 'a. be levied upon after final (udg'ent in the case
in order to realiGe the a'ount ad(udged, so is the liabilit. of the countersureties
ascertainable after the (udg'ent has beco'e final" " " "
0n $mperial $nsurance, $nc. v. %e "os !ngeles ,[%+] we ruled
" " " =ection 17, #ule -7 of the #ules of Court cannot be construed that an
Le<ecution against the debtor be first returned unsatisfied even if the bond were a
solidar. one, for a procedural 'a. not a'end the substantive law e<pressed in the
Civil Code, and further would nullif. the e<press stipulation of the parties that the
suret.Ms obligation should be solidar. with that of the defendant"
0n  Philippine &ritish !ssurance Co., $nc. v. $ntermediate !ppellate Court  ,[%9] we
further held that Lthe counterbond is intended to secure the pa.'ent of Man.
 (udg'entM that the attaching creditor 'a. recover in the action"L
etitioner does not den. that the contract between it and FillaluG is one of suret."
owever, it points out that the /ind of suret. agree'ent between the' is one that
'erel. waives its right of e<cussion" This cannot be so" The counterbond itself  aforesaid standing in place of the propert. so released" =hould such counterbond
states that the parties (ointl. and severall. bind the'selves to secure the pa.'ent
of an. (udg'ent that the plaintiff 'a. recover against the defendant in the action"
A suret. is considered in law as being the sa'e part. as the debtor in relation to
whatever is ad(udged touching the obligation of the latter, and their liabilities are
interwoven as to be inseparable"[46]
=uret.ship is a contractual relation resulting fro' an agree'ent whereb. one
person, the suret., engages to be answerable for the debt, default or 'iscarriage of  counterbond posted b. FillaluG"
another, /nown as the principal" The suret.Ms obligation is not an original and direct
one for the perfor'ance of his own act, but 'erel. accessor. or collateral to the
obligation contracted b. the principal" $evertheless, although the contract of a
suret. is in essence secondar. onl. to a valid principal obligation, his liabilit. to the
creditor or pro'ise of the principal is said to be direct, pri'ar. and absolute8 in
other words, he is directl. and euall. bound with the principal" The suret.
therefore beco'es liable for the debt or dut. of another although he possesses no
direct or personal interest over the obligations nor does he receive an. benefit
therefro'"[41]
0n view of the nature and purpose of a suret. agree'ent, petitioner, thus, is barred
fro' disclai'ing liabilit."
etitionerMs argu'ent that the 'ere filing of a counterbond in this case cannot
auto'aticall. discharge the attach'ent without first an order of discharge and
approval of the bond, is la'e"
for an. reason be found to be or beco'e insufficient, and the part. furnishing the
sa'e fail to file an additional counterbond, the attaching part. 'a. appl. for a new
order of attach'ent"
0t should be noted that in !"#" $o" 16&14, per our #esolution dated 1- anuar.
1997,[44] we per'itted FillaluG to file a counterattach'ent bond" On 17 ;ebruar.
1997,[4-] we reuired the private respondents to co''ent on the sufficienc. of the
0t is uite palpable that the necessar. steps in the discharge of an attach'ent upon
giving counterbond have been ta/en" To reuire a specific order for the discharge
of the attach'ent when this Court, in our decision in !"#" $o" 16&14, had alread.
declared that the petitioner is solidaril. bound with FillaluG would be 'ere
surplusage" Thus
uring the pendenc. of this petition, a counterattach'ent bond was filed b.
petitioner FillaluG before this Court to discharge the attach'ent earlier issued b. the
trial court" =aid bond a'ounting to &"- 'illion was furnished b. =ecurit. acific
Assurance, Corp" which agreed to bind itself L(ointl. and severall.L with petitioner
for Lan. (udg'entL that 'a. be recovered b. private respondent against the
for'er"[4]
2e are not un'indful of our ruling in the case of   &elisle $nvestment and 'inance
Co., $nc. v. State $nvestment (ouse, $nc. ,[47] where we held

Bnder the #ules, there are two :&3 wa.s to secure the discharge of an attach'ent" " " " [T]he Court of Appeals correctl. ruled that the 'ere posting of a counterbond
;irst, the part. whose propert. has been attached or a person appearing on his does not auto'aticall. discharge the writ of attach'ent" 0t is onl. after hearing and
behalf 'a. post a securit." =econd, said part. 'a. show that the order of  after the (udge has ordered the discharge of the attach'ent if a cash deposit is
attach'ent was i'properl. or irregularl. issued"[4&] The first applies in the instant 'ade or a counterbond is e<ecuted to the attaching creditor is filed, that the writ of 
case" =ection 1&, #ule -7,[4%] provides attach'ent is properl. discharged under =ection 1&, #ule -7 of the #ules of Court"

SEC. 12. %ischarge of attachment upon giving counter-bond.    After a writ of  The ruling in *elisle, at first glance, would suggest an error in the assailed ruling of 
attach'ent has been enforced, the part. whose propert. has been attached, or the the Court of Appeals because there was no specific resolution discharging the
person appearing on his behalf, 'a. 'ove for the discharge of the attach'ent attach'ent and approving the counterbond" As abovee<plained, however,
wholl. or in part on the securit. given" The court shall, after due notice and hearing, consideration of our decision in !"#" $o" 16&14 in its entiret. will readil. show that
order the discharge of the attach'ent if the 'ovant 'a/es a cash deposit, or files a this Court has virtuall. discharged the attach'ent after all the parties therein have
counterbond e<ecuted to the attaching part. with the cler/ of the court where the been heard on the 'atter"
application is 'ade, in an a'ount eual to that fi<ed b. the court in the order of 
attach'ent, e<clusive of costs" *ut if the attach'ent is sought to be discharged On this score, we hew to the pertinent ratiocination of the Court of Appeals as
with respect to a particular propert., the counterbond shall be eual to the value of  regards the heretofore cited provision of =ection 1&, #ule -7 of the 1997 #ules of 
that propert. as deter'ined b. the court" 0n either case, the cash deposit or the Civil rocedure, on the discharge of attach'ent upon giving counterbond
counterbond shall secure the pa.'ent of an. (udg'ent that the attaching part.
'a. recover in the action" A notice of the deposit shall forthwith be served on the " " " The filing of the counterattach'ent bond b. petitioner FillaluG has discharged
attaching part." Bpon the discharge of an attach'ent in accordance with the the attach'ent on the properties and 'ade the petitioner corporation liable on the
provisions of this section, the propert. attached, or the proceeds of an. sale counterattach'ent bond" This can be gleaned fro' the L@;@$A$TM= *O$ ;O#
thereof, shall be delivered to the part. 'a/ing the deposit or giving the counter T@ 0==O?BT0O$ O; ATTAC)@$TL, which states that =ecurit. acific Assurance
bond, or to the person appearing on his behalf, the deposit or counterbond Corporation, as suret., in consideration of the dissolution of the said 
 attachment   jointly and severally , binds itself with petitioner FillaluG for an.
 (udg'ent that 'a. be recovered b. private respondent AnGures against petitioner
FillaluG"
The contract of suret. is onl. between petitioner FillaluG and petitioner corporation"
The petitioner corporation cannot escape liabilit. b. stating that a court approval is
needed before it can be 'ade liable" This defense can onl. be availed b. petitioner
corporation against petitioner FillaluG but not against third persons who are not
parties to the contract of suret." The petitioners hold the'selves out as (ointl. and
severall. liable without an. conditions in the counterattach'ent bond" T>e
$e%&%&o"er cor$or!%&o" c!""o% &m$o'e reB&'&%e' beore &% c!" be m!#e
5&!b5e >e" %>e 5! c5e!r53 #oe' "o% reB&re 'c> reB&'&%e' %o be 5&55e# "
[4+] :@'phases supplied"3
Feril., a (udg'ent 'ust be read in its entiret., and it 'ust be construed as a whole
so as to bring all of its parts into har'on. as far as this can be done b. fair and
reasonable interpretation and so as to give effect to ever. word and part, if 
possible, and to effectuate the intention and purpose of the Court, consistent with
the provisions of the organic law"[49]
0nsurance co'panies are prone to invent e<cuses to avoid their (ust obligation"[-6]
0t see's that this state'ent ver. well fits the instant case"
:)ERE*ORE, in view of all the foregoing, the ecision and #esolution of the Court
of Appeals dated 1 une &666 and && August &666, respectivel., are
both A**RMED " Costs against petitioner"
SO ORDERED.
6. [G.R. No. 110086. <53 1, 1]
+ARAMOUNT NSURANCE COR+ORATON, $e%&%&o"er, ('. COURT O*
A++EALS !"# DAGU+AN ELECTRC COR+ORATON, re'$o"#e"%'.
DECSON
YNARESSANTAGO,  J .
*efore this Court is a petition for review on certiorari  assailing the ecision of 
the Court of Appeals dated April %6, 199% in CA!"#" CF $o" 11976 which dis'issed
petitioner ara'ount 0nsurance Corporations :A#A)OB$T3 appeal, thereb.
affir'ing the decision of the court a )uo finding petitioner liable on its in(unction
bond"
)cAdore ;inance and 0nvest'ent, 0nc" :)cAO#@3 was the owner and
operator of the )cAdore 0nternational alace otel in agupan Cit." rivate
respondent agupan @lectric Corporation :@CO#3, on the other hand, was the
grantee of a franchise to operate and 'aintain electric services in the province of 
angasinan, including agupan Cit."
On ;ebruar. &, 197+, )cAO#@ and @CO# entered into a contract whereb.
@CO# shall provide electric power to )cAO#@s otel" uring the ter' of their
contract for power service, @CO# noticed discrepancies between the actual
'onthl. billings and the esti'ated 'onthl. billings of )cAO#@" Bpon inspection, it
was discovered that the ter'inal in the transfor'ers connected to the 'eter had
been interchanged resulting in the slow rotation of the 'eter" Conseuentl.,
@CO# issued a corrected bill but )cAO#@ refused to pa." As a result of 
)cAO#@s failure and continued refusal to pa. the corrected electric bills, @CO#
disconnected power suppl. to the hotel on $ove'ber &7, 197+"
Aggrieved, )cAO#@ co''enced a suit against @CO# for da'ages with
pra.er for a writ of preli'inar. in(unction" )cAO#@ posted in(unction bonds fro'
several sureties, one of which was herein petitioner A#A)OB$T, which issued an
in(unction bond on ul. 7, 19+6 with a face a'ount of -66,666"66" Accordingl., a
writ of preli'inar. in(unction was issued wherein @CO# was ordered to continue
suppl.ing electric power to the hotel and restrained fro' further disconnecting it"
After due hearing, the #egional Trial Court of ueGon Cit., *ranch 16,
rendered (udg'ent in favor of @CO#, the dispositive portion of which reads
2@#@;O#@, there being preponderance of evidence, the court hereb. dis'isses
the a'ended co'plaint" ;urther, the court rescinds the service contract between the
parties, and orders )cAdore to pa. ecorp the following
1" Actual da'ages consisting of total arrearages for electric services
rendered fro' ;ebruar. 197+ to anuar. 19+%, in the su' of 
%,+%4,4+9"&, plus interest at the legal rate, co'puted fro' the
date of de'and until full pa.'ent8
&" )oral da'ages in the su' of 66,666"668
%" @<e'plar. da'ages in the su' of 466,666"668
4" Attorne.s fees in the su' of 166,666"668 and
-" Costs of the suit"
2hile this case was under litigation, the court issued a nu'ber of restraining orders
or in(unctions" uring these incidents, )cAdore filed the following bonds olic. $o"
+6&&769 b. ara'ount 0nsurance Corporation for -66,666"668 $o" 66667 and $o"
6666+ b. =entinel 0nsurance Co'pan., 0nc" for 166,666"66 and -6,666"668 and
$o" 1&1% b. the Travelers )ulti0nde'nit. Corporation for &&-,666"66"
ursuant to the dispositive portion of this decision, the court holds that these
bonding co'panies are (ointl. and severall. liable with )cAdore, to the e<tent of
the value of their bonds, to pa. the da'ages ad(udged to ecorp"
=end this decision to plaintiffs counsel Att." agapong8 defendants counsel Att."
Fera CruG8 and to each of the bonds'an"
0t is so ordered"[1]
)cAO#@ did not appeal the above decision" A#A)OB$T, however, appealed
to the Court of Appeals assigning the following errors, to wit
0" A@??A$T =B#@TE 2A= $OT !#A$T@ B@ #OC@== $O# !0F@$
0T= AE 0$ COB#T"
00" A@??A$T= =B#@TE *O$, *@0$! A$ 0$B$CT0O$ O# T@)O#A#E
#@=T#A0$0$! O#@# *O$, T@ )A$ATO#E #OC@B#@ 0$ =@C"
&6, #B?@ -7, 0$ #@?AT0O$ TO =@C" 9, #B?@ -+, #B?@= O; COB#T
2A= $OT O*=@#F@ 0$ T0= CA=@8
000" $O @F0@$C@ $O# #OO; A *@@$ #@=@$T@ TO =O2 TAT
@#@0$ A@??A$T =B#@TE *O$ =OB? *@ @? ?0A*?@ ;O#
TOTA? A)A!@= A= AB!@ 0$ T@ CA??@$!@ @C0=0O$" [&]
0n essence, A#A)OB$T contended that it was not given its da. in court
because it was not notified b. @CO# of its intention to present evidence of  was there sufficient evidence to establish the liabilit. of the petitioner on its
da'ages against its in(unction bond, as 'andated b. =ec" 9 of #ule -+, in relation
to =ec" &6 of #ule -7 of the #evised #ules of Court"
The Court of Appeals was not convinced with petitioners contentions" On April
%6, 199%, it affir'ed the decision of the trial court"
0n the instant petition, A#A)OB$T see/s to reverse and set aside the
decision of the Court of Appeals on the following assign'ent of errors
;0#=T?E, T@ O$O#A*?@ COB#T O; A@A?= @##@ 0$ #B?0$! TAT $OT0C@ TO
@T0T0O$@# A$ 0T= #@=@$C@ T#OB! COB$=@? 0$ O$@ @A#0$! 2@#@ $O
@F0@$C@ 0$ =BO#T O; T@ A)A!@= !BA#A$T@@ *E @T0T0O$@#= *O$
#@$@#= T@ $@@ ;O# A$OT@# @A#0$! O$ TAT )ATT@# A =B@#;?B0TE"
=@CO$?E, T@ O$O#A*?@ COB#T O; A@A?= @##@ 0$ A;;0#)0$! T@
@C0=0O$ O; T@ COB#T A BO TAT @T0T0O$@# 0= O0$T?E A$ =@F@#A??E
?0A*?@ 20T )cAO#@ TO T@ @DT@$T O; 0T= *O$, 20C @C0=0O$ 0= $OT
=BO#T@ *E T@ @F0@$C@"[%]
A#A)OB$T asserts that :t3he bone of contention in the instant case is the
'atter of evidence :or lac/ thereof3 presented b. private respondent during the
hearing of the case a uo, notice :or lac/ thereof3 to the suret. relative to the
proceedings before the court a uoduring which said evidence was presented, as
well as the actual proceedings the'selves" [4] A#A)OB$T further asseverates that
no evidence relative to da'ages suffered b. private respondent as a result of the
in(unction was ever presented, or that if an. such evidence was presented, the
sa'e was done without notice to petitioner and in violation of its right to due
process"[-] )oreover, petitioner 'aintains that the in(unction bond was issued and
approved so'eti'e in April 19+6 to guarantee actual and 'aterial da'ages as 'a.
be sustained and dul. proved b. private respondent" Thus, it can onl. cover the
period prospectivel. fro' the date of its issuance and does not retroact to the date
of the initial controvers."
0n its Co''ent, @CO# clai's that A#A)OB$T participated in the
proceedings and was given its da. in court" This is evidenced b. the $otice of 
earing dated ;ebruar. &, 19+- addressed to the three sureties" 0n fact, at the
hearing on )arch &&, 19+-, A#A)OB$T was in attendance represented b. Att."
$onito " Cordero" ?i/ewise, A#A)OB$T was notified of the ne<t hearing
scheduled for April &, 19+-" @CO# further stressed that the hearing on April &,
19+- proceeded as scheduled without an. co''ent, ob(ection, opposition or
reservation fro' A#A)OB$T"
The core issue to be resolved here is whether or not petitioner ara'ount
0nsurance Corporation was denied due process when the trial court found the
in(unction bond it issued in favor of )cAO#@ liable to @CO#" =tated otherwise,
in(unction bondJ
The petition is devoid of 'erit"
etitioners sub'issions necessitates going into the nature of an in(unction as
well as over the procedure in clai'ing, ascertaining and awarding da'ages upon
the in(unction bond"
0n(unction is an e<traordinar. re'ed. calculated to preserve the status )uo of 
things and to prevent actual or threatened acts violative of the rules of euit. and
good conscience as would conseuentl. afford an in(ured part. a cause of action
resulting fro' the failure of the law to provide for an adeuate or co'plete relief"
[]
A preli'inar. in(unction is an order granted at an. stage of an action or
proceeding prior to the (udg'ent or final order, reuiring a part. or a court, agenc.
or a person to refrain fro' a particular act or acts" 0t 'a. also reuire the
perfor'ance of a particular act or acts, in which case it shall be /nown as a
preli'inar. 'andator. in(unction"[7] 0ts sole purpose is not to correct a wrong of t he
past, in the sense of redress for in(ur. alread. sustained, but to prevent further
in(ur."[+]
A preli'inar. in(unction or te'porar. restraining order 'a. be granted onl.
when, a'ong others, the applicant, unless e<e'pted b. the court, files with the
court where the action or proceeding is pending, a bond e<ecuted to the part. or
person en(oined, in an a'ount to be fi<ed b. the court, to the effect that the
applicant will pa. such part. or person all da'ages which he 'a. sustain b. reason
of the in(unction or te'porar. restraining order if the court should finall. decide
that the applicant was not entitled thereto" Bpon approval of the reuisite bond, a
writ of preli'inar. in(unction shall be issued"[9] At the trial, the a'ount of da'ages
to be awarded to either part., upon the bond of the adverse part., shall be clai'ed,
ascertained, and awarded under the sa'e procedure prescribed in =ection &6 of  %" After hearing with notice to the suret."
#ule -7"[16]
#ule -7, =ection &6, of the 1997 #ules of Civil rocedure, which is si'ilarl.
applicable to preli'inar. in(unction, pertinentl. provides
=ec" &6" Claim for damages on account of improper, irregular or excessive
attachment.  An application for da'ages on account of i'proper, irregular or
e<cessive attach'ent 'ust be filed before the trial or before appeal is perfected or
before the (udg'ent beco'es e<ecutor., with due notice to the attaching obligee or
his suret. or sureties, setting forth the facts showing his right to da'ages and the
a'ount thereof" =uch da'ages 'a. be awarded onl. after proper hearing and shall
be included in the (udg'ent on the 'ain case"
0f the (udg'ent of the appellate court be favorable to the part. against who' the
attach'ent was issued, he 'ust clai' da'ages sustained during the pendenc. of
the appeal b. filing an application in the appellate court with notice to t he part. in
whose favor the attach'ent was issued or his suret. or sureties, before the
 (udg'ent of the appellate court beco'es e<ecutor." The appellate court 'a. allow
the application to be heard and decided b. the trial court"
$othing herein contained shall prevent the part. against who' the attach'ent was
issued fro' recovering in the sa'e action the da'ages awarded to hi' fro' an.
propert. of the attaching obligee not e<e'pt fro' e<ecution should the bond or
deposit given b. the latter be insufficient or fail to full. satisf. the award" mutatis
mutandisF
The above rule co'es into pla. when the plaintiffapplicant for in(unction fails
to sustain his action, and the defendant is thereb. granted the right to proceed
against the bond posted b. the for'er" 0n the case at bench, the trial court
dis'issed )cAO#@s action for da'ages with pra.er for writ of preli'inar.
in(unction and eventuall. ad(udged the pa.'ent of actual, 'oral, and e<e'plar.
da'ages against plaintiffapplicant" Conseuentl., private respondent @CO# can
proceed against the in(unction bond posted b. plaintiffapplicant to recover the
da'ages occasioned b. the issuance b. the trial court of the writ of in(unction"
0n order for the in(unction bond to beco'e answerable for the abovedescribed
da'ages, the following reuisites 'ust concur [11]
1" The application for da'ages 'ust be filed in the sa'e case where the
bond was issued8
&" =uch application for da'ages 'ust be filed before the entr. of 
 (udg'ent8 and
The records of this case reveal that during its pendenc. in the trial court,
@CO# filed its Answer raising co'pulsor. counterclai's for rescission of contract,
'oral da'ages, e<e'plar. da'ages, attorne.s fees and litigation e<penses"
[1&]
uring the trial, Att." $onito Cordero appeared[1%] as counsel for
petitioner" A#A)OB$T as well as the other sureties were properl. notified of the
hearing and given their da. in court" =pecificall., notice was sent to Att." Cordero of 
the hearing on April &7, 19+-, which was set for the purpose of deter'ining the
liabilit. of the sureties" The counterclai's for da'ages of @CO# were proven at
the trial and .et A#A)OB$T did not e<ert an. effort to controvert the evidence
presented b. @CO#" !iven these circu'stances, A#A)OB$T cannot hide under
the cloa/ of nonliabilit. on its in(unction bond on the 'ere e<pedienc. that it was
deprived of due process" 0t bears stressing that what the law abhors is not the
absence of previous notice but rather the absolute lac/ of opportunit. to ventilate a
part.s side"[14] 0n other words, petitioner cannot successfull. invo/e denial of due
process where it was given the chance to be heard" As aptl. held b. the Court of 
Appeals, vi# "
The records of the case disclose that during the trial of the case, A#A)OB$T was
present and represented b. its counsel Att." $onito " Cordero as shown in the trial
courts order dated )arch &&, 19+- :Anne< A of Appellees *rief3" 0n the said order,
A#A)OB$T was dul. notified of the ne<t hearing which was scheduled on April &,
19+-" @videntl., A#A)OB$T was wellapprised of the ne<t hearing and it cannot
feign lac/ of notice" aving been given an opportunit. to be heard during the 'ain
hearing for the 'atter of da'ages, A#A)OB$T therefore, cannot bewail that it
was not given an opportunit. to be heard upon denial of its 'otion to cancel its
in(unction bond" Of what use, therefore, is there to conduct another hearing when
the issue of da'ages has been the sub(ect of the 'ain action of which A#A)OB$T
had been dul. notifiedJ A new notice and hearing prescribed b. =ec" &6, #ule -7, is
therefore a repetition and a superfluit."
)oreover, A#A)OB$T has onl. itself to bla'e when it did not 'a/e an. opposition
or ob(ection during the hearing for the reception of @CO#s evidence" aving
'anifested its desire to cancel its bond, it should have as/ed for a defer'ent of
hearing on @CO#s evidence but A#A)OB$T did not do an.thing of this
sort" Onl. when an adverse (udg'ent was rendered b. the trial court against its
principal )cAdore did it whi'per a denial of procedural due process" [1-]
On the sa'e point, A#A)OB$T argues that contrar. to the ruling of the Court
of Appeals, there is a need for a separate hearing for the purpose of presenting
evidence on the alleged da'ages clai'ed b. @CO# on petitioners in(unction
bond" A#A)OB$T contends that a separate hearing is needed as no evidence
dealing with @CO#s clai' for da'ages on petitioners bond was presented during
the hearing wherein petitioners counsel attended nor in the ne<t hearing wherein
petitioner was notified but failed to attend" =ince no hearing was held for the
purpose of establishing its liabilit. on the in(unction bond, A#A)OB$T concludes
that it is released fro' its obligation as suret."
Contrar. to petitioners thesis, it is neither 'andator. nor fatal that there
should be a separate hearing in order that da'ages upon the bond can be clai'ed,
ascertained and awarded, as can be gleaned fro' a cursor. reading of the
provisions of #ule -7, =ection &6" This Court agrees with the appellate courts ruling
that
urisprudential findings laid down the doctrine that a final ad(udication that the
applicant is not entitled to the in(unction does not suffice to 'a/e the suret.
liable" 0t is necessar., in addition, that the suret. be accorded due process, that is,
that it be given an opportunit. to be heard on the uestion of its solidar. liabilit. for
da'ages arising fro' a wrongful in(unction order" 2ithal, the fact that the 'atter of  A#A)OB$T further 'aintains that it is liable to pa. actual da'ages onl."
da'ages was a'ong the issues tried during the hearings on the 'erits will not
render unnecessar. or superfluous a su''ar. hearing to deter'ine the e<tent of a
suret.s liabilit. unless of course, the surety had been impleaded as a party  , or
otherwise earlier notified and given opportunity to be present and ventilate
its side on the matter during the trial.
The e<ception under the doctrinal ruling abovenoted is e<tant in the case at bar"[1]
2hat is necessar. onl. is for the attaching part. and his suret. or sureties to
be dul. notified and given the opportunit. to be heard" 0n the case at bench, this
Court accords due respect to the factual finding of the Court of Appeals that
A#A)OB$T was present and represented b. its counsel Att." $onito " Cordero as
shown in the trial courts order dated )arch &&, 19+- < < <"[17]
As stated, A#A)OB$T also argues that assu'ing it is liable on its in(unction
bond, its liabilit. should be li'ited onl. to the a'ount of da'ages accruing fro' the
ti'e the in(unction bond was issued until the ter'ination of the case, and not fro'
the ti'e the suit was co''enced" 0n short, it clai's that the in(unction bond is
prospective and not retroactive in application"
This Court does not agree" #ule -+, =ection 4:b3, provides that a bond is
e<ecuted in favor of the part. en(oined to answer for all da'ages which he 'a.
sustain b. reason of the in(unction" This Court alread. had occasion to rule on this
'atter in *endo#a v. Cru# ,[1+]where it held that :t3he in(unction bond is intended as
a securit. for da'ages in case it is finall. decided that the in(unction ought not to
have been granted" 0t is designed to cover all da'ages which the part. en(oined can
possibl. suffer" 0ts principal purpose is to protect the en(oined part. against loss or
da'age b. reason of an in(unction" $o distinction was 'ade as to when the
da'ages should have been incurred"
)oreover, when petitioner issued its in(unction bond in favor of @CO#, it was
done with the full /nowledge of the relevant facts obtaining in the controvers.
between @CO# and )cAO#@" At the ti'e the in(unction bond was issued,
@CO# was alread. clai'ing arrears in electric bills and da'ages fro' )cAO#@"
0t bears stressing that )cAO#@ was found liable to pa. actual da'ages,
'oral da'ages, e<e'plar. da'ages, attorne.s fees and costs of the suit" To argue
therefore that A#A)OB$T is onl. liable on its in(unction bond fro' the ti'e of its
issuance and not fro' the ti'e the suit was co''enced is preposterous if not
absurd" 0ndeed, it would be i'possible to deter'ine the rec/oning point when 'oral
da'ages, e<e'plar. da'ages, attorne.s fees and costs of the suit were supposed
to have been incurred" Conseuentl., it can be safel. deduced that the bond
answers for an. and all da'ages arising fro' the in(unction, regardless of whether
it was sustained before or after the filing of the in(unction bond"
 owever, #ule -+, =ection 4:b3, clearl. provides that the in(unction bond is
[19]
answerable for all da'ages" The bond insures with all practicable certaint. that the
defendant 'a. sustain no ulti'ate loss in the event that the in(unction could finall.
be dissolved" Conseuentl., the bond 'a. obligate the bonds'en to account to the
defendant in the in(unction suit for all :13 such da'ages8 :&3 costs and da'ages8
:%3 costs, da'ages and reasonable attorne.s fees as shall be incurred or sustained
b. the person en(oined in case it is deter'ined that the in(unction was wrongfull.
issued"[&6] Thus, A#A)OB$T is liable, (ointl. and severall., for actual da'ages,
'oral da'ages, e<e'plar. da'ages, attorne.s fees and costs of the suit, to the
e<tent of the a'ount of the bond"
*e that as it 'a., a scrutin. of petitioners 0nde'nit. Agree'ent[&1] with
)cAO#@ shows that the for'er agreed to beco'e suret. for the stated a'ount in
favor of agupan @lectric Corp" 0t should be noted that )cAO#@ was alread. in
arrears starting fro' une 1979[&&] up to the ti'e it entered into an 0nde'nit.
Agree'ent with A#A)OB$T on ul. 17, 19+6"
0t 'a. not be a'iss to point out that b. the contract of suret.ship, it is not for
the obligee to see to it that the principal pa.s the debt or fulfills the contract, but for
the suret. to see to it that the principal pa. or perfor'" [&%] The purpose of the
in(unction bond is to protect the defendant against loss or da'age b. reason of the
in(unction in case the court finall. decides that the plaintiff was not entitled to it,
and the bond is usuall. conditioned accordingl." Thus, the bonds'en are obligated
to account to the defendant in the in(unction suit for all da'ages, or costs and
reasonable counsels fees, incurred or sustained b. the latter in case it is deter'ined
that the in(unction was wrongfull. issued"[&4]
The posting of a bond in connection with a preli'inar. in(unction :or
attach'ent under #ule -7, or receivership under #ule -9, or seiGure or deliver. of 
personal propert. under #ule 63 does not operate to relieve the part. obtaining an
in(unction fro' an. and all responsibilit. for the da'ages that t he writ 'a. thereb.
cause" 0t 'erel. gives additional protection to the part. against who' the
in(unction is directed" 0t gives the latter a right of recourse against either the
applicant or his suret., or against both" [&-] 0n the sa'e 'anner, when petitioner
A#A)OB$T issued the bond in favor of its principal, it undertoo/ to assu'e all the
da'ages that 'a. be suffered after finding that the principal is not entitled to the
relief being sought"
:)ERE*ORE, based on the foregoing, the instant petition is @$0@" The
decision of the Court of Appeals dated April %6, 199% in CA!"#" CF $o" 11976 is
A;;0#)@" 2ith costs"
SO ORDERED.
7. G.R. No. L6698 M!3 1, 11
+)L++NE NATONAL -AN, petitioner,
vs"
)ON. GREGORO G. +NEDA, &" >&' c!$!c&%3 !' +re'&#&"? <#?e o %>e Cor%
o *&r'% "'%!"ce o R&!5, -r!"c> HH !"# TAYA-AS CEMENT COM+ANY,
NC., respondents"
The Chief "egal Counsel for petitioner.
+rtille "a +ffice for private respondent.
*ERNAN, C.J.:
0n this petition for certiorari , petitioner hilippine $ational *an/ :$*3 see/s to
annul and set aside the orders dated )arch 4, 1977 and )a. %1, 1977 rendered in
Civil Case $o" &44&& 1 of the Court of ;irst 0nstance of #iGal, *ranch DD0,
respectivel. granting private respondent Ta.abas Ce'ent Co'pan., 0nc"Ms
application for a writ of preli'inar. in(unction to en(oin t he foreclosure sale of
certain properties in ueGon Cit. and $egros Occidental and den.ing petitionerMs
'otion for reconsideration thereof"
0n 19%, 0gnacio Arro.o, 'arried to ?ourdes Tuason Arro.o :the Arro.o =pouses3,
obtained a loan of -+6,666"66 fro' petitioner ban/ to purchase 65 of the
subscribed capital stoc/, and thereb. acuire the controlling interest of private
respondent Ta.abas Ce'ent Co'pan., 0nc" :TCC3" & As securit. for said loan, the
spouses Arro.o e<ecuted a real estate 'ortgage over a parcel of land covered b.
Transfer Certificate of Title $o" --%&% of the #egister of eeds of ueGon Cit.
/nown as the ?a Fista propert."
Thereafter, TCC filed with petitioner ban/ an application and agree'ent for the
establish'ent of an eight :+3 .ear deferred letter of credit :?IC3 for U7,666,666"66
in favor of To.o )en/a Haisha, ?td" of To/.o, apan, to cover the i'portation of a
ce'ent plant 'achiner. and euip'ent"
Bpon approval of said application and opening of an ?IC b. $* in favor of To.o
)en/a Haisha, ?td" for the account of TCC, the Arro.o spouses e<ecuted the
following docu'ents to secure this loan acco''odation =uret. Agree'ent dated
August -, 194 % and Covenant dated August , 194" 4
The i'ported ce'ent plant 'achiner. and euip'ent arrived fro' apan and were
released to TCC under a trust receipt agree'ent" =ubseuentl., To.o )en/a Haisha,
?td" 'ade the corresponding drawings against the ?IC as scheduled" TCC, however,
failed to re'it andIor pa. the corresponding a'ount covered b. the drawings" Thus,
on )a. 19, 19+, pursuant to the trust receipt agree'ent, $* notified TCC of its
intention to repossess, as it later did, the i'ported 'achiner. and euip'ent for
failure of TCC to settle its obligations under the ?IC" -
0n the 'eanti'e, the personal accounts of the spouses Arro.o, which included
another loan of 16,666"66 secured b. a real estate 'ortgage over parcels of
agricultural land /nown as acienda *acon located in 0sabela, $egros Occidental,
had li/ewise beco'e due" The spouses Arro.o having failed to satisf. their
obligations with $*, the latter decided to foreclose the real estate 'ortgages
e<ecuted b. the spouses Arro.o in its favor"
On ul. 1+, 197-, $* filed with the Cit. =heriff of ueGon Cit. a petition for e<tra
 (udicial foreclosure under Act %1%+, as a'ended b. Act 411+ and under residential
ecree $o" %+- of the real estate 'ortgage over the properties /nown as the ?a
Fista propert. covered b. TCT $o" --%&%"  $* li/ewise filed a si'ilar petition with
the Cit. =heriff of *acolod, $egros Occidental with respect to the 'ortgaged
properties located at 0sabela, $egros Occidental and covered b. OCT $o" #T 11-"
The foreclosure sale of the ?a Fista propert. was scheduled on August 11, 197-" At
the auction sale, $* was the highest bidder with a bid price of 1,666,661"66"
owever, when said propert. was about to be awarded to $*, the representative of 
the 'ortgagorspouses ob(ected and de'anded fro' the $* the difference
between the bid price of 1,666,661"66 and the indebtedness of 499,66"&- of the
Arro.o spouses on their personal account" 0t was the contention of the spouses
Arro.oMs representative that the foreclosure proceedings referred onl. to the
personal account of the 'ortgagor spouses without reference to the account of TCC"
To re'ed. the situation, $* filed a supple'ental petition on August 1%, 197-
reuesting the =heriffMs Office to proceed with the sale of the sub(ect real properties
to satisf. not onl. the a'ount of 499,66"&- owed b. the spouses Arro.os on their
personal account but also the a'ount of %-,619,961"49 e<clusive of interest,
co''ission charges and other e<penses owed b. said spouses as sureties of
TCC" 7 =aid petition was opposed b. the spouses Arro.o and the other bidder, ose
?" Araneta"
On =epte'ber 1&, 197-, Acting Cler/ of Court and @<Officio =heriff iana ?"
ungca issued a resolution finding that the uestions raised b. the parties reuired
the reception and evaluation of evidence, hence, proper for ad(udication b. the
courts of law" =ince said uestions were pre(udicial to the holding of the foreclosure
sale, she ruled that her LOffice, therefore, cannot properl. proceed with the
foreclosure sale unless and until there be a court ruling on the afore'entioned
issues"L +
Thus, in )a., 197, $* filed with the Court of ;irst 0nstance of ueGon Cit., *ranch
F a petition for mandamus 9against said iana ungca in her capacit. as Cit. =heriff  ;urther, the F0$TO?A= ta/e the position that their obligation to 0*AA has
of ueGon Cit. to co'pel her to proceed with the foreclosure sale of the 'ortgaged
properties covered b. TCT $o" --%&% in order to satisf. both the personal obligation
of the spouses Arro.o as well as their liabilities as sureties of TCC" 16
On =epte'ber , 197, the petition was granted and ungca was directed to
proceed with the foreclosure sale of the 'ortgaged properties covered b. TCT $o"
--%&% pursuant to Act $o" %1%- and to issue the corresponding =heriffMs Certificate
of =ale" 11
*efore the decision could attain finalit., TCC filed on =epte'ber 14, 197 before the
Court of ;irst 0nstance of #iGal, asig, *ranch DD0 a co'plaint 1& against $*,
ungca, and the rovincial =heriff of $egros Occidental and @<Officio =heriff of
*acolod Cit. see/ing, inter alia, the issuance of a writ of preli'inar. in(unction to
restrain the foreclosure of the 'ortgages over the ?a Fista propert. and acienda
*acon as well as a declaration that its obligation with $* had been full. paid b.
reason of the latterMs repossession of the i'ported 'achiner. and euip'ent" 1%
On October -, 197, the C;0, thru respondent udge !regorio ineda, issued a
restraining order 14 and on )arch 4, 1977, granted a writ of preli'inar.
in(unction" 1- $*Ms 'otion for reconsideration was denied, hence this petition"
etitioner $* advances four grounds for the setting aside of the writ of preli'inar.
in(unction, na'el. a3 that it contravenes "" $o" %+- which prohibits the issuance
of a restraining order against a govern'ent financial institution in an. action ta/en
b. such institution in co'pliance with the 'andator. foreclosure provided in =ection
1 thereof8 b3 that the writ counter'ands a final decision of a coeual and
coordinate court8 c3 that the writ see/s to prohibit the perfor'ance of acts be.ond
the courtMs territorial (urisdiction8 and, d3 private respondent TCC has not shown an.
clear legal right or necessit. to the relief of preli'inar. in(unction"
rivate respondent TCC counters with the argu'ent that "" $o" %+- does not
appl. to the case at bar, firstl. because no foreclosure proceedings have been
instituted against it b. $* and secondl., because its account under the ?IC has
been full. satisfied with the repossession of the i'ported 'achiner. and euip'ent
b. $*"
The resolution of the instant controvers. lies pri'aril. on t he uestion of whether or
not TCCMs liabilit. has been e<tinguished b. the repossession of $* of the i'ported
ce'ent plant 'achiner. and euip'ent"
2e rule for the petitioner $*" 0t 'ust be re'e'bered that $* too/ possession of
the i'ported ce'ent plant 'achiner. and euip'ent pursuant to the trust receipt
agree'ent e<ecuted b. and between $* and TCC giving the for'er the unualified
right to the possession and disposal of all propert. shipped under the ?etter of
Credit until such ti'e as all the liabilities and obligations under said letter had been
discharged" 1 0n the case of intola vs. $nsular &an of !sia and !merica 17 wherein
the sa'e argu'ent was advanced b. the Fintolas as entrustees of i'ported
seashells under a trust receipt transaction, we said
been e<tinguished inas'uch as, through no fault of their own, the. were
unable to dispose of the seashells, and that the. have relinuished
possession thereof to the 0*AA, as owner of the goods, b. depositing the'
with the Court"
The foregoing sub'ission overloo/s the nature and 'ercantile usage of the
transaction involved" A letter of credittrust receipt arrange'ent is
endowed with its own distinctive features and characteristics" Bnder that
setup, a ban/ e<tends a loan covered b. the ?etter of Credit, with the
trust receipt as a securit. for the loan" 0n other words, the transaction
involves a loan feature represented b. the letter of credit, and a securit.
feature which is in the covering trust receipt"
<<< <<< <<<
A trust receipt, therefore, is a securit. agree'ent, pursuant to which a
ban/ acuires a Lsecurit. interestL in the goods"/phi 0t secures an
indebtedness and there can be no such thing as securit. interest that
secures no obligation" As defined in our laws
:h3 L=ecurit. interestL 'eans a propert. interest in goods,
docu'ents or instru'ents to secure perfor'ance of so'e
obligations of the entrustee or of so'e third persons to the
entruster and includes title, whether or not e<pressed to be
absolute, whenever such title is in substance ta/en or retained for
securit. onl."
<<< <<< <<<
Contrar. to the allegation of the F0$TO?A=, 0*AA did not beco'e the real
owner of the goods" 0t was 'erel. the holder of a securit. title for the
advances it had 'ade to the F0$TO?A=" The goods the F0$TO?A= had
purchased through 0*AA financing re'ain their own propert. and the. hold
it at their own ris/" The trust receipt arrange'ent did not convert the 0*AA
into an investor8 the latter re'ained a lender and creditor"
<<< <<< <<<
=ince the 0*AA is not the factual owner of t he goods, the F0$TO?A= cannot
 (ustifiabl. clai' that because the. have surrendered the goods to 0*AA and
subseuentl. deposited the' in the custod. of the court, the. are
 absolutel. relieved of their obligation to pa. their loan because of their
inabilit. to dispose of the goods" The fact that the. were unable to sell the
seashells in uestion does not affect 0*AAMs right to recover the advances it
had 'ade under the ?etter of Credit"
$*Ms possession of the sub(ect 'achiner. and euip'ent being precisel. as a for'
of securit. for the advances given to TCC under the ?etter of Credit, said possession
b. itself cannot be considered pa.'ent of the loan secured thereb." a.'ent would
legall. result onl. after $* had foreclosed on said securities, sold the sa'e and
applied the proceeds thereof to TCCMs loan obligation" )ere possession does not
a'ount to foreclosure for foreclosure denotes the procedure adopted b. the
'ortgagee to ter'inate the rights of the 'ortgagor on the propert. and includes
the sale itself" 1+
$either can said repossession a'ount to dacion en pago " ation in pa.'ent ta/es
place when propert. is alienated to the creditor in satisfaction of a debt in 'one.
and the sa'e is governed b. sales" 19 ation in pa.'ent is the deliver. and
trans'ission of ownership of a thing b. the debtor to the creditor as an accepted
euivalent of the perfor'ance of the obligation" &6 As aforesaid, the repossession of
the 'achiner. and euip'ent in uestion was 'erel. to secure the pa.'ent of
TCCMs loan obligation and not for the purpose of transferring ownership thereof to
$* in satisfaction of said loan" Thus, no dacion en pago  was ever acco'plished"
roceeding fro' this finding, $* has the right to foreclose the 'ortgages e<ecuted
b. the spouses Arro.o as sureties of TCC" A suret. is considered in law as being the
sa'e part. as the debtor in relation to whatever is ad(udged touching the obligation
of the latter, and their liabilities are interwoven as to be inseparable" &1 As sureties,
the Arro.o spouses are pri'aril. liable as original pro'issors and are bound
i''ediatel. to pa. the creditor the a'ount outstanding" &&
Bnder residential ecree $o" %+- which too/ effect on anuar. %1, 1974,
govern'ent financial institutions li/e herein petitioner $* are reuired to foreclose
on the collaterals andIor securities for an. loan, credit or acco''odation whenever
the arrearages on such account a'ount to at least twent. percent :&653 of the
total outstanding obligations, including interests and charges, as appearing in the
boo/s of account of the financial institution concerned" &% 0t is further provided
therein that Lno restraining order, te'porar. or per'anent in(unction shall be
issued b. the court against an. govern'ent financial institution in an. action ta/en
b. such institution in co'pliance with the 'andator. foreclosure provided in =ection
1 hereof, whether such restraining order, te'porar. or per'anent in(unction is
sought b. the borrower:s3 or an. third part. or parties " " "L &4
0t is not disputed that the foreclosure proceedings instituted b. $* against the
Arro.o spouses were in co'pliance with the 'andate of "" %+-" This being the
case, the respondent (udge acted in e<cess of his (urisdiction in issuing the
in(unction specificall. proscribed under said decree"
Another reason for stri/ing down the writ of preli'inar. in(unction co'plained of is
that it interfered with the order of a coeual and coordinate court" =ince *ranch F
of the C;0 of #iGal had alread. acuired (urisdiction over the uestion of foreclosure
of 'ortgage over the ?a Fista propert. and rendered (udg'ent in relation thereto,
then it retained (urisdiction to the e<clusion of all other coordinate courts over its
 (udg'ent, including all incidents relative to the control and conduct of its 'inisterial
officers, na'el. the sheriff thereof" &- The foreclosure sale having been ordered b.
*ranch F of the C;0 of #iGal, TCC should not have filed in(unction proceedings with
*ranch DD0 of the sa'e C;0, but instead should have first sought relief b. proper
'otion and application fro' the for'er court which had e<clusive (urisdiction over
the foreclosure proceeding" &
This doctrine of noninterference is pre'ised on the principle that a (udg'ent of a
court of co'petent (urisdiction 'a. not be opened, 'odified or vacated b. an.
court of concurrent (urisdiction" &7
;urther'ore, we find the issuance of the preli'inar. in(unction directed against the
rovincial =heriff of $egros Occidental and e<officio =heriff of *acolod Cit. a
 (urisdictional faux pas as the Courts of ;irst 0nstance, now #egional Trial Courts, can
onl. enforce their writs of in(unction within their respective designated territories" &+
2@#@;O#@, the instant petition is hereb. granted" The assailed orders are hereb.
set aside" Costs against private respondent"
+" @O?@ O; T@ 0?00$@=, plaintiffappellee, vs" B?0A )A$0@!O, accused
appellant"
!"#" $o" ?%6916 K 19+76&&7
DECSON
$A#FA=A, "
Application of the established rule in this (urisdiction, that the acuittal of an
accused on reasonable doubt is not generall. an i'pedi'ent to the i'position, in
the sa'e cri'inal action, of civil liabilit. for da'ages on said accused, is what is
essentiall. called into uestion b. the appellant in this case"
The infor'ation which initiated the instant cri'inal proceedings in the Court of ;irst
0nstance of #iGal indicted three :%3 persons  ?t" #iGalino )" Bba., )rs" )ilagros
a'intuan, and )rs" ulia T" )aniego  for the cri'e of )A?F@#=AT0O$
co''itted as follows
LThat on or about the period covering the 'onth of )a., 19-7 up to and including
the 'onth of August, 19-7, in ueGon Cit., hilippines, the abovena'ed accused,
conspiring together, confederating with and helping one another, with intent of gain
and without authorit. of law, did, then and there, wilfull., unlawfull. and feloniousl.
'alverse, 'isappropriate and 'isappl. public funds in the a'ount of ,4%4"-6
belonging to the #epublic of the hilippines, in the following 'anner, to wit the
accused, ?t" #0A?0$O )" Bba., a dul. appointed officer in the Ar'ed ;orces of the
hilippines in active dut., who, during the period specified above, was designated as
isbursing Officer in the Officer of the Chief of ;inance, !, Ca'p )urph., ueGon
Cit., and as such was entrusted with and had under his custod. and control public
funds, conspiring and confederating with his coaccused, )0?A!#O= T" A)0$TBA$
and B?0A T" )A$0@!O, did then and there, unlawfull., willfull. and feloniousl., with
intent of gain and without authorit. of law, and in pursuance of their conspirac.,
ta/e, receive, and accept fro' his said coaccused several personal chec/s drawn
against the hilippine $ational *an/ and the *an/ of the hilippine 0slands, of which
the accused, )0?A!#O= T" A)0$TBA$ is the drawer and the accused, B?0A T"
)A$0@!O, is the indorser, in the total a'ount of ,4%4"-6, cashing said chec/s
and using for this purpose the public funds entrusted to and placed under the
custod. and control of the said ?t" #iGalino )" Bba., all the said accused /nowing
full. well that the said chec/s are worthless and are not covered b. funds in the
afore'entioned ban/s, for which reason the sa'e were dishonored and re(ected b.
the said ban/s when presented for encash'ent, to the da'age and pre(udice of the
#epublic of the hilippines, in the a'ount of ,4%4"-6, hilippine currenc."L 1
Onl. ?t" Bba. and )rs" )aniego were arraigned, )rs" a'intuan having apparentl.
fled to the Bnited =tates in August, 19&" & *oth Bba. and )aniego entered a plea
of not guilt." %
After trial (udg'ent was rendered b. the Court of ;irst 0nstance, 4 the dispositive
part whereof reads
LThere being sufficient evidence be.ond reasonable doubt against the accused,
#iGalino )" Bba., the Court hereb. convicts hi' of the cri'e of 'alversation and
sentences hi' to suffer the penalt. of reclusion te'poral of T2@?F@ :1&3 E@A#=,
O$@ :13 AE to ;OB#T@@$ :143 E@A#=, @0!T :+3 )O$T=, and a fine of
-7,4%4"-6 which is the a'ount 'alversed, and to suffer perpetual special
disualification"
L0n the absence of evidence against accused ulia T" )aniego, the Court hereb.
acuits her, but both she and #iGal T" Bba. are hereb. ordered to pa. (ointl. and
severall. the a'ount of -7,4%4"-6 to the govern'ent"L -
)aniego sought reconsideration of the (udg'ent, pra.ing that she be absolved fro'
civil liabilit. or, at the ver. least, that her liabilit. be reduced to 4,9%4"-6"  The
Court declined to negate her civil liabilit., but did reduce the a'ount thereof to
4,9%4"-6" 7 =he appealed to the Court of Appeals + as Bba. had earlier done" 9
Bba.Ms appeal was subseuentl. dis'issed b. the Appellate Court because of his
failure to file brief" 16 On the other hand, )aniego sub'itted her brief in due
course, and ascribed three :%3 errors to the Court a uo, to wit
13 The ?ower Court erred in holding her civill. liable to inde'nif. the !overn'ent
for the value of the chec/s after she had been found not guilt. of the cri'e out of
which the civil liabilit. arises"
&3 @ven assu'ing arguendo that she could properl. be held civill. liable after her
acuittal, it was error for the lower Court to ad(udge her liable as an indorser to
inde'nif. the govern'ent for the a'ount of the chec/s"
%3 The ?ower Court erred in declaring her civill. liable (ointl. and severall. with her
codefendant Bba., instead of absolving her altogether" 11
*ecause, in the Appellate CourtMs view, )aniegoMs brief raised onl. uestions of law,
her appeal was later certified to this Court pursuant to =ection 17, in relation to
=ection %1, of the udiciar. Act, as a'ended, and =ection %, #ule -6 of the #ules of
Court" 1&
The verdict 'ust go against the appellant"
2ell /nown is the principle that Lan. person cri'inall. liable for felon. is also civill.
liable"L 1% *ut a person ad(udged not cri'inall. responsible 'a. still be held to be
civill. liable" A personMs acuittal of a cri'e on the ground that his guilt has not
been proven be.ond reasonable doubt 14 does not bar a civil action for da'ages
founded on the sa'e acts involved in the offense" 1- L@<tinction of the penal action
does not carr. with it e<tinction of the civil, unless the e<tinction proceeds fro' a
declaration in a final (udg'ent that the fact fro' which the civil 'ight arise did not
e<ist"L 1
L#ule 111 =@C" %:b3 @<tinction of the penal action does not carr. with it e<tinction
of the civil, unless the e<tinction proceeds fro' a declaration in a final (udg'ent
that the fact fro' which the civil 'ight arise did not e<ist" 0n other cases, the
person entitled to the civil action 'a. institute it in the (urisdiction and in the
'anner provided b. law against the person who 'a. be liable for restitution of the
thing and reparation of inde'nit. for the da'age suffered"L :19+- #ules on
Cri'inal rocedure3"
ence, contrar. to her sub'ission, 17 )aniegoMs acuittal on reasonable doubt of
the cri'e of )alversation i'puted to her and her two :&3 coaccused did not
operate to absolve her fro' civil liabilit. for rei'burse'ent of the a'ount rightfull.
due to the !overn'ent as owner thereof" er liabilit. therefor could properl. be
ad(udged, as it was so ad(udged, b. the Trial Court on the basis of the evidence
before it, which adeuatel. establishes that she was an indorser of several chec/s
drawn b. her sister, which were dishonored after the. had been e<changed with
cash belonging to the !overn'ent, then in the official custod. of ?t" Bba."
AppellantMs contention that as 'ere indorser, she 'a. not be 'ade liable on
account of the dishonor of the chec/s indorsed b. her, is li/ewise untenable" Bnder
the law, the holder or last indorsee of a negotiable instru'ent has the right to
Lenforce pa.'ent of the instru'ent for the full a'ount thereof against all parties
liable thereon"L 1+ A'ong the Lparties liable thereonL is an indorser of the
instru'ent i"e", La person placing his signature upon an instru'ent otherwise than
as 'a/er, drawer, or acceptor " " " unless he clearl. indicates b. appropriate words
his intention to be bound in so'e other capacit."L 19 =uch an indorser Lwho
indorses without ualification,L inter alia Lengages that on due present'ent, " " "
:the instru'ent3 shall be accepted or paid, or both, as the case 'a. be, according
to its tenor, and that if it be dishonored, and the necessar. proceedings on dishonor
be dul. ta/en, he will pa. the a'ount thereof to the holder, or to an. subseuent
indorser who 'a. be co'pelled to pa. it"L &6 )aniego 'a. also be dee'ed an
Lacco''odation part.L in the light of the facts, i"e", a person Lwho has signed the
instru'ent as 'a/er, drawer, acceptor, or indorser, without receiving value therefor,
and for the purpose of lending his na'e to so'e other person"L &1 As such, she is
under the law Lliable on the instru'ent to a holder for value, notwithstanding such
holder at the ti'e of ta/ing the instru'ent /new " " " :her3 to be onl. an
acco''odation part.,L && although she has the right, after pa.ing the holder, to
obtain rei'burse'ent fro' the part. acco''odated, Lsince the relation between
the' is in effect that of principal and suret., the acco''odation part. being the
suret."L &%
One last word" The Trial Court acted correctl. in ad(udging )aniego to be civill.
liable in the sa'e cri'inal action in which she had been acuitted of the felon. of
)alversation ascribed to her, dispensing with the necessit. of having a separate civil
action subseuentl. instituted against her for the purpose" &4
2@#@;O#@, the (udg'ent of the Trial Court, being entirel. in accord with the facts
and the law, is hereb. affir'ed in toto, with costs against the appellant"
=O O#@#@"
9" TO2@#= A==B#A$C@ CO#O#AT0O$, petitioner, vs" O#O#A)A =B@#)A#T, 0T=
O2$@##O#0@TO#, =@@ O$! and B!@ *@$A)0$ H" !O#O=@, residing
udge, Court of ;irst 0nstance of )isa'is Oriental, *ranch 0, respondents"
!"#" $o" ?4-+4+ K 19771169
@C0=0O $
AB0$O, 
This case is about the liabilit. of a suret. in a counterbond for the lifting of a writ of
preli'inar. attach'ent"
On ;ebruar. 17, 197 =ee ong, the proprietor of Orora'a =uper'art in Caga.an
de Oro Cit., sued the spouses @rnesto Ong and Conching Ong in the Court of ;irst
0nstance of )isa'is Oriental for the collection of the su' of -+,466 plus litigation
e<penses and attorne.Ms fees :Civil Case $o" 49%63"
=ee ong as/ed for a writ of preli'inar. attach'ent" On )arch -, 197, the lower
court issued an order of attach'ent" The deput. sheriff attached the properties of
the Ong spouses in Falencia, *u/idnon and in Caga.an de Oro Cit."
To lift the attach'ent, the Ong spouses filed on )arch 11, 197 a counterbond in
the a'ount of -+,466 with Towers Assurance Corporation as suret." 0n that
underta/ing, the Ong spouses and Towers Assurance Corporation bound the'selves
to pa. solidaril. to =ee ong the su' of -+,466"
On )arch &4, 197 the Ong spouses filed an answer with a counterclai'" ;or non
appearance at the pretrial, the Ong spouses were declared in default"
On October &-, 197, the lower court rendered a decision, ordering not onl. the
Ong spouses but also their suret., Towers Assurance Corporation, to pa. solidaril.
to =ee ong the su' of -+,466" The court also ordered the Ong spouses to pa.
16,666 as litigation e<penses and attorne.Ms fees"
@rnesto Ong 'anifested that he did not want to appeal" On )arch +, 1977, Orora'a
=uper'art filed a 'otion for e<ecution" The lower court granted that 'otion" The
writ of e<ecution was issued on )arch 14 against the (udg'ent debtors and their
suret." On )arch &9, 1977, Towers Assurance Corporation filed the instant petition
for certiorari where it assails the decision and writ of e<ecution"
2e hold that the lower court acted with grave abuse of discretion in issuing a writ of 
e<ecution against the suret. without first giving it an opportunit. to be heard as
reuired in #ule -7 of the #ules of Court which provides
L=@C" 17"2hen e<ecution returned unsatisfied, recovers had upon bond"  0f the
e<ecution be returned unsatisfied in whole or in part, the suret. or sureties on an.
counterbond given pursuant to the provisions of this rule to secure the pa.'ent of
the (udg'ent shall beco'e charged on such counterbond, and bound to pa. to the
 (udg'ent creditor upon de'and, the a'ount due under the (udg'ent, which
a'ount 'a. be recovered fro' such suret. or sureties after notice and su''ar.
hearing in the action"L
Bnder section 17, in order that the (udg'ent creditor 'ight recover fro' the suret.
on the counterbond, it is necessar. :13 that e<ecution be first issued against the
principal debtor and that such e<ecution was returned unsatisfied in whole or in
part8 :&3 that the creditor 'ade a de'and upon the suret. for the satisfaction of
the (udg'ent, and :%3 that the suret. be given notice and a su''ar. hearing in the
sa'e action as to his liabilit. for the (udg'ent under his counterbond"
The first reuisite 'entioned above is not applicable to this case because Towers
Assurance Corporation assu'ed a solidar. liabilit. for the satisfaction of the
 (udg'ent" A suret. is not entitled to the e<haustion of the properties of the
principal debtor :Art" &9-9, Civil Code8 ?uGon =teel Corporation vs" =ia, ?&449,
)a. 1-, 199, &+ =C#A -+, %3"
*ut certainl., the suret. is entitled to be, heard before an e<ecution can be issued
against hi' since he is not a part. in the case involving his principal" $otice and
hearing constitute the essence of procedural due process" :)artineG vs" Fillacete,
11 hil" %&8 Alliance 0nsurance > =uret. Co", 0nc" vs" on" iccio, 16- hil" 119&,
1&668 ?uGon =uret. Co", 0nc" vs" *eson, ?&+-, anuar. %6, 1976, %1 =C#A
%1%3
2@#@;O#@, the order and writ of e<ecution, insofar as the. concern Towers
Assurance Corporation, are set aside" The lower court is directed to conduct a
su''ar. hearing on the suret.Ms liabilit. on its counterbond" $o costs"
=O O#@#@"
16" 0?00$@ @DO#T A$ ;O#@0!$ ?OA$ !BA#A$T@@ CO#O#AT0O$,
petitioner, vs" F"" @B=@*0O CO$=T#BCT0O$, 0$C"8 %?@D 0$T@#$AT0O$A?, 0$C"8
F0C@$T@ " @B=@*0O8 =O?@A C" @B=@*0O8 @BA#O @" =A$TO=8 0?B)0$AA
=A$TO=8 A$ ;0#=T 0$T@!#AT@ *O$0$! A$ 0$=B#A$C@ CO)A$E, 0$C",
respondents"
!"#" $o" 146647 K &664671%
@C0=0O $
AF0@, #", C""
This case is an offshoot of a service contract entered into b. a ;ilipino construction
fir' with the 0rai !overn'ent for the construction of the 0nstitute of h.sical
Therap.)edical Center, hase 00, in *aghdad, 0ra, at a ti'e when the 0ran0ra
war was ongoing"
0n a co'plaint filed with the #egional Trial Court of )a/ati Cit., doc/eted as Civil
Case $o" 91196 and assigned to *ranch -+, petitioner hilippine @<port and
;oreign ?oan !uarantee Corporation[1] :hereinafter hilguarantee3 sought
rei'burse'ent fro' the respondents of the su' of 'one. it paid to Al Ahli *an/ of
Huwait pursuant to a guarantee it issued for respondent F"" @usebio Construction,
0nc" :F@C03"
The factual and procedural antecedents in this case are as follows
On + $ove'ber 19+6, the =tate OrganiGation of *uildings :=O*3, )inistr. of
ousing and Construction, *aghdad, 0ra, awarded the construction of the 0nstitute
of h.sical Therap.)edical #ehabilitation Center, hase 00, in *aghdad, 0ra,
:hereinafter the ro(ect3 to A(.al Trading and Contracting Co'pan. :hereinafter
A(.al3, a fir' dul. licensed with the Huwait Cha'ber of Co''erce for a total
contract price of 0-,41,6+9I64 :or about B=U1+,7%9,+3"[&]
On 7 )arch 19+1, respondent spouses @duardo and 0lu'inada =antos, in behalf of
respondent %le< 0nternational, 0nc" :hereinafter %le<3, a local contractor
engaged in construction business, entered into a (oint venture agree'ent with A(.al
wherein the for'er undertoo/ the e<ecution of the entire ro(ect, while the latter
would be entitled to a co''ission of 45 of the contract price"[%] ?ater, or on +
April 19+1, respondent %le<, not being accredited b. or registered with the
hilippine Overseas Construction *oard :OC*3, assigned and transferred all its
rights and interests under the (oint venture agree'ent to F@C0, a construction and
engineering fir' dul. registered with the OC*"[4] owever, on & )a. 19+1, %le<
and F@C0 entered into an agree'ent that t he e<ecution of the ro(ect would be
under their (oint 'anage'ent"[-]
The =O* reuired the contractors to sub'it :13 a perfor'ance bond of
0&71,+6+I16 representing -5 of the total contract price and :&3 an advance
pa.'ent bond of 0-41,6+I961 representing 165 of the advance pa.'ent to be
released upon signing of the contract"[] To co'pl. with these reuire'ents,
respondents %le< and F@C0 applied for the issuance of a guarantee with
petitioner hilguarantee, a govern'ent f inancial institution e'powered to issue
guarantees for ualified ;ilipino contractors to secure the perfor'ance of approved
service contracts abroad"[7]
etitioner hilguarantee approved respondentsM application" =ubseuentl., letters of
guarantee[+] were issued b. hilguarantee to the #afidain *an/ of *aghdad
covering 1665 of the perfor'ance and advance pa.'ent bonds, but the. were not
accepted b. =O*" 2hat =O* reuired was a letterguarantee fro' #afidain *an/,
the govern'ent ban/ of 0ra" #afidain *an/ then issued a perfor'ance bond in
favor of =O* on the condition that another foreign ban/, not hilguarantee, would
issue a counterguarantee to cover its e<posure" Al Ahli *an/ of Huwait was,
therefore, engaged to provide a counterguarantee to #afidain *an/, but it reuired
a si'ilar counterguarantee in its favor fro' the petitioner" Thus, three la.ers of
guarantees had to be arranged"[9]
Bpon the application of respondents %le< and F@C0, petitioner hilguarantee
issued in favor of Al Ahli *an/ of Huwait ?etter of !uarantee $o" +1194; [16]
:erfor'ance *ond !uarantee3 in the a'ount of 0&71,+6+I16 and ?etter of
!uarantee $o" +119-;[11] :Advance a.'ent !uarantee3 in the a'ount of
0-41,6+I961, both for a ter' of eighteen 'onths fro' &- )a. 19+1" These
letters of guarantee were secured b. :13 a eed of Bnderta/ing[1&] e<ecuted b.
respondents F@C0, =pouses Ficente " @usebio and =oledad C" @usebio, %le<, and
=pouses @duardo @" =antos and 0lu'inada =antos8 and :&3 a suret. bond[1%]
issued b. respondent ;irst 0ntegrated *onding and 0nsurance Co'pan., 0nc"
:;0*0C03" The =uret. *ond was later a'ended on &% une 19+1 to increase the
a'ount of coverage fro' "4 'illion to "97 'illion and to change the ban/ in
whose favor the petitionerMs guarantee was issued, fro' #afidain *an/ to Al Ahli
*an/ of Huwait"[14]
On 11 une 19+1, =O* and the (oint venture F@C0 and A(.al e<ecuted the service
contract[1-] for the construction of the 0nstitute of h.sical Therap.  )edical
#ehabilitation Center, hase 00, in *aghdad, 0ra, wherein the (oint venture
contractor undertoo/ to co'plete the ro(ect within a period of -47 da.s or 1+
'onths" Bnder the Contract, the oint Fenture would suppl. 'anpower and
'aterials, and =O* would refund to the for'er &-5 of the pro(ect cost in 0rai
inar and the 7-5 in B= dollars at the e<change rate of 1 inar to %"%7777 B=
ollars"[1]
The construction, which was supposed to start on & une 19+1, co''enced onl. on
the last wee/ of August 19+1" *ecause of this dela. and the slow progress of the
construction wor/ due to so'e setbac/s and difficulties, the ro(ect was not
co'pleted on 1- $ove'ber 19+& as scheduled" *ut in October 19+&, upon
foreseeing the i'possibilit. of 'eeting the deadline and upon the reuest of Al Ahli
*an/, the (oint venture contractor wor/ed for the renewal or e<tension of the
erfor'ance *ond and Advance a.'ent !uarantee" etitionerMs ?etters of
!uarantee $os" +1194; :erfor'ance *ond3 and +119-; :Advance a.'ent
*ond3 with e<pir. date of &- $ove'ber 19+& were then renewed or e<tended to 9
;ebruar. 19+% and 9 )arch 19+%, respectivel."[17] The suret. bond was also
e<tended for another period of one .ear, fro' 1& )a. 19+& to 1& )a. 19+%"[1+]
The erfor'ance *ond was further e<tended twelve ti'es with validit. of up to +
ece'ber 19+,[19] while the Advance a.'ent !uarantee was e<tended three
ti'es 'ore up to &4 )a. 19+4 when the latter was cancelled after full refund or
rei'burse'ent b. the (oint venture contractor"[&6] The suret. bond was li/ewise
e<tended to + )a. 19+7"[&1]
As of )arch 19+, the status of the ro(ect was -15 acco'plished, 'eaning the
structures were alread. finished" The re'aining 475 consisted in electro
'echanical wor/s and the &5, sanitar. wor/s, which both reuired i'portation of
euip'ent and 'aterials"
'aterials"[&&]
[&&]
On & October 19+, Al Ahli *an/ of Huwait sent a tele< call to the petitioner
de'anding full pa.'ent of its perfor'ance bond counterguarantee"
Bpon receiving a cop. of that tele< 'essage on &7 October 19+, respondent F@C0
reuested 0ra Trade and @cono'ic evelop'ent )inister )oha''ad ;adhi ussein
to recall the tele< call on the perfor'ance guarantee for being a drastic action in
contravention
contraventio n of its 'utual agree'ent with the latter that :13 the i'position of
penalt. would be held in abe.ance until the co'pletion of the pro(ect8 and :&3 the
ti'e e<tension would be open, depending on the develop'ents on the negotiations
for a foreign loan to finance the co'pletion of the pro(ect"[&%] 0t also wrote =O*
protesting the call for lac/ of factual or legal basis, since the failure to co'plete the
ro(ect was due to :13 the 0rai govern'entMs lac/ of foreign e<change with which
to pa. its :F@C0Ms3 acco'plish'ents
acco'plish'ents and :&3 =O*Ms nonco'pliance for the past
several .ears with the provision in the contract that 7-5 of the billings would be
paid in B= dollars"[&4] =ubseuentl., or on 19 $ove'ber 19+, respondent F@C0
advised the petitioner not to pa. .et Al Ahli *an/ because efforts were being
e<erted for the a'icable settle'ent
settle'ent of the ro(ect"[&-]
On 14 April 19+7, the petitioner received another tele< 'essage fro' Al Ahli *an/
stating that it had alread. paid to #afidain *an/ the su' of B=U+7,-4 under its
letter of guarantee, and de'anding rei'burse'ent
rei'burse'ent b. the petitioner of what it paid
to the latter ban/ plus interest thereon and related e<penses"[&]
*oth petitioner hilguarantee and respondent F@C0 sought the assistance of so'e
govern'ent agencies
agencies of the hilippine
hilippines"
s" On 1 6 August 19+7, F@C0 reuested the
Central *an/ to hold in abe.ance the pa.'ent b. the petitioner VLto allow the
diplo'atic 'achiner. to ta/e its course, for otherwise, the hilippine govern'ent ,
through the hilguarantee and the Central *an/, would beco'e instru'ents of the
0rai !overn'ent
!overn'ent in consu''ating a clear act of in(ustice and ineuit. co''itted
against a ;ilipino contractor"VL[&7]
On &7 August 19+7, the Central *an/ authoriGed the re'ittance for its account of
the a'ount of B=U+7,-4 :euivalent to 0&71, +6+I163 to Al Ahli *an/
representing full pa.'ent of the perfor'anc
perfor'ancee counterguarantee for F@C0Ms pro(ect
in 0ra" [&+]
On  $ove'ber 19+7, hilguarantee
hilguarantee infor'ed F@C0 that it would re'it
B=U+7,-4 to Al Ahli *an/, and reiterated the (oint and solidar. obligation of the
respondents to rei'burse the petitioner for the advances 'ade on its counter
guarantee"[&9]
The petitioner thus paid the a'ount of B=U+7,-4 to Al Ahli *an/ of Huwait on &1
anuar. 19++"[%6] Then, on  )a. 19++, the petitioner paid
paid to Al Ahli *an/ of
Huwait B=U-9,1&9"+% representing interest and penalt. charges de'anded b. the
latter ban/"[%1]
On 19 une 1991, the petitioner sent to the respondents separate lettersletters de'anding
full pa.'ent of the a'ount of 47,+7&,%7%"9+ plus accruing interest, penalt.
charges, and 165 attorne.Ms fees pursuant to their (oint and solidar. obligations
under the deed of underta/ing and suret. bond"[%&] 2hen the respondents failed to
pa., the petitioner
petitioner filed on 9 ul. 1991 a civil case for collection of a su' of 'one.
against the respondents before the #TC of )a/ati Cit."
After due trial, the trial court ruled against hilguarantee and held that the latter
had no valid cause of action against the respondents" 0t opined that at the ti'e the
call was 'ade on the guarantee which was e<ecuted for a specific period, the
guarantee had alread. lapsed or e<pired" There was no valid renewal or e<tension of 
the guarantee for failure of the petitioner to secure respondentsM e<press consent
thereto" The trial court also found that the (oint venture contractor incurred no dela.
in the e<ecution of the ro(ect" Considering the ro(ect ownerMs violations of the
contract which rendered i'possible the (oint venture contractorMs perfor'ance
perfor'ance of its
underta/ing, no valid call on the guarantee could be 'ade" ;urther'ore, the trial
court held that no valid notice was first 'ade b. the ro(ect owner =O* to the (oint
venture contractor before the call on the guarantee" Accordingl., it dis'issed the
co'plaint, as well as the counterclai's and crossclai', and ordered the petitioner
to pa. attorne.Ms fees of 166,666 to respondents F@C0 and @usebio =pouses and
166,666 to %le< and the =antos =pouses, plus costs" [%%]
0n its 14 une 1999 ecision,[%4] the Court of Appeals affir'ed
affir'ed the trial courtMs
decision, ratiocinating as follows
;irst, appellant
appellant cannot den. the fact that it was full. aware of the status of pro(ect
i'ple'entation as well as the proble's besetting the contractors, between 19+& to
19+-, having sent so'e of its people to *aghdad during that period" The successive
renewalsIe<tensions of the guarantees in fact, was pro'pted b. dela.s, not solel.
attributable to the contractors, and such e<tension understandabl. allowed b. the
=O* :pro(ect owner3 which had not an.wa. co'plied
co'plied with its contractual
co''it'ent to tender 7-5 of pa.'ent in B= ollars, and which still retained
overdue a'ounts collectible b. F@C0"
=econd, appellant
appellant was ver. 'uch aware of the violations co''itted b. the =O* of
its contractual underta/ings with F@C0, principal
principall.,
l., the pa.'ent of foreign currenc.
:B=U3 for 7-5 of the total contract price, as well as of the co'plications and
in(ustice that will result fro' its pa.'ent of the full a'ount of the perfor'ance
guarantee,, as evident in 0?!BA#
guarantee 0?!BA#A$T@@Ms
A$T@@Ms letter dated 1% )a. 19+7 "
Third, appellant
appellant was full. aware that =O* was in fact still obligated to the oint
Fenture and there was still an a'ount collectible fro' and still being retained b. the
pro(ect owner, which a'ount can be setoff with the su' covered b. the
perfor'ance guarantee"
;ourth, wellapprised of the above conditions obtaining at the ro(ect site and
cogniGant of the war situation at the ti'e in 0ra, appellant, though earlier has
'ade representations
representations with the =O* regarding a possible a'icable ter'ination
ter'ination of the
ro(ect as suggested b. F@C0, 'ade a co'plete turnaround and insisted on acting
in favor of t he un(ustified LcallL b. the foreign ban/s"[%-]
The petitioner then ca'e to this Court via #ule 4- of the #ules of Court clai'ing
that the Court of Appeals erred in affir'ing the trial courtMs ruling that
0
#@=O$@$T= A#@ $OT ?0A*?@ B$@# T@ @@ O; B$@#TAH0$! T@E
@D@CBT@ 0$ ;AFO# O; @T0T0O$@# 0$ CO$=0@#AT0O$ ;O# T@ 0==BA$C@ O;
0T= COB$T@#!BA#A$T@@ A$ TAT @T0T0O$@# CA$$OT A== O$ TO
#@=O$@$T= 2AT 0T A A0 B$@# T@ =A0 COB$T@#!BA#A$T@@"

00
@T0T0O$@# CA$$OT C?A0) =B*#O!AT0O$"
000
0T 0= 0$0B0TOB= A$ B$B=T ;O# @T0T0O$@# TO O? #@=O$@$T= ?0A*?@
B$@# T@0# @@ O; B$@#TAH0$!"[%]
The 'ain issue in this case is whether the petitioner is entitled to rei'burse'
rei'burse'ent
ent of
what it paid under ?etter of !uarantee $o" +1194; it issued to Al Ahli *an/ of
Huwait based on the deed of underta/ing and suret. bond fro' the respondents"
The petitioner asserts that since the guarantee it issued was absolute,
unconditional, and irrevocable
irrevocable the nature and e<tent of its liabilit. are analogous to
those of suret.ship" 0ts liabilit. accrued upon the failure of the respondents to finish
the construction of the 0nstitute of h.sical Therap. *uildings in *aghdad"
*. guarant. a person, called the guarantor, binds hi'self to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so" 0f a person
binds hi'self solidaril. with the principal debtor, the contract is called suret.ship"
[%7]
=trictl. spea/ing, guarant.
guarant. and suret. are nearl. related, and 'an. of the principles
are co''on to both" 0n both contracts, there is a pro'ise to answer for the debt or
default of another" owever, in this (urisdiction, the. 'a. be distinguished thus
1" A suret. is usuall. bound with his principal b. the sa'e instru'ent e<ecuted at
the sa'e ti'e and on the sa'e consideration" On the other hand, the contract of
guarant. is the guarantorVMs own separate underta/ing often supported b. a
consideration
considera tion separate fro' that supporting the contract of the principal8 the
original contract of his principal is not his contract"
&" A suret. assu'es liabilit.
liabilit. as a regular part. to the underta/ing8 while the liabilit.
of a guarantor is conditional depending
depending on the failure of the pri'ar. debtor to pa.
the obligation"
%" The obligation of a suret. is pri'ar., while that of a guarantor is secondar."
4" A suret. is an original pro'issor and debtor fro' the beginning, while a
guarantor is charged on his own underta/ing"
-" A suret. is, ordinaril., held to /now ever. default of his principal8 whereas a
guarantor is not bound to ta/e notice of the nonperfor'an
nonperfor'ance ce of his principal"
" Bsuall., a suret. will not be discharged either b. the 'ere indulgence of the
creditor to the principal or b. want of notice of the default of the principal, no
'atter how 'uch he 'a. be in(ured thereb." A guarantor is often discharged b. the
'ere indulgence of the creditor to the principal, and is usuall. not liable unless
notified of the default of the principal" [%+]
0n deter'ining petitionerMs status, it is necessar. to read ?etter of !uarantee $o"
+1194;, which provides in part as follows
0n consideration of .our issuing the above perfor'ance guaranteeIcounter
guaranteeIcounter
guarantee, we hereb. unconditionall. and irrevocabl. guarantee, under our #ef" $o"
?!+1194 ; to pa. .ou on .our first written or tele< de'and 0ra inars Two
undred =event. One Thousand @ight undred @ight and fils si< hundred ten
:0&71,+6+I163 representing 1665 of the perfor'ance bond reuired of F""
@B=@*0O for the construction of the h.sical Therap. 0nstitute, hase 00, *aghdad,
0ra, plus interest and other incidental e<penses related thereto"
0n the event of default b. F"" @B=@*0O, we shall pa. .ou 1665 of the obligation
unpaid but in no case shall such a'ount e<ceed 0ra inars :03 &71,+6+I16 plus
interest and other incidental e<penses" :@'phasis supplied3[%9]
!uided b. the above'entioned distinctions between a suret. and a guarant., as
well as the factual 'ilieu of this case, we find that the Court of Appeals and the trial
court were correct in ruling that the petitioner is a guarantor and not a suret." That
the guarantee issued b. the petitioner is unconditional and irrevocable does not
'a/e the petitioner a suret." As a guarant., it is still characteriGed b. its subsidiar.
and conditional ualit. because it does not ta/e effect until the fulfill'ent of the
condition, na'el., that the principal obligor should fail in his obligation at the ti'e
and in the for' he bound hi'self"[46] 0n other words, an unconditional guarantee
guarantee is
still sub(ect to the condition that the principal debtor should default in his obligation
first before resort to the guarantor could be had" A conditional guarant., as opposed
to an unconditional guarant., is one which depends upon so'e e<traneous event,
be.ond the 'ere default of the principal, and generall.
generall. upon notice of the principalMs
default and reasonable diligence in e<hausting proper re'edies against the
principal"[41]
0t appearing that ?etter of !uarantee $o" +1194; 'erel. stated that in the event
of default b. respondent F@C0 the petitioner shall pa., the obligation
obligation assu'ed b.
the petitioner was si'pl. that of an unconditional guarant.,
guarant., not conditional
guarant." *ut as earlier ruled the fact that petitionerMs guarant. is unconditional
does not 'a/e it a suret." *esides, suret. is never presu'ed" A part. should not be
considered a suret. where the contract itself stipulates that he is acting onl. as a
guarantor" 0t is onl. when the guarantor binds hi'self solidaril. with the principal
debtor that the contract beco'es one of suret.ship"
suret.ship"[4&]
[4&]
aving deter'ined petitionerMs liabilit. as guarantor, the ne<t uestion we have to
grapple with is whether the respondent contractor has defaulted in its obligations
that would (ustif. resort to the guarant." This is a 'i<ed uestion of fact and law
that is better addressed b. the lower courts, since this Court is not a trier of facts"
0t is a funda'ental and settled rule that the findings of fact of the trial court and the
Court of Appeals are binding or conclusive upon this Court unless the. are not
supported b. the evidence or unless strong and cogent reasons dictate otherwise"
[4%] The factual findings of the Court of Appeals are nor'all. not reviewable b. us
under #ule 4- of the #ules of Court e<cept when the. are at variance with those of
the trial court" [44] The trial court and the Court of Appeals were in unison that the
respondent contractor cannot be considered to have defaulted in its obligations
because the cause of the dela. was not pri'aril. attributable to it"
A corollar. issue is what law should be applied in deter'ining whether the
respondent contractor
contractor has defaulted in the perfor'ance of its obligations under the
service contract" The uestion of whether there is a breach of an agree'ent, which
includes default or 'ora,[4-] pertains to the essential or intrinsic validit. of a
contract" [4]
$o conflicts rule on essential validit.
validit. of contracts is e<pressl. provided
provided for in our
laws" The rule followed b. 'ost legal s.ste's, however, is that the intrinsic validit.
of a contract 'ust be governed b. the le< contractus or Lproper law of the
contract"L This is the law voluntaril. agreed upon b. the parties :the le< loci
voluntatis3 or the law intended b. the' either e<pressl. or i'plicitl. :the le< loci
intentionis3" The law selected 'a. be i'plied fro' such factors as substantial
connection with the transaction, or the nationalit. or do'icile of the parties"[47]
hilippine courts would do well to adopt the first and 'ost basic rule in 'ost legal
s.ste's, na'el., to allow the parties to select the law applicable to their contract,
sub(ect to the li'itation that it is not against the law, 'orals, or public polic. of the
foru' and that the chosen law 'ust bear a substantive relationship
relationship to the
transaction" [4+]
0t 'ust be noted that the service contract
contract between =O* and F@C0 contains no
e<press choice of the law that would govern it" 0n the Bnited =tates and @urope, the
two rules that now see' to have e'erged as L/ings of the hillL are :13 the parties
'a. choose the governing law8 and :&3 in the absence of such a choice, the
applicablee law is that of the =tate that Lhas the 'ost significant relationship to the
applicabl
transaction and the parties"L[49] Another authorit. proposed that all 'atters
relating to the ti'e, place, and 'anner of perfor'anc
perfor'ancee and valid e<cuses for non
perfor'ance are deter'ined
deter'ined b. the law of the place of perfor'ance or le< loci
solutionis, which is useful because it is undoubtedl. alwa.s connected to the
contract in a significant wa."[-6]
0n this case, the laws of 0ra bear substantial connection to the transaction, since
one of the parties is the 0rai !overn'ent and the place of perfor'ance is in 0ra"
ence, the issue of whether respondent F@C0 defaulted in its obligations 'a. be
deter'ined b. the laws of 0ra" owever, since that foreign law was not properl.
pleaded or proved, the presu'ption of identit. or si'ilarit., otherwise /nown as the
processual presu'ption, co'es into pla." 2here foreign law is not pleaded or, even
if pleaded, is not proved, the presu'ption is that foreign law is the sa'e as ours"
[-1]
Our law, specificall. Article 119, last paragraph, of the Civil Code, provides VL0n
reciprocal obligations,
obligations, neither part. incurs in dela. if the other part. does not
co'pl. or is not read. to co'pl. in a proper 'anner with what is incu'bent upon
hi'"L
efault or 'ora on the part of the debtor is the dela. in the fulfill'ent of the
prestation b. reason of a cause i'putable to the for'er" [-&] 0t is the non
fulfill'ent of an obligation with respect to ti'e"[-%]
0t is undisputed that onl. -1"75 of the total wor/ had been acco'plished"
acco'plished" The
4+"%5 unfinished portion consisted in the purchase and installation of electro
'echanical euip'ent and 'aterials, which were available fro' foreign suppliers,
thus reuiring B= ollars for their i'portation" The 'onthl. billings and pa.'ents
'ade b. =O*[-4] reveal that the agree'ent between the parties was a periodic
pa.'ent b. the ro(ect owner to the contractor depending on the percentage of
acco'plish'ent
acco'plish' ent within the period" [--] The pa.'ents were, in turn, to be used b.
the contractor to finance the subseuent phase of the wor/" [-] owever
owever,, as
e<plained b. F@C0 in its letter to the epart'ent of ;oreign Affairs :;A3, the
pa.'ent b. =O* purel. in inars adversel. affected the co'pletion of the pro(ect8
thus
4" espite protests fro' the plaintiff, =O* continued pa.ing the acco'plish'
acco'plish'ent
ent
billings of the Contractor purel. in 0rai inars and which pa.'ent ca'e onl. after
so'e dela.s"
-" =O* is full. aware of the following
-"& That laintiff is a foreign contractor in 0ra and as such, would need foreign
currenc. :B=U3, to finance the purchase of various euip'ent, 'aterials,
'aterials, supplies,
tools and to pa. for the cost of pro(ect 'anage'ent, supervision and s/illed labor
not available in 0ra and therefore have to be i'ported and or obtained fro' the
hilippiness and other sources outside 0ra"
hilippine
-"% That the )inistr. of ?abor and @'plo.'ent of the hilippines reuires the
re'ittance into the hilippines of 765 of the salaries of ;ilipino wor/ers wor/ing
abroad in B= ollars8
-"- That the 0 rai inar is not a freel. convertible currenc. such that the sa'e
cannot be used to purchase euip'ent, 'aterials,
'aterials, supplies, etc" outside of 0ra8
-" That 'ost of the 'aterials specified b. =O* in the CO$T#ACT are not available
in 0ra and therefore have to be i'ported8
-"7 That the govern'ent of 0ra prohibits the bringing of local currenc. :0raui
inars3 out of 0ra and hence, i'ported 'aterials, euip'ent, etc", cannot be
purchased or obtained using 0raui inars as 'ediu' of acuisition"
+" ;ollowing the approved construction progra' of the CO$T#ACT, upon co'pletion
of the civil wor/s portion of the installation of euip'ent for the building, should
i''ediatel. follow, however, the CO$T#ACT specified that these euip'ent which
are to be installed and to for' part of the #O@CT have to be procured outside
0ra since these are not being locall. 'anufactured" Cop. f the relevant portion of
the Technical =pecification is hereto attached as Anne< VLCVL and 'ade an integral
part hereof8
16" ue to the lac/ of ;oreig
;oreign
n currenc. in 0ra for this purpose, and if onl. to assist
the 0rai govern'ent in co'pleting the #O@CT, the Contractor without an.
obligation on its part to do so but with the /nowledge and consent of =O* and the
)inistr. of ousing > Construction of 0ra, offered to arrange on behalf of =O*, a
foreign currenc. loan, through the facilities of Circle 0nternational ="A", the
ContractorMs =ubcontractor
=ubcontractor and =AC@ )@0O C#@0TO which will act as the
guarantor for this foreign currenc. loan"
Arrange'ents were first 'ade with *anco di #o'a" $egotiation started in une
19+-" =O* is infor'ed of the develop'ents of this negotiation, attached is a cop. of 
the draft of the loan Agree'ent between =O* as the *orrower and Agent" The
=everal *an/s, as ?ender, and counterguaranteed b. 0stituto Centrale er 00 Credito
A )edio Ter'ine :)ediocredito3 =eGione =peciale er ?MAssicuraGione el Credito
AllM@<portaGione
AllM@<portaGio ne :=ace3" $egotiations went on and continued until it suddenl.
collapsed due to the reported default b. 0ra in the pa.'ent of its obligations with
0talian govern'ent, cop. of the news clipping dated une 1+, 19+ is hereto
attached as Anne< VLVL to for' an integral part hereof8
1-" On =epte'ber 1-, 19+, Contractor received
received infor'ation fro' Circle
0nternational ="A" that because of the news report that 0ra defaulted in its
obligations with @uropean ban/s, the approval b. *anco di #o'a of the loan to =O*
shall be deferred indefinitel., a cop. of the letter of Circle 0nternational together
with the news clippings are hereto attached as Anne<es VL;VL and VL;1VL,
respectivel."[-7]
As found b. both the Court of Appeals and the trial court, the dela. or the non
co'pletion of the ro(ect was caused b. factors not i'putable to the respondent
contractor" 0t was rather due 'ainl. to the persistent violations b. =O* of the ter's
and conditions of the contract, particularl. its failure to pa. 7-5 of the
acco'plished wor/ in B= ollars" 0ndeed, where one of the parties to a contract
does not perfor' in a proper 'anner the prestation which he is bound to perfor'
under the contract, he is not entitled to de'and the perfor'ance of the other part."
A part. does not incur in dela. if the other part. fails to perfor' the obligation
incu'bent upon hi'"
The petitioner, however, 'aintains that the pa.'ents b. =O* of the 'onthl. billings
in purel. 0rai inars did not render i'possible the perfor'ance of the ro(ect b.
F@C0" =uch posture is uite contrar. to its previous representations" 0n his &
)arch 19+7 letter to the Office of the )iddle @astern and African Affairs :O)@AA3,
;A, )anila, petitionerMs @<ecutive Ficeresident esus )" TaNedo stated that while
F@C0 had ta/en ever. possible 'easure to co'plete the ro(ect, the war situation
in 0ra, particularl. the lac/ of foreign e<change, was proving to be a great
obstacle8 thus
F@C0 has ta/en ever. possible 'easure for the co'pletion of the pro(ect but the
war situation in 0ra particularl. the lac/ of foreign e<change is proving to be a
great obstacle" Our perfor'ance counterguarantee was called last & October 19+
when the negotiations for a foreign currenc. loan with the 0talian govern'ent
through *anco de #o'a bogged down following news report that 0ra has defaulted
in its obligation with 'a(or @uropean ban/s" Bnless the situation in 0ra is i'proved
as to alla. the ban/Ms apprehension, there is no assurance that the pro(ect will ever
be co'pleted" [-+]
0n order that the debtor 'a. be in default it is necessar. that the following
reuisites be present :13 that the obligation be de'andable and alread. liuidated8
:&3 that the debtor dela.s perfor'ance8 and :%3 that the creditor reuires the
perfor'ance because it 'ust appear that the tolerance or benevolence of the
creditor 'ust have ended" [-9]
As stated earlier, =O* cannot .et de'and co'plete perfor'ance fro' F@C0
because it has not .et itself perfor'ed its obligation in a proper 'anner, particularl.
the pa.'ent of the 7-5 of the cost of the ro(ect in B= ollars" The F@C0 cannot
.et be said to have incurred in dela." @ven assu'ing that there was dela. and that
the dela. was attributable to F@C0, still the effects of that dela. ceased upon the
renunciation b. the creditor, =O*, which could be i'plied when the latter granted
several e<tensions of ti'e to the for'er" [6] *esides, no de'and has .et been
'ade b. =O* against the respondent contractor" e'and is generall. necessar.
even if a period has been fi<ed in the obligation" And default generall. begins fro'
the 'o'ent the creditor de'ands (udiciall. or e<tra(udiciall. the perfor'ance of
the obligation" 2ithout such de'and, the effects of default will not arise"[1]
)oreover, the petitioner as a guarantor is entitled to the benefit of e<cussion, that
is, it cannot be co'pelled to pa. the creditor =O* unless the propert. of the debtor
F@C0 has been e<hausted and all legal re'edies against the said debtor have been
resorted to b. the creditor"[&] 0t could also set up co'pensation as regards what
the creditor =O* 'a. owe the principal debtor F@C0"[%] 0n this case, however, the
petitioner has clearl. waived these rights and re'edies b. 'a/ing the pa.'ent of
an obligation that was .et to be shown to be rightfull. due the creditor and
de'andable of the principal debtor"
As found b. the Court of Appeals, the petitioner full. /new that the (oint venture
contractor had collectibles fro' =O* which could be set off with the a'ount covered
b. the perfor'ance guarantee" 0n ;ebruar. 19+7, the O)@AA trans'itted to the
petitioner a cop. of a tele< dated 16 ;ebruar. 19+7 of the hilippine A'bassador in
*aghdad, 0ra, infor'ing it of the note verbale sent b. the 0rai )inistr. of ;oreign
Affairs stating that the past due obligations of the (oint venture contractor fro' the
petitioner would VLbe deducted fro' the dues of the two contractors"VL[4]
Also, in the pro(ect situationer attached to the letter to the O)@AA dated & )arch
19+7, the petitioner raised as a'ong the argu'ents to be presented in support of
the cancellation of the counterguarantee the fact that the a'ount of
0&+1,414I6 retained b. =O* fro' the ro(ect was 'ore than enough to cover
the counterguarantee of 0&71,+6+I168 thus
"1 resent the following argu'ents in cancelling the counterguarantee
W The 0rai !overn'ent does not have the foreign e<change to fulfill its contractual
obligations of pa.ing 7-5 of progress billings in B= dollars"
W 0t could also be argued that the a'ount of 0&+1,414I6 retained b. =O* fro'
the proposed pro(ect is 'ore than the a'ount of the outstanding counterguarantee"
[-]
0n a nutshell, since the petitioner was aware of the contractorMs outstanding
receivables fro' =O*, it should have set up co'pensation as was proposed in its
pro(ect situationer"
)oreover, the petitioner was ver. 'uch aware of the predica'ent of the
respondents" 0n fact, in its 1% )a. 19+7 letter to the O)@AA, ;A, )anila, it stated
F@C0 also 'aintains that the dela. in the co'pletion of the pro(ect was 'ainl. due
to =O*Ms violation of contract ter's and as such, call on the guarantee has no basis"
2hile 0?!BA#A$T@@ is prepared to honor its co''it'ent under the guarantee,
0?!BA#A$T@@ does not want to be an instru'ent in an. case of ineuit.
co''itted against a ;ilipino contractor" 0t is for this reason that we are constrained
to see/ .our assistance not onl. in ascertaining the veracit. of Al Ahli *an/Ms clai'
that it has paid #afidain *an/ but possibl. averting such an event" As an. pa.'ent
effected b. the ban/s will co'plicate 'atters, we cannot help underscore the
urgenc. of F@C0Ms bid for govern'ent intervention for the a'icable ter'ination of
the contract and release of the perfor'ance guarantee" []
*ut surprisingl., though full. cogniGant of =O*Ms violations of the service contract
and F@C0Ms outstanding receivables fro' =O*, as well as the situation obtaining in
the ro(ect site co'pounded b. the 0ran0ra war, the petitioner opted to pa. the
second la.er guarantor not onl. the full a'ount of the perfor'ance bond counter
guarantee but also interests and penalt. charges"
This brings us to the ne<t uestion )a. the petitioner as a guarantor secure
rei'burse'ent fro' the respondents for what it has paid under ?etter of !uarantee
$o" +1194;J
As a rule, a guarantor who pa.s for a debtor should be inde'nified b. the latter[7]
and would be legall. subrogated to the rights which the creditor has against the
debtor"[+] owever, a person who 'a/es pa.'ent without the /nowledge or
against the will of the debtor has the right to recover onl. insofar as the pa.'ent
has been beneficial to the debtor"[9] 0f the obligation was sub(ect to defenses on
the part of the debtor, the sa'e defenses which could have been set up against the
creditor can be set up against the pa.ing guarantor"[76]
;ro' the findings of the Court of Appeals and the trial court, it is clear that the
pa.'ent 'ade b. the petitioner guarantor did not in an. wa. benefit the principal
debtor, given the pro(ect status and the conditions obtaining at the ro(ect site at
that ti'e" )oreover, the respondent contractor was found to have valid defenses
against =O*, which are full. supported b. evidence and which have been
'eritoriousl. set up against the pa.ing guarantor, the petitioner in this case" And
even if the deed of underta/ing and the suret. bond secured petitionerMs guarant.,
the petitioner is precluded fro' enforcing the sa'e b. reason of the petitionerMs
undue pa.'ent on the guarant." #ights under the deed of underta/ing and the
suret. bond do not arise because these contracts depend on the validit. of the
enforce'ent of the guarant."
The petitioner guarantor should have waited for the natural course of guarant. the
debtor F@C0 should have, in the first place, defaulted in its obligation and that the
creditor =O* should have first 'ade a de'and fro' the principal debtor" 0t is onl.
when the debtor does not or cannot pa., in whole or in part, that the guarantor
should pa."[71] 2hen the petitioner guarantor in this case paid against the will of
the debtor F@C0, the debtor F@C0 'a. set up against it defenses available against
the creditor =O* at the ti'e of pa.'ent" This is the hard lesson that t he petitioner
'ust learn"
As the govern'ent ar' in pursuing its ob(ective of providing VLVLhe necessar.
support and assistance in order to enable VL [;ilipino e<porters and contractors to
operate viabl. under the prevailing econo'ic and business conditions,L[7&] the
petitioner should have e<ercised prudence and caution under the circu'stances" As
aptl. put b. the Court of Appeals, it would be the height of ineuit. to allow the
petitioner to pass on its losses to the ;ilipino contractor F@C0 which had sternl.
warned against pa.ing the Al Ahli *an/ and constantl. apprised it of the
develop'ents in the ro(ect i'ple'entation"
2@#@;O#@, the petition for review on certiorari is hereb. @$0@ for lac/ of
'erit, and the decision of the Court of appeals in CA!"#" CF $o" %9%6& is
A;;0#)@"
$o pronounce'ent as to costs"
=O O#@#@"
11" ?0#A! T@DT0?@ )0??=, 0$C" and *A=0?0O ?" ?0#A!, petitioners, vs" =OC0A?
=@CB#0TE =E=T@) and O$" AC0;0CO @ CA=T#O, respondents"
!"#" $o" ?%%&6- K 19+76+%1
DECSON
;@#$A$, "
This is an appeal b. certiorari involving purel. uestions of law fro' the decision
rendered b. respondent (udge in Civil Case $o" 1&&7- entitled L=ocial =ecurit.
=.ste' versus ?irag Te<tile )ills, 0nc" and *asilio ?" ?irag"L
The antecedent facts, as stipulated b. the parties during the trial, are as follows
L1" That on =epte'ber 4, 191, the plaintiff [herein respondent =ocial =ecurit.
=.ste'] and the defendants [herein petitioners] ?irag Te<tile )ills, 0nc" and *asilio
?irag entered into a urchase Agree'ent under which the plaintiff agreed to
purchase fro' the said defendant preferred shares of stoc/ worth O$@ )0??0O$
@=O= [1,666,666"66] sub(ect to the conditions set forth in such agree'ent8 " " "
L&" That pursuant to the urchase Agree'ent of =epte'ber 4, 191, the plaintiff, on
anuar. %1, 19&, paid the defendant ?irag Te<tile )ills, 0nc" the su' of ;0F@
B$#@ TOB=A$ @=O= [-66,666"66] for which the said defendant issued to
plaintiff -,666 preferred shares with a par value of one hundred pesos [166"66]
per share as evidenced b. stoc/ Certificate $o" 1&+8 " " "
L%" That further in pursuance of the urchase Agree'ent of =epte'ber 4, 191, the
plaintiff paid to the ?irag Te<tile )ills, 0nc" the su' of ;0F@ B$#@ TOB=A$
@=O= [-66,666"66] for which the said defendant issued to plaintiff -,666
preferred shares with a par value of one hundred pesos [166"66] per share as
evidenced b. =toc/ Certificate $o" 1%98 " " "
L4" That in accordance with paragraph % of the urchase Agree'ent of =epte'ber
4, 191 which provides for the repurchase b. the ?irag Te<tile )ills, 0nc" of the
shares of stoc/ at regular intervals of one .ear beginning with the 4th .ear following
the date of issue, =toc/ Certificates $os" 1&+ and 1%9 were to be repurchased b.
the ?irag Te<tile )ills, 0nc" thus
C@#T" $O" A)OB$T AT@ O; #@@)T0O$
1&+ 166,666"66 ;ebruar. 14, 19-
166,666"66 ;ebruar. 14, 19
166,666"66 ;ebruar. 14, 197
166,666"66 ;ebruar. 14, 19+
166,666"66 ;ebruar. 14, 199
1%9  166,666"66 ul. %, 19
166,666"66 ul. %, 197
166,666"66 ul. %, 19+
166,666"66 ul. %, 199
166,666"66 ul. %, 1976
L-" That to guarantee the rede'ption of the stoc/s purchased b. the plaintiff, the
pa.'ent of dividends, as well as the other obligations of the ?irag Te<tile )ills, 0nc",
defendants *asilio ?" ?irag signed the urchase Agree'ent of =epte'ber 4, 191
not onl. as president of the defendant corporation, but also as suret. so that should
the ?irag Te<tile )ills, 0nc" fail to perfor' an. of its obligations in the said urchase
Agree'ent, the suret. shall i''ediatel. pa. to the vendee the a'ounts then
outstanding pursuant to Condition $o" 4, to wit
MTo guarantee the rede'ption of the stoc/s herein purchased, the pa.'ent of the
dividends, as well as other obligations of the F@$O# herein, the =B#@TE hereb.
binds hi'self (ointl. and severall. liable with the F@$O# so that should the
F@$O# fail to perfor' an. of its obligations hereunder, the =B#@TE shall
i''ediatel. pa. to the F@$@@ the a'ounts then outstanding"M
L" That defendant corporation failed to redee' certificates of =toc/ $os" 1&+ and
1%9 b. pa.'ent of the a'ounts 'entioned in paragraph 4 above8
L7" That the ?irag Te<tile )ills, 0nc" has not paid dividends in the a'ounts and
within the period set forth in paragraph 16 of the co'plaint8 X
L+" That letters of de'ands have been sent b. the plaintiff to the defendant to
redee' the foregoing stoc/ certificates and pa. the dividends set forth in paragraph
16 of the co'plaint, but the ?irag Te<tile )ills, 0nc" has not 'ade such rede'ption
nor 'ade such dividend pa.'ents8
L9" That defendant *asilio ?" ?irag li/ewise received letters of de'and fro' the
plaintiff reuiring hi' to 'a/e good his obligation as suret.8
L16" That notwithstanding such letters of de'and to the defendant *asilio ?" ?irag,
=toc/ Certificates $os" 1&+ and 1%9 issued to plaintiff are still unredee'ed and no
dividends have been paid on said stoc/ certificates8
L11" That paragraph - of the urchase Agree'ent provides that should the ?irag
Te<tile )ills, 0nc" fail to effect an. of the rede'ptions stipulated therein, the entire
obligation shall i''ediatel. beco'e due and de'andable and the ?irag Te<tile )ills,
0nc", shall, further'ore, be liable to the plaintiff in an a'ount euivalent to twelve
per cent [1&5] of the a'ount then outstanding as liuidated
da'ages8
L1&" That the failure of the ?irag Te<tile )ills, 0nc" to redee' the foregoing
certificates of stoc/ and pa. dividends thereon were due to financial reverses, to
wit
[a] Bnrestrained s'uggling into the countr. of te<tiles fro' the Bnited =tates and
other countries8
[b] Bnrestricted entr. of supposed re'nants which co'peted with te<tiles of
do'estic produce to the disadvantage and econo'ic pre(udice of the latter8
[c] =carcit. of 'one. and the unavailabilit. of financing facilities8
[d] a.'ent of interest on 'atured loans e<tended to defendant corporation
[e] Construction of the )ontalban plant of the defendant corporation financed
largel. through reparation benefits8
[f] ?abor proble's occasioned b. the fact that the defendant co'pan. is financial
:sic3 unable to i'prove, in a substantial wa., the econo'ic plight of its wor/ers as a
result of which two costl. stri/es had occurred, one in 19- and another in 19+8
and
[g] The occurrence of a fire which destro.ed 'ore than 1 'illion worth of raw
cotton, paral.Ged operations partiall., increased overhead costs and wiped out an.
e<pected profits that .ear8
L1%" That it has been the polic. of the plaintiff to be represented in the board of
directors of the corporation or entit. which has obtained financial assistance fro'
the =.ste' be it in ter's of loans, 'ortgages or euit. invest'ents" Thus,
pursuant to paragraph  of the urchase Agree'ent of =epte'ber 4, 191 which
provides as follows
MThe F@$@@ shall be allowed to have a representative in the *oard of irectors of
the F@$O# with the right to participate in the discussions and to vote therein8M
L14" That )essrs" #ene @spina, *ernardino Abes and eber Catalan were each
issued one co''on share of stoc/ as a ualif.ing share to their election to the
*oard of irectors of the ?irag Te<tiles )ills, 0nc"8
L1-" That )essrs" #ene @spina, *ernardino Abes and eber Catalan, during their
respective tenure as 'e'ber of the *oard of irectors of the ?irag Te<tile )ills, 0nc"
attended the 'eetings of the said *oard, received per die's for their attendance
therein in the sa'e 'anner and in the sa'e a'ount as an. other 'e'ber of the
*oard of irectors, participated in the deliberations therein and freel. e<ercised
their right to vote in such 'eetings" owever, the per die's received b. the ===
representative do not go to the coffers of the =.ste' but personall. to the
representative in the said board of directors"L 1

;or failure of ?irag Te<tile )ills, 0nc" and *asilio ?" ?irag to co'pl. with the ter's of
the urchase Agree'ent, the === filed an action for specific perfor'ance and
da'ages before the then Court of ;irst 0nstance of #iGal, ueGon Cit., pra.ing that
therein defendants ?irag Te<tile )ills, 0nc" and *asilio ?" ?irag be ad(udged liable for
[1] the entire obligation of 1) which beca'e due and de'andable upon
defendantsM failure to repurchase the stoc/s as scheduled8 [&] dividends in t he
a'ount of &&6,666"668 [%] liuidated da'ages in an a'ount euivalent to twelve
percent :1&53 of the a'ount then outstanding8 [4] e<e'plar. da'ages in the
a'ount of 166,666"66 and [-] attorne.Ms fees of &6,666"66"
?irag Te<tile )ills, 0nc" and *asilio ?" ?irag 'oved for the dis'issal of the co'plaint,
but were denied the relief sought" Thus, the. filed their answer with counterclai',
den.ing the e<istence of an. obligation on their part to redee' the preferred
stoc/s, on the ground that the === beca'e and still is a preferred stoc/holder of
the corporation so that rede'ption of the shares purchased depended upon the
financial abilit. of said corporation" 0nsofar as defendant *asilio ?irag is concerned,
it was alleged that his liabilit. arises onl. if the corporation is liable and does not
perfor' its obligations under the urchase Agree'ent" The. further contended that
no liabilit. on their part has arisen because of the financial condition of the
corporation upon which such liabilit. was 'ade to depend, particularl. the non
realiGation of an. profit or earned surplus" Thus, the other clai's for dividends,
liuidated da'ages and e<e'plar. da'ages are allegedl. without basis"
After entering into the =tipulation of ;acts aboveuoted, the parties filed their
respective 'e'oranda and sub'itted the case for decision"
The lower court, ruling that the purchase agree'ent was a debt instru'ent, decided
in favor of === and sentenced ?irag Te<tile )ills, 0nc" and *asilio ?" ?irag to pa. ===
 (ointl. and severall. 1,666,666"66 plus legal interest until the said a'ount is full.
paid8 &&6,666"66 representing the +5 per annu' dividends on the preferred
shares plus legal interest up to the ti'e of actual pa.'ent8 14,466"66 as
liuidated da'ages8 and 16,666"66 as attorne.Ms fees" The counterclai' of ?irag
Te<tile )ills, 0nc" and *asilio ?" ?irag was dis'issed"
ence, this petition"
etitioners assign the following errors
1" The trial court erred in deciding that the urchase Agree'ent is a debt
instru'ent8
&" #espondent (udge erred in holding petitioner corporation liable for the pa.'ent of  so'e fi<ed future ti'e, or at a ti'e which beco'es definite and fi<ed b. acts of
the +5 preferred and cu'ulative dividends on the preferred shares since the
purchase agree'ent provides that said dividends shall be paid fro' the net profits
and earned surplus of petitioner corporation and respondent === has ad'itted that
due to losses sustained since 194, no dividends had been and can be declared b.
petitioner corporation8
%" #espondent (udge erred in sentencing petitioners to pa. 14,466"66 in
liuidated da'ages8
4" #espondent (udge erred in sentencing petitioners to pa. 16,666"66 b. wa. of
attorne.Ms fees8
-" #espondent (udge erred in sentencing petitioners to pa. interest fro' the ti'e of 
filing the co'plaint up to the ti'e of full pa.'ent both on the 1,666,666"66
invested b. respondent === in petitionerMs corporation and on the &&6,666"66
which the === clai's as dividends due on its invest'ents8
" #espondent (udge erred in holding that petitioner ?irag is liable to redee' the
1,666,666"66 worth of preferred shares purchased b. respondent === fro'
petitioner corporation and the +5 cu'ulative dividend, it appearing that ?irag was
'erel. a suret. and not an insurer of the obligation8
7" #espondent (udge erred in dis'issing the counterclai' of petitioners"
The funda'ental issue in this case is whether or not the urchase Agree'ent
entered into b. petitioners and respondent === is a debt instru'ent"
etitioners clai' that respondent === 'erel. beca'e and still is a preferred
stoc/holder of the petitioner corporation, the rede'ption of the shares purchased
b. said respondent being dependent upon the financial abilit. of petitioner
corporation" etitioner corporation, thus, has no obligation to redee' the preferred
stoc/s"
On the other hand, respondent === clai's that the urchase Agree'ent is a debt
instru'ent, i'posing upon the petitioners the obligation to pa. the a'ount owed,
and creating as between the' the relation of creditor and debtor, not that of a
stoc/holder and a corporation"
2e uphold the lower courtMs finding that the urchase Agree'ent is, indeed, a debt
instru'ent" 0ts ter's and conditions un'ista/abl. show that the parties intended
the repurchase of the preferred shares on the respective scheduled dates to be an
absolute obligation which does not depend upon the financial abilit. of petitioner
corporation" This absolute obligation on the part of petitioner corporation is 'ade
'anifest b. the fact that a suret. was reuired to see to it that the obligation is
fulfilled in the event of the principal debtorMs inabilit. to do so" The unconditional
underta/ing of petitioner corporation to redee' the preferred shares at the
specified dates constitutes a debt which is defined Las an obligation to pa. 'one. at
either part. and which the. e<pressl. or i'pliedl., agree to perfor' in the contract"
&
A stoc/holder sin/s or swi's with the corporation and there is no obligation to
return the value of his shares b. 'eans of repurchase if the corporation incurs
losses and financial reverses, 'uch less guarantee such repurchase through a
suret."
As private respondent rightl. contends, if the parties intended it [===] to be 'erel.
a stoc/holder of petitioner corporation, it would have been sufficient that referred
Certificates $os" 1&+ and 1%9 were issued in its na'e as the preferred certificates
contained all the rights of a stoc/holder as well as certain obligations on the part of
petitioner corporation" owever, the parties did in fact e<ecute the urchase
Agree'ent, at the sa'e ti'e that the petitioner corporation issued its preferred
stoc/ to the respondent ===" The urchase Agree'ent serves to define the rights
and obligations of the parties and to establish fir'l. the liabilit. of petitioners in
case of breach of contract" The Certificates of referred =toc/ serve as additional
evidence of the agree'ent between the parties, though the precise ter's and
conditions thereof 'ust be read together with, and regarded as ualified b. the
ter's and conditions of the urchase Agree'ent"
The rights given b. the urchase Agree'ent to respondent === are rights not
en(o.ed b. ordinar. stoc/holders" This fact could onl. lead to the conclusion 'ade
b. the trial court that
LThe afore'entioned rights speciall. stipulated for the benefit of the plaintiff
[respondent ===] suggest elouentl. an intention on the part of the plaintiff
[respondent ===] to facilitate a loan to the defendant corporation upon the latterMs
reuest" 0n order to afford protection to the plaintiff which otherwise is provided b.
'eans of collaterals, as the plaintiff e<acts in its grants of loans in its ordinar.
transactions of this /ind, as it is loo/ed upon 'ore as a lending institution rather
than as in investing agenc., the purchase agree'ent supplied these protective
rights which would otherwise be furnished b. collaterals to the loan" Thus, the
'e'bership in the board is to have a watchdog in the operation of the business of
the corporation, so as to insure against 'is'anage'ent which 'a. result in losses
not entirel. unavoidable since pa.'ent for purposes of rede'ption as well as the
dividends is e<pressl. stipulated to co'e fro' profits and or surplus" =uch a right is
never e<acted b. an ordinar. stoc/holder 'erel. investing in the corporation"L %
)oreover, the urchase Agree'ent provided that failure on the part of petitioner to
repurchase the preferred shares on the scheduled due dates renders the entire
obligation due and de'andable, with petitioner in such eventualit. liable to pa.
1&5 of the then outstanding obligation as liuidated da'ages" These features of
the urchase Agree'ent, ta/en collectivel., clearl. show the intent of the parties to
be bound therein as debtor and creditor, and not as corporation and stoc/holder"
etitionersM contention that it is be.ond the power and co'petence of petitioner
corporation to redee' the preferred shares or pa. the accrued dividends due to
financial reverses can not serve as legal (ustification for their failure to perfor'
under the urchase Agree'ent" The urchase Agree'ent constitutes the law
between the parties and obligations arising e< contractu 'ust be fulfilled in
accordance with the stipulations" 4 *esides, it was precisel. this eventualit. that
was sought to be avoided when respondent === reuired a suret. for the
obligation"
Thus, it follows that petitioner *asilio ?" ?irag cannot den. liabilit. for petitioner
corporationMs default" As suret., *asilio ?" ?irag is bound i''ediatel. to pa.
respondent === the a'ount then outstanding"
LThe obligation of a suret. differs fro' that of a guarantor in that the suret. insures
the debt, whereas the guarantor 'erel. insures solvenc. of the debtor8 and the
suret. underta/es to pa. if the principal does not pa., whereas a guarantor 'erel.
binds itself to pa. if the principal is unable to pa."L -
On the liabilit. of petitioners to pa. +5 cu'ulative dividend, 2e agree with the
observation of the lower court that the dividends stipulated b. the parties served
evidentl. as interests"  The a'ount thereof was fi<ed at +5 per annu' and was
not 'ade to depend upon or to fluctuate with the a'ount of profits or surplus
realiGed, a clear indication that the parties intended to give a sure and fi<ed
earnings on the principal loan" The fact that the dividends were supposed to be paid
out of net profits and earned surplus, of which there were none, does not e<cuse
petitioners fro' the pa.'ent thereof, again for the reason that the underta/ing of
petitioner *asilio ?" ?irag as suret., included the pa.'ent of dividends and other
obligations then outstanding"
The award of the su' of 14,466"66 in liuidated da'ages representing 1&5 of
the a'ount then outstanding is correct, considering that petitioners in the
stipulation of facts ad'itted having failed to fulfill their obligations under the
urchase Agree'ent" The grant of liuidated da'ages in the a'ount stated is
e<pressl. provided for in the urchase Agree'ent in case of contractual breach"
The pronounce'ent of the lower court for the pa.'ent of interests on both the
unredee'ed shares and unpaid dividends is also in order" er stipulation of facts,
petitioners did not den. the fact of nonpa.'ent of dividends nor their failure to
purchase the preferred shares" =ince these involve su's of 'one. which are
overdue, the. are bound to earn legal interest fro' the ti'e of de'and, in this
case, (udicial, i"e", the ti'e of filing the action"
etitioner *asilio ?" ?irag is precluded fro' den.ing his liabilit. under the urchase
Agree'ent" After his fir' representation to Lpa. i''ediatel. to the F@$@@ the
a'ounts then outstandingL evidencing his co''it'ent as =B#@TE, he is estopped
fro' den.ing the sa'e" is signature in the agree'ent carries with it the official
i'pri'atur as petitioner corporationMs president, in his personal capacit. as 'a(orit.
stoc/holder, as suret. and as solidar. obligor" The essence of his obligation as
suret. is to pa. i''ediatel. without ualification whatsoever if petitioner
corporation does not pa." To have another interpretation of petitioner ?iragMs liabilit.
as suret. would violate the integrit. of the urchase Agree'ent as well as the clear
and un'ista/able intent of the parties to the sa'e"
2@#@;O#@, the decision in Civil Case $o" 1&&7- entitled L=ocial =ecurit.
=.ste' vs" ?irag Te<tile )ills, 0nc" and *asilio ?" ?iragL is hereb. affir'ed in toto"
Costs against petitioners"
=O O#@#@"
1&" A$TO$0O !A#C0A, #", petitioner, vs" COB#T O; A@A?=, ?A=A?
@F@?O)@$T CO#O#AT0O$, respondents"
!"#" $o" +6&61 K 199611&6
DECSON
C#B, "
On April 1-, 1977, the 2estern )inolco Corporation :2)C3 obtained fro' the
hilippine 0nvest'ents =.ste's OrganiGation :0=O3 two loans for &,-66,666"66
and 1,666,666"66 for which it issued the corresponding pro'issor. notes pa.able
on )a. %6, 1977" On the sa'e date, Antonio !arcia and @rnest Hahn e<ecuted a
suret. agree'ent binding the'selves (ointl. and severall. for the pa.'ent of the
loan of &,-66,666"66 on due date"
Bpon failure of 2)C to pa. after repeated de'ands, de'and was 'ade on !arcia
pursuant to the suret. agree'ent" !arcia also failed to pa." ence, on April -,
19+%, ?asal evelop'ent Corporation :to which the credit had been assigned earlier
b. 0=O3 sued !arcia for recover. of the debt in the #egional Trial Court of )a/ati"
On )a. 1+, 19+%, !arcia 'oved to dis'iss on the grounds that :a3 the co'plaint
stated no cause of action8 :b3 the suit would result in un(ust enrich'ent of the
plaintiff because he had not received an. consideration fro' 0=O8 :c3 the suret.
agree'ent violated the doctrine of the li'ited liabilit. of corporations8 and :d3 the
principal obligation had been novated"
After considering the argu'ents and evidence of the parties, the trial court granted
the 'otion and dis'issed the co'plaint on the ground that the suret. agree'ent
was invalid for absence of consideration"
The plaintiff 'oved for reconsideration and when this was denied elevated the
'atter to the Court of Appeals" 0n a decision dated une &%, 19+7, the respondent
court reversed udge esus )" @lbinias and re'anded the records of the case for
trial on the 'erits" !arcia then ca'e to this Court in this petition for review on
certiorari, pleading the sa'e argu'ents raised in the trial court"
The petitionerMs first ground is that, as found b. the trial court, the suret.
agree'ent was invalid because no consideration had been paid to hi' b. 0=O for
e<ecuting the contract and that the a'ount of the entire loan had been received
and en(o.ed b. 2)C" e cites the following articles of the Civil Code in support of
his contention that lac/ of consideration was a personal defense available to hi' as
suret.
Art" &647" *. guarant. a person, called the guarantor, binds hi'self to the creditor
to fulfill the obligation of the principal debtor in case the latter should fail to do so"
0f a person binds hi'self solidaril. with the principal debtor, the provisions of
=ection 4, Chapter %, Title 0 of this *oo/ shall be observed" 0n such case the
contract is called a suret.ship"
Art" 1&&&" A solidar. debtor 'a., in action filed b. the creditor, avail hi'self of all
defenses which are derived fro' the nature of the obligation and of those which are
personal to hi', or pertain to his own share" 2ith respect to those which personall.
belong to the others, he 'a. avail hi'self thereof onl. as regards that part of the
debt for which the latter are responsible"
The point is not well ta/en in view of the nature and purpose of a suret.
agree'ent"
=uret.ship is a contractual relation resulting fro' an agree'ent whereb. one
person, the suret., engages to be answerable for the debt, default or 'iscarriage of
another, /nown as the principal" The suret.Ms obligation is not an original and direct
one for the perfor'ance of his own act, but 'erel. accessor. or collateral to the
obligation contracted b. the principal"
$evertheless, although the contract of a suret. is in essence secondar. onl. to a
valid principal obligation, his liabilit. to the creditor or pro'isee of the principal is
said to be direct, pri'ar. and absolute8 1 in other words, he is directl. and euall.
bound with the principal" The suret. therefore beco'es liable for the debt or dut. of 
another although he possesses no direct or personal interest over the obligations
nor does he receive an. benefit therefro'" &
The peculiar nature of a suret. agree'ent is that it is regarded as valid despite the
absence of an. direct consideration received b. the suret. either fro' the principal
obligor or fro' the creditor" A contract of suret., li/e an. other contract, 'ust
generall. be supported b. a sufficient consideration"
owever, the consideration necessar. to support a suret. obligation need not pass
directl. to the suret.8 a consideration 'oving to t he principal alone will suffice"
0t has been held that if the deliver. of the original contract is conte'poraneous with
the deliver. of the suret.Ms obligation, each contract beco'es co'pleted at the
sa'e ti'e, and the consideration which supports the principal contract li/ewise
supports the subsidiar. one" % And this is the /ind of suret. contract to which the
rule of strict construction applies as opposed to a co'pensated suret. contract
underta/en b. suret. corporations which are organiGed for the purpose of
conducting an inde'nit. business at established rates and co'pensation unli/e an
ordinar. suret. agree'ent where the suret. binds his na'e through 'otives of
friendship and acco'odation" 4
0t follows fro' the above principles that ?asal would not be un(ustl. enriched if the
petitioner were to be held liable for the obligation contracted b. 2)C" The creditor
would onl. be recovering the a'ount of its loan plus its incre'ents"
The petitioner, for his part, can still go against 2)C for the a'ount he 'a. have to
pa. ?asal as assignee of the 0=O credit"
#egarding the petitionerMs clai' that he is liable onl. as a corporate officer of 2)C,
the suret. agree'ent shows that he signed the sa'e not in representation of 2)C
or as its president but in his personal capacit." e is therefore personall. bound"
There is no law that prohibits a corporate officer fro' binding hi'self personall. to
answer for a corporate debt" 2hile the li'ited liabilit. doctrine is intended to protect
the stoc/holder b. i''uniGing hi' fro' personal liabilit. for the corporate debts,
he 'a. nevertheless divest hi'self of this protection b. voluntaril. binding hi'self
to the pa.'ent of the corporate debts" The petitioner cannot therefore ta/e refuge
in this doctrine that he has b. his own acts effectivel. waived"
Concerning the issue of novation, we note first the following provisions of the
'e'orandu' of agree'ent supposedl. entered into b. 2)C and its creditors which
the petitioner argues had the effect of releasing hi' fro' the suret. agree'ent
0F" #elease of ==
The C#@0TO#= e<pressl. agree to release and hereb. release the oint and
=everal =ignatories :==3 of )0$O?COMs officers fro' an. liabilit. whatsoever on the
obligations which the. have personall. guaranteed or secured" An. action therefore
against all the aforesaid signatories are waived in view of the pro'issor. notes to
be issued b. $C which are full. and unconditionall. guaranteed b. the hilippine
!overn'ent, in pa.'ent of )0$O?COMs obligations to said C#@0TO#="
<<< <<< <<<
F0" The C#@0TO#= who have filed cases in court against )0$O?CO and who are
signatories to this agree'ent agree to dis'iss the case with pre(udice, accepting
the repa.'ent sche'e set forth in paragraph 00 as a (ust and euitable procedure
for collecting their credits"
=ignificantl., however, the agree'ent :Anne< -3 was signed onl. b. on )" ;err. as
chair'an of the board of directors of 2)C and does not carr. the signature of an.
of the creditors" - ence, it has no binding force whatsoever on such creditors"
The petitioner cites other develop'ents or transactions between the parties to the
original loans that he contends had the effect of novating the said contracts and
conseuentl. e<tinguished the suret. agree'ent" A'ong these are the e<tension of  such as the prepa.'ent of the restructured loans of 2)C before the distribution of
the original period of pa.'ent and the co'pounding of the interest on the principal
obligations, both of which operated to the pre(udice of the petitioner"
The petitioner invo/es Article &679 of the Civil Code, which provides
Art" &679" An e<tension granted to the debtor b. the creditor without the consent of 
the guarantor e<tinguishes the guarant." The 'ere failure on the part of the creditor
to de'and pa.'ent after the debt has beco'e due does not of itself constitute an.
e<tension of ti'e referred to herein"
owever, aragraph - of the suret. agree'ent clearl. stipulated as follows
The sureties e<pressl. waive all rights to de'and pa.'ent and notice of non
pa.'ent and protest, and agree that the securities of ever. /ind, that now or 'a.
hereafter be left with the lender, its successors, indorsees or assigns, as collateral,
for the said loan, or an. evidence of debt or obligations, or upon which a lien 'a.
e<ist 'a. be withdrawn or surrendered at an. ti'e, and the ti'e of pa.'ent
thereof e<tended, without notice to or consent b. the sureties, and the liabilit. on
this suret.ship shall be solidar., direct and i''ediate and not contingent upon an.
pursuit b. the lender, its successors, indorsees or assigns, of whatever re'edies the
lender 'a. have against the principal or the securities or liens it 'a. possess"
=ince in the suret. contract, the petitioner not onl. consented to an e<tension in the
pa.'ent of the obligation but even waived his right to be notified of such e<tension,
he cannot now clai' that he has been released fro' his underta/ing because of the
e<tension granted to the principal"
As for the co'pounded interest, we appl. b. analog. the case of *an/ of the
hilippine 0slands v" !ooch and #edfern,  which was affir'ed in the later case of
the *an/ of the hilippine 0slands v" Albalade(o > Cia" 7 0n the said cases, the
respective sureties clai'ed that since the creditor changed the rate of interest in
the principal obligation without their /nowledge or consent, the. were relieved fro'
liabilit. under their contract" 0t was held, however, that the change in the rate of
interest was 'erel. a collateral agree'ent between the creditor ban/ and the
principal debtor that did not affect the suret." 2hen the debtor pro'ised to pa. the
e<tra rate of interest on de'and of the plaintiff, the liabilit. he assu'ed was his
alone and was separate and apart fro' the original contract" is agree'ent to pa.
the additional rate of interest was an additional burden upon hi' and hi' onl." That
obligation in no wa. affected the original contract of the suret., whose liabilit.
re'ained unchanged" +
Thus, despite the co'pounding of the interest, the liabilit. of the suret. re'ains
onl. up to the original unco'pounded interest, as stipulated in the pro'issor. note,
that is, 175 per annu', with a penalt. charge of & 1I&5 per 'onth until full
pa.'ent"
The petitioner cites other supposed agree'ents in support of his theor. of novation
dividends to the co''on stoc/holders, the proposed sale on install'ents of its
assets to $egros Occidental Copperfield )ines, and the preference given to other
creditors of 2)C over 0=O" *ut we do not thin/ these are 'aterial as, to be so, the
alteration 'ust change the legal effects of the original contract" The alleged
alterations do not have that effect"
0t is a<io'atic, and onl. fair, that the creditors of a corporation 'ust be paid first
before dividends 'a. be distributed a'ong the stoc/holders" Bnsecured creditors
are given preference in ban/ruptc. or insolvenc. proceedings because secured
creditors can after all go against the securit. given b. the debtor" As for the
install'ent sale of 2)CMs assets to $egros Occidental Copperfield )ines, which
'ight 'a/e it difficult for the petitioner to recover an. a'ount it 'a. have to pa.
on the loan of 2)C, this was a ris/ he too/ when he signed the suret. agree'ent"
As it did not prohibit the alienation of the properties of the principal debtor, the sale
to $egros cannot be considered a novation of the original agree'ent" 0n fact, the
proposed sale was intended precisel. to enable 2)C to 'eet its pending
obligations"
The 'ost i'portant argu'ent against the alleged novation is the failure of the
petitioner to establish the validit. of the new contract, an essential reuisite for the
novation of a previous valid obligation" etitioner insists that the various
co''unications 'ade b. 2)C with *, together with the 'e'orandu' of
agree'ent :Anne<es 1 to 73, are sufficient to establish the new underta/ing 'ade
b. 2)C with all its creditors, including *" 2e do not thin/ so"
0t is true as a general rule no for' of words or writing is necessar. to give effect to
a novation" 9 $evertheless, since the parties involved here are corporations, it 'ust
first be proved that the contracts, assu'ing the. were 'ade, were e<ecuted b. the
persons possessing the proper authorit. to bind their respective principals" Anne<es
14 are a 'ere e<change of correspondence between the officers of 2)C and *"
Although the. contain t he provisions and proposals that, according to petitioner,
should suffice to establish that the original contract between 2)C and 0=O has
been 'ateriall. altered, the. cannot be considered per se sufficient to give rise to a
valid new obligation" 2)C was in fact directed b. oseph 2" @dralin, the Assistant
@<ecutive Officer of the *, to co''unicate with Att." ilario Oraolino of the Office
of the Chief ?egal Counsel for the preparation and e<ecution of the necessar. legal
docu'ents to cover the approval and confir'ation of the several proposals 'ade"
$o such docu'ents, as dul. signed b. the parties, were ever presented in court"
Anne<es - to 7 16 are also inco'plete docu'ents and not binding without the
signatures of the supposed contracting parties"
The argu'ent of subrogation cannot be considered at this stage as it is being
invo/ed onl. now" 0t is settled that an issue not raised in the court a uo cannot be
raised for the first ti'e on appeal because this would be offensive to the basic rules
of fair pla." 11
As for the alleged substitution of debtors, nowhere in the record can we find
evidence of this clai'" The co''it'ent 'ade b. * to the creditors of 2)C was
that, although the. had a first 'ortgage lien over substantiall. all the assets of
2)C :which if foreclosed would leave 'ost of its creditors without recourse3, the.
would nevertheless defer proceedings against those assets and instead allow their
sale to $C :with better ter's3 to enable 2)C to 'eet the obligations" 1& 0n
effect, what * did was 'erel. to restructure its credit with 2)C and 'a/e
additional acco''odations in the for' of invest'ents on preferred and co''on
shares of stoc/ of 2)C" 0t was clearl. an effort to assist 2)C perfor' its
obligations with its creditors" *ut not 'ore than that"
Concerning the pro'issor. notes supposedl. issued b. $C to the creditors of 2)C
and with the full and unconditional guarant. of the hilippine !overn'ent as
contained in Anne< -, suffice it to repeat that such Anne< - :'e'orandu' of
agree'ent between 2)C and *3, as well as Anne<  :addendu' to Anne< -,
'a/ing $OCO)0$, instead of $C as the bu.er3 and Anne< 7 :contract of sale
between 2)C and $OCO)0$3, are all not signed b. the contracting parties and
therefore have no evidentiar. weight or binding force"
2e approve the following observations 'ade b. the Court of Appeals
$ovation of contract cannot be presu'ed" 0n order that an obligation 'a. be
e<tinguished b. another which substitutes the sa'e, it is i'perative that it be so
declared in uneuivocal ter's, or that the old and the new obligations be on ever.
point inco'patible with each other :Art" 1&9&, Civil Code3" 0n ever. novation there
are four essential reuisites" :13 a previous valid obligation8 :&3 the agree'ent of all
the parties to the new contract8 :%3 the e<tinguish'ent of the old contract8 and :43
validit. of the new one" $ovation reuires the creation of new contractual relations
as well as the e<tinguish'ent of the old" There 'ust be a consent of all the parties
to the substitution, resulting in the e<tinction of the old obligation and the creation
of a valid new one :Tiu =iuco v" abana, 4- hil" 7673" The acceptance of the
pro'issor. note b. the plaintiff is not novation of the contract" The legal doctrine is
that an obligation to pa. a su' of 'one. is not novated in a new instru'ent b.
changing the ter' of pa.'ent and adding other obligations not inco'patible with
the old one :0nchausti > Co" v" Eulo, %4 hil" 97+3" 0t is not proper to consider an
obligation novated as in the case at bar b. the 'ere granting of e<tension of
pa.'ent which did not even alter its essence" To sustain novation necessitates that
the sa'e be so declared in uneuivocal ter's or that there is co'plete and
substantial inco'patibilit. between the two obligations :=andico v" auing, 4&
=C#A %&&3" An obligation to pa. a su' of 'one. is not novated in a new instru'ent
wherein the old is ratified b. changing onl. the ter's of pa.'ent and adding other
obligations not inco'patible with the old one or wherein the old contract is 'erel.
supple'enting the new one :ungo v" ?opeNa, ?19%77, ec" &9, 19&,  =C#A
16678 )agdalena @states, 0nc" v" #odrigueG, 1+ =C#A 978 #iGal Co''ercial
*an/ing Corp" v" )ilitante, AC !# CF 64677, =ept" &6, 19+-8 0nvestors ;inance
Corp" v" CruG, AC !# CF 64716, $ov" &7, 19+-3"
2@#@;O#@, the petition is @$0@ and the challenged decision of the respondent
court A;;0#)@, with costs against the petitioner"
=O O#@#@"

1%" 20??@D ?A=T0C 0$B=T#0@=, CO#O#AT0O$, petitioner,
vs" O$" COB#T O; A@A?= and 0$T@#$AT0O$A? CO#O#AT@ *A$H, respondents"
!"#" $o" 16%6 K 19964&-
)@$OA, "
This is a petition for review on certiorari of the decision 1 of the Court of Appeals in
C"A"!"#" CF $o" 19694, affir'ing the decision of the #egional Trial Court of the
$ational Capital udicial #egion, *ranch D?F, )anila, which ordered petitioner 2ille<
lastic 0ndustries Corporation and the 0nter#esin 0ndustrial Corporation, (ointl. and
severall., to pa. private respondent 0nternational Corporate *an/ certain su's of
'one., and the appellate courtMs resolution of October 17, 19+9 den.ing petitionerMs
'otion for reconsideration"
The facts are as follows
=o'eti'e in 197+, 0nter#esin 0ndustrial Corporation opened a letter of credit with
the )anila *an/ing Corporation" To secure pa.'ent of the credit acco'odation,
0nter#esin 0ndustrial and the 0nvest'ent and Bnderwriting Corporation of the
hilippines :0BC3 e<ecuted two docu'ents, both entitled LContinuing =uret.
Agree'entL and dated ece'ber 1, 197+, whereb. the. bound the'selves
solidaril. to pa. )anilaban/ Lobligations of ever. /ind, on which the [0nter#esin
0ndustrial] 'a. now be indebted or hereafter beco'e indebted to the
[)anilaban/]"L The two agree'ents :@<hs"  and H3 are the sa'e in all respects,
e<cept as to the li'it of liabilit. of the suret., the first suret. agree'ent being
li'ited to B=U%%%,+%6"66, while the second one is li'ited to B=U%%4,6+7"66"
On April &, 1979, 0nter#esin 0ndustrial, together with 2ille< lastic 0ndustries
Corp", e<ecuted a LContinuing !uarant.L in favor of 0BC whereb. L;or and in
consideration of the su' or su's obtained andIor to be obtained b. 0nter#esin
0ndustrial CorporationL fro' 0BC, 0nter#esin 0ndustrial and 2ille< lastic (ointl.
and severall. guaranteed Lthe pro'pt and punctual pa.'ent at 'aturit. of the
$OT@I= issued b. the @*TO#I= " " " to the e<tent of the aggregate principal su' of  +7,-66"66 to the plaintiff, until full pa.'ent of the said a'ount8
;0F@ )0??0O$ @=O= :-,666,666"663 hilippine Currenc. and such interests,
charges and penalties as hereafter 'a. be specified"L
On anuar. 7, 19+1, following de'and upon it, 0BC paid to )anilaban/ the su' of
4,%%4,&+6"1 representing 0nter#esin 0ndustrialMs outstanding obligation" :@<h" )
13 On ;ebruar. &% and &4, 19+1, Atriu' Capital Corp", which in the 'eanti'e had
succeeded 0BC, de'anded fro' 0nter#esin 0ndustrial and 2ille< lastic the
pa.'ent of what it :0BC3 had paid to )anilaban/" As neither one of the sureties
paid, Atriu' filed this case in the court below against 0nter#esin 0ndustrial and
2ille< lastic"
On August 11, 19+&, 0nter#esin 0ndustrial paid 0nterban/, which had in turn
succeeded Atriu', the su' of +7,66"66 representing the proceeds of its f ire
insurance polic. for the destruction of its properties"
0n its answer, 0nter#esin 0ndustrial ad'itted that the LContinuing !uarant.L was
intended to secure pa.'ent to Atriu' of the a'ount of 4,%%4,&+6"1 which the
latter had paid to )anilaban/" 0t clai'ed, however, that it had alread. full. paid its
obligation to Atriu' Capital"
On the other hand, 2ille< lastic denied the 'aterial allegations of the co'plaint
and interposed the following =pecial Affir'ative efenses
:a3 Assu'ing arguendo that 'ain defendant is indebted to plaintiff, the for'erMs
liabilit. is e<tinguished due to the accidental fire that destro.ed its pre'ises, which
liabilit. is covered b. sufficient insurance assigned to plaintiff8
:b3 Again, assu'ing arguendo, that the 'ain defendant is indebted to plaintiff, its
account is now ver. 'uch lesser than those stated in the co'plaint because of
so'e pa.'ents 'ade b. the for'er8
:c3 The co'plaint states no cause of action against 20??@D8
:d3 2???@D is onl. a guarantor of the principal obliger, and thus, its liabilit. is onl.
secondar. to that of the principal8
:e3 laintiff failed to e<haust the ulti'ate re'ed. in pursuing its clai' against the
principal obliger8
:f3 laintiff has no personalit. to sue"
On April &9, 19+, 0nterban/ was substituted as plaintiff in the action" The case
then proceeded to trial"
On )arch 4, 1 9++, the trial court declared 0nter#esin 0ndustrial to have waived the
right to present evidence for its failure to appear at the hearing despite due notice"
On the other hand, 2ille< lastic rested its case without presenting an. evidence"
Thereafter 0nterban/ and 2ille< lastic sub'itted their respective 'e'oranda"
On April -, 19++, the trial court rendered (udg'ent, ordering 0nter#esin 0ndustrial
and 2ille< lastic (ointl. and severall. to pa. to 0nterban/ the following a'ounts
:a3 %, 4,7+6"1, representing their indebtedness to the plaintiff, with interest of
175 per annu' fro' August 11, 19+&, when 0nter#esin 0ndustrial paid
:b3 ?iuidated da'ages euivalent to 17+ of the a'ount due8 and
:c3 Attorne.Ms fees and e<penses of litigation euivalent to &6+ of the total a'ount
due"
0nter#esin 0ndustrial and 2ille< lastic appealed to the Court of Appeals" 2ille<
lastic filed its brief, while 0nter#esin 0ndustrial presented a L)otion to Conduct
earing and to #eceive @vidence to #esolve ;actual 0ssues and to efer ;iling of the
AppellantMs *rief"L After its 'otion was denied, 0nter#esin 0ndustrial did not file its
brief an.'ore"
On ;ebruar. &&, 1991, the Court of Appeals rendered a decision affir'ing the ruling
of the trial court"
2ille< lastic filed a 'otion for reconsideration pra.ing that it be allowed to present
evidence to show that 0nter#esin 0ndustrial had alread. paid its obligation to
0nterban/, but its 'otion was denied on ece'ber , 1991

The 'otion is denied for lac/ of 'erit" 2e denied defendantappellant 0nter#esin
0ndustrialMs 'otion for reception of evidence because the situation or situations in
which we could e<ercise the power under * 1&9 did not e<ist" )ovant here has not
presented an. argu'ent which would show otherwise"
ence, this petition b. 2ille< lastic for the review of the decision of ;ebruar. &&,
1991 and the resolution of ece'ber , 1991 of the Court of Appeals"
etitioner raises a nu'ber of issues"
[1] The 'ain issue raised is whether under the LContinuing !uarant.L signed on
April &, 1979 petitioner 2ille< lastic 'a. be held (ointl. and severall. liable with
0nter#esin 0ndustrial for the a'ount paid b. 0nterban/ to )anilaban/"
As alread. stated, the a'ount had been paid b. 0nterban/Ms predecessorin
interest, Atriu' Capital, to )anilaban/ pursuant to the LContinuing =uret.
Agree'entsL 'ade on ece'ber 1, 197+" 0n den.ing liabilit. to 0nterban/ for the
a'ount, 2ille< lastic argues that under the LContinuing !uarant.,L its liabilit. is for
su's obtained b. 0nter#esin 0ndustrial fro' 0nterban/, not for su's paid b. the
latter to )anilaban/ for the account of 0nter#esin 0ndustrial" 0n support of this
contention 2ille< lastic cites the following portion of the LContinuing !uarant.L
;or and in consideration of the su's obtained andIor to be obtained b. 0$T@#
#@=0$ 0$B=T#0A? CO#O#AT0O$, hereinafter referred to as the @*TO#I=, fro'
.ou andIor .our principalIs as 'a. be evidenced b. pro'issor. noteIs, chec/s, bills
receivableIs andIor other evidenceIs of indebtedness :hereinafter referred to as the
$OT@I=3, 0I2e hereb. (ointl. and severall. and unconditionall. guarantee unto .ou
andIor .our principalIs, successorIs and assigns the pro'pt and punctual pa.'ent
at 'aturit. of the $OT@I= issued b. the @*TO#I= in .our andIor .our principalIs,
successorIs and assigns favor to the e<tent of the aggregate principal su' of ;0F@
)0??0O$ @=O= :-,666,666"663, hilippine Currenc., and such interests, charges
and penalties as 'a. hereinafter be specified"
The contention is untenable" 2hat 2ille< lastic has overloo/ed is the fact that
evidence aliunde was introduced in the trial court to e<plain that it was actuall. to
secure pa.'ent to 0nterban/ :for'erl. 0BC3 of a'ounts paid b. the latter to
)anilaban/ that the LContinuing !uarant.L was e<ecuted" 0n its co'plaint below,
0nterban/Ms predecessorininterest, Atriu' Capital, alleged
-" to secure the guarantee 'ade b. plaintiff of the credit acco''odation granted to
defendant 0#0C [0nter#esin 0ndustrial] b. )anilaban/, the plaintiff reuired
defendant 0#0C [0nter#esin 0ndustrial] to e<ecute a chattel 'ortgage in its favor
and a Continuing !uarant. which was signed b. the other defendant 20C [2ille<
lastic]"
0n its answer, 0nter#esin 0ndustrial ad'itted this allegation although it clai'ed that
it had alread. paid its obligation in its entiret." On the other hand, 2ille< lastic,
while den.ing the allegation in uestion, 'erel. did so Lfor lac/ of /nowledge or
infor'ation of the sa'e"L *ut, at the hearing of the case on =epte'ber 1, 19+,
when as/ed b. the t rial (udge whether 2ille< lastic had not filed a crossclai'
against 0nter#esin 0ndustrial, 2ille< lasticMs counsel replied in the negative and
'anifested that Lthe plaintiff in this case [0nterban/] is the guarantor and '. client
[2ille< lastic] onl. signed as a guarantor to the guarantee"L &
;or its part 0nterban/ adduced evidence to show that the LContinuing !uarant.L had
been 'ade to guarantee pa.'ent of a'ounts 'ade b. it to )anilaban/ and not of
an. su's given b. it as loan to 0nter#esin 0ndustrial" 0nterban/Ms witness testified
under cross e<a'ination b. counsel for 2ille< lastic that 2ille< Lguaranteed the
e<posureIof whatever e<posure of AC [Atriu' Capital] will later be 'ade because
of the guarantee to )anila *an/ing Corporation"L %
0t has been held that e<planator. evidence 'a. be received to show the
circu'stances under which a docu'ent has been 'ade and to what debt it relates"
4 At all events, 2ille< lastic cannot now clai' that its liabilit. is li'ited to an.
a'ount which 0nterban/, as creditor, 'ight give directl. to 0nter#esin 0ndustrial as
debtor because, b. failing to ob(ect to the parol evidence presented, 2ille< lastic
waived the protection of the parol evidence rule" -
Accordingl., the trial court found that it was Lto secure the guarantee 'ade b.
plaintiff of the credit acco''odation granted to defendant 0#0C [0nter#esin
0ndustrial] b. )anilaban/, [that] the plaintiff reuired defendant 0#0C to e<ecute a
chattel 'ortgage in its favor and a Continuing !uarant. which was signed b. the
defendant 2ille< lastic 0ndustries Corporation"L 
=i'ilarl., the Court of Appeals found it to be an u ndisputed fact that Lto secure the
guarantee underta/en b. plaintiffappellee [0nterban/] of the credit acco''odation
granted to 0nter#esin 0ndustrial b. )anilaban/, plaintiffappellee reuired
defendantappellants to sign a Continuing !uarant."L These factual findings of the
trial court and of the Court of Appeals are binding on us not onl. because of the rule
that on appeal to the =upre'e Court such findings are entitled to great weight and
respect but also because our own e<a'ination of the record of the trial court
confir's these findings of the two courts" 7
$or does the record show an. other transaction under which 0nter#esin 0ndustrial
'a. have obtained su's of 'one. fro' 0nterban/" 0t can reasonabl. be assu'ed
that 0nter#esin 0ndustrial and 2ille< lastic intended to inde'nif. 0nterban/ for
a'ounts which it 'a. have paid )anilaban/ on behalf of 0nter#esin 0ndustrial"
0ndeed, in its etition for #eview in this Court, 2ille< lastic ad'itted that it was Lto
secure the aforesaid guarantee, that 0$T@#*A$H reuired principal debtor 0#0C
[0nter#esin 0ndustrial] to e<ecute a chattel 'ortgage in its favor, and so a
LContinuing !uarant.L was e<ecuted on April &, 1979 b. 20??@D ?A=T0C
0$B=T#0@= CO#O#AT0O$ :20??@D for brevit.3 in favor of 0$T@#*A$H for and in
consideration of the loan obtained b. 0#0C [0nter#esin 0ndustrial]"L
[&] 2ille< lastic argues that the LContinuing !uarant.,L being an accessor.
contract, cannot legall. e<ist because of the absence of a valid principal obligation"
+ 0ts contention is based on the fact that it is not a part. either to the LContinuing
=uret. Agree'entL or to the loan agree'ent between )anilaban/ and 0nterban/
0ndustrial"
ut in another wa. the consideration necessar. to support a suret. obligation need
not pass directl. to the suret., a consideration 'oving to the principal alone being
sufficient" ;or a Lguarantor or suret. is bound b. the sa'e consideration that 'a/es
the contract effective between the principal parties thereto" 0t is never necessar.
that a guarantor or suret. should receive an. part or benefit, if such there be,
accruing to his principal"L 9 0n an analogous case, 16 this Court held
At the ti'e the loan of 166,666"66 was obtained fro' petitioner b. aicor, for the
purpose of having an additional capital for bu.ing and selling cocoshell charcoal
and i'portation of activated carbon, the co'prehensive suret. agree'ent was
ad'ittedl. in full force and effect" The loan was, therefore, covered b. the said
agree'ent, and private respondent, even if he did not sign the pro'issor. note, is
liable b. virtue of the suret. agree'ent" The onl. condition that would 'a/e hi'
liable thereunder is that the *orrower Lis or 'a. beco'e liable as 'a/er, endorser,
acceptor or otherwise"L There is no doubt that aicor is liable on the pro'issor.
note evidencing the indebtedness"
The suret. agree'ent which was earlier signed b. @nriue !o, =r" and private
respondent, is an accessor. obligation, it being dependent upon a principal one
which, in this case is the loan obtained b. aicor as evidenced b. a pro'issor.
note"
[%] 2ille< lastic contends that the LContinuing !uarant.L cannot be retroactivelt
applied so as to secure pa.'ents 'ade b. 0nterban/ under the two LContinuing
=uret. Agree'ents"L 2ille< lastic invo/es the ruling in @l Fencedor v" Canlas 11
and iNo v" Court of Appeals 1& in support of its contention that a contract of
suret.ship or guarant. should be applied prospectivel."
The cases cited are, however, distinguishable fro' the present case" 0n @l Fencedor
v" Canlas we held that a contract of suret.ship Lis not retrospective and no liabilit.
attaches for defaults occurring before it is entered into unless an intent to be so
liable is indicated"L There we found nothing in the contract to show that the paries
intended the suret. bonds to answer for the debts contracted previous to the
e<ecution of the bonds" 0n contrast, in this case, the parties to the LContinuing
!uarant.L clearl. provided that the guarant. would cover Lsu's obtained andIor to
be obtainedL b. 0nter#esin 0ndustrial fro' 0nterban/"
On the other hand, in iNo v" Court of Appeals the issue was whether the sureties
could be held liable for an obligation contracted after the e<ecution of the continuing
suret. agree'ent" 0t was held that b. its ver. nature a continuing suret.ship
conte'plates a future course of dealing" L0t is prospective in its operation and is
generall. intended to provide securit. with respect to future transactions"L *. no
'eans, however, was it 'eant in that case that in all instances a contrast of
guarant. or suret.ship should be prospective in application"
0ndeed, as we also held in *an/ of the hilippine 0slands v" ;oerster, 1% although a
contract of suret.ship is ordinaril. not to be construed as retrospective, in the end
the intention of the parties as revealed b. the evidence is controlling" 2hat was said
there 14 applies 'utatis 'utandis to the case at bar
0n our opinion, the appealed (udg'ent is erroneous" 0t is ver. true that bonds or
other contracts of suret.ship are ordinaril. not to be construed as retrospective, but
that rule 'ust .ield to the intention of the contracting parties as revealed b. t he
evidence, and does not interfere with the use of the ordinar. tests and canons of
interpretation which appl. in regard to other contracts"
0n the present case the circu'stances so clearl. indicate that the bond given b.
@chevarria was intended to cover all of the indebtedness of the Arrocera upon its
current account with the plaintiff *an/ that we cannot possibl. adopt the view of the
court below in regard to the effect of the bond"
[4] 2ille< lastic sa.s that in an. event it cannot be proceeded against without first
e<hausting all propert. of 0nter#esin 0ndustrial" 2ille< lastic thus clai's the
benefit of e<cussion" The Civil Code provides, however
Art" &6-9" This e<cussion shall not ta/e place
:13 0f the guarantor has e<pressl. renounced it8
:&3 0f he has bound hi'self solidaril. with the debtor8
The pertinent portion of the LContinuing !uarant.L e<ecuted b. 2ille< lastic and
0nter#esin 0ndustrial in favor of 0BC :now 0nterban/3 reads
0f default be 'ade in the pa.'ent of the $OT@Is herein guaranteed .ou andIor .our
principalIs 'a. directl. proceed against )eIBs without first proceeding against and
e<hausting @*TO#Is properties in the sa'e 'anner as if all such liabilities
constituted ).IOur direct and pri'ar. obligations"
This stipulation e'bodies an e<press renunciation of the right of e<cussion" 0n
addition, 2ille< lastic bound itself solidaril. liable with 0nter#esin 0ndustrial under
the sa'e agree'ent
;or and in consideration of the su's obtained andIor to be obtained b. 0$T@#
#@=0$ 0$B=T#0A? CO#O#AT0O$, hereinafter referred to as the @*TO#I=, fro'
.ou andIor .our principalIs as 'a. be evidenced b. pro'issor. noteIs, chec/s, bills
receivableIs andIor other evidenceIs of indebtedness :hereinafter referred to as the
$OT@I=3, 0I2e hereb. (ointl. and severall. and unconditionall. guarantee unto .ou
andIor .our principalIs, successorIs and assigns the pro'pt and punctual pa.'ent
at 'aturit. of the $OT@I= issued b. the @*TO#I= in .our andIor .our principalIs,
successorIs and assigns favor to the e<tent of the aggregate principal su' of ;0F@
)0??0O$ @=O= :-,666,666"663, hilippine Currenc., and such interests, charges
and penalties as 'a. hereinafter he specified"
[-] ;inall. it is contended that 0nter#esin 0ndustrial had alread. paid its
indebtedness to 0nterban/ and that 2ille< lastic should have been allowed b. the
Court of Appeals to adduce evidence to prove this" =uffice it to sa. that 0nter#esin
0ndustrial had been given generous opportunit. to present its evidence but it failed
to 'a/e use of the sa'e" On the otherhand, 2ille< lastic rested its case without
presenting evidence"
The reception of evidence of 0nter#esin 0ndustrial was set on anuar. &9, 19+7, but
because of its failure to appear on that date, the hearing was reset on )arch 1&, &
and April &, 19+7"
On )arch 1&, 19+7 0nter#esin 0ndustrial again failed to appear" Bpon 'otion of
2ille< lastic, the hearings on )arch 1& and &, 19+7 were cancelled and Lreset for
the last ti'eL on April & and %6, 19+7"
On April &, 19+7, 0nter#esin 0ndustrial again failed to appear" Accordingl. the trial
court issued the following order
Considering that, as shown b. the records, the Court had e<erted ever. earnest
effort to cause the service of notice or subpoena on the defendant 0nter#esin
0ndustrial but to no avail, even with the assistance of the defendant 2ille< the
defendant 0nter#esin 0ndustrial is hereb. dee'ed to have waived the right to
present its evidence"
On the other hand, 2ille< lastic announced it was resting its case without
presenting an. evidence"
Bpon 'otion of 0nter#esin 0ndustrial, however, the trial court reconsidered its order
and set the hearing anew on ul. &%, 19+7" *ut 0nter#esin 0ndustrial again 'oved
for the postpone'ent of the hearing be postponed to August 11, 19+7" The hearing
was, therefore, reset on =epte'ber + and &&, 19+7 but the hearings were reset on
October 1%, 19+7, this ti'e upon 'otion of 0nterban/" To give 0nterban/ ti'e to
co''ent on a 'otion filed b. 0nter#esin 0ndustrial, the reception of evidence for
0nter#esin 0ndustrial was again reset on $ove'ber 17, & and ece'ber 11, 19+7"
owever, 0nter#esin 0ndustrial again 'oved for the postpone'ent of the hearing"
Accordingl. the hearing was reset on $ove'ber & and ece'ber 11, 19+7, with
warning that the hearings were intransferrable"
Again, the reception of evidence for 0nter#esin 0ndustrial was reset on anuar. &&,
19++ and ;ebruar. -, 19++ upon 'otion of its counsel" As 0nter#esin 0ndustrial still
failed to present its evidence, it was declared to have waived its evidence"
To give 0nter#esin 0ndustrial a last opportunit. to present its evidence, however,
the hearing was postponed to )arch 4, 19++" Again 0nter#esin 0ndustrialMs counsel
did not appear" The trial court, therefore, finall. declared 0nter#esin 0ndustrial to
have waived the right to present its evidence"
On the other hand, 2ille< lastic, as before, 'anifested that it was not presenting
evidence and reuested instead for ti'e to file a 'e'orandu'"
There is therefore no basis for the plea 'ade b. 2ille< lastic that it be given the
opportunit. of showing that 0nter#esin 0ndustrial has alread. paid its obligation to
0nterban/"
2@#@;O#@, the decision of the Court of Appeals is A;;0#)@, with costs against
the petitioner"
=O O#@#@"
14" AC0$TO BE 0$O and $O#*@#TO BE, petitioners, vs" O$" COB#T O; A@A?=
and )@T#OO?0TA$ *A$H A$ T#B=T CO)A$E, respondents"
!"#" $o" +977- K 199&11&
@C0=0O $
AF0@, #", 
Continuing =uret.ship Agree'ents signed b. the petitioners set off this present
controvers."
etitioners assail the && une 19+9 ecision of the Court of Appeals in CA!"#" CF
$o" 177&9 1 which reversed the & ece'ber 19+7 ecision of *ranch 4- of the
#egional Trial Court :#TC3 of )anila in a collection suit entitled L)etropolitan *an/
and Trust Co'pan. vs" B. Tia' doing business under the na'e of MBE T0A)
@$T@##0=@= > ;#@0!T =@#F0C@=,M acinto B. iNo and $orberto B.L and
doc/eted as Civil Case $o" +&9%6%" The. li/ewise challenge public respondentMs
#esolution of &1 August 19+9 & den.ing their 'otion for t he reconsideration of the
for'er"
The i'pugned decision of the respondent Court su''ariGes the antecedent facts as
follows
L0t appears that in 1977, B. Tia' @nterprises and ;reight =ervices :hereinafter
referred to as BT@;=3, thru its representative B. Tia', applied for and obtained
credit acco''odations :letter of credit and trust receipt acco''odations3 fro' the
)etropolitan *an/ and Trust Co'pan. :hereinafter referred to as )@T#O*A$H3 in
the su' of 766,666"66 :Original #ecords, p" %%%3" To secure the afore'entioned
credit acco''odations, $orberto B. and acinto B. iNo e<ecuted separate
Continuing =uret.ships :@<hibits L@L and L;L respectivel.3, dated &- ;ebruar. 1977,
in favor of the latter" Bnder the aforesaid agree'ents, $orberto B. agreed to pa.
)@T#O*A$H an. indebtedness of BT@;= up to the aggregate su' of %66,666"66
while acinto B. iNo agreed to be bound up to the aggregate su' of +66,666"66"
aving paid the obligation under the above letter of credit in 1977, BT@;=, through
B. Tia', obtained another credit acco''odation fro' )@T#O*A$H in 197+, which
credit acco''odation was full. settled before an irrevocable letter of credit was
applied for and obtained b. the above'entioned business entit. in 1979
:=epte'ber +, 19+7, tsn, pp" 14 1-3"
The 0rrevocable ?etter of Credit $o" =$?oc%69, dated )arch %6, 1979, in the su'
of +1-,66"66, covered BT@;=M purchase of M+,666 *ags lanters Brea and 4,666
*ags lanters &166"M 0t was applied for and obtained b. BT@;= without the
participation of $orberto B. and acinto B. iNo as the. did not sign the docu'ent
deno'inated as MCo''ercial ?etter of Credit and Application"M Also, the. were not
as/ed to e<ecute an. suret.ship to guarantee its pa.'ent" $either did )@T#O*A$H
nor BT@;= infor' the' that the 1979 ?etter of Credit has been opened and that the
Continuing =uret.ships separatel. e<ecuted in ;ebruar., 1977 shall guarantee its
pa.'ent :AppelleesM brief, pp" &%8 #ollo, p" &+3"
The 1979 letter of credit :@<hibit L*L3 was negotiated" )@T#O*A$H paid lanters
roducts the a'ount of +1-,66"66 which pa.'ent was covered b. a *ill of
@<change :@<hibit LCL3, dated 4 une 1979, in favor of the for'er, drawn on and
accepted b. BT@;= :Original #ecords, p" %%13"
ursuant to the above co''ercial transaction, BT@;= e<ecuted and delivered to
)@T#O*A$H a Trust #eceipt :@<h" LL3, dated 4 une 1979, whereb. the for'er
ac/nowledged receipt in trust fro' the latter of the afore'entioned goods fro'
lanters roducts which a'ounted to +1-,66"66" *eing the entrustee, the for'er
agreed to deliver to )@T#O*A$H the entrusted goods in the event of nonsale or, if
sold, the proceeds of the sale thereof, on or before =epte'ber &, 1979"
owever, BT@;= did not acuiesce to the obligator. stipulations in the trust receipt"
As a conseuence, )@T#O*A$H sent letters to the said principal obligor and its
sureties, $orberto B. and acinto B. iNo, de'anding pa.'ent of the a'ount due"
0nfor'ed of the a'ount due, BT@;= 'ade partial pa.'ents to the *an/ which were
accepted b. the latter"
Answering one of the de'and letters, iNo, thru counsel, denied his liabilit. for the
a'ount de'anded and reuested )@T#O*A$H to send hi' copies of docu'ents
showing the source of his liabilit." 0n its repl., the ban/ infor'ed hi' that the
source of his liabilit. is the Continuing =uret.ship which he e<ecuted on ;ebruar.
&-, 1977"
As a re(oinder, iNo 'aintained that he cannot be held liable for the 1979 credit
acco''odation because it is a new obligation contracted without his participation"
*esides, the 1977 credit acco''odation which he guaranteed has been full. paid"
aving sent the last de'and letter to BT@;=, iNo and B. and f inding resort to
e<tra(udicial re'edies to be futile, )@T#O*A$H filed a co'plaint for collection of a
su' of 'one. :1%,%%9"%&, as of anuar. %1, 19+&, inclusive of interest,
co''ission penalt. and ban/ charges3 with a pra.er for the issuance of a writ of
preli'inar. attach'ent, against B. Tia', representative of BT@;= and i'pleaded
iNo and B. as partiesdefendants"
The court issued an order, dated &9 ul. 19+%, granting the attach'ent writ, which
writ was returned unserved and unsatisfied as defendant B. Tia' was nowhere to
be found at his given address and his co''ercial enterprise was alread. non
operational :Original #ecords, p" %73"
On April 11, 19+4, $orberto B. and acinto B. iNo :suretiesdefendants herein3
filed a 'otion to dis'iss the co'plaint on the ground of lac/ of cause of action"
The. 'aintained that the obligation which the. guaranteed in 1977 has been
e<tinguished since it has alread. been paid in the sa'e .ear" Accordingl., the
Continuing =uret.ships e<ecuted in 1977 cannot be availed of to secure B. Tia'Ms
?etter of Credit obtained in 1979 because a guarant. cannot e<ist without a valid
obligation" 0t was further argued that the. can not be held liable for the obligation
contracted in 1979 because the. are not privies thereto as it was contracted without
their participation :#ecords, pp" 4&43"
On April &4, 19+4, )@T#O*A$H filed its opposition to the 'otion to dis'iss"
0nvo/ing the ter's and conditions e'bodied in the co'prehensive suret.ships
separatel. e<ecuted b. suretiesdefendants, the ban/ argued that sureties'ovants
bound the'selves as solidar. obligors of defendant B. Tia' to both e<isting
obligations and future ones" 0t relied on Article &6-% of the new Civil Code which
provides MA guarant. 'a. also be given as securit. for future debts, the a'ount of
which is not .et /nown8 " " " "M 0t was further asserted that the agree'ent was in full
force and effect at the ti'e the letter of credit was obtained in 1979 as sureties
defendants did not e<ercise their right to revo/e it b. giving notice to the ban/"
:0bid", pp" -1-43"
)eanwhile, the resolution of the aforecited 'otion to dis'iss was held in abe.ance
pending the introduction of evidence b. the parties as per order dated ;ebruar. &1,
19+ :0bid", p" 713"
aving been granted a period of fifteen :1-3 da.s fro' receipt of the order dated
)arch 7, 19+ within which to file the answer, suretiesdefendants filed their
responsive pleading which 'erel. rehashed the argu'ents in their 'otion to
dis'iss and 'aintained that the. are entitled to the benefit of e<cussion :Original
#ecords, pp" ++9%3"
On ;ebruar. &%, 19+7, plaintiff filed a 'otion to dis'iss the co'plaint against
defendant B. Tia' on the ground that it has no infor'ation as to the heirs or legal
representatives of the latter who died so'eti'e in ece'ber, 19+, which 'otion
was granted on the following da. :0bid", pp 1+61+&3"
After trial, " " " the court a uo, on ece'ber &, 19+7, rendered its (udg'ent, a
portion of which reads
MThe evidence and the pleadings, thus, pose the uerr. :sic3
MAre the defendants acinto B. iNo and $orberto B. liable for the obligation
contracted b. B. Tia' under the ?etter of Credit :@<h" *3 issued on )arch %6, 1979
b. virtue of the Continuing =uret.ships the. e<ecuted on ;ebruar. &-, 1977J
MBnder the ad'itted proven facts, the Court finds that the. are not"
Ma3 2hen B. and iNo e<ecuted the continuing suret.ships, e<hibits @ and ;, on
;ebruar. &-, 1977, B. Tia' was obligated to the plaintiff in the a'ount of
766,666"66  and this was the obligation which both defendants guaranteed to pa."
B. Tia' paid this 1977 obligation  and such pa.'ent e<tinguished the obligation
the. assu'ed as guarantorsIsureties"
Mb3 The 1979 ?etter of Credit :@<h" *3 is different fro' the 1977 ?etter of Credit
which covered the 1977 account of B. Tia'" Thus, the obligation under either is
apart and distinct fro' the obligation created in the other  as evidenced b. the fact
that B. Tia' had to appl. anew for the 1979 transaction :@<h" A3" And iNo and B.,
being strangers thereto, cannot be answerable thereunder"
Mc3 The plaintiff did not serve notice to the defendants iNo and B. when it e<tended
to B. Tia' the 1979 ?etter of Credit  at least to infor' the' that the continuing
suret.ships the. e<ecuted on ;ebruar. &-, 1977 will be considered b. the plaintiff
to secure the 1979 transaction of B. Tia'"
Md3 There is no sufficient and credible showing that iNo and B. were full. infor'ed
of the i'port of the Continuing =uret.ships when the. affi<ed their signatures
thereon  that the. are thereb. securing all future obligations which B. Tia' 'a.
contract with the plaintiff" On the contrar., iNo and B. categoricall. testified that
the. signed the blan/ for's in the office of B. Tia' at &% Asuncion =treet,
*inondo, )anila, in obedience to the instruction of B. Tia', their for'er e'plo.er"
The. denied having gone to the office of the p laintiff to subscribe to the docu'ents
:October 1, 19+7, tsn, pp" -7, 148 October 1-, 19+7, tsn, pp" %+, 1%13"
:#ecords, pp" %%%%%43"ML %
<<< <<< <<<
0n its ecision, the trial court decreed as follows
L#@)0=@= CO$=0@#@, (udg'ent is hereb. rendered
Ma3 dis'issing the CO)?A0$T against AC0$TO BE 0PQMO and $O#*@#TO BE8
Mb3 ordering the plaintiff to pa. to iNo and B. the a'ount of ,666"66 as
attorne.Ms fees and e<penses of litigation8 and
Mc3 den.ing all other clai's of the parties for want of legal andIor factual basis"M
M=O O#@#@M" :#ecords, p" %%3"L 4
;ro' the said ecision, the private respondent appealed to the Court of Appeals"
The case was doc/eted as CA!"#" CF $o" 177&4" 0n support thereof, it 'ade the
following assign'ent of errors in its *rief
L0" T@ ?O2@# COB#T =@#0OB=?E @##@ 0$ $OT ;0$0$! A$ O?0$! TAT
@;@$A$T=A@??@@= AC0$TO BE 0PQMO A$ $O#*@#TO BE A#@ =O?0A#0?E
?0A*?@ TO ?A0$T0;;A@??A$T ;O# T@ O*?0!AT0O$ O; @;@$A$T BE T0A)
B$@# T@ ?@TT@# O; C#@0T 0==B@ O$ )A#C %6, 1979 *E F0#TB@ O; T@
CO$T0$B0$! =B#@TE=0= T@E @D@CBT@ O$ ;@*#BA#E &-, 1977"
00" T@ ?O2@# COB#T @##@ 0$ O?0$! TAT ?A0$T0;;A@??A$T 0=
A$=2@#A*?@ TO @;@$A$T=A@??@@= AC0$TO BE 0PQMO A$ $O#*@#TO BE
;O# ATTO#$@EM= ;@@= A$ @D@$=@= O; ?0T0!AT0O$"L -
On && une 19+9, public respondent pro'ulgated the assailed ecision the
dispositive portion of which reads
L2@#@;O#@, pre'ises considered, the (udg'ent appealed fro' is hereb.
#@F@#=@ and =@T A=0@" 0n lieu thereof, another one is rendered
13 Ordering suretiesappellees acinto B. iNo and $orberto B. to pa., (ointl. and
severall., to appellant )@T#O*A$H the a'ount of &,%97,++%"+ which represents
the a'ount due as of ul. 17, 19+7 inclusive of principal, interest and charges8
&3 Ordering suretiesappellees acinto B. iNo and $orberto B. to pa., (ointl. and
severall., appellant )@T#O*A$H the accruing interest, fees and charges thereon
fro' ul. 1+, 19+7 until the whole 'onetar. obligation is paid8 and
%3 Ordering suretiesappellees acinto B. iNo and $orberto B. to pa., (ointl. and
severall., to plaintiff &6,666"66 as attorne.Ms fees"
2ith costs against appellees"
=O O#@#@"L 
0n ruling for the herein private respondent :hereinafter )@T#O*A$H3, public
respondent held that the Continuing =uret.ship Agree'ents separatel. e<ecuted b.
the petitioners in 1977 were intended to guarantee pa.'ent of B. Tia'Ms
outstanding as well as future obligations8 each suret.ship arrange'ent was
intended to re'ain in full force and effect until )@T#O*A$H would have been
notified of its revocation" =ince no such notice was given b. the petitioners, the
suret.ships are dee'ed outstanding and hence, cover even the 1979 letter of credit
issued b. )@T#O*A$H in favor of B. Tia'"
etitioners filed a 'otion to reconsider the foregoing ecision" The. uestioned the
public respondentMs construction of the suret.ship agree'ents and its ruling with
respect to the e<tent of their liabilit. thereunder" The. argued that even if the
agree'ents were in full force and effect when )@T#O*A$H granted B. Tia'Ms
application for a letter of credit in 1979, the public respondent nonetheless seriousl.
erred in holding the' liable for an a'ount over and above their respective face
values"
0n its #esolution of &1 August 19+9, public respondent denied the 'otion
L" " " considering that the issues raised were substantiall. the sa'e grounds utiliGed
b. the lower court in rendering (udg'ent for defendantsappellees which 2e upon
appeal found and resolved to be untenable, thereb. reversing and setting aside said
 (udg'ent and rendering another in favor of plaintiff, and no new or fresh issues
have been posited to (ustif. reversal of Our decision herein, " " " "L 7
ence, the instant petition which hinges on the issue of whether or not the
petitioners 'a. be held liable as sureties for the obligation contracted b. B. Tia'
with )@T#O*A$H on %6 )a. 1979 under and b. virtue of the Continuing =uret.ship
Agree'ents signed on & ;ebruar. 1977"
etitioners vehe'entl. den. such liabilit. on the ground that the Continuing
=uret.ship Agree'ents were auto'aticall. e<tinguished upon pa.'ent of the
principal obligation secured thereb., i"e", this letter of credit obtained b. B. Tia' in
1977" The. further clai' that the. were not advised b. either )@T#O*A$H or B.
Tia' that the Continuing =uret.ship Agree'ents would stand as securit. for the
1979 obligation" )oreover, it is posited that to e<tend the application of such
agree'ents to the 1979 obligation would a'ount to a violation of Article &6-& of
the Civil Code which e<pressl. provides that a guarant. cannot e<ist without a valid
obligation" etitioners further argue that even granting, for the sa/e of argu'ent,
that the Continuing =uret.ship Agree'ents still subsisted and thereb. also secured
the 1979 obligations incurred b. B. Tia', the. cannot be held liable for 'ore than
what the. guaranteed to pa. because it is a<io'atic that the obligations of a suret.
cannot e<tend be.ond what is stipulated in the agree'ent"
On 1& ;ebruar. 1996, this Court resolved to give due course to the petition after
considering the allegations, issues and argu'ents adduced therein, the Co''ent
thereon b. the private respondent and the #epl. thereto b. the petitioners8 the
parties were reuired to sub'it their respective )e'oranda"
The issues presented for deter'ination are uite si'ple
1" 2hether petitioners are liable as sureties for the 1979 obligations of B. Tia' to
)@T#O*A$H b. virtue of the Continuing =uret.ship Agree'ents the. separatel.
signed in 19778 and
&" On the assu'ption that the. are, what is the e<tent of their liabilities for said
1979 obligations"
Bnder the Civil Code, a guarant. 'a. be given to secure even future debts, the
a'ount of which 'a. not be /nown at the ti'e the guarant. is e<ecuted" + This is
the basis for contracts deno'inated as a continuing
guarant. or suret.ship" A continuing guarant. is one which is not li'ited to a single
transaction, but which conte'plates a future course of dealing, covering a series of
transactions, generall. for an indefinite ti'e or until revo/ed" 0t s prospective in its
operation and is generall. intended to provide securit. with respect to future
transactions within certain li'its, and conte'plates a succession of liabilities, for
which, as the. accrue, the guarantor beco'es liable" 9 Otherwise stated, a
continuing guarant. is one which covers all transactions, including those arising in
the future, which are within t he description or conte'plation of the contract of
guarant., until the e<piration or ter'ination thereof" 16 A guarant. shall be
construed as continuing when b. the ter's thereof it is evident that the ob(ect is to
give a standing credit to the principal debtor to be used fro' ti'e to ti'e either
indefinitel. or until a certain period, especiall. if the right to recall the guarant. is
e<pressl. reserved" ence, where the contract of guarant. states that the sa'e is
to secure advances to be 'ade Lfro' ti'e to ti'eL the guarant. will be construed
to be a continuing one" 11
0n other (urisdictions, it has been held that the use of particular words and
e<pressions such as pa.'ent of Lan. debt,L Lan. indebtedness,L Lan. deficienc.,L or
Lan. su',L or the guarant. of Lan. transactionL or 'one. to be furnished the
principal debtor Lat an. ti'e,L or Lon such ti'eL that the principal debtor 'a.
reuire, have been construed to indicate a continuing guarant." 1&
0n the case at bar, the pertinent portion of paragraph 0 of the suret.ship agree'ent
e<ecuted b. petitioner B. provides thus
L0" ;or and in consideration of an. e<isting indebtedness to the *A$H of BE T0A)
:hereinafter called the M*orrowerM3, for the pa.'ent of which the =B#@TE is now
obligated to the *A$H, either as guarantor or otherwise, andIor in order to induce
the *A$H, in its discretion, at an. ti'e or fro' ti'e to ti'e hereafter, to 'a/e
loans or advances or to e<tend credit in an. other 'anner to, or at the reuest, of
for the account of the *orrower, either with or without securit., andIor to purchase
or discount, or to 'a/e an. loans or advances evidenced or secured b. an. notes,
bills, receivables, drafts, acceptances, chec/s, or other instru'ents or evidences of
indebtedness :all hereinafter called Minstru'entsM3 upon which the *orrower is or
'a. beco'e liable as 'a/er, endorser, acceptor, or otherwise, the =B#@TE agrees
to guarantee, and does hereb. guarantee, the punctual pa.'ent at 'aturit. to the
*A$H of an. and all such instru'ents, loans, advances credits andIor other
obligations hereinbefore referred to, and also an. and all other indebtedness of
ever. /ind which is now or 'a. hereafter beco'e due or owing to the *A$H b. the
*orrower, together with an. and all e<penses which 'a. be incurred b. the *A$H in
collecting all or an. such instru'ents or other indebtedness or obligations
hereinbefore referred to, andIor in enforcing an. rights hereunder, and the =B#@TE
also agrees that the *A$H 'a. 'a/e or cause an. and all such pa.'ents to be
'ade strictl. in accordance with the ter's and provisions of an. agree'ent:s3
e<press or i'plied, which has :have3 been or 'a. hereafter be 'ade or entered
into b. the *orrower in reference thereto, regardless of an. law, regulation or
decree, unless the sa'e is 'andator. and nonwaivable in character, nor or
hereafter in effect, which 'ight in an. 'anner affect an. of the ter's or provisions
of an. such agree'ent:s3 or the *A$HMs rights with respect thereto as against the
*orrower, or cause or per'it to be invo/ed an. alteration in the ti'e, a'ount or
'anner of pa.'ent b. the *orrower of an. such instru'ents, obligations or
indebtedness8 provided, however, that the liabilit. of the =B#@TE hereunder shall
not e<ceed at an. one ti'e the aggregate principal su' of @=O= T#@@
B$#@ TOB=A$ O$?E :%66,666"663 :irrespective of the currenc.:ies3 in
which the obligations hereb. guaranteed are pa.able3, and such interest as 'a.
accrue thereon either before or after an. 'aturit.:ies3 thereof and such e<penses
as 'a. be incurred b. the *A$H as referred to above"L 1%
aragraph 0 of the Continuing =uret.ship Agree'ent e<ecuted b. petitioner iNo
contains identical provisions e<cept with respect to the guaranteed aggregate
principal a'ount which is @0!T B$#@ TOB=A$ @=O= :+66,666"663" 14
aragraph 0F of both agree'ents stipulate that
LF0" This is a continuing guarant. and shall re'ain in full force and effect until
written notice shall have been received b. the *A$H that it has been revo/ed b. the
=B#@TE, but an. such notice shall not release the =B#@TE fro' an. liabilit. as to
an. instru'ents, loans, advances or other obligations hereb. guaranteed, which
'a. be held b. the *A$H, or in which the *A$H 'a. have an. interest at the ti'e
of the recept :sic3 of such notice" $o act or o'ission of an. /ind on the *A$HMs part
in the pre'ises shall in an. event affect or i'pair this guarant., nor shall sa'e :sic3
be affected b. an. change which 'a. arise b. reason of the death of the =B#@TE,
or of an. partner:s3 of the =B#@TE, or of the *orrower, or of the accession to an.
such partnership of an. one or 'ore new partners"L 1-

The foregoing stipulations uneuivocall. reveal that the suret.ship agree'ents in
the case at bar are continuing in nature" etitioners do not den. this8 in fact, the.
candidl. ad'itted it" $either have the. denied the fact that the. had not revo/ed
the suret.ship agree'ents" Accordingl., as correctl. held b. the public respondent
LBndoubtedl., the purpose of the e<ecution of the Continuing =uret.ships was to
induce appellant to grant an. application for credit acco''odation :letter of
creditItrust receipt3 BT@;= 'a. desire to obtain fro' appellant ban/" *. its ter's,
each suret.ship is a continuing one which shall re'ain in full force and effect until
the ban/ is notified of its revocation"
<<< <<< <<<
2hen the 0rrevocable ?etter of Credit $o" =$?oc%69 was obtained fro' appellant
ban/, for the purpose of obtaining goods :covered b. a trust receipt3 fro' lanters
roducts, the continuing suret.ships were in full force and effect" ence, even if
suretiesappellees did not sign the MCo''ercial ?etter of Credit and Application,
the. are still liable as the credit acco''odation :letter of creditItrust receipt3 was
covered b. the said suret.ships" 2hat 'a/es the' liable thereunder is the
condition which provides that the *orrower Mis or 'a. beco'e liable as 'a/er,
endorser, acceptor or otherwise"M And since BT@;= which :sic3 was liable as principal
obligor for having failed to fulfill the obligator. stipulations in the trust receipt, the.
as insurers of its obligation, are liable thereunder"L 1
etitioners 'aintain, however, that their Continuing =uret.ship Agree'ents cannot
be 'ade applicable to the 1979 obligation because the latter was not .et in
e<istence when the agree'ents were e<ecuted in 19778 under Article &6-& of the
Civil Code, a guarant. Lcannot e<ist without a valid obligation"L 2e cannot agree"
;irst of all, the succeeding article provides that L[a] guarant. 'a. also be given as
securit. for future debts, the a'ount of which is not .et /nown"L =econdl." Article
&6-& spea/s about a valid obligations, as distinguished fro' a void obligation, and
not an e<isting or current obligation" This distinction is 'ade clearer in the second
paragraph of Article &6-& which reads
L$evertheless, a guarant. 'a. be constituted to guarantee the perfor'ance of a
voidable or an unenforceable contract" 0t 'a. also guarantee a natural obligation"L
As to the a'ount of their liabilit. under the Continuing =uret.ship Agree'ents,
petitioners contend that the public respondent gravel. erred in finding the' liable
for 'ore than the a'ount specified in their respective agree'ents, to wit :a3
+66,666"66 for petitioner iNo and :b3 %66,666"66 for petitioner B."
The li'it of the petitionersM respective liabilities 'ust be deter'ined fro' the
suret.ship agree'ent each had signed" 0t is undoubtedl. true that the law loo/s
upon the contract of suret.ship with a (ealous e.e, and the rule is settled that the
obligation of the suret. cannot be e<tended b. i'plication be.ond its specified
li'its" To the e<tent, and in the 'anner, and under the circu'stances pointed out in
his obligation, he is bound, and no farther" 17
0ndeed, the Continuing =uret.ship Agree'ents signed b. petitioner iNo  and
petitioner B. fi< the aggregate a'ount of their liabilit., at an. given ti'e, at
+66,666"66 and %66,666"66, respectivel." The law is clear that a guarantor 'a.
bind hi'self for less, but not for 'ore than the principal debtor, both as regards the
a'ount and the onerous nature of the conditions" 1+ 0n the case at bar, both
agree'ents provide for liabilit. for interest and e<penses, to wit
L" " " and such interest as 'a. accrue thereon either before or after an.
'aturit.:ies3 thereof and such e<penses as 'a. be incurred b. the *A$H referred
to above"L 19
The. further provide that
L0n the event of (udicial proceedings being instituted b. the *A$H against the
=B#@TE to enforce an. of the ter's and conditions of this underta/ing, the =B#@TE
further agrees to pa. the *A$H a reasonable co'pensation for and as attorne.Ms
fees and costs of collection, which shall not in an. event be less than ten per cent
:1653 of the a'ount due :the sa'e to be due and pa.able irrespective of whether
the case is settled (udiciall. or e<tra(udiciall.3"L &6
Thus, b. e<press 'andate of the Continuing =uret.ship Agree'ents which the. had
signed, petitioners separatel. bound the'selves to pa. interests, e<penses,
attorne.Ms fees and costs" The last two ite's are pegged at not less than ten
percent :1653 of the a'ount due"
@ven without such stipulations, the petitioners would, nevertheless, be liable for the
interest and (udicial costs" Article &6-- of the Civil Code provides &1
LA#T" &6--" A guarant. is not presu'ed8 it 'ust be e<press and cannot e<tend to
'ore than what is stipulated therein"
0f it be si'ple or indefinite, it shall co'prise not onl. the principal obligation, but
also all its accessories, including the (udicial costs, provided with respect to the
latter, that the guarantor shall onl. be liable for those costs incurred after he has
been (udiciall. reuired to pa."L
0nterests and da'ages are included in the ter' accessories" owever, such interest
should run onl. fro' the date when the co'plaint was filed in court" @ven
attorne.Ms fees 'a. be i'posed whenever appropriate, pursuant to Article &&6+ of
the Civil Code" Thus8 in laridel =uret. > 0nsurance Co", 0nc" vs" "?" !alang
)achiner. Co", 0nc", && this Court held
Letitioner ob(ects to the pa.'ent of interest and attorne.Ms fees because :13 the.
were not 'entioned in the bond8 and :&3 the suret. would beco'e liable for 'ore
than the a'ount stated in the contract of suret.ship"
<<< <<< <<<
The ob(ection has to be overruled, because as far bac/ as the .ear 19&& this Court
held in Tagawa vs" Aldanese, 4% hil" +-&, that creditors suing on a suret.ship bond
'a. recover fro' the suret. as part of their da'ages, interest at the legal rate
even if the suret. would thereb. beco'e liable to pa. 'ore than the total a'ount
stipulated in the bond" MThe theor. is that interest is allowed onl. b. wa. of
da'ages for dela. upon the part of the sureties in 'a/ing pa.'ent after the.
should have done so" 0n so'e states, the interest has been charged fro' the date
of the (udg'ent of the appellate court" 0n this (urisdiction, we rather prefer to follow
the general practice, which is to order that interest begin to run fro' the date when
the co'plaint was filed in court, " " " "M
=uch theor. aligned with sec" -16 of the Code of Civil rocedure which was
subseuentl. recogniGed in the #ules of Court :#ule -%, section 3 and with Article
116+ of the Civil Code :now Art" &&69 of the $ew Civil Code3"
0n other words the suret. is 'ade to pa. interest, not b. reason of the contract, but
b. reason of its failure to pa. when de'anded and for having co'pelled the plaintiff  'odified, petitioners AC0$TO BE 0PQMO and $O#*@#TO BE are hereb. declared
to resort to the courts to obtain pa.'ent" 0t should be observed that interest does
not run fro' the ti'e the obligation beca'e due, but fro' the filing of the
co'plaint"
As to attorne.Ms fees" *efore the enact'ent of the $ew Civil Code, successful
litigants could not recover attorne.Ms fees as part of the da'ages the. suffered b.
reason of the litigation" @ven if the part. paid thousands of pesos to his law.ers, he
could not charge the a'ount to his opponent :Tan Ti vs" Alvear, & hil" -3"
owever the $ew Civil Code per'its recover. of attorne.Ms fees in eleven cases
enu'erated in Article &&6+, a'ong the', Mwhere the court dee's it (ust and
euitable that attorne.Ms :sic3 fees and e<penses of litigation should be recoveredM
or Mwhen the defendant acted in gross and evident bad faith in refusing to satisf.
the plaintiffMs plainl. valid, (ust and de'andable clai'M" This gives the courts
discretion in apportioning attorne.Ms fees"L
The records do not reveal the e<act a'ount of the unpaid portion of the principal
obligation of B. Tia' to )@T#O*A$H under 0rrevocable ?etter of Credit $o" =$?oc
%69 dated %6 )arch 1979" 0n referring to the last de'and letter to )r" B. Tia' and
the co'plaint filed in Civil Case $o" +&9%6%, the public respondent 'entions the
a'ount of L1%,%%9"%&, as of anuar. %1, 19+&, inclusive of interest co''ission
penalt. and ban/ charges"L &% This is the sa'e a'ount stated b. )@T#O*A$H in
its )e'orandu'" &4
owever, in su''ariGing B. Tia'Ms outstanding obligation as of 17 ul. 19+7,
public respondent states
Lence, the. are (ointl. and severall. liable to appellant )@T#O*A$H of BT@;=M
outstanding obligation in the su' of &,%97,++%"+ :as of ul. 17, 19+73 
-1,69&"+& representing the principal a'ount, +&-,1%%"-4, for past due interest
:-%1+& to 717+73 and 9&1,-7"%&, for penalt. charges at 1&5 per annu' :-
%1+& to 717+73 as shown in the =tate'ent of Account :@<hibit 03"L &-
=ince the co'plaint was filed on 1+ )a. 19+&, it is obvious that on that date, the
outstanding principal obligation of B. Tia', secured b. the petitionersM Continuing
=uret.ship Agree'ents, was less than 1%,%%9"%&" =uch a'ount 'a. be full.
covered b. the Continuing =uret.ship Agree'ent e<ecuted b. petitioner iNo which
stipulates an aggregate principal su' of not e<ceeding +66,666"66, and partl.
covered b. that of petitioner B. which pegs his 'a<i'u' liabilit. at %66,666"66"
Conseuentl., the (udg'ent of the public respondent shall have to be 'odified to
confor' to the foregoing e<position, to which e<tent the instant petition is
i'pressed with partial 'erit"
2@#@;O#@, the petition is partl. !#A$T@, but onl. insofar as the challenged
decision has to be 'odified with respect to the e<tent of petitionersM liabilit." As
liable for and are ordered to pa., up to the 'a<i'u' li'it onl. of their respective
Continuing =uret.ship Agree'ent, the re'aining unpaid balance of the principal
obligation of BE T0A) or BE T0A) @$T@##0=@= > ;#@0!T =@#F0C@= under
0rrevocable ?etter of Credit $o" =$?oc%69, dated %6 )arch 1979, together with
the interest due thereon at the legal rate co''encing fro' the date of the filing of
the co'plaint in Civil Case $o" +&9%6% with *ranch 4- of the #egional Trial Court of 
)anila, as well as the ad(udged attorne.Ms fees and costs"
All other dispositions in the dispositive portion of the challenged decision not
inconsistent with the above are affir'ed"
=O O#@#@"
1-" ATOH ;0$A$C@ CO#O#AT0O$, petitioner, vs" COB#T O; A@A?=, =A$EB
C@)0CA? CO#O#AT0O$, A$0?O @" A##0@TA, $@$0TA *" A##0@TA, A*?0TO
*@#)B$O and ?@OO?O A?0?0, respondents"
!"#" $o" +667+ K 199%6-1+
@C0=0O$
;@?0C0A$O, "
Ato/ ;inance Corporation :LAto/ ;inanceL3 as/s us to review and set aside the
ecision of the Court of Appeals which reversed a decision of the trial court ordering
private respondents to pa. (ointl. and severall. to petitioner Ato/ ;inance certain
su's of 'one."
On &7 ul. 1979, private respondents =an.u Che'ical Corporation :L=an.u
Che'icalL3 as principal and =an.u Trading Corporation :L=an.u TradingL3 along with
individual private stoc/holders of =an.u Che'ical, na'el., private respondents
spouses anilo @" Arrieta and $enita *" Arrieta, ?eopoldo !" alili and ablito
*er'undo as sureties, e<ecuted a Continuing =uret.ship Agree'ent in favor of Ato/
;inance as creditor" Bnder this Agree'ent, =an.u Trading and the individual private
respondents who were officers and stoc/holders of =an.u Che'ical did
L:13 ;or Faluable andIor other consideration " " ", (ointl. and severall.
unconditionall. guarantee to ATOH ;0$A$C@ CO#O#AT0O$ :hereinafter called
Creditor3, the full, faithful and pro'pt pa.'ent and discharge of an. and all
indebtedness of [=an.u Che'ical] " " " :hereinafter called rincipal3 to the Creditor"
The word MindebtednessM is used herein in its 'ost co'prehensive sense and
includes an. and all advances, debts, obligations and liabilities of rincipal or an.
one or 'ore of the', here[to]fore, now or hereafter 'ade, incurred or created,
whether voluntar. or involuntar. and however arising, whether direct or acuired b.
the Creditor b. assign'ent or succession, whether due or not due, absolute or
contingent, liuidated or unliuidated, deter'ined or undeter'ined and whether the
rincipal 'a. be liable individuall. or (ointl. with others, or whether recover. upon
such indebtedness 'a. be or hereafter beco'e barred b. an. statute of li'itations,
or whether such indebtedness 'a. be or otherwise beco'e unenforceable"L 1
:@'phasis supplied3"
Other relevant provisions of the Continuing =uret.ship Agree'ent follow
L:&3 This is a continuing suret.ship relating to an. indebtedness, including that
arising under successive transactions which shall either continue the indebtedness
fro' ti'e to ti'e or renew it after it has been satisfied" This suret.ship is binding
upon the heirs, successors, e<ecutors, ad'inistrators and assigns of the suret., and
the benefits hereof shall e<tend to and include the successors and assigns of the
Creditor"
:%3 The obligations hereunder are (oint and several and independent of the
obligations of the rincipal" A separate action or actions 'a. be brought and
prosecuted against the rincipal and whether or not the rincipal be (oined in an.
such action or actions"
<<< <<< <<<
:3 0n addition to all liens upon, and rights of setoff against the 'one.s, securities
or other propert. of the =uret. given to the Creditor b. law, the Creditor shall have
a lien upon and a right of setoff against all 'one.s, securities, and other propert.
of the =uret. now or hereafter in the possession of the Creditor8 and ever. such lien
or right of setoff 'a. be e<ercised without need of de'and upon or notice to the
=uret." $o lien or right of setoff shall be dee'ed to have been waived b. an. act,
o'ission or conduct on the part of the Creditor, or b. an. neglect to e<ercise such
right of setoff or to enforce such lien, or b. an. dela. in so doing, and ever. right
of setoff or lien shall continue in full force and effect until such right of setoff or
lien is specificall. waived or released b. an instru'ent in writing e<ecuted b. the
Creditor"
:73 An. indebtedness of the rincipal now or hereafter held b. the =uret. is hereb.
subordinated to the indebtedness of the rincipal to the Creditor8 and if the Creditor
so reuests, such indebtedness of the rincipal to the =uret. shall be collected,
enforced and received b. the =uret. as trustee for the Creditor and shall be paid
over to the Creditor on account of the indebtedness of the rincipal to the Creditor
but without reducing or affecting in an. 'anner the liabilit. of the =uret. under the
other provisions of this suret.ship"
<<< <<< <<< &
:@'phases supplied3
On &7 $ove'ber 19+1, =an.u Che'ical assigned its trade receivables outstanding
as of &7 $ove'ber 19+1 with a total face value of 1&-,+71"66, to Ato/ ;inance in
consideration of receipt fro' Ato/ ;inance of the a'ount of 16-,666"66" The
assigned receivables carried a standard ter' of thirt. :%63 da.s8 it appeared,
however, that the standard co''ercial practice was to grant an e<tension of up to
one hundred twent. :1&63 da.s without penalties" The relevant portions of this
eed of Assign'ent read as follows
L1" ;O# FA?B@ #@C@0F@, the A==0!$O# does hereb. =@??, T#A$=;@# and
A==0!$ all hisIits rights, title and interest in the contracts, receivables, accounts,
notes, leases, deeds of sale with reservation of title, invoices, 'ortgages, chec/s,
negotiable instru'ents and evidences of indebtedness listed in the schedule for'ing
part hereinafter called YContractM or MContracts"M
&" To induce the A==0!$@@ to purchase the above Contracts, the A==0!$O# does
hereb. certif., warrant and represent that
:a3 eI0t is the sole owner of the assigned Contracts free and clear of clai's of an.
other part. e<cept the herein A==0!$@@ and has the right to transfer absolute title
thereto the A==0!$@@8
:b3 @ach assigned Contract is bonafide and the a'ount owing and to beco'e due on
each contract is correctl. stated upon the schedule or other evidences of the
Contract delivered pursuant thereto8
:c 3 @ach assigned Contract arises out of the sale of 'erchandiseIs which has been
delivered andIor services which have been rendered and none of the Contract is
now, nor will at an. ti'e beco'e, contingent upon the fulfill'ent of an. contract or
condition whatsoever, or sub(ect to an. defense, offset or counterclai'8

:d3 $o assigned Contract is represented b. an. note or other evidence of
indebtedness or other securit. docu'ent e<cept such as 'a. have been endorsed,
assigned and delivered b. the A==0!$O# to the A==0!$@@ si'ultaneousl. with the
assign'ent of such Contract8
:e3 $o agree'ent has been 'ade, or will be 'ade, with an. debtor for an.
deduction discount or return of 'erchandise, e<cept as 'a. be specificall. noted at
the ti'e of the assign'ent of the Contract8
:f3 $one of the ter's or provisions of the assigned Contracts have been a'ended,
'odified or waived8
:g3 The debtorIs under the assigned ContractIs are solvent and hisIitsItheir failure
to pa. the assigned Contracts andIor an. install'ent thereon upon 'aturit. thereof  A$0?O @" A##0@TA, $@$0TA *" A##0@TA, A*?0TO *@#)B$O and ?@OO?O
shall be conclusivel. considered as a violation of this warrant.8 and
:h3 @ach assigned Contract is a valid obligation of the bu.er of the 'erchandise
andIor service rendered under the Contract and that no Contract is overdue"
The foregoing warranties and representations are in addition to those provided for in
the $egotiable 0nstru'ents ?aw and other applicable laws" An. violation thereof
shall render the A==0!$O# i''ediatel. and unconditionall. liable to pa. the
A==0!$@@ (ointl. and severall. with the debtors under the assigned contracts, the
a'ounts due thereon"
<<< <<< <<<
4" The A==0!$O# shall without co'pensation or cost, collect and receive in trust for
the A==0!$@@ all pa.'ents 'ade upon the assigned contracts and shall re'it to
the A==0!$@@ all collections on the said Contracts as follows
-,4-6"66 due on anuar. &, 19+& on ever. 1-th da. :se'i'onthl.3 until
$ove'ber 1, 19+&"
116,--6"66 balloon pa.'ent after 1& 'onths"L % :@'phases supplied3
?ater, additional trade receivables were assigned b. =an.u Che'ical to Ato/ ;inance
with a total face value of 166,%7+"4-"
On 1% anuar. 19+4, Ato/ ;inance co''enced action against =an.u Che'ical, the
Arrieta spouses, ablito *er'undo and ?eopoldo alili before the #egional Trial
Court of )anila to collect the su' of 1&6,&46"66 plus penalt. charges a'ounting
to 6"6% for ever. peso due and pa.able for each 'onth starting fro' 1 =epte'ber
19+%" Ato/ ;inance alleged that =an.u Che'ical had failed to collect and re'it the
a'ounts due under the trade receivables"
=an.u Che'ical and the individual private respondents sought dis'issal of Ato/Ms
clai' upon the ground that such clai' had prescribed under Article 1&9 of the Civil
Code and for lac/ of cause of action" The private respondents contended that the
Continuing =uret.ship Agree'ent, being an accessor. contract, was null and void
since, at the ti'e of its e<ecution, =an.u Che'ical had no pree<isting obligation
due to Ato/ ;inance"
At the trial, =an.u Che'ical and the individual private respondents failed to present
an. evidence on their own behalf, although the individual private respondents
sub'itted a 'e'orandu' in support of their argu'ent" After trial, on 1 April 19+-,
the trial court rendered a decision in f avor of Ato/ ;inance" The dispositive portion
of this decision reads as fo llows
LACCO#0$!?E, (udg'ent is hereb. rendered in favor of the plaintiff ATOH ;0$A$C@
CO#O#AT0O$8 and against the defendants =A$EB C@)0CA? CO#O#AT0O$,
A?0?0, ordering the said defendants, (ointl. and severall., to pa. the plaintiff
:13 1&6,&46"66 plus 6"6% for each peso for each 'onth fro' =epte'ber 1, 19+%
until the whole a'ount is full. paid8
:&3 -,666"66 as attorne.Ms fees8 and
:%3 To pa. the costs"
=O O#@#@"L 4
rivate respondents went on appeal before the then 0nter'ediate Appellate Court
:L0ACL3, and the appeal was there doc/eted as AC!"#" $o" 6766-CF" The case was
raffled to the Third Civil Cases ivision of the 0AC" 0n a resolution dated &1 )arch
19+, that ivision dis'issed the appeal upon the ground of abandon'ent, since
the private respondents had failed to file their appeal brief notwithstanding receipt
of the notice to do so" On 4 une 19+, entr. of (udg'ent was 'ade b. the Cler/ of 
Court of the 0AC" Accordingl., Ato/ ;inance went before the trial court and sought a
writ of e<ecution to enforce the decision of the trial court of 1 April 19+-" The trial
court issued a writ of e<ecution on &% ul. 19+" - etitioner alleged that the writ of 
e<ecution was served on private respondents" 
owever, on &7 August 19+, private respondents filed a etition for #elief fro'
udg'ent before the Court of Appeals" This etition was raffled off to the 1-th
ivision of the Court of Appeals" 0n that etition, private respondents clai'ed that
their failure to file their appeal brief was due to e<cusable negligence, that is, that
their previous counsel had entrusted the preparation and filing of the brief to one of
his associates, which associate, however, had une<pectedl. resigned fro' the law
fir' without returning the records of cases he had been handling, including the
appeal of private respondents" Ato/ ;inance opposed the etition for #elief arguing
that no valid ground e<isted for setting aside the resolution of the Third ivision of
the then 0AC"
The 1-th ivision of the Court of Appeals nonetheless granted the etition for #elief
fro' udg'ent Lin the para'ount interest of (ustice,L 7 set aside the resolution of
the Third Civil Cases ivision of the then 0AC, and gave private respondents a non
e<tendible period of fifteen :1-3 da.s within which to file their appeal brief" rivate
respondents did file their appeal brief"
The 1-th ivision, on 1+ August 19+7, rendered a ecision on the 'erits of the
appeal, and reversed and set aside the decision of the trial court and entered a new
 (udg'ent dis'issing the co'plaint of Ato/ ;inance, ordering it to pa. private
respondents %,666"66 as attorne.Ms fees and to pa. the costs"
Ato/ ;inance 'oved to set aside the decision of the 1-th ivision of the Court of
Appeals, inviting attention to the resolution of the 0ACMs Third Civil Cases ivision of
&1 )arch 19+ originall. dis'issing private respondentsM appeal for abandon'ent
thereof" 0n a resolution dated 1+ August 19+7, the 1-th ivision denied Ato/
;inanceMs 'otion stating that it had granted the etition for #elief fro' udg'ent
and given private respondents herein fifteen :1-3 da.s within which to file an appeal
brief, while Ato/ ;inance did not file an appelleeMs brief, and that its decision was
arrived at Lon the basis of appellantMs brief and the original records of the appeal
case"L
0n the present etition for #eview, Ato/ ;inance assigns the following as errors on
the part of the Court of Appeals in rendering its decision of 1+ August 19+7
L:13 that it had erred in ruling that a continuing suret.ship agree'ent cannot be
effected to secure future debts8
:&3 that it had erred in ruling that the continuing suret.ship agree'ent was null and
void for lac/ of consideration without an. evidence whatsoever [being] adduced b.
private respondents8
:%3 that it had erred in granting the etition for #elief fro' udg'ent while
e<ecution proceedings [were] ongoing in the trial court"L + :@'phasis in the
original3"
As a preli'inar. 'atter, we note that a ivision of the Court of Appeals is coeual
with an. other ivision of the sa'e court" Accordingl., a ivision of the Court of
Appeals has no authorit. to consider and grant a petition for relief fro' a (udg'ent
rendered b. another ivision of the sa'e court" 0n the case at bar, however, we
'ust note that an intervening event had occurred between the resolution of &1
)arch 19+ of the Third Civil Cases ivision of the 0AC dis'issing private
respondentsM appeal and the %6 =epte'ber 19+ order of the 1-th ivision of the
Court of Appeals granting the etition for #elief fro' udg'ent" On &+ ul. 19+,
the old 0nter'ediate Appellate Court went out of e<istence and a new court, the
Court of Appeals, ca'e into being, was organiGed and co''enced functioning" 9
This event, and the probabilit. that so'e confusion 'a. have acco'panied the
period of transition fro' the 0AC to the Court of Appeals, lead us to believe that the
defect here involved should be disregarded as being of secondar. i'portance" At
the sa'e ti'e, nothing in this decision should be read as i'pliedl. holding that a
petition for relief fro' (udg'ent is available in respect of a decision rendered b. the
Court of Appeals8 this issue is best reserved for deter'ination in so'e future case
where it shall have been adeuatel. argued b. the parties"
2e turn, therefore, to a consideration of the first substantive issue addressed b. the
Court of Appeals in rendering its ecision on the 'erits of the appeal whether the
individual private respondents 'a. be held solidaril. liable with =an.u Che'ical
under the provisions of the Continuing =uret.ship Agree'ent, or whether that
Agree'ent 'ust be held null and void as having been e<ecuted without
consideration and without a pree<isting principal obligation to sustain it"
The Court of Appeals held on this first issue as follows
L0t is the contention of private appellants that the suret.ship agree'ent is null and
void because it is not in consonance with the laws on guarant. and securit." The
said agree'ent was entered into b. the parties two .ears before the eed of
Assign'ent was e<ecuted" Thus, allegedl., it ran counter to the provision that
guarant. cannot e<ist independentl. because b. nature it is 'erel. an accessor.
contract" The law on guarant. is applicable to suret. to so'e e<tent )anila =uret.
and ;idelit. Co" v" *a<ter Construction > Co", -% O"!" ++%8 and, Arran v" )anila
;idelit. > =uret. Co", -% O"!" 7&47"
2e find 'erit in this contention"
Although obligations arising fro' contracts have the force of law between the
contracting parties, :Article 11-9 of the Civil Code3 this does not 'ean that the law
is inferior to it8 the ter's of the contract could not be enforced if not valid" =o, even
if, as in this case, t he agree'ent was for a continuing suret.ship to include
obligations enu'erated in paragraph & of the agree'ent, the sa'e could not be
enforced" ;irst, because this contract, (ust li/e guarant., cannot e<ist without a valid
obligation :Art" &6-&, Civil Code38 and, second, although it 'a. be given as securit.
for future debt :Art" &6-%, C"C"3, the obligation conte'plated in the case at bar
cannot be considered Mfuture debtM as envisioned b. this law"
There is no proof that when the suret.ship agree'ent was entered into, there was a
pree<isting obligation which served as the principal obligation between the parties"
;urther'ore, the Mfuture debtsM alluded to in Article &6-% refer to debts alread.
e<isting at the ti'e of the constitution of the agree'ent but the a'ount thereof is
un/nown, unli/e in the case at bar where the obligation was acuired two .ears
after the agree'ent"L 16 :@'phasis supplied3
2e consider that the Court of Appeals here was in serious error" 0t is true that a
guarant. or a suret.ship agree'ent is an accessor. contract in the sense that it is
entered into for the purpose of securing the perfor'ance of another obligation
which is deno'inated as the principal obligation" 0t is also true that Article &6-& of
the Civil Code states that La guarantee cannot e<ist without a valid obligation"L This
legal proposition is not, however, li/e 'ost legal principles, to be read in an absolute
and literal 'anner and carried to the li'it of its logic" This is clear fro' Article &6-&
of the Civil Code itself
LArt" &6-&" A guarant. cannot e<ist without a valid obligation"
$evertheless, a guarant. 'a. be constituted to guarantee the perfor'ance of a
voidable or an unenforceable contract" 0t 'a. also guarantee a natural obligation"L
:@'phases supplied3"
)oreover, Article &6-% of the Civil Code states
LArt" &6-%" A guarant. 'a. also be given as securit. for future debts, the a'ount
of which is not .et /nown8 there can be no clai' against the guarantor until the
debt is liuidated" A conditional obligation 'a. also be secured"L :@'phasis
supplied3
The Court of Appeals apparentl. overloo/ed our caselaw interpreting Articles &6-&
and &6-% of the Civil Code" 0n $ational #ice and Corn Corporation :$A#0C3 v" ose
A" ;o(as and Alto =uret. Co", 0nc", 11 the private respondents assailed the decision
of the trial court holding the' liable under certain suret. bonds filed b. private
respondent ;o(as and issued b. private respondent Alto =uret. Co" in favor of
petitioner $A#0C, upon the ground that those suret. bonds were null and void
Lthere being no principal obligation to be secured b. said bonds"L 0n affir'ing the
decision of the trial court, this Court, spea/ing through )r" ustice "*"?" #e.es,
'ade short shrift of the private respondentsM doctrinaire argu'ent
LBnder his third assign'ent of error, appellant ;o(as uestions the validit. of the
additional bonds :@<hs"  and 13 on the theor. that when the. were e<ecuted,
the principal obligation referred to in said bonds had not .et been entered into, as
no cop. thereof was attached to the deeds of suret.ship" This defense is untenable,
because in its co'plaint the $A#0C averred, and the appellant did not den. that
these bonds were posted to secure the additional credit that ;o(as has applied for,
and the credit increase over his original contract was sufficient consideration for the
bonds" That the latter were signed and filed before the additional credit was
e<tended b. the $A#0C is no ground for co'plaint" Article 1+&- of the Civil Code of
1++9, in force in 194+, e<pressl. recogniGed that Ma guarant. 'a. also be given as
securit. for future debts the a'ount of which is not .et /nown"ML :@'phasis
supplied3
0n #iGal Co''ercial *an/ing Corporation v" Arro, 1& the Court was confronted again
with the sa'e issue, that is, whether private respondent was liable to pa. a
pro'issor. note dated &9 April 1977 e<ecuted b. the principal debtor in the light of
the provisions of a co'prehensive suret. agree'ent which petitioner ban/ and the
private respondent had earlier entered into on 19 October 197" Bnder the
co'prehensive suret. agree'ent, the private respondents had bound the'selves
as solidar. debtors of the iacor Corporation not onl. in respect of e<isting
obligations but also in respect of future ones" 0n holding private respondent suret.
:#esidoro Chua3 liable under the co'prehensive suret. agree'ent, the Court said
LThe suret. agree'ent which was earlier signed b. @nriue !o", =r" and private
respondent, is an accessor. obligation, it being dependent upon a principal one
which, in this case is the loan obtained b. aicor as evidenced b. a pro'issor.
note" 2hat obviousl. induced petitioner ban/ to grant the loan was the suret.
agree'ent whereb. !o and Chua bound the'selves solidaril. to guarant. the
punctual pa.'ent of the loan at 'aturit." *. ter's that are uneuivocal, it can be
clearl. seen that the suret. agree'ent was e<ecuted to guarantee future debts
which aicor 'a. incur with petitioner, as is legall. allowable under the Civil Code"
Thus 
MArticle &6-%" A guarantee 'a. also be given as securit. for future debts, the
a'ount of which is not .et /nown8 there can be no clai' against the guarantor until
the debt is liuidated" A conditional obligation 'a. also be secured"ML 1% :@'phasis
supplied3
0t is clear to us that the #iGal Co''ercial *an/ing Corporation and the $A#0C cases
re(ected the distinction which the Court of Appeals in the case at bar sought to
'a/e with respect to Article &6-%, that is, that the Lfuture debtsL referred to in that
Article relate to Ldebts alread. e<isting at the ti'e of the constitution of the
agree'ent but the a'ount [of which] is un/nown,L and not to debts not .et
incurred and e<isting at that ti'e" Of course, a suret. is not bound under an.
particular principal obligation until that principal obligation is born" *ut there is no
theoretical or doctrinal difficult. inherent in sa.ing that the suret.ship agree'ent
itself is valid and binding even before the principal obligation intended to be secured
thereb. is born, an. 'ore than there would be in sa.ing that obligations which are
sub(ect to a condition precedent are valid and binding before the occurrence of the
condition precedent" 14
Co'prehensive or continuing suret. agree'ents are in fact uite co''onplace in
present da. financial and co''ercial practice" A ban/ or a financing co'pan. which
anticipates entering into a series of credit transactions with a particular co'pan.,
co''onl. reuires the pro(ected principal debtor to e<ecute a continuing suret.
agree'ent along with its sureties" *. e<ecuting such an agree'ent, the principal
places itself in a position to enter into the pro(ected series of transactions with its
creditor8 with such suret.ship agree'ent, there would be no need to e<ecute a
separate suret. contract or bond for each financing or credit acco''odation
e<tended to the principal debtor" As we understand it, this is precisel. what
happened in the case at bar"
2e turn to the second substantive issue, that is, whether private respondents are
liable under the eed of Assign'ent which the., along with the principal debtor
=an.u Che'ical, e<ecuted in favor of petitioner, on the receivables thereb.
assigned"
The contention of =an.u Che'ical was that Ato/ ;inance had no cause of action
under the eed of Assign'ent for the reason that =an.u Che'icalMs warrant. of the
debtorsM solvenc. had ceased" 0n sub'itting this contention, =an.u Che'ical relied
on Article 1&9 of the Civil Code which reads as follows
LArt" 1&9" 0n case the assignor in good faith should have 'ade hi'self responsible
for the solvenc. of the debtor, and the contracting parties should not have agreed
upon the duration of the liabilit., it shall last for one .ear onl., fro' the ti'e of the
assign'ent if the period had alread. e<pired"
0f the credit should be pa.able within a ter' or period which has not .et e<pired,
the liabilit. shall cease one .ear after the 'aturit."L
Once 'ore, the Court of Appeals upheld the contention of private respondents and
held that =an.u Che'ical was free fro' liabilit. under the eed of Assign'ent" The
Court of Appeals said
L" " " Article 1&9 provides for the duration of assignorMs warrant. of debtorMs
solvenc. depending on whether there was a period agreed upon for t he e<istence of 
such warrant., anal.Ging the law thus
:13 if there is a period :or length of ti'e3 agreed upon, then, for such period8
:&3 if no period :or length of ti'e3 was agreed upon, then
:a3 one .ear fro' assign'ent  if debt was due at the ti'e of the assign'ent
:b3 one .ear fro' 'aturit.  if debt was not .et due at the ti'e of the
assign'ent"
The debt referred to in this law is the debt under the assigned contract or the
original debts in favor of the assignor which were later assigned to the assignee"
The debt alluded to in the law, is not the debt incurred b. the assignor to the
assignee as contended b. the appellant"
Appl.ing the said law to the case at bar, the records disclose that none of the
assigned receivables had 'atured on $ove'ber &7, 19+1 when the eed of
Assign'ent was e<ecuted" The oldest debt then e<isting was that contracted on
$ove'ber %, 19+1 and the latest was contracted on ece'ber 4, 19+1"
@ach of the invoices assigned to the assignee contained a ter' of %6 da.s :@<hibits
*%A to -and e<tended b. the notation which appeared in the M=chedule of
Assigned #eceivablesM which states that the M" " " the ter's stated on our invoices
were nor'all. e<tended up to a period of 1&6 da.s " " " "M :@<hibit *&3" Considering
the ter's in the invoices plus the ordinar. practice of the co'pan., thus, the
assigned debts 'atured between April %, 19+& to )a. 4, 19+&" The assignorMs
warrant. for debtorMs warrant., in this case, would then be fro' the 'aturit. period
up to April %, 19+% or )a. 4, 19+% to cover all of the receivables in the invoices"
The letter of de'and e<ecuted b. appellee was dated August &9, 19+% :@<hibit 3
and the co'plaint was filed on anuar. 1%, 19+4" *oth dates were be.ond the
warrant. period"
0n effect, therefore, co'pan.appellant was right when it clai'ed that appellee had
no cause of action against it or had lost its cause of action"L 1- :@'phasis supplied3
Once again, however, we consider that the Court of Appeals was in reversible error
in so concluding" The relevant provision of the eed of Assign'ent 'a. be uoted
again in this connection
L&" To induce the A==0!$@@ [Ato/ ;inance] to purchase the above contracts, the
A==0!$O# [=an.u Che'ical] does hereb. certif., warrant and represent that " " " "
:g3 the debtorIs under the assigned contractIs are solvent and hisIitsItheir failure to
pa. the assigned contractIs andIor an. install'ent thereon upon 'aturit. thereof
shall be conclusivel. considered as a violation of this warrant.8 and " " " "
The foregoing warranties and representations are in addition to those provided for in
the $egotiable 0nstru'ents ?aw and other applicable laws" An. violation thereof
shall render the A==0!$O# i''ediatel. and unconditionall. liable to pa. the
A==0!$@@ (ointl. and severall. with the debtors under the assigned contracts, the
a'ounts due thereon"
<<< <<< <<<
:@'phases supplied3
0t 'a. be stressed as a preli'inar. 'atter that the eed of Assign'ent was valid
and binding upon =an.u Che'ical" Assign'ent of receivables is a co''onplace
co''ercial transaction toda." 0t is an activit. or operation that per'its the assignee
to 'onetiGe or realiGe the value of the receivables before the 'aturit. thereof" 0n
other words, =an.u Che'ical received fro' Ato/ ;inance the value of its trade
receivables it had assigned8 =an.u Che'ical obviousl. benefitted fro' the
assign'ent" The pa.'ents due in the first instance fro' the trade debtors of =an.u
Che'ical would represent the return of the invest'ent which Ato/ ;inance had
'ade when it paid =an.u Che'ical the transfer value of such receivables"
Article 1&9 of the Civil Code invo/ed b. private respondents and accepted b. the
Court of Appeals is not, in the case at bar, 'aterial" The liabilit. of =an.u Che'ical
to Ato/ ;inance rests not on the breach of the warrant. of solvenc.8 the liabilit. of
=an.u Che'ical was not e< lege :e< Article 1&93 but rather e< contractu" Bnder
the eed of Assign'ent, the effect of nonpa.'ent b. the original trade debtors
was a breach of warrant. of solvenc. b. =an.u Che'ical, resulting in turn in the
assu'ption of solidar. liabilit. b. the assignor under the receivables assigned" 0n
other words, the assignor =an.u Che'ical beco'es a solidar. debtor under the
ter's of the receivables covered and transferred b. virtue of the eed of
Assign'ent" And because assignor =an.u Che'ical beca'e, under the ter's of the
eed of Assign'ent, solidar. obligor under each of the assigned receivables, the
other private respondents :the Arrieta spouses, ablito *er'undo and ?eopoldo
alili3, beca'e solidaril. liable for that obligation of =an.u Che'ical, b. virtue of
the operation of the Continuing =uret.ship Agree'ent" ut a little differentl., the
obligations of individual private respondent officers and stoc/holders of =an.u
Che'ical under the Continuing =uret.ship Agree'ent, were activated b. the
resulting obligations of =an.u Che'ical as solidar. obligor under each of the
assigned receivables b. virtue of the operation of the eed of Assign'ent" That
solidar. liabilit. of =an.u Che'ical is not sub(ect to the li'iting period set out in
Article 1&9 of the Civil Code"
0t follows that at the ti'e the original co'plaint was filed b. Ato/ ;inance in the
trial court, it had a valid and enforceable cause of action against =an.u Che'ical
and the other private respondents" 2e also agree with the Court of Appeals that the
original obligors under the receivables assigned to Ato/ ;inance re'ain liable under
the ter's of such receivables"
2@#@;O#@, for all the foregoing, the etition for #eview is hereb. !#A$T@ B@
COB#=@, and the ecision of the Court of Appeals dated 1+ August 19+7 and its
#esolution dated %6 =epte'ber 19+7 are hereb. #@F@#=@ and =@T A=0@" A new
 (udg'ent is hereb. entered #@0$=TAT0$! the ecision of the trial court in Civil
Case $o" +4&&19+ dated 1 April 19+-, e<cept onl. that, in the e<ercise of this
CourtMs discretionar. authorit. euitabl. to 'itigate the penalt. clause attached to
the eed of Assign'ent, that penalt. is hereb. reduced to eighteen percent :1+53
per annu' :instead of 6"6% for ever. peso 'onthl. [or %5 per annu']3" As so
'odified, the ecision of the trial court is hereb. A;;0#)@" Costs against private
respondents"
=O O#@#@"
1" *A ;0$A$C@ CO#O#AT0O$, petitioner, vs" O$" COB#T O; A@A?= and
T#A@#= #OEA? *A$H, respondents"
!"#" $o" 94- K 199&676%
@C0=0O $
)@0A?@A, "
This is a petition for review on certiorari of the decision of the respondent appellate
court which reversed the ruling of t he trial court dis'issing the case against
petitioner"
The antecedent facts are as follows
On ece'ber 17, 19+6, #enato !a.tano, doing business under the na'e !ebbs
0nternational, applied for and was granted a loan with respondent Traders #o.al
*an/ in the a'ount of 6,666"66" As securit. for the pa.'ent of said loan, the
!a.tano spouses e<ecuted a deed of suret.ship whereb. the. agreed to pa. (ointl.
and severall. to respondent ban/ the a'ount of the loan including interests, penalt.
and other ban/ charges"
0n a letter dated ece'ber -, 19+6 addressed to respondent ban/, hilip 2ong as
credit ad'inistrator of *A ;inance Corporation for and in behalf of the latter,
undertoo/ to guarantee the loan of the !a.tano spouses" The letter reads
LThis is in reference to the application of !ebbs 0nternational for a twent.five :&-3
'onth ter' loan of 6,666"66 with .our *an/"
L0n this connection, please be advised that we unconditionall. guarantee full
pa.'ent in peso value the said acco''odation :sic3 upon nonpa.'ent b. sub(ect
up to a 'a<i'u' a'ount of 6,666"66"
Loping this would 'eet .our reuire'ent and e<pedite the earl. processing of
their application"
LThan/ .ou"
Fer. trul. .ours,
*A ;0$A$C@ CO#O#AT0O$
:signed3
0?0 " 2O$!
Credit Ad'inistratorL
:p" 1&, #ollo3
artial pa.'ents were 'ade on the loan leaving an unpaid balance in the a'ount of 
+-,+67"&-" =ince the !a.tano spouses refusal to pa. their obligation, respondent
ban/ filed with the trial court a co'plaint for su' of 'one. against the !a.tano
spouses and petitioner corporation as alternative defendant"
The !a.tano spouses did not present evidence for their defense" etitioner
corporation, on the other hand, raised the defense of lac/ of authorit. of its credit
ad'inistrator to bind the corporation"
On ece'ber 1&, 19++, the trial court rendered a decision the dispositive portion of 
which states
L0$ F0@2 O; T@ ;O#@!O0$!, (udg'ent is hereb. rendered in favor of plaintiff and
against defendantsI!a.tano spouses, ordering the latter to (ointl. and severall. pa.
the plaintiff the following
L13 @0!TE ;0F@ TOB=A$ @0!T B$#@ =@F@$ A$ &-I166 :+-,+67"&-3,
representing the total unpaid balance with accu'ulated interests, penalties and
ban/ charges as of =epte'ber &&, 19+7, plus interests, penalties and ban/ charges
thereafter until the whole obligation shall have been full. paid"
L&3 Attorne.Ms fees at t he stipulated rate of ten :1653 percent co'puted fro' t he
total obligation8 and
L%3 The costs of suit"
LThe dis'issal of the case against defendant *A ;inance Corporation is hereb.
ordered without pronounce'ent as to cost"
L=O O#@#@"L :p" %1, #ollo3
$ot satisfied with the decision, respondent ban/ appealed with the Court of Appeals"
On )arch 1%, 1996, respondent appellate court rendered (udg'ent 'odif.ing the
decision of the trial court as follows
L0n view of the foregoing, the (udg'ent is hereb. rendered ordering the defendants
!a.tano spouses and alternative defendant *A ;inance Corporation, (ointl. and
severall., to pa. the plaintiff the a'ount of +-,+67"&- as of =epte'ber +, 19+7,
including interests, penalties and other bac/ :sic3 charges thereon, until the full
obligation shall have been full. paid" $o pronounce'ent as to costs"
L=O O#@#@"L :p" &7, #ollo3
ence this petition was filed with the petitioner assigning the following errors
co''itted b. respondent appellate court
L1" T@ O$O#A*?@ COB#T O; A@A?= !#AF@?E @##@ 0$ #B?0$! TAT
@T0T0O$@# 0= O0$T?E A$ =@F@#A??E ?0A*?@ 20T !AETA$O =OB=@= @=0T@
0T= ;0$0$!= TAT T@ ?@TT@# !BA#A$TE :@D" MCM3 0= Y0$FA?0 AT 0T=
0$C@T0O$M8
L&" T@ O$O#A*?@ COB#T O; A@A?= !#AF@?E @##@ 0$ #B?0$! TAT T@
@T0T0O$@# 2A= !B0?TE O; @=TO@? @=0T@ T@ ;ACT TAT 0T $@F@# H$@2
O; =BC A??@!@ ?@TT@#!BA#A$TE8
L%" T@ O$O#A*?@ COB#T O; A@A?= !#AF@?E @##@ 0$ $OT #B?0$! TAT
=BC ?@TT@# !BA#A$TE :@D0*0T YCY3 *@0$! AT@$T?E B?T#A F0#@=, 0=
B$@$;O#C@A*?@8
L4" T@ O$O#A*?@ COB#T O; A@A?= @##@ 0$ $OT A2A#0$! #@?0@; O$
@T0T0O$@#M= COB$T@#C?A0) :p" 16, #ollo3"L
=ince the issues are interrelated, it would be well to discuss the' (ointl."
etitioner contends that the letter guarant. is ultra vires, and therefore
unenforceable8 that said letterguarant. was issued b. an e'plo.ee of petitioner
corporation be.ond the scope of his authorit. since the petitioner itself is not even
e'powered b. its articles of incorporation and b.laws to issue guaranties"
etitioner also sub'its that it is not guilt. of estoppel to 'a/e it liable under the
letterguarant. because petitioner had no /nowledge or notice of such letter
guarant.8 that the allegation of hilip 2ong, credit ad'inistrator, that there was an
audit was not supported b. evidence of an. audit report or record of such
transaction in the office files"
2e find the petitionerMs contentions 'eritorious" 0t is a settled rule that persons
dealing with an assu'ed agent, whether the assu'ed agenc. be a general or
special one are bound at their peril, if the. would hold the principal liable, to
ascertain not onl. the fact of agenc. but also the nature and e<tent of authorit.,
and in case either is controverted, the burden of proof is upon the' to establish it
:arr. Heeler v" #odrigueG, 4 hil" 193" ence, the burden is on respondent ban/ to
satisfactoril. prove that the credit ad'inistrator with who' the. transacted acted
within the authorit. given to hi' b. his principal, petitioner corporation" The onl.
evidence presented b. respondent ban/ was the testi'on. of hilip 2ong, credit
ad'inistrator, who testified that he had authorit. to issue guarantees as can be
deduced fro' the wording of the 'e'orandu' given to hi' b. petitioner
corporation on his lending authorit."
The said 'e'orandu' which allegedl. authoriGed 2ong not onl. to approve and
grant loans but also to enter into contracts of guarant. in behalf of the corporation,
partl. reads
To hilip " 2ong, =A)
Credit Ad'inistrator"
;ro' ospicio *" *a.ona, r",
F and ead of Credit Ad'inistration"
#e ?ending Authorit."
0 a' pleased to delegate to .ou in .our capacit. as Credit Ad'inistrator the
following lending li'its
a3 -6,666"66 =ecured ?oans
b3 --6,666"66 =upported ?oans
c3 %-6,666"66 Truc/ ?oansIContractsI?eases
d3 %-6,666"66 Auto ?oan ContractsI?eases
e3 %-6,666"66 Appliance ?oan Contracts
f3 %-6,666"66 Bnsecured ?oans"
Total loans andIor credits [co'bination of :a3 thru :f3 e<tended to an. one borrower
including parents, affiliates andIor subsidiaries, should not e<ceed 7-6,666"66" 0n
e<ercising the li'its afore'entioned, both direct and contingent co''it'ents to
the borrower :s3 should be considered"
All loans 'ust be within the Co'pan.Ms established lending guideline and policies"
<<< <<< <<<

?@F@?= O; A#OFA?"
All transactions in e<cess of an. branchMs li'it 'ust be reco''ended to .ou
through the Official Credit #eport for approval" 0f the transaction e<ceeds .our li'it,
.ou 'ust concur in application before sub'itting it to the Fice resident, Credit
Ad'inistration for approval or concurrence"
<<< <<< <<<
:pp" &%, #ollo3 :@'phasis ours3
Although 2ong was clearl. authoriGed to approve loans even up to ;%-6,666"66
without an. securit. reuire'ent, which is far above the a'ount sub(ect of the
guarant. in the a'ount of 6,666"66, nothing in the said 'e'orandu' e<pressl.
vests on the credit ad'inistrator power to issue guarantees" 2e cannot agree with
respondentMs contention that the phrase Lcontingent co''it'entL set forth in the
'e'orandu' 'eans guarantees" 0t has been held that a power of attorne. or
authorit. of an agent should not be inferred fro' the use of vague or general
words" !uarant. is not presu'ed, it 'ust be e<pressed and cannot be e<tended
be.ond its specified li'its :irector v" =ing uco, -% hi" &6-3" 0n one case, where it
appears that a wife gave her husband power of attorne. to loan 'one., this Court
ruled that such fact did not authoriGe hi' to 'a/e her liable as a suret. for t he
pa.'ent of the debt of a third person :*an/ of hilippine 0slands v" Coster, 47 hil"
-943"
The sole allegation of the credit ad'inistrator in the absence of an. other proof that
he is authoriGed to bind petitioner in a contract of guarant. with third persons
should not be given weight" The representation of one who acts as agent cannot b.
itself serve as proof of his authorit. to act as agent or of the e<tent of his authorit.
as agent :Felasco v" ?a Brbana, -+ hil" +13"
2ongMs testi'on. that he had entered into si'ilar transactions of guarant. in the
past for and in behalf of the petitioner, lac/s credence due to his failure to show
docu'ents or records of the alleged past transactions" The actuation of 2ong in
clai'ing and testif.ing that he has the authorit. is understandable"
e would naturall. ta/e steps to save hi'self fro' personal liabilit. for da'ages to
respondent ban/ considering that he had e<ceeded his authorit."
The rule is clear that an agent who e<ceeds his authorit. is personall. liable for
da'ages :$ational ower Corporation v" $ational )erchandising Corporation, $os"
?%%+19 and ?%%+97, October &%, 19+&, 117 =C#A 7+93"
Anent the conclusion of respondent appellate court that petitioner is estopped fro'
alleging lac/ of authorit. due to its failure to cancel or disallow the guarant., 2e
find that the said conclusion has no basis in fact"
#espondent ban/ had not shown an. evidence aside fro' the testi'on. of the
credit ad'inistrator that the disputed transaction of guarant. was in fact entered
into the official records or f iles of petitioner corporation, which will show notice or
/nowledge on the latterMs part and its conseuent ratification of the said transaction"
0n the absence of clear proof, it would be unfair to hold petitioner corporation guilt.
of estoppel in allowing its credit ad'inistrator to act as though the latter had power
to guarantee"
ACCO#0$!?E, the petition is !#A$T@ and the assailed decision of the respondent
appellate court dated )arch 1%, 1996 is hereb. #@F@#=@ and =@T A=0@ and
another one is rendered dis'issing the co'plaint for su' of 'one. against *A
;inance Corporation"
=O O#@#@"
17" O=@ C" TBA 0F and @T#O$0?A C" TBA, etitioners, versus T@ COB#T O;
A@A?= and *A$H O; T@ 0?00$@ 0=?A$=, #espondents"
!"#" $o" 14--7+ K &66-111+
DECSON
CAR+O, <.
T>e C!'e
This is a petition for review[1] of the ecision[&] of the Court of Appeals dated 7
=epte'ber &666 and its #esolution dated 1+ October &666" The 7 =epte'ber &666
ecision affir'ed the ruling of the #egional Trial Court, )a/ati, *ranch 144 in a case
for estafa under =ection 1%, residential ecree $o" 11-" The Court of AppealsM
#esolution of 1+ October &666 denied petitionersM 'otion for reconsideration"
T>e *!c%'
etitioners ose C" TupaG 0F and etronila C" TupaG :LpetitionersL3 were Fice
resident for Operations and FiceresidentITreasurer, respectivel., of @l Oro
@ngraver Corporation :L@l Oro CorporationL3" @l Oro Corporation had a contract with
the hilippine Ar'. to suppl. the latter with Lsurvival bolos"L
To finance the purchase of the raw 'aterials for the survival bolos, petitioners, on
behalf of @l Oro Corporation, applied with respondent *an/ of the hilippine 0slands
:Lrespondent ban/L3 for two co''ercial letters of credit" The letters of credit were
in favor of @l Oro CorporationMs suppliers, Tanchaoco )anufacturing 0ncorporated[%]
:LTanchaoco 0ncorporatedL3 and )aresco #ubber and #etreading Corporation[4]
:L)aresco CorporationL3" #espondent ban/ granted petitionersM application and
issued ?etter of Credit $o" &66+9% for -4,+71"6- to Tanchaoco 0ncorporated
and ?etter of Credit $o" &66914- for &94,666 to )aresco Corporation"

=i'ultaneous with the issuance of the letters of credit, petitioners signed trust
receipts in favor of respondent ban/" On %6 =epte'ber 19+1, petitioner ose C"
TupaG 0F :Lpetitioner ose TupaGL3 signed, in his personal capacit., a trust receipt
corresponding to ?etter of Credit $o" &66+9% :for -4,+71"6-3" etitioner ose
TupaG bound hi'self to sell the goods covered b. the letter of credit and to re'it
the proceeds to respondent ban/, if sold, or to return the goods, if not sold, on or
before &9 ece'ber 19+1"
On 9 October 19+1, petitioners signed, in their capacities as officers of @l Oro
Corporation, a trust receipt corresponding to ?etter of Credit $o" &66914- :for
&94,6663" etitioners bound the'selves to sell the goods covered b. that letter of  fact that the. were unable to collect in full fro' the A; andIor the epart'ent of
credit and to re'it the proceeds to respondent ban/, if sold, or to return the goods,
if not sold, on or before + ece'ber 19+1"
After Tanchaoco 0ncorporated and )aresco Corporation delivered the raw 'aterials
to @l Oro Corporation, respondent ban/ paid the for'er -4,+71"6- and &94,666,
respectivel."
etitioners did not co'pl. with their underta/ing under the trust receipts"
#espondent ban/ 'ade several de'ands for pa.'ents but @l Oro Corporation 'ade
partial pa.'ents onl." On &7 une 19+% and &+ une 19+%, respondent ban/Ms
counsel[-] and its representative[] respectivel. sent final de'and letters to @l Oro
Corporation" @l Oro Corporation replied that it could not full. pa. its debt because
the Ar'ed ;orces of the hilippines had dela.ed pa.ing for the survival bolos"
#espondent ban/ charged petitioners with estafa under =ection 1%, residential
ecree $o" 11- :L=ection 1%L3[7] or Trust #eceipts ?aw :L 11-L3" After
preli'inar. investigation, the then )a/ati ;iscalMs Office found probable cause to
indict petitioners" The )a/ati ;iscalMs Office filed the corresponding 0nfor'ations
:doc/eted as Cri'inal Case $os" ++4+ and ++493 with the #egional Trial Court,
)a/ati, on 17 anuar. 19+4 and the cases were raffled to *ranch 144 :Ltrial courtL3
on &6 anuar. 19+4" etitioners pleaded not guilt. to the charges and trial ensued"
uring the trial, respondent ban/ presented evidence on the civil aspect of the
cases"
T>e R5&"? o %>e Tr &!5 Cor%
On 1 ul. 199&, the trial court rendered (udg'ent acuitting petitioners of estafa
on reasonable doubt" owever, the trial court found petitioners solidaril. liable with
@l Oro Corporation for the balance of @l Oro CorporationMs principal debt under the
trust receipts" The dispositive portion of the trial courtMs ecision provides
2@#@;O#@, (udg'ent is hereb. rendered ACB0TT0$! both accused ose C"
TupaG, 0F and etronila TupaG based upon reasonable doubt"
owever, @l Oro @ngraver Corporation, ose C" TupaG, 0F and etronila TupaG, are
hereb. ordered, (ointl. and solidaril., to pa. the *an/ of the hilippine 0slands the
outstanding principal obligation of &4,1&9"19 :as of anuar. &%, 199&3 with the
stipulated interest at the rate of 1+5 per annu'8 plus 165 of the total a'ount due
as attorne.Ms fees8 -,666"66 as e<penses of litigation8 and costs of the suit"[+]
0n holding petitioners civill. liable with @l Oro Corporation, the trial court held
[=]ince the civil action for the recover. of the civil liabilit. is dee'ed i'pliedl.
instituted with the cri'inal action, as in fact the prosecution thereof was activel.
handled b. the private prosecutor, the Court believes that the @l Oro @ngraver
Corporation and both accused ose C" TupaG and etronila TupaG, (ointl. and
solidaril. should be held civill. liable to the *an/ of the hilippine 0slands" The 'ere
 
$ational efense the proceeds of the sale of the delivered survival bolos
'anufactured fro' the raw 'aterials covered b. the trust receipt agree'ents is no
valid defense to the civil clai' of the said co'plainant and surel. could not wipe out
their civil obligation" After all, the. are free to institute an action to collect the
sa'e"[9]
etitioners appealed to the Court of Appeals" etitioners contended that :13 their
acuittal Loperates to e<tinguish [their] civil liabilit.L and :&3 at an. rate, the. are
not personall. liable for @l Oro CorporationMs debts"
T>e R5&"? o %>e Cor% o A$$e!5'
0n its ecision of 7 =epte'ber &666, the Court of Appeals affir'ed the trial courtMs
ruling" The appellate court held
0t is clear fro' [=ection 1%,  11-] that civil liabilit. arising fro' the violation of 
the trust receipt agree'ent is distinct fro' the cri'inal liabilit. i'posed therein" 0n
the case of intola vs. $nsular &an of !siaand !merica , our =upre'e Court held
that acuittal in the estafa case :"" 11-3 is no bar to the institution of a civil
action for collection" This is because in such cases, the civil liabilit. of the accused
does not ariseex delicto but rather based e< contractu and as such is distinct and
independent fro' an. cri'inal proceedings and 'a. proceed regardless of the
result of the latter" Thus, an independent civil action to enforce the civil liabilit. 'a.
be filed against the corporation aside fro' the cri'inal action against the
responsible officers or e'plo.ees"
<<<
[2]e hereb. hold that the acuittal of the accusedappellants fro' the cri'inal
charge of estafa did not operate to e<tinguish their civil liabilit. under the letter of 
credittrust receipt arrange'ent with plaintiffappellee, with which the. dealt both
in their personal capacit. and as officers of @l Oro @ngraver Corporation, the letter
of credit applicant and principal debtor"
Appellants argued that the. cannot be held solidaril. liable with their corporation, @l
Oro @ngraver Corporation, alleging that the. e<ecuted the sub(ect docu'ents
including the trust receipt agree'ents onl. in their capacit. as such corporate
officers" The. said that these instru'ents are 'ere profor'a and that the.
e<ecuted these instru'ents on the strength of a board resolution of said corporation
authoriGing the' to appl. for the opening of a letter of credit in favor of their
suppliers as well as to e<ecute the other docu'ents necessar. to acco'plish the
sa'e"
=uch contention, however, is contradicted b. the evidence on record" The trust
receipt agree'ent indicated in clear and un'ista/able ter's that the accused
signed the sa'e as suret. for the corporation and that the. bound the'selves
directl. and i''ediatel. liable in the event of default with respect to the obligation
under the letters of credit which were 'ade part of the said agree'ent, without
need of de'and" @ven in the application for the letter of credit, it is li/ewise clear
that the underta/ing of the accused is that of a suret. as indicated [in] the following
words L0n consideration of .our establishing the co''ercial letter of credit herein
applied for substantiall. in accordance with the foregoing, the undersigned Applicant
and =uret. hereb. agree, (ointl. and severall., to each and all stipulations,
provisions and conditions on the reverse side hereof"L
<<<
aving contractuall. agreed to hold the'selves solidaril. liable with @l Oro @ngraver
Corporation under the sub(ect trust receipt agree'ents with appellee *an/ of the
hilippine 0slands, herein accusedappellants 'a. not, therefore, invo/e the
separate legal personalit. of the said corporation to evade their civil liabilit. under
the letter of credittrust receipt arrange'ent with said appellee, notwithstanding
their acuittal in the cri'inal cases filed against the'" The trial court thus did not
err in holding the appellants solidaril. liable with @l Oro @ngraver Corporation for the
outstanding principal obligation of &4,1&9"19 :as of anuar. &%, 199&3 with the
stipulated interest at the rate of 1+5 per annu', plus 165 of the total a'ount due
as attorne.Ms fees, -,666"66 as e<penses of litigation and costs of suit"[16]
ence, this petition" etitioners contend that
1" A B!)@$T O; ACB0TTA? O@#AT@[=] TO @DT0$!B0= T@ C0F0? ?0A*0?0TE
O; @T0T0O$@#=[8]
&" !#A$T0$! 20TOBT A)0TT0$! TAT T@ B@=T0O$@ O*?0!AT0O$ 2A=
0$CB##@ *E T@ CO#O#AT0O$, T@ =A)@ 0= $OT E@T B@ A$ AEA*?@8
%" !#A$T0$! TAT T@ B@=T0O$@ O*?0!AT0O$ 2A= A?#@AE B@ A$
AEA*?@, <<< @T0T0O$@#= A#@ $OT @#=O$A??E ?0A*?@ TO <<< #@=O$@$T
*A$H, =0$C@ T@E =0!$@ T@ ?@TT@#[=] O; C#@0T A= M=B#@TEM A= O;;0C@#=
O; @? O#O, A$ T@#@;O#@, A$ @DC?B=0F@ ?0A*0?0TE O; @? O#O8 [A$]
4" 0$ T@ A?T@#$AT0F@, T@ B@=T0O$@ T#A$=ACT0O$= A#@ =0)B?AT@ A$
FO0"[11]
T>e ''e'
The petition raises these issues
:13 2hether petitioners bound the'selves personall. liable for @l Oro CorporationMs
debts under the trust receipts8
:&3 0f so 
:a3 whether petitionersM liabilit. is solidar. with @l Oro Corporation8 and
:b3 whether petitionersM acuittal of estafa under =ection 1%,  11- e<tinguished
their civil liabilit."
T>e R5&"? o %>e Cor%
The petition is partl. 'eritorious" 2e affir' the Court of AppealsM ruling with the
'odification that petitioner ose TupaG is liable as guarantor of @l Oro CorporationMs
debt under the trust receipt dated %6 =epte'ber 19+1"
On Petitioners' Undertaing Under 
the !rust "e#eipts
A corporation, being a (uridical entit., 'a. act onl. through its directors, officers,
and e'plo.ees" ebts incurred b. these individuals, acting as such corporate
agents, are not theirs but the direct liabilit. of the corporation the. represent"[1&]
As an e<ception, directors or officers are personall. liable for the corporationMs debts
onl. if the. so contractuall. agree or stipulate"[1%]
ere, the dorsal side of the trust receipts contains the following stipulation
To the *an/ of the hilippine 0slands
0n consideration of .our releasing to """"""""""""""""""""""""""""""""""""""" under the ter's of 
this Trust #eceipt the goods described herein, 0I2e, (ointl. and severall., agree and
pro'ise to pa. to .ou, on de'and, whatever su' or su's of 'one. which .ou 'a.
call upon 'eIus to pa. to .ou, arising out of, pertaining to, andIor in an. wa.
connected with, this Trust #eceipt, in the event of default andIor nonfulfill'ent in
an. respect of this underta/ing on the part of the
said """"""""""""""""""""""""""""""""""""""""""" 0Iwe further agree that '.Iour liabilit. in this
guarantee shall be 0#@CT A$ 0))@0AT@, without an. need whatsoever on .our
part to ta/e an. steps or e<haust an. legal re'edies that .ou 'a. have against the
said """""""""""""""""""""""""""""""""""""""" before 'a/ing de'and upon 'eIus"[14]
:CapitaliGation in the original3
0n the trust receipt dated 9 October 19+1, petitioners signed below this clause as
officers of @l Oro Corporation" Thus, under petitioner etronila TupaGMs signature are
the words LFiceresTreasurerL and under petitioner ose TupaGMs signature are the
words LFiceresOperations"L *. so signing that trust receipt, petitioners did not
bind the'selves personall. liable for @l Oro CorporationMs obligation" 0n Ong v.
Court of $ppeals,[1-] a corporate representative signed a solidar. guarantee
clause in two trust receipts in his capacit. as corporate representative" There, the
Court held that the corporate representative did not underta/e to guarantee
personall. the pa.'ent of the corporationMs debts, thus
[]etitioner did not sign in his personal capacit. the solidar. guarantee clause found
on the dorsal portion of the trust receipts" etitioner placed his signature after the
t.pewritten words LA#)CO 0$B=T#0A? CO#O#AT0O$L found at the end of the
solidar. guarantee clause" @videntl., petitioner did not underta/e to guarant.
personall. the pa.'ent of the principal and interest of A#)A!#0Ms debt under the
two trust receipts"
ence, for the trust receipt dated 9 October 19+1, we sustain petitionersM clai' that
the. are not personall. liable for @l Oro CorporationMs obligation"
;or the trust receipt dated %6 =epte'ber 19+1, the dorsal portion of which
petitioner ose TupaG signed alone, we find that he did so in his personal capacit."
etitioner ose TupaG did not indicate that he was signing as @l Oro CorporationMs
Ficeresident for Operations" ence, petitioner ose TupaG bound hi'self  whose propert. 'a. not be e<hausted was not filled up" Bnder Article &6-+ of the
personall. liable for @l Oro CorporationMs debts" $ot being a part. to the trust
receipt dated %6 =epte'ber 19+1, petitioner etronila TupaG is not liable under such
trust receipt"
!he %ature of Petitioner Jose !upa&'s iability  the guarantors8 this would have been correct if two :&3 guarantors had signed
Under the !rust "e#eipt (ated )* +eptember -
As stated, the dorsal side of the trust receipt dated %6 =epte'ber 19+1 provides
To the *an/ of the hilippine 0slands
0n consideration of .our releasing to """"""""""""""""""""""""""""""""""""""" under the ter's of  ;urther'ore, an. doubt as to the i'port or true intent of the solidary guaranty
this Trust #eceipt the goods described herein, 0I2e, (ointl. and severall., agree and
pro'ise to pa. to .ou, on de'and, whatever su' or su's of 'one. which .ou 'a.
call upon 'eIus to pa. to .ou, arising out of, pertaining to, andIor in an. wa.
connected with, this Trust #eceipt, in the event of default andIor nonfulfill'ent in
an. respect of this underta/ing on the part of the
said """"""""""""""""""""""""""""""""""""""""""" 0Iwe further agree that '.Iour liabilit. in
this guarantee shall be 0#@CT A$ 0))@0AT@, without an. need whatsoever on
.our part to ta/e an. steps or e<haust an. legal re'edies that .ou 'a. have
against the said """""""""""""""""""""""""""""""""""""""""""""""""""" *efore 'a/ing de'and upon
'eIus" :Bnderlining supplied8 capitaliGation in the original3
The lower courts interpreted this to 'ean that petitioner ose TupaG bound hi'self  principal debtor shall have been e<hausted"[19] =econd, the benefit of e<cussion
solidaril. liable with @l Oro Corporation for the latterMs debt under that trust receipt"
This is error"
0n Prudential /an v. 0ntermediate $ppellate Court ,[1] the Court interpreted
a substantiall. identical clause[17] in a trust receipt signed b. a corporate officer
who bound hi'self personall. liable for the corporationMs obligation" The petitioner
in that case contended that the stipulation Lwe (ointl. and severall. agree and
underta/eL rendered the corporate officer solidaril. liable with the corporation" 2e
dis'issed this clai' and held the corporate officer liable as guarantor onl." The
Court further ruled that had there been 'ore than one signatories to the trust
receipt, the solidar. liabilit. would e<ist between the guarantors" 2e held
etitioner [rudential *an/] insists that b. virtue of the clear wording of the <<<
clause L< < < we (ointl. and severall. agree and underta/e < < <,L and the
concluding sentence on e<haustion, [respondent] ChiMs liabilit. therein is solidar."
<<<
Our <<< reading of the uestioned solidar. guarant. clause .ields no other
conclusion than that the obligation of Chi is onl. that of a guarantor" This is further
bolstered b. the last sentence which spea/s of waiver of e<haustion, which,
nevertheless, is ineffective in this case because the space therein for the part.
Civil Code, the defense of e<haustion :e<cussion3 'a. be raised b. a guarantor
before he 'a. be held liable for the obligation" etitioner li/ewise ad'its that the
uestioned provision is a solidary guaranty clause , thereb. clearl. distinguishing it
fro' a contract of suret." 0t, however, described the guarant. as solidar. between
it" The clause Lwe (ointl. and severall. agree and underta/eL refers to the
underta/ing of the two :&3 parties who are to sign it or to the liabilit. e<isting
between the'selves" 0t does not refer to the underta/ing between either one or
both of the' on the one hand and the petitioner on the other with respect to the
liabilit. described under the trust receipt" <<<
 
clause should be resolved against the petitioner" The trust receipt, together with the
uestioned solidar. guarant. clause, is on a for' drafted and prepared solel. b. the
petitioner8 ChiMs participation therein is li'ited to the affi<ing of his signature
thereon" 0t is, therefore, a contract of adhesion8 as such, it 'ust be strictl.
construed against the part. responsible for its preparation"[1+] :Bnderlining
supplied8 italiciGation in the original3
owever, respondent ban/Ms suit against petitioner ose TupaG stands despite the
CourtMs finding that he is liable as guarantor onl." ;irst, e<cussion is not a pre
reuisite to secure (udg'ent against a guarantor" The guarantor can still de'and
defer'ent of the e<ecution of the (udg'ent against hi' until after the assets of the
'a. be waived"[&6] Bnder the trust receipt dated %6 =epte'ber 19+1, petitioner
ose TupaG waived e<cussion when he agreed that his Lliabilit. in [the] guarant.
shall be 0#@CT A$ 0))@0AT@, without an. need whatsoever on <<< [the] part
[of respondent ban/] to ta/e an. steps or e<haust an. legal re'edies <<<"L The
clear i'port of this stipulation is that petitioner ose TupaG waived the benefit of  for'ula substantiall. si'ilar to that indicated above
e<cussion under his guarantee"
As guarantor, petitioner ose TupaG is liable for @l Oro CorporationMs principal debt
and other accessor. liabilities :as stipulated in the trust receipt and as provided b.
law3 under the trust receipt dated %6 =epte'ber 19+1" That trust receipt :and the
trust receipt dated 9 October 19+13 provided for pa.'ent of attorne.Ms fees
euivalent to 165 of the total a'ount due and an Linterest at the rate of 75 per
annu', or at such other rate as the ban/ 'a. fi<, fro' the date due until paid
<<<"L[&1] 0n the applications for the letters of credit, the parties stipulated that
drafts drawn under the letters of credit are sub(ect to interest at the rate of 1+5
per annu'"[&&]
The lower courts correctl. applied the 1+5 interest rate  per annum considering that
the face value of each of the trust receipts is based on the drafts drawn under the
letters of credit" *ased on the guidelines laid down in
1astern +hipping ines, 0n#. v. Court of $ppeals ,[&%] the accrued stipulated
interest earns 1&5 interest per annu' fro' the ti'e of the filing of the
0nfor'ations in the )a/ati #egional Trial Court on 17 anuar. 19+4" ;urther, the
total a'ount due as of the date of the finalit. of this ecision will earn interest at
1+5 per annum until full. paid since this was the stipulated rate in the applications
for the letters of credit"[&4]
The accounting of @l Oro CorporationMs debts as of &% anuar. 199&, which the trial
court used, is no longer useful as it does not specif. the a'ounts owing under each
of the trust receipts" ence, in the e<ecution of this ecision, the trial court shall
co'pute @l Oro CorporationMs total liabilit. under each of the trust receipts dated %6
=epte'ber 19+1 and 9 October 19+1 based on the following for'ula[&-]
TOTA? A)OB$T B@ Z [principal  interest  interest on interest]  partial
pa.'ents 'ade[&]
0nterest Z principal < 1+ 5 per annu' < no" of .ears fro' due date[&7] until
finalit. of (udg'ent
0nterest on interest Z interest co'puted as of the filing of the co'plaint :17
anuar. 19+43 < 1&5 < no" of .ears until finalit. of (udg'ent
Attorne.Ms fees is 165 of the total a'ount co'puted as of finalit. of (udg'ent
Total a'ount due as of the date of finalit. of (udg'ent will earn an interest of 1+5
per annu' until full. paid"
0n so delegating this tas/, we reiterate what we said in "i&al Commer#ial  :)ERE*ORE ,
/aning Corporation v. $lfa "!2 3anufa#turing Corporation [&+] where we
also ordered the trial court to co'pute the a'ount of obligation due based on a
The total a'ount due <<< [under] the <<< contract[] <<< 'a. be easil. deter'ined
b. the trial court through a si'ple 'athe'atical co'putation based on the for'ula
specified above" )athe'atics is an e<act science, the application of which needs no
further proof fro' the parties"
Petitioner Jose !upa&'s $#4uittal did not 
15tinguish his Civil iability 
The rule is that where the civil action is i'pliedl. instituted with the cri'inal action,
the civil liabilit. is not e<tinguished b. acuittal 
[w]here the acuittal is based on reasonable doubt <<< as onl. preponderance of 
evidence is reuired in civil cases8 where the court e<pressl. declares that the
liabilit. of the accused is not cri'inal but onl. civil in nature <<< as, for instance, in
the felonies of estafa, theft, and 'alicious 'ischief co''itted b. certain relatives
who thereb. incur onl. civil liabilit. :=ee Art" %%&, #evised enal Code38 and, where
the civil liabilit. does not arise fro' or is not based upon the cri'inal act of which
the accused was acuitted <<<"[&9] :@'phasis supplied3
ere, respondent ban/ chose not to file a separate civil action[%6] to recover
pa.'ent under the trust receipts" 0nstead, respondent ban/ sought to recover
pa.'ent in Cri'inal Case $os" ++4+ and ++49" Although the trial court acuitted
petitioner ose TupaG, his acuittal did not e<tinguish his civil liabilit." As the Court
of Appeals correctl. held, his liabilit. arose not fro' the cri'inal act of which he
was acuitted :ex delito3 but fro' the trust receipt contract : ex contractu3 of %6
=epte'ber 19+1" etitioner ose TupaG signed the trust receipt of %6 =epte'ber
19+1 in his personal capacit."
On the other 3atters Petitioners "aise
etitioners raise for the first ti'e in this appeal the contention that @l Oro
CorporationMs debts under the trust receipts are not .et due and de'andable"
Alternativel., petitioners assail the trust receipts as si'ulated" These assertions
have no 'erit" Bnder the ter's of the trust receipts dated %6 =epte'ber 19+1 and
9 October 19+1, @l Oro CorporationMs debts fell due on &9 ece'ber 19+1 and +
ece'ber 19+1, respectivel."
$either is there 'erit to petitionersM clai' that the trust receipts were si'ulated"
uring the trial, petitioners did not den. appl.ing for the letters of credit and
subseuentl. e<ecuting the trust receipts to secure pa.'ent of the drafts drawn
under the letters of credit"
we GRANT the petition in part" 2e A**RM  the ecision of the
Court of Appeals dated 7 =epte'ber &666 and its #esolution dated 1+ October &666
with the following MOD*CATONS

13 @l Oro @ngraver Corporation is principall. liable for the total a'ount due under
the trust receipts dated %6 =epte'ber 19+1 and 9 October 19+1, as co'puted b.
the #egional Trial Court, )a/ati, *ranch 144, upon finalit. of this ecision, based on
the for'ula provided above8
&3 etitioner ose C" TupaG 0F is liable for @l Oro @ngraver CorporationMs total debt
under the trust receipt dated %6 =epte'ber 19+1 as thus co'puted b. the #egional
Trial Court, )a/ati, *ranch 1448 and
%3 etitioners ose C" TupaG 0F and etronila C" TupaG are not liable under the trust
receipt dated 9 October 19+1"
SO ORDERED.
1+" AC0O$A#0A C" *AE?O$, petitioner, vs" T@ O$O#A*?@ COB#T O; A@A?=
:;or'er $inth ivision3 and ?@O$0?A TO)AC#B, respondents"
!"#" $o" 169941 K 19996+17
DECSON
!O$A!A#@E@=, "
This is a petition for review b. wa. of certiorari under #ule 4- of the #evised #ules
of Court of the decision of the Court of Appeals[1] dated $ove'ber &9, 1991 in CA
!"#" CF $o" &7779 affir'ing the decision[&] of the #egional Trial Court of ueGon
Cit., *ranch ++, dated une 14, 1996 in Civil Case $o" +9&4+% and the
#esolution of the Court of Appeals dated April &7, 199% den.ing petitionerMs )otion
for #econsideration"
The pertinent facts, as found b. the trial court and affir'ed b. respondent court,
are briefl. narrated as follows
=o'eti'e in 19+, petitioner acionaria C" *a.lon introduced private respondent
?eonila To'acruG, the co'anager of her husband at ?T, to #osita *" ?uanGon"[%]
etitioner told private respondent that ?uanGon has been engaged in business as a
contractor for twent. .ears and she invited private respondent to lend ?uanGon
'one. at a 'onthl. interest rate of five percent :-53, to be used as capital for the
latterMs business" rivate respondent, persuaded b. the assurances of petitioner that
?uanGonMs business was stable and b. the high interest rate, agreed to lend ?uanGon
'one. in the a'ount of 1-6,666" On une &&, 19+7, ?uanGon issued and signed a
pro'issor. note ac/nowledging receipt of the 1-6,666 fro' private respondent
and obliging herself to pa. the for'er t he said a'ount on or before August &&,
19+7"[4] etitioner signed the pro'issor. note, affi<ing her signature under the
word Lguarantor"L ?uanGon also issued a postdated =olidban/ chec/ no" CA41+4%7
dated August &&, 19+7 pa.able to ?eonila To'acruG in the a'ount of 1-6,666"[-]
=ubseuentl., ?uanGon replaced this chec/ with another postdated =olidban/ chec/
no" 4%&94- dated ece'ber &&, 19+7, in favor of the sa'e pa.ee and covering the
sa'e a'ount"[] =everal chec/s in the a'ount of 7,-66 each were also issued b.
?uanGon and 'ade pa.able to private respondent"[7]
rivate respondent 'ade a written de'and upon petitioner for pa.'ent, which
petitioner did not heed" Thus, on )a. +, 19+9, private respondent filed a case for
the collection of a su' of 'one. with the #egional Trial Court :#TC3 of ueGon Cit.,
*ranch ++, against ?uanGon and petitioner herein, i'pleading )ariano *a.lon,
husband of petitioner, as an additional defendant" owever, su''ons was never
served upon ?uanGon"
0n her answer, petitioner denied having guaranteed the pa.'ent of the pro'issor.
note issued b. ?uanGon" =he clai'ed that private respondent gave ?uanGon the
'one., not as a loan, but rather as an invest'ent in Art @nterprises and
Construction, 0nc"  the construction business of ?uanGon" ;urther'ore, petitioner
avers that, granting arguendo that there was a loan and petitioner guaranteed the
sa'e, private respondent has not e<hausted the propert. of the principal debtor nor
has she resorted to all the legal re'edies against the principal debtor as reuired b.
law" ;inall., petitioner clai's that there was an e<tension of the 'aturit. date of the
loan without her consent, thus releasing her fro' her obligation"[+]
After trial on the 'erits, the lower court ruled in favor of private respondent" 0n its
ecision dated une 14, 1996, it stated that 
The evidence and the testi'onies on record clearl. established a :sic3 fact that the
transaction between the plaintiff and defendants was a loan with five percent :-53
'onthl. interest and not an invest'ent" 0n fact the. all ad'itted in their
testi'onies that the. are not given an. stoc/ certificate but onl. pro'issor. notes
si'ilar to @<hibit L*L wherein it was clearl. stated that defendant ?uanGon would
pa. the a'ount of indebtedness on the date due" ostdated chec/s were issued
si'ultaneousl. with the pro'issor. notes to enable the plaintiff and others to
withdraw their 'one. on a certain fi<ed ti'e" This shows that the. were never
participants in the business transaction of defendant ?uanGon but were creditors"
The evidences presented li/ewise show that plaintiff and others loan their 'one. to
defendant ?uanGon because of the assurance of the 'onthl. inco'e of five percent
:-53 of their 'one. and that the. could withdraw it an.ti'e after the due date add
to it the fact that their friend, acionaria *a.lon, e<presses her uneuivocal
gurarantee to the pa.'ent of the a'ount loaned"
<<< << <<<
2@#@;O#@, pre'ises considered, (udg'ent is hereb. rendered against the
defendants acionaria C" *a.lon and )ariano *a.lon, to pa. the plaintiff the su' of
1-6,666"66, with interest at the legal rate fro' the filing of this co'plaint until full
pa.'ent thereof, to pa. the total su' of &1,666"66 as attorne.Ms fees and costs of  ?uanGon the a'ount of 1-6,666, not as a loan, but rather as an invest'ent in the
suit"[9]
On appeal, the trial courtMs decision was affir'ed b. the Court of Appeals" ence,
this present case wherein petitioner 'a/es the following assign'ent of errors 
0" #@=O$@$T COB#T @##@ 0$ O?0$! TAT T@ #0FAT@ #@=O$@$T
TO)AC#B 2A= A C#@0TO# O; @;@$A$T ?BA$O$ A$ $OT A$ 0$F@=TO# 0$
T@ CO$=T#BCT0O$ *B=0$@== O; A#T @$T@##0=@= > CO$=T#BCT0O$, 0$C"
00" !#A$T0$!, 20TOBT A)0TT0$!, TAT @T0T0O$@#A@??A$T *AE?O$ 2A=
A L!BA#A$TO#L A= A@A#0$! 0$ T@ $OT@ :@D" LAL3 T@ #@=O$@$T COB#T
@##@ 0$ #B?0$! TAT @T0T0O$@#A@??A$T *AE?O$ 0= ?0A*?@ TO T@
#0FAT@ #@=O$@$T *@CAB=@ T@ ?ATT@# A= $OT TAH@$ =T@= TO @DAB=T
T@ #O@#TE O; T@ #0$C0A? @*TO# A$ A= $OT #@=O#T@ TO A?? T@
?@!A? #@)@0@= #OF0@ *E ?A2 A!A0$=T T@ @*TO#, @;@$A$T
?BA$O$"
000" !#A$T0$!, 20TOBT A)0TT0$! TAT @T0T0O$@#A@??A$T *AE?O$ 2A=
A !BA#A$TO# B$@# TAT $OT@ :@D0*0T LAL3 AT@ B$@ &&, 19+7, T@
?O2@# COB#T @##@ 0$ #@=O?F0$! TAT =@ 2A= $OT #@?@A=@ ;#O) @#
!BA#A$TE *E T@ =B*=@B@$T T#A$=ACT0O$= *@T2@@$ T@ #@=O$@$T
A@??A$T A$ @;@$A$T ?BA$O$"
At the outset, we note that petitionerMs clai' that the factual findings of the lower
court, which were affir'ed b. the Court of Appeals, were based on a
'isapprehension of facts and contradicted b. the evidence on records[16] is a bare
allegation and devoid of 'erit" As a rule, the conclusions of fact of the trial court,
especiall. when affir'ed b. the Court of Appeals, are final and conclusive and
cannot be reviewed on appeal b. the =upre'e Court"[11] Although this rule ad'its
of several e<ceptions,[1&] none of the e<ceptions are in point in the present case"
The factual findings of the respondent court are borne out b. the record and are
based on substantial evidence"
etitioner clai's that there is no loan to begin with8 that private respondent gave
construction pro(ect of the latter"[1%] 0n support of her clai', petitioner cites the
use b. private respondent of the words Linvest'ent,L Ldividends,L and
Lco''issionL in her testi'on. before the lower court8 the fact that private
respondent received 'onthl. chec/s fro' ?uanGon in the a'ount of 7,-66 fro'
ul. to ece'ber, 19+7, representing dividends on her invest'ent8 and the fact
that other e'plo.ees of the evelop'ent *an/ of the hilippines 'ade si'ilar
invest'ents in ?uanGonMs construction business"[14]
owever, all the circu'stances 'entioned b. petitioner cannot override the clear
and uneuivocal ter's of the une &&, 19+7 pro'issor. note whereb. ?uanGon
pro'ised to pa. private respondent the a'ount of 1-6,666 on or before August
&&, 19+7" The pro'issor. note states as follows
une &&, 19+7
To 2ho' 0t )a. Concern
;or value received, 0 hereb. pro'ise to pa. )rs" ?@O$0?A TO)AC#B the a'ount
of O$@ B$#@ ;0;TE TOB=A$ @=O= O$?E :1-6,666"663 on or before
August &&, 19+7"
The above a'ount is covered b. \\\\\ Chec/ $o" \\\\\ dated August &&, 19+7"
:signed3
#O=0TA *" ?BA$O$
!B#A#A$TO#
:signed3
AC0O$A#0A O" *AE?O$
Tel" $o" +61&+66
1+ " )apa =t", * Fillage
Al'anGa, ?as inas, )")"[1-]
0f the ter's of a contract are clear and leave no doubt as to the intention of the
contracting parties, the literal 'eaning of its stipulation shall control"[1] #esort to
e<trinsic aids and other e<traneous sources are not necessar. in order to ascertain
the partiesM intent when there is no a'biguit. in the ter's of the agree'ent"[17]
*oth petitioner and private respondent do not den. the due e<ecution and
authenticit. of the une &&, 19+7 pro'issor. note" All of petitionerMs argu'ents are
directed at uncovering the real intention of the parties in e<ecuting the pro'issor.
note, but no a'ount of argu'entation will change the plain i'port of the ter's
thereof, and accordingl., no atte'pt to read into it an. alleged intention of the
parties thereto 'a. be (ustified"[1+] The clear ter's of the pro'issor. note
establish a creditordebtor relationship between ?uanGon and private respondent"
The transaction at bench is therefore a loan, not an invest'ent"
0t is petitionerMs contention that, even though she is held to be a guarantor under
the ter's of the pro'issor. note, she is not liable because private respondent did
not e<haust the propert. of the principal debtor and has not resorted to all the legal
re'edies provided b. the law against the debtor"[19] etitioner is invo/ing the
benefit of e<cussion pursuant to article &6-+ of the Civil Code, which provides that

The guarantor cannot be co'pelled to pa. the creditor unless the latter has
e<hausted all the propert. of the debtor, and has resorted to all the legal re'edies
against the debtor"
0t is a<io'atic that the liabilit. of the guarantor is onl. subsidiar."[&6] All the
properties of the principal debtor 'ust first be e<hausted before his own is levied
upon" Thus, the creditor 'a. hold the guarantor liable onl. after (udg'ent has been
obtained against the principal debtor and the latter is unable to pa., Lfor obviousl.
the Me<haustion of the principalMs propert.M  the benefit of which the guarantor
clai's  cannot even begin to ta/e place before (udg'ent has been obtained"L[&1]
This rule is e'bodied in article &6& of the Civil Code which provides that the action
brought b. the creditor 'ust be filed against the principal debtor alone, e<cept in
so'e instances when the action 'a. be brought against both the debtor and the
principal debtor"[&&]
Bnder the circu'stances availing in the present case, we hold that it is pre'ature
for this Court t o even deter'ine whether or not petitioner is liable as a guarantor
and whether she is entitled to the conco'itant rights as such, li/e the benefit of
e<cussion, since the 'ost basic prereuisite is wanting  that is, no (udg'ent was
first obtained against the principal debtor #osita *" ?uanGon" 0t is useless to spea/
of a guarantor when no debtor has been held liable for the obligation which is
allegedl. secured b. such guarantee" Although the principal debtor ?uanGon was
i'pleaded as defendant, there is nothing in the records to show that su''ons was
served upon her" Thus, the trial court never even acuired (urisdiction over the
principal debtor" 2e hold that private respondent 'ust first obtain a (udg'ent
against the principal debtor before assu'ing to run after the alleged guarantor"

0$ F0@2 O; T@ ;O#@!O0$!, the petition is granted and the uestioned ecision of  Sta. Maria, Ban@on and Nava5 to pa' 6oint5' and severa55' "nto
the Court of Appeals dated $ove'ber &9, 1991 and #esolution dated April &7, 199%
are =@T A=0@" $o pronounce'ent as to costs"
=O O#@#@"
19. ANTONIO R. BANZON and ROSA BALMACEDA, petitioners, vs.
HON. ERNANDO CR!Z, Spo"ses #EDRO CARDENAS and LEONILA
BAL!$OT and ASSOCIATED INS!RANCE % S!RET$ COM#AN$, INC.
represented &' INS!RANCE COMMISSIONER in (er )apa)it' as
LI*!IDATOR O ASSOCIATED INS!RAN
+.R. No. L-1/9 0 19239
DECISION
TEEHANKEE, J.:
An ori4ina5 a)tion to en6oin respondent )o"rt 7ro8 en7or)in4 a rit
o7 possession and order o7 de8o5ition over one o7 to Ca5oo)an Cit'
5ots ori4ina55' oned &' petitionersspo"ses pendin4 t(e o"t)o8e
o7 t(eir s"it 7or re)onve'an)e o7 said 5ots 7ro8 private respondents.
So8eti8e in 19:, Ma;i8o Sta. Maria o&tained )rop 5oans 7ro8 t(e
#(i5ippine Nationa5 Ban< =(ereina7ter re7erred to as t(e &an<>.
Respondent Asso)iated Ins"ran)e % S"ret' Co., In). =(ereina7ter
re7erred to as Asso)iated> a)ted as s"ret' o7 Sta. Maria, ?5in4 s"ret'
&onds in 7avor o7 t(e &an< to anser 7or pro8pt repa'8ent o7 t(e
5oans. #etitioner Antonio R. Ban@on and E8i5io Ma. Nava5 in t"rn
a)ted as inde8nitors o7 Asso)iated and ere o&5i4ated to inde8ni7'
and (o5d (ar85ess Asso)iated 7ro8 an' 5ia&i5it' 7or t("s a)tin4 as
s"ret' o7 t(e 5oan. Sta. Maria 7ai5ed to pa' (is o&5i4ations to t(e
&an<, (i)( a))ordin45' de8anded pa'8ent 7ro8 Asso)iated as
s"ret'.
Instead o7 pa'in4 t(e &an<, Asso)iated ?5ed a )o8p5aint dated
Nove8&er 19, 19:3 it( t(e Co"rt o7 irst Instan)e o7 Mani5a 1
a4ainst de&tor Sta. Maria and inde8nitors Ban@on and Nava5,
a55e4in4 t(at t(e o"tstandin4 o&5i4ations o7 Sta. Maria it( t(e &an<
4"aranteed &' it a8o"nted to #3,122.22, #9,-3. and
#1,/11., or atotal of P30,257.86, e;)5"din4 interest. On
De)e8&er 11, 19:, t(e said )o"rt rendered 6"d48ent orderin4
p5ainti for the benet of the Philippine National Bank"t(e a8o"nts
8entioned a&ove, it( interest t(ereon at 1F per ann"8,
#:9-.3 7or pre8i"8s and do)"8entar' sta8ps d"e, and 1:F
attorne'Gs 7ees, t(e 1:F and t(e interest to &e paid 7or t(e &ene?t
on5' o7 t(e p5ainti.
(at (appened t(erea7ter is narrated in t(e de)ision o7 t(is Co"rt
rendered on November 29, 968 in t(e appea5 instit"ted &'
petitioner Ban@on and (is spo"se, )opetitioner Rosa Ba58a)eda,
7ro8 a s"&se"ent a)tion o7 Asso)iated in t(e Co"rt o7 irst
Instan)e o7 Ri@a5 (erein t(e Ri@a5 )o"rt ordered Ban@on to
s"rrender 7or )an)e55ation (is onerGs d"p5i)ates o7 tit5es to (is to
Ca5oo)an Cit' 5ots (i)( (ad &een 5evied "pon and p"r)(ased at
t(e e;e)"tion sa5e &' Asso)iated in s"pposed satis7a)tion o7 t(e
Mani5a )o"rtGs 6"d48ent, do)<eted as !ae #$2397 o7 t(is Co"rt,
entit5ed %o&iate' (n. ) *+ret !o, (n&.,plainti-$appellee v.
 %ntonio Banon an' /oa Balma&e'a, 'efen'ant$appellant, as
7o55osJ
As t(e a&ove de)ision- &e)a8e ?na5 and e;e)"tor', t(e
)orrespondin4 rit o7 e;e)"tion as iss"ed and 5ev' as 8ade
"pon t(e properties o7 t(e 6"d48ent de&tor Antonio R. Ban@on
)overed &' Trans7er Certi?)ates o7 Tit5e Nos. -93/: and :-:9
iss"ed in (is na8e &' t(e Re4ister o7 Deeds o7 Ri@a5. T(e ?rst
)overed a par)e5 o7 5and )ontainin4 an area o7 3:2 s"are 8eters
sit"ated in Barrio Ca5aanan, Ca5oo)an, Ri@a5, and t(e se)ond,
anot(er par)e5 o7 3:2 s"are 8eters sit"ated in t(e sa8e &arrio o7 
t(e sa8e 8"ni)ipa5it'. A7ter t(e pro)eedin4s re"ired &' 5a in
)onne)tion it( e;e)"tion sa5es, t(e a7oresaid properties ere so5d,
t(e 6"d48ent )reditor, Asso)iated Ins"ran)e and S"ret' Co., In).,
(avin4 &een t(e (i4(est &idder, for the total +m of P,000.00.
 T(e S(eri o7 Ri@a5 iss"ed in its 7avor t(e )orrespondin4 )erti?)ate
o7 sa5e dated K"ne , 19:, (i)( as d"5' re4istered on K"ne -2,
19:9. As t(e period o7 rede8ption e;pired on K"ne 2, 1932
it(o"t t(e 6"d48ent de&tor or an' proper part' (avin4 e;er)ised
it, t(e 6"d48ent )reditor and p"r)(aser o&tained in d"e ti8e t(e
)orrespondin4 ?na5 )erti?)ate o7 sa5e, (i)( as 5i<eise d"5'
re4istered.
In vie o7 t(e 7ore4oin4, (erein petitionerappe55ee 8ade de8ands
"pon Antonio R. Ban@on to de5iver to it t(e onerGs d"p5i)ate o7 
Certi?)ate o7 Tit5e Nos. -93/: and :-:9 8entioned (ereto7ore, &"t
t(e 5atter re7"sed to do so. As a res"5t it le' in the !o+rt of 1irt 
 (ntan&eof /ial in !ae No. 3885, .#./.. /e&or' No. 267, a
 petition for an or'er 'ire&tin4 %ntonio /. Banon to preent hi
oner '+pli&ate of !erti&ate of itle No. 39685 an' 53759 to
the /e4iter of ee' of /ial for &an&ellation, and 7or anot(er
order dire)tin4 t(e Re4ister o7 Deeds o7 Ri@a5 to )an)e5 said
d"p5i)ates and to iss"e ne trans7er )erti?)ates o7 tit5e )overin4
t(e properties in t(e na8e o7 petitioner.
Ban@on ?5ed (is opposition to t(e petition )5ai8in4 8ain5' t(at =1>
t(e de)ision o7 t(e Co"rt o7 irst Instan)e o7 Mani5a in Civi5 Case No.
-1- as void as 7ar as (e as )on)erned &e)a"se (e (ad never
&een s"88oned in )onne)tion t(ereit(, and t(at => t(e 5ev' and
sa5e o7 t(e properties )overed &' t(e petition ere 5i<eise void
&e)a"se t(e' ere )on6"4a5 properties &e5on4in4 to (i8 and (is
i7e, Rosa Ba58a)eda.
A7ter a (earin4 on t(e 8otion and opposition 8entioned a&ove,
t(e 5oer )o"rt, on 1ebr+ar 7, 96 , rendered a de)ision (ose
dispositive portion is as 7o55osJ
In vie o7 t(e 7ore4oin4, 6"d48ent is (ere&' rendered in 7avor o7  re4"5arit' o7 t(e pro)eedin4s as a4ainst said de7endant i55 &e
t(e petitioner 4rantin4 t(e re5ie7 pra'ed 7or. T(e oppositors are
(ere&' ordered to s"rrender to t(e Re4ister o7 Deeds o7 Ri@a5 t(e
Certi?)ate o7 Tit5e in "estion 7or )an)e55ation and 5et a ne one &e
iss"ed in t(e na8e o7 t (e petitioner.
In t(is appea5 interposed &' t(e8, t(e Ban@ons see< a reversa5 o7  "estion. T(is, (oever, t(e oppositors (ave not 8et.
t(e a&ove de)ision "pon t(e sa8e 4ro"nds re5ied "pon in t(eir
opposition ?5ed in t(e 5oer )o"rt.
 T(is Co"rt in its de)ision o7 November 29, 968 ar8ed t(e
de)ision o7 t(e tria5 )o"rt, re5'in4 "pon t(e 5oer )o"rtGs ?ndin4s on
Ban@onGs 7ai5"re to s"&stantiate (is )5ai8s (i)( o"5d a8o"nt to
a deprivation o7 =Ban@onGs> propert' it(o"t d"e pro)ess o7 5a
(ad (e &"t dis)(ar4ed (is &"rden o7 proo7, t("sJ
it( respe)t to appe55antsG )ontention t(at Antonio R. Ban@on (ad
not &een d"5' served it( s"88ons in )onne)tion it( Civi5 Case
No. -1- o7 t(e Co"rt o7 irst Instan)e o7 Mani5a, it is eno"4( 7or
"s to "ote (ere t(e pertinent portions o7 t(e e55)onsidered
de)ision o7 t(e 5oer )o"rt P
it( respe)t to t(e ?rst )ontention o7 oppositors, t(e 5atter in ee)t
)ontends t(at not (avin4 &een served &' s"88ons, Antonio
Ban@on never &e)a8e a part' de7endant to t(e a7oresaid )ivi5 )ase
and (en)e not &o"nd &' an' 6"d48ent rendered t(erein. It is
erroneo"s on t(e part o7 t(e petitioner to )ontend t(at t(e
o&6e)tion as to 5a)< o7 6"risdi)tion on t(e de7endantGs person (as
&een aived 7or said aiver app5ies on5' (en s"88ons (as &een
served a5t(o"4( de7e)tive5', s")( as one not served &' t(e proper
o)er. (f the &ontention of the oppoitor ere tr+e, that i, no
+mmon as ever erve' +pon him an' that he a &ompletel 
+naare of the pro&ee'in4 in the &ivil &ae aforementione', the
 propertie in +etion &o+l' not be levie' +pon for that o+l'
amo+nt to a 'eprivation of oppoitor propert itho+t '+e
 pro&e of la.
T(e &"rden, (oever, rests "pon t(e oppositors to prove t(at t(ere
as in 7a)t no servi)e o7 s"88ons and t(is, t(e )o"rt &e5ieves, t(e
oppositors (ave 7ai5ed to s"&stantiate it( s")ient eviden)e. It is
a 7"nda8enta5 r"5e t(at t(e re4"5arit' o7 a55 o)ia5 a)tions and
pro)eedin4s i55 &e pres"8ed "nti5 t(e )ontrar' is proved. In said
)ivi5 )ase No. -1-, t(e re)ords s(o, parti)"5ar5' t(e anser and
t(e 8otion to dis8iss, t(at t(e pro)eedin4s ere )ond")ted &'
)o"nse5 in &e(a57 o7 a55 t(e de7endants t(erein in)5"din4 t(e
oppositor, Antonio Ban@on. T(e pres"8ption t(ere7ore, o7 t(e
8aintained in)5"din4 t(e 7a)t t(at eit(er s"88ons as d"5' served
or t(at t(e de7endant Ban@on vo5"ntari5' appeared in )o"rt it(o"t
s")( s"88ons. It is t(ere7ore in)"8&ent "pon t(e oppositors to
re&"t t(is pres"8ption it( )o8petent and proper eviden)e s")(
as t(e ret"rn 8ade &' t(e s(eri (o served t(e s"88ons in
GMoreover, t(e )ir)"8stan)es o7 t(e )ase a55 t(e 8ore &ear o"t t(e
stren4t( o7 t(is pres"8ption (en it )onsidered t(at t(e oppositor
Antonio Ban@on re)eived a noti)e o7 e;e)"tion and 5ev' o7 t(ese
properties and noti)e o7 t(e sa5e o7 t(e sa8e at p"&5i) a")tion. Had
t(e oppositors (ave &een pre6"di)ed &' &ein4 deprived o7 d"e
pro)ess, t(e' s(o"5d (ave ?5ed eit(er a t(ird part' )5ai8 "pon t(e
propert' 5evied or an in6"n)tion pro)eedin4 to prevent its sa5e at
p"&5i) a")tion, nor o"5d t(e' (ave a55oed t(e )ons"88ation o7 
t(e sa5e and t(e 5apse o7 one 'ear it(in (i)( t(e rede8ption
o"5d (ave &een e;er)ised. T(ese 7a)ts 4rave5' 8i5itate a4ainst
t(e 8erits o7 t(e opposition, not on5' inso7ar as it stren4t(ens t(e
a7oresaid pres"8ption o7 re4"5arit', &"t a5so inso7ar as t(e' are
indi)ative o7 t(e 7a)t t(at t(e properties 5evied "pon are not
)on6"4a5 propert' or even i7 t(e' ere t(at t(e de&t invo5ved as
one (i)( redo"nd to t(e &ene?t o7 t(e 7a8i5' 7or (i)( t(e
)on6"4a5 partners(ip 8a' &e (e5d 5ia&5e.G Appe55antsG se)ond
)ontention na8e5', t(at t(e properties no in "estion are t(eir
)on6"4a5 properties, is &e5ied &' t(e re)ord &e7ore "s (i)( s(os
t(at Trans7er Certi?)ates o7 Tit5e Nos. -93/: and :-:9 ere iss"ed
in t(e na8e o7 Antonio R. Ban@on. Moreover, t(ere is no s")ient
eviden)e in t(e re)ord to s(o t(at t(e properties ere a)"ired
d"rin4 appe55antsG 8arria4e.
IN QIE O ALL THE ORE+OIN+, t(e de)ision appea5ed 7ro8 is
(ere&' ar8ed, it( )osts.:
It (as no &een e;posed t(at notit(standin4 t(e 6"d48ent
o7 e&ember , 957 o&tained 7ro8 t(e Mani5a )o"rt &'
Asso)iated and e;e)"ted &' it a4ainst petitioner Ban@on as
inde8nitor for the benet of the Philippine National Bank," and
(i)( 6"d48ent it o&tained and e;e)"ted on t(e representation to
t(e said )o"rt t(at t(e &an< as e;a)tin4 pa'8ent 7ro8 it as s"ret'
o7 t(e de&tor Sta. MariaGs 5oans, and t(at it as t(ere7ore en7or)in4
Ban@onGs "nderta<in4 as inde8nitor in t"rn to inde8ni7' it, that it  al.=3 (erein it is 7"rt(er re)orded t(at =D>e7endant Ma;i8o Sta.
never 'i&har4e' it liabilit a +ret to the bank nor ever ma'e
an pament to the bank, hether in mone or propert, to
'i&har4e *ta. :aria o+ttan'in4 obli4ation a 4+arantee' b it.
As i55 &e s(on 5ater, t(is s"it o7 Asso)iated a4ainst Ban@on as
inde8nitor and t(e e;e)"tion a4ainst (i8 o7 t(e 6"d48ent o&tained
in tr"st 7or t(e &ene?t o7 t(e #(i5ippine Nationa5 Ban< ere
a&so5"te5' premat+re an' +n&alle' for , sin)e Arti)5e 21 o7 t(e
Civi5 Code per8its t(e s"ret', even &e7ore (avin4 paid to pro)eed
on5' a4aint the prin&ipal 'ebtor ; ; ; => (en t(e de&t (as
&e)o8e de8anda&5e, &' reason o7 t(e e;piration o7 t(e period 7or
pa'8ent and t(at t(e a)tion o7 t(e 4"arantor is to obtain releae
from the 4+arant , or to 'eman' a e&+rit t(at s(a55 prote)t (i8
7ro8 an' pro)eedin4s &' t(e )reditor and 7ro8 t(e dan4er o7  poer o7 attorne', E;(. E, t(e' (ad not 4iven t(eir &rot(er,
inso5ven)' o7 t(e de& tor.
In 7a)t, sin)e the bank 7ai5ed to e;a)t pa'8ent 7ro8 Asso)iated as
s"ret' o7 t(e de&tor Ma;i8o Sta. MariaGs 8at"red o&5i4ations, t(e
&an< itse57 ?5ed on 1ebr+ar 0, 96, it on &omplaint it( t(e
Co"r t o7 ir st Instan)e o7 #a8 pan4a a4aint prin&ipal
'ebtor Ma;i8o Sta. Maria, hi i< brother an' iter =(o (ad
e;e)"ted a spe)ia5 poer o7 attorne' in Sta. MariaGs 7avor to
8ort4a4e a 13(e)tare par)e5 o7 5and 6oint5' oned &' a55 o7 t(e8
as se)"rit' a5so 7or t(e &an<Gs 5oans>, an' %o&iate' itelf, +ret,
a 'efen'ant, 7or t(e &olle&tion o7 t(e o"tstandin4 o&5i4ations d"e
7ro8 t(e prin)ipa5 de&tor, Ma;i8o Sta. Maria.
A7ter tria5, t(e )o"rt ordered a55 t(e de7endants 6oint5' and severa55'
to pa' t(e &an< t(e o"tstandin4 a8o"nts d"e on t(e )rop 5oans to
Sta. Maria, (i)( as o7 t(at 8")( 5ater date, %+4+t 20, 963,
a8o"nted on5' to #3,122.22 and #9,-3. or a tota5
o7 P5,6. , e;)5"sive o7 interests. It s(o"5d &e noted t(ere7ore,
t(at t(e de&tor Sta. Maria (ad &een 8a<in4 pa'8ents a55 a5on4 to
t(e &an< on a))o"nt o7 (is )rop 5oans so 8")( so t(at &' 193-, t(e
tota5 prin)ipa5 d"e and a8o"nt o"tstandin4 t(ereon a8o"nted on5'
to P5,6. . T(is a8o"nts to pra)ti)a55' one(a57 o7 t(e advan)e
 6"d48ent 7or t(e tota5 a8o"nt o7 P30,257,86 , e;)5"din4 interests,
o&tained &' Asso)iated si; =3> 'ears ear5ier in 957 a4ainst
Ban@on for the benet o7 the Philippine National Bank" a55e4ed5' as
t(e a8o"nt d"e 7ro8 Sta. Maria and (i)( Asso)iated as s"ret'
o"5d (ave to pa' t(e &an<, and (i)( as it t"rns o"t,
Asso)iatednever paid to t(e &an<.
 T(ese 7a)ts and ?4"res are o7 re)ord in t(is Co"rtGs de)ision
o7 %+4+t 29, 969, in Philippine National Bank v. *ta. :aria, et 
Maria and (is +ret, 'efen'ant %o&iate' (n+ran&e ) *+ret !o.,
(n&. ho 'i' not reit the a&tion, 'i' not appeal the
 >+'4ment =senten)in4 a55 de7endants 6oint5' and severa55' to pa'
t(e &an< t(e a&ove re7erred to prin)ipa5 a8o"nt o7 #1:,3.,
e;)5"din4 interests>.
 T(is Co"rt s"stained t(e appea5 ta<en &' t(e de&tor Ma;i8o Sta.
MariaGs &rot(ers and sisters, and reversed t(e 5oer )o"rtGs
 6"d48ent a4ainst t(e8, as 7o55osJ
    T(is appea5 (as &een ta<en &' (is si; &rot(ers and sisters,
de7endantsappe55ants (o reiterate in t(eir &rie7 t(eir 8ain
)ontention in t(eir Anser to t(e )o8p5aint t(at "nder t(e spe)ia5
Ma;i8o, t(e a"t(orit' to &orro 8one' &"t on5' to 8ort4a4e t(e
rea5 estate 6oint5' oned &' t(e8 and t(at i7 t(e' are 5ia&5e at a55,
t(eir 5ia&i5it' s(o"5d not 4o &e'ond t(e va5"e o7 t(e propert' (i)(
t(e' (ad a"t(ori@ed to &e 4iven as se)"rit' 7or t(e 5oans o&tained
&' Ma;i8o. In t(eir anser, de7endantsappe55ants (ad 7"rt(er
)ontended t(at t(e' did not &ene?t (atsoever 7ro8 t(e 5oans, and
t(at t(e p5ainti &an<Gs on5' re)o"rse a4ainst t(e8 is to 7ore)5ose
on t(e propert' (i)( t(e' (ad a"t(ori@ed Ma;i8o to 8ort4a4e.
e ?nd t(e appea5 o7 de7endantsappe55ants, e;)ept 7or de7endant
Qa5eriana Sta. Maria (o (ad e;e)"ted anot(er spe)ia5 poer o7 
attorne', E;(. E1, e;press5' a"t(ori@in4 Ma;i8o to &orro 8one'
on (er &e(a57, to &e e55 ta<en.
1. #5ainti &an< (as not 8ade o"t a )a"se, o7 a)tion a4ainst
de7endantsappe55ants =e;)ept Qa5eriana>, so as to (o5d t(e8 5ia&5e
7or t(e "npaid &a5an)es o7 t(e 5oans o&tained &' Ma;i8o "nder t(e
)(atte5 8ort4a4es e;e)"ted &' (i8 in (is on na8e )(atte5 a5one.
 
3. ina55', as to t(e 12F aard o7 attorne'Gs 7ees, t(is Co"rt
&e5ieves t(at )onsiderin4 t(e reso"r)es o7 p5ainti &an< and t(e
7a)t t(at t(e prin)ipa5 de&tor, Ma;i8o Sta. Maria, (ad not )ontested
t(e s"it, an aard o7 ?ve =:F> per )ent o7 t(e &a5an)e d"e on t(e
prin)ipa5, e;)5"sive o7 interests, i. e., a &a5an)e o7 P6,00.00 on t(e
?rst )a"se o7 a)tion and a &a5an)e o7 P9,36. on t(e se)ond
)a"se o7 a)tion,  per the bank tatement of %+4+t 20, 963,
=E;(s. *1 and BB1, respe)tive5'> s(o"5d &e s")ient.
HEREORE, t(e 6"d48ent o7 t(e tria5 )o"rt a4ainst de7endants
appe55ants E8eteria, Teo?5o, *"intin, Rosario and Leoni5a, a55
s"rna8ed Sta. Maria is (ere&' reversed and set aside, it( )osts in
&ot( instan)es a4ainst p5ainti. T(e 6"d48ent a4ainst de7endant
appe55ant Qa5eriana Sta. Maria is 8odi?ed in t(at (er 5ia&i5it' is (e5d
to &e 6oint and not so5idar', and t(e aard o7 attorne'Gs 7ees is
red")ed as set 7ort( in t(e pre)edin4 para4rap(, it(o"t )osts in
t(is instan)e.
 T(e &an< t("s )o55e)ted 'ire&tl 7ro8 its de&tor Sta. Maria t(e
a8o"nts oin4 to it, it( Asso)iated never (avin4 p"t in one
)entavo. #er t(e &an<Gs 5etter dated 1ebr+ar 20, 970 to
Asso)iated, it in7or8ed Asso)iated t(at t(e a8o"nts o7 its 6"d48ent
)redit a4ainst 6"d48ent de7endants in t(e a7ore8entioned )ase
ter8inated &' t(is Co"rtGs de)ision o7 A"4"st 9, 1939, (ad
a5read' &een atie' as o7 1ebr+ar 6, 970 &' virt"e o7  e;press5' for the benet of the Philippine National Bank" as to
t(e pament ma'e b an' thr+ the Provin&ial *heri- of Bataan on
t(e pro&ee' of the e<tra$>+'i&ial ale of the mort4a4e' propertie  
of 'efen'ant *ta. :aria?? in vie o7 (i)( e =#(i5ippine Nationa5
Ban<, (ave no releae' the %o&iate' (n+ran&e ) *+ret !o..
(n&. o7 its  >oint obli4ation ith :a<imo *ta. :aria, et a5. in t(e
a7ore8entioned )ase.  
 T(is s(o"5d (ave p"t an end to t(e 8atter and Ban@onGs to 5ots
t(ere7ore restored 7"55' to (is oners(ip, &"t 7or )ertain
)o8p5i)ations invo5vin4 t(e intervention o7 t(e ot(er private
respondents, t(e spo"ses #edro Cardenas and Leoni5a Ba5"'ot, and
Asso)iatedGs on "n6"sti?a&5e a)tions, as s(a55 present5' &e seen.
A))ordin4 to t(e Ban@onsG petition at &ar, so8eti8e in 193:, even
&e7ore oners(ip over t(e to par)e5s o7 5and &e5on4in4 to t(e
Ban@ons )o"5d &e )onso5idated in t(e na8e o7 Asso)iated =sin)e t(e
 6"d48ent as "for the benet of the Philippine National Bank" and
it (ad not dis)(ar4ed its s"ret'Gs 5ia&i5it' to t(e &an<>, Asso)iated
in )5ear )o55"sion and )on7ederation it( =respondent> #edro
Cardenas, a55oed and per8itted t(e 5atter to e;e)"te and 5ev' on
one o7 t(e to par)e5s o7 5and =t(at )overed &' T.C.T. No. -93/:
Ri@a5, Lot 3, B5o)< No. 13 o7 s"&division p5an #sd/93, +.L.R.O.
Re). No. 113> 7or a 6"d48ent de&t o7 #:,122.22 =o7 Asso)iated in
7avor o7 Cardenas>/ notit(standin4 t(at t(e propert' in "estion
as ort( #1-2,222.22 8ore or 5ess, and 7"rt(er notit(standin4
t(e 7a)t t(at said respondent =Asso)iated> <ne t(e propert' as
8ere5' &ein4 hel' in tr+t b it for the benet of the Philippine
National Bank and t(ere7ore, not bein4 the le4al oner thereof, it 
&annot vali'l 'ipoe o7 it in an' 8anner.9 Respondent Cardenas
&ein4 a55e4ed5' t(e 5one &idder in t(e a")tion sa5e 7or e;e)"tion o7 
(is #:,122.22 6"d48ent a4ainst Asso)iated as aarded t(e
propert' in 7"55 satis7a)tion o7 (is 6"d48ent, and event"a55'
s"))eeded in (avin4 Ban@onGs tit5e )an)e55ed and a ne one, T.C.T.
No. /:3Ca5oo)an Cit' iss"ed t(ereto in (is na8e, notit(standin4
t(at Asso)iatedGs ri4(t t(ereto as sti55 +b$>+'i&e in %o&iate' v.
Banon , to &e reso5ved 8")( 5ater 'et &' t(is Co"rtGs de)ision
o7 November 29, 968 . Asso)iated 8ade no 8ove to "estion or
)(a55en4e t(is a)tion o7 Cardenas, notit(standin4 an or'er for it
li+i'ation an' 'iol+tion i+e' on e&ember 3, 965 &' t(e
Co"rt o7 irst Instan)e o7 Mani5a and event"a55' ar8ed &' t(is
Co"rt per reso5"tion o7 K"ne 2, 193/ in +.R. No. L-/9-. Nor did
Asso)iated 8a<e an' eort to resist e;e)"tion on said propert' o7 
Ban@onGs, <noin4 as it did t(at its interest in said propert' as
i8pressed it( a tr+t &hara&ter sin)e t(e )5ear tenor and intent o7 
t(e 6"d48ent 4ranted a4ainst Ban@on no8ina55' in its 7avor &"t
8a<e t(e e;e)"tion and operation o7 t(e
6"d48ent &ontin4ent or&on'itione' , "pon Asso)iatedGs &ein4 8ade
or )o8pe55ed to pa' t(e &an<, (i)(
)ontin4en)' never 8ateria5i@ed.
T(e Cardenas, spo"ses t(erea7ter ?5ed it( t(e Co"rt o7 irst
Instan)e o7 Ri@a5, Ca5oo)an Cit' Bran)( II, Re4. Case No. C11
=LRC Case No. 113> entit5ed #edro Cardenas, et a5.,
petitioners v. Antonio Ban@on, et a5., respondents, to se)"re
possession 7ro8 t(e Ban@ons o7 t(e 5ot )overed &' T.C.T. No. /:3.
A rit o7 possession as iss"ed in said )ase on Ma' 1, 193:, &"t
t(e en7or)e8ent t(ereo7 as (e5d in a&e'an)e in vie o7 t(e ?5in4
it( t(e sa8e )o"rt o7 Civi5 Case No. C:-1 entit5ed Antonio
Ban@on, et a5. v. #edro Cardenas and Leoni5a Ba5"'ot, Asso)iated
Ins"ran)e and S"ret' Co., In). and Benito Ma)ro(on. Ban@onGs
)o8p5aint in Civi5 Case No. C:-I as, (oever, dis8issed
on %+4+t 6, 969, on t(e 4ro"nd t(at t(e 8atter o7 t(e 5e4a5it' o7  interests or 6"st one$half o7 t(e premat+re 6"d48ent 7or #-2,:./3,
t(e trans7er o7 oners(ip o7 t(e propert' in "estion 7ro8 t(e
p5ainti to t(e Asso)iated Ins"ran)e % S"ret' Co., In)., (as &een
"p(e5d &' t(e S"pre8e Co"rt in its de)ision pro8"54ated on
Nove8&er 9, 193/, and )onse"ent5' t(e trans7er to t(e spo"ses
#edro Cardenas and Leoni5a Ba5"'ot 8"st per7or)e &e )onsidered
a5so as va5id and 5e4a5.
Conse"ent5', respondent Cardenas ?5ed a 8otion on O)to&er 1-,
1939, in Case No. C11 7or t(e iss"an)e o7 analia rit o7   T.C.T. No. /:3 =in CardenasG na8e> and No. :-:9 =sti55 in Ban@onGs
possession t(is as 4ranted on O)to&er -, 1939. T(e alia rit
as served on Ban@on, (o re7"sed to va)ate t(e pre8ises and to
re8ove t(e i8prove8ents t(ereon. In vie o7 t(is, an order as
iss"ed on De)e8&er 9, 1939, 7or t(e iss"an)e o7 a rit o7 
de8o5ition, &"t its en7or)e8ent as (e5d in a&e'an)e &e)a"se a
te8porar' restrainin4 order, 5ater )(an4ed to a rit o7 pre5i8inar'
in6"n)tion, as iss"ed &' t(e Co"rt o7 Appea5s on e&ember 3,
969, in vie o7 t(e ?5in4 &' t(e Ban@ons it( t(e said appe55ate
)o"rt o7 a petition 7or in6"n)tion.12
On 1ebr+ar 28, 970 t(e Co"rt o7 Appea5s rendered 6"d48ent
dis8issin4 t(e petition &e)a"se it 7o"nd t(e sa8e to &e a55e4ed5'
8ere5' a devi)e to prevent t(e e;e)"tion o7 a ?na5 6"d48ent &'
t(e ?5in4 o7 a ne s"it &ased "pon t(e sa8e 4ro"nds (i)( (ave
a5read' &een interposed and passed "pon in t(e )ase (ere t(e
?na5 6"d48ent (ad a5read' &een rendered   .  Cardenas
t(erea7ter ?5ed a 8otion 7or t(e en7or)e8ent o7 t(e order o7  respondent Asso)iated 7ro8 disposin4 in an' 8anner o7 its a55e4ed
de8o5ition and rit o7 possession previo"s5' iss"ed in Re4. Case
No. C11. On Mar)( 1-, 192, K"d4e ernando A. Cr"@ o7 t(e Co"rt
o7 irst Instan)e o7 Ca5oo)an Cit' Bran)( II, iss"ed an order
4rantin4 t(e 8otion.11
On Mar)( 1-, 192, t(e Ban@ons (avin4 5earned o7 t(e &an<Gs
re5ease to Asso)iated as o7 1ebr+ar 20, 970, +pra , a))ordin45'
?5ed a )o8p5aint 7or re)onve'an)e and da8a4es it( t(e Co"rt o7  B5o)< 13 )overed &' T.C.T. No. /:3> (as a5read' a&so5"te5' and
irst Instan)e o7 Mani5a a4ainst respondents Asso)iated and t(e
Cardenas spo"ses. 1  In t(eir )o8p5aint, t(e Ban@ons i8p"te &ad
7ait(, )o55"sion and )on7ederation &eteen Asso)iated and t(e
Cardenases it( re4ard to t(e 5atterGs pre8at"re5' o&tainin4 T.C.T.
No. /:3 )overin4 one o7 Ban@onGs 5ots in t(eir na8e. T(e Ban@ons
t(erein a55e4ed for the rt time t(eir ne )a"se o7 a)tion &ased on
t(e s"&se"ent deve5op8ent t(at t(e #(i5ippine Nationa5 Ban< (ad
)o55e)ted dire)t5' on 1ebr+ar 6, 970 7ro8 t(e prin)ipa5 de&tor
Sta. Maria t(e 5oan 4"aranteed &' Asso)iated =(i)( a8o"nted
on5' to a prin)ipa5 o7 P5,6. as o7 A"4"st, 193-, e;)5"din4
e;)5"din4 interests o&tained &' Asso)iated si; =3> 'ears ear5ier in
19: a4ainst Ban@on in tr+t an' for the benet of the
bank a55e4ed5' as t(e a8o"nt oed &' Sta. Maria and to &e
dis)(ar4ed &' Asso)iated, (i)( Asso)iated never dis)(ar4ed>
1a
and t(at t(e &an<, per its 5etter o7 1ebr+ar 20, 970 (ad
t(ere7ore a&so5"te5' re5eased Asso)iated o7 an' 5ia&i5it' on its
s"ret' "nderta<in4.1& T(e Ban@ons t(ere7ore pra'ed 7or t(e
ret"rn and re)on'e'an)e o7 t(eir to par)e5s o7 5and )overed &'
na8e>, in dis)(ar4e o7 Asso)iatedGs implie' tr+t not to "n6"st5'
enri)( itse57 and appropriate Ban@onGs properties at a&so5"te5' no
)ost to itse57.
On Mar)( 13, 192, t(e S(eri o7 Ca5oo)an Cit' served "pon t(e
Ban@ons )op' o7 t(e a7oresaid order 4ivin4 t(e8 "nti5 Mar)( 2,
192, it(in (i)( to de5iver possession o7 t(e par)e5 o7 5and
)overed &' T.C.T. No. /:3, and to re8ove t(e i8prove8ents
t(ereon ot(erise, t(e said s(eri o"5d pro)eed to en7or)e t(e
sa8e.
#etitioners Ban@ons t(ere7ore )a8e to t(is Co"rt on Mar)( 2,
192, &' 8eans o7 t(e present petition 7or in6"n)tion. At
petitionersG instan)e, t(e Co"rt on :ar&h 2, 970 restrained
respondents and t(eir representatives 7ro8 en7or)in4 t(e
"estioned rit o7 e;e)"tion and order o7 de8o5ition, and
ri4(ts and interests over t(e to 5ots in "estion.
Respondents Cardenas spo"ses ?5ed in d"e )o"rse t(eir Anser
dated Apri5 , 192, ad8ittin4 in ee)t t(e ante)edents o7 t(e )ase
as re)ited a&ove, )itin4 even t(is Co"rtGs de)ision o7 Nove8&er 9,
193/ in %o&iate' v. Banon, +pra, (i)( ar8ed t(e 8one'
 6"d48ent in 7avor o7 Asso)iated "for the benet of the Philippine
National Bank 1- &"t a55e4in4 t(at oners(ip to one par)e5 =Lot 3,
irrevo)a&5' vested in (erein respondent #edro Cardenas.1  Said
respondents 7"rt(er averred t(at t(ere is no 5on4er an't(in4 t(at
8a' &e restrained, sin)e per t(e s(eriGs ret"rn o7 Mar)( -, 192,
(e en7or)ed on said date respondent )o"rtGs rit o7 possession and
de8o5ition order and de8o5is(ed a55 t(e i8prove8ents ere)ted in
t(e pre8ises.1:
 To t(is petitioners )o"ntered t(at t(e spe)ia5 dep"t' s(eri o7 Ri@a5
did s"))eed in de8o5is(in4 t(e &"i5din4 ere)ted on t(e 5ot in
"estion. T(is (e did notithtan'in4 the fa&t that he ha been
'+l informe' b petitioner Banon of the e<iten&e of a retrainin4
or'er in thi &ae. Hoever, a7ter a))o8p5is(in4 (is p"rpose, (e
and (is 8en 5e7t t(e pre8ises. 13
Most re5evant, (oever, as a p5eadin4 entit5ed E;p5anation and
Mani7estation dated Apri5 :, 192 ?5ed &' Att'. e5i&erto Casti55o,
as 7or8er )o"nse5 7or Asso)iated, in t(e interest o7 6"sti)e and in
t(e na8e o7 tr"t( and as an o)er o7 t(e Co"rt, (erein it(
respe)t to t(e s"88ons 7or Asso)iated re)eived &' (is 5a o)e,
(e 8ani7estsJ
-. T(at (e is entertainin4 a serio"s do"&t (et(er (e )o"5d sti55
represent t(e Asso)iated Ins"ran)e % S"ret' Co., In). in vie o7 t(e
7a)t t(at in !ivil !ae No. 56995 of the !o+rt of 1irt (ntan&e of  Asso)iated, never atte8pted to se)"re ne tit5es 7or (is said )5ient,
:anila, entitle' /ep+bli& of the Philippine, repreente' b the
(n+ran&e !ommiioner v. %o&iate' (n+ran&e ) *+ret !o.,
(n&. t(e said Co"rt o7 irst Instan)e o7 Mani5a or'ere' the
li+i'ation an' 'iol+tion of thi +ret &ompan, (i)( as
appea5ed to t(e Co"rt o7 Appea5s, CA+.R. No. -9/:R, &"t
ar8ed t(e de)ision o7 t(e Co"rt o7 irst Instan)e o7 Mani5a in a
de)ision pro8"54ated on Kan"ar' -, 193/, (i)( as appea5ed
a4ain &' t(e Asso)iated Ins"ran)e % S"ret' Co., In). to t(e
Honora&5e Tri&"na5, ./. No. #$2893, alo a@rmin4 the 'e&iion of 
the !o+rt of %ppeal b 'enin4 the petition for a rit of &ertiorari
in it reol+tion of A+ne 20, 968, and t(ere7ore, sin)e t(en, t(e
de)ision o7 t(e Co"rt o7 irst Instan)e o7 Mani5a orderin4 t(e
5i"idation and disso5"tion o7 t(e Asso)iated Ins"ran)e % S"ret'
Co., In). &e)a8e ?na5 and e;e)"tor', and t(erea7ter, t(e Ins"ran)e
Co88issioner de8anded t(e s"rrender o7 &oo<s, do)"8ents and
ot(er papers o7 t(is s"ret' )o8pan', and as a 8atter o7 7a)t,
&oo<s, do)"8ents and ot(er papers sa5va4ed ere a5read'
s"rrendered to t(e Ins"ran)e Co88issioner 7or 5i"idation o7 t(is
)o8pan', so t(at &' virt"e t(ereo7, the (n+ran&e !ommiioner  8ista<es or ne45i4en)e in iss"in4 t(is tit5e to respondent #edro
bein4 the li+i'ator appointe' b the &o+rt toli+i'ate the
 %o&iate' (n+ran&e ) *+ret !o., (n&., i no the le4al
repreentative of thi +ret &ompan to (o8 a )op' o7 t(is paper
i55 &e 7"rnis(ed.1
In (is E;p5anation and Mani7estation, Att'. Casti55o 7"rt(er states
t(at (is 5a o)e as t(e )o"nse5 7or Asso)iated in t(e )ases
invo5ved in t(ese pro)eedin4s, vi , Civi5 Case No. -1- o7 t(e
Co"rt o7 irst Instan)e o7 Mani5a, Case No. -//:, +.L.R.O. Re)ord
No. 113 o7 t(e Co"rt o7 irst Instan)e o7 Ri@a5, 7or )onso5idation in
Asso)iatedGs 7avor o7 T.C.T. No. 93/:Ri@a5 and T.C.T. No. :-:9
Ri@a5, and in +.R. No. L-91 o7 t(e S"pre8e Co"rt, %o&iate' v.
Banon, +pra, ar8in4 on November 29, 968 t(e Ri@a5 )o"rtGs
 6"d48ent 7or )onso5idation and
U T(at sin)e Asso)iated as ordered 5i"idated and disso5ved &'
t(e Mani5a )o"rt o7 ?rst instan)e in Civi5 Case No. :399:, as
ar8ed &' t(e Co"rt o7 Appea5s in CA+.R. No. -9/:R, (i)(
&e)a8e ?na5 "pon t(is Co"rtGs denia5 o7 revie per its reso5"tion
o7 A+ne 20, 968 in +.R. No. L/9-, the (n+ran&e !ommiioner 
a the appointe' li+i'ator of %o&iate' i the le4al repreentative
thereof (o 8a' d"5' a)t 7or Asso)iated and +pon hom +mmon
ho+l' be erve'=
U T(at even before t(e pro8"54ation o7 t(e S"pre8e Co"rt de)ision
on Nove8&er 9, 193/ in %o&iate' v. Banon (e, as )o"nse5 7or
)onsiderin4 t(at its oners(ip over t(e par)e5 o7 5and )overed &'
t(e8 as t(en sti55 +b >+'i&e="
U T(at even after t(e pro8"54ation o7 t(e said S"pre8e Co"rt
de)ision, (e never atte8pted to se)"re ne tit5es 7or (is )5ient,
&e)a"se &' t(at ti8e Asso)iated (ad a5read' &een ordered
disso5ved and 5i"idated, (en)e, to &e represented in a55 instan)es
&' t(e Ins"ran)e Co88issioner as 5i"idator
U T(at (e onders (o respondent #edro Cardenas as a&5e to
se)"re T.C.T. No. /:3 =7or8er5' T.C.T. No. -93/:Ri@a5> in (is na8e
in 193:, (en Asso)iated, (i)( rea55' oed Cardenas a )ertain
s"8, )o"5d on5' se)"re ne tit5es over t(e par)e5s o7 5and after not 
before Nove8&er 9, 193/, (en t(e S"pre8e Co"rtGs de)ision in
+.R. No. L-91 as pro8"54ated and t(at in (is opinion, t(e
iss"an)e to respondent Cardenas o7 T.C.T. No. /:3 as 7ra"d"5ent
and irre4"5ar 7or &ein4 it(o"t &asis (en t(e sa8e as iss"ed, so
t(at t(e re4ister o7 deeds o7 Ca5oo)an Cit' )o88itted so8e sort o7 
Cardenas, and as s")(, t(is T.C.T. No. /:3 is n+ll an' voi' an'
itho+t for&e an' e-e&t and &all for an inveti4ation of the 4+ilt 
 partie reponible 7or t(e iss"an)e o7 t(is T.C.T. No. /:3 in t(e
na8e o7 respondent #edro Cardenas, (o 8i4(t (ave )o88itted
so8e 7a5si?)ations =7or indeed (o )o"5d Cardenas )a"se tit5e to
said 5ot to &e trans7erred to Asso)iated 7or (i8 in t"rn to 5ev'
a4ainst it 7or (is #:,122 6"d48ent a4ainst Asso)iated, (en
Asso)iatedGs )ase a4ainst Ban@on 7or s")( trans7er and
)onso5idation o7 tit5e as t(en till pen'in4 appeal before thi
!o+rt, and Asso)iatedGs 6"d48ent a4ainst Ban@on as one of 
tr+t, e;press5' t(erein de)5ared to &e 7 o r the benet of the
Philippine National Bank1/ and
 :. T(at an' s"&se"ent sa5e or disposition o7 t(e propert' o7 said
U T(at an'&od' (o i55 atte8pt to oer t(e said par)e5 o7 5and 7or )orporation itho+t the knole'4e an' &onent of the herein
sa5e o"5d &e &ommittin4 a &rime as the 'ipoition of the ame  %&tin4 (n+ran&e !ommiioner  and approval b the #i+i'ation
belon4 e<&l+ivel to the (n+ran&e !ommiioner (o is !o+rt i &ontrar to la  and n+ll an' voi'=
t(e li+i'ator o7 t(e Asso)iated Ins"ran)e % S"ret' Co., In).
)onse"ent5', t(e petitioner s(o"5d not entertain an' orr' as said 3. T(at a7ter t(e a7oresaid order o7 5i"idation, and disso5"tion
par)e5 o7 5and is not &ein4 disposed o7 not on5' &e)a"se t(e poer &e)a8e ?na5 and e;e)"tor', t(e A)tin4 Ins"ran)e Co88issioner
to se55 t(e sa8e e;)5"sive5' &e5on4s to t(e Ins"ran)e de8anded 7or t(e s"rrender o7 a55 t(e &oo<s, do)"8ents and
Co88issioner, &"t a5so &e)a"se t(e %o&iate' (n+ran&e ) *+ret  properties o7 Asso)iated Ins"ran)e % S"ret' Co., In). Hoever, t(e
to., (n&. ha no title et over thee par&el of lan' a it 'i' not  re)ords and do)"8ents pertinent to t(e a&oveentit5ed )ase
attempt to e&+re an even before an' after t(e pro8"54ation o7  ere not a8on4 t(ose s"rrendered to t(e Ins"ran)e Co88issioner
t(e de)ision o7 t(e Honora&5e Tri&"na5 in +. R. No. L-91 in vie and it as on5' "pon re)eipt o7 t(e GE;p5anation and Mani7estationG
o7 t(e )ir)"8stan)es ear5ier e;p5ained. o7 Att'. e5i&erto Casti55o, dated Apri5 :, 192, and t(e present
G#etitionG t(at s(e )a8e to <no 7or t(e ?rst ti8e o7 t(e a55e4ed
On Ma' 11, 192, e iss"ed s"88ons on t(e Ins"ran)e 7a)ts averred in t(is )ase.19
Co88issioner as 5i"idator o7 Asso)iated to anser t(e petition. In
(er anser ?5ed on Ma' 9, 192, t(e A)tin4 Ins"ran)e A Motion to Disso5ve Te8porar' Restrainin4 Order and to Dis8iss
Co88issioner t(ro"4( t(e So5i)itor +enera5 dis)5ai8ed <no5ed4e #etition as ?5ed on e&r"ar' 1, 191, &' respondents spo"ses
o7 pra)ti)a55' a55 t(e a55e4ations o7 t(e petition 7or 5a)< o7 <no5ed4e Cardenas and Ba5"'ot. T(e' )ontend t(at t(e restrainin4 order
or in7or8ation s")ient to 7or8 a &e5ie7 as to t(eir tr"t(, iss"ed &' t(is Co"rt s(o"5d &e disso5ved, and t(e petition itse57,
8ani7estin4 t(at s(e ?rst 5earned o7 t(e 8ateria5 7a)ts averred in inso7ar as t(e' are )on)erned, &e dis8issed, &e)a"se t(e petition is
t(e petition (en s(e re)eived )op' o7 Att'. Casti55oGs E;p5anation predi)ated on petitionersG )o8p5aint 7or re)onve'an)e and
and Mani7estation, &e)a"se t(e re)ords and do)"8ents pertinent da8a4es in Civi5 Case No. 9 &e7ore Bran)( QIII o7 t(e Co"rt o7 
to t(is )ase ere not a8on4 t(ose s"rrendered to (er, and irst Instan)e o7 Mani5a, and t(e said )o"rt iss"ed an order on
ar8in4 s(e is t(e 5i"idator o7 Asso)iated &' virt"e o7 t(e Mani5a O)to&er /, 192, dis8issin4 t(e said )o8p5aint it( respe)t to
)o"rtGs order dated De)e8&er -1, 193: o7 5i"idation and de7endants t(erein Cardenas and Ba5"'ot, (i)( dis8issa5 as not
disso5"tion o7 said )orporation, as 7o55osJ appea5ed and &e)a8e ?na5 and e;e)"tor' on Kan"ar' :, 191, per
entr' o7 6"d48ent atta)(ed to t(e 8otion. Conse"ent5', a))ordin4
-. T(at t(e (erein A)tin4 Ins"ran)e Co88issioner is t(e 5i"idator to t(ese respondents, t(e te8porar' restrainin4 order iss"ed &'
o7 Asso)iated Ins"ran)e % S"ret' Co., In). &' virt"e o7 an or'er of  t(is Co"rt en6oinin4 t(e en7or)e8ent o7 t(e rit o7 e;e)"tion and
li+i'ation an' 'iol+tion of ai' &orporation 'ate' e&ember 3, t(e order o7 de8o5ition in Re4. Case No. C11 o7 t(e Co"rt o7 irst
965, &' t(e Co"rt o7 irst Instan)e o7 Mani5a in !ivil !ae No. Instan)e o7 Ri@a5, (as &e)o8e inoperative and it(o"t an' 5e4a5
56995, (i)( de)ision as ar8ed on appea5 &' t(e Co"rt o7  &asis, t(e present petition (as 5ost its 5e4a5 &asis, and petitioners
Appea5s in its de)ision =CA+. R. No. -9/:> dated Kan"ar' -, 193/, (ave no 8ore )a"se o7 a)tion a4ainst respondents Cardenas and
(i)( de)ision as a4ain ar8ed on appea5 &' t(is Honora&5e Ba5"'ot. T(e said order o7 dis8issa5 o7 t(e )o8p5aint a4ainst t(ese
 Tri&"na5 (en it denied t(e petition 7or a rit o7 &ertiorari  in its respondents as iss"ed p"rs"ant to Se)tion :, R"5e 13 o7 t(e R"5es
Reso5"tion o7 K"ne 2, 193/ =+. R. No. L-/9-> and (i)( on K"5' 9, o7 Co"rt, a7ter a pre5i8inar' (earin4 on t(e ar8ative de7enses o7 
193/, &e)a8e ?na5 and e;e)"tor' &ar &' prior 6"d48ent and 5a)< o7 )a"se o7 a)tion set "p &' said
respondents in t(eir anser, it( t(e 5oer )o"rt openin4 t(at
. T(at &' virt"e o7 t(e a7oresaid de)ision, t(e Ins"ran)e petitionersG a)tion as a5read' &arred &' t(e prior 6"d48ents o7 t(is
Co88issioner as li+i'ator of %o&iate' (n+ran&e ) *+ret !o., Co"rt o7 November 29, 968 in %o&iate' v. Banon and o7 t(e
(n&., i vete' b a+thorit of la ith the title to all of the Co"rt o7 Appea5s o7 1ebr+ar 28, 970 inBanon v. Con. 1ernan'o
 propert, &ontra&t, an' ri4ht of a&tion of ai' &orporation as o7  !r+, s"pra.2
t(e date o7 t(e order o7 5i"idation =Se). 1:C, par. - o7 t(e
Ins"ran)e A)t, as a8ended>  T(e So5i)itor +enera5 ?5ed on Mar)( 9, 191 on &e(a57 o7 t(e
Ins"ran)e Co88issioner as 5i"idator o7 Asso)iated a stron4
opposition to t(e 8otion to disso5ve t(e restrainin4 order and
dis8iss t(e petition.1 T(e )o88issioner5i"idator a7ter
)o8p5ainin4 t(at s(e is sti55 de8andin4 7or t(e s"rrender o7 a55 t(e
&oo<s, do)"8ents and properties o7 Asso)iated and t(at it as
on5' "pon re)eipt on :ar&h , 97 o7 t(e vo5"8ino"s re)ords o7  t(e prin&ipal 'ebtor *ta. :aria pai' hi on obli4ation ith the
t(e )ases (and5ed &' )o"nse5 e5i&erto Q. Casti55o 7or =Asso)iated>
t(at =(er> "ndersi4ned )o"nse5 (ave veri?ed and )on?r8ed t(e
tr"t( o7 t(e stat"s o7 t(e dierent )ases, )ontends inter alia as
7o55osJ
1/. T(at, (oever, d"rin4 t(e penden)' o7 t(e a7oresaid appea5
o7 petitioner Antonio R. Ban@on it( t(is Honora&5e Tri&"na5 and
(i5e t(e )ase as sti55 +b$>+'i&e, parti)"5ar5' on 1ebr+ar 8,
96, t(e (erein respondent #edro Cardenas as innin4 part' in a
)ase entit5ed G#edro Cardenas v. Qi)toria Qda. de Ten4)o and #a&5o
 T"a@on,G Civi5 Case No. -31, Co"rt o7 irst Instan)e o7 Mani5a, and
(ere t(e Asso)iated Ins"ran)e and S"ret' Co., In). as s"ret' 7or
t(e de7endants t(erein, e;e)"ted and 5evied "pon one o7 t(e
par)e5s o7 5ands invo5ved in t(e a7oresaid appea5. !5ti8ate5', #edro
Cardenas as a&5e to a)"ire t(e 5and in "estion =Lot No. 3, B5o)<
No. 13, t(en )overed &' T.C.T. No. -93/:> as (i4(est &idder, 7or
t(e 6"d48ent de&t o7 de7endants in said a)tion, p5"s in)identa5
e;penses 7or t(e s"8 o7 #:,122.22 on5'
19. T(at s"&se"ent5' t(erea7ter, said respondents Cardenas,
t(r" so8e s)(e8e and devise, s"))eeded in (avin4 t(e tit5e o7 said
par)e5 o7 5and trans7erred in t(eir na8es "nder T.C.T. No. /:3,
Re4istr' o7 Deeds o7 Ca5oo)an Cit' on :a 5, 965, at a ti8e (en
t(e Asso)iated Ins"ran)e % S"ret' Co., In). (ad not 'et earned t(e
a"t(orit' to )onso5idate in its na8e said propert', as t(e )ase as
t(en pendin4 it( t(is Honora&5e Tri&"na5. As a55e4ed in para4rap(
1/ (ereo7, t(e "estion o7 )onso5idation as reso5ved &' t(is
Honora&5e Tri&"na5 on 1ebr+ar 28, 968= 1a
2. T(at &' t(e nat"re o7 t(e de)ision in Civi5 Case No. -1-,
CI, Mani5a, as a55e4ed in para4rap( 1: (ereo7, t(e propert' or
s"8s o7 8one' re)overed 7ro8 de7endants t(erein hall be
reerve' for the benet of the Philippine National Bank 7or t(e
p"rpose o7 pa'in4 t(e prin)ipa5 de&torGs =Ma;i8o Sta. MariaGs>
o&5i4ation t(erein, and )onse"ent5', t(e Asso)iated Ins"ran)e %
S"ret' Co., In). s(a55 (o5d t(e propert' in "estion or t(e s"8s
re)overed in said a)tion, in tr"st and 7or t(e p"rpose o7 pa'in4 t(e
a7oresaid o&5i4ation o7 Ma;i8o Sta. Maria. 
1. T(at t(e Asso)iated Ins"ran)e % S"ret' Co., In). faile' to pa 
from it on f+n' +n'er it +ret +n'ertakin4, nor from f+n'
realie' from the propert 5evied "pon &' virt"e o7 t(e de)ision in
Civi5 Case No. -1-, CI, Mani5a, &"t on t(e ot(er (and,
Philippine National Bank t("s, releain4 it =Asso)iated Ins"ran)e %
S"ret' Co., In).> from it obli4ation +n'er the +rethip
+n'ertakin4 it( respe)t to said o&5i4ation o7 Ma;i8o Sta. Maria,
and si8i5ar5' (erein petitioner %ntonio /. Banon a releae'
from hi obli4ation a &o$in'emnitor in said "nderta<in4
. T(at in 7airness to petitioners Antonio R. Ban@on and Rosa
Ba58a)eda, the to par&el of lan' e<e&+te' an' levie' +pon b 
virt+e of the 'e&iion in Civi5 Case No. -1-, Co"rt o7 irst Instan)e
o7 Mani5a, 'eerve to be re&onvee' to them=
-. T(at one of the lot involve', namel, #ot No. 6, Blo&k No.
76 &overe' b .!.. No. 856 Re4istr' o7 Deeds o7 Ca5oo)an Cit',
in t(e na8es o7 t(e present respondents #edro Cardenas and
Leoni5a Ba5"'ot, &ein4 one o7 t(e to par)e5s o7 5ands 5evied "pon
in Civi5 Case No. -1- &"t tranferre' to ai' repon'ent +n'er 
'+bio+ &ir&+mtan&e an' patentl +na+thorie' b la, s(o"5d
&e or'ere' re&onvee' to the %o&iate' (n+ran&e !o., (n&.
thro+4h the (n+ran&e !ommiioner 7or t(e p"rpose stated in t(e
ne;t pre)edin4 para4rap(, as t(etrana&tion on the tranfer of ai'
 par&el of lan' to them i n+ll an' voi' from the ver be4innin4."-
#etitioners 5i<eise oppose t(e 8otion o7 t(e Cardenases. T(e'
)ontend t(at t(e present petition is not so5e5' predi)ated on t(eir
)o8p5aint 7or re)onve'an)e and da8a4es in Civi5 Case No. 9
7or, as ad8itted &' t(e Ins"ran)e Co88issioner, t(e' are entit5ed
to t(e re)onve'an)e o7 t(e 5ot )overed &' T.C.T. No. /:3 and 7or
)ontri&"tion or inde8ni?)ation 7or da8a4es (i)( t(e' 8a'
re)over 7ro8 Asso)iated t(at respondents Cardenases se)"red said
tit5e 7ra"d"5ent5' and irre4"5ar5' it(o"t an' 5e4a5 &asis, (en)e, said
tit5e (avin4 &een ano8a5o"s5' iss"ed, is n"55 and void and it(o"t
7or)e and ee)t, and, t(at, as stated &' t(e Ins"ran)e
Co88issioner5i"idator, in 7airness and 6"sti)e to petitioners, t(e
to par)e5s o7 5and 5evied in 7avor o7 Asso)iated &' virt"e o7 t(e
de)ision in Civi5 Case No. -1- s(o"5d &e re)onve'ed to t(e8 and
t(at to disso5ve t(e te8porar' restrainin4 order and to dis8iss t(e
present petition o"5d 5eave petitioners it(o"t a 5e4a5 re8ed'.
In a 8in"te reso5"tion dated %pril 9, 97, t(e Co"rt denied t(e
said 8otion to respondents Cardenas and Ba5"'ot to disso5ve
te8porar' restrainin4 order and to dis8iss petition.
 1. T(e i88ediate o&6e)tives o7 t(is petition areJ =a> to en6oin
respondent K"d4e ernando Cr"@ o7 t(e Co"rt o7 irst Instan)e o7  intent an' &on'ition o7 t(e &asi) 19: 6"d48ent 5evied in e;e)"tion
Ri@a5, Ca5oo)an Cit' Bran)(, and respondents #edro Cardenas and
Leoni5a Ba5"'ot, and t(eir representatives, 7ro8 en7or)in4 t(e rit
o7 e;e)"tion and order o7 de8o5ition iss"ed &' said respondent
 K"d4e in Re4. Case No. C11 in re5ation t o t(e 5ot )overed &' T.C.T.
No. /:3 and =&> to en6oin respondent Asso)iated 7ro8 disposin4
its a55e4ed ri4(ts and interests in t(e to 5ots )overed &' T.C.T. No.
/:3 and T.C.T. No. :-:9, t(e in6"n)tion in &ot( )ases to &e 8ade
ee)tive d"rin4 t(e penden)' o7 t(e re)onve'an)e )ase, Civi5 Case
No. 9, ?5ed &' petitioners as p5aintis &e7ore t(e Mani5a )o"rt
o7 ?rst instan)e.
 T(e rea5 and s"&stantive o&6e)tives o7 t(e petition are to see< t(e
ri4(t7"5 restoration and re)onve'an)e to petitioners Ban@ons o7  it(o"t 7a)t"a5 &asis t(at Asso)iated (ad paid t(e &an< and as
t(eir to Ca5oo)an )it' 5ots, )overed &' T.C.T. :-:9 =sti55 in
Ban@onGs na8e, &"t on t(e &a)< (ereo7 is annotated t(e s(eriGs
?na5 deed o7 sa5e in 7avor o7 Asso)iated> and &' T.C.T. No. /:3 =in
t(e na8e o7 respondents Cardenases> on t(e 7"nda8enta5 4ro"nd
t(at Asso)iatedGs 5ev' in e;e)"tion o7 said 5ots as in tr+t for the
benet of the Philippine National Bank for the p+rpoe of pain4
the bank t(e 5oan o&5i4ation o7 Ma;i8o Sta. Maria (i)( Asso)iated
(ad 4"aranteed as s"ret' and a4ainst (i)( 5ia&i5it' Ban@on in t"rn
as inde8nitor (ad "nderta<en to inde8ni7' and (o5d (ar85ess
Asso)iated.
No, t(e &asi) 957 6"d48ent o7 t(e Mani5a )o"rt senten)in4
Ban@on to pa' Asso)iated a tota5 o7 #-2,:./3 e;)5"din4
interest, "for the benet of the Philippine National Bank" e;press5'
8ade o7 re)ord t(e said )o"rtGs intent and disposition t(at
t(e e<e&+tion an' operation o7 its 6"d48ent a4ainst Ban@on
ere &ontin4ent and &on'itione' "pon Asso) iate d as plainti-$
+ret a)t"a55' pa'in4 or &ein4 8ade or )o8pe55ed to pa'
t(e bank$&re'itor ane"iva5ent a8o"nt as 4"aranteed &' it. T(at
t(is is so is 8ade 8ore evident (en e )onsider t(e provisions o7  is )onsidered t(at in t(e pre8at"re e;e)"tion sa5e &' virt"e o7 t(e
Arti)5e 21 o7 t(e Civi5 Code (i)( per8it t(e s"ret' to ?5e s")(
an advan)e s"it a4ainst t(e prin)ipa5 de&tor =not a4ainst an
inde8nitor s")( as Ban@on> onl to o&tain releae 7ro8 t(e
4"arant' or e&+rit a4ainst t(e dan4er o7 t(e de&torGs inso5ven)'.
(ere t(e de&tor 'ire&tl dis)(ar4ed (is 5oan o&5i4ation to t(e
&an< (i)( in t"rn re5eased Asso)iated 7ro8 its +rethip 5ia&i5it'
it(o"t Asso)iated (avin4 in)"rred a )entavo o7 5ia&i5it', it is
indisp"ta&5e t(at Asso)iated in t"rn o"5d ne)essari5' re5ease
Ban@on as in'emnitor and t(e &asi) 19: 6"d48ent o"5d
&e inoperable an' +nenfor&eable a4ainst Ban@on.
(en Asso)iated nevert(e5ess premat+rel and &ontrar to the
on t(e to Ca5oo)an Cit' 5ots o7 Ban@on, t(e interest it a)"ired
as )5ear5' i8pressed it( a tr+t &hara&ter . S")( a)"isition o7 
Ban@onGs properties &' Asso)iated as ee)ted, i7 not
t(ro"4( fra+'-a on Asso)iatedGs part, )ertain5'
t(ro"4( mitake-& and t(ere7ore, Asso)iated as &' 7or)e o7 5a,
)onsidered a tr"stee o7 an implie' tr+t 7or t(e &ene?t o7 t(e
person 7ro8 (o8 t(e propert' )o8es &' virt"e o7 Arti)5e 1:3 o7 
t(e Civi5 Code -) sin)e Asso)iated not (avin4 paid nor (avin4 &een
)o8pe55ed to pa' t(e &an< (ad no ri4(t in 5a or e"it' to so
e;e)"te t(e 6"d48ent a4ainst Ban@on as inde8nitor. Had t(ere
&een no 7ra"d"5ent )on)ea58ent or s"ppression o7 t(e 7a)t o7 s")(
nonpa'8ent &' Asso)iated or a 8ista<en notion 6"st ass"8ed
t("s entit5ed to en7or)e its 6"d48ent a4ainst Ban@on as inde8nitor,
t(e rit 7or e;e)"tion o7 t(e 6"d48ent a4ainst Ban@onGs properties
o"5d not (ave &een iss"ed. -d
"rt(er8ore, Asso)iatedGs )ond")t, "pon &ein4 s"ed &' t(e
#(i5ippine Nationa5 Ban< dire)t5' it( t(e prin)ipa5 de&tor Sta.
Maria 7or )o55e)tion o7 t(e de&t -e and senten)ed &' t(e #a8pan4a
)o"rt o7 ?rst instan)e in 963=(i)( it did not appea5> to pa' t(e
de&t in t(e 8")( 5esser a8o"nt o7 on5' #1:,3., e;)5"din4
interests, in not so dis)(ar4in4 its 5ia&i5it' notit(standin4 t(at it 
ha' alrea' e<e&+te' it 957 >+'4ment a4aint Banon as
inde8nitor and ta<en in e;e)"tion Ban@onGs to properties, as
indeed rank fra+'. Asso)iated t(ere7ore stands 5e4a55' &o"nd &'
7or)e o7 5a to no dis)(ar4e its i8p5ied tr"st and ret"rn Ban@onGs
properties to (i8 as t(eir tr "e and ri4(t7"5 oner.
 T(e o&5i4ation i8posed "pon Asso)iated as i8p5ied tr"stee to so
restore Ban@onGs properties &e)o8es even 8ore )o8pe55in4 (en it
&asi) 19: 6"d48ent, Asso)iated ostensi&5' as t(e (i4(est &idder
t(ere7or app5'in4 its p+rporte'  6"d48ent )redit o7 #1,222.22
(enin la s")( 6"d48ent as not s"&6e)t to e;e)"tion sin)e t(e
)ondition o7 Asso)iated as s"ret' &ein4 8ade to pa' t(e &an< to
8a<e t(e 6"d48ent opera&5e and en7or)ea&5e (ad not 8ateria5i@ed
and in fa&t . Asso)iated not (avin4 paid an't(in4 to t(e &an< did
not possess s")( p"rported 6"d48ent )redit o7 #1,222.22, nor did
it p"t o"t a sin45e )entavo 7or (i)( it )o"5d (o5d Ban@on
ansera&5e and t(ere7ore ta<e Ban@onGs properties in e;e)"tion
and satis7a)tion t(ereo7. A)t"a55', as a5read' indi)ated a&ove, t(e
prin)ipa5 de&t o7 t(e &an<Gs de&tor, (en dire)t5' )o55e)ted &' t(e
&an< si; =3> 'ears 5ater, a8o"nted 8ere5' to 1V t(e a8o"nt or
#1:,3. as o7 A"4"st, 193-, e;)5"din4 interestsJ -7  As a5read'
stated a&ove, Asso)iated did not pa' even t(is 8")( 5esser
a8o"nt, notit(standin4 t(e #a8pan4a )o"rtGs 6"d48ent a4ainst it
in t(e s"it dire)t5' ?5ed &' t(e &an<.
ina55', it o"5d &e an o"tra4e on si8p5e 6"sti)e and ini"ito"s
"n6"st enri)(8ent i7 a s"ret' s")( as Asso)iated, a7ter ta<in4 tit5e
in e;e)"tion to t(e inde8nitorGs properties in order to prote&t or  193, t(e Cit' S(eri o7 Ca5oo)an so5d on Mar)( -, 193 at a
reimb+re itelf 7ro8 5ia&i5it' to t(e )reditor 7or t(e de&t
4"aranteed &' it, ere to &e a55oed to retain onerhip o7 t(e
properties even tho+4h it 'i' not in&+r or 'i&har4e it liabilit at   %o&iate' (n+ran&e ) *+ret !o. (n&., over the propert p5"s t(e
all, Gsin)e it s"))eeded in evadin4 pa'8ent to t(e )reditor (o
t(erea7ter )o55e)ted t(e de&t dire)t5' 7ro8 t(e de&tor. T("s, t(e
5a =Arti)5e 1:3, Civi5 Code> i8presses properties t("s a)"ired
it( a tr+t &hara&ter and )onstit"tes t(e errin4 s"ret' as tr"stee
o7 an i8p5ied tr"st 7or t(e &ene?t o7 t(e person 7ro8 (o8 t(e
propert' )o8es, in t(is )ase, Ban@on as t(e tr"e and ri4(t7"5
oner o7 t(e properties.
. As Cardenas in 5ev'in4 in t"rn 7or satis7a)tion o7 (is #:,122.22
 6"d48ent a4ainst Asso)iated on one o7 Ban@onGs 5ots a)"ired on5'
(atever interest Asso)iated (ad in t(e 5ot, and it( t(e
<no5ed4e t(at Asso)iatedGs &asi) 19: 6"d48ent a4ainst Ban@on
as "for the benet of the Philippine National Bank" and (en)e
Asso)iatedGs interest in t(e Ban@on properties as i8pressed it(
a tr+t &hara&ter, s"&6e)t to t(e o&5i4ation o7 Asso)iated as i8p5ied
tr"stee to ret"rn t(e properties to Ban@on, t(e tr+t &hara&ter o7  It is o&vio"s t(at sin)e (at Cardenas a)"ired in (is e;e)"tion 7or
t(e 5ot tit5ed &' Cardenas ne)essari5' passed to (i8. Cardenas
)o"5d not )5ai8 a)t"a5 or a&so5"te oners(ip o7 t(e 5ot so tit5ed &"t
)o"5d on5' (o5d t(e sa8e as tr"stee, 5i<e Asso)iated as
(is &a+ante or prede)essor.
 T(e respondents CardenasesG p5eadin4s o7 re)ord s(o )5ear5' t(at
t(e' ere f+ll aare o7 t(ese vita5 ante)edents and pre8ises o7  &laim an' title" at all &"t Asso)iatedGs o&5i4ation as tr+tee to
t(e s"its &eteen Asso)iated and t(e Ban@ons. In t(eir
8e8orand"8, t(e' )ite t(e Mani5a )o"rt o7 ?rst instan)eGs &asi)
de)ision in Civi5 Case No. -1- )onde8nin4 de7endants to pa'
 6oint5' and severa55' "pon =si)> p5ainti =Asso)iated> b+t for the
benet of the Philippine National Bank"  t(e severa5 a8o"nts
so"4(t &' Asso)iated, a +ret, tota55in4 #-2,:./3. As 7ar as
t(eir on )5ai8 a4ainst Asso)iated is )on)erned, t(e' 5i<eise
re)ite in t(eir 8e8orand"8 t(at
On Apri5 9, 19:9, t(en K"d4e =no K"sti)e> Kes"s #ere@ o7 t(e
Co"rt o7 irst Instan)e o7 Mani5a rendered a de)ision in Civi5 Case
No. -319, entit5ed G#edro Cardenas vs. Qi)toria Qda. de Ten4)o, et
a5.,G orderin4 t(e de7endants, in)5"din4 t(e Asso)iated Ins"ran)e %
S"ret' Co. In)., as s"ret', to pa' )ertain s"8s o7 8one' to #edro
Cardenas. T(e 5ia&i5it' o7 t(e Asso)iated Ins"ran)e % S"ret' Co.
In)., as ar8ed &' t(e Co"rt o7 Appea5s in a De)ision
pro8"54ated on O)to&er -2, 193-, in CA+.R. No. :R.
Conse"ent5', p"rs"ant to a rit o7 E;e)"tion iss"ed on e&r"ar' /,
p"&5i) a")tion to #edro Cardenas, t(e (i4(est and on5' &idder, all
the ri4ht, interet, &laim an' title of the >+'4ment$'ebtor 
i8prove8ents t(ereon )overed &' Trans7er Certi?)ate o7 Tit5e No.
-93/: Done of the propertie a&+ire' from %ntonio BanonE . T(e
propert' not (avin4 &een redee8ed it(in t(e one 'ear period, a
Deed o7 A&so5"te Sa5e as iss"ed in 7avor o7 #edro Cardenas on
Apri5 , 193:. On %pril 23, 965, #edro Cardenas ?5ed a petition
it( t(e Co"rt o7 irst Instan)e o7 Ri@a5, Bran)( II, Ca5oo)an Cit',
in Re4istration Case No. C11 =LRC Re). No. 113>, entit5ed G#edro
Cardenas, #etitioner,G 7or t(e iss"an)e o7 a ne trans7er )erti?)ate
o7 tit5e over t(e propert' 8 "estion and to de)5are n"55 and void
t(e one previo"s5' iss"ed. On :a 5, 965, a Trans7er Certi?)ate o7 
 Tit5e as iss"ed &' t(e Re4ister o7 Deeds o7 Ca5oo)an Cit' in t(e
na8e o7 #edro Cardenas p"rs"ant to t(e order o7 t(e )o"rt in
a7ore)ited Re4istration Case No. C11 dated Ma' -, 193:, as
a8ended.:
(is #:,122 6"d48ent a4ainst Asso)iated asonl all the ri4ht,
interet, &laim an' title of the >+'4ment$'ebtor D%o&iate'E
over the propert ; ; ; Done of the propertie a&+ire' from %ntonio
BanonE" and Asso)iatedGs ri4(ts, i7 t(e' )o"5d &e so deno8inated,
over Ban@onGs properties ere 8ere5' t(ose o7 a tr+tee,
+pra and !ar'ena thereb a&+ire' no abol+te ri4ht, interet,
restore Ban@onGs 5a7"5 properties to (i8.
-. As a point o7 5a, even t(o"4( "nder Asso)iatedGs s"ret's(ip
a4ree8ent 4"aranteein4 Sta. MariaGs )rop 5oans it( t(e &an<, it
as per8itted, s"pposed5' 7or its prote)tion, to pro)eed 6"di)ia55'
a4ainst t(e prin)ipa5 de&tor and inde8nitors even prior to t(e
s"ret'Gs 8a<in4 pa'8ent to t(e )reditor &an<, Arti)5e 21 o7 t(e
Civi5 Code re4"5ates s")( re5ationsG and provides t(at in s")( )ases,
t(e s"ret'Gs ri4(t is a4ainst t(e prin)ipa5 de&tor and t(at in a55
t(ese )ases, t(e a&tion of the 4+arantor is to obtain releae from
the 4+arant, or to 'eman' a e&+rit t(at s(a55 prote)t (i8 7ro8
an' pro)eedin4s &' t(e )reditor and 7ro8 t(e dan4er o7 inso5ven)'
o7 t(e de&tor.
Asso)iated t("s did not even (ave an' va5id )a"se o7 a)tion a4ainst
Ban@on as its inde8nitor, &"t )o"5d pro)eed on5' a4ainst Sta. Maria
as t(e prin)ipa5 de&tor. And even as a4ainst s")( prin)ipa5 de&tor,
it )o"5d not pre8at"re5' de8and pa'8ent even &e7ore it (ad paid
t(e )reditor, its a)tion &ein4 5i8ited on5' 7or t(e p"rpose o7  5a, sin)e an or'er for it li+i'ation an' 'iol+tion (ad a5read'
o&tainin4releae 7ro8 t(e 4"arant' or a e&+rit a4ainst an
event"a5 inso5ven)' o7 t(e de&tor. As as e8p(asi@ed &' Mr.
 K"sti)e Re'es 7or t(e Co"rt in eneral (n'emnit !o. (n&.
v. %lvare,3 (i5e a 4"arantor 8a' "nder Arti)5e 21 o7 t(e
Civi5 Code pro)eed a4ainst t(e prin)ipa5 de&tor, even &e7ore (avin4
paid, (en t(e de&t (as &e)o8e de8anda&5e, =T>(e 5ast
para4rap( o7 t(is sa8e arti)5e, (oever, provides t(at in s")(
instan)e, t(e on5' a)tion t(e 4"arantor )an ?5e a4ainst t(e de&tor
is to o&tai n releae 7 ro8 t (e 4"ar ant', or t o de8 an d
a e&+rit t(at s(a55 prote)t (i8 7ro8 an' pro)eedin4 &' t(e
)reditor and 7ro8 t(e dan4er o7 inso5ven)' o7 t(e de&tor.G %n
a&tion &' t(e 4"arantor a4ainst t(e prin)ipa5, de&tor for pament,
before the former ha pai' the &re'itor, i premat+re."
. T(e rea5i@ation o7 t(e Ban@onsG ri4(t7"5 o&6e)tives in 5a and
e"it' as t("s restated (as so8e(at &een (a8pered and
&e)5o"ded &' t(e ineptit"de and sorr' ne45e)t it( (i)( t(e'
andVor t(eir )o"nse5 (ave p"rs"ed t(eir re8edies in t(e vario"s
s"its &ro"4(t &' t(e8. To )ite t(e 5atest instan)e, t(e pendin4 s"it
?5ed &' t(e8 in t(e Mani5a )o"rt o7 ?rst instan)e, Civi5 Case No.
9, is 7ro8 t(e re)ord t(e rt real &ae that the have properl  voi'.
le' for re&onvean&e o7 t(eir to Ca5oo)an Cit' 5ots &ased on
t(eir ne )a"se o7 a)tion t(at it( t(e de&torGs dire)t pa'8ent to
t(e &an<, Asso)iated (ad &een re5eased as s"ret' and Ban@on
)onse"ent5' 5i<eise re5eased as Asso)iatedGs inde8nitor, and
t(ere7ore Asso)iated in dis)(ar4e o7 t(e implie' tr+t "nder (i)( it
e;e)"ted t(e &asi) 19: 6"d48ent "for the benet of the Philippine
National Bank" a4ainst Ban@on as no &alle' +pon to 'i&har4e
+&h tr+t and re&onve an' retore Banon propertie to (i8.
 $et Ban@on ?5ed no appea5 7ro8 t(e Mani5a Co"rtGs dis8issa5 o7 (is
)o8p5aint a4ainst t(e Cardenas spo"ses 7or re)onve'an)e o7 t(e 5ot
ron47"55' tit5ed &' t(e 5atter on t(e 5oer )o"rtGs 8ista<en )on)ept
t(at t(is Co"rtGs de)ision o7 Nove8&er 9, 193/ in  %o&iate' v.
Banon= +pra, )onstit"ted re >+'i&ata and apparent5' a55oed
s")( dis8issa5 to &e)o8e ?na5. In rea5it', sin)e Asso)iated never
(ad to pa' t(e &an<, Ban@onGs to 5ots, (i)( (ad &een 5evied
"pon premat+rel "nder Asso)iatedGs 6"d48ent a4ainst Ban@on and
ere t(ere7ore (e5d &' it in implie' tr+t 7or Ban@on &' 7or)e o7 
5a, "'eerve to be re&onvee' to them" F in the ver or' of the
in+ran&e &ommiioner, (o a5one and o)ia55' represents and
a)ts 7or Asso)iated as li+i'ator .
As 8ani7ested &' Asso)iatedGs 7or8er )o"nse5 even (en
Asso)iated as a)tin4 on its on "na"t(ori@ed5' and in vio5ation o7 
&een iss"ed &' t(e Mani5a )o"rt in&e e&ember 3, 965, (e, as
Asso)iatedGs )o"nse5, never atte8pted to trans7er Ban@onGs tit5es to
Asso)iated sin)e t(e "estion +b$>+'i&e, &e7ore t(is Co"rt and
reso5ved on5' per its de)ision in %o&iate' v.
Banon o7 November 29, 968, as o7 (i)( ti8e, t(is Co"rt (ad
a5read' previo+l a@rme' on A+ne 20, 968 in +.R. No. L/9-,
t(e Mani5a )o"rtGs 'iol+tion an' li+i'ation or'er a4ainst
Asso)iated t("s re8ovin4 a55 do"&t t(at on5' t(e Ins"ran)e
Co88issioner as 5i"idator )o"5d a)t in an' and a55 8atters 7or
Asso)iated.
:. !nder Se). 1:C, para4rap( - o7 t(e Ins"ran)e A)t as
a8ended,/ t(e (n+ran&e !ommiioner a li+i'ator o7 
Asso)iated as vested &' a"t(orit' o7 5a it( t(e title to a55 o7 t(e
propert', )ontra)ts and ri4(ts o7 a)tion o7 Asso)iated a of the 'ate
of the >+'i&ial or'er of li+i'ation, and an' ale or 'ipoition o7 
Asso)iatedGs properties or ri4(ts itho+t the knole'4e an'
&onent of the in+ran&e &ommiioner a li+i'ator and itho+t 
the approval b the li+i'ation &o+rt i &ontrar to la an' n+ll an'
A))ordin45', petitioners Ban@ons are, as a4ainst t(eir and t(eir
)o"nse5Gs ne45e)t and inattention, nevert(e5ess saved 7ro8 t(e
ot(erise 7ata5 )onse"en)es o7 t(e invo<ed ?na5 dis8issa5 o7 t(eir
)o8p5aint a4ainst t(e Cardenases in Civi5 Case No. 9 o7 t(e
Mani5a )o"rt 7or re)over' o7 t(e 5ot ron47"55' tit5ed in t(e
CardenasesG na8e per T.C.T. No. /:3. Sin)e in a55 t(e
5iti4ations +be+ent to Asso)iatedGs pre8at"re5' o&tainin4 in t(e
Mani5a )o"rt o7 ?rst instan)e in Civi5 Case -1- t(e &asi) 19:
 6"d48ent as s"ret' a4ainst Ban@on as a 8ere inde8nitor to )over
t(e prin)ipa5 de&tor Sta. MariaGs de8anda&5e 5oans to t(e &an< and
t(erea7ter 5ev'in4 in e;e)"tion on Ban@onGs to Ca5oo)an Cit' 5ots,
notit(standin4 t(at s")( 6"d48ent as e;press5' (e5d to &e in
tr"st and 7or t(e &ene?t o7 t(e &an<, t(e ins"ran)e )o8issioner as
5i"idator o7 Asso)iated and t(ere7ore an in'ipenable part as
never i8p5eaded and t(ere7ore there &o+l' be no nal
 'etermination of ai' a&tion. !nder R"5e -, se)tion
, in'ipenable partie 8"st a5a's &e 6oined eit(er as p5aintis or
de7endants, 7or t(e )o"rt )annot pro)eed it(o"t t(e8, and (en)e
a55 6"d48ents and pro)eedin4s (e5d a7ter t(e 5i"idation and
disso5"tion order a4ainst Asso)iated &e)a8e vo i' for la&k of an
in'ipenable part in t(e person o7 t(e ins"ran)e )o88issioner
5i"idator. T(e ins"ran)e )o88issioner as 5i"idator o7 Asso)iated
&' a"t(orit' o7 5a as indisp"ta&5' an in'ipenable part it(
s")( an inte rest in t(e )ont ro ver sies ae )tin4 t(e
 6"d48ent for Asso)iated =a4ainst Ban@on> and a4aint Asso)iated
=in 7avor o7 Cardenas> t(at a ?na5 de)ree o"5d ne)essari5' ae)t
its ri4(ts =ad8inistered &' t(e Co88issioner in t(e p"&5i) interest
and 7or t(e p"&5i)Gs prote)tion> so t(at t(e )o"rts )o"5d not pro)eed
t(erein it(o"t t(e )o88issioner5i"idatorGs o)ia5 presen)e.
3. T(e ron47"5 dis8issa5 &' t(e Mani5a )o"rt o7 t(e Ban@onsG
re)onve'an)e s"it, Civi5 Case No. 9, as a4ainst t(e Cardenases
t("s does not prod")e (at o"5d ot(erise (ave &een 7ata5
)onse"en)es d"e to t(e Ban@onsG 7ai5"re to appea5 7ro8 s")(
dis8issa5.
 T(eir re)onve'an)e )ase as a4aint %o&iate' as prin)ipa5
de7endant re8ains pendin4 in )o"rt. And t(ein+ran&e
&ommiioner + li+i'ator of %o&iate', no t(at s(e is 7"55'
aare o7 t(e stat"s o7 t(ese ante)edent )ases a7ter s(e ?na55'
re)eived on Mar)( 11, 191 t(e vo5"8ino"s re)ords t(ereo7 (i)(
(ad (it(erto not &een s"rrendered to (er o)e despite de8ands
t(ere7or, is )a55ed "pon to appear 7or Asso)iated in t(e said )ase, i7  restore 8atters to t(e tat+ +o ante. 9
s(e (as not as 'et &een d"5' i8p5eaded as s")( 5i"idator. Gith
the in+ran&e &ommiioner, a li+i'ator of %o&iate' an' an
in'ipenable part no in the &ae, t(e said re&onvean&e
+it 8a' no pro&ee' ane andthe !ar'ena po+e &a+e' b  Ban@onsG to 5ots ron47"55' ta<en 7ro8 t(e8 &' Asso)iatedGs
the li+i'ator to be '+l implea'e' ane for t(e' are
a5so in'ipenable partieinso7ar as t(e ins"ran)e )o88issioner
5i"idatorGs )5ai8 on &e(a57 o7 Asso)iated to t(e 5ot )overed &'
 T.C.T. No. /:3 iss"ed in t(eir na8e is )on)erned. Herein
petitioners see< prin)ipa55' in t(e said )ase t(e re)onve'an)e to
t(e8 &' Asso)iated o7 t(eir to par)e5s o7 5and )overed &' T.C.T.
No. /:3 and T.C.T. No. :-:9, as a)"ired in e;e)"tion &'
Asso)iated, and t(erea7ter, it( respe)t to t(e 5ot )overed &' T.C.T.
No. /:3, &' t(e Cardenases, &' virt"e o7 t(e tr+t  o7 t(e petition. As to petitionersG &"i5din4 t(ereon )5ai8ed to &e
&hara&ter i8pressed "pon t(e8 and Asso)iatedGs d"t' as implie'
tr+tee to restore said properties to t(e Ban@ons.
Considerin4 t(at t(e in+ran&e &ommiioner herelf, (o no
5e4a55' )an a5one represent Asso)iated a li+i'ator, (as herein
re&o4nie' +&h tr+t &hara&ter and (as e;pressed t(e &e5ie7 
t(at the ai' lot, no le than the other lot &overe' b .!.. No.
8567, ho+l', in A+ti&e to petitioner, be re&onvee' to them on
a))o"nt, a8on4 ot(ers, o7 petitioner Ban@onGs re5ease 7ro8 (is
o&5i4ation as inde8nitor &' virt"e o7 t(e prin)ipa5 de&torGs
s"&se"ent pa'8ent o7 (is o&5i4ation it( t(e #(i5ippine Nationa5
Ban< (i)( 5i<eise re5eased Asso)iated 7ro8 an' 5ia&i5it' as
s"ret', t(e present petition s(o"5d t(ere7ore &e 4ranted in t(e
interests o7 6"sti)e and e"it' so as to ena&5e t(e ins"ran)e
)o88issioner5i"idator in d"e )o"rse to 'i&har4e the tr+t o7 
re)onve'in4 Ban@onsG properties to t(e8.
. T(e )ir)"8stan)es t(at respondents Cardenases, inso7ar as t(e
5ot ron47"55' )5ai8ed &' t(e8, )a"sed t(e Ca5oo)an Cit' spe)ia5
dep"t' s(eri to en7or)e on Mar)( -, 192 respondent )o"rtGs
)(a55en4ed order o7 de8o5ition and rit o7 possession on the ver 
'a t(at t(is Co"rt ordered t(e iss"an)e o7 a restrainin4 order
a4ainst t(e en7or)e8ent o7 said )(a55en4ed order and rit, and
notit(standin4 t(at said s(eri as d"5' advised &' Ban@on o7 t(e
petition at &ar (avin4 &een ?5ed on Mar)( 2, 192, does not 8a<e
t(e restrainin4 order in an' 8anner 8oot. T(e Co"rt does not 5oo<
it( 7avor "pon parties ra)in4 to &eat an in6"n)tion or restrainin4
order (i)( t(e' (ave reason to &e5ieve 8i4(t &e 7ort()o8in4
7ro8 t(e Co"rt &' virt"e o7 t(e ?5in4 and penden)' o7 t(e
appropriate petition t(ere7or. (ere t(e restrainin4 order or
pre5i8inar' in6"n)tion are 7o"nd to (ave &een proper5' iss"ed, as in
t(e )ase at &ar, man'ator rit s(a55 &e iss"ed &' t(e Co"rt to
In t(e )ase at &ar, it( t(e ins"ran)e )o88issioner as 5i"idator o7 
Asso)iated, re&o4niin4 t(ro"4( t(e So5i)itor +enera5 t(at t(e
pre8at"re a)tions s(o"5d &e re)onve'ed to t(e8, t(ere is
esta&5is(ed a )5ear and ind"&ita&5e s(oin4 on t(e re)ord t(at t(e
petitioners are entit5ed to a rit restorin4 t(e tat+ +o ante. A
8andator' rit s(a55 t(ere7ore iss"e )o88andin4 respondent )o"rt
to 7ort(it( retore petitioner to t(eir possession o7 Lot 3, B5o)<
13, )overed &' T.C.T. /:3 7ro8 (i)( t(e' (ave &een re8oved
&' en7or)e8ent o7 said respondent )o"rtGs en6oined order o7 
de8o5ition and rit o7 possession dated Mar)( 1-, 192, Anne; 
ort( #12,222.22 =&"t )o"ntered &' Cardenas to &e a 8ere
&aron4&aron4-2 >, respondent )o"rt s(a55 at Ban@onGs petition
)a"se respondents Cardenases to retore the 'emolihe' b+il'in4
or pa Banon the 'etermine' val+e thereof . As to t(e 7r"its o7 
possession o7 t(e 5and, it( Cardenas a)<no5ed4in4 t(at (e (as