Credit Transactions Cases .docx

7/28/2019 Credit Transactions Cases .docx

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Republic of the Philippines

SUPREME COURTManilaSECOND DIVISION

G.R. No. L-29139 November 15, 1974CONSUELO P. PICZON, RUBEN O. PICZON and AIDA P.

ALCANTARA,plaintiffs-appellants,vs.

ESTEBAN PICZON and SOSING-LOBOS & CO., INC.,defendants-appellees.Vicente C. Santos for plaintiffs-appellants.

Jacinto R. Bohol for defendant-appellee Sosing-Lobos & Co., Inc.

Vicente M. Macabidang for defendant-appellee Esteban Piczon.

BARREDO,J.:pAppeal from the decision of the Court of First Instance of Samarin its Civil Case No. 5156, entitled Consuelo P. Piczon, et al. vs.

Esteban Piczon, et al., sentencing defendants-appellees, SosingLobos and Co., Inc., as principal, and Esteban Piczon, asguarantor, to pay plaintiffs-appellants "the sum of P12,500.00

with 12% interest from August 6, 1964 until said principalamount of P12,500.00 shall have been duly paid, and the

costs."After issues were joined and at the end of the pre-trial held onAugust 22, 1967, the trial court issued the following order:"When this case was called for pre-trial, plaintiffs anddefendants through their lawyers, appeared and entered intothe following agreement:1. That defendants admit the due execution of Annexes "A" and"B" of the complaint;2. That consequently defendant Sosing-Lobos and Co., Inc.binds itself to the plaintiffs for P12,500.00, the same to be paidon or before October 31, 1967 together with the interest thatthis court may determine.

That the issues in this case are legal ones namely:(a) Will the payment of twelve per cent interest of P12,500.00commence to run from August 6, 1964 when plaintiffs madethe first demand or from August 29, 1956 when the obligationbecomes due and demandable?(b) Is defendant Esteban Piczon liable as a guarantor or asurety?That the parties are hereby required to file their respectivememorandum if they so desire on or before September 15,1967 to discuss the legal issues and therewith the case will be

considered submitted for decision.WHEREFORE, the instant case is hereby considered submitted

based on the aforesaid facts agreed upon and upon submissionof the parties of their respective memorandum on or beforeSeptember 15, 1967.SO ORDERED.

1(Record on Appeal pp. 28-30.)Annex "A", the actionable document of appellants reads thus:

AGREEMENT OF LOANKNOW YE ALL MEN BY THESE PRESENTS:

That I, ESTEBAN PICZON, of legal age, married, Filipino, andresident of and with postal address in the municipality ofCatbalogan, Province of Samar, Philippines, in my capacity as

the President of the corporation known as the "SOSING-LOBOS

and CO., INC.," as controlling stockholder, and at the same timeas guarantor for the same, do by these presents contract a loanof Twelve Thousand Five Hundred Pesos (P12,500.00),Philippine Currency, the receipt of which is herebyacknowledged, from the "Piczon and Co., Inc." anothercorporation, the main offices of the two corporations being inCatbalogan, Samar, for which I undertake, bind and agree to

use the loan as surety cash deposit for registration with theSecurities and Exchange Commission of the incorporation

papers relative to the "Sosing-Lobos and Co., Inc.," and toreturn or pay the same amount with Twelve Per Cent (12%)interest per annum, commencing from the date of executionhereof, to the "Piczon and Co., Inc., as soon as the saidincorporation papers are duly registered and the Certificate of

Incorporation issued by the aforesaid Commission.IN WITNESS WHEREOF, I hereunto signed my name in

Catbalogan, Samar, Philippines, this 28th day of September,1956.

(Sgd.) ESTEBAN PICZON(Record on Appeal, pp. 6-7.)The trial court having rendered judgment in the tenor

aforequoted, appellants assign the following alleged errors:I

THE TRIAL COURT ERRED IN ORDERING THE PAYMENT OF 12%INTEREST ON THE PRINCIPAL OF P12,500.00 FROM AUGUST 6,1964, ONLY, INSTEAD OF FROM SEPTEMBER 28, 1956, WHENANNEX "A" WAS DULY EXECUTED.IITHE TRIAL COURT ERRED IN CONSIDERING DEFENDANTESTEBAN PICZON AS GUARANTOR ONLY AND NOT AS SURETY.IIITHE TRIAL COURT ERRED IN NOT ADJUDICATING DAMAGES INFAVOR OF THE PLAINTIFFS-APPELLANTS. (Appellants' Brief, pp.a to b.)Appellants' first assignment of error is well taken. Instead of

requiring appellees to pay interest at 12% only from August 6,1964, the trial court should have adhered to the terms of theagreement which plainly provides that Esteban Piczon hadobligated Sosing-Lobos and Co., Inc. and himself to "return orpay (to Piczon and Co., Inc.) the same amount (P12,500.00)with Twelve Per Cent (12%) interest per annum commencingfrom the date of the execution hereof", Annex A, which was onSeptember 28, 1956. Under Article 2209 of the Civil Code "(i)fthe obligation consists in the payment of a sum of money, andthe debtor incurs in delay, the indemnity for damages, there

being no stipulation to the contrary, shall be the payment ofthe interest agreed upon, and in the absence of stipulation, the

legal interest, which is six per cent per annum." In the case atbar, the "interest agreed upon" by the parties in Annex A wasto commence from the execution of said document.Appellees' contention that the reference in Article 2209 todelay incurred by the debtor which can serve as the basis for

liability for interest is to that defined in Article 1169 of the CivilCode reading thus:

Those obliged to deliver or to do something incur in delay fromthe time the obligee judicially or extrajudicially demands fromthem the fulfillment of their obligation.


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However, the demand by the creditor shall not be necessary inorder that delay may exist:(1) When the obligation or the law expressly so declares; or(2) When from the nature and the circumstances of theobligation it appears that the designation of the time when thething is to be delivered or the service is to be rendered was acontrolling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor hasrendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if theother does not comply or is not ready to comply in a propermanner with what is incumbent upon him. From the momentone of the parties fulfills his obligation, delay by the otherbegins.

is untenable.In Quiroz vs. Tan Guinlay, 5 Phil. 675, it was heldthat the article cited by appellees (which was Article 1100 of

the Old Civil Code read in relation to Art. 1101) is applicableonly when the obligation is to do something other than the

payment of money. And inFirestone Tire & Rubber Co. (P.I.) vs.Delgado, 104 Phil. 920, the Court squarely ruled that if thecontract stipulates from what time interest will be counted,

said stipulated time controls, and, therefore interest is payablefrom such time, and not from the date of the filing of the

complaint (at p. 925). Were that not the law, there would be nobasis for the provision of Article 2212 of the Civil Codeproviding that "(I)nterest due shall earn legal interest from thetime it is judicially demanded, although the obligation may besilent upon this point." Incidentally, appellants would havebeen entitled to the benefit of this article, had they not failedto plead the same in their complaint. Their prayer for it in theirbrief is much too late. Appellees had no opportunity to meetthe issue squarely at the pre-trial.As regards the other two assignments of error, appellants' posecannot be sustained. Under the terms of the contract, Annex A,Esteban Piczon expressly bound himself only as guarantor, and

there are no circumstances in the record from which it can bededuced that his liability could be that of a surety. A guarantymust be express, (Article 2055, Civil Code) and it would beviolative of the law to consider a party to be bound as a suretywhen the very word used in the agreement is "guarantor."Moreover, as well pointed out in appellees' brief, under theterms of the pre-trial order, appellants accepted the expressassumption of liability by Sosing-Lobos & Co., Inc. for thepayment of the obligation in question, thereby modifying theiroriginal posture that inasmuch as that corporation did not exist

yet at the time of the agreement, Piczon necessarily must havebound himself as insurer.

As already explained earlier, appellants' prayer for payment oflegal interest upon interest due from the filing of the complaintcan no longer be entertained, the same not having been madean issue in the pleadings in the court below. We do not believethat such a substantial matter can be deemed included in a

general prayer for "any other relief just and equitable in thepremises", especially when, as in this case, the pre-trial order

does not mention it in the enumeration of the issues to beresolved by the court.PREMISES CONSIDERED, the judgment of the trial court is

modified so as to make appellees liable for the stipulated

interest of 12% per annum from September 28, 1956, insteadof August 6, 1964. In all other respects, said judgment isaffirmed. Costs against appellees.

Fernando (Chairman), Antonio, Fernandez and Aquino, JJ.,

concur.

Republic of the PhilippinesSUPREME COURTManila

EN BANCG.R. No. 34642 September 24, 1931

FABIOLA SEVERINO, accompanied by her husband RICARDOVERGARA, plaintiffs-appellees,vs.GUILLERMO SEVERINO, ET AL., defendants.ENRIQUE ECHAUS, appellant.R. Nepomuceno for appellant.Jacinto E. Evidente for appellees.

STREET, J.:This action was instituted in the Court of First Instance of the

Province of Iloilo by Fabiola Severino, with whom is joined herhusband Ricardo Vergara, for the purpose of recovering thesum of P20,000 from Guillermo Severino and Enrique Echaus,the latter in the character of guarantor for the former. Uponhearing he cause the trial court gave judgment in favor of the

plaintiffs to recover the sum of P20,000 with lawful fromNovember 15, 1929, the date of the filing of the complaint,with costs. But it was declared that execution of this judgmentshould issue first against the property of Guillermo Severino,and if no property should be found belonging to said defendantsufficient to satisfy the judgment in whole or in part, executionfor the remainder should be issued against the property ofEnrique Echaus as guarantor. From this judgment thedefendant Echaus appealed, but his principal, GuillermoSeverino, did not.

The plaintiff Fabiola Severino is the recognized natural daughterof Melecio Severino, deceased, former resident of OccidentalNegros. Upon the death of Melecio Severino a number of yearsago, he left considerable property and litigation ensuedbetween his widow, Felicitas Villanueva, and Fabiola Severino,on the one part, and other heirs of the deceased on the otherpart. In order to make an end of this litigation a compromise

was effected by which Guillermo Severino, a son of MelecioSeverino, took over the property pertaining to the estate of his

father at the same time agreeing to pay P100,000 to FelicitasVillanueva and Fabiola Severino. This sum of money was made

payable, first, P40,000 in cash upon the execution of thedocument of compromise, and the balance in three severalpayments of P20,000 at the end of one year; two years, and

three years respectively. To this contract the appellant EnriqueEchaus affixed his name as guarantor. The first payment of

P40,000 was made on July 11, 1924, the date when thecontract of compromise was executed; and of this amount theplaintiff Fabiola Severino received the sum of P10,000. Of the

remaining P60,000, all as yet unpaid, Fabiola Severino isentitled to the sum of P20,000.


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It appears that at the time of the compromise agreementabove-mentioned was executed Fabiola Severino had not yetbeen judicially recognized as the natural daughter of MelecioSeverino, and it was stipulated that the last P20,000corresponding to Fabiola and the last P5,000 corresponding toFelicitas Villanueva should retained on deposit until the definitestatus of Fabiola Severino as natural daughter of Melecio

Severino should be established. The judicial decree to thiseffect was entered in the Court of First Instance of Occidental

Negros on June 16, 1925, and as the money which wascontemplated to be held in suspense has never in fact beenpaid to the parties entitled thereto, it results that the pointrespecting the deposit referred to has ceased to be of moment.The proof shows that the money claimed in this action has

never been paid and is still owing to the plaintiff; and the onlydefense worth noting in this decision is the assertion on the

part of Enrique Echaus that he received nothing for affixing hissignature as guarantor to the contract which is the subject of

suit and that in effect the contract was lacking in considerationas to him.The point is not well taken. A guarantor or surety is bound by

the same consideration that makes the contract effectivebetween the principal parties thereto. (Pyle vs. Johnson, 9 Phil.,

249.) The compromise and dismissal of a lawsuit is recognizedin law as a valuable consideration; and the dismissal of theaction which Felicitas Villanueva and Fabiola Severino hadinstituted against Guillermo Severino was an adequateconsideration to support the promise on the part of GuillermoSeverino to pay the sum of money stipulated in the contractwhich is the subject of this action. The promise of the appellantEchaus as guarantor therefore binding. It is never necessarythat the guarantor or surety should receive any part of thebenefit, if such there be, accruing to his principal. But the trueconsideration of this contract was the detriment suffered bythe plaintiffs in the former action in dismissing that proceeding,

and it is immaterial that no benefit may have accrued either tothe principal or his guarantor.The judgment appealed from is in all respects correct, and thesame will be affirmed, with costs against the appellant. Soordered.Avancea, C.J., Johnson, Malcolm, Villamor, Ostrand,Romualdez, Villa-Real and Imperial, JJ., concur.

Republic of the PhilippinesSUPREME COURTManilaTHIRD DIVISION

G.R. No. 112191 February 7, 1997FORTUNE MOTORS (PHILS.) CORPORATION and EDGAR L.RODRIGUEZA,petitioners,vs.

THE HONORABLE COURT OF APPEALS and FILINVEST CREDITCORPORATION,respondents.

PANGANIBAN,J.:

To fund their acquisition of new vehicles (which are laterretailed or resold to the general public), car dealers normallyenter into wholesale automotive financing schemes wherebyvehicles are delivered by the manufacturer or assembler on thestrength of trust receipts or drafts executed by the car dealers,which are backed up by sureties. These trust receipts or draftsare then assigned and/or discounted by the manufacturer

to/with financing companies, which assume payment of thevehicles but with the corresponding right to collect such

payment from the car dealers and/or the sureties. In thismanner, car dealers are able to secure delivery of their stock-in-trade without having to pay cash therefor; manufacturersget paid without any receivables/collection problems; andfinancing companies earn their margins with the assurance of

payment not only from the dealers but also from the sureties.When the vehicles are eventually resold, the car dealers are

supposed to pay the financing companies and the businessgoes merrily on. However, in the event the car dealer defaults

in paying the financing company, may the surety escape liabilityon the legal ground that the obligations wereincurredsubsequentto the execution of the surety contract?

This is the principal legal question raised in this petition forreview (under Rule 45 of the Rules of Court) seeking to set

aside the Decision1of the Court of Appeals (Tenth

Division)2promulgated on September 30, 1993 in CA G.R. CV

No. 09136 which affirmed in toto the decision3of the Regional

Trial Court of Manila Branch 114in Civil Case No. 83-21994,

the dispositive portion of which reads:WHEREFORE, judgment is hereby rendered in favor of theplaintiff and against the defendants, by ordering the latter topay, jointly and severally, the plaintiff the following amounts:1. The sum of P1,348,033.89, plus interest thereon at the rateof P922.53 per day starting April 1, 1985 until the said principalamount is fully paid;2. The amount of P50,000.00 as attorney's fees and another

P50,000.00 as liquidated damages; and3. That the defendants, although spared from paying exemplarydamages, are further ordered to pay, in solidum, the costs ofthis suit.Plaintiff therein was the financing company and the defendantsthe car dealer and its sureties.The Facts

On or about August 4, 1981, Joseph L. G. Chua and PetitionerEdgar Lee Rodrigueza ("Petitioner Rodrigueza") each executedan undated "Surety Undertaking"

5whereunder they

"absolutely, unconditionally and solidarily guarantee(d)" toRespondent Filinvest Credit Corporation ("Respondent

Filinvest") and its affiliated and subsidiary companies the "full,faithful and prompt performance, payment and discharge ofany and all obligations and agreements" of Fortune Motors(Phils.) Corporation ("Petitioner Fortune") "under or withrespect to any and all such contracts and any and all other

agreements (whether by way of guaranty or otherwise)" of thelatter with Filinvest and its affiliated and subsidiary companies

"now in force or hereafter made."The following year or on April

65, 1982, Petitioner Fortune,

Respondent Filinvest and Canlubang Automotive Resources

Corporation ("CARCO") entered into an "Automotive Wholesale


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Financing Agreement"7("Financing Agreement") under which

CARCO will deliver motor vehicles to Fortune for the purpose ofresale in the latter's ordinary course of business; Fortune, inturn, will execute trust receipts over said vehicles and acceptdrafts drawn by CARCO, which will discount the same togetherwith the trust receipts and invoices and assign them in favor ofRespondent Filinvest, which will pay the motor vehicles for

Fortune. Under the same agreement, Petitioner Fortune, astrustee of the motor vehicles, was to report and remit proceeds

of any sale for cash or on terms to Respondent Filinvestimmediately without necessity of demand.Subsequently, several motor vehicles were delivered by CARCOto Fortune, and trust receipts covered by demand drafts anddeeds of assignment were executed in favor of Respondent

Filinvest. However, when the demand drafts matured, not allthe proceeds of the vehicles which Petitioner Fortune had sold

were remitted to Respondent Filinvest. Fortune likewise failedto turn over to Filinvest several unsold motor vehicles covered

by the trust receipts. Thus, Filinvest through counsel, sent ademand letter

8dated December 12, 1983 to Fortune for the

payment of its unsettled account in the amount of

P1,302,811.00. Filinvest sent similar demand letters 9separatelyto Chua and Rodrigueza as sureties. Despite said demands, the

amount was not paid. Hence, Filinvest filed in the Regional TrialCourt of Manila a complaint for a sum of money withpreliminary attachment against Fortune, Chua and Rodrigueza.In an order dated September 26, 1984, the trial court declaredthat there was no factual issue to be resolved except for thecorrect balance of defendants' account with Filinvest as agreedupon by the parties during pre-trial.

10Subsequently, Filinvest

presented testimonial and documentary evidence. Defendants(petitioners herein), instead of presenting their evidence, filed a"Motion for Judgment on Demurrer to Evidence"

11anchored

principally on the ground that the Surety Undertakings werenull and void because, at the time they were executed, there

was no principal obligation existing. The trial court denied themotion and scheduled the case for reception of defendants'evidence. On two scheduled dates, however, defendants failedto present their evidence, prompting the court to deem themto have waived their right to present evidence. On December17, 1985, the trial court rendered its decision earlier citedordering Fortune, Chua and Rodrigueza to pay Filinvest, jointlyand severally, the sum of P1,348,033.83 plus interest at therate of P922.53 per day from April 1, 1985 until fully paid,P50,000.00 in attorney's fees, another P50,000.00 in liquidated

damages and costs of suit.As earlier mentioned, their appeal was dismissed by the Court

of Appeals (Tenth Division) which affirmed in toto the trialcourt's decision. Hence, this recourse.Issues

Petitioners assign the following errors in the appealed Decision:1. that the Court of Appeals erred in declaring that surety can

exist even if there was no existing indebtedness at the time ofits execution.

2. that the Court of Appeals erred when it declared that therewas no novation.3. that the Court of Appeals erred when it declared, that the

evidence was sufficient to prove the amount of the claim.12

Petitioners argue that future debts which can be guaranteedunder Article 2053 of the Civil Code refer only to "debts existingat the time of the constitution of the guaranty but the amountthereof is unknown," and that a guaranty being an accessoryobligation cannot exist without a principal obligation.Petitioners claim that the surety undertakings cannot be madeto cover the Financing Agreement executed by Fortune,

Filinvest and CARCO since the latter contract was not yet inexistence when said surety contracts were entered into.

Petitioners further aver that the Financing Agreement wouldeffect a novation of the surety contracts since it changed theprincipal terms of the surety contracts and imposed additionaland onerous obligations upon the sureties.Lastly, petitioners claim that no accounting of the payments

made by Petitioner Fortune to Respondent Filinvest was doneby the latter. Hence, there could be no way by which the

sureties can ascertain the correct amount of the balance, if any.Respondent Filinvest, on the other hand, imputes "estoppel (by

pleadings or by judicial admission)" upon petitioners when intheir "Motion to Discharge Attachment," they admitted theirliability as sureties thus:

Defendants Chua and Rodrigueza could not have perpetratedfraud because they are only sureties of defendant Fortune

Motors . . .;. . . The defendants (referring to Rodrigueza and Chua) are notparties to the trust receipts agreements since they are ONLYsureties.. . .

13

In rejecting the arguments of petitioners and in holding thatthey (Fortune and the sureties) were jointly and solidarily liableto Filinvest, the trial court declared:As to the alleged non-existence of a principal obligation whenthe surety agreement was signed, it is enought (sic) to statethat a guaranty may also be given as security for future debts,the amount of which is not known (Art. 2053, New Civil Code).

In the case of NARIC vs. Fojas, L-11517, promulgated April 10,1958, it was ruled that a bond posted to secure additionalcredit that the principal debtor had applied for, is not void justbecause the said bond was signed and filed before theadditional credit was extended by the creditor. The obligationof the sureties on future obligations of Fortune is apparentfrom a proviso under the Surety Undertakings marked Exhs. Band C that the sureties agree with the plaintiff as follows:In consideration of your entering into an arrangement with theparty (Fortune) named above, . . . by which you may purchase

or otherwise require from, and or enter into with obligor . . .trust receipt . . . arising out of wholesale and/or retail

transactions by or with obligor, the undersigned . . . absolutely,unconditionally, and solidarily guarantee to you . . . the full,faithful and prompt performance, payment and discharge ofany and all obligations . . . of obligor under and with respect toany and all such contracts and any and all agreements (whether

by way of guaranty or otherwise) of obligor with you . . . now inforce or hereafter made. (Emphasis supplied).

On the matter of novation, this has already been ruled uponwhen this Court denied defendants' Motion to dismiss on theargument that what happened was really an assignment of

credit, and not a novation of contract, which does not require


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the consent of the debtors. The fact of knowledge is enough.Besides, as explained by the plaintiff, the mother or theprincipal contract was the Financing Agreement, whereas thetrust receipts, the sight drafts, as well as the Deeds ofassignment were only collaterals or accidental modificationswhich do not extinguish the original contract by way ofnovation. This proposition holds true even if the subsequent

agreement would provide for more onerous terms for, at anyrate, it is the principal or mother contract that is to be followed.

When the changes refer to secondary agreements and not tothe object or principal conditions of the contract, there is nonovation; such changes will produce modifications of incidentalfacts, but will not extinguish the original obligation (Tolentino,Commentaries on Jurisprudence of the Civil Code of the

Philippines, 1973 Edition, Vol. IV, page 367; cited in plaintiff'sMemorandum of September 6, 1985, p. 3).

On the evidence adduced by the plaintiff to show the status ofdefendants' accounts, which took into consideration payments

by defendants made after the filing of the case, it is enough tostate that a statement was carefully prepared showing abalance of the principal obligation plus interest totalling

P1,348,033.89 as of March 31, 1985 (Exh. M). This accountinghas not been traversed nor contradicted by defendants

although they had the opportunity to do so. Likewise, there wasabsolute silence on the part of defendants as to the correctnessof the previous statement of account made as of December 16,1983 (referring to Exh. I), but more important, however, is thatdefendants received demand letters from the plaintiff statingthat, as of December 1983 (Exhs. J, K and L), this total amountof obligation was P1,302,811,00, and yet defendants were notheard to have responded to said demand letters, let alone havetaken any exception thereto. There is such a thing as evidenceby silence (Sec. 23, Rule 130, Revised Rules of Court).

14

The Court of Appeals, affirming the above decision of the trialcourt, further explained:

. . . In the case at bar, the surety undertakings in questionunequivocally state that Chua and Rodrigueza "absolutely,unconditionally and solidarily guarantee" to Filinvest the "full,faithful and prompt performance, payment and discharge ofany and all obligations and agreements" of Fortune "under orwith respect to any and all such contracts and any and all otheragreements (whether by way of guaranty or otherwise)" of thelatter with Filinvest in force at the time of the execution of the"Surety Undertakings" or made thereafter. Indeed, if Chua andRodrigueza did not intend to guarantee all of Fortune's future

obligation with Filinvest, then they should have expressly statedin their respective surety undertakings exactly what said surety

agreements guaranteed or to which obligations of Fortune thesame were intended to apply. For another, if Chua andRodrigueza truly believed that the surety undertakings theyexecuted should not cover Fortune's obligations under theAWFA, then why did they not inform Filinvest of such fact when

the latter sent them the aforementioned demand letters (Exhs.'K' and 'L') urging them to pay Fortune's liability under the

AWFA. Instead, quite uncharacteristic of persons who have justbeen asked to pay an obligation to which they believe they arenot liable, Chua and Rodrigueza elected or chose not to answer

said demand letters. Then, too, considering that appellant Chua

is the corporate president of Fortune and a signatory to theAWFA, he should have simply had it stated in the AWFA or in aseparate document that the "Surety Undertakings" do notcover Fortune's obligations in the aforementioned AWFA, trustreceipts or demand drafts.Appellants argue that it was unfair for Filinvest to haveexecuted the AWFA only after two (2) years from the date of

the "Surety undertakings" because Chua and Rodrigueza werethereby made to wait for said number of years just to know

what kind of obligation they had to guarantee.The argument cannot hold water. In the first place, the "SuretyUndertakings" did not provide that after a period of time thesame will lose its force and effect. In the second place, if Chuaand Rodrigueza did not want to guarantee the obligations of

Fortune under the AWFA, trust receipts and demand drafts,then why did they not simply terminate the 'Surety

Undertakings' by serving ten (10) days written notice toFilinvest as expressly allowed in said surety agreements. It is

highly plausible that the reason why the 'Surety Undertakings'were not terminated was because the execution of the samewas part of the consideration why Filinvest and CARCO agreed

to enter into the AWFA with Fortune.15The Court's Ruling

We affirm the decisions of the trial and appellate courts.First Issue: Surety May Secure Future Obligations

The case at bench falls on all fours withAtok FinanceCorporation vs.Court of Appeals

16which reiterated our rulings

inNational Rice and Corn Corporation (NARIC) vs.Court ofAppeals

17andRizal Commercial Banking Corporation

vs.Arro.18

InAtok Finance, Sanyu Chemical as principal, andSanyu Trading along with individual private stockholders ofSanyu Chemical, namely, spouses Daniel and Nenita Arrieta,Leopoldo Halili and Pablito Bermundo, as sureties, executed acontinuing suretyship agreement in favor of Atok Finance ascreditor. Under the agreement, Sanyu Trading and the

individual private stockholders and officers of Sanyu Chemical"jointly and severally unconditionally guarantee(d) to AtokFinance Corporation (hereinafter called Creditor), the full,faithful and prompt payment and discharge of any and allindebtedness of [Sanyu Chemical] . . . to the Creditor."Subsequently, Sanyu Chemical assigned its trade receivablesoutstanding with a total face value of P125,871.00 to AtokFinance in consideration of receipt of the amount ofP105,000.00. Later, additional trade receivables with a totalface value of P100,378.45 were also assigned. Due to

nonpayment upon maturity, AtokFinance commenced action against Sanyu Chemical, the Arrieta

spouses, Bermundo and Halili to collect the sum of P120,240.00plus penalty charges due and payable. The individual privaterespondents contended that the continuing suretyshipagreement, being an accessory contract, was null and voidsince, at the time of its execution, Sanyu Chemical had no pre-

existing obligation due to Atok Finance. The trial court rendereda decision in favor of Atok Finance and ordered defendants to

pay, jointly and severally, aforesaid amount to Atok.On appeal, the then Intermediate Appellate Court reversed thetrial court and dismissed the complaint on the ground that

there was "no proof that when the suretyship agreement was


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entered into, there was a pre-existing obligation which servedas the principal obligation between the parties. Furthermore,the 'future debts' alluded to in Article 2053 refer to debtsalready existing at the time of the constitution of theagreement but the amount thereof is unknown, unlike in thecase at bar where the obligation was acquired two years afterthe agreement."

We ruled then that the appellate court was in serious error. Thedistinction which said court sought to make with respect to

Article 2053 (that "future debts" referred to therein relate to"debts already existing at the time of the constitution of theagreement but the amount [of which] is unknown" and not todebts not yet incurred and existing at that time) has previouslybeen rejected, citing the RCBC and NARIC cases. We further

said:. . . Of course, a surety is not bound under any particular

principal obligation until that principal obligation is born. Butthere is no theoretical or doctrinal difficulty inherent in saying

that the suretyship agreement itself is valid and binding evenbefore the principal obligation intended to be secured therebyis born, any more than there would be in saying that obligations

which are subject to a condition precedent are valid andbinding before the occurrence of the condition precedent.

Comprehensive or continuing surety agreements are in factquite commonplace in present day financial and commercialpractice. A bank or financing company which anticipatesentering into a series of credit transactions with a particularcompany, commonly requires the projected principal debtor toexecute a continuing surety agreement along with its sureties.By executing such an agreement, the principal places itself in aposition to enter into the projected series of transactions withits creditor; with such suretyship agreement, there would be noneed to execute a separate surety contract or bond for eachfinancing or credit accommodation extended to the principaldebtor.

InDino vs.Court of Appeals,19we again had occasion todiscourse on continuing guaranty/suretyship thus:. . . A continuing guaranty is one which is not limited to a singletransaction, but which contemplates a future course of dealing,covering a series of transactions, generally for an indefinitetime or until revoked. It is prospective in its operation and isgenerally intended to provide security with respect to futuretransactions within certain limits, and contemplates asuccession of liabilities, for which, as they accrue, the guarantorbecomes liable. Otherwise stated, a continuing guaranty is one

which covers all transactions, including those arising in thefuture, which are within the description or contemplation of

the contract, of guaranty, until the expiration or terminationthereof. A guaranty shall be construed as continuing when bythe terms thereof it is evident that the object is to give astanding credit to the principal debtor to be used from time totime either indefinitely or until a certain period; especially if the

right to recall the guaranty is expressly reserved. Hence, wherethe contract of guaranty states that the same is to secure

advances to be made 'from time to time' the guaranty will beconstrued to be a continuing one.In other jurisdictions, it has been held that the use of particular

words and expressions such as payment of "any debt," "any

indebtedness," "any deficiency," or "any sum," or the guarantyof "any transaction" or money to be furnished the principaldebtor "at any time," or "on such time" that the principaldebtor may require, have been construed to indicate acontinuing guaranty.

20

We have no reason to depart from our uniform ruling in theabove-cited cases. The facts of the instant case bring us to no

other conclusion than that the surety undertakings executed byChua and Rodrigueza were continuing guaranties or suretyships

covering all future obligations of Fortune Motors (Phils.)Corporation with Filinvest Credit Corporation. This is evidentfrom the written contract itself which contained the words"absolutely, unconditionally and solidarily guarantee(d)" toRespondent Filinvest and its affiliated and subsidiary companies

the "full, faithful and prompt performance, payment anddischarge of any and all obligations and agreements" of

Petitioner Fortune "under or with respect to any and all suchcontracts and any and all other agreements (whether by way of

guaranty or otherwise)" of the latter with Filinvest and itsaffiliated and subsidiary companies "now in force or hereaftermade."

Moreover, Petitioner Rodrigueza and Joseph Chua knew exactlywhere they stood at the time they executed their respective

surety undertakings in favor of Fortune. As stated in thepetition:Before the execution of the new agreement, Edgar L.Rodrigueza and Joseph Chua were required to sign blank suretyagreements, without informing them how much amount theywould be liable as sureties. However,because of the desire ofpetitioners, Chua and Rodrigueza to have the cars delivered to

petitioner. Fortune, they signed the blank promissory

notes.21

(emphasis supplied)It is obvious from the foregoing that Rodrigueza and Chua werefully aware of the business of Fortune, an automobile dealer;Chua being the corporate president of Fortune and even a

signatory to the Financial Agreement with Filinvest.22Bothsureties knew the purpose of the surety undertaking whichthey signed and they must have had an estimate of the amountinvolved at that time. Their undertaking by way of the suretycontracts was critical in enabling Fortune to acquire creditfacility from Filinvest and to procure cars for resale, which wasthe business of Fortune. Respondent Filinvest, for its part,relied on the surety contracts when it agreed to be the assigneeof CARCO with respect to the liabilities of Fortune with CARCO.After benefiting therefrom, petitioners cannot now impugn the

validity of the surety contracts on the ground that there was nopreexisting obligation to be guaranteed at the time said surety

contracts were executed. They cannot resort to equity toescape liability for their voluntary acts, and to heap injustice toFilinvest, which relied on their signed word.This is a clear case of estoppel by deed. By the acts ofpetitioners, Filinvest was made to believe that it can collect

from Chua and/or Rodrigueza in case of Fortune's default.Filinvest relied upon the surety contracts when it demanded

payment from the sureties of the unsettled liabilities ofFortune. A refusal to enforce said surety contracts wouldvirtually sanction the perpetration of fraud or injustice.

23

Second Issue: No Novation


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7

Neither do we find merit in the averment of petitioners that theFinancing Agreement contained onerous obligations notcontemplated in the surety undertakings, thus changing theprincipal terms thereof and effecting a novation.We have ruled previously that there are only two ways to effectnovation and thereby extinguish an obligation. First, novationmust be explicitly stated and declared in unequivocal terms.

Novation is never presumed. Second, the old and newobligations must be incompatible on every point. The test of

incompatibility is whether the two obligations can standtogether, each one having its independent existence. If theycannot, they are incompatible and the latter obligation novatesthe first.

24Novation must be established either by the express

terms of the new agreement or by the acts of the parties clearly

demonstrating the intent to dissolve the old obligation as aconsideration for the emergence of the new one. The will to

novate, whether totally or partially, must appear by expressagreement of the parties, or by their acts which are too clear

and unequivocal to be mistaken.25

Under the surety undertakings however, the obligation of thesureties referred to absolutely, unconditionally and solidarily

guaranteeing the full, faithful and prompt performance,payment and discharge of all obligations of Petitioner Fortune

with respect to any and all contracts and other agreementswith Respondent Filinvest in force at that time or thereaftermade. There were to qualifications, conditions or reservationsstated therein as to the extent of the suretyship. The FinancingAgreement, on the other hand, merely detailed the obligationsof Fortune to CARCO (succeeded by Filinvest as assignee). Theallegation of novation by petitioners is, therefore, misplaced.There is no incompatibility of obligations to speak of in the twocontracts. They can stand together without conflict.Furthermore, the parties have not performed any explicit andunequivocal act to manifest their agreement or intention tonovate their contract. Neither did the sureties object to the

Financing Agreement nor try to avoid liability thereunder at thetime of its execution. As aptly discussed by the Court ofAppeals:. . . For another, if Chua and Rodrigueza truly believed that thesurety undertakings they executed should not cover Fortune'sobligations under the AWFA (Financing Agreement), then whydid they not inform Filinvest of such fact when the latter sentthem the aforementioned demand letters (Exhs. "K" and "L")urging them to pay Fortune's liability under the AWFA. Instead,quite uncharacteristic of persons who have just been asked to

pay an obligation to which they are not liable, Chua andRodrigueza elected or chose not to answer said demand letters.

Then, too, considering that appellant Chua is the corporatepresident of Fortune and a signatory to the AWFA, he shouldhave simply had it stated in the AWFA or in a separatedocument that the 'Surety Undertakings' do not coverFortune's obligations in the aforementioned AWFA, trust

receipts or demand drafts.26

Third Issue: Amount of Claim Substantiated

The contest on the correct amount of the liability of petitionersis a purely factual issue. It is an oft repeated maxim that the

jurisdiction of this Court in cases brought before it from the

Court of Appeals under Rule 45 of the Rules of Court is limited

to reviewing or revising errors of law. It is not the function ofthis Court to analyze or weigh evidence all over again unlessthere is a showing that the findings of the lower court aretotally devoid of support or are glaringly erroneous as toconstitute serious abuse of discretion. Factual findings of theCourt of Appeals are conclusive on the parties and carry evenmore weight when said court affirms the factual findings of the

trial court.27In the case at bar, the findings of the trial court and the Court

of Appeals with respect to the assigned error are based onsubstantial evidence which were not refuted with contraryproof by petitioners. Hence, there is no necessity to departfrom the above judicial dictum.WHEREFORE, premises considered, the petition is DENIED and

the assailed Decision of the Court of Appeals concurring withthe decision of the trial court is hereby AFFIRMED. Costs against

petitioners.SO ORDERED.

Melo and Francisco, JJ., concur.

Narvasa, C.J. and Davide, Jr., JJ., concur.


SECOND DIVISIONG.R. No. 174006 December 8, 2010BANK OF COMMERCE and STEPHEN Z. TAALA,Petitioners,vs.

Spouses ANDRES and ELIZA FLORES,Respondents.D E C I S I O NNACHURA,J.:Before the Court is a petition for review on certiorari underRule 45 of the Rules of Court, assailing the Decision1datedFebruary 28, 2006 and the Resolution2dated August 9, 2006 of

the Court of Appeals (CA) in CA-G.R. CV No. 80362.The facts of the case are as follows:Respondents filed a case for specific performance againstpetitioners before the Regional Trial Court (RTC) of QuezonCity, docketed as Civil Case No. Q-98-35425. Respondents arethe registered owners of a condominium unit in EmbassyGarden Homes, West Triangle, Quezon City, registered under

Condominium Certificate of Title (CCT) No. 2130,3issued by the

Register of Deeds of Quezon City.4

On October 22, 1993, respondents borrowed money frompetitioner bank in the amount of Nine Hundred Thousand Pesos

(P900,000.00). Respondents executed a Real EstateMortgage5over the condominium unit as collateral, and the

same was annotated at the back of CCT No. 2130.

On October 3, 1995, respondents again borrowed One MillionOne Hundred Thousand Pesos (P1,100,000.00) from petitioner

bank, which was also secured by a mortgage over the sameproperty annotated at the back of CCT No. 2130.

6

On January 2, 1996, respondents paid One Million Eleven

Thousand Five Hundred Fifty-Five Pesos and 54 centavos(P1,011,555.54), as evidenced by Official Receipt No.
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1477417issued by petitioner bank. On the face of the receipt, it

was written that the payment was "in full payment of the loanand interest." Respondents then asked petitioner bank tocancel the mortgage annotations on CCT No. 2130 since theloans secured by the real estate mortgage were already paid infull. However, the bank refused to cancel the same anddemanded payment of Four Million Six Hundred Thirty-Three

Thousand Nine Hundred Sixteen Pesos and Sixty-SevenCentavos (P4,633,916.67), representing the outstanding

obligation of respondents as of February 27, 1998. Respondentsrequested for an accounting which would explain how the saidamount was arrived at. However, instead of heedingrespondents request, petitioner bank applied for extra-judicialforeclosure of the mortgages over the condominium unit. The

public auction sale was scheduled on September 4, 1998.Petitioner Stephen Z. Taala, a notary public, was tasked to

preside over the auction sale.8

Respondents filed suit with the RTC, Quezon City, assailing the

validity of the foreclosure and auction sale of the property.They averred that the loans secured by the property hadalready been paid in full. Furthermore, they claimed that the

Notice of Auction Sale by Notary Public9failed to comply withthe provisions of Act No. 3135, as amended by Act No. 4118,

requiring the publication and posting of the notice of auctionsale in at least three (3) public places in QuezonCity.10Respondents likewise prayed for the payment of moraland exemplary damages, and attorneys fees, and for theissuance of a temporary restraining order and/or writ ofpreliminary injunction to enjoin the extra-judicial foreclosuresale of the property.

11

On October 23, 1998, the RTC granted respondents prayer for

issuance of a writ of preliminary injunction, restrainingpetitioner bank from foreclosing on the mortgage.12Petitioner bank admitted that there were only two (2)mortgage loans annotated at the back of CCT No. 2130, but

denied that respondents had already fully settled theiroutstanding obligations with the bank.

13It averred that several

credit lines were granted to respondent Andres Flores bypetitioner bank that were secured by promissory notesexecuted by him, and which were either increased or extendedfrom time to time. The loan that was paid on January 2, 1996,in the amount ofP1,011,555.54, was only one of his loans withthe bank. There were remaining loans already due anddemandable, and had not been paid by respondents despiterepeated demands by petitioner bank. The remaining loans,

although not availed of at the same time, were similarlysecured by the subject real estate mortgage as provided in the

continuing guaranty agreement therein.14

Petitioner bank alleged that respondents requested and weregranted an increase in their Bills Discounted Line from NineHundred Thousand Pesos (P900,000.00) to Two Million Pesos(P2,000,000.00), which was secured by the same real estate

mortgage on CCT No. 2130. However, the subject condominiumunit commanded only a market value of One Million Seven

Hundred Twenty-Three Thousand Six Hundred Pesos(P1,723,600.00), and a loan value of Nine Hundred Fifty-NineThousand Six Hundred Sixteen Pesos (P959,616.00). Since the

market value of the condominium unit was lower than the

combined loans, the parties agreed to fix the amount of thereal estate mortgage atP1,100,000.00. Moreover, petitionerbank stressed that under the terms of the two real estatemortgages, future loans of respondents were alsocovered.

151avvphi1

On December 4, 2002, the RTC rendered a resolution,16

thefallo of which reads:

FROM THE FOREGOING MILIEU, the present case for specificperformance with damages and injunction filed by plaintiffs,

Sps. Andres and Eliza Flores against defendants, Bank ofCommerce and Stephen Z. Taala, is hereby DISMISSED.Likewise, the counterclaim filed by defendants, Bank ofCommerce and Stephen Z. Taala against plaintiffs, Sps. Andresand Eliza Flores is DISMISSED for insufficiency of evidence.

SO ORDERED.17

In denying respondents complaint for specific performance,

the RTC ratiocinated that respondents right of action hinged

mainly on the veracity of their claim that they faithfully

complied with their loan obligations and had fully paid them inJanuary 1996. The RTC stated that the evidence submitted bypetitioner bank, specifically the promissory notes and

statement of account dated February 27, 1998, negated thiscontention. The RTC declared that respondents incurred other

debts from petitioner bank, which must be paid first beforethey could be absolved of liability, and, consequently, demandthe release of the mortgage. The RTC also struck downrespondents assertion that petitioner bank did not comply

with the posting and publication requirements under Act No.3135, as amended.Respondents filed a motion for reconsideration, which was,however, denied by the RTC in a decision18dated August 8,2003.Aggrieved, respondents appealed to the CA.Meanwhile, on March 25, 2004, the auction sale of the subjectproperty was conducted, and petitioner bank was awarded the

property, as the highest bidder.On February 28, 2006, the CA rendered a Decision

19reversing

the decision and the resolution of the RTC. The dispositiveportion of the CA Decision reads:IN VIEW OF ALL THE FOREGOING, the instant appealisGRANTED; the challenged Decision dated December 4, 2002,isREVERSED and SET ASIDE; and a new one entered:(a) ordering the cancellation of the real estate mortgageannotations on the dorsal side of CCT No. 2130 of the Registryof Deeds of Quezon City;

(b) ordering appellee Bank to issue a corresponding release ofmortgages to plaintiffs-appellants CCT No. 2130;

(c) declaring null and void the challenged extra-judicialforeclosure and public auction sale held on March 25, 2004together with the Certificate of Sale dated April 14, 2004 issuedin favor of appellee Bank; and,(d) appellees counterclaims are ordered dismissed, for lack of

sufficient basis therefor.No costs.

SO ORDERED.20

The CA ratiocinated that the principal obligation or loan wasalready extinguished by the full payment thereof.

Consequently, the real estate mortgages securing the principal
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obligation were also extinguished. A real estate mortgage,being an accessory contract, cannot survive without theprincipal obligation it secures. The CA also noted that the twomortgages were individually annotated at the back of CCT No.2130. Thus, the CA opined that the individual annotationsclearly indicated that the said mortgages were not meant toserve as a continuing guaranty for any future loan that

respondents would obtain from petitioner bank.Petitioners filed a motion for reconsideration. On August 9,

2006, the CA issued a Resolution21

denying the same.Hence, the instant petition.The sole issue for resolution is whether the real estatemortgage over the subject condominium unit is a continuingguaranty for the future loans of respondent spouses despite

the full payment of the principal loans annotated on the title ofthe subject property.

We resolve this issue in the affirmative.The contested portion of the Deed of Real Estate Mortgage

dated October 22, 1993 for the principal obligationofP900,000.00 and of the second one dated October 3, 1995 forthe sum ofP1,100,000.00, uniformly read:

WITNESSETH: Thatfor and in consideration of the credit accommodations granted

by the MORTGAGEE [Bank of Commerce] to the MORTGAGOR[Andres Flores] and/or _____________________ herebyinitially fixed at _____________________________PESOS:(P____________), Philippine Currency, and as security for thepayment of the same, on demand or at maturity as the casemay be, be the interest accruing thereon, the cost of collectingthe same, the cost of keeping the mortgaged property(ies), ofall amounts now owed or hereafter owing by the MORTGAGORto the MORTGAGEE under this or separate instruments andagreements, or in respect of any bill, note, check, draftaccepted, paid or discounted, or advances made and all otherobligations to every kind already incurred or which may

hereafter be incurred, for the use or accommodation of theMORTGAGOR, as well as the faithful performance of the termsand conditions of this mortgage and of the separateinstruments and/or documents under which credits have beenor may hereafter be advanced by the MORTGAGEE to theMORTGAGOR, including their renewals, extensions andsubstitutions, any and all of which separate instruments and/ordocuments and their renewals, extensions and substitutionsare hereunto incorporated and made integral parts hereof, theMORTGAGOR [Andres Flores] has transferred and conveyed, as

by these presents it/he does hereby transfer and convey, byway of First Mortgage, to the MORTGAGEE [Bank of

Commerce], its successors and assigns, all its/ his rights, titleand interest to that parcel(s) of land, together with all thebuildings and improvements now existing or which mayhereafter be erected or constructed thereon, including all otherrights or benefits annexed to or inherent therein now existing

or which may hereafter exist, situated in Embassy GardenHomes, Quezon City, Philippines, and more particularly

described in Original/Transfer Certificate(s) of Title No. CCT No.2130 of the Registry of Deeds [of] Quezon City, as follows:CCT No. 2130

Unit No. L-2, located on Building L, consisting of Ninety Fivepoint Twenty (95.20) Square Meters, more of less, with ParkingSpace No. L-2.

22

It is petitioner banks contention that the sa id undertaking,stipulated in the Deed of Real Estate Mortgage dated October22, 1993 and October 3, 1995, is a continuing guaranty meantto secure future debts or credit accommodations granted by

petitioner bank in favor of respondents. On the other hand,respondents posit that, since they have already paid the loans

secured by the real estate mortgages, the mortgage should notbe foreclosed because it does not include future debts of thespouses or debts not annotated at the back of CCT No. 2130.A continuing guaranty is a recognized exception to the rule thatan action to foreclose a mortgage must be limited to the

amount mentioned in the mortgage contract.23

Under Article2053 of the Civil Code, a guaranty may be given to secure even

future debts, the amount of which may not be known at thetime the guaranty is executed. This is the basis for contracts

denominated as a continuing guaranty or suretyship. Acontinuing guaranty is not limited to a single transaction, butcontemplates a future course of dealing, covering a series of

transactions, generally for an indefinite time or until revoked. Itis prospective in its operation and is generally intended to

provide security with respect to future transactions withincertain limits, and contemplates a succession of liabilities, forwhich, as they accrue, the guarantor becomes liable. In otherwords, a continuing guaranty is one that covers all transactions,including those arising in the future, which are within thedescription or contemplation of the contract of guaranty, untilthe expiration or termination thereof.

24

A guaranty shall be construed as continuing when, by the termsthereof, it is evident that the object is to give a standing creditto the principal debtor to be used from time to time eitherindefinitely or until a certain period, especially if the right torecall the guaranty is expressly reserved. In other jurisdictions,

it has been held that the use of particular words andexpressions, such as payment of "any debt," "anyindebtedness," "any deficiency," or "any sum," or the guarantyof "any transaction" or money to be furnished the principaldebtor "at any time" or "on such time" that the principal debtormay require, has been construed to indicate a continuingguaranty.

25

In the instant case, the language of the real estate mortgageunambiguously reveals that the security provided in the realestate mortgage is continuing in nature. Thus, it was intended

as security for the payment of the loans annotated at the backof CCT No. 2130, and as security for all amounts that

respondents may owe petitioner bank. It is well settled thatmortgages given to secure future advance or loans are validand legal contracts, and that the amounts named asconsideration in said contracts do not limit the amount forwhich the mortgage may stand as security if from the four

corners of the instrument the intent to secure future and otherindebtedness can be gathered.

26

A mortgage given to secure advancements is a continuingsecurity and is not discharged by repayment of the amountnamed in the mortgage until the full amounts of the

advancements are paid.27

Respondents full payment of the
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loans annotated on the title of the property shall not effect therelease of the mortgage because, by the express terms of themortgage, it was meant to secure all future debts of thespouses and such debts had been obtained and remain unpaid.Unless full payment is made by the spouses of all the amountsthat they have incurred from petitioner bank, the property isburdened by the mortgage.

WHEREFORE, in view of the foregoing, the Decision datedFebruary 28, 2006 and the Resolution dated August 9, 2006 of

the Court of Appeals in CA-G.R. CV No. 80362 are herebyREVERSED and SET ASIDE. The decision of the Regional TrialCourt dated December 4, 2002 is hereby REINSTATED.SO ORDERED.ANTONIO EDUARDO B. NACHURAAssociate Justice

Republic of the Philippines

SUPREME COURTManila

EN BANC

G.R. No. L-10168 July 22, 1916JOSE M. A. ARROYO, guardian of Tito Jocsing, animbecile, plaintiff-appellee,

vs.FLORENTINO HILARIO JUNGSAY, ET AL., defendants-appellants.Perfecto J. Salas Rodriguez for appellants.TRENT, J.:The plaintiff in this case is the guardian of one Tito Jocsing, animbecile, appointed by the court to succeed Jungsay, theformer guardian, who absconded with the funds of his ward.The defendants are the absconding guardian and hisbondsmen. From a judgment in favor of the plaintiff andagainst the defendants for the sum of P6,000, together with

interest and costs, the bondsmen appealed.The principal question presented for our consideration iswhether the appellants should be credited with P4,400, thealleged value of certain property attached as that of theabsconding guardian, all of which is in the exclusive possessionof third parties under claim of ownership.The appellants in contending for the credit, rely upon article

1834 of the Civil Code, which gives to the surety the benefit of alevy (excusion), even when a judgment is rendered against both

the surety and the principal. But, according t article 1832,before the surety is entitled to this benefit, he must point out

to the creditor property of the principal debtor which can besold and which is sufficient to cover the amount of the debt.Upon this point Manresa, in vol. 12, pp. 263-265, says:

As explicitly stated in the article under consideration, it is notsufficient that the surety claim the benefit of discussion in time,

nor that is so doing he designate property of the debtorwherein to satisfy the debt. It is also necessary that anothercondition be fulfilled, to wit, that such property

be realizable and that it be situated in Spanish territory. This isnot only logical, but just, because the attachment of property

situated a great distance away would be a lengthy andextremely difficult proceeding and one that, if actually notopposed to, yet does not very well accord with the purpose ofthe bond, that is, to insure the fulfillment of the obligation andat the same time furnish the creditor with the means ofobtaining its fulfillment without hindrance or delays. The samemay be said of property that is not readily realizable, and as the

surety is the sole person who benefits by the discussion and theone most interested in avoiding difficulties in its execution, it is

he, therefore, who should designate the property out of whichthe recovery is to be made, it being unquestionably convenientfor him that the property he designates unite the conditionsindicated in order to facilitate the payment of the debt,whereby he will be freed from the subsidiary obligation

inherent in the bond.In Hill & Co. vs. Bourcier and Pond (29 La. Ann., 841), where

provisions similar to our Civil Code were under consideration,the court said:

The surety has the right, under certain circumstances, todemand the discussion of the property of the principal debtor.Where suit is brought against the surety alone, he may

interpose the plea, and compel the creditor to discuss theprincipal debtor. The effect of this is to stay proceedings against

the surety until judgment has been obtained against theprincipal debtor, and execution against his property has provedinsufficient. When the suit is brought against the surety and theprincipal debtor the plea of discussion does not require orauthorize any suspension of the proceedings; but the judgmentwill be so modified as to require the creditor to proceed byexecution against the property of the principal, and to exhaustit before resorting to the property of the surety. (Bernard vs.Custis, 4 Martin, 215; Banks vs. Brander, 13 La., 276.)In either case, the surety who desires to avail himself of thisright must demand it in l imine, `on the institution ofproceedings against him.' He must, moreover, point out to the

creditor property of the principal debtor, not incumbered,subject to seizure; and must furnish a sufficient sum to havethe discussion carried into effect. (R. C. C., 3045, 3046, 3047.) Aplea which does not meet these requirements must bedisregarded. (Robechot vs. Folse, 11 La., 136; Banks vs. Brander,13 La., 276.)The property pointed out by the sureties is not sufficient to paythe indebtedness; it is not salable; it is so incumbered that thirdparties have, as we have indicated, full possession under claimof ownership without leaving to the absconding guardian a

fractional or reversionary interest without determining firstwhether the claim of one or more of the occupants is well

founded. In all these respects the sureties have failed to meetthe requirements of article 1832 of the Civil Code.Where a guardian absconds or is beyond the jurisdiction of thecourt, the proper method, under article 1834 of the Civil Codeand section 577 of the Code of Civil Procedure, in order to

ascertain whether such guardian is liable and to what extent, inorder to bind the sureties on his official bond, is by a

proceeding in the nature of a civil action wherein the suretiesare made parties and given an opportunity to be heard. All thiswas done in the instant case.


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The judgment appealed from, being in accordance with the law,the same is hereby affirmed, with costs against the appellants.So ordered.Torres, Johnson, Moreland, and Araullo, JJ., concur.


THIRD DIVISIONG.R. No. 173526 August 28, 2008BENJAMIN BITANGA,petitioner,vs.

PYRAMID CONSTRUCTION ENGINEERINGCORPORATION,respondent.D E C I S I O NCHICO-NAZARIO,J.:Assailed in this Petition for Review under Rule 45

1of the

Revised Rules of Court are: (1) the Decision2dated 11 April

2006 of the Court of Appeals in CA-G.R. CV No. 78007 which

affirmed with modification the partial Decision3dated 29

November 2002 of the Regional Trial Court (RTC), Branch 96, ofQuezon City, in Civil Case No. Q-01-45041, granting the motionfor summary judgment filed by respondent PyramidConstruction and Engineering Corporation and declaring

petitioner Benjamin Bitanga and his wife, Marilyn Bitanga(Marilyn), solidarily liable to payP6,000,000.000 to respondent;and (2) the Resolution

4dated 5 July 2006 of the appellate court

in the same case denying petitioners Motion forReconsideration.The generative facts are:On 6 September 2001, respondent filed with the RTC aComplaint for specific performance and damages withapplication for the issuance of a writ of preliminary attachmentagainst the petitioner and Marilyn. The Complaint was

docketed as Civil Case No. Q-01-45041.Respondent alleged in its Complaint that on 26 March 1997, itentered into an agreement with Macrogen Realty, of whichpetitioner is the President, to construct for the latter theShoppers Gold Building, located at Dr. A. Santos Avenue cornerPalayag Road, Sucat, Paraaque City. Respondent commencedcivil, structural, and architectural works on the construction

project by May 1997. However, Macrogen Realty failed to settlerespondents progress billings. Petitioner, through his

representatives and agents, assured respondent that theoutstanding account of Macrogen Realty would be paid, and

requested respondent to continue working on the constructionproject. Relying on the assurances made by petitioner, who wasno less than the President of Macrogen Realty, respondent

continued the construction project.In August 1998, respondent suspended work on the

construction project since the conditions that it imposed for thecontinuation thereof, including payment of unsettled accounts,had not been complied with by Macrogen Realty. On 1

September 1999, respondent instituted with the ConstructionIndustry Arbitration Commission (CIAC) a case for arbitration

against Macrogen Realtyseeking payment by the latter of itsunpaid billings and project costs. Petitioner, through counsel,then conveyed to respondent his purported willingness toamicably settle the arbitration case. On 17 April 2000, beforethe arbitration case could be set for trial, respondent andMacrogen Realty entered into a Compromise Agreement,

5with

petitioner acting as signatory for and in behalf of Macrogen

Realty. Under the Compromise Agreement, Macrogen Realtyagreed to pay respondent the total amount ofP6,000,000.00 in

six equal monthly installments, with each installment to bedelivered on the 15

thday of the month, beginning 15 June

2000. Macrogen Realty also agreed that if it would default inthe payment of two successive monthly installments,immediate execution could issue against it for the unpaid

balance, without need of judgment or decree from any court ortribunal. Petitioner guaranteed the obligations of Macrogen

Realty under the Compromise Agreement by executing aContract of Guaranty

6in favor of respondent, by virtue of which

he irrevocably and unconditionally guaranteed the full andcomplete payment of the principal amount of liability ofMacrogen Realty in the sum ofP6,000,000.00. Upon joint

motion of respondent and Macrogen Realty, the CIAC approvedthe Compromise Agreement on 25 April 2000.

7

However, contrary to petitioners assurances, Macrogen Realty

failed and refused to pay all the monthly installments agreedupon in the Compromise Agreement. Hence, on 7 September2000, respondent moved for the issuance of a writ ofexecution

8against Macrogen Realty, which CIAC granted.

On 29 November 2000, the sheriff9filed a return stating that he

was unable to locate any property of Macrogen Realty, exceptits bank deposit ofP20,242.33, with the Planters Bank, BuendiaBranch.Respondent then made, on 3 January 2001, a writtendemand

10on petitioner, as guarantor of Macrogen Realty, to

pay theP6,000,000.00, or to point out available properties of

the Macrogen Realty within the Philippines sufficient to coverthe obligation guaranteed. It also made verbal demands onpetitioner. Yet, respondents demands were left unheeded.Thus, according to respondent, petitioners obligation as

guarantor was already due and demandable. As to Marilynsliability, respondent contended that Macrogen Realty wasowned and controlled by petitioner and Marilyn and/or bycorporations owned and controlled by them. Macrogen Realtyis 99% owned by the Asian Appraisal Holdings, Inc. (AAHI),which in turn is 99% owned by Marilyn. Since the completion of

the construction project would have redounded to the benefitof both petitioner and Marilyn and/or their corporations; and

considering, moreover, Marilyns enormous interest in AAHI,the corporation which controls Macrogen Realty, Marilyncannot be unaware of the obligations incurred by MacrogenRealty and/or petitioner in the course of the businessoperations of the said corporation.

Respondent prayed in its Complaint that the RTC, after hearing,render a judgment ordering petitioner and Marilyn to comply

with their obligation under the Contract of Guaranty by payingrespondent the amount ofP6,000,000.000 (less the bank

deposit of Macrogen Realty with Planters Bank in the amount

ofP20,242.23) andP400,000.000 for attorneys fees and
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expenses of litigation. Respondent also sought the issuance of awrit of preliminary attachment as security for the satisfaction ofany judgment that may be recovered in the case in its favor.Marilyn filed a Motion to Dismiss,

11asserting that respondent

had no cause of action against her, since she did not co-sign theContract of Guaranty with her husband; nor was she a party tothe Compromise Agreement between respondent and

Macrogen Realty. She had no part at all in the execution of thesaid contracts. Mere ownership by a single stockholder or by

another corporation of all or nearly all of the capital stock ofanother corporation is not by itself a sufficient ground fordisregarding the separate personality of the latter corporation.Respondent misread Section 4, Rule 3 of the Revised Rules ofCourt.

The RTC denied Marilyns Motion to Dism iss for lack of merit,and in its Order dated 24 January 2002 decreed that:

The Motion To Dismiss Complaint Against Defendant MarilynAndal Bitanga filed on November 12, 2001 is denied for lack of

merit considering that Sec. 4, Rule 3, of the Rules of Court(1997) specifically provides, as follows:"SEC. 4.Spouses as parties. Husband and wife shall sue or be

sued jointly, except as provided by law."and that this case does not come within the exception.

12

Petitioner filed with the RTC on 12 November 2001, hisAnswer

13to respondents Complaint averring therein that he

never made representations to respondent that MacrogenRealty would faithfully comply with its obligations under theCompromise Agreement. He did not offer to guarantee theobligations of Macrogen Realty to entice respondent to enterinto the Compromise Agreement but that, on the contrary, itwas respondent that required Macrogen Realty to offer someform of security for its obligations before agreeing to thecompromise. Petitioner further alleged that his wife Marilynwas not aware of the obligations that he assumed under boththe Compromise Agreement and the Contract of Guaranty as

he did not inform her about said contracts, nor did he secureher consent thereto at the time of their execution.As a special and affirmative defense, petitioner argued that thebenefit of excussion was still available to him as a guarantorsince he had set it up prior to any judgment against him.According to petitioner, respondent failed to exhaust all legalremedies to collect from Macrogen Realty the amount dueunder the Compromise Agreement, considering that MacrogenRealty still had uncollected credits which were more thanenough to pay for the same. Given these premise, petitioner

could not be held liable as guarantor. Consequently, petitionerpresented his counterclaim for damages.

At the pre-trial held on 5 September 2002, the partiessubmitted the following issues for the resolution of the RTC:(1) whether the defendants were liable under the contract ofguarantee dated April 17, 2000 entered into between BenjaminBitanga and the plaintiff;

(2) whether defendant wife Marilyn Bitanga is liable in thisaction;

(3) whether the defendants are entitled to the benefit ofexcussion, the plaintiff on the one hand claiming that it gavedue notice to the guarantor, Benjamin Bitanga, and the

defendants contending that no proper notice was received byBenjamin Bitanga;(4) if damages are due, which party is liable; and(5) whether the benefit of excussion can still be invoked by thedefendant guarantor even after the notice has been allegedlysent by the plaintiff although proper receipt is denied.

14

On 20 September 2002, prior to the trial proper, respondent

filed a Motion for Summary Judgment.15Respondent allegedtherein that it was entitled to a summary judgment on account

of petitioners admission during the pre-trial of the genuinenessand due execution of the Contract of Guaranty. The contentionof petitioner and Marilyn that they were entitled to the benefitof excussion was not a genuine issue. Respondent had alreadyexhausted all legal remedies to collect from Macrogen Realty,

but its efforts proved unsuccessful. Given that the inability ofMacrogen Realty as debtor to pay the amount of its debt was

already proven by the return of the writ of execution to CIACunsatisfied, the liability of petitioner as guarantor already

arose.16

In any event, petitioner and Marilyn were deemed tohave forfeited their right to avail themselves of the benefit ofexcussion because they failed to comply with Article 2060

17of

the Civil Code when petitioner ignored respondents demandletter dated 3 January 2001 for payment of the amount he

guaranteed.18

The duty to collect the supposed receivables ofMacrogen Realty from its creditors could not be imposed onrespondent, since petitioner and Marilyn never informedrespondent about such uncollected credits even after receipt ofthe demand letter for payment. The allegation of petitioner andMarilyn that they could not respond to respondents demand

letter since they did not receive the same was unsubstantiatedand insufficient to raise a genuine issue of fact which coulddefeat respondents Motion for Summary Judgment. The claim

that Marilyn never participated in the transactions thatculminated in petitioners execution of the Contract of

Guaranty was nothing more than a sham.In opposing respondents foregoing Motion for Summary

Judgment, petitioner and Marilyn countered that there weregenuinely disputed facts that would require trial on the merits.They appended thereto an affidavit executed by petitioner, inwhich he declared that his spouse Marilyn could not be heldpersonally liable under the Contract of Guaranty or theCompromise Agreement, nor should her share in the conjugalpartnership be made answerable for the guaranty petitionerassumed, because his undertaking of the guaranty did not inany way redound to the benefit of their family. As guarantor,

petitioner was entitled to the benefit of excussion, and he didnot waive his right thereto. He never received the respondents

demand letter dated 3 January 2001, as Ms. Dette Ramos, theperson who received it, was not an employee of MacrogenRealty nor was she authorized to receive the letter on hisbehalf. As a guarantor, petitioner could resort to the benefit ofexcussion at any time before judgment was rendered against

him.19

Petitioner reiterated that Macrogen Realty haduncollected credits which were more than sufficient to satisfy

the claim of respondent.On 29 November 2002, the RTC rendered a partial Decision, thedispositive portion of which provides:
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