G.R. No.

157309 March 28, 2008 As a condition for the issuance of the sight draft,
petitioner executed a letter of undertaking in favor
MARLOU L. VELASQUEZ, Petitioner, of respondent. Under the terms of the letter of
vs. undertaking, petitioner promised that the draft will
SOLIDBANK CORPORATION, Respondent. be accepted and paid by Bank of Seoul according
to its tenor. Petitioner also held himself liable if the
DECISION sight draft was not accepted. The letter of
undertaking provided:
REYES, R.T., J.:
SOLIDBANK CORPORATION Feb. 22, 1993
PARTIES may not impugn the effectivity of a 32 Borromeo Street
contract, after much benefit has been gained to the Cebu City
prejudice of another. They are bound by the
obligations they expressly set out to do. Gentlemen: Re: PURCHASE OF ONE DOC.
SIGHT DRAFT DRAWN UNDER
Before Us is a petition for review on certiorari of the LC#M2073210NS00040 FOR US$59,640.00
Decision1 of the Court of Appeals (CA) which UNDER OUR CEBP93/102.
affirmed with modification that of the Regional Trial
Court (RTC) in Cebu City,2 holding petitioner Marlou In consideration of your negotiating the above
Velasquez liable under his letter of undertaking to described draft(s), we hereby warrant that the
respondent Solidbank Corporation. above referred to draft(s) and accompanying
documents are genuine and accurately represent
The Facts the facts stated therein and that the draft(s) will be
accepted and paid in accordance with its/their
Petitioner is engaged in the export business tenor. We further undertake and agree, jointly and
operating under the name Wilderness Trading. severally, to hold you free and harmless from and
Respondent is a domestic banking corporation to defend all actions, claims and demands
organized under Philippine laws. whatsoever, and to pay on demand all damages,
actual or compensatory, including attorneys fees,
in case of suit, at least equal to __% of the amount
The case arose out of a business transaction for
due, which you may suffer arising by reason of or
the sale of dried sea cucumber for export to South
on account of your negotiating the above draft(s)
Korea between Wilderness Trading, as seller, and
because of the following discrepancies or reasons
Goldwell Trading of Pusan, South Korea, as buyer.
or any other discrepancy or reason whatever:
To facilitate payment of the products, Goldwell
Trading opened a letter of credit in favor of
Wilderness Trading in the amount of 1) B/L MARKED "SAID TO CONTAIN" &
3
US$87,500.00 with the Bank of Seoul, Pusan, "SHIPPERS LOAD, STOWAGE & COUNT."
Korea.
2) LATE SHIPMENT.
On November 12, 1992, petitioner applied for credit
accommodation with respondent bank for pre- 3) QUANTITY SHIPPED @ US$14.00
shipment financing. The credit accommodation was OVERDRAWN BY 0.06 TON.
granted. Petitioner was successful in his first two
export transactions both drawn on the letter of 4) NO INSPECTION CERTIFICATE
credit. The third export shipment, however, yielded PRESENTED.
a different result.
We hereby undertake to pay on demand the full
On February 22, 1993, petitioner submitted to amount of the draft(s) or any unpaid balance of the
respondent the necessary documents for his third draft(s), with interest at the prevailing rate of today
shipment. Wanting to be paid the value of the from the date of negotiation, plus all charges and
shipment in advance, petitioner negotiated for a expenses whatsoever incurred in connection
documentary sight draft to be drawn on the letter of therewith. You shall neither be obligated to contest
credit, chargeable to the account of Bank of Seoul. or dispute any refusal to accept or to pay the whole
The sight draft represented the value of the or any part of the above draft(s) nor to proceed in
shipment in the amount of US$59,640.00.4 anyway against the drawee thereof, the issuing
bank, or against any indorser thereof before making
a demand on us for the payment of the whole or (3) to pay the costs.
any unpaid balance of the draft(s).5 (Emphasis
added) SO ORDERED.11

By virtue of the letter of undertaking, respondent The RTC ratiocinated:

advanced the value of the shipment which, at the
current rate of exchange at that time This court is not convinced with the defendants
was P1,495,115.16, less bank charges, to argument that because of plaintiffs failure to
petitioner. Respondent then sent all the documents protest the dishonor of the sight draft, his liability is
pertinent to the export transaction to the Bank of extinguished because his liability remains under the
Seoul. letter of undertaking which he signed and without
which plaintiff would not have advanced or credited
Respondent failed to collect on the sight draft as it to him the amount.
was dishonored by non-acceptance by the Bank of
Seoul. The reasons given for the dishonor were late Section 152 of the Negotiable Instruments Law
shipment, forged inspection certificate, and under which defendant claims extinguishment of his
absence of countersignature of the negotiating liability to plaintiff is not a bar to the filing of other
bank on the inspection certificate.6 Goldwell Trading appropriate remedies which the aggrieved party
likewise issued a stop payment order on the sight may pursue to vindicate his rights and in this instant
draft because most of the bags of dried sea case, plaintiff wants his right vindicated by virtue of
cucumber exported by petitioner contained soil. the letter of undertaking which defendant signed.
By the letter of undertaking, defendant bound
Due to the dishonor of the sight draft and the stop himself to pay on demand all damages including
payment order, respondent demanded restitution of attorneys fees which plaintiff may suffer arising by
the sum advanced.7 Petitioner failed to heed the reason of or on account of negotiating the above
demand. draft because of the following discrepancies or any
other discrepancy or reasons whatsoever and
On June 3, 1993, respondent filed a complaint for further to pay on demand full amount of any unpaid
recovery of sum of money8 with the RTC in Cebu balance with interest at the prevailing rate. He
City. In his answer, petitioner alleged that his should be bound to the fulfillment of what he
liability under the sight draft was extinguished when expressly obligated himself to do and perform in the
respondent failed to protest its non-acceptance, as letter of undertaking without which, plaintiff would
required under the Negotiable Instruments Law not have advance (sic) and credited to him the
(NIL). He also alleged that the letter of undertaking amount in the draft. He should not enrich himself at
is not binding because it is a superfluous the expense of plaintiff.12(Emphasis added)
document, and that he did not violate any of the
provisions of the letter of credit.9 Disagreeing, petitioner elevated the matter to the
CA.
RTC and CA Dispositions
On June 27, 2002, the CA affirmed with
On September 25, 1996, the RTC rendered modification the RTC decision, disposing as
judgment10 in favor of respondent with the following follows:
fallo:
WHEREFORE, premises considered, the assailed
IN VIEW OF THE FOREGOING, judgment is Decision is hereby AFFIRMED with
hereby rendered ordering the defendant: MODIFICATION. Defendant-appellant Marlou L.
Velasquez is hereby ordered to pay plaintiff-
(1) to pay the plaintiff the principal sum appellee Solidbank Corporation, the following: (1)
of P1,495, 115.16 plus interest at 20% per the principal amount of One Million Four Hundred
annum counted from February 22, 1993 up Ninety-Five Thousand One Hundred Fifteen and
to the time the entire amount shall have Sixteen Centavos (P1,495,115.16) plus interest at
been fully paid; twelve percent (12%) per annum from February 22,
1993 until fully paid, (2) attorneys fees equivalent
(2) to pay attorneys fees equivalent to 10% to five percent (5%) of the total amount due, and (3)
of the total amount due the plaintiff; and costs of the suit.
SO ORDERED.13 I.

In ruling against petitioner, the CA opined: THE COURT OF APPEALS RULED THAT
PETITIONER IS LIABLE ON THE
The fact that said draft was dishonored and not ACCESSORY CONTRACT, THE LETTER
paid by the Bank of Seoul-Korea, (sic) it is OF UNDERTAKING, DESPITE THE FACT
incumbent upon defendant-appellant Velasquez to THAT PETITIONER WAS ALREADY
comply with his obligation under the Letter of RELEASED FROM LIABILITY UNDER THE
Undertaking. He cannot be allowed to impugn the SIGHT DRAFT, THE PRINCIPAL
contract of undertaking he entered into by saying CONTRACT, UNDER THE PROVISIONS
that it was a superfluous document, and therefore, OF THE NEGOTIABLE INSTRUMENTS
not binding on him. The contract of undertaking is LAW AND THE CIVIL CODE.
the law between them, and must be enforced
accordingly. This is in accord with Article 1159 of II.
the New Civil Code, which provides that
"obligations arising from contracts have the force of THE COURT OF APPEALS HELD
law between the contracting parties and should be PETITIONER LIABLE UNDER THE
complied with in good faith." And parties to a ACCESSORY CONTRACT, THE LETTER
contract are bound to the fulfillment of what has OF UNDERTAKING, DESPITE THE FACT
expressly been stipulated therein, regardless of the THAT THERE WAS NO PROOF
fact that it turn (sic) out to be financially WHATSOEVER THAT PETITIONER
disadvantageous.14 VIOLATED EITHER THE PRINCIPAL
CONTRACT, THE SIGHT DRAFT, OR
xxxx EVEN THE LETTER OF
UNDERTAKING.18 (Underscoring supplied)
The fact that Defendant-appellant benefited from
the advance payment made by Plaintiff appellee, The main issue is whether or not petitioner should
(sic) it is incumbent upon him to return what he be held liable to respondent under the sight draft or
received because the purpose of the advance the letter of undertaking. There is no dispute that
payment was not attained and/or realized, as the petitioner duly signed and executed these
sight draft was not paid accordingly, otherwise, it documents. It is likewise admitted that the sight
will result to unjust enrichment on the part of draft was dishonored by non acceptance by the
Defendant-appellant at the expense of Plaintiff- Bank of Seoul.
appellee, in violation of Articles 19 and 22 of the
New Civil Code. The doctrine of unjust enrichment Our Ruling
and restitution simply means that "the exercise of a
right ends when the right disappears, and it The petition is without merit.
disappears when it is abused, especially to the
prejudice of others."15 (Emphasis added) Petitioner is not liable under the sight draft but he is
liable under his letter of undertaking; liability under
Petitioner moved for reconsideration16 but his the letter of undertaking was not extinguished by
motion was denied.17 Hence, the present recourse. non-protest of the dishonor of the sight draft.

Issues Petitioner argues that he cannot be held liable

under either the sight draft or the letter of
Petitioner raises twin issues for Our consideration, undertaking. He claims that the failure of
to wit: respondent to protest the dishonor of the sight draft
under Section 152 of the NIL discharged him from
THE COURT OF APPEALS HAS DECIDED A liability under the negotiable instrument. It is also
QUESTION OF SUBSTANCE, NOT contended that his liability under the letter of
HERETOFORE DETERMINED BY THIS undertaking is that of a mere guarantor; that the
HONORABLE COURT, OR HAS DECIDED IT IN A letter of undertaking is only an accessory contract
WAY PROBABLY NOT IN ACCORD WITH to the sight draft. Since he was discharged from
LAW OR WITH THE APPLICABLE DECISIONS OF liability under the sight draft, he cannot be held
THIS HONORABLE COURT, IN THAT: liable under the letter of undertaking.
For its part, respondent counters that petitioners The consideration for the letter of undertaking was
liability springs from the letter of undertaking, petitioners promise to pay respondent the value of
independently of the sight draft. It would not have the sight draft if it was dishonored for any reason by
advanced the amount without the letter of the Bank of Seoul.
undertaking. According to respondent, the letter of
undertaking is an independent agreement and not We cannot accept petitioners thesis that he is only
merely an accessory contract. To permit petitioner a mere guarantor under the letter of
to escape liability under the letter of undertaking credit.1avvphi1 Petitioner cannot be both the
would result in unjust enrichment.1avvphi1 primary debtor and the guarantor of his own debt.
This is inconsistent with the very purpose of a
Petitioners liability under the letter of undertaking is guarantee which is for the creditor to proceed
independent from his liability under the sight draft. against a third person if the debtor defaults in his
He may be held liable under either the sight draft or obligation. Certainly, to accept such an argument
the letter of undertaking or both. would make a mockery of commercial transactions.

Admittedly, petitioner was discharged from liability Petitioner bound himself liable to respondent under
under the sight draft when respondent failed to the letter of undertaking if the sight draft is not
protest it for non-acceptance by the Bank of Seoul. accepted. He also warranted that the sight draft is
A sight draft made payable outside the Philippines genuine; will be paid by the issuing bank in
is a foreign bill of exchange. 19 When a foreign bill is accordance with its tenor; and that he will be held
dishonored by non-acceptance or non-payment, liable for the full amount of the draft upon demand,
protest is necessary to hold the drawer and without necessity of proceeding against the drawee
indorsers liable. Verily, respondents failure to bank.20 Petitioner breached his undertaking when
protest the non-acceptance of the sight draft the Bank of Seoul dishonored the sight draft and
resulted in the discharge of petitioner from liability Goldwell Trading ordered a stop payment order on
under the instrument. it for discrepancies in the export documents.

Section 152 of the NIL is explicit: Petitioner is liable without need for respondent to
establish collateral facts such as violations of the
Section 152. In what cases protest necessary. letter of credit.
Where a foreign bill appearing on its face to be
such is dishonored by non-acceptance, it must be It is also argued that petitioner cannot be held liable
duly protested for non-acceptance, and where such under the letter of undertaking because respondent
a bill which has not been previously dishonored by failed to prove that he violated any of the provisions
non-acceptance, is dishonored by non-payment, it in the letter of credit or that sixty (60) of the
must be duly protested for non-payment. If it is not seventy-one (71) bags shipped to Goldwell Trading
so protested, the drawer and indorsers are contained soil instead of dried sea cucumber.
discharged. Where a bill does not appear on its
face to be a foreign bill, protest thereof in case of We cannot agree. Respondent need not prove that
dishonor is unnecessary. (Emphasis added) petitioner violated the provisions of the letter of
credit in order to be held liable under the letter of
Petitioner, however, can still be made liable under undertaking. Parties are bound to fulfill what has
the letter of undertaking. It bears stressing that it is been expressly stipulated in the
a separate contract from the sight draft. The liability contract.21 Petitioners liability under the letter of
of petitioner under the letter of undertaking is direct undertaking is clear. He is liable to respondent if the
and primary. It is independent from his liability sight draft is not accepted by the Bank of Seoul.
under the sight draft. Liability subsists on it even if Mere non-acceptance of the sight draft is sufficient
the sight draft was dishonored for non-acceptance for liability to attach. Here, the sight draft was
or non-payment. dishonored for non-acceptance. The non-
acceptance of the sight draft triggered petitioners
Respondent agreed to purchase the draft and credit liability under the letter of undertaking.
petitioner its value upon the undertaking that he will
reimburse the amount in case the sight draft is Records also show that the Bank of Seoul found
dishonored. The bank would certainly not have discrepancies in the documents submitted by
agreed to grant petitioner an advance export petitioner. Goldwell Trading issued a stop payment
payment were it not for the letter of undertaking. order because the products shipped were
defective. It found that most of the bags shipped
contained soil instead of dried sea cucumber. If
petitioner disputes the finding of Goldwell Trading,
he can file a case against said company but he
cannot dispute his liability under either the sight
draft or the letter of undertaking.

As We see it, this is a straightforward case of

collection of sum of money on the basis of a letter
of undertaking. Respondent advanced the export
payment to petitioner on the understanding that the
draft will be honored and paid. The draft was
dishonored. Justice and equity dictate that
petitioner be held liable to respondent bank.

WHEREFORE, the petition is DENIED for lack of

merit. The Decision of the Court of Appeals dated
June 27, 2002 is hereby AFFIRMED.

SO ORDERED.
 [G.R. No. 74231. April 10, 1987.] [People v. Cadag, 2 SCRA 388; People v. Cruz, 4
SCRA 1114; People v. Belen, 9 SCRA 39; People v.
CORAZON J. VIZCONDE, Petitioner, v. Capito 22 SCRA 1130; People v. Alcantara, 33
INTERMEDIATE APPELLATE COURT & PEOPLE SCRA 812] The circumstances from which a
OF THE PHILIPPINES, Respondents. reasonable inference of conspiracy might arise,
such as the fact that Vizconde and the complainant
were friends of long standing and former
SYLLABUS classmates, that it was Vizconde who introduced
Pagulayan to Perlas, that Vizconde was present on
the two occasions when the ring was entrusted to
1. CRIMINAL LAW; CRIMINAL RESPONSIBILITY; Pagulayan and when part payment of P5,000.00
PERSONAL IN NATURE; IN THE ABSENCE OF was made, and that she signed the receipts,
CONSPIRACY, ONE CANNOT BE CRIMINALLY Exhibits "A" and "D," on those occasions are, at
LIABLE FOR THE ACT OF ANOTHER; CASE AT best, inconclusive. They are not inconsistent with
BAR. As the Solicitor General correctly puts it, what Vizconde has asserted to be an innocent
the joint and several undertaking assumed by desire to help her friend dispose of the ring; nor do
Vizconde in a separate writing below the main body they exclude every reasonable hypothesis other
of the receipt, Exhibit "A", merely guaranteed the than complicity in a premeditated swindle. [People
civil obligation of Pagulayan to pay Perlas the value v. Macatanaw, 62 SCRA 516, 527; People v. Aniel,
of the ring in the event of her (Pagulayans) failure 96 SCRA 199, 208-209; People v. Sosing, 111
to return said article. It cannot, in any sense, be SCRA 368, 377; see Duran v. CA, 71 SCRA 68, 84
construed as assuming any criminal responsibility and Borromeo v. CA, 131 SCRA 318, 326]
consequent upon the failure of Pagulayan to return
the ring or deliver its value. It is fundamental that 3. CRIMINAL LAW; ESTAFA, NOT A CASE OF;
criminal responsibility is personal and that in the LIABILITY OF APPELLANT BEING MERELY A
absence of conspiracy, one cannot be held GUARANTOR, NOT CRIMINAL IN NATURE.
criminally liable for the act or default of another. "A Upon the evidence, appellant Corazon J. Vizconde
person to be guilty of crime, must commit the crime was a mere guarantor, a solidary one to be sure, of
himself or he must, in some manner, participate in the obligation assumed by Pilar A. Pagulayan to
its commission or in the fruits thereof. . . ." [U.S. v. complainant Marylou J. Perlas for the return of the
Acebedo, 18 Phil. 428] Thus, the theory that by latters ring or the delivery of its value. Whatever
standing as surety for Pagulayan, Vizconde liability was incurred by Pagulayan for defaulting on
assumed an obligation more than merely civil in such obligation and this is not inquired into
character, and staked her very liberty on that of Vizconde consequent upon such default was
Pagulayans fidelity to her trust is utterly merely civil, not criminal. It was, therefore, error to
unacceptable; it strikes at the very essence of convict her of estafa. As already stated, the
guaranty (or suretyship) as creating purely civil Solicitor General however maintains, on the
obligations on the part of the guarantor or surety. To authority of People v. Padilla, (129 scra 558) that
render Vizconde criminally liable for the the appellant should be held liable to pay the
misappropriation of the ring, more than her mere complainant the amount of P55,000.00, or
guarantee written on Exhibit "A" is necessary. At whatever part of such amount remains unpaid, for
the least, she must be shown to have acted in the value of the ring. Again, this is a correct
concert and conspiracy with Pagulayan, either in proposition, there being no question as in fact
obtaining possession of the ring, or in undertaking admitted by her that the appellant executed the
to return the same or delivery its value, or in the guarantee already referred to.
misappropriation or conversion of the same.
DECISION
2. REMEDIAL LAW; EVIDENCE; CONSPIRACY;
NO ADEQUATE PROOF THEREOF IN THE CASE NARVASA, J.:
AT BAR. The information charges conspiracy
between Vizconde and Pagulayan, but no adequate Corazon J. Vizconde has appealed as contrary to
proof thereof has been presented. It is of course law and the evidence, the Decision of the Court of
true that direct proof of conspiracy is not essential Appeals 1 affirming her conviction of the crime of
to convict an alleged conspirator, and that estafa by the Court of First Instance of Rizal,
conspiracy may be established by evidence of acts Quezon City Branch, in Criminal Case No. Q-5476.
done in pursuance of a common unlawful purpose.
Vizconde and Pilar A. Pagulayan were charged in Vizcondes conviction in the Court of Appeals, now
the Trial Court with misappropriation and recommends that she be acquitted, but
conversion of an 8-carat diamond ring belonging to nonetheless held civilly liable to the complainant in
Dr. Marylou J. Perlas in an information which avers the sum of P55,000.00 (the unaccounted balance
that they: of the value of the ring as found by the Trial Court)."
. . or whatever portion thereof which remains
". . . wilfully, unlawfully and feloniously, with intent of unpaid. . . ." 6
gain and with unfaithfulness and/or abuse of
confidence, defraud(ed) DRA. MARYLOU J. From the record and the findings of the courts
PERLAS in the following manner, to wit: the said below, it appears that sometime in the first week of
accused received from the offended party one (1) April, 1975, the complainant, Dr. Marylou J. Perlas,
8-karat solo diamond ring, white, double cut, called up the appellant Vizconde, a long-time friend
brilliant cut with multiple brilliantitos, valued at and former high school classmate, asking her to
P85,000.00, to be sold by them on commission sell Perlas 8-carat diamond ring. Shortly
basis, with the obligation to turn over the proceeds afterwards, Perlas delivered the ring to Vizconde to
of the sale to the offended party, or to return the be sold on commission for P85,000.00. Vizconde
said ring if unsold, but the said accused, once in signed a receipt for the ring. 7
possession thereof, contrary to their obligation,
misapplied, misappropriated and converted the About a week and a half later, Vizconde returned
same to their own personal use and benefit, and in the ring to Perlas, who had asked for it because
spite of repeated demands made upon them, both she needed to show it to a cousin. However,
accused failed, omitted and refused, and still fail, Vizconde afterwards called on Perlas at the latters
omit and refuse up to the present, to comply with home, with another lady, Pilar A. Pagulayan, who
their aforesaid obligation, to the damage and claimed to have a "sure buyer" for the ring. 8 Perlas
prejudice of the offended party, in the was initially hesitant to do so, but she eventually
aforementioned amount of P85,000.00, Philippine parted with the ring so that it could be examined
currency." 2 privately by Pagulayans buyer when the latter gave
her a postdated check for the price (P85,000.00)
After trial, both accused were convicted and each and, together with Vizconde, signed a receipt
sentenced to serve an indeterminate prison term of prepared by Perlas. This receipt Peoples Exhibit
from eight (8) years, four (4) months and one (1) "A" reads as follows:
day to ten (10) years and two (2) months of prision
mayor, with the accessory penalties provided by "RECEIPT
law, and jointly and severally to indemnify the
offended party in the sum of P55,000.00 for the Received from Dra. Marylou Javier-Perlas one (1)
unaccounted balance of the value of the ring with solo 8 karat diamond ring, white, double cut,
legal interest from April 22, 1975, the further sum of brilliant cut with multiple brilliantitos, which I agree
P30,000.00 as and for moral damages and the sum to sell for P85,000.00 (eighty-five thousand pesos)
of P10,000.00 for attorneys fees. 3 on commission basis and pay her in the following
manner:
Both accused appealed to the Court of Appeals, but
as Pilar A. Pagulayan had evaded promulgation of P85,000.00 postdated check
sentence in the Trial Court and had appealed only
through counsel, the Appellate Court vacated her PNB check 730297
appeal as ineffectual. 4 On Vizcondes part, the
Court of Appeals affirmed the judgment of the Trial dated April 26, 1975
Court in all respects except the penalty of
imprisonment, which it increased to a term of from for P85,000.00
ten (10) years and one (1) day of prision mayor to
twelve (12) years ten (10) months and twenty-one It is understood that in the event the above
(21) days of reclusion temporal. A motion for postdated check is dishonored for any reason
reconsideration was denied. Vizconde thereafter whatsoever on its due date, the total payment of
filed the present petition for review on certiorari. 5 the above item, shall become immediately due and
demandable without awaiting further demand.
Required to comment on the petition, the Solicitor
General, despite having argued for affirmance of I guarantee that the above check will be sufficiently
funded on the respective due date. eighty five thousand pesos (P85,000.00).

Quezon City, Philippines This receipt is being issued without prejudice to

legal action.
22 April 1975
Quezon City, Philippines
(SGD.) PILAR A. PAGULAYAN
7 May 1975
PILAR A. PAGULAYAN
(Sgd.) Marylou J. Perlas
16 Rd. 8 Project 6
Dra. Marylou J. Perlas
I guarantee jointly and severally
Conforme:
(SGD.) CORAZON J. VIZCONDE
(Sgd.) Pilar A. Pagulayan
CORAZON J. VIZCONDE" 9
Pilar Pagulayan
After Pagulayans postdated check matured, Perlas
deposited it to her account at Manila Bank. It was (Sgd.) Corazon J. Vizconde
dishonored for the reason, "No arrangement,"
stated in the debit advice. Perlas then called up Corazon Vizconde" 13
Vizconde to inform her about the dishonor of the
check. The latter suggested that Perlas redeposit Vizconde and Pagulayan having allegedly reneged
the check while she (Vizconde) followed up the sale on a promise to complete payment for the ring on
of the ring. Perlas re-deposited the check, but again the very next day, Perlas filed with the Quezon City
it was dishonored because drawn against Fiscals office a complaint against them for estafa.
insufficient funds. 10 So Perlas took the matter to This notwithstanding, Pagulayan still paid Perlas
counsel, who sent separate letters of demand to various sums totalling P25,000.00 which together
Vizconde and Pagulayan for return of the ring or with the P5,000.00 earlier paid, left a balance of
payment of P85,000.00. 11 P55,000.00 still owing. 14

After nine days, Vizconde and Pagulayan called on Both the Trial Court and the Court of Appeals found
Perlas. Pagulayan paid Perlas P5,000.00 against in these facts sufficient showing that Vizconde and
the value of the ring. She also gave into Perlas Pagulayan had assumed a joint agency in favor of
keeping three certificates of title to real estate to Perlas for the sale of the latters ring, which
guarantee delivery of the balance of such value. A rendered them criminally liable, upon failure to
receipt for the money and the titles was typed and return the ring or deliver its agreed value, under Art.
signed by Perlas, which she also made the two 315, par. 1(b), of the Revised Penal Code, for
sign. 12 The receipt Exhibit "D" of the defraudation committed." . . with unfaithfulness or
prosecution reads: abuse of confidence . . . by misappropriating or
converting, to the prejudice of another, . . . personal
"Received from Mrs. Pilar Pagulayan the sum of property received in trust or on commission, or
FIVE THOUSAND PESOS ONLY (P5,000.00) under any other obligation involving the duty to
representing part of the proceeds of the sale of one make delivery of or to return the same, . . ." The
(1) solo 8 carat diamond ring, white, double cut, Solicitor General, falling back, as already stated,
brilliant cut w/multiple brilliantitos, given to Mrs. from an earlier stance, disagrees and submits in his
Pilar Pagulayan and Mrs. Corazon de Jesus Comment that the appellant cannot be convicted of
Vizconde on 22 April 1975, to be sold on estafa under a correct interpretation of the two
commission basis for eighty-five thousand pesos principal exhibits of the prosecution, the receipts
(P85,000.00). Exhibits "A" and "D." 15 He is correct.

Received also owners duplicate copies of TCT Nothing in the language of the receipt, Exhibit "A",
Nos. 434907, 434909, 434910, which will be or in the proven circumstances attending its
returned upon delivery of the remaining balance of execution can logically be considered as
the proceeds of the sale of said diamond ring for evidencing the creation of an agency between
Perlas, as principal, and Vizconde, as agent, for the thereof has been presented. It is of course true that
sale of the formers ring. True, reference to what direct proof of conspiracy is not essential to convict
may be taken for an agency agreement appears in an alleged conspirator, and that conspiracy may be
the clause." . . which I agree to sell . . . on established by evidence of acts done in pursuance
commission basis" in the main text of that of a common unlawful purpose. 17 Here, however,
document. But it is clear that if any agency was the circumstances from which a reasonable
established, it was one between Perlas and inference of conspiracy might arise, such as the
Pagulayan only, this being the only logical fact that Vizconde and the complainant were
conclusion from the use of the singular "I" in said friends of long standing and former classmates,
clause, in conjunction with the fact that the part of that it was Vizconde who introduced Pagulayan to
the receipt in which the clause appears bears only Perlas, that Vizconde was present on the two
the signature of Pagulayan. To warrant anything occasions when the ring was entrusted to
more than a mere conjecture that the receipt also Pagulayan and when part payment of P5,000.00
constituted Vizconde the agent of Perlas for the was made, and that she signed the receipts,
same purpose of selling the ring, the cited clause Exhibits "A" and "D," on those occasions are, at
should at least have used the plural "we," or the best, inconclusive. They are not inconsistent with
text of the receipt containing that clause should what Vizconde has asserted to be an innocent
also have carried Vizcondes signature. desire to help her friend dispose of the ring; nor do
they exclude every reasonable hypothesis other
As the Solicitor General correctly puts it, the joint than complicity in a premeditated swindle. 18
and several undertaking assumed by Vizconde in a
separate writing below the main body of the receipt, The foregoing conclusion in nowise suffers from the
Exhibit "A", merely guaranteed the civil obligation of fact that the second receipt, Exhibit "D", appears to
Pagulayan to pay Perlas the value of the ring in the confirm that the ring." . . was given to Mrs. Pilar
event of her (Pagulayans) failure to return said Pagulayan and Mrs. Corazon de Jesus Vizconde
article. It cannot, in any sense, be construed as on 22 April 1975, to be sold on commission basis
assuming any criminal responsibility consequent for eighty five thousand pesos (P85,000.00)." 19
upon the failure of Pagulayan to return the ring or The implications and probative value of this writing
deliver its value. It is fundamental that criminal must be considered in the context of what had
responsibility is personal and that in the absence of already transpired at the time of its making. The
conspiracy, one cannot be held criminally liable for ring had already been given to Pagulayan, and the
the act or default of another. check that she had issued in payment therefor (or
to secure payment, as the complainant would have
"A person to be guilty of crime, must commit the it) had already been dishonored twice. That the
crime himself or he must, in some manner, complainant then already entertained serious
participate in its commission or in the fruits apprehensions about the fate of the ring is evident
thereof. . . ." 16 in her having had her lawyers send Vizconde and
Pagulayan demands for restitution or payment, with
Thus, the theory that by standing as surety for threat of legal action. Given that situation, Exhibit
Pagulayan, Vizconde assumed an obligation more "D", insofar as it purports to confirm that Vizconde
than merely civil in character, and staked her very had also received the ring in trust, cannot be
liberty on Pagulayans fidelity to her trust is utterly considered as anything other than an attempt to
unacceptable; it strikes at the very essence of "cure" the lack of mention of such an entrustment in
guaranty (or suretyship) as creating purely civil the first receipt, Exhibit "A", and thereby bind
obligations on the part of the guarantor or surety. To Vizconde to a commitment far stronger and more
render Vizconde criminally liable for the compelling than a mere civil guarantee for the value
misappropriation of the ring, more than her mere of the ring. There is otherwise no explanation for
guarantee written on Exhibit "A" is necessary. At requiring Vizconde and Pagulayan to sign the
the least, she must be shown to have acted in receipt, which needed only the signature of Perlas
concert and conspiracy with Pagulayan, either in as an acknowledgment of the P5,000.00 given in
obtaining possession of the ring, or in undertaking part payment, and the delivery of the land titles to
to return the same or delivery its value, or in the secure the balance.
misappropriation or conversion of the same.
The conflict in the recitals of the two receipts
Now, the information charges conspiracy between insofar as concerns Vizcondes part in the
Vizconde and Pagulayan, but no adequate proof transaction involving Perlas ring is obvious and
cannot be ignored. Neither, as the Court sees it, guarantee already referred to.
should these writings be read together in an
attempt to reconcile what they contain, since, as WHEREFORE, except insofar as it affirms the
already pointed out, the later receipt was made judgment of the Trial Court ordering appellant
under circumstances which leave no little doubt of Corazon J. Vizconde, solidarily with Pilar A.
its truth and integrity. What is clear from Exhibit "A" Pagulayan, to indemnify the complainant Marylou J.
is that the ring was entrusted to Pilar A. Pagulayan Perlas in the amount of P55,000.00 for the
to be sold on commission; there is no mention unaccounted balance of the value of the latters
therein that it was simultaneously delivered to and ring, the appealed Decision of the Court of Appeals
received by Vizconde for the same purpose or, is reversed and set aside, and said appellant is
therefore, that Vizconde was constituted, or agreed acquitted, with costs de oficio. As the record
to act as, agent jointly with Pagulayan for the sale indicates that levies on preliminary attachment and
of the ring. What Vizconde solely undertook was to on execution pending appeal have been made on
guarantee the obligation of Pagulayan to return the behalf of the complainant, 21 which may have
ring or deliver its value; and that guarantee created resulted in further reducing the abovestated
only a civil obligation, without more, upon default of balance, the appellant may, upon remand of this
the principal. Exhibit "D", on the other hand, would case to the Trial Court, prove any reductions, by the
make out Vizconde an agent for the sale of the ring. operation of said levies or otherwise, to which the
The undisputed fact that Exhibit "A" was executed amount of the indemnity adjudged may be justly
simultaneously with the delivery of the ring to subject.
Pagulayan compellingly argues for accepting it as a
more trustworthy memorial of the real agreement SO ORDERED.
and transaction of the parties than Exhibit "D"
which was executed at a later date and after the
supervention of events rendering it expedient or
desirable to vary the terms of that agreement or
transaction.

In view of the conclusions already reached,

consideration of the Solicitor Generals argument
also quite persuasive that Exhibit "D" in fact
evidences a consummated sale of the ring for an
agreed price not fully paid for, which yields the
same result, is no longer necessary. It is, however,
at least another factor reinforcing the hypothesis of
Vizcondes innocence.

Upon the evidence, appellant Corazon J. Vizconde

was a mere guarantor, a solidary one to be sure, of
the obligation assumed by Pilar A. Pagulayan to
complainant Marylou J. Perlas for the return of the
latters ring or the delivery of its value. Whatever
liability was incurred by Pagulayan for defaulting on
such obligation and this is not inquired into
that of Vizconde consequent upon such default was
merely civil, not criminal. It was, therefore, error to
convict her of estafa.

As already stated, the Solicitor General however

maintains, on the authority of People v. Padilla, 20
that the appellant should be held liable to pay the
complainant the amount of P55,000.00, or
whatever part of such amount remains unpaid, for
the value of the ring. Again, this is a correct
proposition, there being no question as in fact
admitted by her that the appellant executed the
 G.R. No. 166058 April 4, 2007 WHEREAS, this bond is conditioned to guarantee
the assignment of Leasehold Rights of the Principal
EMERITA GARON, Petitioner, at Monumento Plaza Building in favor of the
vs. Obligee over the Certain Original Certificate of
PROJECT MOVERS REALTY AND Leasehold Title No. 0161 and 0108 (sic).
DEVELOPMENT CORPORATION and
STONGHOLD INSURANCE COMPANY, WHEREAS, the liability of the surety company upon
INC., Respondents. determination under this bond shall in no case
exceed the penal sum of PESOS: TWELVE
DECISION MILLION SEVEN HUNDRED FIFTY-FIVE
THOUSAND ONE HUNDRED THIRTY-NINE &
CALLEJO, SR., J.: 85/100 (P12,755,139.85) Only, Philippine Currency.

This is a Petition for Review on Certiorari of the xxx

Decision1 of the Court of Appeals (CA) dated May
7, 2004 in CA-G.R. CV No. 69962, and its Liability of surety on this bond will expire on
Resolution2 dated November 16, 2004. The November 7, 1998 and said bond will be cancelled
assailed Decision affirmed with modification the five days after its expiration, unless surety is
Order3 dated September 19, 2000 issued by the notified of any existing obligations thereunder.8
Regional Trial Court (RTC), Makati City, Branch 56,
in Civil Case No. 99-1051. When PMRDC defaulted in the payment of its
obligations, Garon sent a demand letter9 dated
Antecedents November 3, 1998, requiring PMRDC to execute
and deliver a unilateral Deed of Assignment of its
On December 19, 1997, Project Movers Realty and leasehold rights over the commercial spaces
Development Corporation (PMRDC) obtained a covered by OCLT Nos. 1108 and 0161. Garon also
loan from Emerita Garon in the amount sent a formal demand letter10 dated November 6,
of P6,088,783.68. The loan was covered by 1998 for SICI to comply with its obligation under the
Promissory Note No. PMRDC-97-12-3324 to mature surety bond.
on December 19, 1998. The stipulated interest rate,
in accordance with the schedule5 of payment In view of PMRDCs and SICIs failure to comply
attached to the note, was 36% per annum. To with their respective obligations, Garon filed a
secure the payment of the loan, PMRDC undertook Complaint11 for collection before the RTC of Makati
to assign to Garon its leasehold rights over a space City. The case was raffled to Branch 56, and was
at the Monumento Plaza Commercial Complex, docketed as Civil Case No. 99-1051. The complaint
covered by Original Certificate of Leasehold Title contained the following prayer:
(OCLT) No. 1108. The parties stipulated that failure
to pay the note or any portion thereof, or any WHEREFORE, plaintiff respectfully prays that after
interest thereon, shall constitute default, and the hearing on the merits, this Court render[s] judgment
entire obligation shall become due and payable in favor of plaintiff and against defendants as
without need of demand. follows:

On December 31, 1997, PMRDC obtained another 1. Ordering defendant PMRDC to pay
loan from Garon in the amount of US$189,418.75, plaintiff the sums of:
at 17% per annum, to mature on December 31,
1998. The transaction was covered by Promissory 1.1. PESOS: Six Million Eighty-Eight
Note No. PMRDC-D97-12-333.6 This loan was Thousand Seven Hundred Eighty-
secured by an assignment of leasehold rights over Three and 68/100 (P6,088,783.68)
another space of the Monumento Plaza under PMRDC-97-12-332; and
Commercial Complex covered by OCLT No. 0161.
1.2. DOLLARS: One Hundred
To secure its obligation to assign the leasehold Eighty-Nine Thousand Four Hundred
rights to Garon, PMRDC procured a surety Eighteen and 75/100
bond7 from Stronghold Insurance Company, Inc. (US$189,418.75) under PMRDC-97-
(SICI). The surety bond was subject to the following 12-333.
conditions:
 2. Declaring defendant Stronghold solidarily had prescribed.14 It likewise contended that at the
liable, and ordering it to pay plaintiff the sum time plaintiff sent the demand letter, the obligation
of PESOS: Twelve Million Seven Hundred guaranteed by the bond had not yet matured. 15 It
Fifty-Five Thousand One Hundred Thirty- further claimed that it was misled by plaintiff and
Nine and 85/100 (P12,755,139.85) under PMRDC that the bond guaranteed its investment
SICI Bond No. 67831. with the project of PMRDC at Monumento Plaza.
SICI also asserted that Garon did not exercise the
3. Ordering defendant PMRDC to pay: diligence of a good father of a family to avoid or
minimize losses since she did not even require the
3.1. Interest at 36% per annum and surrender of the OCLTs before the promissory
a penalty of 3% per month until full notes were signed and the loans released. SICI
payment on the unpaid amount due also set up a cross-claim against PMRDC for the
under PMRDC-97-12-332; payment of any amount it may be ordered to pay to
Garon, pursuant to the Indemnity
3.2. Interest at 17% per annum and Agreement16 executed by the latter.17
a penalty of 3% per month until full
payment on the unpaid amount due For its part, PMRDC denied that it executed the
under PMRDC-97-12-333; above-stated promissory notes and alleged instead
that they were merely roll-overs of PN No. 97-07-
3.3. Legal interest on the interest 228 and 97-08-260.18 It also alleged that it had
accruing at the time of the filing of already complied with its undertaking under the
the complaint conformably with promissory notes when it put up a surety
Article 2212 of the New Civil Code. bond;19 and when Garon chose to demand from
SICI, she effectively waived the right to claim from
4. On the third cause of action, ordering: it.20 PMRDC further denied liability on the stipulated
interest on the ground that the same is exorbitant
and unconscionable.21 As a counterclaim, PMRDC
4.1. defendant PMRDC to pay
asked for moral and exemplary damages, as well
PESOS: Ten Thousand (P10,000.00)
as for attorneys fees.22 As and by way of cross-
as attorneys fees stipulated in
claim against SICI, it likewise demanded the
PMRDC-97-12-332;
payment of moral damages and attorneys fees.23
4.2. defendant PMRDC to pay
Garon filed her Reply24 and a motion25 to render
PESOS: Ten Thousand (P10,000.00)
summary judgment. The RTC granted the motion
as attorneys fees stipulated in
and ruled as follows:
PMRDC-97-12-333; and
WHEREFORE, premises considered, this Court
4.3. defendant Stronghold to pay
hereby renders judgment in favor of plaintiff Mrs.
Attorneys fees in the amount
Emerita I. Garon as follows:
of P200,000.00.
1. Defendant Project Movers Realty and
4.4. defendants PMRDC and
Development Corporation is hereby directed
Stronghold to pay plaintiff such
to pay plaintiff as follows:
amounts of litigation expenses and
costs of suit as may be proven
during trial. On Promissory Note No. PMRDC 97-12-
332:
Other reliefs just and equitable under the premises
are likewise prayed for.12 (A) The sum of PESOS: Six Million
Eighty-Eight Thousand Seven
Hundred Eighty-Three and 68/100
In its Answer,13 SICI averred, as special and
(P6,088,783.68) under PMRDC-97-
affirmative defenses, that the complaint stated no
12-332;
cause of action and was prematurely filed; its
obligation had been extinguished; the liability on the
bond had been discharged by the act of plaintiff (B) Interest thereon at 36% per
and by the act of law; and its liability on the bond annum computed from 19 December
1997 until fully paid.
 (C) A penalty of 3% per month formers liability arose upon PMRDCs failure to
computed from 03 November 1998 assign the leasehold rights, not on the maturity date
until full payment on all unpaid of the loan. The court further held that SICIs claim
amounts consisting of the principal of prescription is without merit because plaintiff
and interest. made a demand on November 6, 1998, while the
surety bond expired on November 7, 1998.
On Promissory Note PMRDC No. 97-12-
333: Garon filed a Motion for Execution Pending
Appeal,27 while SICI filed a Motion for
(A) The peso equivalent of the sum Reconsideration.28 The court denied29 the motion
of DOLLARS: One Hundred Eighty- for reconsideration and granted30 the motion for
Nine Thousand Four Hundred execution pending appeal. SICI then filed a special
Eighteen and 75/100 civil action for Certiorari with Temporary Restraining
(US$189,418.75) under PMRDC-97- Order (TRO) and/or Writ of Preliminary
12-333. Injunction31before the CA, docketed as CA-G.R. SP
No. 63334 assailing the order of the court granting
(B) Interest thereon at the stipulated execution pending appeal. On February 23, 2001,
rate of 17% per annum computed the CA issued a TRO32 enjoining petitioner from
from 31 December 1997; enforcing the writ of execution pending appeal.

(C) A penalty of 3% per month Meanwhile, on October 11, 2000 and February 16,
computed from 03 November 1998 2001, PMRDC and SICI filed their respective
until full payment on all unpaid Notices of Appeal33 which the RTC approved.
amounts consisting of the principal However, in view of PMRDCs failure to file its
and interest. appellants brief, the CA issued a
Resolution34 dismissing its appeal for having been
2. Defendant Stronghold Insurance abandoned. The Resolution became final and
Company, Inc. is hereby held jointly and executory.
solidarily liable to plaintiff Mrs. Garon in the
amount of PESOS: TWELVE MILLION On the other hand, in its brief, SICI raised the
SEVEN HUNDRED FIFTY FIVE following errors:
THOUSAND ONE HUNDRED THIRTY
NINE AND EIGHTY FIVE CENTAVOS I. THE LOWER COURT PALPABLY
(P12,755,139.85). COMMITTED GRAVE ERROR IN
GRANTING APPELLEES MOTION FOR
3. Defendants Project Movers Realty and SUMMARY JUDGMENT, DESPITE LACK
Development Corporation and Stronghold OF VALID BASIS THEREFOR.
Insurance Company, Inc. are also ordered
to pay plaintiff Mrs. Garon jointly and II. THE LOWER COURT LIKEWISE
severally the sum of PESOS: TWO PALPABLY COMMITTED GRAVE ERROR
HUNDRED THOUSAND as attorneys fees IN RENDERING THE SUMMARY
plus costs of suit. JUDGMENT HOLDING APPELLANT
STRONGHOLD LIABLE UNDER ITS
All other claims and counter-claims of the parties SURETY BOND TO APPELLEE DESPITE
are hereby ordered dismissed. LACK OF FACTUAL AND LEGAL BASIS
FOR ITS JUDGMENT.35
SO ORDERED.26
According to SICI, the RTC erroneously rendered
The RTC found that the assignment of PMRDCs summary judgment notwithstanding the genuine
leasehold rights was merely an accessory issues raised by the parties.36 It claimed that its
obligation and not an alternative one; hence, obligations under the surety bond never became
Garons demand on SICIs obligation on the surety effective because of PMRDCs failure to assign its
bond could not be considered a waiver of her right leasehold rights. It likewise insisted that when the
to collect from PMRDC. On SICIs contention that promissory notes matured, Garon could no longer
her claim was premature, the RTC ruled that the run after it as its liability under the surety bond had
already expired.
On May 7, 2004, the CA affirmed with modification For its part, respondent SICI avers that petitioner
the decision of the RTC. 37 The fallo reads: invoked the alleged acceleration clauses of the
promissory notes only before this Court. It likewise
WHEREFORE, foregoing considered, the appealed argues that the maturity date of the loan is
decision is affirmed with the modification that immaterial because the promissory notes were not
defendant-appellant SICI is not liable to plaintiff- guaranteed by the surety bond. As such,
appellee. respondent SICI cannot be made to answer for the
payment of the loan.40
No pronouncement as to cost.
In her Reply,41 petitioner asserts that the
SO ORDERED.38 promissory notes, which explicitly provide for the
acceleration of the maturity dates, are all part of the
In upholding the propriety of the summary judgment record. Since respondent SICI did not deny the
rendered by the RTC, the CA declared that no authenticity and due execution of the notes, the
genuine issue was raised since the parties admitted contents may be read in evidence in the resolution
executing the promissory notes and surety bond, of the issues. She further states that in view of the
and the non-performance of the correlative admission of respondent SICI that the leasehold
obligations; the liabilities of the parties were rights of PMRDC were never assigned to petitioner,
likewise clearly set forth in the contracts. The CA the SICI should be held liable.
further affirmed the RTCs finding that PMRDC was
not relieved of its liability despite the enforcement Thus, the issue in this case is whether respondent
of Garons right against SICI; so long as the debt SICI is liable to petitioner under its surety bond.
has not been fully paid, SICI is still liable.
The present controversy arose from the following
The CA found, however, that appellant cannot be contracts: (1) the contracts of loan covered by
held liable because its liability had long expired (on promissory notes No. PMRDC-97-12-33242 and
November 7, 1998) prior to the maturity dates of PMRDC-D97-12-33343 dated December 19 and 31,
the loans on December 17 and 31, 1998. Thus, at 1997, between petitioner and PMRDC; and (2) the
the time PMRDC defaulted, the surety bond had surety bond44 dated November 7, 1997, between
long expired. PMRDC and respondent SICI.1a\^/phi1.net

Garon, now petitioner, comes before this Court on In the subject promissory notes, PMRDC undertook
the sole ground that: to pay the amount of the loan covered by the two
notes, as well as to assign its leasehold rights over
THE HONORABLE COURT OF APPEALS two spaces in the Monumento Plaza Commercial
GRAVELY ERRED IN MODIFYING THE TRIAL Complex covered by OCLT Nos. 0161 and 1108, as
COURTS DECISION AND FINDING THAT a security for the loan.
PROMISSORY NOTES NO. PMRDC 97-12-332
AND PMRDC NO. 97-12-333 MATURED ONLY ON To secure PMRDCs obligation to assign its
17 DECEMBER 1998 AND 31 DECEMBER 1998, leasehold rights to petitioner, the former procured
RESPECTIVELY.39 the surety bond from respondent SICI subject to the
following conditions:
Petitioner avers that it was specifically stated in the
promissory notes that failure to pay any of the note WHEREAS, this bond is conditioned to guarantee
or interest thereon shall constitute default, and the the assignment of Leasehold Rights of the Principal
entire obligation shall immediately become due and at Monumento Plaza Building in favor of the
payable. In view of PMRDCs default, the entire Obligee over the Certain Original Certificate of
obligation became due and demandable. Moreover, Leasehold Title No. 0161 and 0108 (sic).
the liability of respondent SICI attached the
moment PMRDC failed to assign its leasehold WHEREAS, the liability of the surety company upon
rights. Thus, the CAs ruling that respondent cannot determination under this bond shall in no case
be held liable because the notes have not yet exceed the penal sum of PESOS: TWELVE
matured is utterly incorrect. MILLION SEVEN HUNDRED FIFTY FIVE
THOUSAND ONE HUNDRED THIRTY NINE &
85/100 (P12,755,139.85) Only, Philippine Currency.
 xxx obligation therefore is the assignment of the
leasehold right, and the accessory obligation is the
Liability of surety on this bond will expire on surety agreement.
November 7, 1998 and said bond will be cancelled
five days after its expiration, unless surety is The Court notes, however, that respondent is a
notified of any existing obligations thereunder.45 stranger to the contract of loan between petitioner
and PMRDC; it cannot thus be held liable for an
Thus, respondent SICI, in turn, undertook to obligation which it did not undertake to perform or
guarantee the assignment of leasehold rights; and at least to guarantee. It is basic that the parties are
bound itself to be liable to petitioner in case of bound by the terms of their contract which is the
PMRDCs failure to assign the leasehold rights in law between them. The extent of a suretys liability
an amount not exceeding P12,755,139.85. This is determined by the language of the suretyship
undertaking, however, was to expire on November contract or bond itself. It cannot be extended by
7, 1998. implication, beyond the terms of the
contract.49 Contracts have the force of law between
It must be stressed that the principal obligation the parties who are free to stipulate any matter not
guaranteed by the surety bond is the assignment of contrary to law, morals, good customs, public order
the leasehold rights of PMRDC to petitioner over or public policy.50 If the terms of a contract are clear
the subject spaces. Petitioner made a formal and leave no doubt upon the intention of the
demand on November 3, 1998 for PMRDC to contracting parties, the literal meaning of its
perform the obligation, but the latter defaulted. As stipulations shall control.51
such, PMRDCs liability as principal arose.
Consequently, respondents liability as surety Since respondents undertaking under the surety
likewise arose. Respondent therefore cannot claim bond was to guarantee the assignment of leasehold
that its obligation arose only upon the maturity of rights, the security of the principal debt, its
the subject loans. To sustain this contention would obligation cannot extend to the payment of the
mean that respondent cannot be held liable under principal obligation; to do so would mean going
the surety bond, because if demand is made after beyond the terms of the contract.
the maturity dates of the loans December 19 and
31, 1998 it could again assert that its liability had The records show that in her demand letters dated
expired on November 7, 1998. November 3 and 6, 1998, petitioner made formal
demands on both PMRDC and respondent for the
Suretyship arises upon the solidary binding of a assignment of PMRDCs leasehold right. However,
person (deemed the surety) with the principal in her complaint in Civil Case No. 99-1051 where
debtor, for the purpose of fulfilling an obligation. 46 A the present case arose, petitioner prayed for
surety is considered in law as being the same party the payment of the principal debt, not
as the debtor in relation to whatever is adjudged as the assignment of PMRDCs leasehold rights. The
touching the obligation of the latter, and their pertinent portion of the complaint reads:
liabilities are interwoven as to be
inseparable.47 Although a surety contract is WHEREFORE, plaintiff respectfully prays that after
secondary to the principal obligation, the liability of hearing on the merits, this court render[s] judgment
the surety is direct, primary and absolute, or in favor of plaintiff and against defendants as
equivalent to that of a regular party to the follows:
undertaking.48
1. Ordering defendant PMRDC to pay
Notwithstanding the timeliness of the demand on plaintiff the sums of:
respondent, the latter cannot be held liable in the
instant case. Indeed, the liability of respondent xxx
arose the moment PMRDC failed to assign its
leasehold rights; and the demand on respondent 2. Declaring defendant Stronghold solidarily
was made prior to the expiration of the surety bond. liable and ordering it to pay plaintiff the sum
However, an examination of the terms of the surety of x x x. (Emphasis supplied)52
bond clearly shows that respondent guaranteed
the assignment of the leasehold It thus shows that petitioner was enforcing her right
rights, not the payment of a particular sum of to collect the debt, rather than her right to secure it
money owed by PMRDC to petitioner. The principal through the assignment of the leasehold right.
Respondent is being made solidarily liable for the
payment of such debt which obviously is beyond its
undertaking under the surety bond.

In sum, respondents liability on the bond arose

from the time PMRDC failed to comply with its
obligation to assign its leasehold rights over the
subject properties as security for the payment of
her debt covered by the promissory notes, not on
the maturity of the loan. However, respondent
cannot be held liable to make such payment for the
following reasons: (1) its undertaking under the
surety bond was merely to guarantee the
assignment of PMRDCs leasehold rights and not
the payment of the principal obligation; and (2)
petitioner, in instituting the instant case, is seeking
to enforce her right to collect the principal debt
rather than enforce the security.

IN LIGHT OF ALL THE FOREGOING, the instant

petition is hereby DENIED. The Decision of the
Court of Appeals dated May 7, 2004, and its
Resolution dated November 16, 2004, are
AFFIRMED.

SO ORDERED.
 G.R. No. 156571 July 9, 2008 consumption, Grand Textile withdrew the imported
goods from storage.6 The Bureau of Customs
INTRA-STRATA ASSURANCE CORPORATION demanded payment of the amounts due from
and PHILIPPINE HOME ASSURANCE Grand Textile as importer, and from Intra-Strata and
CORPORATION,Petitioners, PhilHome as sureties. All three failed to pay. The
vs. government responded on January 14, 1983 by
REPUBLIC OF THE PHILIPPINES, represented filing a collection suit against the parties with the
by the BUREAU OF CUSTOMS, Respondent. RTC of Manila.

DECISION LOWER COURT DECISIONS

BRION, J.: After hearing, the RTC rendered its January 4,

1995 decision finding Grand Textile (as importer)
Before this Court is the Petition for Review on and the petitioners (as sureties) liable for the taxes,
Certiorari under Rule 45 of the Rules of Court filed duties, and charges due on the imported articles.
by Intra-Strata Assurance Corporation (Intra-Strata) The dispositive portion of this decision states: 7
and Philippine Home Assurance Corporation
(PhilHome), collectively referred to as "petitioners." WHEREFORE, premises considered, the Court
RESOLVES directing:
The petition seeks to set aside the decision dated
November 26, 2002 of the Court of Appeals1 (CA) (1) the defendant Grand Textile
that in turn affirmed the ruling of the Regional Trial Manufacturing Corporation to pay plaintiff,
Court (RTC), Branch 20, Manila in Civil Case No. the sum of P2,363,174.00, plus interests at
83-15071.2 In its ruling, the RTC found the the legal rate from the filing of the Complaint
petitioners liable as sureties for the customs duties, until fully paid;
internal revenue taxes, and other charges due on
the importations made by the importer, Grand (2) the defendant Intra-Strata Assurance
Textile Manufacturing Corporation (Grand Textile).3 Corporation to pay plaintiff, jointly and
severally, with defendant Grand, the sum
BACKGROUND FACTS of P2,319,211.00 plus interest from the filing
of the Complaint until fully paid; and the
Grand Textile is a local manufacturing corporation. defendant Philippine Home Assurance
In 1974, it imported from different countries various Corporation to pay plaintiff the sum
articles such as dyestuffs, spare parts for textile of P43,936.00 plus interests to be computed
machinery, polyester filament yarn, textile auxiliary from the filing of the Complaint until fully
chemicals, trans open type reciprocating paid;
compressor, and trevira filament. Subsequent to the
importation, these articles were transferred to (3) the forfeiture of all the General
Customs Bonded Warehouse No. 462. As Warehousing Bonds executed by Intra-
computed by the Bureau of Customs, the customs Strata and PhilHome; and
duties, internal revenue taxes, and other charges
due on the importations amounted (4) all the defendants to pay the costs of
to P2,363,147.00. To secure the payment of these suit.
obligations pursuant to Section 1904 of the Tariff
and Customs Code (Code),4 Intra-Strata and SO ORDERED.
PhilHome each issued general warehousing bonds
in favor of the Bureau of Customs. These bonds, The CA fully affirmed the RTC decision in its
the terms of which are fully quoted below, decision dated November 26, 2002. From this CA
commonly provide that the goods shall be decision, the petitioners now come before this
withdrawn from the bonded warehouse "on Court through a petition for review on certiorari
payment of the legal customs duties, internal alleging that the CA decided the presented legal
revenue, and other charges to which they shall questions in a way not in accord with the law and
then be subject."5 with the applicable jurisprudence.

Without payment of the taxes, customs duties, and ASSIGNED ERRORS

charges due and for purposes of domestic
The petitioners present the following points as the suretyship in relation to the principal contract
conclusions the CA should have made: between the obligor and the obligee.11

1. that they were released from their The definition and characteristics of a suretyship
obligations under their bonds when Grand bring into focus the fact that a surety agreement is
Textile withdrew the imported goods without an accessory contract that introduces a third party
payment of taxes, duties, and other element in the fulfillment of the principal obligation
charges; and that an obligor owes an obligee. In short, there are
effectively two (2) contracts involved when a surety
2. that their non-involvement in the active agreement comes into play a principal contract
handling of the warehoused items from the and an accessory contract of suretyship. Under the
time they were stored up to their accessory contract, the surety becomes directly,
withdrawals substantially increased the risks primarily, and equally bound with the principal as
they assumed under the bonds they issued, the original promissor although he possesses no
thereby releasing them from liabilities under direct or personal interest over the latters
these bonds.8 obligations and does not receive any benefit
therefrom.12
In their arguments, they essentially pose the legal
issue of whether the withdrawal of the stored The Bonds Under Consideration
goods, wares, and merchandise without notice to
them as sureties released them from any liability That the bonds under consideration are surety
for the duties, taxes, and charges they committed bonds (and hence are governed by the above laws
to pay under the bonds they issued. They and rules) is not disputed; the petitioners merely
additionally posit that they should be released from assert that they should not be liable for the reasons
any liability because the Bureau of Customs, summarized above. Two elements, both affecting
through the fault or negligence of its employees, the suretyship agreement, are material in the
allowed the withdrawal of the goods without the issues the petitioners pose. The first is the effect of
payment of the duties, taxes, and other charges the law on the suretyship agreement; the terms of
due. the suretyship agreement constitute the second.

The respondent, through the Solicitor General, A feature of the petitioners bonds, not stated
maintains the opposite view. expressly in the bonds themselves but one that is
true in every contract, is that applicable laws form
THE COURTS RULING part of and are read into the contract without need
for any express reference. This feature proceeds
We find no merit in the petition and consequently from Article 1306 of the Civil Code pursuant to
affirm the CA decision. which we had occasion to rule:

Nature of the Suretys Obligations It is to be recognized that a large degree of

autonomy is accorded the contracting parties. Not
Section 175 of the Insurance Code defines a that it is unfettered. They may, according to Article
contract of suretyship as an agreement whereby a 1306 of the Civil Code "establish such stipulations,
party called the surety guarantees the performance clauses, terms, and conditions as they may deem
by another party called the principal or obligor of an convenient, provided that they are not contrary to
obligation or undertaking in favor of another party law, morals, good customs, public order, or public
called the obligee, and includes among its various policy." The law thus sets limits. It is a
species bonds such as those issued pursuant to fundamental requirement that the contract
Section 1904 of the Code.9 Significantly, "pertinent entered into must be in accordance with, and
provisions of the Civil Code of the Philippines shall not repugnant to, an applicable statute. Its
be applied in a suppletory character whenever terms are embodied therein. The contracting
necessary in interpreting the provisions of a parties need not repeat them. They do not even
contract of suretyship."10 By its very nature under have to be referred to. Every contract thus
the terms of the laws regulating suretyship, the contains not only what has been explicitly
liability of the surety is joint and several but limited stipulated but also the statutory provisions that
to the amount of the bond, and its terms are have any bearing on the matter."13
determined strictly by the terms of the contract of
Two of the applicable laws, principally pertaining to The second element to consider in a suretyship
the importer, are Sections 101 and 1204 of the agreement relates to the terms of the bonds
Tariff and Customs Code which provide that: themselves, under the rule that the terms of the
suretyship are determined by the suretyship
Sec 101. Imported Items Subject to Duty All contract itself.14 The General Warehousing
15
articles when imported from any foreign country Bond that is at the core of the present dispute
into the Philippines shall be subject to duty upon provides:
such importation even though previously exported
from the Philippines, except as otherwise KNOW ALL MEN BY THESE PRESENTS:
specifically provided for in this Code or in clear
laws. That I/we GRAND TEXTILE MANUFACTURING
CORPORATION Km. 21, Marilao, Bulacan, as
xxxx Principal, and PHILIPPINE HOME ASSURANCE as
the latter being a domestic corporation duly
Sec. 1204. Liability of Importer for Duties Unless organized and existing under and by virtue of the
relieved by laws or regulations, the liability for laws of the Philippines, as Surety, are held and
duties, taxes, fees, and other charges attaching on firmly bound unto the Republic of the Philippines, in
importation constitutes a personal debt due from the sum of PESOS TWO MILLION ONLY
the importer to the government which can be (P2,000,000.00), Philippine Currency, to be paid to
discharged only by payment in full of all duties, the Republic of the Philippines, for the payment
taxes, fees, and other charges legally accruing. It whereof, we bind ourselves, our heirs, executors,
also constitutes a lien upon the articles imported administrators and assigns, jointly and severally,
which may be enforced which such articles are in firmly by these presents:
custody or subject to the control of the government.
WHEREAS, the above-bounden Principal will from
The obligation to pay, principally by the importer, is time to time make application to make entry for
shared by the latter with a willing third party under a storing in customs-internal revenue bonded
suretyship agreement under Section 1904 of the warehouse certain goods, wares, and merchandise,
Code which itself provides: subject to customs duties and special import tax or
internal revenue taxes or both;
Section 1904. Irrevocable Domestic Letter of Credit
or Bank Guarantee or Warehousing Bond After WHEREAS, the above principal in making
articles declared in the entry of warehousing shall application for storing merchandise in customs-
have been examined and the duties, taxes, and internal revenue bonded warehouse as above
other charges shall have been determined, the stated, will file this in his name as principal, which
Collector shall require from the importer, an bond shall be approved by the Collector of
irrevocable domestic letter of credit, bank Customs or his Deputy; and
guarantee, or bond equivalent to the amount of
such duties, taxes, and other charges conditioned WHEREAS, the surety hereon agrees to accept all
upon the withdrawal of the articles within the period responsibility jointly and severally for the acts of the
prescribed by Section 1908 of this Code and for principal done in accordance with the terms of this
payment of any duties, taxes, and other charges to bond.
which the articles shall then be subject and upon
compliance with all legal requirements regarding NOW THEREFORE, the condition of this obligation
their importation. is such that if within six (6) months from the date of
arrival of the importing vessel in any case, the
We point these out to stress the legal basis for the goods, wares, and merchandise shall be regularly
submission of the petitioners bonds and the and lawfully withdrawn from public stores or
conditions attaching to these bonds. As heretofore bonded warehouse on payment of the legal
mentioned, there is, firstly, a principal obligation customs duties, internal revenue taxes, and other
belonging to the importer-obligor as provided under charges to which they shall then be subject; or if at
Section 101; secondly, there is an accessory any time within six (6) months from the said date of
obligation, assumed by the sureties pursuant to arrival, or within nine (9) months if the time is
Section 1904 which, by the nature of a surety extended for a period of three (3) months, as
agreement, directly, primarily, and equally bind provided in Section 1903 of the Tariff and Customs
them to the obligee to pay the obligors obligation. Code of the Philippines, said importation shall be
so withdrawn for consumption, then the above contract and not merely its form. A surety, however,
obligation shall be void, otherwise, to remain in full is not released by a change in the contract which
force and effect. does not have the effect of making its obligation
more onerous.16
Obligations hereunder may only be accepted during
the calendar year 1974 and the right to reserve by We find under the facts of this case no significant or
the corresponding Collector of Customs to refuse to material alteration in the principal contract between
accept further liabilities under this general bond, the government and the importer, nor in the
whenever, in his opinion, conditions warrant doing obligation that the petitioners assumed as sureties.
so. Specifically, the petitioners never assumed, nor
were any additional obligation imposed, due to any
IN WITNESS WHEREOF, we have signed our modification of the terms of importation and the
names and affixed our seals on this 20th day of obligations thereunder. The obligation, and one that
September, 1974 at Makati, Rizal, Philippines. never varied, is on the part of the importer, to pay
the customs duties, taxes, and charges due on the
Considered in relation with the underlying laws that importation, and on the part of the sureties, to be
are deemed read into these bonds, it is at once solidarily bound to the payment of the amounts due
clear that the bonds shall subsist that is, "shall on the imported goods upon their withdrawal or
remain in full force and effect" unless the upon expiration of the given terms. The petitioners
imported articles are "regularly and lawfully lack of consent to the withdrawal of the goods, if
withdrawn. . .on payment of the legal customs this is their complaint, is a matter between them
duties, internal revenue taxes, and other charges to and the principal Grand Textile; it is a matter
which they shall be subject." Fully fleshed out, outside the concern of government whose interest
the obligation to pay the duties, taxes, and other as creditor-obligee in the importation transaction is
charges primarily rested on the principal Grand the payment by the importer-obligor of the duties,
Textile; it was allowed to warehouse the imported taxes, and charges due before the importation
articles without need for prior payment of the process is concluded. With respect to the sureties
amounts due, conditioned on the filing of a bond who are there as third parties to ensure that the
that shall remain in full force and effect until the amounts due are paid, the creditor-obligee's active
payment of the duties, taxes, and charges due. concern is to enforce the sureties solidary
Under these terms, the fact that a withdrawal has obligation that has become due and demandable.
been made and its circumstances are not material This matter is further and more fully explored
to the sureties liability, except to signal both the below.
principals default and the elevation to a due and
demandable status of the sureties solidary The Need for Notice to Bondsmen
obligation to pay. Under the bonds plain terms, this
solidary obligation subsists for as long as the To support the conclusion that they should be
amounts due on the importations have not been released from the bonds they issued, the
paid. Thus, it is completely erroneous for the petitioners argue that upon the issuance and
petitioners to say that they were released from their acceptance of the bonds, they became direct
obligations under their bond when Grand Textile parties to the bonded transaction entitled to
withdrew the imported goods without payment of participate and actively intervene, as sureties, in
taxes, duties, and charges. From a the handling of the imported articles; that, as
commonsensical perspective, it may well be asked: sureties, they are entitled to notice of any act of the
why else would the law require a surety when such bond obligee and of the bond principal that would
surety would be bound only if the withdrawal would affect the risks secured by the bond; and that
be regular due to the payment of the required otherwise, the door becomes wide open for
duties, taxes, and other charges? possible fraudulent conspiracy between the bond
obligee and principal to defraud the surety.17
We note in this regard the rule that a surety is
released from its obligation when there is a material In taking these positions, the petitioners appear to
alteration of the contract in connection with which misconstrue the nature of a surety relationship,
the bond is given, such as a change which imposes particularly the fact that two types of relationships
a new obligation on the promising party, or which are involved, that is, the underlying principal
takes away some obligation already imposed, or relationship between the creditor (government) and
one which changes the legal effect of the original the debtor (importer), and the accessory surety
relationship whereby the surety binds itself, for a Velasquez26does not appear to us to be well taken
consideration paid by the debtor, to be jointly and as these cases do not squarely apply to the present
solidarily liable to the creditor for the debtors case. These cases relate to bonds issued as a
default. The creditor in this latter relationship requirement for the issuance of writs of replevin.
accepts the suretys solidary undertaking to pay if The Rules of Court expressly require that before
the debtor does not pay.18 Such acceptance, damages can be claimed against such bonds,
however, does not change in any material way the notice must be given to the sureties to bind them to
creditors relationship with the principal debtor nor the award of damages. No such requirement is
does it make the surety an active party to the evident in this case as neither the Tariff and
principal creditor-debtor relationship. The contract Customs Code nor the issued bonds require prior
of surety simply gives rise to an obligation on the notice to sureties.
part of the surety in relation with the creditor and is
a one-way relationship for the benefit of the latter.19 The petitioners argument focusing on the
additional risks they incur if they cannot intervene in
In other words, the surety does not, by reason of the handling of the warehoused articles must
the surety agreement, earn the right to intervene in perforce fail in light of what we have said above
the principal creditor-debtor relationship; its role regarding the nature of their obligation as sureties
becomes alive only upon the debtors default, at and the relationships among the parties where a
which time it can be directly held liable by the surety agreement exists. We add that the
creditor for payment as a solidary obligor. A surety petitioners have effectively waived as against the
contract is made principally for the benefit of the creditor (the government) any such claim in light of
creditor-obligee and this is ensured by the solidary the provision of the bond that "the surety hereon
nature of the sureties undertaking.20 Under these agrees to accept all responsibility jointly and
terms, the surety is not entitled as a rule to a severally for the acts of the principal done in
separate notice of default,21 nor to the benefit of accordance with the terms of this bond."27 Any such
excussion,22 and may be sued separately or claim including those arising from the withdrawal of
together with the principal debtor.23 The words of the warehoused articles without the payment of the
this Court in Palmares v. CA24 are worth noting: requisite duties, taxes and charges is for the
principal and the sureties to thresh out between or
Demand on the surety is not necessary before among themselves.
bringing the suit against them. On this point, it may
be worth mentioning that a surety is not even Government is Not Bound by Estoppel
entitled, as a matter of right, to be given notice of
the principals default. Inasmuch as the creditor As its final point, the petitioners argue that they
owes no duty of active diligence to take care of the cannot be held liable for the unpaid customs duties,
interest of the surety, his mere failure to voluntarily taxes, and other charges because it is the Bureau
give information to the surety of the default of the of Customs duty to ensure that the duties and
principal cannot have the effect of discharging the taxes are paid before the imported goods are
surety. The surety is bound to take notice of the released from its custody and they cannot be made
principals default and to perform the obligation. He to pay for the error or negligence of the Bureaus
cannot complain that the creditor has not notified employees in authorizing the unlawful and irregular
him in the absence of a special agreement to that withdrawal of the goods.
effect in the contract of suretyship.
It has long been a settled rule that the government
Significantly, nowhere in the petitioners bonds does is not bound by the errors committed by its agents.
it state that prior notice is required to fix the Estoppel does not also lie against the government
sureties liabilities. Without such express or any of its agencies arising from unauthorized or
requirement, the creditors right to enforce payment illegal acts of public officers.28 This is particularly
cannot be denied as the petitioners became bound true in the collection of legitimate taxes due where
as soon as Grand Textile, the principal debtor, the collection has to be made whether or not there
defaulted. Thus, the filing of the collection suit was is error, complicity, or plain neglect on the part of
sufficient notice to the sureties of their principals the collecting agents.29 In CIR v. CTA,30 we
default. pointedly said:

The petitioners reliance on Visayan Surety and It is axiomatic that the government cannot and must
Insurance Corporation v. Pascual25 and Aguasin v. not be estopped particularly in matters involving
taxes.lawphi1 Taxes are the lifeblood of the nation
through which the government agencies continue to
operate and with which the State effects its
functions for the welfare of its constituents. Thus, it
should be collected without unnecessary hindrance
or delay.

We see no reason to deviate from this rule and we

shall not do so now.

WHEREFORE, premises considered, we hereby

DENY the petition and AFFIRM the Decision of the
Court of Appeals. Costs against the petitioners.

SO ORDERED.
 G.R. No. 121879 August 14, 1998 his relatives and friends without
giving her additional compensation;
EMPIRE INSURANCE COMPANY, petitioners, that after serving her employer for 7
vs. 1/2 months, she sought the help of
NATIONAL LABOR RELATIONS COMMISSION the Philippine Embassy; that her
and MONERA ANDAL, respondents. employer terminated her
employment due to her insistent
PURISIMA, J.: demand for the payment of her
claims; and that she was repatriated
This is a Petition of a surety company disowning at her own expense. On May 14,
solidary liability with its principal, a recruitment 1992, she testified that the wife of
agency, on the monetary claims of an overseas her employer always beat her and
contract worker for illegal dismissal, non-payment that her employer gave her US
and underpayment of salaries. $450.00 representing her salaries for
three (3) months. In her position
The antecedent facts and proceedings can be paper, she reiterated the sufferings
capsulized, as follows: she allegedly underwent in the
course of her employment and
alleged, further, that the efforts of the
Private respondent Monera Andal applied with G &
Philippine Embassy to mediate
M Phils., Inc. for an overseas employment as a
and/or to settle her claims failed; that
domestic helper in Riyadh, Kingdom of Saudi
her services were abruptly
Arabia. She was hired for a term of two years at a
terminated by her employer; and she
monthly basic salary of US $200.00.
was forced to depart at her own
expense (arriving in the Philippines
She left for the said jobsite on May 17, 1991 and with only whatever clothing she had
worked for a certain Abdullah Al Basha. But on on). (pp. 2-4, NLRC decision dated
January 11, 1992, she was repatriated. Upon her November 22, 1994)
repatriation, she lost no time in bringing her
complaint before the Philippine Overseas
Empire Insurance Company, now the petitioner,
Employment Agency (POEA) for illegal dismissal,
theorized that the complainant, Monera Andal, was
non-payment and underpayment of salaries.
without any cause of action against it for the
Impleaded as a co-respondent in the complaint was
alleged reason that the liability of its principal and
the herein petitioner, Empire Insurance Company,
co-respondent had not been established. It further
in its capacity as the surety of G & M Phils.
argued that its liability, if any, for the money claims
sued upon was merely subsidiary.
Subject complaint averred, inter alia, that:
In its answer to the complaint, respondent G & M
. . . she was not paid for four months (Phil.), Inc., stated that it had no knowledge of
and underpaid for four months; that complainant's unpaid and underpaid salaries, her
she was forced to preterminate her working conditions and of the proceedings at the
contract due to unbearable Philippine Embassy. It denied the charge of illegal
treatment in the hands of her dismissal, reasoning out that the complainant
employer and the non-payment and abandoned her job. In its position paper, it
underpayment of her salaries; and contended that the complainant's money claims in
that she was constructively dispute are not meritorious as the same are not
dismissed from employment. In her supported by substantial evidence. It also
affidavit, she alleged that she was capitalized on what it branded as the
unpaid for 3 1/2 months; that for four inconsistencies in the complainant's pleadings with
months she was paid only US her admission that the Philippine Embassy
$150.00 instead of the agreed rate mediated her claims, which development could
of US $200.00; that her employer have meant that subject claims had been settled.
resented her effort to collect her
delayed salaries and, in retaliation,
On July 13, 1993, POEA Administrator Felicisimo
made her work long hours, allowing
O. Joson decided the claims in question; disposing,
her to sleep only five hours daily and
as follows:
requiring her to render services for
 WHEREFORE, in the light of the court via the present petition, raising the pivotal
foregoing premises, respondents are issue of whether or not respondent NLRC erred in
hereby ordered to pay complainant adjudging it (petitioner) jointly liable with its
the following: principal, G & M Phils., Inc., for the payment of
private respondent's monetary claims.
1. US $200.00 or its peso equivalent
representing complainant's salary Petitioner faults respondent NLRC for holding that
differentials for four (4) months for G & M Phils., Inc. failed to comply with the rules
the period May 17, 1991 to and regulations of the Department of Labor and
September 17, 1991 computed at Employment. It is petitioner's submission that there
US $50.00 a month; is no basis for holding it liable as surety under the
premises.
2. US $3,300.00 or its peso
equivalent representing the payment Although it concedes that the burden of proof in
of salaries for 16.5 months as the cases of illegal dismissal rests on the employer,
unexpired portion of the contract. petitioner argues that when private respondent
Monera Andal asked the Philippine Embassy in
SO ORDERED. Riyadh, Saudi Arabia to mediate her claims with her
employer, such a move on the part of private
From the aforesaid decision adverse to it, petitioner respondent shifted the onus probandi to her to
Empire Insurance Company appealed to the substantiate her claim.
National Labor Relations Commission; posing as
issues, that: Private respondent's Comment sought the
dismissal of the petition for being a wrong mode of
1. Complainant (Monera Andal) had appeal from the NLRC decision. It is private
no cause of action against petitioner respondent's stance that appeal from decisions of
because the liability of petitioner's the National Labor Relations Commission to the
principal and co-respondent (G&M) Supreme Court is by a special civil action
had not been established. for certiorari under Rule 65 of the Revised Rules of
Court. Not a petition for review under Rule 45.
2. Petitioner's liability, if any, was
merely subsidiary. The Solicitor General, as counsel for respondent
NLRC, joined private respondent in stressing on
On November 22, 1994, the NLRC came out with a such procedural defect. Furthermore, the Solicitor
judgment of affirmance, upholding the POEA, and General pointed out that the errors assigned by
holding, thus: petitioner deal primarily with factual findings and, as
such, are unavailing under the well-entrenched rule
The argument that respondent that findings of fact by administrative agencies and
Empire Insurance Company is only quasi-judicial bodies are generally accorded not
subsidiarily liable for the judgment only respect but finality, and are not to be disturbed
award is unmeritorious. It is settled on appeal.
that a surety is considered in law as
being the same party as the debtor We find for respondents.
in relation to whatever is adjudged
touching the obligation of the latter, Before delving into the merits of the petition, the
and their liabilities are interwoven as procedural objection of respondents should first be
to be inseparable. . . . resolved. Private respondent and the Solicitor
General have correctly pointed out the elementary
WHEREFORE, the decision rule of procedure with regard to review of decisions
appealed from is hereby AFFIRMED. rendered by the National Labor Relations
Commission. The only way a labor case may reach
SO ORDERED. the Supreme Court is through a petition
for certiorari under Rule 65 of the Revised Rules of
Court. 1 A petition for certiorari which is a special
Undaunted by the denial of its motion for
civil action under Rule 65 should be distinguished
reconsideration, petitioner found its way to this
from a petition for review on certiorari which is a
mode of appeal under Rule 45. Under Rule 65, only respondent employee's monetary claims in
questions of jurisdiction or grave abuse of litigation.
discretion amounting to lack or excess of
jurisdiction may be entertained by the reviewing We rule in the affirmative. Petitioner is solidarily
court. Therefore, only decisions of the National liable with its principal, G & M Phils., Inc., under the
Labor Relations Commission tainted with grave attendant facts and circumstances.
abuse of discretion or jurisdictional errors may be
elevated to this court. Suretyship is a contractual relation resulting from
an agreement whereby one person, the surety,
Findings and/or conclusions of fact cannot be engages to be answerable for the debt, default or
assailed in a petition for certiorari. 2 The inquiry in miscarriage of another, known as the principal. 5
such a petition is limited exclusively to the issue of
whether or not the respondent official acted without Where the surety bound itself solidarily with the
or in excess of jurisdiction. Consequently, petitioner principal obligor, the former is so dependent on the
cannot assail the finding arrived at by public principal debtor such that the surety is considered
respondent NLRC that the employer involved in law as being the same party as the debtor in
violated pertinent POEA rules and regulations. relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are
However, while an appeal to the Supreme Court interwoven as to be inseparable. 6 The surety's
from decisions of the National Labor Relations liability is solidary but the nature of its undertaking
Commission should be pursued as a special civil is such that unless and until the principal debtor is
action for certiorari, in a number of cases this court held liable it does not incur liability.
has treated as special civil actions
for certiorari petitions erroneously captioned as When the herein petitioner, Empire Insurance
petitions for review on certiorari "in the interest of Company, entered into a suretyship agreement with
justice." 3 G & M Phils., Inc., it bound itself to answer for the
debt or default of the latter. And, since the POEA
In the case of People's Security, Inc. vs. and NLRC found the said recruitment agency liable
NLRC, 4 this Court held that: to private respondent, petitioner's liability likewise
proceeds from such a finding. As a surety,
Dismissal of appeal purely on petitioner is primarily liable to private respondent,
technical grounds is frowned upon as judgment creditor, for her monetary claims
where the policy of the courts is to against its principal, G & M Phils., Inc., and is
encourage hearings of appeal on immediately bound to pay and satisfy the same.
their merits. The rules of procedure
ought not to be applied in a very Time and again, this court has pronounced that
rigid technical sense, rules of claims of overseas workers should be acted upon
procedure are used only to help with sympathy, and allowed if warranted,
secure, not override substantial conformably to the constitutional mandate for the
justice. If a technical and rigid protection of the working class 7. Private
enforcement of the rules is made, employment agencies are held to be jointly and
their aim would be defeated. severally liable with the foreign-based employer for
(Tamayo v. Court of Appeals, 209 any violation of the recruitment agreement or
SCRA 518, 522 contract of employment. 8
[1992] citing Gregorio v. Court of
Appeals, 72 SCRA 120 [1976]). POEA has thus promulgated a rule requiring private
Consequently, in the interest of recruitment agencies to set up cash and surety
justice, the instant petition for review bonds. The purpose of the required surety bond is
shall be treated as a special civil to insure that if the rights of overseas workers are
action on certiorari. violated by their employer, recourse would still be
available to them against the local companies that
The single issue posed for resolution by this court recruited them for the foreign principal. 9
here is whether or not the petitioning surety
company is jointly liable with its principal, G & M It bears stressing that surety companies may be
Phils, Inc., a recruitment agency, for the payment of ordered impleaded by the Philippine Overseas
Employment Administration (POEA) in
administrative complaints against recruitment
agencies, on surety bonds posted, and are bound
by the judgment of POEA. 10 This Court discerns no
reason why the said rule should not apply to herein
petitioner.

WHEREOF, the petition under consideration is

hereby DISMISSED and the appealed of
respondent NLRC AFFIRMED. No pronouncement
as to costs.

SO ORDERED.
 G.R. No. 172041 December 18, 2008
D LINE]
GATEWAY ELECTRONICS CORPORATION and
GERONIMO B. DELOS REYES, JR., petitioners,
vs.
ASIANBANK CORPORATION, respondent. owing to the said ASIANBANK
CORPORATION, hereafter called the
DECISION CREDITOR, as evidenced by all notes,
drafts, overdrafts and other [credit]
VELASCO, JR., J.: obligations of every kind and nature
contracted/incurred by said DEBTOR(S) in
This petition for review under Rule 45 seeks to favor of said CREDITOR.
nullify and set aside the Decision 1 dated October
28, 2005 of the Court of Appeals (CA) in CA-G.R. In case of default by any and/or all of the
CV No. 80734 and its Resolution2 of March 17, DEBTOR(S) to pay the whole part of said
2006 denying petitioners motion for indebt nbsp nbsp nbsp
reconsideration. nbsp erein secured at maturity, I/WE
BR
The Facts vs.
and severally agree and engage to the
Petitioner Gateway Electronics Corporation CREDITOR, its successors and assigns, the
(Gateway) is a domestic corporation that used to be prompt payment, x x x of such notes, drafts,
engaged in the semi-conductor business. During overdrafts and other credit obligations on
the period material, petitioner Geronimo B. delos which the DEBTOR(S) may now be
Reyes, Jr. was its president and one Andrew delos indebted or may hereafter become indebted
Reyes its executive vice-president. to the CREDITOR, together with all
interests, penalty and other bank charges
as may accrue thereon x x x.
On July 23, 1996, Geronimo and Andrew executed
separate but almost identical deeds of suretyship
for Gateway in favor of respondent Asianbank I/WE further warrant the due and faithful
Corporation (Asianbank), pertinently providing: performance by the DEBTOR(S) of all
obligations to be performed under any
contracts evidencing
I/We Geronimo B. de los Reyes, Jr. x x x
indebtedness/obligations and any
warrant to the ASIANBANK
supplements, amendments, changes or
CORPORATION, x x x due and punctual
modifications made thereto, including but
payment by the following
not limited to, the due and punctual
individuals/companies/firms, hereinafter
payment by the said DEBTOR(S).
called the DEBTOR(S), of such amounts
whether due or not, as indicated opposite
their respective names, to wit: MY/OUR liability on this Deed of Suretyship
shall be solidary, direct and immediate and
not contingent upon the pursuit by the
CREDITOR x x x of whatever remedies it or
NAME OF AMOUNT OF they may have against the DEBTOR(S) or
DEBTOR(S) OBLIGATION the securities or liens it or they may
possess; and I/WE hereby agree to be and
remain bound upon this suretyship, x x x
and notwithstanding also that all obligations
GATEWAY *P10,000,000. *US$3,000,000. of the DEBTOR(S) to you outstanding and
ELECTRONIC 00 00 unpaid at any time may exceed the
S *DOMESTIC *OMNIBUS aggregate principal sum hereinabove
CORPORATI BILLS CREDIT LINE stated.3
ON [PURCHASE
Later developments saw Asianbank extending to
Gateway several export packing loans in the total
aggregate amount of USD 1,700,883.48. This loan liability under the surety agreement inasmuch as he
package was later consolidated with Dollar too never consented to the repeated loan maturity
Promissory Note (PN) No. FCD-0599-27494 for the date extensions given by Asianbank to Gateway.
amount of USD 1,700,883.48 and secured by a
chattel mortgage over Gateways equipment for After due hearing, the RTC rendered judgment
USD 2 million. dated October 7, 20035 in favor of Gateway, the
dispositive portion of which states:
Gateway initially made payments on its loan
obligations, but eventually defaulted. Upon WHEREFORE then, in view of the
Gateways request, Asianbank extended the foregoing, judgment is rendered holding
maturity dates of the loan several times. These defendants Gateway Electronics
extensions bore the conformity of three of Corporation, Geronimo De Los Reyes and
Gateways officers, among them Andrew. Andrew De Los Reyes jointly and severally
liable to pay the plaintiff the following:
On July 15 and 30, 1999, Gateway issued two
Philippine Commercial International Bank checks a) The sum of $2,235,452.17 United
for the amounts of USD 40,000 and USD 20,000, States Currency with interest to be
respectively, as payment for its arrearages and added on at the prevailing market
interests for the periods June 30 and July 30, 1999; rate over a given thirty day London
but both checks were dishonored for insufficiency Interbank Offered Rate (LIBOR) plus
of funds. Asianbanks demands for payment made a spread of 5.5358 percent or ten
upon Gateway and its sureties went unheeded. As and [45,455/100,000] percent per
of November 23, 1999, Gateways obligation to annum for the first 35 days and
Asianbank, inclusive of principal, interest, and every thirty days beginning
penalties, totaled USD 2,235,452.17. November 23, 1999 until fully paid;

Thus, on December 15, 1999, Asianbank filed with b) a penalty charge after November
the Regional Trial Court (RTC) in Makati City a 23, 1999 of two percent (2%) per
complaint for a sum of money against Gateway, month until fully paid;
Geronimo, and Andrew. The complaint, as later
amended, was eventually raffled to Branch 60 of c) attorneys fees of twenty percent
the court and docketed as Civil Case No. 99-2102 (20%) of the total amount due and
entitled Asian Bank Corporation v. Gateway unpaid; and
Electronics Corporation, Geronimo B. De Los
Reyes, Jr. and Andrew S. De Los Reyes. d) costs of the suit.

In its answer to the amended complaint, Gateway SO ORDERED.

traced the cause of its financial difficulties,
described the steps it had taken to address its Thereafter, Gateway, Geronimo, and Andrew
mounting problem, and faulted Asianbank for trying appealed to the CA, their recourse docketed as CA-
to undermine its efforts toward recovery. G.R. CV No. 80734. Following the filing of its and
Geronimos joint appellants brief, Gateway filed on
Andrew also filed an answer alleging, among other November 10, 2004 a petition for voluntary
things, that the deed of suretyship he executed insolvency6 with the RTC in Imus, Cavite, Branch
covering the PhP 10 million-Domestic Bills 22, docketed as SEC Case No. 037-04, in which
Purchased Line and the USD 3 million-Omnibus Asianbank was listed in the attached Schedule of
Credit Line did not include PN No. FCD-0599-2749, Obligations as one of the creditors. On March 16,
the payment of which was extended several times 2005, Metrobank, as successor-in-interest of
without his consent. Asianbank, via a Notice of Creditors Claim, prayed
that it be allowed to participate in the Gatewayss
Geronimo, on the other hand, alleged that the creditors meeting.
subject deed of suretyship, assuming the
authenticity of his signature on it, was signed In its Decision dated October 28, 2005, the CA
without his wifes consent and should, thus, be affirmed the decision of the Makati City RTC. In
considered as a mere continuing offer. Like Andrew, time, Gateway and Geronimo interposed a motion
Geronimo argued that he ought to be relieved of his
for reconsideration. This was followed by a A. An extension granted to the debtor by the
Supplemental Motion for Reconsideration dated creditor without the consent of the guarantor
January 20, 2006, stating that in SEC Case No. extinguishes the guaranty.
037-04, the RTC in Imus, Cavite had issued an
Order dated December 2, 2004, declaring Gateway B. The [CA] interpreted the supposed Deed
insolvent and directing all its creditors to appear of Surety of petitioner GBR as "too
before the court on a certain date for the purpose of comprehensive and all encompassing as to
choosing among themselves the assignee of amount to absurdity."
Gateways estate which the courts sheriff has
meanwhile placed in custodia legis.7 Gateway and C. The repeated extensions granted by
Geronimo thus prayed that the assailed decision of Asianbank to GEC prevented petitioner
the Makati City RTC be set aside, the insolvency GBR from exercising his right of subrogation
court having acquired exclusive jurisdiction over the under Article 2080 of the Civil Code. As
properties of Gateway by virtue of Section 60 of Act such, petitioner GBR should be released
No. 1956, without prejudice to Asianbank pursuing from his obligations as surety of GEC.
its claim in the insolvency proceedings.
IV
In its March 17, 2006 Resolution, however, the CA
denied the motion for reconsideration and its It is a well-settled rule that when a bank
supplement. deviates from normal banking practice in a
transaction and sustains injury as a result
Hence, Gateway and Geronimo filed this petition thereof, the bank is deemed to have
anchored on the following grounds: assumed the risk and no right of payment
accrues to the latter against any party to the
I transaction. By repeatedly extending the
period for the payment of GECs obligations
The [CA] erred in disregarding the and granting GEC other loans after the
established rule that an action commenced suretyship agreement despite GECs default
by a creditor against a judicially declared and in failing to foreclose the chattel
insolvent for the recovery of his claim mortgage constituted as security for GECs
should be dismissed and referred to the loan contrary to normal banking practices,
insolvency court. Where, therefore, as in Asianbank failed to exercise reasonable
this case, petitioner GEC [referring to caution for its own protection and assumed
Gateway] has been declared insolvent x x x, the risk of non-payment through its own
respondent Asianbanks claim for the acts, and thus has no right to proceed
payment of GECs loans should be against petitioner GBR as surety for the
ventilated before the insolvency court x x x. payment of GECs loans.

II V

The [CA] erred in admitting as evidence the In Agcaoili v. GSIS, this Honorable Court
Deed of Surety purportedly signed by had occasion to state that in determining the
petitioner GBR [referring to Geronimo] precise relief to give, the court will "balance
despite the unexplained failure of the equities" or the respective interests of
respondent Asianbank to present the the parties and take into account the relative
originals of the Deed of Surety during the hardship that one relief or another may
trial. occasion to them. Upon a balancing of
interests of both petitioner GBR and
III respondent Asianbank, greater and
irreparable harm and injury would be
The [CA] erred in holding that the repeated suffered by petitioner GBR than respondent
extensions granted by respondent Asianbank if the assailed Decision and
Asianbank to GEC without notice to and the Resolution of the [CA] would be upheld x x
express consent of petitioner GBR did not x. This Honorable Court x x x should thus
discharge petitioner GBR from his liabilities exercise its equity jurisdiction in the instant
as surety GEC in that: case to the end that it may render complete
 justice to both parties and declare petitioner the property, assets, and belongings of the
GBR as released and discharged from any insolvent which have come into his
liability in respect of respondent Asianbanks possession x x x. (Emphasis supplied.)
claims.8
Complementing Sec. 18 which appropriately comes
The Ruling of the Court into play "upon the granting of [the] order" of
insolvency is the succeeding Sec. 60 which
Gateway May Be Discharged from Liability But properly applies to the period "after the
Not Geronimo commencement of proceedings in insolvency." The
two provisions may be harmonized as follows:
Gateway, having been declared insolvent, argues Upon the filing of the petition for insolvency,
that jurisdiction over all claims against all of its pending civil actions against the property of the
properties and assets properly pertains to the petitioner are not ipso facto stayed, but the
insolvency court. Accordingly, Gateway adds, citing insolvent may apply with the court in which the
Sec. 60 of Act No. 1956,9 as amended, or actions are pending for a stay of the actions against
the Insolvency Law, any pending action against its the insolvents property. If the court grants such
properties and assets must be dismissed, the application, pending civil actions against the
claimant relegated to the insolvency proceedings petitioners property shall be stayed; otherwise,
for the claimants relief. they shall continue. Once an order of insolvency
nevertheless issues, all civil proceedings against
The contention, as formulated, is in a qualified the petitioners property are, by statutory command,
sense meritorious. Under Sec. 18 of Act No. 1956, automatically stayed. Sec. 60 is reproduced below:
as couched, the issuance of an order declaring the
petitioner insolvent after the insolvency court finds SECTION 60. Creditors proving claims
the corresponding petition for insolvency to be cannot sue; Stay of action.No creditor,
meritorious shall stay all pending civil actions proving his debt or claim, shall be allowed to
against the petitioners property. For reference, said maintain any suit therefor against the
Sec. 18, setting forth the effects and contents of a debtor, but shall be deemed to have waived
voluntary insolvency order,10 pertinently provides: all right of action and suit against him, and
all proceedings already commenced, or any
Section 18. Upon receiving and filing said unsatisfied judgment already obtained
petition, schedule, and inventory, the court x thereon, shall be deemed to be discharged
x x shall make an order declaring the and surrendered thereby; and after the
petitioner insolvent, and directing the sheriff debtors discharge, upon proper application
of the province or city in which the petition is and proof to the court having jurisdiction, all
filed to take possession of, and safely keep, such proceedings shall be, dismissed, and
until the appointment of a receiver or such unsatisfied judgments satisfied of
assignee, all the deeds, vouchers, books of record: Provided, x x x. A creditor proving
account, papers, notes, bonds, bills, and his debt or claim shall not be held to have
securities of the debtor and all his real and waived his right of action or suit against the
personal property, estate and effects x x x. debtor when a discharge has have been
Said order shall further forbid the payment refused or the proceedings have been
to the creditor of any debts due to him and determined to the without a discharge. No
the delivery to the debtor, or to any person creditor whose debt is provable under
for him, of any property belonging to him, this Act shall be allowed, after the
and the transfer of any property by him, and commencement of proceedings in
shall further appoint a time and place for a insolvency, to prosecute to final
meeting of the creditors to choose an judgment any action therefor against the
assignee of the estate. Said order shall [be debtor until the question of the debtors
published] x x x. Upon the granting of said discharge shall have been determined,
order, all civil proceedings pending and any such suit proceeding shall,
against the said insolvent shall be upon the application of the debtor or of
stayed. When a receiver is appointed, or an any creditor, or the assignee, be stayed
assignee chosen, as provided in this Act, to await the determination of the court
the sheriff shall thereupon deliver to such on the question of discharge: Provided,
receiver or assignee, as the case may be all That if the amount due the creditor is in
 dispute, the suit, by leave of the court in from what it owes Asianbank, he, too, should also
insolvency, may proceed to judgment for be so relieved.
purpose of ascertaining the amount
due, which amount, when adjudged, may Geronimos above contention is untenable.
be allowed in the insolvency
proceedings, but execution shall be Suretyship is covered by Article 2047 of the Civil
stayed aforesaid. (Emphasis supplied.) Code, which states:

Applying the aforequoted provisions, it can rightfully By guaranty a person, called the guarantor,
be said that the issuance of the insolvency order of binds himself to the creditor to fulfill the
December 2, 2004 had the effect of automatically obligation of the principal debtor in case the
staying the civil action for a sum of money filed by latter should fail to do so.
Asianbank against Gateway. In net effect, the
proceedings before the CA in CA-G.R. CV No. If a person binds himself solidarily with the
80734, but only insofar as the claim against principal debtor, the provisions of Section 4,
Gateway was concerned, was, or ought to have Chapter 3, Title I of this Book shall be
been, suspended after December 2, 2004, observed. In such case the contract is
Asianbank having been duly notified of and in fact called a suretyship.
was a participant in the insolvency proceedings.
The Court of course takes stock of the proviso in The Courts disquisition in Palmares v. Court of
Sec. 60 of Act No. 1956 which in a way provided Appeals on suretyship is instructive, thus:
the CA with a justifying tool to continue and to
proceed to judgment in CA-G.R. CV No. 80734, but
A surety is an insurer of the debt, whereas a
only for the purpose of ascertaining the amount due
guarantor is an insurer of the solvency of
from Gateway. At any event, on the postulate that
the debtor. A suretyship is an undertaking
jurisdiction over the properties of the insolvent-
that the debt shall be paid x x x. Stated
declared Gateway lies with the insolvency court,
differently, a surety promises to pay the
execution of the CA insolvency judgment against
principals debt if the principal will not pay,
Gateway can only be pursued before the
while a guarantor agrees that the creditor,
insolvency court. Asianbank, no less, tends to
after proceeding against the principal, may
agree to this conclusion when it stated: "[E]ven it if
proceed against the guarantor if the
is assumed that the declaration of insolvency of
principal is unable to pay. A surety binds
petitioner Gateway can be taken cognizance of,
himself to perform if the principal does not,
such fact does relieve petitioner Geronimo and/or
without regard to his ability to do so. x x x In
Andrew delos Reyes from performing their
other words, a surety undertakes directly for
obligations based on the Deeds of Suretyship x x
the payment and is so responsible at once if
x."11
the principal debtor makes default x x x.
Geronimo, however, is a different story.
xxxx
Asianbank argues that the stay of the collection suit
A creditors right to proceed against the
against Gateway is without bearing on the liability
surety exists independently of his right
of Geronimo as a surety, adding that claims against
to proceed against the principal. Under
a surety may proceed independently from that
Article 1216 of the Civil Code, the creditor
against the principal debtor. Pursuing the point,
may proceed against any one of the solidary
Asianbank avers that Geronimo may not invoke the
debtors or some or all of them
insolvency of Gateway as a defense to evade
simultaneously. The rule, therefore, is that if
liability.
the obligation is joint and several, the
creditor has the right to proceed even
Geronimo counters with the argument that his against the surety alone. Since, generally,
liability as a surety cannot be separated from it is not necessary for the creditor to
Gateways liability. As surety, he continues, he is proceed against a principal in order to hold
entitled to avail himself of all the defenses the surety liable, where, by the terms of the
pertaining to Gateway, including its insolvency, contract, the obligation of the surety is the
suggesting that if Gateway is eventually released same as that of the principal, then soon as
the principal is in default, the surety is
 likewise in default, and may be sued Should he have bound himself for more, his
immediately and before any proceedings obligations shall be reduced to the limits of
are had against the principal. Perforce, x x x that of the debtor.
a surety is primarily liable, and with the rule
that his proper remedy is to pay the debt The Court is not convinced. The above article
and pursue the principal for reimbursement, enunciates the rule that the obligation of a
the surety cannot at law, unless permitted guarantor may be less, but cannot be more than
by statute and in the absence of any the obligation of the principal debtor. The rule,
agreement limiting the application of the however, cannot plausibly be stretched to mean
security, require the creditor or obligee, that a guarantor or surety is freed from liability as
before proceeding against the surety, to such guarantor or surety in the event the principal
resort to and exhaust his remedies against debtor becomes insolvent or is unable to pay the
the principal, particularly where both obligation. This interpretation would defeat the very
principal and surety are equally bound.12 essence of a suretyship contract which, by
definition, refers to an agreement whereunder one
Clearly, Asianbanks right to collect payment for the person, the surety, engages to be answerable for
full amount from Geronimo, as surety, exists the debt, default, or miscarriage of another known
independently of its right against Gateway as as the principal.16 Geronimos position that a surety
principal debtor;13 it could thus proceed against one cannot be made to pay when the principal is unable
of them or file separate actions against them to to pay is clearly specious and must be rejected.
recover the principal debt covered by the deed on
suretyship, subject to the rule prohibiting double The CA Did Not Err in Admitting
recovery from the same cause.14 This legal the Deed of Suretyship as Evidence
postulate becomes all the more cogent in case of
an insolvency situation where, as here, the Going to the next ground, Geronimo maintains that
insolvency court is bereft of jurisdiction over the the CA erred in admitting the Deed of Suretyship
sureties of the principal debtor. As Asianbank aptly purportedly signed by him, given that Asianbank
points out, a suit against the surety, insofar as the failed to present its original copy.
suretys solidary liability is concerned, is not
affected by an insolvency proceeding instituted by This contention is bereft of merit.
or against the principal debtor. The same principle
holds true with respect to the surety of a As may be noted, paragraph 6 of Asianbanks
corporation in distress which is subject of a complaint alleged the following:
rehabilitation proceeding before the Securities and
Exchange Commission (SEC). As we held
6. The loan was secured by the Deeds of
in Commercial Banking Corporation v. CA, a surety
Suretyship dated July 23, 1996 that were
of the distressed corporation can be sued
executed by defendants Geronimo B. De
separately to enforce his liability as such,
Los Reyes, Jr. and Andrew S. De Los
notwithstanding an SEC order declaring the former
Reyes. Attached as Annexes "B" and "C,"
under a state of suspension of payment.15
respectively, are photocopies of the Deeds
of Suretyship executed by defendants
Geronimo also states that, as things stand, his Geronimo B. De Los Reyes, Jr. and Andrew
liability, as compared to that of Gateway, is S. De Los Reyes. Subsequently, a chattel
contextually more onerous and burdensome, mortgage over defendant Gateways
precluded as he is from seeking recourse against equipment for $2 million, United States
the insolvent corporation. From this premise, currency, was executed.17
Geronimo claims that since Gateway cannot, owing
to the order of insolvency, be made to pay its
Geronimo traversed in his answer the foregoing
obligation, he, too, being just a surety, cannot also
allegation in the following wise: "2.5. Paragraph 6 is
be made to pay, obviously having in mind Art. 2054
denied, subject to the special and affirmative
of the Civil Code, as follows:
defenses and allegations hereinafter set forth."
A guarantor may bind himself for less, but
The ensuing special and affirmative defenses were
not for more than the principal debtor, both
raised in Gateways answer:
as regards the amount and the onerous
nature of the conditions.
 15. Granting even that [Geronimo] signed order for an inspection of the original
the Deed of Suretyship, his wife x x x had instrument is refused. (Emphasis supplied.)
not given her consent thereto. Accordingly,
the security created by the suretyship shall Given the above perspective, Asianbank, by
be construed only as a continuing offer on attaching a photocopy of the Deed of Suretyship to
the part of [Geronimo] and plaintiff and may its underlying complaint, hewed to the requirements
only be perfected as a binding contract of the above twin provisions. Asianbank, thus,
upon acceptance by Mrs. Delos Reyes. x x effectively alleged the due execution and
x genuineness of the said deed. From that point,
Geronimo, if he intended to contest the surety
17. Moreover, assuming, gratia argumenti, deed, should have specifically denied the due
that [Geronimo] may be bound by the execution and genuineness of the deed in the
suretyship agreement, there is no showing manner provided by Sec. 10, Rule 8 of the Rules of
that he has consented to the repeated Court, thus:
extensions made by plaintiff in favor of GEC
or to a waiver of notice of such extensions. Sec. 10. Specific denial.A defendant must
It should be pointed out that Mr. Geronimo specify each material allegation of fact
delos Reyes executed the suretyship the truth of which he does not admit and,
agreement in his personal capacity and not whenever practicable, shall set forth the
in his capacity as Chairman of the Board of substance of the matters upon which he
GEC. His consent, insofar as the continuing relies to support his denial. Where a
application of the suretyship agreement to defendant desires to deny only a part of an
GECs obligations in view of the repeated averment, he shall specify so much of it as
extension extended by plaintiff [is is true and material and shall deny only the
concerned], is therefore necessary. remainder. Where a defendant is without
Obviously, plaintiff cannot now hold him knowledge or information sufficient to form a
liable as a surety to GECs obligations.18 belief as to the truth of a material averment
made in the complaint, he shall so state,
The Rules of Court prescribes, under its Secs. 7 and this shall have the effect of a denial.
and 8, Rule 8, the procedure should a suit or (Emphasis supplied.)
defense is predicated on a written document, thus:
In the instant case, Geronimo should have
Sec. 7. Action or defense based on categorically stated that he did not execute the
document.Whenever an action or defense Deed of Suretyship and that the signature
is based upon a written instrument or appearing on it was not his or was falsified. His
document, the substance of such instrument Answer does not, however, contain any such
or document shall be set forth in the statement. Necessarily then, Geronimo had not
pleading, and the original or a copy specifically denied, and, thus, is deemed to have
thereof shall be attached to the pleading admitted, the genuineness and due execution of
as an exhibit, which shall be deemed to be the deed in question. In this regard, Sec. 11, Rule 8
a part of the pleading, or said copy may with of the Rules of Court states:
like effect be set forth in the pleading.
Sec. 11. Allegations not specifically denied
Sec. 8. How to contest such documents. deemed admitted.Material averment in the
When an action or defense is founded upon complaint, other than those as to the
a written instrument, copied in or attached amount of unliquidated damages, shall be
to the corresponding pleading as provided deemed admitted when not specifically
in the preceding section, the genuineness denied. x x x
and due execution of the instrument
shall be deemed admitted unless the Owing to Geronimos virtual admission of the
adverse party, under oath, specifically genuineness and due execution of the deed of
denies them, and sets forth what he suretyship, Asianbank, contrary to the view of
claims to be the facts; but the requirement Gateway and Geronimo, need not present the
of an oath does not apply when the adverse original of the deed during the hearings of the case.
party does not appear to be a party to the Sec. 4, Rule 129 of the Rules says so:
instrument or when compliance with an
 Sec. 4. Judicial admissions.An "x x x Of course, a surety is not bound
admission, verbal or written, made by under any particular principal obligation until
the party in the course of the that principal obligation is born. But there is
proceedings in the same case, does not no theoretical or doctrinal difficulty inherent
require proof. The admission may be in saying that the suretyship agreement
contradicted only by showing that it was itself is valid and binding even before the
made through palpable mistake or that no principal obligation intended to be secured
such admission was made. (Emphasis thereby is born, any more than there would
supplied.) be in saying that obligations which are
subject to a condition precedent are valid
Geronimo Is Liable for PN No. FCD-0599-2749 and binding before the occurrence of the
under His Deed of Suretyship condition precedent.

This brings us to the third ground which involves Comprehensive or continuing surety
the issue of the coverage of the suretyship. agreements are in fact quite
Preliminarily, an overview on the process of taking commonplace in present day financial
out loans should first be made. Generally, and commercial practice. A bank or
especially for large loans, banks first approve a line financing company which anticipates
or facility out of which a client may avail itself of entering into a series of credit
loans in the form of promissory notes without need transactions with a particular company,
of further processing and/or approval every time a commonly requires the projected
draw down is made. In the instant case, Asianbank principal debtor to execute a continuing
approved in favor of Gateway the PhP 10 million- surety agreement along with its sureties.
Domestic Bills Purchased Line and the USD 3 By executing such an agreement, the
million-Omnibus Credit Line. Asianbank approved principal places itself in a position to
these credit lines which were covered by a chattel enter into the projected series of
mortgage as well as the deeds of suretyship, such transactions with its creditor; with such
that loans extended from these lines would already suretyship agreement, there would be no
be secured and pre-approved. In other words, need to execute a separate surety
these facilities are not financial obligations yet. contract or bond for each financing or
Asianbank did not yet lend out any money to credit accommodation extended to the
Gateway with the approval of these lines. The loan principal debtor."20
transaction occurred or the principal obligation, as
secured by a surety agreement, was born after the In Dio vs. Court of Appeals,21 we again had
execution of loan documents, such as PN No. FCD- occasion to discourse on continuing
0599-2749. guaranty/suretyship thus:

Geronimo now excepts from the ruling that the "x x x A continuing guaranty is one which is
deed of suretyship he executed covered PN No. not limited to a single transaction, but which
FCD-0599-2749 which embodied several export contemplates a future course of dealing,
packing loans issued by Asianbank to Gateway. He covering a series of transactions, generally
claims that the deed only secured the PhP 10 for an indefinite time or until revoked. It is
million-Domestic Bills Purchased Line and the USD prospective in its operation and is generally
3 million-Omnibus Credit Line. Geronimo describes intended to provide security with respect to
as absurd the notion that a deed of suretyship future transactions within certain limits, and
would secure a loan obligation contracted three (3) contemplates a succession of liabilities, for
years after the execution of the surety deed. which, as they accrue, the guarantor
becomes liable. Otherwise stated, a
Geronimos thesis that the deed in question cannot continuing guaranty is one which covers all
be accorded prospective application is erroneous. transactions, including those arising in the
To be sure, the provisions of the subject deed of future, which are within the description or
suretyship indicate a continuing suretyship. contemplation of the contract, of guaranty,
In Fortune Motors (Phils.) v. Court of Appeals,19 the until the expiration or termination thereof. A
Court, citing cases, defined and upheld the validity guaranty shall be construed as continuing
of a continuing suretyship in this wise: when by the terms thereof it is evident that
the object is to give a standing credit to the
 principal debtor to be used from time to time Indemnity Agreement refers only to the loan
either indefinitely or until a certain period x x document of April 20, 1982 which is the
x. SWAP loan. It did not include the EXPORT
loan. Hence, petitioner cannot be held
In other jurisdictions, it has been held that answerable for the EXPORT
the use of particular words and expressions loan.23 (Emphasis supplied.)
such as payment of any debt, any
indebtedness, any deficiency, or any sum, The Indemnity Agreement in Garcia specifically
or the guaranty of any transaction or identified loan documents evidencing obligations of
money to be furnished the principal debtor the debtor that the agreement was intended to
at any time, or on such time that the secure. In the present case, however, the
principal debtor may require, have been suretyship Geronimo assumed did not limit itself to
construed to indicate a continuing guaranty." a specific loan document to the exclusion of
(Emphasis supplied.) another. The suretyship document merely
mentioned the Domestic Bills Purchased Line and
By its nature, a continuing suretyship covers Omnibus Credit Line as evidenced by "all notes,
current and future loans, provided that, with respect drafts x x x contracted/incurred by [Gateway] in
to future loan transactions, they are, to borrow favor of [Asianbank]."24 As explained earlier, such
from Dio, as cited above, "within the description or credit facilities are not loans by themselves. Thus,
contemplation of the contract of guaranty." The the Deed of Suretyship was intended to secure
Deed of Suretyship Geronimo signed envisaged a future loans for which these facilities were opened
continuing suretyship when, by the express terms in the first place.
of the deed, he warranted payment of the PhP 10
million-Domestic Bills Purchased Line and the USD Lest it be overlooked, both the trial and appellate
3 million-Omnibus Credit Line, as evidenced by: courts found the Omnibus Credit Line referred to in
the Deed of Suretyship as covering the export
x x x notes, drafts, overdrafts and other packing credit loans Asianbank extended to
credit obligations on which the DEBTOR(S) Gateway. We agree with this factual determination.
may now be indebted or may hereafter By the very use of the term "omnibus," and in
become indebted to the CREDITOR, practice, an omnibus credit line refers to a credit
together with all interests, penalty and other facility whence a borrower may avail of various
bank charges as may accrue thereon and kinds of credit loans. Defined as such, an omnibus
all expenses which may be incurred by the line is broad enough to refer to or cover an export
latter in collecting any or all such packing credit loan.
instruments.22
Geronimos allegation that an export packing credit
Evidently, under the deed of suretyship, Geronimo loan is separate and distinct from an omnibus credit
undertook to secure all obligations obtained under line is but a bare and self-serving assertion bereft
the Domestic Bills Purchased Line and Omnibus of any factual or legal basis. One who alleges
Credit Line, without any specification as to the something must prove it: a mere allegation is not
period of the loan. evidence.25 Geronimo has not discharged his
burden of proof. His contention cannot be given any
Geronimos application of Garcia v. Court of weight.
Appeals, a case covering two separate loans,
denominated as SWAP Loan and Export Loan, is As a final and major ground for his release as
quite misplaced. There, the Court ruled that the surety, Geronimo alleges that Asianbank repeatedly
continuing suretyship only covered the SWAP Loan extended the maturity dates of the obligations of
as it was only this loan that was referred to in the Gateway without his knowledge and consent.
continuing suretyship. The Court wrote in Garcia: Pressing this point, he avers that, contrary to the
findings of the CA, he did not waive his right to
Particular attention must be paid to the notice of extensions of Gateways obligations.
statement appearing on the face of the
Indemnity [Suretyship] Agreement x x x Such contention is unacceptable as it glosses over
"evidenced by those certain loan the fact that the waiver to be notified of extensions
documents dated April 20, 1982" x x x. is embedded in surety document itself, built in the
From this statement, it is clear that the ensuing provision:
 In case of default by any and/or all of the Anent the first argument, suffice it to state that
DEBTOR(S) to pay the whole part of said Geronimo was then the president of Gateway and,
indebtedness herein secured at maturity, as such, was benefited, albeit perhaps indirectly, by
I/WE jointly and severally, agree and the loan thus granted by Asianbank. And as we said
engage to the CREDITOR, its successors in Security Pacific Assurance Corporation, the
and assigns, the prompt payment, without surety is liable for the debt of another although the
demand or notice from said CREDITOR surety possesses no direct or personal interest over
of such notes, drafts, overdrafts and the obligation nor does the surety receive any
other credit obligations on which the benefit from it.27
DEBTOR(S) may now be indebted or may
hereafter become indebted to the Whether or not Asianbank really deviated from
CREDITOR, together with all interests, normal banking practice by extending the period for
penalty and other bank charges as may Gateway to comply with its loan obligation or by not
accrue thereon and all expenses which may going after the chattel mortgage adverted to is
be incurred by the latter in collecting any or really of no moment. Banks are primarily in the
all such instruments.26 (Emphasis supplied.) business of extending loans and earn income from
their lending operations by way of service and
In light of the above provision, Geronimo verily interest charges. This is why Asianbank opted to
waived his right to notice of the maturity of notes, give Gateway ample opportunity to pay its
drafts, overdraft, and other credit obligations for obligations instead of foreclosing the chattel
which Gateway shall become indebted. This waiver mortgage and in the process holding on to assets
necessarily includes new agreements resulting of which the bank has really no direct use.
from the novation of previous agreements due to
changes in their maturity dates. The following excerpts from Palmares are in point:

Additionally, Geronimos lament about losing his We agree with respondent corporation that
right to subrogation is erroneous. He argues that by its mere failure to immediately sue petitioner
virtue of the order of insolvency issued by the on her obligation does not release her from
insolvency court, title and right to possession to all liability. Where a creditor refrains from
the properties and assets of Gateway were vested proceeding against the principal, the surety
upon Gateways assignee in accordance with Sec. is not exonerated. In other words, mere
32 of the Insolvency Law. want of diligence or forbearance does not
affect the creditors rights vis--vis the
The transfer of Gateways property to the surety, unless the surety requires him by
insolvency assignee, if this be the case, does not appropriate notice to sue on the obligation.
negate Geronimos right of subrogation, for such Such gratuitous indulgence of the principal
right may be had or exercised in the insolvency does not discharge the surety whether given
proceedings. The possibility that he may only at the principals request or without it, and
recover a portion of the amount he is liable to pay is whether it is yielded by the creditor through
the risk he assumed as a surety of Gateway. Such sympathy or from an inclination to favor the
loss does not, however, render ineffectual, let alone principal x x x. The neglect of the creditor to
invalidate, his suretyship. sue the principal at the time the debt falls
due does not discharge the surety, even if
Geronimos other arguments to escape liability are such delay continues until the principal
puerile and really partake more of a plea for becomes insolvent. And, in the absence of
liberality. They need not detain us long. In gist, proof of resultant injury, a surety is not
Geronimo argues: first, that he is a gratuitous discharged by the creditors mere statement
surety of Gateway; second, Asianbank deviated that the creditor will not look to the surety, or
from normal banking practice, such as when it that he need not trouble himself. The
extended the period for payment of Gateways consequences of the delay, such as the
obligation and when it opted not to foreclose the subsequent insolvency of the principal, or
chattel mortgage constituted as guarantee of the fact that the remedies against the
Gateways loan obligation; and third, implementing principal may be lost by lapse of time, are
the appealed CAs decision would cause him great immaterial.28
harm and injury.
 The Courts Equity Jurisdiction
Finds No Application to the Instant Case

Geronimo urges the Court to release and discharge

him from any liability arising from Asianbanks
claims if what he terms as "complete justice" is to
be served. He cites, as supporting
29
reference, Agcaoili v. GSIS, presenting in the
same breath the following arguments: first, the
Deed of Suretyship is a gratuitous contract from
which he did not benefit; second, Asianbank
assured him that the deed would not be enforced
against him; third, the enforcement of the judgment
of the CA would reduce Geronimo and his family to
a life of penury; and fourth, Geronimo would be
unable to exercise his right of subrogation,
Gateway having already been declared as
insolvent.

The first and last arguments have already been

addressed and found to be without merit. The
second argument is a matter of defense which has
remained unproved and even belied by Asianbank
by its filing of the complaint. We see no need to
further belabor any of them.

As regards the third allegation, suffice it to state

that the predicament Geronimo finds himself in is
his very own doing. His misfortune is but the result
of the implementation of a bona fide contract he
freely executed, the terms of which he is presumed
to have thoroughly examined. He was not at all
compelled to act as surety; he had a choice. It may
be more offensive to public policy or good customs
if he be allowed to go back on his undertaking
under the surety contract. The Court cannot be a
party to the contracts impairment and relieve a
surety from the effects of an unwise but
nonetheless a valid surety contract.

WHEREFORE, the instant petition is

hereby DENIED. The appealed Decision dated
October 28, 2005 of the CA and its March 17, 2006
Resolution in CA-G.R. CV No. 80734 are
hereby AFFIRMED with the modification that any
claim of Asianbank or its successor-in-interest
against Gateway, if any, arising from the judgment
in this suit shall be pursued before the RTC, Branch
22 in Imus, Cavite as the insolvency court.

Costs against petitioners.

SO ORDERED.
 G.R. No. L-30096 September 27, 1977 Babida, who died in 1950, was the applicant-
possessor of the homestead. He was not able to
CONRADO SINGSON, plaintiff, obtain a homestead patent. Singson's application
vs. for a free patent for the land was denied by the
DAVID BABIDA, RAMON ANTONIO, JAIME Director of Lands.
PERALTA, FELINO GARCIA, JOSE MARCOS,
RICARDO RABAGO. JAIME BIBIS, FELICIANO On January 22, 1957 Singson filed a forcible entry
TUGADE, BONIFACIO CALPITO, ALFREDO action in the justice of the peace court of Lasam
PERALTA, ALFREDO GARCIA and FELICIANO against David Babida, Ramon Antonio, Jose
GARCIA, defendants. MATIAS BABIDA, VICTOR Marcos, Ricardo Rabago, Jaime Bibis, Bonifacio
GARCIA, JULIAN PACURSA, NICOLAS AGATEP, Calpito, Feliciano Tugade Jaime Peralta, Alfredo
DOROT'EO BALLESTEROS and PEDRO Peralta, Alfredo Garcia, Felino Garcia, and FeWmo
AGAT'EP, bondsmen and petitioners-appellants, Garcia. He alleged that the twelve defendants
vs. CONRADO SINGSON and NEMESIO T. entered the land in September, 1956 and by means
ORATE, respondents-appellees. of collective force ousted his tenants.

AQUINO, J.: The defendants in their answer averred that the

homestead belonged to David Babida and his
In a nutshell, this is a case about execution against coheirs who had continuously possessed it even
the supersedes bonds in an ejectment suit. The before the war. (David was the son of Pedro
bondsmen-appellants contend that the bonds are Babida.)
void and that the judgment in favor of the
landowner had already been satisfied and, The justice of the peace court in its decision of
therefore, the execution, allegedly vitiated by some September 14, 1957 ordered the defendants to
irregularities, was uncalled for. vacate the land and allowed Singson to withdraw
from Domingo Gerardo, the depositary, "the canons
Actually, as revealed in the 250-page record on of the land" or the owner's share of the harvests
appeal, the objective in this appeal of the (Civil Case No. 34).
appellants, who are poor and ignorant farmers, is to
annul the execution sales of their nine parcels of The defendants appealed to the Court of First
agricultural land, with a total area of thirty-three (33) Instance of Cagayn. In their answer they denied
hectares and an aggregate assessed value of that Singson was in on of the land. They claimed to
P6,190. The judicial sales (now alleged to be final be the possessors of the land as tenants of Pedro
by the judgment creditor) were made in order to Babida. They reiterated their defense that the land
satisfy a judgment for only P1,460, the value of 146 belonged to the'heirs of Pedro Babida (Civil Case
cavans of palay. No. 923-A).

The gross inadequacy of the price carries with it To stay the execution of the inferior court's
implications of capacity and unjust enrichment. It is decision, while the appeal in the Court of First
noteworthy that those 33 hectares, which Instance was pending, Matias Babida, Victor
apparently constitute appellants' only source of Garcia, Julian Pacursa and Nicolas Agatep (who
livelihood, would become the property of the are not defendants) executed on March 27, 1958 a
judgment creditor in satisfaction of a judgment "counterload for the amount of P3,000 to answer
credit of P1,460. These aspects of the case have for damages (which) the plaintiff might sustain by
alerted us to be vigilant for the protection of the reason of the crops or produce which they pray to
appellants who are disadvantaged or handicapped be disposed (of) and deposited". That counterbond
by their obvious indigence and ignorance (Art. 24, is known as the "first supersedeas bond".
Civil Code).
After a de novo, the lower court in its decision of
Facts. Conrado V. Singson, a lawyer, claims that August 4, 1958 ordered the defendants to restore
a certain 24 hectare homestead, located at Barrio the possession of the land to Singson and to
Malinta (Finugo), Lasam, formerly Gattaran, deriver to him 73 cavans of palay yearly from
Cagayan, was conveyed to him in 1936 by Pedro September, 1956 until the ion is restored to
Babida as payment of his attomey's fees in a Singson, and, "in default thereof, the sum of P730"
murder case wherein Babida was the accused. as the value of 73 cavans. The depositary was
ordered to deriver to Singson 55 cavans of palay to the understanding that the properties of the
be deducted from the 73 cavans corresponding to defendants be first sold" "and, if insufficient, then
the owner's share of the harvests for the crop-year the properties of the bondmen" should be sold (89-
1956-57. 91, Record on Appeal). did not indicate in that
ration the balance still due from the defendants.
The twelve defendants appealed to the Court of
Appeals. To stay execution pending appeal, In filing that motion, Singson did not bother to
Doroteo Ballesteros and Pedro Agatep (not parties consider that the lands of the said four defendants,
to the case) separately executed supersedeas which had already been levied upon and which
bonds in the sum of P2,000 wherein they undertook have an aggregate area of ten (10) hectares and a
"to pay to the plaintiff whatever damages he might total value of P3,590, were more than sufficient to
sustain as a result of" the case. Those under are satisfy the sum of P1,340 as the unpaid of the
known as the "second supersedeas bond". judgment.

On July 3, 1959 the Court of Appeals dismissed The six bondsmen opposed Simpson's motion on
defendants' appeal because of their failure to pay the grounds that the bonds are void and that
the docket fee and to deposit the estimated cost of execution cannot be had againts the bondsmen
printing their record on appeal. The record was because no judgment against them had been "in
returned to the lower court which ordered the the ordinary manner" (Green vs. Del Rosario, 43
execution of its judgment. A writ of execution was Phil. 547).
issued on April 11, 1960. By virtue of that writ, the
deputy sheriff on April 26, 1960 placed Singson's The counsel for the bondsmen, like Singson, did
representative in ion of the disputed land. not realize that an execution against them, in
addition to the levy on the tenth lands of the four
In compliance with the writ of execution, Singson's defendants, would be unnecessary since, as
representative received 20 cavans of palay from already stated, those ten are more than sufficient
defendant Jaime Peralta on April 26, 1960 and 138 for the payment of the judgement.
cavans on May 6, 1960 from Bonifacio Calpito,
Jaime Bibis, Ramon Antonio, Fee Tugade Felino The lower court granted Singson's motion in its
Garcia and Jaime Peralta or 158 cavans in all order of September 10, 1960 but because neither
According to Singson's Gerardo did not deliver.the Singson nor the sheriff informed the court of the
55 cavans of palay to Singson's overseer. The exact balance still due from the defendants, and the
sheriff's return is silent on that point. So, the sheriff's return was overred, the court acted under
defendant's remaining obligation under the the impression that the amount due from the
judgment was to deriver the balance of 134 cavans defendants and their bondsmen was in the sum of
of palay out of the 292 cavans due from them for P730 only. That was the value of the owner's sham
four crop. years, 1956-57 to 1959-60. of the harvests for one crop-year.

The 134 cavans of palay had an aggregate value of Undoubtedly, the lower court would not have
P1,340 at ten a cavan, the value fixed by the trial granted motion had it been apprised that the ten
court in its decision. That sum of P1,340 and the belonging to the aforenamed four defendants,
expenses of execution would constitute defendants' which had already been levied upon, were more
liability as of May 6, 1960. than adequate to answer for the liability of P730.
The above-mentioned order of September 10,
Presumably, to enforce that remaining liability, the 1960, an order of execution supplementing the
sheriff on May 17, 1960 levied upon the lands of original order of execution of February 23, 1960,
defendants Ramon Antonio June Bible, Bonifacio reads as follows:
Calpito and Alfredo Peralta. The sheriff scheduled
the sale of their lands on August 31, 1960. As prayed for, the deputy sheriff is
hereby directed to include in the
On August. 10, 1960 Singson ordered a motion to notice of sale the properties of the
suspend the auction sale of the properties of sureties in the supersedeas bond
Antonio, Bibis, Calpito and peralta and to include in who are held liable jointly and
the auction sale the properties of the six bondsmen, severally with the defendants to the
Victor Garcia, Matias Julian Pacursa, Doroteo plaintiff in the sum of P730 but
Ballesteros, Nicolas Agatep and Pedro Agatep "on before collecting this sum from the
 sureties, the properties of the The lower court in its order of January 28, 1961,
principals not exempt from execution manifestly disregarding the clarification in Singson's
must first be exhausted and motion, explained that the second "Supersedes
whatever amount remains unpaid bond would answer for the value of the produce
shall be chargeable to the from the land during the pendency of the appeal- in
sureties but in no case shalt it the "amount of P730" (1959-1960 crop-year), while
exceed P731 (134, 183, Record on the first supersedeas bond would not answer for
Appeal). the produce of the land from September, 1956
but would answer only for the produce of the land
Plaintiff Singson and the defendants accepted the from March 27, 1958 (when it was approved) up to
said order as correct. However, the sheriff did not January 13, 1959 when the second supersedeas
immediately implement it. bond was approved, or for the owner's share for the
1958-1959 crop-year.
On September 14, 1960, he asked the court that he
should be to make first a levy on the properties of The lower court categorically ordered the execution
the bondsmen and that he be required to self the against the first supersedeas bond only for the sum
bondmen's properties only "in the event that the of P730 (as in the case of the second supe bond)
proceeds of the sale of the properties of the on condition that "before the (first sure ) bond is
principals are not sufficient to satisfy the judgment" executed, the Principals must fust be directed to
(94, Record on Appeal). However, the sheriff did pay the said sum and if they fail to pay, execution
not specify the balance of the judgment for which shall issue against the sureties for the amount of
the levy should be made. The court did not act on P730" (103, Record on Appeal).
the sheriff's motion.
Thus the trial court, by reason of the motion of
On January 9, 1961 Singson filed a motion for Singson, the judgment creditor, and with his tacit
execution against the first supersedeas acquiescence, notated its final and executory
bond which, according to him, was involuntarily judgment by reducing the obligations covered by
omitted in the aforementioned order of September the two supersedeas bonds to P730 each. The trial
10, 1960. Again Singson, like the sheriff, did not court made it unmistakably clear that the liability of
state how much was still due from the defendants. the bondsmen was only subsidiary to that of the
Singson averred in his motion that the first defendants as principals, meaning that the
supersedeas bond covered "the damages bondsmen are entitled to the beneficium
occasioned to the plaintiff from the filing of the excussionis or the right to have the properties of
complaint in the justice of the peace court up to their principals exhausted before they could be
August 4, 1958" when the Court of First Instance liable on their bonds.
rendered its decision, and that the second
supesedeas bond covered the damages from The trial court's act of fixing the liabilities of the six
August 4, 1958 up to the time the appeal was bondsmen at P1,460 is directly attributable to the
dismissed by the Court of Appeals (96-97, Record failure of the sheriff and Singson (inadvertently or
on Appeal). deliberately) to call the court's attention to the fact
that 158 cavans had already been delivered to
The bondsmen opposed the motion on the ground Singson and to apprise it of the exact amount still
that the supersedeas bond was not necessary due from the twelve judgment debtors.
since the justice of the peace court did not adjudge
any compensation for the use and occupation of On March 3, 1961 another writ of execution (the
the homestead, citing Alandy vs. San Jose, 79 Phil. first was issued on April 12, 1960 and it was
811. supplemented by the order of September 10, 1960)
was issued, directing the sheriff to require the
The bondsmen did not invite the attention of the twelve defendants to pay the sum of P730 to
lower court to the misleading character of Sinson's Singson and, should they fail to pay, to enforce
motion. It seemed to be misleading because the payment against the so-called "first supersedeas
order of September, 10, 1960 does not indicate that bond" filed by Matias Babida, Victor Garcia, Julian
it is an order of execution against the second Pacursa and Nicolas Agatep.
supersedeas bond and that it is not applicable to
the first supersedeas bond. To do justice in this case, it is necessary to recount
in detail the proceedings conducted by the sheriff
under the two writs of execution so. that the validity of execution of April 11, 1970 (as to which the
of the execution sales on June 27 and 30, 1961, sheriff had made a return on July 16, 1960).
which is the main issue, may be judiciously
resolved. It should be recalled that to satisfy that writ of
execution Singson was placed in ion of the 24-
Execution sale on June 27, 1961 involving the first hectare homestead on April 12, 1960 and the
supersedeas bond. To implement the writ of defendants delivered to his overseer on April 26
execution of March 3, 1961 against the first and May 6, 1960 158 cavans of palay, thus leaving
supersedeas bond, the sheriff served a written an unsatisfied balance of 134 cavans of palay
demand on March 8, 1961 upon the four valued at P1,340.
aforenamed sureties to pay the sum of P730 plus
the expenses and commission in the sum of The life of that writ of execution was prolonged
P19.80. It should be noted that the sheriff did not because, as noted earlier, on May 17, 1960 or
comply with the mandate in the writ that he should within the reglementary sixty-day Period (see sec.
first require the twelve defendants to pay the said II, Rule 39, Rules of Court), the sheriff, apparently
sum of P730. to satisfy the said balance of P1,340 a levy on ten
hectares of land belonging to defendants Antonio,
As the four sureties did not heed his demand, the Bibis, Calpito and Alfredo Peralta, with a total
sheriff on March 28, 1961 levied upon the lands of assessed value of P3,590.
three of the sureties described in the first
supersedeas bond and in the writ of execution. That writ of execution was supplemented by the
lower court's aforequoted order of September 10,
The sheriff inexplicably did not levy on the land of 1960 which allowed the sheriff to make a further
Nicolas Agatep, the fourth surety. The sheriff levy on the lands of Doroteo Ballesteros and Pedro
scheduled on June 27, 1961 the sale of the lands of Agatep, the sureties on the "second supersedeas
the three sureties, Babida, Garcia and Pacursa. In bond", to satisfy an obligation amounting to P730
the notice of sale, announcing the auction sale on only, the judgment debtors' supposed liability for
June 27, 1961, the sheriff, in quoting the writ of Singson's share of the harvests for the 1959-60
execution of March 3, 1961, omitted the court's crop-year.
order requiring him to first direct the twelve
principals or defendants to pay the sum of P730 The confusion in the exact amount of the judgment
(which order is found in the writ of execution and still unsatisfied was due to the failure of the sheriff,
which omission has been capital upon by the Singson the lawyers for the defendants and the six
bondsmen in this appeal as an irregularity vitiating bondsmen to call the attention of the trial court to
the execution proceedings). the fact that the balance still due amounted only to
P1,340.
On June 27, 1961, the day of the auction sale,
Singson was the only bidder. His bid was as The trial court itself was probably unaware that 158
follows: P300 for the land of Babida; P50 for the cavans of palay (138 only according to Singson
land of Garcia, and P569.30 for the land of Pacursa because the 20 cavans of Jaime Peralta were
or P919.30 in all. He had adjusted his' bids in such allegedly receipted for twice by his overseer) worth
a way that they would equal that sum of P919.30, P1,580 had already been delivered to Singson's
the amount for which the execution sale was to be overseer.
held, consisting of P730 as principal obligation,
P167.50 as publication expenses, and P21.80 as The sheriff sent a sort of demand letter dated
sheriff's commission and other expenses. September 19, 1960 to Doroteo Ballesteros and
Pedro Agatep, the sureties in the "second
Thus, the three parcels of land of the sureties, supersedeas bond", apprising them of the order of
Babida, Garcia and Pacursa, with a total area of September 10, 1960 and impliedly requiring them
more than 21 hectares and an aggregate assessed to make a "deposit" but not particularizing on the
value of P2,780, were sold to Singson for P919.30 nature of the deposit which was required. The
only. sheriff did not specify the amount of the judgment
still unpaid. In that demand letter, as in his prior
The execution sale on June 30, 1961 involving the actuations, the sheriff was not candid as to the
second supersedeas bond. The judicial sale on exact balance of the judgment which should be
June 30, 1961 was based on the first or original writ
satisfied. So, he did not specify what Ballesteros sum of P730, as indicated in the order of
and Agatep should deposit or pay to his office. September 10, 1960. The sheriff also stated that
that amount of P730 should first be collected from
For several months, the sheriff did not follow up his the twelve defendants or principal debtorsbut he did
demand letter. The record does not show whether not state whether he had exhausted the properties
he made any levy on the lands of Ballesteros and of the said principals.
Pedro Agatep.
In fact, in the same notice of sale, he stated that he
Then, in a notice of sale dated April 25, 1961 (more was going to sell the property of Alfredo Peralta, a
than a year after the issuance of the writ of defendant or principal debtor, which land, as
execution under which he was acting), he already stressed, has an area of 27,787 square
announced that the properties of Ballesteros, Pedro meters and an value of P1,180 and which,
Agatep and Alfredo Peralta would be sold at public ordinarily, would suffice (even as dation in
auction on June 30, 1961. payment) to satisfy the principal obligation of P730.

Alfredo Peralta is one of the twelve defendants. On the other hand, the lands of Ballesteros and
The sheriff on May 17, 1960 levied upon his Agatep were also more than sufficient for the
riceland with an area of 26,797 square meters and payment of the said sum of P730, thus rendering
on his residential land with an area of 990 square unnecessary the sale of Peralta's land.
meters and on his residential land with an area of
990 square meters, or an aggregate area of 27,787 In that same notice of sale the sheriff ambiguously
square meters. The two parcels of land have a total or meaning stated that the proceeds of the
assessed value of P1,180 in 1961. execution sale on June 30, 1960 would be "applied
for the judgment and order" whatever that means.
As already noted, in that levy of May 17, 1960, the In contrast, in the notice for the execution sale
sheriff also levied upon (a) the sugarland and scheduled on June 27, 1960, the sheriff
orchard of Ramon Antonio with a total area of four categorically stated that the properties of the
hectares and an assesed value of P1,000; (b) the sureties, Matias Babida, Victor Garcia and Julian
sugariand of Jaime Bibis, with an area of two Pacursa would be sold "to satisfy the import of the
hectares and an assesed value of P850, and (c) the execution and other expenses incident thereto" or
sugarland, orchard and riceland of Bonifacio the sum of P730 and the costs of execution.
Calpito with an area of 15,000 square meters and a
total assessed valued of P560. As repeatedly stated, the sheriff scheduled the
auction sale of the lands of Peralta, Ballesteros and
Without any explanation, the sheriff abandoned the Agatep on June 30, 1960. At that auction sale, the
levy on the lands of Antonio, Bibis and Calpito and only bidder was Singson. The lands were sold to
continued with the levy on the land of Alfredo him. The obligations for which the five parcels of
Peralta (not Garcia), which, as above stated, he land were to be sold amounted to P1,264.77 (not
advertised for sale together with the lands of P1,254.77) consisting of (a) P730 as the value of
Ballesteros and Pedro Agatep. 73 cavans of palay (the basic obligation), (b)
P227.50 as publication expenses, and (c) P307.27
The land of Ballesteros has an area of 20,019 presumably for the other expenses of the sheriff.
square meters and an assesed value of P640 while
the three (3) parcels of land of Agatep have a total As in the previous sale on June 27, 1961, Singson
area of 78,380 square meters and a total assessed adjusted his bids for the five parcels of land so that
value of P1,590. his total bid would not exceed P1,264.77. Thus, he
made the following bids: P394.49 for Alfredo
In the notice of sale the sheriff stated that Peralta's Peralta's land; P217.57 for the land of Ballesteros
land was being sold "in order to satisfy the different and P217.57 also for each of the three parcels of
amounts specified" in the writ of execution. He did land of Pedro Agatep.
not mention the writ of execution he was referring
to nor the exact amount to be satisfied. Note that for the execution sale on June 27, 1960 in
connection with the "first supersedeas bond", the
On the other hand, in the same notice of sale, he sheriff stated with certitude that he was going to sell
stated that he was going to sell the lands of the lands of the three sureties, Babida, Garcia and
Ballesteros and Pedro Agatep in order to satisfy the Pacursa, to satisfy the principal obligation of P730,
plus P1 67.50 as publication expenses and P21.80
as his other expenses, or for a total sum of
VICTOR 5,000
P919.30.
GARCIA -
Riceland
In contrast, for the execution sale on June 30,
1961, which was made for the sum of P1,264.77,
the sheriff specified that he was going to sell the
lands of the judgment debtor Peralta and the two
JULIAN
sureties, Ballesteros and Agatep, to satisfy the
PACURSA -
principal obligation of P730 and the publication
Orchard and
expenses amounting to P227.50. But the record
does not show what expenses incurred by the
sheriff constitute the remainder of P307.27.
Riceland 155,32 P1,150.0 P569.30
The two notices dated April 19 and 25, 1961, 0 0
scheduling the sales on June 27 and 30, 1961,
respectively, were both published in the Manila
Chronicle. Two publication fees in the sums of
P167.50 and P227.50 were paid. Confusion could
ALFREDO 26,767) P394.49
have been avoided and expenses could have been PERALTA -
reduced if Singson, the sheriff and the lawyers of
Riceland
the parties had taken the trouble of apprising the
trial court of the true balance still due from the
twelve judgment debtors after 158 cavans of palay
(138 according to Singson) had been delivered to
(not Garcia) 990) P1,180.0
the judgment creditor on April 26 and May 6, 1960.
Res. land 0
The proceedings under the two exedution sales
involving the nine parcels of land may be
recapitulated as follows: DOROTEO

Owner Nature Area in Assessed Bid

of BALLESTERO 20,019 P640.00 P217.57
S - Farmland

Land Sq. Value Price

Meters PEDRO 21,380) P620.00 P217.57
AGATEP -
Riceland

Cornland 28,500) P750.00 P217.57

MATIAS P1,480.0 P300.00

BARIDA - 0
Riceland and Farmland 28,500) P220.00 P217.57

Orchard 52,682 P150.00 P50.00 339,18 P6,190.0 P2,184.0

8 0 7
Other proceedings. On June 27 and 30, 1961 the Issues. The main issue is the validity of the
sheriff executed the respective certificates of sale in execution sales. The bondsmen contend that the
favor of Singson for the nine parcels of land. He sales are void because (1) their liabilities on their
specified that the period of redemption would expire supersedeas bonds had already been extinguished
"within one (1) year, counted from this date of sale". before the sales were made; (2) the sheriff did not
The two certificates of sale were registered on comply with the courts order that the properties of
August 18, 1961. the principals should first be exhausted, and (3) the
sale on June 27, 1961 was in contravention of the
The sheriffs two returns, dated July 7 and August 8, writ of execution while the sale on June 30, 1961
1961, for the two execution sales, were filed in was not based at all on any writ of execution.
court only on August 12, 1961.
Singson did not file any appeflee's brief, thus giving
In a final certificate of sale dated July 3, 1962 the the impression that, after he had attained his
sheriff conveyed to Singson the parcels of land of objective of recovering possession of the disputed
the sureties Babida, Garcia and Pacursa. He noted homestead and after receiving 158 cavans of palay,
that the one-year period of redemption had already any adjudication in this appeal adverse to him
expired and they had not made any redemption. would not make his position worse.
That final deed of sale was registered on July 26,
1962. A copy of the final deed for the lands of That inference is strengthened by his failure to
Peralta, Ballesteros and Agatep was not included in controvert the lower court's orders of September
the record on appeal. 10, 1960 and January 28, 1961, reducing his claim
for the owner's share of the harvests to 146 cavans
On August 15, 1962, Singson filed an ex parte only or for only two crop-years.
motion for a writ of possession. He alleged that the
final deeds of sale for the lands sold to him on June Ruling. It should be clear by now that this is not
27 and 30, 1961 were executed in his favor by the a typical ejectment suit involving urband land. This
sheriff. The twelve defendants or judgment debtors is a controversy between the person claiming to be
and the six bondsmen opposed that ex parte the rightful possessor of a homestead (seventeen
motion. hectares of which are ricelands) and the cultivators
thereof who claim to be tenants of the deceased
On September 5, 1962 the defendants and the former possessor and who drove away the second
bondsmen filed a lengthy "supplementary pleading" possessor's tenants.
wherein they prayed that the execution sales held
on June 27 and 30, 1961 be declared void because The case, involving as it did the use and cultivation
the obligations of the sureties may be regarded as of agricultural land, could have come within the
extinguished with the delivery of the 158 cavans of jurisdiction of the Court of Agrarian Relations (Sec.
palay to Singson's overseer and because the 7, Republic Act No. 1267; Ojo vs. Jamito 83 Phil.
sureties were not given the benefit of exhaustion of 764).
the principal debtors' properties. Singson opposed
that supplementary pleading. However, as the case was tried on the theory that it
was an ordinary forcible entry case, failing within
The trial court in its order of September 20, 1962 the exclusive original jurisdiction of the inferior
denied the motion of the bondsmen and the court, it should be assumed that the lower courts
defendants and granted Singson's motion for a writ had rightfully exercised jurisdiction over the case.
of possession. The motion for the reconsideration
of that order was denied by the trial court in its (1) The appeal can be disposed of by holding that
order of November 14, 1962. The twelve the two so-called supersedeas bonds, which gave
defendants did not appeal. rise to the execution sales under attack, are void
because they were not signed by the twelve
The six bondsmen appealed to the Court of defendants or judgment debtors as principal
Appeals. That Court in its resolution of November obligors They were signed only by the six sureties.
29, 1968 certified the appeal to this Court because Not having been signed by the principal debtors,
the appeal involves a question of law, which is the the supersedeas bonds do not evidence any
legality of the execution sales on June 27 and 30, Principal obligation and are devoid of consideration
1961 (CA-G.R. No. 32008-R). as to the sureties who have no privity with the
judgment creditor nor any liability to him. (Manila
Railroad Company vs. Alvendia, L-22137, May 19, parties which do not involve any matter litigated by
1966, 17 SCRA 154; School Dist. No. 80 the appeal" (Sec. 9, Rule 41, Rules of Court).
vs.Lapping too Minn. 130, 110 N.W. 849).
Applying section 9, Rule 41, it was held that after
(2) Other reasons for holding the two supersedeas the perfection of the appeal the trial court cannot
bonds void are that the first supersedeas bond was order the execution of its judgment pending appeal
not warranted under the judgment of the justice of because execution is a proceeding affecting the
the peace court and the second supersedeas bond rights of the parties which are the subject matter of
was required in the trial court's order which was the judgment, from which appeal is taken, and its
issued when it had no more jurisdiction over the purpose is not to protect and preserve the subject
case. matter of the litigation Cabilao vs. Judge of the
Court of First Instance of Zamboanga, L-18454,
A supersedeas bond in an ejectment case is August 29, 1966, 17 SCRA 992; 2 Moran's
usually filed in the inferior court and approved by it Comments on the Rules of Court, 1970 Edition, pp.
and "executed to the plaintiff to enter the action in 434-6).
the Court of First Instance". It covers "the rents,
damages and costs down to the time of the final It follows that the and supersedeas bond" which
judgment" (Sec. 8, Rule 72, old Rules of Court, now Doroteo Ballesteros and Pedro Agatep executed,
sec. 8, Rule 70). as required in the lower court's invalid order of
September 27, 1958, is void ab initio. The
The supersedeas bond answers only for the rentals execution sale based on that supersedeas bond is
or the reasonable compensation for the use and likewise void.
occupation of the premises as fixed in the judgment
of the inferior court (De Laureano vs- Adil, L-43345, (3) Other aspects of the supersedeas bonds may
July 29, 1976, 72 SCRA 148, 155). be pointed out to show their void character. The
bonds are in English and might not have been
In the instant case, the justice of the peace court understood by the ignorant sureties (See art. 1332,
did not adjudge any rentals or reasonable Civil Code).
compensation for the use and occupation of the
homestead. That court allowed "the plaintiff to The first supersedeas bond was fried "to answer for
withdraw the canons of the land" from the damages (which) the plaintiff might sustain by
depositary. Hence, there was no occasion or reason of the crops or produce which they (the
justification for requiring a supersedeas bond. For defendants) pray to be disposed of and deposited"
that reason, the "first supersedeas bond" was not whatever that means. In that bond, the sureties
necessary and is, therefore, a nullity. Any execution solidarily 'undertake to pay to the plaintiff whatever
against it would likewise be a nullity. damage he might sustain as a result of the produce
(sic), but not to exceed the amount of P3,000", and,
With respect to the "second supersedeas bond". it "for the payment thereof", the defendants
should be underscored that the lower court "encumber and constitute a first lien in favor of the
approved defendants' record on appeal in its order plaintiff upon" certain real properties.
of September 6, 1958, wherein it directed the clerk
of court to elevate the same to the Court of In the second supersedeas bond, the sureties
Appeals. The appeal was deemed perfected on that bound themselves 'to pay to the plaintiff whatever
date. damages he might sustain as a result" of the
ejectment case and, for that purpose, the sureties
On September 23, 1958, or seventeen days after encumbered and constituted a first lien in favor of
the perfection of the appeal, Singson filed a motion the plaintiff upon their real properties.
for execution. The lower court, instead of granting
that motion, required the defendants in its order of The two bonds were supposed to answer for the
September 27, 1958 to file a supersedeas bond. damages caused to Singson by the defendants. But
the tenor and provisions of the two bonds do not
It is incontestable that the lower court had no more define unequivocally the nature of the sureties
jurisdiction to issue that order because after the liability to Singson. The judgments of the justice of
perfection of the appeal "this trial court loses its the peace court and the Court of First Instance,
jurisdiction over the case, except to issue orders for which were supposed to be stayed by the said
the protection and preservation of the rights of the bonds, are not quoted or recited in the said bonds.
It should be home in mind that the justice of the If we sustain the execution sales, the iniquitous and
peace court and the Court of First Instance did not oppressive result would be that Singson, after
require the defendants to pay "damages" to recovering ion of the 24-hectare homestead and
Singson. The lower court required the defendants receiving 158 cavans of palay, out of the 292
to deriver to Singson 73 cavans yearly from cavans of palay adjudged in his favor, would, in
September, 1956 until the possession of the addition, be awarded 33 hectares of land
homestead was restored to him. Those 73 cavans (presumably more valuable than the 24-hectare
were not "damages" but Singson's share of the homestead in litigation to satisfy the balance of the
harvests as owner or possessor of the homestead. judgment in the sum of P1,460, according to the
trial court's computation).
It is exceedingly doubtful if the vague and uncertain
provisions of the supersedeas bonds justified the While this Court sits that patent injustice cannot be
execution against the properties of the sureties. tolerated.

(4) There is some basis for appellant's contention WHEREFORE, the execution sales held on June
that the execution sales in question were invalid 27 and 30, 1961 are declared void and the trial
because the judgment debtors' obligation was court's orders of September 20 and November 14,
extinguished by the lower court's orders of 1962, denying the petition to set aside those sales
September 10, 1960 and January 28, 1961, and granting Singson's motion for a writ of
reducing their liability for the owner's share of the possession, are reversed and set aside. Costs
harvests to 146 cavans of palay or P1,460. against respondent-appellee Singson.

In those two orders, the trial court had novated its SO ORDERED.
judgment without any protest on the part of the
judgment creditor. It is an undisputed fact that, as
heretofore repeatedly emphasized, the judgment
debtors had delivered to Singson's overseer 158
cavans of palay valued at P1,580, an amount which
is more than the reduced liability of P1,460. That
explains why the defendants and the sureties
contended in the lower court that its judgment had
already been satisfied and that, therefore, further
execution was not in order.

(5) But even if the supersedeas bonds could be

proper bases for selling at public auction the
properties of the five sureties, to satisfy the
defendants' liability to deliver 146 cavans of palay
to Singson or to pay him P1,460, it would not follow
that the execution sales are valid.

The two execution sales are void because of gross

inadequacy of price which is shocking to the
conscience (Director of Lands vs. Abarca, 61 Phil.
70; Warner, Barnes 8 Co. vs. Santos, 14 Phil. 446,
449; Philippine National Bank vs. Gonzalez, 45
Phil. 693).

Nine parcels of land, with a total area of more than

33 hectares and an aggregate assessed value of
P6,190 were sold to satisfy total obligations
amounting to P2,184.07 (of which P1,460
constituted the main obligation). Thirty-three
hectares of land were ceded to the judgment
creditor to satisfy a judgment for 146 cavans of
palay.
 [G.R. No. L-9674. April 29, 1957.] To secure the surety against loss arising from the
surety bond, plaintiff executed a second mortgaged
MELECIO ARRANZ, Plaintiff-Appellant, v. over the properties which were transferred by the
MANILA FIDELITY AND SURETY CO., Manila Ylang Ylang Distillery to plaintiff. When the
INC., Defendant-Appellee. first installment of P50,000 became due on June
30, 1950, the surety, defendant-appellee, did not
SYLLABUS have funds to pay the same, and neither did it have
funds to pay the second installment of P40,000
1. SURETYSHIP; LIABILITY OF SURETY TO PAY which became due on June 30, 1951. So the
PRINCIPALS DEBT; FAILURE OF SURETY TO complaint was filed by the Manila Ylang Ylang
PAY OBLIGATION, EFFECT ON LIABILITY OF Distillery on November 16, 1950, and a
PRINCIPAL TO PAY PREMIUM ON THE BOND. supplemental complaint was later filed on January
Although in the contract of suretyship the creditor 2, 1952, to include the second installment of
was given the right to sue the principal, or the latter P40,000 then already due. The defendant had no
and the surety at the same time, this does not funds with which to pay either the P50,000 or the
imply, however, that the surety covenanted or P40,000 due under the agreement and the only
agreed with the principal that it will pay the loan for amount it was able to raise was P20,000. And that
the benefit of the principal. Such a promise is not was paid to Manila Ylang Ylang Distillery on
implied by law either. The principal, therefore, account.
cannot claim that there has been a breach of any
obligation under the suretyship contract when the As defendant surety had no money with which to
surety failed or refused to pay the debt for the respond for the obligation, plaintiff made an
principals account. And such failure or refusal of arrangement with the Philippine National Bank,
the surety to pay the obligation did not have the whereby he would mortgage the same properties to
effect of relieving the principal of his obligation to the latter in order to raise the amount needed to
pay the premium on the bond furnished, as long as pay the amount of the loan. The Philippine National
the liability of the surety to the obligee subsists. Bank wanted that defendant surety cancel the
second mortgage executed in its favor by Arranz,
DECISION but the defendant refused to do so unless Arranz
pay to it the following sums:
LABRADOR, J.:
(a) P20,000, the partial payment made to the
Appeal from an order of dismissal of the complaint Manila Ylang Ylang Distillery on account of the
rendered by the judge of the Court of First Instance, latters judgment credit;
Honorable Rafael Amparo, presiding.
(b) P3,045.12, premium from December 31, 1950
The complaint alleges the following facts: On to December 31, 1954;
November 25, 1949, the defendant-appellee Manila
Fidelity & Surety Co., executed and delivered to the (c) P7,691.09, including renewal premium on Bond
Manila Ylang Ylang Distillery a surety bond, by No. 8674, from November 25, 1950 to November
virtue of which defendant-appellee, as surety, 25, 1954, and incidental expenses and interests;
understood to pay jointly and severally with plaintiff
as principal, the sum of P90,000. The surety bond (d) P10,000, for attorneys fees and
executed by Arranz and the defendant-appellee
contains the following stipulation: (e) P25,000, to be held by defendant in trust to
answer for an alleged contingent liability of the
"The surety hereunder waives notice of default and Manila Ylang Ylang Distillery to it.
expressly agrees that it shall not be necessary for
the Manila Ylang Ylang Distillery, Ltd. to proceed As the plaintiff feared that the credit
against the Principal upon his default or to exhaust accommodation he sought from the Philippine
the property of said Principal, before proceeding National Bank could not be secured without release
against the surety, the Suretys liability under this by the surety of its second mortgage, Arranz paid
bond being a primary one and shall be exigible and the above amounts except the P25,000, and
demandable immediately upon occurrence of such thereupon the second mortgage executed in favor
default." (p. 16, R.O.A.) of surety, defendant-appellee, was cancelled.
The complaint seeks to recover (a) P7,200, the covenanted or agreed with the principal that it will
premiums corresponding to the period from pay the loan for the benefit of the principal. Such a
November 25, 1950 to November 25, 1954; and (b) promise is not implied by law either. Plaintiff,
P7,000 representing attorneys fees. Arranz claims therefore, cannot claim that there has been a
that these two amounts were never due and owing breach on the part of the surety of any obligation it
to the defendant surety and that he paid it against has made or undertaken under the suretyship
his will in order to be able to save the properties contract. And the failure or refusal of the surety to
from loss and obtain the credit accommodation pay the debt for the principals account did not have
from the Philippine National Bank. the effect of relieving the principal of his obligation
to pay the premium on the bond furnished.
The defendant presented a motion to dismiss the
complaint on the ground that there was no cause of The premium is the consideration for furnishing the
action and inasmuch as the sums sought to be bond or the guaranty. While the liability of the
recovered were paid by virtue of the compromise, surety to the obligee subsists the premium is
and no allegation is made in the complaint that said collectible from the principal. Under the terms of the
compromise is vitiated by mistake, violence, contract of suretyship the suretys obligation is that
intimidation, undue influence and fraud. In answer the principal pay the loan and the interest thereon,
to the motion to dismiss, plaintiff alleged that he and that the surety shall be relieved of his
was compelled to pay the amounts. The court ruled obligation when the loan or obligation secured is
that the payment of the sum of P14,200 demanded paid.
in plaintiffs complaint was paid as a price for the
release of the properties held on second mortgage "NOW, THEREFORE, if the above abounden
by the defendant, or that the same was the Principal shall pay promptly said installments and
consideration for said release in order to save his interest thereon and shall in all respects do and
properties, and therefore dismissed the complaint. fully observe all and singular the covenants,
agreements and conditions as provided for in the
We are unable to agree with the judgment of the aforesaid agreement of November 21, 1949,
trial court that the sum of P14,200 was paid as a Annexes A and B respectively, to the true intent
consideration for the release of the mortgage. and meaning thereof, this obligation shall be null
There is no allegation in the complaint to that effect. and void, otherwise, it shall remain in full force and
From the allegations of the complaint, we gather effect." (p. 16, R.O.A.)
the following facts: (1) that the surety did not have
the money with which to pay the obligation, the As the loan and interest remained unpaid the surety
payment of which was guaranteed in the contract of continued to be bound to the creditor-obligee, and
suretyship; (2) that the premium of P7,200 sought as a corollary its right to collect the premium on the
to be collected by the defendant from the plaintiff bond also continued.
and the P7,000 also collected as attorneys fees,
were never due from the plaintiff, because the Plaintiff-appellant, therefore, cannot excuse himself
surety was not able to put up the amount that it from the payment of the premium on the bond upon
undertook to pay if the principal did not pay the the failure or refusal of the surety to pay the loan
same; (3) that plaintiff was compelled against his and the interest. Even if, therefore, the payment of
will by the circumstances to pay the sums now the premium were against his will, still plaintiff-
sought to be recovered. The question which the appellant has no cause of action for the return
motion for dismissal poses therefore is, Is plaintiff thereof, because the surety was entitled thereto.
under obligation to pay the premium on the bond
because of failure of his surety to pay the For the foregoing considerations, the order of
indebtedness secured by it (surety)? dismissal is affirmed on other grounds. So ordered.

There is no allegation in the complaint or in any

other paper in the case that the surety promised the
principal that it will pay the loan or obligation
contracted by the principal (plaintiff herein) for the
latters account. In the contract of suretyship the
creditor was given the right to sue the principal, or
the latter and the surety at the same time. This
does not imply, however, that the surety
 G.R. NO. 147275 March 31, 2006 SO ORDERED.2

VICENTE ONGKEKO, Petitioner, The Regional Trial Court (RTC) of Makati, Branch
vs. 135, in its Decision dated July 10, 20003 and Order
BPI EXPRESS CARD dated October 2, 2000,4 affirmed the MTC
CORPORATION, Respondent. Decision.

DECISION The CA also affirmed the lower courts decisions

when it dismissed the petition for review filed before
AUSTRIA-MARTINEZ, J.: it. The CA, however, deleted the award of
attorneys fees inasmuch as the MTC Decision
Assailed in the present petition for review on does not contain any justification for its award.5 The
certiorari are the Decision dated January 25, 2001 CA denied petitioners motion for reconsideration.6
and Resolution dated February 23, 2001, rendered
by the Court of Appeals (CA) in CA-G.R. SP No. Petitioner merely reiterated in the present petition
61427.1 the arguments he previously raised before the
lower courts and the appellate court. Petitioner
The facts that gave rise to the present case are submits the following contentions:
undisputed. On September 13, 1990, Lina Lodovica
(Lodovica) applied for a credit card with 1. Petitioner is not liable for the purchases
respondent, with Vicente Ongkeko (petitioner) made by Lodovica after the expiration of the
acting as surety. Her application was approved and original term of the credit card because he
she was originally given a P3,000.00 credit limit. was not notified of the renewal of the credit
When Lodovicas card expired in 1991, it was and the increase of the credit limit;
renewed and her credit limit was increased
to P10,000.00. As of May 12, 1996, Lodovica had 2. The surety undertaking, being a contract
an outstanding balance of P22,476.61. of adhesion, should have been taken
against Respondent;
On May 28, 1996, respondent brought an action for
sum of money against Lodovica and petitioner. 3. Petitioner is not liable for the purchases
Petitioner filed his Answer admitting his made by Lodovica after the expiration of the
undertaking, but he maintained that he can only be original term of the credit card because the
liable for the original credit limit of P3,000.00, and circumstances at the time he agreed to act
that the renewal of the credit card without his as surety for Lodovica were no longer
consent extinguished his undertaking. existing at the time of the renewal.7

The Metropolitan Trial Court (MTC) of Makati, Petitioners case is not a novel one. In the
Branch 66, rendered judgment on January 31, analogous case of Molino v. Security Diners
2000, finding petitioner liable. The dispositive International Corporation,8the Court already had the
portion of the Decision reads: occasion to rule that suretyship under these
circumstances is a continuing one and the surety is
WHEREFORE, judgment is rendered ordering bound by the liabilities of the principal until it has
defendant Ongkeko to pay plaintiff the following: been fully paid.

1. the amount of P22,476.61 as of May 12, In the Molino case, Jeanette Molino, the petitioner,
1996 plus the interest of 3% per month and acted as a surety for her brother-in-law, Danilo Alto,
1% penalty charge per month from date of in his application for a local credit card with the
the filing of the complaint on May 28, 1996 Security Diners International Corporation (SDIC).
until the account is fully paid; The card was subsequently upgraded and the
credit limit increased. When Alto failed to pay his
2. 25% of the amount due as attorneys fees liability under the credit card, SDIC filed an action
or P10,000.00 whichever is lesser; for collection against Alto and Molino. The Court
summed up the issues as: whether Molino is liable
3. cost of suit. as surety, and whether the upgrading of the card
constituted a novation that will extinguish her
obligation and undertaking, which was resolved in husband for the credit card application of his wife.
this wise, viz.: Like herein petitioner, the husband also argued that
his liability should be limited to the credit limit
There is no doubt that the upgrading was a allowed under his wifes card but the Court
novation of the original agreement covering the first declared him liable to the full extent of his wifes
credit card issued to Danilo Alto, basically since it indebtedness. x x x
was committed with the intent of cancelling and
replacing the said card. However, the novation x x x Private respondent Roberto Regala, Jr., as
did not serve to release petitioner from her surety of his wife, expressly bound himself up to the
surety obligations because in the Surety extent of the debtors (Celias) indebtedness
Undertaking she expressly waived discharge in likewise expressly waiving any "discharge in case
case of change or novation in the agreement of any change or novation of the terms and
governing the use of the first credit card. conditions in connection with the issuance of the
Pacificard credit card." Roberto, in fact, made his
The nature and extent of petitioners obligations are commitment as a surety a continuing one,
set out in clear and unmistakable terms in the binding upon himself until all the liabilities of
Surety Undertaking. Thus: Celia Regala have been fully paid. All these were
clear under the "Guarantors Undertaking" Roberto
1. She bound herself jointly and severally signed, thus: x x x9 (Emphasis supplied)
with Danilo Alto to pay SDIC all obligations
and charges in the use of the Diners Club Petitioners undertaking in this case is similar to
Card, including fees, interest, attorneys that of the petitioner in the Molino case and the
fees, and costs; Pacific Banking Corporation case10 cited therein. It
reads, in part:
2. She declared that "any change or
novation in the Agreement or any extension SURETY UNDERTAKING
of time granted by SECURITY DINERS to
pay such obligation, charges, and fees, I/We, the undersigned, bind myself/ourselves,
shall not release (her) from this Surety jointly and severally with ____________ and/or
Undertaking"; his/her extension card user, to pay the BPI
EXPRESS CARD CORP. all the obligations,
3. "(S)aid undertaking is a continuous one charges, and liabilities incurred under and with the
and shall subsist and bind (her) until all use of the BPI EXPRESS CREDIT CARD or the
such obligations, charges, and fees have renewals and extensions thereof, issued to said
been fully paid and satisfied"; and credit cardholder and/or extension user by the BPI
EXPRESS CREDIT CARD in accordance with the
4. "The indication of a credit limit to the terms, conditions, covenance and stipulations
cardholder shall not relieve (her) of liability governing the issuance and use of the BPI
for charges and all other amounts EXPRESS CREDIT CARD set forth
voluntarily incurred by the cardholder in herewith. Notwithstanding any change or novation
excess of said credit limit." in the terms and conditions governing the issuance
and use of the BPI EXPRESS CREDIT CARD, or
We cannot give any additional meaning to the plain any extension of time given the cardholder and/or
language of the subject undertaking. The extent of extension user of the card to pay such obligations,
a suretys liability is determined by the language of charges and liabilities this undertaking shall
the suretyship contract or bond itself. Article 1370 continue to be binding upon me/us until all such
of the Civil Code provides: "If the terms of a obligations, charges and liabilities shall have been
contract are clear and leave no doubt upon the fully paid and satisfied.11 (Underscoring supplied)
intention of the contracting parties, the literal
meaning of its stipulations shall control." Petitioners undertaking is clear and concise. He
solidarily obliged himself to pay respondent all the
This case is no different from Pacific Banking liabilities incurred under the credit card account,
Corporation vs. IAC, supra, correctly applied by the whether under the principal, renewal, or extension
Court of Appeals, which involved a Guarantors card issued, regardless of the changes or novation
Undertaking (although thus denominated, it was in in the terms and conditions in the issuance and use
substance a contract of surety) signed by the of the credit card. Petitioners liability shall be
extinguished only when the obligations are fully
paid and satisfied.

Petitioner cannot seek sanctuary in his arguments

considering that the terms and conditions of his
undertaking are unambiguous and well defined;
there is no room for any interpretation only
application. Given that Lodovica reneged on her
obligations covered by the credit card account,
petitioner is, therefore, liable.

Indeed, petitioners surety undertaking partakes the

nature of a contract of adhesion, in that the
stipulations were unilaterally prepared and imposed
by respondent on a take-it-or-leave-it basis;
however, the Court has also ruled that such a
contract is "as binding as ordinary contracts, the
reason being that the party who adheres to the
contract is free to reject it entirely."12

Petitioner is the employer of Lodovica. It is safe to

assume that he takes great care of his affairs and
he very well knows the potential consequences of
his acts. He took on the responsibility freely and
intelligently, and whatever liability he may have
incurred in this case is one within bounds of the
law.

Finally, in the Molino case, the Court took time to

exhort prospective sureties to exercise caution in
signing surety undertakings prepared by credit card
companies, and to read carefully the terms and
conditions of the agreement. The Court finds the
present case another opportune time to reiterate
said exhortation, to wit:

x x x Prospective sureties to credit card applicants

would be well-advised to study carefully the terms
of the agreements prepared by the credit card
companies before giving their consent, and pay
heed to stipulations that could lead to onerous
effects x x x.13

WHEREFORE, the petition is DENIED for lack of

merit.

Double costs against petitioner.

SO ORDERED.
 [G.R. No. L-33205. August 31, 1987.] DISTINGUISHED FROM GUARANTORS
OBLIGATION. As surely, Basilio L. Lirag is
LIRAG TEXTILE MILLS, INC. and BASILIO L. bound immediately to pay respondent SSS the
LIRAG, Petitioners, v. SOCIAL SECURITY amount then outstanding. "The obligation of a
SYSTEM and HON. PACIFICO DE surety differs from that of a guarantor in that the
CASTRO, Respondents. surety insures the debt, whereas the guarantor
merely insures solvency of the debtor; and the
SYLLABUS surety undertakes to pay if the principal does not
pay, whereas a guarantor merely binds itself to pay
1. REMEDIAL LAW; EVIDENCE; FINDINGS OF if the principal is unable to pay."
THE LOWER COURT THAT THE PURCHASE
AGREEMENT IS A DEBT INSTRUMENT, BINDING 4. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
ON APPEAL. We uphold the lower courts CONTRACT ENTERED INTO CLEARLY
finding that the Purchase Agreement is, indeed, a INDICATES INTENTION TO PAY INTEREST.
debt instrument. Its terms and conditions On the liability of petitioners to pay 8% cumulative
unmistakably show that the parties intended the dividend, We agree with the observation of the
repurchase of the preferred shares on the lower court that the dividends stipulated by the
respective scheduled dates to be an absolute parties served evidently as interests. The amount
obligation which does not depend upon the thereof was fixed at 8% per annum and was not
financial ability of petitioner corporation. This made to depend upon or to fluctuate with the
absolute obligation on the part of petitioner amount of profits or surplus realized, a clear
corporation is made manifest by the fact that a indication that the parties intended to give a sure
surety was required to see to it that the obligation is and fixed earnings on the principal loan. The fact
fulfilled in the event of the principal debtors inability that the dividends were supposed to be paid out of
to do so. The unconditional undertaking of net profits and earned surplus, of which there were
petitioner corporation to redeem the preferred none, does not excuse petitioners from the
shares at the specified dates constitutes a debt payment thereof, again for the reason that the
which is defined "as an obligation to pay money at undertaking of petitioner Basilio L. Lirag as surety,
some fixed future time, or at a time which becomes included the payment of dividends and other
definite and fixed by acts of either party and which obligations then outstanding.
they expressly or impliedly, agree to perform in the
contract. The Purchase Agreement provided that 5. ID.; ID.; GRANT OF LIQUIDATED DAMAGES
failure on the part of petitioner to repurchase the EXPRESSLY PROVIDED FOR. The award of
preferred shares on the scheduled due dates the sum of P146,400.00 in liquidated damages
renders the entire obligation due and demandable, representing 12% of the amount then outstanding is
with petitioner in such eventuality liable to pay 12% correct, considering that petitioners in the
of the then outstanding obligation as liquidated stipulation of facts admitted having failed to fulfill
damages. These features of the Purchase their obligations under the Purchase Agreement.
Agreement, taken collectively, clearly show the The grant of liquidated damages in the amount
intent of the parties to be bound therein as debtor stated is expressly provided for in the Purchase
and creditor, and not as corporation and Agreement in case of contractual breach.
stockholder.
6. REMEDIAL LAW; CIVIL ACTIONS; ACTION
2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; INVOLVING SUMS OF MONEY EARN LEGAL
CONTRACT ENTERED INTO CONSTITUTES INTEREST FROM DATE OF FILING. The
LAW BETWEEN PARTIES; CASE AT BAR. The pronouncement of the lower court for the payment
Purchase Agreement constitutes the law between of interests on both the unredeemed shares and
the parties and obligations arising ex contractu unpaid dividends is also in order. Per stipulation of
must be fulfilled in accordance with the stipulations. facts, petitioners did not deny the fact of non-
Besides, it was precisely this eventuality that was payment of dividends nor their failure to purchase
sought to be avoided when respondent SSS the preferred shares. Since these involve sums of
required a surety for the obligation. Thus, it follows money which are overdue, they are bound to earn
that petitioner Basilio L. Lirag cannot deny liability legal interest from the time of demand, in this case,
for petitioner corporations default. judicial, i.e., the time of filing the action.

3. ID.; ID.; OBLIGATION OF SURETY 7. CIVIL LAW; ESTOPPEL; PARTY PRECLUDED

FROM DENYING HIS FIRM REPRESENTATION which the said defendant issued to plaintiff 5,000
TO PAY IMMEDIATELY THE AMOUNTS THEN preferred shares with a par value of one hundred
OUTSTANDING. Petitioner Basilio L. Lirag is pesos [P100.00] per share as evidenced by Stock
precluded from denying his liability under the Certificate No. 139; . . .
Purchase Agreement. After his firm representation
to "pay immediately to the VENDEE the amounts "4. That in accordance with paragraph 3 of the
then outstanding" evidencing his commitment as Purchase Agreement of September 4, 1961 which
SURETY, he is estopped from denying the same. provides for the repurchase by the Lirag Textile
His signature in the agreement carries with it the Mills, Inc. of the shares of stock at regular intervals
official imprimatur as petitioner corporations of one year beginning with the 4th year following
president, in his personal capacity as majority the date of issue, Stock Certificates Nos. 128 and
stockholder, as surety and as solidary obligor. The 139 were to be repurchased by the Lirag Textile
essence of his obligation as surety is to pay Mills, Inc. thus:
immediately without qualification whatsoever if
petitioner corporation does not pay. To have CERT. NO. AMOUNT DATE OF REDEMPTION
another interpretation of petitioner Lirags liability as
surety would violate the integrity of the Purchase 128 P100,000.00 February 14, 1965
Agreement as well as the clear and unmistakable
intent of the parties to the same. 100,000.00 February 14, 1966

DECISION 100,000.00 February 14, 1967

FERNAN, J.: 100,000.00 February 14, 1968

This is an appeal by certiorari involving purely 100,000.00 February 14, 1969

questions of law from the decision rendered by
respondent judge in Civil Case No. Q-12275 139 P 100,000.00 July 3, 1966
entitled "Social Security System versus Lirag Textile
Mills, Inc. and Basilio L. Lirag." 100,000.00 July 3, 1967

The antecedent facts, as stipulated by the parties 100,000.00 July 3, 1968

during the trial, are as follows:
100,000.00 July 3, 1969
"1. That on September 4, 1961, the plaintiff [herein
respondent Social Security System] and the 100,000.00 July 3, 1970
defendants [herein petitioners] Lirag Textile Mills,
Inc. and Basilio Lirag entered into a Purchase
Agreement under which the plaintiff agreed to "5. That to guarantee the redemption of the stocks
purchase from the said defendant preferred shares purchased by the plaintiff, the payment of
of stock worth ONE MILLION PESOS dividends, as well as the other obligations of the
[P1,000,000.00] subject to the conditions set forth Lirag Textile Mills, Inc., defendants Basilio L. Lirag
in such agreement; . . . signed the Purchase Agreement of September 4,
1961 not only as president of the defendant
"2. That pursuant to the Purchase Agreement of corporation, but also as surety so that should the
September 4, 1961, the plaintiff, on January 31, Lirag Textile Mills, Inc. fail to perform any of its
1962, paid the defendant Lirag Textile Mills, Inc. the obligations in the said Purchase Agreement, the
sum of FIVE HUNDRED THOUSAND PESOS surety shall immediately pay to the vendee the
[P500,000.00] for which the said defendant issued amounts then outstanding pursuant to Condition
to plaintiff 5,000 preferred shares with a par value No. 4, to wit:
of one hundred pesos [P100.00] per share as
evidenced by stock Certificate No. 128; . . . To guarantee the redemption of the stocks herein
purchased, the payment of the dividends, as well
"3. That further in pursuance of the Purchase as other obligations of the VENDOR herein, the
Agreement of September 4, 1961, the plaintiff paid SURETY hereby binds himself jointly and severally
to the Lirag Textile Mills, Inc. the sum of FIVE liable with the VENDOR so that should the
HUNDRED THOUSAND PESOS [P500,000.00] for VENDOR fail to perform any of its obligations
hereunder, the SURETY shall immediately pay to defendant corporation financed largely through
the VENDEE the amounts then outstanding. reparation benefits;

"6. That defendant corporation failed to redeem [f] Labor problems occasioned by the fact that the
certificates of Stock Nos. 128 and 139 by payment defendant company is financial (sic) unable to
of the amounts mentioned in paragraph 4 above; improve, in a substantial way, the economic plight
of its workers as a result of which two costly strikes
"7. That the Lirag Textile Mills, Inc. has not paid had occurred, one in 1965 and another in 1968;
dividends in the amounts and within the period set and
forth in paragraph 10 of the complaint; *
[g] The occurrence of a fire which destroyed more
"8. That letters of demands have been sent by the than P1 million worth of raw cotton, paralyzed
plaintiff to the defendant to redeem the foregoing operations partially, increased overhead costs and
stock certificates and pay the dividends set forth in wiped out any expected profits that year;
paragraph 10 of the complaint, but the Lirag Textile
Mills, Inc. has not made such redemption nor made "13. That it has been the policy of the plaintiff to be
such dividend payments; represented in the board of directors of the
corporation or entity which has obtained financial
"9. That defendant Basilio L. Lirag likewise received assistance from the System be it in terms of loans,
letters of demand from the plaintiff requiring him to mortgages or equity investments. Thus, pursuant to
make good his obligation as surety; paragraph 6 of the Purchase Agreement of
September 4, 1961 which provides as follows:
"10. That notwithstanding such letters of demand to
the defendant Basilio L. Lirag, Stock Certificates The VENDEE shall be allowed to have a
Nos. 128 and 139 issued to plaintiff are still representative in the Board of Directors of the
unredeemed and no dividends have been paid on VENDOR with the right to participate in the
said stock certificates; discussions and to vote therein;

"11. That paragraph 5 of the Purchase Agreement "14. That Messrs. Rene Espina, Bernardino Abes
provides that should the Lirag Textile Mills, Inc. fail and Heber Catalan were each issued one common
to effect any of the redemptions stipulated therein, share of stock as a qualifying share to their election
the entire obligation shall immediately become due to the Board of Directors of the Lirag Textiles Mills,
and demandable and the Lirag Textile Mills, Inc., Inc.;
shall, furthermore, be liable to the plaintiff in an
amount equivalent to twelve per cent [12%] of the "15. That Messrs. Rene Espina, Bernardino Abes
amount then outstanding as liquidated damages; and Heber Catalan, during their respective tenure
as member of the Board of Directors of the Lirag
"12. That the failure of the Lirag Textile Mills, Inc. to Textile Mills, Inc. attended the meetings of the said
redeem the foregoing certificates of stock and pay Board, received per diems for their attendance
dividends thereon were due to financial reverses, to therein in the same manner and in the same
wit: amount as any other member of the Board of
Directors, participated in the deliberations therein
[a] Unrestrained smuggling into the country of and freely exercised their right to vote in such
textiles from the United States and other countries; meetings. However, the per diems received by the
SSS representative do not go to the coffers of the
[b] Unrestricted entry of supposed remnants which System but personally to the representative in the
competed with textiles of domestic produce to the said board of directors." 1
disadvantage and economic prejudice of the latter;
For failure of Lirag Textile Mills, Inc. and Basilio L.
[c] Scarcity of money and the unavailability of Lirag to comply with the terms of the Purchase
financing facilities; Agreement, the SSS filed an action for specific
performance and damages before the then Court of
[d] Payment of interest on matured loans extended First Instance of Rizal, Quezon City, praying that
to defendant corporation: therein defendants Lirag Textile Mills, Inc. and
Basilio L. Lirag be adjudged liable for [1] the entire
[e] Construction of the Montalban plant of the obligation of P1M which became due and
demandable upon defendants failure to repurchase preferred shares since the purchase agreement
the stocks as scheduled; [2] dividends in the provides that said dividends shall be paid from the
amount of P220,000.00; [3] liquidated damages in net profits and earned surplus of petitioner
an amount equivalent to twelve percent (12%) of corporation and respondent SSS has admitted that
the amount then outstanding; [4] exemplary due to losses sustained since 1964, no dividends
damages in the amount of P100,000.00 and [5] had been and can be declared by petitioner
attorneys fees of P20,000.00. corporation;

Lirag Textile Mills, Inc. and Basilio L. Lirag moved 3. Respondent judge erred in sentencing petitioners
for the dismissal of the complaint, but were denied to pay P146,400.00 in liquidated damages;
the relief sought. Thus, they filed their answer with
counterclaim, denying the existence of any 4. Respondent judge erred in sentencing petitioners
obligation on their part to redeem the preferred to pay P10,000.00 by way of attorneys fees;
stocks, on the ground that the SSS became and
still is a preferred stockholder of the corporation so 5. Respondent judge erred in sentencing petitioners
that redemption of the shares purchased depended to pay interest from the time of filing the complaint
upon the financial ability of said corporation. Insofar up to the time of full payment both on the
as defendant Basilio Lirag is concerned, it was P1,000,000.00 invested by respondent SSS in
alleged that his liability arises only if the corporation petitioners corporation and on the P220,000.00
is liable and does not perform its obligations under which the SSS claims as dividends due on its
the Purchase Agreement. They further contended investments;
that no liability on their part has arisen because of
the financial condition of the corporation upon 6. Respondent judge erred in holding that petitioner
which such liability was made to depend, Lirag is liable to redeem the P1,000,000.00 worth of
particularly the non-realization of any profit or preferred shares purchased by respondent SSS
earned surplus. Thus, the other claims for from petitioner corporation and the 8% cumulative
dividends, liquidated damages and exemplary dividend, it appearing that Lirag was merely a
damages are allegedly without basis. surety and not an insurer of the obligation;

After entering into the Stipulation of Facts above- 7. Respondent judge erred in dismissing the
quoted, the parties filed their respective counterclaim of petitioners.
memoranda and submitted the case for decision.
The fundamental issue in this case is whether or
The lower court, ruling that the purchase not the Purchase Agreement entered into by
agreement was a debt instrument, decided in favor petitioners and respondent SSS is a debt
of SSS and sentenced Lirag Textile Mills, Inc. and instrument.
Basilio L. Lirag to pay SSS jointly and severally
P1,000,000.00 plus legal interest until the said Petitioners claim that respondent SSS merely
amount is fully paid; P220,000.00 representing the became and still is a preferred stockholder of the
8% per annum dividends on the preferred shares petitioner corporation, the redemption of the shares
plus legal interest up to the time of actual payment; purchased by said respondent being dependent
P146,400.00 as liquidated damages; and upon the financial ability of petitioner corporation.
P10,000.00 as attorneys fees. The counterclaim of Petitioner corporation, thus, has no obligation to
Lirag Textile Mills, Inc. and Basilio L. Lirag was redeem the preferred stocks.
dismissed.
On the other hand, respondent SSS claims that the
Hence, this petition. Purchase Agreement is a debt instrument, imposing
upon the petitioners the obligation to pay the
Petitioners assign the following errors: amount owed, and creating as between them the
relation of creditor and debtor, not that of a
1. The trial court erred in deciding that the stockholder and a corporation.
Purchase Agreement is a debt instrument;
We uphold the lower courts finding that the
2. Respondent judge erred in holding petitioner Purchase Agreement is, indeed, a debt instrument.
corporation liable for the payment of the 8% Its terms and conditions unmistakably show that the
preferred and cumulative dividends on the parties intended the repurchase of the preferred
shares on the respective scheduled dates to be an ordinary transactions of this kind, as it is looked
absolute obligation which does not depend upon upon more as a lending institution rather than as in
the financial ability of petitioner corporation. This investing agency, the purchase agreement supplied
absolute obligation on the part of petitioner these protective rights which would otherwise be
corporation is made manifest by the fact that a furnished by collaterals to the loan. Thus, the
surety was required to see to it that the obligation is membership in the board is to have a watchdog in
fulfilled in the event of the principal debtors inability the operation of the business of the corporation, so
to do so. The unconditional undertaking of as to insure against mismanagement which may
petitioner corporation to redeem the preferred result in losses not entirely unavoidable since
shares at the specified dates constitutes a debt payment for purposes of redemption as well as the
which is defined "as an obligation to pay money at dividends is expressly stipulated to come from
some fixed future time, or at a time which becomes profits and or surplus. Such a right is never exacted
definite and fixed by acts of either party and which by an ordinary stockholder merely investing in the
they expressly or impliedly, agree to perform in the corporation." 3
contract. 2
Moreover, the Purchase Agreement provided that
A stockholder sinks or swims with the corporation failure on the part of petitioner to repurchase the
and there is no obligation to return the value of his preferred shares on the scheduled due dates
shares by means of repurchase if the corporation renders the entire obligation due and demandable,
incurs losses and financial reverses, much less with petitioner in such eventuality liable to pay 12%
guarantee such repurchase through a surety. of the then outstanding obligation as liquidated
damages. These features of the Purchase
As private respondent rightly contends, if the Agreement, taken collectively, clearly show the
parties intended it [SSS] to be merely a stockholder intent of the parties to be bound therein as debtor
of petitioner corporation, it would have been and creditor, and not as corporation and
sufficient that Preferred Certificates Nos. 128 and stockholder.
139 were issued in its name as the preferred
certificates contained all the rights of a stockholder Petitioners contention that it is beyond the power
as well as certain obligations on the part of and competence of petitioner corporation to
petitioner corporation. However, the parties did in redeem the preferred shares or pay the accrued
fact execute the Purchase Agreement, at the same dividends due to financial reverses can not serve
time that the petitioner corporation issued its as legal justification for their failure to perform
preferred stock to the respondent SSS. The under the Purchase Agreement. The Purchase
Purchase Agreement serves to define the rights Agreement constitutes the law between the parties
and obligations of the parties and to establish firmly and obligations arising ex contractu must be fulfilled
the liability of petitioners in case of breach of in accordance with the stipulations. 4 Besides, it
contract. The Certificates of Preferred Stock serve was precisely this eventuality that was sought to be
as additional evidence of the agreement between avoided when respondent SSS required a surety
the parties, though the precise terms and for the obligation.
conditions thereof must be read together with, and
regarded as qualified by the terms and conditions Thus, it follows that petitioner Basilio L. Lirag
of the Purchase Agreement. cannot deny liability for petitioner corporations
default. As surety, Basilio L. Lirag is bound
The rights given by the Purchase Agreement to immediately to pay respondent SSS the amount
respondent SSS are rights not enjoyed by ordinary then outstanding.
stockholders. This fact could only lead to the
conclusion made by the trial court that: "The obligation of a surety differs from that of a
guarantor in that the surety insures the debt,
"The aforementioned rights specially stipulated for whereas the guarantor merely insures solvency of
the benefit of the plaintiff [respondent SSS] suggest the debtor; and the surety undertakes to pay if the
eloquently an intention on the part of the plaintiff principal does not pay, whereas a guarantor merely
[respondent SSS] to facilitate a loan to the binds itself to pay if the principal is unable to pay."
defendant corporation upon the latters request. In 5
order to afford protection to the plaintiff which
otherwise is provided by means of collaterals, as On the liability of petitioners to pay 8% cumulative
the plaintiff exacts in its grants of loans in its dividend, We agree with the observation of the
lower court that the dividends stipulated by the SO ORDERED.
parties served evidently as interests. 6 The amount
thereof was fixed at 8% per annum and was not
made to depend upon or to fluctuate with the
amount of profits or surplus realized, a clear
indication that the parties intended to give a sure
and fixed 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 excuse petitioners from the
payment thereof, again for the reason that the
undertaking of petitioner Basilio L. Lirag as surety,
included the payment of dividends and other
obligations then outstanding.

The award of the sum of P146,400.00 in liquidated

damages representing 12% of the amount then
outstanding is correct, considering that petitioners
in the stipulation of facts admitted having failed to
fulfill their obligations under the Purchase
Agreement. The grant of liquidated damages in the
amount stated is expressly provided for in the
Purchase Agreement in case of contractual breach.

The pronouncement of the lower court for the

payment of interests on both the unredeemed
shares and unpaid dividends is also in order. Per
stipulation of facts, petitioners did not deny the fact
of non-payment of dividends nor their failure to
purchase the preferred shares. Since these involve
sums of money which are overdue, they are bound
to earn legal interest from the time of demand, in
this case, judicial, i.e., the time of filing the action.

Petitioner Basilio L. Lirag is precluded from denying

his liability under the Purchase Agreement. After his
firm representation to "pay immediately to the
VENDEE the amounts then outstanding"
evidencing his commitment as SURETY, he is
estopped from denying the same. His signature in
the agreement carries with it the official imprimatur
as petitioner corporations president, in his personal
capacity as majority stockholder, as surety and as
solidary obligor. The essence of his obligation as
surety is to pay immediately without qualification
whatsoever if petitioner corporation does not pay.
To have another interpretation of petitioner Lirags
liability as surety would violate the integrity of the
Purchase Agreement as well as the clear and
unmistakable intent of the parties to the same.

WHEREFORE, the decision in Civil Case No. Q-

12275 entitled "Social Security System v. Lirag
Textile Mills, Inc. and Basilio L. Lirag" is hereby
affirmed in toto. Costs against petitioners.
 G.R. No. 151953 June 29, 2007 parties,7 namely: with Escao, Silos and Matti
identified in the document as "SURETIES," on one
SALVADOR P. ESCAO and MARIO M. hand, and Ortigas, Inductivo and the Scholeys as
SILOS, petitioner, "OBLIGORS," on the other. The Undertaking reads
vs. in part:
RAFAEL ORTIGAS, JR., respondent.
3. That whether or not SURETIES are able to
DECISION immediately cause PDCP and PAIC to release
OBLIGORS from their said guarantees [sic],
TINGA, J.: SURETIES hereby irrevocably agree and
undertake to assume all of OBLIGORs said
The main contention raised in this petition is that guarantees [sic] to PDCP and PAIC under the
petitioners are not under obligation to reimburse following terms and conditions:
respondent, a claim that can be easily debunked.
The more perplexing question is whether this a. Upon receipt by any of [the] OBLIGORS of any
obligation to repay is solidary, as contended by demand from PDCP and/or PAIC for the payment
respondent and the lower courts, or merely joint as of FALCONs obligations with it, any of [the]
argued by petitioners. OBLIGORS shall immediately inform SURETIES
thereof so that the latter can timely take appropriate
On 28 April 1980, Private Development Corporation measures;
of the Philippines (PDCP)1 entered into a loan
agreement with Falcon Minerals, Inc. (Falcon) b. Should suit be impleaded by PDCP and/or PAIC
whereby PDCP agreed to make available and lend against any and/or all of OBLIGORS for collection
to Falcon the amount of US$320,000.00, for of said loans and/or credit facilities, SURETIES
specific purposes and subject to certain terms and agree to defend OBLIGORS at their own expense,
conditions.2 On the same day, three stockholders- without prejudice to any and/or all of OBLIGORS
officers of Falcon, namely: respondent Rafael impleading SURETIES therein for contribution,
Ortigas, Jr. (Ortigas), George A. Scholey and indemnity, subrogation or other relief in respect to
George T. Scholey executed an Assumption of any of the claims of PDCP and/or PAIC; and
Solidary Liability whereby they agreed "to assume
in [their] individual capacity, solidary liability with c. In the event that any of [the] OBLIGORS is for
[Falcon] for the due and punctual payment" of the any reason made to pay any amount to PDCP
loan contracted by Falcon with PDCP.3 In the and/or PAIC, SURETIES shall reimburse
meantime, two separate guaranties were executed OBLIGORS for said amount/s within seven (7)
to guarantee the payment of the same loan by calendar days from such payment;
other stockholders and officers of Falcon, acting in
their personal and individual capacities. One 4. OBLIGORS hereby waive in favor of SURETIES
Guaranty4 was executed by petitioner Salvador any and all fees which may be due from FALCON
Escao (Escao), while the other5 by petitioner arising out of, or in connection with, their said
Mario M. Silos (Silos), Ricardo C. Silverio (Silverio), guarantees[sic].8
Carlos L. Inductivo (Inductivo) and Joaquin J.
Rodriguez (Rodriguez). Falcon eventually availed of the sum of
US$178,655.59 from the credit line extended by
Two years later, an agreement developed to cede PDCP. It would also execute a Deed of Chattel
control of Falcon to Escao, Silos and Joseph M. Mortgage over its personal properties to further
Matti (Matti). Thus, contracts were executed secure the loan. However, Falcon subsequently
whereby Ortigas, George A. Scholey, Inductivo and defaulted in its payments. After PDCP foreclosed
the heirs of then already deceased George T. on the chattel mortgage, there remained a
Scholey assigned their shares of stock in Falcon to subsisting deficiency of P5,031,004.07, which
Escao, Silos and Matti.6 Part of the consideration Falcon did not satisfy despite demand.9
that induced the sale of stock was a desire by
Ortigas, et al., to relieve themselves of all liability On 28 April 1989, in order to recover the
arising from their previous joint and several indebtedness, PDCP filed a complaint for sum of
undertakings with Falcon, including those related to money with the Regional Trial Court of Makati
the loan with PDCP. Thus, an Undertaking dated 11 (RTC) against Falcon, Ortigas, Escao, Silos,
June 1982 was executed by the concerned Silverio and Inductivo. The case was docketed as
Civil Case No. 89-5128. For his part, Ortigas filed for summary judgment, even if such facts were
together with his answer a cross-claim against his raised in the pleadings."18 In an Order dated 7
co-defendants Falcon, Escao and Silos, and also March 1996, the trial court denied the motion for
manifested his intent to file a third-party complaint reconsideration of the Summary Judgment and
against the Scholeys and Matti.10 The cross-claim awarded Ortigas legal interest of 12% per annum to
lodged against Escao and Silos was predicated on be computed from 28 February 1994.19
the 1982 Undertaking, wherein they agreed to
assume the liabilities of Ortigas with respect to the From the Summary Judgment, recourse was had
PDCP loan. by way of appeal to the Court of Appeals. Escao
and Silos appealed jointly while Matti appealed by
Escao, Ortigas and Silos each sought to seek a his lonesome. In a Decision20 dated 23 January
settlement with PDCP. The first to come to terms 2002, the Court of Appeals dismissed the appeals
with PDCP was Escao, who in December of 1993, and affirmed the Summary Judgment. The
entered into a compromise agreement whereby he appellate court found that the RTC did not err in
agreed to pay the bank P1,000,000.00. In rendering the summary judgment since the three
exchange, PDCP waived or assigned in favor of appellants did not effectively deny their execution of
Escao one-third (1/3) of its entire claim in the the 1982 Undertaking. The special defenses that
complaint against all of the other defendants in the were raised, "payment and excussion," were
case.11 The compromise agreement was approved characterized by the Court of Appeals as
by the RTC in a Judgment12 dated 6 January 1994. "appear[ing] to be merely sham in the light of the
pleadings and supporting documents and
Then on 24 February 1994, Ortigas entered into his affidavits."21 Thus, it was concluded that there was
own compromise agreement13 with PDCP, allegedly no genuine issue that would still require the rigors
without the knowledge of Escao, Matti and Silos. of trial, and that the appealed judgment was
Thereby, Ortigas agreed to pay decided on the bases of the undisputed and
PDCP P1,300,000.00 as "full satisfaction of the established facts of the case.
PDCPs claim against Ortigas,"14 in exchange for
PDCPs release of Ortigas from any liability or claim Hence, the present petition for review filed by
arising from the Falcon loan agreement, and a Escao and Silos.22 Two main issues are raised.
renunciation of its claims against Ortigas. First, petitioners dispute that they are liable to
Ortigas on the basis of the 1982 Undertaking, a
In 1995, Silos and PDCP entered into a Partial document which they do not disavow and have in
Compromise Agreement whereby he agreed to fact annexed to their petition. Second, on the
pay P500,000.00 in exchange for PDCPs waiver of assumption that they are liable to Ortigas under the
its claims against him.15 1982 Undertaking, petitioners argue that they are
jointly liable only, and not solidarily. Further
In the meantime, after having settled with PDCP, assuming that they are liable, petitioners also
Ortigas pursued his claims against Escao, Silos submit that they are not liable for interest and if at
and Matti, on the basis of the 1982 Undertaking. He all, the proper interest rate is 6% and not 12%.
initiated a third-party complaint against Matti and
Silos,16 while he maintained his cross-claim against Interestingly, petitioners do not challenge, whether
Escao. In 1995, Ortigas filed a motion for in their petition or their memorandum before the
Summary Judgment in his favor against Escao, Court, the appropriateness of the summary
Silos and Matti. On 5 October 1995, the RTC judgment as a relief favorable to Ortigas. Under
issued the Summary Judgment, ordering Escao, Section 3, Rule 35 of the 1997 Rules of Civil
Silos and Matti to pay Ortigas, jointly and severally, Procedure, summary judgment may avail if the
the amount of P1,300,000.00, as well pleadings, supporting affidavits, depositions and
as P20,000.00 in attorneys fees.17 The trial court admissions on file show that, except as to the
ratiocinated that none of the third-party defendants amount of damages, there is no genuine issue as
disputed the 1982 Undertaking, and that "the mere to any material fact and that the moving party is
denials of defendants with respect to non- entitled to a judgment as a matter of law. Petitioner
compliance of Ortigas of the terms and conditions have not attempted to demonstrate before us that
of the Undertaking, unaccompanied by any there existed a genuine issue as to any material
substantial fact which would be admissible in fact that would preclude summary judgment. Thus,
evidence at a hearing, are not sufficient to raise we affirm with ease the common rulings of the
genuine issues of fact necessary to defeat a motion
lower courts that summary judgment is an the event that any of OBLIGORS is for any reason
appropriate recourse in this case. made to pay any amount to PDCP x x x"27 As
pointed out by Ortigas, the phrase "for any reason"
The vital issue actually raised before us is whether reasonably includes any extra-judicial settlement of
petitioners were correctly held liable to Ortigas on obligation such as what Ortigas had undertaken to
the basis of the 1982 Undertaking in this Summary pay to PDCP, as it is indeed obvious that the
Judgment. An examination of the document reveals phrase was incorporated in the clause to render the
several clauses that make it clear that the eventual payment adverted to therein unlimited and
agreement was brought forth by the desire of unqualified.
Ortigas, Inductivo and the Scholeys to be released
from their liability under the loan agreement which The interpretation posed by petitioners would have
release was, in turn, part of the consideration for held water had the Undertaking made clear that the
the assignment of their shares in Falcon to right of Ortigas to seek reimbursement accrued
petitioners and Matti. The whereas clauses only after he had delivered payment to PDCP as a
manifest that Ortigas had bound himself with consequence of a final and executory judgment. On
Falcon for the payment of the loan with PDCP, and the contrary, the clear intent of the Undertaking was
that "amongst the consideration for OBLIGORS for petitioners and Matti to relieve the burden on
and/or their principals aforesaid selling is Ortigas and his fellow "OBLIGORS" as soon as
SURETIES relieving OBLIGORS of any and all possible, and not only after Ortigas had been
liability arising from their said joint and several subjected to a final and executory adverse
undertakings with FALCON."23 Most crucial is the judgment.
clause in Paragraph 3 of the Undertaking wherein
petitioners "irrevocably agree and undertake to Paragraph 1 of the Undertaking enjoins petitioners
assume all of OBLIGORs said guarantees [sic] to to "exert all efforts to cause PDCP x x x to within a
PDCP x x x under the following terms and reasonable time release all the OBLIGORS x x x
conditions."24 from their guarantees [sic] to PDCP x x x" 28 In the
event that Ortigas and his fellow "OBLIGORS"
At the same time, it is clear that the assumption by could not be released from their guaranties,
petitioners of Ortigass "guarantees" [sic] to PDCP paragraph 2 commits petitioners and Matti to cause
is governed by stipulated terms and conditions as the Board of Directors of Falcon to make a call on
set forth in sub-paragraphs (a) to (c) of Paragraph its stockholders for the payment of their unpaid
3. First, upon receipt by "any of OBLIGORS" of any subscriptions and to pledge or assign such
demand from PDCP for the payment of Falcons payments to Ortigas, et al., as security for whatever
obligations with it, "any of OBLIGORS" was to amounts the latter may be held liable under their
immediately inform "SURETIES" thereof so that the guaranties. In addition, paragraph 1 also makes
latter can timely take appropriate measures. clear that nothing in the Undertaking "shall prevent
Second, should "any and/or all of OBLIGORS" be OBLIGORS, or any one of them, from themselves
impleaded by PDCP in a suit for collection of its negotiating with PDCP x x x for the release of their
loan, "SURETIES agree[d] to defend OBLIGORS at said guarantees [sic]."29
their own expense, without prejudice to any and/or
all of OBLIGORS impleading SURETIES therein for There is no argument to support petitioners
contribution, indemnity, subrogation or other position on the import of the phrase "made to pay"
relief"25 in respect to any of the claims of PDCP. in the Undertaking, other than an unduly literalist
Third, if any of the "OBLIGORS is for any reason reading that is clearly inconsistent with the thrust of
made to pay any amount to [PDCP], SURETIES the document. Under the Civil Code, the various
[were to] reimburse OBLIGORS for said amount/s stipulations of a contract shall be interpreted
within seven (7) calendar days from such together, attributing to the doubtful ones that sense
payment."26 which may result from all of them taken
jointly.30 Likewise applicable is the provision that if
Petitioners claim that, contrary to paragraph 3(c) of some stipulation of any contract should admit of
the Undertaking, Ortigas was not "made to pay" several meanings, it shall be understood as bearing
PDCP the amount now sought to be reimbursed, as
Ortigas voluntarily paid PDCP the amount of P1.3 that import which is most adequate to render it
Million as an amicable settlement of the claims effectual.31 As a means to effect the general intent
posed by the bank against him. However, the of the document to relieve Ortigas from liability to
subject clause in paragraph 3(c) actually reads "[i]n
PDCP, it is his interpretation, not that of petitioners, Petitioners further observe that Ortigas made the
that holds sway with this Court. payment to PDCP after he had already assigned
his obligation to petitioners through the 1982
Neither do petitioners impress us of the non- Undertaking. Yet the fact is PDCP did pursue a
fulfillment of any of the other conditions set in judicial claim against Ortigas notwithstanding the
paragraph 3, as they claim. Following the general Undertaking he executed with petitioners. Not being
assertion in the petition that Ortigas violated the a party to such Undertaking, PDCP was not
terms of the Undertaking, petitioners add that precluded by a contract from pursuing its claim
Ortigas "paid PDCP BANK the amount of P1.3 against Ortigas based on the original Assumption of
million without petitioners ESCANO and SILOSs Solidary Liability.
knowledge and consent."32 Paragraph 3(a) of the
Undertaking does impose a requirement that any of At the same time, the Undertaking did not preclude
the "OBLIGORS" shall immediately inform Ortigas from relieving his distress through a
"SURETIES" if they received any demand for settlement with the creditor bank. Indeed,
payment of FALCONs obligations to PDCP, but paragraph 1 of the Undertaking expressly states
that requirement is reasoned "so that the that "nothing herein shall prevent OBLIGORS, or
[SURETIES] can timely take appropriate any one of them, from themselves negotiating with
measures"33 presumably to settle the obligation PDCP x x x for the release of their said guarantees
without having to burden the "OBLIGORS." This [sic]."36 Simply put, the Undertaking did not bar
notice requirement in paragraph 3(a) is markedly Ortigas from pursuing his own settlement with
way off from the suggestion of petitioners that PDCP. Neither did the Undertaking bar Ortigas from
Ortigas, after already having been impleaded as a recovering from petitioners whatever amount he
defendant in the collection suit, was obliged under may have paid PDCP through his own settlement.
the 1982 Undertaking to notify them before settling The stipulation that if Ortigas was "for any reason
with PDCP. made to pay any amount to PDCP[,] x x x
SURETIES shall reimburse OBLIGORS for said
The other arguments petitioners have offered to amount/s within seven (7) calendar days from such
escape liability to Ortigas are similarly weak. payment"37 makes it clear that petitioners remain
liable to reimburse Ortigas for the sums he paid
Petitioners impugn Ortigas for having settled with PDCP.
PDCP in the first place. They note that Ortigas had,
in his answer, denied any liability to PDCP and had We now turn to the set of arguments posed by
alleged that he signed the Assumption of Solidary petitioners, in the alternative, that is, on the
Liability not in his personal capacity, but as an assumption that they are indeed liable.
officer of Falcon. However, such position, according
to petitioners, could not be justified since Ortigas Petitioners submit that they could only be held
later voluntarily paid PDCP the amount of P1.3 jointly, not solidarily, liable to Ortigas, claiming that
Million. Such circumstances, according to the Undertaking did not provide for express
petitioners, amounted to estoppel on the part of solidarity. They cite Article 1207 of the New Civil
Ortigas. Code, which states in part that "[t]here is a solidary
liability only when the obligation expressly so
Even as we entertain this argument at depth, its states, or when the law or the nature of the
premises are still erroneous. The Partial obligation requires solidarity."
Compromise Agreement between PDCP and
Ortigas expressly stipulated that Ortigass offer to Ortigas in turn argues that petitioners, as well as
pay PDCP was conditioned "without [Ortigass] Matti, are jointly and severally liable for the
admitting liability to plaintiff PDCP Banks Undertaking, as the language used in the
complaint, and to terminate and dismiss the said agreement "clearly shows that it is a surety
case as against Ortigas solely."34 Petitioners agreement"38 between the obligors (Ortigas group)
profess it is "unthinkable" for Ortigas to have and the sureties (Escao group). Ortigas points out
voluntarily paid PDCP without admitting his that the Undertaking uses the word "SURETIES"
liability,35 yet such contention based on assumption although the document, in describing the parties. It
cannot supersede the literal terms of the Partial is further contended that the principal objective of
Compromise Agreement. the parties in executing the Undertaking cannot be
attained unless petitioners are solidarily liable
"because the total loan obligation can not be paid
or settled to free or release the OBLIGORS if one If a person binds himself solidarily with the principal
or any of the SURETIES default from their debtor, the provisions of Section 4, Chapter 3, Title
obligation in the Undertaking."39 I of this Book shall be observed. In such case the
contract is called a suretyship. [Emphasis
In case, there is a concurrence of two or more supplied]40
creditors or of two or more debtors in one and the
same obligation, Article 1207 of the Civil Code As provided in Article 2047 in a surety agreement
states that among them, "[t]here is a solidary the surety undertakes to be bound solidarily with
liability only when the obligation expressly so the principal debtor. Thus, a surety agreement is an
states, or when the law or the nature of the ancillary contract as it presupposes the existence of
obligation requires solidarity." Article 1210 supplies a principal contract. It appears that Ortigass
further caution against the broad interpretation of argument rests solely on the solidary nature of the
solidarity by providing: "The indivisibility of an obligation of the surety under Article 2047. In
obligation does not necessarily give rise to tandem with the nomenclature "SURETIES"
solidarity. Nor does solidarity of itself imply accorded to petitioners and Matti in the
indivisibility." Undertaking, however, this argument can only be
viable if the obligations established in the
These Civil Code provisions establish that in case
of concurrence of two or more creditors or of two or Undertaking do partake of the nature of a
more debtors in one and the same obligation, and suretyship as defined under Article 2047 in the first
in the absence of express and indubitable terms place. That clearly is not the case here,
characterizing the obligation as solidary, the notwithstanding the use of the nomenclature
presumption is that the obligation is only joint. It "SURETIES" in the Undertaking.
thus becomes incumbent upon the party alleging
that the obligation is indeed solidary in character to Again, as indicated by Article 2047, a suretyship
prove such fact with a preponderance of evidence. requires a principal debtor to whom the surety is
solidarily bound by way of an ancillary obligation of
The Undertaking does not contain any express segregate identity from the obligation between the
stipulation that the petitioners agreed "to bind principal debtor and the creditor. The suretyship
themselves jointly and severally" in their obligations does bind the surety to the creditor, inasmuch as
to the Ortigas group, or any such terms to that the latter is vested with the right to proceed against
effect. Hence, such obligation established in the the former to collect the credit in lieu of proceeding
Undertaking is presumed only to be joint. Ortigas, against the principal debtor for the same
as the party alleging that the obligation is in fact obligation.41 At the same time, there is also a legal
solidary, bears the burden to overcome the tie created between the surety and the principal
presumption of jointness of obligations. We rule debtor to which the creditor is not privy or party to.
and so hold that he failed to discharge such The moment the surety fully answers to the creditor
burden. for the obligation created by the principal debtor,
such obligation is extinguished.42 At the same time,
Ortigas places primary reliance on the fact that the the surety may seek reimbursement from the
petitioners and Matti identified themselves in the principal debtor for the amount paid, for the surety
Undertaking as "SURETIES", a term repeated no does in fact "become subrogated to all the rights
less than thirteen (13) times in the document. and remedies of the creditor."43
Ortigas claims that such manner of identification
sufficiently establishes that the obligation of Note that Article 2047 itself specifically calls for the
petitioners to him was joint and solidary in nature. application of the provisions on joint and solidary
obligations to suretyship contracts.44 Article 1217 of
The term "surety" has a specific meaning under our the Civil Code thus comes into play, recognizing the
Civil Code. Article 2047 provides the statutory right of reimbursement from a co-debtor (the
definition of a surety agreement, thus: principal debtor, in case of suretyship) in favor of
the one who paid (i.e., the surety). 45However, a
Art. 2047. By guaranty a person, called the significant distinction still lies between a joint and
guarantor, binds himself to the creditor to fulfill the several debtor, on one hand, and a surety on the
obligation of the principal debtor in case the latter other. Solidarity signifies that the creditor can
should fail to do so. compel any one of the joint and several debtors or
the surety alone to answer for the entirety of the
principal debt. The difference lies in the respective comprising of, among others, "the total amount of
faculties of the joint and several debtor and the the debt."47 Further, Article 2067 of the Civil Code
surety to seek reimbursement for the sums they likewise establishes that "[t]he guarantor who pays
paid out to the creditor. is subrogated by virtue thereof to all the rights
which the creditor had against the debtor."48
Dr. Tolentino explains the differences between a
solidary co-debtor and a surety:
Articles 2066 and 2067 explicitly pertain to
A guarantor who binds himself in solidum with the guarantors, and one might argue that the provisions
principal debtor under the provisions of the second should not extend to sureties, especially in light of
paragraph does not become a solidary co-debtor to the qualifier in Article 2047 that the provisions on
all intents and purposes. There is a difference joint and several obligations should apply to
between a solidary co-debtor and a fiador in sureties. We reject that argument, and instead
solidum (surety). The latter, outside of the liability adopt Dr. Tolentinos observation that "[t]he
he assumes to pay the debt before the property of reference in the second paragraph of [Article 2047]
the principal debtor has been exhausted, retains all to the provisions of Section 4, Chapter 3, Title I,
the other rights, actions and benefits which pertain Book IV, on solidary or several obligations,
to him by reason of the fiansa; while a solidary co- however, does not mean that suretyship is
debtor has no other rights than those bestowed withdrawn from the applicable provisions governing
upon him in Section 4, Chapter 3, Title I, Book IV of guaranty."49 For if that were not the implication,
the Civil Code. there would be no material difference between the
surety as defined under Article 2047 and the joint
The second paragraph of [Article 2047] is and several debtors, for both classes of obligors
practically equivalent to the contract of suretyship. would be governed by exactly the same rules and
The civil law suretyship is, accordingly, nearly limitations.
synonymous with the common law guaranty; and
the civil law relationship existing between the co- Accordingly, the rights to indemnification and
debtors liable in solidum is similar to the common subrogation as established and granted to the
law suretyship.46 guarantor by Articles 2066 and 2067 extend as well
to sureties as defined under Article 2047. These
In the case of joint and several debtors, Article rights granted to the surety who pays materially
1217 makes plain that the solidary debtor who differ from those granted under Article 1217 to the
effected the payment to the creditor "may claim solidary debtor who pays, since the
from his co-debtors only the share which "indemnification" that pertains to the latter extends
corresponds to each, with the interest for the "only [to] the share which corresponds to each [co-
payment already made." Such solidary debtor will debtor]." It is for this reason that the Court cannot
not be able to recover from the co-debtors the full accord the conclusion that because petitioners are
amount already paid to the creditor, because the identified in the Undertaking as "SURETIES," they
right to recovery extends only to the proportional are consequently joint and severally liable to
share of the other co-debtors, and not as to the Ortigas.
particular proportional share of the solidary debtor
who already paid. In contrast, even as the surety is In order for the conclusion espoused by Ortigas to
solidarily bound with the principal debtor to the hold, in light of the general presumption favoring
creditor, the surety who does pay the creditor has joint liability, the Court would have to be satisfied
the right to recover the full amount paid, and not that among the petitioners and Matti, there is one or
just any proportional share, from the principal some of them who stand as the principal debtor to
debtor or debtors. Such right to full reimbursement Ortigas and another as surety who has the right to
falls within the other rights, actions and benefits full reimbursement from the principal debtor or
which pertain to the surety by reason of the debtors. No suggestion is made by the parties that
subsidiary obligation assumed by the surety. such is the case, and certainly the Undertaking is
not revelatory of such intention. If the Court were to
What is the source of this right to full give full fruition to the use of the term "sureties" as
reimbursement by the surety? We find the right conclusive indication of the existence of a surety
under Article 2066 of the Civil Code, which assures agreement that in turn gives rise to a solidary
that "[t]he guarantor who pays for a debtor must be obligation to pay Ortigas, the necessary implication
indemnified by the latter," such indemnity would be to lay down a corresponding set of rights
and obligations as between the "SURETIES" which their previous obligations as sureties of Falcon,
petitioners and Matti did not clearly intend. especially considering that they were already
divesting their shares in the corporation. Specific
It is not impossible that as between Escao, Silos provisions in the Undertaking obligate petitioners to
and Matti, there was an agreement whereby in the work for the release of Ortigas from his surety
event that Ortigas were to seek reimbursement agreements with Falcon. Specific provisions
from them per the terms of the Undertaking, one of likewise mandate the immediate repayment of
them was to act as surety and to pay Ortigas in full, Ortigas should he still be made to pay PDCP by
subject to his right to full reimbursement from the reason of the guaranty agreements from which he
other two obligors. In such case, there would have was ostensibly to be released through the efforts of
been, in fact, a surety agreement which evinces a petitioners. None of these provisions were complied
solidary obligation in favor of Ortigas. Yet if there with by petitioners, and Article 2208(2) precisely
was indeed such an agreement, it does not appear allows for the recovery of attorneys fees "[w]hen
on the record. More consequentially, no such the defendants act or omission has compelled the
intention is reflected in the Undertaking itself, the plaintiff to litigate with third persons or to incur
very document that creates the conditional expenses to protect his interest."
obligation that petitioners and Matti reimburse
Ortigas should he be made to pay PDCP. The mere Finally, petitioners claim that they should not be
utilization of the term "SURETIES" could not work liable for interest since the Undertaking does not
to such effect, especially as it does not appear who contain any stipulation for interest, and assuming
exactly is the principal debtor whose obligation is that they are liable, that the rate of interest should
"assured" or "guaranteed" by the surety. not be 12% per annum, as adjudged by the RTC.

Ortigas further argues that the nature of the The seminal ruling in Eastern Shipping Lines, Inc.
Undertaking requires "solidary obligation of the v. Court of Appeals51 set forth the rules with respect
Sureties," since the Undertaking expressly seeks to to the manner of computing legal interest:
"reliev[e] obligors of any and all liability arising from
their said joint and several undertaking with I. When an obligation, regardless of its source, i.e.,
[F]alcon," and for the "sureties" to "irrevocably law, contracts, quasi-contracts, delicts or quasi-
agree and undertake to assume all of obligors said delicts is breached, the contravenor can be held
guarantees to PDCP."50 We do not doubt that a liable for damages. The provisions under Title XVIII
finding of solidary liability among the petitioners on "Damages" of the Civil Code govern in
works to the benefit of Ortigas in the facilitation of determining the measure of recoverable damages.
these goals, yet the Undertaking itself contains no
stipulation or clause that establishes petitioners II. With regard particularly to an award of interest in
obligation to Ortigas as solidary. Moreover, the the concept of actual and compensatory damages,
aims adverted to by Ortigas do not by themselves the rate of interest, as well as the accrual thereof, is
establish that the nature of the obligation requires imposed, as follows:
solidarity. Even if the liability of petitioners and Matti
were adjudged as merely joint, the full relief and 1. When the obligation is breached, and it consists
reimbursement of Ortigas arising from his payment in the payment of a sum of money, i.e., a loan or
to PDCP would still be accomplished through the forbearance of money, the interest due should be
complete execution of such a judgment. that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
Petitioners further claim that they are not liable for interest from the time it is judicially demanded. In
attorneys fees since the Undertaking contained no the absence of stipulation, the rate of interest shall
such stipulation for attorneys fees, and that the be 12% per annum to be computed from default,
situation did not fall under the instances under i.e., from judicial or extrajudicial demand under and
Article 2208 of the Civil Code where attorneys fees subject to the provisions of Article 1169 of the Civil
are recoverable in the absence of stipulation. Code.

We disagree. As Ortigas points out, the acts or 2. When an obligation, not constituting a loan or
omissions of the petitioners led to his being forbearance of money, is breached, an interest on
impleaded in the suit filed by PDCP. The the amount of damages awarded may be imposed
Undertaking was precisely executed as a means to at the discretion of the court at the rate of 6% per
obtain the release of Ortigas and the Scholeys from annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or assailed rulings are affirmed in all other respects.
until the demand can be established with Costs against petitioners.
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, SO ORDERED.
the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169,
Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is
made, the interest shall begin to run only from the
date the judgment of the court is made (at which
time quantification of damages may be deemed to
have been reasonably ascertained). The actual
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum

of money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction,
this interim period being deemed to be by then an
equivalent to a forbearance of credit.52

Since what was the constituted in the Undertaking

consisted of a payment in a sum of money, the rate
of interest thereon shall be 12% per annum to be
computed from default, i.e., from judicial or
extrajudicial demand. The interest rate imposed by
the RTC is thus proper. However, the computation
should be reckoned from judicial or extrajudicial
demand. Per records, there is no indication that
Ortigas made any extrajudicial demand to
petitioners and Matti after he paid PDCP, but on 14
March 1994, Ortigas made a judicial demand when
he filed a Third-Party Complaint praying that
petitioners and Matti be made to reimburse him for
the payments made to PDCP. It is the filing of this
Third Party Complaint on 14 March 1994 that
should be considered as the date of judicial
demand from which the computation of interest
should be reckoned.53 Since the RTC held that
interest should be computed from 28 February
1994, the appropriate redefinition should be made.

WHEREFORE, the Petition is GRANTED in PART.

The Order of the Regional Trial Court dated 5
October 1995 is modified by declaring that
petitioners and Joseph M. Matti are only jointly
liable, not jointly and severally, to respondent
Rafael Ortigas, Jr. in the amount of P1,300,000.00.
The Order of the Regional Trial Court dated 7
March 1996 is MODIFIED in that the legal interest
of 12% per annum on the amount of P1,300,000.00
is to be computed from 14 March 1994, the date of
judicial demand, and not from 28 February 1994 as
directed in the Order of the lower court. The
 G.R. No. 171820 December 13, 2007 additional works therein specified for the
added consideration of P100,000.00 as
DIAMOND BUILDERS CONGLOMERATION, alleged in paragraphs 2 and 3 of the
ROGELIO S. ACIDRE, TERESITA P. ACIDRE, complaint, Annex "C" hereof.
GRACE C. OSIAS, VIOLETA S. FAIYAZ and
EMMA S. CUTILLAR, Petitioners, b. [Petitioner Rogelio] admits full payment of
vs. plaintiff to him the amount of P1,530,000.00
COUNTRY BANKERS INSURANCE leaving the balance of P570,000.00 of the
CORPORATION, Respondent. contractual price of P2,100,000.00 for the
construction of the buildings
DECISION aforementioned.

NACHURA, J.: c. [Petitioner Rogelio] agrees to fully

complete the construction of the
Before us is a petition for review on certiorari to residential/commercial building mentioned
annul the Decision1 of the Court of Appeals (CA) in in paragraph 1 hereof provided plaintiff
CA-G.R. C.V. No. 48603, which reversed the would pay to him, subject to hereunder
Decision2 of the Regional Trial Court, Branch 7, terms, the aforesaid amount
Manila (RTC Manila) in Civil Case No. 92-62029 of P570,000.00.
and granted respondent Country Bankers
Insurance Corporations (Country Bankers) prayer d. The plaintiff agrees to pay [petitioner
for a sum of money against the petitioners. Rogelio] the amount of P570,000.00 subject
to the terms hereunder set forth and subject
The controversy originated from a civil strictly to the condition that [petitioner
case3 pending before the Regional Trial Court, Rogelio] will finish the building above-
Branch 125, Caloocan City (RTC Caloocan) filed by described pursuant to the agreements
Marceliano Borja (Borja) against Rogelio S. Acidre [Annex(es) "A" and "B"] set forth in
(Rogelio) for the latters breach of his obligation to paragraph 1 hereof.
construct a residential and commercial building.
Rogelio is the sole proprietor of petitioner Diamond e. Plaintiff shall pay [petitioner Rogelio] the
Builders Conglomeration (DBC). amount of P570,000.00 as follows:

To put an end to the foregoing litigation, the parties i. P370,000.00 the 5th day from
entered into a Compromise Agreement 4 which approval of this compromise
provided, in part: agreement by this Honorable Court
and to coincide (with) the start of the
COMPROMISE AGREEMENT 75 days for [petitioner Rogelio] to
complete the construction of the
1. x x x building.

a. In lieu of rescission, the parties have ii. P200,000.00 When the

mutually agreed, subject to the provisions aforedescribed building is fully
hereunder, to fully implement the building constructed pursuant to agreements
contract dated October 1, 1990 and stated in paragraph 1 hereof.
supplemented on October 2, 1990 with an
additional scope of work marked as Annex iii. Said building must be fully
"A" of the complaint and the Letter- finished pursuant to the agreement
Agreement dated November 16, 1991 stated in paragraph 1 hereof within
signed by the [petitioner Rogelio] and 75 days (excluding Sundays and
plaintiffs son(,) Ferdinand A. Borja, marked Holidays) counted from receipt of
as Annex "B" of the complaint, which payment of P370,000.00. The date
required full compliance of the structural of receipt to be issued by [petitioner
design of Engr. Ramos and explicit Rogelio] will control. The 75th day
reminders in the constructing of the will be 12:00 noon of the 75th day.
residential/commercial building and the
 iv. From receipt of the aforesaid Bankers in favor of the spouses Borja.7 In this
amount of P370,000.00, [petitioner regard, Rogelio and his spouse, petitioner Teresita
Rogelio] shall submit in favor of P. Acidre, together with DBC employees Grace C.
plaintiff a performance or surety Osias, Violeta S. Faiyaz and Emma S. Cutillar (the
bond in the equivalent amount other petitioners herein), signed an Indemnity
of P370,000.00 to answer or Agreement8 consenting to their joint and several
indemnify plaintiff in the event the liability to Country Bankers should the surety bond
building is not finished on the 75th be executed upon.
day.
On April 23, 1992, Country Bankers received a
v. In the event the building is finished Motion for Execution9 of the surety bond filed by
within 75 days as heretofore stated Borja with the RTC Caloocan for Rogelios alleged
and pursuant to the agreements set violation of the Compromise Agreement.
forth in paragraph 1 hereof, in Consequently, Country Bankers, in a letter10 dated
addition to the amount May 13, 1992, advised petitioners that in the event
of P200,000.00, the plaintiff shall it is constrained to pay under the surety bond to
also pay [petitioner Rogelio] the Borja, it shall proceed against petitioners for
amount of P90,000.00 by way of reimbursement.
[bonus]. However, in the event
[petitioner Rogelio] shall fail to fully In turn, petitioners wrote Country Bankers informing
complete the construction of the the latter of the filing of an Opposition to Borjas
building pursuant to the agreements Motion for Execution.11 In spite of the opposition,
set forth in paragraph 1 hereof within however, the RTC Caloocan issued a Writ of
75 days as heretofore stated, Execution12 on May 25, 1992. Petitioners then filed
[petitioner Rogelio] shall not be a motion for reconsideration.
entitled to any further payments and
the performance or surety bond On May 29, 1992, Sheriff Perceverando Pangan of
above-mentioned shall be fully RTC Caloocan served Country Bankers a copy of
implemented by way of penalizing the writ. Posthaste, Country Bankers, in writing,
[petitioner Rogelio] and/or as award requested Sheriff Pangan for a 10-day grace period
for damages in favor of plaintiff. within which to settle the claim.13

xxxx Subsequently, Rogelio filed an Urgent Omnibus

Motion14 to suspend the Writ of Execution and to
f. x x x resolve the Motion for Reconsideration dated June
3, 1992. Upon receipt of the Omnibus Motion,
g. That the construction herein Country Bankers forthwith wrote Sheriff Pangan
contemplated shall not extend beyond 75 and requested that the implementation of the Writ
days. Said period shall commence five days of Execution be held in abeyance so as not to
from the date of the final approval hereof by render moot and academic the RTC Caloocans
this Honorable Court. resolution on the Omnibus Motion.15

i. That any violation and/or avoidance of the Nonetheless, on June 9, 1992, Country Bankers
terms and conditions of this Compromise was served a Notice of Levy/Sheriffs Sale 16 with a
Agreement by either of the parties herein list of its personal properties to be sold at the
shall forthwith entitle the aggrieved party to scheduled public auction on June 15, 1992.
an immediate execution hereof and to the
necessary and corresponding reliefs and The next day, or on June 10, 1992, Country
remedies therefore. (Emphasis supplied.) Bankers verified with the RTC Caloocan the status
of petitioners Omnibus Motion. It was informed that
The RTC Caloocan approved the Compromise the motion had yet to be acted upon. On the same
Agreement and rendered a Decision5 in accordance date, Sheriff Pangan arrived at Country Bankers
with the terms and conditions contained therein. office, and the latter was thus constrained to pay
the amount of the surety bond.17
In compliance with the Compromise Agreement,
Rogelio obtained a Surety Bond6 from Country
Significantly, on June 22, 1992, twelve (12) days WHEREFORE, premises considered, the Appeal is
after the satisfaction of judgment in Civil Case No. GRANTED and the Decision dated November 2,
C-14745, Rogelio filed a Petition for Certiorari and 1992 of Branch 7 of the Regional Trial Court of
Prohibition with Preliminary Injunction and Manila is hereby REVERSED and a new one
Restraining Order18 with the CA, docketed as CA- entered, ordering [petitioners] to pay [Country
G.R. SP No. 28205. Although the appellate court Bankers] the sum of THREE HUNDRED SEVENTY
issued a Temporary Restraining Order (TRO), the THOUSAND PESOS (P370,000.00), as
petition was eventually denied due course and reimbursement or actual damages, plus interest
dismissed outright for being fait accompli, as what it thereon at the rate of 12% per annum computed
sought to enjoin or prohibit had already been fully from the date of judicial demand, or from July 24,
satisfied and executed.19 1992, the date of filing of the complaint until the
said amount has been fully paid.
In the meantime, after Country Bankers was
compelled to pay the amount of the surety bond, it SO ORDERED.
demanded reimbursement from the petitioners
under the Indemnity Agreement.20 However, In reversing the trial court, the CA ruled that
petitioners refused to reimburse Country Bankers. Country Bankers, as surety of Rogelios loan
obligation, did not effect voluntary payment on the
In addition, upon the dismissal of their petition in bond. The appellate court found that what Country
CA-G.R. SP No. 28205, petitioners wrote Country Bankers paid was an obligation legally due and
Bankers and informed the latter that the voluntary demandable. It declared that Country Bankers
payment of the bond effectively prevented them acted upon compulsion of a writ of execution, which
from contesting the validity of the issuance of the appears to have been regularly, and validly issued,
Writ of Execution.21 and, by its very nature, is immediately enforceable.

As a result, Country Bankers filed a complaint for Hence, this appeal positing a sole issue for our
sum of money against the petitioners which, as resolution, to wit:
previously stated, the RTC Manila dismissed. It
disposed of the case, thus: Whether petitioners should indemnify Country
Bankers for the payment of the surety bond.
WHEREFORE, and considering the foregoing,
judgment is hereby rendered: In fine, petitioners contend that Country Bankers is
not entitled to reimbursement when it voluntarily
1. Dismissing the complaint for lack of merit; paid the surety bond considering it knew full well
the remedies availed of by petitioners to stay the
2. On the counterclaim, ordering [Country execution of the compromise judgment. Thus,
Bankers] to pay [petitioners] attorneys fees Country Bankers must bear the loss or damage
of P50,000.00, plus the costs of suit. arising from its voluntary act.

SO ORDERED. We deny the appeal and affirm the appellate courts

ruling. Country Bankers should be reimbursed for
On appeal, the CA reversed and set aside the the P370,000.00 it paid to Borja under the surety
decision of the RTC Manila, to wit: bond.

In impugning the CAs decision, petitioners invoke

their pending Omnibus Motion to stay the execution
of the compromise judgment. Petitioners theory is
that, although the RTC Caloocan had already
issued a writ of execution and Country Bankers had
been served a Notice of Levy/Sheriffs Sale of its
properties at the impending public auction, the
payment made by Country Bankers to Borja is a
voluntary act. Petitioners push their theory even
further, and deign to suggest that Country Bankers
should have itself intervened in the proceedings
before the RTC Caloocan to stay the writ of The Compromise Agreement between Borja and
execution. Rogelio explicitly provided that the latters failure to
complete construction of the building within the
We reject this preposterous suggestion. Petitioners stipulated period27 shall cause the full
ought to be reminded of the nature of a judgment implementation of the surety bond as a penalty for
on a compromise and a writ of execution issued in the default, and as an award of damages to Borja.
connection therewith. Furthermore, the Compromise Agreement
contained a default executory clause in case of a
A compromise judgment is a decision rendered by violation or avoidance of the terms and conditions
a court sanctioning the agreement between the thereof. Therefore, the payment made by Country
parties concerning the determination of the Bankers to Borja was proper, as failure to pay
controversy at hand. Essentially, it is a contract, would have amounted to contumacious
stamped with judicial imprimatur, between two or disobedience of a valid court order.
more persons, who, for preventing or putting an
end to a lawsuit, adjust their difficulties by mutual Clearly, even without the aforesaid default clause,
consent in the manner which they agree on, and the compromise judgment remained executory as
which each of them prefers in the hope of gaining, against Rogelio, as the principal obligor (co-debtor),
balanced by the danger of losing.22 Upon court and Country Bankers as surety of the obligation.
approval of a compromise agreement, it transcends Section 4, Rule 39 of the Rules of Court provides:
its identity as a mere contract binding only upon the
parties thereto, as it becomes a judgment that is SEC. 4. Judgments not stayed by appeal.
subject to execution in accordance with Rule 39 of Judgments in actions for injunction, receivership,
the Rules of Court.23 accounting and support, and such other judgments
as are now or may hereafter be declared to be
Ordinarily, a judgment based on compromise is not immediately executory, shall be enforceable after
appealable. It should not be disturbed except upon their rendition and shall not be stayed by an appeal
a showing of vitiated consent or forgery. The taken therefrom, unless otherwise ordered by the
reason for the rule is that when both parties enter trial court. On appeal therefrom, the appellate court
into an agreement to end a pending litigation and in its discretion may make an order suspending,
request that a decision be rendered approving said modifying, restoring or granting the injunction,
agreement, it is only natural to presume that such receivership, accounting, or award of support.
action constitutes an implicit, as undeniable as an
express, waiver of the right to appeal against said The stay of execution shall be upon such terms as
decision.24 Thus, a decision on a compromise to bind or otherwise as may be considered proper
agreement is final and executory, and is conclusive for the security or protection of the rights of the
between the parties.25 adverse party.

It is beyond cavil that if a party fails or refuses to Other judgments in actions declared to be
abide by a compromise agreement, the other party immediately executory and not stayed by the filing
may either enforce the compromise or regard it as of an appeal are for: (1) compromise, 28 (2) forcible
rescinded and insist upon his original entry and unlawful detainer,29 (3) direct
demand.26 Following this mandatory rule, the RTC contempt, and (4) expropriation.31
30

Caloocan granted Borjas motion, and subsequently

issued an order to the sheriff to execute the Likewise, Section 9, paragraph (a),32 of the same
compromise judgment. Notwithstanding the Rule outlines the procedure for execution of
foregoing, petitioners still maintain that since they judgments for money, thus:
had taken steps to stay the execution of the
compromise judgment, Country Bankers, with full SEC. 9 Execution of judgments for money, how
knowledge of their active opposition to the enforced.
execution thereof, should not have readily complied
with the RTC Caloocan Order. (a) Immediate payment on demand. The officer
shall enforce an execution of a judgment for money
Petitioners argument contemplates a brazen by demanding from the judgment obligor the
defiance of a validly issued court order, which had immediate payment of the full amount stated in the
not been restrained by the appellate court or this writ of execution and all lawful fees. The judgment
Court. The argument is unacceptable. obligor shall pay in case, certified bank check
payable to the judgment oblige, or any other form of (a) where the order is a patent nullity, as
payment acceptable to the latter, the amount of the where the court a quo has no jurisdiction;
judgment debt under proper receipt directly to the
judgment oblige or his authorized representative if (b) where the questions raised in the
present at the time of payment. The lawful fees certiorari proceedings have been duly
shall be handed under proper receipt to the raised and passed upon by the lower court,
executing sheriff who shall turn over the said or are the same as those raised and passed
amount within the same day to the clerk of court of upon in the lower court;
the court that issued the writ.
(c) where there is an urgent necessity for
As Rogelios obligation under the compromise the resolution of the question and any
agreement, and approved by the RTC Caloocan, further delay would prejudice the interests of
had a penal clause33 which is monetary in the Government or of the petitioner or the
nature,34 the writ of execution availed of by Borja, subject matter of the action is perishable;
and paid by Country Bankers, strictly complied with
the rules on execution of money judgments. (d) where, under the circumstances, a
motion for reconsideration would be
It is true that the petitioners did not directly question useless;
the compromise judgment. What was pending
before the Caloocan RTC was petitioners Omnibus (e) where petitioner was deprived of due
Motion praying for a stay in the implementation of process and there is extreme urgency for
the writ of execution. However, the bottom line relief;
issue raised in the Omnibus Motion is, actually, a
question on the compromise judgment, since its (f) where, in a criminal case, relief from an
resolution would require an inquiry into the order of arrest is urgent and the granting of
stipulations contained in the Compromise such relief by the trial court is improbable;
Agreement, particularly the provision on immediate
execution. (g) where the proceedings in the lower court
are a nullity for lack of due process;
Thus, when the RTC Manila ruled that the payment
on the bond made by Country Bankers was (h) where the proceedings was ex-parte or
voluntary, the lower court effectively disregarded in which the petitioner had no opportunity to
the rule on the non-appealable nature and the object; and
immediately executory character of a judgment on
a compromise.
(i) where the issue raised is one purely of
law or where public interest is involved.36
Moreover, it has not escaped our attention that
petitioners belatedly filed a Petition for Certiorari
Evidently, it would not have been premature for
and Prohibition with prayer for a TRO with the CA,
petitioners to have filed a petition before the CA,
ostensibly to stop the execution of the compromise
upon the issuance by the RTC Caloocan of a writ of
judgment. Not only was the filing thereof late, it was
execution, because the RTC Caloocan already
done twelve (12) days after the satisfaction of the
denied their Opposition to Borjas Motion for
compromise judgment. We are, therefore,
Execution on the surety bond. If, as petitioners
perplexed why, despite the urgency of the matter,
insist, they had a meritorious challenge to the
petitioners merely banked on a pending motion for
satisfaction of the writ of execution, they should
reconsideration to stay the enforcement of an
have immediately filed a Petition for Certiorari with
already issued writ of execution. Petitioners total
the CA and therein alleged the exceptional
reliance thereon was certainly misplaced.
circumstance warranting the non-filing of a motion
for reconsideration. Petitioners should not have
Admittedly, the general rule is that certiorari will not persisted on waiting for the resolution of their
lie unless a motion for reconsideration is first filed Omnibus Motion.
before the respondent tribunal to allow it an
opportunity to correct the imputed
We have consistently ruled that an order for the
errors.35 Nonetheless, the rule admits of
issuance of a writ of execution is ordinarily not
exceptions, thus:
appealable. The reason for this is that the merits of
the case should not be delved into anew after a might be liable by virtue of the terms of the above-
determination has been made thereon with mentioned Bond, its renewals, extensions,
finality.37 Otherwise, there would be practically no alterations, or substitutions, shall be final and shall
end to litigation since the losing party would always not be disputed by the undersigned, who hereby
try to thwart execution by appealing from every jointly and severally bind themselves to indemnify
order granting the writ. In this case, this aphorism [Country Bankers] of any and all such payments, as
should apply. Rogelio, after agreeing to an stated in the preceding clauses.
amicable settlement with Borja to put an end to the
case before the RTC Caloocan, cannot flout In case [Country Bankers] shall have paid, settled
compliance of the court order of execution by or compromised any liability, loss, costs, damages,
refusing to reimburse Country Bankers, the surety attorneys fees, expenses, claims, demands, suits,
of his obligation in the compromise agreement. or judgments as above-stated, arising out of or in
connection with said bond, an itemized statement
Still, petitioners stubbornly refuse to pay Country thereof, signed by an officer of [Country Bankers]
Bankers, contending that the CA itself, in CA-G.R. and other evidence to show said payment,
SP No. 28205, declared that the payment effected settlement or compromise, shall be prima facie
was voluntary. evidence of said payment, settlement or
compromise, as well as the liability of [petitioners]
We are not persuaded. in any and all suits and claims against [petitioners]
arising out of said bond or this bond application.
Article 2047 of the Civil Code specifically calls for
the application of the provisions on solidary Ineluctably, petitioners are obligated to reimburse
obligations to suretyship contracts. In particular, Country Bankers the amount of P370,000.00.
Article 1217 of the Civil Code recognizes the right
of reimbursement from a co-debtor (the principal Finally, petitioners desperately attempt to inveigle
co-debtor, in case of suretyship) in favor of the one out of this burden, which is of their own making, by
who paid (i.e., the surety).38 In contrast, Article 1218 imputing a lack of initiative on Country Bankers
of the Civil Code is definitive on when part to intervene in the execution proceedings
reimbursement is unavailing, such that only those before the RTC.
payments made after the obligation has prescribed
or became illegal shall not entitle a solidary debtor This contention, as with the rest of petitioners
to reimbursement. Nowhere in the invoked CA arguments, deserves scant consideration. Suffice it
Decision does it declare that a surety who pays, by to state that Country Bankers is a surety of the
virtue of a writ of execution, is not entitled to obligation with a penal clause, constituted in the
reimbursement from the principal co-debtor. The compromise judgment; it is not a joint and solidary
CA Decision was confined to the mootness of the co-debtor of Rogelio.
issue presented and petitioners preclusion from the
relief it prayed for, i.e., a stay of the writ of In the recent case of Escao v. Ortigas,39 we
execution, considering that the writ had already elucidated on the distinction between a surety as a
been satisfied. co-debtor under a suretyship agreement and a joint
and solidary co-debtor, thus:
More importantly, the Indemnity Agreement signed
by Rogelio and the other petitioners explicitly (A)s indicated by Article 2047, a suretyship requires
provided for an incontestability clause on payments a principal debtor to whom the surety is solidarily
made by Country Bankers.1wphi1 The said clause bound by way of an ancillary obligation of
reads: segregate identity from the obligation between the
principal debtor and the creditor. The suretyship
INCONTESTABILITY OF PAYMENTS MADE BY does not bind the surety to the creditor, inasmuch
THE COMPANY: - Any payment or disbursement as the latter is vested with the right to proceed
made by [Country Bankers] on account of the against the former to collect the credit in lieu of
above-mentioned Bond, its renewals, extensions, proceeding against the principal debtor for the
alterations or substitutions either in the belief that same obligation. At the same time, there is also a
[Country Bankers] was obligated to make such legal tie created between the surety and the
payment or in the belief that said payment was principal debtor to which the creditor is not privy or
necessary or expedient in order to avoid greater party to. The moment the surety fully answers to
losses or obligations for which [Country Bankers] the creditor for the obligation created by the
principal debtor, such obligation is extinguished. At
the same time, the surety may seek reimbursement
from the principal debtor for the amount paid, for
the surety does in fact "become subrogated to all
the rights and remedies of the creditor."

WHEREFORE, the Petition is DENIED. The

Decision of the Court of Appeals in CA-G.R. C.V.
No. 48603 is hereby AFFIRMED. Costs against the
petitioner.

SO ORDERED.
 [G.R. No. 72275. November 13, 1991.] 2053, Civil Code of the Philippines).

PACIFIC BANKING CORPORATION, Petitioner, 3. ID.; ID.; ID.; ID.; DETERMINED BY THE
v. HON. INTERMEDIATE APPELLATE COURT CLAUSES IN THE CONTRACT OF SURETYSHIP.
AND ROBERTO REGALA, JR., Respondents. A guarantor or surety does not incur liability
unless the principal debtor is held liable. It is in this
SYLLABUS sense that a surety, although solidarily liable with
the principal debtor, is different from the debtor. It
1. CIVIL LAW; SPECIAL CONTRACTS; does not mean, however, that the surety cannot be
SURETYSHIP; DISTINGUISHED FROM held liable to the same extent as the principal
GUARANTY. A contract of surety as debtor. The nature and extent of the liabilities of a
distinguished from a contract of guaranty where the guarantor or a surety is determined by the clauses
guarantor binds himself to the creditor to fulfill the in the contract of suretyship (PCIB v. CA, L-34959,
obligation of the principal debtor only in case the March 18, 1988, 159 SCRA 24).
latter should fail to do so, in a contract of
suretyship, the surety binds himself solidarily with DECISION
the principal debtor (Art. 2047, Civil Code of the
Philippines). MEDIALDEA, J.:

2. ID.; ID.; ID.; LIABILITY OF SURETY; CASE AT This is a petition for review on certiorari of the
BAR. As a surety he bound himself jointly and decision (pp. 21-31, Rollo) of the Intermediate
severally with the debtor Celia Regala "to pay the Appellate Court (now Court of Appeals) in AC-G.R.
Pacific Banking Corporation upon demand, any and C.V. No. 02753, 1 which modified the decision of
all indebtedness, obligations, charges or liabilities the trial court against herein private respondent
due and incurred by said Celia Syjuco Regala with Roberto Regala, Jr., one of the defendants in the
the use of Pacificard or renewals thereof issued in case for sum of money filed by Pacific Banking
(her) favor by Pacific Banking Corporation." It is Corporation.
true that under Article 2054 of the Civil Code," (A)
guarantor may bind himself for less, but not for The facts of the case as adopted by the respondent
more than the principal debtor, both as regards the appellate court from herein petitioners brief before
amount and the onerous nature of the conditions.2 said court are as follows:
It is likewise not disputed by the parties that the
credit limit granted to Celia Regala was P2,000.00 "On October 24, 1975, defendant Celia Syjuco
per month and that Celia Regala succeeded in Regala (hereinafter referred to as Celia Regala for
using the card beyond the original period of its brevity), applied for and obtained from the plaintiff
effectivity, October 29, 1979. We do not agree the issuance and use of Pacificard credit card
however, that Roberto Jr.s liability should be limited (Exhs.A, A-1), under the "Terms and Conditions
to that extent. Private respondent Roberto Regala, Governing the Issuance and Use of Pacificard
Jr., as surety of his wife, expressly bound himself (Exh.B and hereinafter referred to as Terms and
up to the extent of the debtors (Celia) Conditions), a copy of which was issued to and
indebtedness likewise expressly waiving any received by the said defendant on the date of the
"discharge in case of any change or novation of the application and expressly agreed that the use of the
terms and conditions in connection with the Pacificard is governed by said Terms and
issuance of the Pacificard credit card." Roberto, in Conditions. On the same date, the defendant-
fact, made his commitment as a surety a continuing appellant Robert Regala, Jr., spouse of defendant
one, binding upon himself until all the liabilities of Celia Regala, executed a Guarantors Undertaking
Celia Regala have been fully paid. All these were (Exh.A-1-a) in favor of the appellee Bank, whereby
clear under the "Guarantors Undertaking Roberto the latter agreed jointly and severally of Celia
signed. Private respondent Roberto Regala, Jr. had Aurora Syjuco Regala, to pay the Pacific Banking
been made aware by the terms of the undertaking Corporation upon demand, any and all
of future changes in the terms and conditions indebtedness, obligations, charges or liabilities due
governing the issuance of the credit card to his wife and incurred by said Celia Aurora Syjuco Regala
and that notwithstanding, he voluntarily agreed to with the use of the Pacificard, or renewals thereof,
be bound as a surety. As in guaranty, a surety may issued in her favor by the Pacific Banking
secure additional and future debts of the principal Corporation. It was also agreed that any changes
debtor the amount of which is not yet known (Article of or novation in the terms and conditions in
connection with the issuance or use of the Manila, including the court where the instant case
Pacificard, or any extension of time to pay such was pending, as well as all its records.
obligations, charges or liabilities shall not in any
manner release me/us from responsibility "Upon plaintiff-appellees petition for reconstitution,
hereunder, it being understood that I fully agree to the records of the instant case were duly
such charges, novation or extension, and that this reconstituted. Thereafter, the case was set for pre-
understanding is a continuing one and shall subsist trial conference with respect to the defendant-
and bind me until the liabilities of the said Celia appellant Roberto Regala on plaintiff-appellees
Syjuco Regala have been fully satisfied or paid. motion, after furnishing the latter a copy of the
same. No opposition thereto having been
"Plaintiff-appellee Pacific Banking Corporation has interposed by defendant-appellant, the trial court
contracted with accredited business establishments set the case for pre-trial conference. Neither did
to honor purchases of goods and or services by said defendant-appellant nor his counsel appear on
Pacificard holders and the cost thereof to be the date scheduled by the trial court for said
advanced by the plaintiff-appellee for the account of conference despite due notice. Consequently,
the defendant cardholder, and the latter undertook plaintiff-appellee moved that the defendant-
to pay any statements of account rendered by the appellant Roberto Regala be declared as in default
plaintiff-appellee for the advances thus made within and that it be allowed to present its evidence ex-
thirty (30) days from the date of the statement, parte, which motion was granted. On July 21, 1983,
provided that any overdue account shall earn plaintiff-appellee presented its evidence ex-parte.
interest at the rate of 14% per annum from date of (pp. 23-26, Rollo).
default.
After trial, the court a quo rendered judgment on
"The defendant Celia Regala, as such Pacificard December 5, 1983, the dispositive portion of which
holder, had purchased goods and/or services on reads:
credit (Exh.C, C-1 to C-112) under her
Pacificard, for which the plaintiff advanced the cost "WHEREFORE, the Court renders judgment for the
amounting to P92,803.98 at the time of the filing of plaintiff and against the defendants condemning the
the complaint. latter, jointly and severally, to pay said plaintiff the
amount of P92,803.98, with interest thereon at 14%
In view of defendant Celia Regalas failure to settle per annum, compounded annually, from the time of
her account for the purchases made thru the use of demand on November 17, 1978 until said principal
the Pacificard, a written demand (Exh.D) was sent amount is fully paid; plus 15% of the principal
to the latter and also to the defendant Roberto obligation as and for attorneys fees and expense of
Regala, Jr. (Exh. ) under his Guarantors suit, and the costs.
Undertaking.
"The counterclaim of defendant Roberto Regala, Jr.
"A complaint was subsequently filed in Court for is dismissed for lack of merit.
defendants (sic) repeated failure to settle their
obligation. Defendant Celia Regala was declared in "SO ORDERED." (pp. 22-23, Rollo)
default for her failure to file her answer within the
reglementary period. Defendant-appellant Roberto The defendants appealed from the decision of the
Regala, Jr., on the other hand, filed his Answer with court a quo to the Intermediate Appellate Court.
Counterclaim admitting his execution of the
Guarantors Understanding, but with the On August 12, 1985, respondent appellate court
understanding that his liability would be limited to rendered judgment modifying the decision of the
P2,000.00 per month. trial court. Private respondent Roberto Regala, Jr.
was made liable only to the extent of the monthly
"In view of the solidary nature of the liability of the credit limit granted to Celia Regala, i.e., at
parties, the presentation of evidence ex-parte as P2,000.00 a month and only for the advances
against the defendant Celia Regala was jointly held made during the one year period of the cards
with the trial of the case as against the defendant effectivity counted from October 29, 1975 up to
Roberto Regala. October 29, 1976. The dispositive portion of the
decision states:
"After the presentation of plaintiffs testimonial and
documentary evidence, fire struck the City Hall of WHEREFORE, the judgment of the trial court dated
December 5, 1983 is modified only as to appellant distinguished from a contract of guaranty where the
Roberto Regala, Jr., so as to make him liable only guarantor binds himself to the creditor to fulfill the
for the purchases made by defendant Celia Aurora obligation of the principal debtor only in case the
Syjuco Regala with the use of the Pacificard from latter should fail to do so, in a contract of
October 29, 1975 up to October 29, 1976 up to the suretyship, the surety binds himself solidarily with
amount of P2,000.00 per month only, with interest the principal debtor (Art. 2047, Civil Code of the
from the filing of the complaint up to the payment at Philippines).
the rate of 14% per annum without pronouncement
as to costs." (p. 32, Rollo). We need not look elsewhere to determine the
nature and extent of private respondent Roberto
A motion for reconsideration was filed by Pacific Regala, Jr.s undertaking. As a surety he bound
Banking Corporation which the respondent himself jointly and severally with the debtor Celia
appellate court denied for lack of merit on Regala "to pay the Pacific Banking Corporation
September 19, 1985 (p. 33, Rollo). upon demand, any and all indebtedness,
obligations, charges or liabilities due and incurred
On November 8, 1985, Pacificard filed this petition. by said Celia Syjuco Regala with the use of
The petitioner contends that while the appellate Pacificard or renewals thereof issued in (her) favor
court correctly recognized Celia Regalas obligation by Pacific Banking Corporation." This undertaking
to Pacific Banking Corp. for the purchases of goods was also provided as a condition in the issuance of
and services with the use of a Pacificard credit card the Pacificard to Celia Regala, thus:
in the total amount of P92,803.98 with 14% interest
per annum, it erred in limiting private respondent "5. A Pacificard is issued to a Pacificard-holder
Roberto Regala, Jr.s liability only for purchases against the joint and several signature of a third
made by Celia Regala with the use of the card from party and as such, the Pacificard holder and the
October 29, 1975 up to October 29, 1976 up to the guarantor assume joint and several liabilities for
amount of P2,000.00 per month with 14% interest any and all amount arising out of the use of the
from the filing of the complaint. Pacificard." (p 14, Rollo).

There is merit in this petition. The respondent appellate court held that "all the
other rights of the guarantor are not thereby lost by
The pertinent portion of the "Guarantors the guarantor becoming liable solidarily and
Undertaking which private respondent Roberto therefore a surety." It further ruled that although the
Regala, Jr. signed in favor of Pacific Banking suretys liability is like that of a joint and several
Corporation provides: debtor, it does not make him the debtor but still the
guarantor (or the surety), relying on the case of
"I/We, the undersigned, hereby agree, jointly and Government of the Philippines v. Tizon, G.R. No. L-
severally with Celia Syjuco Regala to pay the 22108, August 30, 1967, 20 SCRA 1182.
Pacific Banking Corporation upon demand any and Consequently, Article 2054 of the Civil Code
all indebtedness, obligations, charges or liabilities providing for a limited liability on the part of the
due and incurred by said Celia Syjuco Regala with guarantor or debtor still applies.
the use of the Pacificard or renewals thereof issued
in his favor by the Pacific Banking Corporation. Any It is true that under Article 2054 of the Civil Code,"
changes of or Novation in the terms and conditions (A) guarantor may bind himself for less, but not for
in connection with the issuance or use of said more than the principal debtor, both as regards the
Pacificard, or any extension of time to pay such amount and the onerous nature of the conditions. 2
obligations, charges or liabilities shall not in any It is likewise not disputed by the parties that the
manner release me/us from the responsibility credit limit granted to Celia Regala was P2,000.00
hereunder, it being understood that the undertaking per month and that Celia Regala succeeded in
is a continuing one and shall subsist and bind using the card beyond the original period of its
me/us until all the liabilities of the said Celia Syjuco effectivity, October 29, 1979. We do not agree
Regala have been fully satisfied or paid." (p. 12, however, that Roberto Jr.s liability should be limited
Rollo) to that extent. Private respondent Roberto Regala,
Jr., as surety of his wife, expressly bound himself
The undertaking signed by Roberto Regala, Jr. up to the extent of the debtors (Celia)
although denominated "Guarantors Undertaking," indebtedness likewise expressly waiving any
was in substance a contract of surety. As "discharge in case of any change or novation of the
terms and conditions in connection with the not mean, however, that the surety cannot be held
issuance of the Pacificard credit card." Roberto, in liable to the same extent as the principal debtor.
fact, made his commitment as a surety a continuing The nature and extent of the liabilities of a
one, binding upon himself until all the liabilities of guarantor or a surety is determined by the clauses
Celia Regala have been fully paid. All these were in the contract of suretyship (see PCIB v. CA, L-
clear under the "Guarantors Undertaking Roberto 34959, March 18, 1988, 159 SCRA 24).
signed, thus:
ACCORDINGLY, the petition is GRANTED. The
". . . . Any changes of or novation in the terms and questioned decision of respondent appellate court
conditions in connection with the issuance or use of is SET ASIDE and the decision of the trial court is
said Pacificard, or any extension of time to pay REINSTATED.
such obligations, charges or liabilities shall not in
any manner release me/us from the responsibility SO ORDERED.
hereunder, it being understood that the undertaking
is a continuing one and shall subsist and bind
me/us until all the liabilities of of the said Celia
Syjuco Regala have been fully satisfied or paid." (p.
12, supra; Emphasis supplied).

Private respondent Roberto Regala, Jr. had been

made aware by the terms of the undertaking of
future changes in the terms and conditions
governing the issuance of the credit card to his wife
and that notwithstanding, he voluntarily agreed to
be bound as a surety. As in guaranty, a surety may
secure additional and future debts of the principal
debtor the amount of which is not yet known (see
Article 2053, supra).

The application by respondent court of the ruling in

Government v. Tizon, supra is misplaced. It was
held in that case that:

". . ., although the defendants bound themselves in

solidum, the liability of the Surety under its bond
would arise only if its co-defendants, the principal
obligor, should fail to comply with the contract. To
paraphrase the ruling in the case of Municipality of
Orion v. Concha, the liability of the Surety is
consequent upon the liability of Tizon, or so
dependent on that of the principal debtor that the
Surety is considered in law as being the same
party as the debtor in relation to whatever is
adjudged, touching the obligation of the latter; or
the liabilities of the two defendants herein are so
interwoven and dependent as to be inseparable.
Changing the expression, if the defendants are held
liable, their liability to pay the plaintiff would be
solidary, but the nature of the Suretys undertaking
is such that it does not incur liability unless and until
the principal debtor is held liable."

A guarantor or surety does not incur liability unless

the principal debtor is held liable. It is in this sense
that a surety, although solidarily liable with the
principal debtor, is different from the debtor. It does
 [G.R. No. L-13873. January 31, 1963.]

GENERAL INSURANCE and SURETY

CORPORATION, Petitioner, v. REPUBLIC OF
THE PHILIPPINES and CENTRAL LUZON
EDUCATIONAL FOUNDATION,
INC., Respondents.

SYLLABUS

1. SURETYSHIP; ACCRUAL OF ACTION FROM

EXECUTION OF BOND IN PRESENT CASE;
PRESCRIPTION OF ACTION BASED ON
WRITTEN CONTRACTS. By the terms of the
bond, the surety guaranteed to the Government
compliance by the Foundation with all obligations,
including the payment of the salaries of its teachers
and employees, "past, present and future." Before
the execution of the bond, the Foundation was
already indebted to two of its teachers for past
salaries. When the bond, therefore, was executed,
the right of the Government to proceed against it on
account of the unpaid salaries of said teachers
accrued. The fact that the action was filed one year
after the expiration of the bond does not militate
against the action, because actions based on
written contracts prescribe in ten years. (Article
1144, par. 1, Civil Code.)

2. ID.; ID.; SIXTY-DAY NOTICE IN PRESENT

BOND NOT A PERIOD OF PRESCRIPTION OF
ACTION. The 60-day notice required in the bond
in question is not a period of prescription of action.
If at all, it is a limitation on the right of the surety to
withdraw.

3. ID.; ID.; GOVERNMENT, NOT THE TEACHERS,

THE PROPER PARTY IN PRESENT CASE. The
filing by the Government of an action on a bond on
account of its violation by the principal in not paying
the salaries of two of its teachers, cannot be
assailed on the ground that the teachers were not
the parties to the bond nor beneficiaries of a
stipulation pour autrui, because the action is not
one by the teachers against the surety, but one
brought by the Government to hold the surety liable
on its bond for the same has been violated when
the principal failed to comply "with all obligations,
including the payment of salaries of its teachers,
past, present, and future."

4. ID.; ID.; PENAL NATURE OF BOND. A bond,

which is penal in nature, may be forfeited for its full
amount of P10,000.00 although the amount
involved in connection with its violation is
considerably much less, pursuant to Article 1226 of
the Civil Code, which provides that in obligations by these presents;
with penal clause the penalty shall substitute the
indemnity for damages and the payment of WHEN the Secretary of Education is satisfied that
interests in case of non-compliance, if there is no said institution of learning had defaulted in any of
stipulation to the contrary, and the party to whom the foregoing particulars, this bond may
payment is to be made is entitled to recover the immediately thereafter be declared forfeited and for
sum stipulated without need of proving damages the payment of the amount above-specified, we
because one of the primary purposes of a penalty bind ourselves, our heirs, executors, successors,
clause is to avoid such necessity. (Art. 1228, Civil administrators, and assigns, jointly and severally.
Code; Lambert v. Fox, 26 Phil. 588; Palacios v.
Municipality of Cavite, 12 Phil. 140; Manila Racing We further bind ourselves, by these presents, to
Club v. Manila Jockey Club, 69 Phil. 55). The mere give the Department of Education at least sixty (60)
non-performance of the principal obligation gives days notice of the intended withdrawal or
rise to the right to the penalty. (IV Tolentino, Civil cancellation of this bond, in order that the
Code of the Philippines, p. 247.) Department can take such action as may be
necessary to protect the interests of such teachers,
DECISION employees or creditors of the school and of the
Government.
REGALA, J.:
LIABILITY of Surety under this bond will expire on
On May 15, 1954, the Central Luzon Educational June 15, 1955, unless sooner revoked.
Foundation, Inc. and the General Insurance and
Surety Corporation posted in favor of the IN WITNESS WHEREOF, we signed this present
Department of Education a bond, the terms of guaranty at the City of Manila, Philippines, this 15th
which read as follows: day of May, 1954."

"KNOW ALL MEN BY THESE PRESENTS: On the same day, May 15, 1954, the Central Luzon
Educational Foundation, Inc., Teofilo Sison and
WHEREAS, the Department of Education has Jose M. Aruego executed an indemnity agreement
required the Central Luzon Educational Foundation, binding themselves jointly and severally to
Inc., operating the Sison & Aruego Colleges, of indemnify the surety of "any damages, prejudices,
Urdaneta, Pangasinan, Philippines an institution of loss, costs, payments, advances and expenses of
learning to file a bond to guarantee the adequate whatever kind and nature, including attorneys fees
and efficient administration of said school or college and legal costs, which the COMPANY may, at any
and the observance of all regulations prescribed by time sustain or incur, as well as to reimburse to said
the Secretary of Education and compliance with all COMPANY all sums and amounts of money which
obligations, including the payment of the salaries of the COMPANY or its representatives shall or may
all its teachers and employees, past, present, and pay or cause to be paid or become liable to pay, on
future, and the payment of all other obligations account of or arising from the execution of the
incurred by, or in behalf of said school; above mentioned Bond."

NOW, THEREFORE, in compliance with said On June 25, 1954, the surety advised the Secretary
requirement, we, CENTRAL LUZON of Education that it was withdrawing and cancelling
EDUCATIONAL FOUNDATION, INC., operating the its bond. Copies of the letter were sent to the
Sison and Aruego Colleges, represented by Dr. Bureau of Private Schools and to the Central Luzon
Jose Aruego, its Vice-Chairman, as principal, and Educational Foundation, Inc.
the GENERAL INSURANCE AND SURETY
CORPORATION, a corporation duly organized and It appears that on the date of execution of the bond,
existing under and by virtue of the laws of the the Foundation was indebted to two of its teachers
Philippines, as surety, are held end firmly bound, for salaries, to wit: to Remedios Laoag, in the sum
jointly and firmly, unto the Department of Education of P685.64, and to H.B. Arandia, in the sum of
of the Republic of the Philippines in the sum of TEN P820.00, or a total of P1,505.64.
THOUSAND PESOS (P10,000.00) Philippine
currency, for the payment thereof we bind Demand for the above amount having been
ourselves, our heirs, executors, administrators, refused, the Solicitor General, in behalf of the
successors, and assigns, jointly and severally firmly Republic of the Philippines, filed a complaint for the
forfeiture of the bond, in the Court of First Instance Philippines by virtue of this judgment, plus costs
of Manila on July 11, 1956. and P2,000 for counsels fees."

In due to surety the Foundation and prayed that the From this decision, the surety appealed to this
complaint be dismissed and that it be indemnified Court by way of certiorari, raising questions of law.
by the Foundation of any amount it might be 1
required to pay the Government, plus attorneys
fees. In its first four assignments of error, the surety
contends that it was no longer liable on its bond
For its part, the Foundation denied the cross-claim after August 24, 1954 (when the 60-day notice of
and contended that, because Remedios Laoag cancellation and withdrawal ended) or, at the latest,
owed Fr. Cinense the amount of P820.65, there after June 15, 1955. For support, the Surety
was no basis for the action; that the bond is illegal invokes the following provisions of the bond:
and that the Government has no capacity to sue.
"WE further bind ourselves, by these presents to
The surety also filed a third-party complaint against give the Department of Education at least sixty (60)
Teofilo Sison and Jose M. Aruego on the basis of days notice of the intended withdrawal or
the indemnity agreement. While admitting the cancellation of this bond, in order that the
allegations of the third-party complaint, Sison and Department can take such action as may be
Aruego claimed that because of the cancellation necessary to protect the interest of such teacher,
and withdrawal of the bond, the indemnity employees Creditor to the government.
agreement ceased to be of force and effect.
"LIABILITY of the Surety under this bond will expire
Hearing was held and on December 18, 1956, the on June 15, 1955, unless sooner revoked."
Court of First Instance rendered judgment holding
the principal and the surety jointly and severally On the other hand, the Government contends that
liable to the Government in the sum of P10,000.00 since the salaries of the teachers were due and
with legal interest from the date of filing of the payable when the bond was still in force, the surety
complaint, until the sum is fully paid and ordering has become liable on its bond from the moment of
the principal to reimburse the surety whatever its execution on May 15, 1954.
amount it may be compelled to pay to the
Government by reason of the judgment, with costs We agree with this contention of the Government.
against both principal and the surety.
It must be remembered that, by the terms of the
The surety filed a motion for reconsideration and a bond, the surety guaranteed to the Government
request to decide the third party complaint which "compliance (by the Foundation) with all
the trial court denied. obligations, including the payment of the salaries of
its teachers and employees, past, present and
On appeal, the Court of Appeals rendered a future, and the payment of all other obligations
decision, the dispositive portion of which reads: incurred by, or in behalf of said school." Now, it is
not disputed that even before the execution of the
"WHEREFORE, the appealed judgment is hereby bond, the Foundation was already indebted to two
modified in the following manner: of its teachers for past salaries. From the moment,
therefore, the bond was executed, the right of the
"(a) Ordering Central Luzon Educational Government to proceed against the bond accrued
Foundation, Inc., and General Insurance and because since then, there has been violation of the
Surety Corporation to pay jointly and severally the terms of the bond regarding payment of past
Republic of the Philippines the sum of P10,000.00, salaries of teachers at the Sison and Aruego
plus costs and legal interests from July 11, 1956 Colleges. The fact that the action was filed only on
until fully paid; and July 11, 1956 does not militate against this position
because actions based on written contracts
"(b) Ordering Central Luzon Educational prescribe in ten years. (Art. 1144, par. 1, Civil
Foundation, Inc., Teofilo Sison and Jose M. Aruego Code).
to reimburse, jointly and severally, the General
Insurance and Surety Corporation of all amounts it The surety also cites our decision in the cases of
may be forced to pay the Republic of the Jollye v. Barcelon and Luzon Surety Co., Inc., 68
Phil. 164 and National Rice and Corn Corp. thereunder, or unless the surety renews or extends
(NARIC) v. Rivera, Et Al., G.R. No. L-4023, it in writing for another term."
February 29, 1952. But there is nothing in these
cases that supports the proposition that the liability and We held that giving notice of existing obligation
of a surety for obligations arising during the life of a was a condition precedent to further liability of the
bond ceases upon the expiration of the bond. surety and that in default of such notice, liability on
the bond automatically ceased.
In the Jollye case, the bond provided:
Similarly, in the case of Santos, Et. Al. v. Mejia, Et
"Whereas, the above bounded principal, on 13th Al., G.R. No. L-6383, December 29, 1953, the bond
day of February, 1933 entered into an agreement provided that
with H. P. L Jollye of Manila, P.I., to fully and
faithfully refund to said Mr. H.P.L. Jollye the above "Liability of the surety on this bond will expire on
stated sum of P7,500 representing the purchase THIRTY DAYS and said bond will be cancelled 10
price of the 75 shares of the capital stock of the DAYS after its expiration unless surety is notified of
North Electric Company (certificate No. 38) paid by any existing obligation thereunder."
said Mr. H.P.L. Jollye to the undersigned principal,
Mr. Emeterio Barcelon, in the event the title thereto and We held that the surety could not be held liable
of said Mr. Barcelon is invalidated by any judgment because the bond was cancelled when no notice of
which may be rendered by the court of Cavite existing obligations was given within ten days.
against Vicente Diosomito or in the event that any
of the warranties contained in that certain deed of In the present case, there is no provision that the
sale executed by the undersigned principal on this bond will be cancelled unless the surety is notified
13th day of February, 1933, be invalidated, a copy of any claim and so no condition precedent has to
of which is hereto attached and made an integral be complied with by the Government before it can
part hereof, marked Exhibit A." bring an action. Indeed, the provision of the bond in
the NARIC and Santos cases that it would be
According to the bond, "the liability of Luzon Surety cancelled ten days after its expiration unless notice
Company, Inc., under this bond will expire twelve of claim was given was inserted precisely because,
(12) months from date hereof." The date referred to without such a provision, the suretys liability for
was February 13, 1933. This Court absolved the obligations arising while the bond was in force
surety of liability because the acts for which the would subsist even after its expiration.
bond was posted happened after its expiration.
Thus, We held in that case: Thus, in Pao Chuan Wek v. Nomorosa, 54 O.G. No.
11, 3490, We held that under a provision that the
". . . The acts provided therein by reason of which surety "will not be liable for any claim not
the contract of suretyship was executed could have discovered and presented to the company within
taken place within the stipulated period of twelve three months from the expiration of this bond and
months. Hence, the parties fixed that period exactly that the obligee hereby waives his right to file any
at twelve months, limiting thereby the obligation of court action against the surety after the termination
the appellee to answer for the payment to the of the period of three months above mentioned,"
appellant of the aforesaid sum of P7,500 to not the giving of notice is a condition precedent to be
more than the stipulated period. . . ." complied with.

Here, on the other hand, the right of the And suppose this action were filed while the bond
Government to collect on the bond arose while the was in force, as the surety would have the
bond was in force, because, as earlier noted, even Government do, but the same remained pending
before the execution of the bond, the principal had after June 15, 1955, would the surety suggest that
already been in debt to its teachers. the judgment that may be rendered in such action
could not longer be enforced against it because the
Neither does the NARIC case support the suretys bond says that its liability under it has expired?
position. In that case, the bond provided that
And what of the provision on 60-day notice? The
"This bond expires on March 20th, 1949 and will be surety urges that all actions on the bond must be
cancelled TEN DAYS after the expiration, unless brought within that period or they would all be
the surety is notified of any existing obligation barred. The surety misread the provision. The 60-
day notice is not a period of prescription of action. damages because one of the primary purposes of a
The provision merely means that the surety can penalty clause is to avoid such necessity. (Art.
withdraw as in fact it did in this case even 1228, Civil Code. Lambert v. Fox, 26 Phil. 588;
before June 15, 1955 provided it gave notice of its Palacios v. Municipality of Cavite, 12 Phil. 140;
intention to do so at least 60 days in advance. If at Manila Racing Club v. Manila Jockey Club, 69 Phil.
all, the condition is a limitation on the right of the 55). The mere non-performance of the principal
surety to withdraw rather than a limitation of action obligation gives rise to the right to the penalty (IV
on the bond. This is clear also from the Manual of Tolentino, Civil Code of the Philippines 247.)
Information of Private Schools 2 which states that
"The bond furnished by a school may not be In its first and second "alternative assignments of
withdrawn by either or both of the bondsmen error," the surety contends that it was released from
except by giving the Director of Private Schools its obligation under the bond when on February 4,
sixty days notice." 1955, Remedios Laoag and the Foundation agreed
that the latter would pay the formers salaries,
In its fifth assignment of error, the surety contends: which were then already due, on March 1, 1955. In
support of this proposition, the surety cites Article
1. That the bond is void for being contrary to public 2079 of the Code which provides as follows:
policy insofar as it requires the surety to pay
P10,000.00 regardless of the amount of the "An extension granted to the debtor by the creditor
salaries of the teachers. 3 It is claimed that to with out the consent of the guarantor extinguishes
enforce forfeiture of the bond for the full amount the guaranty. . . ."
would be to allow the Government to enrich itself
since the unpaid salaries of the teachers amount to But the above provision does not apply to this case.
P1,318.84 only. The supposed extension of time was granted not by
the Department but by the Department of Education
2. That, under Article 1311 of the Civil Code, 4 or the Government but by the teachers. As already
since teachers of Sison and Aruego Colleges are stated, the creditors on the bond are not the
not parties to the bond, "the bond is not effective teachers but the Department of Education or the
and binding upon the obligors (principal and surety) Government.
as far as it guarantees payment of the past
salaries of the teachers of said school." This is the Even granting that an extension of time was
same as saying that the surety is not liable to granted without the consent of the surety, still that
teachers of Sison and Aruego Colleges because fact would not help the surety, because as earlier
the latter are not parties to the bond nor are they pointed out, the Foundation was also in arrears in
the beneficiaries of a stipulation pour autrui. But the payment of the salaries of H. B. Arandia. The
this argument is based on the false premise that case of Arandia alone would be enough basis for
the teachers are trying to enforce the obligation of the Government to proceed against the bond.
the bond, which is not the case here. This is not an
action filed by the teachers against the surety. This Lastly, in its third and fourth "alternative
is an action brought by the Government, of which assignments of error," the surety contends that it
the Department of Education is an instrumentality, cannot be made to answer for more than the
to hold the surety liable on its bond for the same unpaid salaries of H. B. Arandia, which it claimed
has been violated when the principal failed to amounted to P720.00 only, because Article 2054
comply "with all obligations, including the payment states that
of salaries of its teachers, past, present and future."
"A guarantor may bind himself for less, but not for
more than the principal debtor, both as regards the
There is nothing against public policy in forfeiting amount and the onerous nature of the conditions.
the bond for the full amount. The bond is penal in
nature. Article 1226 of the Code states that in "Should he have bound himself for more, his
obligation with a penal clause, the penalty shall obligations shall be reduced to the limits of that of
substitute the indemnity for damages and the the debtor."
payment of interests in case of non-compliance, if
there is no stipulation to the contrary, and the party What We said about the penal nature of the bond
to whom payment is to be made is entitled to would suffice to dispose of this claim. For whatever
recover the sum stipulated without need of proving may be the amount of salaries due the teachers,
the fact remains that the condition of the bond was
violated and so the surety became liable for the
penalty provided for therein.

WHEREFORE, the decision of the Court of Appeals

is hereby affirmed, with costs against the surety.
 [G.R. No. L-20469. August 31, 1965.] The rule holding sureties to be favorites of the law,
and their contracts to be strictissimi juris, does not
PEDRO C. PASTORAL, Petitioner, v. MUTUAL apply to compensated sureties.
SECURITY INSURANCE CORPORATION and
THE HONORABLE COURT OF DECISION
APPEALS, Respondents.
REYES, J.B.L., J.:
SYLLABUS
Petition by Pedro C. Pastoral for the review and
1. SURETYSHIP; WHERE GUARANTY reversal of a decision of the Court of Appeals (in its
REQUIRES ACTION BY THE CREDITORS Case CA-G. R. No. 29180-R), that absolved the
BEFORE THE OBLIGATION BECOMES FIXED; Mutual Security Insurance Corporation of its liability
CASE AT BAR. The surety bond requires the to the said petitioner, reversing the decision of the
lessor to report to the surety any violations of the Court of First Instance of Manila.
lease contract within five days, otherwise, the bond
will be null and void. The surety bond was executed The facts are stated by the Court of Appeals to be
on October 22, 1957, and copy thereof was as follows:
received by the lessor on November 21, 1957. By
then, the lessee defaulted in two payments of the "It appears that on and from October 1, 1957,
rentals, which defaults the lessor should have plaintiff Pedro C. Pastoral leased a crane to
reported between October 6-10 and November 6- defendant Mapada & Company, Inc. at a monthly
10, as required by the bond, but did so only on rental of P900.00, Exhibit A. The contract provides
December 5, 1957. Held: By imposing on the lessor that if the crane be not returned 10 days after
the condition of notifying it within five days of notice therefor, defendant will pay plaintiff P15,000
default, the surety made it necessary that the lessor as the value of the crane. In compliance with
should accept the bond; and the lessor could not do paragraph 2(b) of Exhibit A, defendant on October
so before learning of it. The rule is that where the 22, 1957, put up a surety bond, Exhibit B, in the
guaranty requires action by the creditor before the amount of P15,000 executed by appellant Mutual
obligation becomes fixed, it is not binding until Security Insurance Corporation to fully and faithfully
accepted (National Bank v. Garcia, 47 Phil. 662; guarantee compliance by defendant of all
Texas Co. (Phil.) Inc. v. Alonso, 73 Phil. 90). The conditions and obligations under the lease contract.
suretyship contract, therefore, was not perfected, Upon request of defendant which was expecting
and was not binding on the lessor until November some money from the construction contract with the
21, when he received copy thereof and tacitly government about the end of November, plaintiff
accepted it. The latest default happened on deferred its collection of rentals for the months of
November 5. The 5-day period to notify expired October and November, 1957 until the beginning of
November 10, and the lessor only learned of the December; but when no payment was made
existence of the condition on November 21. By not despite demands, plaintiff advised, and demanded
notifying the lessor earlier, the surety must be payment from, the surety company on December 5.
deemed to have waived the condition as to rentals 1957, Exhibit C. Up to the date of the trial and
already due, since a condition is deemed fulfilled despite numerous demands by plaintiff, defendant
when the obligor voluntarily prevents its fulfillment. failed to pay any rental (except P2,000 in March
1958 from the Bureau of Public Highways) nor to
2. ID.; CONTRACT OF GUARANTY OR SURETY, return the crane to plaintiff.
PROSPECTIVE IN OPERATION UNLESS A
CONTRARY INTENT IS SHOWN. A contract of "After trial, judgment was rendered in favor of
guaranty or suretyship is only prospective, and not plaintiff and against the defendants, ordering the
retroactive, in operation unless a contrary intent is latter solidarily to pay to the plaintiff the sum of
clearly shown. Consequently, the lessor in the P7,700 as unpaid rentals up to and including the
instant case was entitled to assume that the five- month of September, 1958 when the complaint was
day notice provided by the surety bond did not, and filed plus P900 as monthly rental from the month of
was not intended to include any defaults incurred October, 1958 until the crane is actually returned,
prior to his acceptance. or in default thereof to pay to plaintiff the sum of
P15,000 for the crane, provided that the amount for
3. ID.; ID.; RULE OF STRICTISSIMI JURIS, NOT which appellant Mutual Security Insurance
APPLICABLE TO COMPENSATED SURETIES. Corporation shall be liable shall not exceed the sum
of P15,000; and to pay the costs. it necessary that Pastoral should accept the bond;
and Pastoral could not do so before learning of it.
"Only the surety company appealed, urging that the
trial court erred in not holding that it was released This Court has ruled that where the guaranty
from liability under the surety bond which had requires action by the creditor before the obligation
become null and void from the failure of plaintiff to becomes fixed, it is not binding until accepted
report within five days to appellant the violation of (National Bank v. Garcia, 47 Phil. 662; Texas Co.
the lease contract. (Phil.) Inc., v. Alonso, 73 Phil. 90). The rule is
grounded on common sense; otherwise, the debtor
"The Contract of Lease of Construction Equipment, and the guarantor could easily defraud the creditor
Exhibit A, provides inter alia: `2. That the lessee by inserting in the bond conditions that would
obligates to pay a monthly rental of Nine Hundred render it nugatory.
Pesos (P900) Philippine Currency, payable at the
residence of the LESSOR . . .; while the surety The suretyship contract, therefore, was not
bond, Exhibit B, after guaranteeing compliance with perfected, and was not binding on Pastoral until
the lease contract provides: `Any violations of said November 21, 1957, when he received copy
contract will be reported to the herein Surety thereof and tacitly accepted it. By then two defaults
Company within (5) days, otherwise, this bond will had already occurred (even disregarding the
be null and void." extension agreement of October 31, hereinafter
discussed); and Pastoral was in no position to give
Upon the facts above narrated, the Court of notice of them within 5 days after default, as
Appeals decided that Pastorals failure to notify the required by the bond, because the latest default
surety of the principals defaults between October happened on November 5. The 5-day period to
6-10 and November 6-10, 1957, and in notifying the notify expired November 10, and Pastoral only
surety only on December 5, 1957, constituted a learned of the existence of the condition on
violation of the conditions of the bond that November 21. Ad impossibilia nemo tenetur. In fact,
exonerated the surety from liability. by not notifying Pastoral earlier, the surety must be
deemed to have waived the condition as to rentals
Unable to obtain reconsideration of the decision, already due, since a condition is deemed fulfilled
Pastoral resorted to this Court. when the obligor voluntarily prevents its fulfillment
(Civ. Code, Art. 1186).
We find the appealed decision to be in error.
The Court of Appeals held that Pastoral was duty-
On the basis that Pastoral received a copy of the bound to know and secure copy of the surety
bond (containing the requirement to notify the contract within a reasonable time from its execution
surety of any default within 5 days) only on on October 22, 1957, and that not having done so,
November 21, 1957 and this date is not he was chargeable with its contents. We find no
seriously disputed Pastorals obligation to notify justification for this pronouncement. If any one was
it within five (5) days of the defaults in the payment obligated to notify Pastoral of the conditions
of the first two monthly rentals, falling due in late attached to the bond, that one was the guarantor.
October and early November, had become Pastoral was not obligated to inquire, since his
impossible of performance, so that compliance with assent to the condition was necessary; and if no
the 5-day notice requirement had become excused acceptable bond was forthcoming, he could always
for those two months. No reason is shown why rescind the lease of the machinery to Mapada &
Pastoral should anticipate that the surety would Co., Inc., and recover his crane.
impose this condition when the lease contract
merely required that lessee Mapada & Co., Inc. The Court of Appeals further held that the act of
should furnish a surety bond. That Pastoral knew Pastoral in granting to the debtor on October 31,
nothing about such a condition before November 1957 time up to the end of November, 1957 to pay
21 is further emphasized by the fact that in late the rentals that fell due on the first five days of
October or early November he agreed with Mapada October and November, without the suretys
& Co., Inc., to defer payment of the October and consent, constituted a material alteration that
November rental to the end of November. discharged the surety. We agree with appellant that
this view is untenable. When Pastoral agreed on
By imposing on Pastoral the condition of notifying it October 31 that the October and November rentals
within 5 days of default, the surety company made be paid at the end of November, he had not yet
accepted the terms of the respondents bond, since favor. But the rule "strictissimi juris" has no
he only learned of them on November 21. On the application to surety companies, organized for the
latter date, the debtor was not yet in default, purpose of conducting an indemnity business at
because the extension given had wiped out the established rates of compensation."
previous failures to pay on October 5 and
November 5. The first default after the bond had and which, it may be added, protect themselves
become effective in law (on November 21) occurred against loss by exacting adequate counterbonds.
on the last day of November, and Pastoral gave
notice thereof to the surety on the 5th of December, WHEREFORE, the decision of the Court of Appeals
within the five-day period prescribed by the bond. is reversed, and that of the Court of First Instance
of Manila is upheld and confirmed. Respondent-
A contract of guaranty or suretyship is only appellee Mutual Security Insurance Corporation
prospective, and not retroactive, in operation shall pay the costs in all instances.
(Socony Vacuum Corp. v. Miraflores, 67 Phil. 304;
El Vencedor v. Canlas, 44 Phil 699; Asiatic
Petroleum Co. v. De Pio, 46 Phil. 167), unless a
contrary intent is clearly shown. Consequently,
Pastoral was entitled to assume that the notice
provided by the surety bond did not, and was not
intended to, include any defaults incurred prior to
his acceptance. The surety, which drafted the bond,
could have expressly provided, if it so chose, that
the five-day notice therein provided should extend
to the amounts of falling due in October 5 and
November 5, but the surety failed to do so, and can
not blame Pastoral therefor.

The fault in the reasoning of the Court of Appeals

lies in its assumption that the surety bond became
effective immediately, without taking into account
that the five-day notice provision required the
creditors assent to become effective and binding.
This assent could not be given before November
21, when Pastoral learned of the condition for the
first time and tacitly agreed to it, as shown by his
notice to the surety on December 5, that the
principal debtor had defaulted.

It is worth stressing here that this Court has

repeatedly decided (Pacific Tobacco Co. v.
Lorenzana and Visayan Surety, 102 Phil. 234; Phil.
Surety v. Royal Oil Products, 102 Phil. 3236; Atkins
Kroll & Co. v. Reyes, 105 Phil. 640) that the rule
holding sureties to be favorites of the law, and their
contracts to be strictissimi juris, does not apply to
compensated sureties, following United States
Fidelity & Guaranty Co. v. Golden Pressed & Fire
Brick Co., 191 U.S. 416, 48 L. Ed. 242:

"We are familiar with the old rule of strict

construction in favor of the surety, based upon the
underlying principle that formerly parties became
sureties, not for hire but as a matter of
accommodation, usually lending their names
through motives of friendship, and hence a surety
obligation would he construed most strongly in their
 [G.R. No. L-9073. November 17, 1958.] portion was guaranteed, the guarantor had no right
to demand that the partial payments made by the
TRADERS INSURANCE & SURETY principal debtor should be applied precisely to the
COMPANY, Plaintiff-Appellant, v. DY ENG GIOK, portion guaranteed. The legal rules of imputation of
PEDRO LOPEZ DEE and PEDRO E. DY- payments presuppose that the debtor owes several
LIACCO, Defendants-Appellees. distinct debts of the same nature; and does not
distinguish between portions of the same debt.
SYLLABUS
6. ID.; ID.; APPLICATION OF PAYMENT BY THE
1. SURETYSHIP; DEBTS COVERED BY CREDITOR; WHEN VALID AND LAWFUL.
GUARANTY; WHEN SURETY LIABLE FOR Where the debtor has not expressly elected any
DEBTS INCURRED OUTSIDE THE particular obligation to which the payment should
GUARANTEED PERIOD. In the absence of be applied, the application by the creditor, in order
express stipulation, a guaranty or suretyship to be valid and lawful, depends: (1) upon his
secures only the debts contracted after the expressing such application in the corresponding
guaranty takes effect (El Vencedor v. Canlas, 44 receipt and (2) upon the debtors assent, shown by
Phil. 699). To apply the payments made by the his acceptance of the receipt without protest.
principal debtor to the obligations he contracted Ultimately, therefore, the application by a creditor
prior to the guaranty is, in effect, to make the surety depends upon the debtors acquiescene thereto.
answer for debts incurred outside of the guaranteed
period, and this can not be done without the DECISION
express consent of the guarantor.
REYES, J.B.L., J.:
2. ID.; INCONTESTABILITY OF PAYMENTS MADE
BY SURETY; AGREEMENT VOID AS AGAINST Appeal interposed against that part of the decision
PUBLIC POLICY. The provision in the indemnity of the Court of First Instance of Manila (in its civil
agreement that any payment made by the surety case No. 20305) absolving Pedro Lopez Dee and
company on account of the bond shall be final and Pedro E. Dy-Liacco from the obligation to
incontestable, is void and unenforceable as against reimburse the plaintiff Traders Insurance and
public policy. Surety Co.

3. OBLIGATIONS AND CONTRACTS; ONEROUS From the stipulation of facts made by the parties in
OBLIGATIONS; DEBTS DEEMED ONEROUS. the court below, it appears that from 1948 to 1952
Debts covered by a guaranty are deemed more the corporation "Destileria Lim Tuaco & Co., Inc."
onerous to the debtor than the simple obligations had one Dy Eng Giok as its provincial sales agent,
because, in their case, the debtor may be subjected with the duty of turning over the proceeds of his
to action not only by the creditor, but also by the sales to the principal, the distillery company. As of
guarantor, and this even before the guaranteed August 3, 1951, the agent Dy Eng Giok had an
debt is paid by the guarantor (Art. 2071, New Civil outstanding running account in favor of his principal
Code). in the sum of P12,898.61.

4. ID.; APPLICATION OF PAYMENT; PRIORITY OF On August 4, 1951, a surety bond (Annex A,

ONEROUS OBLIGATIONS. In the absence of complaint) was executed by Dy Eng Giok, as
express application by the debtor, or of any receipt principal, and appellant Traders Insurance and
issued by the creditor specifying a particular Surety Co., as solidary guarantor, whereby they
imputation of the payment (New Civil Code, Art. bound themselves, jointly and severally, in the sum
1252), any partial payments made by him should of P10,000.00 in favor of the Destilleria Lim Tuaco
be imputed or applied to the debts that were & Co., Inc., under the following terms:
guaranteed, since they are regarded as the more
onerous debts from the standpoint of the debtor THE CONDITION OF THIS OBLIGATION IS
(New Civil Code, Art. 1254). SUCH THAT: Whereas, the above bounden
principal has entered in to a contract with the
5. ID.; ID.; ONE SINGLE DEBT OF WHICH ONLY aforementioned Company to act as their provincial
A PORTION IS GUARANTEED; PARTIAL sales agent and to receive goods or their products
PAYMENTS HOW APPLIED. Where the debtor under the said Principals credit account. The
owed the creditor one single debt of which only a proceeds of the sales are to be turned over to the
Company. executed) in the sum of P12,898.61; and the
balance of P28,965.88 to Dys obligations between
WHEREAS, the contract requires the above August 4, 1951 and August 3, 1952. It then
bounden principal to give a good and sufficient demanded payment of the remainder (P12,484.05)
bond in the above stated sum to secure the full and from the agent, and later, from the appellant Surety
faithful fulfillment on its part of said contract; Company. The latter paid P10,000.00 (the
namely, to guarantee the full payment of the maximum of its bond) on July 17, 1953, apparently,
Principals obligation not to exceed the above without questioning the demand; and then sought
stated sum. reimbursement from Dy Eng Giok and his counter
guarantors, appellees herein. Upon their failure to
NOW, THEREFORE, if the above bounden pay, it began the present action to enforce
principal shall in all respects duly and fully observe collection.
and perform all and singular the aforesaid
covenants, conditions, and agreements to the true After trial, the Court of First Instance of Manila
intent and meaning thereof, then this obligation absolved the counter-guarantors Pedro Lopez Dee
shall be null and void; otherwise, to remain in full and Pedro Dy-Liacco, on the theory that in so far as
force and effect. they are concerned, the payments made by Dy Eng
Giok from August 4, 1951 to August 3, 1952, in the
LIABILITY of surety on this bond will expire on sum of P41,864.49, should have been applied to
August 4, 1952 and said bond will be cancelled his obligations during that period, which were the
TEN DAYS after its expiration, unless surety is ones covered by the surety bond and the counter-
notified in writing of any existing obligations guaranty; and as these obligations only amounted
thereunder or otherwise extended by the surety in to P41,449.93, so that the payments exceeded the
writing." (Rec. App., pp. 7-8) (Emphasis supplied) obligations, the court concluded that the Surety
Company incurred no liability and the
On the same date, by Eng Giok, as principal, with counterbondsmen in turn had nothing to answer for.
Pedro Lopez Dee and Pedro Dy-Liacco, as The trial court, however, sentenced Dy Eng Giok to
counterboundsmen, subscribed an indemnity repay to the Surety Company P10,000 with interest
agreement (Annex B. of the complaint) in favor of at 12% per annum, plus P1,500 attorneys fee and
appellant Surety Company, whereby, in the costs of the suit.
consideration of its surety bond (Annex A), the
three agreed to be obligated to the surety company Not satisfied with the decision, the Traders
Insurance & Surety Company appealed to this
Court on points of law.
"INDEMNITY: To indemnify the COMPANY for
any damages, prejudice, loss, costs, payments, We find the decision appealed from to be correct.
advances and expenses of whatever kind and There are two reasons why the remittances by Dy
nature, including counsel or attorneys fees, which Eng Giok in the sum of P41,864.49 should be
the Company may, at any time, sustain or incur, as applied to the obligation of P41,449.93 contracted
a consequence of having executed the by him during the period covered by the suretyship
abovementioned bond, its renewals, extensions or agreement, Annex A. The first is that, in the
substitutions, and said attorneys fee shall not be absence of express stipulation, a guaranty or
less than (15%) per cent of the amount claimed by suretyship operates prospectively and not
the Company in each action, the same to be due retroactively; that is to say, it secures only the debts
and payable, irrespective of whether the case is contracted after the guaranty takes effect (El
settled judicially or extrajudicially." (Rec. App. pp. 9- Vencedor v. Canlas, 44 Phil. 699). This rule is a
10) consequence of the statutory directive that a
guaranty is not presumed, but must be express,
From August 4, 1951 to August 3, 1952, agent Dy and can not extend to more than what is stipulated.
Eng Giok contracted obligations in favor of the (New Civil Code, Art. 2055). To apply the payments
Destilleria Lim Tuaco & Co., in the total amount of made by the principal debtor to the obligations he
P41,449.93; and during the same period, he made contracted prior to the guaranty is, in effect, to
remittances amounting to P41,864.49. The distillery make the surety answer for debts incurred outside
company, however, applied said remittances first to of the guaranteed period, and this can not be done
Dy Eng Gioks outstanding balance prior to August without the express consent of the guarantor. Note
4, 1951 (before the suretyship agreement was that the suretyship agreement, Annex A, did not
guarantee the payment of any outstanding balance the debtor, among those due, shall be deemed to
due from the principal debtor, Dy Eng Giok; but only have been satisfied.
that he would turn over the proceeds of the sales to
the "Destileria Lim Tuaco & Co., Inc.", and this he If the debts due are of the same nature and burden,
has done, since his remittances during the period of the payment shall be applied to all of them
the guaranty exceed the value of his sales. There is proportionately."
no evidence that these remittances did not come
from his sales. Debts covered by a guaranty are deemed more
onerous to the debtor than the simple obligations
A similar situation was dealt with in our decision in because, in their case, the debtor may be subjected
the case of Municipality of Lemery v. Mendoza, 48 to action not only by the creditor, but also by the
Phil. 415, wherein we said (pp. 422-423): guarantor, and this even before the guaranteed
debt is paid by the guarantor (Art. 2071, New Civil
"As we have previously stated Mendoza has paid to Code); hence, the payment of the guaranteed debt
the municipality the full sum of P23,000. In our liberates the debtor from liability to the creditor as
opinion this discharged the sureties from all further well as to the guarantor, while payment of the
liability. The circumstance that the sum of P23,000 unsecured obligation only discharges him from
which Mendoza paid may have been applied by the possible action by only one party, the unsecured
municipality to Mendozas indebtedness for the first creditor.
year of the lease is without significance as against
the sureties, since the sureties were not parties to The rule that guaranteed debts are to be deemed
the contract of lease (Exhibit D) and are liable only more onerous to the debtor than those not
upon the contract of suretyship (Exhibit E), which guaranteed, and entitled to priority in the
calls for the payments of only P23,000 by the application of the debtors payments, was already
principal. It is a just rule of jurisprudence, recognized in the Roman Law (Ulpian, fr. ad
recognized in article 1827 of the Civil Code, that the Sabinum, Digest, Lib. 46, Tit 3, Law 4, in fine), and
obligation of a surety must be express and cannot has passed to us through the Spanish Civil Code.
be extended by implication beyond its specified Manresa in his Commentaries to Art. 1174 of that
limits. Code (8 Manresa, Vol. I, 5th Ed., p. 603) expressly
says:
We do not overlook the fact that the obligating
clause in Exhibit E binds the sureties in the amount "Atendiendo al gravamen, la deuda garantida es
of P46,000, but, as in all bonds, that obligation was mas onerosa que la simple."
intended as an assurance of the performance of the
principal obligation and when the principal And this is also the rule in Civil law countries, like
obligation was discharged, the larger obligation France (Dalloz, Jurisprudence Gnrale Vo.
expressed in the contract of suretyship ceased to obligation, sec. 2033; Planiol, Trait Elem. (2d Ed).
have any vitality." Vol. 2, No. 454) and Louisiana (Caltex Oil & Gas,
Co. v. Smith, 175 La. 678, 144 So. 243; Everett v.
The second reason is that, since the obligations of Graye, 3 La. App. 136): also Italy (7 Giorgi, Teoria
Dy Eng Giok between August 4, 1951 to August 4, delle Obbl. p. 167).
1952, were guaranteed, while his indebtedness
prior to that period was not secured, then in the It is thus clear that the payment voluntarily made by
absence of express application by the debtor, or of appellant was improper since it was not liable under
any receipt issued by the creditor specifying a its bond; consequently, it can not demand
particular imputation of the payment (New Civil reimbursement from the counterbondsmen but only
Code, Art. 1252), any partial payments made by from Dy Eng Giok, who was anyway benefited pro
him should be imputed or applied to the debts that tanto by the Surety Companys payment.
were guaranteed, since they are regarded as the
more onerous debts from the standpoint of the The present case is to be clearly distinguished from
debtor (New Civil Code, Art. 1254). Hongkong Shanghai Bank v. Aldanese, 48 Phil.,
990, and Commonwealth v. Far Eastern Surety &
"ART. 1254. When the payment cannot be applied Insurance Co., 83 Phil., 305, 46 Off. Gaz. 4879 and
in accordance with the preceding rules, or if similar rulings, wherein the debtor in each case
application can not be inferred from other owned the creditor one single debt of which only a
circumstances, the debt which is most onerous to portion was guaranteed. In those cases, we have
ruled that the guarantors had no right to demand counterbondsmen can not question the payment
that the partial payments made by the principal made by it to Destileria Lim Tuaco on the debt of
debtor should be applied precisely to the portion Dy Eng Giok, because their counterbond or
guaranteed. The reason is apparent: the legal rules indemnity agreement (Annex B, par. 7) provided
of imputation of payments presuppose that the that:
debtor owes several distinct debts of the same
nature; and does not distinguish between portions "INCONTESTABILITY OF PAYMENTS MADE BY
of the same debt. Hence, where the debtor only THE COMPANY: Any payment of disbursement
owes one debt, all partial payments must made by the COMPANY on account of the
necessarily be applied to that debt, and the abovementioned Bond, its renewals, extensions or
guarantor answers for any unpaid balance, substitutions, either in the belief that the Company
provided it does not exceed the limits of the was obligated to make such payment or in the
guaranty. Any other solution would defeat the belief that said payment was necessary in order to
purpose of the security. In the case before us, avoid greater losses or obligations for which the
however, the guaranty secured the performance by Company might be liable by virtue of the terms of
the debtor of his obligation to remit to the distillery the abovementioned Bond, its renewals, extensions
company the proceeds of his sales during the or substitutions shall be final and will not be
period of the guaranty (August 4, 1951 to August 4, disputed by the undersigned who jointly and
1952). This obligation is entirely distinct and severally bind themselves to indemnify the
separate from his obligation to remit the proceeds COMPANY for any and all such payments as stated
of his sales during a different period, say before in the preceding clauses." (Rec. App., p. 11)
August 4, 1951. The debtor, therefore, actually
owed two distinct debts: for the value of his sales We agree with the appellee that this kind of clauses
before August 4, 1951 and for the import of the are void and unenforceable, as against public
sales between that date and August 4, 1952. There policy, "because they enlarge the field for fraud,
being two debts, his partial payments had because in these instruments the promissor
necessarily to be applied (in the absence of bargains away his right to a day in court and
express imputation) first to the obligation that was because the effect of the instrument is to strike
more onerous for him, which was the one secured down the right of appeal accorded by the statute."
by the guaranty. (see National Bank v. Manila Oil Refining Co., 43
Phil. 467)
It is legally unimportant that the creditor should
have applied the payment to the prior Finding no error in the judgment appealed from, the
indebtedness. Where the debtor has not expressly same is affirmed. Costs against appellant. So
elected any particular obligation to which the ordered.
payment should be applied, the application by the
creditor, in order to be valid and lawful, depends:
(1) upon his expressing such application in the
corresponding receipt and (2) upon the debtors
assent, shown by his acceptance of the receipt
without protest. This is the import of paragraph 2 of
Art. 1252 of the New Civil Code:

"If the debtor accepts from the creditor a receipt in

which an application of the payment is made, the
former cannot complain of the same, unless there
is a cause for invalidating the contract."

Ultimately, therefore, the application by a creditor

depends upon the debtor acquiescence thereto. In
the present case, as already noted, there is no
evidence that the receipts for payment expressed
any imputation, or that the debtor agreed to the
same.

The appellant Surety Company avers that the

 G.R. No. L-8437 March 23, 1915

THE HONGKONG & SHANGHAI BANKING

CORPORATION, plaintiff-appellee,
vs.
ALDECOA & CO., in liquidation, JOAQUIN
IBAEZ DE ALDECOA Y PALET, ZOILO IBAEZ
DE ALDECOA Y PALET, CECILIA IBAEZ DE
ALDECOA Y PALET, and ISABEL PALET DE
GABARRO, defendants-appellants.
WILLIAM URQUHART, intervener-appellant.

TRENT, J.:

This action was brought on January 31, 1911, by

the plaintiff bank against the above-named
defendants for the purpose of recovering from the
principal defendant, Aldecoa & Co., an amount due
from the latter as the balance to its debit in an
account current with the plaintiff, and to enforce the
subsidiary liability of the other defendants for the
payment of this indebtedness, as partners of
Aldecoa & Co., and to foreclose certain mortgages
executed by the defendants to secure the
indebtedness sued upon.

Judgment was entered on the 10th of August, 1912,

in favor of the plaintiff and against the defendants
for the sum of P344,924.23, together with interest
thereon at the rate of 7 per cent per annum from
the date of the judgment until paid, and for costs,
and for the foreclosure of the mortgages. The court
decreed that in the event of there being a
deficiency, after the foreclosure of the mortgages,
the plaintiff must resort to and exhaust the property
of the principal defendant before taking out
execution against the individual defendants held to
be liable in solidum with the principal defendant, but
subsidiarily. Judgment was also entered denying
the relief sought by the intervener. All of the
defendants and the intervener have appealed.

The defendants, Joaquin Ibaez de Alcoa, Zoilo

Ibaez de Alcoa, and Cecilia Ibaez de Alcoa, were
born in the Philippine Islands on March 27, 1884,
July 4, 1885, and . . . , 1887, respectively, the
legitimate children of Zoilo Ibaez de Alcoa and the
defendant, Isabel Palet. Both parents were native
of Spain. The father's domicile was in Manila, and
he died here on October 4, 1895. The widow, still
retaining her Manila domicile, left the Philippine
Islands and went to Spain in 1897 because of her
health, and did not return until the latter part of
1902. the firm of Aldecoa & Co., of which Zoilo
Ibaez de Aldecoa, deceased, had been a member
and managing director, was reorganized in
December, 1896, and the widow became one of the by the bank upon the condition that any liability
general or "capitalistic" partners of the firm. The incurred on the part of the bank upon this injunction
three children, above mentioned, appear in the bond would be covered by the mortgage of
articles of agreement as industrial partners. February 23, 1906. An agreement to this effect was
executed by Aldecoa and Co. in liquidation, by
On July 31, 1903, Isabel Palet, the widowed mother Isabel Palet, by Joaquin Ibaez de Aldecoa, who
of Joaquin Ibaez de Aldecoa and Zoilo Ibaez de had then attained his full majority, and by Zoilo
Aldecoa, who were then over the age of 18 years, Ibaez de Aldecoa, who was not yet twenty-three
went before a notary public and executed two years of age. In 1908, Joaquin Ibaez de Aldecoa,
instruments (Exhibits T and U), wherein and Zoilo Ibaez de Aldecoa, and Cecilia Ibaez de
whereby she emancipated her two sons, with their Aldecoa commenced an action against their
consent and acceptance. No guardian of the mother, Isabel Palet, and Aldecoa and Co., in which
person or property of these two sons had ever been the bank was not a party, and in September of that
applied for or appointed under or by virtue of the year procured a judgment of the Court of First
provisions of the Code of Civil Procedure since the Instance annulling the articles of copartnership of
promulgation of the Code in 1901. After the Aldecoa and Co., in so far as they were concerned,
execution of Exhibit T and U, both Joaquin Ibaez and decreeing that they were creditors and not
de Aldecoa and Zoilo Ibaez de Aldecoa partners of that firm.
participated in the management of Aldecoa and Co,
as partners by being present and voting at The real property of the defendant Isabel Palet,
meetings of the partners of the company upon mortgaged to the plaintiff, corporation by the
matters connected with its affairs. instrument of March 23, 1906 (Exhibit B), was, at
the instance of the defendant, registered under the
On the 23rd of February, 1906, the defendant firm provisions of the Land Registration Act, subject to
of Aldeco and Co. obtained from the bank a credit the mortgage thereon in favor of the plaintiff, by
in account current up to the sum of P450,000 upon decree, of the land court dated March 8, 1907.
the terms and conditions set forth in the instrument
executed on that date (Exhibit A). Later it was On the 6th of November, 1906, the defendants,
agreed that the defendants, Isabel Palet and her Isabel Palet and her three children, Joaquin Ibaez
two sons, Joaquin and Zoilo, should mortgage, in de Aldecoa, Zoilo Ibaez de Aldecoa, and Cecilia
addition to certain securities of Aldecoa and Co., as Ibaez de Aldecoa, applied to the land court for the
set forth in Exhibit A, certain of their real properties registration of their title to the real property
as additional security for the obligations of Aldecoa described in paragraph 4 of the instrument of
and Co. So, on March 23, 1906, the mortgage, March 23, 1906 (Exhibit B), in which application
Exhibit B, was executed wherein certain corrections they stated that the undivided three-fourths of said
in the description of some of the real property properties belonging to the defendants, Isabel
mortgaged to the bank by Exhibit A were made and Palet, Joaquin Ibaez de Aldecoa, and Zoilo Ibaez
the amount for which each of the mortgaged de Aldecoa, were subject to the mortgage in favor
properties should be liable was set forth. These two of the plaintiff to secure the sum of P203,985.97
mortgages, Exhibits A and B, were duly recorded in under the terms of the instrument dated March 22,
the registry of property of the city of Manila on 1906. Pursuant to this petition the Court of Land
March 23, 1906. Registration, by decree dated September 8, 1907,
registered the title to the undivided three-fourths
On the 31st day of December, 1906, the firm of interest therein pertaining to the defendants, Isabel
Aldecoa and Co. went into liquidation on account of Palet and her two sons, Joaquin and Zoilo, to the
the expiration of the term for which it had been mortgage in favor of the plaintiff to secure the sun
organized, and the intervener, Urquhart, was duly of P203,985.97.
elected by the parties as liquidator, and be
resolution dated January 24, 1907, he was granted On December 22, 1906, Aldecoa and Co., by a
the authority expressed in that resolution (Exhibit public instrument executed before a notary public,
G). as additional security for the performance of the
obligations in favor of the plaintiff under the terms
On June 30, 1907, Aldeco and Co. in liquidation, for of the contracts Exhibits A and B, mortgaged to the
the purposes of certain litigation about to be bank the right of mortgage pertaining to Aldecoa
commenced in its behalf, required an injunction and Co. upon certain real property in the Province
bond in the sum of P50,000, which was furnished of Albay, mortgaged to said company by one
Zubeldia to secure an indebtedness to that firm. On the 30th day of January, 1907, Aldecoa and Co.
Subsequent to the execution of this instrument, duly authorized the bank to collect from certain
Zubeldia caused his title to the mortgaged property persons and firms, named in the instrument
to be registered under the provisions of the Land granting this authority, any and all debts owing by
Registration Act, subject to a mortgage of Aldecoa them to Aldecoa and Co. and to apply all amounts
and Co. to secure the sum of P103,943.84 and to so collected to the satisfaction, pro tanto, of any
the mortgage of the mortgage right of Aldecoa and indebtedness of Aldecoa and Co. to the bank.
Co. to the plaintiff.
By a public instrument dated February 18, 1907,
As the result of the litigation Aldecoa and Co. and Aldecoa and Co. acknowledged as indebtedness to
A. S. Macleod, wherein the injunction bond for Joaquin Ibaez de Aldecoa in the sum of
P50,000 was made by the bank in the manner and P154,589.20, a like indebtedness to Zoilo Ibaez
for the purpose above set forth, Aldecoa and Co. de Aldecoa in the sum of P89,177.07. On
became the owner, through a compromise September 30, 1908, Joaquin, Zoilo, and Cecilia
agreement executed in Manila on the 14th of recovered a judgment in the Court of First Instance
August, 1907, of the shares of the Pasay Estate of Manila for the payment to them f the sum of
Company Limited (referred to in the contract of P155,127.31, as the balance due them upon the
March 13, 1907, Exhibit V), and on the 30th day of indebtedness acknowledged in the public
August of that year Urquhart, as liquidator, under instrument dated February 18, 1907.
the authority vested in him as such, and in
compliance with the terms of the contract of June On November 30, 1907, Joaquin, Zoilo, and Cecilia
13, 1907, mortgaged to the plaintiff, by way of instituted an action in the Court of First Instance of
additional security for the performance of the the city of the Manila against the plaintiff bank for
obligations set forth in Exhibits A and B, the 312 the purpose of obtaining a judicial declaration to the
shares of the Pasay Estate Company, Limited, effect that the contract whereby Aldecoa and Co.
acquired by Aldecoa and Co. mortgaged to the bank the shares of the Pasay
Estate Company recovered from Alejandro S.
On the 31st day of March, 1907, Aldecoa and Co. Macleod, was null and void, and for a judgment of
mortgaged, as additional security for the that these shares be sold and applied to the
performance of those obligations, to the plaintiff the satisfaction of their judgment obtained on
right of mortgage, pertaining to the firm of Aldecoa September 30, 1908. Judgment was rendered by
and Co., upon certain real estate in that Province of the lower court in favor of the plaintiffs in that action
Ambos Camarines, mortgaged to Aldecoa and Co. in accordance with their prayer, but upon appeal
by one Andres Garchitorena to secure a balance of this court reversed that judgment and declared that
indebtedness to that firm of the sum of P20,280.19. the mortgage of the shares of stock in the Pasay
The mortgage thus created in favor of the bank was Estate Co. to the bank was valid.
duly recorded in the registry of deeds f that
province. On the 31st day of March, 1907, Aldecoa In October, 1908, Joaquin and Zoilo Ibaez de
and Co. mortgaged as further additional security for Aldecoa instituted an action against the plaintiff
the performance of the obligations set forth in bank for the purpose of obtaining a judgment
Exhibits A and B, the right of mortgage pertaining to annulling the mortgages created by them upon their
the firm of Aldecoa and Co. upon other real interest in the properties described in Exhibits A
property in the same province, mortgaged by the and B, upon the ground that the emancipation buy
firm of Tremoya Hermanos and Liborio Tremoya, to their mother was void and of no effect, and that,
secure the indebtedness of that firm to the firm of therefore, they were minors incapable of creating a
Aldecoa and Co. of P43,117.40 and the personal valid mortgage upon their real property. The Court
debt of the latter of P75,463.54. the mortgage thus of First Instance dismissed the complaint as to
created in favor of the bank was filed for record with Joaquin upon the ground that he had ratified those
the registrar of deeds of that province. mortgages after becoming of age, but entered a
judgment annulling said mortgages with respect to
Zoilo. Both parties appealed from this decision and
the case was given registry No. 6889 in the
Supreme Court.1

On the 31st day of December, 1906, on which date

the defendant Aldecoa and Co. went into
liquidation, the amount of indebtedness to the bank mortgage, Aldecoa and Co. not having
upon the overdraft created by the terms of the mortgaged any real estate of any kind within
contract, Exhibit A, was P516,517.98. Neither the the jurisdiction of the trial court, and the
defendant Aldecoa and Co., nor any of the obligation of the persons who had signed
defendants herein, have paid or caused to be paid the contract of suretyship in favor of the
to the bank the yearly partial payments due under bank having been extinguished by operation
the terms of the contract, Exhibit A. But from time to of law.
time the bank has collected and received from
provincial debtors of Aldecoa and Co. the various The argument on behalf of the defendant in support
sums shown in Exhibit Q, all of which sums so of its first assignment of error from the complaint
received have been placed to the credit of Aldecoa that Aldecoa and Co. authorized the plaintiff bank,
and Co. and notice duty given. Also, the bank, from by the instrument Exhibit G, to make collections on
time to time, since the date upon which Aldecoa behalf of this defendant, and that the complaint
and Co. went into liquidation, has received various failed to specify the amount obtained by the bank in
other sums from, or for the account of, Aldecoa and the exercise of the authority conferred upon it, the
Co., all of which have been duly placed to the credit complaint was thereby rendered vague and
of that firm, including the sum of P22,552.63, the indefinite. Upon this point it is sufficient to say that
amount of the credit against one Achaval, assigned the complaint alleges that a certain specific amount
to the bank by Aldecoa and Co. The balance to the was due from the defendant firm as a balance of its
credit of the bank on the 31st day of December, indebtedness to the plaintiff, and this necessarily
1911, as shown on the books of Aldecoa and Co., implies that there were no credits in favor of the
was for the sum of P416.853.46. It appeared that defendant firm of any kind whatsoever which had
an error had been committed by the bank in not already been deducted from the original
liquidating the interest charged to Aldecoa and Co., obligation.
and this error was corrected so that the actual
amount of the indebtedness of Aldecoa and Co. to With respect to the contention set forth in the
the plaintiff on the 15th of February, 1912, with second assignment of error to the effect that the
interest to December 10, 1912, the date of the bank has prejudiced Aldecoa and Co. by having
judgment, the amount was P344,924.23. induced customers of the latter to cease their
commercial relations with this defendant, the ruling
The trial court found that there was no competent of the court that there is no evidence to show that
evidence that the bank induced, or attempted to there was any such inducement is fully supported
induce, any customer of Aldecoa and Co. to by the record. It may be possible that some of
discontinue business relations with that company. Aldecoa and Co.'s customers ceased doing
The court further found that Urquhart had failed to business with that firm after it went into liquidation.
show that he had any legal interest in the matter in This is the ordinary effect of a commercial firm
litigation between plaintiff and defendants, or in the going consideration, for the reason that it was a
success of either of the parties, or an interest well known fact that Aldecoa and Co. was insolvent.
against both, as required by section 121 of the It is hardly probable that the bank, with so large a
Code of Civil Procedure. No further findings, with claim against Aldecoa and Co. and with
respect to the facts alleged in the complaint of the unsatisfactory security for the payment of its claim,
intervener, were made. would have taken any action whatever which might
have had the effect of diminishing Aldecoa and
Aldecoa and Co. insist that the court erred: Co.'s ability to discharge their claim. The contention
that the customers of Aldecoa and Co. included in
1. In overruling the defendant's demurrer the list of debtors ceased to make consignments to
based upon the alleged ambiguity and the firm because they had been advised by the
vagueness of the complaint. bank that Aldecoa and Co. had authorized the bank
to collect these credits from the defendant's
2. In ruling that there was no competent provincial customers and apply the amounts so
evidence that the plaintiff had induced collected to the partial discharge of the
Aldecoa and Co.'s provincial debtors to indebtedness of the defendant to the bank.
cease making consignments to that firm. Furthermore, the bank was expressly empowered
to take any steps which might be necessary,
3. In rendering a judgment in a special judicially or extrajudicially, for the collection of these
proceeding for the foreclosure of a credits. The real reason which caused the
defendant's provincial customers to cease making the liquidator, and he was given authority by all the
shipments was due to the fact that the defendant, sureties to authorized the bank to proceed in this
being out of funds, could not give its customers any manner.
further credit. It is therefore clear that the bank,
having exercised the authority conferred upon it by With respect to the contention that the bank should
the company in a legal manner, is not responsible be required to render an account of collections
for any damages which might have resulted from made under authority of Exhibit G, it is sufficient to
the failure of the defendant's provincial customers say that the bank has properly accounted for all
to continue doing business with that firm. amounts collected from the defendant's debtors,
and has applied all such amounts to the partial
In the third assignments of errors two propositions liquidation of the defendant's debt die to the bank. It
are insisted upon: (1) that in these foreclosure is true that the sum for which judgment was
proceedings the court was without jurisdiction to rendered against Aldecoa and Co. is less than the
render judgment against Aldecoa and Co. for the amount originally demanded in the complaint, but
reason that firm had mortgaged no real property this difference is due to the fact that certain
within the city of Manila to the plaintiff; and (2) that amounts which had been collected from Aldecoa
the mortgages given by this defendant have been and Co.'s provincial debtors by the bank were
extinguished by reason of the fact that the bank credited to the latter between the date on which the
extended the time within which the defendant's complaint was filed and the date when the case
provincial debtors might make their payments. came on for trial, and the further fact that it was
necessary to correct an entry concerning one of the
We understand that the bank is not seeking to claims inasmuch as it appears that this claim had
exercise its mortgages rights upon the mortgages been assigned to the bank absolutely, and not
which the defendant firm holds upon certain real merely for the purposes of collection, as the
properties in the Provinces of Albay and Ambros bookkeeper of the bank supposed, the result being
Camarines and to sell these properties at public that instead of crediting Aldecoa and Co. with the
auction in these proceedings. Nor do we full face value of this claim, the bookkeeper had
understand that the judgment of the trial courts merely credited from time to time the amounts
directs that this be done. Before that property can collected from this debtor. We, therefore, find no
be sold the original mortgagors will have to be error prejudicial to the rights of this defendant.
made parties. The banks is not trying to foreclose,
in this section, any mortgages on real property Doa Isabel Palt makes the following assignment of
executed by Aldecoa and Co. It is true that the bank errors:
sought and obtained a money judgment against
that firm, and at the same time and in the same 1. That the court erred in failing to hold that
action obtained a foreclosure judgment against the her obligation as surety had been
other defendants. If two or more persons are in extinguished in accordance with the
solidum the debtors mortgage any of their real provisions of article 1851 of the Civil Code.
property situate in the jurisdiction of the court, the
creditor, in case of the solidary debtors in the same 2. That the court erred in refusing to order
suit and secure a joint and several judgment for the benefit of this appellant that the
against them, as well as judgments of foreclosure property of Aldecoa and Co. should be
upon the respective mortgages. exhausted before the plaintiff firm should be
entitled to have recourse to the property of
The contention that the extensions granted to this defendant and appellant for the
Aldecoa and Co.'s debtors, with the consent and satisfaction of its judgment.
authority of that firm itself, has resulted in
extinguishment of the mortgages created by This appellant does not contend that she is not
Aldecoa and Co. or of the mortgages created by personally liable in solidum with Aldecoa and Co.
partners of that company to secure its liabilities to for the liability of the latter firm to the plaintiff in the
the bank, is not tenable. The record shows that all event that the appeal taken by Aldecoa and Co.
the sureties were represented by Urquhart, the should unsuccessful. We have just held that the
person elected by them as liquidator of the firm, judgment appealed from by Aldecoa and Co.
when he agreed with the bank upon the extensions should be affirmed. But Doa Isabel Palet does not
granted to those debtors. The authority to grant contend that her liability as a partner for the
these extensions was conferred upon the bank by obligations of Aldecoa and Co., although solidary, is
subsidiary, and that she is entitled to insist that the debtor, by virtue of which the creditor deprives
property of Aldecoa and Co. be first applied in its himself of his right to immediately bring an action
entirety to the satisfaction of the firm's obligations for the enforcement of his claim. The mere failure to
before the bank shall proceed against her in the bring an action upon a credit, as soon as the same
execution of its judgment. or any part of its matures, does not constitute an
extension of the term of the obligation.
The trial court directed that the mortgaged
properties, including the properties mortgaged in Doa Isabel Palet is a personal debtor jointly and
the event that Aldecoa and Co. should fail to pay severally with Aldecoa and Co. for the whole
into court the amount of the judgment within the indebtedness of the latter firm to the bank, and not
time designated for that purpose. the court a mere surety of the performance of the obligations
recognized the subsidiary character of the personal of Aldecoa and Co. without any solidary liability. It is
liability of Doa Isabel Palet as a member of the true that certain additional deeds of mortgage and
firm of Aldecoa and Co. and decreed that as to any pledge were executed by Aldecoa and Co. in favor
deficiency which might result after the sale of the of the bank as additional security after Aldecoa and
mortgaged properties, execution should not issue Co. had failed to meet its obligation to pay the first
against the properties of Doa Isabel Palet until all installment due under the agreement of February
the property of Aldecoa and Co. shall have been 23, 1906, but there is no stipulation whatever in any
exhausted. The properties mortgaged by Doa of these documents or deeds which can in any way
Isabel Palet were so mortgaged not merely as be interpreted in the sense of constituting an
security for the performance of her own solidary extension which would bind the bank to waiter for
subsidiary obligation as a partner bound for all the the expiration of any new term before suing upon
debts of Aldecoa and Co., but for the purpose of its claim against Aldecoa and Co. We find nothing
securing the direct obligation of the firm itself to the in the record showing either directly or indirectly
bank. We are, therefore, of the opinion that the trial that the bank at any time has granted any
court committed no error upon this point. extension in favor of Aldecoa and Co. for the
performance of its obligations. The liquidator of
It is urged on behalf of Doa Isabel Palet that the Aldecoa and Co. authorized the bank to grant
mortgages executed by her upon her individual certain extensions to some of the provincial debtors
property have been canceled. The ground for this of Aldecoa and Co. whose debts were to be paid to
contention is that Aldecoa and Co. undertook by the the bank under the authority conferred upon the
contract of February 23, 1906, to discharge its bank by Aldecoa and Co. There is a marked
liability to the plaintiff bank at the rate of not less difference between the extension of time within
than P50,000 per annum, and that therefore it was which Aldecoa and Co.'s debtors might pay their
the duty of the bank to sue Aldecoa and Co. as respective debts, and the extension of time for the
soon as that firm failed to pay at maturity any one payment of Aldecoa and Co.'s own obligations to
of the partial payments which it had promised to the bank. If the bank was had brought suit on its
make, and to apply the proceeds, from the sale of credit against Aldecoa and Co., for the amount then
the property of Aldecoa and Co. to the satisfaction due, on the day following the extension of the time
of this indebtedness, and that the fact that the bank of Aldecoa and Co.'s debtors for the payments of
failed to do so is equivalent to an extension of the their debts, it is evident that the fact of such
term of the principal debtor, and that the effect of extension having been granted could not served in
this extension has been to extinguish the obligation any sense as a defense in favor of Aldecoa and Co.
of this defendant as a surety of Aldecoa and Co. It against the bank's action, although this extension
is also contended that the bank expressly extended would have been available to Aldecoa and Co.'s
the term within which Aldecoa and Co. was to debtors if suit had been brought to enforce their
satisfy its obligation by allowing Aldecoa and Co. to liabilities to Aldecoa and Co. We must, therefore,
furnish additional security. Doa Isabel Palet conclude that the judgment appealed from, in so far
alleges that all these acts were done without her as it relates to Doa Isabel Palet, must likewise be
knowledge or consent. affirmed.

The extension of the term which, in accordance The intervener, William Urquhart, assigns these
with the provisions of article 1851 of the Civil Code errors:
produces the extinction of the liability of the surety
must of necessity be based on some new 1. The court erred in holding that the proof
agreement between the creditor and principal fails to show a case for intervention within
 the meaning of section 121 of the Code of Urquhart's salary as liquidator of the firm of Aldecoa
Civil Procedure. and Co. The agreed statement of facts clearly
supports this view. It is there stated that Aldecoa
2. The court erred in failing to give and Co. in liquidation owed the liquidator P14,000
preference to the credit of the liquidator as salary. The agreement does not say, nor can it
Urquhart for his salary. be even inferred from the same, that Aldecoa and
Co. owed Urquhart P14,000, or any other sum for
The trial court found, as we have said, that salary as an employee of that firm before it went
Urquhart had failed to show that he had any legal into liquidation. Under these facts, is the intervener
interest in the matter in litigation between the a preferred creditor over the bank for this amount?
plaintiffs and the defendants, or in the success of
any of the parties, or any interest against both. The In support of his contention that he should be
proof upon this branch of the case consists of the declared a preferred creditor over the bank for the
following agreed statement of facts: P14,000, the appellant cites the decision of the
supreme court of Spain of March 16, 1897, and
Mr. Urquhart is a creditor of Aldecoa and quotes the following from the syllabus of that case:
Co. in the sum of P21,000 due him for
money loaned by him to Aldecoa and Co. That the expense of maintenance of
before they went into liquidation. property is bound to affect such persons as
have an interest therein, whether they be
Aldecoa and Co., in liquidation, owe Mr. the owners or creditors of the property;
Urquhart the liquidator P14,000 as salary. therefore payment for this object has
preference over any other debt, since such
Section 121 of the Code of civil Procedure provides other debts are recoverable to the extent
that: that the property is preserved and
maintained.
A person may, at any period of a trial, upon
motion, be permitted by the court to There can be no question about the correctness of
intervene in an action or proceeding, if he this ruling of the supreme court of Spain to the
has legal interest in the matter in litigation, effect that the fees of a receiver, appointed by the
or in the success of either of the parties, or court to preserve property in litigation, must be paid
an interest against both. in preference to the claims of creditors. But this is
not at all the case under consideration, for the
The intervener is seeking to have himself declared reason that Urquhart was elected liquidator by the
a preferred creditor over the bank. According to the members of the firm of Aldecoa and Co. Neither do
above- quoted agreed statement of facts, he is a we believe that the contention of the appellant can
mere creditor of Aldecoa and Co. for the sum of be sustained under article 1922 of the Civil Code,
P21,000, loaned that firm before it went into which provides that, with regard to specified
liquidation. This amount is not evidenced by a personal property of the debtor, the following are
public document, or any document for that matter, preferred:
nor secured by pledge or mortgage, while the
amount due the bank appears in a public 1. Credits for the construction, repair,
instrument and is also secured by pledges and preservation, or for the amount of the sale
mortgages on the property of Aldecoa and Co., out of personal property which may be in the
of which the intervener seeks to have his possession of the debtor to the extent of the
indebtedness satisfied. It is, therefore, clear that the value of the same.
intervener is not entitled to the relief sought, in so
far as the P21,000 is concerned. The only personal property of Aldecoa and Co. is
16 shares of the stock of the Banco-Espaol-
The bank insists that, as the intervener had been in Filipino; 450 shares of the stock of the Compaia
the employ of Aldecoa and Co. for several years Maritima; 330 shares of the stock of the Pasay
prior to the time that the latter went into liquidation, Estate Co., Ltd; and certain claims against debtors
it cannot be determined what part of the P14,000 is of Aldecoa and Co., mentioned in Exhibit G.
for salary as such employee and what part is for
salary as liquidator. We find no trouble in reaching The shares of stock in the Banco Espaol-Filipino
the conclusion that all of the P14,000 represents and the Compaia Maritima were pledged to the
bank before Aldecoa and Co. went into liquidation, colectivos) of the firm of Aldecoa and Co.,
so Urquhart had nothing to do with the preservation and is rendering judgment against them
of these. The stock of the Pasay Estate co., Ltd., subsidiarily for the payment of the amount
was pledged to the bank on August 30, 1907, on claimed in the complaint.
the same day that it came into the possession of
Aldecoa and Co. and by the terms of the pledge the The basis of the first alleged error is the pendency
bank was authorized to collect all dividends on the of an action instituted by the appellants, Joaquin
stock and apply the proceeds to the satisfaction of and Zoilo, in 1908, to have the mortgages which
its claim against Aldecoa and Co. The credits set the bank seeks to foreclose in the present action
forth in Exhibit G were assigned to the bank on annulled in so far as their liability thereon is
January 30, 1907, so, it will be seen, that the Pasay concerned. That action was pending in this
Estate shares were in the possession of Aldecoa Supreme Court on appeal when the present action
and Co., or its liquidator, only one day. Urquhart was instituted (1911), tried, and decided in the court
had been liquidator twenty-eight days when the below.
credits, mentioned in Exhibit G, were assigned to
the bank. If it could be held that these two items The principle upon which plea of another action
bring him within the above quoted provisions of pending is sustained is that the latter action is
article 1922, he could not be declared a preferred deemed unnecessary and vexatious. (Williams vs.
creditor over the bank for the P14,000 salary for the Gaston, 148 Ala., 214; 42 Sou., 552; 1 Cyc. 21; 1
reason that, according to his own showing, he had R. C. L., sec. 1.) A statement of the rule to which
been paid for his services as liquidator up to the litigant to its benefits, and which has often met
January, 1910. It is the salary since that date which with approval, is found in Watson vs. Jones (13
is now in question. The only property of Aldecoa Wall., 679, 715; 20 L. ed., 666):
and Co. which the liquidator had anything to do with
after 1910 was the real estate mortgages on real But when the pendency of such a suit is set
property cannot be regarded as personal property, up to defeat another, the case must be the
and it is only of personal property that article 1922 same. There must be the same parties, or
speaks. at least such as represent the same
interest, there must be the same rights
The judgment appealed from, in so far as it relates asserted, and the same relief prayed for.
to Urquhart, being in accordance with the law and This relief must be founded on the same
the merits of the case, is hereby affirmed. facts, and the title or essential basis of the
relief sought must be the same. The identity
The appellants, Joaquin and Zoilo Ibaez de in these particulars should be such that if
Aldecoa, make the following assignments of error: the pending case has already been
disposed of, it could be pleaded in bar as a
1. The court erred in not sustaining the plea former adjudication of the same matter
of lis pendens with respect to the validity of between the same parties.
mortgages claimed by the plaintiff, which
plea was set up as a special defense by the It will be noted that the cases must be identical in a
defendants Joaquin and Zoilo Ibaez de number of ways. It will be conceded that in so far
Aldecoa, and in taking jurisdiction of the as the plea is concerned, the parties are the same
case and in deciding therein a matter in the case at bar as they were in the action to have
already submitted for adjudication and not the mortgages annulled. Their position is simple
yet finally disposed of. reversed, the defendants there being the plaintiffs
here, and vice versa. This fact does not affect the
2. The court erred in hot sustaining the plea application of the rule. The inquiry must therefore
of res adjudicata set up as a special proceed to the other requisites demanded by the
defense by these defendants with respect to rule. Are the same rights asserted? Is the same
the contention of plaintiff that these relief prayed for?
defendants are industrial and general
partners of the firm of Aldecoa and Co. The test of identity in these respects is thus stated
in 1 Cyc., 28:
3. The court erred in holding that the
defendants Joaquin and Zoilo Ibaez de A plea of the pendency of a prior action is
Aldecoa were general partners (socios not available unless the prior action is of
 such a character that, had a judgment been by the defendant to the prejudice and injury
rendered therein on the merits, such a of the plaintiff, while the other is brought to
judgment would be conclusive between the establish the validity of said writing as a
parties and could be pleaded in bar of the declaration of marriage, as well as the
second action. marriage itself, and also to procure a
dissolution thereof, and for a division of the
This test has been approved, citing the quotation, common property, and for alimony.
in Williams vs. Gaston (148 Ala., 214; 42 Sou.,
552); Van Vleck vs. Anderson (136 Iowa, 366; 113 Incidentally, it was held in this case that a judgment
N. W., 853); Wetzstein vs. Mining Co. (28 Mont., of the trial court declaring the writing genuine was
451; 72 P., 865). It seems to us that unless the not res adjudicata after an appeal had been taken
pending action, which the appellants refer to, can from the judgment of the Supreme Court. So, in the
be shown to approach the action at bar to this case ta bar, the fact that the trial court in the former
extent, the plea ought to fail. action holds the mortgages invalid as to one of the
herein appellants is not final by reason of the
The former suit is one to annul the mortgages. The appeal entered by the bank from that judgment.
present suit is one for the foreclosure of the
mortgages. It may be conceded that if the final Cases are also numerous in which an action for
judgment in the former action is that the mortgages separation has been held not to be a bar to an
be annulled, such an adjudication will deny the right action for divorce or vice versa. (Cook vs. Cook, [N.
of the bank to foreclose the mortgages. But will a C.], 40 L. R. S., [N. S.], 83, and cases collected in
decree holding them valid prevent the bank from the note.) In Cook vs. Cook it was held that a
foreclosing them. Most certainly not. In such an pending action for absolute divorce was not a bar to
event, the judgment would not be a bar to the the commencement of an action for separation. The
prosecution of the present action. The rule is not above authorities are so analogous in principle to
predicated upon such a contingency. It is the case at bar that we deem the conclusion
applicable, between the same parties, only when irresistible, that the pending action to annul the
the judgment to be rendered in the action first liability of the two appellant children on the
instituted will be such that, regardless of which mortgages cannot operates as a plea in abatement
party is successful, it will amount to res in the case in hand which seeks to foreclose these
adjudicata against the second action. It has often mortgages. The subject matter and the relief asked
been held that a pending action upon an insurance for are entirely different. The facts do not conform
policy to recover its value is not a bar to the to the rule and it is therefore not applicable.
commencement of an action to have the policy
reformed. The effect is quite different after final With reference to the second alleged error, it
judgment has been rendered in an action upon the appears that a certified copy of the judgment
policy. Such a judgment may be pleaded in bar to entered in the former case, wherein it was declared
an action seeking to reform the policy. The case are that these two appellants, together with their sister
collected in the note to National Fire Insurance Co. Cecilia, were creditors and partners of Aldecoa and
vs. Hughes (12 L. R. A., [N. S.], 907). So, it was Co., was offered in evidence and marked Exhibit 5.
held in the famous case of Sharon vs. Hill (26 Fed., This evidence was objected to by the plaintiff on the
337), that the action brought by Miss hill for the ground that it was res inter alios acta and not
purpose of establishing the genuineness of a competent evidence against the plaintiff or binding
writing purporting to be a declaration of marriage upon it in any way because it was not a party to
and thereby establishing the relation of husband that action. This objection was sustained and the
and wife between the parties could not be pleaded proffered evidence excluded. If the evidence had
in abatement of Senator Sharon's action seeking to been admitted, what would be its legal effect? That
have the writing declared false and forged. The was an action in personam and the bank was not a
court said: party. The judgment is, therefore, binding only upon
the parties to the suit and their successors in
This suit and the action of Sharon vs. interest (sec. 306, Code of Civil Procedure, No. 2).
Sharon are not brought on the same claim
or demand. The subject matter and the The question raised by the third assignment of
relief sought are not identical. This suit is errors will be dealt with in a separate opinion
brought to cancel and annul an alleged false wherein the appeal of Cecilia Ibaez de Aldecoa
and forged writing, and enjoin the use of it will be disposed of.
The appellants whose appeals are herein
determined will pay their respective portions of the
cost. So ordered.
 [G.R. No. 43862. January 13, 1989.] indemnity agreement was not executed for the
benefit of the creditors; it was rather for the benefit
MERCANTILE INSURANCE CO., INC., Plaintiff- of the surety and if the latter thought it necessary in
Appellee, v. FELIPE YSMAEL, JR., & CO. its own interest to impose this stipulation, and the
INC., Defendants-Appellants. indemnitors voluntarily agreed to the same, the
court should respect the agreement of the parties
SYLLABUS and require them to abide by their contract.
(Security Bank v. Globe Assurance, 107 Phil. 733
1. CIVIL LAW; CREDIT TRANSACTION; [1960].
INDEMNITY AGREEMENT; STIPULATION
ALLOWING SURETY TO RECOVER EVEN 5. ID.; ID.; PRINCIPAL DEBTOR IN INDEMNITY
BEFORE THE CREDITOR IS PAID, AGREEMENT, JOINTLY AND SEVERALLY
ENFORCEABLE. The question as to whether or LIABLE. It must be stressed that in the case at
not under the Indemnity Agreement of the parties, bar, the principal debtors, defendants-appellants
the Surety can demand indemnification from the herein, are simultaneously the same persons who
principal, upon the latters default, even before the executed the Indemnity Agreement. Thus, the
former has paid to the creditor, has long been position occupied by them is that of a principal
settled by this Court in the affirmative. The debtor and indemnitor at the same time, and their
stipulation in the indemnity agreement allowing the liability being joint and several with the plaintiff-
surety to recover even before it paid the creditor is appellees, the Philippine National Bank may
enforceable. In accordance therewith, the surety proceed against either for fulfillment of the
may demand from the indemnitors even before obligation as covered by the Surety bonds. There
paying the creditors." (Cosmopolitan Ins. Co., Inc. is, therefore, no principle of guaranty involved and,
v. Reyes, 15 SCRA 528 [1965] citing; Security Bank therefore, the provision of Article 2071 of the Civil
v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, Code does not apply.
1962]; Alto Surety and Ins. Co., v. Aguilar, Et Al.,
G.R. No. L-5625, March 16, 1954). 6. ID.; ID.; ATTORNEYS FEES; AWARD OF 15%
IN INDEMNITY AGREEMENT, RULED
2. ID.; OBLIGATIONS AND CONTRACTS REASONABLE. As to the attorneys fees, it has
CONSIDERED LAW BETWEEN THE been squarely ruled by this Court that the award of
CONTRACTING PARTIES SO LONG AS THEY fifteen (15) per cent for cases of this nature is not
ARE NOT CONTRARY TO LAW; MORALS, GOOD unreasonable (Cosmopolitan Insurance Co., Inc. v.
CUSTOMS. Contracts are respected as the law Reyes, 15 SCRA 528 [1965]).
between the contracting parties (Henson v. IAC,
148 SCRA 11 [1987], citing Castro v. CA, 99 SCRA DECISION
722 [1980] and Escano v. CA, 100 SCRA 197
[1980]) It is settled that the parties may establish BIDIN, J.:
such stipulations, clauses, terms and conditions as
they may want to include, and as long as such This is an appeal from the decision * dated October
agreements are not contrary to law, morals, good 30, 1971 of the Court of First Instance of Manila
customs, public policy or public order, they shall (now Regional Trial Court) in Civil Case No. 82168
have the force of law between them (Herrera v. entitled "Mercantile Insurance Co., Inc. (herein
Petrophil Corp., 146 SCRA [1986]. referred to as the plaintiff-appellee) v. Felipe
Ysmael, Jr. &. Co., Inc., et al (hereinafter referred to
3. ID.; ID.; CONTRACTS INTERPRETED as the defendant-appellant) ordering defendants-
ACCORDING TO THEIR LITERAL MEANING. appellants Felipe Ysmael, Jr. & Co., Inc. and Felipe
Contracts should be interpreted according to their Ysmael, Jr., to pay jointly and severally to the
literal meaning and should not be interpreted plaintiff the sum of P100,000.00 plus 15% thereof
beyond their obvious intentment. It is a basic and as attorneys fees, and costs. On appeal to the
fundamental rule in the interpretation of contracts Court of Appeals, this case which involves only a
that if the terms thereof are clear and leave no question of law, was certified to this Court.
doubt as to the intention of the contracting parties,
the literal meaning of the stipulation shall control. The factual milieu of this case as found by the trial
court is as follows:
4. ID.; ID.; OBLIGATIONS OF THE PARTIES
UNDER AN INDEMNITY AGREEMENT. The "Felipe Ysmael, Jr. & Co., Inc., represented by
Felipe Ysmael filed an application for an overdraft COMPANY.
line of P1,000,000.00 and credit line of
P1,000,000.00 with the Philippine National Bank. "On September 6, 1967, Gabriel Daza, Jr., Edgardo
The latter was willing to grant credit L. Tordesillas and Augusto Torres in their official
accommodation of P2,000,000.00 applied for capacities and the defendants executed another
provided that the applicant shall have filed a bond indemnity agreement (Exh. E) with the plaintiff in
in the sum of P140,000.00 to guarantee the consideration of the surety bond (referring to
payment of the said amount. Accordingly, on March MERICO Bond No. G (16) 0030. In the indemnity
6, 1967, Felipe Ysmael, Jr. & Co., Inc., represented agreement (Exh. E) the same provisions of
by Felipe Ysmael filed surety bond No. G(16) 007 paragraph 3 found in exhibit D is provided for.
of Mercantile Insurance Co., Inc. in the sum of
P100,000.00 (Exh. A). On December 4, 1967, "By agreement dated September 5, 1967 (Exh. C),
Felipe Ysmael Jr. & Co., Inc. as principal and the the amount of the Bond was reduced by
Mercantile Insurance Co., Inc. executed another P40,000.00 so that the total liability of the plaintiff to
surety bond MERICO Bond No. G(16)0030 in the the Philippine National Bank in view of the
sum of P40,000.00. It is the condition in both bonds aforesaid reduction is P100,000.00 (Exh. C),
that if the principal Felipe Ysmael, Jr. & Co., Inc. P60,000.00 on Surety Bond No. 0007 plus
shall perform and fulfill its undertakings with the P40,000.00 on Surety Bond No. 0030.
Philippine National Bank, then these surety bonds
shall be null and void (Exh. B). "In view of the failure of the defendants to pay the
overdraft and credit line with the Philippine National
"As security and in consideration of the execution Bank demanded from the Mercantile Insurance Co.,
of the surety bonds, exhibits A and B, Felipe Inc. settlement of its obligation under surety bonds
Ysmael, Jr. & Co., Inc. and Magdalena Estate, Inc. No. (G-16) 0007 for P60,000.00 which expired
represented by Felipe Ysmael, Jr. as president and on March 6, 1970 and No. G (-16) 0030 for
in his personal capacity executed with the plaintiff P40,000.00 which expired since September 4, 1968
Mercantile Insurance Co., Inc. an indemnity (Exh. P) otherwise drastic measures for collection
agreement (Exh. D) wherein the defendants Felipe to protect the interest of the bank would be taken.
Ysmael, Jr. & Co., Inc. and Felipe Ysmael, Jr. Attached to the demand letter is a statement of
bound themselves jointly and severally to indemnify account.
the plaintiff, hold save it harmless from and against
any and all payments, damages, costs, losses, "By letter of December 17, 1970, the Legal
penalties, charges and expenses which said Department of plaintiff company wrote a letter of
company as surety (relative to MERICO Bond No. demand to the defendants (Exhs. G and H) inviting
0007) shall incur or become liable to pay plus an their attention to the letter of demand of the
additional amount as attorneys fees equal to 20% Philippine National Bank sent to the plaintiff and
of the amount due to the company, Paragraph 3 of demanding from the defendants the settlement of
the indemnity agreement expressly provides: said account. These letters were received as
shown by the registry return receipts (Exhs. G-2
3) ACCRUAL OF ACTION: Notwithstanding the and H-2). Since the defendants failed to settle their
provisions of the next preceding paragraph, where obligation with the Philippine National Bank, on
the obligation involves a liquidated amount for the February 10, 1971, plaintiff brought the present
payment of which the company has become legally action."
liable under the terms of the obligation and its
suretyship undertaking or by the demand of the Instead of filing their answer, the defendants
obligee or otherwise and the latter has merely (appellants herein) filed a motion to DISMISS,
allowed the COMPANY a term or extension for which motion was subsequently denied. Thereafter,
payment of the latters demand the full amount the defendants filed their answer and the case was
necessary to discharge the COMPANYs aforesaid set for pre-trial. On the date scheduled for pre-trial,
liability irrespective of whether or not payment has the defendants and their counsel failed to appear,
actually been made by the COMPANY, the thus on motion of the plaintiff, they were declared in
COMPANY for the protection of its interest may default and plaintiff was allowed to present its
forthwith proceed against the undersigned or either evidence ex-parte. Upon motion for reconsideration
of them by court action or otherwise to enforce filed by the defendants, the case was ordered re-
payment even prior to making payment to the opened and the case was scheduled for reception
obligee which may hereafter be done by the of defendants evidence. Thereafter, the parties
were required to submit their respective CONSEQUENTLY, THE TRIAL COURT ERRED IN
memoranda and the case was submitted for ORDERING THE DEFENDANTS-APPELLANTS
decision. On October 30, 1971, the trial court TO PAY JOINTLY AND SEVERALLY TO THE
rendered its decision, the dispositive part of which PLAINTIFF THE SUM OF P100,000.00 PLUS THE
reads: FURTHER SUM OF 15% THEREOF IN THE
CONCEPT OF REASONABLE ATTORNEYS
"WHEREFORE, in view of the foregoing FEES AND THE COSTS." (Brief for Defendants-
considerations, judgment is rendered for the Appellants, CA, pp. 1-2).
plaintiff and the defendants are ordered to pay
jointly and severally the plaintiff the sum of The crux of the controversy is whether or not the
P100,000.00 plus the further sum of 15% thereof in surety can be allowed indemnification from the
the concept of reasonable attorneys fees and the defendants-appellants, upon the latters default
costs. even before the former has paid to the creditor.

"Plaintiff upon payment of this judgment, shall There is no dispute that the overdraft line of
deliver the sum of P100,000.00 to the Philippine P1,000,000.00 and the credit line of P1,000,000.00
National Bank in partial satisfaction of the obligation applied for by the defendant was granted by the
of the defendants to said Bank. Philippine National Bank on the strength of the two
surety bonds denominated as MERICO Bond No.
"SO ORDERED." (Record on Appeal, p. 96) G(16) 0007 for one hundred thousand pesos (Exh.
A) and MERICO Bond No. G(16) 0030 for forty
Said decision was appealed to the Court of Appeals thousand pesos (Exh. B), later reduced as above
on questions of facts and law. Acting on the appeal stated on September 5, 1967 (Exh. C) by
and finding that the only question raised therein P40,000.00 or a total amount of P100,000.00. As
involves a question of law, the Court of Appeals by security and in consideration of the execution of the
resolution ** dated April 29, 1976, certified the surety bonds, the defendants executed with the
same to this Court, for proper disposition (Rollo, pp. plaintiff identical indemnity agreements (Exhs. D
62-63). and E) which provide, among others that payment
of indemnity or compensation may be claimed
This Court, thru its First Division by Resolution irrespective of whether or not plaintiff company has
dated May 31, 1978, resolved to have the case actually paid the same.
docketed and declared the same submitted for
decision (Rollo, p. 65). Defendants-appellants maintain that the complaint
is premature and that paragraph 3 of the indemnity
The defendants-appellants raised the following agreements is void for being contrary to law, public
assignments of errors in the Court of Appeals: policy and good morals. They argued that to allow
plaintiff surety (appellee herein) to receive
I indemnity or compensation for something it has not
paid in its capacity as surety would constitute unjust
enrichment at the expense of another. (Brief for
THE LOWER COURT ERRED IN NOT Defendants-Appellants, CA, p. 6).
DISMISSING THE CASE FOR LACK OF CAUSE
OF ACTION, THE COMPLAINT BEING To bolster their contention, defendants-appellants
PREMATURE BECAUSE THE PLAINTIFF HAS argue that it is an indispensable requisite for an
PAID NOTHING ON THE SURETY BONDS AND action to prosper, that the party bringing the action
HAS SUFFERED NO ACTUAL DAMAGE. must have a cause of action against the other
party; and that for a cause of action to be ripe for
II litigation, there must be both wrongful violation and
damages; all of which are not present in the case at
bar because plaintiff-appellee has not suffered any
"THE LOWER COURT ERRED IN NOT injury whatsoever, notwithstanding the demand
DECLARING THAT PARAGRAPH 3 OF THE sent to it by the Philippine National Bank, nor has
INDEMNITY AGREEMENTS IS VOID. plaintiff-appellee made a single actual payment to
said bank. Hence, to allow plaintiff-appellee to
III recover from them something which it has not paid
in its capacity as surety would violate the
fundamental principle which states NEMOCUM proceed against the defendants to impose
ALTERIUS DETRIMENTO LOCOPLETARI payment, even prior to making payment to the
POTEST (No person should unjustly enrich himself Philippine National Bank;
at the expense of another). [Defendants-Appellants
Brief, pp. 7-8; 49]. "9. That notwithstanding series of demands made
by plaintiff, the defendants failed and refused to pay
The question as to whether or not under the the Philippine National Bank the sum of ONE
Indemnity Agreement of the parties, the Surety can HUNDRED THOUSAND (P100,000.00) PESOS;"
demand indemnification from the principal, upon
the latters default, even before the former has paid "10. That on account of defendants default, plaintiff
to the creditor, has long been settled by this Court becomes liable to the Philippine National Bank in
in the affirmative. the sum of ONE HUNDRED THOUSAND
(P100,000.00) PESOS;" (Record on Appeal, p. 2.)
It has been held that:
Correspondingly, it is readily apparent that said
"The stipulation in the indemnity agreement cause of action was derived from the terms of the
allowing the surety to recover even before it paid Indemnity Agreement, paragraph 3 thereof, as
the creditor is enforceable. In accordance above quoted. By virtue of the provisions of the
therewith, the surety may demand from the Indemnity Agreement, defendants-appellants have
indemnitors even before paying the creditors." undertaken to hold plaintiff-appellee free and
(Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA harmless from any suit, damage or liability which
528 [1965] citing; Security Bank v. Globe may be incurred by reason of non-performance by
Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto the defendants-appellants of their obligation with
Surety and Ins. Co., v. Aguilar, Et Al., G.R. No. L- the Philippine National Bank. The Indemnity
5625, March 16, 1954). Agreement is principally entered into as security of
plaintiff-appellee in case of default of defendants-
Hence, appellants contention that the action of the appellants; and the liability of the parties under the
appellee (surety company) is premature or that the surety bonds is joint and several, so that the
complaint fails to state a cause of action because obligee PNB may proceed against either of them
the surety has not paid anything to the bank, for the satisfaction of the obligation. (Brief for
cannot be sustained (Cosmopolitan Ins. Co., Inc. v. Plaintiff-Appellee, p. 7).
Reyes, supra). In fact, such contention is belied not
only by the allegations in the complaint but also by II
the agreement entered into between the appellants
and the appellee in favor of the bank.
Defendants-appellants have, by virtue of the
The records show that the cause of action is Indemnity Agreement, given the plaintiff-appellee
distinctly set forth in the complaint, the pertinent the prerogative of filing an action even prior to the
portion of which states: latters making any payment to the Philippine
National Bank.
"6. That defendants, by virtue of the two Surety
Bonds (Annexes "A" and "B") were extended by the Contracts are respected as the law between the
Philippine National Bank, a credit accommodation contracting parties (Henson v. IAC, 148 SCRA 11
in the sum of TWO MILLION (P2,000,000.00) [1987], citing Castro v. CA, 99 SCRA 722 [1980]
PESOS; and Escano v. CA, 100 SCRA 197 [1980]) It is
settled that the parties may establish such
"7. That the Philippine National Bank is demanding stipulations, clauses, terms and conditions as they
and collecting from the plaintiff the sum of ONE may want to include, and as long as such
HUNDRED THOUSAND (P100,000.00) PESOS agreements are not contrary to law, morals, good
which is the defendants account with the said bank customs, public policy or public order, they shall
that is secured and covered by the above- have the force of law between them (Herrera v.
mentioned bonds (Annexes "A" and "B"); Petrophil Corp., 146 SCRA [1986].

"8. That under the terms of the Indemnity Contracts should be interpreted according to their
Agreements (Annexes "D" and "E") more literal meaning and should not be interpreted
particularly paragraph 3, plaintiff may forthwith beyond their obvious intentment (Ibid.). It is a basic
and fundamental rule in the interpretation of III
contracts that if the terms thereof are clear and
leave no doubt as to the intention of the contracting
parties, the literal meaning of the stipulation shall Finally, the trial court did not err in ordering
control. defendants-appellants to pay jointly and severally
the plaintiff the sum of P100,000.00 plus 15% as
In the case at bar, there is no dispute as to attorneys fees.
meaning of the terms of the Indemnity Agreement.
The only bone of contention is whether or not such It must be stressed that in the case at bar, the
terms are null and void as defendants-appellants principal debtors, defendants-appellants herein, are
would have this Court declare. simultaneously the same persons who executed
the Indemnity Agreement. Thus, the position
A careful analysis of the contract in question will occupied by them is that of a principal debtor and
show that the provisions therein do not contravene indemnitor at the same time, and their liability being
any law or public policy much less do they militate joint and several with the plaintiff-appellees, the
against the public good. In fact, as shown above, Philippine National Bank may proceed against
they are fully sanctioned by well-established either for fulfillment of the obligation as covered by
jurisprudence. Having voluntarily entered into such the Surety bonds. There is, therefore, no principle
contract, the appellants cannot now be heard to of guaranty involved and, therefore, the provision of
complain. Their indemnity agreement have the Article 2071 of the Civil Code does not apply.
force and effect of law. Otherwise stated, there is no more need for the
plaintiff-appellee to exhaust all the properties of the
Elucidating further on the obligations of the parties principal debtor before it may proceed against
in agreements of this nature, this Court ruled: defendants-appellants.

". . . The indemnity agreement was not executed for As to the attorneys fees, it has been squarely ruled
the benefit of the creditors; it was rather for the by this Court that the award of fifteen (15) per cent
benefit of the surety and if the latter thought it for cases of this nature is not unreasonable
necessary in its own interest to impose this (Cosmopolitan Insurance Co., Inc. v. Reyes, supra).
stipulation, and the indemnitors voluntarily agreed
to the same, the court should respect the WHEREFORE, the decision appealed from is
agreement of the parties and require them to abide hereby AFFIRMED.
by their contract." (Security Bank v. Globe
Assurance, 107 Phil. 733 [1960]. SO ORDERED.