cred trans guaranty

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G.R. No. 34642 September 24, 1931FABIOLA SEVERINO, accompane! b" #er #$%ban! RI&AR'O VERGARA, plaintiffs-appellees,vs.

G(ILLER)O SEVERINO, E* AL., defendants.ENRI+(E E&A(S, appellant.

R. Nepomuceno for appellant.

Jacinto E. Evidente for appellees.

S*REE*, J.:

This action was instituted in the Court of First Instance of the Province of Iloilo by Fabiola Severino, with whom is joined her husbandicardo !er"ara, for the purpose of recoverin" the sum of P#$,$$$ from %uillermo Severino and &nri'ue &chaus, the latter in thecharacter of "uarantor for the former. (pon hearin" he cause the trial court "ave jud"ment in favor of the plaintiffs to recover the sumof P#$,$$$ with lawful from )ovember *+, *#, the date of the filin" of the complaint, with costs. ut it was declared that eecution

of this jud"ment should issue first a"ainst the property of %uillermo Severino, and if no property should be found belon"in" to saiddefendant sufficient to satisfy the jud"ment in whole or in part, eecution for the remainder should be issued a"ainst the property of&nri'ue &chaus as "uarantor. From this jud"ment the defendant &chaus appealed, but his principal, %uillermo Severino, did not.The plaintiff Fabiola Severino is the reco"ni/ed natural dau"hter of 0elecio Severino, deceased, former resident of 1ccidental )e"ros. (pon the death of 0elecio Severino a number of years a"o, he left considerable property and liti"ation ensued between hiswidow, Felicitas !illanueva, and Fabiola Severino, on the one part, and other heirs of the deceased on the other part. In order to ma2e

an end of this liti"ation a compromise was effected by which %uillermo Severino, a son of 0elecio Severino, too2 over the property pertainin" to the estate of his father at the same time a"reein" to pay P*$$,$$$ to Felicitas !illanueva and Fabiola Severino. This sumof money was made payable, first, P3$,$$$ in cash upon the eecution of the document of compromise, and the balance in three

several payments of P#$,$$$ at the end of one year4 two years, and three years respectively. To this contract the appellant &nri'ue&chaus affied his name as "uarantor. The first payment of P3$,$$$ was made on 5uly **, *#3, the date when the contract ofcompromise was eecuted4 and of this amount the plaintiff Fabiola Severino received the sum of P*$,$$$. 1f the remainin" P6$,$$$,all as yet unpaid, Fabiola Severino is entitled to the sum of P#$,$$$.It appears that at the time of the compromise a"reement above-mentioned was eecuted Fabiola Severino had not yet been judiciallyreco"ni/ed as the natural dau"hter of 0elecio Severino, and it was stipulated that the last P#$,$$$ correspondin" to Fabiola and the

last P+,$$$ correspondin" to Felicitas !illanueva should retained on deposit until the definite status of Fabiola Severino as naturaldau"hter of 0elecio Severino should be established. The judicial decree to this effect was entered in the Court of First Instance of1ccidental )e"ros on 5une *6, *#+, and as the money which was contemplated to be held in suspense has never in fact been paid to

the parties entitled thereto, it results that the point respectin" 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 owin" to the plaintiff4 and the only defenseworth notin" in this decision is the assertion on the part of &nri'ue &chaus that he received nothin" for affiin" his si"nature as"uarantor to the contract which is the subject of suit and that in effect the contract was lac2in" in consideration as to him.The point is not well ta2en. 7 "uarantor or surety is bound by the same consideration that ma2es the contract effective between the principal parties thereto. 8Pyle vs. 5ohnson, Phil., #3.9 The compromise and dismissal of a lawsuit is reco"ni/ed in law as a valuableconsideration4 and the dismissal of the action which Felicitas !illanueva and Fabiola Severino had instituted a"ainst %uillermoSeverino was an ade'uate consideration to support the promise on the part of %uillermo Severino to pay the sum of money stipulated

in the contract which is the subject of this action. The promise of the appellant &chaus as "uarantor therefore bindin". It is nevernecessary that the "uarantor or surety should receive any part of the benefit, if such there be, accruin" to his principal. ut the trueconsideration of this contract was the detriment suffered by the plaintiffs in the former action in dismissin" that proceedin", and it isimmaterial that no benefit may have accrued either to the principal or his "uarantor.The jud"ment appealed from is in all respects correct, and the same will be affirmed, with costs a"ainst the appellant. So ordered.

-G.R. No. /2/1. No0ember 2/, 199/.

AN*ONIO GAR&IA, R., Petitioner , 0. &O(R* OF AEALS, LASAL 'EVELO)EN* &ORORA*ION, Respondents.

+$%$mbn, *orre% 5 E0ane%ta 7or Petitioner .

R .& . 'omno, r. 5 A%%ocate% 7or Private Respondent .

S8LLAB(S

*. CI!I: :7;4 SP&CI7: C1)T7CTS4 S(&T P(P1S& T=&&1F. ? The petitioner@s first "round isthat, as found by the trial court, the surety a"reement was invalid because no consideration had been paid to him by PIS1 foreecutin" the contract and that the amount of the entire loan had been received and enjoyed by ;0C. =e cites the followin" articlesof the Civil Code in support of his contention that lac2 of consideration was a personal defense available to him as surety. The point isnot well ta2en in view of the nature and purpose of a surety a"reement. Suretyship is a contractual relation resultin" from ana"reement whereby one person, the surety, en"a"es to be answerable for the debt, default or miscarria"e of another, 2nown as the principal. The peculiar nature of a surety a"reement is that it is re"arded as valid despite the absence of any direct considerationreceived by the surety either from the principal obli"or or from the creditor. 7 contract of surety, li2e any other contract, must"enerally be supported by a sufficient consideration. =owever, the consideration necessary to support a surety obli"ation need not passdirectly to the surety4 a consideration movin" to the principal alone will suffice. It has been held that if the delivery of the ori"inalcontract is contemporaneous with the delivery of the surety@s obli"ation, each contract becomes completed at the same time, and theconsideration which supports the principal contract li2ewise supports the subsidiary one. 8Faust v. odelheim, AA )5: A3$, AB 7 3*4


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allard v. urton, 63 !t BA, #3 7 A69. 7nd this is the 2ind of surety contract to which the rule of strict construction applies asopposed to a compensated surety contract underta2en by surety corporations which are or"ani/ed for the purpose of conductin" anindemnity business at established rates and compensation unli2e an ordinary surety a"reement where the surety binds his namethrou"h motives of friendship and accomodation. 8Pastoral v. 0utual Security Insurance Corp., *3 SC7 *$**9.

#. I>.4 I>.4 I>.4 1:I%7TI1) 7)> :I7I:IT< 1F 7 S(&T.4 1:I%7TI1)S 7)> C1)T7CTS4 )1!7TI1)4 &(ISIT&S T=&&1F4 )1T &ST7:IS=&> I) T=& C7S& 7T7. ? The petitioner cites other supposed a"reements in support of his theory of novation such as the prepayment of therestructured loans of ;0C before the distribution of dividends to the common stoc2holders, the proposed sale on installments of itsassets to )e"ros 1ccidental Copperfield 0ines, and the preference "iven to other creditors of ;0C over PIS1. ut we do not thin2these are material as, to be so, the alteration must chan"e the le"al effects of the ori"inal contract. The alle"ed alterations do not havethat effect. The most important ar"ument a"ainst the alle"ed novation is the failure of the petitioner to establish the validity of the newcontract, an essential re'uisite for the novation of a previous valid obli"ation. Petitioner insists that the various communications made by ;0C with >P, to"ether with the memorandum of a"reement 87nnees * to A9, are sufficient to establish the new underta2in"made by ;0C with all its creditors, includin" >P. ;e do not thin2 so. It is true as a "eneral rule no form of words or writin" isnecessary to "ive effect to a novation. 8e >issolution of F. P, to communicate with 7tty. =ilario 1raolino of the 1ffice of the Chief :e"al Counsel for the preparationand eecution of the necessary le"al documents to cover the approval and confirmation of the several proposals made. )o suchdocuments, as duly si"ned by the parties, were ever presented in court. 7nnees + to A are also incomplete documents and not bindin"without the si"natures of the supposed contractin" parties. ;e approve the followin" observations made by the Court of 7ppealsG )ovation of contract cannot be presumed. In order that an obli"ation may be etin"uished by another which substitutes the same, it isimperative that it be so declared in une'uivocal terms, or that the old and the new obli"ations be on every point incompatible witheach other 87rt. *##, Civil Code9. In every novation there are four essential re'uisites. 8*9 a previous valid obli"ation4 8#9 thea"reement of all the parties to the new contract4 8B9 the etin"uishment of the old contract4 and 839 validity of the new one. )ovationre'uires the creation of new contractual relations as well as the etin"uishment of the old. There must be a consent of all the parties tothe substitution, resultin" in the etinction of the old obli"ation and the creation of a valid new one 8Tiu Siuco v. =abana, 3+ Phil.A$A9. The acceptance of the promissory note by the plaintiff is not novation of the contract. The le"al doctrine is that an obli"ation to pay a sum of money is not novated in a new instrument by chan"in" the term of payment and addin" other obli"ations notincompatible with the old one 8Inchausti D Co. v.


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si"ned the surety a"reement. 7s it did not prohibit the alienation of the properties of the principal debtor, the sale to )e"ros cannot beconsidered a novation of the ori"inal a"reement. In fact, the proposed sale was intended precisely to enable ;0C to meet its pendin"obli"ations.

A. &0&>I7: :7;4 ISS(& )1T 7IS&> I) T=& C1(T 7 (1 C7))1T & 7IS&> F1 T=& FIST TI0& 1)7PP&7:. ? The ar"ument of subro"ation cannot be considered at this sta"e as it is bein" invo2ed only now. It is settled that an issuenot raised in the court a 'uo cannot be raised for the first time on appeal because this would be offensive to the basic rules of fair play.8Filipino 0erchants v. Court of 7ppeals, %.. )o. +*3*, )ovember #, *4 amos v. I7C, *A+ SC7 A$9.

' E & I S I O N

&R(, J.:

1n 7pril *+, *AA, the ;estern 0inolco Corporation 8;0C9 obtained from the Philippine Investments Systems 1r"ani/ation 8PIS19two loans for P#,+$$,$$$.$$ and P*,$$$,$$$.$$ for which it issued the correspondin" promissory notes payable on 0ay B$, *AA. 1nthe same date, 7ntonio %arcia and &rnest Eahn eecuted a surety a"reement bindin" themselves jointly and severally for the paymentof the loan of P#,+$$,$$$.$$ on due date.

(pon failure of ;0C to pay after repeated demands, demand was made on %arcia pursuant to the surety a"reement. %arcia alsofailed to pay. =ence, on 7pril +, *B, :asal >evelopment Corporation 8to which the credit had been assi"ned earlier by PIS19 sued%arcia for recovery of the debt in the e"ional Trial Court of 0a2ati.

1n 0ay *, *B, %arcia moved to dismiss on the "rounds thatG 8a9 the complaint stated no cause of action4 8b9 the suit would result inunjust enrichment of the plaintiff because he had not received any consideration from PIS14 8c9 the surety a"reement violated thedoctrine of the limited liability of corporations4 and 8d9 the principal obli"ation had been novated.

7fter considerin" the ar"uments and evidence of the parties, the trial court "ranted the motion and dismissed the complaint on the"round that the surety a"reement was invalid for absence of consideration.

The plaintiff moved for reconsideration and when this was denied elevated the matter to the Court of 7ppeals. In a decision dated 5une#B, *A, the respondent court reversed 5ud"e 5esus 0. &lbinias and remanded the records of the case for trial on the merits. %arciathen came to this Court in this petition for review on certiorari, pleadin" the same ar"uments raised in the trialcourt.chanrobles.comGcralawGred

The petitioner@s first "round is that, as found by the trial court, the surety a"reement was invalid because no consideration had been paid to him by PIS1 for eecutin" the contract and that the amount of the entire loan had been received and enjoyed by ;0C. =ecites the followin" articles of the Civil Code in support of his contention that lac2 of consideration was a personal defense available tohim as suretyGchanrob*es virtual *aw library

7rt. #$3A. y "uaranty a person, called the "uarantor, binds himself to the creditor to fulfill the obli"ation of the principal debtor incase the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 3, Chapter B, Title I of this oo2 shall beobserved. In such case the contract is called a suretyship.

7rt. *###. 7 solidary debtor may, in action filed by the creditor, avail himself of all defenses which are derived from the nature of the

obli"ation and of those which are personal to him, or pertain to his own share. ;ith respect to those which personally belon" to theothers, he may avail himself thereof only as re"ards that part of the debt for which the latter are responsible.

The point is not well ta2en in view of the nature and purpose of a surety a"reement.chanrobles virtualawlibrarychanrobles.comGchanrobles.com.ph

Suretyship is a contractual relation resultin" from an a"reement whereby one person, the surety, en"a"es to be answerable for the debt,default or miscarria"e of another, 2nown as the principal. The surety@s obli"ation is not an ori"inal and direct one for the performanceof his own act, but merely accessory or collateral to the obli"ation contracted by the principal. )evertheless, althou"h the contract of asurety is in essence secondary only to a valid principal obli"ation, his liability to the creditor or promisee of the principal is said to bedirect, primary and absolute4 * in other words, he is directly and e'ually bound with the principal. The surety therefore becomes liablefor the debt or duty of another althou"h he possesses no direct or personal interest over the obli"ations nor does he receive any benefittherefrom. #

The peculiar nature of a surety a"reement is that it is re"arded as valid despite the absence of any direct consideration received by thesurety either from the principal obli"or or from the creditor. 7 contract of surety, li2e any other contract, must "enerally be supported by a sufficient consideration. =owever, the consideration necessary to support a surety obli"ation need not pass directly to the surety4a consideration movin" to the principal alone will suffice.

It has been held that if the delivery of the ori"inal contract is contemporaneous with the delivery of the surety@s obli"ation, eachcontract becomes completed at the same time, and the consideration which supports the principal contract li2ewise supports thesubsidiary one. B 7nd this is the 2ind of surety contract to which the rule of strict construction applies as opposed to a compensatedsurety contract underta2en by surety corporations which are or"ani/ed for the purpose of conductin" an indemnity business atestablished rates and compensation unli2e an ordinary surety a"reement where the surety binds his name throu"h motives offriendship and accomodation. 3


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It follows from the above principles that :asal would not be unjustly enriched if the petitioner were to be held liable for the obli"ationcontracted by ;0C. The creditor would only be recoverin" the amount of its loan plus its increments. The petitioner, for his part, canstill "o a"ainst ;0C for the amount he may have to pay :asal as assi"nee of the PIS1 credit.

e"ardin" the petitioner@s claim that he is liable only as a corporate officer of ;0C, the surety a"reement shows that he si"ned thesame not in representation of ;0C or as its president but in his personal capacity. =e is therefore personally bound. There is no lawthat prohibits a corporate officer from bindin" himself personally to answer for a corporate debt. ;hile the limited liability doctrine isintended to protect the stoc2holder by immuni/in" him from personal liability for the corporate debts, he may nevertheless divesthimself of this protection by voluntarily bindin" himself to the payment of the corporate debts. The petitioner cannot therefore ta2erefu"e in this doctrine that he has by his own acts effectively waived.cralawnad

Concernin" the issue of novation, we note first the followin" provisions of the memorandum of a"reement supposedly entered into by;0C and its creditors which the petitioner ar"ues had the effect of releasin" him from the surety a"reementGchanrob*es virtual *awlibrary

I!. elease of 5SS

The C&>IT1S epressly a"ree to release and hereby release the 5oint and Several Si"natories 85SS9 of 0I)1:C1@s officers fromany liability whatsoever on the obli"ations which they have personally "uaranteed or secured. 7ny action therefore a"ainst all theaforesaid si"natories are waived in view of the promissory notes to be issued by )>C which are fully and unconditionally "uaranteed by the Philippine %overnment, in payment of 0I)1:C1@s obli"ations to said C&>IT1S.

x x x

!I. The C&>IT1S who have filed cases in court a"ainst 0I)1:C1 and who are si"natories to this a"reement a"ree to dismiss thecase with prejudice, acceptin" the repayment scheme set forth in para"raph II as a just and e'uitable procedure for collectin" theircredits.

Si"nificantly, however, the a"reement 87nne +9 was si"ned only by >on 0. Ferry as chairman of the board of directors of ;0C anddoes not carry the si"nature of any of the creditors. + =ence, it has no bindin" force whatsoever on such creditors.

The petitioner cites other developments or transactions between the parties to the ori"inal loans that he contends had the effect ofnovatin" the said contracts and conse'uently etin"uished the surety a"reement. 7mon" these are the etension of the ori"inal periodof payment and the compoundin" of the interest on the principal obli"ations, both of which operated to the prejudice of the petitioner.

The petitioner invo2es 7rticle #$A of the Civil Code, which providesGchanrob*es virtual *aw library

7rt. #$A. 7n etension "ranted to the debtor by the creditor without the consent of the "uarantor etin"uishes the "uaranty. The merefailure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any etension of timereferred to herein.

=owever, Para"raph + of the surety a"reement clearly stipulated as followsGchanrobles virtual lawlibrary

The sureties epressly waive all ri"hts to demand payment and notice of non-payment and protest, and a"ree that the securities ofevery 2ind, that now or may hereafter be left with the lender, its successors, indorsees or assi"ns, as collateral, for the said loan, or anyevidence of debt or obli"ations, or upon which a lien may eist may be withdrawn or surrendered at any time, and the time of paymentthereof etended, without notice to or consent by the sureties, and the liability on this suretyship shall be solidary, direct andimmediate and not contin"ent upon any pursuit by the lender, its successors, indorsees or assi"ns, of whatever remedies the lendermay have a"ainst the principal or the securities or liens it may possess. 8 Emphasis supplied .9

Since in the surety contract, the petitioner not only consented to an etension in the payment of the obli"ation but even waived hisri"ht to be notified of such etension, he cannot now claim that he has been released from his underta2in" because of the etension"ranted to the principal.chanrobles.com G virtual law library

7s for the compounded interest, we apply by analo"y the case of an2 of the Philippine Islands v. %ooch and edfern, 6 which wasaffirmed in the later case of the an2 of the Philippine Islands v. 7lbaladejo D Cia. A In the said cases, the respective sureties claimedthat since the creditor chan"ed the rate of interest in the principal obli"ation without their 2nowled"e or consent, they were relievedfrom liability under their contract. It was held, however, that the chan"e in the rate of interest was merely a collateral a"reement between the creditor ban2 and the principal debtor that did not affect the surety. ;hen the debtor promised to pay the etra rate ofinterest on demand of the plaintiff, the liability he assumed was his alone and was separate and apart from the ori"inal contract. =isa"reement to pay the additional rate of interest was an additional burden upon him and him only. That obli"ation in no way affectedthe ori"inal contract of the surety, whose liability remained unchan"ed.

Thus, despite the compoundin" of the interest, the liability of the surety remains only up to the ori"inal uncompounded interest, asstipulated in the promissory note, that is, *A per annum, with a penalty char"e of # *J# per month until full payment.

The petitioner cites other supposed a"reements in support of his theory of novation such as the prepayment of the restructured loans of ;0C before the distribution of dividends to the common stoc2holders, the proposed sale on installments of its assets to )e"ros1ccidental Copperfield 0ines, and the preference "iven to other creditors of ;0C over PIS1. ut we do not thin2 these are materialas, to be so, the alteration must chan"e the le"al effects of the ori"inal contract. The alle"ed alterations do not have thateffect.chanrobles virtualawlibrary chanrobles.comGchanrobles.com.ph

It is aiomatic, and only fair, that the creditors of a corporation must be paid first before dividends may be distributed amon" thestoc2holders. (nsecured creditors are "iven preference in ban2ruptcy or insolvency proceedin"s because secured creditors can after all


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"o a"ainst the security "iven by the debtor. 7s for the installment sale of ;0C@s assets to )e"ros 1ccidental Copperfield 0ines,which mi"ht ma2e it difficult for the petitioner to recover any amount it may have to pay on the loan of ;0C, this was a ris2 he too2when he si"ned the surety a"reement. 7s it did not prohibit the alienation of the properties of the principal debtor, the sale to )e"roscannot be considered a novation of the ori"inal a"reement. In fact, the proposed sale was intended precisely to enable ;0C to meetits pendin" obli"ations.

The most important ar"ument a"ainst the alle"ed novation is the failure of the petitioner to establish the validity of the new contract,an essential re'uisite for the novation of a previous valid obli"ation. Petitioner insists that the various communications made by ;0Cwith >P, to"ether with the memorandum of a"reement 87nnees * to A9, are sufficient to establish the new underta2in" made by;0C with all its creditors, includin" >P. ;e do not thin2 so.

It is true as a "eneral rule no form of words or writin" is necessary to "ive effect to a novation. )evertheless, since the partiesinvolved here are corporations, it must first be proved that the contracts, assumin" they were made, were eecuted by the persons possessin" the proper authority to bind their respective principals. 7nnees *-3 are a mere echan"e of correspondence between theofficers of ;0C and >P. 7lthou"h they contain the provisions and proposals that, accordin" to petitioner, should suffice to establishthat the ori"inal contract between ;0C and PIS1 has been materially altered, they cannot be considered per se sufficient to "ive riseto a valid new obli"ation. ;0C was in fact directed by 5oseph ;. &dralin, the 7ssistant &ecutive 1fficer of the >P, tocommunicate with 7tty. =ilario 1raolino of the 1ffice of the Chief :e"al Counsel for the preparation and eecution of the necessaryle"al documents to cover the approval and confirmation of the several proposals made. )o such documents, as duly si"ned by the parties, were ever presented in court. 7nnees + to A *$ are also incomplete documents and not bindin" without the si"natures of thesupposed contractin" parties.chanrobles.com.ph G virtual law library

The ar"ument of subro"ation cannot be considered at this sta"e as it is bein" invo2ed only now. It is settled that an issue not raised in

the court a 'uo cannot be raised for the first time on appeal because this would be offensive to the basic rules of fair play. **

7s for the alle"ed substitution of debtors, nowhere in the record can we find evidence of this claim. The commitment made by >P tothe creditors of ;0C was that, althou"h they had a first mort"a"e lien over substantially all the assets of ;0C 8which if foreclosedwould leave most of its creditors without recourse9, they would nevertheless defer proceedin"s a"ainst those assets and instead allowtheir sale to )>C 8with better terms9 to enable ;0C to meet the obli"ations. *# In effect, what >P did was merely to restructure itscredit with ;0C and ma2e additional accommodations in the form of investments on preferred and common shares of stoc2 of;0C. It was clearly an effort to assist ;0C perform its obli"ations with its creditors. ut not more than that.

Concernin" the promissory notes supposedly issued by )>C to the creditors of ;0C and with the full and unconditional "uaranty ofthe Philippine %overnment as contained in 7nne +, suffice it to repeat that such 7nne + 8memorandum of a"reement between ;0Cand >P9, as well as 7nne 6 8addendum to 7nne +, ma2in" )1C10I), instead of )>C as the buyer9 and 7nne A 8contract ofsale between ;0C and )1C10I)9, are all not si"ned by the contractin" parties and therefore have no evidentiary wei"ht or bindin"

force.cralawnad

;e approve the followin" observations made by the Court of 7ppealsGchanrob*es virtual *aw library

)ovation of contract cannot be presumed. In order that an obli"ation may be etin"uished by another which substitutes the same, it isimperative that it be so declared in une'uivocal terms, or that the old and the new obli"ations be on every point incompatible witheach other 87rt. *##, Civil Code9. In every novation there are four essential re'uisites. 8*9 a previous valid obli"ation4 8#9 thea"reement of all the parties to the new contract4 8B9 the etin"uishment of the old contract4 and 839 validity of the new one. )ovationre'uires the creation of new contractual relations as well as the etin"uishment of the old. There must be a consent of all the parties tothe substitution, resultin" in the etinction of the old obli"ation and the creation of a valid new one 8Tiu Siuco v. =abana, 3+ Phil.A$A9. The acceptance of the promissory note by the plaintiff is not novation of the contract. The le"al doctrine is that an obli"ation to pay a sum of money is not novated in a new instrument by chan"in" the term of payment and addin" other obli"ations notincompatible with the old one 8Inchausti D Co. v.


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The record shows that on 5uly #B, *A, omeo %ali/a and 0ila"ros uman"la" applied with Pan Pacific 1verseas ecruitment, a

placement a"ency with office re"istered at Feros uildin", *A6 Salcedo Street, 0a2ati, 0etro 0anila, for jobs as airport porter anddomestic helper respectively.%ali/a was re'uired by the a"encyLs %eneral 0ana"er, &n"r. Celia 7randa, to pay a placement fee of P6,$$$ which he paid on 5uly #B,*A to the ecruitment >irector of the a"ency, )ormita &"il, evidenced by a receipt issued in his favor.0ila"ros uman"la" was re'uired to pay PB,$$$ as Kprocessin" feeK for which no receipt was issued to her by the a"ency.7fter several months, uman"la" followed up her application with the a"ency. Since the latter failed to deploy her, she withdrew her

travel documents on 5anuary #B, * and demanded a refund of her PB,$$$ placement fee. Instead of returnin" her money, the a"encyadvised her to return on 0arch *#, * for the refund of P#,3$$ only, eplainin" that deductions had been made from her initial

deposit of PB,$$$ to cover epenses for her pictures. The a"ency issued in her favor a note schedulin" such refund.;hen it appeared that the recruitment a"ency merely furnished false information relatin" to their recruitment and placement for jobsoverseas, %ali/a and uman"la" filed individual complaints a"ainst Pan Pacific before the Philippine 1verseas &mployment7dministration 8P1&79 M8:9 Case )o. -$B-3A39N for violation of 7rticles B# and B38a9 of the :abor Code, as amended, which

provideG7T. B#. !ees to $e paid $% &or'ers. ? 7ny person applyin" with a private fee-char"in" employment a"ency for

employment assistance shall not be char"ed any fee until he has obtained employment throu"h its efforts or hasactually commenced employment. Such fee shall be always covered with the approved receipt clearly showin" theamount paid. The Secretary of :abor shall promul"ate a schedule of allowable fees.7T. B3. Prohibited practices. ? 8a9 To char"e or accept, directly or indirectly, any amount "reater than that specified in the schedule of allowablefees prescribed by the Secretary of :abor, or to ma2e a wor2er pay any amount "reater than actually received by him

as a loan or advance. Motu proprio, P1&7 impleaded as party-respondent, Pan PacificLs surety. FI)07) %&)&7: 7SS(7)C& C1P17TI1)8FI)07) for brevity9, which had bound itself to be jointly and severally liable for claims that may arise should the recruitment

a"ency violate the conditions of its license. Summons were sent to the respondents at their respective official addresses. =owever, thesummons for Pan Pacific was returned unserved with a notation KCompany moved out.KFI)07) filed an 7nswer denyin" liability for the claims, and alle"in" P1&7Ls lac2 of jurisdiction to enforce the suretyLsunderta2in". >urin" the hearin" that followed. FI)07) further alle"ed that the note which the a"ency issued to uman"la"indicatin" her refund schedule, was not a receipt because it did not ac2nowled"e payment of any fee.1n 0ay B*, *, P1&7 7dministrator Tomas 7chacoso issued an 1rder findin" Pan Pacific liable for violation of 7rticles B# andB38a9 of the :abor Code, as amended. =e observed that the a"encyLs note schedulin" the refund of uman"la"Ls P#,3$$ placement

fees, while not strictly a receipt, was sufficient proof that she had indeed paid that amount to the a"ency, particularly since it had beenestablished in several other cases in the P1&7 a"ainst the respondent a"ency that it issued such KnotesK to applicants claimin" refund

of fees paid to the a"ency. 1n the other hand. a receipt for P6,$$$ and a similar note schedulin" the refund for the same amount issued by the a"ency to %ali/a substantially established his payment of P6,$$$ which was in ecess of the allowable recruitment fee of

P+,$$$ from each hired wor2er. That the a"ency furnished false information relatin" to recruitment and placement to the complainantswhen it promised available employment for them, was established beyond cavil. The respondents were ordered to pay jointly andseverally the sum of P6,$$$ to %ali/a and P#.3$$ to uman"la". Pan Pacific was ordered to pay a fine of P3$,$$$ and the ban earlierimposed upon it was reiterated.FI)07) appealed the P1&7 1rder of 0ay B*, * to the >epartment of :abor and &mployment. 1n 7u"ust B, *, >1:&Secretary Fran2lin >rilon dismissed the appeal for lac2 of merit. 7 writ of eecution was issued by the P1&7.FI)07) filed this petition for certiorari with preliminary mandatory injunction andJor restrainin" order to stop the implementationof the 1rders of the P1&7 7dministrator and the Secretary of :abor.FI)07) alle"es that the P1&7 acted with "rave abuse of discretion amountin" to lac2 of jurisdictionG

*. in motu proprio impleadin" FI)=7) as a co-respondent with Pan Pacific in P1&7 8:9 Case )o. -$B-3A34

and#. in directin" FI)07) to pay jointly and severally with Pan Pacific the claims of %ali/a and uman"la" on the basis of the suretyship a"reement eecuted by FI)07), Pan Pacific and the P1&7.

Petitioner alle"es that the P1&7 has no authority under its own ules and e"ulations to implead the surety of any recruitment or placement a"ency in actions andJor complaints for suspension, cancellation or revocation of license or authority of the latter4 that on

the contrary, the authority of the P1&7 is limited to a determination of whether there is sufficient cause for an action upon thea"encyLs license4 that P1&7Ls jurisdiction to hear and decide money claims is confined to employer-employee relations arisin" out of,or by virtue of, any law or contract, and not money claims arisin" from pre-employment or durin" recruitment conducted by therespondent a"ency4 and finally, that if ever the surety bond may be held liable for infractions or violations of the :abor Code and

P1&7 rules and re"ulations, it shall be answerable only for the sanctions, penalties or fines imposed upon the a"ency but definitelynot for money claims of applicants not arisin" from employment contracts.The petition for certiorari is without merit. The P1&7 7dministrator did not eceed his jurisdiction nor act with "rave abuse of

discretion in impleadin" FI)07) as a co-respondent in 8:9 Case )o. -$B-3A3 and directin" it to pay jointly and severallywith Pan Pacific the claims of the private respondents, %ali/a and uman"la", on the basis of the surety bond it issued for Pan Pacific.

Said surety bond "uarantees the faithful compliance by Pan Pacific of all laws relatin" to the use of its license and its recruitmentactivities. The bond is conditioned upon the true and faithful performance and observance by Pan Pacific of its duties and obli"ationsas a licensed placement a"ency 87rt. B*, Title I, oo2 1ne, :abor Code of the Phils.9. 7ccordin"ly, the nature of FI)07)Lsobli"ation under the suretyship a"reement ma2es it privy to the proceedin"s a"ainst its principal, Pan Pacific. FI)07) is bound by a

jud"ment a"ainst its principal eventhou"h it was not a party to the proceedin"s, for a surety is considered in law as bein" the same party as the debtor in relation to whatever is adjud"ed touchin" the obli"ation of the latter, and their liabilities are interwoven as to beinseparable 8P) vs. =on. Pineda.*A SC7 *, citin" :ira" Tetile 0ills. Inc. vs. SSS, *+B SC7 BB and %ovLt. of the Phil. vs.Ti/on, #$ SC7 **A Finman %eneral 7ssurance Corporation vs. Sali2, * SC7 A3$9.


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;=&&F1&, the petition is >IS0ISS&> for lac2 of merit. Costs a"ainst the petitioner.S1 1>&&>G.R. No. L?221/ A$$%t 3/, 196@GOVERN)EN* OF *E RE(BLI& OF *E ILIINES, repre%ente! b" t#e B(REA( OF S(L8&OOR'INA*ION plaintiff-appellee,vs.

)AR&ELINO *ION, E* AL., defendants.&AI*AL INS(RAN&E an! S(RE*8 &O., IN&., defendant-appellant.

"chacoso( Nera and Ocampo for defendant)appellant.

Office of the *olicitor General "rturo ". "lafriz( "ssistant *olicitor General J.#. Borromeo and *olicitor N. P. Eduardo for plaintiff)appellee.

ANGELES, J.:7ppeal from an order of the Court of First Instance of 0anila, dated September **, *6B, epun"in" from the record of the case the

answer of the Capital Insurance D Surety, Co., Inc. and remandin" said record to the City Court of 0anila for eecution a"ainst theSurety of the decision rendered by the latter court.It appears that in a biddin" conducted by the ureau of Supply Coordination of the >epartment of %eneral Services, for the supply ofKone 8*9 aylift portable heavy-duty truc2 and auto lift, fully air operated, +$$ lbs. capacity, and two 8#9 aylift amps, (.S.manufactureK, Ti/on en"ineerin", of which 0arcelino Ti/on was the sole owner and proprietor, won the bid, havin" offered the lowest

bid of P3,$$$.$$. To "uarantee faithful performance of the conditions of the bid, the ureau of Supply Coordination re'uired Ti/on&n"ineerin" to "ive a bond in the sum of P*$,$$$.$$. 1n September *#, *+, the Surety issued its bond for the said amount in favorof the epublic of the Philippines. Ti/on &n"ineerin" failed to comply with the conditions of the bid, failin" as he did to deliver the

e'uipment called for in the uyerLs order )o. 3#+36 of the ureau of Supply, constrainin" the latter to purchase the e'uipment fromFema Tradin", the second lowest bidder, resultin" in a loss of P#,A+.$$ to the %overnment. )otwithstandin" demands made by theureau of Supply on defendants 0arcelino Ti/on and the Surety to pay said amount, they failed and refused. =ence, complaint wasfiled in the City Court of 0anila by the epublic of the Philippines to recover the said sum with le"al interests, plus attorneyLs feesand costs.>efendant Ti/on averred in his answer thatG 8a9 Kthe alle"ed biddin" conducted by the ureau of Supply is in utter disre"ard andwanton violation of the ules and e"ulations of the said officeK4 8b9 Kthat assumin" that a correspondin" buyerLs order was prepared,

the same was not delivered to and duly received by him, such that there has never been a bindin" contract between plaintiff and theanswerin" defendant4 furthermore, the plaintiff deliberately failed to notify the answerin" defendant as to the acceptance of his bid,thus a"ain violatin" the ules and e"ulations mentioned aboveK4 8c9 that the bond-issued by the Surety Kanswers only 8for9 those

contracts le"ally entered into by the herein defendants with the ureau of Supply and certainly not those contracts andJor bids whichare of doubtful le"ality, as in the present case.KThe defendant Surety, in answer to the complaint, admitted havin" eecuted a bond in favor of the epublic of the Philippines for the purpose as therein stated, but denied Kthat it failed and refused to pay the demand 8of the plaintiff9, the truth of the matter bein" that itsco-defendant, 0arcelino Ti/on, doin" business under the name of Ti/on &n"ineerin", has put it on notice not to settle the claim because he is not in any way whatsoever liable to plaintiff.K 7s cross-claim a"ainst defendant Ti/on, the Surety asserted that if it is

made liable to the plaintiff on its bond, 0arcelino Ti/on should be ordered to ma2e the correspondin" reimbursement, with interest of*#, plus attorneyLs fees.7fter trial, jud"ment was rendered in favor of the plaintiff and a"ainst the defendants, orderin" the latter to pay, +ointl% and severall%,the sum of P#,A#.$$ with le"al interests from )ovember *#, *6$, and the costs of suit. 1n the cross-claim of the Surety, defendantTi/on was ordered to reimburse the cross-plaintiff of whatever amount the latter mi"ht have paid to the plaintiff, plus P*$$.$$ as

attorneyLs fees.1nly defendant Ti/on appealed from the decision to the Court of First Instance of 0anila.;ithin fifteen days from receipt of notice from the cler2 of the Court of First Instance of 0anila, that the case has been received and

doc2eted in said court, the defendants, Ti/on and the Surety, each filed separate manifestations that they were reproducin" theirrespective answers filed in the City Court.1n 7u"ust #, *6B, the plaintiff filed a motion prayin" K8a9 To stri2e out the answer filed by the Surety reproducin" its answer filed

in the City Court4 8b9 To remand the case to the City Court, as concerns the Surety, for eecution of the jud"ment rendered in saidcourt.KThe Surety opposed the motion on two "roundsG 8a9 that althou"h it did not appeal from the decision of the inferior court, the appealinterposed by its co-defendant inured to its benefit, because the obli"ation sued on Kis so dependent on that of the principal debtor, thatthe Surety is considered in law as bein" the same party in relation to whatever is adjud"ed, touchin" the obli"ation of its co-defendantK4 and 8b9 the appeal of its co-defendant, the principal debtor, Kshould be considered in law as to include the defendant

Surety, in view of the latterLs cross-claim a"ainst the former.K The opposition was over-ruled in the order appealed from.The issue at this instance is whether an appeal by one of the parties sentenced to pay solidarily a sum of money, inures to the benefit of

the other who did not appeal. The pronouncements in the case of Municipalit% of Orion vs. #oncha, +$ Phil. 6#, provide ample

"uideposts in the resolution of the issue at bar. In said case this Court heldGThe jud"ment was joint and several, which means that they are severally liable. ;e have made a careful eamination ofnumerous authorities and believe that we are correct in sayin" that the effect of the appeal by one jud"ment debtor upon theco-debtors depends upon the particular facts and conditions in each case. The difference in the apparently conflictin"

opinions may be well illustrated in this very case.Suppose, for eample, that F. . Concha, the contractor, had appealed from the jud"ment of the lower court upon the "round

that he had either completed his contract within time or that the municipality had suffered no dama"es whatever, and theSupreme Court had reversed the jud"ment of the lower court on his appeal. Certainly that jud"ment would have the effect ofrelievin" the bondsmen from any liability whatever, for the reason that their liability was conse'uent upon the liability of thecontractor4 and the court havin" declared that no liability for dama"es had resulted from the eecution of said contract, then


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9/31

of the principal debtor. The principal debtor mi"ht succeed in his appeal4 in such eventuality, the jud"ment of the inferior court could

not continue in force a"ainst the Surety. Conse'uently, it is premature at this juncture to eecute said jud"ment a"ainst the Surety.The situation of the Surety may be li2ened to that of a defaultin" defendant whose ri"ht is protected under Section 3, ule * of the

ules of Court as followsG Judgment 2hen *ome 3efendants "ns&er and Others ma'e 3efault .?;hen a complaint states a common cause of action

a"ainst several defendants, some of whom answer, and the others fail to do so, the court shall try the case a"ainst all upon theanswer thus filed and render jud"ment upon the evidence presented. The same procedure applies when a common cause ofaction is pleaded in a counterclaim, cross-claim and third-party claim.

7lbeit it may not personally be allowed to file an answer in the Court of First Instance, havin" failed to interpose an appeal, the Surety

can rely on the answer of its co-defendant and derive benefit therefrom if the jud"ment on appeal should turn out to be favorable to theanswerin" defendant 8Castro vs. PeHa, $ Phil. 3, +$#9.The decision in ,shar *ingh vs. 4i$ert% ,nsurance #orp. and 4eonardo "nne( et al., 8third-party defendants in the third-party complaintof :iberty Insurance Corp.9, :-*66$, 5uly B*, *6B, relied upon by the appellee, is not applicable to the facts of the case at bar. In

said case, :iberty Insurance Corp. was the only defendant and the decision was a"ainst said defendant alone. The third partydefendants were impleaded as such upon the third party complaint filed a"ainst them by the :iberty Insurance Corp. 7nd as stated inthe decision in said case, Kthe record does not disclose whether the third-party defendants filed an answer to the third-party complaint

or not.K 0oreover, the liability of the third-party defendants to the third-party plaintiff stemmed from the indemnity a"reementeecuted by them in favor of the :iberty Insurance Corp., and the third-party defendants did not have privity of contract with thecreditor Ishar Sin"h.(pon the fore"oin" considerations, that portion of the appealed order remandin" the record of the case to the City Court of 0anila foreecution of the decision of said court is hereby set aside, without costs.

ES&ANO an! SILOS 0%. OR*IGAS, r., GR. No. 1;19;3, $ne 29, 2//@

FA&*S:

Private >evelopment Corporation of the Philippines 8P>CP9 entered into a loan a"reement with Falcon 0inerals, Inc. whereby P>CPa"reed to ma2e available and lend to Falcon a sum certain. espondent afael 1rti"as, 5r., et al., stoc2holder officers ofFalcon,eecuted an 7ssumption of Solidary :iability whereby they a"reed to assume in their individual capacity, solidary liabilitywith Falcon for the due and punctual payment of the loan contracted by Falcon with P>CP. Two separate "uaranties were eecuted to"uarantee the payment of the same loan by other stoc2holders and officers of Falcon, actin" in their personal and individual capacities.1ne %uaranty was eecuted by petitioner Salvador &scaHo, while the other by petitioners 0ario 0. Silos, icardo C. Silverio, et al.Two years later, an a"reement developed to cede control of Falcon to &scaHo, Silos and 5oseph 0. 0atti. Thus, contracts wereeecuted whereby 1rti"as, %eor"e 7. Scholey, Inductivo and the heirs of then already deceased %eor"e T. Scholey assi"ned theirshares of stoc2 in Falcon to &scaHo, Silos and 0atti. Part of the consideration that induced the sale of stoc2 was a desire by 1rti"as, etal., to relieve themselves of all liability arisin" from their previous joint and several underta2in"s with Falcon, includin" those relatedto the loan with P>CP. Thus, an (nderta2in" was eecuted by the concerned parties with &scaHo, Silos and 0atti identified in thedocument as Osureties, on one hand, and 1rti"as, Inductivo and the Scholeys as Oobli"ors, on the other. =owever, Falconsubse'uently defaulted in its payments. 7fter P>CP foreclosed on the chattel mort"a"e, there remained a subsistin" deficiency ofP+,$$$,$$$, which Falcon did not satisfy despite demand. In order to recover the indebtedness, P>CP filed a complaint for sum ofmoney a"ainst Falcon, 1rti"as, &scaHo, Silos, Silverio and Inductivo. 1rti"as filed to"ether with his answer a cross-claim a"ainst hisco-defendants Falcon, &scaHo and Silos, and also manifested his intent to file a third- party complaint a"ainst the Scholeys and 0atti.The cross-claim lod"ed a"ainst &scaHo and Silos was predicated on the *# (nderta2in", wherein they a"reed to assume theliabilities of 1rti"as with respect to the P>CP loan. &scaHo, 1rti"as and Silos each sou"ht to see2 a settlement with P>CP. The first tocome to terms with P>CP was &scaHo, who entered into a compromise a"reement. In echan"e, P>CP waived or assi"ned in favor of

&scaHo *JB of its entire claim inthe complaint a"ainst all of the other defendants in the case. Then 1rti"as entered into his owncompromise a"reement with P>CP, alle"edly without the 2nowled"e of &scaHo, 0atti and Silos. Thereby, 1rti"as a"reed to payP>CP P*.B0 as full satisfaction of the P>CP@s claim a"ainst 1rti"as. Silos and P>CP entered into a Partial Compromise 7"reementwhereby he a"reed to pay P+$$2 in echan"e for P>CP@s waiver of its claims a"ainst him. In the meantime, after havin" settled withP>CP, 1rti"as pursued his claims a"ainst &scaHo, Silos and 0atti, on the basis of the *# (nderta2in". =e initiated a third-partycomplaint a"ainst 0atti and Silos, whilehe maintained his cross-claim a"ainst &scaHo. TC issued the Summary 5ud"ment, orderin"&scaHo, Silos and 0atti to pay 1rti"as, jointly and severally, the amount of P*.B0, as well as P#$E in attorney@s fees. The trial courtratiocinated that none of the third-party defendants disputed the *# (nderta2in".

ISS(E:

;hether or not petitioners are solidarily liable to respondent 1rti"as.

e!:

Petitioners are not solidarily liable to respondent 1rti"as. In case there is a concurrence of two or more creditors or of two or moredebtors in one and the same obli"ation, 7rticle *#$A of the Civil Code states that amon" them, there is a solidary liability only whenthe obli"ation epressly so states, or when the law or the nature of the obli"ation re'uires solidarity. 7rticle*#*$ supplies further thatthe indivisibility of an obli"ation does not necessarily "ive rise to solidarity. )or does solidarity of itself imply indivisibility. Thus, the presumption is that the obli"ation is only joint. It thus becomes incumbent upon the party alle"in" that the obli"ation is indeedsolidary in character to prove such fact with a preponderance of evidence. The (nderta2in" does not contain any epress stipulationthat the petitioners a"reed Oto bind themselves jointly and severally in their obli"ations to the 1rti"as "roup, or any such terms to thateffect. =ence, such obli"ation established in the (nderta2in" is presumed only to be joint. 1rti"as, as the party alle"in" that the


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obli"ation is in fact solidary, bears the burden to overcome the presumption of jointness of obli"ations. =e has failed to dischar"e such burden. The termOsurety has a specific meanin" under our Civil Code. 7s provided in 7rticle #$3A in a surety a"reement the suretyunderta2es to be bound solidarily with the principal debtor. Thus, a surety a"reement is an ancillary contract as it presupposes theeistence of a principal contract. It appears that 1rti"as@ ar"ument rests solely on the solidary nature of the obli"ation of the suretyunder 7rticle#$3A. In tandem with the nomenclature Osureties accorded to petitioners and 0attiin the (nderta2in", however, thisar"ument can only be viable if the obli"ations established in the (nderta2in" do parta2e of the nature of a suretyship as defined under7rticle #$3A in the first place. That clearly is not the case here, notwithstandin" the use of the nomenclature Osureties in the(nderta2in".

G.R. No. 9@@; No0ember 26, 1992A&IN*O (8 'I>O an! NORBER*O (8, petitioners,vs.

ON. &O(R* OF AEALS an! )E*ROOLI*AN BAN AN' *R(S* &O)AN8, respondents. 'AVI'E, R., J.:Continuin" Suretyship 7"reements si"ned by the petitioners set off this present controversy.Petitioners assail the ## 5une * >ecision of the Court in C7-%.. C! )o. *AA#3 1 which reversed the # >ecember *A >ecisionof ranch 3+ of the e"ional Trial Court 8TC9 of 0anila in a collection suit entitled 5Metropolitan Ban' and 6rust #ompan% vs. 7%6iam( doing $usiness under the name of 578 6,"M EN6ERPR,*E* 9 !RE,G:6 *ER;,#E*(5 Jacinto 7% 3i0o and Nor$erto 7%5 and

doc2eted as Civil Case )o. #-B$B. They li2ewise challen"e public respondentLs esolution of #* 7u"ust * 2 denyin" theirmotion for the reconsideration of the former.The impu"ned >ecision of the Court summari/es the antecedent facts as followsG

It appears that in *AA, (y Tiam &nterprises and Frei"ht Services 8hereinafter referred to as (T&FS9, thru itsrepresentative (y Tiam, applied for and obtained credit accommodations 8letter of credit and trust receiptaccommodations9 from the 0etropolitan an2 and Trust Company 8hereinafter referred to as 0&T17)E9 in thesum of PA$$,$$$.$$ 81ri"inal ecords, p. BBB9. To secure the aforementioned credit accommodations )orberto (yand 5acinto (y >iHo eecuted separate Continuin" Suretyships 8&hibits K&K and KFK respectively9, dated #+

February *AA, in favor of the latter. (nder the aforesaid a"reements, )orberto (y a"reed to pay 0&T17)Eany indebtedness of (T&FS up to the a""re"ate sum of PB$$,$$$.$$ while 5acinto (y >iHo a"reed to be bound upto the a""re"ate sum of P$$,$$$.$$.=avin" paid the obli"ation under the above letter of credit in *AA, (T&FS, throu"h (y Tiam, obtained anothercredit accommodation from 0&T17)E in *A, which credit accommodation was fully settled before an

irrevocable letter of credit was applied for and obtained by the abovementioned business entity in *A 8September, *A, tsn, pp. *3-*+9.The Irrevocable :etter of Credit )o. S)-:oc-B$, dated 0arch B$, *A, in the sum of P*+, 6$$.$$, covered(T&FSL purchase of K,$$$ a"s Planters (rea and 3,$$$ a"s Planters #*-$-$.K It was applied for and obtain by(T&FS without the participation of )orberto (y and 5acinto (y >iHo as they did not si"n the documentdenominated as KCommercial :etter of Credit and 7pplication.K 7lso, they were not as2ed to eecute any suretyship

to "uarantee its payment. )either did 0&T17)E nor (T&FS inform them that the *A :etter of Credit has been opened and the Continuin" Suretyships separately eecuted in February, *AA shall "uarantee its payment87ppellees brief, pp. #-B4 rollo, p. #9.The *A letter of credit 8&hibit KK9 was ne"otiated. 0&T17)E paid Planters Products the amount ofP*+,6$$.$$ which payment was covered by a ill of &chan"e 8&hibit KCK9, dated 3 5une *A, in favor of81ri"inal ecords, p. BB*9.Pursuant to the above commercial transaction, (T&FS eecuted and delivered to 0&T17)E and Trust eceipt

8&h. K>K9, dated 3 5une *A, whereby the former ac2nowled"ed receipt in trust from the latter of theaforementioned "oods from Planters Products which amounted to P*+, 6$$.$$. ein" the entrusted, the formera"reed to deliver to 0&T17)E the entrusted "oods in the event of non-sale or, if sold, the proceeds of the salethereof, on or before September #, *A.=owever, (T&FS did not ac'uiesce to the obli"atory stipulations in the trust receipt. 7s a conse'uence,0&T17)E sent letters to the said principal obli"or and its sureties, )orberto (y and 5acinto (y >iHo,

demandin" payment of the amount due. Informed of the amount due, (T&FS made partial payments to the an2which were accepted by the latter.7nswerin" one of the demand letters, >iHo, thru counsel, denied his liability for the amount demanded andre'uested 0&T17)E to send him copies of documents showin" the source of his liability. In its reply, the ban2informed him that the source of his liability is the Continuin" Suretyship which he eecuted on February #+, *AA.7s a rejoinder, >iHo maintained that he cannot be held liable for the *A credit accommodation because it is a newobli"ation contracted without his participation. esides, the *AA credit accommodation which he "uaranteed has been fully paid.=avin" sent the last demand letter to (T&FS, >iHo and (y and findin" resort to etrajudicial remedies to be futile,

0&T17)E filed a complaint for collection of a sum of money 8P6*B,BB.B#, as of 5anuary B*, *#, inclusiveof interest, commission penalty and ban2 char"es9 with a prayer for the issuance of a writ of preliminary attachment,a"ainst (y Tiam, representative of (T&FS and impleaded >iHo and (y as parties-defendants.The court issued an order, dated # 5uly *B, "rantin" the attachment writ, which writ was returned unserved andunsatisfied as defendant (y Tiam was nowhere to be found at his "iven address and his commercial enterprise wasalready non-operational 81ri"inal ecords, p. BA9.1n 7pril **, *3, )orberto (y and 5acinto (y >iHo 8sureties-defendant herein9 filed a motion to dismiss thecomplaint on the "round of lac2 of cause of action. They maintained that the obli"ation which they "uaranteed in


11/31

*AA has been etin"uished since it has already been paid in the same year. 7ccordin"ly, the Continuin" Suretyships

eecuted in *AA cannot be availed of to secure (y TiamLs :etter of Credit obtained in *A because a "uarantycannot eist without a valid obli"ation. It was further ar"ued that they can not be held liable for the obli"ationcontracted in *A because they are not privies thereto as it was contracted without their participation 8ecords, pp.3#-369.1n 7pril #3, *3, 0&T17)E filed its opposition to the motion to dismiss. Invo2in" the terms and conditionsembodied in the comprehensive suretyships separately eecuted by sureties-defendants, the ban2 ar"ued that

sureties-movants bound themselves as solidary obli"ors of defendant (y Tiam to both eistin" obli"ations andfuture ones. It relied on 7rticle #$+B of the new Civil Code which providesG K7 "uaranty may also be "iven assecurity for future debts, the amount of which is not yet 2nown4 . . . .K It was further asserted that the a"reement was

in full force and effect at the time the letter of credit was obtained in *A as sureties-defendants did not eercisetheir ri"ht to revo2e it by "ivin" notice to the ban2. 8 ,$id ., pp. +*-+39.0eanwhile, the resolution of the aforecited motion to dismiss was held in abeyance pendin" the introduction ofevidence by the parties as per order dated February #*, *6 8 ,$id ., p. A*9.=avin" been "ranted a period of fifteen 8*+9 days from receipt of the order dated 0arch A, *6 within which to filethe answer, sureties-defendants filed their responsive pleadin" which merely rehashed the ar"uments in their motionto dismiss and maintained that they are entitled to the benefit of ecussion 81ri"inal ecords, pp. -B9.1n February #B, *A, plaintiff filed a motion to dismiss the complaint a"ainst defendant (y Tiam on the "roundthat it has no information as to the heirs or le"al representatives of the latter who died sometime in >ecember, *6,which motion was "ranted on the followin" day 8 ,$id ., pp. *$-*#9.

7fter trial, . . . the court a ecember #, *, rendered its jud"ment, a portion of which readsG

The evidence and the pleadin"s, thus, pose the 'uerry 8 sic9G7re the defendants 5acinto (y >iHoand )orberto (y liable for the obli"ation contracted by (yTiam under the :etter of Credit 8 Exh. B9 issued on 0arch B$, *A by virtue of the Continuin"Suretyships they eecuted on February #+, *AAQ(nder the admitted proven facts, the Court finds that they are not.a9 ;hen (y and >iHo eecuted the continuin" suretyships, ehibits & and F, on February #+,*AA, (y Tiam was obli"ated to the plaintiff in the amount of PA$$,$$$.$$ ? and this was theobli"ation which both obli"ation which both defendants "uaranteed to pay. (y Tiam paid this

*AA obli"ation RR and such payment etin"uished the obli"ation they assumed as"uarantorsJsureties. b9 The *A :etter of Credit 8 Exh. B9 is different from the *AA :etter of Credit which covered the*AA account of (y Tiam. Thus, the obli"ation under either is apart and distinct from the

obli"ation created in the other ? as evidenced by the fact that (y Tiam had to apply anew for the*A transaction 8 Exh. "9. 7nd >iHo and (y, bein" stran"ers thereto, cannot be answerable

thereunder.c9 The plaintiff did not serve notice to the defendants >iHo and (y when it etended to Credit ?

at least to inform them that the continuin" suretyships they eecuted on February #+, *AA will beconsidered by the plaintiff to secure the *A transaction of (y Tiam.d9 There is no sufficient and credible showin" that >iHo and (y were fully informed of the importof the Continuin" Suretyships when they affied their si"natures thereon RR that they are therebysecurin" all future obli"ations which (y Tiam may contract the plaintiff. 1n the contrary, >iHoand (y cate"orically testified that they si"ned the blan2 forms in the office of (y Tiam at 6#B

7suncion Street, inondo, 0anila, in obedience to the instruction of (y Tiam, their formeremployer. They denied havin" "one to the office of the plaintiff to subscribe to the documents

81ctober *, *A, tsn, pp. +-A, *34 1ctober *+, *A, tsn, pp. B-, *B-*69. 8ecords, pp. BBB-BB39. 3

In its >ecision, the trial court decreed as followsG

P&0IS&S C1)SI>&&>, jud"ment is hereby renderedGa9 dismissin" the C10P:7I)T a"ainst 57CI)T1 (< >I1 and )1&T1 (&&>. 8ecords, p. BB69 4

From the said >ecision, the private respondent appealed to the Court of 7ppeals. The case was doc2eted as C7-%.. C! )o. *AA#3.In support thereof, it made the followin" assi"nment of errors in its riefG

I. T=& :1;& C1(T S&I1(S:< &&> I) )1T FI)>I)% 7)> =1:>I)% T=7T >&F&)>7)TS-

7PP&::&&S 57CI)T1 (< >I1 7)> )1&T1 (< 7& S1:I>7I:< :I7:& T1 P:7I)TIFF-7PP&::7)T F1 T=& 1:I%7TI1) 1F >&F&)>7)T (< TI70 ()>& T=& :&TT& 1F C&>ITISS(&> 1) 07C= B$, *A < !IT(& 1F T=& C1)TI)(I)% S(&T 1)

F&(7< #+, *AA.II. T=& :1;& C1(T &&> I) =1:>I)% T=7T P:7I)TIFF-7PP&::7)T IS 7)S;&7:& T1

>&F&)>7)TS-7PP&::&&S 57CI)T1 (< >I1 7)> )1&T1 (< F1 7TT1)&&P&)S&S 1F :ITI%7TI1). ;

1n ## 5une *, public respondent promul"ated the assailed >ecision the dispositive portion of which readsG;=&&F1&, premises considered, the jud"ment appealed from is hereby &!&S&> 7)> S&T, 7SI>&. In lieu

thereof, another one is renderedG


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*9 1rderin" sureties-appellees 5acinto (y >iHo and )orberto (y to pay, jointly and severally, to

appellant 0&T17)E the amount of P#,BA,B.6 which represents the amount due as of5uly *A, *A inclusive of principal, interest and char"es4#9 1rderin" sureties-appellees 5acinto (y >iHo and )orberto (y to pay, jointly and severally,appellant 0&T17)E the accruin" interest, fees and char"es thereon from 5uly *, *A untilthe whole monetary obli"ation is paid4 andB9 1rderin" sureties-appellees 5acinto (y >iHo and )orberto (y to pay, jointly and severally, to plaintiff P#$,$$$.$$ as attorneyLs fees.

;ith costs a"ainst appellees.

S1 1>&&>. 6In rulin" for the herein private respondent 8hereinafter 0&T17)E9, public respondent held that the Continuin" Suretyship

7"reements separately eecuted by the petitioners in *AA were intended to "uarantee payment of (y TiamLs outstandin" as well asfuture obli"ations4 each suretyship arran"ement was intended to remain in full force and effect until 0&T17)E would have beennotified of its revocation. Since no such notice was "iven by the petitioners, the suretyships are deemed outstandin" and hence, covereven the *A letter of credit issued by 0&T17)E in favor of (y Tiam.Petitioners filed a motion to reconsider the fore"oin" >ecision. They 'uestioned the public respondentLs construction of the suretyship

a"reements and its rulin" with respect to the etent of their liability thereunder. They ar"ued the even if the a"reements were in fullforce and effect when 0&T17)E "ranted (y TiamLs application for a letter of credit in *A, the public respondent nonethelessseriously erred in holdin" them liable for an amount over and above their respective face values.In its esolution of #* 7u"ust *, public respondent denied the motionG

. . . considerin" that the issues raised were substantially the same "rounds utili/ed by the lower court in renderin"

jud"ment for defendants-appellees which ;e upon appeal found and resolved to be untenable, thereby reversin" andsettin" aside said jud"ment and renderin" another in favor of plaintiff, and no new or fresh issues have been positedto justify reversal of 1ur decision herein, . . . . @

=ence, the instant petition which hin"es on the issue of whether or not the petitioners may be held liable as sureties for the obli"ationcontracted by (y Tiam with 0&T17)E on B$ 0ay *A under and by virtue of the Continuin" Suretyship 7"reements si"ned on

#+ February *AA.Petitioners vehemently deny such liability on the "round that the Continuin" Suretyship 7"reements were automatically etin"uished

upon payment of the principal obli"ation secured thereby, i.e., the letter of credit obtained by (y Tiam in *AA. They further claim thatthey were not advised by either 0&T17)E or (y Tiam that the Continuin" Suretyship 7"reements would stand as security forthe *A obli"ation. 0oreover, it is posited that to etend the application of such a"reements to the *A obli"ation would amount to a

violation of 7rticle #$+# of the Civil Code which epressly provides that a "uaranty cannot eist without a valid obli"ation.Petitioners further ar"ue that even "rantin", for the sa2e of ar"ument, that the Continuin" Suretyship 7"reements still subsisted and

thereby also secured the *A obli"ations incurred by (y Tiam, they cannot be held liable for more than what they "uaranteed to pay because it s aiomatic that the obli"ations of a surety cannot etend beyond what is stipulated in the a"reement.1n *# February *$, this Court resolved to "ive due course to the petition after considerin" the alle"ations, issues and ar"umentsadduced therein, the Comment thereon by the private respondent and the eply thereto by the petitioners4 the parties were re'uired to

submit their respective 0emoranda.The issues presented for determination are 'uite simpleG

*. ;hether petitioners are liable as sureties for the *A obli"ations of (y Tiam to 0&T17)E by virtue of theContinuin" Suretyship 7"reements they separately si"ned in *AA4 and#. 1n the assumption that they are, what is the etent of their liabilities for said *A obli"ations.

(nder the Civil Code, a "uaranty may be "iven to secure even future debts, the amount of which may not 2nown at the time the"uaranty iseecuted. This is the basis for contracts denominated as continuin" "uaranty or suretyship. 7 continuin" "uaranty is one which is not

limited to a sin"le transaction, but which contemplates a future course of dealin", coverin" a series of transactions, "enerally for anindefinite time or until revo2ed. It is prospective in its operation and is "enerally intended to provide security with respect to futuretransactions within certain limits, and contemplates a succession of liabilities, for which, as they accrue, the "uarantor becomes

liable. 9 1therwise stated, a continuin" "uaranty is one which covers all transactions, includin" those arisin" in the future, which arewithin the description or contemplation of the contract, of "uaranty, until the epiration or termination thereof. 1/ 7 "uaranty shall beconstrued as continuin" when by the terms thereof it is evident that the object is to "ive a standin" credit to the principal debtor to beused from time to time either indefinitely or until a certain period, especially if the ri"ht to recall the "uaranty is epressly reserved.

=ence, where the contract of "uaranty states that the same is to secure advances to be made Kfrom time to timeK the "uaranty will beconstrued to be a continuin" one. 11

In other jurisdictions, it has been held that the use of particular words and epressions such as payment of Kany debt,K Kanyindebtedness,K Kany deficiency,K or Kany sum,K or the "uaranty of Kany transactionK or money to be furnished the principal debtor Katany time,K or Kon such timeK that the principal debtor may re'uire, have been construed to indicate a continuin" "uaranty. 12

In the case at bar, the pertinent portion of para"raph I of the suretyship a"reement eecuted by petitioner (y provides thusGI. For and in consideration of any eistin" indebtedness to the 7)E of (< TI70 8hereinafter called theKorrowerK9, for the payment of which the S(&T< is now obli"ated to the 7)E, either as "uarantor orotherwise, andor in order to induce the B"N=( in its discretion( at an% time or from time to time hereafter( to ma'eloans or advances or to extend credit in an% other manner to( or at the re


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and all other inde$tedness of ever% 'ind &hich is no& or ma% hereafter $ecome due or o&ing to the B"N= $% the

Borro&er , to"ether with any and all epenses which may be incurred by the 7)E in collectin" all or any suchinstruments or other indebtedness or obli"ations herein before referred to, andJor in enforcin" any ri"hts hereunder,and the S(&T< also a"rees that the 7)E may ma2e or cause any and all such payments to be made strictly inaccordance with the terms and provisions of any a"reement8s9 epress or implied, which has 8have9 been or may

hereafter be made or entered into by the orrow in reference thereto, re"ardless of any law, re"ulation or decree,unless the same is mandatory and non-waivable in character, nor or hereafter in effect, which mi"ht in any manneraffect any of the terms or provisions of any such a"reement8s9 or the an2Ls ri"hts with respect thereto as a"ainst the

orrower, or cause or permit to be invo2ed any alteration in the time, amount or manner of payment by theorrower of any such instruments, obli"ations or indebtedness4 provided, however, that the liability of the S(&T<hereunder shall not eceed at any one time the a""re"ate principal sum of P&S1SG T=&& =()>&>T=1(S7)> 1):< 8PB$$,$$$.$$9 8irrespective of the currenc8ies9 in which the obli"ations hereby "uaranteed are

payable9, and such interest as may accrue thereon either before or after any maturity8ies9 thereof and such epensesas may be incurred by the 7)E as referred to above. 13

Para"raph I of the Continuin" Suretyship 7"reement eecuted by petitioner >iHo contains identical provisions ecept with respect tothe "uaranteed a""re"ate principal amount which is &I%=T T=1(S7)> P&S1S 8P$$,$$$.$$9. 14

Para"raph I! of both a"reements stipulate thatG!I. 6his is a continuing guarant% and shall remain in full force and effect until &ritten notice shall have $een

received $% the B"N= that it has $een revo'ed $% the *7RE68( $ut an% such notice shall not release the*7RE68( from any liability as to any instruments, loans, advances or other obli"ations hereby "uaranteed, which

may be held by the 7)E, or in which the 7)E may have any interest at the time of the receipt 8 sic9 of suchnotice. )o act or omission of any 2ind on the 7)ELS part in the premises shall in any event affect or impair this

"uaranty, nor shall same 8 sic9 be affected by any chan"e which may arise by reason of the death of the S(&T


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Thus, by epress mandate of the Continuin" Suretyship 7"reements which they had si"ned, petitioners separately bound

themselves to pay interest, epenses, attorneyLs fees and costs. The last two items are pe""ed at not less than ten percent8*$9 of the amount due.

&ven without such stipulations, the petitioners would, nevertheless, be liable for the interest and judicial costs. 7rticle #$++ of theCivil Code providesG 21

7rt. #$++. 7 "uaranty is not presumed4 it must be epress and cannot etend to more than what is stipulated therein.If it be simple or indefinite, it shall comprise not only the principal obli"ation, but also all its accessories, includin"

the judicial costs, provided with respect to the latter, that the "uarantor shall only be liable for those costs incurredafter he has been judicially re'uired to pay.

Interest and dama"es are included in the term accessories. =owever, such interest should run only from the date when thecomplaint was filed in court. &ven attorneyLs fees may be imposed whenever appropriate, pursuant to 7rticle ##$ of theCivil Code. Thus, in Plaridel *uret% 9 ,nsurance #o. ( ,nc. vs. P . 4. Galang Machiner% #o. ( ,nc., 22 this Court heldG

Petitioner objects to the payment of interest and attorneyLs fees becauseG 8*9 they were not mentioned in the bond4and 8#9 the surety would become liable for more than the amount stated in the contract of suretyship.

The objection has to be overruled, because as far bac2 as the year *## this Court held in Ta"awa vs. 7ldanese, 3BPhil. +#, that creditors suin" on a suretyship bond may recover from the surety as part of their dama"es, interest atthe le"al rate even if the surety would thereby become liable to pay more than the total amount stipulated in the

bond. The theory is that interest is allowed only by way of dama"es for delay upon the part of the sureties in ma2in" payment after they should have done so. In some states, the interest has been char"ed from the date of the interesthas been char"ed from the date of the jud"ment of the appellate court. In this jurisdiction, we rather prefer to follow

the "eneral practice, which is to order that interest be"in to run from the date when the complaint was filed in court, .. .Such theory ali"ned with sec. +*$ of the Code of Civil Procedure which was subse'uently reco"ni/ed in the ules

of Court 8ule +B, section 69 and with 7rticle **$ of the Civil Code 8now 7rt. ##$ of the )ew Civil Code9.In other words the surety is made to pay interest, not by reason of the contract, but by reason of its failure to pay

when demanded and for havin" compelled the plaintiff to resort to the courts to obtain payment. It should beobserved that interest does not run from the time the obli"ation became due, but from the filing of the complaint.7s to attorneyLs fees. efore the enactment of the )ew Civil Code, successful liti"ants could not recover attorneyLsfees as part of the dama"es they suffered by reason of the liti"ation. &ven if the party paid thousands of pesos to hislawyers, he could not char"e the amount to his opponent 8Tan Ti vs. 7lvear, #6 Phil. +669.=owever the )ew Civil Code permits recovery of attorneyLs fees in eleven cases enumerated in 7rticle ##$, amon"them, Kwhere the court deems it just and e'uitable that attorneyLs 8 sic9 fees and epenses of liti"ation should be

recoveredK or Kwhen the defendant acted in "ross and evident bad faith in refusin" to satisfy the plaintiffLs plainlyvalid, just and demandable claim.K This "ives the courts discretion in apportionin" attorneyLs fees.

The records do not reveal the eact amount of the unpaid portion of the principal obli"ation of (y Tiam to 0&T17)E underIrrevocable :etter of Credit )o. S)-:oc-B$ dated B$ 0arch *A. In referrin" to the last demand letter to 0r. (y Tiam and thecomplaint filed in Civil Case )o. #-B$B, the public respondent mentions the amount of KP6*B,BB.B#, as of 5anuary B*, *#,inclusive of interest commission penalty and ban2 char"es.K 23This is the same amount stated by 0&T17)E in its

0emorandum. 24 =owever, in summari/in" (y TiamLs outstandin" obli"ation as of *A 5uly *A, public respondent statesG=ence, they are jointly and severally liable to appellant 0&T17)E of (T&FSL outstandin" obli"ation in the

sum of P#,BA,B.6 8as of 5uly *A, *A9 ? P6+*,$#.# representin" the principal amount, P#+,*BB.+3, for pastdue interest 8+-B*-# to A-*A-A9 and P#*,6+A.B#, for penalty char"es at *# per annum 8+-B*-# to A-*A-A9 asshown in the Statement of 7ccount 8&hibit I9. 2;

Since the complaint was filed on * 0ay *#, it is obvious that on that date, the outstandin" principal obli"ation of (y

Tiam, secured by the petitionersL Continuin" Suretyship 7"reements, was less than P6*B,BB.B#. Such amount may be fullycovered by the Continuin" Suretyship 7"reement eecuted by petitioner >iHo which stipulates an a""re"ate principal sum ofnot eceedin" P$$,$$$.$$, and partly covered by that of petitioner (y which pe"s his maimum liability at PB$$,$$$.$$.

Conse'uently, the jud"ment of the public respondent shall have to be modified to conform to the fore"oin" eposition, to which etentthe instant petition is impressed with partial merit.;=&&F1&, the petition is partly %7)T&>, but only insofar as the challen"ed decision has to be modified with respect to theetend of petitionersL liability. 7s modified, petitioners 57CI)T1 (< >I1 and )1&T1 (< are hereby declared liable for andare ordered to pay, up to the maimum limit only of their respective Continuin" Suretyship 7"reement, the remainin" unpaid balanceof the principal obli"ation of (< TI70 or (< TI70 &)T&PIS&S D F&I%=T S&!IC&S under Irrevocable :etter of Credit

)o. S)-:oc-B$, dated B$ 0arch *A, to"ether with the interest due thereon at the le"al rate commencin" from the date of the filin"of the complaint in Civil Case )o. #-B$B with ranch 3+ of the e"ional Trial Court of 0anila, as well as the adjud"ed attorneyLsfees and costs.

7ll other dispositions in the dispositive portion of the challen"ed decision not inconsistent with the above are affirmed.S1 1>&&>.

-G.R. No. 112191. Febr$ar" @, 199@

FOR*(NE )O*ORS


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ANGANIBAN, J .:

To fund their ac'uisition of new vehicles 8which are later retailed or resold to the "eneral public9, car dealers normally enter intowholesale automotive financin" schemes whereby vehicles are delivered by the manufacturer or assembler on the stren"th of trustreceipts or drafts eecuted by the car dealers, which are bac2ed up by sureties. These trust receipts or drafts are then assi"ned andJor

discounted by the manufacturer toJwith financin" companies, which assume payment of the vehicles but with the correspondin" ri"htto collect such payment from the car dealers andJor the sureties. In this manner, car dealers are able to secure delivery of their stoc2-in-trade without havin" to pay cash therefor4 manufacturers "et paid without any receivablesJcollection problems4 and financin"

companies earn their mar"ins with the assurance of payment not only from the dealers but also from the sureties. ;hen the vehiclesare eventually resold, the car dealers are supposed to pay the financin" companies -- and the business "oes merrily on. =owever, in theevent the car dealer defaults in payin" the financin" company, may the surety escape liability on the le"al "round that the obli"ationswere incurred su$seecisionM*N of the Court of 7ppeals 8Tenth >ivision9M#N promul"ated on September B$, *B in C7 %.. C! )o. $*B6 which

affirmed in toto the decisionMBN of the e"ional Trial Court of 0anila - ranch ** M3N in Civil Case )o. B-#*3, the dispositive portionof which readsG

;=&&F1&, jud"ment is hereby rendered in favor of the plaintiff and a"ainst the defendants, by orderin" the latter to pay, jointlyand severally, the plaintiff the followin" amountsG

*. The sum of P*,B3,$BB., plus interest thereon at the rate of P##.+B per day startin" 7pril *, *+ until the said principal amountis fully paid4#. The amount of P+$,$$$.$$ as attorneys fees and another P+$,$$$.$$ as li'uidated dama"es4 andB. That the defendants, althou"h spared from payin" eemplary dama"es, are further ordered to pay, in solidum, the costs of this suit.

Plaintiff therein was the financin" company and the defendants the car dealer and its sureties.

*#e Fact%

1n or about 7u"ust 3, **, 5oseph :. %. Chua and Petitioner &d"ar :ee odri"ue/a 8Petitioner odri"ue/a9 each eecuted anundated Surety (nderta2in"M+N whereunder they absolutely, unconditionally and solidarily "uarantee8d9 to espondent Filinvest Credit

Corporation 8espondent Filinvest9 and its affiliated and subsidiary companies the full, faithful and prompt performance, payment anddischar"e of any and all obli"ations and a"reements of Fortune 0otors 8Phils.9 Corporation 8Petitioner Fortune9 under or with respectto any and all such contracts and any and all other a"reements 8whether by way of "uaranty or otherwise9 of the latter with Filinvestand its affiliated and subsidiary companies now in force or hereafter made.

The followin" year or on 7pril M6N +, *#, Petitioner Fortune, espondent Filinvest and Canluban" 7utomotive esourcesCorporation 8C7C19 entered into an 7utomotive ;holesale Financin" 7"reement MAN 8Financin" 7"reement9 under which C7C1

will deliver motor vehicles to Fortune for the purpose of resale in the latters ordinary course of business4 Fortune, in turn, will eecutetrust receipts over said vehicles and accept drafts drawn by C7C1, which will discount the same to"ether with the trust receipts andinvoices and assi"n them in favor of espondent Filinvest, which will pay the motor vehicles for Fortune. (nder the same a"reement,

Petitioner Fortune, as trustee of the motor vehicles, was to report and remit proceeds of any sale for cash or on terms to espondentFilinvest immediately without necessity of demand.

Subse'uently, several motor vehicles were delivered by C7C1 to Fortune, and trust receipts covered by demand drafts and

deeds of assi"nment were eecuted in favor of espondent Filinvest. =owever, when the demand drafts matured, not all the proceedsof the vehicles which Petitioner Fortune had sold were remitted to espondent Filinvest. Fortune li2ewise failed to turn over toFilinvest several unsold motor vehicles covered by the trust receipts. Thus, Filinvest throu"h counsel, sent a demand letter MN dated

>ecember *#, *B to Fortune for the payment of its unsettled account in the amount of P*,B$#,**.$$. Filinvest sent similar demandlettersMN separately to Chua and odri"ue/a as sureties. >espite said demands, the amount was not paid. =ence, Filinvest filed in thee"ional Trial Court of 0anila a complaint for a sum of money with preliminary attachment a"ainst Fortune, Chua and odri"ue/a.

In an order dated September #6, *3, the trial court declared that there was no factual issue to be resolved ecept for the correct balance of defendants account with Filinvest as a"reed upon by the parties durin" pre-trial. M*$N Subse'uently, Filinvest presentedtestimonial and documentary evidence. >efendants 8petitioners herein9, instead of presentin" their evidence, filed a 0otion for

5ud"ment on >emurrer to &vidence M**N anchored principally on the "round that the Surety (nderta2in"s were null and void because, atthe time they were eecuted, there was no principal obli"ation eistin". The trial court denied the motion and scheduled the case for reception of defendants evidence. 1n two scheduled dates, however, defendants failed to present their evidence, promptin" the court

to deem them to have waived their ri"ht to present evidence. 1n >ecember *A, *+, the trial court rendered its decision earlier citedorderin" Fortune, Chua and odri"ue/a to pay Filinvest, jointly and severally, the sum of P*,B3,$BB.B plus interest at the rateof P##.+B per day from 7pril *, *+ until fully paid, P+$,$$$.$$ in attorneys fees, another P+$,$$$.$$ in li'uidated dama"es andcosts of suit.

7s earlier mentioned, their appeal was dismissed by the Court of 7ppeals 8Tenth >ivision9 which affirmed in toto the trial courtsdecision. =ence, this recourse.

I%%$e%

Petitioners assi"n the followin" errors in the appealed >ecisionG

http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn1http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn11http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn2http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn3http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn4http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn5http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn6http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn7http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn8http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn9http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn10http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn11http://sc.judiciary.gov.ph/jurisprudence/1997/feb1997/112191.htm#_edn1


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*. that the Court of 7ppeals erred in declarin" that surety can eist even if there was no eistin" indebtedness at the time of its

eecution.#. that the Court of 7ppeals erred when it declared that there was no novation.B. that the Court of 7ppeals erred when it declared, that the evidence was sufficient to prove the amount of the claim.M*#N

Petitioners ar"ue that future debts which can be "uaranteed under 7rticle #$+B of the Civil Code refer only to debts eistin" atthe time of the constitution of the "uaranty but the amount thereof is un2nown, and that a "uaranty bein" an accessory obli"ationcannot eist without a principal obli"ation. Petitioners claim that the surety underta2in"s cannot be made to cover the Financin"7"reement eecuted by Fortune, Filinvest and C7C1 since the latter contract was not yet in eistence when said surety contracts

were entered into.Petitioners further aver that the Financin" 7"reement would effect a novation of the surety contracts since it chan"ed the

principal terms of the surety contracts and imposed additional and onerous obli"ations upon the sureties.:astly, petitioners claim that no accountin" of the payments made by Petitioner Fortune to espondent Filinvest was done by the

latter. =ence, there could be no way by which the sureties can ascertain the correct amount of the balance, if any.espondent Filinvest, on the other hand, imputes estoppel 8by pleadin"s or by judicial admission9 upon petitioners when in their

0otion to >ischar"e 7ttachment, they admitted their liability as sureties thusG

>efendants Chua and odri"ue/a could not have perpetrated fraud because they are only sureties of defendant Fortune 0otors 4 The defendants 8referrin" to odri"ue/a and Chua9 are not parties to the trust receipts a"reements since they are 1):< sureties .M*BN

In rejectin" the ar"uments of petitioners and in holdin" that they 8Fortune and the sureties9 were jointly and solidarily liable toFilinvest, the trial court declaredG

7s to the alle"ed non-eistence of a principal obli"ation when the surety a"reement was si"ned, it is enou"ht 8 sic9 to state that a

"uaranty may also be "iven as security for future debts, the amount of which is not 2nown 87rt. #$+B, )ew Civil Code9. In the case of )7IC vs. Fojas, :-**+*A, promul"ated 7pril *$, *+, it was ruled that a bond posted to secure additional credit that the principaldebtor had applied for, is not void just because the said bond was si"ned and filed before the additional credit was etended by thecreditor. The obli"ation of the sureties on future obli"ations of Fortune is apparent from a proviso under the Surety (nderta2in"s

mar2ed &hs. and C that the sureties a"ree with the plaintiff as followsG

In consideration of your enterin" into an arran"ement with the party 8Fortune9 named above, by which you may purchase or

otherwise re'uire from, and or enter into with obli"or trust receipt arisin" out of wholesale andJor retail transactions by orwith obli"or, the undersi"ned absolutely, unconditionally, and solidarily "uarantee to you the full, faithful and prompt performance, payment and dischar"e of any and all obli"ations of obli"or under and with respect to any and all such contractsand any and all a"reements 8whether by way of "uaranty or otherwise9 of obli"or with you now in force or hereaftermade. 8(nderlinin"s supplied9.1n the matter of novation, this has already been ruled upon when this Court denied defendants 0otion to dismiss on the ar"ument that

what happened was really an assi"nment of credit, and not a novation of contract, which does not re'uire the consent of

cred trans guaranty

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