joint and solidary obligations and obli with penal clause.pdf

8/19/2019 JOINT AND SOLIDARY OBLIGATIONS AND OBLI WITH PENAL CLAUSE.pdf

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CASES FOR JOINT AND SOLIDARY

OBLIGATIONS Obligations with a Penal

Clause

2016

Obligations and Contracts 1

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one andthe same obligation does not imply that each one of the former has a right to demand, orthat each one of the latter is bound to render, entire compliance with the prestation. There is

a solidary liability only when the obligation expressly so states, or when the law or thenature of the obligation requires solidarity.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 101723 May 11, 2000

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

BUENA, J .:

This is a petition for certiorari assailing the Resolution dated September 4, 1991 issued by theNational Labor Relations Commission in RAB-VII-0711-84 on the alleged ground that it committed agrave abuse of discretion amounting to lack of jurisdiction in upholding the Alias Writ of Executionissued by the Labor Arbiter which deviated from the dispositive portion of the Decision dated March10, 1987, thereby holding that the liability of the six respondents in the case below is solidary despitethe absence of the word "solidary" in the dispositive portion of the Decision, when their liabilityshould merely be joint.

The factual antecedents are undisputed:

In September 1984, private respondent Enrique Sulit, Socorro Mahinay, Esmeraldo Pegarido, TitaBacusmo, Gino Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a

complaint with the Department of Labor and Employment, Regional Arbitration Branch No. VII inCebu City against Filipinas Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales, Chiu ChinGin, Lo Kuan Chin, and petitioner Industrial Management Development Corporation (INIMACO), forpayment of separation pay and unpaid wages.

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

RESPONSIVE, to all the foregoing, judgment is hereby entered, orderingrespondents Filipinas Carbon and Mining Corp. Gerardo Sicat, Antonio


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Gonzales/Industrial Management Development Corp. (INIMACO), Chiu Chin Gin andLo Kuan Chin, to pay complainants Enrique Sulit, the total award of P82,800.00;ESMERALDO PEGARIDO the full award of P19,565.00; Roberto Nemenzo the total

sum of P29,623.60 and DARIO GO the total award of P6,599.71, or the totalaggregate award of ONE HUNDRED THIRTY-EIGHT THOUSAND FIVE HUNDREDEIGHTY-EIGHT PESOS AND 31/100 (P138,588.31) to be deposited with thisCommission within ten (10) days from receipt of this Decision for appropriatedisposition. All other claims are hereby Dismiss (sic ) for lack of merit.

SO ORDERED.

Cebu City, Philippines.

10 March 1987. 1

No appeal was filed within the reglementary period thus, the above Decision became final andexecutory. On June 16, 1987, the Labor Arbiter issued a writ of execution but it was returnedunsatisfied. On August 26, 1987, the Labor Arbiter issued an Alias Writ of Execution which orderedthus:

NOW THEREFORE, by virtue of the powers vested in me by law, you are herebycommanded to proceed to the premises of respondents Antonio Gonzales/IndustrialManagement Development Corporation (INIMACO) situated at Barangay Lahug,Cebu City, in front of La Curacha Restaurant,and/or to Filipinas Carbon and Miningcorporation and Gerardo Sicat at 4th Floor Universal RE-Bldg. 106 Paseo de Roxas,Legaspi Village, Makati Metro Manila and at Philippine National Bank, Escolta,Manila respectively, and collect the aggregate award of ONE HUNDRED THIRTY-

EIGHT THOUSAND FIVE HUNDRED EIGHTY-EIGHT PESOS AND THIRTY ONECENTAVOS (P138,588.31) and thereafter turn over said amount to complainantsENRIQUE SULIT, ESMERALDO PEGARIDO, ROBERTO NEMENZO AND DARIOGO or to this Office for appropriate disposition. Should you fail to collect the said sumin cash, you are hereby authorized to cause the satisfaction of the same on themovable or immovable property(s) of respondents not exempt from execution. Youare to return this writ sixty (6) (sic ) days from your receipt hereof, together with yourcorresponding report.

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

SO ORDERED. 2

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

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

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

In matters affecting labor rights and labor justice, we have always adopted the liberalapproach which favors the exercise of labor rights and which is beneficial to labor asa means to give full meaning and import to the constitutional mandate to affordprotection to labor. Considering the factual circumstances in this case, there is nodoubt in our mind that the respondents herein are called upon to pay, jointly andseverally, the claims of the complainants as was the latters' prayers. Inasmuch asrespondents herein never controverted the claims of the complainants below, there isno reason why complainants' prayer should not be granted. Further, in line with thepowers granted to the Commission under Article 218 (c) of the Labor code, "to waive

any error, defect or irregularity whether in substance or in form" in a proceedingbefore Us, We hold that the Writ of Execution be given due course in all respects.

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

WHEREFORE, responsive to the foregoing respondent INIMACO's Motions arehereby DENIED. The Sheriff of this Office is order (sic ) to accept INIMACO's tenderpayment (sic ) of the sum of P23,198.05, as partial satisfaction of the judgment and toproceed with the enforcement of the Alias Writ of Execution of the levied properties,now issued by this Office, for the full and final satisfaction of the monetary awardgranted in the instant case.

SO ORDERED.

Petitioner appealed the above Order of the Labor Arbiter but this was again dismissed by therespondent NLRC in its Resolution 8 dated September 4, 1991 which held that:

The arguments of respondent on the finality of the dispositive portion of the decisionin this case is beside the point. What is important is that the Commission has ruledthat the Writ of Execution issued by the Labor Arbiter in this case is proper. It is notreally correct to say that said Writ of Execution varied the terms of the judgment. Atmost, considering the nature of labor proceedings there was, an ambiguity in saiddispositive portion which was subsequently clarified by the Labor Arbiter and theCommission in the incidents which were initiated by INIMACO itself. By sheertechnicality and unfounded assertions, INIMACO would now reopen the issue whichwas already resolved against it. It is not in keeping with the established rules ofpractice and procedure to allow this attempt of INIMACO to delay the final dispositionof this case.

WHEREFORE, in view of all the foregoing, this appeal is DISMISSED and the Orderappealed from is hereby AFFIRMED.

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With double costs against appellant.

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

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

Upon careful examination of the pleadings filed by the parties, the Court finds that petitionerINIMACO's liability is not solidary but merely joint and that the respondent NLRC acted with graveabuse of discretion in upholding the Labor Arbiter's Alias Writ of Execution and subsequent Ordersto the effect that petitioner's liability is solidary.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation,

and each creditor is entitled to demand the whole obligation. 9 In a joint obligation each obligoranswers only for a part of the whole liability and to each obligee belongs only a part of thecorrelativerights. 10

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

In the dispositive portion of the Labor Arbiter, the word "solidary" does not appear. Thesaid fallo expressly states the following respondents therein as liable, namely: Filipinas Carbon andMining Corporation, Gerardo Sicat, Antonio Gonzales, Industrial Management Development

Corporation (petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferredtherefrom that the liability of the six (6) respondents in the case below is solidary, thus their liabilityshould merely be joint.

Moreover, it is already a well-settled doctrine in this jurisdiction that, when it is not provided in a judgment that the defendants are liable to pay jointly and severally a certain sum of money, none ofthem may be compelled to satisfy in full said judgment. In Oriental Commercial Co. vs. Abeto andMabanag 1 this Court held:

It is of no consequence that, under the contract of suretyship executed by the parties,the obligation contracted by the sureties was joint and several in character. The final

judgment, which superseded the action for the enforcement of said contract,declared the obligation to be merely joint, and the same cannot be executedotherwise. 14

Granting that the Labor Arbiter has committed a mistake in failing to indicate in the dispositiveportion that the liability of respondents therein is solidary, the correction — which is substantial — can no longer be allowed in this case because the judgment has already become final andexecutory.

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It is an elementary principle of procedure that the resolution of the court in a given issue asembodied in the dispositive part of a decision or order is the controlling factor as to settlement ofrights of the parties. 15 Once a decision or order becomes final and executory, it is removed from the

power or jurisdiction of the court which rendered it to further alter or amend it. 16 It thereby becomesimmutable and unalterable and any amendment or alteration which substantially affects a final andexecutory judgment is null and void for lack of jurisdiction, including the entire proceedings held forthat purpose. 17 An order of execution which varies the tenor of the judgment or exceeds the termsthereof is anullity. 18

None of the parties in the case before the Labor Arbiter appealed the Decision dated March 10,1987, hence the same became final and executory. It was, therefore, removed from the jurisdictionof the Labor Arbiter or the NLRC to further alter or amend it. Thus, the proceedings held for thepurpose of amending or altering the dispositive portion of the said decision are null and void for lackof jurisdiction. Also, the Alias Writ of Execution is null and void because it varied the tenor of the

judgment in that it sought to enforce the final judgment against "Antonio Gonzales/IndustrialManagement Development Corp. (INIMACO) and/or Filipinas Carbon and Mining Corp. and GerardoSicat," which makes the liability solidary.

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

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 96405 June 26, 1996

BALDOMERO INCIONG, JR., petitioner,vs.COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

ROMERO, J.: p

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This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of theRegional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No. 10507 forcollection of a sum of money and damages, as follows:

WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarilyliable and ordered to pay to the plaintiff Philippine Bank of Communications,Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00), withinterest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% perannum on the total amount due, as liquidated damages or penalty from May 5, 1983until fully paid; plus 10% of the total amount due for expenses of litigation andattorney's fees; and to pay the costs.

The counterclaim, as well as the cross claim, are dismissed for lack of merit.

SO ORDERED.

Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signedwith Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointlyand severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro Citybranch. The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their obligation. Consequently, onNovember 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demandingpayment thereof. 2 On December 11, 1984 private respondent also sent by registered mail a final letter ofdemand to Rene C. Naybe. Since both obligors did not respond to the demands made, privaterespondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against thethree obligors.

On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case.However, on January 9, 1987, the lower court reconsidered the dismissal order and required thesheriff to serve the summonses. On January 27, 1987, the lower court dismissed the case againstdefendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only thesummons addressed to petitioner was served as the sheriff learned that defendant Naybe had goneto Saudi Arabia.

In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend,Rudy Campos, who told him that he was a partner of Pio Tio, the branch manager of privaterespondent in Cagayan de Oro City, in the falcata logs operation business. Campos also intimated tohim that Rene C. Naybe was interested in the business and would contribute a chainsaw to theventure. He added that, although Naybe had no money to buy the equipment, Pio Tio had assured

Naybe of the approval of a loan he would make with private respondent. Campos then persuadedpetitioner to act as a "co-maker" in the said loan. Petitioner allegedly acceded but with theunderstanding that he would only be a co-maker for the loan of P50,000.00.

Petitioner alleged further that five (5) copies of a blank promissory note were brought to him byCampos at his office. He affixed his signature thereto but in one copy, he indicated that he boundhimself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation thathe was made liable for the amount of P50,000.00.


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In the aforementioned decision of the lower court, it noted that the typewritten figure "-- 50,000 --"clearly appears directly below the admitted signature of the petitioner in the promissorynote. 3 Hence, the latter's uncorroborated testimony on his limited liability cannot prevail over the

presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court addedthat it was "rather odd" for petitioner to have indicated in a copy and not in the original, of the promissorynote, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, evengranting that said limited amount had actually been agreed upon, the same would have been merelycollateral between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank.

The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a laborconsultant who was supposed to take due care of his concerns, and that, on the witness stand, PioTio denied having participated in the alleged business venture although he knew for a fact that thefalcata logs operation was encouraged by the bank for its export potential.

Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31,1990, affirmed that of the lower court. His motion for reconsideration of the said decision havingbeen denied, he filed the instant petition for review on certiorari .

On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the Rules ofCourt and paragraph 2 of CircularNo. 1-88, and to sufficiently show that respondent court had committed any reversible error in itsquestioned decision. 4 His motion for the reconsideration of the denial of his petition was likewise deniedwith finality in the Resolution of April 24, 1991. 5 Thereafter, petitioner filed a motion for leave to file asecond motion for reconsideration which, in the Resolution of May 27, 1991, the Court denied. In thesame Resolution, the Court ordered the entry of judgment in this case.6

Unfazed, petitioner filed a notion for leave to file a motion for clarification. In the latter motion, he

asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in compliancewith Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that his petition begiven due course and reinstated the same. 7

Nonetheless, we find the petition unmeritorious.

Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of thedecision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-makerin the promissory note. It supports petitioner's allegation that they were induced to sign thepromissory note on the belief that it was only for P5,000.00, adding that it was Campos who causedthe amount of the loan to be increased to P50,000.00.

The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Courtof Appeals should have declared the promissory note null and void on the following grounds: (a) thepromissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b)the loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00;(c) even a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board orcredit committee which was the practice, as it exceeded P5,000.00; (e) the loan had no collateral; (f)petitioner and Judge Pantanosas were not present at the time the loan was released incontravention of the bank practice, and (g) notices of default are sent simultaneously and separatelybut no notice was validly sent to him. 8 Finally, petitioner contends that in signing the promissory note,


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his consent was vitiated by fraud as, contrary to their agreement that the loan was only for the amount ofP5,000.00, the promissory note stated the amount of P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that thisCourt is not a trier of facts. Having lost the chance to fully ventilate his factual claims below,petitioner may no longer be accorded the same opportunity in the absence of grave abuse ofdiscretion on the part of the court below. Had he presented Judge Pantanosas affidavit before thelower court, it would have strengthened his claim that the promissory note did not reflect the correctamount of the loan.

Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed withthe formalities prescribed by law but . . . a mere commercial paper which does not bear the signatureof . . . attesting witnesses," parol evidence may "overcome" the contents of the promissorynote. 9 The first paragraph of the parol evidence rule10 states:

When the terms of an agreement have been reduced to writing, it is considered ascontaining all the terms agreed upon and there can be, between the parties and theirsuccessors in interest, no evidence of such terms other than the contents of thewritten agreement.

Clearly, the rule does not specify that the written agreement be a public document.

What is required is that the agreement be in writing as the rule is in fact founded on "long experiencethat written evidence is so much more certain and accurate than that which rests in fleeting memoryonly, that it would be unsafe, when parties have expressed the terms of their contract in writing, toadmit weaker evidence to control and vary the stronger and to show that theparties intended a different contract from that expressed in the writing signed by them." 11 Thus, forthe parol evidence rule to apply, a written contract need not be in any particular form, or be signed byboth parties. 12 As a general rule, bills, notes and other instruments of a similar nature are not subject tobe varied or contradicted by parol or extrinsic evidence. 13

By alleging fraud in his answer, 14 petitioner was actually in the right direction towards proving that heand his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneousagreement was the inducing and moving cause of the written contract, it may be shown by parolevidence. 15 However, fraud must be established by clear and convincing evidence, mere preponderanceof evidence, not even being adequate. 16 Petitioner's attempt to prove fraud must, therefore, fail as it wasevidenced only by his own uncorroborated and, expectedly, self-serving testimony.

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, andagainst Pantanosas, his co-maker, constituted a release of his obligation, especially because the

dismissal of the case against Pantanosas was upon the motion of private respondent itself. He citesas basis for his argument, Article 2080 of the Civil Code which provides that:

The guarantors, even though they be solidary, are released from their obligationwhenever by some act of the creditor, they cannot be subrogated to the rights,mortgages, and preferences of the latter.


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It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and notas a guarantor. This is patent even from the first sentence of the promissory note which states asfollows:

Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLYpromise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in theCity of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY(P50,000.00) Pesos, Philippine Currency, together with interest . . . at the rate ofSIXTEEN (16) per cent per annum until fully paid.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation,and each creditor is entitled to demand the whole obligation. 17 on the other hand, Article 2047 of theCivil Code states:

By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the

obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section4, Chapter 3, Title I of this Book shall be observed. In such a case the contract iscalled a suretyship. (Emphasis supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of aguarantor is different from that of a solidary debtor. Thus, Tolentino explains:

A guarantor who binds himself in solidum with the principal debtor under theprovisions of the second paragraph does not become a solidary co-debtor to allintents and purposes. There is a difference between a solidary co-debtor and a fiador

in solidum (surety). The latter, outside of the liability he assumes to pay the debtbefore the property of the principal debtor has been exhausted, retains all the otherrights, actions and benefits which pertain to him by reason of the fiansa; while asolidary co-debtor has no other rights than those bestowed upon him in Section 4,Chapter 3, Title I, Book IV of the Civil Code. 18

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, thepresumption is that the obligation is joint so that each of the debtors is liable only for a proportionatepart of the debt. There is a solidary liability only when the obligation expressly so states, when thelaw so provides or when the nature of the obligation so requires. 19

Because the promissory note involved in this case expressly states that the three signatories thereinare jointly and severally liable, any one, some or all of them may be proceeded against for the entireobligation. 20 The choice is left to the solidary creditor to determine against whom he will enforcecollection. 21 Consequently, the dismissal of the case against Judge Pontanosas may not be deemed ashaving discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court neveracquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, asprovided by law.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioneddecision of the Court of Appeals is AFFIRMED. Costs against petitioner.


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SO ORDERED.

Republic of the Philippines

SUPREME COURT Manila

SECOND DIVISION

G.R. No. 151953 June 29, 2007

SALVADOR P. ESCAÑO and MARIO M. SILOS, petitioner,vs.RAFAEL ORTIGAS, JR., respondent.

D E C I S I O N

TINGA, J.:

The main contention raised in this petition is that petitioners are not under obligation to reimburserespondent, a claim that can be easily debunked. The more perplexing question is whether thisobligation to repay is solidary, as contended by respondent and the lower courts, or merely joint asargued by petitioners.

On 28 April 1980, Private Development Corporation of the Philippines (PDCP)1 entered into a loanagreement with Falcon Minerals, Inc. (Falcon) whereby PDCP agreed to make available and lend toFalcon the amount of US$320,000.00, for specific purposes and subject to certain terms andconditions.2 On the same day, three stockholders-officers of Falcon, namely: respondent Rafael

Ortigas, Jr. (Ortigas), George A. Scholey and George T. Scholey executed an Assumption ofSolidary Liability whereby they agreed "to assume in [their] individual capacity, solidary liability with[Falcon] for the due and punctual payment" of the loan contracted by Falcon with PDCP .3 In themeantime, two separate guaranties were executed to guarantee the payment of the same loan byother stockholders and officers of Falcon, acting in their personal and individual capacities. OneGuaranty4 was executed by petitioner Salvador Escaño (Escaño), while the other 5 by petitioner MarioM. Silos (Silos), Ricardo C. Silverio (Silverio), Carlos L. Inductivo (Inductivo) and Joaquin J.Rodriguez (Rodriguez).

Two years later, an agreement developed to cede control of Falcon to Escaño, Silos and Joseph M.Matti (Matti). Thus, contracts were executed whereby Ortigas, George A. Scholey, Inductivo and theheirs of then already deceased George T. Scholey assigned their shares of stock in Falcon to

Escaño, Silos and Matti.

6

Part of the consideration that induced the sale of stock was a desire byOrtigas, et al., to relieve themselves of all liability arising from their previous joint and severalundertakings with Falcon, including those related to the loan with PDCP. Thus, an Undertakingdated 11 June 1982 was executed by the concerned parties,7 namely: with Escaño, Silos and Mattiidentified in the document as "SURETIES," on one hand, and Ortigas, Inductivo and the Scholeys as"OBLIGORS," on the other. The Undertaking reads in part:

3. That whether or not SURETIES are able to immediately cause PDCP and PAIC to releaseOBLIGORS from their said guarantees [sic], SURETIES hereby irrevocably agree and undertake to

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assume all of OBLIGORs’ said guarantees [sic] to PDCP and PAIC under the following terms andconditions:

a. Upon receipt by any of [the] OBLIGORS of any demand from PDCP and/or PAIC for the paymentof FALCON’s obligations with it, any of [the] OBLIGORS shall immediately inform SURETIES thereofso that the latter can timely take appropriate measures;

b. Should suit be impleaded by PDCP and/or PAIC against any and/or all of OBLIGORS forcollection of said loans and/or credit facilities, SURETIES agree to defend OBLIGORS at their ownexpense, without prejudice to any and/or all of OBLIGORS impleading SURETIES therein forcontribution, indemnity, subrogation or other relief in respect to any of the claims of PDCP and/orPAIC; and

c. In the event that any of [the] OBLIGORS is for any reason made to pay any amount to PDCPand/or PAIC, SURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar

days from such payment;

4. OBLIGORS hereby waive in favor of SURETIES any and all fees which may be due fromFALCON arising out of, or in connection with, their said guarantees[sic] .8

Falcon eventually availed of the sum of US$178,655.59 from the credit line extended by PDCP. Itwould also execute a Deed of Chattel Mortgage over its personal properties to further secure theloan. However, Falcon subsequently defaulted in its payments. After PDCP foreclosed on the chattelmortgage, there remained a subsisting deficiency of P5,031,004.07, which Falcon did not satisfydespite demand.9

On 28 April 1989, in order to recover the indebtedness, PDCP filed a complaint for sum of money

with the Regional Trial Court of Makati (RTC) against Falcon, Ortigas, Escaño, Silos, Silverio andInductivo. The case was docketed as Civil Case No. 89-5128. For his part, Ortigas filed together withhis answer a cross-claim against his co-defendants Falcon, Escaño and Silos, and also manifestedhis intent to file a third-party complaint against the Scholeys and Matti .10 The cross-claim lodgedagainst Escaño and Silos was predicated on the 1982 Undertaking, wherein they agreed to assumethe liabilities of Ortigas with respect to the PDCP loan.

Escaño, Ortigas and Silos each sought to seek a settlement with PDCP. The first to come to termswith PDCP was Escaño, who in December of 1993, entered into a compromise agreement wherebyhe agreed to pay the bankP1,000,000.00. In exchange, PDCP waived or assigned in favor ofEscaño one-third (1/3) of its entire claim in the complaint against all of the other defendants in thecase.11 The compromise agreement was approved by the RTC in a Judgment12 dated 6 January1994.

Then on 24 February 1994, Ortigas entered into his own compromise agreement13 with PDCP,allegedly without the knowledge of Escaño, Matti and Silos. Thereby, Ortigas agreed to payPDCP P1,300,000.00 as "full satisfaction of the PDCP’s claim against Ortigas,"14 in exchange forPDCP’s release of Ortigas from any liability or claim arising from the Falcon loan agreement, and arenunciation of its claims against Ortigas.



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In 1995, Silos and PDCP entered into a Partial Compromise Agreement whereby he agreed topay P500,000.00 in exchange for PDCP’s waiver of its claims against him.15

In the meantime, after having settled with PDCP, Ortigas pursued his claims against Escaño, Silosand Matti, on the basis of the 1982 Undertaking. He initiated a third-party complaint against Mattiand Silos,16 while he maintained his cross-claim against Escaño. In 1995, Ortigas filed a motion forSummary Judgment in his favor against Escaño, Silos and Matti. On 5 October 1995, the RTCissued the Summary Judgment, ordering Escaño, Silos and Matti to pay Ortigas, jointly andseverally, the amount of P1,300,000.00, as well as P20,000.00 in attorney’s fees.17 The trial courtratiocinated that none of the third-party defendants disputed the 1982 Undertaking, and that "themere denials of defendants with respect to non-compliance of Ortigas of the terms and conditions ofthe Undertaking, unaccompanied by any substantial fact which would be admissible in evidence at ahearing, are not sufficient to raise genuine issues of fact necessary to defeat a motion for summary

judgment, even if such facts were raised in the pleadings."18 In an Order dated 7 March 1996, thetrial court denied the motion for reconsideration of the Summary Judgment and awarded Ortigas

legal interest of 12% per annum to be computed from 28 February 1994.

19

From the Summary Judgment, recourse was had by way of appeal to the Court of Appeals. Escañoand Silos appealed jointly while Matti appealed by his lonesome. In a Decision20 dated 23 January2002, the Court of Appeals dismissed the appeals and affirmed the Summary Judgment. Theappellate court found that the RTC did not err in rendering the summary judgment since the threeappellants did not effectively deny their execution of the 1982 Undertaking. The special defensesthat were raised, "payment and excussion," were characterized by the Court of Appeals as"appear[ing] to be merely sham in the light of the pleadings and supporting documents andaffidavits."21 Thus, it was concluded that there was no genuine issue that would still require the rigorsof trial, and that the appealed judgment was decided on the bases of the undisputed and establishedfacts of the case.

Hence, the present petition for review filed by Escaño and Silos.22 Two main issues are raised. First,petitioners dispute that they are liable to Ortigas on the basis of the 1982 Undertaking, a documentwhich they do not disavow and have in fact annexed to their petition. Second, on the assumptionthat they are liable to Ortigas under the 1982 Undertaking, petitioners argue that they are jointlyliable only, and not solidarily. Further assuming that they are liable, petitioners also submit that theyare not liable for interest and if at all, the proper interest rate is 6% and not 12%.

Interestingly, petitioners do not challenge, whether in their petition or their memorandum before theCourt, the appropriateness of the summary judgment as a relief favorable to Ortigas. Under Section3, Rule 35 of the 1997 Rules of Civil Procedure, summary judgment may avail if the pleadings,supporting affidavits, depositions and admissions on file show that, except as to the amount ofdamages, there is no genuine issue as to any material fact and that the moving party is entitled to a

judgment as a matter of law. Petitioner have not attempted to demonstrate before us that thereexisted a genuine issue as to any material fact that would preclude summary judgment. Thus, weaffirm with ease the common rulings of the lower courts that summary judgment is an appropriaterecourse in this case.

The vital issue actually raised before us is whether petitioners were correctly held liable to Ortigas onthe basis of the 1982 Undertaking in this Summary Judgment. An examination of the documentreveals several clauses that make it clear that the agreement was brought forth by the desire ofOrtigas, Inductivo and the Scholeys to be released from their liability under the loan agreement

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which release was, in turn, part of the consideration for the assignment of their shares in Falcon topetitioners and Matti. The whereas clauses manifest that Ortigas had bound himself with Falcon forthe payment of the loan with PDCP, and that "amongst the consideration for OBLIGORS and/or their

principals aforesaid selling is SURETIES’ relieving OBLIGORS of any and all liability arising fromtheir said joint and several undertakings with FALCON."23 Most crucial is the clause in Paragraph 3of the Undertaking wherein petitioners "irrevocably agree and undertake to assume all ofOBLIGORs’ said guarantees [sic] to PDCP x x x under the following terms and conditions."24

At the same time, it is clear that the assumption by petitioners of Ortigas’s "guarantees" [sic] toPDCP is governed by stipulated terms and conditions as set forth in sub-paragraphs (a) to (c) ofParagraph 3. First, upon receipt by "any of OBLIGORS" of any demand from PDCP for the paymentof Falcon’s obligations with it, "any of OBLIGORS" was to immediately inform "SURETIES" thereofso that the latter can timely take appropriate measures. Second, should "any and/or all ofOBLIGORS" be impleaded by PDCP in a suit for collection of its loan, "SURETIES agree[d] todefend OBLIGORS at their own expense, without prejudice to any and/or all of OBLIGORS

impleading SURETIES therein for contribution, indemnity, subrogation or other relief "

25

in respect toany of the claims of PDCP. Third, if any of the "OBLIGORS is for any reason made to pay anyamount to [PDCP], SURETIES [were to] reimburse OBLIGORS for said amount/s within seven (7)calendar days from such payment."26

Petitioners claim that, contrary to paragraph 3(c) of the Undertaking, Ortigas was not "made to pay"PDCP the amount now sought to be reimbursed, as Ortigas voluntarily paid PDCP the amountof P1.3 Million as an amicable settlement of the claims posed by the bank against him. However, thesubject clause in paragraph 3(c) actually reads "[i]n the event that any of OBLIGORS is for anyreason made to pay any amount to PDCP x x x"27 As pointed out by Ortigas, the phrase "for anyreason" reasonably includes any extra-judicial settlement of obligation such as what Ortigas hadundertaken to pay to PDCP, as it is indeed obvious that the phrase was incorporated in the clause torender the eventual payment adverted to therein unlimited and unqualified.

The interpretation posed by petitioners would have held water had the Undertaking made clear thatthe right of Ortigas to seek reimbursement accrued only after he had delivered payment to PDCP asa consequence of a final and executory judgment. On the contrary, the clear intent of theUndertaking was for petitioners and Matti to relieve the burden on Ortigas and his fellow"OBLIGORS" as soon as possible, and not only after Ortigas had been subjected to a final andexecutory adverse judgment.

Paragraph 1 of the Undertaking enjoins petitioners to "exert all efforts to cause PDCP x x x to withina reasonable time release all the OBLIGORS x x x from their guarantees [sic] to PDCP x x x"28 In theevent that Ortigas and his fellow "OBLIGORS" could not be released from their guaranties,paragraph 2 commits petitioners and Matti to cause the Board of Directors of Falcon to make a call

on its stockholders for the payment of their unpaid subscriptions and to pledge or assign suchpayments to Ortigas, et al., as security for whatever amounts the latter may be held liable under theirguaranties. In addition, paragraph 1 also makes clear that nothing in the Undertaking "shall preventOBLIGORS, or any one of them, from themselves negotiating with PDCP x x x for the release oftheir said guarantees [sic]."29

There is no argument to suppor t petitioners’ position on the import of the phrase "made to pay" in theUndertaking, other than an unduly literalist reading that is clearly inconsistent with the thrust of thedocument. Under the Civil Code, the various stipulations of a contract shall be interpreted together,



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attributing to the doubtful ones that sense which may result from all of them taken jointly.30 Likewiseapplicable is the provision that if some stipulation of any contract should admit of several meanings,it shall be understood as bearing

that import which is most adequate to render it effectual.31 As a means to effect the general intent ofthe document to relieve Ortigas from liability to PDCP, it is his interpretation, not that of petitioners,that holds sway with this Court.

Neither do petitioners impress us of the non-fulfillment of any of the other conditions set in paragraph3, as they claim. Following the general assertion in the petition that Ortigas violated the terms of theUndertaking, petitioners add that Ortigas "paid PDCP BANK the amount of P1.3 million withoutpetitioners ESCANO and SILOS’s knowledge and consent."32 Paragraph 3(a) of the Undertakingdoes impose a requirement that any of the "OBLIGORS" shall immediately inform "SURETIES" ifthey received any demand for payment of FALCON’s obligations to PDCP, but that requirement isreasoned "so that the [SURETIES] can timely take appropriate measures"33 presumably to settle the

obligation without having to burden the "OBLIGORS." This notice requirement in paragraph 3(a) ismarkedly way off from the suggestion of petitioners that Ortigas, after already having beenimpleaded as a defendant in the collection suit, was obliged under the 1982 Undertaking to notifythem before settling with PDCP.

The other arguments petitioners have offered to escape liability to Ortigas are similarly weak.

Petitioners impugn Ortigas for having settled with PDCP in the first place. They note that Ortigashad, in his answer, denied any liability to PDCP and had alleged that he signed the Assumption ofSolidary Liability not in his personal capacity, but as an officer of Falcon. However, such position,according to petitioners, could not be justified since Ortigas later voluntarily paid PDCP the amountof P1.3 Million. Such circumstances, according to petitioners, amounted to estoppel on the part ofOrtigas.

Even as we entertain this argument at depth, its premises are still erroneous. The PartialCompromise Agreement between PDCP and Ortigas expressly stipulated that Ortigas’s offer to payPDCP was conditioned "without [Ortigas’s] admitting liability to plaintiff PDCP Bank’s complaint, andto terminate and dismiss the said case as against Ortigas solely."34 Petitioners profess it is"unthinkable" for Ortigas to have voluntarily paid PDCP without admitting his liability,35 yet suchcontention based on assumption cannot supersede the literal terms of the Partial Compromise

Agreement.

Petitioners further observe that Ortigas made the payment to PDCP after he had already assignedhis obligation to petitioners through the 1982 Undertaking. Yet the fact is PDCP did pursue a judicialclaim against Ortigas notwithstanding the Undertaking he executed with petitioners. Not being a

party to such Undertaking, PDCP was not precluded by a contract from pursuing its claim againstOrtigas based on the original Assumption of Solidary Liability.

At the same time, the Undertaking did not preclude Ortigas from relieving his distress through asettlement with the creditor bank. Indeed, paragraph 1 of the Undertaking expressly states that"nothing herein shall prevent OBLIGORS, or any one of them, from themselves negotiating withPDCP x x x for the release of their said guarantees [sic]."36 Simply put, the Undertaking did not barOrtigas from pursuing his own settlement with PDCP. Neither did the Undertaking bar Ortigas fromrecovering from petitioners whatever amount he may have paid PDCP through his own settlement.



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The stipulation that if Ortigas was "for any reason made to pay any amount to PDCP[,] x x xSURETIES shall reimburse OBLIGORS for said amount/s within seven (7) calendar days from suchpayment"37 makes it clear that petitioners remain liable to reimburse Ortigas for the sums he paid

PDCP.

We now turn to the set of arguments posed by petitioners, in the alternative, that is, on theassumption that they are indeed liable.

Petitioners submit that they could only be held jointly, not solidarily, liable to Ortigas, claiming thatthe Undertaking did not provide for express solidarity. They cite Article 1207 of the New Civil Code,which states in part that "[t]here is a solidary liability only when the obligation expressly so states, orwhen the law or the nature of the obligation requires solidarity."

Ortigas in turn argues that petitioners, as well as Matti, are jointly and severally liable for theUndertaking, as the language used in the agreement "clearly shows that it is a surety

agreement"38

between the obligors (Ortigas group) and the sureties (Escaño group). Ortigas pointsout that the Undertaking uses the word "SURETIES" although the document, in describing theparties. It is further contended that the principal objective of the parties in executing the Undertakingcannot be attained unless petitioners are solidarily liable "because the total loan obligation can notbe paid or settled to free or release the OBLIGORS if one or any of the SURETIES default from theirobligation in the Undertaking."39

In case, there is a concurrence of two or more creditors or of two or more debtors in one and thesame obligation, Article 1207 of the Civil Code states that among them, "[t]here is a solidary liabilityonly when the obligation expressly so states, or when the law or the nature of the obligation requiressolidarity." Article 1210 supplies further caution against the broad interpretation of solidarity byproviding: "The indivisibility of an obligation does not necessarily give rise to solidarity. Nor doessolidarity of itself imply indivisibility."

These Civil Code provisions establish that in case of concurrence of two or more creditors or of twoor more debtors in one and the same obligation, and in the absence of express and indubitableterms characterizing the obligation as solidary, the presumption is that the obligation is only joint. Itthus becomes incumbent upon the party alleging that the obligation is indeed solidary in character toprove such fact with a preponderance of evidence.

The Undertaking does not contain any express stipulation that the petitioners agreed "to bindthemselves jointly and severally" in their obligations to the Ortigas group, or any such terms to thateffect. Hence, such obligation established in the Undertaking is presumed only to be joint. Ortigas,as the party alleging that the obligation is in fact solidary, bears the burden to overcome thepresumption of jointness of obligations. We rule and so hold that he failed to discharge such burden.

Ortigas places primary reliance on the fact that the petitioners and Matti identified themselves in theUndertaking as "SURETIES", a term repeated no less than thirteen (13) times in the document.Ortigas claims that such manner of identification sufficiently establishes that the obligation ofpetitioners to him was joint and solidary in nature.

The term "surety" has a specific meaning under our Civil Code. Article 2047 provides the statutorydefinition of a surety agreement, thus:

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Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill theobligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3,Title I of this Book shall be observed. In such case the contract is called a suretyship. [Emphasissupplied]40

As provided in Article 2047 in a surety agreement the surety undertakes to be bound solidarily withthe principal debtor. Thus, a surety agreement is an ancillary contract as it presupposes theexistence of a principal contract. It appears that Ortigas’s argument rests solely on the solidarynature of the obligation of the surety under Article 2047. In tandem with the nomenclature"SURETIES" accorded to petitioners and Matti in the Undertaking, however, this argument can onlybe viable if the obligations established in the

Undertaking do partake of the nature of a suretyship as defined under Article 2047 in the first place.

That clearly is not the case here, notwithstanding the use of the nomenclature "SURETIES" in theUndertaking.

Again, as indicated by Article 2047, a suretyship requires a principal debtor to whom the surety issolidarily bound by way of an ancillary obligation of segregate identity from the obligation betweenthe principal debtor and the creditor. The suretyship does bind the surety to the creditor, inasmuchas the latter is vested with the right to proceed against the former to collect the credit in lieu ofproceeding against the principal debtor for the same obligation.41 At the same time, there is also alegal tie created between the surety and the principal debtor to which the creditor is not privy or partyto. The moment the surety fully answers to the creditor for the obligation created by the principaldebtor, such obligation is extinguished.42 At the same time, the surety may seek reimbursement fromthe principal debtor for the amount paid, for the surety does in fact "become subrogated to all therights and remedies of the creditor."43

Note that Article 2047 itself specifically calls for the application of the provisions on joint and solidaryobligations to suretyship contracts.44 Article 1217 of the Civil Code thus comes into play, recognizingthe right of reimbursement from a co-debtor (the principal debtor, in case of suretyship) in favor ofthe one who paid (i.e., the surety).45However, a significant distinction still lies between a joint andseveral debtor, on one hand, and a surety on the other. Solidarity signifies that the creditor cancompel any one of the joint and several debtors or the surety alone to answer for the entirety of theprincipal debt. The difference lies in the respective faculties of the joint and several debtor and thesurety to seek reimbursement for the sums they paid out to the creditor.

Dr. Tolentino explains the differences between a solidary co-debtor and a surety:

A guarantor who binds himself in solidum with the principal debtor under the provisions of thesecond paragraph does not become a solidary co-debtor to all intents and purposes. There is adifference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of theliability he assumes to pay the debt before the property of the principal debtor has been exhausted,retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while asolidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I,Book IV of the Civil Code.

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The second paragraph of [Article 2047] is practically equivalent to the contract of suretyship. Thecivil law suretyship is, accordingly, nearly synonymous with the common law guaranty; and the civillaw relationship existing between the co-debtors liable in solidum is similar to the common law

suretyship.46

In the case of joint and several debtors, Article 1217 makes plain that the solidary debtor whoeffected the payment to the creditor "may claim from his co-debtors only the share whichcorresponds to each, with the interest for the payment already made." Such solidary debtor will notbe able to recover from the co-debtors the full amount already paid to the creditor, because the rightto recovery extends only to the proportional share of the other co-debtors, and not as to theparticular proportional share of the solidary debtor who already paid. In contrast, even as the suretyis solidarily bound with the principal debtor to the creditor, the surety who does pay the creditor hasthe right to recover the full amount paid, and not just any proportional share, from the principaldebtor or debtors. Such right to full reimbursement falls within the other rights, actions and benefitswhich pertain to the surety by reason of the subsidiary obligation assumed by the surety.

What is the source of this right to full reimbursement by the surety? We find the right under Article2066 of the Civil Code, which assures that "[t]he guarantor who pays for a debtor must beindemnified by the latter," such indemnity comprising of, among others, "the total amount of thedebt."47 Further, Article 2067 of the Civil Code likewise establishes that "[t]he guarantor who pays issubrogated by virtue thereof to all the rights which the creditor had against the debtor."48

Articles 2066 and 2067 explicitly pertain to guarantors, and one might argue that the provisionsshould not extend to sureties, especially in light of the qualifier in Article 2047 that the provisions on

joint and several obligations should apply to sureties. We reject that argument, and instead adopt Dr.Tolentino’s observation that "[t]he reference in the second paragraph of [Article 2047] to theprovisions of Section 4, Chapter 3, Title I, Book IV, on solidary or several obligations, however, doesnot mean that suretyship is withdrawn from the applicable provisions governing guaranty."49 For ifthat were not the implication, there would be no material difference between the surety as definedunder Article 2047 and the joint and several debtors, for both classes of obligors would be governedby exactly the same rules and limitations.

Accordingly, the rights to indemnification and subrogation as established and granted to theguarantor by Articles 2066 and 2067 extend as well to sureties as defined under Article 2047. Theserights granted to the surety who pays materially differ from those granted under Article 1217 to thesolidary debtor who pays, since the "indemnification" that pertains to the latter extends "only [to] theshare which corresponds to each [co-debtor]." It is for this reason that the Court cannot accord theconclusion that because petitioners are identified in the Undertaking as "SURETIES," they areconsequently joint and severally liable to Ortigas.

In order for the conclusion espoused by Ortigas to hold, in light of the general presumption favoring joint liability, the Court would have to be satisfied that among the petitioners and Matti, there is oneor some of them who stand as the principal debtor to Ortigas and another as surety who has theright to full reimbursement from the principal debtor or debtors. No suggestion is made by the partiesthat such is the case, and certainly the Undertaking is not revelatory of such intention. If the Courtwere to give full fruition to the use of the term "sureties" as conclusive indication of the existence of asurety agreement that in turn gives rise to a solidary obligation to pay Ortigas, the necessary

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implication would be to lay down a corresponding set of rights and obligations as between the"SURETIES" which petitioners and Matti did not clearly intend.

It is not impossible that as between Escaño, Silos and Matti, there was an agreement whereby in theevent that Ortigas were to seek reimbursement from them per the terms of the Undertaking, one ofthem was to act as surety and to pay Ortigas in full, subject to his right to full reimbursement fromthe other two obligors. In such case, there would have been, in fact, a surety agreement whichevinces a solidary obligation in favor of Ortigas. Yet if there was indeed such an agreement, it doesnot appear on the record. More consequentially, no such intention is reflected in the Undertakingitself, the very document that creates the conditional obligation that petitioners and Matti reimburseOrtigas should he be made to pay PDCP. The mere utilization of the term "SURETIES" could notwork to such effect, especially as it does not appear who exactly is the principal debtor whoseobligation is "assured" or "guaranteed" by the surety.

Ortigas further argues that the nature of the Undertaking requires "solidary obligation of the

Sureties," since the Undertaking expressly seeks to "reliev[e] obligors of any and all liability arisingfrom their said joint and several undertaking with [F]alcon," and for the "sureties" to "irrevocablyagree and undertake to assume all of obligors said guarantees to PDCP."50 We do not doubt that afinding of solidary liability among the petitioners works to the benefit of Ortigas in the facilitation ofthese goals, yet the Undertaking itself contains no stipulation or clause that establishes petitioners’obligation to Ortigas as solidary. Moreover, the aims adverted to by Ortigas do not by themselvesestablish that the nature of the obligation requires solidarity. Even if the liability of petitioners andMatti were adjudged as merely joint, the full relief and reimbursement of Ortigas arising from hispayment to PDCP would still be accomplished through the complete execution of such a judgment.

Petitioners further claim that they are not liable for attorney’s fees since the Undertaking containedno such stipulation for attorney’s fees, and that the situation did not fall under the instances under

Article 2208 of the Civil Code where attorney’s fees are recoverable in the absence of stipulation.

We disagree. As Ortigas points out, the acts or omissions of the petitioners led to his beingimpleaded in the suit filed by PDCP. The Undertaking was precisely executed as a means to obtainthe release of Ortigas and the Scholeys from their previous obligations as sureties of Falcon,especially considering that they were already divesting their shares in the corporation. Specificprovisions in the Undertaking obligate petitioners to work for the release of Ortigas from his suretyagreements with Falcon. Specific provisions likewise mandate the immediate repayment of Ortigasshould he still be made to pay PDCP by reason of the guaranty agreements from which he wasostensibly to be released through the efforts of petitioners. None of these provisions were compliedwith by petitioners, and Article 2208(2) precisely allows for the recovery of attorney’s fees "[w]henthe defendant’s act or omission has compelled the plaintiff to litigate with third persons or to incu rexpenses to protect his interest."

Finally, petitioners claim that they should not be liable for interest since the Undertaking does notcontain any stipulation for interest, and assuming that they are liable, that the rate of interest shouldnot be 12% per annum, as adjudged by the RTC.

The seminal ruling in Eastern Shipping Lines, Inc. v. Court of Appeals51 set forth the rules withrespect to the manner of computing legal interest:

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I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIIIon "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatorydamages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan orforbearance of money, the interest due should be that which may have been stipulated in writing.Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. Inthe absence of stipulation, the rate of interest shall be 12% per annum to be computed from default,i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of theCivil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on

the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% perannum. No interest, however, shall be adjudged on unliquidated claims or damages except when oruntil the demand can be established with reasonable certainty. Accordingly, where the demand isestablished with reasonable certainty, the interest shall begin to run from the time the claim is made

judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonablyestablished at the time the demand is made, the interest shall begin to run only from the date the

judgment of the court is made (at which time quantification of damages may be deemed to havebeen reasonably ascertained). The actual base for the computation of legal interest shall, in anycase, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rateof legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% perannum from such finality until its satisfaction, this interim period being deemed to be by then anequivalent to a forbearance of credit.52

Since what was the constituted in the Undertaking consisted of a payment in a sum of money, therate of interest thereon shall be 12% per annum to be computed from default, i.e., from judicial orextrajudicial demand. The interest rate imposed by the RTC is thus proper. However, thecomputation should be reckoned from judicial or extrajudicial demand. Per records, there is noindication that Ortigas made any extrajudicial demand to petitioners and Matti after he paid PDCP,but on 14 March 1994, Ortigas made a judicial demand when he filed a Third-Party Complaintpraying that petitioners and Matti be made to reimburse him for the payments made to PDCP. It isthe filing of this Third Party Complaint on 14 March 1994 that should be considered as the date of

judicial demand from which the computation of interest should be reckoned.53 Since the RTC heldthat interest should be computed from 28 February 1994, the appropriate redefinition should be

made.

WHEREFORE, the Petition is GRANTED in PART. The Order of the Regional Trial Court dated 5October 1995 is modified by declaring that petitioners and Joseph M. Matti are only jointly liable, not

jointly and severally, to respondent Rafael Ortigas, Jr. in the amount of P1,300,000.00. The Order ofthe Regional Trial Court dated 7 March 1996 is MODIFIED in that the legal interest of 12% perannum on the amount of P1,300,000.00 is to be computed from 14 March 1994, the date of judicialdemand, and not from 28 February 1994 as directed in the Order of the lower court. The assailedrulings are affirmed in all other respects. Costs against petitioners.

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SO ORDERED.

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