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G.R. No. 101723 May 11, 2000

INDUSTRIAL MANAGEMENT INTERNATIONAL DEVELOPMENT CORP. (INIMACO), petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION, (Fourth Division) Cebu City, and ENRIQUE SULIT, SOCORRO MAHINAY,ESMERALDO PEGARIDO, TITA BACUSMO, GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO, DARIO GO, and ROBERTOALEGARBES, respondents.

BUENA, J.:

This is a petition for certiorariassailing the Resolution dated September 4, 1991 issued by the National Labor Relations Commission inRAB-VII-0711-84 on the alleged ground that it committed a grave abuse of discretion amounting to lack of jurisdiction in upholding theAlias Writ of Execution issued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March 10, 1987,thereby holding that the liability of the six respondents in the case below is solidary despite the absence of the word "solidary" in thedispositive portion of the Decision, when their liability should merely be joint.

The factual antecedents are undisputed:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, VirginiaBacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a complaint with the Department of Labor and Employment, RegionalArbitration Branch No. VII in Cebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin,Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), for payment of separation pay and unpaidwages.

In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B. Tumamak held that:

RESPONSIVE, to all the foregoing, judgment is hereby entered, ordering respondents Filipinas Carbon and MiningCorp. Gerardo Sicat, Antonio Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin Gin andLo Kuan Chin, to pay complainants Enrique Sulit, the total award of P82,800.00; ESMERALDO PEGARIDO the fullaward of P19,565.00; Roberto Nemenzo the total sum of P29,623.60 and DARIO GO the total award of P6,599.71,or the total aggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHTPESOS AND 31/100 (P138,588.31) to be deposited with this Commission within ten (10) days from receipt of thisDecision for appropriate disposition. All other claims are hereby Dismiss (sic) for lack of merit.

SO ORDERED.

Cebu City, Philippines.

10 March 1987. 1

No appeal was filed within the reglementary period thus, the above Decision became final and executory. On June 16, 1987, the LaborArbiter issued a writ of execution but it was returned unsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ ofExecution which ordered thus:

NOW THEREFORE, by virtue of the powers vested in me by law, you are hereby commanded to proceed to thepremises of respondents Antonio Gonzales/Industrial Management Development Corporation (INIMACO) situatedat Barangay Lahug, Cebu City, in front of La Curacha Restaurant,and/orto Filipinas Carbon and Mining corporationand Gerardo Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro Manila andat Philippine National Bank, Escolta, Manila respectively, and collect the aggregate award of ONE HUNDREDTHIRTY-EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONE CENTAVOS(P138,588.31) and thereafter turn over said amount to complainants ENRIQUE SULIT, ESMERALDO PEGARIDO,ROBERTO NEMENZO AND DARIO GO or to this Office for appropriate disposition. Should you fail to collect thesaid sum in cash, you are hereby authorized to cause the satisfaction of the same on the movable or immovableproperty(s) of respondents not exempt from execution. You are to return this writ sixty (6) (sic) days from yourreceipt hereof, together with your corresponding report.

You may collect your legal expenses from the respondents as provided for by law.

SO ORDERED. 2

On September 3, 1987, petitioner filed a "Motion to Quash Alias Writ of Execution and Set Aside Decision," 3alleging among others thatthe alias writ of execution altered and changed the tenor of the decision by changing the liability of therein respondents from joint tosolidary, by the insertion of the words "AND/OR" between "Antonio Gonzales/Industrial Management Development Corporation andFilipinas Carbon and Mining Corporation, et al." However, in an order dated September 14, 1987, the Labor Arbiter denied the motion.

On October 2, 1987, petitioner appealed 4 the Labor Arbiter's Order dated September 14, 1987 to the respondent NLRC.

The respondent NLRC dismissed the appeal in a Decision 5 dated August 31, 1988, the pertinent portions of which read:

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In matters affecting labor rights and labor justice, we have always adopted the liberal approach which favors theexercise of labor rights and which is beneficial to labor as a means to give full meaning and import to theconstitutional mandate to afford protection to labor. Considering the factual circumstances in this case, there is nodoubt in our mind that the respondents herein are called upon to pay, jointly and severally, the claims of thecomplainants as was the latters' prayers. Inasmuch as respondents herein never controverted the claims of thecomplainants below, there is no reason why complainants' prayer should not be granted. Further, in line with thepowers granted to the Commission under Article 218 (c) of the Labor code, "to waive any error, defect or irregularitywhether in substance or in form" in a proceeding before Us, We hold that the Writ of Execution be given due coursein all respects.

On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To Accept Payment Of P23,198.05 Representing One Sixth ProRataShare of Respondent INIMACO As Full and Final Satisfaction of Judgment As to Said Respondent." 6 The private respondentsopposed the motion. In an Order 7 dated August 15, 1989, the Labor Arbiter denied the motion ruling thus:

WHEREFORE, responsive to the foregoing respondent INIMACO's Motions are hereby DENIED. The Sheriff of thisOffice is order (sic) to accept INIMACO's tender payment (sic) of the sum of P23,198.05, as partial satisfaction ofthe judgment and to proceed with the enforcement of the Alias Writ of Execution of the levied properties, nowissued by this Office, for the full and final satisfaction of the monetary award granted in the instant case.

SO ORDERED.

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by the respondent NLRC in its Resolution8 datedSeptember 4, 1991 which held that:

The arguments of respondent on the finality of the dispositive portion of the decision in this case is beside the point.What is important is that the Commission has ruled that the Writ of Execution issued by the Labor Arbiter in thiscase is proper. It is not really correct to say that said Writ of Execution varied the terms of the judgment. At most,considering the nature of labor proceedings there was, an ambiguity in said dispositive portion which wassubsequently clarified by the Labor Arbiter and the Commission in the incidents which were initiated by INIMACOitself. By sheer technicality and unfounded assertions, INIMACO would now reopen the issue which was alreadyresolved against it. It is not in keeping with the established rules of practice and procedure to allow this attempt ofINIMACO to delay the final disposition of this case.

WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Order appealed from is herebyAFFIRMED.

With double costs against appellant.

Dissatisfied with the foregoing, petitioner filed the instant case, alleging that the respondent NLRC committed grave abuse of discretionin affirming the Order of the Labor Arbiter dated August 15, 1989, which declared the liability of petitioner to be solidary.

The only issue in this petition is whether petitioner's liability pursuant to the Decision of the Labor Arbiter dated March 10, 1987, issolidary or not.

Upon careful examination of the pleadings filed by the parties, the Court finds that petitioner INIMACO's liability is not solidary butmerely joint and that the respondent NLRC acted with grave abuse of discretion in upholding the Labor Arbiter's Alias Writ of Executionand subsequent Orders to the effect that petitioner's liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled todemand the whole obligation. 9 In a joint obligation each obligor answers only for a part of the whole liability and to each obligee belongsonly a part of the correlativerights. 10

Well-entrenched is the rule that solidary obligation cannot lightly be inferred. 11 There is a solidary liability only when the obligationexpressly so states, when the law so provides or when the nature of the obligation so requires. 12

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. The said falloexpressly states the followingrespondents therein as liable, namely: Filipinas Carbon and Mining Corporation, Gerardo Sicat, Antonio Gonzales, IndustrialManagement Development Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom thatthe liability of the six (6) respondents in the case below is solidary, thus their liability should merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liableto pay jointly and severally a certain sum of money, none of them may be compelled to satisfy in full said judgment. In OrientalCommercial Co. vs. Abeto and Mabanag1 this Court held:

It is of no consequence that, under the contract of suretyship executed by the parties, the obligation contracted by

the sureties was joint and several in character. The final judgment, which superseded the action for theenforcement of said contract, declared the obligation to be merely joint, and the same cannot be executedotherwise. 14

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Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositive portion that the liability of respondentstherein is solidary, the correction which is substantial can no longer be allowed in this case because the judgment has alreadybecome final and executory.

It is an elementary principle of procedure that the resolution of the court in a given issue as embodied in the dispositive part of adecision or order is the controlling factor as to settlement of rights of the parties. 15 Once a decision or order becomes final andexecutory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it.16 It thereby becomesimmutable and unalterable and any amendment or alteration which substantially affects a final and executory judgment is null and voidfor lack of jurisdiction, including the entire proceedings held for that purpose. 17 An order of execution which varies the tenor of the

judgment or exceeds the terms thereof is anullity. 18

None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10, 1987, hence the same became fi nal andexecutory. It was, therefore, removed from the jurisdiction of the Labor Arbiter or the NLRC to further alter or amend it. Thus, theproceedings held for the purpose of amending or altering the dispositive portion of the said decision are null and void for l ack ofjurisdiction. Also, the Alias Writ of Execution is null and void because it varied the tenor of the judgment in that it sought to enforce thefinal judgment against "Antonio Gonzales/Industrial Management Development Corp. (INIMACO) and/orFilipinas Carbon and MiningCorp. and Gerardo Sicat," which makes the liability solidary.

WHEREFORE, the petition is hereby GRANTED. The Resolution dated September 4, 1991 of the respondent National Labor Relationsis hereby declared NULL and VOID. The liability of the respondents in RAB-VII-0711-84 pursuant to the Decision of the Labor Arbiterdated March 10, 1987 should be, as it is hereby, considered joint and petitioner's payment which has been accepted considered as fullsatisfaction of its liability, without prejudice to the enforcement of the award, against the other five (5) respondents in the said case.

SO ORDERED.

Bellosillo, Mendoza and Quisumbing, JJ., concur.

De Leon, Jr., J., is on leave.

Footnotes

1 Decision, Rollo, pp. 17-26.

2 Alias Writ of Execution, Rollo, pp. 27-28.

3 Motion to Quash Alias Writ of Execution and Set Aside Decision, Rollo, pp. 29-32.

4 Appeal, Rollo, pp. 33-37.

5 Decision of the NLRC, Rollo, pp. 38-42; Order, Rollo, p. 48; Manifestation In Lieu of Comment,Rollo, p. 92.

6 Motion to Compel Sheriff to Accept . . ., Rollo, pp. 43-46.

7 Order, Rollo, pp. 47-50.

8 Resolution dated Sept. 4, 1991 of the NLRC, Rollo, pp, 62-66.

9 Inciong, Jr. vs. Court of Appeals, 257 SCRA 578 [1996].

10 SeeArt. 1207, Civil Code of the Philippines.

11 Smith, Bill & Co., Inc. vs. Court of Appeals, 267 SCRA 530 [1997].

12 Inciong, Jr. vs. Court of Appeals, 257 SCRA 578 [1996].

13 60 Phil. 723 [1934].

14 citingDe Leon vs. Nepomuceno and De Jesus, 37 Phil. 180; Sharruf vs. Tayabas Land Co. and Ginainati, 37Phil. 655.

15 Suntay vs. Conjuangco-Suntay, 300 SCRA 760 [1998].

16 Schering Employees' Labor Union vs. NLRC, 296 SCRA 237 [1998]; Nacuray vs. NLRC, 270 SCRA 9 [1997].

17 Arcenas vs. Court of Appeals, 299 SCRA 733 [1998].

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18 Philippine Bank of Communications vs. Court of Appeals, 279 SCRA 364 [1997].

G.R. No. L-55138 September 28, 1984

ERNESTO V. RONQUILLO, petitioner,vs.HONORABLE COURT OF APPEALS AND ANTONIO P. SO, respondents.

Gloria A. Fortun for petitioner.

Roselino Reyes Isler for respondents.

CUEVAS, J.:

This is a petition to review the Resolution dated June 30, 1980 of the then Court of Appeals (now the Intermediate Appellate Court) inCA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo versus the Hon. Florellana Castro-Bartolome, etc."and the Order of said courtdated August 20, 1980, denying petitioner's motion for reconsideration of the above resolution.

Petitioner Ernesto V. Ronquillo was one of four (4) defendants in Civil Case No. 33958 of the then Court of First Instance of Rizal (now

the Regional Trial Court), Branch XV filed by private respondent Antonio P. So, on July 23, 1979, for the collection of the sum ofP17,498.98 plus attorney's fees and costs. The other defendants were Offshore Catertrade Inc., Johnny Tan and Pilar Tan. The amountof P117,498.98 sought to be collected represents the value of the checks issued by said defendants in payment for foodstuffs deliveredto and received by them. The said checks were dishonored by the drawee bank.

On December 13, 1979, the lower court rendered its Decision1 based on the compromise agreement submitted by the parties, thepertinent portion of which reads as follows:

1. Plaintiff agrees to reduce its total claim of P117,498-95 to only P11,000 .00 and defendants agree toacknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness ofP10,000.00 the amount of P55,000.00 on or before December 24, 1979, the balance of P55,000.00,defendants individually and jointlyagree to pay within a period of six months from January 1980, or before June 30,1980; (Emphasis supplied)

xxx xxx xxx

4. That both parties agree that failure on the part of either party to comply with the foregoing terms and conditions,the innocent party will be entitled to an execution of the decision based on this compromise agreement and thedefaulting party agrees and hold themselves to reimburse the innocent party for attorney's fees, execution fees andother fees related with the execution.

xxx xxx xxx

On December 26, 1979, herein private respondent (then plaintiff filed a Motion for Execution on the ground that defendants failed tomake the initial payment of P55,000.00 on or before December 24, 1979 as provided in the Decision. Said motion for execution wasopposed by herein petitioner (as one of the defendants) contending that his inability to make the payment was due to privaterespondent's own act of making himself scarce and inaccessible on December 24, 1979. Petitioner then prayed that private respondentbe ordered to accept his payment in the amount of P13,750.00. 2

During the hearing of the Motion for Execution and the Opposition thereto on January 16, 1980, petitioner, as one of the fourdefendants, tendered the amount of P13,750.00, as his prorata share in the P55,000.00 initial payment. Another defendant, Pilar P.Tan, offered to pay the same amount. Because private respondent refused to accept their payments, demanding from them the fullinitial installment of P 55,000.00, petitioner and Pilar Tan instead deposited the said amount with the Clerk of Court. The amountdeposited was subsequently withdrawn by private respondent. 3

On the same day, January 16, 1980, the lower court ordered the issuance of a writ of execution for the balance of the initial amountpayable, against the other two defendants, Offshore Catertrade Inc. and Johnny Tan 4 who did not pay their shares.

On January 22, 1980, private respondent moved for the reconsideration and/or modification of the aforesaid Order of execution andprayed instead for the "execution of the decision in its entirety against all defendants, jointly and severally." 5 Petitioner opposed the saidmotion arguing that under the decision of the lower court being executed which has already become final, the liability of the four (4)defendants was not expressly declared to be solidary, consequently each defendant is obliged to pay only his own pro-rata or 1/4 of theamount due and payable.

On March 17, 1980, the lower court issued an Order reading as follows:

ORDER

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Regardless of whatever the compromise agreement has intended the payment whether jointly or individually, orjointly and severally, the fact is that only P27,500.00 has been paid. There appears to be a non-payment inaccordance with the compromise agreement of the amount of P27,500.00 on or before December 24, 1979. Theparties are reminded that the payment is condition sine qua non to the lifting of the preliminary attachment and theexecution of an affidavit of desistance.

WHEREFORE, let writ of execution issue as prayed for

On March 17, 1980, petitioner moved for the reconsideration of the above order, and the same was set for hearing on March 25,1980.

Meanwhile, or more specifically on March 19, 1980, a writ of execution was issued for the satisfaction of the sum of P82,500.00 asagainst the properties of the defendants (including petitioner), "singly or jointly hable." 6

On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal, issued a notice of sheriff's sale, for the sale of certain fu rnitures andappliances found in petitioner's residence to satisfy the sum of P82,500.00. The public sale was scheduled for April 2, 1980 at 10:00a.m. 7

Petitioner's motion for reconsideration of the Order of Execution dated March 17, 1980 which was set for hearing on March 25, 1980,was upon motion of private respondent reset to April 2, 1980 at 8:30 a.m. Realizing the actual threat to property rights poised by the re-setting of the hearing of s motion for reconsideration for April 2, 1980 at 8:30 a.m. such that if his motion for reconsideration would bedenied he would have no more time to obtain a writ from the appellate court to stop the scheduled public sale of his personal propertiesat 10:00 a.m. of the same day, April 2, 1980, petitioner filed on March 26, 1980 a petition for certiorari and prohibition with the thenCourt of Appeals (CA-G.R. No. SP-10573), praying at the same time for the issuance of a restraining order to stop the public sale. He

raised the question of the validity of the order of execution, the writ of execution and the notice of public sale of his properties to satisfyfully the entire unpaid obligation payable by all of the four (4) defendants, when the lower court's decision based on the compromiseagreement did not specifically state the liability of the four (4) defendants to be solidary.

On April 2, 1980, the lower court denied petitioner's motion for reconsideration but the scheduled public sale in that same day did notproceed in view of the pendency of a certiorari proceeding before the then Court of Appeals.

On June 30, 1980, the said court issued a Resolution, the pertinent portion of which reads as follows:

This Court, however, finds the present petition to have been filed prematurely. The rule is that before a petition forcertiorari can be brought against an order of a lower court, all remedies available in that court must first beexhausted. In the case at bar, herein petitioner filed a petition without waiting for a resolution of the Court on themotion for reconsideration, which could have been favorable to the petitioner. The fact that the hearing of themotion for reconsideration had been reset on the same day the public sale was to take place is of no moment sincethe motion for reconsideration of the Order of March 17, 1980 having been seasonably filed, the scheduled publicsale should be suspended. Moreover, when the defendants, including herein petitioner, defaulted in their obligationbased on the compromise agreement, private respondent had become entitled to move for an execution of thedecision based on the said agreement.

WHEREFORE, the instant petition for certiorari and prohibition with preliminary injunction is hereby denied duecourse. The restraining order issued in our resolution dated April 9, 1980 is hereby lifted without pronouncement asto costs.

SO ORDERED.

Petitioner moved to reconsider the aforesaid Resolution alleging that on April 2, 1980, the lower court had already denied the motionreferred to and consequently, the legal issues being raised in the petition were already "ripe" for determination.8 The said motion washowever denied by the Court of Appeals in its Resolution dated August 20, 1980.

Hence, this petition for review, petitioner contending that the Court of Appeals erred in

(a) declaring as premature, and in denying due course to the petition to restrain implementation of a writ of execution issued at variancewith the final decision of the lower court filed barely four (4) days before the scheduled public sale of the attached movable properties;

(b) denying reconsideration of the Resolution of June 30, 1980, which declared as premature the filing of the petition, although there isproof on record that as of April 2, 1980, the motion referred to was already denied by the lower court and there was no more motionpending therein;

(c) failing to resolve the legal issues raised in the petition and in not declaring the liabilities of the defendants, under the final decision ofthe lower court, to be only joint;

(d) not holding the lower court's order of execution dated March 17, 1980, the writ of execution and the notice of sheriff's sale, executingthe lower court's decision against "all defendants, singly and jointly", to be at variance with the lower court's final decision which did notprovide for solidary obligation; and

(e) not declaring as invalid and unlawful the threatened execution, as against the properties of petitioner who had paid his pro-ratashare of the adjudged obligation, of the total unpaid amount payable by his joint co-defendants.

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The foregoing assigned errors maybe synthesized into the more important issues of

1. Was the filing of a petition for certiorari before the then Court of Appeals against the Order of Execution issued by the lower court,dated March 17, 1980, proper, despite the pendency of a motion for reconsideration of the same questioned Order?

2. What is the nature of the liability of the defendants (including petitioner), was it merely joint, or was it several or solidary?

Anent the first issue raised, suffice it to state that while as a general rule, a motion for reconsideration should precede recourse to

certiorari in order to give the trial court an opportunity to correct the error that it may have committed, the said rule is not absolutes9 andmay be dispensed with in instances where the filing of a motion for reconsideration would serve no useful purpose, such as when themotion for reconsideration would raise the same point stated in the motion 10 or where the error is patent for the order isvoid 11 or where the relief is extremely urgent, as in cases where execution had already been ordered12 where the issue raised is onepurely of law. 13

In the case at bar, the records show that not only was a writ of execution issued but petitioner's properties were already scheduled to besold at public auction on April 2, 1980 at 10:00 a.m. The records likewise show that petitioner's motion for reconsideration of thequestioned Order of Execution was filed on March 17, 1980 and was set for hearing on March 25, 1980 at 8:30 a.m., but upon motion ofprivate respondent, the hearing was reset to April 2, 1980 at 8:30 a.m., the very same clay when petitioner's properties were to be soldat public auction. Needless to state that under the circumstances, petitioner was faced with imminent danger of his properties beingimmediately sold the moment his motion for reconsideration is denied. Plainly, urgency prompted recourse to the Court of Appeals andthe adequate and speedy remedy for petitioner under the situation was to file a petition for certiorari with prayer for restraining order tostop the sale. For him to wait until after the hearing of the motion for reconsideration on April 2, 1980 before taking recourse to theappellate court may already be too late since without a restraining order, the public sale can proceed at 10:00 that morning. In fact, thesaid motion was already denied by the lower court in its order dated April 2, 1980 and were it not for the pendency of the petition withthe Court of Appeals and the restraining order issued thereafter, the public sale scheduled that very same morning could haveproceeded.

The other issue raised refers to the nature of the liability of petitioner, as one of the defendants in Civil Case No. 33958, that is whetheror not he is liable jointly or solidarily.

In this regard, Article 1207 and 1208 of the Civil Code provides

Art. 1207. The concurrence of two or more debtors in one and the same obligation does not imply that each one ofthe former has a right to demand, or that each one of the latter is bound to render, entire compliance with theprestation. Then is a solidary liability only when the obligation expressly so states, or when the law or the nature ofthe obligation requires solidarity.

Art. 1208. If from the law,or the nature or the wording of the obligation to which the preceding article refers thecontrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there arecreditors and debtors, the credits or debts being considered distinct from one another, subject to the Rules of Courtgoverning the multiplicity of quits.

The decision of the lower court based on the parties' compromise agreement, provides:

1. Plaintiff agrees to reduce its total claim of P117,498.95 to only P110,000.00 and defendants agree toacknowledge the validity of such claim and further bind themselves to initially pay out of the total indebtedness ofP110,000.00, the amount of P5,000.00 on or before December 24, 1979, the balance of P55,000.00,defendants individually and jointlyagree to pay within a period of six months from January 1980 or before June 30,1980. (Emphasis supply)

Clearly then, by the express term of the compromise agreement and the decision based upon it, the defendants obligated themselves topay their obligation "individually and jointly".

The term "individually" has the same meaning as "collectively", "separately", "distinctively", respectively or "severally". An agreement tobe "individually liable" undoubtedly creates a several obligation, 14 and a "several obligation is one by which one individual bindshimself to perform the whole obligation. 15

In the case of Parot vs. Gemora16 We therein ruled that "the phrase juntos or separadamenteor in the promissory note is an expressstatement making each of the persons who signed it individually liablefor the payment of the fun amount of the obligation containedtherein." Likewise in Un Pak Leung vs. Negorra17 We held that "in the absence of a finding of facts that the defendants madethemselves individually hable for the debt incurred they are each liable only for one-half of said amount

The obligation in the case at bar being described as "individually and jointly", the same is therefore enforceable against one of thenumerous obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the instant petition is hereby DISMISSED. Cost against petitioner.

SO ORDERED.

Makasiar (Chairman), Abad Santos and Escolin, JJ., concur.

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Aquino, J., concurs in the result.

Concepcion, Jr. and Guerrero, JJ., are on leave.

Footnotes

1 Annex "B".

2 Annex "C".

3 Annex "D".

4 Annex "E".

5 Annex "F".

6 Annex "G".

7 Annex "H".

8 Annex "J".

9 Vda. de Sayman vs. Court of Appeals, 121 SCRA 650.

10 Fortich Celdran, et al. vs. Celdran, et al, 19 SCRA 502.

11 Iligan Electric Light Co. vs. Public Service Commission, 10 SCRA 46; Matute vs. Court of Appeals, 26 SCRA768; Locsin vs. Limaco, 26 SCRA 816.

12 Suco vs. Vda. de Leary, 12 SCRA 326.

13 Central Bank of the Philippines vs. Cloribel, 44 SCRA 307.

14 21 Words & Phrases, Permanent Ed., p. 194.

15 39 Words & Phrases, Permanent Ed., p. 72.

16 7 Phil. 94, 97.

17 9 Phil. 381.

G.R. No. 144413 July 30, 2004

REPUBLIC GLASS CORPORATION and GERVEL, INC, petitioners,

vs.LAWRENCE C. QUA, respondent.

D E C I S I O N

CARPIO, J.:

The Case

Before the Court is a petition for review1assailing the 6 March 2000 Decision2and the 26 July 2000 Resolution of theCourt of Appeals in CA-G.R. CV No. 54737. The Court of Appeals set aside the Order3of 3 May 1996 of the Regional TrialCourt of Makati, Branch 63 ("RTC-Branch 63"), in Civil Case No. 88-2643 and reinstated the Decision4of 12 January 1996

http://www.lawphil.net/judjuris/juri2004/jul2004/fnt1http://www.lawphil.net/judjuris/juri2004/jul2004/fnt1http://www.lawphil.net/judjuris/juri2004/jul2004/fnt2http://www.lawphil.net/judjuris/juri2004/jul2004/fnt2http://www.lawphil.net/judjuris/juri2004/jul2004/fnt2http://www.lawphil.net/judjuris/juri2004/jul2004/fnt3http://www.lawphil.net/judjuris/juri2004/jul2004/fnt3http://www.lawphil.net/judjuris/juri2004/jul2004/fnt3http://www.lawphil.net/judjuris/juri2004/jul2004/fnt4http://www.lawphil.net/judjuris/juri2004/jul2004/fnt4http://www.lawphil.net/judjuris/juri2004/jul2004/fnt4http://www.lawphil.net/judjuris/juri2004/jul2004/fnt4http://www.lawphil.net/judjuris/juri2004/jul2004/fnt3http://www.lawphil.net/judjuris/juri2004/jul2004/fnt2http://www.lawphil.net/judjuris/juri2004/jul2004/fnt1

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in respondents favor.

The Facts

Petitioners Republic Glass Corporation ("RGC") and Gervel, Inc. ("Gervel") together with respondent Lawrence C. Qua("Qua") were stockholders of Ladtek, Inc. ("Ladtek"). Ladtek obtained loans from Metropolitan Bank and Trust Company("Metrobank")5and Private Development Corporation of the Philippines6("PDCP") with RGC, Gervel and Qua as sureties.Among themselves, RGC, Gervel and Qua executed Agreements for Contribution, Indemnity and Pledge of Shares of

Stocks ("Agreements").7

The Agreements all state that in case of default in the payment of Ladteks loans, the parties would reimburse each otherthe proportionate share of any sum that any might pay to the creditors.8Thus, a common provision appears in theAgreements:

RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay theLenders to the extent and subject to the limitations set forth herein, all sums of money which the party made topay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make suchpayments within five (5) days from the date that the party made to pay the Lenders gives written notice to theparties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to paywhether or not it shall have already paid out such sum or any part thereof to the Lenders or to the personsentitled thereto. (Emphasis supplied)

Under the same Agreements, Qua pledged 1,892,360 common shares of stock of General Milling Corporation ("GMC") in

favor of RGC and Gervel. The pledged shares of stock served as security for the payment of any sum which RGC andGervel may be held liable under the Agreements.

Ladtek defaulted on its loan obligations to Metrobank and PDCP. Hence, Metrobank filed a collection case against Ladtek,RGC, Gervel and Qua docketed as Civil Case No. 8364 ("Collection Case No. 8364") which was raffled to the RegionalTrial Court of Makati, Branch 149 ("RTC-Branch 149"). During the pendency of Collection Case No. 8364, RGC andGervel paid Metrobank P7 million. Later, Metrobank executed a waiver and quitclaim dated 7 September 1988 in favor ofRGC and Gervel. Based on this waiver and quitclaim,9Metrobank, RGC and Gervel filed on 16 September 1988 a jointmotion to dismiss Collection Case No. 8364 against RGC and Gervel. Accordingly, RTC-Branch 149 dismissed the caseagainst RGC and Gervel, leaving Ladtek and Qua as defendants.10

In a letter dated 7 November 1988, RGC and Gervels counsel, Atty. Antonio C. Pastelero, demanded that Qua payP3,860,646, or 42.22% of P8,730,543.55,11as reimbursement of the total amount RGC and Gervel paid to Metrobank andPDCP. Qua refused to reimburse the amount to RGC and Gervel. Subsequently, RGC and Gervel furnished Qua withnotices of foreclosure of Quas pledged shares.

Qua filed a complaint for injunction and damages with application for a temporary restraining order, docketed as CivilCase No. 88-2643 ("Foreclosure Case No. 88-2643"), with RTC-Branch 63 to prevent RGC and Gervel from foreclosingthe pledged shares. Although it issued a temporary restraining order on 9 December 1988, RTC-Branch 63 denied on 2January 1989 Quas "Urgent Petition to Suspend Foreclosure Sale." RGC and Gervel eventually foreclosed all thepledged shares of stock at public auction. Thus, Quas application for the issuance of a preliminary injunction becamemoot.12

Trial in Foreclosure Case No. 88-2643 ensued. RGC and Gervel offered Quas Motion to Dismiss13in Collection Case No.8364 as basis for the foreclosure of Quas pledged shares. Quas Motion to Dismiss states:

8. The foregoing facts show that the payment of defendants Republic Glass Corporation and Gervel, Inc.was for the entire obligation covered by the Continuing Surety Agreements which were Annexes "B" and "C"of the Complaint, and that the same naturally redound[ed] to the benefit of defendant Qua herein, as provided

for by law, specifically Article 1217 of the Civil Code, which states that:

xxx

10. It is very clear that the payment of defendants Republic Glass Corporation and Gervel, Inc. was much morethan the amount stipulated in the Continuing Surety Agreement which is the basis for the action against themand defendant Qua, which was just SIX MILLION TWO HUNDRED [THOUSAND] PESOS (P6,200,000.00),hence, logically the said alleged obligation must now be considered as fully paid and extinguished.

RGC and Gervel likewise offered as evidence in Foreclosure Case No. 88-2643 the Order dismissing Collection Case No.8364,14which RTC-Branch 149 subsequently reversed on Metrobanks motion for reconsideration. Thus, RTC-Branch 149reinstated Collection Case No. 8364 against Qua.

On 12 January 1996, RTC-Branch 63 rendered a Decision in Foreclosure Case No. 88-2643 ("12 January 1996 Decision")ordering RGC and Gervel to return the foreclosed shares of stock to Qua. The dispositive portion of the 12 January 1996Decision reads:

WHEREFORE, premises considered, this Court hereby renders judgment ordering defendants jointly and

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severally liable to return to plaintiff the 1,892,360 shares of common stock of General Milling Corporation whichthey foreclosed on December 9, 1988, or should the return of these shares be no longer possible then to pay toplaintiff the amount of P3,860,646.00 with interest at 6% per annum from December 9, 1988 until fully paid andto pay plaintiff P100,000.00 as and for attorneys fees. The costs will be for defendants account.

SO ORDERED.15

However, on RGC and Gervels Motion for Reconsideration, RTC -Branch 63 issued its Order of 3 May 1996 ("3 May 1996

Order") reconsidering and setting aside the 12 January 1996 Decision. The 3 May 1996 Order states:

After a thorough review of the records of the case, and an evaluation of the evidence adduced by the parties aswell as their contentions, the issues to be resolved boil down to the following:

1. Whether or not the parties obligation to reimburse, under the Indemnity Agreements was premisedon the payment by any of them of the entire obligation;

2. Whether or not there is basis to plaintiffs apprehension that he would be made to pay twice for thesingle obligation; and

3. Whether or not plaintiff was benefited by the payments made by defendants.

Regarding the first issue, a closer scrutiny of the pertinent provisions of the Indemnity Agreements executed bythe parties would not reveal any significant indication that the parties liabilities are indeed premised on thepayment by any of them of the entire obligation. These agreements clearly provide that the parties obligation toreimburse accrues upon mere advice that one of them has paid or will so pay the obligation. It is not specifiedwhether the payment is for the entire obligation or not.

Accordingly, the Court stands corrected in this regard. The obvious conclusion that can be seen now is thatpayment of the entire obligation is not a condition sine qua nonfor the paying party to demandreimbursement. The parties have expressly contracted that each will reimburse whoever is made to pay theobligation whether entirely or just a portion thereof.

On the second issue, plaintiffs apprehension that he would be made to pay twice for the single obligation isunfounded. Under the above-mentioned Indemnity Agreements, in the event that the creditors are able to collectfrom him, he has the right to ask defendants to pay their proportionate share, in the same way defendants hadcollected from the plaintiff, by foreclosing his pledged shares of stock, his proportionate share, after they hadmade payments. From all indications, the provisions of the Indemnity Agreements have remained binding

between the parties.

On the third issue, there is merit to defendants assertion that plaintiff has benefited from the payments made bydefendants. As alleged by defendants, and this has not been denied by plaintiff, in Civil Case No. 8364filed before Branch 149 of this Court, where the creditors were enforcing the parties liabilities assureties, plaintiff succeeded in having the case dismissed by arguing that defendants payments [were]for the entire obligation, hence, the obligation should be considered fully paid and extinguished. Withthe dismissal of the case, the indications are that the creditors are no longer running after plaintiff to enforce hisliabilities as surety of Ladtek.

Whether or not the surety agreements signed by the parties and the creditors were novated is not material inthis controversy. The fact is that there was payment of the obligation. Hence, the Indemnity Agreements govern.

In the final analysis, defendants payments gave rise to plaintiffs obligation to reimburse the former. Having

failed to do so, upon demand, defendants were justified in foreclosing the pledged shares of stocks.

xxx

WHEREFORE, premises considered, the decision dated January 12, 1996 is reconsidered and set aside. Theabove-entitled complaint against defendants is DISMISSED.

Likewise, defendants counterclaim is also dismissed.

SO ORDERED.16(Emphasis supplied)

Qua filed a motion for reconsideration of the 3 May 1996 Order which RTC-Branch 63 denied.

Aggrieved, Qua appealed to the Court of Appeals. During the pendency of the appeal, Qua filed a Manifestation

17

with theCourt of Appeals attaching the Decision18of 21 November 1996 rendered in Collection Case No. 8364. The dispositiveportion of the decision reads:

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WHEREFORE, premises considered, judgment is hereby rendered ordering defendants Ladtek, Inc. andLawrence C. Qua:

1. To pay, jointly and severally, the plaintiff the amount of P44,552,738.34 as of October 31, 1987 plus thestipulated interest of 30.73% per annum and penalty charges of 12% per annum from November 1, 1987 untilthe whole amount is fully paid, less P7,000,000.00 paid by defendants Republic Glass Corporation and Gervel,Inc., but the liability of defendant Lawrence C. Qua should be limited only to P5,000,000.00 andP1,200,000.00, the amount stated in the Continuing Suretyship dated June 15, 1983, Exh. "D" andContinuing Suretyship dated December 14, 1981, Exh. "D-1", respectively, plus the stipulated interest and

expenses incurred by the plaintiff.

2. To pay, jointly and severally, the plaintiff an amount equivalent to ten (10%) percent of the total amount dueas and by way of attorneys fees;

3. To pay the cost of suit.

The Counterclaims of the defendants Ladtek, Inc. and Lawrence C. Qua against the plaintiff are herebydismissed.

Likewise, the cross-claims of the defendants are dismissed.

SO ORDERED.19(Emphasis supplied)

On 6 March 2000, the Court of Appeals rendered the questioned Decision setting aside the 3 May 1996 Order of RTC-Branch 63 and reinstating the 12 January 1996 Decision ordering RGC and Gervel to return the foreclosed shares of stockto Qua.20

Hence, this petition.

The Ruling of the Court of Appeals

In reversing the 3 May 1996 Order and reinstating the 12 January 1996 Decision, the appellate court quoted the RTC-Branch 63s 12 January 1996 Decision:

The liability of each party under the indemnity agreements therefore is premised on the payment by any of themof the entire obligation. Without such payment, there would be no corresponding share to reimburse. Payment

of the entire obligation naturally redounds to the benefit of the other solidary debtors who must then reimbursethe paying co-debtors to the extent of his corresponding share.

In the case at bar, Republic Glass and Gervel made partial payments only, and so they did not extinguish theentire obligation. But Republic Glass and Gervel nevertheless obtained quitclaims in their favor and so theyceased to be solidarily liable with plaintiff for the balance of the debt (Exhs. "D", "E", and "I"). Plaintiff thusbecame solely liable for the unpaid portion of the debt even as he is being held liable for reimbursement on thesaid portion.

What happened therefore, was that Metrobank and PDCP in effect enforced the Suretyship Agreements jointlyas against plaintiff and defendants. Consequently, the solidary obligation under the Suretyship Agreements wasnovated by the substantial modification of its principal conditions. xxx The resulting change was from one withthree solidary debtors to one in which Lawrence Qua became the sole solidary co-debtor of Ladtek.

Defendants cannot simply pay off a portion of the debt and then absolve themselves from any further liabilitywhen the obligation has not been totally extinguished.

xxx

In the final reckoning, this Court finds that the foreclosure and sale of the shares pledged by plaintiff was totallyunjustified and without basis because the obligation secured by the underlying pledge had been extinguished bynovation. xxx21

The Court of Appeals further held that there was an implied novation or substantial incompatibility in the suretys mode ormanner of payment from one for the entire obligation to one merely of proportionate share. The appellate court ruled thatRGC and Gervels payment to the creditors only amounted to their proportionate shares of the obligation, considering thefollowing evidence:

The letter of the Republic to the appellant, Exhibit "G", dated June 25, 1987, which mentioned the letter fromPDCP confirming its willingness to release the joint and solidary obligation of the Republic and Gervel subject tosome terms and conditions, one of which is the appellants acceptable repayment plan of his "pro-rata share";and the letter of PDCP to the Republic, Exhibit "H", mentioning full payment of the "pro rata share" of theRepublic and Gervel, and the need of the appellant to submit an acceptable repayment plan covering his "pro-

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rata share", the release from solidary liability by PDCP, Exhibit "J", mentioning full payment by the Republic andGervel of their "pro rata share" in the loan, as solidary obligors, subject however to the terms and conditions ofthe hold out agreement; and the non-payment in full of the loan, subject of the May 10, 1984 Promissory Note,except the 7 million payment by both Republic and Gervel, as mentioned in the Decision (Case No. 8364,Metrobank vs. Ladtek, et al). Precisely, Ladtek and the appellant, in said Decision were directed to payMetrobank the balance of P9,560,798, supposedly due and unpaid.

Thus, the payment did not extinguish the entire obligation and did not benefit Qua. Accordingly, RGC and Gervel cannotdemand reimbursement. The Court of Appeals also held that Qua even became solely answerable for the unpaid balanceof the obligations by virtue of the quitclaims executed by Metrobank and PDCP in favor of RGC and Gervel. RGC andGervel ceased to be solidarily liable for Ladteks loan obligations.

22

The Issues

RGC and Gervel raise the following issues for resolution:

I.

WHETHER THE PRINCIPLE OF ESTOPPEL APPLIES TO QUAS JUDICIAL STATEMENTS THAT RGC ANDGERVEL PAID THE ENTIRE OBLIGATION.

II.

WHETHER PAYMENT OF THE ENTIRE OBLIGATION IS A CONDITION SINE QUA NONFOR RGC ANDGERVEL TO DEMAND REIMBURSEMENT FROM QUA UNDER THE INDEMNITY AGREEMENTSEXECUTED BY THEM AFTER RGC AND GERVEL PAID METROBANK UNDER THE SURETY AGREEMENT.

III.

ASSUMING ARGUENDOTHAT THERE WAS NOVATION OF THE SURETY AGREEMENTS SIGNED BY THEPARTIES AND THE CREDITORS, WHETHER THE NOVATION IS MATERIAL IN THIS CASE.23

The Courts Ruling

We deny the petition.

Whether Qua was in estoppel

RGC and Gervel contend that Qua is in estoppel for making conflicting statements in two different and separate cases.Qua cannot now claim that the payment made to Metrobank was not for the entire obligation because of his Motion toDismiss Collection Case No. 8364 where he stated that RGC and Gervels payment was for theentire obligation.

The essential elements of estoppel in paisare considered in relation to the party to be estopped, and to the party invokingthe estoppel in his favor. On the party to be estopped, such party (1) commits conduct amounting to false representationor concealment of material factsor at least calculated to convey the impression that the facts are inconsistent with thosewhich the party subsequently attempts to assert; (2) has the intent, or at least expectation that his conduct shall at leastinfluence the other party; and (3) has knowledge, actual or constructive, of the real facts. On the party claiming theestoppel, such party (1) has lack of knowledge and of the means of knowledge of the truth on the facts in question; (2)has relied, in good faith, on the conduct or statements of the party to be estopped; (3) has acted or refrained from actingbased on such conduct or statements as to change the position or status of the party claiming the estoppel, to his injury,

detriment or prejudice.

24

In this case, the essential elements of estoppel are inexistent.

While Quas statements in Collection Case No. 8364 conflict with his statements in Foreclosure Case No. 88-2643, RGCand Gervel miserably failed to show that Qua, in making those statements, intended to falsely represent or conceal thematerial facts. Both parties undeniably know the real facts.

Nothing in the records shows that RGC and Gervel relied on Quas statements in Collection Case No. 8364 such that theychanged their position or status, to their injury, detriment or prejudice. RGC and Gervel repeatedly point out that it was thepresiding judge25in Collection Case No. 8364 who relied on Quas statements in Collection Case No. 8364. RGC andGervel claim that Qua "deliberately led the Presiding Judge to believe" that their payment to Metrobank was for the entireobligation. As a result, the presiding judge ordered the dismissal of Collection Case No. 8364 against Qua.26

RGC and Gervel further invoke Section 4 of Rule 129 of the Rules of Court to support their stance:

Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the course of the proceedingsin the same case, does not require proof. The admission may be contradicted only by showing that it was made

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through palpable mistake or that no such admission was made.

A party may make judicial admissions in (a) the pleadings filed by the parties, (b) during the trial either by verbal or writtenmanifestations or stipulations, or (c) in other stages of the judicial proceeding.27

The elements of judicial admissions are absent in this case. Qua made conflicting statements in Collection Case No. 8364and in Foreclosure Case No. 88-2643, and not in the "same case" as required in Section 4 of Rule 129. To constitutejudicial admission, the admission must be made in the same case in which it is offered. If made in another case or in

another court, the fact of such admission must be proved as in the case of any other fact, although if made in a judicialproceeding it is entitled to greater weight.28

RGC and Gervel introduced Quas Motion to Dismiss and the Order dismissing Collection Case No. 8364 to prove Quasclaim that the payment was for the entire obligation. Qua does not deny making such statement but explained that he"honestly believed and pleaded in the lower court and in CA-G.R. CV No. 58550 that the entire debt was fully extinguishedwhen the petitioners paid P7 million to Metrobank."29

We find Quas explanation substantiated by the evidence on record. As stated in the Agreements, Ladteks original loanfrom Metrobank was only P6.2 million. Therefore, Qua reasonably believed that RGC and Gervels P7 million payment toMetrobank pertained to the entire obligation. However, subsequent facts indisputably show that RGC and Gervelspayment was not for the entire obligation. RTC-Branch 149 reinstated Collection Case No. 8364 against Qua and ruled inMetrobanks favor, ordering Qua to pay P6.2 million.

Whether payment of the entire obligation is an essential condition for reimbursement

RGC and Gervel assail the Court of Appeals ruling that the parties liabilities under the Agreements depend on the fullpaymentof the obligation. RGC and Gervel insist that it is not an essential condition that the entire obligation must first bepaid before they can seek reimbursement from Qua. RGC and Gervel contend that Qua should pay 42.22% of anyamountwhich they paid or would pay Metrobank and PDCP.

RGC and Gervels contention is partly meritorious.

Payment of the entire obligation by one or some of the solidary debtors results in a corresponding obligation of the otherdebtors to reimburse the paying debtor.30However, we agree with RGC and Gervels contention tha t in this case paymentof the entire obligation is not an essential condition before they can seek reimbursement from Qua. The words of theAgreements are clear.

RGC, GERVEL and QUA each covenant that each will respectively reimburse the party made to pay the

Lenders to the extent and subject to the limitations set forth herein, all sums of money which the party madeto pay the Lenders shall pay or become liable to pay by reason of any of the foregoing, and will make suchpayments within five (5) days from the date that the party made to pay the Lenders gives written notice to theparties hereto that it shall have become liable therefor and has advised the Lenders of its willingness to paywhether or not it shall have already paid out such sum or any part thereof to the Lenders or to the personsentitled thereto. (Emphasis supplied)

The Agreements are contracts of indemnity not only against actual loss but against liability as well. In AssociatedInsurance & Surety Co., Inc. v. Chua,31we distinguished between a contract of indemnity against loss and a contract ofindemnity against liability, thus:32

The agreement here sued upon is not only one of indemnity against loss but of indemnity against liability. Whilethe first does not render the indemnitor liable until the person to be indemnified makes payment or sustainsloss, the second becomes operative as soon as the liability of the person indemnified arises irrespectiveof whether or not he has suffered actual loss. (Emphasis supplied)

Therefore, whether the solidary debtor has paid the creditor, the other solidary debtors should indemnify the former oncehis liability becomes absolute. However, in this case, the liability of RGC, Gervel and Qua became absolutesimultaneously when Ladtek defaulted in its loan payment. As a result, RGC, Gervel and Qua all became directly liable atthe same time to Metrobank and PDCP. Thus, RGC and Gervel cannot automatically claim for indemnity from Quabecause Qua himself is liable directly to Metrobank and PDCP.

If we allow RGC and Gervel to collect from Qua his proportionate share, then Qua would pay much more than hisstipulated liability under the Agreements. In addition to the P3,860,646 claimed by RGC and Gervel, Qua would have topay his liability of P6.2 million to Metrobank and more than P1 million to PDCP. Since Qua would surely exceed hisproportionate share, he would then recover from RGC and Gervel the excess payment. This situation is absurd andcircuitous.

Contrary to RGC and Gervels claim, payment ofany amountwill not automatically result in reimbursement. If a solidarydebtor pays the obligation in part, he can recover reimbursement from the co-debtors only in so far as hispayment exceededhis share in the obligation.33This is precisely because if a solidary debtor pays an amount equal to hisproportionate share in the obligation, then he in effect pays only what is due from him. If the debtor pays less than his

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share in the obligation, he cannot demand reimbursement because his payment is less than his actual debt.

To determine whether RGC and Gervel have a right to reimbursement, it is indispensable to ascertain the total obligationof the parties. At this point, it becomes necessary to consider the decision in Collection Case No. 8364 on the partiesobligation to Metrobank. To repeat, Metrobank filed Collection Case No. 8364 against Ladtek, RGC, Gervel and Qua tocollect Ladteks unpaid loan.

RGC and Gervel assail the Court of Appeals consideration of the decision in Collection Case No. 836 434because Qua did

not offer the decision in evidence during the trial in Foreclosure Case No. 88-2643 subject of this petition. RTC-Branch6235rendered the decision in Collection Case No. 8364 on 21 November 1996 while Qua filed his Notice of Appeal of the3 May 1996 Order on 19 June 1996. Qua could not have possibly offered in evidence the decision in Collection Case No.8364 because RTC-Branch 62 rendered the decision only after Qua elevated the present case to the Court of Appeals.Hence, Qua submitted the decision in Collection Case No. 8364 during the pendency of the appeal of Foreclosure CaseNo. 88-2643 in the Court of Appeals.

As found by RTC-Branch 62, RGC, Gervel and Quas total obligation was P14,200,854.37 as of 31 October 1987.36Duringthe pendency of Collection Case No. 8364, RGC and Gervel paid Metrobank P7 million. Because of the payment,Metrobank executed a quitclaim37in favor of RGC and Gervel. By virtue of Metrobanks quitclaim, RTC-Branch 62dismissed Collection Case No. 8364 against RGC and Gervel, leaving Ladtek and Qua as defendants. Considering thatRGC and Gervel paid only P7 million out of the total obligation of P14,200,854.37, which payment was less than RGC andGervels combined shares in the obligation,

38it was clearly partial payment. Moreover, if it were full payment, then theobligation would have been extinguished. Metrobank would have also released Qua from his obligation.

RGC and Gervel also made partial payment to PDCP. Proof of this is the Release from Solidary Liability that PDCPexecuted in RGC and Gervels favor which stated that their payment of P1,730,543.55 served as "full payment of theircorresponding proportionate share" in Ladteks foreign currency loan.

39Moreover, PDCP filed a collection case againstQua alone, docketed as Civil Case No. 2259, in the Regional Trial Court of Makati, Branch 150.40

Since they only made partial payments, RGC and Gervel should clearly and convincingly show that their payments toMetrobank and PDCP exceeded their proportionate shares in the obligations before they can seek reimbursement fromQua. This RGC and Gervel failed to do. RGC and Gervel, in fact, never claimed that their payments exceeded their sharesin the obligations. Consequently, RGC and Gervel cannot validly seek reimbursement from Qua.

Whether there was novation of the Agreements

RGC and Gervel contend that there was no novation of the Agreements. RGC and Gervel further contend that anynovation of the Agreements is immaterial to this case. RGC and Gervel disagreed with the Court of Appeals on the effectof the "implied novation" which supposedly transpired in this case. The Court of Appeals found that "there was an implied

novation or substantial incompatibility in the mode or manner of payment by the surety from the entire obligation, to onemerely of proportionate share." RGC and Gervel claim that if it is true that an implied novation occurred, then the effect"would be to release respondent (Qua) as the entire obligation is considered extinguished by operation of law." Thus, Quashould now reimburse RGC and Gervel his proportionate share under the surety agreements.

Novation extinguishes an obligation by (1) changing its object or principal conditions; (2) substituting the person of thedebtor; and (3) subrogating a third person in the rights of the creditor. Article 1292 of the Civil Code clearly provides that inorder that an obligation may be extinguished by another which substitutes the same, it should be declared in unequivocalterms, or that the old and new obligations be on every point incompatible with each other.41Novation may either beextinctive or modificatory. Novation is extinctive when an old obligation is terminated by the creation of a new obligationthat takes the place of the former. Novation is merely modificatory when the old obligation subsists to the extent it remainscompatible with the amendatory agreement.42

We find that there was no novation of the Agreements. The parties did not constitute a new obligation to substitute theAgreements. The terms and conditions of the Agreements remain the same. There was also no showing of complete

incompatibility in the manner of payment of the parties obligations. Contrary to the Courtof Appeals ruling, the mode ormanner of payment by the parties did not change from one for the entire obligation to one merely of proportionate share.The creditors, namely Metrobank and PDCP, merely proceeded against RGC and Gervel for their proportionate sharesonly.43This preference is within the creditors discretion which did not necessarily affect the nature of the obligations aswell as the terms and conditions of the Agreements. A creditor may choose to proceed only against some and not all ofthe solidary debtors. The creditor may also choose to collect part of the debt from some of the solidary debtors, and theremaining debt from the other solidary debtors.

In sum, RGC and Gervel have no legal basis to seek reimbursement from Qua. Consequently, RGC and Gervel cannotvalidly foreclose the pledge of Quas GMC shares of stock which secured his obligation to reimburse.

44Therefore, theforeclosure of the pledged shares of stock has no leg to stand on.

WHEREFORE, we DENY the petition. The Decision dated 6 March 2000 of the Court of Appeals in CA-G.R. CV No.54737 is AFFIRMED. Costs against petitioners.

SO ORDERED.

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Davide, Jr., C.J., Chairman, Quisumbing, Ynares-Santiago, and Azcuna, JJ., concur.

Footnotes

1Under Rule 45 of the Rules of Court.

2Penned by Associate Justice Bernardo LL. Salas with Associate Justices Salome A. Montoya and PresbiteroJ. Velasco, Jr. concurring.

3Penned by Judge Amado A. Amador, Jr.

4Penned by Judge Ruben A. Mendiola.

5In its Decision dated 21 November 1996, the Regional Trial Court of Makati, Branch 62, found that Ladteksloan from Metrobank amounted to P44,552,738.34 as of 31 October 1987.

6PDCP granted Ladtek a foreign currency loan in the amount of US$110,000.00 on 20 January 1982.

7The Agreements were executed on 9 December 1981, November 1982 and 19 September 1983.

8The Agreements provide the following:

1. Contribution

Should the Company be in default under the Credit Agreements, and one party to the SuretyshipAgreements is required to pay to the Lenders under the Suretyship Agreements, the other partiesshall contribute an amount equivalent to the percentage set forth after their respective names belowof each amount of principal, interest and all other sums, liability, loss and expense, includingattorneys fees, that the party made to pay the Lenders may incur by reason of its executing theSuretyship Agreements, or in defending or prosecuting any suit, action or other proceeding brought inconnection therewith, or in obtaining or attempting to obtain a release from any liability in respectthereof:

RGC - 35.557%

Gervel - 22.223%

Qua - 42.220%

It is the intention that as between the parties hereto, each party would be liable for any default by theCompany under the Credit Agreements only to the extent of the percentage that the stockholdings ofeach in the Company bears to the aggregate stockholdings in the Company of all the parties hereto.(Emphasis supplied)

9Exhibit "D," Records, p. 316.

10

Exhibit "F," Records, p. 319.

11RGC and Gervel paid Metrobank P7 million and PDCP P1,730,543.55.

12Records, p. 50.

13Exhibit "6" to "6-D," Records, pp. 392-396.

14Exhibit "7" to "7-C-1," Records, pp. 397-400.

15Rollo, p. 69.

16Rollo, pp. 71-73.

17Ibid., pp. 126-128.

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18Penned by Judge Roberto C. Diokno.

19Rollo, pp. 129-151.

20Ibid., p. 56.

21Ibid., pp. 53-56.

22Ibid., pp. 51-52.

23Ibid., p. 287.

24 Philippine National Bank v. Court of Appeals, G.R. No. 121739, 14 June 1999, 308 SCRA 229; Kalalo v. Luz,No. L-27782, 31 July 1970, 34 SCRA 337. See also Philippine Bank of Communications v. Court of Appeals,G.R. No. 109803, 20 April 1998, 289 SCRA 178.

25Now Associate Justice of this Court, Consuelo Ynares-Santiago.

26As earlier stated, Case No. 8364 was reinstated against Qua upon Metrobanks motion for reconsideration ofthe dismissal of the case.

27FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM, VOLUME TWO, SEVENTH REVISEDEDITION, 650.

28Ibid.

29Rollo, p. 239.

30This is in accordance with Art. 1217 of the Civil Code which expressly provides:

Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidarydebtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each,

with interest for the payment already made. If the payment is made before the debt is due, no interestfor the intervening period may be demanded.

xxx

See also Malayan Insurance Co., Inc. v. Court of Appeals, No. L-36413, 26 September 1988, 165SCRA 536; Camus v. Hon. Court of Appeals, et al., 107 Phil. 4 (1960).

31L-15656, 31 January 1963, 7 SCRA 52. In Associated Insurance, the insurance company put up a bail bondfor the provisional liberty of the accused. An indemnity agreement in favor of the insurance company was in turnsigned by appellant, solidarily with accused. Accused failed to appear in court for trial, thus, the bail bond wasordered confiscated. After judgment on the bond was rendered, the insurance company filed an action againstappellant on the indemnity agreement. The Court ruled that the stipulation in the indemnity agreement allowingthe insurance company to proceed against appellant for indemnification even prior to actual satisfaction of thejudgment on the bond is valid and not contrary to public policy.

32 Guerrero v. Court of Appeals, No. L-22366, 30 October 1969, 29 SCRA 791.

33ARTURO M. TOLENTINO, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THEPHILIPPINES, VOLUME IV, 1997, 244.

34The decision in Case No. 8364 became final on 15 March 2004. The Court denied Quas petition for reviewand the motion for reconsideration of the Court of Appeals decision affirming the decision of the Regional TrialCourt of Makati, Branch 62.

35Case No. 8364 was later assigned to RTC-Branch 62.

36As stated in the decision in Case No. 8364, which was affirmed by the Court of Appeals.

37The quitclaim provides:

xxx in consideration of the payment of SEVEN MILLION PESOS (P7,000,000.00) Philippine

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Currency, made by Republic Glass Corporation and Gervel, Inc., receipt of which is herebyacknowledged, does hereby WAIVE, QUITCLAIM, TERMINATE AND RELINQUISH any and allrights, claims or causes of action that Metrobank may have against Republic Glass Corp. and Gervel,Inc. xxx, in Civil Case No. 8364, xxx, thereby releasing and discharging forever said Republic GlassCorp. and Gervel, Inc., as well as its officers and directors, from any and all liabilities of whatsoeverkind or nature related to the above case, or related to any account of Ladtek, Inc. and/or Lawrence C.Qua.

38RGCsshare is 35.557% while Gervels share is 22.223% of the obligation.

RGC - 35.557%

+ Gervel - 22.223%

Total - 57.780%

57.780% of P14,200,854.37 (total obligation) is equal to P8,205,253.655.

39The release provides:

WHEREAS, RGC and GERVEL, in consideration of their full payment of their correspondingproportionate share in the Loan of the BORROWER, have requested to be released from theirobligation as solidary obligor under and by virtue of the abovementioned Assumption of SolidaryLiability and the LENDER have consented and agreed to release the said solidary obligors, subject tothe terms and conditions of that Holdout Agreement, dated December 17, 1987, between theLENDER, RGC and GERVEL; xxx (Emphasis supplied)

40Records, pp. 192-199.

41 Tropical Homes, Inc. v. Court of Appeals, G.R. No. 111858, 14 May 1997, 272 SCRA 428.

42 Quinto v. People, G.R. No. 126712, 14 April 1999, 305 SCRA 708. See alsoBautista v. Pilar DevelopmentCorporation, G.R. No. 135046, 17 August 1999, 312 SCRA 611.

43

Art. 1216 of the Civil Code states:

Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of themsimultaneously. The demand made against one of them shall not be an obstacle to those which maysubsequently be directed against the others, so long as the debt has not been fully collected.

See also Guerrero v. Court of Appeals, No. L-22366, 30 October 1969, 29 SCRA 791.

44Art. 2087 of the Civil Code provides:

Art. 2087. It is also the essence of these contracts (pledge, mortgage and antichresis) that when theprincipal obligation becomes due, the things in which the pledge or mortgage consists may bealienated for the payment to the creditor.

DIAMOND BUILDERSCONGLOMERATION,ROGELIO S. ACIDRE,TERESITA P. ACIDRE,GRACE C. OSIAS,VIOLETA S. FAIYAZ andEMMA S. CUTILLAR,

Petitioners,

- versus -

COUNTRY BANKERS

INSURANCE CORPORATION,

Respondent.

G.R. No. 171820

Present:

YNARES-SANTIAGO,J.,

Chairperson,

CHICO-NAZARIO,

VELASCO,*

NACHURA, and

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