Civ Credit Cases (Dean ALigada)

7/27/2019 Civ Credit Cases (Dean ALigada)

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G.R. No. 72275 November 13, 1991

PACIFIC BANKING CORPORATION, petitioner,vs.HON INTERMEDIATE APPELLATE COURT AND ROBERTO REGALA,

JR., respondents.

Ocampo, Dizon & Domingo for petitioner.

Angara, Concepcion, Regala & Cruz for private respondent.

MEDIALDEA,J.:p

This is a petition for review on certiorariof the decision (pp 21-31, Rollo) of theIntermediate Appellate Court (now Court of Appeals) in AC-G.R. C.V. No.02753, 1 which modified the decision of the trial court against herein private respondent

Roberto Regala, Jr., one of the defendants in the case for sum of money filed by PacificBanking Corporation.

The facts of the case as adopted by the respondent appellant court from hereinpetitioner's brief before said court are as follows:

On October 24, 1975, defendant Celia Syjuco Regala (hereinafter referred toas Celia Regala for brevity), applied for and obtained from the plaintiff theissuance and use of Pacificard credit card (Exhs. "A", "A-l",), under theTerms and Conditions Governing the Issuance and Use of Pacificard (Exh."B" and hereinafter referred to as Terms and Conditions), a copy of which

was issued to and received by the said defendant on the date of theapplication and expressly agreed that the use of the Pacificard is governedby said Terms and Conditions. On the same date, the defendant-appelantRobert Regala, Jr., spouse of defendant Celia Regala, executed a"Guarantor's Undertaking" (Exh. "A-1-a") in favor of the appellee Bank,whereby the latter agreed "jointly and severally of Celia Aurora SyjucoRegala, to pay the Pacific Banking Corporation upon demand, any and allindebtedness, obligations, charges or liabilities due and incurred by saidCelia Aurora Syjuco Regala with the use of the Pacificard, or renewalsthereof, issued in her favor by the Pacific Banking Corporation". It was also

agreed that "any changes of or novation in the terms and conditions inconnection with the issuance or use of the Pacificard, or any extension oftime to pay such obligations, charges or liabilities shall not in any mannerrelease me/us from responsibility hereunder, it being understood that I fullyagree to such charges, novation or extension, and that this understanding isa continuing one and shall subsist and bind me until the liabilities of the saidCelia Syjuco Regala have been fully satisfied or paid.

Plaintiff-appellee Pacific Banking Corporation has contracted with accreditedbusiness establishments to honor purchases of goods and/or services by


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Pacificard holders and the cost thereof to be advanced by the plaintiff-appellee for the account of the defendant cardholder, and the latterundertook to pay any statements of account rendered by the plaintiff-appellee for the advances thus made within thirty (30) days from the date ofthe statement, provided that any overdue account shall earn interest at therate of 14% per annum from date of default.

The defendant Celia Regala, as such Pacificard holder, had purchased goodsand/or services on credit (Exh. "C", "C-l" to "C-112") under her Pacificard,for which the plaintiff advanced the cost amounting to P92,803.98 at thetime of the filing of the complaint.

In view of defendant Celia Regala's failure to settle her account for thepurchases made thru the use of the Pacificard, a written demand (Exh. "D")was sent to the latter and also to the defendant Roberto Regala, Jr. (Exh. "") under his "Guarantor's Undertaking."

A complaint was subsequently filed in Court for defendant's (sic) repeated

failure to settle their obligation. Defendant Celia Regala was declared indefault for her failure to file her answer within the reglementary period.Defendant-appellant Roberto Regala, Jr., on the other hand, filed his Answerwith Counterclaim admitting his execution of the "Guarantor'sUnderstanding", "but with the understanding that his liability would belimited to P2,000.00 per month."

In view of the solidary nature of the liability of the parties, the presentationof evidence ex-parte as against the defendant Celia Regala was jointly heldwith the trial of the case as against defendant Roberto Regala.

After the presentation of plaintiff's testimonial and documentary evidence,fire struck the City Hall of Manila, including the court where the instant casewas pending, as well as all its records.

Upon plaintiff-appellee's petition for reconstitution, the records of the instantcase were duly reconstituted. Thereafter, the case was set for pre-trialconference with respect to the defendant-appellant Roberto Regala onplaintiff-appellee's motion, after furnishing the latter a copy of the same. Noopposition thereto having been interposed by defendant-appellant, the trialcourt set the case for pre-trial conference. Neither did said defendant-

appellant nor his counsel appear on the date scheduled by the trial court forsaid conference despite due notice. Consequently, plaintiff-appellee movedthat the defendant-appellant Roberto Regala he declared as in default andthat it be allowed to present its evidence ex-parte, which motion wasgranted. On July 21, 1983, plaintiff-appellee presented its evidence ex-parte. (pp. 23-26, Rollo)

After trial, the court a quo rendered judgment on December 5, 1983, the dispositiveportion of which reads:


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WHEREFORE, the Court renders judgment for the plaintiff and against thedefendants condemning the latter, jointly and severally, to pay said plaintiffthe amount of P92,803.98, with interest thereon at 14% per annum,compounded annually, from the time of demand on November 17, 1978 untisaid principal amount is fully paid; plus 15% of the principal obligation asand for attorney's fees and expense of suit; and the costs.

The counterclaim of defendant Roberto Regala, Jr. is dismissed for lack ofmerit.

SO ORDERED. (pp. 22-23, Rollo)

The defendants appealed from the decision of the court a quo to the IntermediateAppellate Court.

On August 12, 1985, respondent appellate court rendered judgment modifying thedecision of the trial court. Private respondent Roberto Regala, Jr. was made liable onlyto the extent of the monthly credit limit granted to Celia Regala, i.e., at P2,000.00 a

month and only for the advances made during the one year period of the card'seffectivity counted from October 29, 1975 up to October 29, 1976. The dispositiveportion of the decision states:

WHEREFORE, the judgment of the trial court dated December 5, 1983 ismodified only as to appellant Roberto Regala, Jr., so as to make him liableonly for the purchases made by defendant Celia Aurora Syjuco Regala withthe use of the Pacificard from October 29, 1975 up to October 29, 1976 upto the amount of P2,000.00 per month only, with interest from the filing ofthe complaint up to the payment at the rate of 14% per annum withoutpronouncement as to costs. (p. 32, Rollo)

A motion for reconsideration was filed by Pacific Banking Corporation which therespondent appellate court denied for lack of merit on September 19, 1985 (p.33, Rollo).

On November 8, 1985, Pacificard filed this petition. The petitioner contends that whilethe appellate court correctly recognized Celia Regala's obligation to Pacific Banking Corp.for the purchases of goods and services with the use of a Pacificard credit card in thetotal amount of P92,803.98 with 14% interest per annum, it erred in limiting privaterespondent Roberto Regala, Jr.'s liability only for purchases made by Celia Regala with

the use of the card from October 29, 1975 up to October 29, 1976 up to the amount ofP2,000.00 per month with 14% interest from the filing of the complaint.

There is merit in this petition.

The pertinent portion of the "Guarantor's Undertaking" which private respondent RobertoRegala, Jr. signed in favor of Pacific Banking Corporation provides:

I/We, the undersigned, hereby agree, jointly and severally with Celia SyjucoRegala to pay the Pacific Banking Corporation upon demand any and all


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indebtedness, obligations, charges or liabilities due and incurred by saidCelia Syjuco Regala with the use of the Pacificard or renewals thereof issuedin his favor by the Pacific Banking Corporation. Any changes of or Novationin the terms and conditions in connection with the issuance or use of saidPacificard, or any extension of time to pay such obligations, charges orliabilities shall not in any manner release me/us from the responsibilityhereunder, it being understood that the undertaking is a continuing one andshall subsist and bind me/us until all the liabilities of the said Celia SyjucoRegala have been fully satisfied or paid. (p. 12,Rollo)

The undertaking signed by Roberto Regala, Jr. although denominated "Guarantor'sUndertaking," was in substance a contract of surety. As distinguished from a contract ofguaranty where the guarantor binds himself to the creditor to fulfill the obligation of theprincipal debtor only in case the latter should fail to do so, in a contract of suretyship,the surety binds himself solidarily with the principal debtor (Art. 2047, Civil Code of thePhilippines).

We need not look elsewhere to determine the nature and extent of private respondent

Roberto Regala, Jr.'s undertaking. As a surety he bound himself jointly and severallywith the debtor Celia Regala "to pay the Pacific Banking Corporation upon demand, anyand all indebtedness, obligations, charges or liabilities due and incurred by said CeliaSyjuco Regala with the use of Pacificard or renewals thereof issued in (her) favor byPacific Banking Corporation." This undertaking was also provided as a condition in theissuance of the Pacificard to Celia Regala, thus:

5. A Pacificard is issued to a Pacificard-holder against the joint and severalsignature of a third party and as such, the Pacificard holder and theguarantor assume joint and several liabilities for any and all amount arisingout of the use of the Pacificard. (p. 14, Rollo)

The respondent appellate court held that "all the other rights of the guarantor are notthereby lost by the guarantor becoming liable solidarily and therefore a surety." Itfurther ruled that although the surety's liability is like that of a joint and several debtor,it does not make him the debtor but still the guarantor (or the surety), relying on thecase of Government of the Philippines v. Tizon. G.R. No. L-22108, August 30, 1967, 20SCRA 1182. Consequently, Article 2054 of the Civil Code providing for a limited liabilityon the part of the guarantor or debtor still applies.

It is true that under Article 2054 of the Civil Code, "(A) guarantor may bind himself for

less, but not for more than the principal debtor, both as regards the amount and theonerous nature of the conditions. 2 It is likewise not disputed by the parties that thecredit limit granted to Celia Regala was P2,000.00 per month and that Celia Regalasucceeded in using the card beyond the original period of its effectivity, October 29,1979. We do not agree however, that Roberto Jr.'s liability should be limited to thatextent. Private respondent Roberto Regala, Jr., as surety of his wife, expressly boundhimself up to the extent of the debtor's (Celia) indebtedness likewise expressly waivingany "discharge in case of any change or novation of the terms and conditions inconnection with the issuance of the Pacificard credit card."Roberto, in fact, made hiscommitment as a surety a continuing one, binding upon himself until all the liabilities of


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Celia Regala have been fully paid. All these were clear under the "Guarantor'sUndertaking" Roberto signed, thus:

. . . Any changes of or novation in the terms and conditions in connectionwith the issuance or use of said Pacificard, or any extension of time to paysuch obligations, charges or liabilities shall not in any manner release me/usfrom the responsibility hereunder, it being understood that the undertakingis a continuing one and shall subsist and bind me/us until all the liabilities ofthe 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 theundertaking of future changes in the terms and conditions governing the issuance of thecredit card to his wife and that, notwithstanding, he voluntarily agreed to be bound as asurety. As in guaranty, a surety may secure additional and future debts of the principaldebtor 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 ofthe Surety under its bond would arise only if its co-defendants, the principalobligor, should fail to comply with the contract. To paraphrase the ruling inthe case of Municipality of Orion vs. Concha, the liability of the Surety is"consequent upon the liability" of Tizon, or "so dependent on that of theprincipal debtor" that the Surety "is considered in law as being the sameparty as the debtor in relation to whatever is adjudged, touching theobligation of the latter"; or the liabilities of the two defendants herein "areso interwoven and dependent as to be inseparable." Changing theexpression, if the defendants are held liable, their liability to pay the plaintiffwould be solidary, but the nature of the Surety's undertaking is such that itdoes 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. Itis in this sense that a surety, although solidarily liable with the principal debtor, isdifferent from the debtor. It does not mean, however, that the surety cannot be heldliable to the same extent as the principal debtor. The nature and extent of the liabilitiesof a guarantor or a surety is determined by the clauses in the contract of suretyship(seePCIB v. CA, L-34959, March 18, 1988, 159 SCRA 24).

ACCORDINGLY, the petition is GRANTED. The questioned decision of respondentappellate court is SET ASIDE and the decision of the trial court is REINSTATED.

SO ORDERED.

G.R. No. 74231 April 10, 1987


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CORAZON J. VIZCONDE, petitioner,vs.INTERMEDIATE APPELLATE COURT & PEOPLE OF THE PHILIPPINES, respondents

NARVASA,J.:

Corazon J. Vizconde has appealed as contrary to law and the evidence, the Decision ofthe Court of Appeals 1affirming her conviction of the crime ofestafa by the Court of FirstInstance of Rizal Quezon City Branch, in Criminal Case No. Q- 5476.

Vizconde and Pilar A. Pagulayan were charged in the Trial Court with misappropriationand conversion of an 8-carat diamond ring belonging to Dr. Marylon J. Perlas in aninformation which avers that they:

* * * wilfully, unlawfully and feloniously, with intent of gain and withunfaithfulness and/or abuse of confidence, defraud(ed) DRA. MARYLOU J.

PERLAS in the following manner, to wit: the said accused received from theoffended party one (1) 8-karat solo diamond ring, white, double cut, brilliantcut with multiple bentitos, valued at P85,000.00, to be sold by them oncommission basis, with the obligation to tum over the proceeds of the sale tothe offended party, or to return the said ring if unsold, but the Id accused,once in possession thereof, contrary to their obligation, misapplied,misappropriated and converted the same to their own personal use andbenefit, and in spite of repeated demands made upon them, both accusedfailed, omitted and refused, and still fait omit and refuse up to the present,to comply with their aforesaid obligation, to the damage and prejudice of theoffended party, in the aforementioned amount of P85,000.00, Philippinecurrency. 2

After trial both accused were convicted and each sentenced to serve an indeterminateprison term of from eight (8) years, four (4) months and one (1) day to ten (10) yearsand two (2) months ofprision mayor, with the accessory penalties provided by law, andjointly and severally to indemnify the offended party in the sum of P55,000.00 for theunaccounted balance of the value of the ring with legal interest from April 22, 1975, thefurther sum of P30,000.00 as and for moral damages and the sum of P10,000.00 forattorney's fees. 3

Both accused appealed to the Court of Appeals, but as Pilar A. Pagulayan had evadedpromulgation of sentence in the Trial Court and had appealed only through counsel theAppellate Court vacated her appeal as ineffectual. 4On Vizconde's part, the Court ofAppeals affirmed the judgment of the Trial Court in all respects except the penalty ofimprisonment, which it increased to a term of from ten (10) years and one (1) dayofprision mayorto twelve (12) years ten (10) months and twenty-one (21) daysofreclusion temporal. A motion for reconsideration was denied. Vizconde thereafter filedthe present petition for review on certiorari. 5


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Required to comment on the petition, the Solicitor General, despite having argued foraffirmance of Vizconde's conviction in the Court of Appeals, now recommends that shebe acquitted, but nonetheless held civilly liable to the complainant in the sum ofP55,000.00 (the unaccounted balance of the value of the ring as found by the TrialCourt) " * * * or whatever portion thereof which remains unpaid. * * * 6

From the record and the findings of the courts below, it appears that sometime in thefirst week of April, 1975, the complainant, Dr. Marylon J. Perlas, called up the appellantVizconde, a long-time friend and former high school classmate, asking her to sen Perlas'8-carat diamond ring. Shortly afterwards, Perlas delivered the ring to Vizconde to besold on commission for P 85,000.00. Vizconde signed a receipt for the ring. 7

About a week and a half later, Vizconde returned the ring to Perlas, who had asked for itbecause she needed to show it to a cousin However, Vizconde afterwards called onPerlas at the latter's home, with another lady, Pilar A. Pagulayan, who claimed to have a"sure buyer" for the ring. 8 Perlas was initially hesitant to do so, but she eventuallyparted with the ring so that it could be examined privately by Pagulayan's buyer whenthe latter' gave her a postdated check for the price (P 85,000.00) and, together with

Vizconde, signed a receipt prepared by Perlas. This receipt-people's Exhibit "A"- reads asfollows:

RECEIPT

Received from Dra. Marylon Javier-Perlas one (1) solo 8 karat diamond ring,white, double cut, brilliant cut with multiple brilliantitos, which I agree to sellfor P85,000.00 (eighty-five thousand pesos) on commission basis and payher in the following manner:

P85,000.00 postdated check

PNB check 730297

dated April 26, 1975

for P85,000.00

It is understood that in the event the above postdated check is dishonoredfor any reason whatsoever on its due date, the total payment of the aboveitem shall become immediately due and demandable without awaiting

further demand.

I guarantee that the above check will be sufficiently funded on therespective due date.

Quezon City, Philippines

22 April 1975

(SGD.) PILAR A. PAGULAYAN


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PILAR A.PAGULAYAN

16 Rd. 8 Project6

I guarantee jointly and severally

(SGD.) CORAZON J.VIZCONDE

CORAZON J.VIZCONDE 9

After Pagulayan's postdated check matured, Perlas deposited it to her account at ManilaBank. It was dishonored for the reason, "No arrangement," stated in the debit advice.Perlas then called up Vizconde to inform her about the dishonor of the check. The lattersuggested that Perlas re-deposit the check while she (Vizconde) followed up the sale of

the ring. Perlas re-deposited the check, but again it was dishonored because drawnagainst insufficient funds. 10 So Perlas took the matter to counsel who sent separateletters of demand to Vizconde and Pagulayan for return of the ring or payment ofP85,000.00. 11

After nine days, Vizconde and Pagulayan called on Perlas. Pagulayan paid PerlasP5,000.00 against the value of the ring. She also gave into Perlas' keeping threecertificates of title to real estate to guarantee delivery of the balance of such value. Areceipt for the money and the titles was typed and signed by Perlas, which she alsomade the two sign. 12 The receipt Exhibit "D" of the prosecution reads:

Received from Mrs. Pilar Pagulayan, the sum of FIVE THOUSAND PESOSONLY (P5,000.00) representing part of the proceeds of the sale of one (1)solo 8 carat diamond ring, white, double cut, brilliant cut w/multiplebrilliantitos, given to Mrs. Pilar Pagulayan and Mrs. Corazon de JesusVizconde on 22 April 1975, to be sold on commission basis for eighty- fivethousand pesos (P85,000.00).

Received also owner's duplicate copies of TCT Nos. 434907, 434909,434910, which will be returned upon delivery of the remaining balance of theproceeds of the sale of said diamond ring for eighty five thousand pesos

(P85,000.00).

This receipt is being issued without prejudice to legal action.

Quezon City, Philippines

7 May 1975

(Sgd.) Marylon J.Perlas


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Dra. Marylon J.Perlas

Conforme:

(Sgd.) Pilar A. Pagulayan

Pilar A. Pagulayan

(Sgd.) Corazon J. Vizconde

Corazon Vizconde 13

Vizconde and Pagulayan having allegedly reneged on a promise to complete payment forthe ring on the very next day, Perlas filed with the Quezon City Fiscal's office acomplaint against them for estafa This notwithstanding, Pagulayan stin paid Perlasvarious sums totalling P25,000.00 which, together with the P5,000.00 earlier paid, left abalance of P55,000.00 still owing. 14

Both the Trial Court and the Court of Appeals found istilln these facts sufficient showingthat Vizconde and Pagulayan had assumed a joint agency in favor of Perlas for the saleof the latter's ring, which rendered them criminally liable, upon failure to return the ringor deliver its agreed value, under Art. 315, par. l(b), of the Revised Penal Code, fordefraudation committed " * * * with unfaithfulness or abuse of confidence * * * bymisappropriating or converting, to the prejudice of another, * * * personal propertyreceived in trust or on commission, or under any other obligation involving the duty tomake delivery of or to return the same, * * * " The Solicitor General falling back, asalready stated, from an earlier stance, disagrees and submits in his Comment that theappellant cannot be convicted ofestafa under a correct interpretation of the two

principal exhibits of the prosecution, the receipts Exhibits A" and "D". 15 He is correct.

Nothing in the language of the receipt, Exhibit "A", or in the proven circumstancesattending its execution can logically be considered as evidencing the creation of anagency between Perlas, as principal, and Vizconde, as agent, for the sale of the former'sring. True, reference to what may be taken for an agency agreement appears in theclause " * * * which I agree to sell * * * on commission basis" in the main text of thatdocument. But it is clear that if any agency was established, it was one between Perlasand Pagulayan only, this being the only logical conclusion from the use of the singular"I" in said clause, in conjunction with the fact that the part of the receipt in which the

clause appears bears only the signature of Pagulayan. To warrant anything more than amere conjecture that the receipt also constituted Vizconde the agent of Perlas for thesame purpose of selling the ring, the cited clause should at least have used the plural"we," or the text of the receipt containing that clause should also have carriedVizconde's signature.

As the Solicitor General correctly puts it, the joint and several undertaking assumed byVizconde in a separate writing below the main body of the receipt, Exhibit "A", merelyguaranteed the civil obligation of Pagulayan to pay Perlas the value of the ring in theevent of her (Pagulayan's) failure to return said article. It cannot, in any sense, be


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construed as assuming any criminal responsibility consequent upon the failure ofPagulayan to return the ring or deliver its value. It is fundamental that criminalresponsibility is personal and that in the absence of conspiracy, one cannot be heldcriminally liable for the act or default of another.

A person to be guilty of crime, must commit the crime himself or he must, insome manner, participate in its commission or in the fruits thereof. * * * 16

Thus, the theory that by standing as surety for Pagulayan, Vizconde assumed anobligation more than merely civil in character, and staked her very liberty onPagulayan's fidelity to her trust is utterly unacceptable; it strikes at the very essence ofguaranty (or suretyship) as creating purely civil obligations on the part of the guarantoror surety. To render Vizconde criminally liable for the misappropriation of the ring, morethan her mere guarantee written on Exhibit "A" is necessary. At the least, she must beshown to have acted in concert and conspiracy with Pagulayan, either in obtainingpossession of the ring, or in undertaking to return the same or delivery its value, or inthe misappropriation or conversion of the same.

Now, the information charges conspiracy between Vizconde and Pagulayan, but noadequate proof thereof has been presented. It is of course true that direct proof ofconspiracy is not essential to convict an alleged conspirator, and that conspiracy may beestablished by evidence of acts done in pursuance of a common unlawfulpurpose. 17 Here, however, the circumstances from which a reasonable inference ofconspiracy might arise, such as the fact that Vizconde and the complainant were friendsof long standing and former classmates, that it was Vizconde who introduced Pagulayanto Perlas, that Vizconde was present on the two occasions when the ring was entrustedto Pagulayan and when part payment of P5,000.00 was made, and that she signed thereceipts, Exhibits "A" and "D," on those occasions are, at best, inconclusive. They arenot inconsistent with what Vizconde has asserted to be an innocent desire to help herfriend dispose of the ring; nor do they exclude every reasonable hypothesis other thancomplicity in a premeditated swindle. 18

The foregoing conclusion in nowise suffers from the fact that the second receipt, Exhibit"D", appears to confirm that the ring "* * * was given to Mrs. Pilar Pagulayan and Mrs.Corazon de Jesus Vizconde on 22 April 1975, to be sold on commission basis for eightyfive thousand pesos (P85,000.00)." 19 The implications and probative value of thiswriting must be considered in the context of what had already transpired at the time ofits making. The ring had already been given to Pagulayan, and the check that she hadissued in payment therefor (or to secure payment, as the complainant would have it)

had already been dishonored twice. That the complainant then already entertainedserious apprehensions about the fate of the ring is evident in her having had her lawyerssend Vizconde and Pagulayan demands for restitution or payment, with threat of legalaction. Given that situation, Exhibit "D", insofar as it purports to confirm that Vizcondehad also received the ring in trust, cannot be considered as anything other than anattempt to "cure" the lack of mention of such an entrustment in the first receipt, Exhibit"A", and thereby bind Vizconde to a commitment far stronger and more compelling thana mere civil guarantee for the value of the ring. There is otherwise no explanation forrequiring Vizconde and Pagulayan to sign the receipt, which needed only the signature of


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Perlas as an acknowledgment of the P5,000.00 given in part payment, and the deliveryof the land titles to secure the balance.

The conflict in the recitals of the two receipts insofar as concerns Vizconde's part in thetransaction involving Perlas' ring is obvious and cannot be ignored. Neither, as the Courtsees it, should these writings be read together in an attempt to reconcile what theycontain, since, as already pointed out, the later receipt was made under circumstanceswhich leave no little doubt of its truth and ;Integrity. What is clear from Exhibit "A" isthat the ring was entrusted to Pilar A. Pagulayan to be sold on commission; there is nomention therein that it was simultaneously delivered to and received by Vizconde for thesame purpose or, therefore, that Vizconde was constituted, or agreed to act as, agentjointly with Pagulayan for the sale of the ring. What Vizconde solely undertook was toguarantee the obligation of Pagulayan to return the ring or deliver its value; and thatguarantee created only a civil obligation, without more, upon default of the principal.Exhibit "D", on the other hand, would make out Vizconde an agent for the sale of thering. The undisputed fact that Exhibit "A" was executed simultaneously with the deliveryof the ring to Pagulayan compellingly argues for accepting it as a more trustworthymemorial of the real agreement and transaction of the parties than Exhibit "D" which

was executed at a later date and after the supervention of events rendering it expedientor desirable to vary the terms of that agreement or transaction.

In view of the conclusions already reached, consideration of the Solicitor General'sargument also quite persuasive that Exhibit "D" in fact evidences a consummatedsale of the ring for an agreed price not fully paid for, which yields the same result, is nolonger necessary. It is, however, at least another factor reinforcing the hypothesis ofVizconde's innocence.

Upon the evidence, appellant Corazon J. Vizconde was a mere guarantor, a solidary oneto be sure, of the obligation assumed by Pilar A. Pagulayan to complainant Marylon J.Perlas for the return of the latter's ring or the delivery of its value. Whatever liability wasincured 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 ofestafa.

As already stated, the Solicitor General however maintains, on the authority of Peoplevs. Padilla, 20 that the appellant should be held hable to pay the complainant the amountof P55,000.00, or whatever part of such amount remains unpaid, for the value of thering. Again, this is a correct proposition, there being no question as in fact admittedby her that the appellant executed the guarantee already referred to.

WHEREFORE, except insofar as it affirms the judgment of the Trial Court orderingappellant Corazon J. Vizconde, solidarity with Pilar A. Pagulayan, to indemnify thecomplainant Marylon J. Perlas in the amount of P55,000.00 for the unaccounted balanceof the value of the latter's ring, the appellant pealed Decision of the Court of Appeals isreversed and set aside, and said appellant is acquitted, with costs de oficio. As therecord indicates that levies on preliminary attachment and on execution pending appealhave been made on behalf of the complainant, 21 which may have resulted in furtherreducing the abovestated balance, the appellant may, upon remand of this case to the


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Trial Court, prove any reductions, by the operation of said levies or otherwise, to whichthe amount of the indemnity adjudged may be justly subject.

SO ORDERED.

G.R. No. 16482 February 1, 1922

SMITH, BELL & COMPANY, LTD., plaintiff-appellant,vs.THE PHILIPPINE NATIONAL BANK, defendant-appellee.

Ross & Lawrence and Ewald E. Selph for appellant.Roman J. Lacson for appellee.

STREET,J.:

This action was brought by Messrs. Smith, Bell & Co., Ltd., to recover a sum of money ofthe defendant, the Philippine National Bank, as damages for its failure to accept deliveryof certain machinery which had been ordered from the plaintiff by one F.M. Harden, andfor the purchase price of which the bank had obligated itself in the manner stated below.After the hearing the trial judge absolved the defendant, and the plaintiff appealed.

It appears that in the month of April, 1918, one Fred M. Harden, being desirous ofobtaining eight expellers adopted to the extraction of coconut oil, applied to Smith,expellers through this house. By the contract signed for this purpose between saidHarden and Smith, Bell & Co., on April 25, 1918, the latter "sold" to Harden eight (8)

Anderson expellers, end-drive, latest model, for the price of P80,000, to be paid ondelivery. It was understood that these expellers would be manufactured in the UnitedStates; and it was stipulated that shipment would be made from the United States in themonth of February or March of the ensuing year.

In order to assure the prompt payment of the price upon delivery, an arrangement wasmade between Harden and the Philippine National Bank whereby the latter bound itselfto Smith, Bell & Co. for the payment of the contract price, according to the terms of thefollowing letter dated April 27, 1918, which was addressed by the bank to the latterfirm:

Messrs. SMITH, BELL & CO.,Manila, P.I.

GENTLEMEN: In connection with the 8 expellers purchased by Mr. F.M. Harden,amounting to P80,000 please be advised that this institution will pay the aboveamount upon delivery of the expellers to us, upon condition that these are newAnderson expellers and are laid down in

Manila in first class working order.


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Yours very truly,

J. ELMERDELANEY,Acting President.

Shortly after the contract for the purchase of these expellers had been thus made, andon or about May 9, 1918, Harden appeared in the office of Smith, Bell & Co. andrequested them to change the order for the expellers from "end-drive" to "side-drive;"and in obedience to this instruction, the house cabled to its agent in New York to changethe order accordingly, which was done. This fact is in our opinion clearly established bythe concurring testimony of J. H. Schmidt, plaintiff's sales manager, and one J. C.Cowper, who accompanied Harden on the mission to get the order changed. In additionto this it appears that the side-drive expeller represents an improvement over the end-drive and is of a newer type; and upon the occasion mentioned, Harden exhibited to themanager of Messrs. Smith, Bell & Co., a catalogue from the Anderson factory showingthis fact, as explanatory of his change in the order.

On July 2, 1919, Smith, Bell & Co. informed both Harden and the bank that the expellershad arrived. Shortly thereafter Harden, having examined the machinery in the plaintiff'sbodega, advised the bank that the expellers were not as ordered. Upon this, the banknaturally refused to accept and pay for the machinery, and the plaintiff disposed of themto the best advantage in the Manila market at a price which was below the price atwhich Harden had agreed to take them.

The ground upon which the defense is chiefly rested is that the expellers tendered bythe plaintiff were "side-drive" instead of "end-drive" expellers, and in support of thiscontention Harden was produced by the defendant as a witness, and he denied that theorder for expellers had been changed upon his instructions. As we have already stated,this contention is untenable; and we do not hesitate to find upon the proof before usthat the order was changed at Harden's request. For the rest, it is shown that theexpellers tendered by the plaintiff were new Anderson expellers, in all respect in first-class working order.

In the light of these facts the right of the plaintiff to recover is clear. The contract bywhich the bank obligated itself is both in form and effect an independent undertaking onthe part of the bank directly to the plaintiff; and inasmuch as the plaintiff had compiled,or offered to comply, with the terms of said contract, the bank is bound by its promiseto pay the purchase price. The consideration for this promise is to be found in the credit

extended to Harden by the plaintiff and in the fact that the plaintiff, relying upon thebank's promise, has gone to the expense of bringing to these Islands the expellers whichHarden had ordered.

It is undeniable that the contract sued on had its origin and explanation in the contractbetween Harden and the plaintiff, and the bank of course obligated itself solely for thepurpose of assuring the payment of the purchase price of the expellers to the plaintiff.But this does not make the bank subsidiary liable as regards the contract which is thesubject of this suit. Its obligation to the plaintiff is direct and independent. Moreover, thedebt must be considered a liquidated debt, in the sense intended in article 1825 of the


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Civil Code; and the action is now maintainable by the plaintiff directly against the bankwithout regard to the position of Harden.

At this point the thought may possibly suggested itself that if the view above indicated iscorrect, and the bank is to be considered strictly in the light of an independent promisor,a consequence would be that Harden had no authority to change the order from end-drive to side-drive expellers; in other words, that the bank should be held to beobligated according to the terms of the order as it stood when the bank entered into theundertaking which is the subject of the suit. Having regard, however, to the situation asall parties understood it, we are of opinion that the act of Harden in changing the ordercould not affect the liability of the defendant bank, especially since the specification inthe bank's letter calls for "new" Anderson expellers and the change made was rather infurtherance of this specification than prejudicial to it. The real purpose of the bank, as alparties were well aware, was to supply its credit to enable Harden to obtain the expellersordered by himself, and for his purpose, and it would tend to frustrate the intention ofthe parties to hold that Harden had no authority to change the order to the extentstated.

We observe that in the second amended complaint of March 8, 1920, which was thefirst complaint in which the plaintiff signified his election to claim damages for breach ofcontract the damages are alleged to have been in the sum of P26,339.55, upon whichit is asked that interest be allowed at the legal rate from the date of this complaint.Upon examining the several items which go to compose the damages, as indicated in thestatement, Exhibit D, prepared by the plaintiff's department of accounts, we considerthe following to be legitimate charges, namely, first, the difference between the contractprice and the amount realized from the sale of the expellers, P22,400; secondly,various charges for storage, insurance, etc., while the machinery remained in theplaintiff's hands after it should have been delivered to the defendant, P665.34; and,thirdly, expenses actually paid out by the plaintiff in moving the expellers, and for colliehire, P640. In the itemized statement of damages submitted by the plaintiff, interesthas been compounded monthly at 8 per cent, but in the absence of express stipulationthis cannot be allowed; and we are the more disposed to eliminate this charge forinterest, for the reason that the plaintiff's sales manager has effect admitted that theterms imposed by the plaintiff on Harden were severe.

Judgment will be reversed, and the plaintiff will recover of the defendant the sum oftwenty-three thousand seven hundred five pesos and thirty-four centavos (P23,705.34),with legal interest from March 8, 1920. No special pronouncement will be made as to

costs of either instances. So ordered.

G.R. No. 80078 May 18, 1993

ATOK FINANCE CORPORATION, petitioner,vs.COURT OF APPEALS, SANYU CHEMICAL CORPORATION, DANILO E. ARRIETA,

NENITA B. ARRIETA, PABLITO BERMUNDO and LEOPOLDO HALILI, respondents.

Syquia Law Offices for petitioner.


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Batino, Angala, Allaga & Zara Law Offices for private respondents.

FELICIANO,J.:

Atok Finance Corporation ("Atok Finance") asks us to review and set aside the Decisionof the Court of Appeals which reversed a decision of the trial court ordering privaterespondents to pay jointly and severally to petitioner Atok Finance certain sums ofmoney.

On 27 July 1979, private respondents Sanyu Chemical corporation ("Sanyu Chemical")as principal and Sanyu Trading Corporation ("Sanyu Trading") along with individualprivate stockholders of Sanyu Chemical, namely, private respondent spouses Danilo E.Halili and Pablico Bermundo as sureties, executed in the continuing SuretyshipAgreement in favor of Atok Finance as creditor. Under this Agreement, Sanyu Tradingand the individual private respondents who were officers and stockholders of SanyuChemical did:

(1) For valuable and/or other consideration ..., jointly and severallyunconditionally guarantee to ATOK FINANCE CORPORATION(hereinaftercalled Creditor), the full, faithful and prompt payment and discharge of anyand all indebtedness of [Sanyu Chemical] . . . (hereinafter calledPrincipal) to the Creditor. The word"indebtedness"is used herein in its mostcomprehensive sense and includes any and all advances, debts, obligationsand liabilities of Principal or any one or more of them, here[to]fore, now orhereafter made, incurred or created, whether voluntary or involuntaryand however arising, whether direct or acquired by the Creditor byassignment or succession, whether due or not due, absolute or contingent,liquidated or unliquidated, determined or undetermined and whether thePrincipal may be may be liable individually of jointly with others, or whetherrecovery upon such indebtedness may be or hereafter become barred by anystatute of limitations,or whether such indebtedness may be or otherwisebecome unenforceable. 1 (Emphasis supplied)

Other relevant provisions of the Continuing Suretyship Agreement follow:

(2) This is a continuing suretyship relating to any indebtedness, includingthat arising under successive transactions which shall either continue the

indebtedness from time to time or renew it after it has been satisfied. Thissuretyship is binding upon the heirs, successors, executors, administratorsand assigns of the surety, and the benefits hereof shall extend to andinclude the successors and assigns of the Creditor.

(3) The obligations hereunder are joint and several and independent of theobligations of the Principal. A separate action or actions may be prosecutedagainst the Principal and whether or not the Principal be joined in any suchaction or actions.


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xxx xxx xxx.

(6) In addition to liens upon, and rights of set-off against the moneys,securities or other property of the Surety given to the Creditor by law, theCreditor shall have the lien upon and a right of self-off against all moneys,securities, and other property of the Surety now and hereafter in thepossession of the Creditor; and every such lien or right of self-off may beexercised without need of demands upon or notice to the Surety. No lien orright of set-off shall be deemed to have been waived by any act, omission orconduct on the part of the Creditor, or by any neglect to exercise such rightof set-off or to enforce such lien, or by any delay in so doing, and every rightof set-off or lien shall continue in full force and effect until such right of set-off of lien is specifically waived or released by an instrument in writingexecuted by the Creditor.

(7) Any indebtedness of the Principal now or hereafter held by the Surety ishereby subordinated to the indebtedness of the Principal to the Creditor; andif the Creditor so requests, such indebtedness of the Principal of the Surety

shall be collected, enforced and shall be paid over to the Creditor and shallbe paid over to the Creditor and shall be paid over to the Creditor onaccount of the indebtedness of the Principal to the Creditor but withoutreducing or affecting in any manner the liability of the Surety under theprovisions of this suretyship.

xxx xxx xxx 2

(Emphases supplied)

On 27 November 1981, Sanyu Chemical assigned its trade receivables outstanding as of27 November 1981 with a total face value of P125,871.00, to Atok Finance inconsideration of receipt from Atok Finance of the amount of P105,000.00. The assignedreceivables carried a standard term of thirty (30) days; it appeared, however, that thestandard commercial practice was to grant an extension up to one hundred twenty (120)days without penalties. The relevant portions of this Deed of Assignment read asfollows:

1. FOR VALUE RECEIVED, the ASSIGNOR does hereby SELL, TRANSFER andASSIGN all his/its rights, title and interest in the contracts, receivables,accounts, notes, leases, deeds of sale with reservation of title, invoices,

mortgages, checks, negotiable instruments and evidences of indebtednesslisted in the schedule forming part hereinafter called "Contract" or"Contracts."

2. To induce the ASSIGNEE to purchase the above Contracts, the ASSIGNORdoes hereby certify,warrant and representthat :

(a). He/It is the sole owner of the assigned Contractsfree and clear of claims of any other party except the


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herein ASSIGNEE and has the right to transferabsolute title thereto the ASSIGNEE;

(b). Each assigned Contract is bonafide and theamount owing and to become due on each contractis correctly stated upon the schedule or otherevidences of the Contract delivered pursuantthereto;

(c). Each assigned Contract arises out of the sale ofmerchandise/s which had been delivered and/orservices which have been rendered and none of theContract is now, nor will at any time become,contingent upon the fulfillment of any contract orcondition whatsoever, or subject to any defense,offset or counterclaim;

(d). No assigned Contract is represented by any note

or other evidence of indebtness or other securitydocument except such as may have been endorsed,assigned and delivered by the ASSIGNOR to theASSIGNEE simultaneously with the assignment ofsuch Contract;

(e). No agreement has been made, or will be made,with any debtor for any deduction discount or returnof merchandise, except as may be specifically notedat the time of the assignment of the Contract;

(f). None of the terms or provisions of the assignedContracts have been amended, modified or waived;

(g). The debtor/s under the assigned Contract/s aresolvent and his/its/their failure to pay the assignedContracts and/or any installment thereon uponmaturity thereof shall be conclusively considered asa violation of this warranty; and

(h). Each assigned Contract is a valid obligation of

the buyer of the merchandise and/or servicerendered under the Contract And that no Contract isoverdue.

The foregoing warranties and representations are in addition to thoseprovided for in the Negotiable Instruments Law and other applicablelaws.Any violation thereof shall render the ASSIGNOR immediately andunconditionally liable to pay the ASSIGNEE jointly and severally with thedebtors under the assigned contracts, the amounts due thereon.


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xxx xxx xxx

4. The ASSIGNOR shall without compensation or cost, collect and receive intrust for the ASSIGNEE all payments made upon the assigned contracts andshall remit to the ASSIGNEE all collections on the said Contracts as follows :

P5,450.00 due on January 2, 1982 on every 15th day (semi-monthly) until November 1, 1982.

P110,550.00 balloon payment after 12 months. 3 (Emphasissupplied)

Later, additional trade receivables were assigned by Sanyu Chemical to Atok Financewith a total face value of P100,378.45.

On 13 January 1984, Atok Finance commenced action against Sanyu Chemical, theArrieta spouses, Pablito Bermundo and Leopoldo Halili before the Regional Trial Court ofManila to collect the sum of P120,240.00 plus penalty charges amounting to P0.03 for

every peso due and payable for each month starting from 1 September 1983. AtokFinance alleged that Sanyu Chemical had failed to collect and remit the amount dueunder the trade receivables.

Sanyu Chemical and the individual private respondents sought dismissal of Atok's claimupon the ground that such claim had prescribed under Article 1629 of the Civil Code andfor lack of cause of action. The private respondents contended that the ContinuingSuretyship Agreement, being an accessory contract, was null and void since, at the timeof its execution, Sanyu Chemical had no pre-existing obligation due to Atok Finance.

At the trial, Sanyu Chemical and the individual private respondents failed to present any

evidence on their behalf, although the individual private respondents submitted amemorandum in support of their argument. After trial, on 1 April 1985, the trial courtrendered a decision in favor of Atok Finance. The dispositive portion of this decisionreads as follows:

ACCORDINGLY, judgment is hereby rendered in favor of the plaintiff ATOKFINANCE CORPORATION; and against the defendants SANYU CHEMICALCORPORATION, DANILO E. ARRIETA, NENITA B. ARRIETA, PABLITOBERMUNDO and LEOPOLDO HALILI, ordering the said defendants, jointly andseverally, to pay the plaintiff:

(1) P120,240.00 plus P0.03 for each peso for each month from September1, 1983 until the whole amount is fully paid;

(2) P50,000.00 as attorney's fees; and

(3) To pay the costs.

SO ORDERED. 4


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Private respondents went on appeal before the then Intermediate Appellate Court("IAC"), and the appeal was there docketed as AC-G.R. No. 07005-CV. The case wasraffled to the Third Civil Cases Division of the IAC. In a resolution dated 21 March 1986,that Division dismissed the appeal upon the ground of abandonment, since the privaterespondents had failed to file their appeal brief notwithstanding receipt of the notice todo so. On 4 June 1986, entry of judgment was made by the Clerk of Court of the IAC.Accordingly, Atok Finance went before the trial court and sought a writ of execution toenforce the decision of the trial court of 1 April 1985. The trial court issued a writ ofexecution on 23 July 1986. 5 Petitioner alleged that the writ of execution was served onprivate respondents. 6

However, on 27 August 1986, private respondents filed a Petition for Relief fromJudgment before the Court of Appeals. This Petition was raffled off to the 15th Divisionof the Court of Appeals. In that Petition, private respondents claimed that their failure tofile their appeal brief was due to excusable negligence, that is, that their previouscounsel had entrusted the preparation and filing of the brief to one of his associates,which associate, however, had unexpectedly resigned from the law firm withoutreturning the records of cases he had been handling, including the appeal of private

respondents. Atok Finance opposed the Petition for Relief arguing that no valid groundexisted for setting aside the resolution of the Third Division of the then IAC.

The 15th Division of the Court of Appeals nonetheless granted the Petition for Relieffrom Judgment "in the paramount interest of justice," 7 set aside the resolution of theThird Civil Cases Division of the then IAC, and gave private respondents a non-extendible period of fifteen (15) days within which to file their appeal brief. Privaterespondents did file their appeal brief.

The 15th Division, on 18 August 1987, rendered a Decision on the merits of the appeal,and reversed and set aside the decision of the trial court and entered a new judgmentdismissing the complaint of Atok Finance, ordering it to pay private respondentsP3,000.00 as attorney's fees and to pay the costs.

Atok Finance moved to set aside the decision of the 15th Division of the Court ofAppeals, inviting attention to the resolution of the IAC's Third Civil Cases Division of 21March 1986 originally dismissing private respondent's appeal for abandonment thereof.In a resolution dated 18 August 1987, the 15th Division denied Atok Finance's motionstating that it had granted the Petition for Relief from Judgment and given privaterespondents herein fifteen (15) days within which to file an appeal brief, while AtokFinance did not file an appellee's brief, and that its decision was arrived at "on the basis

of appellant's brief and the original records of the appeal case."

In the present Petition for Review, Atok Finance assigns the following as errors on thepart of the Court of Appeals in rendering its decision of 18 August 1987:

(1) that it had erred in ruling that a continuing suretyship agreement cannotbe effected to secure future debts;


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(2) that it had erred in ruling that the continuing suretyship agreement wasnull and void for lack of consideration without any evidence whatsoever[being] adduced by private respondents;

(3) that it had erred in granting the Petition for Relief from Judgment whileexecution proceedings [were] on-going on the trial court. 8(Emphasis in theoriginal)

As a preliminary matter, we note that a Division of the Court of Appeals is co-equal withany other Division of the same court. Accordingly, a Division of the Court of Appeals hasno authority to consider and grant a petition for relief from a judgment rendered byanother Division of the same court. In the case at bar, however, we must note that anintervening event had occurred between the resolution of 21 March 1986 of the ThirdCivil Cases Division of the IAC dismissing private respondents' appeal and the 30September 1986 order of the 15th Division of the Court of Appeals granting the Petitionfor Relief from Judgment. On 28 July 1986, the old Intermediate Appellate Court wentout of existence and a new court, the Court of Appeals, came into being, was organizedand commenced functioning. 9 This event, and the probability that some confusion may

have accompanied the period of transition from the IAC to the Court of Appeals, lead usto believe that the defect here involved should be disregarded as being of secondaryimportance. At the same time, nothing in this decision should be read as impliedlyholding that a petition from relief judgment is available in respect of a decision renderedby the Court of Appeals; this issue is best reserved for determination in some futurecases where it shall have been adequately argued by the parties.

We turn, therefore, to a consideration of the first substantive issue addressed by theCourt of Appeals in rendering its Decision on the merits of the appeal: whether theindividual private respondents may be held solidarily liable with Sanyu Chemical underthe provisions of the Continuing Suretyship Agreement, or whether that Agreementmust be held null and void as having been executed without consideration and without apre-existing principal obligation to sustain it.

The Court of Appeals held on this first issue as follows:

It is the contention of private appellants that the suretyship agreement isnull and void because it is not in consonance with the laws on guaranty andsecurity. The said agreement was entered into by the parties two yearsbefore the Deed of Assignment was executed. Thus, allegedly, it ran counterto the provision that guaranty cannot exist independently because by nature

it is merely an accessory contract. The law on guaranty is applicable tosurety to some extent Manila Surety and Fidelity Co. v.Baxter Construction &Co., 53 O.G. 8836; and, Arran v. Manila Fidelity & Surety Co., 53 O.G. 7247.

We find merit in this contention.

Although obligations arising from contracts have the force of law betweenthe contracting parties, (Article 1159 of the Civil Code) this does not meanthat the law is inferior to it; the terms of the contract could not be enforcesif not valid. So, even if, as in this case, the agreement was for acontinuing


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suretyship to include obligations enumerated in paragraph 2 of theagreement, the same could not be enforced. First, because this contract,just like guaranty, cannot exist without a valid obligation (Art. 2052, CivilCode); and, second, although it may be given as security for future debt(Art.2053, C.C.), the obligation contemplated in the case at bar cannot beconsidered "future debt" as envisioned by this law.

There is no proof that when the suretyship agreement was entered into,there was a pre-existing obligation which served the principal obligationbetween the parties. Furthermore, the "future debts" alluded to in Article2053 refer to debts already existing at the time of the constitution of theagreement but the amount thereof is unknown, unlike in the case at barwhere the obligation was acquired two years after theagreement. 10(Emphasis supplied).

We consider that the Court of Appeals here was in serious error. It is true that a seriousguaranty or a suretyship agreement is an accessory contract in the sense that it isentered into for the purpose of securing the performance of another obligation which is

denominated as the principal obligation. It is also true that Article 2052 of the Civil Codestates that "a guarantee cannot exist without a valid obligation." This legal proposition isnot, however, like most legal principles, to be read in an absolute and literal manner andcarried to the limit of its logic. This is clear from Article 2052 of the Civil Code itself:

Art. 2052. A guaranty cannot exist without a valid obligation.

Nevertheless, a guaranty may be constituted to guarantee the performanceof a voidable or an unenforceable contract. It may also guaranty a naturalobligation." (Emphasis supplied).

Moreover, Article 2053 of the Civil Code states:

Art. 2053.A guaranty may also be given as security for future debts, theamount of which is not yet known; there can be no claim against theguarantor until the debt is liquidated.A conditional obligation may also besecured. (Emphasis supplied)

The Court of Appeals apparently overlooked our caselaw interpreting Articles 2052 and2053 of the Civil Code. InNational Rice and Corn Corporation (NARIC) v. Jose A. Fojasand Alto Surety Co., Inc., 11 the private respondents assailed the decision of the trial

court holding them liable under certain surety bonds filed by private respondent Fojasand issued by private respondent Alto Surety Co. in favor of petitioner NARIC, upon theground that those surety bonds were null and void "there being no principal obligation tobe secured by said bonds." In affirming the decision of the trial court, this Court,speaking through Mr. Justice J.B.L. Reyes, made short shrift of the private respondents'doctrinaire argument:

Under his third assignment of error, appellant Fojas questions the validity ofthe additional bonds(Exhs. D and D-1) on the theory that when they wereexecuted, the principal obligation referred to in said bonds had not yet been


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entered into, as no copy thereof was attached to the deeds ofsuretyship. This defense is untenable, because in its complaint the NARICaverred, and the appellant did not deny that these bonds were posted tosecure the additional credit that Fojas has applied for, and the creditincrease over his original contract was sufficient consideration for thebonds. That the latter were signed and filed before the additional credit wasextended by the NARIC is no ground for complaint. Article 1825 of the CivilCode of 1889, in force in 1948, expressly recognized that "a guaranty mayalso be given as security for future debts the amount of which is not yetknown." (Emphasis supplied)

In Rizal Commercial Banking Corporation v. Arro, 12 the Court was confronted again withthe same issue, that is, whether private respondent was liable to pay a promissory notedated 29 April 1977 executed by the principal debtor in the light of the provisions of acomprehensive surety agreement which petitioner bank and the private respondent hadearlier entered into on 19 October 1976. Under the comprehensive surety agreement,the private respondents had bound themselves as solidary debtors of the DiacorCorporation not only in respect of existing obligations but also in respect of future ones.

In holding private respondent surety (Residoro Chua) liable under the comprehensivesurety agreement, the Court said:

The surety agreement which was earlier signed by Enrique Go, Sr. andprivate respondent, is an accessory obligation, it being dependent upon aprincipal one, which, in this case is the loan obtained by Daicor as evidencedby a promissory note. What obviously induced petitioner bank to grant theloan was the surety agreement whereby Go and Chua bound themselvessolidarily to guaranty the punctual payment of the loan at maturity. Byterms that are unequivocal, it can be clearly seen thatthe surety agreementwas executed to guarantee future debts which Daicor may incur withpetitioner, as is legally allowable under the Civil Code. Thus

Article 2053. A guarantee may also be given as security forfuture debts, the amount of which is not yet known; there canbe no claim against the guarantor until the debt is liquidated. Aconditional obligation may also be secured. 13 (Emphasissupplied)

It is clear to us that the Rizal Commercial Banking Corporation and the NARICcasesrejected the distinction which the Court of Appeals in the case at bar sought to make

with respect to Article 2053, that is, that the "future debts" referred to in that Articlerelate to "debts already existing at the time of the constitution of the agreement but theamount [of which] is unknown," and not to debts not yet incurred and existing at thattime. Of course, a surety is not bound under any particular principal obligation until thatprincipal obligation is born. But there is no theoretical or doctrinal difficulty inherent insaying that the suretyship agreement itself is valid and binding even before the principalobligation intended to be secured thereby is born, any more that there would be insaying that obligations which are subject to a condition precedent are valid and bindingbefore the occurrence of the condition precedent.14


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Comprehensive or continuing surety agreements are in fact quite commonm place inpresent day financial and commercial practice. A bank or a financing company whichanticipates entering into a series of credit transactions with a particular company,commonly requires the projected principal debtor to execute a continuing suretyagreement along with its sureties. By executing such an agreement, the principal placesitself in a position to enter into the projected series of transactions with its creditor; withsuch surety agreement, there would be no need to execute a separate surety contract orbond for each financing or credit accommodation extended to the principal debtor. As weunderstand it, this is precisely what happened in the case at bar.

We turn to the second substantive issue, that is, whether private respondents are liableunder the Deed of Assignment which they, along with the principal debtor SanyuChemical, executed in favor of petitioner, on the receivables thereby assigned.

The contention of Sanyu Chemical was that Atok Finance had no cause of action underthe Deed of Assignment for the reason that Sanyu Chemical's warranty of the debtors'solvency had ceased. In submitting this contention, Sanyu Chemical relied on Article1629 of the Civil Code which reads as follows:

Art. 1629. In case the assignor in good faith should have made himselfresponsible for the solvency of the debtor, and the contracting parties shouldnot have agreed upon the duration of the liability, it shall last for one yearonly, from the time of the assignment if the period had already expired.

If the credit should be payable within a term or period which has not yetexpired, the liability shall cease one year after maturity.

Once more, the Court of Appeals upheld the contention of private respondents and heldthat Sanyu Chemical was free from liability under the Deed of Assignment. The Court ofAppeals said:

. . . Article 1629 provides for the duration of assignor's warranty of debtor'ssolvency depending on whether there was a period agreed upon for theexistence of such warranty, analyzing the law thus:

(1) if there is a period (or length of time) agreed upon, then for such period;

(2) if no period (or length of time) was agreed upon, then:

(a) one year from assignment if debt was due at the time ofthe assignment

(b) one year from maturity if debt was not yet due at the timeof the assignment..

The debt referred to in this law is the debt under the assigned contract orthe original debts in favor of the assignor which were later assigned to theassignee. The debt alluded to in the law, is not the debt incurred by theassignor to the assignee as contended by the appellant.


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Applying the said law to the case at bar, the records disclose that none ofthe assigned receivables had matured on November 27, 1981 when theDeed of Assignment was executed. The oldest debt then existing was thatcontracted on November 3, 1981 and the latest was contracted on December4, 1981.

Each of the invoices assigned to the assignee contained a term of 30 days(Exhibits B-3-A to 5 and extended by the notation which appeared in the"Schedule of Assigned Receivables" which states that the ". . . the termsstated on our invoices were normally extended up to a period of 120 days. . ." (Exhibit B-2). Considering the terms in the invoices plus the ordinarypractice of the company, thus, the assigned debts matured between April 3,1982 to May 4, 1982. The assignor's warranty for debtor's warranty, in thiscase, would then be from the maturity period up to April 3, 1983 or May 4,1983 to cover all of the receivables in the invoices.

The letter of demand executed by appellee was dated August 29, 1983(Exhibit D) and the complaint was filed on January 13, 1984. Both dates

were beyond the warranty period.

In effect, therefore, company-appellant was right when it claimed thatappellee had no cause of action against it or had lost its cause ofaction. 15 (Emphasis supplied)

Once again, however, we consider that the Court of Appeals was in reversible error in soconcluding. The relevant provision of the Deed of Assignment may be quoted again inthis connection:

2. To induce the ASSIGNEE [Atok Finance] to purchase the above contracts,the ASSIGNOR [Sanyu Chemical] does hereby certify, warrant and representthat . . .

(g) the debtor/s under the assigned contract/s are solvent andhis/its/their failure to pay the assigned contract/s and/or anyinstallment thereon upon maturity thereof shall be conclusivelyconsidered as a violation of this warranty; and . . .

The foregoing warranties and representations are in addition tothose provided for in the Negotiable Instruments Law and other

applicable laws.Any violation thereof shall render the ASSIGNORimmediately and unconditionally liable to pay the ASSIGNEEjointly and severally with the debtors under the assignedcontracts, the amounts due thereon.

xxx xxx xxx

(Emphasis supplied)


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It may be stressed as a preliminary matter that the Deed of Assignment was valid andbinding upon Sanyu Chemical. Assignment of receivables is a commonplace commercialtransaction today. It is an activity or operation that permits the assignee to monetize orrealize the value of the receivables before the maturity thereof. In other words, SanyuChemical received from Atok Finance the value of its trade receivables it had assigned;Sanyu Chemical obviously benefitted from the assignment. The payments due in the firstinstance from the trade debtors of Sanyu Chemical would represent the return of theinvestment which Atok Finance had made when it paid Sanyu Chemical the transfervalue of such receivables.

Article 1629 of the Civil Code invoked by private respondents and accepted by the Courtof Appeals is not, in the case at bar, material. The liability of Sanyu Chemical to AtokFinance rests noton the breach of the warranty of solvency; the liability of SanyuChemical was not ex lege (ex Article 1629) but rather ex contractu. Under the Deed ofAssignment, the effect of non-payment by the original trade debtors was breach ofwarranty of solvency by Sanyu Chemical, resulting in turn in the assumption of solidaryliability by the assignor under the receivables assigned.In other words, the assignorSanyu Chemical becomes a solidary debtor under the terms of the receivables covered

and transferred by virtue of the Deed of Assignment. And because assignor SanyuChemical became, under the terms of the Deed of Assignment, solidary obligor undereach of the assigned receivables, the other private respondents (the Arrieta spouses,Pablito Bermundo and Leopoldo Halili), became solidarily liable for that obligation ofSanyu Chemical, by virtue of the operation of the Continuing Suretyship Agreement. Puta little differently, the obligations of individual private respondent officers andstockholders of Sanyu Chemical under the Continuing Suretyship Agreement, wereactivated by the resulting obligations of Sanyu Chemical as solidary obligor under eachof the assigned receivables by virtue of the operation of the Deed of Assignment. Thatsolidary liability of Sanyu Chemical is not subject to the limiting period set out in Article1629 of the Civil Code.

It follows that at the time the original complaint was filed by Atok Finance in the trialcourt, it had a valid and enforceable cause of action against Sanyu Chemical and theother private respondents. We also agree with the Court of Appeals that the originalobligors under the receivables assigned to Atok Finance remain liable under the terms ofsuch receivables.

WHEREFORE, for all the foregoing, the Petition for Review is hereby GRANTED DUECOURSE, and the Decision of the Court of Appeals dated 18 August 1987 and itsResolution dated 30 September 1987 are hereby REVERSED and SET ASIDE. A new

judgment is hereby entered REINSTATING the Decision of the trial court in Civil CaseNo. 84-22198 dated 1 April 1985, except only that, in the exercise of this Court'sdiscretionary authority equitably to mitigate the penalty clause attached to the Deed ofAssignment, that penalty is hereby reduced to eighteen percent (18%) perannum (instead of P0.03 for every peso monthly [or 36% per annum]). As so modified,the Decision of the trial court is hereby AFFIRMED. Costs against private respondents.

SO ORDERED.

G.R. No. L-53955 January 13, 1989


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THE MANILA BANKING CORPORATION, plaintiff-appellee,vs.ANASTACIO TEODORO, JR. and GRACE ANNA TEODORO, defendants-appellants.

Formoso & Quimbo Law Office for plaintiff-appellee.

Serafin P. Rivera for defendants-appellants.

BIDIN, J.:

This is an appeal from the decision* of the Court of First Instance of Manila, Branch XVIIin Civil Case No. 78178 for collection of sum of money based on promissory notesexecuted by the defendants-appellants in favor of plaintiff-appellee bank. The dispositiveportion of the appealed decision (Record on Appeal, p. 33) reads as follows:

WHEREFORE judgment is hereby rendered (a) sentencing defendants,

Anastacio Teodoro, Jr. and Grace Anna Teodoro jointly and severally, to payplaintiff the sum of P15,037.11 plus 12% interest per annum fromSeptember 30, 1969 until fully paid, in payment of Promissory Notes No.11487, plus the sum of P1,000.00 as attorney's fees; and (b) sentencingdefendant Anastacio Teodoro, Jr. to pay plaintiff the sum of P8,934.74, plusinterest at 12% per annum from September 30, 1969 until fully paid, inpayment of Promissory Notes Nos. 11515 and 11699, plus the sum ofP500.00 an attorney's fees.

With Costs against defendants.

The facts of the case as found by the trial court are as follows:

On April 25, 1966, defendants, together with Anastacio Teodoro, Sr., jointlyand severally, executed in favor of plaintiff a Promissory Note (No. 11487)for the sum of P10,420.00 payable in 120 days, or on August 25, 1966, at12% interest per annum. Defendants failed to pay the said amount inspire ofrepeated demands and the obligation as of September 30, 1969 stood at P15,137.11 including accrued interest and service charge.

On May 3, 1966 and June 20, 1966, defendants Anastacio Teodoro, Sr.

(Father) and Anastacio Teodoro, Jr. (Son) executed in favor of plaintiff twoPromissory Notes (Nos. 11515 and 11699) for P8,000.00 and P1,000.00respectively, payable in 120 days at 12% interest per annum. Father andSon made a partial payment on the May 3, 1966 promissory Note but noneon the June 20, 1966 Promissory Note, leaving still an unpaid balance ofP8,934.74 as of September 30, 1969 including accrued interest and servicecharge.

The three Promissory Notes stipulated that any interest due if not paid at theend of every month shall be added to the total amount then due, the whole


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amount to bear interest at the rate of 12% per annum until fully paid; and incase of collection through an attorney-at-law, the makers shall, jointly andseverally, pay 10% of the amount over-due as attorney's fees, which in nocase shall be leas than P200.00.

It appears that on January 24, 1964, the Son executed in favor of plaintiff aDeed of Assignment of Receivables from the Emergency EmploymentAdministration in the sum of P44,635.00. The Deed of Assignment providedthat it was for and in consideration of certain credits, loans, overdrafts andother credit accommodations extended to defendants as security for thepayment of said sum and the interest thereon, and that defendants dohereby remise, release and quitclaim all its rights, title, and interest in andto the accounts receivables. Further.

(1) The title and right of possession to said accounts receivableis to remain in the assignee, and it shall have the right to collectthe same from the debtor, and whatsoever the Assignor does inconnection with the collection of said accounts, it agrees to do as

agent and representative of the Assignee and in trust for saidAssignee ;

xxx xxx xxx

(6) The Assignor guarantees the existence and legality of saidaccounts receivable, and the due and punctual payment thereofunto the assignee, ... on demand, ... and further, that Assignorwarrants the solvency and credit worthiness of each and everyaccount.

(7) The Assignor does hereby guarantee the payment when dueon all sums payable under the contracts giving rise to theaccounts receivable ... including reasonable attorney's fees inenforcing any rights against the debtors of the assigned accountsreceivable and will pay upon demand, the entire unpaid balanceof said contract in the event of non-payment by the said debtorsof any monthly sum at its due date or of any other default bysaid debtors;

xxx xxx xxx

(9) ... This Assignment shall also stand as a continuingguarantee for any and all whatsoever there is or in the futurethere will be justly owing from the Assignor to the Assignee ...

In their stipulations of Fact, it is admitted by the parties that plaintiffextended loans to defendants on the basis and by reason of certain contractsentered into by the defunct Emergency Employment Administration (EEA)with defendants for the fabrication of fishing boats, and that the PhilippineFisheries Commission succeeded the EEA after its abolition; that non-


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payment of the notes was due to the failure of the Commission to paydefendants after the latter had complied with their contractual obligations;and that the President of plaintiff Bank took steps to collect from theCommission, but no collection was effected.

For failure of defendants to pay the sums due on the Promissory Note, thisaction was instituted on November 13, 1969, originally against the Father,Son, and the latter's wife. Because the Father died, however, during thependency of the suit, the case as against him was dismiss under theprovisions of Section 21, Rule 3 of the Rules of Court. The action, then isagainst defendants Son and his wife for the collection of the sum of P15,037.11 on Promissory Note No. 14487; and against defendant Son forthe recovery of P 8,394.7.4 on Promissory Notes Nos. 11515 and 11699,plus interest on both amounts at 12% per annum from September 30, 1969until fully paid, and 10% of the amounts due as attorney's fees.

Neither of the parties presented any testimonial evidence and submitted thecase for decision based on their Stipulations of Fact and on then,

documentary evidence.

The issues, as defined by the parties are: (1) whether or not plaintiff claim isalready considered paid by the Deed of Assign. judgment of Receivables bythe Son; and (2) whether or not it is plaintiff who should directly sue thePhilippine Fisheries Commission for collection.' (Record on Appeal, p. 29-32).

On April 17, 1972, the trial court rendered its judgment adverse to defendants. On June8, 1972, defendants filed a motion for reconsideration (Record on Appeal, p. 33) whichwas denied by the trial court in its order of June 14, 1972 (Record on Appeal, p. 37). OnJune 23, 1972, defendants filed with the lower court their notice of appeal together withthe appeal bond (Record on Appeal, p. 38). The record of appeal was forwarded to theCourt of Appeals on August 22, 1972 (Record on Appeal, p. 42).

In their appeal (Brief for the Appellants, Rollo, p. 12), appellants raised a singleassignment of error, that is

THAT THE DECISION IN QUESTION AMOUNTS TO A JUDICIAL REMAKING OFTHE CONTRACT BETWEEN THE PARTIES, IN VIOLATION OF LAW; HENCE,TANTAMOUNT TO LACK OR EXCESS OF JURISDICTION.

As the appeal involves a pure question of law, the Court of Appeals, in its resolutionpromulgated on March 6, 1980, certified the case to this Court (Rollo, p. 24). The recordon Appeal was forwarded to this Court on March 31, 1980 (Rollo, p. 1).

In the resolution of May 30, 1980, the First Division of this Court ordered that the casebe docketed and declared submitted for decision (Rollo, p. 33).

On March 7, 1988, considering the length of time that the case has been pending withthe Court and to determine whether supervening events may have rendered the case


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moot and academic, the Court resolved (1) to require the parties to MOVE IN THEPREMISES within thirty days from notice, and in case they fail to make the propermanifestation within the required period, (2) to consider the case terminated and closedwith the entry of judgment accordingly made thereon (Rollo, p. 40).

On April 27, 1988, appellee moved for a resolution of the appeal review interposed bydefendants-appellants (Rollo, p. 41).

The major issues raised in this case are as follows: (1) whether or not the assignment ofreceivables has the effect of payment of all the loans contracted by appellants fromappellee bank; and (2) whether or not appellee bank must first exhaust all legalremedies against the Philippine Fisheries Commission before it can proceed againstappellants for collections of loan under the promissory notes which are plaintiffs bases inthe action for collection in Civil Case No. 78178.

Assignment of credit is an agreement by virtue of which the owner of a credit, known asthe assignor, by a legal cause, such as sale, dation in payment, exchange or donation,and without the need of the consent of the debtor, transfers his credit and its accessory

rights to another, known as the assignee, who acquires the power to enforce it to thesame extent as the assignor could have enforced it against the debtor. ... It may be inthe form of a sale, but at times it may constitute a dation in payment, such as when adebtor, in order to obtain a release from his debt, assigns to his creditor a credit he hasagainst a third person, or it may constitute a donation as when it is by gratuitous title;or it may even be merely by way of guaranty, as when the creditor gives as a collateral,to secure his own debt in favor of the assignee, without transmitting ownership. Thecharacter that it may assume determines its requisites and effects. its regulation, andthe capacity of the parties to execute it; and in every case, the obligations betweenassignor and assignee will depend upon the judicial relation which is the basis of theassignment: (Tolentino, Commentaries and Jurisprudence on the Civil Code of thePhilippines, Vol. 5, pp. 165-166).

There is no question as to the validity of the assignment of receivables executed byappellants in favor of appellee bank.

The issue is with regard to its legal effects.

I

It is evident that the assignment of receivables executed by appellants on January 24,

1964 did not transfer the ownership of the receivables to appellee bank and releaseappellants from their loans with the bank incurred under promissory notes Nos.11487,11515 and 11699.

The Deed of Assignment provided that it was for and in consideration of certain credits,loans, overdrafts, and their credit accommodations in the sum of P10,000.00 extendedto appellants by appellee bank, and as security for the payment of said sum and theinterest thereon; that appellants as assignors, remise, release, and quitclaim to assigneebank all their rights, title and interest in and to the accounts receivable assigned (lstparagraph). It was further stipulated that the assignment will also stand as a continuing


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guaranty for future loans of appellants to appellee bank and correspondingly theassignment shall also extend to all the accounts receivable; appellants shall also obtainin the future, until the consideration on the loans secured by appellants from appelleebank shall have been fully paid by them (No. 9).

The position of appellants, however, is that the deed of assignment is a quitclaim inconsideration of their indebtedness to appellee bank, not mere guaranty, in view of thefollowing provisions of the deed of assignment:

... the Assignor do hereby remise, release and quit-claim unto said assigneeall its rights, title and interestin the accounts receivable describedhereunder. (Emphasis supplied by appellants, first par., Deed ofAssignment).

... that the title and right of possession to said account receivable is toremain in said assignee and it shall have the right to collect directly from thedebtor, and whatever the Assignor does in connection with the collection ofsaid accounts, it agrees to do so as agent and representative of the Assignee

and it trustfor said Assignee ...(Ibid. par. 2 of Deed of Assignment).'(Record on Appeal, p. 27)

The character of the transactions between the parties is not, however, determined bythe language used in the document but by their intention. Thus, the Court, quoting fromthe American Jurisprudence (68 2d, Secured Transaction, Section 50) said:

The characters of the transaction between the parties is to be determined bytheir intention, regardless of what language was used or what the form ofthe transfer was. If it was intended to secure the payment of money, it mustbe construed as a pledge. However, even though a transfer, if regarded byitself, appellate to have been absolute, its object and character might still bequalified and explained by a contemporaneous writing declaring it to havebeen a deposit of the property as collateral security. It has been Id that atransfer of property by the debtor to a creditor, even if sufficient on its farmto make an absolute conveyance, should be treated as a pledge if the debtcontinues in existence and is not discharged by the transfer, and thataccordingly, the use of the terms ordinarily exporting conveyance, ofabsolute ownership will not be given that effect in such a transaction if theyare also commonly used in pledges and mortgages and therefore do notunqualifiedly indicate a transfer of absolute ownership, in the absence of

clear and ambiguous language or other circumstances excluding an intent topledge. (Lopez v. Court of Appeals, 114 SCRA 671 [1982]).

Definitely, the assignment of the receivables did not result from a sale transaction. Itcannot be said to have been constituted by virtue of a dation in payment for appellants'loans with the bank evidenced by promissory note Nos. 11487, 11515 and 11699 whichare the subject of the suit for collection in Civil Case No. 78178. At the time the deed ofassignment was executed, said loans were non-existent yet. The deed of assignmentwas executed on January 24, 1964 (Exh. "G"), while promissory note No. 11487 is datedApril 25, 1966 (Exh. 'A), promissory note 11515, dated May 3, 1966 (Exh. 'B'),


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promissory note 11699, on June 20, 1966 (Exh. "C"). At most, it was a dation inpayment for P10,000.00, the amount of credit from appellee bank indicated in the deedof assignment. At the time the assignment was executed, there was no obligation to beextinguished except the amount of P10,000.00. Moreover, in order that an obligationmay be extinguished by another which substitutes the same, it is imperative that it beso declared in unequivocal terms, or that the old and the new obligations be on everypoint incompatible with each other (Article 1292, New Civil Code).

Obviously, the deed of assignment was intended as collateral security for the bank loansof appellants, as a continuing guaranty for whatever sums would be owing bydefendants to plaintiff, as stated in stipulation No. 9 of the deed.

In case of doubt as to whether a transaction is a pledge or a dation in payment, thepresumption is in favor of pledge, the latter being the lesser transmission of rights andinterests (Lopez v. Court of Appeals, supra).

In one case, the assignments of rights, title and interest of the defendant in thecontracts of lease of two buildings as well as her rights, title and interest in the land on

which the buildings were constructed to secure an overdraft from a bank amounting toP110,000.00 which was increased to P150,000.00, then to P165,000.00 was consideredby the Court to be documents of mortgage contracts inasmuch as they were executed toguarantee the principal obligations of the defendant consisting of the overdrafts or theindebtedness resulting therefrom. The Court ruled that an assignment to guarantee anobligation is in effect a mortgage and not an absolute conveyance of title which confersownership on the assignee (People's Bank & Trust Co. v. Odom, 64 Phil. 126 [1937]).

II

As to whether or not appellee bank must have to exhaust all legal remedies against thePhilippine Fisheries Commission before it can proceed against appellants for collection ofloans under their promissory notes, must also be answered in the negative.

The obligation of appellants under the promissory notes not having been released by theassignment of receivables, appellants remain as the principal debtors of appellee bankrather than mere guarantors. The deed of assignment merely guarantees saidobligations. That the guarantor cannot be compelled to pay the creditor unless the latterhas exhausted all the property of the debtor, and has resorted to all the legal remediesagainst the debtor, under Article 2058 of the New Civil Code does not therefore apply tothem. It is of course of the essence of

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